Foreign investors may have a case against the UK government if profits suffer post-Brexit, says Bryan Cave's Maria Gritsenko.
Foreign investors usually benefit from a variety of protections and guarantees, including rights to submit their disputes with the host state to an international tribunal. These protections may be contained in national laws, investor-state contracts, multilateral or regional treaties or yet bilateral investment treaties – of which almost 3,000 have been signed by countries across the globe. So how does Brexit impact these agreements and what rights do foreign investors have?
Most treaties would contain certain guarantees. For example, the prohibition of expropriation unless it is for a public purpose, non-discriminatory, subject to due process and accompanied by a prompt, adequate and effective compensation. This covers “indirect expropriations” where, although the property is still formally owned by the investor, the measures taken by the State have substantially deprived it of its value to the extent that the effect of those measures is equivalent to expropriation. Others include, national treatment (treatment not less favourable than the one accorded to investors of the host country), most-favoured nation treatment (treatment not less favourable than the one accorded to investors of third countries), full security and protection, and – finally - fair and equitable treatment.
Fair and equitable treatment is one of the most “fluid” concepts and has been given many meanings by various arbitration tribunals. It has been traditionally invoked by investors to guarantee stability of the legal framework and protect their legitimate and reasonable expectations when making the investment. For example, numerous arbitrations were brought by, and awarded to, international investors against Argentina after the 2002 crisis when the Argentinean government, among other measures, terminated the calculation of utility tariffs in USD.
At the same time, the fair and equitable standard does not protect against any and all regulatory changes, it is not an “insurance policy against the risk of any changes in the host State’s legal and economic framework” (EDF v Romania). In a recent award dealing with regulatory changes to the Spanish renewable energy schemes, the tribunal adopted the same approach, finding that the “host State is entitled to maintain a reasonable degree of regulatory flexibility to respond to changing circumstances in the public interest” (Charannes v Spain, 2016).
One of the key factors considered by the arbitrators is whether there were any specific commitments by the host State to maintain the current regulations, whether those commitments were addressed to a particular investor or expressed in a rule specifically designed to attract foreign investments. While it may be difficult to claim that Brexit is a violation per se of an investment treaty, there may be circumstances where a foreign investor was enticed to invest in the UK specifically on the basis of being able to access the single market. Therefore – although dependent on the facts of each particular case – investors who contend a specific commitment to access the single market was given to them by the UK government may feel they have an arbitration to bring if that access is denied post-Brexit.
Maria Gritsenko is of counsel in the international arbitration team at Bryan Cave.