UK could pay out billions in damages to foreign investors over Brexit

Brexit could cost a lot more should the UK have to pay damages to foreign investors over Brexit. 

Investment lawyers have told The Times the UK government could face ‘multibillion-pound legal claims’ from foreign investors over Brexit. And international arbitration specialists agree. The Times reports overseas companies are being advised that if their business suffers as a result of Brexit, they could sue the UK for damages.

Quoted in the report, international dispute resolution academic Dr Holger Hestermeyer said that whilst there has been “much excitement” over the UK’s exit bill, he said “it is insignificant, however, compared to the damages Britain might have to pay to investors if they successfully take the UK to court for damages they suffered because of Brexit”.

The EU’s so-called divorce bill has sparked much excitement.

It is insignificant, however, compared to the damages the UK might have to pay to investors if they successfully take the UK to court for damages they suffered because of Brexit.

Dr Holger Hestermeyer, Reader of The Shell Lectureship in International Dispute Resolution, King’s College London

As the paper explains, claims for damages could be made under bilateral investment treaties the UK has with other countries. As well as establishing the terms and conditions that nationals of one country can invest in the other, bilateral investment treaties also provide those investors with agreed rights and protections. According to Thomson Reuters Practical Law’s definition of such treaties, typical inclusions in an agreement are: national treatment; most-favoured-nation treatment; fair and equitable treatment; and compensation in the event of expropriation.

Many foreign companies invested in the UK expect tariff and barrier free trade with the EU. However, lawyers could argue that if Brexit negotiations lead to new trade regulations resulting in reduced trade, they could make a claim for damages. The Times reports various claims that have been made over a change in a country’s law. Although not all of them are successful, it cites one British company winning a multimillion award from the Spanish government after it changed its subsidy regime for renewable energy in 2013.

Lawyer Luis Gonzalez Garcia told the newspaper that he expected “many claims” and that if the UK does end up falling back on WTO terms, it could amount to “billions of dollars”. However, partner at Shearman and Sterling Jeremy Sharpe said “some investors may not want to risk the expense or potential damage to long-term relations with the UK”. Well, that’s something to hope for!

Businesses across the UK have voiced their concerns about Brexit fearing the damage that leaving the single market and customs union could do to trade as well as what losing free movement could do to jobs and labour shortage. The Financial Times reports that, since the election, there have been renewed calls from business bodies including CBI and the Institute of Directors for the government to rethink Brexit and place the single market and customs arrangements at the heart of its strategy.

Brexit has even led to Japan’s Ministry of Foreign Affairs issuing a note advising the UK and EU to get a good deal. In a note issued after the referendum and reported by Business Insider, Japan’s Ministry of Foreign Affairs said that “nearly half of Japanese direct investment intended for the EU in 2015 flowed into the UK”. It asked the UK to “consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses”.

Nissan chief executive Charles Ghosn made a similar point saying the carmaker’s investment in Britain was European investment, based in Britain but that this could be reduced if “walls are erected between the EU and Britain”. Nissan, of course, got early assurances from the government over Brexit. And even if negotiations end up in the introduction of tariffs, the carmaker may not want to enter into a formal dispute with the government. It could simply choose to reduce its investment in the UK and move operations elsewhere. Indeed, many businesses are already preparing to implement plans to move some of their operations in fear of a hard Brexit or ’no deal’ Brexit. And as we reported previously, Brexit is already making Britain less attractive for foreign investors.

More Brexodus as a hard Brexit starts to scare off foreign investors

All this is another reminder that there are vested interests in what happens in the UK beyond its borders. And how those are acted upon will have consequences in Britain.

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