Do foreign investors have valid international claims against the UK for Brexit? by Luis González García


Originally featured on the Law of Nations blog.

Let us assume that leaving the European Union (EU) results in a radical change in the regulatory framework in the UK. That businesses and investors would no longer benefit from full access to the EU Single Market and are thus prevented from exercising their legal rights before the European Court of Justice and other EU institutions. Let us also assume that foreign investors relied on the UK’s membership of the EU when making their investments in the UK, and that Brexit has caused a negative impact on those investments. Investors may argue that the UK’s BITs (or the Energy Charter Treaty (ECT)) guarantee the stability and predictability of the legal and business framework on which they relied when they decided to invest in the UK. In these circumstances, could investors have legitimate claims against the UK under investment agreements (BITs or the ECT)?

On the basis of these general assumptions, I argue that there cannot be any breach of a BIT as a result of the UK’s decision to leave the EU, because (a) the decision to leave the EU falls within the sphere of the UK’s sovereign right to withdraw from treaties under international law, and (b) the Great Repeal Act would fall within the realm of the UK’s police powers, and cannot therefore engage international responsibility. I deal first with some jurisdictional issues.

Jurisdictional Issues

The right to submit a claim to arbitration under investment treaties rests upon the fulfilment of certain conditions, depending on the express terms of the treaty on which the claim is based. Conditions that must always be met include: (1) the existence of a measure; (2) that the measure affecting the investment must be attributable to the host state; and (3) that the measure must relate specifically to the investment or to the investor.

The following are some potential jurisdictional issues:

  • The first step is to identify the disputed measure. Is it the decision to exit the EU? Is it the decision not to pursue the EEA model or the customs union? How can any of these policies qualify as a law, regulation, procedure, requirement or administrative practice? Or is it the failure of the UK and the EU to reach a comprehensive trade deal? No, because this is not a “measure” attributable to the UK. Or is it the imposition of tariffs and trade barriers? If the claim is about imposition of, say, customs duties, new tariffs, rules of origin, antidumping duties, or other non-tariff trade barriers, the question is whether any of these measures qualify as an investment dispute. The UK would argue that it did not consent to arbitrate cross-border import/export measures under its BITs. The imposition of tariffs, permits, customs and antidumping duties constitute trade measures, not investment measures. Trade measures fall outside the scope of BITs, and can only be subject to State-State dispute settlement under the relevant trade agreement or the WTO.
  • Investors may argue that their business’s economic viability depended largely on the ability of their executives to travel freely within the EU and/or to employ workers from across the EU. Would this restriction on free movement of workers constitute an investment measure in relation to investors? No. If the UK imposes restrictions on the Single Market principle of free movement of persons when it exits the EU, the restriction would constitute an immigration measure, not an investment measure. This claim would fall outside the scope of a BIT.
  • Brexit and the Great Repeal Act do not establish a significant nexus between the measure and a specific investment (a requirement that applies to both BITs and Article 25(1) of the ICSID Convention). As noted by the Methanex Tribunal, an investment dispute requires a ‘legally significant connection’ between the measure and a specific investment. If one is to accept that the Great Repeal Act is a measure legally connected to a specific investment because it has had a negative impact on a particular investment, then any significant rise in the corporate tax, any amendment to rules of origin under FTAs, or higher consumer protection legislation would amount to breaches of BITs. This perverse outcome cannot be the intention of BIT signatories. Given that the Great Repeal Act is a non-discriminatory measure of general application where potentially everyone in the UK will be affected, and thus not intended to harm foreign investors, there is no “investment measure” relating to a specific investor or its investment.
  • If investors restructured their investment in anticipation of Brexit in order to benefit from the protection of a BIT then the claim will surely be dismissed (see Philip Morris v Australia).
  • Investors in the financial industry in the UK may argue that they have “passporting” rights which allow them to offer services to the rest of the European Economic Area (EEA). Losing such rights as a result of Brexit – it would be argued – could have a damaging effect on foreign investors in the financial industry. The UK could argue that ‘passporting’ rights, ‘market share’, or the extinguishment of the right to export to the European market are not ‘assets’ under the definition of a covered investment because they do not constitute legal interests or things that can be acquired, mortgaged or disposed in the open market.

The substantive issues

As a general point, the UK has the sovereign right to withdraw unilaterally from the EU Treaties and consequently leave the EU Single Market. The UK is not required to justify its exit from the EU, for example under public interest grounds. Further, the UK has no obligation to conclude a withdrawal agreement, let alone a new trade agreement with the EU. And upon leaving the EU, the UK would have the discretionary power to establish its own MFN tariffs at any level it wishes to. It is difficult to see how the exercise of the UK’s rights under customary international law, EU and WTO law would constitute a breach of the UK’s obligations under its BITs. The exercise of these rights cannot attract international responsibility.


Foreign investors may be disappointed by a “no deal” scenario and may find it difficult, if not impossible, to continue operating their businesses in a UK post-Brexit world. This situation, as tragic and disappointing as it may be, is not something from which BITs can protect investors. Paraphrasing the Azinian Tribunal: It is a fact of life in every country that a domestic or foreign investor may be disappointed by the policies of governments everywhere, but investment treaties are not intended to provide investors with a blanket protection from this type of disappointment. This was echoed by the Feldman Tribunal:

not all government regulatory activity that makes it difficult or impossible for an investor to carry out a particular business, change in the law or change in the application of existing laws that makes it uneconomical to continue a particular business, is an expropriation under Article 1110. Governments, in their exercise of regulatory power, frequently change their laws and regulations in response to changing economic circumstances or changing political, economic or social considerations. Those changes may well make certain activities less profitable or even uneconomic to continue.

Yet a drastic change in the legal and economic regime which negatively affects businesses is not, in itself, a breach of a BIT. In the Feldman case, the investor was effectively precluded from exporting cigarettes. The Feldman Tribunal found that the investor could nevertheless pursue other continuing lines of business activity. The expropriation claim was dismissed. So even if Brexit makes certain businesses less profitable, or even uneconomical to continue, this in itself would not be sufficient to amount to a breach of the expropriation clause in a BIT because investors could pursue their current or other lines of business activities post-Brexit.

The key element of an expropriation claim is whether an investor still has control of its investment after Brexit (PSEG v Turkey); whether the ‘enjoyment of the property has been effectively neutralised’ (CMS v Argentina). Even if the enjoyment of the property has been “neutralised” as a result of Brexit, there is no valid expropriation claim because a ‘no deal’ scenario post-Brexit would be at most a temporary loss of a business opportunity, namely, the investor’s inability to compete in the European market for a short period, given that it is almost certain that shortly after Brexit, the UK will conclude a bold and ambitious Free Trade Agreement with the EU. Because investors are unlikely to suffer a permanent and substantially complete deprivation of their investments (Tecmed v Mexico) as a result of Brexit, the expropriation claims are unlikely to succeed.

Fair and equitable treatment

Investors might argue that they made their investments in the UK in the expectation that the UK would maintain a stable and predictable environment in which they could operate. The legal and business environment – the argument goes – includes full access to the EU Single Market. But a change, even a drastic one, in the UK legal and business environment is not a breach of a BIT. Something more is needed.

Investment tribunals have consistently held that the FET standard does not prevent States from changing the legal and business framework. The Impregilo Tribunal stated that:

[F]air and equitable treatment cannot be designed to ensure the immutability of the legal order, the economic world and the social universe and play the role assumed by stabilization clauses specifically granted to foreign investors with whom the State has signed investment agreements. … It is each State’s undeniable right and privilege to exercise its sovereign legislative power. A State has the right to enact, modify or cancel a law at its own discretion.

The FET cannot be used as to rewrite treaties, regulations and contracts or transform the standard into a stabilisation clause (AES Summit v Hungary).

Reliance on the doctrine of legitimate expectations does not assist investors in claims against the UK for Brexit. First, it is unclear whether there this doctrine is an element of the FET standard. Even if it is, certain conditions need to be met. It is certainly not sufficient to rely on the subjective expectations which investors might have had when they made their investments in the UK. The current trend is that expectations should be based on specific legal representations made to a particular investor by the State when it decided to make the investment. The Enron Tribunal stated that it was ‘essential’ that ‘these expectations derived from the conditions that were offered by the State to the investor at the time of the investment.’ Such expectations must be reasonable (Invesmart v Czech Republic). Any foreign investor should have expected that the legal framework in the UK could change, even drastically, as a result of social, political and economic changes in the system. As noted by the Iran-US Claims Tribunal in Starrett Housing Corporation:

investors in Iran, like investors in all other countries, have to assume a risk that the country might experience strikes, lock-outs, disturbances, changes of the economic and political system and even revolution. That any of these risks materialized does not necessarily mean that property rights affected by such events can be deemed to have been taken.

The long-standing domestic political debate about the UK’s relationship with the EU, the legal and political response of the British parliament to a democratic vote, and the legal possibility for any EU Member State to withdraw from the Union under Article 50 of the Lisbon Treaty should have been reasonably foreseen by investors when they invested in the UK. Investors should expect that internal legal, political and democratic processes can lead to changes in the legal and business landscape in which they made their investments.


To say that investors have legitimate claims against the UK for Brexit is simply absurd. If that were true then any BIT signatory would potentially be subject to a massive number of treaty claims for damages every time a State changes its tax laws, ratifies, amends or terminates FTAs, or even if it were to ban diesel cars from the road. Simply because such non-discriminatory measures of general application negatively affect the investors’ operations in the host country does not attract international responsibility. Something more is required.