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CIArb News

Investment arbitration consideration in Post-Brexit UK

3 July 2017 Features
By Sabina Adascalitei, MCIArb, CIArb Research and Academic Affairs Coordinator

One year ago, the UK expressed its wish to withdraw from the EU in a referendum. Since no other EU Member State had left the EU before, the wish to withdraw the UK’s EU membership raised a series of uncertainties. It is likely that Brexit might have an impact on the resolution of disputes under International Investment Agreements, in particular on the ones concerning the BITs concluded by the UK.

The UK has more than ninety BITs in force, out of which twelve are concluded with EU Member States. In this sense, it is relevant to consider what the prospects are after the UK has completely left the EU. It has been argued that intra-EU BITs are not compatible with EU law and therefore, arbitral tribunals constituted under such BITs should refuse to exercise jurisdiction. In response to this issue, the EU Commission has asked several EU Member States to terminate their intra-EU BITs and conducted several infringement proceedings.

The UK has not terminated any of its intra-EU BITs and is not subject to any infringement proceedings. In essence, while the UK is still a member of the EU, the intra-EU BITs will remain in force. The situation changes once the UK has finalised its withdrawal process. In short, the treaties will still be in place, but the manner in which they apply may be subject to change. For instance, depending on the UK’s post-Brexit position, there might not be scope for arguments regarding incompatibility with EU law. This may have a negative impact on foreign investment in the UK, as in the past, the UK’s access to the single market was an important consideration for investors, who benefited from protection and were able to trade freely on the single market. Depending on whether Brexit negotiations will take a “hard” or “soft” stance, foreign investors may be determined to restructure their investments around other EU Member states that had concluded BITs with the UK in order to benefit from maximum investment protection.

Another concern can be envisaged with regard to potential investment arbitration claims against the UK, in light of the referendum. Investors might argue that by holding the referendum, the UK breached its international obligations provided in the BITs it had concluded. Essentially, investors may raise the point that their legitimate expectations had been breached, because when they invested in the UK, they did so under the expectation that the UK will still be part of the EU and consequently, they would be able to trade freely on the single market. However, in practice, this argument may not be as persuasive, because the UK can rely on its sovereign power to withdraw from the EU and investors should have envisaged this possibility at least in the abstract, due to the existence of Article 50, which gives this option to all EU Member States.

To conclude, it is not yet certain what the future will bring. Irrespective of whether Brexit negotiations will take a “hard” or “soft” turn, investors should plan ahead and look into their available options to maximise investment protection. One option is to plan investments in EU Member States, using companies incorporated in the UK. In this way, investors would be able to benefit from protection under the BITs concluded by the UK, without breaching EU law.