As if poor Prime Minister May didn’t have enough on her plate, here comes another possible complication. (“Poor” may be the wrong adjective, as she is bringing most of the problems upon herself.) Could the U.K. be sued by foreign investors for damage inflicted by Brexit?
Right now, foreign investors in the U.K. have two ways to enforce their rights against the British state. The first is the legal system. That is, you go through British courts and ultimately the European Court of Justice. The second is through the arbitration clauses in British bilateral investment treaties (BITs); that is, via the investor-state dispute settlement (ISDS) mechanism that attracted so much opprobrium during the controversy over the TPP.
Roger Alford of Notre Dame points out that when Argentina devalued the peso it led to massive arbitration claims. Many of those arbitrations were based on “legitimate expectations,” that is, the idea that foreign investors had the right to expect stable laws and regulations. So Argentina could not just, say, slap price controls on gas without violating its bilateral investment treaties.
Well, could a foreign investor sue the U.K. if Brexit slams their profits? As Alford suggests, might Nissan sue the U.K. if Brexit causes British car exports to have to pay a 10% tariff to enter the European Union? Or could foreign banks sue over their loss of access to the European market? Heck, might Airbus and Bombardier sue over disrupted supply chains and the need to shut down U.K. facilities?
But unlikely to happen.
Consider the list of British BITs. Not a lot of developed nations there. In fact, not a lot of E.U. members, save some ex-Communist countries. It is possible that investors in the U.K. carefully shopped around for nations to route their investments through in order to gain legal protection: this is why American oil companies became Dutch for the purpose of investing in Venezuela. But it seems unlikely. It would have taken a remarkable level of foresight.
In other words, the threat could in theory be huge, but in practice it is not something that Ms. May should worry about. And not just because she is about to have a lot of things on her plate ...