Cross-posted from Corporate Europe Observatory
Brexit could become a money-making machine for law firms that make millions when corporations sue nation states via trade and investment agreements. Not only are these law firms paving the way for Brexit-related corporate claims against the UK, they are also building up the UK as a gateway for more investor claims against EU countries in the future.
While there have been many questions about how Brexit will affect different businesses in the UK, at least one sector, investment lawyers, are anticipating a bonanza. These law firms help corporations sue nation states via trade and investment agreements around the world – through a system known as investor-state dispute settlement (ISDS). Soon it could be the UK’s turn, as it risks facing a host of expensive lawsuits from corporations, especially if the terms of Brexit are unfriendly towards business. These same law firms are also anticipating another Brexit boom: they are drumming up business as, with the UK leaving the European Union, it could become a handy location from which to sue EU member states.
These ISDS cases are multi-million dollar affairs. For example, Germany is currently being suedby Swedish-based energy company Vattenfall for nearly €5 billion in compensation over shutting down nuclear power plants; Romania could be forced to pay US$4 billion to a mining company because the country’s courts declared a toxic gold mine illegal; and Argentina faced no fewer than 50 investor lawsuits amounting to a total of US$80 billion over emergency measures to get out of its deep economic crisis in 2001.
Now the UK’s impending exit from the European Union might bring new investment arbitration opportunities. The country has 92 investment agreements in force which investors from other countries could use to file ISDS claims against the UK. In conferences and alerts for their multinational clients, some of the top investment arbitration law firms are already assessing the prospect of such Brexit claims. Depending on how the Brexit negotiations turn out, these lawsuits could be about anything from foreign carmakers or financial companies losing free access to the EU market, to the government scrapping subsidies for certain sectors. One lawyer from UK-based law firm Volterra Fietta has even suggested that “there may be a number of investors that would have come to the UK expecting to have a certain low wage group of employees”, which might sue for loss of expected profit if they lose access to underpaid, foreign workers.
Using the ISDS threat for a business-friendly Brexit
The mere possibility of multi-billion investor claims against the UK could already be having an impact on Brexit negotiations. One of the busiest investment arbitration law firms in the world, UK-based Freshfields – which recently amped its Brexit team by hiring former lobbyist and ex-European Finance Commissioner Jonathan Hill – has warned that given the UK’s existing treaty obligations, “governments will have to consider obligations to foreign investors in implementing large-scale policy changes, such as Brexit”. In other words: the UK government should be careful to avoid Brexit terms that are unfriendly towards business if it doesn’t want to face a host of expensive corporate lawsuits. This sentiment was echoed in a recent debate between private lawyers and legal scholars on whether foreign investors could sue the UK for Brexit, where the moderator noted that “Surely, the UK itself, the government, would be concerned” about such a possibility.
Nobody knows how many ISDS lawsuits the UK might actually face in the context of Brexit. However, judging from previous experience such as the flood of cases against Argentina and expert opinions, the lawsuits could easily amount to hundreds of millions of pounds. British taxpayers would be footing the bill, money which could otherwise be going towards the UK’s public health budget, or safe social housing, for example. Meanwhile, fear of such lawsuits and big payouts could push legislators to prioritise investors’ interests at the expense of the public interest in the creation of post-Brexit laws…