Media reports suggest companies could use ISDS against a future UK Labour government

August 19, 2019: The Financial Times is reporting that a future UK Labour government could face a flood of ISDS claims if it were to attempt to nationalise utility services. The report comes after the Labour Party announced its plan to nationalise the energy grid and other unities if it were elected in the next general election, and warned that compensation could be below market value.

However, Labour’s nationalisation policies could be challenged by companies using ISDS provisions in UK Bilateral Investment Treaties (BIT), which enable companies to sue governments if the expropriation of investments is not considered to be ‘fair’.

The article states that 12 of the investor groups that could be impacted by the nationalisation policies are entitled to use ISDS in UK BITs. There are also reports that other investors are now looking to transfer assets to countries that have BITs with the UK so they also have access to ISDS.

While there is no guarantee that an ISDS claim against Labour’s nationalisation policies would be successful, it could lead to long delays in the implementation of the policies and significant legal costs for the UK government.

However, Peter Muchlinski, Emeritus Professor of International Commercial Law at SOAS University in London, has suggested in a letter responding to the article, that the use of ISDS to challenge Labour policy could do more harm than good for the companies involved. Muchlinski argues that there is already strong public concern about ISDS, which could be exacerbated if claims were made against the implementation of policies by a democratically elected government. This in turn could lead to a backlash against ISDS in the UK and potentially the removal of ISDS provisions from UK trade and investment agreements.