There are a large number of ‘ifs’ that would need to be satisfied for a Labour government to take power in the UK with sufficient political support and time to allow it to pass the legislation required to deliver its desired renationalisation policy, against likely strong opposition from other political parties, MPs within the Labour party, stakeholders and the House of Lords and in the face of competing demands.
However, if Labour were to get into power and seek to nationalise some of the UK’s key energy network companies at below market prices, it would seem very likely that this would be successfully challenged under domestic and international law.
Under most of the UK’s investment treaties expropriation is only legal if accompanied with “prompt, adequate and effective compensation”.
International tribunals have consistently concluded that adequate compensation is the fair market value of the investment immediately before the expropriation was known – in other words, the value of the investment unaffected by the State’s decision to expropriate.
The UK does not have bilateral investment treaties in force with most EU Member States.
The UK would still be at risk to face claims by investors from countries such as Germany, France or Spain because they may bring claims under the Energy Charter Treaty, a multilateral treaty to which these countries and the UK are parties.
While a recent judgment by the European Court of Justice makes claims between EU investors and EU Member States more difficult, this would not apply post-Brexit, adding to the UK’s exposure.
Domestic investors, which, for example in the UK energy sector, comprises a large number of UK pension funds and institutional investors, could not rely on these international agreements.
However, they may instead be able to successfully challenge the policy on the grounds that it interferes with their right to peaceful enjoyment of their property, under UK and international human rights law.
All the above suggests that, if the political barriers to renationalisation can be overcome, the real legal battleground – rather than being whether Labour could nationalise at below market rates – would be how the true and fair market value for compensation would be calculated, as was the case the last time Labour nationalised UK industries in the 1970s.
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