With millions of people on the edge of poverty and even starvation caused by the coronavirus, some are nevertheless expected to make millions from investment arbitration. As a result of certain drastic anti-corona measures adopted by governments, some foreign investors, guided by law firms, are on the verge of filing significant claims for damages.
Almost all governments across the world have adopted extreme measures to stop impact of the COVID-19 pandemic on the economy. Airports, factories, shops and other businesses have either ceased operation or have significantly decreased their activities in response to emergency regulations. Governments have also taken action in their efforts to help the health systems to cope with the crisis.
Canada, Ecuador and Germany are now able to issue compulsory licenses for patented drugs and devices more easily. Spain and Ireland have temporarily nationalized private hospitals and have even taken over the management of private health care companies until the crisis ends. In our previous articles we have described the export bans on medical products and food.
All these measures, with the moral intention of preventing the COVID-19 pandemic and massive contaminations could result in billion-dollar claims being made by foreign investors.
In a recent paper, the United Nations Conference on Trade and Developed, UNCTAD, expressed concern regarding possible disputes between investors and states regarding the emergency measures that have been adopted in the context of the pandemic. The report also mentions that calls are being made for governments to suspend treaty-based ISDS (Investment state dispute settlements) arbitration that relates to any COVID-19 related measure.
What is an ISDS?
Originally created as a method of protecting investors from state corruption, the ISDS is a mechanism included in investment and trade agreements that allows an investor in a state party to bring a claim against another state party to which the investment relates if that state has allegedly breached a standard of the agreement.
These rules can be found in bilateral investment treaties and trade agreements. According to the International Institute for Sustainable Development (IISD), an independent think-tank that champions solutions to sustainability challenges, these protective measures are sketchily and unclearly defined in most official documents whereby many generic terms, such as to treat foreign investors “fairly and equitably” to afford “full protection and security,” are in place.
As an example of an ISDS in action, the case of Argentina can be used to illustrate how the process works.
During the crisis of 2001, the government of Argentina adopted a series of measures which included freezing utilities rates, nationalizing assets, devaluing the currency and restructuring sovereign bonds. After 13 years, at the end of 2014, exactly 50 ISDS cases had been filed against the country and, if the outcome of each claim had been ruled in favor of the investors, the South American country would have had to pay around US$80 billion.
COVID-19 and ISDS
Today, governments are adopting measures that could cost millions in claims tomorrow and they are acutely aware of this. In Peru, officials have warned that a proposed emergency measure to suspend the collection of toll fees on the country’s road network, as a response to the outbreak of the coronavirus, carries the threat of multiple ISDS claims.
From banks being forced to suspend the issue of dividends under pressure from regulators in UK to utility companies continuing to provide services to citizens who are unable to pay their bills in El Salvador and travel restrictions bringing businesses involved in agriculture to a halt across Europe, all raise serious concerns about an unprecedented number of ISDS claims after the pandemic ends.
As a response to this potential risk, the above-mentioned IISD has suggested that governments jointly suspend the application of investor–state arbitration with respect to COVID-related measures.
In its announcement issued in April, the IISD suggested that a multilateral response could put a “jurisdictional hurdle” in front of investors seeking to challenge COVID-19 measures or give guidance to tribunals when assessing a state’s defense should investors clear that hurdle. This response, the authors say, could be coordinated through the United Nations Conference on Trade and Development (UNCTAD) which has extensive expertise on investment treaties and related reform.
Should any concerns arise regarding intentionally wrongful actions by a state that are disguised as COVID-related measures, these could be addressed in the state–state dispute settlement mechanisms that are included in all investment treaties.
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