ISDS claims are enabled by a complex web of international trade and investment agreements that contain investment protection clauses. ISDS claims have been successfully brought against States for measures aiming to protect the environment and public health, and for extending affordable access to energy, clean water or better working conditions. This privileged access to a parallel private judicial system is exclusive for foreign investors and only works one way – States cannot sue investors for disrespecting national or local regulations at these arbitration tribunals.
The United Nations Conference on Trade and Development (UNCTAD) confirmed recently that there are already more than 1000 investor-State Dispute Settlement (ISDS) claims known world-wide. Claims by investors suing States have skyrocketed in the last decade, and so has the amount of money involved.
And this exponential curve in claims could grow even further in the wake of COVID-19. Law360, a specialised lawyers’ magazine, said in 8 April 2020 “For arbitration and litigation funders, the past few weeks may mark the beginning of a boom”.
While claims by corporations against States may seem extraordinary and politically risky, it would not be without precedent. In fact, transnational corporations, backed by investment lawyers and third-party funders, have a history of using international investment agreements to scavenge for profits by suing countries in crisis.
Argentina’s experience is relevant here. Despite a crisis that shrunk the economy by 28% and pushed half the population below the poverty line, foreign investors were not put off by initiating lawsuits against the embattled government. 42 corporations launched lawsuits, claiming a total of 16 billion dollars.
Indeed investment lawyers are already readying their corporate clients for the opportunities. On 26 March 2020, international arbitration law firm Aceris Law told its clients “While the future remains uncertain, the response to the COVID-19 pandemic is likely to violate various protections provided in bilateral investment treaties (“BITs”) and may bring rise to claims in the future by foreign investors”. Several other elite law firms released warnings to investors.1
The Peruvian government has already been warned that the suspension of the collection of toll fees for the country’s road network -a measure the government took in the context of COVID crisis- could result in several ICSID claims.
The lawsuits could seek to get compensation for actions of governments like Spain, which on 14 March 2020 passed a decree that allows the government to “intervene and temporarily occupy industries, factories, workshops, farms or premises of any nature, including privately owned health centres as well as those that develop their activities in the pharmaceutical sector”, Other countries have enacted similar provisions. The Italian government is now entitled to requisition of private medical equipment to serve a public function.
Foreign investors could allege that Italy and Spain are breaching the direct expropriation standard of investment treaties by allowing the requisition of private corporate property and equipment. The mandatory lock-down of all commercial activities and the seizure of private production lines could be interpreted by investors as indirect expropriation.Governments will certainly argue that measures taken to protect public health in the midst of the current crisis are part of their legitimate goals as States.
International law allows States to defend their actions with an argument of necessity or extreme circumstances (force majeure).However, academics have warned “the plea of force majeure is a very strict one, and States have rarely been successful when invoking it as a matter of international law”. This line of defence has not proved sufficient in the past to stop lawsuits or successful and expensive claims by investors in the past. In 112 out of the 14 cases where Argentina used the state of necessity as a defence, arbitration tribunals rejected the argument.