The COVID-19 pandemic has led States to adopt measures to curtail the outbreak: travel restrictions, lockdown restrictions, shut down of non-essential businesses and borders, suspension of toll fees on road networks;1 restrictions on renewable energy production,2 and many related measures.3 Although criticism and debate has surrounded such measures, this article does not seek to comment on their nature and content. Rather, this article explores the possible avenues States and investors may take in resolving their disputes, since some measures have affected foreign investors and could result in a surge of claims for breaches of international law.4
Some groups, such as the Columbia Center on Sustainable Investment, have called for a moratorium on arbitration claims by private corporations against governments, arguing for a “permanent restriction on all arbitration claims related to government measures targeting health, economic, and social dimensions of the pandemic and its effects.”5 However, it is also arguable that foreign investors are likely to claim compensation for harm suffered as a result of measures implemented to contain the epidemic.
Under the above circumstances, investors might choose to invoke the prohibition on direct6 or indirect expropriation7 without compensation. Such investors would have to prove that COVID-19 related restrictions (even if temporary) substantially and permanently deprived them of their investment, or at least had an irreversible effect thereon.8
Investors might also choose to invoke a violation of the principle of Fair and Equitable Treatment (FET). Such arguments would occur on the basis that the measures implemented by the States were discriminatory, arbitrary, unreasonable or disproportionate.9 For instance, some investors have mentioned possible investment treaty arbitrations against Mexico following the adoption of restrictions of renewable energy production; indeed, the majority of renewable energy producers are privately owned and operated whereas conventional electricity generational facilities are state-owned, making it possible for the investor to argue that the measure is discriminatory and therefore violates the fair and equitable treatment standard.10
Investors might also choose to argue a violation of the full protection and security standard, which compels the State to take all measures of precaution to protect the investment in its territory.11 Under these circumstances, an investor may choose to allege a relevant State’s failure to contain the spread of the virus.
Investors might also choose to invoke a violation of the National Treatment standard. In such circumstances, investors might invoke this standard against States that afforded aid to nationals during the pandemic, as opposed to foreign entities.12
States might choose to rely on the provisions of applicable treaties that allow the adoption of measures in certain circumstances that would otherwise be in violation of the State’s treaty obligations, such as, for example, when public health is at stake.13 In recent years, investment treaties have started to provide provisions preventing claims when measures are taken by the States to protect public health.14 See further Public interest.
States might also choose to rely on the International Law Commission’s (ILCs) Articles on Responsibility of States for Internationally Wrongful Acts (2001) to avoid liability towards investors in relation to the pandemic.
A possibility is that States might choose to invoke the defence of necessity (Article 25 of the ILC Articles), which requires a State to prove that several (cumulative) conditions are met: (i) the measure adopted was the only way for the State to safeguard an essential interest against a grave an imminent peril; (ii) the measure did not seriously impair another essential interest; and (iii) the State has not contributed to the situation of necessity. For example, the defence of necessity was invoked by Argentina in relation to its 2001-2002 economic crisis, which resulted in several investments arbitrations.15
While States might be able to argue that the pandemic, which is an external factor, meets the Force Majeure criterion of unforeseeability, they may still be required to show that the pandemic prevented them from performing their obligations towards the investors. It is also arguable that some form of viral pandemic would have been foreseeable, as well as the spreading of the existing virus would be foreseeable.16 Such an exception was invoked, unsuccessfully, by Venezuela in the Autopista v. Venezuela arbitration in relation to the 1997 civil unrest, the tribunal having found that the event was not unforeseeable for Venezuela.17
It is also notable that in an interim order dated 20 May 2020 (RG n°2020016407), the President of the Paris Commercial Court found that “the spread of the virus is clearly external to the parties, that it is irresistible and that it was unforeseeable as evidenced by the suddenness and extent of its appearance”, so that the conditions for Force Majeure, as defined in the contract binding the parties, were “manifestly met".18 This decision is one of the very first to have qualified, in commercial terms, the Covid-19 pandemic as force majeure.19
States might also choose to argue Distress (Article 24 of the ILC Articles), although it is possible that States will struggle to invoke this defence on the grounds of a pandemic since “[i]t does not extend to […] general cases of emergencies, which are more a matter of necessity than distress.”20
States might also choose to try to rely on the Police Powers doctrine21 in order to argue justification for the disputed measures and also in attempt to avoid being held liable for a breach of protection standards.
Arbitral tribunals22 and institutions had to adapt the proceedings to the “new reality” created by the pandemic, notably in terms of remote arbitration. For instance:
Parties have invoked COVID-19 in pending arbitration proceedings notably in the following situations:
Dugan, Ch., Wallace, D., Rubins, N. and Sabahi, B., Investor-State Arbitration, Oxford University Press USA, 2012, p. 450.
VI Expropriation, in Dolzer, R. and Schreuer, C. (eds.), Principles of International Investment Law, Oxford University Press, 2008.
Scherer, M., Bassiri, N. et al. (eds.), International Arbitration and the COVID- 19 Revolution, Kluwer Law International, 2020.
Chapter 12 - The plea of necessity under customary international law: A critical review in light of the Argentine cases, in Brown, C. and Miles K. (eds.) Evolution in Investment Treaty Law and Arbitration, Cambridge University Press, pp. 246-270.
Chapter 4: Force Majeure, Excuse, Section 8: Individual Requirements of the Force Majeure Excuse, in Brunner, C. (ed.), Force Majeure and Hardship under General Contract Principles: Exemption for Nonperformance in International Arbitration, International Arbitration Law Library, Vol. 18, Kluwer Law International, 2008.
Bento, L. and Chen, J., Investment Treaty Claims in Pandemic Times: Potential Claims and Defenses, Kluwer Arbitration Blog, April 8, 2020.
Diamond, N.J., Pandemics, Emergency Measures, and ISDS, Kluwer Arbitration Blog, April 13, 2020.
Bakry, A., The COVID-19 Crisis and Investment Arbitration: A Reflection From the Developing Countries, Kluwer Arbitration Blog, April 21, 2020.
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