ISDS claims are made possible 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 to protect the environment and public health, and to expand affordable access to energy, clean water or better working conditions. This privileged access to a parallel private court system is exclusive for foreign investors and only works one way – states cannot prosecute investors for failing to comply with national or local regulations in these arbitration tribunals.
The United Nations Conference on Trade and Development (UNCTAD) recently confirmed that there are already more than 1,000 known investor-state dispute resolution (ISDS) claims worldwide. Investor claims suing states have exploded over the past decade, and therefore has the amount of money involved.
And that exponential curve in claims could grow further in the wake of COVID-19. Law360, a specialist lawyer magazine, said on April 8, 2020 “For arbitration and litigation funders, recent weeks could mark the start of a boom”.
If corporate claims against states may seem extraordinary and politically risky, it would not be without previous. In fact, transnational corporations, backed by investment lawyers and third party donors, have a habit of using international investment agreements to recover profits by suing countries in crisis.
Argentina’s experience is relevant here. Despite a crisis that reduces savings by 28% and pushed half the population below the poverty line, foreign investors were not deterred by prosecute against the troubled government. 42 companies have sued, claiming a total of $ 16 billion.
Indeed investment lawyers are already preparing their client companies for the Opportunities. On March 26, 2020, international arbitration Aceris Law law firm tells his clients “While the future remains uncertain, the response to the COVID-19 pandemic is likely to violate various protections provided for in bilateral investment treaties (‘BITs’) and could give rise to claims in the future of the share of foreign investors. “ Several other elite law firms have issued investor warnings.1
The Peruvian government has already been warned that the suspension of toll collection for the country’s road network – a measure taken by the government in the context of the COVID crisis – could result in several ICSID claims.
Lawsuits could seek compensation for the actions of governments like Spain, which on March 14, 2020 adopted a decree which allows the government “to intervene and temporarily occupy industries, factories, workshops, farms or premises of any kind, including private health centers as well as those developing their activities in the pharmaceutical sector”, Others countries have enacted similar provisions. The Italian government now has the right to requisition private medical equipment to perform a public function.
Foreign investors might claim that Italy and Spain violate the direct expropriation investment treaty standards by authorizing the requisition of goods and equipment from private companies. Mandatory foreclosure of all business activities and seizure of private production lines could be interpreted by investors as indirect expropriationGovernments will certainly argue that measures taken to protect public health in the midst of the current crisis are part of their legitimate objectives 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 very strict and states have rarely succeeded in invoking it like a question of international law“. This line of defense has has not proven to be sufficient in the past to stop successful and costly investor lawsuits or claims in the past. In 112 of the 14 cases in which Argentina invoked state of necessity as a defense, arbitration tribunals rejected the argument.