By Rashi Jain-
All the countries around the world including the UK are expected to be facing a huge number of lawsuits from foreign investors or companies. Due to the pandemic and government regulation around the world regarding lockdown, Foreign investors are complaining that their profits have been hit by the pandemic.
“Webinars and presentations shared with clients reveal that leading global law firms anticipate governments around the world will soon face claims over their response to the Covid-19 crisis. The actions are being brought under investor-state dispute settlement (ISDS) clauses which are embedded in trade and investment agreements and allow foreign investors and firms to sue other countries’ governments.” – The Guardian Report.
Trade and investment agreements of host countries with home countries depend upon two individually negotiated contracts as well as bilateral or multilateral investment agreements and International Trade Agreements (ITAs) between states. These agreements have the purpose of supporting foreign investment by protecting foreign investment and foreign investors from devaluating the actions of the host government. The investor-state dispute settlement clause is contained in many international trade agreements and provides for the Right to sue the host government if the host government violates these protections. The foreign investors are mostly permitted to bring the arbitration claim against the host government to recover the losses rather than in the domestic courts of the host state.
“These protections apply even when government measures are implemented to respond to national emergencies like COVID-19. For example, foreign investors successfully leveraged bilateral investment treatment to recover losses related to Argentina’s 2001-2003 emergency economic measures. Whether a foreign investor could recover its losses against the host government is a fact-intensive analysis. However, given the scope of COVID-19 measures, it is anticipated that some governmental actions, either individually or cumulatively, will harm foreign investments in violation of an investment agreement.” – Ropes & Gray
“Many countries have coordinated their response efforts with private industries to implement the above measures voluntarily and amicably. However, States have also resorted to unilateral action to respond to the health crisis, which may encourage foreign investors to seek recourse under protections found in investment treaties between their host States and home States. Most investment treaties provide for dispute resolution through tribunals constituted under the International Centre for the Settlement of Investment Disputes (“ICSID”) or other arbitration rules. To pursue a claim, aggrieved investors must comply with procedural requirements set out in the relevant treaty, which may require, for example, advance notice and observance of “cooling off” periods before a claim can be filed” – Hogan Lovells
Now, the question arises what would be the government defense in this situation-
“States may not be able to defend an exercise of unconstrained powers simply by pointing to the global crisis engendered by COVID-19. However, international law gives States broad power to act in emergency situations, and States could invoke a number of doctrines to defend conduct that is narrowly tailored to respond to the crisis. International arbitral practice recognizes that States may exercise their police powers to legislate in the public interest in a reasonable and non-discriminatory manner. This defense permits States to adopt regulations in good faith and in accordance with the due process without violating treaty obligations.” – Hogan Lovells