How ISDS could be used by foreign investors to gouge profits from COVID-19 pandemic

April 21, 2020: The Trans National Institute is predicting that global corporations will use ISDS to claim billions in compensation because of  government regulation to save lives during the pandemic.

This would be a repeat of the corporate gouging of Argentina during its economic meltdown in 2002. Back then, forty-two transnational investors initiated ISDS actions claiming US$16 billion for lost profits while the country suffered a 28 per cent fall in Gross Domestic Product.

The United Nations Conference on Trade and Development (UNCTAD) confirmed recently that there are already more than 1000 ISDS claims world-wide. 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”.

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.

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”. 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.

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 11 out of the 14 cases where Argentina used the state of necessity as a defence, arbitration tribunals rejected the argument.

By the end of 2018, States worldwide had been ordered or agreed to pay investors in disclosed ISDS cases a staggering US$88 billion. Millions of dollars of taxpayers’ money have been diverted away from funding for public health, access to food, and employment creation.

The $88 billion awarded to foreign investors and investment lawyers as a result of ISDS awards until 2018 is 18 times the budget of the World Health Organisation for 2020.

The TNI study urges that governments should take urgent action to make sure that transnational corporations and investment lawyers do not become beneficiaries of this pandemic, at the expense of people’s well-being and health.

Governments should:

1- Suspend all trade and investment treaty negotiations.

2- Take all necessary steps to terminate (unilaterally or multilaterally) existing treaties.

3- Institute a comprehensive review (cost-benefit analysis) of their current and planned investment agreements.

4- Withdraw consent to ISDS, to limit immediate exposure to investor lawsuits.

5- Default on the payment of outstanding debts as a result of ISDS awards. Or, at least, discuss ISDS debt relief and/or debt restructuring with creditors.