In the past week, the number of confirmed cases of COVID-19 passed 600,000, across more than 200 countries and territories. The World Health Organization (the WHO) declared a Public Health Emergency of International Concern on 30 January 2020, i.e. an ‘extraordinary event’ which is ‘serious, unusual or unexpected’ carries trans-national implications, and may require immediate international action. On 11 March 2020, the WHO declared it a pandemic.
Measures have been announced by many States – on a daily basis – to attempt to contain and mitigate the spread of the disease, and many have declared states of emergency under their domestic laws. The measures mostly involve social distancing, including quarantines, isolation and travel restrictions. These measures have significant human costs, but they are also having a wider impact on economic interests. In Europe, Italy, France and Spain, among others, have imposed nationwide lockdowns, and the UK has also imposed significant restrictions on movement. Businesses are closing across a range of sectors, and more are expected over the coming months.
Looking forward, further measures are likely to be imposed, and sooner rather than later. Economic measures are already being announced which are likely to have a significant impact on banks, such as mortgage suspensions. As economies slow and jobs are lost, energy companies may be asked to discount consumer prices or to suspend charges altogether. Businesses, including those run by foreign investors, may be forced to cease trading and operating, their supplies may be requisitioned, or they could be nationalized.
In these circumstances, States and foreign investors will be considering their positions under applicable investment treaties: will States be insulated for measures taken in response to the emergency presented by COVID-19, or will investors be indemnified for the substantial losses they will likely suffer?
If a COVID-19 measure is challenged by a foreign investor, there will be a threshold issue as to whether the measure is potentially in breach of the substantive provisions of an investment treaty. There may be strong grounds for a State to contend that the measure adopted is not a breach of fair and equitable treatment, or does not amount to indirect expropriation. Provided that it can be established that the measure is incompatible with the relevant obligation, a further question that arises is whether the State has a valid defence to a claim. States can defend against treaty claims by:
The article was first published on Kluwer Arbitration Blog, 30 March 2020.