COVID-19 and Investment Arbitration : The road ahead


The COVID-19 outbreak has been declared a pandemic by the World Health Organization. People are encouraged to adopt social distancing as the world comes to a halt to combat the deadly disease. This has led to the sealing of state borders, shutting down of businesses and suspension of contracts. Needless to say, international contracts and foreign investors have suffered, which is likely to give rise to a number of claims. On the other hand, arbitral institutions have suspended their functions, thus temporarily limiting the scope of dispute resolution. This blog seeks to analyze the impact that the COVID-19 pandemic is likely to have on investor-state arbitration and the unprecedented risks it poses for foreign investors around the globe.

Keywords: international contracts, foreign investors, claims, dispute, investor-state arbitration.


Investment Arbitration has gained immense popularity in recent times in dispute resolution. Also known as Investor-State Dispute Settlement, it is a mechanism of resolving disputes primarily arising between foreign investors and host states by virtue of bilateral or multilateral investment treaties concluded between them. These treaties grant rights to investors of one state to invest in another state. Currently, there are more than 560 multilateral treaties and 2340 bilateral investment treaties in force.

In the wake of the COVID-19 pandemic, with the number of cases escalating each day states have taken numerous measures to minimize its impact. This has led to shutting down of activities which are not considered essential, and the export-import of goods has also been minimized to a great extent. This situation is likely to give rise to several claims by foreign investors who will face losses due to such measures taken by the State.

Beyond the immediate impact

Many states have already witnessed a slump in the economic growth. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020—the deepest global recession in decades. A shrink in the per capita income is likely to follow, along with disruption in the financial and commodity markets, global trade, supply chains, travel, and tourism.

Considering these facts, it is only reasonable to say that once the virus is contained and the situation starts to ‘normalize’, states may take actions to protect the local industries and companies to ensure internal business sustenance .As a consequence of these measures,  numerous conflicts are expected in international arbitration. To combat the same, a shift in the trend from investor protection to cooperation and facilitation with foreign investors is anticipated.

Grounds of disputes- Potential claims by foreign investors

Fair and equitable treatment (FET) standard in an international investment agreement is a principle that recognizes the right of foreign investors to just, impartial and non-discriminatory treatment from the host state. It gives rise to a legitimate expectation based on certain assurances that the government has given, on the basis of which the foreign investor has decided to invest in that particular State. The FET standard is often resorted to investment treaty arbitrations. In the landmark case Tecnicas Medioambientales Tecmed S.A. v. The United Mexican States, the arbitral tribunal held that the foreign investor expects the host state to act invariably a consistent manner, free from ambiguity and transparently in its relations with the foreign investor. Adhering to this view, COVID-19 related litigations would act against the interest of the Host State. The measures taken by the State to combat COVID-19 and its risks would be deemed to be in contradiction of the FET standard.

Expropriation is another ground on which foreign investors may claim compensation for the steps taken by the host State. Expropriation occurs when a government takes or authorizes to take private property for a purpose deemed to be in the public interest. Amid the COVID-19 pandemic, many States are using private hospitals and buildings for treatment of affected persons. This may give rise to an indirect expropriation claim by foreign investors in the healthcare sector, in a situation where such taking of control over private property was exercised without their consent.

Potential Defenses with the Host State

Public health defense is likely to be resorted to and used to justify the measures taken by the host State in response to claims by foreign investors. Some treaties, like the Canada-EU Comprehensive Economic and Trade Agreement recognizes and preserves the rights of both the parties to regulate activities done in perusal of public welfare and gives sufficient flexibility to achieve the same. Thus, treaty exceptions clubbed with public health defenses can come to the rescue of the State. Customary international law defenses such as force majeure, distress and necessity can also aid the State in such litigations.

Other problems in investment arbitration

Apart from an increase in the number of claims by foreign investors, there are several other problems in store for investment arbitration in wake of the COVID-19 pandemic. The manner of conducting business has of course been affected due to increased regulations, or in some cases, even a ban on travel by States.

Existing contracts are likely to be altered, with changes being made in provisions relating to the seat of arbitration, governing law, chosen institution for dispute resolution as well as the procedures and rules. An arbitral institution of a State where the COVID-19 situation has been controlled significantly and “normalcy” has been restored to an extent may be opted for. New clauses in the arbitration agreement in the form of special suspension provisions, virtual hearing, and presentation of evidence electronically can be introduced. Similarly, special rules and procedures may be drafted to govern virtual proceedings, along with including for an extension in time limit for filing and hearing of disputes. Quite a few contracts are also being suspended or even terminated, while invocation of the force majeure clause is being seen in others.

Concerning the conduct of arbitration by various institutions, numerous healthcare measures and precautionary measures are adopted by the arbitral tribunals. A majority of arbitral proceedings are being postponed, while some matters are being taken up for online hearing. With the trend shifting towards ‘online dispute resolution’, the manner in which documents and evidence are constructed, collected and submitted will definitely change. This in turn is likely to increase the reliance on digital contracts, documents, evidence and signatures. Online dispute resolution has its own share of problems, which need to be addressed. One such major issue would be encouraging parties to reveal confidential information on an online platform while assuring that it will remain private. Concerns regarding cyber security and data protection need to be catered to. Other issues in online dispute resolution may include connectivity and network problems, parties not having the required technical knowledge to attend a virtual hearing and holding up the virtues of fairness and unbiasedness.

Possible solutions

Amidst a global pandemic, the main focus of all States is the safety and welfare of their citizens, even if it is against the interests of foreign investors. In such circumstances, there arises a need for the States to take a joint and cooperated action along with the investors towards avoiding an increase in investment arbitration.

On 27th March 2020, the United Nations passed a resolution “Strengthening of the United Nations System” where numerous States came together to fight the COVID-19 disease. It recognized that the current scenario of a global pandemic requires a global response, which is founded upon harmony, accord and concurrence between States.

Conforming to this resolution, States should seek to understand and identify the impact of the pandemic on businesses, contracts, agreements and treaties, and figure out possible solutions with multilateral cooperation. There is a need for a common understanding between host states and foreign investors that in such times, the host state would not have adequate resources and capacity to cater to multiple claims of foreign investors and pay huge sums of money as compensation.

Collectively, all the States may decide to free the host nations of their obligations under investment treaty agreements during the period of the pandemic. It should be recognized by foreign investors that the Host State acted out of necessity for public welfare. At the same time, it would also be needed to ensure that States to not hide behind this defense for intentional breaches of obligations. Article 25 of the United Nations’ Responsibility of States for Internationally Wrongful Acts, 2001 would play an important role here, as it gives that the plea of necessity can be accepted only when there existed no other alternative with the State to protect the interests of the citizens against a “grave and imminent peril”. It would be the job of the arbitral tribunal to determine whether the action taken by the State could have been avoided by adopting some other measure.

Risk assessment can also be done here to recognize and attend to the risks and work out a setting which operates in the best interests of both the parties. Planned utilization of resources and minimization of risk as well as losses can be done by following a proper risk assessment plan. This may involve different stages such as identifying risks and its impact, assessing and evaluating risks, implementing actions, analyzing the result and finally reviewing and revising it. Adopting such an approach may help not only reducing losses of both the parties, but also maintain the relationship between the foreign investor and the Host State, thereby enabling them to uphold the investment treaty and other contracts under it.

Further, international organizations such as United Nations Conference on Trade and Development (UNCTAD), International Centre for Settlement of Investment Disputes (ICSID) and United Nations Commission on International Trade Law (UNCITRAL) can draft and agree upon an emergency response to claims arising out of COVID-19 related measures by States. Such measures may include the level of liability of Host States for being in breach of a treaty obligation, the extent to which expropriation- whether direct or indirect- should be permitted and the compensation which the Host State would be obliged to pay for such expropriation. Recognizing the age-old saying “desperate times call for desperate measures”, it is important to acknowledge that in a pandemic situation, any state would keep the interests of the citizens above the interests of foreign investors. Such deviation from the Most Favored Nation principle may be done by host states in the form of a waiver, provided under Article IX:3 of the Marrakesh Agreement, 1995 and Article XXV.5 of the General Agreement on Tariffs and Trade, 1986. This becomes an added consideration to lookout for, to balance the conflict between the rights of a foreign investor and the unusual measures taken by the host state. Appreciating principles of international law like “precautionary”, “prevention” and “sustainable development”, arbitral tribunals can act under their supervision.


The COVID-19 pandemic has created uncertainty of all sorts, resulting in an unprecedented situation to be dealt with by States worldwide. Among others, investment arbitration is likely to see a long-lasting impact, with the increased use of technology for purposes such as online filing of evidence, contracts and other documents. This trend is expected to stick around, as technology is likely to replace physical interactions, which will not only save time but also cost.

Regarding claims of foreign investors relating to the measures taken by host States to combat COVID-19, cordial and peaceful settlement between States and foreign investors would be a long-term winner. This would also assure that a healthy relationship is maintained between the parties. Further, post pandemic, the inclusion of a clause specifically seeking indemnity from actions taken in pursuance of legitimate public welfare objectives is likely to be seen in new international investment agreements.

Although the damages caused to both the State and the investor will not be restored easily, risk assessment and collectively working on measures to protect international investment can help mitigate these damages. While the view adopted by tribunals regarding such COVID-19 related claims is highly uncertain and unpredictable, one thing is definite- the pandemic will have indelible impacts upon the practice of investment arbitration.

Author: Aastha Phuloria, University School of Law and Legal Studies, Guru Gobind Singh Indraprastha University


1 thought on “COVID-19 and Investment Arbitration : The road ahead

  1. Very insightful and well articulated


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