A new report by the Netherlands-based Transnational Institute reveals a rush of international arbitration cases against Latin American states by international investors during the COVID-19 pandemic. Some cases relate to pandemic control measures, and others to ongoing cases.
In a recent bulletin, the law firm Garrigues pondered “the question that arises therefore is whether COVID-19 is a new break for investment arbitration due to the surge in claims that will arise from it or whether, conversely, it will be a final sweep of the sword by discouraging states from including this dispute resolution mechanism in their treaties”.
Under Investor-State Dispute Settlement (ISDS), a single foreign investor can claim compensation if it can persuade an international tribunal of investment lawyers that a government law or policy has harmed its investment.
“This is no doubt going to lead to six arbitration claims against us at ICSID [the World Bank’s International Centre for Settlement of Investment Disputes]” declared the president of Ositrán, the Peruvian government transport infrastructure agency, when Peru’s Congress in April suspended the collection of road tolls during the COVID-19 emergency.
By June Ositrán confirmed that several toll road concession-holders intended to initiate international arbitration proceedings. Peru has moved to reverse its toll road measures.
An ISDS tribunal has ordered Guatemala to pay the US electricity corporation TECO US$21 million. With interest, this award is worth US$36.5 million today. The order had to be confirmed by a US court.
Having declared a state of national calamity due to the pandemic, Guatemala asked for the payment to be suspended, arguing that “payment of this award would worsen the economic situation in the country at a time when it has to deal with the COVID-19 pandemic.” A US judge in the District of Columbia rejected Guatemala’s request.
While coping with the COVID-19 pandemic, Bolivia continues to fight four lawsuits brought before international arbitration tribunals by private companies, claiming more than US$3 billion in compensation.
Citing force majeure because of the COVID-19 health crisis , Bolivia requested the suspension of arbitration proceedings in two of the ongoing cases related to mining: with the Swiss firm Glencore and the US investor Julio Miguel Orlandini Agreda. The arbitrators in both cases refused to suspend the proceedings.
Colombia, Honduras, Paraguay and Argentina have adopted measures that provide direct support to water service users, such as making it unlawful to cut off the supply due to a failure to pay bills during the crisis. The law firm Hogan Lovells warned that these measures “may encourage foreign investors to seek recourse under protections found in investment treaties”.
Similarly, Chile and Ecuador have facilitated compulsory licences that seek to prevent patents on medicines and equipment being monopolized by a single company. However, some investment lawyers say this constitutes expropriation and is open to ISDS claims.
More than 600 social organizations have called on governments to block the use of ISDS in relation to COVID-19 measures, and to suspend all existing ISDS cases during the pandemic.
Countries in Latin America and the Caribbean have so far been ordered to pay US$31 billion and face pending claims of US$40 billion in the 282 known arbitration claims by investors. The vast majority of completed cases were settled in favour of the investor.