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In recent years investment arbitration has been harshly criticized, which has led to its review by working groups, such as that set up in 2017 by UNCITRAL, and to its limitation, or elimination even, by a few states in their treaties, as in the cases of the Agreement for the Termination of Bilateral Investment Treaties between the member states of the European Union; the Cooperation and Facilitation Investment Agreement, between India and Brazil; and the USMCA, among Mexico, Canada and the United States.

This reticence towards investment arbitration on the part of states may increase due to COVID-19, it has been predicted that the measures adopted to tackle the crisis are going to be a catalyst for claims by foreign investors protected by international treaties.

Indeed, many measures adopted by states to protect public health such as restricting mobility for inhabitants, suspending or shutting down businesses considered non-essential, among others, while they may be seen as suitable to achieve that aim, have had crippling effects on the economy, and particularly on the interests of foreign investors, who could claim a breach of the standards of protection of their investments, such as the prohibition against expropriation without compensation and the right to obtain fair and equitable treatment.

In some states, foreign investors have already expressed their intentions to initiate claims in response to the adopted measures, which has happened in Peru and Mexico in Latin America.

In Peru, Parliament passed a law suspending collection of tolls on roads under concession, without any right to compensation, to facilitate the transport of essential goods and workers during the state of emergency. This measure has been described as unconstitutional by concession holders - six of them foreign and protected by investment treaties-, by the ambassadors of Canada, Australia, France and Colombia and by the executive branch of the Peruvian government, which submitted the unconstitutionality of that law to that country’s parliament. For the time being, one of the foreign concession holders has expressed its intention to file a claim against Peru and another two have already reserved their right to do so.

Elsewhere, in Mexico the government imposed restrictions on the generation of renewable energy, pleading a fall in demand caused by the pandemic, which is believed to have had an adverse impact on more than 40 solar and wind power renewable energy projects, many funded by foreign investors protected by international treaties. The European Union and Canada have expressed their concern over the effect of these measures on foreign investors in renewable energy in that country, which could lead to claims against the Mexican state.

Although the aim of these measures may be legitimate and it could be said that the state is exercising its sovereignty to protect a public interest, investors may take the view that they should not be the ones called upon to pay the costs of adopting them, and they will file claims which in many cases will result in indemnification payments worth millions.

In similar cases in the past, states have pleaded in their defense arguments such as necessity or policing powers as legitimate reasons for measures adopted in good faith to safeguard public interests such as health, the environment and safety, which would exempt them from having to indemnify investors for their losses.

These arguments have been set aside however by several arbitral tribunals due to considering that conditions such as necessity, reasonableness and proportionality in relation to the measure were not met, conditions that may be difficult to argue in a scenario of this kind involving trial and error.

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.