Global law firms discuss lockdown compensation suits, India too at risk

Lawyers agree that at present the probability of such a suit arising is very low, but not unlikely

Two Europe-based non-government research firms--Corporate Europe Observatory (CEO) and the Transnational Institute (TNI)--have raised red flags over potential law suits against governments by foreign investors who suffered losses due to measures taken during lockdownn on account of Covid-19. In a research article called <Cashing in on the pandemic: how lawyers are preparing to sue states over Covid-19 response measures>, it has been pointed out that the legal industry is preparing the ground for costly ISDS (investor-state dispute settlement) suits against governments.

Some of the bilateral trade and investment treaties signed by governments give sweeping powers to foreign investors, including the right to bypass local courts and get disputes raised in an arbitration court system known as ISDS.

While India has exited most of the bilateral investment treaties (BIT), there are still 13 such treaties in force. This includes treaties that with countries like the UAE, Bangladesh, Lithuania, Latvia, Sudan, Senegal, Libya, Serbia, Myanmar, Jordan, Syrian Arab Republic and Brunei. India terminated over 60 BITs in 2016.

The legal cost of these cases could very high, with average $5 million per party per case, but can be as high as $30 million.  

“All of these could lead to ISDS suits against India over measures taken in the context of Covid-19. As the treaties cover all economic sectors and the definition of foreign investment and foreign investor is usually very broad, there is no limit to the sectors that could potentially see arbitration claims,” says Pia Eberhardt, researcher and author of the research article at CEO.

In the past, India has already been sued under this regime (non-Covid claims), and around 25 claims are known. Most of them still pending.

Lawyers agree, at present, the probability of such a suit arising is very low, but not unlikely.

“We do not yet know of an actual ISDS claim that has been filed against a Corona-related measure anywhere in the world. But it is likely, experts agree, that such claims will be filed. How many, against which countries and measures, however, is impossible to know at this stage. So, I would say that it is not unlikely in the Indian context - but saying more than this would be pure speculation,” she says.

While no actual Covid-related ISDS cases are known yet,  some of the big global investment lawyers are looking at various government measure that can attract suits. This includes, governments taking over private hospitals and hotels during lockdows and lawsuits against action for affordable drugs, tests and vaccines. This includes, allowing non-patent drug holders to produce a particular medicine or capping prices, says the article.

In India, the export of 26 active pharmaceutical ingredients and issuing compulsory licenses for drugs made by foreign pharmaceutical companies, are examples of such measures.

“BITs give sweeping powers to the foreign investors, protecting their investment in India including the right to sue the host state (India) to claim compensation for any government actions that negatively impacts their businesses or causes losses. However, to be successful, the investor will be required to prove that the measures taken by the government were excessive, unreasonable and, or arbitrary. In our opinion, India need not be concerned with these risks, at least in the immediate future,” says, Anush Raajan, Joint Partner, Lakshmikumaran & Sridharan Attorneys.

The research article by CEO says, in written alerts and webinars law firms point their multinational clients to investment agreements’ vast protections for foreign investors as a tool to “seek relief and/or compensation for any losses resulting from State measures” (blog post by lawyers of Quinn Emanuel).”

The article also mentions that some lawyers are predicting a substantial “wave of disputes that will arise in response to the Covid-19 pandemic” (webinar announcement by Alston & Bird).