Countries to face a wave of corporate lawsuits due to Covid-19 measures

Store closures, travel restrictions, dwindling client numbers, quarantine, moratoriums on rent and utility payments: the health and social measures taken to fight the Covid-19 pandemic could put countries in a difficult position as they face large investors and multinationals who consider themselves adversely affected by these provisions. 630 international organizations have come together to alert governments of this possibility in an open letter. They warn that a "wave of lawsuits" is coming from all around the globe.

NGOs especially fear the use of an already controversial mechanism: the Investor-State Dispute Settlement (ISDS) system. This arbitration system, included in many trade and investment agreements, allows foreign investors to sue governments in special courts when they believe regulations have harmed them. Until now, this device has mainly been used to denounce environmental legislation, resulting in several million or billions of dollars in damage compensation.

Mounting complaints

As early as May 4th, the United Nations Conference on Trade and Development (UNCTAD) has blown the whistle, stating “although these measures are taken for the protection of the public interest and to mitigate the negative impact of the pandemic on the economy, some of them could, depending on the way they are implemented, expose governments to arbitration proceedings initiated by foreign investors”.

And for good reason, since several lawsuits have already emerged. In the UK, three airlines (Ryanair, British Airways and EasyJet) have sued over the 14-day quarantine measures imposed on all travellers arriving from overseas. For all three companies, such a measure is "irrational and disproportionate" considering known scientific evidence. For airlines, this measure is a new blow to their business, which had already been struggling since the start of the pandemic, as well as the jobs associated with it. Additional threats of legal action have already been made. This is especially the case in Peru following the suspension of road tolls.

Law firms lying in wait

According to a survey by Corporate Europe Observatory and Transnational Institute, law firms are actively advising companies of their options. Law firms have identified a dozen broad contentious cases over the restriction or suspension of business activities in order to limit the spread of the virus and protect workers. Such measures were adopted in many countries. The health sector is also particularly targeted over measures to secure healthcare resources, such as the use of private hospitals, the placement of private care providers under public control (which was the case in Ireland or Spain), or the obligation for manufacturers to produce ventilators or other medical equipment in the United States. Action is also being taken against measures that ensured affordable drugs, tests and vaccines.

To avoid an avalanche of lawsuits, which could reduce countries’ response capacities just as much as their crippling budgets, NGOs are asking governments to review and supervise over these dispute settlement mechanisms, or at least those regarding current health concerns.

Béatrice Héraud