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 lockdown on account of Covid-19. 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.
  1. While India has exited most of the bilateral investment treaties (BIT), there are still 13 such treaties in force
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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. 
  8. However, to be successful, the investor will be required to prove that the measures taken by the government were excessive, unreasonable and, or arbitrary.