Being Right

Suppose you’re managing a corporation doing business in a foreign country. Suppose further its government imposes mandatory rules that are unnecessary, arbitrary, and results in substantial loss of profits. What do you do to recoup your losses? One way is to sue that government which imposed those measures.

Of course, one defense governments could raise against such lawsuits is to claim they were forced to act the way they did because of force majeure. Measures to supposedly counter the COVID-19 pandemic are a good example.

But such a position, at least under international law, is likely as ineffective as COVID-19 mandatory mask policies: “‘the plea of force majeure is a very strict one, and States have rarely been successful when invoking it as a matter of international law.’ This line of defense has not proved sufficient in the past to stop lawsuits or successful and expensive claims by investors in the past. In 11 out of the 14 cases where Argentina used the state of necessity as a defense, arbitration tribunals rejected the argument” (see Longreads’ “Pandemic Profiteers: How foreign investors could make billions from crisis measures,” April  20, 2020).

The defense of “force majeure” needs to be looked at also from the perspective of State responsibility, particularly Article 23 of the International Law Commission’s Draft Articles on State Responsibility. In this regard, Symbiosis Law School’s Riddhi Joshi points out: “Despite the apparent suitability of a force majeure argument in response to the pandemic, its current understanding in international law renders the successful invocation of the defense difficult. Indeed, the reliance on a high threshold seemingly defeats the very purpose of the provision itself, i.e., a viable option for states to excuse non-performance of their obligations in certain unique circumstances. In light of the extant contours of Article 23 set out above, it is clear that the measures states have imposed may not pass muster.” (“Force Majeure under the ILC Draft Articles on State Responsibility: Assessing its Viability Against COVID-19 Claims,” Sept. 17, 2020)

Which leads us to the question of the appropriate forum to file a claim for damages. Worth exploring is the International Centre for Settlement of Investment Disputes (ICSID).

The ICSID short circuits State immunity from suit obstacles by allowing private entities to protect the investments they made in a foreign country. Complaints covered could include improper expropriation of the investment or unfair treatment, either through violation of most-favored-nation or national treatment principles. Thus, Article 25 of the ICSID Convention: “The jurisdiction of the Center shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Center by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Center. When the parties have given their consent, no party may withdraw its consent unilaterally.”

ICSID proceedings are self-contained: no appeals to local courts, no diplomatic protection, and once ICSID is engaged all other remedies are deemed excluded. The ICSID Convention obliges each contracting State to recognize and enforce pecuniary obligations imposed by awards of ICSID tribunals as if they were final judgments of the State’s own courts. Note that State immunity may still hold but then that State will have to answer for a possible treaty violation.

Bilateral investment treaties (BITs) may also provide an opening for recovery of damages. BITs will normally contain an “Investor-State Dispute Settlement (ISDS)” clause, which essentially allows foreign investors to sue a government for discriminatory practices.

The Philippines, for example, has entered into several BITs with ISDS clauses, amongst them the 2000 investment agreement with India. Aside from the Article IX (i.e., the ISDS clause), there is also: Article III.1 — “Each Contracting Party shall encourage and create favorable conditions for investors of the other Contracting Party to make investments in its territory, and admit such investments in accordance with its laws and policy.”

Furthermore, Article VI provides: “Investors of one Contracting Party whose investments in the territory of the other Contracting Party suffer losses owing to war or other armed conflict, a state of national emergency or civil disturbances in the territory of the latter Contracting Party shall be accorded by the latter Contracting Party treatment, as regards restitution, indemnification, compensation or other settlement, no less favorable than that which the latter Contracting Party accords to its own investors or to investors of any third State.”

Admittedly, a government can argue that its policies equally apply to both foreign and local companies, and that the latter suffered equally as well. A counter to this argument would be to charge the government as having violated the international “minimum standard of treatment,” which allows for greater and more effective protection to foreign investors than would have been available under Philippine domestic law.

In terms of holding governments accountable, the law and tribunals are certainly there.


Jemy Gatdula is a Senior Fellow of the Philippine Council for Foreign Relations and a Philippine Judicial Academy law lecturer for constitutional philosophy and jurisprudence.

Twitter @jemygatdula