The Challenge of Scientific Uncertainty in Future Investment Disputes Related to COVID-19 Measures


Author: Lorenzo Martinez*

Jurisdiction:
International
Topics:
Investment Disputes
Defenses

In investor-state disputes arising out of measures taken by states to address the COVID-19 pandemic, the parties will have to reckon with scientific uncertainty about the virus, such as how it spreads, its symptoms, and its lethality. This is because such uncertainty has the potential to affect a variety of claims and defenses including an investor’s legitimate expectations under fair and equitable treatment clauses,[1] due process and non-discrimination in expropriation, protection of investments under full protection and security clauses,[2] the use of police power,[3] the defenses of necessity and force majeure,[4] as well as specific treaty-based defenses.[5] Necessity in particular has been the focus of much of the analysis to date,[6] which is interesting since this defense is probably the most affected by the scientific uncertainty surrounding COVID-19.[7]

How has scientific uncertainty been handled in international law? The following cases are instructive: the Gabčíkovo-Nagymaros Project[8] case and Philip Morris Brands SARL v. Uruguay.[9]

In the Gabčíkovo-Nagymaros Project case, Hungary suspended the construction of the Gabčíkovo and Nagymaros dams along the Danube river on its border with Slovakia for ecological reasons.[10] Hungary invoked a state of necessity to justify its conduct, and presented scientific evidence that there was a “state of ecological necessity” because the dams would, among others, negatively affected the quality of the drinking water and kill both animal and plant life along the river.[11] For its part, Slovakia presented studies that showed that Hungary had been “exaggeratedly pessimistic” about the situation.[12] The International Court of Justice (“I.C.J.”) was confronted with, in their words, “an impressive amount of scientific material” by both parties but decided to punt on the issue, stating: “[i]t is not necessary in order to respond to the question put to it in the Special Agreement for it to determine which of the points of view is scientifically better founded.” [13] The Court, rather than rule on the scientific uncertainty presented in the case, instead based its ruling on the availability of alternatives to Hungary, but also implied that since the dangers posed by the dams were “long-term” and “uncertain”, they could not be considered “imminent.”[14] The Court also held that the mere possibility of harm was insufficient to establish necessity.[15]

While the Gabčíkovo-Nagymaros Project case deals directly with scientific uncertainty and necessity, its assessment could also affect the way that tribunals assess the reasonableness of government measures considering the scientific uncertainty surrounding COVID-19. While investment tribunals do not adhere to stare decisis, they tend to be guided by precedent from all external sources, including the I.C.J,[16] and the I.C.J’s approach in this case could predict how tribunals will approach government measures against COVID-19.

That said, the tribunal in Philip Morris Brands SARL v. Uruguay held that it did not matter whether the measures[17]Uruguay had taken to inform its citizens about tobacco safety were effective – what mattered was “whether [they were] ‘reasonable’ measure[s] at the time [they were] adopted.”[18] The investors claimed that there had been insufficient scientific support for the effectiveness of the measures adopted at the time, but the tribunal held otherwise, and explained that Uruguay, in drafting its own measures, could rely on the guidelines issued by the World Health Organization’s Framework Convention on Tobacco Control, which were in turn based on “available scientific evidence.”[19]

Moreover, there is apparent room for error, as long as the measures taken were reasonable. As was held by the tribunal in Bischoff Case, “[c]ertainly during an epidemic of an infectious disease there can be no liability for the reasonable exercise of police power, even though a mistake is made.”[20]

It bears mentioning that the issue of scientific uncertainty was directly tackled by the special rapporteur in his second report on the draft articles on state responsibility. Significantly, he considered incorporating the precautionary principle but chose not to include a precautionary element in the defense of necessity to keep it “within tight bounds,” despite his observation that “the cases for and against are rather evenly balanced.”[21] In any event, while the precautionary principle remains to be the exception elsewhere, it is interestingly been expressly made applicable in public health and other matters before the European Court of Justice.[22]

Nevertheless, one writer believes that the presence of scientific uncertainty in a situation practically precludes a state from raising necessity as a defense because of the way the element of ‘imminence’ has been strictly interpreted by tribunals: they are “irreconcilable.”[23] This is on top of the difficulty of invoking necessity in the first place because of its strict criteria.[24]

All told, there are two ways that a tribunal could swing regarding scientific uncertainty. On the one hand, tribunals could treat the scientific uncertainty surrounding COVID-19 as a circumstance requiring restraint by states in implementing regulatory measures; on the other hand, tribunals could be more lenient toward states as long as the action taken was not arbitrary and was based on the scientific evidence that was available at the time.

In any event, one can foresee that the inquiry will be very fact- and state-specific. For example, if the advice of the World Health Organization and the country’s own health ministry are contradictory at a certain point in time, how would this uncertainty be viewed? How will public statements by leaders that contradict the actions of their own governors be treated? Importantly, how will states prove the negative proposition that at the specific time a measure was implemented that there were, in fact, no better alternatives? We will find out soon enough.

[1] See Mao-wei Lo, Legitimate Expectations in a Time of Pandemic: the Host State’s COVID-19 Measures, its Obligations, and Possible Defenses Under International Investment Agreements, 13 Contemp. Asia Arb. J., 249, 249 (2020) for an analysis of how investors’ legitimate expectations under treaties and state regulatory measures stand to be affected by COVID-19.

[2] See Laura Yvonne Zielinski, Are FPS Claims Looming in the Aftermath of the Corona-crisis? Potential Consequences of the Failure to Enact Measures to Contain COVID-19, Young ICCA Blog (30 April 2020), https://www.youngicca-blog.com/are-fps-claims-looming-in-the-aftermath-of-the-corona-crisis-potential-consequences-of-the-failure-to-enact-measures-to-contain-covid-19/ for an argument that the failure of states to enact timely measures against COVID-19 may violate full protection and security clauses and similar protections in treaties.

[3] See Satyajit Bose, Police Powers as a Defence to COVID-19 Liability: Does it Protect Host States?, Am. Rev. Int’l. Arb. (Aug. 6, 2020), http://aria.law.columbia.edu/police-powers-as-a-defence-to-covid-19-liability-does-it-protect-host-states/ for an argument that states should be given more leeway in the use of police powers in light of the COVID-19 pandemic.

[4] For analyses of the foreseeable difficulty of raising the defense of force majeure in relation to COVID-19, see Claire Hellweg, COVID-19 and Force Majeure: How Will International Arbitral Tribunals Treat Force Majeure Clauses Entered into Prior to the Pandemic? Am. Rev. Int’l. Arbitration. (Oct. 15, 2020), http://aria.law.columbia.edu/covid-19-and-force-majeure-how-will-international-arbitral-tribunals-treat-force-majeure-clauses-entered-into-prior-to-the-pandemic/ and Riddhi Joshi, Force Majeure under the ILC Draft Articles on State Responsibility: Assessing its Viability Against COVID-19 Claims, Am. Soc’y. Int’l. L. (Sept. 17, 2020), https://www.asil.org/insights/volume/24/issue/24/force-majeure-under-ilc-draft-articles-state-responsibility-assessing.

[5] For example, ¶4, Annex 2 of the ASEAN Comprehensive Investment Agreement provides that “[n]on-discriminatory measures of a Member State that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute an expropriation…”

[6] A pandemic arbitration wave? The rise of investor-state arbitrations in the aftermath of the pandemic at 24:25, Int’l Bar Ass’n (Sept. 24, 2020), https://www.ibanet.org/A-pandemic-arbitration-wave.aspx. See also, State defences to investment claims arising from COVID-19, DLA Piper (Apr. 29, 2020), https://www.dlapiper.com/en/chile/insights/publications/2020/04/state-defences-to-investment-claims-arising-from-covid-19/ (“The law on necessity is relatively well-developed in the context of investment claims, having been a core defence of the Republic of Argentina to the raft of claims it faced following the country’s 2001-2002 economic crisis.”).

[7] The elements of the defense of necessity are: “(a) it is the only means for a State to safeguard an essential interest against a grave and imminent peril; and (b) does not seriously impair an essential interest of the State or States towards which the obligation exits, or of the international community as a whole…[i]n any case, necessity may not

be invoked by a State as a ground precluding wrongfulness if: (a) the international obligation in

question excludes the possibility of invoking necessity; or the State contributed to the situation of necessity.” Int’l L. Comm’n, Draft Articles on Responsibility of States for Internationally Wrongful Acts, ¶25, U.N. Doc. A/RES/56/83 (Dec. 12, 2001).

[8] Gabčíkovo-Nagymaros Project (Hung. v. Slovk.), 1997 I.C.J. (Sept. 25).

[9] Philip Morris Brands SARL and Others v. Uruguay, ICSID Case No. ARB/10/7, Award (July 8, 2016).

[10] Gabčíkovo-Nagymaros, ¶¶ 15-22 (Sept. 25).

[11] Id. at ¶¶ 40, 48.

[12] Id. at ¶ 44.

[13] Id. at ¶ 54.

[14] Id. at ¶¶ 55-56.

[15] “The Court considers, however, that, serious though these uncertainties might have been they could not, alone, establish the objective existence of a “peril” in the sense of a component element of a state of necessity…[i]mminence” is synonymous with “immediacy” or “proximity” and goes far beyond the concept of “possibility”. As the International Law Commission emphasized in its commentary, the ‘extremely grave and imminent’ peril must ‘have been a threat to the interest at the actual time.’ Gabčíkovo-Nagymaros, ¶ 54.

[16] Gilbert Guillaume, The Use of Precedent by International Judges and Arbitrators, 2 J. of Int’l Disp. Settlement 5, 16-20 (2011).

[17] These measures were 1) precluding tobacco manufacturers from marketing more than one variant of cigarette per brand family; and 2) the increase in the size of graphic health warnings appearing on cigarette packages.

[18] Philip Morris, ¶¶  409, 417.

[19] Id. at ¶¶ 392-394.

[20] Bischoff Case (Ger. v. Venez.), 10 R.I.A.A. 420 (1903).

[21] Second Report on State Responsibility, ¶¶ 290-291, U.N. Doc. A/CN.4/498 (1999).

[22] See Klaus Meßerschmidt, COVID-19 legislation in the light of the precautionary principle, Theory & Prac. Legis. 8-14 (Jun. 19, 2020), https://www.tandfonline.com/doi/full/10.1080/20508840.2020.1783627.

[23] Malgosia Fitzmaurice, Necessity in International Environmental Law, 41 Neth. Y.B. Int’l. L. 159, 191 (2010).

[24] See Chin Leng Lim, et al., International Investment Law & Arbitration, 397 (2018) (“…[I]s it likely that a State could satisfy the cumulative and prima facie rather stringent criteria particularly the ‘only way’ and non-contribution elements? Not entirely surprisingly, investment arbitration decisions regarding Argentina and more recently regarding Zimbabwe cast some doubt on that proposition”). But see Urbaser SA and Other v. Argentina, ICSID Case No. ARB/07/26, Award (Dec. 8, 2016) (finding that a state of necessity existed in Buenos Aires during the 2001-02 economic crises sufficient to justify its termination of the investors’ concession).

*J.D. Candidate 2022, Columbia Law School