Global companies are considering whether Investment Treaty claims may be a means to recover losses caused by government COVID-19 measures that are overreaching, arbitrary or discriminatory. Here is what executives, legal counsel and government officials need to know.

Businesses have suffered massive losses from the actions, or inaction, of governments as they try to manage the COVID-19 pandemic. Tough, widespread anti-COVID-19 measures, such as extended lockdowns of entire cities or countries, may have been necessary and beneficial from a public health standpoint. And other COVID-19-related measures to provide economic relief to citizens — potentially at the expense of business interests — may well have been taken in the public interest. But those government actions have also disrupted global supply chains, prevented companies from conducting business and reduced their revenues and cash receipts drastically. The financial consequences and prospects for survival may be dire for many companies.

Heavily impacted companies are starting to ask whether they may be able to recover damages from governments due to such harmful COVID-19-related policies. Where a company’s cross border operations or investments are damaged by the actions of foreign governments, it is worth checking for an investment treaty between its client’s home country (or any other country in the corporate chain) and the country where the affected operations or investments are located. Those treaties may provide avenues for recovery, at least against unfair, arbitrary or discriminatory anti-COVID-19 or COVID-19 relief measures.

At the same time, there are good reasons to question much of the “hype” about possible COVID-19-related investment treaty claims; they are unlikely to be the silver bullets that some are promoting, particularly against generally applicable anti-COVID-19 government actions.

Here are four key points to know about such potential investor-state claims. C-suite executives and in-house counsel will want to consider these points in assessing whether there might be viable claims. Government officials should bear these considerations in mind in assessing the legal risks when deciding what COVID-19 policies to implement, how and when.

1. Recoverable damages (and corresponding exposure for governments) can be massive

Where a company prevails in its investment treaty claims, it may be able to recover all the losses that flowed from the government measures that damaged the company. This may extend beyond the amounts initially invested (actual cost) to going concern value, including lost future profits. Treaty awards have accepted discounted cash flow calculations, as well as EBITDA multiples, to calculate damages ranging from millions to tens of billions (as in the €50+ billion award against Russia in the Yukos case).

2. Investment treaties create obligations for states under international law, not national law

Companies doing business in other jurisdictions tend to ask first about avenues for relief in the foreign legal system or their own legal system. Investment treaties, however, create enforceable obligations for sovereign countries under international law, separate from their powers and obligations under national laws. These treaties require governments to protect foreign investments, including joint ventures and operating businesses that are made in their territory by nationals or companies of the other signatory country (or countries) to the treaty. Those obligations — for instance, not to discriminate against the foreign investor, not to expropriate its investments without compensation and to treat the investor fairly and equitably — cannot be altered or undermined by changes in the foreign country’s laws and regulations.

3. International law and the treaties themselves will likely give states leeway to impose emergency measures — within limits

Many investment treaties, and customary international law more generally, may well allow governments to take emergency measures in the public interest without facing liability under the investor protection provisions of the treaties. COVID-19 measures could fall under this exception and give governments wide latitude in combating the pandemic. But such “necessity” or “essential security” defenses may not be absolute or open ended. Governments may be required to act in an objectively reasonable and proportionate way in the emergency and to impose only measures that are necessary for only as long as they are necessary. The defenses may not shield government COVID-19 measures that are imposed unfairly, discriminatorily, arbitrarily or for excessive durations.

4. Companies should particularly watch out for COVID-19 measures that are discriminatory (singling out foreign investors on their face or in practice), arbitrary or pretextual

Most countries that have implemented measures have done so on a blanket basis, without targeting foreign investors. It could be difficult, but arguably not impossible, for companies to succeed in bringing claims where the measure that damaged or destroyed the company was applied across the board without discriminatory intent or effect.

Nonetheless, there may some instances where COVID-19-related measures could have the effect of discriminating against foreign investors or could even be pretexts for measures that actually serve political or other non COVID-19 interests. Whether an affected investor’s claims prevail will be fact-specific and may also turn on the particular treaty at issue. Government legal advisers and company executives should study this issue carefully, with advice from experienced and level-headed investment treaty counsel.