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Can government crisis control measures interfere with your foreign investment?

In response to a global crisis such as a conflict or pandemic, governments across the world engage in a difficult balancing act of protecting public health, mitigating economic damage and avoiding interference of private rights such as trade and investment. 

States are likely, however, to be challenged for implementing crisis control measures that interfere with an investor’s private rights. Can a foreign state interfere with investment into that state? And what are a corporation’s protections and remedies for any such interference and loss?

In attempting to prevent the spread of COVID-19, governments globally have taken very different approaches. Countries such as Italy and India have introduced measures to suspend manufacturing, construction and mining. Spanish and Irish governments have taken steps to nationalise private hospitals and health care, while at the other end of the scale, the Swedish government has allowed bars, restaurants and businesses to remain open and unfettered, putting the onus on the elderly to remain inside. 

Government crisis control measures may be challenged by investors if the measures breach protections the state owes the investor under an international investment agreement – an agreement between two or more states that contains rights and protections to promote private investment between the states. 

The most common types of international investment agreements are bilateral investment treaties (BITs), multilateral treaties or free trade agreements (FTAs). Australia is a party to 16 different bilateral investment treaties.[1] To make a claim under an international investment agreement, an investor relies on the investor-state dispute settlement (ISDS) provisions in the agreement. 

While every international investment agreement is different, there are a number of investor protections that are common across agreements. It is possible that an investor could make a claim under an international investment agreement arising from the government imposed crisis control measures on the following bases:

1. A breach of an investor’s right to fair and equitable treatment (FET). Generally, international investment agreements require the state to ensure an investor receives FET. One of the key drivers of this protection is transparency. For example, a state that made public statements guaranteeing certain businesses would not be shut down during a crisis, and subsequently mandated that those businesses be shut down, may be in breach of its requirement to afford investors FET. 

2. A breach of investor’s right to full protection and security (FPS). The FET protection in international investment agreements generally is accompanied by an obligation for a state to provide FPS to an investor and its investments. However, whether the FPS protection applies only to physical security or extends to legal and commercial protection has divided international tribunals and remains unsettled. 

3. A breach of the national treatment standard (NTS). The NTS exists to ensure that foreign investors and their investments will be treated no less favourably than domestic investors and their investments. A tribunal may find that a state has breached the NTS if the government implements measures that discriminate against foreign investors. For example, a number of governments globally have implemented COVID-19 measures that mandate the closure of airports and prohibit flights in or out of the country. If a state government subsequently implements ‘bail out’ measures that only applied to domestically-owned airlines, the state may face a claim that it has breached the NTS. 

4. Indirect expropriation by the state. Indirect expropriation by a state occurs when a state implements measures that have the effect of controlling or interfering with the use, value or benefit of an investment. An ICSID Tribunal held that a series of state measures over a period of time that has the same effect may also constitute indirect expropriation. In Spain, for example, the government has issued a Royal Decree that has the effect of allowing the government to assume control of private hospitals and clinics in an attempt to ‘nationalise’ the Spanish health system and its response to COVID-19. Such measures may provide a basis for an investor to allege indirect expropriation by the government.

If it can be established that government-mandated crisis measures are incompatible with a state’s obligation under a relevant international investment agreement, the question will turn to whether the state has a valid defence to a claim. A state may have a defence under the relevant international investment agreements and / or at customary international law. Where an exception exists under an international investment agreement and the exception applies, the international investment agreement obligations will not apply to the crisis control measure. 

Only a few bilateral investment treaties include general exceptions of a similar nature. For example, some BITs include exceptions for non-discriminatory measures necessary for the maintenance of public order or permit actions taken in circumstances of extreme emergency or for the protection of its own essential security interests. While general exceptions in BITs are rare, exceptions are increasingly present in recent bilateral FTAs.

States may also defend against crisis measure-related treaty claims on the basis of customary international law defences.[2] One of the most common customary international law defences is ‘necessity’. This defence requires that a state must fulfil four requirements: 

  1. That a grave and imminent peril exists.

  2. That that grave and imminent peril threatens an essential interest.

  3. That the state’s act must not seriously impair another essential interest.

  4. That the state’s act was the ‘only way’ to safeguard the interest from that peril. 

The plea of necessity will be excluded if the obligation in question excludes reliance on necessity and the state contributed to the situation of necessity.[3] Satisfying the requirements of necessity is a high-bar and the level of contribution by the government to any crisis will become a critical factor.


As the above attests, foreign investment protections exist in a number of BIT and FTA instruments. So too do avenues to pursue compensation for losses incurred by your foreign investments in breach of those protections.

[1] Australia is party to bilateral investment treaties with Argentina, China, the Czech Republic, Egypt, Hong Kong, Hungary, Indonesia, Laos, Lithuania, Pakistan, Papua New Guinea, the Philippines, Poland, Romania, Sri Lanka, Turkey and Uruguay. 
[2] See the International Law Commission’s Articles on State Responsibility 2001, Chapter V.
[3] Ibid, Article 25. 

This article is part of our publication Continuity Through Crises: Perspectives on business risk, resilience and recovery in uncertain times



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This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.

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