Rethinking international investment agreements in the face of covid-19: need for the incorporation of a force majeure clause?

Abstract

Covid-19 was first detected in December 2019 in Wuhan, China, and since its detection the pandemic had a disastrous effect on human health and well-being globally, with far-reaching implications for international investments and commercial businesses. Ever since the Great Depression of the 1930s, no single non-conflict event has had the broadest and most significant effects on health and the economy as compared to the novel Covid-19 pandemic. Consequently, it is now difficult to legally distinguish between the virus and the response policies, which have come together to create a singular event. Because of the extraordinary magnitude and scope of both variables which are unprecedented, governments and businesses operating around the globe have faced challenges in controlling their combined consequences. Notably, the aftermath of Covid-19 has brought the force majeure doctrine into the limelight. Consequently, host states and foreign investors have now found it crucial to thoroughly prepare for the unexpected in a bid to honour contractual obligations by inserting carve outs in IIAs which exempt a defaulting Party from liability owing to an impossibility or impracticability to perform. The study therefore establishes that despite the existing IIAs providing for public health, emergency, and national security clauses, these carve outs do not aptly provide for a defence that would exempt the defaulting party from liability.