Judge of South Korea

A host state’s emergency actions or its failure to take proper measures in response to the Covid-19 pandemic may negatively impact on international construction contracts as investments. Foreign contractors can launch treaty arbitration claims on the legal grounds that such actions can trigger a violation of fair and equitable or non-discriminatory treatment obligations, or expropriation, and that such failure amounts to a breach of full protection and security obligations. In response to such claims, the host state can invoke defences encompassing exceptions under the international investment agreement involved, the police powers doctrine, and force majeure, distress and necessity under the Draft Articles on Responsibility of States for Internationally Wrongful Acts. This article examines whether a construction contract is a covered investment under international investment agreements, the legal basis of treaty arbitration claims for foreign contractors and the possible defences that host states can utilise.

Governments worldwide have taken measures to prevent the spread of Covid-19, such as border closures, lockdowns, suspension of construction activities, and travel restrictions. In contrast, there have been cases in which construction was delayed as a result of a complete construction shutdown not being implemented by a state. Such measures or omissions by states may cause significant economic damages to foreign contractors. Accordingly, they need to look for relief against states that caused the damages due to the measures or omissions. They can consider investor-state arbitration whereby aggrieved investors can bring claims for damages caused to their investments by a foreign state under an international investment agreement between said state and those investors’ home state. The international investment agreement includes a bilateral investment treaty and a multilateral treaty or free trade agreement with investor protections. Furthermore, where a foreign contractor launches such an arbitration claim, a respondent state will seek appropriate defences. At the present juncture, where such arbitration claims are likely to escalate, a study on its legal basis in terms of foreign contractors and on possible defences in terms of respondent states is both opportune and meaningful.