Extraordinary measures in extraordinary times: how can States and investors learn from the lessons of the 2008 global financial crisis?


The COVID-19 pandemic crisis and its economic impact on business more broadly bears certain similarities with the 2008 global financial crisis and the measures taken by States to address its aftermath.  Both the global financial crisis and the COVID-19 pandemic have resulted in profound economic disruption, causing major damage to the world’s economy.  In response to both, States have enacted a series of emergency measures that have had and will have legal implications under public international law, including with respect to investment arbitration.

An analogy of the present situation with that of the claims arising from the global financial crisis may inform States’ policy options with respect to COVID-19 pandemic responses.  It may also inform foreign investors’ understanding of their rights under public international law and investment treaties.

Notably, in response to the 2008 global financial crisis, several States enacted measures to address the ensuing economic and political instability as well as systemic ailments in their economies.  These measures often impacted foreign interests in their territories.

Notoriously, certain States in Europe intervened in the banking sector in ways which also affected foreign shareholders.  For example, Greece and Cyprus both took measures involving the private sector as part of the bailout packages they received from the EU, including haircuts and bank nationalisations.  Other States cited economic and political unrest following the global financial crisis as justification for the legislative actions they took to protect various domestic interests.

Some of these measures eventually gave rise to investment treaty claims where foreign investors’ interests were involved.  In those proceedings, States invariably formulated defences on the basis of the global financial crisis, including necessity, the police powers doctrine and the pursuit of legitimate policy objectives.  In turn, tribunals were called to examine States’ policy or legislative interventions following the global financial crisis in light of their international investment obligations.

Relying on three examples of cases where States have invoked the global financial crisis in investment arbitration proceedings, this article will attempt to draw conclusions about the ways in which measures in response to the COVID-19 pandemic might feature in future investment treaty claims.

The analogy between the two situations is not absolute.  There are in fact several notable differences between the global financial crisis and the COVID-19 pandemic.  For example:

  • the COVID-19 pandemic affects all States whereas the global financial crisis affected some economies much more than others;
  • the global financial crisis was endogenous in nature, whereas the COVID-19 pandemic is extraneous to the world economic system; and
  • the emergency measures enacted in response to the COVID-19 pandemic were taken on a more urgent and arguably more extreme basis than the measures adopted in response to the global financial crisis.


Whether these differences will significantly alter the way in which potential investment claims might be dealt with remains a point for speculation.


Investment tribunals’ assessment of State measures in response to the 2008 global financial crisis

The following discusses three cases in which the host State invoked circumstances related to the global financial crisis in order to legitimise actions which it had allegedly taken to address the effects of the crisis.  While this defence was accepted by the respective tribunals in the first two cases against Cyprus and the Czech Republic, Egypt did not succeed with this argument.

Marfin Investment Group v. The Republic of Cyprus

The claims were brought in response to various measures that the government of Cyprus took to nationalise the Laiki Bank following its deteriorating financial situation in the aftermath of the global financial crisis.  These measures included taking over the management and recapitalising Laiki Bank, which resulted in the substantial diminution of the Claimants’ shareholding (to less than 1%).

  1. Claimant’s request for redress

The Claimants sought compensation for damages, including for an alleged creeping expropriation, violation of the fair and equitable treatment (“FET”) standard and discriminatory treatment under the provisions of the Greece-Cyprus bilateral investment treaty (“BIT”).

  1. State’s defence

Inter alia, the Respondent argued that it had acted in a legitimate exercise of its police powers since the nationalisation of the Laiki Bank was necessary in order to avoid its exposure to defaulting Greek sovereign debt and other non-performing Greek loans.  According to Cyprus, it enjoyed a margin of appreciation when taking measures in the public interest.

Tribunal’s reasoning

The Tribunal rejected all of the Claimants’ claims and found, inter alia, that actions such as the recapitalisation of Laiki Bank and the taking over of management control represented a legitimate exercise of the State’s regulatory powers, were non-discriminatory and proportionate.  According to the Tribunal, economic harm consequent on the non-discriminatory application of generally applicable regulations adopted in order to protect the public welfare does not constitute a compensable taking, if the measures were taken in good faith, proportionate and complied with due process.  The Tribunal found that the challenged measures were not underpinned by an intent on behalf of the Respondent to nationalise Laiki Bank but pursued a legitimate objective.

With regard to the alleged breach of the FET standard, the Tribunal found that it could not review the substantive correctness of a State’s economic and policy choices using the benefit of hindsight.  The Tribunal could only review the proportionality of the measures to determine whether they bore a reasonable relationship to some rational policy and did not impose an excessive burden on an investor.

The Tribunal also rejected claims that the Respondent had discriminated against the investor in favour of a comparable national bank (Bank of Cyprus) because the treatment vis-à-vis specific measures was either similar or any difference was underpinned by reasonable justification for the difference in treatment.

Jürgen Wirtgen, Stefan Wirtgen, Gisela Wirtgen and JSW Solar (zwei) GmbH & Co. KG v. Czech Republic

The claim was brought after the Czech Republic began scaling down a government scheme aimed at attracting investment in solar energy.  In 2010, in light of the economic hardship occasioned by the global financial crisis, the State modified the incentive scheme by withdrawing tax incentives, introducing a tax levy and adjusting the tariffs that guaranteed certain returns for investors under the framework.

  1. Claimants’ request for redress

The Claimants claimed damages arising from alleged breaches of the Czech Republic – Germany BIT, including alleged breaches of the FET and full protection and security (“FPS”) standards as well as claims under the BIT’s umbrella clause.  The Claimants argued that the dissolution of the favourable framework on which they had relied in making their investment constituted a breach of their legitimate expectations.

  1. State’s defence

Denying that it had given specific promises of stability through the favourable framework for solar investment, the Respondent argued that it had acted within its rights in order to protect the public interest by ensuring that industry subsidies would not result in windfall profits at the expense of overburdened electricity consumers and taxpayers.

According to the Respondent, the measures were taken in order to protect electricity consumers in households and businesses and the State itself, all of whom were suffering from the effects of the financial crisis and yet, through their electricity bills, would be called on to cover the return originally envisaged for the investors.  The Respondent also stressed, inter alia, that the measures were reasonable to address the effects of the global financial crisis and its serious budget deficit.

Tribunal’s reasoning

The Tribunal ruled in favour of the State: it rejected the argument that the Czech Republic had made specific guarantees of stability when the Claimants made their investment or that it subsequently frustrated their legitimate expectations.  It also rejected arguments that the disputed measures were either arbitrary or unreasonable.

The Tribunal accepted the Respondent’s justification that it had acted “in pursuit of legitimate objectives including restoring equilibrium in the solar sector, protecting consumers from substantial electricity bill increases and augmenting budgetary resources in a time of global financial crisis”.  It also found that the Czech Republic had not caused deliberate harm as its actions were not discriminatory, intentional or unjustified.

The Tribunal found that the challenged measures were reasonable, being a carefully calibrated response to developments in the Czech solar sector at a time of economic and political uncertainty.  According to the Tribunal, a key element was the fact that the Respondent’s measures preserved some guarantees of payback and return intact for affected investors.

Unión Fenosa Gas, S.A. v. Arab Republic of Egypt

In the wake of the global financial crisis and the Egyptian revolution, Egypt had taken actions and decisions that curtailed (to national stakeholders) and cut the supply of natural gas to the Claimants’ plant during the lifetime of the plant.  This eventually resulted in the plant’s complete shutdown due to the lack of necessary gas supply.

  1. Claimants’ request

The Claimants requested damages for breaches of the Egypt-Spain BIT, including violations of the FET provision.

  1. State’s defence

Inter alia, Egypt argued that the shortage of gas supply to the factory resulted from a shortage of gas supply in Egypt as a whole.  According to Egypt, this was through no fault on Egypt’s part but due to a combination of extraneous factors (including the global financial crisis and the Egyptian revolution).  These factors and the ensuing uncertainty made it difficult to attract investors to start new natural gas exploration projects, which was further exacerbated by the political turmoil and deteriorating security conditions following the revolution and ensuing unrest in 2011.  To avoid further unrest by electricity shortages, Egypt claimed that it was obliged to continue favouring the supply of gas to domestic users.

It appears from the Tribunal’s reasoning that Egypt relied on the global financial crisis to formulate a necessity defence and to avoid causation for the FET breach.

Tribunal’s reasoning

The Tribunal dismissed all defences relating to the global financial crisis.  It found that the facts of the case did not support the allegation that Egypt’s actions were caused by the global financial crisis or the revolution.  According to the Tribunal, these extraneous factors were not the proximate cause of the non-supply of gas to the Claimant.  Instead, the Tribunal found that the proximate cause was an overall shortage of natural gas, which moreover was allocated inequitably by the Respondent among the different users of gas in Egypt.

While the Tribunal conceded that the global financial crisis and the Egyptian revolution had affected the Respondent, including in the natural gas sector, it examined closely the causal link between these events and the actions that led to the alleged BIT breaches.  In doing so, the Tribunal considered that these actions were not “the enforced result of the Global Financial Crisis of 2007-2008 or the Egyptian revolution during 2011-2014: the decision would have been made without these events or their consequences, given the Respondent’s earlier long-term policies on the development of new gas field, compounded by gas subsidies favouring domestic users”.  For the Tribunal, it was determinative that these State practices had been well established even before the global financial crisis.

Assessing the current COVID-19 measures in light of the lessons drawn from 2008

To curb the spread of COVID-19, States around the world have implemented a series of emergency measures.  These have included social distancing, travel restrictions, additional visa requirements and temporary lockdowns.  States have also adopted a series of economic measures, some of which bear some similarities to those taken in response to the global financial crisis, such as the taking of stakes in distressed companies and potentially nationalising airlines or other major companies.  States have also adopted export restrictions for certain pharmaceutical and other products, ordered the closure of non-essential businesses, and required businesses to suspend loan instalments.

In addition to these emergency measures, many governments have passed or announced regulatory amendments to increase control over foreign direct investment both a priori and ex post, allowing them to block certain transactions, impose or vary existing conditions for foreign investments, or in some instances, even require the divestment of realised investments on national security and public health grounds.

Many of these measures have caused and are causing serious prejudice to foreign investors around the world.  It is likely that we will see a rise in investment treaty claims over the next few years as a result of these State measures.

For instance, nationalisation measures can give rise to expropriation claims under investment treaties.  Marfin Investment Group v. The Republic of Cyprus constitutes an example of an investment case linked to nationalisation measures in the aftermath of a severe economic crisis.  Other measures might come under challenge on the basis of the fair and equitable treatment standard, the principle of non-discrimination or umbrella clauses.

Respondent States are likely to raise similar defences to those we have seen in investment cases in the aftermath of the global financial crisis, including the police powers doctrine, the protection of essential security interests and the pursuit of legitimate policy objectives.  Tribunals will have to assess whether these measures were justifiable in light of the circumstances of the COVID-19 pandemic.

Some conclusions can be drawn from awards rendered in the aftermath of the global financial crisis:

  • Arbitral tribunals accept the need to protect legitimate State interests in times of crisis, as shown in the cases brought against Cyprus and the Czech Republic. They also accept that a crisis will necessitate difficult political choices which States enjoy significant discretion in addressing.
  • Arbitral tribunals will not examine the appropriateness of the State measures with the benefit of hindsight. However, a State’s discretion is not unlimited.  Tribunals will still examine issues such as whether the measures are discriminatory towards foreign investors, reasonably connected to addressing the policy objective and do not impose a disproportionately heavy burden on the investor.
  • To formulate a successful defence on the basis of a crisis, States are seemingly required to demonstrate a sufficiently proximate causal link between the contested measures and the crisis.



The aftermath of the 2008 global financial crisis has demonstrated that various measures taken by States may impact foreign investors and lead to a rise in investment treaty claims.  Some of these measures resemble the current emergency responses to COVID-19, although some aspects of them may differ.  Cases related to the global financial crisis have shown that arbitral tribunals tend to recognise States’ appreciation of the manner in which to protect their legitimate interests.  However, as with any other measure, States will have to show that the COVID-19 emergency measures were reasonable, proportionate and did not violate the principle of non-discrimination.  Otherwise, tribunals might award compensation to aggrieved investors, even with respect to measures adopted under the current extraordinary circumstances.