International Investment Law and the Law of Armed Conflict

Table of Contents

1. Frontmatter

2. War and Peace in International Investment Law

   Christoph Schreuer

   Abstract

   In situations involving international investments and armed conflict three areas of international law come together: investment law proper, international humanitarian law and human rights law. The law of treaties offers some rules relevant to situations of armed conflict. These rules address the effects of armed conflicts on treaties, impossibility of performance and fundamental change of circumstances. Generally, these rules do not offer a ready excuse for a departure from obligations arising under investment treaties. The treaty standard of full protection and security is a potentially powerful basis of protection for investors against violent attacks. Some investment treaties contain clauses that specifically refer to armed conflict. One variant of these clauses only provides for non-discrimination in the context of restitution or compensation. A more elaborate version also guarantees compensation for losses suffered through requisitioning or destruction not required by the necessity of war. Some investment treaties contain clauses that allow States to invoke essential security interests to defend action that is otherwise unlawful. Only a small number of these clauses are self-judging. Under the law of State responsibility, necessity and force majeure give limited comfort to States under circumstances of armed conflict. Action by a State in the exercise of self-defense does not exculpate action that violates human rights or humanitarian law. By the same token, States acting in self-defense are not exempted from obligations arising from investment law. Economic sanctions ordered or authorized by the Security Council may require action that is incompatible with certain guarantees under investment treaties.

3. Evaluating Social Benefits and Costs of Investment Treaties: Depoliticization of Investment Disputes

   Ursula Kriebaum

   Abstract

   The growth in the number of investment treaties and investment treaty arbitrations has led to a lively debate about the benefits, justification, and problems of this special form of protection for foreign investors. This chapter makes the positive case for understanding international investment law as an instrument for the depoliticization of conflicts that at times had led to fierce confrontations between home and host States of investors. Depoliticization means the transfer of such conflicts from the political arena of diplomatic protection to a judicial forum with objective, previously agreed standards and a pre-formulated dispute settlement process. First, this chapter addresses the goals of investment arbitration in this context. Second, it discusses the means provided for in the ICSID Convention and in investment protection treaties in their various forms to achieve these goals. Furthermore, it analyses how different investment protection instruments achieve different degrees of depoliticization. Third, it discusses whether investment treaties have been successful in providing judicial means to prevent investor-State conflicts developing into inter-State conflicts, which are dominated by power politics.

4. Between War and Peace: Intermittent Armed Conflict and Investment Arbitration

   Ana Maria Daza-Clark, Daniel Behn

   Abstract

   During periods of armed conflict, a State’s treaty commitments may be suspended or replaced by other international legal obligations, often relating to international humanitarian law, the laws of war or international human rights law. However, international investment agreements (IIAs) may be distinct in this respect. A State’s ability to derogate from its IIA obligations during periods of armed conflict is likely to be extremely limited or impossible; many IIAs explicitly provide protections to foreign investors in times of armed conflict or war. What is less clear is how the incidence of armed conflict within the territory of a State subject to an investment treaty dispute is to be resolved by an arbitral tribunal when the armed conflict is not—and possibly cannot be—clearly defined; or where there are cycles of war and peace within short periods of time and relating to the same general situation. We address this question in the context of the Libyan Civil War, considering the most relevant standards of protection included in IIAs concluded by Libya, as well as the most likely defences which Libya may invoke to preclude wrongfulness for possible breaches of its IIA obligations.

5. Investments Under Occupation: The Application of Investment Treaties to Occupied Territory

   Tobias Ackermann

   Abstract

   The occupation and annexation of Crimea have led to several investment claims brought forward by Ukrainian investors against Russia concerning measures taken on the Crimean Peninsula. These cases have, among others, raised the underexplored issue whose, if any, investment treaties apply to occupied territory. In answering this question, the present contribution first assesses the duties of the occupant under the law of occupation vis-à-vis investment treaty obligations of the occupied State. It is argued that although the occupant has to respect these obligations, it is ultimately not subject to investor-State dispute settlement. In contrast, recent decisions in which arbitral tribunals have affirmed their jurisdiction in the Crimean context show that Russia’s own investment treaty obligations are applied to the occupied territory. The second section of the contribution critically assesses this interpretation of the common reference to “territory”. It finds that the territorial application of these treaties can, without violating other rules of international law, in fact be extended to foreign territory under the State party’s effective control. Despite the politically charged implications such an interpretation could mean for the cementation of occupation, the independent legal review of measures taken by occupying States should be welcomed.

6. An Overview of State Succession Issues Arising as a cResult of an Armed Conflict

   Patrick Dumberry

   Abstract

   This chapter addresses the question of what happens to legal protections of foreign investors under a BIT when an armed conflict leads to a situation of State succession. It first examines the actual practice of States concerning the continuation of BITs. Such continuation depends on the express or tacit agreement of both States concerned, i.e. the successor State and the “other State Party” to the BIT which was signed by the predecessor State. The chapter also examines the question of what happens to BITs when the States concerned have not agreed on any such continuation. I will argue that BITs do not automatically continue to be in force as of the date of succession unless both States concerned have agreed to such a continuation.

7. Kosovo and Foreign Investment Protection

   Antonis Bredimas

   Abstract

   The question of the protection of foreign investment in post-conflict situations is a multifaceted one that poses a number of challenges in terms of international law. The present chapter examines the protection of foreign investment before the declaration of independence of Kosovo in 2008, when the territory was under the administration of the United Nations Interim Administration Mission in Kosovo as well as the protection of investments coming from countries which have not recognized Kosovo as an independent State after its declaration of independence. It assesses the legal framework of investment protection as well as the possibilities for judicial recourse for violations of investment law given the particularities of the administration of Kosovo and its legal status under international law.

8. Procedural Aspects of the Obligation of Non-Recognition Before International Investment Tribunals

   Sebastian Wuschka

   Abstract

   In the case of the investment claims filed against Russia with regard to its illegal annexation of Crimea in 2014, the international law principle of non-recognition of illegal acquisition of territory could serve as a jurisdictional defence. Due to the illegality of the territorial acquisition, Russia could try to argue, its investment treaties would not apply ratione loci to Crimea. It is, however, highly unlikely that a State would invoke its own illegal actions as a defence in international arbitrations. This contribution therefore analyses—on an abstract level—how ICSID and non-ICSID investment tribunals should approach such a situation. It shows that the obligation of non-recognition needs to be taken into account by arbitral tribunals in both frameworks. As long as both parties participate in the proceedings, the tribunal may interpret any lack of jurisdictional objections as a basis for a forum prorogatum. It would not need to make any (ancillary) determination with regard to the case’s underlying territorial dispute to hear the case on the merits that could potentially contravene the obligation of non-recognition. In default proceedings, to the contrary, the tribunal cannot rely on the concept of forum prorogatum. It is under a duty to review its jurisdiction ex officio in both the ICSID and the non-ICSID investment arbitration framework. This does not mean, however, that its interpretation of the treaty’s territorial nexus, assuming it accepts jurisdiction, will always contravene the obligation of non-recognition.

9. Exploring the Links Between Nationality Changes and Investment Claims Arising Out of Armed Conflicts: The Case of Russian Passportization in Crimea

   Belen Olmos Giupponi

   Abstract

   The chapter discusses the different manners in which armed conflicts may affect the nationality of investors (natural and legal persons). Thus, the question at issue concerns ultimately the ability of foreign investors to submit an investment claim in the context of an armed conflict. Recent State practice such as the Russian “passportization policy” in Crimea and the investment claims arising after 2014 demonstrate the complexity of the question. Yet, the deeper implications of these sudden changes are still rather unexplored in international investment law. The chapter attempts to shed light on the issue surveying recent cases and State practice. Essentially, the chapter proposes new perspectives on the links between territorial modifications and nationality alterations in terms of investment protection.

10. Litigating the Use of Force: Reflections on the Interaction Between Investor-State Dispute Settlement and Other Forms of International Dispute Settlement in the Context of the Conflict in Ukraine

    Laura Rees-Evans

    Abstract

    The situation in Ukraine has not only led to close scrutiny by the principal organs of the United Nations, it has led and will continue for some years to lead to close scrutiny by a plethora of international courts and tribunals that have been seized of disputes arising out of the conflict. Ukraine has launched no fewer than nine inter-State proceedings against Russia, in multiple fora. To date, it appears not to have taken advantage of the possibility of inter-State proceedings under the bilateral investment treaty between Ukraine and Russia, however. Instead, Ukraine appears to have encouraged Ukrainian companies to commence proceedings against Russia directly. There are currently nine known investor-State arbitrations based on the Ukraine-Russia BIT arising out of Russia’s actions in Crimea. This chapter (a) provides an overview of the landscape of the investment arbitration and other legal proceedings arising out of the conflict; (b) highlights some notable features of and key legal issues at play in the investment claims arising out of the conflict in Ukraine; and (c) discusses the potential interactions between the different legal proceedings arising out of the conflict in Ukraine.

11. Non-discrimination and the Protection of Foreign Investments in the Context of an Armed Conflict

    Michail Risvas

    Abstract

    The chapter examines the relationship between the principle of non-discrimination and the protection of foreign investments in the context of an armed conflict. In particular the chapter explores the interpretation of clauses in investment treaties providing for equal treatment regarding compensation owned to foreign investors for damages or losses incurred during armed conflicts (war clauses) by investment tribunals. Further, it examines whether (and how) non-discrimination obligations in the realm of international economic law could prevent armed conflicts or affect post-conflict reconstruction efforts.

12. The Full Protection and Security Standard in Investment Law: A Specific Obligation?

    Sébastien Manciaux

    Abstract

    This chapter aims to demonstrate that full protection and security and fair and equitable treatment are two different standards that don’t apply under the same circumstances and have different legal status. After a historical overview (Sect. 1) intended to show how the conflation between the two has emerged over the centuries, emphasis is put on the nature and the scope of application of the full protection and security standard when compared to the fair and equitable treatment standard (Sects. 2 and 3). The next section of the current chapter introduces the idea that full protection and security is to be read in light of another provision often found in international investment agreements: compensation for losses due to war or other conflict (Sect. 4). This chapter concludes with the necessity to respect the specific nature, purpose and scope of application of the different rules contained in international investment agreements (Sect. 5).

13. Armed Conflicts and Customary International Law on Investment: Codification and Fragmentation of “Protection and Security”

    Kong Soon Lim

    Abstract

    The proliferation of investment treaties in international investment law has largely displaced the role of customary international law on investment protection. This paper considers the utility of customary international law during armed conflict and the compatibility in the interaction between treaty and customary obligations, through the classical norm of the host State to provide protection and security on foreign investment. Applying existing scholarship on the consequences flowing from the codification of customary law, this paper argues that the inclusion of protection and security clause in its codified form in treaties have diverged and fragmented from the original bare custom. Despite the fragmentation of protection and security in treaty rules, the corresponding customary law remains effective and would continue to govern the relationship between States in all circumstances, including armed conflict. This paper calls for a return to the bare custom on protection and security to facilitate parallel application of treaty and customary protection to achieve a universal scope and standard of foreign investment protection.

14. Protection of Foreign Investments Against the Effects of Hostilities: A Framework for Assessing Compliance with Full Protection and Security

    Ira Ryk-Lakhman

    Abstract

    In recent years there has been an increase in the number of investor-State arbitrations involving war-torn States. Among other issues, the investors in these claims seek redress for the State’s alleged failure to protect against the destruction of property by third parties as required under the “full protection and security” standard. Although this standard appears in most investment instruments, its content and scope is mostly controversial, while its operation against the particular backdrop of armed conflicts and international humanitarian law, is completely neglected. This chapter addresses both points of controversy. It is argued that, “full protection and security” imposes a relative due diligence obligation that accounts for the particular circumstances of the host State in the assessment of compliance with the obligation. The law of armed conflict, in turn, also imposes a relative due diligence obligation to take “feasible” precautions in favour of foreign investments against the effects of attacks. Assessment of compliance with this international humanitarian law obligation turns on an available means analysis. Both assessments of the applicable due diligence standards may however result in contradictory results. To ascertain whether a State failed to protect an investment against attacks, it is important to consider the relationship between investment law and the law of armed conflict, since in practical terms of State responsibility, only the rule that prevails in a norm conflict may be breached and engage the State’s international responsibility.

15. Protection of Investments in War-Torn States: A Practitioner’s Perspective on War Clauses in Bilateral Investment Treaties

    Suzanne Spears, Maria Fogdestam Agius

    Abstract

    This chapter examines clauses in investment treaties that enable foreign investors to bring claims against States for compensation when investments have suffered damage due to acts of war or civil unrest. The authors examine these so-called war clauses through the prism of the bilateral investment treaties of three States with histories of armed conflict: Libya, Syria and Yemen. They find that war clauses display a striking diversity in the degree and type of protection offered. The authors also analyse the limited number of arbitral awards in which tribunals have interpreted and applied war clauses. They find that when tribunals do apply war clauses, there is a high risk that the arbitrators misapply such clauses or conflate them with other substantive standards. The authors argue that war clauses should not be seen as replacing other investment protection standards in the context of war or civil unrest. They are distinct standards that provide investors with additional protection where host States claim that they were unable to protect investments due to the exigencies of war or military necessity. War clauses also are relatively robust standards, as they are less vulnerable than other investment protection standards to defences based on a State’s alleged inability to provide protection, essential security clauses, a state of necessity or other circumstances precluding wrongfulness under the customary international law on State responsibility. Relatively common but often overlooked, war clauses are likely to take a more prominent place in investor-State arbitration in the coming years given the unfortunate number of armed conflicts that affect States parties to bilateral investment treaties today.

16. Investment Treaty Security Exceptions, Necessity and Self-Defence in the Context of Armed Conflict

    Caroline Henckels

    Abstract

    Security exceptions are becoming increasingly prevalent in investment treaties, yet uncertainty remains as to their relationship with the defences of necessity and self-defence, both in general and in the context of armed conflict. Inconsistent interpretations of these provisions by investment tribunals and annulment committees and by the International Court of Justice under treaties of friendship, commerce and navigation have only added to this uncertainty. This chapter argues that security exceptions are conceptually distinct from the circumstances precluding wrongfulness, and in particular are not leges speciales vis-à-vis necessity or self-defence. Rather, security exceptions should be understood as either limiting the scope of the treaty obligations, or as treaty-internal affirmative defences. These different interpretations of security exceptions have practical implications for the way that the substantive obligations that may be relevant to investment claims arising from a situation of armed conflict (such as fair and equitable treatment and full protection and security) are interpreted where a security exception is present in the relevant treaty, and for the allocation of the burden of proof. Moreover, because successful invocation of the security exception renders the challenged conduct lawful, no duty of compensation arises. Relatedly, successful invocation of the necessity defence does not give rise to any obligation of compensation as a form of reparation.

17. Supervening Impossibility of Performance and the Effect of Armed Conflict on Investment Treaties: Any Room for Manoeuvre?

    Gabriele Gagliani

    Abstract

    The protection of foreign investments in areas torn by armed conflicts has become a pressing concern following the recent outbreak of hostilities in several regions of the world. This chapter addresses the specific question of whether there is any space (and how much of it) for a host State to successfully invoke the doctrine or principle of supervening impossibility of performance in respect of international investment agreements when an armed conflict emerges. International law tribunals and doctrine have generally adopted a very strict stance on the subject, almost totally depriving this doctrine of any practical significance. Article 61 of the Vienna Convention on the Law of Treaties, which is considered to reflect customary international law, and which requires the permanent disappearance or destruction of an object indispensable for the execution of the treaty, has also been taken to establish a very exacting test for any successful invocation of this principle. Once the principle is placed in the context of armed conflicts and international investment agreements, one might also question whether an investment agreement is suspended or terminated as a consequence of hostilities and whether the principle can be invoked with specific regard to investment agreements. This chapter addresses, in turn, all these points and argues that, though limited, there might be some space for the supervening impossibility of performance to be successfully invoked in respect of international investment agreements should an armed conflict arise. Nonetheless, from a practical point of view, the invocation of this principle might still not be the easiest course of action in particular if compared to other doctrines or principles such as force majeure and state of necessity.

18. Awarding Damages in Times of Armed Conflict: An Emerging Standard of “Economic Capacity” for the Host State

    Jose Gustavo Prieto Muñoz

    Abstract

    This chapter considers what legal standards should be applied by an arbitration tribunal in the assessment of damages in the context of armed conflicts. It is argued that if a dispute arises within the context of an armed conflict, an arbitration tribunal needs to apply a different methodological approach than in times of peace. Specifically, investment arbitrators could engage with the concrete legal standard for the “economic capacity” of the host State that emerges from decisions made by the Eritrea-Ethiopia Claims Commission. The adoption of this standard could provide valuable guidance when confronting the difficult task of calculating damages in the context of armed struggles. In order to advance this argument, the chapter provides a general map of the current methods and sources applied by investment tribunals to assess damages in the absence of definitive written provisions in the relevant international investment agreements. It further discusses the “economical capacity” standard developed in the final award of the Eritrea-Ethiopia Claims Commission and the way that this conceptual development could be applied to investment arbitration in times of armed conflict.

19. The Cross-Fertilisation of International Investment Law and International Humanitarian Law: Prospects and Pitfalls

    Teerawat Wongkaew

    Abstract

    This chapter examines the possible cross-fertilisation of international investment law (IIL) and international humanitarian law (IHL), applying the scholarship on judicial borrowing. Cross-fertilisation is understood as using IHL concepts and principles as the interpretive reference as opposed to direct application of those in IIL. The core argument is that the use of IHL concepts can facilitate the arbitrator in investment treaty disputes involving situations of armed conflicts. Notwithstanding some limitations and pitfalls of the cross-fertilisation, it offers a sophisticated framework for incorporating IHL into IIL provided that contextual, ideological and institutional similarities and differences between the two regimes are considered. The chapter concludes that the successful cross-fertilisation will bring clarity and precision to the IIA provisions, enhance legitimacy of arbitral awards and foster coherence in the interpretation of international law.

20. International Investment Arbitration and Non-binding Standards Applicable in Conflict: Parallel or Merging Worlds?

    Merryl Lawry-White

    Abstract

    This chapter looks at the intersection of investment treaty arbitration and non-binding standards (sometimes called voluntary, informal or corporate social responsibility standards or instruments). The chapter specifically focuses on those standards that might apply in conflict, a time and space when other governance systems are often compromised. There is increasing emphasis on an expectation that corporations act as responsible “global citizens” amongst States, civil society and businesses: a 2014 survey of 853 senior corporate executives found that 83% agreed that human rights are a matter for business as well as governments. And there is an expanding body of standards specifying what that means, including taking measures to avoid exacerbating abuses in conflict scenarios.

    The governance concerns underlying these standards are making increasing appearance in investment protection. Voluntary and legal approaches are starting to merge in national legislation, and States are reflecting this change in their investment treaties. The approaches encapsulated in standards have also started to appear in the reasoning and practice of investment treaty tribunals. In light of these developments, this chapter examines the factors and mechanisms that will determine the relevance on non-binding standards to arbitration under investment treaties, particularly in light of the specific jurisdiction in which tribunals operate, carved and limited by party consent.

    The interaction is between standards and treaties is not one way; it is not only about how standards are applied by tribunals or incorporated into IIAs, but also how tribunals and IIAs shape the status of standards and their relevance for the risks considered by different Parties. These include both investors and States, as increasing numbers of investors expect the States where they invest to facilitate a culture of and commitment to human rights, environmental and labour norms.

21. Responsible Investment in Occupied Territories: Beyond the UN & OECD Principles

    Eleni Micha

    Abstract

    The discussion on responsible investment is not a recent one, insofar as a human rights approach to investment has always been at the center of interest to both academics and practitioners. Having in mind that responsible investment needs to be conflict-free and support good governance, it is of a particular interest to examine if and how the UN Principles of Responsible Investment of 2006 and the OECD Guidelines of 2011 may function in cases in which investing activities take place in occupied or otherwise disputed territories. Accordingly, the current chapter will focus on the influence of responsible investment principles in the context of negotiation of international investment agreements and the eventual implications from non-compliance with such principles. With various investment activities taking place in Western Sahara, this case is characteristic of the challenges posed by the implementation of responsible investment principles in disputed territories. Hence Western Sahara will serve as case study in this chapter.

22. Corporations and Crimes Against Humanity: Financial Liability Through ISDS?

    Kevin Crow

    Abstract

    This Chapter explores the overlapping conceptions of “international legal personhood” in international criminal law and international investment law in light of the December 2016 International Centre for Settlement of Investment Disputes Award of Urbaser v Argentina. It is an effort to parse out and test potential standards for investor-to-State liability for corporate participation in mass atrocities and human rights violations, particularly in instances of armed conflict. In exploring the question of when a corporation can be held financially liable for human rights violations under international investment law, this Chapter suggests that Urbaser invites an application of ICL liability doctrines as “boundary crossing” tools that arbitrators can use to further define the contours of corporate subjectivity to international law.

23. The Recourse to Private Military and Security Companies by Foreign Investors in Conflict-Affected Countries: Dangers, Opportunities and the Need to Regulate

    Lukas Vanhonnaeker

    Abstract

    Political and economic contexts characterized by armed conflicts are not conducive to economic growth and do not attract foreign investments. This reality is ultimately being detrimental to host States and investors alike. Accordingly, to answer risks associated with armed conflicts, private investors increasingly have recourse to Private Military and Security Companies (PMSCs) in order to undertake economic operations in contexts characterized by a weak rule of law. From an economic standpoint, the rise of PMSCs seems to be beneficial for host States seeking inward flows of Foreign Direct Investment (FDI) and for foreign investors willing to invest in countries affected by armed conflicts that are rich in natural resources, for example. However, the use of PMSCs leads to other issues pertaining, for example, to human rights law, and the laconic regulatory framework for PMSCs and their activities leads to a global state of uncertainty. Therefore, while allowing PMSCs to blossom in conflict-affected countries could benefit the interests of foreign investors and the economic interests of the host State, it could also severely impede with the latter’s other international obligations if PMSCs commit abuses. Although efforts should focus on crafting and enforcing a specific regulatory framework for the activities of PMSCs, international investment law constitutes a promising avenue to contribute to the regulation of the use of PMSCs by foreign investors and complement other international instruments.

24. The Paradox of the Prohibition of the Use of Force in Contemporary International Law—Some Elementary Remarks

    Alain Pellet

    Abstract

    International relations have gone from a system regulated by the lawful resort to armed force to one theoretically prohibiting the use of force, but, without establishing a credible alternative. To lower the conditions under which the use of armed force remains lawful would open the door to every kind of abuse by resurrecting the old demons of “just war”, but to reject categorically such use also deprives the international society of effective means to prevent or end humanitarian disasters. This dilemma cannot be resolved through positive law which, as it stands, is certainly inclined to strictly maintain the principle of the prohibition of the use of force—interpreted reasonably.