The interpretation of necessity clauses in bilateral investment treaties after the recent icsid annulment decisions

Abstract

The recent annulment decision in Sempra Energy International v. Argentine Republic rendered by an ad hoc committee of the International Centre for Settlement of Investment Disputes (ICSID) has ratified the approach previously adopted by the ad hoc annulment committee in CMS Gas Transmission Company v. the Argentine Republic, according to which the customary rule of necessity embodied in Article 25 of the International Law Commission's Articles on State Responsibility for Internationally Wrongful Acts (Articles of State Responsibility) cannot be used, as several arbitration tribunals thought, to determine the requirements for the successful invocation of the necessity clause of the United States-Argentina bilateral investment treaty in its Article XI. To do so is an error of law, since the provisions are independent and operate in a different fashion. Further, the Sempra and CMS annulment decisions have determined that, if a necessity clause of a bilateral investment treaty (BIT) is successfully invoked by host States, the clause excludes the existence of a violation of the treaty by the actions or regulations adopted to face a given political, social, or economic crisis that has had an adverse effect on foreign investors' rights. The consequence is that no compensation is owed to foreign investors for the losses they bear as a result of these acts during the crisis.

The purpose of this article is to offer a mode of interpretation for BIT necessity clauses, which would allow a more balanced result in terms of allocation of risks while staying in line with the CMS and Sempra annulment decisions. To this end, the article proposes new requirements that should be met to successfully invoke BIT necessity clauses. It also specifies the effects of such success: The justification offered by the clause is temporary and compensation is not, in principle, owed to investors during the given crisis, but some form of indemnity can exist in certain cases even if the BIT necessity clause is successfully invoked.