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Caroline Henckels, General and security exceptions and the question of compensation in international investment law, Journal of International Economic Law, Volume 28, Issue 1, March 2025, Pages 63–77, https://doi.org/10.1093/jiel/jgaf005
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Abstract
In WTO and ICJ jurisprudence it has never been questioned that general and security exceptions operate to avert a treaty violation, but in a growing number of investment cases, adjudicators have held that a state successfully invoking a materially identical exception must nevertheless compensate the claimant. These decisions fundamentally reconceive the nature of an exception. Rather than excluding or defeating the operation of a rule, the exception is engaged after a rule violation has been established. The exception expands tribunals’ discretionary powers with respect to how a rule violation may be remediated (a mitigating mechanism), curtails those powers (a remedy-constraining mechanism), or invites third parties to alter their perception of a state’s culpability (a reputation-enhancing mechanism). These interpretations are at odds with the language of these exceptions, which unequivocally permit states to enact or implement measures covered by the exception, and in some cases, they reflect a misapprehension of norms of state responsibility. These characterizations of exceptions also reflect a deeper conceptual misunderstanding of exceptions within normative systems—the nature of an exception to a rule, the difference between proscribed and permitted conduct, and how legal regimes are structured to create incentives and disincentives. This confusion is partially attributable to treaty design. Older treaties lack coherence and precision, while newer agreements that layer safeguards designed to protect regulatory space appear to have exacerbated interpretive challenges rather than ameliorating them.
Introduction
In WTO law it has never been questioned that a member successfully invoking a general or security exception has not breached its treaty obligations,1 and the ICJ has held that security exceptions in treaties of friendship, commerce, and navigation likewise avert a violation.2 But in a growing number of investor–state cases, adjudicators have held that a state successfully invoking a materially identical exception under a bilateral investment treaty (BIT)3 or free trade agreement (FTA)4 must nevertheless compensate the claimant.
The argument that successfully pleading the exception does not remove the duty to compensate the affected investor first appeared in the early awards against Argentina (CMS v Argentina,5 Enron v Argentina,6 and Sempra v Argentina7) and in a lesser-known annulment committee decision handed down during that period (Mitchell v Democratic Republic of Congo8). Following trenchant criticism from the CMS,9 Enron,10 and Sempra11 annulment committees, the argument lay dormant for over a decade while general and security exceptions proliferated in new treaties, lauded as a suitable mechanism to achieve a more acceptable balance between state and investor interests.12 Proponents of these exceptions appear to have assumed that future tribunals would invariably hold that exceptions avert a treaty violation and, consequently, obviate any question of compensation. Yet contrary to these expectations, the argument has resurfaced and has evolved: not only in its characterization of the role of exceptions, but also in the expansion of its scope to encompass general exceptions as well as security exceptions. The argument’s first reincarnation in the Bear Creek v Peru13 award attracted some attention,14 but the Eco Oro v Colombia15 decision put the issue squarely back in the spotlight.16 Since then, another tribunal (Montauk Metals v. Colombia17) and a dissenting arbitrator in a further case (Red Eagle v Colombia18) have taken the same position.
These cases raise the question: if general and security exceptions do not operate to exclude a duty of compensation, what purpose do they serve? The first part of this article analyzes the various interpretations of the exceptions at issue in these cases (hereinafter, exceptions) offered by claimants, adjudicators, and commentators in support of the claim that exceptions do not remove a state’s obligation to compensate. A shared feature of these interpretations is that rather than excluding or defeating the operation of a rule, the exception is engaged after a rule violation has been established. The exception expands tribunals’ discretionary powers with respect to how a rule violation may be remediated (a mitigating mechanism), curtails those powers (a remedy-constraining mechanism), or invites third parties to alter their perception of a state’s culpability (a reputation-enhancing mechanism). These interpretations, the article explains, are difficult to reconcile with language of the exceptions, which unequivocally permit a state to enact or implement measures covered by the exception. In some instances, these interpretations also reflect a misapprehension of norms of state responsibility. More fundamentally, these characterizations of exceptions do not align with the underlying logic of normative systems: they misunderstand the nature of an exception to a rule, the difference between proscribed and permitted conduct and the consequences that flow from this distinction, and the way in which such systems operate to disincentivize conduct that generates unwanted consequences for the actor. The second part of the article searches for an explanation for this phenomenon. It examines the language of the exceptions in light of other provisions in these treaties that were relied on in support of the argument that exceptions do not exclude compensation, suggesting that the issue is partially attributable to treaty design. Older treaties lack coherence and precision, and the ever-growing array of provisions in newer treaties that aim to signal that the treaty does not wholly subordinate public welfare regulation to the protection of foreign investment appear to have exacerbated the problem rather than ameliorating it.
Exceptions to what?19
Conduct rules versus decision rules
Normative systems frequently order the interaction of seemingly competing interests to avoid undesirable consequences that would result from obliging universal adherence to rules. The rule-exception dyad is commonly employed to perform this ordering function. A rule commands an actor to perform or refrain from performing an act, and an exception stipulates the circumstances in which that command does not apply. In other words, an exception permits conduct that would otherwise violate the rule. There are two primary ways in which the rule–exception relationship can be conceptualized: either the exception delimits the scope of the rule, or the exception negates (defeats) the application of the rule. There are important implications that attend this distinction,20 but either way, we end up with the same result: where the exception applies, the rule has not been broken. Where the rule has not been broken, the legal consequences of rule-breaking cannot logically follow.
Rules and exceptions, according to this understanding, are first-order rules that regulate the conduct of actors within a legal system. They stipulate commands, the consequences of failing to abide by those commands, and the circumstances in which it is permissible to disobey a command. General and security exceptions are conduct rules addressed to states, stipulating the conditions under which the treaty’s substantive obligations can be avoided.21 For example, the general exceptions in the Canada–Peru FTA (at issue in Bear Creek) and the Canada–Colombia FTA (under which Eco Oro, Montauk Metals, and Red Eagle were decided) relevantly provide that ‘… nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary to …’. Here, ‘this Agreement’ refers to the treaty’s commands, and ‘nothing shall … prevent’ establishes that despite the existence of those commands, ‘a Party’ is permitted to do something (‘adopt[] or enforc[e] measures necessary to…’). The exception speaks to states, telling them in which circumstances they may permissibly do something that is ordinarily impermissible.22
Alternative interpretations of exceptions that oblige a state relying on an exception to pay compensation all view the exception not as a conduct rule, but rather as a type of decision rule that enters the picture after the tribunal has concluded that a state has violated its obligations the investor. Rather than being addressed to states, the exception speaks to tribunals or to third parties, telling them how they must act, or may act, in response to a rule violation. The following sections explore these characterizations and the problems they encounter.
A mitigating mechanism
The argument that the exception functions to expand a tribunal’s discretionary powers with respect to compensation, permitting it to reduce the amount of compensation owed, was first raised in passing by the Mitchell annulment committee.23 The argument was subsequently taken up in the scholarship,24 some of which contends that the exception could also authorize deferred compensation when the host state is facing a crisis.25
According to this characterization, the exception does not permit something that is ordinarily prohibited; rather, it expands the existing capacities of a tribunal where certain conditions are met, providing a basis for a tribunal to exercise its discretion should it so choose. The outcome of this exercise of discretion would rest on the tribunal’s view of the measure’s beneficial effects weighed against its deleterious financial impact on the investor26—an assessment guided only by what appears to be an unconstrained value judgement. The rationale given for this interpretation is that permitting a state to avoid compensation would upset the appropriate balance of rights and obligations in the treaty,27 which is surely a question for the treaty parties. A stronger argument is that requiring a state to internalize some of the cost of violating its obligations would reduce moral hazard and incentivize efficient regulatory practices.28
Tribunals already routinely exercise discretion over quantum in various ways, allowing arbitrators to apply their own (often unstated) intuitions about what justice demands in a given case. They may also have discretion to delimit the amount of compensation an investor can recover based on equitable considerations, although this is controversial,29 as awarding partial compensation deviates from the principle that an injured party should be fully restored to the position they would have occupied had the rule violation not occurred.
But attempting to reconcile state and investor interests in assessing quantum as a consequence of a finding that the exception applies is at odds with how the exception interacts with the regime’s rules. The rule–exception dyad frames the interests that animate rule and exception as conflicting. It provides a mechanism for determining the circumstances in which each interest prevails, creating an either–or scenario: either the rule applies, or the exception applies, but not both at once. In other words, where the exception applies, the law has already determined the outcome—the rule is displaced. Arbitrators might disagree with this hierarchical structure and be tempted to engage in a balancing exercise through giving partial effect to the consequences of violating a rule by adjusting the amount and/or timing of compensation. But the interests have already been balanced in the way the exception is crafted, through the specification of permissible objectives and the required nexus between measure and objective.30 The rule is the interest that generally takes priority, but the interest specified by the exception overrides the rule where its requirements are satisfied: foreign investment should ordinarily be protected (the rule) but certain public welfare measures negatively impacting on investors are nonetheless permitted (the exception).
This is evident from the text of the exceptions. To recap, the Canada–Peru and Canada–Colombia FTAs’ general exceptions provide that ‘nothing in this Agreement shall be construed to prevent….’, and the security exceptions in the US–Argentina and US–Democratic Republic of Congo (DRC) BITs (at issue in CMS, Enron, and Sempra and in Mitchell, respectively) state that ‘[t]his Treaty shall not preclude…’. These phrases are overarching qualifiers that limit the treaty’s applicability by excluding the duty to comply with the treaty’s substantive obligations in certain circumstances, such that conduct conforming to the exception is always permitted, regardless of what the rest of the treaty states.31 A measure that complies with the exception is wholly exempt from the legal consequences that would ordinarily arise if the rules were violated. The references to ‘this Agreement’/’this Treaty’ also include the exception itself (it is self-referential), meaning that the exception cannot be interpreted in such a way as to preserve the rules by giving effect to the consequences of non-compliance. Construing these exceptions in any other way suggests that despite their unequivocal language, the phrases ‘this Treaty shall not preclude’ and ‘nothing in this Agreement shall be construed to prevent’ are somehow conditional. This prioritization is reinforced (although it need not be) by clauses in the Canada–Peru and Canada–Colombia FTAs that subordinate the treaty’s investment chapter to its other chapters, including the exceptions chapter, in the event of any inconsistency.32
A remedy-constraining mechanism
Another perspective is that the exception limits a tribunal’s discretionary powers in relation to the remedies it can order, by preventing it from ordering restitution with respect to an investor, or (in the context of inter-state dispute settlement) by preventing it from making orders in relation to treaty violations concerning the investor’s home state that are connected to violations of obligations owed to an investor. This interpretation inverts the relationship between command and permission that is inherent in exceptions: a tribunal is ordinarily permitted to make orders as a consequence of finding that a state has violated the treaty (the rule), but it is prohibited from making some or all of those orders under certain conditions (the exception).
The seed of this idea was sown by the claimant in CMS and by the claimants’ expert witnesses in Sempra and in El Paso v Argentina.33 They argued that the exception confirmed that Argentina could—practically speaking—apply the measures, but that it did not operate to avert a treaty violation. The exception permitted a ‘temporary and limited suspension of benefits’,34 allowed the state to ‘temporarily bar[] entry into certain premises,’35 or confirmed that a state ‘maintains the right’ to take certain measures,36 but compensation was obligatory where those actions would be inconsistent with the state’s obligations to investors. Scholars later argued along similar lines: the exception permitted a state to ‘commit[] certain acts’,37 or confirmed that the treaty parties’ ‘sovereign rights’ were unimpaired.38 This argument is difficult to decipher. An act cannot enjoy the status of a legal privilege (a state is at liberty to perform that act) yet simultaneously generate the consequences that would arise from a treaty violation.
Facing criticism that such an interpretation would render the exception redundant,39 the argument evolved. Commentators argued that the US–Argentina BIT exception would exclude specific performance,40 an idea that was subsequently generalized by the claimants in Eco Oro41 and in Montauk Metals42—where the exception applied, a tribunal could not award restitution. Although the Eco Oro tribunal’s characterization of the exception is unclear and could be read in three different ways (discussed in the following sections), in one passage of the decision it accepted this argument.43 The Montauk Metals award suffers from some of the same contradictions, but the tribunal followed this approach in part of the award: the exception ‘preclud[es] an arbitral tribunal from preventing the adoption and enforcement of measures to protect the environment’, such as by ordering that Colombia reinstate its former regulations.44
As explained earlier,45 the exceptions refer to the whole treaty (‘this Treaty’/‘this Agreement’). There is no basis to read them more narrowly, addressed only to provisions stipulating available remedies. There is also the question whether it is within tribunals’ powers to order restitution. The International Law Commission’s (ILC’s) Articles on State Responsibility (ASR) stipulate restitution as a form of reparation and prioritize it over compensation and satisfaction in relation to the legal consequences of responsibility for internationally wrongful acts with respect to inter-state relations.46 Although investment tribunals routinely apply these principles, they do not apply to states’ relationships with other subjects of international law, such as investors.47 The ASR envisions a bifurcated system of responsibility with special rules applicable in such cases.48 It follows that as the US–Argentina and US–DRC BITs do not specify restitution as an available remedy, a tribunal may not be competent to award it.49 The Canada–Peru and Canada–Colombia FTAs provide that a tribunal may order the restitution of property50 which, by implication, suggests that tribunals cannot order juridical restitution (the revocation or annulment of legislative or executive measures, quashing of judicial decisions, or performance of contractual obligations). These treaties also provide that if a tribunal orders restitution, the award must also stipulate that the host state may pay compensation instead.51 Because the state can always elect to pay compensation in such cases it can always override an order of restitution, irrespective of the application of the exception—meaning that the state would gain nothing from pleading it.52 In any event, an order of restitution may not provide full reparation, may be avoided by a state where it would be materially impossible or disproportionately burdensome, and would be unenforceable—which is why investors rarely request it.53
Another interpretation based on the same underlying premise—that exceptions limit a tribunal’s power with respect to remedies—views the US–Argentina BIT exception as operating with respect to the relationship between the treaty parties, rather than the investor–state relationship.54 The exception functions as an ‘excuse’ in relation to the consequences that would ordinarily flow from the host state’s failure to observe obligations owed to the investor’s home state that are connected to breaches of obligations owed to the investor.55 Unlike a justification, which renders the conduct lawful, an excuse excludes what would otherwise be the consequences of engaging in an unlawful act.56 Presumably, this would mean that the legal consequences of responsibility entailed by an internationally wrongful act would be excluded where the exception applied. But it is not clear who would decide whether the exception applied, or the legal basis upon which such a decision could be made. The US–Argentina and US–DRC BITs provide for inter-state dispute settlement only in respect of disputes concerning the ‘interpretation or application’ of the treaty, namely disputes about the proper meaning of treaty provisions or diplomatic protection claims.57 A tribunal’s finding that a host state has breached obligations with respect to an investor (whether by way of investor–state dispute settlement or diplomatic protection) does not enliven justiciable obligations with respect to the home state that the host state could avoid by pleading the exception.
For a different reason, this interpretation is not tenable in relation to the Canada–Peru and Canada–Colombia FTAs. In addition to disputes about interpretation and application, both treaties provide for inter-state dispute settlement where one treaty party alleges that the other party’s measures are inconsistent with its treaty obligations, analogous with trade law.58 The difficulty lies in the fact that if the exception is an excuse that functions in relation to the inter-state relationship, the host state would not be obliged to cease acting in violation of the treaty and afford any reparation due to the home state, and, accordingly, the home state would be precluded from taking countermeasures. Both treaties stipulate special rules on cessation, reparation, and countermeasures59 that say nothing about the exception, and it is difficult to see the basis upon which this interpretation could be implied.
A reputation-enhancing mechanism
The third approach regards the exception as operating to render a state’s conduct lawful where it applies, but the state nevertheless has a duty of compensation—the very same duty that would arise in the absence of the exception. Because the financial consequences are identical regardless of whether the conduct is lawful or unlawful, the only value for a state invoking the exception would be that it could serve to enhance its reputation. Here, the exception does not exempt an actor from a duty that would otherwise apply: rather, it merely serves as an invitation to third parties to have positive regard for that actor.
This characterization of the exception first appeared in the literature in support of the early awards against Argentina. Successfully pleading the exception could, it was argued, positively impact the state’s access to credit and generate other beneficial reputational consequences, presumably with respect to prospective investors and treaty partners.60 This suggests that a state would invoke the exception where it perceived that the value of expressing its commitment to adhere to legal norms outweighed the considerable financial outlay that it would need to devote to attempting to convince the tribunal that the exception applied—a strategy itself akin to spinning a roulette wheel. The question whether a state successfully relying on the exception (but paying compensation) would enjoy these beneficial effects is speculative, as it rests on a sophisticated understanding of the law that is unlikely to be possessed by decision-makers in agencies and bodies that influence or control access to credit, or by prospective investors (who likely care only about compensation). It is more plausible that prospective treaty partners’ legal advisers would understand and give credence to a state in such circumstances, but whether this would materially affect that government’s overall decision-making calculus is far from certain.
It may have come as a surprise that some 10 years after the annulment committees’ rebuke of the early Argentina tribunals’ erroneous conflation of the exception with the necessity defence, the claimant in Eco Oro61 revived the argument and applied it to general exceptions. Even more puzzling is that in part of its decision, the tribunal agreed—even though Colombia did not invoke a state of necessity.62 The Red Eagle arbitrator took the argument even further, explicitly describing the exception as a circumstance precluding wrongfulness (CPW).63 The key point for our purposes is not the conflation of the exception and the necessity defence as such, but rather the persistently mistaken reading of the ASR’s reference to compensation in relation to the CPW. The ASR provides that the invocation of a CPW ‘is without prejudice to … the question of compensation for any material loss caused by the act in question’.64 Those who maintain that the exception and the necessity defence are unitary latch onto this clause in support of their argument that successfully invoking the exception does not remove a state’s obligation to pay compensation. But this provision does not create a duty to compensate, and there is no rule of customary international law or general principle that would support the existence of such a duty.65 And even if such an obligation exis, it would not be a duty of reparation, because reparation is a legal consequence of responsibility, which is itself a consequence of wrongfulness.66 It cannot be the case that despite wrongfulness being precluded, the legal consequences of wrongfulness somehow still persist.
The argument that compensation is owed in respect of lawful conduct has, however, taken on a new manifestation that is not contingent on assimilating the exception with the necessity defence. In another passage of its decision, the Eco Oro tribunal appeared to view the exception as having a separate operation: while a state could act in conformity with the exception ‘without finding itself in breach of the FTA, this does not prevent an investor claiming…compensation’.67 This passage was subsequently relied on by the claimant68 and quoted approvingly by the tribunal69 in Montauk Metals. The fundamental problem with this interpretation is the fact that, apart from the situation in which a tribunal finds there has been an otherwise lawful expropriation and orders that the state compensate the investor (a point further explored below70), there is no legal basis for it to award compensation in the absence of a breach of a legal obligation. Where the exception applies, the rule has not been broken—as these tribunals acknowledged. But where the rule has not been broken, there is no breach of the state’s international obligations. In the absence of a breach, there is no internationally wrongful act, the principles of responsibility are not engaged, and no duty of reparation arises.71 In other words, as previously explained,72 an act cannot simultaneously be lawful yet give rise to the consequences of an unlawful act.
How did we get here?
A partial explanation
The fact that exceptions and the necessity defence serve similar conceptual functions might explain their conflation in the Argentina cases. As noted at the outset,73 one way to view the operation of the exception is that it justifies a prima facie rule violation: the exception renders the act lawful where it applies, by defeating the operation of the rule. The necessity defence also functions as a justification, as it negates conduct that would otherwise be wrongful.74 In both situations, the act is contingently unlawful pending the tribunal’s determination of whether it is justified. This can occur through the application of the exception (as part of the regime’s primary rules), or by applying the defence (a secondary rule that is engaged after the application of the primary rules results in a finding of a rule violation). But this conceptual similarity could only explain why the exception was characterized as a reputation-enhancing mechanism, and only where that characterization arose from assimilating the exception with the necessity defence. A closer examination of the language of the exceptions and other provisions in these treaties reveals three factors that may also have contributed to the situation.
Prohibition versus permission
What does it mean to say that a state is not precluded or prevented from enacting or implementing measures covered by the exception? The Argentina tribunals did not interrogate the meaning of preclude, but commentators supporting their rulings argued that it means that the state ‘would not be stopped’ from acting (but must pay compensation).75 A variation on this argument was raised by the claimant76 and accepted by the tribunal in Eco Oro: according to the tribunal, the exception was ‘permissive, ensuring a Party is not prohibited from adopting or enforcing a measure to protect human, animal or plant life and health’, but the exception did not ‘permit[] such action to be taken without the payment of compensation’.77 These passages were relied on by the claimant78 and quoted approvingly by the tribunal79 in Montauk Metals.
Both tribunals’ statements convey the idea of a preventative (prohibitory) injunction: a state cannot be injuncted from acting, but if that conduct violates the state’s obligations to an investor, it must provide compensation. Although these tribunals characterized the exception as a remedy-constraining mechanism, their reasoning would more logically support the idea that the exception excluded the possibility of a tribunal ordering provisional measures so as to prevent the challenged measure or measures from ever coming into existence or being applied. However, there is no indication that these exceptions would bear upon tribunals’ powers to order provisional measures. The rules on provisional measures in the Canada–Peru and Canada–Colombia FTAs prohibit a tribunal from enjoining the application of an impugned measure,80 and under the US–Argentina and US–DRC BITs (which do not contain rules on provisional measures), tribunals’ powers to order provisional measures are derived from arbitration rules under which claims may be brought, which (unsurprisingly) do not address this issue.81
Leaving aside that point, another way to view the issue is by considering the manner in which normative systems are structured to create incentives and disincentives. A legal regime that attaches unwanted consequences to engaging in particular conduct aims to disincentivize that conduct. While studies suggest that investment treaty obligations are rarely internalized by governmental decision-makers, a regime that imposes pecuniary consequences for engaging in certain behaviour inherently seeks to have a preclusive or preventative effect, at least in relation to actors who perceive that the costs associated with that behaviour outweigh its benefits. Alternatively, some might argue that this interpretation suggests that host states enjoy a license to engage in conduct negatively impacting investment, akin to the concept of an efficient breach. However, this view contrasts with the widely accepted premise that the investment regime is protective in nature: it establishes a legal framework that emphasizes the prevention of harm to investors. The regime, like most normative systems, is built on the notion that non-compliance with rules is inherently undesirable.82 In this respect, compensation is best seen as is a remedial measure rather than a pre-emptive allowance for violations.
The Eco Oro tribunal’s characterization of the exception as ‘permissive, ensuring a Party is not prohibited’, also encounters other difficulties. The rule–exception dyad can, in this context, be characterized as a relationship between a prohibition and a permission.83 A prohibition is a type of command: you must not do X. If an action is not prohibited, it is permitted: in relation to exceptions, you may do X where condition Y applies. Deontic logic tells us that if something is permitted, it cannot simultaneously be prohibited. Here, prohibition (X) and permission (if Y, not-X) are bivalent. At the risk of undue repetition, if an action is permitted (here, not internationally wrongful), it cannot by definition trigger the consequences that attend a prohibited action (here, the consequences of responsibility). In other words, if an exception does not remove what would otherwise be the legal consequences of engaging in a particular act, the treaty operates to prohibit (preclude/prevent) the state from acting.84
Inconsistent formulations
The arguable ambiguity of preclude and prevent is compounded by the vast array of provisions in these treaties that aim to limit the reach of states’ obligations toward investors. These clauses employ a variety of drafting approaches with differing degrees of clarity and precision, opening the door for creative interpretations of the exceptions.85 Investors, tribunals, and scholars have contrasted the exceptions with provisions that explicitly carve out from or delimit treaty obligations or permit unilateral acts that would nullify or limit investors’ entitlements, arguing or inferring that the treaty parties had deliberately chosen not to use such equivocal language when drafting the exception. Claimants in the cases against Argentina drew a distinction between the exception and treaty provisions that permit denial of benefits or treaty termination,86 and scholars contrast the exception with those clauses and with others including a non-conforming measures clause, a war clause, and carve-outs from treaty obligations or from dispute settlement,87 or argue that if the exception was meant to exclude a duty of compensation it would do so expressly.88
This strategy was similarly employed in the cases involving Colombia. In Eco Oro, the claimant drew the tribunal’s attention to a clause excluding certain measures covered by the treaty’s security exception from dispute settlement,89 and in Montauk Metals, the claimant emphasized a provision stating that the treaty’s investment chapter ‘shall not apply’ to measures covered by its financial services chapter.90 The Eco Oro tribunal91 and the dissenting arbitrator in Red Eagle92 also contrasted the exception with the treaty’s police powers clause (‘except in rare circumstances … non-discriminatory measures … designed and applied to protect legitimate public welfare objectives … do not constitute indirect expropriation’).93 This stipulation meant there could be no possibility of compensation in such cases; therefore, had the parties to the treaty intended that the exception exclude compensation, the exception would expressly say so94—a point with which the Montauk Metals tribunal concurred.95
This confusion appears to have been compounded by the increasing prevalence of treaties replete with proclamations of the so-called (but ultimately vacuous) ‘right to regulate’. In non-disputing party submissions in Eco Oro, Canada made reference to a clause in the Canada–Colombia FTA entitled ‘Affirmations’, according to which each party has ‘sovereign rights … to conserve and protect its environment’, arguing that investment protection and environmental protection were mutually supportive.96 This apparently categorical statement is specious, undermining the interpretive weight of the unequivocally worded exception, which preserves the parties’ ‘sovereign rights’ in relation to some but certainly not all environmental measures. The tribunal seized upon the idea of mutual supportiveness, holding that the exception would not ‘support the protection of investment in addition to the protection of the environment’ if it excluded a duty to compensate the investor.97 The Montauk Metals tribunal98 and the Red Eagle dissentient99 subsequently reached the same conclusion. Depicting the exception itself as animated by mutual supportiveness reveals the way in which a superficial reading of exceptions might invite a balancing of state and investor interests, in a similar manner as viewing the exception as a mitigating mechanism. Even more incomprehensible are clauses found in other treaties that provide that ‘[n]othing in this Agreement shall be construed to prevent a … Party from adopting, maintaining or enforcing any measure [regulating the environmental impact of investments] otherwise consistent with this Agreement …’.100 These provisions duplicate much of general exceptions’ terminology, including the categorical ‘nothing in this Agreement’, yet convey something entirely different: ‘otherwise consistent with’ rather than ‘otherwise inconsistent with.’101
The case of expropriation
The third issue that may have contributed to this state of affairs is the reflexively tempting argument that exceptions cannot possibly apply to eliminate the consequences of an expropriation. Most of the literature on this point argues that exceptions should not apply to expropriations because this would afford less protection than customary international law, or would disrupt the appropriate balance of rights and obligations in the treaty.102 But states can contract out of custom,103 and (as argued previously104) the question of the optimal balance of interests in a treaty is for the negotiating parties. There is also an argument that exceptions should only apply to indirect expropriations,105 but the basis upon which this distinction could be drawn is unclear.
Assuming that the unspoken basis for these arguments is that there is something sacrosanct about property that would automatically exclude expropriation from the reach of the exception, contemporary treaties paint a different picture. Police powers clauses such as the one referred to in the preceding section106 wholly exclude a category of measures from the scope of expropriation, meaning that the question of compensation does not enter the picture. These clauses cover a broader range of measures than exceptions (the policy objectives listed are non-exhaustive, and ‘designed and applied’ is easier to satisfy than ‘necessary’). Counterintuitively, a state can avoid paying compensation for a broader range of public welfare measures that those covered by exceptions where the measure’s effect on the investment is equivalent to the extinguishment of property rights.107
Leaving aside the normative question, there are two complexities that bear on the issue in a doctrinal sense. The first is the express reference to compensation in expropriation clauses, mandating compensation where an expropriation has taken place. The Bear Creek decision can be read as suggesting that if the exception removed a duty of compensation in the case of expropriation it would need to do so explicitly,108 and the Eco Oro tribunal identified what it termed a ‘clear conflict’ between the treaty’s expropriation clause and the exception, which would arise if the latter excluded an obligation to compensate an investor.109 But the exception need not stipulate the manner in which it intersects with particular treaty provisions. As explained previously,110 these treaties unequivocally prioritize the exception over other treaty provisions where its requirements are satisfied. This includes the express reference to compensation: the obligation to compensate is, like any other obligation, overridden where the exception applies. Including exceptions in treaties without differentiating their applicability in relation to expropriations, or differentiating between direct and indirect expropriations, means that there is no basis to read the exception more narrowly.111 Parties to a treaty can limit the scope of the exception in order to exclude its applicability to expropriations,112 but this is not a common practice and the exceptions at issue in these cases do not contain any such limiting language.
The second complexity arises from the fact that international investment law does not prohibit expropriations. Expropriations are permitted, provided they are effectuated with due process, for a public purpose, and in a non-discriminatory manner. Most expropriation cases concern the existence of an expropriation rather than the adequacy of compensation, and it is open to a tribunal to find that an expropriation is lawful for want of compensation.113 If an expropriation is lawful, the exception is not engaged, because exceptions are only relevant to conduct that would otherwise be prohibited. A violation would only arise in the context of a lawful expropriation if the state refused to pay in accordance with the tribunal’s award. The significance of this point is that it affects what the non-conforming measure is, for the purpose of assessing the measure’s compliance with the exception: where an expropriation is lawful, the measure that requires justification is the refusal to pay.114 In such cases, the state would have to establish that the failure to pay was, for example, necessary to protect human health. In this respect, while there is much to criticize about the Bear Creek award, the tribunal was in principle correct to hold that Peru would need to establish why its failure to compensate the claimant was necessary to protect human life or health.115 This may be challenging in practice. While it might be possible to establish the necessity of non-payment in relation to expropriations carried out in the context of an economic crisis, it would be difficult to make out the exception where the state did have the capacity to pay – although it might be possible to argue that where, for example, the investor had caused environmental degradation or a security threat, paying compensation would not deter this behaviour in future, preventing the measure’s objective from being realized.
However, this does not explain the argument that, in relation to fair and equitable treatment, a state would need to establish that not paying compensation was necessary to protect the relevant objective. Having found that Colombia had failed to afford the claimant fair and equitable treatment, the Eco Oro tribunal (citing Bear Creek) observed that Colombia had not established why it was necessary for the protection of human life or health not to provide compensation.116In the context of fair and equitable treatment, compensation is a duty flowing from the establishment of a breach, rather than the breach itself117 (or an element thereof, in the case of an unlawful expropriation). Under these circumstances, there is no basis for a tribunal to determine whether not paying compensation, or paying a different amount of compensation, would be necessary to achieve the measure’s objective.
Conclusion
Exceptions to rules are ordinarily understood to permit action that would otherwise be prohibited in certain circumstances. As such, they form part of the body of conduct rules that regulate the behaviour of a legal system’s subjects. According to this perspective, general and security exceptions operate to avert what would otherwise be a treaty violation, meaning that, a duty of compensation—an incident of violation—cannot arise where the exception applies. The other interpretations of exceptions discussed in this article characterize them as a type of decision rule that is enlivened after a rule violation has been proven. The exception speaks to tribunals, expanding their discretionary powers with respect to how a violation may be remediated (a mitigating mechanism) or curtailing those powers (a remedy-constraining mechanism), or it is addressed to third parties, inviting them to adjust their perception of the state’s culpability (a reputation-enhancing mechanism).
Each of these interpretations faces considerable challenges, not least of which is the difficulty of anchoring them in the text of the relevant treaty. Viewing the exception as a mitigating mechanism necessarily invites state and investor interests to be balanced, but the interests have already been balanced in crafting the rule and the exception; in specific circumstances, the exception overrides the rule and, necessarily, the consequences of a rule violation. The exceptions make this abundantly clear (‘this Treaty shall not preclude’/‘nothing in this Agreement shall be construed to prevent’). This language also makes it difficult to read the exceptions as more narrowly directed to constraining the available remedies a tribunal can order, not to mention that it is not clear that tribunals constituted under the treaties at issue in these cases can in fact order juridical restitution (and, in any case, investors rarely request it). This characterization also adds nothing to the existing ability of a state to elect to pay compensation in lieu of restitution of property under the Canada–Peru and Canada–Colombia FTAs. With respect to the argument that the exception is an excuse that operates on the inter-state plane, the US–Argentina and US–DRC BITs contain no justiciable inter-state obligations in relation to which the exception could operate , and there is no evidence that the Canada–Peru and Canada–Colombia FTAs’ exceptions exclude the treaties’ special rules on cessation, reparation, and countermeasures. Characterizing the exception as a reputation-enhancing mechanism gives it little more than symbolic value, and a state seeking to generate beneficial reputational effects by pleading the exception is taking a leap of faith. More problematically, proponents of this interpretation either misunderstand the distinction between the exception and the necessity defence and mischaracterize the ASR’s reference to compensation where wrongfulness is precluded, or erroneously believe that a state has a duty of reparation in the absence of a wrongful act.
To be sure, it is extremely difficult to draft watertight legal provisions while retaining sufficient flexibility for unforeseen situations. But older treaties do not take a consistent approach to narrowing the scope of treaty protections in different situations, and the ever-growing variety of clauses in newer treaties that aim to signal that the treaty does not wholly subordinate public welfare regulation to the protection of foreign investment appear to have exacerbated the problem rather than ameliorating it. Viewed in the broader context of the increasingly incoherent body of investment cases involving exceptions, the phenomenon of Eco Oro and its progenitors and offspring suggests that rather than attempting to create tribunal-proof exceptions that will completely forestall unintended interpretations, it is time to reimagine how state and investor interests should be accommodated in the design of legal regime that, we are told, protects foreign investors as a means to sustainable economic development.
Footnotes
Eg Appellate Body Report, United States—Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, 12 April 1996, 13, 14, 16, 22, 25, 29; Panel Report, Russia—Measures Concerning Traffic in Transit, WT/DS512/R, 5 April 2019, para 7.107.
Eg Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America), Merits, Judgment of 27 June 1986, ICJ Reports 1986, paras 222, 225, 280; Case Concerning Oil Platforms (Islamic Republic of Iran v United States of America), Preliminary Objections, Judgment of 12 December 1996, ICJ Reports 1996, para 20; Merits, Judgment of 6 November 2003, ICJ Reports 2003, para 34.
‘This Treaty shall not preclude the application by either Party of measures necessary for…the protection of…essential security interests’ (art XI [untitled], US–Argentina BIT and art X(1) (Measures Not Precluded By This Treaty), US-DRC BIT), cf eg ‘The present Treaty shall not preclude the application of measures…necessary to protect [a Party’s] essential security interests’ (art XX(1)(d) [Untitled], US–Iran Treaty of Amity, Economic Relations, and Consular Rights).
‘… nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary … to protect human, animal or plant life or health’ (art 2201(3)(a) (General Exceptions), Canada–Peru FTA and art 2201(3)(a) (General Exceptions), Canada–Colombia FTA), cf eg ‘… nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures … necessary to protect human, animal or plant life or health’ (art XX(b) (General Exceptions), General Agreement on Tariffs and Trade).
CMS Gas Transmission Company v. Argentine Republic, ICSID Case No ARB/01/8, Award, 12 May 2005, para 390.
Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, LP v Argentine Republic, ICSID Case No ARB/01/3, Award, 22 May 2007, paras 344–345.
Sempra Energy International v Argentine Republic, ICSID Case No ARB/02/16, Award, 18 September 2007, para 393.
Mr Patrick Mitchell v The Democratic Republic of Congo, ICSID Case No ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006.
CMS v Argentina, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, para 146.
Enron v Argentina, Decision on the Application for Annulment of the Argentine Republic, 30 July 2010, para 414.
Sempra v Argentina, Decision on the Argentine Republic’s Application for Annulment of the Award, 29 June 2010, para 118.
According to UNCTAD’s IIA Navigator <investmentpolicy.unctad.org/international-investment-agreements/iia-mapping> accessed 28 January 2025, for treaties concluded in the period prior to 2007 when the CMS annulment committee’s decision was rendered, 11% contained security exceptions and 6% contained general exceptions, whereas of treaties concluded between 2007 and late 2017 when Bear Creek was decided, 49% contained security exceptions and 32% contained general exceptions.
Bear Creek Mining Corporation v Republic of Peru, ICSID Case No ARB/14/21, Award, 30 November 2017.
Joshua Paine, ‘Bear Creek Mining Corporation v Republic of Peru: Judging the Social License of Foreign Investments and Applying New Style Investment Treaties’ (2018) 33 ICSID Rev 340, 344–48; Wolfgang Alschner and Kun Hui, ‘Missing in Action: General Public Policy Exceptions in Investment Treaties’ in Lisa Sachs and others (eds), Yearbook on International Investment Law and Policy 2018 (OUP, New York, USA 2020) 363, 382–84; Wolfgang Alschner, Investment Arbitration and State-Driven Reform: New Treaties, Old Outcomes (OUP, Oxford, UK 2022) 162, 180.
Eco Oro Minerals Corp v Republic of Colombia, ICSID Case No ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021.
J Benton Heath, ‘Eco Oro and the twilight of policy exceptionalism’ (2021) Investment Treaty News; Hou-chih Kuo and Jeffrey Lo, ‘Runaway Tribunal? An Assessment of the Eco Oro Tribunal’s Opinion on the General Exceptions’ (2022) 15 Contemp Asia Arbitr J 143; Robert Garden, ‘Eco Oro v. Colombia: The Brave New World of Environmental Exceptions’ (2022) 38 ICSID Rev 17; Güneş Ünüvar, ‘A Tale of Policy Carve-outs and General Exceptions: Eco Oro v. Colombia as a Case Study’ (2023) 14 J Int Dispute Settl 517; Gupta Aarushi, ‘Eco Oro v. Colombia: Is GATT Article XX to be Blamed?’ (2023) 89 Arbitration 21.
Montauk Metals Inc (formerly known as Galway Gold Inc.) v Republic of Colombia, ICSID Case No ARB/18/13, Award, 7 June 2024.
Red Eagle Exploration Limited v Republic of Colombia, ICSID Case No ARB/18/12, Dissenting Opinion of José A Martínez de Hoz, 28 February 2024.
I borrow this question from one of the arbitrators in Seda v Colombia. In response to counsel for the claimants’ argument that ‘you can adopt your measure, but it doesn’t exempt you from the compensation obligation with respect to breaches of the Treaty’, the arbitrator replied: ‘what are the exceptions to, then? Why are they exceptions? Exceptions to what?’ Angel Samuel Seda and others v Republic of Colombia, ICSID Case No ARB/19/6, Hearing Transcript, 4 October 2022, at 409–10 (Arbitrator Perescano Díaz).
I explore some of these in Caroline Henckels, ‘Permission to Act: The Legal Character of General and Security Exceptions in International Trade and Investment Law’ (2020) 69 Int Comp Law Q 557.
On conduct rules and decision rules see Frederick Schauer, ‘Rules, Defeasibility, and the Psychology of Exceptions’ in Lorand Bartels and Federica Paddeu (eds), Exceptions in International Law (OUP, Oxford, UK 2020) 55, at 55 (with further references).
It could be argued that this exception also speaks to adjudicators through the use of the phrase ‘shall be construed’, aiming to ward off potential misunderstandings about the types of actions that the treaty permits. The US–Argentina and US–DRC BITs (‘[t]his treaty shall not preclude’), however, more directly communicates to states, establishing that they are free to engage in specific actions without violating the treaty.
Mitchell v DRC, Annulment, para 57.
Stephan Schill, ‘International Investment Law and the Host State’s Power to Handle Economic Crises: Comment on the ICSID Decision in LG&E v. Argentina’ (2007) 24 J Int Arbitr 265, at 286; Sarah Hill, ‘The “Necessity Defense” and the Emerging Arbitral Conflict in its Application to the U.S-Argentina Bilateral Investment Treaty’ (2007) 13 Law Bus Rev Am 547, 565; José Alvarez and Kathryn Khamsi, ‘The Argentine Crisis and Foreign Investors: A Glimpse into the Heart of the Investment Regime’ in Karl Sauvant (ed), Yearbook on International Investment Law and Policy 2008–2009 (OUP, New York, USA 2009) 379, 458–60; Alan Sykes, ‘Economic ‘Necessity’ in International Law’ (2015) 109 Am J Int Law 296, 320–21; David Collins, ‘The Line of Equilibrium: Improving the Legitimacy of Investment Treaty Arbitration through the Application of the WTO’s General Exceptions’ (2016) 32 Arbitr Int 575, 586.
Alvarez and Khamsi (n 24) 458, 460; Sykes (n 24) 320, 321.
Collins (n 24) 586; Hill (n 24) 565.
Schill (n 24) 286; Hill (n 24) 565.
Hill (n 24) 566; Sykes (n 24) 321, 322.
See Borzu Sabahi, Compensation and Restitution in Investor-State Arbitration: Principles and Practice (OUP, Oxford, UK 2011) 186, 188 (arguing that some of the Argentina tribunals discounted the amount of compensation owed on the basis of equitable considerations), cf Irmgard Marboe, Calculation of Compensation and Damages in International Investment Law (2nd edn, OUP, Oxford, UK 2017) 154, 157.
In relation to the argument about efficiency (see text accompanying footnote 28), I have previously argued that exceptions requiring that a measure be ‘necessary’ intends to incentivize efficiency by encouraging regulators to adopt the least-restrictive means of achieving the measure’s objective: see Caroline Henckels, Proportionality and Deference in Investor-State Arbitration (CUP, Cambridge, UK 2015) 156.
Including, of course, compliance with the chapeau in the case of general exceptions.
Art 802(1) (Relation to Other Chapters), Canada-Peru FTA. The Canada-Colombia FTA contains an identically worded and numbered clause.
El Paso Energy International Company v The Republic of Argentina, ICSID Case No ARB/03/15.
CMS v Argentina, Claimant’s Rejoinder on the Merits, 25 June 2004, quoted in CMS v Argentina, Award, 12 May 2005, para 386.
Sempra v Argentina, Opinion of José E Alvarez, 12 September 2005, paras 53, 68.
El Paso v Argentina, Opinion of W Michael Reisman, 5 November 2006, para 83, quoted in El Paso v Argentina, Witness Statement of Anne-Marie Slaughter and William Burke-White, 4 March 2007, para 86.
Diane Desierto, ‘Necessity and “Supplementary Means of Interpretation” for Non-Precluded Measures in Bilateral Investment Treaties’ (2010) 31 Univ Pa J Int Econ Law 827, 881–82.
Robert D Sloane, ‘On the Use and Abuse of Necessity in the Law of State Responsibility’ (2012) 106 Am J Int Law 447, 499. See also CC/Devas (Mauritius) Ltd, Devas Employees Mauritius Private Limited and Telcom Devas Mauritius Limited v India, PCA Case No 2013–09, Award on Jurisdiction and Merits, 25 July 2016, para 291: ‘Claimants argue that [the exception] merely provides that certain sovereign powers are unimpaired.’
El Paso v Argentina, Witness Statement of Anne-Marie Slaughter and William Burke-White, para 86; William Burke-White and Andreas von Staden, ‘Investment Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties’ (2008) 48 Va J Int Law 307, at 388.
Alvarez and Khamsi (n 24) 459, 460.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 372.
Montauk Metals v Colombia, Award, para 964.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 829.
Montauk Metals v Colombia, Award, paras 981–82.
See text accompanying footnote 31 ff.
art 34 (Forms of Reparation) and art 35 (Restitution), ASR.
ILC, Commentary to ASR, art 28 (Legal consequences of an internationally wrongful act), para 3: ‘Part Two [detailing the forms of reparation]… does not apply to obligations of reparation to the extent that these arise towards or are invoked by a person or entity other than a State.’
ILC, Commentary to ASR, art 33 (Scope of international obligations set out in this Part), para 4: ‘[i]t will be a matter for the particular primary rule to determine…to what extent persons or entities other than States are entitled to invoke responsibility on their own account.’
Zachary Douglas, ‘Other Specific Regimes of Responsibility: Investment Treaty Arbitration and ICSID’ in James Crawford and others (eds), The Law of International Responsibility (OUP Oxford, UK 2018) 815, 829, although it might also be argued that these rules reflect general principles and/or customary rules applicable to all wrongful acts, regardless of the beneficiary of the obligation in question: Martins Paparinskis, ‘Investment Treaty Arbitration and the (New) Law of State Responsibility’ (2013) 24 Eur J Int Law 617, 637–38.
art 841(1)(b) (Final Award), Canada–Peru FTA; art 834(2)(b) (Interim Measures of Protection and Final Award), Canada–Colombia FTA.
ibid.
Kuo and Lo (n 16) 161.
See Sabahi (n 29) 74.
Desierto (n 37) 908–09; Diane Desierto, Necessity and National Emergency Clauses: Sovereignty in Modern Treaty Interpretation (Martinus Nijhoff, Boston, USA 2012) 185, 190.
ibid.
Eg Kent Greenawalt, ‘Distinguishing Justifications from Excuses’ (1986) 49 Law Contemporary Problems 89.
art VIII [untitled], US–Argentina BIT; art VIII (Settlement of disputes between the parties concerning interpretation or application of this treaty), US–DRC BIT. See eg Wolfgang Alschner, ‘The Return of the Home State and the Rise of “Embedded” Investor-State Arbitration’ in Shaheeza Lalani and Rodrigo Polanco Lazo (eds), The Role of the State in Investor-State Arbitration (Brill, Leiden, The Netherlands 2015) 293, 326.
art 2102(1)(a) (Scope and Coverage), Canada–Peru FTA; art 2102(1)(a) (Scope of Application), Canada–Colombia FTA.
art 2113 (Implementation of the Final Report) and art 2114 (Non-Implementation—Suspension of Benefits), Canada–Peru FTA. The Canada–Colombia FTA contains identically worded and numbered clauses.
Alvarez and Khamsi (n 24) 458, 460.
Eco Oro v Colombia, Claimant’s Rejoinder on Jurisdiction, 5 December 2019, para 208 and Claimant’s Post-Hearing Brief, 1 March 2020, para 117, referred to in the Decision on Jurisdiction, Liability and Directions on Quantum, footnote 402.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 835. See Alschner (n 14) 164.
Red Eagle v Colombia, Dissenting Opinion, paras 150–52.
art 27 (Consequences of invoking a circumstance precluding wrongfulness), ASR.
Federica Paddeu, Justification and Excuse in International Law: Concept and Theory of General Defences (CUP, Cambridge, UK 2018) 88, 423–24; Federica Paddeu, ‘Investment Tribunals, the Duty of Compensation in Cases of Necessity: A Customary Law Void?’ in Panos Merkouris and others (eds), Custom and its Interpretation in International Investment Law (CUP, Cambridge, UK 2024) 151.
This interpretation would also conflate art 27 with arts 34 and 36, which concern compensation as a form of reparation: Paddeu, Justification and Excuse (n 65) 81. The Eco Oro tribunal did just that, referring to arts 27 and 36 in the same paragraph: Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 835.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, paras 830, 836.
Montauk Metals v Colombia, Award, para 957.
Montauk Metals v Colombia, Award, para 978.
See text accompanying footnote 113 ff.
See Heath (n 16).
See text accompanying footnote 30 ff.
ibid.
Paddeu, Justification and Excuse (n 65) 87.
Alvarez and Khamsi, (n 24) 456, 460; Desierto (n 37) 876, 877 (preclude means ‘close’, ‘rule out in advance’, or ‘make impossible by necessary consequence’).
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, paras 367, 372.
ibid paras 829, 836.
Montauk Metals v Colombia, Award, para 957.
ibid para 978.
art 840 (Interim Measures of Protection), Canada–Peru FTA; art 834(1) (Interim Measures of Protection and Final Award), Canada–Colombia FTA.
See eg art 47 [untitled], ICSID Convention and art 26 (Interim Measures), UNCITRAL Arbitration Rules.
There are, of course, exceptions to this principle, where compensation is structured within a legal framework to incentivize behaviour in a way that is not connected to wrongdoing.
See further Henckels (n 20).
Cf El Paso v Argentina, Witness Statement of Anne-Marie Slaughter and William Burke-White, para 88: ‘Requiring Respondent to pay compensation to Claimant in this case would require a characterization of Respondent’s actions as internationally wrongful, thereby, precluding such actions from a legal perspective.’
See Simon Batifort and Andrew Larkin, ‘The Meaning of Silence in Investment Treaties’ (2022) 38 ICSID Rev 322, 338–39.
CMS v Argentina, Award, paras 341, 386; Sempra v Argentina, Opinion of José E Alvarez, 12 September 2005, paras 53, 68; Sempra v Argentina, Award, para 370; Enron v Argentina, Award, para 328.
Alvarez and Khamsi (n 24) 456; Desierto (n 54) 191.
Sloane (n 38) 499, 501; Sykes (n 24) 321. The counterargument is equally open: see CMS v Argentina, Application for Annulment and Request for Stay of Enforcement of Arbitral Award, 8 September 2005, para 43.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, paras 367, 369.
Montauk Metals v Colombia, Award, para 962.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 829.
Red Eagle v Colombia, Dissenting Opinion, para 145.
Annex 811(2)(b) (Indirect Expropriation), Canada–Colombia FTA.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 829; Red Eagle v Colombia, Dissenting Opinion, para 145.
Montauk Metals v Colombia, Award, para 976.
Eco Oro v Colombia, Non-Disputing Party Submission of Canada, 27 February 2020, para 25; art 1701 (Affirmations), Canada–Colombia FTA. The Canada–Peru FTA contains identically worded and numbered clause.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, paras 828, 832.
Montauk Metals v Colombia, Award, para 978.
Red Eagle v Colombia, Dissenting Opinion, para 144.
Eg Annex I (General and Specific Exceptions), art III(1) (General Exceptions and Exemptions), Canada-Costa Rica BIT: in Infinito Gold v Costa Rica, Costa Rica’s counsel inexplicably pleaded this provision instead of the treaty’s general exceptions: Infinito Gold Ltd v Republic of Costa Rica, ICSID Case No ARB/14/5, Award, 3 June 2021, paras 757–81.
Alschner and Hui (n 14) 391.
Eg Suzanne Spears, ‘The Quest for Policy Space in a New Generation of International Investment Agreements’ (2010) 13 J Int Econ Law 1037, 1064; José Alvarez and Tegan Brink, ‘Revisiting the Necessity Defence: Continental Casualty v. Argentina’ in Karl Sauvant (ed), Yearbook of International Investment Law and Policy 2011 (OUP, New York, USA 2012) 319, 342; Barton Legum and Ioana Petculescu, ‘GATT Article XX and International Investment Law’ in Roberto Echandi and Pierre Sauvé (eds), Prospects in International Investment Law and Policy (CUP, Cambridge, UK, 2013) 340, 362; Amelia Keene, ‘The Incorporation and Interpretation of WTO-Style Environmental Exceptions in International Investment Agreements’ (2017) 18 J World Investment Trade 62, 85–86.
Jürgen Kurtz, The WTO and International Investment Law: Converging Systems (CUP, Cambridge, UK 2016) 186.
See text accompanying footnote 27.
Catherine Titi, The Right to Regulate in International Investment Law (Nomos, Baden-Baden, Germany 2014) 181, 182.
See text accompanying footnote 93.
Of course, however, it is possible for a tribunal to find that a measure is a lawful exercise of police powers, but also to find that the state had failed to afford fair and equitable treatment in relation to that measure’s adoption or implementation (as happened in Eco Oro).
Bear Creek v Peru, Award, para 477.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, para 831.
See text accompanying footnote 31 ff.
Kurtz (n 103) 179, 193.
Eg art 95(3) (General and Security Exceptions), Japan–Switzerland FTA; art 24(1) (Exceptions), Energy Charter Treaty.
Concluding that a contested expropriation was unlawful due to non-payment at the time of the conduct would be to render treaty rules on fair market value inutile (and more fundamentally, an act surely cannot be unlawful solely because its existence is contested, pending a resolution of the issue by adjudicators that the disputing parties have delegated the authority to determine). The prevailing view seems to be that compensation is a ‘consequence of a lawful act’ rather than a ‘condition of lawfulness’: Marboe (n 29) 55–65. See also Johanne Cox, Expropriation in Investment Treaty Arbitration (OUP, Oxford, UK 2019) 77, 79.
I thank Ben Heath for raising this point and for discussing it extensively with me.
Bear Creek v Peru, Award, para 477.
Eco Oro v Colombia, Decision on Jurisdiction, Liability and Directions on Quantum, paras 832, 834. The same argument was made by the claimant in Montauk Metals v Colombia, Award, para 956.
Garden (n 16) 23.
Author notes
Caroline Henckels, Associate Professor, Monash University, Melbourne, VIC 3800, Australia. Email: [email protected]. I thank Wolfgang Alschner, Eric de Brabandere, J. Benton Heath, Jarrod Hepburn, Csongor Nagy, Federico Ortino, Mona Paulsen, Rodrigo Polanco, Christian Riffel, Elizabeth Sheargold, and Tony VanDuzer for helpful comments and discussions. All errors are mine.
