I. The framework of the Vienna Convention on the Law of Treaties
Bilateral investment treaties (BITs) are subject to the Vienna Convention on the Law of Treaties (VCLT), as are any other international treaties including international investment agreements (IIA). Regarding the denunciation of BITs, the VCLT provides at Article 42(2) that the “termination of a treaty, its denunciation, or the withdrawal of a party, may take place only as a result of the application of the provisions of the treaty or of the present Convention.”1
Accordingly, the provisions of each individual BIT must be examined in order to determine how it can be denounced. The author is unaware of a BIT which does not contain an explicit termination clause. The VCLT and international law doctrine dedicate considerable time to the question of whether a treaty which does not contain a denunciation or withdrawal provision can still be terminated which is an attempt to balance out the principles pacta sunt servanda and rebus sic stantibus.2 According to the International Investment Agreements Navigator (“IIA Navigator”) published by the United Nations Conference on Trade and Development (UNCTAD),3 there are 2897 BITs existent in the world of which 2338 are in force. At time of writing, 335 BITs have been terminated, a figure that includes both mutual terminations and unilateral denunciations.
II. Recent mutual terminations of BITs within the European Union (UE)
A large number of BIT terminations occurred in the aftermath of the Achmea decision by the Court of Justice of the European Union (CJEU) of 6 March 2018. The decision declared the arbitration clause in the relevant BIT between the Netherlands and Slovakia as incompatible with EU law. Less than one year after this court decision, on 15 January 2019 all (then 28) EU-Member States issued a political declaration in which they announced that they “will terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty or, where that is mutually recognised as more expedient, bilaterally.” On 5 May 2020 23 Member States4 followed suit and signed an “Agreement for the Termination of Bilateral Investment Treaties between the member States of the European Union” which extinguished hundreds of intra-EU BITs by way of mutual termination.5 (See also Intra-EU claims as an objection to jurisdiction and Sunset Clauses).
III. Typical denunciation clauses in a BIT
Returning to unilateral denunciations, the German model BIT (2008) contains the following language in its Article 13(2): “This Treaty shall enter into force on the first day of the second month following the exchange of the instruments of ratification. It shall remain in force for a period of ten years and shall continue in force thereafter for an unlimited period unless denounced in writing through diplomatic channels by either Contracting State twelve months before its expiration. After the expiry of the period of ten years this Treaty may be denounced at any time by either Contracting State giving twelve months’ notice.”
Such very clear language is typical of most termination provisions. A more recent example can be found in the current Dutch Model BIT of 2018, which provides for shorter renewal intervals (recurring five years terms) and a shorter notice period of six months.
IV. Typical sunset clauses in BITs
An example of a typical sunset clause in a BIT is Article 13(3) of the German model BIT, which reads as follows: “In respect of investments made prior to the date of termination of this Treaty, the provisions of the above Articles shall continue to be effective for a further period of twenty years from the date of termination of this Treaty.” This is an example of a ‘sunset’ provision with a relatively long sunset period of twenty years. Other BITs commonly contain periods of between ten and fifteen years, but this can vary.
By means of the example of the termination of the BIT between Germany and Indonesia,6 the operation of such a clause can be illustrated as follows: said BIT contains a verbatim replication of the above cited sunset clause from the German Model, and was terminated with effect as of 1 June 2017. In view of the 20-years survival clause, investments made prior to 1 June 2017 remain protected by the BIT until 1 June 2037.
The most important characteristic of a BIT is the protection of investors holding the nationality of their State contract partner. Such investors are not contracting parties to the BIT, but enjoy its protections as third party beneficiaries by way of ‘diagonal clauses’ in the BIT permitting investors to claim directly under the treaty between its home state and the host state where the investment was made.7 It is worth highlighting that relatively long sunset clauses which considerably prolong the most important effects of a BIT, appear to work as a kind of compensation for the fact that the main beneficiaries of the BIT are not involved the termination mechanism.8