Carved in American BITs from the 1980s1 for the purposes of maintaining treaty legality in exceptional situations and permitting the State to modify treaty compliance during such emergencies, most emergency clauses (also known as national security clauses or essential security exception clauses) provide that the BIT shall not “preclude” the application by either party of “measures” (or “act”) “necessary” for the “maintenance” (or e.g. “protection”, “fulfilment”, “restoration”) of “essential security interests” (or e.g. “essential interest”, “national security”) or in circumstances of “extreme emergency.”
In addition to this treaty-based defence, States may also find defences to their international investment obligations of investment treaties from customary international law, i.e. the doctrines of necessity and force majeure. Both are included in the International Law Commission’s Articles on State Responsibility as circumstances precluding wrongfulness.2 The necessity doctrine has figured prominently in the treaty-based cases brought in the aftermath of the Argentine financial crisis, while force majeure has not played a role in recent investor-State disputes.3
II. General treaty practice
III. Distinction with other related clauses
IV. Material scope
The effect of emergency clauses on State responsibility remains debated. Two main interpretations have emerged in investment arbitration practice:
As to the question of who determines whether the essential security interests of the State are at stake, a number of agreements, including multilateral agreements and OECD investment instruments, explicitly give this role to the State itself.13 This may not be the case with certain bilateral investment treaties which do not include explicit self-judging language (e.g. “that the state considers necessary”). For example, the CMS, LG&E, Enron, and Sempra tribunals concluded that Article XI of the US-Argentina BIT was not self-judging,14 but different language in other treaties certainly could lead to a different conclusion.
In order to interpret the vague content of emergency clauses, two questions arise:
Most emergency clauses do not state any consequences of its application.21 As a result, the State’s duty to compensate depends on the interpretation of the provision:
Other tribunals concluded that the duty to compensate still remains and that preclusion of wrongfulness does not prejudice the duty to compensate material loss.25 See also Necessity, Section VII.
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