Sunset clauses (sometimes also referred to as survival clauses) guarantee that all investments made prior to the termination continue to be protected by a certain period of time, typically ranging from 5, 10, 15 and up to 20 years.1 The function of the sunset clause is to protect the legal expectations of the investors who made their investments based on the protection offered by the existing investment treaty.2 Indeed, many investment treaties also cover investments made prior to the entering into force of the treaty.3
Argentina - Qatar BIT (2016), 6 November 2016, Article 20(2); Colombia - United Kingdom BIT (2010), 17 March 2010, Article XV(3); France - Iraq BIT (2010), 31 October 2010, Article 13; Treaty between the United States of America and the Arab Republic of Egypt concerning the Reciprocal Encouragement and Protection of Investments, 29 September 1982, Article XIII(4); Agreement between the Government of the People's Republic of China and the Government of Malaysia Concerning the Reciprocal Encouragement and Protection of Investments, 21 November 1988, Article 13(4); Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of Indonesia on the Promotion and Protection of Investments, 17 September 1992, Article 12(3); Agreement Between the Government of Malaysia the Government of the Republic of Albania for the Promotion and Protection of Investments, 24 January 1994, Article 12(4); Agreement between the Argentine Republic and the Kingdom of Spain on the reciprocal promotion and protection of investments, 3 October 1991, Article XI(3); Finland - Mauritius BIT (2007), 12 September 2007, Article 17(3); Croatia - Oman BIT (2004), 4 May 2004, Article 15(2); Philippines - Romania BIT (1994), 18 May 1994, Article 13(2).
Bahrain - Netherlands BIT (2007), 5 February 2007, Article 10; Croatia - Oman BIT (2004), 4 May 2004, Article 12; Agreement Between the Government of Malaysia the Government of the Republic of Albania for the Promotion and Protection of Investments, 24 January 1994, Article 10; Agreement between the Government of the People's Republic of China and the Government of Malaysia Concerning the Reciprocal Encouragement and Protection of Investments, 21 November 1988, Article 12; Portugal - Qatar BIT (2009), 21 April 2009, Article 2; Treaty between the United States of America and the Arab Republic of Egypt concerning the Reciprocal Encouragement and Protection of Investments, 29 September 1982, Article II (2)(b); Agreement Between the Federal Republic of Germany and the People's Republic of Bangladesh Concerning the Promotion and Reciprocal Protection of Investments, 6 May 1981, Article 9; Poland - Slovenia BIT (1996), 28 June 1996, Article 11.
II. Objectives of sunset clauses
The reason why States include sunset clauses in most BITs is to protect the legal expectations of investors when making their investments. Typically foreign investments – particularly those in the oil, gas, and infrastructure sectors – are made with a long-term view that often extends beyond the standard initial period of validity of a BIT by 10 or 15 years. In such circumstances, a termination of a BIT is always a possibility, and without a sunset clause, existing investments would be left completely unprotected.4
Hence, sunset clauses aim to ensure that investors of existing investments have a transitional period in which they can take the appropriate measures to accommodate to the situation after a BIT has been terminated. Sunset clauses also ensure that investors can continue to rely on the investment protection and dispute settlement provisions contained in a BIT in order to be able to obtain, for example, compensation in cases of (in)direct expropriation by the host State.
III. Effect of sunset clauses
Accordingly, investment claims can be successfully initiated even after the termination of the BIT. For example, in the Marco Gavazzi and Stefano Gavazzi v. Romania5 case, investors initiated arbitration under the Italy-Romania BIT in 2012, after the treaty had already been terminated in 2010. Similarly, in April 2019 a Dutch investor filed an ICSID claim against Tanzania six months after the termination of the Tanzania-Netherlands BIT.6
As a result of a sunset clause, the termination of a BIT itself does not necessarily prevent the filing of claims, unless the Contracting Parties of the BIT have agreed to remove the sunset clause before terminating the BIT. For example, it was reported that when Indonesia reached a mutual agreement with Argentina to terminate their BIT, they neutralized the sunset clause by mutual agreement before withdrawing from the BIT.7 This implied that the sunset clause would not operate for existing investments following termination. The Czech Republic has earlier used the same approach and removed its sunset clauses prior to the agreed termination of several BITs with fellow EU Member States.8 However, there have been separate discussions as to the impact of the withdrawal of a State from the ICSID Convention on the filing of a claim.9
Blue Bank International & Trust (Barbados) Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/20, Award, 26 April 2017, paras. 108-120; Fábrica de Vidrios Los Andes, C.A. and Owens-Illinois de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/21, Award, 13 November 2017, paras. 250-296.
IV. Sunset clauses and the termination of intra-EU BITs
As explained above, the function of sunset clauses is to continue to protect existing investments for a certain period of time and enable them to rely on the BIT provisions. Seen from this perspective and in the EU context of the termination agreement, the envisaged removal of the legal effects of the sunset clauses contained in the intra-EU BITs could cause a particularly significant abrogation of the rights of investors as granted by the present intra-EU BITs.
Indeed, such a move raises questions as to the respect for the Rule of Law, as the EU termination agreement would also retroactively abrogate the right to access to justice via intra-EU BITs that have already been terminated and whose sunset clauses have already been triggered.