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Printed on acid-free paper Bahrain Chamber for Dispute Resolution INTERNATIONAL ARBITRATION REVIEW

Volume 3 December 2016 Number 2

GENERAL EDITOR Nassib G. Ziadé

CONSULTING EDITOR Hussein Haeri

ADVISORY BOARD Mohamed Abdel Raouf Haya Bint Rashid Al Khalifa Essam Al Tamimi Yas Banifatemi Laurence Boisson de Chazournes Olufemi Elias Hamzah Haddad Azzedine Kettani Makhdoom Ali Khan Carolyn B. Lamm Francisco Orrego Vicuña Antonio R. Parra Marike Paulsson Georgios Petrochilos Adrian Winstanley

DEPUTY GENERAL EDITOR Virginia Hamilton

EDITORIAL COMMITTEE YousifAl Saif J. Michael King

EDITORIAL ASSISTANT Khaled Iqbal Chilwan

BahrainChamber for Dispute Resolution INTERNATIONAL ARBITRATION REVIEW

Volume 3 December 2016 Number 2

INVESTMENT ARBITRATION IN THE MIDDLE EAST

In Memory of Georges R. Delaume

Georges R. Delaume (1921–2016): Nassib G. ZIADÉ 151 A Life of Service to Intellectual Integrity and Scholarship

Articles

“And you are . . .?”—Dual Nationals in Hussein HAERI & 153 Investment Treaty Arbitration David WALKER

Investment Claims Amid Civil Unrest: Meriam AL-RASHID, 181 Questions of Attribution and Ulyana BARDYN & Responsibility Levon GOLENDUKHIN

An Analysis of the Compensation Regime Noradèle RADJAI, 219 Applicable to Claims Arising from Armed Laura HALONEN & Conflicts Affecting Investments in Panagiotis A. KYRIAKOU MENA

Investment Arbitration under Multilateral Caline MOUAWAD & 243 Treaties in the Middle East Lillian KHOURY

Will the Future See More Investment Scott VESEL 267 Arbitrations Taking Place in the Middle East? Combating Norm and Forum Shopping in Mohamed SHELBAYA & 279 Investment Arbitration Dimitrios KATSIKIS

Adverse Inferences:A Proposed Arif Hyder ALI & 293 Methodology in the Light of Investment Tatiana E. SAINATI Arbitrations Involving Middle Eastern States

Towards a New Conceptualization of Hamed EL-KADY 327 International Investment Agreements

The Development of Investment N. Jansen CALAMITA & 343 Arbitration in Iraq: Domestic Law,the Adam AL-SARRAF ICSID Convention and Iraq’s Investment Treaties

Recourse Against Non-ICSID Investment Gordon BLANKE 361 Arbitration Awards in the MENA Region

State-Owned Enterprises as Claimants Reza MOHTASHAMI & 371 before ICSID: Is the Broches Test on the Farouk EL-HOSSENY Ebb?

Middle Eastern Investors as Claimants in Anne K. HOFFMANN 389 Investment Treaty Arbitrations

Reliance on Investment Treaty Standards to Dany KHAYAT & 399 Claim for Failures to Recognize or William AHERN Protect Intellectual Property Rights

Accountability for Corruption in Nassib G. ZIADÉ 423 Investment Arbitration: Equitable Remedies for Findings of Illegality Investment Claims Amid Civil Unrest: Questions of Attribution and Responsibility

* Meriam AL-RASHID, Ulyana BARDYN & Levon GOLENDUKHIN

ABSTRACT

Political instability and civil strife are known inhibitors of foreign investment.The Middle East is a region with tremendous investment potential due to a constellation of factors, including abundant natural resources, convenient geographical location, and an increasingly educated population. However, the instability reverberating through the region since the inception of the Arab Spring has amplified the risks associated with that potential. This article explores international law protections that may be available to foreign investors and host states in the context of civil unrest. It sets out an analytical framework for the issues of attribution and responsibility in this context. Addressing first the issue of attribution (i.e. whether the host state may bear responsibility for unrest-related damage caused by third parties), the article surveys historical cases addressing revolution-related claims against Mexico,Venezuela, Costa Rica, and the United States, with a view to defining the circumstances under which attribution can exist. Turning to the issue of responsibility, the article analyzes both the claims potentially available to investors and the defenses potentially available to host states.The article demonstrates that while international law continues to apply amid political volatility, additional considerations come into play. Therefore, for foreign investors and host states alike, careful planning and tailored legal advice can help considerably towards understanding the risks and managing expectations with regard to a particular investment opportunity.

1 INTRODUCTION The Middle East has become an attractive destination for foreign direct investment, and with good reason.The region possesses abundant natural resources: it has 47% of the world’s oil reserves1 (producing 32% of the world’s oil and

* Meriam Al-Rashid is a partner in Dentons’ New York and London offices, specializing in international investment and commercial arbitration and public international law. Ulyana Bardyn is a managing associate and Levon Golendukhin an associate in the New York office of Dentons US LLP. Any views or opinions expressed in the article are solely those of the authors and they do not necessarily represent the views of Dentons or its clients.The article is prepared solely for informational purposes. It is not intended as legal advice and should not be taken as such. 1 BP Statistical Review of World Energy June 2016 at 6, available at http://www.bp.com/content/ dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full -report.pdf. The percentages quoted have been rounded to the nearest whole figure. (All website addresses cited in this article were last accessed in April 2017.)

Al-Rashid, Meriam; Bardyn, Ulyana & Golendukhin, Levon, ‘Investment Claims Amid Civil Unrest: Questions of Attribution and Responsibility’. BCDR International Arbitration Review 3, no. 2 (2016): 181–218. © 2017 Kluwer Law International BV, The Netherlands 182 BCDR INTERNATIONAL ARBITRATION REVIEW consuming only 10%)2 and 43% of the natural gas reserves3 (producing 17% of the world’s natural gas and consuming only 14%).4 It is conveniently located at the crossroads of Europe, Africa, and Asia. It has an increasingly educated and growing population. The combination of these factors allowed Middle East economies to enjoy a decade of sustained growth and steadily rising foreign direct investment. Recent years, however, have been more challenging. The Arab Spring, which began as a Middle Eastern revolution of hope—hope for democracy, rule of law, and civil society—has in many instances resulted in widespread destruction and distress affecting both domestic businesses and foreign investors alike. Foreign investors are particularly sensitive to the unpredictable business environment produced by the Arab Spring. Investment in a foreign economy is ordinarily rife with uncertainty. Investors must adapt to the legal, business, and cultural landscape of the host country.They must compete with local businesses and occasionally have to overcome a protectionist bias.Where, on top of that, the political situation in the host country is turbulent, investors face additional challenges. For example, if an investor’s property is destroyed by the host state, the investor may be entitled to seek recourse under the relevant investment treaty. However, where that damage is caused by non-state actors during a violent insurgency, can the investor still seek recourse against the host state?5 To do so, the investor would have to overcome the additional hurdle of demonstrating either that the wrongful actions are attributable to the host government or that the government violated a separate obligation by allowing the destruction to take place. Not that the government’s position is any more enviable.The government in this scenario would be faced with a separate set of predicaments: not only would it have to deal with political turmoil, but it might end up bearing responsibility for the acts of the very insurgents who seek its overthrow. Because investor-state disputes take on a new dimension in the context of civil unrest, careful consideration should be given to all arguments potentially available to each side. This article examines the issues of attribution and responsibility in such disputes. Section 2 addresses the question of who may bear responsibility for damages related to unrest. It discusses historic cases from the 19th and early 20th centuries that ruled on claims resulting from revolutionary activities

2 Ibid. at 10–11. 3 Ibid. at 20. 4 Ibid. at 22–23. 5 For examples of other legal questions that may arise in such circumstances, see Morris, “Revolutionary Movements and De Facto Governments: Implications of the ‘Arab Spring’ for International Investors,” 28 Arb. Int’l 721, 721–22 (2012); Mouawad & Vasani, “Energy Disputes in Times of Civil Unrest: Transitional Governments and Foreign Investment Protections,” in Contemporary Issues in International Arbitration and Mediation:The Fordham Papers 234, 235 (2013). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 183 in states such as Mexico,Venezuela, Costa Rica, and the United States. Section 3 surveys the substantive protections potentially available to investors and the defenses potentially available to host states.

2 QUESTIONS OF ATTRIBUTION: RESPONSIBILITY OF NATIONS FOR ACTS OF REVOLUTIONARIES The general rules of attribution in international law are well established and familiar. The ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts (the “ILC Articles on State Responsibility”)—which largely reflect customary international law on the subject6—provide a comprehensive codification of those rules. States are responsible for acts of their organs,7 as well as for acts of persons exercising “elements of governmental authority”8 or implementing instructions of the relevant governments.9 States are also responsible for the acts that they have adopted as their own.10 Clearly, international law permits attribution of responsibility to a state where there exists an alignment of interests between the state’s government and the actual wrongdoers. However, where a state is plagued by civil unrest, wrongdoing may be inflicted by non-governmental actors—revolutionaries, “freedom-fighters,” or “belligerents”—whose interests are in conflict with those of the incumbent government.Would the government have to bear responsibility for actions of such third parties? Revolutions are inherently complex and unpredictable.As a result, the rules of attribution applicable to them do not lend themselves to a simple formulation.The discussion below surveys the key factors considered by tribunals when addressing unrest-related claims and analyzes the relevant provisions in the ILC Articles on State Responsibility.

6 See Ampal-American Israel Corp. and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Liability and Heads of Loss, ¶ 135 (Feb. 21, 2017) (the ILC Articles on State Responsibility form part of applicable customary international law); Biwater Gauff (Tanzania) Ltd v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, ¶ 773 (July 24, 2008) (the ILC Articles on State Responsibility represent codification of the rules of customary international law); Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas, Inc. v.United Mexican States, ICSID Case No.ARB(AF)/04/5,Award, ¶ 116 (Nov. 21, 2007) (the ILC Articles on State Responsibility represent “a restatement of customary international law regarding secondary principles of state responsibility”); Corn Prods. Int’l Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/1, Decision on Responsibility, ¶ 76 (Jan. 15, 2008) (the ILC Articles on State Responsibility constitute the “most authoritative statement” on the rules on state responsibility). 7 ILC Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, U.N. Doc. A/56/10, Art. 4 (2001), available at http://legal.un.org/ilc/texts/instruments/english/commentaries/ 9_6_2001.pdf. 8 Ibid., Art. 5. 9 Ibid.,Art.8. 10 Ibid., Art. 11. 184 BCDR INTERNATIONAL ARBITRATION REVIEW

2.1 THE PRINCIPLE OF CONTINUITY

The principle of continuity of the state is well established in international jurisprudence. It holds that, once a state becomes a member of the society of nations, its existence and its international rights as well as duties remain continuous throughout internal political and governmental changes, so long as it remains a sovereign state under international law.11 This means essentially that, despite political and other regime changes, the nation will remain responsible internationally for the acts of its past and present governments. As noted by the United States Supreme Court, “[n]o change of its internal policy, no modification of its organization or system of government, nor any change in its external relations short of entire absorption in another state can deprive it of its existence or destroy its identity.”12 Reasoning a contrario, the commissioner in the Garrison case explained: If it was not the duty of a state to respect its international obligations, notwithstanding domestic challenges, either in the form of the government or in the persons who exercise the governing power, it would be impossible for nations to deal with each other with any assurance that their agreements would be carried into effect, and the consequences would be disastrous on the peace and well-being of the world.13 It follows from the principle of continuity that internal political changes within a given state generally do not impact that state’s international law obligations incurred prior to the change. In the words of the British High Court of Justice, “[t]erritorial or government changes do not release a state from its contracts or treaty obligations unless they make those obligations impossible of fulfillment or create a situation which could not have been in contemplation when they were entered into.”14

11 Houghton, “The Responsibility for Acts and Obligations of De Facto Governments,” 64 U.S. L. Rev. 242, 242 (1930). 12 Keith v.Clark, 97 U.S. 454, 460 (1878). 13 Garrison (U.S. v. Venezuela), 29 R.I.A.A. 227, 231 (1885) (“There is a well-recognized distinction between a state and a government or the governing body.The state is a person in law, and when once admitted into the family of states, preserves its identity as an international person, until it is lost by absorption in some other state, or by the continuance of anarchy so prolonged as to render reconstitution impossible or, in a very high degree, improbable.”). 14 Republic of Peru v. Dreyfus Brothers & Co., L.R. 38 Ch. D. 348 (1888). See also Keith, supra note 12 at 462–63 (the U.S. Supreme Court found that the State of Tennessee was bound by an obligation undertaken during the period of insurrection and, in holding so, drew parallels with the binding force of the de facto governments of Napoleon in France and Cromwell in England. Quoting Henry Wheaton, the Supreme Court noted, “[a]s to public debts, whether due to or from the State, a mere change in the form of the government, or in the person of the ruler, does not affect their obligation. The essential power of the State, that which constitutes it an independent community, remains the same: its accidental form only is changed.The debts being contracted in the name of the State, by its authorized agents, for its public use, the nation continues liable for them, notwithstanding the change in its internal constitution. The new government succeeds to the fiscal rights, and is bound to fulfill the fiscal obligations, of the former government.”). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 185

2.2 THE PRINCIPLE OF CONTINUITY AND DE FACTO GOVERNMENTS

International law incontestably holds that, in the regular course of events, a nation is responsible for the acts of its de jure governments. But where the peaceful life of a nation is interrupted, the foregoing rule no longer provides a helpful guidepost. Revolutions may—and frequently do—result in the establishment of parallel governing structures regarded as de facto governments. De facto governments are governments “in the possession of the supreme power of the [territory] over which [their] jurisdiction extend[s].”15 The distinction between de jure and de facto governments was elegantly articulated in the seminal English case of Luther v. Sagor, where the court cited Wheaton quoting Montague Bernard: “A de jure government is one which . . . ought to possess the powers of sovereignty, though at the time it may be deprived of them.A de facto government is one which is really in possession of them, although the possession may be wrongful or precarious.”16 Where non-governmental groups claim to have assumed the government’s role, who is to speak for the nation? Does the principle of continuity extend to acts of rebel groups who have occupied a part or the whole of the state’s territory, thus rendering the nation responsible for their acts? Answers to these questions depend on an array of factors ranging from the control exercised by the de facto government to its recognition by the host and home states’ de jure governments. We summarize below the key considerations to which international tribunals have had regard.

2.2[a] “General” versus “Local” De Facto Governments De facto governments may be broadly categorized as either general de facto governments or local de facto governments. This distinction is significant for purposes of determining the responsibility of states. A general de facto government is one that controls the territory of the entire state or virtually all of it.17 Oliver Cromwell’s government in England and

15 Mauran v.Insurance Co., 73 U.S. 1, 13 (1867). Professor Houghton identified the following three criteria on which courts and tribunals have relied—with varying degree of emphasis—in determining the existence of a de facto government: (i) actual possession of supreme power by the government in the district of state over which its jurisdiction extends; (ii) the acceptance or acknowledgement of its authority by the mass of people, as evidenced by their general acquiescence in and rendering habitual obedience to its authority; and (iii) the recognition of the government as de facto,orde jure, by foreign governments. Houghton, “The Responsibility of the State for the Acts and Obligations of General De Facto Governments—Importance of Recognition,”6 Ind. L.J. 422, 423 (1931). 16 Aksionairnoye Obschestvo Dlia Mechanicheskoyi Obrabotky Diereva A. M. Luther (Company For Mechanical Woodworking A. M. Luther) v.James Sagor & Co., [1921] 3 KB 532, 543. 17 Borchard,“International Pecuniary Claims Against Mexico,” 26 Yale L.J. 339, 342 (1917); ILC Articles on State Responsibility, supra note 7, Art. 9, cmt. (4) (“A general de facto Government . . . is itself an apparatus of the State, replacing that which existed previously.”). 186 BCDR INTERNATIONAL ARBITRATION REVIEW

Napoleon Bonaparte’s government in France are well-known historic examples. By nature, a general de facto government closely resembles a de jure government. Upon taking control of the state, a general de facto government essentially “expels the regular authorities from their customary seats and functions, and establishes itself in their place, and so becomes the actual government of a country.”18 In doing so, a general de facto government assumes the role of the prior de jure government.With that, it also assumes the responsibility of representing the state in international affairs and, accordingly, its actions become generally binding on the nation (and, accordingly,successor governments).19 Ordinarily, the method of its accession to power—whether forceful or peaceful—has no impact on attachment of responsibility. A general de facto government is expected to bind the nation because “the capacity of a government to represent the state in its international relations does not depend in any degree upon the legitimacy of its origin.”20 A de facto government is deemed to be acting with the nation’s express or tacit consent and therefore its actions are binding on the nation.21 A local de facto government, on the other hand, exercises control over a part of the state’s territory, but not the entire state.22 The Confederate Government in the U.S. is a historic example. The capacity of a local de facto government to create international obligations for the nation depends on a more complex inquiry, wherein the key determining factor is the de facto government’s ultimate success in becoming the established de jure government in the state.23 If revolutionaries succeed in establishing a de jure government, their acts retroactively become

18 Thorington v.Smith, 75 U.S. 1, 8 (1868). See also Garrison, supra note 13 at 231–32 (“[A] government de facto, when once invested with the powers which are necessary to give it that character, can bind the state to the same extent and with the same legal effect as what is styled a government de jure. Indeed, ...everygovernment, properly so called, is a government de facto. A government de jure but not de facto ...isthat which was a government, and which, according to the view of the speaker ought still to be a government, but, in point of fact, is not.”). 19 Borchard, supra note 17 at 342 (“So far as its international obligations are concerned, [a general government de facto] represents the state. It succeeds to the debts of the regular government it has displaced, and transmits its own obligations to succeeding titular governments. Its loans and contracts bind the state, and the state is responsible for the governmental acts of the de facto authorities. In general, its treaties are valid obligations of the state. It may alienate the national territory, and the judgments of its courts are admitted to be effective after its authority has ceased.”). 20 Ralston, International Arbitral Law and Procedure: Being a Re´sume´ of the Procedure and Practice of International Commissions, and Including the Views of Arbitrators upon Questions Arising under the Law of Nations at 204 (1910). 21 Ibid. 22 Borchard, supra note 17 at 341–42. 23 Houghton, “The Responsibility of the State for Acts and Obligations of Local De Facto Governments and Revolutionists,”14 Minn. L. Rev. 251, 254–55 (1930). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 187 binding on the state as of the time of the inception of their rule.24 By contrast, an unsuccessful revolution will be seen as merely an insurrection, for which the state does not hold any responsibility.25 This differential treatment accorded to successful and unsuccessful revolutionaries is reflected in the ILC Articles on State Responsibility. Article 10 provides for a state’s responsibility for actions of revolutionaries that have succeeded in becoming the new government of that state. Article 9 is broader in the sense that it creates responsibility for acts of non-governmental groups that may or may not have political ambitions so long as they are effectively exercising governmental authority “in the absence” of the regular government. Because it is notoriously difficult to predict whether a revolutionary movement will succeed, its international acts will be subject to a “suspensive

24 Dix (U.S. v.Venezuela), 9 R.I.A.A. 119, 120 (1903) (the Venezuelan-U.S. claims commission found Venezuela responsible for acts of revolutionaries that led the 1899 Revolution, reasoning that “[t]he Revolution of 1899, led by General Cipriano Castro, proved successful, and its acts, under a well-established rule of international law, are to be regarded as the acts of a de facto government.... The same liability attaches for encroachments upon the rights of neutrals in the case of a successful revolutionary government, as in the case of any other de facto government.”); Bolivar Railway Company (U.K. v.Venezuela), 9 R.I.A.A. 445, 453 (1903) (the Venezuelan-British commission similarly found Venezuela responsible for General Castro’s undertakings during the Revolution, noting that “[t]he nation is responsible for the debts contracted by its titular government, and that responsibility continues through all changing forms of government until the obligation is discharged.The nation is responsible for the obligations of a successful revolution from its beginning, because, in theory, it represented ab initio a changing national will, crystallizing in the final successful result....Success demonstrates that from the beginning [the 1899 Revolution] was registering the national will.”).This rule has also been affirmed in more recent jurisprudence. In Minister of Defence, Namibia v.Mwandinghi, the Supreme Court of Namibia held that “when a national liberation movement becomes the new government of a State as is the case in Namibia, the new State will be attributed with the conduct which would have been previously considered as an act of the pre-existing State, that is, the new government inherits responsibility for the acts committed by the previous organs of the State.” (SA/5/91) [1991] NASC 5, 7 (1991). 25 Borchard, supra note 17 at 345 (“As a general rule, however, a succeeding de jure government is not liable for debts contracted by a displaced local de facto government. A person dealing with [the latter] assumes the risk of his enterprise.”); Prats (Mexico v. U.S.), 29 R.I.A.A. 187, 192–93 (1868) (“The principle of non-responsibility for acts of rebel enemies in time of civil war rests upon the ground that the latter have withdrawn themselves by force of arms from the control and jurisdiction of the sovereign, putting it out of his power, so long as they make their resistance effectual, to extend his protection within the hostile territory to either strangers or his own subjects, between whom, in this respect, no inequality of rights can justly be asserted.”); see also Williams v. Bruffy, 96 U.S. 176, 186 (1878) (“If [the revolutionary] fail[s] to establish itself permanently, all [its] [a]cts perish with it.”); Thorington, supra note 18 at 9 (“No obligations of a National character were created [by the Confederate Government], binding after its dissolution, on the States which it represented, or on the National Government. From a very early period of the civil war to its close, it was regarded as simply the military representative of the insurrection against the authority of the United States.”); Hanna (Britain v. United States), 29 R.I.A.A. 143, 144–45 (1873) (“‘State of Louisiana,’ which, concurred and participated in the destruction of the claimant’s property was a rebel organization, existing and acting as much in hostility to the Government of the United States as was the Confederate States, so called. ...Itisnotthecase of a government established de facto, displacing the government de jure. But it is the case merely of an unsuccessful effort in that direction, which, for the time being, interrupted the course of lawful government without the fault of the latter. Its acts were lawless and criminal, and could result in no liability on the part of the Government of the United States.”). 188 BCDR INTERNATIONAL ARBITRATION REVIEW condition.”26 Unless and until the movement emerges as a government, its actions are not likely to bind the nation. Accordingly, an investor that chooses to do business with insurgents assumes the risk of its enterprise—it cannot expect the nation to be responsible for its improvidence.27 It follows that contracts concluded with belligerents may not be binding on the nation’s de jure government. In such circumstances, if after regaining control the government seizes the belligerents’ property,it will be taking such property free of creditors’ claims.28

2.2[b] Personal versus Impersonal Acts

The nature of acts taken by de facto governments plays a role as well.Tribunals have distinguished between acts that are “impersonal” (i.e. those that have as their purpose the discharge of “usual and ordinary” governmental functions),29 on the one hand, and acts of “personal character” (i.e. those that focus on providing support to a particular group),30 on the other. While obligations assumed in the ordinary course of governing (e.g. provision of postal services, collection of taxes) will likely become binding on the nation, undertakings that promote the de facto government’s personal interest may be successfully avoided.

26 Borchard, supra note 17 at 343. 27 Barrett v. United States, 29 R.I.A.A. 137, 138 (1871) (“Persons contracting with the so-called Confederate States voluntarily assumed the risk of [its] failure, and accepted its obligations, subject to the paramount rights of the parent state by force to crush the rebel organization, and seize all its assets and property,whether hypothecated by it or not to its creditors.”). 28 Ibid. at 138. 29 Hopkins (U.S. v. Mexico), 4 R.I.A.A. 41, 43 (1926) (“The greater part of governmental machinery in every modern country is not affected by changes in the higher administrative officers. The sale of postage stamps, the registration of letters, the acceptance of money orders and telegrams (where post and telegraph are government services), the sale of railroad tickets (where railroads are operated by the Government), the registration of births, deaths, and marriages, even many rulings by the police and the collection of several types of taxes, go on, and must go on, without being affected by new elections, government crises, dissolutions of parliament and even state strokes. A resident in Mexico who cleans the government bureaus or pays his school fee to the administration does not and can not take into consideration the regularity or even legality of the present administration and the present congress; his business is not one with personal rulers, not one with a specific administration, but one with the Government itself in its unpersonal aspect.”). 30 Ibid. (“The difficulty of distinguishing between the Government itself and the administration of that Government arises at the point where the voluntary dealings and relations between the individual and the government agencies assume a personal character in support of the particular agencies administering the government for the time being. To this class belong voluntary undertakings to provide a revolutionary administration with money or arms or munitions and the like. But the ordinary agencies, departments, and bureaus of the Government must continue to function notwithstanding its principal administrative offices may be in the hands of usurpers, and in such a case the sale and delivery to these necessary and legitimate agencies of supplies, merchandise, and the like, to enable the Government itself in its unpersonal aspect to function is a very different transaction from one having for its object the support of an individual or group of individuals seeking to maintain themselves in office.The character of each transaction must be judged and determined by the facts of the particular case.”). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 189

Transactions relating to postal services provided by the government will likely qualify as impersonal business. In Hopkins, the United States asserted a claim on behalf of Mr. Hopkins, its citizen doing business in Mexico, demanding payment on certain postal money orders that had been issued to Mr. Hopkins by the Huerta administration in Mexico.31 Given that they were postal money orders, the U.S.-Mexican general claims commission concluded that the transaction fell within “purely government routine” and ordered payment on the claim.32 The commission also took into account the fact that other instruments, similar to the postal money orders, were regarded by Mexico’s succeeding government as “impersonal” transactions.33 In a similar vein, the collection of taxes or customs duties are also likely to be regarded as impersonal business. In Guastini, the umpire of the Italian-Venezuelan claims commission rejected Venezuela’s claim for taxes that Mr. Guastini, an Italian national, had previously paid to a temporary regime in the town of El Pilar. The umpire held that, by making the payment, Mr. Guastini was discharging his obligation towards the municipality—not to the rebels themselves—and therefore the transaction was impersonal in nature.34 Because it was impersonal, it was binding on the de jure government of Venezuela that ultimately regained control of El Pilar and Mr. Guastini was not required to pay the same dues again. The umpire noted additionally that, given that Venezuela had not been providing any governmental services in El Pilar during the occupation period, it was not entitled to collect taxes for that period.35 The umpire found this was the only fair outcome as any other approach would place the burden on the taxpayer “to determine at his own peril the validity of the acts of those exercising public functions in a regular manner.”36 By contrast, actions taken in the personal interest of those in control will be treated as personal in nature and therefore not binding on the subsequent government. In Aguilar-Amory, claims were disallowed because they arose from personal undertakings. There, the Royal Bank of Canada lodged a claim against Costa Rica to recover a purported loan to its predecessor, the Tinoco government.

31 Ibid. at 42. 32 Ibid. at 44. 33 Ibid. (“The series of Mexican bonds issued during the Huerta régime, the proceeds of which were applied to the payment of the interest on the pre-existing debt of Mexico, have been uniformly recognized as valid [by the succeeding Mexican government], while other series of the same issue, the proceeds of which are claimed to have been applied to the maintenance in power of the Huerta administration or to the purchase of arms, munitions, and the like, have been repudiated.”). 34 Guastini (Italy v.Venezuela), 10 R.I.A.A. 561, 580 (1903). 35 Ibid. 36 Ibid. (“The revolutionary officials, whether they efficiently performed these duties or not during the time in question, displaced the legitimate authorities and undertook their performance.The legitimate government therefore was not entitled at a later period to collect anew taxes once paid to insure the benefits of local government which it was unable to confer.”). 190 BCDR INTERNATIONAL ARBITRATION REVIEW

The sole arbitrator, William Howard Taft, looked at the substance—not the form—of the transaction. He noted that the key factor to consider was whether the transaction had been entered into for the government’s legitimate purpose.37 Because the bank had known that the funds at issue were to be used for Tinoco’s “personal” affairs (specifically, retirement in a foreign country), the government was not held responsible for the funds lent to him for that purpose.38

2.2[c] Legitimacy of De Facto Governments

Significantly, but unsurprisingly, the legitimacy of a de facto government under international law is not determinative of that government’s ability to create binding obligations for the nation.39 A de facto government that maintains control is deemed to hold power “with the consent express or tacit of the nation.”40 As such, it acts in the name of the nation (or part thereof) and therefore is capable of undertaking obligations that a subsequent government is obliged to respect.41 Commentary to the ILC Articles on State Responsibility states that it would be “unnecessary and undesirable” to exonerate governments from responsibility based on the “illegitimacy of [their] origin.”42 Instead, the focus is appropriately placed on the lawfulness of the conduct in question.43 This approach has been reflected in arbitral jurisprudence. Despite being a “pure usurpation” with a “flimsy garb of constitutional power under which it undertook to masquerade,” the Huerto government in Mexico created binding obligations for Mexico.44 Costa Rica was similarly found responsible for obligations of the Tinoco government.45 In rejecting Costa Rica’s argument that Tinoco’s regime had ascended to power in violation of the state’s constitution, arbitrator Taft noted:

37 Aguilar-Amory and Royal Bank of Canada claims (Great Britain v.Costa Rica), 1 R.I.A.A. 369, 394 (1923). 38 Ibid. It bears noting that Tinoco was subsequently killed and his widow transferred to the government a mortgage for the full value of the bank’s claim.The sole arbitrator recognized that, in repudiating its obligation to the bank, Costa Rica “deprived itself of any just claim to real ownership of the mortgage” and ordered a transfer of the mortgage to the Royal Bank of Canada. Ibid. at 395. 39 Borchard, supra note 17 at 343. 40 Ralston, supra note 20 at 204. See also Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276, Advisory Opinion, 1971 I.C.J. Rep. 16, 54, ¶ 118 (June 21) (noting that South Africa, by its continued illegal presence in Namibia, incurred international responsibility and therefore became accountable under international law, and the fact that South Africa had no “title to administer” did not release it from responsibility because “[p]hysical control of a territory, and not sovereignty or legitimacy of title, is the basis of State liability for acts affecting other States”). 41 Ralston, supra note 20 at 204. 42 ILC Articles on State Responsibility, supra note 7, Art. 10, cmt. (11). 43 Ibid. 44 Hopkins, supra note 29 at 42, 46–47. 45 Aguilar, supra note 37 at 381–82. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 191

To hold that a government which establishes itself and maintains a peaceful administration, with the acquiescence of the people for a substantial period of time, does not become a de facto government unless it conforms to a previous constitution would be to hold that within the rules of international law a revolution contrary to the fundamental law of the existing government cannot establish a new government. This cannot be, and is not, true....Theissue is not whether the new government assumes power or conducts its administration under constitutional limitations established by the people during the incumbency of the government it has overthrown.The question is, has it really established itself in such a way that all within its influence recognize its control, and that there is no opposing force assuming to be a government in its place? Is it discharging its functions as a government usually does, respected within its own jurisdiction?46 Nevertheless, in exceptional circumstances, a state may be able to establish that a lack of popular support within the nation negates the existence of a de facto government, which in turn negates the state’s responsibility. For example, in the Jansen case, the U.S.-Mexico mixed claims commission held that the Republic of Mexico was not liable for actions of the Maximilian regime, which “rested [exclusively] on the assistance of foreign force” and lacked the “popular support” or even the “habitual obedience” of the citizenry.47 Commentators also noted that a government may in certain circumstances be excused from recognizing actions of its predecessor where actions were undertaken durante bello (during an armed conflict) and thus were in fraudem (in circumvention) of the general interests of the nation.48 Such exception has not been welcomed by foreign governments, for whom the legality and authority of the host state’s government are “strictly domestic in their nature and bearing” and, as such, have no impact on international obligations.49 That said, such exceptions, if they exist, are very narrow

46 Ibid. 47 Jansen (U.S. v. Mexico), 29 R.I.A.A. 159, 186 (1868) (holding that the Republic of Mexico was not liable for actions of the Maximilian regime because “lacking the element of popular support or of habitual obedience from the mass of the people, it rested alone on the assistance of foreign force”). 48 Lauterpacht, Recognition of Governments: I, 45 Colum. L. Rev. 815, 822 n. 11 (1945) (“[T]he lawful Government, deprived of the major part of national territory, continued to represent Spain in the Council and the Assembly of the League of Nations and before the Permanent Court of International Justice. But, as in other matters, so also in this case good faith prescribes limits to the operation of a general rule. Thus it is doubtful whether political or commercial treaties of a far-reaching character may properly be concluded with a government thus situated. There is force in the contention that, notwithstanding the general rule as to the continuity of the State, the successful revolutionary government would not be bound by such treaties concluded durante bello as being in fraudem of the general interests of the nation.”) (internal citations omitted). 49 Houghton, supra note 11 at 252–53 (providing an example of U.S. statements in support of holding France accountable for actions of Napoleon Bonaparte: “It is not necessary to discuss the question of usurpation which is put forward. It is sufficient for us that those acts and depredations proceeded from the actual Government of France; and that the responsibility of France to make reparations for wrongs committed under the authority of any form of government which she may have adopted, or to which she may have submitted, from time to time, cannot be contested. For the King of France, in reascending the throne of his ancestors, assumed the government, with all the obligations, rights and 192 BCDR INTERNATIONAL ARBITRATION REVIEW in scope and, as a general matter, undertakings made in the name of the state cannot be lightly repudiated.50

2.2[d] Amnesty by the Host State

Another factor that may impact the nation’s responsibility vel non for actions of revolutionaries is the treatment accorded to those revolutionaries by the state’s de jure government. An amnesty granted to them after their downfall may be viewed as approval of their actions by the state’s government and therefore acceptance of responsibility for them. In the Montijo arbitration, the umpire of the U.S.-Colombian commission held that “the grantor of an amnesty assumes as his own the liabilities previously incurred by the objects of his pardon toward persons or things over which the grantor has no control.”51 This case arose from the seizure of a ship, Montijo, from American owners.52 The seizure was perpetrated by unsuccessful revolutionaries, Colombian nationals, who briefly took control of Panama’s Chiriquí province.53 The revolution was ended by a peace treaty, pursuant to which the government of Panama “granted amnesty to the wrongdoers for all of their acts, and assumed the responsibility for all damages arising out of the revolution.”54 Based on that treaty, the revolutionaries were granted amnesty by the President of Panama that, the umpire held, resulted in the government’s becoming responsible for their wrongdoing.55 The umpire reasoned: If . . . before the captors had no right before the amnesty to take the Montijo, it is evident that the President of Panama could not by the terms of that document confer it on them. They, therefore, are liable to the owners for the expenses incurred and damages oc- casioned. If no amnesty had ever been granted . . . [there] would have been, at least, an open question whether their possible or even notorious inability to pay those damages would have rendered Colombia at large responsible for their acts. But the amnesty deprived the [claimants] of the power of trying the question. Therefore the President of Panama, having no right to dispose of interests which were not his property and which, on the contrary he was bound by a public treaty to protect, assumed the responsibility to the owners of those interests of the persons by whom they had been injured. It is an old

duties which appertain to the French nation. He can justly claim absolution from none of these obligations or duties.”). 50 Borchard, supra note 17 at 342–43. 51 Montijo Arbitration (U.S. v.Colombia), 2 Moore, Arbitrations 1421, 1438 (1874). 52 Ibid. at 1421. 53 Ibid. 54 Ibid. at 1424. 55 Ibid. at 1438. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 193

saying that one must be just before one is generous. In Spanish the version is, La bolsa ajena es muy franca—it is easy to pay one’s debts out of another man’s purse.56 In the Baldwin case, Mr. Baldwin, an American businessman doing business in the State of Oaxaca in Mexico, asserted claims for bodily injury, wrongful imprisonment, and expropriation of property under a Mexican-U.S. treaty according him “special protection.”57 The complained-of actions at issue were taken by a “central junta,” which at the time was controlling the city of Tehuantepec as a local de facto government. The American commissioner argued that “if Mexico permitted a civil power to arise in any of her provinces and exercise for a time all the functions of government, and in the exercise of authority to seize and confiscate the property of an American citizen and imprison his person without just cause, she had violated her treaty obligations, and that her inability to keep down rebellion in her territory[,] while it might be her misfortune, could not excuse the nonfulfillment of her contract.”58 In addition, after regaining control of Tehuantepec, Mexico “commended” conduct of members of the central junta and “bestowed on some of them high official station,”instead of treating them as “lawless insurgents deserving punishment.”59 In light of all those circumstances, the umpire awarded Mr. Baldwin compensation.60 The cases are, however, not uniform in their treatment of amnesty.A number of other commissions have declined to find amnesty a ground for attribution of responsibility to the state.61 The ILC Articles on State Responsibility also caution against indiscriminate finding of attribution due to amnesty.The commentary to Article 10 provides that “[t]he State should not be made responsible for the conduct of a violent opposition movement merely because, in the interests of an overall peace settlement, elements of the opposition are drawn into a reconstructed Government.”62

56 Ibid. at 1439 (emphasis in the original). 57 Baldwin’s Tehuantepec Case (U.S. v.Mexico), 3 Moore, Arbitrations 2859, 2862 [date unknown]. 58 Ibid. at 2862. 59 Ibid. at 2861. 60 Ibid. at 2866. 61 See e.g. Divine v. Mexico, 3 Moore, Arbitrations 2980, 2981 (1875) (the umpire noted that it had been submitted by the claimant that, by reason of its amnesty to General Carvajal who besieged the Mexican city of Matamoros, the Mexican government “made itself responsible for his acts,” which argument the umpire rejected noting that “[o]ther governments, including that of the United States, have pardoned rebels, but they have not on this account engaged to reimburse to private individuals the losses caused by those rebels”). 62 ILC Articles on State Responsibility, supra note 7, Art. 10, cmt. (7). 194 BCDR INTERNATIONAL ARBITRATION REVIEW

2.2[e] Actions inViolation of the Home State’s Laws

Where a claimant is seeking to enforce a transaction that was carried out in violation of the laws of the claimant’s home state, the claimant may be precluded from resorting to an arbitral forum on grounds of estoppel. The Jarvis case illustrates the application of this principle. There, a claim was brought on behalf of U.S. citizen, Nathaniel Jarvis, to recover on bonds issued to Mr. Jarvis by Venezuela in 1863. The bonds represented compensation for the services he had rendered some fifteen years earlier in support of the Páez revolution in Venezuela, which briefly acceded to power between 1861 and 1863 as a general de facto government.63 Mr. Jarvis’ claim was disallowed because his underlying services—provided in 1849 and comprising the supply of funds and military equipment to the Páez revolutionary effort—violated the United States’ official position on Venezuela’s government and a peace treaty before two nations.64 The U.S.-Venezuelan mixed claims commission relied on this position, noting: The only Venezuela known to international law in 1849 was the recognized Government of that country and with it the Government of the United States was at peace under the [1836 peace] treaty [which provided for inviolable peace and sincere friendship between the two countries].This treaty was binding on Mr. Jarvis as a citizen of the United States, and he could lawfully do no act nor make any contract in violation of its provisions.65 The commission noted further that the United States’ refusal to recognize the Páez government as a government “fully accepted and peacefully maintained by the people of Venezuela” had conclusive effect on its own citizens and served to preclude the claim at issue.66 The United States Supreme Court reasoned similarly in Kennett v. Chambers.67 There, a U.S. citizen’s transaction to procure arms in support of Texas’s struggle towards independence from Mexico was found to violate the United States’ public policy and, as such, was unenforceable given that the independence of Texas had not yet been recognized by the United States.68 In a similar vein, English courts

63 Jarvis (U.S. v.Venezuela), 9 R.I.A.A. 208 (1903–1905). 64 Ibid. at 211. 65 Ibid. 66 Ibid. at 213.The commissioner also rejected the argument that the claim was made on the 1863 bonds and not on the 1849 services, concluding that a subsequent contract “made in aid and furtherance” of an earlier one, which was infected by illegality, rests on illegal consideration and is equally a violation of law. Ibid. See also Hanna, supra note 25 at 144 (while the commissioners jointly decided that the United States was not responsible for the acts of the Confederate government, commissioner Frazer issued a separate opinion emphasizing that because the claimant’s state recognized the belligerency, the claimant, as a “subject of such sovereign,”was estopped from taking a position to the contrary). 67 55 U.S. 38 (1852). 68 Ibid. at 50 (“The intercourse of this country with foreign nations, and its policy in regard to them, are placed by the Constitution of the United States in the hands of the government, and its decisions ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 195 have recognized that business transactions designed to support belligerency are deemed “contrary to the law of nations,” against public policy in England, and, therefore, void.69

2.2[f] International Recognition

International recognition is one of the attributes of a de jure government.70 As far as responsibility of de facto governments is concerned, recognition—in and of itself—has not been regarded as a condition either necessary or sufficient.71 That said, recognition (or non-recognition) may nevertheless serve as important evidence of the existence of a de facto government.72 In Jarvis, for example, when considering whether the Páez insurgency created a de facto government, the commissioner “accorded great weight” to the position of the U.S. government on the status of the Páez movement.73 The commissioner in Garrison pointed to the same lack of U.S. recognition of the Páez government, noting this was “a fact [that could] not be ignored.”74 In Henriquez, the umpire ascribed even more weight to recognition, reasoning that “[a] de facto government which would give this claim a position before this Commission must be one recognized as such for the Republic of Venezuela, and not one temporarily in authority in a State or district under revolution and against the will and purposes

upon these subjects are obligatory upon every citizen of the Union. He is bound to be at war with the nation against which the war-making power has declared war, and equally bound to commit no act of hostility against a nation with which the government is in amity and friendship....Forasthe sovereignty resides in the people, every citizen is a portion of it, and is himself personally bound by the laws which the representatives of the sovereignty may pass, or the treaties into which they may enter, within the scope of their delegated authority.And when that authority has plighted its faith to another nation that there shall be peace and friendship between the citizens of the two countries, every citizen of the United States is equally and personally pledged. The compact is made by the department of the government upon which he himself has agreed to confer the power. It is his own personal compact as a portion of the sovereignty in whose behalf it is made.And he can do no act, nor enter into any agreement to promote or encourage revolt or hostilities against the territories of a country with which our Government is pledged by treaty to be at peace, without a breach of his duty as a citizen, and the breach of the faith pledged to the foreign nation. And if he does so he cannot claim the aid of a court of justice to enforce it. The appellants say, in their contract, that they were induced to advance the money by the desire to promote the cause of freedom. But our own freedom cannot be preserved without obedience to our own laws, nor social order preserved if the judicial branch of the government countenanced and sustained contracts made in violation of the duties which the law imposes, or in contravention of the known and established policy of the political department, acting within the limits of its constitutional power.”). 69 De Wutz v. Hendricks, 9 Moore, Reports of Cases Argued and Determined in the Courts of Common Pleas and Exchequer Chamber, 579, 586 (1827). 70 Lauterpacht, supra note 48 at 823. 71 Borchard, supra note 17 at 346. 72 Ibid. 73 Jarvis, supra note 63 at 213. As noted above, the commissioner found that lack of recognition of the Páez government by the United States was “conclusive upon [U.S.] citizens.” Ibid. 74 Garrison, supra note 13 at 237. 196 BCDR INTERNATIONAL ARBITRATION REVIEW of the de jure and de facto government of the nation.”75 Similarly, in Jansen, the U.S.-Mexican commission relied on the earlier refusal by the United States to recognize the Maximilian government, which contradicted the U.S. opinion in the Jansen case that the Maximilian empire had constituted a de facto government.76 By contrast, in Aguilar-Amory, the non-recognition of the Tinoco government by Great Britain did not weigh greatly on the question of whether the Tinoco regime had formed a de facto government.77 Nevertheless, commissioner Chief Justice Taft underscored that recognition may be a valuable tool when its purpose is to acknowledge the de facto government’s “independence” and “control” and took note that some twenty governments had accorded recognition to the Tinoco government.78 Commentators have also accepted the view that a de facto government’s actions may become binding even in the absence of international recognition.79 As a practical matter, the issue of foreign recognition may have limited effect. In situations of civil unrest—typically marked by instability, uncertainty, and political turmoil—foreign governments are reluctant to proceed with recognition of de facto governments because premature recognition may be viewed as an unfriendly act by the succeeding government.80

2.2[g] Recognition of Belligerency by the Host State Recognition of belligerency—either by the state’s de jure government or by a foreign government—does not seem to play a significant role in the analysis.81 The value of such “recognition” is minimal because it does not constitute political recognition.82 Tribunals and commentators have acknowledged that the state’s government may concede to the rebels some belligerent rights “in the interests of

75 Henriquez (The Netherlands v.Venezuela), 10 R.I.A.A. 707, 716 (1903). 76 Jansen, supra note 47 at 186–87. 77 Aguilar, supra note 37 at 380–81. 78 Ibid. at 381 (“The non-recognition by other nations of a government claiming to be a national personality, is usually appropriate evidence that it has not attained the independence and control entitling it by international law to be classed as such. But when recognition vel non of a government is by such nations determined by inquiry, not into its de facto sovereignty and complete governmental control, but into its illegitimacy or irregularity of origin, their non-recognition loses something of evidential weight on the issue with which those applying the rules of international law are alone concerned.”). 79 Jennings & Watts (eds.), Oppenheim’s International Law, vol. 1, Peace, § 44 (9th ed., 1996) (“[T]he effect of a revolution resulting in a government which for a time fails to secure any recognition from foreign states, does not destroy the international personality of the state or free it, permanently at any rate, from existing treaty obligations; though it involves an interruption in that state’s ability to exercise its legal capacity for international purposes.”). 80 Houghton, supra note 23 at 253. 81 Ibid. at 261. 82 Ibid. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 197 humanity, to prevent the cruelties which would inevitably follow mutual reprisals and retaliations.”83 In Prats, the U.S.-Mexican commission held that the lack of U.S. recognition of the Confederate government as belligerent in no way impacted the question of U.S. responsibility.84 To the extent that such recognition by the de jure government has any relevance, it may serve as an indication that the de jure government seeks to release itself from any potential responsibility for acts of the belligerents.85

3 QUESTIONS OF RESPONSIBILITY:AVAILABLE CLAIMS AND DEFENSES The existence of civil unrest or armed conflict within a particular state does not, in and of itself, annul the obligations previously assumed by that state with regard to investor protection. The ILC Draft Articles on the Effects of Armed Conflicts on Treaties (the “ILC Articles on Armed Conflicts”) provide that armed conflicts do not ipso facto terminate treaties.86 That rule extends to bilateral and multilateral investment protection treaties (for ease of reference, all such treaties will be referred to as BITs).87 The ILC Articles on Armed Conflicts define “armed conflict” as a situation in which “there is resort to armed force between States or protracted resort to armed force between governmental authorities and organized armed groups.”88 This broad definition subsumes many manifestations of civil unrest and, accordingly, in the ordinary course of events its outbreak would neither nullify the state’s pre-conflict undertakings (such as, for example, an obligation to provide a certain level of protection to foreign investments), nor deprive the state of defenses otherwise available to it.We survey below the claims and defenses that are typically put forward in disputes arising from civil unrest.

3.1 CLAIMS THAT MAY BE AVAILABLE TO INVESTORS

The two key protections most frequently applied in cases related to civil unrest are the obligation to provide full protection and security and the prohibition on unlawful expropriation. Additionally, some BITs contain special

83 Williams, supra note 25 at 186. 84 Prats, supra note 25 at 192. 85 Houghton, supra note 23 at 261. 86 ILC draft articles on the effects of armed conflicts on treaties, with commentaries, U.N. Doc. A/66/10, Art. 3 (2011), available at http://legal.un.org/ilc/texts/instruments/english/commentaries/1_10_2011.pdf. 87 Ibid., Art. 2(a) (providing that “‘treaty’ means an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation, and includes treaties between States to which international organizations are also parties”). 88 Ibid., Art. 2(b). 198 BCDR INTERNATIONAL ARBITRATION REVIEW provisions—so-called “war clauses”—affording further protections for investors and sometimes further defenses for states.

3.1[a] Full Protection and Security The standard of full protection and security (“FPS”) has particular relevance to cases arising out of insurrection, civil unrest and other public disturbances.89 It protects the security and integrity of an investment.90 The FPS standard has been invoked frequently in civil unrest disputes because it both: (i) requires states to refrain from actively interfering with foreign investments; and (ii) imposes on the state an obligation of due diligence and vigilance in protecting investments from actions of third parties, such as rebels or insurgents. These two components are sometimes referred to as duty to abstain and duty to protect.91 The former (duty to abstain) means that the state has the negative obligation not to engage in actions that may jeopardize the security of aliens.92 The latter (duty to protect) means that the state has a positive obligation to protect aliens from harmful activities carried out by third parties on its territory and to punish the wrongdoers.93 Where the latter (duty to protect) is involved, the state’s responsibility may be implicated even without attribution, because the state is responsible for any inaction on its part that allowed the third-party interference to take place.94 This obligation of due diligence has a long pedigree in international law. Hugo Grotius—who is widely considered as the “father” of international law—laid out the intellectual foundations of this concept in the 17th century.95 In the 19th century, it began acquiring further weight in international jurisprudence.96 In the S.S. Lotus case, Justice Moore noted in his dissenting opinion that “[i]t is well settled that a State is bound to use due diligence to prevent the commission within its dominions of criminal acts against another nation or its people.”97 In the Sambiaggio case, the umpire of the Italian-Venezuelan commission held that Venezuela could not be held responsible

89 UNCTAD, Investor-State Disputes Arising from Investment Treaties: A Review, UNCTAD Series on International Investment Policies for Development, 40–41 (2005), available at http://unctad.org/ en/docs/iteiit20054_en.pdf. 90 Lawry-White, “International Investment Arbitration in a Jus Post Bellum Framework,”16 J.World Inv. & Trade 633, 647 (2015). 91 Pisillo-Mazzeschi, “The Due Diligence Rule and the Nature of the International Responsibility of States,”35 Ger.Y.B. Int’l L. 9, 22 (1992). 92 Ibid. 93 Ibid. 94 Ampal, supra note 6, ¶ 245. 95 International Law Association Study Group on Due Diligence in International Law, First Report at 2 (2014), available at http://www.ila-hq.org/index.php/study-groups. 96 Ibid. 97 S.S. Lotus (France v.Turkey), 1927 PCIJ (Ser.A) No. 10, 88–89 (1927). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 199 for acts of uncontrolled revolutionists in the absence of any evidence that the state had “failed to exercise due diligence to prevent damages.”98 In the Youmans case, the U.S.-Mexican mixed claims commission held that a state may be responsible for damage caused by “mob violence” where the state failed to punish the persons implicated in the crime.99 While the early decisions have not defined the contours of this due diligence obligation, they have identified a series of factors to be considered by tribunals, including the degree of effectiveness of the state’s control over parts of its territory, the degree of predictability of harm, and the significance of the interest to be protected.100 More recently, three much-cited investment treaty cases, AAPL v. Sri Lanka, AMT v. Zaire, and Wena Hotels v. Egypt, laid the foundation of the host state’s FPS obligations in the context of civil unrest.101 Furthermore, at the time of writing, a decision on liability issued in Ampal v. Egypt applied those principles to a dispute arising out of the Arab Spring. In AAPL, the claimant—Asian Agriculture Products Limited (AAPL)—invested in a Sri Lankan shrimp farming business that exported to Japan. The area where the shrimp farm was located came under the control of Tamil Tiger rebels during an insurgency in 1986. In 1987, Sri Lankan security forces performed a counter-insurgency operation, as a result of which the shrimp farm was demolished and twenty-one employees lost their lives. Following the destruction, AAPL commenced an arbitration against Sri Lanka asserting two claims: (i) strict liability under Article 2 of the Sri Lanka-UK BIT containing an FPS clause; and (ii) responsibility under Article 4 of the same BIT for losses arising from an insurrection.102 As AAPL was one of the first cases in which the FPS standard was applied in the context of civil unrest, the claimant ventured to argue that the relevant FPS clause provided for responsibility “without fault,” contending that the words “enjoy” and “full” in the FPS clause mean that the parties had intended to provide investors with a “guarantee” for all losses suffered on account of the destruction of the investment “for whatever reason.”103 The tribunal rejected the claimant’s

98 Sambiaggio (Italy v.Venezuela), 10 R.I.A.A. 499, 524 (1903). 99 Youmans (U.S. v.Mexico), 6 R.I.A.A. 100, 115 (1926). 100 ILA Study Group on Due Diligence in International Law, First Report, supra note 95 at 3. 101 UNCTAD, supra note 89 at 40–41 & n.39, citing AAPL v. Sri Lanka, ICSID Case No. ARB/87/3, Final Award (June 27, 1990); AMT v. Zaire, ICSID Case No. ARB/93/1, Award (Feb. 21, 1997); Wena Hotels Ltd. v. Egypt, ICSID Case No. ARB/98/4, Award (Dec. 8, 2000). In addition, the cases where tribunals did not find FPS violations are also instructive as they delineate the limits of the standard. See e.g. Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, ¶¶ 175–78 (May 29, 2003); Noble Ventures, Inc. v. Romania, ICSID Case No.ARB/01/11,Award ¶¶ 164–66 (Oct. 12, 2005). 102 Ibid., ¶ 9. 103 Ibid., ¶ 45. 200 BCDR INTERNATIONAL ARBITRATION REVIEW interpretation, noting that it was unaware of any case where an FPS clause had been construed “as an absolute obligation.”104 Furthermore, both “the oldest reported arbitral precedent [Sambiaggio] and the latest ICJ ruling [Elettronica Sicula (ELSI)]” on point105 confirmed that the FPS obligation did not give rise to strict liability.106 The tribunal explained that the word “full” in the FPS clause likely represents the parties’ intention to implicate the standard of “due diligence,” which is higher than the “minimum standard” existing in international law.107 Because AAPL alleged violation of “an unconditional obligation” under the FPS clause, the claim was dismissed.The tribunal’s reasoning on AAPL’s second claim is discussed below in section 3.2[c] on “security exceptions.” In AMT, a U.S. investor invested in a Zairian company engaged in the sale of batteries and other consumer goods. Soldiers of the Zairian armed forces looted, damaged, and stole the investor’s property.108 Such lootings occurred on two separate occasions, two years apart.109 Following the second incident, the Zairian company shut down.110 Like AAPL, AMT asserted two claims: violation of the FPS clause in the US-Zaire BIT and violation of a separate clause in that BIT relating to acts of violence. Unlike AAPL, however, AMT did not base its FPS claim on strict responsibility.111 The tribunal found that Zaire “manifestly failed” to comply with its obligations of vigilance and care as it had failed to take “every measure necessary to protect and ensure the security of [AMT’s] investment.”112 In Wena, a British investor entered into long-term hotel management agreements with EHC, an Egyptian hotel company owned by the Egyptian government.113 Following a dispute between the investor and EHC over non-payment of rent, EHC temporarily took possession of the subject hotels and caused damage to them.114 After the hotels were returned to Wena in a state of severe disrepair, the Egyptian Ministry of Tourism took certain actions that interfered with Wena’s hotel licenses, thus preventing Wena from continuing to operate the hotels.115 Wena asserted two claims: (i) violation of the standards of

104 Ibid., ¶ 48. 105 Sambiaggio (Italy v.Venezuela), 10 R.I.A.A. 449, 449 (1903) and Elettronica Sicula S.p.A.(ELSI) (U.S. v. Italy), Judgment, 1989 I.C.J. Reports 15, 65 ¶ 108 (July 20, 1989).The tribunal pointed out that when considering a similar clause—“the most constant protection and security”—the ICJ had held that it did not create a “warranty” that the property will never be imperiled. 106 AAPL, supra note 101, ¶ 49. 107 Ibid., ¶ 50. 108 AMT, supra note 101, ¶ 3.04. 109 Ibid. 110 Ibid. 111 Ibid., ¶ 6.05. 112 Ibid., ¶¶ 6.04–6.11. 113 Wena, supra note 101, ¶ 17. 114 Ibid., ¶¶ 28–62. 115 Ibid., ¶ 55. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 201 fair and equitable treatment (“FET”) and FPS; and (ii) expropriation.116 Recognizing that the FPS standard imposes on the host state “an obligation of vigilance, in the sense that [the state] shall take all measures necessary to ensure the full enjoyment of protection and security” of investments, the tribunal found Egypt liable. In finding liability, the tribunal pointed out that Egypt was aware of EHC’s intentions to seize the hotels, but it took no immediate action to restore the hotels following the seizure and it never imposed any sanctions on EHC’s officials for such wrongful acts.117 The tribunal’s decision on expropriation is discussed below in section 3.1[b] on expropriation. It bears noting that all three foregoing cases applied an objective “due diligence” standard to FPS claims. The AAPL tribunal took note of “the old ‘subjective’ criteria that takes into consideration the relatively limited existing possibilities of local authorities,” but gave preference to “an ‘objective’ standard of vigilance [which focuses on] what should be legitimately expected to be secured for foreign investors by a reasonably well organized modern State.”118 Both the AMT and Wena tribunals also referred to FPS as an objective standard requiring the host state to take “every” measure (or “all” measures) necessary to protect investments in its territory against unrest instigated therein by third parties.While not an “obligation of result,” the objective FPS standard is an “obligation of good faith efforts [established] without special regard for the [host state’s] resources.”119 More recently, however, tribunals have been willing to relax this standard.The sole arbitrator in Pantechniki v.Albania adopted a “modified objective standard,”120 which takes into account the host state’s particular circumstances, such as its level of development and stability.121 There, the sole arbitrator drew a distinction between the host state’s refusal and inability to provide protection and, having concluded that the Albanian authorities were “powerless in the face of social unrest of this magnitude,” dismissed the claim.122 Moreover, in LESI & Astaldi v.Algeria, the tribunal considered the claimants’ pre-investment awareness of circumstances that posed a risk to security as a factor militating against breaches of the FPS and FET standards.123 Commentators have also recently recognized that the measure of due diligence is a “relative exercise” whereby the relevant standard is to be

116 Ibid., ¶ 80. 117 Ibid., ¶¶ 84–95. 118 AAPL, supra note 101, ¶ 77. 119 UNCTAD, supra note 89 at 41; see also Biwater, supra note 6, ¶ 726. 120 Pantechniki S.A. Contractors & Eng’rs v. Albania, ICSID Case No. ARB/07/21, Award, ¶ 81 (July 30, 2009). 121 Ibid. (“An investor investing in an area with endemic civil strife and poor governance cannot have the same expectation of physical security as one investing in London, New York or Tokyo.”). 122 Ibid., ¶¶ 82, 105. 123 LESI S.p.A. & Astaldi S.p.A. v. People’s Democratic Republic of Algeria, ICSID Case No. ARB/05/3, Award, ¶¶ 154, 176 (Nov. 12, 2008) (in French). 202 BCDR INTERNATIONAL ARBITRATION REVIEW

“calibrated” depending on circumstances such as how well the state is administered.124 The Ampal case—the most recent case relating directly to events occurring during the Arab Spring—arose out of the investment made by Ampal-American Israel Corporation and others (collectively, Ampal) in Egypt in the wake of the 1979 Peace Treaty between Israel and Egypt, which envisaged an inter-governmental commitment to energy independence between the two countries and initially concerned oil cooperation.125 Subsequently,the cooperation transitioned from oil to natural gas.126 Ampal and Egypt established a local vehicle, EMG, the primary purpose of which was to purchase natural gas from Egypt and to export it to Israel through a pipeline between Egypt and Israel.127 Ampal complained that, following the Arab Spring tensions, Egypt “failed to take reasonable precautionary, preventive, and remedial measures” to protect the physical security of the pipeline from attacks of saboteurs in violation of its FPS obligations.128 The tribunal reiterated the view adopted in AAPL, that the FPS standard is not one creating strict liability; instead, the state is required to exert “due diligence” in order to protect the investment.129 However, the tribunal deviated from the objective standard articulated in AMT and Wena and followed the more flexible approach adopted by the Pantechniki arbitrator, noting that the “due diligence” standard must be assessed “according to the particular circumstances in which the damage occurs.”130 Having assessed the circumstances in which the attacks took place, including “the political instability, security deterioration and general lawlessness,” the tribunal concluded that the first attack did not violate the FPS standard.131 The tribunal referred to the Pantechniki arbitrator, who posited that a government should not incur international responsibility “for failure to plan for unprecedented trouble of unprecedented magnitude in unprecedented places.”132 Nevertheless, the subsequent twelve attacks demonstrated a pattern of delayed reaction by the state and failure to implement the measures that it had undertaken to implement, in violation of its due diligence obligation.133 Although the AAPL, AMT, Wena, and Ampal cases all dealt with physical protection, the question remains open as to whether the FPS standard accords

124 Lawry-White, supra note 90 at 648. 125 Ampal, supra note 6, ¶ 25. 126 Ibid., ¶¶ 26–29. 127 Ibid., ¶ 30. 128 Ibid., ¶ 236. 129 Ibid., ¶ 241. 130 Ibid. 131 Ibid., ¶¶ 284–85. 132 Ibid., ¶ 285. 133 Ibid., ¶¶ 286–87. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 203 protection to physical security alone, or whether legal security is covered as well. While some tribunals—e.g. those in Siemens v.Argentina, Azurix Corp. v.Argentine Republic, Biwater Gauff (Tanzania) Ltd v.Tanzania, and CME v. Czech Republic134— have been willing to extend the FPS standard to legal protection, others—e.g. those in Gold Reserve v. Venezuela, Saluka v. Czech Republic, and AWG v. Argentina—have been reluctant to do so.135 Political volatility frequently impacts a state’s legal framework as much as its physical infrastructure. It is therefore expected that more arbitral decisions shedding light on this issue will become available soon.

3.1[b] Expropriation Expropriation is the taking of privately owned property by a government, also known in the common-law system as eminent domain.136 It is not prohibited per se in international law, unless unlawful and uncompensated.137 While governments always have the power of eminent domain, the possibility of expropriation is heightened in states undergoing political turmoil or civil unrest. Unlike the FPS standard, which can be violated by a state when damage to an investor is caused by third-party actors, expropriation requires a showing of attribution.138 Most international investor protection instruments, as well as national laws within many

134 Siemens A.G. v. Argentine Republic, ICSID Case No. ARB02/8, Award, ¶ 303 (Feb. 6, 2007) (“As a general matter and based on the definition of investment, which includes tangible and intangible assets, the Tribunal considers that the obligation to provide full protection and security is wider than ‘physical’ protection and security.It is difficult to understand how the physical security of an intangible asset would be achieved.”); Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, ¶¶ 406–8 (June 23, 2006) (noting that legal security is as important to an investor as its physical security and concluding that when the terms “protection and security” are qualified by “full” without any other adjective or explanation, they extend the content of this standard beyond physical security”); Biwater, supra note 6, ¶ 729 (noting that the FPS standard “implies a State’s guarantee of stability in a secure environment, both physical, commercial and legal” and noting further that it would be “unduly artificial to confine the notion of ‘full security’ only to one aspect of security, particularly in light of the use of this term in a BIT, directed at the protection of commercial and financial investments.”); CME Czech Republic B.V.v. Czech Republic, UNCITRAL Arbitration Rules, Partial Award, ¶ 613 (Sept. 13, 2001) (“The host State is obligated to ensure that neither by amendment of its laws nor by actions of its administrative bodies is the agreed and approved security and protection of the foreign investor’s investment withdrawn or devalued.”). 135 Gold Reserve Inc. v.Venezuela, ICSID Case No. ARB(AF)/09/1, Award, ¶¶ 622–23 (Sept. 22, 2014); Saluka v. Czech Republic, UNCITRAL Arbitration Rules, Partial Award, ¶¶ 483–84 (Mar. 17, 2006); AWG v.Argentina, UNCITRAL Arbitration Rules,Award, ¶ 179 (Apr. 9, 2015). 136 Dugan,Wallace, Rubins & Sabahi, Investor-State Arbitration, Oxford University Press at 429 (2008). 137 Ibid. 138 Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Award, ¶ 183 (June 7, 2012). 204 BCDR INTERNATIONAL ARBITRATION REVIEW

Middle East countries, provide some guarantees against expropriation, although the level of protection varies.139 As noted above in section 3.1[a], one of the claims in Wena concerned expropriation.140 The tribunal found that Egypt’s actions constituted expropriation because “[w]hether or not it authorized or participated in the actual seizures of the hotels, Egypt deprived Wena of its ‘fundamental rights of ownership’ by allowing EHC forcibly to seize the hotels, to possess them illegally for nearly a year, and to return the hotels stripped of much of their furniture and fixtures.”141 Because the expropriation did not lead to “prompt, adequate and effective compensation,” it violated the relevant BIT.142 The Ampal tribunal found that Egypt’s termination of the contract at issue was tantamount to expropriation. The contract constituted an investment under the broad definition of investment in the relevant treaty, and its termination was an act disproportionate to the value of the alleged breach by Ampal (which, according to the tribunal, constituted a fraction of the contract’s potential yield).143 It also did not escape the tribunal’s attention that the contract was terminated at a time “when many in Egypt voiced strong opposition to the supply of gas to Israel.”144 Considering all of those factors, the tribunal concluded that Egypt’s actions in terminating the contract amounted to unlawful expropriation.

3.1[c] “War Clauses” A number of BITs, including BITs ratified by Middle Eastern states include so-called “war clauses.”145 These clauses entitle qualifying foreign investors to compensation for losses arising from civil unrest or armed conflict based on the principle of most-favored-nation treatment or national treatment.146 Such clauses do not create any additional substantive protections, but are rather intended to

139 OECD, Protecting Investment: Legal Frameworks for Infrastructure Investment in Egypt, Jordan, Morocco and Tunisia (2014), available at https://www.oecd.org/globalrelations/Legal%20Study_EN.pdf. 140 Wena, supra note 101, ¶ 80. 141 Ibid., ¶¶ 99–101. 142 Ibid. 143 Ampal, supra note 6, ¶ 344. 144 Ibid. 145 Libya-Portugal BIT, Art. 7 (“Compensation for damages for losses. Each Party shall provide to investors of the other Party, whose investments suffer losses in the territory of the first Party owing to war or armed conflict, revolution, a state of national emergency, disobedience or disturbances or any other event considered as such, treatment that restitutes the conditions of these investments that existed before the damage had occurred, or compensation, or any other settlement that is no less favourable than that Party accords to the investments of its own investors, or of any third State, whichever is more favourable.”);see also Belgium/Luxembourg-Libya BIT, Art. 7.4. 146 Schreuer, “The Protection of Investments in Armed Conflicts,” 3 Transnat’l Disp. Mgmt. 1, 9–10 (2012). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 205 level the playing field for foreign investors.147 A subcategory of those clauses, known as “extended war clauses,” may create additional substantive rights by treating as expropriation the requisitioning or destruction of property that is not excused by the defense of necessity (addressed below in section 3.2).148 Such clauses typically offer more extensive protections for investors harmed by civil unrest or other hostilities because they generally do not require identification of the actor causing the damage. The AAPL and AMT cases both involved “extended war clauses.” Both tribunals found that the states had violated these clauses because the actions at issue arose in the context of hostilities and no exclusions were applicable.149 One unsettled question is whether the presence of such war clauses interferes with any substantive rights investors may have under the relevant treaty.150 The AMT tribunal concluded that extended war clauses in the relevant BIT did not negate the FPS claim.151 By contrast, the tribunal in LESI & Astaldi v.Algeria took the view that a “war clause” within the same article as the FPS clause superseded the FPS standard as lex specialis and thus should be interpreted as reducing the standard applicable under the FPS clause in the event of an armed conflict or civil unrest.152

147 Mouawad &Vasani, supra note 5 at 248. 148 See e.g. Austria-Libya BIT,Art. 5 (“Compensation for Losses. (1) An investor of a Contracting Party who has suffered a loss relating to its investment in the territory of the other Contracting Party due to war or to other armed conflict, state of emergency, revolution, insurrection, civil disturbance, or any other similar event, or acts of God or force majeure, in the territory of the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or any other settlement, treatment no less favourable than that which it accords to its own investors or to investors of any third state, whichever is most favourable to the investor. (2) An investor of a Contracting Party who in any of the events referred to in paragraph (1) suffers loss resulting from: (a) requisitioning of its investment or part thereof by the forces or authorities of the other Contracting Party, or (b) destruction of its investment or part thereof by the forces or authorities of the other Contracting Party, which was not required by the necessity of the situation, shall in any case be accorded by the latter Contracting Party restitution or compensation which in either case shall be prompt, adequate and effective and, with respect to compensation, shall be in accordance with Article 4 (2) and (3).”); Romania-Egypt BIT,Art. 3(2) (“Investors of a Contracting Party, whose investments have undergone losses as a consequence of a war or clash of armed forces, a revolution, a state of national emergency or a revolt occurring on the territory of the other Contracting Party, shall receive from the latter, the necessary compensations which should cover the incurred losses.”). 149 AAPL, supra note 101, ¶ 65; AMT, supra note 101, ¶¶ 6.12—6.13. 150 See e.g. CMS Gas Transmission Co. v.Argentina, ICSID Case No. ARB/01/8, Award, ¶ 375 (May 12, 2005) (the war clause “does not derogate from the treaty rights but rather ensures that any measures directed at offsetting or minimizing losses will be applied in a non-discriminatory manner.”); BG Grp. Plc. v.Argentina, UNCITRAL Arbitration Rules,Award, ¶ 382 (Dec. 24, 2007) (“[The war clause in the UK-Argentina BIT] is merely concerned with the situation where nationals of the host State are indemnified or compensated, or benefit from a settlement. In this context, foreign investors should not be treated less [favorably]. Liability and compensation are thus expressly mandated, not excused.”). 151 AMT, supra note 101, ¶¶ 6.04–6.19 (US-Zaire BIT); see also AAPL, supra note 101, ¶¶ 57–70 (UK-Sri Lanka BIT). 152 LESI, supra note 123, ¶¶ 173–75, 177–81; see below section 3.2[a]; see also AAPL v. Sri Lanka, ICSID Case No.ARB/87/3, Dissent of Samuel Asante at 589–92 (June 15, 1990). 206 BCDR INTERNATIONAL ARBITRATION REVIEW

3.2 DEFENSES THAT MAY BE AVAILABLE TO THE HOST STATE

Defenses referred to as circumstances precluding wrongfulness are justifications that exclude the responsibility of states where it would otherwise be engaged.153 These defenses can broadly be categorized as treaty defenses and defenses available under customary international law. In some cases, they may also derive from the contract between the investor and the state—although in treaty-based disputes the tribunal will likely apply the BIT protections.154 If successfully asserted by the state, the customary international law defenses of force majeure and necessity will preclude the wrongfulness of its conduct. While significant, preclusion of wrongfulness is not always dispositive of the question of compensation. The first two subsections below examine customary international law and treaty-based investment arbitration practice to show when and how the obligation to compensate is limited or cancelled by a state’s successful assertion of force majeure or necessity. In the ILC Articles on State Responsibility, force majeure and necessity are presented as two of six circumstances precluding wrongfulness. Significantly, the ILC Articles on State Responsibility distinguish between compensation and wrongfulness and clearly suggest that one does not always follow from the other. Specifically, Article 27 provides as follows: Article 27. Consequences of invoking a circumstance precluding wrongfulness The invocation of a circumstance precluding wrongfulness in accordance with this chapter is without prejudice to: (a) compliance with the obligation in question, if and to the extent that the circumstance precluding wrongfulness no longer exists; (b) the question of compensation for any material loss caused by the act in question.155

At least three aspects of Article 27 are worthy of note with regard to the effect of customary international law defenses on the obligation to provide compensation. Firstly, the text incorporates a principle already set out in Articles 23 and 25 of the ILC Articles on State Responsibility: that is, the impact of a circumstance precluding wrongfulness must be related to the “act in question.”156 Article 27(b) emphasizes, therefore, that a showing of necessity or force majeure can only impact

153 Crawford, Brownlie’s Principles of Public International Law at 563 (8th ed., 2012). 154 Ampal, supra note 6, ¶ 239. 155 Emphasis added. 156 ILC Articles on State Responsibility, supra note 7, Art. 23(1) (“The wrongfulness of an act ...,” emphasis added); ibid., Art. 25(1) (same). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 207 compensation for losses caused by the “act [or acts] in question”; it does not extend to compensation for unrelated conduct. Secondly, Article 27(b) emphasizes that the invocation of a defense of necessity or force majeure is “without prejudice to . . . the question of compensation,”which begs the question of the meaning of “without prejudice to.” One reading is that a successfully evidenced defense does not affect a state’s obligation to provide compensation. However, a more reasonable interpretation is that evidence of a circumstance precluding wrongfulness is not dispositive of the obligation to provide compensation. Indeed, Professor Crawford’s commentary on Article 27 explains as follows: “Article 27 is framed as a without prejudice clause . . . because it is not possible to specify in general terms when compensation is payable.”157 The wide range of potential situations in which Article 27 could arise and the similarly broad array of purposes it could serve militated against a definitive determination of when compensation is payable.158 Finally, it should be noted that Article 27 leaves “unprejudiced” only the obligation to provide compensation for “material loss” suffered by the injured state. By contrast, a state’s compensation obligation in relation to an internationally wrongful act is “to make full reparation for” all injury or damage, “whether material or moral, caused by the internationally wrongful act of a State.”159 While the obligation to make full reparation in the ILC Articles on State Responsibility applies to internationally wrongful acts under customary international law, the result should not differ for an investment treaty breach.160

157 Ibid., Art. 27, cmt. (1). 158 Ibid., Art. 27, cmt. (6) (“Subparagraph (b) does not attempt to specify in what circumstances compensation should be payable. Generally, the range of possible situations covered by chapter V [on circumstances precluding wrongfulness] is such that to lay down a detailed regime for compensation is not appropriate. It will be for the State invoking a circumstance precluding wrongfulness to agree with any affected States on the possibility and extent of compensation payable in a given case.”). It should further be noted that, even for the customary international law defenses linked to Article 27, it is suggested that applicable bilateral treaties or other “agreements” between the host state and home state may be instructive “on the possibility and extent of compensation payable in a given case.”The ILC Articles on State Responsibility leave open the question of the interplay between this reference to agreements and their typical silence on compensation where a customary international law defense is invoked. The broad range of circumstances under which Article 27(b) might become applicable also made it politically unpalatable to articulate less ambiguous statements on the compensation obligation. See Paparinskis,“Circumstances Precluding Wrongfulness in International Investment Law,” 31 ICSID Rev. 484 (2016). 159 ILC Articles on State Responsibility, supra note 7, Art. 31 (emphasis added).Where, as is often the case in investment arbitration, reparation through restitution in kind is not an available, preferred or sufficient remedy, compensation for damages provides another form of reparation. See ibid., Arts. 34, 36(1) & cmt. (3). 160 On this point, see Rainbow Warrior (New Zealand v. France), 20 R.I.A.A. 215, 251 (1990) (“general principles . . . concerning State responsibility are equally applicable in the case of breach of treaty obligation, since in the international law field there is no distinction between contractual and tortious responsibility, so that any violation by a State of any obligation ...givesrisetoState responsibility and 208 BCDR INTERNATIONAL ARBITRATION REVIEW

This preliminary review of Article 27 may be distilled into a handful of general rules for understanding the effect on compensation of a successful defense of necessity or force majeure in an international investment dispute: 1) The effect, if any, on compensation is limited to compensation for losses and damages with which there is a causal link. 2) An invocation of necessity or force majeure is not, as a matter of customary international law,dispositive of a state’s obligation to provide compensation. 3) Customary international law does not suggest that there is any fundamental difference in the effect on the compensation obligation of invoking necessity or force majeure. 4) An invocation of necessity or force majeure, when it does not eliminate a state’s obligation to compensate, generally reduces the scope of reparation for damages to material loss. The following two subsections look at how these initial observations have been considered and elaborated upon in investor-state and state-state disputes where compensation was claimed for harm done to investments in times of civil unrest and other circumstances giving rise to necessity or force majeure defenses. The third and final subsection contrasts these with treaty-based security exceptions to state responsibility.

3.2[a] Defense of Necessity The defense of necessity, as outlined in Article 25 of the ILC Articles on State Responsibility, has been recognized as a norm of customary international law.161 The term “necessity” within the meaning of Article 25 denotes “those exceptional cases where the only way a State can safeguard an essential interest threatened by a grave and imminent peril is . . . not to perform some other international obligation of lesser weight or urgency.”162 It is limited to circumstances where an “irreconcilable conflict” exists between the state’s “essential interest” on the one hand and the state’s obligation on the other.163 It bears noting that, while this defense has been asserted by respondent states in a number of cases, almost all such attempts to find excuse for wrongful conduct failed—which shows the exceptional

consequently, to the duty of reparation.The particular treaty itself might of course limit or extend the general Law of State Responsibility,for instance by establishing a system of remedies for it.”). 161 Gabcˇikovo–Nagymaros Project (Hungary v. Slovakia), Judgment, 1997 I.C.J. Rep. 7, 40, ¶ 51 (Sept. 25, 1997). 162 ILC Articles on State Responsibility, supra note 7, Art. 25, cmt. (1). 163 Ibid., cmt. (2). ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 209 nature of acts covered by the doctrine.164 Nevertheless, it is fair to consider that tribunals may be less strict when ruling on governments’ acts in times of crisis or conflict.165 In the Gabcˇíkovo-Nagymaros Project case,166 Hungary and Slovakia disputed whether a “state of ecological necessity” constituted a circumstance precluding the wrongfulness of Hungary’s suspension and abandonment of a 1977 treaty obligation to proceed with a joint investment in the construction and operation of a system of locks.167 In presenting its defense of ecological necessity, Hungary “expressly acknowledged that [if established], such a state of necessity would not exempt it from its duty to compensate its partner.”168 The ICJ found that the risks cited by Hungary when it chose to abandon the project in 1989 were neither “sufficiently established” by evidence nor “imminent” and that Hungary had alternative means of responding to those risks.169 Ultimately, the ICJ reserved its judgment on whether a state of necessity could have existed in 1989, finding that, even if a state of necessity existed, Hungary had contributed to that circumstance through its acts in furtherance of the project and its failure to respond sooner to the dangers it presented.170 Having found that Hungary committed an internationally wrongful act, the ICJ ordered that Slovakia was entitled to compensation from Hungary for the damage it (and Czechoslovakia before it) sustained as a result of Hungary’s suspension and abandonment of the 1977 treaty.171 The singularity of Gabcˇíkovo-Nagymaros is that the respondent state asserting the necessity defense conceded that it nevertheless owed an obligation to compensate the claimant state.The “ecological necessity” asserted by Hungary was predicated on potentially highly significant ecological risks and changes, but none of them were found to be imminent or otherwise unavoidable. Driven by policy considerations, this invocation of necessity thus stands in contrast to the urgency of the financial crisis Argentina faced in the cases described below. To ignore this distinction would be to allow “the State whose conduct would otherwise be

164 Crawford, supra note 153 at 564 (collecting cases). 165 Newcombe & Paradell, Law and Practice of Investment Treaties at 314 n. 447 (2009). 166 Gabcˇikovo, supra note 161. 167 Ibid., ¶¶ 15, 40. 168 Ibid., ¶ 48. 169 Ibid., ¶ 57. 170 Ibid. See ILC Articles on State Responsibility, supra note 7, Art. 25(2)(b). 171 Gabcˇikovo, supra note 161, ¶ 152. Although Slovakia had specifically requested compensation in the form of restitutio in integrum (ibid. ¶ 129), the ICJ did not address the applicable compensation standard in its decision, noting that it “has not been asked at this stage to determine the quantum of damages due.” Ibid., ¶ 152. 210 BCDR INTERNATIONAL ARBITRATION REVIEW unlawful ...toshift the burden of the defence of its own interests or concerns onto an innocent third State.”172 In Sempra,173 Argentina argued that even if it had breached the US-Argentina BIT, it would nevertheless be exempt from liability in light of a state of necessity under customary international law and the BIT.174 In particular,Argentina invoked Article XI of the US-Argentina BIT,which reads: This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.175 The tribunal rejected Argentina’s arguments that Article XI was self-judging and further held that because: the crisis invoked does not meet the customary law requirements of Article 25 of the Articles on State Responsibility,...necessity ...isnotconducive in this case to the preclusion of wrongfulness, and that there is there no need to undertake a further judicial review under Article XI given that this Article does not set out conditions different from customary law in such regard.176 Equating Article XI with the customary international law defense of necessity, the tribunal then held, on the basis of Article 27(b) of the ILC Articles on State Responsibility, that the without-prejudice clause therein did not lower the standards of protection under customary international law but rather found that it was “bound to respect . . . the crisis conditions affecting Argentina when determining the compensation due for the liability found in connection with the breach of the Treaty standards.”177 In the subsequent annulment proceedings,178 the award was annulled by the ad hoc committee for its failure to consider the distinct nature of the treaty-based necessity provision in Article XI. While the ad hoc committee did not object to the tribunal’s finding that Article XI was not self-judging,179 it noted that “Article XI differs in material respects from Article 25” and that their similar subject matter does not mean that Article 25 guides the

172 ILC Articles on State Responsibility, supra note 7, Art. 27, cmt. (5). That the necessity defense could apply in circumstances such as in Gabcˇíkovo is a reminder of the breadth of applicability of Art. 25 of the ILC Articles on State Responsibility and the consequent need for the without-prejudice clause in Art. 27(b). 173 Sempra Energy Int’l v.Argentine Republic, ICSID Case No.ARB/02/16,Award (Sept. 28, 2007). 174 Ibid., ¶ 325. 175 Ibid., ¶ 365. 176 Ibid., ¶ 378. 177 Ibid., ¶ 397. 178 Sempra Energy Int’l v.Argentine Republic, ICSID Case No. ARB/02/16, Annulment Decision (June 29, 2010). 179 Ibid., ¶ 157. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 211 interpretation of Article XI.180 Indeed, the ad hoc committee found that the purpose of Article XI was to remove certain state acts from the realm of “internationally wrongful acts” altogether; thus Article 25 and the customary international law of necessity could not be equated and therefore had been improperly applied by the tribunal.181 In Continental Casualty,182 Argentina asserted necessity defenses against claims raised by Continental Casualty Co. (“Continental”) in response to numerous measures taken by Argentina during the debt crisis allegedly to protect its “essential security interests.”Argentina again based its necessity defense on both Article XI of the US-Argentina BIT and its customary international law counterpart.183 The tribunal avoided equating the two defenses,184 as had the Sempra tribunal, noting instead that Article XI “is not necessarily subject to the same conditions of application as the plea of necessity under general international law”185 and that Article XI acts as a “safeguard clause” releasing a party from its substantive obligations under the BIT.186 The tribunal found that Article XI precluded application of the BIT to all of Continental’s claims save one, which accrued following the end of Argentina’s state of emergency187 and with respect to which the tribunal concluded that “Claimant is entitled to indemnification for that loss in the form of damages.” 188 Continental Casualty and the other Argentina bond default cases before ICSID enunciate a number of important points with regard to the defense of necessity. Firstly, customary international law defenses exist independently of treaty-based defenses. While the former apply generally, the latter are not subject to the restrictions set out in Article 27 of the ILC Articles on State Responsibility. Secondly,the cases reiterate the temporal nature of necessity under both customary international law and treaty law: only those obligations occurring during, and not before or after, the state of necessity may be excused or modified by the applicable defense. Finally, claims that fall beyond the temporal or substantive scope of the necessity defense are governed by standard compensation rules under applicable treaties and customary international law. While the above discussion highlights the importance of a careful review of applicable treaty provisions, it also

180 Ibid., ¶¶ 198–99. 181 Ibid., ¶¶ 200–9. 182 Continental Casualty Co. v.Argentine Republic, ICSID Case No.ARB/03/9,Award (Sept. 5, 2008). 183 Ibid., ¶ 160. 184 Ibid., ¶ 192. 185 Ibid., ¶ 167. 186 Ibid., ¶ 164 & n.236 (quoting CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8,Annulment Decision, ¶ 129 (Sept. 25, 2007)). 187 Continental, supra note 182, ¶¶ 221–22. 188 Ibid., ¶ 285 (emphasis added).This is in contrast to the more limited compensation for “material loss” set out in Art. 27(b) of the ILC Articles on State Responsibility. 212 BCDR INTERNATIONAL ARBITRATION REVIEW indicates that, irrespective of treaty language, Middle Eastern states experiencing civil unrest may, under certain circumstances, rely on the customary international law defense of necessity to preclude or lessen their obligation to compensate for internationally wrongful measures.

3.2[b] Defense of Force Majeure

Another defense potentially available in the context of civil unrest or armed conflict is force majeure, which is the subject of Article 23 of the ILC Articles on State Responsibility. Force majeure is a situation that is “unforeseen” or caused by an “irresistible force,” is “beyond the control” of the actor, and makes performance of the actor’s obligation “impossible.” Unlike the defense of necessity, which is based on an evaluation that the action performed is less perilous than the action avoided, the defense of force majeure is based on an involuntary occurrence.189 The rarity of such an occurrence explains why force majeure has less often been addressed in international investment disputes. However, the Iranian Revolution of 1979 led to a number of claims heard by the Iran-United States Claims Tribunal which touched on this issue. Those cases are among the most instructive on both the conditions and the effects of an invocation of force majeure. In Sylvania,190 the U.S. claimant Sylvania was engaged to train Iranian Air Force personnel to operate and maintain the Air Force’s electronic intelligence-gathering system and eventually establish a training institute in Iran to be operated by the Air Force.191 Sylvania accused Iran of failing to ensure the timely payment of invoices for November and December 1978.192 The contract allowed four weeks for the processing of payments.193 Finding that “[t]he situation created in Iran at least during the time from December 1978 until 15 February 1979 by civil unrest, strikes, riots and a state of general upheaval was such that both [parties] were not able to perform” their contracted obligations, the tribunal concluded that the circumstances constituted force majeure.194 Since and to the extent that the payments were to be made during that period, the tribunal held that force majeure excused respondent Iran from its obligation to pay the invoices until after the force majeure ceased to exist.195 Similarly, Sylvania’s claims that Iran breached the contract during the first half of February 1979 by (i) failing to fund a

189 ILC Articles on State Responsibility, supra note 7, Art. 23, cmt. (2). 190 Sylvania Technical Systems, Inc. v. Government of the Islamic Republic of Iran, Iran-U.S. Cl. Trib. Case No. 64,Award, (1986) 11 Y.B. Comm.Arb. 290 (June 27, 1985). 191 Ibid. at 290. 192 Ibid. at 291. 193 Ibid. 194 Ibid. 195 Ibid. at 291–92. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 213 letter of credit for Sylvania and (ii) withdrawing its students undergoing training at the airbase in Tehran, were also dismissed as being excused by the force majeure circumstances arising from “disrupted banking conditions” and “revolutionary fighting . . . going on” at the airbase, respectively.196 The same fighting at the training site airbase also “constituted force majeure that justified the Claimant in withdrawing its employees and ceasing performance in Iran for the time being.”197 Finally, the tribunal distinguished those performance obligations which were found to be hindered “by events beyond [the Government’s] control” from the “deliberate policy decision” after the Revolution “to repudiate contracts with Americans and other foreigners that the new Government considered against the best interests in Iran.”198 While the former did not give rise to any compensation obligation, the latter did.199 For each claim invoking force majeure, the tribunal examined how the alleged force majeure circumstances affected performance obligations in order to determine whether performance was excused. Sylvania thus supports the position that force majeure temporarily excusing one obligation does not per se excuse other obligations, even if contemporaneous. “[T]he question of force majeure has to be seen, and may well be answered differently, in relation to every specific contractual obligation.”200 It also confirms that force majeure can affect only causally related compensation obligations; it does not release a state from its general duty to compensate for wrongful acts. In Gould Marketing,201 two set-off claims based on the same contract were joined to yield a single net damages award between the parties. Prior to the damages award, the tribunal had already determined in an interlocutory award that the circumstances surrounding the contract performance amounted to force majeure, whose continuation led to the termination of the contract due to frustration or impossibility of performance by mid-1979. To determine the principles governing compensation in the event of frustration, the tribunal turned to the contract’s governing law—“American law (California)”—and found that under American law “the Party which has performed is entitled to receive payment to the extent of that performance ...and must return any money in excess of that amount.”202 In its claim for damages, the

196 Ibid. at 293. 197 Ibid. 198 Ibid. at 294. 199 Ibid. The assessment of damages in Sylvania appears to have been driven by contractual conditions rather than customary international law and therefore does not necessarily bear on the scope or standard of compensation due for wrongful acts. 200 Ibid. 201 Gould Marketing, Inc. v. Ministry of Nat’l Defense of Iran, Iran-U.S. Cl.Trib. Case Nos. 49 & 50, Award, (1985) 10 Y.B. Comm.Arb. 281 (June 29, 1984). 202 Ibid. 214 BCDR INTERNATIONAL ARBITRATION REVIEW claimant did not request compensation for its lost profits on the unperformed portion of work but did claim for lost profits on the share of work performed prior to termination.203 The tribunal granted the claimant a profit margin on top of its losses and then offset the claimant’s damages against those of Iran.204 Although the Gould decision was partly based on American law, it is of relevance with regard to force majeure and its effects on compensation. For example, the fact that the claimant did not make a claim for loss of future profits following the frustration or termination of the contract endorses the view that the compensation obligation is limited in the case of force majeure. On the other hand, it was decided not to simply let losses lie where they were following frustration.205 Despite the application of U.S. contract law to these issues, Gould shows the limits of state responsibility and the compensation obligation when force majeure is invoked. A more recent case in which the defense of force majeure was raised against the background of civil unrest is Autopista v.Venezuela.206 Although this case arose out of a contract rather than a treaty, force majeure was analyzed under international and Venezuelan law and therefore it is relevant to the present discussion.207 Autopista, a company owned by a U.S. corporation, was awarded a concession by Venezuela for the construction of a highway. The project was to be financed through road tolls. Due to a series of violent public protests in Venezuela, the state refused to increase the tolls as required by the concession agreement, causing Autopista to abandon the project and initiate arbitration to recover damages. Venezuela asserted the defense of force majeure, claiming that performance was rendered impossible by the riots. Relying on international law and Venezuelan law, the tribunal listed three prerequisites for force majeure: (i) unforeseeability of the events; (ii) impossibility of performance; and (iii) non-attribution of the events to the party asserting the defense.208 The tribunal rejected the defense because the first condition (unforeseeability) was not met: the riots had not been unforeseeable given the history of public resistance in Venezuela (a point which Venezuela appeared to have conceded).209

203 Ibid. at 283. 204 Ibid. 205 See Gould Marketing, Inc. v. Ministry of Nat’l Defense of Iran, Iran-U.S. Cl. Trib. Case No. 49, Interlocutory Award, 3 Iran-U.S. Cl.Trib. Rep. 147, 154 (July 27, 1983) (“The parties are requested to include responses to [inter alia] whether they should be left in the situation in which they found themselves after frustration of the contract or whether the Tribunal should conduct an accounting to determine whether the Claimant has been paid more or less than its performance would justify.. . .”). 206 Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5,Award (Sept. 23, 2003). 207 Ibid., ¶ 107. 208 Ibid., ¶ 108. 209 Ibid., ¶¶ 111–19. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 215

In light of this finding, the second and third conditions became moot, but the tribunal nevertheless made observations on them as well. It appeared that the second factor (impossibility of performance) had been met.210 While admitting that the protest could have been contained by force, the tribunal seems to suggest that this would not necessarily have made performance possible. In passing, the tribunal enquired as to “how much force can a [s]tate be legally required to deploy to perform its contract obligations,”211 and responded that the question requires a “delicate assessment that calls in part for political judgment.”212 As regards the third factor (non-attribution), the tribunal pointed to evidence showing that the local government had supported the protests.213 “To what extent such support was causal for the protests” was not readily apparent from the record—but a decision on that point was unnecessary given the tribunal’s finding on unforeseeability.214

3.2[c] “Security Exceptions” The “security exceptions” defense is based on a treaty provision allowing general treaty protections to cease operating in times of crisis. Here, typical investor protections yield to a government’s discretion to take steps intended to protect the state from impending peril.215 An example of a security exception may be found in the Protocol dated May 10, 1976 to the Romania-Egypt BIT of the same date (now superseded by the BIT dated November 24, 1994), which provided that while “less favourable treatment” is prohibited by Article 2 of the BIT,“[m]easures taken on security, order, public health and morality grounds are not considered to mean ‘less favourable treatment’ in the sense of Article 2.”216 A number of other BITs contain similar provisions.217 Although security exceptions tend to limit the scope of investor protections available at a time of civil unrest, they typically are limited to such extreme circumstances as “protection of essential security

210 Ibid., ¶¶ 120–24. 211 Ibid., ¶ 124. 212 Ibid. 213 Ibid., ¶¶ 125–28. 214 Ibid., ¶ 128. 215 Yannaca-Small, “Essential Security Interests under International Investment Law,” in OECD, International Investment Perspectives: Freedom of Investment in a Changing World, 94 (2007). 216 Romania-Egypt BIT,Protocol. 217 See also Austria-India BIT,Art. 15; Belgium-Luxembourg-China BIT,Art. 4; China-Philippines BIT, Art. 4; Czech Republic-US BIT, Art. 10; Estonia-US BIT, Art. 9; Germany-Russia BIT, Protocol; Hungary-India BIT, Art. 12; India-Czech Republic BIT, Art. 12; Israel-Germany BIT, Protocol; Japan-China BIT, Protocol; Korea-China BIT, Protocol; Latvia-US BIT, Art. 9; New Zealand-China BIT,Art. 11; Poland-US BIT,Art. 12; Russia-Hungary BIT,Art. 2; Slovak Republic-US BIT,Art. 10; Sweden-Russia BIT, Art. 3; Turkey-US BIT, Art. 10; UK-India BIT, Art. 11; US-Argentina BIT, Art. 11; US-Australia BIT, Art. 22.2. Some BITs go as far as denying access to a dispute resolution forum provided in the BIT in qualifying circumstances. See e.g. Netherlands-Mexico BIT, Art. 12. 216 BCDR INTERNATIONAL ARBITRATION REVIEW interests,” “necessity of security,” “maintenance or restoration of international peace or security,” “emergency” or “war.”218 Some treaties provide for broader security exceptions, referring to “the interests of law and order and security, morality or public health.”219 However broadly or narrowly they may be worded, such exceptions must be exercised in good faith pursuant to the principle of pacta sunt servanda.220 In LESI & Astaldi v. Algeria, the two claimants argued that Algeria had breached the expropriation, FET and FPS standards applicable under the Italy-Algeria BIT.221 They alleged that the National Agency for Dams (known by its French acronym “ANB”) had failed to provide adequate security to allow the claimants to fulfill their contractual obligation to build the Koudiat Acerdoune Dam (the “Dam”) as security issues prompted by the Algerian civil war stalled progress. Algeria had been battling against Islamist extremists in the region since early 1992 and was implementing security measures to facilitate the start of work.222 Even before the contract was executed, a military garrison had been stationed in the Dam region to provide security.223 Yet the garrison had to secure the whole region and not just the construction site, so ANB approached the wali (governor) of the wilaya (province) to establish a special armed force.224 Algeria responded by invoking a non-discrimination war clause.225 The tribunal found, first, that ANB was sufficiently cloaked with governmental authority for its general functions and specific acts with regard to the Dam to be imputed to the state.226 Noting that (i) a state’s obligation to provide security is an obligation of means, not an obligation to guarantee that nothing will ever happen to the investor; (ii) the state of insecurity within Algeria was known to the investor and preexisted the investment; (iii) Algeria had put

218 See e.g. Austria-India BIT, Art. 15; Belgium-Luxembourg-China BIT, Art. 4; Czech Republic-US BIT, Art. 10; Estonia-US BIT, Art. 9. 219 See e.g. Germany-Russia BIT,Protocol. 220 Lawry-White, supra note 90 at 651. 221 LESI, supra note 123. The FET standard was imported by way of the MFN clause in the BIT. Ibid., ¶¶ 150–51. 222 Ibid., ¶¶ 11–12. 223 Ibid., ¶ 115. 224 Ibid. 225 Ibid., ¶ 173 (“Les nationaux ou personnes morales de l’un des Etats contractants dont les investissements auront subi des pertes dues à la guerre ou à tout autre conflit armé, révolution, état d’urgence national ou révolte survenus sur le territoire de l’autre Etat contractant, bénéficient, de la part de ce dernier, d’un traitement non moins favorable que celui accordé à ses propres nationaux ou personnes morales ou à ceux de la nation la plus favorisée.”The clause translates roughly to: Nationals and legal persons of a Contracting State whose investments have suffered losses as a result of war or any other armed conflict, revolution, national emergency or revolt that have occurred on the territory of the other Contracting State shall be accorded, by the latter, treatment no less favorable than that accorded to its own nationals or legal persons or to those of the most favored nation.) 226 Ibid., ¶¶ 107–10, 115, 117–18; see also section 2 above. ATTRIBUTION AND RESPONSIBILITY IN INVESTMENT CLAIMS AMID CIVIL UNREST 217 security measures in place; and (iv) the claimants had neither shown that ANB made insufficient efforts to ensure security nor proven that other construction sites enjoyed greater state protection, the tribunal found no breach of the FET standard.227 With regard to the FPS claim, the tribunal held that, rather than modifying the general FPS standard, the non-discrimination war clause supplanted the general FPS clause as lex specialis. It thus sided with the dissent in AAPL, taking the view that the general FPS clause and the more specific war clause (confined to war and civil unrest situations) were incompatible and that the latter was an exception to the former.228 Given that the state had taken security measures to protect the investor (including the establishment of a special armed force), which constituted treatment at least on a par with what was guaranteed to Algerian nationals, the tribunal held there was no breach of the war clause and therefore dismissed the FPS claim, too.229 In AAPL, the war clause placing a substantive obligation on Sri Lanka was invoked as an alternative to AAPL’s strict-liability FPS claim. The tribunal found that the burden was on the claimant to prove one of the two exceptions to the war clause—requisitioning or destruction by government forces outside of combat action—set out in Article 4(2) of the UK-Sri Lanka BIT.230 Failing that, the tribunal proceeded to consider the standard of compensation applicable under Article 4(1), on which point the parties and tribunal agreed that it should be “the full value of the investment lost as a result of said destruction and the damages incurred as a result thereof.”231

4 CONCLUSION There is little doubt that political turbulence and social instability create a challenging business and regulatory environment. Where civil unrest pulls a host state downward into a situation resembling chaos, foreign investors and the host state’s government alike become vulnerable to unknown and sometimes unforeseeable risks. The host government is placed in the unenviable position of balancing the need to ensure its proper functioning and to honor commitments made to foreign investors. The above survey of law demonstrates that, even in

227 LESI, supra note 123, ¶¶ 153–54. 228 Ibid., ¶¶ 174–75. While some literature suggests that the tribunal here “assumed . . . that [the FPS clause] accords no more protection than clauses on national treatment or most-favoured-nation treatment,” another reading of the award suggests that it is not an application of the FPS clause at all, but rather a direct application of the war clause as lex specialis. See Dolzer & Schreuer, Principles of International Investment Law 162 (2012). 229 LESI, supra note 123, ¶¶ 179–82. 230 AAPL, supra note 101, ¶¶ 58, 65. 231 Ibid., ¶ 88. 218 BCDR INTERNATIONAL ARBITRATION REVIEW times of civil unrest and other political volatility, investments are not left unprotected. International law continues to operate in such circumstances. Although some “calibration” of rights is likely, protections under international law and relevant investment treaties continue to be available to both investors and host states. Careful planning and due consideration of legal advice in light of exceptional circumstances can aid in understanding the risks and managing expectations with regard to a particular investment opportunity.