12 December 2019

Devising a Legal Regime for the Protection of Foreign Investments during Armed Conflicts and Occupation

A recent PhD thesis aims to devise a balanced legal regime for the protection of foreign investments in armed conflicts and under occupation. To this end, Dr Alia Algazzar proposes new approaches to dealing with the effects of armed conflicts on the operation of investment treaties and the procedural hurdles that could arise in potential investment treaty disputes. She also demonstrates that reshaping the contemporary investment treaty regime through the integration of the relevant rules governing the protection of civilians and their property under international humanitarian law (IHL) could best balance the conflicting interests of host states and foreign investments during armed conflicts and occupation.

How did you come to study the protection of foreign investments during armed conflicts and occupation?

The so-called Arab Spring was the main trigger of my passion for the research topic of my PhD thesis. Having evidenced myself the dreadful consequences of the widespread of armed violence in my country, after the escalation of the events to armed conflicts in several Arab countries, I discussed with a colleague of mine, who happens to be a Counsellor in the Lawsuits Authority that represents Egypt in investment treaty arbitrations, the potential risk of holding states undergoing armed conflicts liable for the losses of foreign investments under the current investment treaty regime. This discussion inspired me to apply for the Geneva LLM in International Dispute Settlement (MIDS) so that I could study more extensively the investment treaty arbitration regime. 

During my journey at the MIDS, I learned about the jurisprudential divergences on numerous operational, procedural and substantive questions in the investment arbitration system. This state of the law provides a fertile ground for generating even more controversies and imbalance in the investor-state relationship in times of armed conflict. Besides, the recent events in Eastern Ukraine, which culminated in Russia’s annexation of Crimea, motivated me to examine some of the legal questions that are on the top of the current debate regarding the protection of foreign investments in occupied territories. 

Since then, my primary goal has become to fill in the academic void on the topic by devising a balanced legal regime for the protection of foreign investments in armed conflicts and under occupation through dealing with a selected number of operational, procedural and substantive questions. Some of these questions have already arisen in the recent investment treaty arbitrations against Russia and Libya, while others could potentially arise in future disputes. 

So, how, in your view, could balance in the investor-state relationship be best achieved during periods of armed conflict and occupation?

Fundamentally, I argue that balance in the investor-state relationship during periods of armed conflict and occupation is best attained by devising a coherent legal framework that deals with the operational, procedural and substantive questions that might arise in investment treaty disputes. 
From this standpoint, I propose a three-pronged legal regime for the protection of foreign investments in armed conflicts and under occupation:

On the effects of armed conflicts on the operation of investment treaties, I argue that investment treaties generally exhibit a presumption of continuity in times of armed conflicts. The 2011 Draft Articles on the Effects of Armed Conflicts on Treaties indicate, however, that this presumption could be refuted in two exceptional situations. The first is where the intensity or the degree of outside involvement in the conflict reaches a very high threshold so as to justify termination or suspension of the investment treaty. Second, a contracting party that is a victim of an armed attack could suspend, and not terminate, its investment treaties, provided that its obligations thereunder are incompatible with its lawful exercise of the right of self-defence. 

On the procedural level, I make four propositions: 

First, I show that a unilateral termination or suspension of a treaty would have an impact on the investor-state proceedings only if the investor’s home state was already notified of such termination or suspension prior to the filing of the proceedings. In this case, the tribunal will have jurisdiction to determine the extent to which such unilateral termination or suspension implicates the investor’s treaty rights under the so-called survival clause, which is found in the vast majority of investment treaties. In another scenario, if an interstate dispute concerning the lawfulness or the extent of the unilateral termination or suspension of the treaty is pending, I suggest that investor-state tribunals should stay proceeding until a final decision is rendered. 

Second, I argue that armed conflict or occupation-related issues, such as the characterisation of the armed conflict, the legality of the use of force, and the lawfulness of the exercise of de facto control by a contracting party over the territory where the investment is made, do not divest investor-state tribunals of their ratione materiae jurisdiction unless these questions form the very subject-matter of the treaty claim or constitute a vital issue that shall be settled prior to deciding the merits of the dispute. 

The third proposition deals with the applicability of the investment treaties of occupied and occupying states to investments in these states’ territories as one pertaining to the investments’ territorial nexus with the host state. I argue that, under the doctrines of supervening impossibility and fundamental change of circumstances, the contracting parties having legal sovereignty over the territory in which the investment is located, which I refer to in my thesis as de jure host states, should, as a matter of principle, not be relieved from their treaty obligations vis-à-vis investments made in the territories over which they have limited control. I also argue that investment treaties of occupying/annexing powers could apply to foreign investments in occupied/annexed territories, provided that they exercise de facto enforcement and legislative control over such territories. In this case, I refer to these states as de facto host states. This essentially means that investments in occupied/annexed territories could benefit from the protections of the treaties of both the occupied and the occupying/annexing states.

Fourth, I argue that treaty protections should be limited to “good” investments – those that have not participated in the conduct of hostilities or engaged in international crimes or serious human rights violations. However, given the complexity of identifying the fact patterns that might constitute these types of illegalities, I suggest that pleas of illegality pertaining to the use of assets in hostilities should be dealt with at the merits stage as this would allow tribunals to adequately assess the extent to which the investment took part in the alleged illegal act under the applicable law, and possibly consider the full evidentiary record submitted before a domestic or an international adjudicatory body in any pending or decided criminal proceedings against that investment.

My argument on the substantive level is that the problem of the interaction of investment treaty norms with humanitarian norms is overestimated. Based on the distinction between the concepts of “genuine” and “apparent” conflict, I demonstrate that the interaction of investment treaty norms with humanitarian norms does not depict a genuine conflict of norms and that any apparent conflict between these norms could be interpreted away using the principle of systemic integration. I then illustrate that investment treaty norms interact with humanitarian norms in three situations only. The first is where the doctrine of military necessity under jus in bello interacts with the full protection and security standard (FPS) in claims for the destruction of investments during military operations. The other two situations legitimate expectations and expropriation claims against de facto host states. 

Focusing on these three cases, I show that the interaction between investment treaty standards and IHL rules in these three cases could be resolved by way of interpretation. For instance, treaty interpreters could identify the content of the standard of due diligence in FPS claims by reference to the law of targeting operations, including the notion of military necessity. Also, the acceptable margin of regulatory power and the meaning of the requirement of “public purpose” which, respectively, form the foundation of legitimate expectations and expropriation claims against de facto host states could be determined by reference to the relevant rules of occupation. Finally, I argue that interpreting investment treaty standards by reference to the relevant IHL rules would enhance the integrity and legitimacy of the investment arbitration system as it allows investor-state tribunals to both limit treaty protections to investments that have not participated in the conduct of hostilities, and at the same time recognise the limited authority of de facto host states.

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Alia Algazzar defended her PhD thesis in International Law in October 2019. Professor Marcelo Kohen presided the committee, which included Professor Zachary Douglas, thesis director, and Mr Walid Ben Hamida, maître de conferences HDR, University of Paris-Saclay, Evry-Val d’Essonne, France.

Full citation of the PhD thesis:
Algazzar, Alia. “The Repercussions of Occupation and Armed Conflicts on Investment Treaty Standards of Protection: A Balanced Investor-State Relationship.” PhD thesis, Graduate Institute of International and Development Studies, Geneva, 2019.

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Interview by Nathalie Tanner, Research Office.
Banner picture: excerpt from a picture by Tomislav Zvonaric/