The different elements associated with the political economy of the Great Recession discussed in the previous part may be relevant when a host state that has faced an economic crisis seeks to justify its measure contrary to international law and to foreign investors’ rights on the basis of a non-precluded measures clause provided for in a bilateral investment treaty or to excuse itself on the basis of the customary rule of necessity embodied in Article 25 of the International Law Commission Articles on State Responsibility, if the given BIT does not provide for such a clause.78 As is known, the said clauses and Article 25 are separate provisions, and the former cannot be interpreted in light of the latter.79
According to Article 25:
1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:
(a) is the only means for the State to safeguard an essential interest against a grave and imminent peril; and
(b) does not seriously impair an essential interest of the State or State towards which the obligation exists, or of the international community as a whole.
2. In any case, necessity may not be invoked by a State as a ground for precluding wrong- fulness if:
(a) the international obligation in question precludes the possibility of invoking neces- sity; or
(b) the State has contributed to the situation of necessity.80
Before the 2001 Argentine crisis, the international law of necessity was very thin, although the 1990s had seen a groundbreaking judgment by the International Court of Justice (ICJ) in the Case Concerning the Gabcikovo-Nagymaros Project (Hungary/Slovakia).81 Today, the
78. National Grid P.L.C. v Argentine Republic (Award, 2008) UNCITRAL, [256], (National Grid Award).
79. CMS Gas Transmission Company v Argentine Republic (Decision of the Ad Hoc Committee on the appli- cation for annulment of the Argentine Republic, 2007) ICSID Case No ARB/01/8, [131], Sempra Energy International v Argentine Republic (Decision on the Argentine Republic’s application for annulment of the award, 2010) ICSID Case No ARB/02/16, [197]–[205]; Continental Casualty Company v The Argentine Republic (Award, 2008) ICSID Case No ARB/03/9, [167], (Continental Award).
80. James Crawford, The International Law Commission’s Articles on State Responsibility. Introduction, Text and Commentaries (Cambridge University Press 2002) 178 (ILC’s Commentaries).
81. Case Concerning The Gabcikovo-Nagymaros Project (Hungary/Slovakia) (Judgment, 1997) IC.J. Reports 1997, 7. (Gabcikovo-Nagymaros). There, the Court held that the above-mentioned provision had the status of customary international law; that the concept had to be interpreted very narrowly, since it served to excuse wrongful acts under international law; and that the requirements must be satisfied cumulatively by the state invoking necessity. ibid para 51. International arbitration tribunals have supported this conclusion. See, for
international law of necessity is a very dynamic area of public international law and inter- national investment law due to the significant number of international decisions and to the booming scholarship they have engendered.82
The purpose of this second part is, then, to explore how to make use of the illustrated aspects of the political economy of crises in order to improve the application and interpreta- tion of international investment law.
instance, Impregilo S.p.A v Argentine Republic (Award, 2011) ICSID Case No ARB/07/17, [344], <https://
icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC2171_
En&caseId=C109>, accessed 16 June 2014 (Impregilo Award), and Total S.A v Argentine Republic (Decision on Liability, 2010) ICSID Case No ARB/04/1, [221], (Total Award).
For a complete assessment of the requirements in light of recent case law, see Andrea K. Bjorklund, ‘Emergency exceptions: state of necessity and force majeure’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds), Oxford Handbook of International Investment Law (2008) 459, 474–488.
82. See, among many, Alberto Alvarez-Jiménez, ‘New approaches to the state of necessity in customary international law: insights from WTO law and foreign investment law’ (2008) 19 American Review of International Arbitration 463; Alberto Alvarez-Jiménez, ‘Foreign investment protection and regulatory failures as states’ contribution to the state of necessity under customary international law: a new approach based on the complexity of Argentina’s 2001 crisis’ (2010) 27 Journal of International Arbitration 141;
Alberto Alvarez-Jiménez, ‘The interpretation of necessity clauses in bilateral investment treaties after the recent ICSID annulment decisions’ in Karl Sauvant (ed), Yearbook on International Investment Law and Policy (Oxford University Press 2011) 411; William W. Burke-White and Andreas von Staden, ‘Investment protection in extraordinary times: the interpretation and application of non-precluded measures pro- visions in bilateral treaties’ (2007–2008) 48 Virginia Journal of International Law 307; Jacques Werner,
‘Revisiting the necessity concept’ (2009) 10 Journal of World Investment and Trade 549; José Manuel Cortés Martín, ‘El estado de necesidad en materia económica y financiera’ (2009) XXV Anuario Espanol de Derecho Internacional 119; Jürgen Kurtz, ‘Adjudging the exceptional at international investment law: security, public order and financial crisis’ (2010) 59 International and Comparative Law Quarterly 325; Bjorklund, ‘Emergency exceptions’ (n 79); Andrea K. Bjorklund, ‘Economic security defenses in international investment law’ in Karl Sauvant (ed), Yearbook on International Investment Law and Policy (Oxford University Press 2009) 479; Michael Waibel, ‘Two worlds of necessity in ICSID arbitration: CMS and LG&E’ (2007) 20 Leiden Journal of International Law 637; José E. Alvarez and Kathryn Khamsi, ‘The Argentine crisis and foreign investors. a glimpse into the heart of the investment regime’ Karl Sauvant (ed), Yearbook on International Investment Law and Policy 379 (Oxford University Press 2009); José E. Alvarez and Tegan Brink, ‘Revisiting the necessity defense: Continental Casualty v. Argentina’ in Karl Sauvant (ed), Yearbook on International Investment Law and Policy (Oxford University Press 2012) 319; Tarcisio Gazzini, ‘Necessity in international investment law: some critical remarks on CMS v Argentina’ (2008) 26 Journal of Energy & Natural Resources Law 450; Théodore Christakis, ‘Quel remède a l’eclatement de la jurisprudence CIRDI sur les investissements en Argentine? La decision du Comite Ad Hoc dans l’affaire CMS c. Argentina’ (2007) CXI Revue General du Droit International Public 879; Campbell McLachlan,
‘Investment treaties and general international law’ (2008) 57 International and Comparative Law Quarterly 361; Stephan W. Schill, ‘International investment law and the host state’s power to handle economic crises.
Comment on the ICSID decision in LG&E v. Argentina’ (2007) 24 Journal of International Arbitration 265; August Reinisch, ‘Necessity in international investment arbitration—an unnecessary split of opin- ions in recent ICSID cases? Comments on CMS v. Argentina and LG&E v. Argentina’ (2007) 8 Journal of World Investment & Trade 191; Emmanuel Gaillard, ‘Chronique des sentences arbitrales. Centre International pour le Règlement des Différends Relatifs aux Investissements’ (2007) 134 Journal du Droit International 335; Antoine Martin, ‘Investment disputes after Argentina’s economic crisis: interpreting BIT non-precluded measures and the doctrine of necessity under customary international law’ (2012) 29 Journal of International Arbitration 49.
1. THe POLITICS OF THe gReAT ReCeSSION AND ITS IMPACT ON THe ReQUIReMeNT OF LACK OF STATe CONTRIBUTION TO CRISeS IN BITS AND IN CUSTOMARY INTeRNATIONAL LAW In its Commentaries, the International Law Commission (ILC) stated that the state’s contribu- tion must be substantial to prevent the necessity excuse from succeeding.83 Furthermore, in Impregilo S.p.A v. Argentine Republic, the tribunal rightly stated that contribution by states may come in the form of both actions and omissions84 and that crises can be triggered by internal and external elements.85
The requirement of lack of substantial contribution has become an important hurdle for states, particularly Argentina, invoking the customary rule of necessity. Several tribunals have found this contribution to exist, which has prevented the success of the necessity excuse.86
Before embarking on the legal assessment of the requirement of lack of contribution to the situation of necessity, it is important to mention that while it is explicitly provided for in Article 25.2(b) of the ILC’s Articles it may not be so in BIT non-precluded measures clauses.
Thus, the ILC Articles and treaty law may have been seen as having different approaches. This silence calls for an evaluation of the role that state contribution may play in the interpreta- tion of the said clauses. The Continental tribunal, when dealing with the given BIT necessity clause, examined the requirement of contribution, without specifying its legal grounds in the treaty.87 All the tribunal said was that, in the event of a contribution, “those measures may fail to qualify as ‘necessary’ under Art. XI, since that Party could have pursued some other policy that would have rendered them unnecessary.”88The conclusion is right, in the present author’s view, although the legal basis must be identified in the treaty or in some international law sources other than Article 25 of the ILCASR.89
It can be said in this regard that, despite the fact that as a result of the approach developed by the CMS and Sempra annulment committees states do not have to demonstrate the require- ments of Article 25 to successfully invoke BIT non-precluded measures clauses, this approach does not prevent the condition of lack of substantial contribution to the situation of necessity from still playing a role in the interpretation of such clauses under certain circumstances,
83. See Crawford (n 80), 84.
84. See Impregilo Award (n 81) [358].
85. ibid. Brigitte Stern, acting as arbitrator in Impregilo, took the view, which this author shares, that the requirement of substantial contribution ‘has to be satisfactorily proven by strong and convincing evidence.’
ibid [360].
86. See Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v The Argentine Republic (Decision on liability, 2010) ICSID Case No ARB/03/19, and AWG Group v The Argentine Republic (Decision on liability, 2010) UNCITRAL, [264], (Suez Vivendi Award). See Impregilo (n 81) [358]; see Suez, Sociedad General de Aguas de Barcelona S.A., and InterAgua Servicios Integrales del Agua S.A. v the Argentine Republic (Decision on liability, 2010), ICSID Case No ARB/03/17, [242], (Suez Aguas de Barcelona Decision on Liability); and see National Grid Award, (n 78) [260].
87. See Continental Award (n 79) [234].
88. ibid. The Continental tribunal concluded, ‘We do not consider that Argentina because of its own conduct is barred from invoking Art. XI of the BIT.’ ibid [236].
89. Schill supports requiring that the host states have substantially contributed to the crisis, although he does not offer the legal grounds for such a requirement. See Schill (n 82) 281.
through other sources of international law and by virtue of the phenomenon of the overlapping of international law sources, as will be seen below.
In effect, a state’s active involvement in the critical situation prompting the invocation of the BIT non-precluded measures clause could still be relevant for its interpretation on the basis of another source of international law.90 Indeed, the general principles of law embodied in the well-known Latin maxim nullus commodum capere potest de injuria sua propria (“no one can gain advantage by his own wrong”)91 could be at play to achieve the interpretation of BIT non-precluded measures clauses and would obtain a similar effect.92 The principle could be seen as comprising not only wrongs but also negligent acts, since Fitzmaurice associated it with another general prin- ciple, ex injuria non oritur jus, and pointed out that:
[T] he general principle is that States cannot profit from their own wrong, or plead their own omissions or negligences as a ground absolving them from performances of their international obligations …93
On the contrary, an interpretation of BIT necessity clauses that concludes that the treaty silence regarding the limitation embodied in Article 25(2)(b) means that those states that care- lessly and significantly provoke the critical situation can succeed in invoking the BIT necessity clause offends logic. Such an unreasonable result calls, instead, for an interpretation of necessity clauses of this kind in light of “any relevant rules of international law applicable in the relations between the parties,” as mandated by Article 31(3)(c) of the Vienna Convention on the Law of Treaties (VCLT).94 It is, then, through this provision that the above-mentioned general principle of
90. Alvarez and Khamsi (n 82) 438.
91. Black’s Law Dictionary, 1669. Bryan A. Garner (ed) (7th ed., 1999). Another related maxim is commodum ex injuria sua non habere debet (‘the wrongdoer should not derive any benefit from his own wrong’). ibid 1624.
The Spanish translation of this maxim makes reference to error, ‘nadie puede beneficiarse de su propio error.’
See <http://www.scribd.com/doc/3005168/diccionario-juridico-latin>.
According to Cheng, this maxim is a general principle of international law. See Bin Cheng, General principles of law as applied by international courts and tribunals (Cambridge University Press 1953) 151–158. As Cheng well illustrates, this principle has been applied by multiple courts: by the Permanent Court of International Justice in the Chorzow Factory Case (1927) and in The Tattler Case (1920); by the United States—Venezuela Mixed Claims Commission in the Frances Irene Roberts Case (1903); and by the Ecuadorian—United States Claims Commission, among others. See also Sir Gerald Fitzmaurice, ‘The general principles of international law considered from the standpoint of the rule of law’ (1957) 2 Recueil des cours 117.
92. A similar principle, nemo auditur propiam turpitudinem allegans, was applied by the tribunal in Inceysa Vallisoletane, SL v El Salvador in relation to an investor’s behavior. See Inceysa Vallisoletane, SL v El Salvador (Award, 2006) ICSID No ARB/03/26, [240]–[244].
93. See Fitzmaurice (n 91) 117.
94. This conclusion is also supported by the arbitral tribunal created by the United States and the United Kingdom by virtue of a treaty of 18 August 1920, to resolve the disputes stemming from the Court of Permanent Arbitration’s decision in Pêcheries de l’Atlantique du Nord when it stated:
[A] ny Government is responsible to other governments for errors in judgment of its officials purport- ing to act within the scope of their duties and vested with power to enforce their demands.
Affaire du Jessie, Thomas F. Bayard et Pescawha (1921). As quoted by Robert Kolb, La bonne foi en droit inter- national public. Contribution a l’etude des principles generaux de droit (Presses Universitaires De France 2000) 123.
international law is brought in to provide an interpretation of necessity clauses that prevents this absurd result.95
Finally, by arguing that the host state’s substantial involvement in the creation of the crisis may prevent the successful invocation of BIT non-precluded measures clauses, this author is not introducing customary international law through the back door to the interpretation of BIT necessity clauses. In effect, it is important to highlight, as Rosalyn Higgins rightly did, that the sources of international law overlap. She illustrated how this was the case with treaty and custom,96 and as the situation assessed here reveals, the same can take place regarding customary law and general principles of international law.97 It is this overlapping that brings into play, within the interpretation of BIT necessity clauses but with important differences, the said general principle also included in Article 25.
It could be argued that, given that Article 25 remains potentially applicable if the viola- tion is not justified by the BIT clause, there is no need to incorporate analysis of the contribu- tion of the state as part of the assessment of the given necessity clause. There is a response to this argument: If, as both the CMS and Sempra annulment committees have highlighted, BIT non-precluded measures clauses are independent from Article 25, these clauses need to be fully interpreted—both their text and context and object and purpose must be included—according to the VCLT and international law, the latter comprising, to be sure, sources other than Article 25 of the ILCASR. Having said this, it is important to delve into the way in which international arbitral tribunals dealing with litigation arising from the 2001 Argentine crisis have inter- preted Article 25(2)(b).
In general, the assessment of this requirement has sometimes included a list of the main causes, both internal and external, and from there the conclusion that Argentina’s contribu- tion was substantial or did not exist has just followed. For instance, the tribunal in National Grid P.L.C. v. Argentine Republic found that the Argentine crisis had been the result of several causes: internal policies that were under the control of Argentina and external shocks; the former “created a fertile ground for the crisis to develop when in the late nineties the external factors … came to play.”98 On this basis, and although the tribunal had previously stated that both external and internal elements had contributed “in significant part” to the crisis,99 the tribunal held that the contribution had been substantial and that the excuse of necessity had to fail.100 A similar reasoning, but reaching the opposite conclusion, was carried out by the Continental tribunal. 101
95. This author shares McLachlan’s views, according to whom, ‘[T] he reference to general principles of law in the investment context more commonly … informs the context of an existing, but open-textured treaty norm.’ McLachlan (n 82) 396.
96. See Rosalyn Higgins, ‘Problems & Process. International Law and How We Use It’ (Clarendon Press 1994) 28–32.
97. It may well be highlighted that what the CMS and Sempra annulment decisions stated was that Article XI and, most generally, BIT non-precluded measures clauses were independent provisions from Article 25 of the ILCASR and not that the BIT was a self-contained regime in whose interpretation international law played no role. It certainly does by virtue of Article 31(3) of the VCLT.
98. National Grid Award (n 78) [260].
99. ibid.
100. ibid. See also Suez Vivendi Award (n 86) [264]; Impregilo Award (n 81) para 358; and Suez Aguas de Barcelona Award (n 86) [242].
101. Continental Award (n 79) [236].
For the purpose of the application of the substantial state contribution requirement, it is then important to determine when an action or omission by a state can be regarded as a con- tribution to the given crisis. This chapter turns to some of the issues discussed above in Part A, to determine whether or not they can be regarded, in general, as state contributions to crises.
a. Political Gridlocks and State Contribution after the Great Recession
Gridlocks, as was said, affect the content and timely adoption of measures both to contain and to resolve crises. They, then, become harder to handle, and their adverse consequences on civil society, public entities, and domestic and foreign investors become larger. Political gridlocks have already made their way into Article 25. In effect, the Suez Vivendi tribunal suggested that
“internal political dissension and problems inhibiting effective policy making” were part of the substantial contribution by Argentina to the situation of necessity. 102 On the contrary, the Continental tribunal took into account political gridlock as a reason that prevented Argentina from adopting deeper measures. The tribunal pointed out:
The harsh measures recommended were met by public resistance (notably the labour force), could not be successful in the short time span that was available, and could not be realistically implemented as such in view of the organizational shortcomings of Argentina’s administrative apparatus. Nor does it appear to the Tribunal that the Argentinean Government can be faulted for not having more energetically pursued these policies.103
There is little doubt that the extent of the political stalemates brought about by the Great Recession calls for certain nuances in the Suez Vivendi tribunal’s scant assessment of gridlock as state contribution. However, the approach of the Continental tribunal seems to be too toler- ant of political stalemates. A deeper analysis that goes beyond these two opposite approaches seems to be required.
On one hand, it is certainly too much to read international law to require a country under severe economic stress to avoid political stalemates and always be able to enact both contain- ment and resolution measures in time and with the ideal content in abstract terms, when the fact is that political fragmentation and its outcome, political stalemates, are a fundamental reality at the time of crisis in states with democratic political systems.104 For international law to achieve and preserve legitimacy within the international community, it always has to rec- ognize the realities of the operation of states as one of the roots of the definition of any legal consequence that it may attach to any particular case. Legal consequences based on fictional state behavior should not exist.
But the opposite extreme—to accept the existence of gridlocks as a matter of law by never regarding them as a contribution under Article 25 or a BIT non-precluded measures clause—is not tenable either, since it supports a risky policy: that states never bear the costs of protracted political deliberation, a situation that does not provide states with incentives to end such dead- locks when such end is most needed.
102. Suez Vivendi Award (n 86) [264].
103. Continental Award (n 79) [226].
104. For the United States, see in general, Lawrence Summers, ‘When gridlock is good’ Washington Post, April 14, 2013. <http://www.washingtonpost.com/opinions/lawrence-summers-when-gridlock-is- good/2013/04/14/8bfeab9c-a3c3-11e2-9c03-6952ff305f35_story.html>.