Protecting Essential Interests of the Host Statein Investment Claims Arising from Armed Conflicts

Bilateral Investment Treaties can be considered as one of the most important sources of international investment law, which emerged with the aim of establishing customary international law in the form of treaties. Today, due to the efforts of capital exporting countries as well as support of some international organizations, the host state obligations towards foreign investors are increasing in these treaties, on the one hand, and investment arbitration tribunals provide broad interpretations of the host state obligations in favor of investors, on the other hand. This has led to the increase of claims against the host states, which have inflicted losses on them even greater than the returns derived from foreign investments. Though in the past foreign investors were concerned about protecting their capital and security in the host country, now, host states are concerned about restrictions on the exercise of their sovereign rights to regulate in the public interests (Habibzadeh & Gholami, 2018: 114).  Due to the recent wave of riots, terrorism, wars and other forms of armed conflicts around the world, one of the most controversial issues in international investment law, which has so far been overlooked in its specific legal dimensions, is claims over armed conflicts. Some foreign investors invest in the countries involved in conflicts due to the opportunities for profitability in war situations, and even expect more profits (Zamani & Bazzar, 2018: 231), but due to the turbulent conditions in these countries, possibility of destruction and seizure of their assets increases, which results in the breach of investment treaties. In recent years, upon increase of claims of investors against the host states over domestic and international armed conflicts, it seems that the scale of investment claims has become heavier in the interests of the investors and therefore attention must be paid to protect the interests of the host states in such situations.

The most important standard of treatment invoked by foreign investors in claims arising from armed conflicts is the standard of full protection and security which is designed to protect the investors and the investments against violent acts (Ostransky, 2015: 137). Almost all investment treaties contain the clause of protection and security, although they have used various terms such as full protection and security or sustainable protection and security. Since most of these treaties do not explicitly specify the nature and scope of protection of this standard, arbitration tribunals have interpreted this standard at their own discretion and, in some cases, preferred the interests of the investors over the interests of the host States in their awards regardless of the specific circumstances of the armed conflicts.  

Adopting a descriptive-analytical method and referring to the arbitration practices and investment treaties, this article seeks to clarify the nature and scope of full protection and security in the situations of armed conflicts in order to protect the interests of the host state.  

Referring to the rules of interpretation of treaties in the Vienna Convention, this study determines that the standard of full protection and security refers only to the treatment of aliens in customary international law, and since the customary rule of treatment of aliens is a relative rule that pays special attention to the specific circumstances and resources of the host country, reflection of this customary rule in the treaty as a standard of treatment does not change its nature as a relative standard (Paparinskis, 2013: 160). As a result, arbitral tribunals, when examining compliance or non-compliance of the host state with the standard of protection and full security during armed conflicts, must take into account the specific circumstances of each country (Zeitler, 2001: 201) so that the interests of the host state are also protected. Another important point regarding the responsibility of the host state is that the host state will not be liable to the investors for damages caused by non-state actors who are not attributed to the state, unless it is proven that the host state has failed to take preventive measures and protect the investor against the non-state actors. Some arbitral tribunals have refrained to admit the conventional scope of full protection and security standard, which refers only to physical protection of the investors, and extend this standard to the legislations of the host states. (Dolzer & Schreuer, 2012: 243). This approach clearly means preferring the interests of the investor over the interests of the host state. If the parties to the treaty intend to extend the scope of this standard beyond its conventional concept, they must explicitly stipulate it in the treaty. However, if the term "full protection and security" is used in the treaty without any explanation, the arbitral tribunal shall not, at its discretion, provide a broad interpretation of the scope of the host State's obligations and then, on the basis of such interpretation, determine that the host state is in breach of the obligations it has not undertaken in principle and the treaty is silent on them.

It is vital that shortcomings in the language of investment treaties and the ambiguity of standards in treaties will lead to different interpretations by arbitral tribunals. If countries explicitly stipulate their intentions when negotiating these treaties and specify the nature and scope of each standard, and leave no ambiguity, inconsistency of decisions in arbitrations will be reduced and a balance will be struck between the interests of the investor and the host state. As a matter of fact, Arbitral tribunals should notice that during the time of armed conflicts the host states are not able to provide the same level of protection for investors as they provide in peacetime, such as the rights of their own citizens which are different in peacetime vis-a-vis wartime, or in ordinary places vis-a-vis demarcated border areas. If a host state is to be held responsible for violating the standard of full protection and security during armed conflicts, the consequences of this violation must be evaluated in light of the state of emergency arising from such armed conflicts.