Legal Nature of Exception Clauses as Treaty-Internal Limitation on the Scope of the Substantive Obligations of BITs and its Relevant Effects in International Investment Law

Although Investment Treaties are considered as an effective tool to protect foreign investors, they can also limit the host state’s regulatory powers. That is why states, may refrain from pursuing their legitimate public policies, especially in the interests of security environment public order, public morality and public health by anticipating the possibility of initiation of arbitration proceedings brought by investors before arbitral tribunals,  Based on this background, states seek to protect their essential interests by incorporating Exception Clauses in modern Investment Treaties. The main aim of this article is to examine the characterization of the legal nature of Exception Clauses, as a limiting factor in the scope of the substantive obligations of BITs and the relevant effects of such a description in Investment Arbitration. In this regard, the authors initially try to study the general framework of such Clauses by anylizing the rules of Treaties Interpretation, Judicial Procedure and International Arbitration. Then they will demonstrate that Exception Clauses are characterized as a treaty-internal limitation on the scope of substantive obligations despite the disagreement about the nature of them. Such a characterization of its legal nature will raise important effects in arbitration proceeding.