Reparation of Damages arising from Armed Conflicts in International Investment Claims

Despite increasing armed conflicts and the resulting damages to civilians, including foreign investors, no specific regime has been envisaged in international law to compensate for such damages to investors. As a result, for reparation of damages caused by armed conflicts, investors resort to the so-called war clause in investment treaties as well as the general international law on reparation for wrongful acts. But this practice, as will be argued, has many ambiguities that may affect the rights of both the host state and the investor. While sovereignty considerations such as public order or national security can make it difficult to prove government responsibility in armed conflicts, the war clause provides an additional layer of protection for investors, but does not eliminate traditional investor-protection standards. All the same, the war clause makes the investor's right to reparation subject to strict requirements, such as proving the cause of damages and absence of military necessity, which is difficult in armed-conflict situations. It would be more sound to burden the state that has used military force with proving military necessity. In evaluating the damages, arbitration courts are expected to pay attention to emergency situation and its impact on the interests of both parties.