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Investment Policy Blog

In recent years, several States have terminated their international investment agreements (IIAs) — e.g., bilateral investment treaties (BITs) and preferential trade agreements incorporating investment provisions. Some have done so due to alarm at unexpected outcomes in investor-State cases, and others are simply updating their IIAs as they conclude wider economic partnership agreements. Indeed, UNCTAD has reported that, by the end of 2013, more than 1,300 BITs (over a third of the nearly 2,900 BITs in existence today) will be at the stage where they could be terminated or renegotiated at any time.[1]

Yet, the legal implications of terminating or denouncing IIAs are a source of continuing academic and professional debate. Central to this debate is the question of whether investors continue to have rights and remedies under IIAs following their termination or denunciation. This question has become all the more important as various States contemplate termination of IIAs as a means of enhancing their regulatory autonomy. To date, the relevant literature has focused on the effectiveness of unilateral termination or denunciation of IIAs,[2] leaving largely unexplored the equally important question of the impact on investors’ rights of IIA termination by mutual consent of the State parties to the agreement.

Debate exists at a general level regarding the nature of rights that IIAs confer on investors — for example, whether these are ‘direct’ rights or ‘derivative’ rights flowing from the host State’s duties and home State’s rights. In any case, as IIAs are most plausibly viewed as treaties forming a part of international law and entered into between State parties, the source of investors’ rights (as well as obligations of States thereunder) lies in the will and consent of the relevant State parties. Thus, on the basis of customary international law, as reflected in Article 54(b) of the Vienna Convention on the Law of Treaties,State parties may choose to terminate an IIA by mutual consent and thereby extinguish investors’ rights.

However, two sets of investors’ rights must be distinguished in relation to mutual termination of an IIA. First, both treaty law and jurisprudence suggest that State parties cannot retrospectively end investors’ exercised rights: that is, rights with respect to a pre-existing treaty breach for which a formal claim has already been brought, or where, for instance, an investor has consented to arbitration in writing. On the other hand, State parties are free to bring an end to investors’ unexercised rights: that is, rights with respect to a breach for which no claim has been made at the time of termination. Moreover, State parties may by express agreement set aside certain public international law presumptions, such as the non-retroactive effect of the termination. As a matter of public international law, neither the notion of ‘acquired rights’ nor the common inclusion of survival clauses in IIAs poses an inherent obstacle to the termination of investors’ unexercised rights stemming from IIAs by mutual consent of the State parties to the treaty.

The proper interpretation and application of public international law rules to disputes concerning mutual termination of IIAs will be influenced by other factors, including the political drivers of the State parties involved, the likely ‘aggressive’ responses of investors, and the disciplinary backgrounds of the chosen arbitrators. The international legal basis of IIAs should nevertheless be fully understood and addressed in resolving these issues both in abstract debates and in individual disputes.

This discussion note is based on Tania Voon, Andrew Mitchell and James Munro, ‘Parting Ways: The Impact of Mutual Termination of Investment Treaties on Investor Rights’, which will appear in (2014) ICSID Review – Foreign Investment Law Journal. A draft of the full article is available at http://papers.ssrn.com/abstract=2365996. The authors thank Gashahun Fura for his assistance in preparing this note.

See also IPFSD clause:

12. Final Provision


[1] See UNCTAD, 2013 World Investment Report, p. 108

[2] See, e.g., ‘Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims’ (IIA Issues Note No 2, UNCTAD, 2010); Gisela Bolivar, ‘The Effect of Survival and Withdrawal Clauses in Investment Treaties: Protection of Investments in Latin America’, in Leon Trakman and Nicola Ranieri (eds) Regionalism in International Investment Law (Oxford University Press, 2013) 162, 168.

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