By: Thomas Hildebrand
PDF: The Fighting's Done
Where major conflict erupts, major state liability follows. Sri Lanka, Zaire, Libya, and Syria have all found themselves subject to extensive liability to investors under bilateral investment treaties for harms incurred in the midst of armed conflicts raging within their borders. This Note argues that war-loss clauses, present in nearly every bilateral investment treaty, should be interpreted to create a lex specialis regime limiting investor compensation following armed conflicts. Arbitral tribunals, however, have consistently refused to apply war-loss clauses in this manner. This has lead to an over-extension of state liability to foreign investors in the wake of armed conflict. This liability has the potential to create a host of problems for states recovering from armed conflict, and this Note proposes three solutions. First, it outlines how war-loss clauses can plausibly be interpreted under the Vienna Convention on the Law of Treaties to create a special regime limiting states’ liability to investors for war losses. Second, it proposes that more explicit war-loss provisions be added to future bilateral investment treaties. Last, it outlines the contours of a multilateral instrument that could supersede the application of bilateral investment treaties in times of armed conflict.