Treatment of Foreign Investment During Armed Conflict

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Treatment of Foreign Investments during Armed
Conflicts: The Regimes
Viacheslav Liubashenko*
Abstract
Despite a wide range of progressive developments in modern international law

over last decades problems relative to investments circulation in time of an armed
conflict are of urgent interest to the lawyers. Besides the fact that practice of
treatment of investments by States in times of armed conflicts are still diversified,
the existing legal framework do provide the terms for protection of foreign in-
vestments. While the provisions of international humanitarian law, obviously, are
central in factual assessment, modern international investment treaties also con-
tribute to the issue by encompassing special clauses—overall framework consists
from provisions from different branches of international law. The article offers a
comprehensive analysis of existing international law of treaties, international hu-
manitarian law and international law on foreign investment in relation to treat-
ment of foreign investments during armed conflicts. It explores correlation and
collision of norms within mentioned areas of international law and applicability of
legal principles (distinction between property of the belligerent and the nonbelli-
gerent party is the primary one) to concrete situations of international and non-
international armed conflicts; through identification and interpretation of
provisions relative to confiscation (expropriation) and compensation it goes to
construction of the regimes of treatment of foreign investments during armed
conflicts. The article concludes with separation of the regimes and the provisions
including them.
1. Introduction
In current world armed conflicts, both noninternational and international, are an

obvious reality of international relationships that unquestionably affects inter-
national law and practice through construing new factual material and legal
justifications. Despite the fact that the existing international law encompasses
wide patterns of norms and regulations on situations of an armed conflict, a
recent factual background against conflicts in Libya, Syria and Ukraine through
presenting new forms of hybrid struggle generates additional issues within
* Ph.D. (Odessa), Lecturer at Department of International and Comparative Law at

International Humanitarian University, Odessa, Ukraine. E-mail: viacheslav.liuba-
shenko@gmail.com. The author wishes to acknowledge the contribution of
Department of Law and Administration of University of Warsaw (where the article
had been written) and the Centre for Promotion of Polish Legal Sciences (this article is
a result of the research project of the Centre).
..............................................................................
Journal of Conflict & Security Law (2019), Vol. 24 No. 1, 145–169
146 Viacheslav Liubashenko
international law. Beyond doubt that ‘. . . the trend in today’s armed conflicts is
towards greater complexity; with more actors, more weapons, more diverse
strategies and more transnational and transregional networks, which together
leads to a greater number of possibilities, including for violations of the law’.1
Unlike international humanitarian law that is closely directed towards regu-
lation of armed conflicts and their different facets, other fields of international
law regulate issues related to armed conflicts in a substantially lower degree of
legal certainty. Nowadays, there is an important trend of formulating interna-
tional legal norms regarding armed conflicts through the use of soft law tools
outside the field of international humanitarian law;2 these developments, evi-
dently, contribute to international law, but to a certain degree. Presumably,
normative progress is framed by positions of States on the issue. Such issues
as treatment of foreign investments during armed conflicts require a complex
approach under modern trends of international law.
Few areas of international law excite as much controversy as the law relating
to foreign investments.3 Where fundamental disagreement to general issues
exists, there is no consensus on sensitive patterns of it; treatment of foreign
investments during armed conflicts is an issue of this kind. Lack of adjudicative
practice4 is one more facet of multiplicity of the problem. Moreover, recent
practice of hybrid interference and warfare in Ukraine and other parts of the
world poses new challenges to a fragile balance (fixed in a bilateral investment
treaty—BIT or other investment treaty) between protection of foreign invest-
ments and exercising sovereign power of a State to protect public interests, and
similar situations are likely to arise in the future.
Some authors have seen this issue as worth addressing. A general consider-
ation of the protection of investments in armed conflicts within framework of
international investment law was given by Christoph Schreuer;5 Gleider I.
Hernández analyzed the interpretation of full protection and security clauses
1
C Beerli, ‘Modern conflict: Address by ICRC’s vice-president to SWIRMO 2016’
5http://blogs.icrc.org/law-and-policy/2016/10/27/modern-conflict-swirmo-2016/4 ac-
cessed 4 September 2018.
2
Case law is construing modern legal framework within international human rights law
in armed conflicts (for instance, the practice of ECHR is significant for European legal
area); reports of International Law Commission have contributed to the topic of the
effects of armed conflicts on treaties (Draft articles on the effects of armed conflicts on
treaties, 2011, UN Doc A/66/10) and protection of the environment in relation to
armed conflicts (now in progress).
3
This phrase has been caught from: M Sornarajah, The International Law on Foreign
Investment (3rd edn, CUP 2010) 1.
4
No more than few cases directly and indirectly concern damages as the result of an
armed conflict: Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case
No ARB/87/3; Toto Costruzioni Generali SpA v The Republic of Lebanon, ICSID
Case No ARB/07/12; American Manufacturing & Trading, Inc v Republic of Zaire,
ICSID Case No ARB/93/1.
5
C Schreuer, ‘The Protection of Investments in Armed Conflicts’ in F Baetens (ed),
Investment Law within International Law: Integrationist Perspectives (CUP 2013) 3–
20.
Treatment of Foreign Investments during Armed Conflicts 147
in case of armed conflicts;6 Heather L. Bray described the interaction between
international humanitarian law and international investment law;7 James Thuo
Gathii analyzed war’s legacy in international investment law;8 and Tony Cole
considered the minimum standard of treatment and the protection of foreign
investors during an armed conflict.9 These works have contributed to the issue of
treatment of foreign investments during armed conflicts but the overall frame-
work is still in process of academic formulation and normative delimitation.
Therefore, the goal of the present study is to define the legal framework of
treatment of foreign investments during armed conflicts existing at the
moment within and beyond international investment law with a glance to gen-
eral foundations of modern international law and its practice.
Taking into consideration that international investment law is in large meas-
ure governed by bilateral treaties and there is a lack of customary law norms on
the issue, treatment of foreign investments during armed conflicts needs to be
considered through the prism of general international law and recognized inter-
national practice. From this point of view, the Article starts with Section 2 that
examines treatment of foreign investments as a kind of property within inter-
national humanitarian law and international investment law, including issues of
correlation of provisions within these areas and special rules in relation to prop-
erty of belligerent party. Further, in Section 3 the Article goes to the analysis of
legal framework for operation of regimes composed of rules reflecting content of
the right of a State to confiscate foreign investments. This Section is followed by
concluding remarks.
2. Right of a State to Confiscate Foreign Investment: Content and

Limitation
‘States have a sovereign right under international law to take property held by
nationals or aliens through nationalization or expropriation for economic, pol-
itical, social or other reasons. [It] . . . is recognized as a fundamental one . . ..’10
6
GI Hernández, ‘The Interaction between Investment Law and the Law of Armed
Conflict in the Interpretation of Full Protection and Security Clauses’ in F Baetens
(ed), Investment Law within International Law: Integrationist Perspectives (CUP 2013)
21–50.
7
HL Bray, ‘SOI - Save Our Investments! International Investment Law and
International Humanitarian Law’ (2013) 14 J World Invest & Trade 578.
8
JT Gathii, ‘War’s Legacy in International Investment Law’ (2009) 11 Int Community
L Rev 353.
9
Chapter 4 ‘The Minimum Standard of Treatment and the Protection of Foreign
Investors during an Armed Conflict’ in T Cole, The Structure of Investment
Arbitration (Routledge 2013) xviiþ173.
10
UNCTAD. Expropriation. UNCTAD Series on Issues in International Investment
Agreements II (UN 2012) 1.
Though taking of property (in terms of international humanitarian law—confis-
cation of property) by a State is prima facie lawful11 it has its own limits and is
subject to conditions. In relation to customary law ‘[t]here is a general agree-
ment that a taking which lacks a public purpose and a discriminatory taking are
illegal in international law’12; consequently, limits and content of expropriation
must follow wordings of the relevant international investment treaty if a State is
party to it. This general legal framework constructs rules of confiscation of
property by a State in relation to state of armed conflicts as well.
Additionally, international humanitarian law and special rules within other
areas of international law regarding the state of an armed conflict are initiated.
This Section step by step considers content and limitation of right of a State to
confiscate foreign investment, starting with (i) articulation of legal sources and
problem of their correlation resulting in application of lex specialis and continu-
ing with issues of (ii) content of certain legal rules regarding confiscation of
private property within international humanitarian law, including (iii) special
case of treatment of foreign investors of belligerent parties, and concluding
with (iv) deep analysis of special rules (clauses) of international investment
treaties, which constitute separate agreements of States on case of an armed
conflict.
A. Where to Look into: Correlation of Rules of International Humanitarian

Law and Investment Law
The vital question of investments protection in armed conflicts within interna-

tional law is a correlation of rules provided in humanitarian law and in interna-
tional investment treaties, which may stipulate opposite foundations to the issue.
The problem is outlined by several norms of international humanitarian law,
which allows a State, either expressly or by implication, to seize a private prop-
erty in certain situations. Illustrative one is Article 53 of the Hague Regulations
(the HR)13 that states exceptions to the general prohibition of confiscation of
private property. IV Geneva Convention in Article 38 stipulates another provi-
sion that also relates to investments protection by implication.14 In addition,
11
Sornarajah (n 3) 406.
12
ibid 406–7. Other conditions (especially regarding compensation) of expropriation to
be lawful are controversial in modern international law: ibid 406–52.
13
Art 53: ‘. . . All appliances, whether on land, at sea, or in the air, adapted for the
transmission of news, or for the transport of persons . . . may be seized, even if they
belong to private individuals, but must be restored and compensation fixed when
peace is made.’
14
Art 38: ‘With the exception of special measures authorized by the present Convention,
in particularly by Article 27 and 41 thereof, the situation of protected persons shall
continue to be regulated, in principle, by the provisions concerning aliens in time of
peace.’ Article 27: ‘. . . However, the Parties to the conflict may take such measures of
control and security in regard to protected persons as may be necessary as a result of
the war.’ The Article does not concern treatment of property explicitly; it could be
there is a special rule for confiscation of property of belligerent party,15 which
contradicts to nondiscrimination principle within international law on foreign
investments. Therefore, in the case of application of international humanitarian
law to the protection of investments in situation of an armed conflict it would be
impossible to invoke provisions of relevant investment treaties with protectoral
clauses if they contradict norms of international humanitarian law (and they do
contradict to some regimes of treatment in international investment law16);
otherwise, the situation is more favorable to a foreign investor.
In theory, the problem of correlation of rules in humanitarian law and in
investment law resolves through the grounding principle lex specialis derogat
lex generalis. Consequently, a question arises: which corpus of norms can be
considered as lex specialis in the situation of armed conflict: humanitarian law
or investment law?
For considering the issue there is a need to examine some grounding aspects
of the lex specialis in international law.17 Legal literature generally accepts the
lex specialis as a widely accepted maxim of legal interpretation and technique for
the resolution of normative conflicts;18 it is constructed to resolve a collision of
norms where it can be defined general norm and special one. A rule may be
general or special in regard to its subject-matter or in regard to the number of
actors whose behavior is regulated by it.19 Importantly and it follows that no rule
can be defined in abstract as general or special; it must be based on concrete case
of collision (for present article there is collision of provisions of international
humanitarian law allowing a State to confiscate private property and of norms of
said that it relates to persons, honor, family rights, religious convictions and practices,
and manners and customs, as it stated in the beginning of this Article. Nevertheless, it
is commonly agreed that ‘. . . Article 27 does not specify the various security measures
which may be taken by States, but merely sets forth a general provision’: Geneva
Convention Relative to the Protection of Civilian Persons in Time of War: Commentary
(ICRC 1958) 245. Thus, by implicit application of Arts 27 and 38 States may take
measures regarding foreign investments as may be necessary as a result of the war.
15
See subsection I(c) below.
16
Eg, Art 2(2) of UK-Ukraine BIT (Treaty Series No 24 (1993): ‘Investments of in-
vestors of each Contracting Party shall at all times be accorded fair and equitable
treatment and shall enjoy full protection and security in the territory of the other
Contracting Party . . ..’
17
On operation of lex specialis in international law see: M Koskenniemi, ‘Fragmentation
of International Law: Difficulties Arising from the Diversification and Expansion of
International Law’, International Law Commission, 58th Session, UN Doc A/CN.4/
L.682 (13 April 2006); J Mus, ‘Conflicts between Treaties in International Law’ (1998)
45(2) Netherlands Int L Rev 208; C Pavel, ‘Normative Conflict in International Law’
(2009) 46 San Diego L Rev 883; A Gourgourinis, ‘General/Particular International
Law and Primary/Secondary Rules: Unitary Terminology of a Fragmented System’
(2011) 22(4) Eur J Int L 993; S Borelli, ‘The (Mis)-Use of General Principles of Law:
Lex Specialis and the Relationship Between International Human Rights Law and the
Laws of Armed Conflict’ in L Pineschi (ed), General Principles of Law - The Role of
the Judiciary (Springer 2015) 265–94.
18
Koskenniemi (n 17) para 56.
19
ibid para 112.
investment treaties, prohibiting or conditioning expropriation). Therefore, the
first issue we need to address is defining the general law in case of collision of
humanitarian and investment laws.
This issue has found some consideration with opposing results in legal litera-
ture. Tony Cole advocates an argument within one side of the spectrum20 that by
entering into investment treaties States significantly limit the generous freedoms
that public international law allows them during an armed conflict.21 It seems
that Christoph Schreuer is also a proponent of this argument.22 This position
seems true so far as an investment treaty encompasses a clause that directly
relates to the situation of an armed conflict.23 Generally (excluding situations of
a BIT directly provides with a special clause) it seems on the contrary that
provisions of international humanitarian law prevail over investment standards
in BITs. ‘There is no evidence or practice whatsoever to justify the position that
international investment agreements such as BITs, the preambles to which state
that their goal is limited to promoting investment or fostering economic ties, can
implicitly displace general international law’,24 and humanitarian law is a part of
it. According to Gleider I. Hernández: ‘. . . in the absence of express derogation,
it would be untenable to stretch the interpretation of a full protection and se-
curity clause, or a necessity clause, beyond the general regime and into the
regime of last resort embodied by international humanitarian law, a lex specialis
designed to provide a floor for human rights protection in times of armed con-
flict’.25 It is worth noting that 2010 Draft Articles on Effects of Armed Conflict
on Treaties26 (Draft Articles) also would serve to confirm the position that
investment treaties would not, unless express provisions were included to that
effect, serve to displace international humanitarian law.27
20
The spectrum, that is defined by two different approaches, in respect of the applica-
tion of BITs in case of crisis have been described in: G Sacerdoti, ‘BIT Protections and
Economic Crises: Limits to Their Coverage, the Impact of Multilateral Financial
Regulation and the Defence of Necessity’ (2013) 28(2) ICSID Rev 351, 360:
‘According to the first approach, the protection afforded by BITs should be upheld
when it is most needed, that is, when a government might be inclined to have foreign
investors paying the highest price in case of crisis disregarding previous commitments.
According to the other view, a government’s discretionary policy space should be
safeguarded precisely when the general interest is most endangered.’ It is relevant
to the issue of collision of leges as well.
21
Cole (n 9) 79.
22
Considering the protection of investments in armed conflicts Christoph Schreuer has
not rely on any provision of acts of international humanitarian law: Schreuer (n 5).
23
See subsection I(d) below.
24
Hernández (n 6) 29.
25
ibid.
26
‘Comments on Draft Articles’ in Report of the International Law Commission, Sixty-
second session (3 May–4 June and 5 July–6 August 2010), A/65/10, p 290. Adopted
text is situated in the Resolution adopted by the UN General Assembly on 9
December 2011, A/RES/66/99.
27
ibid 32.
Argumentation that I follows derives from the distinction of two different
situation: while considering international investment law as general on the sub-
ject-matter of treatment of investments (it is clear that legal framework of in-
vestments is generally regulated by international law on foreign investments)
there is an evident possibility for States to include into the relevant BIT a special
clause that incorporates different aspects of investment protection in time of
armed conflicts. While in the first situation provisions of a BIT will be con-
sidered as general law, the second one (where there is a special clause within
a BIT) demands to declare it as special law.
It must be bearing in mind that from the perspective of general law the rele-
vant general law (law on foreign investments) remains silent on derogation from
its rules—in fact both branches are silent on the issue (with quite rare and
narrow exceptions in BITs).28 From this point, the correlation of international
humanitarian law and international law on foreign investments in case of colli-
sion of norms must be construed through understanding of lex specialis in or-
dinary terms.29 Thus, provisions of the relevant BIT must be regarded as general
law in relation to treatment of investments during armed conflicts, except a
special clause is incorporated into it (if any) that is special law on the same
subject-matter. It should not come as embarrassment that law defined as general
(the relevant BIT) has only two State-Parties; ‘. . . there may be a rule that is
general in subject-matter . . . but valid for only in a special relationship between
a limited number (two) of States’.30 It follows that number of State-Parties is
irrelevant in the present case to application of lex specialis.
Moreover, formulation of some BITs accepts it as general law regarding
narrow subject-matter. As an example Article 11 of UK-Ukraine BIT can be
mentioned:
If . . . obligations under international law existing at present or established

hereafter . . . in addition to the present Agreement contain rules, . . .
entitling investments by investors of the other Contracting Party to a
treatment more favourable than is provided for by the present
Agreement, such rules shall to the extent that they are more favourable
prevail over the present Agreement.31
28
Eg, Art 11 of UK-Ukraine BIT (n 16).
29
Relevant issues within the process of application of lex specialis are normative status
of general law, interests and rights of beneficiaries, and implied rule for non-deroga-
tion: Koskenniemi (n 17) paras 109–10. These issues are out of this article as they do
not pose any practical implications on collision between international humanitarian
and international investment laws.
30
Koskenniemi (n 17) para 112.
31
UK-Ukraine BIT (n 16).
But worth noting that this passage operated in terms of additional norms
toward a specific situation—in addition to the present Agreement—rather than
collision of norms. Nevertheless, it shows that legal framework of a BIT can be
changed through special agreement by relevant States.
There is one additional problematic question that arises in relation to the war
against terrorism. Generally, right of a State to confiscate property derives from
international treaty or custom (a BIT or the HR). In relation to the war against
terrorism the UN Security Council Resolution 1373 of 2001,32 passed only a few
days after the terrorist attacks on the USA on 11 September 2001, authorized
States to freeze and therefore confiscate private property33 without due process
and outside the UN international human rights standards.34 In relation to con-
tent of the Resolution 1373 professor José E. Alvarez has said:
. . . the Council selected only some provisions of a recently concluded

(and therefore not widely ratified) Convention for the Suppression of
the Financing of Terrorism, added provisions that do not appear in that
treaty (because they did not win favor at the multilateral level), and
omitted those provisions which it did not like, including the
Convention’s explicit deference to other requirements of international
law.35
In this case public authorities were authorized with a wide power36 to confis-
cate property of foreign investors if they are defined as sponsors of terrorism.
In abovementioned case, the international institution became a tool through
which a State gains right to confiscate certain property (but right of the UN
Security Council to authorize such actions is undermined37). Generally, if a
resolution is considered as practical implementation of the UN Charter and
Convention for the Suppression of the Financing of Terrorism38 (as in case of
the Resolution 1373) its provisions must be in line with international law
32
UN SC Res 1373. UN Doc S/RES/1373 (28 September 2001).
33
Freezing of bank accounts can amount to a taking of property. See: CMS Gas
Transmission Company v The Republic of Argentina, ICSID Case No ARB/01/8.
34
UN SC Res 1373 (n 32) para 1(c).
35
JE Alvarez, ‘Contemporary International Law: An ‘Empire of Law’ or the ‘Law of
Empire’?’ (2009) 24 Am Univ Int L Rev 811, 825–26.
36
This wide power also reflects in the absence of consolidated list of persons and entities
to which these measures should apply. Consequently, it was left to each State to
determine who such persons and entities are. See: VD Comras, Flawed Diplomacy:
the United Nations and the War on Terrorism (Potomac Books 2010) 137.
37
PC Szasz, ‘The Security Council Starts Legislating’ (2002) 96 Am J Int L 901, 902–5;
JE Alvarez, ‘The Dark Side of the UN’s War on Terrorism’ in A Sajó (ed), Abuse:
The Dark Side of Fundamental Rights (Eleven International Publishing 2006) 163–90.
38
International Convention for the Suppression of the Financing of Terrorism, adopted
by the General Assembly of the United Nations in resolution 54/109 of 9 December
1999; in United Nations, Treaty Series, vol 2178, at 197.
generally39 and humanitarian law in particular40 and other rules of international
law will prevail over it. Nevertheless, the International Court of Justice
has never invalidated a UN Security Council (or UN General Assembly) reso-
lution, so the question seems to be problematic for settlement if it will arise on
practice.
To this end international humanitarian law, not international law on foreign
investments (or legal provisions within a UN Security Council resolution),
must serve a basis for legal analysis of the treatment of foreign investors by
States during an armed conflict.41 Bearing in mind that international humani-
tarian law stipulates provisions relative to investments protection in general
terms (with special exceptions) a factual situation needs to be analyzed
through pertinent norms of the relevant BIT based on their assessment of
consistency to the norms of international humanitarian law and special provi-
sions. From this point the content of relevant rules of international humani-
tarian law is crucial.
B. The Regimes in International Humanitarian Law
International humanitarian law derives from various sources of different nature,

but the conventional block of provisions reflects a state of the law in the most
appropriate way. Laws and Customs of War on Land (IV Hague Convention)42
is the first convention that deals with issues of private property in a situation of
armed conflicts. Article 46 of the HR provides the general presumption that
private property cannot be confiscated. It is the general principle for the
39
In relation to the UN Charter it can be said that ‘[t]he UN Charter’s text is notoriously
vague, making it difficult to use it to construct a meaningful regime to constrain the
Council’: D Whittle, ‘The Limits of Legality and the United Nations Security Council:
Applying the Extra-Legal Measures Model to Chapter VII Action’ (2015) 26(3) Eur J
Int L 671, 675.
40
Art 21 of Convention for the Suppression of the Financing of Terrorism: ‘Nothing in
this Convention shall affect other rights, obligations and responsibilities of States and
individuals under international law, in particular the purposes of the Charter of the
United Nations, international humanitarian law and other relevant conventions.’ It is
not unreasonable to assume that tool of the Convention’s implementation must follow
the wording of the Convention.
41
It is importantly to say that ‘. . . the application of a BIT in times of crisis may be
restricted by other treaties in force between the parties, especially those regulating
financial matters, such as the IMF, the OECD Liberalization Codes, and the WTO/
GATS provisions on financial services insofar far as they include obligations for the
host State that may authorize derogations from a BIT or require it not to apply certain
treaty based commitments’: Sacerdoti (n 20) 361.
42
International Conferences (The Hague), Hague Convention (IV) Respecting the Laws
and Customs of War on Land and Its Annex: Regulations Concerning the Laws and
Customs of War on Land, 18 October 1907.
investments protection during armed conflicts. Further, the HR stipulate excep-
tions to this presumption—Article 53 allows an army of occupation to
. . . take possession of cash, funds, and realizable securities which are

strictly the property of the State, depots of arms, means of transport,
stores and supplies, and, generally, all movable property belonging to
the State which may be used for military operations. All appliances,
whether on land, at sea, or in the air, adapted for the transmission of
news, or for the transport of persons or things, exclusive of cases gov-
erned by naval law, depots of arms, and, generally, all kinds of ammuni-
tion of war, may be seized, even if they belong to private individuals, but
must be restored and compensation fixed when peace is made.
The provision has found an interpretation in judicial practice:
. . . if, as a result of war action, a belligerent occupies territory of the ad-

versary, he does not, thereby, acquire the right to dispose of property in
that territory, except according to the strict rules laid down in the [Hague]
Regulations. The economy of the belligerently occupied territory is to be
kept intact, except for the carefully defined permissions given to the oc-
cupying authority – permissions which all refer to the army of occupation.43
The latter implicitly provides with the determination of borders of applicabil-

ity of the provision: by virtue of Section III where these rules are situated they
are applicable only in state of occupation over the territory of the hostile State in
the situation of international armed conflict. This is clear as well from Rule 51
that interprets Article 46 by words ‘in occupied territory’.44 For the purpose of
distinction of legal regimes it is important that ‘no rule could be identified for
non-international armed conflicts which would prohibit, according to interna-
tional law, the confiscation of private property, nor is there a rule of interna-
tional law which allows such confiscation; it is expected, however, that this
question would be regulated in national legislation’.45 From the view of inter-
national law on foreign investments the situation of noninternational armed
conflict will be regulated as emergency situation if a factual background correl-
ates with terms provided in the relevant BIT;46 indeed, international
43
United States Military Tribunal at Nuremberg—United States v Alfried Krupp et al.
In: The United Nations War Crimes Commission, Law Reports of Trials of War
Criminals, vol X, 1949 5https://casebook.icrc.org/case-study/united-states-military-tri-
bunal-nuremberg-united-states-v-alfried-krupp-et-al4 accessed 4 September 2018.
44
J-M Henckaerts and L Doswald-Beck, Customary International Humanitarian Law:
Volume I: Rules (CUP 2005) 178.
45
ibid 181–82.
46
In this case it means ‘security’ or ‘emergency’ clause within the relevant BIT. Eg,
Article XI of Argentina-USA BIT: ‘This Treaty shall not preclude the application by
either Party of measures necessary for the maintenance of public order, the fulfillment
humanitarian law fully leaves the framework for this legal regulation to inter-
national investment agreements and national legislation.
Article 10 of 2006 Canada Model BIT is illustrative one to the situation of
noninternational armed conflict: ‘4. Nothing in this Agreement shall be construed:
. . . (b) to prevent any Party from taking any actions that it considers necessary for
the protection of its essential security interests . . . (ii) taken in time of war or other
emergency in international relations . . ..’47 Insofar as ‘time of war’ (this term has
no clear legal definition but is used to describe the situation of warfare generally)
includes noninternational armed conflicts, the relevant BIT will not operate in
state of noninternational armed conflict. Moreover, the wording ‘any actions that
it considers necessary’ give to a State wide area for regulative actions, which can
be framed by international humanitarian law. To this end (bearing in mind that
international humanitarian law has no rules regarding treatment of foreign invest-
ments (or private property generally) when there is noninternational armed con-
flict) the situation of taking of property or other measure that infringes property
rights will be governed by national legislation and general international law.
Additionally, Article 43 of the HR reads as follows:
The authority of the legitimate power having in fact passed into the hands
of the occupant, the latter shall take all the measures in his power to
restore, and ensure, as far as possible, public order and safety, while
respecting, unless absolutely prevented, the laws in force in the country.
Implicitly it encompasses a taking of private property but with the goal to main-
tain public order and safety and it has restrictions of discretionary power of the
occupant as well.48 In words of United States Military Tribunal in Nuremberg:
the Article places limitations upon the activities of the occupant. This
restriction is found in the clause which requires the occupant to respect,
unless absolutely prevented, the laws in force in the occupied country . . . .
The occupying power is forbidden from imposing any new concept of law
upon the occupied territory unless such provision is justified by the re-
quirements of public order and safety.49
of its obligations with respect to the maintenance or restoration of international peace

or security, or the protection of its own essential security interests.’ See subsection
I(d) below.
47
2006 Canada Model Agreement for the Promotion and Protection of Investments
5https://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf4 accessed 4
September 2018.
48
Likely provisions can be identified in a majority of BITs where expropriation, as a rule,
in order to be lawful must be implemented in terms of public purpose, non-discrimin-
atory, in accordance with due process of law and accompanied by compensation.
49
United States Military Tribunal at Nuremberg—United States v Alfried Krupp et al
(n 43).
This wording reaffirms a presumption of continuality of operating the laws in
force in the country.
Further, interpreting the rule of restoring public order, the temporary use of
private property including foreign investments by public authorities is lawful in
the situation of an international armed conflict. Such use of the property to be
legal in terms of international law must have a prerequisite of a public necessity.
Moreover, it must be followed by framing in the terms of legislation—if there is
a compulsory temporary use of private property it must be contracted as rent or
another legal form of use. This rule was crystallized in Israeli practice:
. . . the lands in question were seized only to be used and that rental was
offered to the petitioners, who retained their ownership of the lands. This
kind of seizure – namely, requisition – is lawful under Article 52 of the
Hague Regulations on which von Glahn comments that:
Under normal circumstances an occupant may not appropriate or seize

on a permanent basis any immovable private property, but on the other
hand a temporary use of land and buildings for various purposes appears
permissible under a plea of military necessity . . ..50
Interestingly that the cited case concerns a situation of occupation and it is

uncertain whether this rule is applicable in a situation of a noninternational
armed conflict. It seems likely that the issue must be regulated in national le-
gislation or international investment agreements in force.
Similar to the HR, Geneva Convention Relative to the Protection of Civilian
Persons in Time of War (IV Geneva Convention)51 operates with the presumption
that private property cannot be confiscated by words that ‘. . . the situation of
protected persons shall continue to be regulated, in principle, by the provisions
concerning aliens in time of peace’.52 Notwithstanding that the Convention does
not explicitly state that it covers issues of protection of private property, it is pos-
sible to agree with a viewpoint of the Eritrea-Ethiopia Claims Commission that
provisions of the Convention ‘. . . protect both lives and property’.53 Central to the
issue is the provision of IV Geneva Convention that ‘. . . the Parties to the conflict
may take such measures of control and security in regard to protected persons as
50
H.C. 606/78, Ayub, et al v Minister of Defence, et al (the Beth El case); H.C. 610/78,
Matawa, et al v Minister of Defence, et al (the Bekaot case) 33(2) Piskei Din 113
5https://casebook.icrc.org/case-study/israel-ayub-v-minister-defence4 accessed 4
September 2018.
51
International Committee of the Red Cross (ICRC), Geneva Convention Relative to the
Protection of Civilian Persons in Time of War (Fourth Geneva Convention), 12 August
1949, 75 UNTS 287.
52
Art 38 of IV Geneva Convention.
53
EECC: Civilians Claims, Eritrea’s Claims 16, 23 & 27–32: 2001, Partial Award of 17
December 2004, para 126.
may be necessary as a result of the war’.54 In a different vein as to the regime
provided in the HR, this provision relates to both the territories of the belligerents
and the occupied territories. Moreover, the Convention puts some restrictions on
States’ behavior, for instance, Article 33 prohibits pillage and reprisals against
protected persons’ property, both in occupied territory and in the Parties’ territory.
Importantly that legal framework of the HR is similar to but differs from the
one of IV Geneva Convention in some essential aspects. Particularly, the HR
. . . only govern the relations of the belligerents with the civilian popula-
tion in cases where one of the belligerents has occupied the territory of
the other . . .. The . . . [HR] did not deal with the case of enemy civilians
retained on the territory of one of the Parties to the conflict; the . . .
[provisions of Article 38 of IV Geneva Convention] are intended to fill
this gap and are, as stated in Article 154 [of IV Geneva Convention],
‘supplementary’ to the text in force.55
Thus, in case of confiscation of property on the occupied territory rules of the

HR will be applicable as well as provisions of IV Geneva Convention; on the
territory of belligerent party rules of IV Geneva Convention will construct the
legal framework exclusively. Though international humanitarian law does not
clarify provisions on protection of private property of foreign investors— the
HR even operate with the general term ‘inhabitants of occupied territory’ without
clear mention of foreigners (but the civil population of occupied territory impli-
citly encompasses foreigners)56—the relevant rules ‘. . . will in general be charac-
terized by a growing tendency to place aliens on the same footing as nationals (the
principle of treatment as nationals)’.57 It goes from this principle and definition of
civil population (in relation to the HR) that foreign investments are protected by
the HR and IV Geneva Convention as stipulated in them in regard to general
protection of private property in armed conflicts. In other words,
[t]he Article . . . [38 of IV Geneva Convention] refers, then, to such

clauses – above all to the rule stipulating treatment as nationals – when
it proclaims that they are to remain in force and that foreigners are to
continue to benefit by them.58
54
Art 27 of IV Geneva Convention. See also fn (14).
55
ICRC. Commentary on the Geneva Conventions of 12 August 1949, Volume IV. 1958.
Commentary to Art 38 5https://ihl-databases.icrc.org/ihl/INTRO/3804 accessed 4
September 2018.
56
‘In protecting civilians against the dangers of war, the important aspect is not so much
their nationality as the inoffensive character of the persons to be spared and the
situation in which they find themselves . . . [A]part from members of the armed
forces, everybody physically present in a territory is a civilian.’ ICRC. Commentary
on the Additional Protocols of 8 June 1977 to the Geneva Conventions of 12 August
1949 / Ed. by Y Sandoz, C Swinarski, and B Zimmermann (Geneva 1987) 610–11.
57
ICRC (n 55).
58
ibid.
To this end, abovementioned provisions of the HR and IV Geneva
Convention regulate treatment of foreign investments by States without men-
tioning foreign investments at all. These legal provisions are unconnected to the
regimes encompassing by international investment law.59
C. Special Rule: Treatment of Foreign Investors of the Belligerent Party
Notwithstanding that IV Geneva Convention directly prohibits any adverse distinc-

tion founded on sex, race, nationality, religion, political opinions or any other
similar criteria,60 the practice shows that ‘[s]eparate rules apply in the case of
property of nationals of an enemy belligerent’.61 Moreover, this practice clearly
contradicts to some provisions of BITs in relation to nondiscriminatory treatment.62
From practical point of view, a policy of a State toward the treatment of
enemy’s property is not favorable to an investor. Private property of enemy’s
nationals obviously is under severe control due to extra-emergency state in the
country—‘in times of war, there was control over enemy businesses, and restric-
tions were imposed on trading with enemy and on the movement of alien busi-
nessmen present within the state’.63 Existing legal practice derives from the
special status of enemy’s property; if it is a public property owned directly by
the belligerent State,64 the host State is entitled to seize such property—such act
indisputably correlates with military necessity and is directed toward weakening
the belligerent party. This rule is deeply incorporated in international law and
relates not only to public owned property of the belligerent State, but to private
property as well: ‘when private enemy property is employed for a hostile pur-
pose, of course its immunity is at an end, but there still remains the duty of the
belligerent ultimately to reimburse the owner.’65 Though a distinction could be
given in relation to the beneficiary of alien business there is one general prin-
ciple that applies to any private property within the host State: when a business-
man acts in a way that endangers public economic or defense environment the
host State can take such actions within international and national laws as it is
necessary to decrease and to eliminate the effects of these harmful actions. In
59
Tony Cole states about minimum standard of treatment that determined in humani-
tarian law only: T Cole (n 9) 75.
60
Art 12 of IV Geneva Convention.
61
EECC: Ports, Ethiopia’s Claim 6: 2001, Final Award of 19 December 2005, para 25.
62
Eg, Art 2 of UK-Ukraine BIT (n 16): ‘. . . Neither Contracting Party shall in any way
impair by unreasonable or discriminatory measures the management, maintenance,
use, enjoyment or disposal of investments in its territory of investors of the other
Contracting Party.’
63
Sornarajah (n 3) 97.
64
Distinction on the nature (commercial or public) of operations within competence of
the relevant authority—that can be fined in investment tribunals’ practice (see:
Ceskoslovenska Obchodni Banka, A.S. v The Slovak Republic, ICSID Case No
ARB/97/4)—is irrelevant to this rule. It depends on property title only.
65
RM Potterf, ‘Treatment of Alien Enemy Property in War Time and After by the
United States’ (1927) 2(16) Indiana L J 454.
other words, ‘[w]ar gives belligerents broad powers to deal with the property of
the nationals of their enemies . . .’.66 It directly derives from State’s right to self-
defense and the concept of sovereignty.
The recent practice shows that any seizure of property by a State must be
accompanied by compensation or the delayed return of property: ‘. . . a belliger-
ent may regulate or freeze the private property of another belligerent’s na-
tionals, with a view to the property’s eventual return or other agreed
disposition after hostilities end.’67 A State has a right to seize private property
of another belligerent’s nationals, but this right is limited to several conditions
and the one of them—to compensate or to return a property—is delayed. ‘If
private property of enemy nationals is to be frozen or otherwise impaired in
wartime, it must be done by the State, and under conditions providing for the
property’s protection and its eventual disposition by return to the owners or
through postwar agreement.’68 That means that assessment of facts shall be
provided after the end of hostilities; unless a composition of facts will be incom-
plete. Before momentum of the end of hostilities, it could not be any violation in
relation to compensation for confiscated property as far as the right of a State is
not fully exercised.69 In other words, qualification of legality of confiscation of
private property is possible after the end of hostilities only.
It is worth noting that even seizure of the enemy’s property is framed. It could
be illegal if it constitutes the war crime of seizing the enemy’s property.70 The
distinctive line between legality and illegality of seizing the enemy’s property is
the military necessity of such seizure and it is applicable in both international
and noninternational armed conflicts.71 Moreover, the military necessity in more
general form of the due diligence standard has found its place in the assessment
of the legality of state actions in some cases of investment tribunals concerning
violence against investments and regime of full protection and security.72
Thus, from the existing international law there should be separated such re-
gimes of treatment of private property as (i) regime of noninternational armed
conflict, (ii) regime of international armed conflict and (iii) special regime of
occupation. Nevertheless, these regimes are general to protection of private
66
EECC: Civilians Claims (n 53) para 151.
67
EECC: Ports (n 61) para 25.
68
EECC: Civilians Claims (n 53) para 151.
69
It raises interesting question—if war was not declared but waged how to define mo-
mentum of the end? Even the end of hostilities as the point to address the issue is
impractical to armed conflicts with frozen characters. It seems that tribunals must
define the end of hostilities against the factual background of concrete conflict.
70
Art 8(2)(b)(xiii) of the Elements of Crimes: the Official Records of the Review
Conference of the Rome Statute of the International Criminal Court, Kampala, 31
May–11 June 2010 (International Criminal Court publication, RC/11).
71
Henckaerts and Doswald-Beck (n 44) 176.
72
For instance, in American Manufacturing & Trading, Inc v Republic of Zaire, ICSID Case
No ARB/93/1; Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No
ARB/87/3; Wena Hotels Ltd v Arab Republic of Egypt, ICSID Case No ARB/98/4.
property and, contrary to protection of property of nationals, can be overlapped
by special provision within a BIT.
D. International Investment Law in Situation of Armed Conflict
International investment law provides with a variety of standards, which may be

included by States in international investment treaties: national treatment, most-
favored-nation treatment, fair and equitable standards of treatment, an interna-
tional minimum standard of treatment and full protection and security. For
reasons of clarity, fair and equitable treatment (FET) does not operate in situ-
ation of armed conflicts73 but can be invoked in relevant process if the relevant
BIT does not include any provision in relation to situation of emergency or
armed conflict or similar events, though ‘[t]he distinction between breach of
FET and indirect expropriation is typically based on the level of interference
with the right to property’.74 Further, the regime of full protection and security
and issues of its application will not be addressed here as they have a reasonable
range of literature.75 However, all standards of treatment potentially are sub-
jects to nonapplication or exceptions, which can be incorporated in a BIT
through the inclusion of special clauses. These special clauses are fundamental
provisions for interpretation of the standards of treatment during armed con-
flicts because, as was discussed earlier, the special clauses are special law in
relation to general international law (including humanitarian law) and start to
operate in time of an armed conflict (though other provisions of the relevant
BIT, as a general rule, stop to operate in this time).
Some investment treaties, bilateral76 and multilateral,77 contain special legal
provisions directly incorporated into a treaty with the aim to regulate
73
In ordinary terms.
74
Sacerdoti (n 20) 359.
75
About general issues of FPS see: C Schreuer, ‘Full Protection and Security’ (2010)
1(2) J Int Dis Settlement 353; CM Giuditta, ‘Full Protection and Security’ in A
Reinisch (ed), Standards of Investment Protection (OUP 2008) 131–50; HE Zeitler,
‘Full Protection and Security’ in SW Schill (ed), International Investment Law and
Comparative Public Law (OUP 2010) 183–212; M Malik, ‘The Full Protection and
SecurityStandard Comes of Age: Yet Another Challenge for States Ininvestment
Treaty Arbitration?’ 5http://www.iisd.org/pdf/2011/full_protection.pdf4 accessed 4
September 2018. On applicability of FPS in times of armed conflicts see: Schreuer
(n 5) 6–11; Hernández (n 6).
76
For instance, Art 6 ‘Recompense of Damage’ of the Agreement Between the
Government of the Russian Federation and the Cabinet of Ministers of the Ukraine
on the Encouragement and Mutual Protection of Investments (Moscow, 27 November
1998): ‘The investors of one Contracting Party whose investments suffered damage on
the territory of the other Contracting Party as a result of war, civil disturbances or other
similar circumstances, shall be granted a regime no less favorable than the one which the
latter Contracting Party is granting to investors of any third state with respect to any
measures which it undertakes in connection with such damage.’
77
For instance, Art 1105 (2) of the NAFTA: ‘Without prejudice to paragraph 1 and
notwithstanding Article 1108(7)(b), each Party shall accord to investors of another
compensation for actions of a State toward foreign investments during armed
conflicts (‘compensation-for-losses’ or ‘non-discriminatory’ clauses). These
clauses usually deal with the situation of an armed conflict, but can be broadly
oriented to the state of emergency, revolution, insurrection, civil disturbance or
similar events. The practice of States shows that inclusion of ‘compensation-for-
losses’ clause in international investment agreements is widespread. In their
regular form such provisions provide for national or/and most-favored-nation
treatments. Clauses of this type do not create any substantive rights to restitu-
tion or compensation beyond nondiscrimination vis-à-vis host state nationals or
nationals of third countries; their effect depends on measures taken by the host
State in relation to these investors.78 It ‘does not mandate that host countries
provide compensation; it merely requires that if such payment is made, it be
made on terms that are equal to those offered nationals or other foreign inter-
ests’.79 Such type of clauses presents a simple reflection of regimes of national
and/or most-favored-nation treatment already included in BITs; they restate a
possibility of application of the regimes in times of armed conflicts. The tribunal
in CMS v Argentina characterized Article IV (3) of Argentina-US BIT, which
contains a ‘non-discriminatory’ clause, by stating that:
The plain meaning of the Article is to provide a floor treatment for the
investor in the context of the measures adopted in respect of the losses
suffered in the emergency, not different from that applied to nationals or
other foreign investors. The Article does not derogate from the Treaty
rights but rather ensures that any measures directed at offsetting or mini-
mizing losses will be applied in a non-discriminatory manner.80
Importantly that a nondiscriminatory clause incorporated in a BIT increases

the level of protection provided by general international law81 even though the
principle of nondiscrimination per se does not operate in international humani-
tarian law and as regards treatment of private property it encompasses restric-
tions of applicability. It is more appropriate and legally correct to consider this
clause as a special provision that prevails over other provisions in substantial
part of the relevant BIT in stipulated in the clause situations—an armed conflict
or emergency situation. In other words, ‘[t]he compensation-for-losses clause
Party, and to investments of investors of another Party, non-discriminatory treatment

with respect to measures it adopts or maintains relating to losses suffered by invest-
ments in its territory owing to armed conflict or civil strife.’
78
Schreuer (n 5) 12.
79
KS Gudgeon, ‘United States Bilateral Investment Treaties: Comments on the Origin,
Purposes and General Treatment Standards’ (1986) 4 Int Tax & Bus Lawyer 105, 127.
80
CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No ARB/
01/8, Award of 12 May 2005, para 375.
81
There are different approaches to the nature of ‘compensatory-for-losses’ clause, see:
F Pérez-Aznar, ‘Investment Protection in Exceptional Situations: Compensation-for-
Losses Clauses in IIAs’ (2017) 32(3) ICSID Rev 696.
appears to be a lex specialis vis-à-vis other substantive provisions included in the
treaty that limit responsibility . . .’.82 It is worth noting that inclusion of a nondis-
criminatory clause in a BIT does not limit the operation of provisions of inter-
national humanitarian law in relation to confiscation; it merely concerns the
issue of compensation that needs to be analyzed through the formulation of
the regimes in the relevant BIT.
The inclusion of nondiscriminatory or ‘compensation-for-losses’ clause limits
the framework of operation of the relevant BIT. It merely relates to most-
favored-nation or/and national treatment. ‘This implies that the rest of the sub-
stantive provisions [including regime of full protection and security] would not
apply when the compensation-for-losses clause applies.’83 ‘. . . [T]he fact of
including two provisions already comprised in the BIT (MFN and NT) that
apply in case of an emergency and not including other provisions (for example,
expropriation or FET), and to limit the application of these two provisions to
issues related to compensation or other remedies, appears to suggest that the
other provisions are not applicable.’84 From this point, it is clear that inclusion of
the clause of this type limits operation of provisions within the relevant BIT but
does not concerns provisions of international humanitarian law.
There is another type of clauses that not only provide with nondiscriminatory
treatment for the investor but goes further by giving a special guaranty of com-
pensation. Christoph Schreuer calls them the ‘extended war clauses’.85 Under
these clauses the losses suffered by investors at the hands of the host state’s
forces or authorities through requisitioning or destruction not required by the
necessities of the situation are treated in analogy to expropriation; such acts
require compensation that is prompt, adequate and effective.86 It is important
that compensation in course of armed conflicts depends on the legal wording of a
clause. It could be exemplified through the distinction between requisitioning
and destruction provided in Article 12 (2) of the Energy Charter Treaty:
Without prejudice to paragraph (1), an Investor of a Contracting Party

which, in any of the situations referred to in that paragraph, suffers a loss
in the Area of another Contracting Party resulting from (a) requisitioning
of its Investment or part thereof by the latter’s forces or authorities; or
(b) destruction of its Investment or part thereof by the latter’s forces or
authorities, which was not required by the necessity of the situation, shall
be accorded restitution or compensation which in either case shall be
prompt, adequate and effective.
82
ibid 720.
83
ibid 705; LESI SpA and ASTALDI SpA v People’s Democratic Republic of Algeria,
ICSID Case No ARB/05/3, Award of 12 November 2008, para 174.
84
Pérez-Aznar (n 81) 715.
85
Schreuer (n 5) 13–16.
86
ibid 13.
Thus, the obligation of a State to pay compensation in the case of requisition-
ing of investment or part thereof is independent of military necessity; in contrast,
compensation for destruction is due only if the forces acted in excess of military
necessity.87 Collateral damage caused by armed forces acting in a situation of a
military necessity, in compliance with international humanitarian law, could not
be a basis for a claim of compensation. It is worth noting that extended war
clauses subject the investor’s right to restitution or compensation to a number of
stringent requirements.88
Extended war clause, due to encompassing a Hull formula of compensation,
differs from the practice of international humanitarian law at least in fixation of
providing a prompt compensation. Considering rules of compensation for dam-
ages caused in course of the armed conflict the Eritrea-Ethiopia Claims
Commission stated that:
. . . the basic international rules regulating expropriation nevertheless

continue to apply. Where aliens’ property is taken for State purposes in
wartime, the obligation to provide full compensation continues to oper-
ate, even if the payment of that compensation may be delayed by the
interruption of economic relations between belligerents.89
For a merely theoretical purpose, it must be noted that formally the wording
‘the payment of that compensation may be delayed’ is accompanied by the
objective condition of ‘the interruption of economic relations between belliger-
ents’; consequently, like in a normal nonemergency state of facts compensation
shall be prompt as far as it objectively can be paid without any extra-expenses to
a host State due to objective reasons. The situation of an armed conflict does not
presume the existence of such objective reasons, but it is a trigger to more
detailed and scrutiny analysis as to a potential existence of them in regards to
promptness of compensation.
Finally, an investment treaty may contain a general ‘emergency’ or ‘security’
clause that reaffirms sovereign right of a State to take legal measures with aim of
maintenance normal security environment within (to maintain public order) and
beyond (to maintain or to restore international peace and security) borders of
the State.90 It is included in a treaty91 to prescribe that under the exceptional
87
ibid 14.
88
ibid 16.
89
EECC: Loss of Property in Ethiopia Owned by Non-Residents, Eritrea’s Claim 24:
2001, Partial Award of 19 December 2005, para 24.
90
Security clauses are incorporated in a number of BITs and multilateral investment
treaties (for example, Art 2102 of the NAFTA and Art 24(3) of the ECT).
91
Emergency clauses can be included in treaties outside of sphere of investments, for
instance Article XXI of GATT: ‘Nothing in this Agreement shall be construed . . .
(b) to prevent any contracting party from taking any action which it considers neces-
sary for the protection of its essential security interests
(i) relating to fissionable materials or the materials from which they are derived;
conditions set forth in the provision, the power of the host State to act in a lawful
manner is broader than during regular times.92 Security clause, ‘. . . if and for so
long as it applied, excluded the operation of the substantive provisions of the
BIT’.93 If a security clause applies, the investor is deprived of the BIT’s protec-
tion and this would also exclude reliance on the treaty’s full protection and
security standard.94 However, treatment of investments by a State in a situation
of applicability of a security clause shall be legal as far as it corresponds to the
standard more favorable that is provided in international humanitarian law.
To this day discussion and practice of application of security clauses refer only
to the situation of alleged economic emergency95 where it is relevant general
international law but not the humanitarian part of it. In cases of armed conflicts
international humanitarian law as lex specialis provides with some restrictions on
the discretionary power of a State. Therefore, it could be straightly observed
that ‘. . . general rules of international law will serve as the floor of the degree of
protection, possibly modified in favor of a higher degree of protection’96 by a
special protectoral clause in a BIT.
Thus, the special clauses of BITs are special provisions in relation to provi-
sions of international humanitarian law and frame legal regulation in a state of
armed conflicts. Where nondiscrimination and ‘extended war’ clauses increase
the level of foreign investment protection through providing additional guaran-
tees to investors, security clause extends a State’s power to act in appropriate
manner if a situation demands. Whether nondiscriminatory, ‘extended war’ or
security clause is incorporated in a BIT it does not contradict to provisions of (or
does not allow a State to act in contradiction to) international humanitarian law
but is additional to them.
(ii) relating to the traffic in arms, ammunition and implements of war and to such
traffic in other goods and materials as is carried on directly or indirectly for the
purpose of supplying a military establishment;
(iii) taken in time of war or other emergency in international relations;
or (c) to prevent any contracting party from taking any action in pursuance of its
obligations under the United Nations Charter for the maintenance of international
peace and security.’
For analysis of Art XXI of GATT see: JY Yoo and D Ahn, ‘Security Exceptions in
the WTO System: Bridgeor Bottle-Neck for Trade and Security?’ (2016) 19 J Int Econ
L 417.
92
R Dolzer, ‘Emergency Clauses in Investment Treaties: Four Versions’ in MH
Arsanjani and others (ed), Looking to the Future: Essays on International Law in
Honor of W. Michael Reisman Mahnoush H. Arsanjani . . . [et al.]. (Martinus
Nijhoff Publishers 2011) 708.
93
CMS Gas Transmission Company v The Republic of Argentina (n 79) para 146.
94
Schreuer (n 5) 17.
95
See, for instance, Dolzer (n 91); Pérez-Aznar (n 80).
96
Dolzer (n 92) 712.
3. Operation of the Regimes
The general international law provides with some principles, which are relevant
to the protection of investments during armed conflicts; in other words, ‘invest-
ment law draws from the same underlying principles that govern public inter-
national law . . .’.97 General principles fix algorithm of functioning of different
and sometimes opposed norms and in this way serve the purpose of integration
within system of international law; therefore, they cannot be ignored by inter-
national investment law. It is generally acknowledged that it is impossible to
understand legal rules applicable to international investments during an armed
conflict solely through considering the operation of standards commonly found
in the investment or other treaties, so understanding of framework provided by
general international law is essential.98 Though content of the regimes is quite
defined within international humanitarian law and international law on foreign
investments there is an evident necessity to consider issues of operation of these
regimes. In relation to operation of the regimes primary issues of general con-
cern are validity and scope of application of (investment) treaties during armed
conflicts.
Rules of international law of treaties have been designed through customary
practice and were fixed in 1969 Vienna Convention on the Law of Treaties,99 but
these rules provide only the general picture in this sphere. Moreover, 1969
Vienna Convention does not stipulate norms in relation to armed conflicts100
and by this feature is of little interest to the topic. But along with this the
International Law Commission of United Nations in 2010 has issued Draft
Articles on Effects of Armed Conflict on Treaties that can be seen as a continu-
ation of the Vienna Convention toward specific issues of armed conflict but
without obligatory nature and may be taken as reflecting the current state of
international law.101 It is worth noting that the provisions of Draft Articles apply
to both international and noninternational conflicts.102
The protection of investments is covered mainly by BITs, which provide sev-
eral protectoral clauses for foreign investments. Draft Articles offer a list of
treaties which continue to operate, in whole or in part, during armed conflicts;
the list includes ‘treaties of friendship, commerce and navigation and analogous
agreements concerning private rights’.103 Sure enough, BITs are covered by this
97
98
Cole (n 9) 63.
99
United Nations, Vienna Convention on the Law of Treaties, 23 May 1969, United
Nations, Treaty Series, vol 1155, 331.
100
Art 73 of the 1969 Vienna Convention states: ‘The provisions of the present
Convention shall not prejudge any question that may arise in regard to a treaty
from a succession of States or from the international responsibility of a State or
from the outbreak of hostilities between States.’
101
Schreuer (n 5) 3.
102
By considering definition of ‘armed conflict’ given in Art 2(b) of Draft Articles.
103
Annex to Draft Articles.
definition,104 but the wording ‘in whole or in part’ (in Draft Article 7 referring to
the indicative list) gives a burgeon to a thorny question: which part of a treaty
continues to operate and which is out of power? As a rule, a BIT through
embodiment in its text a special clause provides rules for determination of spe-
cial provisions applicable in peaceful time and in time of hostilities. If a BIT
does not embody this clause, it will continue to operate in whole during an
armed conflict due to a presumption of continuity of treaties: the outbreak of
an armed conflict does not ipso facto terminate or suspend the operation of
treaties.105 Additionally, according to Draft Article 10, termination or suspen-
sion of a treaty takes effect with respect to the treaty as a whole unless the treaty
contains clauses that are separable from the remainder of the treaty. In con-
junction with Draft Articles 3 and 11 it seems clear that presumption of con-
tinuity of treaties means continuity of treaties in whole. From this perspective,
‘. . . as a rule, treaties dealing with the protection of foreign investments, such as
bilateral investment treaties, continue to apply after the outbreak of armed
hostilities’.106
It is obviously that a State in an armed conflict can terminate or withdraw
from a treaty if it sees a performance of such treaty impossible or threatening
vital state’s interests; such phrasing specifies an armed conflict as a precondition
to terminate or withdraw from. According to Draft Article 9 a State can ter-
minate or withdraw from a treaty to which it is a party, or suspend the operation
of that treaty through notification to the other State party or States parties to the
treaty, or its depositary. From this point it is clear that formal, express action is
required from a State that seeks to rely on the outbreak of armed conflict so as
not to comply fully with its treaty obligations.107 Draft Articles 8–13 further
define the framework of termination and suspension of a treaty that seems to
be more general to the procedure but instructive in the assessment of a practical
situation. It is essential that Draft Article 10 stipulates that the termination or
the withdrawal from a treaty, or the suspension of its operation shall not impair
the duty of any State to fulfill any obligation embodied in the treaty to which it
would be subject under international law independently of that treaty. From this
perspective, a BIT that a State can terminate preconditioning by the existence of
armed conflict is irrespective and has no affects to the general rules of interna-
tional law in relation to armed conflicts, including rules for investments protec-
tion outside this BIT. Consequently, an armed conflict provides a State a right to
terminate or withdraw from or suspect a BIT through a formal procedure of
notification, which is accompanied by certain legal rules, but it can not affect
investment protection regime within general international law.
104
There is another approach to the issue that BITs remain in effect during an armed
conflict due to their categorization as ‘treaties concerning private rights’, which are
stipulated in the indicative list too, but the result of this consideration is the same:
Cole (n 9) 77–78.
105
Draft Art 3.
106
Schreuer (n 5) 5.
107
Importantly, that international treaty law as reflecting in Draft Articles gives a
little in relation to substantive provisions applicable in a time of armed conflicts;
otherwise, it directly defines procedural aspect of the issue. This is obviously true
for norms in regard to other aspects of existence of international treaty provi-
sions concerning foreign investments. Distinction based on the matter of regu-
lation is quite critical for understanding of treatment of foreign investments: law
of international treaties relates to applicability and relevance of regimes of for-
eign investment protection, international law on foreign investments in conjunc-
tion with humanitarian law regulates content of such regimes. In other words,
right of a State to act in some manner in relation to an investment is prescribed
in block of provisions within law on foreign investments and humanitarian law,
but its external criteria of application lay down outside these areas. Though
content of the right, its limitation and prerequisites of operation can be identi-
fied through the analysis of the relevant treaty provisions, conditions of appli-
cation of the treaty is prescribed in international law of treaties.
4. Conclusion
Treatment of foreign investments during armed conflicts presents a complex

question and must be construed through the conjunction of international hu-
manitarian law and international law on foreign investments. Though a BIT may
include special clause starting to operate in a time of an armed conflict the
general international law recognizes a priority of the rules of international hu-
manitarian law over international investment law (in this case humanitarian law
is considered as lex specialis). That means that in the case of contradiction a rule
of international humanitarian law prevails over a provision of a BIT unless it has
been directly constructed (by the embodiment in its text a special clause) to
operate in a time of an armed conflict. It is crucial for the principle of nondis-
crimination, embodied in number of BITs, and a special rule for treatment of
belligerent property, which prevail over the principle. As well as it is important
for the collision of norms in these areas in regard to confiscation and privatiza-
tion of private property in course of armed conflicts.
International humanitarian law as it is constructed by treaty practice provides
several regimes which are commonly based on the presumption that private
property cannot be confiscated by States. The most detailed is (i) the special
regime of treatment of private property (and foreign investments) in occupied
territory that provided a State with right to confiscate certain categories of
public and private property; it must be regarded as a sub-case of (ii) the
regime of treatment during an international armed conflict, which applies
both to the occupied territory and territory of belligerents. The first one con-
structed of the rules of the HR and IV Geneva Convention, the second—IV
Geneva Convention exclusively. The difference lies in the wording of Article 53
of the HR, which directly (that is opposite to implied right of a State in IV
Geneva Convention) gives power to a State to confiscate certain categories of
property. Consequently, legal analysis of confiscation on occupied territory will
be conducted through qualification of facts in light of Articles 53 or 43 (depend-
ing on justification of an action: public order and safety or use for military
operations), and qualification of confiscation on the belligerent territory other
than occupied will be provided through assessment of necessity as a result of war
(Article 27 of IV Geneva Convention). Notwithstanding that in theory these
terms seem similar, on practice they differ in results.
The other regime—(iii) one of treatment during the noninternational con-
flict—finds only its groundings in general international law. It bases widely on
the provisions of national legislation and of treaties outside the sphere of hu-
manitarian law. Obviously, that a State cannot confiscate private property (inter
alia in noninternational armed conflict) in a way that constitute the war crime of
seizing the enemy’s property, but further provisions of international humanitar-
ian law stay silent on this issue. In noninternational armed conflicts, where there
is no collision on the issue, BITs and other treaties frame the legality of treat-
ment of private property.
Obviously, some BITs encompass special clauses starting to operate during
armed conflict or emergency situations. They are (i) nondiscrimination, (ii) ‘ex-
tended war’ and (iii) security clauses. All they serve the aim to increase the
standards of treatment of foreign investments or to reaffirm the right belonging
to a party State to a BIT within general international law. Nondiscrimination
clauses concern merely the issue of compensation; their aim is to limit the op-
eration of several regimes in the relevant BIT to exclusively most-favored-
nation and/or national treatment. Extended war clauses give a special guaranty
of compensation irrelative to regimes incorporated in a BIT. These two cate-
gories of clauses can be invoked exclusively; it is impossible that investor can
invoke both the standard of full protection and security (which operates in time
of an armed conflict) and the clauses. Contrary to the mentioned case, security
clauses have an opposite legal nature—they are tools for enlargement (in com-
parison to the legal framework of a BIT in peace time) of the discretionary
power of a State during state of emergency (encompassing situations of armed
conflicts). Though generally the special clauses do not provide with the detailed
algorithm of functioning on the map they operate in conjunction with provisions
of international humanitarian law and do not contradict them.
Thus, four regimes of treatment of foreign investments during armed conflicts
could be crystallized: (i) the regime of the relevant BIT (that encompasses
nondiscrimination or extended war clauses);108 (ii) the regime of treatment in
occupied territory—it is generally formulated in terms of the HR; (iii) the gen-
eral regime of international armed conflicts, provisions of which can be found in
IV Geneva Convention; and (iv) the special regime of noninternational armed
conflict deriving from national law and the relevant BIT in its entirety. The
latter regime is wholly construed in terms of national legislation in case if the
108
Its applicability to noninternational armed conflicts depends on the wording of con-
crete clause.
relevant BIT has an emergency clause. Each of these regimes has the practical
difference and provides with certain level of safeguarding of investments.
Importantly that these regimes operate in terms of law on international trea-
ties. An armed conflict provides a State with a right to terminate or withdraw
from or suspect a BIT through a formal procedure of notification, which is
accompanied by certain legal rules, but it cannot affect investment protection
regime within general international law. Consequently, a State may opt to follow
provisions of the relevant BIT including the special clauses or to obey the inter-
national humanitarian law regimes exclusively. This point reflects a procedural
side of the treatment of foreign investments during armed conflicts and does not
affect content of the regimes. Some procedural issues of concern are stated in
other acts, but nevertheless have no effect on content of regimes. This is true for
international law of state responsibility and jus ad bellum, which are out of this
article and expect further research in relation to treatment of private property.

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Despite a wide range of progressive developments in modern international law

In current world armed conflicts, both noninternational and international, are an

* Ph.D. (Odessa), Lecturer at Department of International and Comparative Law at

in case of armed conflicts;6 Heather L. Bray described the interaction between

2. Right of a State to Confiscate Foreign Investment: Content and

Though taking of property (in terms of international humanitarian law—confis-

A. Where to Look into: Correlation of Rules of International Humanitarian

The vital question of investments protection in armed conflicts within interna-

there is a special rule for confiscation of property of belligerent party,15 which

investment treaties, prohibiting or conditioning expropriation). Therefore, the

Argumentation that I follows derives from the distinction of two different

If . . . obligations under international law existing at present or established

. . . the Council selected only some provisions of a recently concluded

generally39 and humanitarian law in particular40 and other rules of international

B. The Regimes in International Humanitarian Law

International humanitarian law derives from various sources of different nature,

investments protection during armed conflicts. Further, the HR stipulate excep-

. . . take possession of cash, funds, and realizable securities which are

The provision has found an interpretation in judicial practice:

. . . if, as a result of war action, a belligerent occupies territory of the ad-

The latter implicitly provides with the determination of borders of applicabil-

Additionally, Article 43 of the HR reads as follows:

of its obligations with respect to the maintenance or restoration of international peace

This wording reaffirms a presumption of continuality of operating the laws in

Under normal circumstances an occupant may not appropriate or seize

Interestingly that the cited case concerns a situation of occupation and it is

may be necessary as a result of the war’.54 In a different vein as to the regime

Thus, in case of confiscation of property on the occupied territory rules of the

[t]he Article . . . [38 of IV Geneva Convention] refers, then, to such

To this end, abovementioned provisions of the HR and IV Geneva

C. Special Rule: Treatment of Foreign Investors of the Belligerent Party

Notwithstanding that IV Geneva Convention directly prohibits any adverse distinc-

property and, contrary to protection of property of nationals, can be overlapped

D. International Investment Law in Situation of Armed Conflict

International investment law provides with a variety of standards, which may be

compensation for actions of a State toward foreign investments during armed

Importantly that a nondiscriminatory clause incorporated in a BIT increases

Party, and to investments of investors of another Party, non-discriminatory treatment

appears to be a lex specialis vis-à-vis other substantive provisions included in the

Without prejudice to paragraph (1), an Investor of a Contracting Party

Thus, the obligation of a State to pay compensation in the case of requisition-

. . . the basic international rules regulating expropriation nevertheless

3. Operation of the Regimes

Importantly, that international treaty law as reflecting in Draft Articles gives a

Treatment of foreign investments during armed conflicts presents a complex

property. Consequently, legal analysis of confiscation on occupied territory will

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