ICSID Review, Vol. 37, No. 1-2 (2022), pp.

552–557
doi: https://doi.org/10.1093/icsidreview/siab033
Published Advance Access 23 December 2021 WINTER/SPRING 2022

SPECIAL ISSUE ON

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20TH ANNIVERSARY OF ARSIWA
CASE COMMENT
Unión Fenosa Gas v Egypt: The Necessity
Defense: Much Ado about Nothing?1
Sarah Cassella2

I. INTRODUCTION
In an award dated 31 August 2018 (Award), the Tribunal in the case Unión Fenosa
Gas v Egypt found that Egypt violated its obligations towards an investor under the
fair and equitable treatment (FET) standard of the bilateral investment treaty (BIT)
concluded between Spain and Egypt, on the basis of the breach of the Claimant’s
legitimate expectations in regard to an undertaking of the Respondent in a letter
from its Ministry of Petroleum. The Tribunal granted compensation for the damage
caused to the Claimant. In recognizing Egypt’s liability under the BIT, the Tribunal
dismissed its submission based on the customary necessity defense as codified by
the International Law Commission (ILC). The conditions of implementation of this
circumstance precluding wrongfulness have been extensively examined in recent
years by several tribunals3 that have reached very different positions. The reasoning
in the Award, at times rather unclear, may not in the end elucidate this much-
debated defense. This case comment will focus on this issue (Section IV), after a re-
view of the background to the dispute (Section II) and of the main findings in the
Award (Section III).

II. BACKGROUND TO THE DISPUTE

Unión Fenosa Gas (UFG), a company incorporated under the laws of Spain, made
an investment in the Damietta natural gas liquefaction plant in the northeast of
Egypt, consisting in the liquefaction, shipping, regasification and commercialization
of natural gas. Since the Damietta plant’s entry into service in 2006, the company
had never received the total amount of natural gas supply contractually agreed, this
1
Unión Fenosa Gas, SA v Arab Republic of Egypt, ICSID Case No ARB/14/4, Award (31 August 2018) (Unión Fenosa
Gas v Egypt) (VV Veeder, President; J William Rowley; Mark Clodfelter).
2
Professor of International Law, Le Mans Université, France. Email: sarah.cassella@univ-lemans.fr.
3
Mainly in the ‘Argentinian litigation’ which followed the adoption by Argentina of large-scale economic measures
in the face of a severe economic crisis in the early 2000s (see Section IV).

C The Author(s) 2021. Published by Oxford University Press on behalf of ICSID. All rights reserved.
V
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 Unión Fenosa Gas v Egypt 553

situation ultimately resulting in the plant’s complete shutdown.4 This shortage in

the plant’s gas supply was caused both by the insufficient production of natural
gas compared with demand and by the reaction of Egypt, which discriminated
between users by giving priority to local demand, thus curtailing and finally cutting

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the supply of the plant.5 The Claimant alleged that Egypt had breached its
substantive obligations under the BIT through several acts and omissions leading to
the final damage.

III. THE DECISION

The Tribunal found that Egypt had violated its obligations towards UFG under the
FET standard of article 4(1) of the Spain—Egypt BIT, which entered into force on
26 April 1994.6 The legal cause of this breach lies in the frustration of legitimate
expectations of the investor resulting from an undertaking made by the Egyptian
Ministry of Petroleum in a letter dated 5 August 2000. In that letter, the Minister
indicated that Egypt would not interfere with UFG’s rights concerning the Damietta
plant’s natural gas supply. These rights resulted from the Natural Gas Sale and
Purchase Agreement concluded between UFG and the Egyptian General Petroleum
Corporation (EGPC). The Tribunal did not find, however, that possible contractual
breaches by the two companies (the Egyptian natural gas holding company and
EGPC) providing gas supply to UFG could be attributed to Egypt according to the
International Law Commission’s Articles on the Responsibility of States for
Internationally Wrongful Acts (ARSIWA).7
The Tribunal identified two gas shortage phases relevant to analyzing the allegedly
wrongful acts.8 The first phase of gas shortage, from 2010 to 2013, was caused by
Egypt’s own long-term energy policies and choices, among which was the allocation
of subsidies to domestic users of gas and electricity—including industries—and the
failure effectively to encourage further exploration of gas resources. The Tribunal
considered that in so doing Egypt had frustrated the legitimate expectations of the in-
vestor resulting from the Minister of Petroleum’s undertaking not to interfere with
gas supply. Facing the second phase of gas shortage, which started in 2013, Egypt’s
policy consisted in discrimination between users of gas by giving priority to some of
them. This policy led to the limitation and finally to the cutting of the Damietta
plant’s supply. This decision to discriminate against the Claimant’s plant amounted
to another breach of the FET standard that could not be excused under force majeure.
Egypt argued that the alleged wrongfulness of its conduct towards the Claimant
was precluded by the state of necessity caused by the revolution that had started in
2011, in the wake of the Arab spring. The Claimant, on the contrary, considered that
none of the conditions required in order to support the necessity defense had been
fulfilled. The Tribunal dismissed Egypt’s submissions concerning a possible defense

4
Unión Fenosa Gas v Egypt (n 1) para 5.143ff.
5
ibid para 9.130 ff.
6
ibid paras 9.155–9.158.
7
International Law Commission (ILC), ‘Articles on Responsibility of States for Internationally Wrongful Acts’, UN
Doc A/56/83 (2001) (ARSIWA). It is worth noting that in another case the Tribunal came to the opposite conclusion,
considering EGPC an organ of the Egyptian State within the meaning of ARSIWA art 4. Ampal-American Israel
Corporation and others v Arab Republic of Egypt, ICSID Case No ARB/12/11, Decision on Liability and Heads of Loss
(21 February 2017) para 138.
8
Unión Fenosa Gas v Egypt (n 1) para 9.126ff.
554 ICSID Review VOL. 37 1-2

based on a state of necessity as provided by article 25 of the ARSIWA.9 It held that

the State did not take the above measures as the only way to safeguard its essential
interests while facing a grave and imminent peril. The following comments will focus
on this specific issue.

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IV. COMMENTS
Although the BIT between Spain and Egypt did not contain a safeguard clause,10
both parties agreed on the fact that the ARSIWA reflected well-established customary
rules on State responsibility applicable to the relationship between States and
foreign investors.11 By accepting that the customary international law state of
necessity defense could apply in the absence of a specific conventional clause,
the Tribunal followed the mainstream arbitral case law on this issue.12 Indeed, the
majority of arbitral awards have decided that the absence of a specific clause in an
investment treaty governing situations of necessity will not prevent a party from invok-
ing the customary necessity defense, since it is not always possible to deduce from the
parties’ silence in an investment treaty a common will to exclude such a defense.
Egypt had invoked a state of necessity as a means of precluding its responsibility if
the Tribunal identified an internationally wrongful act attributable to it.13 This
is consistent with the treatment of necessity in the ARSIWA. Indeed, according to
article 25 of the ARSIWA,14 the ILC has conceived of a state of necessity as a circum-
stance precluding wrongfulness. This means that it operates as an excuse only if a
violation of an international obligation has first been determined.15 However, in
analyzing Egypt’s submission, the Tribunal turned first to the examination of the
necessity defense before even considering the merits of the case.16 It admitted that it
had first of all to refer to the ‘alleged breach’17 of article 4 of the BIT—and thus to
presume it while it had not ruled on this issue yet—because of Egypt’s interference
with the supply of natural gas to the Damietta plant. This inverted enquiry had sub-
stantive consequences. If the Tribunal had logically first looked for the international-
ly wrongful act of Egypt, it would have been evident that the necessity defense did
not fit the situation at all. Instead, the necessity plea was just an attempt to conceal
9
ibid para 8.62.
10
An example can be found in art XI of the Treaty between United States of America and the Argentine Republic
concerning the Reciprocal Encouragement and Protection of Investment (signed 14 November 1991, entered into force
20 October 1994): ‘This Treaty shall not preclude the application by either Party of measures necessary for the mainten-
ance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international
peace or security, or the Protection of its own essential security interests.’
11
Unión Fenosa Gas v Egypt (n 1) para 8.4. See also Enron Corporation and Ponderosa Assets, LP v Argentine Republic,
ICSID Case No ARB/01/3, Award (22 May 2007) para 303.
12
See Impregilo SpA v Argentina, ICSID Case No ARB/07/17, Award (21 June 2011) and EDF International SA,
SAUR International SA and León Participaciones Argentinas SA v Argentine Republic, ICSID Case No ARB/03/23, Award
(11 June 2012). For the contrary view, see BG Group Plc v The Republic of Argentina, UNCITRAL, Final Award (24
December 2007).
13
Unión Fenosa Gas v Egypt (n 1) para 8.5.
14
‘1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity
with an international obligation of that State unless the act:
(a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and
(b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the
international community as a whole.
2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:
(a) the international obligation in question excludes the possibility of invoking necessity; or
(b) the State has contributed to the situation of necessity.’ ARSIWA (n 7) art 25
15
Unión Fenosa Gas v Egypt (n 1) para 8.23.
16
Its justification is rather circular and unpersuasive: ibid para 8.37.
17
ibid para 8.39.
 Unión Fenosa Gas v Egypt 555

the true causes of the natural gas shortage in the country, which was revealed by the
timing of the necessity measures that did not correspond to the period of unrest
due to the revolution. The Tribunal, which stressed that ‘interference began before
2010 (i.e. before the Global Financial Crisis and the Egyptian revolution) [and] has

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continued to the present day’,18 would thus have easily dismissed this claim. But, by
starting its analysis by considering the state of necessity plea, the Tribunal’s reasoning
became confused. While it tried to refer to several cases that dealt with the necessity
defense in the context of the ‘Argentinian litigation’, this award at best does not shed
any light on some crucial conditions for the application of the necessity defense and
will not be of any guidance in future litigation.

A. Grave and Imminent Peril

Egypt argued that the civil unrest linked to the revolution in the context of the ‘Arab
spring’ since 2011 led to a sudden drop in natural gas supply in the country. The
Tribunal acknowledged the seriousness of Egypt’s situation,19 necessity stemming
from a revolution or civil unrest being largely admitted in international law as a source
of imminent danger for States.20 The peril feared by Egypt was the risk of total and
repeated blackouts because of the gas shortage. The Tribunal stated that this peril did
not appear with the revolution but long before it, disruptions in the gas supply to the
investor’s plant having begun in 2006.21 This was enough to reject the causal link be-
tween the revolution and the peril. The Tribunal found the ‘proximate cause’ of the
gas shortage to be ‘the Respondent’s long-standing policies as to the development of
gas deposits, electrical power generation, the national grid and the preferential use of
gas for users and consumers in Egypt’.22 This assertion should have been sufficient in
order to dismiss the necessity plea under article 25(2)(b) of the ARSIWA, according
to which necessity may not be invoked if ‘the State has contributed to the situation of
necessity’. However—and again surprisingly—the Tribunal continued to review the
conditions of this defense and turned only at the end of its reasoning to assess the po-
tential contribution by the State to the situation of necessity. In assessing the existence
of a grave and imminent peril, the Tribunal also referred several times to the global fi-
nancial crisis23 as a possible cause of Egypt’s situation of necessity. While it finally dis-
carded this situation because of the bad timing, it is worth noting that Egypt did not
even try to base its defense on this circumstance.

B. Essential Interest
Having decided that the situation of necessity invoked by Egypt did not fit with the
facts of the case, the Tribunal should not have examined the other conditions of the
defense.24 Nevertheless, the Tribunal also assessed whether there was a threat to
18
ibid para 8.40. See also Saur International SA v Argentina, ICSID Case No ARB/04/4, Decision on Jurisdiction and
Liability (6 June 2012), in which the claim was rejected because the ‘necessity measures’ were used after the end of the
necessity situation.
19
Unión Fenosa Gas v Egypt (n 1) para 8.45.
20
See, for instance, Lawless v Ireland (1961) Series A no 3 (ECtHR, 1 July 1961).
21
Unión Fenosa Gas v Egypt (n 1) para 8.43.
22
ibid para 8.45.
23
See, for instance, ibid para 8.57.
24
A similar situation was examined in another case in which none of the conditions of the necessity defense was pre-
sent, Zimbabwe having itself caused the civil unrest that supposedly constituted the necessity situation that it had faced:
Bernhard von Pezold and others v Republic of Zimbabwe, ICSID Case No ARB/10/15, Award (28 July 2015).
556 ICSID Review VOL. 37 1-2

Egypt’s essential interests due to the crisis invoked. Egypt cited a series of awards
relating to the Argentinian crisis in order to reinforce its arguments on the peril faced
by its essential interests. It contended that the maintenance of public order was
threatened and, more precisely, it highlighted the importance of being able to keep

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its basic services such as energy supply to the population. Argentina’s essential
interests as recognized in several awards also included the maintenance of its main
public services.25 By altering Egypt’s argumentation, the Tribunal considered that its
imperiled essential interest was not the maintenance of public order—which Egypt
never argued in this case—but the supply of natural gas.26

C. The Only Way to Safeguard Essential Interest

Following the rationale of article 25, the adjudicator has to examine whether the ne-
cessity measure was the ‘only way’ of safeguarding an essential interest of the State
only after having established the existence of a necessity situation consisting of a
grave and imminent peril for this interest. Persisting in its illogical review, the
Tribunal here examined this condition in conjunction with the existence of the neces-
sity situation. Relying on the ad hoc Committee’s ruling in Enron v Argentina,27 Egypt
contended that the prioritization of supply of domestic electricity and gas was the
only way to avoid massive blackouts, meaning there was no alternative reasonable
measure that was as efficient but less harmful than the one used by the State. The
Tribunal rejected this claim by considering the difference of treatment between the
Damietta plant and other users, which had no reasonable justification.28 This reason-
ing did not properly refer to the ‘only way’ condition but to the prima facie adequacy
of the necessity measure with the goal pursued by the State: the prioritization did not
seem appropriate here because it just did not fit the goal asserted by Egypt, ie the
avoidance of major blackouts.29

D. Absence of Substantial Contribution to the Occurrence of the Necessity

Situation
Egypt asserted that the main cause of the shortage was the revolution, such that there
was no contribution on its part to the necessity situation. Indeed, several tribunals
that dealt with the Argentinian litigation recognized that only a substantial contribu-
tion can prevent a State from using the necessity defense, because most of the time
situations of necessity have both exogenous and endogenous causes.30 In this case
the Tribunal followed the same trend by looking for a significant contribution by
Egypt to the revolution and, curiously, to the global financial crisis of 2007–08. The

25
See LG&E Energy Corp, LG&E Capital Corp and LG&E International Inc v Argentine Republic, ICSID Case No
ARB/02/1, Decision on Liability (3 October 2006).
26
Unión Fenosa Gas v Egypt (n 1) para 8.49.
26
Unión Fenosa Gas v Egypt (n 1) para 8.49.
27
Enron Creditors Recovery Corp and Ponderosa Assets, LP v Argentine Republic, ICSID Case No ARB/01/3, Decision
on the Application for Annulment (30 July 2010).
28
Unión Fenosa Gas v Egypt (n 1) para 8.46.
29
On the issues of adequacy and discrimination, see Libyan Arab Foreign Investment Company (LAFICO) v Republic of
Burundi, Award (1991) 96 ILR 279. See also Sarah Cassella, La nécessité en droit international. De l’état de nécessité aux sit-
uations de nécessité (Martinus Nijhoff Publishers 2011) 309–37.
30
See, for instance, LG&E v Argentine Republic (n 25) para 257 and Urbaser SA and Consorcio de Aguas Bilbao
Bizkaia, Bilbao Biskaia Ur Partzuergoa v Argentine Republic, ICSID Case No ARB/07/26, Award (8 December 2016)
para 710. For the contrary view, see Enron v Argentina (n 11) para 312.
 Unión Fenosa Gas v Egypt 557

Tribunal passed very quickly on this issue by implying that this condition would not
probably have been an obstacle to Egypt’s necessity defense, because this State ‘did
not subjectively intend that social unrest should take place [and] did not cause or
foresee the consequences of the Global Financial Crisis’.31 However, in the end the

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Tribunal did not find it necessary to rule on this issue. This finding leads to several
comments. First, the review of this condition was indeed perfectly superfluous at the
end of the reasoning of the Tribunal, the absence of the situation of necessity having
already been established. Secondly, the reference to what Egypt ‘subjectively’
intended is not clearly understandable, nor is the fact of referring to the revolution
and the financial crisis while it had already been established that these events were
not directly linked to the peril faced by Egypt’s essential interests. Thirdly, the con-
clusion is at odds with the Tribunal’s demonstration of the precise contribution of
Egypt’s longstanding decisions and policy to the occurrence of the gas shortage
situation. The Tribunal found that since the 1990s Egypt had subsidized domestic
users of gas and electricity although it had never effectively encouraged the finding of
new gas deposits. The imbalance between the demand for and supply of gas had thus
been caused by the State’s bad political choices.32 How can these statements possibly
not amount to a ‘substantial contribution’ to the gas shortage situation faced
by Egypt?
The central point of the Tribunal’s review of Egypt’s necessity defense lies in
the recognition of two ‘timing issues’: the shortage of gas supply endured by UFG
clearly preceded the beginning of the revolution and persisted long after its end in
2015. This assertion perfectly demonstrates the absence of the necessity situation as
submitted by Egypt and renders superfluous the examination of the other conditions
of article 25 of the ARSIWA. Although the case law on the implementation of the
necessity defense is not yet clearly settled and, on the contrary, is rather fragmented,
this case shows that for the sake of clarity and coherence of the reasoning it would be
better to quickly dismiss the submission when it is plainly not suitable for the
situation.

31
Unión Fenosa Gas v Egypt (n 1) para 8.61.
32
ibid paras 8.50–8.57.