Conflict in Ukraine: investment protection and armed conflict

Although international humanitarian law (ius in bello) also protects personal property, it is only applicable at the state-to-state level. International investment law, however, provides for direct recourse by the investor against the host state and can therefore be a powerful and effective means of protecting investments during and after armed conflict.

Investment treaties protect against expropriation, physical aggression (total protection and security), discrimination and unfair treatment.

Investment treaties apply during armed conflicts

Like any treaty, investment treaties apply regardless of armed conflict.

However, some protections do not fully apply. Several treaties contain “war clauses” limiting investment protection during armed conflict to non-discrimination. Others contain more extensive clauses. Article 12(2) of the Multilateral Energy Charter Treaty, for example, provides that losses of foreign investors resulting from requisition or destruction during armed conflict shall be compensated promptly, adequately and effectively. .

Investment treaties can also protect against powers of occupation

Traditionally, investment treaties apply to the host state, ie the state in which the investor initially invested. However, if an armed conflict results in a change of de facto control over a territory, there is precedent that the state taking control must also apply its existing treaty obligations to investors in the acquired territory.

This has been confirmed in several arbitrations initiated by Ukrainian nationals against the Russian Federation regarding investments in Crimea. In Ukrafta et al., the tribunal upheld its jurisdiction over Ukrainian investments in Crimea under the Russian-Ukrainian Bilateral Investment Treaty (BIT). The Swiss Federal Supreme Court rejected Russia’s annulment request and confirmed that Ukrainian investments in Crimea were now protected under the Russia-Ukraine BIT thanks to the de facto change of control. In addition, there are several unpublished decisions confirming jurisdiction in arbitrations against Russia over Ukrainian investments in Crimea under the Russia-Ukraine BIT in cases Belbek Airport, Private bank, Everest domainand Lugzor.

Potential templates for investment requests

Once a state has acquired de facto control of a territory, it must treat investors of foreign nationality in accordance with its own treaty obligations. As confirmed in the Crimean cases mentioned above, the territorial application of the occupying state’s investment treaties is extended to the occupied territory, regardless of the illegality of the occupation under the UN Charter.

It can also be argued that the occupying state becomes bound by the treaty investment obligations of the occupied state towards investors from third states (de facto treaty succession). This could apply, for example, to the Energy Charter Treaty of which Ukraine is a member.

An open question is whether the de facto change of control itself can already be considered a measure – for example, whether this change leads the investor to expose himself to sanctions like on SWIFT. Another open question is also whether, after the establishment of control, investors can enforce rights for measures adopted before the establishment of control.

Investment treaties and sanctions

Arbitration under an investment treaty can also be used to challenge the legality of sanctions.

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