Ukraine conflict: investment protection and armed conflict | Morgana Lewis

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 THE 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 de facto change control over a territory, there is precedent that the state taking control must apply its existing treaty obligations also 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 has rejected Russia’s annulment request and confirmed that Ukrainian investments in Crimea are now protected under the Russia-Ukraine BIT thanks to the de facto change 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 In addition, there are several unpublished decisions confirming jurisdiction in arbitrations against Russia over Ukrainian investments in Crimea under the Russia-Ukraine BIT in cases Belbek Airport,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 domain, and Lugzor.

POTENTIAL TRENDS FOR INVESTMENT APPLICATIONS

After a State has acquired de facto control over 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 Charter of the United Nations.

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 succession in treaties). 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 the control itself can already be considered as a measure, for example if this change leads to exposing the investor to sanctions as on the 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.

CONFLICT IN UKRAINE: HOW TO MAINTAIN GLOBAL BUSINESS CONTINUITY

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