Critical Analysis of the Defence of Necessity in Investment Arbitration

Abstract

The defence of necessity was established as a customary international law rule to ensure a regulatory space for states in emergency situations. It is a general defence in international law. However, the degree of analysing the requirement for necessity varies between investment tribunals due to the defence framework’s nature in investment law, causing inconsistency in its application. This paper analyses the criteria of the necessity doctrine in light of Article 25 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts, 2001 and the investment treaties’ provisions (e.g., the United States of America and the Argentine Republic model investment treaty concerning the reciprocal encouragement and protection of investment), 1994, (US–Argentina model treaty). The interpretative criteria used by tribunals are analysed via investor–state disputes, ICSID cases and UNICITRAL decisions, and will explain the requirements’ loopholes in depth. The arbitral efforts to identify the necessity through several tests, ‘only way’ test, ‘proportionality test’ and ‘necessity assessment’—are examined to develop clear guidelines for promoting the defence function and how investment arbitrators have applied these mechanisms. Then, suggested permanent solutions to avoid conflict in applying the defence of necessity are evaluated, and recommendations to seek alternative defences that preclude state wrongfulness provided by international law commission draft articles (e.g., force majeure in particular) are compared to the defence of necessity to examine whether or not it could be invoked as a substitution.