Bridging the Gap
- Frankfurt Investment and Economic Law series
Edited by Stephan W. Schill, Christian J. Tams and Rainer Hofmann
Chapter 11: Investment treaties and democratic transition: Does investment law authorize not to honor contracts concluded with undemocratic regimes?
In investment law, democratic transitions raise mainly two issues. The first, especially linked to violent transitions, is the request for compensation for some damages (destruction, theft, fire) due to the revolutionary events. The second is the revocation of contracts concluded by old regimes. Damages arising from revolution are governed by a special clause provided in many investment treaties that are called ‘clauses relating to the loss of investment owing to a natural phenomenon, civil disturbance, revolution or armed conflict.’ In Libya, the popular protests against long-term authoritarianism transformed themselves into a military conflict. Many foreign investors that lost their investment have considered possible indemnification claims for harm and loss owing to these violent events. In customary international law, it was asserted that the State is not responsible for damages that are owed to a popular revolution, natural catastrophe, war, national emergency and insurrection. Indeed, it has been observed that damage caused by such events are the result of either acts the State has found itself forced to carry out to ensure its own protection (wars and insurrection) or from events that are beyond human control (natural catastrophes). Consequently, these acts constitute an accidental event or a force majeure which cannot be attributed to the State. Investment treaties limit the scope of this non-liability rule. Bilateral investment treaties (BITs) contain specific provisions that address the consequences of armed conflict, state of emergency, revolution, insurrection, civil disturbance or similar events.
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