The modern international law of necessity with and beyond economics: a response to Alan Sykes on investment treaty making and interpretation.

• Author: Desierto, Diane A.

1. CONTRACT V. TREATY 'NECESSITY': REGULATORY FLEXIBILITY AND MORAL HAZARD II. CONTROLLING COMPENSATION CONSEQUENCES OF NECESSITY IN INVESTMENT TREATIES III. LIMITS TO REINTERPRETING TREATY-BASED NECESSITY IV. CONCLUSION The evolution of the concepts used in a treaty does not necessarily imply that protection of general interests in the international community will be strengthened. (1)

   ... the interpretation of treaties is an art rather than a science ... the process of interpretation must begin and end with the actual text to be interpreted. (2)

   ... the international system makes law through multiple processes and in multiple settings ... The problem for the international lawyer in the short term is to develop a method for identifying and properly characterizing the different forms of law, identifying those fora in which one or the other is likely to be deemed dispositive, assessing the projected implementability of particular normative statements in different situations, and using the terms accurately and responsibly. (3)

1. CONTRACT V. TREATY 'NECESSITY': REGULATORY FLEXIBILITY AND MORAL HAZARD

   International treaties express binding sovereign decisions to regulate State conduct, in a manner that has some analogies (4) --but also "glaring institutional differences" (5) --with the pure system of private contract. Much like ordinary contracts, treaties seek to define the terms of performance of the States parties to these agreements, but treaties cannot fully anticipate every situation of deviance. Unlike ordinary contracts, however, treaties are concluded through the direct exercise of sovereign power, with States concluding such treaties undertaking to be internationally responsible to fellow State parties to a treaty, and in some instances, also to non-State parties. While an ordinary contract breach triggers a private cause of action for liability, a treaty breach gives rise to an international claim. In its Judgment on Jurisdiction in the Anglo-Iranian Oil Company case, the International Court of Justice pointedly stressed the strict differences between treaties concluded by States, and international or cross-border concession contracts concluded by governments and foreign corporations:

   The Court cannot accept the view that the contract signed between the Iranian Government and the Anglo-Persian Oil Company has a double character. It is nothing more than a concessionary contract between a government and a foreign corporation. The United Kingdom Government is not a party to the contract; there is no privity of contract between the Government of Iran and the Government of the United Kingdom. Under the contract the Iranian Government cannot claim from the United Kingdom Government any rights which it may claim from the Company, nor can it be called upon to perform towards the United Kingdom Government any obligations which it is bound to perform towards the Company. The document bearing the signatures of the representatives of the Iranian Government and the Company has a single purpose: the purpose of regulating the relations between that Government and the Company in regard to the concession. It does not regulate in any way the relations between the two Governments. (6) There are thus some conceptual limits to how far we can analogize contractual privity and contractual remedies to reshape our understanding of sovereign political authority and how this authority, in turn, informs the parameters of State conduct described in the design and interpretation of treaties. (7) There are limits to how far we can successfully and effectively extract and transpose the practical experiences and interpretive mandates of regime-specific centralized institutions that regularly navigate public policy and private interest tensions, such as in World Trade Organization (WTO) law, into another regime's atomized hybridity of treaties and disperse constellation of enforcement and compliance mechanisms (such as in international investment law). (8) These limits do not, however, rob private law or contract law analogies of analytical value when one assesses the continuing development of 'postmodern' international law, (9) particularly vivid in the hybrid public-private domain of foreign investment contracts and their complex relationship with bilateral or regional investment treaties. (10) International investment law--as created from the exploding mass of cross-border investment treaties, foreign investment contracts, national legislation, and investor-State arbitral jurisprudence harnessing multiple sources of international law and domestic law--admittedly generates many complex intersections between the law of contract and the law of treaties. (11) It is in this light that one vastly appreciates Professor Alan Sykes' Economic 'Necessity' in International Law, (12) which contributes to sovereign treaty makers' rational design and ongoing reform of international economic treaty language in a manner that would enable States to adjust and respond to economic emergencies without incurring the exorbitant costs of foreign investor compensation.

   At the same time, however, it is also important to draw some caveats as to how far international adjudicators could realistically apply Professor Sykes' prescriptions ex post, particularly to pre-existing or current investment treaties that do not possess the linguistic elasticity that could enable Professor Sykes' proposed a priori interpretation of necessity clauses in these treaties. (13) As I have shown elsewhere, the doctrinal genealogy of the international law of necessity--the Janus counterpart of the theory of international obligation (14) --reveals frequent oscillations in language and meaning throughout State practice and treaty usage, with the classical form of necessity often invoked to enable sovereigns to repudiate any international responsibility. (15) To deliberately veer away from this classical understanding of the international law of necessity as a broad, self-judging, and overriding exception in international law, the International Law Commission (ILC) deliberately placed such stringent conditions to its use only as a circumstance precluding wrongfulness under Article 25 of the Articles of State Responsibility, entitling States invoking this circumstance to temporarily suspend (and not reject) their performance of international obligations. (16) The International Court of Justice also supported this restrictive codification, with the Court declaring in its 1997 Judgment in the Gabcikovo-Nagymaros case that the ILC formulation is "reflective] of customary law." (17) It is quite understandable that the United Nations' principal judicial organ (the International Court of Justice) (18) restricted its acceptance of the international law of necessity based on the recommendations of the U.N. General Assembly's designated research and international law codification body (the ILC),19 as a mere circumstance precluding wrongfulness and not an overriding exception, when one considers that the international law of necessity gained so much of its currently stringent doctrinal contours from States' historically repeated attempts to excuse, justify, or mitigate treaty breaches. (20) The modern international system created under the United Nations Charter purposely rejected any unfettered meaning of sovereignty that enshrines any State's unlimited authority to act in the international sphere without regard to its responsibility to the international community of States. (21) A broad and self-judged international legal doctrine of necessity, if left untamed and unrestrained, could easily justify --if not incentivize--any State to take internationally irresponsible unilateral actions that violate duties of general cooperation mandated under the Charter. (22)

   At its doctrinal baseline, therefore, the postmodern international law on necessity should be seen to operate restrictively only as a 'safety valve' (23) mechanism that enables States to avail of a temporary respite from performing their international obligations. At the same time, however, there is nothing that prevents States from designing a necessity provision in a treaty that operates well beyond this baseline to enlarge the space for justified treaty noncompliance by States. When treaty parties assert that such a broader necessity provision is provided for in a treaty, it behooves international tribunals tasked with evaluating the asserted broader interpretation, to examine the actual nature of the treaty text and context, as well as discern the systemic policy implications to treaty regime participants if such broader exculpatory consequences are read into any alleged treaty-defined necessity clause, in a manner that supposedly creates for any State party to the treaty an a priori overriding exception against the institutionalized web of obligations and rights contemplated in these specialized treaty regimes. (24)

   Any more expansive reading of the international law of necessity stands to undermine the cornerstone international legal principle of pacta sunt servanda, (25) where States' duties to perform treaty obligations in good faith also includes a heavy presumption against the existence of any right of unilateral termination of a treaty. (26) Unlike domestic jurisdictions operating with more vertical enforcement systems, the operation of international law under a more ambiguity-laden "horizontal legal order" (27) with a very decentralized enforcement system inevitably lends itself to incidents of State noncompliance with international law. (28) Because a much broader scope to the postmodern international law of necessity inherently escalates the ambiguity and indeterminacy of treaty obligations, authoritative decision-makers and treaty appliers in international law should be deemed--as part of their international duty to give a decision in all circumstances avoiding a non liquet in international law (29)--to also...