Is the People’s Good the Highest Law? The Concept of Necessity in Investor-State Protections

Introduction

In April 2020, the Swedish telecommunications agency invited network operators to participate in a 5G network auction. The tender documents required bidders not to use equipment provided by the Chinese telecommunications giant Huawei. In excluding Huawei equipment from its 5G network, Sweden joined a long line of other nations.^[2] In each case, the stated reason for the ban was the same: that allowing the Chinese company to build national communication networks would imperil national security by giving the Chinese state a back door into those networks. These concerns were heightened by China’s 2017 National Intelligence Law, which requires Chinese companies to cooperate with the state in national intelligence work. But Huawei has a different perspective: it sees the actions of Western governments as an attempt to stifle competition as part of a broader pushback against increasing Chinese economic power and political influence.

It is not surprising, therefore, that Huawei has deployed investment claims, and the threat of such claims, as part of its response to these bans. On 7 January 2022, Huawei issued a request for arbitration under the China–Sweden bilateral investment treaty (BIT) alleging that Swedish policy was ‘blatantly discriminatory’ and a breach of the treaty’s fair and equitable treatment standard, and represented an expropriation of Huawei’s investments.^[3] Huawei has also issued a notice of dispute against the United Kingdom and the Czech Republic.^[4]

Huawei’s troubles illustrate the challenges facing the investment regime. The dramatic growth in investment disputes during the past 30 years was against the backdrop of ever-increasing globalisation. However contested its effects, the fact that the world was growing ever more interconnected was, until recently, largely taken as a given. This belief formed a core part of the ideological underpinnings of the investment regime but it is now becoming increasingly clear that the tide runs swiftly in the opposite direction. Rising powers challenge the old norms-based international order and states increasingly intervene in trade and economics to protect their national interests and to further political, social and economic goals. Against this backdrop, it is not surprising that states are willing to invoke alleged national security interests to justify increased economic interventions.^[5]

This chapter focuses on the legal status of such interventions. In particular, it considers the customary international law defence of necessity (the necessity defence), under which states may provide an excuse or justification for their actions on the basis that they are necessary to safeguard an essential interest. It also considers the relationship of that rule of customary international law with specific treaty provisions in investment treaties permitting states to take measures to protect their essential security interests clauses (ESI clauses).

Origins and nature of necessity defence in customary international law

States have long invoked (and abused) the defence of necessity. In 1837, in the ‘Caroline Affair’, pro-independence Canadian rebels fleeing British forces took refuge in US territory. In response, British forces entered US territory and attacked a ship owned by US citizens that was carrying the rebels. Faced with US protests, Britain justified its conduct on grounds of necessity. However, the United States contended that such a defence would only be engaged where the ‘necessity of self-defence was instant, overwhelming, leaving no choice of means and no moment of deliberation’.^[6]

Before the Second World War, states invoked necessity as a justification for the issue of prohibitions on seal hunting to prevent the imminent extinction of a seal population (as in the Russian Fur Seals dispute^[7]), as a justification (albeit unsuccessfully) for non-payment of the Ottoman Empire’s sovereign debt to Russia (in the Russian Indemnities case^[8]) and as a justification for non-payment of arbitral awards (in Société Commerciale de Belgique^[9]), among other invocations of the principle.

Notably, the necessity defence was famously abused by Germany to justify its occupation of Belgium and Luxembourg during the First World War and Belgium, Luxembourg, Denmark, Norway and the Netherlands during the Second World War.^[10] As noted by James Crawford in his treatise on state responsibility, other instances of abuse include ‘the annexations of Krakow by Austria (1846), of Rome by Italy (1870), of Bosnia-Herzegovina by Austria-Hungary (1908) and of Ethiopia by Italy (1936), and Japan’s occupation of Korea in the Russo-Japanese War (1904–5)’.^[11]

The customary international law on necessity is embodied in Article 25 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (the Draft Articles), which provides that:

1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:
   1. is the only way for the State to safeguard an essential interest against a grave and imminent peril; and
   2. does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.
2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:
   1. the international obligation in question excludes the possibility of invoking necessity; or
   2. the State has contributed to the situation of necessity.^[12]

The International Court of Justice (ICJ) has held necessity, as formulated in an earlier version of the Draft Articles, to be a defence recognised in customary international law.^[13] Equally, investment tribunals have treated the Draft Articles as reflecting the state of customary international law in relation to the necessity defence.^[14]

The International Law Commission made clear that it considered that the defence of necessity should only be invoked to preclude international wrongfulness in exceptional circumstances. For this reason, it adopted a ‘negative’ formulation of the defence (rather than the positive formulation in cases of other circumstances precluding wrongfulness, such as consent, self-defence and counter­measures^[15]), intended to show that this was an exceptional defence and ‘one more rarely admissible than is the case with the other circumstances precluding wrongfulness’.^[16] That negative formulation mirrors the language of Article 62 of the Vienna Convention on the Law of Treaties dealing with the termination of treaties for fundamental change of circumstances.^[17]

Although the effect of the necessity defence can be either an excuse^[18] or a justification, investment arbitration tribunals have largely considered it as a justification.^[19]

Application of necessity defence

It should be recalled that the Draft Articles are intended to be a reflection of customary international law. They are not a treaty and should not be subjected to a process of semantic interpretation. However, in practice, the requirements of Article 25 can be distilled into the following elements, which must be demonstrated by the invoking state:

• the measures must be to safeguard an ‘essential interest’ of the state;
• they must be the only way of safeguarding that interest;
• the measures must address a ‘grave and imminent peril’; and
• no other essential interest of the state, another state or the international community should be seriously impaired as a result of the breach.

In addition, the defence will be unavailable if (1) the international obligation excludes the possibility of invoking necessity or (2) the state has contributed to the situation of necessity. The scope of these requirements has been considered by several investment arbitrations, most intensively by tribunals considering ‘pesification’ measures taken by Argentina in response to its 2001 financial crisis.^[20]

Essential interest

The Draft Articles do not define what constitutes an essential interest. The International Law Commission merely stated that whether an interest is essential for the purposes of the necessity defence ‘depends on all the circumstances, and cannot be prejudged’.^[21]

A number of investment tribunals have taken a narrow view of what constitutes an ‘essential interest’ of a state in the context of the necessity defence, holding that the following circumstances constitute an essential interest: the existence of the state and its independence;^[22] the maintenance of public order;^[23] the well-being of the state’s population; access to public services; and the functioning of public institutions.^[24] This is to be distinguished from a threat to the fortunes of a particular government or political party, which will not engage an essential interest.^[25]

A narrow approach to the construction of the ‘essential interest’ requirement has some support in the decision of the tribunal in the Russian Indemnities case, concerning the failure of the Ottoman Empire to pay war indemnities due to subjects of the Russian Empire following the Russo-Turkish War of 1877–1878. The tribunal in that case rejected a defence of necessity (which was treated for the purposes of the case as synonymous with force majeure) on the basis that payment of the outstanding sums would not ‘imperil the existence of the Ottoman Empire’. Note, however, that the essential interests test has evolved from the traditional right of self-preservation in international law to a wider concept in investment arbitration cases.

However, other adjudicatory bodies have questioned whether the ‘essential interest’ requirement should be so narrowly construed. The issue was addressed by the ICJ in the Gabčíkovo-Nagymaros Project case, brought by Slovakia as a result of Hungary’s decision to suspend the construction of a major joint hydropower project on the Danube. Hungary’s stated reason for the project suspension was concern about the environmental risks associated with the project. Citing commentary of the International Law Commission, the ICJ held that concerns about protection of the natural environment could amount to an ‘essential interest’, which was not confined solely to matters concerning the existence of the state.^[26]

In Impregilo, the tribunal held that:

the term ‘essential interest’ can encompass not only the existence and independence of a State itself, but also other subsidiary but nonetheless “essential” interests, such as the preservation of the State’s broader social, economic and environmental stability . . . and its ability to provide for the fundamental needs of its population.^[27]

Likewise, in AWG v. Argentina, the provision of water supplies was held to be vital to the health and well-being of nearly 10 million people and, therefore, an essential interest of the Argentine state.^[28]

The only way?

The Draft Articles provide that the necessity defence cannot succeed if there are other lawful means of safeguarding the essential interest of the state. The International Law Commission’s Commentary states that it does not matter if such means are more costly or less convenient than the measures ultimately adopted.^[29]

As the ICJ made clear in the Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory case, this requirement of Article 25 must be strictly applied even in the face of the gravest circumstances.^[30] Although the ICJ recognised in that case that ‘Israel ha[d] to face numerous indiscriminate and deadly acts of violence against its civilian population’ and had the duty to respond to protect the life of its citizens, ‘[t]he measures taken are bound nonetheless to remain in conformity with applicable international law’, and the Court was ‘not convinced that the construction of the wall . . . was the only means to safeguard the interests of Israel’.^[31] The strictness of the ‘only way’ requirement is underscored by James Crawford in his treatise on state responsibility, in which he states ‘[in this context] “only” means “only”’.^[32]

The tribunal in CMS held that the measures adopted by Argentina were not the ‘only’ steps available.^[33] For their part, the tribunals in Enron and Sempra held that a comparison ‘shows that there are always many approaches to address and correct such critical [economic] events’, and it is difficult to establish that none of them was available in the Argentine case.^[34] Both tribunals further held that it was not their task to determine whether one approach would have been better than the other, but simply to ‘determine whether the choice made was the only way available’.^[35]

Even the decision in LG&E, which granted Argentina’s necessity defence for a temporary period, stated that the ‘only way’ requirement in Article 25(1)(a) implies ‘that it has not been possible for the State to avoid by any other means, even a much more onerous one that could have been adopted and maintained the respect of international obligations’.^[36] According to the LG&E tribunal, ‘[t]he State must have exhausted all possible legal means before being forced to act as it does’.^[37] Scholars have opined that the high threshold of the ‘only way’ requirement renders the necessity defence illusory.^[38]

A further challenge in establishing whether a measure was the only way open to tribunals is the advantage of hindsight. For instance, most Argentine financial crisis tribunals took the benefit of ex post information available after the fact. In so doing, tribunals have said that as Argentina’s ‘pesification’ measures were ineffective, those measures could not be the ‘only way’.^[39] However, there does not seem to be any basis for such reasoning. As the Continental Casualty tribunal noted, ‘a time of grave crisis is not the time for nice judgments, particularly when examined by others with the disadvantage of hindsight’.^[40] Therefore, the correct vantage point from which to consider the ‘only way’ requirement is the time at which the measure in dispute was adopted.

Grave and imminent peril

The Draft Articles provide no definition of what constitutes a ‘grave and imminent peril’. However, commentary on this requirement is found in the Gabčíkovo-Nagymaros Project case, in which the ICJ held that:

a state of necessity could not exist without a ‘peril’ duly established at the relevant point in time; the mere apprehension of a possible ‘peril’ could not suffice in that respect. It could moreover hardly be otherwise, when the ‘peril’ constituting the state of necessity has at the same time to be ‘grave’ and ‘imminent’. ‘Imminence’ is synonymous with ‘immediacy’ or ‘proximity’ and goes far beyond the concept of ‘possibility’. As the International Law Commission emphasized in its commentary, the ‘extremely grave and imminent’ peril must ‘have been a threat to the interest at the actual time’ […]. That does not exclude, in the view of the Court, that a ‘peril’ appearing in the long term might be held to be ‘imminent’ as soon as it is established, at the relevant point in time, that the realization of that peril, however far off it might be, is not thereby any less certain and inevitable.^[41]

On the facts in that case, the ICJ found that there was no ‘grave and imminent peril’ as, at the time of the relevant measures, the peril of environmental damage remained uncertain. However, the decision is important in recognising that a risk may still be imminent even if it may not eventuate for some time, provided that the risk is sufficiently certain.

Investment tribunals have generally dealt lightly with this requirement. In Enron, the tribunal considered that the requirement was not satisfied because ‘there is no convincing evidence that the events were out of control or had become unmanageable’.^[42] This is by no means a universal standard. Some tribunals in the Argentine financial crisis cases held that the financial crisis and the resulting political and social instability were sufficient triggers for grave peril to the state, whereas others required a total collapse of the economy or state institutions (or both) as the relevant trigger.^[43]

If accepted more widely, however, the test of unmanageability articulated in Enron would seriously circumscribe the operation of the necessity defence. It is difficult to imagine that many (or any) cases of temporally remote risks, such as those considered in the Gabčíkovo-Nagymaros Project case, would satisfy such a test. Therefore, further clarity on the trigger for grave and imminent peril from a temporal standpoint is required.

Non-impairment

Article 25(1)(b) of the Draft Articles provides that the measures must not impair the essential interests of the state or states towards which the obligation exists or of the international community as a whole. The language of the Draft Articles is not directly tailored to the investor-state context, in which there is a third party, namely the investor, who also has interests protected by the relevant treaty. Is the protection of the interests of investors an ‘essential interest’ of the contracting states, such that it cannot be disregarded even to safeguard an essential interest?

In CMS, the tribunal held that although the protection of investors was an ‘important’ interest of the state parties, it did not rise to the level of an ‘essential interest’, such that the plea of necessity would be precluded.^[44] The CMS tribunal did not offer any detailed justification for this view.

Other investment tribunals have held the following to amount to ‘essential interests’ that must not be impaired while pleading the necessity defence: (1) the interests of the home state in its investment treaty rights; and (2) the interests of the investor.^[45]

Exclusion of necessity defence

Under Article 25(2)(a) of the Draft Articles, the necessity defence may not be invoked if ‘the international obligation in question excludes the possibility of invoking necessity’. The exclusion can be express or implicit in the nature of the treaty. The classic example of such an exclusion would be where the treaty is designed specifically to apply in circumstances of necessity (for example, treaties governing humanitarian rules for armed conflict), in which case the nature of the treaty will exclude the necessity defence.^[46]

In general, BITs are silent on the necessity defence, meaning that there is no direct textual basis for arguments as to whether the defence has been excluded. However, the defence may be excluded even absent express wording where the relevant measures contravene one of the state’s jus cogens or erga omnes obligations. For example, in Border Timbers, the tribunal held that even absent express treaty language dealing with necessity, Zimbabwe had contravened its international legal obligations erga omnes by engaging in racial discrimination, meaning that it had failed to satisfy this requirement for invoking necessity.^[47]

Non-contribution

If the state has contributed to the situation of necessity then it cannot rely on the necessity defence. But what constitutes a contribution? The Commentary to the Draft Articles states that ‘the contribution to the situation of necessity must be sufficiently substantial and not merely incidental or peripheral’.^[48] Assessing whether a contribution is ‘sufficiently substantial’ can lead tribunals into difficult areas of political and economic appraisal. As the tribunal in Mobil v. Argentina recognised, economics is not an exact science lending itself to ready appraisal of matters of causation. Despite this, the majority of the Mobil tribunal was still willing to find that Argentina had contributed through its economic policies to its financial crisis.^[49] Such a substantial contribution could still be found even if there are significant exogenous causes of the crisis as well.^[50]

In Impregilo, the tribunal considered whether mere negligence could amount to a contribution, holding that the state’s contribution to the crisis need not be specifically intended or planned – it could be the consequence of ‘well-intended but ill-conceived policies’.^[51] As in Mobil, the tribunal considered that Argentina’s long-term failure to exercise fiscal discipline made it vulnerable to crisis and amounted to a sufficiently significant contribution to the situation of necessity.

A key issue in determining contribution is whether it should be seen in purely causal terms (a strict liability standard as adopted by the Argentine financial crisis tribunals)^[52] or using a fault-based approach. A ‘purely causal reading’ of the non-contribution requirement would be likely to make this plea unarguable.^[53]

As the summary set out above demonstrates, states seeking to invoke the necessity defence face formidable obstacles. It is not surprising, therefore, that such states often seek to rely instead on their negotiated treaty exemptions, to which we now turn.

ESI clauses distinguished from necessity defence

It is important to distinguish the necessity defence from the non-precluded measures or other exceptions clauses that form an increasingly common feature of investment treaties. These clauses provide that certain actions taken in pursuit of particular national economic or social interests will not represent a violation of the treaty. A subset of these clauses is the ESI clause, which ties the permitted measures to the objective of protection of security interests. In the case of states that have taken measures in respect of Huawei, such a clause is found, for example in Article 11 of the China–New Zealand BIT.^[54]

Such clauses create a potential interaction with the necessity defence by invoking similar principles of essential state interests. Interaction between these clauses and the necessity defence has been a contentious issue. This is well illustrated by the Argentina cases, each of which was brought under the United States–Argentina BIT, whose Article XI provides that:

This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests.

For the CMS, Enron and Sempra tribunals, the concept of ‘necessity’ employed in Article XI of the United States–Argentina BIT fell to be interpreted through the lens of the requirements for necessity articulated in customary international law.^[55] As discussed above, this resulted in a highly restricted reading of the circumstances in which a plea of necessity could be employed and, consequently, on those tribunals’ approach, greatly circumscribed the application of Article XI.^[56]

In contrast, the Annulment Committee in CMS considered that the tribunal had made an error of law by treating Article XI and the necessity defence as the same, albeit it considered that it would exceed the Annulment Committee’s jurisdiction to annul the award on that basis.^[57] Likewise, in Continental Casualty, the tribunal observed that such an ESI clause was conceptually distinct from the customary international law necessity defence in a number of ways:

• While the necessity defence operated as a defence to state responsibility, Article XI, if satisfied, functioned as a defence to any wrongdoing. If Article XI applied, there would be no treaty violation at all.^[58]
• While the customary international law defence was considered by the tribunal to apply only on an exceptional basis and subject to strict conditions, reflecting the fact that the defence could be invoked in any circumstances against any international liability. In contrast, the tribunal considered that the bilaterally agreed requirements of Article XI were ‘not necessarily’ subject to the same conditions of application.^[59]

Based on this line of analysis, the annulment committee in Sempra annulled the Sempra award for containing a manifest error of law that amounted to an excess of powers because it considered that the tribunal had adopted the wrong applicable law by applying Article 25 of the Draft Articles in preference to Article XI of the BIT.^[60]

If that approach is correct, the question then becomes: How do the requirements to engage an ESI clause differ from those of the necessity defence? Ultimately, this will be a matter of the proper construction of the particular treaty provision.^[61] That different clauses can produce very different outcomes is illustrated by the outcomes of the CC/Devas and Deutsche Telekom cases against India.^[62] Both concerned the termination of a contract with an Indian state entity allowing the claimant to make use of satellite spectrum. However, the claims were brought under different BITs:

• In CC/Devas, the claim was brought under the India–Mauritius BIT, which provided that the state’s actions needed to be ‘directed to the protection of’ its essential security interest.
• In Deutsche Telekom, the India–Germany BIT’s ESI clause applied to decisions that were ‘necessary’ to protect that interest.

Although based on very similar underlying facts, the tribunal in CC/Devas held that the ESI clause was engaged, whereas the Deutsche Telekom tribunal found that it was not.^[63] Interestingly, both tribunals held that the ESI clauses in question were not self-judging.^[64]

As stated above, the CC/Devas tribunal accepted India’s ESI defence under the India–Mauritius BIT. It held that the termination of the spectrum lease agreement with Devas was ‘absolutely necessary’ and ‘unavoidable’ as India was in ‘genuine need’ of the spectrum.^[65] The tribunal interpreted the words ‘directed to’ in the BIT’s ESI clause to require a nexus between the measures and the essential security interest at stake.^[66] Notably, the tribunal interpreted the ESI clause under the BIT as not requiring the ‘only way’ requirement needed to establish the necessity defence.^[67]

The Deutsche Telekom tribunal, on the other hand, held that only some of the reasons to cancel the spectrum lease agreement could objectively be said to relate to India’s essential security interest.^[68] However, it agreed with the CC/Devas tribunal in principle that the ‘only way’ requirement is not needed to establish an ESI exception.^[69] It also added that it is not necessary for the state to not have contributed to the situation at issue to successfully claim the ESI exception.^[70]

Despite the effect of BIT language, there are certain general principles that can be derived from the cases, which are discussed below.

Scope of essential interests

Recent studies show that a minority of BITs (394 out of 2,574 according to one study, 16 per cent according to another) mapped by the United Nations Conference on Trade and Development include an essential security exception.^[71] In the context of an ESI clause, the interest covered by such clauses may be expressly tied by the drafting of the clause to specified interests, most commonly a state’s military or defence interests.^[72] When the clause is drafted in more general terms, it is arguable that the range of essential interests can be construed more broadly to encompass the economic security of the state and its population.^[73]

Although it seems clear that military interests can engage the state’s essential interests, the type of military interests that would rise to the level of being essential is less clear. The CC/Devas and Deutsche Telekom cases both arose against the background of India’s cancellation of a contract for provision of telecommunications spectrum. That measure was said to be justified on the basis that the spectrum was needed to meet the communications needs of India’s military. Both the tribunals concluded, without detailed analysis, that in principle the strategic need for communications bandwidth represented an essential interest.^[74]

In contrast, both tribunals agreed that non-military interests, such as the needs of public utilities, would not amount to an essential security interest. Given the wider approach to definition of an essential interest under the necessity defence discussed above, such an approach would have the potential effect of making ESI clauses more restrictive than the necessity defence. That position contrasts with that reached in the jurisprudence of the Court of Justice of the European Union in relation to the ‘public security’ exception under the Treaty on the Functioning of the European Union.^[75]

However, the above narrow interpretation of the ESI clause was a product of the language of the BITs in question. In general, essential security exceptions have self-judging language (such as ‘the state considers’), enabling states to invoke them easily. For instance, investment tribunals in other contexts have held that an imminent threat to a state’s economy would engage the ESI clause under Article XI of the United States–Argentina BIT.^[76] Therefore, much would depend on the language of the relevant ESI clause and the factual circumstances surrounding the dispute.

Relevance of an ‘only way’ standard

In CMS, Enron and Sempra, the tribunals found that the ESI clause in those cases reflected the requirement under the necessity defence that the measures be ‘necessary’ to achieve the essential security interest means that such measures must be the ‘only way’ to do so.

In contrast, in Deutsche Telekom, the tribunal held that the ‘only way’ requirement did not apply to an ESI clause. Instead, the question for the tribunal was whether ‘the measure was principally targeted to protect the essential security interests at stake and was objectively required in order to achieve that protection, taking into account whether the state had reasonable alternatives, less in conflict or more compliant with its international obligations’.^[77] On the facts, the tribunal held that India had not established that the measures were ‘necessary’ to protect the relevant security interests.

In CC/Devas, the tribunal had to consider an ESI clause that referred to measures that were ‘directed to’ an essential security interest, rather than being ‘necessary’ to achieve that interest. The tribunal held that this language suggested that there was no requirement to show ‘necessity’ in the sense that the measures in question were the only way to protect the relevant essential security interest. Instead, a more permissive standard applied, namely whether the measure related to the state’s essential security interest.^[78]

That conclusion highlighted one of the central difficulties in approaching ESI clauses, namely whether they are ‘self-judging’. In other words, to what extent is a tribunal entitled to review the state’s assessment that a particular measure is directed to an essential security interest. Although ESI clauses are generally not treated as being self-judging,^[79] prior analysis had suggested that clauses such as that considered in CC/Devas ‘came very close to self-judging clauses’,^[80] subject only to the state’s general legal duty to exercise its treaty rights in good faith. The tribunal in CC/Devas was at pains to stress its deference to the state’s discretion:

An arbitral tribunal may not sit in judgment on national security matters as on any other factual dispute arising between an investor and a State. National security issues relate to the existential core of a State. An investor who wishes to challenge a State decision in that respect faces a heavy burden of proof, such as bad faith, absence of authority or application to measures that do not relate to essential security interests.^[81]

However, it concluded that such clauses were not truly self-judging because the security interests in question must be ‘essential’. Whether this requirement was met remained a matter for the tribunal’s assessment.^[82]

Conclusions

On any view, the threshold for establishing a necessity defence under customary international law is a high one, with the defence intended to operate in exceptional circumstances. As the cases set out above demonstrate, the jurisprudence on the scope and application of the necessity defence remains unsettled, with tribunals forced to make difficult calls on areas of economic and political strategy. The difficulty in invoking the necessity defence is likely to have led to an increase in states including non-precluded measures clauses in their BITs. With national security exceptions being invoked in a variety of foreign investment contexts, tribunals will need to carefully assess the distinction and overlap between the necessity defence and ESI clauses. As the facts of CC/Devas illustrate, the ESI clause can provide a potentially more far-ranging opportunity for states to argue that acts that would otherwise represent a treaty breach are permissible. That greater scope for defensive arguments, though, comes at the cost of increased uncertainty as to the meaning and availability of BIT protections.

The recent interventions in relation to Huawei also serve to illustrate how, in a modern economy, the scope of activities that impinge on a state’s security interests is potentially greater than ever before. If the preservation of satellite capacity for military uses represents an essential security interest, as in CC/Devas and Deutsche Telekom, it is at least arguable that the preservation of communications from potential espionage also falls within that rubric. Yet the essential problem of identifying the limits of the state’s right to intervene to protect its interests remains. Even on an expansive view of the state’s discretion, tribunals will still be called on to make judgments as to the state’s priorities and available choices. Whether considered under the necessity defence or as a matter of the construction of an ESI clause, the world’s growing uncertainty suggests that those issues will not go away.

Footnotes