Investing in foreign countries poses great risks to investors. One of the biggest risks is the possibility of disputes happening with host states. These disputes can lead to expensive and time-consuming investor-state dispute settlement (ISDS) procedures. One issue that may arise in these cases is the application of force majeure, which can significantly affect the outcome of disputes. In this blog post, we will discuss the concept of force majeure and its relevance in ISDS.
The Meaning of Force Majeure
Force majeure is an event or circumstance beyond the control of the parties involved. It is usually an unforeseeable and uncontrollable event that prevents the parties from fulfilling their contractual obligations. Examples of force majeure include natural disasters, war, terrorism, strikes, and government interventions. In ISDS, force majeure can affect the interpretation and performance of investment agreements and treaties.
Force majeure can also influence the timeframes of an investment dispute resolution. It may result in delays or extensions of timelines for filing petitions and notifications, as well as for delivery of all documents. In addition, the parties involved in a dispute may need to agree on a suitable alternative means to resolve their dispute if their contractual agreement has been affected by force majeure.
The Application of Force Majeure in ISDS
The application of force majeure in ISDS is a complex issue that requires careful consideration of various factors. Generally, force majeure clauses in investment agreements and treaties are interpreted narrowly, and the party relying on force majeure must prove that the event or circumstance meets the criteria specified in the clause. Failure to meet these criteria means that force majeure cannot be invoked, and the party will be held liable for breach of contract or treaty. However, no treaty contain any force majeure clause, so parties may have to rely on general principles of international law or local law doctrines when seeking relief for extraordinary circumstances that impede their performance. See Force majeure (jusmundi.com)
In addition, a party must demonstrate that its actions were taken in response to the force majeure event and that it has made reasonable efforts to mitigate the consequences of force majeure. Furthermore, the party may be required to show that there is no other alternative but for it to invoke force majeure. In all cases, both parties should review the terms of their agreement or treaty to ensure compliance with any additional requirements. Finally, it is important that both parties document the event and any mitigating actions taken in order to protect their legal rights.
The Importance of Force Majeure in ISDS
Force majeure can significantly affect the outcome of ISDS cases. For instance, if a host state claims force majeure due to a natural disaster that destroyed a project that an investor has invested in, the investor may not be able to pursue their claim for compensation. On the other hand, if the investor establishes that the host state’s measures to deal with the natural disaster were inadequate, there may be a basis for a successful claim.
The Challenges of Applying Force Majeure in ISDS
The application of force majeure in ISDS faces challenges, such as differing interpretations of force majeure clauses, and the burden of proof on the party invoking force majeure. Moreover, the occurrence of force majeure does not necessarily excuse a party from liability completely but only suspends the performance of contractual obligations. Also, the timing of the occurrence of force majeure is relevant in determining how it affects the parties’ obligations. This is because a party might have had the opportunity to perform its contractual obligations before the occurrence of force majeure.
Additionally, tribunals may examine whether the parties’ behavior during or prior to the force majeure event was adequate and reasonable in order to determine whether it will excuse liability for breach of contract. Furthermore, Tribunals may also consider whether the parties made an effort to mitigate the effects of force majeure. For example, if one party attempted to seek alternative suppliers or services.
In summary, force majeure is a critical concept in ISDS because it can significantly affect the outcome of disputes. It is essential for investors and host states to be clear on what is a force majeure event and how it affects their rights and obligations. The parties must also ensure that their investment agreements and treaties address force majeure explicitly and provide clear criteria for invoking it. Given the challenges of applying force majeure in ISDS, the parties should seek legal counsel and try to negotiate a compromise to avoid disputes and costly arbitrations. Ultimately, the goal of ISDS is to protect foreign investments and promote fair treatment of investors, while balancing host states’ regulatory powers. To learn more on ISDS, Contact Our Office – Transnational Matters