28 Feb PROTECTION OF INTERNATIONAL  INVESTMENTS –  OCCUPATION, ANNEXATION, ARMED CONFLICT AND WAR DAMAGES –  

Current developments show that investors face unexpected risks regarding their investments in a host country, especially the deterioration of political stability in the territory of the invested country, armed conflict, annexation, occupation, war, etc.

Due to  the events that have occurred in countries such as Afghanistan, Crimea, Libya, Syria and finally Ukraine, investors have been unable to operate their investments, have not been able to maintain control over their investments, have not been able to complete their projects, their investments have   been physically violenced and  destroyed  , or the restrictions and embargoes imposed due to  the conflicts.

In this regard, the legal question would be the possibility of protecting these investments made in an other state and  to compensate  the losses suffered by the investments under  the protection obligation of the states arising from the bilateral investment agreements?

INTERNATIONAL INVESTMENT LAW

International investment law allows the investor to apply directly against the host State, and therefore a strong and effective way to protect investments during and after armed conflicts is to use this legal instrument efficiently.

The operation of opportunities to ensure the protection of material assets and values owned by the investor in the host state is one of the main points guaranteed by  international law regarding the protection of foreign invesments.

Investment agreements provide full protection and security against the expropriation of investments, damage arising from any physical aggression directed at investments, discrimination and unfair treatment.

AGREEMENTS ON THE PROTECTION AND PROTECTION OF INVESTMENTS (BILATERAL INVESTMENT TREATIES “BITs”)

The Agreements on mutual promotion and protection of investments are created to ensure the protection of investments made between each other by the investors of the countries that are party to the agreement. Thus, the state hosting the investment aims to encourage investments and contribute to the development of their economies while guaranteeing protection to investors who host them against negativity on the territory of the country.

INVESTMENT AGREEMENTS ARE ALSO VALID DURING AN ARMED CONFLICT / WAR

A state of armed conflict does not restrict the implementation of investment agreements. On the contrary, the protection status imposed by these agreements, regardless of armed conflicts, remains for the parties and investments are continued to be protected.

Article 12(2) of the Energy Charter Treaty ensures that losses of foreign investors resulting from armed conflict and/or such instance are immediately, adequately and effectively compensated.

INVESTMENT AGREEMENTS vs OCCUPIERS

Traditionally, investment agreements apply to the host State, that is, the State in which the investor initially invested. However, if an armed conflict leads to a change of actual control over a region, there are decisions that the Controlling State should also apply its existing treaty obligations to investors in the acquired region.

Thus, as an instance, it has been confirmed  that Ukrainian investments in Crimea, are protected under the Russia-Ukraine Investment Agreement (BIT) in case of  a change in actual control in the  region where the investment is made.

POTENTIAL SITUATIONS THAT MAY BE ADVANCED FOR COMPENSATION  CLAIMS

During a State’s actual control over a region, it is obliged to treat foreign investors in accordance with their own treaty obligations.

As confirmed in the cases stemming from the annexation of Crimea, mentioned above, regardless of the status of occupation, the investment agreements of the occupying  State can be extended to  the  occupied territories and the occupied state.

In addition, it will be possible that the occupier will be bound by the occupied State responsibilities on the investment treaty obligations made  in relation  to the investors of the third States. It is conceivable that this may apply to energy investments  in relation to the Energy Charter Treaty.

In addition, restrictions and sanctions decisions imposed during the conflict, due to conflict or prior to the change of actual control over the region (inability to transfer money due to being excluded from SWIFT, inability to benefit from airlines, cessation of logistical activities, etc.)  the investor can make compensation claims regarding the losses suffered by the investor.

In this regard,  it remains possible to resort to arbitration process in accordance with investment agreements considering the damages caused by imposed sanctions.

UKRAINE CONFLICT

It is important for investors to keep in mind that international investments will be protected by bilateral investment agreements and in this sense investors may ask for compensation for their losses due to conflicts.

In addition to that, it is vital that determining the pre-event status of the investments and the situation caused by the impact of the events. Since a possible legal application process concerns the proof and repair of damages, we would like to state  that the preservation of a loss of the records related to this may be one of the factors that will facilitate the compensation of the damage.

                                                                                                                                                                                                             Halil Murat BERBERER

                                                                                                                                                                                                              Attorney at Law