Scope Limitation or Affirmative Defence? The Purpose and Role of Investment Treaty Exception Clauses

Despite their increasing popularity in recently concluded investment treaties and investment chapters in comprehensive economic agreements, the structural status of exception clauses is not well understood. Inconsistent interpretations of exception clauses by investment tribunals and annulment committees has created uncertainty about the nature of states’ treaty commitments to foreign investors and manner in which exceptions to those commitments should be dealt with in investor-state dispute settlement. This chapter addresses two related questions: (1) whether exceptions ought to be understood as limiting the scope of the substantive investment obligations such that those obligations do not apply to measures that come within the exception, or whether exceptions are affirmative defences that operate to justify what would otherwise be prohibited by the treaty; and (2) the related question of the relationship between security and public order exceptions and the defence of necessity at customary international law—in particular, whether such clauses are lex specialis manifestations of the defence between the treaty parties. The paper reaches two general conclusions as to the status of exception clauses, subject always to the text of the provision being interpreted: that exceptions should be understood as limiting the scope of the treaty obligations, rather than operating as affirmative defences, and that as such, that security exceptions are conceptually distinct from the customary defence of necessity. These conclusions have practical implications for the allocation of the burden of proof, and raise questions about the coherence between international investment law and WTO law.