Calibrating Human Rights and Investment in Economic Emergencies: Prospects of Treaty and Valuation Defenses

36 Pages Posted: 18 May 2012

See all articles by Diane Alferez Desierto

Diane Alferez Desierto

Yale Law School; Peking University School of Transnational Law

Date Written: May 18, 2012

Abstract

This article explores potential treaty defenses and valuation defenses for host States to mitigate or temporarily excuse non-performance of obligations owed to investors during economic emergencies, arising from the host State’s good faith performance of obligations under the International Covenant on Economic Social and Cultural Rights (ICESCR). Defenses under the Vienna Convention on the Law of Treaties (VCLT), such as the lex posterior rule of application of treaties in Article 30 or treaty interpretation in Article 31, are of limited utility for avoiding primary breaches of the investment treaty, since these defenses considerably depend upon the host State’s a priori notification of ICESCR obligations to investors at the time of the establishment of the investment. Lacking these revisions to the due diligence process, it is submitted that a host State can advance a more pragmatic defense by proposing equitable adjustments in the valuation of compensation, taking into account the host State’s good faith performance of ICESCR obligations. Adjustments are justifiable and appropriate, since tribunals tend to accept an unrealistic definition of the “fair market value” standard, based on market assumptions of perfect competition, for pre-crisis valuations of investments. The bloating of the pre-crisis valuation of an investment thus tends to increase its ultimate differential with the post-crisis valuation of an investment, leading to damage assessments beyond what parties could ordinarily have foreseen from the investment contract. While tribunals have predominantly referred to “compensation” within the general law of international responsibility, they have problematically neglected the counterpart practice of equitable adjustment within this legal regime.

Keywords: ICESCR, investment treaty standards, compensation, legality clauses, VCLT Article 30 and 31, host State defenses

Suggested Citation

Desierto, Diane Alferez, Calibrating Human Rights and Investment in Economic Emergencies: Prospects of Treaty and Valuation Defenses (May 18, 2012). Manchester Journal of International Economic Law, September 2012. Available at SSRN: https://ssrn.com/abstract=2062367

Diane Alferez Desierto (Contact Author)

Yale Law School ( email )

New Haven, CT 06520-8215
United States

Peking University School of Transnational Law ( email )

University Town,
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

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