Originally from American Review of International Arbitration - ARIA

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Some international arbitration tribunals under various bilateral investment treaties (“BITs”) have recently dealt with the issue of ex post general regulations adopted by host States that have adversely affected foreign investors. An ex post regulation is understood here in a broad sense and comprises the following situations:

1.    Host States’ enactment of new legislation for emergency reasons, which alters previous contractual relations with foreign      investors.

2.    Host States’ adoption of ex post regulations affecting foreign investors with whom they lack a legal relationship.

3.    Host States’ ex post lack of enforcement of regulations existing at the time of the making of the investment.

4.    Host States’ ex post change of the interpretation of existing regulations, adversely affecting foreign investors.

These situations all have a common feature: the existing regulation at the time that the foreign investors made their investment is not applied according to its terms. The way international arbitral tribunals have resolved the disputes could shed some light on how both States and investors could proceed before and after the adoption of any of these forms of new regulation, despite the fact that the controversies differ in terms of facts and underlying treaties.

Generally speaking, the set of international awards that will be analyzed below reveals, first, that foreign investors’ rights are preserved even in the case of grave economic crises that force States to adopt ex post regulations affecting these rights; second, that host States possess ample power to adopt ex post regulations that negatively affect investors with whom there is no legal relationship; third, that host States would be declared internationally responsible for lack of enforcement of their legislation only under very limited circumstances, although the possibility exists; and finally, concerning ex post changes of interpretation of extant legislation, recent arbitral jurisprudence has had slightly different approaches. One international award sided with the foreign investors due to the lack of legal stability embodied in the change, while another held that host States’ good faith in adopting the change freed them from international responsibility.