Austria: The Invasion Of Ukraine And Investment Arbitration- The Doctrine Of Force Majeure

Introduction

Chapter V of the Articles on the Responsibility of States for Internationally Wrongful Acts (ARS) codifies the circumstances precluding the wrongfulness of a state's measures that would otherwise not be in conformity with its international obligations¹. Investment tribunals are known for commonly referring to the general principles on state responsibility included in the ARS and articulated in the jurisprudence of the International Court of Justice.² The defenses which are the most likely to be used by a state against a conflict-related investment claim include necessity, force majeure, and countermeasures.³ This article focuses on force majeure  in the context of the recent invasion of Ukraine by Russia. In the first part the definition of force majeure  and its place in international law are briefly introduced. The second part serves to answer whether the war is a force majeure event, and, therefore, whether the wrongfulness of a failure by Ukraine to fulfil its treaty obligations could be precluded by the force majeure defense.

What is  force majeure?

  The concept of force majeure has been present since Roman law, and is codified in the ARS. According to Article 23 ARS, there are three main conditions that a State must meet to successfully invoke this defense. First, the force majeure act must be due to either an irresistible force or an unforeseen event. Second, the act must be beyond the State's control. Third, the unforeseeable or irresistible event must make it materially impossible for the State to perform its obligation.⁴

Is Russia's invasion of Ukraine a force majeure event?

In international law, it has been argued that a force majeure event can be a natural disaster (e.g. an earthquake) or a situation made by man, such as war, revolution, or mob violence.⁵ On 24^th of February, Russia started invasion of Ukraine. A few days before start of the invasion, leaders of States participated in diplomatic meetings with Vladimir Putin to prevent invasion.⁶  Furthermore, since the beginning of the war, Russian and Ukrainian delegations have taken part in negotiations. While Ukraine demands ceasefire and withdrawal of Russian troops, Russia insists on Ukraine's neutrality, no membership in the North Atlantic Treaty Organization (NATO), demilitarization and denazification, recognition of Crimea as a part of Russian, and the independence of Donetsk and Luhansk.⁷ President Zalensky has already announced that Ukraine will not join NATO,⁸ however, regarding the rest of the Russian's demands, Ukraine continues to defend its territory and independence. According to the International Law Commission (ILC) to consider the force majeure act as irresistible, there must be a constraint which a state was unable to avoid or oppose by its own means.⁹ Despite the heroic defense of the Ukrainian army since the beginning of the war, Russia is a major nuclear power. The war in Ukraine is not a civil war, which the government could have avoid by its own action, it is an invasion of one country by other State. The decision made by Putin to start the invasion was definitely out of the control of the Ukrainian government and Russia' demands violates international law. Therefore, it may be argued that the aggression of Russia against Ukraine was an irresistible act.¹⁰

For the last months, military intelligence and reported about the increasing number of Russian soldiers at the Ukrainian border.¹¹ For Ukrainians, who had been living with a presence of Russian soldiers on their border for the last eight years since the annexation of Crimea, the start of the war was still unexpected. It may be argued that because of the increasing tension between those two countries over last 8 years, Russian invasion was not unforeseeable act. However, it is sufficient that either the event is unforeseeable or foreseeable but irresistible.¹² Thus, it seems like two of three conditions of the force majeure defense are met.

The third condition of ‘material impossibility' means that an increased difficulty of the performance is not enough for a successful invocation of force majeure.¹³ According to the arbitral tribunal in Rainbow Warrior Affair,  material impossibility is equal with ‘'absolute impossibility''.¹⁴ On the other hand, this view was not supported by some scholars¹⁵ and was rejected by the ICJ in the Gabčíkovo- Nagymaros case.  The Court maintained the distinction between material impossibility under force majeure and the stricter standard of ‘absolute impossibility under the rule of supervening impossibility to perform under Article 61 of the Vienna Convention on the Law of Treaties. ¹⁶ Following the comments of the Special Rapporteur Ago, material impossibility is described as relative impossibility, and its threshold is met if the performance will result in a sacrifice that could not be reasonably required.¹⁷ This understanding of material impossibility will be important in the case of Ukraine's financial impossibility to make certain payments to investors during and in the aftermath of war because of budget and resource constraints.

It may be assumed that Ukraine would be able to invoke the defense of force majeure successfully. However, to determine whether the conflict falls under the scope of force majeure event, the tribunal will have to consider the terms of the applicable legal instrument. If the contract or investment treaty includes a clause that lists “armed conflict”, “war”, or “circumstances not within the parties' reasonable control” as a force majeure event, then the wrongfulness of the State's act will be precluded. Many force majeure clauses will likely meet this condition.

Conclusion

When the war ends, Ukraine will certainly face challenges to rebuild its infrastructure, economy and stability. On the other hand, it is likely that certain contractual and treaty obligations will not be fulfilled by the State, and foreign investors who suffered losses during the war may bring claims against Ukraine. Presumably, Ukraine will be able to use force majeure as a defense. However, the tribunal must first examine which events are listed as force majeure in the applicable clause. In international investment law, it is common to include a clause listing ‘'war'' as one of the force majeure event.

Footnotes

1 Chapter V of the Articles on the Responsibility of States for Internationally Wrongful Acts

2 International Law Commission, ‘Draft Articles on the Responsibility of States for Internationally Wrongful Acts with Commentaries' UN GAOR, 56th Sess, Supp 10, Ch 4, (2001) UN Doc A/ 56/ 10 (ARS).

3 Zrilic J, The Protection of Foreign Investment in Times of Armed Conflict (Oxfor University Press 2019) 149

4 Article 23 of the Articles on the Responsibility of States for Internationally Wrongful Acts

5 Zrilic J, The Protection of Foreign Investment in Times of Armed Conflict (Oxfor University Press 2019) 153

6 Neuman S, “In Ukraine, the Road to War Was Paved by the Failure of Diplomacy” (NPRFebruary 24, 2022) https://www.npr.org/2022/02/24/1073015013/ukraine-russia-invasion-war-diplomacy accessed March 25, 2022

7 Kirby J, “What Diplomatic Solution Might End the War in Ukraine?” (VoxApril 1, 2022) https://www.vox.com/2022/4/1/23002085/peace-talks-ukraine-russia-war-turkey-neutrality accessed April 5, 2022

8 eera, “Talk of ‘Compromise' as Russia-Ukraine Peace Talks Set to Resume” (Russia-Ukraine war News | Al JazeeraMarch 16, 2022) https://www.aljazeera.com/news/2022/3/16/russia-says-parts-of-a-ukraine-compromise-deal-are-close accessed April 5, 2022

9 ILC Commentary to ARS, Article 23, para. 2.

10 “Ranked: The World's 20 Strongest Militaries” (Business InsiderJuly 13, 2021) https://www.businessinsider.in/defense/ranked-the-worlds-20-strongest-militaries/slidelist/51930339.cms accessed March 25, 2022

11 Taylor C, “NATO Says Russia Is Increasing Troop Numbers at Ukrainian Border, Calls for Talks” (CNBCFebruary 17, 2022) https://www.cnbc.com/2022/02/16/nato-says-russia-is-increasing-troop-count-at-ukrainian-border.html accessed March 25, 2022

12 Study by the Secretariat, “Force majeure” and “Fortuitous event” as Circumstances Precluding Wrongfulness:

Survey of State Practice, International Judicial Decisions and Doctrine', Yearbook of the International Law

Commission,  1978, Vol. II, UN Doc A/CN.4/315  (Part 1) 61, at 70 (Secretariat Study).

13 Zrilic J, The Protection of Foreign Investment in Times of Armed Conflict (Oxfor University Press 2019) 154

14 Rainbow Warrior Affair  (New Zealand v France) (1990) 20 RIAA 217, 253. The tribunal found that ‘the test of applicability of [draft article 31] is of absolute and material impossibility' and consequently rejected France's defence by emphasizing that ‘a circumstance rendering performance more difficult or burdensome does not constitute a case of force majeure'.

15 J Crawford, ‘Second Report on State Responsibility' 1999, UN Doc A/ CN.4/ 498, paras 257– 59

16 Gabčíkovo  (n 109) para 102.

17 R Ago, ‘Eighth Report on State Responsibility' in ILC, Yearbook of the International Law Commission, 1979, Vol II, UN Doc A/ CN.4/ SER.A/ 1979.1 (Part 1) 48– 49, paras 103, 106.

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