General and security exceptions and the question of compensation in international investment law

Abstract In WTO and ICJ jurisprudence it has never been questioned that general and security exceptions operate to avert a treaty violation, but in a growing number of investment cases, adjudicators have held that a state successfully invoking a materially identical exception must nevertheless compensate the claimant. These decisions fundamentally reconceive the nature of an exception. Rather than excluding or defeating the operation of a rule, the exception is engaged after a rule violation has been established. The exception expands tribunals’ discretionary powers with respect to how a rule violation may be remediated (a mitigating mechanism), curtails those powers (a remedy-constraining mechanism), or invites third parties to alter their perception of a state’s culpability (a reputation-enhancing mechanism). These interpretations are at odds with the language of these exceptions, which unequivocally permit states to enact or implement measures covered by the exception, and in some cases, they reflect a misapprehension of norms of state responsibility. These characterizations of exceptions also reflect a deeper conceptual misunderstanding of exceptions within normative systems—the nature of an exception to a rule, the difference between proscribed and permitted conduct, and how legal regimes are structured to create incentives and disincentives. This confusion is partially attributable to treaty design. Older treaties lack coherence and precision, while newer agreements that layer safeguards designed to protect regulatory space appear to have exacerbated interpretive challenges rather than ameliorating them.