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

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