Understanding Sunset Clauses of International Treaties

Courtney Furner Dragana Nikolic Ibrahim Ati Njeri Kariuki FCIArb, C.Arb, CPS(K), Adv. CIDS Geneva Center for International Dispute Settlement Dr. Darya Shirokova Serena Lee Oleksandra Iordanova Leah Thomas Young ICCA Careers in Arbitration California Arbitration (CalArb) Hamid Abdulkareem Edith Twinamatsiko, MCIArb Aisha Abdallah

Keywords

Sunset Clause, Investment Treaties, Termination, International Arbitration.

Sunset Clauses

They are also referred to as “survival clause”, “grandfather clause”, “continuing effects clause”, or “transitional provisions.” At national level, we find terms like “time-limitation clause”, “duration clause” or “temporary provision.”

Sunset clause refers to the end of life of a treaty. Their exact contrasting clause is the commencement clause that define the beginning of life of a treaty.

The sunset clause provides that a treaty lapses erga omnes on: -

a)????? Fixed and precise date.

b)???? After the passage of a specified, determined period of time. For example, a treaty would lapse on an exact date if the sunset clause provides that it will lapse in 2026 or that the treaty will lapse in the next thirty years.

Examples of Sunset Clause of International Treaties

1.????? The International Centre for Settlement of Investment Disputes (ICSID)

Article 71 of the ICSID Convention provides that states can denounce the Convention by written notice to the depository. This denunciation takes effect six months after the receipt of the notice.

Furthermore, article 72 of the International Centre for Settlement of Investment Disputes (ICSID) stipulates that: -

“Notice by a Contracting State pursuant to Articles 70 and 71 shall not affect the rights or obligations under this Convention of that State or of any of its constituent subdivisions or agencies or of any national of that State arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depository.”

When the States of Bolivia, Venezuela and Ecuador denounced the ICSID Convention, several investors filed international arbitration claims against the states within the six months window period before the denunciation became effective.

2.????? Montreal Convention

Similarly, the Montreal Convention which was signed on 20th July, 1936 stipulates that “the present Convention shall remain in force for twenty years from the date of its entry into force.

Sunset Clause and General International Law

Sunset clauses are not only employed in investment treaties but also peace treaties. A good example is the Peace Treaty of Versailles signed in 1919 by Germany and Allied Powers ending World War I, it included a number of provisions imposing obligations on Germany for five (5) years.

Another example is the United States of America Patriot Act which was intended to address relatively short term security concerns following the events of 11th September 2001. When the Act was initially drafted, it contained a sunset provision for 31st December, 2005.

Benefits of Sunset Clauses of a Treaty

a)????? They are flexible legal mechanism that can fulfil a variety of public policy purposes. They regulate temporary or transitional situations such the economic sanctions imposed in Germany after World War for five years. Such provisions can be temporary as a more comprehensive treaty is being drafted.

b)???? Play a role in safeguarding the sovereignty of states by limiting its power to enact new policies or change existing ones. This treats all the states in the same pedestal as none will outride the other in implementing the treaty provisions.

c)????? Its function is to protect the legal expectation of investor’s that had made their investments based on an investment treaty prior to its termination.

d)???? Without a sunset clause, the existing investment will remain unprotected upon termination of an Investment Treaty.

e)????? The sunset clauses ensure that investors continue to rely on investment protection and dispute settlement provisions of the Investment Treaty.

f)?????? Ability to enhance key legal certainty in regards to the tension between stability and flexibility.

Disadvantages

a)????? If the period stipulated in the sunset clause is too long, it disproportionately burdens future policymakers and lawmakers. For example, the twenty (20) year sunset clause of the Energy Charter Treaty (ECT). The Bilateral Investment Treaty between European Union and Singapore and European Union and Vietnam also contain sunset clauses of 20 and 15 years respectively.

Effects on International Arbitration

Marco Gavazzi & Stefano Gavazzi v Romania

In 2012, foreign investors-initiated arbitration claims under the Italy-Romania, Bilateral Investment Treaty that was terminated in 2010.

Similarly, in 2019, six months after the termination of Tanzania-Netherlands BIT, a Dutch investor-initiated arbitration claim under the International Centre for Settlement of Investment Disputes (ICSID).

Termination of an Investment Treaty does not hinder an aggrieved party from pursuing an arbitration claim unless the Contracting Parties agree to remove the sunset clause before terminating the Investment Treaty. For example, Indonesia and Argentina reached a mutual agreement to neutralize the sunset clause of the BIT before withdrawing from it. This implies that the sunset clause ceases to operate over the existing investments.

However, critics have argued that removal of sunset clauses leads to a significant abrogation of the rights of investors that was granted by the terminated Investment Treaty.??

References

1.????? European Parliament, Policy Department for Citizens’ Rights and Constitutional Affairs Directorate General for Internal Policies, “Sunset Clauses in International Law and their Consequences for EU Law,” 2022.

2.????? Investopedia , “ Sunset Provision: What It Is and How it Helps Investors,” accessed at https://www.investopedia.com/terms/s/sunsetprovision.asp visited on 18th May, 2024

3.????? International Centre for Settlement of Investment Disputes (ICSID) , Convention on Settlement of Investment Disputes Between States and Nationals of Other States accessed at https://sice.oas.org/dispute/comarb/icsid/w_conv2.asp visited on 18th May 2024

4.????? White and Case LLP,” Honduras ICSID Denunciation and Implications for Foreign Investors,” accessed at https://www.whitecase.com/insight-alert/honduras-icsid-denunciation-and-implications-foreign-investors visited on 18th May 2024

5.????? Lavranos Nikos, Jus Mundi, ?“Sunset Clause,” accessed at https://jusmundi.com/en/document/publication/en-sunset-clause#:~:text=The%20function%20of%20the%20sunset,into%20force%20of%20the%20treaty visited on 18th May, 2024

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