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Freshfields Risk & Compliance

| 3 minutes read

How Can Foreign Investments Be Protected during Times of Unrest?

Civil and political unrest can quickly shift a country’s social and economic landscape and put the safety of people and property at risk.  When that happens, foreign investors frequently find themselves scrambling to protect their employees and investments.  Investment treaties may provide useful protections. 

Many states have agreed in international treaties to provide “full protection and security” (FPS) to foreign investments, even in times of unrest. This protection gives an investor the ability to claim compensation if the host state fails to exercise reasonable due diligence in protecting the investment.

In determining whether the host state failed to provide FPS, international tribunals will often consider the resources available to the state and whether its actions were reasonable under the circumstances. Examples of situations that amounted to a failure to provide FPS include:

  • unjustified delays in the arrival of the police, failure to take appropriate action once onsite, and subsequent abandonment by the police while harm was ongoing;[i]
  • an army patrol’s failure to mobilize to prevent saboteurs from laying explosives on a pipeline after four previous attacks, despite the patrol being only 1.5 kilometers away;[ii] 
  • a state’s failure to deploy a single police unit to prevent civilian mobs from raiding an investor’s construction camps, despite the investor’s repeated requests for intervention, and evidence that the state had the necessary resources and provided them to a different foreign investor;[iii] and
  • pillaging by the army and militias associated with the state, with the only remedial state action being two mildly phrased letters to those responsible.[iv]

Tribunals may also consider whether the investor failed to mitigate its losses. For instance, in EDF International SA and others v Argentina, the investors had removed their investments from the country while renegotiation was ongoing with the local government.[v] The tribunal held that the investors had failed to mitigate damages because they did not consider the possibility that the renegotiations could have been successful, which would then have enabled the investors to recover some value from their investment.[vi]

The host state will have the burden of proving any failure to mitigate damages and tribunals will generally defer to the investor’s business judgment, analyzing whether efforts to mitigate damages were reasonable in the circumstances. For example, tribunals have found:

  • no obligation to accept an alternate plot of land after a government expropriated the investor’s plot of land for a housing complex;[vii]
  • no obligation to use lower quality or domestically-sourced materials after the government imposed an import ban on required materials;[viii]
  • no obligation to resume operations after a multi-year suspension of operations after the government revoked the investor’s license;[ix]
  • no obligation to accept an alternative offer from the host state if it would have put the investor at a material financial and contractual disadvantage;[x] and
  • no obligation to exhaust local remedies to mitigate losses, unless there is a local remedy that may be more certain or rapid than an international claim.[xi]

Key practical take-aways

If investors find themselves in a situation of civil and political unrest and believe that the host state is not doing enough to protect their investments, they would be well advised to gather evidence of the host state’s failure to take reasonable precautionary measures and, in parallel, ensure that they are taking reasonable steps to mitigate damages. Specifically, investors should consider the following practical advice:

  • notify the government immediately when unrest threatens to harm investments and suggest how the government can intervene to help;
  • be in close contact with legal counsel as unrest unfolds so they can advise on how best to document the host state’s failure to protect the investments and provide recommendations on how to mitigate damages; 
  • record the host state’s capacity to assist, its efforts to protect other similarly-situated investors, and any other evidence that would establish that the state’s response was insufficient and/or discriminatory; and
  • document the harm to investments and the efforts made to mitigate that harm.



[i] Peter de Sutter and others v Madagascar (II) (ICSID Case No ARB/17/18) Award, 17 April 2020, paras 337-341.

[ii] Ampal-American Israel Corporation and others v Egypt (ICSID Case No ARB/12/11) Decision on Liability and Heads of Loss, 21 February 2017, paras 254, 283-291.

[iii] Cengiz Construction, Industry & Trade Company v Libya (ICC Case No 21537/ZF/AYZ) Award, 7 November 2018, paras 371, 436-452.

[iv] Ibid, paras 371, 408-435, 440, 451-452.

[v] EDF International SA and others v Argentina (ICSID Case No ARB/03/23) Award, 11 June 2012, para 174.

[vi] Ibid, paras 1301-1310.

[vii] AIG Capital Partners, Inc and CJSC Tema Real Estate Company v Kazakhstan (ICSID Case No ARB/01/6) Award, 7 October 2003, paras 10.6.4(5), 10.6.5(1).

[viii]Saar Papier Vertriebs GmbH v Poland (I) (UNCITRAL) Final Award, 16 October 1995, paras 99-102.

[ix] Middle East Cement Shipping and Handling Co SA v Egypt (ICSID Case No ARB/99/6) Award, 12 April 2002, paras 168-169.

[x] Hrvatska Elektroprivreda dd v Slovenia (ICSID Case No ARB/05/24) Award, 17 December 2015, paras 215-218.

[xi] Dunkeld International Investment Limited v Belize (I) (UNCITRAL) Award, 28 June 2016, paras 196-200.


international arbitration