Return of the Inconsistent Application of the ‘Essential Security Interest’ Clause in Investment Treaty Arbitration: CC/Devas v India and Deutsche Telekom v India

Investment treaty arbitration is currently undergoing a backlash, precipitated in large measure by the problem of inconsistency in investment awards. Inconsistent reasoning and decisions have proved particularly problematic when different shareholders of an affected company pursue claims for reflective loss before different tribunals concerning the same dispute. This article examines two recent investment treaty cases – CC/Devas v India (CC/Devas) and Deutsche Telekom v India (DT) – that are a critical example of this very real problem.

The first part of this article assesses the inconsistent interpretation and application of ‘essential security interest’ (ESI) clauses in CC/Devas and DT. As this article shows, the disagreement between the tribunals is explained by contradictory assessments of the same facts.

The second part critically evaluates the impact of these cases on the development of the precise criteria for successfully invoking an ESI clause. ESI clauses comprise two elements – (i) existence of an ESI; and (ii) nexus between the ESI and the measure adopted. These elements have hitherto been subject to inconsistent interpretations, leaving the exact contours of such clauses unclear. This article uncovers which security interests can qualify as ‘essential’ interests, focusing particularly on the question whether ESI encompasses protection of strategic resources for military and non-military use. It also examines the meaning of the nexus requirement of ‘necessary’, and explores the difference(s) between the nexus requirements of ‘directed to’ and ‘necessary’.