In this article, the functioning of the necessity defense in the context of sovereign insolvency is investigated. Indeed, in the sovereign debt context, the possibility of a State successfully invoking necessity could frustrate the attempts of its creditors to enforce their contractual rights before international and domestic courts. Evidently, this fact opens the door of abuse on the part of the sovereign debtor that could seek insulation from its liability in cases of opportunistic defaults. A first issue addressed is the effects of Non-Precluded Measures (NPMs) clauses on the claims of investors seeking to trigger the international responsibility of the debtor State following a debt default or restructuring. NPMs clauses allow parties to a BIT to escape responsibility for actions that would otherwise be in violation of the treaty’s substantive terms where these actions were necessary to safeguard the host country’s public order and essential security interests or the maintenance or restoration of international peace or security. Overall, it is submitted that the general international law defense of necessity poses a very high threshold of satisfaction for debtor States seeking to invoke it in cases of insolvency. This is hardly surprising considering that the doctrine was originally developed in the context of jus ad bellum and thus the codification of the customary principles made by the International Law Commission (ILC) reflects the concern towards abusive recourse to armed force, a recurring event during the nineteenth and early twentieth century. Still, a case law spanning from the Russian Indemnity case until the recent Argentine default might have rejected its application in casu but has confirmed that necessity may be invoked in circumstances of extreme financial distress. Hence, this article suggests that flexible standards of review originating from public law adjudication are pertinent in ascertaining whether the conditions of necessity have been satisfied. This is also consistent with the view that adjudicatory bodies should exercise judicial restraint when called to assess issues of national economic management. Nevertheless, from a broader, policy perspective, necessity is a rather incomplete tool in dealing with sovereign insolvency. As the Author notes, necessity could merely function as a rescheduling of the sovereign’s obligations, whereas what will be likely needed to restore solvency will be drastic debt reduction. Even if successful, a necessity defense could not possibly perform this task. As a practical matter, international law remains surprisingly underdeveloped in the field of sovereign insolvency. International investment agreements may offer causes of actions to creditors, but up until today liability on that ground remains an unchartered territory. As far as there is no significant progress towards the development of primary rules regarding State responsibility in cases of sovereign insolvency, the defense of necessity will remain ‘dormant’. In the context of international investment arbitration, NPMs clauses contained in many international investment agreements will be able to prevent the host State’s responsibility in situations of economic emergency.
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