Riverside Coffee v. Nicaragua: The Limits of State Responsibility Under the DR-CAFTA

On 17 October 2025, the Tribunal in Riverside Coffee v. Nicaragua delivered its Award in a dispute where an avocado farm investment clashed with Nicaragua’s national security interests during a time of civil strife.  The Award stands out for its careful and uncommon analysis of the essential security interests clause in the Dominican Republic-Central America FTA (“DR-CAFTA”).  This article examines how the Tribunal interpreted the scope, self-judging nature, and good-faith limits of that clause, and considers the implications for future investment disputes where national security interests are at play.

Case Background

Riverside Coffee v. Nicaragua concerned Hacienda Santa Fé, a plantation in Nicaragua owned by Riverside Coffee, LLC (“Riverside”) through its local subsidiary, Empresa Inagrosa S.A.  In mid-2018, the property was invaded and occupied by third parties amid widespread political unrest and violence in Nicaragua.  Riverside alleged that the invaders acted at the behest of, or with the acquiescence of, Nicaraguan authorities and that Nicaragua failed to take timely and effective action to restore the land’s possession.

While the case raised a wide array of issues, from attribution to expropriation and damages, the Award is particularly noteworthy for its treatment of the essential security interests clause in Article 21.2(b) DR-CAFTA.  Nicaragua invoked this provision to justify its “measured and de-escalatory strategy” to remove the illegal occupants from Hacienda Santa Fé, while containing the civil strife that was affecting the country via measures such as issuing a “Shelter Order”.  Article 21.2(b) DR-CAFTA provides:

“Nothing in this Agreement shall be construed: […] (b) to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.”

Security exceptions are rarely invoked successfully in investment arbitration and are often addressed only in passing.  In Riverside Coffee, however, the Tribunal engaged directly with the scope and limits of Article 21.2(b), offering rare guidance on the operation of such clauses in modern investment treaties.  The Tribunal’s analysis is especially significant given Riverside’s attempt to neutralise the clause through the most-favoured-nation (“MFN”) provision and to align it with customary international law necessity.  The Award squarely rejected both approaches.

The Award is also notable for the Tribunal’s handling of Article 21.2(b)’s self‑judging character.  While the Tribunal accepted that it is not for an international tribunal to second‑guess a State’s own view of what constitutes a “necessary” national security interest, it nonetheless held that a State’s reliance on such an interest to suspend its treaty obligations remains subject to a degree of scrutiny.

The Tribunal’s Interpretation and Application of Article 21.2(b)

Broad, but Not Boundless

The Tribunal held that Article 21.2(b) is wide in scope, operating as a genuine carve-out from the substantive obligations of the DR-CAFTA where a State adopts measures to protect its essential security interests.  In reaching this conclusion, the Tribunal relied on the ordinary meaning of the provision, noting in particular, the opening words “[n]othing in this Agreement shall be construed . . .”.  In the Tribunal’s view, this language confirms that Article 21.2(b) functions as an exception to the DR-CAFTA as a whole, including the MFN clause, such that standards imported through MFN (including potentially to widen the scope of Article 21.2(b)) are inapplicable.

The Tribunal further distinguished Article 21.2(b) DR-CAFTA from provisions of other treaties that protect a State’s national interests.  This included the general exception provision in Article 2201(3) of the Canada-Colombia Free Trade Agreement, which the Eco Oro v. Colombia tribunal considered (see here).  For the Tribunal, the provision relied upon in Eco Oro concerned a different type of exception and therefore did not support Riverside’s interpretation.  Nor did the Tribunal accept Riverside’s argument that Article 21.2(b) simply precluded the Tribunal from ordering Nicaragua to withdraw the measures at issue, while allowing the Tribunal to rule on jurisdiction and liability.  Instead, the Tribunal concluded that Article 21.2(b) operates as a full carve‑out from DR‑CAFTA, meaning that any measures genuinely falling within its scope lie outside the Tribunal’s jurisdiction to determine.

Likewise, the Tribunal rejected Riverside’s argument that Article 21.2(b) simply incorporates the customary international law defence of necessity, as incorporated in Article 25 of the International Law Commission’s Articles on State Responsibility.  The Tribunal emphasised that treaty‑based security exceptions operate as a distinct legal standard from the defence of necessity, each serving different functions and applying under different conditions—a distinction highlighted by, inter alia, the ad hoc committee in CMS v. Argentina.

Self-Judging, Yet Still Subject to Good Faith

In examining whether Article 21.2(b) was self‑judging, the Tribunal again relied on the provision’s ordinary meaning.  The wording “that it considers necessary” led the Tribunal to conclude that the clause is indeed self‑judging, leaving it to the State to decide for itself whether the measures it adopted were necessary.  Additionally, the Tribunal stressed, and Nicaragua acknowledged, that this self‑judging quality does not shield the State from scrutiny as to whether any such “necessary” measures were adopted and applied in good faith.

The Tribunal therefore turned to the question of whether Nicaragua had, in fact, invoked Article 21.2(b) in good faith.  Riverside argued that good faith required a procedural showing that Nicaragua had invoked Article 21.2(b) contemporaneously at the time the civil strife arose, not as an “afterthought designed to shield the state from liability”.  Nicaragua, by contrast, focused on the substantive element of good faith, submitting that measures adopted under Article 21.2(b) need only be reasonable or plausible in relation to the protection of essential security interests, thus relying on a “light touch” and an “extremely deferential standard”.   

For the Tribunal, drawing on the approach of prior investment treaty tribunals in CC/Devas v. India and Seda v. Colombia and the GATT panel in Russia – Measures concerning traffic in transit, assessing Nicaragua’s good faith required a two‑part inquiry.  The first question was whether the provision had been invoked in a timely manner (procedural good faith).  The second was whether the measures themselves bore a reasonable or plausible connection to the protection of Nicaragua’s essential security interests (substantive good faith).

The Tribunal satisfied itself in both respects, but only for measures implemented in the period up to July 2018, when the nationwide unrest started to subside.  During that window (i.e., from the outbreak of civil strife in mid‑2018 through the end of July 2018), the Tribunal found that Nicaragua’s security measures, including the issuance of a “Shelter Order,” were reasonably and plausibly connected to the protection of its essential security interests.  It further noted that, although the Nicaraguan President did not expressly cite Article 21.2(b) when announcing the Shelter Order, the statement nonetheless provided timely and adequate notice that Nicaragua was invoking its essential security interests.

Despite holding that Nicaragua’s measures beyond July 2018 were not justifiable under the security measures exception, the Tribunal dismissed all of Riverside’s claims on other grounds, such that Nicaragua succeeded in defeating all claims brought against it under the DR-CAFTA.

Conclusion: The Future of Essential Security Interest Clauses

The Tribunal’s Award in Riverside Coffee underscores how essential security interest clauses can play a decisive role in shaping investment jurisprudence.  Often tucked away at the back of investment treaties, they are certainly no afterthought.

First, depending on how broadly they are worded, essential security interest clauses can operate as effective mechanisms that enable States to suspend their investment‑protection obligations altogether, functioning, in effect, as a blanket exception.  Their self‑judging character further shields a State’s assessment of what qualifies as a “necessary” or “essential” security interest measure from external scrutiny.

Second, despite their expansive reach, these clauses are not impermeable.  They do not leave foreign investors entirely without recourse.  As the Riverside Coffee Tribunal demonstrated, measures a State deems “essential” must still satisfy procedural and substantive good‑faith requirements—and only for as long as the underlying security situation persists.  A similar approach was taken in Seda v. Colombia and by the WTO panel in Russia – Measures Concerning Traffic in Transit, both of which echoed the Riverside Coffee Tribunal’s view that essential security interest clauses are not entirely self‑judging.  States cannot simply elevate any concern to the level of an essential security interest; any such measures remain subject to the overarching requirement of good faith.

Third, the reach and practical application of essential security interest clauses will evolve as States confront an expanding array of security challenges; international investment law must adapt accordingly.  Cybersecurity concerns have already prompted Huawei Technologies to launch an investment arbitration against Sweden, after the State barred the company from participating in its 5G spectrum auction on national security grounds.  Poland and the United Kingdom have adopted similar restrictions, which, while not yet giving rise to investment‑treaty claims, Huawei has characterised as discriminatory and disproportionately limiting its access to those markets (see here and here).

How tribunals will interpret and apply essential‑security clauses in these emerging contexts remains to be seen.  What is clear, however, is that they will increasingly be called upon to define the contours of “security” beyond traditional notions of war or civil unrest and into the rapidly evolving digital domain.  In that respect, Riverside Coffee marks an important step in delineating both the reach and the limits of such clauses in contemporary investment law.