Standards of Review and Reviewing Standards: Public Interest Regulation in International Investment Law

Yearbook of International Investment Law and Policy (Oxford University Press, 2012)

6 Pages Posted: 9 Apr 2012

See all articles by Rahim Moloo

Rahim Moloo

Gibson, Dunn & Crutcher LLP

Justin M. Jacinto

affiliation not provided to SSRN

Date Written: April 8, 2012

Abstract

In the late 1990s, investors began bringing claims under international investment treaties seeking compensation for harm caused to their investments by government regulatory measures that were, at least purportedly, aimed at addressing areas of legitimate public interest such as protection of human health or the environment. In response, observers raised concerns about the potential effect on countries’ ability to exercise their regulatory powers. Although international arbitral tribunals have spent more than a decade resolving such disputes, questions and concerns remain regarding the relationship between international investment law and public interest regulation. In the municipal context, judicial review of legislative and administrative decisions raises balance of powers concerns and questions about the relative roles and competencies of different government actors. When an international tribunal is the adjudicator, the dynamic is further complicated by concerns about infringements on state sovereignty and the accountability and legitimacy of the tribunal. Such concerns have raised questions about whether tribunals should adopt a deferential standard of review when adjudicating claims relating to public interest regulatory measures.

This article assesses the merits of adopting an additive deferential standard of review for adjudication of investment treaty claims relating to public interest regulatory measures. It finds that it is neither necessary nor appropriate for tribunals to adopt an additional deferential standard of review as a general matter (i.e., to govern the overall application of the treaty). The applicable investment treaty standards all contain aspects and terms which involve principles — requiring the weighing of different interests, as opposed to rules, which require the application of “norms which are always either fulfilled or not.” For this reason, inherent in the treaty standards is a textual basis for according some degree of deference to the ability of the country to regulate in the public interest. As opposed to a general deferential standard that is the same in all cases however, the text, though open-ended in some circumstances, and the evolution of the jurisprudence concerning the interpretation of certain key terms, provides guidance to the decision-maker as to the interests to be weighed and the degree of deference to be accorded to the state.

The article further finds that countries have not substantially abridged their ability to engage in bona fide regulatory conduct such that additional deference might be needed to respect a country’s sovereign right and responsibility to regulate in the public interest. As regards regulatory measures, the treaty standards are in large part concerned with precluding unreasonable conduct, particularly the use of a measure as a pretext for a wrongful purpose (e.g., discrimination or unjust enrichment), for which no deference is justified. The major exception to that characterization relates to the protection from indirect expropriation, if it is interpreted as allowing an investor to receive compensation for harm caused by a bona fide but disproportionately burdensome measure. Such a reading of the standard creates space for a conflict between a country’s treaty obligations and regulatory responsibilities. However, the interpretation also builds in a proportionality standard that allows tribunals to balance the governmental purpose against the investor’s rights.

Keywords: investment treaties, bilateral investment treaty, international dispute resolution, international arbitration, public interest regulation, standard of review, international law, international economic law, BIT, international law, NAFTA

JEL Classification: K33

Suggested Citation

Moloo, Rahim and Jacinto, Justin M., Standards of Review and Reviewing Standards: Public Interest Regulation in International Investment Law (April 8, 2012). Yearbook of International Investment Law and Policy (Oxford University Press, 2012). Available at SSRN: https://ssrn.com/abstract=2036243

Rahim Moloo (Contact Author)

Gibson, Dunn & Crutcher LLP ( email )

200 Park Avenue, 47th Floor
New York, NY 10166-0193
United States

Justin M. Jacinto

affiliation not provided to SSRN ( email )

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