Proportionality and the Standard of Review in Fair and Equitable Treatment Claims: Balancing Stability and Consistency with the Public Interest

33 Pages Posted: 25 Jun 2012 Last revised: 15 Jan 2013

Caroline Henckels

Monash University - Faculty of Law

Date Written: June 25, 2012

Abstract

International investment tribunals have increasingly referred to the need to consider the host state’s regulatory purpose in determining whether legislative amendments or other government action violates fair and equitable treatment. But tribunals continue to grapple with the best way to balance the competing interests of host states and investors. Several tribunals have applied a proportionality-based approach to determining whether host states have acted lawfully in frustrating legitimate expectations of investors in relation to a stable, legal environment and consistency in government conduct. Proportionality analysis may be the most appropriate means of determining fair and equitable treatment claims engaging the principles of stability and consistency. However, the standard of review in employing proportionality analysis is crucial, and many tribunals have taken an unduly strict approach to their review of host state measures taken in the public interest. In performing proportionality analysis, tribunals should exhibit deference where appropriate in recognition of host state authorities’ greater democratic legitimacy and proximity to local communities. The approaches of the European Court of Justice, European Court of Human Rights and World Trade Organization tribunals provide useful guidance in terms of an appropriately deferential approach to proportionality analysis. Such an approach can provide sufficient scrutiny to control misuse of public power while permitting greater scope for host states to take actions in the public interest, which may assuage concerns about overreach into the policy space of host states.

Keywords: investor-state arbitration, proportionality, balancing, standard of review, deference, fair and equitable treatment, regulatory autonomy, public interest, legitimate expectations

JEL Classification: F02, F10, F20, F30, F40

Suggested Citation

Henckels, Caroline, Proportionality and the Standard of Review in Fair and Equitable Treatment Claims: Balancing Stability and Consistency with the Public Interest (June 25, 2012). Society of International Economic Law (SIEL), 3rd Biennial Global Conference. Available at SSRN: https://ssrn.com/abstract=2091474 or http://dx.doi.org/10.2139/ssrn.2091474

Caroline Henckels (Contact Author)

Monash University - Faculty of Law ( email )

Wellington Road
Clayton, Victoria 3800
Australia

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