Measuring Gross Disproportion in Environmental Precaution to Establish Regulatory Expropriation and Quantum of Compensation in International Investment Arbitration

29 Pages Posted: 21 Mar 2013 Last revised: 22 Dec 2016

See all articles by David A. Collins

David A. Collins

The City Law School, City, University of London

Philip Thomas

City University London - School of Engineering and Mathematical Sciences

Date Written: January 6, 2014

Abstract

This article applies a new methodology for the assessment of environmental risk prevention expenditure to the adjudication process of international investment arbitration. The Disproportion Factor Model can be implemented by investment arbitration tribunals to evaluate the reasonableness of environmental regulations imposed by host states that have a damaging impact upon foreign investment activity, such as would be the subject for a claim of indirect or regulatory expropriation. In this setting the Disproportion Factor Model can help illustrate whether a host state measure is unreasonable and in that sense should engage the investor’s entitlement to compensation under international law. It also acts as an objective guide to the setting of an appropriate quantum of compensation for the injured investor by reference to the environmental benefits that the regulation aimed to achieve relative to their costs, as evaluated by a rational decision-maker. The formula should be consequently viewed as a useful tool in judicial analysis by international investment tribunals.

Keywords: investment, arbitration, cost benefit analysis, economic analysis

Suggested Citation

Collins, David A. and Thomas, Philip, Measuring Gross Disproportion in Environmental Precaution to Establish Regulatory Expropriation and Quantum of Compensation in International Investment Arbitration (January 6, 2014). 41:3 European Journal of Law and Economics 621-639, 2016, Available at SSRN: https://ssrn.com/abstract=2236280 or http://dx.doi.org/10.2139/ssrn.2236280

David A. Collins (Contact Author)

The City Law School, City, University of London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Philip Thomas

City University London - School of Engineering and Mathematical Sciences

Northampton Square
London, EC1V 0HB
United Kingdom

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