Vol. 41 Associate Editor
Investor state dispute settlement (ISDS) is an international legal proceeding whereby individuals and entities that invest in foreign countries can bring suit in international tribunals in order to protect their property interests associated with their foreign investments. The institution has been widely criticized among scholars, civil society organizations and public figures for a wide variety of reasons, not least of which is the institution’s potential for interfering with the legitimate regulatory decisions of states.
In response to some of these criticisms, academics have considered application of the European Court of Human Rights’ (ECtHR) “margin of appreciation” (MoA) doctrine to ISDS decision making,[i] and some ISDS tribunals have begun to adopt the MoA into their decision making. For example, Philip Morris v. Uruguay provides one illustration of the application of the MoA doctrine in the context of ISDS. [ii] However, as Gary Born’s dissent in Uruguay indicates, the appropriateness of that doctrine in the context of arbitration under bilateral and multilateral investment treaties is contested.[iii] While I concur with Born’s contention that the “doctrine [of the MoA] is based upon the specific language of the [European Convention of Human Rights (ECHR)] and its Protocols and… [therefore] is not transferable… to customary international law more generally,” I disagree with his implication that the deference afforded by the MoA is too great a level of arbitral deference for the context of investment law.[iv] To the contrary, there are compelling reasons the European Court of Human Rights (ECtHR)’s MoA may afford insufficient deference to states for the doctrine’s application in ISDS.
First, the MoA doctrine was developed by the ECtHR to apply the European Convention on Human Rights (ECHR), which seeks to preserve “those fundamental freedoms which are the foundation of justice and peace in the world,”[v] and those rights that are “vital to the survival of a democratic society.”[vi] The rights protected by international investment law—which in the context of human rights debates would most closely fit under the category of the ‘right’ to property—are not even given the status of a ‘right’ in the ECHR.[vii] This, in addition to the diversity of economic ideologies practiced and expounded by states around the world, suggests that there is hardly a consensus within the international community that the right to property (and the ancillary rights that flow from that concept as embodied in international investment law) constitutes one of “those fundamental freedoms which are the foundation of justice and peace in the world.” Given the significance that the ECHR assigns to the rights included in that document, as contrasted with the comparatively more disputed status of a general ‘right to property,’ we would expect the deference the ECtHR would give to national governments to be less than is the appropriate level of deference for an international tribunal to give to a national government alleged to have violated investors’ rights.[viii] In fact, this seems to play out in practice: as Born’s dissent points out, “the only award which appears to have adopted a “margin of appreciation” based upon ECtHR jurisprudence [other than Philip Morris v. Uruguay] has done so in the context of a BIT provision that contained express exceptions for the ‘public order’ and ‘essential security interests.’” This reticence to rely on the MoA save in the most extraordinary circumstances may be indicative of the doctrine’s weakness as a tool to protect the legitimate regulatory prerogatives of states because of the doctrine’s roots in the human rights context.
Second, the MoA was “drafted and accepted in a specific geographic and historical context”[ix] and was developed as part of an institution that seeks “the achievement of greater unity between… European countries which are like-minded and have a common heritage of political traditions, ideals, freedom and the rule of law.”[x] On the basis of this “common heritage,” the MoA doctrine “goes hand in hand with European supervision embracing both the law and the decisions applying it.”[xi] The group of states participating in ISDS is far more diverse along a variety of social, political and economic metrics than is the EU. For this reason, we might expect the MoA to afford more latitude to the ECtHR to scrutinize national governmental policies, actions and regulations than is appropriate for ISDS tribunals—because the ECtHR is reviewing a set of policies set by governments that have a shared ideological culture and history. Indeed, even in the majority opinion of Uruguay, the tribunal applying the MoA in order to “pay great deference to governmental judgments of national needs,” goes so far as to consider arguments related to the after-the-fact effectiveness of regulatory measures when assessing whether those regulatory measures violated the FET clause of the relevant BIT,[xii] invoking ex post facto reports by the WHO and PAHO to demonstrate the “reasonableness” of the Uruguayan government’s regulatory decision making.[xiii] Although the tribunal purports ultimately not to consider arguments related to the regulations’ policy effectiveness, the fact that they were weighed in the decision in some detail reflects a level of scrutiny more appropriate for a judicial body with closer sociopolitical ties to the entity it is overseeing (such as the ECtHR) than those possessed by ISDS tribunals. Moreover, the Tribunal’s invocation of WHO and PAHO approval of the Uruguayan government’s policymaking is hardly a gold standard of deferential reasoning that might be hoped for from a tribunal looking to advance, by applying the MoA, the principle that “the fair and equitable treatment standard is not a justiciable standard of good government, and the tribunal is not a court of appeal.”
Though these arguments caution against direct cross-application of the MoA doctrine from the ECHR context into ISDS, they do not suggest that international tribunals ought to ignore what Shany describes as “the growing acknowledgment of the doctrine’s utility,” referencing decisions by the ECtHR, the European Court of Justice, the WTO Dispute Settlement Body, the Inter-American Court of Human Rights, and a handful of other international adjudicative fora.[xiv] It is worth noting that the principle of deference to which Shany refers is a deference unrelated to the specific textual provisions of relevant governing treaty law, in contrast with Born’s adjudicative strategy.[xv] Deference to national courts is important to preserve the perceived legitimacy of international decisionmakers. Sonorajah’s view that the rules that arbitral bodies apply reflect “selective culling of rules of contract law from various Western legal systems and regarding them as general principles of law”[xvi] is one that proponents of the investment law regime should bear in mind; as he points out, though developing states are currently participating in the regime, they have resisted it in the past “in the forms of resolutions of the General Assembly of the United Nations… and in other fora, like the conferences of the non-aligned nations.”[xvii] The Canadian reaction to the Bilcon decision suggests that developing states are not alone in their concerns about the legitimacy of international investment tribunals. [xviii] In light of this resistance, on top of the criticisms lodged by critics such as Hamby characterizing investment arbitration as “a shield for the criminal and the corrupt” and by prominent actors in the American left,[xix] arbitrators would do well to ensure any deference doctrine they may be working towards adopting is one appropriately tailored to the unique context of international investment law and one sufficiently deferential to the needs of state regulators.
[i] See, e.g., Steven R. Ratner, “Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented International Law,” at pgs. 38-46, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2055869.
[ii] Phillip Morris v. Uruguay, ICSID Case No. ARB/10/7, Award, ¶388-400 (July 8, 2016).
[iii] See, e.g., Phillip Morris v. Uruguay, ICSID Case No. ARB/10/7, Born Dissenting, ¶85-87 and ¶181-190 (July 8, 2016).
[iv] See, e.g., Phillip Morris v. Uruguay, ICSID Case No. ARB/10/7, Born Dissenting, ¶191 (July 8, 2016), concluding: “Rather, I am persuaded by the conclusions of other international tribunals and courts that a more specific standard of review, focused on the terms and context of the relevant treaty, is mandated.”
[v] European Convention on Human Rights Preamble, Nov. 4, 1950, E.T.S. No. 5.
[vi] Bayatyan v. Armenia, 2011-IV Eur. Ct. H.R. 1, 40.
[vii] Article 1 of Protocol I suggests a principle of “protection of property” but does not to assign the status of a “right” to enjoyment of private property. European Convention on Human Rights Protocol I, March 20, 1952, E.T.S. No. 5.
[viii] By way of analogy, one might consider the logic used in American Constitutional interpretation for purposes of applying the Fourteenth Amendment: discrimination related to rights considered to be more fundamental are reviewed with a higher level of scrutiny.
[ix] Phillip Morris v. Uruguay, ICSID Case No. ARB/10/7, Born Dissenting, ¶185 (July 8, 2016).
[x] European Convention on Human Rights Preamble, Nov. 4, 1950, E.T.S. No. 5.
[xi] Eweida v. UK, 2013-I Eur. Ct. H.R. 215, 254.
[xii] See, e.g., ¶¶ 408 and 417.
[xiii] See ¶ 391.
[xiv] Yuval Shany, Toward a General Margin of Appreciation Doctrine in International Law?, 16 Eur. J. of Int’l L. 907, 931 (2006).
[xv] See, e.g., Phillip Morris v. Uruguay, ICSID Case No. ARB/10/7, Born Dissenting, ¶185 (July 8, 2016); further discussion of this point would require an extended comparison of the empirical observations put forward in Shany’s article as regards trends in customary international law with the examples given by Born in ¶¶ 186 and 187 of his Dissent.
[xvi] M. Sonorajah, The Settlement of foreign Investment Disputes, §3.1 in Foreign Investment Disputes—Cases, Materials and Commentary.
[xviii] Jim Bronskill, Canada loses $300M NAFTA case; judge cites ’significant concerns’ with trade deal (May 3, 2018, 4:53 am), https://ipolitics.ca/2018/05/03/canada-loses-nafta-court-challenge-reviving-environmental-concerns/.
[xix] Jeffrey J. Schott, Elizabeth Warren’s Approach to Trade is Inclusive, Green and Ineffective (September 4, 2019, 8:00 am), https://www.piie.com/blogs/trade-and-investment-policy-watch/elizabeth-warrens-approach-trade-inclusive-green-and.
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