Non-Proportionate Policy Responses and Investment Treaty Arbitration

In this article, we will empirically evaluate a number of possible non-proportionate policy responses by governments that have led to the diminishment of a foreign investor’s investment which in turn leads to the initiation of a legal dispute before an arbitral tribunal as based on the alleged violation of a relevant bilateral investment treaty (BIT). The primary purpose of a BIT (of which there are over 3000 that crisscross the globe) is to provide a number of substantive (including robust dispute settlement mechanisms) protections for investors when investing capital and expertise in a foreign host state. Disputes arising under BITs are not a new phenomenon (with more than 600 cases filed to date); what is new is the number of high profile cases that are based on host government policy decisions aimed at protecting its citizens. These cases highlight an ongoing debate on the legitimacy of investment treaty arbitration and whether alleged violations of BITs by investors can be balanced sufficiently to provide the policy space that a state needs to regulate in the public interest. There are a number of potential cases that could arise in this context (i.e. related to climate change policy decisions), but we will highlight three specific cases in regard to environmental protection and public health policies that (although not yet decided) will demonstrate the possibility that some policy responses might be non-proportionate overreactions that cannot be justified as rational defenses to an investor’s claim under a BIT. These cases include the nuclear phase-out case in Germany, the tobacco plain-packaging case in Australia, and the fracking moratorium in Canada.