The analysis of the remedies stage as a platform for public interest considerations has thus far focussed on unlawful (primarily non-expropriatory) acts. This is reflective of the fact that the vast majority of investment treaty arbitrations to date have concerned unlawful acts.163 Indeed, the expropriation clause can be considered as an outlier in the context of international investment law as a whole since, unlike the non-expropriatory standards typically contained in IIAs, the expropriation enquiry focusses primarily on the loss caused by government conduct rather than on the character of such conduct. This has the consequence that, even where an expropriation may have been undertaken for a public purpose, in accordance with
162See Jorge E Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’, Centre for Environmental Law Studies, Graduate Institute Geneva, Research Paper No 2, 70-71 noting that where an action falls within the police powers of the host state but where the host state has given specific assurances to the investor that an adverse regulation will not be adopted, the balancing of environmental and investment protection could be reflected in the quantum of damages payable.
163Borzu Sabahi, Compensation and Restitution in Investor-State Arbitration: Principles and Practice (OUP 2011) 96.
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due process and in a non-discriminatory manner, compensation is still payable. The tribunal in Santa Elena v Costa Rica put this in stark terms in stating that the fact that the property in question was taken for a legitimate public purpose such as the protection of the environment did not alter the level of compensation to be paid nor did the international source of the obligation to protect the environment make any difference to the level of compensation payable.164 However, although the focus and structure of the expropriation enquiry differs from that in respect of other IIA rights, the need to introduce an element of reciprocity and to recognise public interest considerations at the remedies stage still applies. Indeed, the need to acknowledge host state regulatory sovereignty at the remedies stage is amplified where lawful expropriations are concerned as, currently, the pronouncement that an expropriation is lawful does not have any meaningful consequence.165 Thus, in many cases, the quantum of compensation may de facto equate to that payable in respect of an unlawful expropriation, particularly where (as is often the case) the lost future profits that the enterprise would have earned are used in estimating the fair market value of an expropriated asset.166 This effectively means that due regard is not paid to the public function that the state is performingand that the elements of public purpose, non-discrimination and due process are relevant to a deprivation only insofar as their absence may add ‘an additional sense of grievance in cases where the host state has, in the first instance, failed to pay the investor “prompt, adequate, and effective compensation”’.167 Furthermore, where the expropriation in question is indirect in nature, the rationale for affording recognition to public interest considerations in quantifying the compensation payable can be said to be more compelling as, while awarding fair market value in respect of a direct expropriation of property can be said to encourage efficient government and investor decisions by forcing governments to consider the costs that the measure could impose on individuals and factoring those costs into its overall cost-benefit
164ICSID Case No ARB/96/1, Award 17 February 2000, paras 71-72.
165Ursula Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the State’
(2007) 8 J World Investment & Trade 717.
166UNCTAD, Expropriation: UNCTAD Series on Issues in International Investment Agreements II (UNCTAD 2012) 114.
167Patrick M Norton, ‘Back to the Future: Expropriation and the Energy Charter Treaty’ in Thomas Wälde (ed), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer 1996) 374. While this statement is true where an expropriation has been deemed to have occurred, these elements may, in certain cases, prevent a deprivation from being categorised as an expropriation in the first place pursuant to the ‘police powers’ doctrine, where pre-eminent public interests are invoked.
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analysis of the measure,168 it is difficult to assess the extent (if any) to which such efficiency-based arguments apply to general regulatory measures which may adversely affect an investor.169 Thus, it is submitted that, from a normative perspective, there are strong grounds for taking into account public interest considerations in quantifying the compensation payable in respect of lawful expropriations (particularly those of a regulatory nature). Admittedly, the prescription of fair market value as the applicable standard of valuation in the majority of IIAs in respect of lawful expropriations may create some doctrinal difficulties in terms of applying such an approach, which will be considered in the following chapter. However, this should not detract from the normative arguments supporting such an approach.
4.4 Conclusion
To date, the question of whether public interest considerations should influence the assessment of damages in investment treaty arbitration has not been explored to any significant extent in arbitral practice. This chapter has argued that the remedies stage of the investment treaty arbitration process constitutes an appropriate platform for public interest considerations, given the need to introduce an element of reciprocity into the process while simultaneously giving due recognition to the primary focus of the system on investment protection. Accordingly, affording recognition to public interest considerations at the remedies stage would allow for a more nuanced reflection of such considerations than the ‘all or nothing’ decision as to liability required in determining whether an IIA breach has occurred or not. That is not to say however that public interest considerations can be disregarded at the merits stage: rather the remedies stage should play a complementary role to the merits stage in taking account of public interest considerations and only those interests that are not capable of being considered (or considered sufficiently) at the
168Frank Michelman, ‘Property, Utility and Fairness: Comments on the Ethical Foundations of
‘‘Just’’ Compensation Law’ (1967) 80 Harv L Rev 1165; Lawrence E Blume and Daniel L Rubinfeld, ‘Compensation for takings: an economic analysis’ (1984) 72 California L Rev 569; Ed Nosal, ‘The Taking of Land: Market Value Compensation should be Paid’ (2001) 82 J Public Economics 431; Emma Aisbett, Larry Karp and Carol McAusland, ‘Police Powers, Regulatory Takings and the Efficient Compensation of Domestic and Foreign Investors’ (2010) 86 The Economic Record 367.
169Jonathan Bonnitcha, ‘Outline of a normative framework for evaluating interpretations of investment treaty protections’ in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press 2011) 124.
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merits stage in defining the scope of the right in question should be considered at the remedies stage.
However, while the normative arguments in favour of such an approach have been outlined and stand apart from the issue of the doctrinal basis for such an approach, the question of whether this approach can be implemented doctrinally is a question that is also important to consider and this will be the focus of the following chapter.
In particular, the following chapter will consider whether there is a doctrinal basis for taking account of public interest considerations at the remedies stage under existing IIAs or whether treaty reform would be required in order to do so. The relationship between remedies-related reforms and proposed reforms affecting earlier stages of the arbitral process will also be considered.
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