Introduction
International
investment arbitration developed as a mean of protection of foreign investors against
unlawful regulatory interferences of States with their investment. This method
gained increasing popularity among investors in the past 15 years, during which
more than 500 claims were raised (also referred to as the era of “proliferation”).[1] At
the beginning of 21th century, the arbitration tribunals offered high
protection to investors through wide interpretations of the substantive
standards stemming from Bilateral Investment Treaties (“BITs”). Thus a number
of investors used and still uses all covering substantive standards of
protections such as Fair and Equitable treatment, indirect expropriation,
national treatment, discrimination, full protection and security, due process
etc. as a shield against the actions of the state, which had a negative impact
on their investment.
This situation
raised a number of questions concerning the sovereign power of the State to
regulate. It is clear that states limit their sovereign power by entering into
international treaties, in which they offer a specific rights and protection to
foreign investors. However, the question, which is constantly being discussed
by arbitral tribunals, is how much freedom States should have in the exercise
of their regulatory power or to what extend they are limited by BITs.
This
problematic consists of a range of various sub-topics, from which the most
eminent is the topic of public interest. Although the arbitral praxis now
mostly agree that State measures in public interest are acceptable even if they
limit the investors’ rights, it is not clear under what circumstances such
measures can be introduced. Another yet unanswered question is, which goals
under public interest are so important as to liberate States from
responsibility for their actions harming the investor.
Recently
an Award was issued in the Philip Morris v Uruguay[2]
case, which dealt with the public interest and its application in international
investment arbitration. This decision concerned specifically the protection of public
health on one hand, and the protection of the investors’ investment on the
other.
As to the
factual background, Uruguay adopted two legal acts aimed at the reduction of
smoking in Uruguay. The first one was a measure that forced cigarette producers
to use 80% of the package for warning texts and pictures. The second measure
was prohibiting the selling and marketing of more than one type of cigarettes
per family brand. Both these rules interfered with the investors rights, since
they significantly limited the way he could sell his products, as well as the
variety of the products offered. The tribunal had to decide, whether the
actions of State were legitimate or whether they constituted a breach of the BIT.
The tribunal dissmissed all claims, stating that no indirect expropriation occured, neither was there a breach of the Fair and Equitable treatment. Furthermore the tribunal not only upheld the sovereign power of the State to regulate, but also clarified the requiremnts of the States' excercise of its' police powers in order to be legitimate and not in breach of the BIT. The tribunal stressed the high importance of public interest especially public health, and expressed the idea that tribunal should pay high deference to regulatory judgements in such areas. In addition, the tribunal applied a proportionality test in order to balance the States sovereignty and investors rights. Last, the tribunal applied the "margin of appreciation", and stated that under certain circumstances this doctrine is applicable also in investment arbitration.
In this
contribution I will analyse this decision from the viewpoint of clash of sovereignty
and investors’ rights stemming from BITs, rooted in international customary
law. I will first discuss the tribunals approach to the substantive standards
of protection, mainly expropriation and FET. Then I will consider the possible
implications of this decision and its legacy. By doing so, I will try to
predict a future tendency of tribunals argumentation in IIA as concerning the
question of sovereignty vs. investors rights. The analysis will be divided into
three articles, in which I will deal with all of the interesting aspect outlined above. The first article will be dedicated to the expropriation claim
and the public interest (or police powers of State), the second article will be
dedicated to the FET claim, and more specifically to the arbitrariness,
legitimate expectations and proportionality and the last article will provide an analysis of the dissenting opinion of arbitrator Born.
[1] UNCTAD. World investment report 2015:Reforming International Investment
Governance, United Nations Conference on Trade and Development, United Nations:
New York and Geneva, 2015, p. 121
[2] Award of July 8, 2016, Philip
Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A v
Oriental Republic of Uruguay (Philip Morris v Uruguay), ICSID Case No.
ARB/10/7
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