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Police Powers, Indirect Expropriation in International Investment Law, and Article 31(3)(c) of the VCLT: A Critique of Philip Morris v. Uruguay

  • Prabhash RANJAN (a1)
Abstract

Given the global contestation against BITs and ISDS, the outcome of the Philip Morris v. Uruguay case upholding Uruguay’s right to regulate for public health is important for the international investment law community. However, it is not just the outcome of a case but also the quality of legal reasoning that is significant in building the legitimacy of the ISDS system. This paper focuses on the reasoning adopted by the tribunal in deciding whether Uruguay’s regulatory measures resulted in the expropriation of Philip Morris’s investment. The paper critiques the tribunal’s use of Article 31(3)(c) of the Vienna Convention on the Law of Treaties to invoke the police powers rule in interpreting the expropriation provision of the Switzerland-Uruguay BIT. The tribunal’s reasoning was internally inconsistent and based on abuse of arbitral precedents. Clarity in legal reasoning by ISDS tribunals is imperative to boost the legitimacy of the ISDS system for all stakeholders.

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Assistant Professor at the Faculty of Legal Studies, South Asian University [SAU], New Delhi, India. The author is extremely grateful to the anonymous reviewers of the Journal for their very helpful comments. The author also thanks Santosh Anand and Samarth Trigunayat of SAU for their help in writing the paper.

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1. For a general discussion on BITs, see Rudolf DOLZER and Christopher SCHREUER, Principles of International Investment Law, 2nd ed. (Oxford: Oxford University Press, 2012); Jeswald W. SALACUSE, The Law of Investment Treaties, 2nd ed. (New York: Oxford University Press, 2015).

2. This includes 2,957 stand-alone investment treaties and 367 Treaties with Investment Provisions [TIPs] or investment chapters in FTAs; United Nations Conference on Trade and Development, “World Investment Report 2017: Investment and the Digital Economy” (7 June 2017), online: UNCTAD <http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf>.

3. Salacuse, supra note 1 at 393.

4. See United Nations Conference on Trade and Development, “Investment Dispute Settlement Navigator” (1 January 2017), online: UNCTAD <http://investmentpolicyhub.unctad.org/ISDS>.

5. Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000) [Metalclad]; Methanex Corporation v. United States of America, NAFTA-UNCITRAL, Award (3 August 2005) [Methanex].

6. CMS Gas Transmission Company v. The Republic of Argentina, ICISD Case No. ARB/01/8, Award (12 May 2005), [CMS Award]; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award (22 May 2007) [Enron]; LG&E Energy Corporation v. The Argentine Republic, ICISD Case No. ARB/02/1, Award (25 July 2007) [LG&E Award]; Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008).

7. Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467, Final Award (1 July 2004) [Occidental]; EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN3481, Award (3 February 2006) [EnCana]; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002); Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Liability (14 December 2012).

8. Philip Morris Asia Ltd. v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (17 December 2015); Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7 (8 July 2016) [Philip Morris v. Uruguay].

9. For a debate on BITs, ISDS, and the right to regulate of a host state, see TITI, Catharine, The Right to Regulate in International Investment Law (Oxford: Hart Publishing, 2014); CHOUDHURY, Barnali, “Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public Interest Contributing to the Democratic Deficit?” (2008) 41 Vanderbilt Journal of Transnational Law 775 ; SCHILL, Stephan W., “Enhancing International Investment Law’s Legitimacy: Conceptual and Methodological Foundations of a New Public Law Approach” (2011) 52 Virginia Journal of International Law 57 .

10. Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 18 March 1965, 575 U.N.T.S. 159, (entered into force 14 October 1966) [ICSID].

11. Bolivia, Ecuador, and Venezuela have denounced the ICSID Convention in 2007, 2009, and 2012, respectively—see VOON, Tania and MITCHELL, Andrew D., “Denunciation, Termination and Survival: The Interplay of Treaty Law and International Investment Law” (2016) 31 ICSID Review-Foreign Investment Law Journal 413 .

12. Bolivia has terminated ten out of a total of twenty-three of its BITs; Ecuador has terminated eleven out of a total of twenty-nine of its BITs; Indonesia has terminated twenty-six out of a total seventy-one of its BITs—see CROCKETT, Antony, “Indonesia’s Bilateral Investment Treaties: Between Generations?” (2015) 30 ICSID Review-Foreign Investment Law Journal 437 . South Africa has terminated nine out of a total of forty-nine of its BITs, most of which are not yet in force—see SCHLEMMER, Engela C., “An Overview of South Africa’s Bilateral Investment Treaties and Investment Policy” (2016) 31 ICSID Review-Foreign Investment Law Journal 1 . India has terminated fifty-eight of its BITs, although it is important to keep in mind that India has not completely walked away from the BITs and ISDS system, but has instead altered its terms of engagement—see RANJAN, Prabhash and ANAND, Pushkar, “The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction” (2017) 38 Northwestern Journal of International Law and Business 1 .

13. On the issue of reforms to the ISDS system, see KALICKI, Jean E. and JOUBIN-BRET, Anna, “Introduction” TDM Special Issue on “Reform of Investor-State Dispute Settlement: In Search of a Roadmap” (2014) 11 Transnational Dispute Management; and other contributions in the special issue, online: <https://www.transnational-dispute-management.com/article.asp?key=2023>. Also see United Nations Convention on Transparency in Treaty Based Investor State Arbitration (entered into force 18 October 2017), online: <https://www.uncitral.org/pdf/english/texts/arbitration/transparency-convention/Transparency-Convention-e.pdf>.

14. PARK, Eun Young, “Appellate Review in Investor State Arbitration” in Jean E. KALICKI and Anna JOUBIN-BRET, eds., Reshaping the Investor-State Dispute Settlement: Journeys for the 21st Century (Leiden: Brill Nijhoff and TDM-OGEMID, 2015) at 443454 .

15. See Free Trade Agreement between the European Union and The Socialist Republic of Vietnam, Chapter II (Investment), s. 3, art. 15 (agreed text as of January 2016); Also see BERNARDINI, Piero, “Reforming Investor State Dispute Settlement: The Need to Balance Both Parties’ Interests” (2017) 32 ICSID Review-Foreign Investment Law Journal 38 .

16. SCHILL, Stephan and DJANIC, Vladislav, “Wherefore Art Thou? Towards a Public Interest-Based Justification of International Investment Law” (2018) 33 ICSID Review 29 . The Investment chapter in the EU-Canada CETA is a good example of the recalibrating of investment treaties. Also see generally, SCHILL, Stephan, “In Defense of International Investment Law” in M. BUNGENBERG, C. HERRMANN, M. KRAJEWSKI, and J.P. TERHECHTE, eds., European Yearbook of International Economic Law (Springer, 2016), 309341 ; BROWER, Charles N. and BLANCHARD, Sadie, “What’s in a Meme? The Truth about Investor-State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States” (2014) 52 Columbia Journal of Transnational Law 689 .

17. The US and Canadian Model BITs are examples of countries trying to define substantive provisions with greater precision so as to reconcile the interests of foreign investors and a host state’s right to regulate—see 2012 U.S. Model BIT, online: https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf [2012 US Model BIT]; 2004 Canadian Model BIT, online: <http://www.italaw.com/documents/Canadian2004-FIPA-Model-en.pdf>. Also see HENCKELS, Caroline, “Protecting Regulatory Autonomy Through Greater Precision in Investment Treaties: The TPP, CETA, and TTIP” (2016) 19 Journal of International Economic Law 27 ; BONNITCHA, Jonathan, Skovgaard POULSEN, Lauge N. and WAIBEL, Michael, The Political Economy of the Investment Treaty Regime (Oxford: Oxford University Press, 2017). Also see art. 8.9 of the Comprehensive Economic and Trade Agreement Between Canada and the European Union, 30 October, 2016, ch. 8 (Investment).

18. ICSID Case No. ARB/10/7, Award (8 July 2016), online: http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C1000/DC9012_En.pdf.

19. Recent International Decision, “Philip Morris Brands Sàrl v. Oriental Republic of Uruguay” (2017) 130 Harvard Law Review 1986; Tania VOON and Andrew MITCHELL, “Philip Morris v Tobacco Control: Two Wins for Public Health, but Uncertainty Remains” (2016) 182 Columbia FDI Perspectives, online: <http://ccsi.columbia.edu/files/2013/10/No-182-Voon-and-Mitchell-FINAL.pdf>; Kate MITCHELL, “Philip Morris v Uruguay: An Affirmation of ‘Police Powers’ and ‘Regulatory Power in the Public Interest’” (2016) European Journal of International Law, online: EJIL: Talk <https://www.ejiltalk.org/philip-morris-v-uruguay-an-affirmation-of-police-powers-and-regulatory-power-in-the-public-interest-in-international-investment-law/>; Yannick RADI, “Philip Morris v Uruguay—Regulatory Measures in International Investment Law: To be or Not To Be Compensated?” (2018) ICSID Review—Foreign Investment Law Journal, online: <https://academic.oup.com/icsidreview/advance-article/doi/10.1093/icsidreview/six031/4832553>.

20. Philip Morris v. Uruguay, supra note 8, paras. 9–11. In this case, the claimants include Philip Morris Brand Sàrl (Switzerland) (PMB), Philip Morris Products S.A. (Switzerland) (PMP), and Abal Hermanos S.A. (Abal), jointly referred to as “Philip Morris”.

21. Ibid.

22. Ibid., para. 12.

23. Ibid.

24. Arbitrator Gary Born wrote a concurring and a dissenting opinion, Philip Morris v. Uruguay, Award, Annex B (Concurring and Dissenting Opinion) with regard to two aspects of the tribunal’s ruling on the fair and equitable treatment [FET] provision. First, the contradictory decisions rendered by Uruguay’s Supreme Court and the administrative law court constituted a denial of justice (paras. 6–9). Second, Uruguay’s SPR was “arbitrary and unreasonable” (para. 82).

25. Philip Morris v. Uruguay, supra note 8, para. 590.

26. Philip Morris v. Uruguay, Award, Annex B (Concurring and Dissenting Opinion), supra note 24, para. 196.

27. Voon and Mitchell, supra note 19.

28. KURTZ, Jürgen, “Adjudging the Exceptional at International Investment Law: Security, Public Order and Financial Crisis” (2010) 59 International and Comparative Law Quarterly 325 at 349.

29. See KURTZ, Jürgen, “Building Legitimacy Through Interpretation in Investor-State Arbitration” in Zachary DOUGLAS, Joost PAUWELYN, and Jorge E. VINUALES, eds., The Foundations of International Investment Law (Oxford: Oxford University Press, 2014), 257 .

30. See ORTINO, Federico, “Legal Reasoning of International Investment Tribunals: A Typology of Egregious Failures” (2012) 3 Journal of International Dispute Settlement 31 at 34. A very good example of a lack of clarity in legal reasoning leading to incoherent and inconsistent decisions is how many ISDS tribunals interpreted art. XI of the US-Argentina BIT. All these tribunals dealt with the same legal provision, yet reached different and inconsistent conclusions due to unclear reasoning—see Kurtz supra note 28. See supra note 6 for the list of these cases.

31. Toby LANDAU, “Reasons for Reasons: The Tribunal’s Duty in Investor-State Arbitration” (2009) 14 ICCA Congress Series 187. Also see LALIVE, Pierre, “On the Reasoning of International Arbitral Awards” (2010) 1 Journal of International Dispute Settlement 55 at 57.

32. Ortino supra note 30 at 31.

33. Ibid., 34.

34. Foreign investors have challenged a large range of regulatory measures pertaining to taxation, environmental protection, etc. as expropriation under different BITs. See Metalclad, supra note 5; Methanex, supra note 5; Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22 (ICSID Arb. Trib. 2008); Occidental, supra note 7; EnCana, supra note 7.

35. Salacuse, supra note 1 at 322.

36. Dolzer and Schreuer, supra note 1 at 101.

37. Ibid., at 92; Salacuse, supra note 1 at 297; Starrett Housing Corporation v. Islamic Republic of Iran (1983) 4 Iran-US CTR 122, 154. Also see Tippetts, Abbett, McCarthy, Stratton and TAMS-AFFA Consulting Engineers of Iran v. Islamic Republic of Iran (1984) 6 Iran-US CTR 219, 225.

38. See MOSTAFA, Ben, “The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law” (2008) 15 Australian Journal of International Law 267 .

39. Pope and Talbot Inc. v. The Government of Canada, Ad hoc Tribunal (UNCITRAL), Interim Award, (26 June 2000), para. 96; PSEG v. Turkey, ICSID Case No ARB/02/5, Award (19 January 2007), paras. 278–80 [PSEG]; CMS Award, supra note 6, para. 262.

40. See NEWCOMBE, Andrew and PARADELL, Lluís, Law and Practice of Investment Treaties: Standards of Treatment (Alphen Aan Den Rijn: Kluwer Law International, 2009) at 358–62.

41. See VINUALES, Jorge E, “Sovereignty in Foreign Investment Lawin Zachary DOUGLAS, Joost PAUWELYN, and Jorge E. VINUALES, eds., The Foundations of International Investment Law (Cambridge: Cambridge University Press: 2014), 317362 ; BROWNLIE, Ian, Principles of Public International Law, 7th ed. (New York: Oxford University Press, 2008) at 532 ; CHRISTIE, George C., “What Constitutes a Taking of Property under International Law?” (1962) 33 British YearBook of International Law at 335 , 338; Martin WAGNER, J, “International Investment, Expropriation and Environmental Protection” (1999) 29 Golden Gate University Law Review at 465, 517519 ; PELLET, Alain, “Police Powers or the State’s Right to Regulate” in M. KINNEAR, ed., Building International Investment Law: The First 50 Years of ICSID ( The Hague: Kluwer Law International, 2015) 447462 ; Methanex, supra note 5, Part IV, Ch D, 4, para. 7; Saluka Investments B.V. (The Netherlands) v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006); El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award, (31 October 2011) [El Paso].

42. Alec SWEET, Stone, “Investor-State Arbitration: Proportionality’s New Frontier” (2010) 4 Law and Ethics of Human Rights at 47 ; HENCKELS, Caroline, “Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration” (2012) 15 Journal of International Economic Law at 223–55; Tecnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB(AF)/00/2 (Award) (29 May 2003) [Tecmed Award]; LG&E Award, supra note 6, para. 195; Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 312 [Azurix]; El Paso, supra note 41, para. 241; Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, para. 285 (14 January 2010).

43. Newcombe and Paradell, supra note 40 at 358–62; RANJAN, Prabhash and ANAND, Pushkar, “Determination of Indirect Expropriation and Doctrine of Police Power in International Investment Law” in Leila CHOUKROUNE, ed., Judging the State in International Trade and Investment Law (Singapore: Springer, 2016), 127151 .

44. Vienna Convention on the Law of Treaties, 23 May 1969, 1155 U.N.T.S. 331, 8 I.L.M. 679 (entered into force 27 January 1980).

45. SIMMA, Bruno and KILL, Theodore, “Harmonising Investment Protection and International Human Rights: First Steps Towards a Methodology” in Christina BINDER, Ursula KRIEBAUM, August REINISCH, and Stephan WITTICH, eds., International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (New York: Oxford University Press, 2009), 679 at 681682 . Also see WEERAMANTRY, J Romesh, Treaty Interpretation in Investment Arbitration (Oxford/New York: Oxford University Press, 2012).

46. Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission [ILC], finalized by Martti KOSKENNIEMI, UN Doc.A/CN.4/L/682 (2006) [ILC Anti-Fragmentation Report]; PAUWELYN, Joost, Conflict of Norms in Public International Law: How WTO Law Relates to other Rules of International Law (Cambridge: Cambridge University Press, 2004) at 253270 ; TZEVELEKOS, Vassilis P., “The Use of Article 31(3)(C) of the VCLT in the Case Law of the ECtHR: An Effective Anti-Fragmentation Tool or a Selective Loophole for the Reinforcement of Human Rights Teleology?” (2010) 31 Michigan Journal of International Law 621 ; MERKOURIS, Panos, Article 31(3)(c) VCLT and the Principle of Systemic Integration (Leiden: Brill Nijhoff, 2015).

47. For a full discussion on art. 31(3)(c) of the VCLT, see GARDINER, Richard K., Treaty Interpretation (New York: Oxford University Press, 2008) 256281 .

48. See ILC Anti-Fragmentation Report, supra note 46, paras. 410–80; MCLACHLAN, Campbell, “The Principle of Systemic Integration and Article 31(3)(C) of the Vienna Convention” (2005) 54 International and Comparative Law Quarterly 279 ; Tzevelekos, supra note 46. For a contrary view on the so-called “anti-fragmentation” function of art. 31(3)(c), see SAMSON, Mélanie, “High Hopes, Scant Resources: A Word of Skepticism about the Anti-fragmentation Function of Article 31(3)(c) of the Vienna Convention on the Law of Treaties” (2011) 24 Leiden Journal of International Law 701 .

49. See Saluka v. Czech Republic, supra note 41; Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18 (Decision on Jurisdiction) (6 July 2007), at para. 270; Veteran Petroleum Ltd (Cyprus) v. The Russian Federation, UNCITRAL (Interim Award) (30 November 2009), at para. 309; El Paso, supra note 41, paras. 601–2.

50. Kurtz, supra note 29 at 280.

51. PAPARINSKIS, Martins, “Investment Treaty Interpretation and Customary Investment Law: Preliminary Remarksin Chester BROWN and Kate MILES, eds., Evolution in Investment Treaty Law and Arbitration (Cambridge: Cambridge University Press, 2011), 65 at 78.

52. Philip Morris v. Uruguay, supra note 8, paras. 2–5.

53. Ibid., para 191.

54. DOLZER, Rudolf and BLOCH, Felix, “Indirect Expropriations: Conceptual Realignments?” (2003) 5 International Law Forum 155 .

55. AWG Group Ltd v. The Argentine Republic, ICSID Case No. ARB/03/19, 30 July 2010.

56. Ibid., para. 133. Also see EnCana, supra note 7, paras. 173–8; Tippetts, Abbett, McCarthy Stratton v. TAMS AFFA Consulting Engineers of Iran, (1984), 6 Iran-US CTR 219 at 225–6; Starrett Housing Corp v. Iran, 4 Iran-US CTR 122; Enron v. Argentina, supra note 6, para. 244; Metalclad, supra note 5, para. 103; Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No ARB/97/3, Award, 20 August 2007, para. 7.5.20; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, paras. 328, 330; Mr. Patrick Mitchell v. Democratic Republic of Congo ICSID Case No ARB/99/7, (Annulment Proceedings) para. 53 for the “sole effect” doctrine.

57. Philip Morris v. Uruguay, supra note 8, para. 192

58. Ibid. Indeed, the tribunal in Pope and Talbot v. Canada held that “under international law, expropriation requires a ‘substantial deprivation’”; see Pope and Talbot v. Canada, supra note 39, para. 96. Also see PSEG, supra note 39, paras. 278–80; CMS Award, supra note 6, Decision on Liability, para. 262. LG&E v. Argentina, para. 194; Sempra v. Argentina, paras. 284–5; BG Group v. Argentina, UNCITRAL, 24 December 2007, at paras. 258–66; Enron v. Argentina, supra note 6, para. 245. AWG Group Ltd. v. The Argentine Republic, UNCITRAL, Decision on Liability, 30 July 2010, at para. 134; Corn Products International. Inc. v. United Mexican States, ICSID Case No ARB (AF)/04/1, (NAFTA), Decision on Responsibility, 15 January 2008, at para. 91.

59. Total S.A. v. The Argentine Republic, ICSID Case No ARB/04/01, Decision on Liability, 27 December 2010.

60. Ibid., para. 195.

61. Philip Morris v. Uruguay, supra note 8, para. 192.

62. Ibid., para. 284.

63. Ibid., para. 286.

64. Ibid., paras. 284, 285. Also see LG&E v. Argentina, ICISD Case No ARB/02/1, Decision on Liability, 3 October 2006, para. 191.

65. Philip Morris v. Uruguay, supra note 8, para. 192.

66. Ibid., para. 287.

67. Ibid., paras. 287, 307.

68. Ibid., para. 307.

69. Chemtura Corporation v. Government of Canada, UNCITRAL, Award, 2 August 2010 [Chemtura].

70. Ibid., paras. 241–65.

71. Ibid., para. 265.

72. Ibid., para. 266

73. AWG v. Argentina, supra note 55, paras. 132–7.

74. Ibid., para 139.

75. Ibid., para. 140.

76. See Paparinskis, supra note 51 at 73; SIMMA, Bruno, “Foreign Investment Arbitration: A Place for Human Rights” (2011) 60 International and Comparative Law Quarterly 573 at 584585 ; Simma and Kill, supra note 45 at 695–9; Gardiner, supra note 47 at 259–65.

77. Simma, supra note 76 at 585.

78. Ibid.

79. Ibid.; Paparinskis, supra note 51 at 70–1.

80. Paparinskis, supra note 51; Kurtz, supra note 29 at 280–1.

81. Paparinskis, supra note 51.

82. Philip Morris v. Uruguay, supra note 8 at para. 290.

83. Ibid., at paras. 291, 292, 293, 294. Legal scholarship also recognizes the police powers rule as part of CIL—see Newcombe and Paradell, supra note 40 at 358; Vinuales, supra note 41 at 329, 344; Pellet, supra note 41 at 449. A related issue could be whether the police powers rule is part of CIL or a general principle of law under art. 38(1)(c) of the ICJ Statute—see TITI, Catharine, “Police Powers Doctrine and International Investment Lawin Filippo FONTANELLI, Andrea GATTINI, and Attila TANZI, eds., General Principles of Law and International Investment Arbitration (Brill, 2018) 323 , online: <https://ssrn.com/abstract=3050417>.

84. Philip Morris v. Uruguay, supra note 8 at para. 291.

85. Saluka v. Czech Republic, supra note 41 at para. 256.

86. SOHN, Louis B. and BAXTER, B.B., “Draft Convention on the International Responsibility of States for Injuries to Aliens” (1961) 55 American Journal of International Law 548 .

87. American Law Institute, Restatement of the Law (Third) of Foreign Relations Law of the United States (1987), at para. 712, comment (g).

88. OECD, “Indirect Expropriation and the Right to Regulate in International Investment Law”, OECD Working Papers on International Investment, 2004/4 September 2004.

89. Philip Morris v. Uruguay, supra note 8 at para. 295.

90. The tribunal referred to Tecmed v. Mexico, Saluka v. Czech Republic, Chemtura v. Canada. See Philip Morris v. Uruguay, supra note 8 at paras. 295–9.

91. 2012 U.S. Model Bilateral Investment Treaty, art. 6 (3 September 2017), online: USTR <https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf>.

92. Comprehensive Economic and Trade Agreement [CETA)] Between Canada and the European Union, art. 8.12 (4 September 2017), online: <https://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf>.

93. Philip Morris v. Uruguay, supra note 8 at para. 301.

94. Ibid., paras. 302–4.

95. Ibid.

96. Ibid., para. 304.

97. Ibid., para. 305.

98. Ibid., para. 306.

99. Methanex, supra note 5 at para. 298; Chemtura, supra note 69 at para. 299.

100. Philip Morris v. Uruguay, supra note 8 at paras. 306, 307.

101. Newcombe and Paradell, supra note 40 at 358.

102. For a discussion on the test of reasonableness in international law. see CORTEN, Olivier, “The Notion of ‘Reasonable’ in International Law: Legal Discourse, Reason and Contradictions” (1999) 48 International and Comparative Law Quarterly 613 . For a detailed discussion on the test of reasonableness in international investment law, see ORTINO, Federico, “Investment Treaties, Sustainable Development and Reasonableness Review: A Case against Strict Proportionality Balancing” (2017) 30 Leiden Journal of International Law 71 .

103. On the issue of proportionality, see KINGSBURY, Benedict and SCHILL, Stephan, “Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest—The Concept of Proportionality” in Stephan SCHILL, ed., International Investment Law and Comparative Public Law (New York: Oxford University Press, 2010) 75 ; Sweet, supra note 42.

104. Pope and Talbot v. Canada, Ad hoc Tribunal (UNCITRAL), Award on the Merits of Phase 2, 10 April 2001, at paras. 123, 125.

105. AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of Hungary, ICSID Case No ARB/07/22, Award of 23 September 2010, at para. 10.3.9. Also see Saluka Investments B.V. (The Netherlands) v. The Czech Republic, UNCITRAL (Partial Award) (17 March 2006) at para. 309 [Saluka Partial Award].

106. Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Award, 15 November 2015, at para. 179. Also see Micula et al v. Romania, Award, 11 December 2013, at para. 525.

107. Ortino, supra note 102 at 72–3.

108. HAN Xiuli, “The Application of the Principle of Proportionality in Tecmed v. Mexico” (2007) 6 Chinese Journal of International Law 635 at 636637 ; Kingsbury and Schill, supra note 103 at 85–8; KULICK, Andreas, Global Public Interest in International Investment Law (Cambridge: Cambridge University Press, 2012) at 186189 .

109. LEONHARDSEN, Erlend M., “Looking for Legitimacy: Exploring Proportionality Analysis in Investment Treaty Arbitration” (2011) 3 Journal of International Dispute Settlement 95 ; JANS, Jan H., “Proportionality Revisited” (2000) 27 Legal Issues of Economic Integration 239 at 240241 .

110. Ibid. See also Jans, supra note 109 at 240.

111. Jans, supra note 109 at 240; Kingsbury and Schill, supra note 103 at 86-7.

112. Jans, supra note 10 at, 241; Kingsbury and Schill, supra note 99 at 87–8.

113. Philip Morris v. Uruguay, supra note 8 at para. 306.

114. Also see Radi, supra note 19.

115. Although it is well established that the doctrine of binding precedent does not apply in international adjudication (see AES Corporation v. The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, at para. 23), ISDS tribunals do refer to previous decisions for inspiration or guidance (see AES Corporation v. The Argentine Republic at para. 30, Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, at para. 67).

116. Methanex, supra note 5, Award , Part IV, Ch D, 4 at para. 7.

117. Kurtz, supra note 29 at 292.

118. Saluka v. Czech Republic, supra note 41, para. 254.

119. Ibid., para. 276. Also see para. 262.

120. In this regard, also see Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No ARB/08/5, Decision on Liability, 14 December 2012, at paras. 472–85, where the tribunal held that that to prove whether a regulatory measure amounts to indirect expropriation, it has to be shown that the regulatory measures (i) resulted in substantial deprivation of investment, (ii) on a permanent basis, and (iii) has no justification in the police powers doctrine.

121. Saluka v. Czech Republic, supra note 41 at paras. 257, 258.

122. It is interesting to compare the Saluka rule with the tribunal’s holding in Seuz v. Argentina, 30 July 2010—the tribunal in para. 139 laid down the police power rule as follows: “in evaluating a claim of expropriation it is important to recognize a State’s legitimate right to regulate and to exercise its police power in the interests of public welfare and not to confuse measures of that nature with expropriation.” In the very next paragraph, the tribunal held that “given the nature of the severe crisis facing the country, those general measures were within the general police powers of the Argentine State, and they did not constitute a permanent and substantial deprivation of the Claimants’ investments”. In other words, the tribunal seemed to suggest that a legitimate measure adopted by a state for public welfare (the police power exception) can be expropriatory if it constitutes a permanent and substantial deprivation of foreign investment. So, notwithstanding the police power rule, the determining factor to establish indirect expropriation is substantial deprivation.

123. Chemtura, supra note 69 at para. 266

124. Ibid., para. 266.

125. Philip Morris v. Uruguay, supra note 8 at para. 296.

126. Tecmed Award, supra note 42 at para. 119.

127. Acuerdo Para La Promocion Y Proteccion Reciproca De Inversiones Entre El Reino De España Y Los Estados Unidos Mexicanos, 10 October 2006.

128. Tecmed Award, supra note 42 at para. 121.

129. Ibid., para. 122.

130. Ibid. For a critical take on Tecmed’s proportionality analysis, see Henckels, supra note 42 at 232. Also see Leonhardsen, supra note 109.

131. On the issue of ISDS tribunals misusing precedents, see generally Federico ORTINO, “Legal Reasoning of International Investment Tribunals: A Typology of Egregious Failures” (2012) 3 Journal of International Dispute Settlement 31 at 3843 ; COMMISSION, Jeffery P., “Precedent in Investment Treaty Arbitration: A Citation Analysis of Developing Jurisprudence” (2007) 24 Journal of International Arbitration 129 at 156; DOUGLAS, Zachary, “Nothing if not Critical for Investment Treaty Arbitration” (2006) 22 Arbitration International 27 at 28 .

132. See Abi SAAB, G., “The Appellate Body and Treaty Interpretationin Giorgio SACERDOTI, Alan YANOVICH, and Jan BOHANES (eds.), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006), 463 .

133. See Anglo-Norwegian Fisheries Case, [1951] I.C.J. Rep. 116 at 131; North Sea Continental Shelf Case, [1969] I.C.J. Rep. 3 at 26–7.

134. See FITZMAURICE, Gerald, “The Law and Procedure of the International Court of Justice: General Principles and Sources of Law” (1953) 30 British Yearbook of International Law 1 at 5.

135. See Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) Notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, [1971] I.C.J. Rep. 16; Gabčikovo-Nagymaros Project (Hungary v. Slovakia), Judgment, 25 September 1997, Separate Opinion of Judge Weeramantry, [1997] I.C.J. Rep. 7 at 113–14; Ulf LINDERFALK, On the Interpretation of Treaties: The Modern International Law as Expressed in the 1969 Vienna Convention on the Law of Treaties (Dordrecht: Springer, 2007) at 182–3.

136. See Simma and Kill, supra note 45 at 697–8, Gardiner, supra note 47 at 264.

137. Simma and Kill, supra note 45 at 696–7; Gardiner, supra note 47.

138. See McLachlan, supra note 48 at 314; Gardiner, supra note 47 at 263–75; ILC Anti-Fragmentation Report, supra note 46; Ulf LINDERFALK, “Who Are ‘The Parties’? Article 31, Paragraph 3(C) of the 1969 Vienna Convention and the ‘Principle of Systemic Integration’ Revisited” (2008) 55 Netherland International Law Review 343; Pauwelyn, supra note 46 at 261; Samson, supra note 48 at 701.

139. Paparinskis, supra note 51 at 71.

140. MARCEAU, Gabrielle, “Conflicts of Norms and Conflict of Jurisdictions: The Relationship Between the WTO Agreement and MEAs and Other Treaties” (2001) 35 Journal of World Trade 1081 at 1087. Also see Oil Platforms (Iran v. USA), Merits, Judgment, 6 November 2003, Separate Opinion of Judge Higgins, [2003] I.C.J. Rep. 161 at 237, paras. 45–6 [Oil Platforms].

141. Simma and Kill, supra note 45 at 695–6. Also see Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), Judgment, 4 June 2008, [2008] I.C.J. Rep. 177 at para 113; Paparinskis, supra note 51 at 71; McLachlan, supra note 48 at 280.

142. Simma and Kill, supra note 45 at 695. Also see D. FRENCH, “Treaty Interpretation and the Incorporation of Extraneous Legal Rules” (2006) 55 International and Comparative Law Quarterly 281 at 304.

143. Simma and Kill, supra note 45 at 696.

144. Paparinskis, supra note 51 at 71; Frank BERMAN, “Treaty ‘Interpretation’ in a Judicial Context” (2004) 29 Yale Journal of International Law 315 at 320; Oil Platforms, Separate Opinion of Judge Higgins, supra note 140 at para. 46.

145. Oil Platforms, Separate Opinion of Judge Higgins, supra note 140 at para. 46.

146. Paparinskis, supra note 51 at 73.

147. Gardiner, supra note 47 at 278; Berman, supra note 144 at 620.

148. ORAKHELASHVILI, Alexander, “Restrictive Interpretation of Human Rights Treaties in the Recent Jurisprudence of the European Court of Human Rights” (2003) 14 European Journal of International Law 537 ; Kurtz, supra note 29 at 281 observes that “the distinction in the use of external norms—between direct applicability and interpretative guidance—is sometimes elided”. Also see French, supra note 145 at 288–90. Also see SANDS, Philippe, “Treaty, Custom and the Cross-fertilisation of International Law” (1998) 10 Yale Human Rights and Development Law Journal 3 at 8; Pauwelyn, supra note 46 at 253254 .

149. Philip Morris v. Uruguay, supra note 8 at paras. 305–7.

150. Also see Paparinskis, supra note 51.

151. Philip Morris v. Uruguay, supra note 8 at paras. 290–307

152. Oil Platforms, supra note 140.

153. Gardiner, supra note 47 at 278.

154. Treaty of Amity, Economic Relations and Consular Rights between the United States and Iran, 15 August 1955, 284 U.N.T.S. 93 (entered into force 16 June 1957) [Iran-U.S. Treaty of Amity].

155. Oil Platforms, supra note 140 at para. 18(b).

156. Iran-U.S. Treaty of Amity, supra note 154, art. XX(1)(d).

157. Oil Platforms (Islamic Republic of Iran v. USA), (Preliminary Objection), [1996-II] I.C.J. Rep. 820 at para. 53.

158. Oil Platforms, supra note 140 at para. 41.

159. Oil Platforms, Separate Opinion of Judge Higgins, supra note 140 at para. 49.

160. Saluka v. Czech Republic, supra note 41 at para. 254.

161. Ibid., at para. 276. Also contrast these treaty interpretation methodologies with the methodology followed by the tribunal in Chevron v. Ecudaor, UNCITRAL, PCA Case No. 2009-23. The tribunal had to interpret art. II(7) of the US-Ecuador BIT, which imposes an obligation on the host state “to provide effective means of asserting claims and enforcing rights” to foreign investors. The tribunal held that art. II(7) overlaps significantly with CIL on denial of justice (para. 242). The tribunal then emphasized that its role is to interpret and apply art. II(7), which can be informed by the CIL on denial of justice (para. 244). The tribunal was careful not to state that it could directly apply the CIL on denial of justice, which would have the effect of displacing the treaty norm.

162. See also Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, 6 February 2007, at para. 270, which said that the purpose is a criterion to determine whether expropriation is in accordance with the BIT, not to determine whether expropriation has taken place.

163. Paparinskis, supra note 51 at 89.

164. Ibid.

165. Kurtz, supra note 29 at 291.

166. Ibid.

167. Ibid.

168. The phrases “public purpose” and “public interest” have often been used interchangeably. See Siemens v. Argentina, ICSID Case No. ARB/02/8, 6 February 2007, at para. 273; Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No ARB/08/8, 1 March 2012. On this point, also see Yvette ANTHONY, “The Evolution of Indirect Expropriation Clauses: Lessons from Singapore’s BITs/FTAs” (2017) 7 Asian Journal of International Law 319 at 330–2.

169. See Kenneth J. VANDEVELDE, Bilateral Investment Treaties: History, Policy and Interpretation (Oxford: Oxford University Press: 2010) 296.

170. Radi, supra note 19.

171. Vandevelde, supra note 169.

172. F. VICUNA, “Carlos Calvo, Honorary NAFTA Citizen” (2002) 11 New York University Environmental Law Journal 19 at 27. See also Mostafa, supra note 38.

173. ADC Affiliate Ltd and ADC and ADMC Management Ltd v. The Republic of Hungary, ICSID Case No. ARB/03/16 (Award 2 October 2006).

174. Ibid., at paras. 423–4.

175. Ibid.

176. Azurix, supra note 42 at para. 310. See also Anne K. HOFFMAN, “Indirect Expropriation” in August REINISCH, ed., Standards of Investment Protection (New York: Oxford University Press, 2008), 151; Kenneth J. VANDEVELDE, “A Comparison of the 2004 and 1994 U.S. Model BITs: Rebalancing Investor and Host Country Interests” in Karl P. SAUVANT, ed., Yearbook on International Investment Law and Policy (New York: Oxford University Press, 2009), 283 at 302; Kurtz, supra note 29 at 290–1; Fireman’s Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/1, (NAFTA), Award, 17 July 2006, at para. 174; Corn Products International, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/01, (NAFTA), Decision on Responsibility, 15 January 2008, at para. 89.

177. For example, the tribunal in Sempra Energy v. Argentina held that, although Argentina’s regulatory measures had “a very adverse effect” on foreign investment, there was no expropriation because the high threshold needed to establish indirect expropriation was not met—at para. 285. Also see Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, para 270.

178. See Section II of this paper.

* Assistant Professor at the Faculty of Legal Studies, South Asian University [SAU], New Delhi, India. The author is extremely grateful to the anonymous reviewers of the Journal for their very helpful comments. The author also thanks Santosh Anand and Samarth Trigunayat of SAU for their help in writing the paper.

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