Analysis of the effectiveness of methods of taking account of public

139See generally UNCTAD, The Protection of National Security in IIAs: UNCTAD Series on International Investment Policies for Development (UNCTAD 2009); Andrew D Mitchell and Caroline Henckels, ‘Variations on a Theme: Comparing the Concept of ‘Necessity’ in International Investment Law and WTO Law’ (2013) 14 Chi J Intl L 93.

140See for example New Zealand and China: Agreement on the promotion and protection of investments (with exchange of notes), signed 22 November 1988, entered into force 25 March 1989, art 11.

141See for example Romania and Egypt: Agreement on the promotion and mutual guarantee of capital investments (with protocol), signed 10 May 1976, entered into force 3 April 1996, protocol, para 1.

142See for example US Model BIT (2012), art 18.

143Anne van Aaken, ‘International investment law between commitment and flexibility: a contract theory analysis’ (2009) 12 J Intl Economic L 507, 524-25; José E Alvárez and Kathryn Khamsi,

‘The Argentine Crisis and Foreign Investors: a Glimpse into the heart of the Investment Regime’ in Karl P Sauvant (ed), The Yearbook of International Investment Law and Policy 2008-2009 (OUP 2009) 463-65.

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The foregoing analysis of the application of proportionality analysis, of the taking into account of the host state’s non-investment related international obligations through customary international law methods of interpretation and, finally, of the application of the customary international law of necessary and of NPM clauses has outlined a number of the problems and uncertainties associated with each of these methods. Turning first to proportionality analysis, this methodology is not suitable for resolving conflicts between rules and so, for example, it cannot be used to resolve direct treaty conflicts. Secondly, the hybrid nature of investment treaty arbitration and the distinctions that can be drawn between it and human rights or constitutional adjudication mean that there is continuing uncertainty as to whether investment treaty arbitration constitutes an appropriate forum for the use of proportionality analysis, even if the application of proportionality analysis could potentially have a positive effect. Thirdly, the ‘asymmetric’ nature of IIAs and of the investment treaty arbitration system makes it difficult to effectively balance host state and investor interests, particularly given the uncertainties surrounding what is meant by the public interest in the context of investment treaty arbitration.

However, removing balancing from the analysis entirely could potentially be detrimental both to investor interests and also to the optimisation of host state interests. Finally, and on a more practical note, the effect of application of proportionality analysis may be limited if it is not applied in respect of all of the alleged breaches of the relevant IIA.

An analogous problem arises where the non-investment related international obligations of the host state are introduced into investment treaty arbitration through arguments based on customary international law methods of interpretation.

Thus, even if such obligations are introduced in this manner (which, in itself, is not uncontroversial), the tribunal must then determine the weight to be attributed to such norms and this is not an easy determination to make, given the focus of the investment treaty system on the protection of a particular set of interests.

Finally, turning to the customary international law defence of necessity, as a consequence of both the object of IIAs to protect the rights of foreign investors in situations of economic difficulty and of the nature of the defence of necessity as a secondary rule of customary international law, the defence of necessity must inexorably be narrowly drawn and, therefore, will be of assistance to host states in exceptional circumstances only. Similarly, NPM clauses, given their variable scope,

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are a ‘patchy’ means of protecting states’ right to act to protect essential national interests in times of crisis.

Given these difficulties, it is submitted that the academic literature on taking account of public interest considerations at the merits stage of the investment treaty arbitration process is likely to continue to outstrip arbitral practice. While the fact that there are certain issues associated with taking account of public interest considerations at the merits stage of the arbitral process does not necessarily have as its corollary the proposition that the remedies stage of the arbitral process should constitute a forum for taking account of such considerations, it does at least raise this proposition as a legitimate subject of enquiry. In particular, the unifying point that underlies the specific issues outlined above is that, fundamentally, taking account of public interest considerations at the merits stage can lead only to a black-or-white decision as to liability. This ‘all or nothing’ approach requires one set of interests (i.e. those of the claimant investor or those of the host state) to be prioritised in order to come to that determination and so may lead to either investor or host state interests not being optimised, particularly in circumstances where one set of interests marginally outweighs the other. Therefore, it is submitted that it is worth questioning whether an ‘all or nothing’ approach to liability is appropriate to investment treaty arbitration or whether introducing an element of balancing at the remedies stage would be beneficial.¹⁴⁴ Accordingly, the following chapter will examine the operation of the remedies stage of the investment treaty arbitration process and will consider whether the remedies stage should play a role in taking account of public interest considerations.

144For a similar proposition (in the context of the expropriation clause only) see Ursula Kriebaum,

‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 J World Investment & Trade 717.

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Chapter 4: The remedies stage as a platform for public interest