Originally from Investment Treaty Arbitration and International Law - Volume 3

For as long as human societies have recognized the concept of private property, legitimate conflicts have inevitably arisen between the substantive rights of property-holders on one hand, and the interests of the public on the other. Naturally, the resolution of such conflicts takes many shapes, depending on the context in which they emerge. The present article will focus on one such context: namely, the international law protection of alien property – or, in modern parlance, foreign investment. In particular, this article will consider the proper allocation of authority for resolving conflicts between the international law rights of foreign investors and those of the general public, and, more specifically, whether host states should be afforded a ‘margin of appreciation’ in the application of substantive investment protection standards in cases that ostensibly implicate questions of public policy.

In order to approach this topic in a meaningful way, the present article will proceed on the basis of two fundamental assumptions. First, it will take as a central premise the notion that the investment protection standards in question are to be applied by international investment arbitration tribunals, operating within a defined system of international investment protection. This is indeed significant because, in this author’s view, there is no prescribed formula capable of ensuring that a balance between public and private interests is achieved in every case. Rather, the method applied will depend upon the character of the system charged with striking that balance. In turn, the best way to ensure an optimal balance ex-ante is to safeguard the proper functioning of those systems.

Second, the article will take for granted that the margin of appreciation (“MOA”) comprises a specific international judicial doctrine developed by the European Court of Human Rights (“ECHR”), and which requires the application of a deferential standard of review to any state regulatory action involving balancing of public and private interests.

On the basis of these assumptions, the article will conclude that the margin of appreciation doctrine is, as a general matter, not appropriate for application in the investment arbitration context. In the first place, the MOA doctrine possesses inherent flaws which tend to undermine the effective development and protection of rights by any institution that reverts to it. In addition, while the doctrine has nevertheless been embraced by the ECHR over the past half century, there are systemic features underlying its development by that institution that militate against the doctrine’s incorporation into the general principles of law applied by international tribunals, and more specifically against its adoption by tribunals in the investment arbitration context.