Originally from Investment Treaty Arbitration and International Law - Volume 3

During President Obama’s visit to London for the G-20 Summit in April 2009, both he and the First Lady had the opportunity to visit with Queen Elizabeth II and Prince Philip at Buckingham Palace. In somewhat of a diversion from the heavy task at hand in the G-20 Summit — solving the global economic crisis — news media outlets across the country (and indeed across the globe) enjoyed a somewhat light-hearted story of the meeting between the Queen and America’s new (and extraordinarily popular) First Couple. While the two sides exchanged gifts (the Obamas presented the Queen with an iPod loaded with footage of her last visit to the U.S. and a rare song book autographed by the American composer of the King and I, Richard Rodgers; the Royal Couple, in turn, bestowed the Obamas with autographed self-portraits) much commentary was based on the introductory formalities (or lack thereof) between the famous couples. Specifically, the Obamas did not bow to the Queen.

There are a number of formalities attached to interacting with royalty simply because of their “royal status.” David Williamson, co-editor of Debrett’s (apparently the last word in social etiquette) notes that when encountering royalty, men should bow from their shoulders or neck, while women should curtsey. Another etiquette source provides that “you may not shake the Queen’s hand, only touch it briefly.” And yet the Obamas decided to forego the bows and curtseys, and all of the deferential implications thereto, and instead opted for a “good-old-fashioned” American handshake. From all accounts, the Queen did not take offense.

The First Couple’s actions should be heeded by international investment arbitral tribunals. Although there is no doubt that sovereigns should be treated with due respect, it is unnecessary and indeed improper, to “bow to the sovereign” (i.e. give undue deference) —simply because of its sovereign status — when resolving international investment disputes. Indeed, adopting such a deferential approach would constitute an abdication of the tribunal’s essential task: to scrutinize strictly and objectively all the surrounding facts and circumstances and determine whether the State’s regulatory actions are in conformity with — or violative of — its international legal obligations.

This Chapter considers whether a place exists for a “margin of appreciation” in applying international investment standards, i.e. whether international arbitral tribunals should “bow to the Queen.” It examines the margin of appreciation doctrine (the “Doctrine”), a canon found in both domestic and international law, that involves the application of a deferential standard of review by third-party adjudicators to the regulatory actions of national authorities. The Chapter discusses the Doctrine’s potential transference into the sphere of international investment arbitration. Investor-State arbitrations — by definition — involve a complex balancing of a host State’s right to regulate in the interest of its citizenry and the foreign investor’s right to be free from undue interference with its rights by the State. Without doubt, these countervailing forces are most heightened in the context of national emergencies.

Have ICSID tribunals embraced the Doctrine in this context? This Chapter will analyze the adoption of the Doctrine — either implicitly or explicitly — by arbitral tribunals assessing the legality of Argentina’s regulatory conduct in connection with its economic crisis commencing in 2001. As this analysis will demonstrate, some tribunals have greeted sovereigns with a firm handshake, others have given an intermediate nod, and still others have unreservedly bowed to the sovereign. The Chapter concludes that the importation of the Doctrine into the investment arbitration arena is undesirable and inappropriate for a number of reasons, which emanate from both the inherent shortcomings of the Doctrine and its systemic underpinnings. Simply put, this author advocates that arbitral tribunals should not “bow to the Queen.”