Originally from Investment Treaty Arbitration and International Law - Volume 8

I. INTRODUCTION

In little over a decade, investor-state arbitration has had a transformative impact on international legal practice, jurisprudence and scholarship. It continues, however, to provoke strong debate as to the balance that should be struck within the international investment protection regime between the substantive rights of foreign private investors and the public regulatory imperatives of sovereign States; and as to the actual scope in the investment protection treaties themselves for arbitral tribunals to strike such a balance on the proper application of the rules of treaty interpretation.1 At the heart of this debate is the question of whether investor-state arbitration is a form of private international dispute resolution – a subspecies of international commercial arbitration perhaps – or whether it should rather be understood as something more akin to judicial review under domestic public law. This is arguably the most important question in international investment law today because an increasing number of investment treaty cases do not concern straightforward direct expropriation claims, but require tribunals to decide classic domestic public or administrative law-type questions about the proper limits of State power to regulate in the public interest – in respect of health, safety and environmental regulation, labour or other human rights standards, or in response to economic crises through bailouts, subsidies and restructurings.

Indeed, it is the potential public ramifications of investor-state arbitration that have generated the most criticism – often mirroring critiques of globalization – including that investor-state arbitration trumps the State’s regulatory sovereignty, especially at times of national emergency; unfairly favours investment over other values or goals; and inappropriately uses financially-incentivised men of commerce to secretly resolve cases of public interest.2 It has thus become common to speak of a "legitimacy crisis" in investor-state arbitration.