International Human Rights Law, Investment Arbitration and Proportionality Analysis: Panacea or Pandora’s Box?

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GuntripEdward Guntrip is a Lecturer in Commercial Law at the University of East Anglia.

Investment law jurisprudence has failed to fully explore the relationship between international investment law and international human rights law (for example, see the cursory examination given in Vivendi v. Argentina para 262 and Pezold v. Zimbabwe Procedural Order 2 paras 57 – 59). As a result, the question of how to approach normative conflict between principles drawn from these regimes remains pertinent when resolving investment disputes with human rights implications. Proportionality analysis has been proposed as a suitable methodology for the resolution of this type of normative conflict (see Schill, ‘Cross-Regime Harmonization through Proportionality Analysis: The Case of International Investment Law, the Law of State Immunity and Human Rights’ 27 ICSID Review – FILJ (2012) 87). The use of proportionality analysis received tacit support when an ICSID arbitral tribunal suggested ‘counterbalancing’ competing obligations drawn from international investment law and international human rights law so as to determine which should be prioritised (see SAUR v. Argentina para 332, although the ICSID arbitral tribunal did not conduct the proposed balancing exercise). Despite support for proportionality analysis, the employment of this methodology by investment tribunals to resolve conflicts between investment protection standards and obligations sourced from international human rights law should be approached with caution. Whilst proportionality analysis is attractive as a concept, its application in instances of inter-regime normative conflict remains problematic.

Proportionality analysis is a legal construct that provides a methodology for decision makers to balance conflicting rights and interests by using a three-stage test. Initially, the decision maker must determine whether the measure giving effect to the interest being prioritised is capable of achieving its objective.  If so, the focus turns to whether the measure is necessary to achieve its end, or whether a less restrictive, but equally effective measure could be used. Finally, the decision maker addresses proportionality stricto sensu. This final stage evaluates whether the effects of the measure adopted are excessive compared to the competing right or interest that has been infringed. The decision maker should appraise the weight of each interest before a determination is made regarding whether the means used achieve their aim.

The application of proportionality stricto sensu is the most problematic aspect of proportionality analysis. In effect, proportionality stricto sensu necessitates that a decision maker places the competing rights or interests on a sliding scale, with the full exercise of each right or interest placed at opposite ends. The decision maker must identify the ‘tipping point’ between these rights or interests, based on their respective weight, to evaluate whether the conduct in question is proportionate. However, for this sliding scale to operate effectively the interests being balanced must be comparable (see Cali, ‘Balancing Human Rights? Methodological Problems with Weights Scales and Proportions’ (2007) 29 Human Rights Quarterly 251, 257). If the interests are too diverse, the policy considerations that underlie each right or interest are not capable of intersecting and it becomes impossible to identify a ‘tipping point’.

Proportionality analysis is considered to be a desirable means of reconciling conflicting norms given the structured manner in which it balances competing interests (see Kingsbury and Schill ‘Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest – the Concept of Proportionality’ in Schill (ed.) International Investment Law and Comparative Public Law (OUP, 2010) 78). In principle, a structured approach to resolving normative conflict in the context of international investment law is beneficial given the existing concerns over the legitimacy of investment tribunals (see Biwater v. Tanzania, Procedural Order 5, para 50) in part, due to their ad hoc (or non-existent) approaches to normative conflict. Yet, this author’s view is that the very structure of proportionality analysis precludes it from effectively resolving normative conflict between principles sourced in international investment law and international human rights law.

In the context of international investment law, there are a variety of policy considerations that may impact the operation of an investment protection standard. Whether the competing interests are capable of being compared by an investment tribunal on a sliding scale is contingent on the manner in which they are identified and classified. The process of identifying and classifying each right or interest is not a scientific task. Hence, depending on how this process is undertaken, there is potential for subjective decision making. The risk of partiality is exacerbated by the propensity of some arbitrators to prioritise either commercial aspects of investment arbitration (given its procedural origins in international commercial arbitration, see Glamis Gold v. United States of America para 3) or wider policy considerations associated with the investment (based on the international investment law regime being situated within the wider corpus of public international law, see Lemire v. Ukraine para 273). Importantly, the outcome of the identification and classification process also contributes to the respective weight that the decision maker confers upon each interest.

The significance of identifying, classifying and attributing a ‘weight’ to an interest is illustrated by the Tecmed  v. Mexico decision. In this case, the host state had failed to renew a licence for a hazardous waste landfill site owned by a foreign investor. The host state cited environmental and safety grounds for the decision. However, prior to the non-renewal of the licence, protests from the local community regarding the location of the landfill site had escalated. The tribunal concluded that the environmental breaches in this case were not sufficient to warrant the non-renewal of the licence (para 106 onwards). Rather, the tribunal considered that the public protests had been more persuasive (para 145) and, as a result, balanced this factor against the prohibition on expropriation. The tribunal decided the case in favour of the foreign investor. By determining that the public protests were more influential than the environmental considerations, the weight of the former interest dictated the outcome of the award. Had the tribunal classified the environmental justifications as being paramount, the subsequent weight of the interest had the potential to significantly affect the outcome of the decision.

This decision gives rise to wider issues regarding the application of proportionality analysis in investment arbitration. For example, the investment tribunal considered that one of the two factors had primarily contributed to the host state’s conduct giving rise to the claim. Instances may arise where it is not possible to identify a single dominant consideration from the facts of the dispute. Based on Tecmed, it is unclear how an investment tribunal would approach such a case and attempt to balance multiple interests against the investment protection standard using proportionality analysis. Whilst the Tecmed tribunal’s use of proportionality analysis has been cited with approval in subsequent awards relating to both the expropriation and fair and equitable treatment standards (see LG&E v. Argentina para 195 and Occidental v. Ecuador paras 404 – 409), this aspect of proportionality analysis has not been considered in detail.

When the application of proportionality stricto sensu is translated into situations involving conflicting principles of international investment law and international human rights law, the significance of how an investment tribunal identifies, classifies and evaluates each interest increases. This is particularly so when dealing with international human rights law given its expansive remit. For example, when identifying and classifying a ‘human rights’ interest, the decision maker would need to cross-reference the specific interest against international human rights law provisions to accurately classify the nature of the right. In light of their specialist focus, it is debatable whether all decision makers on investment tribunals possess the expertise to undertake this task. Further complicating factors could also arise. Some interests may extend across several international human rights law obligations. The decision maker would have to determine which right best reflected the interest being pursued. This process could lead to arbitrary or subjective decision making that has the potential to dictate the outcome of the dispute in a similar manner to that exhibited in Tecmed. Further, if a clear distinction cannot be drawn between different rights, an investment tribunal may need to balance multiple interests against the investment standard. It is unclear how proportionality analysis could be applied in this manner.

Additionally, not all human rights law obligations are conferred with the same standing. For example, the nature of the human right may be either a minimum standard or a progressive right (c.f. rights set out in the ICCPR and the ICESCR), or it could be an absolute or derogable right. How host states interpret and implement these rights varies, which may again influence both how the interest is classified and its relative weight when compared to an investment protection standard. In short, it is not possible for a tribunal to simply classify an interest as ‘international human rights law’ and to balance this with investment protection standards, as many variables need to be taken into account. Therefore, despite the initial appeal of proportionality analysis, which superficially suggests a clear methodology to resolve normative conflict, its use by investment tribunals for this purpose generates significant complications. These difficulties have the potential to continue to undermine the legitimacy of investment awards that seek to resolve normative conflict.

The issue of how investment tribunals should resolve conflicts between principles sourced from international human rights and international investment is complex. As conflicts will continue to arise, investment tribunals will need to proactively address the relationship of the international investment law regime with other regimes in public international law, including the international human rights law regime, to clarify the manner in which they inter-relate. Methodologies or criteria that can guide the decision makers require further exploration. However, it is submitted that the complicating factors outlined above lead to the conclusion that proportionality analysis is not the appropriate means to resolve normative conflict in the context of investment arbitration.

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