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Mrs. Estefanía Ponce-Durán

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Dr Andrew Willcocks

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Proportionality in FET

I. Definition


The doctrine of proportionality is a decision-making procedure used by courts and tribunals to weigh tensions between competing values or interests.1 It is used to determine whether a State’s encroachment upon an individual’s right is justified,2 balancing rights and rights-limiting policy choices.3 Proportionality demands that there be a reasonable relationship between the means employed and the aim sought to be realized.4

II. Elements of a proportionality analysis


A proportionality analysis usually involves several of the following considerations:

  1. the legitimacy of the aim or public policy pursued, or whether the State is authorized to take such a measure,5 including the State’s discretion or margin of appreciation in exercising its regulatory prerogatives (See also State regulatory power and Public interest);6
  2. the suitability of the measure, i.e. whether the measure adopted by the State is appropriate or rationally-related to the stated policy objective;7
  3. the measure must be the least restrictive means to effectively achieve the policy objective that would infringe the individual’s right to a lesser extent (the necessity of the measure);8 and
  4. proportionality stricto sensu, or whether the particular consequences of adopting the measure are excessive or disproportionate as compared to the aimed policy objective.9

At least one tribunal has determined that, in the case of sector-wide measures, the proportionality analysis must take into account the overall feature and effect(s) of a State’s measure on investors and their investments (and “not through the narrow lens of its impact on a particular investor”).10


Proportionality in this sense should however be distinguished from defenses a State may advance to excuse the violation of its obligations such as necessity.11 

III. Whether proportionality is a general principle of law


There is ample debate as to whether the doctrine of proportionality is a general principle of law, in accordance with Article 38(1)(c) of the Statute of the International Court of Justice. Bücheler has listed a series of scholars in either camp of this discussion, for further reading.12


It also remains unclear whether proportionality forms a part of the minimum standard of treatment.13

IV. Proportionality as a stand-alone element of the fair and equitable treatment standard


The doctrine of proportionality has been recognised as an element of the fair and equitable treatment14 standard by a series of arbitral tribunals in investment-treaty arbitrations.15


For example, in García Armas v. Venezuela, the tribunal held that the State measures were not proportional to certain alleged infractions, and that the administrative procedures which were initiated as a consequence of alleged breaches did not allow the investors to adequately exercise their defense.16


Further, the tribunal in EDF v. Romania noted that there must be a reasonable relation of proportionality between the means employed and the aim sought to be realized, and that proportionality would be lacking if the person involved bore an individual and excessive burden.17 The tribunal examined whether the public policy in question was legitimate or in the public interest, and the adverse effect of the State measure.18

V. Relationship between proportionality and other elements of the fair and equitable treatment standard

A. Relationship with arbitrariness and/or reasonableness


A proportionality analysis has also been applied in the context of other elements of the fair and equitable treatment standard.


For instance, the tribunal in Electrabel v. Hungary deemed that a measure will not be arbitrary if it is related to a rational policy and considered the need for an appropriate correlation between the State’s public policy and the measure adopted to achieve such policy. The tribunal then added that “this includes the requirement that the impact of the measure on the investor be proportional to the policy objective sought.”19


“[P]roportionality and reasonableness” were included as elements of the fair and equitable treatment standard, along with transparency, constant protection and security, non-impairment, and non-discrimination by the tribunal in RREEF v. Spain.20 The tribunal further considered that reasonableness in the exercise of regulatory power includes: legitimacy of purpose, necessity and suitability.21


Other tribunals have followed a similar approach, assessing a measure’s proportionality within or alongside the framework of reasonableness or arbitrariness.22 

B. Relationship with the investor's legitimate expectations


Proportionality has also been taken into consideration when assessing whether a measure violated an investor’s legitimate expectations, notably in the context of changes in the host State’s regulatory framework.23 See also Stability in FET. However, an investor’s general expectation to be treated proportionally in itself may not give way to the breach of the fair and equitable treatment standard.24


Where the investor’s expectations are found to be legitimate and violated by the State, at least one tribunal has held that further analysis of the measure’s reasonableness and proportionality would not be necessary.25


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