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Author

Mr Riccardo Loschi

Research Assistant in International Law and Arbitration - Columbia Law School

Author

Mr Fakhruddin Valika

LL.M. ‘20 - Columbia Law School

Editors
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Public Interest

I. Definition

1.

Public Interest is one of the most common exceptions/defences used by States, although there is not a uniform definition of Public Interest under international law provisions or customary international law.1 States may invoke Public Interest as a defence against an investor’s claims for breach of treaty standards of protections (e.g., Fair and equitable treatment, National treatment, or unlawful expropriation) to justify “regulation[s] with a basis other than a state of necessity, national security or the public order.”2 Public Interest exceptions may also be incorporated into treaties to safeguard the state’s ability to regulate. Public Interest exceptions/defences commonly cover the areas, among others, of (i) environment;3 (ii) health;4 (iii) labour rights;5 (iv) culture;6 (v) taxation or financial services7 (vi) public morals;8 and (vi) social or consumer protection.9

II. Public interest exception in treaties

2.

Investment treaties (in particular, bilateral investment treaties) may provide for Public Interest exceptions.10 The reach of such provisions may vary significantly from treaty to treaty.11 In particular, Public Interest exceptions may be:

  1. Explicit and refer to (i) States’ essential security interests (e.g., national security, the right to regulate to protect the environment)12 13 or (ii) positive obligations by which investors should abide (e.g., corporate social responsibility obligations).14
  2. Unqualified,15 or implicit.16 While the determination of the scope of unqualified exceptions requires a case-by-case assessment, the scope of implicit Public Interest exceptions can be derived from other elements or from the wording of more general treaty provisions.17
  3. Incorporated in the preamble of an investment treaty, such as providing that “investment protection is to be realised without compromising public policy objectives.”18 Although such an incorporation in the preamble of an investment treaty does not grant States any specific right to regulate, it may serve as an interpretative tool for tribunals when assessing the legality of a State’s challenged measure.19
  4. So broad as to prevent an arbitral tribunal from reconsidering the State’s measures purportedly enacted to pursue a public interest (e.g., by employing the wording “[the State] considers to clarify that the provision is 'self-judging’”).20 

III. Public interest defences

3.

When States raise a defence based on Public Interest, tribunals have mainly followed the following two approaches:

  1. If the treaty already sets the priority between the investor’s interests and States’ interests, tribunals have usually respected the wording of the treaty, limiting their intervention to cases of gross arbitrariness, unfairness or blatant irrationality.21 This category includes also the cases in which the priority can be established on the applicable rules of treaty interpretation under the Vienna Convention on the Law of Treaties.22
  2. If the investor claims that the State has interfered with its rights, tribunals have usually engaged in a proportionality analysis to balance legitimate investor’s expectations with the host State’s sovereign right to implement Public Interest reforms.23 Under this analysis, tribunals have held that the State’s conduct should not “manifestly violate the requirements of consistency, transparency, even-handedness and non-discrimination”;24 and that the State should not “unreasonabl[y] or inequitabl[y] exercise [...] its legislative power”.25
4.

If the investment treaty provides for an express Public Interest clause it may be that the clause expressly allows a State to take measures that “it considers necessary”. Subject to the wording of the relevant treaty, tribunals may give deference to a State’s decision to regulate, without second-guessing the State’s decision. These clauses are usually called self-judging essential security interest clauses.26 27 

IV. Trends on public interest defences/exceptions in the ISDS context

5.

Tribunals have generally recognised that States have the power to regulate on the basis of Public Interest, upholding investors’ claims in respect of specific instances of improper exercise of such a power, such as in the case of lack of good faith.28 Investors have prevailed, inter alia, in cases concerning (i) the introduction of restrictive tender requirements for frequencies and broadcasting;29 (ii) specific measures in the context of broad economic reforms;30 and (iii) denial of permits for socio-political concerns (as opposed to genuine Public Interest).31

6.

Tribunals have instead upheld States’ Public Interest defences, based either on specific treaty provisions or implicit obligations stemming from the text of the relevant treaty, in support of (i) gambling industry regulations based on general public interest;32 (ii) tobacco industry regulations based on the protection of public health;33 (iii) public parking regulations based on the protection of culture;34 and (iv) gasoline manufacturing regulations based on the protection of the environment.35

Bibliography

Arcuri, A. and Montanaro, F., Justice for all? Protecting the public interest in investment treaties, Boston College Law Review, Vol. 59, Issue 8, 2018, pp. 2791-2824.

Bonzon, A., Balance between investment protection and sustainable development in BITs, Journal of World Investment & Trade, Vol. 15, Issue 5-6, 2014, pp. 809-826.

Cai, L., Where does China Stand: the Evolving National Treatment Standard in BITs, Journal of World Investment & Trade, Vol. 13, Issue 3, 2012, 373-389.

Choudhury, B., Exception provisions as gateway to incorporating human rights issues into international investment agreements, Columbia Journal of Transnational Law, Vol. 49, Issue 3, 2011, pp. 670-716.

Gibson, C. H., Beyond self-judgment: Exceptions clauses in US BITs, Fordham International Law Journal, Vol. 38, Issue 1, 2015, pp. 1-56.

Giest, A., Interpreting Public Interest Provisions in International Investment Treaties, Chicago Journal of International Law, 2017,  pp. 321, 337-338.

Henckels, C., Should Investment Treaties Contain Public Policy Exceptions, Boston College Law Review, 2018, p. 2825-2844

Kingsbury, B. and Schill, S.W., Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest: The Concept of Proportionality, in Schill, S.W. (ed.), International Investment Law and Comparative Public Law, 2010, pp. 75, 78.

Martinez-Fraga, P.J. and Reetz, R.C., Public Purpose in International Law: Rethinking Regulatory Sovereignty in the Global Era, 2015, p. 126. 

Sappideen, R., and He, L. L., Dispute Resolution in Investment Treaties: Balancing the Rights of Investors and Host States, Journal of World Trade, 2015, pp. 85, 112

Sauvant, K.P. and Ong, M., with Lama, K., and Petersen, T., The rise of self-judging essential security interest clauses in international investment agreements, Columbia FDI Perspectives No. 188, 5 December 2016, pp. 1-8

Schill, S.W., Briese, R., “If the State Considers”: Self-Judging Clauses in International Dispute Settlement, Max Planck Yearbook of United Nations Law, 2009, pp. 61-140

Schill, S.W., and Djanic, V., Wherefore Art Thou? Towards a Public Interest-Based Justification of International Investment Law, ICSID Review-Foreign Investment Law Journal, 2018, pp. 29, 43.

Sinha, A., Non-precluded measures provisions in bilateral investment treaties of South Asian countries, Asian Journal of International Law, Vol. 7, Issue 2, 2017, pp. 227-263.

Titi, C., The Right to Regulate in International Investment Law, Studies in International Investment Law, 2014, p. 101.

Wang, W., The Non-Precluded Measure Type Clause in International Investment Agreements: Significances, Challenges, and Reactions, ICSID Review, 2017, pp. 447-456.

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