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
Agreement between the Government of the Republic of Korea and the Government of Japan for the Liberalisation, Promotion and Protection of Investment, adopted on 22 March 2002, Article 16(1)(c); Agreement between Canada and the Czech Republic for the Promotion and Protection of Investments, adopted on 6 May 2009, Article IX(1a).
Agreement between the Government of Japan and the Government of the Republic of Mozambique on the Reciprocal Liberalisation, Promotion and Protection of Investment, adopted on 1 June 2013, Article 18(d); Agreement between the Government of the Federal Republic of Ethiopia and the Government of the Republic of France for the Reciprocal Promotion and Protection of Investments, adopted on 25 June 2003, Article 1.6.
II. Public interest exception in treaties
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:
Agreement between Japan and the Islamic Republic of Iran on Reciprocal Promotion and Protection of Investment, signed 5 February 2016, Article 13.2.a; U.S.-Mozambique BIT, signed 1 December 1998, Article XIV(1); Schill, S. and Briese, R., “If the State Considers”: Self-Judging Clauses, in International Dispute Settlement, Max Planck Yearbook of United Nations Law, 2009, pp. 61-140, p. 68; 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.
III. Public interest defences
When States raise a defence based on Public Interest, tribunals have mainly followed the following two approaches:
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
Schill, S. and Briese, R., “If the State Considers”: Self-Judging Clauses in International Dispute Settlement, Max Planck Yearbook of United Nations Law, 2009, pp. 61-140, pp. 68-69; 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.
IV. Trends on public interest defences/exceptions in the ISDS context
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
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
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.
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.
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., 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.
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.