Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part IV, Chapter D, para. 7; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 255; Crompton (Chemtura) Corp. v. Government of Canada, PCA Case No. 2008-01, Award, 2 August 2010, para. 266; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 202; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 305; Marfin Investment Group Holdings S.A., Alexandros Bakatselos and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award (redacted), 26 July 2018, paras. 826, 829; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 122; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 195; Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, 31 October 2012, para. 522; SAUR International v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability, 6 June 2012, para. 401; Les Laboratoires Servier, S.A.S., Biofarma, S.A.S. and Arts et Techniques du Progres S.A.S. v. Republic of Poland, Award, 14 February 2012, para. 569; Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012-07, Final Award, 23 December 2019, para. 230; Hydro S.r.l. and others v. Republic of Albania, ICSID Case No. ARB/15/28, Award, 24 April 2019, para. 698; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, paras. 87-90; Air Canada v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/17/1, Award, 13 September 2021, para. 353.
State regulatory power on the relationship between the State’s right to regulate and different standards of protection, including fair and equitable treatment, full protection and security, etc.
Public interest for a general overview of treaty practice and interpretation on the State’s right to regulate in the public interest.
Right to regulate in expropriation and Regulatory expropriation for additional analysis of the State’s right to regulate in expropriation.
Although the State’s right to regulate may be taken into account in evaluating a variety of claims, some tribunals have held that the police powers doctrine only applies as an affirmative defense to expropriation claims.2
Suez, InterAguas Servicios Integrales del Agua S.A., Sociedad General de Aguas de Barcelona S.A. v. The Argentine Republic, ICSID Case No. ARB/03/17, Decision on Liability, 30 July 2010, para. 148; Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. (formerly Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A.) v. Argentine Republic (II), ICSID Case No. ARB/03/19, Decision on Liability, 30 July 2010, para. 140; United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, ICSID Case No. ARB/14/24, Award, 21 June 2019, para. 767.
The police powers doctrine is most often relied upon to distinguish between compensable expropriation and non-compensable regulatory measures.3 In this context, the police powers doctrine may replace or be applied alongside the sole effects doctrine4 or a stand-alone proportionality analysis.5 The doctrine is distinct from, and should not be confused with, the “public purpose,” “public interest” or public necessity”6 requirements for lawful expropriations7 contained in international investment agreements.8
See also Total v. Argentina, Decision on Liability, footnote 232.
Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, paras. 286-287; Mostafa, B., The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law, Australian International Law Journal, Vol. 15, 2008, pp. 267-296, at 267; Sweet Stone, A., Investor-State Arbitration: Proportionality’s New Frontier, Law and Ethics of Human Right, Vol. 4, Issue 1, 2010, pp. 46-76; Henckels, C., Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration, 15 Journal of International Economic Law, 2012, pp. 223–55; Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, 27 December 2010, para. 197; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 122.
AWG Group Ltd. v. Argentine Republic, Decision on Liability, 30 July 2010, paras. 139-140; Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, para. 145; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, paras. 236, 240-241; M. Meerapfel Sohne AG v. Central African Republic, ICSID Case No. ARB/07/10, Excerpts of Award, 12 May 2012, para. 311; Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012-07, Final Award, 23 December 2019, para. 221; Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Liability, 14 December 2012, para. 506; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Decision on Jurisdiction and Liability, 10 April 2013, para. 817; Fireman's Fund Insurance Company v. The United Mexican States, ICSID Case No. ARB(AF)/02/1, Award, 17 July 2006, para. 176; Naturgy Energy Group, S.A. and Naturgy Electricidad Colombia S.L. (formerly Gas Natural SDG, S.A. and Gas Natural Fenosa Electricidad Colombia, S.L.) v. Republic of Colombia, ICSID Case No. UNCT/18/1, Award, 12 March 2021, para. 523; WNC Factoring Ltd (WNC) v. The Czech Republic, PCA Case No. 2014-34, Award, 22 February 2017, para. 395; Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. (formerly Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A.) v. Argentine Republic (II), ICSID Case No. ARB/03/19, Decision on Liability, 30 July 2010, para. 139; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, para. 86; Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, paras. 698-699; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, para. 631; RENERGY S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/14/18, Award, 6 May 2022, para. 989.
Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000, para. 72; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 August 2007, para. 7.5.21; Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, IUSCT Case No. 7, Award (Award No. 141-7-2), 29 June 1984, para. 22.
Guaracachi America, Inc. and Rurelec PLC v. Plurinational State of Bolivia, PCA Case No. 2011-17, Award, 31 January 2014, para. 436-437; Achmea B.V. v. The Slovak Republic (II), PCA Case No. 2013-12, Award on Jurisdiction and Admissibility, 20 May 2014, paras. 250-251; Veteran Petroleum Limited (Cyprus) v. Russia, PCA Case No. 2005-05/AA228, Final Award, 18 July 2014, para. 1581; Yukos Universal Limited (Isle of Man) v. Russia, PCA Case No. 2005-04/AA227, Final Award, 18 July 2014, para. 1581; Hulley Enterprises Limited (Cyprus) v. Russia, PCA Case No. 2005-03/AA226, Final Award, 18 July 2014, para. 1581; British Caribbean Bank Ltd. v. Government of Belize, PCA Case No. 2010-18/BCB-BZ, Award, 19 December 2014, paras. 240-241; Enkev Beheer B.V. v. The Republic of Poland, PCA Case No. 2013-01, First Partial Award, 29 April 2014, paras. 348-349; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, paras. 243-245; Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, paras. 293-296; South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 22 November 2018, paras. 561, 565, 570, 578; South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Separate Opinion of Prof. Francisco Orrego Vicuna, 30 August 2018, para. 6; Serafín García Armas and Karina García Gruber v. The Bolivarian Republic of Venezuela, PCA Case No. 2013-03, Award, 26 April 2019, para. 291; Continental Casualty Company v. Argentine Republic, ICSID Case No. ARB/03/9, Award, 5 September 2008, para. 276; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, paras. 431-433; Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case No. ARB/08/8, Award, 1 March 2012, paras. 303, 305; Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, paras. 711-712; Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 385; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Award, 21 July 2017, paras. 968, 983-986; CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telcom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09, Award on Jurisdiction and Merits, 25 July 2016, paras. 413-414; Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 502; ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 433.
Agreement between the Government of the Hungarian People's Republic and the Government of the Republic of Cyprus on mutual promotion and protection of investments, adopted on 24 May 1989, Art. 4.1.a; Energy Charter Treaty, adopted on 17 December 1994, Art. 13.1; North American Free Trade Agreement, adopted on 17 December 1992, Art. 1110.1.a; Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, adopted on 29 April 1991, Art. 5; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Belize for the Promotion and Protection of Investments, adopted on 30 April 1982, Art. 5.1; Agreement between the Kingdom of the Netherlands and the Republic of Poland on encouragement and reciprocal protection of investments, adopted on 7 September 1992, Article 5.a; Agreement between the Plurinational State of Bolivia and Chile for the Promotion and Protection of Investment (1994), adopted on 22 September 1994, Art. VI .1.a; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Bolivia for the Promotion and Protection of Investments, adopted on 24 May 1988, Art. 5.1; Agreement between the Kingdom of Spain and the Republic of Venezuela on the Reciprocal Promotion and Protection of Investments, adopted on 2 November 1995, Art. V.1; Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Venezuela, adopted on 22 October 1991, Art. 6.a; Italy - Egypt BIT, adopted on 2 March 1989, Art. 5.1.ii; Agreement Between Germany and Ukraine for the Promotion and the Protection of Investments, adopted on 15 February 1993, Art. 4.2; Agreement between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments, adopted on 1 July 1996, Art. VII.1; Agreement between France and Hungary for the Protection and the Promotion of Investment, adopted on 6 November 1986, Art. 5.2.
The police powers doctrine has been recognized as a principle of customary international law.9 Tribunals10 frequently note its inclusion in the 1961 Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens,11 and the United States Third Restatement of the Law of Foreign Relations in 1987.12
Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part IV, Chapter D, para. 7; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 262; OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, OECD Working Papers on International Investment, 2004/04, p. 5, n. 10; SAUR International v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability, 6 June 2012, para. 398; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 103; Sedco, Inc. v. National Iranian Oil Company and The Islamic Republic of Iran, IUSCT Case Nos. 128 and 129, Interlocutory Award (Award No. ITL 55-129-3), 17 September 1985, para. 90; Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, paras. 625-627.
Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 292; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 238; AWG Group Ltd. v. The Argentine Republic, Decision on Liability, 30 July 2010, para. 139; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 256; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 202; Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, para. 146; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 105; Emanuel Too v. Greater Modesto Insurance Associates and The United States of America, IUSCT Case No. 880, Award (Award No. 460-880-2), 29 December 1989, para. 26.
Sohn, L. and Baxter, B., Draft Convention on the International Responsibility of States for Injuries to Aliens, American Journal of International Law, Vol. 55, Issue 3, 1961, pp. 548-584.
The Tribunal in Philip Morris v. Uruguay observed that, since 2000, “a range of investment decisions have contributed to develop the scope, content and conditions of the State’s police powers doctrine, anchoring it in international law.”13 Nonetheless, a number of commentators have disputed the customary international law nature of the police powers doctrine.14 Various tribunals have also emphasized the limits of the doctrine,15 in particular where explicit guarantees had been given to the investor.16
Titi, C., Police Powers Doctrine and International Investment Law, in Fontanelli, F., Gattini, A. and Tanzi, A. (eds.), General Principles of Law and International Investment Arbitration, Brill, 2018, pp. 323-343; Jacob, P, Latty, F. and De Nanteuil, A., Arbitrage transnational et droit international général, Annuaire Français de Droit International, CNRS, 2017, p. 599; Ranjan, P., Police Powers, Indirect Expropriation in International Investment Law, and Article 31(3)(c) of the VCLT: A Critique of Philip Morris v. Uruguay, Asian Journal of International Law, Vol. 9, Issue 1, pp. 98-124.
Pope & Talbot v. Government of Canada, Interim Award, 26 June 2000, para. 99; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 258; Magyar Farming Company Ltd, Kintyre Kft and Inicia Zrt v. Hungary, ICSID Case No. ARB/17/27, Award, 13 November 2019, para. 364; ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 423; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 235; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 310-311; Rockhopper Exploration Plc, Rockhopper Italia S.p.A. and Rockhopper Mediterranean Ltd v. Italian Republic, ICSID Case No. ARB/17/14, Final Award, 23 August 2022, paras. 197-199.
Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part IV, Chapter D, para. 7; Copper Mesa Mining Corporation v. Republic of Ecuador, PCA Case No. 2012-02, Award, 15 March 2016, para. 6.60; TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Award, 19 December 2013, paras. 491-492; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 243; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Decision on Jurisdiction and Liability, 10 April 2013, paras. 819-821; Pope & Talbot v. Government of Canada, Interim Award, 26 June 2000, para. 99.
Certain treaties explicitly reference the “police powers” exception17 or invoke the doctrine through other language that distinguishes expropriatory measures from non-compensable regulatory measures.18 See Expropriation, Section II. However, if the tribunal considers the doctrine to form part of customary international law, the State will be allowed to rely on the doctrine even if it is not expressly incorporated into the treaty in question.19 See further State regulatory power.
Kuwait - Singapore BIT, 5 November 2009, entered into force on 15 April 2013, Protocol; Investment Agreement For the COMESA Common Investment Area, 23 May 2007, Article 20(8); Oxus Gold plc v. Republic of Uzbekistan, the State Committee of Uzbekistan for Geology & Mineral Resources, and Navoi Mining & Metallurgical Kombinat, Final Award, 17 December 2015, paras. 734-735.
Agreement between Paraguay and Peru for the Promotion and the Protection of Investments, 1 February 1994, 1 February 1994, Article XI (1); 2012 US Model BIT, Annex B, para. 4(b); 2015 Norway Model BIT, Article 12.5; 2004 Canada Model BIT, Annex B.13(1), para. (c); The Sri Lanka-Singapore Free Trade agreement (SLSFTA), 23 January 2018, Annex 10A, para. 3(b); Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of the Islamic Conference, adopted on 5 June 1981, Arts. 10.1-10.2; Canada - Peru FTA (2008), Art. 2201.1; Agreement between Spain and the Republic of Colombia for the Promotion and Reciprocal Protection of Investments, adopted on 31 March 2005, Art. 11.2.
Sicard-Mirabal, J. and Derains, Y., Introduction to Investor-State Arbitration, Kluwer Law International, 2018, p. 126.
Marfin Investment Group Holdings S.A., Alexandros Bakatselos and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award (redacted), 26 July 2018, paras. 827-828; Saluka Investments BV (The Netherlands) v. Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, paras. 254-255; Invesmart, B.V. v. Czech Republic, Award, 26 June 2009, paras. 497-499.
VI. Conditions that must be satisfied in order for a measure to fall within the scope of the police powers doctrine
Although there is no exhaustive test for determining whether a State acted within its legitimate police powers,20 tribunals have posited that its measures should be bona fide, non-discriminatory, proportionate and enacted in due process. Generally, the question of whether a measure crosses the line separating non-compensable regulatory activity from expropriation must be assessed in light of all the circumstances, and “[t]he context within which an impugned measure is adopted and applied is critical to the determination of its validity.”21
Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 264; SAUR International v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability, 6 June 2012, paras. 404-405; Naturgy Energy Group, S.A. and Naturgy Electricidad Colombia S.L. (formerly Gas Natural SDG, S.A. and Gas Natural Fenosa Electricidad Colombia, S.L.) v. Republic of Colombia, ICSID Case No. UNCT/18/1, Award, 12 March 2021, paras. 526-528.
To constitute a legitimate exercise of police powers, the measure must be bona fide and enacted for the purpose of protecting public welfare.22 In assessing whether this condition is satisfied, tribunals often analyse contemporaneous evidence of the government’s decision-making process and the information on which the decision to adopt the measure was based.23 The State’s compliance with its internal laws may also be relevant.24
Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 255; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 305; Les Laboratoires Servier, S.A.S., Biofarma, S.A.S., Arts et Techniques du Progres S.A.S. v. Republic of Poland, Award, 14 February 2012, para. 570; Impregilo S.p.A. v. Argentine Republic (I), ICSID Case No. ARB/07/17, Concurring and Dissenting Opinion of Judge Charles N. Brower, 21 June 2011, para. 29; David Minnotte and Robert Lewis v. Republic of Poland, ICSID Case No. ARB(AF)/10/1, Award, 16 May 2014, para. 171; Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, paras. 636-639, 642, 662, 698; Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Award, 5 November 2021, para. 336; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, para. 631.
Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017, para. 414; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, paras. 302-305; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux) v. Argentine Republic (I), ICSID Case No. ARB/97/3, Award II, 20 August 2007, para. 7.5.22; Quasar de Valores SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. and ALOS 34 S.L. v. The Russian Federation, SCC Case No. 24/2007, Award, 20 July 2012, para. 120; RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. 079/2005, Final Award, 12 September 2010, paras. 566-568; Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, 31 October 2012, paras. 523-524; Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1, Decision on Jurisdiction and Liability, 10 November 2017, para. 1329; Naturgy Energy Group, S.A. and Naturgy Electricidad Colombia S.L. (formerly Gas Natural SDG, S.A. and Gas Natural Fenosa Electricidad Colombia, S.L.) v. Republic of Colombia, ICSID Case No. UNCT/18/1, Award, 12 March 2021, paras. 529-535; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, paras. 94-95.
Valeri Belokon v. Kyrgyz Republic, PCA Case No. AA518, Award, 24 October 2014, para. 204; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 214; A.M.F. Aircraftleasing Meier & Fischer GmbH & Co. KG v. Czech Republic, PCA Case No. 2017-15, Final Award, 11 May 2020, para. 627.
Importantly, the police powers doctrine will only apply to measures adopted in the pursuit of certain types of public welfare objectives.26 Upon reviewing the relevant case law, the Tribunal in Magyar Farming Company Ltd v. Hungary observed that a measure annulling a claimant’s vested rights can only be exempt from the duty to compensate if the measure falls within one of two broad categories, namely:
Magyar Farming Company Ltd, Kintyre Kft and Inicia Zrt v. Hungary, ICSID Case No. ARB/17/27, Award, 13 November 2019, para. 366; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, paras. 291, 302, 305; Bischoff Case, Opinion of Duffield, umpire, 1 June 1903, p. 420; Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part IV, Chapter D, paras. 7, 9, 15; Crompton (Chemtura) Corp. v. Government of Canada, PCA Case No. 2008-01, Award, 2 August 2010, para. 266; Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, 30 December 2016, para. 469.
Magyar Farming Company Ltd, Kintyre Kft and Inicia Zrt v. Hungary, ICSID Case No. ARB/17/27, Award, 13 November 2019, para. 366; Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, para. 173; M. Meerapfel Sohne AG v. Central African Republic, ICSID Case No. ARB/07/10, Excerpts of Award, 12 May 2012, para. 319; Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, paras. 205-206; Invesmart, B.V. v. Czech Republic, Award, 26 June 2009, paras. 497; Valeri Belokon v. Kyrgyz Republic, PCA Case No. AA518, Award, 24 October 2014, para. 198.
The Tribunal in Magyar concluded that the measure in question was passed as part of a change to agricultural land holding policy.29 While the measure “purportedly benefitted Hungarian society as a whole,” it did not fall into any of either of the above-mentioned categories and was therefore compensable.30 See also Public interest, Taxation.
The police powers doctrine does not apply to discriminatory measures that cause an investor to be treated less favorably than other investors in like circumstances without reasonable or legitimate justification.31 A majority of tribunals consider that a measure may be discriminatory even if the State did not intend to discriminate against the claimant.32 See further Non-Discrimination (Expropriation), Section VII.
Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010, para. 214; Champion Trading Company and Ameritrade International, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/02/9 , Award, 27 October 2006, para. 130; Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, para. 148; Koch Minerals Sarl and Koch Nitrogen International Sarl v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/19, Award, 30 October 2017, para. 7.19; Emanuel Too v. Greater Modesto Insurance Associates and The United States of America, IUSCT Case No. 880, Award (Award No. 460-880-2), 29 December 1989, paras. 28-29; Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, paras. 640-641; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, para. 631.
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 183; Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, para. 368; S.D. Myers, Inc. v. Government of Canada, Partial Award (Merits), 13 November 2000, para. 254.
It has been suggested that the police powers doctrine may only apply to regulations of “general application” rather than measures concerning a specific investor.33 However, this limitation on the doctrine is subject to debate, as targeted measures will not necessarily fall foul of the principle of non-discrimination.34
Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017, para. 454; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 240; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 262.
Douglas, Z., Pauwelyn, J. and Viñuales, J.E., The Foundations of International Investment Law: Bringing Theory into Practice, Oxford University Press, 2014, pp. 334-336:
“A general measure may amount to a breach of an investment discipline, although it is, in practice, less likely to do so. Conversely, a targeted measure is not necessarily a measure tantamount to a direct expropriation. This is where it makes a difference to pay attention to the facts of the cases where the police powers doctrine has been recognized and/or applied. The Tribunal in Tecmed mentioned (although it did not apply) this concept in connection with a targeted measure, i.e. the non-renewal of an operating permit. Similarly, the Tribunal in Chemtura recognized and applied this concept to shield a targeted measure, i.e. the suspension and later cancellation of some authorizations to produce and commercialize pesticides. Even in Saluka, the Tribunal was assessing regulatory action, including some targeted measures, which it found to be an exercise of the state’s police powers . . . Significantly, a targeted measure is not necessarily discriminatory, as a general regulation is not necessarily non-discriminatory. Thus, references to non-discrimination do not introduce a legal distinction between general and targeted measures, only, at best, a practical (or probabilistic) one.”
Bücheler, G., Proportionality in Investor-State Arbitration, 2015, Oxford Scholarship Online, footnote 11, p. 31.
Occidental v. Ecuador (II) ICSID Case No. ARB/06/11, Award, 5 October 2012, paras. 402-404.
Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012-07, Final Award, 23 December 2019, para. 232; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 305; Marfin Investment Group Holdings S.A., Alexandros Bakatselos and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award (redacted), 26 July 2018, paras. 829-830; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 195; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 311-312; Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, para. 148; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, paras. 89-90; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, para. 631.
Various different proportionality analyses have been discussed or applied in the context of police powers, including:
LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 195; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 241; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Decision on Jurisdiction and Liability, 10 April 2013, para. 818.
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 122; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 311-312; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, para. 97.
PL Holdings S.a.r.l. v. Poland, SCC Case No. V 2014/163, Partial Award, 28 June 2017, para. 355; Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Liability, 14 December 2012, para. 529; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, paras. 97-101; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, paras. 683, 689.
Crompton (Chemtura) Corp. v. Government of Canada, PCA Case No. 2008-01, Award, 2 August 2010, para. 123; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 399; Invesmart, B.V. v. Czech Republic, Award, 26 June 2009, para. 501.
A regulatory measure must be enacted in accordance with due process in order to constitute a legitimate exercise of police powers.41 See further Due process in Expropriation.
Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part IV, Chapter D, para. 7; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 240; TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Award, 19 December 2013, paras. 492-493; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, paras. 221, 227; Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Award, 4 May 2021, para. 960; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, para. 637.
Bücheler, G., Proportionality in Investor-State Arbitration, 2015, Oxford Scholarship Online, footnote 11, p. 31.
Burghetto, M. and Lorfing, P., The Evolution and Current Status of the Concept of Indirect Expropriation in Investment Arbitration and Investment Treaties, Indian Journal of Arbitration Law, Vol. VI (2), 2017, pp. 98-123.
Hübner, J., Police Powers in Philip Morris v. Uruguay, in Risse, J. et al. (eds.), SchiedsVZ | German Arbitration Journal, Vol. 16, Issue 5, pp. 288-294.
Marisi, F., Chapter 6: Interpretation Doctrines, in Environmental Interests in Investment Arbitration, 2020, pp. 186-207.
Rajput, A., The Concept of ‘Regulatory Measure’ and ‘Expropriatory Measure’, in Regulatory Freedom and Indirect Expropriation in Investment Arbitration, 2018, pp. 7-20.
Sabahi, B. et al., XVIII. Expropriation, in Investor-State Arbitration, 2nd ed., 2019, pp. 575-630.
Sicard-Mirabal, J. and Derains, Y., Expropriation, in Introduction to Investor-State Arbitration, Kluwer Law International, 2018, pp. 115-132.
Viñuales, J., Sovereignty in Foreign Investment Law, in Douglas, Z. et al. (eds.), The Foundations of International Investment Law: Bringing Theory into Practice, Oxford University Press, 2014, pp. 326-346.
Qian, X., Cross-Regime Harmonization Through Proportionality Analysis: Methods of Review, in Water Services Disputes in International Arbitration: Reconsidering the Nexus of Investment Protection, Environment, and Human Rights, 2020, pp. 115-160.
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