While it seems uncontroversial that a fair balance needs to be struck between the private and public interests in international investment arbitration, arbitral tribunals have adopted varied approaches in order to calibrate the competing needs. While the concepts of proportionality and reasonableness have analytical merits, they also present a number of flaws when applied to the context of investment disputes. Because of its peculiar features, the proportionality test is usually a strict test that tends to be “associated with a full review on the merits” and “go[es]
beyond the more traditional and narrower concept of a reasonableness review of the initial decision.”221 The reasonableness test, on the other hand, is slightly more deferential; however, it is also apt to constrain state behavior in a significant fashion, as shown by a number of domestic, regional, and international cases. Both tests require a reasoned analysis from the decision-maker and the adjudicators. Both tests essentially entail “a value judgment about an act of sovereignty, which in turn begs the question of what standard of reference should be used.”222 Their joint use may (but not necessarily does) constitute an alternative approach to the specificities of investment treaty law and arbitration.
Whatever the test selected by the arbitrators, it is worth highlighting that depending on the selected standards of review, the outcome of a given dispute may differ. In fact because of the strict scrutiny imposed by the proportionality test, a more deferential standard of review should be adopted when applying such test. The intensity of review is greater under the pro- portionality approach; not by chance, in the jurisprudence of the European Court of Human Rights, the proportionality analysis complements its deferential standard of review, that is, the margin of appreciation doctrine. Regrettably, while several investment tribunals have adopted a proportionality analysis similar to that adopted by the European Court of Human Rights, they have not adopted a deferential standard of review (in a way that would be comparable to the margin of appreciation doctrine). Therefore, “the balancing of interests by [arbitral]
218. Chemtura [98].
219. ibid [123].
220. ADC Affiliate Limited and ADC & ADMC Management Limited v Republic of Hungary (Award, 2006) ICSID Case ARB/03/16, [432].
221. Andenas and Zleptnig (n 122) 384.
222. Verhoosel (n 93) 478.
tribunals has tended to favour investment rights.”223 Such deference can be perceived to be crucial for the perceived legitimacy of international judicial review.224
Conversely, because the structure of the reasonableness test is more lenient, it may require a more intense standard of review to be meaningful and/or effective. When an international tribunal uses a concept like “reasonableness” for justifying a governmental action, close scru- tiny should be applied to the test.225 Authors have pointed out that “[t] he intensity with which courts apply the reasonableness test also depends on the subject matter at issue, ranging from fundamental rights to economic policy choices.”226
Therefore, of critical importance is the interplay between proportionality and reasonable- ness on the one hand and standards of review on the other. The nexus moves beyond tradi- tional geometrical notions or Euclidean geometry227 and the axiom that “given two points, there is a straight line which joins them.”228 Arbitral jurisprudence reveals that these dis- parate elements do interact in a variety of different ways; at times in the form of parallels (in the form of a straight lines between proportionality and standards of review on the one hand, and a straight line between reasonableness and standards of review on the other), but more often in the forms of hyperbolic and elliptic figures, in which a variety of combina- tions, approximations, and even overlappings are possible between proportionality, reason- ableness, and standards of review. The existence of multiple combinations—or non-Euclidean geometries229—impels scholars and practitioners to rethink this complex interplay to inves- tigate the best combination or triangulation of these factors. The identification of a centre of gravity helps in finding the best combination of these elements. In this regard, the aim of international investment law as expressed in the preambles of the relevant investment treaties
223. Barnali Choudhury, ‘Recapturing public power: is investment arbitration’s engagement of the public interest contributing to the democratic deficit?’ (2008) 41 Vanderbilt Journal of Transnational Law 775, 826.
224. Erlend M. Leonhardsen, ‘Looking for legitimacy: exploring proportionality analysis in investment treaty arbitration’ (2012) 3(1) Journal of International Dispute Settlement 95, 116.
225. Gerald K. Freund, Look up in the sky, it’s a bird, it’s a plane … it’s reasonableness’ (1991) 20 Southwestern University Law Review 195, 217.
226. ibid 385.
227. Euclidean geometry is named after the Greek mathematician Euclid who lived in the fourth century bc.
While contemporary mathematicians contend that Euclides may not have reached perfect results, his work has remained in use practically unchanged for more than 2,000 years. Since the second half of the nineteenth century, however, an ‘away from Euclid’ movement began, which led to the appearance of a multitude of geo- metrical approaches, the so-called non-Euclidean geometries. See generally Marvin Jay Greenberg, Euclidean and Non-Euclidean Geometries: Development and History (4th ed., W. H. Freeman 2007); Morris Kline, Mathematical Thought from Ancient to Modern Times (Oxford University Press 1972) 861–81.
228. Euclidean geometry, Encyclopaedia Britannica (2014), <http://www.britannica.com/EBchecked/
topic/194901/Euclidean-geometry>
229. Non-Euclidean geometries have constituted a paradigm shift in the history of science. First identified by Carl Friedrich Gauss (1777–1855) and then developed by Janos Bolyai (1802–1860), Nicolai Ivanovich Lobachevskij (1792–1856), and Barnhard Riemann (1826–1866), non-Euclidean geometries, including hyper- bolic and elliptic geometries, have overcome Euclid’s fifth postulate, the parallel postulate, and offered ratio- nal, consistent, and yet alternative mathematical models of space. In fact, while Euclidean geometry is two dimensional and modeled by a flat plane, as it turns out, the universe itself is not flat. Therefore, non-Euclidean geometries which are three dimensional seem to offer a better model, and their impact has gone far beyond the boundaries of mathematics and science. For instance, Albert Einstein used non-Euclidean geometries as models of the physical space for formulating its theory on relativity. See generally David M. Burton, The History of Mathematics: An Introduction (MacGrawHill 2007) ch. 11.
can constitute such a centre of gravity, especially when the given preamble requires an appropri- ate balance between the promotion of foreign direct investments and the sustainable development of the host state.
CONClUsIONs
This chapter links the dots and maps the interaction between proportionality, reasonableness and standards of review. While each of this theme can (and has) deserve(d) autonomous treatment at greater length elsewhere, the text juxtaposes them to pinpoint their merits and limits. By adopting an international law perspective, rather than a comparative constitutional law one, this chapter has an exploratory character, examining the main features of proportionality and reasonableness on the one hand and standards of review on the other.
Conceived as logical methods or analytical tools to assist adjudicators in determining the interaction between public and private interests, the concepts of proportionality and reasonable- ness have attracted increasing attention from scholars and policy-makers. Proportionality and reasonableness can be used to delimit the exercise of the police powers of the public authorities, ascertaining the consistency between a certain measure and its objectives. This study investigated the question as to whether and if so, to what extent, proportionality and/or reasonableness are good analytical tools for arbitral review. If arbitral tribunals are to use proportionality and/or reasonableness to form their interpretation of particular provisions, they must ensure that they have secure grounds for doing so.
Many commentators consider proportionality analysis inappropriate for arbitral tribunals; in their view, it is not appropriate for arbitrators to ascertain whether or not the value pursued by a host state prevails over the burden imposed on the foreign investment. Democratic arguments run against using balancing to review the host state’s decisions, because this would permit arbi- trators to second-guess the decisions of the host state by replicating the original decision-making process. Rather they consider that a degree of deference should be paid to the sovereign choices of the host state.
Reasonableness can (but not necessarily does) provide an alternative analytical framework.
Both proportionality and reasonableness allow the scrutiny of public authority and the consid- eration of different legal interests and values; they have, however, a different structure and ethos.
Reasonableness seems to require a more qualitative analysis, emphasizing logic, rationality, and coherence and relying on a more fluid test. On the other hand, reasonableness can provide a too- vague criterion if it is not accompanied by adequate standards of review.
More important, the adoption of proportionality and/or reasonableness is not a neutral pro- cess as it may have important consequences. The adoption of the proportionality analysis can determine a race to the top of investment treaty standards, while the adoption of the reasonable- ness standard implies a slightly less intrusive scrutiny of state conduct.
Undoubtedly, the debate will continue as to the scope/intensity of arbitral review of state measures and of the method through which this should be expressed, whether that be reason- ableness or proportionality.230 This chapter contributed to the debate in the field of international investment law and arbitration, identifying and critically assessing the advantages and disad- vantages of proportionality and reasonableness and stressing the importance of scrutinizing
230. Craig (n 55).
them in conjunction with the degree of deference that arbitral tribunals should show toward the host states.231 This degree of deference in turn depends on the selected paradigm through which investment treaty arbitration is conceptualized. In conclusion the discussion about pro- portionality, reasonableness, and standards of review concerns the question as to what role arbi- tral tribunals should play in the international legal system and the ultimate aim of international investment law.
231. For analogous reasoning in the WTO context, see Peter Van den Bossche, ‘Looking for proportionality in WTO law’ (2008) 35 Legal Issues of Economic Integration 283, 284.