In 2010, Philip Morris International filed a complaint against Uruguay alleging that certain regulations on cigarette packaging violated the bilateral investment treaty (BIT) between Uruguay and the company\u27s home state of Switzerland. In its request for arbitration, Philip Morris claimed that the government\u27s anti-smoking legislation decreased the value of the company\u27s investments in the country in violation of Uruguay\u27s obligation under the BIT to provide fair and equitable treatment to Swiss investors. Among other things, the legislation requires that eighty percent of the surface area of cigarette packaging be devoted to health warnings, and that the packaging include  graphic images ... to illustrate the adverse health effects of smoking.  The arbitral tribunal in which the claim was filed recently determined that it had jurisdiction over at least some of Philip Morris\u27s claims, and the arbitration is now proceeding on the merits

Chen, Richard C.

English

NELLCO Consortium Legal Scholarship Repository

A Contractual Approach to Investor-State Regulatory Disputes

International investment arbitral tribunals are increasingly tasked with resolving regulatory disputes. This relatively new form of dispute involves a challenge by a foreign investor to a host state’s generally applicable regulation, enacted in good faith to promote the public interest but resulting incidentally in harm to the investor’s business. Such claims typically invoke the “fair and equitable treatment” standard provided for in the bilateral investment treaty between the host state and the investor’s home state. The dominant view among commentators, and increasingly among the tribunals themselves, is that regulatory disputes should be analyzed within a public law framework, using tools derived from constitutional or administrative law. That means, for example, balancing the investor’s rights and host state’s regulatory concerns as part of a proportionality analysis. I argue that the public law approach is flawed because it requires tribunals to weigh incommensurable values and ultimately to make policy judgments when they lack the expertise and legitimacy to do so. This Article proposes that tribunals instead draw on tools from contract law and theory to approximate what the contracting states intended when they agreed to a fair and equitable treatment standard. The investment treaties themselves give no guidance on how that standard should be applied to regulatory disputes. When courts confront similar gaps in contracts, they do not simply abandon the inquiry into the parties’ intent but instead apply additional tools or principles to form the best possible estimate.
The Article explores three specific tools: a default rule approach and two default standards derived from contract law’s analysis of changed circumstances. More generally, I argue that a contractual approach, by focusing tribunals on the contracting states’ intent rather than requiring them to independently assess the substance of a host state’s policy, will facilitate more principled reasoning as well as enhance the tribunals’ legitimacy, and thereby better promote the goals of international investment in the long run

Chen, Richard C

University of Maine, School of Law: Digital Commons

Yale Law School Legal Scholarship Repository

bepress Legal Repository

ScholarSpace at University of Hawai'i at Manoa

https://digitalcommons.mainelaw.maine.edu/cgi/viewcontent.cgi?article=1001&context=faculty-publications

A Contractual Approach to Investor-State Regulatory Disputes

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NELLCO Consortium Legal Scholarship Repository

University of Maine, School of Law: Digital Commons

Yale Law School Legal Scholarship Repository

bepress Legal Repository

ScholarSpace at University of Hawai'i at Manoa