Proportionality in Investment Treaty Arbitration and the Necessity for Tribunals to Adopt a Clear Methodology

Abstract: Whenever states’ rights to regulate and investor’s interests conflict with each other it is an unsolved question in investment treaty arbitration how one should balance those two positions. In particular, it is indefinite where to draw the line at what point states can actually exercise their rights without unlawfully violating the investor’s interests. A solution for this issue might be the proportionality test or analysis. Over the years, several tribunals approached proportionality, but took very different paths to understand and apply this legal concept. Especially, if one considers proportionality from its root in European and German law, some applications in investment treaty arbitration create confusion. Originating from a fixed methodological approach in the background of justifications of state measures, tribunals use proportionality in the process of defining and determining in contrast to the justification, as one would expect. Thus, it remains questionable which of those approaches is correct or if there is rather one correct application of proportionality in the context of investment treaty arbitration. This work argues in favour of proportionality being a legal concept which originates from German and European jurisprudence and migrated to international law. In international law it was established as a legal principle and subsequently adopted, inter alia, in investment treaty arbitration. Nevertheless, tribunals should be more careful when using proportionality. Especially, when naming and transferring a particular legal construct, it should not be used out of context. This endangers an award’s persuasiveness and furthers the fragmentation in international investment law. Tribunals should only refer to the ‘principle of proportionality’ or a ‘proportionality test/analysis’ when they actually apply it. And this application requires the concept to be used in the background of justification and not determination. Furthermore, the three/four significant steps must be followed in order to obtain the aimed proportional result.