Environmental Engineering Reference
In-Depth Information
2007, p. 142). Indeed, most IIAs prohibit host states from imposing such obligations
(commonly termed 'performance requirements') subject to some exceptions prohibited
under Article 1106 (Tollefson, 2002a, p. 156). While Article 1106 speci
cally exempts
'environmental measures' taken by host governments, arbitral case law under comparable
GATT Article XX language con
fi
rms that the government bears the onus of establishing
that it is impossible to achieve its environmental protection goal in a less investment-
restrictive manner. Also, it remains uncertain '[w]hether sustainable resource manage-
ment measures can be justi
fi
fi
ed under this exception' (Tollefson, 2002a, p. 157).
Expropriation
A key feature of IIAs is a requirement on host states to compensate investors where a gov-
ernmental measure has had the e
ect of expropriating their investment. Under custom-
ary international law, this obligation is known as the 'Hull standard', which imposes a
duty on expropriating states to pay 'full, prompt and adequate compensation' (Van
Harten, 2007, p. 91 fn 120). Under the Hull standard, an obligation to compensate is only
triggered when an investor's property is physically con
ff
scated or nationalized, or its value
drastically diminished or eliminated by arbitrary state action (Tollefson, 2002a, p. 159).
Relying on the broad protective language dealing with expropriation that is typically
found in IIAs, investors have sought protection that far exceeds the ambit of the Hull stan-
dard. In this regard, it is contended that a right to compensation arises where government
regulation, even if enacted for a legitimate public purpose, substantially interferes with an
investor's property rights or has incidentally reduced the value of their investment (Van
Harten, 2007, p. 91).
In this area, perhaps more than any other, the IIA jurisprudence to date has been char-
acterized by inconsistency. Once again the NAFTA experience is instructive. Some rulings
have been disquietingly expansive. Notable in this regard is the approach adopted in
Metalclad
,a decision which, on judicial review, was described by the court as 'extremely
broad', necessitating compensation for, among other things, a 'legitimate rezoning of prop-
erty by a municipality or other zoning authority' (Ruling of BC Supreme Court in
Metalclad
, 2001). In contrast, in
Methanex
the tribunal interpreted the protection in much
narrower terms, aligning it closely with prevailing US 'takings' and 'police powers' jurispru-
dence. Consequently, there is considerable uncertainty as to how future tribunals will
di
fi
erentiate legitimate regulation from indirect expropriation both under the NAFTA and
other IIAs, causing one commentator to observe that 'left to the process of investment
treaty arbitration, we shall be unlikely to reach a stable de
ff
fi
nition of expropriation for
decades to come, if ever' (Van Harten, 2007, p. 93).
In response to this uncertainty, both Canada and the USA have developed interpretive
statements that are now routinely incorporated into all BITs to which they are a party.
These interpretive statements direct tribunals to apply a test similar to that articulated in
Methanex
that considers not only the economic impact of the government measure but
also the extent to which the measure interferes with distinct, reasonable investment-
backed expectations and the character of the government. Canada's current model BIT
also contains new language a
rming that non-discriminatory measures that are adopted
and applied in good faith and that are designed to protect legitimate public welfare objec-
tives will only constitute indirect expropriation in 'rare circumstances' (Newcombe, 2007,
p. 402).
