Why Due Regard is More Appropriate than Proportionality Testing in International Investment Law

Plain language summary: Investment tribunals’ work has provoked public concern, often relating to how international investment law intrudes into States’ domestic regulatory space. How far should investment law discipline States’ regulatory and administrative activity? Many consider it sufficient that States’ action should bear a rational or reasonable relationship to its objectives. Certain investment tribunals have continued to suggest that investment law may go beyond this and empower them to judge the proportionality of a State’s actions. This article argues instead for a more procedural approach. States should consider or give “due regard” to the interests of partner States and their populations when they make decisions that will affect foreign investments. This would align international investment law with broader developments in international law and it would be better than having tribunals try to judge the proportionality of a State’s actions. Tribunals would look to see if States had gone through a structured process of considering home State interests. The focus would be on the interests of the State the investor comes from rather than on the investor or investment itself, though the specific harm caused would still be central and the complaining investor would still receive the benefit of any remedies ordered. Abstract: Global regulatory standards of due diligence, regulatory coherence, and due regard are emerging in public international law. Investment law has been concerned to settle upon the most appropriate regulatory coherence tests for application in the arbitration of regulatory disputes. Candidates have included proportionality, rationality, and reasonableness tests. This article argues instead for reliance on the due regard standard in conjunction with reasonableness or rationality testing. This will more appropriately reflect the nature of investment treaties as inter-State bargains. Further, responding to arguments for the adoption of proportionality on the basis of comparative public law, the article demonstrates that proportionality is not established as a general head of review in common law jurisdictions including England, Australia, Canada, New Zealand and South Africa. At the same time, the application of the due regard standard can have much in common with procedural proportionality testing as seen among these domestic legal systems and elsewhere