Measures for protection of the environment and the breach of a foreign investor's rights

• Main Author: Đundić Petar
• Format: Article
• Language: English
• Published: University of Novi Sad, Faculty of Law 2011-01-01
• Series: Zbornik Radova: Pravni Fakultet u Novom Sadu
• Subjects: protection of the environment; foreign investments; regulative expropriation; investment arbitration; public interest
• Online Access: http://scindeks-clanci.ceon.rs/data/pdf/0550-2179/2011/0550-21791102341D.pdf

The paper analyses the relationship between state measures aimed at protecting the environment and the so-called regulative expropriation of investment. Protection of the environment has established itself as a legitimate regulative purpose in legal doctrine and in a number of sources of international foreign investment law. In the analytical framework of police powers doctrine it would suggest that state measures taken for environmental reasons, even if they are harmful for the economic interests of foreign investor, cannot be considered regulative expropriation. However, arbitral practice shows more restrictive approach towards regulative freedom of states in this area. The right of state to regulate without imposition of a duty to compensate a foreign investor for his loss is not unconditionally accepted. The regulative measure must be taken in good faith, i.e. with the true purpose of protecting the environment and nondiscriminatory in its character. Furthermore, there is a tendency in arbitral practice that the legitimate regulative purpose of state measure is weighed against other factors such as legitimate expectations of a foreign investor and the level of his economic loss in order to determine whether the expropriation has occurred.