Law & Legal Studies

Police Powers, Indirect Expropriation in International Investment Law, and Article 31(3)(c) of the VCLT: A Critique of Philip Morris v. Uruguay

The Investor-State dispute settlement tribunal’s reasoning was internally inconsistent and based on abuse of arbitral precedents, says the researcher.


Prabhash Ranjan, Senior Assistant Professor, Faculty of Legal Studies, South Asian University, New Delhi, India [He is currently Professor and Vice Dean (Continuing Education), Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.]


Given the global contestation against bilateral investment treaties (BITs) and Investor-State dispute settlement (ISDS), the outcome of the Philip Morris v. Uruguay case upholding Uruguay’s right to regulate for public health is important for the international investment law community. 

However, it is not just the outcome of a case but also the quality of legal reasoning that is significant in building the legitimacy of the ISDS system. 

This paper focuses on the reasoning adopted by the tribunal in deciding whether Uruguay’s regulatory measures resulted in the expropriation of Philip Morris’s investment. 

The paper critiques the tribunal’s use of Article 31(3)(c) of the Vienna Convention on the Law of Treaties to invoke the police powers rule in interpreting the expropriation provision of the Switzerland-Uruguay BIT. 

The tribunal’s reasoning was internally inconsistent and based on abuse of arbitral precedents. Clarity in legal reasoning by ISDS tribunals is imperative to boost the legitimacy of the ISDS system for all stakeholders.

The researcher argues that there was no need for the tribunal to engage in a discussion of the police powers rule. 

“The reasoning of the tribunal on Article 31(3)(c) of the VCLT to deal with extraneous norms such as the police powers rules raises a number of conceptual questions. This paper has tried to address some of these issues. Future ISDS tribunals should show greater doctrinal clarity in dealing with these complex issues,” says the study.

Published in: Asian Journal of International Law

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