The Role of the Precautionary and Polluter Pays Principles in Assessing Compensation

The upsurge of investment treaties and cases of investment arbitration demonstrates the dramatic growth of foreign investment laws in the past few decades. Also, due to the ongoing negotiation of the "mega" free trade agreements, this field of law has received an increasing amount of recognition. This recognition, however, is accompanied by a growing concern over whether investment arbitration has reduced the scope for state regulation. A major source of concern is the lack of consistency between arbitral tribunals in balancing investment protection against the public interests of host states. Against this background, this paper addresses the question of how to properly balance the interests of foreign investors against environmental concerns, focusing on the remedy phase of legal disputes. It is argued that there are cases where, even if the host state is found to have breached investment protection obligations, the awarding of full compensation is inappropriate, and this applies to those that involve difficult balancing between public interest such as environmental protection, and the protection of foreign investment. Based on these considerations, this paper proposes that the precautionary principle and the polluter pays principle—widely accepted international environmental principles—may provide other grounds for awarding partial compensation.