The Post-Chevron Law of Deference for Investor-State Arbitration

<div> <p><span>This article examines the concept and function of deference in investor–state dispute settlement (ISDS) through comparative analysis with the United States Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overruled the four‑decade‑old Chevron doctrine. While the overruling of Chevron is widely understood as eliminating judicial deference to administrative interpretations of ambiguous statutes, this article argues that Loper Bright contains a critically overlooked clarification: a firm distinction between (1) mandatory non‑deference on questions of law under §706 of the Administrative Procedure Act (APA), and (2) mandatory deference to agency fact‑finding and policy judgments under §706(2)(A)’s “arbitrary and capricious” standard.</span></p> <p><span>This distinction provides a compelling and analytically rigorous framework for ISDS tribunals, which frequently must review host‑state regulatory, administrative, and judicial actions under treaty standards such as Fair and Equitable Treatment (FET) and indirect expropriation. Although these standards centrally turn on whether state conduct is “arbitrary and capricious,” ISDS tribunals have applied the doctrine of deference inconsistently—sometimes deferring to state authorities, but often engaging in de novo review of factual and policy determinations despite their institutional distance from the underlying decision‑making context. This inconsistency has contributed to a well‑recognized legitimacy crisis marked by unpredictability, fragmentation, and incoherence in ISDS jurisprudence.</span></p> <p><span>The article demonstrates that Loper Bright’s analytical framework, properly understood, aligns with and reinforces the core logic of established ISDS jurisprudence, including Waste Management, S.D. Myers, Electrabel, and Lemire. Tribunals should: (1) decide questions of treaty interpretation independently, without deference to the state’s legal characterization of its obligations; but (2) defer to the state’s factual determinations and policy choices unless the claimant proves arbitrariness, caprice, or a denial of due process. Properly applied, this approach clarifies the law of deference in ISDS as a rule of decision—not a discretionary standard of review—and offers a pathway toward greater coherence, methodological discipline, and legitimacy in international investment law.</span></p> </div>