In the thesis, awards under the North American Free Trade Agreement (NAFTA), Bilateral Investment Treaties (BITs) and other treaties that constitute the system of investment treaty arbitration are analysed with a view to the margin of appreciation and the principle of proportionality. I compare the approach by arbitral tribunals with the approach of the European Court of Human Rights in similar legal and factual situations. The focus of the analysis lies on cases regarding various forms of expropriation. I make the claim that such cases are especially suited for analysing the margin of appreciation and the principle of proportionality, because they are concerned with essential aspects of state sovereignty. Furthermore, I argue that the current responses of investment treaty tribunals in this area have become a challenge to the legitimacy of investment treaty arbitration. In my opinion, proper appliance by treaty tribunals of the techniques of proportionality and discretion may help sustain the legitimacy of the system.