The BIT experience of the Fair and
Equitable Treatment standard
Lluís Paradell
British Institute of International and Comparative Law - Fifth Investment Treaty Forum
Conference - The Honourable Society of Gray’s Inn
9 September 2005
Overview
I.
Treaty practice
II.
Variations of the standard in BITs
III. Interpretative approaches
IV. General characteristics
V.
Scope
I.
Treaty practice
 Art. 11(2) of the 1948 Havana Charter
 Art. 23 of the 1948 Economic Agreement of Bogotá
 US post-WWII FCN treaties: e.g. Germany, Ethiopia (“fair and
equitable treatment”), Belgium and Luxembourg, France, Greece
(“equitable treatment”)
 1960, 1963, 1968 OECD Drafts and 1998 MAI negotiating text
 Commonly used in multilateral, regional, sectoral and bilateral
treaties
- MIGA [Art. 12(d)]
- ASEAN treaty for the promotion and protection of
investments [Art. IV]
- Energy Charter Treaty [Art. 10(1)]
II.
Variations in BITs
 By itself and unqualified
Art. IV.1 Argentina / Spain BIT
“Each Party shall gurantee in its territory fair and equitable treatment of
investments made by investors of the other Party”
 Combined with other absolute standards of treatment and
treatment in accordance with international law
Art. 3(a) Ecuador / US BIT
“Investment shall at all times be accorded fair and equitable treatment, shall
enjoy full protection and security and shall in no case be accorded treatment
less than that required by international law”
Art. 5 Argentina / France BIT
“Investment made by investors of one Contracting Party shall be fully and
completely protected and safeguarded ... , in accordance with the principle of
just and equitable treatment...”
II.
Variations (cont’d)
 Combined with relative standards of treatment
Article 4(1) of the India / Thailand BIT
“Investments of investors …. shall receive treatment which is fair and equitable and not
less favourable than that accorded in respect of the investments and returns of the
investors of the latter Contracting Party or of any third State”
 Expressly equated with the customary international law minimum
standard
2004 US and Canada Model BITs, recent US FTAs and Uruguay / US BIT
E.g. Art. 5 of the Uruguay / US BIT
“(1) Each Party shall accord to covered investment treatment in accordance with
customary international law, including fair and equitable treatment and full protection
and security.
(2) For greater certainty, paragraph 1 prescribes the customary international law
minimum stardard of treatment of aliens... The concepts of ‘fair and equitable treatment’
and ‘full protection and security’ do not require treatment in addition to or beyond that
which is required by that standard, and do not create additional substative rights. ...”
II.
Variations (cont’d)
 Spelling out some specific obligations
Art. 3 Argentina / France BIT
“Each Contracting Party undertakes to accord ... just and equitable treatment in
conformity with the principles of international law ... and to ensure that the exercise of
the right so granted is not impeded either de jure or de facto.
The following shall be considered as de jure or de facto impediments to just and
equitable treatment: any restrictions on the purchase or transportation of raw materials
and secondary materials, energy and fuel, and of means of production and operation of
all kinds, any impediment to the sale or transportation of goods within the country and
abroad, and any other measure having a similar effect”
 Also referred to in the BIT preamble
Argentina / US BIT
“The United States of America and the Argentine Republic, hereinafter referred to as the
Parties:
[...]
Agreeing that fair and equitable treatment of investment is desirable in order to maintain
a stable framework for investment and maximum effective use of economic resources;
[...]
Have agreed as follows:”
III.
Interpretative approaches
 Interpretative uncertainty
“the notions of ‘fairness’ and ‘equity’ do not connote a clear set of legal
prescriptions” (Vasciannie)
 The customary international law minimum standard approach
 The independent standard approach
-
Gives arbitral tribunals the authority to “articulate a variety of rules
necessary to achieve [NAFTA’s] object and purpose in particular
disputes” (Brower)
-
Requires a tribunal “to decide whether in all the circumstances the
conduct in issue is fair and equitable or unfair and inequitable” (F.A.
Mann)
III.
Interpretative approaches (cont’d)
-
“The standard serves the useful purpose of giving foreign investors the
opportunity to question administrative and other actions without actually
embarking upon deliberations on the requirements of either municipal law or
customary law. Investors are thus able to approach host States with the
abstract question whether a particular form of treatment is unfair or
inequitable in the context of investment relations [...]” (Vasciannie)
-
MTD v. Chile
“In their ordinary meaning, the terms ‘fair’ and ‘equitable’ used Article 3(1) of
the BIT mean ‘just’, ‘even-handed’, ‘unbiased’, ‘legitimate’… As regards the
object and purpose of the BIT, the Tribunal refers to its preamble where the
parties state their desire ‘to create favourable conditions for investments […]’
and the recognition of ‘the need to protect investments…’ . Hence in terms
of the BIT, the fair and equitable treatment should be understood to be
treatment in an even-handed and just manner, conducive to fostering the
promotion of foreign investment”
IV.
General characteristics
 First, it does not confer “unfettered discretion ... on a subjective basis”
(Mondev v. US)
 Second, it “does not provide a tribunal with an open-ended mandate to
second-guess government decision-making” (Myers v. Canada)
 Third, it is an “objective requirement unrelated to ... any deliberate
intention or bad faith” (CMS v. Argentina)
 Fourth, it is an overarching standard that covers a number of specific
obligations
V.
Scope
 Due process
- Mondev v. United States
- CAA and CGE v. Argentina
- Middle East Cement v. Egypt
 Transparency
- Maffezini v. Spain
- Tecmed v. Mexico
 Due diligence in the physical and legal protection of investments
- Wena v. Egypt
- MTD v. Chile
V.
Scope (cont’d)
 Respect for representations and legitimate
expectations
-
“if a host country provides an assurance of fair and equitable treatment, it
presumably wishes to indicate to the international community that
investments within its jurisdiction will be subject to treatment compatible with
some of the main expectations of foreign investors” (Vasciannie)
-
Tribunals need to examine “the impact of the measure on the reasonable
investment-backed expectations of the investor; and whether the state is
attempting to avoid investment-backed expectations that the state created or
reinforced through its own acts” (Paulsson)
-
“[The Government] breached its obligation of fair and equitable treatment by
evisceration of the arrangements in reliance upon [which] the foreign investor
was induced to invest” (CME v. Czech Republic)
V.
Scope (cont’d)
-
“in light of the good faith principle established by international law, [fair and
equitable treatment] requires the Contracting Parties to provide to
international investments treatment that does not affect the basic
expectations that were taken into account by the foreign investor to make the
investment” (Tecmed v. Mexico)
-
Eureko v. Poland
 Stability, predictability and risk allocation
-
“There can be no doubt that ... a stable legal and business environment is an
essential part of fair and equitable treatment” (CMS v. Argentina; Occidental
v. Ecuador)
 No arbitrariness or discrimination
-
Pope & Talbot v. Canada; Waste Management v. Mexico; Petrobart v. Kyrgyz
Republic (on arbitrariness)
-
CMS v. Argentina; Methanex v. US (on discrimination)
The BIT experience of the Fair and
Equitable Treatment standard
Lluís Paradell
British Institute of International and Comparative Law - Fifth Investment Treaty Forum
Conference - The Honourable Society of Gray’s Inn
9 September 2005