Europe’s Formulation of Fair and Equitable
Treatment
Europe as an Investment Treaty Actor
BIICL Investment Treaty Forum Meeting
Stockholm, 12 June 2015
Martins Paparinskis
Lecturer, University College London
Fair and Equitable Treatment
• Background
– European practice
– Canadian practice
– Singaporean practice
• European Union’s practice
– Source
– Elaboration
– Content
European Union’s practice
• EU-Canada Comprehensive Economic and Trade Agreement
(CETA) (consolidated text of 28 September 2014),
trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.
pdf, Article X.9
• EU-Singapore Free Trade Agreement (draft version of October
2014),
trade.ec.europa.eu/doclib/docs/2014/october/tradoc_152844.pdf
, Article 9.4
• [Transatlantic Trade and Investment Partnership (TTIP) (leaked
EU draft proposal of 2 July 2013), eusecretdeals.info/upload/EU-Investment-Text-TTIP-v_July2nd2013_v1.pdf, Article 12]
Background: European practice (I)
• 2004 Netherlands Model Article 3(1)
Each Contracting State shall ensure fair and equitable treatment of
the investments of nationals of the other Contracting Party and shall
not impair, by unreasonable or discriminatory measures, the
operation, management, maintenance, use, enjoyment or disposal
thereof by those nationals. Each Contracting Party shall accord to
such investments full physical security and protection.
• 2008 Germany Model Article 2(2) (Admission and
Protection of Investments)
Each Contracting State shall in its territory in every case accord
investments by investors of the other Contracting State fair and
equitable treatment as well as full protection under this Treaty.
Background: European practice (II)
• 2008 UK Model Article 2 (Promotion and
Protection of Investments)
Investments of nationals or companies of each Contracting Party shall
at all times be accorded fair and equitable treatment and shall enjoy
full protection and security in the territory of the other Contracting
Party. Neither Contracting Party shall in any way impair by
unreasonable or discriminatory measures the management,
maintenance, use, enjoyment or disposal of investments in its territory
of nationals or companies of the other Contracting Party. Each
Contracting Party shall observe any obligation it may have entered
into with regard to investments of nationals or companies of the other
Contracting Party.
Background: Canadian practice (I)
• 2004 Model Article 5 (Minimum Standard of
Treatment)
1. Each Party shall accord to covered investments treatment in
accordance with the customary international law minimum standard of
treatment of aliens, including fair and equitable treatment and full
protection and security.
2. The concepts of "fair and equitable treatment" and "full protection
and security" in paragraph 1 do not require treatment in addition to or
beyond that which is required by the customary international law
minimum standard of treatment of aliens.
3. A determination that there has been a breach of another provision
of this Agreement, or of a separate international agreement, does not
establish that there has been a breach of this Article.
Background: Canadian practice (II)
• 2012 Canada-China BIT Article 4 (Minimum
Standard of Treatment)
1. Each Party shall accord to covered investments fair and equitable
treatment and full protection and security, in accordance with
international law.
2. The concepts of "fair and equitable treatment" and "full protection
and security" in paragraph 1 do not require treatment in addition to or
beyond that which is required by international law.
3. A determination that there has been a breach of another provision
of this Agreement, or of a separate international agreement, does not
establish that there has been a breach of this Article.
Background: Singaporean practice (I)
• De facto Model Article 3(2) (Promotion and
Protection of Investment) (Jean Ho in C Brown
(ed), Commentaries on Selected Model BITs,
OUP 2013 at 635)
Investments made or approved under Article 2 shall be accorded fair
and equitable treatment and protection in accordance with this
Agreement.
• 2008 Singapore-Turkey BIT Article 2(3)
(Promotion and Protection of Investment)
Investments made or approved under Article 2 shall be accorded fair
and equitable treatment and protection in accordance with this
Agreement.
Background: Singaporean practice (II)
• 2009 ASEAN Comprehensive Investment
Agreement Article 11 (Treatment of Investment)
1. Each Member State shall accord to covered investments of
investors of any other Member State, fair and equitable treatment and
full protection and security.
2. For greater certainty: (a) fair and equitable treatment requires each
Member State not to deny justice in any legal or administrative
proceedings in accordance with the principle of due process; and (b)
full protection and security requires each Member State to take such
measures as may be reasonably necessary to ensure the protection
and security of the covered investments.
3. A determination that there has been a breach of another provision
of this Agreement, or of a separate international agreement, does not
establish that there has been a breach of this Article.
Fair and equitable treatment: source
• Autonomous treaty obligation, treaty obligation supplemented by
customary obligation, or treaty obligation that has the content of
customary obligation?
• Reference to customary law
– 'Fair and equitable treatment' (?)
– Yes: ‘denial of justice', 'manifest arbitrariness', structure of Waste Management v
Mexico (II), ICSID Case no ARB(AF)/00/3, Award, 30 April 2004 [98], 'a breach ...
does not establish'
– Probably: ‘due process‘
– Probably not: 'legitimate expectations‘, Lemire v Ukraine, ICSID Case no
ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010 [284]
• Setting out special customary law
• Taking into account customary law, VCLT Article 31(3)(c)
• 'Other rules and principles of international law applicable between the
Parties', FTA Article 9.22(2), CETA Article X.27(1)
Fair and equitable treatment: elaboration (I)
• ‘To comply with the obligation to provide fair and equitable treatment
set out in paragraph 1, neither Party shall adopt measures that
constitute’ (FTA)
• ‘A Party breaches the obligation of fair and equitable treatment
referenced in paragraph 1 where a measure or series of measures
constitutes’ (CETA)
• Cf. ‘The determination of whether a measure or series of measures by
a Party, in a specific fact situation, constitute an indirect expropriation’
(FTA, CETA)
Fair and equitable treatment: elaboration (II)
• An exhaustive list or examples?
– FTA Article 9.4(3) (‘Treatment not listed in paragraph 2 can also constitute a breach of
fair and equitable treatment where the Parties have so agreed in accordance with the
procedures provided in [Article 17.1(4)(c)]’)
– CETA Article X.9(1) (FET ‘in accordance with paragraphs 2 to 6’)
• (How) can the list be changed?
– FTA Articles 9.4(3) and 17.1(4)(c) (‘The Trade Committee may: … consider amendments
to this Agreement or amend provisions of this Agreement in cases specifically provided
for in this Agreement’)
– CETA Article X.9(3) (‘The Parties shall regularly, or upon request of a Party, review the
content of the obligation to provide fair and equitable treatment. The Committee on
Services and Investment may develop recommendations in this regard and submit them
to the Trade Committee for decision.’), Article X.42(3)(c) (‘The Committee may, on
agreement of the Parties, and after completion of the respective legal requirements and
procedures of the Parties: … recommend to the Trade Committee the adoption of any
further elements of the fair and equitable treatment obligation pursuant to Section 5,
Article X.9(4) (Treatment of Investors and of Covered Investments’)
•
Note also the general rules on interpretation by the Trade Committee
Fair and equitable treatment: denial of justice
• ‘Denial of justice12 in criminal, civil and administrative proceedings’
(FTA)
• Fn 12: ‘For greater certainty, the sole fact that the investor’s claim has
been rejected, dismissed or unsuccessful does not in itself constitute a
denial of justice’
• ‘Denial of justice in criminal, civil or administrative proceedings’
(CETA)
– Technical term for reference to customary international law of denial of justice
Fair and equitable treatment: due process
• ‘A fundamental breach of due process’ (FTA)
• ‘Fundamental breach of due process, including a fundamental breach
of transparency, in judicial and administrative proceedings’ (CETA)
– ‘a serious departure from a fundamental rule of procedure’ (ICSID Convention
Article 52(1)(d))
– ‘a lack of due process leading to an outcome which offends judicial propriety – as
might be the case with a manifest failure of natural justice in judicial proceedings or
a complete lack of transparency and candour in administrative process’ (Waste
Management II [98])
– ‘[A] state incurs responsibility if it administers justice to aliens in a fundamentally
unfair manner’, Spence International Investments, LLC, Berkowitz et al. v Costa
Rica, ICSID Case no UNCT/13/2, Submission of the US, 17 April 2015, fn 15.
– ‘due process’ as a criterion of lawfulness of expropriation
– ‘a fundamental error in procedure which has occasioned a failure of justice’
(Application for Review of Judgment no 158 of the UNAT [1973] ICJ Rep 209 [92]),
decision ‘vitiated by a fundamental fault in the procedure followed’ (Judgment no
2867 of the ILOAT [2012] ICJ Rep 10 [30]-[31])
Fair and equitable treatment: arbitrariness
• ‘Manifestly arbitrary conduct’ (FTA)
• ‘Manifest arbitrariness’ (CETA)
– ‘It therefore appears that, although situations may be more varied and complicated
today than in the 1920s, the level of scrutiny is the same. The fundamentals of the
Neer standard thus still apply today: to violate the customary international law
minimum standard of treatment codified in Article 1105 of the NAFTA, an act must
be sufficiently egregious and shocking — a gross denial of justice, manifest
arbitrariness, blatant unfairness, a complete lack of due process, evident
discrimination, or a manifest lack of reasons — so as to fall below accepted
international standards and constitute a breach of Article 1105(1). … The standard
for finding a breach of the customary international law minimum standard of
treatment therefore remains as stringent as it was under Neer; it is entirely possible,
however that, as an international community, we may be shocked by State actions
now that did not offend us previously’ (Glamis Gold v US, UNCITRAL Case, Award,
8 June 2009 [616], emphasis added, also [627]).
– Arbitrary, unreasonable, or discriminatory measures; ‘manifest’ in Articles 36(3),
52(1)(b), and 57 of the ICSID Convention; ‘arbitrariness’ in ELSI [1989] ICJ Rep 15
Fair and equitable treatment: coercion and
harassment
• ‘Harassment, coercion, abuse of power or similar bad faith conduct’
(FTA)
• ‘Abusive treatment of investors, such as coercion, duress and
harassment’ (CETA)
– ‘The FET standard defined in the BIT is an autonomous treaty standard, whose precise
meaning must be established on a case-by-case basis. It requires an action or omission
by the State which violates a certain threshold of propriety, causing harm to the investor,
and with a causal link between action or omission and harm. The threshold must be
defined by the Tribunal, on the basis of the wording of Article II.3 of the BIT, and bearing
in mind a number of factors, including among others the following: - whether the State
has failed to offer a stable and predictable legal framework; - whether the State made
specific representations to the investor; - whether due process has been denied to the
investor; - whether there is an absence of transparency in the legal procedure or in the
actions of the State; - whether there has been harassment, coercion, abuse of power or
other bad faith conduct by the host State; - whether any of the actions of the State can be
labeled as arbitrary, discriminatory or inconsistent’ (Lemire [284], emphasis added)
– ‘Duress’ (Desert Line Projects LLC v Yemen, ICSID Case no ARB/05/17, Award, 6
February 2008)
Fair and equitable treatment: legitimate
expectations (I)
• ‘A breach of the legitimate expectations of an investor arising from
specific or unambiguous representations13 from a Party so as to
induce the investment and which are reasonably relied upon by the
investor’ (FTA)
• Fn 13: ‘For greater certainty, representations made so as to induce the
investments include the representations made in order to convince the
investor to continue with, not to liquidate or to make subsequent
investments’
• ‘When applying the above fair and equitable treatment obligation, a
tribunal may take into account whether a Party made a specific
representation to an investor to induce a covered investment, that
created a legitimate expectation, and upon which the investor relied in
deciding to make or maintain the covered investment, but that the
Party subsequently frustrated’ (CETA)
Fair and equitable treatment: legitimate
expectations (II)
• ‘Legitimate expectations’
• ‘In applying this standard it is relevant that the treatment is in breach of
representations made by the host State which were reasonably relied
on by the claimant’ (Waste Management (II) Award [98])
• ‘The Tribunal therefore agrees with International Thunderbird that
legitimate expectations relate to an examination under Article 1105(1)
in such situations “where a Contracting Party’s conduct creates
reasonable and justifiable expectations on the part of an investor (or
investment) to act in reliance on said conduct ….” In this way, a State
may be tied to the objective expectations that it creates in order to
induce investment’ (Glamis Gold [621], emphasis in the original)
Fair and equitable treatment: discrimination
• ‘Targeted discrimination on manifestly wrongful grounds, such as
gender, race or religious belief’ (CETA only)
– ‘Taken together, the S.D. Myers, ADF and Loewen cases suggest that the minimum
standard of treatment … of fair and equitable treatment is infringed … if the conduct … is
discriminatory and exposes the claimant to sectional or racial prejudice’ (Waste
Management (II) [98])
– ‘Respondent argues that the excessive verdict was not caused by inadmissible appeals
to prejudice and local favouritism but by Loewen’s flawed trial strategy. First, it is said that
because the foreman of the jury was formerly a Canadian, it would be wrong to impute
anti-Canadian bias to the jury. This argument is based very largely on post-trial interviews
with the jurors, including the foreman. We do not regard these interviews as establishing
that the verdict was uninfluenced by appeals to local sentiment, racial or class-based
prejudice. These influences may well have played a part in the verdict, even if there was
an absence of actual bias on the part of the jurors themselves. The magnitude of the
verdict suggests that the verdict was influenced by bias, prejudice, passion or sympathy’
(Loewen v US, ICSID Case no ARB(AF)/98/3, Award, 26 June 2003 [115]). ‘It is the
responsibility of the courts of a State to ensure that litigation is free from discrimination
against a foreign litigant and that the foreign litigant should not become the victim of
sectional or local prejudice’ ([123], emphasis added throughout).
Fair and equitable treatment: contractual
breach
•
•
•
‘Where a Party, itself or through any entity mentioned in article 1 paragraph 5, had given
any specific and clearly spelt out commitment in a contractual written obligation14
towards an investor of the other Party with respect to the investor’s investment or
towards such an investment, that Party shall not frustrate or undermine the said
commitment through the exercise of its governmental authority15 either: (a) deliberately;
or (b) in a way which substantially alters the balance of rights and obligation in the
contractual written obligation unless the Party provides reasonable compensation to
restore the investor or investment to a position which it would have been in had the
frustration or undermining not occurred’ (FTA only)
Fn14 ‘For the purposes of this paragraph, a “contractual written obligation” means an
agreement in writing, entered into by both parties, whether in a single instrument or
multiple instruments, that creates an exchange of rights and obligations, binding both
parties’
Fn15: ‘For the purposes of this article, a Party frustrates or undermines a commitment
through the exercise of its governmental authority when it frustrates or undermines the
said commitment through the adoption, maintenance or non-adoption of measures
mandatory or enforceable under domestic laws’
– Not significantly different from traditional customary law
Fair and equitable treatment: a breach …
does not establish
• ‘A breach of another provision of this Agreement, or of a separate
international agreement, does not establish that there has been a
breach of this Article’ (FTA)
• ‘For greater certainty, a breach of another provision of this Agreement,
or of a separate international Agreement, does not establish that there
has been a breach of this Article’ (CETA)
– ‘A determination that there has been a breach of another provision of the NAFTA, or
of a separate international agreement, does not establish that there has been a
breach of Article 1105(1)’ (NAFTA Free Trade Commission’s Interpretation, 31 July
2001 B(3))
Overall, then, what is the EU FET?
• Seemingly an exhaustive list of:
– Traditional customary law of denial of justice
– Article 1105 of NAFTA, as interpreted in the FTC 2001 Interpretation, Waste
Management II, and Glamis Gold
– Elements of ‘autonomous’ fair and equitable treatment from Desert Line v Yemen
and (at least parts of) Lemire v Ukraine
– (FTA) rule on contractual breach not significantly different from traditional customary
law
• Consistent on most issues but also divergent on both minutiae and
important points
• Which the Trade Committee may supplement with further elements
(but not remove existing elements?)
• And interpret under the general rules on interpretation by the Trade
Committee
Europe’s Formulation of Fair and Equitable
Treatment
Europe as an Investment Treaty Actor
BIICL Investment Treaty Forum Meeting
Stockholm, 12 June 2015
Martins Paparinskis
Lecturer, University College London