The BIT experience of the Fair and Equitable Treatment standard

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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 Grays Inn
• 9 September 2005

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Overview

• I. Treaty practice
• Variations of the standard in BITs
• Interpretative approaches
• General characteristics
• Scope

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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)

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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...

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II. Variations (contd)

• 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. ...

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II. Variations (contd)

• 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

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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 NAFTAs 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)

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III. Interpretative approaches (contd)

• 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

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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

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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

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V. Scope (contd)

• 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)

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V. Scope (contd)

• 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)

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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 Grays Inn
• 9 September 2005