Fair and Equitable Treatment in Arbitral Practice

In: The Journal of World Investment & Trade
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  • 1 Professor of International Law, University of Vienna, Austria. The author may be contacted at: ‹christoph.schreuer@unuvie.ac.at›.

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  • For a more detailed description of the origin and history of the concept of fair and equitable treatment, see especially the United Nations Conference on Trade and Development (UNCTAD), Fair and Equitable Treatment, Series on Issues in International Investment Agreements, 1999, pp. 3-4, 7-9, 25-28 and 31-32; S. Vasciannie, The Fair and Equitable Treatment Standard in International Investment Law and Practice, B.Y.I.L., Vol. 70, 1999, pp. 100-111 1 and 107-119; C. Yannaca-Small, Fair and Equitable Treatment Standard in Intemational Investment Law, Working Papers on International Investment Number 2004/3, Organisation for Economic Co-operation and Development (OECD), Directorate for Financial and Enterprise Affairs, Paris, 2004, pp. 3-7. 2 The Havanna Charter never entered into force. 3 UNCTAD, Intemational Investment Instruments: A Compendium, UNCTAD, Geneva, 1996, Vol. t, p. 4. 4 The Draft Convention represented a private initiative by Hermann Abs and Lord Shawcross.

  • 5 UNCTAD, International Investment Instruments: A Comyendinm, UNCTAD, Geneva, 2001, Vol. v, p. 395. 6 OECD Draft Convention on the Protection of Forcign Property, 1967, 7 I.L.M. 117, 1968, at 119. 7 UNCTAD, supra, footnote 3, p. 172. The brackets arc original and reflect the provisional stage of the drafting. I Guidelines on the Treatment of Foreign Direct Investment, 7 Icsm Rev.— F.I.L.J. 297, 1992, at 300. v UNCTAD, International Investment Instruments: A Compendium, UNCTAD, Geneva, 2001, Vol. IV, p. 148.

  • �° MIGA Convention, in UNCTAD, supra, footnote 3, p. 219. NAFTA, 32 LL.M. 639, 1993. 12 ECT, 34 I.L.M. 381, 1995, at 389. 13 Vasciannie, supra, footnote 1, at pp. 109-111; Yannaca-Small, supra, footnote 1, p. 4. 14 UNCTAD, supra, footnote 1, p. 22; R. Dolzer and M. Stevens, Bilateral Investment Treaties, Brill, Leiden, 1995, p. 58; Vasciannie, ibid., at pp. 113-114; Yannaca-Small, ibid., at p. 5. Dolzer and Stevens, ibid., pp. 58-60.

  • 16 For a detailed discussion of this issue, see Yannaca-Small, supra, footnote 1, pp. 8-25. �� F. A. Mann, British Treaties for the Promotion and Protection of Investments, B.Y.LL., Vol. 52, 1981, p. 241, at p. 244. 18 Dolzer and Stevens, supra, footnote 14, p. 60. See also P.T. Muchlinski, Multinational Enterprises and the Law, Blackwell, Oxford, U.K., 1999, p. 626, citing J.P. Laviec, Protection et promotion des itlvestissements: étude de droit international economique, Presses universitaires de France, Paris, 1985, p. 94. ly UNCTAD, supra, footnote 1. 20 Ibid., at p. 13. 21 Ibid., at pp. 17, 23, 37-40, 53 and 61.

  • zzIbid., at p. 40. z3 Vasciannie, supra, footnote 1, pp. 104-105 and 139-144. 24 Ibid., at p. 144. 25 OECD, supra, footnote 6, at 120. The passage is quoted in the Dissenting Opinion of arbitrator Asante to AAPL v. Sri LA"ka, Award, 21 June 1990, 30 I.L.M. 628, 1991, at 639. 26 36 Annuaire suisse de droit international 178, 1980. "Thus, it refers to the classical principle of international public law according to which States must give foreigners found within their territories, and their properties, the benefit of the international 'minimum standard', that is to say to accord them a minimum of personal, procedural and economic rights." (Editor's translation).

  • 27 See especially C. N. Brower, C. H. Brower and J. K. Sharpe, The Corning Crisis in the Global Adjudication System, 19 Arb. Int'141 S, 2003, at 428; P. Dumberry, The Quest to Define "Fair and Equitable Treatment "for Investors under International LAw- The Case of the NAFTA Chapter 11 Pope & Talbot Awards, 3 J.W.I. 4, August 2002, p. 657; P.G. Foy and R.J.C. Deane, Foreign Investment Protection under Investrnent Treaties: Recent Developments Under Chapter 11 1 of the North American Free 1'rade Agreement, 16 Icsii) Rev.-F.I.L.]. 299, 2001; J. C. Thomas, Reflections on Article 1105 of NAFTA: History, State Practice and the Influence of Commentators, 17 ICSID Rev.-F.LL.J. 21, 2002. 2H NAFTA, Supra, footnote 11. 1 . 29 S. D. Myers v. Government of Canada (S.D. Myers), Partial Award, 12 November 2000, 40 LL.M. 1408, 2001. '° Ibid., at para. 264. 31 Pope & Talbot v. Canada (Pope & Talbot), Award, 10 April 2001, 7 ICSID Reports 102, paras. 105-118. 32 Ibid., at para. 113.

  • 33 Ibid., at para. 111. 3° Article 1131(2) NAFTA. 'S The United States Model BIT, as well as recently concluded U.S. Free Trade Agreements, incorporates the view expressed by the FTC. The 2004 United States Model BIT provides in part: "Article 5: Minimum Standard of Treatment 1. Each Party shall accord to covered investments 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 standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. 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 substantive rights." 3� Pope & Talbot v. Canada, Award in Respect of Damages, 31 May 2002, 41 I.L.M. 1347, 2002. Ibid., at paras. 17-24. ;s Ibid., at paras. 25-47. ;9 Ibid., at paras. 48-69. ao See Mondev lnternational Ltd. v. United States ofAmerica (Mondev), Award, 11 October 2002, 6 ICSID Reports 192, paras. 100 et seq.; United Parul Service of America, Inc. v. Canada (Ups), Award, 22 November 2002, 7 ICSID Reports 288, para. 97; AoF Group, Inc. v. United States of America (ADF Group), Award, 9 January 2003, 6 ICSID Reports 470, paras. 175-178; l.oewen Group, Inc. and Raymond L. L.oewen v. United States ofAmerica (Loewen), Award, 26 June 2003, 7 ICSID Reports 442, paras. 124-128; Waste Management, Inc. v. United Mexican States (Waste Management), Award, 30 April 2004, paras. 90-91. See also United Mexican States v. Metalclad Corp., Judgment, Supreme Court of British Columbia, 2 May 2001, 5 IcsiD Reports 236, paras. 61-65.

  • 41 See, especially, Técnicas Medioambientales Tecmed S. A. v. The United Mexican States (Tecmed), Award, 29 May 2003, 43 I.L.M. 133, 2004, paras. 155 and 156; Mm v. Republic of Chile (M71>), Award, 25 May 2004, paras. 11(�112; Occidental Exploration and Production Co. v. Ecuador (Occidentao, Award, 1 July 2004, paras. 188-190. 4z See also Vasciannic, supra, footnote 1, at pp. 122 and 127, who points out that the use of the term "fair and equitable treatment" does not necessarily convey the same legal result in each case. In the same sense, see also UNCTAD, supra, footnote 1, p. 22; Yannaca-Small, supra, footnote 1, pp. 1 and 40. 43 See S.D. Myers, supra, footnote 29, para. 264: "... the fact that a host Party has breached a rule of international law that is specifically designed to protect investors will tend to weigh heavily in favour of finding a breach of Article 1105." 44 G. Sacerdoti, Bilateral Treaties and Multilateral Instruments on Investment Protection, 269 Recueil des Cours 251, 1 , 1997, at 346. 45 Mondev, supra, footnote 40, para. 118. ah Waste Management, supra, footnote 40, para. 99. See also Ronald S. Lauder v. The Czech Republic (Lauder), Award, 3 September 2001, para. 292; GAMI Investments, Inc. v. United Mexican Sfates (gas1), Award, 15 November 2004, para. 96.

  • 47 Muchlinski, supra, footnote 18, p. 625. ;� Vasciannie, supra, footnote 1, pp. 100, 104 and 145. °v P. Weil, The State, the Foreign Investor, and International Law: The No Longer Stormy Relationship of a Menage a Trois, 15 ICSID Rev.-F.LL.J. 401, 2000, at 415. 50 See C. Schreuer, Decisions Ex Aequo et Bono under the IcsiD Convention, 11 ICSID Rev.-F.LL.J. 37, 1996. 51 ado Group, supra, footnote 40, para. 184. See also Mondev, supra, footnote 40, para. 119.

  • 52 UNCTAD, supra, footnote 1, p. 12. 53 Article 31 of the Vienna Convention states: "General rule of interpretation: 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light nf its object and purpose ..." 54 Termed, supra, footnote 41. 55 Ibid., at paras. 155 and 156. 56 MTD, supra, footnote 41.

  • Ibid., at paras. 112 and 113. See also Laurler, 5l1pm, footnote 46, para. 292; Offidoital, supra, footnote 41, para. 183. 58 Vasciannie, supra, footnote 1, pp. 105-106, 133 and 147. 5'' UNCTAI1, supra, footnote 1, p. 16. 611 Geiiiii, Eastern Credit Ltrl., Irir. and AS Baltoil Repu¡'li, 4 Estonia (Geniu), Award, 25 June 2001. 6 1CS1D Reports 241, at para. 367; S.D. Myers, supra, footnote 29, at para. 259; C.WE r. The Czech Republic (C.ltr.), Partial) Award, 13 September 2001, para. 611. h� UPS, suyrn, footnote 40. 61 Ibid., at para. 80.

  • 63 Neer v. Mexico (Neer), Opinion, United States-Mexico General Claims Commission, 15 October 1926, 21 AJ.I.L. 555, 1927. The case is discussed by Foy and Deane, supra, footnote 27, p. 314, and by Thomas, supra, footnote 27, pp. 29-32. !"' Neer, ibid. at p. 556. ss Elettronica Sicula S.p.A. (Eisl) (United States of America v. Italy), I.C.J. Reports 1989, p. 15.

  • , Ibid., at para. 128. For a detailed discussion of the Elsi case in relation to the fair and equitable treatment standard, see Vasciannic, supra, footnote 1, pp. 134-137. 67 S.D. Myers, supra, footnote 29. For a summary of the case, see Foy and Deane, supra, footnote 27, pp. 321-323. ''" S.D. Myers, ibid., at para. 263. 69' Genital, supra, footnote 60. 'u Ibid., at para. 367. 71 Pope fez Talbut, sura, footnote 31. 72 See also the discussions in Dumberry, supra, footnote 27, pp. 665, 674 and 682 et seq.; Foy and Dcane, supra, footnote 27, pp. 323-325; Thomas, supra, footnote 27, pp. 71 et seq.

  • '3Pope&Talbot,supra, footnote 31, at para. 118. The Tribunal added in a footnote that the "minimum standards" reach of Article 1105 would protect NAFTA investors and investments against such conduct, even in the unlikely event that it was customary within a NAFTA Party. " Pope & Talbot, Award in Respect of Datnagcs, supra, footnote 36. 75 Ibid., at paras. 63 and 64. '6 Mondev, supra, footnote 40. " Ibid., at para. 116. 78 Ibid., at para. 123. See also para. 125.

  • 79 Ibid., at para. 127. 80 ADF Group, supra, footnote 40. Ibid., at para. 179. 82 Id. 83 Ibid., at para. 180. 84 Ibid., at para. 181. 85 Loewen, supra, footnote 40. xb Ibid., at paras. 131-133. H7 Ibid., at para. 133. 88 Ibid., at para. 135. 19 Ibid., at para. 137. In the end, the Tribunal found that the investor had failed to exhaust local remedies and dismissed the claim on that ground.

  • ')1)WasteManaeement,supra, footnote 40. '1 Ibid., at paras. 93-97. 92 Ibid., at para. 98. 93 Ibid., at para. 140. 14 Mm, supra, footnote 41. 95 Ibid., at para. 113. 9(' GAmi, supra, footnote 46.

  • Ibid., at para. 95. 11 Ibid., at para. 97.

  • yy UNCTAD, supra, footnote 1, p. 51. See also Vasciannie, supra, footnote 1, pp. 146-147. too T. W. Walde, Energy Charter Treaty-based Investment Arbitration, 5 J.W. I.T. 3, June 2004, p. 387.

  • 101SouthemPacficProperties(MiddleEast)Ltd.v.ArabRepublicof Egypt(Sit,), Award, 20 May 1992, 3 ICSID Reports 189. 102 Ibid., at paras. 82 and 83. to3 Metalclad Cotp. v. United Mexican States (Metaldad), Award, 30 August 2000, 5 IcstD Reports 212. � Ibid., at para. 76. 5 Ibid., at para. 89.

  • 106 Ibid., at para. 99. The Award was set aside in part by the Supreme Court of British Columbia; see United Mexican States v. Metalclad Corp., supra, footnote 40, paras. 57-76. The Court found that the Tribunal had improperly based its Award on transparency, even though that principle is not contained in Chapter Eleven but in Chapter Eighteen of the NAFTA. The Court's Decision is questionable for two reasons: (1) Under Article 31 of the Vienna Convention on the Law of Treaties, a treaty must be interpreted in its context, which includes its entire text; (2) Article 1131 NAFTA, dealing with governing law, directs that a NAFTA Chapter Eleven tribunal is to decide the dispute "in accordance with this Agreement [i.e. the NAFTA—not just its Chapter Eleven] and applicable rules of international law". 107 Fmilio Agustin Ma_ jfezini v. The Kingdom ofspaiti, Award, 13 November 2000, 5 ICSID Reports 419. 108 Ibid., at para. 83. 109 CME, supra, footnote 60. r�° Ibid., at para. 611. rrr Tecmed, supra, footnote 41.

  • 112 Ibid., at para. 154. See also paras. 157, 162 and 164. Ibid., at para. 167. Ibid., at para. 172. "5 Ibid., at para. 173. 1]6 M,/'/), supra, footnote 41. Ibid., at para. 163.

  • tta Ibid., at paras. 165 and 166. 119 Occidental, supra, footnote 41. 120 Ibid., at para. 184. 121 Ibid., at paras. 185 and 186. �z= Ibid., at paras. 190 and 191. 123 GAmi, supra, footnote 46. 124 Ibid., at para. 91. �=5 Ibid., at para. 94. tze Ibid., at para. 100.

  • 127 Ibid., at para. 104. 128 Ibid., at paras. 108 and 110. iz9 See A.C. Sinclair, The Origins of the Umbrella Clause in the International Law of Investment Protection, 20 Arb. Int'l 411, 2004; C. Schreuer, Travellinq the BIT Route-Of Waiting Periods, Umbrella Clauses and Forks in the Road, 5J.W.I.T. 2, April 2004, p. 231, at pp. 249-255; T.W. Walde, The "Umbrella" Clause in Investment Arbihation-A Comment on Original lntentions and Recent Cases, 6 J.W.LT 2, April 2005, pp. 183-236. Il Waste Management, supra, footnote 40. 131 Ibid., at para. 98. 13z Ibid., at paras. 108-117. 133 Ibid., at para. 115. 134 Id.

  • '3e Mandev, supra, footnote 40. '3� Ibid., at para. 98. L17 Ibid., at para. 134. 138 SGS v. Philippines, Decision on Jurisdiction, 29 January 2004, 42 I.L.M. 1285. ''9 Ibid., at para. 162. 14(1 Pope & Talbot, supra, footnote 31, paras. 156-181.

  • 141 Ibid., at para. 181. 142 Pope & Talbot, Award in Respect of Damages, cupra, footnote 36, at paras. 67-69. 143 Tecmed, supra, footnote 41. raa Ibid., at para. 163. 143 For a general description of denial of justice, see Aziniarr, Davitiati and Baca v. United Mexican States, Award, 1 November 1999, 5 Icsil) Reports 269, paras. 102 and 103: "102. A denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they subject it to undue delay, or if they administer justice in a seriously inadequate way ... 103. There is a fourth type of denial ot justice, namely the clear and malicious misapplication of the law. This type of wrong doubtless overlaps with the notion of 'pretence of form' to mask a violation of international law."

  • 146Metalclad,supra, footnote 103. 147 Ibid., at para. 91. 148 Middle East Cement Sipping and Handling Co. S. A. v. Arab Republic of Egypt, Award, 12 April 2002, 7 ICSID Reports 178. 149 Ibid., at para. 143. 150 Teemed, suyra, footnote 41. 151 Ibid., at para. 162. 152 Loewel1, supra, footnote 40.

  • 153 Ibid., at para. 132. Ibid., at para. 136. 155 Ibid., at para. 137. �56 Ibid., at paras. 142-157, 165-171 and 207-217. Waste Management, supra, footnote 40. 15H Ibid., at para. 98. Ibid., at para. 130. 160 Vasciannie, supra, footnote 1, p. 144. 161 See, for example, Articles 26, 31(1), 46(2) and 69(2)(b) of the Vienna Convention on the Law of Treaties.

  • 1(" See also Gmill, supra, footnote 60, at para. 367: "Acts that would violate this minimum standard [of fair and equitable treatment] would include ... subjective bad faith." 'h3 Teaned, supra, footnote 41. tba Ibid., at paras. 153 and 154. 165 Waste Managemetit, supra, footnote 40. "■'■ Ibid., at para. 138. 167 A contrary indication may be seen in a dictum in Genm, supra, footnote 60, at para. 371: "... any procedural irregularity that may have been present would have to amount to bad faith, a wilful disregard of due process of law or an extreme insufficiency of action." However, this passage docs not relate to fair and equitable treatment but to the standard of arbitrary and discriminatory measures in Article u(3)(b) of the Estonia-United States l3rr. 168 Moitdev, supra, footnote 40. 16') Ibid., at para. 116.

  • Tecmed,supra, footnote 41. Ibid., at para. 153. Loewen, supra, footnote 40. Ibid., at para. 132. Occidental, supra, footnote 41. 175 Ibid., at para. 186.

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