The fair and equitable treatment standard in the international law of foreign investment

The treatment of foreign investors and of their investments on the territory of a host State is often subject to a bilateral investment treaty (BIT) signed by the national State of the investors and the host State. These BITs usually contain a clause in which the two States offer fair and equitable treatment (FET) to the foreign investors on their territory. Moreover, this clause has become a norm of customary law, implying that investors may rely on it even outside the context of the BIT. Foreign investors whose rights under this clause have not been respected may bring the State in front of an international tribunal. This book analyses not only the conventional and customary framework of the FET clause but also its scope and all its applications in the existing case law. This book tackles the standard of fair and equitable treatment by applying four conceptual frames: the legal basis of FET, its nature as a standard, its content and finally the implications of its breach. The first two chapters explore the two classical sources of international law as possible sources for FET. The main sources of FET lie in a rich conventional framework, mainly bilateral and regional. Yet the high number of BITs does not appear to offer a uniform model of FET clauses, quite the opposite; the book offers a classification of the FET clauses found in more than 400 BITs. Having concluded that the conventional framework is essential to FET, the book turns to the examination of the possible customary character of FET and argues that the view equating FET with the International Minimum Standard is erroneous and it limits the scope of FET. Alternatively, it suggests that the FET standard is an independent standard of customary nature. Then the book looks at the nature of FET, that of being a standard and retains three direct consequences for its meaning: its flexibility, the absence of a fixed content and its evolutionary character. With these three characteristics in mind, it proceeds to the third conceptual framework, the content of FET. Although no fixed content may be given to it, it identifies and develops each one of those situations in which the FET standard has already been applied. Finally, the last conceptual framework aims at discussing the final act of a FET claim, i.e. the amount of compensation awarded. It argues that FETis a standard which balances the interests and behaviours of both the States and the investors, at the stage of compensation.

Author Notes

Ioana Tudor holds a PhD in international law from the European University Institute and a MA in European law from the College of Europe. She has previously completed her studies at the University Paris II Assas. Member of the Madrid Bar, she speaks Romanian, French, English, Spanish and Italian. She is currently working as an Associate with Gide Loyrette Nouel in the Warsaw office.

Table of Arbitral Awards and Judicial Decisions	p. xxiii
List of Conventions and Treaties	p. xxix
List of Abbreviations	p. xxxi
Introduction	p. 1
I Sources of the FET Standard
Introductory Note: Identification of the Sources of International Law	p. 9
1 The FET in International Investment Agreements: A Typology of Drafting Formulations	p. 15
Introduction	p. 15
1.1 The FET Standard in Selected Bilateral Investment Treaties	p. 19
1.1.1 Preamble	p. 20
1.1.2 Body of the Treaty	p. 22
1.1.3 Recent Developments in the Drafting of Bilateral FET Clauses	p. 33
1.2 The FET Standard in Regional Agreements	p. 36
1.2.1 Preamble	p. 39
1.2.2 Body of the Text	p. 40
1.2.3 Analysis of the Findings	p. 44
1.3 The FET Standard in Multilateral Instruments	p. 45
1.3.1 Preamble	p. 47
1.3.2 Body of the Text	p. 47
1.3.3 Analysis of the Findings	p. 50
Resume	p. 51
2 The FET Standard, Part of the Body of General International Law	p. 53
Introduction	p. 53
2.1 Customary Framework of FET	p. 54
2.1.1 The Traditional View	p. 54
2.1.2 The International Minimum Standard	p. 60
2.1.3 The Incompatibility Between the International Minimum Standard and the FET	p. 65
2.1.4 The Two Elements Theory	p. 68
2.1.5 The Two Elements Theory Applied to the FET	p. 74
2.1.6 The FET as Customary Norm	p. 83
2.2 The FET Standard-A General Principle of Law?	p. 85
2.2.1 Use of General Principles Preceding the ICSID Convention	p. 86
2.2.2 Article 42(1) of the ICSID Convention	p. 90
2.2.3 Use of General Principles by ICSID Arbitral Tribunals	p. 91
2.2.4 Definition and Method of Identification of the GPL	p. 93
2.2.5 The FET as GPL	p. 101
II The Content of the FET Standard
Introductory Note	p. 107
3 The Concept of Standard and its Application to the FET	p. 109
Introduction	p. 109
3.1 The Standard in the Legal Field	p. 111
3.1.1 Etymology	p. 111
3.1.2 History	p. 112
3.1.3 Definitions Given by Scholars	p. 114
3.2 Objective and Subjective Elements	p. 116
3.2.1 The Objective Element: A Legal Concept and its Normative Content	p. 117
3.2.2 The Subjective Element: The Application of the Standard	p. 118
3.2.3 Comparison with the Rule	p. 119
3.2.4 The Role of the Judge Confronted with a Standard	p. 121
3.3 The FET: A Standard	p. 123
3.3.1 Objective Element of the FET	p. 123
3.3.2 Subjective Element	p. 129
Resume	p. 132
4 Preparation Phases For A Successful FET Based Claim	p. 134
Introduction	p. 134
4.1 Pre-Conditions for Admitting a Claim Based on the FET Standard	p. 135
4.1.1 An Action Attributable to the State	p. 135
4.1.2 Damage suffered by the Investor	p. 137
4.1.3 Causality Between State Action and Damage	p. 137
4.1.4 Burden of Proof	p. 138
4.2 The Parties' Approach to, and Interpretation of, the FET Standard	p. 139
4.2.1 The FET Standard in the Investors' Claims	p. 140
4.2.2 The FET Standard in the State's Defence	p. 142
4.3 Methodology for Arbitrators	p. 144
4.3.1 Ordinary Meaning	p. 145
4.3.2 FET in the General Context of the BIT	p. 146
4.3.3 Study of the Facts	p. 148
4.3.4 Threshold	p. 149
Resume	p. 152
5 Actual Situations in which the FET Standard has been Applied	p. 154
Introduction	p. 154
5.1 Lack of Respect for the Obligation of Vigilance and Protection	p. 156
5.2 Denial of Due Process and/or Procedural Fairness	p. 157
5.3 Non-Observance of the Investor's Legitimate Expectations	p. 163
5.4 Coercion and Harassment by the Organs of the Host State	p. 169
5.5 Failure to Offer a Stable and Predictable Legal Framework	p. 169
5.6 Unjustified Enrichment	p. 172
5.7 Evidence of Bad Faith	p. 173
5.8 Absence of Transparency	p. 175
5.9 Arbitrary and Discriminatory Treatment	p. 177
Resume-Achieving Stability in the Investor-State Relationship	p. 180
6 Relation Between the FET and the Other Treaty Provisions	p. 182
Introduction	p. 182
6.1 Other Standards of Treatment	p. 183
6.1.1 Full Protection and Security	p. 183
6.1.2 Non-Discrimination	p. 186
6.1.3 Most Favoured Nation Clause	p. 189
6.2 Other Provisions	p. 193
6.2.1 Pacta Sunt Servanda Clause	p. 193
6.2.2 Standard of Non-Impairment	p. 200
Resume	p. 201
III Balancing the Breach of the FET Standard
Introductory Note	p. 205
7 Balancing States' and Investors' Conduct: Calculation of Compensation	p. 207
Introduction	p. 207
7.1 Relevance of the Investors' Behaviour, and of the States' Specific Situation at the Compensation Stage	p. 209
7.1.1 Mainstream Position: Relevance at the Liability Stage	p. 209
7.1.2 Proposed Alternative: Relevance at the Compensation Stage	p. 211
7.2 Types of Investors' Behaviour and States' Specific Situation to be Considered at the Compensation Stage	p. 217
7.2.1 Conduct of the Investors	p. 217
7.2.2 States' Exceptional Circumstances	p. 223
Resume-Striking a Balance Between Reparation and Compensation	p. 227
Coda-Enforcement of FET Standard	p. 229
Conclusion	p. 233
Appendices	p. 239
Bibliography	p. 293
Index	p. 311

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