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FET and the Ongoing Debate on Its Normative Basis

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Fair and Equitable Treatment and the Fabric of General Principles

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Abstract

This chapter investigates the main academic opinions on the FET normative basis, pinpointing how none of them is able to give a completely suitable solution to the question. It is argued that FET has penetrated into the fabric of general international law by means of the category of principles peculiar to a certain field of international law, i.e. those principles having their own foundations in the international legal order itself, but which, through the mediation of the judge, end up being shaped according to the features typical of a specific normative field.

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Notes

  1. 1.

    Reisman 2015.

  2. 2.

    Idem, p. 617.

  3. 3.

    Idem.

  4. 4.

    Idem, p. 618.

  5. 5.

    Idem, p. 633.

  6. 6.

    Dworkin 1977, pp. 24–26.

  7. 7.

    See, e.g., Iovane 2008.

  8. 8.

    An appropriate use of this distinction within international investment law may be found in Di Benedetto 2013, pp. 220 et seq.

  9. 9.

    Schreuer 2007.

  10. 10.

    Mann 1981, p. 243. More in detail, this author, who based his analysis on the 1980 UK treaty with the Philippines, observes as follows: ‘It is submitted that the right to fair and equitable treatment goes much further than the right to most-favoured nation and to national treatment […] So general a provision is likely to be almost sufficient to cover all conceivable cases, and it may be that other provisions of the Agreement affording substantive protection are no more than examples or specific instances of this overriding duty.’ Shihata 1993, p. 78, also refers to FET as an ‘overarching principle’.

  11. 11.

    In detail, the text of this provision states as follows: ‘Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party.’

  12. 12.

    Petrobart v. The Kyrgystan, Arbitration Institute of the Stockholm Chamber of Commerce, Award of 29 March 2005, p. 76.

  13. 13.

    According to this article ‘[i]nvestment 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.’

  14. 14.

    Noble Ventures. Inc. v. Romania, ICSID Case No. ARB/01/11, Award of 29 March 2005, para 182.

  15. 15.

    S.D. Myers Inc v. Canada, UNCITRAL (NAFTA), Partial Award of 13 November 2000, para 265.

  16. 16.

    Pope and Talbot v. Canada, UNCITRAL (NAFTA), Award on the Merits on Phase 2 of 10 April 2001, para 111, note 105.

  17. 17.

    Reisman 2015, p. 629, note 49.

  18. 18.

    Mann 1982, p. 510. For a critical assessment of Mann’s theory, see Thomas 2002, pp. 51 et seq.; Weiler 2013, pp. 195–196.

  19. 19.

    Mauro 2003, p. 174.

  20. 20.

    In this regard, see Fietta 2005; Savarese 2011.

  21. 21.

    See Collins 2016, p. 128. The same circumstance is recognized by Mann himself, 1981, p. 243.

  22. 22.

    Cf. Charpentier 1963; Heiskanen 2008.

  23. 23.

    CMS Gas Transmission Company v. Argentina, Award of 12 May 2005, para 290.

  24. 24.

    Rumeli Telekom A.S. et al. v. Kazakistan, Award of 29 July 2008.

  25. 25.

    Emphasis added.

  26. 26.

    LG&E Energy Corporation v. Argentina, Award of 3 October 2006.

  27. 27.

    Diebold 2011.

  28. 28.

    In this regard, see Chap. 3.

  29. 29.

    Cordero Moss 2008; Schreuer 2010.

  30. 30.

    One may mention Wena Hotels LTD v. Egypt, ICSID Case No. ARB/98/4, Award of 8 December 2000, paras 84–95. In the same vein, see Occidental Exploration and Protection Company v. Ecuador, UNCITRAL, Award of 1 July 2004, para 187 (‘The tribunal accordingly holds that the Respondent has breached its obligations to accord fair and equitable treatment under Article II(3)(a) of the Treaty. In the context of this finding the question of whether in addition there has been a breach of full protection and security under this Article becomes moot as a treatment that is not fair and equitable automatically entails and absence of full protection and security of the investment’).

  31. 31.

    One example is Azurix v. Argentina, ICSID Case No. ARB/01/12, Award of 14 July 2006, para 408: ‘The tribunal is persuaded of the interrelationship of fair and equitable treatment and the obligation to afford the investor full protection and security. The cases referred to above show that full protection and security was understood to go beyond protection and security ensured by the police. It is only a matter of physical security; the stability afforded by a secure investment environment is as important from an investor’s point of view. The tribunal is aware that in recent free trade agreements signed by the United States, for instance, with Uruguay, full protection and security is understood to be limited to the level of police protection required under customary international law. However, when the terms ‘protection and security’ are qualified by ‘full’ and no other adjective or explanation, they extend, in their ordinary meaning, the content of this standard beyond physical security. To conclude, the tribunal, having held that the Respondent failed to provide fair and equitable treatment to the investment, finds that the Respondent also breached the standard of full protection and security under the BIT’.

  32. 32.

    Jan de Nul v. Egypt, ICSID Case No. ARB/03/13, Award of 6 November 2008, para 269: ‘The notion of continuous protection and security is to be distinguished here from the fair and equitable standard since they are placed in two different provisions of the BIT, even if the two guarantees can overlap. As put forward by the Claimants, this concept relates to the exercise of due diligence by the State’ (emphasis added). The decision in Houben v. Burundi, ICSID Case No. ARB/13/7, Award of 2 January 2016, must be cited to the same effect. Its paras 155–156 state as follows: ‘Le Tribunal est conscient qu’une ligne de jurisprudence s’est développée en matière CIRDI qui génère certaines confusions et un certain chevauchement entre ces différentes normes de protection trouvées dans la plupart des TBI, en particulier en ce qui concerne le standard du traitement juste et équitable et le standard de la sécurité́ et protection constante. Le défendeur lui-même, bien qu’ayant proposé́ une définition autonome du standard de sécurité́ et protection constante comme couvrant l’obligation pour l’Etat d’accueil de «protéger les investissements étrangers de dommages physiques causés par des tierces parties», n’a pas été́ à l’abri de certaines approximations concernant le contenu de ces deux standards. Le Tribunal considère, pour sa part, que si le TBI a pris soin de prévoir deux standards de protection, c’est que chacun recouvre une protection différente, par application du principe général de l’effet utile dans l’interprétation des traités internationaux.’

  33. 33.

    Eureko v. Poland, Ad Hoc Arbitration, Partial Award of 19 August 2005, paras 248–253.

  34. 34.

    Schreuer 2010, pp. 13–14.

  35. 35.

    PSEG v. Turkey, ICSID Case No. ARB/02/04, Award of 19 January 2009, para 238.

  36. 36.

    One may mention all those provisions on expropriation, like Article 1110(1) of NAFTA or Article IV(1) of the 1991 Argentina-US BIT, which contain a reference to FET.

  37. 37.

    Schreuer 2008, p. 3.

  38. 38.

    Such a circumstance has been highlighted in PSEG v. Turkey, ICSID Case No. ARB/02/04, Award of 19 January 2009. Its para 239 states as follows: ‘Because the role of fair and equitable treatment changes from case to case, it is sometimes not as precise as would be desirable. Yet, it clearly does allow for justice to be done in the absence of the more traditional breaches of international law standards. This role has resulted in the concept of fair and equitable treatment acquiring a standing on its own, separate and distinct from that of other standards, albeit many times closely related to them, and thus ensuring that the protection granted to the investment is fully safeguarded’. A normative confirmation of the same circumstance may be found in some recent investment agreements, such as the 2012 China-Japan-Korea Trilateral Investment Agreement. According to its Article 5, a determination that there has been a breach of a standard different from FET does not ipso facto entail a violation of the latter.

  39. 39.

    One example is the opinion expressed by the American State Department with regard to the existence of an International Minimum Standard. See 77 American Journal of International Law 1, 1983, pp. 135 et seq. The view that FET is part of the customary MST was also put forward by the Swiss Foreign Office in 1979 (‘On se réfère ainsi au principe classique du droit des gens selon lequel les Etats doivent mettre les étrangers se trouvant sur leur territoire et leurs biens au bénéfice du ‘standard minimum’ international, c’est-à-dire leur accorder un minimum de droits personnels, procéduraux et économiques’; Annuaire Suisse de Droit International 1980, p. 178.)

  40. 40.

    One may mention the Treaty of Amity, Economic Relations, and Consular Rights between the U.S. and Italy (February 2, 1948). Its Article 5, para 2, states as follows: ‘The nationals of each High Contracting Party shall receive, within the territories of the other High Contracting Party, the most constant protection and security for their persons and property, and shall enjoy in this respect the full protection and security required by international law’. In legal doctrine, see Lanfranchi 1968.

  41. 41.

    Neer v. Mexico, Award of 15 October 1926, in Reports of International Arbitral Awards, vol. IV, p. 60; Roberts v. Mexico, Award of 2 November 1926, idem, p. 77.

  42. 42.

    Roberts, p. 80: ‘[F]acts with respect to equality of treatment of aliens and nationals may be important in determining the merits of a complaint of mistreatment of an alien. But such equality is not the ultimate test of the propriety of the acts of the authorities in the light of international law. That test is, broadly speaking, whether aliens are treated in accordance with ordinary standards of civilization.’

  43. 43.

    Neer, pp. 61–62.

  44. 44.

    Cf. e.g. Fatouros 1962, pp. 135–141, 214–215; Kohona 1987, p. 91; Mo 1991, p. 52; Juillard 1994, pp. 131–135; Sacerdoti 1997, p. 341; Leben 1999, p. 13; OECD 2004; Orakhelashvili 2008; Montt 2009, p. 69.

  45. 45.

    In particular, the Article states that ‘[e]ach Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.’

  46. 46.

    On the history of Article 1105 of NAFTA, see Thomas 2002.

  47. 47.

    In detail, Article 5 (‘Minimum Standard of Treatment’) states as follows: ‘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 para 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.’

  48. 48.

    In detail, Article 5 (‘Minimum Standard of Treatment’) states as follows: ‘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, para 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. The obligation in para 1 to provide: (a) ‘fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and (b) ‘full protection and security’ requires each Party to provide the level of police protection required under customary international law.’

  49. 49.

    In detail, this Article (‘Minimum Standard of Treatment’) states as follows: ‘1. Each Party shall accord to covered investments treatment in accordance with applicable customary international law principles, including fair and equitable treatment and full protection and security. 2. For greater certainty, para 1 prescribes the customary international law minimum standard of treatment of aliens as the 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. The obligations in para 1 to provide: (a) ‘Fair and Equitable Treatment’ includes the obligation not to deny justice in criminal, civil or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world.’

  50. 50.

    Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award of 31 October 2012.

  51. 51.

    Paras 418–419.

  52. 52.

    Article 3 of the 1991 BIT Argentina-France is a good example: ‘Each Contracting Party shall undertake to accord in its territory and maritime zone just and equitable treatment, in accordance with principles of international law, to the investments of investors of the other Party and to ensure that the existence of the rights so granted is not impeded either de jure or de facto’ (emphasis added). As to the case law, one may mention, among others, the decision in OI European Group B.V. v. Venezuela, ICSID Case No. ARB/11/25, Award, 10 March 2015, para 481: ‘[T]he Treaty […] only offers protected investors FET ‘in accordance with international law.’ The Treaty therefore does not guarantee FET in abstract, but rather only as recognized by international law. And the level of protection that international law offers and ensures to foreign nationals is precisely what is known as the minimum customary standard.’ The same decision, para 489, adds that ‘[w]hat is relevant is not the standard as it was defined in the 20th century, but rather the standard as it exists and is accepted today—since both Customary International Law and the standard itself are constantly evolving. And it is quite possible that the minimum customary standard and the FET envisaged in the treaties have converged, according the investor with substantially equivalent levels of protection.’

  53. 53.

    See, for example, Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para 530: ‘the tribunal is of the opinion that the FET standard embodied in the Treaty cannot […] be equated to the ‘international minimum standard’ under customary international law, but rather constitute an autonomous treaty standard.’

  54. 54.

    SAUR International S.A. v. Argentina, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability of 6 June 2012, para 491. By the same token, see Rusoro v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award of 22 August 2016, para 520.

  55. 55.

    Glamis Gold, Ltd. v. United States, UNCITRAL (NAFTA), Award of 8 June 2009, para 22: ‘[A]lthough situations presented to tribunals are more varied and complicated today than in the 1920s, the level of scrutiny required under Neer is the same. Given the absence of sufficient evidence to establish a change in the custom, 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)’.

  56. 56.

    Waste Management v. Mexico, ICSID Case No. ARB (AF)/00/3, Award of 30 April 2004. According to this decision, in particular, ‘[b]oth the Mondev and ADF tribunals rejected any suggestion that the standard of treatment of a foreign investment set by NAFTA is confined to the kind of outrageous treatment referred to in the Neer case’ (para 93). Indeed, ‘despite certain differences of emphasis a general standard for Article 1105 is emerging. Taken together, the S.D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves 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 an administrative process’(para 98). More recently, the same view has been advanced by an UNCITRAL Tribunal in Grand River Enterprises Six Nations, Ltd. et al. v. United States, Award of 12 January 2011, para 166: ‘Article II(2) of the BIT refers to the “principles of international law” in accordance with which fair and equitable treatment is to be bestowed. To determine these principles the tribunal must consider the present status of development of public international law in the field of investment protection. It is the tribunal’s view that public international law principles have evolved since the Neer case and that the standard today is broader than that defined in the Neer case on which Respondent relies.’

  57. 57.

    Merril & Ring v. Canada, UNCITRAL Rules, Award of 31 March 2010, paras 182 et seq.

  58. 58.

    Dumberry 2013, p. 44; in other words, in this author’s view, ‘the debate as to whether the FET is an autonomous standard or linked to the minimum standard of treatment under international law is simply not relevant in the context of Article 1105’ (p. 45).

  59. 59.

    Dumberry 2016, pp. 4–5.

  60. 60.

    Urbaser S.A. et al. v. Argentina, ICSID Case No. ARB/07/26, Award of 8 December 2016.

  61. 61.

    One may mention the case of Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Award of 18 September 2007, para 296: ‘the tribunal finds the Respondent to be right in arguing that fair and equitable treatment is a standard that is none too clear and precise. This is because international law is itself not too clear or precise as concerns the treatment due to foreign citizens, traders and investors. This is the case because the pertinent standards have gradually evolved over the centuries. Customary international law, treaties of friendship, commerce and navigation, and more recently bilateral investment treaties have all contributed to this development.’

  62. 62.

    Conforti and Labella 2012, p. 31; Treves 2012.

  63. 63.

    One recent example may be found in Jurisdictional Immunities of the State, (Germany v. Italy: Greece intervening), Judgment of 3 February 2012, para 55: ‘[T]he Court must determine, in accordance with Article 38(1)(b) of its Statute, the existence of ‘international custom, as evidence of a general practice accepted as law’ conferring immunity on States and, if so, what is the scope and extent of that immunity. To do so, it must apply the criteria which it has repeatedly laid down for identifying a rule of customary international law. In particular […], the existence of a rule of customary international law requires that there be ‘a settled practice’ together with opinio juris.’

  64. 64.

    See Report of the International Law Commission on the Work of its Sixty-Eighth Sess., Supp. No 10, 74, at 76, UN Doc. A/71/10 (2016).

  65. 65.

    For example, according to Annex A to the treaty between the government of the United States of America and the government of the Republic of Rwanda concerning the encouragement and reciprocal protection of investment (2008), parties ‘confirm their shared understanding that ‘customary international law’ generally and as specifically referenced in Article 5 and Annex B results from a general and consistent practice of States that they follow from a sense of legal obligation.’

  66. 66.

    For example, Annex 9-A of the 2016 Trans-Pacific Partnership Treaty (‘Customary International Law’) states as follows: ‘The Parties confirm their shared understanding that ‘customary international law’ generally and as specifically referenced in Article II.6 (Minimum Standard of Treatment) results from a general and consistent practice of States that they follow from a sense of legal obligation. The customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the investments of aliens.’

  67. 67.

    Once again, the idea whereby treaties represent a manifestation of practice for the purpose of customary international law may be inferred from the ILC’s Report (supra note 64), p. 24, para 41(h) (Practice in connection with treaties): ‘Negotiating, concluding and entering into, ratifying and implementing bilateral or multilateral treaties (and putting forward objections and reservations to them) are another form of practice. Such practice does not concern the law of treaties alone; it may also relate to the obligations assumed through the relevant international legal instrument.’ See also D’Amato 1988, p. 462: ‘What makes the content of a treaty count as an element of custom is the fact that the parties to the treaty have entered into a binding commitment to act in accordance with its terms. Whether or not they subsequently act in conformity with the treaty, the fact remains that they have so committed to act. The commitment itself, then, is the ‘State practice’ component of custom’.

  68. 68.

    This minimal approach can be found in a number of investment agreements such as the already mentioned Article 2, para 2, of the 1993 Argentina-Great Britain BIT: ‘Investments of investors of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy protection and constant security in the territory of the other Contracting Party.’ The 1998 Australia-China BIT is relevant in the same vein. Its Article 3 states as follows: ‘A contracting party shall at all times ensure fair and equitable treatment in its own territory to investments and activities associated with such investments.’

  69. 69.

    As has been frequently observed, Article 1105, para 1, of the NAFTA, is a good example in that respect.

  70. 70.

    See supra para 2.3.

  71. 71.

    Idem.

  72. 72.

    Idem.

  73. 73.

    Idem.

  74. 74.

    Draft conclusion 8 states as follows: ‘1. The relevant practice must be general, meaning that it must be sufficiently widespread and representative, as well as consistent. 2. Provided that the practice is general, no particular duration is required.’ The same approach has been followed by the ICJ: ‘It is not to be expected that in the practice of States the application of the rules in question should have been perfect […] The Court does not consider that, for a rule to be established as customary, the corresponding practice must be in absolutely rigorous conformity with the rule. In order to deduce the existence of customary rules, the Court deems it sufficient that the conduct of States should, in general, be consistent with such rules, and that instances of State conduct inconsistent with a given rule should generally have been treated as breaches of that rule, not as indications of the recognition of a new rule’; (Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States), Judgment of 27 June 1986, para 186.

  75. 75.

    Mondev International Ltd v. United States, ICSID Case No. ARB(AF)/99/2, Award of 11 October 2002.

  76. 76.

    Paragraph 117. Albeit in more general terms, the decision in Merrill & Ring Forestry L. P. v. Canada, NAFTA (UNCITRAL), Award of 31 March 2010, para 210, seems to express the same line of thought: ‘[A] requirement that aliens be treated fairly and equitably in relation to business, trade and investment […] has become sufficiently part of widespread and consistent practice so as to demonstrate that it is reflected today in customary international law as opinio juris’ (emphasis added).

  77. 77.

    Diehl 2012, pp. 135–136 (emphasis added.). For a similar opinion, see also Tudor 2008, pp. 74 et seq. Contra Kishoiyian 1993, p. 372, according to whom ‘there is not sufficient consistency in the terms of the investment treaties to find in them support for any definite principles of customary international law [T]he foregoing analysis of BITs has manifested so much uncertainty and contradiction, so much fluctuation and discrepancy in the rapid conclusion of BITs, and the practice has been so much influenced by considerations of political expediency in the various cases, that it is not easy to discern in all the treaties any constant and uniform usage, accepted as law regulating foreign investment.’

  78. 78.

    Once again, this idea may be found in Mondev (note 53), paras 110–111: ‘[NAFTA Parties] appear to question whether the parties to the very large numbers of bilateral investment treaties have acted out of a sense of legal obligation when they include provisions in those treaties such as that for ‘fair and equitable’ treatment of foreign investment […] The question is entirely legitimate. It is often difficult in international practice to establish at what point obligations accepted in treaties, multilateral or bilateral, come to condition the content of a rule of customary international law binding on States not party to those treaties. Yet the United States itself provides an answer to this question, in contending that, when adopting provisions for fair and equitable treatment and full protection and security in NAFTA (as well as in other BITs), the intention was to incorporate principles of customary international law.’

  79. 79.

    The idea whereby opinio juris should reflect an interest of the community of States to establish a rule of customary international law is to be traced back to Doehring 2004, margin no. 317.

  80. 80.

    Diehl 2012, p. 145.

  81. 81.

    Cargill v. Mexico, ICSID Case No. ARB(AF)/05/2, Award of 18 September 2009, para 276. In the same vein, see Sornarajah 2010, p. 232: ‘The view is stated that the large number of bilateral investment treaties that have been signed in recent years has led or will lead to the creation of customary principles of international law on the protection of foreign investments. The frequency with which this view is stated is puzzling in view of the fact that the evidence and the theory are against the possibility of investment treaties creating customary international law […] Had the rules on investment protection been clear, there would have been no reason for such treaties.’

  82. 82.

    Conforti and Labella 2012, p. 33. More in detail, according to the same authors, ‘[d]omestic courts often resort to treaties in their decisions as evidence of a customary international rule. However, treaties can be construed as either confirming pre-existing customary principles or as creating new rules applicable only to contracting States. Only an assessment of opinio juris sive necessitatis can determine which of these two effects was intended by the contracting States, and thereby establish whether the treaty supports or contradicts the existence of a customary rule’ (pp. 33–34).

  83. 83.

    One may mention Camuzzi International S.A. v. Argentina, ICSID Case No. ARB/03/2, Decision on Objections to Jurisdiction, 11 May 2005, para 144: ‘There is no obstacle in international law to the expression of the will of States through treaties being at the same time an expression of practice and of the opinio juris necessary for the birth of a customary rule if the conditions for it are met.’

  84. 84.

    Draft Conclusion 11 states as follows: ‘1. A rule set forth in a treaty may reflect a rule of customary international law if it is established that the treaty rule: (a) codified a rule of customary international law existing at the time when the treaty was concluded; (b) has led to the crystallization of a rule of customary international law that started to emerge prior to the conclusion of the treaty; or (c) has given rise to a general practice that is accepted as law (opinion juris), thus generating a new rule of customary international law. 2. The fact that a rule is set forth in a number of treaties may, but does not necessarily, indicate that the treaty rule reflects a rule of customary international law.’

  85. 85.

    For the suggestion of the existence of such a presumption in similar cases, see Crawford 2013, paras 167–174.

  86. 86.

    Guinea v. Congo (Preliminary Objections), Judgment of 24 May 2007, para 90. In the same vein one may mention the more ancient decision in North Sea Continental Shelf (Germany v. Denmark; Germany v. Netherlands) Judgment of 20 February 1969, para 76: ‘Over half the States concerned, whether acting unilaterally or conjointly, were or shortly became parties to the Geneva Convention, and were therefore presumably so far as they were concerned, acting actually or potentially in the application of the Convention. From their action no inference could legitimately be drawn as to the existence of a rule of customary law.’

  87. 87.

    Schachter 1984, p. 126 (emphasis added). The same remark in relation to FET clauses may be found in Kläger 2011, p. 269 (‘[E]ven if the overwhelming State practice—which is indeed represented by the sheer number of BITs incorporating fair and equitable treatment—may ease the requisition of an opinio iuris, demonstrating that evidence of the latter is still a matter of great difficulty. This is also because the rise of arbitral decisions in recent years has created some new controversies which also contributed to an increased textual diversity in relation to fair and equitable treatment clauses.’) and, more recently, in Dumberry 2016, p. 1, 23 (‘There is indeed no indication in treaty text (or in the travaux preparatoires or anywhere else) showing that States include FET clauses in their BITs out of a sense of conviction that this is the type of protection they have to provide to foreign investors under international law. While the present author has found a number of clear examples of such existing opinio juris in BITs in other contexts, none was found regarding the FET clause. States sign BITs to protect their own interests, not out of sense of obligation’). A less pessimistic opinion may be credited to Valenti 2014, p. 26, 32 (‘[O]ne must acknowledge that [the] insertion of [FET] into BITs is a widespread practice of States. However, it is not easily proven that such a practice is backed by a sense of legal obligation (opinio juris), which must also be found before concluding by stating the customary status of the rule. Given the uncertainty surrounding the subjective element of custom with reference to the FET, we do not believe that it has already attained the customary status. In our opinion, however, the evolution that the standard has undergone, especially the progressive definition of its content by the arbitral practice and scholarly conceptualization, reveals that it would be ready to take this qualitative step.’

  88. 88.

    Not by chance, in order to answer this objection, the same authors claiming the customary nature of FET resort to the different category of general principles common to domestic systems. For example, Tudor 2008, p. 54, argues as follows: ‘Establishing that FET is part of customary law does not exclude it from being a general principle of law. This duality is recognized by the very structure of Article 38, which considers custom and general principles in two separate paragraphs. The relevance of recognizing a dual nature—custom/general principle—to the FET is, first, that the function and nature of these two sources are different and second, that this duality testifies to the FET’s importance and almost unavoidable presence in international law. As a custom, the FET standard has to comply with [two] requirements […], i.e., State practice and opinio juris. As a general principle of law, it enjoys an independent status and its opposability to States does no longer depend on its effective acceptance at the international level but on its place at the domestic level. Therefore, it remains relevant to examine the FET as a general principle of law even once its roots in both conventional and customary law are established. ‘Likewise, Diehl 2012, pp. 178–179, observes that ‘the FET standard is a ‘twofold sources-standard’, that is, a standard based on two sources of public International law: The fact that customary International law is largely shaped by the outward behaviour of States as it is reflected in their practice on the international plane, whereas general principles of law find their pivotal underpinning in the internal structure of the States’ own legal orders, is not merely of terminological importance. If a standard is customary international law only, States are largely free to change or to destroy it by modifying their behaviour in inter-State relations. A general principle of law, by contrast, can only be overcome if a sufficiently relevant number of States change their internal legal orders in order to do away with it. Furthermore, the classification of the FET standard as a general principle of law enables arbitral tribunals to not only draw on the case law of other international courts and tribunals, but to look to domestic jurisprudence for guidance on how to interpret this broad standard.’ In any case, on the possibility of referring to general principles common to domestic systems in matter of FET, see infra.

  89. 89.

    Santulli 2015, p. 84: ‘Le renvoi effectué par la clause de traitement juste équitable est mobile en ce sens qu’il permet de tenir compte des évolutions postérieures (de la pratique comme de la perception des valeurs protégées) à la conclusion de l’accord—a fortiori ne se réfère-t-il pas à des conceptions plus anciennes.’

  90. 90.

    See, for instance, The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award of 6 May 2013, para 197: ‘[The tribunal] sees no benefit in engaging in an abstract debate as to whether Article 3(1) [of the Netherlands-Romania BIT], and in particular its reference to ‘fair and equitable treatment’, was or was not intended by the Parties simply to incorporate the ‘minimum standard’ under customary international law, still less to engage in any debate as to what that ‘minimum standard’ should now be understood to be. It prefers instead (in keeping with the approach adopted by other arbitral tribunals) to follow the ordinary meaning of the word used, in their context, and in the light of the object and purpose of the BIT.’

  91. 91.

    This opinion has been clearly maintained by Bronfman 2006. To his mind, the FET clause should be understood ‘according to the real intention of the parties. In other words, it grants the best protection to the investor, which implies the fairest and most equitable conduct by the host State in regard to the specific facts of the case’ (p. 678). More recently the same opinion has been shared by Kläger 2011, p. 280: ‘[F]air and equitable treatment represents a conventional norm which, due to its general texture, serves as a gateway for the integration of principled arguments that guide its application. The fact that fair and equitable treatment is systematically interlinked to arguments derived from legal principles, based on other conventional agreements, custom or general principles of law, does not change the position of fair and equitable treatment in the system of international law sources. Taking into account also the principles of fair and equitable treatment and their normative status helps to avoid the difficulties in the classification of fair and equitable treatment and provides a more comprehensive picture of fair and equitable treatment and the international law sources.’ With regard to the case law, Petrobart v. The Kyrgystan, Arbitration Institute of the Stockholm Chamber of Commerce, Award of 29 March 2005, p. 26, seems to be quite revealing: ‘[T]here is no specific definition of this obligation under international law. Its meaning therefore should be determined by applying the applicable rules of interpretation in light of the circumstances of the present case.’

  92. 92.

    In general, on treaty interpretation in investment arbitration, see Weeramantry 2012.

  93. 93.

    Article 31, para 1, VCLT, states as follows: ‘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 of its object and purpose.’

  94. 94.

    Saluka v. Czech Republic, UNCITRAL, Partial Award of 17 March 2006, para 297.

  95. 95.

    See, e.g., Rawls 2001; Franck 1995. Both these authors were quoted by an ICSID Tribunal, but precisely with the view to highlighting the limited relevance of their volumes for the FET scope to be established. Reference is made to Suez et al. v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability of 30 July 2010, para 221: ‘What, then, is the meaning of ‘fair and equitable treatment’ with respect to the investments undertaken by the Claimants? Philosophers and scholars have devoted tomes to the subject of fairness. While their work is helpful in understanding the abstract concept and its implications, it does not answer a fundamental and practical question that every arbitral tribunal must answer: By what criteria, standard, or test is an arbitral tribunal to determine whether the specific treatment accorded to the investments of a particular foreign investor in a given context is or is not “fair and equitable”? To say that “fair and equitable” means “just”, “even-handed’’, “unbiased”, or “legitimate”, as some tribunals have done, is quite frankly to state a tautology. Such formulations are not judicially operational in the sense that they lend themselves to being readily applied to complex, concrete investment fact situations, like those found in the present cases.’

  96. 96.

    Article 31, para 2, VCLT, states as follows: ‘The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.’ For a comment on this Article, see Dörr and Schmalebach 2012, pp. 62 et seq.

  97. 97.

    The ICJ Judgment in Nationals of the Unites States of America in Morocco (France v. United States), Judgment of 27 August 1952, p. 196, is quite revealing: ‘The purposes and objects of this Convention were stated in its Preamble […] In these circumstances, the Court cannot adopt a construction by implication of the provisions […] of the Convention which would go beyond the scope of its declared purposes and object.’

  98. 98.

    In this regard, see Ciurtin 2015, pp. 64, 74. As far as international contracts are concerned, and despite the absence in the matter of a provision akin to that set forth in the VCLT, Crivellaro 2001 argues that preambles should serve the same interpretive purpose.

  99. 99.

    Lauder v. Czech Republic, UNCITRAL, Final Award of 3 September 2001, para 292: ‘Article II(2)(a) of the Treaty sets forth that ‘[i]nvestments shall at all times be accorded fair and equitable treatments […]’. As with any treaty, the Treaty shall be interpreted by reference to its object and purpose, as well as by the circumstances of its conclusion (Vienna Convention on the Law of Treaties, Articles 31 and 32). The preamble of the Treaty states that the Parties agree ‘that fair and equitable treatment of investment is desirable in order to maintain a stable framework for investment and maximum effective utilization of economic resources’.

  100. 100.

    CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award of 13 September 2001, para 155: ‘The Treaty further provides that investments are to be ensured ‘fair and equitable treatment.’ Treaty at Article 3(I). The Treaty’s Preamble underscores the importance of this obligation, acknowledging that ‘fair and equitable treatment’ of investments plays a major role in realizing the Treaty’s goal of encouraging foreign investment.’

  101. 101.

    One may mention the Preamble of the 1993 Argentina-France BIT: ‘Desiring to develop economic cooperation between the two States and to create favourable conditions for French investments in Argentina and Argentinian investments in France, Convinced that the promotion and protection of such investments are likely to stimulate transfers of capital and technology between the two countries in the interest of their economic development […].’

  102. 102.

    Such a sceptical view has been advanced, for instance, in Suez and AWG, ICSID Case No. ARB/03/19, Award of 30 July 2010, para 218: ‘When one examines the stated purposes of the three BITs, one sees that they all have broader goals than merely granting specific levels of protection to individual investors. In the case of the Argentina-France BIT and the Argentina-Spain BIT, the Contracting States are seeking to further economic cooperation between them. The protection and promotion of foreign investment, while important to attaining that goal, are only a means to that end. Similarly, the Argentina-U.K. BIT is seeking to increase the prosperity of the two States. Through these treaties, the Contracting States pursue the broader goals of heightened economic cooperation between the two States concerned with a view toward achieving increased economic prosperity or development.’

  103. 103.

    Joseph Charles Lemire v. Argentina, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability of 14 January 2010, para 264: ‘Words used in treaties must be interpreted through their context. The context of Article II.3 is to be found in the Preamble of the BIT, in which the contracting parties state ‘that fair and equitable treatment of investment is desirable in order to maintain a stable framework for investment…’. The FET standard is thus closely tied to the notion of legitimate expectations—actions or omissions by Ukraine are contrary to the FET standard if they frustrate legitimate and reasonable expectations on which the investor relied at the time when he made the investment.’

  104. 104.

    Paparinskis 2013.

  105. 105.

    Idem, p. 163.

  106. 106.

    Idem, p. 166. In detail, Article 31, para 3, VCLT, states as follows: ‘There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties.’ For a comment on this Article, see Dörr and Schmalebach 2012, pp. 70 et seq.

  107. 107.

    Focarelli 2015, p. 407.

  108. 108.

    Paparinskis 2013, p. 167.

  109. 109.

    See Sect. 2.3.

  110. 110.

    Schill 2010, pp. 151 et seq. With regard to FET as the perfect prism trough which evaluating the relevance of general principles within international investment law, see also Gazzini 2009, pp. 116 et seq.; Battini 2008, p. 12; McLachlan 2008, pp. 395 et seq.; Schill 2012, pp. 162 et seq.; Jacob and Schill 2015, pp. 700 et seq. More generally on the contribution of international investment law to the rule of law, see Happ 2016, pp. 279 et seq.

  111. 111.

    Schill 2010, pp. 151, 175.

  112. 112.

    As observed by Gosalbo-Bono 2010, p. 242, an obligation like this ‘was the most effective defence against political misuse of powers and constituted the supreme guarantee for the protection of individual rights. However, the nineteenth century A.D. theory of the Rechtsstaat failed to take into account the potential arbitrary use of legislative power […] and was too optimistic in taking for granted the trust of the citizens since it assumed a perfect correspondence between the will of the State, legality, and moral legitimacy’.

  113. 113.

    On this point, see Dedov 2014, p. 63.

  114. 114.

    Zolo 2007, p. 19. In the same vein one may consider Dedov 2014, p. 62, once again: ‘It is not a mistake to say that the legal State doctrine almost has the same meaning. As it usually happens, two different legal systems (the common law system and the civil law system) give different names to a doctrine in question while they move in the same direction purporting to prevent abuse of power and arbitrariness and to impose limits on politics in accordance with short-term interests.’

  115. 115.

    See UN General Assembly, ‘The Rule of Law at the National and International Levels’, A/RES/68/116, 16 December 2013.

  116. 116.

    By the celebrated judgment of 23 April 1986 known as Les Verts (Case 294/83 Les Verts v. Parliament, para 23), the European Court of Justice referred to the European Community as a ‘Community based on the rule of law, inasmuch as neither its Member States nor its institutions can avoid a review of the question whether the measures adopted by them are in conformity with the basic constitutional charter, the Treaty.’ From that moment on, much water has flowed under the bridge and several references to the rule of law may be found within the EU’s realm. This is recalled by Article 2 of the Treaty on European Union (TEU), as well as by the Preambles to the same Treaty and to the Charter of Fundamental Rights of the EU. This is also why, under Article 49 TEU, respect for the rule of law is a precondition for EU membership. Last but not least, the 2014 European Commission Communication, COM(2014)158, to the EU Parliament and the Council (‘A new EU Framework to Strengthen the Rule of Law’) is of relevance. On the whole matter, see Pech 2009.

  117. 117.

    Paparinskis 2013, p. 20.

  118. 118.

    Merrill & Ring Forestry L. P. v. The Government of Canada, NAFTA (UNCITRAL), Award of 31 March 2010, para 184.

  119. 119.

    Several writers in the legal doctrine have highlighted such a circumstance. We refer, inter alia, to Gaja 2008 and Crawford 2012, p. 37.

  120. 120.

    As to the distinction between formal and material sources, see Salmond 1924, p. 164.

  121. 121.

    For an overall overview of the debate existing in the matter cf., inter alia, Vitanyi 1982; Focarelli 2015, pp. 296 et seq.

  122. 122.

    We refer to the work carried out by the Advisory Committee of Jurists appointed by the Council of the League of Nations to draft the PCIJ Statute and which engaged in a discussion on what to do, should a rule of customary or conventional law to be applied to a given dispute be lacking. On this point, see recently Vos 2013, pp. 111–113.

  123. 123.

    Anzilotti 1964, p. 107. In the same vein, see Morelli 1967, p. 46.

  124. 124.

    Treves 2005, p. 249.

  125. 125.

    Balladore Pallieri 1962, p. 24.

  126. 126.

    Conforti and Labella 2012, p. 40.

  127. 127.

    Cassese 2005, p. 192.

  128. 128.

    On this point, see, e.g., Kahn 1968, p. 27; Schreuer et al. 2009, pp. 545 et seq. and 603 et seq.

  129. 129.

    Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of other States, para 41, available at http://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf.

  130. 130.

    Schreuer et al. 2009, p. 604: ‘The reference to the enumeration of sources of international law as contained in Article 38(1) of the ICJ Statute by no means resolves the problem of establishing the rules of international law relevant to the particular dispute. It is debatable whether the list provided there paints a complete picture of contemporary international law and whether the neat categories suggested there conform to the complex realities of international legal practice. Nevertheless, this reference demonstrates that an ICSID tribunal is directed to look at the full range of sources of international law in a similar way as the International Court of Justice.’

  131. 131.

    See, e.g., Tudor 2008, pp. 91 et seq.

  132. 132.

    Amco Asia Corp, Pan American Development Ltd and PT Amco Indonesia v. Indonesia, ICSID, Award of 31 May 1990.

  133. 133.

    On this point, see what has been observed in the introduction.

  134. 134.

    Inceysa v. El Salvador, ICSID Case No. ARB/03/26, Award of 2 August 2006, para 227. For a case where the existence of a general principle has been rejected, given the absence of a general consensus within national legal systems, see Klöckner v. Cameron, Decision on Annulment of 31 May 1985, para 72: ‘In the latter case, is it possible to hold that the Award has ‘applied the law of the Contracting State’ as required in Article 42(1)? It is true that the principle of good faith is ‘at the basis’ of French civil law, as of other legal systems, but this elementary proposition does not by itself answer the question. In Cameroonian or Franco-Cameroonian law does the ‘principle’ affirmed or postulated by the Award, the “duty of full disclosure”, exist? If it does, no doubt flowing from the general principle of good faith, from the obligation of frankness and loyalty, then how, by what rules and under what conditions is it implemented and within what limits? Can a duty to make a “full disclosure” even to one’s own prejudice, be accepted, especially without limits? Is there a single legal system which contains such a broad obligation? These are a few of the questions that naturally come to mind and that the Award provides no basis for answering.’

  135. 135.

    Watts 1994, p. 16. A similar opinion has been recently advanced by Hachez 2013, pp. 307 et seq. In this author’s view, indeed, ‘one must recognize that the international legal order is profoundly different from the domestic legal orders in the context of which the ideal of rule of law was first expressed, then theorized.’ Of course, the term ‘international rule of law’ may refer also to other questions, as that to establish whether the law is actually ruling at the international level. In this regard, see recently Krieger and Nolte 2016.

  136. 136.

    See infra Chap. 4, Sect. 4.1.

  137. 137.

    Among the authors supporting the existence of this category of general principles, see Quadri 1968, pp. 119 et seq. See also Strozzi 1992.

  138. 138.

    See supra Sect. 2.2

  139. 139.

    Cassese 2005, p. 189. See also Cassese 1995, pp. 126 et seq.

  140. 140.

    Corfu Channel (United Kingdom v. Albania), Judgment of 9 April 1949, p. 22.

  141. 141.

    Idem.

  142. 142.

    Such an opinion has been widely developed by Iovane 2008. In the same line of thought, see also Cannizzaro 2016, pp. 136 et seq.

  143. 143.

    Guastini 2011, p. 693. A similar opinion may be found in Cassese 1995, pp. 128–129: ‘Principles do not differ from treaty or customary rules simply in that they are more general and less precise […] Rather, principles differ from legal rules in that they are the expression and result of conflicting views of States on matters of crucial importance. When States cannot agree upon definite and specific standards of behaviour because of their principles, opposing attitudes, but need, however, some sort of basic guideline for their conduct, their actions and discussions eventually lead to the formulation of principles [P]rinciples have great normative potential and dynamic force: among other things, one can deduce from them specific rules, to the extent that these rules are not at variance with State practice.’

  144. 144.

    In this regard, what Cassese 2005, p. 189, highlights, is quite revealing: ‘Normally principles are spelled out by courts, when adjudicating cases that are not entirely regulated by treaty or customary rules. In this respect courts have played and are increasingly playing an essential role: they identify and set out principles ‘hidden’ in the interstices of the normative network, thus considerably contributing to the enrichment and development of the whole body of international law. It cannot be denied that by so acting courts fulfil a meritorious function very close to, and almost verging on, the creation of law.’

  145. 145.

    Bobbio 1994, p. 275. (own translation)

  146. 146.

    Judgment of 27 June 1989, No. 962.

  147. 147.

    Schill 2010, p. 176.

  148. 148.

    Idem: ‘This provision can be viewed as an expression of a more general standard of an institutional and procedural understanding of the rule of law. The rich jurisprudence of the ECtHR could thus be used to further concretize fair and equitable treatment, for example with respect to the timely administration of justice or the right to a fair trial. Similarly, comparative recourse could be had to the emerging principles of European administrative law or the jurisprudence of the WTO Appellate Body in order to further develop the rule of law requirements with respect to the exercise of public power.’

  149. 149.

    Schill 2010, p. 176.

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    Fulvio Maria Palombino

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Palombino, F.M. (2018). FET and the Ongoing Debate on Its Normative Basis. In: Fair and Equitable Treatment and the Fabric of General Principles. T.M.C. Asser Press, The Hague. https://doi.org/10.1007/978-94-6265-210-1_2

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