Fair and Equitable Treatment in International Investment Agreements

by

Roland Kläger

• LAST REVIEWED: 23 August 2017
• LAST MODIFIED: 23 August 2017
• DOI: 10.1093/obo/9780199796953-0158

Introduction

Fair and equitable treatment is a central norm in international investment law. This norm is contained in the vast majority of international investment agreements as one of the main standards for the protection of foreign investors. Historically, international investment agreements contained short and general clauses of fair and equitable treatment, which were formulated either as free-standing provisions with a reference to general international law, or to the international minimum standard of customary international law. Especially since the first decade of the 21st century, drafting approaches to fair and equitable treatment became increasingly diverse and generated complex and elaborate clauses seeking to address the different elements of the norm that have developed over time. The drafting approaches reflect the long-standing controversies with regard to fair and equitable treatment and the question of whether this concept is to be constructed in accordance with the international minimum standard or as an independent and self-contained standard possibly exceeding customary international law. Both concepts have remained vague and have created difficulties in the interpretation of fair and equitable treatment, which due to its general character became a prominent cause of action in investor-state arbitration proceedings. The evolution of arbitral jurisprudence stimulated the emergence of different elements of fair and equitable treatment, including the protection of the investor’s legitimate expectations, the protection against discrimination and arbitrary treatments, and the principles of due process, denial of justice, and transparency. The increasing number of cases on the basis of fair and equitable treatment also led to concerns and criticism that a far-reaching concept of the norm would threaten the host states’ sovereignty and their right to regulate, as well as the principle of sustainable development. These concerns and the fact that a growing number of investment disputes were brought against developed countries motivated first the North American Free Trade Agreement member states and subsequently other states and the European Union to adapt their international investment agreements in order to try to concretize the concept of fair and equitable treatment and to limit the discretion of arbitrators. The concept of fair and equitable treatment has also received considerable attention by scholars who propose a variety of different approaches to the interpretation of the norm and the balancing of the conflicting private and public interests at stake.

General Overviews

Fair and equitable treatment is the subject of various treatises and monographic works. Even though provisions of fair and equitable treatment have been included in international investment agreements for decades, the norm started to receive the attention of academics only with the dawn of the new millennium. Fundamental for subsequent works is in particular the comprehensive Vasciannie 2000, a treatise that was published just before the dynamic rise of fair and equitable treatment began in the early 21st century. Three other early articles, Yannaca-Small 2004, Dolzer 2005, and Schreuer 2005, deserve credit in particular for the categorization of the early arbitral case law. The first book-length treatments of the topic are Tudor 2008, Kläger 2011, and Diehl 2012, which, similar to Vandevelde 2010, broadly review existing treaty practice and case law and seek to develop overarching theories and concepts for fair and equitable treatment. This is also true for two subsequent books, Dumberry 2013 and Paparinskis 2013, which take a slightly more focused perspective highlighting the particularities of the fair and equitable treatment standard within the North American Free Trade Agreement (NAFTA) or in relation to the customary international law minimum standard. All works provide multiple and helpful references to scholarly literature and case law. They also comprehensively deal with the historical development of fair and equitable treatment, its normative basis in international investment agreements, the interpretation of the norm and its relationship with the international minimum standard, the different elements and principles of fair and equitable treatment that have been shaped by the existing body of arbitral case law, and the various other controversies that have arisen in the context of fair and equitable treatment.

• Diehl, Alexandra. The Core Standard of International Investment Protection: Fair and Equitable Treatment. International Arbitration Law Library 26. Alphen aan den Rijn, The Netherlands: Kluwer Law International, 2012.

  Diehl provides a comprehensive study dealing with all questions related to fair and equitable treatment. Besides reviewing arbitral case law and scholarly writings on the subject, she examines the concept with a view on international human rights law as well as on the applicable dispute resolution fora. The study also argues that fair and equitable treatment establishes a new rule of customary international law that is considered to be absolute in the sense that the protection is independent from the protection granted to other investors.

• Dolzer, Rudolf. “Fair and Equitable Treatment: A Key Standard in Investment Treaties.” International Lawyer 39.1 (2005): 87–106.

  The article provides a review of the most-important early arbitral decisions on fair and equitable treatment, which have first interpreted this norm without any meaningful precedents. Dolzer also analyzes how arbitral jurisprudence has contributed to the evolution of the norm’s content and meaning, in particular with regard to the element of the protection of the investors’ legitimate expectations.

• Dumberry, Patrick. The Fair and Equitable Treatment Standard: A Guide to NAFTA Case Law on Article 1105. Alphen aan den Rijn, The Netherlands: Kluwer Law International, 2013.

  Dumberry focuses on the specific provision of fair and equitable treatment contained in Article 1105 of NAFTA, and reviews the broad case law and discussions existing in relation to this provision. He argues that in the context of NAFTA, fair and equitable treatment is contingent on the international minimum standard and that this involves a higher threshold of liability compared to other provisions of fair and equitable treatment.

• Kläger, Roland. “Fair and Equitable Treatment” in International Investment Law. Cambridge Studies in International and Comparative Law 83. Cambridge, UK: Cambridge University Press, 2011.

  DOI: 10.1017/CBO9780511974915

  Kläger understands fair and equitable treatment as a general clause integrating different principles of international law; he focuses on the process of balancing conflicting principles and proposes that a convincing balancing process is key to overcoming perceived legitimacy deficits of the norm. The development of different elements of the norm by arbitral case law and the norm’s status within the larger system of international investment law are also reviewed.

• Paparinskis, Martins. The International Minimum Standard and Fair and Equitable Treatment. Oxford Monographs in International Law. Oxford: Oxford University Press, 2013.

  DOI: 10.1093/acprof:oso/9780199694501.001.0001

  Paparinskis’s work focuses on fair and equitable treatment and its relationship with the international minimum standard of customary international law. He carefully reviews the history of both concepts and their contemporaneous normative framework and argues that fair and equitable treatment always refers to customary international law. On that basis, the book elaborates on the content of the norm with various cross-references to international human rights law.

• Schreuer, Christoph. “Fair and Equitable Treatment in Arbitral Practice.” Journal of World Investment & Trade 6.3 (2005): 357–386.

  Schreuer’s article, which is similar to the almost simultaneously published Dolzer 2005, is another important contribution to the categorization of the early arbitral case law on fair and equitable treatment. In addition, it provides a concise summary of the history of fair and equitable treatment and its relationship to the minimum standard of customary international law.

• Tudor, Ioana. The Fair and Equitable Treatment Standard in the International Law of Foreign Investment. Oxford: Oxford University Press, 2008.

  DOI: 10.1093/acprof:oso/9780199235063.001.0001

  Tudor delivered the first book on fair and equitable treatment and undertook a comprehensive review of the different drafting approaches existing in the many international investment agreements incorporating the standard. With regard to the norm’s conceptual basis, she construes fair and equitable treatment as a “standard” as opposed to a “rule,” which shows a broad and flexible character leaving a large margin of maneuverability to the arbitrator to apply the standard to the specific circumstances of the individual case.

• Vandevelde, Kenneth J. “A Unified Theory of Fair and Equitable Treatment.” NYU Journal of International Law and Politics 43.1 (2010): 43–106.

  Vandevelde’s article is a detailed review of the emergence of fair and equitable treatment and, in particular, of the meaning that has been assigned to this norm in various decisions rendered by arbitral tribunals. On the basis of arbitral case law, Vandevelde identifies five principles of fair and equitable treatment (reasonableness, consistency, nondiscrimination, transparency, and due process), which are described as procedural and substantive dimensions of the rule of law.

• Vasciannie, Stephen. “The Fair and Equitable Treatment Standard in International Investment Law and Practice.” British Yearbook of International Law 70 (2000): 99–164.

  DOI: 10.1093/bybil/70.1.99

  Vasciannie’s influential article on fair and equitable treatment presents the first comprehensive analysis of the norm. He reviews the history and evolution of fair and equitable treatment in the practice of international investment agreements, the content of the norm, and its interrelationship with other standards of investment protection. The article is frequently cited by other scholars and served as starting point for many treatises of fair and equitable treatment.

• Yannaca-Small, Catherine. Fair and Equitable Treatment Standard in International Investment Law. OECD Working Papers on International Investment 2004 3. Paris: Organisation for Economic Co-operation and Development, 2004.

  This study undertaken under the auspices of the Organisation for Economic Co-operation and Development provides a good overview of the origins and the early development of fair and equitable treatment. It also summarizes the discussion on the interrelationship with the international minimum standard and the evolution of the different elements of fair and equitable treatment.