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History
1. Most of the BITs and other investment treaties provide for fair and equitable treatment (FET)
of the foreign investments.
2. Highest practical relevance
3. It is not new and appeared in international documents
4. Just and equitable treatment
5. United Nations Code of Conduct of Transitional Corporation- Transnational corporations
should receive fair and equitable treatment.
6. The Organisation for Economic Co-operation and Development (OECD)- Article 1- Fair and
Equitable treatment to the property of the nationals of the other party
7. North American free Trade Agreement (NAFTA), 1992- Article 1105- FET Principles
8. Energy Charter Treaty (ECT), 1994 – Article 10(1): the Provision of this treaty should
encourage and create stable, equitable, favourable and transparent conditions for Investors.
1. Every type of clause has to be interpreted in accordance with Article 31 of the VCLT, duly
taking into account its context, its history.
Evolution of FET
1. Mondev vs. United States- The court said that, what is fair and equitable cannot be reached
in the abstract, it must depend on the facts of the particular case.
2. Waste Management vs. Mexico- The standard is to some extent a flexible one which must
be adapted to the circumstances of each case.
3. In interpreting Article 1105 of NAFTA, the court said that Article 1105 (1) is not frozen in time
and that the minimum standard of treatment does evolve.
Definition of FET
1. In Tecmed Case: the court said, that the tribunal should interpret the concept of FET
autonomously taking into account its text according to its ordinary meaning, international
law and good faith principle.
2. Saluka vs. Crech Republic- Page 44 (Must Read)
3. Discrimination against foreigners has been regarded as an important indicator of failure to
grant fair and equitable treatment.
1. The investor’s legitimate expectations are based on the host state’s legal framework and on
any undertakings and representations made explicitly or impliedly by the host state.
2. Legal Framework Includes:
- Legislations
- Treaties
- Assurances in decrees, licenses
- Contractual undertakings
3. A reversal of assurances by the host state that have led to legitimate expectations will violate
the principles of FET.
4. CMS vs. Argentina- The respondent had given guarantees for the price adjustments for the
transportation of natural gas in legislations, regulations and under a license. Subsequently,
an emergency law and other laws and regulations first suspended and then terminated these
guarantees. The tribunal found that Argentina’s actions had breached the FET standard.
5. Investor’s expectations will be seriously reduced, if there is instability in the political
conditions of the particular country.
6. Expectations are only protected, if they are legitimate and reasonable.
7. Saluka vs. Czech Republic – Investor’s right to stability will prevail over state’s right to
regulate.
8. Continental Casualty vs. Argentina- Mere political statements are not capable of creating
reasonable expectations.
Transparency
1. Transparency means that the legal framework for the investor’s operations is readily
apparent and that any decisions affecting the investor can be traced to that framework.
2. SPP vs. Egypt- Page 149
3. Metal Clad vs. Mexico – Page 150 (bridge Making)
4. Techmed vs. Mexico (BIT between spain and mexico)
5. Waste Management Case – Transparency and Reliance as elements of FET standard
contained in Article 1105(1) of NAFTA.
1. What extent this protection extends to observance of obligations arising from contracts?
2. Legitimate expectations are actually made on contractual arrangements with the host state?
3. Parkerings vs. Lithuania- A simple breach of contract by a state would not trigger a violation
of the FET standard.
4. Need sovereign powers
1. Good faith is a board principle that is one of the foundations of International Law and
Foreign Law
2. Good Faith is inherit in FET
3. Waste Management Case- Obligation to act in good faith was a basic obligation under FET
standard as contained in Article 1105 of NAFTA.
4. Saluka vs. Czech Republic- Central Role to requirement of good faith in its description of FET.
1. Tecmed vs. Mexico Case – Investor’s were forced to relocate to another site, bearing the
costs and the risks of a new business
NATIONAL TREATMENT
Meaning:
1. Provide level playing field between foreign investor and local competitor.
2. Foreign investors and investments are given treatment, no less than that which the host
state accords to its own investors.
3. Foreign Investor = National Investor ( in applying rules and regulations)
4. Using the words no less favourable
5. All national treatment clauses apply once a business is established.
Application:
1. Whether the foreign investor and the domestic investor are placed in a comparable setting.
(Like Situations/ Circumstances)
1.1. Same Business or Economy Sector
1.2. Feldman vs. Mexico – The “Like circumstances” was interpreted to refer to the same
business, that is exporting of cigarettes.
2. Treatment to the foreign investors = Treatment to Domestic Investors
2.1 Lauder vs. Czech Republic – A discriminatory measure is simply the one that fails to
provide national treatment.
3. In case of treatment which is less favourable, it must be determined whether the
differentiation was justified.
3.1. Differentiation are justifiable if rational grounds are shown
3.2. SD Myers vs. Canada- The tribunal seems to have assumed that subsidies are allowed to
promote national policies.
3.3. More relevance has been given to practical impact than the intent.
Methods of Interpretation:
1. The rules of interpretation laid down in the VCLT will also apply to an MFN clause.
2. The meaning of the clause should be indentified in the light of object and purpose of the
treaty.
3. Intention of the parties should be considered while interpreting the MFN clause
4. Bavindir vs. Pakistan - The tribunal found that a MFN clause would permit the invocation of
an FET clause contained in another BIT.
5. CME vs. Crezh Republic - MFN clauses have been invoked in the context of defining the
standard of compensation in expropriation cases.
SOURCES OF INTERNATIONAL LAW - The domestic rules on nationality may determine jurisdiction in
a particular case.
3.1. The scope of ECT is not limited to investments but covers a wide range of issues such as
trade, transit, energy etc.
3.2. The objective of Article 102 of the NAFTA is to increase investment opportunities in the
territories of the parties.
3.3. The trade provisions of NAFTA are largely built on the rules of WTO.
3.4. In practise, the rules of expropriation (Article 1110) and Minimum standard of treatment
(Article 1105) have received most attention.
3.5. Investor may bring the suit under ICSID convention but both the party states should have
rectified the ICSID convention.
INVESTORS
INVESTMENTS
The method of interpreting “investment” must follow Article 31 of the VCLT on Law of Treaties.
EXPROPRIATION- PROJECT