Fair and Equitable Treatment: A Key Standard in Investment Treaties

Author(s): Rudolf Dolzer

Source: The International Lawyer, Vol. 39, No. 1 (SPRING 2005), pp. 87-106
Published by: American Bar Association
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Fair and EquitableTreatment:A Key Standardin
InvestmentTreaties
Rudolf Dolzer*

I. Introduction:
Time to Take Stock
It is notclearat thispointwhether therequirement offairandequitabletreatment forms
partof customary law.1Nevertheless, in thewordsofJudgeHiggins,"thekeyterms'fair
and equitabletreatment to nationalsand companies'. . . are legaltermsofartwellknown
in thefieldof overseasinvestment protection.. . ."2Indeed,in current litigation practice,
hardlyany lawsuit based on an international investment treatyis filedthesedayswithout
invocation oftherelevant treatyclauserequiring fairandequitabletreatment.
The almostubiquitouspresenceof the clausein recentinvestment litigationfindsits
explanation in variousreasons.Nearlyeveryclaimantor counselwho bringsa suitfeels
temptedto arguethatthe treatment accordedby the hoststatewas in violationof the
standardof fairand equitabletreatment. At theleast,theinvocation is deemednecessary
byclaimant's lawyers causa,to presenta certainflairofan offense
colorarteli to basicnotions
ofjusticeto itscause.Also,theclauseis in itssubstancecloselyrelatedto themorespecific
standards ofan indirect expropriation, to a violationoftheumbrellaclause,or to thestan-
dardofnationaltreatment. Wheneverone of thesestandards standsin theforeground of
a suit,it appearsat thispointto be helpfulto roundout the case and to argue,on an
additionalbasis,in favorof a violationof fairand equitabletreatment. Finally,theopen-
endedlanguageof clauseson fairand equitabletreatment givesriseto speculation which
assumesthat,ifonlyproperly argued, it willbe to
possible identify one or more aspects,

'Professorand Director,Instituteof International Law, University of Bonn, Germany.The articleis based

on a lecturegivenat the SouthernMethodistUniversity School of Law in November2004.
1. See PatrickJuillard,L'évolutiondessourcesdu droitdesinvestissements,
250 Recueil des Cours 9, at 83, 132
(1994) (arguingthatthe standardmustbe considereda principleof generalinternational law,albeitwitha
minimumsubstance).But seeADF Group, Inc. v. United States,ICSID Case No. ARB(AF)/00/l,18 ICSID
Rev. 195,279 (Jan.9, 2003) (Feliciano,de Mestral,Lamm,Arbs.)."It maybe that,in theircurrentstate,neither
concordantstatepracticenorjudicialor arbitralcaselawprovidesconvincingsubstantiation (or,forthatmatter
refutation)of theInvestor'sposition."ADF has arguedthatcurrentcustomarylaw embracestherequirement
of fairand equitabletreatment. The issueis linkedto thedebateaboutthecontentofboththestandardoffair
and equitabletreatment and of theminimumstandard.Id.
2. Oil Platforms(Iran v. U.S.), 1996 I.CJ. 803, 858 (Dec. 12) (separateopinionofJudgeHiggins).

87

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88 THE INTERNATIONALLAWYER

individually or combined,whichmayamountto an act of violation.Indeed,a reviewof

someattempts at definingthestandardmayinvitesuchthinking inasmuch as theapproach
is so generalin naturethattheclausemayappearto amountto a catch-allprovision which
mayembracea verybroadnumberofgovernmental acts.
It will hardlybe doubtedthatefforts to derivejuridically operationalcontentof the
standardfromshort-hand definitions
of fairnesslaid downin famousdictionaries will,in
viewofthecircularcharacter ofsuchdefinitions,3 notlead veryfar.However,it does not
followthatrecourseto the"ordinary meaning"oftheterm,as requiredunderarticle31 of
theViennaConventionon theLaw ofTreaties,4 mustnecessarily becomea futileeffort.5
Lawyersand courts,nationaland international, havealwaysbeen able to relyon abstract
termsandconceptslaiddownin lawsandtreaties, andto applythemto thefactspresented
bytheparties.It seemsuncontroversial todaythatthestandardis one determined byin-
ternational law.The existence ofa breachofa domesticrule,or thelackofa breach,does
notin itselfdetermine whether or notthestandard has beenviolated.6
The issueis notso
clearwithrespectto thequestionofwhether thebreachofanotherarticleofan investment
treaty wasviolatedor not.7
Of course,a degreeofcautionwillbe appropriate in theinterpretation
oftheclauseso
as to avoidimplications of a subjective
naturenotintendedbytheauthorsof theclause.
Generally, relianceon previousjurisprudence willserveas a usefulguideforthoseauthor-
itieswhichgivecontentto the clause.The difficulty of tribunals
constituted underthe
auspicesof theInternational CentreforSettlement ofInvestment Disputes(ICSID) and
otherinvestment tribunalsinthisrespectwassimply thatno previousbodyofjurisprudence
on themeaningof"fairand equitable"existed, neitherforforeign investment law,norfor
general international law.However, between the year 2000, beginningwith the Maffezini
decision,8 and 2004,withWaste Management II,9a firstgenerationofjudicialdecisionshas
beenhandeddown,anditis usefulat thispointto takestockandto considertheemerging
linesand factsofjurisprudence.

3. For a surveyseeStephenVasciannie,TheFair andEquitableTreatment StandardinInternational

Investment
Law and Practice, 70 BYIL 100, 103 (1999) [hereinafter
Vasciannie].
4. ViennaConventionon the Law ofTreaties,May 23, 1969,art.31, 1155 U.N.T.S. 331, 340.
5. òee generally tiermannMosler,ueneralPrinciples ofLaw, in L Encyclopedia of Fublic Intl Law, Ml,
513 ((RudolfBernhardt,ed., 1995). For a judicialmethodto interpretthe conceptof equity,see North Sea
ContinentalShelf(F.R.G. v. Den.; F.R.G. v. Neth.), 1969 I.CJ. 3, 121 (Feb. 20).
6. See, e. g., ADF Group,18 ICSID Rev. at 195; Mondev Int'l Ltd. v. United States,ICSID Case No.
ARB(AF)/99/2(Oct. 11, 2002), 42 I.L.M. 85, 106 (Stephen,Crawford,Schwebel,Arbs.).
7. See, S.D. Myers v. Canada (Nov. 12, 2000), 40 I.L.M. 1408, 1438, at para 266 (FirstPartialAward)
(Hunter,Chiasson,Schwartz,Arbs.).
Although(...) theTribunaldoes notruleout thepossibility inwhich
thattherecouldbe circumstances
a denialofthenationaltreatment provisionsoftheNAFTA wouldnotnecessarily offendtheminimum
standardprovisions,a majorityof theTribunaldeterminesthaton thefactsof thisparticularcase the
breachof article1102 essentially
establishesa breachof article1105 as well.
8. Maffeziniv. Spain,ICSID Case No. ARB/97/7,16 ICSID Rev.248 (Nov. 13,2000) (Vicuna,Buergenthal,
Wolf,Arbs.).
9. WasteMgmt.,Inc. v. UnitedMexicanStates,ICSID Case No. ARB (AF)/00/3(Apr.30, 2004), 43 I.L.M.
967 (2004) (Crawford,Civiletti,Gomez,Arbs.),availableat www.state.gov/documents/organization/34643
.pdf.

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 FAIRAND EQUITABLE TREATMENT 89

II. OriginoftheClause
The originoftheclauseseemsto datebackto thetreaty practiceoftheUnitedStatesin
theperiodof Treatieson Friendship, Commerceand Navigation(FCN).10For instance,
articleI sec. 1 of the 1954TreatybetweenGermanyand theUnitedStatesreads:"Each
Partyshallat all timesaccordfairand equitabletreatment to thenationalsandcompanies
of the otherPartyand to theirproperty, enterprisesand otherinterests."11Subsequent
international modeldrafts forinvestment treaties
havecontinued to relyon theclause.12
As
is well-known, modernBilateralInvestment Treaties(BIT) are generallycharacterizedby
languageand ruleswhichis muchmorespecificand tailoredto specificissuesof foreign
investment, whereasFCN's addresseda muchbroaderrangeof legalconcerns.The fact
thatBITs nevertheless retainedthestandardshouldnotbe seen as accidentalagainstthis
It
background. appearsthatthe authorsof the BITs consideredthatit was desirableto
includea generalstandard, in additionto thespecific
rules,whichwouldcoversuchissues
and mattersrelevantforthe desirableextentof protection whichdid not fallunderthe
specificrules.13

10. See Robert R. Wilson, United States CommercialTreaties and International Law 113,120(1960).
See alsoVasciannie,supranote 3 at 107.
11. Treatyof Friendship,Commerceand Navigation,Oct. 29, 1954, U.S.-F.R.G., 273 U.N.T.S. 4. See also
TreatyofAmity,Economic Relations,and ConsularRights,Aug. 15, 1955,U.S.-Iran,284 U.N.T.S. 110, 114.
12. See, e.g.,HermannAbs & Lord Shawcross,TheProposed Convention toProtectPrivateForeignInvestment,
A RoundTable:Comment on theDraftConvention byitsAuthors,9 J. of Pub. L. 119 (1960) [hereinafterAbs &
Shawcross].As earlyas 1948, the Havana Charterforan InternationalTrade Organizationcalled,in article
ll(2)(a)(i), forbilateraland multilateral agreementson measuresdesigned"to assurejust and equitabletreat-
mentfortheenterprise, skills,capital,artsand technologybroughtfromone Membercountryto another."See
U.N. Conference on Trade & Development, International Investment Agreements:A Compendium4
(Multilateral Instruments),UNCTAD/DTCI/30 (Vol. I), U.N. Sales No. E.96.II.A.9 (1996) [hereinafter
CompendiumVol. I]. In the 1960's, earlyGermanand Swiss BilateralInvestmentTreatiesalso reliedon the
clause,initiallyon thecontextof theruleson thetransfer of payments{seeBIT Germany- Malaysia,Dec. 12,
1960, BGB1. 1962, 1064), but startingin 1962 as a generalprincipleof treatment (see,e.g.,BIT Germany-
Cameroon,June29, 1962,BGB1. 1963,991), and Switzerland- IvoryCoast,June26, 1962,OfficialCollection
(Amtliche Sammlung)1963, 54. Not surprisingly, the 1967 OECD DraftConventionintroduced,in article1,
thepreciselanguageas theAbs- ShawcrossConvention(U.N. Conference on Trade & Development,In-
ternational InvestmentAgreements:A Compendium113 (Regional Instruments),UNCTAD/DTCI/30
(Vol. II), U.N. Sales No. E.96.II.A.10 (1996) [hereinafter CompendiumVol. II]. The OECD Draftnegotiating
Textfora MultilateralAgreementon Investment(MAI) of 1998 containedthe followingtextin itssectionon
investment protection:"1.1 Each ContractingPartyshallaccordto investments in itsterritoryof investorsof
anotherContractingPartyfairand equitabletreatmentand fulland constantprotectionand security.In no
case shalla ContractingPartyaccordtreatment less favourablethanthatrequiredbyinternational law."U.N.
Conference on Trade & Development, International Investment Agreements:A Compendium148
(Multilateral & Regional Instruments),UNCTAD/DITE/2 (Vol. IV), U.N. Sales No. E.00.II.D.13 (2000)
[hereinafter CompendiumVol. IV].
13. Documentspreparedon the multilateral level in the 1970s and 1980s by the developingcountries,or
undertheirdominantinfluence,containedno referenceto thestandards.See CharterofEconomicRightsand
Duties of States,G.A. 3281, U.N. GAOR, 29th Sess. At 50 (1974);, Asian-African Legal ConsultativeCom-
mitteeRevisedDraftof Model AgreementsforPromotionand Protectionof Investments, in U.N.
reprinted
Conference on Trade & Dev., International Investment Agreements:A Compendium115 (Regional
Integration, Bilateral and Non-governmental Instruments), UNCTAD/DTCI/30 (Vol. Ill) (1996)
[hereinafter CompendiumVol. III]. The subsequentchangein the positionof developingstatesbecomesob-
viousin theirbilateraltreatypracticecontainingthestandardand,evenmore,in theadoptionofthestandard
in the 1994 Protocol on Promotion and Protectionof Investmentscoming fromStates not Parties to

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90 THE INTERNATIONALLAWYER

HI. The Natureand FunctionofA Fairand Equitable

TreatmentClause: Basic Issues
In itsdiversemanifestations, thestandardof fairand equitabletreatment mayaddress
manifold typesofgovernmental actionsinherently investment-deterring whichmorespe-
cificrulesare unsuitableto address.While thisis truein principleforall clauseson fair
and equitabletreatment,generalizations aboutthestandard mustbe formulated withcau-
tion.As withmostotherstandardclausesin investment treaties,no singlefrozenversion
exists.Indeed,thevariationsin thisareahavebeenconsidered to be quitesignificant,14
and
everytypeof clausehas to be interpreted, in accordancewitharticle31 of theVienna
Convention on theLaw ofTreaties, dulytakingintoaccountitscontext, andas appropriate,
itshistory.Some treaties
simplyprescribe "fair
and equitabletreatment"; German,Dutch,
Swedishand SwissBITs generally followthispattern. Othersconsiderthestandard as one
elementofthegeneralrulesofinternational law.France,theUnitedKingdom,theUnited
States,and, more recently, Canada have followedthisapproach.Also, article1105 of
NAFTA reads"[e]achPartyshallaccordto investments ofinvestors ofanotherPartytreat-
mentin accordancewithinternational law,including fairand equitabletreatment andfull
protection and security."15
A thirdversionlistsfairand equitabletreatment side by side
withtherulesofinternational law,andsometreaties statethatfairandequitabletreatment
mustin no case provideforlessprotection thantherulesofinternational law.
thepurposeoftheclauseas usedin BIT practiceis to fillgapswhichmaybe
Essentially,
leftbythemorespecificstandards, in orderto obtainthelevelofinvestor protection in-
tendedbythetreaties.16Some treatiesevendirectly tietheclauseto thefundamental goal
of legalstability.
The US-Argentina BIT of 1991,forinstance, providesin thepreamble
that"fairand equitabletreatment ofinvestment is desirablein orderto maintaina stable
framework."17

MERCOSUR, reprinted in CompendiumVol. II, supranote 12 at 527. During earlierdecades,theinsistence

on theCalvo traditionin SouthAmericawouldhavestoodin thewayofsuchan approach.In between,a 1988
DraftCode of Conducton TransnationalCorporationsstillseemedto indicatea certainreluctanceon thepart
of developingcountriesto acceptexactlythe same language,and the requirement of "fair"treatment had to
be placed in brackets.CompendiumVol. I, supranote 12 at 712.
14. See Rudolf Dolzer & Margrete Stevens, Bilateral InvestmentTreaties 58 (1995); GiorgioSac-
erdoti,BilateralTreaties andMultilateralInstruments onInvestment 269 Recueil des Cours 251, 344
Protection,
(1997).
15. NorthAmericanFree Trade Agreement,Dec. 8-17, 1992, 32 I.L.M. 605, 639 (enteredintoforcejan.
1, 1994).
16. See alsoJuillard,supranote 1 at 133: "... forceestde constaterque l'imprécision qui affectedes notions
tellesque le traitement justeet equitable,ou encorela pleineet entièreprotectionet sécurité,ne faitque mettre
en lumièrel'incapacitéoù se sonttrouvésles Etatsà donnerun contenuà ces principes."
17. TreatywithArgentinaConcerningthe ReciprocalEncouragementand ProtectionofInvestment, Nov.
14, 1991, 1991 U.S.T. LEXIS 176,at *11 (enteredintoforceOct. 20, 1994). Concerningthefoundations and
natureof the standardof fairand equitabletreatmentoutsideof NAFTA, the U.S. State Departmenthas
explainedits positionin 1992 in termsof the standardas a guide to interpretation, as embodyingU.S. policy
and as replicating Europeanpracticeand in 2000 as beingbasedon standardsfoundin customary international
law.SeeJackJ.Coe, Fair andEquitableTreatment underNAFTAVInvestment Chapter,Am.Society of Int'l Law
Proceedings of the 96th AnnualMtg., 17-19(Mar. 13-16,2002). The U.S. Model Treatyof2004 prescribes,
in art.5, para. 1, thateach party"shallaccordto coveredinvestments treatment in accordancewithcustomary
international law,includingfairand equitabletreatment and fullprotectionand security," addingin para. 2 1
thatthis rule "prescribesthe customaryinternational law minimumstandardof treatmentof aliens as the

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 FAIRAND EQUITABLE TREATMENT 91

The systematic locationand operationof the clausesin existinginvestment treatiesis

reminiscent ofgeneralcodesincivillawcountries whichsetforth a numberofspecific rules
andcomplement thesewitha generalclauseofgoodfaithas an overarching which
principle
fillsgaps and informs theunderstanding of specificclauses.Indeed,thesubstanceof the
standardof fairand equitabletreatment willin largepartoverlapwiththemeaningof a
good faithclausein itsbroadersetting,18 withone significant aspectembracing therelated
notionsofvenire contra
fartum and
proprium estoppel.19
One aspectwhichalso deservesattention concernsthequestionofwhether thestandard
actuallycontainstwostandards, namely"fair"and"equitable," withindependent meanings
ofbothconcepts.Whileitwouldnotbe impossible to arguethisway,no evidenceofstate
practiceseemsto pointin thisdirection. The generalassumption so faris,presumably,that
"fairand equitable"mustbe consideredto represent a single,unifiedstandard. Indeed,it
has beenopinedthatthereis no difference between"equitable"and"fairandequitable."20
In theory, itwouldhavebeenpossibletounderstand therequirement offairandequitable
treatment as a short-handformulaforthecombinedlegaleffect of all otherstandardsof
treatment containedin an investment treaty.For instance, the World Bank Guidelinesof
1992 prescribethateach statewill extendto investments "fairand equitabletreatment
according to thestandardsrecommended in [the]Guidelines."21 The languagesofBITs are
notbasedon thispattern, andjudicialpracticehasnotreflected sucha viewofthestandard.22
A thorny issuein theunderstanding and thedefinition of thestandardconcernsitsre-
lationship withotherstandards andconceptswhicharecontainedin BITs or areotherwise
deemedrelevantfortheregimeof foreign investment. The generality oftheclauseeasily
lendsitselfto an expansiveviewof its reachextending to all cornersand aspectsof an
investment setting.Atthesametime,it is obviousthattheclauseis notmeantto supplant
or replaceall othersegments ofan investment treaty.
Thus, an understanding mustbe developedwhichbothgivesmeaningful effect
to the
clause and at the same timerespectsthe independent existenceof otherstandardsand
concepts.23

minimumstandardof treatmentto be affordedto coveredinvestments," and that the concept of fairand

equitabletreatmentdoes not requireadditionalprotectionand does not createadditionalsubstantive rights.
To further clarifythescope ofart.5, AnnexA definescustomarylaw ("generaland consistentpracticeofStates
thattheyfollowfroma sense of legal obligation"),and also describesthe minimumstandardto treatment of
aliens ("all customaryinternational law principlesthatprotectthe economicrightsand interestsof aliens").
2004 U.S. Model BIT, availableat http://www.ustr.gov/assets/Trade-Sectors/Investment/Model-BIT/asset-
upload_file847_6897.pdf.
18. See generallyAnthonyD'Amato, GoodFaith,in 12 Encyclopedia of Pub. Int'l Law 599 (RudolfBern-
hardt,ed., 1995).
19. JörgPaul Müller & Thomas Cottier,Estoppel, in 2 Encyclopedia of Pub. Int'l Law 116 (RudolfBern-
hardt,ed., 1995).
20. See Marian Nash Leich, 2 Cumulative Digest of U.S. Practice in Int l Law 1981-1988,at 2652
(U.S. Dep't of StateOfficeof theLegal Adviser,1993).
21. See CompendiumVol. I, supranote 12 at 247, 248.
22. A WorkingPaper of the WTO statesratherbroadlythat the standardis considered"to cover the
principleofnon-discrimination, alongwithotherlegal principlesrelatedto thetreatment offoreigninvestors,
but in a more abstractsense than the standardsof MFN and nationaltreatment." WTO Secretariat, Non-
Discrimination Most-Favoured-Nation and NationalTreatment,
Treatment WT/WGTI/W/118 at 10 (June 4,
2002).
23. One Tribunalconsideredthatthesame acts(seizureand auctionofan investment) violatedtherequire-

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92 THE INTERNATIONALLAWYER

In thiscontext,a keyissueconcernstherelationship to suchstandards whicharenot,or

notexplicitly,mentioned themselves in investment treaties.
The matterhas alreadycome
to theforefrontoflitigation andofjudgments in decidingwhether thenotionoftranspar-
encyis embodiedin thestandardof fairand equitabletreatment. This matterderivesits
on theone handfromtheconceptualaffinity
difficulty betweenthetwostandards ("Can a
non-transparent decision be deemed fairand equitable"?)and, on the other hand,theex-
istenceof an extensive,independent internationaldebate about not just the necessitybut
also theextentof transparency as an elementof an appropriate investment regime.The
SupremeCourtofBritishColumbiain Canada in 2001 consideredas invalidthatpartof
theMetalclad decisionin whichthelatterassumedthattransparency wasto serveas a stan-
dardbywhicha NAFTA partyshouldbe judgedeventhoughtheregimeon transparency
wasaddressedin a separatepartofNAFTA notsubjectto reviewbya NAFTA Tribunal.24
Nevertheless,subsequent tribunalshaverevisitedthepoint,without discussion ofMetalclad,
andhaveconfirmed thatthestandard offairandequitabletreatment embodiestherequire-
mentoftransparency.25
Much moreattention hasbeenpaidto therelationship betweenthestandard offairand
equitabletreatment and theconceptofa minimum standard whichdenotesthoserulesof
generalinternationallawwhicha statemustalwaysobservein itsrelations towards aliens.26
Whileitmaybe arguedthata relationship betweenthetwoconceptsis notself-evident,
theissuehas comeup becausethelanguageofsomeBITs spelloutthattheconceptshave
thesamemeaning("fairandequitablein accordance withinternational law"),andtheState
partiesto NAFTA havestrictly insisted,in responsetojudicialrulingsto thecontrary, that
withintheNAFTA regime("treatment in accordancewithinternational law,including fair
and equitabletreatment"), thetwostandards mustbe interpreted so as to haveidentical
content.27This position,however, doesnotanswerthequestionoftherelationship outside
ofNAFTA,28becausethirdstatesarenotboundto theNAFTA standard.

mentsbothof fairand equitabletreatment and of the dutyto compensatein case of a measuretantamount to

expropriation. See Middle East CementShipping& HandlingCo. S.A. v. Egypt,ICSID Case No. ARB/99/6,
18 ICSID Rev.602 (Apr.12, 2002) (Böckstiegel,Bernardini, Wallace,Arbs.).
24. "In thepresentcase, however,theTribunaldid notsimplyinterpret thewordingofarticle1105. Rather,
it misstatedtheapplicablelaw to includetransparency obligationsand it thenmade itsdecisionon thebasisof
theconceptoftransparency." UnitedMexicanStatesv.MetalcladCorp., 119 1.L.R. 646, 665, at para.70 (S. Ct.
of B.C. 2001) (Can.).
25. See Maffeziniv. Spain,ICSID Case No. ARB/97/7,16 ICSID Rev.248, 274 at para. 83 (Nov. 13,2000)
(Vicuna, Buergenthal,Wolf,Arbs.);Técnicas MedioambientalesTECMED S.A. v. United Mexican States,
ICSID Case ARB (AF)/00/2(May 29, 2003), 43 ILM 133 at paras. 154, 164 (2004); OccidentalExploration
and ProductionCompany(OEPC) v. Ecuador,Case No. UN 3467, at para. 185, (London Ct. Int'l Arb.July
1, 2004),availableat www.asil.org/ilib/OEPC-Ecuador.pdf; WasteMgmt.,Inc.v.UnitedMexicanStates,ICSID
Case No. ARB (AF)/00/3(Apr.30, 2004),43 I.L.M. 967 (2004), at para.98 (Crawford, Civiletti,Gomez,Arbs.),
availableat www.state.gov/documents/organization/34643.pdf.
26. See D. Vagts,MinimumStandard,in 3 Encyclopedia of Public International Law 408 (RudolfBern-
hardt,ed, 1997).
27. ADF Group,Inc. v. United States,18 ICSID Rev. 195, 228, 276 (Jan. 9, 2003) (Feliciano,de Mestral,
Lamm,Arbs.),Remarkably, theUNCTAD Secretariathas questionedwhetherthestandardsare identical.See
U.N. Conference on Trade & Development, Fair and Equitable Treatment 15, UNCTAD/ITE/IIT/1 1
(Vol. Ill), U.N. Sales No. E.99.II.D.15 (1999).
28. Seealso,Commentary to the 1967 OECD Draft:"standardrequiredconformsin effect to the"minimum
standard"whichformspartof customaryinternational law."Abs & Shawcross,supranote 12. ButseeOECD,
International AgreementsRelating to Investmentin Developing Countries (1984).

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 FAIRAND EQUITABLE TREATMENT 93

If it is determined, in thelightof thespecificlanguageofa BIT or otherwise, thatthe

position is thesame as forNAFTA, two farther issueswill have to be addressed beforethe
standardcan be givena judiciallymanageablemeaning.Initially, it willhaveto be recog-
nizedthattheminimum standardhas been described, in abstractbutdistinct terms,bya
rulingofa US-MexicanCommission in 1927in theNeercase29whichindeedwasbasedon
theviewthata "minimum standard" willonlyprovideforminimalobligations ofthehost
stateand in thissenseonlyprovideforminimalprotection of thealien.The issuein the
contextof a contemporary investment treatyis whethertheNeerrulingon theminimum
standard, dealingwiththephysicalsecurity ofan alienbefore1945,shouldgovernwhenit
comesto thecontemporary regimeofinternational law governing foreigninvestment, be
itin thecontextofcustomary lawor withina treaty. In caseitis concludedthata pre-1945
generalstandardis applicablein principle, thenextquestionwouldbe whether andunder
whichmodalities sucha standard wouldhaveto be appliedin an evolutionary manner,30in
thelightofintermediary and contemporary factors.31
A recenttendency maybe observedto considerthestandardas embracing thenotions
of due processand denialofjustice.32 The 2004 US-Model BIT prescribes: "[The] obli-
gationto provide'fairand equitabletreatment' includestheobligationnotto denyjustice
in criminal,civilor administrative proceedings in accordancewiththe principleof due
processembodiedin the principallegal systemsof theworld."33 Presumably, underthis
view, the standard of fairand equitable treatment incorporates the traditionalstandardof
denialof justice.Practically, the issueis relevantfortheinterpretation of a freestanding
clauseon fairand equitabletreatment. The International CourtofJusticedidnotaddress
thestandard offairandequitabletreatment inELSIv. Italy,34nordiditdo so inthe
Asylum
case.35Bothcasesconcernedthestandard ofarbitrariness.
A centralmethodological issuefortheresolution oftheseindividual questionsconcerns
theprocessofreasoning bywhichfact-specific conclusions aredrawnfromthestandard in
individual cases.One lineofreasoningderivesa definition fromtheessentialelementsof
thestandardon thebasisofabstract reasoning. A secondapproachresistsan attempt ofa
broaderdefinition and willdecidead hoc whethera certainconductsatisfies therequire-
mentsofthestandard. Yeta thirdapproachwillattempt to primarily base itsdecisionon

29. L. F. H. Neer & Pauline Neer v. UnitedMexican States,4 Rep. of Int'l Arb. Awards 60 (1926); Am.
J.of Int. L. 555 (1926). The case addresseda complaintofa widowwhoconsideredthattheMexicanauthorities
had failedto properlyprosecutethe killersof her husband.The oft-repeated passagereads:"[T]he treatment
of an alien,in orderto constitutean international delinquency, shouldamountto an outrage,to bad faith,to
wilfulneglectof duty,or to an insufficiency of governmental actionso farshortofinternationalstandardsthat
everyreasonableand impartialman would readilyrecognizeits insufficiency." Neer,at 61-62.
30. For a dynamic-evolutionary interpretationof the conceptof "sacredtrust,"as laid down in 1919,see,
e.g., Legal Consequences for States of the Continued Presence of South Africain Namibia (S.W. Africa)
Nothwithstanding SecurityCouncil Resolution276, 1971 I.CJ. 16 (June21).
31. See Waste Mgmt.,Inc. v. UnitedMexican States,ICSID Case No. ARB (AF)/00/3(Apr.30, 2004), 43
I.L.M. 967 (2004) (Crawford,Civiletti,Gomez, Arbs.),availableat www.state.gov/documents/organization/
34643.pdf;Mondev Int'l Ltd. v. United States,ICSID Case No. ARB(AF)/99/2(Oct. 11, 2002), 42 I.L.M. 85,
85 (Stephen,Crawford,Schwebel,Arbs.);ADF Group,Inc., 18 ICSID Rev. at 228.
32. WasteMgmt.,/we,43 I.L.M. 967.
33. For the textseehttp://www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_
6897.pdf.
34. ElettronicaSicula S.P.A. (ELSI v. Italy, 1989 l.C. . 15.
35. 1950 I.CJ. 284 (Nov. 20, 1950).

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94 THE INTERNATIONALLAWYER

previousdecisionsor willbuilduponrelevant bywayofanalogyor bydrawing

precedents
on thesameprinciple. the
Obviously, latter was
approach notavailableto thefirst
tribunals
to applythestandard.

IV. Fairand EquitableTreatment:Case Law 2000-2004

A. BIT Jurisprudence

An earlyICSID case in whichthestandardwas at leastarguablyapplied,wasAMT v.

Zaire36concerning the Treatybetweenthe UnitedStatesand Zaire. The treatylinked
together "fairand equitabletreatment and fullprotection andsecurity."After incidentsof
looting,theTribunaldetermined thatthehoststatehad "manifestly failedto respectthe
minimum standardrequiredofit byinternational Underclassicaldoctrine,
law."37 sucha
case wouldhavebeen treatedin termsof theminimum standardon thelevelof general
international law.38
In Maffezini v. Spain,datedNovember13,2000,39theTribunalin one sentencelinked
thestandard to requirements oftransparency andconcludedthattheorganization ofa loan
transaction at theexpenseoftheaccountoftheclaimant withoutproperknowledge ofthe
claimantamountedto a violationofthestandard.40 The notionof good faithwouldhave
supported thesameconclusion.
Geninv. Estonia, datedJune25, 2001,41had to applya BIT whichprovidesforfairand
equitable treatment andadditionallyprescribes thatno investment shallbe accordedtreat-
mentlessfavorable thanthatrequiredbyinternational theGeninTribunal
law.Essentially,
reliedon languagesimilarto theNeerdecisionin its understanding of the clause"acts
showinga wilfulneglectof duty,an insufficiency of actionfallingfarbelowinternational
standards, or even subjective faith,"42 rejectedtheclaimthatcertainactionsby
bad and
Estoniaamountedto a violationofthestandard.
Anatmosphere crisissurrounded
ofa jurisprudential theclauseinSeptember 2001,when
twotribunals reacheddifferent conclusions in theapplicationoftwofreestanding clauses
to thesamefacts.43
On thelegalside,theLauderTribunal(Briner, Cutler,Klein)concludedthatthestandard
"is relatedto thetraditional standardofdue diligence"and providesa minimum standard

36. Am. Mfg. & Trading,Inc. v. Republicof Zaire, ICSID Case No. ARB/93/1(Feb. 21, 1997), 36 I.L.M.
1531 (1997) (Sucharitkul, Golsong,Mbaye).
37. Id. at para. 6.10.
38. See alsoEdwin M. Borchard, Diplomatic Protection of Citizens Abroad (1919).
39. Maffeziniv. Spain,ICSID Case No. ARB/97/7,16 ICSID Rev.248 (Nov. 13, 2000), (Vicuna,Buergen-
thal,Wolf,Arbs.).
withwhichthisloan transaction
40. Id. at para. 83: "Moreover,the lack of transparency was conductedis
incompatible withSpain'scommitment to ensuretheinvestora fairand equitabletreatmentin accordancewith
article4(1) of thesame treaty."
41. Geninv. Estonia,ICSID Case No. ARB/99/2,17 ICSID Rev.395, at para.367 (June25, 2001) (FortJer,
Heth,van den Berg,Arbs.).
42. Id.
43. These cases referto BITs betweentheUnitedStatesand Czechoslovakia,and Netherlandsand Czecho-
slovakia.See Lauderv. Czech Republic,Sept.3, 2001,(FinalAward),availableat http://ita.law.uvic.ca/documents/
LauderAward.pdf (lastvisitedApr.5, 2005); CME v. Czech Republic,Case T 8735-01 (Svea Ct. App.,Sept.
13, 2001) (Swe.), availableat www.sccinstitute.com/_upload/shared_files/artiklar/toeckiska-republiken.pdf.

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 FAIRAND EQUITABLE TREATMENT 95

forming partofcustomary law also embracing a prohibition ofnon-discrimination.44The

CME Tribunal(Kühn,Schwebel,Hándl) highlighted thesignificanceof thefairand eq-
uitabletreatment standard:"The obligationof fairand equitabletreatment is a specific
provisioncommonly at theheartofinvestment treaties
thatmayprohibit actions- includ-
ingStateadministrative actions- thatwouldotherwise be legalunderbothdomesticand
internationallaw."45
On thefacts,theLauderTribunalfoundno inconsistent conductoftheCzechRepublic,
whereastheCME TribunalconcludedthattheCzech authority "breacheditsobligation of
fairand equitabletreatment by evisceration of thearrangements in relianceuponwhich
theforeign investorwasinducedto invest."46
TécnicasMedioambientales TECMED S.A. v. United MexicanStateswasdecidedon May29,
2003.47The relevantBIT betweenSpainandMexicoprovided for"fairandequitableTreat-
ment,accordingto International Law. . . ."48
theTribunal(GrigeraNaon, FernandezRozas,BernalVerea)explainsthatthis
Initially,
standardis an expression of the bona fideprinciplerecognizedin international law and
quotesthepassagein Mondevin whichit is said that"[t]othemoderneye,whatis unfair
and inequitableneed not equatewiththeoutrageousor theegregious,"49 apparently dis-
tancingitselffromtheNeerformula.
Whatfollows, bywayofsetting forth a practicalstandardofreview,is themostextensive
explanation of thefoundations and thesubstanceof thestandardofwhichtheinitialkey
passagereads:
154.The ArbitralTribunal considers
thatthisprovision oftheAgreement, inlightofthegood
faith established
principle byinternationallaw,requirestheContracting Partiestoprovide to
international
investmentstreatmentthatdoesnotaffect thebasicexpectationsthatweretaken
intoaccountbytheforeign investor
tomaketheinvestment. The foreign investorexpectsthe
hostStateto actin a consistentmanner, freefromambiguity andtotally inits
transparently
relations
withtheforeign so thatit mayknowbeforehand
investor, anyand all rulesand
thatwillgovernitsinvestments,
regulations as wellas thegoalsoftherelevant policiesand
administrative
practicesor directives,
to be ableto planitsinvestmentandcomply withsuch
AnyandallStateactionsconforming
regulations. tosuchcriteriashouldrelatenotonlytothe
directives
guidelines, orrequirements issued,ortheresolutionsapproved thereunder, butalso
to thegoalsunderlying suchregulations.The foreign investoralsoexpects thehostStateto
actconsistently,
i.e. withoutarbitrarily
revoking anypre-existingdecisionsorpermits issued
bytheStatethatwererelieduponbytheinvestor to assumeitscommitments as wellas to
planandlaunchitscommercial andbusiness activities.50
The Tribunalemphasizesits positionthatthisstandardresultsfroman autonomous
ofthestandard,
interpretation referring to theordinary
meaningas addressedin article31

44. Lauder v. Czech Republic,Sept. 3, 2001, (Final Award),availableat http://ita.law.uvic.ca/documents/

LauderAward.pdf (lastvisitedApr.5, 2005).
45. CME v. Czech Republic,Case T 8735-01, at para. 155 (Svea Ct. App.,Sept. 13,2001) (Swe.),available
at www.sccinstitute.com/_upload/shared_files/artiklar/toeckiska-republiken.pdf.
46. Id. at para. 611.
47. TécnicasMedioambientalesTECMED S.A. v.UnitedMexicanStates,ICSID Case ARB (AF)/00/2(May
29, 2003), 43 ILM 133 (2004).
48. Id.
49. Id, at paras. 153-54 (citingMondev Int'l Ltd. v. United States,ICSID Case No. ARB(AF)/99/2(Oct.
11, 2002), 42 I.L.M. 85, at para. 116).
50. TECMED, 43 ILM 133, at para. 154.

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96 THE INTERNATIONALLAWYER

oftheViennaConvention on theLaw ofTreaties,or frominternational lawandthegood

faithprinciple.51The methodof interpretation relieson theTribunal'sunderstanding of
theordinary meaningof"fairandequitable"anddoesnotreferto statepracticeor arbitral
andjudicialdecisions. The Tribunaladdsthata different conclusion wouldfailtogiveeffect
to theintentions of thepartieswhichare also reflected in thePreambleof theTreatyto
intensify economicrelationand the resolveto createfavourable conditionsforinvest-
ments.52 Drawingon itsearlierinsistence thatlegalinstruments in placehaveto be used
"inconformity withthefunction usuallyassignedto suchinstruments,"53 theTribunalem-
its
phasizes position that the laws applicable to the investment would be usedto promote
thegoalsunderlying suchlaws.
On the facts,theTribunalfoundthatthe conductof Mexicoin questionregarding a
permitfora landfill Operationswascharacterised bya lackoftransparency, bya closingof
thelandfill"in spiteof theexpectations created"byan ambiguity ofvariousactions,and
thattheconductwas motivated bypolitical reasons.54As a the
result, Tribunalfoundthat
Mexico'sbehaviour "conflictswithwhata reasonableandunbiasedobserver wouldconsider
fairand equitable. . ."55
This survey doesnotconsiderMTD EquitySdn.Bhd.andMTD ChileS.A. v. Chile,dated
May 25, 2004.56 The case is currentlysubjectto an annulment proceeding.
OEPC v. Ecuador, datedJuly1, 2004 (OrregoVicuña,Brower,Sweeney),is remarkable
fordirectly tyinga fairand equitabletreatment clauseofa BIT, wordedas a free-standing
requirement, to the particularlanguage of thepreamble:". . . fairandequitabletreatment
is desirableinordertomaintain a stableframework forinvestment andmaximum utilization
of economicresources. . . ."57Readingthestandardin conjunction withthispartof the
preamble, theTribunaldirectly concludes:"The stability ofthelegaland businessframe-
workis thusan essentialelementoffairand equitabletreatment."58
On thefacts, theTribunalconcludesthatthelawin Ecuadorwasaltered,aftertheclaim-
ant had invested"in an important manner"and thatthe relevant"taxlaw was changed
without providing anyclarity about itsmeaningandextentandthepracticeandregulations
werealso inconsistent withsuchchanges."59
The Tribunal subsequently returnstothe"needforthisstability" as emphasized byvarious
otherTribunals, citingto the famouslanguageof Metalclad requiring "a transparent and
predictable framework" and an "orderly and
process timely dispositionin relationto an in-
vestorof a Partyactingin theexpectation thatit wouldbe treatedfairly and justly.. . ."60
OEPC addsa citationto theTECMED language,concluding thattherequirements offair
andequitabletreatment hadnotbeenmetbyEcuador.61

51. Id. at para. 155.

52. Id. at para. 156.
53. /¿at para. 154.
54. Id. at para. 164.
55. Id. at para. 166.
56. MTD Equity Sdn. Bhd. v. Republicof Chile, ICSID Case No. ARB/01/7(May 25, 2004) (Sureda,
Lalonde, OreamunoBlanco,Arbs.),availableat www.asil.org/ilib/MTDvChile.pdf(lastvisitedApr.5, 2005).
57. OccidentalExplorationand ProductionCompany(OEPC) v.Ecuador,Case No. UN 3467,at para. 185,
(London Ct. Int'lArb.July1, 2004), availableat www.asil.org/ilib/OEPC-Ecuador.pdf.
58. Id. at para. 183.
59. Id. at para. 184.
60. Id. at para. 185.
61. Id. at para. 187.

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 FAIRAND EQUITABLE TREATMENT 97

In an interestingmanner,theTribunalthereafter decidesto turnto thedistinction, or

of
possibledistinction, differentversions of the The
standard. relevant clausebefore the
Tribunalin theapplicableTreatybetweenEcuadorand theUnitedStatesreads:"Invest-
mentshallat all timesbe accordedfairandequitabletreatment, shallenjoyfullprotection
and securityand shallin no case be accordedtreatment lessfavourable thanthatrequired
byinternational law."62
FromthislanguagetheTribunalconcludes:"This meansthata minimum fairand eq-
uitabletreatment mustbe equatedwiththetreatment requiredunderinternational law,"63
and thenraisestheissue"... whetherthefairand equitabletreatment mandatedbythe
Treatyis a moredemanding standard thanthatprescribed bycustomary international
law."64
The cryptic answergivenbytheTribunalseemsto suggestthatthetwostandards willbe
differentin principleeventhoughtheTribunalfindsthattheyare identicalin regardto
requirements in thespecificsituationbeforetheTribunal:"[t]heTribunalis oftheopinion
thatin theinstantcase theTreatystandard fromthatrequiredunderinter-
is notdifferent
nationallawconcerning boththestabilityandpredictabilityofthelegalandbusinessframe-
workoftheinvestment."65

B. NAFTA Jurisprudence

In its rulingof August30, 2000, theMetalcladTribunaldirectly tiedthe principleof

transparency to the standardof fairand equitabletreatment.66 The relevantconclusion
reads:"Mexicofailedto ensurea transparent and predictable framework forMetalcla<Ts
businessplanningandinvestment. The totalityofthesecircumstances demonstratesa lack
oforderly and
process timelydisposition in to
relation an investorofa Partyacting the
in
expectation thatitwouldbe treatedfairlyandjustlyin accordancewiththeNAFTA."67
The SupremeCourtofBritish Columbiaruledon a challengeoftheawardandconcluded
thattheTribunalwent,in thisrespect,beyonditsmandatewhichwas limitedbychapter
XI ofNAFTA. Inasmuchas theprinciple oftransparency is setforth
outsideofthatchapter,
in § 102,theCourtdecidedthattherulingwasinvalidon thispoint.68
In Pope& Talbot, decidedon May 31,2002,theTribunalruledthatCanada'sactionsfell
belowthestandardofNeerbecauseit would"shockand outrageeveryreasonablecitizen
in Canada,"andthatitwasnotnecessary, therefore,to decidewhether a moredemanding
standard wasrequired.69The Tribunalfoundthattheinvestor hadbeenharassedinvarious
waysbyCanada,withthreats ofreduction ofexportquotasand unjustified suggestionsof
criminal investigations.

62. Id.
63. Id. at para. 188.
64. Id. at para. 189.
65. Id. at 190.
66. MetalcladCorp. v. Mexico, ICSID Case No. ARB(AF)/97/l,at paras.74-101 (Aug. 20, 2000) (Lauter-
pacht,Civiletti,Siqueiros,Arbs,).
67. Id. at para. 99.
68. United Mexican Statesv. Metalclad Corp., [2001] B.C.T.C. 664, 2001 B.C.T.C. LEXIS 393 (May 2,
2001) (Can.), at para. 72.
69. Pope & Talbot,Inc. v. Canada, (May 31, 2002) 41 I.L.M. 1347, at paras.68, 69 (Dervaird,Greenberg,
Belman,Arbs.).

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98 THE INTERNATIONALLAWYER

In itsdecisionofOctober11,2002,theMondev Tribunalwasnotfacedwiththequestion
of thegeneralmeaningof a freestandingclauseon fairand equitabletreatment.70 As ac-
cepted and explainedby the Tribunal, the NAFTA Treaty had been interpretedby the
NAFTA parties, in an authoritativeinterpretative note,thatthestandard wasto be under-
stood as a minimumstandardin accordancewithcustomary law,not as a self-standing
concept.However,in theproceedings all threepartieshad also clarified thatthestandard
willbe interpreted in an evolutionary manner.71 The Tribunal'smaintaskwas,underthese
specialcircumstances, to givesubstance tothecontemporary meaningof"fairandequitable
treatment" as opposedto an understanding as itwasaccepteddecadesago.72One keyissue
in thiscontext wastherelevance ofmoderninvestment treaties.The NAFTA partiesthem-
selveshad takena positionwhichcouldbe understood to indicatethatthecontentofBITs
had not,or notyet,becomeidenticalwiththerulesofgeneralinternational law.73
Nevertheless, theTribunalconcludedin viewto thewidespread BIT practice, thatsuch
a bodyofconcordant practice willnecessarilyhaveinfluenced thecontent ofrulesgoverning
thetreatment offoreign investment in current internationallaw.It wouldbe surprising if
thispracticeandthevastnumberofprovisions itreflects
wereto be interpreted as meaning
no morethantheNeerTribunal(in a verydifferent context)meantin 1927.74
Thus, theTribunaldidnot,at leastexplicitly, takethepositionthatcustomary lawhad
becomeidentical withtreaty law,butthattheconcordant practicewouldhave"influenced"
therelevant rulesofcustomary law.The Tribunaldid notelaborateon thepreciseextent
ofthisinfluence, nordidit addressthecircumstances underwhichpracticegovernedbya
treaty willbe considered as practicerelevant forcustomary law.
The Tribunalin UPS v. Canadaconfirmed thatthe standardis "includedwithinthe
minimum standard," buthadno reasonto elaborate.75
ADF GroupInc.,datedJanuary 9, 2003,76buildsupontheMondevdecision,literally citing
twoof thekeypassagesfromMondev.77 Nevertheless, it wouldnot be correctto assume
thattheADF rulingis identicalwiththe reasoningin Mondev.More precisely, the two
citations oí MondevinADF, whenreadtogether, be
may interpreted to containa degreeof

70. Mondev Int'l Ltd. v. UnitedStates,ICSID Case No. ARB(AF)/99/2(Oct. 11, 2002), 42 I.L.M. 85, 106
(Stephen,Crawford,Schwebel,Arbs.).
71. Id. at para. 124.
72. For an evolutionary interpretationofthenotionof"sacredtrust"as used in 1919 in thelightoftheUN
Charteradopted in 1945, see Legal Consequences forStatesof the ContinuedPresenceof South Africain
Namibia (S.W. Africa)NotwithstandingSecurityCouncil Resolution276, 1971 I.C.J. 16 (June21).
73. See Mondev,42 I.L.M. 85, at para. 110: "In theirpost-hearingsubmissions,all threeNAFTA Parties
challengedholdingsoftheTribunalin Pope& Talbotwhichfindthatthecontentofcontemporary international
law reflectstheconcordantprovisionsofmanyhundredsofbilateralinvestment treaties.In particular,
attention
was drawnto whatthose threeStatessaw as a failureof the Pope & TalbotTribunalto considera necessary
elementof theestablishment of a ruleof customaryinternational
law,namelyopinio juris.These Statesappear
to questionwhetherthe partiesto theverylargenumbersof bilateralinvestment treatieshave acted out of a
sense of legal obligationwhen theyincludeprovisionsin those treatiessuch as thatfor"fairand equitable"
treatment of foreigninvestment."
74. Id. at para. 117.
75. U.P.S. v. Canada (Nov. 22, 2004) (Keith, Cass, Fortier,Arbs.) (Awardon Jurisdiction), availableat
www.asil.ore/ilib/ilib0602.
htm#i 3 (lastvisitedApr.5, 2005).
76. ADF Group,Inc. v. United States,ICSID Case No. ARB(AF)/00/l,18 ICSID Rev. 195, 279 (Jan. 9,
2003) (Feliciano,de Mestral,Lamm,Arbs.).
77. See id.,paras. 183 and 184.

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 FAIRAND EQUITABLE TREATMENT 99

ambiguity whenit comesto identifying thoseelementswhichneed to be consideredin

determining the evolutionof thelaw for the purposeofidentifying thecontemporary stan-
dard.WhereasMondevseemsto pointto therelevanceof bilateraltreaties - ". . . sucha
bodyofconcordant practicewillnecessarily haveinfluenced thecontentofrulesgoverning
thetreatment of foreigninvestment in currentinternational - a subsequentpara-
law,"78
in
graph Mondevseemingly approves the U.S. position that the minimum standardem-
bracingfairand equitable treatment will be determined by "as in
established statepractice
andin thejurisprudence ofarbitral
tribunals."79
Whileitis notentirelyclearwhether "statepractice"
as understood inthissentence refers
to customary law or to theconclusionofbilateraltreaties,as suggested bythelanguageof
Mondev, theADF rulingtakesa clearpositionin a rathercarefully wordedinterpretation
ofMondev:"We understand Mondevto be saying - and we wouldrespectfully agreewith
it- thatanygeneralrequirement to accord'fairand equitabletreatment' and 'fullprotec-
tionand security' mustbe disciplined bybeingbasedupon Statepracticeand judicialor
or generalinternational
arbitralcaselaw or othersourcesofcustomary law."80In other words,
treatylaw was notincludedamongtherelevantsourcesfortheidentification of thecon-
temporary standard.In the event,neither the Mondevnor theADF Tribunal found a vio-
lationofthefairand equitabletreatment standard.
Waste Management, datedApril30, 2004,dealtwiththeclaimofa company"withweak-
nessof [an] originalbusinessplan [which]could not be overcomeat a timeof financial
rejecting
stringency,"81 theclaimunderarticle1105ofNAFTA.
As to thescope and interpretation of theArticle,theTribunalreliedon therulingsof
theMondevand ADF tribunals.82 The Tribunalalso citedthe S.D. MyersCase, decided
beforethe interpretation by the threeNAFTA parties,whichfoundthatarticle1105 is
violated"... onlywhenit is shownthatan investor has beentreatedin suchan unjustor
arbitrarymannerthatthetreatment risesto thelevelthatis unacceptablefromtheinter-
nationalperspective."83 In a remarkable manner,theTribunalestablishes a close linkbe-
tweenthe requirement of fairand equitabletreatment and the prohibition of denialof
Without
justice. discussion of theidentity or in
difference thescope and meaningofthe
requirements of the two standards, the WasteManagement TribunalblendstheNAFTA
rulingson thesetwoconceptsandthusincludedtheMondevdiscussion on denialofjustice
and theLoewenrulingon thesamesubject,eventhoughthelatterdecisionimpliedthata
distinctionbetweenthetwostandards wouldbe appropriate.84 Noting"certaindifferences
ofemphasis"in thejurisprudence, theTribunalconcludesin Waste Management:

78. Mondev,42 I.L.M. 85, at para. 117,quotedinADF Group,18 ICSID Rev. at 183.
79. Mondev,42 I.L.M. 85, at para. 119, quotedinADF Group,18 ICSID Rev. at 184.
80. ADF Group,18 ICSID Rev. at 184 (emphasisadded).
81. WasteMgmt.,Inc. v. UnitedMexicanStates,ICSID Case No. ARB (AF)/00/3(Apr.30, 2004),43 I.L.M.
Civiletti,Gomez,Arbs.),availableat www.state.gov/documents/organization/
967 (2004), at para 113 (Crawford,
34643.pdf.
82. M at paras.91-93.
83. Id., quoting S.D. Myers,Inc. v. Canada (Oct. 21, 2002) (Second PartialAward)(Hunter,Chiasson,
Schwartz,Arbs.), at para. 263, available at http://ita.law.uvic.ca/documents/SDMyersFinalAward.pdf
(last
visitedApr. 16,2005).
84. See Loewenv. UnitedStates(June 26, 2003) 42 I.L.M. 811 (2003) at para 137 (Mason, Mikva,Mustill,
Arbs.).

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100 THE INTERNATIONALLAWYER

Takentogether, theS.D. Myers, Mondev, ADF andLoewen casessuggestthattheminimum

standardoftreatment offairandequitable treatment is infringedbyconductattributable to
theStateand harmful to theclaimant iftheconductis arbitrary, grosslyunfair, unjustor
is discriminatory
idiosyncratic, andexposestheclaimant to sectional
or racialprejudice,or
involves
a lackofdueprocess leadingtoanoutcome whichoffends judicial
propriety- asmight
be thecasewitha manifest failureofnaturaljusticeinjudicialproceedingsora complete lack
oftransparency andcandour inanadministrativeprocess.Inapplying thisstandarditisrelevant
thatthetreatment isinbreachofrepresentations madebythehostStatewhich werereasonably
reliedon bytheclaimant.85

Consistentwiththeapproachin MondevandADF, theTribunalthusbaseditsdecision

on previousarbitral
rulings.

The
V. The StateoftheLaw at theTime oftheInvestment:
Basis andLimitsofLegitimateReliance

One elementwhichis centralto theunderstanding of themodernnotionof fairand

equitabletreatment concernsthespecificimportance of thatstateof thelaw of thehost
statewhichwasinforceatthetimeatwhichtheforeigner acquiredhisinvestment.86 Recent
has
jurisprudence highlighted and accentuatedthe of
significance thiscontextualdimension
oftheprinciple. The pointis madein themoststraightforward andsuccinctmannerinthe
NAFTA case GAMI v. MexicoofNovember15,2004 (Reisman,LacarteMuró,Paulsson):
"To repeat:NAFTA arbitrations haveno mandateto evaluatelawsand regulations that
predate the decisionof a investor
foreign to invest."87
In S.D. Myersv. Canada,also a NAFTA case, theTribunalhad to ruleon a specific
provisionofCanadianlawregulating exportsintotheUnitedStates.88 The decisionessen-
tiallymakesthesamepointas theGAMITribunal:"[t]heTribunalmakesno determination
on thisissuebecausein thiscase theDisputingPartiesactedon thebasisof thelaw as it
thenappearedto exist."89
In a similarway,MarvinFeldmanv. Mexico,90 addressing thesignificance of a Mexican
schemeconcerning an invoicerequirementin thecontext ofdutieson certainexporttrans-
actions(calledIEPS law) ruledas follows:"Sincetheoperationofitsexportbusinessde-
pendedsubstantially on thetermsoftheIEPS law,theClaimantwasor shouldhavebeen
awareat all relevanttimesthattheseparateinvoicerequirement existed,as therehasbeen
no dejure changein it at anytimerelevantto thisdispute."91

85. WasteManagement, 43 I.L.M. 967 at para. 98.

86. The law ofthehoststatecan also be ofcrucialimportancein thedefinition ofan investment. SeeMihalyi
v. Sri Lanka, ICSID Case No. ARB/00/2(Mar. 15, 2002), 41 ILM 867 (2002) (Sucharitkul, Rogers,Suratgar,
Arbs.).
87. GAMI Investments, Inc. v. UnitedMexicanStatus(Nov. 15 2004), at para.93, availableat ita.law.uvic.ca/
documents/Gami.pdf (lastvisitedApr.5, 2005).
88. S.D. Myers,Inc. v. Canada (Oct. 21, 2002) (Second PartialAward)(Hunter,Chiasson,Schwartz, Arbs.),
availableat http://ita.law.uvic.ca/documents/SDMyersFinalAward.pdf (lastvisitedApr.16,2005).
89. GAMI Investments at para. 191.
90. Feldmanv. UnitedMexicanStates,ICSID Case No. ARB(AF)99/1(Dec. 16,2002), 42 ILM 625 (2003)
(Kerameus,CovarrubiasBravo,Gantz,Arbs.).
91. Id. at para 128.

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 FAIRAND EQUITABLE TREATMENT 101

Thus,theTribunalalso clarified thatproofofpositiveknowledge wasnotrequiredand

thattheruleappliediftheinvestor had theopportunity to takecognizanceofthelaw.An
unpublished lawunknown to theinvestor wouldnothavehad thesamesignificance.
The Mondevdecisionalso containslanguagewhichmaybe understood to confirm the
sameprinciple.92 Dealingwitha US courtdecisionapplyinga ruleofstatutory immunity
to theBostonRedevelopment Agency(BRA),theArbitral Tribunalruled:
It isnotdisputed bytheClaimant thatthisdecisionwasinaccordance withMassachusetts law,
anditdidnotinvolve on itsfaceanything or discriminatory
arbitrary orunjust, i.e.,anynew
actwhichmightbe characterised a breachofarticle1105(1).In otherwords,ifit
as in itself
wasnotin December1993a breachofNAFTA forBRAto enjoyimmunity fromsuitfor
tortiousinterference (and,becauseNAFTAwasnottheninforce, itcouldnothavebeensuch
a breach),itis farfrom clearhowthe(exhypothesi decision
correct) oftheUnitedStatescourts
as to thescopeof thatimmunity, after1 January 1994,couldhavebeenin itselfunfair or
inequitable.On thisgroundalone,it maywellbe thatMondev'sarticle1105(1)claimwas
boundto fail.. . .93
The first NAFTA Case,Azinianv. Mexico?* mayalso be deemedrelevant in thiscontext
eventhoughthe claimin questionconcernedthe expropriation clauseand not fairand
equitabletreatment. The relevant issuewastheannulation ofa concessioncontract bythe
competent Mexican authorityas confirmed by Mexican courts.The claimant (DESONA)
based its claimon thisconcessioncontractwhileMexico arguedthatthe contractwas
invalid.The TribunalacceptedtheMexicanpositionwiththisreasoning:
95. The logicalstartingpointis to examinetheasserted original oftheConcession
invalidity
Contract. If thisassertion
wasfounded, thereis no needto makefindings withrespectto
performance; norcantherebe a question ofcuring originalinvalidity.
96. Fromthisperspective, theproblem maybe putquitesimply. The Ayuntamiento believed
ithadgrounds forholding
theConcession Contracttobeinvalid underMexicanlawgoverning
publicservice AtDESONA's initiative,
concessions. thesegrounds weretestedbythreelevels
ofMexicancourts, andineachcasewerefoundto be extant. How canitbe saidthatMexico
breached NAFTAwhentheAyuntamiento ofNaucalpanpurported to declaretheinvalidity
ofa Concession Contractwhichbyitsterms wassubject toMexicanlaw,andtothejurisdiction
oftheMexicancourts, andthecourtsofMexicothenagreedwiththeAyuntamiento's deter-
mination? Further, theClaimants haveneithercontended norprovedthattheMexicanlegal
standards fortheannulment ofconcessions violateMexico'sChapterElevenobligations; nor
thattheMexicanlawgoverning suchannulments is expropriatory.
97. Withthequestionthusframed, itbecomesevident thatfortheClaimants itis
to prevail
notenoughthattheArbitral Tribunal withthedetermination
disagree oftheAyuntamiento.
A governmental authority
surely cannotbefaultedforacting ina manner validated
byitscourts
unlessthe courtsthemselvesare disavowedat the internationallevel.95

Thus,theTribunalinAziniannotjustconfirmed thesameviewpoint as theGAMI and

Feldmandecisions,it also extendedtherulingbeyondthelaw as writtento itsapplication

92. Mondev Int'l Ltd. v. United States,ICSID Case No. ARB(AF)/99/2(Oct. 11, 2002), 42 I.L.M. 85, at
para. 156 (Stephen,Crawford,Schwebel,Arbs.).
93. Id. (footnoteomitted).
94. Azinianv. UnitedMexican States,ICSID Case No. ARB (AF)/97/2(Nov. 1, 1999), 39 ILM 537 (2000)
(Paulsson,Civiletti,von Wobeser,Arbs.).
95. Id. at paras.95-97.

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102 THE INTERNATIONALLAWYER

andinterpretation bythedomesticcourtsofthehostcountry, concluding thattheforeign

investor hadto acceptthelawas itwasappliedbythecompetent nationalcourts.The only
limitationsrecognizedbytheTribunalconcerneda violationofNAFTA bythelaw,and
(moreproperly: including) acts.96
expropriatory The Tribunalapparently
hadno reasonto
examinewhether theunderstandingand applicationofthelawcameas a surprise andhad
no basisin previousrulings.
It bearsemphasisthatthislineofjurisprudencewithitsfocuson thelawofthehoststate
at thetimeoftheinvestment is byno meansnovel.The Permanent CourtofInternational
JusticehadtoruleintheChinncasewhether Mr.OscarChinn,a British wasentitled
subject,
to a claimagainsttheBelgianGovernment, at thattimethecolonialpoweroftheBelgian
Congo,in viewofa marketdistortion causedbyBelgiumwhenit favoured andsupported
Unatra,theonlymarketrivalofMr. Chinn.97 The Courtrejectedtheclaimandexplained
thatChinnshouldhavebeen awareof thelegalpeculiarities of themarketwhichexisted
whenhe madehisinvestment:

(...) Mr.Chinn,a British when,in1929,heentered

subject, theriver business,
transport could
nothavebeenignorant oftheexistenceofthecompetitionwhichhewouldencounter onthe
partofUnatra,whichhadbeenestablished since1925,ofthemagnitudeofthecapitalinvested
in thatCompany, oftheconnection ithadwiththeColonialandBelgianGovernments, and
of thepredominant rolereservedto thelatterwithregardto thefixing
andapplication of
transportrates.98
Thus,theCourtfocusednotjuston thelawas written, butalso on thelawas a basisfor
itssubsequent application detrimental to theinvestor. The Courtvotedsixto fiveon this
point,anditwasquestioned, interalia,whether therulingwasconsistent withan applicable
treatyrequiring "commercial equality"forforeign subjectssuchas Mr. Chinn.Whatever
mayhavebeentheproperconstruction ofthetreaty containing thisrequirement, thebasic
conceptualapproach ofthe Chinn ruling reflected the positionthata foreign investormust
acceptthelaw as it standsat thetimeof theinvestment and cannotsubsequently base a
claimon theapplication ofthatlaw.
The variousrulingsoftheCourtsandTribunalsdiscussedabovehavenotaddressedthe
doctrinalfoundation of thereasoning whichtheyapplied.Essentially, thisaspectwillnot
be seento raisea seriousquestion.The principle ofterritorial sovereigntyandofeconomic
self-determinationprovideforthedoctrinal basisofthejurisprudence herereviewed. Each
statehas alwayshad the rightto determine its own laws,withinthe boundariesof the
internationalminimumstandardand of ius cogens, and thislegal positionhas not been
abandonedin theprocessofeconomicand legalglobalization. Correspondingly, no other
stateandno foreign investor can be considered, in theabsenceofa treaty to thecontrary,
to have a righttowarda hoststateto determine and organizeits law in anyparticular
manner, and thelogicalextension ofthisprinciple is thatno investor has a rightto base a
claimagainstthehostcountry uponthesubsequentapplication ofthelaw to thebusiness
oftheinvestor.

96. The Tribunalcould (or should)have simplyreferred to NAFTA and all laws embodiedin theinterna-
tionalminimumstandardgoverningthestatusof aliens.
97. Oscar ChinnCase (U.K. v. Belg.), 1934 P.C.I.J.(ser.A./B)No. 63 (Dec. 12),availableat www.icj-cij.org/
cijwww/cdecisions/ccpij/serie_AB/AB_63/01_Oscar_Chinn_Arret.pdf.
98. Id. at 84.

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 FAIRAND EQUITABLE TREATMENT 103

The foregoing observations have focusedon the pre-investment stateof the law as a
limitation fortherangeof elementswhichserveto determine thestandardofprotection
to be accordedto theinvestor underthestandard offairandequitabletreatment. However,
thatstateofthelawis ofequalsignificance forestablishingtheframework ofthoseconsid-
erationswhichin a positivesensewilldecidetheprotection grantedto theinvestor. That
thepre-investment stateofthelaw formsthefoundation ofthisprotection, anditslimits,
also clarifiesthatthestandardof fairand equitabletreatment is in thisrespectrelativein
itsnature,dependinguponthelaw as it happensto standat one particular time.A partof
thedifficulty to defineandprescribe thestandard offairandequitabletreatment inabsolute
termsfindsitsexplanation in thiscontext.
Fromtheviewpoint oftheinvestor, thischronological anchoring oftheoperationofthe
standardin effect servesas reminder to carefullyexaminethelaw as it standsbeforethe
investment andto considertheimplications ofcontentanditspeculiarities. Fromthevan-
tagepointofthehoststate,thissettingrequiresthatthegovernment mustat all timesbe
awarethatthe law as it standsand as it is reformed willin the futureallowthe foreign
investor to pointto thisdateand to thislegalorderas thelegalbasisforhisdecision.
The doublefunction ofthepre-investment stateofthelawas boththefoundation ofthe
investment decisionand the limitation of his subsequentprotection in case of a dispute
revealsthatin thisrespectthestandardof fairand equitabletreatment is closelytiedto
considerations underlying the notion oflegitimate expectationswhich has occasionally been
referred to by international tribunalsin cases broughtby foreigninvestors. The pre-
investment legalorderformstheframework forthepositivereachoftheexpectation which
willbe protected andalso thescopeofconsiderations uponwhichthehoststateis entitled
to relywhenitdefendsagainstsubsequent claimsoftheforeign investor. Here,itbecomes
clearthatthestandard offairandequitabletreatment centersto a considerable degree,on
expectations oftheforeign investor and thatin theindividual case thelegitimacy ofthese
expectations willlargelydependupontheobjectivestateofthelawas it standsat thetime
whentheinvestor acquirestheinvestment.
The foregoing analysisis responsive to themutualinterests of boththehoststateand
the foreigninvestorupon whichthe entireschemeof economicsand law of foreignin-
vestment is predicated. Whereasthelaw protectsexpectations of theforeigninvestor, it
does so onlyto theextentthattheseexpectations are groundedin thelegalorderof the
hoststateas determined bythehoststatein accordancewiththeprinciples of territorial
sovereignty and economic self-determination.
A seconddimensioncoveredby therequirements of fairand equitabletreatment also
concernstheinvestor's abilityofplanningand doingbusiness,in regardto theconductof
thehoststatesubsequentto theinvestment. Consistency in thecourseof actionsof the
hoststateconcernstheinvestor in all areasof regulations,fromtheprocessof requiring
and granting of permitsto regulations of healthand environment and theimposition of
taxes,royalties andduties.The issuemayarisesimplyuponthereversal ofconductbyone
organ.Alternatively, simultaneous inconsistent conducton the partof two organswith
respecttothesamesubjectmatter suchas a permit requirement mayalsobe relevant. Again,
thefocushereis on thelegitimate expectations of theinvestor, butnot in regardto the
pre-investment stateof thelaw,butat a laterstage.One of themainareasof application
ofthisconsideration willbe discretionary rulesandareasofgovernmental decision-making
forwhichtheinvestor hasno rightto a specificactionon thepartofthegovernment. The
basicconcernagainis notto tiethehostgovernment to anyspecific standard, butto allow

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104 THE INTERNATIONALLAWYER

theforeign investor to relyon a standard whichthegovernment has freely

determined. In
the
specificcircumstances, scope and meaning of these considerations may become espe-
ciallycomplexwhenan evolutionary understanding ofthelawor thepolicyis explicitly or
implicitlybuiltintothelaw.
Underlying all oftheseapplications offairandequitabletreatment arethebasicthemes
of the law and,seen fromtheinvestor's
of stability perspective, of there-
predictability
quirements to be met and therights to be granted. In thewords of the TECMED tribunal,
thethrust oftheconcernis theforeign investor'sability"toknowbeforehand."99 Obviously,
thisconcernis notso important forthosetypesoftransactions whichbringthetwoparties
togetherforonlya shortperiodof a fewmonths.The issueacquiresa totallydifferent
dimension forthelong-term investor whohas sunkhismoneyintoa projectand has cal-
culatedhisexpectedrateofreturn fora periodofthirty yearsor more,especially whenthe
initialinvestment costsare high,thepost-investment costsare low and thereturnon the
investment dependsuponpermits or,ina regulated sector,rate-settingdecisionsofthehost
state.Suchlong-term foreign as
investments,they are not in
infrequent theenergysector,
in thewatersectoror in wastemanagement, willbe madeby theprudentinvestor only
upon due diligenceand thejudgmentthatthepoliticalrisksstemming froma potential
futurechangeof actionon thepartof the hoststatewillnot likelystandin thewayof
preventing thereasonableimplementation of thebusinessplan.The standardof fairand
equitable treatment will its
acquire strongest significancein suchlong-term projects.

VI. RelianceOn Contractual and On

Arrangements
Assurances
One ofthemostdifficult issuesconcerning thereachofthestandard offairandequitable
treatment pertains to thematteroflegitimate relianceon thepartoftheinvestor inregard
to contractual relationswiththehoststate.D. Carreauand P. Juillardbase theirunder-
standingofthestandard on theneedfora satisfactory balanceoftheinterestsoftheinvestor,
thehoststateand thehomestate.100 So far,thisproblemis farfromresolved.On theone
hand,it is clearthatcontractual relationsmayformtheframework on whichtheforeign
investorhas reliedafterit was negotiated and tailor-madeto theneedsof thespecificin-
vestment, possiblyquitedistinct fromthegeneralregulatory framework ofthehostcountry.
This natureofa contract as a kindoflexspecialisacceptedby thehoststateso as to attract
and accommodate theforeigninvestor maybe consideredto justify specialprotection of
the affected investor, moreso thanthe expectation of the investorwho has decidedto
operateunderthehoststate'sgenerallegislation. Fromtheoppositeperspective, itmaybe
argued that contractual arrangements deserveless protection because
precisely they deviate
fromgenerallegislation whichmaybe seento reflect thepublicgood morebroadlythan
an individual contract.RecentICSID jurisprudence regarding indirect
takings maybe in-
to
terpreted weigh towards this second lineof thinking.The 2004 WasteManagement de-
cisiondoes notconsiderall seriousbreachesof a contract to amountto an expropriation
whileitis generally assumedthata seriousbreachofa traditional propertyrightwillrequire

99. Técnicas MedioambientalesTECMED S.A. v. UnitedMexicanStates,ICSID Case ARB (AF)/00/2(May

29, 2003), 43 ILM 133 (2004), at para. 154.
100. Dominique Carreau & PatrickJuillard, Droit International Economique 437 (2003).

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 FAIRAND EQUITABLE TREATMENT 105

compensation. The WasteManagement rulinghas reliedon thedistinction betweengov-

ernmental and commercial actsbystateorgansin thiscontext, and it remainsto be seen
whetherthisapproachwillfindgeneralacceptanceand ultimately contribute to a lineof
jurisprudence whichreducesthepractical valueofcontractual arrangements fromthepoint
ofviewoftheinvestor andcorrespondingly broadensthescopeofnon-compensable actions
ofthegovernment in relationto contracts.
A relatedissueconcernsthecomparison betweentheeffect of a stabilizationclause,of
an umbrellaclauseand oftherequirements of fairand equitabletreatment in thecontext
of an investment contract.Strictinsistenceon the conceptof reliancefora contractual
arrangement wouldcome close to havingthe same effectas a stabilization clauseor an
umbrellaclause.The issuedoesnotbecomemoresimplewhenitis recognized thatneither
of a stabilization
the legal significance nor the meaningof an umbrellaclausehas been
byrecentdecisions,and theentireissuemustbe deemedto remainopen at this
clarified
point.
Also,thelegalsignificance ofassurancesgivento foreign investorsin a non-formalized
contextsuchas publicspeechesbyrepresentatives ofthehostcountry remains tobe clarified
byinternationaltribunals.
On thestate-to-state-level,
international
courtshaveclearly decided
thatundercertainconditions unilateral
statementsmaycreateinternational obligations.101

VIL Conclusion
Statepartiesto investment treatieshaveentrusted arbitraltribunals witha formidable
taskwhentheyincludedthe standardin the BITs in the expectation thattribunals will
identifyan investment-specific, judiciallymanageablecontentoftheclause.The taskwas
evenmoredemanding as thestandardhad to be developedab novoin theabsenceofany
ruleor precedent in anyotherfieldofinternational law.The current ICSID systemofad
hoc tribunalsandthecorresponding lackofinstitutionalizedcontinuity andconsistency of
jurisprudence have added to the of
challenge developing bodya of jurisprudence tailored
to thespecificstructures of foreign investment and acceptableto investors, thehoststate
andthehomestate.
Meetingtheinvestor's centrallegitimate concernoflegalconsistency, stabilityandpre-
remains
dictability a major, butnot the only,ingredient of an investment-friendly climate
in whichthehoststatein turncan reasonably expectto attract foreign investment. Thus,
no inconsistency betweentheinterests ofthehoststateandthoseoftheinvestor inregard
to thecreationofa stablelegalframework ofthehoststatewillbe diagnosed.Builtupon
thisjointperspective ofhoststateandinvestor, underlying theagreement on an investment
treaty,thestandardoffairand equitabletreatment willnevertheless notbe understood to
amountto a stabilization clausebutwillleavea measureofgovernmental spaceforregu-
lation.Presumably, thedegreeoffreedom generallyconsidered as appropriatein domestic
legalorders willnot be affected.It is truethatin effectthe standard willnarrow downthe
discretionaryspace availableto the hoststate.But it is also true,in principle, thatthis
specificsortoflimitation is indeednecessary to attractforeign investment.

101. See, e.g.,Nuclear Tests (Austl.v. Fra.), 1974 I.C.J. 253, 267 (Dec. 20); Nuclear Tests (N.Z. v. Fra.),
1974 I.C.J. 457, 472 (Dec. 20); EasternGreenland(Den. v. Nor.), 1933 P.C.I.J.(ser A/B)No. 53, 70. In the
investment context,see,e.g.,RevereCopper v. OPIC (Aug. 24, 1978), 17 I.L.M. 1321. (The rulingdoes not
makeclearwhattypeof assurancesare meant.Referenceis made to the "Heads ofAgreement"on page 262).

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106 THE INTERNATIONALLAWYER

Withinthisgeneralsetting, investment tribunals have,in thepastfiveyears,startedto

developa framework of understanding whichis responsive to the basicrationaleof the
clauseandis suitableforjudicialmanagement. Two overlapping centrallinesofapplication
haveemerged.The first one concernsconsistency ofgovernmental action.This willbe of
practicalimportance, forinstance, in suchareasinwhichthedomesticlawofthehoststate
lackssubstantive or jurisdictional clarity, or grantsdiscretionary powerto thelocalauthor-
ities.Changesofgovernment may lead to specialproblems in this contextas wellas in the
secondareaofconcern,beingthestability oflong-term arrangements and commitments,
whichmaybe re-evaluated bygovernments following theonewhichacceptedtheobligation
towardtheinvestor.
The mostimportant contribution to an operational understanding of thestandardfor
thislatterissueconcernsthestrictfocuson thestateofthelaw at thetimeofinvestment,
layingthebasisand limiting thelegitimate expectations protected bythestandard. This
centralcomponent ofthecase-lawas developedin thepastyearsembodiesandreflects the
twopillarsof foreign investment law,beingtherespectforthehoststate'srightsof eco-
nomicsovereignty and theprotection oftheinvestor's legitimate expectations. The focus
on thelawat thetimeofinvestment provides, in principle, foran appropriate synthesis of
thesetwoprinciples.
The issueofdefining thenecessary governmental spaceto changea lawis notresolved
by thisapproach, but a framework of is
analysis thereby established. Specialfactors relevant
in a specialcase haveto be identified andaccommodated, andin thisrespectitis truethat
thefirstphaseofjurisprudence maynothaveled to muchclarity as to thenatureofthese
factorsand theweightto be accordedto them.Ultimately, however, it shouldnotbe ex-
pected that criteriaand formula can be developed which would allow an application of a
standard in themannerofa hardandfastrule.The natureofthestandard will
simply not
allowan understanding whichwouldsatisfy a demandfortotalpredictability in thesense
oftheremovalofall individualized aspectsofweighing relevant concernsbythecompetent
tribunal.Withintheseparameters, thefirst generation ofjudgments givingcontentto the
clausemaywellbe considered toprovidean appropriate measureofguidanceforfuture cases.
As indicated, a majorissuethatwillhaveto be developedbyfurther jurisprudence con-
cernstherelationship of thestandardto otherclausesof an investment treatyor an in-
vestment contract, in particular to the ruleson indirectexpropriation and theumbrella
clauseofa treaty. Will thestandard serveas a catch-allsafety clausefortheforeign investor
whichoperatesin the same areasof applications as otherclausesin investment treaties
addressing allinsufficiencies,realorperceived, ofactionsofthehoststatebelowthethresh-
old ofotherclauses,or willthestandard operateprimarily in areasofapplication notgen-
erallycoveredby suchotherstandards? In otherwords,willthestandardhavea supple-
mentary ora corrective function inrelationtootherprinciples? Willthestandard be applied
witha bias to theinterest of thehoststateor of theinvestor? Andwillthestandardbe
appliedwitha significant degreeofdeference tothehoststateorwillanautonomous standard
ofapplication be rigorously appliedbythetribunal? The questions indicate thatseriousissues
remainin theunderstanding andapplication ofthestandard fora secondgeneration ofjudg-
ments.If theywillbe as consistent andprinciple-oriented as thefirst one,thestandard can
be saidto haveservedthepurposeforwhichitwasintended by the state parties.

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