I.

Introductory note

Fair and equitable treatment (FET) is a prominent standard of protection in investment

arbitration disputes, which is present in most multilateral, regional and bilateral investment
agreements.1 The first reference to “equitable” treatment is found in the 1948 Havana Charter
for an International Trade Organisation. Its Article 11(2) contemplated that foreign
investments should be assured “just and equitable treatment.” Intensive discussions started in
the OECD in the early 60’s and culminated in the adoption of the Draft Convention on the
Protection of Foreign Property by the OECD Council on 12 October 1967. 2 Under the Article
1 (a) “Treatment of Foreign Property: Each Party shall at all times ensure fair and equitable
treatment to the property of the nationals of the other Parties…”3

Today, FET clauses are not uniformly drafted thus there are diverse interpretations and
meanings of the FET concept. Under this concept this paper discusses the diversities and dis-
harmonisations in the concept of FET within international investment law.

II. The different constructions of fair and equitable treatment in investment arbitration

There are several variations in the drafting of fair and equitable treatment provisions,
although arbitral tribunals have been keen on interpreting fair and equitable treatment as an
autonomous and independent treaty standard.4 There are generally three approaches given to
the scope of FETs.

The first approach concerns itself with FET subject to the minimum standard of treatment
(MST). The minimum standard of treatment is understood as a standing body of customary

1
A. Newcombe and L. Paradell, Law and Practice of Investment Treaties: Standards of Treatment (2009), p.

255; See, Article 48 of the Draft United Nations Code of Conduct on Transnational Corporations of 1983;
Article 12 (d) of the 1985 Convention establishing the Multilateral Investment Guarantee Agency (MIGA)
available at: https://treaties.un.org/doc/Publication/UNTS/Volume%201508/volume-1508-I-26012-English.pdf;
Article 159 of the 1994 Treaty establishing the Common Market for Eastern and Southern Africa (COMESA)
available at: https://www.comesa.int/wp-content/uploads/2019/02/comesa-treaty-revised-20092012_with-
zaire_final.pdf; Article 1105 (1) of the NAFTA

2
Draft Convention on the Protection of Foreign Property and Resolution of the Council of the OECD on the
Draft Convention, OECD, of 1967, available at: https://legalinstruments.oecd.org/public/doc/242/242.en.pdf
3
ibid, Article 1 (a)
4
ibid, Newcombe, pg. 264-265
rules agreed by the host states of investment to protect an alien from another country. 5 Article
III 1(a)(b) of the 2009 the Canadian-Czech BIT, 6 for instance, prescribes a treatment not
exceeding the treatment required “by the customary international law minimum standard of
treatment of aliens” for the concept of fair and equitable treatment. The seminal case on
MST, Neer and Neer (U.S.A.) v. United Mexican States 7 provided a candid explanation of
MST. It stated that the propriety of governmental acts should be put to the test of
international standards, and […] the treatment of an alien, in order to constitute an
international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty,
or to an insufficiency of governmental action so far short of international standards that every
reasonable and impartial man would readily recognize its insufficiency.8

Second approach is FET subject to the principles of international law. This approach
combines fair and equitable treatment with international law in general, describing the
standard as an obligation to be carried out “in accordance with” the sources of international
law.9 Article 4 (1) of the France-Mexico BIT10 provides that Either Contracting Party shall
extend and ensure fair and equitable treatment in accordance with the principles of
International Law to investments made by investors of the other Contracting Party in its
territory or in its maritime area, and ensure that the exercise of the right thus recognized shall
not be hindered by law or in practice.

Another limb of this approach prohibits the host state to accord fair and equitable treatment
less favourable than that required by international law. Article 2(3)(a) of the 1999 USA-
Bahrain BIT11 is an example of this formulation.12

5
R. Islam, The Fair and Equitable Treatment (FET) Standard in International Investment Arbitration:
Developing Countries in Context (2018), pg. 53
6
Agreement Between Canada And The Czech Republic For The Promotion And Protection Of Investments of
2009, available at: https://edit.wti.org/document/show/8040545e-ff6d-4e90-8e3e-e2b3348cf90a
7
Neer and Neer (U.S.A.) v. United Mexican States, The Mexican-United States General Claim Commission,
Decision dated 15 October 1926
8
ibid, para. 4
9
supra, Islam
10
Agreement Between The Government Of The Republic Of France And The Government Of The United
Mexican States On The Reciprocal Promotion And Protection Of Investments of 1998 available at:
https://edit.wti.org/document/show/40f73fef-823e-48b4-97e6-1b68e934604f
11
Treaty Between The Government Of The United States Of America And The Government Of The State Of
Bahrain Concerning The Encouragement And Reciprocal Protection Of Investment of 1999, available at:
https://edit.wti.org/document/show/8c08b1eb-cd05-498d-a57b-ad264ca795b9
12
It states: “Each Party shall at all times accord to covered investments fair and equitable treatment and full
protection and security; and shall in no case accord treatment less favourable than that required by international
law.”
Third approach concerns itself with FET as an autonomous standard. This interpretation is
based on the ordinary meaning of the treaty wording combined with the typical expressed
purpose of BITs pursuant to Article 31 (1) of the 1969 Vienna Convention on the Law of
Treaties. In Azurix Corp. v. The Argentine Republic,13 the tribunal relied on a BIT’s purpose
to “promote” and “stimulate” foreign investments to interpret the fair and equitable treatment
provision. It opined that from the ordinary meaning of the terms fair and equitable and the
purpose and object of the BIT in question that fair and equitable should be understood to be
treatment in an even-handed and just manner, conducive to fostering the promotion of foreign
investment.14 

II. Fair and equitable treatment and its annexed principles

FET “basically ensures that the foreign investor is not unjustly treated, with due regard to all
surrounding circumstances, and that it is a means to guarantee justice to foreign investors.”15
In Indian metals v Indonesia16 the tribunal noted that fair and equitable treatment
encompasses, inter alia, the following core principles: (1) the host state must respect the
investor’s reasonable and legitimate expectations; (2) the host state cannot act in [sic]
arbitrary or discriminatory; (3) the host state must act in a transparent and consistent manner;
(4) the host state is obliged to act in good faith; (5) the host state must respect due process
and procedural propriety; (6) the principle of proportionality.17

Arbitration tribunals have cemented the attachment of these principles to FET standard.
Legitimate expectation as a subcategory of FET was affirmed in Southern Pacific Properties
(Middle East) Limited v. Arab Republic of Egypt.18 In DF (Services) Limited v. Romania,19
arbitrary measures were held to fail, to be fair and equitable by definition. 20 In Emilio Agustín
Maffezini v. The Kingdom of Spain,21 the tribunal found the treatment of the loan in question

13
Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award dated 14 July 2006
14
ibid, para. 360
15
Swisslion DOO Skopje v. The Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award
dated 6 July 2012, para. 273
16
Indian Metals & Ferro Alloys Limited v. The Government of the Republic of Indonesia, PCA Case No. 2015-
40, Award dated 29 March 2019
17
ibid, para. 226
18
Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3,
Award dated 20 May 1992, para. 82; See also, Duke Energy Electroquil Partners & Electroquil S.A. v. Republic
of Ecuador, ICSID Case No. ARB/04/19, Award dated 18 August 2008, para. 340
19
DF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award dated 8 October 2009
20
ibid, para. 303
21
 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Award dated 13 November
2000
to lack transparency and, thus, was incompatible with Spain’s commitment to ensure the
investor a fair and equitable treatment.22

22
ibid, para. 83