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This chapter discusses fair and equitable treatment as one of the core concepts of international investment protection. It suggests that the jurisprudence of investment tribunals on fair and equitable treatment can be conceptualized under a primarily institutional and procedural concept of the rule for law that has parallels in the major domestic legal systems of liberal democracies, and argues that such an understanding can be normatively grounded in the objective of international investment treaties. This overarching understanding translates into several sub-elements of fair and equitable treatment, including the requirement of stability, predictability and consistency, the principle of legality, the protection of legitimate expectations, procedural due process and denial of justice, substantive due process and protection against discrimination and arbitrariness, transparency, and the principles of reasonableness and proportionality.

This chapter is the first ever doctrinal consideration of quasi-normative non-law in systemic perspective. This study is limited to analysing the categories of quasi-normative non-law in terms of their ability to imitate the law, that is the degree of their normativity. The issues dealt with relate to margin of appreciation, necessity, proportionality, equity, ‘fair and equitable treatment’, and legitimate expectations. In examples of each of those categories, it is examined where they come from and how far their relevance goes.

This chapter examines how equitable notions included in treaties should be construed. While in the law of the sea treaties equity is understood as reflecting general international law, the ‘fair and equitable’ treatment of foreign investors under international investment treaties is frequently denoted as autonomous treaty-based standard giving rise to new customary law on investment. The chapter examines the application of treaty interpretation methods to ‘fair and equitable treatment’ and establishes that so-called ‘autonomous’ construction cannot be sustained under the Vienna Convention on the Law of Treaties. Instead, ‘fair and equitable treatment’ reflects the general international law standard on the treatment of foreign investors. This chapter also concentrates on the construction of ‘fair and equitable treatment’ in the 2001 opinion of the NAFTA Free Trade Commission, and subsequent reaction by NAFTA Tribunals, as an issue of the agency of interpretation (above Chapter 16).

In 2004, the United States government adopted and published a Model Bilateral Investment Treaty that substantially revised the Model Bilateral Investment Treaty previously employed by it in negotiations with other governments over the conclusion of bilateral investment agreements. It has subsequently used the 2004 Model BIT in negotiating bilateral investment treaties, and investment chapters of free trade agreements, with other governments. This chapter focuses on a single provision stating that the ‘fair and equitable treatment includes the obligation not to deny justice’. The result of this specification is that the standard of fair and equitable treatment that is a paramount standard of bilateral investment treaties the world over is reduced in the US Model BIT to (i) ‘the customary international law minimum standard of treatment’ and (ii) ‘the obligation not to deny justice’.

This chapter examines the fair and equitable treatment standard in investment treaties based on its position in the international law and based on the elements identified by arbitral tribunals as forming part of this standard. It suggests that the standard of fair and equitable treatment has acquired prominence in investment arbitration as a consequence of the fact that other standards traditionally provided by international law might not in the circumstances of each case be entirely appropriate. It argues that the fair and equitable treatment principle is particularly helpful in cases of non-traditional breaches of international law.

This chapter attempts to explain the contemporary practice of case-by-case development of fair and equitable treatment with the four corners of the law of treaties and without relying on general international law (to which the next chapter is devoted). After considering the possibility of viewing fair and equitable treatment as either a rule formulated in a general manner or a rule related to equity of different normative densities, the traditional interpretative framework of the Vienna Convention on the Law of Treaties is adopted to the examine the practice. It is concluded that the practice of referring to pari materia interpretations cannot be explained within the traditional interpretative framework (without referring to general international law), and that the traditional rules on sources and interpretation have not been superseded by the recent developments.

This chapter reviews international practice in the administration of tax regimes and the implementation of tax collection. It analyses claims by investors that particular state actions in tax administration and enforcement have violated various treaty rights, including the guarantee of fair and equitable treatment, restrictions on expropriation, and the violation of particular commitments covered by treaty umbrellas clauses. It surveys general patterns in state practice to suggest a baseline of acceptable actions against which investor claims can be assessed.

General treatment standards like fair and equitable treatment provisions are often criticized for being vague and excessively demanding. In response to such concerns, the UNCTAD Investment Policy Framework for Sustainable Development (IPFSD) suggests different policy options to reform and concretize fair and equitable treatment provisions in international investment agreements. This chapter critically reviews the different policy options presented in the IPFSD with regard to fair and equitable treatment. In testing the IPFSD’s assumption that some policy options are less conducive to sustainable development than others, the chapter finds that under all options a vagueness problem continues to exist, but that a balancing of investment protection interests and sustainable development concerns is also possible under all options. Therefore, it is suggested to focus more strongly on the concept and structure of balancing by taking into account the virtues of a proportionality analysis.

This chapter observes that investment treaty tribunals are increasingly confronted with resolving conflicts between investment protection and competing public policy concerns, including the protection of the environment or human rights. It suggests that arbitral tribunals could resolve such conflicts by drawing on proportionality analysis as a public law concept. After illustrating how proportionality analysis as a judicial technique has spread from its origins as a concept of German public law to many other domestic as well as international dispute settlement systems, it argues that proportionality analysis can also be applied, and in fact has been applied, as an interpretative technique in investment treaty interpretation. It particularly plays a role in the context of indirect expropriation and fair and equitable treatment, but also in applying necessity-related clauses.

This chapter explains the importance of the issues addressed in the book and outlines the structure of the argument. The relationship between international minimum standard and fair and equitable treatment is of considerable theoretical and practical importance for contemporary international law in general and investment protection law in particular. The book will address the issue in three steps, exploring the historical law-making process in Part I, setting out the sources framework in Part II, and identifying the content of the modern international standard in Part III.

Relying on a comparison of the United Kingdom, the United, the EU, and France, this chapter considers whether, and to what extent, there are common approaches in the policies and practices across jurisdictions regarding public-private partnerships (PPPs). The aim is to refine formulations of such principles of international investment law, as fair and equitable treatment of the investor, transparency, legitimate expectations, proportionality, and due process as they apply to PPPs. It is argued that advertising, competition, and a qualified lowest price award criterion promote transparency. While legitimate expectations are protected, the principle is curtailed by the governmental desire to preserve flexibility, increasing periodic review, and the overriding importance of legality of public contracting. Due process is promoted by provision for remedies in the event of violation of award procedures or the contract itself; while proportionality requires that contractors not be penalized excessively for contractual breaches.

This chapter reviews the notion of ‘investment’ in contemporary treaties to demonstrate that the system affords to arbitrators a broad jurisdiction over a wide range of sovereign acts. It argues that the treaties typically apply broadly framed standards of review by looking at three key standards — national treatment, the minimum standard of treatment, and compensation for expropriation — which reveal the interpretive and governmental discretion that is delegated to arbitrators. The aim here is not to demarcate precisely the boundaries of arbitrator authority or the meaning of particular standards, but merely to show that within those boundaries a wide expanse of regulatory activity is subject to intensive review.

In 2013, International Centre for Settlement of Investment Disputes (ICSID) tribunals confirmed the trend to apply a limited Salini test to determine whether the Article 25 ICSID Convention requirement of an “investment” was fulfilled. The question whether waiting periods or domestic litigation requirements should be viewed as admissibility issues or as jurisdictional requirements led to numerous cases with divergent answers. ICSID tribunals remain split over whether most-favoured nation clauses can be relied upon to avoid unfavourable procedural requirements. For the first time, ICSID annulment tribunals rejected requests for a stay of enforcement by respondent states. Regarding substantive investment law, ICSID tribunals confirmed that contractual rights can be expropriated, that fair and equitable treatment is breached only in egregious situations and that investment tribunals should not be regarded as appellate courts for domestic judiciary. They also clarified the scope of umbrella clauses and confirmed the availability of moral damages in investment arbitration.

This chapter studies in detail the international law on foreign investment that India has accepted to be bound in the embracement phase. In this regard, the chapter studies the following provisions contained in India’s BITs and FTA investment chapters: definition of investment, which is an important jurisdictional provision; fair and equitable treatment; most favoured nation treatment; and full protection and security. The aforesaid provisions are common to all Indian BITs and FTA investment chapters. The chapter shows that many of the treaty provisions are broadly worded. In order to better understand the import of the language of these provisions, they will be situated within the broader jurisprudence of the ISDS. Depending on arbitral discretion, these broad and vaguely worded provisions are capable of interpretation that gives precedence to investment protection over the host state’s sovereign regulatory power, instead of striking a balance between the two.

International investment agreements (IIAs) accommodate two framings of risk in need of mitigation: political risks and risks of physical externalities. The chapter discloses that there is no consistency in the finer-grained framing of these risks in arbitral awards, and analyses these framings from the perspective of the fair and equitable treatment (FET) standard. It is argued that the requirements of fairness and equity call for a just distribution of systemic risks, which IIAs create. It must be ensured that IIAs yield greater ex ante benefits than risks for each stakeholder. The implication is twofold: governmental regulation necessary to protect human rights can never give rise to a right to damages under FET for frustration of expectations and good faith imperfections in regulations by developing countries must be tolerable insofar as emerging development is the constitutive reason for why foreign investment is likely to yield higher ex ante benefits than risks to investors.

Among the jurisdictional hurdles for claimants in ICSID cases, the scope of the notion of an “investment” in the sense of Article 25 ICSID Convention remained one of the most problematic issues in 2012, although tribunals have again downplayed the need for the most controversial aspect, the “contribution to the development of the host state”. Equally, nationality shopping after a dispute had arisen was a risky business for aggrieved claimants. ICSID tribunals have further clarified the prerequisites for filing amicus curiae briefs as well as for the disqualification of challenged arbitrators. They remain split, however, on the reach of an MFN clause as well as on the interpretation of umbrella clauses. From the point of substantive investment law, awards in 2012 have helped consolidate the law on indirect expropriation, fair and equitable treatment, and other standards. The year saw a further case involving EU law issues, which foreshadowed future cases.

This chapter focuses on balancing, in the context of pleadings that oppose property rights and public interest, a mode of decision-making directly implicated in governance. It shows that, in the context of commercial disputes, tribunals and the major arbitration centres have moved aggressively to assert their own competence to apply mandatory state law, in complicity with the courts of the most important trading states. Today, tribunals routinely take into account and balance public interests, even in sensitive policy areas once thought to be inarbitrable. It goes on to examine how tribunals, in resolving investment disputes, have managed similar problems, in particular, through the dynamic construction of the ‘fair and equitable treatment’ [FET] standard. Today, the FET is also the doctrinal site of recurrent skirmishes in an intensifying war of authority between arbitrators and states, which raises Principal–Agent dynamics that the chapter assesses in light of a new generation of treaty-making.

This chapter analyses the prominent role of due diligence in international investment law. It points out that due diligence was relevant in this field as an element of customary law norms requiring compliance with an international minimum standard for the treatment of aliens and prohibiting denial of justice, before modern day investment treaties were concluded. The chapter’s analysis reveals that due diligence underlies host states’ obligation to provide full protection and security and fair and equitable treatment. It underlines that also investors carry a responsibility of due diligence throughout the whole period of their investment and that an investor’s negligence can lead to loss of protection under investment treaties. The chapter argues that due diligence has emerged as a balancing paradigm between protection of foreign investors and regulatory freedom of host states.