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The International Minimum Standard and Fair and Equitable Treatment

Published on August 12, 2013        Author: 

Martins Paparinskis

Martins Paparinskis is a Junior Research Fellow at Merton College, Oxford.

I am grateful to EJIL:Talk! for hosting the discussion of my book, The International Minimum Standard and Fair and Equitable Treatment. I am privileged to have Sir Frank Berman, Federico Ortino, and Anthea Roberts as discussants of my book. A full introduction of the book is available online. In the following paragraphs I summarise the main arguments made in the book.

Introduction

Fair and equitable treatment, as Judge Rosalynn Higgins put it in the Oil Platforms judgment in the International Court of Justice, is a legal term of art well known in the field of overseas investment protection ([1996] ICJ Rep 847 [39]). It is also a rule of considerable practical importance in dispute settlement on the basis of investment treaties. Judging from publicly available awards, this is the obligation that investment treaty Tribunals are most likely to find to have been breached, awarding reparations on this basis. However, despite its pedigree and importance, the textual formulation of ‘fair and equitable treatment’ is not an example of excessive prescription regarding the legal criteria to be applied to resolving particular disputes. How should an interpreter, whether operating in an arbitral or a less formalised setting, approach the task of interpreting and applying this treaty rule?

 The book suggests that an answer, while not a straightforward and obvious one, may be found within the four corners of public international law reasoning. The treaty rule on fair and equitable treatment must be put in the context of broader law-making processes of international law, appreciating both the continuities and discontinuities with the traditional rules and remedies with regard to the minimum standard of treatment of aliens. The argument is presented in three parts. First, the peculiarities of the law-making process are explained, starting from the 19th century customary law on the treatment of aliens and concluding with contemporary investment treaty law. Secondly, the source of the contemporary standard is identified, suggesting that the modern treaty rules on fair and equitable treatment make reference to custom. Thirdly, a methodology for establishing the content of the modern standard is suggested, synthesising traditional customary law and modern developments, when necessary, by the assistance of careful comparative human rights reasoning.

Source of the International Minimum Standard

To considerably simplify the subtlety and nuance between and within different positions adopted in arbitral decisions and legal writings, two dominant views have been adopted of the relationship between the (classic customary law concept of) international standard and the (modern treaty law concept of) fair and equitable treatment. Treaty rules on fair and equitable treatment may be taken to refer to customary minimum standard; or the interpretation of the autonomous treaty terms does not require taking into account the customary standard. I suggest that the treaty term can indeed be read as making a reference to custom, albeit for slightly different reasons from those usually presented for this position.

Fair and equitable treatment is a treaty rule, and its meaning has to be determined in accordance with traditional rules of treaty interpretation, in particular by considering its accepted meaning in pre-investment law State practice. It is sometimes suggested that ‘fair and equitable treatment’ as a term of art originates in the post-World War Two treaty practice. This view may not be entirely accurate. The precise language of ‘fair and equitable’ or very similar to that was not unknown to the pre-War law. The real challenge seems to be to determine the more relevant aspects for investment law in light of its common usage. One could plausibly make three arguments about the meaning of fair and equitable treatment. The first stratum of practice uses ‘fair and equitable’ and comparable terms to refer to customary rules on the treatment of aliens. Secondly, similar terms were also used in other areas of international law and international dispute settlement. One reading of these authorities would find the unifying element in the looseness and flexibility of the criteria, at its weakest introducing flexibility within the law and its strongest providing for extra-legal discretion. The third line of practice, where ‘fair and equitable’ appeared specifically in relation to foreign commercial interests, appeared in trade and commerce treaties concluded from mid-1930s to address different types of MFN treatment.

All three lines of practice may be weaved into plausible narratives: the first references general international law; the second provides a base for an equity-focused review, as an alternative or in addition to legal obligation of clear scope or established legal pedigree; and the third continues the pre-War practice from trade treaties, either by focusing on MFN treatment or requiring further elaboration before the rules become judicially applicable. The practice in different fora both before and after World War Two, the elaboration of fair and equitable treatment on a case-by-case basis in investment Tribunals (as well as reliance on customary law criteria regarding denial of justice in interpreting treaties) suggests that the first position is the most persuasive. The ordinary meaning of ‘fair and equitable treatment’ directly refers to customary international minimum standard, even if the process or object of reference is not explicitly spelled out in the particular treaty. However, even if that claim is found not to be  entirely persuasive, the minimum standard still has to be ‘taken into account’ as ‘relevant rules of international law’ in accordance with Article 31(3)(c) of VCLT, playing an important role in the interpretative process (‘together with context’, according to the chapeau of Article 31(3)). (For the sake of completeness, I also note a non-finding: there is very little support for treating ‘fair and equitable treatment’ as a term of art that necessarily imposes a high and demanding standard of treatment of investors.)

Content of the International Minimum Standard

Part Three of the book provides the conclusion to the legal argument, testing the history of law-making against the benchmark of sources so as to determine the content of the modern international standard. Probably the most serious question in an inquiry of such a kind relates to the materials that one might draw upon to identify the position of 1940s-1990s law. In the pre-War years, extensive State practice (particularly in the materials of the 1930 Hague Conference for the Codification of International Law) and case law are available. However, starting from late 1990s, investment arbitrations provide the forum and contribute to the modern practice. How might one fill the temporal gap between these periods? Importantly, during the time between the decline of the Claims Commissions regime of the pre-World War Two years and the rise of investment arbitration at the end of the last century, States set up regimes of international and regional human rights within which they created rules of a functionally comparable nature (or at least less incomparable than anything else in existence). The argument put forward in the book is that one might, with all due caution, engage in reasoning by analogy (or even apply human rights as interpretative materials, if the conditions set by VCLT are satisfied) in drawing upon these materials so as to build a bridge between traditional and modern law.

 Historically, the law on the treatment of aliens has drawn a distinction between the aspects of the international standard addressing administration of justice, well-established already in the pre-War practice, and protection of property in other contexts, particularly contested in the last decade of investment arbitrations. The comparative argument in both cases may be taken in three steps: sketching the broad framework of the classical customary law rule, setting out the prism of the human rights argument, and elucidating the modern standard in line with the modern practice. The law of administration of justice is taken first, due to its conceptually clearer nature, with well-established customary rules echoed in the human rights practice and not facing any qualitatively new challenges in contemporary law. Just as in the traditional customary law, the wrongful act of denial of justice is complete only when the whole judicial system is exhausted (while the creation of special primary rules may temper this requirement, a waiver of an admissibility objection regarding exhaustion of local remedies will not). Overall, while one might query how particular Tribunals have evaluated particular facts (particularly regarding reasonableness of available remedies), basic legal principles set out in decisions are correct.

The protection of property other than in the context of administration of justice presents a more complicated challenge, with the classic position being identifiable by reference to expropriation and breach of contracts, human rights practice operating only at the regional level, and the modern practice displaying some uncertainty regarding the underlying rationale and content of the rule. Arbitrariness, and not the protection of legitimate expectations, was the preferred tool of the traditional customary law for dealing with the mistreatment of aliens (including abrupt and sudden changes, as in Jesse Lewis 91-2). It is not obvious that modern practice has changed this structure. It is suggested, probably somewhat diverging from the mainstream view in contemporary practice, that the focus on legitimate expectations that one finds in arbitral decisions may be systemically misleading. Apart from the special rules on State contracts and the peculiar situation of entire dismantling of the regime upon which the investor has been invited to invest, an approach more with the grain of general practice would be to articulate the analysis in terms of arbitrariness, discrimination, transparency, and due process, to the extent that an emergence of a qualitatively new approach of reasoning cannot be conclusively proved.

 Conclusion

Robert Jennings wrote, in probably the subtlest analysis of the development on the law of treatment of aliens in the last century, that ‘rules cannot be deduced a priori from the idea of an international standard. They must be hammered out in the practice of Governments and by the familiar process of the development of the law through its application by international tribunals’ (180-1). That is surely right. Fortunately, the 21st century system of international dispute settlement has provided the intellectual and procedural framework through which such development can take place. There is much room for clarification and further development of law, and it remains to be seen in precisely which way States and Tribunals will address the ongoing challenges.

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