Investment Tribunals’ Case-by-Case Approach: A Response to Martins Paparinskis

Dr Federico Ortino is Reader in International Economic Law at King’s College London.

I will focus my (two) brief remarks on Part II of Martins Paparinskis’ excellent monograph. First, the main argument in Part II (and one of the central themes of the entire work) is that “treaty rules on fair and equitable treatment refer to the customary minimum standard” (p 159) as a matter of Art 31(1) of the VCLT. Interestingly, before explaining the claim in positive terms (pp 160-166), Chapter 5 elaborates at length the claim in negative terms (pp 111-153): “no argument limited to treaty law can explain the existing and accepted practice [of elaborating the concept of fair and equitable treatment on a case-by-case basis]” (p 153). In short, investment tribunals’ reliance on previous investment tribunal decisions for purposes of interpreting pari materia treaty rules (like fair and equitable treatment clauses) cannot be justified within the boundaries of the customary rules of treaty interpretation (Art 31-32 VCLT), unless through the reference to customary law (and the minimum standard of treatment).

While taking into account the investment tribunals’ current practice (particularly when this seems to be a majoritarian one) is important, I wonder whether (or the extent to which) this line of argument is actually persuasive. In other words, the fact that tribunals’ reliance on the decisions of other tribunals interpreting similar rules found in other investment treaties cannot be justified on the basis of customary rules of treaty interpretation, may simply lead to argue that such reliance is misplaced, rather than to argue that treaty rules on fair and equitable treatment must refer to the customary minimum standard. I don’t dispute as such the main argument (treaty rules on FET must refer to customary minimum standard), but simply linking such argument with the ‘problematic’ practice of investment tribunals’ reliance on past decisions interpreting pari materia treaty rules.

Second, as noted above, one of the findings of Part II is that “the dominant approach in the arbitral decisions … has been to use case-by-case analysis to develop criteria, sub-criteria, and presumptions so as to explain the content of fair and equitable treatment” (pp 99-100). An issue that I find particularly interesting and mysterious is the ‘case-by-case’ terminology often employed (by tribunals as well as commentators) to describe a certain adjudicative methodology.

The term is used several times in Part II: “a case-by-case identification of different aspects and criteria from the factual mistreatment in particular cases” (p 101); “the case-by-case development of fair and equitable treatment in arbitral decisions” (p 105); “most recent decisions have proceeded on the basis of a case-by-case formulation and elaboration of rules and principles” (p 120). Its meaning appears clear and it refers to the practice of investment tribunals to refer to previous decisions (‘cases’) in order to determine the content of the investment treaty rule at issue in a specific dispute.

However, there may be two additional layers of complexity, which I would like to raise. Let us take the example of Waste Management II (which is taken as one of the examples of such practice at page 97, footnote 268), where the tribunal famously noted:

98. The search here is for the Article 1105 standard of review, and it is not necessary to consider the specific results reached in the cases discussed above. But as this survey shows, despite certain differences of emphasis a general standard for Article 1105 is emerging. Taken together, the S.D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety—as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant.

This may be a classic example of ‘case-by-case’ approach to determine the content of a treaty clause. A tribunal looks at the statements of previous decisions (in this case relating to the same treaty clause, Art 1105 NAFTA) in order to determine the existence of an ‘emerging standard’ that could be applied by that tribunal to solve the specific dispute. However, after reading the ensuing paragraph in the Waste Management II award, one may reach a different conclusion:

99. Evidently the standard is to some extent a flexible one which must be adapted to the circumstances of each case. Accordingly it is to the facts of the present case that the Tribunal turns.

Is the ‘case-by-case’ approach one that actually leaves discretion to a tribunal to adapt the (applicable) standard to the specific circumstances of each case? Or does paragraph 99 simply mean that the (applicable) standard as emerged in past decisions is flexible in the sense that it will need to be applied to the specific factual circumstances of each case?

This ambiguity reminds me a lot of another famous statement by the WTO Appellate Body in Japan—Alcoholic Beverages with regard to the definition of ‘like products’ in Article III GATT.

We agree with the practice under the GATT 1947 of determining whether imported and domestic products are ‘like’ on a case-by-case basis. [The Border Tax Adjustment Report] set out the basic approach for interpreting ‘like or similar products’ generally in the various provisions of the GATT 1947 […]. This approach should be helpful in identifying on a case-by-case basis the range of ‘like products’ that fall within the narrow limits of Article III:2, first sentence in the GATT 1994. […] No one approach to exercising judgement will be appropriate for all cases. The criteria in Border Tax Adjustments should be examined, but there can be no one precise and absolute definition of what is ‘like’. The concept of ‘likeness’ is a relative one that evokes the image of an accordion. […] The width of the accordion […] must be determined by the particular provision in which the term ‘like’ is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply.” (paras 20-21)

Was the AB providing a definition of ‘likeness’ (on the basis of past practice) or was it leaving future panels a certain discretion to adapt that definition in light of the specific circumstances of each case?

A second layer of complexity is linked to the question of how investment tribunals should use past decisions: is the task of a tribunal simply to identify those elements that may be relevant in order to apply a treaty rule to the specific case at hand? Or is it the task of a tribunal to at least attempt to provide a general interpretation of the applicable treaty rule? Most tribunals seemed to have adopted the latter approach (clearly distinguishing between interpretation and application of a treaty clause), but there have been some more recent examples where tribunals have avoided setting out grand/general statements about the content/meaning of a treaty clause (see Chemtura, for example). The danger I see with grand statements is that such grand statements are the ones that will be picked up by later tribunals, without really much regard for how the previous tribunals had indeed applied those general statements to the specific facts of the case.