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International Investment Protection


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									International Investment

V. Standards of Treatment
           14 December 2007
      Christian Campbell, LLB, LLM

 Course Materials: www.fdimoot.org/iip/
   Useful Websites: www.unctad.org,
   Standards of treatment are general
   They derive from concepts of fairness
    and non-discrimination
   but these remain controversial
   and continue to evolve in customary
    international law, in treaties and
    through jurisprudence
Two Sources of Standards
   CIL Standards
       National Standard (NT) - Calvo D
       International Minimum Standard (IMS)
   Treaty Based Standards
       Fair and equitable treatment (FET)
       Full protection and security (FPS)
       Compliance with commitments (CwC)
       Most Favored Nation (MFN)
       No less favorable than required by international
Two Kinds of Standards
   Absolute
       Fair and equitable treatment (FET)
       Full protection and security (FPS)
       Compliance with commitments (CwC)
       Repatriation of profits (RoP)
       Expropriation
   Relative
       National treatment (NT)
       Most Favoured Nation (MFN)
       No less favourable than required by international
An Overview through NAFTA
   Art. 1102 – National Treatment
   Art. 1103 – Most Favored Nation
   Art. 1104 – Standard of Treatment
   Art. 1105 – Minimum Standard of
   … other more specific “standards” or
Fair and Equitable Treatment
   Austria/Azerbaijan 2000, Art 3
   Austria/Bosnia 2000, Art 3
   Austria/Saudi Arabia 2001 compare
    Austria/Saudi Arabia 2003 ?
   Energy Charter Treaty (ECT) Art. 10(1)
What does it mean?
   … not very clear …
   Non-contingent standard
   Fact-sensitive
       Lauder v Czech Republic
       Mondev v US
   Subjective assessment
   Not idiosyncratic
        Mondev v US
        ADF Group Inc v US
Examples of breach of the FET standard include
  a State,
 Acting fraudulently or in bad faith

 Capriciously and wilfully discriminating
  against a foreign investor
 Depriving an investor of acquired rights in a
  manner which leads to the unjust enrichment
  of the State
Aspects of FET standard
   Predictability and stability
   Protecting legitimate expectations
   Due process and protection against
    denial of justice
   Non-discrimination
   Protection against a breach of national
   Good faith
Predictability, stability and
legitimate expectations
   Metalclad v Mexico
       Purchases landfill
       Obtains federal INE permits
       Local authorities deny building permits
       Not inconsistentent with NAFTA 1114
        Environmental Exception
       Summary
Due Process and Denial of
   S D Myres
   Metalclad v Mexico
   However, an international tribunal is
    not an appellate authority over a
    domestic court or tribunal
Elettronica Sicula v Italy (ELSI)
  Arbitrariness is not so much something opposed to
  a rule of law, as something opposed to the rule of
  law. This idea was expressed by the Court in the
  Asylum case, when it spoke of ‘arbitrary action’
  being ‘substituted for the rule of law’. It is a
  wilful disregard of due process of law, an act
  which shocks, or at least surprises, a sense of
  juridical propriety.
Breach of national law
   Noble Ventures v Romania
    National law cannot be relied upon to
    excuse a breach of international law
Good faith
   Applies to the conduct of both the State
    and the investor
    Inceysa v El Salvador - investor
    presented false information at the
    tendering stage
Example of Breach of FET
Loewen v US
 Claim for US$ 1 billion arising out of
  failed contractual negotiations
 Jury awards US$ 500 million

 Appeal requires a 125% bond

 Settlement under duress for US$ 175
 Breaches of NAFTA
Loewen Tribunal’s findings
 The trial was “so flawed that it constituted a
 miscarriage of justice amounting to a manifest
 injustice as that expression is understood in
 international law.”
“By any standard of review, the tactics of O’Keefe’s
 lawyers, …, were impermissible. By any standard
 of evaluation, the trial judge failed to afford
 Loewen the process that was due.”
Full protection and security
   NAFTA Art. 1105 (1)
   US Model BIT 2004 Art. 5
    “Each Party shall accord to investments
    of investors of another Party … full
    protection and security”.
   Art. 2 (2) UK-Sri Lanka BIT, Article 3(1)
    Spain-Mexico BIT, …
   Usually appears with the FET standard
FPS Meaning of the standard
   Protection against civil strife and
    physical violence
   Not an absolute or strict liability
   States need to exercise due diligence
   See Eurotunnel Case and Noble
    Ventures v Romania
   AAPL v. Sri Lanka § 49
   AMT v. Zaire § 6.05
   Saluka v. Czech Republic § 484
   Lauder v. Czech Republic § 308
   Tecmed v. Mexico § 177
   Occidental v. Ecuador § 187
   Vivendi v. Argentina § 7.4.17
Compliance with commitments
   Energy Charter Treaty Art. 10(1)
   US Model BIT 2004 “investment agreement”
    + Art. 24
   Many other BITs : e.g. UK-Philippines:
    “Each Contracting Party shall observe any
    obligation arising from a particular commitment it
    may have entered into with regard to a specific
    investment of nationals or companies of the other
    Contracting Party.”
Umbrella Clause
t   State A       BIT umbrella cl.       State B
i                                         State       b
                    contract              B Co.       t
     A plc                              or agency,
                               breach                 n
                   Violation            subdivision
               of international
              treaty obligation
Importance … Controversy …
   Umbrella /mirror/elevation clause
   Mere breach of contract - not per se a
    breach of international law
   Jurisdiction
   Vivendi ad hoc Committee - the
    “fundamental basis of claim” test
   Precise wording matters …
…conflicting interpretations …
   SGS v Pakistan: Either Contracting Party shall
    constantly guarantee the observance of the
    commitments it has entered into with respect
    to the investments of the investors of the
    other Contracting Party
   SGS v Philippines: Each Contracting Party
    shall observe any obligation it has assumed
    with regard to specific investments in its
    territory by investors of the other Contracting
   Eureko v Poland: Each Contracting Party shall
    observe any obligations it may have entered
    into with regards to investments of investors
    of the other Contracting Party
   Salini v Jordan: … create and maintain in its
    territory a legal framework apt to guarantee
    the investors the continuity of a legal
    treatment, including the compliance, in good-
    faith of all undertakings assumed with regard
    to each specific investor
   Noble Ventures v Romania: Each Party shall
    observe any obligation it may have entered
    into with regard to investments
   El Paso v Argentina: Each party shall observe
    any obligation it may have entered into with
    regard to investments.
   German Essay
   Related question in CMS v Argentina: Does
    contract claim preclude BIT claim? – No!
National Treatment
   NAFTA Art. 1102 (& 1104)
   Energy Charter Treaty Art. 10(2), (3),
    (7) & (10)
   US Model BIT Art. 3
   Many other BITs
NT Meaning of the standard

   Historical context
   Sometimes restricted protection
   Examples
       S D Myres
       Pope Talbot
       Methanex
Methanex v US
   Methanex produced methanol
   Methanol - an ingredient in MTBE
    (gasoline additive)
   California 1999 order bans MTBE from
    2002 for health and safety reasons
   Methanex sought over US$1 billion for
    breach of NAFTA – lost!
Methanex Tribunal held
   Narrow rather than a broad interpretation of
    the standard
   Compared Methanex to other methanol
    producers rather than to producers of other
    gasoline additives like ethanol (which was not
   No discrimination - US methanol
    manufacturer similarly affected
   See here for various perspectives
   NAFTA Art. 1103
   Energy Charter Treaty Art. 10(1)
   US Model BIT Art. 4
   Many other BITs
   Traditional Cases: Ambatielos, Anglo-
    Iranian Oil Co.
             MFN Issues

   Substantive rights alone or also
    procedural rights?
   Prospective only
   Exceptions
      The MFN cases …
   2000 Mafezzini v Spain      2004 Salini v Jordan
   2004 Siemens v              2005 Plama v Bulgaria
    Argentina                   2006 Telenor v
   2005 Gas Natural v           Hungary full
   2006 Aguas v Argentina
   2006 National Grid v
… and their reasoning
   Language used and rules of treaty
   Relevance of treaty practice of States’
   Policy aspects (treaty shopping versus
   Concept of treatment and validity of
    distinguishing “procedural” and “substantive”
Treatment no less favourable
Treatment no less favourable than that
  required by international law
 NAFTA Art. Art. 1105

 Energy Charter Treaty Art. 10(1)

 Many other BITs
        Overlap of Standards
   FET and International Minimum
       NAFTA Notes of Interpretation
   MFN/NT and Treatment No Less
    Favourable than Nationals/of Other
    States/Required by International Law
   Thank you

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