In international law and investment arbitration, the bona fide principle applies to State conduct, inter-State relations as well as to those seeking to assert a claim under an international treaty.4 As such, it governs parties’ legal relations in all of their aspects,5 including the negotiation of instruments giving rise to an investment.6
While the precise nature of the bona fide principle is still debated,7 arbitral tribunals refuse to see it as an autonomous source of legal obligations. Rather, the principle goes hand in hand with fulfillment of obligations, (for example, “Pacta Sunt Servanda” per Article 26 VCLT (1969)),8 and is a core component of the process of treaty interpretation per Articles 31-32 VCLT.9
Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 107; Voltaic Network GmbH v. The Czech Republic, PCA Case No. 2014-20, Award, 15 May 2019, para. 266; Photovoltaik Knopf Betriebs-GmbH v. The Czech Republic, PCA Case No. 2014-21, Award, 15 May 2019, para. 255; David R. Aven, Samuel D. Aven, Carolyn J. Park, Eric A. Park, Jeffrey S. Shioleno, Giacomo A. Buscemi, David A. Janney and Roger Raguso v. The Republic of Costa Rica, ICSID Case No. UNCT/15/3, Final Award, 18 September 2018, para. 224.
Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, para. 47; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award (excerpt), 21 October 1983, para. 107; Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 169-170.
Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award (excerpt), 21 October 1983, para. 108; Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, paras. 231-233; Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2, Award, 15 March 2002, para. 51; Société Ouest Africaine des Bétons Industriels v. Senegal, ICSID Case No. ARB/82/1, Dissenting Opinion of Kéba Mbaye, para. 66; Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, para. 181.
Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (I), ICSID Case No. ARB/03/25, Dissenting Opinion of Mr. Bernardo M. Cremades (Award), para. 28; Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, para. 14; Canfor Corporation, Terminal Forest Products Ltd., Tembec et al. v. United States of America (Consolidated), Decision on Preliminary Question, 6 June 2006, para. 323; Mobil Investments Canada Inc. v. Canada (II), ICSID Case No. ARB/15/6, Decision on Jurisdiction and Admissibility, 13 July 2018, para. 165; Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (II), PCA Case No. 2009-23, Second Partial Award on Track II, 30 August 2018, para. 7.83; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, paras. 70-71; Murphy Exploration and Production Company International v. Republic of Ecuador (I), ICSID Case No. ARB/08/4, Award on Jurisdiction, 15 December 2010, para. 73; Vigotop Limited v. Republic of Hungary, ICSID Case No. ARB/11/22, Award, 1 October 2014, para. 585; Mobil Investments Canada Inc. v. Canada (II), ICSID Case No. ARB/15/6, Decision on Jurisdiction and Admissibility, 13 July 2018, paras. 168-169
Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, para. 70; Methanex Corporation v. United States of America, Partial Award, 7 August 2002, para. 97; Iberdrola Energía, S.A. v. The Republic of Guatemala, PCA Case No. 2017-41, Final Award, 24 August 2020, para. 321; Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 77; Natland Investment Group NV, Natland Group Limited, G.I.H.G. Limited, and Radiance Energy Holding S.A.R.L. v. The Czech Republic, PCA Case No. 2013-35, Judgment of the Swiss Federal Tribunal, 7 February 2020, para. 3.1.2; Transban Investments Corp. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/24, Separate Opinion of Arbitrator Santiago Torres Bernárdez with Respect to the Preliminary Exception Rationae Temporis, para. 49; SAUR International v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Objections to Jurisdiction, 27 February 2006, para. 90; Duke Energy International Peru Investments No. 1 Ltd. v. Republic of Peru, ICSID Case No. ARB/03/28, Decision on Annulment, 1 March 2011, paras. 85-86; Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1, Decision on Stay of Enforcement of the Award, 17 September 2020, para. 127; Canfor Corporation, Terminal Forest Products Ltd., Tembec et al. v. United States of America (Consolidated), Decision on Preliminary Question, 6 June 2006, para. 182; Europe Cement Investment and Trade S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009, para. 171; Malicorp Limited v. Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7 February 2011, para. 116; Kimberly-Clark Dutch Holdings, B.V., Kimberly-Clark S.L.U., and Kimberly-Clark BVBA v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/18/3, Award, 5 November 2021, para. 139.
The bona fide principle is considered to protect “reciprocity”10 and “legitimate expectations”11 in fulfillment of investment-related undertakings (See Resolution 1803 (XVII) General Assembly UN (1962)). Some States have explicitly included the bona fide principle in the language of umbrella clauses12 contained in bilateral investment treaties (BITs). Arbitral Tribunals have also frequently linked strong bona fide interactions with investment protection and related substantive treatment under investment treaties13 as well as procedural provisions.14
Ziegler, A.R. and Baumgartner, J., Introduction, in Mitchell, A.D., Sornarajah, M. and Voon, T., Good Faith and International Economic Law, Oxford University Press, 2015, p. 11.
Reisman, W.M. and Arsanjani, M.H., The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes, ICSID Review 19 (2), 2004, pp. 328-343.
Saar Papier Vertriebs GmbH v. Republic of Poland (I), Final Award, 16 October 1995, paras. 92-94, 96; Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010, para. 121.
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, paras. 153-154; Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, para. 14; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award, 21 October 1983, para. 107; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the ad hoc Committee, 3 May 1985, paras. 75, 78-79; Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, 27 June 1990, paras. 40, 47; Gemplus, S.A., SLP, S.A., and Gemplus Industrial S.A. de C.V. v. United Mexican States, ICSID Case No. ARB(AF)/04/3, Award, 16 June 2010, para. 7.72.
Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (II), PCA Case No. 2009-23, Second Partial Award on Track II, 30 August 2018, para. 7.86; Abaclat and others (formerly Giovanna A. Beccara and others) v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para. 647; ST-AD GmbH v. The Republic of Bulgaria, PCA Case No. 2011-06, Award on Jurisdiction, 18 July 2013, para. 364.
The bona fide principle encompasses various types of situations.15 In particular, tribunals have relied on the principle when analyzing instances of fraud,16 estoppel,17 corruption,18 abuse of process,19 abuse of rights20 and unclean hands.21 See further Section IV below.
Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 175; Abaclat and others (formerly Giovanna A. Beccara and others) v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para. 646; Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013, para. 127; The Renco Group, Inc. v. Republic of Peru, ICSID Case No. UNCT/13/1, Partial Award on Jurisdiction, 15 July 2016, para. 175.
Good faith should also be preserved throughout the arbitral proceedings23 and it entails:
Findings of bad faith by arbitral tribunals can have an impact on:
HOCHTIEF Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/07/31, Decision on Jurisdiction, 24 October 2011, para. 50; Khan Resources Inc., Khan Resources B.V. and Cauc Holding Company Ltd. v. the Government of Mongolia and Monatom Co., Ltd., PCA Case No. 2011-09, Decision on Jurisdiction, 25 July 2012, paras. 404-405; Merrill & Ring Forestry L.P. v. The Government of Canada, ICSID Case No. UNCT/07/1, Decision on Motion to Add a New Party, 31 January 2008, paras. 28-29; Silver Ridge Power BV v. Italian Republic, ICSID Case No. ARB/15/37, Award, 26 February 2021, para. 279; Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, para. 57.
Compagnie d'Exploitation du Chemin de Fer Transgabonais v. Gabonese Republic, ICSID Case No. ARB/04/5, Decision on Annulment, 11 May 2010, para. 129; Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part II, Chapter I, para. 54; Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Decision on Preliminary Issues, 23 June 2008, para. 78; Cementownia “Nowa Huta” S.A. v. Republic of Turkey (I), ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009, para. 153; Caratube International Oil Company LLP v. Republic of Kazakhstan (I), ICSID Case No. ARB/08/12, Decision Regarding Claimant’s Application for Provisional Measures, 31 July 2009, paras. 117, 119; Perenco Ecuador Limited v. Republic of Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Interim Decision on the Environmental Counterclaim, 11 August 2015, para. 555.
Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan (II), ICSID Case No. ARB/13/13, Decision on the Claimants' Request for Provisional Measures, 4 December 2014, para. 115; Churchill Mining and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/40 and 12/14, Procedural Order No. 9 (Provisional measures), 8 July 2014, para. 104; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, paras. 589, 593; Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/12/6, Award, 6 August 2019, para. 280.
Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013, para. 244; Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, 27 August 2019, para. 89; ADF Group Inc. v. United States of America, ICSID Case No. ARB(AF)/00/1, Procedural Order No. 3, 4 October 2001, para. 4; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 33; Merrill & Ring Forestry L.P. v. The Government of Canada, ICSID Case No. UNCT/07/1, Decision of the Tribunal on Production of Documents, para. 32; Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan (II), ICSID Case No. ARB/13/13, Award, 27 September 2017, para. 318; Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/12/6, Award, 6 August 2019, para. 280.
Gerald International Limited v. Republic of Sierra Leone, ICSID Case No. ARB/19/31, Procedural Order No. 2 (Decision on the Claimant’s Request for Provisional Measures), 28 July 2020, paras. 146, 151; PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on the Claimant's Request for Provisional Measures, 21 January 2015, para. 141; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 594; OOO Manolium Processing v. The Republic of Belarus, PCA Case No. 2018-06, Decision on Claimant’s Interim Measures Request, 7 December 2018, paras. 118, 123; Rand Investments Ltd., William Archibald Rand, Kathleen Elizabeth Rand, Allison Ruth Rand, Robert Harry Leander Rand and Sembi Investment Limited v. Republic of Serbia, ICSID Case No. ARB/18/8, Procedural Order No. 9 (New Evidence, Assistance and Provisional Measures), 12 March 2021, paras. 90-91.
South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (Security for Costs), 11 January 2016, para. 59; Sergei Viktorovich Pugachev v. The Russian Federation, Interim Award, 7 July 2017, para. 379; The Estate of Julio Miguel Orlandini-Agreda and Compañía Minera Orlandini Ltda. v. The Plurinational State of Bolivia, PCA Case No. 2018-39, Decision on the Respondent's Application for Termination, Trifurcation and Security for Costs, 9 July 2019, para. 143; Tennant Energy, LLC v. Government of Canada, PCA Case No. 2018-54, Procedural Order No. 6, 6 May 2020, para. 24; Ipek Investment Limited v. Republic of Turkey, ICSID Case No. ARB/18/18, Procedural Order No. 7 (Respondent’s Application for Security for Costs), 14 October 2019, para. 26.
Bayview Irrigation District and others v. United Mexican States, ICSID Case No. ARB(AF)/05/1, Final Award, 19 June 2007, para. 125; Waste Management, Inc. v. United Mexican States (I), ICSID Case No. ARB(AF)/98/2, Award, 2 June 2000, para. 31; Václav Fischer v. The Czech Republic (I), PCA Case No. 2019-37, Final Award, 6 May 2020, paras. 46-47; Cervin Investissements S.A. and Rhone Investissements S.A. v. Republic of Costa Rica, ICSID Case No. ARB/13/2, Partial Dissenting Opinion of Ricardo Ramírez Hernández, para. 4; Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, para. 1063; Cementownia “Nowa Huta” S.A. v. Republic of Turkey (I), ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009, paras. 158-159; Víctor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Decision on the Republic of Chile's Request for Supplementation of the Annulment Decision, 11 September 2013, para. 122; Anglo-Adriatic Group Limited v. Republic of Albania, ICSID Case No. ARB/17/6, Award, 7 February 2019, paras. 306-308; AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary (II), ICSID Case No. ARB/07/22, Award, 23 September 2010, para. 15.3.3; Ömer Dede and Serdar Elhüseyni v. Romania, ICSID Case No. ARB/10/22, Award, 5 September 2013, paras. 270-271; Joseph Charles Lemire v. Ukraine (II), ICSID Case No. ARB/06/18, Dissenting Opinion of Arbitrator Dr. Jürgen Voss (Award), para. 408; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Dissenting Opinion of Antonio Remiro Brotóns, para. 48; Quadrant Pacific Growth Fund L.P. and Canasco Holdings Inc. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/08/1, Order taking note of the discontinuance of the proceeding issued by the Tribunal, pursuant to ICSID Administrative and Financial Regulation 14(3)(d), para. 67; Standard Chartered Bank v. United Republic of Tanzania, ICSID Case No. ARB/10/12, Award, 2 November 2012, para. 276; Société Industrielle des Boissons de Guinée v. Republic of Guinea, ICSID Case No. ARB/12/8, Award, 21 May 2014, para. 127.
Michael Ballantine and Lisa Ballantine v. The Dominican Republic, PCA Case No. 2016-17, Partial Dissent by Prof. Vinuesa on Costs, para. 34; Ortiz Construcciones y Proyectos S.A. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/17/1, Award, 29 April 2020, paras. 437-438; Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award, 7 February 2017, paras. 620-621.
See i.e.:
Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. 2005-04/AA227, Judgment of the High Court of Justice of England and Wales [2021] EWHC 894, 14 April 2021, para. 138; Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. 2005-03/AA226, Judgment of the High Court of Justice of England and Wales [2021] EWHC 894, 14 April 2021, para. 138; Veteran Petroleum Limited v. The Russian Federation, PCA Case No. 2005-05/AA228, Judgment of the High Court of Justice of England and Wales [2021] EWHC 894, 14 April 2021, para. 138.
Arbitral tribunals must also act in good faith,33 notably when applying national law,34 interpreting the applicable jurisdictional instrument (see further Section I above and Consent to arbitration, Section II) and deciding on bifurcation.35
Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Decision on Provisional Measures, 8 April 2016, para. 186; Sociedad Anónima Eduardo Vieira v. Republic of Chile, ICSID Case No. ARB/04/7, Award, 21 August 2007, paras. 194, 209.
Parties36 and arbitrators37 are generally presumed to have acted in good faith. Consequently, a high standard of proof is required to establish a breach of the bona fide principle.38 Some tribunals have even required a showing of willfulness or egregious intent.39
Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Interim Award, 1 December 2008, paras. 138-139, 143; Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, para. 125; Isolux Infrastructure Netherlands B.V. v. Kingdom of Spain, SCC Case No. V2013/153, Award, 12 July 2016, para. 734; Quasar de Valores SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. and ALOS 34 S.L. v. The Russian Federation, SCC Case No. 24/2007, Award, 20 July 2012, para. 181; Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014, para. 153.
ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and Merits, 3 September 2013, para. 275; Waste Management v. United Mexican States (II), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004, paras. 138-139; Ioan Micula, Viorel Micula and others v. Romania (II), ICSID Case No. ARB/14/29, Award, 5 March 2020, para. 378; Cavalum SGPS, S.A. v. Kingdom of Spain, ICSID Case No. ARB/15/34, Decision on Jurisdiction, Liability and Directions on Quantum, 31 August 2020, paras. 393-395; Crompton (Chemtura) Corp. v. Government of Canada, PCA Case No. 2008-01, Award, 2 August 2010, para. 137; Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Dissenting Opinion of Makhdoom Ali Khan (Award), para. 113; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 143; ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Dissenting Opinion of Georges Abi-Saab (Decision on Jurisdiction and Merits), para. 92, 129-133.
But see also Ortiz v. Algeria, Award.
SunReserve Luxco Holdings SRL v. Italy, SCC Case No. 132/2016, Final Award, 25 March 2020, para. 740; Invesmart v. Czech Republic, Award, 26 June 2009, para. 430; Ortiz Construcciones y Proyectos S.A. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/17/1, Award, 29 April 2020, para. 289.
Crompton (Chemtura) Corp. v. Government of Canada, PCA Case No. 2008-01, Award, 2 August 2010, para. 137; Isolux Infrastructure Netherlands B.V. v. Kingdom of Spain, SCC Case No. V2013/153, Award, 12 July 2016, para. 734; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Responsibility and on the Principles of Quantum, 30 November 2018, para. 186; Infracapital F1 S.à r.l. and Infracapital Solar B.V. v. Kingdom of Spain, ICSID Case No. ARB/16/18, Decision on Jurisdiction, Liability and Directions on Quantum, 13 September 2021, para. 373.
The bona fide principle has often been recalled by arbitral tribunals for the legality of an investment.41 They often reasoned that violations of the international principle of good faith “go hand in hand” with violations of domestic law since it exists in most national legal orders.42 As a result, they considered they lacked jurisdiction when an investment was made in bad faith.43 See further Legality of investment and Salini test.
In such circumstances, an investment must not have been established through corruption, fraud,44 or deceptive conduct, in violation of host State laws and regulations or with the aim to misuse or abuse of the protection system under the ICSID Convention,45 even in the absence of specific language in the BIT.46 For example, the tribunal in Phoenix held that “[t]he principle of good faith (…) governs the relation between states, but also the legal rights and duties of those seeking to assert an international claim under a treaty. Nobody shall abuse the rights granted by treaties, and more generally, every rule of law includes an implied clause that it should not be abused.”47
Some tribunals also hinted that a lack of good faith is rather an admissibility question.49 Case law also remains divided as to whether good faith should be observed as part of jurisdiction or on the merits.50 For a contract-based arbitration, the arbitral tribunal ruled that it was a question for the merits.51
Nevertheless, the bona fide principle is not unlimited, and arbitrators have refused to interpret it as:
Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, paras. 107-110; Europe Cement Investment and Trade S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009, para. 172; Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (I), ICSID Case No. ARB/03/25, Award, 16 August 2007, paras. 396-398; Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines (I), ICSID Case No. ARB/03/25, Dissenting Opinion of Mr. Bernardo M. Cremades (Award), paras. 29, 34; Abaclat and others (formerly Giovanna A. Beccara and others) v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para. 648.
Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, paras. 106-110; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. 2005-04/AA227, Final Award, 18 July 2014, para. 1352; Veteran Petroleum Limited v. The Russian Federation, PCA Case No. 2005-05/AA228, Final Award, 18 July 2014, para. 1352; Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. 2005-03/AA226, Final Award, 18 July 2014, para. 1352; Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, paras. 144-145.
But also see Westmoreland Mining v. Canada:
Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006, para. 234-239; RSM Production Corporation v. Central African Republic, ICSID Case No. ARB/07/2, Decision on Jurisdiction and Liability, 7 December 2010, paras. 49-58; Getma International and others v. Republic of Guinea (II), ICSID Case No. ARB/11/29, Award, 16 August 2016, para. 174; Westmoreland Mining Holdings, LLC v. Government of Canada, ICSID Case No. UNCT/20/3, Final Award, 31 January 2022, para. 195.
Vannessa Ventures Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Award, 16 January 2013, paras. 113, 127, 168-169; Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017, para. 320; Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, para. 226; Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013, para. 127; Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, para. 204; David Minnotte and Robert Lewis v. Republic of Poland, ICSID Case No. ARB(AF)/10/1, Award, 16 May 2014, para. 138-140; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, para. 112.
Swisslion DOO Skopje v. The Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award, 6 July 2012, para. 125; Manchester Securities Corporation v. Republic of Poland, PCA Case No. 2015-18, Award, 7 December 2018, para. 380; RSM Production Corporation v. Central African Republic, ICSID Case No. ARB/07/2, Decision on Jurisdiction and Liability, 7 December 2010, para. 58.
Tribunals may take into consideration the good faith of investors and States when deciding on various standards of protection (including fair and equitable treatment, denial of justice,54 unlawful expropriation, minimum standard of treatment, most-favoured nation clause, full protection and security55) and treaty exclusions.
Bridgestone Americas, Inc. and Bridgestone Licensing Services, Inc. v. Republic of Panama, ICSID Case No. ARB/16/34, Award, 14 August 2020, para. 475; Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012-07, Final Award, 23 December 2019, para. 252; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, paras. 652-653; Lion Mexico Consolidated L.P. v. United Mexican States, ICSID Case No. ARB(AF)/15/2, Award, 20 September 2021, para. 368.
Through interpretative action per Article 31 VCLT, arbitral tribunals have regarded “fair and equitable treatment [to be] an expression and part of the bona fide principle recognized in international law”;56 thus, the principle of bona fide acts as a guiding tool to the interpretation of the standard.57 Others have considered it as a sub-category of the wider fair and equitable treatment standard.58
Arbitral tribunals considering fair and equitable treatment have suggested that States should refrain from actions that can be characterized as “arbitrary”,59 or that “deliberately…set out to destroy or frustrate the investment by improper means”.60 Hence, a measure adopted in good faith by a State has been found to show lack of arbitrariness notwithstanding its effectiveness.61 See further Unreasonable and/or arbitrary measures in fair and equitable treatment. However, good faith does not preclude States from modifying their legal framework.62 See further Legitimate expectations.
Conversely, some tribunals have found the good faith principle to be of little assistance when ruling on fair and equitable treatment claims.63 It should also be noted that the two concepts do not always converge and “a State may treat foreign investment unfairly and inequitably without necessarily acting in bad faith.”64 Similarly, some tribunals have found that a breach of the good faith principle does not necessarily amount to a breach of fair and equitable treatment.65
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 153; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 339; Georg Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award, 26 July 2018, para. 954; CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telcom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09, Award on Jurisdiction and Merits, 25 July 2016, para. 458; International Thunderbird Gaming Corporation v. The United Mexican States, Separate Opinion of Mr. Thomas Wälde (Arbitral Award), para. 25; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, para. 450.
ESPF Beteiligungs GmbH, ESPF Nr. 2 Austria Beteiligungs GmbH, and InfraClass Energie 5 GmbH & Co. KG v. Italian Republic, ICSID Case No. ARB/16/5, Award, 14 September 2020, para. 444; Spółdzielnia Pracy Muszynianka v. Slovak Republic, PCA Case No. 2017-08, Award, 7 October 2020, para. 461; Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India, PCA Case No. 2016-07, Final Award, 21 December 2020, para. 1718; Frontier Petroleum Services Ltd. v. The Czech Republic, PCA Case No. 2008-09, Final Award, 12 November 2010, paras. 299-301; Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. The Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001, para. 367; Iurii Bogdanov, Agurdino-Invest Ltd. and Agurdino-Chimia JSC v. Republic of Moldova (I), SCC Case No. 093/2004, Award, 22 September 2005, para. 79; Murphy Exploration & Production Company – International v. The Republic of Ecuador (II), PCA Case No. 2012-16, Partial Final Award, 6 May 2016, para. 206; Sergei Paushok, CJSC Golden East Company and CJSCVostokneftegaz Company v. The Government of Mongolia, Award on Jurisdiction and Liability, 28 April 2011, para. 253; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Decision on Jurisdiction and Liability, 10 April 2013, para 914; Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Decision on Jurisdiction, 29 June 2018, para. 242; GPF GP S.à.r.l v. Poland, SCC Case No. 2014/168, Final Award, 29 April 2020, para. 543; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 303; Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 602; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, para. 609; Rupert Joseph Binder v. Czech Republic, Final Award, 15 July 2011, para. 447; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, para. 314; Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, Final Award, 23 April 2012, para. 227; Cervin Investissements S.A. and Rhone Investissements S.A. v. Republic of Costa Rica, ICSID Case No. ARB/13/2, Award, 7 March 2017, para. 686; Cervin Investissements S.A. and Rhone Investissements S.A. v. Republic of Costa Rica, ICSID Case No. ARB/13/2, Decision on Jurisdiction, 15 December 2014, para. 339; Oxus Gold plc v. Republic of Uzbekistan, the State Committee of Uzbekistan for Geology & Mineral Resources, and Navoi Mining & Metallurgical Kombinat, Final Award, 17 December 2015, para. 341; OOO Manolium Processing v. The Republic of Belarus, PCA Case No. 2018-06, Final Award, 22 June 2021, para. 516; Infinito Gold Ltd. v. Republic of Costa Rica, ICSID Case No. ARB/14/5, Award, 3 June 2021, para. 355.
Glamis Gold Ltd. v. United States of America, Award, 8 June 2009, para. 805; Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Award, 4 September 2020, para. 389; Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, paras. 409-410.
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, paras. 153-154.; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 372; Frontier Petroleum Services Ltd. v. The Czech Republic, PCA Case No. 2008-09, Final Award, 12 November 2010, para. 301; Ioan Micula, Viorel Micula and others v. Romania (I), ICSID Case No. ARB/05/20, Separate Opinion of Professor Georges Abi-Saab, para. 11; Mamidoil Jetoil Greek Petroleum Products Societe Anonyme S.A. v. Republic of Albania, ICSID Case No. ARB/11/24, Dissenting Opinion of Steven A. Hammond, para. 102; Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003, para. 132; Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, Final Award, 23 April 2012, para. 227; PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007, para. 256; Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, para. 263; Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020, para. 516; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 129; Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, para. 7.2.24; Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 543.
In its Guidelines on Treatment of Foreign Investments (1992), the World Bank recognized that “[a] State may not expropriate…except where this is done…in accordance with applicable legal procedures, in pursuance in good faith of a public purpose, without discrimination on the basis of nationality and against the payment of appropriate compensation”.66 This approach has been confirmed in investment arbitration practice, which frequently refers to the bona fide principle as a means to review State conduct in the implementation of expropriation measures.67 See further Public interest, Police powers, Nationalisation or measure tantamount to expropriation, Compensation for lawful expropriation and Creeping expropriation.
Rivas, J.A., Chapter 5: Colombia, in Brown, C. (ed.), Commentaries on Selected Model Investment Treaties, Oxford University Press, 2013, p. 223.
See footnote 38 (para. 200) in EnCana v. Ecuador, Award, 3 February 2006.
RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. 079/2005, Final Award, 12 September 2010, paras. 567, 620; ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 475; Vigotop Limited v. Republic of Hungary, ICSID Case No. ARB/11/22, Award, 1 October 2014, paras. 310, 630; EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN3481, Award, 3 February 2006, para. 200, ft. 138; Marfin Investment Group Holdings S.A., Alexandros Bakatselos and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award (redacted), 26 July 2018, para. 826; Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum, 9 September 2021, paras. 537-538, 540; Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/14/32, Award, 5 November 2021, para. 336; Bank Melli Iran and Bank Saderat Iran v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, para. 631, 690.
Tribunals refused to allow States’ reliance on taxation exclusion clauses when the taxation measure was not a bona fide measure.68 This approach is not, however, supported by a general consensus.69 See further Taxation exclusions and Taxes.
Similarly, States have been denied the benefit of denial of benefits clauses when the clause was relied upon in bad faith.70
Veteran Petroleum Limited v. The Russian Federation, PCA Case No. 2005-05/AA228, Final Award, 18 July 2014, para. 1430-1431; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. 2005-04/AA227, Final Award, 18 July 2014, paras. 1430-1431; Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. 2005-03/AA226, Final Award, 18 July 2014, paras. 1430-1431; Isolux Infrastructure Netherlands B.V. v. Kingdom of Spain, SCC Case No. V2013/153, Award, 12 July 2016, para. 729; Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Final Award, 15 February 2018, paras. 520-521; Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017, paras. 270-271; Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, ICSID Case No. ARB/15/20, Decision on Jurisdiction, Liability and a Partial Decision on Quantum, 19 February 2019, para. 221; ESPF Beteiligungs GmbH, ESPF Nr. 2 Austria Beteiligungs GmbH, and InfraClass Energie 5 GmbH & Co. KG v. Italian Republic, ICSID Case No. ARB/16/5, Award, 14 September 2020, paras. 346, 357; FREIF Eurowind Holdings Ltd v. Kingdom of Spain, SCC Case No. 2017/060, Final Award, 8 March 2021, paras. 371-373; Infracapital F1 S.à r.l. and Infracapital Solar B.V. v. Kingdom of Spain, ICSID Case No. ARB/16/18, Decision on Jurisdiction, Liability and Directions on Quantum, 13 September 2021, para. 370.
Ziegler, A.R. and Baumgartner, J., Introduction, in Andrew D Mitchell, M Sornarajah and Tania Voon, Good Faith and International Economic Law, Oxford University Press, 2015, p. 11.
De Brabandere, E., Investment Treaty Arbitration as Public International Law: Procedural Aspects and Applications, Cambridge University Press, 2014.
Rivas, J.A., Colombia, in Chester Brown, Commentaries on Selected Model Investment Treaties, Oxford University Press, 2013.
Yen, T.H, The Interpretation of Investment Treaties, Brill Nijhoff, 2014.
Reinhold, S., Good Faith in International Law, in UCL Journal of Law and Jurisprudence, Vol. 2, 2013.
Reisman, W.M. and Arsanjani, M.H., The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes, in ICSID Review, 2004, 19 (2).
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