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The "Bona fide" (Good faith) Principle

I. Definition


The bona fide (good faith) principle is a key component of most historic and modern legal orders,1 and a “general principle of international law”.2 The principle requires parties “to deal honestly and fairly with each other (…) and to refrain from taking unfair advantage”.3 


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

II. Bona fide principle in investment treaties


The bona fide principle is considered to protect “reciprocity10 and “legitimate expectations11 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

III. Bona fide principle in investment arbitration practice


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.

A. General duty to arbitrate in good faith

1. An obligation to the parties


Parties have a duty to try and settle their investment disputes in good faith before reverting to arbitration.22 


Good faith should also be preserved throughout the arbitral proceedings23 and it entails:

  1. A duty not to aggravate the dispute or affect the integrity of the arbitration;24
  2. A duty to raise objections without delay;25
  3. A duty to cooperate with the tribunal in the production of evidence;26 and
  4. A duty not to seek double recovery. See further Enrichment without cause.


Findings of bad faith by arbitral tribunals can have an impact on:

  1. Granting provisional measures,27 where the host State has commenced domestic proceedings in bad faith, (see further Proportionality in provisional measures, Section IV) and only sometimes28 security for costs;29
  2. Allocating costs to the detriment of the party who breached the bona fide30 Tribunals have also sometimes mitigated the “unsuccessful party pays” principle where the unsuccessful party acted in good faith throughout the events that led to the arbitration.31
  3. Refusing Stay of enforcement requests.32

2. An obligation to arbitral tribunals

B. Standard and burden of proof


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


The burden of proof lies on the party alleging bad faith.40

C. Impact on the jurisdiction of arbitral tribunals and admissibility of claims


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


Other tribunals have, however, found that in the silence of the investment treaty and in the absence of any illegality the mala fide character of an investment does not determine its existence nor tribunals’ jurisdiction.48


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:

  1. Strictly prohibiting parallel proceedings;52
  2. Strictly prohibiting investment restructuring;
  3. Strictly prohibiting treaty shopping; and
  4. Requiring investors to disclose to authorities the ultimate objectives sought through their investment.53

D. Impact on investors' substantive rights

1. A source of fair and equitable treatment in relation to investments


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

2. Protection against unlawful expropriations


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.

3. Protection against treaty exclusions


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


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.

Kolb, R., La bonne foi en droit international public: contribution à l’étude des principes généraux de droit, PUF, 2000

Ðajić, S., Mapping the Good Faith Principle in International Investment Arbitration: Assessment of its Substantive and Procedural Value, in Novi Sad Faculty of Law Serbia, Collected Papers XLVI, 3/2012.

Gazzini, T. and Radi, Y., Practice and Interpretation of ‘Umbrella Clauses’ in the Latin American Experience, in Tanzi, A., Asteriti, A., Lazo, R.P. and Turrini, P. (eds.), International Investment Law in Latin America: Problems and Prospects, Brill Nijhoff, 2016.

Protopsaltis, P.M., Les principles directeurs de la Banque Mondiale pour le traitement de l’investissement étranger, in Khan, P. and Wälde, T. (eds.), Les aspects nouveaux du droit des investissements internationaux, Martinus Nijhoff Publishers, 2007. 

De Brabandere, E., ‘Good Faith’, ‘Abuse of Process’ and the Initiation of Investment Treaty Claims, in Journal of International Dispute Settlement, Vol. 3 (3), 2012. 

Kolb, R., Principles as Sources of International Law (With Special Reference to Good Faith), in Netherlands International Law Review, Vol. 53 (1), 2006.

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). 

Yackee, J.W., Pacta Sunt Servanda and State promises to Foreign Investors before Bilateral Investment Treaties: Myth and Reality, in Fordham International Law Journal, 2008, Vol. 32 (5). 

UNCTAD, Expropriation, UNCTAD Series on Issues in International Investment Agreements II, A Sequel, 2012.

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