I. Non-discrimination as part of the fair and equitable treatment
Due to the flexible nature of this clause, fair and equitable treatment (“FET”) has become the most often invoked treaty standard in investor-State arbitration,1 giving rise to extensive discussions of its relevant components.2 Along with vigilance and protection, due process, transparency and stability, some tribunals have considered that one of its key elements is the lack of arbitrary and discriminatory treatment.3 These last components derive from the general international law principle of good faith expressed in the doctrine of abuse of rights broadly understood as the “arbitrary or unreasonable exercise of rights or powers within the exclusive jurisdiction of States”.4
Anglo American PLC v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/14/1, Award, 18 January 2019, para. 443; 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; Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia, PCA Case No. 2015-40, Final Award, 29 March 2019, para. 226; Joseph Charles Lemire v. Ukraine (II), ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, para. 284; Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1 , Award, 7 December 2011, para. 314; 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. 428; 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; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 178.
Discrimination exists when there is unequal treatment of equal circumstances without any justified5 motive (i.e. arbitrary, grossly unfair, unjust or idiosyncratic). Thus, discriminatory measures: (i) inflict damage on the investor without serving any apparent legitimate purpose and are not based in legal standards but on discretion, prejudice or personal preference; (ii) are applied for reasons different from those put forward by the decision maker; or (iii) are in wilful disregard of due process and proper procedure.6
Lidercón, S.L. v. Republic of Peru, ICSID Case No. ARB/17/9, Award, 6 March 2020, para.169; 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 282; Electrabel S.A. v. The Republic of Hungary, ICSID Case No. ARB/07/19, Award, 25 November 2015, para. 175; Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 616.
III. General treaty practice
Although some international investment agreements incorporate a separate provision on protection against arbitrary and discriminatory treatment7 (“ADT provisions”)8 and most contain clauses proscribing treatment not less favourable than nationals or other foreigners (“TNLF provisions”),9 “some tribunals have interpreted lack of arbitrariness and non-discrimination as elements of the fair and equitable treatment standard.”10
While most international investment treaties use the conjunction “or” to separate the concept “arbitrary” from the term “discriminatory” in arbitrary and discriminatory treatment provisions, some treaties use the disjunctive “and”.11 Tribunals have followed divergent approaches in establishing whether a breach of the standard requires the violation of both12 “arbitrary” and “discriminatory” elements or only one them.13
Treaty Between the Government of the United States of America and the Government of the Republic of Albania Concerning the Encouragement and Reciprocal Protection of Investment, 11 January 1995, Article II (3)(b); Agreement Between the Government of the Republic of Croatia and the Government of the Republic of Zimbabwe on the Reciprocal Promotion and Protection of Investments, 18 February 2000, Art. 3(1); Korea, Republic of - Trinidad and Tobago BIT (2002), 5 November 2002, Art 2(3).
Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 391; Joseph Charles Lemire v. Ukraine (II), ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, para. 420; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15 , Award, 1 June 2009, para. 457.
A. Discriminatory conduct amounts to a breach of ADT/TNLF and fair and equitable treatment standards
It has been argued that conduct that violates arbitrary and discriminatory treatment provisions amounts to a breach of fair and equitable treatment14 or, at least, certain case law has found an overlapping nature between the prohibition of discriminatory treatment and fair and equitable treatment.15 For example, “a number of tribunals […] have acknowledged how the fair and equitable treatment standard prohibits discrimination against foreign investor on the basis of nationality”16 or have interpreted that “Fair and equitable treatment is infringed […] if the conduct […] is discriminatory and exposes the claimant to sectional or racial prejudice,”17 hence equating its purposes with those of treatment not less favourable than nationals or other foreigners or arbitrary and discriminatory treatment provisions by arguing that there is no reason to differentiate between the notion of discrimination in the TNLF and ADT provisions.18 Some tribunals have established that the intention to discriminate is not required to breach the fair and equitable treatment standard and “it is sufficient that the host State’s action or omission to be discriminatory in effect.”19
CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 290; Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22 , Award, 24 July 2008, para 694; SAUR International v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability, 6 June 2012, para. 485.
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, para. 109; Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, para. 309; 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. 794.
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. 146; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007, para. 321; Corn Products International, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/1, Decision on Responsibility, 15 January 2008, para. 119.
B. Discriminatory conduct requires a distinctive threshold to breach the fair and equitable treatment standard
On the other hand, tribunals have traced a line to differentiate between fair and equitable treatment and the prohibition of discrimination, especially in the NAFTA context20 (but not exclusively).21 Part of this group has advocated for a differentiation between the non-discrimination standard that forms part of the fair and equitable treatment and its corresponding obligation under thetreatment not less favourable than nationals or other foreigners provisions of national treatment (“NT”)22 and most favoured nation (“MFN”)23 Whereas national treatment and most favoured nation treatment are relative standards that apply a nationality-based test comparing treatment granted to nationals and foreigners in order to ensure a level playing field, according to this line of case law, the autonomous nature of the fair and equitable treatment standard does not include a non-discrimination obligation24 or, at least, presents a different criterion to determine the breach of its non-discrimination component.25 Following this latter approach, tribunals have determined that discrimination must specifically target the foreign investor26 on “other manifestly wrongful grounds such as gender, race or religious belief”,27 or the type of conduct that amount to a “deliberate conspiracy […] to destroy or frustrate the investment by improper means”.28
Therefore, “[i]n addition to the requirement of a differential treatment, the presentation of a discriminatory intention of the host state contributes to the finding of a violation of fair and equitable treatment”.29 Along these lines it has become clear that when there is a well-defined intention30 to deprive a foreign investor through arbitrary and discriminatory interference31 or when the measures “can only be seen as a vindictive exercise of sovereign power aimed at punishing [the investor and its shareholders]”32 the conduct would likely amount to a breach of fair and equitable treatment. This explains that there are two different types of discrimination: “nationality-based discrimination and discrimination that is founded on the targeting of a particular investor”.33
Most of these cases follow the interpretation of the International Court of Justice in the ELSI case regarding the content of the “arbitrary or discriminatory” standard.34 In developing this threshold, tribunals have taken divergent positions on whether the differentiated treatment must be based on bad faith35 or if such requirement has no relevance on the determination of breach of fair and equitable treatment.36
Joseph Charles Lemire v. Ukraine (II), ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, para. 261; 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. 147; Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v. Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para. 1088.
Dumberry, P., The Prohibition against Arbitrary Conduct and the Fair and Equitable Treatment Standard under NAFTA Article 1105, Journal of World Investment & Trade, Vol. 15, No. 1-2, 2014, pp. 117-151.
Heri, H., A Tale of Two Standards: 'Fair and Equitable Treatment' and the Minimum Standard in International Law, Arbitration International, Vol. 27, Issue 1, 2011, pp. 27-46.
Ortino, F. et al., eds., Investment Treaty Law, Current Issues II, Nationality and Investment Treaty Claims, Fair and Equitable Treatment in Investment Treaty Law, British Institute of International and Comparative Law, 2007.
Schill, S., International Investment Law and Comparative Public Law, Oxford, 2010.
Stone, J., Arbitrariness, the Fair and Equitable Treatment Standard, and the International Law of Investment, Leiden Journal of International Law, Vol. 25, No. 1, 2012, pp. 77-108
Yannaca-Small, K., Fair and Equitable Treatment Standard: Recent Developments, in Reinisch, A. (ed.), Standards of Investment Protection, 2008, pp. 111-130.