Author

Mr Conway Blake

Senior Associate, International Arbitration - Debevoise & Plimpton LLP

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Harassment in FET

I. Definition

1.

While the fair and equitable treatment standard is often described as an open-ended treaty norm,1 there is now a clear consensus that, among other things, the standard operates to protect foreign investors from abusive treatment, such as harassment, coercion, intimidation, duress and/or abuse of power by the host State.2 This has been widely affirmed in arbitral jurisprudence, and is increasingly reflected in contemporary investment treaty practice.3

II. Distinction with full protection and security

2.

The protection against harassment and coercive conduct afforded by the fair and equitable treatment standard may at times overlap with, but should be distinguished from, the forms of ill-treatment covered by the full protection and security standard.

3.

The fair and equitable treatment standard is primarily concerned with the State’s own actions which cause direct harm (e.g. State officials’ obstruction of the investor’s daily business operations and activities),4 while full protection and security is properly concerned with the State’s failure to exercise its police powers or establish systems and procedures in order to prevent harm to the investor/investment (e.g. the State’s failure to exercise, to a reasonable extent, due diligence in order to prevent third parties or State officials from harassing or otherwise injuring protected investors).5 Thus, while both standards regulate the abusive conduct of officials/organs of the State,6 the full protection and security standard may also be engaged by third parties whose conduct may not be directly attributable to the host-State.

III. Prohibited conduct

4.

The question of whether specific State conduct constitutes impermissible harassment will turn on the facts of each case.7 While there is no typology of prohibited conduct in this area, a review of arbitral awards suggests that the following non-exhaustive list of abusive conduct may contravene the fair and equitable treatment standard:

  1. The threat of and/or initiation of regulatory or criminal proceedings with the aim of punishing or applying pressure on the investor, or otherwise impairing the value of the protected investment;8
  2. The deliberate imposition of unfounded tax assessments, regulatory fines and unreasonable inspections in this context;9
  3. The unwarranted arrest or imprisonment of personnel or executives in the investment company/business;10
  4. The issuing of burdensome and disproportionate demands for information and threats of criminal prosecution;11
  5. Deportation from the host State, or rescinding work or residence permits entitling foreign investors/personnel to work and live in the host State;12
  6. The obstruction of daily business operations and activities;13 and
  7. The exertion of undue pressure on investors to re-negotiate contracts, the imposition of settlement agreements and fines, and other heavy-handed demands.14
5.

These and other similar allegations often form part of broader fair and equitable treatment claims regarding conspiracies and concerted campaigns, which are in effect complaints about organised governmental harassment which are aimed at causing injury to investors and/or investments.15

IV. Authorized conduct

6.

Not all actions causing distress or prejudice to an investor will engage state responsibility under the fair and equitable treatment In particular, it should be noted that:

  1. Mere “bureaucratic officiousness” or overzealous enforcement action will not be equated with harassment.16
  2. The standard does no proscribe forms of commercial pressure which do not involve the exercise of so-called puissance publique.17
  3. Investment treaties do not grant foreign investors immunity from the exercise of bona fide police powers.18
  4. States have broad latitude to interrogate, conduct raids, demand information, seize assets, and even imprison suspects, where there are legitimate grounds for doing so under the criminal law and regulatory codes.19

7.

Tribunals will often distinguish legitimate (albeit sometimes overzealous) State action from impermissible abuse,20 by reference to any one or more of the following factors:

  1. Good faith – whether there is evidence of bad faith on the part of the authorities in imposing the measure.21
  2. Non-discrimination – whether there is evidence that the impugned measures where imposed on a discriminatory basis.22
  3. Proportionality – whether there is any evidence that the measures were out of proportion to any legitimate aim.23
8.

Another relevant factor may be whether the treatment in question (even if compliant with domestic law) conforms to international human rights standards (e., accords with basic notions of human dignity).24

V. Questions of evidence and standard of proof

9.

An investor will need cogent evidence in order to establish serious misconduct by a State entity, such as intimidation or harassment.25 The same applies where claims based on the fair and equitable treatment standard are advanced on the basis of an alleged “conspiracy” or “campaign” by the host State.26

10.

There is an on-going jurisprudential debate about whether claims alleging bad faith, harassment or conspiracy require a heightened standard of proof. Whereas some tribunals have embraced an elevated standard in these cases,27 others have insisted on retaining the ‘balance of probabilities’ standard,28 while adopting, in some cases, a “more nuanced” approach to standard of proof where very grave allegations are at issue.29

VI. Remedies

A. Provisional measures

B. Damages

12.

Like other elements of the fair and equitable treatment standard, the primary remedy for harassment claims is compensatory damages (e., restitutio in integrum).32 However, where the impact of harassment is non-pecuniary, an investor may seek compensation for moral injury (for example, for shock or distress). Such claims for “moral damages” are generally only awarded in exceptional circumstance.33 Despite a possible basis for such a remedy under general international law, arbitral tribunals have been reluctant to expand this area of investment law.34

Bibliography

Dolzer, R., Fair and Equitable Treatment: A Key Standard in Investment Treaties, The International Lawyer, 2005, Vol. 39, pp. 87-106.

Dolzer, R. and Schreuer, C., Principles of International Investment Law, Oxford University Press, 2nd ed., 2012, pp.130-160.

Dolzer, R. and Lowe, V., Fair and Equitable Treatment in International law, in Proceedings of the Annual Meeting (American Society of International Law), Cambridge University Press, 2006, Vol. 100, pp. 69-74.

Goh, N., The Power of Tribunals to Enjoin Criminal Proceedings: A Widening Power or Converging High Bar? Italba Corporation v Oriental Republic of Uruguay, Hydro Srl and others v Republic of Albania, Teinver and others v Argentine Republic, in ICSID Review – Foreign Investment Law Journal, Vol. 33, Issue 1, Winter 2018, pp. 88-102.

McLachlan, C., Shore, L. and Weiniger, M., International Investment Arbitration: Substantive Principles, Oxford University Press, 2nd ed., 2017, 7.102-7.239.

McLachlan, C., Shore, L. and Weiniger, M., International Investment Arbitration: Substantive Principles, Oxford University Press, 1st ed., 2008, 7.76-7.140.

Sabahi, B. and Rubins, N., XIX – Fair and Equitable Treatment, Full Protection and Security, and War Clauses, in Sabahi, B., Rubins, N. and Wallace, D., Jr. (eds), Investor-State Arbitration, Oxford University Press, 2nd ed., 2019, pp. 631-689.

Salacuse, J. W., The Law of Investment Treaties, Oxford University Press, 2nd ed., 2014, pp. 228-283.

Schreuer, C., Fair and Equitable Treatment in Arbitral Practice, The Journal of World Investment & Trade, 2005, pp. 357-386.

Yannaca-Small, K., Part IV Guide to Key Substantive Issues, 20 Fair and Equitable Treatment: Have its Contours Fully Evolved?, in Yannaca-Small, K. (ed), Arbitration Under International Investment Agreements: A Guide to the Key Issues, Oxford University Press, 2nd ed., 2018, pp. 501-531.

United Nations Conference on Trade and Development (UNCTAD), Fair and Equitable Treatment: A Sequel, UNCTAD Series on Issues in International Investment Agreements II, 2012.

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