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Author

Mr Borja Alvarez

L.L.M., esq. / Principal Associate, International Arbitration Group - Cuatrecasas, Gonçalves Pereira

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Minimum Standard of Treatment (MST)

I. Definition

1.

The minimum standard of treatment (“MST”) is a rule of customary international law.1 At least since the beginning of the 20th century, a large part of doctrine upheld the customary nature of the international minimum standard.2 The standard was endorsed by a majority of the States represented at the 1930 Hague Codification Conference.3 The 1962 Declaration on Permanent Sovereignty over Natural Resources also reaffirmed the standard.4

II. Interpretation of the standard by case law

A. Evolution of the standard

2.

This standard provides a “floor” to the treatment that States must afford to aliens in the form of a set of essential rights that States are obliged to respect vis-à-vis foreign nationals and their property.5 Tribunals also consider that the standard is “a flexible” standard, which must be adapted to the circumstances of each case.6

3.

The landmark cases interpreting the standard at the beginning of the 20th century include: the Neer Claim,7 Roberts Claim,8 Hopkins Claim,9 and British Claims in the Spanish Zone of Morocco.10 More recently, tribunals have discussed the evolution of the standard since the Neer case. Some tribunals held that a broader interpretation may be warranted.11 Yet, whether and to what extent the standard has evolved has been debated. Some tribunals have reaffirmed the Neer standard12 or at least a comparably high threshold, according to which the standard would be infringed by a conduct that is “arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety—as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process”13 or a similar threshold.14

4.

It has been generally accepted, though, that evidence of bad faith is not necessary, but may be sufficient, to prove a violation of MST.15 And at the very least, bad faith must be considered by arbitral tribunals.16

B. Interpretation of specific treaty languages

5.

Beyond the debate that has arisen over the existence and implications of the general customary rule, a number of international investment agreements (notably, NAFTA, Bilateral Investment Treaties (“BITs”) based on the successive US Model BITs and recent Free Trade Agreements (“FTAs”) concluded by Canada) include an obligation to accord to protected investors treatment in accordance with international law. Each of these treaty-specific formulations of the MST needs to be considered and interpreted in accordance with its own particular terms.

6.

Most of the cases ruling on the MST so far have applied Article 1105 of the NAFTA treaty, which provides that “treatment in accordance with international law,17 including fair and equitable treatment and full protection and security”18 should be accorded to investors. The debate arose in case law as to the “fair and equitable” element in this provision was19 or was not20 “additive” to the customary international law standard. The NAFTA Parties issued the FTC joint interpretative note clarifying that “[t]he concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens”.21 The FTC Note was subsequently referred to by tribunals,22 with some tribunals endorsing its interpretation of Article 1105(1)23 and others finding it unnecessary to decide whether the FTC Note’s interpretation should be followed.24 The FTC Note was also referred to by tribunals to affirm that a violation of another obligation under the NAFTA or another treaty does not give rise to a breach of Article 1105.25

7.

Arbitral tribunals constituted under the CAFTA mostly relied on NAFTA case law.26

III. Scope of MST under customary international law

8.

Some tribunals have considered whether the claimant should prove the existence of or a change in a rule of customary international law breached by the State.27

9.

The customary MST has been generally understood to comprise rights, guarantees and obligations:

  1. with respect to the administration of justice in cases involving aliens (which evolved in the standard of denial of justice now also embodied under the Fair and equitable treatment formulations of most BITs);28
  2. concerning the protection of aliens and their property from specific disturbances caused within the State’s territory;29
  3. regarding the treatment of aliens under detention in accordance with an “ordinary standard of civilization”;30 and
  4. in case of expulsion of aliens;31
  5. of transparency, with some tribunals having an opposite view;32 and
  6. of due process.33
10.

Tribunals also considered that “something more than simple illegality or lack of authority under the domestic law of a State” is necessary for a breach of the MST to be constituted.34

11.

However, tribunals do not have “an open-ended mandate to second guess government decision-making”35 or to pass judgment on the State’s policy rationale for the measure.36 Similarly, not all failures to satisfy the requirements of national law or to fulfil the objectives of administrative regulations rise to the level of a violation of international law.37

12.

Violation of these rights would give rise to the State’s international responsibility under international law, which, in most cases, may lead to diplomatic protection by the alien’s state of nationality, on the alien’s behalf, and generally subject to the exhaustion of local remedies rule.38 The MST is not contingent upon the State’s domestic legislation or practices.39

IV. Relationship with the fair and equitable treatment standard

13.

It remains a matter of debate whether the Fair and equitable treatment standard currently reflects the MST or offers an autonomous standard that is additional to general international law.40 A number of investment tribunals suggest that the difference between FET and MST may well be "more apparent than real, when applied to the specific facts of a case."41

V. Relationship with the full protection and security standard

14.

Similarly, there remains debate on whether the Full protection and security standard is autonomous from the minimum standard of treatment or if it simply mirrors it.42 Some tribunals have confined the full protection and security standard to the customary minimum standard of treatment,43 particularly when the treaty’s provisions expressly refer to general international law.44 Other tribunals have distinguished the two, either by recognizing that they are two distinct standards,45 or by defining the minimum standard of treatment as the minimum standard to which the full protection and security standard must a least conform, but beyond which it can extend.46

VI. MST in investment treaty practice – specific formulations of MST

15.

The most salient formulations of MST in current treaty practice are found in NAFTA (Article 1105), the US Model BIT (Article 5), and several FTAs recently concluded by Canada (e.g., CPTPP or the Canada-Colombia FTA).47 These treaty formulations clarify that:

  1. the MST provision prescribed the customary rule as a minimum standard of treatment;
  2. references to the Fair and equitable treatment and Full protection and security standards do not require treatment “in addition to or beyond” that required under MST; and
  3. a determination of a breach of any other standard of protection does not per se establish a breach of the MST. Such reference does not create additional substantive rights.

VII. Possibility to elevate the MST standard of protection by recourse to MFN treatment

16.

The possibility to elevate the protection offered by MST by importing - through Most favored nation provisions - other standards of substantive protection still remains a matter unaddressed in international investment jurisprudence despite having been proposed by a number of claimant investors.48

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