Expropriations are deemed lawful under international law if they meet a certain number of requirements.1 One of these requirements is that Expropriations should not violate the principle of non-discrimination.2 This principle provides that a State should not treat its foreign investors less favorably than its national investors (the principle of national treatment) or treat some of its foreign investors better than other foreign investors (the most favoured nation principle).3 While there is a general consensus as to this definition of the non-discrimination principle, its exact scope and content are subject to debate.4
UNCTAD, International Investment Agreements: Key Issues, Vol. 1, 2004, p. 239; Argentina - United States of America BIT (1991), Art. II.2(b); China-Poland BIT (1998), Art. 4(1); Energy Charter Treaty (1994), Art. 10(1); NAFTA (1992), Art. 1110(1); Libyan American Oil Company v. The Government of the Libyan Arab Republic, Award, 12 April 1977, para. 244.
II. Treaty-based obligation v. customary obligation under international law
The principle of non-discrimination is directly mentioned in most of today’s bilateral investment treaties (BITs) and international investment agreements (IIAs).5 This has given rise to a debate acs to whether this principle is treaty-based or based on a customary principle of international law. While some argue that the non-discrimination principle is derived from custom,6 many tribunals have refused to embrace this view.7
Methanex Corporation v. United States of America, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, para. 25; 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. 368; Grand River Enterprises Six Nations, Ltd., et. al. v. United States of America, Award, 12 January 2011, paras. 208-209.
A majority of tribunals consider that to establish a violation of the principle of non-discrimination, a person or corporation must show that (a) it was treated “less favourably” (“differently”, “worse”)8 than (b) others placed in “like circumstances”9 (or “similar circumstances”,10 “comparable situations”, “like situations”)11 and (c) that this difference in treatment had no “reasonable” (or “rational”, “legitimate”) “justification”.12 These standards vary based on the wording of the particular BIT.
Saluka Investments BV v. The Czech Republic, PCA Case No. 2001-04, Partial Award, 17 March 2006, paras. 313-315; S.D. Myers, Inc. v. Government of Canada, Partial Award, 13 November 2000, para. 245; Pope & Talbot Inc v Canada, Award on the Merits of Phase 2, 10 April 2001, para. 75; Champion Trading Company and Ameritrade International, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Award, 27 October 2006, para. 130; Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 616.
IV. Establishing a difference in treatment
The principle of non-discrimination does not prohibit a State from formulating any kind of differential treatment between domestic and foreign investors. The difference must give rise to an actionable claim. There is a debate as to whether a claim could be actionable when the discrimination is premised on something other than the investor’s nationality.13 Importantly, there is no consensus as to which party bears the burden of proof to establish that a particular treatment is discriminatory. Some tribunals hold that the burden of proof falls on the respondent State.14 Other tribunals have held that this burden falls on the claimant.15
V. Comparison with another person or entity in 'like circumstances'
A difference in treatment can violate the principle of non-discrimination only if it distinguishes between individuals or companies which are in a similar situation. The difference in treatment must thus be established in reference to an external comparator.16 There is a debate as to whether the comparator can be simply any kind of competitor, or anyone from the same industry, “line of business” or “economic sector”. On this question, different tribunals have articulated a variety of standards.17
Pope & Talbot v. Government of Canada, Award on the Merits of Phase 2, 10 April 2001, para. 81; Occidental Exploration and Production Company v. Republic of Ecuador (I), LCIA Case No. UN3467, Award, 1 July 2004, para. 173; Parkerings-Compagniet AS v Lithuania, ICSID Case No ARB/05/8, Award, 11 September 2007, para. 371.
If a difference in treatment is established, this does not automatically trigger a violation of the non-discrimination principle. States can show that this difference of treatment was justified18 because (i) it pursued “a legitimate objective”19 or (ii) because there was a “rational” or “reasonable”20 relationship between the means the state employed and the aim sought. Tribunals have construed what amounts to a “legitimate objective” in various, contradictory ways.21
States that are brought to arbitration for a violation of the non-discrimination principle often argue that this principle can be violated only if the expropriatory acts carried out by the State have been committed with the specific intent to discriminate. Most tribunals do not require the claimant to prove such a discriminatory intent,22 but this point is still subject to debate.23
S.D. Myers, Inc. v. Government of Canada, Partial Award (Merits), 13 November 2000, para. 254; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002,, para. 183; Occidental Exploration and Production Company v. Republic of Ecuador (I), LCIA Case No. UN3467, Award, 1 July 2004, para. 177; Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No ARB/05/8, Award, 11 September 2007, para. 368.
VIII. Distinction between non-discrimination and the fair and equitable treatment (FET) standard
Because the non-discrimination principle offers investors a principle against differentiated treatments, it has been compared to the fair and equitable treatment protection standard included in most BITs. Practitioners should be wary of this association, and both standards remain conceptually distinct.24 One difference is that the non-discrimination principle is relative, and needs to be proven through an external comparison. The fair and equitable treatment standard, on the other hand, is absolute:25 its criteria are objective, and its violation can thus be established without a comparison.
The most important difference between both standards, however, is that while a violation of the non-discrimination principle will generally trigger a violation of the fair and equitable treatment standard,26 the violation of the fair and equitable treatment standard will not by itself lead to a violation of the non-discrimination principle. This makes the fair and equitable treatment standard a safer and easier avenue for investors who seek to bring an unlawful expropriation claim.
Occidental Exploration and Production Company v. Republic of Ecuador (I), LCIA Case No. UN3467, Award, 1 July 2004, paras. 159, 167; Ronald S. Lauder v. Czech Republic, Award, 3 September 2001, paras. 214-228; 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, paras. 368-371; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005, paras. 175-180; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 390-393; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007, paras. 318-321.
Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/, Award, 26 June 2003, para. 135; Waste Management Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004, para. 98; CMS Gas Transmission Company v. Argentina, Award, 12 May 2005, para. 290; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005, paras. 182-183.