Author

Ms Anna Chuwen Dai

Associate - White & Case LLP

Editors
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Protection from Arbitrary or Discriminatory Treatment

The author is grateful to Noor Davies (Partner, White & Case) for reviewing the draft of this note and providing useful comments, and to Elise Roussel (Trainee, White & Case) for her assistance in the finalization of this note. The views presented in this note do not necessarily reflect the position of White & Case or its clients.

I. Terminology and scope

1.

The notions of arbitrariness and discrimination are relevant in several fields of public international law.1 It is commonplace for investment treaties to include the prohibition of arbitrary and discriminatory treatment,2 sometimes referred to as the non-impairment provision,3 albeit with varying language relating to the arbitrary element, which can include terms such as “arbitrary”,4 “unreasonable”,5 and “unjustifiable”6 – all terms that Tribunals have deemed substantially similar and interchangeable.7 Numerous investment treaties are consistent with this interchangeability, often linking the two separate terms using the word “or”,8 which means a measure that is either arbitrary or discriminatory would be sufficient for breaching this standard.9

II. Prohibition of arbitrariness and discrimination under customary international law

2.

Several authors suggest that arbitrary impairment of the rights of aliens by the State may constitute a violation of customary international law.10 Having its roots in customary international law, the notion of arbitrariness has been crystalized through decisions of international tribunals11 and has evolved12 to become an independent standard of protection.13

3.

It is widely accepted that discrimination is “prohibited by customary international law in the field of expropriation.”14

III. Definition of "arbitrary" and "unreasonable" treatment

4.

Investment treaties rarely define “arbitrary” or “unreasonable”. In defining those terms, tribunals typically refer to their dictionary definitions,15 or adopt16 the approach of the International Court of Justice (ICJ) in the ELSI case,17 which defined arbitrariness as "a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety."18 In the same vein, Professor Schreuer has defined as "arbitrary" a measure that:

  1. inflicts damage on the investor without serving any apparent legitimate purpose;
  2. is not based on legal standards but on discretion, prejudice or personal preference;
  3. is taken for reasons that are different from those put forward by the decision maker; and
  4. is taken in willful disregard of due process and proper procedure.19

Additionally, some Tribunals have introduced a proportionality test when examining the reasonableness of a State’s act concerning the policy objective.20

IV. Definition of discriminatory treatment

5.

The term "discriminatory" is likewise not defined in investment treaties. As the tribunal in Lemire v. Ukraine observed: “To amount to discrimination, a case must be treated differently from similar cases without justification; a measure must be ‘discriminatory and expose the claimant to sectional or racial prejudice’; or a measure must ‘target Claimant’s investments specifically as foreign investments’.21 

6.

Discrimination may be de facto or de iure.22 De iure discrimination refers to measures that on their face treat people or entities differently, whereas de facto discrimination refers to measures that are neutral on their face, but result in differential treatment.23 In determining whether particular treatment is discriminatory, tribunals take into account a number of factors, including, for example, the basis of comparison (what constitutes “like circumstances”)24 and justification for differential treatment.25 While discriminatory intent is usually not required to find discrimination,26 proof of discriminatory intent can support a finding of discrimination.27

V. Relation with fair and equitable treatment (FET) standard

7.

A number of tribunals have considered that the prohibition against arbitrary and discriminatory treatment and the FET standard are closely related,28 and that an arbitrary or discriminatory measure is in itself contrary to fair and equitable treatment,29 excluding the need for a separate examination under the FET standard.30 In contrast, other tribunals have insisted that the non-impairment standard and the fair and equitable standard are separate standards of protection,31 and provided independent findings for violations of each standard.32 In cases brought pursuant to the North American Free Trade Agreement (NAFTA), which did not include a separate prohibition against arbitrary and discriminatory treatment, tribunals typically found that arbitrary treatment also violated the fair and equitable standard.33

VI. Relation with most-favoured-nation (MFN) and national treatment standards

VII. Relation with expropriation

9.

Arbitrariness and discrimination can also be a criterion to assess the unlawful character of an expropriation.37 While non-discriminatory regulation for a public purpose is not deemed expropriatory,38 general regulation can amount to an indirect expropriation if it intentionally discriminates,39 and if it sufficiently interferes with the investor’s rights.40 Non-regulatory acts, such as courts judgments can also amount to indirect expropriation if they are arbitrary.41

Bibliography

Diehl, A., Part II: The Content and Scope of the FET Standard, Chapter 6: The Content of the FET Standard, in The Core Standard of International Investment Protection, 2012, pp. 311-537.

Dolzer, R. and Schreuer, C., VII Standards of Protection, in Principles of International Investment Law, 2nd ed., 2012.

Dumberry, P., The Prohibition against Arbitrary Conduct and the Fair and Equitable Treatment Standard under NAFTA Article 1105, Journal of World Investment & Trade, 2014, pp. 117-151.

Hamrock, K.J., The ELSI Case: Toward an International Definition of Arbitrary Conduct, Texas International Law Journal, 1992.

Heiskanen, V., Arbitrary and Unreasonable Measures, in Reinisch, A., (ed.) Standards of Investment Protection, 2008.

Kriebaum, U., Arbitrary/ Unreasonable or Discriminatory Measures, in Bungenberg M., Griebel J., Hobe S. and Reinisch A. (eds.), International Investment Law, 2013, p. 8.

Lowe, V., Chapter 22: Arbitrary and Discriminatory Treatment, in Kinnear, M., Fischer, G.R., Almeida, J.M., Torres, L.F. and Bidegain, M.U. (eds.), Building International Investment Law: The First 50 Years of ICSID, 2015, pp. 307-318.

Maniruzzaman, A.F.M., Expropriation of Alien Property and the Principle of Non-Discrimination in International Law of Foreign Investment: An Overview, Journal of Transnational Law & Policy, 1998, pp. 57-79.

Ortino, F., Non-Discriminatory Treatment in Investment Disputes, in Dupuy, P.M., Petersmann, E.U. and Francioni, F., (eds.), Human Rights in International Investment Law and Arbitration, 2009.

Reisman, M.W., Crawford J.R. and Bishop, D.K., (eds.), Chapter 9: Violation of Investor Rights under Investment Treaties, in Foreign Investment Disputes: Cases, Materials and Commentary, 2nd ed., 2014, pp. 753-896.

Reisman, M.W., Crawford J.R. and Bishop, D.K., (eds.), Chapter 8: Violations of Investor Rights Under Customary International Law, in Foreign Investment Disputes: Cases, Materials and Commentary, 2nd ed., 2014, pp. 583-752.

Schreuer, C., Protection against Arbitrary or Discriminatory Measures, 2007.

Titi, C., Full Protection and Security, Arbitrary or Discriminatory Treatment and the Invisible EU Model BIT, Journal of World Investment & Trade, 2014, pp. 534-550.

Vandevelde, J.K., A Unified Theory of Fair and Equitable Treatment, Journal of International Law and Politics, 2010, pp. 43-107.

Verdross, A., Les règles internationales concernant le traitement des étrangers, 1931, pp. 358-359.

Weiler, T., Saving Oscar Chin: Non-Discrimination in International Investment Law, in Horn, N. and Kroll, S.M. (eds.), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects, Studies in Transnational Economic Law, 2004, pp. 159-192.

Weiler, T., Chapter Seven Fair and Equitable Treatment and Arbitrary or Discriminatory Measures, in The Interpretation of International Investment Law: Equality, Discrimination, and Minimum Standards of Treatment in Historical Context, 2013, pp. 287-332.

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