Original scientific paper
Fair and Equitable Treatment of Investments in International Investment Law
Davor Babić
; Faculty of Law, University of Zagreb, Croatia
Abstract
„Fair and equitable treatment“ (FET) is the most important standard of investment protection in contemporary international law. In most investment arbitrations, the standard is invoked by the claimants, either as the only grounds for relief or in combination with other standards of protection. At the same time, FET is the most general standard of investment protection. While standards such as national treatment, most-favoured-nation treatment or restrictions on expropriation, are at least to some extent definite in their reach, the meaning of „fair and equitable treatment“ is almost entirely left to the practice of international investment law.
Fair and equitable treatment clauses are found in the vast majority of the bilateral investment treaties (BIT's) which Croatia has concluded over the past twenty years. The application of the fair and equitable treatment to a particular investment primarily depends on the exact wording of the applicable BIT. Nevertheless, there is a large degree of convergence both in the phrasing of the standard in bilateral treaties and in the arbitration practice in which such treaties are applied.
The elements of fair and equitable treatment have been variously defined by arbitral tribunals and commentators. Probably the single most important element of the standard is the concept of the protection of legitimate expectations: by committing to fair and equitable treatment the host state guarantees that the government shall not breach the key expectations of the investor at the time of the making of the investment. This element of FET focuses on predictability and stability of the investment framework. At the same time, arbitral tribunals have recognised the need to protect the interests of the host state to change and adapt the legal framework for investments on the basis of legitimate public interests. The FET standard does not tantamount to a „stabilisation clause“ which would guarantee that there will be no adverse changes in the host state's legal system. The application of this segment of the state therefore involves a delicate balancing of the investors and governmental interests in each particular case.
The second element of FET, which has long been recognised as a key concept of good governance, is that of transparency. The FET standard primarily requires the governments to make all general legal rules publicly accessible, but also to be transparent about their purpose, their aims and the context in which they have been enacted. The second prongue of this element is the duty of the host state to act in a transparent fashion in its individual dealings with the investor. Administrative and other bodies of the host state must meet a certain level of clarity and consistency in its dealings with respect to the foreign investor.
FET also guarantees a certain level of protection in terms of due process. While in earlier case law, this element of FET focused on the judicial proceedings, nowadays it is increasingly invoked with respect to administrative and similar procedures.
Another element of fair and equitable treatement is freedom from harrasment and coercion. Actions on behalf of the government which imply threats to the investor or create unjustified and unjust coercion have been found by the tribunals to be inconsistent with the FET standard.
Keywords
international investment law; international arbitration law; protection of foreign investments; fair and equitable treatment of investments
Hrčak ID:
93104
URI
Publication date:
3.5.2012.
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