Definition

The obligation to provide “fair and equitable treatment” is often stated, together with other standards, as
part of the protection due to foreign direct investment by host countries. It is an “absolute”, “non-
contingent” standard of treatment, i.e. a standard that states the treatment to be accorded in terms whose
exact meaning has to be determined, by reference to specific circumstances of application, as opposed to
the “relative” standards embodied in “national treatment” and “most favoured nation” principles which
define the required treatment by reference to the treatment accorded to other investment. Although some
references to the standard can be found in the first negotiating attempts of multilateral trade and
investment instruments, it became established as a principle mainly through the increasing network of
bilateral investment treaties.
The obligation of the parties to investment agreements to provide to each other’s investments “fair and
equitable treatment” has been given various interpretations by governmental officials, arbitrators and
scholars. Discussion of this standard has focused mainly on whether the standard of treatment required is
measured against the customary international law minimum standard, a broader international law standard
including other sources such as investment protection obligations generally found in treaties and general
principles or whether the standard is an autonomous self-contained concept in treaties which do not
explicitly link it to international law. The implications of this discussion could be very broad, in
particular given the growing number of arbitral awards which examine claims of denial of fair and
equitable treatment.
The meaning of the “fair and equitable treatment” standard may not necessarily be the same in all the
treaties in which it appears. The proper interpretation may be influenced by the specific wording of a
particular treaty, its context, negotiating history or other indications of the parties’ intent. The attempts to
clarify the normative content of the standard itself have, until recently, been relatively few. There is a
view that the vagueness of the phrase is intentional to give arbitrators the possibility to articulate the
range of principles necessary to achieve the treaty’s purpose in particular disputes. However, a number of
governments seem to be concerned that, the less guidance is provided forarbitrators, the more discretion is
involved and the closer the process resembles decisions ex aequo et bono, i.e based on the arbitrators’
notions of “fairness” and “equity”.
The OECD has on two occasions in the past referred to the “fair and equitable treatment standard” by
linking it to the minimum standard required by international law and general principles of international
law without however comprehensively analysing its specific content. Since then, a growing case law has
been developed, which could shed light on the normative content of the standard.
I.The origins of the fair and equitable treatment standard and its current use in international
agreements and state practice
A. The origins of the standard
The first reference to “equitable” treatment is found in the 1948 Havana Charter for an International
Trade Organisation. Its Article 11(2) contemplated that foreign investments should be assured “just and
equitable treatment”. The Article provided that the International Trade Organisation (ITO) could:
1. make recommendations for and promote bilateral or multilateral agreements on measures designed…
2. to assure just and equitable treatment for the enterprise, skills, capital, arts and technology brought
from one Member country to another.
At the regional level, in 1948, the Ninth International Conference of American States adopted the
Economic Agreement of Bogotá, an agreement covering among other things, the provision of adequate
safeguards for foreign investors. Article 22 of the agreement included the following language:
“Foreign capital shall receive equitable treatment. The States therefore agree not to take unjustified,
unreasonable or discriminatory measures that would impair the legally acquired rights or interests of
nationals of other countries in the enterprises, capital, skills, arts or technology they have supplied
B. The current use of the standard in international agreements and state practice
-- Bilateral Treaties
In recent years, even countries which traditionally were in favour of national control over foreign
investments and therefore favoured the use of national treatment over the fair and equitable standard have
incorporated the “fair and equitable” standard in their bilateral investment treaties.
-- Multilateral instruments
In the multilateral context, the Draft United Nations Code of Conduct on Transnational Corporations, in
its Article 48, stated that:
“Transnational corporations should receive [fair and] equitable [and non-discriminatory] treatment
[under] [in accordance with] the laws, regulations and administrative practices of the countries in which
they operate [as well as intergovernmental obligations to which the Governments of these countries have
freely subscribed] [consistent with their international obligations] [consistent with international law]”.
II. Fair and equitable treatment and its relation to the minimum standard of international
customary law
As mentioned above, the discussion on the “fair and equitable treatment” has been mainly focused on
whether the standard requires that the conduct of the host State be measured:
• against the international minimum standard required by customary international law;
• against international law including all sources;
• against an independent self-contained treaty standard.
A. Fair and equitable treatment as a part of the minimum standard required by customary
international law
Under customary law, foreign investors are entitled to a certain level of treatment, and any treatment
which falls short of this level, gives rise to responsibility on the part of the State. Fair and equitable has
been identified by some as one of the elements of the minimum standard of treatment of foreigners and of
their property, required by international law.
– International instruments and state practice
In the Notes and Comments to Article 1 of the OECD Draft Convention on the Protection of Foreign
Property, the Committee responsible for the draft indicated that the concept of fair and equitable
treatment has flowed from the “well established general principle of international law that a State is
bound to respect and protect the property of nationals of other States”. The Committee added:
“The phrase “fair and equitable treatment”, customary in relevant bilateral agreements, indicates the
standard set by international law for the treatment due by each State with regard to the property of foreign
nationals. The standard requires that – subject to essential security interests – protection afforded under
the Convention shall be that generally accorded by the Party concerned to its own nationals, but, being set
by international law, the standard may be more exacting where rules of national law or national
administrative practices fall short of the requirements of international law. The standard required
conforms in effect to the “minimum standard” which forms part of customary international law.
– Jurisprudence
Cases arising under Bilateral Treaties54
In the Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka55 case, Judge Asante, in his
dissenting opinion, took the opportunity to make specific comments on the meaning of fair and equitable
treatment although the majority judgement did not make any reference to it. Noting the juxtaposition of
“fair and equitable treatment” with “full protection and security” Asante assumed that they each connoted
the same level of treatment. He then considered the meaning of fair and equitabletreatment, and primarily
by reference to the commentary on the OECD Draft Convention, stressed that the fair and equitable
standard conformed to the international minimum standard.
-literature
In an article on “Some Aspects of the Australia-China Investment Protection Treaty”, Mo indicates that
fair and equitable treatment imposes an obligation on the contracting parties to “implement the measures
of treatment in accordance with international standards”. Kohona suggests that the phrase “just and
equitable treatment in accordance with international law” which occurs, for instance in certain Australian
bilateral investment treaties, amounts to the international minimum standard. Leben notes that “the fair
and equitable treatment should be considered as referring to the minimum standard of treatment of aliens,
the way this standard has been conceived by customary international law (from which results the clause
“in conformity with international law)”. Sacerdoti, in its discussion on standards of treatment in BITS,
affirms that “lawfully acquired property is protected by a minimum international standard, which is often
defined as fair and equitable”.
In support, Juillard cites the text of the Second Restatement which defines the international standard of
justice in the following terms:87
“The international standard of justice….is the standard required for the treatment of aliens by:
a) the applicable principles of international law as established by international custom, judicial and
arbitral decisions, and other recognised sources or, in the absence of such applicable principles,
b) analogous principles of justice generally recognised by States that have reasonable developed legal
systems.”
B. Fair and equitable treatment as a part of international law including all sources
“fair and equitable treatment standard” is not limited to the minimum standard as contained in the
international customary law but takes into account the full range of international law sources, including
general principles and modern treaties and other conventional obligations.
-- State practice
in a considerable number of treaties the principle of fair and equitable treatment is contained in clauses
which specifically refer to the rules and principles of international law.
-jurisprudence
In S.D. Myers Inc. v. Canada
the Tribunal took the view that the terms “fair and equitable” and “full protection and security” must be
read in conjunction with treatment according to international law. It affirmed that the inclusion of a
“minimum standard” provision is necessary to avoid what might otherwise be a gap. “A government
might treat an investor in a harsh, injurious and unjust manner, but do so in a way that is no different than
the treatment inflicted on its own nationals…. the ‘minimum standard’ is a floor below which treatment
of foreign investors must not fall, even if a government were not acting in a discriminatory manner”.
C. Fair and equitable treatment as an independent self-contained treaty standard
-- Jurisprudence
No case has been found which applies the “fair and equitable treatment” standard of a bilateral investment
treaty as an autonomous treaty standard. In one case however, Tecmed S.A. v. The United Mexican
States1, the Tribunal mentions that approach as one of the alternative approaches but it goes on to judge
the claim against the international law principle of good faith
– Literature
The UNCTAD study goes on to say that “fair and equitable treatment is not synonymous with the
international minimum standard. Both standards may overlap significantly with respect to issues such as
arbitrary treatment, discrimination, and unreasonableness, but the presence of a provision assuring fair
and equitable treatment in an investment instrument does not automatically incorporate the international
minimum standard for foreign investors. Where the fair and equitable standard is invoked the central
issue remains simply whether the actions in questions are in all circumstances fair and equitable or unfair
and inequitable.
III. Meaning and elements of the content of the standard as defined by arbitral tribunals
Arbitral tribunals have indeed done some work in this respect. In their interpretation of the “fair and
equitable standard”, they have gone beyond the specific discussion on the relationship between the fair
and equitable treatment standard and the minimum standard as defined by customary international law
and attempted to identify the elements encompassed in this standard. These elements can be analysed in
five categories:
a) Obligation of vigilance and protection,
b) Due process including nondenial of justice and lack of arbitrariness,
c) Transparency,
d) Good faith – which could include transparency and lack of arbitrariness and
e) Autonomous fairness elements
Summing up
There is diversity in the way the “fair and equitable treatment” standard is formulated in investment
agreements. Certain agreements, in particular some BITs, expressly define the standard by reference to
international law while others do not make such reference to international law.
• Because of the differences in its formulation, the proper interpretation of the “fair and equitable
treatment” standard depends on the specific wording of the particular treaty, its context, the object and
purpose of the treaty, as well as on negotiating history or other indications of the parties’ intent. For
example, some treaties include explicit language linking or, in some cases limiting, fair and equitable
treatment to the minimum standard of international customary law. Other treaties which either link the
standard to international law without specifying custom, or lack any reference to international law, could,
depending on the context of the parties’ intent, for example, be read as giving the standard a scope of
application that is broader than the minimum standard as defined by international customary law.
• Independently of the way governments interpret the “fair and equitable treatment” standard, it is
understood that the minimum standard refers to an evolving international customary law which is not
“frozen” in time, but may evolve over time depending on the general and consistent practice of states and
opinio juris, as may be reflected in jurisprudence related to the interpretation and application of these
treaties.
• An analysis of the opinions of the arbitral tribunals which have attempted to interpret and apply the “fair
and equitable treatment” standard identified a number of elements which, singly or in combination, have
been treated as encompassed in the standard of treatment. Most of the arbitral opinions in the present
survey mention two elements, due diligence and due process (including non-denial of justice and lack of
arbitrariness), while only a few mention transparency and good faith. Due diligence and due process
including non-denial of justice and lack of arbitrariness are elements well grounded in international
customary law while transparency is an element which is often defined in international agreements as an
obligation under a separate provision. Good faith seems to be considered more a basic principle
underlying an obligation rather than a distinct obligation owed to investors pursuant to the “fair and
equitable treatment” standard.
• The identified elements appear to have sufficient legal content to allow cases to be judged on the basis
of law in accordance with the Vienna Convention on the Law of Treaties, and decisions are not made by a
process approaching ex aequo et bono.
• It would be inappropriate at this stage to establish a definitive interpretation of the “fair and equitable
treatment” standard. The jurisprudence which has applied it and identified elements of its normative
content is relatively recent and is not uniform, and therefore does not allow for a firm and conclusive list.