International Law and the Global South

Perspectives from the Rest of the World

Series editor

Prof. Dr. Leïla Choukroune, Professor of International Law and UniversityResearch, and Innovation Professor in Democratic Citizenship, PortsmouthUniversity, Portsmouth, UK; Former Director, Centre for Social Sciencesand Humanities, New Delhi, India

International Editorial Board

Prof. Dr. Balveer Arora, Former rector and Pro-vice Chancellor, Jawaharlal NehruUniversity, New Delhi, IndiaHon. Justice Prof. Eros Roberto Grau, Former Minister, Brazilian SupremeCourt; and Emeritus Professor, Faculty of Law, University of Sao Paulo, BrazilAssociate Prof. Dr. Denise Prévost, Maastricht University Law Faculty,The NetherlandsProf. Dr. Carlos Miguel Herrera, Director of the Centre for Legal and PoliticalPhilosophy, University of Cergy-Pontoise, FranceHon. Justice Robert Ribeiro, Permanent Judge, Hong Kong Court of FinalAppeal, Hong Kong, SAR China

This book series aims to promote a complex vision of contemporary legaldevelopments from the perspective of emerging or developing countries and/orauthors integrating these elements into their approach. While focusing on today’slaw and international economic law in particular, it brings together contributionsfrom, or influenced by, other social sciences disciplines. Written in both technicaland non-technical language and addressing topics of contemporary importance to ageneral audience, the series will be of interest to legal researchers as well asnon-lawyers.In referring to the “rest of the world”, the book series puts forward new andalternative visions of today’s law not only from emerging and developing countries,but also from authors who deliberately integrate this perspective into their thinking.The series approach is not only comparative, post-colonial or critical, but also trulyuniversal in the sense that it places a plurality of well-informed visions at its center.

The Series

• Provides a truly global coverage of the world in reflecting cutting-edge devel-opments and thinking in law and international law

• Focuses on the transformations of international and comparative law with anemphasis on international economic law (investment, trade and development)

• Welcomes contributions on comparative and/or domestic legal evolutions

More information about this series at http://www.springer.com/series/13447

Rumana Islam

The Fair and EquitableTreatment (FET) Standardin International InvestmentArbitrationDeveloping Countries in Context

123

Rumana IslamDepartment of LawUniversity of DhakaDhaka, Bangladesh

ISSN 2510-1420 ISSN 2510-1439 (electronic)International Law and the Global SouthISBN 978-981-13-2124-5 ISBN 978-981-13-2125-2 (eBook)https://doi.org/10.1007/978-981-13-2125-2

Library of Congress Control Number: 2018951397

© Springer Nature Singapore Pte Ltd. 2018This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or partof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmissionor information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodology now known or hereafter developed.The use of general descriptive names, registered names, trademarks, service marks, etc. in thispublication does not imply, even in the absence of a specific statement, that such names are exempt fromthe relevant protective laws and regulations and therefore free for general use.The publisher, the authors and the editors are safe to assume that the advice and information in thisbook are believed to be true and accurate at the date of publication. Neither the publisher nor theauthors or the editors give a warranty, express or implied, with respect to the material contained herein orfor any errors or omissions that may have been made. The publisher remains neutral with regard tojurisdictional claims in published maps and institutional affiliations.

This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd.The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721,Singapore

To the beloved memory of my father, the soleinspiration for writing this book.

Foreword

There have been many books written in recent times on the fair and equitabletreatment (FET) standard in investment treaties. It has become the basis on whichseveral recent awards have been made against developing countries. As a resultof the extensive interpretation given to this once-dormant phrase by arbitrators fromthe dawn of this millennium, every claimant has made the standard the focus of hisclaims. Consequently arbitrators’ intent on broadening the scope of investmentprotection through this broadly phrased clause, claimants have seldom lost arbi-trations they had initiated. The existing literature constitutes largely of analysis thatis devoid of the social and other consequences of such expansive interpretation.These analytical studies are intent on dissecting the subtleties involved in thepossible interpretations so far advanced in the awards than in the raging debates asthe legitimacy of the system that has been evoked particularly by the centralityof the fair and equitable treatment plays in modern investment arbitration.

Dr. Rumana Islam adopts a refreshing approach to the subject looking at the lawin the context of the intense debates it has provoked in recent times. She brings intofocus the fact that the FET standard as the focal point of the law has createdinequities and imbalances against developing countries, after debunking the myththat the law is held with even hands between the rich and the poor. She exploresissues as to the overall justice demands involved in the evocation of a standardwhich in itself is paradoxically committed to justice but does not deliver it to thestate by denying any arguments by the state as to the deleterious and other conductof the investor.

The context of her later discussions are set in a socio-economic account of thedevelopment of the FET standard. It is important to understand the asymmetries ofpower in which the treaties were constructed as well as in the arbitration mecha-nisms which provide it with compliance factors. To ignore the confrontation ofpower with the inability of poorer states to resist impositions of standards favorableto investment is to turn a blind eye to the reality that befuddles the law and has ledto the present legitimacy crisis. The approach in this book draws away the curtainthat has hidden the factors that brought about the treaties and the interpretationof the treaties. Imbalance in knowledge was also a factor as the developing

vii

countries did not understand the possible uses to which such an innocent phrasecould be put to in later times by astute arbitrators seeking to liberalise further theglobal system of investment protection.

A criticism that is dismissively advanced of any scholarship that seeks to departfrom the inane and traditional analytical framework and emphasize context is that itis polemical. It is not a criticism that can be made of this work as there is a soundchronological statement of the development of the treaties and an analysis of thedifferent awards as would meet the standards of any positivist but the work takes thelaw further by explaining developments in such a manner as to enable the extractionof the principles in the context of policy. The discussion enables the achievement ofthree strands in the case-law which would enable further exploration. There is anovel categorization made but the work does not stop there as a positivist analysiswould but goes further to explore the developments in the context of the justifi-cation of the system that it serves the welfare and economic development of thepoorer countries of the world.

The ultimate altruistic rationale for the existing system of investment protectionthrough arbitration is that it serves the economic development of the poorer states.The rationale has been challenged in recent literature on the ground that there is noempirical evidence that shows that investment treaties do in fact lead to greaterinvestment flows. The economic debate is inconclusive but raises doubts about thesystem. The work contributes to the discussion by contesting prevailing views oneconomic development. It argues that the conditions and circumstances prevailingin each developing country should be relevant to the application of the FET stan-dard in any dispute concerning that country.

Two lines of cases brought about rethinking from the extensive stances adoptedby the arbitral tribunals at a time the policy of inflexible investment protection wasaccepted. The first involved the East European states transitioning from socialist tomarket economies. They signed investment treaties giving absolute protection toforeign investment. But, in the course of transition, they had to take measures thatcould have been interpreted as violating the FET standard. Many arbitral tribunalsshowed an inclination to the plight of these states which did not quite understandthe workings of a capitalist market and the regulatory measures needed to cope withthem. Their sympathetic consideration of the transitory measures that were neededto effect changes brought about a softening of the rigorous standards that had beendeveloped in the interpretation of the FET standard in earlier awards.

The second strand was in the Argentine awards following measures adopted todeal with the economic crisis in the country. The early awards which treated themeasures as violating the FET standard took broad stances interpreting them asviolations of legitimate expectations created by promises of investment stability.The impact of these early awards on an impoverished country led to a backlashwithin not only Argentina and Latin America but globally. The later Argentinecases began to react to this by taking a more sober attitude in the context of the needto bring about these measures given the circumstances prevailing in Argentina. Butthese are minority trends. There is a need for the reconceptualization of the issuesrelating to the standard which the survey of the awards in the later chapters of the

viii Foreword

book nicely bring out. Inflexible rules cannot be applied to states in turmoil on thebasis of an abstract universal standard that exists only in the minds of arbitrators.

The survey lead to the formulation of the thesis that in the application of the fairand equitable treatment it is necessary to take into account the actual circumstancesof the country in which the measures were taken rather than apply a global standardinflexibly. Developing countries are most vulnerable to global crises. They do nothave adequate resources to deal with such crises when they occur. To constrainthem in providing succor to their people during such times on the basis of somearbitrary standard is unjust. If the system is to be rescued, the message in the book,at a time when a huge crisis of legitimacy strikes at the roots of investment arbi-tration, is that specific circumstances of the developing host states in which thedisputes arose should be taken into account in assessing whether there was in fact aviolation of the FET standard.

SingaporeJuly 2018

M. SornarajahCJ Koh Professor of Law

Faculty of LawNational University of Singapore

Foreword ix

Preface

Fair and Equitable Treatment (FET) Standard in International Arbitration:Developing Countries in Context represents an empirical and doctrinal accountof the most important yet most controversial investment protection standard, i.e.FET standard in investment arbitration from the perspective of host developingcountries. Current investment tribunals’ interpretation of the FET standard priori-tises the interests of foreign investors and neglects the perspectives of host devel-oping countries. Therefore, there is a pressing need to reconceptualise theinterpretation of the FET standard. In service to depicting the perspectives of hostdeveloping countries, this book advances an understanding of classifications suchas ‘developing’ and ‘developed’ that reflects the issues and challenges that thesecountries face in the investment dispute context, such as their lack of resources,administrative capacity, technology and infrastructure, as much as the economicand social levels of development international organisations generally emphasise intheir classifications. It addresses socio-political circumstances such as politicalinstability, social unrest, conflict and its aftermath, social and political transitions,and economic crises and their impact on host developing countries in the invest-ment dispute context. With that view, it shows that current investment tribunalshave taken inconsistent and inadequate approaches to the issues host developingcountries face. Therefore, this book argues the need for a reconceptualised inter-pretation of the FET standard which acknowledges the developmental issues andchallenges identified in different chapters of the book that would accommodate theneeds of the host developing countries while continuing to give reasonable pro-tection to foreign investors and therefore serve the needs of the system as a whole.

Dhaka, Bangladesh Rumana Islam

xi

Acknowledgements

This book originated as a doctoral thesis completed at the School of Law,University of Warwick, UK. As such, many people have contributed to the fact thatI was able to complete my doctoral thesis and convert the thesis into this book. I amindebted to many people without whose constant material and emotional supportand encouragement this book would have never been completed.

First, I would like to express my sincere gratitude to my doctoral supervisor Dr.James Harrison, whose proper guidance, support, wisdom and encouragementhelped me to complete this work. His rigorousness, diligence and criticismencouraged me to produce the major part of this writing in the best shape I could.My special thanks to Tony Cole who supervised me in the first year of my Ph.D.and continued to provide me valuable feedback on my work even after he leftWarwick. I am grateful to Commonwealth Scholarships Commission (CSC) in theUK, for funding to pursue my doctoral research.

In my years at Warwick Law School, I have benefited from insights on myresearch from many faculty members. Special thanks to Prof. Charles Chatterjee,whose insights on the early drafts of my thesis helped me a lot. My appreciationgoes to Prof. Abdul Paliwala, Dr. Celine Tan, Dr. Dwijen Rangnekar, Dr. WilliamE. O’ Brian, Prof. Dalvinder Singh and Professor Andrew Williams. I am grateful toProf. Shaheen Sarder Ali for her love and affection during the four years of my life inWarwick. I am grateful to Professor Upendra Baxi who took some time to discussmy research and provided me his insightful suggestions on the framework of mythesis. I am also thankful to my thesis examiners Prof. Ursula Kriebaum andDr. George Meszaros whose valuable advice helped me to convert the doctoral thesisinto this present book.

Many people beyond Warwick also took the time to share information and insightand provide intellectual guidance for my research. I am grateful to Dr. Mariel Dimseyand Prof. Gus Van Harten who spared some time from their busy schedules to gothrough some parts of my doctoral thesis and provided constructive feedback on it.

xiii

Aspecial thanks toDr.RayhanRashidwhose constant advice, starting fromwriting theresearch proposal and extending to different stages of my doctoral research over theyears, has helped me a lot. I would also like to thank Prof. Peter Muchlinski for hisinsightful suggestions for my research.

My doctoral student colleagues and friends at Warwick provided me the emo-tional support and constructive feedback on my work while I was pursuing myPh.D. Especially, I would like to thank Dr. Zijin Li, Dr. Yazan D. Haddadin,Dr. Raza Saeed, Dr. Musa Osman Abubakar, Dr. Ahmad Alkhamees, Dr. HelenKijo-Bisimba, Dr. Anna Varghese Puthuran, Dr. Agnes Mutua, Dr. M. SanjeebHossain, Dr. Bayan Omar Al Shabani, Dr. Miriam Marra, Yvonne Li, MargeO’Leary and Palm Chittanonda for being a constant source of encouragement andsupport and standing by my side through times of despair and joy.

During my life in Warwick, I came across an amazingly wonderful lady towhom I am indebted to in so many ways that no word is enough to thank her.Without her constant emotional support, advice and encouragement, my Ph.D.journey would have been a much more difficult one. She was never tired of spoilingand pampering me. Dr Sharifah Sekalala, thank you so much for everything andespecially always reminding me that there was light at the end of the tunnel!

Special thanks to the Soni family—Bansi, Ushma and Prafulla Aunty—for beingmy family in the UK while I was pursuing my Ph.D. You all made me feel likehome whenever I visited London with your warmth, amazing food and the endlesschats. Special thanks also goes to Dr. Mohammad Shahabuddin—a brother, friend,mentor and guide, who not only assists me with his valuable suggestions on myacademic works but always provides me the crucial emotional support wheneverI am in distress.

My deepest gratitude goes to my dearest friend Dr. Joy Malala-Scholz, whoshared the roller-coaster ride of Ph.D. life with me. I cannot thank her enough forher constant support, inspiration and endless patience to tolerate my crazinessthrough the process in tears and tantrums. Thank you so much for being my con-sigliore over the years and always keeping an eye on me during the Ph.D. days toensure that I was doing my research, rather than procrastinating! Without her by myside, the writing of this manuscript would have been a difficult one.

I must express my sincerest gratitude to Prof. M. Sornarajah for writing theforeword to this book. I cannot thank him enough for his kindness and generosity inmaking the time to go through the Chapters despite his immensely busy schedule.I am indebted to Prof. Leïla Choukroune for her constant support and encourage-ment. Completing this book has been made possible by her proper guidance andkind intellectual assistance, who took the trouble and pain of reading the manuscriptand provided me her valuable comments which had helped me to restructure thearguments more precisely.

My thanks also goes to Smilin Prince Nelson, Mohammed Ali, and SagarikaGhosh at Springer for their support in publishing this book. A very special thanksgoes to Nupoor Singh—her kind, patient, prompt and enthusiastic responses to allmy queries meant it was never difficult matter to acquire all kind of support fromthe publisher.

xiv Acknowledgements

Special thanks to my mother for always being supportive and encouragingthroughout this process. Most of all, greatest thanks goes to my sister Raisa forbeing constantly by my side and providing me the crucial emotional pillars ofsupport while writing this book. She has been virtually beside me in every page andevery single line of this work. Without her by my side, my doctoral thesis as well ascompleting this book would have been an impossible work.

Finally, my deepest gratitude goes to my beloved father whom I sadly lostduring my Ph.D. programme. I find myself very unfortunate that he could not seethe completion of my doctoral thesis and the realisation of his dream from mychildhood that I would earn a Ph.D. and publish this book. He was always myinspiration and encouragement for writing this book. This book is as much his asmine.

Acknowledgements xv

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Investment Disputes Against Developing Countries . . . . . . . . . . . 31.3 The FET Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.4 Scholarship on the FET Standard . . . . . . . . . . . . . . . . . . . . . . . . 101.5 The Importance of the Arbitrators’ Discretionary Powers

in Interpreting FET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

2 The Historical Development of the FET Standard in InternationalInvestment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2.1.1 Treaties of Friendship, Commerce, and Navigation(FCNs) During the Eighteenth Century—The StartingPoint of Investment Agreements . . . . . . . . . . . . . . . . . . . 32

2.1.2 The First Appearance of the FET Standard—The Havana Charter 1948 . . . . . . . . . . . . . . . . . . . . . . . . 32

2.1.3 The Bogota Agreement 1948 . . . . . . . . . . . . . . . . . . . . . 332.1.4 Introducing FET in US FCN Treaties After the

Havana Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.1.5 The Abs-Shawcross Draft Convention 1959 . . . . . . . . . . . 342.1.6 The First BIT in 1959 and Subsequent

Wave of BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.1.7 FCNs in the 1960s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362.1.8 OECD Draft Convention of the Protection of Foreign

Property, 1963 and 1967 and Its Influence . . . . . . . . . . . . 372.1.9 World Politics in the 1970s and Its Influence

on Investment Treaties and the FET Standard . . . . . . . . . 402.1.10 The UN Documents of 1983 . . . . . . . . . . . . . . . . . . . . . . 41

xvii

2.1.11 The MIGA Convention 1985 . . . . . . . . . . . . . . . . . . . . . 422.1.12 The ASEAN Treaty 1987 . . . . . . . . . . . . . . . . . . . . . . . . 432.1.13 The Lomé IV 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432.1.14 The World Bank Guidelines 1992 . . . . . . . . . . . . . . . . . . 442.1.15 NAFTA, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442.1.16 The Energy Charter Treaty, 1994 . . . . . . . . . . . . . . . . . . 452.1.17 MERCOSUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462.1.18 The Pacific Basin Charter on International

Investments 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462.1.19 OECD Draft Negotiating Text for MAI 1998 . . . . . . . . . 472.1.20 Comprehensive Free Trade

Agreement (CETA) 2016 . . . . . . . . . . . . . . . . . . . . . . . . 472.1.21 Treaties with no FET . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

2.2 The FET Standard in International Investment Treaties asIt Stands Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

2.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3 Different Constructions of the FET Standard in InvestmentTreaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533.2 Different Construction of FET in Investment Treaties . . . . . . . . . . 543.3 FET Minus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

3.3.1 Minimum Standard Under International Lawor Customary International Law . . . . . . . . . . . . . . . . . . . 56

3.3.2 FET as a Standard Combined with InternationalLaw Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

3.3.3 FET as a Standard Combined with CustomaryInternational Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

3.3.4 FET and Customary International Law:The NAFTA Saga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

3.3.5 Minimum Standard Under International Law/CustomaryInternational Law in Investment Law Context . . . . . . . . . 64

3.3.6 Other FET Minus Provisions Which Limit the Scopeof the Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

3.4 Simple FET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683.4.1 The Role of the Minimum Standard in Interpreting

Simple FET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703.5 FET Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

xviii Contents

4 Developing Countries in International Investment Arbitration . . . . . 794.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794.2 Country Classification and Developing Countries in International

Investment Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794.2.1 Classification of Countries by Different International

Organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 804.3 Disparities and Differences Across Developing Countries

and the Concept of Development . . . . . . . . . . . . . . . . . . . . . . . . . 884.4 Perspectives of Host Developing Countries in Investment

Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

5 Current Arbitral Practice Relating to Political and Socio-politicalCircumstances in Host Developing Countries and Countries inTransition: FET Standard in Context . . . . . . . . . . . . . . . . . . . . . . . . 995.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995.2 Political Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

5.2.1 Bayindir Insaat Turizm—Long History of PoliticalTurmoil in the Host Developing Country . . . . . . . . . . . . . 100

5.2.2 Toto—Political Instability in Post-civil War Context . . . . 1025.2.3 AMT—Political Instability Can Reduce Compensation

but not Liability! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035.2.4 Pantechniki—Political Unrest of Large Magnitude . . . . . . 105

5.3 Socio-political Circumstances of the Country Relevant to theInvestment Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1085.3.1 Mamidoil—No Violation of FET Standard if Regulatory

Change Is for Public Policy . . . . . . . . . . . . . . . . . . . . . . 1085.3.2 EDF–FET Standard Do not Serve as Insurance Policy

for Regulatory Change . . . . . . . . . . . . . . . . . . . . . . . . . . 1105.3.3 GAMI—Lack of Administrative Capacity

not a Defence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1125.3.4 Tecmed—Response to Public Interest and Foreign

Investor’s Legitimate Expectation from a DevelopingCountry (the TECMED Test) . . . . . . . . . . . . . . . . . . . . . 115

5.3.5 Duke Energy—Socio-political Circumstances as Groundfor Foreign Investor’s Legitimate Expectation . . . . . . . . . 117

5.3.6 Azurix—State Action in Response to PublicHealth Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

5.4 Countries in Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1215.4.1 Parkerings–Compagniet—Change of Regulatory

Framework Due to Transition not a Violationof the FET Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Contents xix

5.4.2 Nagel—Investor’s Duty to Investigate BeforeInvestment in Countries in Transition . . . . . . . . . . . . . . . 124

5.4.3 Generation Ukraine—Economic Condition of theCountry Due to Its Transitory Status as a Ground forLegitimate Expectation of the Foreign Investor . . . . . . . . 125

5.4.4 Tokios Tokelés—Volatility and Fragmentationin Political Life of the Host Country Due toTransitory Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

5.4.5 Genin—Investors Be Aware (‘Caveat Investor’)!While Investing in Countries in Transition . . . . . . . . . . . 127

5.4.6 Lemire (Decision on Jurisdiction and Liability)—Transitory Status not a Ground for Defence ofBreach of FET Standard . . . . . . . . . . . . . . . . . . . . . . . . . 129

5.4.7 Lemire (Award)—Transitory Status a Ground to ReduceDamages but not Liability . . . . . . . . . . . . . . . . . . . . . . . 130

5.4.8 Alpha—Transitory Status a Ground of Calculating theRate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

5.4.9 Kardassopoulos—Transitory Status not a Defence forNon-performance of FET Obligation . . . . . . . . . . . . . . . . 133

5.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

6 Current Arbitral Practice Relating to Economic Crises in HostDeveloping Countries: The FET Standard in Context . . . . . . . . . . . 1396.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1396.2 Economic Crisis and Its Impact Upon Developing Countries . . . . . 1406.3 Arbitral Awards Involving Economic Crises in the Host

Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1436.3.1 CMS–Economic Crisis Acknowledged But Rejected! . . . . 1446.3.2 LG&E (Decision on Liability)–Defence of Necessity for

Economic Crisis Partially Accepted . . . . . . . . . . . . . . . . . 1486.3.3 Enron–Country Risk Cannot Be a Plea for Economic

Crisis in Host Developing Country . . . . . . . . . . . . . . . . . 1536.3.4 Sempra–Effects of the Economic Crisis at the Valuation

Stage Considered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1546.3.5 Sempra Ad Hoc Committee on Annulment

Proceeding—(Finally!) Defence of Necessityfor Economic Crisis Accepted . . . . . . . . . . . . . . . . . . . . . 155

6.3.6 AWG–Economic Crisis Acknowledged (Again)but not Accepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

6.3.7 Waste Management No. 2—Economic Crisis in MexicoConsidered as Ground for Exemption for Breachof FET Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

xx Contents

6.3.8 j Olguín–Investors Be Aware (Caveat Investor) . . . . . . . . 1626.3.9 Himpurna–Economic Crisis in Indonesia Considered

for Valuation of Loss of Profits . . . . . . . . . . . . . . . . . . . 1646.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

7 Key Problems in the Interpretation of the FET Standardby Current Investment Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . 1717.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1717.2 Key Problems in the Interpretation of the FET Standard

by Current Arbitral Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . . 1727.2.1 Inconsistency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1737.2.2 Inadequate Approach to the Substantive Issues

of the Host Developing Countries Relevantto the Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . 176

7.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

8 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1878.1 The Perspectives of Host Developing Countries in an Investment

Dispute Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1888.2 The Perspectives of Host Developing Countries

in Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Contents xxi

About the Author

Rumana Islam is Associate Professor of law at University of Dhaka and AssistantDirector of Research (law) (part-time) at the Bangladesh Institute of Law andInternational Affairs (BILIA). She completed her LLB and LLM degrees from theUniversity of Dhaka and earned another LLM with a specialisation in commerciallaw from the University of Cambridge. She completed her doctoral work at theUniversity of Warwick with a Commonwealth Scholarship. Her research focuseson the international investment law and investment arbitration with particular focuson developing countries. She can be contacted at rumana.law@du.ac.bd.

xxiii

Abbreviations

ACP African, Caribbean and PacificASEAN Association of Southeast Asian NationsBIT Bilateral Investment TreatyCERDS Charter of Economic Rights and Duties of StatesCETA Comprehensive Economic and Trade Agreement (Canada-EU)CIETAC China International Economic and Trade Arbitration CommissionCPEs Centrally Planned EconomiesCTC Code of Conduct on Transnational CorporationsDCF Discounted Cash FlowECT Energy Charter TreatyEIB Estonian Innovation BankEPA Economic Partnership AgreementFCNs Treaties of Friendship, Commerce and NavigationFDI Foreign Direct InvestmentFTA Free Trade AgreementsFTC Free Trade CommissionGDP Gross Domestic ProductGNI Gross National IncomeGNP Gross National ProductGSP Generalized System of PreferenceHDI Human Development IndexICC International Chamber of CommerceICSID International Centre for Settlement of Investment DisputesIIAs International Investment AgreementsIMF International Monetary FundITO International Trade OrganizationLCIA London Court of International ArbitrationLDC Least Developed CountryLIBOR London Interbank Offered RateMAI Multilateral Agreement on Investment

xxv

MERCOSUR Southern Common MarketMFN Most Favoured NationMIGA Multilateral Investment AgencyNACVA National Association of Certified Valuation AnalystNAFTA North American Free Trade AgreementNGO Non-Governmental OrganizationNIEO New International Economic OrderODI Overseas Development InstituteOECD Organization of Economic Cooperation and DevelopmentPCIJ Permanent Court of International JusticePPA Power Purchase AgreementPPI Producer Price IndexUN United NationsUNCITRAL United Nations Commission on International Trade LawUNCTAD United Nations Conference on Trade and DevelopmentUNDP United Nations Development ProgrammeUNTS United Nations Treaty SeriesWB World BankWEO World Economic OutlookWTO World Trade OrganizationWWI World War IWWII World War II

xxvi Abbreviations

Table of Cases

(In alphabetical order)

International Court of Justice

• Barcelona Traction, Light and Power Co. Ltd. (Belgium vs. Spain) ICJ,Judgment dated 5 February 1970.

• Continental Shelf Case (Libya vs. Malta) ICJ, Judgment dated 3 June 1985.

General Claims Commission—USA and Mexico

• Neer Claim (USA vs. Mexico) USA–Mexico General Claims Commission,Award dated 15 October 1926 Reports of International Arbitral Awards, Vol. 4,60–66.

Permanent Court of Justice

• Chorzow Factory Case (Germany vs. Poland) (1928) PCIJ, Judgment dated 17September 1928.

• Mavrommatis Palestine Concessions Case (Greece vs. UK) (1924) PCIJ,Judgment dated 30 August 1924.

• Panevezys-Saldututiskis Railway Case (Estonia vs. Lithuania) PCIJ (1938),Judgment dated 28 February 1938.

Investment Arbitration Decisions

• ADF Group Inc vs. United States of America, ICSID Case No. ARB(AF)/00/1,Award, 9 January 2003, Award 9 January 2003, 18(1) ICSID Review—ForeignInvestment Law Journal (2003) 195–289.

• AES Corporation vs. Republic of Argentina, ICSID Case No. ARB/02/17,Decision on Jurisdiction 26 April 2005.

• AGW Group Ltd. vs. Argentina, UNCITRAL Arbitration Rules, ICSID CaseNo. ARB/03/19, Award 30 July 2010, 24(1) ICSID Review—ForeignInvestment Law Journal (2009) 243–266.

• Alex Genin, Eastern Credit Limited, Inc and A.S. Baltoil vs. The Republic ofEstonia, ICSID Case No. ARB/99/2, Award 25 June 2001, 17 (2) ICSIDReview—Foreign Investment Law Journal (2002) 395–492.

xxvii

• Alpha Projeckholding GmbH vs. Ukraine, ICSID Case No. ARB/07/16, Award,8 November 2010.

• American Manufacturing & Trading vs. Republic of Zaire (AMT), ICSID CaseNo. ARb/93/1, Award 21 February 1997, 36 International Legal Materials(1997) 1531.

• Azurix Corp vs. Argentine Republic, ICSID Case No. ARB/01/12, Award, 14July 2006.

• Bayindir Insaat Turizm Ticaret ve Sanayi A.S vs. Pakistan, ICSID CaseNo. ARB/03/29 Award, 27 August 2009.

• Cargill vs. United Mexican States, ICSID Case No. ARB(AF)/05/02 (NAFTA),Award, 18 September 2009.

• CME Czech Republic vs Czech Republic, UNCITRAL Partial Award, 13September 2001.

• CME vs. Czech Republic, Final Award, 14 March 2003, SCC (UnderUNCITRAL Rules) 9 ICSID Reports 264.

• CMS Gas Transmission Company vs. the Argentine Republic, ICSID CaseNo. ARB/01/8, Award 12 May 2005, 44 International Legal Materials (2005)1205.

• CMS Gas Transmission Company vs. the Argentine Republic, ICSID CaseNo. ARB/01/8 (Annulment Proceeding) Decision of the ad hoc committee onthe Application for Annulment of the Argentine Republic, September 25 2007,46 International Legal Materials (2007) 1136.

• Duke Energy Electroquil Partners and Electroquil SA vs. Republic of Ecuador,ICSID Case No. ARB/04/19, Award 18 August 2008.

• EDF (Services) Limited vs. Romania, ICSID Case No. ARB/05/13, Award 8October 2009.

• El Paso Energy International Company vs. Argentina, ICSID CaseNo. ARB/03/15, Award 31 October 2011.

• Emilio Agustín Maffezeni vs. Spain, ICSID Case No. ARB/97/7, Award 13November 2000, 5 ICSID Reports 419.

• Enron Corp and Ponderosa Assets LP vs. Argentina ICSID Case No. ARB/01/3,Award 22 May 2007.

• Eudoro Armando Olguín vs. Republic of Paraguay, ICSID Case No. ARB/98/5,Award 26 July 2001, 6 ICSID Reports 164.

• Feldman vs. Mexico, ICSID Case No. ARB(AF)/99/1, Award 16 December2002, 18 ICSID Review—Foreign Investment Law Journal (2003) 488.

• GAMI Investments Inc., vs. the United Mexican States (GAMI), NAFTAArbitration under the UNCITRAL Arbitration Rules, Final Award, 15November 2004, 44 International Legal Materials (2005) 545.

• Generation Ukraine, Inc. vs. Ukraine (Generation Ukraine) ICSID CaseNo. ARB/00/9, Award, 16 September 2003, 10 ICSID Reports 240.

• Glamis Gold vs. United States, UNCITRAL (NAFTA) Award, 8 June 2009.• Himpurna California Energy Ltd. vs. PT (Persero) Perusahaan Listruik Negara,

Ad hoc UNCITRAL Arbitration Rules, Final Award, 4 May 1999.• Joesph Charles Lemire vs. Ukraine, ICSID Case No. ARB/06/18, Award, 28

March 2011.

xxviii Table of Cases

• Joseph Charles Lemire vs. Ukraine, ICSID Case No. ARB/06/18, Decision onJurisdiction, 14 January 2010.

• Kardassopoulos and Fuchs vs. Georgia, ICSID Case Nos. ARB/05/18 andARB/07/15, Award 3 March 2010.

• LG & E Energy Corp, LG & E Capital Corp and LG &E International Inc. vs.Argentina Republic, ICSID Case No. ARB/02/1, Decision on Liability Award 3October 2006, 46 International Legal Materials (2007) 36.

• LG&E Energy Corporation vs. Argentine Republic, ICSID CaseNo. ARB/02/01, Award, 25 July 2007.

• Lowen Group Inc, and Raymond L. Lowen vs. United States of America,Award, 26 June 2003, 7 ICSID Reports 442.

• Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. Republic of Albania,ICSID Case No. ARB/11/24, Award 30 March 2015

• Metaclad Corporation vs. Mexico, ICSID Case No. ARB (AF)/97/1, Award 30August 2000, 5 ICSID Reports 212.

• Methanex Corporation v. U.S.A under UNCITRAL Rules, (NAFTA), Award,August 3 2005, 44 International Legal Materials (2005) 1345.

• Methanex Corporation vs. United States of America, Preliminary Award onJurisdiction and Admissibility, 7 August 2002.

• Middle East Cement Shipping and Handling Co. S.A. vs. Arab Republic ofEgypt, ICSID Case No. ARB/99/6, Award 12 April 2002, 7 ICSID Reports 178.

• Mondev International Ltd vs. United States of America, ICSID Case No. ARB(AF)/99/2, Award 11 October 2002, 6 ICSID Reports 192.

• MTD Equity Sdn Bhd vs. Republic of Chile, ICSID Case No. ARB/01/07,Decision on Annulment, 21 March 2007.

• MTD Equity Sdn. Bhd. Adn MTD Chile S.A vs. Republic of Chile, Award, 25May 2004, 12 ICSID Reports 6.

• National Grid P.L.C vs. Argentine Republic, UNICTRAL, Award 3 November,2008.

• Occidental Exploration and Production Co. vs. Ecuador, Final Award in thematter of UNCITRAL Arbitration, London Court of International ArbitrationCase No. UN3467, Award 1 July 2004.

• Pantechniki SA Contractors and Engineers vs. Albania, ICSID CaseNo. ARB/07/21, Award 30 July 2009.

• Parkerings-Compagniet AS vs. Lithunia Award 11 September 2007, ICSIDCase No. ARB/05/8.

• Pope & Talbot vs. Canada, Award in Respect of Damages, 31 May 2002, (2002)41 International Legal Materials 1347

• Pope & Talbot vs. Canada, Award on Merit, 10 April 2001, 7 ICSID Reports102.

• PSEG Global Inc. vs. Republic of Turkey, ICSID Case No. ARB/02/05, Award,19 January 2007.

• Roland S. Lauder vs. Czech Republic, UNCITRAL, Final Award, 2 September2001.

• Rumeli Telekom AS vs. Republic of Kazakhstan, ICSID Case No. ARB/05/16,Award, 29 July 2008.

Table of Cases xxix

• S.D. Myers vs. Government of Canada, Partial Awards, 12 November 2000, 40International Legal Materials (2001) 1408.

• Saluka Investments BV vs. Czech Republic, under UNCITRAL Rules, PartialAward, 17 March 2006.

• Sempara Energy vs. Argentina, ICSID Case No. ARB/02/16, Award, 28September 2007.

• Sempra Energy International vs. Argentina Republic, ICSID CaseNo. ARB/02/16 Award 28 September 2007.

• Sempra Energy International vs. Argentine Republic, ICSID CaseNo. ARB/02/16 (Annulment Proceedings), Decision of the ad hoc Committeeon the Application for Annulment of the Argentine Republic 29 June 2010.

• Tecnicas Medioambientales Tecmed SA vs. The United Mexican States, ICSIDCase No. ARB(AF)/00/02, Award, 29 May 2003, 43 International LegalMaterials (2004) 133.

• Tokios Tokelés vs. Ukraine, ICSID Case No. ARB/02/18, Award 26 July 2007,20 ICSID Review—Foreign Investment Law Journal (2005) 205.

• Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID CaseNo. ARB/07/12, Award, 7 June 2012.

• Waste Management Inc. vs. United Mexican States (No. 2) ICSID CaseNo. ARB(AF)/00/3, Award April 30 2004, 43 International Legal Materials(2004) 967.

• William Nagel vs. Czech, Arbitration Institute of Stockholm Chamber ofCommerce, Arbitration No. 049/2002, Award 9 September, 2003, 13 ICSIDReports 33.

Separate Opinion, Dissenting Opinion and Legal Opinion

• Dissenting Opinion of Dr. Jürgen Voss in Joesph Charles Lemire vs. Ukraine,Decision on Jurisdiction, 1 March 2011.

• Legal Opinion of M. Sornarajah in El Paso Energy International Company vs.Argentina, 5 March 2007.

• Separate Individual Declaration by Arbitrator Mr. Kéba Mbaye in AMT vs.Zaire 10 February 1998.

• Separate Opinion of Arbitrator Pedro Nikken in AGW Group Ltd. vs.Argentina, 30 July 2010.

xxx Table of Cases

Table of Treaties

(In alphabetical order)

Multilateral Treaties

• Economic Agreement of Bogotá 1948.• Havana Charter for Establishment of an International Trade Organisation

(Havana Charter) 1948.• Investment Agreement for Common Market for Eastern and Southern African

(COMESA) 2010.• Multilateral Agreement on Investment (MAI) 1998.• North American Free Trade Agreement (NAFTA) 1994.• Organisation for Economic Co-operation and Development Draft Convention

of the Protection of Foreign Property (OECD Draft Convention) 1963.• Organisation for Economic Co-operation and Development Draft Convention

of the Protection of Foreign Property (Revised OECD Draft Convention) 1967.• The Abs-Shawcross Draft Convention on Investment Abroad 1959.• The Association of Southeast Asian Nations Agreement for Promotion and

Protection of Investments (the ASEAN Treaty) 1987.• The Comprehensive Economic and Trade Agreement (CETA) 2016• The Colonial Protocol on Reciprocal Promotion and Protection of Investments

within Southern Common Market (the MERCOSUR Agreement) 1994.• The Energy Charter Treaty 1994.• The Pacific Basin Charter on International Investments, 1995.• Trade and Aid Agreement between the European Community (EC) and the

African, Caribbean and Pacific (ACP) Countries (the Lomé IV Convention) 1990.

Bilateral Investment Treaties

• Albania–Croatia BIT 1993.• Austria–Ukraine BIT 1996.• Bahrain–United States BIT 1999.• Bangladesh–Iran BIT 2001.• Belgium–Luxembourg Economic Union–Tajikistan BIT 2009.

xxxi

• Cambodia–Cuba BIT 2001.• China–Switzerland BIT 2009.• Croatia–Oman BIT 2004.• Croatia–Ukraine BIT 1997.• France–Mexico BIT 1998.• Georgia–Greece BIT 1996.• Georgia–Israel BIT 1995.• Germany–Pakistan BIT 1959.• Greece–Albania BIT 1991.• Italy–Lebanon BIT 1997.• Lebanon–Hungary BIT 2001.• Lithuania–Norway BIT 1992.• Netherlands–Philippines BIT 1985.• Peru–Paraguay BIT 1994.• Romania–United States BIT 1994.• Spain–Mexico BIT 1996.• Spain–Mexico BIT 2006• Switzerland–Chile BIT 1999.• The Netherlands–Oman BIT 2009.• UK–Czech and Slovak Federal Republic BIT 1990.• Ukraine–Lithuania BIT 1994.• UK–Romania BIT 1995.• US–Argentina BIT 1994.• US–Ecuador BIT 1993.• US–Estonia BIT 1994.• US–Thailand Treaty of Amity and Economic Relations and Exchange of Notes

1966.• US–Togo Treaty of Amity and Economic Relations 1966.• US–Ukraine BIT 1994.• US–Zaire BIT 1984.

Free Trade Agreements

• Australia–Singapore Free Trade Agreement 2003.• Central America–Dominican Republic–United States Free Trade Agreements

(DR–CAFTA) 2004.• India–Singapore Comprehensive Economic Co-operation Agreement 2005.• New Zealand–Singapore Free Trade Agreement 2001.• New Zealand–Thailand Closer Economic Partnership Agreement (EPA) 2005.

US Treaties of Friendship, Commerce and Navigation

• Treaty of Friendship, Commerce and Navigation between the United States andRepublic of China 1946.

• Treaty of Friendship, Commerce and Navigation between US and FederalRepublic of Germany 1954

• US–France Treaty of Amity and Commerce 1778.

xxxii Table of Treaties

• US–Great Britain Treaty of Amity, Commerce and Navigation 1794.• US–Morocco Treaty of Peace and Friendship 1787.• US–Prussia Treaty of Amity and Commerce 1785.• US–Spain Treaty of Friendship, Limits and Navigation 1795.• US–Sweden Treaty of Amity and Commerce 1783.• US–The Netherlands Treaty of Amity and Commerce 1782.

Model Treaties

• Canada Model BIT 2004.• France Model BIT 2006.• German Model BIT 2008.• IISD Model International Agreement on Investment for Sustainable

Development 2006.• Switzerland Model BIT 1986.• United Kingdom Model BIT 2005.• United States Model BIT 2004.• United States Model BIT 2012.

International Documents

• Convention Establishing the Multilateral Investment Agency (MIGAConvection) 1985.

• Convention on Settlement of Investment Disputes between States and Nationalsof other States (ICSID Convention) 1965.

• The Convention on International Trade in Endangered Species of Wild Faunaand Flora 1975.

• The UN Draft Articles on Responsibility of States for Wrongful Acts 2001.• TheWorld Bank Guidelines on the Treatment of Foreign Direct Investment 1992.• UN Code of Conduct on Transnational Corporations (CTC) 1983.• UN Code of Conduct on Transnational Corporations (Revised CTC) 1988.• UN Commission on International Trade Law Rules 1976.• UN Convention on the Law of the Sea 1982.• UN Convention on the Recognition and Enforcement of Foreign Arbitral

Awards 1958.• UN Convention on the Rights of the Child 1990.• Vienna Convention on the Law of the Treaties 1969.

UN General Assembly Resolutions

• UN General Assembly Resolution No. 1803 on Permanent Sovereignty overNatural Resources 1962.

• UN General Assembly Resolution No. 3201 on Declaration on theEstablishment of a New International Economic Order (NIEO) 1970.

• UN General Assembly Resolution No. 3281 on the Charter of Economic Rightsand Duties of States (CERDS) 1974.

Table of Treaties xxxiii