The prohibition of discriminatory, unreasonable and/or arbitrary measures affecting investors’ investments normally figures among the protection standards provided by bilateral or multilateral investment treaties. Although it is considered as an independent basis for a finding of State responsibility, some arbitral tribunals have considered that the standard of protection against arbitrariness or discrimination is closely linked to that of fair and equitable treatment. The CMS v. Argentina arbitral tribunal notably ruled that “[a]ny measure that might involve arbitrariness or discrimination is in itself contrary to fair and equitable treatment.”[1]
For instance, Article 3(1) of the Argentina-Netherlands BIT provides that:

“Each Contracting Party shall ensure fair and equitable treatment to investments of investors of the other Contracting Party and shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those investors.”

Other treaties may contain a slightly different wording of the standard. This is the case, for example, of Article II(3)(b) of the Georgia-USA BIT which reads as follows:

“Neither Party shall in any way impair by unreasonable and discriminatory measures the management, conduct, operation, and sale or other disposition of covered investments.”

The difference is not of a purely linguistic nature. In fact, arbitral tribunals have considered that in order to violate the non-impairment standard figuring in a BIT containing the conjunction “and”, the State measures need to be not only unreasonable/arbitrary, but at the same time discriminatory:

“The Arbitral Tribunal considers that a violation of Article II(2)(b) of the Treaty requires both an arbitrary and a discriminatory measure by the State. It first results from the plain wording of the provision, which uses the word ‘and’ instead of the word ‘or’.”[2]

Under international law, when not otherwise provided in the treaty, the word “measure” needs to be understood broadly as encompassing any sort of act or step taken by a State:

“The Court need not linger over the question whether a ‘measure’ may be of a ‘legislative’ nature […] in its ordinary sense the word is wide enough to cover any act, step or proceeding, and imposes no particular limit on their material content or on the aim pursued thereby.”[3]

Definition of Unreasonable/Arbitrary Measures

Although some scholars[4] or tribunals[5] have attempted to justify a distinction between the terms “unreasonable” and “arbitrary”, the general view is that these terms shall be applied interchangeably.[6] As stated by the Plama v. Bulgaria arbitral tribunal, “while the standards can overlap on certain issues, they can also be defined separately. Unreasonable or arbitrary measures – as they are sometimes referred to in other investment instruments – are those which are not founded in reason or fact but on caprice, prejudice or personal preference.”[7]

Concerning the definition of what constitutes arbitrary or unreasonable measures, the following summa divisio provided by Professor Schreuer in the EDF v. Romania case has been generally accepted and approved:

“[A.] a measure that inflicts damage on the investor without serving any apparent legitimate purpose;

[B.] a measure that is not based on legal standards but on discretion, prejudice or personal preference;

[C.] a measure taken for reasons that are different from those put forward by the decision maker;

[D.] a measure taken in willful disregard of due process and proper procedure.”[8]

Definition of Discriminatory Measures

A measure is also discriminatory when it provides “the foreign investment with a treatment less favorable than domestic investment”[9] or “when the measure against foreign investment and the measure against domestic investment are of a different nature, and the former is less favorable than the latter.”[10] Discrimination by a host State is also found when “(i) similar cases are (ii) treated differently (iii) and without reasonable justification.”[11] and it covers all forms of discrimination.[12] According to this legal standard, an investor must also not be treated, because of its nationality, less favourably than other foreign investors or nationals.[13]

Zuzana Vysudilova, Aceris Law LLC

[1] CMS Gas Transmission Co. v. The Argentine Republic, ICSID Case No. ARB/01/8, Award dated 12 May 2005, para. 290; SAUR International S.A. v. The Argentine Republic, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability, 6 June 2012, para. 485: “Les principes de TJE et de PSPE sont intimement liés aux interdictions de discrimination et de caractère arbitraire.”; S. Vasciannie, “The Fair and Equitable Treatment Standard in International Investment Law and Practice”, 70 Brit. Y.B. of Int’l L. 133 (1999): “ if there is discrimination on arbitrary grounds, or if the investment has been subject to arbitrary or capricious treatment by the host State, then the fair and equitable standard has been violated. This follows from the idea that fair and equitable treatment inherently precludes arbitrary and capricious actions against investors.”

[2] Ronald S. Lauder v. Czech Republic, UNCITRAL Arbitration, Final Award dated 3 September 2001, p. 48, para. 219.

[3] Fisheries Jurisdiction (Spain v. Canada), Jurisdiction of the Court, Judgment, ICJ Reports 1998, p. 460, para. 66.

[4] V. Heiskanen, “Arbitrary and Unreasonable Measures”, in A. Reinisch, Standards of Investment Protection, Oxford University Press, p. 104.

[5] BG Group v. The Argentine Republic, UNCITRAL, Final award, 24 December 2007, pp. 104-105, paras. 341-342: “While there might be some overlap, the Tribunal does not deem appropriate to equate ‘unreasonableness’ and ‘arbitrariness’. First, the term ‘arbitrary’ does not appear in Article 2.2 of the Argentina-UK BIT. Moreover, one connotation of ‘arbitrariness’ under international law involves a breach beyond the ordinary meaning of ‘reason’ seemingly calling for ‘… a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety’ […] Like the ‘fair and equitable treatment’ standard, ‘reasonableness’ should be measured against the expectations of the parties to the bilateral treaty, rather than as a function of the means choses by the State to achieve its goals.”

[6] Ch. Schreuer, “Protection against Arbitrary or Discriminatory Measures”, p. 183: “There does not appear to be a relevant distinction between the terms “arbitrary”, “unjustified”, and “unreasonable” in this context. Rather, the terms seem to be used interchangeably.”

[7] Plama Consortium v. Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, p. 57, para. 184. See also National Grid v. The Argentine Republic, UNCITRAL, Award, 3 November 2008, p. 80, para. 197: “It is the view of the Tribunal that the plain meaning of the terms “unreasonable” and “arbitrary” is substantially the same in the sense of something done capriciously, without reason.”

[8] Legal Opinion of Prof. Schreuer accepted and applied by the arbitral tribunal in EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award dated 8 October 2009, para. 303.

[9] Elettronica Sicula S.p.A. (ELSI), ICJ Reports of Judgments, Advisory Opinions and Orders, Judgment dated 20 July 1989, para. 128.

[10] Ronald S. Lauder v. Czech Republic, UNCITRAL Arbitration, Final Award dated 3 September 2001, para. 257.

[11] Saluka Investments BV v. Czech Republic, UNCITRAL Arbitration, Partial Award dated 17 March 2006, para. 313.

[12] U. Kriebaum, “Arbitrary/ Unreasonable or Discriminatory Measures”, in M. Bungenberg, J. Griebel, S. Hobe, A. Reinisch (eds), International Investment Law, (Baden Baden: Nomos, forthcoming 2013), p. 8.

[13] National Grid P.L.C. v. The Argentina Republic, UNCITRAL Arbitration, Award dated 3 November 2008, para. 198.