Bad Faith Conduct of States in Violation of the 'Fair And Equitable Treatment' Standard in International Investment Law and Arbitration

Abstract

This study aims to provide an overview of the patterns of breaches of the requirement for fair and equitable treatment of foreign investments and investors which arbitral case law has qualified as being made in bad faith. The study attempts to argue that bad faith acts of States comprise an autonomous type of per se violation of the ‘fair and equitable treatment’ standard under various international law instruments. Bad faith breaches are considered against the background of the elements of State responsibility in accordance with general international law and in the context of the peculiar features of the States. The study suggests that bad faith would be intentional conduct attributable to the State that is supported by the malicious motive to damage the foreign investor. Moreover, it is proposed that, although fault is generally not an element sine qua non for State responsibility, in the investment law scenario it may be material, as case law and doctrine seem to indicate. Bad faith would possibly result where there is a political motive behind intentional harmful actions of governmental officials. It can be derived from arbitral case law that bad faith may occur as political vilification of the investor, denial of justice or open harassment and even extortion by way of corruption. The study seeks to invite arbitral tribunals and scholarly thought to identify bad faith in the cases where it has actually occurred and to avoid concealing bad faith violations by States behind other phenomena that may also qualify as breaches of the fair and equitable treatment standard.