Fair and Equitable Treatment Issues In Oil & Gas Investment-Treaty Arbitration - Chapter 05 - Leading Practitioners’ Guide to International Oil & Gas Arbitration

Author(s):

Mark WIlliam Friedman

Samantha J. Rowe

Page Count:

66 pages

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Published:

August, 2015

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I. INTRODUCTION

This chapter focuses on fair and equitable treatment (“FET”)

issues that arise out of multilateral or bilateral investment treaty

(together, “BIT”) arbitrations in the oil and gas (“O&G”) sector.

The chapter proceeds in three parts. First, we briefly discuss the

content and historical evolution of the FET standard. Second, we set

out different instances in which FET issues have arisen in

investment-treaty arbitration in the O&G sector: (i) issues concerning

or arising out of the contractual relationship between the investor

and the host State; (ii) changes to the legislative and regulatory

framework governing the investor’s investment; (iii) irregularities in

domestic judicial proceedings; and (iv) harassment of the investor or

its investment by domestic authorities. Finally, we provide a few

concluding thoughts.

II. EVOLUTION AND CONTENT OF THE FET

STANDARD

A. History of the FET Standard

The FET standard can be traced back to post-war initiatives to

protect foreign investors by affording them direct rights against the

State in which their investment is located—notably the Havana

Charter, which was prepared in 1948 as the basis for establishing the

International Trade Organization but was never ratified, in large part

because of capital-importing states’ resistance to provisions aimed at

protecting foreign investment.1 The United States Friendship,

Commerce and Navigation Treaties, negotiated in the same period,

contained obligations to accord “equitable” or “fair and equitable”

treatment to investments originating in the other State party.2 While

the first bilateral investment treaty—concluded between Germany

and Pakistan in 1959—did not contain an FET obligation,3 German

and Swiss BITs dating back to the 1960s do. In the early 1980s,

growing recognition of the economic benefits generated by foreign

investment triggered a shift in emphasis towards the treatment of

foreign investment by the host State, including the guarantee of nondiscriminatory
treatment vis-à-vis nationals of the host State and