International Investment Law
Readings 6: Non-discrimination
Schefer, ‘International Investment Law’
Chapter 5: Standards of host state behaviour
5.2 Non-arbitrariness
Arbitrary action = based on the will of the actor rather than on a
rational application of principle to facts fundamental that the
rule of law is rid of arbitrariness
Rules prohibiting arbitrariness would not need explicit mention in a
treaty to be binding
5.2.1 Content of the arbitrariness standard
Majority view of the level of state misconduct that would be
necessary ELSI-case
Elettronice Sicula SpA (ELSI) (USA v. Italy)
ELSI was held by two US companies, and once it was in trouble and
the companies wanted to liquidate ELSI, the Italian local
government put an order on ELSI’s plant and related asset to keep
the business from running and prevent ELSI from liquidating
In an Agreement between US and Italy, there was a clause
prohibiting arbitrary or discriminatory measures analysis of the
article
An act that was unlawful or arbitrary under domestic law will not
be automatically that way under IL arbitrariness =/= unlawful
under domestic law
Arbitrariness is not so much something opposed to a rule of law, as
something opposed to the rule of law wilful disregard of due
process and a shocking act
The mayor acted in response to public concerns this is not
unreasonable and did not frustrate the complete rule of law in Italy
(but merely administrative provisions)
1
, Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v.
Republic of Estonia
EIB bought Koidu branch of an insolvent government bank, but was
misinformed by the selling party refusal of liability, successful
suit by EIB
Legitimate public purpose no bad faith, no irregularities… so no
arbitrariness
Tribunals are generally generous in approaching the host’s actions
and take a surprisingly public law standpoint on the rule of law
issue (sensitive)
5.2.2 Reasonableness
Often used in place of non-arbitrary, approached in the same way
interchangeable use, but there are some treaties which only refer to
reasonable treatment
Treatment shall be in line with the rule of law rather than on the
basis of prerogative
AES Summit Generation Limited and AES-Tisza Erömü Kft. V.
Republic of Hungary
Power companies new fee schedule after accession to the EU of
Hungary, fxed price after local political unrest, which was lower
than at frst agreed
There needs to be a correlation between the state’s public policy
objective and the measure adopted to achieve it nature of the
measure and the way it was implemented
It is not irrational for a government to address luxury profts in the
energy sector is it reasonable in the measures that it took? Yes,
there were negotiations and there was decisions made by
parliament (I guess?) and the price levels which were fxed were
reasonable as they were consistent with the original returns it
earned at the time of the original investment
5.3 Non-discrimination
2
Readings 6: Non-discrimination
Schefer, ‘International Investment Law’
Chapter 5: Standards of host state behaviour
5.2 Non-arbitrariness
Arbitrary action = based on the will of the actor rather than on a
rational application of principle to facts fundamental that the
rule of law is rid of arbitrariness
Rules prohibiting arbitrariness would not need explicit mention in a
treaty to be binding
5.2.1 Content of the arbitrariness standard
Majority view of the level of state misconduct that would be
necessary ELSI-case
Elettronice Sicula SpA (ELSI) (USA v. Italy)
ELSI was held by two US companies, and once it was in trouble and
the companies wanted to liquidate ELSI, the Italian local
government put an order on ELSI’s plant and related asset to keep
the business from running and prevent ELSI from liquidating
In an Agreement between US and Italy, there was a clause
prohibiting arbitrary or discriminatory measures analysis of the
article
An act that was unlawful or arbitrary under domestic law will not
be automatically that way under IL arbitrariness =/= unlawful
under domestic law
Arbitrariness is not so much something opposed to a rule of law, as
something opposed to the rule of law wilful disregard of due
process and a shocking act
The mayor acted in response to public concerns this is not
unreasonable and did not frustrate the complete rule of law in Italy
(but merely administrative provisions)
1
, Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v.
Republic of Estonia
EIB bought Koidu branch of an insolvent government bank, but was
misinformed by the selling party refusal of liability, successful
suit by EIB
Legitimate public purpose no bad faith, no irregularities… so no
arbitrariness
Tribunals are generally generous in approaching the host’s actions
and take a surprisingly public law standpoint on the rule of law
issue (sensitive)
5.2.2 Reasonableness
Often used in place of non-arbitrary, approached in the same way
interchangeable use, but there are some treaties which only refer to
reasonable treatment
Treatment shall be in line with the rule of law rather than on the
basis of prerogative
AES Summit Generation Limited and AES-Tisza Erömü Kft. V.
Republic of Hungary
Power companies new fee schedule after accession to the EU of
Hungary, fxed price after local political unrest, which was lower
than at frst agreed
There needs to be a correlation between the state’s public policy
objective and the measure adopted to achieve it nature of the
measure and the way it was implemented
It is not irrational for a government to address luxury profts in the
energy sector is it reasonable in the measures that it took? Yes,
there were negotiations and there was decisions made by
parliament (I guess?) and the price levels which were fxed were
reasonable as they were consistent with the original returns it
earned at the time of the original investment
5.3 Non-discrimination
2
