The bona fide (good faith) principle is a key component of most historic and modern legal orders, and a “general principle of international law”.1 The principle requires Parties “to deal honestly and fairly with each other (…) and to refrain from taking unfair advantage”.2 In international law, the bona fide principle often relates both to State conduct and inter-State relations, and to those seeking to assert a claim under an international treaty.3 The principle goes hand in hand with fulfillment of obligations, (for example, “Pacta Sunt Servanda” per Article 26 VCLT (1969)), and is a core component of the process of Treaties interpretation per Article 31-32 VCLT. See also Unclean Hands.
II. Bona Fide Principle in Investment Treaties and Arbitration Practice
The bona fide principle is considered to protect “reciprocity”4 and “legitimate expectations”5 in fulfillment of investment-related undertakings (See Resolution 1803 (XVII) General Assembly UN (1962)). Some States have explicitly included the bona fide principle in the language of Umbrella Clauses6 contained in Bilateral Investment Treaties (BITs). Arbitral Tribunals have also frequently linked strong bona fide interactions with investment protection and related substantive treatment under investment treaties.7
Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, paras. 153-154; Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, para. 14; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award, 21 October 1983, para. 107; Klöckner Industrie-Anlagen GmbH and others v. United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Decision of the ad hoc Committee, 3 May 1985, paras. 75, 78-79; Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, 27 June 1990, paras. 40, 47.
A. A Source of Fair & Equitable Treatment in Relation to Investments
Through interpretative action per Article 31 VCLT, Arbitral Tribunals have regarded “fair and equitable treatment [to be] an expression and part of the bona fide principle recognized in international law”.8 Arbitral Tribunals considering fair and equitable treatment have suggested that States should refrain from actions that can be characterized as “arbitrary”,9 or that “deliberately…set out to destroy or frustrate the investment by improper means”.10 It should also be noted that “a State may treat foreign investment unfairly and inequitably without necessarily acting in bad faith”.11
B. A Protection Against Unlawful Expropriations
In its Guidelines on Treatment of Foreign Investments (1992), the World Bank recognized that “[a] State may not expropriate…except where this is done…in accordance with applicable legal procedures, in pursuance in good faith of a public purpose, without discrimination on the basis of nationality and against the payment of appropriate compensation”.12 This approach has been confirmed in investment arbitration practice, which frequently refers to the bona fide principle as a means to review State conduct in the implementation of expropriation measures.13
C. An Obstacle to Abusive Arbitration Claims
The bona fide principle has often been recalled by Arbitral Tribunals in the determination of the domestically lawful character of an investment and its subsequent protection under a relevant international treaty.14 In such circumstances, an investment must not have been established through corruption, fraud,15 or deceptive conduct, in violation of host State laws and regulations or with the aim to misuse or abuse of the protection system under the ICSID Convention.16 For example, the Tribunal in Phoenix held that “[t]he principle of good faith (…) governs the relation between states, but also the legal rights and duties of those seeking to assert an international claim under a treaty. Nobody shall abuse the rights granted by treaties, and more generally, every rule of law includes an implied clause that it should not be abused.17
Ziegler, A.R. and Baumgartner, J., Introduction, in Andrew D Mitchell, M Sornarajah and Tania Voon, Good Faith and International Economic Law, Oxford University Press, 2015, p. 11.
De Brabandere, E., Investment Treaty Arbitration as Public International Law: Procedural Aspects and Applications, Cambridge University Press, 2014.
Rivas, J.A., Colombia, in Chester Brown, Commentaries on Selected Model Investment Treaties, Oxford University Press, 2013.
Ðajić, S., Mapping the Good Faith Principle in International Investment Arbitration: Assessment of its Substantive and Procedural Value, in Novi Sad Faculty of Law Serbia, Collected Papers XLVI, 3/2012.
Gazzini, T. and Radi, Y., Practice and Interpretation of ‘Umbrella Clauses’ in the Latin American Experience, in. Attila Tanzi, Alessandra Asteriti, Rodrigo Polanco Lazo and Paolo Turrini (eds.), International Investment Law in Latin America: Problems and Prospects, Brill Nijhoff, 2016.
Protopsaltis, P.M., Les principles directeurs de la Banque Mondiale pour le traitement de l’investissement étranger, in Khan, P. and Wälde, T. (eds.), Les aspects nouveaux du droit des investissements internationaux, Martinus Nijhoff Publishers, 2007.
Reisman, W.M. and Arsanjani, M.H., The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes, in ICSID Review, 2004, 19 (2).