Proportionality: An Addition to the International Centre for the Settlement of Investment Disputes’ Fair and Equitable Treatment Standard

Abstract

The fair and equitable treatment standard, established in state law, customary law, and bilateral investment treaties, requires that states treat investors in a consistent and transparent manner. With its decision in Occidental Petroleum Corp., Occidental Exploration and Production Company v. Republic of Ecuador, the International Centre for the Settlement of Investment Disputes (ICSID) interpreted the ever-expanding fair and equitable treatment standard to include the principle of proportionality. After concluding that Ecuador’s termination of the investor’s contract was a disproportionate response to the investor’s breach of that contract, the ICSID Tribunal awarded an incredible $1.77 billion in damages. The potential for crushing liability for host countries and the overprotection of investors has resulted in the recent withdrawal of a number of host countries from the ICSID and from Bilateral Investment Treaties. This retreat will continue until the Tribunal recalibrates the fair and equitable treatment standard to provide balanced protection for both the investor and the host country.