McGill Law Journal ~ Revue de droit de McGill
GLAMIS GOLD, LTD. V. THE UNITED STATES AND THE
FAIR AND EQUITABLE TREATMENT STANDARD
Margaret Clare Ryan*
This article critiques the arbitral tribunals
decision in Glamis Gold, Ltd. v. The United States
of America on the basis of its interpretation of the
fair and equitable treatment standard (FET) owed
by state parties to foreign investors under NAFTA
article 1105.
Part I outlines the post-WWII development of
the FET standard in relation to the restrictive, cus-
tomary international law of minimum standard of
treatment (MST). The author traces the expansive
treatment of the FET standard by tribunals in both
bilateral investment treaty and NAFTA disputes.
Despite a binding Free Trade Commission Note of
Interpretation limiting the scope of article 1105,
NAFTA tribunals had consistently interpreted the
FET standard more broadly until the award in
Glamis.
Part II evaluates the tribunals reasoning in
Glamis, arguing that it departs from a growing
body of jurisprudence on the FET standard under
NAFTA without sufficient justification. The author
also criticizes the tribunals decision to place an
unprecedented evidentiary burden on the claimant
by requiring proof of both state practice and opinio
juris of the FET standard.
The conclusion suggests that the decision of
the tribunal in Merrill & Ring Forestry L.P. v.
Canada may provide a better approach to balanc-
ing governments legitimate regulatory objectives
and foreign investors treaty rights.
Lauteure critique la dcision du tribunal
darbitrage dans la cause Glamis Gold, Ltd. v. The
United States of America en raison de son
interprtation de la norme du traitement juste et
quitable (TJE). Selon larticle 1105 de lALNA,
les tats membres doivent
le TJE aux
investisseurs trangers.
La Partie I trace les grandes lignes du
dveloppement de la norme du TJE aprs la
Seconde Guerre mondiale en ce qui a trait la
norme minimale de traitement (NMT), une norme
restrictive et coutumire du droit international.
Lauteure retrace linterprtation large de la norme
du TJE par les tribunaux lors de disputes
impliquant les traits bilatraux dinvestissement
et lALNA. Malgr une Note dinterprtation
contraignante mise par la Commission du libre-
change sur la porte de larticle 1105, les
tribunaux de lALNA avaient, jusqu la dcision
Glamis,
la norme du TJE plus
largement, et ce, de faon constante.
La Partie II value le raisonnement du
tribunal dans Glamis et soutient que celui-ci
sloigne sans justification dune jurisprudence
croissante sur la norme du TJE dans le cadre de
lALNA. Lauteur critique aussi la dcision du
tribunal dimposer au demandeur un fardeau de
preuve sans prcdent en exigeant quil prouve la
fois la pratique tatique et lopinio juris relatifs
la norme du TJE.
La conclusion suggre que la dcision du
tribunal dans la cause Merrill & Ring Forestry LP
v. Canada prsente peut-tre une meilleure
approche pour atteindre
les
objectifs lgitimes des gouvernements en matire
de rglementation et les droits issus des traits des
investisseurs trangers.
lquilibre entre
interprt
* BCL/LLB McGill University, M Phil University of Cambridge. Margaret Clare Ryan is
an associate in the international arbitration group at Shearman & Sterling LLP in
Paris, France. The author wishes to thank Professors Frdric Bachand and Christoph
Schreuer for their insightful comments and suggestions, and Dr Manuel Dries for his
encouragement and support.
Citation: (2011) 56:4 McGill LJ 919 ~ Rfrence : (2011) 56 : 4 RD McGill 919
Margaret Clare Ryan 2011
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Introduction
I.
The Context of Glamis
A. The Questions in Dispute
B. The Fair and Equitable Treatment Standard
1. Origins and Basic Features of FET
2. FET and Customary International Law
3. Contemporary Evolution of FET in Bilateral
Investment Treaties
4. Contemporary Evolution of FET under NAFTA
C. The Glamis Ruling on Article 1105
II. Critical Response to the Glamis Award
A. The Tribunals Unconvincing Treatment of Precedent
B. The Tribunals Unqualified Acceptance of NAFTA
Party Submissions
C. The Tribunals Onerous Evidentiary Approach to
Article 1105
D. The Tribunals Support of Regulatory Authority under
NAFTA
E. The New Approach to the MST in Merrill & Ring
Conclusion
GLAMIS GOLD, LTD. V. THE UNITED STATES 921
Introduction
In a recent award rendered under chapter 11 of the North American
Free Trade Agreement (NAFTA),1 the arbitral tribunal in Glamis Gold,
Ltd. v. The United States of America2 renewed the unsettled discussion
surrounding the fair and equitable treatment (FET) standard in invest-
ment treaty arbitration. Bringing an end to the protracted dispute be-
tween the Canadian gold mining company and the United States, the tri-
bunal dismissed the claims of Glamis that the United States had expro-
priated its mining rights in southeastern California and had breached its
FET obligations under article 1105 of NAFTA. The tribunals assessment
of Glamiss article 1105 claim raises important issues regarding the con-
tent and interpretation of the FET standard under NAFTA and the ap-
propriate test for determining its breach. The award represents a decisive
shift in NAFTA case law because it restricts the scope of article 1105 and
adopts an evidentiary approach, requiring a claimant to bring evidence of
customary international law in order to succeed.
The following analysis of the Glamis award is in two parts. Part I pro-
vides a context for the award, first introducing the questions in dispute
and then explaining the origins of the FET standard and its important
place in the growing number of investment instruments that have pro-
moted economic liberalization since the Second World War. Part I will
also introduce the key interpretive debate surrounding the FET standard,
namely, its place within the general body of international law and its spe-
cific relation to the customary international law minimum standard of
treatment (MST). This debate has generated significant uncertainty in
the contemporary context of investor-state disputes, as will be illustrated
by comparing the treatment of the FET standard by tribunals constituted
under bilateral investment treaties (BITs) with those under NAFTA. An
overview of the early NAFTA treatment of the FET standard will provide
a context for a discussion of the binding Note of Interpretation issued by
the Free Trade Commission (FTC) in 2001, which limited the scope of ar-
ticle 1105. The final section of Part II will underline the growing consen-
sus in the NAFTA case law that dealt with these issues before Glamis.
NAFTA awards rendered after 2001, though following the FTC Note of In-
terpretation in light of its binding character, continued to adopt a permis-
sive stance on article 1105 with an expansive reading of the obligations it
entailed. As will be shown, tribunals consistently rejected the restrictive
1 North American Free Trade Agreement Between the Government of Canada, the Gov-
ernment of Mexico and the Government of the United States, 17 December 1992, Can TS
1994 No 2, 32 ILM 289 (entered into force 1 January 1994) [NAFTA].
2 Glamis Gold, Ltd v United States of America, Award of 8 June 2009, [2009] 48 ILM
1039 (International Centre for Settlement of Investment Disputes) [Glamis].
922 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
test advanced by the respondent parties for determining breaches of the
MST, and insisted on the evolutionary character of customary interna-
tional law and a wider scope of legal sources as being relevant to the de-
termination of article 1105.
A detailed examination of the Glamis ruling on article 1105 at the end
of Part I will set the stage for a critical assessment of the tribunals con-
clusions in Part II. Proceeding from an analysis of the question of the op-
eration of precedent in investment treaty arbitration and the tribunals
comments on its own role as an adjudicative institution, this article will
argue that the Glamis tribunal departed from a growing body of jurispru-
dence on the FET standard under NAFTA without fully justifying its ap-
proach. Adopting an unfamiliar evidentiary method for article 1105, the
Glamis tribunal accepted the United States contention that the claimant
to a chapter 11 arbitration had the burden of proving the evolution of cus-
tomary international law by bringing evidence of state practice and opinio
juris. Concluding that Glamis had not met this burden, the tribunal ac-
cepted the NAFTA party submissions regarding the content of the con-
temporary MST that denied its evolution since the 1920s, and dismissed
the applicability of prior NAFTA awards interpreting the same provision.
Questioning the suitability of a restricted interpretation of article 1105 in
the current climate of foreign investment and the Treatys overall objec-
tives, this article will analyze whether the Glamis approach strikes an
appropriate balance between the legitimate regulatory role of states and
the interests of NAFTA investors. The final section will highlight the gen-
eral problems raised by applying the customary MST to foreign direct in-
vestment and will consider whether a newly issued NAFTA award,
Merrill & Ring Forestry L.P. v. Canada,3 moves beyond the Glamis ap-
proach and presents a potential solution to these issues.
I. The Context of Glamis
A. The Questions in Dispute
The Glamis decision, issued on June 8, 2009, concerned a dispute over
the Imperial Project, a mining investment located on federal lands in
southeastern California. Glamis is a gold mining company incorporated in
British Columbia in 1972. Its wholly owned subsidiaries have operated
open-pit gold and silver mines in Nevada and Latin America since the
early 1980s. In preparation for the Imperial Project, Glamis had been
3 Merrill & Ring Forestry LP v Canada (2010), 48 ILM 1038 (International Centre for
Settlement of Investment Disputes) (NAFTA Chapter 11 Panel), online: Private Forest
Landowners Associations
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 923
working to acquire mining rights in southeastern California pursuant to
the US mining law of 1872,4 and secured full ownership of these claims by
1994. During the investments projected life span from 1998 to 2017,
Glamis planned to remove 150 million tons of ore and 300 million tons of
waste rock from three large open-pit mines and to extract gold on site.5
The Imperial Project was controversial from its inception. It met par-
ticular resistance because of its location near designated Native lands
known as the Indian Pass near the Arizona and Mexico borders.
Glamiss opponents argued that the proposed mine would destroy portions
of the Trail of Dreams and other areas used by the Native Quechuan peo-
ple for ceremonial and educational purposes. Adding to the controversy,
the Indian Pass was protected within the California Desert Conservation
Area (CDCA), an area of land designated under the 1976 Federal Land
Policy and Management Act (FLMPA)6 to be protected as scenic and bio-
logically important public land. Under this act, the area at Indian Pass
was given a limited use designation. Any mining operations within the
area would be subject to regulations to protect the scenic, scientific, and
environmental values of the public lands … against undue impairment,
and to assure against the pollution of the streams and waters.7
To implement the Imperial Project, Glamis had submitted to the Bu-
reau of Land Management (BLM) seven separate plans of operation for
the exploration of potential gold resources in southeastern California.8
These plans had been approved based on the determination that Glamiss
exploration would not cause unnecessary or undue degradation to the
lands in question.9 Glamis submitted its Plan of Operations for the Impe-
rial Project (Plan) in 1994, proposing a three-pit mine, two of which would
be sequentially mined and backfilled. The third pit was to be partially
backfilled. The BLM prepared a Draft Environmental Impact Study
(DEIS) and ultimately recommended approving the Plan, provided that
Glamis appropriately mitigated the impact of its operations. Glamis con-
tinued its explorations and pursued the necessary environmental permits,
4 1 Rev Stat tit 32, ch 6, 2319, (1875).
5 Glamis, supra note 2 at para 33.
6 11 USCA tit 43 1701-84 at 1781 (1976).
7 Glamis, supra note 2 at para 48.
8 Glamis, Notice of Intent to Submit Claim to Arbitration Under Section B of Chapter
Eleven of the North American Free Trade Agreement, 23 July 2001 at para 10, online:
NAFTA Claims
9 Glamis, Memorial of Claimant Glamis Gold, 6 May 2006 at para 180, online: US De-
partment of State
924 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
investing more than $18.6 million in the Imperial Project by the end of
1997.10
As required by statute, the issuance of the DEIS was followed by a
consultation period. Concerns about the effects of the Imperial Project on
the Quechuan and other Native Americans were voiced at two public
hearings,11 ultimately prompting the BLM to withdraw the draft DEIS.
Persuaded by a legal opinion concerning the effects of the Imperial Project
(known as the M-Opinion) and additional consultations with the
Quechuan, the Department of the Interior ordered the removal of the Im-
perial Project area and surrounding public lands from further mineral en-
try for twenty years. In 2001, Bruce Babitt, the United States Secretary of
the Interior formally denied the Imperial Project on the grounds that the
land would suffer undue degradation and impairment and hence that the
sacred Quechuan Native American site would be irreparably damaged.12
The cultural review of the Imperial Project took place alongside the
enactment of state regulations designed to mitigate environmental and
aesthetic damage resulting from open-pit mining. Most significant were
the December 2000 State Mining and Geology Board emergency regula-
tions requiring the backfilling of all mines. These regulations came into
effect with the passage of Senate Bill 22 in April 2003,13 which specified
that a lead agency could not approve any proposed operations located on,
or within one mile of, any Native American sacred site and located in an
area of special concern unless the reclamation plan provided for the back-
filling of excavations and re-grading of the site, and unless financial as-
surances sufficient to provide for these measures were made.14 The
Glamis tribunal summarized as follows:
Analyses of the bill recognized the measure would permanently
prevent the approval of the Glamis Gold Mine project and any other
metallic mineral projects that presented an immediate threat to sa-
cred sites located in areas of special concern. They also recognized
that, with respect to the Imperial Project, the Project would have
otherwise been allowed to go forward under the then current law.15
10 Glamis, supra note 2 at para 98.
11 Ibid at para 102.
12 Ibid at para 154.
13 US, SB 22, An act to repeal Sections 5 and 8 of Chapter 1154 of the Statutes of 2002, re-
lating to mining, and declaring the urgency thereof, to take effect immediately, 2003-
2004, Cal, 2002 (enacted), online: California State Senate
14 Ibid at para 175.
15 Ibid at para 177 [footnotes omitted].
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 925
In response to the federal and state government actions, Glamis
(which had merged in 2006 with Goldcorp, Inc., also a Canadian company)
filed a Notice of Intent to Submit a Claim to Arbitration under chapter 11
of NAFTA on 21 July 2003. Glamis claimed that Californias mining regu-
lations and statutes violated its investment rights under chapter 11, argu-
ing that (i) the Imperial Project had been so radically deprived of eco-
nomic value as to constitute an expropriation in violation of article 1110
(Expropriation and Compensation), and (ii) the measures taken by Cali-
fornia, viewed both individually and collectively, were arbitrary and
meant to single out its investment, thereby violating its right to receive
fair and equitable treatment under article 1105 (Minimum Standard of
Treatment). To provide a context for the discussion of the tribunals rul-
ing on Glamiss second claim, a brief introduction to the FET treatment
standard in investment treaty arbitration is necessary.
B. The Fair and Equitable Treatment Standard
FET has emerged as the most important, and hotly debated, standard
of protection in investment treaty arbitration. While a growing number of
arbitral awards have elucidated its meaning and content, different inter-
pretations of FET continue to be advanced by scholars, government offi-
cials, and parties to investment disputes. The following section will ac-
count for the origins and key features of the FET standard and its con-
temporary evolution in arbitral awards rendered under BITs and under
NAFTA.
1. Origins and Basic Features of FET
The obligation of state parties to accord each others investments fair
and equitable treatment gained currency after the Second World War.
The first reference to equitable treatment appeared in the 1948 Havana
Charter for an International Trade Organization (Havana Charter),16 pre-
pared as the basis for the establishment of the International Trade Or-
ganization (ITO). Among the Havana Charters provisions concerning for-
eign investment, article 11(2)(a) provided that the ITO make recommen-
dations for and promote bilateral or multilateral agreements on measures
designed … to assure just and equitable treatment for the enterprise,
skills, capital, arts and technology brought from one Member country to
another. This obligation was consistent with one of the ITOs principal
16 Havana Charter for an International Trade Organization, 24 March 1948, UN Doc
ICITO/1/4 at 11(2)(a) [Havana Charter].
926 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
objectives, which was to foster the international flow of capital for pro-
ductive investment.17
Although the Havana Charter did not become law, its use of the terms
just and equitable became the preferred approach of capital-exporting
countries in establishing basic protections for their investments abroad.18
Throughout the 1950s, the term fair and equitable treatment appeared
in various US treaties on friendship, commerce, and navigation.19 The
1967 Draft Convention on the Protection of Foreign Property (OECD Draft
Convention)20 proposed by the Organization for Economic Co-Operation
and Development (OECD), included a similar standard. Article 1(a) of the
OECD Draft Convention, entitled Treatment of Foreign Property,
stated, Each Party shall at all times ensure fair and equitable treatment
to the property of the nationals of the other Parties. Although it was
never formally adopted, the OECD Draft Convention represented the col-
lective view and dominant trend of OECD countries on investment issues
and influenced the pattern of deliberations on foreign investment in that
period.21
Beginning in the late 1960s, provisions for FET became a regular fea-
ture of BITs signed by capital-exporting and capital-importing countries.
Today, the vast majority of the 2,600 BITs in force contain a provision for
FET.22 The FET obligation also appears in a number of multilateral trea-
17 Ibid, art 1.
18 Stephen Vasciannie, The Fair and Equitable Treatment Standard in International In-
vestment Law (1999) 17 Brit YB Intl L 99 at 100.
19 See Kenneth J Vandevelde, The Bilateral Investment Treaty Program of the United
States (1988) 21 Cornell Intl LJ 201.
20 Draft Convention on the Protection of Foreign Property, 14 December 1960, OECD Pub-
lication No 23081, 7 ILM 117 [OECD Draft Convention].
21 OECD Directorate for Financial and Enterprise Affairs, Fair and Equitable Treatment
Standard in International Investment Law in Working Papers on International In-
vestment, Working paper No 2004/3 (2004) at 4-5 [Working Paper].
22 The number of existing BITs is currently estimated at over 2,600. See Damon Vis-
Dunbar & Henrique Suzy Nikiema, Do Bilateral Investment Treaties Lead to More
Foreign Investment?, News and Commentary (30 April 2009) online: Investment
Treaty News
FET standard, see OECD, Working Paper, supra note 21 at 5. See also Christoph
Schreuer, Fair and Equitable Treatment in Arbitral Practice (2005) 6:3 Journal of
World Investment & Trade 357 at 359; Ioana Tudor, The Fair and Equitable Treatment
Standard in the International Law of Foreign Investment (Oxford: Oxford University
Press, 2008) at 15-51. The FET standard is not always included in BITs negotiated by
Asian countries; for example, some treaties signed by Romania or Japan. See e.g.
Agreement Between the Government of Islamic Republic of Pakistan and the Govern-
ment of Romania on the Promotion and Reciprocal Protection of Investments, 10 July
1995, online: Board of InvestmentGovernment of Pakistan
ernment of the Republic of Turkey Concerning the Reciprocal Promotion and Protection
of Investment, 12 February 1992, 212 UNTS 1995 (entered into force 12 March 1993).
23 Convention Establishing the Multilateral Investment Guarantee Agency, art 12 (Eligi-
ble Investments), online: Multilateral Investment Guarantee Agency
24 Supra note 1, art 1105(1) (Minimum Standard of Treatment).
25 The Energy Charter Treaty, 12 December 1994, 34 ILM 381, art 10 (Promotion, Protec-
tion and Treatment of Investments).
26 Mondev International Ltd v United States, Award of 11 October 2002, ARB(AF)/99/2,
[2002] 6 ICSID Reports 192 at para 119 [Mondev]. See also ADF Group Inc v United
States, Award of 9 January 2003, [2003] 6 ICSID Reports 470 at para 184 [ADF];
Schreuer, supra note 22 at 365.
27 Meg Kinnear, The Continuing Development of the Fair and Equitable Treatment
Standard in Andrea K Bjorklund, Ian A Laird & Sergey Ripinsky, eds, Investment
Treaty Law: Current Issues III (London, UK: British Institute of International and
Comparative Law, 2009) 209 at 223-24.
928 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
of the essential business of courts and tribunals to make judgments
such as these.28
Articles 31 and 32 of the Vienna Convention on the Law of Treaties
(VCLT) govern the interpretation of an FET clause.29 Pursuant to article
31 VCLT, the interpretation of an FET clause must be in good faith
andmust take into account the ordinary meaning of the treatys terms in
their context and in light of the treatys object and purpose, as well as any
subsequent agreements of the parties. Article 32 VCLT allows the
tribunals to have recourse to supplementary means of interpretation
such as the travaux prparatoires to an agreement. Such evidence may
only be used to confirm the meaning that is suggested by an article 31
analysis or in circumstances where application of article 31 leads to an
ambiguous or manifestly absurd result.
2. FET and Customary International Law
The specific place of the FET standard in the body of international law
remains contested. The relationship of FET to the international MST un-
der customary international law has generated particular debate. Under
customary international law, states must respect a minimum set of prin-
ciples when dealing with foreign nationals and their property regardless
of their domestic legislation or practices.30 Treatment that falls short of
the minimum standard results in the international responsibility of the
host state. J.C. Thomas explains the emergence of the international MST
as follows:
The idea of a minimum standard of treatment … arose well over a
century ago because of the concern of some states that the treatment
that was accorded to their nationals in other states could on occasion
fall below that which should be tolerated. This concern included not
only injury to the person of the alien but also to the aliens … prop-
erty and commercial activities. Thus, if a state permitted aliens to
enter its territory and to engage in commercial activity, certain basic
obligations of treatment were said to arise.31
28 Mondev, supra note 26 at para 118. See also Vasciannie, supra note 18 at 103-104.
29 Vienna Convention on the Law of Treaties, 23 May 1969, 1155 UNTS 331 (entered into
force 27 January 1980) [VCLT]. The VCLT is binding on investment arbitration tribu-
nals as a matter of customary international law or by virtue of being directly binding on
the parties to a treaty. See Campbell McLachlan, Laurence Shore & Matthew Weiniger,
International Investment Arbitration: Substantive Principles (Oxford: Oxford University
Press, 2007) at 223.
30 For the history of the MST, see Vasciannie, supra note 18; JC Thomas, Reflections on
Article 1105 of NAFTA: History, State Practice and the Influence of Commentators
(2002) 17:1 ICSID Rev 21.
31 Thomas, supra note 30 at 22-23.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 929
The judicial treatment of the MST began not in investment disputes
but rather in treatment of aliens cases. The 1926 decision of the United
States-Mexico Claims Commission in Neer v. Mexico is considered the
foundational expression of the content of the MST under customary inter-
national law.32 Neer was an American murdered by a gang of armed men
on his way home from a mine where he worked as superintendent. Dis-
missing the claim by Neers family that the Mexican authorities showed
an unwarrantable lack of diligence or an unwarrantable lack of intelligent
investigation in prosecuting the culprits, the Commission characterized
the MST in the following terms:
[T]he treatment of an alien, in order to constitute an international
delinquency, should amount to an outrage, to bad faith, to willful
neglect of duty, or to an insufficiency of governmental action so far
short of international standards that every reasonable and impartial
man would readily recognize its insufficiency.33
As noted, the precise relationship of the FET standard to the MST has
been widely debated.34 Given the Neer threshold, requiring conduct that
amounts to outrage, bad faith, and willful neglect of duty, the ques-
tion arises whether the FET standard creates additional substantive
rights for an investor by requiring treatment that exceeds the customary
MST. Two general approaches to FET have emerged from this debate:
what can be considered the traditional approach and the additive ap-
proach.35
The traditional approach considers the FET standard as equivalent to
the customary, international law MST. State respondents to investment
claims consistently advance this approach because it results in the nar-
rowest interpretation of FET.36 They argue that an arbitral tribunal con-
sidering an alleged violation of an FET clause must assess the impugned
state conduct using the threshold test applicable to the customary MST.
The content of the FET obligation, in turn, is limited to the elements of
32 LFH Neer and Pauline Neer (USA) v United Mexican States (1926), 4 Reports of Inter-
national Arbitral Awards 60 (United Nations) [Neer].
33 Ibid at 61-62.
34 See generally Schreuer, supra note 22; Vasciannie supra note 18; Rudolf Dolzer & Mar-
grete Stevens, Bilateral Investment Treaties (The Hague: Kluwer Law International,
1995).
35 See e.g. Katia Yannaca-Small, Fair and Equitable Treatment: Recent Developments
in August Reinisch, ed, Standards of Investment Protection (Oxford: Oxford University
Press, 2008) 111 at 113ff.
36 See Vasciannie, supra note 18 at 143-44; Kinnear, supra note 27 at 221; Andrea K
Bjorklund, Contract Without Privity: Sovereign Offer and Investor Acceptance (2001)
2 Chicago J Intl L 183 at 191. The tendency of respondent states to advance the tradi-
tional approach to FET will be highlighted throughout my discussion.
930 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
customary international law defined by article 38(1)(b) of the Statute of
the International Court of Justice.37 As the International Court of Justice
(ICJ) and most commentators agree, international custom is comprised of
two elements: (i) the concordant practice of a number of states; and (ii) the
conception that the practice is required by or consistent with the prevail-
ing law (what is known as opinio juris).38 Accordingly, in order for a cus-
tomary minimum standard to emerge, states must act uniformly with re-
spect to the treatment of aliens and their property with the belief that
they have a legal obligation to accord them such conduct. Part I.B.2. will
further consider the relationship of the FET standard to customary inter-
national law.
In contrast to the traditional approach, the additive approach consid-
ers FET as an independent and self-contained standard applicable to con-
duct beyond that proscribed by the MST. F.A. Mann was an early propo-
nent of this interpretation.39 Mann argued that it was misleading to
equate FET with the MST because
[t]he terms fair and equitable treatment envisage conduct which
goes far beyond the minimum standard and afford protection to a
greater extent and according to a much more objective standard
37 Statute of the International Court of Justice, 26 June 1945, 3 TI Agree 1179, 59 Stat
1031, TS 993, 39 AJIL Supp 215 (entered into force 24 October 1945) [ICJ Statute]. Ar-
ticle 38(1) of the ICJ Statute states:
(a)
(b)
The Court, whose function is to decide in accordance with international law
such disputes as are submitted to it, shall apply:
international conventions, whether general or particular, establish-
ing rules expressly recognized by the contesting states;
international custom, as evidence of a general practice accepted as
law;
the general principles of law recognized by civilized nations;
(c)
(d) subject to the provisions of Article 59, judicial decisions and the
teachings of the most highly qualified publicists of the various na-
tions, as subsidiary means for the determination of rules of law.
38 See the North Sea Continental Shelf Cases (Federal Republic of Germany v Nether-
lands, Federal Republic of Germany v Denmark) [1969] ICJ Rep 3 and The Case of the
SS Lotus (1927), PCIJ, (Ser A) No 10 at 4. For commentary, see James L Brierly, The
Law of Nations: An Introduction to the International Law of Peace, 6th ed (Oxford: Ox-
ford University Press, 1963) at 61; Ian Brownlie, Principles of Public International Law,
6th ed (Oxford: Oxford University Press, 2003) at 6-10; Pierre-Marie Dupuy, Droit in-
ternational public, 8th ed (Paris: Dalloz, 2006) 314-15.
39 Vasciannie, supra 18 at 131.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 931
than any previously employed form of words. … The terms are to be
understood and applied independently and autonomously.40
The additive approach employs a plain-meaning interpretation of an
FET clause by reference to the VCLT principles, and does not invoke any
threshold test. Depending on the wording and context of a treaty, an FET
provision may demand more comprehensive duties from the host state
than the international MST, including positive undertakings such as the
obligation to act in good faith, to protect an investors legitimate expecta-
tions, or to ensure the transparency and predictability of its legal sys-
tem.41 In this approach, a number of legal sources may inform the content
of FET, including general principles of international law and the decisions
of arbitral tribunals. The subsequent discussion will highlight how inves-
tor claimants often advance the additive approach to FET.
3. Contemporary Evolution of FET in Bilateral Investment Treaties
The majority of contemporary BITs make reference to the FET stan-
dard.42 BITs are agreements between two contracting states, often negoti-
ated on the basis of one states model text, which is taken as a blueprint.43
The precise formulation of the FET obligation, and thus its scope and con-
tent, is therefore subject to variation. A number of studies have identified
different models of the FET obligation in contemporary BITs.44 While
some BITs contain a simple reference to fair and equitable treatment,45
others articulate the standard together with a reference to the obligation
of full protection and security46 or to standards of non-discrimination.47
40 FA Mann, British Treaties for the Formation and Protection of Investment (1981) 52
Brit YB Intl L 241 at 244. This approach has also been advanced by Schreuer, supra
note 22 at 360 and Dolzer & Stevens, supra note 34 at 58.
41 See Mann, supra note 40; see also Working Paper, supra note 21 at 25ff.
42 See supra note 22.
43 The OECD Draft Convention was recommended to member states as a model for pre-
paring BITs.
44 See UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rule-
Making (2007) UCTAD/ITE/IIT/2006/5 at 28-33, which identifies seven basic models
for the FET obligation. See also Tudor, supra note 22 at 15-51.
45 For example, article 4 of the Argentina-Australia BIT states: Each Contracting Party
shall at all times ensure fair and equitable treatment to investments (Agreement Be-
tween the Government of Australia and the Government of the Argentine Republic on the
Promotion and Protection of Investments, 23 August 1995, 4 ATS 1995, (entered into
force 11 January 1997)).
46 See e.g. the US Model BITs of 1992 and 1994. The US Model BIT of 1992 is reproduced
in Dolzer & Stevens, supra note 34 at 167. The United States Model BIT of 1994 is re-
produced in Kenneth J Vandevelde, US International Investment Agreements (Oxford:
Oxford University Press, 2009) at 817.
932 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
Some BITs enunciate the FET standard in relation to general interna-
tional law. For example, article 3 of the Argentina-France BIT states,
Each of the Contracting Parties undertakes to grant … fair and equi-
table treatment according to the principles of international law to
investments made by investors of the other Party.48
A more recent approach found in Canadian and US Model BITs is to
define FET expressly as the customary international law MST applicable
to aliens and their property.49 This approach has also been adopted in re-
cent US bilateral free trade agreements (FTAs). Article 5 of the United
States-Uruguay BIT, for example, specifies that FET is a part of the cus-
tomary international law MST and details the scope of the obligations
governed by that standard.50
This variety of treaty language precludes any authoritative statement
on the FET standard in the BIT context. Arbitral tribunals constituted
under BITs51 have generally adopted the additive approach to FET, pro-
ceeding by way of a plain reading of the treatys terms. The award in
MTD Equity v. Chile illustrates this tendency.52 MTD, a Malaysian com-
pany, alleged that the Chilean government had breached its FET obliga-
tion by approving and subsequently frustrating MTDs investment
through the enactment of local urban development policies. The tribunal
interpreted the FET clause in the BIT (which contained a simple refer-
ence to the standard) pursuant to the VCLT principles, considering that
the ordinary meaning of fair and equitable was equivalent to just,
47 Tudor, supra note 22 at 29.
48 Unofficial translation of the Argentina/France BIT: see App 1 in Compaa de Aguas
del Aconquija, SA & Compagnie Gnrale des Eaux v Argentine Republic, ICSID Case
No ARB/97/3 (2000), Award of 21 November 2000, 40 ILM 426, 26 YB Comm Arb 61
(International Centre for Settlement of Investment Disputes), (Arbitrators: Thomas
Buergenthal, Francisco Rezek, Peter D Trooboff).
49 See e.g. the 2004 Canadian Model FIPA, art 5, online: Foreign Affairs and International
Trade Canada
5, online: US Department of State
50 Treaty between the United States of America and the Oriental Republic of Uruguay Con-
cerning the Encouragement and Reciprocal Protection of Investment, 4 November 2005,
online: Office of the United States Trade Representative
51 BITs usually provide an investor with a choice of dispute resolution mechanisms. The
institutional form of arbitration most frequently mentioned is arbitration at the Inter-
national Center for the Settlement of Investment Disputes (ICSID). Often, a BIT will
also provide for ad hoc arbitration without an administering institution.
52 Andrew Newcombe & Llus Paradell, Law and Practice of Investment Treaties: Stan-
dards of Treatment (Austin: Kluwer, Law International, 2009) at 269. MTD Equity Sdn
Bhd and MTD Chile SA v Republic of Chile (2004), 44 ILM 91 (International Centre for
Settlement of Investment Disputes).
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 933
even-handed, unbiased, or legitimate.53 It then turned to the context
of the treaty:
As regards the object and purpose of the BIT, the Tribunal refers to
its Preamble where the parties state their desire to create favour-
able conditions for investments by investors of one Contracting
Party in the territory of the other Contracting Party … Its terms are
framed as a pro-active statementto promote, to create, to
stimulaterather than prescriptions for a passive behavior of the
State or avoidance of prejudicial conduct to the investors.54
Emphasizing the parties stated desire to encourage reciprocal invest-
ment between their territories, the tribunal gave an additive reading of
the FET obligation, concluding that, on the facts, Chile had violated the
clause.55
BIT tribunals interpreting FET clauses that contain specific refer-
ences to international law have adopted a similar approach. Vivendi v.
Argentina,56 for example, concerned a long-standing dispute over a con-
cession agreement to privatize water and sewage treatment in the prov-
ince of Tucumn. The investor, Vivendi, argued that the Tucumn au-
thorities had breached the France-Argentina BIT by subjecting it to tariffs
and fines. Article 3 of the BIT provided that each of the state parties un-
dertook to grant … fair and equitable treatment according to the princi-
ples of international law to investments made by investors of the other
Party.57 The tribunal adopted a plain-meaning approach, interpreting the
provision with reference to the object and purpose of the BIT. It noted
that the reference to international law in article 3 supports a broader
reading that invites consideration of a wider range of international law
principles than the minimum standard alone, ultimately concluding that
Argentina had violated its FET obligation.58
53 Ibid at para 113.
54 Ibid.
55 Ibid at para 166. Chile moved to have the award annulled by an ICSID ad hoc commit-
tee, claiming inter alia that the tribunals ruling on the FET claim had failed to apply
international law, but rather relied on a dictum from the award Tecnicas Medioambi-
entales Tecmed SA v The United Mexican States (2003), Award of 29 May 2003, 43 ILM
133 (International Centre for Settlement of Investment Disputes) [Tecmed]. Dismissing
the annulment claim, the committee concluded that the original tribunal had not ex-
ceeded its powers in determining the FET standard. See MTD v Chile (2007), Decision
on Annulment of 21 March 2007, 13 ICSID Reports 500.
56 Kinnear, supra note 27 at 221. See also Compaa de Aguas del Aconquija, SA and
Vivendi Universal SA v Argentine Republic (2007), Award of 20 August 2007, ICSID
Case No ARB/97/3 (France/Argentina BIT).
57 Cited in ibid, s 7.4.1.
58 Ibid, s 7.4.7.
934 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
Very few BIT tribunals have followed the traditional approach that
equates the FET with the MST or have read down a reference to interna-
tional law in an FET clause to customary international law.59 The preva-
lent additive approach in BIT case law allows a tribunal to take into ac-
count the precise wording of an FET clause and the purpose and context
of the particular treaty. The drawback of this approach, however, is that
fairness and equity, in their plain meaning, neither connote a clear set
of legal prescriptions, nor refer to an established body of legal precedents.
Therefore, on the one hand, there are valid concerns that this approach
may not equip a tribunal with a technical understanding of FET and may
open the door to subjective appreciations of the standard.60 On the other
hand, it is not clear that the application of the threshold test for a viola-
tion of the MST is clearer or less subjective. As will be seen, tribunals ap-
plying the Neer test grapple with the same difficulties of applying abstract
notions such as egregiousness to concrete and typically complex factual
situations underlying investment claims.
4. Contemporary Evolution of FET under NAFTA
NAFTA is a regional trade agreement between the governments of
Canada, the United States, and the United Mexican States. Negotiations
for NAFTA began in 1991, two years after the Canada-United States Free
Trade Agreement had come into effect. Both Canada and the United
States sought to participate in the liberalization of the Mexican economy,
which had been following a program of structural reform, deregulation,
and privatization since the late 1980s. In the face of serious objections and
public scrutiny within all three states and several rounds of negotiations,
NAFTA was signed in late 1993 and came into force on 1 January 1994.61
The parties undertook to ensure a predictable commercial framework for
business planning and investment,62 increase substantially investment
59 See e.g. MCI Power Group LC and New Turbine, Inc v Republic of Ecuador (2007),
Award of 31 July 2007, ICSID Case No ARB/03/6 (US/Ecuador BIT). Other BIT tribu-
nals have questioned whether substantial differences result from this characterization:
see Azurix v Argentine Republic (2006), Award of 14 July 2006, 14 ICSID Reports 374
(United States/Argentina BIT) and Saluka Investments BV (The Netherlands) v The
Czech Republic (2006), Partial Award, at paras 291-92 (Permanent Court of Arbitra-
tion), online: PCA
60 See Vasciannie, supra note 18 at 104.
61 Charles H Brower II, Investor-State Disputes Under NAFTA: The Empire Strikes
Back (2001) 40 Colum J Transnatl L 43 at 48 [Brower II, Investor-State Disputes].
62 NAFTA, supra note 1, Preamble.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 935
opportunities in the[ir] territories, and create effective procedures for
the resolution of their disputes.63
Chapter 11 (Investment) implements these objectives by permitting
an investor of one NAFTA party to seek monetary damages for conduct of
one of the other NAFTA parties that allegedly violates its provisions.64
Like other investment treaties, chapter 11 establishes standards of in-
vestment protection and dispute settlement procedures. It also includes
two important features. First, pursuant to article 1128, any one of the
three parties may make submissions to a Tribunal on a question of inter-
pretation of [the] Agreement, even if that party is not a respondent to the
particular dispute. Second, pursuant to article 1131(2), NAFTA parties
have the collective authority to formulate binding interpretations of chap-
ter 11 through the NAFTA Free Trade Commission (FTC).65
Chapter 11 is divided into three sections. Section A defines the scope
and content of obligations owed by NAFTA parties to investors.66 The pro-
vision for FET is found in the first subsection of article 1105 (Minimum
Standard of Treatment), which reads:
1. Each Party shall accord to investments of investors of another
Party treatment in accordance with international law, including fair
and equitable treatment and full protection and security.
2. Without prejudice to paragraph 1 and notwithstanding Article
1108(7)(b), each Party shall accord to investors of another Party, and
to investments of investors of another Party, non-discriminatory
treatment with respect to measures it adopts or maintains relating
to losses suffered by investments in its territory owing to armed con-
flict or civil strife.
63 Ibid, art 102(c)(e).
64 Chapter 11 is one of four dispute resolution chapters under NAFTA. Chapter 20 im-
plements state-to-state dispute settlement providing first recourse to the Free Trade
Commission (FTC). Chapter 19 provides for the establishment of bi-national panels to
review final decisions of each of the parties administrative authorities. Chapter 14 cov-
ers financial services and incorporates the dispute resolution mechanisms of chapter 11
(ibid).
65 Article 1136(3) contemplates that a losing NAFTA party may seek revision or annul-
ment, but not appeal, of awards by municipal courts at the seat of arbitration (ibid).
66 Article 1101 indicates that chapter 11 applies to measures adopted or maintained by a
NAFTA member relating to (a) investors of another party; (b) investments of another
party in the territory of the party; and (c) with respect to articles 1106 and 1114, all in-
vestments in the territory of the party. Unlike BITs, which in theory allow for both
states and investors to file claims, under NAFTA only investors may bring claims
against the state parties (ibid).
936 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
3. Paragraph 2 does not apply to existing measures relating to sub-
sidies or grants that would be inconsistent with Article 1102 but for
Article 1108(7)(b).67
Read in conjunction with article 1116, article 1105 gives investors the
right to seek damages before an independent tribunal whenever a NAFTA
host partys conduct falls below the announced standard.68 Pursuant to ar-
ticle 1121, an investor bringing a claim under chapter 11 waives further
recourse to local remedies in the host state.
In contrast to the BIT context, NAFTA has generated a body of case
law where the same treaty provisions are repeatedly interpreted.69 Article
1131(1) directs tribunals to decide the issues in a particular dispute in ac-
cordance with this Agreement and applicable rules of international
law.70 While this affords the potential for coherent interpretation, the
treatment of article 1105 has been far from consistent. The case law is
best considered in two stages: before and after the 2001 FTC Note of In-
terpretation.71
Metalclad Corporation v. United Mexican States,72 the first substan-
tive decision on article 1105 in favour of an investor, represents the early
approach to the FET standard.73 The dispute concerned a waste manage-
ment station in the municipality of Guadalcazar. The claimant alleged
that Mexico had wrongfully refused to permit its subsidiary to operate the
facility, even though the project was allegedly built in response to the in-
vitation of certain Mexican officials and allegedly met all Mexican legal
requirements. Exhausting its local remedies against the municipality,
Metalclad initiated a claim under NAFTA for, inter alia, a breach of arti-
cle 1105. The claimant advanced an additive interpretation of the FET
standard, alleging that article 1105 incorporated the obligations of pre-
dictability and transparency. Mexico, in turn, insisted that in assessing
whether its conduct violated article 1105, the tribunal should take into
67 Ibid, art 1105.
68 Subject to the nationality requirement, investors may accept the NAFTA parties stand-
ing offer to arbitrate by submitting disputes to arbitration under the Convention on the
Settlement of International Disputes (ICSID Convention), the Additional Facility Rules
of the ICSID Convention, or the United Nations Commission on International Trade
Law (UNCITRAL) Arbitration Rules (ibid, art 1120).
69 As I will explore in Part II.A, however, NAFTA tribunals are not bound by a formal doc-
trine of stare decisis.
70 NAFTA, supra note 1.
71 Kinnear, supra note 27 at 216.
72 Metalclad Corporation v Mexico (2001), Award of 30 August 2000, 40 ILM 36 (Interna-
tional Centre for Settlement of Investment Disputes) [Metalclad].
73 Kinnear, supra note 27 at 216.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 937
account the provisions of NAFTA aimed at environmental protection and
the subsequent agreements of the parties in order to make its assess-
ment in the light of all relevant facts and circumstances.74 The tribunals
analysis reflected the prevalent approach of BIT case law. It accepted the
claimants interpretation, noting the reference to predictability and trans-
parency in the preamble to NAFTA and found that the treaty was to be
interpreted in accordance with the ordinary meaning to be given to its
terms. Although the tribunal concluded that Mexico and its local govern-
ments had interfered with the development and operation of the project in
breach of its FET obligation, it did not comment on the customary MST
and its bearing upon article 1105.75
The interpretation of article 1105 in Pope & Talbot v. Canada was the
most expansive of all NAFTA awards.76 The case arose out of Canadas
temporary settlement of a trade dispute with the United States over the
alleged subsidization of softwood lumber. The investor, an American com-
pany, alleged that several features of Canadas export control regime vio-
lated article 1105.77 Relying on the S.D. Myers award,78 the investor ar-
gued that the FET standard under NAFTA was broader than the custom-
ary MST and that it subsumed other sources of law, including general
principles of international law, international treaties, and the concept of
74 Metalclad, Mexicos Counter-Memorial, 17 February 1998, at para 841, online: NAFTA
did not address the interpretation of article 1105.
75 In 2001, the Supreme Court of British Columbia set aside the Metalclad award in part.
Tysoe J criticized the tribunals reasoning, concluding that the protections owed under
article 1105 were limited to the customary international law MST. Arguing that the
Metalclad tribunal had cited no authority to demonstrate that the transparency obliga-
tion was a customary norm, he set aside the tribunals ruling on article 1105. See
United Mexican States v Metalclad Corp, 2001 BCSC 664, [2001] 89 BCLR (3d) 359.
76 Pope & Talbot Inc v Government of Canada (2000-2002), Award on the Merits of Phase
2 of 10 April 2001, 7 ICSID Reports 43 at 105ff (NAFTA Chapter 11 Tribunal) [Pope &
Talbot (Merits)]. This decision came in the wake of SD Myers v Canada, in which a dif-
ferent tribunal unanimously held that Canada had violated NAFTA article 1102 (Na-
tional Treatment) by prohibiting the export of PCBs and PCB wastes to the United
States for remediation. The majority of the tribunal also held that this denial of na-
tional treatment violated the investors right to FET under article 1105. In doing so, it
rejected the party submissions of Mexico and Canada that the reference to interna-
tional law in article 1105 ought to be limited to customary international law. See SD
Myers, Inc v Canada (2002), Final Award of 30 December 2002, 8 ICSID Reports 172
(NAFTA) [SD Myers].
77 The investor also brought claims under article 1106 (Performance Requirements) and
article 1102 (National Treatment). See Pope & Talbot (Merits), supra note 76 at para
105. These are beyond the scope of our discussion.
78 SD Myers, supra note 76.
938 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
good faith.79 Canada maintained that article 1105 incorporated only the
customary MST and that in order to breach the standard, state conduct
must amount to gross misconduct, manifest injustice, or in the classic
words of the Neer claim, an outrage, bad faith or the willful neglect of
duty.80 The United States, pursuant to its powers to make submissions
under article 1128, made similar contentions.81
At the merits stage, the tribunal rejected the parties submissions and
interpreted article 1105 based on the parties presumed intention to pro-
vide a higher standard of treatment than the MST. The tribunal stated:
[A] possible interpretation of the presence of the fairness elements in
Article 1105 is that they are additive to the requirements of interna-
tional law. That is, investors under NAFTA are entitled to the inter-
national law minimum, plus the fairness elements.82
The tribunal recognized that the wording of article 1105 provides ex-
presslyby using the word includingthat fair and equitable treat-
ment is subsumed within customary international law. The tribunal
considered, however, that because the language of article 1105 grew out
of the provisions of bilateral commercial treaties negotiated by the United
States and other industrialized countries, the investor was entitled to the
benefits of the fairness elements under ordinary standards applied in the
NAFTA countries.83 Accordingly, fair and equitable treatment under
article 1105 was additive to the MST and was to be interpreted free of
any threshold test.84 Although the tribunal dismissed the investors alle-
gations regarding the export control regime, it considered that the acts of
Canadian government officials after the commencement of the arbitration
(in particular, its targeted auditing of the investors operational and fi-
nancial records) violated its FET obligations under article 1105.
Because of a concern over these increasingly liberal interpretations of
article 1105, on 31 July 2001, the NAFTA FTC issued a binding Note of
Interpretation (FTC Note) in its first exercise of authority under article
1131(2).85 The FTC Note stated as follows:
79 Pope & Talbot (Merits), supra note 76 at para 107.
80 Pope & Talbot, Phase 2 Counter-memorial at para 309.
81 Pope & Talbot (Merits), supra note 76 at para 114.
82 Ibid at para 110.
83 Ibid at paras 110, 118.
84 Ibid at para 110.
85 NAFTA Free Trade Commission, Notes of Interpretation of Certain NAFTA Chapter 11
Provisions, (31 July 2001), online: Foreign Affairs and International Trade Canada
position on confidentiality and publication of documents relating to arbitrations.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 939
Minimum Standard of Treatment in Accordance with Inter-
national Law
Article 1105(1) prescribes the customary international law minimum
standard of treatment of aliens as the minimum standard of treat-
ment to be afforded to investments of investors of another Party.
The concepts of fair and equitable treatment and full protection
and security do not require treatment in addition to or beyond that
which is required by the customary international law minimum
standard of treatment of aliens.
A determination that there has been a breach of another provision of
the NAFTA, or of a separate international agreement, does not es-
tablish that there has been a breach of Article 1105(1).86
Making it clear that the obligation under article 1105 in future cases was
equivalent to the MST under customary international law, the FTC Note
required tribunals to abandon the additive approach to FET and to inter-
pret the provision by applying the MST threshold test to the state conduct
in question.
While most NAFTA tribunals before Glamis accepted that the FET
under article 1105 is equivalent to the customary MST, they consistently
disagreed with NAFTA party submissions over its content and the appli-
cable threshold test to determine its breach. This trend began with the
2002 Pope & Talbot Award on Damages,87 where the tribunal considered
the validity of the FTC interpretation and its effect on its prior finding
under article 1105.88 At the merits stage, Canada had held out the Neer
decision as the applicable threshold for the international MST. In its
Award on Damages, the tribunal rejected this static conception on the
grounds that there has been an evolution in customary international law
concepts since the 1920s when Neer was decided.89 In particular, it con-
sidered that the growing number of BITs established that the concept of
FET had expanded with state practice. It also relied on the 1989 Case
86 Ibid.
87 Pope & Talbot Inc v Government of Canada, (2000-2002), Award on Damages of 31 May
2002, 7 ICSID Reports 43 at 148 (NAFTA Chapter 11 Tribunal) [Pope & Talbot (Dam-
ages)].
88 After the FTC Note was issued, a controversy ensued regarding its status as a reason-
able interpretation falling within, or as an amendment falling outside of, the FTCs
mandate. See generally Charles H Brower II, Why the FTC Notes of Interpretation
Constitute a Partial Amendment of NAFTA Article 1105 (2006) 46 Va J Intl L 347
[Brower II, FTC Notes of Interpretation]; Ian A Laird, Betrayal, Shock and Out-
rageRecent Developments in NAFTA Article 1105 in Todd Weiler, ed, NAFTA In-
vestment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley,
NY: Transnational Publishers, 2004) 49 at 49.
89 Pope & Talbot (Damages), supra note 87 at paras 58-59.
940 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
Concerning Elettronica Sicula S.P.A. (ELSI) to confirm the evolution of
the international MST since Neer. The ICJ Panel stated in ELSI:
Arbitrariness is not so much something opposed to a rule of law, but
the rule of law. This idea was expressed by the Court in the Asylum
case, when it spoke of arbitrary action being substituted for the
rule of law. It is a willful disregard of due process of law, an act
which shocks, or at least surprises a sense of judicial propriety.90
The Pope & Talbot tribunal argued that the ELSI formulation was pref-
erable to Neer because it required that the impartial observer no longer
be outraged, but only surprised by what the government has done. More-
over, by referring to a concept of due process (rather than governmental
action), the ELSI case was more dynamic and responsive to evolving and
more rigorous standards for evaluating what governments do to people
and companies and therefore more suited to the contemporary context of
foreign investment protection.91
The tribunal in Mondev92 echoed these comments, adopting the pre-
vailing approach to article 1105 in case law preceding Glamis. The Mon-
dev arbitration, which was initiated before the FTC Note, concerned a
commercial real estate investment by a Canadian company, and the
courts treatment of the companys breach of contract claim against the
city of Boston. The tribunal heard extensive arguments on the scope of ar-
ticle 1105. The investor characterized the FTC Note as an amendment to
the treaty, questioning whether the United States could in good faith
change the meaning of a NAFTA provision in the middle of the case in
which that provision plays a major part.93 The NAFTA party submissions
questioned the Pope & Talbot tribunals reliance on BITs as evidence of
the MST. The tribunal ultimately followed Pope & Talbot and rejected the
argument that the Neer decision was the standard applicable to article
1105, stating that
Neer and like arbitral awards were decided in the 1920s, when the
status of the individual in international law, and the international
protection of foreign investments, were far less developed than they
90 Case Concerning Elettronica Sicula SPA (ELSI) (United States of America v Italy),
[1989] ICJ Rep 15 at para 128 [citations omitted] [ELSI]. The ELSI case concerned the
temporary requisitioning by the mayor of Palermo of an industrial plan belonging to a
US company controlled by US shareholders. This issue in the case did not concern the
FET standard, although arbitrary and discriminatory measures were prohibited in a
clause of the BIT.
91 Pope & Talbot (Damages), supra note 87 at para 64.
92 Supra note 26.
93 Ibid at para 102.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 941
have since come to be. … To the modern eye, what is unfair or ineq-
uitable need not equate with the outrageous or the egregious.94
Insisting that Chapter 11 of NAFTA (like other treaties for the protection
of investments) is intended to provide a real measure of protection, the
Mondev tribunal relied on the reasoning in the ELSI case to formulate the
modern customary MST.95
The tribunals comments in Mondev were cited and adopted with ap-
proval in ADF Group v. the United States.96 The ADF arbitration con-
cerned the buy America provision in United States regulations requiring
that federal-aid highway construction projects only use domestically pro-
duced steel products. The investor, a Canadian company, was a successful
bidder for a contract to supply custom-built steel components for a high-
way interchange in Virginia. Though initially agreeing to use American
steel, it sought a waiver of the domestic manufacturing requirement on
the ground that its United States fabrication facilities were inadequate to
produce the products. Local transport authorities denied the request, forc-
ing the investor to perform the contract by manufacturing the steel in the
United States. Claiming that the Buy America requirements infringed
its investment rights under NAFTA chapter 11, the investor alleged viola-
tions of article 1102 (National Treatment) and article 1106 (Perform-
ance Requirements), as well as the MST under article 1105.
The tribunal rejected each of the investors claims, resolving all but
the article 1105 claim by adopting a broad construction of an exemption
contained within article 1108.97 The tribunals analysis of article 1105 sig-
nalled another measured reply to the FTC Note of Interpretation. The tri-
bunal rejected the United States restrictive interpretation of article 1105,
insisting upon the evolutionary character of the MST, and dismissing any
logical necessity or concordant state practice supporting the view that
the Neer formulation could automatically extend to the contemporary con-
text.98 Building on the ruling in Mondev, it considered that the obligation
to accord FET was based upon State practice and judicial or arbitral case
law or other sources of customary or general international law.99
94 Ibid at para 116.
95 Ibid at para 127.
96 ADF, supra note 26 at 184.
97 The ADF tribunal ruled that article 1108 exempts procurements that are also invest-
ments from certain chapter 11 requirements, including article 1102 and requirements
to achieve specified domestic content under article 1106 (ibid at para 179).
98 Ibid at para 181.
99 Ibid at para 184.
942 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
Other NAFTA awards before Glamis adopted relatively permissive in-
terpretations of article 1105 and rejected the narrow approach advanced
in NAFTA party submissions. In 2004, a tribunal was established to con-
sider the second phase of the arbitration in Waste Management Inc. v.
Mexico.100 Waste Management II concerned the Mexican governments al-
leged breach of article 1105 in relation to a concession contract for waste
removal in Acapulco. Although concluding that the facts of the case did
not lead to a violation of article 1105, the tribunal dismissed the respon-
dents argument that the international MST was confined to the kind of
outrageous treatment referred to in the Neer case.101 The tribunal ex-
plained the evolution of article 1105 in NAFTA case law as follows:
Taken together, the S.D. Myers, Mondev, ADF and Loewen cases
suggest that the minimum standard of treatment of fair and equita-
ble treatment is infringed by conduct attributable to the State and
harmful to the claimant if the conduct is arbitrary, grossly unfair,
unjust or idiosyncratic, is discriminatory and exposes the claimant to
sectional or racial prejudice, or involves a lack of due process leading
to an outcome which offends judicial propriety … Evidently the stan-
dard is to some extent a flexible one which must be adapted to the
circumstances of each case.102
The synthesis in Waste Management II was accepted in three subse-
quent awards interpreting article 1105. The tribunal in GAMI Invest-
ments v. Mexico103 drew from this formulation, as well as the decision in
ADF, to reject the continued applicability of the Neer standard. Ruling on
a dispute over the operation of Mexicos sugar-production regime, the tri-
bunal considered that [a] claim of maladministration would likely violate
article 1105 if it amounted to an outright and unjustified repudiation of
the relevant regulations.104 In the subsequent award, Methanex v. United
States, the tribunal acknowledged the Waste Management II tribunals
100 Waste Management Inc. v United Mexican States (Number 2) (2004), Award of 30 April
2004, 43 ILM 967 (International Centre for Settlement of Investment Disputes) [Waste
Management II]. This award followed the controversial ruling in Loewen, where another
NAFTA tribunal had found a substantive violation of article 1105 but denied relief to
the investor on the grounds it had not exhausted its local remedies against the United
States: Loewen Group, Inc and Raymond L Loewen v United States (2003), Award on
Merits of 26 June 2003, 42 ILM 811 (International Centre for Settlement of Investment
Disputes) [Loewen]. In considering the article 1105 claim, the Loewen tribunal cited
Mondev with approval and applied the ELSI standard in assessing the conduct of the
United States (ibid at para 133).
101 Waste Management II, supra note 100 at para 93.
102 Ibid at paras 98-99.
103 Gami Investments, Inc v Mexico (2004), 44 ILM 545 (NAFTA Chapter 11 Tribunal). On
the evidence before it, the tribunal found that the claimant had not proven an outright
or unjustified repudiation of its regulations (ibid at para 104).
104 Ibid at para 103.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 943
difficult task of synthesizing the post-interpretation jurisprudence of Ar-
ticle 1105 and quoted its formulation with approval.105 In a 2006 award
in International Thunderbird v. Mexico, the tribunal noted the evolution
of the customary law since the Neer case, and, relying on Waste Manage-
ment II, stated that acts that give rise to a breach of the MST are those
that amount to a gross denial of justice or manifest arbitrariness falling
below acceptable international standards.106
This summary allows one to draw a number of conclusions with re-
spect to the development of NAFTA case law on the FET standard under
article 1105 prior to the Glamis award. Early NAFTA tribunals (Metal-
clad, Pope & Talbot) followed the approach prevalent in BIT case law, re-
garding FET as an autonomous standard whose interpretation could have
a range of legal sources, including arbitral awards and general principles
of international law. The 2001 FTC Note, by pronouncing the FET stan-
dard under NAFTA as equivalent to the customary international law
MST, attempted to contain this interpretive trend. Beginning with the
Pope & Talbot Award on Damages, subsequent NAFTA tribunals would
acquiesce to the FTC Note, all the while insisting upon the evolutionary
character of the MST and looking beyond the strict sources of customary
international law to determine the content of article 1105. The Mondev,
ADF, and Waste Management II tribunals rejected submissions by the
NAFTA parties who attempted to restrict the sources of law relevant to
the interpretation of article 1105 and to advance an historical conception
of the MST dating from the 1920s.
C. The Glamis Ruling on Article 1105
The parties in Glamis advanced familiar arguments on the legal as-
pects of article 1105. Glamis insisted that the duty to accord fair and eq-
uitable treatment and the minimum standard of treatment are dynamic
standards,107 and that the protection provided by article 1105 had evolved
beyond the Neer formulation. The tribunal summarized Glamiss argu-
ment that the customary MST was synonymous with any autonomous
treaty standard for FET found in BITs:
Claimant agrees that there is a difference between the autonomous
and customary international law standards and that the standard
articulated in NAFTA Article 1105 is the customary international
105 Methanex v United States (2005), 44 ILM 1345 at 1452 (NAFTA Chapter 11 Tribunal).
106 International Thunderbird Gaming Corporation v Mexico (2006), Award of 26 January
2006, at para 194 (Chapter 11 Panel), online: US Department of State
107 Glamis, supra note 2 at paras 547-48.
944 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
law minimum standard of treatment of aliens, but it argues that the
two sources of law, at this point, require the same conduct of states.
Claimant thus asserts that this dispute between customary inter-
national law and international law is unnecessary, as BIT juris-
prudence has converged with customary international law in this
area.108
Glamis argued that the customary standard referenced in the
NAFTA has been influenced by the many BITs that require fair and equi-
table treatment.109 It also referred to the OECD Draft Convention as a
source of customary international law recognized by the United States
and incorporated in its various bilateral free trade agreements.110 Accord-
ing to Glamis, all of these sources had become relevant to the determina-
tion of article 1105, and together evidenced a universe of commonly ac-
cepted international law principles, including the duty to act in good
faith, due process, transparency and candor, and fairness and protection
from arbitrariness.111 It argued the current content of the FET obligation
encompassed two particular duties: (i) the protection of an investors le-
gitimate expectations; and (ii) the protection against arbitrary measures.
Glamis cited various BIT and NAFTA awards112 for the proposition that a
foreign investor expects its host State to act consistently, free from ambi-
guity and totally transparently in its relations with the investor.113
In response, the United States advanced the traditional approach to
FET, insisting that article 1105 requires only the customary international
law MST, and nothing more.114 It questioned the relevance of BIT awards
to the customary MST, highlighting the significant textual differences
among treaties, many of which include stand-alone FET provisions mak-
ing no reference to international law. Referring the tribunal to the two
elements comprising customary international law (state practice and
opinio juris), it argued that the meaning of the MST could not be informed
by decisions of international tribunals because they do not constitute state
practice. The United States insisted that a rule only crystallizes into cus-
108 Ibid at para 551.
109 Ibid at para 552.
110 Ibid at para 551.
111 Ibid at para 545.
112 Glamis (see ibid at para 578) relied on Tecmed (supra note 55); Glamis (see Glamis, su-
pra note 2 at para 570) also relied on International Thunderbird (supra note 106); and,
finally, Glamis (see Glamis, supra note 2 at 569) additionally relied on CMS Gas
Transmission Company v The Argentine Republic, ICSID Case No ARB/01/8
(US/Argentina BIT), Award, 17 July 2003.
113 Glamis, supra note 2 at para 573 (citing Tecmed, supra note 55 at para 154) [footnotes
omitted].
114 Ibid at para 555.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 945
tomary international law over time through a general and consistent
practice of States that is adhered to form a sense of legal obligation.115 In
bringing a claim under article 1105, Glamis had the burden of proving the
existence of customary international law rule and the United States vio-
lation of that rule.116 According to the United States, the awards cited by
Glamis did not establish that the protection it claimed had become part of
the MST because they did not constitute evidence of custom.
The tribunal reviewed and accepted each of the United States conten-
tions in its ruling. It declared that a claimant has the burden to prove
that the MST has evolved to require something more than the egregious
standard asserted in Neer. The tribunal held that the establishment of a
rule of customary international law requires state practice and opinio ju-
ris, and concluded that Glamis had not made this out. In particular, the
tribunal took issue with Glamiss reliance on BIT case law to demonstrate
the more expansive scope of the current FET standard, as the entire
method of reasoning in these cases does not bear on an inquiry into cus-
tom, but rather into an analysis of the treaty language and its mean-
ing.117 It recognized that what the international community views as
outrageous may change over time and that the Neer standard, when
applied with current sentiments and to modern situations, may find
shocking and egregious events not considered to reach this level in the
past.118 According to the tribunal, however, this did not entail that cus-
tomary international law had itself moved the Neer standard. The tribu-
nal explained:
The customary international law minimum standard of treatment is
just that, a minimum standard. It is meant to serve as a floor, an ab-
solute bottom, below which conduct is not accepted by the interna-
tional community.119
Concluding that the fundamentals of the Neer standard still apply to-
day, the tribunal questioned whether the FET standard under NAFTA
subsumed the specific obligations identified by Glamis. With respect to
the asserted duty to protect the legitimate expectations of investors, it
noted that [a]rticle 1105(1) requires the evaluation of whether the State
made any specific assurance or commitment to the investor so as to in-
duce its expectations.120 Although the tribunal did not look to ELSI in ar-
115 Ibid at para 567.
116 Ibid at para 553.
117 Ibid at paras 608, 606.
118 Ibid at paras 612-13.
119 Ibid at para 615.
120 Ibid at para 620 [footnotes omitted].
946 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
ticulating the general standard of treatment under article 1105, it did ac-
knowledge the panels finding that a certain level of arbitrariness [may]
violate the obligations of a State under the fair and equitable treatment
standard.121 It nonetheless upheld the high level of deference afforded
by NAFTA tribunals to the decision making of domestic courts, concluding
that a finding of arbitrariness requires … an act so manifestly arbitrary,
so unjust and surprising as to be unacceptable from the international per-
spective.122
As noted, the Glamis tribunal ultimately held that federal and state
agencies had not met the required levels of misconduct in their dealings
with Glamis to amount to a breach of article 1105. Glamis had argued
that it held legitimate expectations that its Plan would be approved,
based not only on the mining regime as it stood under pre-existing Cali-
fornia regulations, but also based on earlier findings in its investment re-
view process. According to the tribunal, there had been no arbitrary or
evidently discriminatory conduct or unreasonable delay with respect to
the assessment of the Plan, nor did the assessment frustrate any expecta-
tions formed by a quasi-contractual relationship between Glamis and the
United States that would engender its legitimate expectations.123 In par-
ticular, the California Senate Bill 22 and the emergency regulations that
preceded it did not upset Glamiss expectations, as these expectations
were not created by specific assurances.124 In response to Glamiss argu-
ment that the Imperial Project had been treated differently from other
mining operations during its cultural review, the tribunal found that the
process was undertaken by qualified professionals who issued well-
reasoned opinions concerning the effect of the investment on the
Quechuan people.125 It arrived at similar conclusions with regard to the
Department of Interior M-Opinion.126 Conceding that the Imperial Project
and its anticipated effects may have inspired the passing of California
Senate Bill 22, the tribunal concluded that the legislation was of general
application and did not directly target the Imperial Project. Rejecting
Glamiss claim under article 1105, as well as its claim under article 1110,
the tribunal ordered Glamis to pay two-thirds of the arbitral costs and de-
nied any other requests for compensation.
121 Ibid at para 625.
122 Ibid at paras 589, 626.
123 Ibid at paras 762-72
124 Ibid at paras 789-807.
125 Ibid at para 781.
126 Ibid at paras 758-72.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 947
II. Critical Response to the Glamis Award
This papers critical response to Glamis will focus on two significant
aspects of the awardthe tribunals position on the evolution of custom-
ary international law and its evidentiary approach to article 1105and
will highlight how it deviated from the growing body of NAFTA case law
analyzed in Part I.B. Setting out from a discussion of the operation of
precedent in investment treaty arbitration, it will question whether the
Glamis tribunal adequately justified its departure from former cases and
whether its conclusions are tenable given the economic and regulatory in-
terests underlying NAFTA. Considering the more general question of the
restriction of protections under article 1105 to the customary interna-
tional law MST, it will conclude with a brief consideration of a newly is-
sued NAFTA award, Merrill & Ring Forestry L.P. v. Canada,127 that de-
parts from the approach adopted in Glamis and offers a potential solution
to the problems Glamis presents.
A. The Tribunals Unconvincing Treatment of Precedent
Since publication of the Glamis award in June 2009, commentary on
the award has centered upon its divergent approach to article 1105 in re-
lation to existing NAFTA case law.128 In order to critically reflect upon
Glamis, it is necessary to consider the extent to which the tribunal was
obligated to follow previous NAFTA awards. The operation of precedent in
investment treaty arbitration is a difficult and increasingly relevant topic
given the growing challenges to the legitimacy of the NAFTA and ICSID
systems.129 As with any adjudicatory process, there are reasons why arbi-
127 Merrill, supra note 3.
128 See Elizabeth Whitsitt & Damon Vis-Dunbar, Glamis Gold Ltd v United States of
America: Tribunal Sets a High Bar for Establishing Breach of Fair and Equitable
Treatment under NAFTA, Investment Treaty News (15 July 2009) online: Investment
Treaty News
Golds Chapter 11 Suit Flops, Embassy (22 July 2009) online: Embassy Magazine
Recalibration of Investment Disciplines Under Free Trade Agreements Kluwer Arbi-
tration Blog (16 December 2009) (blog), online:
129 On precedent, see generally Emmanuel Gaillard & Yas Banifatemi, eds, Precedent in
International Arbitration (New York: Juris Publishing, 2008). See also Tai-Heng Cheng,
Precedent and Control in Investment Treaty Arbitration (2007) 30 Fordham Intl LJ
1014; the May 2008 issue of Transnational Dispute Management devoted to this topic,
online: Transnational Dispute Management
Arbitration and Public Law (Oxford: Oxford University Press, 2007); Charles H Brower
II, Structure, Legitimacy, and NAFTAs Investment Chapter (2003) 36 Vand J Trans-
natl L 37 [Brower II, NAFTAs Investment Chapter]; Susan D Franck, The Legiti-
948 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
tral tribunals should align their decisions with existing case law on a
given issue. As Schreuer and Weiniger comment, Reliance on past deci-
sions … plays an important role in securing the necessary uniformity and
stability of the law … [and] strengthens the predictability of decisions and
enhances their authority.130 These goals are particularly important for
investment treaty tribunals due to the absence of any appellate body with
the jurisdiction to review awards and to correct errors of law made in the
first instance. Critics such as Gus Van Harten have further argued that
the unique combination of state responsibility and private adjudication
that characterizes investment arbitration places an increased onus on tri-
bunals to guard against inconsistent decision making.131
Nonetheless, arbitral tribunals consistently maintain that there is no
doctrine of binding precedent in international law and that they are not
obligated to follow the rulings of prior awards. The Glamis tribunal ad-
dressed this question in the introductory section of its award entitled The
Tribunals Understanding of Its Task.132 In this unusual act of self-
reflection, the tribunal contrasted its role to that of a standing adjudica-
tive body which addresses multiple disputes. According to the tribunal,
its mandate under Chapter 11 of the NAFTA [is] similar to the case-
specific mandate ordinarily found in international commercial arbitra-
tion and it could not be confronted with the task of reconciling its … [de-
cision] with … earlier ones.133 Relating this mandate to the intention of
the NAFTA parties, it continued:
Notwithstanding the likelihood that numerous arbitrations would
arise under Chapter 11 of the NAFTA, the three states of North
American … chose to have arbitrations resolved by distinct arbitral
panels. In this sense, it is clear that this Tribunal is asked to have a
case-specific focus as it proceeds to address this dispute.134
While denying the precedential effect of NAFTA awards, the tribunal
acknowledged its awareness of the larger context in which it operates
macy Crisis in Investment Treaty Arbitration: Privatizing Public International Law
Through Inconsistent Decisions (2005) 73 Fordham L Rev 1521.
130 Christoph Schreuer & Matthew Weiniger, Conversations Across CasesIs There a
Doctrine of Precedent in Investment Arbitration? (2008) 5:3 Transnational Dispute
Management 1 at 1, online:
131 Van Harten, supra note 129 at 166-67. Van Harten argues that the lack of coherence in
investment arbitration awards benefits large firms in their political bargaining with
government, by exacerbating the regulatory chill that is otherwise generated by the
threat of a damages award against the state (ibid).
132 Glamis, supra note 2 at paras 3-9.
133 Ibid at para 3.
134 Ibid.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 949
and the systemic implications of its decisions for future tribunals, for
NAFTA state parties and investors, and in fostering public faith in the in-
tegrity of the process of arbitration.135 This context, it noted, guides and
aids the Tribunal in simultaneously supporting the system of which it is
only a temporary part. The tribunal accordingly acknowledged its duty to
communicate its reasons for departing from major trends in previous de-
cisions,136 citing a passage from the separate opinion of Thomas Wlde in
International Thunderbird137 to illustrate this constraint. The passage
stated in part:
In international and international economic lawto which invest-
ment arbitration properly belongsthere may not be a formal stare
decisis rule as in common law countries, but precedent plays an im-
portant role. Tribunals and courts may disagree and are at full lib-
erty to deviate from specific awards, but it is hard to maintain that
they can and should not respect well-established jurisprudence.138
In short, the Glamis Tribunal communicated its nuanced understand-
ing of operation of precedent in investment treaty arbitration and under
NAFTA. On the one hand, it was free to deviate from previous NAFTA
awards, but on the other, it was under a duty to justify such deviations
given the larger context in which it operates. Regrettably, the tribunals
ruling on article 1105 failed to fully draw on these insights. In particular,
its reassertion of the Neer standard as the applicable threshold test for
finding a violation of article 1105 represents a major deviation, which the
tribunal did not fully justify, from NAFTA awards rendered after the FTC
interpretation. As shown in Part II.B, NAFTA tribunals constituted after
2001 consistently rejected the applicability of the Neer standard, estab-
lishing an important trend among tribunals of asserting a wider and more
developed scope of investment protection under customary international
law. While Glamis cited awards such as ADF, Mondev, Waste Manage-
ment II, GAMI, and International Thunderbird to demonstrate the
evolved state of customary international law, the tribunal chose not to fol-
low their approach, considering that they were to be given at most per-
suasive authority:
Arbitral awards … do not constitute State practice and thus cannot
create or prove customary international law. They can, however,
serve as illustrations of customary international law if they involve
135 Ibid at paras 4, 6, 8.
136 Ibid at para 8. Furthermore, NAFTA article 1136(1) states: An award made by a Tri-
bunal shall have no binding force except between the disputing parties and in respect of
the particular case (supra note 1). The tribunal did not cite this provision.
137 Supra note 106.
138 Ibid at para 129, cited in Glamis, supra note 2 at para 8.
950 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
an examination of customary international law, as opposed to a
treaty-based, or autonomous, interpretation.139
The tribunal acknowledged that an arbitral award could be relevant if the
treaty underlying the dispute was to be interpreted by reference to cus-
tomary international law. While this strongly suggests that a prior
NAFTA ruling on article 1105 could be a suitable interpretive source, the
tribunal considered that prior case law lacked sufficient evidentiary
weight. Therefore, even though prior awards had explicitly rejected Neer,
the Glamis tribunal deemed these awards to only demonstrate a change
in the international view of what is shocking and outrageous.140 Prior
awards could not, in its view, prove or even illustrate the evolution of
customary international law on the applicable standard for the MST.
The Glamis tribunals reliance on Neer raises the further question of
whether Neer reflected contemporary customary international law when
it was decided in 1926, at least pursuant to the requirements of the tradi-
tional theory of custom. The commission in Neer, when assessing the con-
duct of the Mexican authorities, made no inquiry into the content of cus-
tom by analyzing state practice and opinio juris. Rather, it elaborated its
threshold test on the basis of two short statements by international law
publicists.141 The Glamis tribunal, in turn, did not explain why the Neer
case (which concerned a murder investigation and not the economic rights
of a foreigner) should be accepted as the definitive pronouncement on the
content of customary international law, either in 1926 or in 2009. Indeed,
the tribunals refusal to rely on statements by arbitral tribunals that had
not required a strict proof of custom (this was its rationale for dismissing
the NAFTA case law before it) would exclude any consideration of Neer.
B. The Tribunals Unqualified Acceptance of NAFTA Party Submissions
By reinstating the Neer standard, Glamis represents the first chapter
11 award to incorporate NAFTA party submissions on the appropriate
content of the MST. Absent the claimants successful proof of its evolution,
the tribunal accepted the statement by Canada and Mexico that the test
in Neer does continue to apply.142 The Glamis tribunal not only took into
139 Ibid at para 605.
140 Ibid at para 613. Rather, the Glamis tribunal considered these awards relevant to the
extent that the adjective modifiers describing the acts that would breach the MST
(such as a gross denial of justice and manifest arbitrariness) evidenced the stan-
dards enduring strictness (ibid at para 614).
141 The commission looked to a 1910 citation from John Bassett Moore and a 1923 citation
from De Lapradelle and Politis, conceding that its analysis would only go a little fur-
ther than the authors quoted (Neer, supra note 32 at 61).
142 See Glamis, supra note 2 at para 601.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 951
account this statement, but also their submissions to the ADF and Pope &
Talbot arbitrations, submissions which had been explicitly rejected by
those earlier tribunals. In the authors opinion, the tribunal attributed to
these statements more than their due weight. Although non-disputing
parties right of participation under article 1128 has been recognized as a
means of ensuring the doctrinal integrity of NAFTA awards,143 these par-
ties submissions are not binding in the same way as the FTC interpretive
powers. Considering non-party submissions as such is unjust to claim-
ants, given that the NAFTA parties share an interest in successfully de-
fending chapter 11 claims and invariably assert the narrowest possible
construction of its provisions. Moreover, it is unclear why an independent
arbitral tribunal would accept the contentions of non-disputing parties on
the content of customary international law instead of making its own de-
termination. Because these interventions are submitted in the course of a
dispute, to ascribe such weight to them approaches an abuse of process, as
it enables NAFTA parties to change the rules of the game in the middle of
a pending arbitration.144
C. The Tribunals Onerous Evidentiary Approach to Article 1105
The tribunals acceptance of the United States position on the correct
evidentiary approach to article 1105 represents a problematic aspect of
the award and another significant departure from previous NAFTA case
law. As outlined in the analysis of Glamis in Part I.C, the United States
had submitted that an article 1105 claimant bears the burden of proving
the existence of a specific rule of customary international law that the re-
spondent has breached and, as a related matter, the burden of proving the
evolution of customary international law to encompass the protection it
claims. While the United States had advanced the same argument in ear-
lier arbitrations such as Mondev and ADF,145 both tribunals implicitly re-
143 See Brower II, Investor-State Disputes, supra note 61 at 79. See also Martin Hunter
& Alexei Barbuk, Procedural Aspects of Non-Disputing Party Interventions in Chapter
11 Arbitrations in Todd Weiler, ed, NAFTA Investment Law and Arbitration: Past Is-
sues, Current Practice, Future Prospects (Ardsley, NY: Transnational Publishers, 2004)
151.
144 We should note that the same criticism was directed at the FTC Notes of Interpreta-
tion. Charles Brower II, for example, has described the FTC Note as a crude and self-
interested form of political intervention designed to influence the outcome of pending
disputes (see Brower II, FTC Notes of Interpretation, supra note 88 at 354-55). See
also Todd Weiler, NAFTA Article 1105 and the Free Trade Commission: Just Sour
Grapes, or Something More Serious? (2001) 29 Intl Bus Law 491.
145 In response to the investors claim in ADF that the requirement for the domestic manu-
facturing of the steel was unfair and inequitable in the context of NAFTA, the United
States insisted that the Investor, if it is to succeed in its claim based on [article 1105],
must show a violation of a specific rule of customary international law relating to foreign
952 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
jected this approach by conducting their own inquiry into customary in-
ternational law and by taking notice of its content without placing such a
burden on the claimant. Accepting the United States contention, at the
outset of its decision the Glamis tribunal noted as a threshold issue that
the claimant had the burden of showing the evolution of customary inter-
national law by bringing proof of concordant state practice and opinio ju-
ris. Instead of explaining or justifying its reasons for adopting this ap-
proach, the tribunal acknowledged the challenges it presented:
[I]t is difficult to establish a change in customary international law.
…
The evidence of such concordant practice undertaken out of a sense
of legal obligation is exhibited in very few authoritative sources:
treaty ratification language, statements of governments, treaty prac-
tice (e.g., Model BITs), and sometimes pleadings. Although one can
readily identify the practice of States, it is usually very difficult to
determine the intent behind those actions.146
As we have seen in Part I.B, a general consensus exists among legal
scholars that custom is a joining of state practice and opinio juris.147 As
the tribunal noted above, while the practice of states is often easy to iden-
tify, opinio juris, or the intent behind state actions, is more elusive.148
While the ICJ continues to require proof of opinio juris,149 it has provided
little guidance or detailed discussion of the evidence supporting the estab-
lishment of custom when proclaiming a rule of customary international
law. Some scholars adhering to the traditional method have dismissed the
requirement of proving opinio juris when state practice is uniform and
widespread.150 Other scholars have contrasted the traditional method of
investors and their investments (ADF, supra note 26 at para 182.). The United States
advanced the same argument in the Mondev arbitration: see Mondev, International Ltd
v United States, Counter-Memorial on Competence and Liability of Respondent United
States of America of 1 June 2001, ARB(AF)/99/2, at 33ff, online: US Department of
State
146 Glamis, supra note 2 at paras 602-603.
147 An extensive treatment of customary international law is beyond the scope of this dis-
cussion. Doctrine and case law confirm that state practice has to be constant, uniform,
and general (though not unanimous). Opinio juris, the subjective element of custom, re-
quires that states act in certain ways as evidence of a belief that this practice is ren-
dered obligatory by the rule of law. See generally, Brigitte Stern, Custom at the Heart
of International Law (2001) 11 Duke J Comp & Intl L 89.
148 Glamis, supra note 2 at para 603.
149 See e.g. Case concerning Military and Paramilitary Activities in and against Nicaragua
(Nicaragua v United States of America) [1986] ICJ Rep 14 at 97.
150 See in particular Hersch Lauterpacht, The Development of International Law by the In-
ternational Court (New York: Praeger, 1958) 380.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 953
proving custom through an inductive analysis of state practice and opinio
juris with a modern deductive process that begins with general state-
ments of rules rather than particular instances of practice.151 Given these
debates, the Glamis approach to proving custom is regrettably facile.
While the tribunal identified sources that could be relevant proof of opinio
juris (treaty ratification language, statements of governments, treaty
practice, and pleadings in certain cases)152 it did not resolve any uncer-
tainties regarding the evidentiary weight to be given to these sources or
the standard of proof of opinio juris that would satisfy the claimants bur-
den. Nor did the tribunal consider whether it could assume a more active
role in recognizing new categories of custom using a modern deductive
process or question whether the method of proving custom might itself
have evolved beyond the traditional two elements theory. In short, under
the Glamis evidentiary approach to article 1105, claimants are charged
with the heavy burden of ascertaining and proving the customary MST,
which is a complex and uncertain task.
D. The Tribunals Support of Regulatory Authority under NAFTA
Over and above its deviations from previous NAFTA case law, the
Glamis award must be assessed in the wider context of the economic and
regulatory goals underlying NAFTA. Significantly, the Glamis tribunal
advanced an interpretation of FET obligation narrower than any FET ob-
ligations found in BITs between NAFTA parties and third party states. It
is debatable whether the NAFTA parties would seek to curtail their mu-
tually guaranteed investment standards given that the treatys objective
of creating close economic ties between the parties far exceeds any of their
bilateral endeavours. This question was raised by Pope & Talbot at the
merits stage, where it asserted that the
basic unlikelihood that the Parties to NAFTA would have intended
to curb the scope of Article 1105 vis vis one another when they (at
least Canada and the United States) had granted broader rights to
other countries that cannot be considered to share the close relation-
ships with the NAFTA parties that those Parties share with one an-
other … it would be difficult to ascribe the NAFTA Parties with an
intent to provide each others investments more limited protections
than those granted to other countries not involved jointly in a conti-
nent-wide endeavor aimed, among other things, at increase[ing]
151 Anthea Elizabeth Roberts, Traditional and Modern Approaches to Customary Interna-
tional Law: A Reconciliation (2001) 95 AJIL 757 at 758 [emphasis omitted]. On the
evolution of methods used by international tribunals in establishing custom, see Lau-
terpacht, supra note 150.
152 See Glamis, supra note 2 at para 603.
954 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
substantially investment opportunities in the territories of the Par-
ties.153
While the Glamis ruling on article 1105 makes little sense in light of
the parties economic objectives, it can be explained by reference to the
development of chapter 11 arbitration and its relation to the parties regu-
latory goals. A provision for MST appeared in NAFTAs earliest negotiat-
ing texts and mirrors longstanding United States, and to a certain extent
Canadian, practices at the bilateral level.154 The references to MST, and to
the chapter 11 provisions in general, were aimed at ensuring adequate
protections of Canadian and US investments in Mexico, the developing
country partner in the regional association with no BIT practice prior to
entering NAFTA.155 However, since the first substantive award rendered
against Mexico in Metalclad,156 article 1105 has been increasingly invoked
by investors against Canada and the United States to challenge their
regulatory legislation as inconsistent with the FET standard.157 Charles
Brower comments:
Although virtually no one foresaw Chapter 11s capacity to interfere
with the legislative, executive, and judicial systems of the NAFTA
Parties, particularly Canada and the United States, investors have
now submitted … claims, which seek billions of dollars in damages;
challenge measures that ostensibly protect public health, safety, and
the environment; and attack the legitimacy of important govern-
mental services … This unexpected proliferation of claims has dis-
turbed many observers who continue to denounce the purportedly
aggressive use of investor-state arbitration as an offensive
weapon that has chilled the exercise of regulatory authority and
caused an alarming loss of sovereignty.158
Narrowing the scope of the investment protection provisions in
NAFTA may relieve the United States, Canada, and Mexico from respon-
153 Pope & Talbot (Merits), supra note 76 at para 115.
154 Meg Kinnear, Andrea Bjorklund & John F G Hannaford, Investment Disputes Under
NAFTA: An Annotated Guide to NAFTA Chapter 11 (Austin: Kluwer, Law Interna-
tional, 2006) at 1105-1.
155 M Sornarajah, The International Law on Foreign Investment, 2d ed (Cambridge: Cam-
bridge University Press, 2004) at 334.
156 See Part I.B.4.
157 Already in 2004, David Gantz reported that actions by US investors against Canada, or
Canadian investors against the United States, account for roughly sixty per cent of
NAFTA chapter 11 disputes (David A Gantz, The Evolution of FTA Investment Provi-
sions: From NAFTA to the United States-Chile Free Trade Agreement (2004) 19 Am U
Intl L Rev 679 at 697-98). The number of arbitrations filed against these parties has in-
creased significantly since 2004. See also Todd Weiler, NAFTA Claims, online: NAFTA
Claims
158 Brower II, NAFTAs Investment Chapter, supra note 129 at paras 45-46.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 955
sibility when they are respondents under those provisions and allow gov-
ernments to maintain control over their regulatory role. Indeed, the cir-
cumstances surrounding Glamis are a good example of when a NAFTA
party should justifiably seek to limit its responsibility to foreign investors
in order to advance environmental and cultural concerns as well as the in-
terests of indigenous people. The question remains whether the Glamis
tribunals reading of article 1105 strikes the appropriate balance between
legitimate regulatory goals and the interests of investors. While the
Glamis tribunal acknowledged these important policy concerns surround-
ing the Imperial Project,159 it may have adopted too strict an approach to
article 1105, particularly given the circumstances of the case where, on
the facts, Glamis may not have succeeded even under the more expansive
reading adopted in Mondev, ADF, and Waste Management II (where no
violations of article 1105 were found).
E. The New Approach to the MST in Merrill & Ring
Both the treatment of article 1105 in Glamis and its rigid adherence to
the FTC Note of Interpretation renew the question of whether it makes
sense to bind the FET standard under article 1105 to the customary in-
ternational law MST. As explained in Part II.B, in 2001 the NAFTA par-
ties, through their powers under article 1131(2), required tribunals to
abandon the additive approach to FET by limiting the protections under
article 1105. The FTC Note has been widely criticized for its interpreta-
tion that restricted the term international law under article 1105 to
customary international law, only one of the components of article 38(1)
of the ICJ Statute.160 In light of its historical purpose in international case
law, it remains unclear whether the customary MST is in fact a more
suitable standard for the current field of foreign investment protection
than the FET obligation. On the one hand, the MST was developed in the
early twentieth century to respond to situations where national treatment
provided inadequate protection for aliens and their property and was in-
tended to function in a schema of state-to-state dispute settlement, organ-
ized as the mechanism of diplomatic protection.161 The FET standard, on
159 See Glamis, supra note 2 at para 8.
160 For criticisms of the FTC Note, see Brower II, FTC Notes of Interpretation, supra note
88; Laird, supra note 88. The FTC Note has been criticized as contravening NAFTA ar-
ticle 102(2), which instructs the parties to interpret and apply the provisions of this
Agreement … in accordance with applicable rules of international law (supra note 1)
and therefore binds the FTC to follow the principles of interpretation in the VCLT.
These commentators have also accused the FTC of exceeding its interpretive powers by
producing an amendment of NAFTA that cannot enter into force without ratification in
accordance with the constitutional principles of each country.
161 Tudor, supra note 22 at 63.
956 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
the other hand, was developed in the period following the Second World
War to meet the specific needs of investors concluding BITs. As the tribu-
nal declared in PSEG v. Turkey, the FET standard has acquired promi-
nence in investment arbitration as a consequence of the fact that other
standards traditionally provided by international law might not in the cir-
cumstances of each case be entirely appropriate.162 Ioana Tudor notes
that the main problem with equating the two standards
is that it limits the scope of FET. The IMS provides for action only in
extreme cases. In other words, the rights of the foreign Investor have
to be violated in a serious manner in order for the Investor to obtain
reparation from the host State. In contrast, it appears that FET of-
fers the foreign Investor a type of guarantee which is much more
generous and designed to be operational.163
In a recent chapter 11 award, the tribunal in Merrill164 has offered a
new perspective on the scope of the customary MST under article 1105,
one that offers a potential solution to the problems in Glamis. The claim-
ant in the Merrill dispute, a US firm, argued that Canadas measures re-
lating to the implementation of its Log Export Regime in British Colum-
bia breached its obligations under NAFTA, including the FET standard
under article 1105.165 Dismissing each of the investors claims, the tribu-
nal emphasized that customary international law has not been frozen in
time and that it continues to evolve in accordance with the realities of the
international community.166 For the tribunal, this evolved state of cus-
tomary law is true even in light of the 2001 FTC Note, which it did not
consider to narrow the protection against unfair and inequitable treat-
ment to an international minimum standard requiring outrageous con-
duct of some kind.167 While Canadas response to the article 1105 claim
had not invoked Neer, the tribunal was careful to note that these histori-
cal cases dealt with the limited situations concerning due process of law,
denial of justice and physical mistreatment.168 What the tribunal referred
to as the first track in the evolution of the MST, however, became in-
creasingly obsolete as the system of diplomatic protection gradually gave
162 PSEG Global, Inc and Konya Ilgin Electrik Uretim ve Ticaret Limited Sirketi v Turkey
(2007), ICSID Case No ARB/02/5 at para 238.
163 Tudor, supra note 22 at 63.
164 Merrill, supra note 3.
165 The claimant also alleged breaches of article 1102 (National Treatment), article 1103
(Most Favored Nation Treatment), article 1106 (Performance Requirements), and
article 1110 (Expropriation) (Merrill, supra note 3 at para 1).
166 Ibid at para 193.
167 Ibid at para 212.
168 Ibid at para 197.
9
GLAMIS GOLD, LTD. V. THE UNITED STATES 957
way to specialized regimes for the protection of foreign investment.169
With this development there emerged a second track of the customary
MST, which should be applied to article 1105. The Merrill Tribunal elabo-
rated:
State practice with respect to the standard for the treatment of
aliens in relation to business, trade and investments … has generally
endorsed an open and non-restricted approach to the applicable
standard to the treatment of aliens under international law. At the
same time it shows that the restrictive Neer standard has not been
endorsed or has been much qualified.170
According to the Merrill tribunal, the FTC Interpretation does not
mandate the restrictive approach to article 1105 upheld in Glamis.
NAFTA tribunals can adhere to the FTC Note while still asserting a dy-
namic notion of the MST that is tailored to the needs of investment pro-
tection. In so holding, the tribunal rejected any distinction between the
FET standard and the customary MST: In the end, it argued, the name
assigned to the standard does not really matter.171 Taking notice of the
evolution of the MST, without requiring the claimant to bring proof of
state practice or opinio juris, the tribunal concluded:
[T]he applicable minimum standard of treatment of investors is
found in customary international law and that, except for cases of
safety and due process, todays minimum standard is broader than
that defined in the Neer case and its progeny. Specifically this stan-
dard provides for the fair and equitable treatment of alien investors
within the confines of reasonableness. The protection does not go be-
yond that required by customary law, as the FTC has emphasized.
Nor, however, should protected treatment fall short of the customary
law standard.172
Conclusion
This discussion of Glamis Gold, Ltd. v. The United States of America
has underscored the importance of the fair and equitable treatment stan-
dard in the law of foreign direct investment. The contemporary evolution
of the FET standard in the BIT and NAFTA case law, however, reveals
that its scope and content are still a matter of debate. It remains to be
seen whether the solution offered in Merrill, which recognizes a more dy-
namic MST standard than Glamis, will create a climate of greater cer-
tainty for NAFTA parties, investors, and tribunals. As has been shown,
169 Ibid at para 205.
170 Ibid at para 209.
171 Ibid at para 210.
172 Ibid at para 213.
958 (2011) 56:4 MCGILL LAW JOURNAL ~ REVUE DE DROIT DE MCGILL
the NAFTA parties, through the powers of the FTC, have rejected any ex-
pansive interpretation of FET under article 1105 by binding the standard
to the customary MST. Tribunals prior to Glamis, however, continued to
recognize the importance of FET in the contemporary investment climate
and resisted attempts to restrict its ambit. The Glamis award therefore
represents an important moment in chapter 11 arbitration by introducing
an orthodox reading of FET under NAFTA and a significant divergence
from a growing body of jurisprudence on the correct approach to article
1105. Most notable are the Glamis tribunals assertion of a heavy eviden-
tiary burden on investors bringing article 1105 claims, and its uncritical
acceptance of the NAFTA parties submissions regarding the contempo-
rary status of the MST and the ongoing applicability of the Neer standard.
While it has been argued that this approach makes little sense given
NAFTAs overall objectives of substantially tightening the parties eco-
nomic ties, it may be understood in light of recent developments under
chapter 11 arbitration and the growing concern that investor claims are
encroaching on the parties legitimate regulatory goals.
9
