The bona fide (good faith) principle is a cornerstone of international law, influencing various legal instruments, treaty interpretations, and arbitration proceedings. It serves as a fundamental guideline ensuring fairness, honesty, and reciprocity in legal relations. This article explores the role of the bona fide principle in international investment law, its application in arbitration, and its impact on investors’ rights.
1. Definition of the Bona Fide Principle
The bona fide principle is recognized as a general principle of international law. It mandates that parties engage with each other honestly, fairly, and without taking undue advantage. In investment law and arbitration, this principle applies to state conduct, inter-state relations, and parties asserting claims under international treaties.
While the exact legal nature of the bona fide principle remains debated, it is not considered an independent source of obligations. Instead, it operates in conjunction with other legal doctrines, such as the principle of pacta sunt servanda (Article 26 of the Vienna Convention on the Law of Treaties – VCLT) and the rules of treaty interpretation (Articles 31-32 VCLT).
2. The Bona Fide Principle in Investment Treaties
The principle of bona fide protects legal reciprocity and legitimate expectations in investment agreements. Many bilateral investment treaties (BITs) explicitly include this principle in their provisions, ensuring fair treatment and protecting investors from arbitrary state actions.
Arbitral tribunals have frequently invoked the principle in relation to investment protection and procedural fairness. The UN General Assembly’s Resolution 1803 (XVII) (1962) highlights the importance of good faith in the fulfillment of investment-related obligations.
3. The Bona Fide Principle in Investment Arbitration
Duty to Arbitrate in Good Faith
Parties in investment disputes must attempt to resolve issues in good faith before resorting to arbitration. During arbitration proceedings, good faith obligations include:
- Avoiding actions that aggravate disputes or compromise arbitration integrity.
- Raising objections promptly.
- Cooperating in evidence production.
- Preventing double recovery of compensation.
Findings of bad faith by arbitral tribunals can impact procedural decisions, such as granting provisional measures, allocating costs, and deciding on enforcement stays.
Standard and Burden of Proof
Good faith is generally presumed in arbitration. The burden of proof lies with the party alleging bad faith, and a high standard of evidence is required to establish such claims. Some tribunals demand proof of willful or egregious intent before ruling a breach of bona fide.
Impact on Jurisdiction and Admissibility
Arbitral tribunals have linked good faith with the legality of an investment. Investments made through fraud, corruption, or deception may be deemed invalid. Tribunals have ruled that violations of the bona fide principle often coincide with breaches of domestic law. Consequently, tribunals may refuse jurisdiction over bad faith investments.
However, case law remains divided on whether the bona fide principle affects jurisdiction or the merits of a case. Some tribunals consider it an admissibility issue rather than a jurisdictional bar.
Impact on Investors’ Rights
Fair and Equitable Treatment
The bona fide principle is often integrated into the fair and equitable treatment (FET) standard under investment treaties. Arbitral tribunals have emphasized that states should act in a non-arbitrary manner and avoid measures that deliberately undermine investments. However, good faith does not prevent states from changing their legal frameworks.
Some tribunals have maintained that a state may violate the FET standard without necessarily acting in bad faith. Likewise, a breach of bona fide does not always amount to a breach of FET.
Protection Against Unlawful Expropriation
The World Bank’s Guidelines on Treatment of Foreign Investments (1992) establish that expropriations must be conducted in good faith, for a legitimate public purpose, and with appropriate compensation. Arbitral tribunals frequently assess whether expropriation measures comply with the bona fide principle.
Treaty Exclusions
Tribunals have refused to uphold treaty exclusions (such as taxation exclusions and denial of benefits clauses) when states rely on them in bad faith. However, this approach is not universally accepted in investment arbitration.
The bona fide principle plays a crucial role in international investment law and arbitration. It ensures fair dealings between states and investors, influences treaty interpretation, and impacts jurisdictional and substantive rulings. While the exact legal scope of the principle remains subject to debate, its significance in upholding justice and integrity in international legal relations is undeniable.
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