10.6092/issn.2531-6133/8773
In recent years, investment treaty practice and arbitral case law have increasingly recognized government transparency as an obligation of international investment law. Yet, there could hardly be less of a consensus regarding what level of transparency is required, with case law ranging from one strand requiring “total transparency” to another merely prohibiting “complete lack of transparency”. This apparent paradox seems to be about to change. Some of the most recent treaty practice appears to endorse the latter, restrictive interpretation of transparency. How come? This article sets forth two arguments: First, transparency is in part a binary concept, similar to many other familiar and related legal concepts, such as good faith, lack of arbitrariness and due process, and that transparency could thus, without contradiction, be said to be either “total” or “completely lacking” and nothing in between. Second, restrictive case law and the most recent treaty practice refuses to recognize as a legal requirement the concept of transparency as denoting a gradual quality of the law and of the administration of law.
application/pdf
2531-6133
8773
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en
Jens Hillebrand-Pohl
University of Bologna Law Review
Normativity
Openness in International Investment Law: Too Much of a Good Thing?
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Jens Hillebrand-Pohl
2018/12/13
10.6092/issn.2531-6133/8773
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2
Normativity
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Openness in International Investment Law: Too Much of a Good Thing?
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ARTICLES & ESSAYS                                                     https://doi.org/10.6092/issn.2531-6133/8773




Openness in International Investment Law: Too Much of a Good Thing?

                                      JENS HILLEBRAND POHL†



TABLE OF CONTENTS: 1. Introduction; 2. The Scope of Application of Substantive
Transparency as an Element of Fair and Equitable Treatment; 3. Conceptualizing
Transparency as an Emanation of the Rule of Law; 4. Implications.


ABSTRACT: In recent years, investment treaty practice and arbitral case law have
increasingly recognized government transparency as an obligation of international
investment law. Yet, there could hardly be less of a consensus regarding what level of
transparency is required, with case law ranging from one strand requiring “total
transparency” to another merely prohibiting “complete lack of transparency”. This
apparent paradox seems to be about to change. Some of the most recent treaty practice
appears to endorse the latter, restrictive interpretation of transparency. How come? This
article sets forth two arguments: First, transparency is in part a binary concept, similar
to many other familiar and related legal concepts, such as good faith, lack of arbitrariness
and due process, and that transparency could thus, without contradiction, be said to be
either “total” or “completely lacking” and nothing in between. Second, restrictive case
law and the most recent treaty practice refuses to recognize as a legal requirement the
concept of transparency as denoting a gradual quality of the law and of the administration
of law.


KEYWORDS: Transparency; Investment Arbitration; Rule of law; Normativity




                                         UNIVERSITY OF BOLOGNA LAW REVIEW

                                                 ISSN 2531-6133

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       This article is released under the terms of Creative Commons Attribution 4.0 International License

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         1. INTRODUCTION

In the last decade, investment treaty clauses relating to government
transparency have become increasingly common, as the proportion of treaties
signed with such clauses has grown exponentially. According to U.N.C.T.A.D.,1
82% of all treaties with investment provisions signed in 2015 contained
transparency clauses, compared to 50% for the first half of the decade, up from
20% in the previous decade and 9% in the period since records started being
collected until the end of the last century. A closer look reveals that an inflexion
point occurred around 2014, when treaties signed with such clauses surged to
71%, up from 50% the year before. The proportion has remained at or above that
level.

         Recent years have also witnessed claims relating to government
transparency       being     asserted      with increasing         frequency          in     investment
arbitration, resulting in a steady stream of arbitral awards. So far, thirty odd such
cases have been decided and published, worth more than $19 billion in damages
claims, of which 69% have been decided in favor of investors, resulting in more
than $3 billion worth of damages awarded.2

         While it figures prominently in both treaty and arbitral practice, there is
a great divergence of opinion on the exact meaning of transparency as a
substantive requirement. Early cases derived a requirement to act “totally
transparently”.3 By contrast, another early strand of cases was more restrictive


†
 LL.M. (Harvard); Visiting Researcher, Max Planck Institute for Procedural Law; Lecturer and PhD
Researcher, Maastricht University, Faculty of Law; Doctoral Fellow, Institute of Globalization and
International Regulation, jens.pohl@maastrichtuniversity.nl. The author wishes to especially thank
Professor Dr. Eric De Brabandere, Leiden University, and Professor Dr. Nikolas Rajkovic, Tilburg
University, for constructive suggestions and comments on a previous drafts of this paper which was
presented at the 6th Conference of the Postgraduate and Early Professionals/Academics Network
(PEPA/SIEL), Society of International Economic Law, in Tilburg, in April 2017. The usual disclaimer
applies.
1
  U.N.C.T.A.D. Retrieved from investmentpolicyhub.unctad.org (Jan. 18, 2017). (Including bilateral
investment treaties (B.I.Ts.), other international investment agreements (I.I.As.), free trade
agreements (F.T.As.) and other treaties with investment provisions (T.I.Ps.)).
2
  See U.N.C.T.A.D. Retrieved from investmentpolicyhub.unctad.org (Jan. 24, 2017). Most of the
cases relate to events that took place when express transparency clauses were not nearly as common
as they are today. In only half of the cases the relevant treaty included such a clause, but they were
all of early types that were too narrow to cover the alleged transparency breach, and, in half of these
cases in turn, the transparency clause was not even subject to investor-state dispute settlement.
Instead, the cases so far have characterized the lack of transparency as a breach of the F.E.T.
standard. The focus here is therefore on transparency as an element of the F.E.T. standard.
3
  Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, I.C.S.I.D. Case No.
ARB(AF)/00/2, , ¶154 (May 29, 2003).




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and merely identified a requirement not to act with “complete lack of
transparency”.4 This seemingly diametrical divergence of views has yet to be
decisively resolved.

        Against this backdrop, a restrictive approach can be discerned from
recent treaty practice. A notable step in that direction is the Canada-EU
Comprehensive Economic and Trade Agreement (hereinafter C.E.T.A.), which
introduced a “closed-end” list of what constitutes a fair and equitable
treatmenet (hereinafter F.E.T.) violation, comprising, among other things, a
“fundamental breach of due process, including a fundamental breach of
transparency, in judicial and administrative proceedings”. These words appear
to be directly drawn from the restrictive strand of case law.

        So, what exactly is the meaning today of government transparency as an
element of the F.E.T. standard? How do the different notions of transparency, as
elucidated within the different strands of case law, relate to each other, and can
they be reconciled? How is the recent restrictive trend towards transparency to
be understood? These questions are of fundamental importance to states seeking
to understand the level of government transparency expected under
international investment law and to investors seeking to gauge the nature and
extent of the political risk of foreign investment.

        To answer these questions, this article proceeds (1) to outline the main
strands of arbitral case law with respect to the scope of application of the concept
of transparency as an element of the F.E.T. standard (Part II), (2) to conceptualize
government transparency as an emanation of the rule of law (Part III), and,
finally, (3) to explore the implications of these findings on the interpretation of
substantive transparency in international investment law (Part IV).




4
  Waste Management, Inc. v. United Mexican States, I.C.S.I.D. Case No. ARB(AF)/00/3, , ¶98 (Apr.
30, 2004).




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         2. THE SCOPE OF APPLICATION OF SUBSTANTIVE TRANSPARENCY AS AN ELEMENT OF

     FAIR AND EQUITABLE TREATMENT

In the 1980s the language of transparency in international investment law
became associated with the requirement to publish laws and regulations
pertaining to investments, beginning.5 A clause entitled “transparency of laws”
was introduced in Australia’s first bilateral investment treaty (hereinafter
B.I.T.), Article VI Australia-China B.I.T. (1988). A similar clause, although
without the “transparency” label, had been a consistent feature of U.S. B.I.T.
practice since first introduced in the original U.S. model B.I.T. (1981)6 and
pioneered in the second ever B.I.T. signed by the United States, Article II(10)
U.S.-Senegal B.I.T. (1983) in a wording that became standard:“Each Party shall
make public all laws, regulations, administrative practices and procedures, and
adjudicatory decisions that pertain to or affect investments in its territory of
nationals or companies of the other Party.”

         The U.S. model B.I.T. was influential for other states’ bilateral
negotiations as well, and clauses modeled on its requirement to publish laws and
regulations appeared in a number of treaties concluded in the 1980s.7 By the early
2000s, basic transparency clauses providing for the publication of laws and
regulations became increasingly common, and by the mid-2010s they had
emerged as a standard clause appearing in the vast majority of new treaties.8




5
   For an account of the emergence of transparency as term used in a figurative sense (i.e. beyond its
original meaning in physics and art) describing a concept related to governance, see Greg Michener
& Katherine Bersch, Identifying Transparency, 18 INFO. POLITY 233, 234-36 (2013), (tracing its current
figurative use to an academic article by Danish economist, Knud Erik Svendsen in 1962).
6
   Pre-cursors had existed in the earlier practice of friendship, commerce and navigation treaties
(hereinafter FCNs), see e.g., Treaty of Friendship, Commerce and Navigation, U.S.-Republic of
China, art. XVII(1), Nov. 4, 1946, T.I.A.S. 1871 and Treaty of Friendship, Commerce and Navigation,
U.S.-Nicaragua, art. XV(1), Jan. 21, 1956, T.I.A.S. 4024, but were rare. There appears to be no
examples of such clauses prior to the negotiations leading up to the Havana Charter, Article 38 of
which included the elaborate blueprint for subsequent treaty practice, which reappeared with
minimal changes as General Agreement on Tariffs and Trade art. X, Oct. 30, 1947, 55 U.N.T.S. 194 and
is retained in General Agreement on Tariffs and Trade art. X, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187.
7
   See, e.g., Bilateral Investment Treatie, Can.-Phil. , art. XVI, Nov.9, 1995 (earlier Canadian B.I.T.
practice had provided for exchange of information between the contracting parties on laws and
regulations). A similar provision was later elaborated in the O.E.C.D. draft Multilateral Agreement
on Investment. By contrast, transparency provisions of this type were not common in European
B.I.Ts. until the E.U. began concluding investment treaties following the Lisbon Treaty. Other states,
including Canada, began to include this type of transparency provision from the mid-1990s.
8
   Cf. n2.



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Meanwhile, the scope of government transparency clauses has steadily grown
wider.9

          In the early 2000s transparency in arbitral case law began being referred
to in abstract as an aspect of the core standards of protection—F.E.T. and the
customary international minimum standard of treatment (hereinafter I.M.T.).10
In all but one case, tribunals have uniformly affirmed such interpretation.11 By
the 2010s, arbitral practice reflected the shared view that transparency had
emerged as an essential aspect of the F.E.T. standard, including in cases where
such standard applied with reference to the I.M.T. standard.12 Where tribunals
have differed is in the degree of transparency required. Here, two lines of
precedent exist. In Tecmed v. Mexico, the tribunal concluded that F.E.T. required
“total transparency”:13




9
    For a comprehensive review of express treaty transparency clauses, see Jens Hillebrand Pohl,
Substantive Transparency Requirements in International Investment Law, REVISTA INSTITUTO
COLOMBIANO DE DERECHO TRIBUTARIO [REV. ICDT], Nov. 2017, at 179 (Colom.).
10
   See Metalclad Co. v. United Mexican States, I.C.S.I.D. Case No. ARB(AF)/97/1, ¶¶76, 88, 99 (Aug.
30, 2000) (set aside by a municipal court noting that “[n]o authority was cited or evidence introduced
to establish that transparency has become part of customary international law”, Mexico v. Metalclad
Corporation, [2001] B.C.S.C. 664, 68 (Can).; see also Emilio Agustín Maffezini v. Kingdom of Spain,
I.C.S.I.D. Case No. ARB/97/7, , ¶83 (Nov. 30, 2000); S.D. Myers, Inc. v. Government of Canada,
U.N.C.I.T.R.A.L., Partial Award (Separate Opinion by Dr. Bryan Schwartz, concurring except with
respect to performance requirements, in the partial award of the tribunal), ¶¶249-58 (Nov. 12,
2000); Tecmed, supra note 3, at 154; Waste Management, supra note 4, at 98; M.T.D. Equity Sdn. Bhd.
and M.T.D. Chile S.A. v. Republic of Chile, I.C.S.I.D. Case No. ARB/01/7, Award, ¶114 (May 24, 2004);
Occidental Exploration and Production Co. v. Republic of Ecuador, L.C.I.A. Case No. UN3467, ¶¶184-
7 (July 1, 2004); Saluka Investments BV v. Czech Republic, U.N.C.I.T.R.A.L., Partial Award, ¶¶307,
309, 360 (Mar. 17, 2006); LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v.
Argentine Republic, I.C.S.I.D. Case No. ARB/02/1, Decision on Liability, ¶¶127-31, 137 (Oct. 3, 2006);
Champion Trading Company and Ameritrade International, Inc. v. Arab Republic of Egypt, I.C.S.I.D.
Case No. ARB/02/9, , ¶4.3.2 (Oct. 27, 2006). It should also be noted that occasionally transparency
has been analyzed indirectly under other principles, such as non-discrimination (Champion Trading
v. Egypt, above), or arbitrariness, Parkerings-Compagniet AS v. Republic of Lithuania, I.C.S.I.D.
Case No. ARB/05/8, , ¶295 (Sept. 11, 2007).
11
   See Cargill, Incorporated v. United Mexican States, I.C.S.I.D. Case No. ARB(AF)/05/2, , ¶290 (Sept.
18, 2009).
12
   See Joseph C. Lemire v. Ukraine, I.C.S.I.D. Case No. ARB/06/18, Decision on Jurisdiction and
Liability, ¶¶284, 418 (Jan. 14, 2010); see also Frontier Petroleum Services, Ltd. v. Czech Republic,
U.N.C.I.T.R.A.L. (P.C.A.), , ¶285 (Nov. 12, 2010); Ioan Micula and others v. Romania, I.C.S.I.D. Case
No. ARB/05/20, , ¶¶530-33 (Dec. 11, 2013); Gold Reserve Inc. v. Bolivarian Republic of Venezuela,
I.C.S.I.D. Case No. ARB(AF)/09/1, , ¶¶569-70 (Sept. 22, 2014); Mamidoil Jetoil Greek Petroleum
Products Societe Anonyme S.A. v. Republic of Albania, I.C.S.I.D. Case No. ARB/11/24, ¶¶599, 613-17;
William R. Clayton, Bilcon of Delaware and others v. Government of Canada, U.N.C.I.T.R.A.L. (P.C.A.
Case No. 2009-04), Award on Jurisdiction and Liability, ¶¶442-44 (Mar. 17, 2015), cited favorably by
Mesa Power Group, LLC v. Government of Canada, U.N.C.I.T.R.A.L. (P.C.A. Case No. 2012-17), ,
¶¶501-2 (Mar. 14, 2016); Crystallex International Corporation v. Bolivarian Republic of Venezuela,
I.C.S.I.D. Case No. ARB(AF)/11/2, , ¶¶543, 545, 579 (Apr. 4, 2016); Philip Morris Brand Sàrl
(Switzerland) and others v. Oriental Republic of Uruguay, I.C.S.I.D. Case No. ARB/10/7, , ¶¶320, 324,
486 (July 8, 2016).
13
   Tecmed, supra note 3, at 154.




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          The Arbitral Tribunal considers that this provision of the Agreement,
          in light of the good faith principle established by international law,
          requires the Contracting Parties to provide to international
          investments treatment that does not affect the basic expectations
          that were taken into account by the foreign investor to make the
          investment. The foreign investor expects the host State to act in a
          consistent manner, free from ambiguity and totally transparently in
          its relations with the foreign investor, so that it may know beforehand
          any and all rules and regulations that will govern its investments, as
          well as the goals of the relevant policies and administrative practices
          or directives, to be able to plan its investment and comply with such
          regulations.

By contrast, in Waste Management v. Mexico (II) the tribunal held that only
“complete lack of transparency” was actionable, and only in the context of an
administrative process:14

          Taken together, the S.D. Myers, Mondev, ADF and Loewen cases
          suggest that the minimum standard of treatment of fair and equitable
          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—as might be the case
          with a manifest failure of natural justice in judicial proceedings or a
          complete lack of transparency and candour in an administrative
          process.

The Waste Management standard has been cited in all cases where the F.E.T.
standard is subject to the I.M.T. standard,15 such as in the U.S. model B.I.T.s 2004
and 2012 and NAFTA. Of all other cases, 67% have followed the Tecmed
aaaaaaaaaaaa




14
  Waste Management, supra note 4, at 98.
15
  Cargill, supra note 11; Railroad Development Corporation (R.D.C.) v. Republic of Guatemala,
I.C.S.I.D. Case No. ARB/07/23, , ¶219 (Jul. 29, 2012); Adel A Hamadi Al Tamimi v. Sultanate of Oman,
I.C.S.I.D. Case No. ARB/11/33, , ¶¶384, 396 (Nov. 3, 2015); Clayton and Mesa Power, supra note 12.




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standard.16 Overall, the choice of precedent is thus correlated with the
formulation of the F.E.T. clause, with the exception of the cases involving an
autonomous F.E.T. formulation, where the choice of precedent instead is more
strongly correlated with outcome. Of such cases, Tecmed was cited in 77% of
awards where a transparency breach was found (with the remaining 23% citing
Waste Management),17 compared to only 37% of awards where no transparency
breach was found (with the remaining 63% citing Waste Management).18 This
leaves unanswered the question of what motivated the choice of citation;
whether it was the choice of cited precedent that determined the outcome, or
rather the outcome that determined the choice of precedent. It is indeed
statistical revelations such as these that lend credibility to legal skepticist
methodologies that focus on analyzing case facts and legal outcomes as a
counterfactual to formalist analysis of tribunals’ stated judicial reasoning and
case citations. It suffices here to re-emphasize that the cases differ only as to the
degree of transparency required, not as to the acceptance in principle of
transparency as a standard. Thus, although these two discernible strands of
caselaw have thus crystallized, each of which focuses, in abstract, on the degree
of required transparency, it may be surprising that there is no parallel
aaaaaaaaaa




16
   M.T.D., Occidental, and Saluka, LG&E, supra note 10; PSEG Global Inc. and Konya Ilgin Elektrik
Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, I.C.S.I.D. Case No. ARB/02/5, , ¶¶173-4, 246
(Jan. 19, 2007); Siemens A.G. v. Argentine Republic, I.C.S.I.D. Case No. ARB/02/8, , ¶¶297-9, 308
(Feb. 6, 2007); Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic
of Kazakhstan, I.C.S.I.D. Case No. ARB/05/16, , ¶¶584-5; Bayindir Insaat Turizm Ticaret Ve Sanayi
A.S. v. Islamic Republic of Pakistan, I.C.S.I.D. Case No. ARB/03/29, , ¶¶168-70, 178-9; and Lemire,
Frontier, Micula, Gold Reserve, and Crystallex, supra note 12; cf Compañía de Aguas del Aconquija
S.A. and Vivendi Universal S.A. v. Argentine Republic, I.C.S.I.D. Case No. ARB/97/3, , ¶¶7.4.31 (Aug.
20, 2007); Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, I.C.S.I.D. Case No.
ARB/05/22, , ¶¶597, 602 (July 25, 2008); Nordzucker AG v. Republic of Poland, U.N.C.I.T.R.A.L.,
Second Partial Award, ¶¶12, 14, 84-5 (Jan. 28, 2009); Bosh International, Inc. and B&P, L.T.D. Foreign
Investments Enterprise v. Ukraine, I.C.S.I.D. Case No. ARB/08/11, , ¶¶210, 212 (Oct. 25, 2012);
Deutsche Bank A.G. v. Democratic Socialist Republic of Sri Lanka, I.C.S.I.D. Case No. ARB/09/2, ,
¶420 (Oct. 31, 2012); Renée Rose Levy de Levi v. Republic of Peru, I.C.S.I.D. Case No. ARB/10/17, ,
¶¶327-8 (Feb. 26, 2014); and Mamidoil and Philip Morris, supra note 12.
17
   M.T.D. and Occidental, supra note 10; LG&E, P.S.E.G., Siemens, and Rumeli, supra note 17; Lemire,
Micula, Gold Reserve, and Crystallex, supra note 12; compare Vivendi, Nordzucker, and Deutsche
Bank, supra note 16.
18
   Biwater, Bosh, and De Levi, supra note 17; Mamidoil and Philip Morris, supra note 12; compare
Saluka, supra note 10; Bayindir, supra note 17; and Frontier, supra note 12.




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bifurcation with respect to the material scope of transparency.19 Rather, both
strands appear to assume the same material scope, while differing only in the
interpretation of the scope of application.




         3. CONCEPTUALIZING TRANSPARENCY AS AN EMANATION OF THE RULE OF LAW

If the material scope of transparency is approached from a legal skepticist
perspective by analyzing the facts of arbitral cases rather than the legal
reasoning of judges, a very different and more concrete picture emerges. Leaving
aside the abstract statements of the Metalclad, Tecmed and Frontier tribunals,20
the material scope then neatly falls into four broad categories: (1) disclosure of
existing measures of general application—laws, regulations, adjudicatory
decisions and administrative procedures and practices—,21 (2) disclosure of
prospective measures of general application,22 (3) clear and comprehensible
measures of general application, i.e. where transparency was treated as a quality
of the relevant legal framework,23 and (4) disclosure in the administration of
measures of general application.24 The vast majority of transparency cases,
accounting for 72% of all such cases (and 94% of such cases where lack of



19
   In Metalclad, supra note 10, the tribunal understood “transparency” to mean that: “all relevant
legal requirements for the purpose of initiating, completing and successfully operating investments
made, or intended to be made, under the Agreement should be capable of being readily known to all
affected investors of another Party. There should be no room for doubt or uncertainty on such
matters.” This definition was echoed by the tribunal in Tecmed, supra note 3, at 154, which
understood the transparency requirement to ensure: “that [the foreign investor] may know
beforehand any and all rules and regulations that will govern its investments, as well as the goals of
the relevant policies and administrative practices or directives, to be able to plan its investment and
comply with such regulations.” Another perspective was added by the tribunal in Frontier, supra
note 12 , at 285, which stated: “Transparency means that the legal framework for the investor’s
operations is readily apparent and that any decisions of the host state affecting the investor can be
traced to that legal framework.” For practical purposes, such abstract definitions are not very
helpful.
20
   Id.
21
   Champion Trading, supra note 10, Cargill, supra note 11, Mamidoil, supra note 12, De Levi, supra
note 16, and Occidental (where lack of transparency was found), supra note 10.
22
   S.D. Myers, supra note 10 , and Cargill, supra note 11.
23
   Metalclad (where lack of transparency was found), supra note 10 and Saluka, supra note 10, and
Mamidoil, supra note 12.
24
   Tecmed, supra note 3, Maffezini, M.T.D., Occidental, and LG&E, supra note 10, Lemire, Micula,
Gold Reserve, Clayton, Crystallex, supra note 12, P.S.E.G., Siemens, Vivendi, and Rumeli,
Nordzucker, Deutsche Bank, supra note 16, where lack of transparency was found, as well as Waste
Management, supra note 4 , Frontier, Mesa Power, Philip Morris, supra note 12, R.D.C. and Al
Tamimi, supra note 15, and Biwater, Bayindir, Bosh, De Levi,supra note 16.




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transparency was found), have concerned the fourth category, i.e. failure to
disclose information prior to an administrative act.25

         Transparency, as pronounced in arbitral practice, thus comprises the
disclosure of information by host states with respect to (a) the existence of legal
requirements (publication of laws, regulations, etc.), (b) prospective legal
requirements (advance notice and consultation of changes in laws and
regulations), (c) the substance of existing legal requirements (transparency as a
quality of legislative, regulatory and adjudicatory decision-making), and (d) the
administration of existing legal requirements (administrative and judicial
transparency), in such manner as to make the information effectively known by
investors, and at such time as to make the information useful to them.26

         To be effective, transparency requirements must ensure that investors
are in a position to understand what the legal requirements are and how they are
applied. Doing so enables them to predict the consequences of compliance (and
non-compliance) more easily, and thus to deliberately comply (or not) with the
relevant legal requirements. By contrast, if they were not able to understand
this, investors would be unable, or at least have difficulties in, anticipating
whether their conduct was in accordance with applicable legal requirements.
Furthermore, they would not be able, with certainty, to deliberately satisfy those
requirements. In addition, the host state would not be justified in expecting
investors to comply with its legal requirements. In other words, the legal
requirements would not provide effective normative guidance.

         The exercise of power under the guidance of norms, rather than at the
whim of whoever happens to be in a position to exercise such power, lies at the
heart of the rule of law. In his famous 1958 debate with Harvard professor of law,
Lon L. Fuller, on morality and law, the eminent legal philosopher and Oxford
professor H.L.A. Hart argued that relying on legal norms to guide the action of
legal subjects serves to protect against arbitrary exercise of power. However, he
also recognized that this aim requires a delicate balancing act between achieving
predictability, which controls arbitrariness, and avoiding inflexibility, which



25
  Id.
26
  See, e.g., Saluka, supra note 10, at 360, P.S.E.G., supra note 16 , ¶246, Siemens, supra note 16, ¶308,
and Micula, supra note 12 , ¶872.




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generates arbitrariness on its own.27 The desired equilibrium is achieved through
judicial flexibility, but since judges may formulate their considerations in the
cloak of rule-bound decision making, judicial flexibility too undermines the
ability to control arbitrariness and to guide conduct by means of norms.28 Fuller,
in his public response to Hart, pioneered the view that the law in itself is
expressive of a set of primordial principles, or desiderata, without which law fails
at its basic function of providing normative guidance.29 Fuller’s principal
contribution to the understanding of the law was to focus attention to the
minimum criteria that must exist in order for law to be effective, although he
himself insisted that his desiderata were (also) of a moral nature.30

         In order for the law to provide normative guidance, it must therefore be
capable of being complied with.31 This is self-evident, i.e. nigh impossible to
argue against. For this to happen, the existence and contents of the law must be
knowable—capable of being known.32 Normative guidance is inherently future-
oriented, so that retroactive laws cannot be said to exert normative guidance.33
For laws to guide conduct without the need for arbitrary exercise of power, their
scope of application must be determinable,34 their substance ascertainable,35
their continued application stable36 and their administration in practice
congruent with their content as pronounced.37

Beyond this minimum requirement of the possibility of compliance, normative
guidance appears as a gradual quality or a matter of degree. The more readily
knowable the law is—with respect to its existence, as well as its scope of
application and substantive content—, the more likely it is, all other things
being equal, that the law will be complied with. The more stable the laws are, the



27
   Herbert L.A. Hart, Positivism and the Separation of Law and Morals, 71 HARV. L. REV. 593 (1958).
See also Gerald J. Postema, Positivism and the Separation of Realists from their Scepticism:
Normative Guidance, the Rule of Law and Legal Reasoning, in THE HART-FULLER DEBATE IN THE
TWENTY-FIRST CENTURY 259, 272 (Peter Cane ed., 2010).
28
   Id.
29
   Lon L. Fuller, Positivism and Fidelity to Law: A Reply to Professor Hart, 71 HARV. L. REV. 630 (1958).
30
   LON L. FULLER, THE MORALITY OF LAW 33 (rev. ed. 1969).
31
   Cf. Fuller’s sixth desideratum.
32
   Cf. Fuller’s second desideratum.
33
   Cf. Fuller’s third desideratum.
34
   Cf. Fuller’s first desideratum.
35
   Cf. Fuller’s fourth and fifth desiderata.
36
   Cf. Fuller’s seventh desideratum.
37
   Cf. Fuller’s eighth desideratum.



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more likely it is that the subjects will be able to adapt their conduct and comply.
Likewise, the more faithfully laws are administered, the more probable it is that
the law will guide conduct in the manner foreseen.

       It is this latter aspect that relates most pertinently to the vast majority of
transparency related cases in arbitral practice, which, as discussed, involve a lack
of transparency in the administration of the law. This has two aspects. First,
providing information with a view to inviting and obtaining critique, such as in
the context of administrative proceedings, serves to promote rational decision-
making. This in turn is conducive to ensuring that the aims of legal rules can be
realized in practice, or, put in other words, ensuring that compliance with the
law is liable to realize the legislative will, which in turn obviates the need to
intervene to exercise power arbitrarily. Conversely, laws that are irrational
means to an end are unlikely to attain their intended purpose. How this works in
practice is clearly on display in pre-legislative or pre-regulatory public
consultations, where input from academics, professionals, civil society and
members of the general public, particularly those with an interest or expertise in
the subject matter, serve to provide (free of charge) valuable advice and insights
to the legislator or regulator in order to improve the proposed measure. It can
also be seen in the notice and hearing requirements of administrative and
judicial due process.

       Second, the law’s propensity for normative guidance depends crucially on
the law’s acceptance by those to whom it is addressed and by whom it ultimately
looks to for its enforcement: its subjects. The law must be accepted as such, i.e.
out of a sense of legal obligation, and not as an arbitrary exercise of power—
accepted merely as a result of coercion or coercive threat. This is certainly partly
a matter of providing clear and transparent compliance incentives. Knowing the
pros and cons of compliance is one way in which transparency can ensure that
the incentives to comply are capable of being effectively assessed. Similarly,
knowing what is at stake in an administrative or judicial proceeding is a central
function of being on notice about an impending adverse measure.




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       4. IMPLICATIONS

Normative guidance, being the hallmark of the rule of law, can be achieved only
if laws are possible to comply with and is promoted the more readily the laws are
capable of being complied with, the more means-to-end rational the laws are
and the more readily the promulgated laws are accepted as law in practice by the
laws’ addressees.

       Understood as a device to promote normative guidance, transparency
serves to enable and promote compliance with legal requirements. The former
function is binary in nature as compliance is either possible or not. Transparency
that makes compliance possible can either exist or not. Where laws are not
promulgated, compliance is impossible and transparency can be said to be
“completely lacking” (cf. Waste Management) or “fundamentally breached” (cf.
Article 8.10(2) C.E.T.A.). The same applies to, e.g., failure to disclose relevant
evidence in an administrative proceeding, which denies the other party the
opportunity to defend its position and makes it impossible to meaningfully
participate in and influence the outcome of the proceedings. In that situation,
either the relevant evidence is disclosed or not. This is also a binary transparency
requirement, similar to many other familiar and related legal concepts, such as
good faith, lack of arbitrariness and due process.

       By contrast, even where possible, compliance may be unlikely to be
promoted, e.g., because of cost, effort, delay or difficulty in discovering the
existence of applicable measures of general application (laws, regulations,
adjudicatory decisions, procedures, practices, policies, standards, authoritative
interpretations, etc.), or in ascertaining, analyzing and interpreting their scope
of application or substantive requirements or entitlements. Where transparency
is understood as the degree to which the legal framework is readily knowable,
transparency clearly appears not as a binary but as a gradual quality. Promoting
this aspect of transparency is certainly conducive to normative guidance, viz. to
minimizing the scope of potentially arbitrary exercise of authority and to the
realization of legislative will. However, it is nevertheless clear that “total
transparency” in this respect is something wholly different from transparency
that is merely not “completely lacking”.




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While this binary aspect appears upheld by restrictive case law and treaty
practice as a required minimum level of transparency, the same cannot be said
about transparency over and above that minimum level. Impossibility of
compliance, rather than practicability, thus appears as the only uncontested
justification for transparency as upheld even in the restrictive strand of case law
and treaty practice. However regrettably, the same cannot yet be said about the
policy ideal of facilitating compliance and promoting normative guidance, and
hence the rule of law.




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