Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept

41 Pages Posted: 10 Jul 2012 Last revised: 30 Oct 2013

See all articles by Michele Potesta

Michele Potesta

Graduate Institute of International and Development Studies (IHEID); Graduate Institute of International and Development Studies (IHEID) - Geneva Center for International Dispute Settlement (CIDS)

Date Written: July 9, 2012

Abstract

The idea that a breach of the investor’s ‘legitimate expectations’ may be relevant in deciding upon a violation of an investment treaty has been recurrently put forward by claimants in investment treaty arbitrations and endorsed by a growing number of arbitral tribunals in the last few years. However, the picture emerging from this jurisprudence is rather fragmented and often contradictory. The paper will first attempt to trace the roots of the concept of legitimate expectations, thus looking at domestic administrative law systems and the EU system, which protect legitimate expectations in a number of situations (Part I). It will then turn to the investment treaty context, where the doctrine has found its most popular application under the fair and equitable treatment standard. The paper will identify patterns of governmental conduct in relation to which a breach of legitimate expectations has been found (Part II). These involve situations where the investor is able to invoke contractual commitments (II.2.A); unilateral representations of the state (II.2.B); and a right to a stable regulatory framework (II.2.C). The latter poses particular problems, because unqualified protection of legitimate expectations may have the effect of fettering the state’s right to regulate. The paper highlights that for the expectation to be reasonable, and hence legitimate, arbitral tribunals ought to consider both the socio-economic circumstances of the host state, and the investor’s own conduct (III).

Keywords: legitimate expectations, fair and equitable treatment, investment treaty law, investment arbitration, stability

JEL Classification: F02, F10, F20, F30, F40

Suggested Citation

Potesta, Michele, Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept (July 9, 2012). Society of International Economic Law (SIEL), 3rd Biennial Global Conference. Available at SSRN: https://ssrn.com/abstract=2102771 or http://dx.doi.org/10.2139/ssrn.2102771

Michele Potesta (Contact Author)

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Graduate Institute of International and Development Studies (IHEID) - Geneva Center for International Dispute Settlement (CIDS) ( email )

Villa Moynier
Rue de Lausanne 120b
Geneva, 12011
Switzerland

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