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Mrs. Ioana Knoll-Tudor

Partner - Jeantet




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Legitimate Expectations

I. Definition


Using the words of the Thunderbird tribunal, “the concept of ‘legitimate expectations’ relates to […] a situation where a Contracting Party’s conduct creates reasonable and justifiable expectations on the part of an investor (or investment) to act on reliance on said conduct, such that a failure by the [State] to honour those expectations could cause the investor (or the investment) to suffer damages.”1

II. Origin


The doctrine of legitimate expectations was put forward by investors and recognized by arbitral tribunals2 as part of the fair and equitable treatment (FET) standard.3


Tribunals have held that an investor has legitimate expectations to be treated impartially, fairly and/or even-handedly,4 despite some of them criticizing such approach as circular.5 Arbitral tribunals have also acknowledged that expectation of return on an investment is reasonable.6


Lastly, legitimate expectations arose in connection to indirect expropriation, whether accepted by tribunals7 or not.8 It is not mentioned as a self-standing concept in international investment agreements. However, certain investment treaties (mainly concluded by the U.S. and Canada) refer to “investment-backed expectations” amongst the factors to be considered in order to determine whether a certain State measure constitutes indirect expropriation.9


The first arbitral decisions making direct reference to legitimate expectations were:

  1. Tecmed v. Mexico (2003): the first time an arbitral tribunal made a general reference to the protection of an investor’s expectations10; and
  2. Thunderbird v. Mexico (2006): the first time an arbitral tribunal used the specific term “legitimate expectations”.11

III. Relation to the FET standard


The doctrine of legitimate expectations has developed as a subcategory of the FET standard.12 Some authors further view legitimate expectations as “a self-standing subcategory and independent basis for a claim under the ‘fair and equitable standard.’”13


Most arbitral tribunals14 have identified the protection of investors’ legitimate expectations as the “dominant element” and the “most important function”15 of the FET standard.

IV. Situations giving rise to legitimate expectations


Although the facts of each case are appreciated in their context, the following situations are usually recognised by arbitral tribunals as giving rise to legitimate expectations:

  1. Legal rights grounded in contractual arrangements between States and investors (e.g., contract entered into with a State agency or State entity,16 although tribunals have emphasized the difference between legitimate expectations under a treaty and under contractual commitments);17
  2. Formal and informal representations made to investors18 (e.g., acts of Government officials,19 repeated assurances by federal officials,20 public statements21) despite some tribunals noting that such representations must be specific22 while others noted that no specific representation from the State was required;23
  3. The general regulatory framework in force in the host State at the time of the investment,24 despite tribunals finding that laws cannot base legitimate expectations.25 The obligation of States to maintain a stable and predictable regulatory framework is however not absolute and is limited by the State’s sovereign prerogative to regulate domestic matters in the public interest.26 Nevertheless, a critical level of alteration of the regulatory framework may cause extensive damages to investors and violate their legitimate expectations. Examples of arbitration proceedings brought on the basis of a State’s subsequent alteration of its legal framework include the 2001-2002 Argentine crisis and the recent amendments to renewable energy incentive laws in States such as Spain, Italy and the Czech Republic.27

V. Methodology of arbitral tribunals in appreciating a breach of legitimate expectations


Most arbitral tribunals consider that there is a breach of legitimate expectations if:

  1. An objective conduct of the State gave rise to legitimate expectations on the part of the investor;
  2. The investor’s expectations are “legitimate” or “reasonable” or “fair”28 and not based on the investor’s subjective considerations;29
  3. The investor relied on such legitimate expectations when deciding to invest in the host State,30 although some tribunals have noted that the investor also has an obligation of reasonable due diligence for legitimate expectations to arise;31
  4. A subsequent unilateral conduct of the State frustrated the investor’s legitimate expectations, even in the absence of subjective bad faith;32 and
  5. The investor suffered damages as a result of said State conduct.

In appreciating the breach of legitimate expectations two factors are often taken into account by arbitral tribunals:

  1. The specificities of the host State, in particular its level of development (e.g., legitimate expectations might differ between a country with an economy in transition and a developed economy one);33 and
  2. The context of the investment (not only factual34 – e.g., the political, socioeconomic, cultural and historical conditions prevailing in the host State,35 the climate affected by a high degree of political volatility,36 a post-civil war situation37).



Chapter in Books


  • Schønberg, S., Legitimate Expectations in Administrative Law, 2000, pp. 108-114.
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