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

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

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 tribunals have identified the protection of investors’ legitimate expectations as the “dominant element” and the “most important function”¹⁴ of the FET standard.

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,¹⁵ although tribunals have emphasized the difference between legitimate expectations under a treaty and under contractual commitments);¹⁶
2. Formal and informal representations made to investors (e.g., acts of Government officials,¹⁷ repeated assurances by federal officials,¹⁸ public statements¹⁹) despite some tribunals noting that such representations must be specific;²⁰
3. The general regulatory framework in force in the host State at the time of the investment.²¹ 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.²² 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.²³

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 relied on such legitimate expectations when deciding to invest in the host State,²⁴ although some tribunals have noted that the investor also has an obligation of reasonable due diligence for legitimate expectations to arise,²⁵
3. A subsequent unilateral conduct of the State frustrated the investor’s legitimate expectations, even in the absence of subjective bad faith,²⁶ and
4. 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);²⁷ and
2. The context of the investment (not only factual²⁸ – e.g., the political, socioeconomic, cultural and historical conditions prevailing in the host State,²⁹ the climate affected by a high degree of political volatility,³⁰ a post-civil war situation³¹).

Articles

• Franklin, A., Legitimate Expectations – Lessons from Recent Energy Arbitration Cases on Renewable Energy Relationship of Fair and Equitable Treatment Standard to Indirect Expropriation, 2018.
• Sallam, K., Investor’s Legitimate Expectations Under the Fair and Equitable Standard. Should They Be Protected?, Master’s Thesis, Uppsala Universitet, 2017.
• Beridze, T., The Legitimate Expectations Requirement under Fair and Equitable Treatment Standard in Investment Treaty Arbitration on Environmental Permitting Decisions in Mining Awards, LL.M. Thesis, Central European University, 2017.
• Stanivukovic, M., Legitimate Expectations: A Commentary of Micula v. Romania, Transnational Dispute Management, 2017, p. 1.
• Sauvant, K. P., and Ünüvar, G., Can Host Countries Have Legitimate Expectations?, Columbia FDI Perspectives No. 183, 26 Septembre 2016.
• Ginsburg, R., Legitimizing expectations in arbitrations through political risk analysis, Yearbook on International Investment Law and Policy 2014-2015, 2016, pp. 215-232.
• Teggi, N. , Legitimate Expectations in Investment Arbitration: At the end of its life-cycle?, Indian Journal of Arbitration Law, 2016, pp. 64-80.
• Monebhurrun, N., Gold Reserve Inc. v. Bolivarian Republic of Venezuela: Enshrining Legitimate Expectations as a General Principle of International Law?, Journal of International Arbitration, 2015, pp. 551-562.
• Bandali, S. A., Chapter 5 – Understanding FET: The Case For Protecting Contract-Based Legitimate Expectations, Investment Treaty Arbitration And International Law – Volume 7, 2014.
• Asqari, Z., Investor’s Legitimate Expectations and the Interests of the Host State in Foreign Investment, Asian Economic and Financial Review, 2014, pp. 1906-1918.
• Dumberry, P., The Protection of Investors’ Legitimate Expectations and the Fair and Equitable Treatment Standard under NAFTA Article 1105, Journal of International Arbitration, 2014, pp. 47-73.
• Mejia, S., The protection of legitimate expectations and regulatory change: the Spanish case, Spain Arbitration Review / Revista del Club Español del Arbitraje, 2014, pp. 113-132.
• Meyers, Z., Adapting Legitimate Expectations to International Investment Law: A Defence of Arbitral Tribunals' Approach, 2014, Transnational Dispute Management, p. 3.
• Özgür, U. E., In Search of Consistency and Fairness in Investor-State Arbitration: An "Institutional" Approach to Interpreting the Doctrine of Legitimate Expectations, 2014, Transnational Dispute Management, p. 1.
• Potestà, M., Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept, ICSID Review, 2013, pp. 88-122.
• Campbell, C., House of Cards: The Relevance of Legitimate Expectations under Fair and Equitable Treatment Provisions in Investment Treaty Law, Journal of International Arbitration, 2013, pp. 361-379.
• Daujotas, R., and Audzevičius, R., The Concept of Legitimate Expectation in Investor-State Arbitration and the European Court of Human Rights, International Commercial Arbitration Review, 2013.
• Téllez, F. M., Conditions and Criteria For The Protection of Legitimate Expectations Under International Investment Law: 2012 ICSID Review Student Writing Competition, ICSID Review - Foreign Investment Law Journal, 2012, pp. 432–442.
• Zeyl, T., Charting the Wrong Course: The Doctrine of Legitimate Expectations in Investment Treaty Law, Alberta Law Review, 2011, pp. 203-235.
• Pandya, A.P.G., Legitimate Expectations in Investment Treaty Arbitration: An unclear future, Tilburg Law Review, 2010-2011, pp. 93-121.
• Brown, C., The Protection of Legitimate Expectations As A 'General Principle of Law': Some Preliminary Thoughts, 2009, Transnational Dispute Management, p. 1.
• von Walter, A., The Investor’s Expectations in International Investment Arbitration, 2009, Transnational Dispute Management, p. 1.
• Snodgrass, E., Protecting Investors’ Legitimate Expectations – Recognizing and Delimiting a General Principle, ICSID Rev. – Foreign Investment Law Journal, 2006, p. 11.
• Forsyth, C., The Provenance and Protection of Legitimate Expectations, Cambridge Law Journal, 1988, p. 238, pp. 242-44.

Chapter in Books

• Palombino, F. M., FET and Legitimate Expectations, in Fair and equitable Treatment and the Fabric of General Principles, 2018, pp. 85-121.
• Claret de Fleurieu, A., Brexit and Legitimate Expectations: A Case for Foreign Investors?, in Hillman, J., and Horlick, F. (eds.), Legal Aspects of Brexit: Implications of the United Kingdom’s Decision to Withdraw from the European Union, 2017).
• Reed, L., and Consedine, S., Chapter 20: Fair and Equitable Treatment: Legitimate Expectations and Transparency, in Kinnear, M., and Others (eds.), Building International Investment Law: The First 50 Years of ICSID, 2015, pp. 283-294.
• Dupuy, F., and Dupuy, P. M., What to Expect from Legitimate Expectations? A Critical Appraisal and Look Into the Future of the “Legitimate Expectations” Doctrine in International Investment Law, in Ziadé, N. G. (ed.), Festschrift Ahmed Sadek El-Kosheri, 2015, pp. 273-298.
• Wongkaew, T., The Transplantation of Legitimate Expectations in Investment Treaty Arbitration: A Critique, in Lalani, S., and Polanco Lazo, R. (eds.), The Role of the State in Investor State Arbitration, 2014.
• Hamamoto, S., Chapter 5 Protection of the Investor’s Legitimate Expectations: Intersection of a Treaty Obligation and a General Principle of Law, in Shan, W., and Su, J. (eds.), China and International Investment Law, 2014, pp. 141-169.
• UNCTAD, Fair and Equitable Treatment: UNCTAD Series on Issues in International Investment Agreements II, 1 August 2014, pp. 63-78.
• Mairal, H. A., Chapter 13: Legitimate Expectations and Informal Administrative Representations, in Schill, S. (ed.) International Investment Law and Comparative Public Law, 2010.
• Wennerholm, F., Chapter 41 – What Can You Expect? The Role Of Legitimate Expectations In Investment Protection Disputes, in Hobér, K. I., and Others, Between East And West: Essays In Honour Of Ulf Franke, 2010.
• Schreuer, C., and Kriebaum, U., At What Time Must Legitimate Expectations Exist?, in Werner, J., and Ali, A. H. (eds.), Law Beyond Conventional Thought, 2009, pp. 265-276.

Books 

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