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
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:
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:
Most arbitral tribunals consider that there is a breach of legitimate expectations if:
In appreciating the breach of legitimate expectations two factors are often taken into account by arbitral tribunals:
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