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 tribunals¹⁴ have identified the protection of investors’ legitimate expectations as the “dominant element” and the “most important function”¹⁵ 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,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

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).

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.