The notion of ‘stability’ implies that an investor has the right to expect that a general regulatory framework that exists at the time of investment will not be significantly altered by a host State.¹ The obligation of regulatory stability has been successfully invoked by investors under the fair and equitable (FET) standard in numerous investment cases.²

There are two grounds for a breach of the obligation of regulatory stability:³ (1) as an obligation under the FET standard⁴ and (2) as part of the obligation to protect the legitimate expectations of an investor based on stability.⁵

The obligation of regulatory stability has primarily emerged through the interpretation of the objective of the FET standard in light of the preambles of older generations of BITs.⁶ In some cases, the obligation to provide a stable regulatory framework to investments has been interpreted broadly, placing strict limits on a State’s ability to change its laws.⁷ This has been criticised by States and international organisations.⁸ As a result, some States have expressly carved out stability obligations from the scope of FET obligations in more recently negotiated International Investment Agreements (IIAs).⁹

The frustration of the legitimate expectations of an investor based on stability of a general legal framework has been successfully invoked in numerous investment cases.¹⁰ The general regulatory framework usually consists of laws and policies of general application that existed at the time of the investment and that played a central role in the decision of the investor to make its investment in the host State. In assessing claims based on an investor’s expectations concerning the stability of a general regulatory framework, tribunals have considered that such expectations are subject to limitations imposed by a host State’s right to regulate.¹¹ Investors cannot expect that the legal framework will not evolve during the lifetime of investments.¹² Only drastic modifications¹³ to a regulatory framework relied on by an investor may rise to a level that entitles the investor to protection for legitimate expectations.¹⁴ The examples of such modifications include:

1. sudden elimination of the essential features of a general regulatory framework;¹⁵  
2. changes to a regulatory framework that are disproportional to the goal intended to be achieved by such changes;¹⁶ 
3. changes that have been conducted in an unfair and discriminatory manner towards an investor.¹⁷

In assessing the investor’s expectations, tribunals take several factors into consideration that may limit an investor’s right to avail itself to protection. These include:

1. whether regulatory changes were foreseeable at the time of investment (an investor is required to conduct due diligence before making an investment);¹⁸
2. whether changes to a regulatory framework were motivated by specific circumstances in a host State;¹⁹  

3. whether changes were undertaken gradually without eliminating the key features of a general regulatory framework and in accordance with the long-term objectives of the State.²⁰

In assessing claims brought on the basis of changes to a general regulatory framework, tribunals evaluate:

1. the level of impact that the changes to the general regulatory framework may have on an investor and its investments,²¹ and
2. the manner in which the transformation of the general regulatory framework has been carried out.²²

Bandali, S., Understanding FET: The Case for Protecting Contract-Based Legitimate Expectations, in Laird, I. and others (eds.), Investment Treaty Arbitration and International Law, Juris Publishing, 2014, pp. 32.

Bonnitcha, J., Fair and Equitable Treatment, in Bonnitcha, J. (ed.), Substantive Protection under Investment Treaties: A Legal and Economic Analysis, Cambridge University Press, 2014, pp. 143-227.

Dolzer, R., Fair and Equitable Treatment: Today’s Contours, Santa Clara Journal of International Law, Vol. 12, Issue, 1, 2014, pp. 10-32.

Dolzer, R. and Schreuer, C., Principles of International Investment Law, 2^nd ed., Oxford University Press, 2012, pp. 456.

Jacob, M. and Schill, S., Fair and Equitable Treatment: Content, Practice, Method, in Bungenberg, M. and others (eds.), International Investment Law: A Handbook, Beck/Hart, 2015, pp. 700-763.

Klager, R., Fair and Equitable Treatment in International Investment Law, Cambridge University Press, 2011, pp. 367

Levashova, Y., The Right of States to Regulate in their Public Interest and The Right of Investors to Receive Fair and Equitable Treatment, Kluwer Arbitration Series, 2019, pp. 299.

Ortino, F., The Obligation of Regulatory Stability in the Fair and Equitable Treatment Standard: How Far Have We Come?, Journal of International Economic Law, Vol. 21, Issue 4, 2018, pp. 845–865.

Paparinskis, M., The International Minimum Standard and Fair and Equitable Treatment, Oxford University Press, 2013, pp. 320.

Reed, L. and Consedine, S., Fair and Equitable Treatment: Legitimate Expectations and Transparency, in. Kinnear, M. and Fisher, G. (eds.), Building International Investment Law: The First 50 Years of ICSID, Kluwer, 2015, Chapter 20.

Titi, A., Right to Regulate in International Investment Law, Nomos, 2014, pp. 376.

Valenti, M., The Protection of General Interests of Host States in the Application of the Fair and Equitable Treatment Standard, in Sacerdoti, G. and others (eds.), General Interests of Host States in International Investment Law, Cambridge University Press, 2014, pp. 26-57

Zannoni, D., The legitimate expectation of regulatory stability under the Energy Charter Treaty, Leiden Journal of International Law, Vol. 33, Issue 2, 2020, pp. 451–466