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 Some arbitral tribunals have equated the stability requirement under the fair and equitable treatment standard with the same requirement existing under the international minimum standard of treatment.2
The obligation of regulatory stability has been successfully invoked by investors under the fair and equitable (FET) standard in numerous investment cases.3
II. Stability under the fair and equitable treatment standard
III. The obligation of stability under the fair and equitable treatment standard
The obligation of regulatory stability has primarily emerged through the interpretation of the objective of the fair and equitable treatment standard in light of the preambles of older generations of BITs.7 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.8
This has been criticised by States and international organisations.9 As a result, some States have expressly carved out stability obligations from the scope of fair and equitable treatment obligations in more recently negotiated International Investment Agreements (IIAs).10 Tribunals have furthermore balanced the investor’s right to a stable legal framework with the State’s right to regulate.11
IV. Legitimate expectations based on stability
A. Situations in which legitimate expectations are considered frustrated
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.12 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.
Only drastic13 or unreasonable14 modifications to a regulatory framework relied on by an investor may rise to a level that entitles the investor to protection for legitimate expectations.15 Examples of such modifications include:
B. Limits to the investor's right to stability
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.21 Investors cannot expect that the legal framework will not evolve during the lifetime of investments,22 except where specific commitments have been made by the host State.23 See further Legitimate expectations and Stabilisation clause.
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:
V. Methodological assessment of the obligation of stability
In summary, when assessing claims brought on the basis of changes to a general regulatory framework, tribunals evaluate:
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. and Schreuer, C., Principles of International Investment Law, 2nd 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.
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.
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
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