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Legitimate Expectations in Investment Disputes: A Reply to Sadie Blanchard

Published on September 17, 2013        Author: 
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Let me clarify some few points which Sadie Blanchard has disagreed with in my last post. As indicated in my last post, the fair and equitable standard from which the doctrine of legitimate expectations is derived requires the host state among other things to act in good faith and without arbitrariness towards foreign investors (See Techmed v Mexico, ICSID,  2003).  While it is clear that the state is always at the receiving end with regards to the fair and equitable treatment doctrine, the role/the conduct of the investor may not be totally irrelevant in assessing the application of the standard. Surprisingly, Sadie seems to disagree with this very simple fact despite the well settled maxim ‘Caveat Investor’.  In EDF (Services) Limited v. Romania , the tribunal stated that: “Legitimate expectations cannot be solely the subjective expectations of the investor. They must be examined as the expectations at the time the investment is made, as they may be deduced from all the circumstances of the case, due regard being paid to the host State’s power to regulate its economic life in the public interest.” (Award Merits, (8/10/2009), para. 219). Moreover, it is clearly not sufficient not to contextualise the interpretation of fair and equitable treatment when considering whether the legitimate expectation of an investor has been frustrated. Such context will obviously take into account the conduct of the claimant as well as the overall objective of the investment treaty. Surprisingly, Sadie finds this view problematic although it is not new (see Peter Muchlinski, 55 ICLQ, 2006, Garcia-Bolivar, O. CUP, (2011)).

Sadie seems to be unconvinced that the legal framework of foreign investment must protect the legitimate expectations and interests of both the investor and the host state. To Sadie, the centre of the universe in investment treaty should be the protection of the interests of the investors rather than balancing the interest of the latter and the development needs of the host state expected under any FDI. Sadie’s one-sided approach is very troubling because it is incongruous with the object and purpose of most investment treaties. Read the rest of this entry…

 
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A Critique of the Legitimate Expectations Doctrine in Investment Treaty Arbitration

Published on September 16, 2013        Author: 
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Yenkong Ngangjoh-HoduDr Yenkong Ngangjoh Hodu is a Senior Lecturer in Law at the University of Manchester School of Law.

In recent years, the concept of ‘legitimate expectations’ has routinely been put forward by claimants as the basis of claims in investment treaty arbitrations, and endorsed by some arbitrators (see International Thunderbird Gaming Corporation v  United Mexican States, Separate Opinion of T. Walde, para. 37). Relying on ‘legitimate expectations’ that have been frustrated as grounds for an award is troubling, and in the words of a recent EJIL article by Martins Paparinskis “suggest[s] a radical departure from the traditional model of international responsibility”, and may even be tantamount to deciding ex aequo et bono [(2013) 24 EJIL 617, 628]. Tribunals have regarded the doctrine of legitimate expectations as  a part of the fair and equitable treatment standard provided for in investment treaties (see Sempra Energy International v Argentine Republic, pp. 87-88 at para. 298). This is incongruous with the law of state responsibility where the breach of a contract between a state and an alien is not necessarily a violation of international law (Article 4, ILC Articles on State Responsibility). Apart from references to precedent, investment tribunals have, in the majority of cases, hardly taken the pain to justify the overwhelming reliance on legitimate expectations in making awards (Anthea Roberts, 104 AJIL 2010).

Legitimate expectations presuppose that an agreement or a promise generates a certain level of expectations, known as legitimate expectations. It is still unclear what exactly will give rise to legitimate expectations and under what conditions such expectations require unhindered protection. The most popular use of legitimate expectations in domestic jurisdictions (England and Australia) has been in the area of administrative law and more precisely, concerning issues of judicial review. In this context, the basic test for legitimate expectations is the prior existence of a promise (R (Bibi) v London Borough of Newham [2001] EWCA Civ 607) that needed protection by a public authority (Wheeler v Office of the Prime Minister [2008] EWHC 1409). Similarly, in German law the doctrine is connected to the protection of trust (for instance, Article 38 of the German code on Administrative Procedure).

However, in the context of investment arbitration, legitimate expectations is somehow seen as an incentive for foreign investors to settle on a particular investment destination based on a legal structure and representations made by the receiving state. Read the rest of this entry…

 
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