The recent decision of Glamis Gold v USA constitutes a leap forward in the articulation of norms of international investment law. Paragraphs 1 through 9 contain an admirable description of the role of ad-hoc international investment tribunals in the determination of claims, a description that is articulate, precise, accurate and well measured. Such a development is to be welcomed, and was much needed. However, in addition to this, the decision is notable in its contribution to the development of the doctrine of legitimate expectations in the context of international investment law.
The obligation on the host State to respect the legitimate expectations of the investor constitutes what has been variously referred to by tribunals as a ‘facet’, ‘component’, or ‘sub category’ of the fair and equitable treatment provision commonly found in a number of bilateral and multilateral investment treaties. This provision has been elaborated by international investment tribunals over the course of the last four decades, and, in addition to legitimate expectations, has been found to include an obligation to not act in an arbitrary manner, to afford justice and due process to foreign investors, and to act transparently.
In Glamis, the investor argued that a violation of NAFTA’s fair and equitable treatment provision (Article 1105) had been occasioned by the failure of the United States (through its competent agencies) to respect its legitimate expectations. Ultimately, the Tribunal concluded that the claim was not made out. In reaching this conclusion, it introduced two interesting developments to the debate:
(1) an unambiguous statement that legitimate expectations can only be based on a ‘quasi-contract’; and
(2) the suggestion that expectations can be reasonable but not legitimate.
This comment will both outline and consider these two developments.
Turning to the first, although the ‘quasi-contract’ notion of legitimate expectations has been alluded to in a number of cases, such as Enron v Argentina, where the tribunal stated, ‘what seems to be essential [was that the] expectations derived from the conditions that were offered by the State to the investor at the time of the investment and that such conditions were relied upon by the investor when deciding to invest’ , and Metalpar v Argentina where the Tribunal stated that, ‘[i]n this specific case, there was no bid, license, permit or contract of any kind between Argentina and Claimants, and the Tribunal considers that there were no legitimate expectations entertained by Claimants that were breached by Argentina’ , it has never been as unequivocally stated as in the Glamis decision. The Tribunal stated in no uncertain terms that ‘the quasi-contractual inducement … is a prerequisite for consideration of a breach of Article 1105(1) based upon repudiated investor expectations.’  In line with this assertion, the tribunal stated that:
[A] violation of Article 1105 based on the unsettling of reasonable, investment-backed expectation requires, as a threshold circumstance, at least a quasi-contractual relationship between the State and the investor, whereby the State has purposely and specifically induced the investment.  (emphasis added)
In assessing whether there had been a breach in the particular context of legislative changes introduces by the state of California, the Tribunal stated in even clearer terms:
Whether these expectations were reasonable or not is not an inquiry that the Tribunal need make, however. The inquiry, as explained above, is solely whether California, or the federal government, made specific assurances to Claimant that such a requirement would not be instituted in order to induce Claimant’s investment in the Imperial Project.
Turning to the second point, Glamis also exhibits a marked departure from past practice in stating, somewhat paradoxically, that an investor might have reasonably relied upon a representation made by the State, but that nonetheless, the expectation will not, strictly speaking, be legitimate:
The issue presented to the Tribunal therefore is whether a lengthy, reasoned legal opinion violates customary international law because it changes, in an arguably dramatic way, a previous law or prior legal interpretation upon which an investor has based its reasonable, investment-backed expectations.
The tribunal effectively mitigated the right of the investor to rely on its legitimate expectations because of the absence of a gross denial of justice , a complete lack of due process , a manifest lack of reasons , arbitrariness , blatant unfairness or evident discrimination , and the existence of a quasi-contractual relationship . Thus, in the very same breath the Tribunal found the expectation reasonably held by and relied upon by the investor but its frustration to not attract international liability.
A few brief observations might be made about these developments.
At first blush it might seem that the first constitutes a significant advancement of the rights of host States, and concomitant diminution of the rights of investors. The logic goes that in disciplining what has been regarded as a normatively shaky investor-based protection, it winds back the generous rights granted to investors under the banner of legitimate expectations. By requiring, in no uncertain terms, a specific guarantee intended to induce investment, a number of claims brought under the doctrine of legitimate expectations might be barred. This is precisely what happened in relation to the acts of the state and federal entities examined by the Glamis tribunal. Nonetheless, it does not seem entirely clear why, reasoning from first principles, specific guarantees should constitute a condition precedent to a finding of legitimate expectations. Quite the contrary, there are a good normative arguments as to why it might not be so. First, the doctrine should be differentiated from obligations elevated by operation of an umbrella clause. Second, to do so excludes circumstances in which no specific guarantee is provided, but where the State has nonetheless clearly misled the investor. Third, the pre-Glamis jurisprudential trends contain sufficiently robust protections for States fearing willy-nilly subjection to the doctrine. The next paragraph will address this third point in relation to the second point.
The second development outlined above seems unnecessary when one considers the alternative way in which the Tribunal could have articulated the standard. Instead of saying that the expectations were reasonable, but not legitimate, it might have taken a different course, and achieved the same outcome. This solution lies in the articulation by the tribunal of the expectation itself. In order to have been frustrated in the case at hand, the expectation of the investor would have had to have been that its mining rights would not be diminished in a way consistent with natural justice, the rule of law, due process, etc. Such an expectation in the context of mining and environmental regulations would indeed be objectively unreasonable. Such a course of reasoning would effectively avoid the paradox mentioned above.
Presumably, the pursuance of a quasi-contractual obligation will increase legal certainty, and reduce the number of fallacious fair and equitable treatment claims brought by investors. However, there is a real question as to whether this is the case. To a certain extent the resolution of a normative question of legitimate expectations will be a difficult one, clouded with some degree of uncertainty. To a certain degree this is unavoidable. The question then becomes whether the introduction of a quasi-contractual requirement really limits this inquiry, and at what cost. The answer to this question will only be borne out in the decisions that will follow, and may never be fully understood nor affirmatively proven.
In conclusion, although the Glamis Tribunal might be lauded for winding back investor rights, the providence of the imposition of the quasi-contractual requirement and the paradox of reasonable yet illegitimate expectations remain in question.