Abstract
This chapter is intended to investigate the nature and the scope of legitimate expectations in international investment law. It is argued that legitimate expectations embody a general principle of international law with its own foundations in the international legal order itself and that such principle, as an FET element, may demand protection under three types of State conduct: contractual commitment, unilateral promise, and legislation.
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Notes
- 1.
We may wonder whether a distinction can be drawn between the reliance theory and that of legitimate expectations. In the European legal systems, the answer seems to be in the negative, especially because expectations often prompt reliance. By contrast, in common law countries, the said distinction is still regarded as useful. Some argue that, even though a casual-circumstantial link between expectations and reliance generally exists, this ‘is not proof of its necessity, nor it should blind us to the fact that expectations do not always lead to reliance […] Ensuring independent protection of the expectation interest means that the remedy granted is not contingent on the existence of a reliance interest. The scope of the expectation is not determined by the extent of reliance but the value of the expectations’ (Barak-Erez 2005, pp. 587 et seq.). As far as international investment law is concerned, reliance and expectations are discussed and dealt with together by arbitral tribunals. Arguably, this is a consequence of the undeniable vagueness of this distinction.
- 2.
See Merusi 2001.
- 3.
This very notion of expectations ended up entering the European Administrative Law as well. In Algera, the EU Court of Justice ruled that ‘an administrative measure conferring individual rights on the person concerned cannot in principle be withdrawn, if it is a lawful measure; in that case, since the individual right is vested, the need to safeguard confidence in the stability of the situation thus created prevails over the interest of an administration desirous of reversing its decision’ (Case 7/56 and 3-7/57, Algera c. Common Assembly, 1957 E.C.R. 56 (E.C.J. 1957)). In this regard, see more generally Gigante 2008.
- 4.
Forsyth 1985.
- 5.
See Merusi 2006, p. 33 ss.
- 6.
The French Conseil d’État has always refused to hold the principle of legitimate expectations. On this point, see Snodgrass 2006, p. 27.
- 7.
See Snodgrass 2006, especially p. 2 (‘[p]rotection for investors’ legitimate expectations can be justified as reflecting a ‘general principle of law recognized by civilized nations’ as that phrase is used to describe a source of international law, and that the methodology for recognizing a general principle can be applied to develop a more highly articulated expression of that principle to guide the protection given investors’ legitimate expectations in future cases’); Brown 2009, p. 6. (‘[E]ven though there are differences from one legal system to another, the fact that a principle is applied differently should not necessarily prevent its acceptance as a general principle of law within the meaning of Article 38(1)(c) of the ICJ Statute’; Diehl 2012, p. 173. On legitimate expectations in the international law on foreign investment, see, in addition to the previous references, Fietta 2006; Walter 2008.
- 8.
Brown 2009, p. 6. A similar opinion has also been advanced by Potestà 2013, p. 98: ‘[O]ne could […] conclude that to establish at least an emerging general principle of protection of legitimate expectations would not seem to be an unrealistic endeavour. Thus, it is this general principle that will inform the content of fair and equitable treatment in investment treaty law.’ Finally, it is helpful to consider the separate opinion rendered by Thomas Wälde in Thunderbird (International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA) Arbitration Proceedings, Award of 26 January 2006). He does not specifically claim the existence of a principle common to domestic systems, but the importance of a comparative public law inquiry is notwithstanding outlined: ‘The principle of protection of ‘legitimate expectation’ or, in common law, estoppel, has also been applied in comparative contract law, mainly to deny formal rights invoked by a party if such invocation contradicts previous statements and conduct that made the other party trust in the particular expectation so created. But contract law—presuming the existence of two equal parties in a commercial contract—is less relevant than comparative public law with respect to the judicial review of governmental conduct. For example, in its well-established jurisprudence, the European Court of Justice held ‘legitimate expectations’ to be a key principle of the relation between State and individuals. The principle requires public authorities (including the European Commission) to respect legitimate expectations it has created with individuals, in particular if such expectations have become the basis for investment […] The principle of legitimate expectation is also recognised in several developed systems of administrative law. The common principles of the principal administrative law systems are in my view an important point of reference for the interpretation of investment treaties to the extent investment treaty jurisprudence is not as yet firmly established. But its exact scope and implication are not well established’ (paras 27 et seq.).
- 9.
One may mention Sornarajah 2010, pp. 354–355: ‘[A]s a general principle, legitimate expectations provide only procedural protection, requiring that an expectation created by administrative conduct should not be violated unless a hearing is given to the person who had that expectation. The principle has rarely been used as a substantive principle because of practical difficulties. Governments make assurances as to policies on taxation, agriculture and other areas. Administration would become difficult if, at each change of policy to suit new circumstances, the State has to pay damages to affected parties. It is an error to state that there is a general principle of law that violations of legitimate expectations give rise to substantive remedies […] It is unlikely that such a rule can be maintained in any system.’ The same opinion may be ascribed to Zeyl 2011, p. 209, who observes that ‘recognizing substantive expectations as part of the general principles of law is at this point premature and amounts to a misstatement of a general principle of law.’ Last, but not least, a reference should be made to the separate opinion passed by Judge Nikken with regard to the decision in Suez and AWG Group v. Argentine Republic (ICSID Case No. ARB/03/19, Decision on Liability of 30 July 2010). In his view, in particular, ‘[t]he concept of legitimate expectations is no stranger to the different legal systems, which, to varying degrees and on the basis of good faith, consider the party to a legal relationship that engages in self-contradiction to the detriment of the other party reprehensible. In human relationships, in general, your word is your bond and whoever betrays the trust of another must be penalized. However, the specific formulation of this concept varies in the different legal systems. Not even the English law concept of estoppel has a uniform wording or matches the same principle in other Anglo-Saxon countries. Neither is the doctrine of actos propios (close to estoppel) in the contract law of some civil law countries identical nor the doctrine of confianza legítima (confiance legitime) in the administrative law of those same countries’ (para 22).
- 10.
Zarra 2016, pp. 124 et seq., pp. 135–136.
- 11.
Quadri 1968, p. 127.
- 12.
Application of the Convention on the Prevention and the Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment of 26 February 2007.
- 13.
‘There is no dispute between the Parties as to the existence of the principle of res judicata even if they interpret it differently as regards judgments deciding questions of jurisdiction. The fundamental character of that principle appears from the terms of the Statute of the Court and the Charter of the United Nations. The underlying character and purposes of the principle are reflected in the judicial practice of the Court. That principle signifies that the decisions of the Court are not only binding on the parties, but are final, in the sense that they cannot be reopened by the parties as regards the issues that have been determined, save by procedures, of an exceptional nature, specially laid down for that purpose. Article 59 of the Statute, notwithstanding its negative wording, has at its core the positive statement that the parties are bound by the decision of the Court in respect of the particular case. Article 60 of the Statute provides that the judgment is final and without appeal; Article 61 places close limits of time and substance on the ability of the parties to seek the revision of the judgment.’ Put differently, the Court does not engage in an examination of the status of the principle in national legal systems, but rather assumes the existence of a general principle of international law, with its own foundations in the international legal order, viz., in the Statute of the ICJ itself and the Charter of the United Nations.
- 14.
Byers 1999, p. 107.
- 15.
On this case, and the way it should be read, see infra Sect. 4.5.2.
- 16.
Electrabel S.A. v. Hungary, ICSID No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability of 30 November 2012, para 7.75: ‘It is widely accepted that the most important function of the fair and equitable treatment standard is the protection of the investor’s reasonable and legitimate expectations.’
- 17.
From the very beginning of our inquiry, the autonomous value of the principle of legitimate expectations has been claimed. Nonetheless, both in national and international legal systems, the question has proven to be challenging, and is intimately connected to the more general debate concerning the good faith principle. Generally speaking, good faith would have a twofold dimension, subjective and objective. Subjectively, it implies ‘honesty in fact’, that is to say, the situation where the person who infringes a certain right is not aware of doing so. Objectively, it is regarded as a legally imposed standard of behaviour which is not construed by reference to the subjective perceptions of the party in question. Now, if one assumes that the second variant of good faith covers the protection of legitimate expectations as well, this latter principle would lack an autonomous nature accordingly (Merusi 2006, p. 145). The same opinion has been advanced by several scholars of international law. Kolb 2006, p. 16, for instance, observes as follows: ‘[G]ood faith has an objective sense: it is here a powerful general norm, a general principle of law. […] The substance of good faith as a general principle decomposes itself in several more concrete aspects. […] First, the principle of good faith requires the protection of legitimate expectations which a certain course of conduct has provoked in another person.’ In the sense that legitimate expectations would be a concretization of the principle of good faith, see also Ziegler and Baumgartner 2015, pp. 17–18. However, it is arguable that, at least within the international legal order, reliance embodies an autonomous principle, and more precisely a general principle of international law aimed at protecting the certainty of legal relations. Support for this proposition may be found not only in the legal doctrine mentioned beforehand (see supra para 4.1), but also in the arbitral practice in matter of foreign investments. In line with this practice, it may be the case that a State acts in good faith, but nevertheless violates the reliance principle. On this assumption, the autonomous value of these two principles must be necessarily admitted. To put it differently: either reliance is regarded as a more concrete aspect of good faith (with the consequence that a State conduct in good faith is automatically consistent with the reliance principle) or one has to submit the existence of two principles working independently from each other (Diehl 2012, pp. 356 ss., spec. p. 358: ‘In sum, the principle of good faith is not to be seen as a foundation of the protection of legitimate expectations, but as a guiding interpretive principle which helps to apply and clarify the FET standard’).
- 18.
Hirsch 2011, p. 292.
- 19.
Duke v. Ecuador, ICSID Case No. ARB/04/19, Award of 18 August 2008. More recently, the same remark may be found in Charanne B.V. and Construction Investments S.A.R.L. v. Spain, Arbitration Institute of the Stockholm Chamber of Commerce, Award of 21 January 2016, para 505: ‘[I]n order to exercise the right of legitimate expectations, the Claimants should have made a diligent analysis of the legal framework for the investment.’
- 20.
See Chap. 2, Sect. 2.7.
- 21.
Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, para 335.
- 22.
Urbaser S.A. et al. v. Argentina, ICSID Case No. ARB/07/26, Award of 8 December 2016, para 627.
- 23.
Téllez 2012, p. 3.
- 24.
Supra note 23, para 623.
- 25.
Dolzer and Schreuer 2012, p. 140.
- 26.
Berge and Widdershoven 1998.
- 27.
One remark in this sense may already be found in the Fourth Report on State Responsibility presented by García-Amador, as special rapporteur of the UN ILC, UN doc. A/CN.4/119 (1959), in Yearbook of International Law Commission, 1959, Vol. II, Chap. III, 1959, p. 30, para 123: ‘Diplomatic protection and international case law have traditionally accepted almost as dogma the idea that mere non-performance by a State of its obligations under a contract with an alien individual does not in itself necessarily give rise to international responsibility.’ The same view is reflected in the Commentary to Article 4 of the 2001 Draft Articles on State Responsibility, UN doc. A/56/10 (2001), in Yearbook of International Law Commission, Vol. II, Second Part, 2001, pp. 19 et seq, especially p. 41, para 6: ‘[O]f course the breach by a State of a contract does not entail a breach of international law.’ As to the legal doctrine, see Schreuer 2005, p. 380: ‘A simple breach of contract is part of normal business risk, and an investor may have to anticipate such an occurrence without recourse to a treaty remedy. Also, a breach of contract resulting from serious difficulties on the part of the government to comply with its financial obligations cannot be equated with unfair and inequitable treatment.’ In similar terms, see Potestà 2013, p. 101: ‘even if the investor has an expectation that the contract will be fulfilled, a disappointment of such expectation cannot per se be equated to a violation of the fair and equitable treatment standard in the treaty. To reason otherwise would mean that invocation of legitimate expectations would turn the fair and equitable treatment standard into a general umbrella clause, which can hardly be a tenable interpretation.’
- 28.
Texaco v. Libya (1978), Ad Hoc Award of 19 January 1977, in 17 International Law Materials 1, paras 54–56. On this judgment, see Cantegreil 2011.
- 29.
Idem, para 57.
- 30.
On the meaning of umbrella clauses, see the recent judgment in Garanti Koza LLP v. Turkmenistan, ICSID Case No. ARB/11/20, Award of 19 December 2016, paras 328 et seq.
- 31.
This sentence is to be credited to Schreuer 2005, p. 379. On the coordination between contract claims and treaty claims, see Mauro 2016; Zarra 2016, pp. 3 et seq. In case law, a revealing judgment is that recently passed in Ampal-American Israel Corp et al. v. Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction of 1 February 20016, paras 249 et seq.
- 32.
Montt 2012, p. 363.
- 33.
Wälde and Kolo 2001, p. 844.
- 34.
The same authors, idem, observe as follows: ‘[A breach of the commitment] needs to be taken into account in determining whether the breach is confiscatory. The existence of a commitment by the government may not extinguish the government’s authority to change or enact new […] laws. But where such regulation severely impacts on the investment (e.g. by rendering it no longer profitable to operate, or adding exorbitant costs on the investor—which were not contemplated at the time of the investment), then that breach of commitment weighs in on the side of the factors indicating expropriation.’
- 35.
The tribunal in Hamester v. Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, para 337, concluded that ‘it is not sufficient for a claimant to invoke contractual rights that have allegedly been infringed to sustain a claim for a violation of the FET standard.’
- 36.
Waste Management, Inc. v. Mexico, ICSID Case No. ARB(AF)/00/3, Award of 30 April 2004, para 115.
- 37.
A general statement in this sense may be found in Mondev International Ltd. v. United States, ICSID Case No. ARB (AF)/99/2, Award of 11 October 2002. Paragraph 134 of the decision states as follows: ‘Indeed a governmental prerogative to violate investment contracts would appear to be inconsistent with the principles embodied in Article 1105 and with contemporary standards of national and international law concerning liability for contractual performance.’ In Flemingo DutyFree v. Poland, UNCITRAL, Award of 12 August 2016, para 529 et seq., the tribunal found that a termination in bad faith of a contract resulted in an FET violation.
- 38.
SGS v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004, para 162: ‘Whatever the scope of Article IV standard [fair and equitable treatment] may turn out to be—and that is a matter for the merits—an unjustified refusal to pay sums admittedly payable under an award or a contract at least raises arguable issues under Article IV.’
- 39.
MTD v. Chile, ICSID Case No. ARB/01/7, Award of 25 May 2004.
- 40.
Idem, para 166: ‘The tribunal is satisfied, based on the evidence presented to it, that approval of an investment by the FIC for a project that is against the urban policy of the Government is a breach of the obligation to treat an investor fairly and equitably.’ On the other hand, the fact that the permit had been denied by the competent local authorities is not significant. As it is well-known, indeed, the State has to be identified with the machinery of government as a whole, i.e. all the organs which directly or indirectly take part in the government activity. See Conforti 2015, pp. 15–16.
- 41.
Perenco Ecuador Limited v. Ecuador, ICSID Case No. ARB/08/6, Decision on Remanding Issues of Jurisdiction and Liability of 12 September 2014.
- 42.
Idem, paras 562 et seq.
- 43.
Idem, para 591: ‘The market conditions in which the State acted were, in the tribunal’s view, quite extraordinary and the widespread array of measures taken by other States during this time satisfies the tribunal that seeking an adjustment of the economic rent derived from exhaustible natural resources was not per se arbitrary, unreasonable or idiosyncratic’.
- 44.
Idem, paras 606–607: ‘[T]he application of the law at 99% rendered a participation contract essentially the same as a service contract […] In the tribunal’s view, moving beyond 50–99% with the application of Decree 662 amounted to a breach of Article 4 of the Treaty.’ See also Garanti Koza LLP, supra footnote 31, where the tribunal concluded that the inconsistency of behaviour between different organs of the respondent State with regard to its contractual obligations amounted to an FET violation.
- 45.
- 46.
One example may be found in Arts 1987–1988 of the Italian Code of Civil Law.
- 47.
See Pardolesi 2009. An exemplification of the doctrine may be found in the 1965 Wisconsin Supreme Court decision in Hoffman v. Red Owl Store (26 Wis. 2d 683, 133 N.W. 2d 267). The facts underlying this case go back to a claim for compensation concerning the potential extension of a franchise. In the early 1960s, Mr. Joseph Hoffman, who owned and operated a bakery, sought to obtain a Red Owl supermarket franchise in Wisconsin. The franchisor assured him that the amount of money at his disposal ($18.000) was sufficient, but in the end the negotiations fell apart; indeed, Red Owl raised the amount of investment beyond what Mr. Hoffman was able to afford. Accordingly, the latter sued the former for reliance damage, lost profits and expenses. Now, despite the fact that the parties had never reached agreement on essential factors necessary to create a valid contract and with a view to upholding the claimant’s request, the Wisconsin Supreme Court relied on the promissory estoppel doctrine. More squarely, under Section 90 of the Restatement (First) of Contracts, ‘[a] promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.’ This article, which exemplifies promissory estoppel, was regarded as applicable in the case at issue. And indeed, in its terms, the promise is not required to be so comprehensive in scope as to meet the requirements of an offer that would create a binding contract if accepted by the promisee.
- 48.
Merusi 2001, pp. 167 et seq.
- 49.
Berge and Widdershoven 1998, pp. 445–446.
- 50.
Grellert 1964.
- 51.
- 52.
Quadri 1968, p. 573.
- 53.
Carbone 1975, p. 166.
- 54.
Bosco 1938.
- 55.
See Cassese 2005, p. 185: ‘Promise is a unilateral declaration by which a State undertakes to behave in a certain manner. This obligation is assumed independently of any reciprocal undertaking by other States (otherwise the declaration would amount to one element of a contractual legal transaction).’
- 56.
De Nova 1956, p. 11.
- 57.
- 58.
Carbone 1975, p. 168.
- 59.
Several authors share the same view. See, for instance, Eckart 2012, p. 295: ‘Even without the Court’s Statute being revised to reflect legal realities, the lacuna presented by promises not being listed amongst the sources of law might fade away over time, should the principles which have primarily been established by the World Court’s case law continue to be accepted and thereby entrenched as customary international law through the practice of States.’
- 60.
Nuclear Tests (Australia v. France), Judgment of 20 December 1974 and Nuclear Tests (New Zealand v. France), Judgment of 20 December 1974.
- 61.
See para 46 of the decision Australia v. France and para 49 of the decision New Zealand v. France, where it is further stated: ‘Thus, interested States may take cognizance of unilateral declarations and place confidence in them, and are entitled to require that the obligation thus created be respected.’ For a comment on these decisions, see Carbone 1975 and Rubin 1977.
- 62.
As to the form (oral/written) of the statement, contrariwise, no special requirements are imposed: ‘With regard to the question of form, it should be observed that this is not a domain in which international law imposes any special or strict requirements. Whether a statement is made orally or in writing makes no essential difference, for such statements made in particular circumstances may create commitments in international law, which does not require that they should be couched in written form. Thus the question of form is not decisive.’: para 45 of the decision Australia v. France and para 48 of the decision New Zealand v. France.
- 63.
Paragraphs 50–51 of the decision Australia v. France and paras 52–53 of the decision New Zealand v. France clarify as follows: ‘The unilateral statements of the French authorities were made outside the Court, publicly and erga omnes […] As was observed above, to have legal effects, there was no need for these statements to be addressed to a particular State, nor was acceptance by any other State required […] In announcing that the 1974 series of atmospheric tests would be the last, the French Government conveyed to the world at large, including the Applicant, its intention effectively to terminate these tests […] The objects of these statements are clear and they were addressed to the international community as a whole, and the Court holds that they constitute an undertaking possessing legal effect’ (emphasis added). The fact that this unilateral declaration had an erga omnes effect is of relevance. On this point, see infra.
- 64.
Frontier Dispute, Judgment, ICJ Reports 1986, 22 December 1986, 554, paras 39–40.
- 65.
‘It is difficult to see how it could have accepted the terms of a negotiated solution with each of the applicants without thereby jeopardizing its contention that its conduct was lawful.’
- 66.
Paragraph 40. Emphasis added.
- 67.
Barile 1983, pp. 17 et seq. and 26 et seq.
- 68.
UN doc. A/61/10 (2006), in General Assembly Official Records, Sixty-first Session, Supplement n. 10, pp. 367 et seq.
- 69.
‘A unilateral declaration entails obligations for the formulating State only if it is stated in clear and specific terms. In case of doubt as to the scope of the obligations resulting from such a declaration, such obligations must be interpreted in a restrictive manner. In interpreting the content of such obligation, weight shall be given first and foremost to the text of the declaration, together with the context and the circumstances in which it was formulated.’
- 70.
‘A unilateral declaration that has created legal obligations for the State making the declaration cannot be revoked arbitrarily. In assessing whether a revocation would be arbitrary, consideration should be given to: (a) Any specific terms of the declaration relating to revocation; (b) The extent to which those to whom the obligations are owed have relied on such obligations; (c) The extent to which there has been a fundamental change of circumstances.’
- 71.
The idea whereby promise would be a source of international obligations, rather than of international law, is clearly confirmed by the ILC works. One may mention V.R. Cedeño, First Report on Unilateral Acts of States, UN doc. A/CN.4/486 (1998), in Yearbook of the International Law Commission, vol. II, Part one, 1998, p. 328, paras 69–71 (‘69. Legal acts, that is, acts performed with the intent to produce effects in international law, are the main source of obligations in international law. A State can incur obligations through formal acts which are not necessarily sources of international law, within the meaning referred to in Article 38 of the Statute of the International Court of Justice, already discussed briefly here. 70. Article 38 of the Court’s Statute does not mention unilateral acts of States among the sources of law that it lists. That, however, does not mean that such acts cannot give rise to international legal norms. 71. Differentiating formal sources from sources of obligations could help to distinguish acts which are unilateral in their form from those which are unilateral in their effects. Not all formal unilateral acts fall within the realm of treaties. Some of them, albeit not very many, can, as the doctrine by and large indicates, be classified as strictly unilateral acts’); International Law Commission, Report on its Work of the Fifty-fourth Session, UN doc. A/57/10 (2002), in General Assembly Official Records, Fifty-seventh Session, Supplement n. 10, 2002, p. 215, para 411 (‘The Special Rapporteur indicated that he shared the view of the vast majority of members which believe that unilateral acts did indeed exist, that they were well-established institution in international law and that they could be binding on the author State, subject to certain conditions of validity. In his view, unilateral acts are not sources of law, within the meaning of Article 38 of the Statute of the International Court of Justice, but they could however constitute a source of obligations’).
- 72.
This can be clearly inferred from the commentary on Draft Guiding Principle 1: ‘The wording of Guiding Principle 1, which seeks both to define unilateral acts in the strict sense and to indicate what they are based on, is very directly inspired by the dicta in the Judgments handed down by the International Court of Justice on 20 December 1974 in the Nuclear Tests case.’
- 73.
El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award of 31 October 2011, para 392.
- 74.
Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award of 30 August 2000; see Chap. 3, Sect. 3.5.2.
- 75.
Idem, para 89.
- 76.
Crystallex International Corporation v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award of 4 April 2016.
- 77.
Idem, para 547.
- 78.
Idem, para 575.
- 79.
International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA), Award of 26 January 2006.
- 80.
Para 147 of the decision refers to the concept of good faith), but in the terms specified by Diehl 2012, p. 358.
- 81.
Paras 147–148 of the decision.
- 82.
‘In the tribunal’s view, the information presented by EDM in the Solicitud is incomplete […]. The tribunal is therefore of the opinion that the Solicitud is not a proper disclosure and that it puts the reader on the wrong track […] Thunderbird has also argued that in the event of doubt, SEGOB should have made a request for additional information regarding the operation of the machines, or for an inspection of the machines. Yet Thunderbird was the moving party presenting a Solicitud to the Mexican administration; one would therefore expect that the moving party supply adequate information and make a proper disclosure. In the tribunal’s view, the Solicitud did not give the full picture, even for an informed reader’: paras 151 et seq. of the decision.
- 83.
Saluka Investments BV v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para 351: ‘Firstly, Nomura’s expectation that the Government would not address the bad loan problem by support to the banks was initially said to have been based on an express assurance to that effect given by the then Minister of Finance. The Claimant has also argued that this was consistent with the obligations undertaken by the Czech Government in their pre-accession agreement with the European Commission (the Europe Agreement) to adhere to European Union norms on State aid. The Claimant has admitted, however, that whatever assurance the Minister of Finance may have given, he could not bind future Governments. Especially, he could not give any assurance that the privatisation of the other banks would proceed in the same way as the privatisation of IPB, i.e. without any State financial assistance. Nomura therefore had no basis for expecting that there would be no future change in the Government’s policy towards the banking sector’s bad loan problem or in the Government’s willingness to adhere during the pre-accession period to the rules on State aid in the Europe Agreement.’ For more details on this case, see infra.
- 84.
Frontier Petroleum Services Ltd v. Czech Republic, UNCITRAL, Final Award of 12 November 2010.
- 85.
Idem, para 468.
- 86.
Total S.A. v. Argentina, ICSID Case No ARB/04/1, Decision on Liability of 27 December 2010.
- 87.
In this regard, a clarification seems to be necessary. Para 128 of the decision states as follows: ‘Since the concept of legitimate expectations is based on the requirement of good faith, one of the general principles referred to in Article 38 (1)(c) of the Statute of the International Court of Justice as a source of international law, the tribunal believes that a comparative analysis of the protection of legitimate expectations in domestic jurisdictions is justified at this point. While the scope and legal basis of the principle varies, it has been recognized lately both in civil and in common law jurisdictions within well defined limits.’ At first glance, the tribunal regards legitimate expectations as a particular aspect of the principle of good faith in its objective facet. Yet, inasmuch as the decision highlights that the principle would be recognized in countries of both civil and common law, it clearly refers to legitimate expectations as a principle independent from that of good faith. This conclusion may be inferred from the legal literature cited therein (which exclusively deal with legitimate expectations) as well as from para 129, whereby the protection of expectations would reflect the importance of legal certainty. As has been seen above, this is a line of argument adopted with a view to claiming the autonomous nature of the principle of reliance (Merusi 2006, p. 145). On the other hand, what the tribunal stresses in para 130 is worthless: ‘From a comparative law perspective, the tenets of the legal system of the European Community (now European Union), reflecting the legal traditions of twenty-seven European countries, both civil and common law […] are of relevance, especially since the recognition of the principle of legitimate expectations there has been explicitly based on the international law principle of good faith.’ On closer inspection, the decision cited by the same tribunal in order to corroborate a similar conclusion (Court of First Instance, Opel Austria v. Council of the European Union, Case T-115/94, Judgment, 22 January 1997) is evidence of the contrary; remarkably, its para 93 states that ‘the principle of good faith is the corollary in public international law of the principle of protection of legitimate expectations’.
- 88.
See again paras 129–130 of the decision.
- 89.
On the relationship between legitimate expectations and estoppel in public international law, see again Eckart 2012, pp. 277 et seq.
- 90.
See paras 131–132 of the decision: ‘131. Under international law, unilateral acts, statements and conduct by States may be the source of legal obligations which the intended beneficiaries or addressees, or possibly any member of the international community, can invoke. The legal basis of that binding character appears to be only in part related to the concept of legitimate expectations—being rather akin to the principle of ‘estoppel’. Both concepts may lead to the same result, namely, that of rendering the content of a unilateral declaration binding on the State that is issuing it. According to the International Court of Justice, only unilateral acts that are unconditional, definitive and ‘very specific’ have binding force, which derives from the principle of good faith. This fundamental principle requires a State to abide by its unilateral acts of such a character and to follow a line of conduct coherent with the legal obligations so created. 132. The recent ‘Guiding Principles applicable to unilateral declarations of States capable of creating legal obligations’ (‘the Guidelines’), which were formulated by the International Law Commission in 2006 as a restatement of international (inter-State) case law in the subject matter, are of interest here. We are aware that the Guidelines deal with the legal effects of unilateral acts of States addressed to other subjects of international law, and not with domestic normative acts relied upon by a foreign private investor. Still, we believe that the conditions required for unilateral declarations of a State to give rise to international obligations are of relevance here since the issue before the tribunal has to be resolved by application of international law.’
- 91.
See para 134 of the decision.
- 92.
Such a circumstance is not surprising. Where in a certain field of international law a provision to be applied does not exist, and a principle common to domestic legal systems lacks, the concerned tribunal is required to refer to one specific national legal order. Needless to say, such order should be the one whose legislation (in matter of promise, for instance) proves particularly appropriate with regard to the field of reference. A similar opinion was advanced by A. Cassese, as judge of the ICTY in Erdemović, IT-96-21, Appeals Chamber, Judgment of 7 October 1997. To his mind, ‘it would be inappropriate mechanically to incorporate into international criminal proceedings ideas, legal constructs, concepts or terms of art which only belong, and are unique to a specific group of national legal systems, common-law or civil-law systems. Reliance upon one particular system may be admissible only where indisputably imposed by the very terms on an international norm, or where no autonomous notion can be inferred from the whole context and spirit of international norms’ (para 4). An approach of this kind has been followed by the ICTY in matter of cumulation of offences. In this regard, see Palombino 2005, pp. 782 et seq.
- 93.
Notably, the reasoning underpinning the Total decision, and particularly the idea whereby legitimate expectations would embody a principle common to domestic systems, has been followed in Toto (Toto Costruzioni SpA v. Lebanon, ICSID Case No. ARB/07/12, Award of 7 June 2012, para 166: ‘The fair and equitable treatment standard of international law does not depend on the perception of the frustrated investor, but should use public international law and comparative domestic public law as a benchmark. As was recently also confirmed in Total S.A. v. Argentina, ‘a comparative analysis of what is considered generally fair and unfair conduct by domestic public authorities in respect to private investors and firms in domestic law may also be relevant to identify the legal standards under BITs’) and Gold Reserve (Gold Reserve Inc. v. Venezuela, ICSID Case No. ARB(AF)/09/1, Award of 22 September 2014, para 576: ‘With particular regard to the legal sources of one of the standards for respect of the fair and equitable treatment principle, i.e. the protection of ‘legitimate expectations’, these sources are to be found in the comparative analysis of many domestic legal systems. This has been succinctly stated recently by other ICSID tribunals, for example in Total v. Argentina and in Toto Construzioni Generali SpA v Republic of Lebanon. Based on converging considerations of good faith and legal security, the concept of legitimate expectations is found in different legal traditions according to which some expectations may be reasonably or legitimately created for a private person by the constant behaviour and/or promises of its legal partner, in particular when this partner is the public administration on which this private person is dependent’). Needless to say, the same remarks apply.
- 94.
Bilcon of Delaware et al. v. Canada, UNCITRAL (NAFTA), Award on Jurisdiction and Liability of 17 March 2015.
- 95.
Para 603.
- 96.
The US Supreme Court expressed this principle in the following terms: ‘[T]he presumption against retroactive legislation is deeply rooted in our jurisprudence, and embodies a legal doctrine centuries older than our Republic. Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly; settled expectations should not be lightly disrupted. For that reason, the ‘principle that the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place had timeless and universal appeal.’ In a free, dynamic society, creativity in both commercial and artistic endeavours is fostered by a rule of law that gives people confidence about the legal consequences of their actions’; Landgraf v. USI Film Products, 511 U.S. 244, 265–66 (1994).
- 97.
One should mention the Italian legal system, within which non-retroactivity of the law embodies a fundamental value of legal culture. More in detail, in criminal matters, this principle benefits from privileged protection under Article 25, para 2, of the Constitution, whereby ‘[n]o punishment may be inflicted except by virtue of a law in force at the time the offence was committed.’ In civil matters, the same principle may be inferred from Article 11 of Preliminary Provisions to the Italian Civil Code. But in this case the principle may suffer some exceptions, especially where the enactment of an ex post facto law is justified by the need to protect principles, rights and interests of constitutional standing. Judgment No. 264, passed by the Italian Constitutional Court on 19 November 2012, is symptomatic of this need. The Court (which was asked to consider a challenge to a legislation, in matter of pensions, with retroactive effects) held that the appellant had no legitimate expectation for his pension to be calculated in line with the previous arrangements, since the contested legislation was inspired by the principles of equality and solidarity, which prevailed within the balancing of constitutional interests (para 5.3, conclusions on points of law).
- 98.
See ATA Construction, Industrial and Trading Company v. Jordan, ICSID Case No. ARB/08/02, Award of 18 May 2010, para 128: ‘By virtue of Article II of the New York Convention, Jordan’s State courts are required to ‘recognize an agreement in writing under which the parties undertake to submit to arbitration’, and in such circumstances to ‘refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed’. There has never been any allegation in this case by either party that the Arbitration Agreement at issue was per se ‘null and void, inoperative or incapable of being performed’. It is arguable (but the tribunal takes no position on the point) that the extinguishment rule might be deemed to be prospectively compatible with Article II insofar as parties electing Jordan as the venue for an arbitration or electing Jordanian law as the law of the arbitration had notice of the rule and accepted it. But this argument cannot work retroactively. Retroactivity is the problem here. The new rule should cover only those arbitration agreements concluded after the coming into force of the Jordanian Arbitration Law in 2001 and not arbitration agreements existing before the 2001 Law came into force, such as the Arbitration Agreement at issue in this proceeding. In the tribunal’s view, the Jordanian Court of Appeal and Court of Cassation could have complied with their duty in this case by refusing to apply retroactively the new rule introduced in the last sentence of Article 51 of the Jordanian Arbitration Law.’ For a recent arbitral case discussing retroactivity, see Charanne B.V. and Construction Investments S.A.R.L. v. Spain, Arbitration Institute of the Stockholm Chamber of Commerce, Award of 21 January 2016, paras 543 et seq. For a comment on this judgment, see De Luca 2016.
- 99.
The distinction between proper and improper retroactivity must be traced back to the case law of the German Bundesverfassungsgericht. The same distinction, albeit tacitly, has been upheld by the Italian Constitutional Court. In this regard, see Merusi 2001, pp. 21 et seq.
- 100.
This kind of expectation is what Maynard 2016, pp. 99 et seq., calls ‘legal stability obligation’ and considers as distinct from the concept of expectations itself. This opinion, however, as well as being unable to shed new light on the FET content, is based on the false inference according to which legitimate expectations ‘have their origins in the domestic administrative laws of States, whereas the Legal Stability Obligation has typically been inferred into the FET standard on the basis of a purposive interpretation of the perambulatory language of investment treaties’ (p. 112); indeed, such obligation (which is nothing but a manifestation of expectation by legislation), albeit in a somewhat ambiguous manner, is fairly well-rooted in national legal systems (see infra Sect. 4.6.2). For a recent judicial confirmation of the interrelation between legitimate expectations and legal stability, see Philip Morris et al. v. Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para 421.
- 101.
Weber 1922.
- 102.
Idem, pp. 847 and 855.
- 103.
See Merusi 2001, 23–24.
- 104.
Coviello 2004, pp. 21 et seq.
- 105.
Técnicas Medioambiente Tecmed S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award of 29 May 2003.
- 106.
See Chap. 3, Sect. 3.5.2.
- 107.
‘Upon making its investment, the fair expectations of the Claimant were that the Mexican laws applicable to such investment, as well as the supervision, control, prevention and punitive powers granted to the authorities in charge of managing such systems, would be used for the purpose of assuring compliance with environmental protection, human health and ecological balance goals underlying such laws’: para 157 of the decision.
- 108.
Saluka Investments BV v. Czech Republic, UNCITRAL, Partial Award of 17 March 2006.
- 109.
See para 301.
- 110.
‘The determination of a breach of Article 3.1 by the Czech Republic therefore requires a weighing of the Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s legitimate regulatory interests on the other’ (para 306).
- 111.
A foreign investor protected by the Treaty may in any case properly expect that the Czech Republic implements its policies bona fide by conduct that is, as far as it affects the investor’s investment, reasonably justifiable by public policies and that such conduct does not manifestly violate the requirements of consistency, transparency, even-handedness and non-discrimination. In particular, any differential treatment of a foreign investor must not be based on unreasonable distinctions and demands, and must be justified by showing that it bears a reasonable relationship to rational policies not motivated by a preference for other investments over the foreign-owned investment’ (para 307).
- 112.
On this kind of expectation, see also Bayindir Insaat Turizim Ticaret ve Sanayi A v. Pakistan, ICSID Case No. ARB/03/29, Award of 27 August 2009: ‘The tribunal agrees with Bayindir when it identifies the different factors which emerge from decisions of investment tribunals as forming part of the FET standard. These comprise the obligation to act transparently and grant due process, to refrain from taking arbitrary or discriminatory measures, from exercising coercion or from frustrating the investor’s reasonable expectation with respect to the legal framework affecting the investment’ (para 178).
- 113.
Our opinion is shared by Vicente 2013, p. 153 f., p. 189.
- 114.
In this regard, see Gigante 2008, pp. 80 et seq.
- 115.
Glamis Gold Ltd. v. United States, UNCITRAL, Award of 8 June 2009, para 22; where it is argued that an FET violation may depend on ‘the creation by the State of objective expectations in order to induce investment and the subsequent repudiation of those expectations.’
- 116.
Suez and AWG Group v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability of 30 July 2010. For a comment on this decision, see Palombino 2011.
- 117.
In detail, reference in made to Article 8, para 3, of the BIT Argentine-France (1991); Article 10, para 4, of the BIT Argentine-Spain (1991); and Article 8, para 3, of the BIT Argentine-United Kingdom (1990). It must be clarified that, according to the last-mentioned Article, ‘[w]here the dispute is referred to International arbitration, the investor and the Contracting Party concerned in the dispute may agree to refer the dispute either to: (a) the International Centre for the Settlement of Investments disputes […]; or (b) an International arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law. If after a period of three months from written notification of the claim there is no agreement to one of the above alternative procedures, the Parties to the dispute shall be bound to submit it to arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law as then in force’. The final part of this Article has been relied on in AWG, where Argentina allowed the dispute to be administered by ICSID, but on the base of the UNCITRAL Rules (paras 2 et seq. of the decision). Further, as already said, the same ICSID tribunal has dealt with the case under consideration in conjunction with the Suez case.
- 118.
‘Each Party shall guarantee in its territory fair and equitable treatment of investments made by investors of the other Party.’
- 119.
‘Investments of investors of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy protection and constant security in the territory of the other Contracting Party.’
- 120.
‘Each Contracting Party shall undertake to accord in its territory and maritime zone just and equitable treatment, in accordance with principles of international law, to the investments of investors of the other Party and to ensure that the existence of the rights so granted is not impeded either de jure or de facto.’
- 121.
Para 185.
- 122.
See Chap. 2, Sect. 2.5.
- 123.
Para 226. Emphasis added.
- 124.
Para 227.
- 125.
Total S.A. v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability of 27 December 2010; see supra Sect. 4.5.2.
- 126.
See para 129.
- 127.
See supra Sect. 4.6.2.
- 128.
See para 130: ‘According to Court of Justice of the European Union […] private parties cannot normally invoke legitimate expectations against the exercise of normative powers by the Community’s institutions, except under the most restrictive conditions.’
- 129.
El Paso Energy International Company v. Argentina, ICSID Case No. ARB/03/15, Award of 31 October 2011.
- 130.
See para 358.
- 131.
UN doc. A/56/10 (2001), in Yearbook of International Law Commission, Vol. II, Second Part, 2001, pp. 62 et seq.
- 132.
See para 515.
- 133.
With a view to exemplifying this kind of reasoning, the tribunal also makes a comparison between the notion of creeping expropriation and that of creeping violation of FET: ‘According to the case-law, a creeping expropriation is a process extending over time and composed of a succession or accumulation of measures which, taken separately, would not have the effect of dispossessing the investor but, when viewed as a whole, do lead to that result. A creeping violation of the FET standard could thus be described as a process extending over time and comprising a succession or an accumulation of measures which, taken separately, would not breach that standard but, when taken together, do lead to such a result’ (para 518). Such a comparison, however, is not entirely convincing, especially where one considers how controversial the notion of creeping expropriation is. In this regard, the remarks made by Reisman and Sloane 2003, pp. 123–125, turn out to be quite revealing: ‘Direct acts, analysed in isolation rather than in the context of the overall flow of events, may, whether legal or not in themselves, seem innocuous vis-à-vis a potential expropriation. Some may not be expropriatory in themselves. Only in retrospect will it become evident that those acts comprised part of an accretion of deleterious acts and omissions, which in the aggregate expropriated the foreign investor’s property rights […] Because of their gradual and cumulative nature, creeping expropriations also render it problematic, perhaps even arbitrary, to identify a single interference (or failure to act where a duty requires it) at the “moment of expropriation”.
- 134.
Suez et al. and AWG Group v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability of 30 July 2010, para 227.
- 135.
Ioana Micula at al. v. Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013.
- 136.
Philip Morris et al. v. Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016.
- 137.
Para 677 (emphasis added). See, however, the separate opinion appended by judge G. Abi-Saab.
- 138.
Para 427. See also Charanne B.V. and Construction Investments S.A.R.L. v. Spain, Arbitration Institute of the Stockholm Chamber of Commerce, Award of 21 January 2016, para 495: ‘A finding that there has been a violation of investor’s expectations must be based on an objective standard or analysis, as the mere subjective belief that could have had the investor at the moment of making the investment is not sufficient. Moreover, the application of the principle accordingly depends on whether the expectation has been reasonable in the particular case with relevance to representations possibly made by the host State to induce the investment’ (emphasis added).
- 139.
Emphasis added.
- 140.
Titi 2014, p. 33.
- 141.
Idem.
- 142.
Idem.
- 143.
Idem.
- 144.
Idem.
- 145.
Suez et al. and AWG Group v. Argentina, ICSID Case No. ARB/03/19, Decision on Liability of 30 July 2010, para 242: ‘Argentina sought to structure the ‘renegotiation’ process in such a way as to severely limit or indeed curtail the contractual freedom of AASA in order to arrive at a predetermined result desired by Argentina. In the opinion of the tribunal, such a process cannot in fairness be said to constitute a renegotiation as that term is generally understood. It was certainly not the kind of renegotiation or revision process that AASA and the Claimants were led to expect by the legal framework of the Concession and the events of the first eight years of the Concession.’
- 146.
Total S.A. v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability of 27 December 2010, para 174.
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Palombino, F.M. (2018). FET and Legitimate Expectations. In: Fair and Equitable Treatment and the Fabric of General Principles. T.M.C. Asser Press, The Hague. https://doi.org/10.1007/978-94-6265-210-1_4
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