Host states’ legitimate expectation

Scenic landscapes of Northern ArgentinaThe investor’s legitimate expectations are often a key question in ISDS cases. Such expectations can be based on, for example, the host state’s laws, policies, or contractual commitments – such as when a host state granted the investor mining rights for a certain number of years. A violation of these expectations can be a ground for the investor to bring an ISDS claim against the host government. Several tribunals have ruled that a host country cannot act contrary to the investor’s legistimate expectations.

Karl P. Sauvant and GüneşÜnüvar have written an article published by Columbia Center for Sustainable Investment, introducing the question of whether or not states can also have legitimate expectations towards the foreign investor. According to the article, such expectations may arise from, for instance, the investor’s statements of its contribution to the host country.

As an example, the article points to Sempra v Argentina, where Argentina argued that it “had many expectations in respect of the investment that were not met or otherwise frustrated … (such as)… work diligently and in good faith…”. The article also notes, however, that since governments currently cannot initiate ISDS proceedings against foreign investors, their reliance on legitimate expectations is limited to counterclaims brought in response to investors’ claims. See our previous post about counterclaims here.

Finally, the article proposes that future international investment agreements (IIAs) could explicitly stipulate that host states’ legitimate expectations are protected, thereby establishing a right for host states to bring a claim on this basis.