Faculty of Law
Mailis Meier
SPECIFIC STATE REPRESENTATION AS A SOURCE OF LEGITIMATE EXPECTATIONS UNDER INTERNATIONAL INVESTMENT LAW
LLM thesis in International and European Law Public International Law Track
Supervisor: Dr. Hege E Kjos
Amsterdam 25 July 2016
ABSTRACT
New European Union investment agreements currently in (the final rounds of) negotiation – the Comprehensive Economic and Trade Agreement between the European Union and Canada, the European Union - Vietnam Free Trade Agreement, the European Union - Singapore Free Trade Agreement and the Trans-Atlantic Trade and Investment Partnership - contain a more comprehensive fair and equitable treatment standard than is common in investment agreements. One of the novelties is an explicit mention of the legitimate expectations principle. Namely, legitimate expectations of the investor are protected and an arbitral tribunal may take them into account when considering the breach of the fair and equitable treatment standard. However, legitimate expectations can arise only if the state has made a specific representation. This thesis explores the meaning of ‘specific representations’ by using treaty interpretation methods and descriptive analysis of arbitral case law. The result are guidelines for determining which state conduct constitutes a specific representation that creates legitimate expectations. The thesis concludes that specific representations may be contained in contracts and in written and oral communication between the state and a particular investor. In addition, it is also possible that regulatory measures and unilateral declarations of the state contain specific representations. This is the case when the state makes a clear and unambiguous statement of fact or opinion with a purpose of inducing investment and is aware of the possible legal consequences of the commitment.
TABLE OF CONTENTS
ABSTRACT ... 2
INTRODUCTION ... 4
1. INTERPRETATION OF THE TERM ‘SPECIFIC REPRESENTATION’ ... 7
1.1. Interpretation according to the Vienna Convention on the Law of Treaties ... 7
1.2. Interpretation according to investment arbitration awards ... 12
1.3. Interim conclusion: what is a specific representation? ... 15
2. TYPE OF CONDUCT ESTABLISHING LEGITIMATE EXPECTATIONS ... 16
2.1 Representations made to a specific investor ... 16
2.1.1. Contracts ... 16
2.1.2. Non-contractual representations ... 21
2.2. Representations made to an indefinite group of investors ... 24
2.2.1. Regulatory measures ... 24
2.2.2. Investment-inducing measures not part of the general legal framework ... 28
CONCLUSION ... 31
BIBLIOGRAPHY ... 33
INTRODUCTION
In most international investment agreements (IIAs) concluded thus far, the fair and equitable treatment (FET) standard contains no express mention of the principle of legitimate expectations. Nevertheless, the majority of arbitration tribunals and academics alike are determined that the protection of a foreign investor’s legitimate expectations has become part of the FET standard afforded under these IIAs.1 What the tribunals and academics do not agree on, however, is the precise content of the principle. Such ambiguity can bring negative effects both for investors and states.2 Moreover, the public is apprehensive about IIAs giving substantial rights to private investors.3 The general concern is that states are excessively limiting their sovereign right to regulate in the public interest.4 People fear that the state will be sued in case of changes to the regulation and investors will try to stop the introduction of new laws that might have a negative impact on the investor. Because of their ambiguity, the FET standard and the principle of legitimate expectations are one of the sources of this fear of the public.
Treaty makers are responding to the relative vagueness of the principle and concerns of the public by restricting protection afforded under the principle. Some countries intend to completely remove the protection of investors’ legitimate expectations from the ambit of their IIAs. For instance, in the 2015 Indian Model Bilateral Investment Treaty, there is no mention of FET as such, but only an exhaustive list of violations of customary international law that are prohibited; legitimate expectations are not part of it.5 Another example is the Trans-Pacific
1 UNCTAD, ‘Fair and Equitable Treatment: A Sequel’ (UNCTAD Series on Issues in International Investment Agreements II 2012) AD/DIAE/IA/2011/5 at p 63 <http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf> accessed 25 July 2016; Técnicas Medioambientales Tecmed, SA v The United Mexican States [2003] ICSID Case No. ARB (AF)/00/2, Award para 154; International Thunderbird Gaming Corporation v Mexico [2006] Ad Hoc Tribunal (UNCITRAL) Award, IIC 136 (2006) Separate opinion of prof T Wälde, para 37; Saluka Investments BV
v The Czech Republic [2006] Ad Hoc Tribunal (UNCITRAL) Partial Award paras 301-2; EDF (Services) Limited v Romania [2009] ICSID Case No. ARB/05/13, Award para 216; R Dolzer and C Schreuer, Principles of International Investment Law (2nd ed, OUP 2012) 145; For a contrary view, see: Suez, Sociedad General de Aguas de Barcelona, SA.and Vivendi Universal, SA v Argentine Republic [2010] ICSID Case No. ARB/03/19, Separate
Opinion of Arbitrator Pedro Nikken paras 22-7; C Schreuer and U Kriebaum, ‘At What Time Must Legitimate Expectations Exist?’ in J Werner and A Hyder Ali (eds), A Liber Amicorum: Thomas Wälde - Law Beyond
Conventional Thought (Cameron May Publishing 2009).
2 UNCTAD (n 1) 2; Mr Franck Charles Arif v Republic of Moldova [2013] ICSID Case No. ARB/11/23, Award para 533; F Gélinas and F Jadeau, ‘CETA’s Definition of the Fair and Equitable Treatment Standard: Toward a Guided and Constrained Interpretation’ (2016) 13 Transnational Dispute Management (TDM) 6 <https://www.transnational-dispute-management.com/article.asp?key=2319> accessed 25 July 2016.
3 See for example the controversy surrounding the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership. Charlemagne, ‘The TTIP of the Spear’ The Economist (17 October 2015).
4 CN Brower and S Blanchard, ‘What’s in a Meme-The Truth about Investor-State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States’ (2013) 52 Colum. J. Transnat’l L. 689, 719.
5 Model Text for the Indian Bilateral Investment Treaty 2015 art 3 <https://mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian%20Bilateral%20In vestment%20Treaty.pdf> accessed 25 July 2016.
Partnership (TPP), a trade and investment agreement between 12 Pacific Rim countries.6 In
Article 9.6.4 TPP it is explicitly stated that an action or omission inconsistent with the investor’s legitimate expectations is not a breach of the FET standard. Others have restricted the content of the principle. The European Union (EU), as one example, is negotiating its first IIAs on behalf of its members since gaining competence in the area of foreign direct investment under the Treaty of Lisbon.7 In the texts of the EU-Singapore Free Trade Agreement (EUSFTA),8 the EU-Vietnam Free Trade Agreement (EU-Vietnam FTA),9 the EU-Canada Comprehensive Economic and Trade Agreement (CETA)10 and the Trans-Atlantic Trade and Investment Partnership (TTIP)11 the principle of legitimate expectations is expressly mentioned. However, investor’s reasonable expectations are protected only when specific representations are made to the investor.12
The purpose of this thesis is to ascertain what kind of state conduct creates investor’s legitimate expectations. More precisely it seeks to determine the meaning of the phrase ‘specific representation’ used in the CETA, the EUSFTA, the EU-Vietnam FTA and the EU’s proposal for TTIP. In light of growing uncertainty about the content of the principle, understanding which representations of a state are specific enough to create legitimate expectations is of importance to the investors, legal community, legislators and the public as a whole.
While several academics have written about legitimate expectations,13 they have not focused their research on the qualifier ‘specific representation’. This thesis studies different state conduct that has been considered by arbitral tribunals to create investor’s legitimate
6 Trans-Pacific Partnership 2016 <https://www.mfat.govt.nz/assets/_securedfiles/trans-pacific-partnership/text/9.-investment-chapter.pdf> accessed 25 July 2016.
7 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community 2007 (OJ C 306, 17/12/2007) 1, art 188.
8 EU-Singapore Free Trade Agreement art 9.4.2 <http://trade.ec.europa.eu/doclib/press/index.cfm?id=961> accessed 25 July 2016.
9 EU-Vietnam Free Trade Agreement 2016 art 14(6) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437> accessed 25 July 2016.
10 Comprehensive Economic and Trade Agreement art 8.10.4 <http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf> accessed 25 July 2016.
11 European Union’s proposal for Investment Protection and Resolution of Investment Disputes in the Trans-Atlantic Trade and Investment Partnership 2015 4 <http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf> accessed 25 July 2016.
12 Art 8.10.4 CETA; Art 9.4.2 EU-Singapore FTA; Art 14(6) EU-Vietnam FTA; art 12.2.f of EU’s proposal for the text of TTIP. What is more, according to art 8.10 CETA the tribunal may, but does not have to take the legitimate expectations of an investor into consideration.
13 M Potesta, ‘Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept’ (2013) 28 ICSID Review 88; E Snodgrass, ‘Protecting Investors’ Legitimate Expectations: Recognizing and Delimiting a General Principle’ (2006) 21 ICSID Review 1; F Wennerholm, ‘What Can You Expect?: The Role of Legitimate Expectations in Investment Protection Disputes’ in K Hobér and U Franke (eds),
Between East and West: essays in honour of Ulf Franke (Juris 2010); FM Téllez, ‘Conditions and Criteria For The
Protection of Legitimate Expectations Under International Investment Law’ (2012) 27 ICSID Review 432; Schreuer and Kriebaum (n 1); APG Pandya and A Moody, ‘Legitimate Expectations in Investment Treaty Arbitration: An Unclear Future’ [2010] Tilburg Law Review 93; T Zeyl, ‘Charting the Wrong Course: The Doctrine of Legitimate Expectations in Investment Treaty Law’ (2011) 49 Alberta Law Review 203.
expectations and analyses whether such conduct would fall under the definition of specific representations. The thesis does not examine the attribution of conduct to the state. The necessary principles of customary international law on attribution are codified in International Law Commission’s Draft Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA).14
The thesis aims to offer a set of criteria that can be used to evaluate whether the treatment afforded by a state suffices for the creation of legitimate expectations. To this end, the thesis is divided into two main sections. The first section seeks to define the term ‘specific representations’ using interpretation methods applicable to international treaties under the Vienna Convention on the Law of Treaties (VCLT).15 The second section proceeds to analyse what type of conduct arbitration tribunals have considered to establish investor’s legitimate expectations and whether that conduct would fall under the category of specific representation as defined in section one. This section consists of two sub-sections: (i) representations made to a specific investor and (ii) representations made to an indefinite group of investors.
The legal framework of the discussion is international investment law. The thesis seeks to discern common patterns from publicly available investment arbitration awards that discuss the principle of legitimate expectations. In the research public arbitration cases that mentioned the principle of legitimate expectations were analysed. The databases Oxford Reports on International Law16 and Investor-State LawGuide17 were used for the research. There was a
substantial overlap of cases in the search results of the two databases. All together they indicate around 100 arbitral cases that mention the principle of legitimate expectations. 56 of these cases contained relevant passages to this thesis, others touched upon the topic just passingly.
14 International Law Commission (ILC), Draft Articles on Responsibility of States for Internationally Wrongful
Acts, with Commentaries (YB ILC 40, UN Doc A/56/10 2001); ARSIWA also applies to investment disputes, see:
JR Crawford and S Olleson, ‘The Application of the Rules of State Responsibility’ in M Bungenberg and others (eds), International Investment Law: a handbook (First edition, CH BECK; Hart; Nomos 2015); Dolzer and Schreuer (n 1) 216–27.
15 Vienna Convention on the Law of Treaties 1969 (UNTS, vol 1155, p 331).
16 Oxford Reports on International Law: <http://opil.ouplaw.com/home/ORIL> accessed 25 July 2016. 17 Investor-State Law Guide: <http://www.investorstatelawguide.com> accessed 25 July 2016.
1. INTERPRETATION OF THE TERM ‘SPECIFIC REPRESENTATION’
The approach the EU has adopted in negotiating IIAs is to protect expectations of an investor that come into existence as a result of a specific representation made by a state.18 This is a novelty in the language used in IIAs. Section 1 offers an interpretation of the term specific representation as used in the CETA, the EUSFTA, the EU-Vietnam FTA and the EU’s TTIP proposal so that this interpretation can be used as a benchmark for the evaluation of state conduct in section 2. Sub-section 1.1. interprets the term on the basis of the VCLT. Sub-section 1.2. summarises the interpretation of the term by arbitration tribunals.
1.1. Interpretation according to the Vienna Convention on the Law of Treaties
The principles that help interpreting international treaties and hence also the term ‘specific representation’ are set forth in the VCLT. The VCLT is a codification of customary international law, which is a source of international law according to Art 38 VCLT and Art 38(1)(b) of the Statute of the International Court of Justice (ICJ).19 The VCLT stipulates the following means of treaty interpretation: (1) interpretation according to the ordinary meaning of the terms of the treaty ‘in their context and in the light of its object and purpose’,20 (2) when still in doubt, then ‘recourse may be had (…) to preparatory work of the treaty and circumstances of its conclusion’.21 No preparatory material surfaced during research that would elaborate on the principle of legitimate expectations in the EU IIAs, therefore the analysis rests on the plain meaning of the term in its context.
According to Art 8.10(4) CETA:
When applying the above fair and equitable treatment obligation, a Tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated.22
18 Art 8.10(4) CETA; Art 9.4.2 EU-Singapore FTA; Art 14(6) EU-Vietnam FTA; art 12.2.f of EU’s proposal for the text of TTIP.
19 Statute of the International Court of Justice 1946. 20 VCLT (n 15) Art 31(1) .
21 ibid Art 32.
Art 12(2) EU proposal for TTIP stipulates:
To comply with the obligation to provide fair and equitable treatment in para 1, neither Party shall adopt measures that constitute, notably: (f) A breach of legitimate expectations of investors arising from a government's specific representations or investment-inducing measures.23
Art 9.4(2) EUSFTA provides:
To comply with the obligation to provide fair and equitable treatment in para 1, neither Party shall adopt measures that constitute, notably: f) a breach of the legitimate expectations of a covered investor arising from specific or unambiguous representations24 from a Party so as to induce the investment and which are reasonably relied upon by the covered investor.25
Art 14(6) EU-Vietnam FTA states:
When applying the above fair and equitable provisions, a Tribunal will take into account whether a Party made a specific representation to an investor to induce an investment referred to in Article 13.1(i) [Scope of section II Investment Protection], that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain that investment, but that Party subsequently frustrated.26
As a first step, the ordinary meaning of the words ‘specific’ and ‘representation’ will now be examined. It is usual to consult dictionaries to study the ordinary meaning of words, nevertheless, explanation of the words in dictionaries should be used with caution.27 Dictionaries are helpful in establishing outer boundaries of the definition, but meaning has to be given to the words in their context.28 No dictionary consulted defined ‘specific representation’ as a phrase. Webster’s Dictionary defines specific as ‘distinctive, peculiar, precise’29 and representation as ‘(…) that which represents; a presentation of a view of facts or
23 Art 12(2) European Union’s proposal for Investment Protection and Resolution of Investment Disputes in the Trans-Atlantic Trade and Investment Partnership (n 11).
24 ‘For greater certainty, representations made so as to induce the investments include the representations made in order to convince the investor to continue with, not to liquidate or to make subsequent investments.’ Art 9.4(2) EU-Singapore FTA.
25 Art 9.4(2) EUSFTA (n 8). 26 Art 14(6) EU-Vietnam FTA (n 9).
27 RK Gardiner, Treaty Interpretation (Oxford University Press 2015) 161.
28 P Rubin, ‘War of the Words: How Courts Can Use Dictionaries in Accordance with Textualist Principles’ (2010) 60 Duke Law Journal 167, 191.
arguments, claims, protests’.30 Garner’s Dictionary of Legal Usage defines specific as an
adjective of species meaning a subclass of a kind of things31 and representation amounts to a statement that the present situation is so-and-so; it is to be distinguished from a warranty, which is a guarantee that it will be so in the future; a representation may be written or oral.32 According to Jowitt’s Dictionary of English Law: ‘In the law of contracts, a representation is a statement or assertion made by one party to the other, before or at the time of the contract, of some matter or circumstance relating to it.’33 Black’s Law Dictionary defines representation as ‘a presentation of fact – either by words or by conduct - made to induce someone to act; especially to enter into a contract; especially the manifestation to another that a fact, including a state of mind, exists’.34 The same dictionary defines specific as: ‘of, relating to, or designating a particular or defined thing <specific duties>; explicit’.35 According to the Oxford English Dictionary Online the word specific is ‘clearly defined or identified’, whereas representations connote ‘formal statements made to an authority, especially so as to communicate an opinion or register a protest’.36
Concluding from the summary of dictionary definitions for the words ‘specific’ and ‘representation’ the ordinary meaning of the words falls in these outer boundaries. ‘Specific’ as an adjective defines the noun representation, it is a subclass of representations. In that subclass belong representations that are distinctive, precise, explicit and clearly defined or identified. Representations are statements or assertions of fact or opinion. They can be either oral or written and even non-verbal conduct may fall under the definition as long it is intended as an assertion. The second step is to look at the possible meanings of the term ‘specific representation’ in its context. The phrase is used in a general provision setting out the FET standard. Legitimate expectations of the investor are one element of the standard, a frustration of which may bring along a violation of the standard. Arbitral tribunals thus have to consider whether any legitimate expectations had arisen in the case at hand. The four IIAs listed above state that legitimate expectations arise from the state’s specific representations. The context implies that the phrase specific representation is used to delimit the principle of legitimate expectations. Otherwise it would just be stated that tribunals have to take into account whether parties to the IIA created legitimate expectations of the investor. This means that not every act of the state creates legitimate expectations, but only the one that constitutes a specific representation.
30 ibid 463.
31 BA Garner, Garner’s Dictionary of Legal Usage (3rd ed, OUP 2011) 390. 32 ibid 775 entry: representations and warranties.
33 E Jowitt, C Walsh and J Burke, Jowitt’s Dictionary of English Law (2nd ed, Sweet and Maxwell Limited 1977). 34 BA Garner (ed), Black’s Law Dictionary (10th ed, Thomson Reuters 2014).
35 ibid 1434 entry: specific.
Other Articles of the EUFSTA, the CETA, the EU-Vietnam FTA and the TTIP do not include the notion of specific representation. Further context is provided by a footnote in the EUSFTA to Art 9.4(2), which states that ‘representations made so as to induce the investments include the representations made in order to convince the investor to continue with, not to liquidate or to make subsequent investments’.37 Although the footnote is circular in defining representations, it does offer guidance as to what purpose the representations ought to carry – namely inducing investment. Also in Art 8.10(4) CETA it is stated that the question is whether a specific representation is made ‘to induce a covered investment’. Therefore, for a state act to be regarded as a representation creating investor’s legitimate expectations it has to be made with a view to motivate investors to make new investments or keep the investment already made.
Seeing that not every act of the state is a specific representation another question arises. Can laws, permits and licenses also be representations? This thesis argues that indeed these acts of the state may constitute or contain specific representations. State conduct in whatever form crystallizes the understanding of the issuing state organ over some facts or opinions. Therefore, if other criteria that make state conduct a specific representation are met then the plain meaning of the term representation in its context does not rule out the possibility of a legislative or a judicial act being a representation.
Third, the object and purpose of the treaty have to be taken into consideration when interpreting its terms. The object and purpose of IIAs is to protect foreign investment, but also enhance economic relations between the parties to the treaties.38 At the same time, the tribunal
in Saluka v Czech Republic stated on the issue of interpreting investment treaties’ substantive protection standards that ‘an interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host states from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations’.39 Thus a balance must be reached also in the interpretation of the term specific representation. It cannot be given an overly broad interpretation, but also not too restrictive.
Coming back to the interpretation of ‘specific’, it is established so far that the word means precise, clearly defined, explicit and unambiguous. While these adjectives describe the form and content of the representations, it is also necessary to consider whether ‘specific’ might likewise restrict the addressee of the statements. Such distinction between commitments
37 EUSFTA (n 8) Art 9.4(2).
38 See, for example, the preambula of the CETA. 39 Saluka v Czech Republic (n 1) para 300.
‘specific as to their addressee and those specific regarding their purpose and object’ was made by the tribunal in El Paso v Argentina.40
The plain text of the relevant provisions sheds some light on what specific might mean as concerns the addressee of the representation. In Art 8.10(4) CETA and Art 14(6) EU-Vietnam FTA it is explicitly stated that legitimate expectations arise from specific representations ‘to an investor’, whereas Art 12(2)(f) of TTIP proposal and Art 9.4(2) EUSFTA do not mention to whom the representation has to be made. On the one hand, it could be argued that there is a difference, which indicates that for the CETA and the EU-Vietnam FTA there has to be some sort of a bilateral relationship between the state making the representation and an investor receiving it. In this case it is possible that general statements that do not have a specific addressee cannot create legitimate expectations for an investor not individually addressed. Thus in the case of the CETA and the EU-Vietnam FTA for a state representation to create legitimate expectations not only does it have to be specific itself, but it also has to be made to an identified investor. On the other hand, it is clear that the representation has to induce investment and therefore it is inherently directed to potential investors. If the assurance is unambiguous and clear enough, is it really necessary for it to be addressed to a particular person? A state should be ready to face consequences upon backtracking on an intentionally made commitment if reliance on this commitment has caused damages. This binding character of promises is recognized in national legal orders as well, for instance the principle of promissory estoppel in the common law legal systems.41
This understanding is supported by the International Law Commission’s Guiding Principles applicable to unilateral declarations of states capable of creating legal obligations.42 Although the Guiding Principles were designed to apply to the relations between states, it has been argued that they can be used analogously in the investor-state relationship.43 According to Principle 1 of the Guiding Principles ‘declarations publicly made that manifest the will to be bound may have the effect of creating legal obligations’. Also relevant is that according to Art 7 of the Guiding Principles, in case of doubt, the obligations shall be interpreted in a restrictive manner. As the wording of Art 8.10(4) CETA and Art 14(6) EU-Vietnam FTA requires
40 El Paso Energy International Company v The Argentine Republic [2011] ICSID Case No. ARB/03/15, Award para 375 ff; the award was upheld by the Annulment Committee in El Paso Energy International Company v The
Argentine Republic [2014] ICSID Case No. ARB/03/15, Decision of the Ad Hoc Committee on the Application
for Annulment of the Argentine Republic; see also Potesta (n 13) 105. 41 Restatement (First) of Contracts § 90 (Am. Law Inst. 1981).
42 International Law Commission (ILC), Guiding Principles Applicable to Unilateral Declarations of States
Capable of Creating Legal Obligations, with Commentaries Thereto (YB ILC, 2006, vol II, Part Two 2006).
43 WM Reisman and MH Arsanjani, ‘The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes’ (2004) 19 ICSID Review 328, 342; Potesta (n 13) 109; Total SA v The Argentine Republic, [2010] ICSID Case No. ARB/04/01, Decision on Liability para 132.
representations made to an investor, then publicly made statements without an addressee would not fall under this category under a restrictive interpretation. Art 9.4(2) EUSFTA and Art 12(2)(f) TTIP are worded slightly differently – without the notion ‘to an investor’ - and therefore accommodate a more flexible interpretation of ‘specific representation’.
This sub-section offered an interpretation of ‘specific representation’ according to the VCLT’s interpretation methods. The next sub-section examines investment arbitration awards’ usage of the term specific representation.
1.2. Interpretation according to investment arbitration awards
Whereas the term ‘specific representation’ has not been part of IIA language before the drafting of the EU IIAs, many arbitration tribunals have found it necessary for a specific commitment to exist for the creation of legitimate expectations. This thesis strives to offer a holistic understanding as to what state representations might be a cause for a claim against the state under international investment law. Therefore, a theoretical understanding of the term specific representations is combined with analyses of state conduct that arbitral tribunals have considered to be sufficient to create legitimate expectations. Before analysing which conduct have tribunals found to create legitimate expectations in section 2, this sub-section summarises the general notions of ‘specific representation’ in arbitral case law to better understand the content of the term and context in which it has been used.
To begin with, Art-s 31-33 VCLT do not list judicial precedent as a source of treaty interpretation. What is more, in investment law, tribunals are not bound by previous awards.44 Despite this, arbitral tribunals still rely more readily on case law than treaty interpretation methods from the VCLT to determine the content of substantive standards, such as FET and legitimate expectations.45 Tribunals are inclined to follow precedent to uphold legal
predictability and consistency.46 Thus does this thesis.
The first award to mention rights arising from government undertakings in the context of the FET standard is Waste Management v Mexico.47 The tribunal held that ‘in applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied upon by the claimant’.48 This award points to the importance of
44 C McLachlan QC, L Shore and M Weiniger, International Investment Arbitration: Substantive Principles (Oxford University Press 2008) 225.
45 SW Schill, ‘Enhancing International Investment Law’s Legitimacy: Conceptual and Methodological Foundations of a New Public Law Approach’ (2011) 52 Virginia Journal of International Law 57, 10.
46 G Kaufmann-Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ (2007) 23 Arbitration International 357, 374.
47 Waste Management, Inc v United Mexican States [2004] ICSID Case No. ARB(AF)/00/3, Award. 48 ibid para 98.
reliance on the representation by the investor for a breach of FET to be found. It does not go into more detail about the required representations.
A more detailed comment on specific representations was presented in the Mamidoil v
Albania award.49 In the award the word ‘assurances’ was used interchangeably to ‘specific representations’ in the context of legitimate expectations. One aspect that the tribunal pointed attention to is the will of the state when making representations. The tribunal held that:
‘The person to whom an assurance is to be imputed must be aware of the consequences of his or her actions, and the person who wants to rely on it must reasonably discern the commitment. A representation, even by conduct, must therefore amount to a clear and identifiable commitment, which is attributable to the person who makes the representation, and which is reasonably conveyed to the addressee.’50
Therefore, a specific representation can be considered to create expectations if the state is aware of the fact that it is making an assurance. Is mere awareness really enough or is intentional behaviour required? Furthermore, how is the awareness of the state proven? This indicates a need for some level of formality of the representations. Otherwise everything a person working for a state organ does or says can potentially create legal consequences.
In Mamidoil the tribunal found a lack of formal representations.51 The Mobil v Venezuela
tribunal also added the adjective ‘formal’ to the term saying that: ‘Legitimate expectations may result from specific formal assurances given by the host state in order to induce investment.’52 Also according to the tribunal in Feldman v Mexico, one of the reasons why the investor’s reliance on assurances was not reasonable was the informality of the assurances.53 Other tribunals have not mentioned that formality of the representation is a defining factor. The plain reading of the text of the relevant provisions in the EU IIAs does not suggest that the representations necessarily have to be formal. Despite this, the investor’s claim stands a better chance of success when she can show that the specific representations were formal.
49 Mamidoil Jetoil Greek Petroleum Products Societe SA v Republic of Albania [2015] ICSID Case No. ARB/11/24, Award.
50 ibid para 643. 51 ibid para 409.
52 Venezuela Holdings, BV, Mobil Cerro Negro Holding, Ltd, Mobil Venezolana de Petróleos Holdings, Inc, Mobil
Cerro Negro, Ltd, and Mobil Venezolana de Petróleos, Inc v The Bolivarian Republic of Venezuela [2014] ICSID
Case No ARB/07/27, Award para 533.
53 Marvin Roy Feldman Karpa v United Mexican States [2002] ICSID Case No. ARB(AF)/99/1, Award para 149 This consideration by the tribunal was made in an expropriation not a FET claim analysis, but it is still relevant as an analogy.
Several other tribunals54 after Waste Management v Mexico and before Mamidoil v
Albania have mentioned the need for specific representations of some sort: CMS v Argentina,55 Parkerings v Lithuania,56 Glamis Gold v USA,57 PSEG v Turkey,58 EDF v Romania,59 ECE v Czech Republic,60 Micula v Romania61 and Electrabel v Hungary.62 Like in the case of
Mamidoil v Albania, the tribunals do not always use the term specific representation, but rather
terms like specific commitment or assurance or promise, explicit promise or guaranty. In half of the ten awards mentioned, the tribunal used the phrase in connection with the addressee of the representation. In these awards (Electrabel, CMS, EDF, Glamis Gold, ECE) it was stated that the representation, commitment or promise has to be made ‘to the investor’. In other five awards (Micula, PSEG, Mamidoil, Waste Management, Parkerings) it was just said that the representation has to be made, but it was not expressly mentioned that it has to be made to the investor. More important is the reliance on that specific representation by the investor in the creation of legitimate expectations. All of the awards require the investor to have relied on these promises for the representation to create expectations.
In Crystallex v Venezuela the tribunal stated that a successful FET claim might be based on evidence of the frustration of ‘a specific representation as to a substantive benefit’.63 How to measure the extent of the benefit and what constitutes a substantial benefit is up for debate. A legitimate expectations claim that is based on the representation that the investment is made according to the host state’s laws64 or that the state will ‘make all reasonable efforts for the
issuance of a normative document’65 will probably not pass the substantial benefit test because
these are not representations of benefits themselves, but rather precursors to a benefit. It is a question of causality, how far connected can the actual tangible benefit be for it to constitute a substantial benefit. This requirement of a substantial benefit lifts the bar for a successful FET
54 This is not an exclusive list.
55 CMS Gas Transmission Company v The Republic of Argentina [2005] ICSID Case No ARB/01/8, Award paras 159, 277.
56 Parkerings-Compagniet AS v Republic of Lithuania [2007] ICSID Case No. ARB/05/8, Award para 331. 57 Glamis Gold, Ltd v The United States of America [2009] Ad Hoc Tribunal (UNCITRAL) Award para 620. 58 PSEG Global Inc and Kenya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v Republic of Turkey [2007] ICSID Case No. ARB/02/5, Award paras 239–41.
59 EDF v Romania (n 1) para 217.
60 ECE Projektmanagement v The Czech Republic [2013] Ad Hoc Tribunal (UNCITRAL) PCA Case No. 2010-5 para 4.762.
61 Ioan Micula, Viorel Micula, SC European Food SA, SC Starmill SRL and SC Multipack SRL v Romania [2013] ICSID Case No. ARB/05/20, Award para 668.
62 Electrabel SA v Republic of Hungary [2015] ICSID Case No. ARB/07/19, Award para 162.
63 Crystallex International Corporation v Bolivarian Republic of Venezuela [2016] ICSID Case No. ARB(AF)/11/2, Award para 552.
64 Ioannis Kardassopoulos v The Republic of Georgia [2007] ICSID Case No. ARB/05/18, Decision on Jurisdiction para 188.
65 Mr Hassan Awdi, Enterprise Business Consultants, Inc and Alfa El Corporation v Romania [2015] ICSID Case No. ARB/10/13, Award para 312.
claim higher and adds ambiguity to the principle of legitimate expectations. This requirement of a substantial benefit has not been worded in other arbitration awards. Neither is it expressly mentioned in the EU IIAs. Due to these reasons it is too early to say that it has become part of the principle, but involving this requirement to the interpretation of the principle of legitimate expectations is a possible solution to the concern that the principle is overly broad.
1.3. Interim conclusion: what is a specific representation?
From the preceding analysis the following elements of the term specific representations surfaced. A representation is a statement of fact or opinion. It can be expressed verbally or non-verbally. Tribunals use the term interchangeably with assurance, promise or commitment. A specific representation is unambiguous, overt and definitive. The representation has to be made with the intention to induce investment. As the making of a representation brings legal consequences, the person making a commitment has to be aware of making a commitment with legal consequences. The more formal the conduct is, the better the chances for it to be considered a specific representation. However, informality of the representation does not necessarily disqualify the conduct from being considered a specific representation.
Less clear is whether the adjective ‘specific’ describing the term representation means that the assurance has to be addressed to an identifiable investor or a group of investors or whether a statement of fact made to the general public can also constitute a specific representation. Plain reading of the relevant provisions in the EU IIAs suggests that in some cases a specific representation has to be addressed to an identified investor to create legitimate expectations, but in other cases not. In the cited passage from the award in Mamidoil v Albania, the tribunal did not mention expressly that the representation or assurance has to be ‘made to an investor’, but it requires reasonable conveyance of the commitment to the addressee.66 As
long as the conveyance can be considered reasonable it is enough. In evaluating whether it was reasonable for the investor to rely on the representation to create legitimate expectations, this thesis supports the approach that rests on the reasonable person standard. If a reasonable person would also have relied on that particular representation, then it was reasonably conveyed to the investor.
The first section of the thesis interpreted the term specific representation according to the VCLT and arbitration awards. The next section analyses publicly available investment arbitration awards to conclude what state conduct may amount to a specific representation that creates investors’ legitimate expectations.
66 Mamidoil v Albania (n 49) para 643.
2. TYPE OF CONDUCT ESTABLISHING LEGITIMATE EXPECTATIONS
Section 1 offered an interpretation of the term specific representations. This section discusses different types of state conduct, so as to understand what is a specific representation that creates legitimate expectations. As was gathered from the previous analysis, the CETA and the EU-Vietnam FTA demand representations be made to an investor for the creation of legitimate expectations. This calls for state conduct directly addressed to an investor. The TTIP proposal and the EUSFTA, in contrast, do not require addressing the representation per se to an investor. Due to this distinction the second section is divided into two sub-sections, it first looks at representations made to a specific investor (2.1) and secondly examines whether state conduct without a specific addressee might under any circumstances be considered a specific representation (2.2).
2.1 Representations made to a specific investor
Sub-section 2.1 begins with analysing contracts as these are the most straightforward expressions of mutual commitments and then examines non-contractual representations to specific investors.
2.1.1. Contracts
Contract is a representation of the will of its parties. Both sides agree to be bound by certain obligations and have certain rights. It is clear who the parties to the contract are and who are bound by it. It is also specific to the extent that it spells out the details of the obligations and rights. The investor can base its decision to invest on this clear expression of will. It is the guarantee of mutual performance provided by the contract that induces the investor to invest.67 Inducing investment is one of the requirements that makes state conduct a specific representation capable of creating legitimate expectations. In that sense ‘the contract between the foreign investor and the host state is a clear expression of the expectations that the foreign investor had when deciding to invest abroad.’68
Investment arbitration practice has offered divergent views on the matter. Some tribunals have taken the position that contracts indeed create expectations protected under international investment law. In Tulip v Turkey a contract and pre-contractual representations were considered the primary source of legitimate expectations.69 In Suez v Argentina a
67 SA Bandali, ‘Understanding FET: The Case for Protecting Contract-Based Legitimate Expectations’ in IA Laird et al (ed), Investment Treaty Arbitration and International Law - Volume 7 (Juris 2014) 154.
68 ibid.
69 Tulip Real Estate and Development Netherlands BV v Republic of Turkey, [2014] ICSID Case No. ARB/11/28, Award para 404.
concession contract was found to create a legitimate expectation that Argentina would respect the contract and the tariff regime stipulated within it throughout the life of the contract.70 Similarly, a legitimate expectation that the state would not unilaterally change petroleum production levels have arisen from an exploitation agreement.71
In Kardassopoulos v Georgia the dispute involved a joint venture agreement, which stated that the investment had been made in accordance with the host state’s laws. According to the tribunal this assurance created an investor’s legitimate expectation protected under international law that the investment complied with the laws of Georgia.72 Likewise, in
Al-Bahloul v Tajikistan, a contract was deemed to create a reasonable expectation that the
government will issue necessary licenses for oil exploration, because the contract expressly offered such an assurance.73 In Perenco v Ecuador the investor had a legitimate expectation for peaceable resolution of disputes pursuant to the contracts’ arbitration clauses.74 In Arif v
Moldova the investor’s legitimate expectation that she would be able to operate her duty free
shops as outlined in the lease and a permit was deemed to be violated after the courts of the state had declared the lease void.75
Another example of a contract creating expectations protected under an IIA is MTD v
Chile.76 According to the facts a state organ had approved the claimant’s investment proposal
and entered into an investment contract with the claimant. The investment contract contained the particular purpose and location of the investment project. Later the government effectively stopped the development of the project by declining to rezone the land necessary for it.77 The
tribunal maintained that ‘approval of a project in a location would give prima facie to an investor the expectation that the project is feasible in that location from a regulatory point of view.’78 Chile had acted unfairly when it approved an investment against the policy of the state itself and had thus breached the FET standard.79
70 Suez, Sociedad General de Aguas de Barcelona, SA.and Vivendi Universal, SA v Argentine Republic [2010] ICSID Case No. ARB/03/19, Decision on Liability paras 31, 50-1, 231.
71 Mobil v Venezuela (n 52) paras 50, 267, 270. 72 Kardassopoulos v Georgia (n 64) paras 188, 192.
73 Mohammad Ammar Al-Bahloul v The Republic of Tajikistan [2009] Ad Hoc Tribunal (SCC) Case No. V (064/2008); Partial Award on Jurisdiction and Liability paras 61, 67, 204.
74 Perenco Ecuador Ltd v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) [2014] ICSID Case No. ARB/08/6, Decision on Remaining Issues on Jurisdiction and on Liability para 576. 75 Arif v Moldova (n 2) paras 540–7.
76 MTD Equity Sdn Bhd and MTD Chile SA v Republic of Chile [2004] ICSID Case No. ARB/01/7, Award; Reasoning of the tribunal was upheld by the annulment Committee: MTD Equity Sdn Bhd and MTD Chile SA v
Republic of Chile [2007] ICSID Case No. ARB/01/7, Decision on Annulment paras 91-2.
77 MTD v Chile, Award (n 76) para 80. 78 ibid para 163.
The Mamidoil tribunal also considers a contract capable of creating legitimate expectations, but adds a qualifier. According to the facts of the case a lease contract was signed for the building of a tank farm in the port of Durres. The disputed question was, whether this lease created an expectation that tankers are allowed to discharge at the tank farm. The tribunal rejected the claim reasoning that since it was not agreed in the contract that tankers will discharge at the tank farm, the contract does not create an expectation for the investor that it is allowed to use the port facilities.80 The tribunal stressed that implied terms are not enough for the creation of such an important obligation and right; it should have been made explicit in the contract – ‘as a specific and detailed right and with probable repercussions on the calculation of the rent.’81
As the preceding suggests, expectations can arise from undertakings specifically referred to in the contract. Only obligations to the extent they are defined clearly in the contract can establish legitimate expectations, not merely what investors subjectively believe to be the scope of their rights. Whether it is a statement that the investor has made the investment in accordance with the host state law or the promise of issuance of a license, as long as these understandings are expressed clearly in the contract they can establish expectations. Conversely, the investor cannot interpret one particular contract as a green flag for all of the investment activities that are not laid out in detail in the contract as was the case in Mamidoil. A contract between the state and the investor creates expectations only to the extent it creates a specific and detailed right to the investor. In those instances, a contractual right is a specific representation in the meaning of the CETA; the EUSFTA, the TTIP proposal and the EU-Vietnam FTA.
Other tribunals have opposed the position that a contract establishes investor’s expectations. Tribunals have held that contractual expectations are simply different from legitimate expectations that are protected under investment law. The tribunals have denied contract expectations IIA protection because of the understanding that a breach of contract does not result in a breach of an IIA. For a breach of contract to violate international law it has to involve an additional element, namely the state has to exercise its sovereign power.82 As stated
80 Mamidoil v Albania (n 49) para 647–8, 727. 81 Mamidoil v Albania (n 49) para 648.
82 Gustav F W Hamester GmbH & Co KG v Republic of Ghana [2010] ICSID Case No. ARB/07/24, Award para 328-30; Waste Management v Mexico (n 47) para 115; Impregilo S.pA v Islamic Republic of Pakistan [2005] ICSID Case No. ARB/03/3, Decision on Jurisdiction para 260-70; Bayindir Insaat Turizm Ticaret Ve Sanayi AS v
Islamic Republic of Pakistan [2009] ICSID Case No. ARB/03/29, Award para 180; Duke Energy Electroquil Partners & Electroquil SA v The Republic of Ecuador [2008] ICSID Case No. ARB/04/19, Award para 345;
by one tribunal, ‘[o]nly the State in the exercise of its sovereign authority (…), and not as a contracting party, may breach the obligations assumed under the BIT.’83
Taking this into consideration, some tribunals have found themselves puzzled with the question whether contractual representations can create legitimate expectations or not and have reached a negative conclusion. In Parkerings v Lithuania, for example, the investor and state had concluded a contract for developing a parking system in Vilnius. The investor claimed that its legitimate expectation that the state would respect and protect the economic and legal integrity of the contract was frustrated.84 The tribunal, however, disagreed and found that the expectations are of a contractual nature:
‘It is evident that not every hope amounts to an expectation under international law. The expectation a party to an agreement may have of the regular fulfilment of the obligation by the other party is not necessarily an expectation protected by international law. In other words, contracts involve intrinsic expectations from each party that do not amount to expectations as understood in international law. Indeed, the party whose contractual expectations are frustrated should, under specific conditions, seek redress before a national tribunal.’85
The tribunal in Hamester v Ghana, in discussing expectations arising from a contract, took a similar position, saying that ‘[i]t is important to emphasise that the existence of legitimate expectations and the existence of contractual rights are two separate issues’.86 The tribunal
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.’87 Christoph Schreuer has also been critical towards the question whether legitimate expectations under international investment law arise from a contract. To his mind this would put all agreements between the investor and the host state under the protection of the FET standard and thus change the FET standard into an umbrella clause.88
Here the tribunals conclude that a breach of expectations arising from contract cannot lead automatically to a breach of an IIA. This thesis concurs with Sabrina Bandali, who points
83 Impregilo v Pakistan (n 82) para 260. 84 Parkerings v Lithuania (n 56) para 339. 85 ibid para 344.
86 Hamester v Ghana (n 82) para 335. 87 ibid para 337.
88 CH Schreuer, ‘Fair and Equitable Treatment (FET): Interactions with Other Standards’ (2007) 4 Transnational Dispute Management (TDM) 18 <http://www.transnational-dispute-management.com/article.asp?key=1138> accessed 25 July 2016.
out that, indeed, a breach of expectations does not lead to a breach of FET automatically, but contracts can still create expectations protected under an IIA.89 The tribunals in Parkerings and
Hamester have missed one step in their analysis. They did not conduct an analysis of the
legitimacy of the contractual expectations. Only if the analysis confirms that the circumstances of the case elevate these contractual rights into a legitimate expectation, can there be a breach of the FET standard.90 Another aspect that tribunals have done when deciding whether the frustration of the foreign investor’s expectations is justified and reasonable is to weigh the investor’s expectations against the government’s legitimate regulatory interest.91 If these steps are followed diligently, Schreuer’s fear of FET becoming an umbrella clause is not justified. Only expectations that are legitimate and reasonable fall under IIA protection. ‘Expectations, in order to be protected, must rise to the level of legitimacy and reasonableness in light of the circumstances.’92
Whereas Hamester and Parkerings tribunals found that mere contractual rights are insufficient for the creation of legitimate expectations protected under international law, but could not really explain why, Duke Energy v Ecuador tribunal put a finger on the element that would elevate the contractual right into a representation that is protected. The tribunal faced the question whether the contractual right to be paid for services created legitimate expectations protected under an IIA.93 The investor had signed two different agreements with a state organ for the supply of energy, one of them provided the monetary interference of the minister of finance when necessary, the other one did not contain that promise.94 The tribunal found that
where the state had made an express commitment guaranteeing payment, expectation of payment constituted a legitimate expectation. This is because ‘the guarantee entailed the exercise of sovereign power as it implied that funds would be drawn from the Ministry and Public Credit’s account’.95 Where no payment guarantee existed no expectations protected under an IIA arose.
The analyses of the tribunal in Duke Energy v Ecuador is not convincing. Guaranteeing the supply of energy in a state is one of the obligations of the state. When a state decides to delegate the provision of this service to a private contractor it still remains responsible for the unfettered availability of energy. Contracts concluded for such a purpose are not of a commercial nature. If in those contracts a state undertakes to remunerate the service provided
89 Bandali (n 67) 156–7. 90 ibid.
91 Saluka v Czech Republic (n 1) para 306. 92 ibid para 304.
93 Duke Energy v Ecuador (n 82) para 356-361. 94 ibid para 38.
in a certain way and in reality totally changes the agreement, then expectations of the investor have been breached. Again, for this breach to amount to a FET breach an additional analysis of legitimacy and reasonableness of the expectations has to be concluded.
All in all, contracts may contain specific representations that create expectations. Whether or not these expectations are legitimate depends on various circumstances. First of all, an expectation arises only to the extent that the contract creates specific rights for investors. No expectation can arise from a right that is not stated clearly in the contract. Second, for the expectations to be protected under the FET standard they have to be legitimate. This means that an investor has reasonably relied on the representation when making the investment; the circumstances of the host state do not preclude the establishment of the expectations and the host state was aware of the fact that the representation in the contract leads the investor to invest. Third, a tribunal might require proof of exercise of governmental authority in order to elevate contract expectations to expectations protected under investment treaties.
2.1.2. Non-contractual representations
Besides contracts, there are multiple other ways in which a state can create investor’s expectations. This sub-section analyses arbitration awards where tribunals have found the state to have established investor’s legitimate expectations via non-contractual representations made to a specific addressee. Expectations may arise from licenses, permits, decrees, other administrative decisions and statements whether oral or written. The sub-section seeks to conclude which non-contractual representations made to a certain investor could be considered specific enough to fall under the definition of specific representation in the relevant provisions of the EU IIAs.
2.1.2.1. Written statements
First and foremost, investors can turn to written communication with the state to evidence the creation of legitimate expectations. Letters from state representatives often contain promises that may lead the investor to take a certain course of action. In Walter Bau v Thailand96 and
Eureko v Poland97 arbitrations the tribunals found that letters from the ministers of finance created investors’ reasonable expectations. In the former case the minister had assured the investor that she would be able to achieve a reasonable rate of return on the investment98 and the latter letter contained a confirmation that the privatization process in which the investor had
96 Walter Bau AG v The Kingdom of Thailand [2009] Ad Hoc Tribunal (UNCITRAL) Award. 97 Eureko BV v The Republic of Poland [2005] Ad Hoc Tribunal, Partial Award.
an interest will be continued.99 It should be noted, that in both cases it was not the letter alone
that created a legitimate expectation, but the totality of circumstances. In Lemire v Ukraine assurances contained in letters created a legitimate expectation to the investor that he can expand his radio company to establish new networks.100
As with contracts, letters need to contain clear and overt assurances by the state so to create expectations. One can question whether the assurance was specific enough for the EU IIAs’ relevant provisions’ definition of specific representation in Walter Bau v Thailand, where the letter contained only a promise of a ‘reasonable’ rate of return, not a precise number. It is clear, though, that this promise was given with a view to induce investment in the country and the state was aware of the commitment it was making. An example of an unsuccessful claim of legitimate expectations arising from a letter was the Frontier Petroleum v The Czech
Republic case.101 According to the facts, the investor had received two letters from the Ministry for Industry and Trade and claimed that these contained undertakings that created her legitimate expectation that she would be assisted in her commercial dispute with a former business partner. Neither of the letters contained clear and specific promises. The language in the letters was ambiguous, at most it mentioned the possibility for the state to take part in negotiations,102 but nothing more. The tribunal rejected the claim saying that ‘the relevant statements did not exhibit the level of specificity necessary to generate legitimate expectations.’103
2.1.2.2. Oral statements
Tribunals have also identified legitimate expectations based on oral statements. However, in establishing a breach of legitimate expectations, verbal interaction plays a supplementary role, even more so than promises included in letters or other written communication. The investors have too much at stake to base their claim solely on oral statements. Nevertheless, these have proven useful in proving investor’s expectations. This was the case in MTD v Chile, where the tribunal took into consideration the investor’s argument that the president of Chile had praised the investment project as innovative at a state dinner. The president’s support of the project was further reinforced by a written statement sent to be read at the inauguration ceremony of the
99 Eureko v Poland (n 97) paras 42, 71, 232; but see Electrabel v Hungary (n 62) para 160–2, where a reasonable rate of return on investment was not considered to create an expectation, because materials containing such promises were inconsistent.
100 Joseph Charles Lemire v Ukraine [2010] ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability paras 210–1, 268 Upheld by the annulment committee in a Decision on Annulment on 16 July 2013.
101 Frontier Petroleum Services Ltd v The Czech Republic [2010] Ad Hoc Tribunal (UNCITRAL), Award. 102 ibid paras 77, 465–8.
project.104 The Tecmed v Mexico tribunal recognized legitimate expectations based on, among
others, an oral agreement between an investor and the regulators.105
In Metalclad v Mexico the federal officials assured Metalclad that it has all permits and licenses it needs for the construction of a landfill.106 The tribunal found that Metalclad was entitled to rely on the representations of the federal officials,107 this determination was part of the tribunal’s conclusion that Mexico had violated the FET standard.108 In Feldman v Mexico the claimant also relied on oral assurances given by the state (in the context of an expropriation claim),109 but the tribunal concluded that the investor’s reliance on oral commitments was not reasonable, as the assurances were ambiguous and informal and in direct conflict with Mexican laws.110 The Feldman tribunal contrasted the facts of its case to the Metalclad case, where the assurances were ‘definitive, unambiguous and repeated’ and not inconsistent with the Mexican law on its face.111
A series of specific encouragements by the state created investor’s reasonable expectations in the Clayton/Bilcon v Canada case that the necessary environmental impact assessment will be carried out fairly and impartially.112 The encouragements included personal verbal exchange, letters confirming the state’s interest in the success of the investment project.113 The breach of these expectations was deemed sufficient for a breach of Art 1105(1) NAFTA.114
Nagel v Czech Republic is an example of a case were governmental interest in the
investor’s project and encouraging remarks were not sufficient to create legitimate expectations.115 Similarly, in the White Industries v India arbitration the tribunal did not deem
representations by governmental officials sufficient to the effect that it is safe to invest in India, the legal system functions as well as the Australian one and the investor could expect fair
104 MTD v Chile, Award (n 76) paras 156-7.
105 Tecmed v Mexico (n 1) para 160‘agreement not memorialized in a signed instrument’.
106 Metalclad Corporation v The United Mexican States [2000] ICSID Case No. ARB(AF)/97/1, Award para 80 The award was partially set aside by the Supreme Court of British Colombia in its decision from 2 May 2001, docket number L002904.
107 ibid para 89. 108 ibid paras 99, 101.
109 Feldman v Mexico (n 53) para 55. 110 ibid paras 63, 149.
111 ibid para 148.
112 William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware
Inc v Government of Canada [2015] Ad Hoc Tribunal (UNCITRAL) PCA Case No. 2009-04, Award on
Jurisdiction and Liability paras 470, 592, 604. 113 ibid paras 463–9.
114 ibid para 604.
115 William Nagel v The Czech Republic [2003] Ad Hoc Tribunal (SCC) Case No. 049/2002, Award paras 291, 326.
treatment.116 Also in Mamidoil v Albania, verbal assurances from the state assuring the investor
to continue with the project saying that ‘missing formalities will be brought into order’ were to the mind of the tribunal friendly discussions, which were not legally relevant, because they ‘remained at the level of verbal exchanges; none resulted in an agreed letter of intent, in any type of formal representations or in recoded minutes of meetings’.117 According to Newcombe and Paradell mere encouraging remarks are not enough to create legitimate expectations.118 There needs to be some additional acknowledgement of the making of the representations. The more formal the situation in which commitments are made and the more times they are consistently repeated the greater the chance for a successful claim. The intent of the state also plays a paramount role. If it can be shown that the state was aware of possible legal consequences the statements may bring and wanted the investor to act on the assurances, then the expectations of the investor should be protected.
All in all, legitimate expectations may arise from oral statements addressed directly to the investor. The more formal the assurances are, the larger their role in identifying expectations. As with contractual representations, oral promises need to be clear, specific and induce the investor to invest so to create legitimate expectations. However, proving the existence of verbal commitments might be difficult. The next sub-section analyses whether state conduct that is not addressed directly to an investor may still fit under the term specific representation that creates legitimate expectations.
2.2. Representations made to an indefinite group of investors
Sub-section 2.2. discusses whether state conduct without a specific addressee might under any circumstances be considered a specific representation. This sub-section takes a closer look at regulatory measures (2.2.1) and other investment inducing measures not part of the regulatory framework (2.2.2).
2.2.1. Regulatory measures
The FET standard has been interpreted to require the maintenance of a stable and transparent regulatory framework for investment.119 Some tribunals have even considered that legitimate expectations arise from the state’s obligation to provide stability and transparency in
116 White Industries Australia Limited v The Republic of India [2011] UNCITRAL Final Award paras 10.3.2– 10.3.4.
117 Mamidoil v Albania (n 41) paras 409–10. The analysis took place when the tribunal was answering the question whether the verbal assurances made by the state would stop the state from requiring certain construction permits that the investor had not obtained.
118 A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009) 281.
