Indirect Expropriations and Regulatory Takings: What Role for the 'Legitimate Expectations' of Foreign Investors?,

Abstract

The aim of this paper is to analyze the role of “legitimate expectations” of foreign investors in international investment rules governing indirect expropriations (or creeping expropriations or regulatory expropriations). The issue is not just a theoretical one. To the contrary, what role foreign investors' expectations should play (if any) vis-a-vis indirect expropriations is a practical issue if one looks not only at the investment case law but also at the most recent State practice on international protection of investments. A definition of indirect expropriation is provided in section 2. A brief overview of the role of legitimate expectations of foreign investors in investment case law and State practice is provided in section 3. In this respect, the concept of legitimate expectations will be discussed in connection with the Tecmed case and the U.S. practice, annexing interpretative notes on indirect expropriation to its BIT provisions on expropriation. In section 4 some key features of the case law of the Court of Justice of the European Union (CJEU) and the U.S. Supreme Court in respect of the protection of individuals' economic expectations vis-a-vis regulatory actions are outlined. In section 5 the conclusion is drawn that the reference to investors' legitimate and reasonable expectations in the context of regulatory expropriation claims can pave the way to the use of the doctrine to restrict the scope of the international protection of foreign investors, as opposed to the asserted too far reaching protection of foreign investments granted by the doctrine of legitimate expectations in the context of denial of fair and equitable treatment claims.