The Suitability of the Doctrine of Legitimate Expectations in International Investment Law : Energy Transition Perspective

Claims of breach of legitimate expectations have been widely used by investors in the energy sector. The protection of legitimate expectations is one of the core elements of the fair and equitable treatment obligation which is included in most investment treaties. The protection of expectations is an important function of investment treaties as investors make their investment decisions on the basis of calculations on the expected return, which is highly dependent of the laws in the state where the investment is made. In other words, returns of energy investments are directly linked to the stability and predictability of domestic laws. There is a need to protect investors against adverse state measures, as subsequent state conduct after that the investment decision has been made can cause substantial loses for the investors within the energy sector. However, at the same time, states need to implement measures that may affect investments in a detrimental manner to achieve certain energy policy goals. The energy sector and energy law are constantly developing due to changing circumstances. The current change is driven by the energy transition and the move towards a low-carbon economy. Environmental protection, human rights and renewable energy production are key issues of the energy transition. These issues are getting more and more attention in energy policies. Investment treaty provisions, and especially the FET standard, have usually been drafted in a vague manner which does not explicitly tell what the relationship is between investment protection and host state’s regulatory right. This has led to many different conceptions of the doctrine of legitimate expectations. These conceptions have usually either been overinclusive or underinclusive. This thesis suggests that most investment treaties should be interpreted in a balanced manner that considers both the interests of investors and host states. Therefore, a balancing approach where investors’ expectations are weighed against the host states’ right to regulate is needed. It is argued in this thesis that a conception on the protection of expectations should be based on the principles of legal certain and proportionality. A justification that is based on these two principles could be applied in a manner that is balanced and would not be over- or underinclusive. This principle-based approach would replace the doctrine of legitimate expectations. According to this approach legitimate expectations would only be an element that should be considered in the assessment on whether investors right to legal certainty has been breached, but legitimate expectations would not constitute a self-standing doctrine with direct legal effect. This thesis argues that a similar approach used in EU law should be applied in international investment disputes. In EU law the principle of legal certainty is just one principle that should be weighed against other core principles of the EU. Therefore, it is suggested that when assessing if investors’ expectations should be protected in specific circumstances, arbitral tribunals should use and weigh the international energy law principles against the principle of legal certainty when conducting a proportionality assessment. It is concluded that this principles based approach would be the most suitable conception for the protection of investors’ expectations as it would not be under- or overinclusive and it could be used in a flexible manner to changing circumstances in the energy market. This principle-based approach would be allowed under the current normative framework. However, it would be sensible to include in investment treaties that when considering if investors’ expectations should be protected, arbitral tribunals should rely on the principle of legal certainty, and conduct a proportionality assessment where all circumstances relating to the investment and the state measure are considered. As this thesis concerns the question of whether the current framework allows treaties to be interpreted in a balanced manner, the thesis will mainly rely on doctrinal research. In addition, by applying an inductive methodology this thesis will answer whether the doctrine has been conceptualized in a suitable manner in investment disputes