*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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"The Next Step in Governance: The Need for Global Micro-regulatory
Frameworks", "How International Investment Agreements can Protect Free
Media", "China, the G20 and the International Investment Regime", "The
Evolving International Investment Law and Policy Regime: Ways Forward",
"China's Outward FDI and International Investment Law", and  "Policy
Options for Promoting FDI in the LDCs" *are* available at

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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 183 September 26, 2016
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Daniel Allman ([log in to unmask])
*Can host countries have legitimate expectations?*
Karl P. Sauvant and Güneş Ünüvar* * <#m_7334777580724770164__edn1>*

The concept of “legitimate expectations” was introduced into the legal
relations between foreign investors and host country governments to denote
that the latter cannot act contrary to certain expectations they have set
in the past. Absent a clear-cut framework regarding which expectations
qualify as “legitimate”, dispute-settlement practice indicates that such
expectations can be relevant under fair-and-equitable treatment and
indirect expropriation articles in international investment agreements
(IIAs). They can be based on:

   - Governments’ written commitments to investors, e.g., contractual
   commitments beyond mere contractual expectations;
   - Governments’ representations vis-à-vis *specific* investments, e.g.,
   direct and public endorsements; or
   - Host countries’ unilateral representations, e.g., favorable regulatory
   frameworks as they existed at the time of an investment.[1]

Foreign investors can claim breach when host countries fail to fulfill
expectations based on any of these sources. Since the early 2000s,
“legitimate expectations” have often been invoked in investor-state

By analogy, the question arises whether host countries too can have
legitimate expectations concerning the behavior of foreign investors within
their economies, absent any specific investor obligations in IIAs. Such
expectations could be inferred from treaty preambles recognizing the
objectives of IIA parties’ economic or “sustainable development”, as well
as articles providing that investors “shall strive to carry out the highest
level possible of contributions to the sustainable development of the host
State and the local community”[2] <#m_7334777580724770164__edn3> or
corporate social responsibility (CSR) articles reaffirming “the importance
of each Party encouraging enterprises … to voluntarily incorporate into
their internal policies those internationally recognised standards,
guidelines and principles of [CSR]”.[3] <#m_7334777580724770164__edn4>
Expectations could be based on:

   - Investors’ written commitments to host country governments, e.g.,
   contractual infrastructure commitments concerning the quality of services
   such as water and sanitation;[4] <#m_7334777580724770164__edn5>
   - Investors’ representations, e.g., statements by corporate executives
   about contributions their investments will make to a host country; or
   - Investors’ unilateral representations, e.g., as evidenced by CSR
   policies or by support for such instruments as the United Nations (UN)
   Guiding Principles on Business and Human Rights, the UN Global Compact or
   the OECD Guidelines for Multinational Enterprises.[5]

Host countries could claim breach when investors fail to fulfill
expectations based on any of these sources.

In any event, assessing the legitimacy of expectations involves an
inherent, context-bound balancing of investors’ and states’ expectations.
Arguably, in fact, even the assessment of investor’ legitimate expectations
under the current approach should require that a state’s legitimate
expectations are taken into account.

Countries are beginning to refer to their own expectations. In *Sempra v.
Argentina*, for example, Argentina argued that it “had many expectations in
respect of the investment that were not met or otherwise frustrated … [such
as] that the investor would bear any losses resulting from its activity,
work diligently and in good faith, not claim extraordinary earnings
exceeding by far fair and reasonable tariffs, resort to local courts for
dispute settlement, dutifully observe contract commitments, and respect the
regulatory framework” in response to the investor’s claim that its
expectations went unfulfilled.[6] <#m_7334777580724770164__edn7> While the
expectations of Argentina did not play a significant role in the outcome of
this particular case, Argentina’s reference to such expectations *per se*
illustrates their inherent relevance to disputes between investors and host

However, since governments currently cannot initiate IIA-based arbitral
proceedings against foreign investors, their reliance on legitimate
expectations is limited to counterclaims brought in response to investors’
claims.[7] <#m_7334777580724770164__edn8>

Tentative steps are underway toward reducing this asymmetry and laying the
ground for recognizing host countries’ legitimate expectations. For
example, more than 75% of IIAs concluded between 2008 and 2013 reference
“sustainable development” or “responsible business conduct”.[8]
<#m_7334777580724770164__edn9> Future IIAs could explicitly stipulate that
host countries’ legitimate expectations are protected (or, going further,
recognize investor obligations) and establish an independent, substantive
right to claim for breach of host countries’ legitimate expectations,
provided that treaty-based or domestic regulatory prerequisites regarding
consent are satisfied. This would help to ensure that IIAs further the
interests of all parties and, in so doing, contribute to a more balanced
international investment regime—thereby strengthening the regime’s

* <#m_7334777580724770164__ednref1> Karl P. Sauvant ([log in to unmask])
is Resident Senior Fellow, Columbia Centre on Sustainable Investment,
Columbia University; Güneş Ünüvar ([log in to unmask]) is a Ph.D. Fellow
at the Centre of Excellence for International Courts (iCourts), Faculty of
Law, University of Copenhagen, and a Visiting Scholar at Columbia Law
School. This research has been partially funded by the Danish National
Research Foundation Grant no. DNRF105. This *Perspective* focuses on
treaty-based disputes only. The authors are grateful to José Alvarez,
George Bermann, Gabriel Bottini, Patrick Robinson, and Lou Wells for their
comments, and to Stephan Schill, David Schneiderman and Stephen Schwebel
for their peer reviews. *The views expressed by the authors of this
Perspective do not necessarily reflect the opinions of Columbia University
or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579)
is a peer-reviewed series.*
[1] <#m_7334777580724770164__ednref2> Christoph Schreuer and Ursula
Kriebaum, “At what time must legitimate expectations exist?,” in Jacques
Werner and Arif Hyder Ali, eds., *Law Beyond Conventional Thought* (London:
Cameron May, 2009), pp. 265-276.
[2] <#m_7334777580724770164__ednref3> Brazil–Mozambique CIFA, art. 10,
available at
[3] <#m_7334777580724770164__ednref4> Trans-Pacific Partnership (2016),
art. 9.17.
[4] <#m_7334777580724770164__ednref5> *See*, *e.g.*, *Biwater Gauff
(Tanzania) Ltd. v. Tanzania*, ICSID Case No. ARB/05/22, Award (Jul. 24,
2008), paras. 381-382.
[5] <#m_7334777580724770164__ednref6> *See*, *e.g.*, BASF, “Our
responsibility to respect human rights,” available at
[6] <#m_7334777580724770164__ednref7> *Sempra Energy International v.
Argentina*, ICSID Case No. ARB/02/16, Award (Sept. 28, 2007), para. 289.
[7] <#m_7334777580724770164__ednref8> While “contributory fault” may curb
host countries’ responsibilities insofar as claimants’ actions contribute
to the outcome that prompted claims, this principle does not create
obligations for investors nor result in direct responsibility. See, *Yukos
Universal Limited v. Russia*, PCA Case No. AA 227, Final Award (Jul. 18,
2014), pp. 500-510.
[8] <#m_7334777580724770164__ednref9> Kathryn Gordon, Joachim Pohl and
Marie Bouchard, “Investment treaty law, sustainable development and
responsible business conduct: a fact finding survey,” available at
pp. 10-11.

*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Karl P. Sauvant and Güneş Ünüvar, ‘**Can host
countries have legitimate expectations?**,’ **Columbia FDI Perspectives,
No. 183, September 26, 2016. Reprinted with permission from the Columbia
Center on Sustainable Investment (
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at [log in to unmask] <[log in to unmask]>. *

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Daniel Allman, [log in to unmask]

*Most recent Columbia FDI Perspectives*

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*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - *CCSI's application to file a written submission in Bear Creek v. Peru
   cited in UN Special Rapporteur's new report. *On September 20, the
   United Nations Special Rapporteur on the rights of indigenous peoples,
   Victoria Tauli-Corpuz, presented her third annual report
   to the Human Rights Council. The report offers a thematic analysis of the
   impact of international investment agreements on the rights of indigenous
   peoples, and was informed by a series of activities, including a workshop
   co-organized by the Special Rapporteur and CCSI (held on May 12, 2016 at
   the Ford Foundation in New York). The Special Rapporteur's report
   highlights Bear Creek Mining Corporation v. Peru as one of several
   investor-state disputes involving or affecting indigenous peoples' rights,
   and in this context makes reference to CCSI's application
   to file a written submission in that case. Lise Johnson, Kaitlin Cordes,
   and Jesse Coleman recently published a blog discussing the rejection of
   CCSI's application, in addition to other aspects of the Bear Creek case, on
   - *On October 4, 2016*, CCSI's* Fall 2016 International Investment Law
   and Policy Speaker Series *continues with *Stanimir Alexandrov* (Sidley
   Austin LLP; GWU Law School). Remaining speakers in the series are Gabrielle
   Kaufmann-Kohler, Gabriel Bottini, Allan Rosas and Mark Wu. The
   series, co-sponsored by Crowell & Moring LLP, Baker & McKenzie LLP and
   Investment Claims, will be moderated by Ian Laird, Grant Hanessian and
   Kabir Duggal. All talks will take place at Columbia Law School, Jerome
   Greene Hall. Select presentations will be webcast; *please see
   our website
   the schedule and more details*. No registration is required.
   - *On October 6, 2016*, CCSI will co-host a panel discussion, “Shadow
   Courts: The Hidden Danger in Trade Agreements
   *Jeffrey Sachs*, Director of the Center for Sustainable Development at
   Columbia University, *Luis Parada*, Partner, Foley Hoag LLP, and *Haley
   Sweetland Edwards*, author of “Shadow Courts: The Tribunals that Rule
   Global Trade
   will discuss investor-state dispute resolution provisions in trade and
   investment agreements, and the risk those provisions pose to democracy,
   public policy and the rule of law. The event is co-hosted by Columbia
   Global Reports and will take place from 6-8pm in the World Room, Pulitzer
   Hall, 1600 Broadway.
   - *On October 11, 2016*, CCSI and the Tamer Center for Social Enterprise
   at Columbia Business School will co-host "Who Actually Controls Public
   Companies and in Whose Interest Are They Run?" Drawing from his decades’
   long experience in stewardship and sustainable investment, *Colin Melvin*,
   Global Head of Stewardship at Hermes Investment Management and Chair of
   Hermes Equity Ownership Services, will examine who actually controls
   companies and in whose interest they are run. Colin will describe an
   emerging obligation and opportunity for pension plans, endowments and other
   institutional investors with regard to business and the public good, which
   he will characterize as a shift in focus from short term transactions to
   longer term relationships. *For more information and to register, click
   - *From October 31 - November 3, 2016*, join us for "EU Judges Visit
   Columbia Law School." CCSI and the European Legal Studies Center will host
   two distinguished Judges– *Allan Rosas*, Court of Justice of the
EU, and *Savvas
   Papasavvas*, General Court of the EU– for a week of discussions on
   matters of investment, trade, legal challenges in the EU, and other timely
   developments in EU and International Law. *For details on the lunchtime
   and evening talks throughout the week, please click here

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
*Copyright © 2016 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
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