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*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 | p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | w: www.ccsi.columbia.edu | t: @CCSI_Columbia <https://twitter.com/CCSI_Columbia> "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 http://www.works.bepress.com/karl_sauvant/. View this email in your browser <http://us6.campaign-archive1.com/?u=ab15cc1d53&id=1aedf9a571&e=dd153d6a25> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看：http://ccsi.columbia.edu/ publications/columbia-fdi-perspectives. <http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=eac67b3525&e=dd153d6a25> *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?* <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=589bdcd16c&e=dd153d6a25> by 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] <#m_7334777580724770164__edn2> 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 arbitrations. 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] <#m_7334777580724770164__edn6> 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 countries. 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 legitimacy. ------------------------------ * <#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 http://www.iisd.org/sites/default/files/publications/ comparison-cooperation-investment-facilitation-agreements.pdf <http://columbia.us6.list-manage2.com/track/click?u=ab15cc1d53&id=f7f315f8c3&e=dd153d6a25> . [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 https://www.basf.com/en/company/sustainability/employees-and-society/human- rights.html <http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=7de426ff8f&e=dd153d6a25> . [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 http://dx.doi.org/10.1787/5jz0xvgx1zlt-en <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=f3af41e5b7&e=dd153d6a25>, 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 (www.ccsi.columbia.edu <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=de046acb3c&e=dd153d6a25>).” 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* <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=49a4ed9408&e=dd153d6a25> - No. 182, Tania Voon and Andrew D. Mitchell, “Philip Morris vs. tobacco control: two wins for public health, but uncertainty remains,” September 12, 2016. - No. 181, John Gaffney, “The EU proposal for an Investment Court System: what lessons can be learned from the Arab Investment Court?,” August 29, 2016. - No. 180, M. Sornarajah, “An International Investment Court: panacea or purgatory?,” August 15, 2016. *All previous FDI Perspectives are available at * *http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/* <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=77ade2fc09&e=dd153d6a25> *. * *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 <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=450553c027&e=dd153d6a25> 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 <http://columbia.us6.list-manage2.com/track/click?u=ab15cc1d53&id=fada387435&e=dd153d6a25> 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 <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=4b6ff909fd&e=dd153d6a25> 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 RightingFinance.org <http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=8d46d6046c&e=dd153d6a25> . - *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 <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=63a2a52a98&e=dd153d6a25> for 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 <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=6771d0bc79&e=dd153d6a25>.” *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 <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=26fbf88852&e=dd153d6a25>,” 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 here <http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=51c205cdac&e=dd153d6a25>.* - *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 <http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=3eb8df0ade&e=dd153d6a25>.* 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.* [log in to unmask] *Our mailing address is:* Columbia Center on Sustainable Investment (CCSI) Columbia Law School - Earth Institute, Columbia University 435 West 116th Street New York, NY 10027 Add us to your address book <http://columbia.us6.list-manage.com/vcard?u=ab15cc1d53&id=a61bf1d34a> ____ AIB-L is brought to you by the Academy of International Business. For information: http://aib.msu.edu/community/aib-l.asp To post message: [log in to unmask] For assistance: [log in to unmask] AIB-L is a moderated list.