Xiang Shufang, Law School

Abstract: Identification of the Investors' Legitimate Expectations under the Fair and Equitable Treatment. With the further development of international investment arbitration practice, investors frequently invoke legitimate expectations to claim that the host state has breached fair and equitable treatment. However, tribunals lack a systematic and rigorous analytical framework in identifying the legitimate expectations of investors, which is mainly reflected in three aspects: difficult to determine when the legitimate expectations of investors arise, the expansive interpretation of the basis for the creation of legitimate expectations of investors and difficult to measure the "reasonableness" of investors' expectations. The Tribunal held that investors' legitimate expectations exist at "the time of the investment" and developed two different interpretation methods. The narrow explanation only refers to the beginning of investment, while the broad explanation includes the beginning of investment and the time when investment decision is made. Asa matter of fact, international investment is a continuous and complex process, the principle of general unity of an investment operation should be adhered to in order to make a broad understanding of "the time of the investment", and examine separately whether there is a reasonable expectation of the investor at the time each decisive decision is made. Expansive interpretation trend should be avoided when identifying the generation basis of investors' legitimate expectation. The expectation based on investment contract should be strongly protected, but purely contractual expectations are not expectations protected by treaties. Regardless of the form, specific and clear administrative representation or promise of the host state can generate legitimate expectations of investors, but mere political statements cannot be the basis for their generation. There is a wide divergence of views as to whether a general legal frame work can generate investors' legitimate expectations, with an expansive interpretation arguing that a general legal framework can generate specific commitments and that changes in the legal framework will defeat investors' legitimate expectations and thus violate fair and equitable treatment. The restrictive interpretation asserts that fair and equitable treatment is not a "legal freeze clause" for the host state, investors cannot expect the general legal framework of the host state to remain unchanged. Restrictive interpretation of the basis for the generation of legitimate expectations of investors can reduce the damage to the regulatory rights of the host state, and is also in line with the trend of returning sovereignty in the reform of the ISDS mechanism. The identification of the "reasonableness" of investor' expectations should take into account the objective circumstances of the host state as well as the investor's own behavior. Investing at one's own commercial risk or in states with political instability or severe economic crises is generally not considered to be "reasonable" in expectation, while conducting detailed due diligence can enhance the "reasonableness" of expectations. Solving the dilemma of determining the legitimate expectations of investors requires refinement of the investment treaty, one of which should clarify the specific elements of the obligation off air and equitable treatment and the relationship with the legitimate expectations of investors, and the other should include provisions on the regulatory rights of the host country. The tribunal shall use a variety of interpretation methods based on the perspective of balance of interests. On the premise of taking the interpretation method of VCLT as the basis, the principle of proportionality shall be appropriately introduced and the joint interpretation method of Contracting Parties shall be supplemented. In the past five years, the number of ISDS cases involving China has increased significantly, but the response strategy shows a gap. In this regard, China should seize the opportunity to carryout treaty reform, and on the basis of reserving the host states' proper supervision space, adopt semi-closed enumeration list to clarify the content of fair and equitable treatment and the relationship with investors' legitimate expectations. At the same time, overseas investors should always be diligent and prudent, take the initiative to conduct due diligence, and take the initiative to seek remedies through ISDS dispute mechanism when necessary.

Read the full article here:   公平公正待遇下投资者合理期待的认定研究.pdf