But as a matter of general international law, a non-discriminatory regulation for a public purpose,

which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or
investment is not deemed expropriatory and compensable unless specific commitments had been
given by the regulating government to the then putative foreign investor contemplating investment
that the government would refrain from such regulation. (Part IV, Chapter D, page 4, para. 7)

Taking this passage in its parts, the first part restates the notion that normal regulations, even if they
have an impact on an investor, are not an expropriation when taken in a bona fide manner. The
purpose and effect of the measure thus must be considered in determining whether it is, ab initio, a
measure tantamount to an expropriation or an indirect expropriation. The ruling makes a clear point:
such measures are not an expropriation, direct or otherwise, and therefore do not require
compensation to be paid (as opposed to a notion advanced by some that regulatory measures to
protect the environment, human health, etc., should be seen as expropriatory if they have a
significant economic impact on an investor, but the amount of compensation may be adjusted
depending on the purpose behind it). 1

contractual breaches by State party or one of its instrumentalities would not normally constitute
expropriation. Whether one or series of such breaches can be considered to be measures
tantamount to expropriation will depend on whether the State or its instrumentality has breached
the contract in the exercise of its sovereign authority, or as a party to a contract. As already noted, a
State or its instrumentalities may perform a contract badly, but this will not result in a breach of
treaty provisions “unless it be proved that the state or its emanation has gone beyond its role as a
mere party to the contract, and has exercised the specific functions of a sovereign.2

First, a breach of an agreement will amount to an expropriation only if the State acted not only in its
capacity of party to the agreement, but also in its capacity of sovereign authority, that is to say using
its sovereign power. The breach should be the result of this action. A State or its instrumentalities
which simply breach an agreement, even grossly, acting as any other contracting party might have
done, possibly wrongfully, is therefore not expropriating the other party.3

Second, a breach of contract, if there should be one is, in itself, not always sufficient to amount to an
indirect expropriation within the meaning of the BIT. An investor faced with a breach of an
agreement by the State counter-party should, as a general rule, sue that party in the appropriate
forum to remedy the breach.4

1
Methanex Corp. v. United States of America, UNCITRAL
International Institute for Sustainable Development. "Methanex v. United States." _Investment Treaty News_,
18 October 2018. Accessed at https://www.iisd.org/itn/en/2018/10/18/methanex-v-united-states/#_ftn5.

2
See Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, July 14, 2006: See also Azurix Corp.
v. Argentine Republic, ICSID Case No. ARB/01/12, Award, July 14, 2006, available online at
http://www.worldbank.org/icsid/cases/pdf/ARB0112_Azurix-Award-en.pdf

3
Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8
4
Supra note 3
For instance, in the Waste Management case, the Tribunal concluded that:5

It is one thing to expropriate a right under a contract and another to fail to comply with the contract.
Non-compliance by a government with contractual obligations is not the same thing as, or equivalent
or tantamount to, an expropriation. In the present case, the Claimant did not lose its contractual
rights, which it was free to pursue before the contractually chosen forum.

In Azinian and others v. the United Mexican States, the Tribunal noted that:6

The problem is that Claimants’ fundamental complaint is that they are the victims of a breach of the
Concession Contract. NAFTA does not, however, allow investors to seek international arbitration for
mere contractual breaches. Indeed, NAFTA cannot possibly be read to create such a regime, which
would have elevated a multitude of ordinary transactions with public authorities into potential
international disputes. The Tribunal added that “the Claimants have raised no complaints against the
Mexican courts; they do not allege a denial of justice.”

In Generation Ukraine v. Ukraine, the Tribunal held that:7

an international tribunal may deem that the failure to seek redress from national authorities
disqualifies the international claim, not because there is a requirement of exhaustion of local
remedies but because the very reality of conduct tantamount to expropriation is doubtful in the
absence of a reasonable – not necessarily exhaustive – effort by the investor to obtain correction.

The breach of the Agreement, in case the termination of the agreement, must give rise to a
substantial decrease of the value of the investment.8

Irrespective of the existence of a contractual deprivation, the Tribunal considers in any event that the
measures challenged by the Claimant constituted a valid exercise of the Respondent's police powers.
As discussed in detail in connection with Article 1105 of NAFTA, the PMRA took measures within its
mandate, in a non-discriminatory manner, motivated by the increasing awareness of the dangers
presented by lindane for human health and the environment. A measure adopted under such
circumstances is a valid exercise of the State's police powers and, as a result, does not constitute an
expropriation.9

Several factors from the Pope & Talbot decision that could indicate an indirect expropriation,
including loss of control, interference with operations, and various forms of state intervention in
business practices.10

5
See Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB (AF)/00/3, Award, April 30, 2004
6
See Robert Azinian and others v. United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, November 1,
1999, reprinted in 14 ICSID Rev.—FILJ 538 (1999)
7
See Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, September 16, 2003,
8
Supra note 3
9
Crompton Chemtura Corp. v. Government of Canada - Award." Jus Mundi, 2 August 2010. Accessed at
https://jusmundi.com/en/document/decision/en-crompton-chemtura-corp-v-government-of-canada-award-
monday-2nd-august-2010.

10
Supra note 9
In international law, a long line of authorities has established that states are not liable to pay
compensation when, in the normal exercise of their police powers,11 they adopt in a non-
discriminatory manner, bona fide regulations that are aimed at general welfare.12

Legitimate expectations

‘traders cannot have a legitimate expectation that an existing situation which is capable of being
altered by the Community institutions in the exercise of their discretionary power will be
maintained.13

Further, in those cases where representations by the administration were at issue, courts have been
careful to limit protection of expectations to situations where those promises or assurances were
‘clear, unambiguous, and devoid of relevant qualification’.14 In Hargreaves, the high hurdle was set
that a legitimate expectation, created by previous policy, could be invoked only if it could be shown
that the new policy was irrational, perverse or unreasonable.15

even if the investor has an expectation that the contract be fulfilled, a disappointment of such
expectation cannot per se be equated to a violation of the fair and equitable treaty standard
included in the treaty. To reason otherwise would mean that invocation of legitimate expectations
would turn the fair and equitable treatment standard into a general umbrella clause, which can
hardly be a tenable interpretation.16

The expectation a party to an agreement may have of the regular fulfilment of the obligation by the
other party is not necessarily an expectation protected by international law. In other words,
contracts involve intrinsic expectations from each party that do not amount to expectations as
understood in international law. 17

11
Few writers in international law have venture to propose the definition of “police powers” and for the
present purpose, the definition contained in the Black’s law dictionary suffices: police power is “the inherent
and planetary power of a sovereign to make all laws necessary and proper to preserve the public security,
order, health, morality, and justice.”(Black’s Law Dictionary,8th edition., 2004, at p. 1196
12
This rule was notably approved by international law Association at its 36th conference held in 1930. See
international law, association, report of 36th conference, New York, 1930, final resolution, P.361, cited in
S.Friedman, expiation in international law (1953) , at 2, fn.6; and in Gillian White, nationalisation of foreign
property (1961) , at 42, fn.4.
13
Kyowa Hakko v. Commission, Case T-223/00, 9 July 2003, [2003] ECR II-2553, para. 39.
14
1 SØREN SCHØNBERG, LEGITIMATE EXPECTATIONS IN ADMINISTRATIVE LAW 120 (2000) (with further
references to case law). See also R (Niazi) v. Secretary of State for the Home Department [2008] EWCA Civ 755,
paras. 43 (requiring ‘a specific undertaking, directed at a particular individual or group, by which the relevant
policy’s continuance is assured’) and 46 (‘pressing and focussed nature of the kind of assurance required if a
substantive legitimate expectation is to be upheld and enforced’).
15
R v. Secretary of State for the Home Department, ex parte Hargreaves [1997] 1 WLR 906, 924. See also
Richard Clayton, Legitimate Expectations, Policy, and the Principle of Consistency, 62(1) CAMBRIDGE L.J. 93
(2003).
16
See Christoph Schreuer, Fair and Equitable Treatment (FET): interactions with other standards, in
INVESTMENT PROTECTION AND THE ENERGY CHARTER TREATY 63, 89-90 (Graham Coop & Clarisse Ribeiro eds.,
2008). But see José E. Alvarez, The Public International Law Regime Governing International Investment, 344
RECUEIL DES COURS 345, fn. 431 (2011) (noting that ‘the emphasis in many FET cases on the need to respect
the investors’ “legitimate expectations”, particularly when these are based on specific promises made by the
State to the investor, may suggest that even BITs which do not have an “umbrella clause” protecting the
investors’ contracts may provide investors with some protection from breaches of their contracts under an FET
clause or even under a residual provision protecting the investor “under international law”’).
that the existence of legitimate expectations and the existence of contractual rights are two separate
issues. 18

a mere contract breach, without something further such as denial of justice or discrimination,
normally will not suffice to establish a breach of Article 1105 [minimum standard or treatment].
Merely not living up to expectations cannot be sufficient to find a breach of Article 1105 of the
NAFTA. 19

Finally, in the situation where the host-State made no assurance or representation, the
circumstances surrounding the conclusion of the agreement are decisive to determine if the
expectation of the investor was legitimate.20

The Tribunal found that those representations did not meet the requisite level of specificity for the
purpose of arousing legitimate expectations amenable to be protected under the fair and equitable
treatment standard.21

‘a legitimate expectation is assumed more readily if an individual investor receives specifically formal
assurances that display visibly an official character’.22

It is each State’s undeniable right and privilege to exercise its sovereign legislative power. A State has
the right to enact, modify or cancel a law at its own discretion. Save for the existence of an
agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about
the amendment brought to the regulatory framework existing at the time an investor made its
investment. 23

The legitimate expectations of foreign investors cannot be that the State will never modify the legal
framework, especially in times of crisis, but certainly investors must be protected from unreasonable
modifications of that legal framework. 24

The assessment of the reasonableness or legitimacy [of the investor’s expectations] must take into
account all circumstances, including not only the facts surrounding the investment, but also the
political, socioeconomic, cultural and historical conditions prevailing in the host State. 25

17
Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, para. 344
(emphasis in the original)
18
Gustav F W Hamester GmbH & Co KG v. Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2008, para. 335
19
Glamis Gold, Ltd. v. USA, NAFTA/UNCITRAL, Award, 8 June 2009, para. 620 (citing to Azinian v. United
Mexican States, ICSID Case No. ARB/(AF)/97/2, Award, 1 November 1999, para. 87)
20
Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, para. 331.
21
Id., para. 10.3.17 (holding that ‘the alleged representations suffer from vagueness and generality, such that
they are not capable of giving rise to reasonable legitimate expectations that are amenable to protection under
the fair and equitable treatment standard’).
22
International Thunderbird Gaming Corporation v. Mexico, NAFTA/UNCITRAL, Award, 26 January 2006,
Separate Opinion Thomas Wälde, para. 32
23
Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, para. 332
(emphasis in the original).
24
Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Final Award, 21 June 2011, para. 291
(emphasis added).

25
Duke Energy Electroquil Partners and Electroquil SA v. Ecuador, ICSID Case No. ARB/04/19, Award, 12 August
2008, para. 340.
Glamis Gold v. USA, the claim of frustration of legitimate expectations failed, partly because
‘Claimant was operating in a climate that was becoming more and more sensitive to the
environmental consequences of open-pit mining’.26

The Sole Effect Doctrine

[A]s a matter of general international law, a non-discriminatory regulation for a public purpose,
which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or
investment is not deemed expropriatory and compensable unless specific commitments had been
given by the regulating government to the then putative foreign investor contemplating investment
that the government would refrain from such regulation.27

On the other hand a “dry” application of the sole effect doctrine (28) does not satisfactorily preserve
the general interest (supposedly) represented by the Government.

the Tribunal then stated that, in considering whether a regulatory measure was expropriatory, it had
to consider ‘whether such actions or measures are proportional to the public interest presumably
protected thereby and to the protection legally granted to investments’29

as a matter of general international law, a non-discriminatory regulation for a public purpose, which
is enacted in accordance with due process and, which affects, inter alias, a foreign investor or
investment is not deemed expropriatory and compensable unless specific commitments had been
given by the regulating government to the then putative foreign investor contemplating investment
that the government would refrain from such regulation30

26
Glamis Gold, Ltd. v. USA, NAFTA/UNCITRAL, Award, 8 June 2009, para. 767
27
Methanex Corporation v. United States of America, UNCITRAL, Final Award (3 August 2005) (Veeder, Reisman,
Rowley), ¶ IV.7 [hereinafter Methanex v. US].
28
Geraldine R. Fischer, et al. (eds), Building International Investment Law: The First 50 Years of ICSID, (© Kluwer
Law International; Kluwer Law International 2015), pp. 447 - 462
29
Id at 164.
30
Methanex (2005) 44 ILM 1345 at 1456.