Article: Environmental Exception and the Legitimate Expectations of Investors in Investment Arbitration

The aim of this study is to examine the application of the protection of investor legitimate expectations in investment arbitration cases involving environmental regulations. On the one hand, States commonly maintain – and on occasions successfully – that their act are consistent as a legitimate exercise of their right to regulate. On the other hand, investors more commonly prevail by advancing claims based on the protection against expropriation and on the fair and equitable treatment clause, provided for in the applicable investment treaty. Both substantive standards involve the protection of investor expectations, albeit in distinct courses of action. In this context, the question to be assessed is whether, and if so to what extent, the legal notion of legitimate expectation has been a key factor to the outcome of environmental disputes between foreign investor and host States. To address this issue, we have selected nine awards on merits, issued between 2016 and 2022, representing the most recent case law in this subject. Our primary observation is that the notion of legitimate expectation did not prove to be decisive in awards favoring investors, thereby contradicting the prevailing common understanding. Investment arbitration; right to regulate; legitimate expectations; protection of the environment; environmental disputes.