Investor’s Legitimate Expectations v State’s Regulatory Power - In Spanish Renewable Energy Saga Context

Abstract: International investment law affords treaty protection mechanisms to investors against host states’ misconduct. One such tool available for investors is the fair and equitable treatment standard and its dominant element – legitimate expectations. Host states are under an obligation not to frustrate investors’ legitimate and objective expectations. Such a duty impairs states from free and flexible exercise of their sovereign right to regulate and change legislative framework in public interests. Regulatory action from a host state is often alleged to be frustrating investor’s legitimate expectations of regulatory stability. On the other hand, states have undertaken obligations towards people and are liable to fulfil their sovereign obligations. Exercise of the right to regulate overlaps investor’s legitimate expectation of stability and this is when conflict between public and private interests arises. Addressing the conflict and balancing these two opposing interests are the main concern and task of tribunals. The latest development of case law illustrates that the balancing exercise is conducted through the proportionality principle which entails weighing both interests against one another and finding a balance between them.