Fair and equitable treatment (“FET”) is one of the more common protections that states offer foreign investors through bilateral investment treaties (“BITs”). In the last decade parties and arbitrators have explored the limits of this protection, seeking to articulate what treatment it is that states promise when they include FET in investment treaties. Among the categories of protection that FET may offer, some arbitral tribunals have interpreted FET as requiring a host state to refrain from violating an investor’s “legitimate expectations.” The question of what constitutes a legitimate expectation is controversial. Where an investor’s expectation arises from the terms of the project documents which structure an energy project,1 can a breach of contract violate the investor’s treaty-protected legitimate expectations?
On the one hand, investment contracts between investors and host states satisfy the basic requirements that tribunals have articulated for an expectation to be legitimate. Investment contracts memorialize legally binding and specific representations that a host state has made to a foreign investor in the context of establishing an investment. On the other hand, recognizing that a breach of an investment contract violates a treaty obligation opens the door to the long-standing controversy about the relationship between treaty claims and contract claims. Does the protection of legitimate expectations through the FET obligation elevate any breach of a contract to a breach of the BIT?
In this paper I argue that a tribunal must assess performance under an investment contract when analyzing whether or not a host state has provided FET to an investor. Absent extenuating circumstances, it is a “legitimate expectation” for an investor to expect that a host state will perform its obligations under an investment contract. This does not, however, collapse the distinction between contract and treaty claims, nor does it mean that any and all alleged contract breaches will result in an admissible treaty claim.