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Between Fair and Equitable Treatment and Stabilization Clause: Stable Legal Environment and Regulatory Change in International Investment Law

One of the most challenging questions in contemporary international Investment law relates to the balance between the competing needs of allowing a reasonable policy space for host states and enabling foreign investors to plan their operations in advance. The central question addressed by this article is whether and under what circumstances should regulatory changes undertaken by host states constitute a breach of the fair and equitable (FET) clause.Contemporary investment law anchors the balance between those competing interests in the contractual and semi-contractual sphere. An analysis of investment tribunals case law on 'stable legal environment' (or 'regulatory framework') indicates that this term includes three central components: (i) contractual and semi-contractual arrangements (e.g., contracts, licenses, concessions); (ii) unilateral promissory statements or specific representations (often made in a contractual environment); and (iii) the host state's regulatory measures at the time of the investment. The first two components are certainly the predominant components of 'legal environment.' Investors expectations created either by contractual arrangements, semi-contractual arrangements or promissory statements - are considered 'legitimate expectations' and are protected by the FET principle. As for the third component, host states' regulatory measures alone are insufficient in forming legitimate expectations protected by FET clauses. Only when such regulatory measures are accompanied by additional and exceptional factors, may the combination thereof amount to a breach of legitimate expectations protected by the FET principle.A brief review of the primary functions of contractual arrangements indicates that contractual and semi-contractual instruments are suitable for the advance allocation of risks involved in regulatory changes