Lecture 5 - Expropriation 2
Lecture 5 - Expropriation 2
EXPROPRIATION
Introduction
Protection from expropriation of
foreign property under customary
international law – prompt, adequate
and effective compensation to be paid.
Protection from expropriation of
foreign property under treaty law –
e.g. BITs
The right of states to expropriate as
part of the expression of state
sovereignty – lawful expropriation
Introduction
The rise in expropriation claims
against states conditioned by:
i. Rise in BITs/IIAs that protect
investor’s rights
ii. Increase in state intervention in the
running of the economy
iii. State regulatory intervention in the
public interest
Legality of Expropriation
Public purpose
ADC v. Hungary:“… a treaty requirement for
‘public interest’ requires some genuine interest
of the public. If mere reference to ‘public
interest’ can magically put such interest into
existence and therefore satisfy this
requirement, then this requirement would be
rendered meaningless since the Tribunal can
imagine no situation where this requirement
would not have been met.”
Siag and Vecchi v. Egypt: delayed use of land
for public purpose.
Legality of Expropriation
Non-discrimination
Due process of law
Prompt (without undue delay),
adequate (fair market value) and
effective compensation (payment in a
convertible currency)
Implications of Lawful and Unlawful
Expropriation
Lawful expropriation – payment of
compensation based on market value
Unlawful expropriation – restoration of
situation that would have existed had the
unlawful act not taken place – this is
determined through arbitration (payment of
damages/lost profits)
Difference between compensation paid for
lawful expropriation and damages for
unlawful unlawful expropriation hinges on the
Direct Taking / Expropriation –
where there is a “mandatory legal transfer of
title to the property or its outright physical
seizure”
(UNCTAD, Expropriation: A Sequel, UNCTAD
Series on Issues in International Investment
Agreements II, Geneva: United Nations, (2012),
p.6)
Open, deliberate, and unequivocal intent to
take property (e.g. formally expressed in a
law or decree)
Large scale expropriations i.e.
nationalizations – e.g. the Libyan
Indirect Expropriation
A measure which though is not a direct
taking, results in a permanent destruction
of the economic value of an investment or a
deprivation of management, use or control
of the investment in a meaningful way.
Economic impact is equivalent to direct
expropriation – total or near-total
deprivation
Payment of compensation only arises when
an arbitral tribunal establishes
expropriation.
Recognition of the indirect expropriation under
international law
“it is recognized under international law that
measures taken by a State can interfere with
property rights to such an extent that these
rights are rendered so useless that they must
be deemed to have been expropriated, even
though the State does not purport to have
expropriated them and the legal title to the
property formally remains with the original
owner.” Starrett Housing v. Iran,
Interlocutory Award No. ITL 32-24-1, 19
December 1983, 4 Iran-United States Claims
Article 7 of Ghana-UK BIT