Direct expropriation is a State measure that removes the investor’s legal title to the investment and/or results in a permanent physical seizure of an investment. Investment treaties almost invariably prohibit direct expropriation except for a public purpose, on a non-discriminatory basis, with due process and against compensation for the value of the expropriated investment.
II. Object of expropriation
While investment treaties predominantly refer to expropriation “of investments”, it is debated whether every type of asset that falls under the definition of investment is capable of being expropriated. The majority of tribunals and commentators consider that, so long as an asset constitutes an investment, it is capable of being expropriated.1 Others, who are in the minority, opine that only rights in rem, such as ownership, can be subject to expropriation, while rights in personam, such as contracts, cannot.2
Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 314-315 (“Whether contract rights may be expropriated is widely accepted by the case law and the doctrine. The discussion by the parties reflects more a question of whether in the specifics of the instant case the alleged breaches of the Province can be considered to be such. […] The Tribunal agrees that contractual breaches by a State party or one of its instrumentalities would not normally constitute expropriation. Whether one or series of such breaches can be considered to be measures tantamount to expropriation will depend on whether the State or its instrumentality has breached the contract in the exercise of its sovereign authority, or as a party to a contract. As already noted, a State or its instrumentalities may perform a contract badly, but this will not result in a breach of treaty provisions, ‘unless it be proved that the state or its emanation has gone beyond its role as a mere party to the contract, and has exercised the specific functions of a sovereign.’”); Eureko B.V. v. Republic of Poland, UNCITRAL, Partial Award, 19 August 2005, para. 241 (“There is an amplitude of authority for the proposition that when a State deprives an investor of the benefit of its contractual rights, directly or indirectly, it may be tantamount to a deprivation in violation of the type of provision contained in Article 5 of the Treaty. The deprivation of contractual rights may be expropriatory in substance and in effect.”) and Dissenting Opinion of Mr. Jerzy Rajski (Partial Award); Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 August 2007, paras. 7.5.4-7.5.8 (“There can be no doubt that contractual rights are capable of being expropriated, and a number of treaty cases have arisen out of contractual disputes. The same act that may violate a treaty may also violate a contract, or both the treaty and the contract. The fact that there is overlap does not prevent a tribunal from considering the act as a possible treaty breach. Further, whether a given act was in breach, or was thought by one of the parties to be in breach of the contract, may well inform the tribunal’s assessment of that act for purposes of a treaty claim.”).
Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. The Republic of Hungary, ICSID Case No. ARB/12/2, Award, 16 April 2014, para. 169 (“[T]he Tribunal summarises the legal position under international law in the following way: the loss of a right conferred by contract may be capable of giving rise to a claim of expropriation but only if it gives rise to an asset owned by the claimant to which a monetary value may be ascribed. The claimant must own the asset at the date of the alleged breach. It is the asset itself - the property interest or chose in action - and not its contractual source that is the subject of the expropriation claim. Contractual or other rights accorded to the investor under host state law that do not meet this test will not give rise to a claim of expropriation.”).
III. Transfer of title to the State
It is debated whether a direct expropriation necessarily implies a transfer of title to the State. While some tribunals consider that such transfer is required,3 others have held that direct expropriation also occurs when the title is annulled without being transferred (e.g. by way of a concession revocation).4
Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007, paras. 279-286 (“[…] The Tribunal does not in fact believe that there can be a direct form of expropriation if at least some essential component of the property right has not been transferred to a different beneficiary, in particular the State. In this case, it can be argued that economic benefits may have to some extent been transferred from the industry to consumers, or from the industry to another industrial sector, and that this will ultimately benefit society and the State as a whole. This does not, however, amount to an effect upon a legal element of the property held, such as title to property.”); Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, paras. 243-250 (“[T]he Tribunal does not believe there can be a direct form of expropriation if at least some essential component of property rights has not been transferred to a different beneficiary, in particular the State. In this case it can be argued that economic benefits might have been transferred to an extent from industry to consumer or from industry to another industrial sector, but this does not amount to affecting a legal element of the property held, such as the title to property.”); National Grid P.L.C. v. Argentina Republic, UNCITRAL, Award, 3 November 2008, para. 145 (“The Tribunal is not persuaded that there has been a direct expropriation of the Claimant’s rights or interests in Transener. No formal right of property has been transferred to the State or to other parties by the State. Deprivation of title to property is inherent in a direct expropriation and none has been adduced or proven in these proceedings. On the contrary, the Claimant retained title to its shares and sold them. The Measures may or may not have destroyed its investment but have not transferred ownership of it.”).
Gemplus, S.A., SLP, S.A. and Gemplus Industrial, S.A. de C.V. v. United Mexican States, ICSID Case No. ARB(AF)/04/3 & ARB(AF)/04/4, Award, 16 June 2010, part VIII, para 8.23 (“[A] direct expropriation occurs if the state deliberately takes that investment away from the investor. […]”); AWG Group Ltd. v. Argentine Republic, UNCITRAL, Decision on Liability, 30 July 2010, para. 132 (“[…] While determining the existence of a direct expropriation is usually not difficult because of the usually obvious physical manifestations that come with depriving an investor of title and control, identifying an indirect expropriation is often a much more complicated matter which requires an inquiry into whether a regulatory measure has the effect of an expropriation on an investment or is a valid exercise of a State’s regulatory power. As the tribunal in the NAFTA case of Feldman v. Mexico acknowledged, recognizing a direct expropriation is not difficult but ‘…it is much less clear when governmental action that interferes with broadly-defined property rights…crosses the line from valid regulation to a compensable taking, and it is fair to say that no one has come up with a fully satisfactory means of drawing this line.’”); Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, paras. 253 (“The Land Law is the very measure that Vestey is challenging before this Tribunal as one of the expropriatory acts which deprived it of its investment.”), 292 (“On the basis of this analysis, it is clear that Respondent has never placed Vestey in a procedural setting in which Venezuelan law would have required to show the chain of title. In conclusion, by the time of the measures, Vestey had acquired the full ownership title over the contested land. Therefore, the government’s takeover of control over Agroflora’s property and administration constitutes an expropriation within the meaning of Article 5 of the BIT.”).
IV. Sovereign interference
In order for a conduct to constitute an expropriation it must be taken in the State’s sovereign capacity. A mere repudiation of a contract, whether justified or not, does not amount to an expropriation, unless the State has resorted to its sovereign prerogative.5 See also Umbrella Clause.
Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007, para. 248 (“In applying this distinction in the realm of investor-State arbitration, arbitral tribunals have considered that, for the behavior of the State as party to a contract to be considered a breach of an investment treaty, such behavior must be beyond that which an ordinary contracting party could adopt and involve State interference with the operation of the contract: […].”); Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, paras. 314-315 (“Whether one or series of such breaches can be considered to be measures tantamount to expropriation will depend on whether the State or its instrumentality has breached the contract in the exercise of its sovereign authority, or as a party to a contract.”).
V. Interaction with the police powers
A deprivation of an investment that results from an exercise of the State’s police or regulatory powers, although not “immediate[ly] recogni[zed] in investment treaty decisions,” has in recent years been considered non-compensable in accordance with international law.6 Although the majority of the investment treaties contains no reference to the doctrine of police powers, investment treaty jurisprudence generally considers that bona fide, non-discriminatory measures, such as the legitimate execution of tax or criminal laws, or regulations adopted to protect the public order, human health or the environment do not constitute an expropriation.7
Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016, para. 295 (“The principle that the State’s reasonable bona fide exercise of police powers in such matters as the maintenance of public order, health or morality, excludes compensation even when it causes economic damage to an investor and that the measures taken for that purpose should not be considered as expropriatory did not find immediate recognition in investment treaty decisions. But a consistent trend in favor of differentiating the exercise of police powers from indirect expropriation emerged after 2000. During this latter period, a range of investment decisions have contributed to develop the scope, content and conditions of the State’s police powers doctrine, anchoring it in international law. According to a principle recognized by these decisions, whether a measure may be characterized as expropriatory depends on the nature and purpose of the State’s action.”).
Bischoff Case, Germany-Venezuela Claims Commission, 1903, Reports of International Arbitral Awards, Vol. X, 420 (“The case shows, and the Commissioner for Germany admits, that the carriage was taken in the proper exercise of discretion by the police authorities. Certainly during an epidemic of an infectious disease there can be no liability for the reasonable exercise of police power, even though a mistake is made. But it is held in a number of cases before arbitration commissions involving the taking and detention of property, where the original taking was lawful, that the defendant government is liable for damages for the detention of the property for an unreasonable length of time and injuries to the same during that period.”); Crompton (Chemtura) Corp. v. Government of Canada, Award, 2 August 2010, para. 266 (“Irrespective of the existence of a contractual deprivation, the Tribunal considers in any event that the measures challenged by the Claimant constituted a valid exercise of the Respondent’s police powers. As discussed in detail in connection with Article 1105 of NAFTA, the PMRA took measures within its mandate, in a non-discriminatory manner, motivated by the increasing awareness of the dangers presented by lindane for human health and the environment. A measure adopted under such circumstances is a valid exercise of the State’s police powers and, as a result, does not constitute an expropriation.”); Invesmart v. Czech Republic, Award, 26 June 2009, para. 498 (“International investment treaties were never intended to do away with their signatories’ right to regulate. As found in Saluka, where the instant Treaty was being applied, notwithstanding the breadth of its prohibition against expropriation and the absence of an express regulatory power exception, Article 5 imports into the Treaty the customary international law notion that a deprivation can be justified if it results from the exercise of regulatory actions aimed at the maintenance of public order. This is common sense. Otherwise, once having granted a licence to operate a bank, the regulator could be constrained from revoking a licence if such action were automatically to be labelled an expropriation at international law.”); RosInvestCo UK Ltd. v. Russian Federation, SCC Case No. V079/2005, Final Award, 12 September 2010, paras. 566 - 567 (“And with regard to its conclusions regarding the bona fide issue, the Tribunal can refer to its conclusions above on these respective issues to the effect that, even though some of Respondent’s explanations and arguments seem plausible, the application of the tax law, the tax assessments on Yukos and the conduct of the auctions must be seen as a treatment which can hardly be accepted as bona fide.”); Methanex Corporation v. United States of America, UNCITRAL, Final Award, 3 August 2005, Part IV, Chapter D, para. 15 (“For reasons elaborated here and earlier in this Award, the Tribunal concludes that the California ban was made for a public purpose, was non-discriminatory and was accomplished with due process. Hence, Methanex’s central claim under Article 1110(1) of expropriation under one of the three forms of action in that provision fails. From the standpoint of international law, the California ban was a lawful regulation and not an expropriation.”); Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, NAFTA Award, 16 December 2002, para. 105 (“The ‘comments’ to the Restatement are designed to assist in determining, inter alia, how to distinguish between an indirect expropriation and valid government regulation: A state is responsible as for an expropriation of property under Subsection (1) when it subjects alien property to taxation, regulation, or other action that is confiscatory, or that prevents, unreasonably interferes with, or unduly delays, effective enjoyment of an alien’s property or its removal from the state’s territory... A state is not responsible for loss of property or for other economic disadvantage resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind that is commonly accepted as within the police power of states, if it is not discriminatory. […]”); Saluka Investments B.V. v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006, paras. 253 - 265 (“In the opinion of the Tribunal, the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are ‘commonly accepted as within the police power of States’ forms part of customary international law today. […] In the present case, the Tribunal finds that the Czech Republic has not ‘crossed that line’ and did not breach Article 5 of the Treaty, since the measures at issue can be justified as permissible regulatory actions.”); Invesmart, B.V. v. Czech Republic, UNCITRAL, Award (Redacted), 26 June 2009, para. 520 (“In short, the evidence shows overwhelmingly that the bank was in the most serious of financial straits and the CNB’s decision to accept and act upon Mr Vávra’s oral and subsequent written notice of Union Banka’s inability to meet its obligations vis-à-vis its depositors was a bona fide regulatory measure that does not fall within the scope of Article 5. The measure falls clearly on the bona fide regulation side of the regulation/expropriation divide.”); Tza Yap Shum v. Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, paras. 171 – 181 (“Según está establecido, un Estado no es responsable por la pérdida de valor en la propiedad o por otras desventajas económicas que resulten de la imposición de buena fe de impuestos generales, regulaciones u otras conductas comúnmente aceptadas como parte del poder de policía de los estados. […] Dicho lo anterior, también está establecido en el derecho internacional que el ejercicio de la actividad regulatoria del Estado (incluyendo la potestad tributaria) debe ejercerse bajo ciertas condiciones. […] Aun cuando el Tribunal reconoce que la potestad regulatoria del Estado merece un trato deferente, es esencial hacerlo sin perder de vista las razones que lo ameritan.”); Magyar Farming Company Ltd, Kintyre Kft and Inicia Zrt v. Hungary, ICSID Case No. ARB/17/27, Award, 13 November 2019, para. 366 (“This being so, a review of investment awards shows that measures annulling rights of the investor – as in the present case – can be exempt from the otherwise applicable duty of compensation only in a narrow set of circumstances. These circumstances can be categorized in two broad groups: • First, the exemption from compensation may apply to generally accepted measures of police powers that aim at enforcing existing regulations against the investor’s own wrongdoings, such as criminal, tax and administrative sanctions, or revocation of licenses and concessions. It is evident that the 2011 Amendment does not pertain to this group. • The second group consists of regulatory measures aimed at abating threats that the investor’s activities may pose to public health, environment or public order. This line of case law relates to measures such as the prohibition of harmful substances, tobacco plain packaging, or the imposition of emergency measures in times of political or economic crises. The 2011 Amendment does not fall in this group either.”) (internal citations omitted); Marfin Investment Group Holdings S.A., Alexandros Bakatselos and others v. Republic of Cyprus, ICSID Case No. ARB/13/27, Award (redacted), 26 July 2018, paras. 826 (“The Tribunal considers that the economic harm consequent to the non-discriminatory application of generally applicable regulations adopted in order to protect the public welfare do not constitute a compensable taking, provided that the measure was taken in good faith, complied with due process and was proportionate to the aim sought to be achieved.”), 828 (“While every application of a regulation that causes some economic damage to an investor could be seen as giving rise to a duty to compensate, under customary international law, a distinction exists between the reasonable bona fide exercise of police powers, which does not amount to a compensable taking, and indirect expropriation. The Tribunal thus aligns itself with the long line of arbitral awards finding that the characterization of a measure as expropriatory depends on the nature and purpose of the State’s action. In this respect, ‘[i]t is... established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.’”), 829 (“The Tribunal further subscribes to the view that, ‘in order for a State’s action in exercise of regulatory powers not to constitute indirect expropriation, the action has to comply with certain conditions. Among those most commonly mentioned are that the action must be taken bona fide for the purpose of protecting the public welfare, must be non-discriminatory and proportionate’.”) (internal citations omitted); Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens; Third Restatement of the Foreign Relations Law of the United States (1987).
VI. Applicable law
The definition of the term “expropriation”, as well as the scope of the non-expropriation obligation is determined under international law. In turn, the existence, validity and scope of the title to the asset subject to the alleged expropriation is a matter of municipal law.8 However, the relevant time for the assessment of the title is the time of the making of the investment.9 Any subsequent changes in the municipal rules governing the existence, validity and scope of the legal title may themselves be impugned as an expropriation, in which case, such measures would not form part of the assessment of whether the investor had a legal title to the allegedly expropriated investment.
Emmis International Holding, B.V., Emmis Radio Operating, B.V., and MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v. Hungary, ICSID Case No. ARB/12/2, Award, 16 April 2014, para. 162 (“In order to determine whether an investor/claimant holds property or assets capable of constituting an investment it is necessary in the first place to refer to host State law. Public international law does not create property rights. Rather, it accords certain protections to property rights created according to municipal law. […]”); Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, paras. 111 (“This Tribunal’s rationale for declining to find a violation of Article 1110 can be summarized as follows: (1) As Azinian suggests, not every business problem experienced by a foreign investor is an expropriation under Article 1110; (2) NAFTA and principles of customary international law do not require a state to permit ‘gray market’ exports of cigarettes; (3) at no relevant time has the IEPS law, as written, afforded Mexican cigarette resellers such as CEMSA a ‘right’ to export cigarettes (due primarily to technical/legal requirements for invoices stating tax amounts separately and to their status as non-taxpayers); and (4) the Claimant’s ‘investment,’ the exporting business known as CEMSA, as far as this Tribunal can determine, remains under the complete control of the Claimant, in business with the apparent right to engage in the exportation of alcoholic beverages, photographic supplies, contact lenses, powdered milk and other Mexican products-- any product that it can purchase upon receipt of invoices stating the tax amounts - and to receive rebates of any applicable taxes under the IEPS law. While none of these factors alone is necessarily conclusive, in the Tribunal’s view taken together they tip the expropriation / regulation balance away from a finding of expropriation.”), 152 (“Given that the Claimant here has lost the effective ability to export cigarettes, and any profits derived therefrom, application of the Pope & Talbot standard might suggest the possibility of an expropriation. However, as with S.D. Myers, it may be questioned as to whether the Claimant ever possessed a ‘right’ to export that has been ‘taken’ by the Mexican government. Also, here, as in Pope & Talbot, the regulatory action (enforcement of longstanding provisions of Mexican law) has not deprived the Claimant of control of the investment, CEMSA, interfered directly in the internal operations of CEMSA or displaced the Claimant as the controlling shareholder. The Claimant is free to pursue other continuing lines of export trading, such as exporting alcoholic beverages, photographic supplies, or other products for which he can obtain from Mexico the invoices required under Article 4, although he is effectively precluded from exporting cigarettes. Thus, this Tribunal believes there has been no ‘taking’ under this standard articulated in Pope & Talbot, in the present case.”); Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, para. 257 (“[…] The requirements for acquiring property rights over immovable assets situated in Venezuela are governed by specific norms of Venezuelan property law. For a private person to have a claim under international law arising from the deprivation of its property, it must hold that property in accordance with applicable rules of domestic law. The principle of estoppel cannot create otherwise inexistent property rights. This is so if one grounds the principle of estoppel on international law.”); Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award, 26 July 2018, para. 432 (“[…] The Tribunal agrees with the Parties that Croatian law controls the establishment of property rights in Croatia. […]”).
Vestey Group Ltd v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, paras. 253-254 (“[…] The Land Law is the very measure that Vestey is challenging before this Tribunal as one of the expropriatory acts which deprived it of its investment. The Parties are in agreement that an investor’s ownership over the allegedly affected assets must be assessed immediately before the adoption of the challenged measures. Accordingly, the Tribunal will review the validity of Vestey’s title just before the introduction of the Land Law […] Using a later date would render the protection granted in Article 5 of the BIT illusory. If one were to set the date of assessment of the investor’s ownership any later than the date of the first contested measure, a state could adopt a law making it impossible for a private owner to prove ownership and thereby circumvent the Treaty guarantee. This cannot be the meaning of the Treaty. […]”).
VII. Relevant time
Direct expropriation is considered to have taken place at the time of the transfer or annulment of the legal title.10 In cases of physical seizure of an investment, expropriation is considered to have taken place on the date of such seizure even if the permanent nature of the seizure became apparent only at a later stage. For this reason, the investor is generally entitled to be compensated for the value of the investment as of the date of the seizure or at any earlier date when the expropriation became public in cases of lawful expropriation.11
Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, para. 243 (“[T]he Tribunal does not believe there can be a direct form of expropriation if at least some essential component of property rights has not been transferred to a different beneficiary, in particular the State. […]”); National Grid P.L.C. v. Argentine Republic, UNCITRAL, Award, 3 November 2008, para. 145 (“The Tribunal is not persuaded that there has been a direct expropriation of the Claimant’s rights or interests in Transener. No formal right of property has been transferred to the State or to other parties by the State. Deprivation of title to property is inherent in a direct expropriation and none has been adduced or proven in these proceedings. On the contrary, the Claimant retained title to its shares and sold them. The Measures may or may not have destroyed its investment but have not transferred ownership of it.”).
Mr. Franz Sedelmayer v. The Russian Federation, Arbitration Award, 7 July 1998, para. 365 (“In Article 4(2) of the Treaty it is stated that compensation due to measures of expropriation shall be equivalent to the actual value of the expropriated investment immediately before the actual impending expropriation became public knowledge.”); Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, para. 118 (“With respect to expropriation, NAFTA, Article 1110(2), specifically requires compensation to be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place.”); Archer Daniels Midland and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, para. 283 (“The standard of compensation that is due in cases of expropriation of property, the standard contended for by Claimants under Article 1110 (2) of the NAFTA, is that it should be equivalent to the ‘fair market value of the expropriated investment’ immediately prior to the measure, and valuation criteria are to include ‘going concern value, asset value including declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value’. However, for the reasons above mentioned, the ‘fair market value’ or ‘going concern value’ of ALMEX is not an appropriate criterion to calculate damages as it is only applicable to cases of expropriation, which is not the present case.”); Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, paras. 793-794 (“In the present case, the loss which Claimants maintain that they have suffered is in fact the expropriation of their shares in Kar-Tel, whether or not this is characterised as an expropriation calling for compensation under the BIT, or merely as the consequence of some other internationally wrongful act, such as a breach of the obligation of fair and equitable treatment. In either case, the Tribunal considers that the correct approach is to award such compensation as will give back to Claimants the value to them of their shares at the time when the expropriation took place. This requires the Tribunal to take account only of the value which the shares would probably have had in the hands of Claimants if the shares had not been expropriated, and therefore to leave out of account any increase (or decrease) in the value of the shares which Claimants would probably not have enjoyed (or suffered) if the shares had remained in their hands. As the Tribunal has just stated, it considers that, regardless of the nature of the breach which has been established, the correct approach in this case is to award such compensation as will give back to Claimants the value to them of their shares at the time when the expropriation took place.”); Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian Republic of Venezuela (II), ICSID Case No. ARB/12/23, Award, 12 December 2016, para. 396 (“In expropriation cases, full reparation equals the market value of the expropriated assets, taken to mean the value the owner of the assets could have obtained, had the assets been sold on a date immediately preceding that of the State’s taking, or the date when the intention to expropriate became public knowledge (causing the assets’ market value to fall).”).
VIII. Compensation and lawfulness
Tribunals have suggested that failure to pay compensation in and of itself is not sufficient to render an expropriation unlawful.12 Other tribunals have considered an expropriation unlawful because no compensation was paid.13 Some tribunals have suggested that the measure of compensation in instances of unlawful expropriation may not be different than that applied in lawful expropriation cases.14 Multiple tribunals have recognized, however, that a higher measure of compensation, including compensation based on ex post valuation, may be due in instances of unlawful expropriation.15 Some commentators opine that expropriation is unlawful whenever the State fails to meet any of the criteria of lawfulness contained in the applicable investment treaty, including the criterion of compensation. However, the amount and content of the compensation, as a modality of reparation, will depend on the nature and extent of the unlawfulness in a given case.16
Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Award of the Tribunal, 9 October 2014, para. 301 (“However, the mere fact that an investor has not received compensation does not in itself render an expropriation unlawful. An offer of compensation may have been made to the investor and, in such a case, the legality of the expropriation will depend on the terms of that offer. In order to decide whether an expropriation is lawful or not in the absence of payment of compensation, a tribunal must consider the facts of the case.”); Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 407 (“The legality of an expropriation where the State has taken the investment but has failed to make any compensation payment, depends on whether a good faith offer for a reasonable amount of compensation was actually made.”).
Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007, para. 273 (“In any case, compensation has never been paid on grounds that, as already stated, the Tribunal finds that are lacking in justification. For these reasons, the expropriation did not meet the requirements of Article 4(2) and therefore was unlawful.”)
Guaracachi America, Inc. and Rurelec PLC v. Plurinational State of Bolivia, PCA Case No. 2011-17, Award, 31 January 2014, para. 613 (“The BIT makes no distinction between the compensation to be provided in respect of an unlawful expropriation as opposed to a lawful one, and the Tribunal does not find any reason to believe that the illegality of the expropriation renders what the BIT deems to be ‘just and effective compensation’ suddenly inadequate.”); British Caribbean Bank Ltd. v. Government of Belize, PCA Case No. 2010-18/BCB-BZ, Award, 19 December 2014, paras. 260-261 (“The Tribunal observes that at no point does the Treaty, being a lex specialis, distinguish between lawful and unlawful expropriation, as the Claimant attempts to imply into the reading of Article 5 of the Treaty, whatever might be the merits of the distinction between lawful and unlawful expropriation under customary international law. Once the violation of the Treaty provisions regarding expropriation is established, the State has breached the Treaty. Neither is the Tribunal convinced that the generally accepted fair market value standard was intended to apply only in cases of the so-called ‘lawful expropriation’.”).
Conocophillips Petrozuata B.V., Conocophillips Hamaca B.V., Conocophillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and the Merits, 3 September 2013, para. 343 (“The Tribunal, on the basis of principle and the authorities reviewed above, concludes that if the taking was unlawful, the date of valuation is in general the date of the award.”); ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, para. 481 (“But in the present case the BIT does not stipulate any rules relating to damages payable in the case of an unlawful expropriation. The BIT only stipulates the standard of compensation that is payable in the case of a lawful expropriation, and these cannot be used to determine the issue of damages payable in the case of an unlawful expropriation since this would be to conflate compensation for a lawful expropriation with damages for an unlawful expropriation.”); ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, paras. 483-484 (“Since the BIT does not contain any lex specialis rules that govern the issue of the standard for assessing damages in the case of an unlawful expropriation, the Tribunal is required to apply the default standard contained in customary international law in the present case. The customary international law standard for the assessment of damages resulting from an unlawful act is set out in the decision of the PCIJ in the Chorzów Factory case.”); Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007, para. 352 (“Under customary international law, Siemens is entitled not just to the value of its enterprise as of May 18, 2001, the date of expropriation, but also to any greater value that enterprise has gained up to the date of this Award, plus any consequential damages.”); Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 August 2007, para. 8.2.3 (“The Treaty thus mandates that compensation for lawful expropriation be based on the actual value of the investment, and that interest shall be paid from the date of dispossession. However, it does not purport to establish a lex specialis governing the standards of compensation for wrongful expropriations.”); Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 775 (“The standard of compensation for unlawful expropriation (being the relevant claim here), includes full reparation for, and consequential losses suffered as a result of, the unlawful expropriation. Full reparation entitles the unlawfully expropriated investor to restitutionary damages which include, but are not limited to, the fair market value of the unlawfully expropriated investment as determined by the application of an appropriate valuation methodology. In addition, the unlawfully expropriated investor is entitled to damages for the consequential losses suffered as a result of the unlawful expropriation. Such losses ordinarily include an entitlement to loss of profits suffered by the investor between the date of the expropriation and the award.”); Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, para. 541 (“It is worth observing, however, that in the present case the distinction between compensation for a lawful expropriation and compensation for an unlawful expropriation may not make a significant practical difference.”); Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Award, 30 June 2009, para. 201 (“Article 5(1)(3) of the BIT which describes the just compensation due in case of an expropriation refers to ‘the real market value of the investment [...] according to internationally acknowledged evaluation standards’. This provision is not applicable to determine the amount of compensation in the present instance because it sets out the measure of compensation for lawful expropriation which this one is not. Hence, the Tribunal will resort to the relevant principles of customary international law and in particular to the principle set out by the Permanent Court of Justice in the Chorzow Factory case […].”); Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. 2005-03/AA226, Final Award, 18 July 2014/ Veteran Petroleum Limited (Cyprus) v. Russian Federation, PCA Case No. 2005-05/AA228, Final Award, 18 July 2014/ Yukos Universal Limited (Isle of Man) v. Russian Federation, PCA Case No. 2005-04/AA227, Final Award, 18 July 2014 paras. 1763 (“The Tribunal also holds that, in the case of an unlawful expropriation, as in the present case, Claimants are entitled to select either the date of expropriation or the date of the award as the date of valuation.”) & 1769 (“It follows for the several reasons stated above that in the event of an illegal expropriation an investor is entitled to choose between a valuation as of the expropriation date and as of the date of the award. […]”); Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. 2005-03/AA226, Final Award, 18 July 2014/ Veteran Petroleum Limited (Cyprus) v. Russian Federation, PCA Case No. 2005-05/AA228, Final Award, 18 July 2014/ Yukos Universal Limited (Isle of Man) v. Russian Federation, PCA Case No. 2005-04/AA227, Final Award, 18 July 2014 para. 1767 (“The consequences of the application of these principles (restitution as of the date of the decision, compensation for any damage not made good by restitution) for the calculation of damages in the event of illegal expropriation are twofold. First, investors must enjoy the benefits of unanticipated events that increase the value of an expropriated asset up to the date of the decision, because they have a right to compensation in lieu of their right to restitution of the expropriated asset as of that date. If the value of the asset increases, this also increases the value of the right to restitution and, accordingly, the right to compensation where restitution is not possible.”); Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Partially Dissenting Opinion of Professor Brigitte Stern, paras. 14 -19 (“As far as the standard of compensation is concerned, the PCIJ indicated clearly in Chorzów that such standard is different in case of lawful or unlawful expropriation. […] In case of a lawful expropriation including an expropriation to render which lawful only the payment of fair compensation would have been wanting, the standard of compensation is a just compensation […] In case of an unlawful expropriation, the standard of compensation is full reparation […].”); Quiborax S.A., Non-Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 370 (“The Tribunal has already held that the standard of compensation in this case is not the one set forth in Article VI(2) of the BIT, but the full reparation principle under customary international law as enunciated by the PCIJ in Chorzów and restated in Article 31 of the ILC Articles, because it is faced with an expropriation that is unlawful not merely because compensation is lacking […]. [T]he majority of the Tribunal considers that this requires an ex post valuation, i.e., valuing the damage on the date of the award and taking into consideration information available then.”); Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 764 (“[T]he Tribunal considers that compensation should be calculated at the time of the Award, rather than at the time of the unlawful acts. The Tribunal has no difficulty in reaching this conclusion because, as Heinrich’s evidence shows […], the Claimants have continually reinvested the returns from their investments. Whoever has ownership of the land (and other assets) has the benefit of that reinvestment.”); Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 843 (“[…] In the Tribunal’s view, to follow the BIT expropriation standard as opposed to ‘full reparation’ under Chorzów may in particular produce different outcomes where the BIT standard would lead to a valuation date as of the date of the expropriation, whereas full reparation may require, under certain circumstances, the valuation date to be fixed at the date of the award.”); Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan (II), ICSID Case No. ARB/13/13, Award, 27 September 2017, para. 1082 (“The Tribunal finds that a distinction is to be drawn between compensation for a lawful expropriation, on the one hand, and reparation for the damage incurred through an unlawful expropriation, on the other hand, the applicable standards of compensation or reparation being different, at least in international law practice. The distinction and the difference in the financial consequences between lawful and unlawful expropriation is increasingly recognized in international practice.”); Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, paras. 662 - 663 (“The compensation owed for an internationally unlawful expropriation is not calculated in the same way as for a lawful expropriation. […] Karkey is entitled to an award of damages that will erase the consequences of Pakistan’s wrongful acts and re-establish the situation that would have existed but for such wrongful acts.”); UP and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award, 9 October 2018, para. 501 (“[U]nless a treaty contains a clear reference to damages due for unlawful expropriation, the compensation rule referred to in the BIT will only apply to lawful expropriation, with damages for unlawful expropriation being governed by customary international law.”); Amoco Inter’l Fin. Corp. v. Iran, Partial Award, Iran-U.S. Cl. Trib., No. 310-56-3, para. 197; Phillips Petroleum Co. Iran v. Iran, Partial Award, Iran-U.S. Cl. Trib., No. 425-39-2 (28 June 1989), para. 122.
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