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Author

Mr Nemlin Hie Arnaud Oulepo

PhD Candidate - University Cadi Ayyad

Due Process in Expropriation

I. Definition

1.

International law recognizes States’ absolute right to expropriate or nationalize property held by foreign national within their territory.1 As a general rule, an expropriation is deemed lawful, when it meets inter alia “the due process of law” requirement.2 But some tribunals have adopted a different view.3 The due process of law requirement refers to the expropriating State’s internal procedural framework governing the expropriation and the legal remedies which should be made available to an aggrieved investor to challenge these expropriating measures. In bilateral investment treaties (“BITs”) or international investment agreements (“IIAs”), expropriation is subject to the expropriating State’s “domestic legal procedure”,4 which may in some instances be supplemented by international minimum standard of treatment.5

2.

In the absence of a clear-cut definition,6 the “due process” requirement is best defined by listing the different elements it encompasses.

II. Legal basis for expropriation

3.

Expropriation is frequently exercised by virtue of a “decree” or a “law”.7 In practice, some States adopted a specified legislation dealing exclusively with expropriation, such as France,8 Morocco,9 and Cambodia.10 In some other States, expropriation powers derive from the constitution which both recognizes the right of everyone to property and the ability of States to apply some limitations for public purpose.11

III. Timely notification of the expropriation measures

4.

When it comes to expropriation, States are bound by an obligation of full transparency. In particular, the assets being expropriated must be clearly identified.12 A potential aggrieved investor is to be informed about any decisions or actions likely to have an impact on its investment. In the Valentine Petroleum and Chemical Corporation and Agency for International Development case, the tribunal reached the conclusion that the cancellation of a concession without notice or reasons was arbitrary.13 Others arbitral tribunals adopted converging opinions regarding the expropriating State’s duty to properly notify or inform an affected investor.14 The extent of the obligation is however debated.15

IV. Adequate judicial or administrative review mechanism

5.

An investor suffering from expropriation should have the right to challenge the decision and his or her case to be heard by an independent administrative authority or tribunal of the expropriating State. The mere existence of legal remedies with no reasonable prospect of success does not amount to due process of law. In Chemtura Corporation v. The Government of Canada, the arbitral tribunal considered the “Special Review” conducted by the “Pest Management Regulatory Agency of Canada” leading to a ban on lindane products, was not in breach of due process.16

6.

Whereas in ADC Affiliate Limited and ADC & ADMC Management Limited v. Hungary and Ioannis Kardassopoulos and Ron Fuchs v. Georgia, the two arbitral tribunals acknowledged separately that in Hungary and Georgia respectively the expropriation review mechanism were either inexistent or if they did exist, they were not in position to provide the relief requested.17 The tribunal in Senor Tza Yap Shum v. The Republic of Peru upheld the same legal reasoning.18 19 Notably, a judicial process itself marred by lack of due process may be considered expropriatory.20

V. Consequences of a fork-in-the-road provision

7.

An investor challenging an expropriation measures before the domestic courts of an expropriating State should be mindful of the BIT particular wording. Some BITs preclude investor from pursuing claims simultaneously before domestic courts and international arbitration because of the fork-in-the-road provision.21 In light of the fork-in-the-road provisions in some BITs, and taking into account the “due process” requirement in cases of expropriation, a question arises as to whether challenging an expropriation before domestic courts obliterates the investor’s right to arbitration.

8.

As a well-known scholar has pointed out, challenging an expropriation measure before domestic court should be considered as a “defensive step to contest administrative action”, which in no way should serve as a trigger to the fork-in-the-road provision.22

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