Author

Mr Lucian Ilie

Senior Associate, International Arbitration - Reed Smith LLP

Judicial Expropriation

I. Definition

1.

Judicial expropriation is a debated form of indirect expropriation, which covers situations where either a court’s decision directly causes the loss of an asset, or where a court’s decision forms part of a series of State measures that cumulatively constitute a creeping expropriation.1

2.

According to Article 4 of the ILC Articles, the conduct of national courts as the judicial organ of the State is considered an act of the State under international law, and may constitute a judicial expropriation only in certain circumstances given that it poses a number of complex conceptual and practical questions.3

II. Judicial misconduct: difficulties in practice

3.

Judicial expropriation is a concept which divides tribunals and commentators alike. Some investment tribunals have been reluctant to find judicial expropriation breaches unless there was also a denial of justice.4 Others have made findings of judicial expropriation on its own.5 As a result, the application of the legal concept of “judicial expropriation” by investment tribunals is far from uniform.6

4.

Investment treaty awards dealing with expropriatory measures by national courts include (i) interferences with commercial arbitration (in Saipem v. Bangladesh, an ICSID tribunal concluded that the taking of the investor’s rights following a Supreme Court decision annulling an ICC award was tantamount to “measures having similar effects” to an expropriation),7 (ii) interferences with the validity of contracts (in Sistem v. Kyrgyzstan, the arbitral tribunal held that the State court’s decision deprived the claimant of its property rights in the hotel as if the State had expropriated it by decree and concluded that the abrogation of contractual rights is tantamount to an expropriation of property),8 and (iii) seizure of assets (in Tatneft v. Ukraine, although the tribunal ultimately rejected the expropriation claim on various grounds, this award provides a helpful analysis of how judicial acts may contribute to a wider finding of expropriation).9

III. Overlap with other related standards of protection

5.

Under international law, judicial misconduct could consist of a procedural violation of due process (which is similar to the standard of denial of justice), but also other substantive violations of international law (such as the fair and equitable treatment standard). As a result, two issues divide investment treaty tribunals: (i) whether denial of justice is a requirement for judicial expropriation, and (ii) whether exhaustion of local remedies (a requirement for denial of justice), is also a requirement of judicial expropriation.10

A. Overlap with the Fair and Equitable Treatment standard

6.

The fair and equitable treatment standard in investment treaties comprises a number of elements, including:

7.

As a result, there is significant conceptual overlap between “judicial expropriation” and various elements of the “fair and equitable treatment” standard. An important caveat is that an investor is not expected to exhaust local remedies before a fair and equitable treatment claim can be brought,14 which is not the case for “denial of justice” claims and may not be for “judicial expropriation” claims.

B. Overlap with the Denial of Justice standard

8.

Denial of justice is a flexible concept that covers mainly serious procedural irregularities, including when the judiciary:

  • fundamentally failed in cases of major procedural errors such as lack of due process;15
  • rendered a court judgment that was “clearly improper and discreditable”;16
  • misapplied the law in such “an egregiously wrong way that no honest, competent court could have possibly done so”.17
9.

Whilst it is relatively more common for national courts to be found in violation of the “fair and equitable treatment” standard by way of a “denial of justice” claim, the question as to whether judicial acts may also constitute “unlawful expropriations” remains largely unresolved.18 For instance, in Eli Lilly v Canada, the ICSID tribunal stated that is “unwilling to shut the door” to the possibility that judicial conduct characterized other than as a denial of justice may engage the State’s liability.19

IV. Exhaustion of local remedies

10.

The increase in claims alleging “judicial expropriations” in lieu of a “denial of justice” may be explained by a desire to circumvent the rule that local remedies must be fully exhausted – a rule accepted as a substantive requirement for a denial of justice claim.20

11.

In Saipem v Bangladesh the tribunal stated that it “tends to consider that exhaustion of local remedies does not constitute a substantive requirement of a finding of expropriation by a court21 but ultimately it did not make any determination to this effect, leaving open the question of whether exhaustion of local remedies is a requirement for “judicial expropriation” claims.

Bibliography

Gharavi, H., Discord Over Judicial Expropriation, ICSID Review, 2018, pp. 349-357.

Greenwood, C., State Responsibility for the Decisions of National Courts, in Fitzmaurice, M. and Sarooshi, D. (eds.), Issues of State Responsibility Before International Judicial Institutions, 2004, pp. 55-73.

Jiménez de Aréchaga, E., International Law in the Past Third of a Century, Collected Courses of the Hague Academy of International Law, 1978, p. 278.

Mantilla Blanco, S., Justizielles Unrecht im Internationalen Investitionsschutzrecht: Zur Verletzung völkerrechtlicher Standards des Investitionsschutzes durch nationale Gerichte, Studien zum Internationalen Investitionsrech, 2016, pp. 147-148.

Mansour Fallah, S., Judicial Expropriations - Difficulties in Drawing the Line between Adjudication and Expropriation, Judicial Measures and Investment Treaty Law, 2019.

Mourre, A., Expropriation by Courts: Is It Expropriation or Denial of Justice?, in Rovine, A. (eds.), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers, 2011.

Sattorova, M., Denial of Justice Disguised? Investment Arbitration and the Protection of Foreign Investors from Judicial Misconduct, The International and Comparative Law Quarterly, 2012, pp. 225 – 235.

Sattorova, M., Judicial Expropriation or Denial of Justice? A note on Saipem v. Bangladesh, International Arbitration Law Review, 2010.

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