Due Process in Expropriation

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.⁴ In bilateral investment treaties (“BITs”) or international investment agreements (“IIAs”), expropriation is subject to the expropriating State’s “domestic legal procedure”,⁵ which may in some instances be supplemented by “international minimum standard of treatment”.⁶ See further Due process in FET

In the absence of a clear-cut definition,⁷ the “due process” requirement is best defined by listing the different elements it encompasses. International investment agreements play a significant part in outlining these elements.⁸ However, a lack of due process does not always amount to a violation of international law.⁹

Expropriation is frequently exercised by virtue of a “decree” or a “law”.¹⁰ In practice, some States adopted a specified legislation dealing exclusively with expropriation, such as France,¹¹ Morocco,¹² and Cambodia.¹³ In some other States, expropriation powers derive from the constitution which recognizes both the right of everyone to property and the ability of States to apply some limitations for public purpose.¹⁴

These limitations are subject to procedural requirements in order to meet the standard of the due process obligation. Arbitrators have sometimes explicitly mentioned that, in order to do so, measures should be supported by valid reasons.¹⁵

When it comes to expropriation, States are bound by an obligation of full transparency. In particular, the assets being expropriated must be clearly identified.¹⁶ 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.¹⁷ An early cancellation was also considered as a violation of due process by the host State.¹⁸ Other arbitral tribunals adopted converging opinions regarding the expropriating State’s duty to properly notify or inform an affected investor.¹⁹

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.²⁰ The mere existence of legal remedies with no reasonable prospect of success does not amount to due process of law. For instance, 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.²¹

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, the expropriation review mechanism were respectively either inexistent²² or if they did exist, they were not in position to provide the relief requested.²³ The tribunal in Senor Tza Yap Shum v. The Republic of Peru upheld the same legal reasoning. An investor should have a “reasonable opportunity” and a “reasonable amount of time” to take actions against State measures.²⁴ Notably, a judicial process itself marred by lack of due process may be considered expropriatory.²⁵ See further Judicial expropriation.

An investor challenging expropriation measures before the domestic courts of an expropriating State should be mindful of the BIT particular wording. Some BITs preclude investors from pursuing claims simultaneously before domestic courts and international arbitration because of the fork-in-the-road provision.²⁶ 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.

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.²⁷ Indeed, a tribunal considered that investors should not be negligent in seeking judicial protection against an alleged expropriation before seeking remedies before an arbitral tribunal.²⁸