Judicial Expropriation

Judicial expropriation is a debated form of indirect expropriation, which covers situations where a court’s decision contributes, directly or indirectly, to the loss of a foreign investment.¹

According to Article 4 of the ILC Articles, the conduct of national courts as the State’s “judicial organ” can engage the State’s liability under international law, and may constitute a judicial expropriation in certain circumstances that raises a number of challenges.²

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 or a lack of due process.³ Others have made findings of judicial expropriation on its own⁴ (or contemplated that such finding was possible even if judicial expropriation was not found in the case at hand.)⁵ As a result, the application of the legal concept of “judicial expropriation” by investment tribunals is far from uniform.⁶

Investment treaty awards dealing with expropriatory measures by national courts have been categorized by literature⁷ in several forms, including interferences:

1. with the investor’s rights (in Saipem v. Bangladesh, an ICSID tribunal concluded that a Supreme Court decision annulling an ICC award was a judicial taking tantamount to “measures having similar effects” to an expropriation);⁸ in Karkey v. Pakistan, the tribunal found that the State had expropriated the investor’s investment through a Supreme Court’s judgment that deprived the investor of its investment by declaring the contract at stake void ab initio;⁹ in Stans Energy v. Kyrgyzstan, the tribunal found that the termination of the investors’ licenses by the domestic courts and a State agency constituted an unlawful dispossession);¹⁰ 
2. with the investor’s property rights (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, which constituted a measure tantamount to an expropriation of property);¹¹ in Standard Chartered Bank v. Tanzania, the tribunal found that the State had expropriated the investor, notably through a judicial order depriving the investor of its economic rights and control over its assets);¹² and
3. with the investor’s 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).¹³

Under international law, judicial misconduct could amount to violation of due process, denial of justice and other substantive violations of international law (such as breach of the fair and equitable treatment standard).

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

• the host State must act with procedural propriety and due process vis-à-vis an investor;¹⁴
• the host State’s decisions towards an investor cannot be arbitrary, unfair, unreasonable or unjust;¹⁵
• the host State must not commit a “denial of justice” against an investor.¹⁶

As a result, there is significant overlap between “judicial expropriation” and various elements of the “fair and equitable treatment” standard.

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;¹⁷
• rendered a court judgment that was “clearly improper and discreditable”;¹⁸
• misapplied the law in such “an egregiously wrong way that no honest, competent court could have possibly done so”.¹⁹

Arbitral tribunals have more often found breaches of the fair and equitable treatment standard where national courts have caused a denial of justice.²⁰ However, as detailed above, it remains a matter of debate whether judicial measures characterized other than a denial of justice may amount to “unlawful expropriations”. For instance, in Eli Lilly v Canada, the ICSID tribunal stated that is “unwilling to shut the door” to this possibility.²¹

Exhaustion of local remedies is commonly accepted as a substantive requirement for a denial of justice claim (see Exhaustion of local remedies, Section II.B).²² In the context of expropriation by a court, an investment tribunal has indicated that Exhaustion of local remedies would be required if the claim of “judicial expropriation” also consisted of a denial of justice.²³

However, 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 court”²⁴ 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.²⁵

Gharavi, H., Discord Over Judicial Expropriation, ICSID Review, Vol. 33, No. 2, 2018, pp. 349-357.

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