International Investment Law
Readings 4: Expropriation
Schefer, ‘International Investment Law’
Chapter 4: Expropriation
4.1 Direct Expropriation
4.1.1 Introduction
Expropriation is the most serious violation of an investor’s rights
expropriations are hence very important to determine the
investment climate in a country infrequency of them makes them
very important stakeholders will react to the determination of
expropriation (so other investors, shareholders, etc.)
The rules of IIL are construed such to ensure that the investor gets
compensated when expropriated one of the most developed areas
of investor protection
4.1.2 Expropriation: the defnitions
a. What is an expropriation?
Expropriation = a state taking property away from its owner
either the legal title to the investment or the rights to use and proft
from the investment
Different terms direct expropriation = taking of the legal title,
whereas indirect expropriation = taking of value or control both
are governed by the same framework
Developing countries continually refer to nationalisations, whereas
developed countries refer to expropriations (in a way,
nationalisation is a process of expropriating a whole industrial
sector)
Only when an owner that is expropriated is foreign, it comes under
the scope of IIL
b. Legal Expropriation
In CIL state has a right to expropriate alien property, but this is
not an absolute right conditions on expropriation, four
1
, conditions: undertaken for public purpose, carried out in
accordance with the principles of due process, must be non-
discriminatory, and upon the receipt of compensation
Most IIAs refer to these conditions in list form, some do not
c. Conditions for legal expropriation
c.i Public purpose
State should exercise its function to act in the interest of the
general public when expropriating individual right to property
can only be violated by an overriding interest
Arbitral tribunal must determine when the state did not exercise its
discretion!
Standard of the test: where investor can show that the government
took the property in retaliation or for the personal enrichment of
the host’s leader
But what if the state nationalises a sector after governmental
change, is then the state’s taking control of productive assets for
purely fnancial motives be considered a public intereste
Amoco International Finance Corp. v. Iran
NPC (government-led) was in joint venture with Amoco (US
company) to explore offshore oil felds, agreements for processing
additional gas and chemicals through jointly managed company
Khemco
Oil industry was nationalised annulling all oil and gas industry
contracts that included foreign participants
Expropriation provision in the BIT, Iran argued that the
expropriation was legal and that it had acted legally in taking the
property
In line with CIL and ICJ case law, the state can expropriate for
reasons of public purpose nationalisation is generally allowed,
and will result in a higher magnitude of expropriation
It is generally accepted that the State cannot expropriation solely
on the basis of fnancial reasons in casu, there was enough public
purpose involved and it was not merely for fnancial reasons
2
, Taking over a single investment is different from nationalising a
whole sector fnancial proft incentives will be much bigger and
more critically assessed if the expropriation appears to be purely
commercial
ADC Afiliate Limited and ADC and ADMC Management Limited v.
Hungary
ADC was contracted by Hungary (BOT) of Budapest airport, but was
sidelined by the HAA after it was privatised Hungary argued that
it was because they wanted to become member of the EU and to
harmonise its laws
Tribunal recognises the limits of state discretion there are
boundaries to the public purpose requirement was there a public
intereste
Conclusion: no. No serious public interest, just the mere reference
to it (that is not enough)
More tribunals have adopted the sceptical approach of the ADC-
tribunal, look into the necessity of the public interest behind the
expropriation
British Caribbean Bank England v. Belize
Belize took over a telecommunications company which had
contractual obligations towards the British Bank was the
acquisition of these contractual obligations and the cancellation of
them necessary to the public purpose
Conclusion: mere avoidance of payment to BCB England would not
be a legitimate public purpose, as well, there was a personal
motivation of the prime minister of Belize against the interests of
the investor (Ashcroft) personal animus and fnancial gains from
the expropriation not legal, as it is not for a public purpose
3
Readings 4: Expropriation
Schefer, ‘International Investment Law’
Chapter 4: Expropriation
4.1 Direct Expropriation
4.1.1 Introduction
Expropriation is the most serious violation of an investor’s rights
expropriations are hence very important to determine the
investment climate in a country infrequency of them makes them
very important stakeholders will react to the determination of
expropriation (so other investors, shareholders, etc.)
The rules of IIL are construed such to ensure that the investor gets
compensated when expropriated one of the most developed areas
of investor protection
4.1.2 Expropriation: the defnitions
a. What is an expropriation?
Expropriation = a state taking property away from its owner
either the legal title to the investment or the rights to use and proft
from the investment
Different terms direct expropriation = taking of the legal title,
whereas indirect expropriation = taking of value or control both
are governed by the same framework
Developing countries continually refer to nationalisations, whereas
developed countries refer to expropriations (in a way,
nationalisation is a process of expropriating a whole industrial
sector)
Only when an owner that is expropriated is foreign, it comes under
the scope of IIL
b. Legal Expropriation
In CIL state has a right to expropriate alien property, but this is
not an absolute right conditions on expropriation, four
1
, conditions: undertaken for public purpose, carried out in
accordance with the principles of due process, must be non-
discriminatory, and upon the receipt of compensation
Most IIAs refer to these conditions in list form, some do not
c. Conditions for legal expropriation
c.i Public purpose
State should exercise its function to act in the interest of the
general public when expropriating individual right to property
can only be violated by an overriding interest
Arbitral tribunal must determine when the state did not exercise its
discretion!
Standard of the test: where investor can show that the government
took the property in retaliation or for the personal enrichment of
the host’s leader
But what if the state nationalises a sector after governmental
change, is then the state’s taking control of productive assets for
purely fnancial motives be considered a public intereste
Amoco International Finance Corp. v. Iran
NPC (government-led) was in joint venture with Amoco (US
company) to explore offshore oil felds, agreements for processing
additional gas and chemicals through jointly managed company
Khemco
Oil industry was nationalised annulling all oil and gas industry
contracts that included foreign participants
Expropriation provision in the BIT, Iran argued that the
expropriation was legal and that it had acted legally in taking the
property
In line with CIL and ICJ case law, the state can expropriate for
reasons of public purpose nationalisation is generally allowed,
and will result in a higher magnitude of expropriation
It is generally accepted that the State cannot expropriation solely
on the basis of fnancial reasons in casu, there was enough public
purpose involved and it was not merely for fnancial reasons
2
, Taking over a single investment is different from nationalising a
whole sector fnancial proft incentives will be much bigger and
more critically assessed if the expropriation appears to be purely
commercial
ADC Afiliate Limited and ADC and ADMC Management Limited v.
Hungary
ADC was contracted by Hungary (BOT) of Budapest airport, but was
sidelined by the HAA after it was privatised Hungary argued that
it was because they wanted to become member of the EU and to
harmonise its laws
Tribunal recognises the limits of state discretion there are
boundaries to the public purpose requirement was there a public
intereste
Conclusion: no. No serious public interest, just the mere reference
to it (that is not enough)
More tribunals have adopted the sceptical approach of the ADC-
tribunal, look into the necessity of the public interest behind the
expropriation
British Caribbean Bank England v. Belize
Belize took over a telecommunications company which had
contractual obligations towards the British Bank was the
acquisition of these contractual obligations and the cancellation of
them necessary to the public purpose
Conclusion: mere avoidance of payment to BCB England would not
be a legitimate public purpose, as well, there was a personal
motivation of the prime minister of Belize against the interests of
the investor (Ashcroft) personal animus and fnancial gains from
the expropriation not legal, as it is not for a public purpose
3
