Expropriation
Terminology
•
•
•
•
Expropriation
Nationalization
Requisition
Dispossession
(Rarely defined in IIAs, often treated as synonyms).
Expropriation
Australia–Chile Free Trade Agreement:
1. Neither Party may expropriate or nationalise a covered
investment either directly or indirectly through measures
equivalent to expropriation or nationalisation
(“expropriation”), except:
(a) for a public purpose;
(b) in a non-discriminatory manner;
(c) on payment of prompt, adequate, and effective
compensation in accordance with paragraphs 2 to 4; and
(d) in accordance with due process of law
Indirect Expropriation
Substantial and lasting deprivation of investments:
– Destruction of value
– Effective loss of control
– Effective neutralisation of benefit to investor
Consideration of:
–
–
–
–
Extent of harm/damage to investor interests
Legitimate expectations of investors
Proportionality of the measure vis-à-vis its goals
States’ inherent right to regulate in public interest
Indirect Expropriation vs Right to Regulate
Saluka v Czech Republic:
“[i]t is now established in international law that States are not
liable to pay compensation to a foreign investor when, in the
normal exercise of their regulatory powers, they adopt in a
non-discriminatory manner bona fide regulations that are
aimed at the general welfare.
Indirect Expropriation vs Right to Regulate
Chemtura v Canada
The State “took measures within its mandate, in a nondiscriminatory manner, motivated by the increasing awareness
of the dangers presented by lindane for human health and the
environment. A measure adopted under such circumstances is a
valid exercise of the State’s police powers and, as a result, does
not constitute an expropriation”
Servier v Poland
Measure related to public health, however evidence of
discrimination vis-à-vis domestic producers and denial of due
process led to the measure being found an indirect expropiration
Indirect Expropriation vs Right to Regulate
Clarifying Annex on Indirect Expropriation, example Australia-Chile Free Trade
Agreement:
The Parties confirm their shared understanding that:…
(a) The determination of whether an action or series of actions by a
Party, in a specific fact situation, constitutes an indirect expropriation,
requires a case-by-case, fact-based inquiry that considers, among other
factors:
(i) the economic impact of the government action, although the fact
that an action or series of actions by a Party has an adverse effect on
the economic value of an investment, standing alone, does not
establish that an indirect expropriation has occurred;
(ii) the extent to which the government action interferes with distinct,
reasonable investment-backed expectations; and
(iii) the character of the government action.
(b) Except in rare circumstances, non-discriminatory regulatory
actions by a Party that are designed and applied to protect legitimate
public welfare objectives, such as public health, safety, and the
environment, do not constitute indirect expropriations.
Indirect Expropriation vs Right to Regulate –
Intellectual Property
Australia-Chile Free Trade Agreement:
“This Article [Expropriation] does not apply to the issuance of
compulsory licences granted in relation to intellectual
property rights in accordance with the TRIPS Agreement, or
to the revocation, limitation, or creation of intellectual property
rights, to the extent that such revocation, limitation, or
creation is consistent with Chapter 17 (Intellectual Property)”.
Policy options for States
1.
High protection model
2.
Increased predictability model
3.
Qualified model
Policy options: High protection model
• Objective: ensure protection against all kind of
expropriations and nationalizations.
• Coverage: classical property rights, contracts, licenses,
concessions, claims to money and intangible rights.
• Does not contain qualifiers and limitations of any sort.
• Expansive understanding of indirect expropriation.
Policy options: Increased predictability model

Definition of direct or indirect expropriation.

Criteria that helps establish indirect expropriation.

Criteria that helps distinguish indirect expropriation and
non compensable regulation.
Policy options: Qualified model
Objective: minimize risks that arise from an overly
broad expropriation provision.
Possible approaches:

Define specific interests that are capable of being
expropriated.

Define scope of application of the expropriation
provision through the introduction of general or specific
exceptions.

Define compensation and reparation.
IPFSD policy option - Expropriation
UNCTAD Publication on Expropriation: A sequel
•
Part of UNCTAD's Series on
International Investment
Agreements which analyzes
the key concepts of core IIA
provisions.
•
The "Sequels" update and
complement the Series
analyzing how key issues in
IIA provisions have evolved.