States retain the sovereign right to regulate and tax property, as well as to expropriate it. UN
General Assembly adopted several resolutions during the 1950s and 1960s, which led to the
Declaration on the Establishment of the New International Economic Order 1974 and
the Charter of Economic Rights and Duties of States 1974 (A/RES/29/3281). Paragraph
4(e) of the Declaration provides ‘Full permanent sovereignty of every State over its natural
resources and all economic activities. In order to safeguard these resources, each State is
entitled to exercise effective control over them and their exploitation with means suitable to
its own situation, including the right to nationalization or transfer of ownership to its
nationals, this right being an expression of the full permanent sovereignty of the State. No
State may be subjected to economic, political or any other type of coercion to prevent the free
and full exercise of this inalienable right.’
However, this is subject to conditions under international law. For example, Article
13(1) of ECT requires: (1) For a public purpose; (2) Non-discriminatory means; (3)
According to due process; and (4) Prompt, adequate and effective compensation. But not all
authors agree due process is an essential condition. Dolzer excludes such requirement 1.
Newcombe and Paradell also argue that ‘Not all authorities accept that due process is a
requirement for a lawful expropriation under customary international law’2.
Some investment treaty provisions expressly mention their provisions on
expropriation as intended to reflect customary international law. Annex B of US Model BIT
2012 provides ‘Article 6 [Expropriation and Compensation](1) is intended to reflect
customary international law concerning the obligation of States with respect to
expropriation.’ Whereas others do not always specify the applicable standards of protection,
in which they must be interpreted by considering customary international law.
Expropriation is described differently in investment treaties. These include
‘dispossession’, ‘taking’, ‘deprivation/privation’, ‘constructive expropriation’, ‘de facto
expropriation’, ‘creeping expropriation’, or measures having equivalent effect to
‘expropriation’. It is not clear whether States attempted to expand the meaning of
expropriation to protect as many investment as possible from State interference. But
Newcombe and Paradell suggest that such terms ‘reflect the customary international law
position that the analysis focuses on the effect of the government measures, not its form.’3
Some MITs distinguish direct and indirect expropriation. Article 13(1) ECT and
ASEAN Comprehensive Investment Agreement Appendix 3 do not expressly refer to
direct/indirect expropriation as it uses ‘having effect equivalent’ to expropriation, rather than
‘tantamount to’ like in Article 1101(1) NAFTA. Whereas TPPA Annex 9-B(3) defines
indirect expropriation as ‘an action or series of actions by a Party [that] has an effect
equivalent to direct expropriation without formal transfer of title or outright seizure’ that is
determined on ‘a case-by-case, fact-based inquiry.’ Also, some BITs distinguish direct and
indirect expropriation. Article 3 of 1967 OECD Draft Convention on the Protection of
Foreign Property distinguishes both expropriations as it provides that ‘[N]o Party shall take
any measures depriving, directly or indirectly, of his property a national of another party’.
This is also seen in Germany-Bosnia BIT 2001. Furthermore, US Model BIT 2012 contains
a description of indirect expropriation, but not UK BITs. Overall, Gallagher and Shore
conclude that the increasing number of BITs ‘has done little to assist in the determination of
1
Rudolf Dolzer and Christoph Scheuer, Principles of International Investment Law (2nd edition, OUP 2012) 99
2
Andrew Newcombe and Lluís Paradell, ‘Chapter 7 - Expropriation’, in Law and Practice of Investment
Treaties: Standards of Treatment (Kluwer Law International 2009) at para 7.1.
3
Andrew Newcombe and Lluís Paradell, ‘Chapter 7 - Expropriation’, in Law and Practice of Investment
Treaties: Standards of Treatment (Kluwer Law International 2009) 339
, the actual conditions that prescribe what acts of a State would constitute expropriation under
international law’4. McLachlan further comments that these BITs do not demonstrate ‘deep
doctrinal differences between States as to the extent of protection to be provided’5.
What is Direct Expropriation?
Direct expropriation may mean any measure having the objective and effect of depriving,
both legally and factually, Investor’s property rights in their investment6. Thus it means a
mandatory legal transfer of title to property or its outright physical seizure7. Ultimately, it
involves the transfer by the State of Investor’s property rights to either the State or a third
party designated by the State.
It can include isolated actions as well as nationalisations involving a policy decision
to take control of a particular industry. For example, the Venezuelan decree nationalised the
gold sector in 20118. This is defined as ‘[e]xpropriation of one or more major national
resources as part of a general programme of social and economic reform is generally referred
to as nationalization’9. Thus it is part of a policy to recalibrate the State’s economic position,
rather than expropriating an investor’s assets. However, few sources maintain the distinction
between nationalisation and expropriation. Article V, paragraph 10 of World Bank’s
Guidelines on the Treatment of Foreign Direct Investment provides ‘In case of
comprehensive non-discriminatory nationalizations effected in the process of large scale
social reforms under exceptional circumstances of revolution, war and similar exigencies, the
compensation may be determined through negotiations between the host State and the
investors' home State and failing this, through international arbitration.’ Yet other authors
have not accepted that compensation can fix nationalisation in international law10.
Tribunals have found direct expropriation relatively easy to recognise 11. In SD Myers
v Canada12, tribunal ruled that expropriation ‘carries with it the connotation of a ‘taking’ by a
governmental-type authority of a person’s ‘property’ with a view to transferring ownership of
that property to another person, usually the authority that exercised its de jure or de facto
power to do the ‘taking’.’ In Siag v Egypt13, tribunal ruled that direct expropriation ‘occurs
when the title of the owner is affected by the measure in question. In the present case Egypt,
commencing with Resolution No 83, formally transferred ownership of the land in Taba from
Siag Touristic (and hence the Claimants) to the Government.’ During the 20th century, there
were more waves of expropriation. These included communist and Mexican nationalisation
measures in the 1920s, socialisation of private property in Eastern European countries after
World War II, takings of foreign investments in developing countries during decolonisation
such as energy expropriations by Libya in the 1970s. Until the recent wave of nationalisations
in South America, only few investment treaty cases involved direct expropriation claims. In
4
N Gallagher and L Shore, ‘Bilateral Investment Treaties’ (2004) Int Arb LR 49, 51.
5
Campbell McLachlan and others, ‘Expropriation’ in International Investment Arbitration- Substantive
Principles (2nd edition, OUP 2017) para 8.57
6
Patrick Juillard, ‘Nationalisation-Expropriation’, in Répertoire de droit international (Dalloz 2013) 5
7
UNCTAD (2012), ‘Expropriation: A Sequel’, UNCTAD/DIAE/IA/2011/7, UNCTAD Series on International
Investment Agreements II (United Nations 2012) 21
8
Rusoro Mining Ltd v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August
2016)
9
James Crawford, Brownlie's Principles of Public International Law (8th edn, OUP 2012) 621
10
Patrick Juillard, ‘Nationalisation-Expropriation’, in Répertoire de droit international (Dalloz 2013) 8
11
Campbell McLachlan and others, International Investment Arbitration: Substantive Principles (2nd edition,
OUP 2017) 380-381
12
SD Myers v Canada, UNCITRAL, First Partial Award on the Merits (13 November 2000) para 280
13
Siag v Egypt, ICSID Case No ARB/05/15, Award (1 June 2009) para 427, citing Dolzer and Scheuer,
Principles of International Investment Law (OUP 2008) 92
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