VI Expropriation

From: Principles of International Investment Law (2nd Edition)

Rudolf Dolzer, Christoph Schreuer

Content type: Book content Pr oduct: Investment Claims [IC]

Published in pr int: 15 November ISBN: 9780199651795
2012

Subject(s):
International economic law — Expropriation — Creeping expropriation — Legitimate expectations —
Indirect expropriation — Expropriation of contract rights

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 (p. 98) VI Expropriation
The rules of international law governing the expropriation of alien property have long been of
central concern to foreigners in general and to foreign investors in particular. Expropriation is the
most severe form of interference with property. All expectations of the investor are destroyed if
the investment is taken without adequate compensation.
On the level of customary international law, the minimum standard for the protection of aliens
came to place limitations on the territorial sovereignty of the host state and to protect alien
property. On the level of treaty law, all modern agreements on foreign investment contain specific
provisions covering preconditions for and consequences of expropriation.

1. The right to expropriate

Consistent with the notion of territorial sovereignty, the classical rules of international law have
accepted the host state’s right to expropriate alien property in principle. Indeed, state practice has
considered this right to be so fundamental that even modern investment treaties (often entitled
agreements ‘for the promotion and protection of foreign investment’) respect this position. Treaty
law typically addresses only the conditions and consequences of an expropriation, leaving the
right to expropriate as such unaffected.1
Even clauses in agreements between the host state and the investor that freeze the applicable law
for the period of the agreement (‘stabilization clauses’)2 will not necessarily stand in the way of a
lawful expropriation. The position is less clear if such an agreement explicitly excludes the right to
expropriate. Except in extreme circumstances, an international tribunal will probably interpret
such a clause in a literal manner. In practice, however, such far-reaching provisions have played
no significant role.

(p. 99) 2. The three branches of the law

Beyond the right of the host state to expropriate, international law on expropriation has
developed three branches, which regulate the scope and conditions of the exercise of this power.
The first one defines the interests that will be protected. This facet has not traditionally been in
the forefront of academic and practical discussions but has received some prominence more
recently. Most contemporary treaties, in their provisions dealing with expropriation, refer to
‘investments’. Similarly, the jurisdiction of arbitral tribunals is typically restricted to disputes
arising from ‘investments’. Therefore, it is ‘investments’ as defined in these treaties that are
protected.3
The second branch concerns the definition of an expropriation. While this matter raises no
questions in cases of a formal expropriation, the issue may acquire a high degree of complexity
when the host state interferes with the rights of the foreign owner without a formal taking of title.
Indeed, in the practice of the past three decades, most cases relating to expropriation have turned
on the controversy of whether or not a ‘taking’ had actually occurred. Matters of public health,
the environment, or general changes in the regulatory system may prompt a state to regulate
foreign investments. This has led to claims against the state on the basis that a regulatory taking
or indirect expropriation has occurred. The elements of indirect expropriation are discussed
below.4
The third branch of the law on expropriation relates to the conditions under which a state may
expropriate alien property. The classical requirements for lawful expropriation are a public
purpose, non-discrimination, as well as prompt, adequate, and effective compensation. In
practice, the requirement of compensation has turned out to be the most controversial aspect.
This issue is discussed in the next section.

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 3. The legality of the expropriation
It is today generally accepted that the legality of a measure of expropriation is conditioned on
three (or four) requirements. These requirements are contained in most treaties. They are also
seen to be part of customary international law. These requirements must be fulfilled cumulatively:
• The measure must serve a public purpose. Given the broad meaning of ‘public purpose’, it
is not surprising that this requirement has rarely been questioned by the foreign investor.
However, tribunals did address the significance of the term and its limits in some cases. 5
(p. 100) • The measure must not be arbitrary and discriminatory within the generally
accepted meaning of the terms.
• Some treaties explicitly require that the procedure of expropriation must follow principles
of due process. 6 Due process is an expression of the minimum standard under customary
international law and of the requirement of fair and equitable treatment. Therefore, it is not
clear whether such a clause, in the context of the rule on expropriation, adds an
independent requirement for the legality of the expropriation.
• The expropriatory measure must be accompanied by prompt, adequate, and effective
compensation. Adequate compensation is generally understood today to be equivalent to the
market value of the expropriated investment.

Of these requirements for the legality of an expropriation, the measure of compensation has been
by far the most controversial. In the period between roughly 1960 and 1990, the rules of
customary law on compensation were at the centre of the debate on expropriation. They were
discussed in the broader context of economic decolonization, the notion of ‘Permanent
Sovereignty over Natural Resources’, and of the call for a new international economic order.
Today, these fierce debates are over and nearly all expropriation cases before tribunals follow the
treaty-based standard of compensation in accordance with the fair market value. In the
terminology of the earlier decades this means ‘full’ or ‘adequate’ compensation. However, this
does not mean that the amount of compensation is easy to determine. Especially in cases of
foreign enterprises operating on the basis of complex contractual agreements, the task of
valuation requires close cooperation of valuation experts and the legal profession.
Various methods may be employed to determine market value. The discounted cash flow method
will often be a relevant yardstick, rather than book value or replacement value, in the case of a
going concern that has already produced income. Before the point of reaching profitability, the
liquidation value will be the more appropriate measure.7
A traditional issue that has never been entirely resolved concerns the consequences of an illegal
expropriation. In the case of an indirect expropriation, illegality will be the rule, since there will be
no compensation.
According to one school of thought, the measure of damages for an illegal expropriation is no
different from compensation for a lawful taking. The better view is that an illegal expropriation
will fall under the general rules of state responsibility, while this is not so in the case of a lawful
expropriation accompanied by compensation. In the case of an illegal act the damages should, as
far as possible, restore the situation that would have existed had the illegal act not been
committed. By contrast, compensation for a lawful expropriation should represent the market
value at the time of the taking. The result of these two methods can be markedly (p. 101)
different.8 The difference will mainly concern the amount of lost profits. The issue of
compensation and damages is discussed in more detail in Chapter X on the settlement of
investment disputes.9
The requirement of ‘prompt’ compensation means ‘without undue delay’.10 The requirement of
‘effective’ compensation means that payment is to be made in a convertible currency.11

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 4. Direct and indirect expropriation
The difference between a direct or formal expropriation and an indirect expropriation turns on
whether the legal title of the owner is affected by the measure in question. Today direct
expropriations have become rare.12 States are reluctant to jeopardize their investment climate by
taking the drastic and conspicuous step of an open taking of foreign property. An official act that
takes the title of the foreign investor’s property will attract negative publicity and is likely to do
lasting damage to the state’s reputation as a venue for foreign investments.
As a consequence, indirect expropriations have gained in importance. An indirect expropriation
leaves the investor’s title untouched but deprives him of the possibility of utilizing the investment
in a meaningful way. A typical feature of an indirect expropriation is that the state will deny the
existence of an expropriation and will not contemplate the payment of compensation.

(a) Broad formulae: their substance and evolution

The contours of the definition of an indirect expropriation are not precisely drawn. An increasing
number of arbitral cases and a growing body of literature on the subject have shed some light on
the issue but the debate goes on.13 In some recent decisions by the International Centre for
Settlement of Investment Disputes (ICSID), tribunals have interpreted the concept of indirect
expropriation narrowly and have preferred to find a violation of the standard of fair and equitable
treatment.14
The concept of indirect expropriation as such was clearly recognized in the early case law of
arbitral tribunals and of the Permanent Court of International Justice (p. 102) (PCIJ) in the 1920s
and 1930s.15 Today it is generally accepted that certain types of measures affecting foreign
property will be considered an expropriation, and require compensation, even though the owner
retains the formal title. What was and remains contentious is drawing the line between non-
compensable regulatory and other governmental activity and measures amounting to indirect,
compensable expropriation. The issue is of equal importance to the host state, which may wish to
broaden the range of non-compensable activities, and to the foreign investor, who will argue in
favour of a broad understanding of the concept of indirect takings.
Bilateral and multilateral treaties and draft treaties typically contain a reference to indirect
expropriation or to measures tantamount to expropriation. The Abs–Shawcross Draft Convention
on Investment Abroad (1959) referred to ‘measures against nationals of another Party to deprive
them directly or indirectly of their property’. Essentially, the same wording appears in the 1967
Organisation for Economic Co-operation and Development (OECD) Draft Convention on the
Protection of Foreign Property. The Draft United Nations Code of Conduct on Transnational
Corporations referred to ‘[a]ny such taking of property whether direct or indirect’. The 1992
World Bank Guidelines on the Treatment of Foreign Direct Investment speaks of expropriation or
‘measures which have similar effects’. Similarly, the 1998 OECD Draft for a Multilateral
Agreement on Investment refers to ‘measures having equivalent effect’. Another variation is
contained in the North American Free Trade Agreement (NAFTA) of 1992, which speaks of ‘a
measure tantamount to nationalization or expropriation’. The 1994 Energy Charter Treaty
similarly refers to ‘a measure or measures having effect equivalent to nationalization or
expropriation’.
Most current bilateral investment treaties contain similar language. The current French Model
Treaty states: ‘Neither Contracting Party shall take any measures of expropriation or
nationalization or any other measures having the effect of dispossession, direct or indirect, of
nationals or companies of the other Contracting Party of their investments.’16 According to the
German Model Treaty ‘[i]nvestments by investors of either Contracting State shall not directly or
indirectly be expropriated, nationalized or subjected to any other measure the effects of which
would be tantamount to expropriation or nationalization’.17 The Model Treaty used by the United
Kingdom provides that ‘[i]nvestments of nationals or companies of either Contracting Party shall

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 not be nationalized, expropriated or subjected to measures having effect equivalent to
nationalization or expropriation’.18
The 2004 and 2012 US Model BITs approach the issue in greater detail. After stating in Article
6(1) that ‘[n]either Party may expropriate or nationalize a covered investment either directly or
indirectly through measures equivalent to expropriation or nationalization’,19 a special Annex B
entitled ‘Expropriation’ adds:

(p. 103)

(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. 20

Among the broader formulae proposed in general studies and drafts, some have received special
attention in the decisions of arbitral tribunals and in academic writings. Harvard Professors Sohn
and Baxter included in their 1961 Draft Convention on the International Responsibility of States
for Injuries to Aliens, a version that is elaborate and contains specific categories of indirect
takings:

A taking of property includes not only an outright taking of property but also any such
unreasonable interference with the use, enjoyment, or disposal of property as to justify an
inference that the owner thereof will not be able to use, enjoy, or dispose of the property
within a reasonable period of time after the inception of such interference.21

The 1986 Restatement (Third) of the Foreign Relations Law of the United States (§ 712) is much
shorter and in its text only speaks of a ‘taking’. Comment (g) refers to actions ‘that have the effect
of “taking” the property, in whole or in large part, outright or in stages (“creeping
expropriation”)’.
A United Nations Conference on Trade and Development (UNCTAD) study, prepared in 2000,
uses different language and considers that ‘measures short of physical takings may amount to
takings in that they result in the effective loss of management, use or control, or a significant
depreciation of the value, of the assets of a foreign investor’.22
In an early influential article Gordon Christie reviewed the then existing case law and pointed to
certain recognized groups and categories of indirect takings, without an attempt to present a
general formula.23 Judge Rosalyn Higgins, in her 1982 Hague Lectures, questioned the usefulness
of a distinction between non-compensable bona fide governmental regulation and ‘taking’ for a
public purpose:

Is this distinction intellectually viable? Is not the State in both cases (that is, either by a
taking for a public purpose, or by regulating) purporting to act in the common good? And
in each case has the owner of the property not suffered loss? Under international law
standards, (p. 104) a regulation that amounted (by virtue of its scope and effect) to a
taking, would need to be ‘for a public purpose’ (in the sense of a general, rather than for
a private, interest). And just compensation would be due.24

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 It has been argued elsewhere that the international law of expropriation has essentially grown out
of, and mirrored, parallel domestic laws.25 As a consequence of this linkage, it appears plausible
that measures that are, under the rules of key domestic laws, normally considered regulatory
without requiring compensation, will not require compensation under international law either.
The importance of the effect of a measure for the question of whether an expropriation has
occurred was highlighted by Reisman and Sloane:

tribunals have increasingly accepted that expropriation must be analyzed in consequential

rather than in formal terms. What matters is the effect of governmental conduct—whether
malfeasance, misfeasance, or nonfeasance, or some combination of the three—on foreign
property rights or control over an investment, not whether the state promulgates a formal
decree or otherwise expressly proclaims its intent to expropriate. For purposes of state
responsibility and the obligation to make adequate reparation, international law does not
distinguish indirect from direct expropriations.26 [Footnotes omitted]

In recent jurisprudence, the formula most often found is that an expropriation will be assumed in
the event of a ‘substantial deprivation’ of an investment.27
The oscillating understanding of this approach may be illustrated in light of relevant
jurisprudence.

(b) Judicial and arbitral practice: some illustrative cases

Cases decided by tribunals demonstrate the variety of scenarios in which the question of indirect
expropriation may arise. Tribunals have had to adapt their focus of inquiry to these different
circumstances; consequently, an emphasis on different aspects of the law should not necessarily
be construed as an expression of inconsistency. Often, the facts of a case simply highlight only one
specific factor and neglect of other possible factors does not result from oversight but from
irrelevance to the specific circumstances. A short survey of cases may serve to demonstrate the
diversity of factual bases and of the reasoning of tribunals.
The Oscar Chinn case28 concerned the interests of a British shipping company in the Congo. In
the aftermath of the economic crisis of 1929, the Belgian Government intervened in the shipping
trade on the Congo River by reducing the prices charged by Mr Chinn’s only competitor, the
partly state-owned company (p. 105) UNATRA. The government had also granted corresponding
subsidies to UNATRA in order to keep the transport system on the Congo River viable. This made
Oscan Chinn’s business economically unsustainable. The PCIJ concluded that there was no taking.
It said:

The Court … is unable to see in his [Mr Chinn’s] original position—which was
characterized by the possession of customers and the possibility of making a profit—
anything in the nature of a genuine vested right. Favourable business conditions and
good-will are transient circumstances, subject to inevitable changes; … No enterprise …
can escape from the chances and hazards resulting from general economic conditions.29

The arbitration in Revere Copper v OPIC30 concerned a dispute arising from the insurance by the
US Overseas Private Investment Corporation (OPIC)31 of an investment made by the US claimant
in Jamaica. Revere Copper had made substantial investments in the Jamaican bauxite mining
sector. An agreement concluded in 1967 between RJA, the investor’s local subsidiary, and the
Jamaican Government fixed the taxes and royalties to be paid by RJA for a period of 25 years and
provided that no further taxes or financial burdens would be imposed on RJA by the Jamaican
authorities. However, in 1972, the newly elected Jamaican Government announced far-reaching
reform of the bauxite sector and, in 1974, increased the revenues to be paid by RJA so drastically
that RJA ceased operating in 1975.
Revere Copper then sought recovery under its OPIC insurance contract, alleging that the

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 measures adopted by the Jamaican Government amounted to an expropriation of Revere’s
investment. The General Terms and Conditions of the OPIC contract defined ‘expropriatory
action’, inter alia, as: ‘any action which … for a period of one year directly results in preventing …
the Foreign Enterprise from exercising effective control over the use or disposition of substantial
portion of its property or from constructing the project or operating the same.’ Although there
had been no direct interference with Revere’s physical property, the majority of the Tribunal
found that the repudiation of the guarantees given to Revere amounted to an action that had
resulted in preventing the foreign enterprise from exercising effective control over the use or
disposition of a substantial portion of its property:

OPIC argues that RJA still has all the rights and property that it had before the events of
1974: it is in possession of the plant and other facilities; it has its Mining Lease; it can
operate as it did before. This may be true in a formal sense but … we do not regard RJA’s
‘control’ of the use and operation of its properties as any longer ‘effective’ in view of the
destruction by Government actions of its contract rights.32

The Arbitral Tribunal came to this conclusion by emphasizing that ‘control in a large industrial
enterprise … is exercised by a continuous stream of decisions’33 and (p. 106) that without the
repudiated agreement between RJA and Jamaica, ‘[t]here is no way in which rational decisions
can be made’.34
Sporrong & Lönnroth v Sweden35 is the leading case for the jurisprudence of the European Court
of Human Rights (ECtHR) on matters regarding the protection of private property.36 The case
was brought before the Court by two Swedish citizens whose properties had been subject to long-
term expropriation permits granted by the Swedish Government to the local authorities of the city
of Stockholm. The permits, issued in 1956 and 1971, only authorized the city of Stockholm to do
so if it deemed it necessary for the achievement of a projected urban construction scheme. The
expropriation permits lasted 23 and eight years, respectively, but the local authorities never
exercised their power of formal expropriation. Certain constraints with regard to construction
and renovation of the properties were imposed upon the owners. In 1979, the city of Stockholm
renounced its construction plans and the expropriation permits were no longer extended.
The affected owners argued that the measures adopted by the Swedish Government constituted a
violation of Article 1 of the First Additional Protocol to the European Convention for the
Protection of Human Rights and Fundamental Freedoms (ECHR),37 as they had been hindered
from selling their properties at an acceptable price and from undertaking necessary renovations
during the existence of the expropriation permits.
The Court ruled that the applicants had not been formally deprived of their possessions. The
Court acknowledged that ‘[i]n the absence of formal expropriation, that is to say a transfer of
ownership, the Court considers that it must look behind the appearances and investigate the
realities of the situation complained of’ and that ‘it has to be ascertained whether that situation
amounted to a de facto expropriation, as was argued by the applicants’.38
But the majority also found that there had been no indirect expropriation in the case before it:

although the right in question lost some of its substance, it did not disappear. The effects
of the measures involved are not such that they can be assimilated to a deprivation of
possessions. The Court observes in this connection that the applicants could continue to
utilise their possessions and that, although it became more difficult to sell properties in (p.
107) Stockholm affected by expropriation permits and prohibitions on construction, the
possibility of selling subsisted.39

The Court also held that the second paragraph of Article 1 had no relevance because the
measures were designed to lead to an expropriation and not meant to limit or control the use of
the properties.40

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 The Court then turned to the first sentence of the first paragraph of Article 1 and found that for
the purposes of this provision ‘the Court must determine whether a fair balance was struck
between the demands of the general interest of the community and the requirements of the
protection of the individual’s fundamental rights’.41
While recognizing that the contracting states ‘should enjoy a wide margin of appreciation in order
to implement their town-planning policy’,42 the Court held that the inflexibility of the Swedish
legislation, which excluded the possibility of seeking a reduction of the time limits or claiming
compensation, failed to strike a fair balance between the requirements of the general interest and
the protection of the right of property and therefore amounted to a violation of Article 1 of the
First Additional Protocol.43
The reasoning of the Court demonstrates that each treaty-based provision has to be read and
understood in context and that analogies to provisions in other treaties or to rules of customary
law may therefore not be appropriate. The tripartite structure of Article 1 of the First Additional
Protocol to the ECHR is peculiar to this particular treaty.44
In Goetz v Burundi,45 an ICSID tribunal had to rule on the revocation, by the host state, of a free-
zone status accorded to a foreign investor. Although there had been no formal taking of property,
the Tribunal had no difficulty in finding that the government’s actions constituted a measure
having effect similar to expropriation:

Since … the revocation of the Minister for Industry and Commerce of the free zone
certificate forced them to halt all activities … which deprived their investments of all
utility and deprived the claimant investors of the benefit which they could have expected
from their investments, the disputed decision can be regarded as a ‘measure having
similar effect’ to a measure depriving of or restricting property within the meaning of
Article 4 of the Investment Treaty.46

In Metalclad v Mexico,47 a US company had been granted a permit for the development and
operation of a hazardous waste landfill by the Mexican Federal Government. Subsequently, the
local municipal authorities refused to grant the necessary construction permit and the regional
government declared the land in question a national area for the protection of cacti. The Arbitral
Tribunal found a violation of Article 1110 of the NAFTA, which provides that ‘[n]o Party may (p.
108) directly or indirectly nationalize or expropriate an investment of an investor of another Party
in its territory or take a measure tantamount to nationalization or expropriation of such an
investment’. An oft-repeated passage in the Tribunal’s Award reads

Thus, expropriation under NAFTA includes not only open, deliberate and acknowledged
takings of property, such as outright seizure or formal or obligatory transfer of title in
favour of the host State, but also covert or incidental interference with the use of property
which has the effect of depriving the owner, in whole or in significant part, of the use or
reasonably-to-be-expected economic benefit of property even if not necessarily to the
obvious benefit of the host State.48

In the arbitration proceeding under the UNCITRAL Rules in CME v Czech Republic,49 the
Tribunal had to rule on the interference by the Czech Media Council with the contract rights of
the claimant’s subsidiary CNTS. In particular, the Czech authorities had made it possible for the
investor’s local partner to cancel the contract that formed the basis for the claimant’s investment
in the Czech Republic. The Tribunal rejected the respondent’s argument that ‘the Media Council’s
actions did not deprive the claimant of its worth, as there has been no physical taking of the
property by the State’. In the Tribunal’s view, this was irrelevant:

The Media Council’s actions and omissions, as described above, caused the destruction of
CNTS’ operations, leaving CNTS as a company with assets, but without business. … What
was touched and indeed destroyed was the Claimant’s and its predecessor’s investment as

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 protected by the Treaty. What was destroyed was the commercial value of the investment
… by reason of coercion exerted by the Media Council …50
The expropriation claim is sustained despite the fact that the Media Council did not
expropriate CME by express measures of expropriation. De facto expropriations or
indirect expropriations, i.e. measures that do not involve an overt taking but that
effectively neutralize the benefit of the property of the foreign owner, are subject to
expropriation claims. This is undisputed under international law.51

The ICSID Award in Middle East Cement Shipping v Egypt52 concerned the revocation of a free-
zone licence through the prohibition on the import of cement into Egyptian territory. The
prohibition resulted in a paralysis of the investor’s business, which essentially consisted of
importing, storing, and dispatching cement within Egypt. The Arbitral Tribunal found that the
import prohibition resulted in an indirect taking of the claimant’s investment:

(p. 109) When measures are taken by a State the effect of which is to deprive the investor
of the use and benefit of his investment even though he may retain nominal ownership of
the respective rights being the investment, the measures are often referred to as a
‘creeping’ or ‘indirect’ expropriation or, as in the BIT, as measures ‘the effect of which is
tantamount to expropriation.’ As a matter of fact, the investor is deprived by such
measures of parts of the value of his investment. This is the case here, and, therefore, it is
the Tribunal’s view that such a taking amounted to an expropriation within the meaning
of Art. 4 of the BIT and that, accordingly, Respondent is liable to pay compensation
therefor.53

An expropriation claim under Chapter Fourteen of the NAFTA, devoted to cross-border

investment in financial services, was adjudged in Fireman’s Fund v Mexico.54 This Chapter allows
an expropriation claim under Article 1110, but does not allow claims pertaining to a violation of
the minimum standard or the rule on national treatment. The US claimant submitted that its
investment in a Mexican financial institution was expropriated by a series of actions by the
Mexican Government.55 The bank in which the claimant had invested was in a delicate financial
situation, and the claimant argued that the Mexican Government had taken steps which
permanently deprived it of the value of the investment. The Tribunal briefly summarized the state
of the law of expropriation,56 but eventually considered that the actual cause of the problems
faced by the investor was that its investment had been risky and that the business risks involved
had materialized. The Tribunal found that Mexico had discriminated against the investor and had
possibly acted in an unfair manner, but had no jurisdiction in these respects under the NAFTA’s
rules on financial services.
Vivendi v Argentina (resubmitted)57 concerned a concession for a water and sewage business. The
claimants alleged that Argentina had unilaterally modified tariffs, used its oversight power to
pepper the claimants with unjustified accusations, used the media to generate hostility towards
the claimants, incited the claimants’ customers not to pay, and forced the claimants to renegotiate
the concession.
The Tribunal agreed that Argentina’s measures went beyond partial deprivation,58 left the
concession without value, and held that they amounted to creeping expropriation. The Tribunal
rejected Argentina’s defence that the claimants’ control of their physical assets excluded an
expropriation.59 It pointed to the effects of Argentina’s destructive acts60 and emphasized that the
pursuit of a public purpose did not immunize a governmental measure from a claim of
expropriation.61
Biwater Gauff v Tanzania62 concerned a claim for expropriation surrounding the peculiar
circumstances of the termination of a lease in the water and sewage (p. 110) industry. The
Tribunal confirmed that the contract was an investment,63 that an expropriation claim must be
determined in light of the effect (not necessarily of an economic nature),64 and recognized that all

65

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 relevant acts of a government affecting the property must be considered on a cumulative basis.65
An exercise of puissance publique was necessary, but not a denial of justice.66 According to this
decision, an indirect expropriation has to be assumed in cases of ‘a substantial deprivation of
rights for at least a meaningful period of time’.67
In the event, the Tribunal found that the formal termination of the lease by Tanzania was of an
ordinary contractual nature and could not, therefore, amount to an expropriation. In contrast, a
series of acts preceding the termination did violate the treaty rule on expropriation: an
inflammatory press conference by a minister, the withdrawal of VAT exemption, the forceful
occupation of the claimants’ facilities, usurpation of the claimants’ management rights, and
deportation of senior staff amounted to an indirect expropriation. In light of the arbitral
jurisprudence examined, the Tribunal found that occupation and seizure, takeover of
management, and deportation of management personnel in themselves led to this conclusion.
In the end, however, the claimants received no compensation; the company had significant
liabilities, its contract was about to be terminated, and a willing buyer would not have paid to
acquire the company.
In Merrill & Ring Forestry v Canada,68 the Tribunal ruled on the claim of a US investor which
considered that the Canadian Log Export Control Regime affected its business to export timber
from Canada to the United States so intensely that an indirect expropriation had to be assumed.
The Tribunal did not allow the claim.69 It considered that the type of interest asserted by the
claimant could not be considered an investment, given that the Canadian regime, while regulating
the export business, did not prohibit it, and did not interfere with the contract. Also, the investor
had no right to sell the product in the United States for a specific price.
Moreover, the interference with the business did not reach the level of a ‘substantial deprivation’
inasmuch as the claimant remained in control of its business and also continued to operate at a
significant profit. The control regime in question was deemed to be in accordance with the rules
of the forestry sector worldwide.
Suez v Argentina70 concerned Argentina’s treatment of the claimant’s right to operate, for 30
years, a water and sewage system and to receive corresponding revenue based on a tariff regime
for that period. The claimant submitted that regulatory measures by Argentina, and also its
refusal to adjust the tariffs, amounted (p. 111) to an expropriation. On both counts, the Tribunal
rejected the claim, pointing to the claimant’s ongoing control of its operations.71
As regards the regulatory measures in particular, the Tribunal relied on the opaque concept of an
‘overt taking’72 which, in its view, did not exist despite a series of measures affecting the right to
withdraw cash from bank accounts, new taxes, currency measures resulting in depreciation of the
local peso, and the abandonment of an index-based scheme of tariff adjustment.73 In principle at
least, the Tribunal recognized that an examination of a taking must be targeted at the effects, not
at the intention, of a measure.74 In general, an indirect expropriation presupposed ‘a substantial,
permanent deprivation of the Claimant’s investments or the enjoyment of those investments’
economic benefits’.
The termination of the underlying concession contract by Argentina was, under the circumstances,
deemed contractual in nature and did not involve the exercise of Argentina’s sovereign power; as
a consequence, the measure was not expropriatory in nature.75
In Alpha v Ukraine76 the Austrian claimant had entered into a Joint Activity Agreement (JAA) with
a state enterprise in regard to a hotel in the Ukraine. The hotel was originally held by the state-
owned enterprise. After the claimant had entered into the JAA, the state-owned enterprise was
transformed, in 2001, into a state-owned Open Joint Stock Company not subject to privatization.
The claimant’s argument that it lost its rights in the process of transformation was rejected by the
Tribunal.77
In 2004, regular payments due to the claimant under the JAA were stopped by the Stock

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 Company, amidst political and criminal turmoil. It turned out that the state had, for non-political
reasons, caused the Stock Company to halt payments to the claimant for an indefinite period;78
here, the Tribunal questioned whether any distinction between ‘sovereign’ and ‘commercial’
actions is relevant to the question whether Ukraine’s actions expropriated the claimant’s
investment.
As a result of non-payment after 2004, the economic value of the rights held by the claimant was
largely wiped out. The Tribunal concluded that the state’s actions amounted to an indirect
expropriation. The decision accurately illustrates that the issue of non-payment of debt resists
generalization; depending upon the circumstances, non-payment may amount to expropriation.
In order to assess the current state of the law, it is prudent not just to operate with broader
formulae such as ‘unreasonable interference’, ‘measures having the effect of an expropriation’, or
‘measures which substantially deprive the owner of the use of the property’. More specific topics
that will help to elucidate and concretize these broad formulae are expressed in the distinction
between the effect (p. 112) and purpose of a measure, in reference to the role of the intent of a
government, consideration of the issue of legitimate expectations of the investor, control over the
investment, the need for regulatory measures, and the duration of a measure. These issues are
discussed explicitly in some decisions, although they are not necessarily the key to a fully
homogeneous theory that does justice to all existing arbitral decisions. But they will assist in a
better understanding of individual decisions and general trends.
Not surprisingly, significant lacunae and open issues remain in the law governing indirect
expropriation. Domestic courts have grappled with the same issues for far longer. Despite the
benefit of constitutional texts and the homogeneity of their national legal systems, they have been
unable to resolve all problems. Sometimes these courts have stated that broad formulae will not
be helpful as guidelines for judicial reasoning.79

(c) Effect or intention?

The effect of the measure upon the economic benefit and value as well as upon the control over
the investment is the key question when it comes to deciding whether an indirect expropriation
has taken place. Whenever this effect is substantial and lasts for a significant period of time, it
will be assumed prima facie that a taking of the property has occurred.80
Tribunals have accordingly based their decisions on economic considerations. Indirect
expropriation was seen to exist if the measure constituted a deprivation of the economic use and
enjoyment, ‘as if the rights related thereto—such as the income or benefits … had ceased to
exist’,81 or when ‘the use or enjoyment of benefits related thereto is exacted or interfered with to a
similar extent’.82 Other formulae and phrases have also been used.83
(p. 113) In RFCC v Morocco,84 the Tribunal stated that an indirect expropriation exists in cases
where the measures have ‘substantial effects of an intensity that reduces and/or removes the
legitimate benefits related with the use of the rights targeted by the measure to an extent that they
render their further possession useless’.85
Other decisions have in various wording and degrees also emphasized the effect of the measure.86
The Tribunal in CMS v Argentina87 found that no indirect expropriation had occurred when
Argentina unilaterally suspended a previously agreed tariff adjustment scheme for the gas
transport sector in the context of its economic and financial crisis. The US company CMS had
argued, inter alia, that the suspension of the tariff adjustment formula amounted to an indirect
expropriation of its investment in the Argentine gas transport sector. The Tribunal rejected this
argument even though it admitted that the measures had an important effect on the claimant’s
business:

The essential question is therefore to establish whether the enjoyment of the property has
been effectively neutralized. The standard that a number of tribunals have applied in

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 recent cases where indirect expropriation has been contended is that of substantial
deprivation. … the investor is in control of the investment; the Government does not
manage the day-to-day operations of the company; and the investor has full ownership
and control of the investment.88

In Telenor v Hungary,89 the investor held a telecom concession which was affected by a special
levy on all telecommunications service providers. The Tribunal held that in order to constitute an
expropriation, the conduct complained of must have a major adverse impact on the economic
value of the investment.90 The Tribunal said:

the interference with the investor’s rights must be such as substantially to deprive the
investor of the economic value, use or enjoyment of its investment.91 … In considering
whether measures taken by government constitute expropriation the determinative factors
are the intensity and duration of the economic deprivation suffered by the investor as the
result of them.92

(p. 114) In the event, the Tribunal found that the special levy amounted to a very limited sum and
fell below the threshold of the standard defining an indirect expropriation.93
In a number of cases tribunals have pointed out that what mattered for an indirect expropriation
was only the effect of the measure and that any intention to expropriate was not decisive.94 In
Tecmed v Mexico,95 the Tribunal found that there had been an indirect expropriation. After
explaining the concept of indirect or de facto expropriation, the Tribunal stated: ‘The
government’s intention is less important than the effects of the measures on the owner of the
assets or on the benefits arising from such assets affected by the measures; and the form of the
deprivation measure is less important than its actual effects.’96
In Siemens v Argentina,97 the Tribunal found support in the applicable BIT for its finding that
what mattered for the existence of an expropriation was the effect of the measures and not the
government’s intention. The Argentina-Germany BIT, like many other BITs, refers to indirect
expropriation in terms of a ‘measure the effects of which would be tantamount to expropriation’.
The Tribunal said: ‘The Treaty refers to measures that have the effect of an expropriation; it does
not refer to the intent of the State to expropriate.’98
Authority for the ‘sole effect doctrine’ also comes from the practice of the Iran–US Claims
Tribunal. In Starrett Housing v Iran,99 the Tribunal said:

it is recognized in international law that measures taken by a State can interfere with
property rights to such an extent that these rights are rendered so useless that they must
be deemed to have been expropriated, even though the State does not purport to have
expropriated them and the legal title to the property formally remains with the original
owner.100

Other decisions display a more differentiated approach. They take into account the context of the
measure, including the purpose pursued by the host state. Sea-Land Service Inc v Iran101 seems to
fall into this category. Upon review of the case law, Fortier102 has concluded that an approach
balancing different factors seems to be dominant. This is certainly true for the jurisprudence of
the ECtHR.103 Also, the 2004 and 2012 US Model BITs, in their description of indirect
expropriation, refer (p. 115) not only to the economic impact of the government action but also to
the objective of protecting legitimate public welfare objectives.104 What is uncontroversial is that
the mere post-facto explanation by the host state of its intention will in itself carry no decisive
weight.105
Indeed, a number of tribunals have pointed out that a proper analysis of an expropriation claim
must go beyond the technical consideration of the formalities and ‘look at the real interests
involved and the purpose and effect of the government measure’.106

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 (d) Legitimate expectations
An issue that is not novel as such but has more recently received increasing attention, is the
existence of legitimate expectations on the part of the investor. This theme has also found
expression in various forms in domestic laws. In fact, it is arguable whether the concept of
legitimate expectations is part of the general principles of law. Legitimate expectations play a key
role in the interpretation of the fair and equitable treatment standard;107 but they have also
entered the law governing indirect expropriations.
The general nature of the concept of legitimate expectations makes it difficult to draw mechanical
conclusions from it. But it may be employed usefully in a number of settings. Legitimate
expectations may be created not only by explicit undertakings on the part of the host state in
contracts but also by undertakings of a more general nature. In particular, the legal framework
provided by the host state will be an important source of expectations on the part of the investor.
What matters for the investor’s expectations is the state of the law of the host country at the time
of the investment. To the extent that the state of the law was transparent and did not violate
minimum standards, an investor will hardly be able to convince a tribunal that the proper
application of that law led to an expropriation. This position is consistent with the power of the
host state to accept and define the rights acquired by the investor at the time of the investment.108
Not every change in the host state’s legal system affecting foreign property will violate legitimate
expectations. No such violation will occur if the change remains within the boundaries of normal
adjustments customary in the host state and accepted in other states. Such changes are
predictable for a prudent investor at (p. 116) the time of the investment. For instance, the
Tribunal in Methanex v United States109 found that certain new environmental regulations in
California should have been foreseeable for the Canadian investor.
Tribunals have relied on the legitimate expectations of investors in a number of cases relating to
indirect expropriation. In Revere Copper v OPIC,110 the host state had given explicit contractual
assurances not to increase taxes and royalties. The Tribunal said:

We regard these principles as particularly applicable where the question is, as here,
whether actions taken by a government contrary to and damaging to the economic
interests of aliens are in conflict with undertakings and assurances given in good faith to
such aliens as an inducement to their making the investments affected by the action.111

In Metalclad v Mexico,112 the investor had acted in reliance on assurances to the effect that he
had all necessary permits. Nevertheless, the project was foiled by the refusal of the municipality to
grant a construction permit. The Tribunal put great emphasis on the expectations created by the
government’s assurances:

These measures, taken together with the representations of the Mexican federal
government, on which Metalclad relied, and the absence of a timely, orderly or
substantive basis for the denial by the Municipality of the local construction permit,
amount to an indirect expropriation.113

In a similar way, in Tecmed v Mexico114 the Tribunal, in determining that the investment had been
expropriated, found that:

upon making its investment, the Claimant had legitimate reasons to believe that the
operation of the Landfill would extend over the long term. … the Claimant’s expectation
was that of a long-term investment relying on the recovery of its investment and the
estimated return through the operation of the Landfill during its entire useful life.115

In Thunderbird v Mexico,116 the Tribunal gave a general definition of legitimate expectations:

Having considered recent investment case law and the good faith principle of

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 international customary law, the concept of ‘legitimate expectations’ relates, within the
context of the NAFTA framework, to a situation where a Contracting Party’s conduct
creates reasonable and justifiable expectations on the part of an investor (or investment)
to act in reliance on said conduct, such that a failure by the NAFTA Party to honour those
expectations could cause the investor (or investment) to suffer damages.117

(p. 117) On the basis of this definition, the Tribunal reached the conclusion that the investor’s
continued operation of gaming facilities in Mexico was not based on a legitimate expectation.118
In Azurix v Argentina,119 the Tribunal discussed the issue of legitimate expectations at some
length.120 It held that expectations ‘are not necessarily based on a contract but on assurances
explicit or implicit, or on representations made by the State which the investor took into account
in making the investment’.121
On that basis it found that Argentina had created ‘reasonable expectations’ that it had not lived
up to.122 Remarkably, however, the Tribunal held that no indirect expropriation had taken place,
since the investor had continued to exercise control over the investment.123

(e) Control and expropriation

It is not unusual in situations involving allegations of indirect expropriation that the investor
retains control of its enterprise but the investment loses its economic viability. The overall
investment may survive, but important rights that determine its profitability may be extinguished.
A number of Awards suggest that continued control of an enterprise by the investor strongly
militates against a finding that an indirect expropriation has occurred. The requirement of total
or substantial deprivation124 has led these tribunals to deny the existence of an expropriation
where the investor retained control over the overall investment even though it had been deprived
of specific rights.125
As to the relationship between expropriation and the standard of fair and equitable treatment, it
was stated in Sempra v Argentina126 that:

fair and equitable treatment … ensures that even where there is no clear justification for
making a finding of expropriation, as in the present case, there is still a standard which
serves the purpose of justice and can of itself redress damage that is unlawful and that
would otherwise pass unattended. Whether this result is achieved by the application of
one or several standards is a determination to be made in the light of the facts of each
dispute. What counts is that in the end the stability of the law and the observance of legal
obligations are (p. 118) assured, thereby safeguarding the very object and purpose of the
protection sought by the treaty.

The Tribunal in Tokios Tokelės v Ukraine127 explained that:

one can reasonably infer that a diminution of 5% of the investment’s value will not be
enough for a finding of expropriation, while a diminution of 95% would likely be
sufficient.

Azurix v Argentina128 concerned breaches of a water concession by a province of Argentina. The

Tribunal, although finding other breaches of the BIT, including fair and equitable treatment,
denied the existence of an indirect expropriation, since the investor had retained control over the
enterprise:

the impact on the investment attributable to the Province’s actions was not to the extent
required to find that, in the aggregate, these actions amounted to an expropriation;
Azurix did not lose the attributes of ownership, at all times continued to control ABA and
its ownership of 90% of the shares was unaffected. No doubt the management of ABA

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 was affected by the Province’s actions, but not sufficiently for the Tribunal to find that
Azurix’s investment was expropriated.129

Similarly, in LG&E v Argentina130 the host state had violated the terms of concessions for the
distribution of gas. The Tribunal, although finding that other standards had been violated, denied
the existence of an expropriation in view of the investor’s continuing control:

Ownership or enjoyment can be said to be ‘neutralized’ where a party no longer is in

control of the investment, or where it cannot direct the day-to-day operations of the
investment. … Interference with the investment’s ability to carry on its business is not
satisfied where the investment continues to operate, even if profits are diminished.131

Control is obviously an important aspect in the analysis of a taking. However, the continued
exercise of control by the investor in itself is not necessarily the sole criterion. The issue becomes
obvious when a host state substantially deprives the investor of the value of the investment leaving
the investor with control of an entity that amounts to not much more than a shell of the former
investment.
This illustrates the significance of a test which includes criteria other than control, such as
economic use and benefit. Any attempt to define an indirect expropriation on the basis of one
factor alone will not lead to a satisfactory result in all cases. In particular, an approach that looks
exclusively at control over the overall investment is unable to contemplate the expropriation of
specific rights enjoyed by the investor.

(p. 119) (f) Partial expropriation

Some tribunals have accepted the possibility of an expropriation of particular rights that formed
part of an overall business operation without looking at the issue of control over the entire
investment.132 In Middle East Cement v Egypt,133 the investor had, inter alia, obtained an import
licence for cement and had operated a ship. Egypt subsequently took measures that prevented the
investor from operating its licence and seized and auctioned the ship. The investor raised a series
of claims in respect of which it alleged expropriation. These included but went beyond the import
licence and ownership of the ship. The Tribunal looked at these claims separately and determined
in respect of each whether an expropriation had taken place. It found that the licence qualified as
an investment and that the measures that prevented the exercise of the rights under it amounted
to an expropriation.134 The Tribunal examined separately whether an expropriation of the ship
had occurred and gave an affirmative answer.135 Several other claims of expropriation in respect
of other rights were also examined but denied for a variety of reasons.136 Therefore, Middle East
Cement demonstrates that it is possible separately to expropriate specific rights enjoyed by the
investor regardless of control over the overall investment.
In Eureko v Poland,137 the investor had acquired a minority share in a privatized insurance
company. A related agreement granted the investor the right to acquire further shares thereby
gaining majority control of the company. The right to acquire the additional shares was
subsequently withdrawn by the state. The original investment remained unaffected. The Tribunal
found that the right to acquire further shares constituted ‘assets’, which were separately capable
of expropriation.138 It follows from this decision that even where control over the basic investment
remains unaffected, the taking of specific rights related to the basic investment may amount to an
expropriation.139
In Grand River v United States140 the Tribunal suggested that under the rules of the NAFTA, only
an expropriation of the investment as a whole will fall under the rules of the Treaty. This view of
the NAFTA (and the law of expropriation in general) is too narrow; indeed, it appears from the
case law discussed in the decision141 that the Tribunal may have failed to distinguish between the
questions of the definition of a taking and the extent to which an investment may have been
expropriated.

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 (p. 120) (g) General regulatory measures
A question of prime importance, both for the host state and for the foreign investor, is the role of
the general regulatory measures of the host country under the rules of indirect expropriation.142
Emphasis on the host state’s sovereignty supports the argument that the investor should not
expect compensation for a measure of general application. Indeed, one way to identify a taking
may be to clarify whether the measure in question was taken in the exercise of functions that are
generally considered part of a government’s powers to regulate the general welfare.143 This
approach calls for a comparison of domestic legal orders.144
In the United States, governmental regulatory powers are referred to as ‘police power’. While it is
debatable whether the term ‘police power’ is appropriate in the modern regulatory context, some
investment tribunals have relied on this term,145 as did the US Restatement of Foreign Relations
Law.146
The Iran–US Claims Tribunal ruled in Too v Greater Modesto Insurance Associates:147

A state is not responsible for loss of property or for other economic disadvantage
resulting from bona fide general taxation or any other action that is commonly accepted
as within the police power of States, provided it is not discriminatory and is not designed
to cause the alien to abandon the property to the State or to sell it at a distress price.

In Feldman v Mexico,148 the Tribunal stated the position as follows:

the ways in which governmental authorities may force a company out of business, or
significantly reduce the economic benefits of its business, are many. In the past,
confiscatory taxation, denial of access to infrastructure or necessary raw materials,
imposition of unreasonable regulatory regimes, among others, have been considered to be
expropriatory actions. At the same time, governments must be free to act in the broader
public interest through protection of the environment, new or modified tax regimes, the
granting or withdrawal of government subsidies, reductions or increases in tariff levels,
imposition of zoning restrictions and the like. Reasonable governmental regulation of this
type cannot be achieved if any business that is adversely affected may seek compensation,
and it is safe to say that customary international law recognizes this.149

(p. 121) Similarly, the Tribunal in SD Myers v Canada150 held:

The general body of precedent usually does not treat regulatory action as amounting to
expropriation. Regulatory conduct by public authorities is unlikely to be the subject of
legitimate complaint under Article 1110 of the NAFTA, although the Tribunal does not
rule out that possibility.151

In Methanex v United States,152 the Arbitral Tribunal found that a Californian ban of the gasoline
additive MTBE did not constitute an expropriation because the measure was adopted for a public
purpose, was not discriminatory, and because no specific commitments had been given to the
foreign investor:

In the Tribunal’s view, Methanex is correct that an intentionally discriminatory regulation

against a foreign investor fulfils a key requirement for establishing expropriation. But as
a matter of general international law, a non-discriminatory regulation for a public
purpose, which is enacted in accordance with due process and, which affects, inter alios,
a foreign investor or investment is not deemed expropriatory and compensable unless
specific commitments had been given by the regulating government to the then putative
foreign investor contemplating investment that the government would refrain from such
regulation.153

Similarly, in Saluka v Czech Republic,154 the Tribunal said:

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 In the opinion of the Tribunal, the principle that a State does not commit an expropriation
and is thus not liable to pay compensation to a dispossessed alien investor when it adopts
general regulations that are ‘commonly accepted as within the police power of States’
forms part of customary international law today. There is ample case law in support of
this proposition.155

The Award in Continental Casualty v Argentina156 refers to:

limitations to the use of property in the public interest that fall within typical government
regulations of property entailing mostly inevitable limitations imposed in order to ensure
the rights of others or of the general public (being ultimately beneficial also to the
property affected). These restrictions do not impede the basic, typical use of a given asset
and do not impose an unreasonable burden on the owner as compared with other similar
situated property owners. These restrictions are not therefore considered a form of
expropriation and do not require indemnification, provided however that they do not
affect property in an intolerable, discriminatory or disproportionate manner.157
[Footnotes omitted]

The references to general regulations and to non-discrimination suggest that the tribunals were
influenced by the concept of national treatment. But the rules on foreign investment are not based
on the principle of national treatment. General (p. 122) regulatory rules and the measures based
on them are subject to the same standards of protection that have been developed for all other
instances. In the words of the decision of Pope & Talbot v Canada, ‘a gaping loophole’ would
otherwise exist in the operation of the rules protecting foreigners.158
In Santa Elena v Costa Rica,159 the Tribunal found that the fact that measures were taken for the
purpose of environmental protection did not affect their nature as an expropriation. Therefore,
the obligation to pay compensation remained. The Tribunal said:

Expropriatory environmental measures—no matter how laudable and beneficial to society

as a whole—are in this respect, similar to any other expropriatory measures that a state
may take in order to implement its policies: where property is expropriated, even for
environmental purposes, whether domestic or international, the state’s obligation to pay
compensation remains.160

In ADC v Hungary,161 the claimants argued that their investment in an airport project was
expropriated by measures which deprived them of their rights to operate two airport terminals
and to benefit from associated future business opportunities. The Tribunal accepted the claim of
indirect expropriation and rejected Hungary’s argument based on its right to regulate. In the view
of the Tribunal:

The Tribunal cannot accept the Respondent’s position that the actions taken by it against
the Claimants were merely an exercise of its rights under international law to regulate its
domestic economic and legal affairs. It is the Tribunal’s understanding of the basic
international law principles that while a sovereign State possesses the inherent right to
regulate its domestic affairs, the exercise of such right is not unlimited and must have its
boundaries. As rightly pointed out by the Claimants, the rule of law, which includes treaty
obligations, provides such boundaries. Therefore, when a State enters into a bilateral
investment treaty like the one in this case, it becomes bound by it and the investment-
protection obligations it undertook therein must be honored rather than be ignored by a
later argument of the State’s right to regulate.
The related point made by the Respondent that by investing in a host State, the investor
assumes the ‘risk’ associated with the State’s regulatory regime is equally unacceptable to
the Tribunal. It is one thing to say that an investor shall conduct its business in
compliance with the host State’s domestic laws and regulations. It is quite another to

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 imply that the investor must also be ready to accept whatever the host State decides to do
to it. In the present case, had the Claimants ever envisaged the risk of any possible
depriving measures, the Tribunal believes that they took that risk with the legitimate and
reasonable expectation that they would receive fair treatment and just compensation and
not otherwise.162

(p. 123) In addition, the Tribunal made the rare finding that the host state had failed to
demonstrate that its measures were in the public interest163 and that, moreover, the taking had
not taken place under due process of law.164
Recent decisions have sought to find a balance between the host state’s right to act in the public
interest and protection of the investor’s rights.165 The Tribunal in Azurix166 held that the issue was
whether legitimate measures serving a public purpose should give rise to a compensation claim. It
found the criterion of bona fide regulation within the accepted police powers of the state
insufficient and contradictory.167 In regard to that argument, the Tribunal said:

According to it, the BIT would require that investments not be expropriated except for a
public purpose and that there be compensation if such expropriation takes place and, at
the same time, regulatory measures that may be tantamount to expropriation would not
give rise to a claim for compensation if taken for a public purpose.168

The Azurix Tribunal approvingly quoted the ECtHR,169 which had found that in addition to a
legitimate aim in the public interest there had to be ‘a reasonable relationship of proportionality
between the means employed and the aim sought to be realized’. This proportionality would be
lacking if the person concerned ‘bears an individual and excessive burden’.170
The Tribunal in LG&E v Argentina171 adopted a similar balancing test:

In order to establish whether State measures constitute expropriation under Article IV(1)
of the Bilateral Treaty, the Tribunal must balance two competing interests: the degree of
the measure’s interference with the right of ownership and the power of the State to
adopt its policies. … With respect to the power of the State to adopt its policies, it can
generally be said that the State has the right to adopt measures having a social or general
welfare purpose. In such a case, the measure must be accepted without any imposition of
liability, except in cases where the State’s action is obviously disproportionate to the need
being addressed. The proportionality to be used when making use of this right was
recognized in Tecmed, which observed that ‘whether such actions or measures are
proportional to the public interest presumably protected thereby and the protection
legally granted to investments, taking into account that the significance of such impact,
has a key role upon deciding the proportionality.’172 [Footnote omitted]

(p. 124) (h) Duration of a measure

The duration of a governmental measure affecting the interests of a foreign investor is important
for the assessment of whether an expropriation has occurred.173 The Iran–US Claims Tribunal has
ruled that the appointment of a temporary manager by the host state against the will of the
foreign investor will constitute a taking if the consequential deprivation is not ‘merely
ephemeral’.174
Investment tribunals have also laid emphasis on the duration of the measure in question.175 In SD
Myers v Canada,176 the Tribunal said:

An expropriation usually amounts to a lasting removal of the ability of an owner to make

use of its economic rights although it may be that, in some contexts and circumstances, it
would be appropriate to view a deprivation as amounting to an expropriation, even if it
were partial or temporary.177

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 In the event, the Tribunal found that the measure had lasted for 18 months only and that this
limited effect did not amount to an expropriation.178
In Wena Hotels v Egypt,179 the Tribunal found that the seizure of the investor’s hotel lasting for
nearly a year was not ‘ephemeral’ but amounted to an expropriation.180 In its subsequent Decision
on Interpretation181 the Wena Tribunal said:

It is true that the Original Tribunal did not explicitly state that such expropriation totally
and permanently deprived Wena of its fundamental rights of ownership. However, in
assessing the weight of the actions described above, there was no doubt in the Tribunal’s
mind that the deprivation of Wena’s fundamental rights of ownership was so profound
that the expropriation was indeed a total and permanent one.182

LG&E v Argentina also ruled that the duration of the measure had to be taken into account.183
The Tribunal found that, as a rule, only an interference that is permanent will lead to an
expropriation:

Similarly, one must consider the duration of the measure as it relates to the degree of
interference with the investor’s ownership rights. Generally, the expropriation must be (p.
125) permanent, that is to say, it cannot have a temporary nature, unless the investment’s
successful development depends on the realization of certain activities at specific
moments that may not endure variations.184

The Tribunal concluded:

Thus, the effect of the Argentine State’s actions has not been permanent on the value of
the Claimants’ shares, and Claimants’ investment has not ceased to exist. Without a
permanent, severe deprivation of LG&E’s rights with regard to its investment, or almost
complete deprivation of the value of LG&E’s investment, the Tribunal concludes that
these circumstances do not constitute expropriation.185

(i) Creeping expropriation

The rules on protection of foreign investments must not be circumvented by way of splitting a
measure amounting to an indirect expropriation into a series of cumulative steps which, taken
together, have the same effect on the foreign owner. Therefore, it has long been accepted that an
expropriation may occur ‘outright or in stages’.186 Thus, the term ‘creeping expropriation’
describes a taking through a series of acts.187 A study by UNCTAD referred in this context to ‘a
slow and incremental encroachment on one or more of the ownership rights of a foreign investor
that diminishes the value of its investment’.188
Practice has recognized the phenomenon of creeping expropriation on a number of occasions.189
The Tribunal in Generation Ukraine v Ukraine190 explained creeping expropriation as follows:

Creeping expropriation is a form of indirect expropriation with a distinctive temporal

quality in the sense that it encapsulates the situation whereby a series of acts attributable
to the State over a period of time culminate in the expropriatory taking of such property.
… A plea of creeping expropriation must proceed on the basis that the investment existed
at a particular point in time and that subsequent acts attributable to the State have
eroded the investor’s rights to its investment to an extent that is violative of the relevant
international standard of protection against expropriation.191

(p. 126) The decision in Tradex v Albania192 emphasized the cumulative effect of the measures in
question:

While the … Award has come to the conclusion that none of the single decisions and
events alleged by Tradex to constitute an expropriation can indeed be qualified by the

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 Tribunal as expropriation, it might still be possible that, and the Tribunal, therefore, has
to examine and evaluate hereafter whether the combination of the decisions and events
can be qualified as expropriation of Tradex’ foreign investment in a long, step-by-step
process by Albania.193

In Siemens v Argentina,194 the host state had taken a series of adverse measures, including
postponements and suspensions of the investor’s profitable activities, fruitless renegotiations, and
ultimately cancellation of the project. The Tribunal found that this had amounted to an
expropriation and described creeping expropriation in the following terms:

By definition, creeping expropriation refers to a process, to steps that eventually have the
effect of an expropriation. If the process stops before it reaches that point, then
expropriation would not occur. This does not necessarily mean that no adverse effects
would have occurred. Obviously, each step must have an adverse effect but by itself may
not be significant or considered an illegal act. The last step in a creeping expropriation
that tilts the balance is similar to the straw that breaks the camel’s back. The preceding
straws may not have had a perceptible effect but are part of the process that led to the
break.195

Professor Reisman and R D Sloane have rightly pointed out that the issue must sometimes be seen
in retrospect:

Discrete acts, analyzed in isolation rather than in the context of the overall flow of events,
may, whether legal or not in themselves, seem innocuous vis-à-vis a potential
expropriation. Some may not be expropriatory in themselves. Only, in retrospect will it
become evident that those acts comprised part of an accretion of deleterious acts and
omissions, which in the aggregate expropriated the foreign investor’s property rights. …
Because of their gradual and cumulative nature, creeping expropriations also render it
problematic, perhaps even arbitrary, to identify a single interference (or failure to act
where a duty requires it) as the ‘moment of expropriation’.196

5. Expropriation of contractual rights

‘The taking away or destruction of rights acquired, transmitted, and defined by a contract is as
much a wrong, entitling the sufferer to redress, as the taking away or destruction of tangible
property.’ This principle, stated in 1903 by a member of the (p. 127) US–Venezuela Mixed Claims
Commission in the Rudloff case,197 was followed in 1922 by the Permanent Court of Arbitration in
the Norwegian Shipowners case198 and also by the PCIJ in 1926 in the Chorzów Factory case.199
Cases decided in investment arbitrations200 and by the Iran–US Claims Tribunal201 have
confirmed this position.
In Amoco International Finance Corp v Iran the Iran–US Claims Tribunal held that expropriation
may extend to any right that can be the object of a commercial transaction.202 The Arbitral
Tribunal in Tokios Tokelės v Ukraine stated that all business operations associated with the
physical property of the investors are covered by the term ‘investment’, including contractual
rights.203
In the modern investment context, many investment decisions are accompanied and protected by
specific investment agreements with the host state, often covering matters such as taxation,
customs regulations, the right and duty to sell at a certain price to the host state, or pricing issues.
These agreements form the legal and financial foundations of the investment, and the business
decisions based upon them may collapse in their absence. Thus, it is understandable that
practically all investment treaties state that contracts are covered by the term ‘investment’.204 In
turn, provisions dealing with expropriation in these treaties refer to ‘investments’. It follows that
contracts are protected against expropriation. The Tribunal in Siemens v Argentina,205 applying

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 the BIT between Argentina and Germany, said:

(p. 128) The Contract falls under the definition of ‘investments’ under the Treaty and
Article 4(2) refers to expropriation or nationalization of investments. Therefore, the State
parties recognized that an investment in terms of the Treaty may be expropriated. There
is nothing unusual in this regard. There is a long judicial practice that recognizes that
expropriation is not limited to tangible property.206

Not every failure by a government to perform a contract amounts to an expropriation even if the
violation leads to a loss of rights under the contract. A simple breach of contract at the hands of
the state is not an expropriation.207 Tribunals have found that the determining factor is whether
the state acted in an official, governmental capacity.208
In the Jalapa Railroad case before the American Mexican Claims Commission (1948),209 the
decisive issue was whether the nullification of a contractual clause by the Mexican Government
was ‘effected arbitrarily by means of a governmental power illegal under international law’. In
Consortium RFCC v Morocco, the Tribunal differentiated between the mere exercise of a right
and an action by the host state ‘in a public capacity’ and placed emphasis on whether a law or a
governmental decree had been passed or a judgment executed.210
Other tribunals have held similarly that mere breaches of contract or defects in its performance
would not amount to an expropriation. What was needed was an act of public authority.211 In
Siemens v Argentina,212 the Tribunal, in the course of its discussion of expropriation, found that a
state party to a contract would breach the applicable treaty only if its behaviour went beyond that
which an ordinary contracting party could adopt.213 The Tribunal said:

for the State to incur international responsibility it must act as such, it must use its public
authority. The actions of the State have to be based on its ‘superior governmental power’.
It is not a matter of being disappointed in the performance of the State in the execution of
a contract but rather of interference in the contract execution through governmental
action.214

(p. 129) In particular, tribunals have held that failure to pay a debt under a contract does not
amount to an expropriation.215 Waste Management v Mexico216 concerned a concession for waste
disposal. The Tribunal found that the mere non-payment by the city of Acapulco of amounts due
under the concession agreement did not amount to an expropriation.217 It found that the state’s
failure to pay bills, did not amount to an ‘outright repudiation of the transaction’ and did not
purport to terminate the contact. Only a decree or executive act or an exercise of legislative public
authority could amount to an expropriation:

The mere non-performance of a contractual obligation is not to be equated with a taking

of property, nor (unless accompanied by other elements) is it tantamount to
expropriation. Any private party can fail to perform its contracts, whereas nationalization
and expropriation are inherently governmental acts.218 … The Tribunal concludes that it
is one thing to expropriate a right under a contract and another to fail to comply with the
contract. Non-compliance by a government with contractual obligations is not the same
thing as, or equivalent or tantamount to, an expropriation.219

While these considerations are clearly helpful, they do not exhaust the subject. Indeed, the Waste
Management tribunal itself recognized, without elaboration, that ‘one could envisage conduct
tantamount to an expropriation which consisted of acts and omissions not specifically or
exclusively governmental’.220 An analysis that is consistent with the approach generally valid for
all acts of expropriation would not focus exclusively on the existence of formal governmental acts
or the purported intentions of the government but would also contemplate other relevant
factors.221

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 Footnotes:
1 Some states (eg Ecuador, Peru) have in the past provided in their constitutions that their
contractual agreements with foreign investors may not be changed by a unilateral act. But they
have not gone as far as excluding the right to expropriate. Article 249 of the Constitution of
Ecuador (1998) provided for all contracts relating to public services: ‘The agreed contractual
conditions cannot be modified unilaterally by law or other measures.’ Article 62 of the 1993
Peruvian Constitution states: ‘Through contract-laws, the State can establish guarantees and
grant assurances. They may not be amended legislatively.’
2 See pp 82 et seq.
3
For the concept of an investment, See pp 60 et seq. See further p 248.
4 See pp 101 et seq.
5 See eg ADC v Hungary, Award, 2 October 2006, paras 429–33.
6
See eg the 2004 and 2012 US Model BITs, Art 6(1)(d).
7
See pp 296–7.
8 See eg D W Bowett, ‘State Contracts with Aliens: Contemporary Developments on
Compensation for Termination or Breach’ (1988) 59 BYIL 47; Case Concerning the Factory at
Chorzów, 1928, PCIJ, Series A, No 17, 47. For a full discussion, see I Marboe, ‘Compensation and
Damages in International Law, The Limits of “Fair Market Value”’ (2006) 7 J World Investment &
Trade 723.
9 See pp 294–7.
10
R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 112.
11
Dolzer and Stevens, n 11.
12 But see Funnekotter v Zimbabwe, Award, 22 April 2009.
13 See Y Fortier and S L Drymer, ‘Indirect Expropriation in the Law of International Investment:
I Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Review-FILJ 293.
14 See pp 117 et seq.
15 See Norwegian Shipowners’ Claims, I RIAA 307 (1922); Case Concerning Certain German
Interests in Polish Upper Silesia, 1926, PCIJ, Series A, No 7, 3.
16 French Model Treaty, Art 6(2).
17
German Model Treaty, Art 4(2).
18
UK Model Treaty, Art 5(1).
19 See US Model BITs, Art 6(1).
20 2004 and 2012 US Model BITs, Annex B, para 4.
21
L B Sohn and R R Baxter, ‘Responsibility of States for Injuries to the Economic Interests of
Aliens’ (1961) 55 AJIL 545, 553 (Art 10(3)(a)).
22 UNCTAD, Series on Issues in International Investment Agreements: ‘Taking of Property’
(2000) 4.
23G C Christie, ‘What Constitutes a Taking of Property under International Law?’ (1962) 38
BYBIL 307.
24 R Higgins, ‘The Taking of Property by the State: Recent Developments in International Law’
(1982-III) 176 Recueil des Cours 259, 331.
25
R Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Review-FILJ 41.
26 W M Reisman and R D Sloane, ‘Indirect Expropriation and its Valuation in the BIT
Generation’ (2003) 74 BYBIL 115, 121.
27

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 27
See eg Société Générale v Dominican Republic, Award, 19 September 2008, para 64; Alpha
Projectholding v Ukraine, Award, 8 November 2010, para 408.
28
Oscar Chinn Case (UK v Belgium), 12 December 1934, PCIJ, Series A/B, No 63, 4.
29
At 27.
30 Revere Copper v OPIC, Award, 24 August 1978.
31 On investment insurance and OPIC, See pp 228 et seq.
32
Revere Copper v OPIC, 291–2.
33 At 292.
34 At 292.
35
ECtHR, Sporrong & Lönnroth v Sweden, 23 September 1982, Series A, 52.
36 More generally on the practice of the ECtHR, see A Van Rijn, ‘Right to the Peaceful
Enjoyment of One’s Possessions (Article 1 of Protocol No 1)’ in P van Dijk, G J H van Hoof, A van
Rijn, and L Zwaak (eds), Theory and Practice of the European Convention on Human Rights
(2006) 863–93.
37
Article 1 reads:

(1) Every natural or legal person is entitled to the peaceful enjoyment of his possessions.
No one shall be deprived of his possessions except in the public interest and subject to the
conditions provided for by law and by the general principles of international law. (2) The
preceding provisions shall not, however, in any way impair the right of a State to enforce
such laws as it deems necessary to control the use of property in accordance with the
general interest or to secure the payment of taxes or other contributions or penalties.
38 Sporrong & Lönnroth v Sweden, para 63.
39 At para 63.
40
At para 64.
41 At para 69.
42 At para 69.
43
At para 73.
44 See also p 29.
45 Goetz v Burundi, Award, 10 February 1999.
46 At para 124.
47
Metalclad Corp v Mexico, Award, 30 August 2000.
48 At para 103; referring to Biloune v Ghana, Award on Damages and Costs, 30 June 1990, 95
ILR (1995) 184 at para 108.
49
CME v Czech Republic, Partial Award, 13 September 2001.
50 At para 591.
51 At para 604. The award in the parallel case, in Lauder v Czech Republic, Award, 3 September
2001, assumes, without authority, that a finding of an expropriation would have to benefit the
host state or any other person or entity related thereto (para 203).
52
Middle East Cement Shipping v Egypt, Award, 12 April 2002.
53 At para 107.
54 Fireman’s Fund v Mexico, Award, 17 July 2006.
55
At para 185.

56

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 56
At paras 176 et seq, cited with approval in Corn Products v Mexico, Award, 15 January 2008,
para 87.
57 Vivendi v Argentina, Award, 20 August 2007.
58
At para 7.5.11.
59 At para 7.5.18.
60 At para 7.5.20.
61 At para 7.5.21.
62
Biwater Gauff v Tanzania, Award, 24 July 2008.
63 At para 453.
64 At para 455.
65
At para 456.
66 At para 458.
67 At para 463.
68
Merrill & Ring Forestry v Canada, Award, 31 March 2010.
69
At paras 139 et seq.
70 Suez v Argentina, Award, 30 July 2010.
71 At paras 117 et seq.
72 At para 125.
73
The Tribunal explained that its position was based on the legitimate right of a state to regulate
its affairs: an additional defence of Argentina invoking police powers was not recognized (para
146) inasmuch as it would be duplicative.
74
At para 122.
75 At para 143.
76 Alpha v Ukraine, Award, 8 November 2010.
77
At paras 101 et seq.
78 At para 412.
79 See eg Andrus v Allard, 444 US 51, 65; 100 S Ct 318 (1979):

There is no abstract or fixed point at which judicial intervention under the Takings Clause
becomes appropriate. Formulas and factors have been developed in a variety of settings.
See Penn Central, above, at 123–8. Resolution of each case, however, ultimately calls as
much for the exercise of judgment as for the application of logic.
80 See eg Norwegian Shipowners’ Claims, I RIAA 307 (1922); Goetz v Burundi, Award, 10
February 1999; Middle East Cement v Egypt, Award, 12 April 2002; Metalclad Corp v Mexico,
Award, 30 August 2000; CME v Czech Republic, Partial Award, 13 September 2001.
81 TECMED v Mexico, Award, 29 May 2003, para 115.
82 At para 116.
83
See Y Fortier and S L Drymer, ‘Indirect Expropriation in the Law of International Investment:
I Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Review-FILJ 293, 305:

the required level of interference with such rights—has been variously described as: (1)
unreasonable; (2) an interference that renders rights so useless that they must be deemed
to have been expropriated; (3) an interference that deprives the investor of fundamental
rights of ownership; (4) an interference that makes rights practically useless; (5) an

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 interference sufficiently restrictive to warrant a conclusion that the property has been
‘taken’; (6) an interference that deprives, in whole or in significant part, the use or
reasonably-to-be-expected economic benefit of the property; (7) an interference that
radically deprives the economical use and enjoyment of an investment, as if the rights
related thereto had ceased to exist; (8) an interference that makes any form of
exploitation of the property disappear … ; (9) an interference such that the property can
no longer be put to reasonable use.
84 RFCC v Morocco, Award, 22 December 2003.
85
At para 69 (original in French: ‘avoir des effets substantiels d’une intensité certaine qui
réduisent et/ou font disparaître les bénéfices légitimement attendus de l’exploitation des droits
objets de ladite mesure à un point tel qu’ils rendent la détention de ces droits inutile’). See also
LESI v Algeria, Award, 12 November 2008, para 132; Bayindir v Pakistan, Award, 27 August
2009, para 459.
86 Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Eng’rs of Iran; Biloune v
Ghana, Award on Jurisdiction, 27 October 1989; Metalclad Corp v Mexico, Award, 30 August
2000; Wena v Egypt, Award on Merits, 8 December 2000; Santa Elena v Costa Rica, Award, 17
February 2000; CME v Czech Republic, Partial Award, 13 September 2001; Middle East Cement v
Egypt, Award, 12 April 2002; Goetz v Burundi, Award, 10 February 1999.
87 CMS v Argentina, Award, 12 May 2005.
88 At paras 262, 263. See also Revere Copper v OPIC, 56 ILR (1980) 258 and the cases discussed
by G H Aldrich, ‘What Constitutes a Compensable Taking of Property? The Decisions of the Iran–
United States Claims Tribunal’ (1994) 88 AJIL 585.
89 Telenor v Hungary, Award, 13 September 2006.
90 At para 64.
91 At para 65.
92 At para 70. Footnote omitted.
93 At para 79.
94 See also Azurix v Argentina, Award, 14 July 2006, para 309.
95 Tecmed v Mexico, Award, 29 May 2003, cited in Plama v Bulgaria, Award, 27 August 2008,
para 192
96 At para 116 citing the decisions of the Iran–US Claims Tribunal in Tippetts and Phelps Dodge.
Footnote omitted.
97 Siemens v Argentina, Award, 6 February 2007.
98 At para 270.
99 Starrett Housing Corp v Iran, Iran–US Claims Tribunal, 19 December 1983, cited in Plama v
Bulgaria, Award, 27 August 2008, para 191.
100 At 154. See also Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Engineers of
Iran, Iran–US Claims Tribunal, 22 June 1984, 225–6; Phillips Petroleum Co v Iran, Iran–US
Claims Tribunal, 29 June 1989, para 97.
101 Sea-Land Service Inc v Iran, 6 Iran–US CTR 149, 166 (1984).
102Y Fortier and S L Drymer, ‘Indirect Expropriation in the Law of International Investment: I
Know It When I See It, or Caveat Investor’ (2004) 19 ICSID Review-FILJ 293.
103 See ECtHR, Sporrong & Lönnroth v Sweden, 23 September 1982.
104
US Model BITs 2004 and 2012, Annex B, para 4.
105 See Norwegian Shipowners’ Claims, I RIAA 307 (1922); R Dolzer, ‘Indirect Expropriations:

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 New Developments?’ (2003) 11 NYU Environmental LJ 64, 91.
106 S D Myers v Canada, First Partial Award, 13 November 2000, para 285.
107 See pp 145 et seq.
108 See eg Oscar Chinn v Belgium, 12 December 1934, PCIJ, Series A/B, No 63, 84:

Mr Chinn, a British subject, when, in 1929, he entered the river transport business, could
not have been ignorant of the existence of the competition which he would encounter on
the part of Unatra, which had been established since 1925, of the magnitude of the
capital invested in that Company, of the connection it had with the Colonial and Belgian
Governments, and of the predominant role reserved to the latter with regard to the fixing
and application of transport rates.

109 Methanex v United States, Award, 3 August 2005; see also Thunderbird v Mexico, Award, 26
January 2006.
110
Revere Copper v OPIC, Award, 24 August 1978.
111 At 271.
112 Metalclad v Mexico, Award, 30 August 2000.
113
At para 107.
114 Tecmed v Mexico, Award, 29 May 2003.
115 At para 149.
116
Thunderbird v Mexico, Award, 26 January 2006.
117 At para 147. Footnote omitted.
118 At para 208.
119 Azurix v Argentina, Award, 14 July 2006.
120 At paras 316–22.
121 At para 318.
122 See paras 316 et seq.
123 At para 322.
124
Pope & Talbot v Canada, Award, 26 June 2000, para 102; Metalclad v Mexico, Award, 30
August 2000, para 103; CMS v Argentina, Award, 12 May 2005, para 262.
125
Feldman v Mexico, Award, 16 December 2002, paras 142, 152; Occidental v Ecuador,
Award, 1 July 2004, para 89; CMS v Argentina, Award, 12 May 2005, paras 263, 264; Enron v
Argentina, Award, 22 May 2007, para 245; PSEG v Turkey, Award, 19 January 2007, para 278;
Sempra v Argentina, Award, 28 September 2007, para 285; AES v Hungary, Award, 23
September 2010, para 14.3.2.
126 Sempra v Argentina, Award, 28 September 2007, para 300.
127 Tokios Tokelės v Ukraine, Award, 26 July 2007, para 120.
128 Azurix v Argentina, Award, 14 July 2006.
129 At para 322.
130 LG&E v Argentina, Decision on Liability, 3 October 2006.
131 At paras 188, 191. Footnotes omitted.
132 Waste Management v Mexico, Award, 30 April 2004, paras 141, 147; EnCana v Ecuador,
Award, 3 February 2006, paras 172–83. For an extensive discussion, see U Kriebaum, ‘Partial
Expropriation’ (2007) 8 J World Investment & Trade 69.

133

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 133 Middle East Cement v Egypt, Award, 12 April 2002.
134
At paras 101, 105, 107, 127.
135 At paras 138, 144.
136 At paras 152–6, 163–5.
137 Eureko v Poland, Partial Award, 19 August 2005.
138 At paras 239–41.
139 See U Kriebaum, ‘Partial Expropriation’ (2007) 8 J World Investment & Trade 69.
140 Grand River v United States, Award, 12 January 2011, para 146.
141 At paras 148 et seq.
142 On expropriatory acts by the judiciary, see Rumeli v Kazakhstan, Award, 29 July 2008, para
702.
143
This was the approach taken in Telenor v Hungary, Award, 13 September 2006, para 78.
144 R Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Review-FILJ 41.
145 See eg TECMED v Mexico, Award, 29 May 2003, paras 115, 119.
146
American Law Institute, Restatement (Third) of the Foreign Relations Law of the United
States, Vol 1 (1987), § 712, Comment (g):

a state is not responsible for loss of property or for other economic disadvantage resulting
from bona fide general taxation, regulation, forfeiture for crime, or other action of the
kind that is commonly accepted as within the police power of the states, if not
discriminatory.
147 Too v Greater Modesto Insurance Associates, 23 Iran–US CTR 378; see also SEDCO v NIOC,
9 Iran–US CTR 249, 275.
148 Feldman v Mexico, Award, 16 December 2002.
149
At para 103.
150 SD Myers v Canada, First Partial Award, 13 November 2000.
151 At para 281.
152
Methanex v United States, Award, 3 August 2005.
153 At Part IV, Ch D, p 4, para 7.
154 Saluka v Czech Republic, Partial Award, 17 March 2006.
155 At para 262, citing Methanex v United States.
156 Continental Casualty v Argentina, Award, 5 September 2008.
157 At para 276.
158Pope & Talbot v Canada, Interim Award, 26 June 2000, para 99; see also ADC v Hungary,
Award, 2 October 2006, paras 423, 424.
159 Santa Elena v Costa Rica, Award, 17 February 2000.
160 At para 72. The Tribunal in Azurix quotes this passage at para 309: Azurix Corp v The
Argentine Republic, Award, 14 July 2006.
161 ADC v Hungary, Award, 2 October 2006.
162 At paras 423, 424.
163 See para 433.
164 At paras 434 et seq.

165

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 165 For a proposal to balance investor and host state rights that goes beyond current arbitral
practice, see U Kriebaum, ‘Regulatory Takings: Balancing the Interests of the Investor and the
State’ (2007) 8 J World Investment & Trade 717.
166 Azurix v Argentina, Award, 14 July 2006.
167
At paras 310, 311.
168 At para 311.
169 James v United Kingdom, Judgment of 21 February 1986, paras 50 and 63.
170 Azurix at para 311.
171 LG&E v Argentina, Decision on Liability, 3 October 2006.
172 At paras 189, 195.
173 See G C Christie, ‘What Constitutes a Taking of Property under International Law?’ (1962)
BYBIL 307; J Wagner, ‘International Investment, Expropriation and Environmental Protection’
(1999) 29 Golden Gate University L Rev 465; W M Reisman and R D Sloane, ‘Indirect
Expropriation and its Valuation in the BIT Generation’ (2003) 74 BYBIL 115.
174 See Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Eng’rs of Iran, 6 Iran–US
CTR 219, 225 (1984); Phelps Dodge Corp v Iran, 10 Iran–US CTR 121 (1986); James M Saghi,
Michael R Saghi, and Allan J Saghi v Iran, 14 Iran–US CTR 3 (1988).
175 TECMED v Mexico, Award, 29 May 2003, para 116; Generation Ukraine v Ukraine, Award,
16 September 2003, para 20.32; Azurix v Argentina, Award, 14 July 2006, para 313: ‘How much
time is needed must be judged by the specific circumstances of each case.’
176 S D Myers v Canada, First Partial Award, 13 November 2000.
177
At para 283.
178 At para 287.
179 Wena Hotels v Egypt, Award, 8 December 2000.
180
At para 99.
181 Wena Hotels v Egypt, Decision on Interpretation, 31 October 2005.
182 At para 120.
183
LG&E v Argentina, Decision on Liability, 3 October 2006.
184 At para 193.
185 At para 200.
186 See American Law Institute, Restatement (Third) of the Foreign Relations Law of the United
States, Vol 1 (1987), § 712; G C Christie, ‘What Constitutes a Taking of Property under
International Law?’ (1962) 38 BYBIL 307.
187
The term ‘creeping expropriation’ has also occasionally been used interchangeably with the
term ‘indirect expropriation’.
188 UNCTAD, Series on Issues in International Investment Agreements: ‘Taking of Property’
(2000) 11–12.
189 See also Biloune v Ghana, 95 ILR (1994) 184, 209; TECMED v Mexico, Award, 29 May 2003,
para 144; cf also Art 15 of the ILC Articles on State Responsibility in J Crawford, The
International Law Commission’s Articles on State Responsibility (2002) 141; Santa Elena v Costa
Rica, Award, 17 February 2000, para 76; Azurix v Argentina, Award, 14 July 2006, para 313.
190Generation Ukraine v Ukraine, Award, 16 September 2003; also Rumeli v Kazakhstan,
Award, 29 July 2008.
191
At paras 20.22, 20.26.
192

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 192
Tradex v Albania, Award, 29 April 1999.
193 At para 191.
194 Siemens v Argentina, Award, 6 February 2007.
195
At para 263.
196 W M Reisman and R D Sloane, ‘Indirect Expropriation and its Valuation in the BIT
Generation’ (2003) 74 BYBIL 115, 123–5.
197 American–Venezuelan Mixed Claims Commission, Rudloff Case, Decision on Merits, IX RIAA
244, 250 (1959).
198 Permanent Court of Arbitration, Norwegian Shipowners’ Claim (Norway v United States), 13
October 1922, I RIAA 307 (1948). The arbitrators held that by requisitioning ships that were to be
built for Norwegian citizens, the US Government also expropriated the underlying construction
contracts.
199 Case Concerning Certain German Interests in Polish Upper Silesia, 1926, PCIJ, Series A, No
7, 3.
200 See SPP v Egypt, Award, 20 May 1992, paras 164–7; Wena Hotels v Egypt, Award, 8
December 2000, para 98; CME v Czech Republic, Partial Award, 13 September 2001, para 591;
Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, para 274; Eureko v Poland, Partial
Award, 19 August 2005, para 241; Bayindir v Pakistan, Decision on Jurisdiction, 14 November
2005, para 255; Azurix v Argentina, Award, 14 July 2006, para 314; Inmaris v Ukraine, Decision
on Jurisdiction, 8 March 2010, para 66: contracts may lead to ‘a claim of money’ even if the
agreement is fictious.
201 Article IV-2 of the Treaty of Amity between Iran and the USA (1955) protects not only
‘property’ but also ‘interests in property’. According to the tribunal in Phillips Petroleum Company
v Iran, the term ‘interest in property’ was ‘included at the insistence of the United States for the
stated purpose of ensuring that contract rights in the petroleum industry would be protected by
the treaty in the same way as would the older type of property represented by a petroleum
concession’ (see Phillips Petroleum Company v Iran, Award, 29 June 1989, para 105).
202 Amoco International Finance Corp v Iran, Award, 14 July 1987, para 108.
203 Tokios Tokelės v Ukraine, Decision on Jurisdiction, 29 April 2004, paras 92–3.
204 See eg Energy Charter Treaty, Art 1(6)(f): ‘any right conferred by law or contract’. See also
NAFTA, Art 1139. See R Dolzer and M Stevens, Bilateral Investment Treaties (1994); G
Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’ (1997) 269
Collected Courses of the Hague Academy of International Law 251, 381; R Higgins, ‘The Taking
of Property by the State: Recent Developments in International Law’ (1982-III) 176 Collected
Courses of the Hague Academy of International Law 263, 271; UNCTAD, Series on Issues in
International Investment Agreements: ‘Taking of Property’ (2000) 36.
205 Siemens v Argentina, Award, 6 February 2007.
206 At para 267. The Tribunal relied on the Norwegian Shipowners and Chorzów Factory cases.
207 For detailed discussion, see S M Schwebel, ‘On Whether the Breach by a State of a Contract
with an Alien is a Breach of International Law’ in International Law at the Time of its
Codification, Essays in Honour of Roberto Ago, III (1987) 401.
208 See also the American Law Institute, Restatement (Third) of the Foreign Relations Law of the
United States, Vol 2 (1986), p 201: ‘a state is responsible for such a repudiation or breach only …
if it is akin to an expropriation in that the contract is repudiated or breached for governmental
rather than commercial reasons.’
209 American–Mexican Claims Commission, Jalapa Railroad and Power Co, 8 Whiteman Digest
of International Law (1976) 908–9.
210

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 210
RFCC v Morocco, Award, 22 December 2003, paras 60–2, 65–9, 85–9.
211 Impregilo v Pakistan, Decision on Jurisdiction, 22 April 2005, para 281; Bayindir v Pakistan,
Decision on Jurisdiction, 14 November 2005, para 257; Azurix v Argentina, Award, 14 July 2006,
para 315.
212 Siemens v Argentina, Award, 6 February 2007.
213 At para 248.
214
At para 253.
215 SGS v Philippines, Decision on Jurisdiction, 29 January 2004, para 161.
216 Waste Management v Mexico, Award, 30 April 2004.
217
At paras 159–74
218 At para 174.
219 At para 175. Also Bureau Veritas v Paraguay, Award, 29 May 2009.
220 At para 175.
221 See Alpha v Ukraine, Award, 8 November 2010, para 412; see further p 230.

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