The expropriation clause and the tension between foreign investment and the public interest. An analysis of recent international investment arbitration case law.

Abstract

The recent globalized economy, and the substantial number of bilateral and multilateral agreements that have been signed, have become a constant incentive to foreign investors willing to invest in a host State. For its part, the host State is also concerned with investments, specifically with the restraint on its regulatory powers when it is in compliance with its treaties. Many countries today receive a great amount of foreign direct investment (FDI). It is this substantial level of FDI that is part of the source of the rapid development of countries we see these days. The idea of State expropriation is an act which is recognized in the international plane, which it is established pursuant the public interest and its requirements. The problem arises when the act does not regard a direct taking which is “more noticeable”, but appears certain conducts of the State disguised as “measure pursuant the public interest”, when actually is trying to control or deprive the investor form its peaceful enjoyment of its assets without the proper compensation. I will deal with the different concepts of expropriation, indirect expropriation in its different forms, such as regulatory takings, creeping expropriation, and measures tantamount to expropriation in order to establish how government’s measures take place and harm private owners. I will analyze the current treaties on investment, the principles that can be extracted in today’s BIT and Regional Agreements such as NAFTA, and the main problem of the lack of a concrete definition of expropriation, which today is saved by the principles of international customary law. Then I will analyze the denominator problem, which deals with the dilemma Courts face when determining the extent of damage to the property owner’s assets, which may regard a compensable act of expropriation, the way courts try to define the relevant parcel affected by the government’s measure, and if that harm amounts a damage to the investment, great enough to be compensable, or simply regards a burden, the investor must bear, in order for the State to fulfill the public interest. Finally I will analyze the recent jurisprudence regarding foreign investor claims against outright deprivations by the host State, and the evolution of the diverse concepts and principles extracted of those awards. To summarize I will establish when the State has the legitimacy to affect foreign private property, under what circumstances can do so, when privates have been affected in their property, in a way that entitles them to compensation for the harm caused by the State, when can we talk about expropriation or indirect expropriation of investment (affectation of property at its core and to its periphery), and finally what are the principles that can be extracted through the different treaties signed, the diverse concepts regarding indirect expropriation and of the recent jurisprudence on these muddied matters judges are somewhat reluctant to address in the international plane.