Originally from World Arbitration And Mediation Review (WAMR)

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THE CONCEPT OF EXPROPRIATION UNDER

THE ECT AND OTHER INVESTMENT
PROTECTION TREATIES
By Christoph H. Schreuer*

I. SUMMARY
Expropriations, in order to be legal, must be in the public interest, nondiscriminatory,
must take place under due process of law and against prompt
adequate and effective compensation.
Direct and overt expropriations have become rare. The typical form in
which expropriations take place nowadays is indirect expropriations or
measures having an equivalent effect. The concept of indirect expropriation
has been known for some time and is reflected in contemporary treaties for
the protection of investments. The concept of indirect expropriation is also
well established in international judicial practice.
Creeping expropriation takes place step by step through a series of
actions. It is widely recognized in international practice. It has its
counterpart in the law of State responsibility in the concept of a breach
consisting of a composite act.
Intangible property, including rights arising from a contract are
susceptible of an expropriation in the same way as tangible property. This
principle is reflected in the definitions of the term “investment” in the
treaties for the protection of investments. Judicial practice supports a wide
concept of “property,” that includes intangible rights especially rights under
contracts, for purposes of expropriation.
Not every breach of contract by a State that results in economic loss to
the investor is an expropriation. The most important criterion for
distinguishing between the simple breach of a contract and the expropriation
of contract rights is whether the State acts in its commercial role as a party
to the contract or in its sovereign capacity.
A legitimate public purpose underlying a regulatory measure does not
exclude the existence of an expropriation. The distinction between normal
regulatory action and a regulatory expropriation requiring compensation
depends on the extent, severity and duration of the deprivation. The
government’s intention to expropriate is not relevant in this context.