Current State of International Law with Respect to Expropriation - Chapter 3 - Investment Arbitration in Eastern Europe: In Search of a Definition of Expropriation
Kaj Hobér is a Partner with Mannheimer Swartling Advokatbyrå in Stockholm and Professor of East European Commercial Law at Uppsala University. He has been heavily involved in the legal aspects of doing business in Eastern Europe and the former Soviet Union for the last 25 years. His arbitration experience includes representing both Eastern and Western European, American and Russian parties as well as parties from developing countries in international arbitrations. He has also been involved in numerous oil and gas arbitrations, relating primarily to Northern Africa, the Middle East and the former Soviet Union. He has acted as counsel and arbitrator (including chairmanships) in more than 300 international arbitrations, including representation of the claimant in the first ECT award, as well as involvement in many other investment arbitrations. He is Chair of the IBA sub-committee on Investment Treaty Arbitration, a member of the board of the Arbitration Institute of the Stockholm Chamber of Commerce, the International Arbitration Club (London) and a member of the ICC Institute of International Business and Law (corresponding member).
Professor Hobér is the author of Joint Ventures in the Soviet Union (1989), Enforcing Foreign Arbitral Awards Against Russian Entities (1993), Transforming East European Law (1997), Protection of Property Rights in the Baltic Sea Region: Reality or Potemkin Villages? (1999), Applicable Law and Extinctive Prescription in Interstate Arbitration (2001), The Impeachment of President Yeltsin (2003), Essays on International Arbitration (2005), and is also the general editor of the Uppsala Yearbook of East European Law, and co-editor of Arbitration in Sweden (2nd ed., 1984). He has also published numerous articles on international arbitration and East European law.
Below follows a brief overview of the current state of international law as regards expropriation. Needless to say, the account is not exhaustive, but is provided as an introductory background to the cases that will be discussed in the following. Consequently, many interesting – and difficult – issues must be left out in this overview.
It must also be pointed out that the following discussion focuses on customary international law, again with a view to providing a general background. The cases discussed, on the other hand, have all arisen under international treaties and therefore, strictly speaking, form part of international treaty law. This raises the important question – which cannot be addressed in this publication – of the extent to which, and under what conditions, treaties, and in particular BITs, constitute proof of an established rule of customary international law, or simply constitute lex specialis as between the parties to the BIT.
Generally speaking the protection of foreign investment under international law forms part of the law of state responsibility. While it is not disputed today that under international law the expropriation of foreign property is not illegitimate, per se, it is equally clear that certain conditions must be fulfilled. If that is not the case, the expropriating state is in breach of its international law obligations. Such breach does, as a matter of principle, result in state responsibility. Most of the cases discussed in this study are based on treaties, either BITs or the Energy Charter Treaty. The signatories are under a treaty obligation to expropriate only under certain conditions.
As we shall see in this study, the most difficult issue for arbitral tribunals today, however, is not to determine whether the conditions for a lawful expropriation have been met or not, but rather whether there has been an expropriation at all. That notwithstanding, it is necessary, by way of background, to describe, however briefly, the requirements for a lawful expropriation. These requirements are usually summarised in the general formula referred to asthe “international minimum standard”. If this standard has not been observed, the state in question has violated an international legal obligation, for the consequences of which the state is responsible.
One of the pillars of the law of state responsibility is the attribution to the state of acts and omissions of its organs and officials. The state is an abstract legal entity. It cannot, therefore, in reality act itself. The state can only act through authorised officials, representatives and agents. In analyzing alleged expropriations, the first step for tribunals is therefore to determine whether the alleged act and/or omissions are at all attributable to the state in question. If the answer is affirmative, the tribunal must determine, as the second step, whether the acts and/or omissions constitute expropriation. In the following section the rules of attribution under international law will therefore be briefly described. Thereafter, I briefly discuss the international minimum standard.
III. Current State of International Law with Respect to Expropriation
2. Rules of Attribution
2.2 Applicability of the ILC Articles
2.3 General Rules of Attribution
2.4 Attribution and Federal States
3. The International Minimum Standard
3.1 Public Purpose
3.2 Non-Discrimination (National Treatment)