Expropriation - Chapter 2 - 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.
Generally speaking, the most serious threat to a foreign investment is expropriation. From the perspective of a foreign investor, the most important provisions in any international treaty for the protection of foreign investment are the provisions dealing with protection against expropriation. These provisions do in fact constitute the heart and soul of every BIT. The ultimate purpose of every BIT is to protect against expropriation.
Even though it is generally accepted today in international law that states have the right to expropriate property and rights of foreigners, it is equally accepted that they can do so only under certain circumstances. Most international agreements on the protection of foreign investments attempt to spell out such conditions as between the contracting states.
A legal dictionary defines expropriation as “[a] governmental taking or modification of an individual’s property rights …”. This definition makes it clear that expropriation need not necessarily entail an actual taking of property as such. A modification of property rights may also qualify as expropriation. In order for a modification of property rights to be classified as expropriation, the modification must be to the detriment of the original holder of the rights. Thus, the concept of expropriation encompasses measures whereby a state deprives an individual or enterprise of the enjoyment of their property rights.
Systematic expropriation of private property within one or more specific sectors of a nation’s economy within the framework of socio-economic or political reform is often referred to as nationalization. The general nationalization of private property in the name of socialism that took place in Russia following the 1917 revolution and in other communist countries is occasionally referred to as socialization. The difference between expropriation and nationalization (including socialization), is one of scope and extent rather than of legal nature. In this contribution, I shall use the term “expropriation” to describe any of the above forms of expropriation.
Mention must also be made of the term “confiscation”. This term is mostly used to refer to the seizure of property by a state without compensation. Black’s Law Dictionary defines “confiscation” as “the seizure of private property by the government without compensation to the owner, often as a consequence of conviction for crime, or because possession or use of the property was contrary to law”. In this contribution, I shall not discuss, nor use, the term, “confiscation” as defined above.
2. Indirect Expropriation