Expropriation Provisions under Investment Protection Treaties: Recent Decisions and New Drafting or Fifty-Two Words for

1. Expropriation Provisions under Investment Protection Treaties: Recent Decisions and New DraftingorFifty-Two Words for Snow Sophie NappertDenton Wilde Sapte BIICL’s Investment Treaty Forum London, 5 May 2006 7427230.02

2. Direct expropriation Indirect expropriation Measures tantamount to expropriation Constructive expropriation Creeping expropriation De facto expropriation Regulatory takings Fifty-two names for snow

3. Treaty wording • Energy Charter Treaty • “Investments of Investors of a Contracting Party in the area of any other Contracting Party shall not be nationalised, expropriated or subject to a measure or measures having effect equivalent to nationalisation or expropriation.” • NAFTA Article 1110 • “No Party may directly or indirectly nationalise or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalisation or expropriation.” • France • “Measures of expropriation or nationalisation or any other measures the effect of which would be direct or indirect dispossession.”

4. Treaty wording (cont’d) • UK • “Measures having an effect equivalent to nationalisation or expropriation.” • Others • “Any direct or indirect measure” or “any other measure having the same nature or the same effect against investments” as expropriation.

5. Indirect expropriation – Regulatory takings Commentary to: • European Convention of Human Rights (1952) • Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens (1961)(Sohn & Baxter) • OECD Draft Convention on the Protection of Foreign Property (1967) • The American Law Institute’s Restatement Third of Foreign Relations Law of the United States (1987) • Draft OECD Multilateral Agreement on Investment (1998)

6. Indirect Expropriation – Regulatory Takings Police Powers Doctrine • Saluka Investments BV v the Czech Republic • Award – March 2006 (NL/Czech BIT) • Methanex Corp v the United States of America • Final award – 7 August 2005 (NAFTA)

7. New Generation Treaties US Model BIT 2004 • The expropriation and compensation provisions are “intended to reflect customary international law concerning the obligations of States with respect to expropriation”. • An action or series of actions cannot constitute expropriation unless it “interferes” with a property right or property interests in an investment. • Direct and indirect expropriation both envisaged in the Treaty.

8. New Generation Treaties (cont’d) US Model BIT 2004 • Direct expropriation means a formal transfer of title or outright seizure. • Indirect expropriation means actions or series of actions with an effect equivalent to direct expropriation without formal transfer of title or outright seizure. • A case-by-case, fact-based enquiry to determine whether an indirect expropriation has occurred. • Factors: • economic impact of the action (adverse economic impact alone is not sufficient) • extent of the interference of action with distinct, reasonable, investment-backed expectations • character of the action.

9. New Generation Treaties (cont’d) US Model BIT 2004 • “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.” Canadian Model FIPA 2004 • “Except in rare circumstances, such as when a measure or series of measures are so severe in the light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriation.”

18. Note: The author wishes to thank her colleague Anna Owen-Davies for her invaluable research assistance.