#11174 - Nationalization And Expropriation - International Law II

Nationalization and Expropriation

1. Two Issues:

   1. (1) The right to take the property

      1. U.S. Resolution on Permanent Sovereignty Over Natural Resources

         1. “The right of peoples and nations to permanent sovereignty over their national wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the State concerned.” Resolution on Permanent Sovereignty Over Natural Resources Art. 1 (CB 1079).

         2. “Nationalization, expropriation or requisitioning shall be based on grounds or reasons of public utility, security or the national interest which are recognized as overriding purely individual or private interests, both domestic and foreign. Resolution on Permanent Sovereignty Over Natural Resources Art. 4 (CB 1080).

            1. In such cases the owner shall be paid appropriate compensation. Resolution on Permanent Sovereignty Over Natural Resources Art. 4 (CB 1080).

      2. U.N. Declaration on the Establishment o a New International Economic Order

         1. “4. The new international economic order should be founded on full respect for the following principles:

            1. “(e) Full permanent sovereignty of every State over its natural resources and all economic activities. In order to safeguard these resources, each State is entitled to exercise effective control over them and their exploitation with means suitable to its own situation, including the right to nationalization or transfer of ownership to its nationals, this right being an expression of the full permanent sovereignty of the state.

            2. “(f) The right of all States, territories and peoples under foreign occupation, alien control and colonial domination or apartheid to restitution and full compensation for the exploitation and depletion of, and damages to, the natural resources and all other resources of those States, territories and people . . . .” (CB 1080).

      3. U.N. Charter of Economic Rights and Duties of States

         1. “Every State has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources and economic activities.” U.N. Charter of Economic Rights and Duties of States Art. 2(1).

         2. “Each State has the right . . . [t]o nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent.” U.N. Charter of Economic Rights and Duties of States Art. 2(2)(c).

   2. (2) The payment of compensation

      1. The U.S. government has maintained in numerous statements that “prompt, adequate, and effective compensation” is required.

      2. However, international decisions have held that the appropriate standard is “appropriate compensation.” See, e.g., TOPCO-Libyan; Banco Nacional.

      3. NAFTA Article 1110 requires compensation at the “fair market value” immediately before the expropriation.

         1. Valuation is to consider the going concern value.

         2. Compensation must be paid “without delay and be fully realizable.”

2. Takings of Foreign Investments: Terminology

   1. Intervention: Government takes temporary control to achieve a certain goal and then returns the property to the owner

   2. Expropriation/nationalization: taking by the state either for the state to manage the asset itself or to hand over or sell to another entity

   3. Confiscation: taking without compensation

3. Takings: Legal Standards

   1. Right to take for a public purpose of in the public interest

   2. No expropriation without compensation (customary intl law)

   3. Compensation standard?

      1. UNGA Res. 1803 (Permanent sovereignty over natural resources): “appropriate compensation”

      2. UNGA 3201 (NIEO): right to restitution to the state for colonial exploitation

      3. UNGA 3281 (Charter of Economic Rights and Duties): “appropriate compensation…settled under the domestic law of the nationalizing state”

      4. US position:

         1. Hull formula: “prompt, adequate and effective compensation”

         2. Restatement: “just”

   4. Landmark Cases

      1. Texas Co/Calasiatic v. Libya (1977): R-J Dupuy: "appropriate compensation" is the "opinio juris communis" that reflected "the state of customary law existing in the field."

      2. Aminoil-Kuwait (1982): Reuter and Fitzmaurice: "appropriate compensation" as set forth in Resolution 1803 "codifies ... positive principles."

      3. Liamco v. Libya (1981): Sobhi Mahmassani: “equitable compensation”

4. Impediments to suing foreign states in the US:
   Definitions and Sources

   1. Sovereign immunity:

      1. No jurisdiction by courts over foreign state organs/entities

   2. Act of State doctrine:

      1. The courts of a state cannot sit in judgment of the acts of another state done on its territory

   3. Sources:

      1. Probably some customary law, some limited treaty provisions on certain subject matters

      2. In practice: rely on domestic common law and statutory provisions

      3. In the US: act of state doctrine (common law) and Foreign Sovereign Immunity Act (federal statute)

5. FSIA: General immunity rule – JURISDICTIONAL

   1. § 1330: Dist. Courts have jurisdiction over foreign states when there is no immunity under §§ 1605-1607

   2. § 1604: States have immunity except per §§ 1605-07

      1. Note: this statute does not supersede preexisting treaties!

6. FSIA: General exceptions to sovereign immunity – JURISDICTIONAL
   § 1605

   1. (a)(1): waiver

   2. (a)(2): commercial activity:

      1. commercial activity in the US

      2. act in the US in connection with a commercial activity elsewhere

      3. act and commercial activity elsewhere but direct effect in the US

   3. (a)(3): property taken in violation of intl law AND property is present in the US (or property exchanged for it, ie money)

      1. OR property owned or operated by an agency of the foreign state and that agency is engaged in commercial activity in the US (ie, state-owned airline carrier operating flights in the US?)

   4. (a)(5) money damages sought for personal injury or death or damages or loss to property occurring in the US and caused by torts of a foreign state

   5. (a)(6) arbitration agreement: ct will enforce it in certain conditions

   6. (a)(7) money damages for extrajudicial killings, torture, etc (per Torture Victim Protection Act) but the foreign state must be designated as a state sponsor of terrorism and other conditions apply

7. Act of State Doctrine – ON THE MERITS

   1. Definition:

      1. acts of a governmental nature done by a foreign state…

      2. …within its own territory…

      3. …applicable there

   2. Sabbatino case: exception to act of state doctrine for acts in violation of international law (unlawful takings)? Ct says no

   3. Exception: Second Hickenlooper Amendment 22 USC §2370(e)(2): Courts cannot decline to make a decision in cases involving a taking in violation of int’l law

   4. Other exceptions?

      1. Possible commercial exception

         1. “[T]he concept of an act of state should not be extended to include the repudiation of a purely commercial obligation owed by a foreign sovereign or by one of its commercial instumentalities.” Dunhill (CB 1100-01).

8. U.S.–Argentina BITS: TREATY BETWEEN THE UNITED STATES OF AMERICA AND THE ARGENTINE REPUBLIC CONCERNING THE RECIPROCAL ENCOURAGEMENT AND PROTECTION OF INVESTMENT (Signed November 14, 1991; Entered into Force October 20, 1994, 103rd Congress 1st Session 103-2)

   1. ARTICLE I

      1. 1. For the purposes of this Treaty,

         1. a) "investment" means every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts; and includes without limitation:

            1. (i) tangible and intangible property, including rights, such as mortgages, liens and pledges;

            2. (ii) a company or shares of stock or other interests in a company or interests in the assets thereof;

            3. (iii) a claim to money or a claim to performance having economic value and directly related to an investment;

            4. (iv) intellectual property which includes, inter alia, rights relating to: literary and artistic works, including sound recordings, inventions in all fields of human endeavor, industrial designs, semiconductor mask works, trade secrets, know-how, and confidential business information, and trademarks, service marks, and trade names; and

            5. (v) any right conferred by law or contract, and any licenses and permits pursuant to law;

         2. b) "company" of a Party means any kind of corporation, company, association, state enterprise, or other organization, legally constituted under the laws and regulations of a Party or a political subdivision thereof whether or not organized for pecuniary gain, and whether privately or governmentally owned;

         3. c) "national" of a Party means a natural person who is a national of a Party under its applicable law;

         4. d) "return" means an amount derived from or associated with an investment, including profit; dividend; interest; capita gain; royalty payment; management, technical assistance or other fee; or returns in kind;

         5. e) "associated activities" include the organization, control, operation, maintenance and disposition of companies, branches, agencies, offices, factories or other facilities for the conduct of business; the making, performance and enforcement of contracts; the acquisition, use, protection and disposition of property of all kinds including intellectual and industrial property rights; and the borrowing of funds, the purchase, issuance, and sale of equity shares and other securities, and the purchase of foreign exchange for imports.

         6. f) "territory" means the territory of the United States or the Argentine Republic, including the territorial sea established in accordance with international law as reflected in the 1982...