Externalization of Effective Legal Protection against Indirect Expropriation

Can the Legal Order of Developing Countries Live up to the Standards Required by International Investment Agreements? A Disenchanting Comparative Analysis

In: The Journal of World Investment & Trade

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  • 1 In a nutshell, direct expropriation is the compulsory transfer of legal title or the outright seizure of property by the State. In contrast, indirect expropriation refers to the situation in which the investor formally remains legal owner. Sec, instead of all, Sornarajah, M., The International Law on Foreiqn Investment, 2nd edition, 2004, p. 344, with further references. See generally, Brower, Charles Nelson / Brueschke, Jason D., The Iran-United States Claims Tribunal, 1998, p. 379; Christie, George C., What Constitutes a Taking of Property under International Law? 38 B.Y.I.L. (1962), pp. 307 et seq., at p. 309; Comcaux, Paul / Kinsella, Stephen, Protecting Foreign Investment under International Law: Legal Aspects of Political Risk, 1997, p. 8; Mouri, Allahyar, T7ie International Law of Expropriation as Ref/ected in the Work rf the Iran-U.S.Claims Tribunal, 1994, pp. 70 et seq.; Schrcuer, Christoph, The Concept of Expropriation under the EcT and other Investment Protection Treaties, Transnational Dispute Management, Vol. 2, Issue 3, June 2005, available at �www.transnational-dispute-managernent.com� (last visited 7 September 2005); Weston, Bums H., International Law and the Deprivation of Foreign Wealtlr: A Framework for Future Inquiry, in Falk, Richard A. / Black, Cyril (eds.), T7ie Future of the Intemational Legal Order, Vol. 2: Wealth and Resources, 1970, pp. 36 et seq., at p. 106; Whiteman, Marjorie M., Diqest of Intemational Law, U.S. Government Printing Office, Washington, D.C., 1963-1973, Vol. 8, 1976, pp. 1006-1020, 2 Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the Bit Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at p. 118.

  • 3 Article 111(1) of the Treaty between the United States of America and the Russian Federation concerning the Encouragement and Reciprocal Protection of Investment, signed 17 June 1992, not yet in force; available at: (last visited 29 August 2005). See also Article III of the Abs-Shawcross Draft Convention on Investment Abroad of 1959, United Nations Conference on Trade and Development (UNCTAD), International Investment Instruments: A Compendium, Vol. v, 2001, p. 396; Article 10(3)(a) of the Harvard Draft Convention of 1961, in Sohn, Louis B. / Baxter, Richard R., Responsibility of States for ltyiiries to the Economic Interests 0{ Ali",/s, 55 A.J.LL. (1961), pp. 545 et seq., at p. 553; Protocol No. 1 of the European Convention for the Protection of Human Rights and Fundamental Freedoms of 1952, available at International Investment, Instruments: A Compendium, Vol. 11, 1996, p. 114; Article 21 of thc American Convention on Human Rights of 1969, available at Restatement (7lrirA) of the Foreign Relations Lnw of the United States, Vol. 2, 1986, �712(1); OECn Negotiating Group on the Multilateral Agreement on Investment (MAI), The Multilateral Agreement nn Investment, Draft Consolidated Text, OECD Doc. DAFFE/MAI(98)7/REVI, 22 April 1998, available at (last visited 7 September 2005). 4 From an analytical point of view, one can distinguish between "creeping" and "consequential expropriation". "'creeping' expropriation is comprised out of a number of elements, none of which can- separately-constitute thc international wrong." Reisman, Michael W. / Sloanc, Robert D., Indirect Expropriation and its Valuation in ihe Brr Gerrerntion, 74 B.Y.I.L. (2003), pp. 115 et seg., at pp. 123, 125-127. Intention to harm the investment or the investor or an intention to expropriate is not necessary but helps to prove a creeping expropriation; Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the Bit Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at pp. 124, 128. See also Schachter, Christoph, 'l7re Concept of Expropriation/ IIIIder the EcT and other Investment Protection Treatises, Transnational Dispute Managcmcut, Vol. 2, Issue 3, June 2005; available at: www.traiisiiatioiial-dispute-iiiaiiagetiietit.coiii, (last visited 6 September 2005). "Consequential expropriation" refers to the situation in which the host State fails to properly create, maintain and manage "the legal, administrative, and regulatory normative framework contemplated by the relevant Bit, an indispensable feature of the 'favourable conditions' for investment." Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in rhe Brr 1 Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at pp. 129, 130. Here, also, an intention on the part of the host State is not required. Reisman, Michael W. / Sloane, Robert D., indirect Expropriation and its Valllatioll in the BIT Ceneration, 74 B.Y.I.L. (2003), pp. 115 et seq., at p. 129. 5 Dolzer, Rudolf / Stevens, Margrete, Bilateral Investment Trenties, 1995, p. 58. 6 Many BITS provide in rather repetitive wording not only for "fair and equitable treatment" but also for "full protection and security" and prohibit "unreasonable or discriminatory measure in the course of management, maintenance, use, enjoyment or disposal of investments"; Article 2(2) of the Agreement between The Govenment of the United Kingdom of Great Britain and Northern Ireland and The Union of Soviet Socialist Republics concerning the promotion and reciprocal protection of investments, signed 6 April 1989, entered into force 3 July 1991. In academic writing, much effort has been spent on the question of whether and how the concepts of"fair and equitable treatment", "fill] protection and security" and "non-discrimination" are to be delimited from each other.

  • 7 Occasionally, if it is helpful in making an argument more explicit, we might also make reference to the concept of "fair and equitable treatment", part of the treatment standards attributable to a foreign investment by virtue of IIAS. I Russia, like many countries around the world, has become party to a variety of bilateral and multilateral international agreements (at least partly) concerned with or related to the protection of foreign investment, i.e. numerous bilateral investment treaties (BiTS) with all major capital exporting countries (Russia had signed 53 1311'S as of 1 June 2005, of which 34 had entered into force; for a detailed list, see the UNCTAD Website at (last visited 19 December 2005); the full text can be accessed via (www.uiictadxi.org/teiiiplates/l)ocScarcli_779.aspx, (last visited 29 August 2005)); The European Convention for the Protection of Human Rights and Fundamental Freedoms and its First Protocol, available at (www.echr.coe.iiit/NR/rdoiilyrcs/D5CC24A7-I)C 3-4318-B457-5C90149 l6D7A/0/EnglishAnglais.pdf (last visited 1 1 August 2005); and the Agrccmcnt on Partnership and Cooperation, available at �europa.cu.int/corrun/ extemal_relations/ceeca/pca/pca russia.pdf> (last visited 11 1 august 2005) with the European Union. Russia is also a signatory to the European Energy Charter Treaty, available at (last visited 28 August 2005) and is provisionally applying it while the ratification process is pending before the Duma.

  • z Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the BIT Generation, 74 B.Y.LL. (2003), pp. 115 et seq., at pp. 118-119. �° Article 31 of the Vienna Convention on the Law of Treaties of 1989, available at (last visited 11 August 2005), asks to have due regard to the object and purpose in the construction of a treaty. Most, if not all, BITS, as well as multinational agreements on investment protection such as the European Energy Treaty or the NAFTA, intend, as provided for in their preambles, to establish favourable conditions for investment by nationals and companies of one State in the territory ofthe other State. For a review of typical preambles, see Dolzer, Rudolf / Stevens, Margrete, Bilateral Investment Treaties, 1995, pp. 2()-21. In short, they envisage a "healthy investment climate" which is conditio sine qua non for the attraction of foreign direct investment. Those treaties "contemplate ... an effective normative framework: impartial courts, an efficient and legally restrained bureaucracy, and the measure of transparency in decision"; Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the BIT Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at p. 117. If a State signs up to such a treaty, it must be aware that it not only opens its doors to foreign investment but also commits itself to establish and/or maintain an appropriate legal, administrative, and regulatory framework; Reisman, Michael W. / Sloanc, Robert D., Indirect Expropriation and its Valuation in the BIT Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at p. 117; undecided, Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at pp. 73-74. See, for such an approach, Krru·ait v. American Independent Oil Co. (Aminoif), Final Award, 24 May 1982 (hereafter referred to as Arnirurin, 21 I.L.M. (1982), pp. 976 et seq., at para. 147; Mondev Int'1 Ltd v. United States of America, ICSID Case No. ARH(AF)/99I2, Award, 11 October 2002 (hereafter referred to as Morrrlev), 42 I.L.M. (2003), pp. 110, para. 127, also available at Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at p. 74. As much as this is true, this argument does not speak against the aforementioned. It must be stressed again that BITS and MITs are not intended to prohibit legitimate regulatory measures by the host State. On the contrary, they encourage the host State to exercise its regulatory powers in a transparent, non-discriminating, non-abusive way guided by reason and the rule of law, at least towards the foreign investor. In doing so, the host State is maintaining a "healthy investment climate" which, as already said, is essential for the attraction of foreign capital. The establishment of such an administrative framework will, ultimately, lead to an improvement of the overall governance standards in the host State. " Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the BIT Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at p. 119. 12 Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the Brr' Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at p. 117. See also Fortier, Yves L. / Drymer, Stephen L., Indirect Expropriation in the Law of International Investment: I Know it Mien I See it or Caveat Investor, 19 ICSID Rev. (2004), pp. 293 et seq., at p. 298. 13 Brownlie, lan, Principles of Public International Law, 6th edition, 2003, p. 509; Sornarajah, M., The International Law on Foreign Investment, 2nd edition, 2004, p. 357.

  • 14 Scdigh, Hassan, ITliat �t'f/0/ �ft�f �ft�fe Interference Amounts to fj Takil1g under Contemporary International Law? 2 J.W.I. 4 (2001), pp, 631 et seq., at p. 646. 15 77re Oscar Chinn Case, IJ.K. v. l3elqimn, Award, 12 December 1934 (hereafter referred to as Oscar Chirrrr), P.C.I J. Rep., Series A/B, No. 63, p. 1 et seq., at p. 88: "No enterprise ... can escape from the chances and hazards resulting from general economic conditions. Some industries may be able to make large profits during a period of general prosperity, or else by taking advantage of a treaty of commerce or of an alteration in customs duties; but they are also exposed to the danger of ruin or extinction ifcircumstances change. Where this is the case, no vested rights are violated by the State."; Starrett Housing Corp. v. Iran (hereafter referred to as Starrett Housing), 4 Iran-U.S. Claims Tribunal Rep. (1983), pp. 122 ct seq., at p. 156: "Investors in Iran, likc investors in all other countries, have to assume a risk that the country might experience strikes, lock-outs, disturbances, changes of economic and political system and even revolution. That any of these risks materialised does not necessarily mean that property rights affected by such events can be deemed to have been taken."; Marnin Roy Fehlman Karpa (Chmsa) (UsA) v. United Mexican States, 1(:sii) Case No. ARI3(AF)/99/ Award, 16 December 2002 (hereafter referred to as Feldmall), available at (last visited 11 August 2005), para. 1 12: "Governments, in their exercise of regulatory power, frequently change their laws and regulations in response to changing economic circumstances or changing political, economic or social considerations. Those changes may well make certain activities less profitable or even uneconomic to continue ..." 16 Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the Bit Generation, 74 B.Y.LL. (2003), pp. 115 et seq., at p. 117. Revere Copperalld Brass, Inc. v. Overseas Private Inv. Corp., Omc Award, 24 August 1978 (hereafter referred to as Revere), 58 I.L.M. (1980), pp. 258 et seq., at pp. 271-272; lately, WIlde, Thomas / Kolo, Abba, Environmental Regulation , Investment Protection and "Regulatory 7'aking" in International Law, 50 I.C.L.Q. (2001), pp. 811 et seq., at p. 813; Reisman, Michael W. / Sloanc, Robert D., Indirect Expropriation and its Valuation in tlrc BIT Generation, 74 B.Y.I.L. (2003), pp. 115 eat et seq., at p. 121. A wide range of State measures may be interpreted as expropriatory if those measures significantly reduce the value of the property rights of an investor or render them useless; see Reisman, Michael W. / Sloane, Robert D., Indirect Expropriation and its Valuation in the Brr Generation, 74 B.Y.I.L. (2003), pp. 115 et seq., at pp. 123. 18 Somarajah, M., The Ititeniational Law on Foreign Investment, 2nd edition, 2004, p. 351. 11 Christie, George C., What Constitutes a Taking ofProperty under International Law? 38 B.Y.I.L. (1962), pp. 307 et seq., at p. 338. 2" Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at p. 79; AlQurashi, Zeyad A., Indirect Expropriation in the Fic�ld of Petroleum, 5 J.W.I.T. 6 (2004), pp. 897 et seq., at p. 911. 1 .

  • 21 One strand of casc law supports this doctrine: Tippetts, Abbett, McCarthy, Stratton v. T'.1Af.'i-/))''t'/t Consi4ltirig Engineers of Iw, (hereafter referred to as Tippetts), 6 Iran-U.S. C.T.R. (1984), pp. 219 et seg., at pp. 225-226; Starrett Housing, p. 154; Phelps Do4qe Corp. v. Iran (hereafter referred to as Phelps), 10 Iran-U.S. C.T.R. (1986), pp. 121 et seq., at p. 130; Metaldad Corp. v. United Meviciiii States, ICSID case No. AIUJ(AF)/97/1, Award, 30 August 2000 (hereafter referred to as Metalclad), available at �www.worldbaiik.org/icsid/cases/iiiiii-award-e.pdf, (last visited 15 August 2005), para. 103; BilOlllle and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Govr·rnnrent of Ghana (hereafter referred to as Biloune), 95 I.L.R. (1989), pp. 183 etscq.; Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic a/Egypt, ICSID Case No. ARti/99/6, Award, 12 April 2002 (hereafter referred to as Middle East Cement Shipping), available at ,ita.law.uvic.ca/documl'I1ts/MECement-award.pd£ (last visited 18 August 2005), para. 107; Compaiiia del Desarrollo de Santa Elena, �.�4. v. Costa Rira, ICSJIJ Casc No. Aitt;/96/1, Award, 17 February 2000 (hereafter referred to as Santa Elerra), available at,,,N-ww.worldbaiik.org/icsid/cascs/satitacleiia - aw�ird.pdf, (last visited 16 August 2005), para. 76. For a more detailed analysis of thc presented case law, refer to AlQurashi, Zeyad A., Indirect Expropriation in the Field of Petroleum, 5 J.W.I.T. 6 (2004), pp. 897 et seg., at pp. 907-909 and Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seg., at pp. 86-90. =2 Another strand of case law suggests that there are more factors to be taken into consideration: Oscar Chitlll, p. 88. See also Weiler, Todd, Saving Oscar Chinn: Non-Discrimination in International Investment Law, in Hom, Norbcrt (ed.), Arbitrating Foreign Investment Disputes, 2004, pp. 159 et sea.; Barcelona Traction, Lrylrt & Powder Co., Belgium v. Spain, (hereafter referred to as Barcelona Traction), I.C.J. Rep. (1970), pp. 1 et seq., see separate opinions of Judge Fitzmaurice, p. 106, Judge Gros, p. 273, and Judge Tanaka, p. 159; Sca-Land Services, Inc. v. Iran, (hereafter referred to as Sea-Land Services), 6 Iran-U.S. C.T.R. (1984), pp. 149 et seq.; S.D. Myers, Inc. v. Canada, First Partial Award, 13 November 2000 (hereafter referred to as S.D. Myers), available at (last visited 11 August 2005). See also the Feldman case. For a more detailed analysis of the presented case law, refer to AlQurashi, Zeyad A., Indirect Expropriation in the Field o/ Pffro�Nf�, 5 J.W.I.T. 6 (2004), pp. 897 et seg., at pp. 909-911, Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at pp. 81-86. 23 Dolzer points at the weakness of the "sole effect doctrine", stating that "the proponents of the 'sole effect doctrine' would have to explain why international law protecting aliens should require a higher standard of protection than the major domestic legal orders"; Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seg., at p. 91. 21 Walde, Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and "Rrqulatory Taking" in International Laud, 50 I.C.L.Q. (2001), pp. 811 et seq., at p. 839; Orrego Vicurio, Francisco, Carlos Calvo, Honorary NAI·"!A Citizen, 11 N.Y.U.E.L.J. (2002), pp. 19 et seq., at p. 27; Paulsson, Jan, Key Notions 4 Foreigll lnvestment Protection: Expropriation and Measures Tantamount to Expropriation, paper submitted to the R.I.Z. Conference on "Arbitrating Foreign Investment Disputes-Procedural and Substantial Legal Aspects", Cologne, Germany, 12-13 June 2003, p. 6; Feldman, para. 112. z5 American Law Institute, Restatement (Third) of the Foreign Relations Law of the US.A., Vol. 2, 1987, �712, comment g. zs Summarizing Walde, Thomas / Kolo, Abba, Environmental Requlation, Investment Protection and "Regulatory Taking" ill International Law, 50 I.C.L.Q. (2001), pp. 811 et seg., at pp. 837 et seg. 27 Sec, for example, the following cases: Handyside v. United Kingdom, 24 Eur.Ct.H.R. (1976) (ser. A), pp. 1 et seq., at p. 29; Poiss v. Austria, 1 17 Eur.Ct.H.R (1987) (scr. A), pp. 87 et seg., at p. 108; Sporrong and Lonnroth v. Sweden, 52 Eur.Ct.H.R. (1982) (ser. A), pp. 1 et seq.; Matos e Silva, Lda. and Others v. Portugal, 14 Eur.Ca.H.R. (1996-iv), pp. 1092 et seq., at para. 79; all cases also available at: �cmiskp.echr.coe.int/tkpl97/ / search.asp?skin=hudoc-en> (last visited 2 September 2005). See, for a more detailed discussion, Ruiz Fabri, Hellene, The Approach Taken by the European Court of Human Riqhts to the Assessment of Compensation for "Regulatory Expropriations of the Property of Foreign Investors", 1 1 N.Y.U.E.L.J. (2002), pp. 148 et seg. See also Freeman, Elyse M., Regulatory Expropriatiolllll/der N.4FTI1 Chapter 11: Some Lessonsfrt)iti the European Court 4 Humall Rights, 42 Columbia J.T.L. (2003), pp. 177 et see., at pp. 184-203.

  • 21StarrettHousing, p. 154; Tippetts, pp. 225 et seg.; Pope b Talbot Inc. v. Canada, Interim Award, 26 June 2000 (hereafter referred to as Pope), available at (last visited 15 August 2005), paras. 96-98; S. D. Myers, para. 283; Feldman, para. 110; Revere, pp. 258-330. See, for a brief discussion, QECD, "Indirect Expropriation" and the "Right to Regulate" in International Investment Law, Working Papers on International Investment No. 2004/4; available at: �www.oecd.org/dataoccd/22/54/ 33776546.pdf> (last visited 1 1 Augtst 2005), pp. 10-14. "I Freeman, Elyse M., Regulatory Expropriation under NAFTA Chapter 11: Some Lessons from the European Court of Hum all Rights, 42 Columbia J.T.L. (2003), pp. 177 et seq., at pp. 189-191. 1. 30 Posing the same question: Dolzer, Rudolf, Indirect Expropriation: New Developments?, 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at p. 74. 'r Convention for the Protection of Human Rights and Fundamental Freedoms of 4 Novcmber 1950 and its first Protocol; available at: vjww.echr.coe.iiit/NP,/rdoi-Ayres/1)5((24A7-DC13-4318-B457-5C9014916D7A/O/ EnglishAnglais.pdts (last visited 1 September 2005). .1, Compared Article 53 Echr; see also Grabenwarter, Christoph, Europaische Merrschenrednskunventiorr, 2nd edition, 2005, 52, mn. 14. 33 "Investors are ready, and can be expected to be ready, to accept the regulatory regime in situations in which they invest [because they are in the position to make a risk/reward assessment of their investments Investment protection rather turns around the issues of unexpected changes with an excessive detrimental impact on the foreign investor's prior calculation." Walde, Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and "Regulatory Taking" in International Law, 50 I.C.L.Q. (2001), pp. 811 et seg., at p. 819. Courts, tribunals (Aminoil, p. 1034; Phillips Petroleum Co. Iran r. Iran (hereafter referred to as Phillips Petroleum), 21 Iran-U.S. C.T.R. (1989), pp. 79 et seq.; Arnoco International finance Corporation v. Iran (hereafter referred to as Amoro), 15 Iran-U.S. (:.T.R. (1987), pp. 189 et scg.; Starrett HoiisiiiR case; Metaldad, paras. 89 and 99; Peldmon, paras. 145 et seq.; Témicas Medioambientales Teemcd S.A. (Spain) r. The United Mexican States, Icsin Case No. Ax.B(AF)/00/2, Award, 29 May 2003 (hereafter referred to as 'I'errner!), available at ,ita.law.uvic.ca/documents/Tecnicas_001.pdf», last visited 15 August 2005 (unofficial English translation), paras. 91, 149 et seq., and 154. Also, the Echk has relied on this concept; see the Ect3R cases quoted by Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J.

  • (2002), pp. 64 et seq., at pp. 78-79) and commentators (e.g. AlQurashi, Zeyad A., Indirect Expropriation in the Field of Petroleum, 5J.W.I.T. 6 (2004), pp. 897 et seq., at p. 913; Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at pp. 78-79; sec also Walde, Thomas. / Kolo, Abba, Enrmironmcrrtal Regulation, Investment Protection and "Rf�H�for)' Taking" in International Law, 50 I.C.L.Q. (2001), pp. 811 et ft at pp. 821 et seq., who want to rely heavily on jurisprudence of the U.S. Supreme Court) have frequently referred to the interpretative factor of the "disappointment of legitimate expectations". In order to distinguish regulation from indirect expropriation, one has to ask whether the State has frustrated the legitimate expectations of the investor based on representations and actions of the host State. In order to do so, one must base one's evaluation on the facts, taking into account all aspects of the specific case at hand. Not only contractual commitments formalize legitimate expectations but also formal governmental promises in treaties, laws and even investment brochures do so. See Fatouros, Argyres A., Government Guarantees to foreign Investors, 1962, pp. 69 et seq.; more critical: Sornarajah, M., TIle International Law on Foreign Investment, 2nd edition, 2004, pp. 100 et seq.; just recently, Rcisman, Michael W. / Arsanjani, Mahnoush H., The Question of Unilateral Governmental Statements as Applicable Lall'ill Investment Disputes, 19 ICSJI) Rev. (2004), pp. 328 et seq., which lacks, however, a dogmatic explanation of how a State can bind itself by unilateral statement-despire its value as evidence for the creation of legitimate expectations within the concept of indirect expropriation or fair and equitable treatrnent-in international law towards an investor which is very often not a subject of international law; see also Southern Pacific Properties (Middle East) Ltrl. and Southern Pacific Properties Ltd (Hong Kong) v. Arab Republic of E�rypt, ICSID Case No. AR3/84/3, Decision on Jurisdiction and Dissenting Opinion, 14 April 1988 (hereafter referred to as Southern Pacific Properties), excerpts of the Decision published in 16 Yearbook Comm. Arb. (1991), pp. 28 et seq., at para. 46. This concept allows, firstly, to focus on the legal situation in the host State at the time when the investment is placed in that country. Secondly, it contains the idea that an expectation deserves more protection as it is increasingly backed by investment and, thirdly, it harbours an element of ftcxibility, i.e. legitimate expectations may fade in time and there may be a change of priorities in the host society; Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at pp. 78-79. 31 "JA]riy taking that is pursuant to discriminatory or arbitrary action, or any action that is without legitimate justification, is considered to be contrary to the non-discrimination requirement, even absent any singling-out on the basis of nationality. This includes prohibition of discrimination with regard to due process and payment of compensation requirements. Moreover, the non-discrimination requirement demands that governmental measures, procedures and practices be non-discrininatory even in the treatment of members of the same group of aliens." UNCTAD. International Investment Agreements: Key Issues, Vol. 1, 2004, p. 239. That also means that in order to fall foul of the non-discrimination rule it is not required that the host State discriminates explicitly and formally against the foreign investor; it is sufficient that the State measure is discriminatory in its effect. For the application of this notion in recent NAFTA awards, refer to S. D. Myers, para. 308. See also Wade. Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and "Regnlatory Taking" in International Law, 50 I.C.L.Q. (2001), pp. 811 et seq., at pp. 835-837. For an older notion of discrimination and the general problem of its application, consult McKean, Warwick, Equality and Discrimination under International Laud, 1983; Vierdag, Egbert Willem, 7/tf Concept oj Discrimination in Lnternatinnal Law, 1973. 35 It is no easy task to establish the "intention" of a government. However, "formal statements of the responsible Minister or a series of circumstances pointing to the protectionist intent being the main motivator for a policy can be taken to indicate the 'intention'"; Walde, Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and "regulators Taking" in International Lau,,, 50 I.C.L.Q. 2001, pp. 811 et seq., at p. 826, footnote 66. See especially the First Partial Award, paras. 171 et seq. and the separate Concurring Opinion of B. Schwartz, paras. 62 et seq., in S. D. Myers, the latter available at ,ita.law.uvic.ca/documents/SDPcycrs-Concurringon1 stAward.pdf> (last visited 7 September 2005). 3e Walde, Thomas / Kolo, Abba, Environmental Regulation, Investment Protection arrrl "Re,Qttlatory Taking" in International L1II', 50 I.C.L.Q. (2001), pp. 811 et.seg., at pp. 827 et seq. '� Rose-Ackennann, Susan / Rossi, Jirn, Disentangling Derequlatory Taking, 86 Virginia L.R. (2000), pp. 1441 et seq. See also Bundcsgcrichtshof (Gennan Federal Supreme Court), BC:H7 6, pp. 270 et seq., at p. 280; Bundesverwaltungsgericht (German Federal Administrative Court), BVerwGE 5, pp. 143 et sexl., at p. 145; BVerwGE 19, pp. 94 et seq., at pp. 98 el seq. The "special sacrifice" (Sonderopfer) concept is of primary importance in German constitutional expropriation law but is also known to the U.S. legal order; refer to Monogahela Navigation Corp. v. U.S., 148 US (1893), pp. 312 et seq. Its underlying principle is discrimination, but it goes beyond this concept. It is intended to protect the minority against the majority, preventing the latter from shifting the costs of regulation to the former; see W�lde, Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and

  • "RequlatoryTaking"inInternationalL1tl', 50 LC.L.Q. (2001), pp. 811 ct seq., at pp. 845 c·t seq. The authors of this article arc aware of the fact that it is critical to derive principles on indirect expropriation from cases decided in national fora, at least if one draws heavily only on the case law developed in one single nation (W:ilde and Kolo indeed do so, arguing that U.S. law, as the law of the last hegemonic power, enjoys extra authority; Walde, Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and "Regulatory Taking" in International Laud, 50 I.C.L.Q. (2001), pp. 811 et seq., at pp. 821-822), even if it might be the most powerful nation at present. One must consider these national principles, but as part of a comparative study of the rules developed in other major jurisdictions. This approach would be in conformity with the teaching on the sources of international law in regard to the "general principles of law" embodied in Article 38 of the Statute of the Icj. Dolzer, Rudolf, Indirect Expropriation: New Developments? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at pp. 69, and 76-78. 3K Article 1.2 of the Russian Law No. 2395-1 dated 21 February 1992 "On the Subsoil". 3y Articles 1.2 and 12 of thc Russian Law No. 2395-1 dated 21 February 1992 "On the Subsoil". 4° Article 13.1 of the Russian Law No. 2395-1 dated 21 February 1992 "On the Subsoil". 41 As an example, see Pustilnik, Marina, Authorities show ncw in crest in oil companies, Moscow News, 28 July 2005; available at: < english.mn.ru/cnglish/issue.php?2004-31-2> (last v',sited 26 October 2005).

  • 42 Article 20 of the Russian Law No. 2395-t dated 21 February 1992 "On the Subsoil". 43 It should be noted that Russian practice or law does not know of the term "administrative act" as such (Verwaltungsakt); a search in the relevant database, Garant, as of 5 October 2005 on "administrativni akt" did not lead to any result. ;3 Chapter 24 of the Arbitration Procedure Code of the Russian Federation of 2002. 45 Gutbrod, Max, Aktunlnyo problemy regtiliroi'amya Rossiskogo bankovskogo sektora i finatisovykh rynkov, Financial Risks Management, No. 3/2005, pp. 2 et seq. 46 For example, the term is only mentioned in Article 4(11) of Federal Law No. 164 - FZ, 8 December 2003 "On the Fundamental Principles of the State Regulation of Foreign Trade Activity": "... the basic principles of the state regulation of foreign trade activity shall be: ... ensuring the right to appeal, either in due process of law or in accordance with any other procedure prescribed under the law, against any illegal actions (inaction) of governmental agencies and their officials and also the right to challenge regulatory legal acts of the Russian Federation, derogating from the right of a participant in foreign trade activity to conduct such foreign trade activity." (emphasis added). 47 See, for instance, the Decision of the Federal Russian Arbitrazh Court of the District of Moscow, No. KA-A40/4680-05, 2 June 2005. 4. For instance, the relevant statutes in Article 2 of the Law "About licensing of different kinds of activity", No. 128, dated 8 August 2001, give no indications in regard to the existence of characteristics resembling property rights: possession, use and disposal. In addition, the term "property right" itself is not mentioned.

  • 4Y Kutafm, O.E., Commentary to the Russian Constitution, 2003, Articles 24(1), 36(2), 55(3), 57, 75(3), and 132(1); Lasarev, L.L., Commentary to the Russian Constitution, 2003, Articles 14(6), 9(1), 24(4), 34(4), 37(1), 57(1), 58(4), 75(3), and 114(2) and (4): Karpovich, W.D., Commentary to the Russian Constitution, 2002, Articles 24(1), 37(1), 43(2), 45(2), 57, 71, 72(1), 74(1), 103(1), and 132(1); Okunkova, L.A., Commentary to the Russian Constitution, 1994, Articles 41, 45, and 114. 50 Reportedly, there have been only a few instances in which mining licences have actually been withdrawn. Even in the context of what has often been described in the press as a crusade against Yukos, Yukos has not actually lost any of the mining licences which reportedly violated mining legislation. 51 North,qas v. Gazprom, Decision of the Federal Arbitrazh Court of the District of Moscow, No. KA-A40/12425-04, dated 11 January 2005. 'z Virtually all Russian authors dealing with issues of the application of international treaties in the Russian Federation ground their positions on Article 15(4) of the Constitution of the Russian Federation, which states that "[t]he universally-recognized norms of international law and intemational treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation fixes rules other than those envisaged by law, the rules of the international agreement shall be applied." See International Civil Procedure, 2001, pp. 46 et seq.: "A question on the norms of jus cogens character, which mostly exist in the form of custom has already been touched upon. Considering these norms as principal ones apparently witnesses that the widest application of them is possible in the practice of the RF Constitutional Court ... It is possible to assume that the priority of the interpretation of jus cogens norms (norms-principles) by the RF Constitutional Court is a feasible approach to this question for Russian judicial practice in general ... The issue becomes more complicated when it concerns other international legal norms of customary origin. Article 15 of the RF Constitution, and later Article 7 of the RF Civil Code included the norms of this type (the universally-recognized norms of intcrnational law) into the Russian legal system. But their place in the system is less clear in comparison to treaties ... While hearing economical disputes in Arbitrazh Courts one can already meet participants' references to well-known international norms of customary character. First of all, this is true for the substantive norms contained in widely known international conventions which arc not mandatory for the Russian Federation ... At this time courts are extremely cautious in appraisal of the procedural norms of those conventions that are not in force for Russia yet." sI Northgas v. Gazprom, Decision of the Federal Arbitration Court in the District of Moscow, No. KA-A40/12425-04 (extraction), dated 11 January 2005; Yukos, Decision of the Constitutional Court, No. 36-O, dated 18 January 2005. 5S Licences are now clearly protected by IIAS; see Amco Asia Corporation , Pall American Development Limited and P.T. Amco Indonesia v. Republic. of Indonesia, Case No. ARB/81/1, Dccision Annulling thc Award, 16 May 1986 (hereafter referred to as Amco (Annulment)), 25 I.L.M. (1986), pp. 1439 et seg. See also Sornarajah, M., The International Lam on Foreign Investment, 2nd edition, 2004, pp. 371 et seq., at pp. 389 et seq.

  • sb Unctad, Ititerizatioiial Investment Agreements: Key Issues, Vol. 1, 2004, p. 239. 5� Of the same opinion but not differentiating: AlQurashi, Zeyad A., Indirect Expropriation in tlre Field of Petroleum, 5 J.W. I.T. 6 (2004), pp. 897 et seq., at p. 914. Ss Alex Genin, Eastern Credit Limited, Inc, and A.S. Baltoil v. The Revublir of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001 (hereafter referred to as Genin); available at: (last visited 1 September 2005. 59 Even if a revocation of a licence is well justified, the State must act with procedural regularity; otherwise, it would be held liable to pay compensation. In Middle Eastern Cernent Shipping and Metalclad, the host State was not held liable for the cancellation of the licence but for a lack of due process, especially for a lack of transparency.

  • °" This means that the investor should be able to demonstrate that the State, in respect to the other instances, was not acting due to ignorance of these instances or legal obstacles which would bar it form enforcing the law in question but due to reasons unrelated to the aforementioned. 11 Gotz, Volkmar, Ober die "Gleichheit im Unrecht", in Bachof, Otto, et al. (eds.), Venialttiiigqreclit znvischen Freiheit, Teilhabe und Bindung: Festgabe aU5 Anlass des 2.5jahr�en Besteherts des Buudesuenualtunqsqerichts, 1978, pp. 245 et seq., at p. 254. 62 It is important to note that this observation applies only to the situation in which the State is obliged by law to interfere with a right of an investor in a certain way without any discretion but does so only on a selcctivc basis. This is not to be confused with the notion of "no equality in wrong" (keine Glrichheit im llnrecht), in German constitutional doctrine. For the distinction-a detailed outline would go beyond the scope of this article-refer to K61bel, Christoph, Gleichheit "im L7tire�lit", 1998. (,3 Kolbel, Christoph, Glcicitlieit "if CTnrecht", 1998, pp. 80 et seq., especially p. 141 (English summary); an argument stating that the principle of legality demands the immediate proper execution of the law in question against the investor implies that the principle of legality takes precedence of the principle of equality. This is doubtful. The principle of legality carries inherently the demand of due application of the principle of equality; Kolbel, Christoph, Gleichhcit "im Unrecht", 1998, pp. 43 and 83. M Kolbel, Christoph, G/�/�-tf "im Unrecht", 1998, p. 82 and 90. 65 An exception might be necessary in situations in which immediate action is necessary in order to avert damage to live and limb. 66 Tecmed case, para. 154.

  • « See, in general, on the issue of transparency in Uns, UNCTAD, Transparency, UNCTAD Series on Issues in International Investment Agreements, 2004, especially p. 63; available at: Investment Arbitration under the Energy Charter Treaty: An Overview of Key Issues, Transnational Dispute Management, Vol. 1, Issue 2, May 2004; available at: �www.transnational-dispute-mmagement.com� (last visited 11 August 2005). The concept of transparency arrived late in international investment law. In regard to the standard of treatment, two cases deserve to be mentioned. In ;1,.[etaldad, para. 76, the NAFTA Tribunal defined the concept of transparency (stated in Article 1802 NAFTA) as requiring the following: "... all relevant legal requirements for the purpose of initiating, completing and successfully operating investments made, or intended to be made, under the Agreement should be capable of being readily known to all affected investors of another Party." If a State becomes aware of "confusion or misunderstanding" among investors concerning the legal requirements to be fulfilled, the Party would have "the duty to ensure that the correct position [would be] promptly determined and clearly stated so that the investors can proceed with all appropriate expedition in the confident belief that they are acting in accordance with all relevant laws" (summary taken from Open, Fair and Equitnble Treattiieiit Standard in International Law, Working Papers on International Investment, No. 2004/3, p. 37). Since Mexico had failed to provide such a framework, it was held liable for breach of the fair and equitable treatment standard. However, this reading was rejected in a review by the Supreme Court of British Columbia on the grounds that the treaty obligation of transparency was outside Chapter Eleven and, thus, outside the fair and equitable treatment standard. Moreover, the NAFTA Tribunal was charged to have failed to have put forward any evidence that the obligation of transparency has become customary international law. Also, in Maffezini, a lack of transparency in administrative conduct was established, which led the Tribunal, in connection with other factors, to the conclusion that Spain had violated the fair and equitable treatment standard contained in the Spain-Argentina Brr. No explanation was given on the precise meaning of the lack of transparency. See Maffezini, (Argentina) v. Kingdom rf Spain, ICSID Case No. ARJJ/97/7, Award, 13 November 2000; available at: Transparency, UNCTAD Series on Issues in International Investment Agreements, 2004, especially p. 63, available at Is Transparency of Governmental Administration Customary International Law in Investor-Sovereign Arbitrations?-Courts and Arbitrators May D�er, 21 Arbitration International (2005), pp. 187 et seq. by Reported by Hober, Kaj, Investment Arbitration in Eastern Europe: Recent Cases on Expropriation, 14 Am. Rev, Int'l Arb. (2003), pp. 377 et seq., at pp. 407 et seq. This case was concerned with the removal and subsequent public auctioning of a ship by Latvian governmental officials due to an alleged breach of a lease contract on an anchorage. The Tribunal based its finding of indirect expropriation on the failure of the government to inform the investor about the (alleged) invalidity (retroactive change oflaws) of the lease contract in due time (four months inactivity) and cacophonic statements of a governmental official, the participation of governmental officers in the (alleged) illegal activity of concluding the lease contract and the missing proportionality between the (alleged) wrongful act of the investor and State measures; Hobcr, Kaj, Investment Arbitration in Enstem Europe: Recent Cases on Expropriation, 14 Am. Rev. Int'l Arb. (2003), pp. 377 et seq., at p. 414. 70 The NAFTA Tribunal in Metaldad dealt with a case in which the investor did not obey the local building and environmental rules and thus acted unlawfully in regard to national rules. However, representations were made by governmental officials who were not aware of their own legal order. It was held that the investor's legitimate expectations in the lawfulness of his undertaking cannot be destroyed ifhe leams about the illegality of the investment after it was made. Refer also to Paulsson, Jan / Douglas, Zachery, Indirect Expropriation in Investment Treaty Arbitrations, in Horn, Norbert (cd.), Arbitrating Foreign Investment Disputes, 2004, pp. 145 et seq., at pp. 154 r·t seq.

  • 71 Waldc, Thomas. W., Investment Arbitration under the Energy Charter Treaty,: An Overview of Key Issues, Transnational Disputc Management, Vol. 1, Issue 2, May 2004; available at: �www.transnational-dispute-management.com� (last visited 11 August 2005). 72 Krupko, S., Investition agreements and disputes between countries and privateforeign investors, Business and Law (Attachment No. 5, 5/2001), pp. 6, 14, 15, 17 and 18; Krupko, S., Investment activity in the constituent entities ofthe Russian Federation, Business and Law (No. 10/2000), p. 42. '3 Krupko, S., Investition agreements and disputes between countries and private foreign investors, Business and Law (Attachment No. 5, 5/2001), pp. 6, 14, 15, 17 and 18; Krupko, S., Investment activity in the constituent entities of the Russian Federation, Business and Law (No. 10/2000), p. 42.

  • 74 I'aulsson, Jan / Douglas, Zachery, Indirect Expropriation in Investment Treaty Arbitratiorrs, in Horn, Norbert (cd.). Arbitratitig Foreign Investrnent Disputes, 2004, pp. 145 et seq., at p. 155 et seq.; Dolzer, Rudolf, Et�e1lflml, Errterkrrrnrrg und Enischddigung imgeltenden Völkcrrecht, 1985, p. 252. 75 Feldrnan, para. 109 et seq. '6 Goetz and others v. Burundi, ICSID Case No. Aiu/95/3, Award, 10 February 1999 (hereafter referred to as Goetz); available at: Indirect Expropriation in Investment Treaty Arbitrations, in Horn, Norbert (ed.), Arbitrating Foreign Investment Disputes, 2004, pp. 145 et seq., at p. 155. See, for the taxation of windfall profits of the oil industry, the Aminoil case; for the situation in the United States, U.S. v. Ptasynki, 462 US (1983), pp. 74 et seq. 77 Kugele v. Pnlish State, Upper Silesian Arbitral Tribunal Case, 5 February 1932, Arntliche Sammlung von Entsrheidungerr des Schiedsgerichtsfiir Oberschlesien, Vol. 3, 1931, p. 20. See also Lauterpacht, Hersch, Annual Digect of Public International Law Cases, Vol. 6, 1931/32, p. 69. �n "Substantial damage" is understood in the sense that a profitable usage of the investment is impossible; Dolzer, Rudolf, Eigeutum, Enteignung und Entsdriidiqurrg irn gelterrderr Vtilkerrerht, 1985, pp. 252 et seq. Refer also to Dolzer, Rudolf, Indirect Expropriation: New Developmerrts? 11 N.Y.U.E.L.J. (2002), pp. 64 et seq., at pp. 78. 79 COME Czech Republic BV (T7ie Netherlands) v. The Czech Republic, Partial Award, 13 September 2001 (hereafter referred to as CnTS); available at: `www2004.mfcr.cz/static/Arbitraz/en/PartialAward.pd6 (last visited 12 August 2005. The actions and non-actions of the Czech Media Council were not part of proper administrative process (no justification for the sudden change in the interpretation of the legal situation or other regulatory measures and its enforcement (1996) and the illegal collusion (1999) with a Czech national with a protectionist intent).

  • n° A first, rather simple argument relates to the rules of causality. An infringement of a given right cannot be imputed to someone if it can be demonstrated that the infringement would also have been caused if this person had acted correctly. For the example here, this would mean that the infringement (indirect expropriation) would also have occurred if the host State had lawfully revoked the licence. This apparently is not the case. Thus, the host State must have inflicted the infringement. A second argument may be drawn from the second Amw v. Indonesia Award on the Merits, Anuo Asin Corporation and Others v. The Republic of Indonesia, Icsii) Case No. Aim/81/1, Resubmitted, Award on the Mcrits, 31 May 1990 (hereafter referred to as Amw u (Mcrits)), 89 I.L.R. (1992), pp. 580 et seg. In para. 143, the Tribunal states: "[Ewen were a decision on grounds other than those stated in the Degree in principle sustainable, they could no more be lawful than the decision made on grounds of shortfall of investment, because of the general background that pervaded the decision-making." It does not matter that the same result could have been reached in another way, i.e. that the foreign investment could have also been adversely affected by measures which are in principle sustainable; it is only the process of how this result is reached (and that this process was ultimately malconducted) which matters. Of the same opinion: Somarajah, M., The International Lao on Foreign Investment, 2nd edition, 2004, p. 390. 8r It is open to question whether all of the loss inflicted upon the foreign investor by the discriminatory application of certain tax laws can be attributed to the host State due to the fact that substantial damages would have occurred also in the case of a lawful (in terms of public international law) revocation of the licence. The Atpico u (Merits) Award casts doubts on this; in para. 174, it reads: "To argue, as did Indonesia, that although there had been procedural irregularities, a 'fair BKPM' [the governmental body acting on behalf of Indonesia] would still have revoked the licence, because of Amco's own shortcomings, is to misaddress causality. The Tribunal cannot pronounce upon what a 'fair l3KPna' would have done. This is both speculative, and not the issue before it. Rather, it is required to characterise the acts that l3Kntvt did engage in and to see if those acts, if unlawful, caused damage to Amco. It is not required to see if, had it acted fairly, harm might then rather have been attributed to Amco's own fault." 12 See the Draft Articles on Responsibility of States for Internationally Wrongful Acts adopted by the International Law Commission at its fifty-third session (2001). See also Commentaries to the Draft Articles on Rcsponsibility ofStatcs for Internationally Wrongful Acts adopted by the International Law Commission at its fifty- third session (2001). Both are available at: cwww.un.org/law/ilc/tcxts/State responsibility/responsibilityfra.hnn> (last visited 12 August 2005). For academic writing, see, instead of others, Brownlie, tan, Principles of Pubic International Law, 6th edition, 2003, pp. 420 et seg., with further references. H3 Walde Thomas / Kolo, Abba, Environmental Regulation, Investment Protection and "R,xulatory Taking" in International Law, 50 I.C.L.Q. (2001), pp. 811 et seg., at p. 826, footnote 66. See especially the First Partial Award, para. 171 et seg., and the separate Concurring Opinion of B. Schwartz, para. 62 et seg., in S.D. Myers, the latter available at

  • 85 Decision of the Russian Constitutional Court, No. 15, dated 16 July 2005. Rio For example, Article 1 13 of the Tax Code, No. 146, dated 31 July 1998, states that "[a] person [meaning in Russian an individual or legal entity] may not be held liable for conunitting a tax violation if three years (the statute of limitations) have passed from either the day it was committed, or from the next day after the end of the tax period during which the violation was committed." In the Yukos Decision of the Constitutional Court, No. 36-0, dated 18 January 2005, the Court re-interpreted this provision to apply only for "conscientious" taxpayers. It was deemed not to apply to "un-conscientious" taxpayers, which Yukos was found to be. However, the wording of the statute does not actually provide a basis for this interpretation. 87 Revere, pp. 291 et see.: "In our view, the effects of thc Jamaican Govemment's actions in repudiating its long term commitments to RjA (the subsidiary of RC), have substantially the same impact on effective control over use and operation as if the properties were themselves conceded by a concession contract that was repudiated ..." For a discussion, refer to Dolzer, Rudolf, Indirect Expropriation ofalieti Property, 1 ICSID Rev. (1986), pp. 41 et seq., at pp. 51 et seq.; Somarajah, M., The Intemational Law on Foreign Investment, 2nd edition, 2004, pp. 378 et seq. In contrast, in the EL,¡ case, the foreign company, in the view of the Court, went bankrupt because of its own financial situation and not because of the action of the host State; Elettronica Sicula S.p.A. (U.S. v. Italy), Award, LC.J. Rep. (1989), pp. 15 et seq., also available at

  • "NTeemed, para. 154.

  • "0 Sornarajah, M., '1'he International law on Foreign Investment, 2nd edition, 2004, p. 390. 911 Sornarajah, M., The International IAW on Foreign Investment, 2nd Edition, 2004, p. 390. See, for the old state of the law, Frccrnan, Alwyn V., The International Responsibility qf States for Detlial of Justice, 1938, p. 518, footnote 2. 91 Yukos Decision of the Russian Constitutional Court, No. 36-0, dated 18 January 2005, the only Decision on the Yukos case available in a public database, as explained above, deals with technical issues of the interpretation of tax legislation rather than with the overall economical effect of government action.

  • 12 See Tokios Tokeles v. Ukraine, 1(7six Case No. ARB/02/1H, Decision on Jurisdiction, 24 April 2004; available at: International Law in Brief, 25 June 2004; available at: Sedco, Inc. v. National Iranian Oil Company (hereafter referred to as Sedco), 9 lran-U.S. C.T.R. (1985), pp. 248 et seq. (appointment of directors by the State; not concerned with any criminal prosecution); Biloune case. "' Biloune, para. 1.

  • 9; As above, see as an example the Decision of the Russian Constitutional Court, 18 January 2005, No. 36-0. 9s A search in the most commonly used legal database on "extra-legal emergency" as of 11 October 2005 gave no results. » The interference in domestic politics by foreign investors seen as agents of their home State is a well-known instance (as with Allendc in Chile) and has been addressed by prohibition in many soft-law instruments (voluntary codes of conduct). However, no hard-law international obligation has arisen so fir. In general, there has been little movement in formulating binding obligations of foreign investors (multinational corporations). Refer to Sornarajah, M., The International Law on Foreign Investment, 2nd edition, 2004, pp. 171 and 174 et seq. Moreover, in general, home States do not carry responsibility for the acts of thcir nationals not acting on bchalf of the home State abroad; refer to Article 4-11 of the International Law Commision's Draft Articles on Responsibility of States for Internationally Wrongful Acts. 1(7 It seems that criminal activities of a foreign investor do not automatically render an investment unprotected by Uns. See Somarajah, M., Tlre International Law on Foreign Investment, 2nd edition, 2004, p. 390.

  • "' See, on the customary law doctrine of "state of necessity" in general, Brownlic, [an, Principles of Public International Law, 6th edition, 2003, pp. 448 et seg., with further references. The state of necessity, though in the context of treatment standards due under a BIT regime, was also invoked and lengthily discussed in a recent lcsm arbitration, C.us Gas Tra/lSlI1issio/l Company v. Argentina, IcsJI1 Case No. Am/U1 /08, Award, 12 May 2005 (hereafter referred to as CAM); available at: �ita.law.uvic.ca/documents/CMS-FinalAward.pdfi (last visited 9 August 2005), paras. 304 et seq. '1'1 CAM. para. 315. 11111 Very high standards ofproofarc required, and it is doubtful whether an international tribunal would accept a state of necessity in the situation at hand. See C.u.s, paras. 319-332. 1111 Commentaries to the Draft Articles on Responsibility of States for Internationally Wrongful Acts, adopted by the International Law Commission at its fifty-third session (2001), Article 25, para. 20; available at: (last visited 12 August 2005).

  • 1"2 As demonstrated, for instance, in the Media lMost Gusinsky case, in which the partly government-owned Gazprorn giant guaranteed two loans to Media Most in 1998 that totalled US$ 380 million, secured by a 40 per cent piece of the company. After criticizing the politics of the Kremlin, with the Kremlin allegedly being instrumental in bankrupting Media Most by calling in the loans, the owner of Media Most, Mr Gusinsky, was arrested, allegedly without any charges, and he was allegedly compelled to sign an agreement to sell his company. See: The Ies//) Cot/u",It;,,,,: A Commentary, 2001, p. 392. For an appraisal of alleged new tendencies in arbitration, see Schreuer, Christoph, Calvo's Grandchildren: The Retum of Local Remedies in Investment Arbitration, 4 L.p.LeT. (2005), pp. 1 et seq.

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