Investment

Customary International Investment Law

Provide a critique of the development of the standards for lawful direct expropriation in customary international investment law

Introduction

Customary international law is designed for the purpose of providing the obligation to the parties to design the investment agreements while giving concern to fair and equitable treatment.

Customary international law includes the sources such as investment protection obligations on the basis of treaties and general principles (Lepard, 2010). This law supports to claim for the denial of fair and equitable treatment.

Customary international law (CIL) has supported to establish customary principles, while concluding thousands of bilateral investment treaties (BITs) in 1990s which are designed to promote and protect the investments (Baker, 2010). However, in the current scenario, it is identified that the inclusion of the number of BITs has increased highly due to which there scope has become comprehensive.

Due to this reason, new debate has arisen in the context of the impact of these treaties in the context of existence of custom in international investment law. In doctrine, BITs has supported to represent the new custom.

In the context of customary international law, it is identified that the major issue is that this law does not cover all the all legal matters such as it does not cover armed conflict.

Expropriation can be defined as the action which is taken by the state or an authority regarding taking property from the owner for utilizing it for public or benefit purpose.

Expropriation is important international investment as government rules and regulations regarding expropriation of property remains supportive to provide compensation on timely manner. There are government rules and regulations regarding right to fair compensation so, it enables to control the risk. Due to this reason, it reflects in all international investment agreements (Vázquez, 2011).

It is identified that there is a difference between customary international law (CIL) and treaty laws however, it is identified that this difference is not so high in the context of compliance and enforcement.

Treaty shows the difference from CIL as it permits set of exclusion and agenda-control devices. However, it remains unavailable in the custom as it has decentralized world. Moreover, customary international law involves the international law for the custom principle (Bederman, 2010).

Treaty and CIL remain distinct in perspective of law making process. Treaties are the outcomes of the bargaining processes whereas CIL are evolved by executing the practices. Apart from this, state practices play a significant role in the interpretation and execution of treaty.

In relation to this, the international law commission analyses the practices of the treaty law on subsequent basis. Apart from this, both laws are negotiated in different manners. The decentralization way is considered while negotiating customary rules.

At the same time, there is a similarity between CIL and treaties as their general principles are considered by the United Nations and its member states as well as with the International Court of Justice and jurists.

Initially, this essay supports to offer the introductory information about the CIL and after that analysis of the research topics have taken place on the basis of the major issues which are covered under this law while giving legal reasoning. Furthermore, researcher as concluded the study while highlighting the argument (Smaw, 2011). It has also given consideration towards indicating the implications of the argument for the development of the law in the area.

Analysis

Customary international law can be defined as an aspect of international law which involves the principle of custom. According to the general principles of law and treaties, it is identified that custom is considered by the International Court of Justice, jurists, the United Nations, as well as in the member states on the basis of the primary sources of international law.

CIL covers, various issues however the major issues which are covered under CIL are related to public purpose, due process, non-discriminatory principle and compensation. There are certain legality requirements in International investment agreements (Isakoff, 2012).

Neither party has right to expropriate or nationalize a covered investment by using the measures similar to expropriation and nationalization except for a public purpose, non-discriminatory way, on payment of compensation and according to due process of law.

Public purpose

In the context of public purpose, it is investigated that giving concern towards public interest has become essential. There is a need of considering the expropriation in a lawful manner.

Due to this reason, there is a need of measuring various BITs and other treaties for public interest (Subedi, 2016). Moreover, it is analysed that according to the Article 4, 1962 (General Assembly Resolution No. 1803), there is criteria mentioned for the grounds or public utility should be purely which are overriding purely for the private interest.

However, in 1974, there is not public purpose criterion are mentioned in Charter of Economic Rights (Quick, 2015).

It is identified that CIL has not made any final determination on the public purpose requirement which has shown lack of compensation and the expropriation is unlawful in any case.

So, it is essential to give concern towards the public purpose in the legality requirement for both the investment treaty and unwritten international. In the context of public purpose, CIL enables to offer the protection to the foreign investors.

It is the major aspect of the customary international law to consider the public purpose or interest for the legitimization of an expropriation. The need of public interest is considered lawful in almost all IIAs.

Regarding this, several BITs and other treaties make it mandatory that the public interest should be considered in the measures taken. There should be a purpose which is in the public interest.

Expropriation can be possible in relation to the serious human rights violations and if the crime is committed against the humanity (Isakoff, 2012). The case law is required to acknowledge the presence of a public interest requirement. It is addressed the legality requirements for expropriations with the consideration of public interest requirements.

Non-discriminatory principle

Non-discrimination can be defined as a standard element which is considered in CIL and treaty provisions. It supports to address the legality in the context of expropriation.

So, the major reason behind covering this issue is that discrimination is the issue that create biasness for single or group of people without any solid reason (Subedi, 2016).

So, under the law discrimination is considered as unreasonable distinction. In this context, expropriation of certain persons is not unlawful if the expropriation takes place due to discrimination.

It is the standard element to consider non-discrimination requirement both in international customary laws and treaty provisions that ensures the legality of the expropriation. This element singles out the specific person or group from others regardless any significant basis.

If any expropriation singles out aliens or any nationality will be considered under the violation of the international law. It can be considered as the unreasonable distinction. If the distinction is based on security of the state and economic policies, then expropriations cannot be unlawful.

According to the government laws, non-discrimination requirement demands that there is a need of measuring the procedures and practices so that every member gets the same treatment even in the group of aliens.

The expropriation which gets motivated due to racial motivation is regarded as evident. Moreover, it is identified that a foreign investor is expropriated while other was not as the discrimination has taken place due to adequate reason ten it will not remain unlawful under discrimination (Karamanian, 2013).

Even though, the practices of the non-discrimination are unclear in the general views. The principle of the non-discrimination is not significant for the international human being right as the treaties and declarations. It is not meant that it is not fully satisfied, even though, it important but at the small level.

The main purpose of establishment of this is to mitigate the issue of the discrimination with the various vulnerable groups is uneven.

However, in the context of CIL, it is identified that it is questionable in the context of that is it sufficient to constitute illegal discriminatory taking. It is identified that in most of the cases, expropriation targets specific groups of property owners, investors or any oil exploring or highway construction firms, etc.

The fact is that in the perspective of foreign investors, they not become able to constitute adequate rules and regulations regarding discriminatory taking.

Moreover, it is analysed that only the foreigners get affected through expropriation. For instance, there is no discrimination case can be found against the Hungarian government expropriation for the foreign airport operator due to Cypriot nationality (Aisbett et al. 2010).

In like manner, it is also identified that in the majority of cases, airport operations handed over to the foreigner owned company instead of domestic owned company. In this context, it is identified that the motivational factor behind it is the expectation of higher profits.

It is a legality requirement as it includes the investor right so the contracting party can get affected by the expropriation. It also includes the valuation of the investment as well as the compensation payment.

Due Process

There is a requirement of expropriation should be taken place under due process law. It is identified that due process is provided under BITs and IIAs.  In treaty based investment law, BITs and other IIAs often consider due process.

The due process is required to be considered in the determination of the compensation amount. The domestic law should be considered while making expropriation.

Due process can be defined as a prerequisite which supports to provide the possibility to have the expropriation and enables to determine the amount of compensation. Due process can be defined as the local legal processes which are judged beyond their own sovereign borders (Spears, 2010).

Due process supports to offer reserve store of principles for international tribunals and national courts to resolve the issues related to transnational case. It enables to form the judgement not on the basis of parochial views but on the view of universal perspective while focusing towards the legal system.

Under due process, the investor who gets affected shall have the right of prompt reviewing the issue under the contracting party law. According to the basic legal mechanisms, the fair hearing, unbiased and impartial judgement takes place under due process as it enables to assess the actions in dispute and it remains accessible for the investors (Kingsbury and Schill, 2010).

However, it is identified that in the case, where no legal procedure has taken place in the context of argument than the action taken place under due process of law become hollow.

From this, it can be evaluated that this condition creates issue towards public purpose and non-discrimination requirement as they are not fulfilled under this circumstances. So, it can be stated that under this situation, expropriation remains unlawful (Porterfield, 2011).

Compensation

From the study, it is identified that till the first half of the 20th century, there was the principle of full compensation for expropriation was established in the context of international practices (Abbott, 1999). International laws are designed for developing equality between the states.

Under this law, the state has a right to exercise towards the other civilised state without giving respect to the property of the foreign citizens. So, this law supports to protect the rights of foreign investors. This law supports to offer fair market value on the expropriation of the investment.

Moreover, this process states that the compensation should be in the real value of the investment and should be provided immediately. Additionally, it should include the interest at normal commercial rate and should be provided the payment without any delay (Gainer, 1983).

However, in the contrary, it is identified that the precise amount of compensation of expropriation remains in controversy under CIL. There is a general obligation of providing the compensation in the context of jurisprudence of investment tribunals and it remains applicable for investment treaty law and general international law.

Due to valuation method, under expropriation property, there is an issue in compensation as it is less prominent in nature as compared to high politicized debate (Levy, 1995). It is identified that compensation has never paid on the grounds which states that the Tribunal are lacking in the context of jurisdiction.

Due to this reason, it is identified that the expropriation does not become able to meet the needs and requirements of Article 4(2). This is the major reason behind the controversy in expropriation of CIL.

Moreover, it is identified that as the treaties contain the detailed rules and regulations in the context of appropriate level of compensation as well as due to valuable method, it is concerned about the expropriated property (Dolzer, 2002). It creates concern towards the valuation method which concerns expropriated property.

In international practice, the principle of full compensation is considered for expropriation of foreign property.  It is mandatory for the government to deprive an alien of his property with compensation.

No government has right to expropriate the private property without making payment as per the customary international law standards. For instance, in the case of Norwegian Shipowners claims, the tribunal declared that the claimants have right to get the immediate and full compensation.

In the case of expropriation, the most of the international investment agreements are made based on rules on the obligation for compensation payment. However, the level of compensation is different from treaty to treaty (Fortier and Drymer, 2004).

Regarding to this, several BITs and IIAs introduced the Hull formula to determine the compensation payment for the expropriating state.

In customary international law, there is a difference between primary and secondary rules of the state accountability for wrongful actions internationally. Primary rules are related to the violation of the responsibility of the state while secondary rules are associated with the governance of the state liability for breaches of primary rules.

So, state does not liable for carrying out expropriation. Liability incur when the state fails to meet the conditions for expropriation (Porterfield, 2011). If the expropriating state is not successful to meet its primary obligation to compensate the investor for the expropriated investment, then it is internationally liable.

Conclusion

On the basis of the above discussion, it can be concluded that no party is allowed to expropriate or nationalize the international investment excepting public purpose, non-discrimination, due process and compensation.

Apart from this, there are some differences between customary international law and treat law in relation to their negotiation style and manner of execution. All these elements have a significant influence on the execution of the law in relation to the nationalization and expropriation of the international investment.

References

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Aisbett, E., Karp, L. and McAusland, C., 2010. Compensation for indirect expropriation in international investment agreements: Implications of national treatment and rights to invest. Journal of Globalization and Development1(2).

Baker, R.R.B., 2010. Customary international law in the 21st century: old challenges and new debates. European Journal of International Law21(1), pp.173-204.

Bederman, D.J., 2010. Acquiescence, objection and the death of customary international law. Duke J. Comp. & Int’l L.21, p.31.

Dolzer, R., 2002. Indirect expropriations: new developments. NYU Envtl LJ11, p.64.

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Levy, T., 1995. NAFTA’s Provision for Compensation in the Event of Expropriation: A Reassessment of the Prompt, Adequate and Effective Standard. Stan. J. Int’l L.31, p.423.

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Quick, R., 2015. Why TTIP should have an investment chapter including ISDS. Journal of World Trade49(2), pp.199-209.

Smaw, E., 2011. International law. In Encyclopedia of Global Justice (pp. 566-568). Springer Netherlands.

Spears, S.A., 2010. The quest for policy space in a new generation of international investment agreements. Journal of International Economic Law13(4), pp.1037-1075.

Subedi, S.P., 2016. International investment law: reconciling policy and principle. Bloomsbury Publishing.

Vázquez, C.M., 2011. Customary International Law as US Law: A Critique of the Revisionist and Intermediate Positions and a Defense of the Modern Position. Notre Dame L. Rev.86, p.1495.

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