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Compensation Standards and Permanent Sovereignty over Natural Resources

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Permanent Sovereignty over Natural Resources

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Abstract

In case of direct expropriation, the host State is required to pay compensation. The form and amount of such compensation used to be the subject of a heated debate. An ‘appropriate’ compensation needs to be paid, but does it mean that the compensation should cover the entire market price of the expropriated assets? This question is today considered moot, given the proliferation of investment treaties, which almost unanimously adopt the Hull formula. The present study argues, however, that the permanent sovereignty over natural resources or peoples’ right of economic self-determination may come into play in cases of expropriations of a general and impersonal character so that the strict application of the Hull formula is to be limited to cases of individual expropriations.

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Notes

  1. 1.

    Dolzer and Schreuer (2012), p. 100.

  2. 2.

    Emphasis added.

  3. 3.

    See e.g. Gess (1964), pp. 420–424; Dolzer (1981), p. 562.

  4. 4.

    ‘[P]uisque la souveraineté réelle politique des Etats serait mise à néant par la confiscation de leur souveraineté économique, il n’y aurait plus d’indépendance complète sans la souveraineté économique. Il en résulte que l’instauration de la souveraineté économique des Etats en voie de développement est devenue le but définitif du NOEI [nouvel ordre économique international].’ Ida (1982), p. 122.

  5. 5.

    Emphasis added.

  6. 6.

    Dolzer (1981), pp. 582–584.

  7. 7.

    See Waelde (1998), p. 771; Kamto (2011), p. 493.

  8. 8.

    Traité entre la République fédérale d’Allemagne et la République Centrafricaine relatif à l’encouragement et à la protection mutuelle des investissements de capitaux, fait à Banguï le 23 août 1965, http://unctad.org/. See also Agreement on the Encouragement and Reciprocal Protection of Investments, signed on 15 January 1970, UNTS, Vol. 853, I-12057.

  9. 9.

    Verwey and Schrijver (1984), pp. 70–74.

  10. 10.

    Agreement for the Promotion and Protection of Investments, signed at London on 11 June 1975, UNTS, Vol. 1032, I-15181.

  11. 11.

    ‘Il est difficile de tirer des conclusions générales de ces traités. […] Seuls y souscrivent les pays en développement qui acceptent de garantir une telle protection spéciale en échange d’autres avantages stipulés dans le traité ou escomptés de son application. […] Enfin, ces traités n’ont donné lieu jusqu’ici à aucune pratique significative permettant d’évaluer leur portée juridique réelle.’: Abi-Saab (1991), p. 658.

  12. 12.

    Poulsen argues that ‘[i]n South–South BITs, NT [national treatment] provisions have tended to be more restricted (or completely absent), and transfer clauses more likely to allow restrictions to foreign investors’ repatriation of funds.’ Poulsen (2010), p. 130. What is relevant to our study are, however, the clauses on expropriation, fair and equitable treatment and particularly investor-State arbitration.

  13. 13.

    Agreement on the Promotion and Protection of Investment, done in Havana City on 12 October 1995, http://unctad.org/.

  14. 14.

    Accord relatif à la promotion et à la protection réciproques des investissements, signé à Bamako, le 11 juillet 1996, http://unctad.org/.

  15. 15.

    Agreement for the Promotion and Protection of Investments, done at Montego Bay on 8 February 1999, http://unctad.org/.

  16. 16.

    Agreement on Reciprocal Promotion and Protection of Investments, done at Tehran on 25 July 2000, http://unctad.org/.

  17. 17.

    List of Least Developed Countries: http://www.unohrlls.org/en/ldc/25/.

  18. 18.

    Agreement on the Reciprocal Promotion and Protection of Investment, done in Sana’a on 15 April 1999, http://unctad.org/.

  19. 19.

    Accord concernant la promotion et la protection réciproque des investissements, fait à Bruxelles, le 18 mai 2001, http://unctad.org/.

  20. 20.

    Accord concernant la promotion et la protection réciproqiue des investissements, le 18 mai 2001, http://unctad.org/.

  21. 21.

    ‘The compensation […] shall be equivalent to the value of the expropriated investments immediately before the expropriation takes place or the impending expropriation becomes public knowledge, whichever is earlier. The value shall be determined in accordance with generally recognized principles of valuation. The compensation shall include the interest at a normal commercial rate from the date of expropriation until the date of payment. The compensation shall also be made without delay, be effectively realizable and freely transferable’: Art. 4(2), Agreement on the Promotion and Protection of Investments, 22 March 2005. This agreement has not entered in force at the time of writing (2013), according to the website of the UNCTAD.

  22. 22.

    Marboe (2009), p. 44.

  23. 23.

    Sabahi (2011), pp. 92–93.

  24. 24.

    Dolzer and Schreuer (2012), p. 100; Subedi (2012), p. 79; Salacuse (2010), p. 323; Newcombe and Paradell (2009), p. 377; McLachlan et al. (2007), p. 317.

  25. 25.

    Only 19 % of the arbitration cases brought to ICSID are based on investment contracts concluded between investors and host States. The proportion is even smaller in recent years. ICSID (2013), pp. 10, 23. Although the ICSID statistics cannot be said to reflect the whole of the investor-State dispute settlement system, approximately 60 % of the investor-State disputes have been brought to the ICSID. UNCTAD (2013), p. 4.

  26. 26.

    UNCTAD (2007), p. 52.

  27. 27.

    For non-expropriation cases, see Tamada (2009), p. 309.

  28. 28.

    McLachlan et al. (2007), p. 318.

  29. 29.

    Political Constitution of the United States of Mexico, January 31, 1917, in: Peaslee (1956), pp. 661, 667.

  30. 30.

    Hackworth and Whiteman (1963), pp. 656–657.

  31. 31.

    Hackworth and Whiteman (1963), pp. 658–659.

  32. 32.

    Hackworth and Whiteman (1963), p. 657.

  33. 33.

    Hackworth and Whiteman (1963), p. 660.

  34. 34.

    Exchange of notes, 9 and 18 November 1938, Department of State Press Releases, Vol. XIX, No. 477, 19 November 1938, pp. 339–342.

  35. 35.

    Dobrin (1929), p. 249.

  36. 36.

    Sack (1939), p. 8.

  37. 37.

    Friedman (1953), pp. 29–50.

  38. 38.

    Gantz (1976), p. 389.

  39. 39.

    Settlement of BP Exploration Company (Libya) Limited v. Government of the Libyan Arab Republic following the arbitral award rendered on 1 August 1974, 53 ILR 297, p. 298 n. 2; Settlement of Texaco Overseas Petroleum et al. v. Libya following the arbitral award rendered on 19 January 1977, 53 ILR 389, p. 391, n. 2. Liamco also settled the dispute with Libya but the details of the settlement agreement have not been made publicly available. Libyan American Oil Company (Liamco) v. Libyan Arab Republic, 62 ILR 140, p. 219.

  40. 40.

    Conseil constitutionnel, Décision n° 81–132 DC du 16 janvier 1982. See also Juillard (1981), pp. 537–567; Juillard (1982), pp. 767–774.

  41. 41.

    Sornarajah (2010), pp. 448–449.

  42. 42.

    Separate Opinion on the Issues at the Quantum Phase of CME v Czech Republic by Ian Brownlie, 14 March 2003, para. 31, quoting Schachter (1991), p. 324.

  43. 43.

    The CME tribunal applied Article 5(c) of the Czech-Netherlands BIT, which provides: ‘The measures [depriving investors of their investments] are accompanied by provision for the payment of just compensation. Such compensation shall represent the genuine value of the investment affected’. CME v. Czech Republic, Final Award, 14 March 2003, paras. 496–497. This is, however a case of individual expropriation.

  44. 44.

    As for the process and context of the land reform in Zimbabwe, see Cliffe et al. (2011), p. 907; Scoones et al. (2011), p. 967; Dekker and Kinsey (2011), p. 995.

  45. 45.

    Constitution of Zimbabwe, http://www.gta.gov.zw/index.php/documents/constitution-of-zimbabwe.

  46. 46.

    Ibid.

  47. 47.

    Funnekotter v. Zimbabwe, ICSID Case No. ARB/05/6, Award, 22 April 2009, paras. 89, 124.

  48. 48.

    Ibid., para. 89.

  49. 49.

    Ibid., para. 124, quoting Fedax v. Venezuela, ICSID Case No. ARB/96/3, Award, 9 March 1998.

  50. 50.

    Ibid., para. 148.

  51. 51.

    Escobar (2006), p. 219; Achtouk-Spivak (2008), p. 477.

  52. 52.

    An exception is Saur c. Argentine, Affaire CIRDI N° ARB/04/4, Décision sur la compétence et sur la responsabilité, le 6 juin 2012, paras. 381–392.

  53. 53.

    CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 281; LG&E v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 132; BG v. Argentina, Final Award, 24 December 2007, para. 310; National Grid v. Argentina, Award, 3 November 2008, para. 179; Suez & Vivendi v. Argentina, ICSID Case No. ARB/03/19 and AWG v. Argentina, Decision on Liability, 30 July 2010, para. 247; Total v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010, para. 175; Impregilo v. Argentina, ICSID Case No. ARB/07/17, Award, 21 June 2011, paras. 330–331; El Paso v. Argentina, ICSID Case No. ARB/03/15, Award, 31 October 2011, paras. 516–519.

  54. 54.

    LG&E v. Argentina, supra note 53, para. 175; EDFI v. Argentina, ICSID Case No. ARB/03/23, Award, 11 June 2012, paras. 970, 983. Contra Continental Casualty v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008, paras. 300–303.

  55. 55.

    El Paso v. Argentina, supra note 53, paras. 656, 665. Contra LG&E v. Argentina, supra note 53, para. 229; Continental Casualty, supra note 54, paras. 233, 236.

  56. 56.

    BG v. Argentina, supra note 53, para. 409; National Grid v. Argentina, supra note 53, para. 260; Suez & Vivendi v. Argentina and AWG v. Argentina, supra note 53, paras. 257–265; Total v. Argentina, supra note 53, paras. 223–224; Impregilo v. Argentina, supra note 53, para. 359; EDFI v. Argentina, supra note 54, paras. 1172–1173.

  57. 57.

    The Factory at Chorzów (Claim for Indemnity) (The Merits), Judgment, 13 September 1928, P.C.I.J. Series A, No. 17, p. 47. See e.g. CMS v. Argentina, supra note 53, para. 400.

  58. 58.

    Goodman (2007), p. 453.

  59. 59.

    van Harten (2007), p. 2. In the ‘Optants hongrois’ dispute, Romania advanced the following argument: ‘if the Romanian Government were asked to grant [a full indemnity], could it possibly be expected to make immediate payment of […] three times the total Romanian budget, merely in order to meet the annual cost of expropriation?’, League of Nations Official Journal 1923, Vol. 4, p. 1013.

  60. 60.

    Eberhardt and Olivet (2012), p. 19.

  61. 61.

    Lowe (2004), p. 39.

  62. 62.

    ‘All peoples have the right […][to] pursue their economic, social and cultural development.’ Article 1(1) of the International Covenant on Civil and Political Rights (1966).

  63. 63.

    ‘[T]he impact of ‘full’ compensation on the financial resources and the development plans of the nationalizing country would in practice nullify the effect of the nationalization.’ Schrijver (1997), p. 294.

  64. 64.

    Cassese (2005), p. 203; Frowein (2009), para. 6.

  65. 65.

    If the treaty provision setting forth the standard of compensation itself is considered to be in conflict with a norm of peremptory norm, the entire treaty will be held to be null and void (Article 44(5), Vienna Convention on the Law of Treaties). Such a drastic consequence will be neither desirable nor realistic.

  66. 66.

    Argentina reportedly continues to refuse to pay compensation ordered by a number of arbitral awards. Robalino (2009), p. 441; Chedly (2011), p. 375.

  67. 67.

    Lowe (2004), p. 39.

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  1. Kyoto University, Kyoto, Japan

    Shotaro Hamamoto

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  1. Europa-Institut, Saarland University, Saarbruecken, Germany

    Marc Bungenberg

  2. Faculty of Law, University of Cologne, Cologne, Germany

    Stephan Hobe

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Hamamoto, S. (2015). Compensation Standards and Permanent Sovereignty over Natural Resources. In: Bungenberg, M., Hobe, S. (eds) Permanent Sovereignty over Natural Resources. Springer, Cham. https://doi.org/10.1007/978-3-319-15738-2_8

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