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Regulatory Expropriation and State Intent

  • Katharina A. Byrne

Summary

This article examines whether the characterization of a regulatory measure as expropriatory depends upon the objective intent of the state in enacting that measure. The issue of regulatory expropriation is of particular importance, given the fact that a number of recent multilateral investment treaties, including the North American Free Trade Agreement, grant investors a right of direct action against a foreign state for losses arising out of measures that are “tantamount” to expropriation.

This article will first consider the respective approaches of the Iran-United States Claims Tribunal and the United States to regulatory expropriation. These approaches will be then briefly contrasted with the unique jurisprudence of the European Court of Justice and the European Court of Human Rights. Next, the role of intent in municipal law as a means of categorization will be addressed and a case made as to why this approach is equally viable on the international plane. In conclusion, reasons will be given as to why a test based on intent is to be preferred over other theories.

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1 For example, see Fachiri, A., “Expropriation and International Law” (1925) 6 B.Y. I.L. 159 ; Wortley, B., Expropriation in Public International Law (New York: Arno Press, 1977); Christie, G., “What Constitutes a Taking of Property under International Law?38 (1962) B.Y.I.L. 307 ; Weston, Burns, “‘Constructive Takings’ under International Law: A Modest Foray into the Problem of ‘Creeping Expropriation,’16 (1975) Va. J. Int’l Law 102.

2 Soloway, Julie A., “Environmental Regulation as Expropriation: The Case of NAFTA’s Chapter 11” (2000) 33 Can. Bus. L.J. 92.

3 Ganguly, Samrat, “The Investor-State Dispute Mechanism (ISDM) and a Sovereign’s Power to Protect Public Health” (1999) 38 Colum. J. Transnat’1 L. 113.

4 For example, Thomas Waelde and Abba Kolo, in “Multilateral Investment Treaties and Environmental Expropriation of Foreign Investment,” state: “It is therefore unlikely that an environmental regulation which is legitimate, non-discriminatory, and which did not render the investment economically unviable, could be found by an international tribunal as tantamount to expropriation.” CEPMLP Internet Journal, vol. 5–2, accessible at <http://www.dundee.ac.uk/cepmlp/journal/html/article5-2.html>.

5 See for example, Schneiderman, D., “NAFTA’s Takings Rule: American Constitutionalism Comes to Canada” (1996) 46 U.T.L.J. 499.

6 Restatement of the Law Third: The Foreign Relations Law of the United States (St. Paul, MN: American Law Institute, 1987).

7 The object pursued by the State in carrying out expropriations is of no concern to third parties, whether these be private individuals or foreign States, any more than are the motives for such measures.” Friedman, S., Expropriation in International Law (London: Stevens, 1953), 142–3.

8 For example, the Iran-United States Claims Tribunal, discussed in the first section of this article.

9 “It is not by their intentions but by their acts that States incur responsibility.” Friedman, supra note 7 at 142. See also Brownlie, I., Principles of Public International Law, 5th ed. (Oxford: Oxford University Press, 1998), 440 et seq.

10 For example, Aldrich, G., The Jurisprudence of the Iran-United States Claims Tribunal (New York: Oxford University Press, 1996); Avanessian, A. B., The Iran-United States Claims Tribunal in Action (London: Graham and Trotman, 1993); Khan, Rahmat-ullah, The Iran-United States Claims Tribunal: Controversies, Cases and Contributions (Boston: Kluwer Academic Publishers, 1990); Mouri, Allahyar, The International Law of Expropriation as Reflected in the Work of the Iran-US Claims Tribunal (Dordrecht: Kluwer Academic Publishers, 1994); Mapp, Wayne, The Iran-United States Claims Tribunal: The First Ten Years 1981–1991 (New York: St. Martin’s Press, 1993); Brower, C. N. and Brueschke, J. D., The Iran-US Claims Tribunal (Boston: Kluwer Academic Publishers, 1998).

11 Sea-Land Service, Inc. v. Iran, Award No. 135-33-1 (June 22, 1984), reprinted in 6 Iran-U.S. C.T.R. 149 [hereinafter Sea-Land Service]; Tippetts, Abbett, McCarthy, Strattonv. TAMS-AFFA, Award No. 141-7-2 (June 29, 1984), reprinted in 6 Iran-U.S. C.T.R. 219 [hereinafter Tippetts].

12 Sea-Land Service, supra note 11 at 165.

13 Ibid. at 166 [emphasis added].

14 “I believe that it ignores the facts, misapplies the law, and is blind to realities.” Separate Opinion ofJudge Holtzmann, ibid. at 175.

15 Judge Holtzmann states: “I believe that the pattern of acts and omissions by Respondents did in fact represent a deliberate effort to drive Sea-Land from Iran. More fundamentally, I believe that the critical question is the objective effect of a government’s acts, not its subjective intentions. Acts by a government which have the effect of depriving an alien of his property are considered expropriatory in international law, whatever the government’s intentions.” Ibid. at 207.

16 ITT Industries, Inc. v. Iran, Award No. 47-156-2 (26 May 1983), reprinted in 2 Iran-U.S. C.T.R. 348 [hereinafter ITT Industries].

17 Starrett Housing Corp. v. Iran, Award No. ITL 32-24-1, reprinted in 4 Iran-U.S. C.T.R. 122 [hereinafter Starrett].

18 Christie, G., “What Constitutes a Taking of Property under International Law?38 (1962) B.Y.I.L. 307 at 311.

19 In Starrett, Judge Holtzman refers to, inter alia, Judge Aldrich’ s opinion in ITT Industries (Starrett, supra note 17 at 163–4).

20 In both Tippetts and ITT Industries, Aldrich, J. states: “The intent of the government is less important than the effects of the measures on the owner, and the form of the measures of control or interference is less important than the reality of their impact” (Tippetts, supra note 11 at 225–6; ITT Industries, supra note 16 at 352).

21 Norwegian Shipowners’Claims case (Norway v. United States),(1922), 1 U.N.R.I.A.A. 307 [hereinafter Norwegian Shipowners’].

22 German Interests in Polish Upper Silesia (Germany v. Poland), P. C.I.J. Series A, No. 7 (25 May 1926) (Merits).

23 Tippets, supra note 11 at 225.

24 Ibid, at 225–6.

25 ITT Industries, supra note 16.

26 Mouri, supra note 10 at 260.

27 Phillips Petroleum Co. Iran v.Iran, et al, Award 425-39-2 (29 June 1989), reprinted in 21 Iran-U.S. C.T.R. 79 [hereinafter Phillips Petroleum].

28 Ibid. at 116, para.100.

29 Ibid. at 115. It should be noted that Judge Aldrich was a member of the bench in both Tippetts and Phillips Petroleum.

30 Ibid. at 115.

31 Ibid. at 115.

32 Ibid. at 117, para. 101 . Moreover, in his statement entitled “Statement by Judge Khalilian as to Why It Would Have Been Premature to Sign the Award,” which was annexed to the award, Judge Khalilian, the arbitrator appointed by Iran, described Iran’s actions as “a lawful nationalisation in the oil industry” (ibid. at 197, para.9).

33 The other cases were Mobil Oil Iran Inc. v. Iran, Partial Award No. 3131–74/76/81/150–3 (July 14, 1987), reprinted in 16 Iran-U.S. C.T.R. 3 and Amoco International Finance Corp. v. Iran, Partial Award No. 310-56-3 (14 July 1987), reprinted in 15 Iran-U.S. C.T.R. 189.

34 Aldrich, supra note 10 at 196.

35 Toope, S., Mixed International Arbitration (Cambridge: Grotius, 1990), 381. For a thorough analysis of the tribunal’s relevance as a model for international claims adjudication, see generally chapters 8 and 9 of Toope’s work.

36 Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran, 19 January 1981 (1981), 20 I.L.M. 223, reprinted in 1 Iran-U.S. C.T.R. 9 [hereinafter Algiers Declaration].

37 Aldrich, supra note 10 at 173.

38 Eastman Kodak Co. v. Iran, Award No. 329-227/12384-3 (November 11, 1987), reprinted in 17 Iran-U.S. C.T.R. 153.

39 Seismograph Service Corp. v. NIOC, Award No. 420-443-3 (March 31, 1989), reprinted in 22 Iran-U.S. C.T.R. 3.

40 United Painting C. Inc. v. Iran, Award No 458-11286-3 (December 20, 1989), reprinted in 23 Iran-U.S. C.T.R. 351.

41 Algiers Declaration, supra note 36.

42 Aldrich, supra note 10 at 172.

43 Sedco, Inc. v. Iran Marine Industrial Co., Award No. 419–128/129–2 (March 30, 1989), reprinted in 21 Iran-U.S. C.T.R. 31 [hereinafter Sedco].

44 Ibid. at 56. In relation to the issue of internal consistency discussed earlier in the article, it should also be noted that Judge Aldrich was a member of the tribunal in Sedco and that the award (at 70) refers to both Tippetts, supra note 11 and Starrett, supra note 17.

45 Toope, supra note 35 at 383.

46 Ibid. at 346.

47 Ibid.

48 Judge Nils Mangârd, transcript of interview (September 14, 1984), referred to by S. Toope, ibid. at 351.

49 Ibid. at 350.

50 Ibid.

51 “Typically, the American and Iranian arbitrator will not agree on the legal reasoning applicable in any given case. The burden then falls upon the Chairman to conduct Chamber business and to author awards, order, etc. in such a manner that some equilibrium and some rational communication can be maintained. To do so, it will often be necessary to compromise, to play down differences of opinion and to render decisions that are intentionally vague and obfuscatory. The Security Account makes such an approach more attractive because its existence precludes the need for separate enforcement proceedings.” Ibid. at 369.

52 As Professor Carbonneau has observed: “The awards rendered by the Tribunal have been essentially devoid of substantive legal content and, as a result, [are] incapable of having much precedential value.” (The Elaboration of Substantive Legal Norms and Arbitral Adjudication: The Case of the Iran-United States Claims Tribunal,” in Lillich, R., ed., The Iran-United States Claims Tribunal 1981–1983 (Charlottesville: University Press of Virginia, 1984), 104 at 126.

53 By January 19, 1981 , the deadline for the filing of claims, approximately 950 claims for more than US $250,000 each, and nearly 2,800 small claims had been filed with the tribunal. Aldrich, supra note 10 at 13–14.

54 Ibid. at 181.

55 Ibid.

56 For more detailed discussions on this topic, see, for example, The Property Rights Issue, produced for the U.S. Congressional Research Service by Meltz, Robert, Legislative Attorney, American Law Division, January 20, 1995, available at <http://wvww.cnie.org/nle/econ-11.html> ; and Coletta, Raymond R., “The Measuring Stick of Regulatory Takings: A Biological and Cultural Analysis,” 1 (1998) U. Pa. J. Const. L. 20, also available at http://www.law.upenn.edu/conlaw/issues/vol1>.

57 Graham, Edward M., “National Treatment of Foreign Investment: Exceptions and Conditions” (1998) 31 Cornell Int’l L.J. 599.

58 In general, the police power of a state encompasses matters of public safety, health, and welfare.

59 Lochnerv. NewYork, 198 U.S. 45 (1905).

60 Graham, supra note 57.

61 Sax, Joseph L., “Takings and the Police Power” (1964–5) 74 Yale L.J. 36 at 37.

62 Graham, supra note 57.

63 Ibid.

64 Sax, supra note 61 at 37 [footnotes omitted].

65 Penn Central Transportation Co. v. City of New York, 438 U.S. 104; 57 L. Ed. 2d 631.

66 Ibid. at 648.

67 Fischel, William A., Regulatory Takings: Law, Economics, and Politics (Cambridge, MA: Harvard University Press, 1995), 51. Fischel continues: “To paraphrase a less sympathetic critic, Gideon Kanner, the Court has always been suspected of basing regulatory takings decisions on ad hoc factors, and Penn Central was a signed confession that the justices do not care to do better.”

68 It is worth noting that in several Commonwealth jurisdictions, where land is expropriated, there is statutory provision for compensation for the “injurious affection” done to the adjacent land that is not subject to expropriation proceedings. This approach recognizes that economic loss may arise out of a regulatory measure that indirectly affects property, without characterizing it as expropriation.

69 “Since individual rights must be left a breathing space in which government does not intrude, the limits of the police power must be ascertained with some precision. Alas, this task has proved too daunting. The Supreme Court has never repudiated the admonition of Justice William O. Douglas “that [a comprehensive] attempt to define [the police power’s] reach or trace its outer limits is fruitless” (footnotes omitted). Eagle, Steven J., Regulatory Takings (Charlottesville: Michie Law Publishers, 1996), 14.

70 Ibid. at 15.

71 James Madison, the “father of the constitution” asserted that the rights of persons and the rights of property were “cardinal objects of government.”

72 Daniele Annibaldi v. Sindaco del Commune di Guidonia and Presidente Regione Lazio, Judgment of December 18, 1997 (Case C-309/96) [hereinafter Annibaldi], which held that measures relating to the common organization of the agricultural markets had no effect on systems of agricultural property ownership. In Annibaldi, the applicant had challenged a law that restricted activities within a regional park.

73 Ibid.

74 Boehringher Ingelheim Vetmedica GmbH and C.H. Boehringer Sohn v. Council, Judgment of December 1, 1999 (in joined cases T-125/96).

75 Ibid. The European Court of Justice [hereinafter ECJ] has set out the following three-part test of proportionality in R. v. Min. of Agriculture, Fisheries and Food and Another ex p. National Farmers’ Union and Others, [1998] E.C.R. I-2211, para. 60: “[T]he principle of proportionality … requires that measures adopted by Community institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued.” See also The Principle of Proportionality: Review of Community Measures,” in Tridimas, T., ed., The General Principles of EC Law (Oxford: Oxford University Press, 1999).

76 Standley and Others v. UK, Judgment of April 29, 1999 (Case C-293/97), available at <http://europa.eu.int/eur-lex>.

77 Imperial Tobacco and Others, June 15, 2000 (Opinion). On October 5, 2000, the ECJ announced that it would not make a final ruling in this case because of the judgment handed down in Case C-376/ 98, Germany v Parliament and Council, also dated October 5, 2000. All three documents are available at <http://europa.eu.int/eur-lex>.

78 Edouard Dubois et Fils, Judgment of January 29, 1998 (Case T-113/96), available at <http://europa.eu.int/eur-lex>.

79 Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome under the auspices of the Council of Europe, November 4, 1950, 213 U.N.T.S. 221 (1950).

80 Papamichalopoulos and Others v. Greece, Judgment of June 24, 1993 (Case 18/1992/363/437).

81 Loizidouv. Turkey, Judgment (Merits and Just Satisfaction) of December 18, 1996 (Case 40/1993/435/514), available at <http://hudoc.echr.coe.int/hudoc/>.

82 Ibid. at para. 64.

83 Sporrong and Lönnroth v. Sweden, Judgment (Merits) of 23 September, 1982 (Series A, no. 52).

84 For example, see Tre Traktörer AB v. Sweden, Judgment of July 7, 1989 (Series A, no. 159), which concerned the loss of a restaurant business consequent on withdrawal of a drinks licence. See also Pinnacle Meat Processors Company and 8 Others v. United Kingdom (determination as to admissibility) October 21, 1998 and Ian Edgar (Liverpool) Ltd. v. UK (determination as to admissibility), January 25, 2000, where the impugned legislation imposed a total ban on the respective businesses of the applicants and enforced such a ban by means of criminal sanctions. Tre Traktörer, Pinnacle Meat Processors, and Ian Edgar are all available at <http://hudoc.echr.coe.int/hudoc/>.

85 Brownlie, supra note 9 at 534.

86 Cheng, B., General Principles of Law (Oxford: Oxford University Press, 1953), 133–4.

87 For example, the report of A. de La Pradelle, Yearbook of the International Law Institute, vol. XLIV-II, cited by Fouilloux, G., La Nationalisation et le Droit International Public (Paris: Librarie générale de droit et de jurisprudence, 1962), 143 et seq. ; Brownlie, supra note 9 at 534–5.

88 Wortley, supra note 1 at 36.

89 [“[N]ationalization is the total and definitive suppression of a legal competence for the benefit of the State. Expropriation on the other hand, is nothing more than a particular act of deprivation of the benefits which an individual has been able, at a given moment, to draw from a specific competence. In contrast to expropriation, nationalization suppresses for good any and all use of the competence that has been nationalised. Whereas nationalization affects the essence of a right, expropriation concerns the object of a right.”] Fouilloux, supra note 87 at 146, n.24, citing Scelle, G., Yearbook of the International Law Institute, vol. XLIV–II (Bâle: Éditions juridiques et sociologiques S.A.), 267. Friedman makes a further distinction between socialization, which is “incompatible with the capitalist system” and nationalization “from which the participation of private capital is excluded”: Friedman, supra note 7 at 12.

90 Fouilloux, supra note 87 at 148.

91 “[L]a nationalisation recouvre l’expropriation pour cause d’utilité publique.” [There is an overlap between nationalization and expropriation by reason of [the notion of] public utility]. Ibid. at 144.

92 “[L]e bien exproprié n’a aucun rapport par sa nature et ses qualités intrinsèques avec l’usage auquel le destinent les exigences de l’intérêt public. Autrement dit l’intérêt public, s’il n’est pas toujours détachable de l’objet du droit de propriété, préexiste toujours à l’objet qu’il désigne.” [There is no relationship between the nature and intrinsic qualities of the expropriated property and the use for which the demands of the public interest intend it. In other words, the public interest, if it cannot always be separated from the object of the property right, nonetheless it is always a prerequisite to its designated object.] Ibid. at 152.

93 For a discussion of the concept of “reasonableness,” see Salmon, Jean J. A., LeConcept de Raisonnable en Droit International Public, “Mélanges Offerts à Paul Reuter: le droit international: unité et diversité” (Paris: Éd. A. Pedone, 1981), 447. See also the extract from the decision of “Claim of the British Ship, I’m Alone,” infra note 97 and accompanying text.

94 By way of example, Fouilloux cites the confiscations of property belonging to collaborators undertaken by European governments following the end of the Second World War, one notable example being the seizure by the French government of the shares in the Renault car manufacturer: Fouilloux, supra note 87 at 166–8. Confiscation, for what were often political “offences,” was also a major means of redistributing land in Eastern Europe following the end of the Second World War. Friedman, supra note 7 at 29 et seq.

95 Friedman, supra note 7 at 1; Wortley, supra note 1 at 39.

96 Fouilloux, supra note 87 at 165.

97 “On the assumptions stated in the question [i.e., the right of hot pursuit existed in the circumstances], the United States might, consistently with the Convention, use necessary and reasonable force for the purpose of effecting the objects of boarding, searching, seizing and bringing into port the suspected vessel; and if sinking should occur incidentally, as a result of the exercise of necessary and reasonable force for such purpose, the pursuing vessel might be entirely blameless.” “Claim of the British Ship I’m Alone” (1935), 3 U.N.R.I.A.A., 1609. In casu, the admittedly intentional sinking of the Canadian schooner by the United States was considered unjustified.

98 For example, see Friedman, supra note 7 at 8.

99 Fouilloux, supra note 87 at 163.

100 Friedman, supra note 7 at 52.

101 Ibid.

102 “Il en résulte que les mesures d’exécution qui peuvent porter atteinte à la propriété privée, quelle que soit leur nature juridique, sont indépendantes de la décision instituant le monopole.” [Consequently, the means of execution that may affect private property, whatever their legal nature, are independent of the decision to create the monopoly.”] Fouilloux, supra note 87 at 163.

103 Discussed by Friedman, supra note 7 at 53, citing Clunet, , Consultation pour les Sociétés d’Assurance sur la vie établies en Italie (1912) See also Fouilloux, supra note 87 at 162, n. 69.

104 In cases when the requisitioned property is not restored the respondent government is liable for the payment of damages in an amount to make good the loss sustained.” Whiteman, M., Damages in International Law, vol. 2 (Millwood, NY: Kraus Reprint, 1976), 902.

105 Norwegian Shipowners, supra note 93.

106 Gallagher v. Lynn, [1937] 3 All E.R. 598.

107 Ibid. at 601 , judgment of Lord Atkins.

108 Russell v. R., (1882), 7 App. Cas. 829.

109 Gallagher v. Lynn, [ 1937] 3 All E.R. 598 at 601.

110 Ulster Transport Authority v. James Brown & Sons, Ltd., [1953] N.I. 79 [hereinafter Ulster Transport].

111 Ibid. at 112–13, judgment of Lord MacDermott L.C.J.

112 “I see no reason to speculate upon the motives of the Legislature in enacting this particular piece of legislation. Whatever in fact those motives may have been, the intention of the legislature, as gleaned from its terms, is what must guide the court in this instance.” Per Lord MacDermott L.C.J., Ibid. at 114.

113 Government of Malaysia and Another v. Selangor Pilot Association (A Firm), [1978] A.C. 337.

114 Per Viscount Dilhorne, Ibid. at 346.

115 Noted by Lord Salmon, ibid. at 356.

116 Ibid. at 341.

117 “In my opinion, this appeal raises constitutional issues of vital importance. I fear that it will encourage and facilitate nationalisation without compensation throughout the Commonwealth.” Per Lord Salmon, ibid. at 355.

118 “In the present case it is impossible to see where the respondents’ business could have gone other than to the port authority and, although just as in the Northern Ireland case [Ulster Transport], nothing was spelt out in the relevant Act about the acquisition of the respondents’ business, it is quite obvious that the appellants intended that that is where that business should go as a result of the amending Act of 1972 — and that is where it went.” Per Lord Salmon, ibid. at 356.

119 Malaya (what is now Peninsular Malaysia) was formed on August 31, 1957. The federation of Malaysia, consisting of Malaya, Sabah, Sarawak, and Singapore was established on July 9, 1963. Singapore subsequently left the federation on August 9, 1965.

120 Fouilloux, supra note 87.

121 Brownlie, supra note 9 at 530.

Regulatory Expropriation and State Intent

  • Katharina A. Byrne

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