Straddling the Divide Between Lawful and Unlawful Expropriation in International Law

Abstract

A basic tenet of customary international law is that the taking of privately-held property is a legitimate exercise of state power, provided specific criteria as to public purpose, non-discrimination, due process and compensation are met. In other words, an act of expropriation which fulfils these criteria is lawful, and, as a consequence, does not engage the state’s responsibility for what is termed as an internationally wrongful act. However, if one or more of these criteria is lacking, the taking will be unlawful. This will bring into cause the responsibility of the state which follows from the commission of an internationally wrongful act.
At the heart of actual adjudication of investment disputes based on allegations of unlawful expropriation is, without exception, the matter of absent compensation. At first glance, it may seem that the principles dealing with compensation to the investor who has suffered deprivation of its property are not affected by whether the expropriatory act is qualified as lawful or unlawful. However, in actual fact, there are significant distinctions both as regards the legal qualification to be undertaken and the methodology to be applied. These distinctions may bring about widely differing economic outcomes in a particular case (while they also – despite the application of quite distinct methodologies – may result in much the same economic outcome).