Can I sue a foreign government before an international forum if my investment is expropriated?

10 Aug 2023, 42 mins ago

We are often asked by clients what they should do if their investment in a foreign country is going to be or has been taken by that foreign government, and if they are allowed to sue the foreign country directly before an international forum for a non-biased and binding decision.

The quick answer is that it depends on the international law, and in particular, the applicable investment treaties between your home country and the host country of the investment.

It should be noted from the beginning that not all expropriation or nationalisation of foreign investments are unlawful. Take Article 13(1) of the Energy Charter Treaty as an example, although the contracting states agree that investments of investors of a contracting state should not be directly or indirectly expropriated, expropriation nevertheless becomes permitted if it can satisfy the following four conditions:

  • for the purpose which is in the public interest;
  • not discriminatory;
  • carried out under due process of law; and
  • accompanied by the payment of prompt, adequate and effective compensation.

If an investor has a dispute with the foreign state on the expropriation, the dispute may be submitted to various fora in accordance with the investor-state dispute resolution clause in the applicable treaty. Usually, the available dispute settlement mechanisms include amicable negotiation, administrative review, national court proceedings and international arbitration.

However, not all kinds of disputes over expropriation can be heard by international arbitral tribunals. For example, Article 10(1) of the China-Poland BIT (1988) provides that investors can only “challenge the amount of compensation for the expropriated investment assets”, and an ad hoc international arbitral tribunal can only “review the amount of compensation”. Limited dispute resolution clauses with similar words are commonly seen in the BITs concluded by USSR-influenced countries, and many of these are still in force. That said, different tribunals may take different approaches in interpreting these clauses, and some arbitral tribunals have even determined that they have full jurisdiction to hear the whole expropriation disputes, including both the legality of expropriation acts and the amount of compensation of expropriation, despite the existence of the restrictive dispute settlement clauses (for instance, Tza Yap Shum v Republic of Peru, ICSID Case No. ARB/07/6).

How Gherson can assist

Gherson’s Litigation and Arbitration Team are highly experienced in advising on investor-state disputes. If you have any questions arising from this blog, please do not hesitate to contact us for advice, send us an e-mail, or, alternatively, follow us on TwitterFacebookInstagram, or LinkedIn to stay-up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2023