CYIL vol. 14 (2023)

NIKOLA KURKOVÁ KLÍMOVÁ

CYIL 14 (2023)

3.1 Substantial deprivation of frozen and seized assets In contrast to direct expropriation, measures tantamount to direct taking of assets have long been a slippery concept in international investment law. With the legal title remaining intact, the threshold for indirect expropriation requires substantial deprivation of the ability to manage the affected property and exercise control over it. 21 The severity of the respective measures has primarily revolved around various economic considerations, weighing the degree of interference with legitimate benefits related with the enjoyment of the targeted property. 22 In this respect, only measures which radically impaired any reasonable use of assets by restraining the investor’s fundamental ownership rights would be associated with expropriatory effects. 23 For some tribunals, the existence of continued control over investment militated against a finding that indirect expropriation occurred. 24 While the retention of powers to operate business may be indicative of the lower intensity of State interferences, leaving the investor solely with control over an empty shell would hardly escape the comparison to expropriatory measures. As a result, the preservation of formal control over investment must be examined in the light of all circumstances of the specific case. For the purposes of their defence, respondents have made attempts to justify the adverse impact of their sovereign actions with reference to their underlying objective. The intention of States in adopting their policies was, however, found less relevant for tribunals which mostly adhered to the ‘sole effect doctrine’, 25 focusing rather on the extent to which property rights of investors were rendered meaningless. This approach has substantially shifted in recent years in disputes dealing with State regulatory measures where arbitrators sought to balance legitimate public welfare objectives on the one hand and protection of investments on the other hand. 26 In this regard, the intention for the good faith exercise of the State’s sovereign powers became one of critical factors in tribunals’ analyses. The legitimacy argument has equally found its place in pleadings of host States whose freezing and seizure orders allegedly violated expropriation clauses in IIAs. In the Bahgat case, Egypt was, for instance, accused of breaching the 1980 and 2004 Egypt-Finland BIT as the 21 DOLZER, R., KRIEBAUM, U. and SCHREUER, C. (2023). Principles of International Investment Law (Oxford: Oxford University Press), pp. 163–165. 22 McLACHLAN, C., SHORE, L. and WEINIGER, M. (2015). International Investment Arbitration: Substantive Principles (Oxford: Oxford University Press), paras. 8.89–8.93. 23 KRIEBAUM, U. (2015). Expropriation. In: BUNGENBERG, M. et al. (eds.), International Investment Law (München: C.H.Beck; Oxford: Hart; Baden-Baden: Nomos), pp. 984–985; COX, J. (2019). Expropriation in Investment Treaty Arbitration (Oxford: Oxford University Press), p. 169. 24 See e.g. LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc. v. Argentine Republic , ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 (“LG&E v. Argentina”) , paras. 188 and 191; AES Summit Generation Limited and AES-Tisza Erömü Kft v. The Republic of Hungary , ICSID Case No. ARB/07/22, Award, 23 September 2010, para. 14.3.2; Cervin Investissements S.A. and Rhone Investissements S.A. v. Republic of Costa Rica , ICSID Case No. ARB/13/2, Decision on Jurisdiction, 15 December 2014, para. 333. 25 ORTINO, F. (2019). The Origin and Evolution of Investment Treaty Standards: Stability, Value, and Reasonableness (Oxford: Oxford University Press), p. 53; MOSTAFA, B. (2008). The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law. Australian International Law Journal , Vol. 15, No. 1, 267, pp. 279–280. 26 RADI, Y. (2018). Philip Morris v Uruguay1: Regulatory Measures in International Investment Law: To Be or Not To Be Compensated? ICSID Review – Foreign Investment Law Journal , Vol. 33, No. 1, 74, pp. 78–80; ERKUT BULUT, O. (2022). Drawing boundaries of police powers doctrine: a balanced framework for investors and states. Journal of International Dispute Settlement , Vol. 13, No. 4, 583, pp. 592–594.

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