International and foreign
Investment Law
Part III
Expropriation
Azar Aliyev LL.M. (University of Heidelberg)
Overview
I.
Expropriation as a legal term
II.
Legality of expropriation
III. Direct and indirect expropriation
IV.
Compensation
I. Expropriation as a legal
term
 Protection of aliens’ property rights
 Chozrow factrory (PCIJ)
 Norwegian Shipowners (PCIJ)
 Expropriation, nationalization, confiscation,
taking of property
 Taking of property in national law and
international law
II. Definition of Expropriation
 Article 13 (1) ECT
 Right to expropriate (rare exceptions: Kazakh
law on foreign investment 1992)
 “Hull formula” and “Calvo doctrine”
 Wording of the expropriation clauses (ECT,
CIS-Treaty)
III. Actors, Objects
 Who can expropriate
 State
 State can be held responsible for actions of
third parties (Draft Articles on State
responsibility)
 What can be expropriated
 Expropriation of property
 Expropriation of rights
 Expropriation of contracts
IV. Form
 Form of expropriation
 Acts
 Omissions (Olguin v. Paraguay)
V. Legality of Expropriation
Legal expropriation
for a 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.

Difference to the ‘illegal’ expropriation (AMD v.
Hungary)
VII. Indirect Expropriation
 Indirect Expropriation
 Direct and indirect expropriation
 Doctrine of ‘sole effect’Intention of the
State? (Siemens v. Argentina, Rumeli v.
Kazakhastan)
 Benefit of the State (Rumeli v. Kazakhastan)
VII. Indirect Expropriation
Regulatory measures and indirect expropriation
(Feldman v. Mexico, Generation Ukraine v.
Ukraine)
 Intensity of interference with investors rights
 Frustration of legitimate expectation (Metalclad v.
Mexico)
 Disproportion of measures
 Non-transpareny, arbitrariness, discrimination
(Rumeli v. Kazakhstan)
 New Treaty wording (US Model-BIT)
VII. Indirect Expropriation
 Typical forms of indirect expropriation
 Tax increase (Occidental exploration v.
Equador)
 Revocation of licenses and permits
(ecological measures) (s. below)
 Interference with management (Rumeli v.
Kazakhatan)
 Breach of contractual obligations
Sakhalin
Sachalin II
Projekt: 1994 Establishment of Sakhalin Energy,
Proiduction Sharing Agreement
Production: Offshore oil and gas
Problem: protected forests, erosion, flora und
fauna.
Stakeholders: till 2006 Mitsui, Royal Dutch Shell
und Mitsubishi. Since 2006 Gazprom 50% +1,
Mitsui 12,5%, Royal Dutch Shell 27,5% und
Mitsubishi 10%.
Disptute: 18.9.2006 revocation of the ecological
lisence
19.04.2007 new stakeholder structure
Project is going on with minimal cha.
I.
Investment
 Compensation
 Hull formula
 Prompt
 Adequate
 Effective
 Calvo doctrine
Thank you very much!