Investor-State arbitrations involving unlawful expropriation are often concentrated on acts from a State’s legislative or executive branch. In this configuration, acts such as executive orders or laws are how a State may expropriate foreign investors.
In turn, a lesser-known type of expropriation is judicial expropriation, which can be defined as “[t]he taking of contractual and other proprietary rights by judicial organs”.[1]
Acts of expropriation originating from a State’s judicial branch are less common than those emanating from its executive or legislative branch. This rarity is logical, as domestic courts apply parliament-enacted legislation or executive orders. In most cases, when such an application results in expropriation, it generally stems from the legislation or executive order itself, rather than the courts’ application of it.
The Tribunal in OAT Taftnet v Ukraine commented on the relation between judicial and other forms of expropriation in the following terms:[2]
The prohibition of unlawful expropriation commonly found in contemporary investment agreements is mainly concerned with the protection of property rights against the government abusing its legislative or executive power. It is thus mostly related to administrative and legislative acts. The issue of whether in addition an act of expropriation can also originate in the judiciary, while not in principle excluded under international law and BIT protection, is not a common occurrence and therefore views on the matter are less elaborated.
In other words, though relatively uncommon, there are investor-State arbitrations where judicial conduct itself amounts to expropriation, as opposed to a legislative or executive act.
Judicial expropriation in investor-State arbitration is hotly debated and often conflated with denial of justice. Despite its complexity, judicial expropriation holds significant practical value by potentially forming the basis of investors’ claims or assisting States in circumventing such claims, despite the substantial debates and uncertainties surrounding it.[3]
For a compact overview of the notion of judicial expropriation:
- Judicial expropriation should first be distinguished from denial of justice.
- Secondly, the lack of a requirement to exhaust local remedies in judicial expropriation should be analysed, as it is a crucial feature of judicial expropriation.
Distinguishing Denial of Justice and Judicial Expropriation
The notions of denial of justice and judicial expropriation are closely related, although leading specialists of investor-State arbitration have questioned their distinctness.[4]
According to J. Paulsson, denial of justice is characterised by the following circumstances: “[r]efusal of access to court to defend legal rights, refusal to decide, unconscionable delay, manifest discrimination, corruption, or subservience to executive pressure.”[5]
A very similar definition was held by the tribunal in Azinian v Mexico, in the following terms: “A denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they subject it to undue delay, or if they administer justice in a seriously inadequate way.”[6] Denial of justice can be found in many more situations than judicial expropriation. Hence, reaching an exhaustive definition applicable to any investor-State arbitration remains difficult.
Denial of justice typically hinges on procedural conduct but can also be characterised by a State’s judicial and legal architecture.[7] It is, therefore, not limited to an analysis of judicial conduct. In contrast, judicial expropriation solely focuses on the expropriatory nature of a judicial act.
Development of Denial of Justice and Judicial Expropriation Claims in Investor-State Arbitration
Denial of justice has older origins than the concept of judicial expropriation, being a component of the minimum standard of treatment afforded to non-nationals under public international law. It also saw usage in diplomatic protection.
For instance, denial of justice was analysed in Neer v Mexico in 1926, following similar prior case law, in the following terms: “[i]t is immaterial whether the expression ‘denial of justice’ be taken in that broad sense in which it applies to acts of executive and legislative authorities as well as to acts of the courts, or whether it is used in a narrow sense which confines it to acts of judicial authorities only”.[8]
The importance of denial of justice in contemporary investor-State arbitration is such that the model bilateral investment treaty of the United States, in its 2012 version, specifically dedicates an article to it, which is written as follows: “[f]air and equitable treatment includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world”.
Significantly, denial of justice has been described as a component of customary international law and attached to the fair and equitable treatment standard in a significant number of rulings pertaining to investor-State arbitration.[9]
Judicial expropriation has been found in comparatively fewer investor-State arbitrations, although it was also discussed in early cases by the US-Iran Claims Tribunal in 1986 and by a French-Italian Arbitration Commission in 1952.[10]
Key Investor-State Arbitration Awards Pertaining to Denial of Justice and Judicial Expropriation
Denial of Justice
A landmark ruling pertaining to denial of justice is Loewen v United States, where the tribunal, under the NAFTA, deemed differentiating denial of justice from judicial expropriation unnecessary.
While the tribunal in Loewen recognised that the “[w]hole trial and its resultant verdict were clearly improper and discreditable”, it refused to find a denial of justice, ruling in the following manner: “Accordingly, our conclusion is that Loewen failed to pursue its domestic remedies, notably the Supreme Court option and that, in consequence, Loewen has not shown a violation of customary international law and a violation of NAFTA for which Respondent is responsible.”[11]
The tribunal in Loewen refused to find denial of justice because local remedies had not been exhausted.[12] In turn, an example of an investor-State arbitration award in which denial of justice was found is Lion v Mexico, as local remedies were exhausted in this case. The tribunal noted in no uncertain terms: “[i]t is difficult to accept that Lion did not exhaust all reasonable and available remedies with a reasonable prospect of reversing the denial of justice it had suffered.”[13]
Judicial Expropriation
On judicial expropriation in investor-State arbitration, Saipem v Bangladesh is a landmark ruling. It is centred around Bangladeshi judicial organs’ overreach and annulment of an ICC award. The ICSID Tribunal found that the actions of the Bangladeshi courts amounted to indirect expropriation by rendering the ICC award unenforceable, thus depriving Saipem of its rights under the contract and the award. In Saipem, judicial expropriation was separated from denial of justice and distinctly characterised by the tribunal.[14] This ruling is also crucial because it posited that judicial expropriation can be found without reaching the high threshold of denial of justice.[15]
Karkey v Pakistan is an additional investor-State arbitration award in which expropriation was found in judicial acts, without resorting to denial of justice.[16] The tribunal in Karkey analysed the Pakistani Supreme Court decisions, which formed the basis of the investor’s claim.[17] Local remedies were exhausted in Karkey, hence they were not analysed in this case.
It is noteworthy that the tribunal in Karkey found irrationality and arbitrariness in a domestic ruling and deemed it expropriatory without resorting to the traditional standard of denial of justice.[18] The fact that this award was rendered in 2017 could point to an increased acceptance of judicial expropriation by investor-State arbitration, compared to 2009, when the Saipem award was delivered.
The Rule of Exhaustion of Local Remedies in Denial of Justice and Judicial Expropriation Claims in Investor-State Arbitration
Denial of Justice Claims Require Exhaustion of Local Remedies
A key difference between judicial expropriation and denial of justice in investor-State arbitration lies in the exhaustion of local remedies. This is an important practical consequence of separating judicial expropriation from denial of justice.
Exhaustion of local remedies is a rule contained in numerous bilateral investment treaties. It is aptly described by Article 26 of the ICSID Convention: “A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.”
In other words, the rule of exhaustion of local remedies requires an investor to bring its claim before domestic courts until the last domestic judicial rung available before such an investor can resort to arbitration.
Exhausting local remedies has been made a strict requirement for denial of justice claims.[19]
The tribunal in Loewen v United States explains the rationale behind this requirement in the following words: “[a] court decision which can be challenged through the judicial process does not amount to a denial of justice”.[20]
Judicial Expropriation Does Not Require Exhaustion of Local Remedies
In contrast, exhausting local remedies does not appear to be a strict requirement in investor-State arbitration claims based on judicial expropriation.[21]
For instance, in Saipem, Bangladesh tried to submit the arguments that had allowed the United States to win in Loewen, namely the fact that the claims should be analysed through denial of justice and that local remedies were not exhausted.[22]
The tribunal sought to analyse whether pursuing litigation before domestic courts would be reasonable. The tribunal asked: “In other words, is exhaustion of remedies a substantive requirement of a valid claim for expropriation by actions of the judiciary?”[23]
The tribunal’s answer to its own question was the following: “While the Tribunal concurs with the parties that expropriation by the courts presupposes that the courts’ intervention was illegal, this does not mean that expropriation by a court necessarily presupposes a denial of justice. Accordingly, it tends to consider that exhaustion of local remedies does not constitute a substantive requirement of a finding of expropriation by a court.”[24]
The tribunal rejected Bangladesh’s arguments, which partially relied on Loewen, and agreed with Saipem’s contention that this was a case of judicial expropriation, which did not require an exhaustion of local remedies.[25]
Closing Remarks
While an impractical and ill-defined concept, judicial expropriation is likely to create new case law and form the basis of new claims in investor-State arbitration.
There are multiple practical takeaways from the, often contradictory, case law on judicial expropriation and denial of justice.
States party to an investor-State arbitration may have a marked interest in framing investors’ claims pertaining to acts of its judiciary or its legal and judicial organisation as denial of justice claims. Denial of justice is a high threshold to reach and typically requires an investor to exhaust local remedies. It can, therefore, be a viable defence for States.
In contrast, investors party to an investor-State arbitration faced with a potentially expropriatory act of a State’s judicial organ may choose to plead judicial expropriation. This could allow them to avoid the stricter threshold of denial of justice and the rule of exhaustion of local remedies.
These takeaways are limited by the contradictory and evolutive nature of case law pertaining to judicial expropriation, and by the specificities of each case.
It remains to be seen whether judicial expropriation is further elaborated upon and delimitated in investor-State arbitration awards to come or if it is merged with denial of justice.
[1] V. Prislan, “JUDICIAL EXPROPRIATION IN INTERNATIONAL INVESTMENT LAW”, International and Comparative Law Quarterly 70.1 (2021), p. 166.
[2] OAO Taftneft v Ukraine, UNCITRAL, Award on the Merits, 29 July 2014, para. 459.
[3] See M. Sattorova, Judicial expropriation or denial of justice? A note on Saipem v Bangladesh, Int. A.L.R. 2010, 13(2), 35-41; A. Mourre, “Expropriation by Courts: Is It Expropriation or Denial of Justice?”, Contemporary Issues in International Arbitration and Mediation: the Fordham Papers (Brill Nijhoff, 2011); M. Sattorova, “Denial of justice disguised?” Investment arbitration and the protection of foreign investors from judicial misconduct, I.C.L.Q. 2012, 61(1), 223-246.
[4] M. Sattorova, Judicial expropriation or denial of justice? A note on Saipem v Bangladesh, Int. A.L.R. 2010, 13(2), 35-41.
[5] J. Paulsson, Denial of Justice in International Law (2009), p. 204.
[6] Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, 1 November 1999, para. 102.
[7] Iberdrola Energía S.A. v Republic of Guatemala, ICSID Case No. ARB/09/5, Final Award, 17 August 2012, para. 444.
[8] Neer and Neer (U.S.A.) v. United Mexican States, General Claims Commission, Decision, 15 October 1926, para. 4.
[9] Inter alia, Chevron Corp and Texaco Petroleum Corp v Ecuador (II), PCA Case No. 2009-23, Second Partial Award on Track II, 30 August 2018, para. 8.24; Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of the Award, 22 June 2010; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008; Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011; Swisslion DOO Skopje v The Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award, 6 July 2012.
[10] Oil Field of Texas Inc. v. The Government of the Islamic Republic of Iran, Iran-US Claims Tribunal, Award in Case No. 43 (258-43-1) of October 8, 1986, Yearbook of Commercial Arbitration, Vol. XII; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, para. 702.
[11] Loewen Group, Inc and Raymond L. Loewen v United States of America, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003, paras. 137, 217.
[12] Id. para. 217.
[13] Lion Mexico Consolidated LP v. United Mexican States, ICSID Case No. ARB(AF)/15/2, Award, 20 September 2021, para. 603.
[14] Saipem v Bangladesh, ICSID Case No. ARB/05/07, Award, 30 June 2009, para. 181.
[15] Ibid.
[16] Karkey Karadeniz Elektrik Uretim A.S. v Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, para. 550.
[17] Id. para. 648.
[18] Id. paras. 556, 645.
[19] Loewen Group, Inc and Raymond L. Loewen v United States of America, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003, para. 151; Antoine Abou Lahoud and Leila Bounafeh-Abou Lahoud v Democratic Republic of the Congo, ICSID Case No ARB/10/4, Award, 7 February 2014, para. 466.
[20] Loewen Group, Inc and Raymond L. Loewen v United States of America, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003, para. 153.
[21] Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Award, 30 June 2009, paras. 179 to 181.
[22] Id. paras. 177-178.
[23] Id. para. 176.
[24] Id. para. 181.
[25] Id. paras. 179-181.
