Legal analysis of indirect expropriation claim

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Legal analysis of indirect expropriation claim

Philip Morris International Inc. The dispute arose as to whether the measures taken by the government of Uruguay to implement health warnings and restrict forms of advertising on cigarette packaging amounted to expropriation and if so, whether Philip Morris should be entitled to compensation.

Bilateral Investment Treaties BITs developed in the s contained expropriation clauses without specific rules as to the application of the expropriation clauses. Most Chinese BITs, for example, rely on the standard formula that Contracting States shall not "expropriate, nationalize or take similar measures The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors: Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.

The police power doctrine was promoted in the influential decision of Chief Justice Lemuel Shaw of Massachusetts in the case of Commonwealth v. Alger3 creating a distinction between the exercise of eminent domain, for which compensation was required, and police power, for which compensation was not a requirement.

However, in the case of Pennsylvania Legal analysis of indirect expropriation claim Co. Whether this statement refers to manner of the exercise of police powers or whether the statement refers only to the extent of the taking involved is a question of continuous uncertainty and debate 6.

Claims and Defenses Expropriation

In other words, it is arguable that the single relevant criteria for the determination as to the existence of an expropriation is the effect upon the property owner, which has been termed the 'sole effects doctrine' 7. The tension in US constitutional law was in a way reflected in the award of Philips Morris v Uruguay, dated the 8th of July ,where the arbitral tribunal essentially decided the case on two points of law 8.

The first point was that the actions of the government of Uruguay did not amount to 'taking' in terms of the assessment of the impact of the regulations upon Philip Morris and in terms of an analysis of the proprietary nature of the rights being claimed. The tribunal referred to the concept of 'substantial deprivation' as the requirement for establishing an indirect expropriation claim 9.

The tribunal rejected the claim that the measures taken by the government of Uruguay substantially affected the claimant's profits, due to the fact that the Philip Morris' operations in Uruguay were still profitable, in spite of claim that operations would have been more profitable but for the regulations.

In other words, the tribunal looked at the effect on the investment as a whole rather than the particular proprietary right. Similarly, the question as to whether tribunals should limit itself to looking at the investment as a whole or whether a part of an investment can be the relevantly protected by referencing a specific right, is also a contentious issue The second point was that the arbitral tribunal purported to confirm the application of the police power doctrine in international investment law The tribunal stated that this case was one in which would clearly fit under the police power doctrine and that Uruguay would not be subject to a requirement to make payments for compensation because of the legitimate nature of the regulations.

In reaching the conclusion that the regulations imposed by Uruguay were of a legitimate nature of the kind that does not demand compensation, the tribunal looked at the expectations of the parties, the nature of the regulation by the government, and the effect of the regulations upon the investor.

The tribunal held that "in light of widely accepted articulations of international concerns for the harmful effect of tobacco, the expectation [of the claimant] could only have been of progressively more stringent regulation of the sale and use of tobacco products" As a side note, the issue of the lawfulness or unlawfulness of expropriation is not to be confused with the question as to the application of the police power doctrine.

Legal analysis of indirect expropriation claim

BITs clearly provide that lawful expropriations also require the element of compensation, however, the concept of unlawful expropriation may have certain implications on the calculation of the amount of compensation As background to Philip Morris v Uruguay, Australiawas the first to introduce plain tobacco packaging legislation in under the Tobacco Plain Packaging Act Cth.

In response, claims were brought by tobacco companies under the section 51 xxxi of the Australian Constitution Chief Justice French of the High Court held that right holders should not be under any illusion that their intellectual property rights would not be subject to regulation.

French CJ accepted that intellectual property rights were of the relevant proprietary characteristic that might be subject to section 51 and that the legislation did reduce the value of the trademark and therefore amounted to 'taking'.

However, the Australian Constitution only requires compensation for an 'acquisition' as distinct from the concept of 'deprivation' and so no compensation was required. The decision of the High Court of Australia left open the issue as to the standard of expropriation existing under a country's international obligations and Philip Morris brought an investment arbitration case against Australia.

No international instruments between Australia and the US provided for investor-state arbitration, and Philip Morris' Australian subsidiary transferred its interests to Philip Morris Asia in the attempt to rely on the Hong Kong and Australia BIT, but was unsuccessful as the PCA tribunal in Singapore held that the claim was inadmissible Corresponding with the investor-state arbitration, the governments of Ukraine, Indonesia, Cuba, Honduras and the Dominican Republic lodged complaints against Australia's measures under the WTO system for trademark violations, however, it is to be noted that Ukraine subsequently suspended its proceedings against Australia in May While the parties to the dispute have issued their submissions to the DBS panel established according to the DSU, the report of the panel is pending.

As international arbitrations are not necessarily tied to any particular jurisdictional courts or precedent, the need for consistency in international arbitration is ever pressing. While this case might be considered 'easy' in the sense that there is no real public support and only limited political support for tobacco companies, the debate as to the applicability of police power doctrine in international investment law does raise doubts as to whether arbitrators are appropriately positioned to make decisions relating to the balancing of interests between states and investors in matters involving the public interest.

The updating of BITs may help settle these issues, providing more guidance to arbitrators and more certainty for investors and states alike. The BIT between Switzerland and Uruguay also contains a similar provision without further explanation as to the application of the rule against expropriation.

Specialist advice should be sought about your specific circumstances.Latvia, the tribunal addressed claims of indirect expropriation under the ECT, and construed such expropriation narrowly.

[53] There, the investor entered into an agreement with the Latvian state energy distributor to produce energy from a cogeneration plant. Indirect Expropriation in International Law; When does a state measure become subject to compensation as an indirect expropriation under international law?

The author examines claims of indirect takings from such fora as the Iran-United States Claims Tribunal, the European Court of Human Rights, and arbitral panels in .

Yale Journal of International Law Volume 19 Issue 1Yale Journal of International Law Article 4 An Analysis of Expropriation and Nationalization Risk in China Lianlian Lin John R. Alison. Indirect expropriation claims under international law are increasingly being seen as a threat to States' abilities to control property within their territory.

The inconsistent manner in which these claims are being dealt with means that uncertainty prevails in this area for investors and States alike. expropriation had occurred and supported Tippetts’ claim of indirect expropriation. The Standard of Purpose Test.

under domestic legal procedures; (iii) shall not be Analysis on the Standards of Indirect Expropriation Analysis on the Standard of Sole Effect Test. Most of these cases include a claim for indirect expropriation, and English Court’s analysis will provide a helpful guidance to understand the issues involved in these cases.

– Shweta Sahu, Alipak Banerjee, Kshama Loya Modani & Vyapak Desai.

Legal analysis of indirect expropriation claim
The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law