The Importance and Challenges of the Expropriation related Clauses Maurício Pacheco, L.LM. PhD Candidate -University of Göttingen

Structure 1 – Expropriation in the CFIA 2 – Application of the Promptness Standard of the Expropriation´s clause according the Brazilian Law 3 – Importance of the expropriation´s clause 4- Challenges 6-Compensation´s methods overview 7- Conclusion

Expropriation in the CFIA: Provisions -Non-discriminatory -Due Process of Law -Compensation -Adequate Compensation: 1. Fair Market Value (FMV) 2. Date of Expropriation: “before the expropriation” 3. Value of the compensation: No negative changes are allowed, even in the case of previous knowledge 4. Promptness Standard (“sem demora”) according to Host State´s law

Promptness Standard of the Compensation: the Brazilian Experience Right of Property (Art. 5, XXII) + Social Function(Art. 5, XXIII) Ordinary Expropriation: Public Necessity or use, or for social interest. Prior and Fair Compensation in Cash- (182, §3). Extraordinary Expropriation (Sanction): Urban Property – Compensation: 10 Years in “precatórios” (owed payment) Rural Property: Rational and adequate use; adequate use of available natural resources and preservation of the environment; compliance with the provisions that regulate labour relations; exploitation that favours the well-being of the owners and labourers. Compensation: 20 Years in “precatorios”

Importance of the Expropriation Clause 1- Are the requirements International Customary Law? II - Hull Formel x Calvo Doctrine? III- GA-UN Res. 1803 (XVII) – Permanent Sovereignity over natural ressources (“Host State´s law + international Law) x UN Res. 3281 (XXIX) – Charter of Economic Rights and Duties of States: relevant law of the host State IV - Avoid the consequences of the unlawful expropriation – ILC Articles on Responsability of States for Internationally Wrongful Acts – Factory at Chorzów Case: Restitution / Compensation (+loss of profits) / Satisfaction

Challenges - 1 Investor? Residence (Law 4.131/62) x Nationality according national law (CFIA, Art. 3, 2,iii) Due Process of Law: obligation of Conduct? Breach of the procedural rules?Revieweable Defect? To what extent ? ADC Affiliate Limited and ADC x Hungary (ICSID Case n. ARB/ 03/16, Award): “reasonable chance within a reasonable time to claim its legitimate rights and have it claims Heard” Public Interest?: Borden of Proof (ADC x Hungary): Harmonization of Hungarian Government´s transport strategy, law and regulations with the EU Law, it failed: Genuine interest of the public - not only mere reference)

Challenges - II Traditional approachs of International Investment Law: Police Power x Sole Effect Doctrine: Police Power “…in evaluating a claim of expropriation it is important to recognize a State´s legitimate right to regulate and to exercise its police power in the interest of public welfare and not to confuse measures of that nature with expropriation” (Suez v. Argentina ICSID Case n. Arb/ 03/17) “Tax Law, for example, are widely to be measured that will not generally be found to be expropriatory” (RosinvestCo UK Ltd v. Russian Federation, SCC Case n. Arb. V079/2005, Final Award)

Challenges - III Sole Effect Doctrine: “It has been stated that: expropriatory environmental measures – no matter how laudable and beneficial to society as whole- are, in this respect, similar to any expropriatory measures that a State may take in order to implement its policies: wher property is exproprietated, even for environmental purposes, whether domestic or international, the State´s obligation to pay compensation remains” “Based on the above, (…) the Arbitral Tribunal finds and resolves that the resolution and its effects amount to an expropriation in violation of Art. 5 of the Agreement and international law.” (Técnicas Medioambientales Tecmed SA v. The United Mexican States, ICSID Case n. ARB (AF)/00/2,

Compensation – How to calculate it? 1- Fair Market Value: Willingness to pay test (Amoco International Finance Corp. V Iran, 15 Iran-US CTR 189, Partial award) II- Book Value: Book value of the investment or the value (Liamco v. Lybya) – determination of the “just and Equitable” compensation sum III- New Investment/Costs- how much the investor spent in setting up it investment rather than looking at the present future profit-making probabilities (Metalclad Corporation v. United Mexican States- ICSID Case n. Arb. (AF)97/1, Nafta Arbitration) IV- All relevant circumstances – Compania del Desarrollo de Santa Elena SA v. Costa Rica (ICSID Case n. ARB(96/1, Final Award)

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