QUESTION ONECompare and contrast the views ofdeveloped and developing countries with respect to the nature and content ofinternational investment law.Itis important to ask ourselves whether international investment law can beconsidered as a distinct filed on its own. After the Second World War, therewas a surge in the number of foreign investments and this led to the conclusionof a number of bilateral treaties.1 International InvestmentsLaw has aspects of customary international law, international economic law andit also has its own distinct features which are suited for it.2 The nature and structureof international investments law makes it stand out markedly in thefar-reaching realm of international trade law.Investmentlaw plays the role of governing the long term relationship between a state anda private party (the investor).
3 By its very nature,international investment law has a number of controversies especially when itcomes to the obligations and benefits of the parties as contained ininternational investment agreements. Most of the IIAs place obligations on thehost state without any specific commitments on the part of the investor. Duringthe negotiations of IIAs, privileges are not exchanged mutually. Thus, the IIAend ups being more beneficial to the capital-exporting states than to thoseimporting capital. Consequently, investors are afforded numerous rights andprivileges without being subject to any specific obligations under the IIA.4 InInvestment Treaties, the host state appears to be renouncing its sovereignty inexchange for a new opportunity-attracting foreign investors.
5 The host state wouldotherwise not acquire any foreign investment in the absence of the investmenttreaty. Unlike a standard trade transaction, foreign investments have adistinct feature which is the long term commitment which in turn translatesinto a long term risk.6 A trade transactiontypical involves the supply of goods or services which is followed by paymentof money.
7 Investments on the otherhand involve expending resources (capital) into a project over a long period oftime in the expectation of deriving profits.8Atthe time of negotiating the investment treaties, the capital exporting stateswhich are usually the developed countries are keen on safeguarding investmentsby their nationals against risk. Therefore, both legal and business risks arelaid out in advance to enable the investor make a risk assessment beforeinvesting in a particular state. Given the long-term nature of the investmentprojects, the investor needs legal and other guarantees its investment andinterests shall be protected. The risks that are inherent include commercialrisks such as change in the market size, fluctuation of exchange rates, newentrants into the market. There are also political risks which include changesin the applicable law and tax regimes and matters to do with disputesettlement.9It is therefore not uncommon to find that during negotiations of the IIA, theinvestor will lead the negotiations so as to try and seek protections againstthe risks herein. Thecapital importing states (developing countries) primarily focus on attractingforeign investors.
For these states, the incentive it is all about the benefitsthat accrue from admitting foreign investors, the conditions that these statesshould set in order to promote foreign investments and the removal of obstaclesthat can hinder foreign investments.10 Under customaryinternational law, no state is obligated to admit foreigners into itsterritory. It follows then that states have the right to regulate and excludeforeign investments in its territory.11 Once a state admits aforeign investor into its territory, it becomes obligated to apply the minimumstandard of treatment. Most IIA however have provisions that go beyond thisminimum standard of treatment and go as far as providing a dispute settlementmechanism of international arbitration in order to de-politicize the disputeresolution process.12 Unencumbered investmentprotection is offered by capital importing states in a bid to attract moreforeign investors into its territory.
13 The desire by mostcapital-importing states to gain competitive advantage over states thereforeleads them to conclude IIA hastily and without giving due consideration to itspolicy frameworks.14Duringthe negotiation of an IIA, the host state wants an investor to invest money,time and effort in its territory. The investor on the other hand invests moneyhoping to make profit at the end of the investment period and towards this endrequires guarantees that may affect the investment between the time theinvestment is made and the time profits are recouped.
15 It is for this reasonthat there is a power shift between the negotiation and implementation stage ofthe IIA. During the negotiation stage, the investor has an upper hand becausethe host state wants to attract the investor into its territory. At theimplementation stage, power shifts in favour of the host state because once theinvestment is in its territory the government of the host state can takeactions that affect the investment or reduce its profitability.16Itis thus common to find that developed countries conclude IIAs primarily forprotection of the investment while the developing countries conclude IIAs toattract and promote foreign investors. As such BITs entered into by states haveclauses on standards of protection and treatment of foreign investors and willin particular address issues such as full protection and security, FET, MFN andNT and compensation for losses incurred after expropriation. Investmentprotection is stated certainly in investment treaties but provisions onpromotion of foreign investments are seldom included in these treaties. It isassumed that, the protection provisions will enhance and promote foreigninvestments.
Developedcountries will therefore want to conclude treaties with enhanced protectionprovisions to reduce the legal and business risks involved in investing in aforeign territory. Developing countries will agree to the enhanced protectionprovisions to enable them concluded the treaties, which will turn attract moreforeign investors and eventually lead to the development of their economies. QUESTION TWO:While attending a meeting convened bythe civil society, academics and policymakers to discuss the philosophical andjurisprudential foundation of bilateral investments treaties, a seniorgovernment official of the Republic of Banana was heard asserting that statesmay be justified in expropriating property without compensation if they areexercising sovereign and legitimate powers so as to promote public interest invaried areas including public services. Citing Kenya’s investment laws andarbitral tribunal decisions, assess the plausibility of the claim. Expropriationis the taking away of property (of value) from the owner. In the context ofinternational investment law, expropriation is when the host state takes theassets of the foreign investor without its consent.
17 Expropriation leads tothe foreign investor being deprived of the benefit or use of the asset. Undercustomary international law, a state has the right to expropriate foreigners’property within its territory. This right is however not absolute.18Expropriationcan either be lawful or unlawful.
Lawful expropriation is expropriation donefor a public purpose, that’s non-discriminatory, that follows due process andthat is followed by prompt, adequate and efficient compensation. These are theelements which make expropriation legal.19Undercustomary international law, a state has the right to expropriate foreigners’property within its territory. This right is however not absolute.20 When exercise its rightto expropriate, the host state should be acting for the good of the generalpublic. The expropriation should be undertaken for the good of the public.21 The host state shouldfollow due process throughout the expropriation period. This entails proceduralfairness, protection of the investors rights to the rule of law, providingnotice of the intended expropriation, being transparent before and during theexpropriation proceedings and giving the investor time to give reasons why itsproperty should not be expropriated.
22 Under customaryinternational law there is a prohibition against treating certain investorsunfavourably in comparison to the other investors. Foreign investors should beoffered MFN and NT.23 A state that onlyexpropriates the property of certain foreigners is acting illegally.
Whenexpropriating, a state should disregard personal characteristics of theinvestor and there should be no discrimination whatsoever.24 An expropriation that isdone for a public purpose, in accordance with due process, withoutdiscrimination is legal. However he investor still requires to be compensated.
25 According to Hull’sformula, compensation should be prompt, adequate and effective.26 Prompt compensation meansthat the investor should not have to wait too long to be paid. Adequate meansthat the investor should receive proper value for loss and the compensationshould reflect the value of assets and expected profits. The compensationshould be effective in that it needs to be paid in readily convertible currencyto enable the money to flow back out of the country.27″Statesmay be justified in expropriating property without compensation if they areexercising sovereign and legitimate powers so as to promote public interest invaried areas including public services”.Expropriationclauses as presently drafted in international treaties focus more onstipulating the details of compensation.28 International Treatiesconcluded in future could perhaps specify non-discriminatory regulatory measuresthat can be taken by a host state to promote public interest objectives such ashealth and safety and environment protection and that do not constituteindirect discrimination.29 By doing so, states maybe justified in expropriating property without compensation provided it is donefor a public purpose, without discrimination and in accordance with dueprocess.
InMethanexCorporation vs. United States of America30MethanexCorp was a marketer and distributor of methanol. After a California banned theuse or sale in California of gasoline additive MTBE (methanol was used in the manufacture of MTBE, Methanex allegedthat there was indirect expropriation, breach of FET and NT. None of thesebreaches were found and the Tribunal stated that the ban was necessary becauseMTBE was contaminating drinking water supplies and it was therefore posing asignificant risk to human health and safety and the environment.
Nocompensation was awarded. Article40 (3) of the Constitution of Kenya 2010, provides: “The State shall not deprive a personof property of any description, or of any interest in, or right over, propertyof any description, unless the deprivation— (a) results from an acquisition ofland or an interest in land or a conversion of an interest in land, or title toland, in accordance with Chapter Five; or (b) is for a public purpose or in thepublic interest and is carried out in accordance with this Constitution and anyAct of Parliament that— (i) requires prompt payment in full, of justcompensation to the person; and (ii) allows any person who has an interest in,or right over, that property a right of access to a court of law.”Underthe Foreign Investment Protection Act31 (subsidiary legislation),Article 6 provides “The investments made by investors ofone contracting party shall enjoy full and complete protection and safety inthe territory of the other contracting party32and that neither contracting party shall take any measures of expropriation ornationalization or any other measures depriving, directly or indirectly, aninvestor of the other contracting party of an investment unless the followingconditions are complied with33—the measures are taken in the public or national interest and in accordancewith the law, the measures are not discriminatory and provisions for thepayment of prompt and full compensation to accompany the measures.
“Suchcompensation shall amount to the market value of the expropriated investment atthe time immediately before the expropriation or before the impendingexpropriation.34TheKenyan laws stipulate that compensation should be paid in full and leaveslittle room for the assertion that states may be justified in expropriatingproperty without compensation if the State is promoting public interest. 1Rudolf Dolzner & Christoph Schreuer ‘Principles of International InvestmentLaw’ (Oxford University Press, 2012) pg. 12Ibid pg. 23Krista Nadakavukaven Schefer Ínternational Investment Law Text, Cases (2nd edition, Edward Elgar Publishing, 2016) at pg. 2 4Marc Jacob ‘International Investment Agreements and Human Rights’ INEF ResearchPaper Series Human Rights, Corporate Responsibility and SustainableDevelopment, at pg. 215Supra note 1 at pg.
46Supra note 1 pg. 47Supra note 1 pg. 38Supra note 1 at pg. 49Supra note 1 pg. 410Supra note 1 pg. 711Supra note 1 pg. 712Supra note 1 pg.
713Supra note 4 at pg. 2314Supra note 4 pg. 2215Supra note 3 pg. 216Supra note 3 pg.
417Supra note 3 pg. 19118Supra note 3 pg. 19219Supra note 3 pg.
19120Supra note 3 pg. 19221Supra note 3 pg. 19322Supra note 3 at 20723ibid24Supra note 3 at 20825Supra note 3 pg. 21726ibid27Supra note 3 at 217.28Supra note 4 at pg.
3529ibid30(UNCITRAL Arbitration 2005-Final Award on Jurisdiction and Merits) http://www.italw.com accessed 28th January201831Chapter 518 Laws of Kenya32ibid Article 6(1)33Supra note 31 Article 6(2) 34Supra note 31 Article 6 (3)