QUESTION projects, the investor needs legal and



Compare and contrast the views of
developed and developing countries with respect to the nature and content of
international investment law.

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is important to ask ourselves whether international investment law can be
considered as a distinct filed on its own. After the Second World War, there
was a surge in the number of foreign investments and this led to the conclusion
of a number of bilateral treaties.1 International Investments
Law has aspects of customary international law, international economic law and
it also has its own distinct features which are suited for it.2 The nature and structure
of international investments law makes it stand out markedly in the
far-reaching realm of international trade law.

law plays the role of governing the long term relationship between a state and
a private party (the investor).3 By its very nature,
international investment law has a number of controversies especially when it
comes to the obligations and benefits of the parties as contained in
international investment agreements. Most of the IIAs place obligations on the
host state without any specific commitments on the part of the investor. During
the negotiations of IIAs, privileges are not exchanged mutually. Thus, the IIA
end ups being more beneficial to the capital-exporting states than to those
importing capital. Consequently, investors are afforded numerous rights and
privileges without being subject to any specific obligations under the IIA.4

Investment Treaties, the host state appears to be renouncing its sovereignty in
exchange for a new opportunity-attracting foreign investors. 5 The host state would
otherwise not acquire any foreign investment in the absence of the investment
treaty. Unlike a standard trade transaction, foreign investments have a
distinct feature which is the long term commitment which in turn translates
into a long term risk.6 A trade transaction
typical involves the supply of goods or services which is followed by payment
of money.7 Investments on the other
hand involve expending resources (capital) into a project over a long period of
time in the expectation of deriving profits.8

the time of negotiating the investment treaties, the capital exporting states
which are usually the developed countries are keen on safeguarding investments
by their nationals against risk. Therefore, both legal and business risks are
laid out in advance to enable the investor make a risk assessment before
investing in a particular state. Given the long-term nature of the investment
projects, the investor needs legal and other guarantees its investment and
interests shall be protected. The risks that are inherent include commercial
risks such as change in the market size, fluctuation of exchange rates, new
entrants into the market. There are also political risks which include changes
in the applicable law and tax regimes and matters to do with dispute
It is therefore not uncommon to find that during negotiations of the IIA, the
investor will lead the negotiations so as to try and seek protections against
the risks herein.

capital importing states (developing countries) primarily focus on attracting
foreign investors. For these states, the incentive it is all about the benefits
that accrue from admitting foreign investors, the conditions that these states
should set in order to promote foreign investments and the removal of obstacles
that can hinder foreign investments.10 Under customary
international law, no state is obligated to admit foreigners into its
territory. It follows then that states have the right to regulate and exclude
foreign investments in its territory.11 Once a state admits a
foreign investor into its territory, it becomes obligated to apply the minimum
standard of treatment. Most IIA however have provisions that go beyond this
minimum standard of treatment and go as far as providing a dispute settlement
mechanism of international arbitration in order to de-politicize the dispute
resolution process.12 Unencumbered investment
protection is offered by capital importing states in a bid to attract more
foreign investors into its territory.13 The desire by most
capital-importing states to gain competitive advantage over states therefore
leads them to conclude IIA hastily and without giving due consideration to its
policy frameworks.14

the 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 money
hoping to make profit at the end of the investment period and towards this end
requires guarantees that may affect the investment between the time the
investment is made and the time profits are recouped.15 It is for this reason
that there is a power shift between the negotiation and implementation stage of
the IIA. During the negotiation stage, the investor has an upper hand because
the host state wants to attract the investor into its territory. At the
implementation stage, power shifts in favour of the host state because once the
investment is in its territory the government of the host state can take
actions that affect the investment or reduce its profitability.16

is thus common to find that developed countries conclude IIAs primarily for
protection of the investment while the developing countries conclude IIAs to
attract and promote foreign investors. As such BITs entered into by states have
clauses on standards of protection and treatment of foreign investors and will
in particular address issues such as full protection and security, FET, MFN and
NT and compensation for losses incurred after expropriation.

protection is stated certainly in investment treaties but provisions on
promotion of foreign investments are seldom included in these treaties. It is
assumed that, the protection provisions will enhance and promote foreign

countries will therefore want to conclude treaties with enhanced protection
provisions to reduce the legal and business risks involved in investing in a
foreign territory. Developing countries will agree to the enhanced protection
provisions to enable them concluded the treaties, which will turn attract more
foreign investors and eventually lead to the development of their economies.




While attending a meeting convened by
the civil society, academics and policymakers to discuss the philosophical and
jurisprudential foundation of bilateral investments treaties, a senior
government official of the Republic of Banana was heard asserting that states
may be justified in expropriating property without compensation if they are
exercising sovereign and legitimate powers so as to promote public interest in
varied areas including public services. Citing Kenya’s investment laws and
arbitral tribunal decisions, assess the plausibility of the claim.

is the taking away of property (of value) from the owner. In the context of
international investment law, expropriation is when the host state takes the
assets of the foreign investor without its consent.17 Expropriation leads to
the foreign investor being deprived of the benefit or use of the asset. Under
customary international law, a state has the right to expropriate foreigners’
property within its territory. This right is however not absolute.18

can either be lawful or unlawful. Lawful expropriation is expropriation done
for a public purpose, that’s non-discriminatory, that follows due process and
that is followed by prompt, adequate and efficient compensation. These are the
elements which make expropriation legal.19

customary international law, a state has the right to expropriate foreigners’
property within its territory. This right is however not absolute.20 When exercise its right
to expropriate, the host state should be acting for the good of the general
public. The expropriation should be undertaken for the good of the public.21 The host state should
follow due process throughout the expropriation period. This entails procedural
fairness, protection of the investors rights to the rule of law, providing
notice of the intended expropriation, being transparent before and during the
expropriation proceedings and giving the investor time to give reasons why its
property should not be expropriated.22 Under customary
international law there is a prohibition against treating certain investors
unfavourably in comparison to the other investors. Foreign investors should be
offered MFN and NT.23 A state that only
expropriates the property of certain foreigners is acting illegally. When
expropriating, a state should disregard personal characteristics of the
investor and there should be no discrimination whatsoever.24 An expropriation that is
done for a public purpose, in accordance with due process, without
discrimination is legal. However he investor still requires to be compensated.25 According to Hull’s
formula, compensation should be prompt, adequate and effective.26 Prompt compensation means
that the investor should not have to wait too long to be paid. Adequate means
that the investor should receive proper value for loss and the compensation
should reflect the value of assets and expected profits. The compensation
should be effective in that it needs to be paid in readily convertible currency
to enable the money to flow back out of the country.27

may be justified in expropriating property without compensation if they are
exercising sovereign and legitimate powers so as to promote public interest in
varied areas including public services”.

clauses as presently drafted in international treaties focus more on
stipulating the details of compensation.28 International Treaties
concluded in future could perhaps specify non-discriminatory regulatory measures
that can be taken by a host state to promote public interest objectives such as
health and safety and environment protection and that do not constitute
indirect discrimination.29 By doing so, states may
be justified in expropriating property without compensation provided it is done
for a public purpose, without discrimination and in accordance with due

Corporation vs. United States of America30

Corp was a marketer and distributor of methanol. After a California banned the
use or sale in California of gasoline additive MTBE (methanol was used in the manufacture of MTBE, Methanex alleged
that there was indirect expropriation, breach of FET and NT. None of these
breaches were found and the Tribunal stated that the ban was necessary because
MTBE was contaminating drinking water supplies and it was therefore posing a
significant risk to human health and safety and the environment. No
compensation was awarded.

40 (3) of the Constitution of Kenya 2010, provides:

“The State shall not deprive a person
of property of any description, or of any interest in, or right over, property
of any description, unless the deprivation— (a) results from an acquisition of
land or an interest in land or a conversion of an interest in land, or title to
land, in accordance with Chapter Five; or (b) is for a public purpose or in the
public interest and is carried out in accordance with this Constitution and any
Act of Parliament that— (i) requires prompt payment in full, of just
compensation 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.”

the Foreign Investment Protection Act31 (subsidiary legislation),
Article 6 provides

“The investments made by investors of
one contracting party shall enjoy full and complete protection and safety in
the territory of the other contracting party32
and that neither contracting party shall take any measures of expropriation or
nationalization or any other measures depriving, directly or indirectly, an
investor of the other contracting party of an investment unless the following
conditions are complied with33—
the measures are taken in the public or national interest and in accordance
with the law, the measures are not discriminatory and provisions for the
payment of prompt and full compensation to accompany the measures.”

compensation shall amount to the market value of the expropriated investment at
the time immediately before the expropriation or before the impending

Kenyan laws stipulate that compensation should be paid in full and leaves
little room for the assertion that states may be justified in expropriating
property without compensation if the State is promoting public interest.




Rudolf Dolzner & Christoph Schreuer ‘Principles of International Investment
Law’ (Oxford University Press, 2012) pg. 1

Ibid pg. 2

Krista Nadakavukaven Schefer Ínternational Investment Law Text, Cases &
Materials (2nd edition, Edward Elgar Publishing, 2016) at pg. 2

Marc Jacob ‘International Investment Agreements and Human Rights’ INEF Research
Paper Series Human Rights, Corporate Responsibility and Sustainable
Development, at pg. 21

Supra note 1 at pg. 4

Supra note 1 pg. 4

Supra note 1 pg. 3

Supra note 1 at pg. 4

Supra note 1 pg. 4

Supra note 1 pg. 7

Supra note 1 pg. 7

Supra note 1 pg. 7

Supra note 4 at pg. 23

Supra note 4 pg. 22

Supra note 3 pg. 2

Supra note 3 pg. 4

Supra note 3 pg. 191

Supra note 3 pg. 192

Supra note 3 pg. 191

Supra note 3 pg. 192

Supra note 3 pg. 193

Supra note 3 at 207


Supra note 3 at 208

Supra note 3 pg. 217


Supra note 3 at 217.

Supra note 4 at pg. 35


(UNCITRAL Arbitration 2005-Final Award on Jurisdiction and Merits) accessed 28th January

Chapter 518 Laws of Kenya

ibid Article 6(1)

Supra note 31 Article 6(2)

Supra note 31 Article 6 (3)