Abbas Mohammed Khan v.

Deputy Director

Serdia Pharmaceuticals India Pvt. Ltd v. Union of India

Cheminova India Ltd. V. State of Punjab

Rosy v. State of Kerala iom

Issuance of compulsory licensing as an indirect form of expropriation

BITs uniformly have provisions that rquire the host state to pay compensation if it expropriates foreign
investment. This requirement is consistent with customary international law. What constitutes expropriation is
expressed in a variety of ways

exproriatory effect : …. subjected to a measure having effect equivalent to nationalisation or expropriation

Sole effects test - The focus is only on the severity of the effect of the regulatory measure on foreign investment.
According to this test, measures that do not constitute DE may nevertheless constitute IE if the effect of the
regulatory measure causes a substantial deprivation of foreign investment

Police Powers Doctrine - State measure that are prima facie a lawful exercise powers of the government may
affect foreign interests considerably without amounting to expropriation

Proportionality test - Requires the balancing public purpose behind the regulatory measure with the effect that
the measure has on foreign investment

Three steps - assessed cumulatively - whether the measure is suitable for the legitimate public purpose. This will
require a causal link bw the measure and its object. Determine whether the measure is necessary, that is, whether
there is a less restrictive alternative measure that will achieve the same objective. Balance the effects of the
measure on the right that has been affected with the public benefit sought to be achieved by the measure.

The choice of test to apply depends on the discretion of the ISDS Tribunal

General exceptions that apply to all BIT obligations - Exclude particular sectors; exclude subject matters
from BIT obligations; Permit measures necessary to meet specific objectives which include protecting
essential security interests, maintaining public order, safeguarding public health
Exceptions - Permissible Objects jusitfies deviation from treaty obligation + nexus requirement - state can
adopt only those measures that are necesary to achieve permissible objective.

in Firemen Funds Insurance Co. v Mexico, the Tribunal summarisin the jurisprudence of 10 previous decisions
under NAFTA identified the key element snecessary to sustain the investors claim for expropriation :
Expropriation requires a taking by a govt type authortiy of an investment by an investor covered by the NAFTA.
The covered investment may include intagible as well as tangible property. The taking must be a substantially
complete deprivation of the economic use and enjoyment of the rights to the property or of identifiable distinct
parts thereof; the taking must be permanent and not temporary; taking usually invilves a transfer of ownership to
some other person but that need not be so; the effects of the host states measures are dispositivel not the
underlying intent . Taking may be de jure or de facto, taking may be direct or indirect. taking may have the fomr
of a single measure or a series of related or unrelated measures

It would be applicable to the expropriaory ptovisions of moSt Investment treaties

In the investment climate of the 21st centrury, DE happen infrequently. Far more frequest are instances of IE.
That is , situations in which host states invoke their leg and reg parts to enact measures that reduce the benfeits
that investors derive from their investments without actually changing or cancelling investors legal title to their
assets
Various possible explanations for shift by host states from DE to IE - host states that need forign capital may be
reluctant to harm their countrues investment climate by taking the drastic measure of openly seizing foreign
assets; will atract negative publicity and demage reputation as a viable state for hosting investment

Effective use of regulatory powers allows the host country to have benefits of an expripriation wihtou taking
title or seizing control

All host countries have a leg right to regulate investments and investors in their country/The boundary between
legitimate regulation and acts that violate a Treaty;s expropriation provision is often difficult to determine

This lack of a clear line bw valid regulation and illgela IE may lead Govts to use their reg power more
aggresivly against FI than they would otherwise do when they deem it in PI

Because of these factors, cases allegaing IE have become increasingly imp in recent years. IE leaves the
investors title untoyched but significantly reduces his ability to ultilise or benefir from the investment. State
denies the existence of an expropriation and justifies itd action as a legitimate exercise of its reg power or police
powers and thereby

Factors to determine IE - Effect on investment rather than form of the action or underlying intent

Third category of expropriatory acts - acts that are tantamount to exproproiation. Precise difference between this
and IE is ephemeral at best. Tribunals have struggled to bring out a meaningful distinction. Two views - Broad
view –

legitimate regulation v illegal takings - Fireman Fund Insurance Co.

Whether the measure if within the rc police powers of the State; public powers and effect of the measure;
whether the measure is discriminatory; and proportionaly of means and aim sought; bonoafides of the measure.

Their applcication to specific cases is by means easy or automatic.

Compensable Indircet Expropriation and non compensable regulatory measures

Criteria to determine : Degree of intensity of interference with investor property rights; lack of proporationaliry;
efefcts and purpose of the measure; frustration of investor's legitimate expectations; non trasparency
arbitrariness and discrimination

Purpose of expropriation provisions in treaties is to protect investors property rights.

Greater the interference with the rights by government regulatory measures, the more likely a tribunal is to find
an indirect expropriation.
Factors relevant in evaluating the magnitude of a host governments interference

(a)Severity of its economic impact and effect on the investors control over the investment

- Question is asked as to whether the measure at issue resulted in substantial deprivation of the investment or its
economic benefits. In occidental v Ecuador the Tribunal had to consider whether Ecaudors refusal to refund to
Occidental VAT to which the State was entitled under Ecuadorian Law constituted an expropriation

It concluded that the measure in question did not constitute an indirect expripriation because the criterion of
substnatial deprivation was not met
CMS Gas Transmission Co. v Argentina. Claimant in a gas transportation company alleged that Argentina's
decision to suspend a tariff adjustment formula for gas trnasportation during the crisis constituted an indirect
expropriation

Tribunal observed : The essential question is to establish whether the enjoyment of the property has been
effectively neutralised. The standard where indirect expropriation is contended is that of substantial deprivation

Tribunal recognised that the measures under dispute had an important effect on the investor's business. It found
no substantial deprivation and, thus, no breach of the expropriation provision of the Argential-US BIT.

The investor is in control of the investment; the government does not manage the day to day operations of the
company. and the investor has full ownership and control of the investment

LGE v Argential. Investors brought a claim of IE when value of their license were reduced by 90% due to
abrogation of the principal guarantees of the tariff system. Tribunal observed in order to establish whether state
measures conssitute expropriation - one must balance two competing inteesrs - degree of measures intereference
with the right of ownership and the power of the State to adopt its policies. Acc to the tribunal, evaluation of the
measures interference with the investors right of ownership must take into account the measures economic
impact, its interference with the investor's reasonable expectations and the measures duration

The analysis must focus on whether the economic impact unleased by the measure adopted by the host state was
sufficiently severe as to generate the need for compensation due to expropriation, even if profits have been
diminished. The impact must be substnatial in order that compensation may be claimed for the expropriation.

Nykoomb Synergetics v Latvia, investor contented that non payment of an allegedly promised double tariff by
Latvia constituted IE. Tribunal acknowledged that regulatory measures may be equivalent to expropriation
under certain circumstances. The decisve factor for drawing the borderline towards expropriation must primarily
be the degree of possession taking or control over the enterprise the disputed measures entail. Latvia did not take
possession of the investor or its asset and did not interfere with shareholders rights or with management control
of the enterprise. The challenged govt measure were not equivalent to expropriation

In Revere Copper, the Tribunal found an expropriation by looking at the impact of the regulation on effective
control over the use and operation of the investor's property.

The tribunal found that the investor's contrl , use and operation of its investments were no longer effective.

Mamidoyl v Albania. The decisive criterion for most tribunals that find Ex is not the fact of having incurred a
damage or loss of value but the finding that the owner has truly lost all the attributes of ownership.

El Paso v Argential - Atlease one of the essential components of the propery rights mustr have disappeared for
expropriation to have occured. The traiditioonal characterisitc of asset ownership are use and enjoyment, control
and possession and disposal and alienation. If one of the attributed is affected, the resulting loss of value or
benefit may lead to a claim for expropriation.

b. Duration of the regulatory measure