ARE INDIGENISATION MEASURES COMPENSABLE? A CASE STUDY OF

ARE INDIGENISATION MEASURES COMPENSABLE? A CASE STUDY OF
ARE INDIGENISATION MEASURES COMPENSABLE? A CASE STUDY OF
MEASURES TAKEN UNDER THE INDIGENISATION AND ECONOMIC
EMPOWERMENT LAWS OF ZIMBABWE
Submitted to the Faculty of Law, Centre for Human Rights, University of Pretoria, in
Partial Fulfilment for the Requirements of the Masters of Law Degree in International
Trade and Investment Law in Africa
By
Emma Chitsove
Student Number 14199166
Prepared under the Supervision of
Doctor Olufemi Soyeju
At the Faculty of Law, University of Pretoria
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© University of Pretoria
Declaration
I, EMMA CHITSOVE, hereby declare that this dissertation is my original work, and other
works cited or used are clearly acknowledged. This work has never been submitted to any
University, College or other institution of learning for any academic or other award.
Signed: ………………………………..........
Date: …………………………………….......
This dissertation has been submitted for examination with my approval as University
supervisor.
Signed: ……………………………………….
Olufemi Soyeju
University of Pretoria
Date: …………………………………………..
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Certification
I declare that this Mini-Dissertation which is hereby submitted for the award of
Legum Magister (LL.M) in International Trade and Investment Law in Africa at
International Development Law Unit, Centre for Human Rights, Faculty of Law,
University of Pretoria, is my original work and it has not been previously submitted
for the award of a degree at this or any other tertiary institution.
EMMA CHITSOVE
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Acknowledgement
I acknowledge God Almighty for His grace, mercies and favours through-out this research.
I am grateful to my supervisor for his immense contributions towards this research.
I also thank my husband for moral, emotional and academic support during the whole
Master’s program and most importantly for letting me pursue my dreams.
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List of Acronyms
AAG
Affirmative Action Group
ACHPR
African Charter on Human and Peoples’ Rights
BIT
Bilateral Investment Agreement
BSAC
British South Africa Company
CIL
Customary International Law
COMESA
Common Market for Eastern and Southern Africa
FTA
Free Trade Area
GATT
General Agreement on Tariff and Trade
GATS
General Agreement on Trade and Services
IBDC
Indigenous Business Development Centre
ICSID
International Centre for the Settlement of Investment Disputes
IEEB
Indigenisation and Economic Empowerment Board
IIA
International Investment Agreement
MIGA
Multilateral Investment Guarantee Agency
NAFTA
North American Free Trade Area
OECD
Organisation for Economic Cooperation and Development
SADC
Southern African Development Committee
UN
United Nations
UNCTAD
United Nations Conference on Trade And Development
US
United States
ZIA
Zimbabwe Investment Authority
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Directory of Cases
ADC Affiliate Ltd and ADC & ADMC Management Ltd v Hungary (Award) (ICSID Arbitral
Tribunal Case No ARB/03/16, 2 October 2006).
Amoco Asia Corporation v Republic of Indonesia, ICSIS Award, 20 November 1984, 1
ICSID Reports 413
Australia — Certain Measures Concerning Trademarks and Other Plain Packaging
Requirements
Applicable
to
Tobacco
Products
and
Packaging
Dispute
DS434
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds434_e.htm (accessed 04 March 2014)
Azurix Corp v The Argentine Republic ICSID Case No ARB/01/12 Award 14 July 200.
Case Concerning the Barcelona Traction, Light and Power Company, Limited (Second
Phase) [1971] ICJ Reports 3
Bernardus Henricus Funnekotter and Others v Republic of Zimbabwe ICSID Case No.
ARB/05/6
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of
Ghana, UNCITRAL ad hoc Tribunal, Award on Jurisdiction and Liability, 27 October 1989,
95 ILR 183 (1989)
Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22,
Award, 24 July 2008.
CMS Gas Transmission Company v Argentina ICSID Case No. ARB/01/ 8
Compañia del Desarrollo de Santa Elena S.A. v. The Republic of Costa Rica (ARB/96/1),
Award of 17 February 2000, ICSID Rev.-FILJ, Vol 15, 2000.
Continental Casualty v Argentina ICSID Case No. ARB/03/9, Award (Sept. 5, 2008)
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Dadoo Ltd and others v Krugersdorp Municipal Council 1920 AD 530
El Paso Energy International Corporation v The Argentine Republic, ICSID Case No
Elettronica Sicula S.p.A. (ELSI) (Unites States v Italy) 20 July 1989, ICJ Reports 15
ARB/03/15, Award 31 October 2011.
Generation Ukraine , Inc v Ukraine ICSID Case No ARB/00/9, Award of 16 September
2003, 44 ILM 404 (2005).
Germany
v.
Poland)
(1927)
P.C.I.J.,
Ser.
http://www.worldcourts.com/pcij/eng/decisions/1927.07.26_chorzow.htm
A,
No.
9.
(accessed
10
February 2014).
International Thunderbird Gaming Corporation v Mexico, Award, 26 January 2006.
James v. United Kingdom, (1968) 98 Eur. Ct. H.R. (ser. A) 9.
Lauder (U.S.) v. Czech Republic (Final Award) (September 3, 2002).
Liberian Eastern Timber Corporation v Republic of Liberia ICSID Case No ARB/83/2,
Award of March 1986 , 2 ICSID Reports 343 (1994)
LG&E v Argentina (ICSID Arbitral Tribunal Case No ARB/02/1, 3 October 2006).
Marvin Roy Feldman Karpa v United States of America ICSID Award Case No. ARB
(AF)/99/1.
Matos e Silva, Lda v. Portugal App. No. 15777/89, 24 Eur. Ct. H.R. rep. 573, (1996)
Metalclad Corp. v United Mexican States, Award (ICSID (Additional Facility) Case NO.
ARB (AF) /97/1), 30 Aug. 2000).
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Methanex Corp. v. United States, Final Award, Part IV, Ch. D,7 (NAFTA Arbitration Trib.
2005).
Middle East Cement Shipping and Handling Co. v. Egypt ICSID Case No. ARB/ 99/6 (2002).
Mike Campbell (Pvt) Ltd. and Others v The Republic of Zimbabwe SADC (T) Case No.
2/2007
Norwegian Shipowners' Claims (Norway v United States of America) Award of the Tribunal,
The Hague, 13 October 1922. http://legal.un.org/riaa/cases/vol_I/307-346.pdf (accessed 10
February 2014).
Occidental v Ecuador, Award, 1 July 2004, 12 ICSID Reports 59 162
Parkerings – Compagniet AS v Lithuania, ICSID Case No ARB/05/8, Award, 11 September
2007.
Patrick Mitchell v The Democratic Republic of Congo, ICSID Case No ARB/99/7
(Annulment Proceedings) (1 November 2006).
Piero Foresti and Others v The Republic Of South Africa ICSID Case No ARB(AF)/07/1
Phelps Dodge Corp., et alt v. The Islamic Republic of Iran, Award No. 217-99-2, 19 March
1986
Phillips Petroleum Co v Iran 21 Iran-US CTR 79 (1989).
Revere Copper and Brass Inc v Overseas Private Investment Corporation, Award, 24 August
1978, 56 ILR 258.
S.D. Myers Inc. v. Canada (1st Partial Award, 13 November 2000), 40 I.L.M.
Saluka Investments BV (The Netherlands) v. Czech Republic, Partial Award, 262
(UNCITRAL Arbitration Trib. 2006).
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Sea-Land Service Inc v Iran, Award No 135-33-1 (20 June 1984) 166.
Siemens A – G v The Argentine Republic ICSID Case No ARB/02/8 Award of 6 February
2007.
Starrett Housing Corporation v. Islamic Republic of Iran (1983) 4 Iran-U.S. C.T.R. 122.
Sporrong and Lönnroth v. Sweden 7152/75, [1983] 5 EHRR 35, [1982] ECHR 5, 7151/75.
Suez et al. v. Argentina, Decision on Liability, 30 July 2010.
Tecmed v. Mexico (ARB (AF)/00/2), Award of 29 May 2003, 43 ILM, 2004.
Telenor Mobile Communications A.S. v Republic of Hungary ICSID Case No. ARB/04/15.
Tippets, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Engineers of Iran, Award No.
141-7-2, 22 June 1984, 6 Iran-US Claims C.T.R ( 1984).
Too v. Greater Modesto Insurance Associates and the United States of America, Award of
December 29, 1989, Iran-US CTR, vol. 23, 1989-II.
Waste Management, Inc v United Mexican States, ICSID Case No ARB (AF)/98/2, Award of
2 June 2000, 40 ILM 56.
Wena Hotels Ltd v Arab Republic of Egypt, Award, 8 December 2000
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List of Treaties and Instruments
African Charter on Human and Peoples’ Rights (1981)
Statutes of the International Court of Justice (1948)
Bilateral Investment Treaties
Austria-Croatia BIT (1997)
Canada-Jordan BIT (2009).
Canadian Model BIT (2004)
Canada-Peru BIT (2006)
Canada-Slovak Republic BIT (2010)
Colombia and the United Kingdom (2010)
Comprehensive Economic Partnership Agreement between The Republic Of Korea And The
Republic Of India (2009)
Japan – Philippines Economic Partnership Agreement (2006)
Lebanon-Malaysia BIT (1998)
SADC Model BIT (2012)
Turkey Model BIT (2009)
United States Model Treaty (2012)
United States – Uruguay BIT (2005)
Zimbabwe – China BIT (1998).
Zimbabwe – Netherlands BIT (1998).
Zimbabwe – Czech Republic BIT (1999)
Zimbabwe – Denmark BIT (1999).
Zimbabwe – Germany BIT (2000).
Zimbabwe – Switzerland BIT (2001)
Free Trade Agreements
Australia-United States Free Trade Area (2004)
Chile-United States Free Trade Area (2003)
China-Peru Free Trade Area (2009)
New Zealand – Malaysia Free Trade Agreement (2009)
United States – Chile Free Trade Agreement (2003)
United States-Morocco Free Trade Agreement (2004)
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Multilateral Investment Treaties
ASEAN Comprehensive Agreement (2009)
Convention Establishing Multilateral Insurance Guarantee Agency (1985)
Central American Dominican Republic Free Trade Area (2004)
Investment Agreement for the COMESA Common Investment Area (2007)
Drafts, Declarations and Resolutions
Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens
(1961)
International Law Commission’s Guideline on the Responsibility of States for Internationally
Wrongful Acts (2001)
OECD Draft Convention on the Protection of Foreign Investment (1968)
United Nations Assembly Resolution 3281 (XXIX) Charter of Economic Rights and Duties
of States (1974)
United Nations Draft Convention on State Responsibility (1961)
United Nations Resolution on Permanent Sovereignty over Natural Resources GA Res 1803,
14 December (1962)
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Table of contents
Chapter 1 .................................................................................................................................. 15
1.1.Introduction ........................................................................................................................ 15
1.2.Problem Statement ............................................................................................................. 17
1.3.Research Questions ............................................................................................................ 18
1.4.Thesis Statement ................................................................................................................ 18
1.5.Justification of Study ......................................................................................................... 18
1.6.Literature Review............................................................................................................... 19
1.7.Methodology..................... ................................................................................................. 21
1.8. Scope and Limitations of the Study..................................................................................22
1.9. Chapter Outline.................................................................................................................22
Chapter 2: Indirect expropriation ............................................................................................. 24
2.1. Introduction ....................................................................................................................... 24
2.2.Definition of indirect expropriation ................................................................................... 24
2.3.Definition of indirect expropriation in international investment agreements. ................... 26
2.4.The Determination of Indirect Expropriation .................................................................... 28
2.4.1. Intensity of interference with property .......................................................................... 28
2.4.2. The effect on the investor .............................................................................................. 31
2.4.3. Protection of investor’s legitimate expectations ............................................................ 32
2.4.4. Character of government measure (purpose test) .......................................................... 32
2.5. Conclusion ………………………………………………………………………………33
Chapter 3 .................................................................................................................................. 35
Distinguishing non-compensable expropriation from compensable indirect expropriation in
international law....................................................................................................................... 35
3.1.Introduction ........................................................................................................................ 35
3.2.The State’s right to regulate ............................................................................................... 35
3.3.Non-compensable expropriation under Customary International Law .............................. 37
3.4.Non-compensable expropriation under Bilateral Investment Treaties .............................. 39
3.5.Non-compensable expropriation in Arbitral practice ........................................................ 42
3.5.1. Sole effect doctrine in practice ...................................................................................... 43
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3.5.1.1. Metalclad case............................................................................................................. 44
3.5.1.2. Biwater case ................................................................................................................ 44
3.5.2.Police powers doctrine in practice .................................................................................. 46
3.5.2.1.S.D Myers case ............................................................................................................ 47
3.5.2.1.Saluka case ................................................................................................................... 48
3.5.3.Balanced approach .......................................................................................................... 49
3.5.3.1. Tecmed case ................................................................................................................ 49
3.6. Evaluation of the sole effect doctrine versus the police powers doctrine in arbitral
practice................... .................................................................................................................. 50
3.7.Conclusion.................. ....................................................................................................... 51
Chapter 4 .................................................................................................................................. 52
Indigenisation and economic empowerment laws in Zimbabwe ............................................. 52
4.1. Introduction ....................................................................................................................... 52
4.2. Legal framework of Indigenisation and economic empowerment measures in
Zimbabwe……………………………………………………………………………………….
4.2.1. Zimbabwe’s international obligations............................................................................ 52
4.2.2. Constitutional provisions governing indigenisation and economic empowerment
measures. .................................................................................................................................. 53
4.2.3. Economic disempowerment laws during the colonial era (1890 – 1980) ...................... 54
4.2.4. Indigenisation and economic empowerment laws post independence era (1980 –
present)............... ...................................................................................................................... 56
4.2.5. Indigenisation and Economic Empowerment Act [Chapter 14:33] ............................... 58
4.2.6. Indigenisation Regulations............................................................................................. 59
4.3. Current state of play in Zimbabwe.................................................................................... 61
4.4. Evaluation of Zimbabwe’s indigenisation and economic empowerment measures ......... 62
4.4.1.The method of evaluation on whether the measures are expropriatory and compensable
……………………………………………………………………………………...62
4.4.2. Whether the indigenisation measures are expropriatory – the effects of the measure to
the investor... ............................................................................................................................ 64
4.4.3. Are the indigenisation measures compensable? ............................................................ 66
4.4.3.1. The purpose of the measures ...................................................................................... 67
4.4.3.2. Whether the measure is proportional to the objective sought to be achieved? ........... 68
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4.5. Conclusion. ....................................................................................................................... 72
Chapter 5 .................................................................................................................................. 73
Conclusion and recommendations ........................................................................................... 73
5.1. Introduction ....................................................................................................................... 73
5.2. Summary of Findings ........................................................................................................ 73
5.3. Conclusions ....................................................................................................................... 74
5.4. Recommendations ............................................................................................................. 74
Bibliography ............................................................................................................................ 77
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Chapter 1
1.1. Introduction
Respect for private persons’ property is a recognised principle of international law and it is
more elaborated in investment law. However, the level of protection and the general notion of
property rights differ. The United States of America1 views property rights as absolute
rights2 whereas most Commonwealth Constitutions subject property rights to public interest
and identify the circumstances under which property becomes defeasible in the public
interest.3 The African Charter and Human and Peoples’ Rights (ACHPR) illustrates a relative
protection of property rights by African States.4 In Zimbabwe, this right is enshrined in the
Constitution and it is afforded relative respect and protection.5 Its enjoyment can be interfered
directly and/or indirectly by the State with and sometimes without payment of
compensation.6
This act of interference with private property is generally termed as expropriation.
International law allows expropriation where certain legal requirements are met, in particular;
expropriation must be for a ‘public purpose; non-discriminatory; in accordance with the due
process of the law and must be accompanied by compensation.’7 International jurisprudence
recognises two forms of expropriation, namely: direct and indirect expropriation. Direct
expropriation relates to outright seizure of property and transfer of title from the private
person to the State or to a third party through the State.8 Indirect expropriation is disguised
1
The Constitution of the United States of America, Fifth Amendment states: ‘[N]or shall private property be
taken for public use, without just compensation.’
2
M Sornarajah The International Law on Foreign Investment (2010) 370 argues that this statement is
contentious as US jurisprudence is inconsistence in this respect.
3
Sornarajah (n2 above) 369-371.
4
African Charter on Human and Peoples’ Rights, Art 14 which reads that: ‘The right to property shall be
guaranteed. It may only be encroached upon in the interest of public need or in the general interest of the
community and in accordance with the provisions of appropriate laws.’
5
Section 71 and 72 of the Constitution of Zimbabwe.
6
Section 72(7) of the Zimbabwe’s Constitution where the government excludes itself from paying compensation
on agricultural land compulsorily acquired by it. This right is placed on the former colonial power and such
payments have to be done through a Fund established for this by the former colonial power, Britain.
7
D Zongwe ‘The Contribution of Campbell v. Zimbabwe in the Foreign Investment Law on Expropriations.’
(2010) 2:1 Namibia Law Journal 7. R Dolzer & C Schreuer Principles of International Investment Law (2008)
91. United Nations Conference on Trade And Development UNCTAD Series on Issues in International
Investment Agreements II – Expropriation (2012) 28.
8
A Newcombe ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20:1 ICSID Review
– Foreign Investment Law Journal 7. United Nations Conference On Trade And Development UNCTAD Series
on Issues in International Investment Agreements II – Expropriation (2012) 6 – 7.
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taking of property and there is no change of title or physical seizure of the property. 9 Where
the measures by the state, administrative or legislative, would affect the investment, its value
or enjoyment, it also amounts to indirect expropriation.10
However, there are uncertainties on what governmental measures amount to compensable
expropriation and what amounts to non-compensable expropriation. Arbitral Tribunals are
divided on this aspect, with some deciding that expropriation would be non-compensable
where the state is exercising its ‘police powers’.11 Controversies surrounding government
measures are whether the State has the right to regulate for public interest while interfering
with foreign investments without being required to pay compensation. This controversy is far
from being solved as investment tribunals are grappling with the issue on what measures
amount to or are tantamount to non- compensable expropriation. For instance, some tribunals
have decided that environmental measures are expropriatory and are compensable. 12 On the
other hand, some tribunals have held that such measures fall within the regulatory powers or
‘police powers’ of states and are a lawful regulation and are not compensable.13
This issue comes to the core in the case of Zimbabwe where the government has enacted the
Indigenisation and Economic Empowerment Act14mandating all foreign owned businesses
with varying net asset value from one United States Dollar (US$1) to ten million United
States Dollars (US$10 000 000) to dispose of their shares to indigenous Zimbabweans from
the 18th of April 2008. The compliance period varies from four years to five years depending
with the sector. Failure to comply with these measures attracts criminal penalties and
withdrawal of investment licences.
9
Starrett Housing Corporation v. Islamic Republic of Iran (1983) 4 Iran-U.S. C.T.R. 122 para 154 and S.D.
Myers Inc. v. Canada (1st Partial Award, 13 November 2000), 40 I.L.M. 1408 para 283.
10
OECD Directorate For Financial And Enterprise Affairs ‘Indirect Expropriation’ And The ‘Right To
Regulate’ In International Investment Law – Working Papers On International Investment Number 2004/4.
11
MC Porterfield ‘State Practice and the (Purported) Obligation Under Customary International Law to Provide
Compensation for Regulatory Expropriations, (2011) 37 North Carolina Journal of International Law and
Commercial Regulation 164 – 165. See the cases of Methanex Corp. v. United States, Final Award, Part IV, Ch.
D,7 (NAFTA Arbitration Trib. 2005), and Lauder (U.S.) v. Czech Republic (Final Award) (September 3, 2002).
12
Compañia del Desarrollo de Santa Elena S.A. v. The Republic of Costa Rica (ARB/96/1), Award of 17
February 2000, ICSID Rev.-FILJ, Vol 15, 2000 para. 72; Tecmed v. Mexico (ARB (AF)/00/2), Award of 29
May 2003, 43 ILM, 2004, para. 122.
13
Methanex Corp. v. United States, 44 I.L.M. 1345, 1455-58 (NAFTA Ch. 11 Arb. Trib. 2005); Section 712,
Comment g Restatement of the Law Third, the Foreign Relations of the United States, Volume 1, 1987.
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1.2.
Problem statement
The dawn of 2008 saw the government of Zimbabwe enacting the Indigenisation and
Economic Empowerment Act. This Act and its Regulations directed all foreign owned
companies with a varying net asset value from one United States Dollar (US$1) to ten million
United States Dollars (US$10 000 000) to dispose of their shares to indigenous Zimbabweans
from the 18th of April 2008. The Minister of Youth Development, Indigenisation and
Economic Empowerment is empowered to implement the Act and to pass any subsidiary
legislation to enforce the Act. These laws are part of the government’s plans to correct
historical imbalances which were brought about by the colonial government through
systematic disempowerment laws and practices.15 Many indigenous Zimbabweans were
denied access to resources and means of production. In pursuance to the Act, all foreignowned companies in Zimbabwe are required to dispose 51% of their shares through the
modes outlined in the Act. These measures raise crucial issues such as how far the state can
go in exercising its regulatory powers which interferes with investors’ property rights and
under what circumstances are these measures non-compensable.
Whereas it is settled that direct takings are compensable, international tribunals are still
grappling with non-compensable expropriation and this is worsened by the forms of indirect
expropriation which are constantly evolving.16 In the case of indigenisation laws, this
problem is exacerbated by the fact that there is no direct or indirect enrichment of the
government and in most cases, there may be no changes in management control effected by
the measure.17 Furthermore, the problem with indigenisation is that transfer of shares is not
voluntary and the timing of effecting transfer is not left to foreign investor and to some
extent, this resembles some form of forced sales.18 It is because of these features that there is
a challenge in determining whether such a measure is compensable or not. In addition, the
need to examine these measures arose as a result of lack of precedent at international level
pertaining empowerment measures. The sole opportunity to have these measures subjected to
arbitral scrutiny was in the South African case of Foresti and Others versus South Africa,19
which was discontinued at the instance of the claimants. Since, these measures have not been
judicially scrutinised at international plane, it is imperative to examine these laws with a view
15
F Maphosa ‘Towards the sociology of Zimbabwean indigenous entrepreneurship.’ (1998) XXV (ii) Zambezi
173 – 190.
16
M Sornarajah The International Law on Foreign Investment (2010) 363.
17
Sornarajah (n16 above) 380 – 383.
18
n16 above.
19
Piero Foresti and Others v The Republic Of South Africa ICSID Case No ARB(AF)/07/1.
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to determine first, whether they are expropriatory and secondly, whether they are
compensable.
1.3.
Research questions
The overarching goals of this study are to examine whether the indigenisation measures are
expropriatory and if so, whether they are compensable. In addressing these issues, this study
seeks to answer the following related questions:

What is indirect expropriation and what are the criteria for determining indirect
expropriation?

How non – compensable expropriation is distinguished from compensable
expropriation under international investment law?

What are the main features of the Zimbabwe indigenisation and economic
empowerment laws?

Are the measures provided for under the indigenisation and economic empowerment
laws expropriatory and if so are they are compensable?

Are there are any reforms to be undertaken on the Zimbabwean laws relating to
indigenisation and economic empowerment in order to align it to international norms
and standards?
1.4.
Thesis statement
This study argues that indigenisation and economic empowerment laws and policies
introduced in Zimbabwe which are meant to correct historical imbalances through racial
realignment of the economic ownership may amount to indirect expropriation which is noncompensable under international law unless compensation for such is expressly provided for
in specific BITs or other International Investment Agreements (IIAs).
1.5.
Justification of study
The Zimbabwean government has of late been criticized for embarking on an indigenisation
programme whilst the wounds of land reforms are still fresh.20 Furthermore, there has been
20
MD Mawere Indigenization: a case of hypocritical manipulation? Published 11 December 2009
http://www.newzimbabwe.com/pages/mawere91.16861.html (accessed 10 September 2013); S Kohler The
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uncertainty on whether these measures are expropriatory or not. There is a dearth of
scholarship on this issue; rather, some commentators focus on the constitutionality of these
laws.21 This research thus seeks to analyse the indigenization laws in light of international
investment law so as to ascertain whether or not they are expropriatory and/or non –
compensable. Besides, the Zimbabwean President is regarded by some quarters in Africa as a
great champion against neo – imperialism and resultantly, Zimbabwe has huge influence in
Africa and is regarded as a trendsetter on controversial issues. 22 Other countries which intend
to adopt such measures would be interested in knowing the relationship of these laws with
their international obligations. They may also take a leaf on how not to do things. Thus, in a
wider and broad sense, the findings of this research are also important for African countries
and other third world countries on how they should balance investment protection and the
promotion of the State’s social, economic and development interests exercised through laws
and regulations.
1.6.
Literature Review
Researchers on indigenization laws in Zimbabwe have concentrated on the legality of the
Indigenisation and Economic Empowerment Act and its Regulations and have brushed over
the interface between indigenization laws and international investment laws.23 A handful has
Indigenisation of Zimbabwean Business: A Threat to Economic Recovery? Published 2 July 2010.
http://consultancyafrica.com.www122.nur4.hosth.net/index.php?option=com_content&view=article&id=468:the-indigenisation-of-zimbabwean-business-athreat-to-economic-recovery&catid=82:african-industry-a-business&Itemid=266 ( accessed 10 September
2013); D Matyszak Everything You Ever Wanted To Know (And Then Some) About Zimbabwe's Indigenization
And Economic Empowerment Legislation But (Quite Rightly) Were Too Afraid To Ask (2011); SW Radio Africa
Transcript Broadcast 12 February 2010. Hot Seat: Indigenization debate with Supa Mandiwanzira the President
of the Affirmative Action Group, businessman Mutumwa Mawere, economist Daniel Ndlela and journalist Peta
Thornycroft. http://www.swradioafrica.com/pages/hotseat160210.htm (accessed 10 September 2013). The fast
track land reform was embarked from 2000 by the government and it saw white farmers’ land being
compulsorily acquired without compensation.
21
D Matyszak Everything You Ever Wanted To Know (And Then Some) About Zimbabwe's Indigenisation And
Economic Empowerment Legislation But (Quite Rightly) Were Too Afraid To Ask (2011); A Magaisa The
illegality of Zimbabwe’s new indigenisation regulations in the banking and education sectors. Published July 5,
2012
http://newzimbabweconstitution.wordpress.com/2012/07/05/the-illegality-of-the-new-indigenisationnotice-in-the-banking-and-education-sectors/ (accessed 10 September 2013).
22
The Zimbabwean President has for a long time been the African voice on controversial issues in the UN
General Assembly, see Mugabe’s 68th United Nations General Assembly’s speech, New York, 26 September
2013 where he lamented that the UN Security Council’s formal decisions “…have provided camouflage to neoimperialist forces of aggression seeking to military intervene in smaller countries in order to effect regime
change and acquire complete control of their wealth.”
23
n 20 above.
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discussed the opportunities these laws present to rural development 24 and its contribution to
sustainable development.25
The general principles of investment law are inter alia rooted in international law especially,
Bilateral Investment Treaties [BITs].26 One of the crucial aspect is that of expropriation
whose tenets according to Sornarajah, once clear, have been ‘befuddled with difficulty as a
result of the progressive expansion of the concept of taking’,27 in particular, the formulations
of three types of takings under investment treaties, namely: ‘direct, indirect and anything
‘tantamount to a taking’ or anything ‘equivalent to a taking’.’ 28This study is centred on
indirect takings, whose relevance is in assessing whether the indigenisation laws constitute
indirect taking or expropriation.
Newcombe29 and Nikièma30 argue that whereas direct expropriation poses little challenges to
its constitution, indirect expropriation is a challenge to define, especially in the light of the
fact that BITs have not provided an explicit definition of the concept. Due to this shortcoming
investment tribunals have devised their own criteria and approaches which are categorised by
Newcombe as follows: the “orthodox approach” and “appropriation approach.”31 These
approaches are of importance in the current study as they will form basis of defining whether
the indigenisation measures amounts to indirect expropriation and whether they are
compensable.
Newcombe does shy away from providing a comprehensive answer to the question of when a
regulatory state measure is non – compensable. However, he suggests two approaches to
determine and justify non-compensable expropriation, namely: subjecting the regulatory
measure to proportionality and necessity tests and assessing the procedural aspect of reaching
the regulatory measure instead of the substantive impact of the regulation. This study will
24
J Matutu ‘The Indigenisation and Economic Empowerment Policy in Zimbabwe: Opportunities and
Challenges for Rural Development’ (2012) 1:2 Southern Peace Review Journal 5.
25
T Murombo ‘Law and the indigenisation of mineral resources in Zimbabwe: Any equity for local
communities?’ (2010) 25 SAPL 568.
26
M Sornarajah The International Law on Foreign Investment (2010) 81.
27
Sornarajah (n26 above) 363.
28
n 27 above.
29
A Newcombe ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20:1 ICSID ReviewForeign Investment Law Journal 1.
30
SH Nikièma ‘Best Practices Indirect Expropriation’ (2012) International Institute for Sustainable
Development.
31
Newcombe (n29 above) 8.
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utilise Newcombe’s first suggestion to determine whether the indigenisation laws are one of
the circumstances which justify non-compensation.
Sornarajah argues that a State has the right to control property and economic resources and
based on this premise, the taking of property by the State is prima facie lawful. He avers that
as far as indigenisation measures are concerned, though these measures resemble forced
sales, they are not compensable and such policies must be considered a part of ordinary
business risk.32 The scholar therefore raises an issue which is pertinent to this study.
However, his capitulation only lays a general background which is not specific to any country
and Zimbabwe in particular. Also, his capitulations are premised on activities of newly
independent States, to which Zimbabwe cannot be termed as such.
According to Matyszak,33 the indigenization laws are unconstitutional as they potentially
violate key rights such as: right to property (section 16, now section 71); freedom from
discrimination (section 23, now section 56); right to freedom of association (section 21, now
section 58). The same views are shared by Magaisa34 and both find it difficult to see how
these would square with Bilateral Investment Treaties [BITs], which invariably protect
property from compulsory acquisition.35 However, the later submissions by the said authors
are not substantiated by law and facts to reach this conclusion. Hence, this study will hence,
explore whether the indigenisation laws are expropriatory and if so, whether they amount to a
non-compensable expropriation.
1.7.
Methodology
The approach of this study will be descriptive and analytical. The descriptive approach will
be utilized to lay a general overview of the laws that governs indigenization in Zimbabwe.
The analytical approach will be employed to evaluate if the indigenization laws are
32
M Sornarajah The International Law on Foreign Investment (2010) 381.
D Matyszak Everything You Ever Wanted To Know (And Then Some) About Zimbabwe's Indigenisation And
Economic Empowerment Legislation But (Quite Rightly) Were Too Afraid To Ask. (2011)
http://www.kubatana.net/docs/econ/rau_indeg_econ_analysis_2_110616.pdf >(accessed 2 September 2013).
34
A Magaisa The illegality of Zimbabwe’s new indigenisation regulations in the banking and education sectors.
Published July 5, 2012 http://newzimbabweconstitution.wordpress.com/2012/07/05/the-illegality-of-the-newindigenisation-notice-in-the-banking-and-education-sectors/ (accessed 10 September 2013).
35
n33 above.
33
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expropriatory and compensable. The analytical approach will entail desk and library based
research and the use of primary documentary sources including the Constitution of Zimbabwe
and the Indigenisation and Economic Empowerment Act. The study will also utilize
secondary sources of information like journal articles and newspapers capturing the relevant
issues under analysis.
1.8.
Scope and Limitations of the Study
This study is limited to the relationship between the indigenization and economic
empowerment laws with international investment laws, in particular whether the measures are
expropriatory and compensable in light of international investment principles. Hence, the
constitutionality of these measures falls outside the ambit of this study. Further, this study is
limited to indigenisation and economic empowerment measures employed in all the sectors in
Zimbabwe except the mining sector. The mining sector has been excluded because it has its
own unique intricate regulations which govern them whereas on other sectors the rules are
almost uniform.
1.9.
Chapter Outline
This study consists of five chapters outlined as follows:
Chapter 1: Introduction
This Chapter introduces the study, outlines the background to the study, the research
problem, research questions, thesis statement, justification of the study, literature review; the
methodology and the scope and limitations of this study.
Chapter 2: Indirect expropriation
This Chapter defines indirect expropriation from a general perspective and as provided for in
various International Investment Agreements. It further discusses the elements of establishing
indirect expropriation extracted from the body of arbitral awards.
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© University of Pretoria
Chapter
3:
Distinguishing
non-compensable
expropriation
from
compensable
expropriation
This Chapter will explore the distinction between non-compensable expropriations from
indirect expropriation which is compensable. This discussion will explore the distinction, first
the position under customary international law; secondly as provided in Bilateral Investment
Treaties and lastly, as decided by arbitral tribunals.
Chapter 4: Indigenisation and economic empowerment Laws in Zimbabwe
This Chapter analyses the legal framework of Zimbabwe indigenization laws form the
colonial period (1890 – 1980) to post independence era (1980 – present). It will then evaluate
these indigenisation and economic empowerment laws with the view of determining, whether
these measures are, first, expropriatory and secondly, if expropriatory, whether they are
compensable.
Chapter 5: Conclusions and recommendations
This Chapter starts with a summary of findings, makes some concluding remarks and proffers
recommendations based on the findings of the study.
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© University of Pretoria
Chapter 2
Indirect expropriation
2.1.
Introduction
The need to create a balance between the State’s interests to exercise its sovereign powers to
regulate in general and specifically, to control its natural resources on one hand and the
interests of the investor, on the other hand, has kindled the debate on indirect expropriation
under international law. The investor-state arbitrations especially under the North America
Free Trade Area (NAFTA) arbitration mechanism, wherein the investors allege that certain
regulatory measures are expropriatory, have popularised this debate.36 It is against this
backdrop that the precise meaning of what constitutes indirect expropriation has haunted
Tribunals and States alike.
International investment law recognises expropriation in traditional categories of direct and
indirect.37Whereas the concept of direct expropriation38 has been settled and such
expropriation is now a rare phenomenon indirect expropriation has gained significant
importance in international investment law.39 Indeed, international debate has shifted from
direct expropriation and standard of compensation to the definition of indirect
expropriation.40 This chapter addresses the meaning of indirect expropriation and discusses
the criteria for establishing indirect expropriation.
2.2. Definition of indirect expropriation
Indirect expropriation is mostly defined from an effect-based approach.41 This approach is
reflected in the works of many scholars,42 International Investment Agreements (IIAs)43 and
36
M Brunetti ‘Indirect Expropriation in International Law’ (2003) 5 International Law FORUM du droit
international 150; C Barklem & EA Prieto-Ríos ‘The Concept of “Indirect Expropriation”, its appearance in the
international system and its effects in the regulatory activity of governments’ (2011)11 Civilizar (21) 77.
37
A Newcombe & L Paradell Law and Practice of Investment Treaties (2009) 323.
38
A Newcombe A ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20 ICSID ReviewForeign Investment Law Journal 7.
39
Dolzer R & C Schreuer Principles of International Investment Law (2008) 92.
40
Dolzer R, “Indirect Expropriations: New Developments?” (2002) 11 N.Y.U. Envt’l.J 64 – 65.
41
A Newcombe and L Paradell Law and Practice of Investment Treaties (2009) 326.
42
M Sornarajah The International Law on Foreign Investment (2010) 367-368; M Brunetti ‘Indirect
Expropriation in International Law’ (2003) 5 International Law FORUM du droit international 150; A
Newcombe and L Paradell Law and Practice of Investment Treaties (2009) 326; R Dolzer and F Bloch,
“Indirect Expropriation: Conceptual Realignment?” 5 International Law FORUM du droit international 155.
43
Art 10C CAFTA – DR (2006); Art 10 of the 1961 Draft Convention on State Responsibility and Art 3 of the
OECD Draft Convention on the Protection of Foreign Investment (1968).
24
© University of Pretoria
arbitral awards.44 In general terms, indirect expropriation occurs where a State takes measures
which substantially interfere with property rights of an investor without necessarily affecting
the legal title of the said property.
The above definition shows that a range of measures by the State can give rise to indirect
expropriation and these include: expulsion of persons key to the investment;45 increase in
taxation to the extent of rendering the investment economically unviable;46 replacement of
management;47 denial of a construction permit contrary to prior assurances 48 and revocation
of an operating license.49
Of essence is that diverse terminologies are used to describe indirect expropriation. Different
texts make reference to ‘creeping; constructive; disguised; consequential; regulatory and /or
virtual expropriation.’50 All these references are equivalence or sub-categories of indirect
expropriation.51 “Disguised” expropriation indicates that the expropriation is not visibly
recognisable as such52 whereas ‘creeping expropriation’53 denotes the incremental
encroachment into the foreign investor’s business and mostly done through a series of
activities so as to kill the investor’s interests over a period of time. 54 ‘Regulatory takings’
denotes a situation whereby the host State invokes its regulatory powers to enact measures
that adversely affects the investor’s rights without necessarily affecting ownership of the
44
Middle East Cement Shipping and Handling Co. v. Egypt ICSID Case No. ARB/ 99/6 (2002), para. 107;
Lauder v Czech Republic, UNCITRAL Arbitration Proceedings (Final Award, 3 September 2001) and
Metalclad Corp. v United Mexican States, Award (ICSID (Additional Facility) Case NO. ARB (AF) /97/1), 30
Aug. 2000) para 107.
45
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana,
UNCITRAL ad hoc Tribunal, Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 183 (1989).
46
Revere Copper and Brass Inc v Overseas Private Investment Corporation, Award, 24 August 1978, 56 ILR
258.
47
Starrett Housing Corporation v. Islamic Republic of Iran (1983) 4 Iran-U.S. C.T.R. 122.
48
Metalclad Corp. V United Mexican States, Award (ICSID (Additional Facility) Case No. ARB (AF) /97/1),
30 Aug. 2000.
49
Tecmed, S.A. v. United Mexican States (2006) 10 ICSID Reports 134.
50
UNCTAD Series On International Investment Agreements II Expropriation: A Sequel (2012) 11
51
UNCTAD (n50 above).
52
Case concerning the Barcelona Traction, Light and Power Company, Limited (Second Phase) [1971] ICJ
Reports 3.
53
R. Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Rev 41; B. Weston, ‘Constructive
Takings under International Law’ (1975) 16 Virginia JIL 103.
54
Generation Ukraine, Inc v Ukraine ICSID Case No ARB/00/9, Award of 16 September 2003, 44 ILM 404
(2005); Phillips Petroleum Co v Iran 21 Iran-US CTR 79 (1989); Waste Management, Inc v United Mexican
States, ICSID Case No ARB (AF)/98/2, Award of 2 June 2000, 40 ILM 56 and Liberian Eastern Timber
Corporation v Republic of Liberia ICSID Case No ARB/83/2, Award of March 1986 , 2 ICSID Reports 343
(1994).
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investor over the property.55 These different terminologies do not expand the discipline of
expropriation, rather they are a restatement of customary international law position that
expropriation can occur directly or indirectly and in assorted forms.56
2.3.
Definition of indirect expropriation in international investment agreements
Most IIAs refer to indirect expropriation in one way or the other. 57 In most cases, the term is
not defined. However, there has been a trend to attempt to define indirect expropriation. The
earliest attempts to define indirect expropriation are found in the 1961 Harvard Draft
Convention on the International Responsibility of States for Injuries to Aliens (Harvard
Draft) and the 1967 OECD Draft Convention on the Protection of Foreign Property (OECD
Draft). Art 10(3) of the Harvard Draft defined a taking of property to include unreasonable
interferences with the use of, enjoyment, or disposal of property. The OECD Draft describes
indirect expropriation as any measure applied in such a way so as to ultimately deprive the
investor of the enjoyment or value of his property.58 The 1985 Convention Establishing
Multilateral Insurance Guarantee Agency (MIGA) contains some defining elements of
indirect expropriation as ‘any legislative action or administrative action or omission
attributable to the host government which has the effect of depriving the holder of the
guarantee of his ownership or control of, or a substantial benefit from, his investment.’59
More specific definitions and explicit criteria for determining whether a particular measure
amounts to indirect expropriation are found in recent Bilateral Investment Models which
include Canadian Model BIT60; US Model BIT61 and the Dominican Republic-Central
America Free Trade Agreement (CAFTA-DR) (2006). Annex 10-C of CAFTA-DR
distinguishes indirect expropriation as follows: ‘[...] where an action or series of actions by a
Party has an effect equivalent to direct expropriation without formal transfer of title or
55
Suez et al. v. Argentina, Decision on Liability, 30 July 2010, para. 121.
A Newcombe and L Paradell Law and Practice of Investment Treaties (2009) 339
57
However, the Lebanon-Malaysia BIT and the Austria-Croatia BIT do not include reference to indirect
expropriation.
58
Notes and comments to Art 3 of OECD Draft Convention on the Protection of Foreign Property, 12 October
1967, 7ILM 117 (1968) 126
59
Art 11 of 1985 Convention Establishing Multilateral Insurance Guarantee Agency.
60
2004 Canadian Model BIT, Art 13 (1) Annex B. Available on http://italaw.com/documents/Canadian2004FIPA-model-en.pdf (accessed online; 4 February 2014).
61
2012 USA Model BIT Article 4 Annex B. http://www.state.gov/documents/organization/188371.pdf (accessed
4 February 2014).
56
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outright seizure.’ Furthermore, the Annex contains factors that the Tribunals should take into
account when determining whether the government’s action constitutes indirect
expropriation, namely: (i) the economic impact of the measure, though as a stand-alone, it
cannot establish indirect expropriation;62 (ii) the impact of government’s interference on
reasonable and investment backed expectation and (iii) the character of the government’s
action, that is whether the measure are bona fide and are genuinely pursued to fulfil a
legitimate public policy objective.63 Similar approaches have been taken in other investment
agreements.64
The ASEAN Comprehensive Investment Agreement 2009 and the New-Zealand- Malaysia
Free Trade Agreement provide diverse factors in considering indirect expropriation. The
ASEAN Agreement is unique in that it brings in a new element of proportionality in
identifying indirect expropriation.
65
This element has to be included in the indirect
expropriation inquiry together with the economic impact and government’s prior written
commitments. Also, the New-Zealand-Malaysia BIT introduces two requirements for indirect
expropriation, namely: the deprivation must be severe or for an indefinite period and must not
be disproportionate to the public purpose sought.66 Where there is discrimination and a
breach of a prior written commitment, the deprivation will likely constitute an indirect
expropriation.
In a nut shell, these investment agreements define indirect expropriation as having the same
effect with nationalisation or direct expropriation. In other words, there must be substantial
interference with the use, management and enjoyment of the investment. Besides examining
the effects, the agreements have included factors that the Tribunal has to consider on a caseby-case basis in determining indirect expropriation. The common factors are: (i) the
economic impact of a governmental measure; (ii) the character of a governmental measures;
62
This provision was influenced by the following case: El Paso Energy International Corporation v The
Argentine Republic, ICSID Case No ARB/03/15, Award 31 October 2011.
63
Annex 10-C (4) (a) of the DR-CAFTA.
64
Australia-Chile Free Trade Agreement (FTA) (2006),http://www.dfat.gov.au/fta/aclfta/Australia-Chile-FreeTrade-Agreement.pdf (accessed 13 February
2014) and
Japan- Philippines FTA (2008)
http://www.bilaterals.org/IMG/pdf/JPEPA_2006_.pdf (accessed 13 February 2014).
65
Art 3, Annex 2 of the ASEAN Comprehensive Investment Agreement 2009. Available online:
http://aseansummit.mfa.go.th/14/pdf/Outcome_Document/ASEAN%20Compre%20Invest%20Agreement.pdf
(accessed 13 February 2014).
66
Art
3,
Annex
to
the
New
Zealand
–
Malaysia
Free
Trade
Agreement.
http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_55b8f6ae-c0a8156f-2af82af84fed08f4 (accessed 13 February 2014).
27
© University of Pretoria
(iii) the interference of the measure with reasonable and investment-backed expectations; (iv)
the discriminatory nature of the measure and (v) the proportionality of the measure with the
public purpose sought to be achieved. Two points are worth noting from these provisions:
first, the provisions provide a method of analysis which is case based and secondly, the
factors are not cumulative. The language of these investment agreements is self-evident. It is
meant to clarify the provisions of these agreement but most importantly, to limit the
tribunal’s broad discretion in interpreting indirect expropriation.
Furthermore, by outlining the criteria for consideration when inquiring on indirect
expropriation, the investment agreements are inadvertently codifying the elements of indirect
expropriation and remedying judicial and arbitral findings.67It is believed that these
limitations will not stifle judicial innovation especially in the light of how the concept of
indirect expropriation is evolving. The aspect of “creeping expropriations” is a testimony to
these assertions that States constantly evolve and so do their ways of interfering with the
investors’ properties.
2.4.
The Determination of indirect expropriation
Whilst scholars lament the lack of clarity on the concept of indirect expropriation, the body of
arbitral awards case-law and investment agreements have provided some insights into the
crucial elements of establishing indirect expropriation, namely: (i) the degree of interference
with property; (ii) effect on investor; (iii) protection of investor’s legitimate expectation; (vi)
the character of government measure and (v) proportionality. These elements are mutually
exclusive from one another and are extracted from the body of arbitral awards. What follows
hereto is the discussion of these elements as reflected in various cases.
2.4.1. Intensity of interference with property
The degree of interference with the investment is one of the crucial elements of indirect
expropriation and there is a general consensus in this respect. The classical formulation of the
aspect of interference is found in the case of Tippetts wherein the Tribunal indicated that: 'A
67
A Reinisch ‘Expropriation’ in P Muchlinski, F Ortino and C Schreuer (eds) Handbook of International
Investment Law (2008) 424.
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deprivation or taking of property may occur under international law through interference by a
state in the use of that property or the enjoyment of its benefits, even where legal title to that
property is not affected.’68 What is apparent from the statement is that for a deprivation to
occur there must be interference by the State on the rights and benefits of the investor. This
deprivation of rights and benefits is independent from ownership. Logically, it follows that
not all interferences can cause deprivation on the investor; rather, the interference should be
of a certain threshold.69 The difficulty is in identifying the exact level of interference and the
acceptable threshold.70
In the Starrett Housing case, the Tribunal concluded that the appointment of Iranian manager
to an American housing project was an act of interference by the State in the investment to an
extent of rendering the investor’s rights useless.71 Holtzmann, in a concurring judgement,
noted that the Claimant’s property was expropriated by a number of governmental measures
prior to the appointment of the temporary manager. The measures which deprived the
investor of control and management of the property included the blocking of bank accounts
and a coerced agreement to reduce the contract price for apartments.72
In the Pope & Talbot case73 which involves the imposition of export limits of softwood
lumber by the Canadian government following a U.S. – Canada Softwood Lumber
Agreement, the NAFTA Tribunal required that for a measure to be expropriatory, the
interference should be ‘...sufficiently restrictive to support a conclusion that the property has
been "taken" from its owner.'74 However, the Tribunal dismissed the claim as it noted that the
investor continued to export substantial quantities of lumber despite the measure complained
of and was earning substantial profit, hence, the degree of interference did not rise up to
expropriation.
In the Metalclad case, which involved the denial of construction permits contrary to previous
assurances, the ICSID Tribunal stated that for the interference to amount to indirect
68
Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Engineers of Iran, Award No 141-7-2,
reprinted in 6 Iran-United States Cl Trib 219 (1984) p 225.
69
L Yves Fortier, and Stephen L Drymer ‘Indirect Expropriation in the Law of International Investment: I
Know It When I See It, or Caveat Investor’ (2005) 13 Asia Pac. L. Rev. 86.
70
Reinisch in P Muchlinski, F Ortino and C Schreuer (n67 above) 439.
71
Starrett Housing Corporation v. Islamic Republic of Iran (1983) 4 Iran-U.S. C.T.R. 122 154.
72
n71 above, para 240-241.
73
Pope& Talbot, Inc v Government of Canada, Interim Award of 26 June 2000.
74
n73 above, para 102 (emphasis added).
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© University of Pretoria
expropriation, the measure must have significantly deprived the owner in whole or in part of
his investment.75 The level of interference is described stringently in the Tecmed case which
involved the revocation of an operating licence. The Tribunal stated that the investor must
have been ‘radically deprived of the economic use and enjoyment of the investment.’76
On the same wavelength, Tribunals have also paid attention to the duration of the
interference. In Tippetts case, the Tribunal noted that the deprivation should not be ‘merely
ephemeral.’77The New-Zealand-Malaysia BIT states the same language in that it provides
that if a deprivation is for an indefinite period, this amounts to indirect expropriation.78
However, the NAFTA Tribunal in S.D. Myers case79 accepted that
‘in some contexts and
circumstances, it would be appropriate to view a deprivation as amounting to an
expropriation even if it were partial and temporary.’80 In this case, interference for eighteen
months was found not to be expropriatory. To the contrary, interference of four months 81 and
also of about one year82 was found not to be merely ephemeral but constituting an
expropriation.
In a nut shell, for a measure to be considered expropriatory, the required level of interference
has been varyingly described from case to another. What is apparent from these various
descriptions is that the components of these crucial elements are far from being settled.
Furthermore, the durational aspect remains unclear. The construction is thus largely depended
on the situations in which the question arises and most importantly the interpretation is on a
case bases.83
75
Metalclad Corporation v United Mexican States, ICSID Case No ARB(AF)/97/ 1, Award (30 August 2000)
para 103.
76
Tecmed S.A, v. The United Mexican States ICSID Award Case No. ARB (AF)/00/2 para 115.
77
Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Engineers of Iran, Award No 141-7-2,
reprinted in 6 Iran-United States Cl Trib 219 (1984) 225.
78
Art
3,
Annex
to
the
New
Zealand
–
Malaysia
Free
Trade
Agreement.
http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_55b8f6ae-c0a8156f-2af82af84fed08f4 (accessed 13 February 2014).
79
S.D. Myers Inc v Canada, Partial Award, 121 I.L.R 72.
80
n 79 above, para 283 .
81
Middle East Cement Shipping and Handling Co. S.A v Arab Republic of Egypt, Award, 12 April 2002 para
107.
82
Wena Hotels Ltd v Arab Republic of Egypt, Award, 8 December 2000, para 9.
83
L Y Fortier and S L Drymer ‘Indirect Expropriation in the Law of International Investment: I Know It When I
See It, or Caveat Investor’ (2005) 13 Asia Pac. L. Rev. 79 at 91.
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© University of Pretoria
2.4.2. The effect on the investor
This criterion emphasises on the effect of the measure and not its intentions. The effect
criterion has been predominant even during the evolution of the concept of indirect
expropriation. In the cases of Norwegian Ship-owners84 and Chorzow Factory,
85
the
Tribunals used this criterion to determine expropriation. However, this criterion came to the
fore in the Iran-US Claims Tribunal awards wherein the Tribunal was given a wide discretion
to deal with direct takings and “all measures affecting property rights.”86
Tribunals have used the effect criterion as the exclusive factor in the Tippets case which
involves the appointment of a manager by the Iranian government to a U.S business. The
Tribunal, in its award accepting the Claimant’s argument that the measure was expropriatory,
stated that the effects of the measure on the investor are more important than the intents of
the government.87A similar approach was taken in the Biloune case wherein the Ghanaian
government deported Mr Biloune, the main shareholder, without the possibility of re-entering
Ghana.88
Of importance to note is that it is debatable whether the ‘effect’ test is the dominant or sole
factor in determining indirect expropriation89 or merely one of the factors. Undoubtedly there
are arbitral awards and scholarly work supporting both views.90 It is submitted that the effect
test is a ‘selfish’ test which does not take into cognisance of the dynamics of the investment
playfield. The dynamics are to the effect that there are competing interests that have to be
balanced; the investor’s interests and the State’s interests. These dynamics are not taken into
account by the effect test. To this end, it is submitted that the ‘effect’ test should not be
84
Norwegian Shipowners' Claims (Norway v United States of America) Award of the Tribunal, The Hague, 13
October 1922. http://legal.un.org/riaa/cases/vol_I/307-346.pdf (accessed 10 February 2014).
85
Germany
v.
Poland)
(1927)
P.C.I.J.,
Ser.
A,
No.
9.
http://www.worldcourts.com/pcij/eng/decisions/1927.07.26_chorzow.htm (accessed 10 February 2014).
86
Reinisch ‘Expropriation’ in P Muchlinski, F Ortino and C Schreuer (n67 above) 444 – 445. M Sornarajah The
International Law on Foreign Investment (2010) 368-9 argues that one has to be cautious in making a
generalisations on the dicta of Iran-USA Claims Tribunal of awards. Albeit they contributed to investment law
but the mandate was too wide and unacceptable under international law.
87
Tippets, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Engineers of Iran IRAN-US CLAIMS C.T.R
219, 225
88
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana Award on
Jurisdiction and Liability, 27 January 1987, 95 ILR(1989)183, 209
89
B Mostafa ‘The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law’
(2008) 15 Austl. Int'l L.J. 267
90
M Gutbrod etal ‘Protection Against Indirect Expropriation under National and International Legal Systems’
(2009) 1:2 Gottingen Journal of International Law 301
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© University of Pretoria
regarded as the sole factor in determining indirect expropriation, rather it should considered
as one of the factors.
2.4.3. Protection of investor’s legitimate expectations
This is another factor which has been considered by Tribunals in the context of an inquiry
into claims of indirect expropriation. This criterion is rooted in the principle of stability, that
is, ‘the reliance that the investment environment will not change during the course of
investment with the ultimate effect of jeopardising the reasonable expectations of the
investor.’91 In claims based on this criterion, the investor has to demonstrate that the
investment was based on the state of affairs when the investment was made and this exclude
the challenged regime.92 In the Metalclad case, where reliance was placed on government’s
assurance that the investor's landfill project satisfied all relevant local laws and regulations,
the Tribunal found a case of indirect expropriation when the municipality denied construction
of the disposal facilities.93
The expectations must be bona fide and reasonable. The NAFTA Tribunal in the Methanex
case, rejected that a California ban on certain gasoline additives produced and marketed by
the investor constituted inter alia, indirect expropriation.94 The Tribunal emphasised that the
investor was well aware of the constantly changing environmental and health protection
measures hence no expectations were created.95
The threshold of legitimate expectations
varies as it is dependent on the nature of the alleged violations.96
2.4.4. Character of government measure (purpose test)
This criterion is central in determining whether a regulatory measure is non-compensable or
amounts to a compensable indirect expropriation. The “purpose test” can be viewed from
several angles, in particular; (i) enrichment of the State;97 (ii) deliberate targeting of
91
AK Hoffmann ‘Indirect Expropriation’, in Reinisch (ed) Standards of Investment Protection (2008) 162; L Y
Fortier & S L Drymer ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It,
or Caveat Investor’ (2005)13 Asia Pac. L. Rev.91.
92
OECD ‘Indirect Expropriation’ And The ‘Right To Regulate’ In International Investment Law: Working
Papers On International Investment Number 2004/4 19.
93
Metalclad v Mexico 119 I.L.R 615.
94
Methanex Corporation v United States of America, Award, 3 August 2006, 44 ILM 1345 (2005) para 10.
95
n 94 above.
96
International Thunderbird Gaming Corporation v Mexico, Award, 26 January 2006, para 147.
97
In Amoco Asia Corporation v Republic of Indonesia, ICSIS Award, 20 November 1984, 1 ICSID Reports 413,
455 (1993) and Tecmed SA v The United Mexican States ICSID Case No ARB(AF)/00/2, Award (29 May
2003), the Tribunal expressed that expropriation even exists when the expropriating state transfers ownership to
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investors98 and (iii) the promotion of general welfare angle.99 However, the first two elements
are generally excluded among the criteria for a finding of expropriation and emphasis is
mainly on the general welfare objective criterion.100
The character of government measures have been a source of inquiry in most of arbitral
cases. For instance, in the SD Myers case, the investor challenged the export ban on
hazardous waste - PCB (polychlorinated biphenyl). In rejecting the expropriation claim, the
Tribunal stated that ‘regulatory conduct by public authorities is unlikely to be the subject of
legitimate complaint.’101 However, it acknowledged the possibility, in legal theory, to enquire
the purpose and intent of the government measure.102
2.5.
Conclusion
The foregoing discussion reflects that the parameters of indirect expropriation are not
precisely drawn. This is despite the fact that there is an extensive reference to the term in
literature and arbitral awards and most importantly, in IIAs. However, four constitutive
elements to indirect expropriation can be drawn: an act by the State; intrusion with property
rights; loss of value and/or control over the property or rights and lastly, the owner retains the
legal title over the property. In other words, there is no physical seizure of the property but
there is a degree of interference whose effect or result is that the owner of the property either
loses control of the property or its value is diminished.
Four points are worth drawing from the discussion. First, the general definition is too broad
that it leaves room for possibilities of various circumstances that have negative impacts on
the investor to be referred to as indirect expropriation. Secondly, the current definitions of
indirect expropriation are investor-centred, that is, they emphasise on the effects of the
State’s measure on the investment. Thirdly, the attempts to define with precision the
measures which constitute indirect expropriation serve to clarify the investment agreements
another legal or natural person. Per contra see Ronald S. Lauder v The Czech Republic Final Award in the
Matter of an UNICTRAL Arbitration: 3 September 2001, para 203 (accessed 20 February 2014).
98
Sea-Land Service Inc v Iran, Award No 135-33-1 (20 June 1984) 166.
99
L Y Fortier & S L Drymer ‘Indirect Expropriation in the Law of International Investment: I Know It When I
See It, or Caveat Investor’ (2005) 13 Asia Pac. L. Rev. 98.
100
Fortier & Drymer (n99 above) 100.
101
S.D. Myers, Inc. v. Government of Canada, Partial Award, Nov. 13, 2000,para 81-82.
102
n 101 above, para 281 and 285
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thereby limiting the Tribunals’ interpretation discretions. Fourthly, the elements used to
establish indirect expropriation are inconsistently interpreted thereby creating legal
uncertainty. Having defined indirect expropriation, the next Chapter discusses how
compensable indirect expropriation is distinguished from non – compensable expropriation.
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Chapter 3
Distinguishing non-compensable expropriation from compensable indirect
expropriation in International Law
3.1. Introduction
One of the persisting debates in international expropriation law is centred on what kinds of
government measures are compensable. Capital importing and exporting states have
significantly disagreed on this.103 The rationale of such a distinction lays in State’s quest to
determine its regulatory boundaries and discern when compensation is due to the investor. To
the investor, the demarcation makes a difference in establishing whether to operate or
abandon the project and its right to receive compensation. 104 These rationales are rooted in
two recognised judicial and arbitral assertions: first, legitimate regulatory measures are
outside the scope of indirect expropriation and second, substantial deprivation regardless of
its purposes are considered expropriatory which warrants compensation.105
This Chapter addresses how international investment law has sought to distinguish noncompensable expropriations from indirect expropriation. It will first explore noncompensable expropriation as settled under customary international law; secondly, as
provided for in Bilateral Investment Treaties and lastly, as decided by Arbitral Tribunals.
Underscoring these discussions is the state’s right to regulate which is discussed in the next
sub-heading.
3.2. The State’s right to regulate
The State’s right to regulate as entrenched in International Law is based upon the principle of
territorial sovereignty.106 Territorial sovereignty signifies ownership and possession of a
territory which entitles a State to exercise its authority and jurisdiction over the territory. 107 It
103
A Newcombe & L Paradell Law and Practice of Investment Treaties Standards of Treatment (2009) 321. The
divide is reflected in UN Resolution on Permanent Sovereignty over Natural Resources GA Res 1803, 14
December 1962 and the 1974 Charter of Economic Rights and Duties of States.
104
Dolzer & Stevens, “Bilateral Investment Treaties”, (1995) ICSID 99.
105
A Reinisch ‘Expropriation’ in P Muchlinski, F Ortino and C Schreuer (eds) The Oxford Handbook of
Investment Law (2008) 432.
106
S Olynyk ‘A Balanced Approach to Distinguishing Between Legitimate Regulation and Indirect
Expropriation in Investor-State Arbitration’ (2012) 15 Int'l Trade & Bus. L. Rev 266.
107
I Brownlie Principles of Public International Law ( 2008) 203 – 204.
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entails the right to exercise the State functions to the exclusion of other States. One of the
State functions is to regulate. In the investment realm, this entails the right to regulate foreign
investment to promote domestic development priorities and linkages and the right to regulate
to protect the public welfare from possible negative impacts.108 To this end, it is a general
principle of International Law that general regulations do not amount to indirect
expropriation.109
This right to regulate commercial and business activities within a State’s territory is
recognised under customary international law.110 Its scope in investment law is articulated in
the ADC case wherein the Tribunal stated that:
The Tribunal cannot accept the Respondent's position that the actions taken by it
against the Claimants were merely an exercise of its rights under international law to
regulate its domestic economic and legal affairs. It is the Tribunal's understanding of
the basic international law principles that while a sovereign State possesses an
inherent right to regulate its domestic affairs, the exercise is not unlimited and must
have its boundaries. Therefore, when a State enters into a bilateral investment treaty
like the one in this case, it becomes bound by it and the investment-protection
obligations it undertook therein must be honoured rather than be ignored by a later
argument of the State's right to regulate.111
It is worthy-noting that this dictum reflects that the State’s right to regulate is not absolute. It
can be limited by bilateral investment agreements whose obligations have to be honoured.
Once signed, the right to regulate is not a defence. This kind of reasoning has caused anxiety
in the investment regime as it purports to curtail States’ right to regulate.
The anxiety has been exacerbated by the expansionary trends of the doctrine of expropriation.
It has evolved from permanent physical dispossessions and deprivations of property to
takings that fall short of physical seizures but affecting the property. 112 As indicated in the
previous chapter, the contours of latter developments of expropriation, that is, indirect
expropriation are not precisely drawn. This lack of precision and clarity has been taken
advantage of by the investor to threaten arbitration action as a response to proposed new rules
108
H Mann The Right of States to Regulate and International Investment Law 5
http://www.iisd.org/pdf/2003/investment_right_to_regulate.pdf (accessed 04 March 2014).
109
Lauder v Czech Republic Award 3 September 2001 200 – 201; El Paso Energy Inter. Co v Argentina ICSID
Case No. ARB/03/15 Award 31 October 2011 234 and Marvin Roy Feldman Karpa v United States of America
ICSID Award Case No. ARB (AF)/99/1 105.
110
Olynyk (n106 above) 265; Art 20 of SADC Model BIT (2012).
111
ADC Affiliate Ltd and ADC & ADMC Management Ltd v Hungary (Award) (ICSID Arbitral Tribunal Case
No ARB/03/16, 2 October 2006) 423.
112
Olynyk (n106above) 267
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and laws by the State.113 The consequence is a ‘phenomenon of regulatory chill, the inability
or fear of governments to take measures due to the unknown but potentially very expensive
consequences of vague IIA rules.’114 The on-going ‘plain packaging case’ illustrates the
tension between the State’s right to regulate and the concept of indirect expropriation.115 This
tension is more apparent in arbitral awards wherein the Tribunals attempt to distinguish non –
compensable expropriation from indirect expropriation.
3.3.
Non-compensable expropriation under Customary International Law
Customary international law (CIL) is one of the sources of international law. CIL is described
as ‘a general practice accepted as law.’ 116 Two elements are required to establish CIL,
namely State practice (usus) and a belief that such practice is required, prohibited or
allowed as a matter of law (opinio juris sive necessitatis).117 In expropriation realm, CIL
has long been providing protection for aliens including protecting their investments in the
territory of other States. 118
CIL categorises government measures that are non-compensable as follows: measures
meant for protection of public health, safety, morals or welfare and maintenance of public
order;119 measures of penal nature such as confiscations of property and imposition of
fines;120 non – discriminatory taxation measures 121 and other measures within police
powers of States. 122
113
Mann (n108 above) 8.
n 113 above .
115
Australia — Certain Measures Concerning Trademarks and Other Plain Packaging Requirements
Applicable
to
Tobacco
Products
and
Packaging
Dispute
DS434
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds434_e.htm (accessed 04 March 2014).
116
Art 38 (1) (b) of the International Court of Justice Statutes.
117
JL Goldsmith & EA Posner ‘A Theory Of Customary International Law’ Chicago John M. Olin Law &
Economics Working Paper No. 63 (2D SERIES) http://www.law.uchicago.edu/files/files/63.GoldsmithPosner.pdf (accessed 04 March 2014).
118
RD Bishop; J Crawford & WM Reisman Foreign Investment Dispute Cases, Materials and Commentary
(2005) 837.
119
GC Christie ‘What Constitutes a Taking of Property under International Law’ (1962) 33 B.Y.I.L 338.
120
A Newcombe ‘The Boundaries of Regulatory Expropriation in International Law’ (2005) 20:1 ICSID
Review – FILJ 24.
121
GH Aldrich ‘What constitute a Compensable Taking of Property? The Decision of the Iran – United States
Claims Tribunal’ (1994) 88 A.J.I.L. 585 609.
122
Methanex Corp. v. USA, Final Award, 3 August 2005, 44 ILM 1343, para. 410 (2005); Lauder (USA) v.
Czech Republic, Final Award, 3 September 2002, para. 198; Tecmed S.A. v. United Mexican States, ICSID Case
No. ARB (AF)/00/2, 29 May 2003, para. 119.
114
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In the case of Too,123 the Claimant, an Iranian national owned a motel and restaurant in
California. At some point, the motel-restaurant was destroyed by fire. The police investigated
the incident without reaching any final conclusion. The insurance denied payment and the
motel-restaurant was subjected to a forced sale. The liquor permit held by Too was sold on
public action by the Internal Revenue Service of the USA (IRS). The proceeds from the sale
were used to pay part of the Claimant’s overdue employment taxes. The claimant was also
the owner of a cold-storage trailer found in the state of Arizona. The authorities informed Too
about the trailer and the impeding action for abandoned property. Too did not make efforts to
recover the trailer and it was sold at an auction. To all these sales, Too contended that they
were wrongfully expropriated by the United States.
The Tribunal dismissed the Claimant’s claim of expropriation on the basis that ‘a State is not
responsible for loss of property or for other economic disadvantage resulting from a bona fide
general taxation or any other action that is commonly accepted as within the police power of
States.’124 The sale was occasioned by Mr Too’s failure to pay taxes to the government, a
lawful duty imposed on him by the State’s law. These laws were not discriminatory and were
not designed to cause the investor to abandon the property to the State or to sell it at a lower
price.125
The rationale for non-compensation for these expropriatory measures is that the takings are
regarded as essential for the state to function efficiently. Where however, the measure is
taken in a discriminatory and arbitrary manner, such can be challenged as it fall short of the
minimum standards of treating an investor. This minimum standard of treatment is infringed
when the investor is subjected to grossly unfair discrimination and prejudice. 126
CIL hence distinguishes non-compensable expropriation from indirect expropriation using
the ‘arbitrariness and non-discrimination test.’ This test is rooted in the acceptance that States
123
Too v. Greater Modesto Insurance Associates and the United States of America, Award of December 29,
1989, Iran-US CTR, vol. 23, 1989-II.
124
n123 above, 387.
125
n123 above, 389.
126
Waste Management, Inc. v. United Mexican States ICSID Case No. ARB (AF)/ 00/3 para 98.
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have wide power to appropriate the property of foreigners on various grounds; the least that
can be required of it is to exercise these powers for clearly justified public interests and on
good faith and non-discriminatory basis.127
3.4.
Non-compensable expropriation under Bilateral Investment Treaties
IIAs including BITs have for long been attempting to distinguish non-compensable
expropriation from compensable expropriations. The earliest distinction is given in the 1961
Harvard Draft. In particular Article 10(5) excludes measures taken by State in the
preservation of public order, health and morality. These are out-rightly regarded not wrongful
hence non-compensable.
This Draft never saw the light of the day. However, it has significant effects on the rules of
international law; in particular, it can be regarded as a cogent source of law. The importance
of such a treaty was spelt out by Oppenheim by giving example of the International Law
Commission’s work. He stated:
Given the authoritative status of the members of the Commission as individual jurist,
the fact that collectively they represent many nationalities, and the close connection of
their work with the international political realities of the day, the work of the
Commission, even where it does not result in a treaty but particularly so if is it itself
an authoritative influence on the development of the law and a cogent material source
of law.128
In light of these averments, it is argued that the Harvard Draft is a source of international law,
specifically as a secondary international law source under the ‘writings of publicists’
stipulated in Art 38 of the ICJ Statute. It is thus a principal source of evidence of international
consent.
Modern BITs distinguishes non-compensable expropriation from compensable indirect
expropriation using two approaches or a combination. The identified approaches are:
explanatory approach and general exceptions approach.129 The explanatory approach reads to
the effect that:
127
FV Gracia – Amador Fourth Report on State Responsibility, International Law Commission (1959) para 841
http://www.un.org/law/ilc/index.htm (accesses 19 March 2014).
128
Oppenheim, International Law (1992) 50.
129
UNCTAD Expropriation: A Sequel (2012) 86.
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Except in rare circumstance, 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, does not constitute indirect expropriations.130
Similar wordings are found in the Canadian Model BIT; 131 USA Model BIT132 and Turkey
Model BIT;133 Canadian BITs with Peru;134 Slovakia Republic135 and Jordan;136 in the FTAs
between the United States and Chile137and Morocco.138
It is worth noting that the non-compensable provisions are mainly found in the ‘new
generation’ of BITs.139 This generation of BITs give specific textual language in contrast to
the 1960s through to 1990s BITs which did not include such provisions. The specific
language is meant to curb the investor from arguing otherwise. To the Tribunal, it serves as
guidance for measures that are non-compensable and the test for subjecting such measure.
These provisions have become common to the extent that excluding them, one risks the
Tribunal interpreting that such measures were meant to be included within the scope of the
expropriation article.140
These provisions carry two cumulative conditions that have to be fulfilled for a measure to be
regarded as non-compensable, namely: non-discriminatory and public welfare conditions.
Thus, for a measure to be non-compensable, it has to be non-discriminatory and meant to
fulfil a public purpose objective such as health, safety and environment. Where one of the
conditions is not met, the measure automatically becomes expropriatory.
Additionally, some BITs set out conditions that would render an otherwise non-compensable
measure to be considered compensable. The Protocol to the India-Latvia BIT, for instance,
provides that a measure clouded with the sole intention to adversely affect the economic
130
Art 4 (b) of Annex B US Model Treaty (2012).
Art 13 (c) of Annex B Canada Model Treaty (2005).
132
Art 4 (b) of Annex B US Model Treaty (2012).
133
Article 5 of the Turkey Model BIT (2009).
134
Annex B.13 of the Canada-Peru BIT (2006.)
135
Annex A of the Canada-Slovak Republic BIT (2010).
136
Annex B.13 of the Canada-Jordan BIT (2009).
137
Annex 10-D of the Chile-United States FTA (2003).
138
Annex 10-B of the Morocco-United States FTA (2004).
139
UNCTAD
Investment
Policy
Framework
for
Sustainable
Development
(2012)
http://unctad.org/en/PublicationsLibrary/webdiaepcb2012d6_en.pdf (accessed 18 March 2014).
140
SADC Model BIT with Commentary 26 http://www.iisd.org/itn/wp-content/uploads/2012/10/SADC-ModelBIT-Template-Final.pdf (accessed 14 March 2014).
131
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value of the investment, will be considered expropriatory.141 Also, the Colombia – United
Kingdom BIT subjects the measure to a couple of requirements, namely: a fulfilment of
public purpose or social interest; non-arbitrariness; good faith and proportionality.142
In summary, the nature and characteristics of a government, measures meant to protect
environment, public health and morality are regarded as non-compensable. States can provide
for other measures which they deem to be non-compensable.143 However, it is not cast in
mould that if there is a public welfare purpose to fulfil, the measure is automatically noncompensable. The measures have to be non-discriminatory and exercised in good faith.
In some cases, it has to be proportional to the objective sought to be achieved.
The
proportionality principle is balance-oriented, in that, it seeks to balance conflicting
interests.144 In the indirect expropriation, its application is meant to balance the investors’
interests and the public interests. The application of this principle in investment law is
plausible as it serves to sieve politically motivated regulations from public or social interest
regulations. In the absence of such, States can misuse regulations to score political mileage
under the disguise of public welfare purpose whilst the investors pay the price for those
measures. Tribunals have applied this principle in various cases in determining noncompensable expropriation from indirect expropriation.145
The second treaty approach is called the general exceptions approach. This approach
eliminates certain government measures from the scope of the treaty as a whole.146
Generally, the general exceptions are crafted along the Art XX of the General Agreement on
Tariffs and Trade (GATT) and Article XIV of the General Agreement on Trade and Services
(GATS) and have a chapeau which reads as follows:
Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between States
where like conditions prevail, or a disguised restriction on investors and investments,
141
UNCTAD Expropriation: A Sequel (2012) 87.
Art 6.2(c) Colombia - United Kingdom BIT (2010).
143
Art 20 United States – Uruguay BIT (2005) provides for prudential measures exceptions for financial
services; Art 2. 3 of France – Mexico BIT (1998) provides for cultural exceptions.
144
J Delbruck, ‘Proportionality’ in: Rudolf Bernhardt (ed.), (1983) 3 EPIL 396.
145
Siemens A – G v The Argentine Republic ICSID Case No ARB/02/8 Award of 6 February 2007 and Tecmed
S.A. v. United Mexican States, ICSID No. ARB (AF)/00/2, Award, 29 May 2003.
146
UNCTAD (n141 above) 89.
142
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nothing in this Chapter shall be construed to prevent the adoption or enforcement by
any Party of measures:…147
This approach allows the State to adopt measures which are on their face expropriatory
provided that they fulfil the two tier test. First, the measure has to fall under at least one of
the exceptions such as ‘protection of human, animal or plant life or health.’148 Any measure
which does not fall under the recognised exceptions is expropriatory. Secondly, the measure
should be applied in a manner which meets standard of non-discrimination and nonarbitrariness. Most importantly, the States must have like conditions prevailing, such as both
are developing countries. Where these conditions are met, the measure is non-compensable.
For instance in Continental Casualty case,149 Argentina in its defence against expropriatory
claim, relied successfully on Art XI of US – Argentina BIT (2009), an exception clause
which allowed parties to adopt measures necessary for the protection of State’s essential
security interests.150
While the term ‘arbitrary’ is not defined, it can be argued that it connotes a wilful disregard
of due process, an act that shocks or surprises a sense of judicial propriety.151 It is a measure
which depends on individual discretion, or an action founded on prejudice or preference
rather than reason or fact.152 Discrimination, on the other hand denotes an unequal treatment
of the investor in comparable circumstances. The treatment can be de facto or de jure and
based on certain grounds like nationality or religion. Tribunals concur that intent is not
decisive in finding discrimination; rather, it is the impact on the investment which is
determent to ascertain whether it had resulted in non-discriminatory treatment.153
3.5.
Non-compensable expropriation in Arbitral practice
The importance of arbitral practice lays in their interpretive role of BITs and customary
international law. BITs are abstractly drafted hence their precise intentions are deciphered
through interpretations by the Tribunals which breath life and meaning to them. This part
147
Article 10.18 of India-Republic of Korea CEPA.
Article 10.18 of India-Republic of Korea CEPA.
149
Continental Casualty v Argentina ICSID Case No. ARB/03/9, Award (Sept. 5, 2008).
150
Art. XI of the US-Argentina BIT provides as follows: ‘This treaty shall not preclude the application by either
Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to
the maintenance or restoration of international peace or security, or the protection of its own essential security
interests.’
151
Elettronica Sicula S.p.A. (ELSI) (Unites States v Italy) 20 July 1989, ICJ Reports 15.
152
Black’s Law Dictionary 7th (ed) 1991; C Schreuer ‘Protection Against Arbitrary or Discriminatory Measures’
http://www.univie.ac.at/intlaw/wordpress/pdf/93.pdf (accessed on 12 March 2014).
153
Siemens v Argentina, Award, 6 February 2007 321.
148
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addresses how the Tribunals have distinguished non-compensable expropriation from
compensable indirect expropriation.
The body of arbitral awards reflects an emergence of three approaches that are used to
distinguish non-compensable expropriation from indirect expropriation and these are: the
'sole effects'; the 'police powers' and the ‘balanced’ approach. The sole effects approach
emphasises on the impact of the government measure on the investor. It is the effect of the
measure that is determinant of whether the measure is expropriatory or not. On the other
hand, the police powers approach argues that the character of the government's action is
necessary in determining whether the measure amounts to an indirect expropriation.154 The
balanced approach endeavours to weigh the effects with the purpose of government measure,
through subjecting the complained measure to proportionality test.
3.5.1. Sole effect doctrine in practice
This doctrine emphasises on the effect of the regulatory measure on the investor. As indicated
in Chapter 2, the effect should be of a certain threshold which threshold is not yet settled but
case-based. It can be where a measure 'removes all benefits of ownership', 'renders property
‘virtually valueless', or becomes 'equivalent to the [direct] expropriation of a property
right'.155 According to this doctrine, if the interference exceeds certain intensity, there will be
an expropriation regardless of the measure's purpose.156 The following cases illustrate the use
of this doctrine to distinguish non-compensable expropriation from compensable indirect
expropriation.157
154
B Mostafa ‘The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law’
(2008) 15 Austl. Int'l L.J. 267; S Olynyk ‘A Balanced Approach to Distinguishing Between Legitimate
Regulation and Indirect Expropriation in Investor-State Arbitration’ (2012) 15 Int'l Trade & Bus. L. Rev. 270; V
Heiskanen ‘The Contribution of the Iran-United States Claims Tribunals to the Development of the Doctrine of
Indirect Expropriation’ (2003) 5 International Law FORUM du droit international 176.
155
S Olynyk ‘A Balanced Approach to Distinguishing Between Legitimate Regulation and Indirect
Expropriation in Investor-State Arbitration (2012) 15 Int'l Trade & Bus. L. Rev. 271; B Mostafa ‘The Sole
Effects Doctrine, Police Powers and Indirect Expropriation under International Law’ (2008) 15 Austl. Int'l L.J.
280.
156
U Kriebaum ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 J. World
Investment & Trade 724; V Heiskanen ‘The Contribution of the Iran-United States Claims Tribunals to the
Development of the Doctrine of Indirect Expropriation’ (2003) 5 International Law FORUM du droit
international 176.
157
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana Award
on Jurisdiction and Liability, 27 January, 95 ILR(1989)183, 209; Patrick Mitchell v The Democratic Republic of
Congo, ICSID Case No ARB/99/7 (Annulment Proceedings) (1 November 2006); Santa Elena v Costa Rica
(2000) 5 ICSID Rep 153; Siemens v Argentina (ICSID Arbitral Tribunal Case No ARB/02/8, 6 February 2007),
Starrett v Iran (1983) 4 Iran-US CTR 122,155. Parkerings – Compagniet AS v Lithuania, ICSID Case No
ARB/05/8, Award, 11 September 2007; Southern Pacific Properties (Middle East) Limited (Si) v. Arab
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3.5.1.1 Metalclad case158
In this case, the Claimant was a US corporation. It purchased a Mexican corporation which
had federal and state permits to build a landfill. When the company began to work on the
landfill, the construction was halted because of lack of municipal permit. The company
applied for the permit and resumed constructions. The permit application was denied after
constructions had been completed. Operations of the landfill were made impossible due to
preliminary injunction against operating it. Nineteen months later from the construction, an
Ecological Decree was issued by the Governor declaring an area including the landfill site to
be a Natural Area for the preservation of a rare cactus and permanently precluded its use as a
landfill.
Metalclad filed a claim against the Mexican government alleging that the government’s
interference with operation of the landfill constituted a ‘measure tantamount to expropriation’
in violation of Art 1101 of NAFTA. The Tribunal found that the measures coupled with the
government’s representations on which the investor relied, and the lack of substantial basis
for the denial of the permit, amounted to indirect expropriation.159 Having established
expropriation, the Tribunal did not examine the intentions of the Ecological decree. However,
it noted that its implementation would in and of itself constitutes an act tantamount to
expropriation since it had the effect of barring the operation of the landfill.160 The findings
of the Tribunals hence depended on the reliance of the investor on government’s
representations; the nature of government’s measure and its economically harmful effects.
3.5.1.2.
Biwater case161
In Biwater case, the Claimant successfully bid for the right to develop Tanzania’s water and
sewer infrastructure and services project. A company, City Water, was formed to manage the
project. However, as a result of the Claimant’s mismanagement of the project, City Water
failed to generate expected income and consequently encountered extreme financial and
Republic of Egypt, (National Law), Award, 20 May 1992, 3 ICSID Reports 189; Phelps Dodge Corp., et alt v.
The Islamic Republic of Iran, Award No. 217-99-2, 19 March 1986.
158
Metalclad Corp v Mexico, ICSID Case No. ARB (AF)/97/1 Award of 30 August 2000.
159
Metalclad Corp v Mexico, ICSID Case No. ARB (AF)/97/1 Award of 30 August 2000, para 107.
160
n159 above, para 109, 111.
161
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22.
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practical difficulties that prevented it from meeting its contractual obligations. Renegotiations
of the deal with the government were done at the request of the Claimant. The renegotiation
process failed and the government (through Water Authority) issued a notice to terminate the
deal. Following such, government officials deported City Water’s senior management,
appointed new management, entered City Water’s offices, took control of the company’s
assets and informed City Water staff of the changes. In pursuance of these acts, the Claimant
instituted proceedings in the ICSID against Tanzania alleging a violation of Art 5 (1) of the
United Kingdom – Tanzania BIT which prohibits unlawful expropriation of investor’s
investments.
The Tanzanian government argued that these actions did not constitute a breach of its
international law obligations as the underlying project agreements allowed the state to ‘take
any measures necessary to ensure continuity of water supply and sewerage services’. More
specifically, Tanzania argued that the investor’s lack of funds prevented it from performing
properly and created ‘a real threat to public health and welfare’. In light of that threat, the
government saw it fit to take necessary steps to regain possession and control of the
investor’s assets and operations.
The Tribunal considered the State’s conduct ‘in terms of the effect of individual, isolated acts
complained of as well as in terms of the cumulative effects of individual and connected
acts.’162 The complained interferences individually and cumulatively were found to be
expropriatory, in particular: the occupation of facilities; the usurpation of management; and
the deportation of staff, whereas the Minister’s Press Conference and withdrawal of VAT
Exemptions on purchase were found to be have contributed to the expropriation element. The
Tribunal reached a conclusion that cumulative effects of the complained measures were
essentially to nullify Claimant’s rights in the project thereby amounts to expropriation of
Claimant’s rights.163
The above two cases illustrate the application of ‘effect doctrine’ in distinguishing a noncompensable expropriation from indirect expropriation. The difficulty with this doctrine is
that in assessing the legality of the measure, a blind eye is cast on the nature of the act. It thus
162
163
n161 above, para 455.
n161 above, para 519.
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creates a blur line between the effects manifesting from political risk and the failure of the
government to respect due process.164 This is particularly true when the ‘effect test’ is
considered as the sole test to determine indirect expropriation. In the Biwater case the
Tribunal was pressed to find a violation even in the face of Tanzania’s necessity defence.
Consequently, the award gave more weight to adherence to contractual obligations than
Respondent’s obligations to the public.
3.5.2. Police powers doctrine in practice
This doctrine argues that the character of the government's action, that is, its purpose, context
and nature, are necessary in determining whether the measure amounts to an indirect
expropriation.165 The police powers doctrine shifts the focus to the needs of the host State.166
This doctrine takes the measure's ‘public purpose’ as the decisive criterion. To this end,
where the interference serves a legitimate purpose there will be no finding of expropriation
and therefore, no compensation is due even if the severity of the interference is comparable
with a direct expropriation.167
The term police powers can be defined from a broad perspective to a narrow perceptive. In
broad terms, police powers entail ‘all forms of domestic regulation under a state’s sovereign
powers.’168 Essentially, any regulation which is bona fide, non-discriminatory and in the
interests of public health, safety, morals or welfare is regarded to be within the ambit of
police power.169 The narrow definition refers to ‘measures that justify state action which
would otherwise amount to compensable deprivation or appropriation of property.’170 This
narrow view postulates that only measures for tax, crime and 'the maintenance of public
order' fall within the police power.171 These two formulations reflect a lack of consensus on
this concept, as to whether it should be defined in broad terms or in narrow terms.
164
V Heiskanen ‘The Contribution of the Iran-United States Claims Tribunals to the Development of the
Doctrine of Indirect Expropriation’ (2003) 5 International Law FORUM du droit international 177.
165
n169 above.
166
Kriebaum (n156 above) 726.
167
Kriebaum (n156 above) 726.
168
A Newcombe ‘The boundaries of Regulatory Expropriation in International Law’ (2005) 20: 1 ICSID
Review-FILJ 20.
169
B Mostafa ‘The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law’
(2008) 15 Austl. Int'l L.J. 273.
170
Newcombe (n168 above) 20.
171
Mostafa (n169 above) 273.
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However, despite this divergence, the importance of this concept lays in that police powers
allow the state to protect, promote and maintain essential public interests. 172 The following
cases reflect how the Tribunals have applied this concept in distinguishing non-compensable
expropriation from compensable indirect expropriation.
3.5.2.1.
S.D Myers case173
The Claimant was registered as a U.S company specialising in disposal of highly toxic
substance (polychlorinated biphenyl (PCB)). In November 1995, Canada imposed a ban on
the export of PCBs from its territory. This shattered the possibility for Claimant to export
PCB and to dispose of it in its U.S plants. Canada’s export ban followed from its signature in
1989 of the Basel Convention on the Control of Transboundary Movements of Hazardous
Wastes and their Disposal. This Convention prohibited the export and import of hazardous
wastes to and from states that were not a party to the Convention. The U.S. was not a party to
the Convention at the time of Canada’s ban. The Claimant claimed inter alia that the
Canadian measures were “tantamount to an expropriation” and had violated Article 1110 of
NAFTA.
In its submissions before the NAFTA Arbitration Tribunal, Canada argued that the measure
was justified and made in good faith as the government believed that PCBs imposed
significant danger to health and the environment especially when exported without proper
assurances of safe transportation and destruction.174Furthermore, Canada claimed that, even if
the measure were to have violated Article 1106, the Article’s exception applies because it is a
measure ‘necessary to protect human, animal or plant life or health or was necessary for the
conservation of living or non-living exhaustible natural resource.’175
In analysing the facts, the Tribunal considered the real intentions of Canada, that is, the
purpose of the government measure. To this end, it concluded that there was no legitimate
reason to introduce the ban; rather the motive was protectionist, that is, to keep the Canadian
industry strong in order to assure a continued disposal capability. It however dismissed the
claim of expropriation on the basis that the government measure was temporary and Canada
172
Newcombe (n168 above) 20.
S. D. Myers Inc. v. Canada, Partial Award, 121 I.L.R. 72 (NAFTA Ch. 11 Arb. Trib. 2000).
174
n173 above, para 152.
175
n173 above, para 155.
173
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did not realize any benefit from the measure. It was thus a delayed opportunity not an
‘expropriation’ case.176
3.5.2.1.
Saluka case177
Investicnía Poštovní Banka (IPB) was one of the four major banks in Czech Republic.
Nomura Group acquired shares in IPB as portfolio investor. A special purpose vehicle called
Saluka was established for the purpose of holding share in IPR. By mid-1998, the Czech
banking sector was in serious difficulties due to various reasons. IPB and three other major
banks also faced these financial difficulties. The Czech Government embarked on a
privatisation process and offered financial help to other major banks to overcome their
difficulties. This help was not extended to the Claimant bank.
Following government
inspections and audit, IPB went under forced administration.
On the basis of government’s actions Saluka filed a claim under the UNICITRAL Rules
alleging, inter alia, a violation of Art 5 of the Netherlands- Czech and Slovak Federal
Republic BIT (1991). Specifically, the Claimant alleged that it was deprived of its shares in
IPB by the government’s intervention which culminated in a forced administration of IPB. It
contended that these measures were not taken for public benefit; were discriminatory and not
accompanied by just compensation.
The government justified its action on the basis that the stability of the banking sector was
being endangered by the deficiency of the bank. In addition, it posed a threat to other banks
where it was a major shareholder with decisive controlling influence. Given this critical
financial condition and the bank’s inability to remedy the crisis, it was necessary to introduce
forced administration.
The Tribunal lamented the lack of precision in international law in identifying with precision
regulations which are considered to be within the ‘police powers’ ambit and thus noncompensable.178 Faced with this difficulty, it analysed the context which an impugned
176
n173 above, para 287 – 288.
Saluka Investments BV v Czech Republic, Partial Award, ICGJ 368 (PCA 2006), 17th March 2006,
Permanent Court of Arbitration [PCA].
178
n177 above, paras 263 264.
177
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measure was adopted. It found that the ‘forced administration’ measure was valid and
permissible regardless of the effects to Claimant’s investment.179
The above case reflects regulatory measures that are taken for a legitimate public purpose and
are not discriminatory are not compensable. The police power doctrine is an objective and
transparent standard which explores the nature and context of a government measure. Such an
analysis is essential in unveiling disguised purposes as was done in the S.D Myers case where
the Tribunal indicated that the measure was motivated by protectionism intents rather than
environment concerns.
3.5.3. Balanced approach
This approach seeks a reconciliation of investor’s interests and that of the State’s. It
particularly subjects the complained measure to proportionality inquiry, specifically that
where the effect is not proportionate to the objective sought, measure is expropriatory and
compensation is payable.180 This approach thus establishes a relationship between effect and
purpose. This approach has been heavily borrowed from jurisprudence of European Court of
Human Rights.181 However, the balanced approach has gained populace amongst scholars,
who have initiated various models to this approach.182
3.5.3.1.
Tecmed case183
Tecmed was a Spanish company, which in 1996 acquired a hazardous waste landfill in
Mexico through Mexican Cytrar, its subsidiary. It was to be granted a ten year authorisation
for that purpose by the Mexican authorities. However, a local division in charge of Mexico's
national policy on ecology and environmental protection issued a one-year permit to Cytrar,
which could be extended every year at the applicant's request 30 days prior to its expiration.
The local division however refused to extend the permit in 1998.
179
n177 above, para 276.
LG&E v Argentina (ICSID Arbitral Tribunal Case No ARB/02/1, 3 October 2006); Feldman v Mexico (2003)
7 ICSID Rep 341; Tecmed S.A. v. United Mexican States, ICSID No. ARB(AF)/00/2, Award, 29 May 2003.
181
Matos e Silva, Lda v. Portugal App. No. 15777/89, 24 Eur. Ct. H.R. rep. 573, (1996); James v. United
Kingdom, 98 Eur. Ct. H.R. (ser. A) 9 (1986).
182
U Kriebaum ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 J. World
Investment & Trade 726; S Olynyk ‘A Balanced Approach To Distinguishing Between Legitimate Regulation
And Indirect Expropriation In Investor-State Arbitration’ (2012) 15 Int'l Trade & Bus. L. Rev. 270
183
Tecmed SA v The United Mexican States, ICSID Case No ARB (AF)/00/2, Award (29 May 2003).
180
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On this basis Tecmed argued that the refusal of Mexican authority constituted indirect
expropriation of its assets and a breach of Spain-Mexico BIT. The Tribunal in order to
determine whether the regulatory measure complained off amounted to expropriation, it
examined whether the measure was proportional to objective sought. It found that the
situation prevailing in the region did not justify an intervention by the government as it posed
no ‘serious emergency, social crisis or public unrest.’184 Weighing this with the deprivation
of the economic value of the investment, the Tribunal concluded that the interference
amounted to indirect expropriation as the measure taken was not proportional to the objective
sought.
The Tecmed case utilised the proportionality test, as a methodological approach in
determining whether an expropriation has occurred. In essence it utilises proportionality as a
tool to distinguish between compensable indirect expropriation and a non-compensable
regulation. Where the objectives are disproportionate to purpose sought to be achieved, the
measure is expropriatory thereby compensable.
3.6.
Evaluation of the sole effect doctrine versus the police powers doctrine in
arbitral practice
The above discussions have highlighted that the ‘sole effect’ and ‘police powers’ approaches
are competing approaches whereas the balanced approach seeks to link the two. The ‘sole
effect’ emphasises on protecting the investor whereas the ‘police powers’ doctrine considers
the needs of the State. These needs are tested and tried through subjecting them to non –
discrimination and arbitrariness tests. Consequently, this doctrine is objective and
transparent. However, on its own, the doctrine is insufficient to establish non-compensable
expropriation; rather it has to be complemented by other criteria such as proportionality and
non-discrimination.185 The balanced approach is an improvement compared to the extreme
approaches of sole effect and purpose approaches. For the purposes of this present study, the
balanced approach will be used to determine if the indigenisation measure in Zimbabwe are
first expropriatory and secondly compensable. This doctrine is preferred in light of global
trends towards sustainable investment policies where investment policies strive to create
184
185
n183 above, para 133.
Azurix Corp v Argentina Republic, ICSID ARB/01/12, Award, 14 July 2006 310.
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synergies with States’ wider economic development goals or industrial policies. 186
A
balanced approach as compared to sole effect and purpose approach is accommodative of
such global trends.
3.7.
Conclusion
This chapter has discussed how non – compensable expropriation is distinguished from
compensable indirect expropriation in international law. It revealed that expropriation law is
still grappling with the issue of how to distinguish non-compensable expropriation from
indirect expropriation. Customary international law asserts that certain measures that are
adopted within police powers of States even when they deprive the investor are non –
compensable. However, there is discord on defining the ‘police power’ concept. IIAs have
attempted to solve this discord by incorporating CIL provisos and subject these measures to
tests of non – discrimination; arbitrariness and proportionality in some cases. Arbitral
practice sheds less light on the distinction; rather the distinction is depended on the adopted
approach, either ‘effect’ based or ‘police powers’ or balanced approach. To this end, it can be
concluded with certainty that international law is yet to identify with precision the measures
that are expropriatory but are non – compensable. In light of the above discussions, Chapter 4
will discuss the indigenisation and empowerment laws in Zimbabwe.
186
UNCTAD Investment Policy Framework for Sustainable Development (2012) 5 – 6.
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Chapter 4
Indigenisation and economic empowerment laws in Zimbabwe
4.1. Introduction
Zimbabwe’s legal system is shaped by the legacy of colonialism. This underlying history has
influenced the country’s social; political and economic policies. Indigenisation is one of those
policies which were influenced by colonialism, in this context, as a tool to realign historical
imbalances brought by colonialism. To create an understanding of the state of play on
indigenisation measures in Zimbabwe, this Chapter explores two main components of the
study, namely: a discussion of the indigenisation and economic empowerment laws in
Zimbabwe and the evaluation of these laws.
4.2.
Legal framework of Indigenisation and economic empowerment measures in
Zimbabwe
This part of the discussion commences with Zimbabwe’s international obligations under the
BITs and IIAs it is a party to. It then proceeds to briefly explore the constitutional provisions
relating to indigenisation and economic empowerment measures. Lastly, it discusses the
indigenisation and economic empowerment laws during the colonial period (1890 – 1980)
and post-independence era (1980 – present).
4.2.1. Zimbabwe’s international obligations
At the time of writing, Zimbabwe is a party to thirty BITs and of which six with the
following countries are in force: China, Czech Republic, Denmark, Germany, the
Netherlands and Switzerland.187 These six BITs provides for both direct and indirect
expropriation.188 These treaties are broadly crafted. They do not define expropriation, its
characteristics, measures and behaviours that amount to expropriation. However, it has been
recognised that the expropriation clauses ‘imports into a treaty the customary international
187
http://unctad.org/Sections/dite_pcbb/docs/bits_zimbabwe.pdf (accessed 01 April 2014).
Art 5 of Zimbabwe – Czech Republic (1999); Art 6 of Zimbabwe – Netherlands (1998); Art 4 (2) of
Zimbabwe – Germany (2000); Art 5 of Zimbabwe – Denmark (1999); Art 4 (1) of Zimbabwe – China (1998)
and Art 6 of Zimbabwe – Switzerland (2001).
188
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law notion that a deprivation can be justified if it results from the exercise of regulatory
actions aimed at the maintenance of public order.’189
BITs are international agreements which establishes terms and conditions on which investors
of one State can establish businesses and investment in the territory of another State. They
are aimed at establishing a stable international legal framework to facilitate and protect
investment. In more explicit terms, their purpose is two-fold, that is, to provide insurance for
investment exporting countries against expropriation or other arbitrary treatment of
investments, and to allow developing nations to send a signal to the global community that
they not only welcome foreign investment but will also facilitate and protect certain foreign
ventures.190 A distinctive feature of many BITs is that they permit an investor whose rights
under the BIT have been violated to sue in international tribunals such as International Centre
for the Settlement of Investment Disputes (ICSID), rather than suing the host State in its own
courts.
The obligations imposed by the BITs are on the Contracting Parties, that is, the Host States.
An infringement of any obligation gives rise to a legal claim by the investor against the host
state. The traditional BITs do not impose obligations on the investor191 and in the case of
Zimbabwe, the BITs to which it is a part to are not an exception. Therefore, in the context of
this study, Zimbabwe has international obligations to respect the provisions of the BITs it
signed and ratified which include an obligation to pay compensation for all expropriations.
4.2.2. Constitutional provisions governing indigenisation and economic empowerment
measures
Indigenisation measures which the current study is exploring were enacted in 2008. At that
time Zimbabwe was governed by the Lancaster House Independence Constitution of 1980 (as
amended). It contained a Bill of Rights which however, did not specifically provide for
indigenisation and economic empowerment measures.
189
Saluka v Czech Republic (UNCITRAL Arbitral Tribunal, 17 March 2006) para 253; See also Art 31 (3) (c) of
the Vienna Convention on the Law of Treaties which allows tribunals to refer to state practices and rules of
international law in interpreting treaties.
190
WM Reisman & RD Sloane ‘Indirect Expropriation and its Valuation in the BIT Generation’ The British
Year Book of International Law (2003) 116.
191
Art 13 – 15 of SADC Model BIT (2012) which provides for obligations to the investor such as protection and
respect of human rights, environment and labour.
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The new Constitution of 2013, however, recognises the adoption of measures by government
to facilitate empowerment of its citizen. This in terms of s14 (1) of the Constitution is a
national objective which the government endeavours to fulfil. Further, s56 (6) recognises that
the government can take legislative and other measures with the view of promoting equality
to the groups or classes of persons who previously suffered unfair discrimination. Therefore,
empowerment of Zimbabwean citizens is now a constitutional mandate. However, for the
purposes of this study, the constitutionality of the indigenisation laws and regulations is not
addressed.
4.2.3. Economic disempowerment laws during the colonial era (1890 – 1980)
The 13th of September 1890192 marked the effective colonial occupation of Zimbabwe
through the British South Africa Company (BSAC). The BSAC was a mercantile company
incorporated on 29 October 1889 by a Royal Charter given by Lord Salisbury, the British
Prime Minister, to Cecil John Rhodes. The Charter empowered the BSAC to, inter alia, make
laws, subject to the approval of Britain, and to maintain a police force in the newly acquired
territory.193
The administration of BSAC over Rhodesia came to an end with the granting of Responsible
Government to the territory by the British Government on 13 September 1923. This saw the
government enacting various pieces of legislation which were racially biased and which
excluded the blacks from meaningfully participating in the economic activities of the country.
It reduced the blacks to mere labourers in the mining; agriculture and manufacturing sectors.
Race, thus, became a determinant factor in socio-economic and political participation. The
following are some of the pieces of legislation that perpetrated and furthered racial divide;
inequalities and suppressed emergence and growth of indigenous businesses during the
colonial era in Zimbabwe: Pass Laws of 1902; Land Apportionment Act of 1930; Factory Act
No.20 of 1948 (Chapter 218) Companies Act No. 47 of 1951 (Chapter 190); Native Land
Husbandry Act of 1951; Urban Registration and Accommodation Act of 1954; Control of
Goods Act No. 12 of 1954; Second Hands Goods Act; Land Tenure Act of 1965; Grain
Marketing Act 20 of 1966; Income Tax Act No. 5 of 1967 (Chapter 181); Liquor Act No. 9
192
This is the day the British Union Flag (Union Jack) was flown at Fort Salisbury present Harare.
Article 10 of the Charter read: ‘…the company shall to the best of its ability preserve peace and order in such
manners as it shall consider necessary and may with that object make ordinances to be approved by [the British]
Secretary of State, must establish and maintain a force of Police.’
193
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of 1974 and the Regional, Town and Country Planning Act No. 22 of 1976 (Chapter 241).
Some of these statutes will be discussed below.
The Land Apportionment Act of 1930 and the Land Tenure Act of 1965 were enacted
pursuant to the 1925 Morris Carter Lands Commission which recommended a separation of
blacks and white until such a point when the blacks have become civilised.194 These pieces of
legislation ushered measures which saw the whites taking about 18 million hectares of prime
and fertile land and dispossessing the blacks in the process. The low-laying regions of land
were given to the blacks and in most cases; it was arid, tsetse-fly infected and unsuitable for
meaning agricultural activities. At that time, the blacks constituted up to 95.6 % of the
population and were allocated 6 hectares per household of six people. 195 Blacks who could
afford to purchase land were allowed to purchase up to 125 hectares of land in African
Purchase Areas, mainly in regions adjacent to Communal Areas whereas a large-scale white
commercial farmer had an average of 2 500 hectares of land.196
The Native Land Husbandry Act of 1951allowed white farmers to breed boundless stock of
cattle whereas the black communal farmers were limited to breed only six head of cattle per
family. The Companies Act No. 47 of 1951 (Chapter 190) had complex requirement
procedures for registration of a company which proved to be an inhibiting factor. In
particular, it prohibited one person from opening a company and did not allow a director to
borrow money to pay for the allotted shares. The Liquor Act of 1974, prohibited businesses
operating bottle stores from allowing patrons to consume beer at the premises. A business
would lose a license for such. The Control of Goods Act of 1954 imposed quantitative
restrictions on imports to Zimbabwe whereas the Second Hand Goods Act prohibited the
imports of second hands clothes and other materials. The Grain Marketing Act of 1966
divided the country into agricultural zones and prohibited the movement of grain from one
part of the country to another. Most importantly, farmers and producers were required to sell
the maize and wheat only to the Grain Marketing Board or to large commercial millers or
their agents.
194
L Mazingi and R Kamidza Tearing Us Apart: Inequalities in Southern Africa 324
http://www.osisa.org/sites/default/files/sup_files/chapter_5_-_zimbabwe.pdf (accessed 20 March 2014).
195
Mazingi & Kamidza (n194 above) 324.
196
Mazingi & Kamidza (n194 above) 325; A Cheater ‘The Ideology Of 'Communal' Land Tenure in Zimbabwe:
Mythogenesis Enacted?’ (1990) 60 :2 Journal of the International African Institute 188.
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Furthermore, the Regional, Town and Country Planning Act No. 22 of 1976 (Chapter 241)
empowered local authority to make regulations which regulated the activities of both the
formal and informal businesses. They also gave local authorities control over land use. These
were often used to restrict the activities of small businesses. This Act also provided for the
delimitation and allocation of residential areas in accordance with race, for instance, Northern
suburbs were for whites whereas the southern where industries were located were for blacks.
Moreover, the zoning regulations restricted businesses to operate in certain areas. Some areas
were designed as residential only, implying that it was illegal to operate businesses in such
areas. The business designated areas were expensive for blacks and not strategically
positioned in relation to their clientele.197 The Income Tax Act No. 5 of 1967 introduced
taxes such as the as the hut, cattle and dip-tank taxes. Failure to pay the taxes attracted an
imprisonment penalty. These tax obligations were burdensome on the blacks and the sanction
for non – compliance was heavy. Because of heavy penalties, blacks without money to fulfil
their tax obligations were left without an option except to provide their services as cheap
labourers in the mines and the farms.
The net effect of these laws and the general legal framework made it impossible for the
blacks to be involved meaningfully in the economy of the country. Their participation was
inadvertently limited to provision of labour, mainly to fulfil the tax obligations. It is thus on
this background that the Government endeavoured after independence in 1980, to amend or
repeal these laws so as to promote the development of small scale indigenous businesses.
4.2.4. Indigenisation and economic empowerment laws in the post-independence era
(1980 – present)
During the first decade of independence, the new government was reluctant towards
indigenisation. Its reluctance was mainly attributed to the policy of reconciliation adopted by
the government;198 the socialist political ideologies199 and the Constitutional restraints.200
197
K Kapoor, D Mugwara and I Chidavaenzi ‘Empowering Small Enterprises in Zimbabwe’ (1997) World Bank
Discussion Paper No. 379 26 <http://elibrary.worldbank.org/doi/pdf/10.1596/0-8213-4074-3> (accessed 07
April 2014); F Maphosa ‘Towards the Sociology Of Zimbabwean Indigenous Entrepreneurship.’ (1998) XXV
(ii)Zambezi 184-185 .
198
B Raftopoulos ‘Fighting For Control: The Indigenization Debate In Zimbabwe’ (1996) 11: 4 Southern Africa
Report.
199
AT Mangwende (1994) 'The Legislature and the Indigenisation of the Zimbabwean Economy: Problems and
Prospects; Experiences of the Parliamentary Select Committee on the Indigenisation of National Economy’
Paper presented on National Workshop on The Indigenisation of Zimbabwean Economy: Problems and
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However, from the 1990s, indigenisation issues were dealt at lobbyist level with groups such
as the Indigenous Business Development Centre (IBDC) and the Affirmative Action Group
(AAG). These groups demanded a greater participation of the blacks in ownership of the
economy, though, inter-alia, the deregulation of laws and procedures hindering black
enterprises; redistribution of land and white-owned wealth.201 Such demands were made at
the backdrop of continual racial inequalities. For instance in 1991, 50% of the population
received less than 15% of total annual incomes whereas the richest 3% of the population
received 30% of total incomes.202
In response to the indigenisation calls, a Parliamentary Select Committee was set up in 1991
to examine the adequacy of necessary and supportive legislation to indigenize the economy;
examine ownership and review of equity structure in all sectors of the economy; examine all
matters pertinent to the successful implementation of an indigenisation policy and to report
its findings to Parliament. In 1993, the Committee identified various pieces of legislation
whose repeal and / or amendment would facilitate black participation in the economy.
However, policy deficiency resulted in indigenisation being perceived in a narrow sense with
limited focus on the disposal of state owned enterprises, buying of shares and takeover of
existing companies.203 To address this anomaly the United Nations Development Programme
and the Government of Zimbabwe entered into a technical assistance project agreement on
‘Technical Support for Indigenisation Policy Programme, Zim/97/005/01/97.’ This project
assisted the government in drafting policy framework for indigenization, which was finally
adopted in 1998. In 1999, a Trust Deed was prepared and lodged for the National Investment
Trust (NIT) which had been set up to warehouse shares for indigenous Zimbabweans.
The recommendations of the Technical Support for Indigenisation Policy Programme,
Zim/97/005/01/97 formed a useful base for the drafting of the Indigenisation and Economic
Empowerment Act (IEEA) to anchor the Indigenisation Policy. The contents and parameters
of the Indigenisation Policy are discussed below.
Prospects jointly organized by Institute of Development Studies (IDS) University of Zimbabwe and
Organisation for Social Science Research in Eastern and Southern Africa (OSSREA), 18-19 August 1994.
200
Section 38 (1) of the Lancaster Constitution provided for twenty members who were elected by white voters
registered on the White Roll for twenty white constituencies. These were whites, mainly from the Rhodesia
Front Party and they ensured that the laws protected their property rights.
201
B Raftopoulos ‘Fighting For Control: The Indigenization Debate In Zimbabwe’ (1996) 11: 4 Southern Africa
Report 3.
202
n201 above.
203
Technical Support for Indigenisation Policy Programme, Zim/97/005/01/97 Commissioned by UNDP 8.
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4.2.5. Indigenisation Policy
The Indigenisation Policy was adopted in 1998 and revised in 2004. It broadly aimed to
bringing about economic justice between races in Zimbabwe and to democratise the
economy. These objectives, amongst others, were to be achieved through strategies such as:
creating an enabling macro-economic environment; industrialisation of the economy; land
redistribution; review of the laws that constraints indigenisation and increasing indigenous
private investment in the economy. The increase of indigenous private investment in the
economy was to be achieved through the establishment of new indigenous enterprises and
new joint ventures, buying of shares in the existing non-indigenous companies privatisation
of state enterprises, takeovers, employee stock ownership schemes, subcontracting and
outsourcing. The Department of State Enterprises and Indigenisation was charged with coordinating, monitoring and evaluating the implementation of this Indigenisation Policy.
This policy had its shortcomings. It lacked the implementation mechanisms and most
importantly it did not create legal obligations to the parties involved. As a result, laws were
needed to anchor it. These shortcomings coupled with the recommendations of the Technical
Support for Indigenisation Policy Programme, Zim/97/005/01/97 necessitated the enactment
of the Indigenisation and Economic Empowerment Act. For all intents and purposes, the Act
operationalize this Policy.
4.2.6. Indigenisation and Economic Empowerment Act [Chapter 14:33]
This Act came into force in April 2008. It is aimed at providing support measures for the
further indigenisation of the economy and economic empowerment of indigenous
Zimbabweans. The main objective of the Act is to endeavour that at least 51% of the shares
of every public company and any other business is owned by indigenous Zimbabweans. This
fifty-one percentile rule also applies to specific commercial undertakings; namely: mergers;
restructurings; acquisition of a controlling share in a company; de-merger or unbundling of a
business; relinquishment of a controlling share in a business; and any proposed foreign
investment requiring a license under the Zimbabwe Investment Authority Act, Chapter
14:30.204 Procurement by government has to adhere to the 51% rule, in that the government
must procure at least 51% of its goods and services from businesses in which indigenous
Zimbabweans have a controlling interest.
204
Section 3 of the Indigenisation and Economic Empowerment Act.
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The beneficiaries of the Act are both natural and legal persons who prior to 18th of April 1980
were disadvantaged by unfair discrimination on the grounds of race and / or descent. 205 The
benefactors are all public companies; private companies; associations; syndicates or
partnerships registered in terms of the Companies Act [Chapter 24:03] or otherwise.206
It also provides for the establishment of the Indigenisation and Economic Empowerment
Board (IEEB). IEEB is established for the purpose of advising the Minister and administering
the Fund.207 This Fund is established in terms of the same Act to finance indigenisation and
empowerment transactions and provide assistance to indigenous Zimbabweans in, inter alia,
financing of share acquisitions; warehousing of shares and capacity-building.208
4.2.7. Indigenisation Regulations
In pursuance of s3 (1) of the Act, various regulations were passed to primarily empower the
Minister of Indigenisation in implementing the provisions of the Act. At the time of writing
the following Regulations were in force: (i) Indigenisation and Economic Empowerment Act
(General) Regulations 2010 Statutory Instrument 21/2010 amended by Statutory Instrument
(SI) 116/2010; 34/2011; 84/2011and 66/2013; (ii) Indigenisation and Economic
Empowerment Act (General) Regulations 459 of 2011 and (iii) Indigenisation and Economic
Empowerment Act (General) Regulations General Notice 280 of 2012. These Regulations are
discussed below.
4.2.7.1.
Indigenisation and Economic Empowerment (General) Regulations, 2010
These regulations provide for the value threshold of business that has to comply with
indigenisation quota. It categorically states in s4 (1) that every business with a net asset value
of five hundred thousand United States Dollars (US$ 500 000) and is non-indigenous
compliance, must submit an indigenisation plan to the Minister stating how it intend to
comply with the 51% requirement. The same threshold value is applicable to the various
commercial undertakings aforementioned.209 The period of achieving indigenisation is five
years from the date of operation of these regulations,210 or within five years from the
205
Section 2 of the Act on the definition of ‘indigenous Zimbabwean.’
Section 2 of the Act on the definition of a ‘business.’
207
Section 8 of the Act.
208
Section 12 (2) of the Act.
209
Section 6 to section 9 of the Regulations (2010).
210
These regulations came into force on the 1st March, 2010.
206
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commencement of the business concerned. Longer periods of complying are permissible
where there is a social or economic objective to be achieved.211
The Regulations also provide ways in which a company can comply with the 51% quota.
These include transfer of shares;212 employee share ownership scheme;213 Management Buy
Outs214 and community share ownership scheme or trust.215 Under the employee share
ownership scheme and Management Buy Outs the company may dispose up to 28% of the
company shares to its employees and a maximum of 5% to managerial staff. The Community
Share Ownership Schemes can only be utilised by qualifying businesses, that is, companies
engaged in exploiting the natural resources of any community. The minimum shares to be
donated to the community share scheme are ten percent of the net asset value of the business
in question.216
The Regulations, further, provide for sectors that are reserved for indigenous Zimbabweans.
These include: passenger buses, taxes and car hire services; milk processing; retail and
wholesale trade; barber shops, hairdressing and beauty salons; employment agencies; estate
agencies; valet services; grain milling; tobacco grading and packaging; tobacco processing;
bakeries; primary production of cash crops and advertising agencies.217 Existing foreign
investors in these sectors are expected to apply for an indigenisation compliance certificates.
Failure to comply with the provisions of the Regulations attracts penalties such revocation or
suspension of an operating license;218 a fine not exceeding level twelve (US$2 000) or
imprisonment for a period not exceeding five years or both.219
211
Section 3 (a) of the Regulations (2010).
Section 3 of the Regulation (2010).
213
Section 14 of the Regulation (2010).
214
Section 14A of the Regulation (2010).
215
Section 14B of the Regulation (2010).
216
Section 14B (5) of the Regulations (2010).
217
Third Schedule of the Regulations (2010).
218
Section 9A (4) of the Regulations (2010).
219
See s 4(4) for failure to return a duly completed form; s4 (7) for making false statements; s5 (3) for failure to
furnish any additional information that the Minister requires and s9 (4) for failure to obtain approval from the
Minister to invest in a reversed sector.
212
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4.2.7.2.
Indigenisation and Economic Empowerment Act (General) Regulations
General Notice 459 of 2011
This Notice applies to the manufacturing sector. The minimum asset value is of or above one
hundred thousand dollars (US$100 000). Period of compliance is four years, in which the
indigenisation quota of 51% is achieved as follows: twenty-six per centum (26%) for year
one; thirty-six per centum (36%) by year 2; forty-six per centum (46%) by year 3 and fiftyone per centum (51%) by year 4. This is the only sector in which the indigenisation quota can
be staggered, albeit because of its sensitive nature.
4.2.7.3.
Indigenisation and Economic Empowerment Act (General) Regulations
General Notice 280 of 2012
This Notice provides for the net asset value and maximum period for business to indigenise
in the Finance; Tourism; Education and Sport; Arts, Entertainment and Culture; Engineering
and Construction; Energy Services; Telecommunications; Transport and Motor Industry
Sectors.
For the financial sector, the net asset value for businesses in this sector is as prescribed by the
Reserve Bank. Shares to be disposed to indigenous Zimbabweans are 51% and compliance
period is one year. Sectors such as education; telecommunications; electricity; engineering
and construction and education and sports, the minimum asset value are one dollar (US$1)
and the compliance period is one year. In the tourism sector, the net asset value for a five star
hotel is ten million dollars and the period of compliance is one year.
4.3.
Current state of play in Zimbabwe
Since the promulgation of the first Indigenisation Regulations in 2010, intense debate has
been generated especially among writers questioning their constitutionality under the old
Constitution.220 Ink has been lost in attempts to decipher the real intentions of the
Legislature;221 discuss the impacts222 and the possible benefits.223 On the other hand, non220
D Matyszak Everything You Ever Wanted To Know (And Then Some) About Zimbabwe's Indigenisation And
Economic Empowerment Legislation But (Quite Rightly) Were Too Afraid To Ask (2011); A Magaisa The
illegality of Zimbabwe’s new indigenisation regulations in the banking and education sectors. Published July 6,
2012 http://newzimbabweconstitution.wordpress.com (accessed 17 March 2014).
221
N Willsmer ‘Commentary on Empowerment Legislation to Chamber of Mines Zimbabwe’ Executive
Committee Circular No. 21/2011 of 5 April 2011; D Matyszak Everything You Ever Wanted To Know (And
Then Some) About Zimbabwe's Indigenisation And Economic Empowerment Legislation But (Quite Rightly)
Were Too Afraid To Ask (2011) 1; T Chowa & M Mukuvare ‘An Analysis Of Zimbabwe’s Indigenisation And
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indigenous business ran to comply with the laws224 and most notably established Community
Share Ownership Schemes225 and Employees Ownership Schemes.226 However, at the time of
writing, no one has challenged these regulations on any judicial forum and most importantly
these laws have not been scrutinised in light of Zimbabwe’s international obligations
especially in the investment realm.
Of great concern is in relation to existing foreign
investors, who suddenly find themselves obliged to dispose 51% of their shares to indigenous
Zimbabweans within a stipulated period or risk losing their operating licences.
4.4.
Evaluation of Zimbabwe’s indigenisation and economic empowerment measures
This part evaluates the indigenisation and economic empowerment measures outlined above,
with a view of determining whether the measures are expropriatory and if so, whether they
are compensable. This evaluation will be explored through a cumulative three-tier approach
which entails first, a determination of the effects of the indigenisation measure on the
investor; secondly, exploration of the purpose of these measure and lastly adjudication of
whether the effects are proportional to the purpose pursued.
4.4.1. The method of evaluation on whether the measures are expropriatory and
compensable
Economic Empowerment Programme As An Economic Development Approach’ (2013) 1 : 2
Researchjournali’s Journal of Economics 1.
222
P Munyedza ‘The Impact of the Indigenous Economic Empowerment Act of Zimbabwe on the Financial
Performance of Listed Securities’ (2011) 37 Business and Economics Journal 1; B Magure ‘Foreign investment,
black economic empowerment and militarised patronage politics in Zimbabwe’, (2012) 30:1 Journal of
Contemporary African Studies 67.
223
J Matunhu ‘The Indigenisation and Economic Empowerment Policy in Zimbabwe: Opportunities and
Challenges for Rural Development’ (2012) 1:2 Southern Peace Review Journal 1; T Chowa & M Mukuvare
‘An Analysis Of Zimbabwe’s Indigenisation And Economic Empowerment Programme As An Economic
Development Approach’ (2013) 1: 2 Researchjournali’s Journal of Economics 1; T Murombo ‘Law and the
indigenisation of mineral resources in Zimbabwe: Any equity for local communities?’ (2010) 25 SAPL 568.
224
As of end December 2013 a total of 1 471 indigenisation plans were processed by the National Indigenisation
and Economic Empowerment Board (NIEEB). From December 2013 to February 2014 date, NIEEB had
processed 1 311 applications from investors in the reserved sectors and had issued 578 compliance certificates.
W Gwatiringa Address to Parliament Thematic Committee on Indigenisation of 6 February 2014
http://www.nieeb.co.zw/index.php/media-center/news/154-news (accessed 19 March 2014).
225
As at February 2014, 61 trusts were registered and 16 were funded and operational across the country. A
total of US$116.4 million was pledged to the trusts by several companies across the country and of that amount;
about US$30 million was paid to the trusts. W Gwatiringa Address to Parliament Thematic Committee on
Indigenisation of 6 February 2014 http://www.nieeb.co.zw/index.php/media-center/news/154-news (accessed 19
March 2014).
226
Companies such as BAT Zimbabwe, Schweppes Zimbabwe, Blanket Mine, Portland Holdings, Freda
Rebecca Gold Mine and Meikles Limited have operational employee share ownership schemes.
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In the light of the findings in Chapters 2 and 3 to the effect that there are competing and
equally aggressive approaches to indirect expropriation and non-compensable expropriation,
respectively, this study adopts a contextual and balanced approach in evaluating the
indigenisation and economic empowerment measures in Zimbabwe. Specifically, this
approach entails an examination of the following: first, the effects of the measure on the
investor, secondly, the purpose of the measure and lastly, the proportionality of the measure.
The first requirement of effect is meant to determine whether the indigenisation measures are
expropriatory, whereas the second and third requirements are meant to determine whether the
measure is compensable. When the first requirement is met and expropriation is established,
the second leg of the approach is to determine the purpose of the indigenisation measures and
its proportionality to the effects of the measure on the investor and the aim sought to be
achieved by expropriatory measures. Where the purpose is proportional to the effects on the
investor, the expropriation is deemed to be non-compensable and the converse is true.
This method is adopted as it endeavours to fill the gaps identified in Chapter 2 which are
created by absolute use of one approach and the difficulties highlighted in Chapter 3 of
distinguishing non-compensable expropriation from indirect expropriation. For instance,
where the effect approach is applied; a disposal of 51% of shares is undoubtedly
expropriatory and the converse is true when the purpose approach is applied. Since both
approaches are selfish in their own respects, a balance can be reached by incorporating the
approaches thereby examining the measures from a contextual and balanced approach.
Various arbitral awards,227 treaties228 and scholars229 support this balanced approach, with the
exception that the ‘balance’ is differently put.
In the present study, the adopted approach is exceptional to the various proposed balanced
approaches in that the purpose of the measure is applied to determine whether a measure is
227
n180 above.
Annex 10-D (4) of the United States-Chile Free Trade Agreement, and Annex 10-B (4) of the United StatesMorocco Free Trade Agreement. Annex B 13(1)(b) Canadian Model BIT (2004).
229
U Kriebaum ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 J. World
Investment & Trade 717; S Olynyk ‘A Balanced Approach to Distinguishing Between Legitimate Regulation
and Indirect Expropriation in Investor-State Arbitration’ (2012) 15 Int'l Trade & Bus. L. Rev. 254; B Kingsbury
& SW Schill ‘Public Concepts To Balance Investors’ Rights With State Regulatory Actions In The Public
Interest – The Concept of Proportionality’ in S W Schill (ed) International Investment Law and Comparative
Public Law (2010) 75.
228
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compensable or not whereas for instance in Kriebaum’s230 approach, the aspect of
proportionality is brought in to determine the appropriate compensation. For the avoidance
of doubt, the adopted approach is used to determine whether an expropriation has occurred
and whether it is compensable, in contrast to the laid down requirements of the mentioned
BITs which are used to determine whether the expropriation is lawful.
4.4.2. Whether the indigenisation measures are expropriatory: the effects of the
measure to the investor
The standard of determining existence of expropriation is ‘substantial deprivation.’ 231 This
entails interference with the use, management and enjoyment of an investment.232 In other
words, the measures complained of should be of a certain effect on the use, management,
control or enjoyment of the investment by the investor. The element of control in determining
expropriation was discussed in the Saint Elena case wherein the Tribunal opined that one of
the key steps in determining whether expropriation has taken place is identifying ‘the extent
to which the measures taken have deprived the owner of the normal control of his
property.’233 In Azurix,234 a case of expropriation was dismissed because the measure
complained of did not affect the complainant’s ownership of the shares in the company.
Similar findings were made in CMS Gas Transmission235 and Feldman case.236 Loss of
control in regulatory expropriation must approach a level of a direct physical taking. 237 For
instance, interference with the daily operations of an investment is a quasi-physical taking, in
that without the ability to direct the daily operations or select the personnel who operate the
investment, one can hardly be said to hold even physical possession of the investment in
question.
230
U Kriebaum ‘Regulatory Takings: Balancing the Interests of the Investor and the State’ (2007) 8 J. World
Investment & Trade 717.
231
Metalclad Corporation v United Mexican States, ICSID Case No ARB (AF)/97/1, Award 30 August 2000
103; Pope and Talbot v Canada, Interim Award, 26 June 2000 69.
232
Marvin Roy Feldman Karpa (CEMSA) v. United Mexican States ICSID Case No. ARB(AF)/99/1, Award of
16 December 2002, pp. 39-67 at 59; Starrett Housing Corp. v. Iran, 4 Iran-United States Cl. Trib. Rep. 122, 154
(1983).
233
Campania del Desarrollo de Santa Elena, S.A. v. Costa Rica ICSID Case No. ARBI96/1, Final Award,
para. 76.
234
Azurix v Argentina ICSID Case No ARB/0I /12, 14 July 2006).
235
CMS Gas Transmission Company v Argentina ICSID Case No. ARB/01/ 8, para 263 – 264.
236
Feldman v. United Mexican States ICSID Case No. ARB(AF) /99/1.
237
Pope and Talbot v Canada, Interim Award, 26 June 2000.
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In casu, the indigenisation measures seek a relinquishment of 51% of shares from the
investor in favour of indigenous Zimbabweans. This loss of shares can be viewed from two
angles, namely: aggregate loss and cumulative loss. An aggregate loss arises where an
indigenous Zimbabwean buys an aggregate 51% shares from the foreign company with the
effect of dispossessing the foreigner as the majority shareholder. In cumulative loss,
numerous Zimbabweans in form of individuals and share schemes and in varying proportions
acquire the 51% shares in the company. In the first scenario, the loss is outright and
physically evident, whereas in the second scenario, prima facie, an individual investor may
not necessarily lose control over the company; rather, the numbers of shares are diminished.
It is submitted that in the second scenario, though at face value, control or ownership of
shares is retained, the cumulative effect is that the investors are substantially deprived of their
shares. The different form of disposing the shares, that is, Employee Share Ownership
Schemes; Community Share Ownership Schemes and selling, taken together has the effect of
depriving the investor ownership and control of the investment. The second scenario gives
rise to a case of creeping expropriation,238 as a singular action such as Community Share
Ownership Scheme, which requires a donation of 10% of shares to the same, viewed alone is
insufficient to give rise to expropriation. This is so because arbitral awards require a
substantial deprivation of the investment, wherein a disposal of 10% does not give rise to
such. Therefore, the various forms of disposing the shares as provided in the Regulations
cumulatively have the effect of disposing the investor ownership and control of the
investment.239
The economic effects of the measures are also relevant, however, not as the sole determinant
factor but rather as a contributory factor.240 The Regulations define the term “dispose” as
meaning to sell, donate or otherwise dispose. The 51% of the shares can be disposed of
through transfer upon purchase or donation either in an employee share scheme or
community share scheme. On the face of it, the investor will not be economically harmed
because the beneficiaries will be buying those shares at the price prevailing at the market.
However, even where the investor is selling them at market price, he will suffer economic
238
n 54 above.
Section 3 (transfer of shares); s14 and s 14A (Employee share ownership scheme and Management Buy
Outs) and s14B (Community Share Ownership Scheme) of the Indigenisation and Economic Empowerment
(General) Regulations, 2010 Statutory Instrument 21 of 2010 (as amended).
240
Telenor Mobile Communications A.S. v Republic of Hungary ICSID Case No. ARB/04/15 para 64 – 65.
239
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harm because the market price will not compensate for anticipated profits arising from the
shares. The investor’s loss is to the extent of the 51% of shares disposed. A casual link exists
between the loss of profit and the measure since without the shares, the investor will not
receive dividends anticipated from the shares before they were disposed. 241 To this end, it is
argued that there is economic harm perpetrated by the indigenisation measures regardless of
the shares being disposed at market value. The severity of the economic impact is, however,
determined on a case by case basis, depending on the facts and evidence presented to the
Tribunal. Furthermore, the issue of loss of profits is addressed fully when determining the
appropriate compensation.242
In the circumstances where the value of shares were to plunge at the market due to various
reasons connected to the regulatory measure, such as lack of confidence by market traders,
resulting at the investor suffering loss, it is argued that a claim of indirect expropriation will
not suffice. These are effects which are incidental and co-incidental to the measure, not based
on intentions of the State.243 For expropriation to be established, the primary purpose of the
State’s conduct is to affect the investor, in this case, to depreciate the value of the shares to
facilitate indigenisation or to force the investor to abandon their shares. These intentions are
not evident from the case at hand; rather, the intention is to redress historical imbalances to
achieve economic justice.
In a nutshell, the indigenisation measures substantially deprive the investor of the use,
management and ownership of 51% of its shares. These measures substantial interfere with
the investor’s ownership of shares. They have the effect of displacing the foreign investor as
the controller of the investment. The degree of interference is not temporary and the loss of
control is irretrievable, therefore, the indigenisation and empowerment measures in
Zimbabwe are expropriatory.
4.4.3. Are the indigenisation measures compensable?
241
Pope and Talbot Inc. v Canada Interim Award, 26 June 2000.
Article 36 (2) of the International Law Commission’s Guideline on the Responsibility of States for
Internationally Wrongful Acts.
243
Legal Opinion of M. Sornarajah in the case of El Paso Energy International Company v The Republic of
Argentina Case No. ARB/03/15 para 47 – 48.
242
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The above discussion has concluded that the indigenisation measures are expropriatory. The
following discussion zeros on whether these expropriatory measures are compensable. This
requires the examination of the purpose of the indigenisation measures and determination of
whether they are proportional to the effects on the investor and the aim sought to be realised
by the expropriatory measure.
4.4.3.1.
The purpose of the measures
The purpose of the indigenisation laws is to endeavour that at least 51% of the shares in
foreign owned companies are disposed to indigenous Zimbabwean within a period of five
years. In simpler words, the underlying intention is to correct historical imbalances through
indigenisation. Indigenisation is defined to mean deliberate actions of involving indigenous
Zimbabweans in the economic activities of the country. The preparatory history of this law
supports the above assertions; in particular, that the purpose of the law is to redress historical
imbalances.244
The beneficiaries are indigenous Zimbabweans who have to prove that they suffered racial
discrimination prior to the independence of Zimbabwe. The benefactors are foreign owned
companies whose shareholding structure is being realigned. The law is about foreigners
versus non-foreigners and not about blacks versus whites as it was in the land cases.245 A
company has no race. Rather, it is composed of shareholders who may be of different
races.246
Some scholars247 view the law from black and white perspective, understandably so because,
the laws that perpetrated the inequalities sought to be remedied were racially discriminatory.
Also, it is obvious that white persons are the ones who benefitted from these racial laws and
for that reason, they feel targeted by the law. However, a closer look at the preparatory
history of the Act reflects the Minister of Indigenisation’s assertions and insistence that the
244
Parliament Of Zimbabwe Hansard Vol. 34 No.15 Wednesday 26th September 2007
http://www.parlzim.gov.zw/attachments/article/119/26_September_2007_34-15.pdf (accessed 07 April 2014)
pgs 57; 92; 116.
245
Section 16 and s16A of the Constitution of Zimbabwe Amendment No. 17, Act 5 of 2005; Mike Campbell
(Pvt) Ltd. and Others v The Republic of Zimbabwe SADC (T) Case No. 2/2007; Bernardus Henricus
Funnekotter and Others v Republic of Zimbabwe ICSID Case No. ARB/05/6.
246
Dadoo Ltd and others v Krugersdorp Municipal Council 1920 AD 530.
247
D Matyszak Everything You Ever Wanted To Know (And Then Some) About Zimbabwe's Indigenisation And
Economic Empowerment Legislation But (Quite Rightly) Were Too Afraid To Ask (2011) 1.
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law is non-racial.248 The definition of indigenous Zimbabwe carries the non-racial tone as it is
broad to accommodate any person who is a Zimbabwean who was discriminated on racial
grounds to be a beneficiary of the indigenisation programme. A Chinese Zimbabwean can,
for example, benefit if he/she can satisfy the ‘indigenous’ requirement.
International law recognises the state’s right to regulate for public purposes, whose
parameters are only defined by the State concerned. The purposes may not be all similar in
States as conditions and needs differ from one State to the other. Indeed, similar policies have
been witnessed in other countries such as South Africa, Malaysia, Namibia and Nigeria. What
might differ are the constructions of the laws governing these policies, the implementation
periods and timing.
In investment realm, Tribunals have recognised that States have a right to regulate for public
purposes meant to achieve certain goals, such as protection of environment.249 Likewise, it is
argued that Zimbabwe has the right to adopt measures for a public purpose such as
empowerment measures. States enjoys a margin of appreciation over regulatory measures
enacted for public purposes.250
4.4.3.2.
Whether the measure is proportional to the objective sought to be
achieved?
In assessing the proportionality of a measure, one has to consider the impacts versus the
objectives. As highlighted, the impact is substantially on control of the company, that is, there
is disposition of the foreign investor as the majority shareholder. The aspect of
proportionality was enunciated in the Tecmed case251 wherein the Tribunal in considering
whether the acts undertaken by Mexico were to be characterized as expropriatory, examined
whether such measure was proportional to the public interest and whether there was a
248
Parliament Of Zimbabwe Hansard Vol. 34 No.15 Wednesday 26th September 2007
http://www.parlzim.gov.zw/attachments/article/119/26_September_2007_34-15.pdf (accessed 07 April 2014)
pgs 57; 92; 116.
249
S .D. Myers, Inc. v. Government of Canada, Partial Award, Nov. 13, 2000; Saluka Investments BV v Czech
Republic, Partial Award, ICGJ 368 (PCA 2006), 17th March 2006, Permanent Court of Arbitration [PCA].
250
Continental Casualty Co. v Republic of Argentina ICSID Case No. ARB/03/9 para 181.
251
Tecmed S.A, v. The United Mexican States ICSID Award Case No. ARB (AF)/00/2.
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reasonable relationship of proportionality between the charge of weight imposed on the
foreign investor and the aim sought to be realised by an expropriatory measure. 252
Proportionality is a structural concept which requires an analysis of the suitability and
necessity of the measures taken and demands a balance of the means and the pursued end. 253
It further entails that where a less restrictive measure capable of achieving the same results is
available, then such should be adopted. Proportionality is henceforth a ‘set material limits to
the interference of public authority into the private sphere of citizen’254 and ‘provides a tool
to define and restrain the regulatory freedom of government.’ 255Henceforth, as a structural
concept, a three-tier test is applied to determine the proportionality of the namely: (i)
suitability; (ii) necessity and (iii) proportionality stricto sensu.
(i) Is the indigenisation measure suitable for a legitimate government purpose?
Here the question is ‘whether the measure adopted by the state serves a legitimate
governmental purpose and is generally suitable to achieve the purpose.’256 The purpose of the
law, as discussed earlier, is to provide for economic empowerment measures in favour of
indigenous Zimbabwean. This empowerment purpose is achieved through a process of
indigenisation. To achieve such purpose foreign owned companies are obliged to dispose
51% of the shares to indigenous Zimbabwean through the highlighted methods. Underscoring
these laws is the need to address skewed ownership of resources in Zimbabwe.
The legitimacy of such a purpose is undeniable just as the historical imbalances in the
distribution of productive resources in Zimbabwe are. The imbalances are well
documented.257 For instance, the manufacturing sector is 65% foreign owned, mining sector
252
n251 above, para 122.
S W Schill ‘Public Concepts To Balance Investors’ Rights With State Regulatory Actions In The Public
Interest – The Concept of Proportionality’ in S W Schill (ed) International Investment Law and Comparative
Public Law (2010) 75; X Han ‘The Application of the Principle of Proportionality in Tecmed v. Mexico’
Chinese JIL (2007) Vol. 6, No. 3, 638 – 639.
254
J Schwarze, ‘The Principle of Proportionality and the Principle of Impartiality in European Administrative
Law’ (2003) Rivista Trimestrale di Diritoo Pubblico 53..
255
M Andenas & S Zlepthig ‘Proportionality: WTO Law in Comparative Perspective’ (2007) 42 Tex ILJ 371
383.
256
S W Schill ‘Public Concepts To Balance Investors’ Rights With State Regulatory Actions In The Public
Interest – The Concept of Proportionality’ in S W Schill (ed) International Investment Law and Comparative
Public Law (2010) 86.
257
L Masuko & A Sibanda Implementing Indigenisation In Zimbabwe: Policy Choices. Study Commissioned by
UNDP and the Ministry of Economic Planning and Investment Promotion; Maphosa F (1996) Towards the
253
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90% foreign owned and construction sector 75% foreign owned, 258 The bulk of the
indigenous population is disadvantaged in terms of ownership and control of resources. This
has resulted in high poverty levels, despite a strong base of manpower development. 259 These
concerns about imbalances have been raised in one way or another and measures have been
adopted to redress imbalances particularly at senior levels of management in both public and
private sectors. Other measures adopted by the government included, deregulation of laws260
and promotion of small-medium enterprises through enactment of laws meant to promote
such.261 However, disequilibrium in ownership relations remains.262 The above evidence
reflects the genuine need for reforms so as to address the skewed ownership of resources in
Zimbabwe.
Having established the legitimacy of the purpose, it is imperative to explore whether the
measure furthers the stated purpose. The purpose of economic empowerment so as to address
historical imbalances is rightfully furthered by indigenisation measures. The meaning of
indigenisation is a testimony to this assertion.263 Indigenous Zimbabweans can be deliberately
involved or participate in the economy of the country if the foreign-investor divestment to the
extent of 51% of its shares in the company.
(ii) Was the measure necessary?
This covers two aspects: first, whether there is a less restrictive measure and secondly,
whether such alternative measure is equally effective. In essence, where a less restrictive
measure exists and equally effective to achieve the same goal, there is no justification for the
Sociology Of Zimbabwean Indigenous Entrepreneurship. (1998) XXV(ii) Zambezi 173; Technical Support for
Indigenisation Policy Programme, Zim/97/005/01/97 Commissioned by UNDP; L Mazingi & R Kamidza
Tearing
Us
Apart:
Inequalities
in
Southern
Africa
324
http://www.osisa.org/sites/default/files/sup_files/chapter_5_-_zimbabwe.pdf (accessed 20 March 2014).
258
L Masuko & A Sibanda Implementing Indigenisation In Zimbabwe: Policy Choices. Study Commissioned by
UNDP and the Ministry of Economic Planning and Investment Promotion 17 – 18.
259
According to World Bank data, as at 2011, the poverty headcount ratio was 72.3%.
http://data.worldbank.org/country/zimbabwe (accessed 08 April 2014).
260
F Maphosa ‘Towards the Sociology of Zimbabwean Indigenous Entrepreneurship’ (1998) XXV(ii) Zambezi
173.
261
K Kapoor, D Mugwara and I Chidavaenzi ‘Empowering Small Enterprises in Zimbabwe’ (1997) World Bank
Discussion Paper No. 379 http://elibrary.worldbank.org/doi/pdf/10.1596/0-8213-4074-3 (accessed 07 April
2014) ; Zimbabwe Parliamentary Debates, Vol 7: 5 July 1983, p. 155.
262
K Kapoor, D Mugwara and I Chidavaenzi ‘Empowering Small Enterprises in Zimbabwe’ (1997) World Bank
Discussion Paper No. 379 26 <http://elibrary.worldbank.org/doi/pdf/10.1596/0-8213-4074-3> (accessed 07
April 2014); L Masuko & A Sibanda Implementing Indigenisation In Zimbabwe: Policy Choices. Study
Commissioned by UNDP and the Ministry of Economic Planning and Investment Promotion.
263
Section 2 of the Indigenisation Act for meaning of ‘indigenisation.’
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State to adopt a more restrictive measure.264 In casu, there were no available alternative
measures to achieve the economic empowerment purpose. The measures could be seen as the
zenith of state transformation of a once colonised state. Since independence, various
strategies have been implemented to remove traces of colonial legacy and address historical
imbalances, such as africanisation; localization; land redistribution and affirmative action.265
Of all these measures, none addressed skewed ownership of the economy. In this context, it is
submitted that there are no existing less restrictive measures to pursue the objective of
economic empowerment.
(iii)Proportionality stricto sensu
The above discussion reflected that the measure is suitable and necessary. However, to fulfil
the proportionality test, it is imperative to determine that the measure is not excessive with
regard to the objective pursued. This requires a balance between the effects of the state
measures on the investor’s ownership rights and the importance of the government
purpose.266 Where the investor bears excessive burden, the measure is not proportional to the
objective sought.267
In casu, the measure is not excessive to the objective as the shares are disposed off at market
value. Irreparable economic harm would have occurred if the shares were to be sold at a price
lower than the market value as was done in Malaysia.268 To this end, the investor does not
bear any excessive burden. Furthermore, the transactions of shares are done through private
commercial dealings, in which the investor determines the price of his shares. Such
transactions can take into account the anticipated profits.
To this end, it is argued the regulatory measure of indigenisation is proportional to the
objective sought. The effects of such measure are minimal, and where they are witnessed,
264
S W Schill ‘Public Concepts To Balance Investors’ Rights With State Regulatory Actions In The Public
Interest – The Concept of Proportionality’ in S W Schill (ed) International Investment Law and Comparative
Public Law (2010) 87.
265
Masuko & Sibanda (n 258 above) 9 – 11.
266
n264 above.
267
Tecmed S.A, v. The United Mexican States ICSID Award Case No. ARB (AF)/00/2 121 – 122.
268
ET Gomez & J Saravanamuttu (eds) The New Economic Policy in Malaysia: Affirmative Action, Ethnic
Inequalities and Social Justice (2012).
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such harm is incidental to the process. To hold otherwise, one risks unduly burdening and
preventing the government from achieving reasonable regulations.
Based on the totality of the findings from the study, it is concluded that the indigenisation
measures are non – compensable as the measures are proportional to the objective of
redressing historical imbalances. This is regardless of the fact that the measures substantially
deprive the investor control and ownership of the investment. The investor’s economic losses
are mitigated by the fact that the shares are sold at market value. The investor is hence still
capable of pursuing other business ventures in Zimbabwe which are in compliance with the
indigenisation measures, such as joint ventures.
4.5.
Conclusion
This chapter discussed the indigenisation and economic empowerment framework in
Zimbabwe. Such discussion highlighted the disempowerment of Zimbabweans during the
colonial period and the government’s efforts to reverse the effects of colonisation through
passing of legislation, in particular the Indigenisation and Economic Empowerment Act and
its Regulations. It further evaluated these laws with the view to determining both whether the
measures are expropriatory and whether such measures, if found to be expropriatory, are
compensable. The evaluations highlighted that these measures are expropriatory since they
substantially deprive the investor of control its investment. However, it was established that
these regulatory measures are non – compensable as they are proportional to the objective
sought of redressing historical ownership imbalances.
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Chapter 5
Conclusion and Recommendations
5.1.
Introduction
This study sought to examine whether the indigenisation measures are expropriatory and if
so, whether they are compensable. It explored the concept of indirect expropriation;
examined how non – compensable expropriations are distinguished from compensable
expropriations; discussed the features of Zimbabwe indigenisation and economic
empowerment laws and evaluated these laws against international standards of investment
law. This Chapter presents a summary of findings, conclusions and recommendations.
6.1.
Summary of Findings
In Chapter 2, the research addressed the meaning of indirect expropriation and discussed the
criteria for establishing indirect expropriation. It argued that the parameters of indirect
expropriation are yet to be precisely drawn, in that, the elements to determine this concept are
inconsistently interpreted thereby creating legal uncertainties. Furthermore, the current
definition of indirect expropriation is too broad that it leaves room for possibilities of various
circumstances that have negative impacts on the investor to be referred to as indirect
expropriation. However, there is consensus that for indirect expropriation to occur there must
be an interference with the investor’s property by the State which results in loss of value or
control over the property or rights and most importantly the owner retains the legal title over
the property.
Further, Chapter 3 examined how international investment law distinguishes noncompensable expropriations from compensable expropriation. It highlighted the fact that
international investment law is yet to identify with precision the measures that are
expropriatory but are non- compensable.
The distinction is depended on the adopted
approach, either ‘effect’ based or ‘police powers’ approach with the balanced approach being
the middle ground. It was found that it is advisable to adopt the balanced approach since it
caters for the excessive ends found in both the ‘effect; approach and the ‘police powers’
approach.
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In Chapter 4, the study discussed and evaluated the indigenisation and economic
empowerment laws in Zimbabwe. The discussion of the laws spanned from the colonial era
to post independence era. It revealed that during the colonial period, Zimbabweans were
economically disempowered through legislation by the colonial regime. After an evaluation
of these laws using the balanced approach, the study found that these indigenisation measures
are expropriatory. However, they are non-compensable as they are proportional to the
objective sought of redressing historical ownership imbalances.
6.2.
Conclusions
The study has shown that the lack of precision in the meaning of indirect expropriation and
the distinction between measures that are compensable from non – compensable measures
means that the outcome of an expropriatory claim arising from the indigenization measures is
depended on the adopted approach by the concerned Tribunal. The BITs, to which Zimbabwe
is part to, are of less assistance too as they do not provide for an approach to adopt and
neither do they provide for criteria to distinguish compensable expropriation from non –
compensable expropriation. Therefore, a balanced approach was adopted to determine
whether the measures are expropriatory and compensable. Such an approach sought to
balance Zimbabwe’s quest to correct historical imbalances through indigenisation and the
rights of the investor in his investment. Based on this approach, the study concludes that the
measures in question are expropriatory. However these regulatory measures are noncompensable as they are suitable for a legitimate governmental purpose; necessary and
proportional to the objective of redressing historical ownership imbalances.
6.3.
Recommendations
This study recommends the following:
6.3.1. Review of BIT policies
The government of Zimbabwe reviews its BITs policies as a whole, with the view of aligning
it with its Constitutional mandate of promoting empowerment of Zimbabwe citizens. This is
being done by South Africa, a country in similar circumstances and has Black Economic
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Empowerment Laws since 2006. The review will have to include issues such as the meaning
and elements of indirect expropriation and factors to distinguish non – compensable
expropriation from compensable expropriation. Equally important is to incorporate
exceptions to expropriation claims as it did in its BIT with South Africa. The exception may
include regulatory measures taken by government to promote empowerment of nationalities
of the parties to the treaties. The Zimbabwean government may take a leaf from the ASEAN
Comprehensive Agreement (2009) which provides that: ‘non – discriminatory measures of a
Member State that are designed to protect legitimate public welfare objectives, such as public
health, safety and the environment, do not constitute an expropriation.’269
6.3.2. Adopt exceptions to national treatment
Furthermore, it is recommended that there should be an explicit exception to the national
treatment. The indigenisation measures by nature seek to favour national of the Host State,
that is, Zimbabwe, which is discriminatory and a violation of the National Treatment clause
found in most BITs Zimbabwe signed. The Japan – Philippines Agreement allows parties to
disregard the national treatment provision in government procurement and further allows
Parties to maintain, amend or adopt non –conforming measures to national treatment through
a schedule of commitment.270 Exception clauses are important to the government as it is
through such that policy space to meet social welfare needs of the State is maintained. To the
investor, they clarify the limits of investor’s rights and the extent of government policy space.
6.3.3. Termination and / or renegotiations of BITs
For the BITs that are in force, it is recommended that Zimbabwe consider terminating and/ or
renegotiating them when they expire. Termination will not prejudice existing investors due to
the survival clause which provides that the BIT will continue to be in force for a certain
period of time. Renegotiations, however, do not have effect of triggering the survival clause,
rather the rights of the investors are changed when the amendments comes to effect.
Therefore, it is recommended that Zimbabwe first endeavour to renegotiate the BITs before
considering termination. This recommendation is not far – fetched as countries like South
Africa have done the same to accommodate its constitutional mandate.
269
Annex 2, Art 4 of ASEAN Comprehensive Investment Agreement; Art 20 (8) of COMESA Investment
Agreement.
270
Art 94 of Japan – Philippines Economic Partnership Agreement.
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6.3.4. Enactment of domestic laws to govern foreign investment
Lastly, it is recommended that Zimbabwe enact an Act of Parliament to govern foreign
investments. This Act is meant to compliment and clarify Zimbabwe’s investment policies.
Currently, there is no such Act, rather there is the Zimbabwe Investment Authority (ZIA) Act
which provides for ZIA meant to promote and coordinate investments through issuing of
investment licences. This Act will endeavour to define, inter alia, investment; investor;
expropriation and compensation and exception. The importance of the Act lays in
circumstances where the concerned investor is not protected by any BITs; rather his fate is
left at the mercy of unsettled customary international law.
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