A Study On Identification Criteria Of Indirect Expropriation In International Investment Arbitral Practice

Law makers, scholars and tribunals have been struggling to find a best way to identify the indirect expropriation during the past years. Due to the complexity of this issue especially when it comes to the problem of distinguishing the indirect expropriation from legitimate regulatory actions of the host States, it is inconsistent in drawing the line and find out whether an indirect expropriation has occurred. However, the distinction is critical since compensation would be required when an indirect expropriation is confirmed. Therefore, the issue in question can make a big difference in balancing the interests between the host States and foreign investors.With more indirect expropriation cases being brought into courts and tribunals, it started to attract more attentions on this issue in the beginning of this century. However, there is no consistent definition of the indirect expropriation on the treaty-based level, neither a widely accepted criterion can be found to identify whether there is an indirect expropriation in arbitral practice. As a result, international tribunals have been uncertain and unpredictable on this issue by giving different decisions. In the meantime, on the one hand, the treaty drafting method developed to provide more detailed instructions for the purpose of guiding the interpretation of indirect expropriation. On the other hand, a number of criteria have been introduced to examine the indirect expropriation claims. However, the criteria tribunals adopted are either partial or immature, which can be problematic in practice.In fact, this dissertation attempts to propose a more balanced approach based on one of the traditional criteria to help assess indirect expropriation claims. In order to do so, it will first look at the treaty drafting pattern of the indirect expropriation provisions and the potential impact it may have on the arbitral practice. Then, it will discuss the various criteria tribunals adopted——‘sole effect doctrine’, effect and purpose test and proportionality test, to find out their limitations as a way to identify whether an indirect expropriation has occurred. Finally, it will try to provide a more balanced method which is based on the proportionality test approach and requires more factors being considered operating on a case-by-case basis. Meanwhile, the drawback of this approach will also be pointed out for future discussions.