Understanding Expropriation in Investment Law

According to Merriam-Webster, “dispossession” refers to taking away property, especially buildings or land, from an individual or group. It can also describe the loss of possession or the right to occupy land or houses. For example, when settlers dispossessed native people of their land, it led to significant changes in ownership and occupancy 2. In international investment law, expropriation refers to a country taking over or seizing an investor’s tangible and intangible property.

1. Direct vs. Indirect Expropriation.

Direct Expropriation: In direct appropriation, the state legally transfers the title to the property or outright seizes it. This action typically benefits the state or nation itself. It involves an open and deliberate intent, often reflected in formal laws, decrees, or physical acts. For instance, when the Venezuelan government expropriated four heavy oil upgrading projects in 2007, it was a direct expropriation. Indirect Expropriation: Indirect expropriation occurs when governments gradually diminish the value of private sector property interests without formally transferring title or outright seizing the property. Identifying indirect expropriation can be challenging, but it often results in total or near-total deprivation of an investment. This concept predates investment treaties and has been recognized in international law. 2. Legal Conditions for Expropriation Expropriation is not inherently illegal under international law. However, certain conditions must be met for it to be lawful: Public Purpose: