TTOPICOPIC 66 State Responsibility

Contents Objectives...... 6.1 1. Introduction and the nature of State responsibility ...... 6.2 2. Attribution...... 6.2 3. Enforcement...... 6.7 4. Defences...... 6.12 5. Treatment of aliens...... 6.12 6. Nationalisation/expropriation of non-nationals’ property ...... 6.13 8. Summary ...... 6.20 9. Further reading ...... 6.23 10. Revision questions...... 6.23 11. Problem question and feedback ...... 6.29

Objectives At the completion of this topic you should be able to: • Identify that issues of state responsibility arise whenever there is an allegation of a breach of an international obligation • Describe and explain the various rules of attribution of the actions or inaction of individuals or the state in relation to state responsibility • Indicate the key rules in relation to bringing a claim for state responsibility, and illustrate these rules by means of case examples • Recognise the circumstances when a state may have a valid defence to a claim of state responsibility • Review the various arguments that may be utilised in order to support one type of interpretation or another of state responsibility in respect of injuries to aliens

- 6.1 - LAW00521 INTERNATIONAL LAW

• Demonstrate an awareness of the political and social context of instances where a state nationalises or expropriates property belonging to a non-national, and explain the rules of state responsibility in such situations • Calculate the amount of compensation where there is state responsibility for nationalisation or expropriation.

1. Introduction and the nature of State responsibility

Reading CB, pp 403-409

A corollary of binding legal obligations is legal responsibility for a breach of those obligations. This topic is concerned with the general rules of international law which determine whether a state is in breach of its international obligations. The point of departure for any discussion of state responsibility is the Articles on Responsibility of States for Internationally Wrongful Acts by the International Law Commission (ILC).

Activity 6.1 Explain why articles 40 and 41 ‘remain controversial’.

2. Attribution International law is concerned with the responsibility of international persons and, in the main, that will mean states. Because, ultimately, a state can act only through individuals, and individuals may act for reasons of their own distinct from the intentions of their state, it becomes necessary to know which actions of which persons may be attributed, or imputed, to the state. A state will only be liable for acts which can be attributed or imputed to it. This section examines whether the acts of the state’s officials, private individuals, officials of both successful and unsuccessful revolutionary movements can be imputed to the state.

A. Officials

Reading CB, pp 409-413

- 6.2 - TOPIC 6 – STATE RESPONSIBILITY

A state is liable for the actions of its agents and servants whatever their particular status. Thus, when, in July 1985, French secret agents sank the Greenpeace ship, Rainbow Warrior, France became internationally liable and the tribunal was not concerned with the issue of whether this act of state terrorism was ordered at a high or low level within the French government (Rainbow Warrior Arbitration (1987)). Note that Article 5 extends responsibility to quasi-governmental organisations, ie. those organs which, although not part of the formal structure of government, exercise elements of governmental authority when they act in a governmental capacity.

1. What were the facts of the Caire Claim, and what did the French- Activity 6.2 Mexican Claims Commission decide? 2. What were the facts of the Corfu Channel Case, and what did the ICJ decide? 3. Does the responsibility of states for unlawful acts or omissions require an element of fault (subjective responsibility), or is liability strict (objective responsibility)? What do the above cases say about this issue? 4. What might be the main point of the Southern Pacific Properties (Middle East) Ltd v Arab Republic of Egypt case?

1. Caire was a French national who was asked to obtain a large sum Feedback of money by a major in the Mexican army. He was unable to obtain the money and was subsequently arrested, tortured and killed by the major and a number of soldiers. France successfully pursued a claim against the Mexican government that was heard by the French-Mexican Claims Commission. The principal question for the Commission was whether Mexico could be responsible for the actions of individual military personnel who were acting without orders and against the wishes of the commanding officer and independently of the needs and aims of the revolution. The French-Mexican Claims Commission said that Mexico was liable. 2. The case arose following the sinking by a mine of a British warship in Albanian territorial waters. The UK brought a claim against Albania arguing firstly that Albania itself had laid the mines. However, it adduced little evidence on this point and its main argument was that the mines could not have been laid without the knowledge or connivance of the Albanian authorities. The ICJ found that the laying of mines could not have been achieved without the knowledge of the Albanian government. This

- 6.3 - LAW00521 INTERNATIONAL LAW

being so, Albania’s failure to warn British naval vessels of the risk of mines gave rise to international responsibility. 3. The ILC Draft Article provides no assistance in the matter and there are a number conflicting authorities. One writer, Brownlie, has argued that the nature of liability will depend on the precise nature of the particular obligation in issue and suggests that the discussions of the ILC tend to support this view. The view that seems to attract majority support is that the objective test (ie. strict liability) should be applied to the actions of states. Provided that the acts complained of can be attributed to the state then it will be liable if those acts constitute a breach international law regardless of any question of fault or intention. There are certain defences available but the burden of establishing them will be placed upon the defence once the fact of the breach of an obligation is established. The most cited example of the objective test is to be found in the judgment of Verzijl in the Caire Claim. On the other hand, a number of writers, notably Hersch Lauterpacht, have argued that the responsibility of states depended on some element of fault. Such fault is often expressed in terms of intention to harm (doles) or negligence (culpa). One case that has been cited in support of subjective responsibility is the Corfu Channel Case. Lauterpacht subsequently remarked that the Corfu Channel case ... provided a good illustration of the affirmation of the principle that there is no liability without fault. However it is worth noting that the Soviet judge in the case understood the decision to be an application of the objective responsibility doctrine and dissented from it on that ground. He argued that responsibility could only arise on the basis of culpa, a more exacting test than mere fault since it requires a wilful and malicious act or a culpably negligent act, ie. guilt rather than mere inadvertence or carelessness. Brownlie has stated that liability in the case arose out of the particular legal obligation of Albania identified by the court not to allow knowingly its territory to be used for acts contrary to the rights of other states. 4. An act may be attributed to a state even where it is beyond the legal capacity of the official involved, providing, as Verzijl noted in the Caire claim, that the officials ‘have acted at least to all appearances as competent officials or organs or ... have used powers or methods appropriate to their official capacity’. In the words of the Commentary to the ILC Draft Articles: ‘The state cannot take refuge behind the notion that, according to the provisions of its legal system, those actions or omissions ought not to have occurred or ought to have taken a different form’.’

- 6.4 - TOPIC 6 – STATE RESPONSIBILITY

In relation to question 3 above, it is submitted that much of the confusion arising from questions of the nature of responsibility stems from the tendency to equate objective responsibility with the municipal law doctrine of strict liability, and to regard strict liability as an absolute liability from which no exculpation is possible. It has already been indicated that objective responsibility does admit the possibility of defences. Discussion about the nature of responsibility highlights the dangers of discussing the topic in isolation from the substantive rules of international law. It is for this reason that writers such as Philip Allott have criticised the whole concept of a separate category of ‘state responsibility’ (see the extract from his article, CB pp 407-408).

B. Private persons You should re-read articles 8 & 9 of the Articles on State Responsibility.

CB, pp 413-416 Reading

1. In the US Diplomatic and Consular Staff in Tehran case (1980), Activity 6.3 what status did the ICJ consider the students who took possession of the US Embassy in Tehran to have? 2. What is the main principal derived from the extract of the decision of the ICJ in the Military and Paramilitary Activities in and against Nicaragua (Merits) case (1986)?

1. Initially, the ICJ held that ‘when they executed their attack on the Feedback embassy, [they did not have] any form ... of official status as recognized “agents”.’ However, the court went on to find that the status of the students changed during the occupation of the embassy. On 17 November 1979, the Ayatollah Khomeini issued a decree which declared that the premises of the embassy and the hostages would remain as they were until the US handed over the Shah for trial. 2. The activities of the Contras (who, Nicaragua argued, were recruited, organised, financed and commanded by the US government) could not be attributed to the US unless it can be proved that the US had effective control of the military or paramilitary operations in the course of which the alleged violations were committed. This is a rather strict test, and perhaps shows that where the actions complained of take place outside the

- 6.5 - LAW00521 INTERNATIONAL LAW

territory of the responsible state, it appears that a stricter test will be applied.

In general, a state will not be liable for the acts of private individuals that cannot be attributed to it. However, responsibility may still arise if it is shown that there existed a duty to exercise due diligence and that diligence was not exercised. For example, states are under a duty to protect the premises of diplomatic missions within their territory. Therefore a failure to provide adequate protection will give rise to responsibility should a diplomatic mission be attacked by a group of private individuals. It was for this reason that the Irish government admitted responsibility for the sacking by private individuals of the British embassy in Dublin in 1972. Note: Regarding state responsibility for injuries to aliens see “Ex Gratia Payment for Bombing of Chinese Embassy in Belgrade”, (2000) American Journal of International Law, pp 127-131.

C. Officials of successful revolutionary movements

Reading CB, pp 416-418

Teaching Art 10 of the Articles on State Responsibility states that where an insurrectionary movement is successful and the revolutionaries take over the government, the new government will be liable for the actions of the insurrectionaries before and after they took power. However, if this does not occur, the state is still required to show due diligence, and may be liable if it has provided insufficient protection for aliens (the special protections for diplomatic and consular staff should be noted in this context).

Activity 6.4 1. What were the facts in Short v Iran (1987)? 2. What did the Iran-US Claims Tribunal decide, and why?

Feedback 1. This was a claim by an American national who had been evacuated from Iran three days before the Islamic revolutionary government took office. He was evacuated on the orders of his American employers because of the worsening situation in Iran at the time, and he sought compensation from the new government of Iran for

- 6.6 - TOPIC 6 – STATE RESPONSIBILITY

loss of salary arising out of what he alleged to be his expulsion from Iran. 2. The Iran-US Claims Tribunal decided that a successor government is held responsible for the acts imputable to the revolutionary movement which established it, even if those acts occurred prior to its establishment. However, the same rules of attribution of liability apply to revolutionary movements as apply to states. Thus it must still be established that the acts complained of are the acts of agents of the revolutionaries and not the acts of mere supporters. As this had not been done, the claim was dismissed.

D. Acts of unsuccessful, or ongoing, revolutionary movements or secessionists

CB, pp 418-419 Reading

The important point here is that states (such as Sri Lanka) are not Teaching responsible for acts of unsuccessful, or ongoing, revolutionary movements (such as the Tamil Tigers), but will be responsible for their own recklessness or lack of due diligence in not providing protection to prevent injury to individuals or property.

3. Enforcement

A. Ability to bring a claim

CB, pp 420-429 Reading

The general rule is that it is only injured states that are able to bring international claims against other states for a breach of some international obligation. The principle was strictly applied in the second phase of the South West Africa case (1966) when the ICJ held that Liberia and Ethiopia had no legal interest in South Africa’s treatment of the inhabitants of South West Africa (which is now Namibia). Although both states had been original members of the League of Nations and therefore had certain rights under the mandate agreement between the League and South Africa, the court held that enforcement of the mandate was a matter for the League alone and individual members suffered no

- 6.7 - LAW00521 INTERNATIONAL LAW

injury and therefore had no independent right to bring claims arising out of breaches of its provisions.

Activity 6.5 Can you think of counter-argument(s) to this assertion that Liberia and Ethiopia had no legal interest in South Africa’s treatment of the inhabitants of South West Africa?

Where a state has suffered directly from an internationally wrongful act such as the breach of a treaty obligation owed to it, there will be little difficulty in establishing its right to bring an international claim. However, states may also suffer indirectly. Internationally wrongful acts can occur in respect of the treatment of individuals or corporations. In such situations, the claiming state needs to establish its right to make a claim on behalf of the individual or corporation that has suffered injury. States may often raise diplomatic protests about the treatment of individuals by foreign states and such protests are not confined to activities involving their own nationals.

Activity 6.6 What did the court (the PCIJ) decide in the Panezezys-Saldutiskis case (1939)?

Feedback For a state to make specific representation involving claims to reparation and compensation arising from injuries to an individual or group of individuals, or damage to their property, it must be able to show that these individuals are in fact its nationals. The basic rule is that the victim must be a national of the plaintiff state at the time the damage was caused and remain so until the claim is decided. However, as indicated by the court, the general rule can be waived with the consent of the respondent state.

A state will be able to bring a claim on behalf of its national even if he or she is a national of the respondent state as well, provided that the claimant state can establish the closer, more effective and genuine links with the individual concerned. This concept of an effective link was approved by the ICJ in the Nottebohm case (1955).

Activity 6.7 1. Explain the facts of the Nottebohm case (1955). 2. What did the ICJ decide?

- 6.8 - TOPIC 6 – STATE RESPONSIBILITY

1. The government of Liechtenstein instituted proceedings on the Feedback basis that Guatemala had acted unlawfully towards the person and of Friedrich Nottebohm, a citizen of Liechtenstein. Guatemala disputed Liechtenstein’s right to bring the case. Mr Nottebohm had been born in Germany in 1881. In 1905, he went to Guatemala and took up residence there. He occasionally returned to Germany and other countries on business and retained his German nationality. He made a few visits to Liechtenstein where his brother lived. While visiting his brother in 1939 he applied for and obtained Liechtenstein nationality. 2. The essential question for the court was whether the nationality conferred on Nottebohm in 1939 by Liechtenstein could be relied upon against Guatemala concerning the commencement of proceedings. The court acknowledged that the granting of nationality was a matter of municipal law but found that the right to exercise diplomatic protection of nationals was a matter of international law that the ICJ was entitled to determine. The court stated that: ‘According to the practice of states, to arbitral and judicial decisions and to the opinions of writers, nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and together with the existence of reciprocal rights and duties.’ (CB, p!423) The court found that Nottebohm had little real connection with Liechtenstein, whereas he had been settled in Guatemala for 34 years and had an intention to remain there. His connection with Guatemala was therefore far stronger than any connection with Liechtenstein, and consequently Liechtenstein was not entitled to extend its protection over him vis a vis Guatemala.

Prime facie, a corporation has the nationality of the state where it was incorporated. The problem arises in the fact that companies may be incorporated in states with which they have very little connection. The right of states to bring claims on behalf of shareholders was discussed in the Barcelona Traction case (1970).

1. What were the facts of this case? Activity 6.8 2. What did the ICJ decide?

1. The Barcelona Traction, Light and Power Company was a holding Feedback company incorporated in Canada in 1911 to develop and establish an electricity company in Spain. It created three subsidiary companies in Canada (most of the shares of which it owned) and a number of operating and concessionary companies in Spain.

- 6.9 - LAW00521 INTERNATIONAL LAW

The case arose following action taken by Spain that resulted in the company being declared bankrupt. Belgium sought to bring a claim based upon the allegation that most of Barcelona Traction’s shares were owned by Belgian nationals and companies, mainly by a company called Sidro, the principal shareholder of which was another company called Sofina in which Belgian interests were again predominant. Spain argued that the injury had been done to the company rather than its shareholders and therefore Belgium lacked standing to bring the claim. 2. The court found that although shareholders had suffered it was only as a result of wrongs done to the company. The court adopted the municipal law concept of the corporate veil and the distinction to be drawn between the personality of the company and its individual shareholders. As far as diplomatic protection was concerned, the court stated that: ‘The traditional rule attributes the right of diplomatic protection of a corporate entity to the state under the laws of which it is incorporated and in whose territory it has its registered office. These two criteria have been confirmed by long practice and by numerous international instruments’ (CB, p!425). It went on to acknowledge that there were situations where some further degree of connection was necessary but that no absolute test of ‘genuine connection’ existed in international law. It further suggested that there may be situations where: ‘If in a given case it is not possible to apply the general rule that the right of diplomatic protection of a company belongs to its national state, considerations of equity might call for the possibility of protection of the shareholders in question by their own national state.’ However, such a situation did not arise in the Barcelona Traction case and therefore the court rejected the Belgian claim. Such situations may arise where the company itself no longer exists or more commonly where it is the national state of the company that actively injures the company.

B. Exhaustion of local remedies An important rule applicable to indirect injuries to states is that a claim will not be admissible on the international plane unless the individual or corporation has exhausted the remedies provided by the local state. The rule is justified by political and practical considerations. It allows the local state to redress any wrong that has been committed before the matter reaches the level of international dispute settlement.

Reading CB, pp 429-432

- 6.10 - TOPIC 6 – STATE RESPONSIBILITY

International tribunals are only concerned with effective local remedies. An individual or corporation does not need to exhaust all appeal mechanisms if such appeals are clearly going to prove futile.

1. What were the facts of the Finnish Shipowners arbitration Activity 6.9 (1934), and what was decided? 2. What were the facts of the Elettronica Sicula SpA (‘ELSI’) case (1989), and what did the ICJ decide?

1. The UK objected to the Finnish claim on the basis that the Feedback Finnish nationals had failed to appeal against a decision of the UK’s Admiralty Transport Arbitration Board. The international arbitrator accepted the Finnish argument that, in the particular case, the Court of Appeal would have been unable to overturn the finding of fact made by the Arbitration Board and that an appeal would therefore have made no difference. Finland was therefore within its rights to pursue the claim on the international plane. 2. The US brought a claim against Italy following the nationalisation of ELSI, an Italian corporation wholly owned by two US corporations. Italy claimed that local remedies had not been exhausted while the US argued that the rule did not apply since it was claiming compensation for the two US companies on the basis of the Treaty of Friendship, Commerce and Navigation 1948 between the US and Italy. It therefore sought to argue that the breach of treaty amounted to a direct international wrong. The ICJ found, however, that the principal issue in the case was the injury suffered by the US corporations and it was not possible to separate this from the direct wrong of the breach of treaty. It stated that the parties to treaties could expressly agree that the local remedies rule would or would not apply, but, in the absence of any relevant agreement, where a claim was partly based on injury suffered by nationals, the rule would be presumed to apply. Having dealt with the general issues involved, the court then found that in the particular case local remedies had been exhausted. The main point of the case was that a breach of a treaty obligation would normally be considered to amount to a direct wrong, but where the treaty is invoked on behalf of nationals the local remedies rule will generally still apply.

- 6.11 - LAW00521 INTERNATIONAL LAW

C. Special enforcement regimes

Reading CB, p!432

4. Defences In certain circumstances, a breach of an international obligation imputable to a state may not give rise to international responsibility.

Reading CB, pp 432-436

Activity 6.10 1. Explain what ILC Commentary means when it says that the six circumstances precluding wrongfulness ‘do not annul or terminate the obligation, rather they provide a justification or excuse for non-performance …’ (CB, p!434). 2. What arguments did France raise in order to deny liability in the Rainbow Warrior Arbitration?

5. Treatment of aliens

Reading CB, pp 437-438

One area of considerable controversy is the standard of treatment to be accorded to foreign nationals (ie. aliens). A state will only be responsible for treatment of aliens which falls below the standard that international law requires. There are two conflicting views as to what this standard is. Most Western states adhere to the concept of an international minimum standard of treatment. Every state is under a duty to treat aliens within its territory in accordance with this standard. This is so even if municipal law imposes a lower standard of treatment with respect to home nationals. Proponents of the international minimum standard have sought to argue that the concept is inextricably linked to the international law of human rights. The opposing view is that foreign nationals are only entitled to be treated in the same manner as home nationals. This national standard would imply that the only thing to guard against is discrimination against foreign nationals. Article 9 of the Montevideo Convention on the

- 6.12 - TOPIC 6 – STATE RESPONSIBILITY

Rights and Duties of States 1933 reflected this view by providing that ‘foreigners may not claim rights other or more extensive than those of the nationals’. The national standard has been most strongly advocated by the developing states in the context of nationalisation of foreign owned property (see next section).

Which of the two views appears to have been applied in the Neer Claim Activity 6.11 (1926) by the US-Mexican Claims Tribunal?

The first – the minimum international standard. Feedback

What are the arguments for and against these two views? Which of the Think two views do you support?

6. Nationalisation/expropriation of non- nationals’ property

A. Right to nationalise/ expropriate Expropriation is a broad term and denotes the ‘taking’ of property by a state from the ownership of private individuals. This may be a single asset, as in a rubber plantation, or it may be an entire industry. It may also involve a state activity that is destructive of property rights, such as the imposition of a punitive tax. Whether an interference with the use, enjoyment or disposal of property constitutes a “taking” will depend upon the duration of the interference and the unreasonableness of the interference. On the other hand, ‘nationalisation’ is a particular species of expropriation – that of the taking away by the state of an entire industry.

CB, pp 438-441 Reading

Do states have the right to expropriate/nationalise industries that Activity 6.12 foreigners have a stake in?

Yes - this was confirmed by the arbitrator in Texaco Overseas Feedback Petroleum Company v Libyan Arab Republic (1977). The act of appropriation is seen as an act of state sovereignty in itself.

- 6.13 - LAW00521 INTERNATIONAL LAW

B. Application of international law

Reading CB, pp 441-442

Activity 6.13 1. What is the consequence of a contract between a state and a non- national being internationalised? 2. From your reading of the Texaco case, indicate some of the ways a contract may become internationalised.

Feedback 1. The effect of a contract between an individual and a state becoming internationalised is to place the contract in the domain of international law. This would mean that any breach of the contract by the state would amount to an expropriation, giving rise to state responsibility. 2. In his award, the arbitrator in Texaco indicated that certain contracts between states and individuals (including companies) could become ‘internationalised’ in various ways: (i) the contract made reference to general principles of law (implying international law) as an element of the governing law; (ii) where the contract provided for disputes to be settled by international arbitration; and (iii) where the contract was within the class of ‘international development agreements’ which involved long-term assistance to a state in a field of essential economic activity and which were protected by ‘stabilisation clauses’. The purpose of such stabilisation clauses is to take the contract out of the field of municipal law as a way of safeguarding against unilateral termination by the state.

C. Unlawful nationalisation/expropriation

Reading CB, pp 442-444

- 6.14 - TOPIC 6 – STATE RESPONSIBILITY

Conditions for lawful expropriation are: (i) The expropriation must not be retaliatory or discriminatory A lawful expropriation is one which is not deliberately directed against the nationals of one state only. In BP v Libya (1974), CB note 2 p!444, the Libyan government openly admitted that their purpose was retaliation (which is rare for any government to do), and thus their expropriation was considered to be unlawful. See also the LIAMCO case, (1977), CB, pp 442-443. (ii) The act of taking must be for a public purpose The difficulty is that a precise definition of the “public purpose” for which an expropriation may be lawfully decided has neither been agreed upon in international law nor even suggested: Amoco case, CB, pp 443- 444. But given the acceptance of the right to nationalise, the term is broadly interpreted. With respect to nationalisation and public purpose see the LIAMCO case: CB, pp 442-443.

7. Compensation for nationalisation/expropriation

A. Principles

CB, pp 445-451 Reading

In the Chorzow Factory case (1928), the PCIJ was called upon to consider the consequences of the illegal expropriation by Poland of a factory in Upper Silesia. In the course of its judgment the court stated that the vital principle was that reparation ‘must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed.’ (CB, p!445) It thus seems to be accepted law that the first consideration, following a breach of an international obligation, should be the restoration of the status quo that existed before the wrongful act was committed. Territorial disputes can often readily be settled by means of restitution and, in the Temple of Preah Vihear case (1962) (CB, pp 247-248), Thailand was ordered to return Cambodia objects it had illegally taken from the temple in Cambodia. Where restitution is not physically possible, even in cases where it is not politically possible, compensation can be paid. The aim of any monetary compensation should be to wipe out the consequences of the illegal act. Compensation should cover all

- 6.15 - LAW00521 INTERNATIONAL LAW

damage that has flowed from the unlawful act, subject to principles of remoteness. In some cases, monetary compensation will not be an appropriate remedy. In such cases, reparation can be made by satisfaction, which may involve apologising, acknowledging guilt, or accepting the award of a declaratory judgment. For example, in the Rainbow Warrior case, the French government did belatedly apologise to the victims of the sinking of the ship. It was formerly thought that compensation would only be available for actual injury or damage suffered. This view was largely based on the fact that very often states would accept apologies or acknowledgments of guilt as sufficient reparation where no actual physical damage had been caused. However, it is now believed that compensation can be awarded for non-material damage. In the I’m Alone case (1933), the I’m Alone, a ship registered in Canada was sunk by US coastguards. The international tribunal found that the ship was almost wholly owned by US nationals and therefore found that no compensation ought to be paid in respect of the loss of the ship or its cargo. However the US was ordered formally to apologise to the Canadian government and to pay $25,000 compensation as acknowledgment of the wrong done to Canada.

Activity 6.14 1. What are the main issues between developed and developing states in terms of how to determine compensation for expropriation? 2. Describe how the ‘Hull formula’ works. 3. Explain the competing views concerning whether international or national standards should be used in calculating compensation. 4. What is the main justification for the views of the developing states that national standards should be used in calculating the amount of compensation? 5. What position does GA Resolution 1803 (XVII); (the Declaration on Permanent Sovereignty over Natural Resources) take on the issue of whether national or international standards should be used?

Feedback 1. One key issue is the means of determining compensation (‘prompt, adequate and effective’ (the Hull formula favoured by developed nations) or ‘appropriate’, favoured by developing nations). Another is the method for deciding compensation do you use international law (favoured by developed nations) or national law (favoured by developing nations), or some

- 6.16 - TOPIC 6 – STATE RESPONSIBILITY

combination of the two? Finally, there is the issue of who decides ie. which courts/tribunals. 2. Under the ‘Hull formula’ adopted by industrialised nations, compensation must be ‘prompt, adequate and effective’. This means, in essence, that: (a) the nationalising state should pay in a form of currency that can be readily used (not, for example, devalued local currency) (b) that it should reflect the full value of the property taken, perhaps incorporating an element for future lost profits, and (c) that it must be handed over within a reasonable time after the expropriation and, if not, interest should be paid. Obviously, this is a strict and arduous standard. 3. The traditional view of developed nations is that the standard of compensation required by international law is ‘the international minimum standard’. In effect, this means that the adequacy of compensation is to be judged by reference to international criteria rather than the provisions of the municipal law of the expropriating state. The developing states view, on the other hand, is that claim compensation is to be judged by the ‘national treatment’ standard and that if the compensation matches up to that guaranteed to nationals under municipal law, it is ipso facto ‘appropriate’. 4. The Charter of Economic Rights and Duties of States favours the developing states view regarding compensation since it provides in Article 2(2)(c) (CB, p!447) that: ‘Appropriate compensation should be paid by the [nationalising] state!..., taking into account its relevant laws and regulations and all the circumstances that the state considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalising states and its tribunals (emphasis added) ...’ Note that the above Charter has not been accepted by the majority of Western states, and the arbitrator in the Texaco Overseas Petroleum case (1977) viewed Article 2(2)(c) as having the nature de lege ferenda rather than constituting a rule of customary international law. 5. The Declaration on Permanent Sovereignty over Natural Resources provides that in cases of expropriation: ‘The owner shall be paid appropriate compensation in accordance with the rules in force in the state taking such

- 6.17 - LAW00521 INTERNATIONAL LAW

measures in the exercise of its sovereignty and in accordance with international law.’ (paragraph 4) This seems to represent a compromise position – one can use national standards, but these standards are subject to international legal principles. This position is generally accepted as reflecting customary international law (eg. Shahin Shane Ebrahimi v Iran CB, pp 448-450), and it seems to require consideration of all the circumstances of the case.

B. The amount of compensation

Reading CB, pp 451-453

Teaching How might we calculate what compensation may be deemed full or adequate? Full value at best will be the market value, where such a market exists. A time element will have to be considered. The market will react drastically to a threat of nationalisation. The price of shares will fall considerably, as soon as the intention to nationalise becomes known. Although no compensation is due before a nationalisation is carried out, compensation will be due for the loss caused already by the announcement of the intention to nationalise. In case of an enterprise in working order the market price will be the equivalent of the going concern value. Any purchaser of the enterprise will evaluate not only the equipment but also the profits she hopes to make by working the equipment. Thus compensation for an enterprise will not only cover the loss of the installations and equipment (damnum emergens), but also the loss of the chance of future profits (lucrum cessans) (Shahin Shane CB, p!449). Valuation becomes more difficult where there is no longer any market for the nationalised asset. Then the tribunal may take into account each of the taxation value, the balance sheet values and the insurance value.

Activity 6.15 1. What method of calculation of compensation was used by the Iran-United States Claims Tribunal in Amaco (CB, pp 451-452)? 2. Note 3 on p!453 states that ‘the amount of compensation for unlawful compensation … will be greater than compensation payable for a lawful appropriation’, and implies that compensation for unlawful appropriation may include an element for lost future profits, whereas this could not be included for lawful appropriation. List the reasons as to why an expropriation might be unlawful.

- 6.18 - TOPIC 6 – STATE RESPONSIBILITY

3. What common sense approach to calculating the amount of compensation is suggested by the authors of the prescribed text?

1. The Tribunal rejected both the discounted cash flow (DCF) Feedback method and the net book value method, and instead relied upon the ‘going concern’ method. 2. The reasons might be: • discrimination against an individual alien or aliens in general was contrary to international law irrespective of whether compensation had been paid or not • the expropriation was not for reasons of public policy. In this respect, note that the Resolution on Permanent Sovereignty over Natural Resources (CB, p!446) states that expropriation … ‘shall be based on grounds or reasons of public utility, security, or the national interest (consideration of which must be an internal matter for the state concerned) which are recognised as overriding purely individual or private interests, both domestic and foreign’. • the expropriation was in violation of a treaty obligation (eg. Certain Interests in Polish Upper Silesia case) or • because of a failure to provide any compensation or failure to provide compensation up to the required standard. 3. They suggest that we should avoid ‘fruitless theoretical arguments’ and use a ‘fair’ compensation standard.

C. Protection for private investors ‘If, as we have seen, states enjoy a great deal of liberty in the field of Teaching expropriation, the question arises whether foreign investors can take any steps to safeguard their rights. The following is an indication of the possibilities, although it must be realised that in the end they may operate only to ensure adequate compensation or damages rather than to prevent expropriation altogether. (i) The company can attempt to internationalise the contract, although it is debatable whether this precludes expropriation altogether. It may, however, increase the measure of damages. (ii) The company can ensure that the contract does not contain a ‘Calvo’ clause (giving exclusive application to local law). (iii) The company can seek to have the ‘prompt adequate and effective’ rule incorporated into the terms of the contract.

- 6.19 - LAW00521 INTERNATIONAL LAW

However, whether this would be effective at international law is open to question. (iv) The company may seek registration (ie. nationality) in a state willing and able to exercise its right of diplomatic protection. This is particularly important given that a state can legitimately refuse to make such a claim, and may do so if it wishes to preserve good relations with the other state. (v) The company can attempt to persuade its state of nationality to enter into a treaty with the state in which it is investing. This should guarantee the terms of the contract and any breach of the contract will then be a breach of the treaty. (vi) The company could bring the matter within the regime of the International Convention for the Settlement of Investment Disputes 1964, if its state of nationality and the expropriating state had signed the Convention. This provides a formal mechanism for the settlement of investment disputes between contracting states and nationals of contracting states, subject to prior consent.’1 (vii) Conclude a lump-sum compensation agreement when first setting up the investment. This overcomes the difference between the international law minimum standard and the equality with nationals standard in a pragmatic way. The standard of compensation might fall short of adequate compensation in the sense of the Hull formula, but at least the investor has some sense of security in the ‘worst case scenario’.

8. Summary A departure point for any discussion of state responsibility is the Articles on State Responsibility prepared by the ILC. Article 1 states: ‘Every internationally wrongful act of a state entails the international responsibility of that state.’

Such wrongful acts can be divided into two categories: direct and indirect.

A. Is fault necessary or is liability strict? The position as to whether fault is necessary or liability strict is not settled and there is support for both the objective and subjective tests. The objective test means that a state is liable for wrongful acts

1 Dixon M, Textbook on International Law, 4th. Edition, Blackstone Press Limited, 2000, pp 259-260

- 6.20 - TOPIC 6 – STATE RESPONSIBILITY

regardless of any question of fault or intention - see the Caire claim (1929). The subjective test involves an element of intention or negligence - see Corfu Channel (Merits) case (1949). The best view is probably that the nature of liability will depend upon the precise nature of the legal obligation in question.

B. Imputability A state will only be liable for acts that can be attributed or imputed to it. A state will be liable for its servants and agents, at whatever level, and also for those organisations which exercise elements of governmental authority. A state will be responsible for individuals if they were in fact acting on behalf of the state - see US Diplomatic and Consular Staff in Tehran case (1980) and Nicaragua (Merits) case (1986). The fact that a state official is acting ultra vires does not necessarily absolve the state from responsibility. Much will depend on whether the officials have appeared to act within authority. A state will not usually be responsible for the actions of insurrectionaries, although if the insurrectionaries are successful and establish a new government, it will be liable for the actions of the insurrectionaries before they took power. The protection of the fundamental interests of the international community constitute international crimes. All other acts constitute international delicts. The significance of the distinction lies in the fact that all states have an interest and right to invoke the criminal responsibility of a state whereas only those states directly affected have an interest and right in pursuing an international delict. However, note that international law does not provide for the possibility of states being charged with international crimes (only individuals can).

C. Nationality of claims Where a state seeks to bring a claim in respect of the treatment of individuals or corporations the issue of nationality of claims may arise. States may usually only bring claims on behalf of nationals - see Panevezys-Saldutiskis case (1939). Where an individual possesses dual nationality tribunals will investigate which state has the more genuine and effective link with the individual concerned – see Nottebohm case (1955). Corporations have the nationality of the state of incorporation and tribunals will not entertain claims by other states on behalf of shareholders – see Barcelona Traction case (1970).

- 6.21 - LAW00521 INTERNATIONAL LAW

D. Exhaustion of local remedies Where states have suffered indirect injuries, no claim can be brought on the international plane until all effective local remedies have been exhausted - see Norwegian Loans case (1957).

E. Remedies The first consideration following the breach of an international obligation is the restoration of the status quo ante. Where restitution is not possible compensation may be paid. Often monetary compensation will not be appropriate and reparation may be made by satisfaction, eg. apology or admission of guilt.

F. Expropriation of foreign-owned property • Expropriation’ denotes the taking of property by a state from the ownership of private individuals. • Expropriation may also include any state activity that is destructive of the property rights of the individual. • Injury to foreign nationals or damage to their property by the organs or officials of a state has always been considered a prima facie breach of international law. • In cases where expropriation is permissible, ‘prompt, adequate and effective compensation’ has to be paid. • According to the Resolution on Permanent Sovereignty over Natural Resources: GA Res. 1803 (XVII), 1962: expropriation ‘shall be based on grounds or reasons of public utility, security, or the national interest’ (consideration of which must be an internal matter for the state concerned). • The Declaration on the Establishment of a New International Economic Order (GA Res. 3201 (S-VI), 1974; (XXIX), Article 2 (c) affirms the legality of expropriation. • To be lawful the expropriation must not be retaliatory or discriminatory, the act of taking must be for a public purpose and compensation must be paid. • According to the industrialised nations, the standard of compensation required by international law is ‘the international minimum standard’ or ‘Hull formula’ of ‘prompt, adequate and effective’ compensation. • According to developing states, compensation is to be judged by the ‘national treatment’ standard and must be appropriate: Resolution 1803 (XVII), the Declaration on Permanent Sovereignty over Natural Resources.

- 6.22 - TOPIC 6 – STATE RESPONSIBILITY

9. Further reading Dixon M, Textbook on International Law, 5th. Edition, Oxford University Press 2005, Chapter 9, as well as the Further Reading’ mentioned at the end of the Chapter (p!258). Blay S, Piotrowicz R & Tsamenyi M, Public International Law: An Australian Perspective, Oxford University Press, 2nd ed, 2005, Chapter 9. Harris DJ, Cases and Materials on International Law, 5th ed, Sweet And Maxwell, 1998, Chapter 8. Crawford J, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries, Cambridge University Press, 2002.

10. Revision questions

Multiple choice and true/false questions 1. To establish that a state is responsible for an injury to an alien or foreign business, a claimant must demonstrate: a. Conduct attributable to the state under international law b. A breach of an international obligation by the state c. An agreement signed by the state accepting liability d. All of the above e. Both a. and b. above. 2. A state is only responsible for actions which are imputable to it. 3. A state is responsible for acts done by officials within their apparent authority. 4. A state is not responsible for acts done by officials when the officials acted because of a mistake. 5. A state is not responsible for acts done by officials who were clearly acting wrongfully. 6. A state is not responsible for acts causing injury to foreigners when the acts where carried out by: a. Private persons b. Officials of other states or international organizations c. Rebels or insurrectionaries d. All of the above e. Both b. and c. above.

- 6.23 - LAW00521 INTERNATIONAL LAW

7. Which of the following is true? a. Contemporary terrorism commonly has state support and sometimes involves direct state action. b. Modern terrorism commonly involves spectacular and horrible incidents that will attract media attention. c. Terrorism is the sustained clandestine use of violence for a political purpose. d. All of the above e. Both a. and b. above. 8. In order to hold a state responsible for causing injury to an alien, one has to prove culpa. That is, one has to show that the state was knowingly or negligently at fault. 9. The reason why alien claimants are not required to prove that a state acted with culpa (ie., that it was at fault) when they are suing for injuries it caused to them is that it is so easy to prove culpa that courts regard such proof as a waste of their time. 10. State A expelled the Bee Co. from its territory for political reasons. Bee Co. was forced to take up temporary quarters on an island in the Caribbean. The island was subsequently hit by a hurricane and Bee Co. suffered tremendous losses. In an arbitration between Bee Co.’s home state (State B) and State A, State B alleges that State A is liable for Bee Co.’s losses. The tribunal will hold: a. State A liable because political reasons are an inadequate basis for expelling a foreign company. b. State A liable because it is clearly at fault (ie., culpa is proven). c. State A not liable because it did not factually cause the injuries to Bee Co. d. State A not liable because there is no evidence that it acted wrongfully. e. None of the above. 11. According to the international standard, a state should treat an alien exactly as it treats its own nationals—no more, no less. 12. Which of the following are criticisms levelled at the national standard of care rule? a. It would encourage aliens to bring frivolous and time consuming law suits. b. It would give greater rights to aliens than nationals. c. There would be no protection for aliens in states where nationals are ill-treated.

- 6.24 - TOPIC 6 – STATE RESPONSIBILITY

d. All of the above e. None of the above. 13. Third World states have not consistently supported the adoption of the national standard of care doctrine as a rule of international law in part because they fear that they might offend states that extend economic and other kinds of assistance to them. 14. According to the international standard of care doctrine, while states have no obligation to admit aliens to their territory, once they do so, they must treat them in a civilized manner. 15. Which of the following acts would constitute an international crime if committed by a state? a. Denial of justice b. Injury to the environment c. The expropriation or nationalization of the property of aliens and foreign businesses. d. All of the above e. None of the above. 16. The right of states to expropriate foreign property is universally recognized. 17. Most Western states regard expropriation as: a. Proper when it is done for a legitimate public purpose. b. Proper when the state pays prompt, adequate, and effective compensation improper. c. Both a. and b. above d. None of the above. 18. When speaking of “prompt, adequate, and effective compensation” in connection with the international standard of care doctrine, a. “Adequate” compensation means “the value of the undertaking on the day the judgment is awarded.” b. “Effective” compensation means that “the recipient must be able to make use of it.” c. “Prompt” compensation means “payment within a reasonable period of time.” d. All of the above e. None of the above. 19. If a state wishes to expropriate the property of a foreign business, it must (according to the international minimum standard doctrine): a. Do so only for a public purpose.

- 6.25 - LAW00521 INTERNATIONAL LAW

b. give reasonable advance notice to the foreign business. c. Pay prompt, adequate, and effective compensation to the foreign business. d. All of the above e. Both a. and c. above. 20. In opposing the international standard of care doctrine, some Third World states argue that: a. Adequate compensation should not mean full market value. b. Compensation should only have to be made in the local currency. c. In determining compensation, factors such as colonial domination should be taken into consideration. d. All of the above e. Both a. and c. above. 21. Which of the following are examples of denials of justice? a. A gross deficiency in the administration of the judicial or remedial process. b. A manifestly unjust judgment. An unwarranted delay or obstruction of access to the courts. d. All of the above e. Both a. and b. above. 22. According to national standard of care advocates, any determination of a denial of justice should be made relative to the judicial system of the society where the case arose. 23. Lack of standing is an objection which a defendant can raise to a court taking jurisdiction when the plaintiff has failed to state a cause of action. 24. In most international tribunals (such as the International Court of Justice), only a state may file a complaint. 25. Because only a state may file a complaint in an international tribunal (such as the International Court of Justice), a. The state can refuse to bring the complaint. b. The state can abandon a case after it has filed the complaint. c. The state may settle the matter adversely to the interests of a victim. d. All of the above e. None of the above. 26. An agreement made by an investor who seeks to establish a business operation in a foreign country that it will not ask nor

- 6.26 - TOPIC 6 – STATE RESPONSIBILITY

allow its home state to intervene in any dispute with the host state is binding on the home state. 27. In most international tribunals (such as the International Court of Justice), a state may only sponsor a complaint on behalf of its own nationals. 28. With respect to the proper filing of a complaint in an international tribunal (such as the International Court of Justice), which of the following is true? a. A person with a single nationality may only be sponsored by the state of his nationality. b. A stateless person may have his case sponsored by an international organization (such as the United Nations). c. Persons with dual nationalities cannot have their cases sponsored by any state. d. All of the above e. Both a. and b. above. 29. Ms. X is a national of both State A and State B. With respect to the proper filing of a complaint on her behalf in an international tribunal (such as the International Court of Justice), which of the following is true? a. State A may file a complaint against State B b. State A may file a complaint against State C c. State B may file a complaint against State A d. State C may file a complaint against State B e. None of the above. 30. With respect to the proper filing of a complaint in an international tribunal (such as the International Court of Justice) on behalf of a person with dual nationality, the state of which the individual has a master nationality may bring suit against the other national state. 31. Mr. Z is a national of both State A and State B. State A wishes to sponsor a case on behalf of Mr. Z against State B in an international tribunal (such as the International Court of Justice), claiming that Mr. Z’s master nationality is that of State A. To show this, State A: a. May demonstrate that most of Mr. Z’s economic, social, political, civic, and family life is centered in State A. b. May point to Mr. Z’s long time residence in State A. c. Must prove that Mr. Z has a closer and more effective bond with State A. d. All of the above e. Both a. and b.

- 6.27 - LAW00521 INTERNATIONAL LAW

32. With respect to the proper filing of a complaint in an international tribunal (such as the International Court of Justice) on behalf of a person, the sponsoring state must establish that there is genuine link between that state and the sponsored person. 33. Although individuals must have a genuine link with a state before the state may properly file a complaint on their behalf in an international tribunal (such as the International Court of Justice), this is not so when the state sponsors a suit on behalf of a juridical person (such as a business firm).

Short answer questions 1. Are not all expropriations retaliatory to some degree? So where so you separate a justifiable “response” to actions by a foreign investor from an unjustifiable discriminatory expropriation? 2. An expropriation decree may accomplish the taking in a single act. But an expropriation can just as well come about by the government of the host state chipping away at the company’s assets and its ability to do business, that is through creeping or constructive expropriation. At what point does the latter form of taking generate legal requirements of public purpose and compensation? 3. How do the standards for expropriation in the Declaration on the Establishment of a New International Economic Order and in the Charter of Economic Rights and Duties of States differ from the earlier Resolution on Permanent Sovereignty Over Natural Resources? 4. Suppose investing company negotiated a twenty year mining concession with a previous government of the host state. In the event of an expropriation, can the investor argue that the present government is bound by the agreement of the previous government irrespective of whether it was overthrown? Examine the Texaco case. 5. At the end of the day, should international law concern itself with an investor from one nation, who without coercion seeks out investment opportunities in another, but then later loses that investment because of an act of expropriation of the host nation? Should the only international standard be that they are entitled to be treated the same as any citizen in the host nation? At least the foreign investor might be required to exhaust their local remedies. Should it make any difference that the investor was invited to enter the host state, rather than having sought out the host?

- 6.28 - TOPIC 6 – STATE RESPONSIBILITY

11. Problem question and feedback Helena was born in Equatoria in 1939 and acquired the nationality of that state by birth. As her parents were nationals of Orlando she also acquired the nationality of that state at birth. In 1946 Helena moved with her parents to Astoria, a federal state comprised of a number of largely autonomous provinces. After the death of her parents in 1948 Helena inherited their successful manufacturing business which she continued to manage until 1996. In 1996 the following events happened: (i) The government of the province in which Helena carried on business appointed an official overseer of her business with power of veto in respect of all management decisions. The provincial government also imposed a special tax at high rate on the turnover of Helena’s business and repudiated a lucrative contract between Helena and the provincial government for the supply of manufactured goods. (ii) While driving home from work Helena was stopped and physically assaulted by a detachment of intoxicated soldiers. (iii) Helena’s private residence was looted by a riotous mob. The local police, although aware of the danger of this happening, did not respond to Helena’s request for protection.

Helena, who now resides in Equatoria, has requested that state to exercise the right of diplomatic protection and claim reparation from Astoria for what she alleges is the expropriation of her business as well as the assault on her person and looting of her private residence. On the assumption that Helena was ordinarily resident in Astoria for most of the period 1946-1996 advise Equatoria of the relevant principles of public international law.

Suggested answer guidelines Before a state claim can be undertaken, there must first be exhaustion of local remedies: Elettronica Sicula; Ambatielos case 23 ILR 306 (1956): in the latter case. Greece brought proceedings arising out of a contract signed by A which were rejected by the tribunal since the remedies available under English law had not been fully utilised ie. there had been no appeal to the House of Lords. Prima facie a state may incur responsibility at international law if it injures alien person or property. In this problem we find both instances. Although the property injured is private by virtue of the claimant’s nationality her state may take up the claim on her behalf.

- 6.29 - LAW00521 INTERNATIONAL LAW

The two basic principles of SR are therefore: a) the capacity of the other state to adopt the claim of the injured party ie. according to nationality b) the attribution to one state of the unlawful acts and omission of its officials and organs.

Capacity of Equatoria to take up the claim? Since H now lives in E the first question is Whether H is a national of E?

Nationality: Although the law relating to the acquisition of nationality is a question of municipal law, once established the law of nationality will provide a means of attributing state responsibility at international law (IL). The test of what constitutes an effective and genuine link for the purposes of a claim at IL is set out in the Nottebohm case 1955 ICJ REP 4: According to Nottebohm, for attribution to occur there must be a “genuine link” in respect of the national protection claimed. The conferral of nationality jus soli (ie the fact of birth within state territory) is widely accepted as one of the most common ways in which states grant nationality. It is thus likely that H’s Equatorian nationality will satisfy the “genuine link” test and that a right to diplomatic protection will therefore arise. Attribution: concerning the possible expropriation of H’s business. With respect to the events in (i): there is the threshold question whether the action by the provincial government can be attributed to the federal government? The rule of attributability applies in equal measure to all government organs including provincial authorities within a federal state: in this respect see Draft Article 7(1) International Law Commission Draft Articles on State Responsibility. Is the expropriation lawful? In general a state does have the power to expropriate at IL provided the expropriationis (a) not discriminatory and (b) adequate compensation is made.

Do we have an expropriation? In our problem, the nature of expropriation is that there has been no actual taking over of the property in question by the state so can we say there has been expropriation? Starrett Housing Corp v Government of the Islamic Republic of Iran US Claims Tribunal 23 ILM 1984 1090: makes it clear that expropriation will be found if there is state activity which is destructive of the property rights of the individual. Such activity includes: subjection to local management and the imposition of punitive taxes;

- 6.30 - TOPIC 6 – STATE RESPONSIBILITY

both of which have occurred in our problem. Thus expropriation can be said to have occurred on the facts given. The Tribunal in Starrett housing makes it clear that “measures taken by a state can interfere with property rights to such an extent that these rights are rendered so useless that they must be deemed to have been expropriated.” In that case it was held that a taking had occurred upon the appointment by the Iranian Housing Ministry of a temporary manager of the Housing Corporation - thus depriving the claimants of the right to manage and of effective control and use. However interference such as detention of personnel, intimidation and interference with supplies in general would not amount to a taking. Astoria may expropiate provided it is without discrimination. This is a requirement for a valid and lawful expropriation. For the approved basis of expropriation see Res 1803 clause 4: contrast and compare Res 3281 with its stronger emphasis on “rights:” Article 2. The arbitrator in the Liamco case 20 ILM 1981 1 (1977 62 ILR 140) argued that a discriminatory nationalisation would be unlawful 58-59. Nevertheless in Liamco it was held that Libya’s action against certain oil companies was aimed at preserving its ownership of the oil and was non-discriminatory. The arbitrator noted that a political motive per se would not constitute sufficient proof of a discriminatory measure. Although discrimination is a factor which can be difficult to prove in practice, this was the ground on which the arbitrator found the expropriation to be unlawful in BP v Libya (1974) 53 ILR 329. Further, in Liamco (1977) 20 ILM 1 the arbitrator stated that nondiscrimination is a requisite for the validity of a lawful expropriation. If expropriation is established the remedy is compensation.

Principles of Compensation and the Amount of Compensation: In the Chorzow Factory case the court said that reparation must wipe out the consequences of the illegal act and re-establish the situation which would have existed. Restitution in kind or payment of an award of damages would be appropriate compensation. Measure: it must be prompt adequate and effective the formula used by the US Secretary of State Hull on the occasion of the Mexican expropriations. It is the US standard and used in a number of bilateral investment treaties. However case law is less clear. (US Restatement Third Foreign Relations Law para 712 1987 ... called just but based on Hull formula).

- 6.31 - LAW00521 INTERNATIONAL LAW

There has been a difference of opinion between developing and developed countries over the measure of expropriation. The former condemn the Hull formula. Two UN Resolutions reflect the varying standards: 1. 1962 Resolution on Permanent Sovereignty over Natural Resources GA Resolution 1803, refers to appropriate compensation. The former was cited with approval by the arbitrator in Texaco as a rule of customary international law and followed in the Aminoil case (1982) 21 ILM 1976. 2. GA Resolution 3281 (XXIX) of 1974.

Developing countries object to the Hull formula which requires them to pay out a substantial capital sum of in the local devalued currency when the very reason for the expropriation may have been that they ware in serious financial difficulties. DCs argue that appropriate means compensation assessed by reference to economic viability of the nationalising state; the importance of the expropriated property; and the benefits which foreign nationals have already acquired as distinct from the market value of the property and any account of future profits.

Standard: by which standard is the measure to be judged? There are two competing standards: 1 the international minimum standard ie. by international criteria rather than the expropriating state’s laws; and 2 the national standard which is favoured by developing states. The minimum standard is embodied in a 1961 Harvard Draft Convention on Expropriation by Baxter and Sohn. Under the IMS the compensation is to reflect the full value of the property taken, including loss of profits - compensation is to be paid in a reasonable period of time and in a readily useable currency. Compensation is calculated on: 1. The value of the undertaking at the time of the expropriation (which includes corporeal property, contractual rights and intangibles such as intellectual property, licences, goodwill etc.); this approach is supported by the 1962 Resolution on Permanent Sovereignty over Natural Resources GA Resolution 1803. 2. Profits which would have been earned up to the date of the judgment. This is supported by Assembly resolutions of 1974 but industrialised countries say it does not reflect international customary law. 3. The national standard on the other hand is embodied in GA Resolution 3281 (XXIX) of 1974 within the Charter of Economic

- 6.32 - TOPIC 6 – STATE RESPONSIBILITY

Rights and Duties of States, under this standard appropriate compensation is determined by the nationalising state on the basis of its own laws and by what it considers to be pertinent circs such as the economic viability of the nationalising state, the economic benefits which foreign nationals have already obtained from the nationalised enterprise and the importance of the expropriated property.

There is a middle course between these two extremes, a compromise position which is embodied in GA Resolution 1803 (XVII)- under this resolution appropriate compensation is determined in accordance both with the rules of the nationalising state and with international law (See Amoco International Finance v Iran). The solution most popular today is the lump sum agreement which has the advantage of being prompt and less contentious.

Were the actions of the soldiers ultra vires? The general rule as enunciated in Article 5 is that any act or omission of an organ of a state which has that status in municipal law is to be attributed to the state so long as the organ was acting in that capacity at the time of the act of omission. If the intoxicated soldiers are acting as organs of the state then the state is responsible for their actions even if those actions were ultra vires. Compare Youmans Claim (1926) 4 RIA 110: Militia were ordered to protect threatened US citizens in Mexico but joined the riot instead. The US citizens were killed. These unlawful acts were imputed to M which was found responsible by the General Claims Commission and; Caire’s Claim: in this case the question for the commission was the responsibility of Mexico when officials acting independently of their state function ie. even without specific authorisation. But if the act is obviously and flagrantly ultra vires is the state still responsible? According to Draft Article 10 ILC all ultra vires acts no matter how flagrant come within the ambit of state responsibility. Article 10 provides: the conduct of an organ having governmental authority … is still an act state even if it contravened instructions and exceeded its competence. Thus ultra vires acts and unlawful acts may be imputed to the state even where it was beyond the legal capacity of the official involved, providing as per Caire’s case that the officials have used powers or methods appropriate to their official capacity ie. in order to invoke “objective responsibility.”

- 6.33 - LAW00521 INTERNATIONAL LAW

State responsibility and “mob” action H’s house is looted by a mob: there was no police response. The state is not responsible for the acts of private individuals. It is therefore not responsible for the acts of the mob. This is confirmed in Draft Article II. Is Astoria however responsible for the inaction of the police who were aware of the potential danger of the mob? Mob violence: where governmental authorities have acted in good faith and without negligence (Neer Claim) the general principle is one of non liability for the actions of rioters or rebels causing loss or damage. If the state reasonably affords adequate protection it is not responsible: ie. would have to be directed against foreigners not in good faith in order for state to incur responsibility. It is well established principle of IL that no government can be held responsible for an act which the state was not responsible for (US v Iran; Nicaragua v US); that is, for the acts of rebels committed in violation of its authority, where the state itself is not guilty of any breach of good faith or if it was not negligent in suppressing the insurrection. From the facts of the case it would appear that the police were negligent in suppressing the looting. On the basis of Home Missionary Society if this were the case the state would be held responsible. Reparation? It would appear compensation is due in this case. If there is state responsibility the state must make reparations that aim to wipe out all of the consequences of the unlawful event having occurred: Chorzow Factory.

- 6.34 -