The European Court of Human Rights: an Arbitration Award Can Be Expropriated

Milorad Majkic

The effect of the European Court of Human Rights (ECtHR) jurisprudence in defining the concept of expropriation is hard to overestimate. Not only are its rulings important for subsequent ECtHR proceedings involving countries stretching from Portugal to Kazakhstan, but they also affect the development of international investment law. For instance, the International Centre for Settlement of Investment Disputes (ICSID) tribunal in Saipem v. Bangladesh quoted ECtHR jurisprudence extensively to analyze the concept of expropriation under international law.

Case summary

The ECtHR held in Kin-Stib that Serbia violated Article 1 of Protocol 1 of the European Convention on Human Rights (European Convention) – the right to peaceful enjoyment of possession – by the partial non-enforcement of an arbitral award issued in favor of Kin-Stib, a company based in the Democratic Republic of Congo, and a former Serbian national Milorad Majkic (picture to the right) .

The ECtHR awarded compensation for non-pecuniary damages, and then proceeded to consider the issue of the lost earnings. The court agreed that the claimant was entitled to the lost earnings which resulted from non-enforcement of the order to let the claimant retake possession of the casino.

em> Expropriation Under International Law

In order to predict possible implications of Kin-Stib, it is important to understand the concept of expropriation and how it can be applied to non-enforcement of arbitral awards by domestic courts.

It is well-established that an expropriation can be affected not only by executive organs, but also by acts of the judiciary attributable to the State. Because of involvement of the courts, non-enforcement of arbitral awards might also give rise to a claim for violation of the right to a fair trial, also known as denial of justice. But if the competent State court has legitimate grounds for non-enforcement or the setting aside of an award, then there can be no claim either for expropriation or denial of justice.

The right to property is protected in international human rights law and particularly by the European Convention. In the ECtHR jurisprudence, the notion of expropriation is used to characterize State actions which in reality remove the owner’s ability to use or dispose of its property.

Protection against an unlawful indirect expropriation has a special meaning in the context of international investment law. The categories of property which can be expropriated by a State extend beyond tangible property to intangible property, such as contractual rights. In theory, rights under an arbitral award constitute intangible property capable of being expropriated. The award is merely a crystallization of the rights arising out of the underlying contract. Therefore, the principles related to expropriation of contractual rights should be applicable to situations when arbitration awards are not enforced.

Not every instance of non-enforcement amounts to an expropriation. It is important to look into the degree of unlawful economic deprivation to determine whether an expropriation has occurred. Mere restrictions on property rights do not constitute takings. Instead, according to the ECHtR, the test for an expropriation requires that the investor has been definitely and fully deprived of the ownership of property. If the investor’s rights have only been substantially reduced, and the situation is not “irreversible,” no “deprivation” has occurred under Article 1 of Protocol 1 of the European Convention. One ICSID Tribunal correctly pointed out that substantial deprivation of an investor’s ability to enjoy the benefits of the arbitration award is not sufficient to amount to expropriation.

There is no clear-cut standard of international law to determine what degree of economic deprivation constitutes expropriation. The most suitable method of determining what kind of interference constitutes a ‘taking’ under international law is to analyze each situation on a case-by-case basis. In the context of enforcement of arbitration awards, the extent of economic deprivation depends on the enforcement prospects of the award. Some arbitral awards can in principle be enforced in more than one jurisdiction, and failure to enforce in one jurisdiction may not completely deprive the award of its value.

Implications of Kin-Stib v Serbia

Failure to enforce an arbitral award amounts to expropriation only if the award is final and enforceable as such, and it is not practically possible to enforce it in another jurisdiction. Therefore, following the logic of Kin-Stib, purely domestic awards are generally capable of being expropriated, provided that they are “enforceable as such.” Awards under the ICSID Convention require a case-by-case analysis of enforcement prospects abroad. Finally, it should not be possible to expropriate awards from the New York Convention because they are not “enforceable as such,” but require recognition by domestic courts.

Click here to read the full version of this article at the web site of American Society for International Law.

Yaraslau Kryvoi