the case of the Anglo-Iranian Oil Company (1951–1952), the ICJ stated that, in principle, the court was not competent to adjudicate on the subject.345 Since the moment of this ruling, the right of states to nationalize foreign ownership has gradually gained widespread recognition. In arbitration awards regarding the nationalization of oil companies by Libya, the right to nationalize was confirmed, with references made to relevant UN resolutions. In the Texaco case (1978), it was pointed out that the right to nationalize should be treated as an expression of the territorial sovereignty of a given state.346 Similarly, in the case of Liamco (1981), it was stated that the right of a state to nationalize wealth and natural resources is its sovereign right.347 In the Aminoil case (1982), the court also recognized the state’s right to nationalize and stated that the nationalization of Aminoil as such was lawful and did not violate Kuwait’s obligations to Aminoil as it was part of a consistently implemented Kuwaiti programme aimed at taking control of the entire oil industry.348 In the Amoco ruling (1987) the Iran-United States Court of Claims recognized nationalization as both a fundamental attribute of a sovereign state that cannot be easily derogated, and an important tool of economic policy of both developed and developing countries.349
The recognition of the right to nationalize was reflected in the Draft United Nations Code of Conduct for Transnational Corporations, which stipulated that states have the right to nationalize or expropriate the property of transnational corporations operating in their territory;350 the Seoul Declaration, which states that the state can nationalize, expropriate, and otherwise transfer ownership or rights to real estate, its territory, and its jurisdiction;351 and the World Bank guidelines on the treatment of foreign investment, specifying in negative terms that the State may not expropriate or take over entirely or partially foreign private investments in its territory, or take measures that have similar effects, except when it is in accordance with the applicable legal procedures.352
3.5.2.2 The right to freely determine the conditions of nationalization
Resolution No. 1803 (XVII) specifies that nationalization, expropriation or requisitioning are based on the foundations or considerations of public utility, security and national interests recognized as superior to purely private individual interests, both domestic and foreign.353 The grounds referred to in Resolutions No. 1803 (XVII) and 3171 (XXVIII) may be different. National security, however, is an unquestionable premise. In this case, the state may decide to subject all entities operating in specific sectors of the economy to its control, e.g. in the fields of telecommunications, defense industry, utilities, and even in the oil industry.354 Neither treaty law nor the rulings of international courts and tribunals give grounds for recognizing that expropriating states may freely determine the conditions of expropriation or nationalization.355
In the James case (1986),356 the European Court of Human Rights (ECHR) pointed out that legitimate public interest objectives, such as economic reform measures or measures to achieve greater social justice, could justify interference with property, which proves a wide discretion left to the European states. In the arbitration judiciary, a view was expressed that legitimate expropriation or nationalization must serve public purpose, although sometimes this purpose is additionally qualified. In the Liamco case, referring to the claim that the measures were politically motivated and did not aim to achieve a legitimate public objective, the Tribunal found that there was a general opinion in international theory [sic!] that public utility is not a prerequisite for the legality of nationalization. What is more, the Tribunal stated that natural resources belong to the communities represented by the state rather than to the owner of the land.357 The Texaco ruling recognized the existence of a “public purpose” requirement, while acknowledging that there are difficulties in its assessment.358 Also the Amoco ruling indicates that such a requirement is easily met due to the “wide margin of appreciation” doctrine.359 This thesis is also confirmed in the literature on the subject.360
3.5.2.3 The right to refuse to pay compensation or to determine it freely
On the initiative of developing countries, Resolution No. 88 (XII) included a provision that the measures that states can take to regain their natural resources are the expression of the sovereign power under which every state is responsible for determining the amount of compensation and the procedure for taking such measures.361 Similarly, in Resolution No. 3171 (XXVIII) it was stated that the use of nationalization by states, as an expression of their sovereignty, means that each state has the right to determine the amount of possible compensation and mode of payment.362
There is no evidence in treaty law to support the thesis that the state has the right to withhold compensation or is free to determine the amount of compensation. On the contrary, some treaties provide for the duty to pay compensation and indicate the criteria for the amount of compensation. In many cases, however, acceptance for only “partial” compensation is observable in the natural resources sector, which results from the fact that “full” compensation when it comes to the financial resources and state development plans of the nationalizing state would actually undermine the effect of nationalization.363
Although the principle of quick, proper and effective compensation is popular with regard to bilateral investment agreements (BITs), there are few decisions of courts and international tribunals that would apply it directly in these matters. The Texaco, Aminoil and Ebrahimi364 rulings are examples of references to the “appropriate compensation” formula contained in Resolution No. 1803.365 In the case of INA Corporation v. Iran (1985), the Iran-United States Claims Tribunal noted that in the case of illegal nationalization on large scale, international law gradually approached an assesment that may result in undermining the doctrinal value of any “full” or “appropriate” compensation normally proposed in this case.366 In the view of the Tribunal, the contemporary soft principle of international law on compensation has found the most concrete expression and widespread acceptance in Resolution No. 1803 (XVII). Furthermore, the Tribunal considered that the expressions “appropriate”, “fair”, and “just” define practically interchangeable terms in relation to compensation, since even in the case of the best intentions they inevitably leave a margin of uncertainty and recognition.367
In the case of Ebrahimi v. Iran (1994), the Iran-United States Claims Tribunal stated that although international law undoubtedly determines the duty to compensate for seized property, the theory and practice of international law do not allow to state that “quick, appropriate and effective” compensation is the predominant standard. Rather, customary international law favours the standard of “appropriate” compensation. The gradual appearance of this principle seeks to ensure that the amount of compensation is determined in a flexible way, i.e. taking into account the particular circumstances of each case. The “proper” standard of compensation does not mean, however, that compensation should always be “less than full” or always “partial”. After correct estimation of the full value of the property, the compensation should be set to reflect the relevant facts and circumstances of each case.368
The ad hoc tribunal in the Aminoil case considered the issue of “legitimate expectations” that the investor would have, including the assessment of “excessive profits” in the past, remaining above the “reasonable rate of return” that should be deducted from the amount of compensation.369 The retroactive concept of excessive profits has already been used before, e.g. by the Chilean government during the nationalization of the Andean Mining Company,370 a copper mining enterprise, and by the Libyan government in reference to Bunker Hunt,371 but it met with opposition from the United States372 due to the specificity of oil companies, which – if deprived of excess profits from the business – will not be able to afford exploration and development of other deposits.
