It is the case that a deprivation or ‘taking’ of property may occur under international law through interfering by a state in the use of that property or with the enjoyment of its benefits, even where legal title to the property is not directly affected.
While assumption of control over property by the state does not automatically and immediately justify a supposition that the property has been expropriated by the government, thus requiring compensation under international law, such a conclusion is warranted whenever events demonstrate that the owner was deprived of fundamental rights of ownership and it appears that this deprivation is not merely short-lived.
The intent of the government is less important than the impacts of the measures on the owner, and the form of the measures of control or interference is less important than the reality of the impact of same [1984 Iran–US Claims Tribunal].
Whilst the term, expropriation (or taking) is the compulsory acquisition of property by the state, nationalisation is sometimes used for takings affecting a whole sector or industry rather than a single investment. Regulatory (or “indirect”) taking, also known as “creeping expropriation”, refers to regulation that negatively affects the implementation, value or costs and benefits of an investment project to such an extent that this must be deemed to have been expropriated. Regulation is broadly defined to include the enactment and/or implementation of treaties, laws, rules, decrees and other legal instruments [Simon Baughen and Lorenzo Cotula].
In the writer’s view, therefore, the term expropriation is not only the compulsory acquisition of an investor’s assets. It could also be in the form of the withdrawal of some benefits or rights which may render the whole investment unprofitable. This is typically, the act of a government squeezing a project by taxes, regulation, access, or changes in law.
Nigeria, like other less developed countries, has in the past had distrust for foreign investors. The distrust for foreign investors led to the promulgation of anti-investment laws in the 1970s. Specifically, by 1977 the legal basis for expropriation of foreign investor owned assets became the Nigerian Enterprise Promotion Decree which restricted foreign interest in Nigerian registered companies to 40% and 60% respectively, subject to the type of business being undertaken by the relevant company. Beginning from the promulgation of that Decree there was the forced divestment of foreign interest in Nigerian registered companies which exceeded the stated percentages.
The doctrine of regulatory taking was made popular in the United States in 1922 when the court recognized that ‘there will be instances when the government actions do not encroach upon or occupy the property; yet still affect and limit its use to such an extent that a taking occurs. Justice Holmes’ in fact, stated that “while property may be regulated to a certain extent, if a regulation goes too far, it will be recognized as a taking” [Pennsylvania Coal Co V Mahon, 260 US 393 (1922)].
Generally, the security of foreign investments depends to a large extent on whether foreign investors have the right of access to the domestic courts of their host States to challenge the circumstances surrounding the taking/ expropriation of their property, and also on whether they are entitled to due process before their contractual rights can be terminated by their host States.
Under Nigerian law Section 25 of the Nigerian Investment Promotion Council Act (“NIPC”), guarantees investors (both foreign and local) in Nigeria the right of access to the Nigerian courts to challenge the circumstances surrounding the taking of their investments. Specifically, the said section stipulates that any law authorizing expropriation or nationalization in Nigeria must provide for: ‘‘a right of access to the courts for the determination of the investor’s interest or right and the amount of compensation to which he is entitled.’’
On the issue of dispute resolution particularly with regard to foreign investment, the mechanisms established for the settlement of investment disputes by an investment code or investment treaty is important to the protection of foreign investment. In this respect, Section 26 of the NIPC Act specifies the mechanisms for the settlement of investment disputes in Nigeria.
Section 26(2) (b), provides that disputes between foreign investors in Nigeria and the FGN should be settled by arbitration within the framework of any bilateral or multilateral agreement on investment protection having Nigeria and the investor’s home country as parties. Even though the provision under review does not expressly mention the ICSID Convention, Nigeria’s BITs contain self-executing ICSID arbitration clauses.
Thus, Article 9 of the Netherlands-Nigeria BIT which provides for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes (ICSID) between States and Nationals of other States opened for signature at Washington on 18 March, 1965 is apt. Furthermore, it can hardly be contested that, since the ICSID Convention is the only multilateral instrument on the settlement of investment disputes to which Nigeria is a party, section 26(2) (b) contemplates the Convention.
Pursuant to article 25 of the ICSID Convention, the jurisdiction of ICSID tribunals depends first and foremost upon the written consent of the Contracting States to the Convention. The acutely relevant question is whether a foreign investor, whose home country is not a party to a BIT with Nigeria, but is a party to the ICSID convention, can on the basis of the provision of section 26(2) (b) institute ICSID arbitration against the FGN?
Put in another way, does the phrase ‘‘within the framework’’ in the context of the provision of section 26(2) (b) of the NIPC Act amount to Nigeria’s self-executing consent to ICSID’s jurisdiction or does the provision require an extra separate ICSID arbitration implementing agreement between the FGN and the aggrieved foreign investor in order to satisfy the requirement of written consent necessary for the establishment of ICSID’s jurisdiction?
Going by the decision of the ICSID tribunal in the Pyramids case [SPP (Middle East) v Arab Republic of Egypt ICSID Award 20 May 1992, 32 ILM 933 (1993)], the answer seems to be that the relevant provision constitutes Nigeria’s general offer in writing to submit investment disputes with foreign investors in its territory to the ICSID, which is open to foreign investors for acceptance.
In that case, the ICSID tribunal upheld its jurisdiction to entertain the dispute referred to it based on the provision of article 8 of Law No. 43 of 1974 (Egypt’s investment code), which was couched in a language materially similar to section 26(2)(b).
The principle deducible from this decision is that the words ‘‘within the framework of multilateral agreement on investment protection . . .’’ as it is used in section 26(2) (b) of the NIPC Act could be construed to imply Nigeria’s explicit consent to submit investment disputes to the ICSID.
In the writer’s view, judging by the Pyramids case, foreign investors may succeed in dragging Nigeria to the ICSID against its will on the basis of the provisions of the NIPC Act. Little wonder Egypt has amended its own investment code.