Relationship between State's Right to Regulate, Fair and Equitable Treatment and Expropriation under ECT Treaty Practice

This document discusses the relationship between the State's right to regulate, fair and equitable treatment and the standard of expropriation according to the ECT treaty practice. It also provides advice to Pure Power Ltd and the appropriate justification for filing a complaint against the Federal Authorities of Freeland.

Investment Law -3

Table of Contents
Question 1........................................................................................................................................3
Relationship between the State’s right to regulate, fair and equitable treatment and the
standard of expropriation according to the ECT treaty practice..................................................3
Question 2........................................................................................................................................5
Advice to Pure Power Ltd............................................................................................................5
Dispute mechanism......................................................................................................................5
Appropriate justification for Pure Power Ltd..............................................................................5
Bibliography....................................................................................................................................6

QUESTION 1
The relationship between the State’s right to regulate, fair and equitable treatment and the
standard of expropriation according to the ECT treaty practice
As per international law, expropriation is not legal. In this aspect, the State has rights and powers
to expropriate the asset of local investors as well as foreign investors. Although, lawful
acquisition of the foreign retained property is subject to some rules and regulations1. All the rules
and regulations are generally focused on fair and equitable treatment.
The state has the right to regulate the property of the country and of the foreign country. A
comparison between the treatments is considered valid only if it is made according to the
conditions prescribed in article 102. In this article, there are two essential elements. The first
element is related to the policy norms of contracting parties, and it must be fair and impartial as
defined in article 10. However, the conditions are different for the foreign investor in comparison
to a local investor, as policy objectives may be different. For instance, for maintaining the
reliability of the financial system of a country is the justifiable reason for differential treatment
for a foreign investor.
1 Kyongwha Chung. Emergency Arbitration in Investment Treaty Disputes. Diss.( Harvard Law School,
2016).
2 , Kyongwha Chung. "Emergency Arbitrator Procedure in Investment Treaty Disputes: To
Be or Not To Be." The Journal of World Investment & Trade 20.1 (2019)

ECT is in accordance with the best present treaties for the security of the investment. Article 13
of the Energy charter treaty is related to expropriation3. This article states that the contracting
party of investment is not permitted to the acquisition of the property situated in the boundary of
another contracting party. However, this condition is subject to some exceptions, which is are as
follows –
 If the objective is connected with the public interest.
 Perform by considering the legal process.
 Acquisition of property is not biased
 Coexist with sufficient and real amount of reimbursement.
The amount of reimbursement is based on a fair market price of the investment expropriated,
immediately before the date of Expropriation. If the investor desire, then such fair market value
should be denoted in the freely exchangeable monetary amount on the basis of the market rate of
exchange of that currency4. The relevant date for the exchange rate must be the date of the
valuation of the investment.
Further, the investor who is impacted by the expropriation has right to quick evaluation, as per
the norms of the contracting party, which is acquiring property. This analysis can be done by a
3 , Alejandro Carballo. "Dispute Resolution under the Energy Charter Treaty." Towards a Universal Justice?
Putting International Courts and Jurisdictions into Perspective (2016)
4 Maxim Osadchiy,. "Emergency Relief in Investment Treaty Arbitration: A Word of Caution." Journal of
International Arbitration 34.2 (2017)

legal or knowledgeable and independent expert of the contracting party. It may be related to the
valuation of its investment or the amount of reimbursement according to the standard described
in the above paragraph5.
QUESTION 2
Advice to Pure Power Ltd
In the given scenario, Pure Power Ltd entered into the Build Operate & Transfer agreement with
the region of Westphalia, part of the state of Freeland, for building a large power plant in order to
satisfy the local energy demand. The Pure Power Ltd incorporated in Ireland. Since the country
required the power plant, therefore the federal authorities of Freeland have guaranteed the
company for providing essential planning permits and license. However, after completion of the
power plant, the federal authorities claimed that the company did not comply with rules and
regulations. On the basis of the above evaluation, it has been seen that federal authorities are
acquiring the plant in discriminatory manner. Therefore the Pure Power Ltd. can file a complaint
against the federal authorities for the protection of investment.
Dispute Mechanism
At the time of any investment disputes, both the parties should try to resolve issues by
negotiation and consultation. However, if the dispute is not settled through the negotiation and
consultation, then Pure Power Ltd, on its own behalf or on behalf of the company, can file the
arbitration.
5 , Qinglin Zhang. "Analysis of the impact on sustainable development by investment
regulations in the Energy Charter Treaty." The Journal of World Energy Law & Business 8.6
(2015)

Therefore, Pure Power Ltd can file the complaint with the international centre for settlement of
investment disputes. Further, pure power ltd can also file the dispute with the international
chamber of commerce. ICC governs the management of disputes by following the fair and
unbiased framework. Moreover, ad hoc arbitration also assists the company to solve the issues.
In the ad hoc arbitration, parties are required to select their own arrangement for the appointment
of an arbitrator6. This is a less formal method as compared with the above mechanism.
The pure power ltd should use the ICSID; as it is one of the leading institutes of the world. It
provides suitable approaches for addressing of resolving disputes by arbitration and conciliation
methods on case to case basis. It is the independent and effective dispute resolution mechanism,
which considers the several factors and maintaining the balance between the interests of
contracting parties7.
Appropriate justification for Pure Power Ltd
In the given case, the respondent will be The Federal Authorities of the Freeland. Yes, I think
that encompassing to ICSID under the ECT protection is the most appropriate venue for the Pure
Power Ltd. According to article 10 of the ECT, it is the duty of the state to create and maintain
6 Wei Wang,. "The Non-Precluded Measure Type Clause in International Investment Agreements:
Significances, Challenges, and Reactions." ICSID Review-Foreign Investment Law Journal 32.2 (2017): 447-456
7 Dries Lesage,, and Graaf Thijs Van de. Global energy governance in a multipolar world.
(Routledge, 2016).

the fair, transparent and equivalent conditions of an investment which assist in the protection of
investment8.
In the given study, Federal authorities assured the company regarding all the permits and license,
and after the completion of the project, the authorities acquired the plant. As per the
expropriation clause of the ECT, a contracting party cannot expropriate the property of another
subject to some exception9. However, expropriation by the federal authorities does not fall any
other exception. Therefore the company through the ICSID under the ECT protection can
safeguard its investment.
8 Wendy Miles and Swan Nicola. "Climate Change and Dispute Resolution." Disp. Resol. Int'l 11 (2017):
117.
9 Jonathan Bonnitcha, & et.al. The political economy of the investment treaty regime. (Oxford University
Press, 2017).

BIBLIOGRAPHY
Bonnitcha, J., Lauge N. Skovgaard P, and Michael W. The political economy of the investment
treaty regime. (Oxford University Press, 2017).
Carballo, A. "Dispute Resolution under the Energy Charter Treaty." Towards a Universal
Justice? Putting International Courts and Jurisdictions into Perspective (2016): 264.
Chung, K. "Emergency Arbitrator Procedure in Investment Treaty Disputes: To Be or Not To
Be." The Journal of World Investment & Trade 20.1 (2019): 98-145.
Chung, K. Emergency Arbitration in Investment Treaty Disputes. Diss.( Harvard Law School,
2016).
Feigerlová, M. "Emergency Measures of Protection in International Arbitration." International
and Comparative Law Review 18.1 (2018): 155-177.
Lesage, D, and Thijs Van de G. Global energy governance in a multipolar world. (Routledge,
2016).
Miles, W, and Nicola S. "Climate Change and Dispute Resolution." Disp. Resol. Int'l 11 (2017):
117.
Osadchiy, M. "Emergency Relief in Investment Treaty Arbitration: A Word of Caution." Journal
of International Arbitration 34.2 (2017): 239-255.
Wang, W. "The Non-Precluded Measure Type Clause in International Investment Agreements:
Significances, Challenges, and Reactions." ICSID Review-Foreign Investment Law Journal 32.2
(2017): 447-456.

Zhang, Q. "Analysis of the impact on sustainable development by investment regulations in the
Energy Charter Treaty." The Journal of World Energy Law & Business 8.6 (2015): 542-558.