and the expropriation must be made in “good faith”.25
It seems clear that the public purpose requirement would be breached if property were seized for the personal use of a dictator or third party or as a reprisal for another State’s conduct.[26] It is theoretically possible that the termination of a contract by a State due to a financial crisis may be a termination for a public purpose (although this has not been established on the facts in cases to date).27
Two cases in which the State taking was said not to be in the public interest are ADC Affiliate Ltd v The Republic of Hungary[28] and Siemens AG v The Argentine Republic.29
In the former, a 2001 Hungarian decree voided investors’ contracts for the operation and management of the Budapest airport. The airport was subsequently taken over by the State in 2002 but then privatised in 2005. The Hungarian government argued its measures were part of the process for Hungary’s access to the EU and served the strategic interests of the State. However, the tribunal concluded that the taking was not in the public interest. It said the subsequent privatisation of the airport which earned Hungary USD 2.26 billion rendered any public interest argument unsustainable.
In the latter case, the tribunal found there was no evidence of a public purpose because the measures in question, which had the effect of terminating a contract for the provision of national identity cards, were taken to reduce the costs to Argentina of the contract, which had been awarded through public competitive bidding, as part of a change of policy by a new government.
Neither decision should fuel a concern that a State’s right to regulate for a public purpose is being curtailed.
Indeed, according to Newcombe and Paradell, the jurisprudence suggests that States are afforded a wide margin of appreciation in determining whether an expropriation serves a public purpose. To this extent, the concern that the obligation not to expropriate may curtail a State’s right to regulate in the public interest is overstated. However, provided that the relevant State action falls within the more constrained definition of ‘expropriation’ in the TPP (as a consequence of Annex 9-B – discussed below), an expropriation which is legal, for a public purpose, and non-discriminatory must still be subject to prompt, adequate and effective compensation.
Annex 9-B
Annex 9-B circumscribes the meaning of ‘expropriation’.[30] The form of this Annex originates from the US and Canadian Model BITs which were revised in 2004.31
Annex 9-B expressly provides that whether an action by a Party constitutes indirect expropriation requires a casebycase, fact based inquiry that includes consideration of the following factors:
• the economic impact of the government action (although an adverse effect on the economic value of an investment is not sufficient of itself – a clear move away from the oftcriticised “sole effects” doctrine32);
• the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and