It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the exercise of its police powers, they adopt regulations that are aimed at the general welfare. The mere loss of value does not suffice as an expropriation, as the investor still has full ownership and control. In Sporrong case the authorities had imposed a construction ban, which the court held was not sufficiently severe to amount to an expropriation. The tribunal in Tecmad case held that â€˜â€¦the Stateâ€™s exercise of its police power may cause economic damage to those subject to its powers as administrator, without entitling them to any compensation whatsoever is undisputable.â€™ A measure only imposing some higher costs for the company, which does not have the effect of making the property more or less useless for the owner, will not amount to an expropriation. A tribunal held that to establish expropriation, the deprivation of the installation has to be permanent. The governmental measures that are irreversible only amount to an indirect expropriation. The suspension of the mining operation was temporary and therefore does not amount to an indirect expropriation.
The regulatory measures would not constitute a breach of the FET obligation unless the measures amount â€˜to an outrage, to bad faith, to wilful neglect of dutyâ€™. The question of fair and equitable circumstances under normal circumstances does not hold in a situation of an economic and social crisis. The objective interpretation of treaty provisions must contain a significant margin of appreciation for the State applying the particular measure. The doctrine is a standard of deference given to the national authorities to assess a situation because of their better position to understand it. The tribunals in Methanex, Glamis Gold and Chemutra have followed the same approach, hence measures adopted by Emerald Isle must be judged on the basis of this doctrine. The assessment of the reasonableness takes into account not only the facts surrounding the investment, but also the political, socioeconomic, cultural and historical conditions prevailing in the host State. The present jurisprudence has emphasized that the legitimate expectations are based on the legal order of the host state as it stands at the time when the investor acquires the investment. Thus Westaros was aware of the sensitivity of the environmental area and legitimate expectations cannot be invoked as the principle is grounded on the laws existent at the time of the investment decision. Moreover Birnie, Boyle and Redgwell note in discussing the Ogoniland case that corporate crimes and breaches against human rights is a legitimate ground to deny an investor the protection of an international instrument.
Westaros and Emerald Isle are both members to the World Trade Organisation and thereby obligated to abide by all the agreements of WTO. The GATS contains an exception for measures â€˜necessary to protect human, animal or plant life, or health under Article XIV (b). Article XX (b) and XX (g) provides for conditional exceptions to obligations under GATT. These exceptions can be invoked for protecting habitat and conservation of exhaustible natural resources. The necessary interests of Emerald Isle include the protection of Silver Trout, which is the primary basis of the economy and sustainable jobs. Thus suspension of the mining Project is justified under the exceptions provided under the WTO. In the Shrimp Turtle case and EC-Asbestos case, the Appellate Body upheld the right of WTO members to legislate or take measures for the protection of natural resources. Each WTO member state has the right to establish whatever level of health and environmental protection it deems appropriate within its own borders. The measures are applied in conformity with the requirements of the chapeau of Article XX. The introductory clause termed the chapeau, that the exception would be illegal if the measure constitutes a) arbitrary or unjustifiable discrimination b) a disguised restriction on international trade. Both the conditions have been satisfied as the decision of Emerald Isle is neither arbitrary nor constitutes a discriminatory action as the contamination of water bodies was leading to contamination of Silver Trout, an essential interest for the economic activity of Emerald Isle.
The Tribunal in Salini v. Morocco laid down four criterions which must be must to constitute an investment. These include certain duration of the project, contribution to the host state development, contribution of the investor, and existence of operational risk. Applying â€˜Salini testâ€™, the m Applying â€˜Salini testâ€™, the mining project had to be conducted in four phases of which the first phase of mining and refining has commenced. The project had made contribution to the development of Emerald Isle as the Metallic ore would constitute 80% of the total global requirement of Teitallik metal and further the project was being carried out in Emerald Isle for 2.5 years. Hard Rock had won the bid thus it is implied that it had invested in the project and further even the Premier of Emerald Isle in his speech made reference to the investment of $150 billion by Westaros. There was an operational risk involved as Hard Rock had invested a substantial amount of money in the project. The project was operational in Emerald Isle who could have suspended or cancelled the project at any time. Further the risk was materialised when Emerald Isle had suspended the project and Hard Rock started incurring huge monetary losses. Thus the aforementioned argumentation clearly points out that the operations can be regarded as an investment. The objectives of the BTA provide for the fair and equitable treatment to be accorded to the claimant. The violations of the FET standard under customary international law involves whether the purported conduct was arbitrary and against the investorâ€™s legitimate expectations. The respect for the investorsâ€™ legitimate expectations is the most predominant element of the fair and equitable treatment. The tribunal in Tecmad, awarding Mexico to pay compensation to the operator of the landfill, held that â€˜authorities should base their decision on the factors explicitly mentioned in the national environmental legislationâ€™.A stable legal and business environment is an essential element of the fair and equitable treatment, and suspension amounts to its breach, which was guaranteed under the amendment to the legislation of Emerald Isle. Thus the actions of Emerald Isle constitute indirect expropriation of the Mining Project. A lawful expropriation requires the fulfilment of the four conditions to be met: public ining project had to be conducted in four phases of which the purpose, non-discrimination, due process as per the applicable treaty and compensation, which Emerald Isle has not complied with. Under the â€˜Sole Effectsâ€™ doctrine, an expropriation may take place without or regardless of any intention to expropriate on the part of the host State. The doctrine has been applied as the only factor of determining indirect expropriation. Its application in a number of cases represents it as a general principle of international law. The effects of the measures adopted by Emerald Isle have led to substantial losses to Hard Rocks. Under the Chorzow principle in the case of an unlawful expropriation, all the consequences of the illegal act are required to be cleared by entitlement of damages to the investor. The PCIJ had already stated that reparation was indispensible complement of a failure to apply a convention and there is no necessity for this to be stated in the convention itself. Emerald Isle did not adhere to the due process, enshrined under the Article 15 of the Mining Agreement and is therefore liable to compensate and reinstate the status of the investor prior to suspension.
The rule of law and the FET standard comprise of quintessential elements i.e. procedural propriety and due process, which are indispensible to question of justice. The lack of notification of important legal steps and the right to be heard have been considered as a violation of the FET standard. Section 57 (iii) of the MMEIA Act, 1995 requires the EGMA to give a personal hearing to the applicant and follow the principles of natural justice, before cancellation of a prior environmental clearance. Moreover Article 15 under the Mining agreement requires a one month notice before suspension of the Teitallik
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