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Stockholm International Arbitration Review (SIAR) 2006-3
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US INVESTORS AND EXPROPRIATION UNDER
THE AUSFTA - IS THE PROTECTION
AFFORDED TO INVESTORS ILLUSORY?
Annie L. Phillips*
ABSTRACT
On 1 January 2005 the Australia-United States Free Trade Agreement
came into force, heralding a new chapter in Australian-US trade relations.
Unsurprisingly, the investment chapter of this treaty contains some
protections with respect to direct and indirect expropriations by a contracting
State. However, the treaty lacks an investor-State dispute settlement
mechanism, providing instead for a form of State-State dispute resolution.
This paper considers the protections contained in the AUSFTA with respect
to expropriation and the AUSFTA dispute resolution mechanism - focusing
specifically upon the risk to US investors operating in the Australian
resources industry. It also considers the domestic Australian protections /
remedies available to US investors. Ultimately, it argues that the practical
extent of the protections in the AUSFTA with respect to expropriation are
dramatically undermined by the difficulty that investors will likely face in
enforcing those protections and notes some strategies that can be adopted by
investors to help remedy the apparent lack of protection.
1. Introduction
Expropriatory conduct by a State can destroy the value of an investment
overnight. Notwithstanding the fact that the right to seize private property
is a sovereign right of a State, customary international law requires that a
State’s seizure of property occur in a particular manner. Such customary
principles are now widely replicated in numerous BITs and MITs -
providing a considerably greater level of investment protection and,
consequently, decreasing investors’ exposure to risk. The dispute settlement
procedures that investors have access to also play an important role in
ameliorating that risk. Without an efficient and effective means of enforcing
the protections found within an investment treaty, those protections are of
questionable value.
From the perspective of both investors and States, international
investment arbitration is widely viewed as being a dramatic improvement
from the days where the only means of resolving investment disputes of this
nature was through diplomatic protection. Furthermore, from the perspective
of investors, it is viewed as being vastly better than using an expropriating
State’s courts.1 Indeed, from the perspective of investors, the right to
commence arbitral proceedings against a State in the case of an alleged
"illegal" expropriation2 is "critical".3 Consistent with this view, one Arbitral
Annie L. Phillips, LL.B. (Hons.) / B.A. Australian National University. Annie is a candidate for a LL.M (Mineral Law and Policy) at CEPMLP, University of Dundee, and is an intern at the British Institute of International and Comparative Law.
