† Dedication to the English Nation, The Letters of Junius [1769–71], quoted in Bartlett’s Familiar Quotations 1091a (14th ed. 1968).

¹ I shall refer throughout to the “law of expropriation.” Like all legal terms, “expropriation” is imprecise in some respects, but I believe its core meaning is readily understood. A discussion of the possible terminology and its nuances may be found in Seidl-Hohenveldern, Semantics of Wealth Deprivation and Their Legal Significance, in 2 Foreign Investment in the Present and a New International Economic Order 218 (D. Dicke ed. 1987) [hereinafter Foreign Investment]. The literature on the law of expropriation is vast. Useful bibliographies appear in 2 F. V. García-Amador, The Changing Law of International Claims 895–932 (1983); and Higgins, The Taking of Property by the State, 176 Recueil des Cours 259 (1982 II).

² GA Res. 3171 (XXVII), Permanent Sovereignty over Natural Resources, 28 UN GAOR Supp. (No. 30) at 52, UN Doc. A/9030 (1973), reprinted in 13 ILM 238 (1974), was adopted by a vote of 108 to 1, with 16 abstentions. Id. Only 86 states, however, voted for the clause quoted in the text, with 11 opposed and 28 abstaining. Texas Overseas Petroleum Co. & California Asiatic Oil Co. v. Libyan Arab Republic, 17 ILM 1, 29 (1978) (Dupuy, sole arb., 1977) [hereinafter TOPCO].

³ Notably, GA Res. 1803 (XVII), 17 UN GAOR Supp. (No. 17) at 15, UN Doc. A/5217 (1962), reprinted in 57 AJIL 710 (1963), 2 ILM 223 (1963), discussed in text at notes 26–27 infra; GA Res. 3201 (S-VI), Declaration on the Establishment of a New International Economic Order, S-6 UN GAOR Supp. (No. 1) at 3, UN Doc. A/9559 (1974); and GA Res. 3281 (XXIX), Charter of Economic Rights and Duties of States, 29 UN GAOR Supp. (No. 31) at 50, UN Doc. A/9631 (1974), reprinted in 69 AJIL 484 (1975), 14 ILM 251 (1975), discussed in text at note 29 infra. See also Res. 88 of UNCTAD’s Trade and Development Board, 12 UN TDBOR Supp. (No. 1) at 1, UN Doc. TD/B/421 (1972), reprinted in 11 ILM 1474 (1972).

⁴ See, e.g., 2 F. V. García-Amador, supra note 1, at 753–54; Schachter, Compensation for Expropriation, 78 AJIL 121 (1984); Jiménez de Aréchaga, State Responsibility for the Nationalization of Foreign Owned Property, 11 N.Y.U.J. Int’l L. & Pol. 179 (1978); Dolzer, New Foundations of the Law of Expropriation of Alien Property, 75 AJIL 553 (1981); Murphy, Limitations upon the Power of a State to Determine the Amount of Compensation Payable to an Alien upon Nationalization, in 3 The Valuation of Nationalized Property in International Law 49 (R. Lillich ed. 1975) [hereinafter Valuation]. See also Weston, The Charter of Economic Rights and Duties of States and the Deprivation of Foreign-Owned Wealth, 75 AJIL 437 (1981). Not all scholars acknowledge that international law ever required the payment of full compensation. See, e.g., Schachter, supra, at 122–23.

⁵ Restatement (Third) of the Foreign Relations Law of the United States (1987) [hereinafter Restatement (Third)]. On the debate, see Trooboff, The Revised Restatement of the Foreign Relations Law of the United States: Reaffirmation of Established International Legal Principles Governing State Responsibility Toward Foreign Owned Investment, in 1 Foreign Investment, supra note 1, at 201; Clagett & Poneman, The Treatment of Economic Injury to Aliens in the Revised Restatement of Foreign Relations Law, 22 Int’l Law. 35 (1988); Robinson, Expropriation in the Restatement (Revised), 78 AJIL 176 (1984); Schachter, supra note 4, at 121–22.

⁶ In a 1938 dispute over Mexico’s nationalization of foreign-owned oil fields, U.S. Secretary of State Cordell Hull averred that international law required Mexico to pay “prompt, adequate, and effective” compensation. This shorthand summary of the standard claimed by the United States is generally called the “Hull formula.” The diplomatic correspondence is reproduced at 3 G. Hackworth, Digest of International LAW 655–65 (1942).

⁷ Dolzer, supra note 4, at 557–58. See also Lillich, The Current Status of the Law of State Responsibility for Injuries to Aliens, in International Law of State Responsibility for Injuries to Aliens 1, 5–6 (R. Lillich ed. 1983); Baxter, Reflections on Codification in Light of the International Law of State Responsibility for Injuries to Aliens, 16 Syracuse L. Rev. 745, 756 (1965).

⁸ See note 6 supra.

⁹ Restatement (Third), supra note 5, §712.

¹⁰ At least one panel of the Iran-United States Claims Tribunal has similarly equated “full” with “prompt, adequate, and effective” compensation. Sedco, Inc. v. National Iranian Oil Co., ITL 59-129-3 (Mangard, Brower & Ansari Moin, arbs., Mar. 27, 1986), 10 Iran-United States Claims Tribunal Reports [hereinafter Iran-U.S. C.T.R.] 180 (1986 I), 25 ILM 629, 631 (1986) [hereinafter Sedco]. See also Concurring Opinion of Judge Brower, 25 ILM at 647 n.31.

¹¹ Factory at Chorzów (Ger. v. Pol.) (Indemnity), 1928 PCIJ (ser. A) No. 17 (Judgment of Sept. 13).

¹² Id. at 47.

¹³ Id.

¹⁴ See H. Lauterpacht, The Development of International Law by the International Court 15–18 (1958); 1 G. Schwarzenberger, International Law 59–60 (3d ed. 1957).

¹⁵ See M. Hudson, International Tribunals 196 (1944).

¹⁶ Max Huber, in Spanish Zone of Morocco, for example, had recently held that “il peut être considéré comme acquis qu’en droit international un etranger ne peut être privé de sa propriété sans juste indemnité” and awarded as “juste indemnité” the full value of the property. Affaire des Biens britanniques au Maroc espagnol (Gr. Brit. v. Spain), 2 R. Int’l Arb. Awards 615, 647 (Huber, sole arb., 1925). And during the pendency of Chorzów Factory, the arbitrator in Affaire Goldenberg held that “[l]e respect de la propriété privée et des droits acquis des étrangers fait sans conteste partie des principes généraux admis par le droit des gens.” Even where international law authorizes a state to take an alien’s property, “c’est à la condition sine qua non que les biens expropriés ou réquisitionnés seront équitablement payés le plus rapidement possible.” Payment of less than the value of the property was an “acte contraire au droit des gens.” Affaire Goldenberg (Ger. v. Roumania), 2 R. Int’l Arb. Awards 901, 909 (Fazy, sole arb., 1928). See also Delagoa Bay Railway Arbitration (1900), in H. Lafontaine, Pasicrisie Internationale 397 (1902); Norwegian Shipowners Claims (Nor. v. U.S.), 1 R. Int’l Arb. Awards 307, 338 (1922). For cases subsequent to Chorzów Factory following the same general rationale, see Lena Goldfields, Ltd. v. Russia (Judgment of Sept. 3, 1930), reprinted in 36 Cornell L. Rev. 42, 51–52 (1950); Smith v. Compañía Urbanizadora del Parque y Playa de Marianao, 2 R. Int’l Arb. Awards 915, 917–18 (Hale, sole arb., 1929); Shufeldt Claim (U.S. v. Guat.), 2 R. Int’l Arb. Awards 1079, 1099 (Sisnett, sole arb., 1936).

¹⁷ Saudi Arabia v. Arabian American Oil Co., 27 ILR 117 (Sauser-Hall, Badawi/Hassan, Habachy, arbs., 1958) [hereinafter ARAMCO].

¹⁸ Sapphire Int’l Petroleums Ltd. v. National Iranian Oil Co., 35 ILR 136 (1963) (Cavin, sole arb.).

¹⁹ Petroleum Dev. Ltd. v. Sheikh of Abu Dhabi, 18 ILR 144 (1951).

²⁰ Ruler of Qatar v. International Marine Oil Co., 20 ILR 534 (1953).

²¹ The Lighthouses arbitration can arguably be included in this group because it was contemporaneous and involved similar long-term concession agreements. Lighthouses Arbitration (Fr./Greece), 23 ILR 299 (Verzijl, Mestre & Charbouns, arbs., 1956).

²² ARAMCO, 27 ILR at 167–69; Sapphire, 35 ILR at 170–75; Qatar, 20 ILR at 545 (“principles of justice, equity, and good conscience”); Abu Dhabi, 18 ILR at 149 (“principles rooted in the good sense and common practice of the generality of civilized nations—a sort of ‘modern law of nature’”).

²³ See, e.g., ARAMCO, 27 ILR at 172; Sapphire, 35 ILR at 175.

²⁴ ARAMCO, 27 ILR at 191–98, 205, 216–17; Sapphire, 35 ILR at 182–90. The Qatar and Abu Dhabi arbitrations enforced the concessions at issue but turned primarily on whether the continental shelf came within the terms of those concessions, not on the law of expropriation or the enforceability of concession agreements generally. See Abu Dhabi, 18 ILR at 150–57; Qatar, 20 ILR at 162–64.

⁵⁵ For examples of the views of the newly independent states regarding state responsibility, see Guha Roy, Is the Law of Responsibility of States for Injuries to Aliens a Part of Universal International Law?, 55 AJIL 863 (1961); M. Bedjaoui, Toward a New International Economic Order (1979). See also 2 F. V. García-Amador, supra note 4, at 617–714.

²⁶ GA Res. 1803, supra note 3, para. 4.

²⁷ It has been argued that “appropriate” was understood at the time of the debate as being equivalent to both “adequate” and “full.” See Schwebel, The Story of the U.N.’s Declaration on Permanent Sovereignty over Natural Resources, 49 A.B.A.J. 463, 465–66 (1963). Had that been the case, one obviously wonders why the resolutions did not use those terms. In fact, the debate and a series of votes on alternative drafts were quite confused, and it must be assumed that the resulting formulation was the normal product of a political impasse. See Higgins, supra note 1, at 289; M. Akehurst, A Modern Introduction to International Law 94 (6th ed. 1987).

²⁸ GA Res. 3201, supra note 3, para. 4(e).

²⁹ See the Charter, supra note 3, Art. 2(2)(c): Each State has the right:

…

(c) To nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means.

³⁰ See, e.g., Baxter, supra note 7, at 759; 5 C. Rousseau, Droit International Public 248–50 (1983).

³¹ The Libyan cases are summarized in von Mehren & Kourides, International Arbitration Between States and Foreign Private Parties: The Libyan Nationalization Cases, 75 AJIL 476 (1981). See also Gann, Compensation Standard for Expropriation, 23 Colum. J. Transnat’l L. 615, 626-35 (1985).

³² British Petroleum Exploration Co. v. Libyan Arab Republic, 53 ILR 297 (Lagergren, sole arb., 1973).

³³ Id. at 329. Lagergren would subsequently rule on many of the same issues as a member of the Iran-U.S. Claims Tribunal. See text at notes 91–93 infra.

³⁴ The concession contracts at issue in the Libyan oil cases had identical choice-of-law clauses:

This Concession shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles of international law and in the absence of such common principles then by and in accordance with the general principles of law, including such of those principles as may have been applied by international tribunals.

Quoted in von Mehren & Kourides, supra note 31, at 481–82.

³⁵ 53 ILR at 332.

³⁶ Lagergren argued in this regard that Germany had abandoned its claim for return of the factory before bringing the PCIJ case and asked for and was granted only damages. Id. at 337–40. Technically, therefore, he is correct that the Court’s categorical statement that restitutio in integrum is the preferred remedy is only dictum. Nevertheless, most authorities have considered the statement an authoritative exposition of the law. See note 43 infra.

³⁷ 53 ILR at 347.

³⁸ Compare Lagergren’s opinion as an arbitrator of the Iran-U.S. Claims Tribunal. See text at notes 92–93 infra.

³⁹ TOPCO, note 2 supra.

⁴⁰ 17 ILM at 8.

⁴¹ Id. at 32–34.

⁴² See Gann, supra note 31, at 628.

⁴³ 17 ILM at 32, 37. Dupuy acknowledged Lagergren’s point that the Chorzów Factory holding could be considered obiter dictum (see note 36 supra) but said “that the principle was expressed in such general terms that it is difficult not to view it as a principle of reasoning having the value of a precedent.” 17 ILM at 32. Professor Higgins concurs, supra note 1, at 318–19, though she ultimately concludes for other reasons that restitutio in integrum is not an established remedy regarding concessions. Id. at 320.

⁴⁴ 17 ILM at 34–35.

⁴⁵ Id. at 31; see also id. at 22.

⁴⁶ Id. at 30.

⁴⁷ Id.

⁴⁸ Id. at 24.

⁴⁹ Libyan American Oil Co. v. Libyan Arab Republic, 20 ILM 1 (1981) (Mahmassani, sole arb., 1977) [hereinafter LIAMCO].

⁵⁰ The LIAMCO arbitration was therefore unique in that its sole arbitrator was a national of a Third World country. By virtue of his background, Mahmassani also had an unusually thorough knowledge of Islamic law, which is reflected in the discussion of Libyan law in the opinion.

⁵¹ 20 ILM at 54–56, 68. For a critique of Mahmassani’s approach in this regard, see Lieblich, Determinations by International Tribunals of the Economic Value of Expropriated Enterprises, 7 J. Int’l Arb. 37, 46–51 (1990). Lieblich argues that Mahmassani should have applied a discounted cash flow (DCF) analysis to LIAMCO as a going enterprise.

⁵² 20 ILM at 70.

⁵³ Id. at 53.

⁵⁴ Id. at 71–72.

⁵⁵ Id. at 63–64.

⁵⁶ Id. at 86.

⁵⁷ Id. at 75–76.

⁵⁸ Id. at 76.

⁵⁹ See Lieblich, supra note 51, at 51; Gann, supra note 31, at 631–33; Clagett, Just Compensation in International Law: The Issues Before the Iran–United States Claims Tribunal, in 4 The Valuation of Nationalized Property 31 (R. Lillich ed. 1987).

⁶⁰ 20 ILM at 81. Professor Bowett argues that Mahmassani did not, in fact, award lost profits. Bowett, Claims Between States and Private Entities: The Twilight Zone of International Law, 35 Cath. U.L. Rev. 929, 936 (1986). Lieblich, supra note 51, at 51 n.67, correctly explains why Bowett misconceives the LIAMCO decision in this regard.

⁶¹ Kuwait and American Independent Oil Co., 66 ILR 519, 21 ILM 976 (1982) (Reuter, Sultan & Fitzmaurice, arbs., 1982) [hereinafter AMINOIL].

⁶² 66 ILR at 587. The tribunal thus rejected Kuwait’s argument that the concession had a “colonial” character because it was executed while Kuwait was still a British protectorate.

⁶³ Id. at 566–94.

⁶⁴ Sir Gerald Fitzmaurice had dissented, arguing that the stabilization clause had not, in fact, been amended, and that Kuwait’s nationalization decree was therefore unlawful because it violated the terms of the concession agreement. Fitzmaurice joined the other tribunal members, however, in concluding that AMINOIL was entitled to “appropriate compensation,” despite his view that the ex-propriation was unlawful. Id. at 602–08; Separate Opinion of Sir G. Fitzmaurice, id. at 614.

⁶⁵ 66 ILR at 602–03.

⁶⁶ Id. at 604.

⁶⁷ Id. at 605–07.

⁶⁸ Id. at 611–13.

⁶⁹ Id. at 560–62.

⁷⁰ Id. at 601.

⁷¹ On the Tribunal generally, see Caron, The Nature of the Iran–United States Claims Tribunal and the Evolving Structure of International Dispute Resolution, 84 AJIL 104 (1990); Clagett, supra note 59; Brower, Current Developments in the Law of Expropriation and Compensation: A Preliminary Survey of Awards of the Iran–United States Claims Tribunal, 21 Int’l Law. 639 (1987); The Iran-United States Claims Tribunal 1981–1983 (R. Lillich ed. 1984); Brower & Davis, The Iran-United States Claims Tribunal After Seven Years: A Retrospective View from the Inside, 43 Arb. J. 16 (1988); Selby & Stewart, Practical Aspects of Arbitrating Claims before the Iran–United States Claims Tribunal, 18 Int’l Law. 211 (1984); Stewart & Sherman, Developments at the Iran–United States Claims Tribunal: 1981–1983, 24 Va. J. Int’l L. 1 (1983). A fuller bibliography may be found in Ziadé, Selective Bibliography on the Iran–United States Claims Tribunal, 14 Y.B. Com. Arb. 466 (1989).

⁷² The Declaration of the Government of the Democratic and Popular Republic of Algeria concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran, Art. II(1), gave the Tribunal jurisdiction over disputes then outstanding between U.S. nationals and the Government of Iran arising out of “expropriations or other measures affecting property rights.” 1 Iran-U.S. C.T.R. 9 (1981–2), 20 ILM 231 (1981), 75 AJIL 423 (1981).

⁷³ Aug. 15, 1955, 8 UST 899, TIAS No. 3853, 284 UNTS 93 (emphasis added).

⁷⁴ The applicability of Article IV(2) of the Treaty to expropriation claims against Iran was decided in Phelps Dodge Corp. v. Iran, AWD 217-99-2 (Briner, Aldrich & Bahrami-Amadi, arbs., Mar. 19, 1986), 10 Iran-U.S. C.T.R. 121 (1986 I), 25 ILM 619, 626-27 (1986). That holding was consistently followed in subsequent rulings by all Chambers.

⁷⁵ See, e.g., Brower, supra note 71, at 660–61; Clagett, supra note 59, at 34–35.

⁷⁶ American Internat’l Group and Islamic Republic of Iran, AWD 93-2-3, slip op. at 14–15, 21 (Mangard, Mosk & Ansari Moin, arbs., Dec. 19, 1983), 4 Iran-U.S. C.T.R. 96 (1983 III) [hereinafter AIG].

⁷⁷ Tippetts, Abbett, McCarthy, Stratton and TAMS-AFFA, AWD 141-7-2, slip op. at 9 (Riphagen, Aldrich & Shafeiei, arbs., June 22, 1984), 6 Iran-U.S. C.T.R. 219 (1984 II) [hereinafter TAMS]. The claimant in TAMS, however, only requested, and was awarded, the dissolution value of its business. Id., slip op. at 15.

⁷⁸ Sola Tiles, Inc. v. Iran, AWD 298-317-1, slip op. at 15–16 (Böckstiegel, Holtzmann & Mostafavi, arbs., Apr. 22, 1987), 14 Iran-U.S. C.T.R. 223 (1987 I).

⁷⁹ Id., slip op. at 16–19.

⁸⁰ Id. at 19.

⁸¹ Sedco, 25 ILM at 634–35.

⁸² Amoco Int’l Fin. Corp., AWD 310-56-3, slip op. at 90 (Virally, Brower & Ansari Moin, arbs., July 14, 1987), 15 Iran-U.S. C.T.R. 189 (1987 II) [hereinafter AIFC].

⁸³ Id., slip op. at 115.

⁸⁴ The majority opinion was written by Virally and concurred in by Brower, with a dissent as to how going concern value should be calculated in cases of lawful expropriation. Id., Concurring Opinion of Judge Brower [hereinafter Brower], Virally argued that the difference in the standard of compensation in cases of lawful versus cases of unlawful expropriation is that “if the taking is lawful the value of the undertaking at the time of the dispossession is the measure and the limit of the compensation, while if it is unlawful, this value is, or may be, only a part of the reparation to be paid.” AIFC, supra note 82, slip op. at 84. On the basis of an analysis of questions put by the Chorzow Factory Court to an expert inquiry, he concluded that the “something extra” in cases of unlawful expropriation is lucrum cessans. Id. at 86. Although Virally acknowledged that cases of lawful expropriation required valuation of the expropriated enterprise as a “going concern” and that this included the concern’s “future prospects,” he maintained that these “future prospects” were not the same as “future profits” or lucrum cessans. Id. Virally offered no explanation, however, of what “future prospects” mean if they do not include “future profits.”

Brower construed Chorzów Factory as presenting a “simple scheme”:

If an expropriation is lawful, the deprived party is to be awarded damages equal to “the value of the undertaking” which it has lost, including any potential future profits, as of the date of taking; in the case of an unlawful taking, however, either the injured party is to be actually restored to enjoyment of his property, or, should this be impossible or impractical, he is to be awarded damages equal to the greater of (i) the value of the undertaking at the date of loss (again including lost profits), judged on the basis of information available as of that date, and (ii) its value (likewise including lost profits) as shown by its probable performance subsequent to the date of loss and prior to the date of the award, based on actual post-taking experience, plus (in either alternative) any consequential damages.

Brower, supra, at 17–19. For a fuller analysis of the AIFC opinions generally endorsing Brower’s view, see Lieblich, supra note 51, at 57–67.

⁸⁵ Phillips Petroleum Co. Iran v. Iran, AWD 425-39-2, slip op. at 61–62 (Briner, Aldrich & Khalilian, arbs., June 29, 1989), 21 Iran-U.S. C.T.R. 79 (1989 I). Briner and Aldrich endorsed Brower’s reading of Chorzów Factory and rejected Virally’s. Although the rulings of one Chamber of the Tribunal are not necessarily binding on the others, the Brower and Phillips Petroleum discussions are persuasive and should resolve the issue.

⁸⁶ Payne v. Iran, AWD 245-335-2 (Briner, Aldrich & Bahrami-Amadi, arbs., Aug. 8, 1986), 12 Iran-U.S. C.T.R. 3 (1986 III).

⁸⁷ Phelps Dodge, 25 ILM at 626–27.

⁸⁸ INA Corp. v. Iran, AWD 184-161-1 (Lagergren, Holtzmann & Ameli, arbs., Aug. 12, 1985), 8 Iran-U.S. C.T.R. 373 (1985 I).

⁸⁹ Id., slip op. at 8.

⁹⁰ Id., Separate Opinion of Judge Lagergren at 5 [hereinafter Lagergren].

⁹¹ Id. at 8.

⁹² Id. at 9–11.

⁹³ INA, supra note 88, Separate Opinion of Judge Holtzmann [hereinafter Holtzmann]. There are significant concurrences by the American arbitrators in many of the Tribunal’s expropriation decisions. Since those concurrences generally affirm the majority opinions in more emphatic terms, particularly emphasizing the applicability of the Treaty, I do not examine them in detail here. See Brower, supra note 84; AIG, supra note 76, Concurring Opinion of Richard M. Mosk [hereinafter Mosk]; Sedco, Separate Opinion of Judge Brower, 25 ILM at 636; ITT Industries, Inc. v. Iran, AWD 47-156-2 (May 26, 1983), Concurring Opinion of Judge Aldrich, 2 Iran-U.S. C.T.R. 348, 354 (1983 I) (“the applicable rules of international law [governing compensation for a taking] are not significantly different whether the Treaty applies or not”).

⁹⁴ See, e.g., TAMS, supra note 77, Supplementary Comments by Dr. Shane Shafeiei on His Non-Signature of the Award in Case No. 7, slip op. at 18’19.

⁹⁵ See, e.g., id.; Phillips Petroleum, supra note 85, Statement by Judge Khalilian as to Why it Would Have Been Premature to Sign the Award (June 30, 1989).

⁹⁶ INA, supra note 88, Dissenting Opinion of Judge Ameli [hereinafter Ameli]. In some of the Tribunal cases dealing with expropriation, there are no dissents or the dissents are confined entirely to the facts or valuation methodologies. (See, e.g., Phelps Dodge, supra note 74, and Payne, supra note 86.) One could infer the concurrence of the Iranian arbitrator in these opinions. In light of Iran’s general position throughout the arbitrations, however, such an inference would almost certainly be unjustified.

⁹⁷ Ameli, supra note 96, at 7.

⁹⁸ Id. at 9.

⁹⁹ Id. at 11–15.

¹⁰⁰ Id. at 11.

¹⁰¹ Id. at 11–18.

¹⁰² Id. at 12–13.

¹⁰³ Id. at 21.

¹⁰⁴ A third ICSID case affirmed a full value compensation standard but was vacated on other grounds. See Amco Asia Corp. v. Republic of Indonesia, No. ARB/81/1 (Goldman, Foighel & Rubin, arbs., Nov. 20, 1984), 24 ILM 1022 (1985). Two American investment companies brought an arbitration against the Government of Indonesia for breach of an investment agreement, wrongful revocation of an investment license, and expropriation of the claimants’ interests in a hotel. Although the panel’s holdings were subsequently vacated by an ICSID committee on the ground that the panel had failed to apply Indonesian law properly, its holdings on international law were not vacated and are worth noting. The tribunal, citing GA Resolution 1803, held that under international law nationalization of alien property requires the payment of compensation. On the facts before it, however, the tribunal concluded that neither the Indonesian Army’s assistance in turning the hotel in question over to private Indonesian interests nor the revocation of the company’s license constituted an expropriation stricto sensu under international law. The army’s actions did constitute a failure to protect alien property, giving rise to an internationally wrongful act attributable to the Government of Indonesia. Likewise, the Government’s breach of the company’s investment contract violated the principles of pacta sunt servanda and respect for acquired rights, giving rise to compensable claims under international arbitral practice. Citing Chorzów Factory and a series of other international arbitral precedents, the tribunal granted “damages calculated to fully compensate the prejudice suffered by the claimants.” It calculated these damages by the DCF method applied to the investment as a “going concern.” The decision vacating the award of Nov. 20, 1984, is reprinted in 25 ILM 1441 (1986) and summarized in 81 AJIL 222 (1987). A preliminary ruling of a second arbitration panel in the case is summarized in 83 AJIL 106(1989).

¹⁰⁵ Benvenuti et Bonfant v. People’s Republic of the Congo, 21 ILM 740 (1982) (Trolle, Bystricky & Razafindralambo, arbs., 1980).

¹⁰⁶ In this regard, the tribunal followed Article 42(1) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature Mar. 18, 1965, 17 UST 1270, TIAS No. 6090, 575 UNTS 159. On the tribunal’s application of Article 42(1), see 21 ILM at 752.

¹⁰⁷ 21 ILM at 758.

¹⁰⁸ Id. at 758–61.

¹⁰⁹ The tribunal appointed an independent expert to calculate damages, who attempted to calculate present value on the basis of “projected receipts.” Id. at 759–60. The expert decided, however, that this method was inappropriate because the respondent was able to fix prices for the joint venture’s products, and the tribunal agreed. Id. at 760.

¹¹⁰ Id.

¹¹¹ AGIP Co. v. Popular [sic] Republic of the Congo, 21 ILM 726 (1982) (Trolle, Dupuy & Rouhani, arbs., 1979).

¹¹² Id. at 731.

¹¹³ Id. at 736. The tribunal also recognized the right of a state under international law to nationalize the rights of aliens but considered that right to have voluntarily been limited by the conclusion of an investment agreement with a stabilization clause. Id. at 735.

¹¹⁴ Congolese law for these purposes incorporated Article 1149 of the French Code civil. AGIP requested only nominal damages for lost profits. 21 ILM at 737.

¹¹⁵ Mahmassani rejected, in principle, full compensation as the generally applicable standard on the ground that recent developments, including the NIEO and Charter resolutions and lump sum settlements, had changed the law. See text at notes 49–60 supra. For this reason LIAMCO must be regarded as an exception to the other opinions examined here. At the same time, Mahmassani acknowledged that full compensation might sometimes be appropriate, though he offered no criteria for determining when that might be. 20 ILM at 86. The LIAMCO opinion is replete with such unexplained inconsistencies and non sequiturs. See also text at notes 59–60 supra.

¹¹⁶ Professor Schachter, supra note 4, at 122–23, argued several years ago that the failure of arbitral tribunals to incant the Hull formula in haec verbis was significant. Professor Mendelson effectively dismissed this rather formalistic semantic argument in Compensation for Expropriation: The Case Law, 79 AJIL 414 (1985). Subsequent decisions of the Iran-U.S. Claims Tribunal have, in any event, laid this issue to rest by expressly equating “full compensation” with the “prompt, adequate, and effective” Hull language, and holding that this remains the applicable standard under international law. See, e.g., Sedco, 25 ILM at 631.

¹¹⁷ See text at notes 82–84, and note 84 supra.

¹¹⁸ See note 84 supra.

¹¹⁹ None of these opinions endorses the extreme view of the Charter that international law is inapplicable, but each endorses a compensation standard under that law of less than full value.

¹²⁰ See LIAMCO, 20 ILM at 70; Lagergren, supra note 90, at 1; Ameli, supra note 96, at 12.

¹²¹ Mahmassani also differed in treating the deliberate abrogation of a contract with a stabilization clause as lawful. 20 ILM at 73. Since he apparently regarded Libya’s failure to compensate LIAMCO as confiscatory and a separate basis for unlawfulness (id.), this difference had no effect on his application of a compensation standard to the lawful/unlawful distinction.

¹²² See TOPCO, 17 ILM at 23; AMINOIL, 66 ILR at 569–71.

¹²³ See, e.g., AMINOIL, 66 ILR 519 passim (discussing changes in the international oil market and their effects on the “contractual equilibrium” of AMINOIL’s concession); Phillips Petroleum, supra note 85, slip op. at 64–86 (taking into account the impact of the Iranian Revolution on ability to produce and market oil and likely future oil prices); Sola Tiles, supra note 78, slip op. at 24–25 (also considering the impact of the Iranian Revolution on the claimant’s market); TAMS, supra note 77, slip op. at 8–10 (considering which events during the Iranian Revolution should be deemed to constitute a “taking”); Payne, supra note 86, slip op. at 17 (noting that the U.S. embargo of Iran for political reasons would have made the claimant’s business less profitable); TOPCO, 17 ILM at 23 (state’s adherence to concession might be vitiated by duress); AMINOIL, 66 ILR at 569–71 (company’s purported agreement to amendment of contract could have been vitiated by duress).

¹²⁴ 20 ILM at 86.

¹²⁵ Lagergren, supra note 90, at 8.

¹²⁶ Thus, Ameli, supra note 96, at 12, said that “appropriate” compensation for lawful expropriations “may allow for less than the full value of the property taken” (emphasis added).

¹²⁷ The principal focus has generally been on the capacity of the expropriating state to pay, with some observers apprehending that a full compensation standard would confront developing states with the Hobson’s choice of either paying full compensation or forgoing fundamental economic structural reform. See, e.g., Girvan, Expropriating the Expropriators: Compensation Criteria from a Third World Viewpoint, in 3 Valuation, supra note 4, at 149, 173; Kuhn, Nationalization of Foreign-Owned Property in Its Impact on International Law, 45 AJIL 709, 710 (1951). Even some relatively conservative scholars have concluded that in extreme cases international law might not require full compensation. See, e.g., 1 L. Oppenheim, International Law 352–54 (8th ed. H. Lauterpacht 1955) [hereinafter Oppenheim/Lauterpacht]; Dolzer, supra note 4, at 578; C. DE Visscher, Théories et réalités en droit international public 219–20 (4th ed. 1970). See also Schachter, supra note 4, at 123–24. Others have denied that the expropriating state’s poverty justifies partial payment but have accepted deferred payment terms. See Sohn & Baxter, Convention on the International Responsibility of States for Injuries to Aliens, in Recent Codification of the Law of State Responsibility for Injuries to Aliens 135, 212–13 (F. V. García-Amador, L. Sohn & R. Baxter eds. 1974). Others have argued that the investor’s profits should be taken into account, and that the focus should be avoiding “unjust enrichment” of either party. See, e.g., Jiménez de Aréchaga, supra note 4; Friedmann, The Uses of “General Principles” in the Development of International Law, 57 AJIL 279 (1963), reprinted in International Law in the Twentieth Century 246, 262–66 (L. Gross ed. 1969). See also 2 D. O’Connell, International Law 780–84 (2d ed. 1970).

¹²⁸ This is consistent with Oppenheim/Lauterpacht (supra note 127) and De Visscher (supra note 127), who similarly supported full compensation in discrete cases but suggested that wholesale nationalizations might allow partial compensation. The Restatement (Third) also notes, but does not endorse, the theory that “national programs of agricultural land reform” may be “exceptional circumstances” justifying less than full compensation. It specifically excludes from “exceptional” circumstances (1) a business “authorized or encouraged by the state”; (2) an enterprise “taken for operation as a growing concern by the state”; (3) expropriations discriminating against aliens; and (4) “wrongful” takings. Restatement (Third), supra note 5, §712 comment d.

¹²⁹ See, e.g., Sedco, 25 ILM at 635.

¹³⁰ It is possible, of course, that no dispute thus far brought to arbitration has involved an expropriating state whose economic circumstances warranted the application of a standard other than full compensation. The scale and nature of Iran’s expropriations, however, impel one to question this explanation for the silence of recent tribunals. It is surely legitimate to ask: if Iran’s 1979 revolution and nationalization of billions of dollars in foreign investments were not, in Lagergren’s words, a “radical economic restructuring” justifying a “discount” from fair market value, what would be? Under normal circumstances, one might surmise that Iran’s status as a petroleum producer might be relevant since Iran could be presumed to afford even the largest expenditures necessary to pay for nationalizations in full. At the time of the INA decision (1985), however, Iran was in the midst of an extremely expensive and debilitating war with Iraq. Nevertheless, not even Lagergren or Ameli suggested that Iran’s financial circumstances were in any way relevant to the amount of compensation. Indeed, no arbitrator in any decision of the Iran-U.S. Claims Tribunal has.

¹³¹ Ameli cited a list of factors offered by former ICJ President Jiménez de Aréchaga as relevant to reducing the value of an expropriation:

Whether the initial investment has been recovered, whether there has been undue enrichment as a result of a colonial situation, whether the profits obtained have been excessive, the contribution of the enterprise to the economic and social development of the country, its respect for labor laws and its reinvestment policies.

Ameli, supra note 96, at 20 (quoting Jiménez de Aréchaga, International Law in the Past Third of a Century, 159 Recueil des Cours 34, 185 (1978 I)). All of these factors concern the investor’s profits or the contribution of the investment to the host state’s economy. Many, however, are of doubtful relevance. Colonial-era investment agreements have long since become a moot point. See text at notes 158–64 infra. The foreign investor’s “respect for labor laws and … reinvestment policies” and the “contribution of the enterprise to the economic and social development of the country” beg more questions than they answer. If the investor transgressed local laws, presumably there would be applicable remedies under those laws; in the absence of such transgressions and related remedies, it is difficult to find persuasive arguments for devaluing the investment. And if a condition to the investment was a contribution to the host country’s development or certain forms of reinvestment, those terms should have been articulated somewhere—in the host country’s laws or in the investment agreement—so that the investor would have the opportunity to comply with them, and a court or arbitration tribunal would be able to enforce them. This may explain why no tribunal has applied these considerations; and, indeed, aside from Ameli’s citation of Jiménez de Aréchaga, why no arbitrator of any viewpoint has even suggested their hypothetical applicability.

¹³² Lagergren, supra note 90, at 9.

¹³³ 20 ILM at 81. Mahmassani characterized the parties’ estimates of LIAMCO’s probable profits as “exaggerated extremes” and, with no explanation, chose an intermediate figure.

¹³⁴ See, e.g., Sola Tiles, supra note 78, slip op. at 19; Phillips Petroleum, supra note 85, slip op. at 62–63; AMINOIL, 66 ILR at 604.

¹³⁵ 66 ILR at 551–55.

¹³⁶ Id. at 607–08.

¹³⁷ This is the way most commentators have interpreted it. See Clagett, supra note 59, at 66; Gann, supra note 31, at 638; Lieblich, supra note 51, at 51–53.

¹⁵⁸ The tribunal construed a draft agreement proffered by AMINOIL and conditioned on Kuwait’s enactment of specific tax legislation and formal ratification as a binding agreement. 66 ILR at 552–54.

¹⁵⁹ The key condition was apparently Kuwait’s enactment of tax legislation that would have entitled AMINOIL to credit its Kuwaiti taxes against its U.S. taxes. Id. at 552–53. The AMINOIL opinion does not discuss precisely how much was at stake, but indicates that the proposed Kuwaiti tax rate was 80% (id. at 552), and that AMINOIL’s after-tax profits in the immediately following years were in the $24–40.6 million range. Id. at 554. (The published opinion actually says $24–40.6 billion, but this can only be an error. See, e.g., figures in id. at 556.) Kuwait’s failure to enact the legislation must therefore be presumed to have cost the company millions of dollars.

¹⁴⁰ Id. at 603.

¹⁴¹ See Restatement (Third), supra note 5, §712.

¹⁴² See discussion in, e.g., Higgins, supra note 1, at 272–78; Lillich, supra note 7, at 10; Dolzer, supra note 4, at 569; F. Dunn, The Protection of Nationals 22–24 (1932).

¹⁴³ See, e.g., Ameli, supra note 96, at 22–24; Lagergren, supra note 90, at 5–6.

¹⁴⁴ Wolfgang Friedmann, in particular, argued that French administrative law treats concession contracts involving natural resources as a legally distinct category of contract with respect to which the state enjoys unusual prerogatives, and that international law should similarly treat concession contracts with foreign investors. Friedmann, supra note 127, at 257–60; idem., The Changing Structure of International Law 201–04 (1964). Friedmann argued that when the French Government terminates a contrat administratif, the private party is not entitled to lost profits as an element of damages. The French system of administrative law, however, is considerably more complex than Friedmann suggests. In most instances, a contract is a contrat administratif either by its terms or by statute, and the economic terms of the contract presumably reflect this. French law provides, more over, a comprehensive system of administrative and judicial remedies that protect the private party’s interests. See Curtis, The Legal Security of Economic Development Agreements, 29 Harv. Int’l L.J. 317, 334–36 (1988). See also TOPCO, 17 ILM at 25.

¹⁴⁵ Higgins, supra note 1, at 307–09, 349–52, notes that the UK Government reserved the absolute right to modify petroleum licenses with foreign nationals by subsequent legislation, without compensation, and argued that this did not violate international law. See also Bowett, supra note 60, at 935 n.23. Higgins notes similar practices in Australia (at 339–40) and Canada (at 352–53). Litigation arising out of the United Kingdom’s 1977 expropriation of the shipbuilding and aircraft industries is discussed at note 154 infra.

¹⁴⁶ See, e.g., Friedmann, supra note 127, at 260; Bowett, supra note 60, at 934–35. As with the analogies to French administrative law, supra note 144, this argument both oversimplifies and misconceives U.S. government contract law. See Curtis, supra note 144, at 336–37. U.S. government contracts include an express reservation of the right to modify or terminate the contract and the remedies of the private party for such actions. See, e.g., 48 C.F.R. pt. 52.243-1 (1990). Thus, the economic terms of the contract necessarily reflect those sovereign prerogatives, which is quite different from reading such prerogatives into a contract that is otherwise silent or, as is most often the case in foreign investments, includes a stabilization clause in which the sovereign explicitly renounces such prerogatives.

¹⁴⁷ The only prerogative generally granted to states is that they are not ordered to perform their contracts. Damages must suffice as a remedy. BP, 53 ILR at 354; LIAMCO, 20 ILM at 62–64; AMINOIL, 66 ILR at 589–91. The sole exception in this regard is TOPCO, where Dupuy found restitutio in integrum in the form of specific performance to be applicable to states. 17 ILM at 32–36.

¹⁴⁸ See TOPCO, 17 ILM at 25 (“nationalization is a measure which falls outside the public authority prerogatives recognized by the theory of administrative contracts”); LIAMCO, 20 ILM at 62 (“in some legal systems … administrative law recognizes the right of the State to redeem … the concession, but on condition to pay [sic] an indemnity”). But see AMINOIL, 66 ILR at 590 (concession “one of those contracts in regard to which, in most legal systems, the State, while bound to respect the contractual equilibrium, enjoys special advantages”).

¹⁴⁹ The classical doctrine was concisely summarized by the Permanent Court of International Justice in Mavrommatis Palestine Concessions, 1924 PCIJ (ser. A) No. 2, at 12 (Judgment of Aug. 30):

It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another State, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights—its right to ensure, in the person of its subjects, respect for the rules of international law.

The question, therefore, whether the present dispute originates in an injury to a private interest, which in point of fact is the case in many international disputes, is irrelevant from this standpoint. Once a State has taken up a case on behalf of one of its subjects before an international tribunal, in the eyes of the latter the State is sole claimant.

See also E. Borchard, The Diplomatic Protection of Citizens Abroad 356–57 (1916).

¹⁵⁰ See, e.g., 2 D. O’Connell, supra note 127, at 1029–31.

¹⁵¹ On this confusion in the nature of the applicable law before the Iran-U.S. Claims Tribunal, see Caron, supra note 71, at 129–51.

¹⁵² Ameli, supra note 96, at 22–23.

¹⁵³ These considerations could be mitigated if the foreign investor had been present in the jurisdiction for a long period of time, had partaken of the political benefits of that jurisdiction, and, possibly, had participated in local politics. See Sohn & Baxter, supra note 127, at 157; Dolzer, supra note 4, at 583–84. Moreover, as international businesses become increasingly transnational in their ownership, management, and work forces, it becomes increasingly difficult to identify their true “nationality” for these purposes. See R. Reich, The Work of Nations 136–54 (1991).

¹⁵⁴ Case of Lithgow and Others, 102 Eur. Ct. H.R. (ser. A) (1986), summarized in 81 AJIL 425 (1987). One British national and nine companies incorporated and registered in the United Kingdom argued that their compensation under the Aircraft and Shipbuilding Industries Act was inadequate and hence a violation of Article 1, paragraph 1 of Protocol No. 1 of March 20, 1952, to the European Convention for the Protection of Human Rights and Fundamental Freedoms, Nov. 4, 1950, 213 UNTS 221, which provides that “[n]o one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.” 213 UNTS at 262. The Court’s holding that this right, and the consequent right to “prompt, adequate, and effective” compensation, is inapplicable to nationals was consistent with earlier rulings of the European Commission on Human Rights. See Higgins, supra note 1, at 363–75.

¹⁵⁵ See Ameli, supra note 96, at 23–24; Lagergren, supra note 90, at 5–6. At the time of the INA decision, Lithgow was still pending before the European Court of Human Rights. Ameli and Lagergren could not have known, therefore, that the Court would explicitly distinguish the rights of nationals and aliens. As Holtzmann noted in his opinion, however, all parties to the Lithgow proceeding had already recognized the distinction and had stipulated that if general international law applied to the United Kingdom’s nationalization, “prompt, adequate, and effective” compensation would have been required. Holtzmann, supra note 93, at 10 n.10.

¹⁵⁶ The AMINOIL award, for example, indicates no basis whatsoever for its calculations. See 66 ILR at 604–05. Cf. Lieblich, supra note 51, at 51–53 (tribunal “said disappointingly little about the specific manner in which the compensation awarded Aminoil had actually been calculated”). Similarly, in LIAMCO, Mahmassani chose a figure between those offered by the parties and gave no explanation at all. 20 ILM at 159–60. Much the same can be said of many of the decisions of the Iran-U.S. Claims Tribunal. See, e.g., AIG, supra note 76, slip op. at 22 (dismissing the parties’ valuations and making an “approximation” with no further explanation).

¹⁵⁷ Numerous examples could be cited. To note only the most egregious: AMINOIL’s questionable application of a conditional agreement is discussed in the text at notes 135–40 supra. Professor Higgins, supra note 1, at 304, also criticizes the tribunal’s treatment of the AMINOIL concession’s stabilization clause as “implausible as a matter of construction and unpersuasive as a matter of reasoning.” In AIFC, Virally’s finding of the effective date of the taking appears deliberately intended to avoid the conclusion that the taking was unlawful. See Brower, supra note 84, at 2–4. The inadequacy of Virally’s theory of damages for lawful takings is discussed at note 84 supra. In LIAMCO, Mahmassani, again in order to avoid a finding of unlawfulness, held that Libya’s nationalizations were not made for political purposes. 20 ILM at 60. This conclusion directly contradicts the known facts, as evidenced by the contrary holdings of Lagergren (BP, 53 ILR at 329) and Ameli (supra note 96, at 18 n.23).

¹⁵⁸ Article 10 of the UN Charter authorizes the General Assembly to make only nonbinding recommendations. Some authorities, however, find evidence in General Assembly resolutions of preexisting law where the resolution was adopted by a consensus and purports by its terms to represent that law. See, e.g., Higgins, supra note 1, at 293. This is the rationale for recent tribunals’ acceptance of Resolution 1803 as manifesting the state of the law at the time of its adoption and their rejection of subsequent resolutions. See p. 498 infra.

¹⁵⁹ The AMINOIL concession, for example, was for 60 years. 66 ILR at 548.

¹⁶⁰ See, e.g., Asante, Stability of Contractual Relations in the Transnational Investment Process, 28 Int’l & Comp. L.Q. 401, 408 (1979) (because many concession contracts were concluded by colonial authorities, “it is a patent fallacy to characterize such interests as grounded on contracts freely negotiated by parties of equal bargaining strength”); see also idem., Restructuring Transnational Mineral Agreements, 73 AjIL 335 (1979).

¹⁶¹ Many Third World states have also entered into bilateral treaties specifically requiring the payment of full compensation. One recent study identified more than two hundred such treaties involving 97 states. See Clagett, supra note 59, at 71–73.

¹⁶² Clagett, id. at 48, states:

[I]t can be persuasively argued that the Third World attitude of the early 1970s was a temporary consequence of decolonization and is rapidly vanishing as foreign investment becomes increasingly dominated by investments which the newly independent nations freely permitted, rather than by survivals from the colonial era which those nations regarded as having been imposed upon them.

¹⁶³ See Petersmann, Sovereignty, International Law and the United Nations Code of Conduct on Transnational Corporations, in 2 Foreign Investment, supra note 1, at 310.

¹⁶⁴ It has been argued that

insurance schemes, pricing mechanisms, tax write-offs, and various bookkeeping devices, while not without cost to corporate shareholders and customers, make it possible for many foreign investors to spread or otherwise offset potential losses in ways that make the risk of uncompensated deprivation a less significant factor in foreign investment decision making than is commonly believed.

Weston, supra note 4, at 466. There is some truth to this argument, but on the whole it misconceives the economics of the investment decision. Expropriation insurance can be expensive or, to the extent that expropriation is perceived as an imminent risk, unavailable. At a minimum, it raises the investor’s threshold rate of return so that the additional cost of insurance must be covered before the investment will even be made. If the insurance rate is greater for one prospective state of investment than for another, the investor may find it economically wiser to invest in the latter. As to “pricing mechanisms,” the implication appears to be that the investor can simply raise prices to its Western customers to cover the risk of expropriation. But that depends, of course, on the price elasticity of the product. In any event, the investor may prefer to invest in a state where the risk of uncompensated expropriation is low, avoiding the need to raise prices and keeping the product more competitive. Tax write-offs are attractive only to the extent permitted by the taxing jurisdiction and to the extent that the investor has otherwise taxable income against which they may be offset. This argument avoids, moreover, the equitable issues that arise from making the taxpayers of one state finance the expropriations of another.

¹⁶⁵ See, e.g., AMINOIL, 66 ILR at 603 (a “fundamental precept” is that “[c]ompensation … must be calculated on a basis such as to warrant the upkeep [sic] of a flow of investment in the future”); Holtzmann, supra note 93, at 17 (“in an economically interdependent world the law should encourage investment, not discourage it by increasing its risks”); Mosk, supra note 93, at 11 (“The risk of inadequate compensation for takings may discourage much-needed international investments in the developing countries …”).

¹⁶⁶ Moreover, as Clagett notes, supra note 59, at 48, the type of resolution passed in the early 1970s abruptly ceased in 1974 and has never been repeated. Many of the states that supported those resolutions have subsequently enacted domestic legislation or entered into treaty arrangements requiring the payment of full compensation. Id. at 71–75.

¹⁶⁷ See, e.g., Restatement (Third), supra note 5, §102; 1 H. Lauterpacht, International Law 55–56, 231 (E. Lauterpacht ed. 1970); J. L. Brierly, The Law of Nations 56–68 (6th ed. H. Waldock 1963); I. Brownlie, Principles of International Law 3–19 (2d ed. 1973); and M. Akehurst, supra note 27, at 23–36.

¹⁶⁸ Restatement (Third), supra note 5, §103 and comments a, b; 1 H. Lauterpacht, supra note 167, at 78–80; J. L. Brierly, supra note 167, at 63–65; I. Brownlie, supra note 167, at 19–23; M. Akehurst, supra note 27, at 36–37.

¹⁶⁹ Ameli, supra note 96, at 7.

¹⁷⁰ See, e.g., BP, 53 ILR at 337–45; TOPCO, 17 ILM at 32–34; TAMS, supra note 77, slip op. at 10–11.

¹⁷¹ See, e.g., Sedco, 25 ILM at 633–35; Sola Tiles, supra note 78, slip op. at 16’19; Phillips Petroleum, supra note 85, slip op. at 60–62; AIFC, supra note 82, slip op. at 88–89.

¹⁷² 53 ILR at 337–39.

¹⁷³ AIFC, supra note 82, slip op. at 81–88; Brower, supra note 84, at 16–23.

¹⁷⁴ Lagergren, for example, relied heavily on precedent in both BP (53 ILR at 337–45) and INA (Lagergren, supra note 90, at 3–7); also Dupuy in TOPCO (17 ILM at 32–34), and Virally in AIFC (slip op., supra note 84, at 81–90).

¹⁷⁵ See Ameli, supra note 96, at 11–12, 15–19; LIAMCO, 20 ILM at 69–71.

¹⁷⁶ TOPCO, 17 ILM at 31; AMINOIL, 66 ILR at 601; Ameli, supra note 96, at 9; Lagergren, supra note 90, at 2; Sedco, 25 ILM at 634; Sola Tiles, supra note 78, slip op. at 16–17.

¹⁷⁷ TOPCO, 17 ILM at 30; AMINOIL, 66 ILR at 588; AIFC, supra note 82, at 50.

¹⁷⁸ Ameli, supra note 96, at 9–19; LIAMCO, 20 ILM at 53.

¹⁷⁹ LIAMCO, 20 ILM at 71–72.

¹⁸⁰ See, e.g., TOPCO, 17 ILM at 24 (settlements “inspired basically by considerations of expediency and not of legality”); Sedco, 25 ILM at 633 (settlements “inspired by non-judicial considerations”). See also Barcelona Traction, Light & Power Co. (Second Phase) (Belg. v. Spain), 1970 ICJ REP. 3, 40 (Judgment of Feb. 5). Perhaps the most cogent summary of the irrelevance of settlement agreements to the law is set out in Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875, 892 (2d Cir. 1981):

The notion that, merely because a negotiated settlement will not result in full payment, a victim of expropriation has no right to more than partial compensation simply confuses adjudication with compromise. Partial compensation inheres in the process of negotiation and compromise; we should no more look to the outcome of such a process to determine the rights and duties of the parties in expropriation matters than we would look to the results of settlements in ordinary tort or contract cases to determine the rules of damages to be applied. Were we to adopt the view pressed by Banco Nacional, either there would be no incentive for an expropriating state to negotiate a settlement, or, more likely, the prospect of a partial compensation award in a court would lead to the negotiation of a settlement at an even lower level. Carrying the process to its logical conclusion, the courts would then be asked to take into account these lower settlements in making the next adjudicated awards. We are concerned with the parties’ rights and duties, and we do not believe that international law as to compensation is merely descriptive of their conciliatory actions.

¹⁸¹ Franck, Legitimacy in the International System, 82 AJIL 705, 725 (1988).

¹⁸² The absence of a secondary rule of recognition has long been viewed as a major weakness in the structure of international law qua law. See H. L. A. HART, The Concept of Law 209 (1961); Franck, supra note 181, at 751.

¹⁸³ See, e.g., Oppenheim/Lauterpacht, supra note 127, at 61–68; Akehurst, Custom as a Source of International Law, 47 Brit. Y.B. Int’l L. 1 (1974–75); M. Janis, An Introduction to International Law 35–41 (1988); and A. D’Amato, The Concept of Custom in International Law (1971).

¹⁸⁴ Compare 1 D. O’Connell, supra note 127, at 31:

As the judge in the common law system plays a fundamental role in the formulation of general principles, in their application and modification by reference to contingent circumstances, in extention by analogy and deduction from hypothesis, so does the judge in the system of international law. State practice was always an illusory concept for it is rendered intelligible only through the processes of juristic reflection. Until the historian works over the diplomatic material thoroughly this at best tells only half the story, and at worst is actively misleading. And until the results of historical research are available for all countries, and have been assimilated and synthesised, it is possible to speak of “practice” in only the most relative sense.

… Looked at in this light, international law is really much more dependent for its content on judicial formulation, and judicial judgment on concrete issues of law and fact, than on analysis of diplomatic documentation.

¹⁸⁵ See H. Lauterpacht, supra note 14, at 155–72; M. Janis, supra note 183, at 68–69; G. Schwarzenberger, supra note 14, at 62–66.

¹⁸⁶ The question is analogous to the longstanding conundrum of customary international law: how do the facts of state practice metamorphose into legal obligations? Time is clearly part of the answer. As Reporters’ Note 2 to §102 of the Restatement (Third), supra note 5, observes: “Perhaps the definition [of custom] reflects a later stage in the history of international law when governments found practice and sense of obligation already in evidence, and accepted them without inquiring as to the original basis of that sense of legal obligation.”

¹⁸⁷ R. Dworkin, Law’s Empire 225–75 (1986). Dworkin’s argument is obviously much more so phisticated, but “integrity” is key to his vision of law, and consistency is central to his understanding of integrity.

¹⁸⁸ Indeed, Article 59 of the Statute of the ICJ explicitly provides that decisions of the Court have no binding force except between the parties and in a particular case. See, e.g., H. Lauterpacht, supra note 14, at 8–15.

¹⁸⁹ See J. L. Brierly, supra note 167, at 64:

Precedents are not … binding authorities in international law, but the English theory of their binding force merely elevates into a dogma a natural tendency of all judicial procedure. When any system of law has reached a stage at which it is thought worth while to report the decisions and the reasoning of judges, other judges inevitably give weight, though not necessarily decisive weight, to the work of their predecessors.

Many others have noted the propensity of the ICJ and other international tribunals to follow international precedents. See, e.g., H. Lauterpacht, supra note 14, at 78–80; 1 D. O’Connell, supra note 127, at 31–32; M. Janis, supra note 183, at 69, 118.

¹⁹⁰ Cf. H. Lauterpacht, supra note 14, at 14: “It is to be expected in a society of States in which opportunities for authoritative and impartial statements of the law are rare, there should be a tendency to regard judicial determination as evidence or, what is in fact the same, as a source of international law.”

¹⁹¹ Franck, supra note 181, at 713. Surprisingly, Franck characterizes the obligation to pay compensation for expropriated property as such a determinate rule in international law, while maintaining that there is no agreement on the standard of compensation. Id. at 718. He does not explain how an obligation with no substantive content is “transparent in the sense that one can see through the language to the meaning.”

¹⁹² Cf. Brower’s discussion of the compensation clause in the U.S.-Iran Treaty: “The ‘full equivalent of the property taken’ is a term with a plain meaning and under conventional rules should be given its natural effect ….” Brower, supra note 84, at 16.

¹⁹³ Clagett, supra note 59, at 51–60.

¹⁹⁴ See text at notes 115–18.

¹⁹⁵ See, e.g., TOPCO, 17 ILM at 27 (“This Tribunal … intends to rule on the basis of positive law”); AMINOIL, 66 ILR at 601 (tribunal must “decide according to law”).

¹⁹⁶ As Sohn & Baxter note, supra note 127, at 209, it would also be extremely difficult for an arbitral tribunal to try to assess the wealth of a state and determine when that wealth was so inadequate that it would justify depriving a foreign national of part of the value of its investment. Weston, supra note 4, at 468–69, also observes that the equities of allowing a relatively poor state to pay less than full compensation are often undercut by suspicions that the excess wealth will benefit not the state itself but an elite governing the state.

¹⁹⁷ See, e.g., TOPCO, 17 ILM at 19 (pacta sunt servanda is “fundamental principle of international law”); id. at 31 (not to hold state to its agreements “would go directly against the most elementary principle of good faith”); LIAMCO, 20 ILM at 61 (“Contracts, including concession agreements, constitute the law of the parties …”).

¹⁹⁸ See text at notes 142–55 supra.

¹⁹⁹ Cf. M. Janis, supra note 183, at 68.

²⁰⁰ It is sometimes argued that the numerous bilateral treaties now requiring, in one form or an other, the payment of full compensation constitute evidence of state practice giving rise to a rule of customary international law. See, e.g., Clagett, supra note 59, at 71–79. Such practice clearly demonstrates the willingness of many states to accept this standard in order to attract foreign investment. The more general argument, however, runs into the longstanding conundrum of treaty law: is a consistent pattern of bilateral treaty clauses evidence of state practice giving rise to customary international law effective erga omnes, or is it evidence that, in the absence of an applicable clause, there is no such rule or that a different rule applies? See 1 D. O’Connell, supra note 127, at 22; Dolzer, supra note 4, at 566.

²⁰¹ Rarely, if ever, have two states explicitly agreed on the applicable legal standard after a controversy has arisen. The frequently cited legal view of the United States in the dispute that gave rise to the Hull formula, for example, was contradicted by Mexico’s view. See 3 G. Hackworth, supra note 6, at 655–65. Similarly, Britain’s oft-cited Memorial in the Anglo-Iranian Oil Co. Case (UK v. Iran), 1952 ICJ Pleadings 93, was controverted by Iran.

²⁰² The sheer volume of contemporary academic writing virtually guarantees that authorities can be found in support of every position, and recent tribunals appear to be very selective in their use. Compare Lagergren, supra note 90, at 2–7; Holtzmann, supra note 93, at 10–13; and Ameli, supra note 96, at 12–14. See also D. O’Connell, The Role of International Law, in Conditions of World Order 49, 54 (S. Hoffmann ed. 1968):

There is now so much international law writing in the world … that no one can digest it. But very little of it rises above the descriptive and the anecdotal; much of it is repetitious; most of it is ephemeral; and in its sum it adds to the systematic exposition of international law in only a fragmentary and disconnected fashion.

²⁰³ The Restatement (Third), supra note 5, §103, seemingly endorses this view, according judicial decisions only an “evidentiary” status with respect, to an international law with an ostensibly separate existence. On the artificiality of distinguishing “sources” from “evidence” in this regard, see Oppenheim/Lauterpacht, supra note 127, at 78–79, 246–47; 1 D. O’Connell, supra note 127, at 31–32.

²⁰⁴ See, e.g., Affaire Goldenberg, 2 R. Int’l Arb. Awards at 909; Norwegian Shipowners, 1 id. at 331–32, 334.

²⁰⁵ Dolzer, supra note 4, at 564–65.

²⁰⁶ Id. at 570–71.

²⁰⁷ See, e.g., Oppenheim/Lauterpacht, supra note 127, at 94–98.

²⁰⁸ See id. at 13–16.

²⁰⁹ As arguably occurred in the middle of this century. See text at note 30 supra.