T OPIC 6

State Responsibility
Contents
Objectives.............................................................................. 6.1
1. Introduction and the nature of State
responsibility ................................................................. 6.2
2. Attribution...................................................................... 6.2
3. Enforcement................................................................... 6.7
4. Defences........................................................................ 6.12
5. Treatment of aliens........................................................ 6.12
6. Nationalisation/expropriation of non-nationals
property ......................................................................... 6.13
8. Summary ....................................................................... 6.20
9. Further reading .............................................................. 6.23
10. Revision questions......................................................... 6.23
11. Problem question and feedback ..................................... 6.29

Objectives
At the completion of this topic you should be able to:
Identify that issues of state responsibility arise whenever there is
an allegation of a breach of an international obligation
Describe and explain the various rules of attribution of the actions
or inaction of individuals or the state in relation to state
responsibility
Indicate the key rules in relation to bringing a claim for state
responsibility, and illustrate these rules by means of case
examples
Recognise the circumstances when a state may have a valid
defence to a claim of state responsibility
Review the various arguments that may be utilised in order to
support one type of interpretation or another of state
responsibility in respect of injuries to aliens

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Demonstrate an awareness of the political and social context of

instances where a state nationalises or expropriates property
belonging to a non-national, and explain the rules of state
responsibility in such situations
Calculate the amount of compensation where there is state
responsibility for nationalisation or expropriation.

1. Introduction and the nature of State

responsibility

Reading CB, pp 403-409

A corollary of binding legal obligations is legal responsibility for a

breach of those obligations. This topic is concerned with the general
rules of international law which determine whether a state is in breach of
its international obligations. The point of departure for any discussion
of state responsibility is the Articles on Responsibility of States for
Internationally Wrongful Acts by the International Law Commission
(ILC).

Activity 6.1 Explain why articles 40 and 41 remain controversial.

2. Attribution
International law is concerned with the responsibility of international
persons and, in the main, that will mean states. Because, ultimately, a
state can act only through individuals, and individuals may act for
reasons of their own distinct from the intentions of their state, it
becomes necessary to know which actions of which persons may be
attributed, or imputed, to the state. A state will only be liable for acts
which can be attributed or imputed to it. This section examines whether
the acts of the states officials, private individuals, officials of both
successful and unsuccessful revolutionary movements can be imputed
to the state.

A. Officials

Reading CB, pp 409-413

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A state is liable for the actions of its agents and servants whatever their
particular status. Thus, when, in July 1985, French secret agents sank
the Greenpeace ship, Rainbow Warrior, France became internationally
liable and the tribunal was not concerned with the issue of whether this
act of state terrorism was ordered at a high or low level within the
French government (Rainbow Warrior Arbitration (1987)). Note that
Article 5 extends responsibility to quasi-governmental organisations, ie.
those organs which, although not part of the formal structure of
government, exercise elements of governmental authority when they act
in a governmental capacity.

1. What were the facts of the Caire Claim, and what did the French- Activity 6.2
Mexican Claims Commission decide?
2. What were the facts of the Corfu Channel Case, and what did the
ICJ decide?
3. Does the responsibility of states for unlawful acts or omissions
require an element of fault (subjective responsibility), or is
liability strict (objective responsibility)? What do the above cases
say about this issue?
4. What might be the main point of the Southern Pacific Properties
(Middle East) Ltd v Arab Republic of Egypt case?

1. Caire was a French national who was asked to obtain a large sum Feedback
of money by a major in the Mexican army. He was unable to
obtain the money and was subsequently arrested, tortured and
killed by the major and a number of soldiers. France successfully
pursued a claim against the Mexican government that was heard
by the French-Mexican Claims Commission. The principal
question for the Commission was whether Mexico could be
responsible for the actions of individual military personnel who
were acting without orders and against the wishes of the
commanding officer and independently of the needs and aims of
the revolution. The French-Mexican Claims Commission said that
Mexico was liable.
2. The case arose following the sinking by a mine of a British
warship in Albanian territorial waters. The UK brought a claim
against Albania arguing firstly that Albania itself had laid the
mines. However, it adduced little evidence on this point and its
main argument was that the mines could not have been laid
without the knowledge or connivance of the Albanian authorities.
The ICJ found that the laying of mines could not have been
achieved without the knowledge of the Albanian government. This

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being so, Albanias failure to warn British naval vessels of the

risk of mines gave rise to international responsibility.
3. The ILC Draft Article provides no assistance in the matter and
there are a number conflicting authorities. One writer, Brownlie,
has argued that the nature of liability will depend on the precise
nature of the particular obligation in issue and suggests that the
discussions of the ILC tend to support this view. The view that
seems to attract majority support is that the objective test (ie. strict
liability) should be applied to the actions of states. Provided that
the acts complained of can be attributed to the state then it will be
liable if those acts constitute a breach international law regardless
of any question of fault or intention. There are certain defences
available but the burden of establishing them will be placed upon
the defence once the fact of the breach of an obligation is
established. The most cited example of the objective test is to be
found in the judgment of Verzijl in the Caire Claim. On the other
hand, a number of writers, notably Hersch Lauterpacht, have
argued that the responsibility of states depended on some element
of fault. Such fault is often expressed in terms of intention to
harm (doles) or negligence (culpa). One case that has been cited
in support of subjective responsibility is the Corfu Channel Case.
Lauterpacht subsequently remarked that the Corfu Channel case
... provided a good illustration of the affirmation of the principle
that there is no liability without fault. However it is worth noting
that the Soviet judge in the case understood the decision to be an
application of the objective responsibility doctrine and dissented
from it on that ground. He argued that responsibility could only
arise on the basis of culpa, a more exacting test than mere fault
since it requires a wilful and malicious act or a culpably negligent
act, ie. guilt rather than mere inadvertence or carelessness.
Brownlie has stated that liability in the case arose out of the
particular legal obligation of Albania identified by the court not to
allow knowingly its territory to be used for acts contrary to the
rights of other states.
4. An act may be attributed to a state even where it is beyond the
legal capacity of the official involved, providing, as Verzijl noted
in the Caire claim, that the officials have acted at least to all
appearances as competent officials or organs or ... have used
powers or methods appropriate to their official capacity. In the
words of the Commentary to the ILC Draft Articles: The state
cannot take refuge behind the notion that, according to the
provisions of its legal system, those actions or omissions ought
not to have occurred or ought to have taken a different form.

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In relation to question 3 above, it is submitted that much of the

confusion arising from questions of the nature of responsibility stems
from the tendency to equate objective responsibility with the municipal
law doctrine of strict liability, and to regard strict liability as an absolute
liability from which no exculpation is possible. It has already been
indicated that objective responsibility does admit the possibility of
defences.
Discussion about the nature of responsibility highlights the dangers of
discussing the topic in isolation from the substantive rules of
international law. It is for this reason that writers such as Philip Allott
have criticised the whole concept of a separate category of state
responsibility (see the extract from his article, CB pp 407-408).

B. Private persons
You should re-read articles 8 & 9 of the Articles on State Responsibility.

CB, pp 413-416 Reading

1. In the US Diplomatic and Consular Staff in Tehran case (1980), Activity 6.3
what status did the ICJ consider the students who took
possession of the US Embassy in Tehran to have?
2. What is the main principal derived from the extract of the decision
of the ICJ in the Military and Paramilitary Activities in and
against Nicaragua (Merits) case (1986)?

1. Initially, the ICJ held that when they executed their attack on the Feedback
embassy, [they did not have] any form ... of official status as
recognized agents. However, the court went on to find that the
status of the students changed during the occupation of the
embassy. On 17 November 1979, the Ayatollah Khomeini issued
a decree which declared that the premises of the embassy and the
hostages would remain as they were until the US handed over the
Shah for trial.
2. The activities of the Contras (who, Nicaragua argued, were
recruited, organised, financed and commanded by the US
government) could not be attributed to the US unless it can be
proved that the US had effective control of the military or
paramilitary operations in the course of which the alleged
violations were committed. This is a rather strict test, and perhaps
shows that where the actions complained of take place outside the

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territory of the responsible state, it appears that a stricter test will

be applied.

In general, a state will not be liable for the acts of private individuals that
cannot be attributed to it. However, responsibility may still arise if it is
shown that there existed a duty to exercise due diligence and that
diligence was not exercised. For example, states are under a duty to
protect the premises of diplomatic missions within their territory.
Therefore a failure to provide adequate protection will give rise to
responsibility should a diplomatic mission be attacked by a group of
private individuals. It was for this reason that the Irish government
admitted responsibility for the sacking by private individuals of the
British embassy in Dublin in 1972.
Note: Regarding state responsibility for injuries to aliens see E x
Gratia Payment for Bombing of Chinese Embassy in Belgrade,
(2000) American Journal of International Law, pp 127-131.

C. Officials of successful revolutionary movements

Reading CB, pp 416-418

Teaching Art 10 of the Articles on State Responsibility states that where an

insurrectionary movement is successful and the revolutionaries take over
the government, the new government will be liable for the actions of the
insurrectionaries before and after they took power. However, if this does
not occur, the state is still required to show due diligence, and may be
liable if it has provided insufficient protection for aliens (the special
protections for diplomatic and consular staff should be noted in this
context).

Activity 6.4 1. What were the facts in Short v Iran (1987)?

2. What did the Iran-US Claims Tribunal decide, and why?

Feedback 1. This was a claim by an American national who had been evacuated
from Iran three days before the Islamic revolutionary government
took office. He was evacuated on the orders of his American
employers because of the worsening situation in Iran at the time,
and he sought compensation from the new government of Iran for

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loss of salary arising out of what he alleged to be his expulsion

from Iran.
2. The Iran-US Claims Tribunal decided that a successor
government is held responsible for the acts imputable to the
revolutionary movement which established it, even if those acts
occurred prior to its establishment. However, the same rules of
attribution of liability apply to revolutionary movements as apply
to states. Thus it must still be established that the acts complained
of are the acts of agents of the revolutionaries and not the acts of
mere supporters. As this had not been done, the claim was
dismissed.

D. Acts of unsuccessful, or ongoing, revolutionary

movements or secessionists

CB, pp 418-419 Reading

The important point here is that states (such as Sri Lanka) are not Teaching
responsible for acts of unsuccessful, or ongoing, revolutionary
movements (such as the Tamil Tigers), but will be responsible for their
own recklessness or lack of due diligence in not providing protection to
prevent injury to individuals or property.

3. Enforcement

A. Ability to bring a claim

CB, pp 420-429 Reading

The general rule is that it is only injured states that are able to bring
international claims against other states for a breach of some
international obligation. The principle was strictly applied in the second
phase of the South West Africa case (1966) when the ICJ held that
Liberia and Ethiopia had no legal interest in South Africas treatment of
the inhabitants of South West Africa (which is now Namibia). Although
both states had been original members of the League of Nations and
therefore had certain rights under the mandate agreement between the
League and South Africa, the court held that enforcement of the mandate
was a matter for the League alone and individual members suffered no

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injury and therefore had no independent right to bring claims arising out
of breaches of its provisions.

Activity 6.5 Can you think of counter-argument(s) to this assertion that Liberia and
Ethiopia had no legal interest in South Africas treatment of the
inhabitants of South West Africa?

Where a state has suffered directly from an internationally wrongful act

such as the breach of a treaty obligation owed to it, there will be little
difficulty in establishing its right to bring an international claim.
However, states may also suffer indirectly. Internationally wrongful acts
can occur in respect of the treatment of individuals or corporations. In
such situations, the claiming state needs to establish its right to make a
claim on behalf of the individual or corporation that has suffered injury.
States may often raise diplomatic protests about the treatment of
individuals by foreign states and such protests are not confined to
activities involving their own nationals.

Activity 6.6 What did the court (the PCIJ) decide in the Panezezys-Saldutiskis case
(1939)?

Feedback For a state to make specific representation involving claims to reparation

and compensation arising from injuries to an individual or group of
individuals, or damage to their property, it must be able to show that
these individuals are in fact its nationals. The basic rule is that the victim
must be a national of the plaintiff state at the time the damage was
caused and remain so until the claim is decided. However, as indicated
by the court, the general rule can be waived with the consent of the
respondent state.

A state will be able to bring a claim on behalf of its national even if he or

she is a national of the respondent state as well, provided that the
claimant state can establish the closer, more effective and genuine links
with the individual concerned. This concept of an effective link was
approved by the ICJ in the Nottebohm case (1955).

Activity 6.7 1. Explain the facts of the Nottebohm case (1955).

2. What did the ICJ decide?

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1. The government of Liechtenstein instituted proceedings on the Feedback

basis that Guatemala had acted unlawfully towards the person and
of Friedrich Nottebohm, a citizen of Liechtenstein. Guatemala
disputed Liechtensteins right to bring the case. Mr Nottebohm
had been born in Germany in 1881. In 1905, he went to
Guatemala and took up residence there. He occasionally returned
to Germany and other countries on business and retained his
German nationality. He made a few visits to Liechtenstein where
his brother lived. While visiting his brother in 1939 he applied for
and obtained Liechtenstein nationality.
2. The essential question for the court was whether the nationality
conferred on Nottebohm in 1939 by Liechtenstein could be relied
upon against Guatemala concerning the commencement of
proceedings. The court acknowledged that the granting of
nationality was a matter of municipal law but found that the right
to exercise diplomatic protection of nationals was a matter of
international law that the ICJ was entitled to determine. The court
stated that: According to the practice of states, to arbitral and
judicial decisions and to the opinions of writers, nationality is a
legal bond having as its basis a social fact of attachment, a
genuine connection of existence, interests and together with the
existence of reciprocal rights and duties. (CB, p!423) The court
found that Nottebohm had little real connection with
Liechtenstein, whereas he had been settled in Guatemala for 34
years and had an intention to remain there. His connection with
Guatemala was therefore far stronger than any connection with
Liechtenstein, and consequently Liechtenstein was not entitled to
extend its protection over him vis a vis Guatemala.

Prime facie, a corporation has the nationality of the state where it was
incorporated. The problem arises in the fact that companies may be
incorporated in states with which they have very little connection. The
right of states to bring claims on behalf of shareholders was discussed
in the Barcelona Traction case (1970).

1. What were the facts of this case? Activity 6.8

2. What did the ICJ decide?

1. The Barcelona Traction, Light and Power Company was a holding Feedback
company incorporated in Canada in 1911 to develop and establish
an electricity company in Spain. It created three subsidiary
companies in Canada (most of the shares of which it owned) and
a number of operating and concessionary companies in Spain.

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The case arose following action taken by Spain that resulted in the
company being declared bankrupt. Belgium sought to bring a
claim based upon the allegation that most of Barcelona Tractions
shares were owned by Belgian nationals and companies, mainly
by a company called Sidro, the principal shareholder of which
was another company called Sofina in which Belgian interests
were again predominant. Spain argued that the injury had been
done to the company rather than its shareholders and therefore
Belgium lacked standing to bring the claim.
2. The court found that although shareholders had suffered it was
only as a result of wrongs done to the company. The court
adopted the municipal law concept of the corporate veil and the
distinction to be drawn between the personality of the company
and its individual shareholders. As far as diplomatic protection
was concerned, the court stated that: The traditional rule
attributes the right of diplomatic protection of a corporate entity to
the state under the laws of which it is incorporated and in whose
territory it has its registered office. These two criteria have been
confirmed by long practice and by numerous international
instruments (CB, p!425). It went on to acknowledge that there
were situations where some further degree of connection was
necessary but that no absolute test of genuine connection
existed in international law. It further suggested that there may be
situations where: If in a given case it is not possible to apply the
general rule that the right of diplomatic protection of a company
belongs to its national state, considerations of equity might call
for the possibility of protection of the shareholders in question by
their own national state. However, such a situation did not arise
in the Barcelona Traction case and therefore the court rejected the
Belgian claim. Such situations may arise where the company itself
no longer exists or more commonly where it is the national state
of the company that actively injures the company.

B. Exhaustion of local remedies

An important rule applicable to indirect injuries to states is that a claim
will not be admissible on the international plane unless the individual or
corporation has exhausted the remedies provided by the local state. The
rule is justified by political and practical considerations. It allows the
local state to redress any wrong that has been committed before the
matter reaches the level of international dispute settlement.

Reading CB, pp 429-432

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International tribunals are only concerned with effective local remedies.

An individual or corporation does not need to exhaust all appeal
mechanisms if such appeals are clearly going to prove futile.

1. What were the facts of the Finnish Shipowners arbitration Activity 6.9
(1934), and what was decided?
2. What were the facts of the Elettronica Sicula SpA (ELSI) case
(1989), and what did the ICJ decide?

1. The UK objected to the Finnish claim on the basis that the Feedback
Finnish nationals had failed to appeal against a decision of the
UKs Admiralty Transport Arbitration Board. The international
arbitrator accepted the Finnish argument that, in the particular
case, the Court of Appeal would have been unable to overturn the
finding of fact made by the Arbitration Board and that an appeal
would therefore have made no difference. Finland was therefore
within its rights to pursue the claim on the international plane.
2. The US brought a claim against Italy following the nationalisation
of ELSI, an Italian corporation wholly owned by two US
corporations. Italy claimed that local remedies had not been
exhausted while the US argued that the rule did not apply since it
was claiming compensation for the two US companies on the
basis of the Treaty of Friendship, Commerce and Navigation
1948 between the US and Italy. It therefore sought to argue that
the breach of treaty amounted to a direct international wrong. The
ICJ found, however, that the principal issue in the case was the
injury suffered by the US corporations and it was not possible to
separate this from the direct wrong of the breach of treaty. It
stated that the parties to treaties could expressly agree that the
local remedies rule would or would not apply, but, in the absence
of any relevant agreement, where a claim was partly based on
injury suffered by nationals, the rule would be presumed to apply.
Having dealt with the general issues involved, the court then found
that in the particular case local remedies had been exhausted. The
main point of the case was that a breach of a treaty obligation
would normally be considered to amount to a direct wrong, but
where the treaty is invoked on behalf of nationals the local
remedies rule will generally still apply.

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C. Special enforcement regimes

Reading CB, p!432

4. Defences
In certain circumstances, a breach of an international obligation
imputable to a state may not give rise to international responsibility.

Reading CB, pp 432-436

Activity 6.10 1. Explain what ILC Commentary means when it says that the six
circumstances precluding wrongfulness do not annul or
terminate the obligation, rather they provide a justification or
excuse for non-performance (CB, p!434).
2. What arguments did France raise in order to deny liability in the
Rainbow Warrior Arbitration?

5. Treatment of aliens

Reading CB, pp 437-438

One area of considerable controversy is the standard of treatment to be

accorded to foreign nationals (ie. aliens). A state will only be
responsible for treatment of aliens which falls below the standard that
international law requires. There are two conflicting views as to what
this standard is. Most Western states adhere to the concept of an
international minimum standard of treatment. Every state is under a duty
to treat aliens within its territory in accordance with this standard. This
is so even if municipal law imposes a lower standard of treatment with
respect to home nationals. Proponents of the international minimum
standard have sought to argue that the concept is inextricably linked to
the international law of human rights.
The opposing view is that foreign nationals are only entitled to be
treated in the same manner as home nationals. This national standard
would imply that the only thing to guard against is discrimination
against foreign nationals. Article 9 of the Montevideo Convention on the

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Rights and Duties of States 1933 reflected this view by providing that
foreigners may not claim rights other or more extensive than those of
the nationals. The national standard has been most strongly advocated
by the developing states in the context of nationalisation of foreign
owned property (see next section).

Which of the two views appears to have been applied in the Neer Claim Activity 6.11
(1926) by the US-Mexican Claims Tribunal?

The first the minimum international standard. Feedback

What are the arguments for and against these two views? Which of the Think
two views do you support?

6. Nationalisation/expropriation of non-
nationals property

A. Right to nationalise/ expropriate

Expropriation is a broad term and denotes the taking of property by a
state from the ownership of private individuals. This may be a single
asset, as in a rubber plantation, or it may be an entire industry. It may
also involve a state activity that is destructive of property rights, such as
the imposition of a punitive tax. Whether an interference with the use,
enjoyment or disposal of property constitutes a taking will depend
upon the duration of the interference and the unreasonableness of the
interference. On the other hand, nationalisation is a particular species
of expropriation that of the taking away by the state of an entire
industry.

CB, pp 438-441 Reading

Do states have the right to expropriate/nationalise industries that Activity 6.12

foreigners have a stake in?

Yes - this was confirmed by the arbitrator in Texaco Overseas Feedback

Petroleum Company v Libyan Arab Republic (1977). The act of
appropriation is seen as an act of state sovereignty in itself.

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B. Application of international law

Reading CB, pp 441-442

Activity 6.13 1. What is the consequence of a contract between a state and a non-
national being internationalised?
2. From your reading of the Texaco case, indicate some of the ways
a contract may become internationalised.

Feedback 1. The effect of a contract between an individual and a state

becoming internationalised is to place the contract in the domain
of international law. This would mean that any breach of the
contract by the state would amount to an expropriation, giving rise
to state responsibility.
2. In his award, the arbitrator in Texaco indicated that certain
contracts between states and individuals (including companies)
could become internationalised in various ways:
(i) the contract made reference to general principles of law
(implying international law) as an element of the governing
law;
(ii) where the contract provided for disputes to be settled by
international arbitration; and
(iii) where the contract was within the class of international
development agreements which involved long-term
assistance to a state in a field of essential economic activity
and which were protected by stabilisation clauses. The
purpose of such stabilisation clauses is to take the contract
out of the field of municipal law as a way of safeguarding
against unilateral termination by the state.

C. Unlawful nationalisation/expropriation

Reading CB, pp 442-444

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Conditions for lawful expropriation are:

(i) The expropriation must not be retaliatory or discriminatory
A lawful expropriation is one which is not deliberately directed against
the nationals of one state only. In BP v Libya (1974), CB note 2 p!444,
the Libyan government openly admitted that their purpose was
retaliation (which is rare for any government to do), and thus their
expropriation was considered to be unlawful. See also the LIAMCO
case, (1977), CB, pp 442-443.
(ii) The act of taking must be for a public purpose
The difficulty is that a precise definition of the public purpose for
which an expropriation may be lawfully decided has neither been agreed
upon in international law nor even suggested: Amoco case, CB, pp 443-
444. But given the acceptance of the right to nationalise, the term is
broadly interpreted. With respect to nationalisation and public purpose
see the LIAMCO case: CB, pp 442-443.

7. Compensation for
nationalisation/expropriation

A. Principles

CB, pp 445-451 Reading

In the Chorzow Factory case (1928), the PCIJ was called upon to
consider the consequences of the illegal expropriation by Poland of a
factory in Upper Silesia. In the course of its judgment the court stated
that the vital principle was that reparation must, as far as possible, wipe
out all the consequences of the illegal act and re-establish the situation
which would, in all probability, have existed if that act had not been
committed. (CB, p!445)
It thus seems to be accepted law that the first consideration, following a
breach of an international obligation, should be the restoration of the
status quo that existed before the wrongful act was committed.
Territorial disputes can often readily be settled by means of restitution
and, in the Temple of Preah Vihear case (1962) (CB, pp 247-248),
Thailand was ordered to return Cambodia objects it had illegally taken
from the temple in Cambodia. Where restitution is not physically
possible, even in cases where it is not politically possible, compensation
can be paid. The aim of any monetary compensation should be to wipe
out the consequences of the illegal act. Compensation should cover all

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damage that has flowed from the unlawful act, subject to principles of
remoteness.
In some cases, monetary compensation will not be an appropriate
remedy. In such cases, reparation can be made by satisfaction, which
may involve apologising, acknowledging guilt, or accepting the award of
a declaratory judgment. For example, in the Rainbow Warrior case, the
French government did belatedly apologise to the victims of the sinking
of the ship.
It was formerly thought that compensation would only be available for
actual injury or damage suffered. This view was largely based on the
fact that very often states would accept apologies or acknowledgments
of guilt as sufficient reparation where no actual physical damage had
been caused. However, it is now believed that compensation can be
awarded for non-material damage. In the Im Alone case (1933), the Im
Alone, a ship registered in Canada was sunk by US coastguards. The
international tribunal found that the ship was almost wholly owned by
US nationals and therefore found that no compensation ought to be paid
in respect of the loss of the ship or its cargo. However the US was
ordered formally to apologise to the Canadian government and to pay
$25,000 compensation as acknowledgment of the wrong done to
Canada.

Activity 6.14 1. What are the main issues between developed and developing
states in terms of how to determine compensation for
expropriation?
2. Describe how the Hull formula works.
3. Explain the competing views concerning whether international or
national standards should be used in calculating compensation.
4. What is the main justification for the views of the developing
states that national standards should be used in calculating the
amount of compensation?
5. What position does GA Resolution 1803 (XVII); (the
Declaration on Permanent Sovereignty over Natural Resources)
take on the issue of whether national or international standards
should be used?

Feedback 1. One key issue is the means of determining compensation

(prompt, adequate and effective (the Hull formula favoured by
developed nations) or appropriate, favoured by developing
nations). Another is the method for deciding compensation do
you use international law (favoured by developed nations) or
national law (favoured by developing nations), or some

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combination of the two? Finally, there is the issue of who decides

ie. which courts/tribunals.
2. Under the Hull formula adopted by industrialised nations,
compensation must be prompt, adequate and effective.
This means, in essence, that:
(a) the nationalising state should pay in a form of currency that
can be readily used (not, for example, devalued local
currency)
(b) that it should reflect the full value of the property taken,
perhaps incorporating an element for future lost profits, and
(c) that it must be handed over within a reasonable time after
the expropriation and, if not, interest should be paid.
Obviously, this is a strict and arduous standard.
3. The traditional view of developed nations is that the standard of
compensation required by international law is the international
minimum standard. In effect, this means that the adequacy of
compensation is to be judged by reference to international criteria
rather than the provisions of the municipal law of the
expropriating state.
The developing states view, on the other hand, is that claim
compensation is to be judged by the national treatment standard
and that if the compensation matches up to that guaranteed to
nationals under municipal law, it is ipso facto appropriate.
4. The Charter of Economic Rights and Duties of States favours the
developing states view regarding compensation since it provides
in Article 2(2)(c) (CB, p!447) that:
Appropriate compensation should be paid by the
[nationalising] state!..., taking into account its relevant laws
and regulations and all the 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 nationalising states and its
tribunals (emphasis added) ...
Note that the above Charter has not been accepted by the majority
of Western states, and the arbitrator in the Texaco Overseas
Petroleum case (1977) viewed Article 2(2)(c) as having the nature
de lege ferenda rather than constituting a rule of customary
international law.
5. The Declaration on Permanent Sovereignty over Natural
Resources provides that in cases of expropriation:
The owner shall be paid appropriate compensation in
accordance with the rules in force in the state taking such

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LAW00521 INTERNATIONAL LAW

measures in the exercise of its sovereignty and in

accordance with international law. (paragraph 4)
This seems to represent a compromise position one can use
national standards, but these standards are subject to international
legal principles. This position is generally accepted as reflecting
customary international law (eg. Shahin Shane Ebrahimi v Iran
CB, pp 448-450), and it seems to require consideration of all the
circumstances of the case.

B. The amount of compensation

Reading CB, pp 451-453

Teaching How might we calculate what compensation may be deemed full or

adequate? Full value at best will be the market value, where such a
market exists. A time element will have to be considered. The market
will react drastically to a threat of nationalisation. The price of shares
will fall considerably, as soon as the intention to nationalise becomes
known. Although no compensation is due before a nationalisation is
carried out, compensation will be due for the loss caused already by the
announcement of the intention to nationalise.
In case of an enterprise in working order the market price will be the
equivalent of the going concern value. Any purchaser of the enterprise
will evaluate not only the equipment but also the profits she hopes to
make by working the equipment. Thus compensation for an enterprise
will not only cover the loss of the installations and equipment (damnum
emergens), but also the loss of the chance of future profits (lucrum
cessans) (Shahin Shane CB, p!449).
Valuation becomes more difficult where there is no longer any market
for the nationalised asset. Then the tribunal may take into account each
of the taxation value, the balance sheet values and the insurance value.

Activity 6.15 1. What method of calculation of compensation was used by the

Iran-United States Claims Tribunal in Amaco (CB, pp 451-452)?
2. Note 3 on p!453 states that the amount of compensation for
unlawful compensation will be greater than compensation
payable for a lawful appropriation, and implies that
compensation for unlawful appropriation may include an element
for lost future profits, whereas this could not be included for
lawful appropriation. List the reasons as to why an expropriation
might be unlawful.

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 TOPIC 6 STATE RESPONSIBILITY

3. What common sense approach to calculating the amount of

compensation is suggested by the authors of the prescribed text?

1. The Tribunal rejected both the discounted cash flow (DCF) Feedback
method and the net book value method, and instead relied upon
the going concern method.
2. The reasons might be:
discrimination against an individual alien or aliens in
general was contrary to international law irrespective of
whether compensation had been paid or not
the expropriation was not for reasons of public policy. In
this respect, note that the Resolution on Permanent
Sovereignty over Natural Resources (CB, p!446) states that
expropriation shall be based on grounds or reasons of
public utility, security, or the national interest (consideration
of which must be an internal matter for the state concerned)
which are recognised as overriding purely individual or
private interests, both domestic and foreign.
the expropriation was in violation of a treaty obligation (eg.
Certain Interests in Polish Upper Silesia case) or
because of a failure to provide any compensation or failure
to provide compensation up to the required standard.
3. They suggest that we should avoid fruitless theoretical
arguments and use a fair compensation standard.

C. Protection for private investors

If, as we have seen, states enjoy a great deal of liberty in the field of Teaching
expropriation, the question arises whether foreign investors can take any
steps to safeguard their rights. The following is an indication of the
possibilities, although it must be realised that in the end they may
operate only to ensure adequate compensation or damages rather than to
prevent expropriation altogether.
(i) The company can attempt to internationalise the contract, although
it is debatable whether this precludes expropriation altogether. It
may, however, increase the measure of damages.
(ii) The company can ensure that the contract does not contain a
Calvo clause (giving exclusive application to local law).
(iii) The company can seek to have the prompt adequate and
effective rule incorporated into the terms of the contract.

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LAW00521 INTERNATIONAL LAW

However, whether this would be effective at international law is

open to question.
(iv) The company may seek registration (ie. nationality) in a state
willing and able to exercise its right of diplomatic protection. This
is particularly important given that a state can legitimately refuse
to make such a claim, and may do so if it wishes to preserve good
relations with the other state.
(v) The company can attempt to persuade its state of nationality to
enter into a treaty with the state in which it is investing. This
should guarantee the terms of the contract and any breach of the
contract will then be a breach of the treaty.
(vi) The company could bring the matter within the regime of the
International Convention for the Settlement of Investment
Disputes 1964, if its state of nationality and the expropriating
state had signed the Convention. This provides a formal
mechanism for the settlement of investment disputes between
contracting states and nationals of contracting states, subject to
prior consent.1
(vii) Conclude a lump-sum compensation agreement when first setting
up the investment. This overcomes the difference between the
international law minimum standard and the equality with
nationals standard in a pragmatic way. The standard of
compensation might fall short of adequate compensation in the
sense of the Hull formula, but at least the investor has some sense
of security in the worst case scenario.

8. Summary
A departure point for any discussion of state responsibility is the
Articles on State Responsibility prepared by the ILC. Article 1 states:
Every internationally wrongful act of a state entails the
international responsibility of that state.

Such wrongful acts can be divided into two categories: direct and
indirect.

A. Is fault necessary or is liability strict?

The position as to whether fault is necessary or liability strict is not
settled and there is support for both the objective and subjective tests.
The objective test means that a state is liable for wrongful acts

1 Dixon M, Textbook on International Law, 4th. Edition, Blackstone Press

Limited, 2000, pp 259-260

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 TOPIC 6 STATE RESPONSIBILITY

regardless of any question of fault or intention - see the Caire claim

(1929). The subjective test involves an element of intention or
negligence - see Corfu Channel (Merits) case (1949). The best view is
probably that the nature of liability will depend upon the precise nature
of the legal obligation in question.

B. Imputability
A state will only be liable for acts that can be attributed or imputed to it.
A state will be liable for its servants and agents, at whatever level, and
also for those organisations which exercise elements of governmental
authority. A state will be responsible for individuals if they were in fact
acting on behalf of the state - see US Diplomatic and Consular Staff in
Tehran case (1980) and Nicaragua (Merits) case (1986).
The fact that a state official is acting ultra vires does not necessarily
absolve the state from responsibility. Much will depend on whether the
officials have appeared to act within authority.
A state will not usually be responsible for the actions of
insurrectionaries, although if the insurrectionaries are successful and
establish a new government, it will be liable for the actions of the
insurrectionaries before they took power.
The protection of the fundamental interests of the international
community constitute international crimes. All other acts constitute
international delicts. The significance of the distinction lies in the fact
that all states have an interest and right to invoke the criminal
responsibility of a state whereas only those states directly affected have
an interest and right in pursuing an international delict. However, note
that international law does not provide for the possibility of states being
charged with international crimes (only individuals can).

C. Nationality of claims
Where a state seeks to bring a claim in respect of the treatment of
individuals or corporations the issue of nationality of claims may arise.
States may usually only bring claims on behalf of nationals - see
Panevezys-Saldutiskis case (1939). Where an individual possesses dual
nationality tribunals will investigate which state has the more genuine
and effective link with the individual concerned see Nottebohm case
(1955). Corporations have the nationality of the state of incorporation
and tribunals will not entertain claims by other states on behalf of
shareholders see Barcelona Traction case (1970).

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LAW00521 INTERNATIONAL LAW

D. Exhaustion of local remedies

Where states have suffered indirect injuries, no claim can be brought on
the international plane until all effective local remedies have been
exhausted - see Norwegian Loans case (1957).

E. Remedies
The first consideration following the breach of an international
obligation is the restoration of the status quo ante. Where restitution is
not possible compensation may be paid. Often monetary compensation
will not be appropriate and reparation may be made by satisfaction, eg.
apology or admission of guilt.

F. Expropriation of foreign-owned property

Expropriation denotes the taking of property by a state from the
ownership of private individuals.
Expropriation may also include any state activity that is destructive
of the property rights of the individual.
Injury to foreign nationals or damage to their property by the
organs or officials of a state has always been considered a prima
facie breach of international law.
In cases where expropriation is permissible, prompt, adequate
and effective compensation has to be paid.
According to the Resolution on Permanent Sovereignty over
Natural Resources: GA Res. 1803 (XVII), 1962: expropriation
shall be based on grounds or reasons of public utility, security,
or the national interest (consideration of which must be an
internal matter for the state concerned).
The Declaration on the Establishment of a New International
Economic Order (GA Res. 3201 (S-VI), 1974; (XXIX), Article 2
(c) affirms the legality of expropriation.
To be lawful the expropriation must not be retaliatory or
discriminatory, the act of taking must be for a public purpose and
compensation must be paid.
According to the industrialised nations, the standard of
compensation required by international law is the international
minimum standard or Hull formula of prompt, adequate and
effective compensation.
According to developing states, compensation is to be judged by
the national treatment standard and must be appropriate:
Resolution 1803 (XVII), the Declaration on Permanent
Sovereignty over Natural Resources.

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 TOPIC 6 STATE RESPONSIBILITY

9. Further reading
Dixon M, Textbook on International Law, 5th. Edition, Oxford
University Press 2005, Chapter 9, as well as the Further Reading
mentioned at the end of the Chapter (p!258).
Blay S, Piotrowicz R & Tsamenyi M, Public International Law: An
Australian Perspective, Oxford University Press, 2n d ed, 2005,
Chapter 9.
Harris DJ, Cases and Materials on International Law, 5th ed, Sweet
And Maxwell, 1998, Chapter 8.
Crawford J, The International Law Commissions Articles on State
Responsibility: Introduction, Text and Commentaries, Cambridge
University Press, 2002.

10. Revision questions

Multiple choice and true/false questions

1. To establish that a state is responsible for an injury to an alien or
foreign business, a claimant must demonstrate:
a. Conduct attributable to the state under international law
b. A breach of an international obligation by the state
c. An agreement signed by the state accepting liability
d. All of the above
e. Both a. and b. above.
2. A state is only responsible for actions which are imputable to it.
3. A state is responsible for acts done by officials within their
apparent authority.
4. A state is not responsible for acts done by officials when the
officials acted because of a mistake.
5. A state is not responsible for acts done by officials who were
clearly acting wrongfully.
6. A state is not responsible for acts causing injury to foreigners
when the acts where carried out by:
a. Private persons
b. Officials of other states or international organizations
c. Rebels or insurrectionaries
d. All of the above
e. Both b. and c. above.

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LAW00521 INTERNATIONAL LAW

7. Which of the following is true?

a. Contemporary terrorism commonly has state support and
sometimes involves direct state action.
b. Modern terrorism commonly involves spectacular and
horrible incidents that will attract media attention.
c. Terrorism is the sustained clandestine use of violence for a
political purpose.
d. All of the above
e. Both a. and b. above.
8. In order to hold a state responsible for causing injury to an alien,
one has to prove culpa. That is, one has to show that the state was
knowingly or negligently at fault.
9. The reason why alien claimants are not required to prove that a
state acted with culpa (ie., that it was at fault) when they are suing
for injuries it caused to them is that it is so easy to prove culpa
that courts regard such proof as a waste of their time.
10. State A expelled the Bee Co. from its territory for political
reasons. Bee Co. was forced to take up temporary quarters on an
island in the Caribbean. The island was subsequently hit by a
hurricane and Bee Co. suffered tremendous losses. In an
arbitration between Bee Co.s home state (State B) and State A,
State B alleges that State A is liable for Bee Co.s losses. The
tribunal will hold:
a. State A liable because political reasons are an inadequate
basis for expelling a foreign company.
b. State A liable because it is clearly at fault (ie., culpa is
proven).
c. State A not liable because it did not factually cause the
injuries to Bee Co.
d. State A not liable because there is no evidence that it acted
wrongfully.
e. None of the above.
11. According to the international standard, a state should treat an
alien exactly as it treats its own nationalsno more, no less.
12. Which of the following are criticisms levelled at the national
standard of care rule?
a. It would encourage aliens to bring frivolous and time
consuming law suits.
b. It would give greater rights to aliens than nationals.
c. There would be no protection for aliens in states where
nationals are ill-treated.

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 TOPIC 6 STATE RESPONSIBILITY

d. All of the above

e. None of the above.
13. Third World states have not consistently supported the adoption
of the national standard of care doctrine as a rule of international
law in part because they fear that they might offend states that
extend economic and other kinds of assistance to them.
14. According to the international standard of care doctrine, while
states have no obligation to admit aliens to their territory, once
they do so, they must treat them in a civilized manner.
15. Which of the following acts would constitute an international
crime if committed by a state?
a. Denial of justice
b. Injury to the environment
c. The expropriation or nationalization of the property of
aliens and foreign businesses.
d. All of the above
e. None of the above.
16. The right of states to expropriate foreign property is universally
recognized.
17. Most Western states regard expropriation as:
a. Proper when it is done for a legitimate public purpose.
b. Proper when the state pays prompt, adequate, and effective
compensation improper.
c. Both a. and b. above
d. None of the above.
18. When speaking of prompt, adequate, and effective
compensation in connection with the international standard of
care doctrine,
a. Adequate compensation means the value of the
undertaking on the day the judgment is awarded.
b. Effective compensation means that the recipient must
be able to make use of it.
c. Prompt compensation means payment within a
reasonable period of time.
d. All of the above
e. None of the above.
19. If a state wishes to expropriate the property of a foreign business,
it must (according to the international minimum standard
doctrine):
a. Do so only for a public purpose.

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LAW00521 INTERNATIONAL LAW

b. give reasonable advance notice to the foreign business.

c. Pay prompt, adequate, and effective compensation to the
foreign business.
d. All of the above
e. Both a. and c. above.
20. In opposing the international standard of care doctrine, some
Third World states argue that:
a. Adequate compensation should not mean full market value.
b. Compensation should only have to be made in the local
currency.
c. In determining compensation, factors such as colonial
domination should be taken into consideration.
d. All of the above
e. Both a. and c. above.
21. Which of the following are examples of denials of justice?
a. A gross deficiency in the administration of the judicial or
remedial process.
b. A manifestly unjust judgment. An unwarranted delay or
obstruction of access to the courts.
d. All of the above
e. Both a. and b. above.
22. According to national standard of care advocates, any
determination of a denial of justice should be made relative to the
judicial system of the society where the case arose.
23. Lack of standing is an objection which a defendant can raise to a
court taking jurisdiction when the plaintiff has failed to state a
cause of action.
24. In most international tribunals (such as the International Court of
Justice), only a state may file a complaint.
25. Because only a state may file a complaint in an international
tribunal (such as the International Court of Justice),
a. The state can refuse to bring the complaint.
b. The state can abandon a case after it has filed the complaint.
c. The state may settle the matter adversely to the interests of a
victim.
d. All of the above
e. None of the above.
26. An agreement made by an investor who seeks to establish a
business operation in a foreign country that it will not ask nor

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 TOPIC 6 STATE RESPONSIBILITY

allow its home state to intervene in any dispute with the host state
is binding on the home state.
27. In most international tribunals (such as the International Court of
Justice), a state may only sponsor a complaint on behalf of its
own nationals.
28. With respect to the proper filing of a complaint in an international
tribunal (such as the International Court of Justice), which of the
following is true?
a. A person with a single nationality may only be sponsored
by the state of his nationality.
b. A stateless person may have his case sponsored by an
international organization (such as the United Nations).
c. Persons with dual nationalities cannot have their cases
sponsored by any state.
d. All of the above
e. Both a. and b. above.
29. Ms. X is a national of both State A and State B. With respect to
the proper filing of a complaint on her behalf in an international
tribunal (such as the International Court of Justice), which of the
following is true?
a. State A may file a complaint against State B
b. State A may file a complaint against State C
c. State B may file a complaint against State A
d. State C may file a complaint against State B
e. None of the above.
30. With respect to the proper filing of a complaint in an international
tribunal (such as the International Court of Justice) on behalf of a
person with dual nationality, the state of which the individual has a
master nationality may bring suit against the other national state.
31. Mr. Z is a national of both State A and State B. State A wishes to
sponsor a case on behalf of Mr. Z against State B in an
international tribunal (such as the International Court of Justice),
claiming that Mr. Zs master nationality is that of State A. To
show this, State A:
a. May demonstrate that most of Mr. Zs economic, social,
political, civic, and family life is centered in State A.
b. May point to Mr. Zs long time residence in State A.
c. Must prove that Mr. Z has a closer and more effective bond
with State A.
d. All of the above
e. Both a. and b.

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LAW00521 INTERNATIONAL LAW

32. With respect to the proper filing of a complaint in an international

tribunal (such as the International Court of Justice) on behalf of a
person, the sponsoring state must establish that there is genuine
link between that state and the sponsored person.
33. Although individuals must have a genuine link with a state before
the state may properly file a complaint on their behalf in an
international tribunal (such as the International Court of Justice),
this is not so when the state sponsors a suit on behalf of a
juridical person (such as a business firm).

Short answer questions

1. Are not all expropriations retaliatory to some degree? So where so
you separate a justifiable response to actions by a foreign
investor from an unjustifiable discriminatory expropriation?
2. An expropriation decree may accomplish the taking in a single act.
But an expropriation can just as well come about by the
government of the host state chipping away at the companys
assets and its ability to do business, that is through creeping or
constructive expropriation. At what point does the latter form of
taking generate legal requirements of public purpose and
compensation?
3. How do the standards for expropriation in the Declaration on the
Establishment of a New International Economic Order and in the
Charter of Economic Rights and Duties of States differ from the
earlier Resolution on Permanent Sovereignty Over Natural
Resources?
4. Suppose investing company negotiated a twenty year mining
concession with a previous government of the host state. In the
event of an expropriation, can the investor argue that the present
government is bound by the agreement of the previous
government irrespective of whether it was overthrown? Examine
the Texaco case.
5. At the end of the day, should international law concern itself with
an investor from one nation, who without coercion seeks out
investment opportunities in another, but then later loses that
investment because of an act of expropriation of the host nation?
Should the only international standard be that they are entitled to
be treated the same as any citizen in the host nation? At least the
foreign investor might be required to exhaust their local remedies.
Should it make any difference that the investor was invited to
enter the host state, rather than having sought out the host?

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 TOPIC 6 STATE RESPONSIBILITY

11. Problem question and feedback

Helena was born in Equatoria in 1939 and acquired the nationality of
that state by birth. As her parents were nationals of Orlando she also
acquired the nationality of that state at birth.
In 1946 Helena moved with her parents to Astoria, a federal state
comprised of a number of largely autonomous provinces. After the
death of her parents in 1948 Helena inherited their successful
manufacturing business which she continued to manage until 1996.
In 1996 the following events happened:
(i) The government of the province in which Helena carried on
business appointed an official overseer of her business with power
of veto in respect of all management decisions. The provincial
government also imposed a special tax at high rate on the turnover
of Helenas business and repudiated a lucrative contract between
Helena and the provincial government for the supply of
manufactured goods.
(ii) While driving home from work Helena was stopped and physically
assaulted by a detachment of intoxicated soldiers.
(iii) Helenas private residence was looted by a riotous mob. The local
police, although aware of the danger of this happening, did not
respond to Helenas request for protection.

Helena, who now resides in Equatoria, has requested that state to

exercise the right of diplomatic protection and claim reparation from
Astoria for what she alleges is the expropriation of her business as well
as the assault on her person and looting of her private residence. On the
assumption that Helena was ordinarily resident in Astoria for most of
the period 1946-1996 advise Equatoria of the relevant principles of
public international law.

Suggested answer guidelines

Before a state claim can be undertaken, there must first be exhaustion of
local remedies: Elettronica Sicula; Ambatielos case 23 ILR 306 (1956):
in the latter case. Greece brought proceedings arising out of a contract
signed by A which were rejected by the tribunal since the remedies
available under English law had not been fully utilised ie. there had been
no appeal to the House of Lords.
Prima facie a state may incur responsibility at international law if it
injures alien person or property. In this problem we find both instances.
Although the property injured is private by virtue of the claimants
nationality her state may take up the claim on her behalf.

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The two basic principles of SR are therefore:

a) the capacity of the other state to adopt the claim of the injured
party ie. according to nationality
b) the attribution to one state of the unlawful acts and omission of its
officials and organs.

Capacity of Equatoria to take up the claim?

Since H now lives in E the first question is Whether H is a national of
E?

Nationality: Although the law relating to the acquisition of nationality

is a question of municipal law, once established the law of nationality
will provide a means of attributing state responsibility at international
law (IL). The test of what constitutes an effective and genuine link for
the purposes of a claim at IL is set out in the Nottebohm case 1955 ICJ
REP 4: According to Nottebohm, for attribution to occur there must be a
genuine link in respect of the national protection claimed. The
conferral of nationality jus soli (ie the fact of birth within state territory)
is widely accepted as one of the most common ways in which states
grant nationality. It is thus likely that Hs Equatorian nationality will
satisfy the genuine link test and that a right to diplomatic protection
will therefore arise.
Attribution: concerning the possible expropriation of Hs business.
With respect to the events in (i): there is the threshold question whether
the action by the provincial government can be attributed to the federal
government? The rule of attributability applies in equal measure to all
government organs including provincial authorities within a federal
state: in this respect see Draft Article 7(1) International Law
Commission Draft Articles on State Responsibility.
Is the expropriation lawful? In general a state does have the power to
expropriate at IL provided the expropriationis (a) not discriminatory and
(b) adequate compensation is made.

Do we have an expropriation?
In our problem, the nature of expropriation is that there has been no
actual taking over of the property in question by the state so can we say
there has been expropriation?
Starrett Housing Corp v Government of the Islamic Republic of Iran
US Claims Tribunal 23 ILM 1984 1090: makes it clear that
expropriation will be found if there is state activity which is destructive
of the property rights of the individual. Such activity includes:
subjection to local management and the imposition of punitive taxes;

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 TOPIC 6 STATE RESPONSIBILITY

both of which have occurred in our problem. Thus expropriation can be

said to have occurred on the facts given.
The Tribunal in Starrett housing makes it clear that measures taken by
a state can interfere with property rights to such an extent that these
rights are rendered so useless that they must be deemed to have been
expropriated. In that case it was held that a taking had occurred upon
the appointment by the Iranian Housing Ministry of a temporary
manager of the Housing Corporation - thus depriving the claimants of
the right to manage and of effective control and use. However
interference such as detention of personnel, intimidation and
interference with supplies in general would not amount to a taking.
Astoria may expropiate provided it is without discrimination. This is a
requirement for a valid and lawful expropriation. For the approved basis
of expropriation see Res 1803 clause 4: contrast and compare Res 3281
with its stronger emphasis on rights: Article 2. The arbitrator in the
Liamco case 20 ILM 1981 1 (1977 62 ILR 140) argued that a
discriminatory nationalisation would be unlawful 58-59. Nevertheless in
Liamco it was held that Libyas action against certain oil companies was
aimed at preserving its ownership of the oil and was non-discriminatory.
The arbitrator noted that a political motive per se would not constitute
sufficient proof of a discriminatory measure.
Although discrimination is a factor which can be difficult to prove in
practice, this was the ground on which the arbitrator found the
expropriation to be unlawful in BP v Libya (1974) 53 ILR 329. Further,
in Liamco (1977) 20 ILM 1 the arbitrator stated that nondiscrimination
is a requisite for the validity of a lawful expropriation.
If expropriation is established the remedy is compensation.

Principles of Compensation and the Amount of Compensation:

In the Chorzow Factory case the court said that reparation must wipe
out the consequences of the illegal act and re-establish the situation
which would have existed. Restitution in kind or payment of an award
of damages would be appropriate compensation.
Measure: it must be prompt adequate and effective the formula used by
the US Secretary of State Hull on the occasion of the Mexican
expropriations. It is the US standard and used in a number of bilateral
investment treaties. However case law is less clear. (US Restatement
Third Foreign Relations Law para 712 1987 ... called just but based on
Hull formula).

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LAW00521 INTERNATIONAL LAW

There has been a difference of opinion between developing and

developed countries over the measure of expropriation. The former
condemn the Hull formula. Two UN Resolutions reflect the varying
standards:
1. 1962 Resolution on Permanent Sovereignty over Natural
Resources GA Resolution 1803, refers to appropriate
compensation. The former was cited with approval by the
arbitrator in Texaco as a rule of customary international law and
followed in the Aminoil case (1982) 21 ILM 1976.
2. GA Resolution 3281 (XXIX) of 1974.

Developing countries object to the Hull formula which requires them to

pay out a substantial capital sum of in the local devalued currency when
the very reason for the expropriation may have been that they ware in
serious financial difficulties. DCs argue that appropriate means
compensation assessed by reference to economic viability of the
nationalising state; the importance of the expropriated property; and the
benefits which foreign nationals have already acquired as distinct from
the market value of the property and any account of future profits.

Standard: by which standard is the measure to be judged?

There are two competing standards: 1 the international minimum
standard ie. by international criteria rather than the expropriating states
laws; and 2 the national standard which is favoured by developing
states.
The minimum standard is embodied in a 1961 Harvard Draft
Convention on Expropriation by Baxter and Sohn. Under the IMS the
compensation is to reflect the full value of the property taken, including
loss of profits - compensation is to be paid in a reasonable period of
time and in a readily useable currency.
Compensation is calculated on:
1. The value of the undertaking at the time of the expropriation
(which includes corporeal property, contractual rights and
intangibles such as intellectual property, licences, goodwill etc.);
this approach is supported by the 1962 Resolution on Permanent
Sovereignty over Natural Resources GA Resolution 1803.
2. Profits which would have been earned up to the date of the
judgment. This is supported by Assembly resolutions of 1974 but
industrialised countries say it does not reflect international
customary law.
3. The national standard on the other hand is embodied in GA
Resolution 3281 (XXIX) of 1974 within the Charter of Economic

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 TOPIC 6 STATE RESPONSIBILITY

Rights and Duties of States, under this standard appropriate

compensation is determined by the nationalising state on the basis
of its own laws and by what it considers to be pertinent circs such
as the economic viability of the nationalising state, the economic
benefits which foreign nationals have already obtained from the
nationalised enterprise and the importance of the expropriated
property.

There is a middle course between these two extremes, a compromise

position which is embodied in GA Resolution 1803 (XVII)- under this
resolution appropriate compensation is determined in accordance both
with the rules of the nationalising state and with international law (See
Amoco International Finance v Iran).
The solution most popular today is the lump sum agreement which has
the advantage of being prompt and less contentious.

Were the actions of the soldiers ultra vires?

The general rule as enunciated in Article 5 is that any act or omission of
an organ of a state which has that status in municipal law is to be
attributed to the state so long as the organ was acting in that capacity at
the time of the act of omission.
If the intoxicated soldiers are acting as organs of the state then the state
is responsible for their actions even if those actions were ultra vires.
Compare Youmans Claim (1926) 4 RIA 110: Militia were ordered to
protect threatened US citizens in Mexico but joined the riot instead. The
US citizens were killed. These unlawful acts were imputed to M which
was found responsible by the General Claims Commission and;
Caires Claim: in this case the question for the commission was the
responsibility of Mexico when officials acting independently of their
state function ie. even without specific authorisation.
But if the act is obviously and flagrantly ultra vires is the state still
responsible? According to Draft Article 10 ILC all ultra vires acts no
matter how flagrant come within the ambit of state responsibility. Article
10 provides: the conduct of an organ having governmental authority
is still an act state even if it contravened instructions and exceeded its
competence.
Thus ultra vires acts and unlawful acts may be imputed to the state even
where it was beyond the legal capacity of the official involved, providing
as per Caires case that the officials have used powers or methods
appropriate to their official capacity ie. in order to invoke objective
responsibility.

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LAW00521 INTERNATIONAL LAW

State responsibility and mob action

Hs house is looted by a mob: there was no police response. The state
is not responsible for the acts of private individuals. It is therefore not
responsible for the acts of the mob. This is confirmed in Draft Article
II.
Is Astoria however responsible for the inaction of the police who were
aware of the potential danger of the mob?
Mob violence: where governmental authorities have acted in good faith
and without negligence (Neer Claim) the general principle is one of non
liability for the actions of rioters or rebels causing loss or damage.
If the state reasonably affords adequate protection it is not responsible:
ie. would have to be directed against foreigners not in good faith in
order for state to incur responsibility.
It is well established principle of IL that no government can be held
responsible for an act which the state was not responsible for (US v
Iran; Nicaragua v US); that is, for the acts of rebels committed in
violation of its authority, where the state itself is not guilty of any breach
of good faith or if it was not negligent in suppressing the insurrection.
From the facts of the case it would appear that the police were negligent
in suppressing the looting. On the basis of Home Missionary Society if
this were the case the state would be held responsible.
Reparation? It would appear compensation is due in this case. If there is
state responsibility the state must make reparations that aim to wipe out
all of the consequences of the unlawful event having occurred: Chorzow
Factory.

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