The protection against expropriation is one of the core guarantees in international investment law, designed to shield investors from uncompensated state takings. Portugal’s bilateral investment treaties (BITs) and multilateral commitments broadly follow international practice but include some distinctive drafting nuances.
Direct and Indirect Expropriation
The vast majority of Portuguese BITs protect investors from both direct expropriation (outright seizure or nationalisation) and indirect expropriation (state measures that, while not formally taking ownership, have equivalent effects). Some treaties phrase the latter in terms of “measures with similar effects” — for example, the Portugal–Cuba BIT (1998) — thereby capturing creeping or regulatory expropriation.
This broad scope reflects arbitral practice. In Tecmed v. Mexico (2003), the tribunal found that revoking an operating licence for a landfill amounted to an indirect expropriation, because it deprived the investor of the economic use of its assets. Portuguese treaties, by expressly covering “similar effects,” anticipate and incorporate this jurisprudential reasoning.
Criteria for Lawful Expropriation
Like most international treaties, Portuguese BITs establish four cumulative conditions for lawful expropriation:
- Legal basis – measures must be taken “by virtue of law”;
- Public purpose – expropriation must serve the public interest;
- Non-discrimination – foreign investors cannot be treated worse than nationals or third parties;
- Compensation – payment must be made promptly, effectively, and adequately.
These conditions are robustly worded, ensuring that investors have treaty grounds to challenge state conduct. The centrality of public purpose and compensation echoes arbitral jurisprudence. In Compañía del Desarrollo de Santa Elena v. Costa Rica (2000), the tribunal stressed that a valid public purpose does not exempt the state from paying full compensation, even when the expropriation is lawful and legitimate. Portuguese treaty language reflects the same balance.
Compensation Standards
Most Portuguese BITs stipulate that compensation should reflect the fair market value of the investment immediately before the expropriation, or before the measure became publicly known. Compensation must be prompt, effective, adequate, freely transferable, and accrue interest at a fair commercial rate until settlement.
Tribunals have consistently enforced this principle. For example, in ADC v. Hungary (2006), the tribunal held that “prompt, adequate and effective” compensation is not merely formal language but a binding obligation requiring restitution of market value. Portugal’s treaty provisions align closely with this jurisprudence, leaving little room for states to dilute the standard.
Portugal’s Own Experience: Talta/Tenaris v. Venezuela
Portuguese investors have also relied on expropriation protections in practice. In Talta – Trading e Marketing Sociedade Unipessoal Lda. (a Portuguese company) and Tenaris S.A. v. Venezuela (ICSID Case No. ARB/12/23), the claimants challenged Venezuela’s nationalisation of their assets in the steel sector under the Portugal–Venezuela BIT (1994). The tribunal found that Venezuela had unlawfully expropriated the investments without providing adequate compensation, awarding significant damages to the investors.
This case is particularly relevant as it illustrates how Portuguese treaty drafting translated into a successful expropriation claim. It demonstrates the robustness of Portugal’s compensation clauses, which ensured that investors were entitled to full reparation when the state failed to comply with the treaty’s expropriation standards.
A Balanced Protection
Portugal’s treaty practice demonstrates a balance: strong guarantees for investors, coupled with recognition of the host state’s sovereign right to expropriate when justified by law and public purpose. By extending protection to indirect expropriation and requiring full-value compensation, Portuguese treaties provide investors with an extra safeguard against regulatory measures that significantly impair their investments.
Conclusion
Expropriation clauses in Portugal’s investment treaties underscore the country’s commitment to protecting foreign investment while preserving legitimate regulatory space. By setting out clear conditions for lawful expropriation and robust standards for compensation, Portugal offers a treaty framework that aligns with international expectations. The experience of Portuguese investors in Talta/Tenaris v. Venezuela highlights how these clauses can be effectively invoked, reinforcing the reliability and strength of Portugal’s treaty protections in real-world disputes.
At Victoria Associates, we bring deep expertise in international commercial and investment arbitration — analyzing trends, comparing jurisdictions, and helping clients navigate the complexities of arbitration law worldwide.
Get in touch and send us an EMAIL.