IISD | 16 May 2016
ICSID tribunal orders Zimbabwe to return expropriated farms
by Jacob Greenberg
Bernhard von Pezold and others v. Zimbabwe, ICSID Case No. ARB/10/15
In a 318-page award issued July 28, 2015 but only published February 2016, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) ordered Zimbabwe to return farms it seized without compensation in 2005. The tribunal found that this seizure, along with the government’s clandestine encouragement of illegal settlement of the same estates, constituted a breach of the expropriation, fair and equitable treatment (FET), and several other provisions in Zimbabwean bilateral investment treaties (BITs) with Switzerland and Germany. Restitution is rarely used as a remedy in international investment arbitration, but the tribunal agreed it was appropriate and feasible here.
Along with returning title to the farms, the ICSID tribunal called upon Zimbabwe to pay the claimants, Bernhard von Pezold and his family, US$65 million in compensation to account for lost value. This was the second time an arbitral tribunal found Zimbabwe violated expropriation and FET provisions in BITs. In a parallel expropriation case (Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Developments Co (Private) Limited v. Zimbabwe (ICSID Case No ARB/10/25)), the same tribunal ruled in favor of Border Timbers, a company majority-owned by the Pezold family, but the award remains unpublished.
When Zimbabwe President Robert Mugabe first came to power in 1980, he set out to correct the state of affairs at the time, when a small number of white commercial farmers owned a large majority of the farmland. His land reform program began with voluntary sellers and buyers, but due to impatience with the slow pace of transfer and Mugabe’s flagging popularity, it devolved into expropriation with compensation, and in 2005, expropriation without compensation. Beginning in 2000, black settlers began invading and occupying predominantly white-owned farms.
Bernhard von Pezold and his family, who are dual Swiss and German nationals, bought 78,275 hectares of farmland in Zimbabwe starting in 1988 under the Switzerland–Zimbabwe and Germany–Zimbabwe BITs. Their estates were heavily invaded, with settlers occupying 22 per cent of the farmland. In 2005, when the constitution was amended, the Zimbabwean state acquired title to most of the claimants’ land, revoked their right to challenge the acquisition, and criminalized their continued occupancy of the land. The claimants continued to occupy the land, but argued they were reduced to “mere licensees at the will of the Respondent” (para. 159).
The new constitution enacted in 2013 provided full compensation for land seized from “indigenous Zimbabweans,” which a Zimbabwe witness testified refers exclusively to black Zimbabweans. The constitution also reaffirmed the right of foreign investors to full compensation under the BITs.
Panel finds Zimbabwe’s actions constituted an unlawful expropriation
Zimbabwe essentially conceded that expropriation took place, but claimed the acts were lawful and for a public purpose. The land was expropriated, it argued, because indigenous people remained disadvantaged given the slow pace of land reform. The claimants may not have received monetary compensation, but their continued, substantially unencumbered use of the land constituted prompt, adequate, and effective compensation. Moreover, if the government policed the raids, it would be turning on its people and risking a massacre.
The tribunal rejected these arguments, ruling the expropriation was unlawful and discriminatory, and lacked due process. The transfer of title was sufficient to establish expropriation, and no compensation was paid, so it was not lawful. Continued use of the land could not be considered compensation because “any income that may have been gathered after [the government seized title] would not equate to prompt adequate and effective compensation without delay” (para. 497).
Without compensation, the expropriation is already unlawful, and thus, a violation of the BIT, the tribunal reasoned. It also addressed several other claimant arguments for unlawful expropriation, finding it lacked due process because the amendment transferring title barred the claimants from challenging the transfer in court. The action was also held racially discriminatory because the vast majority of the farms expropriated were white-owned, and the few black owners affected were compensated for the land seized. Finally, the tribunal found the expropriating acts had no public purpose because the land was never redistributed, and remained mostly in the claimants’ hands.
The actions also violated FET and were not excused by necessity
The tribunal also found a violation of FET. Zimbabwe had, on multiple occasions, assured the claimants that their investments would not be subject to expropriation. According to the tribunal, these declarations established legitimate expectations on behalf of the claimants, which were violated when their land was expropriated.
Zimbabwe asserted a customary international law defense of necessity for its actions, arguing the state of affairs in the country at the time made its actions unavoidable. This “March of History” was a spontaneous movement among the indigenous people of Zimbabwe that resulted in land raiding, and would have intensified if the government had not amended the constitution to seize the land. The government also claimed it was powerless to stop the raids. Additionally, Zimbabwe cited its economic crisis, beginning in 2006, as further evidence of a state of emergency.
The tribunal again rejected Zimbabwe’s claim, finding its arguments implausible. The settlers constituted only a minority of Zimbabwe’s population, as evidenced by the fact that the government’s attempt to amend the constitution in 2000 to allow expropriation without compensation was rejected by referendum. Thus, according to the tribunal, the government could not properly classify the situation as a “State-wide interest,” and in fact, never enacted any emergency legislation to deal with the crisis. Moreover, the tribunal found that, by discriminating along racial lines, these actions breached an essential interest of the international community as a whole, which precluded Zimbabwe from justifying them based on its own essential interest.
The tribunal additionally found that not only could the government have done more to prevent the invasions, but also it actively encouraged and aided them to boost its flagging popularity amongst its core base. The government’s true motive in expropriating the land was holding onto its power, not addressing a national crisis or remedying historical anti-indigenous land policies, the tribunal held.
The tribunal assesses unconventional remedies
In addition to expropriation and FET, the tribunal ruled Zimbabwe also breached the non-impairment, full protection and security, and free transfer of payments provisions of the BITs. To remedy these violations, the tribunal took the unconventional step of ordering Zimbabwe to make restitution by reissuing title to the properties it seized in 2005. Restitution is rarely awarded in international investment disputes either because of material impossibilities, like irreparably damaged property, or because claimants merely prefer compensation for its simplicity and ease of enforcement, the tribunal speculated.
To warrant this unique remedy, the tribunal explained, restitution must be neither materially impossible nor disproportionate to the benefit derived; mere practical or legal difficulties do not rise to the level of material impossibility. Zimbabwe argued restitution would create chaos, but the tribunal considered that the claimants already occupied most of the land, the property damage was not irreparable, and reinstating title would be a simple administrative act. Moreover, returning title would give the claimants the ability to initiate legal action against the settlers in local courts, and any chaos resulting from their eviction would be a matter for local police. Consequently, the tribunal held that restitution was not materially impossible, and because it only applied to the claimants (rather than everyone who had their land expropriated), the burden was also not disproportionate to the benefit.
The tribunal reasoned that, if restitution were insufficient to restore the status quo ante, it could also award other forms of reparation. Holding that further compensation was necessary, it assessed US$64 million in monetary damages to make up the difference between the properties “as is” and their condition “but for” the expropriation.
The tribunal took another rare step by assessing an additional US$1 million in moral damages. Relying on the claimants’ mostly unchallenged testimony, the tribunal found the settlers had kidnapped, threatened, and physically attacked the claimants and their employees. It held that, even if Zimbabwe were not directly responsible for these attacks, the failure of the police to prevent them over the course of several years would fall short of a state’s obligation to provide full protection under the law.
If Zimbabwe returns the titles, it will owe US$65 million, but if it fails, it will owe US$196 million. In November 2015, Zimbabwe moved to annul the award.
Notes: The tribunal was composed of L. Yves Fortier (President appointed by agreement of both parties, a Canadian national), David A.R. Williams (claimant’s appointee, national of New Zealand), and Michael Hwang (Zimbabwe’s appointee, Singaporean national). The award on merits is available at http://www.italaw.com/sites/default/files/case-documents/italaw7095_0.pdf.
Jacob Greenberg is a Geneva International Fellow from the University of Michigan Law School and an extern with IISD’s Investment for Sustainable Development Program.