¹ The focus of this paper is on the international legal aspects of the nationalization. The legality of the CSO under principles of UK administrative law is not considered except to the extent that the international principles discussed herein may have bearing on the application of UK domestic law. See, eg The Human Rights Act 1998.

² UK Treasury, Northern Rock plc Press Release 16/08 (17 Feb 2008).

³ Northern Rock plc, Annual Report and Accounts 2006 2.

⁴ ibid 103.

⁵ Thompson Datastream.

⁶ For an overview of Northern Rock's difficulties, particularly during the period from September 2007 through January 2008, see House of Commons Treasury Committee, The Run on the Rock, Fifth Report of Session 2007–08, Vol I (24 Jan 2008). See also the synopsis in Northern Rock plc, Annual Report and Accounts 2007.

⁷ See Northern Rock plc, Strategic Review Update Press Release (18 Feb 2008). Share price data available from Thompson Datastream.

⁸ UK Financial Services Authority, Notice of Temporary Suspension of Listing from the Official List (18 Feb 2008).

⁹ Banking (Special Provisions) Act 2008 (c 2).

¹⁰ SI 2008/432, section 2(1).

¹¹ ibid s 5(1)(a).

¹² ibid s 5(4).

¹³ SI 2008/718.

¹⁴ ibid s 7.

¹⁵ Under section 2, ‘the transfer time’ means the beginning of 22nd February 2008.

¹⁶ S 3(2).

¹⁷ S 7(2).

¹⁸ Northern Rock plc, Annual Report and Accounts 2007 84.

¹⁹ ibid. In addition, 100 million ‘Foundation Shares’ were held by The Northern Rock Foundation, a charitable organization established in 1997 at the time Northern Rock became a public limited company, ibid 24. According to the company's 2007 Annual Report, the Foundation shares ‘carried no rights to dividends but ranked pari passu with the Ordinary Shares in respect of other distributions and in the event of a winding up.’ ibid 85.

²⁰ Large non-UK shareholders seem to have included UBS AG (Switzerland), Toronto Dominion Bank (Canada), Bank of America (US), Lazard Limited (Bermuda), Société Générale (France). See, eg FAME database of UK and Irish companies, Bureau van Dijk Electronic Publishing. Northern Rock's two largest shareholders at the time appear to have been SRM Global Master Funder LP, a Cayman Islands-based limited partnership (approx 11.5 per cent) and RAB Capital plc, a UK company (approx 7 per cent).

²¹ Hansard HL Deb cols 1473–74 (Baroness Noakes) (11 Mar 2008).

²² ibid cols 1481–82 (emphasis added).

²³ As discussed below, the European Convention on Human Rights does place some limits on the manner in which the United Kingdom may treat domestic investors. These limits, however, are rather minimal and the Court of Human Rights' standard of review in such cases is very deferential to the State's decisions.

²⁴ In the special parlance of the Foreign & Commonwealth Office, the UK BITs are referred to as Investment Promotion and Protection Agreements (IPPAs). This article will use the more commonly used international term—BITs—when referring to these agreements.

²⁵ According to the United Nations Conference on Trade and Development (UNCTAD), as of 1 June 2007, the UK had signed 103 BITs, ninety-one of which were in force. See http://www.unctad.org/sections/dite_pcbb/docs/uk.pdf.

²⁶ As noted by Lord Shawcross, one of the originators of the ill-fated OECD Draft Convention on the Protection of Foreign Property: ‘The quid pro quo for the borrowing States’ undertaking is, in fact, in the English vernacular, the provision of the quids, that the capital importing countries in return for agreeing to abide by the generally recognized procedures of international law, will receive more private investment and with the capital, the benefits of the technical and commercial skills which go with them than would otherwise be the case.' Quoted in E Snyder, ‘Protection of Private Foreign Investment: Examination and Appraisal,’ (1961) 10 ICLQ 469, 492.

²⁷ See E Denza & S Brooks, ‘Investment Protection Treaties: United Kingdom Experience’ (1987) 36 ICLQ 908. The text of the current UK Model BIT (2005) is reprinted in R Dolzer & C Schreuer, Principles of International Investment Law (OUP, Oxford, 2008) 376.

²⁸ In 1938, in an exchange of diplomatic notes with the Government of Mexico, US Secretary of State Cordell Hull wrote that ‘under every rule of law and equity, no government is entitled to expropriate private property, for whatever purpose without provision for prompt, adequate and effective compensation.’ The diplomatic exchanges between Mexico and the United States which led to the articulation of the Hull formula are excerpted at length in A Lowenfeld, International Economic Law (OUP, Oxford, 2002) 397–403.

²⁹ In a small number of BITs, the United Kingdom has agreed to different formulations of the standard of compensation, see eg, UK-China BIT, TS No 33 (1986), Art 5 (‘reasonable compensation’ amounting to the ‘real value’ of the investment); UK-Hong Kong, BIT, TS No 9 (2000), Art 5 (‘compensation’ amounting to ‘real value’); UK-India (1995), Art 5 (‘fair and equitable compensation’ amounting to ‘genuine value’).

³⁰ See (70) and accompanying text.

³¹ UK-Singapore BIT, TS No 51 (1975), Art 5(1). This formulation is followed in relevant part in over 28 other UK BITs.

³² UK-United Arab Emirates BIT, TS No. 24 (1994), Art. 6(1). This formulation is followed in relevant part in over 47 other UK BITs.

³³ See M Sornarajah, The International Law of Foreign Investment: Second Edition (CUP, Cambridge, 2005) 242–43; Amerasinghe, CF, ‘Issues of Compensation in the Taking of Property in the Light of Recent Cases and Practice’ (1992) 41 ICLQ 22, 30CrossRefGoogle Scholar.

³⁴ UK–Russia BIT, TS No 3 (1992), Art 5(1).

³⁵ UK–Bangladesh BIT, TS No 73 (1980), Art 5(1). See also UK-Malaysia BIT, TS No 16 (1989), Art 4(1) (‘prompt, adequate and effective compensation’ reflecting the ‘value of the investment’).

³⁶ See, eg Lowenfeld (n 28) 482, R Dolzer & M Stevens, Bilateral Investment Treaties (Martinus Nijhoff Publishing, The Hague, 1995) 109–110; Marboe, Irmgard, ‘Compensation and Damages in International Law: The Limits of “Fair Market Value”’ (2006) 7 J World Trade & Invest 723, 730 (2006)CrossRefGoogle Scholar; M Ball, ‘Assessing Damages in Claims by Investors Against States’ (2001) 16 ICSID Rev For Invest LJ 408, 414. Accord UNCTAD (2004) Key Terms and Concepts in IIAs: A Glossary 73.

³⁷ For those BITs which do not include the Hull formula, however, and merely refer to ‘reasonable compensation’ or ‘real’ or ‘genuine’ value, it is an open question whether one should automatically equate such language with ‘market value.’ See, eg E Denza & S Brooks, ‘Investment Protection Treaties: United Kingdom Experience,’ (1987) 36 ICLQ 908 (discussing the negotiation of the UK–China BIT).

³⁸ Vienna Convention on the Law of Treaties, Art 31(1). See Competence of the General Assembly for the Admission of a State to the United Nations [1950] ICJ Rep 4, 8.

³⁹ See Part II.

⁴⁰ See Marboe, ‘Compensation and Damages in International Law: The Limits of “Fair Market Value”’ (2006) 7 J of World Trade & Invest 723.

⁴¹ World Bank, Guidelines for the Treatment of Foreign Direct Investment (1992) Art IV, s5 2 & 3, reprinted in 31 ILM 1363, 1379.

⁴² UNCTAD, International Investment Agreements: Key Issues (2004) Vol 1 239.

⁴³ See, eg American Int'l Group, Inc. v Islamic Republic of Iran Award No 93-2-3, 4 Iran–US CTR 96, 106 (19 Dec 1983) (applying customary international law).

⁴⁴ CME Czech Republic BV (Netherlands) v Czech Republic, Final Award (14 March 2003), para 496.

⁴⁵ Ibid para 497. See Compañia del Desarrollo de Santa Elena SA v Costa Rica, ICSID Case No ARB/96/1, Award (17 Feb 2000), paras 69–70; Southern Pacific Properties (Middle East) v Egypt (1992) Award ICSID Case No ARB/84/3, Award (20 May 1992), para 197.

⁴⁶ In any case, the operation of most-favoured-nation (MFN) clauses found in the UK BITs may make academic any debate about the linguistic equivalence of ‘genuine value’ and ‘market value’ or ‘just compensation’ and ‘prompt, adequate, and effective compensation.’ MFN clauses act to ensure that the parties to an agreement treat each other in a manner at least as favourable as they treat third parties on matters coming within the scope ratione materiae of the MFN. The MFN clauses in the UK BITs are drafted in uniformly broad terms and should apply with respect to the provisions addressing compensation for expropriation. See eg, UK-Hong Kong BIT, TS No 9 (2000), Art 3; UK Model BIT, Art 3(3). Most-favoured-nation clauses like those contained in the UK BITs have been invoked to define the applicable standards of protection and compensation in investor-state cases. Thus, in the CME arbitration, the tribunal, in addition to viewing ‘genuine value’ as linguistically synonymous with ‘fair market value,’ also relied upon the MFN clause contained in the Netherlands-Czech Republic BIT to conclude that ‘fair market value’ was the appropriate measure of compensation. The BIT between the United States and the Czech Republic provided in terms for compensation to be equivalent to the fair market value of the expropriated investment immediately before the expropriatory action was taken and the Dutch investor could rely upon that provision. CME Czech Republic para 500. See also Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Pakistan Decision on Jurisdiction, ICSID Case No ARB/03/29 (14 Nov 2005), paras 231–232; MTD Equity Sdn Bhd v Chile, ICSID Case No ARB/01/7, Award (25 May 2004), para 187. For a critical appraisal of the application of MFNs in investor-state arbitrations, see J Kürtz, ‘The Delicate Extension of Most-Favoured-Nation Treatment to Foreign Investors: Maffezini v Kingdom of Spain’ in T Weiler (ed) International Investment Law and Arbitration (Cameron May, London, 2005) 523.

⁴⁷ On the negotiating background of the European Convention's protection of property, see generally T Allen, Property and the Human Rights Act 1998 (Hart Publishing, Oxford, 2005).

⁴⁸ See Council of Europe, Collected Edition of the ‘Travaux Preparatoires’ of the European Convention on Human Rights: Recuil des Travaux Preparatoires de la Convention Europeene des Droits de L'Homme (1975–85) Vol 7 194 (‘fair compensation which shall be fixed in advance’); 222–24 (‘such compensation as shall be determined in accordance with the conditions provided for by law’); 206–08 (simply ‘compensation’).

⁴⁹ Protocol No1, Art. 1(1). The full text of Article 1(1) provides: ‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No 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.’

⁵⁰ See James v United Kingdom (1998) Series A No 98, 8 EHRR 123, paras 60–61; Lithgow v United Kingdom, Series A 102 (1986), 8 EHRR 329, paras 113–14. See also Gudmundsson v Iceland (1960) Y B Eur Conv on HR 394, 422–424 (Eur Comm'n on HR).

⁵¹ James, para 62; Lithgow, para 115.

⁵² ibid.

⁵³ James, para 63; Lithgow, para 116. The Court also noted that the travaux préparatoires of the Protocol indicated that the reference to general principles of international law ‘was subject to several statements to the effect that they protected only foreigners.’ James, para 64; Lithgow, para 117.

⁵⁴ ‘[T]here must also be a reasonable relationship of proportionality between the means employed and the aim sought to be realised … . Clearly, compensation terms are material to the assessment whether a fair balance has been struck between the various interests at stake and, notably, whether or not a disproportionate burden has been imposed on the person who has been deprived of his possessions.’ Lithgow, para 120.

⁵⁵ James, para 54.

⁵⁶ ibid.

⁵⁷ For a detailed analysis of Lithgow, see Mendelson, Maurice, ‘The United Kingdom Nationalization Cases and the European Convention on Human Rights’ (1986) 57 Brit YB of Int'l Law 33 (1986)CrossRefGoogle Scholar.

⁵⁸ Lithgow, para 122.

⁵⁹ ibid.

⁶⁰ Allen (n 47) 182. See Mendelson, The United Kingdom Nationalization Cases, 74 (‘The broad scope given to the Government's ‘margin of appreciation’ apparently leaves it open for governments to pay compensation at whatever level they feel is compatible with the social objectives of the nationalizing legislation, without much fear of condemnation from Strasbourg.').

⁶¹ James, para 62.

⁶² In a dissent filed to the Court's recent decision in Anheuser-Busch v Portugal, Judges Caflisch and Cabral Barreto took the view that ‘general principles of international law’ includes ‘the rule requiring prompt, adequate and effective compensation.’ (2007) 45 EHRR 36, para O–II9. The decision of the Court, however, did not reach the issue.

⁶³ For relatively concise, and certainly contrasting, overviews of the debate, compare Lowenfeld (n 28) Chs 13–15 and Sornorajah (n 33) Ch. 10. See generally T Wälde, ‘A Requiem for the “New Economic Order”— The Rise and Fall of Paradigms in International Economic Law and a Post-Mortem with Timeless Significance’ in G Hafner et al (eds), Liber Amicorum Professor Ignaz Seidl-Hohenveldern (Kluwer Law International, Leiden, 1998) 771.

⁶⁴ See, eg Third Restatement of US Foreign Relations Law, Vol 2 (1987), para 712: ‘The Executive Branch and the Congress of the United States have held resolutely to the view that international law requires compensation that is “prompt, adequate and effective.”’

⁶⁵ See eg GA Res 1803, (XVII) ‘Permanent Sovereignty over Natural Resources,’ 17 UN GAOR Supp (No 17) UN Doc A/5217 (1962); GA Res. 3281, ‘Charter of Economic Rights and Duties of States,’ 29 UN GAOR Supp (No 31) 50, U.N. Doc. A/9631 (1974).

⁶⁶ Cf Amerasinghe, ‘The Quantum of Compensation for Nationalized Property’ in R Lillich (ed) The Valuation of Nationalized Property in International Law (1975) Vol III ch IV.

⁶⁷ See generally E Lauterpacht, ‘Issues of Compensation and Nationality in the Taking of Energy Investments’ (1990) 6 J of Energy & Nat'L Resources Law 241 (1990).

⁶⁸ Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Art 42, ICSID Basic Documents (Jan 1985).

⁶⁹ See Stephen Schwebel, ‘The Reshaping of the International Law on Foreign Investment by Concordant Bilateral Investment Treaties’ in Steven Charnovitz, et al (eds), Law in the Service of Human Dignity: Essays in Honour of Florentino Feliciano (2005) 241.

⁷⁰ UNCTAD, World Investment Report (2007) 16–19.

⁷¹ UNCTAD, International Investment Agreements: Key Issues, Vol I (2004) 244; UNCTAD, Bilateral Investment Treaties 1995–2006: Trends In Investment Rulemaking (2007).

⁷² UNCTAD, World Investment Report (2003) 89.

⁷³ For a few examples, see Africa: Common Market for Eastern and Southern Africa (COMESA) Treaty (1994), Art 159(3) (‘adequate compensation’); South Africa–Madagascar BIT (2006), Art 6 (‘adequat et effectif’); Botswana-Egypt BIT (2003), Art 6 (‘prompt, adequate and effective’); Cameroon–Guinea BIT (2001), Art 6 (‘effective et adéquate’); Eritrea–Uganda BIT (2001) Art 4 (‘prompt, adequate and effective’); Ethiopia-Sudan BIT (2000), Art 4 (‘prompt, adequate and effective’); Mauritius-Burundi BIT (2001), Art 7 (‘effective et adéquate’); Asia: ASEAN Agreement for the Promotion and Protection of Investments (1987), Art VI (‘adequate compensation’); Democratic People's Republic of Korea–Thailand BIT (2002), Art 6 (‘prompt, adequate and effective’); Bangladesh–Philippines BIT (1997) Art IV (‘just compensation’ amounting to market value); Azerbaijan–Pakistan BIT (1995), Art 3 (‘prompt, adequate and effective’); Kyrgystan-Pakistan BIT (1995), Art 4 (‘prompt, adequate and effective’); Vietnam–Thailand BIT (1991), Art 6 (‘adequate’ and ‘effective[ ]’); Central and South America: Dominican Republic–Central American Free Trade Area (DR-CAFTA) Treaty (2005), Art 10.7 (‘prompt, adequate and effective’); Colonia Protocol on the Reciprocal Promotion and Protection of Investments within Mercosur (1994), Art 4 (‘previa, adecuada y efectiva’); Costa Rica–Paraguay BIT (1998), Art 7 (‘adecuada, pronta y efectiva’); Dominican Republic-Ecuador BIT (1998), Art 4 (‘pronta, adecuada y efectiva’); Panama–Argentina BIT (2004), Art 3 (‘pronta, adecuada y efectiva’); Honduras–Chile BIT (1996), Art VI (‘inmediata, adecuada y efectiva’); Nicaragua-Chile BIT (1996), Art 6 (‘inmediata, adecuada y efectiva’); Bolivia–Ecuador BIT (1995), Art VI; Colombia–Peru BIT (1994), Art 7 (‘pronta, adecuada y efectiva’); Middle East and Europe: Yemen–Indonesia BIT (1998), Art IV (‘prompt, adequate and effective’); Egypt–Albania BIT (1993), Art 4(2) (‘prompt, adequate and effective’); Jordan–Algeria BIT (1996), Art 5 (‘appropriate and actual compensation’ equal to market value); Ukraine–Indonesia BIT (1996), Art. IV (‘prompt, adequate and effective’); Armenia-Lebanon BIT (1994), Art 5 (‘adequate and effective’). Recent Chinese BITs, although not using the Hull formula as such, nevertheless require the payment of compensation which will place the investor ‘in the same financial position as that in which they would have been if the measures … had not been taken.’ Compare, eg China-Argentina BIT (1994), Art 4 with UK–China (1986), Art 5 (‘reasonable compensation’ amounting to the ‘real value’ of the investment).

⁷⁴ See Sornorajah (n 33) 241–45.

⁷⁵ Report of the International Law Commission Covering the Work of Its 12th Session, (1960) YB of Int'l Law Comm'n 145 UN Doc A/4425.

⁷⁶ North Sea Continental Shelf Cases (Federal Republic of Germany v Denmark) (Federal Republic of Germany v Netherlands) (1969) ICJ Rep 3 para 71.

⁷⁷ Mann, FA, ‘British Treaties for the Promotion and Protection of Investments’ (1981) Brit YB Int'l L 241, 249.Google Scholar

⁷⁸ For a contrary view, see Guzman, ‘Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties’ (1998) 38 Va J Int'l L 639, 685–86 (‘the repetition of common clauses in bilateral treaties does not create or support an inference that those clauses express customary law … To sustain such a claim of custom one would have to show that apart from the treaty itself, the rules in the clauses are considered obligatory’). Sornarajah at least acknowledges that it is ‘possible that if there is concordance of standards in [BITs], such standards on which there is consistent agreement evidenced by such treaties could become international law’, but concludes that this has not happened. Sornojah (n 33) 226–27.

⁷⁹ As a result of the background of active debate and controversy as to the position of the Hull formula in customary international prior to the widespread adoption of the standard in BITs, it is quite possible that expropriation and the standard of compensation for it are unique examples. Other commentators, however, and some arbitral tribunals, have taken a broader view of the kinds of BIT protections which are also said to now represent customary law. See, eg Mondev Int'l Ltd v United States, ICSID Case No ARB(AF) 99/2, Award (11 Oct 2002) para 117 (concluding that the ‘fair and equitable treatment’ standard has attained a customary character). See also A Lowenfeld, ‘Investment Agreements and International Law’ (2003) 42 Colum J Transnat'l L 123. The author takes no position in this article on such an expansive interpretation of the effect of BITs on customary international law.

⁸⁰ CME Czech Republic (no 44) para 497.

⁸¹ See Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana, Award on Jurisdiction and Liability (27 Oct 1989) 95 ILR 183, 211.

⁸² Anglo-Iranian Oil Case (1952) ICJ Pleadings 105–106.

⁸³ (1974) 53 ILR 297, 317. United Kingdom v Iran.

⁸⁴ Applications Nos 9006/80, 9006/80, 9262/81, 9263/81, 9265/81, 9266/81, 9313/81 and 9405/81, Sir William Lithgow v United Kingdom (1984) Report of the European Commission of Human Rights, para 254.

⁸⁵ Cf Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States) (Merits) [1986] ICJ Rep 14, para 184.

⁸⁶ See Allen (n 47) 167–68.

⁸⁷ (1978) 21 YB Eur Conv on HR 16 (cited in HR Fabri, ‘The Approach Taken by the European Court of Human Rights to the Assessment of Compensation for ‘Regulatory Expropriations’ of the Property of Foreign Investors' (2002) 11 NYU Envir LJ N148, 162–63).

⁸⁸ (1979) 22 YB Eur Conv on HR 16–22. In the event, Portugal withdrew its reservation in 1987 without comment.

⁸⁹ Whether there may be remedies available to Northern Rock investors under UK administrative law is beyond the scope of this paper.

⁹⁰ Since BITs generally recognize the permissibility of expropriation in the public interest against payment of prompt, adequate and effective compensation, the question of restitution does not often arise. See C Schreuer, ‘Non-Pecuniary Remedies in ICSID Arbitration’ (2004) 20 Arb Int'l L 325.

⁹¹ Stauffer, T, ‘Valuation of Assets in International Takings’ (1996) 17 Energy LJ 459, 459.Google Scholar

⁹² See Hicks, A & Gregory, A, ‘Valuation of Shares: A Legal and Accounting Conundrum’ (1995) J Bus L 56, 67–68Google Scholar.

⁹³ See North American Free Trade Agreement (NAFTA), Art 1110(2)–(6): ‘Valuation criteria shall include going concern value, asset value, including declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value.’

⁹⁴ See Mendelson, M, ‘International Law and the Valuation of Nationalized Shares: Two French Decisions’ (1985) 34 ICLQ 284, 284CrossRefGoogle Scholar.

⁹⁵ This is true both as a matter of customary international law and treaty practice. See, eg UK–Singapore BIT, TS No 51 (1975), Art 5(1); UK-United Arab Emirates BIT, TS No 24 (1994), Art 6(1); World Bank Guidelines Art IV 3.

⁹⁶ See Saghi v Islamic Republic of Iran Award No 544-298-2, 29 Iran-U.S.C.T.R. 20 (1993), para 79; Starrett Housing Corp v Islamic Republic of Iran, Award No 314-24-1, 16 Iran–U.S.C.T.R. 112, 202 (1987).

⁹⁷ CSO, s 3(2).

⁹⁸ CSO, s 6(a).

⁹⁹ ibid s 6(b).

¹⁰⁰ Banking (Special Provisions) Act 2008, s 5(4)(a), as incorporated by CSO, s 6.

¹⁰¹ ibid s 5(4)(b).

¹⁰² See Testimony of Alistair Darling, Chancellor of the Exchequer, before House of Commons Treasury Committee, 18 Dec 2007, at Q 1710; HC Deb, 19 Nov 2007, col 960 (Alistair Darling); Testimony of Alistair Darling, Chancellor of the Exchequer, before House of Commons Treasury Committee, 25 Oct 2007, at Q 848; Bank of England, News Release, Liquidity Support Facility for Northern Rock plc (14 Sep 2007).

¹⁰³ Northern Rock originally entered into a support facility with the Bank of England on or about 14 September 2007. See Bank of England, News Release, Liquidity Support Facility for Northern Rock plc (14 Sep 2007). On 9 October, the Bank of England announced that ‘additional facilities’ would be available to Northern Rock through the Bank of England with support of the UK Treasury. See Bank of England, News Release, Northern Rock plc deposits (9 Oct 2007); Northern Rock plc, Annual Report and Accounts 2007, 42. No details of the amount borrowed under these facilities (or their essential terms) have been made public. See HC Deb, 19 November 2007, col. 960 (Alistair Darling, Chancellor of the Exchequer) (declining to provide information to the House). Nevertheless, Northern Rock itself reported that by the end of 2007 the total amount borrowed was £26.9 billion, Northern Rock plc, Annual Report and Accounts 2007, 31, and it may be assumed that the total amount borrowed by the time of the nationalization in February 2008 was substantially higher. Notably, even with these high levels of borrowing, throughout the time prior to the nationalization the UK Government repeatedly confirmed its belief that Northern Rock was solvent and a going concern. See (n 102).

¹⁰⁴ It might be argued that the assumptions mandated by the CSO and the Banking (Special Provisions) Act do no more than require that any valuation reflect the financial circumstances in which Northern Rock found itself at the time of the nationalization. As such, the argument might go, the nationalization, although technically an expropriation, actually caused no loss or damage to the investors. See Biwater Gauff (Tanzania) Ltd (UK) v United Republic of Tanzania, ICSID ARB/05/22, Award (24 July 2008), para 803. This seems to miss the point. The valuation issue in the cases of Northern Rock and Bradford & Bingley is the market value of the shares of those companies. As discussed below, whatever the financial circumstances faced by those companies at the time of their nationalizations—the relevant date for valuation purposes—the shares had a real market value as determined on the London Stock Exchange.

¹⁰⁵ See M Kantor, Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert Evidence (2008) 91–92.

¹⁰⁶ World Bank, Guidelines for the Treatment of Foreign Direct Investment, Art IV.

¹⁰⁷ See W Lawson, Chairman, Northern Rock Shareholders Action Group, A Note on the Northern Rock Legal Action by Shareholders (13 June 2008) 7, available at http://www.uksa.org.uk/NRK_Legal_Case.pdf.

¹⁰⁸ See (n 58–60) and accompanying text.

¹⁰⁹ See Nigel Eastaway, Harry Booth & Keith Eamer, Practical Share Valuation (4th edn, 1998) 10.

¹¹⁰ ibid, 245.

¹¹¹ A-G (Ireland) v Jameson [1905] 2 IR 218, 226.

¹¹² In deriving a market value for shares for which there is no public market, there are three basic methods of valuation to which financial experts generally turn: net asset value; discounted cash flow; and price-earnings multiples. See R Pike & B Neale, Corporate Finance and Investment (5th edn, 2006) 89. Dividend valuation is noted by Ferran as a fourth method of valuation. See E Ferran, Company Law and Corporate Finance (1999) 54. There has been ongoing discussion in the legal literature about which of these methods is the most appropriate when determining the compensation due for an expropriation. For a concise overview of the discussion, see Irmgard Marboe, ‘Compensation and Damages in International Law: The Limits of ‘Fair Market Value’ 7 J World Trade & Invest 723, 730 (2006).

¹¹³ N Eastaway, H Booth & K Eamer, Practical Share Valuation (4th edn, 1998) 245. See Southern Pacific Properties (Middle East) Ltd v Egypt, ICSID Case No ARB/84/3, Award (20 May 1992), para 197 (contrasting market prices in an efficient capital market with a situation in which the number of transactions is limited and there is no public market).

¹¹⁴ See, eg T Koller, M Goedhart & D Wessels, Valuation: Measuring and Managing the Value of Companies (4th edn, 2005) 70; R Brealey, S Myers & F Allen, Principles of Corporate Finance (2006). See also T Stauffer, ‘Valuation of Assets in International Takings,’ 17 Energy LJ 459, 472 (1996) (‘[T]he market value, where there is a transaction, was most probably determined as the result of discounted cash flow valuations undertaken both by buyer and seller. This is true for acquisitions and mergers, it true for project investments and is also generally true in the case of stock market valuation of listed companies.’).

¹¹⁵ CMS Gas Transmission Co v Argentina, ICSID Case No ARB/01/8, Award (12 May 2005), para 403.

¹¹⁶ Reineccius v Bank of International Settlements, Partial Award (Permanent Court of Arb. 2002), para 163. See Khosrowshahi v Islamic Republic of Iran, Award No. 558-178-2, 30 Iran-U.S.C.T.R. 76, 92 (1994). Accord ACSYNGO v. Compagnie de Saint-Gobain (France) SA, 82 ILR 127, 137 (Belgium Comm. Ct. 1986) (case arising out of the French bank nationalizations).

¹¹⁷ See H Houthakker & P Williamson, The Economics of Financial Markets (1996) 130; T Koller, M Goedhart & D Wessels, Valuation: Measuring and Managing the Value of Companies (4th edn, 2005) Ch. 4; J van Horne, Financial Market Rates & Flows (1994).

¹¹⁸ R Pike & B Neale, Corporate Finance and Investment (5th edn, 2006) 89.

¹¹⁹ See S P Pratt, Business Valuation: Discounts and Premiums (2001) 18. See generally B Black, ‘Bidder Overpayment in Takeovers’, 41 Stan L Rev 597 (1989); Lawrence A Hamermesh, ‘Premiums in Stock-for-Stock Mergers and Some Consequences in the Law of Director Fiduciary Duties’, 152 U Pa L Rev 881 (2003).

¹²⁰ See Jensen, M & Ruback, R, ‘The Market for Corporate Control: The Scientific Evidence,’ 11 J Fin Econ 5 (1983)Google Scholar.

¹²¹ S P Pratt, Business Valuation: Discounts and Premiums (2001) 5–9.

¹²² The standard valuation technique for non-publicly traded companies is discounted cash flow analysis (DCF). Pratt observes that because DCF analysis ‘should represent the full value of the future cash flows of the business, excluding synergies, a company cannot be worth a premium over the value of its future cash flows. Thus, it is improper and illogical to add a control premium to a DCF valuation.’ See S P Pratt, The Lawyer's Business Valuation Handbook (2000) 359.

¹²³ On 2 January 2008, Bradford & Bingley shares closed at £2.79. On 26 September 2008, the last day on which Bradford & Bingley shares were traded, the closing price was 20p per share.

¹²⁴ See Bradford & Bingley plc, Interim Management Statement (22 Apr 2008); ibid, Interim Financial Report (29 August 2008). See also P Trowbridge & B Livesey, Bradford & Bingley Is Seized; Santander Buys Branches, Bloomberg.com (29 Sept 2008), available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajIkm9fWTtRI

¹²⁵ Financial Services Authority, News Release, Bradford & Bingley plc (29 Sept 2008).

¹²⁶ The Bradford & Bingley plc Transfer of Securities and Property etc Order 2008, SI 2546/2008.

¹²⁷ UK Treasury, News Release 97/08, Bradford & Bingley plc (29 Sept 2008), para 16.

¹²⁸ Gabčíkovo-Nagymaros Project (Hungary v Slovakia) [1997] ICJ Rep 7, paras 51–52.

¹²⁹ Enron v Argentina, ICSID Case No. ARB/01/3, Award (22 May 2007), para 304.

¹³⁰ See LG&E Energy Corp v Argentina, ICSID Case No ARB/02/1, Decision on Liability (3 Oct 2006), para 234.

¹³¹ ibid, para 235.

¹³² ibid, para. 231.

¹³³ CMS, paras 322–324. Accord, Enron, paras 305–309.

¹³⁴ CMS, paras 328–329. Accord, Enron, para 312.

¹³⁵ LG&E, paras 231 & 239–40.

¹³⁶ See, eg Y Shany, ‘Towards a General Margin of Appreciation in International Law,’ 16 Eur J Int'l L 907 (2006).

¹³⁷ Art 27, International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, in Report of the International Law Commission on the Work of Its Fifty-third Session, UN GAOR, 56th Sess., Supp. No. 10, at 43, UN Doc. A/56/10 (2001), reprinted in J Crawford, The International Law Commission's Articles on State Responsibility: Introduction, Text and Commentaries (2002).

¹³⁸ See W Lawson, Chairman, Northern Rock Shareholders Action Group, A Note on the Northern Rock Legal Action by Shareholders (13 June 2008), available at http://www.uksa.org.uk/NRK_Legal_Case.pdf.

¹³⁹ ibid.

¹⁴⁰ Thomson Financial News, L&G joins SRM, RAB Cap in proceedings against Northern Rock as interested party (23 May 2008).

¹⁴¹ In its action for judicial review, SRM has sought to show, inter alia, that the CSO violates the protections of Protocol No 1 as it applies to nationals of the expropriating State, viz the proportionality standard set out in Lithgow and James. See A Note on the Northern Rock Legal Action by Shareholders at 7–8. SRM apparently has not sought to make the argument that residents of the Cayman Islands—a British Overseas Territory—ought to be considered as non-UK nationals for purposes of the European Convention on Human Rights; ibid.

¹⁴² Somewhat remarkably, the UK Government did not begin seeking to fill the position until 8 June 2008, nearly four months after the nationalization.

¹⁴³ Even if they do, it will take some time. Before an action in the European Court of Human Rights may be brought, local remedies in the United Kingdom must first be exhausted. See European Convention on Human Rights, Art 35. And while, generally speaking, a BIT arbitration would avoid the ‘exhaustion of local remedies’ rule, as a practical matter foreign investors will not seek recourse to BIT procedures until a concrete valuation has been produced under the CSO mechanism. See Helnan International Hotels A/S v Arab Republic of Egypt, ICSID Case No ARB/05/19, Award (3 July 2008); Generation Ukraine, Inc v Ukraine, ICSID Case No ARB/00/9, Award (16 Sept. 2003) (finding the failure to pursue any local remedies relevant to the determination of whether there was an expropriation at all).