By Damon Vis-Dunbar
28 April 2009
An ICSID tribunal has ordered the government of Zimbabwe to compensate a group of Dutch nationals who saw their farms expropriated under Zimbabwe’s controversial land-reform program. The victory is expected to lead other European nationals who lost farms in Zimbabwe to seek compensation under bilateral investment treaties.
The thirteen Dutch claimants in the case Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe owned some of the thousands of farms that were expropriated by the state, as the Mugabe-led government adopted an aggressive approach to redistributing farm land from white owners to the historically disenfranchised black population.
Between 2001 and 2003, thousands of acres of farmland were forcibly seized by settlers, after a proposed constitution that would have empowered the government to compulsorily take over farms was rejected in a referendum. The claimants maintain that the government of Zimbabwe was complicit in the invasions; a charge that the government denies.
In any case, an amendment to the Zimbabwean constitution in 2005 formalized the state’s right to expropriate the farms that had been seized by settlers.
The claimants, who have not been paid for the loss of their farms, registered their case with ICSID in 2005, in an effort to leverage the Netherlands-Zimbabwe BIT to gain compensation.
In its defense, Zimbabwe recounted its effort since independence to address inequities in land ownership, rooted in its colonial past. While Zimbabwe held that its land reform measures were “in the public interest and under due process of law”, the country acknowledged that “the deprivation (of property) was not accompanied by compensation.”
Indeed, in its counter-memorial, Zimbabwe declared its intention to compensate the claimants. But later in the proceedings Zimbabwe would double back on its offer, on the grounds that the claimants had failed to fulfill certain certification procedures prescribed under domestic law.
The Tribunal would conclude, however, that the certification procedure referred to by Zimbabwe did not provide for full compensation; rather, it only promised payment for “fixed improvements on or to the land expropriated.”
Zimbabwe also invoked the state of necessity defense, essentially arguing that its land reform program was an effort to address entrenched historical inequalities in land-ownership in Zimbabwe, and therefore was justified as a measure taken in the public interest.
Yet, according to the Tribunal, Zimbabwe failed to explain “why such a state of necessity prevented it from calculating and paying the compensation due to the farmers in conformity with the BIT.”
The Tribunal was left to conclude that Zimbabwe was in violation of its obligation to provide “just compensation” in the case of expropriation, and moved to a consideration of how best to calculate damages.
Zimbabwe and the claimants came to widely divergent estimates on the value of the expropriated farms, based on differing methodologies.
An valuation conducted by the Zimbabwean Ministry of Lands, Lands Reform and Resettlement, which placed a value on the arable land, as well as buildings and farm equipment on the farms, was rejected because it did not arrive at the market value of the whole farm.
Zimbabwe also argued that large-scale nationalizations called for a discounted rate of compensation, although this was swiftly dismissed by the tribunal, which held the value of an investment should be considered independently “of the number and aim of the expropriations done.”
According to the Tribunal, a valuation conducted on behalf of the claimants, which took into account the production of each farm, came closer to the mark, although it arrived at figures that were too high when considering the unstable economic situation in Zimbabwe at the time of expropriations.
Ultimately, the Tribunal would establish a value based on the quality of the land, the production of the farms, and equipment on the farms. The claimants are to receive between 450 000 Euro and 930 000 Euro for the expropriated farms, in addition to compensation for assets left on the farms. Interest was set at 10%, compounded every six months. The Tribunal also ordered a payment of 20 000 Euro to each claimant for reparation (i.e., for the cost of re-settling), while it rejected a claim for moral damages. Each party was ordered to bear its own legal costs, while Zimbabwe must cover the Tribunals’ costs and ICSID fees.
Co-counsel for the claimants, Matthew Coleman, confirms that his firm is in the process of organizing additional claims for some 50 European nationals have also had their farms expropriated in Zimbabwe.
Zimbabwe has ratified bilateral investment treaties with China, Denmark, Germany, the Netherlands, Serbia and Montenegro, and Switzerland.
The 22 April 2009 award in Bernardus Henricus Funnekotter and others v. Republic of Zimbabwe (ICSID Case No. ARB/05/06) is available at: http://ita.law.uvic.ca/documents/ZimbabweAward.pdf