By Usulor Chukwuebuka, Esq.
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Abstract
International law is an essential element of sustainable development. Its principles and practices lay the foundation for economic cooperation between countries and foreign investment, both of which have become essential to the sustainable growth and development of the economy of every country. However, the effectiveness of international law in engendering sustainable development is more often than not hampered by domestic laws. This problem is most pronounced in many developing countries, including Nigeria, which enact and enforce laws that are inconsistent with the principles of international law. These laws often violate rights of foreign investors recognised or guaranteed by relevant international legal instruments, including investment treaties. In the case of Nigeria, the Land Use Act 1978, the principal legislation regulating the acquisition and transfer of interest in land, contains provisions which are inconsistent with Nigeria’s obligations under various international legal instruments. Many of these provisions either fall short of standards imposed by these instruments or violate the rights of investors which such instruments guarantee. This paper seeks to critically evaluate these provisions in the context of relevant principles of international law and the provisions of investment treaties that have been adopted by Nigeria. The paper recommends the amendment of the Act to fully align its provisions with the principles and practices of international law. It also recommends that the Act be amended to reflect the prevailing realities of Nigeria’s economy and the capitalist democratic system of government as a strategy to enhance the inflow of foreign investment.
1. INTRODUCTION
Foreign investment is an important economic indicator. It is one of the most important measures of economic or commercial activities in any country. Its role in, and contributions to, an economy, assume greater practical and economic value in developing countries like Nigeria, whose economies rely heavily on imported capital to grow and develop.[1] These foreign investments help to provide decent employment opportunities, boost manufacturing processes and provide the financial resources which stimulate economic activities.[2] In turn, the economy may witness a favourable balance of trade, an increase in labour productivity and an increase in money supply.
In order to ensure that foreign investors are not unfairly treated or their investments unlawfully expropriated, States usually enter into either bilateral or multilateral trade and investment treaties. These treaties typically include clauses relating to the right of the recipient State to regulate, the standards of treatment, remedies for expropriation of investment, and the dispute settlement system. More often than not, the provisions of the domestic laws of the recipient State are inconsistent with the clauses in the investment treaties adopted. The implementation of these domestic laws sometimes leads to a reduction in the value of an investor’s business or the loss of property rights. In order to obtain a remedy for the losses suffered, foreign investors usually initiate arbitration proceedings. To determine the remedies to which the investors are entitled and the obligations of the recipient States, particularly the obligation to pay compensation, the tribunals engage in the interpretation of the provisions of the relevant investment treaties, rules of customary international law, and the provisions of the relevant domestic laws. This research seeks to critically evaluate the provisions of the Land Use Act in the context of the rules of Customary International Law and International Investment Law. Although foreign investors are guaranteed a number of rights and protections under customary international law, bilateral agreements, regional trade agreements, and free trade agreements, this paper will focus pointedly on the protection of foreign investors under international law against unlawful expropriation and expropriation without the payment of compensation. Other rights and protections, including those arising from international human rights law and principles of fairness, equity, justice and non-discrimination guaranteed under public international law will only be discussed to the extent that they relate to the obligation of the Nigerian State and other States to pay foreign investors compensation for the compulsory acquisition of their land and revocation of land rights.
2. LAND LEGISLATION AND THE SUSTAINABLE INFLOW OF FOREIGN INVESTMENT
The nature of a country’s laws and the regularity of its implementation are factors which influence the decision of investors regarding the State in which to invest.[3] This is predicated on the fact that foreign investments as well as the economic interests of foreign investors, and their freedom to do business are governed by the recipient State’s national legislation as well as international law and the terms of the agreement between the State and the investor. In fact, the State’s national legislation, in addition to international law and the state-investor agreement, governs the capital imported by the investor and the earnings on the capital.[4] The implication of this is that most investors are attracted to States where the legislation in force is reasonable and protective of the rights and interests of individuals and groups.[5]
Land, as a factor of production, has great strategic value.[6] This places land legislation in a strategic position, particularly because it determines the availability of, and access to, land. Hence, investors are drawn to States which have land legislation that clearly defines and effectively protects the land rights of individuals and corporations.[7] It is therefore important to consider how Nigeria’s land legislation, the Land Use Act, impacts on Foreign Direct Investment in the country. This will involve the analysis of the provisions of the Act and their actual or potential effects on foreign investment.
3. REVOCATION OF LAND RIGHTS, COMPENSATION AND THE YARDSTICK OF INTERNATIONAL STANDARDS
The aspects of a State’s land legislation which may weigh heavily on the mind of an intending investor are those pertaining to the revocation of land rights and the payment of compensation. This is particularly important because the nationalisation, expropriation or requisitioning of an investor’s property or investment is largely based on the rules encapsulated in the recipient State’s national legislation.[8] However, such national legislation is subject to the provisions of the applicable investment treaties and rules of international law.[9] Under international law, States have a sovereign right to take property held by their nationals or aliens through nationalization or expropriation for economic, political, social or other reasons.[10] However, there are conditions for the exercise of this right. Specifically, the expropriation or nationalization must be for a public purpose, be done in a non-discriminatory manner, be done in accordance with the due process of law, and be accompanied by the payment of prompt, adequate, and effective compensation.[11] It is therefore necessary to consider whether the provisions of the Act pertaining to the compulsory acquisition of land and the payment of compensation meet these requirements. This is important since land is property and land rights are property rights. Under customary international law and investment treaties, interference with the property rights of a foreign investor may amount to expropriation and entitle the investor to compensation.[12] Consequently, the revocation of an investor’s land rights by the Governor or Local Government may amount to expropriation and may engage Nigeria’s international responsibility if the requirements of international law and treaties are not met.
3.1 Public Purpose
An expropriation must be for a public purpose or public interest.[13] In other words, the taking of the property must be done in pursuance of a legitimate interest or welfare of the public. When this requirement is not met, the expropriation will be held unlawful.
The definition of public purpose depends on the provisions of the treaty. Most treaties adopt the meaning of public purpose under international law while others make reference to domestic law. In cases where Nigeria is the recipient State and the treaty makes reference to the meaning of public purpose under Nigeria’s law and the property in question is land, reference will be made to the definition under the Land Use Act. Section 51 of the Act defines “public purposes” to include –
- a) for exclusive Government use or for general public use;
(b) for use by any corporate body directly established by law or by any corporate body registered under the Companies and Allied Act as respects which the Government owns shares, stocks or debentures;
(c) for or in connection with sanitary improvements of any kind;
(d) for obtaining control over land contiguous to any part or over land the value of which will be enhanced by the construction of any railway, road or other public work or convenience about to be undertaken or provided by the Government;
(f) for obtaining control over land required for or in connection with mining purposes;
(g) for obtaining control over land required for or in connection with planned urban or rural development or settlement;
(h) for obtaining control over land required for or in connection with economic, industrial or agricultural development.
Where a right of occupancy is revoked on the ground of any of these purposes, it may be resolved that the requirement of public purpose has been met.
However, there are certain problems which may arise with regard to the satisfaction of the requirement of public purpose. These problems can be traced back to the failure of the draftsman to clearly define the extent of the application of the provisions on public purpose. Particularly, the Act does not envisage a situation where the land compulsorily acquired cannot be used for the purpose for which it was acquired. Under such circumstances, what constitutes public purpose becomes vague. This point is crucial because the vagueness of “public purpose” in these circumstances may be a doorway to the compulsory acquisition of property which would not serve the interest of the public. It may also be exploited by the government to acquire the land belonging to a foreign investor for a ‘public purpose’ which such land, due to its size or location, cannot serve. A classic example is the compulsory acquisition of land for mining purposes where there is credible evidence to prove that there is no mineral on the land.
The Act does not indicate whether this will constitute public purpose or not. In spite of this omission, it may be argued that compulsory acquisition of land in this circumstance falls short of the rules of international law. Under international law, the taking of property will be deemed unlawful when it is motivated by private gain or an illicit end. An illicit end in this case means irregular, wrongful or unreasonable.[14] Accordingly, it may be argued that acquiring land for a ‘public purpose’ which such land cannot serve is irregular and unreasonable. This submission aligns with the decision of the European Court of Human Rights in James and Others v United Kingdom to the point that the assessment of the legislature as to what is in the ‘public interest’ will be respected unless the assessment is “without reasonable foundation”.[15]
It is the writer’s view that revocation based on a public purpose which the acquired land cannot serve lacks reasonable foundation. To this extent, the provisions of the Act relating to the requirement of public purpose fall short of international law standards and may be used as a willing tool by the government to wrongfully expropriate a foreign investor’s land rights.
Another significant issue which may arise with regard to expropriation for public purpose is the revocation of a foreign investor’s land rights over environmental pollution. Under Section 8 of the Land Use Act, the Governor has the power to make the grant of a statutory right of occupancy subject to the terms of any contract which may be made between him and the holder of such right. In practice, these terms are usually incorporated into the certificate of occupancy or offer letters issued as evidence of the grant of the right of occupancy. More significantly, Section 28(5) of the Act stipulates that a right of occupancy may be revoked where the holder is in breach of the terms of the contract. In respect of foreign investors, the above provisions may become relevant where such investors acquire lands over which a statutory right of occupancy has been granted to a Nigerian and the certificate of occupancy evidencing the grant contains these terms. In this instance, the foreign investor will be bound by them and the statutory right of occupancy may therefore be subject to revocation where the terms are violated.
Similarly, the revocation of the property rights of a foreign investor may raise issues where it is done in pursuance of the regulations made by the National Council of States. Under Section 46(1) of the Act, the Council has the power to make regulations relating to
(a) the transfer by assignment or otherwise howsoever of any rights of occupancy, whether statutory or customary, including the conditions applicable to the transfer of such rights to persons who are not Nigerians:
(b) the terms and conditions upon which special contracts may be made under section 8:
(c) the grant of certificates of occupancy under section 9.
A thorny issue which arises from the provisions examined above is whether the inclusion of terms relating to environmental protection in a certificate of occupancy and the revocation of the right so granted on the ground of the breach of the terms is an act of expropriation or a legitimate exercise of the right to regulate, also known as the police powers of a State.
Under international law, States have the power to adopt measures to protect public welfare. Such measures include those made for the purpose of environmental protection or public health. Where a State legitimately exercises its power to regulate, the foreign investor may not be entitled to a claim for compensation.[16] However, an age-long problem with the application of this principle by courts and tribunals is the difficulty in distinguishing between acts of government which amount to an indirect expropriation and therefore subject to the payment of compensation, and a legitimate regulatory activity, which is non-compensable.[17] The confusion about the distinction which exists between the two and the legal implications of such distinction is most pronounced in the conflicting decisions of arbitral tribunals. This stems from the “broad formulation of the expropriation provision in investment treaties.”[18] The consequence of this is the adoption of two conflicting approaches to drawing a distinction between legitimate regulatory activity and indirect expropriation.[19] In interpreting the expropriation provisions in investment treaties, some tribunals have adopted the ‘sole effects’ doctrine. By the operation of this doctrine, a State is liable to pay compensation for all measures that have an expropriatory effect, notwithstanding that such measures are legitimate regulatory activities.[20]
On the other hand, some tribunals have held that non-discriminatory regulations enacted for a public purpose do not amount to indirect expropriation and the investor is not entitled to compensation for the effects of such regulations on his investment.[21]
In the Saluka award, the tribunal held that the
“…the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are ‘commonly accepted as within the police power of States’ forms part of customary international law today.”
More importantly, States have, in recent years, adopted a practical approach to the issues surrounding the interpretation of the expropriation provisions in investment treaties. This approach involves the inclusion of clauses in investment treaties which exempt the State parties from the obligation to pay compensation for legitimate regulatory measures taken in the public interest, even where such measures result in the destruction of the value of the foreign investor’s investment or property. By incorporating this clause, States are able to avoid liability for legitimate regulatory activities which interfere with the property rights of a foreign investor. In essence, the issue of whether regulations made by the National Council of States or the terms of a contract incorporated into the certificate of occupancy which result in the revocation of the land rights of a foreign investor will be considered an act of expropriation, which is compensable, or legitimate regulatory measures will depend upon several factors. The first factor is the approach which the tribunal adopts in the interpretation of the expropriation provisions in the relevant investment treaties. The tribunal may have the leeway to adopt any of the two approaches discussed above where the expropriation provisions are broad. However, where the expropriation provisions are qualified to exclude liability for legitimate regulatory measures, the tribunal will be restricted to making a finding as to whether the act complained about is an act of expropriation or a legitimate regulatory measure. Where the tribunal finds that the act, that is, the revocation, is a legitimate regulatory measure, the tribunal will likely hold that the government does not have an obligation to pay compensation. It is important to point out that there are factors that will influence the decision of the tribunal. One of these factors is the nature of the act done. First, to qualify as a legitimate regulatory measure, it must be shown that it was done in the public interest. It must also be shown that the act was not undertaken in a discriminatory manner. In other words, there should be evidence demonstrating that the terms or regulations were applied generally.[22] Where these factors are present and the relevant investment treaty excludes liability for legitimate regulatory conduct, the Governor and the National Council of States may effectively exercise their powers under the Land Use Act to incorporate environmental protection measures and sustainable use of land as terms or conditions for the grant of land rights and also revoke such rights in cases of violation. However, in order to ensure that such measures do not result in liability for the government, they should be taken in a non-discriminatory manner and for public interest.
3.2 Non-Discrimination
To pass the test of lawfulness, an act of expropriation must be done without discrimination or in a non-discriminatory manner.[23] In order for discrimination to exist, it must be shown that different treatments were given to different parties under the same or similar circumstances. This will be the case where, in the expropriation of property, the recipient State discriminates against a foreign investor on the basis of their nationality.[24]
The Act vests the Governor with the power to expropriate lands. Particularly, Section 28 empowers the Governor to revoke a right of occupancy over any land for overriding public interest. The Act does not stipulate the criteria for the exercise of this power, nor does it impose safeguards to prevent its abuse or its exercise in a discriminatory manner. It merely mandates the satisfaction of the requirements as to public purpose, service of notice and payment of compensation for the revocation to be valid. The consequence of this is that the Governor may, upon meeting these procedural requirements, revoke the land rights of an investor who is targeted on the basis of his or her nationality. This act may constitute a violation of an investment treaty. Most investment treaties, including those entered into by Nigeria, require Contracting Parties not to expropriate an investment in a discriminatory manner. An example of this is the Kingdom of Morocco and Nigeria Investment Treaty which, under Article 8, prohibits expropriation of a protected investment in a discriminatory manner.[25]
occupancy do not satisfy the requirement of international law and investment treaties, to wit, that expropriation must not be undertaken in a discriminatory manner. In particular, the operation of these provisions may occasion the violation of investment treaties to which Nigeria is a party, especially the National Treatment and Most Favoured Nation Clause. For instance, Article 6 of the Nigeria-Morocco Investment Treaty, which contains the National Treatment and Most Favoured Nation Clause requires each Party to “encourage and create favorable conditions for investors of the other Party to make investments in its territory…”. It is submitted that the existence and implementation of the provisions of the Act which facilitates or allows discrimination against individuals and groups in the revocation of land rights are inconsistent with the stipulations of the treaty. More significantly, unchecked implementation of these provisions will most certainly create unfavourable conditions for foreign investors and their businesses.
3.3 Due Process of Law
A State, in expropriating the property of a foreign investor, is required to follow the due process of law. This means that the State must comply with the procedures stipulated in its domestic legislation and the rules of international law. It is also required to give the investor an opportunity to bring a complaint before an independent and impartial authority for review.[26] The decision of the arbitral tribunal in ADC v Hungary appears to be a benchmark against which compliance with the due process of law may be measured. According to the tribunal
“‘due process of law’, in the expropriation context,
demands an actual and substantive legal procedure for a foreign investor to raise its claims against the depriving actions already taken or about to be taken against it. Some basic legal mechanisms, such as reasonable advance notice, a fair hearing and an unbiased and impartial adjudicator to assess the actions in dispute, are expected to be readily available and accessible to the investor to make such legal procedure meaningful. In general, the legal procedure must be of a nature to grant an affected investor a reasonable chance within a reasonable time to claim its legitimate rights and have its claims heard. If no legal procedure of such nature exists at all, the argument that ‘the actions are taken under due process of law’ rings hollow.”
The Act stipulates the procedures which must be complied with for revocation to be valid. One of these procedures is that the land holder or occupier must be served with a notice in accordance with Section 44 of the Act, which requires personal service of the notice. The courts in Nigeria have in a plethora of cases affirmed that non-compliance with this section will invalidate the revocation. In AG of Lagos State & anor v. Sowande, the Court of Appeal held a revocation void for non-compliance with Section 44.[27] The court further held that substituted service will only be allowed when personal service is not possible. The notice of revocation must state the public purpose for which the revocation is made. Any revocation made without the disclosure of the public purpose for which it is made is void.
Additionally, the land holder or occupier whose land is compulsorily acquired must be accorded a fair hearing. This is the import of the decision of the court in LSPDC v. Foreign Finance Co. Ltd. as well as several other cases. In the instant case, the Lagos State Government had issued a notice revoking the plaintiff’s right of occupancy. The purpose of the revocation was not disclosed. The Supreme Court held that the Governor in revoking a right of occupancy for public purpose must accord any person aggrieved by the revocation a fair hearing.
Although the Governor is required to accord the land holder or occupier a fair hearing, the requirements of due process of law are not fully met. This is because of the absence of an independent and impartial authority to adjudicate on the revocation. Section 47(2) of the Act ousts the jurisdiction of the court to inquire into any ‘question concerning or pertaining to the amount or adequacy of any compensation paid or to be paid under this Act’. By virtue of Section 30 of the Act, disputes pertaining to the amount of compensation are to be referred to the Land Use and Allocation Committee. The membership of the Committee is determined by the Governor.[28] The Governor also has the power to give directions to the Committee.[29] A reasonable inference drawn from these provisions is that the Committee is, to a certain extent, subject to the control of the Governor and its decision may be greatly influenced by him. Hence, the Committee cannot be said to be an independent and impartial authority to assess the claims of a land holder or owner.
3.5 Payment of Compensation
The expropriation of a foreign investor’s property must be accompanied by the payment of compensation. The non-payment of compensation may, depending on the provisions of the investment treaty and the standpoint of the tribunal, render the expropriation unlawful.[30]
The amount of compensation payable to the investor is determined by the method of valuation adopted by the treaty. In cases where the treaty does not prescribe the method of valuation, reference may be made to the standard of customary international law.
Most investment treaties adopt the standard of prompt, adequate and effective compensation.[31] This method is also known as the Hull standard or formula. This is the case with the Nigeria-Morocco BIT which provides for the payment of prompt, adequate, and effective compensation.
Compensation is deemed to be prompt if it is paid without delay. It may also be considered to be prompt if it is paid within a reasonable time.
The compensation will be considered adequate if it corresponds, or is equivalent to, the economic or market value of the investment. Most investment treaties require the compensation to be equivalent to the fair market value of the expropriated investment.[32] Fair market value means:
“An amount that a willing buyer would normally pay to a willing seller after taking into account the nature of the investment, the circumstances in which it would operate in the future and its specific characteristics, including the period in which it has been in existence, the proportion of tangible assets in the total investment and other relevant factors pertinent to the specific circumstances of each case.”[33]
The last requirement is that the compensation must be paid in a convertible or freely useable currency. A freely convertible currency is one that can be “immediately converted into other currencies on the foreign exchange market.”[34]
The Land Use Act provides for the payment of compensation for the revocation of the right of occupancy for overriding public interest.[35] Section 29(1) of the Act provides that if a right of occupancy is revoked for overriding public interest, other than for alienation without the Governor’s consent and the breach of the terms and conditions of the certificate of occupancy, the land holder or occupier shall be entitled to “compensation for the value at the date of revocation of their unexhausted improvements.” “Unexhausted improvements” is defined as:
“anything of any quality permanently attached to the land, directly resulting from the expenditure of capital or labour by an occupier or any person acting on his behalf, and increasing the productive capacity, the utility or the amenity thereof and includes buildings, plantations of long-lived crops or trees, fencing, wells, roads and irrigation or reclamations works, but does not include the result of ordinary cultivation other than growing produce.”
In other words, compensation is paid, not for the value of the land, but for the improvements on the land.
The provisions of the Act discussed above relating to the revocation of the right of occupancy raise several issues in relation to the right of foreign investors to the payment of compensation. First, the Act does not prescribe the time within which the compensation must be paid. However, this defect may be remedied by an investment treaty, in which case, the compensation must be paid within the time specified in the treaty.
Another issue which the above provisions raise is the adequacy of the compensation. The Act provides for the payment of compensation for the value of improvements on the land. In effect, compensation will not be payable where the investor has not built or grown anything on the land. In many cases, the value of the improvements may pale in comparison to the value of the land itself. These provisions are inconsistent with the investment treaties which Nigeria has acceded to which require the payment of compensation equivalent to the fair market value of the investment expropriated since these treaties envisage the payment of compensation for the value of the property itself and not solely for the things attached to them. On the matter of payment of compensation in a freely convertible currency, this may not pose a problem since Naira, Nigeria’s currency, can be freely converted into other currencies on the foreign exchange market. This may only raise an issue if the Governor opts to pay the investor in a currency which does not meet this requirement. This possibility may arise since the Act does not prescribe the currency in which the compensation should be paid to a foreign investor. In this case, the compensation may be held to have fallen short of the requirements for compensation under international law and investment treaties.
On the issue of the method of valuation of the amount of compensation payable, the Land Use Act does not specify the method to be adopted. The Act does not stipulate the standard for determining the value of the improvements on the land for which compensation is to be paid. Moreover, the Act does not require the appointment of a qualified professional or expert for this purpose. It merely provides that the method of assessment of cost is to be determined by the ‘appropriate officer’.[36] The effect of this is that the ‘appropriate officer’ may abuse this discretionary power by using a functionless method of assessment which would lead to inadequate compensation being granted. The award of such compensation may engage Nigeria’s responsibility under international law and further discourage the inflow of foreign investment into the country.
4. LAND RIGHTS IN THE CONTEXT OF ECONOMIC AND POLITICAL SYSTEMS
As earlier highlighted in the introductory part of this research, the sustainable inflow of foreign direct investment is a major contributor to the economy of a recipient State. However, the inflow of foreign direct investment as well as its contributions to sustainable development is subject to the operation of a number of factors. This section evaluates the relationship between a country’s economic and political system and the pace of its economic development. It goes further to demonstrate how this relationship affects the participation of local and foreign investors in the economy and, in extension, the economic development of the country. Lastly, the provisions of the Land Use Act are critically examined in the context of the realities of Nigeria’s economic and political system.
The nature and extent of the relationship between land rights and economic development are largely dependent on the economic and political system practised by a country. The interaction between land rights and economic development in a socialist state which does not practise democracy is different from what is obtainable in a capitalist democracy.
In a socialist state, the means of production and distribution of goods are owned and controlled by the state.[37] In this system, there is no private ownership of property. In some cases, private ownership of property may be allowed but would be strictly controlled by the state. In democratic socialism, there is limited state ownership and extensive regulation of the means of production. A common element of these systems is the state ownership and control of the means of production, although the extent of ownership and control differs.
Conversely, a capitalist democracy is usually marked by private or corporate ownership of property.[38] The prices, production, and the distribution of property are determined largely by competition in a free market.[39]
In respect to land rights, the consequence of the divergence between the two systems is that in a socialist state, land rights are either completely nationalized and vested in the state or are left in the hands of individuals and strictly regulated. On the other hand, in a capitalist democracy, land rights are typically vested in individuals with minimal supervision by the state.
The nature of land rights and their enjoyment is critical to the functioning of any particular system whether capitalism or socialism. In a socialist state or democratic socialism,
the state owns and controls the means of production, including land. The vesting of ownership of property in the state may not adversely affect economic growth and development since the state undertakes economic activities. This is to be contrasted with what obtains in a capitalist democracy, where property rights are customarily vested in individuals and corporate bodies. In this kind of socio-political system, economic development is largely dependent on the nature of property or land rights that are guaranteed and the extent to which these rights could be exercised. In other words, the extent to which land legislation can contribute to an economy operating a free market is dependent on the degree of economic freedom which it guarantees.
Economic freedom exists where there is an “absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself.”[40]
In the context of land use, control and management, economic freedom exists where the constraints on the land rights of individuals and communities are legitimate and necessary, and do not deprive them of the liberty to use, manage and dispose of the land. In a country where the land rights of individuals and communities are not severely restricted, there will be increased inflow of Foreign Direct Investment (FDI) and an increase in the involvement of local investors in commercial and industrial activities.[41]
The Land Use Act overly restricts economic freedom. Its provisions place undue constraints on the land rights of individuals and communities and the exercise of these rights. Particularly, several provisions of the Act unduly restrict the right of individuals and communities to use, manage and dispose of their lands. A case in point is the provision of Section 17(1)(2) which permits the Governor to fix rents in respect of land which is the subject of a statutory right of occupancy “if and when he may think fit”.[42]
Other provisions also empower the Governor to fix and revise rents in respect of land.[43] Section 36 is another provision which places unnecessary restrictions on the land rights of Nigerians, specifically their right to use and dispose of their lands. The section pertains to lands which were not in an urban area immediately before the commencement of the Act and were held or occupied by any person. Subsection (5) of the section prohibits the occupiers or holders of such lands from sub-dividing, laying out in plots or transferring such land to any person. Subsection (6) provides that any instrument which purports to transfer such land is void and of no effect, and stipulates a penalty of N5,000 or one-year imprisonment for the parties involved. Also deserving of appraisal are Sections 21, 22 and 23 which make the consent of the Local Government or the Governor a requirement for the alienation of the right of occupancy.
These provisions are unnecessary limitations on the right of land holders to dispose of their land. The Act makes the granting of consent a discretionary power of the Governor and Local Government. Accordingly, the Governor or Local Government may, without any justifiable grounds, refuse to give consent to the alienation thereby unnecessarily limiting the right of communities and individuals, including foreign investors, to dispose of their land.
Other provisions of the Act which adversely affect the economic freedom of land holders and occupiers are the provisions dealing with the power of the Governor and the Local Government to revoke the right of occupancy. Section 28 of the Act vests the Governor with the power to revoke a right of occupancy for overriding public interest. Overriding public interest is defined in the section to include the requirement of the land by the Government of the State or by a Local Government in the State, for public purposes within the State, or the requirement of the land by the Government of the Federation for public purposes of the Federation. The definition of “public purposes” is captured in Section 51 and it includes the requirement of the land for use by any corporate body directly established by law or by any corporate body registered under the Companies Act 1968 as respects which the Government owns shares, stocks, or debentures. The Act does not prescribe the minimum amount of shares, stocks, or debentures which the Government should own in such company. The
implication of this omission is that the Governor may revoke the right of occupancy over a large expanse of land for the purpose of conveying same to a private company in which the government owns a few shares or debentures, or a large amount of securities which do not have much value. It is submitted that granting power to the Governor to revoke the right of occupancy of an individual or organization for the purpose of conveying same to a body corporate in which the government owns securities is not reasonably justifiable in a capitalist democracy like Nigeria. The goods and services provided by a body corporate do not assume greater importance to the growth and development of the economy merely because the government owns securities in such a body corporate and so does not justify divesting land holders of their land rights and economic freedom.
Lastly, and more importantly, the divesting of the right of ownership which Nigerians had over land before the commencement of the Act and the vesting of same in the Governor is in direct and unequivocal opposition to the values and operation of the free market economic system which Nigeria practises. This view aligns with the position of Mabogunje who expresses the opinion that the nationalization of the right of ownership by the Act is inconsistent with the principles and practice of democracy as well as the operations of a free market economic system.[44] In a free market economic system, the government engages in minimum level of economic activities, which usually involve the provision of essential services to the public. On the other hand, ownership of property, decisions regarding investments, the production and distribution of products and services, are either left in the hands of individuals or are determined by competition. It is only logical and inevitable that in such a system, land, a key factor of production, should be owned by individuals and corporations, who are the most important players in the economy.[45] It is submitted that the continued vesting of land in the Governor does not make economic sense, nor is it supportive of the economic development of the country since he does not control the other means of production or engage in economic activities.
5. CONCLUSION
Access to land and the uninhibited exercise of land rights are key to the realisation of sustainable development in Nigeria, where almost every economic activity revolves around the use of land. By necessary implication, the Land Use Act 1978, which is the primary land legislation in the country, is at the heart of the discourse on the issues of development. Its provisions and the extent of their implementation, to a large extent, dictate the inflow of Foreign Direct Investment and, in extension, the pace of economic and social development in the country.
The Land Use Act contains provisions relating to the acquisition and transfer of interest in land, grant of the right of occupancy, revocation of the right of occupancy, and payment of compensation to holders of the rights of occupancy which have been revoked. The Act creates a legislative framework under which the land rights of both foreign investors and Nigerians are regulated. Also, the provisions of the Act form part of Nigeria’s policy environment which not only influences the inflow of Foreign Direct Investment but also the impact of such investments on the economy and the standard of living in the country. However, due to the ‘harsh’ effects of the provisions of the Act and the abuse which results from the wide discretionary powers granted to public authorities and officials under the law, the Act has failed to create the conditions which encourage the sustainable inflow of investments into the country and also protect the property rights of foreign investors. Moreover, the provisions of the Act appear to be incompatible with Nigeria’s obligations under international law, particularly those assumed under bilateral investment treaties. The provisions relating to the revocation of the right of occupancy and payment of compensation have been the primary focus of analysis in this research.
The enactment of the Land Use Act was done by the government of Nigeria in the exercise of its right to regulate, a right of every sovereign State recognized and protected by international law. However, in exercising this right, it has the responsibility to ensure that the provisions of the Land Use Act and other laws do not violate its obligations under international law or the rights of other States or persons guaranteed by international legal instruments. This obligation was not discharged in the enactment of the Act as its provisions violate the rights of foreign investors under international law. It is therefore recommended that the National Assembly should take the bold step of repealing the Act and enacting a new land legislation that would protect the property rights of both Nigerians and foreign investors. The new Act should also contain provisions relating to environmental protection and the sustainable use of land and provide appropriate penalties in case of breach.
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[3] LA Kaushal, ’Impact of Institutional and Regulatory Quality on FDI Inflow: Case of a Developing Indian
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[4] UNGA Res 1803 (XVII) (14 December 1962).
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Economics, Business and Management Research 118.
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Journal 175.
[7] M Epaphra and J Massawe, ‘The Effect of Corruption on Foreign Direct Investment: A Panel Data Study’ [2017]
4(1) Turkish Economic Review 19.
[8] A Newcombe and L Paradell, ‘Law and Practice of Investment Treaties: Standards of Treatment’
(Kluwer International 2009); G Sacerdoti, ’The Admission and Treatment of Foreign Investment under
Recent Bilateral and Regional Treaties (2000) 1 Journal of World Investment 105.
[9] ibid.
[10] J Sicard-Mirabal and Y Derains (eds), Introduction to Investor-State Arbitration (Kluwer
Law International 2018); United Nations Conference on Trade and Development, ’UNCTAD Series on Issues in
International Investment Agreements II’ https://unctad.org/system/files/official-
document/diaeia2013d2_en.pdf. Last accessed 7 February 2026.
[11] S Nikièma, ‘Compensation for Expropriation’ (March 2013, International Institute for Sustainable
Development) <https://www.iisd.org/system/files/publications/best_practice_compensation_expropriation_en. pdf>
Last accessed 7 February 2026.
[12] See Phillips Petroleum Co. Iran v. Islamic Republic of Iran, ITL 11-39-2 (Dec. 30, 1982), 1 Iran–United States Claims
Tribunal Reports; Starrett Housing Corp. v. Iran, 16 IRAN-U.S. C.T.R., at 112.
[13] B Gebremichael, ‘Public Purpose as A Justification for Expropriation of Rural Land Rights In Ethiopia’
(2016) 60(2) Journal of African Law 190.
[14] United Nations Conference on Trade and Development, ’UNCTAD Series on Issues in International Investment
Agreements II’ Available at https://unctad.org/system/files/official-document/diaeia2013d2_en.pdf
accessed 10 January 2026.
[15] ECHR 2 (1986) 8 EHRR 123; See also ADC v. Hungary, Final Award, 2 October 2006, where the arbitral tribunal
held “… a treaty requirement for ‘public interest’ requires some genuine interest of the public.”
[16] Energy Charter Secretariat, Expropriation Regime under the Energy Charter Treaty (Energy Charter Secretariat
2012).
[17] See Generation Ukraine Inc. v. Ukraine (ICSID Case No ARB/00/9); Saluka Investments BV (The Netherlands) v.
Czech Republic, UNCITRAL Partial Award, 2006, para 263.
[18] Energy Charter Secretariat, Expropriation Regime under the Energy Charter Treaty (Energy Charter Secretariat
2012).
[19] ibid.
[20] See Compañia del desarrollode Santa Elena, SA v Republic of Costa Rica, Award, 17 February 2000; Tecnicas
Medioambientales Tecmed SA v The United Mexican States, Case No ARB (AF)/00/2 Award.
[21] See Methanex Corporation v. United States of America, NAFTA Arbitral Tribunal, Final Award, 2005; Saluka
Investments BV (The Netherlands) v The Czech Republic (Dutch/Czech BIT).
[22] See Methanex Corporation v United States of America, NAFTA Arbitral Tribunal, Final Award, 2005.
[23] M Gutbrod, S Hindelang and Y Kim, ’Protection against Indirect Expropriation under National and
International Legal Systems’ (2009) 1(2) Göttingen Journal of International Law 1 (2009) 291.
[24] Eureko v. Poland RG 2005/1542/A (Official Case No) IIC 99 (2006).
[25] Morocco – Nigeria Bilateral Investment Treaty.
[26] United Nations Conference on Trade and Development, ’UNCTAD Series on Issues in International
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Accessed 7 February 2026.
[27] (1992) 8 NWLR (Pt 261) 589 at 601-602.
[28] LUA 1978 s 2(3).
[29] LUA 1978 s 2(4).
[30] See Vivendi v Argentina II, Award, 20 August 2007, para 7.5.21; Siemens v Argentina, Award, 6 February 2007,
paras 259, 273.
[31] United Nations Conference on Trade and Development, ’UNCTAD Series on Issues in International
Investment Agreements II’ https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://unctad.org/system/files/official-document/unctaddiaeia2011d6_en.pdf&ved=2ahUKEwiuqq6Vk4KVAxWCUUEAHfndFHgQFnoECCMQAQ&usg=AOvVaw2S6-PdXxsSZQjQxyUqvPDk
Accessed 7 February 2026.
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[33]The World Bank, ‘Guidelines on the Treatment of Foreign Direct Investment’ (University of
Michigan Law School) available at
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Investment Agreements II’ (UNCTAD)< https://unctad.org/system/files/official-document/diaeia2013d2_en.pdf>
Accessed 18 February 2026.
[35] Under the Act, a land holder is not entitled to compensation if his right of occupancy is
revoked on the ground of alienation of land without the consent of the Governor or the
breach of the terms and conditions of the certificate of occupancy.
[36] S 29(4)(5) LUA.
[37] B Martin, Uprooting War (London: Freedom Press, 1984).
[38] S Jahan and A Saber, ‘What is Capitalism?’ (International Monetary Fund)
https://https://www.imf.org/-/media/files/publications/fandd/back-to-basics/jahan-capital.pdf Accessed 13 February 2026.
[39] ibid.
[40] B King and L William, New Interpretations of Indices of Economic Freedom in Banaian King and B
Roberts (eds) The Design and Use of Political Economy Indicators (Palgrave Macmillan 2008).
[41] K Ajide, Determinants of Economic Growth in Nigeria 5(2) CBN Journal of Applied Statistics 147.
[42] This applies where the statutory right of occupancy was granted free of rent.
[43] LUA, ss 5 and 16.
[44] AL Mabogunje, ‘Land Reform in Nigeria: Progress, Problems & Prospects’ (Presidential Technical Committee for Land Reform, Nigerian Federal Government 2011)
[45] See Corporate Finance Institute, ‘Market Economy’ https://corporatefinanceinstitute.com/resources/economics/definition-market-economy/ (10 December 2019, Corporate Finance Institute) accessed 15 January 2026.
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