BRAZIL Trends and Developments Contributed by: Márcio Pina Marques, Marina Cristina Rios Silveira de Oliveira and Gustavo Assis de Oliveira, Advocacia Bettiol
principles of legal certainty and objective good faith”, further recognising that the calculation methodology constitutes an essential, rather than an ancillary, ele- ment of the economic equation of the concession. The need to establish clearer substantive limits on regulatory action, or what is sometimes referred to as “regulatory abuse” – today also described as “expro- priatory regulation” or indirect expropriation – is a con- cept that has been developed over decades, primarily through the jurisprudence of the Supreme Court of the United States. Direct Expropriation, Indirect Expropriation and Regulatory Takings: Implications for the Compensation of Transmission Assets While “direct expropriation” is characterised by the formal transfer of ownership of property to the State, through an express act and usually accompanied by compensation, “indirect expropriation” manifests itself through government measures that, although formally preserving ownership of the property, sub- stantially deplete its economic value, its utility, or its capacity to generate returns for its owner. Although the termination of the concession implies the formal reversion of the assets to the granting authority, the legal controversy lies in the absorption, without compensation, of their residual economic value. When assets that remain economically useful are transferred to the State without corresponding compensation, the material effect of the measure approaches the classic hypothesis of indirect expropriation. Because it involves broad economic and social impli- cations, each country has developed its own political and legal approach regarding the limitation of State power in the face of regulatory interference with pri- vate property. In the United States, this debate is centred more spe- cifically on regulatory takings, a doctrine analysed extensively in both legal scholarship and case law, which still does not present a single unified interpre- tation. The constitutional foundation for government takings derives from the Fifth and Fourteenth Amendments to
the United States Constitution, which protect private property from being taken by the government without just compensation or due process of law, establishing the so-called “Takings Clause”. In addition to the physical appropriation of land for government use, the Fifth Amendment also encom- passes regulatory takings, leaving it to the Supreme Court to determine what constitutes a regulatory tak- ing and the amount of compensation that may be required. Since the Supreme Court began recognising the pos- sibility that regulatory activity itself could constitute a form of expropriation, the principal challenge has been identifying when a government measure that affects property owners should be considered legitimate and non-compensable, and when regulation becomes excessive, reducing property values to such an extent that compensation becomes constitutionally required. This distinction is particularly significant because, if the State holds unlimited power to redefine the use and enjoyment of property, one of the central virtues of property rights, its ability to stabilise and protect expectations regarding assets may be undermined. The recognition by the United States Supreme Court that regulatory activity may constitute a form of expro- priation dates to Pennsylvania Coal Co v Mahon (260 US 393, 1922). In that precedent, while invalidating a Pennsylvania statute that rendered contractually guaranteed mining activities impossible, Justice Oliver Wendell Holmes Jr famously stated that “while prop- erty may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking”. The court thereby recognised the possibility that regulation may exceed legitimate limits and become expropria- tory in nature. This statement was considered a paradigm shift, as it introduced the idea that a substantial loss of value and the frustration of legitimately formed expectations may transform regulation into expropriation. The case marked the beginning of the doctrinal development of regulatory takings. The consolidation of this doctrine occurred in Penn Central Transportation Co v City of New York (438 US
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