Expropriation is included in virtually all International Investment Agreements (“IIAs”),3 sometimes with different terms, i.e. “deprivation.”4 Tribunals tend to interpret the concept according to international law standards as it is mostly not defined in IIAs,5 and since the concept is considered as deriving from customary international law.6
Indirect expropriation occurs when the property is otherwise destroyed or the owner is deprived of its ability to manage, use or control its property in a meaningful way (alias “dispossession”),10 without the legal title being affected.11
There are various forms of indirect expropriation, the most notable one being creeping expropriation,12 when the expropriation occurs gradually or in stages through measures that individually do not necessarily rise to the level of a taking.13 By contrast, a de facto expropriation occurs abruptly through a unique action.14 (See also Judicial expropriation).
Most investment treaties contain provisions on indirect expropriation, equivalent measures, or measures with tantamount effect,15 or arbitral tribunals interpret them as broad enough to include protection against such measures.16
Tribunals have included contractual rights within the scope of expropriatory objects.35 For example, the wrongful termination of an agreement or a breach of the agreement can amount to an expropriation. In those instances, tribunals have generally required that three cumulative conditions be met: (i) the investor should first sue the State counter-party in the appropriate forum to remedy the breach of contract;36 (ii) a preliminary determination of the existence of a contractual breach under domestic law is often required;37 and (iii) the breach must give rise to a “substantial decrease of the value of the investment.”38
Expropriation is not illegal per se under international law. Under most IIAs, an expropriation will be deemed lawful if it fulfils all of the following criteria:41
The Chorzów Factory case provides the customary international law rules regarding the consequences of a lawful or unlawful expropriation.47 In the case of a lawful expropriation, the investor is entitled only to compensation equating to the losses suffered upon the date of expropriation (damnum emergens).48 Conversely, when an unlawful expropriation takes place, the investor has the right to full reparation,49 which includes not only losses, but also loss of profits (lucrum cessans).50
Reparation can be equal or exceed compensation, but never fall below it.51 Reparation would be higher than compensation when the loss is greater than the value of the expropriated investment.52 Although the value of the investment remains the same irrespective of the legality or illegality of the expropriation, Reparation may include elements additional to the investment’s value in order to re-establish the situation that would have prevailed had the illicit act not occurred.53
Tribunals have often discussed the interplay between expropriation and other protection standards. For example, tribunals have distinguished expropriatory measures from others that are “simply” discriminatory,55 unpredictable,56 or amount to an unfair treatment.57 (See further Discrimination in FET, Discriminatory measures and Stability in FET)
Tribunals have also found that the frustration of an investor’s legitimate expectations does not necessarily amount to expropriation,58 although the frustration of those expectations may be taken into account as a relevant factor when assessing an indirect expropriation.59 Some tribunals have also taken into account the investor’s due diligence and the risky characteristics of an investment.60 (See also Risk)
Cox, J.M., Expropriation in Investment Treaty Arbitration, Oxford University Press, 2019.
Kinnear, M., Fischer, G.R., Mínguez Almeida, J., Torres, L. and Bidegain, M., Chapter 32: Police Powers or the State's Right to Regulate, in Building International Investment Law: The First 50 Years of ICSID, Kluwer Law International, 2015,
Rajput, A., Chapter 2: the Concept of ‘Regulatory Measure’ and ‘Expropriatory Measure’, in Regulatory Freedom and Indirect Expropriation in Investment Arbitration, Kluwer Law International, 2018.
Schreuer, C., The Concept of Expropriation under the ECT and Other Investment Protection Treaties, Transnational Dispute Management, 2005.
Sicard-Mirabal, J. and Derains, Y., Introduction to Investor-State Arbitration, Kluwer Law International, 2018.
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