Indemnisation de l’Expropriation

The document examines the complexities of expropriation compensation, contrasting customary international law—which distinguishes between licit and illicit acts—with BITs, which often apply a uniform standard. It highlights the risks associated with indirect expropriation, where general public interest regulations may trigger high compensation costs. The guide evaluates three primary valuation methods: market value, net book value, and discounted cash flow, noting that the latter is often speculative. It concludes by recommending that states explicitly define indirect expropriation and specify interest rates and payment flexibility in their treaties, citing the SADC model BIT as a reference.

• Under customary international law, a distinction is made between compensation for licit expropriation and reparation for illicit expropriation. Licit expropriation entitles the investor to the value of the enterprise at the time of dispossession plus interest, whereas illicit expropriation requires reparation that, as far as possible, erases all consequences of the illegal act, including lost profits (lucrum cessans).
• Bilateral Investment Treaties (BITs) often fail to distinguish between direct and indirect expropriation in their compensation standards. This creates a risk where legitimate general public regulations—such as health or environmental laws—could be qualified as indirect expropriations, forcing states to pay maximum compensation even when the state derived no economic profit from the measure.
• There is a lack of clarity in BITs regarding the type of interest applicable to compensation. Tribunals often apply compound interest to ensure full reparation, which can lead to interest payments exceeding the principal amount, especially over long periods. Common calculation methods include the investor's opportunity cost, the cost of borrowing funds, or market indices like LIBOR.
• The 'Hull formula' of 'prompt, adequate and effective' compensation is widely used in BITs and is generally interpreted by tribunals as requiring full compensation, often equated with the 'fair market value' of the investment.
• The SADC model BIT introduces a 'just and equitable' compensation standard that allows tribunals to consider non-financial factors beyond market value, such as the public interest, the history of the property's acquisition, and the extent of previous profits realized by the investor.
• Tribunals use three main valuation categories: market-based (market value), asset-based (net book value), and income-based (discounted cash flow). While market value is seen as providing full compensation, it is prone to speculation. Net book value is more objective but ignores the dynamic profit potential. Discounted cash flow is widely used for profitable assets but is criticized as being essentially speculative despite its mathematical appearance.

APA

Nikièma, S. H. (2013). Indemnisation de l’Expropriation. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/best_practice_compensation_expropriation_fr.pdf

Chicago

Nikièma, Suzy H. Indemnisation de l’Expropriation. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/best_practice_compensation_expropriation_fr.pdf.

Wikipedia

{{cite report |last1=Nikièma |first1=Suzy H. |title=Indemnisation de l’Expropriation |publisher=International Institute for Sustainable Development |date=March 2013 |url=https://www.iisd.org/system/files/publications/best_practice_compensation_expropriation_fr.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nikima2013indemnisation, author = {Nikièma, Suzy H.}, title = {{Indemnisation de l’Expropriation}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = mar, url = {https://www.iisd.org/system/files/publications/best_practice_compensation_expropriation_fr.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }