Indemnisation de l’Expropriation

This guide by the International Institute for Sustainable Development (IISD) analyzes the legal principles and methods for calculating compensation in cases of expropriation of foreign investments. It examines the differences between customary international law and Bilateral Investment Treaties (BITs), highlighting the challenges of valuing indirect expropriation and the risks associated with various valuation methods used by arbitral tribunals.

• Under customary international law, a distinction is made between compensation for lawful and unlawful expropriation. Lawful expropriation typically requires compensation limited to the value of the enterprise at the time of dispossession plus interest. In contrast, unlawful expropriation requires 'reparation' intended to erase all consequences of the illegal act, which may include both actual losses (damnum emergens) and lost profits (lucrum cessans).
• Bilateral Investment Treaties (BITs) often fail to distinguish between direct and indirect expropriation regarding compensation standards. This creates a risk where legitimate public regulations (e.g., health or environmental laws) may be classified as indirect expropriation, forcing states to pay maximum compensation even when the state derives no economic profit from the measure.
• There is a significant lack of clarity in BITs regarding the timing and nature of interest payments. While many treaties require payment 'without delay,' the lack of specificity on whether interest should be simple or compound can lead to situations where interest payments exceed the principal amount, especially in long-running arbitral proceedings.
• The 'Hull formula' of 'prompt, adequate and effective' compensation is a common standard in BITs, often interpreted as requiring full compensation based on the fair market value of the investment. However, newer models, such as the SADC model BIT, propose a 'just and adequate' standard that allows tribunals to balance public interest against the investor's interest by considering non-financial factors.
• Arbitral tribunals primarily use three valuation methods: Market Value, Net Book Value, and Discounted Cash Flow (DCF). Market Value is preferred for profitable investments but is prone to speculation. Net Book Value is used for non-profitable or early-stage investments as it is more objective. DCF attempts to project future revenues but is criticized for being essentially speculative despite its mathematical appearance.
• The document recommends that states more clearly define what constitutes indirect expropriation in their treaties to protect legitimate regulatory space. It also suggests specifying the start date and type of interest, allowing for flexible payment schedules for significant financial burdens, and including a list of non-financial factors for compensation weighting.

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} }