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Yes. An investment treaty can protect a foreign investor from uncompensated expropriation, but only when the investor, investment, challenged government measure and claim fall within that treaty’s terms. The treaty may also provide a route to seek a remedy, such as investor–State dispute settlement (ISDS). It does not guarantee that a claim will succeed or that every loss caused by government action must be compensated.
What does investment treaty protection cover?
International investment agreements (IIAs) set legal standards for how a host state treats covered foreign investors and their investments. Their protections depend on the wording of the particular agreement: treaties can differ in who counts as an investor, what qualifies as an investment, which measures are covered and what procedures are available.
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Expropriation provisions commonly address both direct and indirect takings. Whether a claim concerns a particular asset or a wider business investment may also matter, as may the treaty’s definitions and the host country’s law.
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A direct taking typically involves a formal transfer of title or physical seizure of property by the state.
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Indirect expropriation
An indirect expropriation claim concerns government action without a formal transfer of ownership. The question may be whether the measure’s effects have substantially deprived the investor of meaningful ability to manage, use or control the property, or destroyed its economic value. The applicable treaty and legal test determine how those effects are assessed.
Can a government regulation amount to expropriation?
It can be alleged to do so, but a regulation is not automatically an expropriation just because it reduces an investment’s value. States retain the right to regulate in the public interest. Some non-discriminatory measures adopted in that exercise can have effects resembling an indirect taking without being treated as expropriation or requiring compensation. Modern treaties may offer tribunals more guidance on distinguishing regulation from a compensable taking.
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The result depends on the measure, its effects and the applicable treaty language. A particular loss, regulation or industry does not establish the answer on its own.
When can an expropriation be lawful?
UNCTAD describes four conditions commonly associated with lawful expropriation in IIAs. The treaty’s wording controls, and provisions vary in how they state these requirements:
- Public purpose: the taking serves a public purpose.
- Non-discrimination: the state does not apply the measure discriminatorily.
- Due process: the taking follows applicable procedural protections.
- Compensation: the state pays compensation as required by the treaty.
A treaty may protect an investor against an uncompensated taking while still permitting expropriation that meets its stated conditions. The presence and meaning of those conditions must be checked in the agreement at issue.
How can an investor pursue a treaty claim?
If the applicable treaty gives the investor access to ISDS, the investor may be able to bring a claim through the process and forum specified in that agreement. The treaty determines matters such as consent to arbitration, which investors and investments are covered, available procedures and any steps required before arbitration. There is no universal procedure or deadline that can be applied without identifying the treaty.
Before assessing a potential claim, the relevant documents and facts include:
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- the treaty text and any applicable definitions or exceptions;
- the investor’s nationality and ownership structure;
- the investment and how it was structured;
- the challenged government measure and its effects;
- the host country’s law; and
- the procedural history, including any treaty-required pre-arbitration steps.
How is compensation determined?
Compensation is not automatically the amount an investor demands. The applicable treaty and law govern the compensation standard, valuation method and relevant date. UNCTAD notes that many older-generation IIAs do not set out compensation rules clearly, leaving room for tribunal interpretation under applicable law. Some newer agreements specify valuation approaches or seek to limit awards for hypothetical future profits.
UN Trade and Development (UNCTAD) reported in a 2024 issues note that 98% of ISDS cases were based on old-generation IIAs that typically lack clear compensation guidance. The same note reported that, among ISDS cases won by investors, tribunals awarded more than US$100 million in over a quarter of cases. It also reported an average award of US$25 million in 1994–2003 and US$256 million in 2014–2023. These are figures reported by UNCTAD in 2024; they do not establish the likely outcome or compensation in an individual dispute.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What to compare when checking two treaties
If an investor may have a choice of relevant treaties, compare their actual provisions rather than assuming they offer the same protection. Key points include:
- who qualifies as an investor and what qualifies as an investment;
- whether direct and indirect expropriation are covered, and how indirect expropriation is defined;
- the public-purpose, non-discrimination and due-process requirements, along with any regulatory exceptions;
- the compensation standard and any valuation date or method; and
- ISDS consent, available forum and procedural prerequisites.
Without a country, treaty and fact pattern, it is not possible to determine whether a particular investor is protected or what remedy may be available.
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