Compensation for Expropriations in a World of Investment Treaties: Beyond the Lawful/Unlawful Distinction

When a state expropriates a foreign investment in violation of a bilateral or other treaty on investment protection and a foreign investor sues, where should a tribunal look for the standard of compensation -- to the amount specified in the treaty, to an external standard for violations of internationally law generally, or elsewhere? Investor-state tribunals have offered wildly different answers to this question, trapped in a paradigm set by the Permanent Court of International Justice ninety years ago that distinguishes between so-called lawful and unlawful expropriations. This article evaluates and criticizes the caselaw of tribunals and proposes a new framework for compensation grounded in five key purposes of a remedy in the context of contemporary investor-state relations. It also clarifies the economic and legal significance of valuing expropriated investments using information available at the date of expropriation as opposed to the date of the award. The article proposes that, instead of the current lawful/unlawful distinction, compensation take account of specific aspects of the expropriatory act, including whether the state\u27s failure to pay was based on a bona fide disagreement with the investor and whether the state violated the procedural criteria spelled out in an investment treaty. It concludes with a consideration of the implications of this approach for violations of other provisions of investment treaties