Defining the Scope of Indirect Expropriation for International Investments

At present, arbitral tribunals have applied a variety of standards to ascertain when indirect expropriation occurs. This article examines the complexities and ambiguities of current indirect expropriation standards and argues that a clear, uniform standard is needed to identify indirect expropriation. Ultimately, this article proposes that arbitral tribunals should only find that indirect expropriation occurs when (i) a state takes actions that substantially deprive the foreign investor of the profitability of its investment, and (ii) the state action was not reasonably predictable to the investor. Part I of this article provides a summary of the current state of expropriation doctrine.

Part II exposes the ambiguities of current indirect expropriation standards and outlines several potential solutions that scholars have proposed. Part III offers a succinct, two part standard for identifying compensable indirect expropriation claims. Part IV applies this proposed standard to the recent PM Asia arbitration.