The significant majority describe the compensation due by reference to some measure of the value of the investment that is expropriated:

👉The most common description of the compensation for expropriation was simply that compensation should be equal to the value of the investment. This was the case in over 100 of the investment treaties that we reviewed.

👉Also present in over 100 of the investment treaties was the stipulation that compensation should be equal to the genuine value of the investment. A minority of these go on to state, in words to that effect, that the genuine value should take into account the ‘net asset value’ and the ‘market value’ of the investment.

👉Over 90 of the investment treaties reviewed described the quantum of compensation due in the event of expropriation as the market value of the investment.

👉Over 80 of the investment treaties reviewed described the quantum of compensation due in the event of expropriation as the fair market value of the investment.

👉Other common phrases used to describe the quantum of compensation due in the event of expropriation include ‘real value’, ‘actual value’, ‘full value’, ‘real economic value’ and ‘appropriate value’.

Fair Market Value – a Standard of Value considered to represent the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, each acting at arms-length in an open and unrestricted market, when neither is under compulsion to buy or to sell and when both have reasonable knowledge of relevant facts.7

Fair Value – a Standard of Value for which there are different definitions, depending on the context and purpose. Fair Value is typically defined or imposed by a third party (e.g., by law, regulation, contract, or financial reporting standard-setting bodies). The most commonly used definition for financial reporting purposes is under IFRS and US GAAP, which define Fair Value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.8

Market Value – a Standard of Value considered to represent the estimated amount for which an asset or liability should exchange on the Valuation Date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, and where the parties had each acted knowledgeably, prudently, and without compulsion.

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