One of the risks of investing abroad is the possibility of expropriation of one’s investment. The remedies available to the investor in such an event depend both on substantive international law delineating the scope of such remedies and on the existence of forums in which those remedies may be sought. There were developments in both of these areas, when the Iran-United States Claims Tribunal began ruling on expropriation cases and as the American Law Institute (ALI) undertook a revision of the Restatement (Second), Foreign Relations Law of the United States (1965) (Restatement Second).

Of course, there is much that an investor abroad can do, in advance of committing his money, to guard against, or minimize the effect of, future hostile action with respect to his investment on the part of the host country. Political-risk insurance and similar protection are available from various sources, both public and private.

In addition, the investor may seek, if he is negotiating with the host government or one of its agencies, that the agreement pursuant to which he makes his investment contains a “stabilization clause” by which that government agrees not to enact legislation or take other governmental action adversely affecting the project without the consent of the investor. This type of clause, further described below, might also be accompanied by a clause expressly providing that the contract is to be governed by “general principles of the law of nations,” thereby attempting to ensure that local legislation barring or restricting compensation would not be applicable.

Depending upon the circumstances of the individual case, litigation resulting from nationalization may be brought in a United States Court, an international claims commission, an arbitral panel, the courts of the expropriating country, or tribunal such as the Iran-United States Claims Tribunal. In the past, such courts and tribunals have looked to general principles of international law in determining whether the investor is entitled to compensation and the measure of such compensation.

The ALI has set forth the compensation due upon expropriation under international legal principles in the Restatement Second sections 185-190, and these sections are frequently referred to and relied upon by courts and arbitral panels.