Article IV. EXPROPRIATION AND UNILATERAL ALTERATIONS OR TERMINATION OF CONTRACTS
1. A State may not expropriate or otherwise take in whole or in part a foreign private investment in its
territory, or take measures which have similar effects, except where this is done in accordance with applicable legal procedures, in pursuance in good faith of a public purpose, without discrimination on the
basis of nationality and against the payment of appropriate compensation.
2. Compensation for a specific investment taken by the State will, according to the details provided below,
be deemed "appropriate" if it is adequate, effective and prompt.
3. Compensation will be deemed "adequate" if it is based on the fair market value of the taken asset as
such value is determined immediately before the time at which the taking occurred or the decision to take
the asset became publicly known.
4. Determination of the "fair market value" will be acceptable if conducted according to a method agreed
by the State and the foreign investor (hereinafter referred to as the parties) or by a tribunal or another body
designated by the parties.
5. In the absence of a determination on agreed by, or based on the agreement of, the parties, the fair market
value will be acceptable if determined by the State according to reasonable criteria related to the market
value of the investment, i.e., in an amount that a willing buyer would normally pay to a willing seller after
taking into account the nature of the investment, the circumstances in which it would operate in the future
and its specific characteristics, including the period in which it has been in existence, the proportion of
tangible assets in the total investment and other relevant factors pertinent to the specific circumstances of
each case.
6. Without implying the exclusive validity of a single standard for the fairness by which compensation is to
be determined and as an illustration of the reasonable determination by a State of the market value of the
investment under Section 5 above, such determination will be deemed reasonable if conducted as follows:
(i) for a going concern with a proven record of profitability, on the basis of the discounted cash
flow value;
(ii) for an enterprise which, not being a proven going concern, demonstrates lack of profitability, on the
basis of the liquidation value;
(iii) for other assets, on the basis of (a) the replacement value or (b) the book value in case such value
has been recently assessed or has been determined as of the date of the taking and can therefore be
deemed to represent a reasonable replacement value.
7. Compensation will be deemed "effective" if it is paid in the currency brought in by the investor where it
remains convertible, in another currency designated as freely usable by the International Monetary Fund or
in any other currency accepted by the investor.
8. Compensation will be deemed to be "prompt" in normal circumstances if paid without delay. In cases
where the State faces exceptional circumstances, as reflected in an arrangement for the use of the resources
of the International Monetary Fund or under similar objective circumstances of established foreign
exchange stringencies, compensation in the currency designated under Section 7 above may be paid in
installments within a period which will be as short as possible and which will not in any case exceed five
years from the time of the taking, provided that reasonable, market-related interest applies to the deferred
payments in the same currency.
9. Compensation according to the above criteria will not be due, or will be reduced in case the investment
is taken by the State as a sanction against an investor who has violated the State's law and regulations
which have been in force prior to the taking, as such violation is determined by a court of law. Further
disputes regarding claims for compensation in such a case will be settled in accordance with the provisions
of Guideline V.
10. In case of comprehensive non-discriminatory nationalizations effected in the process of large scale
social reforms under exceptional circumstances of revolution, war and similar exigencies, the compensation may be determined through negotiations between the host State and the investors' home State and
failing this, through international arbitration.
11. The provisions of Section I of this Guideline will apply with respect to the conditions under which a
State may unilaterally terminate, amend or otherwise disclaim liability under a contract with a foreign
private investor for other than commercial reasons, i.e., where the State acts as a sovereign and not as a
contracting party. Compensation due to the investor in such cases will be determined in the light of the
provisions of Sections 2 to 9 of this Guideline. Liability for repudiation of contract for commercial
reasons, i.e., where the State acts as a contracting party, will be determined under the applicable law of the
contract.
Article V. SETTLEMENT OF DISPUTES
1. Disputes between private foreign investors and the host State will normally be settled through
negotiations between them and failing this, through national courts or through other agreed mechanisms
including conciliation and binding independent arbitration.
2. Independent arbitration for the purpose of this Guideline will include any ad hoc or institutional
arbitration agreed upon in writing by the State and the investor or between the State and the investor's
home State where the majority of the arbitrators are not solely appointed by one party to the dispute.
3. In case of agreement on independent arbitration, each State is encouraged to accept the settlement of
such disputes through arbitration under the Convention establishing the International Centre for Settlement
of Investment Disputes (ICSID) if it is a party to the ICSID Convention or through the "ICSID Additional
Facility" if it is not a party to the ICSII) Convention.