Chapter 7 takes the analysis beyond the conduct of hostilities and issues related to physical damage to foreign investments. It addresses the rules on expropriation universally included in investment treaties and analyses them against the backdrop of armed conflict. The chapter shows that the protection from expropriation in times of armed conflict principally follows the same general parameters as in times of peace: investment treaties offer protection from abusive property seizures often observed during armed conflict as well as unreasonable or discriminatory restrictions on the use of property and businesses. When it comes to indirect expropriation, the chapter suggests to follow a mitigated version of the so-called police powers doctrine. While the debate on the delineation between expropriatory measures and non-compensable regulations is not new, the context of armed conflict provides new insights based on domestic and international case law on war-time property restrictions. Armed conflict and the interests involved, the chapter argues, broaden the scope of police powers and increase the state’s leeway in restricting the free enjoyment of property.

In this chapter, the method of ‘frame-determination’ for IIA expropriation clauses is applied and three limits of the actus reus condition of typical IIA expropriation clauses are identified. (1) On the macro-structural level, concerning the interaction of IIA clauses with the rest of international law, facile references to customary international law are shown to be problematic: ‘’ in IIAs does not refer to a customary norm of certain validity and great specificity. (2) On the micro-structural level, the necessity of treating direct and indirect expropriation as fully equivalent is structurally inherent in typical IIAs. (3) All legality conditions are equal and cannot be doubled in the actus reus of indirect expropriation. The structure of typical IIA clauses does not support the majority of arguments based on ‘police powers’ or on a ‘right to regulate’.

This chapter deconstructs the main argument of orthodox doctrinal scholarship on regulatory expropriation. It argues that the strong impetus of orthodox scholarship to solve problems leads both those favouring strong investor protection and those arguing for a wide state freedom to regulate to see the problem in virtually the same terms and to develop the same solution. The problem identified is that neither of the two extremes is sustainable; the solution is that a balance has to be struck. Yet such a view is ideological, not legal, because it cannot contemplate and must deny a priori the possibility that IIA expropriation clauses are skewed in one direction or that the law does not provide for a balanced, proportional solution. Doctrinal scholarship, however, must analyse the law as it is, not as we may wish it to be.