## Facts

- SEDCO, Inc., a U.S. corporation, held a 50% shareholding in SEDIRAN Drilling Company and managed SEDIRAN’s Iranian drilling-rig operations through the 1970s.
- During the Iranian Revolution, SEDCO withdrew expatriate personnel and operations ceased in early 1979; partial operations later resumed at Iran’s request.
- Respondents canceled contracts for rigs deemed inoperative and began operating certain rigs themselves.
- In 1979, government-appointed provisional directors replaced SEDCO’s appointees at SEDIRAN, and a government supervisor oversaw drilling operations.
- After unanswered inquiries about future rig needs, SEDCO terminated its contract in November 1979.
- The Iranian government later ordered transfer of SEDCO’s SEDIRAN shares to the government; respondents retained and used SEDIRAN’s rigs and equipment.
- A prior interlocutory award determined Tribunal jurisdiction over SEDCO’s direct shareholder claim and found SEDCO’s shareholder interest expropriated on November 22, 1979.
- This interlocutory award addressed only the standard of compensation for the already-determined expropriation, reserving valuation and quantum for later proceedings.

## Issues

1. What standard of compensation under customary international law applies to the expropriation of SEDCO’s shareholder interest: full value (often framed as “prompt, adequate and effective”) or a lesser “appropriate” amount guided by unjust enrichment and measured by net book value?
2. What weight should be given, as evidence of customary international law, to (a) lump-sum inter-state settlements and state–company settlements and (b) bilateral investment treaty practice?
3. How does the Treaty of Amity’s requirement of “just compensation” relate to the customary international law standard applied by the Tribunal?

## Decision

- The Tribunal held that customary international law requires compensation equivalent to the full value of the property taken in cases of expropriation.
- Applying that rule, SEDCO was entitled to compensation for the full value of its equity interest in SEDIRAN.
- The Tribunal rejected respondents’ position that only “appropriate” compensation aimed at reversing unjust enrichment, and calculated on net book value, is the customary international law standard.
- The Tribunal treated lump-sum settlements and negotiated settlements as generally weak indicators of opinio juris because they may reflect non-legal and political considerations.
- The Tribunal treated bilateral investment treaty practice as comparatively stronger evidence of states’ views on expropriation compensation, noting that such treaties more often reflect the traditional full-compensation standard.
- The award was interlocutory: it set the governing legal standard for compensation and left the amount of compensation for later determination.

## Legal Principles

- Under customary international law, expropriation of foreign-owned property requires compensation equivalent to the full value of the property taken.
- “Full value” is the governing standard for compensating a taken equity interest; the compensation obligation is not limited to restoring only unjust enrichment or to net book value.
- Lump-sum inter-state agreements and negotiated state–company settlements often have limited probative value for identifying customary international law because they may be driven by pragmatic or political tradeoffs rather than legal obligation.
- Bilateral investment treaty practice can be relevant evidence of contemporary state views on the compensation standard and may support the continued acceptance of a full-value standard.
- When a tribunal has already determined that an expropriation occurred, it may decide the applicable compensation standard in an interlocutory award while reserving valuation methodology and quantum for later phases.

## Conclusion

The Tribunal determined, as a matter of customary international law applied in the case, that expropriation requires compensation equal to the full value of the investor’s taken equity interest, rejecting a reduced “appropriate compensation” approach tied to unjust enrichment or net book value, and leaving the valuation and amount of damages for subsequent proceedings.


SEDCO, Inc. v. Nat’l Iranian Oil Co. (Iran), 10 Iran-U.S. Cl. Trib. Rep. 180 (1986)