General Editor's Preface: Publication

KluwerArbitration
Document information General Editor's Preface

This series of monographs is dedicated to specific issues in international arbitration law
Publication and practice, and gives authors the opportunity and the challenge of a more in-depth
Calculation of treatment than is possible in leading generalist works. It also provides an international
Compensation and forum for the profound exploration of important practical and theoretical matters and
Damages in International will further the development of arbitration as a self-luminous academic discipline and
Investment Law (Second major international legal practice area.
Edition) This book is the first in the series to have a second edition. It was originally published in
2009 and the research was completed in 2008. It was one of the first books in English
specifically dedicated to the calculation of compensation and damages in international
Bibliographic investment law. Since its publication, the topic has gathered more attention through a
series of significant cases, such as the various cases of Yukos shareholders against the
reference Russian Federation or the cases at the aftermath of Desert Lines v Yemen which address
'General Editor's Preface', moral damages and perhaps made the picture a bit more colourful. With the
in Irmgard Marboe , jurisprudential developments in international investment law and arbitration it was
Calculation of essential and indeed timely to have a second edition.
Compensation and
Damages in International This new edition is a fully revised and updated monograph and addresses all cases since
Investment Law (Second 2008 and also contains a new section in Chapter 3 on immaterial (moral) damages. The
Edition), Oxford new edition also contains very useful appendices. In other words this book, which was
International Arbitration well received when published eight years ago, sets out with this new edition to be the
Series, (© Irmgard Marboe standard authoritative text on damages in international investment law arbitration.
2017; Oxford University Professor Marboe provides a wealth of research, academic thoroughness, an accessible
Press 2017) pp. v - vi writing style, and an unbiased authoritative analysis.
We very much welcome this second edition of the book.
LM
P v London, 13 January 2017
1
© 2021 Kluwer Law International, a Wolters Kluwer Company. All rights reserved.
Document information General Editor's Preface for the First Edition
The evolution of international investment arbitration over the last thirty years has
Publication signalled a development of international investment law, well beyond its traditional
Calculation of cloth as law of treaties and treaty interpretation. The existence of a remarkable volume
Compensation and of awards provided additional areas of research, study and analysis. Several issues
Damages in International require specific attention. For example, in all arbitration proceedings, commercial or
Investment Law (Second investment, it is critical that the prevailing party has an adequate remedy and ultimately
Edition) the ability to enforce the award without any delay or legal complications. However, the
average student of investment arbitration awards will be confused trying to ascertain
what the generally accepted principles for the calculation of damages in awards for
compensation. Such establishment of general principles would require a profound
Bibliographic understanding of the legal and economic parameters relevant to both international
reference investors and sovereign states. Inevitably experts assume a significant role.
'General Editor's Preface The importance and topicality of calculation of damages and award of compensation has
for the First Edition', in nevertheless received limited scholarly attention and the focus has been on
Irmgard Marboe , international commercial arbitration where we now have a number of very good
Calculation of publications.
Compensation and
Damages in International This monograph by Professor Irmgard Marboe is dedicated to the most important remedy
Investment Law (Second of damages and the calculation of compensation in investment treaty arbitration and
Edition), Oxford international investment law, a hitherto unchartered territory. Professor Christoph
International Arbitration Schreuer originally suggested to Irmgard Marboe that she explores this pertinent topic.
Series, (© Irmgard Marboe Her original study resulted in her Habilitation submitted to the University of Vienna in
2017; Oxford University 2007. She has since worked on an English manuscript and enhanced and expanded the
Press 2017) pp. vii - viii research.
The author of this book assumed a very challenging task and succeeded in its delivery.
The book provides a comprehensive and accessible account of the current state of affairs
relating to the calculation of damages and compensation in international investment
law. After a short introduction and a discussion in Chapter 2 of the function of
compensation and damages, the author presents a number of substantive chapters. First,
in Chapter 3 she analyses the main valuation standards and criteria and continues in
Chapter 4 with bases of value and international valuation standards from an economic
perspective. Second, she explores methods of valuation in international practice in
P viii Chapter 5, in synthesizing the approaches taken in Chapters 3 and 4 and exploring
relevant practice in international jurisprudence. Finally, she turns her attention to
interest in Chapter 6 and discusses pre-award and post-award interest.
The author and the book succeed in distilling from substantive and procedural principles
pertaining to damages in investment treaty arbitration. This is the result of profound
research and critical analysis of awards and treaties and the consequence of manifesting
the relevance of general public international law. Traditionally, losses were
underestimated (by tribunals or claimants) with a marked change in recent years with
awards of damages which seem to exceed claimants' expectations. The author concludes
that a hierarchy of valuation standards and methods has emerged and is applied by
international tribunals.
This book is of the highest academic calibre and of major practical relevance and fits
perfectly in the series.
This series is dedicated to specific and specialized issues in international arbitration law
and practice and give authors the opportunity and the challenge of a more in-depth
treatment than possible in leading generalist works. It also provides an international
forum for the profound exploration of important practical and theoretical matters and
will further the development of arbitration as an academic discipline and international
legal practice area.
I am very pleased to welcome and present this third book of the Oxford International
Arbitration Series.
Loukas Mistelis
P viii London, 3 July 2009
2
Document information Preface
The rich jurisprudence of international investment tribunals is witness to the importance
Publication of awards of compensation and damages in investor–state disputes. While in other areas
Calculation of of international law the clarification of the legal question or the identification of an
Compensation and unlawful act is paramount—the International Court of Justice has only twice in its history
Damages in International awarded damages, the same as the International Tribunal for the Law of the Sea—the
Investment Law (Second financial outcomes of the proceedings are greatly relevant in investment disputes. They
Edition) are essential for the functioning of the economy and for future investment decisions. A
legal framework for the protection of international investment is only useful if it can keep
its promise to redress unexpected or wrongful behaviour of the actors involved.
Bibliographic International investment law, in additional to international trade law, has developed
into an important area of international economic law, complemented by a system of
reference dispute settlement and remedies. In international trade law, financial retaliations may
'Preface', in Irmgard be substantial and affect an entire economy. International investment law, by contrast, is
Marboe , Calculation of less state-centric, and private companies are the key actors. In this respect, the
Compensation and appropriateness of an amount of compensation or damages contributes—or not—to the
Damages in International authority and legitimacy of the legal protection of international investment, including its
Investment Law (Second dispute settlement mechanism and remedies.
Edition), Oxford
International Arbitration While the first edition of this book in 2009 entered rather unchartered territory, the
Series, (© Irmgard Marboe situation has changed quite significantly since then. There have been numerous new
2017; Oxford University publications, and also the quantity of awards has multiplied. The large number of cases
Press 2017) pp. ix - x worked through showed, however, that the jurisprudence on compensation and damages
is not always consistent and the level of detail and the depth of reasoning, as well as the
stringency of the arguments, vary. As appeals mechanisms in international investment
law are absent so far, and ICSID annulment proceedings or challenges of arbitral awards
before national courts rather contribute to heterogeneity than to uniformity, academic
literature may be helpful to identify generally recognized principles and to point out
open questions.
I am greatly indebted to Oxford University Press for having proposed this second edition
which enabled me to develop my research project from a one-time event to a continuing
project. It involves the challenge and chance to keep up with new developments and to
analyse whether previous hypotheses and conclusions are still valid. In order to illustrate
P x the richness and abundance of new jurisprudence, this second edition is
complemented by an analytical presentation of investment arbitration cases since 2008
in the form of tables in four Annexes.
I am very grateful to Loukas Mistelis and the Editorial Board, who accepted this book to
be published in the highly respected Oxford International Arbitration Series, as well as to
the kind and helpful staff of Oxford University Press. In the collection and preparation of
cases and literature I was assisted by Karin Traunmüller, Sarah Mansour Fallah, and
Susanne Gstöttner from the Department of European Law, International Law and
Comparative Law of the University of Vienna. With my colleagues and professors at the
same Department, August Reinisch, Ursula Binder, Manfred Nowak, Christina Binder, and
Stephan Wittich, I enjoyed the pleasure of constructive cooperation and inspiring
conversations. Special thanks I owe to Professor Christoph Schreuer for his initial
suggestion for my research on this subject which led me to numerous interesting new
projects and encounters. I thank Rory Walck and Craig Miles for their wonderful
cooperation as co-editors in chief of The Journal of Damages in International Arbitration,
and Mark Kantor and José Alberro for their advice and sharing of ideas. My family, in
particular my husband Peter, has supported this new exercise again heroically. Without
their continuous support and endless patience this book would not have been possible.
Px
3
Document information Table of Cases
EUROPEAN COURT OF HUMAN RIGHTS
Publication Aka v Turkey, ECHR No. 19638/92, ECHR 1998-VI 6.281, 6.291
Calculation of
Compensation and Akkus v Turkey, ECHR No. 9263/92, ECHR 1997-IV 3.156, 6.281, 6.291
Damages in International
Investment Law (Second Belvedere Alberghiera Srl v Italy, ECHR No. 31524/96, ECHR 2000-VI 3.156, 3.290
Edition) Belvedere Alberghiera Srl v Italy (satisfaction equitable), ECHR No. 31524/96, 30 October
2003 3.109, 6.281, 6.291
Breyeler v Italy (just satisfaction), ECHR No. 33202/96, 28 February 2002 6.281
Bibliographic Broniowski v Poland, ECHR No. 31443/96, 22 June 2004 3.50
reference Brumarescu v Romania (just satisfaction), ECHR No. 28342/95, ECHR 2001-I 3.109, 3.156,
'Table of Cases', in Irmgard 6.281, 6.291
Marboe , Calculation of
Compensation and Brumaresu v Romania, ECHR No. 28342/95, ECHR 1999-VII 3.56, 3.291
Damages in International Carbonara and Ventura v Italy (just satisfaction) ECHR No. 24638/94, 11 December 2003
Investment Law (Second 3.292
Edition), Oxford
International Arbitration Dedda and Fragassi v Italy, ECHR No. 19403/03, 12 April 2011 3.302, 5.369, 6.291
Series, (© Irmgard Marboe
2017; Oxford University Former King of Greece v Greece, ECHR No. 25701/94, 23 November 2000 3.50
Press 2017) pp. xix - xxxiv Guiso-Gallisay v Italy, ECHR No. 58858/00, 22 December 2009 3.300–3.301, 3.303–3.304,
5.368, 6.291
Holy Monasteries v Greece, ECHR Nos 13092/87; 13984/88, 9 December 1994 3.50
Iatridis v Greece (just satisfaction), ECHR No. 31107/96, ECHR 2000-XI 3.109, 3.156, 6.281,
6.291
Jahn and others v Germany, ECHR Nos 46720/99, 72203/01 and 72552/01, 30 June 2005 3.50
James et al v United Kingdom, ECHR Ser A, No. 98, 1 February 1986 2.44, 5.06
Kartal Makina Sanayi Ve Ticaret Koll Sti v Turkey (No. 2), ECHR No. 50011/99, 7 October
2004 3.156, 6.281, 6.291
Kliafas et al v Greece, ECHR No. 66810/01, 8 July 2004 3.109, 6.291
Lithgow et al v United Kingdom, ECHR Ser A, No. 102, 8 July 1986 2.44, 3.50, 3.280, 5.06
Motais de Narbonne v France (just satisfaction), ECHR No. 48161/99, 27 May 2003 3.109,
3.156, 5.48, 6.281, 6.291
Motais de Narbonne v France, ECHR No. 48161/99, 2 July 2002 3.156, 3.291
Papamichalopoulos et al v Greece (just satisfaction), ECHR Ser A, No. 330-B, Judgment of
31 October 1995 2.78, 3.109, 3.155–3.156, 3.289, 3.294, 3.296, 3.300, 3.303
Papastavrou et al v Greece (just satisfaction), ECHR No. 46372/99, 18 November 2004
3.109, 5.48, 6.281, 6.291
Pasculli v Italy (just satisfaction) ECHR No. 36818/97, 4 December 2007 3.292
Pine Valley Developments Ltd et al v Ireland (just satisfaction), ECHR Ser A, No. 246-B,
Judgment of 9 February 1993 6.280
Scordino v Italy (just satisfaction) ECHR Ser A, No. 43662/98, 6 March 2007 3.292
Sporrong & Lönnroth v Sweden, ECHR Ser A, No. 52, 23 September 1982 2.44, 3.50
Stran Greek Refineries et al v Greece, ECHR Ser A, No. 301-B, 9 December 1994 3.156
Terazzi SRL v Italy (satisfaction equitable), ECHR No. 27265/95, 26 October 2004 3.109,
3.156, 3.291, 6.281, 6.291
Ugur et al v Turkey, ECHR No. 49690/99, 7 October 2004 6.281, 6.291
P xx Vasilescu v Romania, ECHR No. 27053/95, ECHR 1998-III 3.109, 3.156, 6.281, 6.291
COURT OF JUSTICE OF THE EUROPEAN UNION

Cases 27/59 and 39/59, Campolongo v Hohe Behörde [1960] ECR 821 6.40
Case 5/71, Zuckerfabrik Schöppenstedt v Council [1971] ECR 975, 984, para 1 1.06
Cases C-6 and 9/90, Francovich and Bonifaci v Italy [1991] ECR I- 5357 1.06
Case C-282/90, Vreugdenhil v Commission (Vreugdenhil II), [1992] ECR I- 1937, 1958 1.06
Cases C-46/93 and C-48/93, Brasserie du Pecheur SA v Federal Republic of Germany; R v
Secretary of State for Transport, ex parte Factortame Ltd (No. 4) [1996] ECR I- 1029 1.06
Case C-352/98, Laboratoires Pharmaceutiques Bergaderm and Goupil v Commission,
4
Judgment of 4 July 2000 1.06
ICSID TRIBUNALS
Abengoa v Mexico, ICSID Case No. ARB(AF)/09/2, Award of 18 April 2013 3.298, 5.73, 5.78,
5.80, 5.116, 5.197, 6.156, 6.192, 6.254
ADC Affiliate Limited and ADC & ADMC Management Limited v Republic of Hungary, ICSID
Case No. ARB/03/16, Award of 2 October 2006 2.16, 3.110, 3.155, 3.293, 3.343, 5.73, 5.79, 5.109,
5.115, 5.162, 5.327, 5.339, 6.272
AGIP SpA v People's Republic of Congo, Award of 30 November 1979, (1982) 21 ILM 740,
(1993) 1 ICSID Reports 306 2.13, 3.74–3.75, 3.138, 3.182, 5.09, 5.194, 6.190
AIG Capital Partnersv Kazakhstan, ICISD Case No. ARB/01/6, Award of 7 October 2003
3.244, 3.255
Alpha Projektholding v Ukraine, ICSID Case No. ARB 07/16, Award of 8 November 2010
3.316, 5.155, 5.166, 5.286, 6.41, 6.123, 6.127, 6.247
Amco Asia Corp et al v Republic of Indonesia (Amco I), Award of 20 November 1984, (1985)
24 ILM 1022, (1993) 1 ICSID Reports 413 2.85, 2.92, 3.139, 3.326, 3.330, 3.356, 5.73, 5.97, 6.22,
6.63, 6.195, 6.266
Amco Asia Corp et al v Republic of Indonesia (Amco II), Award of 5 June 1990, (1993) 1 ICSID
Reports 569 3.139, 3.185, 3.199, 3.236, 3.238–3.264, 3.326, 3.330, 5.73, 5.79, 5.83, 5.97, 5.152,
5.183, 5.195
American Manufacturing & Trading Inc (AMT) v Republic of Zaire, ICSID Case No. ARB/93/1,
Award of 21 February 1997, (1997) 36 ILM 1531 1553 3.148, 3.216, 5.192, 5.195, 5.282
Antoine Abou Lahoud and Leila Bounafeh- Abou Lahoud v Democratic Republic of the
Congo, ICSID Case No. ARB/10/4, Award of 7 February 2014 3.343, 5.260, 5.286, 5.347, 5.358,
6.148, 6.185, 6.254
Antoine Goetz et al v Republic of Burundi, Award of 10 February 1999, (2000) 15 ICSID Rev.-
FILJ 457 2.75, 3.44, 3.140, 3.160, 3.244, 3.344, 6.169, 6.179, 6.247, 6.267
Arif (Franck Charles) v Moldova, ICSID Case No. ARB/11/23, Award of 8 April 2013 5.80, 5.197,
5.249, 5.347, 5.356, 5.358, 6.151, 6.255
Asian Agricultural Products Ltd (AAPL) v Democratic Socialist Republic of Sri Lanka, ICSID
Case No. ARB/87/3, Award of 27 June 1990, (1991) 6 ICSID Rev 533 3.216, 5.66, 5.191, 5.194,
5.209, 5.220, 5.314, 5.320, 6.170, 6.184, 6.196, 6.267
Atlantic Triton Company Limited v People's Revolutionary Republic of Guinea, Award of 21
P xxi April 1986, (1995) 3 ICSID Reports 13 3.236, 5.251, 5.364, 6.152, 6.195, 6.220, 6.238
Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case
No. ARB/00/5, Award of 23 September 2003 3.215–3.216, 3.220–3.221, 3.230, 3.337, 5.129,
5.202, 5.292, 5.335, 6.51, 6.72, 6.219, 6.249, 6.267
Azurix Corp v Argentina, ICSID Case No. ARB/01/12, Award of 14 July 2006 3.170–3.171, 3.246,
4.58, 5.28, 5.295, 6.122, 6.136
Benvenuti & Bonfant SARL v People's Republic of Congo, Award of 8 August 1980, (1993) 1
ICSID Reports 330 3.138, 3.344, 4.148, 5.71, 5.190, 5.194, 5.280, 5.342, 5.362, 6.76
Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No. ARB/05/22,
(2007) 22 ICSID Rev 149 5.352
CDC Group v Seychelles, ICSID Case No. ARB/02/14, Award of 29 June 2005 6.73
Cementownia 'Nowa Huta' v Turkey, ICSID Case No. ARB(AF)/06/2, Award of 17 September
2009 5.352
Ceskoslovenska Obchodni Banka, as (CSOB) v Slovak Republic, ICSID Case No. ARB/97/4,
Award of 29 December 2004 5.327, 5.338, 6.03, 6.130, 6.154, 6.255, 6.267
CMS Gas Transmissions Company v Argentine Republic, ICSID Case No. ARB/01/8, Award of
12 May 2005, (2005) 44 ILM 1205 1.12, 3.169, 3.173, 3.330, 3.364–3.366, 3.369, 4.70, 4.166, 5.10,
5.73, 5.78, 5.85, 5.131, 5.142, 5.144–5.146, 5.163, 5.295, 6.22, 6.122, 6.136, 6.185, 6.252, 6.278,
6.290, 6.295
CMS Gas Transmissions Company v Argentine Republic, Decision on the application for
Annulment of 25 September 2007 3.366, 3.369
Compañía de Aguas del Aconquija SA and Vivendi Universal v Argentine Republic, ICSID
Case No. ARB/97/3, Award of 20 August 2007, (2001) 40 ILM 426 3.113, 3.296, 4.59–4.60, 5.80,
5.240, 5.295, 6.05, 6.167, 6.247
Compañía del Desarrollo de Santa Elena SA v Republic of Costa Rica, ICSID Case No.
ARB/96/1, Award of 17 February 2000, (2000) 15 ICSID Rev.-FILJ 169, (2002) 5 ICSID Reports
157, (2000) 39 ILM 317 3.28, 3.43, 3.276, 4.164, 5.363, 6.01, 6.31, 6.164–6.165, 6.175, 6.224–
6.225, 6.239, 6.249, 6.264, 6.275, 6.286, 6.298
Conoco Phillips and others v Venezuela, ICSID Case No. ARB/07/30, Award of 3 September
5
2013 3.114
Continental Casualty v Argentina, ICSID Case No. ARB/03/9, Award of 5 September 2008
3.369, 6.148, 6.247
Crystallex v Venezuela, ICSID Case No. ARB(AF)/11/2, Award of 4 April 2016 3.172, 3.299,
3.330, 5.19, 5.208, 6.150, 6.247
Desert Line Projects LLC v The Republic of Yemen, ICSID Case No. ARB/05/17, Award of 6
February 2008 5.298, 5.301, 5.316, 5.340, 5.342, 5.346–5.348, 5.353, 5.363, 6.168, 6.251
Deutsche Bank v Sri Lanka, ICSID Case No. ARB/09/2, Award of 31 October 2012 5.295, 6.150
Duke Energy v Ecuador, ICSID Case No. ARB/04/19, Award of 18 August 2018 5.286, 5.295,
6.210, 6.250
EDF, Saur and Leon v Argentina, ICSID Case No. ARB/03/23, Award of 11 June 2011 3.170–
3.171, 3.244, 5.73, 5.167, 5.295, 6.103, 6.123, 6.136, 6.247
El Paso v Argentina, ICSID Case No. ARB/03/15, Award of 31 October 2011 3.170, 3.330, 4.166,
5.73, 5.295, 6.22, 6.148, 6.247
Emilio Agustín Maffezini v Kingdom of Spain, Award of 13 November 2000, (rectified on 31
January 2001), (2001) 16 ICSID Rev.-FILJ 248, (2002) 5 ICSID Reports 419, (2003) 124 ILR 35
3.246, 6.146, 6.185, 6.241, 6.279, 6.288, 6.295
Enron Corporation and Ponderosa Assets, LP v Argentine Republic, ICSID Case No.
ARB/01/3, Award of 22 May 2007 3.170, 3.173, 3.369, 4.166, 5.11, 5.42, 5.52, 5.73–5.74, 5.78,
P xxii 5.86, 5.108, 5.147, 5.164, 5.184–5.185, 5.197, 5.295, 6.38, 6.148, 6.247, 6.263
Fedax NV v Republic of Venezuela, ICSID Case No. ARB/96/3, Award of 9 March 1998, (1998)
37 ILM 1391 6.74, 6.267
No. Flughafen Zürich v Venezuela, ICSID Case No. ARB/10/19, Award of 18 November 2014
3.298, 5.73, 5.78, 5.81, 5.110, 5.176, 5.295, 6.149, 6.179, 6.247
Funnekotter v Zimbabwe, ICSID Case No. ARB/05/6, Award of 22 April 2009 2.19, 3.09, 3.11,
3.115, 3.296, 3.357, 5.49–5.50, 5.347, 5.366, 6.150, 6.247
Gemplus v Mexico, ICSID Case No. ARB(AF)/04/3, Award of 16 June 2010 3.211, 3.343, 5.197,
5.204, 5.311, 6.123, 6.247
Generation Ukraine v Ukraine, CSID Case No. ARB/00/9, Award of 16 September 2003 5.347
Gold Reserve v Venezuela, ICSID Case No. ARB(AF)/09/1, Award of 22 September 2014
3.170, 3.172, 3.356, 5.73, 5.81, 5.176–5.178, 5.295, 6.03, 6.110, 6.122, 6.136, 6.247, 6.289
Hassan Awdi v Romania, ICSID Case No. ARB/10/13, Award of 2 March 2015 5.80, 5.197,
5.250, 5.295, 6.151, 6.247
Hrvatska Elektroprivreda v Slovenia, ICSID Case No. ARB/05/24, Award of 17 December
2015 6.151, 6.247
Iberdrola v Guatemala, ICSID Case No. ARB/09/5, Award of 17 August 2012 5.352
Impregilo v Argentina, ICSID Case No. ARB/07/17, Award of 21 June 2011 3.355, 5.80, 5.197,
5.199, 5.248, 5.295, 6.168, 6.185, 6.247
Inmaris Perestroika v Ukraine, ICSID Case No. ARB/08/8, Award of 1 March 2012 5.347, 5.353
Joseph Charles Lemire v Ukraine, ICSID Case No. ARB/06/18, Award of 28 March 2011 2.112,
3.356, 5.73, 5.79, 5.347, 5.351, 5.355, 5.358, 6.143, 6.148, 6.246, 6.247, 6.271, 6.278
Kardassopoulos and Fuchs v Georgia, ICSID Case No. ARB/05/18, Award of 3 March 2010
3.114, 3.296, 5.52–5.53, 5.77, 6.01, 6.41, 6.149, 6.247
Klöckner Industrieanlagen GmbH et al v United Republic of Cameroon and Société
Camerounaise des Engrais, Award of 21 October 1983, (1994) 2 ICSID Reports 2 3.344
Klöckner Industrieanlagen GmbH et al v United Republic of Cameroon and Société
Camerounaise des Engrais, Decision on Annulment of 3 May 1985, (1994) 2 ICSID Reports 95
4.160
Liberian Eastern Timber Corporation (LETCO) v Government of the Republic of Liberia,
ICSID Case No. ARB/83/2, Award of 31 March 1986, Rectification of 14 May 1986, (1994) 2
ICSID Reports 343; (1987) 26 ILM 647 2.92, 3.78, 3.185, 3.191, 3.236, 3.336, 5.137, 5.153, 6.22,
6.22, 6.41, 6.272, 6.287
LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentine Republic,
Decision on Liability of 3 October 2003, (2006) 21 ICSID Rev.-FILJ 203; [Spanish original]
(2006) 21 ICSID Rev.-FILJ 269 3.367–3.369, 4.70
LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentine Republic, ICSID
Case No. ARB-02-1, Award of 25 July 2007 1.12, 2.17, 3.151, 5.12, 5.73, 5.79, 5.87, 5.108, 5.143,
5.150, 6.122, 6.136, 6.246, 6.247, 6.278, 6.290
Maritime International Nominees Establishment (MINE) v People's Revolutionary
Republic of Guinea, ICSID Case No. ARB/84/4, Award of 6 January 1988, (1997) 4 ICSID
6
Reports 61 3.236
Marvin Roy Feldman Karpa v United Mexican States (ICSID Additional Facility), Award of
16 December 2002, (2003) 42 ILM 625, (2003) 18 ICSID Rev.-FILJ 488 6.41, 6.195, 6.272, 6.284
Meerapfel v Central African Republic, ICSID Case No. ARB/07/10, Award of 21 May 2011
P xxiii 5.80, 5.197, 5.199, 5.241, 5.347, 5.351, 6.151, 6.255
Micula v Romania, ICSID Case No. ARB/05/20, Award of 11 December 2013 3.225, 5.286,
6.155, 6.193, 6.200, 6.247, 6.265
Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt, Award of 12
April 2002, (2003) 18 ICSID Rev.-FILJ 602 3.160, 3.167, 3.236, 3.244, 3.255, 3.263, 5.34, 5.262,
5.266, 5.306, 5.322, 5.352, 6.62, 6.167, 6.244, 6.277, 6.286
Mobil Cerro Negro v Venezuela, ICSID Case No. ARB/07/27, Award of 9 October 2014 3.31,
3.47, 3.95, 3.114, 3.271, 3.282, 5.73, 5.75, 5.78, 5.170–5.171, 5.175, 5.295, 6.89, 6.179, 6.247, 6.264
MTD Equity Sdn Bhd and MTD Chile SA v Chile, ICSID Case No. ARB/01/7, Award of 25 May
2004, (2005) 44 ILM 91 3.149, 3.244, 3.247–3.248, 3.253–3.254, 5.246, 6.66, 6.147, 6.185, 6.245,
6.267
MTD Equity v Chile, Decision on Annulment of 21 March 2007 3.250, 3.253
Occidental v Ecuador, ICSID Case No. ARB/06/11, Award of 5 October 2012 3.244, 3.249–
3.250, 3.253, 5.51, 5.73, 6.122, 6.136, 6.247, 6.250, 6.289, 6.296
OI European Group v Venezuela, ICSID Case No. ARB/11/25, Award of 10 March 2015 3.48,
3.298, 5.73, 5.81, 5.180, 5.347, 5.356, 6.149, 6.179, 6.247
Pey Casado v Chile, ICSID Case No. ARB/98/2, Award of 8 May 2008 5.347, 5.351
Pey Casado v Chile, Decision on the Application for Annulment of 18 December 2012 3.344,
4.160, 5.286
Pluspetrol v Perupetro, ICSID Case No. ARB/12/28, Award of 21 May 2015 5.295, 6.41, 6.75,
6.89, 6.250
PSEG Global Inc and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v Republic of
Turkey, ICSID Case No. ARB/02/5, Award of 19 January 2007 5.252, 5.293, 5.322, 6.102, 6.148,
6.247
Quiborax v Venezuela, ICSID Case No. ARB/06/2, Award of 16 September 2015 2.17, 3.114,
3.296, 3.299, 5.73, 5.79, 5.347, 5.358, 6.148, 6.247
Railroad Development v Guatemala, ICSID Case No. ARB/07/23, Award of 29 June 2012
3.198, 5.80, 5.155, 5.199, 5.287, 5.295, 6.110, 6.148, 6.246–6.247
Rompetrol v Romania, ICSID Case No. ARB/06/3, Award of 6 May 2013 5.347, 5.352
Rumeli Telekom AS and Telsim Mobil Telekomunikasyon Hizmetleri AS v Republic of
Kazakhstan, ICSID Case No. ARB/05/16, Award of 29 July 2008 (2010) IIC 420 3.115, 3.318,
3.343–3.344, 4.17, 4.160, 6.148, 6.247
Rumeli v Kazakhstan, Decision on the Application for Annulment of 25 March 2010 4.160
Rusoro Mining v Venezuela, ICSID Case No. ARB(AF)/12/5, Award of 22 August 2016 3.49,
3.298, 5.19, 5.100, 5.111, 5.187, 5.210
SAIPEM SpA v The People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Award of 20
June 2009, (2009) 48 ILM 996 3.56, 3.114, 3.296, 3.298, 5.299, 6.251
SAUR v Argentina, ICSID Case No. ARB/04/4, Award of 22 May 2014 5.295, 6.247
Sempra Energy International v Argentine Republic, ICSID Case No. ARB/02/16, Award of 28
September 2007 3.170, 3.369, 4.166, 5.73, 5.78, 5.108, 5.148, 5.165, 6.38, 6.148, 6.247, 6.263
Sempra v Argentina, Decision on the Application for Annulment of 29 June 2010 3.369
SGS Société Générale de Surveillance v Paraguay, ICSID Case No. ARB/07/29, Award of 10
February 2012 5.295, 6.19, 6.150, 6.251
Siag v Egypt, ICSID Case No. ARB/05/15, Award of 1 June 2009 3.101, 3.114, 3.211, 3.296, 5.54,
5.80, 5.197, 5.294, 5.326, 5.336, 5.343, 5.347, 5.355, 6.62, 6.96, 6.141, 6.150, 6.247, 6.278
Siemens AG v Argentine Republic, ICSID CASE No. ARB/02/8, Award of 6 February 2007
3.112, 3.296, 5.80, 5.199, 5.221, 5.229, 5.240, 5.285, 5.321, 6.122, 6.136, 6.191, 6.247
Societé Ouest Africaine des Bétons Industriels (SOABI) v Senegal, ICSID Case No.
ARB/82/1, Award of 25 February 1988, (1994) 2 ICSID Reports 164 3.228–3.230, 3.236, 5.318–
5.319, 5.364, 6.65
Southern Pacific Properties (Middle East) Ltd (SSP) v Arab Republic of Egypt, ICSID Case
No. ARB/84/3, Award of 20 May 1992, (1995) 3 ICSID Reports 189 2.14, 3.29, 3.42, 3.95, 3.243,
3.264, 3.277, 3.356, 5.38–5.39, 5.193, 5.195, 5.281, 5.322, 5.334, 5.337, 6.56–6.63, 6.176, 6.264,
P xxiv 6.275, 6.285
Suez v Argentina, ICSID Case No. ARB/03/19, Award of 9 April 2015 5.73, 5.295, 6.136, 6.194,
6.247
7
Swisslion v Macedonia, ICSID Case No. ARB/09/16, Award of 6 July 2012 3.355–3.356, 5.337,
5.367, 6.104, 6.142, 6.150, 6.185, 6.247
Técnicas Medioambientales, Tecmed SA v United Mexican States, ICSID Case No. ARB
(AF)/00/2, Award of 29 May 2003, (2004) 19 ICSID Rev.-FILJ 158, (2004) 43 ILM 133 3.160,
3.167, 3.173, 3.353, 4.17, 5.27, 5.196, 5.203, 5.206, 5.284, 5.347, 6.167, 6.185, 6.244, 6.267
TECO v Guatemala, ICSID Case No. ARB/10/23, Award of 19 December 2013 5.73, 5.79, 5.151,
6.89, 6.105, 6.247
Tenaris v Venezuela, ICSID Case No. ARB/11/26, Award of 29 January 2016 3.172, 5.80, 5.199,
5.208, 5.215, 5.267, 6.133, 6.172, 6.247
Tidewater v Venezuela, ICSID Case No. ARB/81/1, Award of 13 March 2015 3.31, 3.49, 3.95,
3.114, 3.271, 3.283, 3.296, 3.299, 4.17, 5.73, 5.78, 5.170, 5.173, 5.295, 6.95, 6.247, 6.264
Total v Argentina, ICSID Case No. ARB/04/1, Decision on Liability, Award of 27 December
2010 3.246
Transglobal Green Energy v Panama, ICSID Case No. ARB/13/28, Award of 2 June 2016 5.352
Tza Yap Shum v Peru, ICSID Case No. ARB/07/6, Award of 7 July 2011 3.114, 5.64, 5.80, 5.197,
5.230, 5.347, 5.356, 6.136, 6.247
Unglaube (Marion and Reinhard) v Costa Rica, ICSID Case No. ARB/09/20, Award of 16 May
2012 3.115, 3.296, 3.317, 3.355, 5.73, 6.03, 6.41, 6.136, 6.247
Walter Bau v Thailand, Award of 1 July 2009, IIC 429 (2009) 5.75, 5.79, 6.151, 6.247
Waste Management, Inc and United Mexican States (ICSID Additional Facility), ICSID Case
No. ARB(AF)/00/3, Award of 30 April 2004, (2004) 43 ILM 967 3.232, 3.246
Wena Hotels Ltd v Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award of 8 December
2000, (2002) 41 ILM 896 3.160, 3.166, 4.17, 5.67, 5.80, 5.195, 5.202, 5.210, 5.239, 6.01, 6.62,
6.124, 6.131, 6.242, 6.249, 6.278, 6.284
Wena Hotels v Egypt, Decision on the Application for Annulment of 5 February 2002 6.124
INTER-AMERICAN COURT OF HUMAN RIGHTS

Gutiérrez- Soler v Colombia, Inter- Am. C.H.R. Ser C, No. 132 5.360
Velasquez- Rodriguez, Inter- Am. C.H.R. Ser C, No. 4, 26–7, 30–1 2.78, 2.94
INTERNATIONAL COURT OF JUSTICE, PERMANENT COURT OF INT ERNATIONAL

JUSTICE
Anglo Iranian Oil Company (United Kingdom v Iran), Judgment of 22 July 1952, ICJ Reports
1952 2.83, 3.71
Barcelona Traction Light and Power Company (Belgium v Spain), Judgment of 5 February
1970, ICJ Reports 1970, 3 5.05, 5.71
Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the
Congo) Judgment of 30 November 2010, ICJ Reports 2010, 637 3.136, 5.346, 5.360
Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the
Congo) Compensation owed by the Democratic Republic of Congo to the Republic of
P xxv Guinea, Judgment of 19 June 2012, ICJ Reports 322 3.136, 6.20
Case Concerning the Factory at Chorzów (Germany v Poland) Claim for Indemnity (Merits),
Judgment of 13 September 1928, PCIJ 1928 Ser A, No. 17, 4 2.21, 2.33, 2.56, 2.73, 2.90, 2.103,
2.105, 3.54, 3.81, 3.85–3.86, 3.88, 3.91, 3.104–3.108, 3.112, 3.126–3.127, 3.136, 3.141, 3.145, 3.155,
3.157, 3.163, 3.238, 3.286–3.287, 3.289, 3.293–3.294, 3.296, 3.317, 3.324, 3.330, 3.341, 5.42, 5.89,
5.246, 5.299–5.301, 5.314, 7.01, 7.09–7.11, 7.14
Case of the SS Wimbledon (Great Britain, France, Italy, Japan v Germany), Judgment of 17
August 1923, PCIJ 1923 Ser A, No. 1, 15 3.67, 3.135, 3.263, 6.20, 6.29, 6.132, 6.166, 6.269–6.270,
6.281, 6.283
Certain German Interests in Polish Upper Silesia (Germany v Poland) (The Merits),
Judgment of 25 May 1926, PCIJ 1926 Ser A, No. 7, 3 3.05
Certain Norwegian Loans (France v Norway), Judgment of 6 July 1957, ICJ Reports 1957 2.83
Corfu Channel Case (United Kingdom v Albania), (Assessment of the Amount of Damages),
Judgment of 15 December 1949, ICJ Reports 1949, 243 3.136, 3.346, 5.253, 6.20
Corfu Channel Case (United Kingdom v Albania), (Merits), Judgment of 9 April 1949, ICJ
Reports 1949, 4 5.253, 5.350
Electricity Company of Sofia Case (Belgium v Bulgaria), Judgment of 4 April 1939, PCIJ 1939
Ser C, No. 88, 9 2.83
Gabćikovo- Nagymaros Project (Hungary v Slovakia), Judgment of 25 September 1997, ICJ
Reports 1997, 7 3.255
8
Judgments of the Administrative Tribunal of the ILO upon Complaints Made against
Unesco, Advisory Opinion of 23 October 1956, ICJ Reports 1956 3.346
Losinger & Co (Switzerland v Kingdom of Serbs, Croats and Slovenes), Judgment of 27 June
and 14 December 1936, PCIJ 1936 Ser C, No. 78, 7 2.83
Mavrommatis Jerusalem Concessions (Greece v Great Britain), Judgment of 26 March 1925,
PCIJ 1925 Ser A, No. 5, 6 2.19–2.20
North Sea Continental Shelf Cases (Federal Republic of Germany v Denmark, Federal
Republic of Germany v the Netherlands), Judgment of 20 February 1969, ICJ Reports 1969, 3
3.345
INTERNATIONAL TRIBUNAL FOR THE LAW OF THE SEA

The M/V Saiga (No. 2) Case (Saint Vincent and the Grenadines v Guinea), Judgment of 1 July
1999 (1999) 38 ILM 1323 2.78, 3.137, 5.360
The M/V Virginia G (No. 19) Case (Panama v Guinea-Bissau), Judgment of 14 April 2014
(2014) 53 ILM 1161 3.137
IRAN–UNITED STATES CLAIMS TRIBUNAL

American Bell International v Iran, Interlocutory Award, 6 Iran-US CTR (1984) 74 6.206
American Bell International v Iran, Final Award, 12 Iran-US CTR (1986) 170 6.206, 6.209
American International Group v The Islamic Republic of Iran, 4 Iran-US CTR (1983) 96 3.26,
P xxvi 3.38, 3.161–3.162, 3.271, 3.273, 3.275, 3.354, 5.08, 5.118, 5.189, 5.218, 6.162, 6.175
Amoco International Finance Corporation v The Government of the Islamic Republic of
Iran, 15 Iran-US CTR (1987) 189 2.15, 2.29, 2.63, 2.68, 3.27–3.28, 3.39–3.41, 3.77, 3.86–3.88, 3.91,
3.104–3.105, 3.142, 3.310, 3.312, 3.350, 5.02, 5.67, 5.71, 5.82, 5.91–5.92, 5.200, 5.219, 5.278, 5.314,
Amoco International Finance Corporation v The Government of the Islamic Republic of
Iran, Award on Agreed Terms, 25 Iran-US CTR (1990) 314 5.92, 5.278
Anaconda-Iran, Inc v Iran, Interlocutory Award, 13 Iran-US CTR (1988) 199 6.70, 6.86, 6.225–
6.226
Anaconda-Iran, Inc v Iran, Final Award, 28 Iran-US CTR (1992) 320 6.70, 6.86
Aryeh, Moussa v The Islamic Republic of Iran, 33 Iran-US CTR (1997) 368 5.46
Aryeh, Vera-Jo Miller, Laura and J M v The Islamic Republic of Iran, 33 Iran-US CTR (1997)
272 3.163, 3.308, 5.218, 6.121
Avco Corporation v Iran, 19 Iran-US CTR (1988) 200 6.265
Bechtel, Inc v Iran, 14 Iran-US CTR (1987) 149 6.206, 6.208
Birnbaum, Harold v The Islamic Republic of Iran, 29 Iran-US CTR (1993) 260 3.172, 5.228,
5.262, 5.270, 6.171
Blount Brothers v Ministry of Housing and Urban Development, 3 Iran-US CTR (1983) 225
3.184, 3.217, 3.236, 6.43, 6.218
Buckamier v Islamic Republic of Iran, 28 Iran-US CTR (1992) 53 3.184, 3.222–3.224, 3.236
CBS Inc v The Government of the Islamic Republic of Iran et al, 25 Iran-US CTR (1990) 131
5.91, 5.120, 5.189
Computer Sciences Corporation v The Government of the Islamic Republic of Iran, 10 Iran-
US CTR (1986) 269 3.56, 3.236, 5.224, 6.121
Dadras International and Per-Am Construction Corporation v The Islamic Republic of Iran
and Tehran Development, 31 Iran-US CTR (1995) 127 3.214, 3.236
Dames and Moore v The Islamic Republic of Iran, 4 Iran-US CTR (1983) 212 3.56, 5.224, 6.43
Davidson, George v The Government of the Islamic Republic of Iran, 34 Iran-US CTR (1998)
3 3.163, 5.46, 6.121
Eastman Kodak Company v The Government of Iran, Final Award, 27 Iran-US CTR (1991) 3
5.225, 6.74
Ebrahimi, Shahine Shaine v The Government of the Islamic Republic of Iran, 30 Iran-US
CTR (1994) 170 3.91–3.92, 3.117, 3.163, 4.166, 5.91, 5.228, 6.171
Economy Forms Corporation v The Government of the Islamic Republic of Iran, 3 Iran-US
CTR (1983) 42 3.258
Endo Laboratories, Inc v The Islamic Republic of Iran, 17 Iran-US CTR (1987) 114 3.258
Exxon Research and Engineering Co v National Iranian Oil Company, 15 Iran-US CTR (1987)
3 3.217, 3.236, 6.203, 6.207, 6.218
Foremost Tehran, Inc et al v The Islamic Republic of Iran, 10 Iran-US CTR (1986) 228 3.153,
3.308
9
General Electric Company v The Government of the Islamic Republic of Iran, 26 Iran-US
CTR (1994) 148 5.325
Ghaffari, Fereydoon v The Islamic Republic of Iran, 31 Iran-US CTR (1995) 60 3.172, 5.262,
5.270, 5.309
Gould Marketing v Ministry of Defence of the Islamic Republic of Iran, 6 Iran-US CTR (1984)
272 3.184, 3.236, 5.22, 6.43
Gruen Assocs, Inc v Iran Housing Company, Ministry of Health and Social Welfare,
Government of the Islamic Republic of Iran, 3 Iran-US CTR (1983) 97 3.236
Hakim, Kamran v The Government of the Islamic Republic of Iran, 34 Iran-US CTR (1998) 67
3.164, 5.46, 5.262, 5.270
Howard, Needles, Tammen & Bergendoff v Iran, 11 Iran-US CTR (1986) 302 6.69, 6.71
INA Corporation v The Government of the Islamic Republic of Iran, 8 Iran-US CTR (1985)
373 2.91, 3.10, 3.11, 3.26, 3.37–3.38, 3.139, 3.161–3.162, 3.238, 3.275, 5.08, 5.24, 5.213, 6.162,
P xxvii 6.175, 6.264
International Technical Products Corp v The Government of the Islamic Republic of Iran, 9
Iran-US CTR (1985) 206 3.307
Intrend International, Inc v Iranian Air Force, 3 Iran-US CTR (1983) 110 6.191, 6.203
Islamic Republic of Iran v United States of America, 16 Iran-US CTR (1988) 285 6.04
Khosrowshahi, Faith Lita v The Government of the Islamic Republic of Iran, 30 Iran-US CTR
(1994) 76 3.26, 3.163, 3.275, 5.08, 5.91, 5.122
Kiaie v The Government of the Islamic Republic of Iran, 32 Iran-US CTR (1996) 42 5.270
Lauth, Theodore v The Islamic Republic of Iran, 11 Iran-US CTR (1986) 150 3.217, 3.236
Levitt, William J v The Government of the Islamic Republic of Iran, The Housing
Organization of the Islamic Republic of Iran, Bank Melli, 14 Iran-US CTR (1987) 191 3.213,
3.236
Malek v Iran, 28 Iran– US CTR (1992) 246 3.308
McCollough & Co Inc v Ministry of Post, Telegraph and Telephone, 11 Iran-US CTR (1986) 3
5.326, 6.09, 6.24, 6.43, 6.45, 6.171
Mohtadi v The Islamic Republic of Iran, 32 Iran-US CTR (1996) 124 3.154, 5.46–5.47
Morrison-Knudsen Pacific Ltd v Ministry of Roads and Transportation, 7 Iran-US CTR (1984)
54 6.43
Motorola Inc v Iran Airlines Corporation and The Government of the Islamic Republic of
Iran, 19 Iran-US CTR (1988) 73 3.163, 3.219, 3.236, 5.91, 5.219
Nasser Espahanian v Bank Tejarat, 2 Iran– US CTR (1983) 157 6.43
Oil Fields of Texas, Inc v The Government of the Islamic Republic of Iran and NIOC, 12
Iran-US CTR (1986) 308 3.56, 3.163, 3.219, 5.256, 5.306, 6.121
Payne, Thomas Earl v The Government of the Islamic Republic of Iran, 12 Iran-US CTR
(1986) 3 3.40, 3.117, 3.161, 3.163, 3.275, 3.354, 5.57, 5.119, 5.218
Per-Am Construction Corporation v Iran, 31 Iran– US CTR (1995) 127 3.236
Pereira, William L Associates v The Islamic Republic of Iran, 5 Iran-US CTR (1984) 198 3.56,
3.236, 5.224, 6.43, 6.69, 6.71
Petrolane Inc v The Government of the Islamic Republic of Iran, 27 Iran-US CTR (1991) 64
3.56, 3.117, 3.163, 3.260, 5.256, 5.258, 6.171
Phelps Dodge Corporation and Overseas Private Investments Corporation v The Islamic
Republic of Iran, 10 Iran-US CTR (1986) 121 3.40, 3.117, 3.161, 3.163, 3.172, 3.275, 3.308, 5.23,
5.57, 5.67, 5.91, 5.121, 5.194, 5.236, 5.306
Phibro Corp v Iran, 26 Iran-US CTR (1989) 320 6.220
Phillips Petroleum and ConocoPhillips v PDVSA, Award of 17 September 2012 6.25, 6.41,
6.106–6.107
Phillips Petroleum Company Iran v The Islamic Republic of Iran and the National Iranian
Oil Company, 21 Iran-US CTR (1989) 79 2.69, 3.91–92, 3.106, 3.108, 3.117, 3.163, 3.288, 3.308,
5.73, 5.82–5.83, 5.100, 5.103, 5.112, 5.128, 5.182, 5.254
Pomeroy Corporation v The Government of the Islamic Republic of Iran, 2 Iran-US CTR
(1983) 372 3.184, 3.224, 3.236
RayGo Wagner Equipment Company v Star Line Iran Company, 1 Iran-US CTR (1982) 411
6.265
Reading & Bates Drilling Company v Iran, 18 Iran– US CTR (1988) 164 6.71
RJ Reynolds Tobacco Co v Iran, Interlocutory Award, 7 Iran-US CTR (1984) 181 6.32, 6.69,
10
6.71, 6.202, 6.204, 6.225
RJ Reynolds Tobacco Co v Iran, Final Award, 8 Iran-US CTR (1985) 55 6.204
Saghi, James M et al v The Islamic Republic of Iran, 29 Iran-US CTR (1993) 20 3.117, 3.163,
5.24, 5.31–5.32, 6.171
Sedco, Inc v Iran Marine Industrial Company (IMICO), 21 Iran-US CTR (1989) 31 3.163, 5.227,
P xxviii 5.262, 5.272
Sedco, Inc v National Iranian Oil Company (NIOC), First Interlocutory Award, 9 Iran-US CTR
(1985) 248 3.266, 3.309, 5.271
Sedco, Inc v National Iranian Oil Company (NIOC), Second Interlocutory Award, 10 Iran-US
CTR (1986) 180 3.41, 3.60, 3.82, 3.91, 3.97–3.98, 3.117, 3.142, 3.160, 3.161, 3.163, 3.172, 5.262,
5.271, 5.279
Sedco Inc v NIOC, Final Award, 15 Iran– US CTR (1987) 23 3.161–3.163, 5.45, 5.224, 5.226–
5.227, 5.271, 5.279, 5.306, 6.209
Seismograph Service Corporation et al v National Iranian Oil Company, Islamic Republic
of Iran, 22 Iran-US CTR (1989) 3 3.154, 3.236, 3.259
Sola Tiles, Inc v The Government of the Islamic Republic of Iran, 14 Iran-US CTR (1985) 223
3.56, 3.163, 3.275, 5.33, 5.91, 5.121, 5.194, 5.262, 5.264, 6.121
Starrett Housing Corporations, Starrett Systems Inc, and Starrett Housing International
Inc v The Government of the Islamic Republic of Iran, Interlocutory Award, 4 Iran-US CTR
(1983) 122 3.91, 3.308
Starrett Housing Corporations, Starrett Systems Inc, and Starrett Housing International
Inc v The Government of the Islamic Republic of Iran, Final Award, 16 Iran-US CTR (1987)
112 3.91, 3.117, 3.163, 3.308, 4.166, 5.41, 5.73, 5.83, 5.99, 5.104, 5.219, 6.179, 6.225, 6.227–6.228,
6.243
Sylvana Technical Systems v The Government of the Islamic Republic of Iran, 8 Iran-US
CTR (1985) 298 3.219, 5.325, 6.42–6.44, 6.79, 6.83, 6.85, 6.188, 6.115, 6.120–6.121, 6.225, 6.231,
6.265
Tavakoli v The Government of the Islamic Republic of Iran, 33 Iran-US CTR (1997) 206 3.163,
5.228, 5.262, 5.265, 5.270
Telecommunications Co of Iran v United States, 23 Iran-US CTR (1989) 320 6.207, 6.265
Tippetts, Abbett, McCarthy, Stratton v TAMSA–AFFA Consulting Engineers of Iran, 6 Iran-US
CTR (1984) 219 3.309, 5.228, 5.262, 5.269–5.270, 6.179
Uiterwyk Corp v Iran, 19 Iran– US CTR (1988) 107 5.325
Ultrasystems Inc v The Islamic Republic of Iran, Information Systems Iran, 2 Iran-US CTR
(1983) 100 3.218, 3.236, 5.325
United Painting Company, Inc v The Islamic Republic of Iran, 23 Iran-US CTR (1989) 351
3.219, 3.236, 5.33, 5.224
Watkins-Johnson Co et al v Iran, 22 Iran– US CTR (1989) 218 5.325
NAFTA TRIBUNALS
Archer Daniels Midland Company and Tate Lyle Ingredients Americas, Inc. v United
Mexican States, ICSID Case No. ARB(AF)/04/05, Award of 21 November 2007 2.18, 5.76, 5.79,
6.110, 6.136, 6.253
Cargill, Inc. v United Mexican States, ICSID Case No. ARB(AF)/05/2), Award of 18
September 2009 5.76, 6.89
Feldman, Marvin Roy Karpa v United Mexican States, ICSID Case No. ARB(AF)/99/1, Award
of 16 December 2002, (2003) 42 ILM 625, (2003) 18 ICSID Rev.-FILJ 488 3.147, 6.125
Metalclad Corporation v United Mexican States, ICSID Case No. ARB(AF)/ 97/1, Award of 30
August 2000, (2001) 40 ILM 36, (2002) 5 ICSID Reports 212, (2001) 16 ICSID Rev.-FILJ 168,
(2002) 119 ILR 618 3.141, 3.168, 5.67, 5.194–5.195, 5.238, 5.310, 6.167, 6.186, 6.239, 6.242, 6.278,
6.286, 6.289, 6.295
Mobil Investments Canada Inc. and Murphy Oil Corporation v Canada, ICSID Case No.
ARB(AF)/07/4, Decision on Liability and on Principles of Quantum of 22 May 2012 5.151
Mobil Investments Canada Inc. and Murphy Oil v Canada, ICSID Case No. ARB(AF)/07/4,
P xxix Award of 20 February 2015 6.149, 6.247
Mondev International Ltd v United States of America, ICSID Case No. ARB(AF)/99/2, Award
of 11 October 2002 2.18, 3.45
Pope & Talbot Inc and Government of Canada, UNCITRAL, Interim Award of 26 June 2000,
(2005) 7 ICSID Reports 69 5.245, 5.326, 5.335
Pope & Talbot Inc and Government of Canada, UNCITRAL, Award in Respect of Damages of
31 May 2002, (2005) 7 ICSID Reports 148; (2002) 41 ILM 1347 3.146, 5.80, 5.245, 5.326, 5.335,
11
6.41, 6.66, 6.195, 6.272
SD Myers, Inc v Government of Canada, UNCITRAL, First Partial Award on the Merits of 13
November 2000, (2005) 8 ICSID Reports 18 3.143, 3.147, 5.94
SD Myers, Inc v Government of Canada, UNCITRAL, Second Partial Award on Damages of 21
October 2002, (2005) 8 ICSID Reports 124 3.329–3.330, 5.76, 5.79, 5.94–5.107, 6.22, 6.88, 6.195,
6.267
OTHER INTERNATIONAL ARBITRAL TRIBUNALS OR CLAIMS COMMISSIONS

Administrative Decision No. II, Mixed Claims Commission, Decision of 1 November 1923, 7
RIAA, 29 5.316
Administrative Decision No. III, 11 December 1923, 7 RIAA, 64 6.20
Alabama (United States v United Kingdom), Arbitral Tribunal, Award of 14 September
1872, reprinted in J B Moore (ed), Digest of International Arbitrations of which the United
States has been a Party, vol. 1 (Washington: GPO, 1898) 495 5.314
Al-Bahloul v Tajikistan, SCC, Final Award of 8 June 2010 5.51, 5.80, 5.197, 5.199
Al-Kharafi & Sons Co v Libya, Final Arbitral Award, 22 March 2013, Cairo Arab Investment
Court, 374 et seq 5.133, 5.342
Anatolie Stati v Kazakhstan, SCC, Award of 19 December 2013 5.77, 5.347, 5.353, 6.136, 6.247
Arbitrations of which the United States has been a Party, vol 1 (Washington: GPO, 1898)
495 3.128
American Independent Oil Company (Aminoil) v The Government of Kuwait, Arbitral
Tribunal, Award of 24 March 1982, (1982) 21 ILM 976 3.10, 3.14, 3.25, 3.34, 3.36, 3.76–3.77, 3.78,
3.95, 3.271, 3.278, 3.346, 3.352–3.353, 5.90, 5.92, 5.125, 5.127, 5.130, 5.217, 5.254, 5.277, 6.01,
6.59, 6.163, 6.175, 6.237, 6.239, 6.264
Arabian American Oil Company (Aramco) v Saudi Arabia, Arbitral Tribunal, Award of 23
August 1958, (1963) 27 ILR 117 2.27, 3.67
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre v The Government of
Ghana (Jurisdiction, Liability), Arbitral Tribunal, Award of 27 October 1989, (1994) 95 ILR
183 3.142, 3.165, 3.211, 5.237, 5.347
Biloune and Marine Drive Complex Ltd v Ghana Investments Centre v The Government of
Ghana (Damages and Costs), Arbitral Tribunal, Award of 30 June 1990, (1994) 95 ILR 211
5.237, 6.41, 6.145, 6.179
BP Exploration Company (Libya) Ltd v Government of the Libyan Arab Republic, Sole
Arbitrator (Lagergren), Award/Decision of 10 October 1973, (1979) 53 ILR 297 3.05, 3.36, 3.64–
3.65, 3.73
Bridas SAPIC v Government of Turkmenistan, Partial Award of 25 June 1999, excerpts in RD
Bishop, J Crawford and WM Reisman, Foreign Investment Disputes. Cases, Materials and
Commentary (The Hague: Kluwer Law International, 2005) 1270 et seq 3.207, 3.256, 4.71,
5.75, 5.136
Charterers and Crew of the Kate (United States v Great Britain), Arbitral Tribunal, Award of
P xxx 9 December 1921, 6 RIAA, 77 3.134
Chemin des Fer Zeltweg-Wolfsberg und Unterdrauberg-Woellan (Austria v Yugoslavia),
Arbitral Tribunal, Award of 1938, 3 RIAA, 1795 6.225, 6.239
Chevron and Texaco v Ecuador, UNCITRAL, PCA Case No. 34877, Award of 31 August 2011
5.295, 6.41
CME Czech Republic BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award on
the Merits of 13 September 2001, (2006) 9 ICSID Reports 121 6.188
CME Czech Republic BV (The Netherlands) v Czech Republic, UNCITRAL, Final Award on
Damages of 14 March 2003, (2006) 9 ICSID Reports 246 3.12, 3.14, 3.245, 3.255, 4.65, 5.13,
5.24–5.26, 5.40, 5.58–5.59, 5.69, 5.81, 5.84, 5.98, 5.105–5.106, 5.108, 5.113–5.114, 5.138, 5.154,
5.159–5.161, 5.207, 6.64, 6.153, 6.188, 6.195, 6.197, 6.256, 6.267
CME v Czech Republic, UNCITRAL, Separate Opinion Brownlie on the Issues at the
Quantum Phase of 14 March 2003 (2006) 9 ICSID Reports 412 1.12, 3.12, 3.14, 3.363, 5.25, 5.70,
5.154
Costa Rica Packet (Great Britain v Netherlands), Arbitral Tribunal, Award of 13 (25)
February 1897 [sic] in J B Moore (ed), History and Digest of the International Arbitrations of
which the United States has been a Party, vol V (Washington: GPO, 1898) 4948 3.256
De Sabla, (United States v Panama), Mixed Claims Commission, Decision of 29 June 1933, 6
RIAA, 358 3.32, 3.133, 5.23
Delagoa Bay and East African Railway Company (United States v Portugal), Arbitral
Tribunal, Award of 30 May 1900 in M Whiteman, Damages in International Law, vol III
(Washington: Government Printing Office, 1943), 1694; H La Fontaine (ed), Pasicrisie
12
internationale 1794–1900 (Bern: Stämpfli, 1902) 398 2.03, 2.77, 3.175, 3.230, 3.235, 3.335, 5.04,
5.72, 5.288
Dr Marion Cheek (United States v Siam), Arbitral Tribunal, Award of 21 March 1898 in M
Whiteman, Damages in International Law, Vol III (Washington: Government Printing Office,
1943) 1646 5.333
Eisenbach Brothers and Company (United States v Germany), Mixed Claims Commission,
Decision of 20 April 1925, 7 RIAA, 199 3.242
Fabiani (France v Venezuela), Award of 30 December 1896, reported in M Whiteman,
Damages in International Law, Vol III (Washington: Government Printing Office, 1943) 1785
5.363, 6.225, 6.239
Goldenberg (Romania v Germany), Sole Arbitrator (Fazy), Award of 27 September 1928, 2
RIAA, 903 2.27, 3.32
Himpurna California Energy Ltd v PT (Persero) Perusahaan Listruik Nagara (PLN),
UNCITRAL, Final Award of 4 May 1999, (2000) 25 YB Com Arb 13 2.92, 3.185, 3.192–3.193, 3.195,
3.204, 3.261, 3.346, 3.353, 3.356, 3.361, 5.75, 5.79, 5.130
Illinois Central Railroad Co (United States v Mexico), Mixed Claims Commission, Decision
of 6 December 1926, 4 RIAA, 134 6.20
Italia Ukraina v Naftogaz, SCC Arbitration V 007/2008, Award of 19 December 2012 5.295
Iurii Bogdanov, Agurdino- Invest Ltd and Agurdino-Chimia JSC v Moldova, SCC Award of 22
September 2005 3.244, 5.347
Bogdanov v Moldova, SCC Case, Award of 30 May 2010 5.347
Karaha Bodas Company LLC v Perusahaan Pertambangan Minyak dan Gas Bumi Negara,
(Pertamina), and PT PLN (Persero), UNCITRAL, Preliminary Award of 30 September 1999
3.12
Karaha Bodas Company LLC v Perusahaan Pertambangan Minyak dan Gas Bumi Negara
(Pertamina) and PT PLN (Persero), Arbitral Tribunal, UNCITRAL, Final Award of 18
December 2000, summarized in pertinent part in Karaha Bodas Co v Perusahaan
Pertambangan Minyak dan Gas Bumi Negara, 364 F.3d 274, 282-85 (5th Cir 2004) 3.196–
P xxxi 3.197, 3.230, 3.261, 5.75, 5.79
Khan Resources v Mongolia, PCA Case No. 2011-09, Award of 2 March 2015 4.50, 5.35, 5.80,
5.199, 6.110, 6.148, 6.247
Lena Goldfields v the Russian Soviet Government, Arbitral Tribunal, Award of 2
September 1930, The Times, 3 September 1930, 7; (1950) 36 Cornell Law Quarterly 42 3.175,
3.191, 3.235, 5.289–5.290
Libyan American Oil Company (LIAMCO) v Government of the Libyan Arab Republic, Sole
Arbitrator (Mahmassani), Award of 12 April 1977, (1982) 62 ILR 140; (1981) 20 ILM 1 2.29, 2.63,
3.03, 3.25, 3.36, 3.64, 3.71–3.73, 3.76, 3.94, 3.191, 3.234, 3.279, 3.350–3.351, 5.103, 5.217, 5.276,
6.177, 6.271, 6.286
Lighthouses Arbitration (France v Greece), Permanent Court (Ständiger Schiedshof),
Judgment of 24 July 1956, (1956) 23 ILR 298 3.235, 5.291
Loughlin McLean–The Favourite (Great Britain v United States), Arbitral Tribunal, Award of
9 December 1921, 6 RIAA, 82 3.134
Mobil Cerro Negro v PDVSA, ICC, Award of 23 December 2011 6.89
National Grid v Argentina, UNCITRAL, Award of 3 November 2008 4.166, 5.43, 5.75, 6.41,
6.94, 6.148, 6.288
Naulilaa (Portugal v Germany) (Damages), Arbitral Tribunal, Award of 30 June 1930, 2 RIAA,
1035 5.314
New Zealand v France (Rainbow Warrier), Award of 30 April 1990 2.94, 5.350
Nordzucker AG v Poland, ad hoc Arbitration, UNCITRAL, Second Partial Award of 28
January 2009, para. 95; Third Partial Award of 23 November 2009 3.202
Norwegian Shipowners' Claim (Norway v United States), PCA, Award of 13 October 1922, 1
RIAA, 307 3.02, 3.24–3.25, 3.54, 3.235, 5.233
Occidental Exploration and Production Company and Republic of Ecuador, Arbitral
Tribunal, Award of 1 July 2004, (2006) 45 ILM 246 3.152
Opinion in the Lusitania Case (United States v Germany), Mixed Claims Commission,
Decision of 1 November 1923, 7 RIAA, 32 2.32, 2.74, 2.95, 3.98, 5.344–5.345, 5.355, 5.357, 5.359,
5.363
Owners of the Horace B Parker (United States v Great Britain), Arbitral Tribunal, Award of
6 November 1925, 6 RIAA, 153 3.134
Owners of the Sarah B Putnam (United States v Great Britain), Arbitral Tribunal, Award of
6 November 1925, 6 RIAA, 156 3.134
13
Owners of the Tattler (United States v Great Britain), Arbitral Tribunal, Award of 18
December 1920, 6 RIAA, 48 3.134
Owners of the Thomas Bayard (United States v Great Britain), Arbitral Tribunal, Award of 6
November 1925, 6 RIAA, 154 3.134
Owners, Officers and Men of the Wanderer (Great Britain v United States), Arbitral
Tribunal, Award of 9 December 1921, 6 RIAA, 68 3.134
Putegnat's Heirs (United States v Mexico), Arbitral Tribunal, Award of 1871 in J B Moore
(ed), Digest of International Arbitrations of which the United States has been a Party, vol
IV (Washington: GPO, 1898) 3720 2.26
Quasar de Valores v Russia, SCC, Award of 20 July 2012 3.30, 3.114, 3.253, 3.298, 3.319, 5.16–
5.17, 6.125, 6.179, 6.247, 6.267
Reineccius et al v Bank for International Settlements, PCA, Partial Award on the
Lawfulness of the recall of the privately held shares on 8 January 2001 and the applicable
standards for valuation of those shares of 22 November 2002 3.29, 5.05, 5.222
Robert H. May (United States v Guatemala), Arbitral Tribunal, Award of 16 November 1900
in M Whiteman, Damages in International Law, vol III (Washington: Government Printing
Office, 1943) 1704 3.185, 5.332, 5.365
Rosinvest v Russia, SCC, Final Award of 21 September 2010 3.253, 3.298, 3.320, 5.14–5.15,
6.150, 6.257, 6.276
Russian Indemnities (Russia v Turkey), Award of 11 November 1912, 11 RIAA, 431 3.360, 6.53,
6.181, 6.212
P xxxii Sedelmayer v The Russian Federation, SCC, Award of 7 July 1998 5.283, 6.264
SPP (Middle East) Ltd, Southern Pacific Properties Ltd v The Arab Republic of Egypt, The
Egyptian General Company For Tourism and Hotels, ICC, Decision of 11 March 1983, (1983)
22 ILM 752 5.201, 6.72
Sapphire International Petroleums Ltd v National Iranian Oil Company, Sole Arbitrator
(Cavin), Arbitral Award of 15 March 1963, (1967) 35 ILR 136 2.92, 3.67, 3.191, 3.194, 3.202,
3.205, 3.225, 3.235, 3.238, 3.349, 5.52, 6.165
Shufeldt Claim (United States v Guatemala), Sole Arbitrator (Sisnett), Award of 2
November 1929, 2 RIAA, 1079 3.185, 3.191, 3.199, 3.233, 3.235, 5.136, 5.333, 5.365
Texaco Overseas Petroleum Company/California Calasiatic Oil Company v Government of
the Libyan Arab Republic, Sole Arbitrator (Dupuy), Award of 19 January 1977, (1978) 17 ILM 1,
(1979) 53 ILR 389 3.34, 3.36, 3.64–3.66, 3.69–3.70, 3.73, 3.142
Trail Smelter (United States v Canada), Arbitral Tribunal, Award of 16 April 1938, 3 RIAA,
1911 5.314
Upton Case (United States v Venezuela), Mixed Claims Commission, Decision of 31
December 1903, 9 RIAA, 234 3.32
Walter Fletcher Smith (United States v Cuba), Sole Arbitrator (Hale), Award of 2 May 1929,
2 RIAA, 915 3.131–3.132
War Risk Insurance Premium Claims (United States v Germany), Claims Commission,
Decision of 1 November 1923, 7 RIAA, 44 5.315
White Industries v India, UNCITRAL, Award of 30 November 2011 5.300–5.301
Winthrop Neilson (United States v Germany), Arbitral Tribunal, Award of 21 April 1926, 7
RIAA, 308 3.243
Yukos Universal Limited (Isle of Man) v The Russian Federation, Hulley Enterprises
Limited (Cyprus) v The Russian Federation, Veteran Petroleum Limited (Cyprus) v The
Russian Federation, PCA Cases No. AA 226, 227, 228, Award of 18 July 2014 3.114, 3.244,
3.251–3.253, 3.297–3.298, 3.319–3.320, 5.18, 5.51, 5.60, 5.63, 6.41, 6.110, 6.123–6.124, 6.257,
6.272, 6.278, 6.29
NATIONAL CASES
Australia
State Bank of New South Wales Ltd v Federal Commissioner of Taxation, Federal Court,
Judgment of 9 November 1995, 95 ATC 4734 6.33
Canada
United Mexican States v Metalclad Corporation, Supreme Court of British Columbia,
Vancouver, Judgment of 2 May 2001 6.186
France
Code de l'expropriation pour cause d'utilité publique, version of 1 January 2015 according
14
to Ordonnance No 2014-1345 of 6 November 2014 2.43
Art L.321-1 2.43
Germany
P xxxiii BGH of 17 January 1973 IV ZR 142/70, DB 1973, 563 4.79
Netherlands
Russian Federation v Veteran Petroleum Limited, Yukos Universal Limited, and Hulley
Enterprises Limited, The Hague District Court, Chamber of Commercial Affairs, Judgment
of 20 April 2016 5.60
United Kingdom
Al-Jedda v United Kingdom [2011] All ER (D) 92 (Jul) 5.360
Golden Victory, The [2007] UKHL 12 (HL) 3.338
Horn v Sunderland Corporation [1941] 2 KB 26 2.43
Johnson v Agnew [1979] 2 WRL 487(HL) 499 3.338
Robinson v Harman (1848) 1 Exch. 850 2.85
Stebbing v Metropolitan Board of Works [1870] LR 6 QB 37 2.43
Sempra Metals Limited (formerly Metallgesellschaft Limited) (Respondents) v Her
Majesty's Commissioners of Inland Revenue and another (Appellants), House of Lords,
Judgment of 18 July 2007, [2007] UKHL 34 6.33
United States
Olsen v United States, 292 US 246, 255 (1934) 2.40
United States v 50 Acres of Land, 469 US 24 (1984) 2.40
United States v Commodities Trading Corp, 339 US 121, 123 (1950) 2.40
P xxxiii United States v Cors, 337 US 325, 332 (1949) 2.40
15
Document information Table of Legislation and Instruments
European Instruments
Publication Council Regulation (EC) No. 2533/98 of 23 November 1998 concerning the collection of
Calculation of
Compensation and statistical information by the European Central Bank [1998] OJ L318/8 6.112
Damages in International Council Regulation (EU) No. 1072/2013 of the European Central Bank of 24 September 2013
Investment Law (Second concerning statistics on interest rates applied by monetary financial institutions (recast)
Edition) (ECB/ 2013/14) [2013] OJ L297/51 6.112
Directive 2011/7/EU of the European Parliament and of the Council on combating late
payment in commercial transactions of 16 February 2011, [2011] OJ L200/35 6.57, 6.261
Bibliographic Art 2(6) 6.6261
reference Art 2(7) 6.657
'Table of Legislation and
Instruments', in Irmgard
Marboe , Calculation of National Legislation
Compensation and
Damages in International Austria
Investment Law (Second Civil Code (Allgemeines Bürgerliches Gesetzbuch) 2.243
Edition), Oxford
International Arbitration Art 1323 2.43
Series, (© Irmgard Marboe
2017; Oxford University Equador
Press 2017) pp. xxxv - Civil Code 6.250
xxxviii
Art 2140 6.250
Constitution 6.250
Art 244 6.250
Germany
Grundgesetz (Basic Law of Germany) 2.241
Art 14 2.41
Art 14(3) 2.241
Iran
Insurance Nationalization Act 1979 3.37
Art 1 3.37
Oil Industry Act 1951 3.40
Single Article Act 1980 3.39, 3.40
Kuwait
Decree Law No. 124, 'Terminating the Agreement between the Kuwait Government and
Aminoil', on 19 September 1977 3.36
Arts 3, 4 3.36
Libya
Civil Code 6.271
Petroleum Law 1955 3.64
Petroleum Law 1965 3.64
Mexico
Constitution 3.23
Art 27 3.23
Switzerland
Article 26 Bundesverfassung 2.43
Article 19 Enteignungsgesetz 2.43
United States of America

Constitution 2.40
Fifth Amendment 2.40
16
Foreign Relations Law of the United States (Third) 1987 2.48
Foreign Sovereign Immunities Act, 28 USC § 1606 3.99
Restatement on Contracts (Second) 2.285
Section 344 2.85
Uniform Commercial Code 2.85
Section 1–106 (1) 2.285
Venezuela
Civil Code 6.72
Article 1.746 6.72
Decree Law 2007 3.47
P xxxvi Hydrocarbons Law 2001 3.47
Reserve Law 2009 3.49
Trade Agreements
Agreement between the Government of the United Kingdom and the Government of the
USSR for the Promotion and Reciprocal Protection of Investments, 6 April 1989 6.150, 6.275
Art 5(1) 6.6150, 6.275
Agreement between the Macedonian Government and the Swiss Federal Council on the
Promotion and Reciprocal Protection of Investments, 26 September 1996 6.142
Art 5(1) 6.6142
Agreement for the Promotion and Protection of Investments between the Republic of Italy
and the Arab Republic of Egypt, 2 March 1989 6.141
Art 5(iv) 6.6141
Argentina–El Salvador BIT 1996 3.16
Art 7 3.16
Austria–Bangladesh BIT 2001 3.15
Art 5(1)(d) 3.315
Austria–Croatia BIT 1991 3.17
Art 4 3.17, 3.23
Austria–Hungary BIT 1991 3.17
Art 4 3.17
Austria–Slovak Federal Republic BIT 1991 3.17
Art 4 3.17
Austrian–Slovenian BIT 2001 3.15
Art 5(1)(d) 3.315
Bangladesh–Italy BIT 1990 5.299
Art 5 5.299
Brazil–The Netherlands BIT 1998 3.16
Art 6 3.16
Canada–Venezuela BIT 1996 3.49, 5.177
Art 2 5.177
Art 7(1) 3.349
Canadian Model BIT 2004 2.51, 3.20, 6.273
Art 13 2.51, 3.15
Art 13(2) 3.318, 3.20, 3.22
Art 13(3) 6.614, 6.15, 6.275
Czech Republic–The Netherlands BIT 1991 3.12
Denmark–Russia BIT 1993 5.14
Art 8 5.14
Egypt–France BIT 1975 3.16
17
Art 6 3.16
Ethiopia–Sudan BIT 2000 3.16
Art 4 3.16
EU–Canada Comprehensive Economic and Trade Agreement (CETA), signed 30 October
2016 2.47, 3.22, 5.308
Art 8.12 5.308
Art 8.12(1) 3.315
Art 8.12(2) 3.322
German Model BIT 2008 2.51, 6.08
Art 4 2.51, 3.17, 3.21
Art 4(2) 6.608, 6.14
Germany–Bosnia–Herzegovina BIT 2001 3.21
Art 4 3.21
Germany–Venezuela BIT 1996 3.21
Art 4 3.21
India–Indonesia BIT 1999 3.16
Art 5 3.16
Indonesia–Jordan BIT 1999 3.16
Art 4 3.16
Italy–Egypt BIT 1989 5.294, 6.141
Art 5 6.141
Latvia–The Netherlands BIT 1994 3.16
Art 6 3.16
Luxemburg–Belgium and Egypt Treaty of 1977 2.47
Art V 2.47
Luxemburg–Belgium and the Republic of Korea Treaty of 1974 2.47
Art 5 2.47
Macedonia–Switzerland BIT 1996 6.142
Art 5 6.142
Malaysia–Chile BIT 1992 5.246
Art 4(c) 5.5246
Mexico–France BIT 1998 5.311
Netherlands–Venezuela BIT 1991 3.47, 3.49
Art 6 3.49, 3.282
Art 6(c) 3.347
North American Free Trade Agreement 1994 (NAFTA) 2.218, 2.47, 2.51, 2.72, 3.05, 3.17, 3.23,
3.143, 3.168, 6.07, 6.14, 6.125, 6.275
Chapter 11 3.143
Art 1102 3.147, 6.125
Art 1105 3.168, 5.94, 5.245
Art 1105(1) 3.317
Art 1106 5.151
Art 1110 2.51, 3.17–3.18, 3.22–3.23, 3.45, 3.59, 3.143, 3.147, 3.168, 3.270, 5.308, 6.14–6.15, 6.275
Art 1110(1)(d) 3.345
Art 1110(3), (4) 6.614
Art 1110(5) 6.615
Art 1135(1) 6.607
P xxxvii Oman–Yemen BIT 1998 5.298
Art 3 5.298
Russia–Turkey BIT 1997 3.16
18
Art 4 3.16
UK–Argentina BIT 1990 3.15
Art 5 3.15, 3.21
UK–Croatia BIT 1997 3.15
Art 5 3.15, 3.21
UK–Soviet BIT 1997 5.14, 6.150
Art 3 5.14
Art 5(1) 6.6150
Art 8 5.14
United States–Australian Free Trade Agreement 2005 2.51, 3.16
Art 11.7 2.51, 3.16
United States–Model BIT 2012 2.49, 3.19, 3.59
Art 5(1), (3) 2.249
Art 6 2.49
Art 6(1)(c) 3.315
Art 6(2) 2.250, 3.19
Art 6(2)(a) 6.614
Art 6(3) 6.608, 6.15, 6.275
Art 6(4) 6.616
Annex B 3.59
United States/Argentina BIT 1991 2.49, 3.330, 3.365
Art 4 2.49
Art 25 3.365
United States/Russian Federation BIT 1992 2.49
Art 3 2.49
United States/Ukraine BIT 1994 6.142
Art 3 6.142
Art 3(1) 6.6143
United States – Chilean Free Trade Agreement 2004 2.51, 3.16
Art 10.9 2.51, 3.16
Venezuela–Barbados BIT 1994 5.173–5.174, 6.95
Art 5 6.95
Treaties and Conventions

Convention establishing the Multilateral Investment Guarantee Agency (MIGA), entered
into force 12 April 1988, 1508 UNTS 99 4.18, 4.19, 4.20, 5.302, 5.306
Preamble 4.18
Art 11(a)(ii), (iii) 4.418
Art 16 4.19, 4.20, 5.302
Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR),
signed on 4 November 1950, entered into force, 3 September 1953, 213 UNTS 221 1.18, 2.44,
3.50, 6.03
Art 4(2) 3.3112
Art 6 3.81
Art 41 5.368–5.269
Art 42 2.07
Protocol 1 1.18, 2.44, 3.50, 5.06
Art 1 1.18, 2.44, 3.50, 5.06
Convention on International Liability for Damage Caused by Space Objects (1972) 2.223
Convention on the Settlement of Investment Disputes between States and Nationals of
Other States (ICSID), adopted 18 March 1965, entered into force, 14 October 1966, 575
UNTS 159 3.255, 5.327, 6.08, 6.60, 6.65
19
Art 42 3.255, 6.60, 6.65
Art 46 6.08
Art 61(2) 5.5327
Draft Articles on Prevention of Transboundary Harm from Hazardous Activities (2001),
Official Records of the General Assembly, Supplement No. 10, UN- Doc. A/56/10 2.23
Draft Articles on the Responsibility of States for Internationally Wrongful Acts, adopted 10
August 2001,UN GA Resolution No. 56/83 of 12 December 2001 1.12, 2.07, 2.76, 2.112–2.113,
3.70, 3.103, 3.121–3.124, 3.145, 3.242 3.365, 3.369, 5.17, 5.316, 5.343, 6.04, 6.18–6.19, 6.22, 6.30,
6.165, 6.180, 6.183, 6.189, 7.01, 7.08
Art 14(3) 6.6189
Art 15 3.314, 5.17
Art 15(1) 3.3314, 3.315
Art 25 1.12, 3.365–3.366, 3.369–3.370
Art 31 2.21, 2.76, 3.122, 5.343, 7.07–7.09
Art 31(2) 2.277, 5.316
Art 34 3.123, 3.323
Art 35 3.70
Art 36 2.07, 2.77, 2.113, 3.102, 3.123–3.124, 3.323, 3.330, 7.07–7.08
Art 36(2) 2.2112–2.113
Art 38 6.18, 6.21, 6.30, 6.165, 6.180, 6.183
Art 38(1) 6.604, 6.18
Art 38(2) 6.6180
Art 39 3.242
P Annex 3.121, 3.365
xxxviii
Energy Charter Treaty, signed December 17 1994, entered into force April 16 1996, 2080
UNTS 95 (ECT) 2.247, 2.51, 2.72, 3.05, 3.15, 3.54, 3.270, 3.297, 5.60, 6.07, 6.14, 6.275
Art 13 2.51, 3.15, 3.270, 3.297, 6.14, 6.275
Art 13(1) 6.614
Art 26(8) 6.607
Japanese Peace Treaty 1945 3.363
Statute of the International Court of Justice, signed on 26 June 1945, entered into force, 24
October 1945 2.35, 3.350
Art 38 2.35, 3.351
Art 38(1) 3.3351
Art 38(2) 3.3350–3.351
Treaty between the United States of America and Ukraine concerning the Encouragement
and Reciprocal Protection of Investment of 4 March 1994, entered into force on 16
November 1996 6.143
Art III 6.143
Art III(1) 6.6143
Treaty on European Union (Consolidated), Official Journal of the EU (26 October 2012), C
326/13, (TEU) 2.247
Treaty on the Functioning of the European Union (TFEU), signed on 13 December 2007,
2012/C 326/01 1.06
Art 340(2) 1.106
UNIDROIT Convention on International Financial Leasing, adopted 28 May 1988, entered
into force 1 May 1995, 2321 UNTS 195 3.255
Art 13 3.255
UN Convention on Contracts for the International Sale of Goods, adopted 4 October 1980,
entered into force 1 January 1988, 1489 UNTS 3 (CISG) 2.209, 2.86, 3.176, 3.183, 3.209, 3.255,
3.339, 6.26, 6.33, 6.217, 7.07
Art 74 2.19, 2.86, 3.183, 3.339, 6.26
Art 77 3.255
Art 78 6.26, 6.33, 6.217
20
Art 79(1) 3.3183
Vienna Convention on Civil Liability for Nuclear Damage, signed 21 May 1963, entered into
force 12 November 1977, 1063 UNTS 265 2.23
Vienna Convention on the Law of Treaties (VCLT), signed 23 May 1969, entered into force,
27 January 1980, 1155 UNTS 331 3.178, 3.371
Art 31 3.371
Art 73 3.178
UN Instruments
UNCITRAL (United Nations Commission on International Trade Law) Model Law on
International Commercial Arbitration (1985) (United Nations Document A/40/17, Annex I)
(UNCITRAL Model Law) 6.6117
UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules 1.18,
5.300, 5.327
Art 40(1), (2) 5.5327
UNIDROIT Principles of International Commercial Contracts 2010 (PICC) 2.208, 2.21, 3.176,
3.183, 3.209, 3.255, 3.340, 6.26–6.27, 6.33, 6.81, 7.07
Art 7.1.7 3.183
Art 7.4.2 2.87, 3.340
Art 7.4.2(1) 2.208, 2.21
Art 7.4.9 6.27, 6.33
Art 7.4.9(1) 6.6216
Art 7.4.9(2) 6.626, 6.81
Art 7.4.21 3.183
Art 7.5.8 3.255
Principles of European Contract Law (PECL) 2.210, 2.88, 3.176, 3.183, 6.26–6.27, 6.33, 7.07
Art 8:108 2.10, 3.183
Art 9:501(1) 2.210
Art 9:502 2.88, 3.183
Art 9:504 3.255
Art 9:509 6.33, 6.217
Art 9:509(1) 6.626, 6.80
P Art 9:509(2) 6.627
xxxviii
21
Document information List of Abbreviations
ABA American Bar Association
Publication ABV Adjusted Book Value
Calculation of
Compensation and AICPA American Institute of Certified Public Accountants
Damages in International AJIL American Journal of International Law
Investment Law (Second
Edition) ASIL American Society of International Law
BIT Bilateral Investment Treaty
BP British Petroleum
Bibliographic BYIL British Yearbook of International Law
reference CIL Customary International Law
'List of Abbreviations', in
Irmgard Marboe , CISG United Nations Convention on Contracts for the International
Calculation of Sale of Goods
Compensation and
Damages in International CJEU Court of Justice of the EU
Investment Law (Second Co Company
Edition), Oxford
International Arbitration Corp Corporation
Series, (© Irmgard Marboe DCF Discounted Cash Flow
2017; Oxford University
Press 2017) pp. xxxix - xlii Doc. Document
DoL Decision on Liability
EBITDA Earnings Before Interest, Taxes, Depreciation, and
Amortization
EC European Community/European Communities
ECB European Central Bank
ECHR European Convention on Human Rights
ECtHR European Court of Human Rights
EJIL European Journal of International Law
EU European Union
EURIBOR European Interbank Offered Rate
FET Fair and equitable treatment
FPS Full protection and security
FTA Free Trade Agreement
GA General Assembly
GAAP Generally Accepted Accounting Principles
GYIL German Yearbook of International Law
IAS International Accounting Standards
ibid. ibidem (at the same place)
ICC International Chamber of Commerce
ICJ International Court of Justice
ICLQ International and Comparative Law Quarterly
ICSID International Centre for Settlement of Investment Disputes
ICSID Convention Convention on the Settlement of Investment Disputes
P xl Between States and Nationals of Other States (March 1965)
ICSID Rev.-FILJ ICSID Review—Foreign Investment Law Journal
idem idem (the same)
i.e. id est (that is)
IECL International Encyclopedia of Comparative Law
IFRS International Financial Reporting Standards
IJIL Indian Journal of International Law
ILA International Law Association
ILC International Law Commission
22
ILC Articles International Law Commission's Articles on the
Responsibility for Internationally Wrongful Acts
ILM International Legal Materials
ILO International Labour Organisation
ILR International Law Reports
IMF International Monetary Fund
IOM International Organization for Migration
Iran–US CTR Iran–US Claims Tribunal Reports
ITLOS International Tribunal for the Law of the Sea
IVS International Valuation Standards
IVSC International Valuation Standards Council
JBl Juristische Blätter
JWIT The Journal of World Investment and Trade
LIBOR London Interbank Offered Rate
MPEPIL Max Planck Encyclopedia of Public International Law
MFN Most favoured nation
MIGA Multilateral Investment Guarantee Agency
NAFTA North American Free Trade Agreement/Association
NBV Net Book Value
NGO Non-Governmental Organization
NYU New York University
OECD Organization for Economic Cooperation and Development
OPEC Organization of Petroleum Exporting Countries
ÖZöR Österreichische Zeitschrift für öffentliches Recht und
Völkerrecht
para. paragraph
paras paragraphs
PCA Permanent Court of Arbitration
PCIJ Permanent Court of International Justice
PDVSA Petróleos de Venezuela S.A.
PECL Principles of European Contract Law
RdC Recueil des Cours de l'Académie de droit international
RDI Revue de droit international et de legislation comparé
Res. Resolution
RIAA Reports of International Arbitral Awards
SEC Securities Exchange Commission
SFAC Statements on Financial Accounting Concepts
SFAS Statements of Financial Accounting Standards
SMT Statement on Appraisal Standards
TDM Transnational Dispute Management
P xli Texaco Texas Oil Company
UN United Nations
UNCC United Nations Compensation Commission
UNCITRAL United Nations Commission on International Trade Law
UNCTAD United Nations Conference on Trade and Development
UNIDO United Nations Industrial Development Organization
UNIDROIT Institut international pour l'unification du droit privé
UNTS United Nations Treaty Series
US United States of America
US $ United States Dollar
23
USPAP Uniform Standards of Professional Appraisal Practice
vol.(s) volume(s)
WTO World Trade Organization
YCA Yearbook of Commercial Arbitration
ZaöRV Zeitschrift für ausländisches öffentliches Recht und
P xli Völkerrecht
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Document information 1. Introduction

1.01 For a long time, the issue of calculation has attracted relatively little attention in
Publication legal writing and practice. (1) The main interest of juridical analysis concentrated on the
Calculation of legal foundations of claims but less on the question of the concrete amount that would
Compensation and be awarded in the end. This seems to reflect a certain tradition in the wrongful
Damages in International interpretation of the Latin verdict of iudex non calculat. (2)
Investment Law (Second 1.02 In the past ten years, however, there has been a remarkable increase in awareness of
Edition) the importance of valuation in international investment disputes. Not only has the
P 2 number of academic writings on this issue grown, (3) but also tribunals have dedicated
more attention to calculation and valuation issues in their awards, where the
Bibliographic explanations on quantum not infrequently cover dozens of pages of detailed reasoning.
(4)
reference 1.03 There is now a better understanding that the traditional scepticism concerning
'1. Introduction', in Irmgard
Marboe , Calculation of numbers among lawyers is no longer acceptable. Claimants are not predominantly
Compensation and interested in the legal foundations of their claim but are above all concerned with the
Damages in International question of how much they can expect to receive after a possibly long-lasting and
Investment Law (Second uncomfortable legal procedure. (5) A fairly precise estimate of the amount of money to
Edition), Oxford be expected is of the greatest importance to evaluate the risks of such a costly
International Arbitration undertaking as international judicial proceedings.
Series, (© Irmgard Marboe 1.04 The difficulties of calculating compensation and damages in investor–state disputes
2017; Oxford University are also rooted in the multifaceted nature of international investment law. On the one
Press 2017) pp. 1 - 8 hand, it forms part of public international law, as the legal framework is shaped by
international treaties and customary international law. On the other hand, some authors
have argued that international investment law should be understood as constituting a
species of global constitutional and administrative law. (6) Others have highlighted the
contractual nature of international investment law with its various types of bilateral
P 3 agreements between states, and between investors and states. (7) In addition, there
are similarities, but also divergences between international investment arbitration and
international commercial arbitration. (8)
1.05 In the light of the above, the calculation of compensation and damages continues to
present a particular challenge. Which rules and principles are to be followed?
Compensation and damages are concepts that are used and applied in all of the above-
mentioned legal frameworks, but in rather different ways. How can international
investment arbitration reconcile these different approaches?
1.06 With respect to administrative law, the right of individuals to receive compensation
or damages from the state is subject to many contingencies. While in cases of direct
expropriation, the rules are more or less settled, the matter is much more complicated in
the area of state liability for wrongful state acts. European law refers to the 'common
principles of law' with respect to its liability for damage caused by unlawful acts of its
institutions or servants. (9) Yet, there is considerable jurisprudence (10) and academic
writing (11) that such 'common principles' are not easy to detect. One of the few common
principles is that the liability for damages of the state towards individuals is more
P 4 limited than in the relationship between individuals themselves. (12) In addition,
liability for legislative acts is accepted only in a rather restrictive way so as not to
interfere unduly with the state's regulatory power. (13)
1.07 In the area of contract law, other principles prevail. According to what has been
described as 'rectificatory' or 'corrective' justice, after Aristotle's Nicomachean Ethics,
what one has gained, the other has lost and must be compensated in order to equalize
injustice. (14) The equilibrium of contractual rights and duties should be safeguarded, if
possible, with respect to the time of the agreement. (15)
1.08 Economic considerations play an important role for general preventive reasons. The
financial consequences of certain behaviour should be assessable beforehand. Only then
can jurisprudence fulfil its task of upholding and securing the rule of law. (16) If the
amounts do not turn out in a comprehensive and consistent manner, this chance is lost.
1.09 This is especially relevant in the international context. In the area of international
investment disputes, numerous different tribunals are dealing with the quantification of
compensation or damages and they apply a large variety of valuation approaches. It is
often not clear beforehand which tribunal will apply which approach and why. The lack of
a more uniform practice and more foreseeable criteria leads to uncertainty. As a
consequence, claimants may be tempted to overstate their claims, anticipating that a
tribunal might decide just to 'split the baby'. (17)
1.10 Even though the calculation in the concrete case is only directly relevant for the
P 5 parties, it has its external effects. The calculation of the respective individual claims
also contributes—or not—to legal certainty. The better an award on compensation and
1
damages is reasoned and explained, the more chance it has of being considered legally
and morally acceptable, not only to the state party to the dispute but also to the outside
world. (18) Economically adequate and comprehensive calculation certainly serves a
useful public policy purpose. (19)
1.11 Environmental organizations and other non-governmental organizations (NGOs) have
been warning of the so-called 'chilling effect' of high compensation or damages awards in
investment disputes. (20) Out of fear of being confronted with astronomical claims from
financially powerful investors, some states have refrained from utilizing useful and
desirable measures in the common interest such as environmental or employment
regulations. This has the effect of hampering social development in these countries.
1.12 Economic difficulties and crises of host states also have played a role in the investor–
state arbitration. (21) While the first awards against Argentina have tended to reject the
justifications for the emergency measures taken, the subsequent successful annulment
proceedings and a few other awards did not follow this tendency. The difference between
the non-precluded measure (NPM) provisions contained in many investment protection
treaties and the customary international law rule on the state of emergency as a 'ground
for precluding wrongfulness' with its strict conditions formulated in Article 25 of the
Articles on State Responsibility (22) appears now to have gained more ground. It will be
discussed how this affects the quantum aspects in investment arbitration cases.
1.13 On the other hand, the size of the amounts awarded in investment arbitration has
P 6 increased over the past years. (23) This is connected to the size of the projects under
dispute, but in the absence of an upper limit in the scale of foreign investment, the
awards of compensation or damages may continue to result in 'astonishing amounts'. (24)
1.14 Finally, it is important to consider the time factor. The period of time between the
event giving rise to the claim and the assessment or payment of the amount of
compensation or damages has an important influence on their value, which can be taken
into account through an award of interest. However, the rate and the period of interest as
well as the question of whether interest should be compounded are often not
appropriately considered, although in this respect too, considerable progress can be
observed in the past few years.
1.15 The role of experts regarding questions of evaluation and calculation also needs to
be highlighted. Usually, the parties present their own expert reports. More rarely, experts
are also appointed by the tribunal. However, the decision about the amount of
compensation or damages must not be delegated to the experts. (25) In order to assess
the figures submitted by experts, an understanding of the methods and a willingness to
consider them are important. (26)
1.16 In international investment arbitration, expropriations, violations of treatment
standards contained in international investment protection treaties, and breaches of
contract are at issue, when disputes arise between foreign investors and host states. The
dual character of the state as a sovereign on the one hand and as an actor in the private
business sector on the other poses several problems. While the state's sovereignty and
responsibilities for public welfare must be safeguarded, the state must also comply with
legal obligations entered into for the promotion and protection of foreign investment.
Generally, it is in the interest of the host state to create and maintain a reliable legal
framework for foreign investors. In the developing and in the developed worlds, private
foreign investment is regarded as an essential means for economic prosperity and
development.
1.17 The following chapters will analyse how modern international investment tribunals
P 6 have dealt with this dilemma. Some important older decisions of claims or arbitral
commissions will also be analysed insofar as they are still influential for the question of
calculating compensation or damages. Furthermore, the International Court of Justice
and its predecessor, the Permanent Court of International Justice, have made important
pronouncements on the duties of states concerning foreigners and on state responsibility.
Their judgments will also briefly be reflected.
1.18 As regards investor–state arbitration, the focus will be on arbitrations initiated under
the auspices of the International Centre for Settlement of Investment Disputes (ICSID),
but will also include arbitrations under the UNCITRAL rules and other ad hoc arbitrations.
Furthermore, the jurisprudence of the Iran–US Claims Tribunal will be analysed, as it had
to deal with the specific financial aspects of the investor–state relationship on many
occasions. Some thought is also given to the practice of the UN Compensation
Commission which had to assess, inter alia, business losses of private individuals as a
consequence of Iraq's invasion of Kuwait in 1990. Finally, the practice of the European
Court of Human Rights (ECtHR) is occasionally referred to as far as it contains identifiable
guidelines for the assessment of damages after violations by states of their international
obligations. This is the case in particular with the right to property as contained in Article
1 of the First Protocol of the European Convention on Human Rights (ECHR).
1.19 As a starting point, Chapter 2 will analyse the concept of compensation and damages
on the basis of legal rules applicable in international investment disputes. Chapter 3 is
dedicated to the most important valuation standards and criteria which can be
identified on this basis. Chapter 4 will then introduce some of the internationally
2
recognized valuation standards and approaches from the economic perspective. The
scope of Chapter 5 will be to combine the two approaches and assess whether and how
the different valuation methods used in economic practice are reflected and applied in
international jurisprudence. Chapter 6 will then deal with the issue of interest and
address both pre-award and post-award interest. Some concluding remarks will be
outlined in Chapter 7. The four Annexes contain analytical tables of cases, which were
significant in terms of calculation of compensation and damages in investor–state
arbitration since 2008. (27)
References
1) The notable exceptions include R Lillich (ed.), Valuation of Nationalized Property in
International Law, vols 1–4 (Charlottesville: University Press of Virginia, 1972–87). A few
articles appeared on specific aspects of the issue of valuation, such as M Ball,
'Assessing Damages in Claims by Investors Against States' (2001) 16 ICSID Rev.-FILJ
408; P Friedland and E Wong, 'Measuring Damages for Deprivation of Income-
Producing Assets: ICSID Case Studies' (1991) 6 ICSID Rev.-FILJ 400; W Lieblich,
'Determination by International Tribunals of the Economic Value of Expropriated
Enterprises' (1990) 7 Journal of International Arbitration 37; W Lieblich, 'Determining
the Economic Value of Expropriated Income-Producing Property in International
Arbitrations' (1991) 8 Journal of International Arbitration 59; S Khalilian, 'The Place of
Discounted Cash Flow in International Commercial Arbitration: Awards by Iran–U.S.
Claims Tribunal' (1991) 8 Journal of International Arbitration 31; C F Amerasinghe,
'Issues of Compensation for the Taking of Alien Property in the Light of Recent Cases
and Practice' (1992) 41 ICLQ 22. A few books appeared in German, such as R Hefele,
Ermittlung der Entschädigung bei Enteignung von Direktinvestitionen im Ausland nach
modernem Völkerrecht (Munich: Herbert Utz Publishers, 1991); H Bergmann, Die
völkerrechtliche Entschädigung im Falle vertragsrechtlicher Positionen (Baden-Baden:
Nomos, 1997); M Schäfer, Entschädigungsstandard und Unternehmens bewertung bei
Enteignungen im allgemeinen Völkerrecht (Heidelberg: Verlag Recht und Wirtschaft,
1997); and in French, such as J Ortscheidt, La réparation du dommage dans l'arbitrage
commercial international (Paris: Dalloz, 2001); on the valuation practice of the
European Court of Human Rights (ECtHR) see, in particular, G Dannemann,
Schadensersatz bei Verletzung der Europäischen Menschenrechtskonvention (Cologne
et al: Heymanns, 1994).
2) Usually ascribed to Macer, Dig 49, 8, 1 para. 2; see A Murillo Villar, 'La motivación de
la sentencia en el proceso civil romano' (1995) 2 Cuadernos de Historia de Derecho 11,
28. Waelde and Sabahi note that the question of compensation and damages is often
'the poor cousin' when the battle royal rages first about jurisdiction and then about
the merits. T Waelde and B Sabahi, 'Compensation, Damages, and Valuation' in P
Muchlinski et al (eds), The Oxford Handbook of International Investment Law (Oxford:
Oxford University Press, 2008) 1049, 1051.
3) See, e.g., Y Derains and R Kreindler (eds), Evaluation of Damages in International
Arbitration (Paris: International Chamber of Commerce, 2006); T Waelde and B Sabahi,
above, n. 2; S Ripinsky and K Williams, Damages in International Investment Law
(London: British Institute of International and Comparative Law, 2008); M Kantor,
Valuation for Arbitration (Alphen aan den Rijn: Kluwer Law International, 2008); A
Bjorklund, I Laird, and S Ripinsky (eds), Investment Treaty Law. Current Issues III
(London: BIICL, 2009); H Wöss, A San Román Rivera, P Spiller, and S Dellepiane,
Damages in International Arbitration Under Complex Long-Term Contracts (Oxford:
Oxford University Press, 2014). In 2014, the Journal of Damages in International
Arbitration was founded which aims 'to provide a forum for the free exchange of ideas
concerning the calculation of damages, the difficulties and the challenges therein'.
See J Gotanda and R Walck, 'Editors' Note' (2014) 1 Journal of Damages in International
Arbitration v. Numerous articles published in this Journal are referred to in this book.
In M Bungenberg, J Griebel, S Hobe, and A Reinisch (ed), International Investment Law
(Baden-Baden et al: Nomos et al, 2015), the chapter on 'Restitution, Damages and
Compensation' encompasses more than 120 pages in nine subchapters.
4) A study by PWC in 2015 analysing ninety-five awards between 1990 and 2015 shows
that the number of pages dedicated to explaining the basis for the quantification of
damages has risen from eight in pre-2000 to thirty-four pages in 2011–15. Tribunals
are also addressing more complex valuation issues. See PricewaterhouseCoopers,
2015—International Arbitration Damages Research—Closing the Gap between Claimants
and Respondents, available at <http://www.pwc.co.uk/services/forensic-
services/disputes/2015-internationalarbitration-damages-resea...>; reprinted in (
2016) 3 Journal of Damages in International Arbitration 99, 104.
5) Gotanda notes that 'what is of primary concern to the aggrieved parties most often is
not the issue concerning jurisdiction and the merits of the various substantive claims,
around which lawyers build sophisticated legal arguments, but the result, typically
measured by the amount of money recovered'. J Gotanda, 'Damages in Private
International Law' 326 RdC (2007) 73, 83.
3
6) G Van Harten and M Loughlin, 'Investment Treaty Arbitration as a Species of Global
Administrative Law' (2006) 17 EJIL 121; S Schill (ed.), International Investment Law and
Comparative Public Law (Oxford: Oxford University Press, 2010); S Montt, State Liability
in Investment Treaty Arbitration. Global Constitutional and Administrative Law in the
BIT Generation (Oxford: Hart Publishing, 2009).
7) A van Aaken, 'International Investment Law between Commitment and Flexibility: A
Contract Theory Analysis' (2009) 12 Journal of International Economic Law 507; J
Salacuse, The Three Laws of International Investment. National, Contractual, and
International Frameworks for Foreign Capital (Oxford: Oxford University Press, 2013).
8) C Knahr, C Koller, W Rechberger, and A Reinisch (eds), Investment and Commercial
Arbitration—Similarities and Divergences (Utrecht: Eleven, 2010).
9) See Article 340(2) of the Treaty on the Functioning of the European Union (TFEU)
which provides: 'In the case of non-contractual liability, the Union shall, in
accordance with the general principles common to the laws of the Member States,
make good any damage caused by its institutions or by its servants in the
performance of their duties.'
10) The Court of Justice of the European Union has in its well-known judgments in
Francovich and Brasserie U Pecheur/Factortame elaborated general principles of
state liability for breaches of European law which are designed after this model, thus
also based on the general principles common to the laws of the member states. This
case law has developed over time, but the condition that the breach must be
'sufficiently serious' to trigger liability has been criticized repeatedly. Out of the
numerous cases dealing with principles of the liability of the EU and its member
states see, in particular, Case 5/71, Zuckerfabrik Schöppenstedt v Council [1971] ECR
975, 984, para. 11; Cases C-6 and 9/90, Francovich and Bonifaci v Italy [1991] ECR I-5357;
Brasserie du Pecheur SA v Federal Republic of Germany; R. v Secretary of State for
Transport, ex parte Factortame Ltd (No. 4) [1996] ECR I-1029; Laboratoires
Pharmaceutiques Bergaderm and Goupil v Commission, Judgment of 4 July 2000, Case
C-352/98.
11) A Bradley and J Bell, 'Governmental Liability: A Preliminary Assessment' in J Bell and
A Bradley (eds), Governmental Liability: A Comparative Study (London: BIICL, 1991) 1–2;
F Fines, 'A General Analytical Perspective on Community Liability' in Tom Heukels and
Alison McDonnell (eds), The Action for Damages in Community Law (The Hague: Kluwer
Law, 1997) 11; M Andenas and D Fairgrieve, 'Misfeasance, Governmental Liability and
European Influences' in D Fairgrieve, M Andenas, and J Bell (eds), Tort Liablity of
Public Authorities in a Comparative Perspective (London: BIICL, 2002) 183; D Fairgrieve,
State Liability in Tort. A Comparative Law Study (Oxford: Oxford University Press, 2003);
C Booth, The Negligence Liability of Public Authorities (New York: Oxford University
Press, 2006); I Marboe, 'Principles of State Liability and their Applicability in
Investment Arbitration' in M Kantor (ed.), Ten Years of Transnational Dispute
Management, TDM 4 (2013) <http://www.transnational-dispute-management.com>.
12) In this respect, the fear of 'opening the flood gates' is frequently raised. See I Marboe,
'State Responsibility and Comparative State Liability for Administrative and
Legislative Harm to Economic Interests' in S Schill (ed.), International Investment Law
and Comparative Public Law (Oxford: Oxford University Press, 2010) 377, 409.
13) See the argument of G A Darmon in Vreugdenhil II: 'In many, if not all, Member States
the conditions for liability for legislative action are appreciably different from those
concerning administrative action.' Case C-282/90, Vreugdenhil v Commission
(Vreugdenhil II), [1992] ECR I-1937, 1958; see also A Arnull, 'Liability for Legislative Acts
Under Article 215(2) EC [now: 340 (2) TFEU]' in T Heukels and A McDonnell (eds), The
Action for Damages in Community Law (The Hague: Kluwer Law, 1997) 129; I Marboe,
above, n. 12.
14) Aristotle, Nicomachean Ethics, translated by W D Ross (Stilwell: Digireads, 2005) Book
V, 4; this argument is expanded in more detail by H Wöss et al, above, n. 3, 13–14.
15) A van Aaken, above, n. 7, 508 et seq.
16) Waelde notes that the compensation payable adds to the 'signalling effect of a
tribunal award'. T Waelde, 'The Specific Nature of Investment Arbitration' in P Kahn
and T Waelde (eds), New Aspects of International Investment Law (The Hague: Martinus
Nijhoff Publishers, 2007) ch. 2.
17) PWC analysed in its 2015 study whether the concern that tribunals tend to 'split the
baby', i.e. award an amount in between the two amounts presented by claimants and
respondents, was supported by evidence. The study showed that in only 18% of cases
did tribunals award an amount between 40 and 60% of the amount claimed. There
were significantly more cases where the tribunals' position on damages was much
closer to one party's position (typically the respondent) than the middle ground. On
average the amount awarded represented 37% of the amounts claimed. See PWC,
above, n. 4, 102–3.
18) See the analysis by J Branson, 'Damages in Investment Arbitration—A Revolutionary
Remedy or Reward for Rich Corporations at the Expense of the World's Poor? A
Fundamental Examination of Chorzów's Children' (2016) 3 Journal of Damages in
International Arbitration (forthcoming).
19) This has also been emphasized by M Reisman and R Sloane, 'Indirect Expropriation
and its Valuation in the BIT Generation' (2003) 75 BYIL 115, 137.
20) N Bernasconi-Osterwalder, 'Who Wins and Who Loses in Investment Arbitration? Are
Investors and Host States on a Level Playing Field?' (2005) 6 JWIT 69 et seq.
4
21) That very high amounts could pose a problem for the economy of smaller states has
been robustly argued by Arbitrator Brownlie in his Separate Opinion in CME v Czech
Republic. See Separate Opinion on the Issues at the Quantum Phase of: CME v Czech
Republic by Ian Brownlie of 14 March 2003, paras 74 et seq. Similar issues have been
raised in the context of the ICSID proceedings against Argentina. See, in particular,
CMS Gas Transmissions Company v Argentine Republic, Award of 12 May 2005, 44 ILM
(2005) 1205 and LG&E Energy Corp et al v Argentine Republic, Award of 25 July 2007. For
further details of the discussion see Chapter 3, Section D(2), paras 3.326 et seq.
22) See the critique on the practice of the early awards decided against Argentina by W
Burke-White and A von Staden, 'Investment Protection in Extraordinary Times: The
Interpretation and Application of Non-Precluded Measures Provisions in Bilateral
Investment Treaties' (2008) 48 Virginia Journal of International Law 307.
23) The PWC study in 2015 showed that 100% of the awards until 2000 amounted to less
than US$100 million. Between 2006 and 2010, 81%, and between 2011 and 2015, 79% of
the amounts were less than US$100 million. These results demonstrate the tendency
towards larger awards. Yet, the research also shows that the overwhelming majority of
awards continue to be for amounts below US$100 million. Only three of the awards
reviewed in the last five years were for amounts in excess of US$1 billion, and five for
amounts greater than US$100 million but less than US$1 billion. See PWC, above, n. 4,
109.
24) See Mark Kantor, 'Fifty Billion Dollars; The Yukos Damages Awards' (2015) 2 Journal of
Damages in International Arbitration 91: 'What does it mean for the presentation and
evaluation of damages evidence when an arbitral tribunal orders the losing
respondent to pay the astonishing amount of more than US$50 billion?'
25) N Ulmer, 'Assessing Damages—Are Arbitrators Good at It? Should They Be Assisted by
Experts? Should They Be Entitled to Decide ex aequo et bono?' (2005) 6 JWIT 11; R
Walck, 'Logic and Ethics in the Practice of Expert Witness Services' (2016) 3 Journal of
Damages in International Arbitration 149.
26) This may also serve to emphasize the acceptance and enforceability of a tribunal
award. See W Lieblich, 'Determining the Economic Value of Expropriated Income-
Producing Property in International Arbitrations' (1991) 8 Journal of International
Arbitration 59, 74.
27) The book by Ripinsky and Willians contains tables of relevant cases until 2007. See
Ripinsky and Willians, above, n. 3, 405–505. It therefore seemed useful to continue
this chronology from the year 2008.
5
Document information 2. The Function of Compensation and Damages
2.01 Compensation and damages are pecuniary remedies which shall, as far as money can
Publication do, repair harm or loss sustained. They have an important function for doing justice, and
Calculation of for proving the existence of law as such: ubi remedium ibi ius (where there is a remedy,
Compensation and there is law). (1) The assessment of the amount due has the role of transforming legal
Damages in International claims into concrete amounts of money. In order to fulfil this task adequately, the scope
Investment Law (Second and purpose of the legal claims must be well understood. A closer look at the legal rules
Edition) applicable in the various contexts is therefore essential.
2.02 Different legal systems have developed different approaches on the function of
compensation and damages which are also the result of historical traditions. (2) At the
Bibliographic international level, one must also take into account that the legal terms might have
P 11 different meanings in different languages and legal systems. The following analysis will
reference identify the function of compensation and damages in the context of international
'2. The Function of investment disputes and shall serve as a basis for the development of criteria for the
Compensation and assessement of quantum by international investment tribunals. It will also be a point of
Damages', in Irmgard reference for the choice of an appropriate valuation method.
Compensation and A. Distinct Functions of Compensation and Damages
Damages in International
Investment Law (Second 2.03 In international investment law, the obligation to pay compensation or damages
Edition), Oxford may be based on different legal claims. Three causes of action can generally be
International Arbitration identified: expropriation, breaches of international law, and breaches of contracts. (3)
Series, (© Irmgard Marboe The difficulty of identifying the purpose of the respective monetary remedy has already
2017; Oxford University been reflected in the arbitral award in Delagoa Bay in 1900:
Press 2017) pp. 9 - 42
La 'compensation' doit-elle représenter la réparation d'un dommage causé
sans droit? ou bien doit-elle former l'équivalent d'un engagement
contractuel? ou bien encore les demandeurs ont-ils simplement droit au
remboursement d'une valeur dont le Portugal, s'il ne la restituait pas, se
trouverait illégitimement enrichi? (4)
2.04 The concepts of 'compensation' and 'damages' may be different in the national and
international legal rules applicable in international investment disputes. In addition,
linguistic particularities and translation problems have to be taken into account. The
amount a state has to pay in case of an expropriation is usually called 'compensation'. (5)
By contrast, the amount due after a violation of a legal obligation is generally referred to
as 'damages'. (6)
2.05 Nevertheless, this distinction is not consistently respected. Black's Law Dictionary
explains the term 'compensation' as '[p]ayment of damages, or any other act that a court
orders to be done by a person who has caused injury to another. In theory, compensation
makes the injured person whole.' (7) The explanation of the term 'damages' reads as
follows: 'Money claimed by, or ordered to be paid to, a person as compensation for loss
or injury'. (8) The two terms are thus used interchangeably and as mutually explaining
each other. Yet, some distinction was made in one of the earlier editions of the
Dictionary:
Damages is amends exacted from a wrong-doer for a tort. Compensation is
amends for something which was taken without the owner's choice, yet without
commission of a tort. Thus, one should say … compensation for land taken for a
railway; damages for a trespass. But such distinctions are not uniform. (9)
2.06 In the Oxford Dictionary of Law 'compensation' is defined as '[m]onetary payment to
compensate for loss or damage'. (10) The term 'damages' is explained as '[a] sum of
money awarded by a court as compensation for a tort or a breach of contract. Damages
are usually a lump sum award … The general principle is that the claimant is entitled to
full compensation (restitutio in integrum) for his losses.' (11)
2.07 These examples show that there are some differences between the terms
'compensation' and 'damages', but that these differences are not always clear and are
not uniform. The two terms are frequently used interchangeably or for mutually
explaining each other. Also the International Law Commission (ILC), in its Articles on the
Responsibility of States for Internationally Wrongful Acts, (12) chose the term
'compensation' and not 'damages' for describing the consequences of an unlawful act of a
state under international law. Article 36 is entitled 'Compensation' and contains the
responsible state's obligation to compensate for the damage caused by the wrongful act.
The French text speaks of 'indemnization' (13) and the Spanish one of 'indemnización'.
P 12
(14) The Commentary points out that the function of the respective Article 36 'is purely
compensatory, as its title indicates' and emphasizes that compensation must address
the actual losses incurred and not punish the responsible state or have an expressive or
exemplary character. (15) The more neutral term 'compensation' arguably better
disperses states' concerns not to be 'punished' by a pecuniary award against them. By
contrast, the German translation uses the word 'Schadenersatz', corresponding to the
term used in tort and contract law. (16)
6
2.08 Some international codifications of contract law also use the term 'compensation' in
connection with the consequences of violations of legal norms, and thus in the sense of
'damages'. For example, Article 7.4.2(1) of the UNIDROIT Principles on International
Commercial Contracts reads: 'The aggrieved party is entitled to full compensation for
harm sustained as a result of the non-performance.' (17)
2.09 By contrast, the UN Convention on Contracts for the International Sale of Goods
(CISG) uses the term 'damages' for defining the consequences of a breach of contract:
'Damages for breach of contract by one party consist of a sum equal to the loss, including
loss of profit, suffered by the other party as a consequence of the breach.' (18)
2.10 The same is true for Article 9:501(1) of the Principles of European Contract Law which
states: 'The aggrieved party is entitled to damages for loss caused by the other party's
non-performance which is not excused under Article 8:108.' (19)
2.11 These examples show that the terms 'compensation' and 'damages' are not
coherently differentiated from each other in international codifications. Nevertheless,
several legal scholars point to the need for distinction. Amerasinghe, for example,
emphasized it in his analysis of compensation for the taking of alien property under
international law:
It is important in all cases to distinguish between unlawful takings of property
and lawful takings. In the former what is due is damages. In the latter the alien
P 13 must be compensated. There is clearly a distinction between the two cases,
damages being naturally usually heavier than compensation. (20)
2.12 Bowett also advocates a clear differentiation and suggests that 'it may be best to
refer to compensation as the remedy for a lawful taking or termination of contract and
damages as the remedy for an unlawful taking or termination'. (21)
2.13 Several international arbitral awards have also underlined the importance of a clear
delimitation of the two concepts. For example, the ICSID Tribunal in AGIP v Congo pointed
out:
The Tribunal notes that it is seized not only of a claim for compensation for the
consequences to AGIP of the nationalization of the Company but also of a
claim for damages for the losses resulting from all the violations of the
contractual obligations of which the Government is impugned. (22)
2.14 Similarly, the ICSID Tribunal in Southern Pacific Properties v Egypt emphasized the
difference between compensation and damages:
Thus, the claimants are seeking 'compensation' for a lawful expropriation, and
not 'reparation' for an injury caused by an illegal act such as a breach of
contract…. [T]he Claimants are entitled to receive fair compensation for what
was expropriated rather than damages for breach of contract. (23)
2.15 The Iran–US Claims Tribunal in Amoco International Finance v Iran (24) rejected
explicitly 'the contention that compensation for a lawful expropriation and damages for
an unlawful one are one and the same thing'. (25)
2.16 The ICSID Tribunal in ADC v Hungary (26) underlined the difference between the two
notions in the following way:
The BIT only stipulates the standard of compensation that is payable in the
case of a lawful expropriation, and these cannot be used to determine the
issue of damages payable in the case of an unlawful expropriation since this
would be to conflate compensation of a lawful expropriation with damages for
an unlawful expropriation. (27)
2.17 The ICSID Tribunal in LG&E v Argentina (28) also alluded to the possibility of different
meanings of the two notions stating that 'there may be a difference between
P 14
“compensation” as the consequence of a legal act and “damages” as the consequence
of the committing of a wrongful act'. (29) In Quiborax v Venezuela, the ICSID Tribunal
distinguished between lawful and unlawful expropriations and found that 'compensatory
damages' needed to be awarded in the latter case. (30)
2.18 The tribunal in Mondev v United States, in assessing an alleged violation of Article
1110(1) of the North American Free Trade Agreement (NAFTA), highlighted that '[t]here is a
distinction between compensation offered or provided for a lawful taking of property and
damages for the wrongful seizure of property'. (31)
2.19 In French the concept of 'compensation' is usually referred to as 'indemnization' or
'indemnité'. (32) The term 'damages' is generally translated as 'dommages-intérêts'. (33)
However, this is not consistently so. The judgments of the International Court of Justice
(ICJ) and its predecessor, the Permanent Court of International Justice (PCIJ), which are
published in English as well as in French, contain illustrative examples in this respect.
The comparison of the two language versions shows that the terms are not translated
uniformly, as shown, for example, by the following passages taken from the judgment of
the PCIJ in Mavrommatis Concessions:
7
The Greek Government's main contention is that expropriation has already
taken place and that the compensation due therefore has not been paid to M.
Mavrommatis. It is this compensation which constitutes the principal claim….
[T]his clause has not in fact either led to the expropriation or annulment of M.
Mavrommatis' concessions, or caused him any loss which might justify a claim
on his behalf for compensation in the present proceedings. (34)
2.20 The French version reads:
Le Gouvernement héllenique s'est principalement placé au point de vue que,
déjà, il y a eu expropriation sans que l'indemnité due à ce sujet ait été payé à
P 15 M. Mavrommatis; c'est cette indemnité que, en premier lieu, il réclame….
[C]ette clause n'a, en fait, ni entraîné une expropriation ou une annulation des
concessions de M. Mavrommatis, ni causé à celui-ci un préjudice quelconque
qui puisse donner lieu à son profit à des dommages-intérêts dans le présent
procès. (35)
2.21 The English term 'compensation' is sometimes translated into French by the word
'réparation'. (36) However, this term is also used to translate the English term
'reparation'. (37)
2.22 Despite these inconsistencies in terminology and translation, the insight that claims
for amounts of money can have different reasons is important. With regard to the issue of
calculation it seems indispensable that the different functions of compensation and
damages in international investment law are clearly identified.
(1) Compensation
2.23 'Compensation' generally has a broader meaning than 'damages'. It can denote the
payment of a sum of money to balance any kind of disadvantage, be it material or
immaterial damage, and without any reference to a specific legal obligation. It is
sometimes even left open on purpose, if there is a legal obligation to pay at all. (38)
Furthermore, the term 'compensation' is also used to denote the extent of liability for
damage caused by lawful acts. (39) The concept of 'compensation' appears to be the
more neutral term in comparison to the concept of 'damages' which is usually connected
to the allegation of the violation of a legal obligation.
2.24 In the context of expropriation, 'compensation' has a particular function. A state's
right to expropriate is generally recognized as part of its sovereignty. (40) Compensation
P 16 in this context shall balance the right of the individual to private property and the
right of the state to take measures in the public interest and for the benefit of its
nationals as a whole. (41)
2.25 The act of the state, in this case, is not regarded as unlawful, as a breach of an
international obligation but, on the contrary, as a legitimate exercise of state
sovereignty. (42) The state may be obliged to pay compensation, in particular when
foreign nationals are concerned, but not damages.
2.26 There are different theoretical foundations and legal justifications for the obligation
to pay compensation upon expropriation. Some regard it as an application of the
principle of equality which should prevent enrichment of the general public to the
detriment of the individual. (43) The affected individual who loses his or her rights for the
benefit of the general public should not bear an unfair burden and be forced to make a
special sacrifice. The Mexican–American Claims Commission emphasized these
considerations in the case Putegnat's Heirs and held that '[t]he public has received the
value of the property … and is bound to make just compensation. It can never be just that
the loss should fall exclusively on one man where the property has been lawfully used or
destroyed for the benefit of all.' (44)
2.27 Another dogmatic foundation can be found in the concept of 'acquired rights'
according to which the rights of aliens acquired in good faith are not subject to the
exclusive authority of the state but are internationally protected. (45) In this view, the
protection of acquired rights is part of the international minimum standard of aliens
P 18 accepted under customary international law.
2.28 Some states, however, are only ready to accord aliens the same level of protection
available for their own nationals. The principle of equal treatment of foreigners and
nationals in the understanding of the so-called Calvo-Doctrine (46) has, however, not
prevailed at the international level. (47)
2.29 Furthermore, the principle of unjust enrichment has been discussed in connection
with the legal justification for the obligation of states to pay compensation upon
expropriation. (48) According to this principle, nobody should benefit from the financial
disadvantage of somebody else without a legal justification. (49) It can be found in a
large number of legal systems, so that it is sometimes denoted as a general principle of
law which is applicable also in international law. (50) It has to be pointed out, however,
that in a case of expropriation the change of possession has a clearly defined legal basis.
Denying a legal ground in this context would be equivalent to an outright denial of the
8
right of states to expropriate. (51)
2.30 The different theoretical and dogmatic considerations have developed in the course
of the twentieth century in the face of ideological differences. International judicial and
arbitral practice has, however, remained remarkably unaffected by these political
debates. The decisions on calculation of damages and compensation do not confirm the
validity of one theory or the other in an unequivocal way. (52)
2.31 For the purpose of the present study it suffices to note that compensation in the
context of expropriation is not the consequence of an unlawful act but that it is related to
the legitimate exercise of a state's sovereignty. Prima facie, therefore, different criteria
should be applied in comparison to the calculation of damages after an illegal act. This is
necessary as a matter of legal policy and for special and general preventive reasons.
(2) Damages
2.32 The obligation to pay an amount of money to make good the damage caused by an
unlawful act is regarded as a general principle of law which stems from general
considerations of justice contained in the general ethical principles of all peoples. (53) In
1923, the German–American Claims Commission held in the Lusitania case:
It is a general rule of both the civil and the common law that every invasion of
a private right imports an injury and that for every such injury the law gives a
remedy. Speaking generally, that remedy must be commensurate with the
injury received. It is variously expressed as 'compensation', 'reparation',
'indemnity', 'recompense', and is measured by pecuniary standards, because,
says Grotius, 'money is the common measure of valuable things'. (54)
2.33 The PCIJ confirmed this principle in its judgment in the case Factory at Chorzów and
held that 'it is a principle of international law, and even a general conception of law, that
any breach of an engagement involves an obligation to make reparation'. (55)
2.34 Under national law, the obligation to pay damages results from an infringement of a
legal norm. The norm is usually contained in a law or in a contract. Damages, therefore,
represent the remedy for tort or contract violations. (56)
2.35 Under international law, the legal norm the violation of which may entail the state's
responsibility stems from a treaty, customary international law, or general principles of
P 20 law, thus, from the sources of (primary) international legal norms as enshrined in
Article 38 of the ICJ Statute. In addition, states can conclude contracts with private
individuals. (57) In such cases, it is not the state's international responsibility that is at
stake but rather the state's obligations as a partner of the contract.
2.36 These different types of legal obligations of states, in particular the difference
between treaty violations and contract violations, may create confusion with regard to
the applicable principles concerning the remedies of the injured party. The following
section shall shed some light on this problem.
B. The Functions in Detail

2.37 To go into more detail of the general preventive aspects of distinguishing financial
consequences of lawful and unlawful behaviour, the specific functions of compensation
and damages in the legal framework of international investments will now be analysed.
(1) The Function of Compensation upon Expropriation under International Law

2.38 Whether and how much compensation has to be paid in case of expropriation is a
matter of policy which is underpinned by considerations of the role of private property
for the individual and for society as a whole. Based on an overview of approaches taken
under national law, consideration will be given to the function of compensation for
expropriation under international law.
(a) Full Reparation?
2.39 It can be argued that expropriation is an infringement of private property rights and
therefore needs to be remedied in full. Yet, it is equally possible to submit that private
property is a right that entails also obligations, and that every person does not only have
rights but also responsibilities towards society as a whole and must accept certain
sacrifices. National legal systems have found different answers to these questions and
shaped their rules on expropriation compensation accordingly. (58)
2.40 In the United States, the Fifth Amendment of the Constitution provides that private
property shall not be taken 'for public use, without just compensation'. (59) In
jurisprudence this is regarded as a standard of 'fairness' which does not entail strict
rules. The Supreme Court held in this respect: 'The political ethics reflected in the Fifth
Amendment reject confiscation as a matter of justice. But the Amendment does not
contain any definite standard of fairness by which the measure of “just compensation” is
to be determined.' (60) In general, the standard of 'fair market value' has been
recognized as a 'just standard' in expropriation cases. (61) The goal is the restoration of
the economic value of the property. Any other losses which the former owner incurred are
9
not included in just compensation. It follows that an obligation of 'full reparation' is not
part of US constitutional law. (62) If compensation is less than just, the former owner may
bring an action to recover the difference. (63) Yet, additional damages are generally
barred by the sovereign immunity doctrine. (64)
2.41 In Germany, determining the amount of compensation upon expropriation involves
not only taking into consideration the loss of the former owner but also the interests of
the general public. The constitutional basis for expropriation is Article 14 Grundgesetz
(Basic Law of Germany). It provides in its paragraph 3:
Expropriation shall only be permissible for the public good. It may only be
ordered by or pursuant to a law that determines the nature and extent of
compensation. Such compensation shall be determined by establishing an
equitable balance between the public interest and the interests of those
affected. In case of dispute concerning the amount of compensation, recourse
may be had to the ordinary courts. (65)
2.42 It follows that expropriation in Germany must be based upon a law that provides for
compensation. Yet, the amount of compensation is not based on the hypothetical
financial situation the person concerned would be in without the expropriation. Rather,
P 21 the state must find an 'equitable balance' between the public interest and the
interests of those affected, reflecting the doctrine of the so-called 'Sozialbindung des
Eigentums' (social function of property). (66) The balance of values may be 'symbolic' and
not necessarily concrete and real. The claim for compensation upon expropriation is thus
clearly distinguished from a claim for damages. (67) In order to assess the actual 'value
taken', (68) the current market value of the property is generally used as a point of
reference. (69)
2.43 Other countries, by contrast, are concerned with putting the former owner in the
same financial situation he or she would be in without the expropriation. In France, the
recently reformed Expropriation Code (70) provides, as its previous version, (71) that
compensation must cover the integrity of the direct, material, and certain loss caused by
the expropriation. (72) French courts also seem to be rather generous as regards the
acceptance of different types of damages, in case of unlawful acts. (73) Also, in England,
(74) expropriation, which is denoted as 'compulsory purchase', has to be accompanied by
compensation calculated on the basis of the actual and concrete loss incurred. (75) The
situation is similar in Switzerland. (76) In Austria, the legal rules on expropriation point to
the equality of compensation and damages in terms of their function, namely to wipe out
all the financial consequences of the act of the state. (77) In all these countries, the
principle of full reparation must be respected in calculating the amount of compensation
P 22 in expropriation cases.
2.44 The existing differences in the principles for the assessment of compensation in
cases of expropriation in a limited number of national legal systems already make clear
that general principles of law are not discernible. (78) They are not even balanced out by
the norms on the protection of property in the European Convention on Human Rights
(ECHR), because the member states enjoy a relatively large margin of appreciation with
regard to the amount of 'adequate' compensation required under Article 1 of the First
Additional Protocol. (79)
2.45 The absence of general principles of law with regard to expropriation compensation
does not automatically rule out the possibility that the principle of full reparation does
exist with regard to the expropriation of foreign nationals in international law. Such a
principle could be contained in international treaties or in international customary law
because it is precisely in the area of expropriation that different rules may be applicable
for nationals and non-nationals of states.
2.46 An important point of reference in this respect could be the well-known Hull formula.
It is noteworthy that the famous note of Secretary of State Cordel Hull to the Mexican
ambassador did not refer to 'full compensation' as is often contended. Instead, he
formulated:
The Government of the United States readily recognizes the right of a
sovereign state to expropriate property for public purposes. This view has
been stated in a number of communications addressed to your Government …
On each occasion, however, it has been stated with equal emphasis that the
right to expropriate property is coupled with and conditioned on the
obligation to make adequate, effective and prompt compensation. (80)
2.47 The Hull formula has sometimes been referred to as the standard of 'full
compensation'. (81) However, the wording of the diplomatic note of Cordell Hull does not
P 24 contain the word 'full' nor does more recent state practice use it. (82) Yet, even 'full
compensation' would not be identical to the principle of 'full reparation' as a closer
analysis of state practice shows.
2.48 The development of the position of the United States as the spearhead of the
interests of the industrialized states, which naturally favour a high level of protection of
investors abroad, shows no indication to equalize 'compensation for expropriation' of
foreign-owned property and 'full reparation'. The Third Restatement of the Foreign
10
Relations Law of the United States (Third) in 1987 reflects this clearly: 'A state is
responsible under international law for injury resulting from (1) a taking by the state of
the property of a national of another state that … is not accompanied by provision for just
compensation'. (83) The meaning of 'just compensation' in this context is explained as
follows:
The elements constituting just compensation are not fixed or precise, but, in
the absence of exceptional circumstances, compensation to be just must be
equivalent to the value of the property taken and must be paid at the time of
the taking or with interest from that date and in an economically useful form.
(84)
2.49 The United States has also concluded a number of bilateral investment treaties
(BITs) with other countries which do not require 'full compensation' but instead 'prompt,
adequate and effective compensation'. (85) The most recent Model BIT of the United
States of 2012, in its Article 6 on 'Expropriation and Compensation' reads accordingly:
1. Neither Party may expropriate or nationalize a covered investment either
directly or indirectly through measures equivalent to expropriation or
nationalization ('expropriation'), except: (a) for a public purpose; (b) in a non-
discriminatory manner; (c) on payment of prompt, adequate and effective
compensation; and (d) in accordance with due process of law, and Article 5
[Minimum Standard of Treatment] (1) through (3). (86)
2.50 The term 'adequate' is further explained in the following way. It must: '(a) be paid
without delay; (b) be equivalent to the fair market value of the expropriated investment
immediately before the expropriation took place (“the date of expropriation”)…' (87)
2.51 Similarly, other modern model BITs of industrialized countries (88) and recently
concluded BITs and free trade agreements (89) contain the obligation to pay
compensation in case of expropriation without, however, using the adjective 'full' or
referring in other ways to the principle of 'reparation'. The same is true for NAFTA in its
Article 1110, and Article 13 of the Energy Charter Treaty. (90)
2.52 In all these documents dealing with the question of the amount of compensation in
case of expropriation of foreign nationals, no allegation of the function of compensation
as a means of full reparation can be found. Terms like 'reparation' or 'restoration' do not
appear. This is particularly noteworthy because investment protection treaties are
drafted to improve the legal protection of foreign investment and, therefore, reflect the
state parties' interest to ensure a high level of protection.
2.53 The damage actually incurred by the fomer owner obviously is not decisive for the
calculation of compensation. References to 'damage', 'injury', or 'loss' incurred are not
contained in the above-mentioned treaty norms on expropriation. The combination of
the words 'full' and 'compensation' cannot be found either. It follows that, contrary to the
widespread general view, the required standard under international law is not 'full
compensation' in the meaning of 'full reparation'.
2.54 The absence of the function of full reparation, however, does not automatically lead
to only 'partial' compensation. This would foil the intentions of states concluding treaties
for the reciprocal promotion and protection of investments. So the duty to pay
compensation upon expropriation must serve a different but equally important function
under international law.
(b) Restitution of Value
2.55 The provisions on expropriation in national and international legal instruments
mentioned above indicate that the damage or loss actually incurred by the former owner
is not the benchmark for evaluating compensation. Rather, the value of the expropriated
P 25 property is decisive. The function of compensation upon expropriation under
international law could, therefore, be the replacement of the value of the expropriated
property.
2.56 The importance of the value of the expropriated property for the amount of
compensation has already been established by the PCIJ in its judgment in Factory at
Chorzów with regard to lawful expropriations, in contrast to unlawful expropriations:
It follows that the compensation due to the German Government is not
necessarily limited to the value of the undertaking at the moment of
dispossession, plus interest to the day of payment. This limitation would only
be admissible if the Polish Government had had the right to expropriate. (91)
2.57 In addition, numerous provisions contained in international bilateral and
multilateral treaties—as mentioned above (92) —refer to the value of the object, be it in
the form of the 'fair market value', the 'genuine value', the 'actual value', or simply 'the
value'.
2.58 Value, however, is not an objective quality of things. It always depends on a specific
relationship between the particular object and a subject. As Immanuel Kant pointed out,
11
value may only be understood as appreciation by persons. (93) Without the needs and
affections of people, things would not have any value. 'Value' is a relative concept.
2.59 This is also reflected in business valuation practice. The US Appraisal Foundation, for
example, defines 'value' in its Uniform Standards of Professional Appraisal Practices
(USPAP) in the following way:
[T]he monetary relationship between properties and those who buy, sell, or
use properties […] Value expresses an economic concept. As such, it is never a
fact but always an opinion of the worth of a property at a given time with a
specific definition of value. (94)
2.60 Some formulate it in a simpler way, such as: 'Value, like beauty, is in the eye of the
beholder' (95) or 'One man's trash is another man's treasure'. The assessment of the value
P 26 of an object, therefore, requires that different perspectives are taken into account.
2.61 In the case of expropriation, the asset in question can be valued from three possible
perspectives:
1. The value of the asset from the perspective of the expropriated owner.
2. The value of the asset from the perspective of the expropriating state.
3. The value of the asset from the perspective of an independent third person.
2.62 The first alternative refers to the concrete loss of the expropriated owner. This
perspective concentrates on his or her actual and individual financial situation before
and after the expropriation. This includes also the value of the property as a part of and
in relation to the owner's financial situation in general as well as his or her plans and
possibilities of use of the property. This approach would be in accordance with the
principle of 'full reparation'. (96)
2.63 The second alternative relates to the value that the property has for the
expropriating state. This means that the enrichment of the state would be the decisive
indicator for the amount of compensation. Such an approach has been advocated
primarily by developing states. (97) It has, however, not been broadly accepted in
international law for its disadvantageous implications for the expropriated owner. (98) In
addition, it is difficult to argue from a dogmatic point of view because the concept of
unjust enrichment hinges on financial advantage without a legal basis which is not
applicable in this case. (99)
2.64 According to the third alternative, the value of the expropriated object should be
assessed by independent third parties. This approach considers the value which is given
to the object by the market as the decisive criterion for the amount of compensation. It
refers to the price the expropriated owner would get, if he or she had offered and sold
the property on the market.
2.65 In the absence of a readily available market for the object to be evaluated, one
might refer to the more abstract concept of 'fair market value'. The concept of fair market
P 27 value is widely used in practice and valuation is usually defined as:
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, acting at arm's length in an open and
unrestricted market, when neither is under an obligation to buy or sell and
when both have reasonable knowledge of the relevant facts. (100)
2.66 It is, therefore, important to identify the price a 'hypothetical willing buyer' would
pay to a 'hypothetical willing seller', if both are not compelled to buy or sell. Such a
reference to the market can be regarded as 'objective' or 'abstract' value, even if it
represents only a rough approximation of such a value. (101) It refers to the value that the
object has from the perspective of a large number of not clearly specified individuals.
(102)
2.67 The advantages of such an approach are evident. The marketplace balances the
various subjective perspectives of value by a large number of buyers and sellers. As
market values represent the result of a number of different subjective valuations, they
are easier to ascertain and to communicate.
2.68 The assessment of a 'hypothetical price' requires a number of assumptions about the
preferences, expectations, and possibilities of the market participants. For this reason,
one might be sceptical about the practicability of the concept of 'market value' in the
absence of a market for the valuation object. The arbitral tribunal in Amoco International
Finance v Iran expressed its scepticism and found that a 'pyramid of hypotheses' would
have to be undertaken. Such an approach could, therefore, not represent a reliable basis
for a fair calculation of compensation:
Market value, on the other hand, is an ambiguous concept, to say the least (it
might be more accurate to term it misleading), when an open market does not
exist for the expropriated asset or for goods identical or comparable to it. A
situation of this kind can be observed in the case of transactions of such a
magnitude that they are relatively rare, always individualized, and prompted
12
by special circumstances and motives, like transactions relating to large
corporations the shares of which are not traded on stock exchanges. In such
circumstances, referring to market value for the purpose of determining
compensation in case of expropriation inevitably leads to a pyramid of
hypotheses, since it is necessary to conjecture as to the price on which a
P 28 hypothetical willing buyer and a hypothetical willing seller negotiating at
arms length would eventually agree. Such a conjecture is more especially
artificial as the owner of the expropriated asset usually is not a willing seller.
(103)
2.69 The scepticism of the Iran–US Claims Tribunal expressed in this passage, however,
represents only a minority view. (104) The tribunal in Phillips Petroleum v Iran, for
example, had no problem basing the valuation on it, even though a market for the
company did not exist:
In the absence of an active and free market for comparable assets at the date
of taking, a tribunal must, of necessity, resort to various analytical methods to
assist it in deciding the price a reasonable buyer could be expected to have
been willing to pay for the asset in a free market transaction … (105)
2.70 Generally, the advantages of the standard of 'fair market value' are broadly
appreciated so that it has gained increasing support for the measure of compensation
upon expropriation. This is also the result of an empirical study on the treatment of
foreign investment conducted by the World Bank in the 1990s. (106) The analysis of
numerous national investment laws, bilateral and multilateral treaties, and respective
jurisprudence provided, among other things, an overview on the status of international
law on the issue of expropriation and compensation at the time. On the basis of this
study the World Bank developed 'Guidelines on the Treatment of Foreign Direct
Investment'. (107) They aim to complement and explain the existing legal instruments
and attempt to identify and formulate general principles which may represent a basis for
further development of customary international law in this area. (108) In addition, they
could serve as a point of reference for the formulation of laws and treaties on dealing
with the issue.
2.71 The World Bank Guidelines point out that the traditional controversy on the standard
of compensation, whether it should be 'prompt, adequate, and effective' or only 'just' or
'appropriate', is not actually important when it comes to the concrete calculation of the
P 29 amount of compensation. The Guidelines prefer to choose a 'practical approach'. (109)
Under Title IV, 'Expropriation and Unilateral Alterations or Termination of Contracts', they
summarize the pertinent rules as follows:
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. (110)
2.72 It is not necessary here to make a final determination as to whether this represents
the current status of customary international law, due to the large number of investment
treaties that address this issue in detail. While in 1994 only about 700 bilateral
investment treaties existed, this number has increased to approximately 2,500. (111) In
addition, a number of free trade agreements and multilateral instruments, such as the
NAFTA and the Energy Charter Treaty, have been concluded. Many of those treaties have
chosen the 'fair market value' as the standard of compensation. If other types of value
are referred to, such as 'value', 'genuine value', or 'true value', (112) treaty interpretation
will show, whether this choice is deliberate and explained in more detail, and which
consequences should follow.
(2) The Function of Damages

(a) Reparation
2.73 The function of damages is to repair the harm caused by an unlawful act. The
payment of a sum of money shall ideally put the injured person in the financial situation
he or she would be in, if the act had not been committed. This general rule is so
widespread in national legal orders that it can be regarded as a general principle of law.
The leading international case in this connection is the judgment of the PCIJ in the
Factory at Chorzów case:
The essential principle contained in the actual notion of an illegal act—a
principle which seems to be established by international practice and in
P 30
13
P 30
particular by decisions of arbitral tribunals—is that reparation must, as far
as possible, wipe out all the consequences of the illegal act and re-establish
the situation which would, in all probability, have existed if that act had not
been committed. (113)
2.74 A few years earlier, the German–American Claims Commission explained in the
Lusitania decision: 'The fundamental concept of “damages” is satisfaction, reparation for
a loss suffered; a judicially ascertained compensation for wrong. The remedy should be
commensurate with the loss, so that the injured party may be made whole.' (114)
2.75 Reparation of damage by financial means should generally try to come as closely as
possible to restitutio in integrum. (115) Restitution should serve as a guideline and
orientation, but also as a limitation. Claims for damages in the form of amounts of money
shall not have the effect that the injured person is placed in a better financial position
than he or she would have be in without the damaging event. This limiting role of the
function of reparation is broadly recognized in scholarly writing, (116) but nevertheless
sometimes disregarded in practice.
2.76 (i) Violations of International Law The ILC Articles on State Responsibility deal with
reparation of damage in the framework of the overall heading of 'Reparation'. (117)
According to Article 31, the responsible state is obliged 'to make full reparation for the
injury caused by the internationally wrongful act'.
2.77 'Injury' in this context denotes any damage caused by the internationally wrongful
act. (118) According to Article 36, the State is obliged to make good any damage, as far as
this is not done by restitution. (119) The calculation shall follow merely compensatory
P 31 criteria. (120) It is important in all cases that no enrichment of the injured person
occurs. The damage actually incurred represents the upper limit of the amount of
damages. The tribunal in Delagoa Bay has already stressed this important aspect:
Or, s'il est juste, d'un côté, de restituer à la Compagnie concessionaire, à titre
d' indemnité, tous les bénéfices dont elle a été réellement privée par la
rescision, il serait en revanche contraire à l'équité la plus élémentaire de
faire de cette mesure une source d'enrichissement pour elle et de lui
attribuer de ce chef les sommes qui, sans la rescision, eussent profité, non pas
à elle, mais à des tiers prêteurs quelconques. (121)
2.78 The principle of full reparation has been recognized in international judicial practice
not only in the context of international investment but also in cases of other violations of
international law. (122)
2.79 Sometimes it is argued that the calculation of damages on the basis of merely
compensatory criteria also serves the purpose of estimating beforehand the 'cost' of a
breach of an obligation. This includes, in particular, breaches of contract and
expropriations. In his economic analysis of law, Posner, referring to Holmes, argues that
'it is not the policy of the law to compel adherence to contracts but only to require each
party to choose between performing in accordance with the contract and compensating
the other party for any injury resulting from a failure to perform'. (123)
2.80 The underlying idea is that it is not desirable to exact compliance with uneconomic
contracts. An 'efficient breach' is a breach of a contract which from an economic point of
view makes no sense (any more). (124) Similar arguments are raised in connection with
expropriations. Wells, for example, suggests so-called 'involuntary' or 'efficient' takings, if
compliance with obligations undertaken is, from the economic perspective of the state,
no longer sensible. (125)
2.81 From the perspective of economic analysts and experts, this view might be
comprehensible. However, from the perspective of the rule of law, the arguments in
P 32 favour of 'efficient breaches' probably go too far. It seems questionable whether
methods of calculating damages should serve the purpose of making breaches more
'calculable' beforehand.
2.82 (ii) Breaches of Contract The legal relations between states and foreign investors are
not only determined by international law and by treaties between the home state of the
investor and the host state but also by direct contracts between individual, usually
rather large, enterprises and states. Such contracts can be traced back over centuries.
(126) The particularity of this relationship is characterized by the genuine inequality of
the contracting parties which renders the classification of the applicable legal regime
difficult. This is true above all for the consequences of a breach.
2.83 According to the prevailing view in academic writing and arbitral practice, the mere
breach of a contract by a state does not constitute a violation of international law and,
thus, does not entail state responsibility. (127) A violation of contractual obligations is
rather subject to the applicable contract law. However, choice of law clauses can point to
different laws, including international law, (128) to the effect that the respective criteria
still remain rather unclear.
2.84 Where the applicable law provides no further guidance, general principles of law
might be considered. A comparative analysis of national contract laws and international
codification initiatives show that, generally, the purpose of a damages claim is to remedy
14
the financial loss caused by the breach of contract.
2.85 The ICSID Tribunal in Amco Asia v Indonesia, for example, undertook such a
comparative law analysis. With regard to English law, it observed that 'where a party
P 33 sustains a loss by reason of breach of contract, he is, so far as money can do it, to be
placed in the same situation with respect to damages, as if the contract had been
performed'. (129) It referred also to US jurisprudence which also pursued the aim 'to put
the injured party in as good a position as he would have been in if the contract had been
performed'. (130)
2.86 International codifications of contract law also contain the principle of full
reparation with regard to the assessment of damages. For example, Article 74 of the
Convention on Contracts for the International Sales of Goods (CISG) reads:
Damages for breach of contract by one party consist of a sum equal to the loss,
including loss of profit, suffered by the other party as a consequence of the
breach. Such damages may not exceed the loss which the party in breach
foresaw or ought to have foreseen … (131)
2.87 Article 7.4.2 of the UNIDROIT Principles of International Commercial Contracts also
emphasizes the principles of full reparation: '(1) The aggrieved party is entitled to full
compensation for harm sustained as a result of the nonperformance'. (132)
2.88 The same is true for Article 9:502 of the Principles of European Contract Law: 'General
Measure of Damages: The general measure of damages is such sum as will put the
aggrieved party as nearly as possible into the position in which it would have been if the
contract had been duly performed'. (133)
2.89 This analogy of contract law and the law of state responsibility concerning the
principle of 'full reparation' (134) is perhaps the reason why international judicial
practice has sometimes found it unimportant whether the claim for damages was based
on a breach of contract or on a violation of international law. Claggett observes in his
analysis of the jurisprudence of the Iran–US Claims Tribunal:
For the purpose of measuring damages under customary international law, it
has mattered little whether a taking of rights has been characterized as a
breach of contract or as an unlawful expropriation. The goal of contract
P 34 damages has been to restore the injured party to the financial position he
would have enjoyed absent the breach. The goal of compensation has been to
restore to the expropriated investor the value of his lost property right. (135)
2.90 The same result is achieved, if one considers a breach of contract as being equal to
an 'illegal act' in the wider sense. Then, the calculation of damages after a breach of
contract could also follow the principle of 'full reparation' as formulated by the PCIJ in
Factory at Chorzów which means wiping out all the consequences of the illegal act and re-
establishing as far as possible the situation that would have existed, if that act had not
been committed. (136)
2.91 The relevance of the principle of restitutio in integrum also in cases of breach of
contract has been addressed by Arbitrator Ameli in INA v Iran before the Iran–US Claims
Tribunal. He noted there that 'where the conduct of a party is held to be unlawful, in
terms of its contractual obligations, then the concept of restitutio in integrum may
perhaps properly be invoked'. (137)
2.92 One may therefore conclude that the function of damages in contract cases is also
the full reparation of the actual and concrete damage incurred. This confirms the
conclusion of Arbitrator Cavin in Sapphire International v NIOC which has been quoted by
numerous arbitral tribunals and can thus be regarded as the leading case in regard to the
calculation of contract damages in the context of international investment disputes: (138)
According to the generally held view the object of damages is to place the
party to whom they are awarded in the same pecuniary position that they
would have been if the contract had been performed in the manner provided
for by the parties at the time of conclusion. (139)
(b) Punishment?
2.93 With regard to the 'general' and 'special' preventive function of the law, including
the law on damages, it can be discussed to what extent the function of damages is not
only the reparation of injury, but also the punishment of the perpetrator and the
P 35 deterrent effect of such punishment. The concept of 'punitive damages' has developed
in the United States, where punitive or 'exemplary' damages are available as an
additional remedy. (140) In most other states, transgressors of the law are punished in
criminal or administrative proceedings, but not in civil litigation. In many countries
awards of punitive damages are not enforceable. (141)
2.94 Due to the absence of criminal sanctions in public international law, the acceptance
of 'punitive' or 'exemplary' damages has sometimes been considered in academic
debates. (142) The theoretical considerations have, however, not found support in
international practice. (143) Instead of 'punishment', the law on state responsibility
15
entails the concept of 'satisfaction' as part of the obligation to make full reparation. This
is particularly important when the damage caused by the wrongful international act
cannot adequately be redressed by financial compensation. There is the possibility of
awarding an amount of money, unrelated to material damage, (144) but more importantly
other ways and means (such as a public apology, the bringing to court of the perpetrator,
the creation of a fund for individual damages, etc). The reason is that the states would
not be ready to accept the 'criminalization' of the law on state responsibility. (145)
2.95 It seems, therefore, that the dictum of the German–American Claims Commission in
Lusitania still represents the prevailing view in international law, namely that the
P 36 'superimposing of a penalty in addition to full compensation and naming it damages,
with the qualifying word exemplary, vindictive, or punitive, is a hopeless confusion of
terms, inevitably leading to confusion of thought'. (146)
2.96 Nevertheless, as will be shown, so-called 'moral damages' are increasingly claimed
and awarded by international investment tribunals. These are, however, not presented as
'punitive damages', but as damages for immaterial harm. (147)
C. Consequences for the Calculation

2.97 To what extent should the different functions of compensation and damages
influence the ways and means of calculation in international investment disputes? The
analysis so far has shown that the function of compensation is primarily the replacement
of the value of the expropriated property, while the function of damages is full reparation
of the damage incurred. It remains to be seen whether and to what extent these
differences result in different approaches as far as the valuation is concerned.
(1) Objective–abstract Valuation

2.98 The assessment of compensation in the context of expropriation should primarily
serve the determination of the economic value of the property concerned. However, the
'value' of an object always depends on the specific relationship to a subject. (148)
2.99 In the absence of an 'objective' value, one might find the best approximation of an
impersonal appreciation of things in the marketplace. Here, numerous potential buyers
and sellers come together which makes it possible to prescind the various subjective
values. (149) Due to the large number of market participants, the different perceptions on
the value of an object are balanced. It is, therefore, not surprising that the 'fair market
value' has prevailed as the most widespread standard of compensation upon
expropriation. Not only is it contained in many international treaties and other legal
texts, but also numerous international investment tribunals have referred to it in the
context of expropriations.
2.100 The 'abstract' valuation can represent an advantage or a disadvantage to the
individual concerned depending on his or her concrete needs and competences being
better or worse than average. An important advantage of the abstract valuation is that
evidence can relatively easily be presented and assessed. Even if there are differences in
P 37 expert opinions, they can be explained and discussed. The use of market data,
historical and comparative evidence, and even forecasts for the future can be done with
reference to the market.
2.101 The disadvantage of such an objective or abstract valuation is that it frequently
leads to an amount of compensation that is less than the actual loss suffered by the
expropriated owner. This is, however, accepted as a compromise in public international
law after many years of discussion about the standard of compensation in the context of
diverging political and economic circumstances. The compromise is that expropriating
state shall replace the 'value' of the expropriated object independently of whether such
compensation also represents the actual financial loss the individual concerned has
suffered. In addition, the objective value can also serve as a starting point for the
assessment of damages because it represents prima facie the loss or damage actually
incurred.
(2) Subjective–concrete Valuation

2.102 For the calculation of the amount to be paid after an unlawful act, it is important to
assess the financial situation the injured person would be in if the unlawful act had not
been committed. In this case a method should be applied that allows evaluating the loss
actually incurred by the individual affected.
2.103 The PCIJ explained the principles of calculation in case of violations of international
law in Factory at Chorzów in the following way:
Restitution in kind, or, if this is not possible, payment of a sum corresponding
to the value which a restitution in kind would bear; the award, if need be, of
damages for loss sustained which would not be covered by restitution in kind
or payment in place of it—such are the principles which should serve to
determine the amount of compensation due for an act contrary to
16
2.104 The starting point of the analysis is, therefore, restitution in kind. If restitution is not
possible, the financial equivalent of this restitution should be paid. This restitution
approach implies the subjective and concrete valuation. In addition, there might be loss
sustained which would not be covered by restitution in kind or payment in place of it.
2.105 The important question then is what kind of damage or loss can be successfully
claimed in addition to the restitution value? (151) As the concrete financial situation of
the injured party must be considered, a number of disadvantages may be relevant that
affect his or her financial situation as a whole. This includes, in particular, consequential
P 38 damages. One must take into account additional costs incurred, such as costs for
transportation and storage or for a necessary loan but also costs for remedying the
breach, negotiating, mitigation of damages, and pursuing the claims. (152) Furthermore,
depreciation of other assets, lost synergies and lost opportunities can have negative
effects on the overall financial situation of the victim.
2.106 It is necessary to create a hypothesis as to how the financial situation of the injured
party 'in all probability' would be in the absence of the unlawful act. Then this
hypothetical situation must be compared with his or her actual situation. The subjective
or concrete valuation seems to be most appropriate to implement the principle of full
reparation. It essentially consists of a comparison between the actual situation and the
hypothetical situation.
2.107 This method was developed in the nineteenth century by Mommsen and is called
'differential method' (Differenzmethode). In his 'Lehre von dem Interesse' (The Doctrine of
Interest), Mommsen wrote in 1855:
The expression 'id quod interest' alludes to a comparison, and such [a
comparison] is the basis of the concept of interest. By interest, in its technical
meaning, we understand the difference between the value of the property of a
person, how the same is at a given point of time, and the value the property
would have without the interference of the particular damaging event at the
point of time in question. (153)
2.108 As regards the relevant point of time, Mommsen notes that the relevant point of
time should be the date of the judgment:
Today, the rule generally prevails that the time of the judgment, this means
the time at which the valuation of the interest is carried out, shall be
determinative. As we will see further below, this is also the single
determination of time, which truly corresponds to the nature of interest. We
can therefore, insofar as we look at contemporary law, define interest more
precisely as the difference between the present wealth of a person, as the
same presents itself after the damaging event, and the value which the wealth
would represent without the interferences of that event. (154)
2.109 Mommsen differentiates between 'Sachwert' (objective value) and 'Interesse'. The
objective value is the value an object has in commerce, which, in particular with respect
to fungible things, is usually called 'market price'. (155) The objective value is the value
which an object has for anybody, because the value can be achieved by selling the
object, also by those, who are not in a position to take particular benefits from it. In
contrast, the interest of an object is determined by the particular value that object has
for the owner. This value can be the same as the objective value, if the individual
qualities of the object are irrelevant and if it can be easily replaced by object of the
P 39 same kind. This is, according to Mommsen, however only a coincidence. Most
frequently, the valuation of the interest will lead to a different result, usually higher than
the objective value. (156)
2.110 The reason for considering all these additional aspects is that the illegal act has
caused a financial loss to the injured party, and that the injured party does not have to
bear the financial consequences of this illegal act, not even in part. If the principle of full
reparation is taken seriously, the damage caused must be repaired in its entirety.
2.111 The term 'subjective' in this context does not mean that psychological or emotional
preferences should be taken into account. It is only the financial aspect of this individual
relationship between the owner and the object which has to be considered. In this
connection, the position of the assets within the entire property of the owner and his
specific competences, needs, synergies and plans should be counted as far as they have
a financially assessable value.
2.112 The tribunal in Lemire v Ukraine expressed this in relation to the valuation of
damages after a breach of fair and equitable treatment in the following way:
The aim of compensation is the elimination of all negative consequences of
the wrongful act, through the payment to the injured party of an amount
sufficient to cover 'any financially assessable damage including loss of profits
insofar as it is established' (Article 36.2 ILC Articles) … But this is only a
theoretical definition of a general standard; the actual calculation of damages
cannot be made in the abstract, it must be case specific: it requires the
definition of a financial methodology for the determination of a sum of money
17
which, delivered to the investor, produces the equivalent economic value
which, in all probability, the investor would enjoy, 'but for' the State's breach.
(157)
2.113 The ILC Articles on State Responsibility confirm the importance of the concrete
damage incurred. While the obligation of restitution remains intact, the claim for
compensation, according to Article 36(1), encompasses the damage caused by the act,
'insofar as this damage is not made good by restitution'. This means, the restitution value
is only the lower limit. Paragraph (2) adds that the higher amount also includes 'loss of
profits insofar as it is established'. (158)
2.114 In cases of breach of contract, the application of the differential method with
regard to the hypothetical situation is also necessary, since the principle of full
reparation applies here, too. It would be inadequate to reimburse only the expenses left
or the decrease of asset values. In such a case, the injured party would only be put in the
P 40 position he or she would have been in, if the contract had never been concluded. By
contrast, it is necessary to put him or her into the position he or she would have been in,
if the contract had been duly performed.
2.115 The concrete valuation approach also allows for considerations of damage
mitigation or contributory negligence. If the injured party has failed to mitigate the
damage, the principle of full reparation allows the taking into account of this failure in
the process of calculation. (159) In case of contributory negligence, the amount of
damages can be reduced to the extent of the contribution of the victim of the unlawful
act. (160)
2.116 Finally, the different valuation approaches—the abstract and the concrete valuation
—can be used to mutually verify and correct the outcomes. On the one hand, the abstract
valuation can serve as a point of departure and as a control mechanism. This becomes
particularly relevant when evidence is scarce. It is also possible that the injured party
bases his or her claim on an objective valuation for practical reasons. If a concrete
valuation is due, certain individual elements may then be added or deducted.
2.117 On the other hand, a concrete valuation can be useful in the absence of a market for
the object and when a hypothetical or 'fair' market value is not possible to assess. It is
then arguable that the concrete damage incurred serves as a proxy for the objective–
abstract value. (161)
(3) Selection of a Valuation Method

2.118 For the selection of an appropriate valuation method, the different functions of
compensation and damages in international investment law may provide some guidance.
It has to be borne in mind, however, that neither the standard of fair market value nor the
principle of full reparation imply or mandate a specific valuation method. There are,
however, preferable methods for one or the other approach, depending on the
circumstances of the case.
2.119 For an objective-abstract of valuation, it seems appropriate to choose the 'Market
Value Basis of Valuation'. (162) This will help to find a method which is based on the
perspectives of a greater number of unspecified persons, the market participants. The
market value basis generalizes the perceptions of chances and risks of a large number of
people. To this extent it can be used for a generalized and abstract valuation. (163) The
P 41 methods implementing and applying those aspects are, for example, stock prices,
comparative methods, multiples, or the discounted cash flow (DCF) method. (164)
2.120 The subjective-concrete valuation, as a matter of principle, requires methods
reflecting the concrete loss incurred by the person concerned. This means that the
valuation method should not primarily be oriented towards the market and market
mechanisms. In order to take the financial situation of the individual appropriately into
consideration, bases 'other than market value' should be considered. (165) This would
facilitate the application of a variety of asset-oriented or income-oriented valuation
methods. (166) In addition, and not necessarily connected to any valuation method,
consequential damage should be taken into account. (167) These may include lost
synergies or lost commercial opportunities, loss of credit conditions or other benefits, if
this is necessary to put the injured person in the same financial position he or she would
P 41 be in, if the illegal act had never been committed.
References
1) A van Aaken, 'Primary and Secondary Remedies in International Investment Law and
National State Liability: A Functional and Comparative View' in S Schill (ed.),
International Investment Law and Public Law (Oxford: Oxford University Press, 2010)
721–54, 722.
18
2) See the comparative analysis on the function of damages in different national legal
systems in N Cohen and E McKendrick (eds), Comparative Remedies for Breach of
Contract (Oxford: Hart Publishing, 2005); S Lindenbergh, 'Damages (in Tort)' in J Smits
(ed.), Elgar Encyclopedia of Comparative Law (2nd edn, Cheltenham: Edward Elgar,
2012) 286.
3) See also S Ripinsky and K Williams, Damages in International Investment Law
(London: BIICL, 2008) 13.
4) Delagoa Bay and East African Railway Company, Award of 30 May 1900, in La
Fontaine, Pasicrisie internationale 398, 399 (Bern: Stämpfli, 1902). See the English
translation in M Whiteman, Damages in International Law, vol. III (Washington:
Government Printing Office, 1943) 1694, 1697: 'Is the “compensation” to represent
reparation for an injury done unlawfully? Or must it make up an interest the
claimants would have had in carrying out of a contractual arrangement? Or else
again are the claimants merely entitled to have a sum by which Portugal, unless it
returned it, would be unlawfully enriched returned to them?'
5) See, e.g., C F Amerasinghe, 'Some Aspects of the Quantum of Compensation Payable
upon Expropriation' (1993) 87 ASIL Proceedings 459; P Gann, 'Compensation Standard
for Expropriation' (1985) 23 Columbia Journal of Transnational Law 615; D Lapres,
'Principles of Compensation for Nationalized Property' (1977) 26 ICLQ 97; M
Mendelson, 'Compensation for Expropriation: The Case Law' (1985) 79 AJIL 414; O
Schachter, 'Editorial Comment: Compensation for Expropriation' (1984) 78 AJIL 121; O
Schachter, 'Compensation Cases—Leading and Misleading' (1985) 79 AJIL 420.
6) See, e.g., the multi-volume issue by M Whiteman, Damages in International Law, vols
I–III (Washington: Government Printing Office, 1937–46) which deals with remedies
for damage caused by violations of international law by states.
7) B Garner (ed.), Black's Law Dictionary (10th edn, St Paul, MN: Thomson Reuters, 2014)
343.
8) Ibid, at 471.
9) H C Black, The LawDictionary. Featuring Black's Law Dictionary Free Online Dictionary,
2nd edn (1910), <http://thelawdictionary.org/compensation/>.
10) J Law and E Martin (eds), A Dictionary of Law (8th edn, Oxford: Oxford University
Press, 2015) 127.
11) Ibid, at 169.
12) Articles on the Responsibility of States for Internationally Wrongful Acts, UN GA
Resolution No. 56/83 of 12 December 2001, Annex.
13) See the French Version of the ILC Articles on State Responsibility,
<https://documents-dds-
ny.un.org/doc/UNDOC/GEN/N01/477/98/PDF/N0147798.pdf?OpenElement>. The
term 'indemnization' is also used in the context of expropriation of foreigners. See,
e.g., C Yannaca-Small, 'L' “expropriation indirecte” et le “droit de réglementer” dans
le droit international de l'investissement' in Organisation de Coopération et
Développement Economique (ed.), Droit international de l'investissement. Un
domaine en mouvement (Paris: OCDE, 2005) 47.
14) See the Spanish Version of the ILC Articles on State Responsibility,
<https://documents-dds-
ny.un.org/doc/UNDOC/GEN/N01/478/00/PDF/N0147800.pdf?OpenElement>. The
same term is also used in the context of expropriation. F López-Nieto y Mallo,
Manual de expropriación y otros supuestos indemnizatorios (3rd edn, Madrid: Wolters
Kluwer, 2007) 52 et seq. Furthermore, 'indemnización adecuada' is the Spanish
translation of 'just satisfaction' in Article 42 ECHR.
15) J Crawford, The International Law Commission's Articles on State Responsibility.
Introduction, Text and Commentaries (Cambridge: Cambridge University Press, 2002)
219.
16) <http://www.un.org/Depts/german/gv-56/band1/56bd-6.pdf>, 24. See G Hafner and
S Wittich, 'Das völkerrechtliche Unrecht und seine Folgen' in A Reinisch (ed.),
Österreichisches Handbuch des Völkerrechts (Vienna: Manz, 2013) paras 2493 et seq;
Ipsen, however, uses the terms 'Wertersatz' and 'Entschädigung' also in the context
of the obligation of reparation after a violation of international law. H Ipsen,
Völkerrecht (Munich: Beck, 2004) section 41, paras 66, 68.
17) UNIDROIT, Principles of International Commercial Contracts (Rome: UNIDROIT, 2010)
266.
18) United Nations Convention on Contracts for the International Sale of Goods (CISG)
(1980) 19 ILM 668.
19) O Lando and H Beale (eds), Principles of European Contract Law, Parts I and II (The
Hague: Kluwer Law International, 2000).
20) C F Amerasinghe, 'Issues of Compensation for the Taking of Alien Property in the
Light of Recent Cases and Practice' (1992) 41 ICLQ 22, 37–8.
21) D Bowett, 'Claims between States and Private Entities: The Twilight Zone of
International Law' (1986) 35 Catholic University Law Review 929, 938.
22) AGIP SpA. v Congo, Award of 30 November 1979 (1993) 1 ICSID Reports 306, para. 95.
23) Southern Pacific Properties (Middle East) v Egypt, Award of 20 May 1992 (1995) 3 ICSID
Reports 189, para. 183.
24) Amoco International Finance Corp v Iran, 15 Iran–US CTR (1987) 189.
25) Ibid, para. 247.
19
26) ADC Affiliates Limited et al v Hungary, Award of 2 October 2006.
28) LG&E Energy Corp et al v Argentina, Award of 25 July 2007.
29) Ibid, para. 38, with reference to I Marboe, 'Compensation and Damages in
International Law. The Limits of “Fair Market Value”' (2006) 7 JWIT 723, 726.
30) Quiborax v Venezuela, Award of 16 September 2015, paras 308, 325 et seq, 386.
However, it has to be pointed out that this distinction in terminology is certainly not
uniform amongst ICSID tribunals. The tribunal in Funnekotter v Zimbabwe formulated
that 'compuation of damages for lawful expropriation from computation of damages
for unlawful expropriation are not here in issue'. Funnekotter v Zimbabwe, Award of
22 April 2009, para. 112.
31) Mondev v United States, Award of 11 October 2002, ICSID Case No. ARB(AF)/99/2, para.
71. Also the NAFTA tribunal in Archer Daniels v Mexico distinguished between
'compensation' for expropriation and 'damages' for other breaches of international
law. Archer Daniels v Mexico, Award of 21 November 2007, para. 283.
32) See above, n. 13.
33) See Article 74 of the Convention on the International Sales of Goods in the French
version, according to which 'les dommages-intérêts pour une contravention au
contrat commise par une partie sont égaux à la perte subie et au gain manqué par
l'autre partie par suite de la contravention'. In English, it says, as already
mentioned, 'compensation'.
34) The Mavrommatis Jerusalem Concessions, PCIJ 1925 Ser A, No. 5, 40, 45 (emphasis
added).
35) Ibid (emphasis added).
36) See, e.g., Article 7.4.2(1) of the UNIDROIT Principles of International Commercial
Contracts: 'Le créancier a le droit à la réparation intégrale du préjudice qu'il a subi
du fait de l'inéxecution'. In the English text, as already mentioned above, it says
'compensation'.
37) See, e.g., the French version of the judgment in the Chorzów Factory case: '[L]a
réparation doit, autant que possible, effacer toutes les conséquences de l'acte
illicite et rétablir l'état qui aurait vraisemblablement existé si ledit acte n'avait
pas été commis'. Case Concerning the Factory at Chorzów, PCIJ 1928 Ser A, No. 17, 47;
see also the French version of Article 31 of the ILC Articles on State Responsibility,
which are dedicated to 'réparation'.
38) See, e.g., with regard to the issue of indemnification for forced labour in the Third
Reich, A Randelzhofer, and O Dörr, Entschädigung für Zwangsarbeit? Studien und
Gutachten aus dem Institut für Staatslehre, Staats- und Verwaltungsrecht der Freien
Universität Berlin (Berlin: Duncker & Humblot, 1994); D Majer, 'Die Fragen der
Entschädigung für ehemalige NS-Zwangsarbeiter in völkerrechtlicher Sicht' (1991) 29
Archiv des Völkerrechts 1; H Winkler, 'Entschädigung für Sklaven-und Zwangsarbeit im
Dritten Reich—Das österreichische Modell' in A Khol, G Ofner, S Karner, and D Halper
(eds), Österreichisches Jahrbuch für Politik (Vienna: Böhlau, 2000) 96.
39) See, e.g., liability for damage caused by space objects or other dangerous activities,
codified in the UN Convention on International Liability for Damage Caused by
Space Objects (1972) or the Vienna Convention on Civil Liability for Nuclear Damage
(1963). See, furthermore, the ILC's works on the international liability for injurious
consequences arising out of acts not prohibited by international law (prevention of
transboundary damage from hazardous activities). A preliminary result are the Draft
Articles on Prevention of Transboundary Harm from Hazardous Activities (2001),
Official Records of the General Assembly, Supplement No 10, UN-Doc. A/56/10, ch.
V.E.1.
40) See, e.g., M Shaw, International Law (7th edn, Cambridge: Cambridge University
Press, 2014) 602; R Dolzer and C Schreuer, Principles of International Investment Law
(2nd edn, Oxford: Oxford University Press, 2012) 98 et seq; R Higgins, 'The Taking of
Property by the State' (1982) 176 RdC 259; J Salacuse, The Law of Investment Treaties
(Oxford: Oxford University Press, 2010) 288.
41) As regards the theoretical foundation of this right, see below, paras 2.26 et seq.
42) R Dolzer, Eigentum, Enteignung und Entschädigung im geltenden Völkerrecht (Berlin:
Springer, 1985) 182; see also D Bowett, 'State Contracts with Aliens: Contemporary
Developments on Compensation for Termination or Breach' (1988) 59 BYIL 49, 61; C F
Amerasinghe, 'Issues of Compensation for the Taking of Alien Property in the Light of
Recent Cases and Practice' (1992) 41 ICLQ 22, 37–8.
43) This has already been argued, e.g., by B Cheng, General Principles of Law as Applied
by International Courts and Tribunals (London: Stevens and Sons Ltd, 1953) 46 et seq;
see also I Seidl-Hohenveldern, 'L'évaluation des dommages dans les arbitrages
transnationaux' (1987) 33 Annuaire français de droit international 7, 8.
44) Putegnat's Heirs (United States v Mexico), Award of 2 August 1871, in J Moore (ed.),
History and Digest of International Arbitrations of which the United States has been a
Party, vol. IV (Washington: GPO, 1898) 3718, 3720.
20
45) Goldenberg (Romania v Germany), Award of 27 September 1928, 2 RIAA, 903, 906;
Aramco v Saudi Arabia, Award of 23 August 1958 (1963) 27 ILR 117, 168; see also P
Lalive, 'The Doctrine of Acquired Rights' in M Bender (ed.), Rights and Duties of
Private Investors Abroad (New York: International and Comparative Law Center, 1965)
145 et seq; S Friedmann, Expropriation in International Law (London: Stevens & Sons
Ltd, 1955) 120 et seq; C F Amerasinghe, State Responsibility for Injuries to Aliens
(Oxford: Clarendon Press, 1967) 145 et seq; F V García-Amador, The Changing Law of
International Claims (New York: Oceana Publications, 1984) 263 et seq.
46) This doctrine was formulated as early as 1885 but did not play an important role in
practice at that time. The Latin-American states rediscovered it later in the wake of
decolonialization in the twentieth century. Also, the Soviet Union promoted it from
1917 onwards. See R Dolzer, Eigentum, Enteignung und Entschädigung im geltenden
Völkerrecht (Berlin: Springer, 1985) 19–20; S Montt, State Liability in Investment Treaty
Arbitration. Global Constitutional and Administrative Law in the BIT Generation
(Oxford: Hart Publishing, 2009) 35 et seq; J Crawford, Brownlie's Principles of Public
International Law (Oxford: Oxford University Press, 2012) 613.
47) See, e.g., R Dolzer, 'New Foundations of the Law of Expropriation of Alien Property'
(1981) 75 AJIL 553, 557 et seq; see also Chapter 3, Section B(1).
48) See, e.g., E Jimenez de Arechaga, 'International Law in the Past Third of a Century'
(1978) 159 RdC 297, 299–300.
49) The roots of this principle go back to Roman law, according to which it was also
applicable in ius gentium, thus in international contexts. See D Dicke, 'Unjust
Enrichment and Compensation' in D Dicke (ed.), Foreign Investment in the Present
and A New International Economic Order (Fribourg: University Press, 1987) 268, with
reference to Marcianus' dictum 'Nam iure gentium condici puto posse res ab his, qui
non ex iusta causa possident'.
50) Lord McNair, 'The General Principles of Law Recognized by Civilized Nations' (1957)
33 BYIL 1, 11–16; A Verdross, Die Quellen des universellen Völkerrechts (Fribourg:
Rombach, 1973) 132; D Dicke, Unjust Enrichment and Compensation (Fribourg:
University Press, 1987) 280; C Fombad, 'The Principle of Unjust Enrichment in
International Law' (1997) 2 CILJ of Southern Africa 120; see also Arbitrator
Mahmassani's considerations in LIAMCO v Libya, Award of 12 April 1977, (1982) 62 ILR
141, 176.
51) C F Amerasinghe argued along these lines; see, e.g., State Responsibility for Injuries to
Aliens (Oxford: Clarendon Press, 1967) 148–9; C F Amerasinghe, 'The Quantum of
Compensation for Nationalized Property' in R Lillich (ed.), The Valuation of
Nationalized Property in International Law, vol. 3 (Charlottesville: University Press of
Virginia, 1975) 91 et seq; similar arguments were raised in Amoco International
Finance Corp v Iran, 15 Iran–US CTR (1987) 189, para. 259.
52) See, e.g., the controversy between M Mendelson, 'Compensation for Expropriation:
The Case Law' (1985) 79 AJIL 414 and O Schachter, 'Compensation Cases—Leading and
Misleading' (1985) 79 AJIL 420.
53) B Cheng, General Principles of Law as Applied by International Courts and Tribunals
(London: Stevens and Sons Ltd, 1953) 233. Kelsen, in contrast, formulated some
doubts with regard to the existence of this principle in international law. He
maintained that the concept of damages stemmed from private law and was not
absorbed into customary international law. Consequently, a duty to pay damages
must be based on specific agreement by the parties. This view was, however, not
widely shared in international practice and scholarly writing. H Kelsen, 'Unrecht und
Unrechtsfolge im Völkerrecht' (1932) 12 ZÖR 481, 556.
54) Lusitania (United States v Germany), Award of 1 November 1923, 7 RIAA 32, 35 with
reference to H Grotius, De iure bellis ac pacis, 2 vol., ch. 17, 22.
55) Case Concerning Factory at Chorzów (Merits), PCIJ 1928 Ser A, No. 17, 29. The seminal
importance of this judgment even today has been repeatedly reflected on, e.g., by R
Higgins, 'Issues of State Responsibility before the International Court of Justice' in M
Fitzmaurice and D Sarooshi (eds), Issues of State Responsibility before International
Judicial Institutions (Oxford: Hart Publishing, 2004) 1.
56) For a comparative analysis, see H Koziol and B Steininger (eds), European Tort Law
2002 (Vienna: Springer Press, 2003); N Cohen and E McKendrick (eds), Comparative
Remedies for Breach of Contract (Oxford: Hart Publishing, 2005).
57) See G Van Hecke, 'Contracts between States and Foreign Private Law Persons' (1992) I
EPIL 814.
58) For a short comparative analysis of the rules on compensation upon expropriation
in the US, Germany, and France as well as of the jurisprudence of the European Court
of Human Rights (ECtHR) and the Inter-American Court of Human Rights, see B
Sabahi and N Birch, 'Comparative Compensation for Expropriation' in S Schill (ed.),
International Investment Law and Comparative Public Law (Oxford: Oxford University
Press, 2010) 755; see also, including the UK, Switzerland, Austria, and Japan, H
Bergmann, Die völkerrechtliche Entschädigung im Falle der Enteignung
vertragsrechtlicher Positionen (Baden-Baden: Nomos, 1997) 75 et seq.
59) The requirement of 'due process' entails also the rights to life and liberty, as it
emanated from the context: '…nor be deprived of life, liberty, or property, without
due process of law; nor shall private property be taken for public use, without just
compensation'.
21
60) United States v Cors, 337 U.S. 325, 332 (1949) as quoted by the Reporters' Notes in
American Law Institute, Restatement, Third, Foreign Relations Law of the United
States, vol. 2 (St. Paul, MN: American Law Institute Publishers, 1987) § 712, 207.
61) See, e.g., United States v Commodities Trading Corp, 339 U.S. 121, 123 (1950): 'This
Court has never attempted to prescribe a rigid rule for determining just
compensation under all circumstances in all cases. Fair market value has normally
been accepted as a just standard.' See also Olsen v United States, 292 U.S. 246, 255
(1934); United States v 50 Acres of Land, 469 U.S. 24 (1984); see also American Law
Institute, above, n. 60, 207–8.
62) See also B Sabahi and N Birch, above, n. 58, 780.
63) See ibid, at 779.
64) See the comparative overview on principles of state liability by I Marboe, 'State
Responsibility and Comparative State Liability for Administrative and Legislative
Harm to Economic Interests' in S Schill (ed.), International Investment Law and
Comparative Public Law (Oxford: Oxford University Press, 2010) 377, 391 et seq.
65) Official English translation by the Bundesministerium für Justiz und
Verbraucherschutz, see <https://www.gesetze-im-
internet.de/englisch_gg/englisch_gg.html#p0079>.
66) P Rummel and J Schlager, Enteignungsentschädigung (Vienna: Signum, 1981) 63 with
further references to the jurisprudence of the German Bundesgerichtshof.
67) H Bergmann, Die völkerrechtliche Entschädigung im Falle der Enteignung
68) M Aust and R Jacobs, Die Enteignungsentschädigung (Berlin–New York: DeGruyter,
1980) 36; K Gelzer and F Busse, Der Umfang der Enteignungsentschädigung (Munich:
Beck, 1980) 5.
69) See also B Sabahi and N Birch, above, n. 58, 782.
70) Code de l'expropriation pour cause d'utilité publique, version of 1 January 2015
according to Ordonnance No 2014-1345 of 6 November 2014.
71) See the discussion by B Sabahi and N Birch, above, n. 58, 783.
72) See Article L. 321-1: 'Les indemnités allouées couvrent l'intégralité du préjudice
direct, matériel et certain causé par l'expropriation.'
73) R Chapus, Droit Administrative Général (15th edn, 2001) para. 1462; see also I Marboe,
above, n. 64, 382 et seq.
74) Lord Hailsham of St Marylebone, Halsbury's Law of England, vol. 8 (London:
Butterworths, 1996) para. 233.
75) '[Compensation] is the right to be put, so far as money can do it, in the same
position as if his land had not been taken from him.' Horn v Sunderland Corporation
[1941] 2 KB 26, at 42. Compensation must represent the value to the owner, not the
value to the public authority acquiring the land. Stebbing v Metropolitan Board of
Works [1870] LR 6 QB 37.
76) Article 26 Bundesverfassung and Article 19 Enteignungsgesetz (1930); R Merker, Der
Grundsatz der 'vollen Entschädigung' im Enteignungsrecht (Zurich: Schulthess, 1975); H
Bergmann, Die völkerrechtliche Entschädigung im Falle der Enteignung
77) This becomes evident in a number of explicit references in the rules on
expropriation to the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch) on
damages in contract and tort cases, such as Article 1323 of the Allgemeines
Bürgerliches Gesetzbuch (General Civil Code). See P Rummel and J Schlager,
Enteignungsentschädigung (Vienna: Signum, 1981) 65; J Aicher, Verfassungsrechtlicher
Eigentumsschutz und Enteignung (Vienna: Manz, 1985) 72 et seq.
78) C F Amerasinghe, 'Issues of Compensation for the Taking of Alien Property in the
Light of Recent Cases and Practice' (1992) 41 ICLQ 22, 31; I Seidl-Hohenveldern,
'L'évaluation des dommages dans les arbitrages transnationaux' (1987) 33 Annuaire
français de droit international 8: 'Or, si le droit interne de tous les pays du monde
reconnaît à l'Etat le droit de priver un particulier de sa propriété si le bien public
l'exige, on est loin d'une telle uniformité en ce qui concerne les règles liant
l'exercise de ce droit à un dédommagement de l'ex-propriétaire'.
79) See the consistent practice of the ECtHR in this respect with regard to the amount of
compensation since the judgments in Sporrong & Lönnroth v Sweden, 23 September
1982, ECHR Ser A, No. 52; James et al v United Kingdom, 21 February 1986, ECtHR Ser A,
No. 98, and Lithgow et al v United Kingdom, 8 July 1986, ECtHR Ser A, No. 102.
80) M Whiteman, Digest of International Law, vol. 8 (Washington: Government Printing
Office, 1967) 1020 (emphasis added).
81) M Herdegen, Principles of International Economic Law (Oxford: Oxford University
Press, 2013) 366; M Sornarajah, The International Law on Foreign Investment (3rd edn,
Cambridge: Cambridge University Press, 2010) 445–50.
22
82) Hardly any bilateral investment treaty contains the standard of 'full compensation'.
Some treaties did, but were ultimately terminated, for example, the treaty between
Luxembourg/Belgium and Egypt of 1977 (Article V; terminated and replace by the
bilateral treaty of 1999) and the treaty between Luxembourg/Belgium and the
Republic of Korea of 1974 (Article 5; terminated and replaced by the bilateral treaty
of 2006). The treaty between Kenya and Slovakia of 2011 is not yet in force (Article 5
contains the obligation to 'prompt and full compensation'). Most bilateral
investment treaties, model treaties, the NAFTA, the ECT, or the CETA, use the Hull
formula or only 'compensation' with more speficied criteria for its determination.
See the more detailed analysis further below.
83) American Law Institute (ed.), Restatement (Third) of the Law of Foreign Relations Law
of the United States, vol. 2 (St. Paul, MN: American Law Institute Publishers, 1987) §
712, 196–7. In this context it was emphasized that the US had always maintained that
compensation upon expropriation under international law must be 'prompt,
adequate and effective'. Ibid, at 198. See also O Schachter, 'Compensation for
Expropriation' (1984) 78 AJIL 121 et seq.
84) American Law Institute, above, n. 83, 198.
85) See, e.g., Article 4 of the BIT between the United States and Argentina (1991); Article
3 of the BIT between the United States and the Russian Federation (1992).
86) 2012 U.S. Model Bilateral Investment Treaty, see
<http://www.state.gov/documents/organization/188371.pdf> (emphasis added).
87) Article 6 (2) 2012 U.S. Model Bilateral Investment Treaty.
88) See, e.g., Article 13 of the Canadian Model BIT (2004). Article 4 of the German Model
BIT (2008) only speaks of 'Entschädigung' (compensation) without any further
qualification. See in more detail Chapter 3, Section A(1)(b).
89) See Article 11.7 of the US–Australian Free Trade Agreement and Article 10.9 of the
US–Chilean Free Trade Agreement which concordantly speak of 'prompt, adequate,
and effective compensation'.
90) See further Chapter 3, Section A(1)(b).
91) Case Concerning the Factory at Chorzów, PCIJ 1928 Ser A, No. 17, 47.
92) See Section B(1)(b).
93) I Kant, Kritik der praktischen Vernunft. Grundlegung zur Metaphysik der Sitten, vol. 7
(Frankfurt: Theodor Valentiner, 1968) 60.
94) Appraisal Standards Board (ed.), Uniform Standards of Professional Appraisal
Practices (USPAP) 2016–17, 'Definitions'; available at <http://www.uspap.org/#14> 4–
5. See also Fédération Européenne des Experts Comptables (ed.), Guide for Carrying
out Business Valuations (Brussels, 2001) 10.
95) S Pratt and A Nicolita, The Lawyer's Business Valuation Handbook (2nd edn, Chicago:
ABA Publishing, 2010) 1.
96) So, e.g., the legal situation in Austria. See para. 2.42.
97) C F Amerasinghe, 'The Quantum of Compensation for Nationalized Property' in R
Lillich (ed.), The Valuation of Nationalized Property in International Law, vol. III
(Charlottesville: University Press of Virginia, 1975) 91, 95–6; N Girvan, 'Expropriating
the Expropriators: Compensation Criteria from a Third World Viewpoint' in ibid, at
149, 166 et seq. See also the Iranian position concerning the calculation of
compensation in Amoco International Finance Corp v Iran, 15 Iran–US CTR (1987) 189,
para. 190.
98) See also the consideration of Arbitrator Mahmassani in LIAMCO, who rejected the
calculation of compensation on the basis of the investments made because 'they do
not take into consideration the great initial expenses and risks taken by LIAMCO in
their pioneer works and subsequent activities' LIAMCO v Libya, Award of 12 April 1977,
(1982) 62 ILR 140, 213.
99) This conclusion was also drawn by C F Amerasinghe, State Responsibility for Injuries
to Aliens (Oxford: Clarendon Press, 1967) 148–9.
100) International Glossary of Business Valuation Terms, in AICPA (ed.), Statement of
Standards on Valuation Services (New York: American Institute for Certified Public
Accountants, Inc, 2015) 33. See also S Gabehart and R Brinkley, The Business
Valuation Book (New York et al: Amacom, 2002) 23; S Pratt and A Niculita, Valuing a
Business. The Analysis and Appraisal of Closely Held Companies (5th edn, New York:
McGraw-Hill, 2008) 21.
101) The terms 'objective', or 'objectified', but also 'abstract' in connection with
valuation or calculation must be used with great care. This is not only important
with regard to economic aspects which will be dealt with in the next chapter but
also in the legal context because different legal systems interpret them differently.
See, e.g., the various ways the 'abstract' valuation of damage incurred is made in
the German and in the Austrian legal systems. C Huber, Fragen der
Schadensberechnung (Vienna: Springer Press, 1995) 30.
102) This corresponds to the older German term 'gemeiner Wert' in the sense of 'common
value'. See P Rummel and J Schlager, Enteignungsentschädigung (Vienna: Signum,
1981) 105.
103) Amoco International Finance Corp v Iran, 15 Iran–US CTR (1987) 189, para. 219
(emphasis in original).
23
104) In many other decisions of the Iran–US Claims Tribunal the fair market value was
regarded as the applicable standard, or at least as the starting point for the
valuation. M Pellonpää and M Fitzmaurice, 'Taking of Property in the Practice of the
Iran–US Claims Tribunal' (1988) 19 Netherlands Yearbook of International Law 53, 131
et seq. See further detail in Chapter 3, Section B(1)(b).
105) Phillips Petroleum Co Iran v Iran, 21 CTR (1989) 79, para. 111.
106) World Bank, Legal Framework for the Treatment of Foreign Investment, Vol. 1, Survey
of Existing Instruments (Washington: World Bank Group, 1992). The question of
compensation is dealt with in particular at 24 et seq and 41 et seq.
107) World Bank, Legal Framework for the Treatment of Foreign Investment, Vol. 2, Report
to the Development Committee and Guidelines on the Treatment of Foreign Direct
Investment (Washington: World Bank Group, 1992); also (1992) 31 ILM 1363,
(hereinafter: World Bank, 'Guidelines on the Treatment of Foreign Direct
Investment').
108) World Bank, 'Guidelines on the Treatment of Foreign Direct Investment' 1370.
109) Ibid, at 1375.
110) Ibid, at 1383 (emphasis added).
111) The UNCTAD homepage indicates 2,954 BITs in total, and 2,319 BITs in force. See
UNCTAD, Investment Policy Hub, available at
<http://investmentpolicyhub.unctad.org/IIA>.
112) As to the different wordings in expropriation provisions in investment treaties, see
further at paras 3.15 et seq.
113) Case Concerning the Factory at Chorzów, PCIJ 1928 Ser A, No. 17, 47. See thereto J
Crawford, The International Law Commission's Articles on State Responsibility.
202.
114) Opinion in the Lusitania Case, 1 November 1923, 7 RIAA, 32, 39 (emphasis in original,
footnotes omitted).
115) Restitution is rarely granted in international disputes between individuals and
states. See, e.g., Antoine Goetz et al v Burundi, Award of 10 February 1999, (2000) 15
ICSID Rev.-FILJ 457, 516 et seq.
116) See, e.g., B Cheng, General Principles of Law as Applied by International Courts and
Tribunals (London: Stevens and Sons Ltd, 1953) 233 et seq; G Schwarzenberger,
International Law as Applied by International Court and Tribunals (London: Stevens
and Sons Ltd, 1957) 664; I Brownlie, State Responsibility, Part I (Oxford: Oxford
University Press, 1983) 222 et seq.
117) See in more detail below, paras 3.120 et seq.
118) Article 31(2) of the Articles on the Responsibility of States for Internationally
Wrongful Acts. See also J Crawford, above, n. 113, 202. See, however, also the critical
analysis of the incoherent use of the term 'injury' in the ILC Articles by S Wittich,
Non-material Damage and its Reparation in International Law (Vienna: Jur Diss, 2001)
5 et seq.
119) See below, para. 3.123.
120) J Crawford, above, n. 113, 220. This clarifies that there is no other purpose, such as
punishment by way of 'punitive damages'. Crawford explained in this respect: '[i]n
other words, the function of article 36 is purely compensatory, as its title indicates'.
Ibid, at 219.
121) 'Delagoa Bay and East African Railway Company, Award of 30 May 1890' in H Fontaine
(ed.), Pasicrisie Internationale (Bern: Stämpfli, 1902) 398, 406. (This passage is not
contained in the summary published by M Whiteman, Damages in International Law,
vol. 3 (Washington: Government Printing Office, 1943) 1694. According to Cheng, this
represents an authoritative formulation as to the extent of the obligation to
reparation. B Cheng, General Principles of Law as Applied by International Courts and
Tribunals (London: Stevens and Sons Ltd, 1953) 236.
122) See, e.g., the judgment of the International Tribunal for the Law of the Sea in MV
Saiga (Nr 2) (St Vincent and the Grenadines v Guinea), Judgment of 1 July 1999, para.
170; other courts and tribunals had similar considerations as, e.g., in
Papamichalopoulos v Greece, 31 October 1995, ECHR Ser A, No. 330-B, para. 36;
Velasquez-Rodriguez, Inter-Am.C.H.R., Ser C, No. 4, 26–7, 30–1.
123) R Posner, Economic Analysis of Law (New York: Aspen Publishers, 1998) 131. See also L
Kaplow and S Shavell, 'Accuracy in the Assessment of Damages' (1996) 39 J. L. &
Economics 191.
124) See M Marella and I Marboe, ' “Efficient Breach” and Economic Analysis of
International Investment Law' (2007) 4 Transnational Dispute Management, available
at <http://www.transnational-dispute-management.com>.
125) L Wells, 'Double Dipping in Arbitration Awards? An Economist Questions Damages
Awarded to Kahara Bodas Company in Indonesia' (2003) 19 Arbitration International
471, 478.
126) See the analysis of such international contracts since 1492 by P Fischer, Die
internationale Konzession (Vienna et al: Springer, 1974) 461 et seq; see also the
collection of historic concessions, consisting by P Fischer (ed.), A Collection of
International Concessions and Related Instruments (New York: Oceana Publishers,
1976–88) and the contemporary series by P Fischer and T Waelde (eds), A Collection
of International Concessions and Related Instruments. Contemporary Series (New
York: Oceana Publishers, 1981–8).
24
127) F A Mann, 'State Contracts and State Responsibility' (1960) 54 AJIL 572, 575; C F
Amerasinghe, 'State Breaches of Contracts with Aliens and International Law' (1964)
58 AJIL 881, 912; O Schachter, 'International Law in Theory and Practice' (1982) 178
RdC 9, 309; I Marboe and A Reinisch, 'Contracts between States and Foreign Private
Law Persons' in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public
International Law (Oxford: Oxford University Press, 2012), vol. II, 758, paras 28–31. This
view is, however, not undisputed. See, for a different opinion, e.g., R Jennings, 'State
Contracts in International Law' (1961) 37 BYIL 156, 165 or the arguments put forward
by Switzerland in Losinger & Co, PCIJ 1936 Ser C, No. 78, 32; similarly the Belgian
representatives in Electricity Company of Sofia Case, PCIJ 1939 Ser C, No. 88, 54;
similarly the French representatives in Certain Norwegian Loans, ICJ-Pleadings 1957,
61 and 181–2; similarly the English representative in Iranian Oil Company, ICJ-
Pleadings 1951, 84. None of these cases, however, were decided on the merits. See
the insightful discussion of these cases by C F Amerasinghe, State Responsibility for
Injuries to Aliens (Oxford: Clarendon Press, 1967) 71 et seq.
128) J Salacuse, The Three Laws of International Investment (Oxford: Oxford University
Press, 2013) 319–20.
129) Robinson v Harman (1848) 1 Exch. 850, 855, quoted in Amco Asia Corp v Indonesia
(Amco I), Award of 20 November 1984 (1993) 1 ICSID Reports 413, para. 266.
130) Restatement, Second on Contracts, Section 344; similarly, Uniform Commercial
Code, section 1–106 (1); see Amco Asia Corp v Indonesia, above, n. 129, para. 266.
131) United Nations Convention on Contracts for the International Sale of Goods (CISG),
(1980) 19 ILM 668. With regard to the use of the term 'damages' in this context see
above, para. 2.09.
132) UNIDROIT, Principles of International Commercial Contracts (Rome: UNIDROIT, 1994,
2004, 2010); see the commentary by S Vogenauer and J Kleinheisterkamp (eds),
Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC)
(Oxford: Oxford University Press, 2009).
133) See O Lando and H Beale (eds), Principles of European Contract Law: Parts I and II
Combined and Revised (The Hague: Kluwer Law International, 2000).
134) See Section B(2)(a).
135) B Claggett, 'Just Compensation in International Law—The Issues before the Iran–US
Claims Tribunal' in R Lillich (ed.), Valuation of Nationalized Property in International
Law, vol. 4 (Charlottesville: University Press of Virginia, 1987) 31, 50.
137) INA Corporation v Iran, Separate Opinion Ameli, 8 Iran–US CTR (1985) 373, 411.
138) See, e.g., Amco Asia Corp v Indonesia, Award of 20 November 1984 (1993) 1 ICSID
Reports 413, para. 184; Liberian Eastern Timber Corporation (LETCO) v Liberia, Award
of 31 March 1986 (1994) 2 ICSID Reports 343, 371; Himpurnia California Energy Ltd v PT
(Persero) Perusahaan Listruik Nagara (PLN), Award of 4 May 1999 (2000) 25 YCA 13,
para. 275; see also Y Gotanda, 'Recovering Lost Profits in International Disputes'
(2004) 36 Georgetown Journal of International Law 61, 88 et seq with further
references.
139) Sapphire International Petroleum Ltd v NIOC, Award of 15 March 1963 (1967) 35 ILR 136,
185–6.
140) See the comparative law analysis by H Stoll, 'Consequences of Liability: Remedies'
IECL (1983) vol. XI/8–103.
141) R Brand, 'Punitive Damages and the Recognition of Judgements' (1996) 43
Netherlands International Law Review 143; H Bungert, 'Vollstreckbarkeit US-
amerikanischer Schadensersatzurteile in exorbitanter Höhe' (1992) Zeitschrift für
Wirtschaftsrecht 170; J Gotanda, 'Awarding Punitive Damages in International
Commercial Arbitrations in the Wake of Mastrobuono v Shearson Lehmann Hutto,
Inc.' (1997) 38 Harvard ILJ 59; J Gotanda, 'Charting Developments Concerning Punitive
Damages: Is the Tide Changing?' (2007) 45 Columbia Journal of Transnational Law 507.
142) See, e.g., the proposals by the Special Rapporteur of the ILC, Arangio-Ruiz, in the
Second Report on State Responsibility, UN Doc. A/CN.4/425, 33–4; R Jennings and A
Watts (eds), Oppenheims International Law (London et al: Longman, 1996) § 156.
Brower's Concurring Opinion in Sedco Inc v NIOC (Final Award), 15 Iran–US CTR (1987)
23, 205 also points in the same direction.
143) The Inter-American Court of Human Rights pointed out that public international law
does not include the concept of punitive or exemplary damages. Velasquez
Rodriguez v Honduras (1989) 7 Inter-Am.Ct.H.R. Ser C (Compensatory Damages) 52. The
few international cases which are usually referred to in this context cannot be
regarded as evidence that the concept is already part of international law. See S
Wittich, 'Awe of the Gods and Fear of the Priests: Punitive Damages and the Law of
State Responsibility' (1998) 3 Austrian Review of International and European Law 101,
118.
144) See New Zealand v France (Rainbow Warrier), Award of 30 April 1990, para. 115.
25
145) See also G Cottereau, 'Système juridique et notion de responsabilité' in Société
Française de Droit International (ed.), La responsabilité dans le système international
(Paris: Pédone, 1991) 62; F A Mann, 'The Consequences of an International Wrong in
International and Municipal Law' (1977) 48 BYIL 1. The rejection is also reflected by
the removal of the term 'international crime' from the Articles and the insertion of
the term 'serious breach of obligation under preemptory norms of general
international law' in the last reading of the Articles. See J Crawford, above, n. 113, 35–
8.
146) Opinion in the Lusitania Case, 1 November 1923, 7 RIAA, 32, 39.
147) See further Chapter 5, Section F.
148) See above Section B(1)(b), paras 2.55 et seq.
149) Ibid.
151) Crawford explains the well-known dictum of the PCIJ in Factory at Chorzów in the
following way: 'In the first sentence, the Court gave a general definition of
reparation, emphasizing that its function was the re-establishment of the situation
affected by the breach. In the second sentence it dealt with that aspect of
reparation encompassed by “compensation” for an unlawful act—that is restitution
or its value, and in addition damages for loss sustained as a result of the wrongful
act.' See J Crawford, above, n. 113, 202 (emphasis added).
152) See further Chapter 5, Section E.
153) F Mommsen, Zur Lehre von dem Interesse (Braunschweig: Schwetschke, 1855) 3
(translation from the original).
154) Ibid, at 3–4.
155) Ibid, at 16.
156) Ibid, at 17.
157) Joseph Charles Lemire v Ukraine, Award of 28 March 2011, ICSID Case No. ARB/06/18,
paras 151–2.
158) Crawford shows in his Commentary to Article 36 that international practice
frequently refers to the fair market value also in the context of state responsibility.
In addition, however, lost profits and other damage are also taken into account. J
Crawford, above, n. 113, 225 et seq.
159) See, e.g., A Komarov, 'Mitigation of Damages' in Y Derains and R Kreindler (eds),
Evaluation of Damages in International Arbitration (Paris: International Chamber of
Commerce, 2006) 37; Y Taniguchi, 'The Obligation to Mitigate Damages' in ibid, at 79.
160) See Chapter 3, Section B(4), paras 3.235 et seq.
161) e.g. the 'investment value' can serve as a proxy for market value. See J Fishman, S
Pratt, and W Morrison, Standards of Value (2nd edn, Hoboken, New Jersey: Wiley,
2013) 24.
162) See Chapter 4, Section B(a).
163) Ibid.
164) See Chapter 5, Sections A, B, and C.
165) See Chapter 4, Section B(b).
166) See, in particular, Chapter 5, Sections B and C.
167) See Chapter 5, Section E.
26
Document information 3. Valuation Standards and Criteria
3.01 The following chapter will outline the most important criteria for the calculation of
Publication compensation and damages. With regard to the standard of compensation upon
Calculation of expropriation under international law it analyses the difference between lawful and
Compensation and P 44 unlawful expropriations. It then continues by examining valuation criteria in cases of
Damages in International state responsibility and breaches of contract. Furthermore, the selection of an
Investment Law (Second appropriate valuation date as well as the issue of contributory negligence and the duty
Edition) to mitigate damages will be addressed. Finally, it will be discussed to what extent
equitable considerations and the respondent state's economic situation can play a role
for the quantification of compensation or damages.
Bibliographic A. Compensation upon Expropriation
reference 3.02 Even though the issue of expropriation is frequently discussed in connection with
'3. Valuation Standards and state responsibility, (1) it is important to note that expropriation of foreign owned
Criteria', in Irmgard Marboe property is not an internationally wrongful act per se. Rather, it is a recognized right of a
, Calculation of state stemming from its territorial sovereignty. (2) It places the state in a position to
Compensation and regulate its internal social and economic order and to comply with its public duties and
Damages in International responsibilities. (3)
Edition), Oxford 3.03 'Expropriation' generally describes the taking of property by the state. (4) Entire
International Arbitration industries or categories of property rights may be affected by so-called 'large-scale
Series, (© Irmgard Marboe nationalizations'. (5) Yet, also acts and omissions of a state that leave the legal position
2017; Oxford University P 45 of the owner formally intact may be regarded as expropriations, if they have the same
Press 2017) pp. 43 - 162 effect. (6)
3.04 After decades of discussion on the conditions for the exercise of the state's sovereign
right to expropriate and controversial political and legal debates at the international
level, (7) it is now generally accepted that expropriation of foreigners is a matter of
international law and not of national law, and that international law prescribes a number
of conditions which have to be fulfilled in cases of expropriation of foreigners. Only if a
state does not fulfil these conditions, does it violate international law and commit an
internationally wrongful act which entails state responsibility.
3.05 According to international law, expropriation of foreign property must be in the
public interest, (8) non-discriminatory, (9) and in accordance with due process of law (10)
as well as accompanied by payment of compensation. The last condition is the most
controversial, not only for the standard of compensation but also as regards its relevance
for the lawfulness or unlawfulness of the expropriation itself. Does the non-payment of
compensation render an expropriation unlawful per se, or is it possible to consider the
expropriation to be lawful, if the other conditions—public interest, non-discrimination,
due process of law—are met? What difference does it make whether an expropriation is
P 46 regarded as lawful or unlawful?
(1) The Standard of Compensation

3.06 The standard of compensation under international law—whether 'prompt, adequate,
and effective' under the Hull formula or less—has been regarded as the most important
question for the determination of the amount to be paid to foreign nationals in the
second half of the past century. (11) Nowadays, the divergences of opinions on this matter
have lost much of their importance as the applicable standard of compensation in case
of expropriation is contained in a large number of bilateral and multilateral treaties on
the protection of foreign investment. The more interesting question today, therefore,
concerns the determination of the most appropriate valuation method. Nevertheless, the
international standard of compensation is still important in order to identify the legal
basis upon which the valuation has to be carried out.
(a) Customary International Law
3.07 The standard of compensation according to customary international law has long
been debated, in particular after the decolonialization process and in connection with
the efforts to establish a New International Economic Order. (12) The UN General
Assembly Resolution No 1803 relating to the 'Permanent Sovereignty over Natural
Resources' of 13 December 1962 can be regarded as the last expression of a common
opinio iuris of the international community on this question. (13) In Article 4, it provides
for the obligation to pay 'appropriate compensation' which, in accordance with
international law, must also be assessable by an international judicial body, thus an
international court or arbitral tribunal. (14)
3.08 This formulation was, however, a compromise and allowed both an interpretation in
P 47 terms of the Hull formula and of a lesser standard. Later resolutions of the General
Assembly, in particular those relating to the 'New International Economic Order', (15) also
accepted less compensation or left the payment of compensation dependent on the
possibilities of the expropriating state, without reference to international law or
international judicial review. In this vein, the 'Charter of Economic Rights and Duties of
States' established:
27
Each State has the right … [to] nationalize, expropriate or transfer ownership
of foreign property in which case appropriate compensation should be paid
by the State adopting such measures taking into account its relevant laws and
regulations and all circumstances that a State considers pertinent. (16)
3.09 The consideration of 'all circumstances' should lead to a more just distribution of
wealth in the relationship between poor developing countries and financially powerful
multinational corporations of capital exporting countries. (17) The references to internal
law and circumstances could even be interpreted in such a way that no compensation at
all would be due. Such a view was expressed, for example, after the nationalizations of
foreign property in Chile by Allende in 1970, where the Government contended that,
because of 'excess profits' of foreign companies in the past, no compensation was due
and that, on the contrary, the companies had remaining financial obligations to pay to
the country. (18)
3.10 A summary of the opinions prevailing about the customary international law
standard of compensation in the 1980s is contained in the case INA v Iran of 1985 before
the Iran–US Claims Tribunal. (19) The case itself hardly represented an adequate reason
for such a heated debate because it related to US$ 285,000, which was only a little above
P 48 the lower limit of the jurisdiction of the Iran–US Claims Tribunal set at US$ 250,000. The
award itself is only nine pages long, while the debate is reflected in the Separate
Opinions of Judges Lagergren and Holtzmann as well as in the more than forty-page
Dissenting Opinion of Judge Ameli. The reason was that the tribunal had held, after having
awarded compensation in the amount of 'the full equivalent … equal to the fair market
value of its shares', as an obiter dictum:
In the event of such large-scale nationalisations of a lawful character,
international law has undergone a gradual reappraisal, the effect of which
may be to undermine the doctrinal value of any 'full' or 'adequate' (when used
as identical to 'full') compensation standard as proposed in this case. (20)
3.11 The arguments in favour of partial compensation were primarily based on the
situation of many newly independent states not being in the financial position, in
particular in the context of large-scale nationalizations, (21) to fully compensate the
foreign proprietors. They would, therefore, be prevented from exercising their right to
territorial sovereignty and remain in their disadvantaged position as victims of
colonialism. (22)
3.12 Also today, the amount of compensation is sometimes discussed with regard to the
financial situation of host states. Brownlie, as an arbitrator, expressed his understanding
for the financial problems that a high award could pose for a relatively small country. (23)
P 50 The actions of states in situations of economic crises in South East Asia (24) or in Latin
America (25) affecting foreign investors have revived criticism on high amounts awarded
against host states. (26)
3.13 Furthermore, some authors argue that the use of the Hull formula in cases of indirect
expropriations could lead to a limitation of a state's sovereignty to regulate the use of
property, for example, with regard to environmental or social standards. (27) If the
regulations are regarded as indirect expropriations the state could find itself confronted
with high claims for compensation. (28)
3.14 It is important to note that the discussions about the customary international law
standard of compensation mainly concerned the protection of the state's right to
territorial sovereignty, including its right to make political and economic choices, as well
as its financial independence. The same arguments are not necessarily valid for discrete
and individual expropriations, let alone unlawful expropriations. The international law
standard of compensation for lawful expropriations cannot serve as a limitation of
responsibility, if a state commits an internationally wrongful act. This difference is often
not taken into account appropriately. (29)
(b) International Treaty Law
3.15 Numerous international treaties concluded since the 1990s dealing with the
protection of foreign investment contain rather detailed provisions on compensation in
case of expropriation. They all aim at a rather high level of protection of foreign
investment, but the formulations vary in the different texts. Many bilateral treaties
contain the well-known Hull formula of 'prompt, adequate and effective compensation'.
(30) But multilateral treaties have adopted it too, for example, the Energy Charter Treaty
in its Article 13:
1. Investments of a Contracting Party in the Area of any other Contracting Party
shall not be nationalized, expropriated or subjected to a measure or measures
having effect equivalent to nationalization or expropriation (hereinafter
referred to as 'Expropriation') except where such Expropriation is: (a) for a
purpose which is in the public interest; (b) not discriminatory; (c) carried out
under due process of law; and (d) accompanied by the payment of prompt,
adequate and effective compensation. Such compensation shall amount to the
fair market value of the Investment … (31)
28
3.16 It is not surprising that one can find this standard also in a number of free trade
agreements (FTAs) concluded by the United States. (32) One would, however, not
necessarily expect this standard also to figure prominently in BITs of Latin American
countries (33) and developing countries (34) concluded between themselves. Numerous
BITs of the Russian Federation also contain this compensation standard. (35) Only a few
BITs provide merely for 'just compensation' (36) or 'fair and equitable compensation'. (37)
3.17 In some BITs, the term 'compensation' is not qualified by an adjective but stands
alone, such as in German (38) or some middle European BITs. (39) Also NAFTA Article 1110
P 51 does not qualify the term 'compensation' as such:
(1) No Party may directly or indirectly nationalize or expropriate an

investment of an investor of another Party … except: (a) for a public purpose;
(b) on a nondiscriminatory basis; (c) in accordance with due process of law and
Article 1105 (1); and (d) on payment of compensation in accordance with
paragraphs 2 through 6. (40)
3.18 Further details regarding the calculation of compensation are then provided more
specifically in the subsequent paragraphs, such as in NAFTA Article 1110:
(2) Compensation shall be equivalent to the fair market value of the
expropriated investment immediately before the expropriation took place
('date of expropriation'), and shall not reflect any change in value occurring
because the intended expropriation had become known earlier. (41)
3.19 The standard of 'fair market value' as the basis for calculating the amount of
compensation appears in many BITs and model BITs. In particular, the United States
relies on it consistently, as its most recent model BIT of 2012 explains: 'The compensation
referred to in paragraph 1 (c) shall: (a) be paid without delay; (b) be equivalent to the fair
market value of the expropriated investment immediately before the expropriation took
place …'. (42)
3.20 The same is true for the Canadian model BIT of 2004 which reads:
Such compensation shall be equivalent to the fair market value of the
expropriated investment before the expropriation took place ('date of
expropriation') and shall not reflect any change in value occurring because the
intended expropriation became known earlier. (43)
3.21 Some treaties refer to other values, such as the 'genuine value' of some of the BITs of
the United Kingdom. (44) German BITs usually point to the 'value of the expropriated
investment'. (45)
3.22 The interesting question is whether these distinct formulations and definitions of
value may actually lead to different results. To what extent do they imply different
financial outcomes? Some treaties attempt to be more precise and give more detailed
guidelines for the valuation. For example, NAFTA Article 1110 mentions some of the
possible valuation methods to determine the fair market value:
(2) … Valuation criteria shall include going concern value, asset value including
declared tax value of tangible property, and other criteria, as appropriate, to
P 52 determine fair market value.
(3) Compensation shall be paid without delay and be fully realizable. (46)
3.23 Other treaties refer, for example, to the capital invested, replacement value,
appreciation, current returns, goodwill, and other relevant factors. (47) This enumeration
of different possible valuation methods does, however, not necessarily lead to more
clarity. It is even doubtful whether some of the proposed valuation criteria such as 'asset
value' or 'declared tax value', are actually pertinent for arriving at 'fair market value'.
(48) Tribunals will have to select an appropriate valuation method depending on the
circumstances of the case and the information available. Most importantly it will be
necessary to carry out the calculation with respect to the function of compensation in the
specific case.
(c) International Jurisprudence
3.24 International jurisprudence concerned with lawful takings and the valuation of
compensation is quite unanimous in applying 'fair market value' or a similar objective
standard. The arbitral tribunal in Norwegian Shipowners' Claims decided after the seizure
of 437 steel vessels under construction by the US Government for a bona fide public use
that 'the compensation hereinafter awarded is the fair market value of the claimants'
property'. (49) The decisive valuation was the loss incurred by the shipowners 'as
compared with other owners of similar property'. (50)
3.25 Also in cases of expropriation of oil concessions which were found to be lawful
P 53 tribunals decided that compensation should be equivalent to the objective–abstract
value of the property. For example, the arbitrator in LIAMCO v Libya referred to the
'market value' of the petroleum concession. (51) The tribunal in Aminoil v Kuwait
emphasized that it was necessary to evaluate the 'reasonably appraised value of what
29
constituted the object of the takeover'. (52)
3.26 Objective criteria were particularly relevant in the context of large-scale
expropriations and nationalizations of entire industries. For example, the Iran–US Claims
Tribunal came to the conclusion that the Treaty of Amity between the United States and
Iran was applicable in cases of nationalization of the Iranian insurance industry and of
the banking sector. (53) The Treaty contained the obligation to pay compensation in the
amount of the 'full equivalent of the property taken' in cases of expropriation. (54) This
was considered to be equivalent to the 'fair market value' which the arbitrators in INA v
Iran defined in an often-quoted formulation:
'Fair market value' may be stated as the amount which a willing buyer would
have paid to a willing seller for the shares of a going concern, disregarding any
diminution of value due to the nationalisation itself or the anticipation
thereof, and excluding consideration of events thereafter that might have
increased or decreased the value of the shares. (55)
3.27 The tribunal in Amoco International Finance v Iran, by contrast, was sceptical with
regard to the determination of a 'market value' in the absence of a 'market'. (56)
Nevertheless, it also wanted to determinate an 'objective' value and noted that 'the truth
is that in the absence of a market giving rise to the fixing of an objective market value
compels recourse to alternative methods of valuation, as was implicitly recognized by
the Claimant's expert'. (57)
3.28 The ICSID Tribunal in Companía del Desarollo de Santa Elena v Costa Rica also
P 54 referred to the fair market value for the determination of the amount of compensation
after a lawful expropriation. (58) It noted that 'there is no dispute between the parties as
to the applicability of the principle of full compensation for the fair market value of the
Property, i.e., what a willing buyer would pay to a willing seller'. (59)
3.29 Similarly, in Southern Pacific Properties v Egypt, the ICSID Tribunal found that it was
necessary to establish an objective value of the expropriated property because the
claimant should 'receive fair compensation for what was expropriated'. (60) Also, the
arbitral tribunal in Reineccius v Bank for International Settlements at the Permanent
Court of Arbitration chose this standard, which was also in accordance with the
submissions of the parties in this respect. (61)
3.30 The tribunal in Quasar des Valores v Russia, disregarding the lawfulness or not of the
expropriation, because it had only jurisdiction on the calculation of compensation for a
'lawful' expropriation, decided that it had to assess the 'value' of the expropriated
assets. (62) The tribunal accepted the claimants' contention that compensation should
be 'consonant with the customary international law standard for recovery in the event of
lawful expropriation and Article 6 of the BIT', (63) which would best be evaluated as the
last reliable stock price. (64)
3.31 In Mobil Cerro Negro v Venezuela, the tribunal decided that the expropriation was
lawful and that therefore 'just compensation' as required under the BIT should be
awarded. (65) It applied a DCF method reflecting the expectations of the market
participants on the value of the oil concessions. (66) Similarly, in Tidewater v Venezuela,
another case of lawful expropriation, the tribunal applied 'the market value of the
investment expropriated immediately before the expropriation' (67) pointing out that
this was in accordance with the World Bank Guidelines on the Treatment of Foreign
Investment (68) and customary international law, as noted by the International Law
P 55 Commission (ILC). (69) It also chose to apply a DCF method. (70) The practice of
international investment tribunals therefore confirms that in case of lawful
expropriations the amount of compensation has to be determined by objective valuation
methods.
(2) The Role of Compensation for the Lawfulness of the Expropriation

3.32 An important question in the context of expropriations is whether the payment of
compensation is a prerequisite for lawful expropriations. The discussions in the past
century have always been connected to the ideological differences about the concept of
property and the state's internal economic order. (71) For a long time, expropriation has
been considered lawful only if accompanied by payment of compensation. (72) A
violation of the obligation to pay compensation was regarded as a violation of
international law which entailed state responsibility. The tribunal in De Sabla held, for
example, in 1933 that it was 'axiomatic that acts of a government in depriving an alien of
his property without compensation impose international responsibility'. (73)
3.33 In the same vein, the US Secretary of State, Cordell Hull, emphasized in his note to
the ambassador of Mexico in 1938 the importance of compensation for the lawfulness of
the expropriation, pointing out that '[t]he legality of an expropriation is in fact
dependent upon the observance of this requirement'. (74)
3.34 This understanding was challenged after the Second World War by the increasing
number of communist states as well as the newly independent states. While communism
denied the legitimacy of private property altogether, the newly independent states
regarded their strenuously acquired freedom as endangered, if they could not exercise
30
P 56
their right to territorial sovereignty due to their limited financial resources. The UN
General Assembly's 'Resolution of the Permanent Sovereignty over Natural Resources'
of 1962 requiring 'appropriate compensation' was a compromise between the two
different viewpoints. (75)
3.35 This consensus in the UN General Assembly, however, did not remain unchallenged
for long. In the context of the efforts to establish a New International Economic Order, a
number of UN General Assembly Resolutions were adopted in the 1970s which qualified
the importance of the compensation for lawful expropriations. (76) The resolutions
suggested that compensation should no longer be a condition for lawfulness but rather
the consequence of a lawful act which, furthermore, should depend on a number of
factors, inter alia, the financial situation of the state and past profits of the company.
3.36 In accordance with this attitude, arbitral practice of the time regarded
expropriation without payment of compensation as lawful on various occasions. In
LIAMCO v Libya, the arbitrator came to the conclusion that the expropriation was not
discriminatory (in contrast to that in the contemporary BP v Libya case) (77) and was
therefore lawful. (78) The underlying expropriation laws contained provisions for the
establishment of a committee to decide on the amount of compensation. (79) This
committee, however, had never been established and LIAMCO had not been offered
compensation. Similarly, the arbitral tribunal in Aminoil v Kuwait contended that a lawful
P 57 expropriation had occurred, even though no compensation had been paid. (80) Also in
this case, a committee should have decided upon the amount of compensation to be
paid to the foreign company, but had not done so. (81)
3.37 A few years later, the Iran–US Claims Tribunal dealt with a number of cases resulting
from the nationalization of the entire insurance industry in Iran. (82) The legal basis was a
law of 1979 which provided for a commission to decide upon the amount of
compensation. (83) Even though the companies had not received anything from the
Government up to the time of the award, the Iran–US Claims Tribunal considered the
expropriations as lawful. In INA v Iran it held:
It has long been acknowledged that expropriations for a public purpose and
subject to conditions provided by law—notably that category which can be
characterised as 'nationalisations'—are not per se unlawful. A lawful
nationalisation will, however, impose on the government concerned the
obligation to pay compensation. (84)
3.38 The references of the Iranian Government to the committee and the efforts which
had already been undertaken for its establishment (85) were, according to the tribunal,
convincing enough to accept the lawfulness of the expropriation. The same was true in
American International Group v Iran, where the valuation of another insurance company
was at issue. (86)
3.39 By contrast, the legality of the expropriation in Amoco International Finance v Iran
was very much debated. The arbitral tribunal found that the expropriation had occurred
at the time of the Single Article Act of 1980, according to which:
[a]ll oil agreements considered by a special commission appointed by the
Minister of Oil to be contrary to the Nationalization of the Iranian Oil Industry
Act shall be annulled and claims arising from conclusion and execution of such
agreements shall be settled by the decision of said commission. (87)
3.40 The Iranian Oil Industry Act of 1951 provided the legal basis for the nationalizations.
(88) The claimant and Arbitrator Brower were of the opinion that, before the formal
P 58 expropriation, a de facto expropriation had already occurred without compensation,
and that the 'expropriation of Amoco International's rights, interests and property under
the Khemco Agreement was wrongful because no compensation has been paid for this
taking'. (89) The majority, however, was of the opinion that, by establishment of the
commission to decide on the amount of compensation in the Single Article Act of 1980,
the Iranian Government had fulfilled its international obligations. (90) It emphasized that
the relevant commission had already reached a number of successful solutions in various
cases. (91)
3.41 In Sedco v NIOC before the Iran–US Claims Tribunal Judge Brower submitted his
thoughts on this issue in his Separate Opinion:
Likewise, I must express doubt as to whether, under customary international
law, a State's mere failure, in the end, actually to have compensated in
accordance with the international law standard set forth herein necessarily
renders the underlying taking ipso facto wrongful. If, for example,
contemporaneously with the taking the expropriating State provides a means
for the determination of compensation which on its face appears calculated to
result in the required compensation … it would appear appropriate not to find
that the taking itself was unlawful but rather only to conclude that the
independent obligation to compensate has not been satisfied. (92)
3.42 More recent practice did not consider the lack of payment of compensation as a
31
sufficient reason for expropriations to be unlawful, either. The ICSID Tribunal in Southern
Pacific Properties v Egypt was of the opinion that the Egyptian state had the right to
withdraw the permission for the development of a hotel and tourism complex at the
Pyramids area near Cairo, even though a contract with the Egyptian general organization
for tourism and hotels in relation to the project had been concluded and construction
work had already started. (93) The public interest in preventing potential damage to the
archaeological treasures was sufficient for the lawfulness of the expropriation. The
P 59 dispute about the amount of compensation, however, lasted for more than fourteen
years, in particular because of a previous arbitration before the ICC in Paris. (94) The
successful challenge by Egypt of this award and the non-payment of the US$ 12.5 million
awarded did not alter the ICSID Tribunal's opinion on the matter. Obviously, it did not
regard the payment of compensation as a prerequisite for the lawfulness of the
expropriation. This was in conformity with the perspective of the claimant, who
apparently did not challenge the lawfulness, either:
SPP (ME) from the outset sought not to challenge the ARE's [Arab Republic of
Egypt's] acts as wrongful or void, but sought compensation rather than
physical restoration of its rights…. the claim here by SPP (ME) is not against the
ARE for damages for breach of contract. It is for compensation on account of
the losses occasioned to it by the ARE's exercise of its sovereign powers, which
destroyed its property rights (including its contract rights). (95)
3.43 The ICSID Tribunal in Companía del Desarollo de Santa Elena v Costa Rica came to a
similar conclusion. The dispute concerned the expropriation of land on the Pacific coast
in the north-east of Costa Rica for the purpose of a nature reserve. (96) The tribunal
emphasized the right of a state to expropriate foreign property on its territory in the
public interest. (97) In this case, the proceedings relating to the amount of compensation
had already lasted for more than twenty years, and Costa Rica finally consented to ICSID
jurisdiction only because, due to the US Helms Amendment, (98) a loan from the Inter-
American Development Bank would not have been granted to it otherwise. (99) The
payment of compensation, in this case too, was not considered as a prerequisite for the
lawfulness of the expropriation.
3.44 The tribunal in Goetz v Burundi held that, while all other conditions for a lawful
expropriation had been met, the fact that the contested decree (revoking the certificate
P 60 of 'entreprise franche' from the claimants) did not contain a provision on
compensation did not suffice to consider it internationally unlawful. (100) The tribunal
noted that the applicable treaty required adequate and effective compensation but, in
contrast to certain national expropriation laws, it did not require prior compensation.
(101) The delay of almost four years between the decree and the arbitral tribunal's
decision was not detrimental. The tribunal decided that the respondent could either pay
compensation in the amount of the market value (or the 'real and objective' value,
whichever was higher) at the time of the respective decree, or re-establish the certificate
of 'entreprise franche'. (102)
3.45 In Mondev v United States, the tribunal deciding upon alleged violation of NAFTA
Article 1110(1)(d) also pointed out that the time of paying compensation need not
necessarily be prior or exactly at the same time as the taking. (103) It highlighted that the
state's conceivable commitment or an offer to pay compensation would be sufficient:
But for a taking to be lawful under Article 1110, at least the obligation to
compensate must be recognised by the taking State at the time of the taking,
or a procedure must exist at that time which the claimant may effectively and
promptly invoke in order to ensure compensation. A 'taking' of property, not
acknowledged as such by the government concerned and not accompanied by
any offer of compensation, is not rendered conditionally lawful by the
contingency that the aggrieved party may sue in the local courts for
conversion or for breach of contract. (104)
3.46 In the cases against Venezuela in the wake of President Chavez's socialist policy
between 1999 and 2013 entailing the nationalization of parts of the industry, tribunals
have carefully examined whether the expropriations were lawful or not. While the public
purpose was hardly ever in question, (105) the issue of due process and non-
discrimination played an important role. When these three requirements were met, the
legality of the expropriation depended on the terms of the offer of compensation and the
circumstances of the negotiations.
3.47 In Mobil Cerro Negro v Venezuela, the investors were expropriated on the basis of the
2001 Hydrocarbons Law and a 2007 Decree Law which requested all companies to turn
into 'mixed companies' with PDVSA, the Venezuelan national oil company. After months of
failed negotiations, Venezuela seized the investments. The ICSID Tribunal held:
It is not disputed that the Claimants did not receive compensation and that
Venezuela did not fulfil its obligation to pay compensation in accordance with
Article 6(c) of the BIT. However, the mere fact that an investor has not received
P 62 compensation does not in itself render an expropriation unlawful. An offer
of compensation may have been made to the investor and, in such a case, the
32
legality of the expropriation will depend on the terms of that offer. In order to
decide whether an expropriation is lawful or not in the absence of payment of
compensation, a tribunal must consider the facts of the case. (106)
3.48 The tribunal noted that it had rather limited information about what exactly
happened during the negotiations. Claimants had largely relied on press reports and
public statements of politicians that the Government would only pay book value for the
oil assets in the Orinoco Belt. The tribunal found that the claimants did not meet the
burden of proof that the proposals made by Venezuela were incompatible with the
requirement of 'just compensation' of the BIT. (107) As it was not disputed that
negotiations took place and that Venezuela made proposals during those negotiations,
the tribunal found that the expropriation was not unlawful. (108)
3.49 The ICSID Tribunal in Tidewater v Venezuela engaged in a detailed analysis whether
the non-payment of compensation rendered the expropriation unlawful. (109) The
claimants were suppliers of marine transportation services who had invested in a
Venezuelan company to provide services to the Venezuelan national oil company.
Following the enactment of the Reserve Law of 2009, the company's assets were seized.
Claimants contended that the only compensation provided for under the Reserve Law
was book value of the assets, expressly excluding lost profits. As this did not meet the
standard of 'adequate and effective compensation' amounting to the 'market value'
under the BIT, the expropriation should be considered unlawful. (110) The tribunal
disagreed and found that the expropriation was lawful, because the state did not seek to
expropriate the assets without compensation. Further, the BIT did not prescribe how the
market value was to be determined so that the valuation, depending on the
circumstances, could indeed be book value. (111) It held:
The Tribunal concludes that a distinction has to be made between a lawful
expropriation and an unlawful expropriation. An expropriation only wanting
fair compensation has to be considered as a provisionally lawful
expropriation, precisely because the tribunal dealing with the case will
determine and award such compensation. (112)
3.50 The European Court of Human Rights (ECtHR) generally makes a global assessment of
the actions and omissions of the state in order to examine whether an expropriation in
violation of Article 1 of the First Protocol of the European Convention on Human Rights
(ECHR) has occurred. It applies the principle of proportionality whereby compensation
represents one of a number of different criteria. The ECtHR does not require the payment
of compensation under a determined standard, or certain valuation techniques, but
determines whether the balance between the protection of property and the
requirements of public interest is proportionate. (113) It follows that expropriations
without any compensation, despite in exceptional circumstances, represent
disproportionate infringements of property rights and thus expropriations in violation of
the Convention. (114)
3.51 Scholarly writing has so far not provided a clear answer to the question. Some
authors are of the opinion that the non-payment of compensation does not ipso facto
render the taking unlawful, but rather represents a violation by the expropriating state of
an independent duty which applies equally to both unlawful and lawful takings. (115)
Others found that the non-payment almost automatically renders an expropriation
unlawful. (116) Brownlie argues that the lack of compensation does not automatically
lead to a violation of international law. (117) He distinguishes unlawful expropriations per
se and unlawful expropriations sub modo, that is, those which are unlawful, if at all, only
P 63 if appropriate compensation was not provided for. According to Sornarajah, the non-
payment of compensation affects the legality of the expropriation. (118) Bowett was one
of the first to suggest a compromise solution. Compensation should not be irrelevant for
the lawfulness of the expropriation, but the mere non-payment of compensation should
not render the expropriation unlawful, either. He distinguishes between whether the
state actually accepts or rejects the obligation to pay compensation. In the first case,
expropriation would be lawful, even if the amount paid or offered did not reach the full
amount required under international law. Bowett had formulated as early as in 1988:
Of course, there may well be a dispute over the adequacy of the compensation
offered. But the fact that a tribunal awards compensation higher than a State
was prepared to offer does not, per se, make the nationalization unlawful. The
State's offer would have to be so low as to amount to a virtual rejection of the
obligation to compensate. (119)
3.52 Ripinsky and Williams largely agree with this approach but point out that it is still
not clear whether, to render an expropriation lawful,
(a) it is necessary that correct ('full', 'just', 'appropriate', etc) compensation be paid at
the time of (or shortly after) the taking or
(b) it is sufficient that the expropriating State recognizes that it is under an obligation
to pay compensation and takes steps for the payment of compensation or
(c) that it pays some compensation shortly after the taking. (120)
33
They suggest giving the requirement of 'good faith' an important role in this context. A
good faith offering of, or provision for, compensation (even if not in a sufficient amount,
as long as not manifestly unreasonable) should render the expropriation lawful. By
contrast, a 'general provision' for payment of compensation in the domestic law of the
host state would not qualify as a recognition of a duty to pay compensation, as such a
recognition would need to be expressed in relation to a specific expropriatory act.
Furthermore, the state must take actual steps for payment of compensation within a
reasonable time. A mere formal provision for payment would not be sufficient. (121)
3.53 It seems that the opinions on this issue have developed and slightly changed over
the years. While earlier the mere 'promise' of a state to pay any sum at any time was not
P 64 enough for the lawfulness of an expropriation, (122) today there seems to be increasing
consensus that it is sufficient if a state, at the time of the expropriation, offers
compensation or provides for the determination of compensation. That the issue of
compensation is totally irrelevant or independent from the lawfulness of the
expropriation seems not to be supported by the prevailing scholarly opinions and
practice.
3.54 One may, therefore, conclude that according to arbitral practice and scholarly
writing, the mere existence of a dispute about the amount of compensation does not
render the expropriation unlawful. (123) The payment or non-payment of compensation
still remains relevant for the lawfulness or unlawfulness of the expropriation. (124) If an
international treaty prohibits expropriation, non-compliance with this prohibition
necessarily leads to the unlawfulness of the expropriation regardless of the (non-
)payment of compensation. The PCIJ in its judgment in the case Factory at Chorzów
emphasized the distinction between 'compensation' as a condition for a lawful
expropriation and 'reparation' as a consequence of the expropriation in violation of the
Geneva Convention between Poland and Germany: 'As the Court has expressly declared in
Judgement No. 8, reparation is in this case the consequence not of the application of
Articles 6 to 22 of the Geneva Convention, but of acts contrary to those articles'. (125) It is
important to note that the Geneva Convention applicable in the Factory at Chorzów had
prohibited the taking, in contrast to modern bilateral investment treaties. (126)
3.55 Generally, modern bilateral investment treaties allow expropriation under certain
conditions. The respective provisions are not formulated as absolute prohibitions but
establish conditions under which the host state may expropriate foreign investment,
notably the obligation to pay compensation to the investor. (127) In view of the above it
can be said that, if a state does not pay any compensation and does not even provide for
a procedure for the payment of compensation, it violates its treaty obligations. It
depends on the precise formulation of the respective treaty provisions, the terms of the
P 65 compensation offer, and the circumstances of the case for determining whether the
state has complied with its international obligation with respect to the provision of
compensation or not.
(3) Can Indirect Expropriations ever be Lawful?

3.56 International courts and tribunals are frequently confronted with cases of so-called
indirect expropriations. (128) Such indirect or de facto expropriations can occur in many
different forms which is also reflected in the many different terms used, such as
'disguised', 'regulatory', 'creeping', or 'constructive' expropriations or takings. (129) The
physical appropriation of foreign property by the state or entities attributable may
constitute an indirect taking (130) as well as judgments of national courts, (131) or export
restrictions. (132) As regards the combination of various acts and omissions by the state,
often seemingly trivial or of nebulous legality or propriety, Reisman and Sloane have
formulated in an often-quoted article:
Consequential expropriations involve deprivations of the economic value of a
foreign investment, which … must be deemed expropriatory because of their
P 66 causal links to failures of the host state to fulfil its paramount obligations to
establish and maintain an appropriate legal, administrative, and regulatory
normative framework for foreign investment. (133)
3.57 Also UNCTAD has pointed out the growing concern about expropriations increasingly
occurring in this form:
Creeping expropriation may be defined as the incremental encroachment on
one or more of the ownership rights of a foreign investor that eventually
destroys (or nearly destroys) the value of his or her investment or deprives him
or her of control over the investment. A series of separate State acts, usually
taken within a limited time span, are then regarded as constituent parts of the
unified treatment of the investor or investment. (134)
3.58 These 'indirect expropriations' which are comprised of a number of elements none of
which—separately—constitutes the expropriation are particularly difficult to deal with
and pose many complicated problems, such as the date of the expropriation.
3.59 Bilateral and multilateral investment protection treaties generally provide that the
foreign investor should be protected from such expropriations in the same way as from
34
direct expropriations. Usually this is done by equating expropriations to 'measures
tantamount to nationalization or expropriation' and dealing with them under the same
article and by the same legal provisions. (135) This also means that indirect
expropriations and measures tantamount to expropriation must be in the public interest,
non-discriminatory, in accordance with due process of law, and accompanied by the
payment of compensation. (136)
3.60 However, it is almost in the nature of an indirect expropriation that some of these
conditions are not met. In particular, it is hard to imagine that an indirect expropriation
in the form mentioned above will be accompanied by the payment of compensation.
Similarly, it will often be difficult to identify a proper legal procedure to challenge the
state measures before a court in accordance with the principle of due process of law. This
is particularly true in cases of creeping expropriations. It follows that indirect
expropriations often have to be considered as unlawful. One may, therefore, agree with
P 67 Judge Brower who writes in his Separate Opinion in Sedco v NIOC:
[I]t is difficult to envision a de facto or 'creeping' expropriation ever being

lawful, for the absence of a declared intention to expropriate almost certainly
implies that no compensation has been made. Indeed, research reveals no
international precedent finding such an expropriation to have been lawful.
(137)
3.61 Reisman and Sloane also share this opinion and note that 'creeping expropriations,
in practice if not by definition, almost without exception prove to be unlawful'. (138) The
measures taken by a series of ostensibly valid acts collectively depriving an investor of
its property rights could hardly be deemed to comport with the due process requirement
for a lawful expropriation under most BITs. (139) Ripinsky and Williams agree with this
view, because the expropriating state does not usually acknowledge the very fact of
expropriation, and consequently does not provide for payment of compensation. (140)
3.62 This is, furthermore, in accordance with the jurisprudence of the ECtHR, according to
which the proportionality principle prohibits expropriations without compensation,
which is particularly relevant for indirect expropriations. (141) In conclusion, indirect
expropriations will generally not fulfil the conditions prescribed by international law for
the expropriation of foreign private property and, despite in exceptional circumstances,
will be regarded as unlawful.
(4) Violation of Stabilization Clauses

3.63 To what extent the violation of stabilization clauses has an influence on the amount
of compensation or damages in international investment disputes is still a rather
unsettled question. (142) Stabilization clauses are frequently contained in concessions or
other state contracts in order to protect the investor from changes in the national law of
the host state. They should ensure that the investor can operate under relatively stable
P 71 legal and economic conditions over a longer period of time. (143) The state commits
itself either not to enact changes of the domestic law in the future, or, as this may raise
legal and political problems at the national level, (144) to at least not to apply such
changes to the investor. (145)
3.64 The effect of stabilization clauses on the amount of compensation or damages has
been discussed particularly in the context of the nationalizations of the Libyan
petroleum industry in the 1970s. Three almost contemporary arbitrations (146) dealt with
identical stabilization clauses, (147) but came to quite different interpretations and
results.
3.65 In BP v Libya, (148) Arbitrator Lagergreen hardly took any notice of the stabilization
clause, as he considered the acts of the Libyan Government to be unlawful on the basis of
their discriminatory and arbitrary character:
The BP Nationalisation Law, and the actions taken thereunder by the
Respondent, do constitute a fundamental breach of the BP Concession as they
amount to a total repudiation of the agreement and the obligations of the
Respondent thereunder, and, on the basis of rules of applicable systems of
law too elementary and voluminous to require or permit citation, the Tribunal
so holds. Further, the taking by the Respondent of the property, rights and
interests of the Claimant clearly violates public international law as it was
made for purely extraneous political reasons and was arbitrary and
discriminatory in character. Nearly two years have now passed since the
nationalisation, and the fact that no offer of compensation has been made
indicates that the taking was also confiscatory. (149)
The tribunal, therefore, awarded 'damages arising from the wrongful act of the
Respondent, to be assessed by this Tribunal in subsequent proceedings'. (150)
3.66 In Texaco v Libya, (151) by contrast, Arbitrator Dupuy paid considerable attention to
the stabilization clause. He thoroughly examined whether a state had the right to
expropriate the concession rights of a foreign investor, if it had contractually agreed to
warrant protection and legal security. After a detailed comparative law analysis
35
regarding the principle pacta sunt servanda, the arbitrator stated:
This principle applies not only to agreements concluded by private persons,
but also to agreements entered into by the sovereign. Thus, under the Sharia,
nobody, neither the sovereign nor any official, is exempted as a matter of
privilege. If, in conformity with the siyasa doctrine, the sovereign has large
discretionary powers as regards the promotion of public interest, he must
nonetheless abide by the commands of the supreme law, and Ibn Qudama
states that 'a breach of a commitment on the part of the Imam is more serious
and more heinous than a breach committed by anybody else, because of its
baneful consequences.' Now, it is accepted that this rule covers also
agreements entered into with non-Muslims. (152)
3.67 In order to show that the principle of pacta sunt servanda was also applicable to
contracts between states and private persons under international law, Dupuy referred to
the PCIJ in the Wimbledon case according to which the ability of states to conclude
contracts is an expression of the state's sovereignty and not a limitation of it. (153) The
tribunals in Aramco (154) and Sapphire (155) had confirmed the binding nature of
contractual obligations entered into by states and private enterprises. The former had
pointed out that '[n]othing can prevent a State, in the exercise of its sovereignty, from
binding itself irrevocably by the provision of a concession and from granting to the
concessionaire irretractable rights'. (156)
3.68 The distinction of agreements with other states and those with private persons could
not be based on the Resolution No. 1803 of the UN General Assembly, either, which stated
that '[f]oreign investment agreements freely entered into by or between sovereign States
shall be observed in good faith …'. (157)
3.69 Arbitrator Dupuy thus came to the conclusion that the respondent state could not
rely on its sovereignty and expropriate the concession rights, even upon payment of
compensation. (158) The expropriation was therefore regarded as invalid. The contractual
rights continued to exist and had to be respected and complied with by the Libyan
Government. (159)
3.70 This decision in Texaco v Libya which accords stabilization clauses such an important
legal significance represents, however, only an exception. The claim to restitutio in
integrum as the primary remedy is so far only recognized under the law of state
responsibility, (160) but it has not yet been generally accepted as a remedy for breaches
of contract between states and private parties.
3.71 This was already evident in the award in LIAMCO v Libya (161) which was decided only
a few months later. The tribunal in this case came almost to the opposite conclusion.
Confronted with nearly the same factual and legal background, Arbitrator Mahmassani
emphasized that the existence of a stabilization clause could not impair the sovereign
right of a state to expropriate a concession. Restitutio in integrum would be absolutely
impossible. (162) The arbitrator referred, inter alia, to Friedman who wrote that 'it would
seem impossible to compel a State to make restitutio in integrum…. To impose an
obligation to make integral restitution would … constitute in fact an intolerable
interference in the internal sovereignty of States.' (163)
3.72 The tribunal pointed out that 'there is no sufficient authority for the fact that
nationalization in breach of a concession is an internationally unlawful act for which the
remedy is restitution'. (164)
3.73 As a result, the expropriation was regarded as lawful. (165) It is notable that, in
assessing almost the same facts, the first tribunal identified an obvious violation of
international law (the BP tribunal), the second an unlawful and even invalid act (the
Texaco tribunal), and the third a lawful expropriation (the LIAMCO tribunal).
3.74 The practice of subsequent tribunals shows that the effect of stabilization clauses is
still not entirely settled. The ICSID Tribunal in AGIP v Congo was of the opinion that the
stabilization clause could not invalidate the expropriation, but that its violation
rendered the expropriation unlawful:
The Tribunal believes that it must note that if the right of a State to
nationalize is beyond doubt today by reason of concordant and constant
international practice, it is nonetheless recognized by positive international
law that by entering into an international agreement with a private person the
State exercises a sovereign power, seeing that its consent is freely given. (166)
3.75 In the contract relating to the investment, the Government had committed itself 'to
ensure that future modifications to the company laws with respect to the structure and
composition of corporate bodies would not apply to the Company (Article 11)'. (167)
According to the ICSID Tribunal, the violation of this clause by the subsequent
nationalization entailed the responsibility of the Republic of Congo. (168) In view of the
violation of the stabilization clause, the other conditions of a lawful expropriation, such
as the alleged discrimination, were considered irrelevant and were not even examined
by the tribunal. The respondent Government was ordered to compensate for the 'damage'
caused. (169)
36
3.76 The award of the tribunal in Aminoil v Kuwait can be regarded as an affirmation of the
conclusions of Arbitrator Mahmassani in LIAMCO, as the violation of the stabilization
clause in the concession contract between the company and Kuwait did not result in the
unlawfulness of the expropriation. (170) Yet, the tribunal was of the opinion that a waiver
of the right to expropriate would be legally possible, but it would need an explicit
formulation. The general wording of the stabilization clause (171) would not allow the
P 72 assumption of such a waiver. The clause could be regarded as an additional protection
against confiscatory expropriations, but not against expropriations as such. (172)
3.77 This conclusion of the tribunal in Aminoil served as a guideline for the Iran–US Claims
Tribunal in Amoco International Finance v Iran. The tribunal shared the opinion that a
state, by entering into contractual obligations with a foreign enterprise, did not waive its
right to nationalize because '[a]s a fundamental attribute of state sovereignty, this right,
commonly used as an important tool of economic policy by many countries, both
developed and developing, cannot easily be considered as surrendered'. (173) This would
be particularly true for very long-term contracts. (174) In accordance with the conclusions
in Aminoil, the breach of the contract did not even render the expropriation unlawful.
(175)
3.78 Whether the ICSID Tribunal in LECTO v Liberia considered the breach of the
stabilization clause relevant for the lawfulness or unlawfulness of the expropriation is not
entirely clear in view of the very short obiter dictum in this regard. (176) The tribunal
seemed to be of the opinion that an expropriation was always lawful if the conditions of
public interest, non-discrimination, and compensation were fulfilled, (177) independent
from a breach of a stabilization clause. The tribunal, however, eventually decided the
case on the basis of the breach of the concession contract and did not enter into further
details on the lawfulness or otherwise of the expropriation, which the respondent had not
raised either.
3.79 This short overview of arbitral practice shows that the violation of a stabilization
clause does not render an expropriation automatically unlawful. This is understandable
insofar as otherwise compliance with stabilization clauses or other contractual
P 73 obligations entered into by the state would be an additional condition for the
lawfulness of the expropriation under international law. But there is not enough
precedent in this direction, as scholarly writing largely agrees. (178)
3.80 This does not mean that such a violation is irrelevant for the remedy available to the
affected investor. The violation of a stabilization clause represents a breach of the
contract between the state and the foreign investor. It follows that the investor can claim
damages because of this breach of contract, (179) which is not limited to 'appropriate
compensation' but has to provide 'full reparation' of all the damage suffered. This is
important not only with regard to a total deprivation of property rights—as was the case
in the Libyan petroleum cases—but also for any other damage caused by a change of the
legal conditions in the host state. In order to maintain the balance of interests of both
the host state and the investor as well as the economic equilibrium of the contract over a
long period of time, more attention needs to be paid to the formulation of stabilization
clauses. This includes the possibility of including revision mechanisms as well as the
predetermination of the calculation of damages in case of breach. (180)
(5) The Difference between Lawful and Unlawful Expropriations

3.81 If and how the lawfulness of the expropriation effects the amount of compensation
has been debated vigorously in academia and practice in recent years. (181) As a matter
of principle, such an effect appears to be necessary because the financial consequences
of lawful and unlawful behaviour would otherwise be the same. This would not be in the
interest of legal justice and run counter the general preventive function of law. The PCIJ,
in its judgment in Factory at Chorzów, has emphasized the need to avoid the equalization
of unlawful and lawful expropriations:
Such a consequence would not only be unjust, but also and above all
incompatible with the aim of Article 6—that is to say, the prohibition, in
P 74 principle, of the liquidation of the property—since it would be tantamount
to rendering lawful liquidation and unlawful dispossession indistinguishable
in so far as their financial results are concerned. (182)
3.82 Judge Brower, at the Iran–US Claims Tribunal, also spoke in favour of the distinction
in his Separate Opinion in Sedco v NIOC, because otherwise 'the injured party would
receive nothing additional for the enhanced wrong done it and the offending State would
experience no disincentive to repetition of unlawful conduct'. (183) This opinion has also
been advanced by Bowett who pointed out that 'it offends against all common sense to
suggest that it makes no difference whether the taking is lawful or unlawful and that the
financial consequences will be the same in both cases'. (184)
3.83 International practice and scholarly writing has, however, not provided a clear
answer as to what the difference should be and how it should be calculated. In the
following section, various proposals made so far shall be discussed.
(a) Lucrum Cessans?
37
3.84 Some authors argue that the difference between lawful and unlawful expropriations
should be reflected in the compensability of lost profits (lucrum cessans). According to
this view, lost profits must only be compensated in case of unlawful expropriations, while
in case of lawful expropriations the state must only pay what the owner has lost (damnum
emergens). The most prominent representative of this view was Brownlie who explained:
The practical distinctions between expropriation unlawful sub modo and
expropriation unlawful per se would seem to be these: the former involves a
duty to pay compensation only for direct losses, that is, the value of the
property, the latter involves liability for consequential loss (lucrum cessans).
(185)
3.85 This view has often been based on the judgment of the PCIJ in Factory at Chorzów
which made the following statement as regards the amount of compensation in case of
unlawful expropriations:
It follows that the compensation due to the German Government is not
necessarily limited to the value of the undertaking at the moment of
dispossession, plus interest to the day of payment. This limitation would only
be admissible if the Polish Government had had the right to expropriate, and
P 75 if its wrongful act consisted merely in not having paid to the two Companies
the just price of what was expropriated. (186)
3.86 The Iran–US Claims Tribunal in Amoco International Finance v Iran analysed the PCIJ's
judgment in detail in respect of the above-mentioned issue. (187) It paid particular
attention to the two questions which the PCIJ put to the valuation experts who should
determine the amount of compensation. (188) The first question concerned the value of
the undertaking on the date of the expropriation, including all the assets as well as
supply and delivery contracts, goodwill, and future prospects. This value should be
increased by the financial results (profits or losses) until the date of the judgment. The
second question concerned the value of the undertaking on the date of the judgment, if it
had remained in the hands of the former owners and had been developed on lines
similar to those applied in the case of other undertakings of the same kind.
3.87 The Iran–US Claims Tribunal concluded from these questions that there was a
substantial difference between 'future prospects' and 'lost profits'. While the former were
part of the going concern value, the latter represented lucrum cessans and were not part
of the value of the company. (189) Only the going concern value of the company should be
P 77 regarded as damnum emergens. The tribunal held: 'Since, for the reasons set forth in
the preceding paragraph, future prospects does not mean lost profits, we safely can say,
using the traditional vocabulary of international arbitration, that all these components
pertain to damnum emergens'. (190) The tribunal concluded that in cases of lawful
expropriations only damnum emergens should be compensated, while lucrum cessans
was excluded. (191) This should not mean, however, that the 'profitability' of the
enterprise, which had been financially successful in the past and represented a going
concern, (192) should not been taken into account. (193)
3.88 Judge Brower, however, was not entirely convinced by these conclusions of the
tribunal. In his Concurring Opinion he distanced himself from the tribunal's
considerations and its interpretation of the PCIJ's judgment in Factory at Chorzów. (194)
He agreed with the tribunal that the value of a company could not adequately by
assessed without evaluating its future prospects. (195) He disagreed, however, with the
differentiation between 'future prospects' and 'lost profits' which he considered artificial
and against economic common sense and practice. (196)
3.89 Economic valuation experts criticize the lack of consideration of future prospects in
the determination of the value of a company in judicial practice. Lieblich emphasizes:
[The value] must be assessed with reference to expectations regarding the
revenues that the property would have generated in the future. To award the
former owner anything less would, in effect, be to confiscate a portion of his
property without compensation. (197)
3.90 It follows that the potential of a company to generate future income—or 'profits'—
must not be confused with the concept of lucrum cessans. (198)
3.91 The jurisprudence of the Iran–US Claims Tribunal in its interpretation of the Chorzów
judgment in Amoco International Finance v Iran is not consistent. The tribunal in Sedco v
NIOC, for example, held:
Claimant must receive compensation for the full value of its expropriated
interest in SEDIRAN, as claimed, whether viewed as an application of the
Treaty of Amity or, independently, of customary international law, and
regardless of whether or not the expropriation was otherwise lawful. (199)
In the end, the tribunal also awarded compensation for forgone income from rental of the
expropriated oil rigs for a certain period of time. This represented, without further
explanation, compensation for damnum emergens caused by the expropriation. (200)
38
3.92 The tribunal in Starrett Housing v Iran and Phillips Petroleum v Iran took also the
expected income into consideration when it assessed the value of the expropriated
company, while not referring to the unlawfulness of the expropriation. (201) While the
tribunal in Shahine Shaine Ebrahimi v Iran rhetorically followed the damnum emergens–
lucrum cessans distinction, it also took into account the profitability of the expropriated
enterprise, a construction firm, including its goodwill. (202)
3.93 The practice of international investment tribunals generally does not support the
idea that the distinction between lawful and unlawful expropriations should consist of
the entitlement to lost profits. This becomes particularly clear from the analysis of cases
of lawful expropriations where the tribunals readily awarded compensation for lost
future profitability.
3.94 Already the older cases of lawful expropriation resulted in compensation that also
reflected future prospects. The arbitral tribunal in LIAMCO v Libya awarded a lump sum of
US$ 66 million for the expropriation of concession number 20 (concerning the so-called
Raguba Field). Even though Arbitrator Mahmassani had certain doubts about the
entitlement to lost profits, (203) he was of the opinion that damnum emergens would not
P 79 represent sufficiently the amount of compensation due.
3.95 The award in Aminoil v Kuwait accepted the application of the DCF method by the
claimant as a matter of principle (204) rejecting only some of its assumptions. (205) The
ICSID Tribunal in Southern Pacific Properties found that compensation must also reflect
the 'lost opportunity of making a commercial success of the project'. (206) More recent
jurisprudence on lawful expropriation, such as Mobil Cerro Negro v Venezuela and
Tidewater v Venezuela, did no longer pay lip service to aspects of damnum/lucrum, but
directly applied the standard contained in the applicable BIT, namely the 'fair market
value'. (207)
3.96 The distinction between damnum emergens and lucrum cessans for the question of
the amount of expropriation rightfully does not seem to be relevant any more. The
practice of investment tribunals increasingly reflects more appropriately modern
economic valuation methods according to which an enterprise is not evaluated on the
basis of its fixed assets, but in view of its capacity to generate future income for the
owner. (208) In earlier times recourse to the damnum/lucrum perhaps provided some
comfort to the arbitrators helping them to balance the interests of investors and states
better and arriving at figures perceived as equitable. (209) However, looked at more
closely, it is a concept that stems from the law of damages which simply does not fit to
the concepts relating to compensation for expropriation. Therefore, the dichotomy of
damnum emergens and lucrum cessans should be abandoned altogether in this context.
(b) Punitive Damages?
3.97 Another alternative to distinguish lawful from unlawful expropriations is arguably the
award of punitive damages. Judge Brower, for example, in his Separate Opinion in Sedco
v NIOC, pointed out that there must be a financial consequence for the unlawful
behaviour and an incentive for the states to observe their international obligations:
[W]here restitution is impracticable or otherwise inadvisable, that State is
required to furnish only the same full compensation as it would need to
provide had it acted entirely lawfully. Thus, the injured party would receive
nothing additional for the enhanced wrong done it and the offending State
would experience no disincentive to repetition of unlawful conduct. (210)
3.98 Brower stated that, in the absence of a different standard of compensation or a
different valuation method, it would be in line with both the preventive and punitive
functions of law to consider the awarding of punitive damages in cases of unlawful
expropriations. He noted that '[e]ven in cases of unlawful takings, particularly where
restitution is not possible, a difference in remedies potentially still could remain insofar
as punitive or exemplary damages might be sought'. (211)
3.99 As this is already possible for national courts—as far as their jurisdiction is
established and no state immunity comes into play (212) —it must be all the more
possible for international tribunals established by mutual consent of the two states
involved. Jennings and Watts also argue in favour of accepting 'penal damages' in
3.100 Reisman and Sloane have considered the awarding of lucrum cessans as a punitive
element after unlawful expropriations. While they criticize the distinction between
damnum emergens and lucrum cessans in connection with the valuation of compensation,
they suggest using it in order to serve as a 'moral compass' in expropriation cases: 'Yet
the distinction between damnum emergens and lucrum cessans, for all its anachronism,
serves a useful policy purpose insofar as it permits international tribunals to penalize
egregious expropriations and, hopefully, to deter them in the future'. (214)
3.101 It appears, however, that international practice so far has not supported these
suggestions. (215) In the few cases where the amount of compensation exceeded the
material loss incurred, the additional amount awarded was not regarded as punishment
of the perpetrators but as compensation for moral damage. (216) There is a certain
39
tendency to accept this as a possible remedy also in investor–state arbitration. (217)
However, the underlying premise is reparation for immaterial damage suffered and not
P 80 punishment.
(c) Compensation versus Reparation

3.102 The decisive distinction between lawful and unlawful expropriations is the fact that
the former is a lawful exercise of a state's right to territorial sovereignty and the latter is
a violation of international law, thus an internationally wrongful act, which entails state
responsibility. The ILC has emphasized this distinction in its discussion about the amount
of compensation for internationally wrongful acts:
[A] number of speakers stressed that … [n]ationalization was a lawful act,
whereas article [36] dealt with internationally wrongful acts. The Special
Rapporteur agreed and reiterated that it was not the Commission's function to
develop the substantive distinction between lawful and unlawful takings or to
specify the content of any primary obligation. (218)
3.103 This clarifies that the obligation to pay compensation is a primary obligation under
international law. This obligation must be distinguished from the secondary international
law obligations codified in the ILC Articles on State Responsibility. The essential
difference between lawful and unlawful expropriations is, therefore, the difference
between a primary and a secondary obligation under international law. The primary
obligation is the payment of compensation, the secondary obligation is to provide full
reparation for the damage incurred by a violation of international law. The principle of
'full reparation' is strongly connected to the issue of damages after unlawful acts or
breaches of contract. It therefore seems appropriate to use the term 'compensation' for
lawful expropriations, and 'reparation' or 'damages' for unlawful expropriations. (219)
3.104 Unfortunately, the distinction between primary and secondary obligations in the
context of expropriations is not always recognized. This is so despite the fact that the
arbitral tribunal in Amoco International Finance v Iran explained very clearly:
According to the Court in Chorzów Factory, an obligation of reparation of all
the damages sustained by the owner of expropriated property arises from an
unlawful expropriation. The rules of international law relating to international
responsibility of States apply in such a case. They provide for restitutio in
integrum: restitution in kind or, if possible, its monetary equivalent. If need
be, 'damages for loss sustained which would not be covered by restitution'.
See Chorzów Factory, supra, at 47. On the other hand, a lawful expropriation
must give rise to 'the payment of fair compensation', id. at 46 or of 'the just
price of what was expropriated'. Id. at 47. Such an obligation is imposed by a
specific rule of the international law of expropriation. (220)
3.105 The considerations of the PCIJ in Factory at Chorzów including the questions put to
the experts, (221) have thus rightfully been interpreted in such a way that the value of the
P 81 expropriated property at the time of the expropriation has to be compensated in case
of lawful expropriations. In case of unlawful expropriations, by contrast, restitutio in
integrum would be the first remedy. (222) If restitution is not possible or not claimed, an
amount of money has to be paid which puts the former owner in the same financial
position as physical restitution would do. Furthermore, additional damage which
physical restitution would not remedy must be compensated in order to make him or her
whole.
3.106 Also in this vein, the Iran–US Claims Tribunal held in Phillips Petroleum v Iran:
The tribunal believes that the lawful/unlawful taking distinction, which in
customary international law flows largely from the Case Concerning the Factory
at Chorzów (Claim for Indemnity) (Merits), P.C.I.J. Judgement No. 13, Ser. A., No.
17 (28 September 1928), is relevant only to two possible issues: Whether
restitution of the property can be awarded and whether compensation can be
awarded for any increase in the value of the property between the date of
taking and the date of the judicial or arbitral decision awarding
compensation. (223)
3.107 One of the most important differences is, therefore, that an increase in value
between the date of the expropriation and the date of the judgment or award should not
be to the benefit of the expropriating state in cases of unlawful expropriations. Of course,
the economic conditions may change in the meantime and it might not be clear which
value is the higher one. This was the case in Factory at Chorzów, which was not explicitly
mentioned and is often overlooked. (224)
3.108 It follows that it is necessary to compare the two values of the expropriated
property and award the higher one in cases of unlawful expropriations. In the case of
lawful expropriations the value at the date of the expropriation is the lower and the
upper limit of the amount of compensation. It might only by increased by an award of
interest in order to compensate for the delay in payment which should have been
'prompt'. (225) The conclusions of the considerations of the PCIJ in Factory at Chorzów are
40
consequently: (226)
1. Restitution in kind is only possible in cases of unlawful expropriations. In cases of
lawful expropriations, only financial compensation is possible but not restitutio in
integrum.
2. An increase in value between the date of expropriation and the date of the
judgment or award has to be taken into account only in cases of unlawful
P 84 expropriations.
3.109 These principles are in accordance with the jurisprudence of the ECtHR which, since
its judgment in Papamichalopoulos v Greece, has included an increase in value of
unlawfully expropriated property in the amount of 'just satisfaction':
The unlawfulness of such a dispossession inevitably affects the criteria to be
used for determining the reparation owed by the respondent State, since the
pecuniary consequences of a lawful expropriation cannot be assimilated to
those of an unlawful dispossession. In this connection, international case-law,
of courts or arbitration tribunals, affords the Court a precious source of
inspiration; although that case-law concerns more particularly the
expropriation of industrial and commercial undertakings, the principles
identified in that field are valid for situations such as the one in the instant
case. (227)
3.110 The practice of international investment tribunals has increasingly confirmed.
Several tribunals have drawn the distinction between 'compensation' for lawful
expropriation and 'damages' for unlawful expropriations. The ICSID Tribunal in ADC v
Hungary was a pioneer in this direction:
The BIT only stipulates the standard of compensation that is payable in the
case of a lawful expropriation, and these cannot be used to determine the
issue of damages payable in the case of an unlawful expropriation since this
would conflate compensation for a lawful expropriation with damages for an
unlawful expropriation. (228)
3.111 The tribunal pointed out that, in cases of unlawful expropriations, the standard of
compensation contained in the applicable investment protection treaty was not decisive
but, instead, customary international law should be applied:
Since the BIT does not contain any lex specialis rules that govern the issue of
the standard for assessing damages in the case of an unlawful expropriation,
the Tribunal is required to apply the default standard contained in customary
international law in the present case. (229)
3.112 In the following years, several tribunals followed this path. The ICSID Tribunal in
Siemens v Argentina also emphasized the difference between compensation and
damages in expropriation cases and clarified its importance:
The key difference between compensation under the Draft Articles and the
Factory at Chorzów case formula, and Article 4(2) of the Treaty is that under
the former, compensation must take into account 'all financially assessable
damage' or 'wipe out all the consequences of the illegal act' as opposed to
compensation 'equivalent to the value of the expropriated investment' under
the Treaty. (230)
3.113 A few months later, the ICSID award in Vivendi v Argentina took up this argument and
emphasized: 'The Treaty thus mandates that compensation for lawful expropriation be
based on the actual value of the investment. However, it does not purport to establish a
lex specialis governing the standard of compensation for wrongful expropriations.' (231)
3.114 The relevance of the difference between lawful and unlawful expropriations for the
determination of remedies and valuation has been confirmed in several subsequent
investment arbitrations, such as Saipem v Bangladesh, (232) Siag and Vecchi v Egypt, (233)
Kardassopoulos v Georgia, (234) Shum v Peru, (235) Quasar de Valores v Russia, (236) Yukos
v Russia, (237) Conoco v Venezuela, (238) Mobil Cerro Negro v Venezuela, (239) Tidewater v
Venezuela, (240) and Quiborax v Bolivia. (241)
3.115 The tribunals in Funnekotter v Zimbabwe (242) and Unglaube v Costa Rica (243)
discussed the distinction but found that it would not be a practical issue in the case at
hand. Only rarely has a tribunal rejected the relevance of the difference, such as in
Rumeli v Kazahstan. (244)
3.116 It follows that the need for a distinction seems increasingly being recognized in
arbitral practice. This is also reflected in academic writing. Ripinsky and Williams refer to
Sornarajah and highlight that he has
rightly pointed out that compensation of lawful and unlawful expropriation
cannot be the same, 'for every legal system must necessarily make a
distinction between damages arising from lawful and unlawful acts.' (245)
41
Other authors, too, have supported the importance of the distinction. (246) Still others
remain sceptical and reject the idea of the 'punitive element' or the 'windfall' that
investors might receive. (247)
3.117 The distinction between lawful and unlawful expropriations might not be made by
tribunals, when claimants do not raise this issue in their submssions. If the claimants
themselves refer to 'compensation' and demand an objective valuation, the tribunals
might not find it necessary to question or change this. In particular, claimants before the
Iran–US Claims Tribunal frequently asked for compensation in the amount of the fair
market value, even if they considered the expropriation unlawful. (248)
3.118 Furthermore, a state is less affected or offended, if it is ordered only to pay as much
as it would have had to pay in case of an expropriation anyway. It then does not suffer
being criticized and condemned for unlawful behaviour. While this can be helpful for the
acceptance and implementation of the award, it should not blur the difference between
the lawful and unlawful behaviour of states.
B. Reparation and Damages

3.119 In the context of international investment, the unlawfulness of the host state's
behaviour can consist in the violation of its obligations under public international law or
under a private law contract with the investor. In the first case, the state's international
responsibility becomes engaged whilst in the second case, contract law is concerned. The
following section analyses the consequences of these two different types of unlawful
P 85 behaviour by a state as regards the calculation of damages. Cases where breaches of
contract represent breaches of international law at the same time will be discussed at
the end of this section.
(1) Violations of International Law

3.120 State responsibility for injuries to aliens has always been a rather contentious topic.
The existence and extent of an international minimum standard for the treatment of
aliens is one of the most controversial issues in this respect. (249)
3.121 The ILC tried for a long time without success (250) to balance the different positions,
for example, by an improvement of the international standard of human rights
protection. (251) It eventually renounced codifying 'primary' or 'substantive' norms of
state responsibility, including those relating to injuries to foreign private persons.
Eventually, the final text of the ILC which was presented to the UN General Assembly in
December 2001 (252) only contained the legal consequences of international law
violations, and thus the 'secondary' obligations of international law. (253)
3.122 The most important consequence of a violation of international law is the obligation
to make reparation as codified in Article 31:
1. The responsible State is under an obligation to make full reparation for the injury
caused by the internationally wrongful act.
2. Injury includes any damage, whether material or moral, caused by the
internationally wrongful act of a State.
3.123 Article 34 then specifies that full reparation for the injury caused by the
internationally wrongful act 'shall take the form of restitution, compensation and
P 86 satisfaction, either singly or in combination, in accordance with the provisions of this
Chapter'. One of the forms of reparation is thus the duty to pay 'compensation'. (254) The
ILC has, after considerable debate, (255) refrained from determining more specific rules
as regards the calculation of the amount to be paid. Amongst a number of other reasons,
Special Rapporteur Crawford explained that this would almost inevitably reopen the
discussion about primary obligations of international law, including the issue of
compensation upon expropriation. (256) The ILC eventually agreed on a rather general
formulation of Article 36:
1. The State responsible for an internationally wrongful act is under an obligation to
compensate for the damage caused thereby, insofar as such damage is not made
good by restitution.
2. The compensation shall cover any financially assessable damage including loss of
profits insofar as it is established.
3.124 This general formulation leaves room for interpretation and flexibility. Some details
and examples are provided in the comprehensive commentary to the ILC Articles. (257) In
essence, Article 36 determines that the damage must be 'financially assessable'. (258)
This, however, represents only a very rough guideline, in particular because this provision
does not only include material (259) but also immaterial damage, (260) which is certainly
not financially assessable without difficulties. (261)
3.125 A definition of what has to be regarded as 'damage' hardly seems possible. (262)
According to Grotius, the concept of damage stems from the Latin verb 'demere' (to take):
'Damnum forte a demendo dictum, est … cum quis minus habet suo, sive illud suum ipsi
P 87 competit ex mera natura, sive accedente facto humano, puta dominio, aut pacto, sive ex
lege'. It thus denotes 'what a person has less than would appertain to him from a previous
42
human institute, such as property, contract, or the law'. (263) Grotius' definition contains
natural damage ('mera natura'), thus without any connection to a legal order, and, in
addition, legally protected interests, provided by a property right, a contract, or the law.
It includes, therefore, material and immaterial injury as well as contractual and legal
positions.
3.126 According to the PCIJ, the damage suffered by the individual is not 'identical in kind
with that which will be suffered by a State; it can only afford a convenient scale for the
calculation of the reparation due to the State'. (264) It held:
The rules of law governing the reparation are the rules of international law in
force between the two States concerned, and not the law governing relations
between the State which has committed a wrongful act and the individual who
has suffered damage. (265)
3.127 However, the damage caused to the individual by the wrongful act of the state
represents an important indicator for the amount to be paid as reparation:
It is a principle of international law that the reparation of a wrong may consist
in an indemnity corresponding to the damage which the nationals of the
injured State have suffered as a result of the act which is contrary to
3.128 The importance of the damage incurred to the individual had been spelled out
even earlier in the Alabama arbitration of 1872, when the tribunal had held that, for the
purpose of calculating damages, there should be no distinction between the damage
incurred to a private individual and damage incurred to the state. (267) These classical
decisions thus paved the way for modern international investment arbitration, where the
damage suffered by the foreign investor is the decisive criterion for the calculation of the
amount due under the title of reparation.
3.129 As already discussed above, the damage actually caused can best be evaluated by
the differential method. (268) One must ask what the financial position of the injured
person would in all probability be like if the unlawful act or omission by the state had not
been committed. The difference between the hypothetical and the actual financial
situation is equal to the damage caused which, according to the principle of full
P 88 reparation, has to be compensated in its entirety.
3.130 The differential method warrants valuation from the subjective and concrete
position of the injured party. (269) The following will analyse to what extent international
practice has been consistent and in accordance with the above-mentioned principles.
(a) Subjective–concrete Valuation
3.131 The concrete valuation approach is reflected in some early international cases. The
tribunal in Walter Fletcher Smith identified the expropriation as unlawful and considered
the possibility of restitution. (270) It then decided to award financial compensation which
should also include the specific benefit of the property to the former owner, namely
'compensation for the value of the land, of the buildings and personal effects contained
therein, also the deprivation of the use of the property and in consideration of his
expenses in defending his rights …'. (271)
3.132 The right of the claimant to a free view to the sea was of particular relevance in this
context. (272) The acceptance of costs and expenses for the enforcement of his right as an
item of damage (273) is in conformity with the subjective and concrete valuation
approach.
3.133 The arbitral commission in De Sabla v Panama also referred to the subjective
situation of the former owner. (274) The Government of Panama accorded rights of use
and passage to third persons over the private property of the American claimant without
her consent. The land was originally one large contiguous area, and the partial
expropriation had cut it into smaller parts. The commission did not only assess the value
of the expropriated parcel of the land but also the decrease in value of the remaining
land. (275)
3.134 A number of other early arbitrations used the differential method to measure the
damage incurred by an unlawful act of a state. This was particularly true in a number of
cases regarding wrongful seizure of ships. (276) The tribunals measured the damage
P 89 incurred by the concrete loss of profits from freight.
3.135 The PCIJ and the ICJ, in the few cases in which they awarded damages for injuries to
aliens, applied the subjective method. In Wimbledon, where Germany had unlawfully
denied the free passage of ships through the Kiel Canal, the PCIJ measured the damage
incurred by the additional costs for the deviation which took eleven days and also lost
earnings from freight income during those days. (277) This represented the concrete and
actual damage incurred by the shipowners caused by the unlawful behaviour of the
respondent state.
3.136 Similarly, the ICJ in its first and for a long time only judgment of an amount of
damages, the Corfu Channel Case, measured the damage incurred by the differential
43
method. (278) The damage caused to the British destroyers was to be measured by the
cost of reparation or replacement, whereby in case of the latter, the remaining value of
the ship was to be deducted. (279) The second judgment of the ICJ awarding damages, the
Diallo case between Guinea and the Democratic Republic of Congo, referred to the
judgment of the PCIJ in Chorzów (280) and awarded US$ 10,000 for property loss and
reparation for non-material damage in the amount of US$ 85,000, (281) another example
of subjective and concrete damage.
3.137 The International Tribunal of the Law of the Sea in its judgment of the amount of
damages after unlawful seizure and detention of a ship, in the M/V 'SAIGA' case, (282) also
applied the differential method. It calculated the damage incurred by the costs
necessary to repair the ship, lost profits from selling the freight and from chartering, as
well as material and immaterial damage suffered by the crew. (283)
3.138 International investment arbitration has taken up the concrete valuation approach
in cases a variety of regarding unlawful acts of the host state. Early ICSID cases, such as
P 90 AGIP v Congo (284) and Benvenuti & Bonfant v Congo, (285) used a concrete valuation
approach. In these cases, the unlawful acts of the states consisted in a combination of
international law violations and contract breaches. (286) The evaluation of the concrete
financial loss incurred to the private investor was, therefore, the most appropriate way of
remedying the damage suffered. In AGIP v Congo, the tribunal awarded the value of the
company's shares plus the amount of debts under the contract plus a symbolic amount of
3 FF for 'lost profits'. (287) In Benvenuti & Bonfant v Congo, the amount awarded reflected
the sums invested plus a lump sum for lost business opportunities. (288)
3.139 In Amco Asia v Indonesia, the first tribunal was inclined to award contract damages,
(289) while the second tribunal, after the annulment of the first award, applied
international law criteria because it qualified the acts and omissions of the Indonesian
Government as denial of justice. (290) Both tribunals based their calculations on the
principle of full reparation. The second tribunal explicitly rejected the application of the
'fair market value' and made it clear that 'the measure of compensation ought to be such
as to approximate as closely as possible in monetary terms the principle of restitutio in
integrum …'. (291)
3.140 In Antoine Goetz v Burundi, the ICSID Tribunal decided not only that the privileged
tax situation of the investor must be re-established in the status quo ante— thus
awarding restitution in integrum—but also that the financial damage additionally caused
by the wrongful act of the host state must be included in the calculation. (292)
3.141 In a number of cases, the award of the amount of investments actually undertaken
P 91 was regarded as the best way of achieving full reparation based on the notion of
restitutio in integrum. The NAFTA Tribunal in Metalclad v Mexico explained this in the
following words:
The award of Metalclad of the cost of its investment in the landfill is consistent
with the principles set forth in Chorzów Factory (Claim for Indemnity) (Merits),
Germany v Poland, P.C.I.J. Series A., No. 17 (1928) at p. 47, namely, that where the
state has acted contrary to its obligations, any award to the claimant should,
as far as possible, wipe out all the consequences of the illegal act and
reestablish the situation which would in all probability have existed if that act
had not been committed (the status quo ante). (293)
3.142 Similarly, the tribunal in Biloune v Ghana (294) found that an award representing the
investments undertaken and the costs incurred would restore the claimant in the
position he would have enjoyed but for the expropriation. (295) According to the tribunal
the 'value' of the expropriated project (296) would best be represented by the expenses
actually undertaken by the investor. It thus applied a subjective and concrete valuation
approach.
3.143 In S D Myers v Canada, the arbitral tribunal emphasized that the calculation of
compensation on the basis of NAFTA Article 1110 should be different from the calculation
of damages after a violation of NAFTA provisions and explained:
Expropriations that take place in accordance with the framework of Article
1110—that is, expropriations that are conducted for a public purpose, on a
non-discriminatory basis and in accordance with due process of law—are
'lawful' under Chapter 11 provided that compensation is paid in accordance
with the … fair market value of the asset … formula. Under other provisions of
Chapter 11, the liability of the host Party arises out of the fact that the
government has done something that is contrary to the NAFTA and is 'unlawful'
as between the disputing parties. (297)
3.144 According to the tribunal, assessing the 'fair market value' in this case would not
appropriately reflect the damage actually incurred:
The standard of compensation that an arbitral tribunal should apply may in
some cases be influenced by the distinction between compensating for a
lawful, as opposed to an unlawful, act. Fixing the fair market value of an asset
that is diminished in value may not fairly address the harm done to the
44
investor. (298)
3.145 It pointed out that 'the application of the fair market value standard is not a
P 92 logical, appropriate or practicable measure of the compensation to be awarded'. (299)
While rejecting punitive damages, (300) it referred to the principle of full reparation as
formulated by the PCIJ in Factory at Chorzów and reflected in the ILC Articles on State
Responsibility.
3.146 The NAFTA Tribunal in Pope & Talbot v Canada also adopted a subjective and
concrete valuation approach. In this case, this resulted in a rather limited amount of
damages which only represented costs and expenses paid by the claimant for lawyers
and experts in the defence of his rights. (301)
3.147 The tribunal in Feldman v Mexico is another example. It pointed out the fact that the
text of the NAFTA only contained the standard of compensation for lawful expropriations
and not for treaty violations. In this case, the national treatment obligation contained in
Article 1102 NAFTA was violated by discriminating against the claimant in his tax status.
The tribunal referred to S D Myers v Canada and Pope & Talbot v Canada and highlighted
the 'loss or damage actually incurred':
NAFTA provides no further guidance as to the proper measure of damages or
compensation for situations that do not fall under Art. 1110 (expropriation); …
It follows that, in case of discrimination that constitutes a breach of Article
1102, what is owed by the responding Party is the amount of loss or damage
that is adequately connected to the breach…. Thus, if loss or damage is the
requirement for the submission of a claim, it arguably follows that the
Tribunal may direct compensation in the amount of the loss or damage
actually incurred. (302)
3.148 In American Manufacturing and Trading v Zaire, (303) the respondent state's
responsibility resulted from a violation of the applicable BIT, namely the obligation of
full protection and security (304) and of the obligation to compensate for the damage
suffered due to revolution, state of national emergency, revolt, insurrection, riot, or other
acts of violence. (305) According to the tribunal, this could not be assimilated to
expropriation (306) which meant that the expropriation standard was not directly
P 93 applicable. Instead, the standard of restitutio in integrum was determinative. Even
though the tribunal did 'not see any substantial difference in practice', (307) it found that
the concrete conditions of Zaire and also the situation of the investor should be taken
into account:
Is it necessary to add on top of that also the current interest to the total sum
of compensation from the date of each destruction occurring in the territory of
Zaire? The answer of the Tribunal will have to take into account the existing
conditions of the country and not by making abstraction based on a criterion
for the assessment which does not correspond at all to the reality, nor to the
current happenings in Zaire, nor indeed to the commercial and industrial
activities of the Claimant. (308)
Eventually, the tribunal ordered the expert to calculate 'damages and losses suffered by
Société SINZA' (309) which corresponds to a subjective and concrete valuation approach.
3.149 The ICSID Tribunal in MTD v Chile, deciding on the consequences of a violation of the
fair and equitable treatment standard, reflected about the applicable standard in the
following way:
[T]he Tribunal notes that the BIT provides for the standard of compensation
applicable to expropriation, 'prompt, adequate and effective' … It does not
provide what this standard should be in the case of compensation for
breaches of the BIT on other grounds. (310)
3.150 The tribunal decided to award damages on the basis of the investments actually
undertaken by the investor. (311)
3.151 In LG&E v Argentina, another ICSID arbitration, the tribunal explained that '[f]or the
Tribunal, compensation in this case cannot be determined by the impact on the asset
value; it does not reflect the actual damage incurred by Claimants. The measure of
compensation must be different.' (312) The tribunal, therefore, aimed at identifying the
'actual loss' suffered by the investor 'as a result' of Argentina's conduct. (313)
3.152 The arbitral tribunal in Occidental v Ecuador identified a violation of fair and
equitable treatment with regard to a denial of a tax refund and decided to calculate the
amount to be awarded on the basis of the concrete damage. (314) The respondent state
was ordered to pay exactly the sums of tax refund submitted by the claimant. (315)
3.153 The Iran–US Claims Tribunal, when confronted with the calculation of damages after
P 94 infringements of property rights other than expropriations, such as 'other measures
affecting property rights' (316) calculated 'compensation for the loss of enjoyment of the
property in question'. (317)
45
3.154 Subjective considerations included, for example, the owner's concrete plans for the
use of a piece of land. (318) In Seismograph Service v Iran, the tribunal explicitly rejected
an 'abstract' valuation approach and held:
The findings in this Case entitle the Claimant to compensation in damages for
the Respondents' interference with the exercise of its contractual rights. The
actual damage suffered by which the Claimant, and, consequently, the
compensation for which Iran is liable, must not be measured in the abstract,
but is limited to the extent that CFPS effectively intended to export its
Property. (319)
3.155 It is remarkable that also the ECtHR tends to apply the principle of full reparation
and the differential method, even though, according to Article 41 of the ECHR, only 'just
satisfaction' is foreseen as a financial remedy to be awarded by the Court. For a long
time, hardly any financial redress had been awarded for material damage after
violations of Article 1 of the First Protocol. (320) This practice has however changed with
Papamichalopoulos et al v Greece (321) where the Court explicitly referred to the principle
of reparation as formulated by the PCIJ in Factory at Chorzów. (322) The valuation of a
piece of land on the coast should follow this principle, taking into account that the value
of this land had increased considerably since the date of the expropriation. As the
hypothetical financial situation of the former owner at the date of the judgment was
decisive, the increase in value had to be reflected in the amount of compensation. (323)
3.156 As regards the calculation of 'just satisfaction' in cases of indirect expropriations by
national court judgments (324) or unlawful acts of administrative authorities, (325) the
Court also relied on the principle of full reparation and applied a concrete valuation
P 96 approach. These even included the correction of the amount of compensation actually
paid to the expropriated owner by the respondent state, if it had not appropriately
reflected increases in value (326) or inflation. (327)
3.157 It can be concluded that different international courts and tribunals have applied
the principle of full reparation as formulated by the PCIJ in Factory at Chorzów in cases of
state responsibility for injury to aliens. They calculated the amount of damages by way of
the differential method, namely as the difference between the actual and the
hypothetical financial situation of the injured person. This implies a subjective and
concrete valuation approach because the valuation is based on the comparison of the
actual financial situation of the victim with and without the unlawful act.
(b) Objective–abstract Valuation
3.158 However, the above-mentioned approach is not consistently applied in
international arbitral practice. Investment tribunals have also used objective valuation
criteria, such as the 'fair market value', where the principle of full reparation. This
concerned incidents of state responsibility as well as breaches of contract. In some cases,
this was explained by the argumentum e maiore ad minus or by analogy, in other cases
the tribunals relied on the submissions of the parties.
3.159 (i) Argumentum e maiore ad minus and Analogy The argumentum e maiore ad minus
and analogy are legal techniques to fill gaps if a question is not regulated by law. Despite
the lack of absence of rules as regards the question of calculation of damages in cases of
state responsibility or of breaches of contract, these techniques have nevertheless been
relatively widely used.
3.160 The alleged lack of rules led some tribunals to transfer the standard of
expropriation to violations of international law or even to contract damages. Some
tribunals explicitly referred to the standard of lawful expropriations when calculating the
amount of damages after breaches of international law. (328) Others did not decide
whether an expropriation was lawful or unlawful and simply applied the standard for
lawful expropriations. This is particularly true for the Iran–US Claims Tribunal. (329) One
prominent example is Sedco v NIOC where the tribunal held that 'full compensation
should be awarded for the property taken. This is true whether or not the expropriation
itself was otherwise lawful.' (330)
3.161 An explanation can be that the Iran–US Claims Tribunal over the years was
confronted with heated debates with regard to the standard of compensation. (331)
Tribunals consistently upheld that 'full' compensation and not 'partial' compensation
was the standard under international law and under the Treaty of Amity between Iran and
the United States. (332) As unlawful expropriations could not entail lower compensation
than lawful expropriations, (333) the argumentum e maiore ad minus allowed for the
application of the 'full' standard for all kinds of expropriation. (334) The tribunal in Sedco
v NIOC had to calculate damages for a number of oil rigs seized and held:
In determining the full value of tangible assets such as drilling rigs, our task is
substantially to determine the fair market value of the properties, i.e. what a
willing buyer and a willing seller would reasonably have agreed on as a fair
price at the time of the taking in the absence of coercion on either party. (335)
3.162 It referred, amongst others, to the awards in INA v Iran and American International
Group v Iran which, however, were decisions about lawful expropriations. (336) The
46
tribunal highlighted the unlawfulness of the expropriations to explain and support the
validity of the 'full' compensation standard:
If, however, NIOC is considered to have acted in a purely private capacity, its
conversion of SISA's rigs would be unsupported by the rights of sovereignty
which may justify expropriation … and thus a fortiori would give rise to a duty
to pay full value for wrongfully acquired property. Accordingly, we must award
Claimant the full value of the appropriated assets. (337)
3.163 The argumentum ad minus a majore in front of the Iran–US Claims Tribunal was used
to underline that reparation for unlawful acts cannot be lower than compensation for
P 98 lawful expropriations. (338) Many tribunals thus referred to the 'fair market value', (339)
or the 'market value'. (340)
3.164 The Iran–US Claims Tribunal applied the standard of expropriation also in some
cases regarding 'other measures affecting property rights'. (341) Yet, the claimants often
themselves claimed the standard of fair market value, and not restitution or the full
reparation standard. (342)
3.165 The equalization of unlawful and lawful expropriations can also be observed in the
practice of other arbitral tribunals. The tribunal in Biloune v Ghana, for example,
explained that the failure to issue a building permit and the partial demolition of the
building constituted an indirect ('constructive') expropriation. (343) The tribunal decided
in its award on jurisdiction and liability that the valuation of damages should follow the
customary law standard of expropriation. (344) The subsequent award on damages and
costs, however, represented the damage actually incurred which, according to the
tribunal, consisted in the investment undertaken and subsequent expenses. (345)
3.166 The ICSID Tribunal in Wena Hotels v Egypt, after having concluded that the
respondent state had violated the BIT obligations to fair and equitable treatment and
full protection and security, decided to determine the amount of damages on the basis of
the standard of compensation upon expropriation. As the tribunal did not provide an
explanation for this choice, one can only assume that it decided by way of analogy:
Article 5 of the IIPA between Egypt and the United Kingdom provides that in
the event of an expropriation, the private investor shall be entitled to
'prompt, adequate, and effective compensation' and 'such compensation shall
amount to the market value of the investment immediately before the
expropriation.' The Tribunal shall apply this standard to the determination of
damages. (346)
3.167 The ICSID Tribunal in Técnicas Medioambientales v Mexico also relied on the
standard of compensation by way of analogy after an unlawful withdrawal of a landfill
concession, representing an indirect expropriation and a violation of the fair and
equitable treatment standard of the BIT. (347) Similarly, the ICSID Tribunal in Middle East
Cement v Egypt referred to the fair market value as the standard on compensation, (348)
even though the import prohibition on cement was a violation of the BIT provision on
expropriation and of the respective contract licence.
3.168 In the NAFTA arbitration Metalclad v Mexico, the tribunal was of the opinion that the
denial of the construction permit for the landfill represented an indirect expropriation
and a violation of fair and equitable treatment. (349) The tribunal concluded that there
was no difference between compensation for expropriation and damages for the
violation of the provisions of NAFTA in this case, as the claimant had lost its investment
completely. (350) The tribunal considered that, in both cases, the fair market value of the
investment must be compensated. It then found that the fair market value would best be
arrived at by reference to Metalclad's actual investment made in the project. (351)
However, this represented the investor's actual 'wasted costs' and not necessarily what a
hypothetical willing buyer would have paid for the project.
3.169 The application of the BIT standard on expropriation compensation in cases
unrelated to expropriation is also fairly frequent. The ICSID Tribunal in CMS v Argentina,
P 99 for example, applied it after a violation of the obligation to fair and equitable
treatment and the treaty's 'umbrella clause'. (352) It was persuaded that 'the cumulative
nature of the breaches discussed here is best dealt with by resorting to the standard of
fair market value'. (353)
3.170 Other tribunals, such as the ICSID Tribunals in Enron v Argentina, (354) Sempra v
Argentina, (355) Azurix v Argentina, (356) El Paso v Argentina, (357) EDF v Argentina, (358)
and Gold Reserve v Venezuela, (359) followed this approach and applied the fair market
value standard after violations of fair and equitable treatment.
3.171 It can be concluded that there is some line of jurisprudence that refers to the
objective valuation approach in cases of state responsibility by way of analogy. However,
tribunals do not apply this standard strictly but also combine subjective and concrete
elements in the calculation. This is the case, for example, when the sums actually
invested by the claimant are taken as a reference, because these sums are not
necessarily representative for the amount a hypothetical willing buyer would pay for the
investment in question. (360)
47
3.172 (ii) Submissions of the Parties The choice of an objective and abstract valuation
approach in the practice of investment tribunals can sometimes be explained by the
contentions of the parties. Quite frequently, claimants rely on the fair market value in
their submissions in respect of the valuation issue. Arbitral tribunals then take these
submissions as a basis for the calculation and as the upper limit of the amount to be
awarded. (361)
3.173 Generally, the agreement of the parties on the issue of valuation has a strong
P 101 influence on the decisions of international investment tribunals. When the parties are
in agreement about the application of an objective standard, such as the fair market
value, tribunals are generally inclined to accept it, even when concrete valuation and the
full reparation standard were pertinent. (362)
(2) Breaches of Contract

3.174 Trying to find a single method of calculating damages after a breach of contract is
certainly a 'chimera'. (363) The criteria for the calculation of contract damages depend
on the specificities of the contract, the factual circumstances, as well as the law
applicable. Frequently, contracts between states and foreign investors contain choice of
law clauses. Otherwise, conflict of law rules of international private law will usually point
to the law of the host state. (364)
3.175 Contracts could also provide for liquidated damages in case of early termination or
breach of contract. Sometimes, this is connected to the use of a certain method of
calculation, which is particularly advisable in long-term contracts. (365)
3.176 However, the choice of law clauses are often not entirely clear and may refer not
only to one particular national law, but also to general principles of law and to
international law. The implications of such references are not always evident.
Furthermore, it is important to note that 'general principles' of contract law hardly exist.
(366) In view of the differences between the various traditions of national contract law,
including those between civil law and common law, they are difficult to identify.
Initiatives of international contract law codification remain limited to certain categories
of contracts, such as the UN Convention on Contracts for the International Sale of Goods
(CISG) and the UNIDROIT Principles of International Commercial Contracts, (367) or to
certain regions, such as the Principles of European Contract Law (PECL). (368)
3.177 Contracts relating to international investment projects are quite different from sales
contracts in many respects, in addition to the fact that one of the contracting parties is a
state or a state entity. The differences are connected to long duration of the contract, the
risk the investor undertakes, the volume of the financial engagement at the beginning,
the structures of ownership, and the frequent involvement of natural resources. The
complexity is exacerbated when the contracts involve the operation of public services,
such as the construction and operation of infrastructure, water and energy supply, or
waste disposal. (369) Sir Robert Jennings highlighted these differences more than forty
years ago in the following words:
It is absurd therefore, to deal under the same heading as it were with an
agreement between a state and an alien for the supply and purchase of a
certain quantity of buttons and an agreement for the economic development
of a great territory for a period of twenty years. (370)
3.178 The codification of treaty law in the Vienna Convention on the Law of Treaties
cannot serve as a useful reference, either, because international treaties concluded
between states are different from investment contracts in many respects, too.
Furthermore, the Convention does not contain rules on the consequences for the
breaches of treaties, including the issue of damages, as it refers, in its Article 73, to the
law on state responsibility. (371)
3.179 It follows that the calculation of damages after a breach of a long-term investment
contract involves unfamiliar issues. Despite the wide range of case-specific differences,
certain principles and guidelines with regard to the calculation of damages after a
breach of contract have crystallized in investment arbitration practice.
(a) Damnum Emergens and Lucrum Cessans
3.180 Calculating damages after a breach of contract on the basis of damnum emergens
and lucrum cessans has its origins in Roman law and has been adopted in many national
legal systems where it is particularly important for synallagmatic legal relationships.
(372) If one partner breaches his or her obligation, the other suffers damage in two forms:
on the one hand, he or she has incurred expenses in order to fulfil his or her part of the
obligations, such as buying material for producing goods. These expenses are a financial
P 103 loss, if the other party does not pay the agreed price, and represent the damage
actually incurred or damnum emergens. Additionally, the financial advantages expected
from the deal are also forgone, which represent the profits lost or lucrum cessans.
3.181 The distinction between damnum emergens and lucrum cessans is particularly
relevant in short-term sales and delivery contracts. If a salesman buys goods for the
amount of $70, incurs expenses in the amount of $10, and sells them for $100, the
48
difference between the two is clear: the lost profits amount to $20. But even in this
simple case it is not clear how high the amount of damages should be in case of a breach
of contract. Should the other party pay $20, $70, $80, or $100? Is the salesman obliged to
deliver the goods?
3.182 In some national contract laws the amount of damages depends on the manner in
which the contract has been breached and the reasons for the non-fulfilment. If one party
has acted only slightly negligently, the other would only get the damnum emergens. (373)
In the majority of countries, however, the principle of pacta sunt servanda is overriding
and the reasons for non-fulfilment of the contract are less relevant. (374) It follows that, in
case of breach of contract by one party, the other party gets fully compensated, and thus
receives damnum emergens and lucrum cessans.
3.183 International codifications of contract law, such as the CISG, the UNIDROIT
Principles, and the PECL, demand compensation or damages representing the full
amount of what was agreed in the contract, regardless of the reasons for the breach of the
contract and regardless of what was damnum emergens and lucrum cessans. (375) The only
accepted exception for non-fulfilment is force majeure. (376)
3.184 In international practice, the calculation of lost profits often turns out to be rather
complex, even in cases of short-term contracts. The Iran–US Claims Tribunal thus
frequently awarded only damages on deliveries or services rendered in the past and
rejected future lost profits. (377)
3.185 As regards mid- and long-term contracts, the situation gets even more difficult.
Nevertheless, some older cases reflect the concept of damnum emergens and lucrum
cessans and the calculation of future lost profits. (378) In Robert H. May, for example, the
tribunal had to deal with a breach of a railway concession. (379) The tribunal found that,
according to contract law, the damage incurred and the profit lost must be compensated:
The law of Guatemala … establishes, like those of all civilized nations of the
earth, that contracts produce reciprocal rights and obligations between the
contracting parties and have the force of law in regard to those parties; that
whoever concludes a contract is bound not only to fulfill it, but also to recoup
or compensate (the other party) for damages and prejudice which result
directly or indirectly from the nonfulfillment or infringement by default or
fraud of the party concerned, and that such compensation includes both the
damage suffered and the profits lost. (380)
In this case, the remaining period of the contract was, however, only six months. The
tribunal took the average profit of the past six months and used it for calculating the
profits lost for the residual six months. (381) The situation is much more difficult, when
the remaining contract duration is longer.
3.186 One of the main reasons for the difficulty in calculating damnum emergens and
lucrum cessans in mid- and long-term contracts is that the investor makes investments at
the beginning of the relationship the financial benefits of which are only received in the
future. These investments are usually 'sunk', as they are highly specific to the project.
They cannot be taken back again and sold to another buyer in a different location. (382)
P 104 The income generated in the long-term contractual period cannot in principle be
regarded as 'profits', as long as it does not exceed the amount of money initially
invested. (383)
3.187 In addition, the time value of money has to be taken into account. (384) This means
that the value of future income decreases with its distance in the future. Even without
inflation, present money is worth more than money in the future because the former can
be immediately used or invested. Furthermore, inflation and exchange rates have
substantial effects in long-term contracts, much more than in short-term contracts.
3.188 Another important factor in long-term contracts is the involvement of risk. As the
future is always uncertain, one must appropriately take into account that the calculation
of lost future profits is connected to a certain risk. There are a number of economic tools
to deal with the risk factor in valuation matters. (385) The risk is exacerbated by the fact
that the contracting party in long-term investment contracts may be a state or a state
entity. This implies that the risk may not only be economic but also political. Due to the
potential of 'governmental opportunism', the investor would normally demand complex
safeguards so as to avoid being exposed to 'opportunistic breach'. (386) These risks and
the pertinent safeguards should also be appropriately incorporated in the calculation of
damages in long-term investment contracts.
3.189 Finally, in contrast to normal sales contracts, the investor usually does not get back
the expenses undertaken. The obligation of the state generally does not encompass
refunding these expenses but rather ensuring the long-term possibility of the investor to
generate income and possibly earn profits. It is important to note that even in the case of
full compliance with the contract the investor would not get back his or her expenses
from the state. On the contrary, the parties frequently agree that after a certain period of
time the assets become the property of the host state upon payment of a small amount
of money or even for free. The idea behind this is that, after a certain period of time, the
investment is amortized.
49
3.190 It follows that the application of the concepts of damnum emergens and lucrum
cessans on long-term investment contracts can easily lead to double counting. (387) The
P 105 calculation of lost profits, already difficult with regard to sales contracts, contains
specific complexities with regard to multi-annual investment contracts. If the investor
received back all the expenses undertaken as well as the expected income, he or she
would receive double compensation of the financial loss incurred. The investor would be
in a better position than without the breach of contract, if her or she were to receive the
present value of the expected future income as well as the investment which was
necessary to generate such income.
3.191 In international jurisprudence, this danger of double compensation is not always
appropriately taken into account. The ICSID Tribunal in LETCO v Liberia, (388) for example,
based its calculation of damages after the unlawful withdrawal of a timber concession by
the host state on Liberian contract law. (389) It found that, in addition to the loss of
tangible assets, lost profits must be awarded and referred to a number of international
precedents. (390) The tribunal held 'that both according to international law and, more
importantly, Liberian law, LETCO is entitled to compensation for damages for both its lost
investments and its foregone future profits'. (391) On the other hand, the tribunal
correctly denied compensation for certain expenses and investments in infrastructure,
because they were necessary expenditures for the generation of profits. (392)
3.192 In Himpurna California v PLN, the problem of double counting was explicitly
addressed. (393) The tribunal emphasized that the calculation of damages after breaches
of contract must be different from the calculation of compensation after an
expropriation. In the latter case, compensation could be limited to the 'expectancy
interest' (lucrum cessans), while there is no legal basis for 'contractual reliance damages'
P 107 (damnum emergens). (394) Even if the terminology used appears unusual, (395) the
tribunal addressed an important point:
An undertaking has been expropriated; the prejudice suffered by its former
owner is simply the worth of the venture as a going concern. That worth is
crystallised in an analysis which discounts the future revenue stream of the
enterprise to establish its present value … there is no separate evaluation of
sunk costs, whether or not represented by physical assets … Since those
revenues are fully accounted for in the DCF going-concern evaluation, an
award of lost investment as well would be an unacceptable double recovery.
(396)
3.193 The difference between the assessment of an amount of compensation after an
expropriation and the calculation of damages after a breach of contract becomes
particularly relevant in respect of the asset valuation. As the tribunal Himpurna California
v PLN rightfully pointed out:
The value of the asset taken in an expropriation case may be higher or lower
than the amounts the claimant expended in developing the asset…. In the
case of a breach of contract, the wasted cost is what the claimant has spent in
reliance on the agreement, without reference to how judicious or providential
those expenditures turned out to be. (397)
3.194 The so-called 'wasted costs' need to be included in the calculation of contract
damages as far as they actually incurred. Their reasonableness should not be questioned
because the contractor undertook them in reliance on the validity of the contract and,
therefore, at his own risk. If there had been no unlawful interference, nobody would have
paid back these costs. (398) The only criterion should be the actual relationship with the
project. (399) This should exclude costs of the contracting party incurred before the
conclusion of the contract (pre-contract expenditures). As the tribunal in Sapphire v NIOC
found, 'pre-Contract expenditures were made in reliance not upon promises yet to be
given, but on unilateral expectations of commercial success. Those costs are to be
amortised, if at all, in the only way the claimant could have expected: out of future
profits.' (400)
3.195 The damnum emergens in Himpurna California v PLN consisted in the investments
and expenditures undertaken by the claimant in view of compliance with the contract.
(401) For the calculation of lucrum cessans, the tribunal rejected the DCF method and
explained: 'To ask for the full amount of the future revenue stream when also claiming
recoupment of all investments is wanting to have your cake and eat it too'. (402) The
tribunal supported, in principle, the method applied by the claimant, namely to
calculate the 'initial project value' on the basis of future cash flows and from this amount
deduct the amount of investments undertaken. (403) However, in its own calculation it did
not apply this method but awarded the amount of lost investments plus an amount for
lost profits. (404)
3.196 In Karaha Bodas v Pertamina, the claimant had only conducted studies and some
preparatory work but nevertheless asked for damnum emergens and lucrum cessans on
the basis of the contract. (405) The ad hoc tribunal did not question the amount of
expenses undertaken (406) and awarded them with interest. (407) Despite the fact that
the power plant had not yet been built, it added an amount of US$ 110 million for lost
profits which resulted in an award 2.5 times the amount of the investment undertaken.
50
(408)
3.197 In his insightful analysis of the award, Wells notes that the result appears to an
P 108 economist to be excessive. (409) According to him, it would not be economically logical
to award the investment plus lost profits. (410) Instead, in cases of breaches of long-term
investment contracts, the following approach should be taken:
In sum, one could estimate FMV by starting with either the investment or the
NPV [net present value] of expected cash flows, but they should not be added
together. It appears from the award document that the arbitrators in this case
double counted in determining the amounts owed by Pertamina and PLN by
awarding the amount of the investment (with no adjustments of the kinds
indicated above) plus the NPV of expected cash flows. (411)
3.198 Since these prominent cases, tribunals have been more aware of the danger of
double counting in cases of long-term investment contracts. The ICSID Tribunal in
Railroad Development v Guatemala needed to address alleged breaches of contracts
between the claimant and the governmental railway agency to operate newly privatized
rails for fifty years. (412) After a few years, the contracts were declared to be 'lesivo', that
is, injurious to the state's interests so that the investment eventually came to a standstill.
The claimant requested the fair market value of its investment plus consequential
damages, and lost profits. (413) In reply of the respondent's argument concerning double
counting, (414) the claimant submitted that its sunk costs should be amortized over the
projected duration of the contracts. (415) The tribunal determined the claim for lost
profits to be speculative and based its award on the total amounts invested. (416)
However, it accepted damages for operating the railroad for another year after the lesivo
declaration and the NPV of existing real estate leases measured over their remaining life,
minus rents paid under such leases. (417) The tribunal thus tried to circumvent the
problem of potential double counting by not awarding damnum emergens and lucrum
cessans over a long period of time. (418)
3.199 In order to avoid possible double counting, international investment tribunals
should either award amounts that represent the investment undertaken or compensate
for the lost future income. This would ensure that the investor would be guaranteed as a
minimum to receive his investment back. As tribunals have traditionally pointed out in
cases of contract breaches, damnum emergens is always recoverable. (419) This is not
P 109 necessarily equal to the fair market value because it is not certain that the amount
invested is equal to the price a hypothetical willing buyer would be ready to pay. What
counts is that the investor has taken the risk and incurred certain expenses in reliance on
the contract and in hope of positive future prospects. This minimum should be
guaranteed to him. The expenses should be adjusted by inflation in order to represent
their value at the date of the award. (420) The circumstances of each case should indicate
the optimal remedial approach taking into account the risks of under- and over-
compensation. It should be the choice of the investor to opt for this first alternative.
3.200 The second alternative would be to calculate contract damages only on the basis of
the expected future income lost as a consequence of the breach of contract. In this case,
the investment undertaken is not to be paid back and future expenses necessary for the
creation of these future profits must be deducted. This alternative is clearly more
appropriate, if the future is promising and the investor would have wanted to continue
with the contract. The calculation of such future profits can be based on modern
valuation techniques.
3.201 The dichotomy of damnum emergens and lucrum cessans as known in Roman law
and national contract laws must, therefore, be adapted in order to be helpful for the
calculation of contract damages in international investment disputes. These adaptations
would lead to the use of criteria that are more in conformity with the legal principles, in
particular the prohibition on over-compensation, and with economic valuation
principles.
(b) Reliance Interest and Compliance Interest
3.202 The distinction between expenses undertaken and profits lost in the case of a
breach of contract can also be represented by the concepts of reliance interest and
compliance interest. (421) Sometimes, it is also referred to as 'positive' and 'negative'
damages. (422) Reliance or negative interest is the financial harm suffered by the
contracting party in the form of expenses undertaken in reliance on a contract. Such
harm can also incur, when the contract does not materialize. (423) Recovering such losses
P 110 can be described as damages for 'culpa in contrahendo' (negligence in contracting), a
concept developed in civil law countries. (424) Compliance or positive interest, by
contrast, represents the entire financial loss suffered by the contracting party as a
consequence of the breach of the other party. If the injured party receives the reliance
interest, he or she is placed in the financial position he or she would be in if the contract
had never been concluded.
3.203 Reliance interest has the advantage of being more 'straightforward' (425) and
'safer'. (426) It can be based on verifiable evidence and reduces the risk of errors based
on uncertain expectations. (427) In view of the difficulties and complex evidentiary
51
challenges in the evaluation of future profits, reliance interest could represent an
important point of reference as the minimum which has to be awarded for breaches of
long-term investment contracts.
3.204 On the other hand, it should not be forgotten that investors take a certain risk when
concluding contracts in relation to long-term projects. As the tribunal in Himpurna
California v PLN pointed out, parties do not enter into contracts involving risk in order to
be repaid their costs. (428) To limit the recovery of the victim of a breach to actual
expenditures is 'to transform it into a lender, which is commercially intolerable when
that party was at full risk for the amount of investments made on the strength of the
contract'. (429)
3.205 The distinction between reliance and compliance interest, or positive and negative
interest, is not substantially different from that between damnum emergens and lucrum
cessans but it can better explain the different aspects of the damage in long-term
investment contracts. This is so because usually damnum emergens and lucrum cessans
are regarded as two items of damages to be awarded cumulatively in order to achieve
'full reparation'. By contrast, positive and negative interest are mutually exclusive of
each other. A tribunal must award either the former or the latter, not both. It cannot
place the injured party in the same position as if the contract had been fully performed
and at the same time in the same position as if the contract had never be concluded. The
arbitrator in Sapphire International v NIOC has therefore rightfully rejected certain
expenses incurred in the preparation of the contract by explaining:
This claim cannot be allowed by way of positive damages (Erfüllungsinteresse),
as claimed by the plaintiff. Their claim should put Sapphire International in
the same pecuniary position as they would have been in if the contract had
been performed. But the repayment of the expenses incurred in concluding
the contract would tend to put them in the position they would be in if the
P 111 contract had never be concluded (negative damages) … Adding positive and
negative damages together is a contradiction and cannot be allowed. (430)
3.206 The Swiss sole arbitrator referred to the German term 'Erfüllungsinteresse' which
means 'interest in compliance'. Also, under this premise a general evaluation of the
financial situation with and without the breach is necessary. It appears obvious that the
minimum should be the amount of money that re-establishes the financial situation that
would exist if the contract had never been concluded.
3.207 Compliance interest is thus the equivalent of the principle of full reparation in
contract cases. As such, it requires a subjective–concrete valuation approach. This is all
the more evident as contractual relationships between two or more parties cannot be
evaluated from the perspective of a 'hypothetical willing buyer' and a 'hypothetical
willing seller'. Contractual relationships are concluded between specific and selected
parties. The mutual rights and obligations are designed for the individual needs and
competences of the parties. In case of investment contracts, the state or a state entity
selects a specific investor and negotiates about the concrete obligations and rights on
the basis of its needs and the competences of the investor. Investment contracts,
therefore, are highly individualized and can hardly be transferred to an interested third
person. It follows that the fair market value is usually not appropriate for the valuation of
contract damages in respect of long-term investment contracts. The tribunal in Bridas v
Turkmenistan explained this very clearly:
Contract damages reflect the contractual context of parties. This may, or may
not, mirror the market value when a bargain—the contractual asset—is lost,
because the terms of the contract may give to a party more or less than the
market will pay. In addition, a party may decide for its own reasons to persist
in a contract which directly does not maximalize the available return on its
investment, a crucial component of fair market value. (431)
3.208 In order to evaluate reliance interest it is necessary to analyse the concrete rights
and obligations of the parties as specified in the contract. In addition, the specific
circumstances at the time of the conclusion of the contract must be taken into account.
(c) Rejection of Lost Profits
3.209 The reasons for the rejection of claims to lost profits are manifold. As Gotanda
points out, different jurisdictions—in common law countries on the one hand and in civil
law countries on the other—and international codifications of contract law (e.g. CISG,
UNIDROIT Principles on Commercial Contracts) contain different conditions and
P 113 limitations for awarding lost profits. (432) The criteria on foreseeability, standard of
proof, and the relevance of the fault of the party have a direct influence on the claim to
recover lost financial benefit.
3.210 In international investment cases, contract damages are frequently not based on
one particular national contract law, but on general or common principles of law. Less
than particular evidentiary criteria, causality plays an important role. The rejection of
lost profits has mainly been based on the opinion of the tribunals that the realization of
profits would have been very unlikely, even if the contract had not been breached. Other
52
reasons, in particular put forward in the jurisprudence of the Iran–US Claims Tribunal,
were implicit termination of contract or force majeure.
3.211 (i) Profits too Speculative International investment tribunals usually pay a lot of
attention to the question of whether profits could or would have been earned if the
contract had not been breached. Whiteman's observation is frequently quoted:
In order to be allowable, prospective profits must not be too speculative,
contingent, uncertain, and the like. There must be proof that they were
reasonably anticipated; and that the profits anticipated were probable and
not merely possible. (433)
An important criterion is whether profits would have been earned 'with a sufficient
degree of certainty'. (434)
3.212 In contrast to short-term commercial contracts, a breach of an investment contract
by one party does not inevitably or automatically cause loss of profits to the other party.
The reason is that investment contracts are often closely linked to large projects and are
dependent on the economic, political, and social situation of the country and other
factors. A causal link between the breach and a lost profit is, therefore, difficult to
establish. Tribunals would not award 'speculative' profits and tend to reject profits on
projects which were only in their early stages.
3.213 The Iran–US Claims Tribunal, for example, examined in Levitt v Iran whether the
planned building project relating to 6,000 apartments could have been realized
profitably. (435) The tribunal came to the conclusion that lost profits could not be
awarded because the project was still in an early phase and it was uncertain if it would
have been a commercial success. (436) It concluded that 'the claimant has not
established with a sufficient degree of certainty that the project would have resulted in a
profit'. (437)
3.214 Similarly, the tribunal in Dadras International and Per-Am Construction v Iran, (438)
also a breach of contract case in connection with a building project, held that 'lost profits
under the contract are unduly speculative, and … Per-Am has not established with a
sufficient degree of certainty that the construction of the North Shahyad Development
Project would have resulted in a profit for Per-Am'. (439) The tribunal referred to the
general conditions at the time of the Islamic revolution in Iran, which would have
hampered the construction works and increased their costs. (440)
3.215 The ICSID Tribunal in Autopista Concesionada v Venezuela also referred to the
necessity to establish 'with a sufficient degree of certainty' (441) the existence and the
amount of lost profits for which the claimant sought compensation. The project
concerned the construction and operation of a highway system, the financial success of
which was based on the tolls paid by the highway users. The respondent had, in violation
of its contractual obligations, failed to raise the toll. As a consequence, the investor
made use of its contractual right to terminate the contract. Venezuela argued that a
raising of the toll would have caused major political problems which had already
happened in the past. The tribunal did not accept this as a force majeure excuse for the
breach of the contract (442) but it accepted it as a reason for rejecting lost profits. It
concluded:
In these circumstances, the Tribunal considers that Aucoven's claim for future
profits does not rest on sufficiently certain economic projections and thus
appears speculative. Hence, it does not meet the standards for an award of
lost profits under Venezuelan law, nor would it meet these standards under
international law, if the latter were applicable. (443)
3.216 The numbers and projections agreed upon in the contract were not sufficient for the
calculation of lost profits. In order to support this conclusion, the tribunal referred to
existing international practice. It noted that decisions issued by ICSID tribunals and by
the Iran–US Claims Tribunal often dismissed claims for lost profits in cases of breach of
contract 'on the ground that they were speculative and that the claimant had not proven
with a sufficient degree of certainty that the project would have resulted in a profit'. (444)
As a result, the tribunal only awarded an amount representing the out-of-pocket
expenses incurred by the investor, such as negotiation costs, legal fees, costs for studies,
P 114 and additional works. (445) Disputes about 'speculative' profits are diminished when
contracts are covered by guarantees or side letters, as is increasingly common for long-
term production and delivery agreements. (446) The tribunal's calculations are then
guided and limited by the terms of the guarantee. (447)
3.217 (ii) Implicit Termination of Contract In some national contract laws, the entitlement
to lost profits is excluded if the contract has been terminated, either by one party or by
both parties. (448) This condition was also taken up by the Iran–US Claims Tribunal which
rejected lost profits in some cases because of an alleged implicit termination of contract.
In Blount Brothers v Iran, (449) for example, both claimants and respondent referred to
force majeure or breach of contract in the alternative. (450) Yet the tribunal decided that
there had been an implicit termination of contract:
It appears that even though there was no formal termination, all of the parties
53
considered Claimant's role to have terminated as of December 1978, before
the Parandak Project was completed. In view of this, the Tribunal finds that
Claimant cannot recover damages based on the full contract price. Although
Claimant's responsibilities had been discharged, it is still entitled to
compensation for performance already entered under the Management
Contract. (451)
3.218 In Ultrasystems v Iran, the Iran–US Claims Tribunal stated similarly:
In view of this and the fact that the Contract was terminated by mutual
agreement and not on the basis of breach of contract on either side, the
Tribunal holds that Ultrasystems is not entitled for profits it could have gained
had the Contract not been terminated. (452)
3.219 The Iran–US Claims Tribunal thus rejected lost profits on the basis of an implicit
mutual agreement to terminate, independently from the submissions of the parties. (453)
The same was true in case of a unilateral termination, where such a right was foreseen in
P 115 the contract. (454) It did not matter if the party had relied on it or justified the non-
fulfilment of its obligations on force majeure, as was the case in Sylvana Technical
Systems v Iran. (455)
3.220 By contrast, the ICSID Tribunal accepted in principle the claim for lost profits after
the unilateral termination of the contract in Autopista Concesionada v Venezuela. (456)
The purpose of the respective contractual provision was 'to make the claimant whole by
putting the claimant in the position it would be in if the respondent had not breached
the contract, but instead performed as agreed'. (457)
3.221 The tribunal emphasized that this would be 'a principle which is common to both
Venezuelan and international law'. (458) The termination of a contract, implicitly or
explicitly, does not generally bar a claim for lost profits in international jurisprudence.
3.222 (iii)Force Majeure In some cases, tribunals rejected lost profits because the
continued performance of the contract was hindered by force majeure. In Buckamier v
Iran, the Iran–US Claims Tribunal developed a set of criteria on how to address this issue.
(459) After the tribunal had rejected the alleged expropriation, (460) it examined
possible contractual claims against the Military Industries Organization, the Teheran
Redevelopment Corporation, and Information Systems Iran: it differentiated between
whether the non-fulfilment of the contract could be explained by the generally difficult
economic situation in Iran at the time of the revolution, or whether in addition there was
reproachable misconduct by either party. (461) In the first case, the services rendered
had to be paid, not lost profits. The tribunal explained the decisive criterion in the
following way:
Where Mr. Buckamier speaks of political upheaval, disruption, difficulties,
delays and mismanagement, his pleading conveys the impression that what he
actually describes is the adverse influence of the Iranian revolution on the
parties' performance of the TRC contract. The Claimant has not evidenced any
specific instance in which that influence does not qualify as force majeure
P 117 within the parties' contractual relationship. Consequently, the Tribunal
dismisses Mr. Buckamier's claims for lost profits under the TRC contract. (462)
3.223 By contrast, if a party to the contract had violated its obligation, the injured party
was entitled to the contract damages in their entirety, thus including lost profits:
Having breached its contractual obligations, causing the premature
termination of the Contract, Isiran is liable to compensate the damages
incurred by the Claimant as a result … The Claimant therefore is entitled to his
share of the amount HNB has invested in the Contract and the profits it has
lost. (463)
3.224 However, the amount of lost profits was again measured in the light of their
certainty (464) which, in view of the political turmoil and social changes, led to a
considerable reduction of the profits forecasted by the claimant. (465)
(d) Damages for Lost Opportunities?
3.225 In view of the difficulty in determining long-term profits precisely, a number of
arbitral tribunals awarded lump sums for the loss of profits or for the loss of 'opportunity'
or loss of a 'chance'. This was, for example, the case in Sapphire International v NIOC (466)
where the contractual relation was only at an early stage. The tribunal reflected on the
question to what extent the loss of a chance to make a profit could or should be
compensated. (467) It referred to the practice of international arbitral tribunals (468) as
well as the jurisprudence in France, Great Britain, and the United States (469) and came
to the conclusion that the chance of possible profits in the future must also be
compensated, if it was sufficiently probable that such profits would have been made.
(470)
3.226 However, there were no data on past performance which could have facilitated the
calculation of lost profits. On the other hand, the tribunal found that the mere
54
reimbursement of expenses made would not be appropriate either. (471) In order to
assess the 'probability' of future profits was to analyse the behaviour of the two parties,
in particular that of the respondent:
Another factor to be considered is that NIOC, who certainly have an extensive
documentation available and possess great experience, would not have made
a concession of an area where they did not think that there was a serious
chance of discovering oil. It is reasonable to suppose that they would not have
required a minimum investment of $U.S. 8,000,000 from a company if they did
not think that these investments had a serious possibility of being turned to a
profit, of which they and the Iranian Government would take the largest share.
(472)
3.227 The tribunal concluded that these indications were enough to show that the
respondent also relied on the probability of future profits and awarded eventually US$
650,875 in restitution of the sums invested and a lump sum of US$ 2 million for the loss of
a chance. (473)
3.228 In the ICSID case, Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal,
the contract was also breached before the ten-year project had even started. (474) The
respondent had terminated the contract on the basis of the alleged non-fulfilment of
contractual obligations by the investor. The tribunal found that the contract was
breached unlawfully and that the respondent for its part had not fulfilled its obligations.
As regards the claim for damages, the tribunal found:
In most cases, and particularly in a case such as this one which involves a
construction project spanning ten years, it is impossible to calculate the
profits that would have been made had the parties' relations not been
terminated. What gives rise to the claim in damages is not the loss of profits
itself, but rather the loss of opportunity, the value of which is set in the
discretion of the judge or arbitrator, as the case may be. (475)
3.229 The tribunal, in the exercise of its discretion, eventually awarded 2.7 per cent of the
amount claimed as lost profits. (476) The larger part of the damages award consisted in
expenditures actually undertaken and investments for 'operational expenses and capital
expenditures' as well as compensatory interest at a rate of 10 per cent. (477)
3.230 By contrast, the breach of contract at an early stage in Autopista Concesionada v
P 119 Venezuela did not lead to an award for the 'loss of a chance'. The ICSID Tribunal, in
contrast to the one in SOABI v Senegal, placed considerable weight on the fact that the
contract was breached before the construction of the bridge had started. The tribunal
rejected the comparison with the awards in Delagoa Bay and Karaha Bodas put forward
by the claimant, as in those cases a substantial part of the construction had already been
completed: (478)
One further factor weighs heavily in the Tribunal's assessment of lost profits.
The main purpose of the Agreement was the construction of the Bridge … As a
matter of contractual interpretation, one cannot rely exclusively on the figures
set forth in the original EFP without taking into account that the Bridge was
never built. (479)
3.231 It seems, therefore, that between the rejection of awarding 'speculative' profits and
lost profits which can be proved with sufficient certainty, there is a 'grey zone' where the
'probability' of profits would be enough. In those cases, lump sums have been awarded to
account for the loss of a 'chance' or 'opportunity' to generate profits. This is, however,
neither a widely accepted nor a very precise practice.
(3) Simultaneous Violation of International and Contractual Obligations

3.232 As international investment projects are often based on a contract, unlawful actions
or omissions by the state can represent violations either of contractual or international
obligations or both. That a breach of a contract alone is not equal to a violation of
international law has long been recognized. (480) It is less clear to what extent so-called
'umbrella clauses' contained in numerous BITs have an influence on this situation. (481)
3.233 Furthermore, contractual rights also can be the object of an expropriation by the
state under the conditions of international law. (482) As the tribunal in Norwegian
Shipowners has already emphasized: 'The United States [the respondents] intended to
“take” and have “taken” in fact, the contracts under which the fifteen hulls in question
were being constructed by American Shipbuilders in 1917. These contracts were the
property.' (483)
3.234 Similarly, Arbitrator Mahmassani noted in regard to the petroleum concession in
LIAMCO v Libya:
It is well known that property in its general meaning is of two kinds: corporeal
and incorporeal … [I]ncorporeal property comprises all interest and rights
which, though incapable of immediate composition, may produce corporeal
55
things or may be eventuated in financial and economic terms. In other words,
incorporeal property includes those rights that have a pecuniary or monetary
value. Concession rights, as those of the present dispute, may be included
under the class of incorporeal property. (484)
3.235 In such cases, international tribunals have often relied on the criteria applicable to
contract damages, disregarding the expropriation aspect. Early examples include
Delagoa Bay, (485) Shufeldt, (486) Lena Goldfields, (487) Lighthouses Arbitration, (488) and
Sapphire International. (489) An exception was the award in Norwegian Shipowners' Claim
where the expropriation standard was applied. (490)
3.236 Other investment tribunals have shown a preference for relying on the criteria of
contract damages in their valuations. Some examples are Liberian Eastern Timber
Corporation (LETCO) v Liberia, (491) Atlantic Triton v Guinea, (492) Société Ouest Africaine
des Bétons Industriels (SOABI) v Senegal, (493) MINE v Guinea, (494) Middle East Cement v
Egypt, (495) and Amco Asia v Indonesia (Amco II). (496) Commentators have sometimes
analysed these valuations in the context of expropriation and other aspects of
P 120 international law. (497) The Iran–US Claims Tribunal, by contrast, usually distinguished
diligently between expropriations cases and breach of contract cases, (498) even if they
formed part of one and the same proceeding. (499)
3.237 Contract damages have one important characteristic: the valuation is based on the
actual damage incurred and follows a subjective and concrete approach in accordance
with the principle of 'full reparation' under international law and contract law. (500) It
thus actually does not matter whether the amount of damages is calculated on the basis
of a breach of contract or on the basis of an international law violation. (501)
3.238 Both in the case of an unlawful expropriation and after a breach of contract the aim
of damages is to arrive as closely as possible at the principle of restitution in order 'to
establish the situation that would otherwise have existed, or, “if this is not possible,
payment of a sum corresponding to the value which restitution in kind would bear” '. (502)
3.239 This means that both in contract cases and in cases of state responsibility the
valuation should be based on the damage actually incurred and not on the value as
determined by a 'hypothetical willing buyer'.
3.240 This does not imply that the tribunals should take the submissions of the injured
party for granted without examining them further. On the contrary, they must thoroughly
P 122 assess the evidence and the plausibility of the claims submitted, including future
prospects or profits. This must, however, not be confused with an 'objective' valuation of
the damage incurred.
(4) Reasons for Reducing the Amount of Damages

3.241 The amount of damages can be limited or reduced for certain reasons. (503) This is
particularly the case if the injured party has himself or herself acted negligently. The
most important grounds for the reduction of damages are contributory negligence and
violation of the duty to mitigate damages. The difference between the two is that the
former concerns the occurrence of damage in the first place, while the latter is related to
the duty of the injured party to keep the damage as small as possible once it has
incurred.
(a) Contributory Negligence
3.242 It is consonant with the principle of full reparation that the conduct of the injured
party should be taken into consideration in assessing the form and extent of reparation.
(504) If the injured party has acted negligently and thereby contributed to the occurrence
of damage, the obligation to pay damages can be reduced, or even offset. (505) This
principle is enshrined in Article 39 of the ILC Articles on State Responsibility (506) and
widely recognized in international arbitral practice. (507)
3.243 A mere contribution to causation is, however, not sufficient; the action or omission
must represent negligent and reproachable behaviour. (508) Arbitral practice seems to
apply this criterion rather restrictively. (509)
3.244 The tribunal in Yukos v Russia (510) highlighted that the concept of contributory
fault must not be confused with the investor's duty to mitigate its losses, a duty that
arises after a breach of an obligation has occurred. (511) Furthermore, the fault of investor
may be unrelated to the wrongdoing of the state, but nevertheless reduce the latter's
obligation to pay damages. (512) Finally, the victim may have contributed to or even
provoked the state's wrongful conduct. (513)
3.245 'Contributory fault' is not always clearly separated from the question of causation
or of 'bad business judgment'. (514) In CME v Czech Republic, the respondent state
submitted that the claimant had substantially contributed, by certain actions and
omissions, to the damage. (515) The tribunal, however, rejected a discussion on this
question in the Final Award on damages, as it considered it as a question of causality that
had already been discussed in the Partial Award. (516)
3.246 In Maffezini v Spain, the tribunal pointed out that BITs were not 'insurance policies
56
against bad business judgments' and that they could not be deemed to relieve investors
of the business risk inherent in any investment. (517) This was taken up by subsequent
tribunals (518) in order to reduce the amount of damages.
3.247 One of the few cases where the amount of damages was reduced explicitly because
of contributory fault was MTD v Chile, decided under the auspices of ICSID. (519) The
arbitral tribunal found that the respondent state had violated its obligation to fair and
equitable treatment as contained in the applicable BIT. The state had induced
legitimate expectations of the foreign investor with regard to a construction project on its
P 123 territory and then, at a later stage, not granted the necessary permissions. For the
calculation of the amount of damages the tribunal considered, however, that the
behaviour of the investor had not been that of a 'wise investor':
They accepted to pay a price for the land with the Project without appropriate
legal protection. A wise investor would not have paid full price up-front for
land valued on the assumption of the realization of the Project; he would at
least have staged future payments to project progress, including the issuance
of the required development permits. (520)
3.248 The tribunal, therefore, decided that the amount of damages should be reduced by
50 per cent. (521) Furthermore, the investment had a residual value which had to be
deducted, too. The Chilean partner of the claimant had offered to buy the shares of the
foreign investor. The latter had rejected the offer because it was only partly in cash and
the liquidity of the partner was uncertain. The tribunal found that the investor should
have accepted the offer because he had chosen this partner and, therefore, also had to
bear the risk of his illiquidity. (522)
3.249 In Occidental Petroleum v Ecuador, (523) the tribunal reduced the amount of
damages by 25 per cent, because the claimants had not informed Ecuador timeously
about the nature of the 'Farmount Agreement' that purported to transfer rights to a third
party without obtaining ministerial authorization. (524) Even though the sanction of the
respondent was disproportionate and a violation of international law, the tribunal found
that the claimants had provoked the actions of the state. (525) It held:
In the view of the Tribunal, the Claimants should pay a price for having
committed an unlawful act which contributed in a material way to the
prejudice which the subsequently suffered when the Caducidad Decree was
issued … In other words, without the violation of the law by OEPC, Caducidad
may not have happened. In this connection, the Tribunal recalls that the
violation of the law by OEPC was invoked by Ecuador as the principal legal
basis for the Decree. (526)
3.250 The decision to choose 25 per cent was not shared by one arbitrator who issued a
P 124 Dissenting Opinion. (527) However, the tribunal defended its choice by referring to the
decision of the annulment committee in MTD v Chile, who had held that 'the role of the
two parties contributing to the loss [is] … only with difficulty commensurable and the
Tribunal [has] a corresponding margin of estimation.' (528)
3.251 The tribunal in Yukos v Russia also reduced the amount of damages by 25 per cent
by explicit reference to 'contributory fault'. (529) The Russian Federation had listed
twenty-eight instances of alleged 'illegal and bad faith conduct' by claimants starting
from the privatization of Yukos in the mid-1990s until its liquidation. (530) The tribunal,
after having rejected that the alleged 'unclean hands' of the claimants would prevent the
arbitral proceeding from going on, noted that some of the alleged illegal and bad faith
conduct complained of by the respondent could have an impact on the assessment of
liability and damages. (531) It pointed out that not any contribution would trigger a
finding on contributory fault but that the contribution must be 'material and significant'.
(532)
3.252 Out of the twenty-eight actions or omissions put forward by the respondent, the
tribunal identified only four instances of alleged wilful or negligent conduct by the
claimants that could have potentially constituted fault that may have contributed to the
destruction of Yukos. (533) Eventually, only two of them, namely Yukos' 'abuse of the low-
tax regions by some of its trading entities' and its 'questionable use of the Cyprus–Russia
DTA', stood out as having contributed in a material way to the prejudice subsequently
suffered. (534)
3.253 In measuring the extent of such a contribution the tribunal also referred to the
annulment committee in MTD v Chile. (535) It then decided, 'in the exercise of its wide
discretion', (536) that the claimants had contributed to the extent of 25 per cent to the
prejudice which they suffered as a result of the Russian Federation's destruction of Yukos.
(537) This percentage is the same as the conclusions of the tribunal in Occidental
Petroleum v Ecuador, (538) while in MTD v Chile it was 50 per cent. (539) By contrast, the
P 125 tribunals in Rosinvest v Russia and in Quasar de Valores v Russia, confronted with the
same facts as in the present case, did not apply the concept of 'contributory negligence'.
(540)
3.254 It may be questioned whether the 'wide margin of discretion' applied by several
tribunals in the wake of MTD v Chile is an appropriate way of assessing the effects of
57
contributory fault. It rather seems to counteract the considerable efforts taken by
tribunals in calculating the amount of damages in a comprehensible manner. There
should be increased efforts to identify more exactly which acts contributed to the
damage incurred. A possibility could be aligning the question of 'contribution' more
closely with the concept of 'causation' which not in all cases, but generally could make
calculations more reliable.
(b) Mitigation of Damages
3.255 The duty to mitigate damages is generally recognized as a general principle of law.
(541) It is contained in international contract law codifications (542) and frequently
appears in international arbitration. (543) The tribunal in ME Cement v Egypt stated that,
despite the fact that the duty to mitigate damages was not explicitly contained in the
BIT, it was potentially applicable because 'this duty can be considered to be part of the
General Principles of Law, which, in turn, are part of the rules of international law which
are applicable in this dispute according to Art. 42 of the ICSID Convention'. (544)
3.256 The principle to mitigate damages implies that the injured party must take
reasonable steps to reduce its losses. (545) It depends on the facts of the case which
P 127 steps are reasonable in a given situation. (546) They may include selling products,
stopping the delivery of services, trying to renegotiate contracts, or even giving up
unprofitable projects. (547)
3.257 However, commentators have also warned not to apply this principle too strictly,
(548) as this could favour the wrongdoer in an unjust manner. (549) The duty to mitigate
should not exceed the standard of a 'reasonable family father' at the time of the breach:
Le devoir d'une partie de minimiser son préjudice est bien établi dans le droit
international et dans la plupart des droits internes, ainsi que dans celui de
l'Etat. En examinant le comportement de la partie concernée, un tribunal
n'impose pourtant pas à cette partie un test de résultat final effectué a
posteriori. Le test est plus celui de la gestion, en bon père de famille, ou de
savoir si la partie concernée a agi raisonnablement et équitablement d'un
point de vue commercial et financier. (550)
3.258 In international practice, the duty to mitigate damages has primarily been applied
in breaches of contract cases. The practice of the Iran–US Claims Tribunal may serve as
an example. In Economy Forms v Iran it turned out that a number of custom-built
concrete forms were unmarketable. Nevertheless, the tribunal determined that they had
a 'residual value' which was deducted from the amount of damages. (551) In Endo
Laboratories v Iran, the tribunal considered the obligation to find buyers for custom-
made products less strictly and applied criteria of economic reasonableness. (552)
3.259 In case of long-term service and rental contracts, the Iran–US Claims Tribunal
decided that the duty to mitigate damages required that after the termination of the
contract or its notification, no further services were to be rendered. In Seismograph
Service v Iran, it held:
The Claimant has not, however, substantiated that it sought to mitigate the
expenses it incurred. Although this obligation is a 'best efforts' obligation and
not an obligation of result, it at least places an obligation on the Claimant to
evidence that it was bound to incur the expenses so claimed. The Claimant
having failed to do so the Tribunal finds the claim in this part
unsubstantiated. (553)
3.260 Similarly, the tribunal in Petrolane v Iran did not accept invoices about rentals of
oil rigs after the respondent had notified the claimant that, because of a reduction in
demand, fewer oil rigs were needed. (554) Generally, the Iran–US Claims Tribunal, was not
particularly strict and found it sufficient that the claimant had undertaken appropriate
attempts to mitigate the damage, while the burden of proof that such attempts were not
made was for the respondent. (555)
3.261 In Himpurna California v PLN, the tribunal also reduced the amount of lost profits
claimed on the basis that profits lost on investments not yet undertaken could not be the
object of damages. (556) Even if the contract allowed for further investments at the
discretion of the investor, the tribunal found that the investor should not have done so
after it became obvious that the respondent state could not pay for it because this would
be like 'stepping on the shoulders of a drowning man'. (557) The tribunal found that it
would amount to an 'abuse of right' to do so. (558) This explanation was criticized by one
arbitrator (559) and by commentators, (560) as the investor had not done something
unlawful and should thus not be blamed. (561) The tribunal could perhaps have achieved
P 128 the same result, if it had relied on the duty to mitigate damages. It could have argued
that this general principle of law demands that a party keeps the damage as low as
possible and prevents its increase. This could also serve as an explanation why lost
profits are not to be awarded on investments not yet undertaken.
3.262 More generally, it can be argued that, based on the duty to mitigate damages, in
case of long-term contracts profits should only be awarded for a limited period. For
example, in ICC Award No. 7006, the tribunal only awarded lost profits for one year. After
58
this time, it was assumed that the damage could be mitigated. (562)
3.263 In cases concerning violations of international law, the duty to mitigate damages
has rarely been referred to. (563) Some cases can be found in the practice of the UNCC.
(564) Recent investment arbitration appears to be rather reluctant. While the ICSID
Tribunal in Middle East Cement v Egypt emphasized that the duty to mitigate was a
general principle of law, (565) it did not consider it in its calculation of damages. The
tribunal emphasized that the burden of proof for the violation of the duty to mitigate was
upon the respondent who had failed to submit sufficient evidence to convince the
tribunal that there had been reasonable or economically feasible alternative actions
available. (566)
3.264 Similarly, the ICSID Tribunal in Amco Asia v Indonesia (Amco II) was of the opinion
that the principle of mitigation of damages would be applicable, but that, in the case
P 129 before it, the claimant had not violated the respective duty:
It was said that both Indonesian and international law pointed to such a duty
to mitigate damages. Amco did not contest that Indonesian law and
international law both acknowledge the principle of mitigation, but claimed
that there was no realistic prospect of it being able to mitigate its loss … The
Tribunal finds that there was no failure on PT Amco's part to mitigate
damages. (567)
3.265 This shows that investment tribunals are rather cautious in accepting a violation of
the duty to mitigate damages. Nevertheless, the basic concept of this duty is widely
accepted. It is also in conformity with the economic analysis of law which underlines its
usefulness for the allocation of available resources and the avoidance of the production
of unnecessary products and services. (568)
C. The Valuation Date

3.266 The valuation date plays an important role for the valuation of compensation and
damages in international investment law. The value of an object changes constantly in
the course of time. (569) Furthermore, economic, social, and political developments have
a direct influence on it. Usually, a considerable amount of time passes between the event
giving rise to the claims and the award of compensation or damages. This causes a
number of problems for the correct choice of the valuation date in international
investment disputes.
3.267 The choice of the valuation date is important both for the condition of the asset and
for the information available and useable. One of the fundamental questions is to what
extent developments which occurred or became known after the expropriation or the
unlawful act may be included in the valuation. Can we make use of the benefit of
hindsight and apply more recent and accurate data, or must we put ourselves into the
shoes of a person at a certain valuation date in the past?
3.268 The answer to these questions depends primarily on the kind of event giving rise to
the claim and on the law applicable. In the following these questions shall be discussed
with regard to expropriations, violations of investment treaty provisions, and breaches of
contract.
(1) The Valuation Date in Expropriation Cases

3.269 As the conditions for expropriation under international law include the payment of
P 131 compensation it appears to be obvious that the value of the asset should be assessed
as of the date of the expropriation. However, this date is only meant for lawful
expropriations. Is it also correct for unlawful expropriations? Furthermore, even in cases
of lawful expropriations, the date of the expropriation is not always easy to assess. Is it
the date of the official decree, or some earlier or later date? How should we determine
the valuation date in cases of indirect expropriations which are not carried out by one
single act but by a series of actions and omissions by the state? In the following, these
questions shall be discussed in consideration of the legal foundations and pertinent
international practice.
(a) Lawful Expropriations
3.270 According to the international law standard of compensation for lawful
expropriations, the date of the expropriation is the valuation date. (570) However,
information about the impending expropriation before this date can reduce the value
significantly. Therefore, the decisive date under international law effectively must be
before the expropriation or before the date at which the decision to expropriate became
publicly known. The World Bank Guidelines on the Treatment of Foreign Direct Investment
summarize this in Article IV(4):
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. (571)
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3.271 This helps to avoid the situation where a state can diminish the value of the asset
before the expropriation and benefit from the decrease. (572) However, in the practice of
international tribunals, the valuation date is frequently the same as the date of the
respective state act. (573) Only if the expropriation becomes effective later, the date of
the state act can be regarded as the date when the expropriation became known. (574)
3.272 Changes in the political, social, and economic environment occurring right up until
the expropriation also have an important influence on the value of an asset. (575) Those
changes would not have left the investment unaffected, but would most probably have
influenced its prospects and thus its value even without the expropriation. The state is
not obliged to guarantee a stable economy in all circumstances and cannot be held
responsible for losses of income streams in the absence of an expropriation act. (576) It is
thus necessary to determine the value of an enterprise immediately before its
expropriation, but also appropriately reflect the fact that the company would have
suffered from political change even in the absence of the expropriation. The situation
where the expropriated owner is placed in a better position than he or she would be in if
the expropriation had not occurred needs to be avoided.
3.273 The Iran–US Claims Tribunal has developed some guidelines for dealing with the
determination of the value of a company under circumstances of political change. In
American International Group v Iran it presented a formula on how to distinguish relevant
from irrelevant factors:
In ascertaining the going concern value of an enterprise at a previous point in
time for purposes of establishing the appropriate quantum of compensation
for nationalization, it is—as already stated—necessary to exclude the effects
of actions taken by the nationalizing State in relation to the enterprise which
actions may have depressed its value … On the other hand, prior changes in
the general political, social and economic conditions which might have
affected the enterprise's business prospects as of the date the enterprise was
taken should be considered. Whether such changes are ephemeral or long-
term will determine the overall impact upon the value of the enterprise's
future prospects. (577)
3.274 According to this formula, it is necessary to distinguish the negative consequences
on the value which were caused by the actions of the state from those negative
consequences on the value caused by changes of the general political, social, and
P 133 economic conditions. The former must be excluded from the valuation because
otherwise the state would benefit from its own acts. The latter, however, are part of the
business risk and must be excluded from the calculation of compensation. The valuation
has to be effectuated as of the valuation date by taking into account development in
demands and supply as well as a number of other relevant factors. This is in accordance
with the objective valuation approach which corresponds to the standard of
compensation applicable to lawful expropriations.
3.275 The criteria developed in American International Group v Iran are convincing, but
their transformation into concrete numbers may turn out to be difficult in practice. (578)
The award itself could only reach an 'approximation' and resulted a lump sum of US$ 10
million, 'taking into account all relevant circumstances in the case'. (579) Nevertheless,
these criteria have repeatedly been confirmed in the jurisprudence of the Iran–US Claims
Tribunal (580) and may also be useful for other international tribunals.
3.276 The ICSID Tribunal in Compañía del Desarrollo de Santa Elena v Costa Rica (581) had
to decide on the amount of compensation after the expropriation of a coastal area for
the purpose of a natural reserve. The claimant submitted that the valuation should not
be made on the date of the expropriation decree of 5 May 1978 but on the date of the
arbitral award in the year 2000. It explained that this was necessary in order to account
for the long duration of the dispute about the amount of compensation which had lasted
for more than twenty-two years and which was the fault of the expropriating state. (582)
The tribunal, however, did not agree and determined that the date of the formal
expropriation should be the valuation date, and that the value should reflect the
possible use of the land for tourism and other commercial projects and not for a natural
reserve. (583) The long period of time between the expropriation and the date of the
award was accounted for by a respective award on interest. While the value of the
expropriated assets was finally set at US$ 4.25 million, the total award amounted to US$
16 million. (584)
3.277 The valuation date of the compensation for the Pyramid Oasis Project in Southern
Pacific Properties v Egypt (585) was set by the ICSID Tribunal as 'May 1978'. (586) The
respective state acts were, on the one hand, a ministerial decree of 27 May 1978 which
declared the area as 'public property (Antiquity)', and, on the other hand, the withdrawal
of the construction permission by the General Organisation of Investment of Arab Capital
and Tax-Free Areas (GIA) on 28 May 1978. (587) According to the tribunal, this difference of
one day did not have any affect on the value.
3.278 As regards the fixed assets of a company, the valuation date is important for the
condition in which they have to be valued—in particular as regards diminution of value
by use and abrasion. The tribunal in Aminoil v Kuwait addressed this question and found
60
that 'it is necessary in all cases to consider the value of the assets as at the date of
transfer, taking due account of the depreciation they have undergone by reason of wear
and tear and obsolescence'. (588)
3.279 International practice has, however, also taken other options. In LIAMCO v Libya, the
tribunal did not choose the date of Decree No. 66 containing the decision to expropriate
the oil concessions, (589) but 1 January 1974 as 'roughly mid-way between 1 September
1973, the date of the first act of expropriation, and 10 February 1974, the date of the
consummation of the complete take-over'. (590) In doing so, the tribunal related to the
date where the expropriation came completely into effect, thus a rather late date. During
the respective period of time, the value of the investment has probably decreased
because of the public knowledge of the impending expropriation.
3.280 The ECtHR, too, occasionally chose a longer period of time, a so-called 'reference
period', as the valuation date. In Lithgow et al v United Kingdom, (591) the legal basis of
the expropriation was the Aircraft and Shipbuilding Industries Act 1977 which contained
the following compensation criteria:
For securities listed on the London Stock Exchange, the 'base value' was, under
section 37/1) the average of their weekly quotations during the six months
between 1 September 1973 and 28 February 1974 (the 'Reference Period' …). For
securities not so listed and issued before the end of the Reference Period, the
'base value' was 'such as may be determined by agreement between the
Secretary of State and the stockholder's representative … to be the base value
P 134 which the securities would have had under section 37 … if they had been
listed' on the Stock Exchange throughout the Reference Period … (592)
3.281 The choice of a 'reference period', three years before the expropriation was due to
the fact that the Labour Party, after its success at the elections in 1974, had already
announced the expropriations. (593) The exclusion of the diminution in value by this
announcement was in principle beneficial to the former owners. However, the values of
the 'reference period' were not adjusted for inflation, and the subsequent rise in the
stock market was not reflected either. (594) According to the claimants, this amounted to
a grave violation of their internationally protected property rights. The Court did not
agree and found that the selected method of calculation, including the valuation date,
was still within the margin of discretion of the expropriating state. (595) It explicitly
mentioned, however, that this conclusion was only valid for the specific case at hand
which dealt with the expropriation of nationals and which was not necessarily in
accordance with the 'general principles of international law' that have to be observed in
cases of expropriation of foreigners. (596)
3.282 In Mobil Cerro Negro v Venezuela, the expropriation of the claimants' investments
occurred on the basis of various laws. According to the 2001 Hydrocarbon Law, oil
production activities were reserved to the state, and private parties were authorized to
participate in those activities only through mixed enterprises in which the state owned
more than 50 per cent of the shares. (597) However, the Orinoco Oil Belt Associations
remained outside that legal framework. Only six years later, on 1 February 2007, the
National Assembly adopted a law enabling the president to take measure to put an end
to this special regime. The implementing Decree-Law 5200 gave the oil company four
months, until 26 June 2007, to agree to participate in the new mixed companies. (598)
After unsuccessful negotiations, Venezuela seized the investments on 27 June 2007, while
the expropriation was formally ratified by a law dated 5 October 2007. (599) The
expropriation thus had been carried out by various successive physical and legal acts. In
its decision on the valuation date, the tribunal referred to Article 6 of the applicable BIT
which provided that the investment should be valued 'immediately before the measures
were taken or the impending measures became public knowledge, whichever is earlier'.
(600) The tribunal found that this date should lie 'immediately after the failure of the
negotiations between the Parties and before the expropriation, i.e., on 27 June 2007'. (601)
P 135 It thereby applied none of the dates of the expropriating legal acts, but the date of the
physical seizure of the investments. Even if that date represented the actual transfer of
ownership, it is questionable whether this date should also be the valuation date in
accordance with the BIT. Already on 1 February 2007, when the National Assembly
enacted the Enabling Law, the measure became public knowledge and potentially
diminished the value of the investment.
3.283 In Tidewater v Venezuela, the tribunal also referred to the applicable BIT and found
that the date of the Reserve Law of 7 May 2009 should be the valuation date. (602) In this
case, the assets of the company, its headquarters, and eleven vessels, were seized one
day after the enactment of the law, thus on 8 May 2009. Four remaining vessels were
seized on 12 July 2009. (603) The expropriating legal act was therefore before the factual
seizure and transfer of ownership, so that the value of the investments was not affected
by prior knowledge of the public.
3.284 International courts and tribunals tend to select the date of the expropriation as
the valuation date. However, this is not necessarily in conformity with the World Bank
Guidelines or the language of BITs. In order to avoid that the value gets diminished by the
expropriatory act itself, it is necessary to identify more accurately when the public
received knowledge of the impending expropriation. Any influence on the value due to
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information about the concrete expropriatory legal act should be excluded. Conversely,
reductions in value due to general governmental politics or the economic situation in the
host state cannot be disregarded, but need to be reflected in the amount of
compensation.
(b) Unlawful Expropriations
3.285 Unlawful expropriations are expropriations that do not comply with the conditions
provided for the expropriation of foreigners in international law. While generally the
mere non-payment of compensation does not render an expropriation unlawful per se,
(604) the violation of other criteria, such as public purpose, non-discrimination, and due
process, leads to the unlawfulness of the act of the state. As such it entails the state's
responsibility to fully repair the financial harm done to the former owner. The applicable
differential method requires assessing the difference between the actual financial
situation of the person affected and the financial situation he or she would be in, if the
expropriation had not taken place. This comparison can logically only be made on the
day of the judgment or award.
3.286 The PCIJ discussed the valuation date in cases of unlawful expropriations in Factory
P 136 at Chorzów. (605) In order to come as close as possible to restitutio in integrum, the
experts should ascertain the financial situation the enterprise would have been in as of
the date of the judgment, if the expropriation had not taken place. (606) For this purpose,
they should assess the value of the enterprise as of two different dates, namely, first, at
the date of the expropriation, (607) and second, at the date of the judgment or the date
of valuation. (608) This should ensure that a decrease in value would not be to the
detriment of the former owner, but that he would benefit from an increase in value. (609)
3.287 Schwarzenberger, as noted above in his discussion of the Chorzów case, analysed
the importance of the date of the judgment for valuation purposes in his analysis of the
judgment in the following way:
Much is to be said in favour of the date of the judgment as the operative date.
It is the judgment or award which establishes between the parties with
binding force that reparation is due from one party to the other. If restitution
in kind were possible, it would have to take place as soon as possible after the
judgment or award. It, therefore, appears appropriate that the amount of any
monetary substitute for actual restitution should be related to the same date.
(610)
3.288 The possibility of an increase in value and its relevance for the valuation
depending on the lawfulness of the expropriation was also pointed out by the Iran–US
Claims Tribunal in Phillips Petroleum v Iran. (611) In practice, however, in most cases
before international investment tribunals, including those decided by the Iran–US Claims
Tribunal, no subsequent increase of the value of the expropriated assets occurred. On the
contrary, revolutionary events and other political turmoil usually diminished or even
destroyed the value of the expropriated assets. The question of who should benefit from
a subsequent increase in value has not been an issue for a long time.
3.289 In other contexts, however, international courts and tribunals were confronted with
increases in value of expropriated property. It was particularly the ECtHR which dealt
with this issue rather frequently. In Papamichalopoulos v Greece (612) it had to decide on
the amount to be awarded to the successful claimants after the unlawful expropriation of
a piece of land along the coast which had considerably increased in value since the time
of expropriation. After a long reference to the judgment of the PCIJ in Factory at Chorzów
P 137 (613) the Court held:
In the present case the compensation to be awarded to the applicants is not

limited to the value of their properties at the date on which the Navy
occupied them … For that reason it requested the experts to estimate also the
current value of the land in issue; that value does not depend on hypothetical
conditions, as it would if the land was in the same state today as in 1967. It is
clear from the expert report that since then the land and its immediate
vicinity—which by virtue of its situation had potential for development for
tourism—has undergone development in the form of buildings which serve as a
leisure centre for naval officers and related infrastructure works. Nor does the
Court overlook that the applicants had themselves at the time had a scheme
for the economic development of their properties, on which work had already
begun … (614)
3.290 The Court eventually decided that it was not the value at the time of expropriation
in 1967 that should be decisive, but the value of the piece of land at the time of the
judgment which was determined with the assistance of a valuation expert. Similarly, in
Belvedere v Italy the Court accounted for the increase in value of the property after the
expropriation:
S'agissant du dommage matériel, la Cour estime par conséquent que
l'indemnité à accorder à la requérante ne se limite pas à la valuer qu'avait sa
propriété à la date de l'occupation. Pour cette raison, elle a invité l'expert à
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estimer aussi la valeur actuelle du terrain litigieux et les autres préjudices.
(615)
3.291 The increase in value because of enhanced touristic use was also relevant in Motais
de Narbonne (616) and Terazzi. (617) In Brumaresco v Greece, even the Grand Chamber
confirmed that the value of unlawfully expropriated land at the time of the judgment was
decisive and not as of the expropriation date. (618) In so doing, it explicitly referred to
the obligations of the states resulting from violations of the Convention:
The Court reiterates that a judgement in which it finds a breach imposes on
the respondent State a legal obligation to put an end to the breach and make
reparation for its consequences in such a way as to restore as far as possible
the situation existing before the breach. (619)
3.292 According to the Court, the current value of the object must be paid, if restitution
was not possible or not wanted:
Failing such restitution by the respondent State within six months of the
delivery of this judgement, the Court holds that the respondent State is to pay
the applicant, for pecuniary damage, the current value of the house, from
which the value of the property already returned to him will have to be
deducted. (620)
3.293 More recently, investment tribunals have been increasingly confronted with the
P 138 issue of increases in value of property after an expropriation. The ICSID Tribunalin ADC
v Hungary decided that in such a case the valuation date must be the date of the award:
[I]n the present, sui generis, type of case the application of the Chorzów
Factory standard requires that the date of valuation should be the date of the
Award and not the date of expropriation, since this is what is necessary to put
the Claimants in the same position as if the expropriation had not been
committed. (621)
3.294 The decision is not only remarkable for its detailed analysis of the Chorzów
standard but also for taking explicitly into account the jurisprudence of the ECtHR. In its
reasoning, the tribunal quotes in extenso the judgment in Papamichalopoulos and
concludes:
It is noteworthy that the European Court of Human Rights has applied the
Chorzów Factory in circumstances comparable to the instant case to
compensate the expropriated party the higher value the property enjoyed at
the moment of the Court's judgment rather than the considerably lesser value
at the earlier date of dispossession. (622)
3.295 This approach chosen by the tribunal was not entirely new, but it was the
consequent application of a generally accepted principle in a new context. In this
respect it was new in international investment disputes. By referring to both the PCIJ and
the ECtHR, the tribunal also contributed to the development of a more coherent
application of international law by different international courts and tribunals and to
overcoming the often-lamented fragmentation of international law.
3.296 The valuation date has subsequently been discussed more thoroughly in
international investment arbitration. Several tribunals have followed the
Chorzów–Papamichalopoulos–ADC approach. (623) Others noted the importance of the
different valuation dates in principle. (624) Even though not all tribunals, for various
reasons, (625) chose the date of the award as the valuation date, the acceptance of the
distinction of the valuation date for lawful and unlawful expropriations seems to become
increasingly accepted.
3.297 One of the most prominent examples was the award on the three combined cases in
the wake of the demise of the Russion oil company Yukos, Yukos v Russia in 2014, which
resulted in an award of US$ 50 billion. (626) Had the tribunal taken the date of the
expropriation, the much lower market value at the time when the company was
P 140 expropriated would have been decisive. The tribunal explained:
The text of Article 13 [of the ECT], after specifying that the four conditions that
must be met to render an expropriation lawful, provides that for 'such' an
expropriation, that is, for a lawful expropriation, damages shall be calculated
as of the date of the taking. A contrario, the text of Article 13 may be read to
import that damages for an unlawful taking need not be calculated as the
date of taking. It follows that this Tribunal is not required by the terms of the
ECT to assess damages as of the time of the expropriation. Moreover,
conflating the measure of damages for a lawful taking with the measure of
damages for an unlawful taking is, on its face, an unconvincing option. (627)
3.298 The tribunal in Quasar de Valores v Russia, dealing with a parallel case of minority
shareholders in Yukos, noted the difference between lawful and unlawful expropriations,
but applied the standard for lawful expropriation contained in the BIT due to its
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jurisdictional constraints. (628) The tribunal in Rosinvest v Russia, another parallel case in
the Yukos affair, after having decided that the expropriation had been unlawful, held that
the calculation of damages should be made as of 24 January 2007, (629) the date on which
the so-called 'Participation Agreements' were terminated, (630) because only on this
date was the 'economic risk … taken over by the claimant'. (631) The tribunal in Quasar de
Valores v Russia found this choice 'somewhat difficult to follow'. (632) The three parallel
arbitrations concerned with the demise of Yukos show how essential, but also how
difficult it is to identify the correct valuation date. In addition, an important conclusion
from the arbitral decisions in the Yukos v Russia case is that, in cases of unlawful
expropriations, the claimant has the right to choose the valuation date. This choice can
also lead to the date of the expropriation. Tribunals will usually not depart from such a
choice or from an agreement on the valuation date by the parties. (633)
3.299 It is notable that, even if the valuation date was not set at the date of the award,
the logic of this option seems to be increasingly convincing to tribunals. (634) In Quiborax
v Bolivia, the tribunal chose the date of the award as the valuation date and explained it
in the following way:
Had the expropriation not occurred, the Claimants would still be in possession
of their investment. Consequently, they would have collected cash flows for
their mining activities until today, and would have had the right to continue
collecting them until the depletion of the concessions … Past cash flows, i.e.,
cash flows that would have accrued from the date of the expropriation to 30
June 2013 (which is the date of Navigant's latest calculations) must be brought
forward to present value through the application of an interest rate. By
contrast, future cash flows must be discounted back to net present value
through the application of a discount rate. (635)
3.300 In the meantime, however, the ECtHR deviated from its earlier jurisprudence. In
Guiso-Gallisay v Italy, the Grand Chamber decided to change its Papamichalopoulos case
law, because it found that the principle elaborated in that case could lead to anomalies.
(636) This was mainly because, under its constant jurisprudence, the Court had not only
evaluated the property at the time of the judgment, but also increased its value due to
buildings erected thereon in the meantime. The Grand Chamber found that this could
open the door to a margin of uncertainty and even arbitrary decisions. (637) It pointed
out:
[T]he Court considers that automatically assessing the losses sustained by the
applicants as the equivalent of the gross value of the buildings erected by the
State cannot be justified. Such a method could lead to disparities in the
treatment of applicants, depending on the nature of the public works
undertaken by the authorities, something that is not necessarily related to the
land's original potential. In addition, such a compensation method assigns a
punitive or dissuasive role to compensation for pecuniary damage vis-à-vis
the respondent State, rather than a compensatory role vis-à-vis the
applicants. (638)
3.301 It decided to adopt a new approach, namely to award the value at the time of the
expropriation, minus the amount obtained at domestic level. This amount should then be
converted to current value to offset the effects of inflation. (639) Moreover, interest would
have to be paid on this amount so as to offset, at least in part, the long period for which
the applicants had been deprived of the land. (640) Furthermore, 'loss of opportunities'
sustained by the applicants needed to be assessed, which the Court would determine on
an equitable basis. (641) In addition, non-pecuniary damage should be awarded to
P 141 successful applicants, because 'the feelings of powerlessness and frustration arising
from the unlawful dispossession of their property has caused the applicants considerable
non-pecuniary damage that should be compensated in an appropriate manner'. (642)
3.302 With this change in case law, the ECtHR rectified an 'anomaly', namely the inclusion
of buildings erected on the property in the valuation, usually with taxpayers' money. This
could even be regarded as unjust enrichment of the former owners, which arguably
should be corrected. It would probably have been sufficient to deviate from this
'anomaly' and just to evaluate the expropriated land without the buildings at the
valuation date. Nevertheless, the Court decided to take a new approach and to go back
to the expropriation date. However, it did so by counterbalancing this step by a few
adjustments which are, if not an 'anomaly', at least remarkable: (1) the amount has to be
adjusted for inflation in addition to interest (while usually interest shall repair the
damage incurred for the temporary withholding of money, including inflation); (2) the
applicants receive a lump sum for 'lost opportunities'; and (3) the applicants receive an
amount of non-pecuniary damages for feelings of powerlessness and frustration they
suffer arising from the unlawful dispossession of their property. (643) It follows that the
additional items of damages, (644) which the Court awards on an equitable basis, are
necessary to put the former owners in the financial position they would be in, if the
unlawful act had not been committed.
3.303 In any case, the Court also reiterated in Guiso-Gallisay v Italy, that it was impossible
to equate lawful expropriations and unlawful expropriations. (645) It distinguished
64
Papamichalopoulos from later cases, which often concerned Italy's practice of
'constructive expropriation'. This perhaps less than perfect translation of the term
'occupazione aquisitiva' or 'accessione invertita' allows an expedited expropriation
procedure to occupy a plot of land for public works under Italian national law. (646) Once
a project has been declared to be in the public interest, the authorities may issue an
expedited possession order and take physical possession of the land. A formal
expropriation order must follow before the end of the authorized period of occupation.
The authorized occupation of land creates an entitlement to compensation for
occupation. (647) The Court distinguished these cases from Papamichalopoulos, where all
of the national courts had recognized the applicant's title to the property, while the
P 143 applicants in the Italian cases had lost ownership following the construction of public
works according to national law. They would have had the right to apply to court for the
restitution of the land, but they did not. (648) Thus the Court respected Italian national
law which did not necessarily provide for restitutio in integrum in cases of unlawful
expropriations.
3.304 Birch refers to the above-mentioned shift of the ECtHR in support of the view that
the valuation date should be the date of the expropriation, if the expropriation is lawful
but for the non-payment of compensation. (649) As it is suggested that the mere non-
payment of compensation does not render the expropriation unlawful, (650) the
valuation date would be in the past anyway. But the ECtHR did not address an
expropriation that would have been legitimate had adequate compensation been paid.
On the contrary, the expropriation amounted to a seizure of the applicant's land by the
state. (651)
3.305 It follows from the above that, despite the ECtHR's change in case law, there are a
number of specificities in the legal protection of human rights which inform and explain
it. These are not necessarily present in international investment law, including the
prominence of 'equitable considerations' and non-pecuniary damages in the Court's
assessment of 'just satisfaction', so that the consequences of this change for international
investment arbitration may remain—and have so far remained—limited.
(c) Indirect Expropriations
3.306 The determination of the valuation date is particularly difficult in cases of indirect
expropriation. This is especially true if the deprivation of property does not occur in one
instance but by a combination of acts and omissions over a longer period of time. In
cases of such 'creeping' or 'consequential' expropriations the value of the property can
get gradually reduced and, in the end, the state pays much less than it would have had to
pay, if it had chosen to expropriate the property by decree and in one act. (652)
3.307 International practice has nevertheless sometimes identified the valuation date in
such cases at a relatively late stage, when the deprivation of property rights had turned
out to be irreversible. The Iran–US Claims Tribunal in this respect held in International
Technical Products v Iran:
Where the alleged expropriation is carried out by way of a series of
interferences in the enjoyment of the property, the breach forming the cause
of action is deemed to take place on the day when the interference has
ripened into more or less irreversible deprivation of the property rather than
on the beginning dates of the events. (653)
3.308 Even though the expropriating state, in this way, may reduce the value of the
property by its own actions, a number of tribunals have agreed with this approach. (654)
However, in other cases, where the appointment of 'temporary' managers by the state
finally resulted in an expropriation, the date of their initial appointment was chosen as
the expropriation date. (655)
3.309 In Sedco v NIOC, the tribunal decided that '[w]hen, as in the instant case, the
seizure of control by appointment of “temporary” managers clearly ripens into an
outright taking of title, the date of appointment presumptively should be regarded as the
date of taking'. (656) This ensured that the forced institution of the management and its
actions could not reduce the amount of compensation. (657)
3.310 In Amoco International Finance v Iran, (658) the claimant was of the opinion that
before the formal expropriation by the Single Article Act of 8 January 1980, the company
had already been indirectly expropriated. (659) The tribunal agreed, conceding that the
expropriation had been a 'process':
[T]he Tribunal finds that Amoco's rights and interests under the Khemco
Agreement, including its shares in Khemco, were lawfully expropriated by Iran,
through a process starting in April 1979 and completed by the decision of the
Special Commission, notified by telex on 24 December 1980. (660)
3.311 The valuation date, according to the tribunal, should be 31 July 1979, a date before
the formal expropriation. (661) The tribunal explained that, already from that date, the
respondents no longer respected the common decisions taken in the joint venture
P 145 company which led to the destruction of the claimant's rights:
65
The Tribunal decides that this fact will be duly taken into account by
determining that the date to be considered for the valuation of such
compensation will be the date at which measures definitively took effect,
rather than the date of the final decision of nationalization. (662)
3.312 Reisman and Sloane, commenting on this award, drew the conclusion that, in some
cases, it would be necessary to distinguish the valuation date from the expropriation
date. (663) In cases of creeping or consequential expropriations, the date of the
expropriation should be chosen at the end of the chain of actions and omissions; (664)
the valuation date, however, should be set at the beginning. (665) This would prevent the
state being able, by gradual interference and obstruction, to reduce the value of the
investment and, thus, the amount payable:
The ironic, indeed, perverse, result of that theory would be to reward states for
accomplishing expropriation tranche by tranche rather than d'un coup and to
encourage states to accomplish expropriation furtively, either by a creeping
or disguised series of regulatory acts and omissions of nebulous legality …
(666)
3.313 Reisman and Sloane correctly consider such creeping or disguised expropriations as
unlawful and reason their proposal, amongst others, by the principle that 'a delictor may
not benefit from its own delict'. (667)
3.314 Furthermore, it has to be noted that creeping expropriations will in most cases be
considered unlawful, (668) so that the international responsibility of the state becomes
engaged. Article 15 of the ILC Articles on State Responsibility contains a solution as to the
problem of the date of the wrongful act in cases of a 'Breach consisting of a composite
act'. It distinguishes between the occurrence of the unlawful act (paragraph 1) and the
duration of the breach (paragraph 2):
1. The breach of an international obligation by a State through a series of actions or
omissions defined in aggregate as wrongful occurs when the action or omission
occurs which, taken with the other actions or omissions, is sufficient to constitute
the wrongful act.
2. In such a case, the breach extends over the entire period starting with the first of the
actions or omissions of the series and lasts for as long as these actions or omissions
are repeated and remain not in conformity with the international obligation. (669)
3.315 When a breach consists of a composite act, it is necessary to decide which action or
omission is sufficient to constitute the wrongful act based on the precise facts of the case;
this does not necessarily have to be the last in the series. (670) The wrongful act can be
assumed to take place at the time of the first action or omission which, in combination
with the others, constitutes the breach. (671) This applies also to creeping expropriations.
In this way, the divergence of expropriation date and valuation date would not be
necessary.
3.316 The tribunal in Alpha Projektholding v Ukraine (672) chose the date accordance with
this proposal. The case concerned the indirect expropriation of the claimant's
investment in a hotel project which consisted in a series of acts by the respondent,
including a temporary suspension of payments under the renovation agreements, the
transformation of the enterprise into a state-owned open joint stock company, the
transfer of management of the hotel to the state, various domestic legal proceedings and
related events. (673) The tribunal decided that the date of the expropriation should be
the first day of the month after the claimant had received the last payment. While
subsequent actions of the Government perpetuated the non-payment to the claimant,
'the expropriation (and other BIT violations) occurred at the time payment ceased, never
to be resumed'. (674)
3.317 A solution of a later rather than an earlier date was chosen by the tribunal in
Unglaube v Costa Rica. (675) Several attempts to expropriate had occurred, namely in
2003, 2004, and 2005. (676) However, at the date of the award, the claimants had still not
been formally expropriated, but been burdened with the effects of the various
ineffectual efforts to expropriate their property since 2003. (677) The tribunal decided
that both under the Chorzów approach and the language of the BIT the applicable
standard was the fair market value of the investment, but 'where property has been
wrongfully expropriated, the aggrieved party may recover (1) the higher value that an
investment may have acquired up to the date of the award and (2) incidental expenses'.
(678) It decided that the valuation date should be 1 January 2006, six months before the
market peak put forward by the claimants, to reflect 'normal fears and negative
P 146 contingencies which are present in the minds of sellers and buyers making important
investment decisions'. (679) According to the tribunal, this was 'fair and reasonable', (680)
apparently reflecting a discretionary choice made by the arbitrators in view of the
illegality of the expropriation. (681)
3.318 Other tribunals have relied on the last date of the actions which in their totality
amounted to an indirect expropriation. In Rumeli v Kazakhstan, the indirect
expropriation occurred through a series of court decisions which the tribunal determined
as a 'creeping expropriation'. (682) With regard to the expropriation date, the tribunal
66
found that it may be a matter of judgement rather than of direct and clear evidence.
(683) The tribunal decided that the expropriation date should be set at a time of the last
unappealable decision of 30 October 2003, because until that time the ownership
remained in the hands of the claimants and they could not reasonably know that their
investment was irrevocably lost. (684) In doing so, the tribunal followed the claimants'
arguments. (685)
3.319 The tribunals concerned with the demise of Yukos in Russia also dealt with indirect
expropriation as a result of a number of measures by the respondent over a longer period
of time. In Yukos v Russia, the tribunal pointed out that both parties had agreed that the
date of the expropriation should be 'the date on which the incriminated actions first lead
to a deprivation of the investor's property that crossed the threshold and became
tantamount to expropriation'. (686) The claimants had submitted that this was 21
November 2007, the day on which Yukos was struck off the Russian register of legal
entities. (687) The respondent did not propose an alternative date but argued that
claimants had lost effective control over their investment long before this date. (688) The
tribunal agreed with the respondent that 'the threshold to the expropriation of
Claimants' investment was crossed earlier than in November 2007' and held that 'a
substantial and irreversible deprivation of Claimants' assets occurred on 19 December
2004, the date of the YNG auction [which was] Yukos' main production asset'. (689) The
determination of 19 December 2004 as the date of the expropriation differs from the
award in Quasar de Valores v Russia which had accepted the claimants' submissions that
P 147 it was 23 November 2007, the day on which Yukos 'was removed from the Unified
Register of Companies in the wake of the end of the bankruptcy proceedings as
pronounced by the Moscow Arbitrazh Court'. (690) In its explanations, (691) the tribunal
did not mention the different solution by the earlier tribunal, but made its own choice.
3.320 In Rosinvest v Russia, the tribunal did not discuss the expropriation date in detail.
The claimant had submitted that the expropriation of Yukos' assets had commenced with
the auction of YNG on 19 December 2004 and had been concluded with the Russian
Federation's auction of the last of Yukos' assets during the final bankruptcy auction on 15
August 2007. The tribunal chose the valuation date in a different manner, namely the date
on which the 'economic risk … taken over by the claimant'. (692)
3.321 The practice of investmemt tribunals shows that the determination of an
expropriation date in cases of indirect expropriation is a challenging task and that
various principles and a certain amount of discretion are applied. The date of the
expropriation remains important also in cases of unlawful expropriation, because it
represents the lower limit of the amount of damages. Both the claimant, who has a choice
between the expropriation date and the date of the award, and the tribunal, need to
know the value at the expropriation date in order to compare the two values and to
decide which one is higher.
(2) The Valuation Date in Other Cases

3.322 The damage caused by an unlawful act consists in the difference between the actual
financial situation of the injured person and the financial situation he or she would be in,
if the unlawful act had not been committed. It will now be discussed what the principle of
full reparation means for the choice of the valuation date in cases of violations of
international law unrelated to expropriations and in cases of breach of contract.
(a) Violations of International Law
3.323 According to the law of state responsibility, the amount of compensation payable
after a violation of international law should reflect all financially assessable damage
caused by the breach. (693) In order to assess this damage it is necessary to compare the
P 149 actual financial situation of the victim with the hypothetical financial situation under
the assumption that the breach had not occurred. An important point of reference is the
principle of restitutio in integrum, which means integral re-establishment of the situation
that would exist without the unlawful act. Under the law of state responsibility,
'restitution' is the primary remedy after a violation of international law, 'compensation'
only payable as far as restitution is not possible or not sufficient. (694)
3.324 Under the premise of 'restitution' it seems logical that, as a matter of principle, the
valuation date should be the date of the award. Schwarzenberger pointed this out in his
analysis of the Chorzów factory case. (695) The choice of a valuation date as late as
possible ensures that all information available until that date may and can be used in
order to arrive as closely as possible at full reparation.
3.325 The time of the unlawful act itself or of the occurrence of damage is nevertheless
important as point of reference for the construction of the alternative scenario. This is not
only relevant in cases of unlawful expropriations, as outlined above, but also for
violations of other BIT provisions and other international law obligations.
3.326 In Amco Asia v Indonesia, the respondent had breached a number of different duties
vis-à-vis the foreign investor which had led to a total destruction of the investment
project, the construction and operation of a hotel and office complex. (696) In order to
assess the damage incurred, the tribunals did not see any reason why they should do this
from the perspective of a businessman at the time of the wrongful acts. Instead, the
67
second tribunal in Amco Asia v Indonesia (Amco II) held:
If the purpose of compensation is to put Amco in the position it would have
been in had it received the benefits of the Profit-Sharing Agreement, then
there is no reason of logic that requires that to be done by reference only to
data that would have been known to a prudent businessman in 1980. (697)
3.327 The calculation was divided into two phases, the first phase from the date of the
unlawful act until the valuation date (the date of the award), and the second phase from
the valuation date into the future. (698) As for the first phase, actual economic
developments and dates, such as inflation, exchange rates, and taxes, were taken into
consideration. (699) The division of the valuation period was applied by both the first and
the second tribunal in order to approximate restitution as closely as possible: (700)
It may, on one view, be the case that in a lawful taking, Amco would have been
entitled to the fair market value value of the contract at the moment of
dispossession. In making such a valuation, a Tribunal in 1990 would necessarily
exclude factors subsequent to 1980. But if Amco is to be placed as if the
contract had remained in effect, then subsequent known factors bearing on
that performance are to be reflected in the valuation technique … (701)
3.328 The tribunal emphasized that later developments have to be taken into account in
the valuation of damages due. Only the consequences following from the unlawful act
itself must be disregarded:
Foreseeability not only bears on causation rather than on quantum, but it
would anyway be an inappropriate test for damages that approximate to
restitutio in integrum. The only subsequent factors relevant to value which are
not to be relied on are those attributable to the illegality itself. (702)
3.329 The tribunal in S D Myers v Canada also explicitly included subsequent
developments in its damages valuation. (703) It did not assess the damage incurred
during the Canadian export ban but made an assumption about the hypothetical
development of the claimant's business operation up until the date of the award. (704)
3.330 The comparison of the 'pesification scenario' with the 'non-pesification scenario' by
the ICSID Tribunal in CMS v Argentina also considered the development of profits from the
perspective of the date of the award. (705) The tribunal in El Paso v Argentina decided on
damages after a violaton of the fair and equitable treatment standard contained in the
US–Argentina BIT held, after referring in detail to the above-mentioned cases Chorzów
Factory, S D Myers, Amco Asia, and Article 36 of the ILC Articles on State Responsibility:
[T]he value of the property should be determined with reference to a date
subsequent to that of the internationally wrongful act, provided the damage is
'financially assessable', therefore not speculative. The Tribunal shares this
position. (706)
3.331 The fact that subsequent events and developments are included in the valuation
may also reduce the amount of damages. (707) This is the consequence of the principle of
full reparation on the basis of the restitution approach. If subsequent events led to a
P 150 diminution of value, the injured party would have suffered this also in the absence of
the unlawful act. This part of the damage is, therefore, not causally linked to the
violation. Only in expropriation cases, is the objective value at the time of the
expropriation the guaranteed minimum to be received. In other cases of state
responsibility there is no such lower limit. The only measure of damages is the
comparison of the financial situations with and without the breach.
3.332 The consideration of developments and events after the unlawful act which lead to
a decrease in expected damages is not in contradiction with the principle of
foreseeability. According to this principle, only damage that was foreseeable at the time
of the unlawful act should be compensated. This should exclude the obligation to
compensate extraordinary damages and is thus meant as a limitation. It does not mean
that the damage that was foreseeable at the time of the breach has to be compensated
in any case. Foreseeability otherwise is an elusive concept, and its purpose could
probably better be achieved by the principle of causation. The causal link between the
damage and the act can be established with the benefit of hindsight and on the basis of
reliable and known information. The alternative of putting the investor in the shoes of the
injured person at the time of the breach leads to unnecessary complicated chains of
hypotheses.
(b) Breaches of Contract
3.333 The principle of full reparation also requires the consideration of subsequent
events in cases of breach of contract. It does not matter that a 'reasonable businessman'
in the past has foreseen certain profits. In order to calculate the amount of lost profits, a
comparison has to be made between the profits that could have been earned with and
without the breach. The valuation can be relatively free from uncertainty and
'speculation', if it is done as of the date of the award. This holds true for profits that could
68
have been made in the past and those forgone in the future. It is only with regard to the
latter that projection into the future and 'foreseeability' are necessary and relevant.
3.334 Damages should only be awarded for the loss of profits actually caused by the
breach. In case of long-term investment contracts, profits may not only depend on the
performance of the other party but also on other factors. It is necessary to distinguish
between the different causes. Only the negative consequences connected to the breach
have to be included in the calculation of damages. By contrast, other factors not related
to the breach, such as economic, social, or political developments which would have
reduced the amount of profits anyway must be excluded. Their detrimental effect on the
profits cannot be blamed on the breaching party. The aim is to arrive as closely as
possible at the situation the injured party would be in absent the breach. This means that
all subsequent factors have to be taken into account for the calculation but only those
connected to the breach are relevant for the measurement of lost profits. It must be
recognized that the other events would have reduced—or increased—the profits also in
P 151 absence of the breach.
3.335 The proceedings in Delagoa Bay were an early example of such a determination of
lost profits. (708) At the time of the unlawful termination of the railway concession in
1889, the railroad had not yet been completed. The damage incurred at this time,
therefore, consisted only in the expenses made for the construction work undertaken so
far. (709) The tribunal calculated lost profits on the basis of the profits actually earned by
the Portuguese Government after the completion of the railroad in 1895. (710)
3.336 In LETCO v Liberia, (711) after a unilaterally changed lumber concession, (712) the
ICSID Tribunal in its valuation of lost profits considered the development of the business
until the date of the award. (713) For profits that would be expected for the period after
the award, the tribunal estimated them on the basis of the development of the prices
until that date. (714)
3.337 In Autopista Concesionada v Venezuela, the ICSID Tribunal rejected the claim for lost
profits because it was convinced that the investment of the claimant in a highway project
in Venezuela would not have been profitable, even without the breach of the respondent.
(715) This conclusion was drawn on the basis of expert opinions with the use of
information about developments after the breach. (716) The tribunal emphasized that
the scope and purpose of lost profits compensation under Venezuelan law is
to indemnify the claimant for all, but not more than, the damage actually
suffered. For the sake of completeness, the Tribunal adds that this solution is
consistent with the practice of international tribunals. (717)
3.338 After a detailed comparative analysis of national contract laws, Wöss and others
come to the conclusion that 'all rules of law analysed allow the calculation of damages at
the moment of the judgment'. (718) While this is relatively straightforward in German and
P 153 French law, (719) as well as in US law, (720) under English law, damages are usually
assessed by reference to the time of the breach. (721) Nevertheless, the court may
deviate from that date to assess damages by reference to the date that may be
appropriate in the circumstances. (722)
3.339 Under the CISG, 'damages may not exceed the loss which the party in breach
foresaw or ought to have foreseen at the time of the conclusion of the contract, in the
light of the facts and matters of which he then knew or ought to have known, as a possible
consequence of the breach of contract'. (723) Looking back to the time of the breach or
even back to the time of the conclusion of the contract in its limiting function shall
ensure that the damages get not higher than the foreseeable damage. It is, however, not
necessary to step into the shoes of that time in order to calculate the damages as of that
date, because the primary function of damages is to arrive at a 'sum equal to the loss,
including loss of profit, suffered by the other party as a consequence of the breach'. (724)
The foreseeability of the loss represents only the outer limit of the amount of damages,
while not having necessarily a determinative function. Furthermore, the CISG is drafted as
its title indicates for the 'sale of goods', thus for short-term contracts. It is not directly
applicable to most investment contracts and is only relevant by way of analogy or as a
general principle.
3.340 According to Article 7.4.2 of the PICC, the principle of full compensation shall mean
that 'regard is to be had to any changes in the harm, including its expression in monetary
terms, which may occur between the time of non-performance and that of the judgment'.
(725)
3.341 Spiller notes a 'natural tendency to use the date of the breach, but contract or
treaty disputes are often much more complicated'. (726) He points out that using
expectations as of the date of the breach may under- or over-compensate the investor for
losses which as of the date of the award are certain. He argues:
Thus, an appropriate implication of the 'wiping out all the consequences'
principle is that historical losses should be treated as they are, that is using
hindsight, rather than as could have been expected as just prior to the date of
the initial breach. (727)
69
3.342 The choice of the valuation date represents one of the most significant distinctions
between the subjective–concrete and the objective–abstract valuation approach. While
compensation for expropriation has to reflect the objective value at the time of
expropriation, the concrete valuation inherent in the principle of full reparation requires
also considering developments after the unlawful act. This is necessary in order to come
as closely as possible to restitutio in integrum. (728) The valuation date, therefore, should
in principle be the date of the award in cases of state responsibility and in cases of
breaches of international investment contracts. Only in cases of unlawful expropriations
the value at the time of the expropriations represents the lower limit. In respect of
contract cases this is important insofar as the acts of a host state may constitute an
unlawful expropriation of an investment contract and not only a breach of contract. In
this case, the value of the contract at the time of the expropriation represents the lower
limit of the amount to be awarded.
D. The Exercise of Discretion and Equity Considerations

3.343 The valuation of assets always contains a certain amount of uncertainty and
imprecision. As the tribunal in ADC v Hungary put it in an often-quoted formulation: '[T]he
assessment of damages is not a science.' (729) Valuation is always connected with the
exercise of judgement. The result will often only be an approximation. The leading
valuation expert Damodaran emphasizes that '[v]aluation is neither the science that
some of its proponents make it out to be nor the objective search for true value that
idealists would like it to become'. (730) In view of this, international tribunals have
sometimes explicitly referred to their discretion, (731) and sometimes used language
which implies equitable considerations. (732) However, the exercise of discretion must
not be confused with deciding on the basis of equity (ex aequo et bono) which needs
P 154 authorization by both parties.
3.344 It is rather rare that international investment tribunals are authorized by the
parties to decide ex aequo et bono. (733) In the absence of such an authorization they are
not allowed to base their decisions on equity but must base them on legal norms. (734) In
the framework of ICSID, the unauthorized application of equity can constitute a ground
for annulment. (735)
3.345 Considerations of equity may, however, also play a role when the law is applied.
The ICJ has explained this so-called 'internal' equity in the North Sea Continental Shelf
cases as not 'applying equity simply as a matter of abstract justice, but of applying a rule
of law which itself requires the application of equitable principles …'. (736)
3.346 It is not entirely clear to what extent these conclusions are relevant for the
calculation of compensation and damages. The ICJ discussed this question in an Advisory
Opinion regarding the judgments of the Administrative Tribunal of the ILO:
[A]s the precise determination of the actual amount to be awarded could not
be based on any specific rule of law, the tribunal fixed what the Court, in other
circumstances, has described as the true measure of compensation and the
reasonable figure of such compensation (Corfu Channel Case, Judgement of
December 15th 1949, I.C.J. Reports 1949 p. 249). (737)
3.347 The reason for referring to equitable or 'reasonable' figures was that there was no
'specific rule of law' for the calculation of the respective claims. This is not the case in the
P 155 present context of international investment law where the claims for compensation or
damages are based on identifiable legal norms. In view of this, recourse to equity
considerations does not appear appropriate. On the other hand, the assessment of
compensation and damages always requires the exercise of discretion. The distinction
between discretion, equitable considerations, and equity is certainly not easy to be
drawn, but nevertheless important. A related issue concerns the relevance of the
economic situation of the host country.
(1) Estimation and Equity

3.348 The practice of international investment tribunals shows that equitable
considerations were invoked in cases where the amount of compensation or damages
could—for various reasons—hardly be determined at all.
3.349 The sole arbitrator in Sapphire International Petroleum v NIOC was confronted with
the problem that the breach of the concession agreement had occurred at a very early
stage. (738) On the basis of the principle pacta sunt servanda the arbitrator was of the
opinion that lost profits also had to be awarded. These were, however, very difficult to
calculate without any data or record of the past. It was not even clear whether in the
concession area petroleum reserves existed at all. Considering all relevant
circumstances, in particular the behaviour of the respondent itself, (739) the arbitrator
found that it would be 'reasonable and equitable to fix the amount of compensation for
loss of profit at US$ 2,000,000'. (740)
3.350 In LIAMCO v Libya the situation was even more difficult as the arbitrator found that
in view of the legality of the expropriation there was no need for full reparation. (741) He
referred to 'equity' and explained that it could be applied as a general principle of law:
70
One of these general principles of law is Equity, which is commonly und
unanimously recognized as a supplementary source of law in Libyan law …,
Islamic law … and international law [Article 38, para. 2, of the Statute of the
International Court of Justice].
3.351 This classification of 'equity' as a general principle of law, as defined in Article 38
paragraph 1 lit. c ICJ Statute, on the one hand, and the reference to Article 38 paragraph 2
on the other, appears to be inconsistent. In any case, the arbitrator made it clear that
equity considerations played a role in the calculation of the amount of compensation. In
particular, he referred to the high amount of expenses and the risk undertaken by the
P 156 claimant so that it appeared inappropriate to base the calculation only on the value of
the lost oil rigs. (742) The arbitrator could not calculate this amount exactly but
estimated it 'applying the measure of “equitable compensation” hereabove adopted'
and reached the conclusion 'that a lump sum of $66,000,000 (sixty six million American
dollars) should be a reasonable equitable indemnification'. (743)
3.352 The tribunal in Aminoil v Kuwait also referred to equitable considerations in its
valuation of the expropriated petroleum concessions. An often-quoted passage of the
award holds: 'It is well known that any estimate in money terms of amounts intended to
express the value of an asset, of an undertaking, of a contract, or of services rendered,
must take equitable principles into account.' (744) Even though the former owner had
already had a long period of successful operation of the petroleum concession, the
calculation of the value of the concession appeared difficult. The tribunal asked for exact
calculations from the experts. (745) In the end, however, it decided that the value was a
sum 'estimated at $206.042.000' which represented the 'depreciated replacement value'
of the assets, increased by the value of 'non-fixed assets, and taking into account the
legitimate expectations of the concessionaire'. (746) The tribunal considered this to
represent the 'reasonably appraised value of what constituted the object of the
takeover'. (747)
3.353 Similarly, the ICSID Tribunal in Técnicas Medioambientales v Mexico (748) pointed
out that it 'may consider equitable principles when setting the compensation owed to
the Claimant, without thereby assuming the role of an arbitrator ex aequo et bono'. (749)
The tribunal in this case awarded lost profits for two years after the expropriation,
although in those two years no profits would have been expected because of the planned
relocation of the landfill which had become necessary due to the growing community
pressure. (750) This amount can thus be regarded as a lump sum to account for the
investor's successful operation in the past.
3.354 The Iran–US Claims Tribunal, in order to explain inexact calculations or
estimations, frequently referred to 'reasonableness' or the 'relevant circumstances'. In
P 157 American International Group v Iran, for example, it held that 'in order to determine
the value within these limits, to which value the compensation should be related, the
tribunal will have to make an approximation of that value, taking into account all the
relevant circumstances of the case'. (751)
3.355 More recent ICSID tribunals have also based their quantification on 'appropriate
estimation' (752) and 'reasonable' probabilities. (753)
3.356 Several tribunals pointed to the difficulty of the exact calculation of the amount of
damages and stated that it was impossible to establish damages as a matter of 'scientific
certainty' but that this would not prevent them from awarding damages nevertheless.
(754) The leading case in this respect is Southern Pacific Properties v Egypt which held that
'[i]t is well settled that the fact that damages cannot be settled with certainty is no
reason not to award damages when a loss has been incurred'. (755)
3.357 Another idea to reflect equitable principles in the quantification was brought up in
Funekotter v Zimbabwe, reminding of the arguments made in the Chilean Copper
nationalizations, namely that 'the profit resulting in the past from the investment' should
be taken into account. (756)
3.358 Even though international tribunals are often confronted with considerable
difficulties when it comes to the valuation of claims, equitable principles should be used
cautiously, in particular without an express authorization by the parties to decide ex
aequo et bono. (757) Sometimes it is necessary to engage in complex calculation and
valuation procedures, and the help of experts is needed. Tribunals have shown that they
can use this help and apply the respective parameters to the specific valuation issues of
the case.
3.359 International courts and tribunals do have discretion, but it should not be used as
P 161 an excuse for not conducting a calculation as precisely as possible. In view of modern
valuation tools and techniques, including information on electronic resources, a lot of
uncertainty and complexity can be built into generally accepted valuation methods.
(2) Relevance of the Respondent's Economic Situation

3.360 The economic situation of the host state has traditionally been discussed in the
context of the standard of compensation upon expropriations or nationalizations. (758)
Under the law of state responsibility the question arises to what extent financial
71
difficulties can represent a circumstance precluding the wrongfulness of an act of the
state. (759) In addition, many bilateral investment treaties contain so-called 'Non-
Procluded Measures Provisions' (NPMs). (760) In order to ensure the long-term perspective
of international investment law, it appears important to find a proper balance between
the maintenance of a reliable legal and financial framework for investors and, on the
other hand, to account for the financial difficulties of host states in certain cases. (761)
Investment tribunals have addressed this issue in a number of cases.
3.361 The tribunal in Himpurna California v PLN tried to balance the provision of a
contract which was very beneficial to the investor. As the host state was in a serious
financial crisis it tried to limit the amount of damages for lost profits:
In such circumstances, it strikes the Arbitral Tribunal as unacceptable to
assess lost profits as though the claimant had an unfettered right to create
ever-increasing losses for the State of Indonesia (and its people) by generating
energy without any regard to whether or not PLN had any use for it. Even if
such a right may be said to derive from explicit contractual terms, the Arbitral
Tribunal cannot fail to be struck by the fact that the claimant is seeking to turn
the ESC into an astonishing bargain in circumstances when performance of the
Contract would be ruinous to the respondent. (762)
3.362 In order to account for this concern, the tribunal applied the principle of the
prohibition of 'abuse of right' as a general principle of law. (763) This was, however,
criticized by one arbitrator and by commentators. (764)
3.363 In CME v Czech Republic, the amount claimed by a financially strong foreign investor
appeared to pose a considerable burden for the respondent state and its rather small
emerging economy. Arbitrator Brownlie, in his Separate Opinion, wrote in favour of an
appropriate consideration of the respondent state's financial situation. (765) He argued
that not only in case of expropriations but also in cases of state responsibility the
amounts awarded should take into account the financial abilities of the states involved.
To support this argument he referred to cases where even reparations after wars and
unlawful acts of aggression had reflected this aspect. He pointed, for example, to the ICJ's
argument in the Gulf of Maine case that the legitimate approach lies in the avoidance of
methods that were 'likely to entail catastrophic repercussions for the livelihood and
economic well-being of the population of the countries concerned'. (766) Similarly, the
Japanese Peace Treaty of 1945 had also 'recognized that the resources of Japan are not
presently sufficient if it is to maintain a viable economy, to make complete reparation
for all such damage and suffering and at the same time meet its obligations'. (767) The
tribunal, however, did not follow these considerations and calculated the amount of
damages solely on the basis of economic criteria, namely on the basis of the price paid
by an interested investor and, as a confirmation, by the value of expected cash-flows (the
DCF method). (768)
3.364 The relevance of the difficult financial situation of the host state has been
particularly discussed in the cases against Argentina under the auspices of ICSID. The
unilateral disengagement of a number of long-term investment contracts from their
linkage to the dollar, the so-called 'pesification', was one of a number of measures taken
by the Argentine Government in the major economic crises occurring between 2000 and
2002. In the award in CMS v Argentina, the first to decide the damages issue, the ICSID
Tribunal put its dilemma in the following terms:
The question for the Tribunal is then how does one weigh the significance of a
legal guarantee in the context of a collapsing economic situation. It is
certainly not an option to ignore the guarantee, as the Respondent has
advocated and done, and neither is it an option to disregard the economic
reality which underpinned the operation of the industry. (769)
3.365 The unlawful act of the respondent was considered to be a breach of the applicable
BIT between Argentina and the United States. The tribunal, therefore, addressed the
issue from the perspective of international law, in particular the law of state
responsibility. In this context Article 25, which describes 'necessity' as a reason for
precluding the wrongfulness of the act of the state, is of particular importance. Article 25
reads:
Necessity.
1. Necessity may not be invoked by a State as a ground for precluding the
wrongfulness of an act not in conformity with an international obligation
of that State unless the act:
(a) is the only way for the State to safeguard an essential interest
against a grave and imminent peril; and
(b) does not seriously impair an essential interest of the State or
States towards which the obligation exists, or of the international
community as a whole.
2. In any case, necessity may not be invoked by a State as a ground for
precluding wrongfulness if:
72
(a) the international obligation in question excludes the possibility of
invoking necessity; or
(b) the State has contributed to the situation of necessity. (770)
3.366 In CMS v Argentina, the tribunal was of the opinion that the conditions were not
fulfilled. (771) Also the emergency clause contained in the treaty itself was not applicable
according to the tribunal:
As stated above, the Tribunal is convinced that the Argentine crisis was severe
but did not result in total economic and social collapse. When the Argentine
crisis is compared to other contemporary crises affecting countries in different
regions of the world it may be noted that such other crises have not led to the
derogation of international contractual or treaty obligations. (772)
3.367 The ICSID Tribunal in LG&E v Argentina, in contrast, came to a different conclusion as
regards the consequences of the difficult economic situation in Argentina. The claimants
had been affected by the same measures by the Argentine Government which the
tribunal, in this case, considered as justified by the state of necessity. It held:
The essential interests of the Argentine State were threatened in December
2001. It faced an extremely serious threat to its existence, its political and
economic survival, to the possibility of maintaining its essential services in
operation, and to the preservation of its internal peace. There is no serious
evidence on the record that Argentina contributed to the crisis resulting in the
state of necessity. In this [sic] circumstances, an economic recovery package
was the only means to respond to the crisis. (773)
3.368 It followed that, according to the tribunal, Argentina was not internationally
responsible for the violation of its obligations during the state of necessity. It was not
obliged to pay damages for this period. However, the Argentine Government should have
re-established the original tariff regime as soon as the state of necessity was over.
Argentina was, therefore, responsible for the violation of its obligations after this date:
Based on the analysis of the state of necessity, the Tribunal concludes that,
first, said state started on 1 December 2001 and ended on 26 April 2003;
second, during that period Argentina is exempt of responsibility, and
accordingly, the Claimants should bear the consequences of the measures
taken by the host State; and finally, the Respondent should have restored the
tariff regime on 27 April 2003, or should have compensated the Claimants,
which did not occur: As a result, Argentina is liable as from that date to
Claimants for damages. (774)
3.369 It is remarkable that the tribunal in LG&E v Argentina did not mention the award in
CMS v Argentina which had been issued only fifteen months before and had been based
on almost identical facts. (775) Yet, the difference of opinions on the relevance of the
emergency situation in Argentina did not become smaller. In Continental Casualty v
Argentina, the tribunal, similar to LG&E v Argentina, accepted Argentina's contention with
respect to its emergency situation for the larger parts of the claim. (776) The tribunals in
Sempra Energy v Argentina (777) and Enron v Argentina, (778) by contrast, did not accept
the justification under Article 25 of the ILC Articles on State Responsibility and held
Argentina liable to pay damages. However, these last two awards were annulled precisely
because the ad hoc committees found that the tribunals had not applied the law and had
manifestly exceeded their powers with respect to the measures and arguments raised by
Argentina in the wake of the economic crisis. The ad hoc committee in Sempra v Argentina
criticized the tribunal for not distinguishing between the treaty provision on NPM and the
customary law standard of the ILC Articles, (779) thus between primary and secondary
obligations international law. The ad hoc committee in Enron v Argentina found a
different reason for annulment, namely the lack of reasoning why the measure was not
the 'only measure' which could have been applied. (780) The decisions in the re-
P 162 submitted cases will show whether in the meantime some international consensus can
be achieved in the future as regards the possibilities of host states in economically
difficult situations.
3.370 The Argentinian crisis in 2001/2 and the various regulatory measures in response,
brought the role and purpose of the previously hardly noticed NPMs in to focus. Such
NPMs are contained in numerous BITs with slightly different formulations. If they apply,
then no damages are to be paid. By contrast, the applicability of Article 25 does not
preclude payment of compensation.
3.371 Burke-White and von Staden argue in their comprehensive analysis of the purpose
and scope of NPMs, that the different wordings in the BITS have to be interpreted more
accurately in accordance with the rules of treaty interpretation in Article 31 of the VCLT.
They have to be distinsguished in particular as regards (1) the 'nexus' (in formulations
such as 'necessary for', 'required to'…), (2) the permissible objectives, (3) the scope
(applicable to all BIT provisions or only to some), and (4) deference ('self-judging' or not).
(781) If these rules of interpretation were applied more accurately, the divergent
outcomes after situations such as that arising in Argentinia could be avoided. The latest
73
developments of arbitral tribunals and ICSID ad hoc committees point in this direction.
3.372 Several other tribunals in Argentina during the valuation stage of the proceedings
addressed the difficult financial situation. In order to arrive at the amount to be
awarded, they made a comparison between the scenario of the operation of the
enterprise with and without the pesification. This meant that the diminished
expectations and results from the business operation in the deteriorated economic
environment were put into the calculation. The tribunals took, for example, into account
that both the demand for gas and the prices for it would have suffered even without
Argentina's unlawful acts. Notably, the tribunals did not rely on equitable considerations.
3.373 In conclusion one can observe that economic realities, including financial crises,
generally are and should be reflected in the calculation of compensation and damages.
For this purpose, it is not necessary to rely on equitable considerations. While in cases of
temporary difficulty the deferral of payment or payment in instalments can be helpful,
the appropriate application of the respective valuation methods may well reflect various
kinds of macroeconomic fluctuations. A comparison with the hypothetical financial
situation of the victim of the unlawful act could and should, for example, reflect the
economic crises which would have reduced his or her financial situation anyway.
Furthermore, an appropriate reflection of the risk is included in several economic
valuation methods. The different approaches and their application by international
P 162 tribunals will be analysed in the next chapter.
References
1) See, e.g., F V Garcia-Amador, The Changing Law of International Claims (New York:
Oceana Publications, 1984) 278 et seq; B H Weston, 'The New International Economic
Order and the Deprivation of Foreign Proprietary Wealth: Reflections upon the
Contemporary International Law Debate' in R Lillich (ed.), International Law of State
Responsibility for Injuries to Aliens (Charlottesville: University Press of Virginia, 1983)
89 et seq; C F Amerasinghe, State Responsibility for Injuries to Aliens (Oxford:
Clarendon Press, 1967) 121 et seq.
2) See the case of Norwegian Shipowners, where the tribunal emphasized that both the
American Constitution and international law recognize the 'power of eminent
domain', namely, 'the power of a sovereign State to expropriate, take or authorise
the taking of any property within its jurisdiction which may be required for the
“public good” or for the “general welfare” '. Norwegian Shipowners' Claim (Norway v
United States), Award of 13 October 1922, 2 RIAA, 307, 332. This is still recognized
today. See R Dolzer and C Schreuer, Principles of International Investment Law (2nd
edn, Oxford: Oxford University Press, 2012) 98 et seq.
3) See, e.g., M Shaw, International Law (7th edn, Cambridge: Cambridge University
Press, 2014) 602; R Jennings and A Watts, Oppenheim's International Law (London et
al: Longman, 1992), vol. 1, 919 et seq; R Dolzer, Eigentum, Enteignung und
Entschädigung im geltenden Völkerrecht (Berlin et al: Springer, 1985) 2; G
Schwarzenberger, International Law (London: Stevens and Sons Ltd, 1957) 184 et seq;
B Cheng, General Principles of Law as Applied by International Courts and Tribunals
(London: Stevens and Sons Ltd, 1953) 37.
4) See A Reinisch, 'Expropriation' in P Muchlinski, F Ortino, and C Schreuer (eds), The
Oxford Handbook of International Investment Law (Oxford: Oxford University Press,
2008) 407, 408; M Herdegen, Principles of International Economic Law (Oxford: Oxford
University Press, 2013) 360; R Higgins, 'The Taking of Property by the State' (1982) 176
RdC 263, 288–9; G Christie, 'What Constitutes a Taking of Property under
International Law?' (1962) 38 BYIL 307, 309 et seq; B A Wortley, 'Some Early but Basic
Theories of Expropriation' (1978) 20 GYIL 236, 239–40.
5) See, e.g., the definition of the Institut de droit international of 1952: 'La
nationalisation est le transfer à l'Etat, par mesure législative, dans un intérêt
public, de biens ou droits privés ou de facultés d'une certaine catégorie, en vue de
leur exploitation ou contrôle par l'Etat, ou d'une nouvelle destination qui leur sera
donnée par celuici'. Institut de droit international (ed.), Annuaire (Basel: Institut de
Droit international, 1952), vol. 2, 279–80. Arbitrator Mahmassani explicitly referred to
this definition in LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 140, 185. See
also A Ruzza, 'Expropriation and Nationalisation' in R Wolfrum (ed.), The Max Planck
Encyclopedia of Public International Law (Oxford: Oxford University Press 2012), vol.
IX, para. 24.
6) As regards these 'indirect' expropriations, see further Section A(3).
7) Herdegen, n. 4, 16 et seq; B H Weston, 'The New International Economic Order and
the Deprivation of Foreign Proprietary Wealth: Reflections upon the Contemporary
International Law Debate' in R Lillich (ed.), International Law of State Responsibility
for Injuries to Aliens (Charlottesville: University Press of Virginia, 1983) 89 et seq, 124
et seq.
74
8) See German Interests in Polish Upper Silesia (Merits), PCIJ 1926 Ser A, No. 7, 22: 'It
follows from these same principles that the only measures prohibited are those
which generally accepted international law does not sanction in respect of
foreigners; expropriation for reasons of public utility, judicial liquidation and
similar measures are not affected by the Convention'. This remained unchanged for
a long time and was even confirmed in the UN GA Resolutions on the New
International Economic Order in the 1970s, see below, n. 76.
9) Otherwise, as is well known, there is no general prohibition of discrimination under
international law. See, e.g., J Crawford, Brownlie's Principles of Public International
Law (8th edn, Oxford: Oxford University Press, 2012) 612 et seq. Also in case of an
expropriation, discrimination is only regarded as unlawful if it intentionally and
egregiously—e.g. as an act of political repression—is directed against foreigners
only. See, e.g., BP v Libya, Award of 10 October 1973 (1979) 53 ILR 297, 314 et seq; see
also the Chilean expropriations in the 1970s. See in this regard A Lowenfeld, 'Chilean
Copper Nationalization, Review by Courts of Third States' in R Wolfrum (ed.), The
Max Planck Encyclopedia of Public International Law (Oxford: Oxford University
Press, 2012), vol. II, 145; I Seidl-Hohenveldern, 'Chilean Copper Nationalization Cases
before National Courts' (1975) 69 AJIL 110 et seq.
10) On this condition, there is no general agreement in legal writing and practice.
However, it is contained in many bilateral investment treaties (BITs), in the North
American Free Trade Agreement (NAFTA), and in the Energy Charter Treaty. See C
Schreuer, 'The Concept of Expropriation under the ECT and other Investment
Protection Treaties' in C Ribeiro (ed.), Investment Arbitration and the Energy Charter
Treaty (New York: JurisNet, 2006) 108 et seq.
11) On this issue see, e.g., C F Amerasinghe, above, n. 1; C F Amerasinghe, 'Issues of
Compensation for the Taking of Alien Property in the Light of Recent Cases and
Practice' (1992) 41 ICLQ 22 et seq; R Dolzer, 'New Foundations of the Law of
Expropriation of Alien Property' (1981) 75 AJIL 553.
12) See the historical overview in A Lowenfeld, International Economic Law (2nd edn,
Oxford: Oxford University Press, 2008) 469 et seq; Herdegen, n. 4, 16 et seq.
13) J Salacuse, The Law of Investment Treaties (Oxford: Oxford University Press, 2010) 70;
P Norton, 'A Law of the Future or a Law of the Past? Modern Tribunals and the
International Law of Expropriation' (1991) 85 AJIL 474, 479.
14) Article 4 reads: 'Nationalization, expropriation or requisitioning shall be based on
grounds or reasons of public utility, security or the national interest which are
recognized as overriding purely individual or private interests, both domestic and
foreign. In such cases the owner shall be paid appropriate compensation, in
accordance with the rules in force in the State taking such measures in the exercise
of its sovereignty and in accordance with international law. In any case where the
question of compensation gives rise to a controversy, the national jurisdiction of the
State taking such measures shall be exhausted. However, upon agreement by
sovereign States and other parties concerned, settlement of the dispute should be
made through arbitration or international adjudication.' UN GA Resolution on the
Permanent Sovereignty over Natural Resources No. 1803 (XVII) of 14 December 1962.
15) UN GA Resolution adopting the Declaration on the Establishment of a New
International Economic Order No. 3201 (S-VI) of 1 May 1974; UN GA Resolution on the
Programme of Action on the Establishment of a New International Economic Order
No. 3202 (S-VI) of 1 May 1974.
16) UN GA Resolution No. 3281 (XXIX) of 12 December 1974.
17) The above-mentioned resolutions served as a point of reference, as did the revision
of the Restatement of Foreign Relations Law of United States which also contained
exceptions to the full compensation standard. Schachter, among others, argued in
favour of reduced compensation in certain cases. See O Schachter, 'Editorial
Comment: Compensation for Expropriation' (1984) 78 AJIL 121 et seq; O Schachter,
'Compensation Cases—Leading and Misleading' (1985) 79 AJIL 420 et seq; for
arguments against this, see D Robinson, 'Expropriation in the Restatement
(Revised)' (1984) 78 AJIL 176 et seq; M Mendelson, 'Compensation for Expropriation:
The Case Law' (1985) 79 AJIL 414 et seq.
18) See R Lillich, 'International Law and the Chilean Nationalizations: The Valuation of
the Copper Companies' in R Lillich (ed.), Valuation of Nationalized Property in
International Law (Charlottesville: University Press of Virginia, 1973) 120, 124–5; I
Seidl-Hohenveldern, 'Chilean Copper Nationalization Cases before National Courts'
(1975) 69 AJIL 110 et seq; Lowenfeld, n. 9, para. 6. In a recent case, the Government of
Zimbabwe took up this argument and submitted that, with respect to the
calculation of compensation, 'the profit resulting in the past from the investment'
should be taken into account. Funnekotter and others v Zimbabwe, Award of 22 April
2009, para. 124. See also below, Section D(1).
19) INA Corporation v Iran, 8 Iran–US CTR (1985) 373–84. Also in Aminoil the standard of
compensation was broadly discussed. The tribunal pointed out that the opinions
about the appropriate standard are very diverse, ranging from no compensation at
all to compensation that represents restitutio in integrum. Aminoil v Kuwait, Award of
24 March 1982 (1982) 21 ILM 1032–3.
20) INA Corporation v Iran, above, n. 19, 378.
75
21) That large-scale nationalizations should give rise to discounting from the market
value was more recently argued once again by the Government of Zimbabwe.
Funnekotter and others v Zimbabwe, Award of 22 April 2009, para. 124.
22) INA Corporation v Iran, Dissenting Opinion Ameli, 8 Iran–US CTR (1985) 403, 416–17.
Furthermore, he argued that full compensation would be in contradiction to the
idea of fairness as the foreign investors have frequently generated large profits over
a long period of time and have contributed to and benefitted from the exploitation
of natural resources. See also C Murphy, 'Limitations upon the Power of a State to
Determine the Amount of Compensation Payable to an Alien Upon Nationalization'
in R Lillich (ed.), The Valuation of Nationalized Property in International Law
(Charlottesville: University Press of Virginia, 1975), vol. 3, 52. It was also argued that
the amount of compensation must reflect the historic debts owed to the peoples of
the Third World because of colonialism and include reparation for unpaid slave
labour or underpayment, as well as for the denial of opportunity to acquire
appropriate shares of land and natural resources. See N Girvan, 'Expropriating the
Expropriators: Compensation Criteria from a Third World Viewpoint' in ibid, at 149,
154–7.
23) CME Czech Republic BV (The Netherlands) v Czech Republic, Final Award on Damages
of 14 March 2003. Brownlie explained, in his comprehensive Separate Opinion, the
view that, in 1991, the year of the conclusion of the applicable BIT between the
Czech Republic and The Netherlands, the customary law standard on expropriations
was 'appropriate compensation'. CME Czech Republic BV(The Netherlands) v Czech
Republic, Separate Opinion Brownlie on the Issues at the Quantum Phase of 14
March 2003, para. 26. He alleged that the concepts of 'reasonable returns' and
'legitimate expectations' should be considered in the calculation of compensation.
He referred, amongst others, to Schachter who had held: 'Large-scale expropriation
such as general land reform often raises questions as to the ability of the State to
pay full compensation. In such cases, a good case can be made that less than full
value would be just compensation when the State would otherwise have an
overwhelming financial burden.' O Schachter, International Law in Theory and
Practice (Dordrecht et al: Martinus Nijhoff Publishers, 1991) 324.
24) Karaha Bodas Company LLC v Pertamina et al, Award of 30 September 1999,
<http://www.lfip.org/lawe506/cme506.htm>. See also the analysis of L Wells,
'Double Dipping in Arbitration Awards? An Economist Questions Damages Awarded
to Kahara Bodas Company in Indonesia' (2003) 19 Arbitration International 471.
25) See, e.g., S Schill, 'International Investment Law and the Host State's Power to
Handle Economic Crises' (2007) 24 Journal of International Arbitration 265; A van
Aaken and J Kurtz, 'Prudence or Discrimination? Emergency Measures, the Global
Financial Crisis and International Economic Law' (2009) Journal of International
Economic Law 1.
26) Although the discussions were more concerned with justifications for breach of
contract or breach of BIT obligations in case of economic emergency and did not
actually question the standard of compensation for expropriation. See, on the
relevance of the host state's financial situation further D.(2), paras 3.360 et seq.
27) N Bernasconi-Osterwalder, 'Who Wins and Who Loses in Investment Arbitration? Are
Investors and Host States on a Level Playing Field?' (2005) 6 JWIT 69 et seq.
28) T Wälde and A Kolo, 'Environmental Regulation, Investment Protection and
“Regulatory Taking” in International Law' (2001) 50 International Comparative Law
Quarterly 811; A Newcombe, 'The Boundaries of Regulatory Expropriation in
International Law' (2005) 20 ICSID Rev.-FILJ 1; Merill proposes in this context a new
concept of 'just compensation' which takes into account that regulatory takings
leave the possession undisturbed, but reduce the value or profitability of the
property. He suggests borrowing the solutions adopted in national expropriation
laws for partial takings or for public utilities which provide for 'incomplete
compensation'. T Merrill, 'Incomplete Compensation for Takings' (2002) 11 NYU
Environmental Law Journal 110, 121–8; see also U Kriebaum, 'Regulatory Takings:
Balancing the Interests of the Investor and the State' (2007) 8 JWIT 717.
29) Brownlie, in his Separate Opinion in CME v Czech Republic, also referred, inter alia,
to the award in Aminoil v Amoco which, however, dealt with lawful expropriation,
while in CME v Czech Republic the tribunal found that an unlawful expropriation and
simultaneously a violation of the applicable BIT had occurred. See CME v Czech
Republic, Separate Opinion Brownlie on the Issues at the Quantum Phase of 14
March 2003 (2006) 9 ICSID Reports 412, paras 35 et seq.
30) This is the case in almost all the BITs of the US. See also Article 6(1)(c) of the US
Model BIT (2012); similarly Article 13 of the Canadian Model BIT (2004); see also
Article 5 of the BIT between the UK and Argentina (1990); Article 5 of the BIT between
the UK and Croatia (1997); Article 5(1)(d) of the Austrian–Slovenian BIT (2001) and
Article 5 (1)(d) of the BIT between Austria and Bangladesh (2001).
31) Emphasis added. See also Article 8.12 (1) CETA.
32) See, e.g., Article 10.9 of the FTA between the US and Chile or Article 11.7 of the FTA
between the US and Australia. See also Article 9.8 (1) TPP.
33) See, e.g., Article 7 of the BIT between Argentina and El Salvador (1996).
34) See, e.g., Article 4 of the BIT between Ethiopia and Sudan (2000); Article 4 of the BIT
between Indonesia and Jordan (1999).
35) See, e.g., Article 4 of the BIT between Russia and Turkey (1997).
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36) See Article 6 of the BIT between Brazil and The Netherlands (1998); Article 6 of the
BIT between Latvia and The Netherlands; Article 4 of the BIT between Egypt and
France (1975).
37) Article 5 of the BIT between India and Indonesia (1999).
38) See also Article 4 of the German Model BIT (2008).
39) See, e.g., Article 4 of the BIT between Austria and the Slovak Federal Republic (1991);
similarly Article 4 of the BIT with Croatia (1997) and Article 4 of the BIT with Hungary
(1989).
40) Paragraphs 4 to 6 contain further details on the calculation and the payment
conditions.
41) Article 13(2) of the Canadian Model BIT is identical with this formulation.
42) Article 6(2) of the US Model BIT (2012) (emphasis added).
43) Article 13(2) of the Canadian Model BIT (2004) (emphasis added).
44) Article 5 of the UK–Argentina BIT (1990); Article 5 of the UK–Croatia BIT (1997); Article
5 of the Indian Model BIT (2003).
45) See, e.g., Article 4 of the BIT between Germany and Bosnia-Herzegovina (2001) or
Article 4 of the BIT between Germany and Venezuela (1996) in concordance with
Article 4 of the German Model BIT (2004).
46) This enumeration is also contained in Article 13(2) of the Canadian Model BIT and
Article 8.12 (2) CETA.
47) See, e.g., Article 4 of the BIT between Austria and Croatia (1999).
48) The International Valuation Standards recommend a 'cost approach', if the income
approach is not applicable, because 'asset value' is ambiguous as it can be
determined in various ways (e.g. market value, liquidation value, replacement
value). See further on this issue Chapter 4. The 'declared tax value' seems to have
been included in the list of NAFTA Article 1110 because, under Article 27 of the
Mexican Constitution, compensation for expropriation shall not exceed declared
tax value. This may give rise to a conflict between national and international law,
but otherwise Mexico could not have ratified NAFTA. See A Ramirez Martinez, 'The
Mexican Constitutions and its Safeguards against Foreign Investment' (2009) Cornell
Law School Inter-University Graduate Student Conference Papers. Paper 39; P del
Luca, 'The Rule of Law: Mexico's Approach to Expropriation Disputes in the Face of
Investment Globalization' (2003) 51 UCLA Law Review 35, 113–14.
49) Norwegian Shipowners' Claim, Award of 13 October 1922, 1 RIAA, 307, 335, 338.
50) The actual calculation was, however, difficult to comprehend. This eventually
motivated the US Secretary of State to write a letter in which he strongly
complained about the non-transparent method of calculation in this case: 'While
purporting to award compensation on the basis of the fair market value of the
property taken, the tribunal has seen fit to omit discussion of the particular
circumstances of the different claims or of the methods of calculation applied, or of
the reasons for determining upon the amounts awarded in each case. Indeed, any
definite disclosure or specification of the particular grounds of the awards to
respective claimants is so entirely lacking that the award gives to one who
examines it no clue to the method of determining why one amount was awarded
rather than another.' Ibid, at 340.
51) The tribunal in LIAMCO v Libya explained this in the following way: '[T]he Arbitral
Tribunal has reached the conclusion that the damnum emergens should represent
the market value which the nationalized assets have at the said premature
expiration of the concession …'. LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR
141, 211–12. In addition, it awarded 'equitable compensation' for the value of the
lost concession right of LIAMCO's interest in concession. No. 20, the Raguba field.
Ibid, at 214.
52) Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 178.
53) See, e.g., INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 380; American
International Group v Iran, 4 Iran–US CTR (1983) 96, 106; Khosrowshahi v Iran, 30 Iran–
US CTR (1994) 76, para. 34.
54) INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 379.
55) Ibid, at 380.
56) Amoco International Finance v Iran, 15 Iran–US CTR (1987) 189, para. 219.
57) Ibid, para. 220 (emphasis added). The reference to 'alternative methods of
valuation' related to the claimant's proposal of using the DCF method, which the
tribunal repudiated as too speculative. It accepted, however, that the going
concern value of the expropriated petroleum company should be determinative for
the amount of compensation. This value should not only reflect the value of the
company's assets but also its future profitability. Ibid, para. 263. See further
Chapter 5, Section B(2), paras 5.105 et seq.
58) With regard to the lawfulness of the expropriation in this case see para. 3.43.
59) Compañía del Desarrollo de Santa Elena SA v Costa Rica, Award of 17 February 2000,
para. 73 (emphasis in original).
60) Southern Pacific Properties (Middle East) v Egypt, Award of 20 May 1992, para. 183.
61) Reineccius et al v Bank for International Settlements, Award of 22 November 2002,
paras 156 et seq, 183.
62) Quasar de Valores v Russia, Award of 20 July 2012, paras 178, 186, 215.
77
64) The tribunal agreed that the value of a portfolio investment is best given by the
market. Ibid, para. 206.
65) Mobil Cerro Negro v Venezuela, Award of 9 October 2014, para. 307.
67) Tidewater v Venezuela, Award of 13 March 2015, para. 151.
68) See above, paras 2.70–1.
69) Tidewater v Venezuela, Award of 13 March 2015, paras 152 et seq.
70) Ibid, paras 165 et seq.
71) See, as regards the historical development, P Friedman, Expropriation in
International Law (London: Stevens & Sons Limited, 1955) 13 et seq; B Wortley, 'Some
Early but Basic Theories of Expropriation' (1978) 20 GYIL 236, 242–3; F V Garcia-
Amador, The Changing Law of International Claims (New York: Oceana Publications,
1984) 293 et seq; R Lillich, 'The Current Status of the Law of State Responsibility for
Injuries to Aliens' in R Lillich (ed.), International Law of State Responsibility for
Injuries to Aliens (Charlottesville: University Press of Virginia, 1983) 1 et seq; P
Comeaux and S Kinsella, Protecting Foreign Investment under International Law (New
York: Oceana Publications, 1997) 57 et seq.
72) See, e.g., I Seidl-Hohenveldern, Internationales Konfiskations- und Enteignungsrecht
(Berlin: de Gruyter, 1952) 5 et seq, 173 et seq; see also A Reinisch, 'Legality of
Expropriation' in A Reinisch (ed.), Standards of Investment Protection (Oxford:
Oxford University Press, 2008) 171, 194.
73) De Sabla (United States v Panama), Award of 29 June 1933, 6 RIAA 358, 366; similarly
the much earlier case of Goldenberg (Romania v Germany), Award of 27 September
1928, 2 RIAA, 903, 909. See also the formulation of the US–Venezuelan Mixed Claims
Commission: 'The right of the State, under the stress of necessity, to appropriate
private property for public use is unquestioned, but always with the corresponding
obligation to make just compensation'. Upton Case (United States v Venezuela),
Award of 31 December 1903, 9 RIAA, 234, 236.
74) M Whiteman, Digest of International Law (Washington: Government Printing Office,
1967), vol. 8, 1020.
75) GA Res No. 1803 (XVII) of 14 December 1962 on the Permanent Sovereignty over
Natural Resources. This resolution, because of its strong support by the states in the
General Assembly, is regarded as an expression of customary international law. This
conclusion, e.g., was drawn by Arbitrator Dupuy after a thorough analysis of the
voting, in Texaco v Libya, Award of 19 January 1977 (1978) 17 ILM 1, para. 88; see also
Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, paras 143 et seq.
76) See, e.g., the 'Declaration' and the 'Action Programme' on the establishment of a
New International Economic Order, see UN GA Res No. 3201 (S-VI) and Res No. 3202
(S-VI) of 1 May 1974. See also UN GA Res No. 3281 (XXIX) of 12 December 1974 and UN
GA Res No. 3171 (XXVIII) of 17 December 1973.
77) While in LIAMCO and Texaco the expropriations were part of large-scale
nationalizations in Libya, the expropriation in BP was a retaliation against Great
Britain which had done nothing against the invasion of some Arab islands by Iran on
the last day of Britain's colonial power there, on 30 November 1971. See BP v Libya,
Award of 10 October 1973 (1979) 53 ILR 297, 313.
78) It is noteworthy that the tribunal did not even address the issue of public purpose
further, as it was of the opinion that this was an issue of the state's sovereignty
which would not be assessed by an international tribunal: 'It is the general opinion
in international legal theory that the public utility principle is not a necessary
prerequisite for the legality of a nationalization. This principle was mentioned by
Grotius and other later publicists, but now there is no international authority, from
a judicial or any other source, to support its application to nationalization. Motives
are indifferent to international law, each State being free to judge for itself what it
considers useful or necessary for the public good … The object pursued by it is of no
concern to third parties.' LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 141, 194.
Arbitrator Mahmassani, in this regard, referred to P Friedman, Expropriation in
International Law (London: Stevens & Sons Limited, 1953) 140 et seq, and G White,
Nationalisation of Foreign Property (New York: Frederick A Praeger, 1961) 145.
79) The laws in question were Law No. 66 of 1973 and No. 10 of 1974, see LIAMCO v Libya,
Award of 12 April 1977 (1982) 62 ILR 141, 162 et seq.
81) The Government of Kuwait enacted the Decree Law No. 124, 'Terminating the
Agreement between the Kuwait Government and Aminoil', on 19 September 1977,
which contained in its Articles 3 and 4 the establishment of a Compensation
Committee. See Aminoil v Kuwait, ibid, at 998.
82) See, e.g., American International Group v Iran, 4 Iran–US CTR (1983) 96; INA
Corporation v Iran, 8 Iran–US CTR (1985) 373.
83) Article 1 of the Law read: 'To protect the rights of the insured, to expand the
insurance industry and the entire State and to place it at the service of the people,
from the date of this law, all insurance enterprises in Iran are proclaimed
nationalised with acceptance of the principle of legitimate conditional ownership'.
INA Corporation v Iran, above, n. 82, 375.
84) Ibid, at 378.
85) Ibid, at 376.
78
86) American International Group v Iran, 4 Iran–US CTR (1983) 96, 106.
88) Ibid.
90) The tribunal, in this respect, shared the point of view of the respondent that only
the Single Article Act and not the actions before, including the taking over of the
management by the Government, led to the expropriation. In similar cases before
the Iran–US Claims Tribunal, other tribunals have, however, regarded such state
actions as indirect expropriations; see, e.g., Phelps Dodge Corporation & Overseas
Private Investments Corporation v Iran, 10 Iran–US CTR (1986) 121, para. 22; Thomas
Earl Payne v Iran, 12 Iran–US CTR (1986) 3, para. 20 with further references to earlier
jurisprudence of the Iran–US Claims Tribunal.
91) Amoco International Finance v Iran, above, n. 87, para. 138.
92) Sedco Inc v NIOC, Separate Opinion Brower, 10 Iran–US CTR (1986) 189, 204.
93) The tribunal explained this in the following way: 'Clearly, as a matter of
international law, the Respondent was entitled to cancel a tourist development
project situated on its own territory for the purpose of protecting antiquities. This
prerogative is an unquestionable attribute of sovereignty. The decision to cancel
the project constituted a lawful exercise of the right of eminent domain. The right
was exercised for a public purpose, namely, the preservation and protection of
antiquities in the area.' Southern Pacific Properties (Middle East) v Egypt, Award of 20
May 1992 (1995) 3 ICSID Reports 189, para. 158.
94) Southern Pacific Properties (Middle East) Limited, Southern Pacific Properties Limited v
Arab Republic of Egypt, General Company for Tourism and Hotels, Award of 11 March
1983 (1983) 22 ILM 752 et seq.
Reports 189, para. 182. As regards this rather rare clear distinction between
'compensation' and 'damages', see above, Chapter 2, para. 2.14.
96) Companía del Desarrollo de Santa Elena SA v Costa Rica, Award of 17 February 2000
(2000) 15 ICSID Rev.-FILJ 169, para. 94.
97) Ibid, para. 71.
98) The so-called 'Helms Amendment' of 1994 prohibited the award of US financial aid
and the support of financial aid in international institutions to states which have
expropriated the property of US nationals or enterprises with more than 50% US
ownership, and which have not returned the property, have not provided adequate
and effective compensation as required by international law, have not offered a
domestic procedure providing prompt, adequate, and effective compensation in
accordance with international law, or submitted the dispute to arbitration under
the rules of the ICSID Convention or other mutually agreeable binding international
arbitration procedure. See the relevant text for the reasons for accepting the
jurisdiction of ICSID in Companía del Desarollo de Santa Elena SA v Costa Rica (2000)
3 ICSID Rev.-FILJ 169, para. 24.
99) See further C Brower and J Wong, 'General Valuation Principles: The Case of Santa
Elena' in T Weiler (ed.), International Investment Law and Arbitration (London:
Cameron May, 2005) 747, 751 et seq.
100) Antoine Goetz v Burundi, Award of 10 February 1999, para. 130.
101) Ibid.
102) Ibid, para. 135.
103) Mondev v United States, Award of 11 October 2002, para. 71.
105) Generally, one can observe a certain reluctance of tribunals to scrutinize states'
decisions on measures in the public interest, albeit with several exceptions. See A
Reinisch, above, n. 72, 171, 178 et seq.
107) Ibid, para. 305.
108) Ibid. By contrast, the ICSID Tribunal in OI European Group v Venezuela found that the
long and unsuccessful negotiations on the amount of compensation during more
than four years represented a violation of the obligation to provide compensation
'without undue delay' as required under Article 6 of the BIT between the
Netherlands and Venezuela. OI European Group v Venezuela, Award of 10 March 2015,
para. 425.
109) Tidewater v Venezuela, Award of 13 March 2015, paras 129–46.
110) Ibid, para. 124.
111) Ibid, paras 143–5.
79
112) Ibid, para. 142. Yet, the ICSID Tribunal in Rusoro Mining v Venezuela found that the
mere offer, in the Nationalisation Decree of September 2011, to provide
compensation limited to the net worth of the expropriated companies and ensuing
six months of unsuccessful negotiations were not sufficient to comply with the
conditions of Article VII (1) of the BIT between Canada and Venezuela and decided
that—only for these reasons—the expropriation was unlawful. The tribunal held that
'[t]he legality of an expropriation where the State has taken the investment but has
failed to make any compensation payment, depends on whether a good faith offer
for a reasonable amount of compensation was actually made', Rusoro Mining v
Venezuela, Award of 22 August 2016, para. 407. The tribunal was, in particular,
dissatisfied with the cap at the net worth ('valor en libros'), which was not foreseen
neither in the BIT nor in domestic Venezuelan law. Ibid, para. 408.
113) Sporrong & Lönnroth v Sweden, 23 September 1982, ECtHR Ser A, No. 52, para. 69;
James et al v United Kingdom, 21 February 1986, ECtHR Ser A, No. 98, para. 54;
Lithgow et al v United Kingdom, 8 July 1986, ECtHR Ser A, No. 102, paras 120–1 Holy
Monasteries v Greece, ECtHR No. 13092/87; 13984/88, Judgment of 9 December 1994,
paras 70–5.
114) Former King of Greece v Greece, ECtHR No. 25701/94, Judgment of 23 November 2000,
para. 99. The same is true for an extremely low compensation amount (2% of the
compensation due under previous national law). See Broniowski v Poland, ECtHR No.
31443/96, Judgment of 22 June 2004, para. 186. However, in Jahn v Germany, the
ECtHR held that the land reform which deprived various German citizens of their
property without any compensation was not an infringement of the Convention
because the reform was necessary after the German reunification and that 'in the
unique context of German reunification, the lack of any compensation does not
upset the “fair balance” that has to be struck between the protection of property
and the requirements of the general interest.' Jahn and others v Germany, ECtHR Nos
46720/99, 72203/01 and 72552/01, Judgment of 30 June 2005, para. 117.
115) M Mohebi, The International Law Character of the Iran-United States Claims Tribunal
(Boston: Kluwer Law International, 1999) 289.
116) See C Brower and J Brueschke, The Iran–US Claims Tribunal (The Hague: Martinus
Nijhoff, 1999) 499, with reference to the jurisprudence of the Iran–US Claims
Tribunal.
117) 'Thus expropriation under (2) and (3) [= expropriations not in exercise of police power
and defence measures in wartime] is unlawful, if at all, only sub modo, i.e. if
appropriate compensation is not provided for.' This has remained unchanged in the
recent edition written by Crawford, see J Crawford, above, n. 9, 624; see also A
Reinisch, 'Legality of Expropriations' in A Reinisch (ed), Standards of Investment
Protection (Oxford: Oxford University Press, 2008) 171, 199.
118) M Sornarajah, The International Law of Foreign Investment (3rd edn, Cambridge:
Cambridge University Press, 2010) 406. In the first edition, he wrote that non-
satisfaction of the duty to pay compensation did not affect the legality of the
taking. See M Sornarajah, The International Law of Foreign Investment (Cambridge:
Cambridge University Press, 1994) 315.
119) D Bowett, 'State Contracts with Aliens: Contemporary Developments on
Compensation for Termination or Breach' (1988) 59 BYIL 49, 69–70.
120) S Ripinsky and K Williams, Damages in International Investment Law (London: BIICL,
2008) 68 (emphasis in original).
121) Ibid, 68–9.
122) Seidl-Hohenvelndern, e.g., clearly rejected the notion that this would be sufficient
in the 1950s. I Seidl-Hohenveldern, Internationales Konfiskations- und
Enteignungsrecht (Berlin: de Gruyter, 1952) 173 et seq.
123) See also Norwegian Shipowners where the readiness of the Government to submit
the question of compensation to an international tribunal was seen as the
recognition of the obligation to pay compensation by the state. Norwegian
Shipowners' Claim (13 October 1922) 1 RIAA, 307, 309, 317.
124) See Brownlie: '[I]t is significant that the right to compensation on whatever basis, is
recognized in principle'. Crawford, above, n. 9, 543. By contrast, Sheppard maintains
that the lawfulness of the expropriation has no influence on the amount of
compensation. See A Sheppard, 'The Distinction between Lawful and Unlawful
Expropriation' in C Ribeiro (ed.), Investment Arbitration and the Energy Charter
Treaty (New York: JurisNet, 2006) 169, 198 et seq.
126) This is not always appropriately taken into account. See the detailed analysis in this
respect by N Birch, 'Curing Uncompensated Expropriation under Chorzów' in B
Sabahi, N Birch, I Laird, and J A Rivas (eds), Revolution in the International Rule of
Law. Essays in Honour of Don Wallace, Jr (Huntington, New York: Juris, 2014) 475, 483
et seq; see also D Ziyaeva, 'Arbitral Tribunals Tend to Pay Lip Service to the Chorzów
Factory Full Reparation Principle, Disregarding the Context and Full Implication of
the Dictum' (2015) 2(2) The Journal of Damages in International Arbitration 121, 124 et
seq.
127) Sornarajah, above, n. 118, 410.
80
128) G Christie, 'What Constitutes a Taking under International Law' (1962) 38 BYIL 307,
310–11; R Higgins, above, n. 4, 322 et seq; R Dolzer, 'Indirect Expropriation of Alien
Property' (1986) 1 ICSID Rev.-FILJ 40 et seq; M Pellonpää and M Fitzmaurice, 'Taking
of Property in the Practice of the Iran–United States Claims Tribunal' (1988) 19 NYIL
53; A Mouri, The International Law of Expropriation as Reflected in the Work of the
Iran–U.S. Claims Tribunal (Dordrecht: Martinus Nijhoff, 1994); M Brunetti, 'The Iran–US
Claims Tribunal, NAFTA Chapter 11, and the Doctrine of Indirect Expropriation' (2001)
2 Chicago Journal of International Law 203 et seq; M Brunetti, 'Indirect Expropriation
in International Law' (2003) 5 International Law Forum 150 et seq; Y Fortier and S
Drymer, 'Indirect Expropriation in the Law of International Investment: I Know It
When I See It, or Caveat Investor?' (2004) 19 ICSID Rev.-FILJ 293; A K Hoffmann,
'Indirect Expropriations' in A Reinisch (ed.), Standards of Investment Protection
(Oxford: Oxford University Press, 2008) 151; U Kriebaum and A Reinisch, 'Property,
Right to, International Protection' in R Wolfrum (ed.), The Max Planck Encyclopedia of
Public International Law (Oxford: Oxford University Press, 2012), vol. III, 522; U
Kriebaum, 'Expropriation' in M Bungenberg, J Griebel, H Hobe, and A Reinisch (eds),
International Investment Law (Baden-Baden: Nomos, 2015) 959.
129) See already Christie, above, n. 128, 307, 310–11; B Weston, ' “Constructive Takings”
under International Law: A Modest Foray into the Problem of Creeping
Expropriation' (1975) 16 Virginia Journal of International Law 103, 106; Brower and
Brueschke are critical of the incoherent use of the term by the Iran–US Claims
Tribunal: C Brower and J Brueschke, The Iran– United States Claims Tribunal (The
Hague et al: Martinus Nijhoff Publishers, 1998) 380; as regards the possibility of
partial expropriation see U Kriebaum, 'Partial Expropriation' (2007) 8 The Journal of
World Investment and Trade 69 et seq.
130) See the formulation of the Iran–US Claims Tribunal in Dames & Moore: 'The
unilateral taking of possession of property and the denial of its use to the rightful
owners may amount to an expropriation even without a formal decree regarding the
title to the property'. Dames & Moore v Iran, 4 Iran–US CTR (1983) 212, 223; see also
William L Pereira v Iran, 5 Iran–US CTR (1984) 198, 226–7; Computer Sciences
Corporation v Iran, 10 Iran–US CTR (1986) 269, 302–3; Sola Tiles Inc v Iran, 14 Iran–US
CTR (1987) 223, 231–2.
131) See, e.g., Oil Fields of Texas Inc v Iran, 12 Iran–US CTR (1986) 308, 318; Brumarescu v
Romania, ECHR 1999-VII, para. 77; Saipem v Bangladesh, Award of 30 June 2009, para.
204.
132) This was the case in Petrolane Inc v Iran. In Seismograph, however, the Iran–US
Claims Tribunal did not consider this to be an expropriation. As to this obvious
inconsistency see the critical analysis by Brower and Bruschke, above, n. 129, 388.
133) See already M Reismann and R Sloane, 'Indirect Expropriation and its Valuation in
the BIT Generation' (2003) 75 BYIL 115, 130.
134) UNCTAD, Expropriation. UNCTAD Series on Issues in International Investment
Agreements II (New York and Geneva: UNCITRAL, 2011) 11.
135) See, e.g., Article 1110 NAFTA. But see Annex B of the US Model BIT (2012) which
describes indirect expropriations in more detail and highlights that, except in rare
circumstances, regulatory actions by a party that are designed and applied to
protect legitimate public welfare objectives, such as public health, safety, and the
environment, do not constitute indirect expropriations.
136) A K Hoffmann, 'Indirect Expropriations' in A Reinisch (ed.), Standards of Investment
Protection (Oxford: Oxford University Press, 2008) 151, 152.
137) Sedco Inc v NIOC, Separate Opinion Brower (1986) 10 Iran–US CTR 189, 206.
138) M Reisman and R Sloane, 'Indirect Expropriation and its Valuation in the BIT
Generation' (2003) 75 BYIL 115, 137.
139) Ibid.
140) S Ripinsky and K Williams, above, n. 120, 69; by contrast, Kriebaum argues that
regulatory takings too could, under certain conditions, be lawful. See U Kriebaum, n.
28.
141) See above, Section A(3).
142) See also A F M Maniruzzaman, 'Damages for Breach of Stabilisation Clauses in
International Investment Law: Where Do We Stand Today?' (2007) International
Energy Law & Taxation Review 246.
143) A F M Maniruzzaman, 'The Pursuit of Stability in International Energy Investment
Contracts: A Critical Appraisal of the Emerging Trends' (2008) The Journal of World
Energy Law & Business 121; A Al Faruque, 'Typologies, Efficacy and Political Economy
of Stabilization Clauses: A Critical Appraisal' (2007) TDM vol. 4, issue 5; M Kantor,
'Stabilisation Clauses in Infrastrucuture Investment' (2005) TDM vol. 2, issue 1; these
clauses are sometimes regarded as conflicting with or being obstacles to
improvements of human rights and environmental protection standards, see A
Shembert, Stabilization Clauses and Human Rights. A Research Project conducted for
IFC and the United Nations Special Representative to the Secretary General on
Business and Human Rights (Washington: International Finance Corporation, 2008); L
Cotula, 'Reconciling Regulatory Stability and Evolution of Environmental Standards
in Investment Contracts: Towards a Rethink of Stabilization Clauses' (2008) The
Journal of World Energy Law & Business 158; J Ruggie, Stabilization Clauses and
Human Rights (Washington: International Finance Corporation, 2009).
81
144) In a decision on 27 March 2016, Israel's High Court rejected the 'stability clause' in a
natural gas plan, in which the Government had undertaken not to legislate and to
oppose any legislation against the plan's provisions for a decade. The Court found
that the stability clause was in contrast to the general principles of administrative
law and that the Government did not have the right to limit the next Government,
whose composition and ideology could be different from the current one. See Israel
News of 27 March 2016 <http://www.ynetnews.com/articles/0,7340,L-
4783787,00.html>.
145) C Ohler, 'Concessions' in R Wolfrum (ed.), The Max Planck Encyclopedia of Public
International Law (Oxford: Oxford University Press, 2012) vol. II, 546, para. 27.
146) BP Exploration Company (Libya) Limited v Government of the Libyan Arab Republic,
Award of 10 October 1973 (1979) 53 ILR 297; Texaco Overseas Petroleum Company and
California Asiatic Oil Company v The Government of the Libyan Arab Republic, Award
of 19 January 1977 (1978) 17 ILM 1; Libyan American Oil Company (LIAMCO) v
Government of the Libyan Arab Republic, Award of 12 April 1977 (1982) 62 ILR 141.
147) Clause No. 16, as contained in all the concessions, was the following: '1. The
government of Libya will take all the steps necessary to ensure that the Company
enjoys all the rights conferred by this Concession. The contractual rights expressly
created by this concession shall not be altered except by mutual consent of the
parties. 2. This Concession shall throughout the period of its validity be construed in
accordance with the Petroleum Law and the Regulations in force on the date of
execution of the Agreement … Any amendment to or repeal of such Regulations shall
not affect the contractual rights of the Company without its consent.' These clauses
were identical in all three cases as they were based on a model contract based on
the Libyan Petroleum Laws of 1955 and 1965. See BP v Libya, Award of 10 October
1973 (1979) 53 ILR 297, 322; Texaco v Libya, Award of 19 January 1977 (1978) 17 ILM 1, 4;
LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 141, 170.
148) BP v Libya, Award of 10 October 1973 (1979) 53 ILR 297.
149) Ibid, at 329.
150) Ibid, at 356.
151) Texaco Overseas Petroleum Company and California Asiatic Oil Company v The
Government of the Libyan Arab Republic, Award of 19 January 1977 (1978) 17 ILM 1.
152) Ibid, at 23.
153) 'No doubt any convention creating an obligation of this kind places a restriction
upon the exercise of the sovereign rights of the State, in the sense that it requires
them to be exercised in a certain way. But the right of entering into international
engagements is an attribute of State sovereignty.' Case of the SS Wimbledon, PCIJ
1923 Ser A, No. 1, 25.
154) Arabian American Oil Company v Saudi Arabia, Award of 23 August 1958 (1963) 27 ILR
117, 227.
155) Sapphire International v NIOC, Award of 15 March 1963 (1967) 35 ILR 136, 181.
156) Arabian American Oil Company v Saudi Arabia, Award of 23 August 1958 (1963) 27 ILR
117, 168.
157) UN GA Resolution on the Permanent Sovereignty over Natural Resources No. 1803
(XVII) of 14 December 1962. See above, n. 14.
158) Texaco Overseas Petroleum Company and California Asiatic Oil Company v The
Government of the Libyan Arab Republic, Award of 19 January 1977 (1978) 17 ILM 1, 24.
159) Ibid, at 37.
160) See Article 35 on the International Responsibility of States for Internationally
Wrongful Acts. UN-Doc A/Res/56/83, Annex. See J Crawford, The International Law
Commission's Articles on State Responsibility (Cambridge: Cambridge University
Press, 2002) 213 et seq.
161) Libyan American Oil Company (LIAMCO v Libya) v Government of the Libyan Arab
Republic, Award of 12 April 1977 (1982) 62 ILR 141.
162) Ibid, at 198.
163) S Friedman, Expropriation in International Law (London: Stevens & Sons, 1955) 214.
Also the opinion of the ICJ in Anglo-Iranian Oil Company (United Kingdom v Iran),
Judgment of 22 July 1952, ICJ Reports 1952, and of the Austrian Supreme Court of 22
December 1965 (note: 1 Ob 212/65) would confirm this view. See LIAMCO v Libya,
Award of 12 April 1977 (1982) 62 ILR 141, 198. The latter case, however, concerned the
acceptance of an expropriation by the CSSR in Austria in view of the Act of State
doctrine and not the legal consequences of an expropriation without compensation
per se.
164) LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 141, 198, referring to G White,
Nationalisation of Foreign Property (New York: Frederick A Praeger, 1961) 86 and 163.
According to the tribunal, a nationalization would, furthermore, represent an Act of
State, which would be immune and could not be examined by judicial organs. The
reference to the Act of State doctrine, however, does not seem appropriate in this
context, as it is only applicable for national courts assessing the actions of foreign
states (par in parem non habet imperium). Before international tribunals, by
contrast, the argument of immunity or Act of State cannot be made.
165) See above, para. 3.36.
166) AGIP SpA v Congo, Award of 30 November 1979 (1993) 1 ICSID Reports 306, para. 81.
82
169) 'It follows that the Government is obliged to compensate AGIP for the damage
suffered by it as a result of the nationalization.' Ibid, para. 88.
170) Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 89 et seq; see also
Maniruzzaman, above, n. 143, at 248.
171) The text of the stabilization clause read: 'The Shaikh shall not by general or special
legislation or by administrative measures or by any other act whatever annul this
Agreement except as provided in Article 11. No alteration shall be made in the
terms of the Agreement by either the Shaikh or the Company except in the event of
the Shaikh and the Company jointly agreeing that it is desirable in the interest of
both parties to make certain alterations, deletions or additions to this Agreement.'
Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 88.
172) However, Arbitrator Fitzmaurice in his Separate Opinion (1982) 21 ILM 1049 et seq,
argued vigorously against this conclusion.
174) 'In the present Case, the Khemco Agreement was concluded for a shorter period (35
years) than the concession in the AMINOIL case (60 years) but in economic and legal
terms 35 years cannot be considered a “relatively limited period”.' Ibid, at 243.
175) The contract clauses contained therein were not considered as stabilization clauses
by the tribunal, as they were not concluded between the investor and the State and
for other reasons. Ibid, paras 165 et seq. Judge Brower criticized this in his
Concurring Opinion and maintained that because of the breach of the stabilization
clause, and other reasons, the expropriation had been unlawful. Amoco
International Finance v Iran, Concurring Opinion Brower, 15 Iran–US CTR (1987) 289,
paras 9 et seq.
176) The tribunal referred briefly to the existence of a stabilization clause in the
concession and held: 'This clause must be respected, especially in this type of
agreement. Otherwise, the contracting State may easily avoid its contractual
obligations by legislation. Such legislative action could only be justified by
nationalizations which meet the criteria described above.' LETCO v Liberia, Award of
31 March 1986 (1994) 2 ICSID Reports 343, 368.
177) The tribunal referred to the UN GA Resolution No. 1803 (XVII) of 1962 and to the
Aminoil v Kuwait case, as well as to R Higgins, above, n. 4, 305. Ibid, at 368.
178) O Schachter, 'International Law in Theory and Practice' (1982) 178 RdC 9, 314. See
also R Higgins, above, n. 4, 311, 320–1.
179) Schachter reaches the same result, referring to Jiménez de Aréchaga who
emphasizes in such a case the right to lucrum cessans. O Schachter, above, n. 178,
314.
180) R. Higgins, above, n. 4, 311; Maniruzzaman, above, n. 143, 251; J Ruggie, above, n. 143,
38.
181) T Nelson, 'A Factory in Chorzów: The Silesian Dispute that Continues to Influence
International Law and Expropriation Damages Almost a Century Later' (2014) 1(1) The
Journal of Damages in International Arbitration 77; N Birch, 'Curing Uncompensated
Expropriation under Chorzów' in B Sabahi, N Birch, I Laird, and J A Rivas (eds),
Revolution in the International Rule of Law. Essays in Honour of Don Wallace, Jr
(Huntington, New York: Juris, 2014) 475; D Ziyaeva, 'Arbitral Tribunals Tend to Pay Lip
Service to the Chorzów Factory Full Reparation Principle, Disregarding the Context
and Full Implication of the Dictum' (2015) 2(2) The Journal of Damages in
International Arbitration 121; R Alomar, 'Compensation in the Context of Unlawful
Expropriations' (2016) 3(1) The Journal of Damages in International Investment
Arbitration 31; C Beharry, 'Lawful Versus Unlawful Expropriations: Heads I Win, Tails
You Lose' (2016) 3(1) The Journal of Damages in International Investment Arbitration
57; F Lavaud and G Recena Costa, 'Valuation Date in Investment Arbitration: A
Fundmental Examination of Chorzów's Principles' (2016) 3(2) The Journal of Damages
in International Arbitration 33.
182) Case Concerning the Factory at Chorzów, PCIJ 1928, Ser A, No. 17, 47.
183) Sedco Inc v NIOC, Second Interlocutory Award, Separate Opinion Brower, 10 Iran–US
CTR (1986) 189, 205, in footnote 40.
184) D Bowett, 'State Contracts with Aliens' (1988) 59 BYIL 47, 61; similarly, I Seidl-
Hohenveldern, 'L'évaluation des dommages dans les arbitrages transnationaux'
(1987) 33 Annuaire français de droit international 7, 12.
185) J Crawford, above, n. 9, 625; see also R Jennings, 'State Contracts in International
Law' (1961) 37 BYIL 156, 171–2; L Sohn and R Baxter, 'Responsibility of States for
Injuries to the Economic Interests of Aliens' (1962) 56 AJIL 504–5; E Riedel, 'Damages'
in R Bernhardt (ed.), Encyclopedia of Public International Law, vol. I (Amsterdam et
al: North-Holland Publishing Company, 1992), vol. 1, 929, 931; D Bowett, above, n. 184,
61 et seq; J Wolf, 'Gibt es im Völkerrecht einen einheitlichen Schadensbegriff?' (1989)
49 ZaöRV 403, 427.
187) Amoco International Finance v Iran, 15 Iran–US CTR (1987) 247, para. 195: 'The analysis
of the Court was so thorough, however, and its comparisons with the reverse
hypothesis so systematic, that the judgement is also illuminating in analyzing the
lawful expropriation before us'.
83
188) For the importance of the two questions as regards the different interpretations and
conclusions, they are reproduced here in their original wording:
'I. —
A. What was the value, on July 3rd, 1922 … of the undertaking for the
manufacture of nitrate products of which the factory was situated at
Chorzów in Polish Upper Silesia, in the state in which that undertaking
(including the lands, buildings, equipments, stocks and processes at its
disposal, supply and delivery contracts, goodwill and future prospects)
was, on the date indicated, in the hands of the Bayrische and
Oberschlesische Stickstoffwerke?
B. What would have been the financial results … (profits or losses) which
would probably have been given by the undertaking thus constituted
from July 3rd, 1922, to the date of the present judgement, if it had been in
the hands of the said companies.
II. —What would be the value at the date of the present judgement … of the same
undertaking (Chorzów) if that undertaking (including lands, buildings,
equipment, stocks, available processes, supply and delivery contracts,
goodwill and future prospects) had remained in the hands of the Bayrische
and Oberschlesische Stickstoffwerke, and had either remained substantially
as it was in 1922 or had been developed proportionately on lines similar to
those applied in the case of other undertakings of the same kind, controlled
by the Bayrische, for instance, the undertaking of which the factory is situated
in Piesteritz?' Case Concerning the Factory at Chorzów, PCIJ 1928 Ser A, No 17,
51–2.
189) 'This statement confirms the previous finding that, for the Court, lost profit (lucrum
cessans) is not incorporated in the value of the undertaking, although this value
includes “future prospects”. In other words, according to the Court, “future
prospects” does not equal lost profit (lucrum cessans).' Amoco International Finance
v Iran, 15 Iran–US CTR (1987) 189, para. 203 (emphasis in original).
190) Ibid, para. 201.
191) Ibid, paras 196 and 203.
192) See in respect of this concept below, Chapter 4, Section C(2)(b).
194) Amoco International Finance v Iran, Concurring Opinion Brower, 15 Iran–US CTR (1987)
300.
197) W Lieblich, 'Determinations by International Tribunals of the Economic Value of
Expropriated Enterprises' (1990) 7 Journal of International Arbitration 37, 47–8.
198) See, in this regard, Lieblich's reflections in another article: '[T]he basic conceptual
flaw in adopting the damnum emergens/lucrum cessans approach for determining
the economic value of expropriated property is that it incorrectly assumes that the
value is comprised of two separate and distinct elements, one corresponding to
past expenses incurred and the other to future expected profits. Because the
economic value of property is determined exclusively by the cash that it is
expected to generate for its owner in the future, compensation for expropriated
property is not a matter of reimbursing an owner for expenses previously incurred.
Accordingly, the damnum emergens element is simply irrelevant to economic value.
More importantly, any award that omits the lucrum cessans element will bear no
relationship to economic value.' W Lieblich, 'Determining the Economic Value of
Expropriated Income-Producing Property in International Arbitrations' (1991) 8
Journal of International Arbitration 59, 68–9.
199) Sedco Inc v NIOC, 10 Iran–US CTR (1986) 180, 189; see also Phillips Petroleum
Company v Iran, 21 Iran–US CTR (1989) 79, para. 109; in favour of a distinction,
however, Ebrahimi v Iran, 30 Iran–US CTR (1994) 170, para. 96.
200) 'Claimant labels this part of its claim as damages for “lost profits”. This loss
appears, however, to be a direct loss resulting from the unavailability of the rigs to
Claimant for use elsewhere and as such is damnum emergens.' Sedco Inc v NIOC and
Iran, 10 Iran–US CTR (1986) 180, 182, in footnote 6. This is remarkable because the
claimant did not have any contracts or other legal claims for the rental. It was only
the loss of a 'chance'.
201) Starrett Housing v Iran, Interlocutory Award, 4 Iran–US CTR (1983) 122, 156–7; Starrett
Housing v Iran, Final Award, 16 Iran–US CTR (1987) 112, paras 3 et seq; Phillips
Petroleum v Iran, 21 Iran–US CTR (1989) 79, para. 106.
202) Shahine Shaine Ebrahimi v Iran, 30 Iran–US CTR (1994) 170, para. 96.
203) 'But the question of whether or not the concessionaire may claim compensation for
all the loss of future profits for the unexpired term is still a controversial point
which has not been definitely settled.' LIAMCO v Libya, Award of 12 April 1977 (1982)
62 ILR 141, 207.
204) Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 154; see also W
Lieblich, 'Determination by International Tribunals of the Economic Value of
Expropriated Enterprises' (1990) 7 Journal of International Arbitration 37, 53.
84
206) Southern Pacific Properties (Middle East) v Egypt, Award of 20 May 1992, para. 198.
207) Mobil Cerro Negro v Venezuela, Award of 9 October 2014, para. 307; Tidewater v
Venezuela, Award of 13 March 2015, paras 138–46.
208) See further below, Chapter 5, paras 5.68 et seq.
209) S Ripinsky, 'Damnum Emergens and Lucrum Cessans in Investment Arbitration:
Entering through the Back Door' in A Bjorklund, I Laird, and S Ripinsky (eds),
Investment Treaty Law. Current Issues III (London: BIICL, 2009) 47, 54 et seq.
210) Sedco Inc v NIOC, Second Interlocutory Award, Separate Opinion Brower, 10 Iran–US
CTR (1986) 189, 205, in footnote 40.
211) Ibid, at 205 (emphasis added). Brower referred, amongst others, to The Lusitania
Case, Decision of 1 November 1923, 7 RIAA, 32, 39, where Umpire Parker discussed the
issue of punitive damages but ultimately rejected them.
212) Brower hereby referred to the US Foreign Sovereign Immunities Act, 28 USC § 1606.
213) R Jennings and A Watts, Oppenheim's International Law (9th edn, London: Longman,
1996) § 156.
214) M Reisman and R Sloane, above, n. 138.
215) The ICSID Tribunal in Siag v Egypt, e.g., explicitly rejected the claimant's claim for
punitive damages, as the BIT did not give rise to a right for punitive damages or for
a treatment of compensation which introduced a punitive element. Siag v Egypt,
Award of 1 June 2009, paras 544–6.
216) See also J Crawford, above, n. 160, 219; S Wittich, 'Awe of the Gods and Fear of the
Priests: Punitive Damages in the Law of State Responsibility' (1998) 3 Austrian Review
of International and European Law 101 et seq; S Wittich, 'Punitive Damages' in J
Crawford, A Pellet, and S Olleson (eds), The Law of International Responsibility
(Oxford: Oxford University Press, 2010) 667, 668. See also Chapter 5, Section F.
217) See on 'moral damages' below, Chapter 5, Section F.
218) Report of the International Law Commission on the work of its fifty-second session.
UN Doc A/55/10, Supplement No. 10, para. 196.
219) See, e.g., U Kriebaum and A Reinisch, above, n. 128, para. 32.
221) See the text of the questions above, n. 188.
222) See Amoco International Finance v Iran, Concurring Opinion Brower, 15 Iran–US CTR
(1987) 300, para. 18. But see, e.g., Bowett who does not consider this difference as
being sufficient. D Bowett, 'State Contracts with Aliens: Contemporary Developments
on Compensation for Termination or Breach' (1988) 59 BYIL 49, 61.
223) Phillips Petroleum Co v Iran, 21 Iran–US CTR (1989) 79, para. 110 (emphasis added).
224) See, however, the clarification by Judge Rable in the case Factory at Chorzów, PCIJ
1928 Ser A, No. 17, 66, 67.
225) On the question of interest see in more detail below, Chapter 6.
226) See Phillips Petroleum Company v Iran, 21 Iran–US CTR (1989) 79, para. 110; see also M
Schäfer, Entschädigungsstandard und Unternehmensbewertung bei Enteignungen im
allgemeinen Völkerrecht (Heidelberg: Recht und Wirtschaft, 1997) 162.
227) Papamichalopoulos et al v Greece (just satisfaction) 31 October 1995, ECHR Ser A, No.
330-B, para. 36. See further Vasilescu v Romania, Judgment of 22 May 1998, ECHR
Reports 1998-III, para. 61; Brumarescu v Romania (just satisfaction) [GC] Judgment of
23 January 2001, ECHR 2001-I, para. 19; Iatridis v Greece (just satisfaction) [GC]
Judgment of 19 October 2000, ECHR 2000-XI, para. 32; Motais de Narbonne v France
(just satisfaction) Judgment of 27 May 2003, ECHR No. 48161/99, para. 18; Kliafas v
Greece, Judgment of 8 July 2004, ECHR No. 66810/01, para. 34; Belvedere Alberghiera
v Italy (just satisfaction) Judgment of 30 October 2003, ECHR No. 31524/96, para. 28;
Terazzi v Italy (just satisfaction) Judgment of 26 October 2004, ECHR No. 27265/95,
para. 34; Papastavrou and others v Greece (just satisfaction) Judgment of 18
November 2004, ECHR No. 46372/99, para. 9.
228) ADC v Hungary, Award of 2 October 2006, para. 481.
229) Ibid, para. 483.
230) Siemens v Argentina, Award of 6 February 2007, para. 352.
231) Vivendi v Argentina, Award of 20 August 2007, para. 8.2.3 (emphasis in original).
232) Saipem v Bangladesh, Award of 30 June 2009, para. 201.
233) Siag and Vecchi v Egypt, Award of 1 July 2009, para. 539.
234) Kardassopoulos v Georgia, Award of 3 March 2010, para. 514.
235) Tza Yap Shum v Peru, Award of 7 July 2011, para. 253.
236) Quasar de Valores v Russia, Award of 20 July 2012, para. 215. The tribunal
emphasized, in the discussion about how 'to attach a number to the claim', that 'the
claim is for simple uncompensated expropriation, not unlawful expropriation'
(emphasis in original). This was mainly due to the limited jurisdiction of the tribunal
to decide only on the amount of compensation. Claimants had also limited
themselves to claim compensation only for a lawful expropriation. The presiding
arbitrator, Charles N. Brower, noted in this respect 'that it is solely the Claimants'
own insistence that we may not address the issue of whether the alleged
expropriation of which they complain was lawful or unlawful that has precluded us
from addressing such issue ….' Separate opinion of Charles N. Brower, para. 2.
237) Yukos and others v Russia, Award of 18 July 2014, para. 1765.
238) Conoco Phillips and others v Venezuela, Award of 3 September 2013, paras 342–3.
239) Mobil Cerro Negro v Venezuela, Award of 9 October 2014, paras 288–9.
85
241) Quiborax v Bolivia, Award of 16 September 2015, para. 326.
242) Funnekotter v Zimbabwe, Award of 22 April 2009, para. 112.
243) Unglaube v Costa Rica, Award of 16 May 2012, paras 306–7.
244) The tribunal in Rumeli v Kazakhstan found that the standard of compensation as
stipulated in the BIT should be applied for lawful and unlawful expropriations alike.
See Rumeli v Kazakhstan, Award of 29 July 2008, para. 793.
245) S Ripinsky and K Williams, above, n. 120, 65, quoting M Sornarajah, The International
Law on Foreign Investment (2nd edn, Cambridge: Cambridge University Press, 2004)
438.
246) A Reinisch, above, n. 72, 200; U Kriebaum and A Reinisch, above, n. 128, para. 32; R
Dolzer and C Schreuer, above, n. 2, 296; B Sabahi, Compensation and Restitution in
Investor–State Arbitration (Oxford: Oxford University Press, 2011) 102; T Nelson, 'A
Factory in Chorzów: The Silesian Dispute that Continues to Influence International
Law and Expropriation Damages Almost a Century Later' (2014) 1 The Journal of
Damages in International Arbitration 77, 101–2; R Alomar, 'Compensation in the
Context of Unlawful Expropriations' (2016) 3 The Journal of Damages in International
Investment Arbitration 31, 55–6.
247) A Sheppard, 'The Distinction between Lawful and Unlawful Expropriation' in C
Ribeiro (ed.), Investment Arbitration and the Energy Charter Treaty (New York:
JurisNet, 2006) 169, 198–9; C Beharry, 'Lawful Versus Unlawful Expropriations: Heads I
Win, Tails You Lose' (2016) 3 The Journal of Damages in International Investment
Arbitration 57, 96–7; sceptical for cases where the mere non-payment of
compensation would render the expropriation unlawful: Salacuse, Law of
Investment Treaties, above, n. 13, 328; N Birch, above, n. 126, 495.
248) See, e.g., Phelps Dodge Corporation v Iran, 10 Iran–US CTR (1986) 121, para. 30;
Thomas Earl Payne v Iran, 12 Iran–US CTR (1986) 3, para. 30; Sedco Inc v NIOC, 15 Iran–
US CTR (1987) 23, para. 31; Starrett Housing v Iran, 16 Iran–US CTR (1987) 112, para.
277; Phillips Petroleum Co v Iran, 21 Iran–US CTR (1989) 79, para. 111; Petrolane Inc v
Iran, 27 Iran–US CTR (1991) 64, para. 108; James M Saghi v Iran, 29 Iran–US CTR (1993)
20, para. 79; Shahin Shaine Ebrahimi v Iran, 30 Iran–US CTR (1994) 170, para. 98.
249) See, e.g., C Parry, 'Some Considerations upon the Protection of Individuals in
International Law' (1956) 90 RdC vol. II, 660 et seq; C F Amerasinghe, above, n. 1, 278
et seq; R Lillich, 'The Current Status of the Law of State Responsibility for Injuries to
Aliens' in R Lillich (ed.), International Law of State Responsibility for Injuries to Aliens
(Charlottesville: University Press of Virginia, 1983) 1 et seq; F V García-Amador, The
Changing Law of International Claims (New York: Oceana Publications, 1984) 289 et
seq. As early as 1930, the codification conference of the League of Nations was
unsuccessful in its attempt to put the topic of 'Responsibility for Injuries to Aliens'
on its agenda. See G Hackworth, 'Responsibility of States for Damages Caused in
their Territory to the Person or Property of Foreigners' (1930) 24 AJIL 500; E Borchard,
' “Responsibility of States” at the Hague Codification Conference' (1930) 24 AJIL 517.
250) García-Amador, in his capacity as Special Rapporteur to the ILC, presented six
reports in which he formulated proposals for the rules on state responsibility for
injuries to aliens. See F V García-Amador, L Sohn, and R Baxter, Recent Codification
of the Law of State Responsibility for Injuries to Aliens (New York: Oceana
Publications, 1974).
251) Lillich called this initiative 'the sine qua non of any successful attempt to restate
the law governing the treatment of aliens. Because Garcia-Amador's innovative
approach was too ahead of its time …'. R Lillich, above, n. 249, 26. Amerasinghe,
however, was rather sceptical: C F Amerasinghe, above, n. 1, 278 et seq.
252) Articles on the Responsibility of States for Internationally Wrongful Acts, UN GA No.
56/83 of 12 December 2001, Annex.
253) See J Crawford, above, n. 160, 14 et seq.
254) As regards the use of the term 'compensation', instead of 'damages', see above,
Chapter 2.
255) Report of the International Law Commission on the work of its fifty-second session,
above, n. 218, paras 188–97.
256) J Crawford, Third Report on State Responsibility, UN Doc A/CN.4/507/Add 1, paras
154 et seq.
257) This was, according to Special Rapporteur Crawford, also the better place for it. See
Report of the International Law Commission, above, n. 218, para. 197. The official
Commentary of Article 36 of the ILC can be found on the homepage of the ILC
<http://www.untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_200
1.pdf>. Paragraphs 243–63 to Article 36 are identical to the text in J Crawford, above,
n. 160, 218–30.
258) See the discussion on this item in the ILC, UN Doc. A/CN.4/507/Add 1, para. 193.
259) This should mean 'damage to property or other interests of the State and its
nationals which is assessable in financial terms'. See J Crawford, above, n. 160, 202.
260) This is interpreted in the Commentary as meaning 'such things as individual pain
and suffering, loss of loved ones or personal affront associated with an intrusion on
one's home or private life'. Ibid.
261) This problem was, in particular, raised by Hafner in the discussion. See Yearbook of
the ILC (2000), vol. I, UN Doc A/CN.4/SER.A/2000, 193, para. 12.
86
262) See, e.g., B Bollecker-Stern, Le préjudice dans la théorie de la responsabilité
internationale (Paris: Editions A Pédone, 1973) 25 et seq; B Graefrath, 'Responsibility
and Damages Caused: Relationship between Responsibility and Damages' (1984) 185
RdC 19, 90; J Wolf, 'Gibt es im Völkerrecht einen einheitlichen Schadensbegriff?'
(1989) 49 ZaöRV 403 et seq; S Wittich, Non-material Damage and its Reparation in
International Law (Vienna: Jur Diss, 2001) 5 et seq.
263) H Grotius, De iure bellis ac pacis, vol. 2, 17, 2 (Washington: 1913, reproduction of the
1646 edition) (translation by the author).
265) Ibid, at 27. The measure of damage should, therefore, only be measured by
international law. In this vein, the Commentary to Article 28 of the ILC Articles notes
that the provisions on reparation are not applicable 'to the extent that these arise
towards or are invoked by a person or entity other than a State'. See Commentary,
above n. 257, and J Crawford, above, n. 160, 193.
266) Case Concerning the Factory at Chorzów, above, n. 264, 26–7.
267) Alabama (United States v United Kingdom) Award of 14 September 1872, in J Moore
(ed.), Digest of International Arbitrations of which the United States has been a Party
(Washington: GPO, 1898), vol. 1, 495, 590.
268) See above, Chapter 2, Section C(2), paras 2.106 et seq.
269) See also R Dolzer and C Schreuer, above, n. 2, 295, 297.
270) 'Therefore, the Arbitrator believes that it would not be inappropriate to find that,
according to law, the property should be restored to the claimant.' Walter Fletcher
Smith (United States v Cuba) Award of 2 May 1929, 2 RIAA, 915, 918.
271) Ibid, at 918 (emphasis added).
272) Ibid, at 915, 918.
273) Ibid, at 918.
274) De Sabla (United States) v Panama, Award of 29 January 1933, 6 RIAA, 358 et seq.
275) 'The Commission concludes that … the balance of Bernardino, amounting to 1,818
hectares, has been deprived of half its value by cultivators licenses and the
resulting deforestation and denudation of soil and also by the destruction of
continuity resulting from both the adjudications and the cultivators licenses.' De
Sabla (United States) v Panama, ibid, at 368.
276) Owners of the Tattler (United States) v Great Britain, Award of 18 December 1920, 6
RIAA, 48 et seq; Owners, Officers and Men of the Wanderer (Great Britain) v United
States, Award of 9 December 1921, 6 RIAA, 68 et seq; Charterers and Crew of the Kate
(Great Britain) v United States, Award of 9 December 1921, 6 RIAA, 77 et seq; Loughlin
McLean (Great Britain) v United States—The Favourite Case, Award of 9 December
1921, 6 RIAA, 82 et seq; Owners of the Horace B Parker (United States) v Great Britain,
Award of 6 November 1925, 6 RIAA, 153–4; Owners of the Thomas F Bayard (United
States) v Great Britain, Award of 6 November 1925, 6 RIAA, 154; Owners of the Sarah B
Putnam (United States) v Great Britain, Award of 6 November 1925, 6 RIAA, 156–7.
277) Case of the SS Wimbledon (Great Britain, France, Italy, Japan v Germany), PCIJ 1923 Ser
A, No. 1, 15, 31 the SS Wimbledon 2; see also C Gray, Judicial Remedies in International
Law (Oxford: Oxford University Press, 1990) 77.
278) The Corfu Channel Case (United Kingdom v Albania) Assessment of the Amount of
Damages, ICJ Reports 1949, 243, 247 et seq.
279) Ibid, at 249.
280) Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of
the Congo) Judgment of 30 November 2010, ICJ Reports 2010, 637, para. 161.
281) Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of
the Congo) Compensation owed by the Democratic Republic of Congo to the
Republic of Guinea, Judgment of 19 June 2012, ICJ Reports 322, para. 25. The US$
10,000 was a lump sum for alleged personal property lost 'on the basis of equitable
considerations'. Ibid, para. 36.
282) The M/V 'SAIGA' (No. 2) Case (Saint Vincent and the Grenadines v Guinea), ITLOS
Judgment of 1 July 1999.
283) Ibid, para. 175; in M/V 'VIRGINIA G', the Tribunal awarded costs of repairs of the
vessel and the value of the confiscated gas oil. The M/V 'Virginia G' (No. 19) Case
(Panama v Guinea-Bissau), ITLOS, Judgment of 14 April 2014, para 446.
284) AGIP SpA v Congo, Award of 30 November 1979 (1993) 1 ICSID Reports 306 et seq.
285) SARL Benvenuti & Bonfant v Congo, Award of 8 August 1980 (1993) 1 ICSID Reports 330
et seq.
286) The tribunal in AGIP v Congo noted: 'The Tribunal recognizes that the present case is
not limited to an act of nationalization but comprises also a series of repudiations
by the Government of its contractual obligations, which are independent from the
nationalization …'. AGIP SpA v Congo, Award of 30 November 1979 (1993) 1 ICSID
Reports 306, para. 97. In Benvenuti & Bonfant, the tribunal was also called to
examine a number of different claims, partly contractual and partly international
(expropriation). Benvenuti & Bonfant v Congo, Award of 8 August 1980 (1993) 1 ICSID
Reports 330, para. 4.8.
287) AGIP SpA v Congo, Award of 30 November 1979 (1993) 1 ICSID Reports 306, 328–9; see
further below, Chapter 5, Section A(1).
288) Benvenuti & Bonfant v Congo, Award of 8 August 1980 (1993) 1 ICSID Reports 330,
para. 4.95.
87
289) The tribunal in the first award in Amco v Indonesia held that the licence was a
'bilateral relationship creating obligation for both parties' and that the 'legal basis
of calculation of damages will be set up according to the principles governing the
matter, where the prejudice to be compensated results from the failure of a party to
a contract to fulfill its obligations under the contract'. Amco Asia v Indonesia, Award
of 20 November 1980 (Amco I) (1993) 1 ICSID Reports 413, paras 190–1 and 265.
290) Amco Asia v Indonesia, Award of 5 June 1990 (Amco II) (1993) 1 ICSID Reports 569,
para. 137.
291) Ibid, para. 185, quoting INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 385.
292) This solution was selected by the respondent Government after the tribunal had
made two alternative proposals for the calculation of damages. The other proposal,
too, was based on the individual damage incurred to the affected investor. Antoine
Goetz et al v Burundi, Award of 10 February 1999 (2000) 15 ICSID Rev.-FILJ 457, paras
135 et seq.
293) Metalclad v Mexico, 30 August 2000 para. 122.
294) Biloune and Marine Drive Complex Ltd v Ghana, Award on jurisdiction and liability of
27 October 1989 (1994) 95 ILR 183; Award on damages and costs of 30 June 1990 (1994)
95 ILR 211.
295) Biloune and Marine Drive Complex Ltd v Ghana, Award on damages and costs, above,
n. 294, 228. In this respect, the tribunal explicitly referred to the cases Texaco v
Libya (1977) 17 ILM paras 40–105, Sedco Inc v NIOC, Second Interlocutory Award, 10
Iran–US CTR (1986) 180, 184–9, and Amoco International Finance v Iran, 15 Iran–US
CTR (1987) 189, paras 183–209.
296) Biloune and Marine Drive Complex Ltd v Ghana, Award on jurisdiction and liability,
above, n. 294, 211.
297) S D Myers v Canada, First Partial Award of 13 November 2000, para. 308 (emphasis in
original).
298) Ibid, para. 309.
299) Ibid, para. 309.
300) Ibid, para. 309, in footnote 53.
301) Pope & Talbot v Canada, Award in Respect of Damages of 31 May 2002 , paras 86–7.
Without explicitly referring to the applicable 'standard', the tribunal found that the
'damage' incurred must be repaired. Ibid, para. 73.
302) Marvin Roy Feldman v Mexico, Award of 16 December 2002 , para. 194.
303) American Manufacturing and Trading v Zaire, Award of 21 February 1997.
304) The tribunal interpreted this in the following way: 'The obligation incumbent upon
Zaire is an obligation of vigilance, in the sense that Zaire as the receiving State of
investments made by AMT, an American company, shall take all measures necessary
to ensure the full enjoyment of protection and security of its investments and
should not be permitted to invoke its own legislation to detract from any such
obligation. Zaire must show that it has taken all measure of precaution to protect
the investment of AMT on its territory.' Ibid, para. 6.05.
305) It did not matter whether the damaging acts had been committed by the military or
rioting private individuals: '[I]t suffices to confirm once more the engagement of the
responsibility of the State of Zaire for all the losses resulting “from riot or act of
violence in the territory of such other Party”, in this case, Zaire. Such is the case
without the Tribunal enquiring as to the identity of the author of the acts of violence
committed in the Zairian territory. It is of little or no consequence whether it be a
member of the Zairian armed forces or any burglar whatsoever.' Ibid, para. 6.13.
306) Ibid, para. 7.03.
307) Ibid, para. 7.13.
308) Ibid.
309) Ibid, para. 7.19.
310) MTD Equity v Chile, Award of 25 May 2004, para. 238.
311) Ibid, para. 238.
312) LG&E v Argentina, Award of 25 July 2007, para. 35.
314) Occidental v Ecuador, Award of 1 July 2004, para. 187.
316) The tribunal had jurisdiction over them on the basis of Article II(1) of the Claims
Settlement Declaration. See 1 Iran–US CTR (1981–82) 9.
317) Foremost Tehran v Iran, 10 Iran–US CTR (1986) 228, 251.
318) Mohtadi v Iran, 32 Iran–US CTR (1996) 124, paras 106 et seq.
319) Seismograph Service Corporation et al v NIOC and Iran, 22 Iran–US CTR (1989) 3, para.
303.
320) See G Dannemann, Schadensersatz bei Verletzung der Europäischen
Menschenrechtskonvention (Cologne et al: Heymanns, 1994) 332 et seq.
321) Papamichalopoulos et al v Greece (just satisfaction) ECtHR Ser A, No. 330-B, 31
October 1995.
323) The ICSID Tribunal in ADC v Hungary explicitly referred to the jurisprudence of the
ECtHR in its judgment in Papamichalopoulos v Greece, in its reasoning on the
calculation of damages following the principle of full reparation. See ADC v
Hungary, Award of 2 October 2006, , para. 497.
88
324) See, e.g., Stran Greek Refinieries et al v Greece, 9 December 1994, ECtHR Ser A, No.
301-B; Vasilescu v Romania, ECtHR 1998-III; Brumaresco v Romania (just satisfaction),
ECtHR 2001-I.
325) Iatridis v Greece (just satisfaction) ECtHR 2000-XI; Belvedere Alberghiera Srl v Italy,
ECtHR 2000-VI; Terazzi S.R.L. v Italy (satisfaction equitable) ECtHR No. 27265/95, 26
October 2004; Papastavrou and Others v Greece (just satisfaction) ECtHR No.
46372/99, 18 November 2004.
326) Montais de Narbonne, 2 July 2002, ECtHR No. 48161/99; Montais de Narbonne
(satisfaction équitable) ECtHR No. 48161/99, 27 May 2003.
327) Akkus v Turkey, ECtHR 1997-IV; Aka v Turkey, ECtHR 1998-VI; Kartal Makina Sanayi Ve
Ticaret Koll Sti v Turkey, 7 October 2004, ECtHR No. 50011/99; Ugur et al v Turkey, 7
October 2004, ECtHR No. 49690/99.
328) Explicit references to the BIT standard in the context of indirect expropriations are,
e.g., Antoine Goetz et al v Burundi, Award of 29 January 1999, paras 124, 135; Wena
Hotels Ltd v Egypt, Award of 8 December 2000, para. 118; Middle East Cement v Egypt,
Award of 12 April 2002, para. 107; Técnicas Medioambientales v Mexico, Award of 29
May 2003, para. 187.
329) See above, para. 3.117 with reference to the respective cases.
330) Sedco Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180, 187.
332) As regards the obiter dictum of the Iran–US Claims Tribunal in INA Corporation v Iran
regarding a possible 'gradual reappraisal' of the standard see above, para. 3.10.
333) The tribunal in Sedco v NIOC relied on the submission of the claimant according to
which 'unlawful takings are subject to the strictest compensation requirements'.
Sedco Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180, 183; see
also Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, para. 31; Phelps Dodge
Corporation et al v Iran, 10 Iran–US CTR (1986) 121, para. 28; Thomas Earl Payne v Iran,
12 Iran–US CTR (1986) 3, para. 30.
334) See also D Pellonpää and M Fitzmaurice, above, n. 128, 53, 121 et seq.
335) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, para. 31 (emphasis added).
The subsequent references include INA Corporation v Iran, 8 Iran–US CTR (1985) 373,
380 and American International Group v Iran, 4 Iran–US CTR (1983) 96, 107–8.
336) See above, Section A(1)(c).
337) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, para. 30.
338) See also the valuation of three indirectly expropriated blowout preventers in Oil
Fields of Texas v Iran, 12 Iran–US CTR (1986) 308, para. 43. The tribunal referred, in
particular, to Sedco Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986)
180 et seq and Phelps Dodge Corporation v Iran, 10 Iran–US CTR (1986) 121 et seq.
339) Thomas Earl Payne v Iran, 12 Iran–US CTR (1986) 3, para. 35; Sedco Inc v NIOC, Final
Award, 15 Iran–US CTR (1987) 23, para. 31; Phillips Petroleum Iran v Iran, 21 Iran–US
CTR (1989) 79, para. 106; Sedco v IMICO, 21 Iran–US CTR (1989) 31, para. 63; Petrolane
Inc v Iran, 27 Iran–US CTR (1991) 64, para. 108; Shahine Shaine Ebrahimi v Iran, 30
Iran–US CTR (1994) 170, para. 98; Khosrowshahi v Iran, 30 Iran–US CTR (1994) 76, para.
34; James A Saghi v Iran, 29 Iran–US CTR (1993) 20, para. 79; Vera-Jo Miller Aryeh et al v
Iran, 33 Iran–US CTR (1997) 272, para. 215; George Davidson v Iran, 34 Iran–US CTR
(1998) 3, para. 117. The expert appointed by the tribunal in Starrett Housing v Iran
played an important role on the issue of valuation: 'He [the expert] correctly
defined fair market value as the price that a willing buyer would pay to a willing
seller in circumstances in which each had good information, each desired to
maximize his financial gain, and neither was under duress or threat. He
approximately assumed that the willing buyer was a reasonable businessman.'
Starrett Housing v Iran, 16 Iran–US CTR (1987) 112, para. 277.
340) In the sense of 'full value' according to the Chorzów judgment, e.g., Sola Tiles v Iran,
14 Iran–US CTR (1987) 223, para. 41; for references to 'market value' see Motorola Inc
v Iran, 19 Iran–US CTR (1988) 73, para. 69; Tavakoli v Iran, 33 Iran–US CTR (1997) 206,
para. 94.
341) See Article II(1) Claims Settlement Declaration, 1 Iran–US CTR (1982) 9. See, e.g.,
Kamran Hakim v Iran where the tribunal held: 'In this case … the Tribunal adopts as
appropriate the Treaty of Amity standard of compensation … Accordingly, the
Tribunal must determine what is the “full equivalent” of the Claimant's 20 percent
share in PMMC.' Kamran Hakim v Iran, 34 Iran–US CTR (1998) 67, para. 105.
342) See paras 3.165 et seq.
343) Biloune and Marine Drive Complex Ltd v Ghana Investments Centre, Award on
jurisdiction and liability of 27 October 1989 (1994) 95 ILR 183, 210.
344) The tribunal held: 'Under the principles of customary international law, a claimant
whose property had been expropriated by a foreign state is entitled to full—i.e. to
prompt, adequate, and effective—compensation. This generally means that such a
claimant is to receive the fair market or actual value of the property at the time of
expropriation, plus interest, and that the compensation must be reasonably made
in a form that can be freely repatriated or otherwise satisfactorily deployed.'
Biloune v Ghana, Award on damages and costs of 30 June 1990 (1994) 95 ILR 211, 228
(emphasis added).
345) See above, para. 3.135. See also further below, Chapter 5, para. 5.312.
346) Wena Hotels v Egypt, Award of 8 December 2000 para. 118 (emphasis added).
89
347) Técnicas Medioambientales v Mexico, Award of 29 May 2003 , paras 151, 174, 187.
348) Middle East Cement v Egypt, Award of 12 April 2002 , para. 107. This was, however, not
appropriately reflected in the calculation. On one hand, the loss from delivery
contracts was valued at the contractually agreed minimum although the actual
business operation had been much better. On the other hand, the 'market value' of
the expropriated ship was determined as the average between the auction price
and the scrap value. Ibid, para. 150. The auction appeared to have been
manipulated so that another measure of value was needed. It is not clear, however,
why the tribunal reduced the scrap value of the ship— which already represented a
very low value—even further.
349) The tribunal examined both the possible violation of Article 1105 and of Article 1110.
Metalclad v Mexico, Award of 30 August 2000 (2001) 40 ILM 36, paras 101, 112.
350) Ibid, para. 113.
351) Ibid, para. 120.
352) CMS v Argentina, Award of 12 May 2005, para. 264.
353) Ibid, para. 410.
354) Enron v Argentina, Award of 22 May 2007, paras 361, 389.
355) Sempra Energy International v Argentina, Award of 28 September 2007, paras 403–4,
416 et seq.
356) Azurix v Argentina, Award of 14 July 2006, para. 424.
357) El Paso v Argentina, Award of 31 October 2011, para 702.
358) EDF v Argentina, Award of 11 June 2012, para. 1210.
359) Gold Reserve v Venezuela, Award of 22 September 2014, para. 681.
360) The tribunal in Azurix v Argentina, e.g., also included subsequent investments and
expenses undertaken by the investor, without reference to their 'value'. Azurix v
Argentina, Award of 14 July 2006, para. 430. Also the tribunal in EDF v Argentina, did
not strictly apply an objective valuation approach, as it based the valuation on the
'return on investment' of the initital purchase price and also considered a
subsequent sale of the shares by the investor in the calculation. EDF v Argentina,
Award of 11 June 2012, paras 1238–9, 1302 et seq.
361) See, e.g., Sedco Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180,
182–3; see also Phelps Dodge Corporation et al v Iran, 10 Iran–US CTR (1986) 121, para.
28; Harold Birnbaum v Iran, 29 Iran–US CTR (1993) 260, para. 37; Fereydoon Ghaffari v
Iran, 31 Iran–US CTR (1995) 60, para. 101 (referring to Birnbaum); Gold Reserve v
Venezuela, Award of 22 September 2014, para. 681; Tenaris v Venezuela, Award of 29
January 2016, para. 519; Crystallex v Venezuela, Award of 4 April 2016, para. 845.
362) See, e.g., Técnicas Medioambientales SA v Mexico, Award of 29 May 2003 (2004) 19
ICSID Rev.-FILJ 158, paras 74, 112; CMS v Argentina, Award of 12 May 2005 (2005) 44 ILM
1205, para. 396; Enron v Argentina, Award of 22 May 2007, para. 346.
363) C Gray, Remedies in International Law (Oxford: Oxford University Press, 1987) 206; see
also D Collins, 'Reliance Remedies at the International Center for the Settlement of
Investment Disputes' (2009) 29 The Northwestern Journal of International Law and
Business 195, 216.
364) See I Marboe and A Reinisch, 'State Contracts' in R Wolfrum (ed.), The Max Planck
Encyclopedia of Public International Law (Oxford: Oxford University Press, 2012), vol.
II, 758, para. 15.
365) See, e.g., Lena Goldfields Arbitration, Award of 2 September 1930, paras 26, 28;
Delagoa Bay and East African Railway Company, Award of 30 May 1900; more recent
cases include Italia Ukraina v Naftogaz, ICC, Separate Award of 19 October 2010,
Final Award of 19 December 2012; Mobil Cerro Negro v Petroleos de Venezuela, ICC,
Award of 23 December 2011, paras 650 ff.
366) See also D Bowett, 'State Contracts with Aliens: Contemporary Developments on
Compensation for Termination or Breach' (1988) 59 BYIL 49, 54.
367) 'UN Convention on the International Sale of Goods' (1980) 19 ILM 668; UNIDROIT,
Principles on International Commercial Contracts (Rome: UNIDROIT, 1994, 2004,
2010).
368) O Lando and H Beale (eds), Principles of European Contract Law: Parts I and II,
369) See H Wöss, A San Román Rivera, P Spiller Pablo, and S Dellepiane, Damages in
International Arbitration under Complex Long-Term Contracts (Oxford: Oxford
University Press, 2014) 34 et seq.
370) R Jennings, 'Rules Governing Contracts between States and Foreign Nationals' in The
Southwestern Legal Foundation (ed.), Rights and Duties of Private Investors Abroad
(Dallas: Matthew Bender & Company, 1965) 123, 137–8.
371) Article 73 reads: 'The provisions of the present Convention shall not prejudge any
question that may arise in regard to a treaty from a succession of States or from the
international responsibility of a State or from the outbreak of hostilities between
States.' Vienna Convention on the Law of Treaties of 23 May 1969, UNTS 1980, vol.
1155, 18232, 331.
372) H Wöss et al, above, n. 369, 208 et seq; see also the comparative law and arbitration
analysis by J Gotanda, 'Recovering Lost Profits in International Disputes' (2004) 36
Georgetown Journal of International Law 61, 66–7.
90
373) See examples of the French, Spanish, and Belgian legal systems in J Gotanda, above,
n. 372, 76–7; in AGIP v Congo, the tribunal held that the application of the French
Code Civil required the award of both damnum emergens and lucrum cessans: 'This
principle of full compensation for losses is limited in certain circumstances which,
in the opinion of the Tribunal, do not exist in the present case'. AGIP SpA v Congo,
Award of 30 November 1979 (1993) 1 ICSID Reports 306, para. 99.
374) E Schön, Allgemeines Vertragsrecht und Kaufvertragsrecht—Ein Rechtsvergleich
Österreich, USA, Spanien und UN-Kaufrecht (Frankfurt et al: Peter Lang, 2003) 286 et
seq.
375) Article 7.4.21 UNIDROIT Principles of International Commercial Contracts, Article 74
CISG, Article 9.502 PECL. See above, Chapter 2, paras 2.85–2.87.
376) Article 7.1.7 UNIDROIT Principles of International Commercial Contracts, Article 79(1)
CISG, Article 8.108 PECL.
377) See G Aldrich, The Jurisprudence of the Iran–US Claims Tribunal (Oxford: Clarendon
Press, 1996) 294 et seq; J Westberg, International Transactions and Claims Involving
Government Parties. Case Law of the Iran-United States Claims Tribunal (Washington:
International Law Institute, 1991) 190 et seq; notable examples are Pomeroy
Corporation v Iran, 2 Iran–US CTR (1983) 372, 384; Blount Brothers v Ministry of
Housing, 3 Iran–US CTR (1983) 225, 233 et seq; Gould Marketing v Iran, 6 Iran–US CTR
(1984) 272, 286; Buckamier v Iran, 28 Iran–US CTR (1992) 53, para. 163; the solutions
were sometimes based on 'implicit termination' or force majeure. See below, paras
3.211 et seq.
378) These older cases have become famous because recent investment tribunals have
repeatedly referred to them. See, e.g., Liberian Eastern Timber Corporation (LETCO) v
Liberia, Award of 31 March 1986, 2 ICSID Reports (1994) 343, 371; Amco Asia v
Indonesia, Award of 5 June 1990 (Amco II), 1 ICSID Reports (1993) 569, para. 178;
Himpurna California Energy Ltd v PT (Persero) Perusahaan Listruik Nagara (PLN), Final
Award of 4 May 1999 (2000) 25 YCA 13, para. 275.
379) The respondent state, Guatemala, had breached its contractual obligations to pay
the costs and expenses for the construction work. The delay in payment of loans to
the workers led to strikes which made the further operation of the railway
impossible. Robert H May (United States v Guatemala), Award of 16 November 1900,
reprinted in pertinent part in M Whiteman, above, n. 365, 1704.
380) Ibid, at 1709.
381) Ibid, at 1708. The tribunal in Shufeldt v Guatemala referred to this decision in Robert
H May v Guatemala and calculated the amount of damages after the withdrawal of a
rubber concession also on the basis of the profits of the past years. The concession,
in this case, was originally concluded for ten years, but withdrawn by the
Government after six years. Shufeldt Claim (United States v Guatemala), Award of 2
November 1929, 2 RIAA, 1079, 1083, 1099. The arbitrator rejected the argument of the
respondent state that it had a sovereign right to regulate concessions and held: '[I]t
is a settled principle of international law that a sovereign can not be permitted to
set up one of his own municipal laws as a bar to a claim by a sovereign for a wrong
done to the latter's subject'. Ibid, at 1098.
382) H Wöss et al, above, n. 369, 247.
383) See the definition of the term 'profit' in Black's Law Dictionary: 'The excess of
revenues over expenditures in a business transaction.' B Garner (ed.), Black's Law
Dictionary (10th edn, St Paul, MN: Thomson Reuters, 2014) 1404.
384) See R Brealey and S Myers, Principles of Corporate Finance (11th edn, Boston:
McGraw-Hill Higher Editions, 2014) 18 et seq.
385) Economic methods of risk management are discussed below, Chapter 5, paras 5.138
et seq.
386) H Wöss et al, above, n. 369, 247 et seq.
387) See also D Bowett, 'State Contracts with Aliens: Contemporary Developments on
Compensation for Termination or Breach' (1988) 59 BYIL 49 et seq; H Wöss et al,
above, n. 369, 273 et seq.
388) Liberian Eastern Timber Corporation (LETCO) v Liberia, Award of 31 March 1986, 2 ICSID
Reports (1994) 343 et seq.
389) The host Government had based it actions on the allegation that the concessionaire
had not appropriately cared for the respective area of forest. However, the tribunal
is not always consistent in the legal qualification of these actions which it also
refers to as 'expropriation'. See, e.g., ibid, at 375.
390) It referred to a number of earlier cases including Shufeldt v Guatemala, Robert H
May v Guatemala, LIAMCO v Libya, Sapphire International v NIOC, Lena Goldfields;
Liberian Eastern Timber Corporation (LETCO) v Liberia, Award of 31 March 1986, 2 ICSID
Reports (1994) 343, 371.
391) Ibid, at 372.
392) Ibid, at 377.
91
393) Himpurna California Energy Ltd v PT (Persero) Perusahaan Listruik Nagara (PLN), Final
Award of 4 May 1999 (2000) 25 YCA 13, para. 240. See also J Paulsson 'The Expectation
Model' in Y Derains and R Kreindler (eds), Evaluation of Damages in International
Arbitration (Paris: International Chamber of Commerce, 2006) 57, 62 et seq. The case
concerned contracts between the claimant and the Indonesian state electricity
company PLN in relation to the exploration and development of geothermal
resources for the generation of electricity in Indonesia. The so-called Energy Sales
Contract of 1994 contained the obligation of the respondent to buy the electricity
produced and pay in US dollars until an agreed maximum over thirty years. During
the massive economic crisis, however, Indonesia issued a number of presidential
decrees containing adaptations or deferrals of a number of infrastructure
programmes. The very first invoice on electricity delivered was not paid meaning
that the production of electricity was stopped. Himpurna California Energy Ltd v PT
(Persero) Perusahaan Listruik Nagara (PLN), Final Award of 4 May 1999 (2000) 25 YCA
13, paras 24 et seq.
395) The tribunal notes that in cases of expropriation the contractual damnum emergens
is not to be compensated. It has to be pointed out, however, that contractual rights
may also be expropriated. In the context of expropriations the conceptual
approach is usually not about the damnum but the 'value' of the expropriated
asset. See above, Chapter 2, Section B(1)(b).
397) Ibid, para. 241.
398) '[W]hile it has full entitlement to question the reality of the claimant's alleged costs,
there is little scope for PLN to question their reasonableness. As long as the
expenditures were made in rational pursuit of the objectives of the Contract, there
is no room to question their cost-effectiveness ex post facto…. In other words, the
claimant made its expenditures in reliance on the Contract. It had every incentive
to keep those costs low, because all savings would be to its own undiluted benefit.
There is no basis for allowing PLN today to seek to impose retrospective spending
controls.' Ibid, paras 258, 260 (emphasis in original).
399) Ibid.
400) Ibid, para. 275. See Sapphire v NIOC, Award of 15 March 1963 (1967) 35 ILR 136, 186–7.
401) The tribunal noted that the investments made had been substantial: 'Plant and
infrastructure have been built; costly wells have been drilled; sophisticated and
expensive studies have been conducted'. Ibid, para. 253. The amounts of the
investments undertaken were increased by a multiple in order to account for the
passage of time: 'To establish the present value of these sunken costs, the Arbitral
Tribunal adopts the multiplier used by PLN's financial expert, Dr. Leininger, namely
0,929665'. Ibid, para. 287.
402) Ibid, para. 242.
403) 'The Arbitral Tribunal is satisfied that what the claimant presents as the “initial
project value” reflects the alleged value of future cash flows, discounted to 31
December 1998, which indeed deducts the alleged value, at the same date, of past
investments.' Ibid, para. 243.
404) It reduced the amount of lost profits by an alleged 'abuse of rights'. See further
below, para. 3.245.
405) Karaha Bodas Company LLC v Perusahaan Pertambangan Minyak dan Gas Bumi
Negara (Pertamina) and PT PLN (Persero), Final Award of 18 December 2000,
summarized in pertinent part in Karaha Bodas Co v Perusahaan Pertambangan
Minyak dan Gas Bumi Negara, 364 F.3d 274, 282–85 (5th Cir 2004).
406) The respondent submitted that a lot of 'wasteful expenditures' had been
undertaken: 'KBC spent two years focusing its exploration efforts in an unproductive
area in north Karaha and did not profit from earlier resistivity programs which
would have saved millions of dollars. KBS is also claimed to have mistakenly shifted
its focus at a later stage to a crater area in Telaga Bodas, where it should have
expected to encounter adverse chemistry that would render development
commercially impracticable.' Karaha Bodas Company LLC v Perusahaan
Pertambangan Minyak dan Gas Bumi Negara (Pertamina) and PT PLN (Persero), Final
Award of 18 December 2000, para. 86.
407) It applied a multiple of 5.8% with respect to the rate of interest the investor could
have earned otherwise in the meantime. Ibid, para. 107.
408) The submission of the respondent that the project would never have been
profitable due to the high capital costs was not accepted by the tribunal. It
regarded it as one out of 'a number of risks', together with the risks of delay,
increased costs, and necessary investments as well as a smaller reservoir—which
only increased the risk premium but did not put the profits as such into question.
Ibid, paras 119, 134.
409) L Wells, 'Double Dipping in Arbitration Awards? An Economist Questions Damages
471.
410) Ibid, at 477.
92
411) Ibid, at 477 (emphasis in original).
412) Railroad Development v Guatemala, Award of 29 June 2012, para. 30.
413) Ibid, para. 239.
414) Ibid, para. 241; see also H Wöss et al, above, n. 369, 276.
416) Ibid, para. 270.
417) Ibid, para. 277. There was, however, a dispute about the correct application of the
discount rate which was partially rectified in the Decision on the Request for a
Supplementary Decision and Rectification of 18 January 2013, para. 43.
418) See also H Wöss et al, above, n. 369, 276.
para. 178; Shufeldt Claim (United States v Guatemala), Award of 2 November 1929,
1099; see also C Gray, above, n. 363, 201.
420) See, e.g., Duke Energy v Ecuador, Award of 18 August 2008. The ICSID tribunal
aknowledged the right to damnum emergens and lucrum cessans in principle but
recognized as 'commercial losses' merely interest on late payments and on
unjustified fines. See also D Collins, 'Reliance Remedies at the International Center
for the Settlement of Investment Disputes' (2009) 29 Northwestern Journal of
International Law and Business 195.
421) See, e.g., Lieblich, who speaks of 'reliance interest' and 'expectation interest'. W
Lieblich, 'Determinations by International Tribunals of the Economic Value of
Expropriated Enterprises' (1990) 7 Journal of International Arbitration 37, 47–8; see
also D Collins, above, n. 420.
422) Sapphire International Petroleum Ltd v NIOC, Award of 15 March 1963 (1967) 35 ILR
136, 186–7.
423) See Nordzucker AG v Poland, ad hoc Arbitration (UNCITRAL), Second Partial Award of
28 January 2009, para. 95; Third Partial Award of 23 November 2009, para. 65,
referring to 'damages possibly suffered as a result of the delay in an alternative
investment and of the fruitless costs made for the monitoring of the sales procedure
in Poland during another half year'.
424) I Marboe, 'Nordzucker AG v The Republic of Poland. Case Comment' (2015) 16 JWIT
523, 532–3; A Zachariewicz, 'Culpa in Contrahendo in Polish Law' in B Leiderhoff and
G Zmij (eds), Tort Law in Poland, Germany and Europe (Munich: Sellier, 2009) 133–50.
425) C Gray, above, n. 363, 201.
426) D Collins, above, n. 420, 216.
427) Ibid.
429) Ibid.
136, 186–7 (emphasis added).
431) Bridas SAPIC v Turkmenistan, Partial Award of 25 June 1999, published in part in D
Bishop, J Crawford, and M Reisman, Foreign Investment Disputes. Cases, Materials and
Commentary (The Hague: Kluwer Law International, 2005) 1270, 1271.
432) J Gotanda, above, n. 372, 86–7.
433) M Whiteman, above, n. 365, 1837. See, e.g., B Sabahi and L Hoder, 'Certainty in
Recovery of Damages for Losses to New or Incomplete Businesses—Three Paradigms:
Biloune v Ghana, Gemplus v Mexico, and Siag v Egypt' in B Sabahi, N Birch, I Laird,
and J A Rivas (eds), Revolution in the International Rule of Law. Essays in Honour of
Don Wallace, Jr (Huntington, New York: Juris, 2014) 497, 499–500.
434) S Ripinsky and K Williams, above, n. 120, 164–70, 280–8.
435) William J Levitt v Iran, 14 Iran–US CTR (1987) 191, paras 56 et seq.
438) Dadras International and Per-Am Construction v Iran, 31 Iran–US CTR (1995) 127 et seq.
439) Ibid, para. 276.
440) Ibid, para. 275.
441) Autopista Concesionada de Venezuela CA v Venezuela, Award of 23 September 2003,
10 ICSID Reports 314, para. 352.
442) Ibid, para. 129.
443) Ibid, para. 362.
444) Ibid, para. 351 (footnotes omitted).
445) Ibid, paras 352 et seq. The tribunal concentrated its award on the items presented
by the claimants and not disputed by the respondent. It conducted an independent
assessment only in regard to items disputed between the parties.
446) Phillips Petroleum and Conoco Phillips, ICC, Award of 17 September 2012, para 235;
Mobil Cerro Negro v Petroleos de Venezuela, ICC, Award of 23 December 2011, para.
554.
447) The calculation can nevertheless be a complex task involving the choice of
reference prices and numerous other parameters. See Mobil Cerro Negro v Petroleos
de Venezuela, ibid, paras 611 et seq.
448) See J Gotanda, above, n. 372, 66 referring to Bucher, 'Law of Contracts', in
Introduction to Swiss Law (2nd edn, 1995) 115.
449) Blount Brothers v Ministry of Housing and Urban Development, 3 Iran–US CTR (1983)
225, 228.
93
450) Ibid, at 229.
451) Ibid, at 225, 232; see also Exxon Research and Engineering Company v NIOC, 15 Iran–
US CTR (1987) 3, paras 31 et seq; similarly (concerning an employment contract)
Theodore Lauth v Iran, 11 Iran–US CTR (1986) 150, 155.
452) Ultrasystems Inc v Iran, 2 Iran–US CTR (1983) 100, 111.
453) Oil Fields of Texas v Iran, 12 Iran–US CTR (1986) 308, paras 46 et seq; Motorola Inc v
Iran, 19 Iran–US CTR (1988) 73, para. 28; United Painting Company Inc v Iran, 23 Iran–
US CTR (1989) 351, para. 52.
454) Sylvana Technical Systems v Iran, 8 Iran–US CTR (1985) 298, 312 et seq.
455) Ibid, at 319.
456) Autopista Concesionada de Venezuela CA v Venezuela (23 September 2003), 10 ICSID
457) Ibid, para. 334.
458) Ibid.
459) The dispute was about contracts on the construction and delivery of trash
compactors for different construction projects. Buckamier v Iran, 28 Iran–US CTR
(1992) 53, paras 60, 69 et seq, 79 et seq, 113 et seq.
460) The claimant submitted that these contracts had been expropriated during the
time of the Iranian Revolution. However, it could not convince the tribunal that acts
attributable to the Iranian Government had been the cause of the failure of the
business. It referred in particular to the award in Starrett Housing v Iran which had
explained that the revolution as such did not give rise to a right to compensation
but that this was part of the business risk. Ibid, para. 59.
461) See also J Westberg, International Transactions and Claims Involving Government
Parties: Case Law of the Iran–United States Claims Tribunal (Washington:
International Law Institute, 1991) 159 et seq; G Aldrich, above, n. 377, 306 et seq; S
Schmitz, Allgemeine Rechtsgrundsätze in der Rechtsprechung des Iran–US Claims
Tribunal (Frankfurt et al: Peter Lang, 1992) 147 et seq; M Brunetti, 'The Lex Mercatoria
in Practice: The Experience of the Iran–United States Claims Tribunal' (2002) 18
Arbitration International 355, 359 et seq.
462) Buckamier v Iran, 28 Iran–US CTR (1992) 53, para. 95.
463) Ibid, para. 146. Concerning the amount of profit the tribunal found the 10 per cent
claimed to be a 'moderate margin'. Ibid, para. 163.
464) See above, paras 3.205 et seq.
465) 'Considering the obstacles discussed in paragraphs 131 through 136, supra, it is
highly unlikely that, had the Contract not come to a halt, HNB would have earned
the profits it expected initially.' Buckamier v Iran, 28 Iran–US CTR (1992) 53, para.
165. The tribunal, therefore, considered even the 'moderate margin' as unlikely and
awarded only the relatively small lump sum of US$ 64,000. See also Pomeroy v Iran,
2 Iran–US CTR (1983) 372, 383.
466) Sapphire International v NIOC, Award of 15 March 1963 (1967) 35 ILR 136 et seq.
467) The tribunal formulated this question explicitly: 'Does the loss of this opportunity
give the right to compensation?' Ibid, at 187.
468) The tribunal emphasized: 'The award of compensation for the lost profit or the loss
of a possible benefit has been frequently allowed by international arbitral tribunals
(cf. Hauriou, “Les dommages indirects dans les arbitrages internationaux”, in Revue
générale de droit international public, vol. 31 (1925) pp. 203 et seq, in particular pp.
211 et seq, and the various precedents cited in this study)'. Ibid, at 186. See also the
discussion of including lost opportunities in the quantification of damages after a
violation of the fair and equitable treatment standard in Micula v Romania, Award
of 11 December 2013, paras 975–88.
469) Ibid, at 188.
470) '[T]he plaintiff has satisfied the legal requirement of proof by showing a sufficient
probability of the success of the prospecting undertaken, if they had been able to
carry it through to a finish. The plaintiff can therefore claim compensation for “loss
of profit”.' They should therefore be awarded in addition to the 'expenses incurred
in performing the contract'. Ibid, at 189.
471) Ibid, at 187.
472) Ibid, at 189.
473) Ibid, at 187, 190.
474) Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal, Award of 25 February
1988 (1994) 2 ICSID Reports 164, paras 5.77 et seq and 5.84 et seq.
475) Ibid, para. 7.13.
476) In its reasoning, the tribunal referred to the inconsistencies of the claimant's
submissions and in addition to the agreement contained in the contract that the
Government should in five years receive 50% of the capital invested. This meant
that for a term of ten years, 25% of the yearly net profit must be for the Government.
Ibid, paras 7.11 et seq.
477) Ibid, paras 6.27, 9.26, 12.06.
478) In the first case, 82 out of 90 kilometres had already been built, in the second case
US$ 93 million had been invested. Autopista Concesionada de Venezuela v Venezuela,
Award of 23 September 2003, para. 361.
94
479) Ibid, para. 357; the Arab Investment Court, by contrast, accepted lost profits and
lost opportunities at US$900 million for a touristic project which never started in
Mohamed Abdulmohsen Al-Karafi v Libya, Award of 22 March 2013.
480) Reinisch and Marboe, n. 364, paras 33–4. See also the insightful analysis of the
relationship of contract and treaty claims in Waste Management v United Mexican
States, Award of 30 April 2004, paras 163 et seq.
481) See T Waelde, 'The Umbrella Clause in Investment Arbitration. A Comment on
Original Intentions and Recent Cases' (2005) 6 JWIT 183 et seq.
482) A Reinisch, 'Expropriation' in P Muchlinski et al (eds), The Oxford Handbook of
International Investment Law (Oxford: Oxford University Press, 2008) 407, 410.
483) Norwegian Shipowners, Award of 13 October 1922, 1 RIAA, 309, 334 (emphasis in
original). See also Shufeldt: '[T]he grantee or assignee of a legal and binding
contract acquires property rights subject to the terms and conditions of the
contract'. Shufeldt Claim (United States v Guatemala), Award of 2 November 1929, 2
RIAA, 1081, 1097 (emphasis added).
484) LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 141, 189.
485) Delagoa Bay and East African Railway Company, Award of 30 May 1900, reprinted in M
Whiteman, above, n. 365, 1694 et seq.
486) Shufeldt Claim (United States v Guatemala), Award of 2 November 1929, 2 RIAA, 1079.
487) Lena Goldfields, Award of 2 September 1930, reprinted in pertinent part in (1950) 36
Cornell Law Quarterly 42 et seq.
488) Lighthouses Arbitration (France v Greece), Award of 24 July 1956 (1956) 23 ILR 299–300.
489) Sapphire International Petroleum Ltd v NIOC, Award 15 March 1963 (1967) 35 ILR 136 et
seq.
490) Norwegian Shipowners refers to the fair market value. See above, Section A(1)(c).
However, the contracts were rather short-term construction and delivery contracts
and not long-term investment contracts. See also M Schäfer,
Entschädigungsstandard und Unternehmensbewertung bei Enteignungen im
allgemeinen Völkerrecht (Heidelberg: Verlag Recht und Wirtschaft, 1997) 154.
491) Liberian Eastern Timber Corporation (LETCO) v Liberia, Award of 31 March 1986 (1994) 2
ICSID Reports 343.
492) Atlantic Triton v Guinea, Award of 21 April 1986 (1995) 3 ICSID Reports 13.
1988 (1994) 2 ICSID Reports 164.
494) MINE v Guinea, Award of 6 January 1988 (1997) 4 ICSID Reports 61.
495) A mixture of the two approaches was applied in Middle East Cement v Egypt: 'When
measures are taken by a State the effect of which is to deprive the investor of the
use and benefit of his investment even though he may retain nominal ownership of
the respective rights being the investment, the measures are often referred to as a
“creeping” or “indirect” expropriation or, as in the BIT, as measures “the effect of
which is tantamount to expropriation” '. Middle East Cement v Egypt, Award of 12
April 2002 , para. 107. For the calculation of the amount to be awarded, however, the
tribunal relied only on the provisions of the contract. Ibid, paras 123 et seq.
para. 184.
497) See, e.g., P Friedland and E Wong, 'Measuring Damages for Deprivation of Income-
Producing Assets: ICSID Case Studies' (1991) 6 ICSID Rev.-FILJ 400 et seq; M Ball,
'Assessing Damages in Claims By Investors Against States' (2001) 16 ICSID Rev.-FILJ
408, 420; B Sabahi and L Hoder, above, n. 433, 507 et seq.
498) Also, the publications on the jurisprudence of the Iran–US Claims Tribunal usually
distinguish between 'Expropriation Claims' and 'Contract Claims'. See, e.g., J
Westberg, International Transactions and Claims Involving Government Parties. Case
Law of the Iran-United States Claims Tribunal (Washington: International Law
Institute, 1991) 101, 149; G Aldrich, above, n. 377, 171, 277 et seq; R Lillich and D
Magraw (eds), The Iran–United States Claims Tribunal. Its Contribution to the Law of
State Responsibility (New York: Transnational Publishers, 1998) 185, 267 et seq.
499) The following cases may serve as examples: Ultrasystems Inc v Iran, 2 Iran–US CTR
(1983) 100; Pomeroy Corporation v Iran, 2 Iran–US CTR (1983) 372; Blount Brothers v
Ministry of Housing and Urban Development, 3 Iran–US CTR (1983) 225; Gruen
Associates Inc v Iran, 3 Iran–US CTR (1983) 97; William L Pereira Associates v Iran, 5
Iran–US CTR (1984) 198; Gould Marketing v Iran, 6 Iran–US CTR (1984) 272; Computer
Sciences Corporation v Iran, 10 Iran–US CTR (1986) 269; Theodore Lauth v Iran, 11 Iran–
US CTR (1986) 150; William J Levitt v Iran, 14 Iran–US CTR (1987) 191; Exxon Research
and Engineering Co v National Iranian Oil Company, 15 Iran–US CTR (1987) 3; Motorola
Inc v Iran Airlines Corporation v Iran, 19 Iran–US CTR (1988) 73; Seismograph Service
Corporation et al v Iran, 22 Iran–US CTR (1989) 3; United Painting Company Inc v Iran,
23 Iran–US CTR (1989) 351; Buckamier v Iran, 28 Iran–US CTR (1992) 53; Dadras
International and Per-Am Construction Corporation v Iran, 31 Iran–US CTR (1995) 127.
500) As, for example, highlighted by the respondent and approved by the tribunal in
Pluspetrol Peru v Perupetro, ICSID, Award of 21 May 2015, paras 180–2, 202.
501) See, e.g., B Claggett, 'Just Compensation in International Law—The Issues before the
Iran–US Claims Tribunal' in R Lillich (ed.), The Valuation of Nationalized Property in
International Law (Charlottesville: University Press of Virginia, 1987), vol. 4, 31, 50.
95
para. 184. To support this argument, the tribunal not only referred to the PCIJ's
ruling in Factory at Chorzów but also to Sapphire v NIOC and to the opinions of
Arbitrators Holtzmann, Lagergren, and Ameli in INA v Iran.
503) B Sabahi, K Duggal, and N Birch, 'Limits on Compensation for Internationally
Wrongful Acts' in M Bungenberg, J Griebel, H Hobe, and A Reinisch (eds),
International Investment Law (Baden-Baden: Nomos, 2015) 1115, 1116.
504) See J Crawford, Commentary on Article 39, above, n. 160, 240–1.
505) International law has for a long time recognized this principle; see, e.g., Article 7 of
the Jay Treaty of 19 November 1794 regarding the American claims for damage
incurred: 'But it is distinctly understood that this provision is not to such losses or
damages as have been occasioned by the manifest delay or negligence, or wilful
omission of claimants'. J Moore (ed.), History and Digest of the International
Arbitrations to which the United States have been a Party (Washington: GPO, 1898),
vol. I, 310. See also A Roth, Schadensersatz für Verletzungen Privater bei
völkerrechtlichen Delikten (Berlin: Carl Heymanns, 1934) 86. It has been discussed
whether contributory negligence can also lead to an exclusion of a claim of
damages as, e.g., used to be the case in common law. See Eisenbach Brothers and Co
(United States v Germany), Award of 13 May 1925, 7 RIAA 199–200; G Dannemann,
Schadensersatz bei Verletzung der Europäischen Menschenrechtskonvention (Cologne
et al: Heymanns, 1994) 246.
506) According to Article 39 of the ILC Articles on State Responsibility, '[i]n the
determination of reparation, account shall be taken of the contribution to the injury
by willful or negligent action or omission of the injured State or any person or entity
in relation to whom reparation is sought'.
507) See B Sabahi, K Duggal, and N Birch, above, n. 503, with further references.
508) See, e.g., Winthrop Neilson (United States v Germany, Award of 21 April 1926, 7 RIAA,
308, 309; B Bollecker-Stern, Le préjudice dans la théorie de la responsabilité
internationale (Paris: Editions A Pédone, 1973) 195; G Dannemann, Schadensersatz bei
Verletzung der Europäischen Menschenrechtskonvention (Cologne et al: Heymanns,
1994) 241–2.
509) In the ICC proceedings on Southern Pacific Properties (Middle East) v Egypt, the
tribunal has, e.g., denied that the claimant has contributed negligently to the
damage. SPP (Middle East) Ltd, Southern Pacific Properties Limited v Egypt, ICC Award
of 11 March 1983 (1983) 22 ILM 752, para. 66. See also I Seidl-Hohenveldern,
'L'évaluation des dommages dans les arbitrages transnationaux' (1987) 33 Annuaire
français de droit international 7, 14–15.
510) Yukos v Russia, Award of 18 July 2014.
511) Ibid, para. 1603, referring to EDF International v Argentina, Award (11 June 2012) para.
1301; Middle East Cement Shipping v Egypt, Award of 12 April 2002, para. 167; AIG
Capital Partnersv Kazakhstan, Award of 7 October 2003, ICISD Case No. ARB/01/6,
para. 10.6.4.
512) Yukos v Russia, Award of 18 July 2014, para. 1604, referring to MTD v Chile, Award of 25
May 2004, ICSID Case No. ARB/01/7 (see further below) and Iurii Bogdanov, Agurdino-
Invest Ltd and Agurdino-Chimia JSC v Moldova, SCC Award (22 September 2005) in
which the fault was not sufficiently precisely drafting a contract.
513) Yukos v Russia, Award of 18 July 2014, , para. 1605, referring to Antoine Goetz and
others v Burundi, ICSID Case No. ARB/01/2, Award of 21 June 2012, and to Occidental v
Ecuador, Award of 5 October 2012, (a case also chaired by Yves Fortier).
514) See B Sabahi, K Duggal, and N Birch, above, n. 503, 1120–1, who deal with it under
the same heading.
515) CME Czech Republic BV (The Netherlands) v The Czech Republic, Final Award on
Damages of 14 March 2003 , paras 310 et seq.
516) The tribunal protested against the opinion of the respondent's expert that the fact
of the 'Joint Tortfeasors' should also be reflected in the calculation. Ibid, paras 450
et seq.
517) Maffezini v Spain, Award of 11 November 2000, para. 64.
518) Azurix v Argentina, Award of 23 June 2006, paras 426–9; Total v Argentina, Decision on
Liability of 27 December 2010, para. 309; Waste Management v Mexico, Award of 30
April 2004, para. 177.
519) MTD Equity v Chile, Award of 25 May 2004.
520) Ibid, para. 242.
521) 'To conclude, the Claimants should bear the risks inherent in Mr. Fontaine's offer
and 50% of the damages after deducting the present value of such offer from the
total amount calculated … above.' Ibid, para. 243.
522) Ibid, para. 246.
523) Occidental Petroleum v Ecuador, Award of 5 October 2012, paras 662–87.
524) B Sabahi and K Duggal, 'Occidental Petroleum v Ecuador (2012). Observations on
Proportionality, Assessment of Damages and Contributory Fault' (2013) 28 ICSID
Review 279, 288–9.
525) Occidental Petroleum v Ecuador, Award of 5 October 2012, para. 662.
526) Ibid, paras 680, 683.
527) Dissenting Opinion by Brigitte Stern, of 20 September 2013, paras 7–8; see also B
Sabahi, K Duggal, and N Birch, above, n. 503, 1121.
96
528) Occidental Petroleum v Ecuador, Award of 5 October 2012, para. 686, referring to MTD
Equity v Chile, Decision on Annulment of 21 March 2007, para. 101.
529) Yukos v Russian, Award of 18 July 2014, UNCITRAL PCA Cases No. AA 226, 227, 228,
paras 1594–1637.
530) Ibid, paras 1281–1372.
531) Ibid, para. 1374.
532) Ibid, para. 1600.
533) These were, as identified by the tribunal: (i) Yukos' conduct in some of the low-tax
regions; (ii) Yukos' use of the Cyprus Russia DTA; (iii) Yukos' conduct in connection
with the YNG auction, notably the procuring of a Temporary Restraining Order by a
Texas court; and (iv) Yukos' conduct in connection with its bankruptcy, notably the
non-payment of a loan. Ibid, para. 1608.
534) Ibid, para. 1634.
535) Ibid, para. 1636, quoting MTD Equity v Chile, Decision on Annulment, 12 March 2007,
para. 101; the tribunal also referred to Occidental v Ecuador, ICSID, ARB/06/111,
Award of 5 October 2012, paras 659–87.
536) Yukos v Russia, Award of 18 July 2014, para. 1637.
537) Ibid.
538) Occidental v Ecuador, Award of 5 October 2012, para. 687 (also chaired by Yves
Fortier).
539) MTD Equity v Chile, Award of 25 May 2004, paras 243, 246.
540) In Rosinvest v Russia, Yukos' tax evasion strategies were not the focus of the
tribunal's attention in the damages phase, but rather the timing of the acquisition
of the Yukos shares by the claimant. The tribunal stated that it would consider
Yukos' contribution to its own demise, including 'ill-advised' actions, such as the
bankruptcy proceedings in Houston, in the damages phase. See Rosinvest v Russia,
Award of 21 September 2010, paras 634–5. However, it eventually put more
emphasis on the 'speculative nature' of the investment and took it into account in
its choice of the valuation date. The tribunal in Quasar de Valores, due to its
jurisdictional constraints, did not address issues of state responsibility but
assessed the amount of compensation for the claimants' investment under the
premise of the lawfulness of the expropriation.
541) See Crawford, Commentary, Article 31, above, n. 160, 201, 205; B Sabahi, K Duggal,
and N Birch, above, n. 503, 1121; Gabćikovo-Nagymaros Project (Hungary v Slovakia),
Judgment of 25 September 1997 (1997) ICJ Reports, 7; ME Cement Shipping and Holding
v Egypt, Award of 12 April 2002, para. 167; AIG Capital Partners et al v Kazakhstan,
Award of 2 October 2003, ICISD Case No. ARB/99/6, para. 10.6.4(1); CME Czech
Republic BV (The Netherlands) v The Czech Republic, Final Award on Damages of 14
March 2003, para. 482.
542) See, e.g., Article 77 CISG; Article 13 UNIDROIT Convention on International Financial
Leasing; Article 7.5.8 UNIDROIT Principles on International Commercial Contracts;
Article 9:504 PECL.
543) Lord Mustill observes that '[t]his rule appears on all the lists. Various awards are
cited in support, including ICC No 2478, Clunet (1975) 925; No 2103, Clunet (1974) 902;
No 3344, Clunet (1982) 978; No 2412, Clunet (1974) 892. The awards on mitigation
rarely call up the lex mercatoria in so many words; they merely treat the principle
as obvious.' M Mustill, 'The New Lex Mercatoria: The First Twenty-five Years' (1988) 4
Arbitration International 86, 113.
544) Ibid.
545) See also B Sabahi, K Duggal, and N Birch, above, n. 503, 1122.
546) In an early international case, Costa Rica Packet, the captain was blamed for not
having returned immediately to the ship after his release, and the owner of the ship
for not installing a new commander. Costa Rica Packet (Great Britain v Netherlands),
Award of February 1897 in J Moore (ed.), History and Digest of the International
Arbitrations of which the United States has been a Party (Washington: GPO, 1898), vol.
5, 4948, 4953.
547) T Wälde and B Sabahi, 'Compensation, Damages, and Valuation' in P Muchlinski, F
Ortino, Federico, and C Schreuer (eds), The Oxford Handbook of International
Investment Law (Oxford: Oxford University Press, 2008) 1049, 1096; B Sabahi, K
Duggal, and N Birch, above, n. 503, 1122, referring to Bridas v Turkmenistan, Third
Partial Award and Dissent of 6 September 2000, ICC Case No. 9058/FMS/KGA, paras
45–53, where the tribunal reduced the award by US$ 50 million due to the
claimant's failure to abandon an unprofitable oilfield.
548) See Salvioli, who asks for 'diligence moyenne' in order to avoid favouring the
injuring party: '[U]ne conduite exclusivement passive de sa part ne l'exempte pas
d'une certaine responsabilité mais on ne peut pas être plus exigeant à son égard,
sans favoriser outre mesure l'auteur de l'acte illicite'. G Salvioli, 'La responsabilité
des Etats et la fixation des dommages et intérêts par les tribunaux internationaux'
(1929) 28 RdC 231, 267–8; also A Roth, Schadensersatz für Verletzungen Privater bei
völkerrechtlichen Delikten (Berlin: Carl Heymanns, 1934) 88–9; R Laïs, Die
Rechtsfolgen völkerrechtlicher Delikte (Berlin: Stilke, 1932) 93.
97
549) See Schwarzenberger who was sceptical about the extent of the obligation of the
injured party. He emphasized that the wrongdoer had committed an unlawful act
and that it was difficult to see why the injured party should have the obligation to
act. According to him, the principles of good faith and reasonableness, or generally
the ius aequum, are the only measure available. G Schwarzenberger, International
Law as Applied by International Tribunals (London: Stevens and Sons Ltd, 1957) 663.
550) ICC Award No. 5514, Clunet 1992, 1022, 1024 et seq.
551) Economy Forms Corporation v Iran, 3 Iran–US CTR (1983) 42, 51–3; this was however
criticized by Judge Holtzmann, see his Concurring Opinion, 3 Iran–US CTR (1983) 55–
6.
552) Endo Laboratories Inc v Iran, 17 Iran–US CTR (1987) 114, para. 50. See further J
Law of the Iran–United States Claims Tribunal (Washington: International Law
Institute, 1991) 195–6.
553) Seismograph Service Coproration v NIOC, 22 Iran–US CTR (1989) 3 et seq, para. 115.
554) Petrolane Inc v Iran, 27 Iran–US CTR (1992) 64, para. 54.
555) See also G Aldrich, above, n. 377, 300 et seq.
556) Himpurna California Energy Ltd v PT (Persero) Perusahaan Listruik Negara (PLN), Final
Award of 4 May 1999 (2000) 25 Yearbook of Commercial Arbitration 13, para. 347.
557) Ibid, para. 343.
558) Ibid. See the discussion of this and similar cases in the context of the Indonesian
crisis by M Kantor, 'Limits of Arbitration' (2004) TDM, vol. 1, issue 2.
559) 'My concern is that such a questionable proposition and the manner of its
application in this Award prejudices notions of legal security and basic principles of
private law … The imposition of a concept described as “abuse of rights” in the
absence of findings of malicious intent or lack of good faith on the part of the
claimant to further reduce the entitlement to damages is in my opinion an
inappropriate and unwarranted penalising of the claimant.' Statement of Arbitrator
de Fina (2000) 25 YCA 108.
560) See, e.g., M Kantor 'The Limitations of Arbitration' (2004) TDM, vol. 1, issue 2; J
Gotanda, above, n. 372, 104 et seq.
561) This duty to mitigate damages was not applied in the above-mentioned case
Karaha Bodas v Pertamina, either. This can be explained by the fact that the
damages part of the decision is not reasoned in detail so that the origin of the lost
profits—from investment undertaken or not yet undertaken—is not evident. This is,
however, surprising as the president of the tribunal has published several times on
the duty to mitigate damages. In one case note he has stated, e.g., 'L'obligation
pour le créancier d'une obligation inexécutée de minimiser ses pertes est l'un des
principes les mieux établis des usages du commerce international et de la lex
mercatoria'. Y Derains, 'Note to ICC Award No 5910' (1988) Clunet 1220, 1222 with
further references; Y Derains, 'L'obligation de minimiser le dommage dans la
jurisprudence arbitrale' (1987) RDAI 375 et seq.
562) Reprinted in pertinent part in (1993) 18 YCA 58. See J Paulsson, 'The Expectation
Model' in Y Derains and R Kreindler (eds), Evaluation of Damages in International
Arbitration (Paris: International Chamber of Commerce, 2006) 57, 75. See more
examples in Y Taniguchi, 'The Obligation to Mitigate Damages' in ibid, at 79 et seq.
563) See, e.g., the Case of the SS Wimbledon before the PCIJ, where Germany submitted
that the ship could have continued the journey after only two days, but interrupted
it by eleven days. The PCIJ did not agree that the loss could have been mitigated in
this way and found that the eleven days of interruption were justified. Case of the SS
Wimbledon, PCIJ 1923 Ser A, No. 1, 15, 31; see also G Salvioli, above, n. 548, 266; A
Roth, Schadensersatz für Verletzungen Privater bei völker-rechtlichen Delikten (Berlin:
Carl Heymanns, 1934) 89.
564) The UNCC has accepted it as a general principle for calculating damages after the
unlawful invasion of Iraq into Kuwait. See Decision No. 9, para. 6: 'The total amount
of compensable losses will be reduced to the extent that those losses could
reasonably have been avoided'. Decision taken by the Governing Council of the
United Nations Compensation Commission on 6 March 1992, UN Doc. S/AC.26/1992/9.
In its practice, the UNCC has e.g. reduced the amount of damages in a case where
the injured party had not offered custom-built products back to the producer by
40%. Report and Recommendations made by the Panel of Commissioners Concerning
the First Instalment of 'E3' Claims, 17 December 1998, para. 111.
565) Middle East Cement v Egypt, Award of 12 April 2002 , para. 167.
566) Ibid, paras 168 et seq. This included the export of the cement to other countries or
the resumption of the business after the subsequent reinstatement of the permit.
This was, however, according to the tribunal, not reasonable. Ibid, para. 169.
paras 78, 79; see also Southern Pacific Properties (Middle East) v Egypt (1992) 3 ICSID
568) R Posner, Economic Analysis of Law (New York: Aspen Publishers, 1998) 131.
569) The Iran–US Claims Tribunal emphasized this in Sedco Inc v NIOC, First Interlocutory
Award, 9 Iran–US CTR (1985) 248, 278: 'The choice of the date of taking is not without
significance because the value of the shareholder's expropriated interest may
change dramatically during the surrounding time.'
98
571) World Bank, 'Guidelines on the Treatment of Foreign Direct Investment' (1992) 31 ILM
1379, 1382 (emphasis added); similarly also Article 1110 NAFTA: '… the fair market
value of the expropriated investment immediately before the expropriation took
place and should not reflect any change in value occurring because the intended
expropriation had become known earlier'. See also Article 13 Energy Charter Treaty.
572) B Clagett, 'Just Compensation in International Law: The Issues before the Iran–US
Claims Tribunal' in R Lillich (ed.), The Valuation of Nationalized Property in
International Law (Charlottesville: University Press of Virginia, 1987), vol. 4, 31, 67,
69–70. In Cuba, even before the nationalizations, the value of the banks was
diminished by an order that prohibited all state enterprises from having accounts
at, or to otherwise do business with, those banks. See V Rabinowitz, 'The Impact of
the Cuban Nationalizations on Compensation and Valuation Standards' in R Lillich
(ed.), The Valuation of Nationalized Property in International Law (Charlottesville:
University Press of Virginia, 1987), vol. 4, 133, 142 et seq.
573) But see the valuation date in Mobil Cerro Negro v Venezuela, Award of 9 October
2014, para. 307, where the tribunal decided that the valuation date should be set
'immediately after the failure of negotiations between the parties and before the
expropriation, i.e., on 27 June 2007'.
574) e.g. the Iran–US Claims Tribunal stated in relation to the nationalization of the
Iranian insurance industry by the law of 25 June 1979 almost self-evidently, that
'[t]he relevant date for valuation is that of the nationalization, 25 June 1979'.
American International Group v Iran, 4 Iran–US CTR (1983) 96, 106; see also Aminoil v
Kuwait which considered Decree No. 124 of 19 September 1977 'Terminating the
Agreement between the Kuwait Government and Aminoil' as the relevant
expropriatory act and took its date of issuance as the valuation date. Aminoil v
Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 175; in Tidewater v Venezuela,
the tribunal took the date of the Reserve Law of 7 May 2009 as the valuation date.
Tidewater v Venezuela, Award of 13 March 2015, para. 170.
575) The political, social, and economic context has an important influence on
international investments in many respects. See P Muchlinski, 'Policy Issues' in P
Muchlinski, F Ortino, and C Schreuer (eds), The Oxford Handbook of International
Investment Law (Oxford: Oxford University Press, 2008) 3, 10–15. These need to be
taken into consideration also at the quantum stage of investor–state disputes.
576) As regards the relevance of general economic circumstances see below, Chapter 5,
paras 5.183 et seq.
577) American International Group Inc v Iran, 4 Iran–US CTR (1983) 96, 107. These
circumstances had not been taken into account by the claimant so that the tribunal
reduced the amount claimed considerably for this reason.
578) See the discussion of further cases below, Chapter 5, Section B(3)(d), paras 5.139 et
seq.
579) American International Group, Inc v Iran, 4 Iran–US CTR (1983) 96, 109.
580) See, e.g., INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 380; Sola Tiles Inc v Iran, 14
Iran–US CTR (1985) 223, para. 63; also along the same lines Thomas Earl Payne v Iran,
12 Iran–US CTR (1986) 3, para. 35; Phelps Dodge Corporation v Iran, 10 Iran–US CTR
(1986) 121, para. 30; CBS Inc v Iran, 25 Iran–US CTR (1990) 131, para. 52; Khosrowshahi
v Iran, 30 Iran–US CTR (1994) 76, paras 50–1; these cases are dealt with in more
detail below.
581) Companía del Desarollo de Santa Elena SA v Costa Rica, Award of 17 February 2000
(2002) 15 ICSID Rev.-FILJ 169 et seq.
583) Ibid, paras 85 et seq. Both parties' experts accordingly made their valuations from
this perspective. Their results, however, differed considerably, namely US$ 1.9
million and US$ 6.4 million respectively. The tribunal eventually chose an amount
exactly in between, thus US$ 4.25 million. See the detailed analysis of the time
element by C Brower and J Wong, 'General Valuation Principles: The Case of Santa
Elena' in T Weiler (ed.), International Investment Law and Arbitration (London:
Cameron May, 2005) 747, 760–8.
584) See further details on the issue of pre-judgment interest below, in Chapter 6,
Section B(1)(g)(i).
Reports 189 et seq.
586) Ibid, para. 218.
587) Ibid, paras 63–4.
589) LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 140, 141 et seq, 162.
590) This date was proposed by the claimant and accepted by the tribunal without
further explanation. Ibid, at 210 et seq.
591) Lithgow et al v United Kingdom, 8 July 1986, ECHR Ser A, No. 102, paras 112 et seq.
595) Ibid, para. 151.
99
598) Ibid, para. 294.
599) Ibid, para. 296.
600) Ibid, para. 307.
601) Ibid.
602) Tidewater v Venezuela, Award of 13 March 2015, paras 159, 170.
605) Case Concerning the Factory at Chorzów, PCIJ 1928 Ser A, No. 17, 51–2.
606) See the exact wording of these questions above, n. 188.
607) See question No. 1 of the Court, above, n. 188.
608) See question No. 2 of the Court, above, n. 188.
609) See above, paras 3.105–3.108.
610) G Schwarzenberger, International Law as Applied by International Tribunals (London:
Stevens and Sons Ltd, 1957) 666; similarly A Roth, Schadensersatz für Verletzungen
Privater bei völkerrechtlichen Delikten (Berlin: Carl Heymanns, 1934) 100 et seq.
612) Papamichalopoulos et al v Greece (just satisfaction) ECHR Ser A, No. 330-B, 31
October 1995.
615) Belvedere Alberghiera Srl v Italie (just satisfaction) ECtHR No. 31524/96, 30 October
2003, para. 35.
616) Motais de Narbonne v France (just satisfaction) ECtHR No. 48161/99, 27 May 2003,
para. 11.
617) Terazzi SRL v Italie (just satisfaction) ECtHR No. 27265/95, 26 October 2004, para. 37.
618) Brumarescu v Romania (just satisfaction) ECtHR 2001-I, paras 19 et seq.
619) Ibid, para. 19 (emphasis added).
620) Ibid, para. 23 (emphasis added). See similarly Carbonara and Ventura v Italy (just
satisfaction) ECHR 24638/94, 11 December 2003, para. 41; Scordino v Italy (just
satisfaction) ECHR 43662/98, 6 March 2007, para. 38; Pasculli v Italy (just
satisfaction) ECHR 36818/97, 4 December 2007, para. 38.
622) Ibid.
623) Several tribunals have accepted the difference and awarded damages incurred
after the expropriation date, e.g., Siemens A.G. v Argentina, Award of 6 February,
para. 353; Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentina,
Award of 20 August, paras 8.2.4–6, 8.3.20; Unglaube v Costa Rica, Award of 16 May
2012, paras 306–7, 318; Quiborax v Bolivia, Award of 16 September 2015, para. 385.
624) Funnekotter v Zimbabwe, Award of 22 April 2009, para. 112; Saipem v Bangladesh,
Award of 30 June 2009, para. 201; Siag and Vecchi v Egypt, Award of 1 July 2009, para.
539; Kardassopoulos v Georgia, Award of 3 March 2010, paras 509–11; Tidewater v
Venezuela, Award of 13 March 2015, para. 142.
625) e.g. because the value had not increased, or because claimants and respondents
agreed on the valuation date in the past.
626) Yukos v Russia, Award of 18 July 2014.
627) Ibid, para. 1765.
628) Quasar de Valores, Award of 20 July 2012, para. 6; similarly also Saipem v Bangladesh,
Award of 30 June 2009, para. 116.
629) Rosinvest v Russia, Award of 21 September 2010, para. 674.
630) By the 'Participation Agreements' the claimant had temporarily transferred the
economic interests in the claimant's Yukos shares to a third party, a US company,
ibid, para. 290. This did not prevent the claimant from being protected as an
'investor' under the Spanish–Russian BIT, because the claimant had remained at all
times the legal and registered owner of the shares. See ibid and para. 323. Rosinvest
v Russia, Award of 21 September 2010, para. 672. The tribunal found that, before, the
claimant 'had no real economic interest of its own in the Yukos shares during the
period the Participation Agreements were in force and thus “had nothing to lose”',
ibid.
631) The tribunal thereby took into account the nature of the 'speculative investment in
Yukos shares'. See Rosinvest v Russia, Award of 21 September 2010, para. 668.
632) Quasar de v Russia, Award of 20 July 2012, paras 195 et seq; see also I Marboe,
'Quasar de Valores SICAV SA and others v The Russian Federation. Another Chapter
of the Yucos Affairs' (2013) 28 ICSID Rev.–FILJ 1–7.
633) The tribunal in Rusoro Mining v Venezuela noted the agreement of the parties on the
proper valuation date as the date of the expropriation 'which makes it unnecessary
for the Tribunal to address the thorny issue of the appropriate date for calculation
in unlawful expropriations'. Rusoro Mining v Venezuela, Award of 22 August 2016,
para. 647. See also Abengoa v Mexico, Award of 18 April 2013, para. 694; Flughafen
Zürich v Venezuela, Award of 18 November 2014, paras 784–5; OI Group v Venezuela,
Award of 10 March 2015, para. 651.
634) Tidewater v Venezuela, Award of 13 March 2015; Crystallex v Venezuela, Award of 4
636) Guiso-Gallisay v Italy, ECHR 58858/00, 22 December 2009, para. 102.
637) Ibid, para. 103.
100
638) Ibid, para. 103.
639) Ibid, para. 105.
640) Ibid.
641) In Guiso-Gallisay v Italy, 'lost opportunities' were assessed at €45,000. Ibid, para.
107.
642) In Guiso-Gallisay v Italy, the Court awarded €15,000 to each of the three applicants.
Ibid, para. 110.
643) The practice of including damages for 'lost opportunities' and non-pecuniary
damages, including the above-mentioned formulations, has been confirmed in later
case law, such as in Dedda and Fragassi v Italy, ECtHR 19403/03, 12 April 2011, paras
15–19.
644) As regards the particularity in the interest decision, see further below, Chapter 6.
645) Guiso-Gallisay v Italy, ECtHR 58858/00, 22 December 2009, para. 95.
646) See ibid, paras 16–18.
648) Ibid, para. 102.
649) N Birch, above, n. 126, 485. In the same vein J Salacuse, above, n. 247, 328.
651) Guiso-Gallisay v Italy, ECtHR 58858/00, 22 December 2009, para. 91.
652) See the comprehensive analysis of this aspect by M Reisman and R Sloane, above,
n. 138.
653) International Technical Products v Iran, 9 Iran–US CTR (1985) 206, 240–1.
654) See, e.g., Foremost Tehran Inc et al v Iran, 10 Iran–US CTR (1986) 228, 249; Phillips
Petroleum Company v Iran, 21 Iran–US CTR (1989) 79, 116; Malek v Iran, 28 Iran–US CTR
(1992) 246, para. 114; Vera-Jo Miller Aryeh et al v Iran, 33 Iran–US CTR (1997) 272, para.
200; similarly, Starrett Housing v Iran, Interlocutory Award, 4 Iran–US CTR (1983) 122,
155; Phelps Dodge v Iran, 10 Iran–US CTR (1986) 121, para. 20.
655) See, e.g., Starrett Housing v Iran, Interlocutory Award, 4 Iran–US CTR (1983) 122, 155;
Starrett Housing v Iran, Final Award, 16 Iran–US CTR (1987) 112, 127.
656) Sedco Inc v NIOC, First Interlocutory Award, 9 Iran–US CTR (1985) 248, 278.
657) In some cases, the date of the appointment of governmental supervisers was not
considered as the expropriation date, as some participation rights continued for a
certain period of time. In Tippetts, Abbett, McCarthy and Stratton (TAMS) v Iran, e.g.,
the claimants were partners and 50% owners of a construction enterprise. The
nomination of a manager by the Government on 24 July 1979 did not immediately
lead to the destruction of the property rights in question as the claimants
continued to be able to influence the business operations. Only after having sent
letters and telexes between January and February which remained unanswered, was
the expropriation deemed to have taken place. The tribunal decided that the
expropriation date was 'at least 1 March 1980'. This date was then also chosen as the
valuation date. Tippetts et al v TAMS-AFFA et al v Iran, 6 Iran–US CTR (1984) 219, 225.
658) Amoco International Finance v Iran, 15 Iran–US CTR (1987) 189.
660) Ibid, para. 182.
661) Ibid, para. 181.
662) Ibid.
663) M Reisman and R Sloane, above, n. 138, 140 et seq.
664) As Reisman and Sloane put it: 'All this is not to suggest, however, that investors
should, or should be entitled to, cry “expropriation” at the first sight of adverse
governmental conduct'. Ibid, at 146.
665) Ibid, at 148.
666) Ibid, at 146.
667) Ibid.
669) Article 15 of the Articles of the Responsibility of States for Internationally Wrongful
Acts, UN GA Resolution No. 56/83 of 12 December 2001, Annex (emphasis added).
670) See Commentary to Article 15(1): 'Paragraph 1 of article 15 defines the time at which
a composite act “occurs” as the time at which the last action or omission occurs
which, taken with the other actions or omissions, is sufficient to constitute the
wrongful act, without it necessarily having to be the last in the series.' Yearbook of
the International Law Commission, 2001, vol. II, Part Two, as corrected, 63.
671) J Crawford, above, n. 160, 143–4.
672) Alpha Projektholding v Ukraine, Award of 8 November 2010.
673) Ibid, 43.
674) Ibid, para. 481.
675) Marion Unglaube and Reinhard Unglaube v Costa Rica, Award of 16 May 2012, para.
315.
676) Ibid.
677) Ibid, para. 316.
678) Ibid, para. 307.
679) Ibid, para. 318.
680) Ibid, para. 318.
681) Ibid, para. 308.
682) Rumeli Telekom, Award of 28 July 2008, para. 708.
101
683) Ibid, para. 788.
684) Ibid, paras 795–6.
685) Ibid, para. 795.
687) The claimants argued that this was the date on which the governmental interference
had ripened into an irreversible deprivation of their property which constituted 'a
point of no return'. Ibid, para. 1696.
688) Ibid, paras 1736–8.
689) Ibid, para. 1762.
690) Quasar de Valores, Award of 20 July 2012, para. 189; see the tribunal's conclusion in
para. 215.
691) The tribunal contended that 'the auction on that date … marked a substantial and
irreversible diminution of Claimants' investment', that the claimants had 'lost the
power to govern the financial and operating policies of Yukos so as to obtain the
benefits from its activities' in December 2004, and that Yukos had become
'incapable of operating as a business'. Ibid, para. 1762, with references to other
parts of the award and exhibits presented by the parties.
692) See Rosinvest v Russia, Award of 21 September 2010, para. 668; see above, para.
3.298.
693) Article 36 of the ILC Articles on State Responsibility. See above, Chapter 2, Section
B(2)(a)(i).
694) Article 34 of the Articles on State Responsibility.
695) See the quotation from Schwarzenberger above, para. 3.287.
696) Amco Asia v Indonesia, Award of 20 November 1984 (Amco I) (1993) 1 ICSID Reports
413, paras 163 et seq; Amco Asia v Indonesia, Award of 5 June 1990 (Amco II) (1993) 1
ICSID Reports 569, paras 137 et seq.
para. 186.
698) Ibid, para. 196.
701) Ibid, para. 186.
702) Ibid.
703) S D Myers Inc v Government of Canada, Second Partial Award of 21 October 2002
(2005) 8 ICSID Reports 124, para. 98.
705) CMS v Argentina, Award of 12 May 2005 (2005) 44 ILM 1205, paras 438 et seq.
706) El Paso v Argentina, Award of 31 October 2011, para. 710. The tribunal in Crystallex v
Venezuela evaluating the consequences of a simultaneous violation of the
provisions on expropriation and fair and equitable treatment took into account that
both parties had chosen the date of the expropriation as the valuation date, but
noted obiter that 'full reparation may require, under certain circumstances, the
valuation date to be fixed at the date of the award'. Crystallex v Venezuela, Award of
14 April 2016, para. 843.
707) See also R Dolzer and C Schreuer, above, n. 2, 295.
708) Delagoa Bay and East African Railway, Award of 30 May 1900, reprinted in pertinent
parts in M Whiteman, above, n. 365, 1694.
709) Ibid, 1699.
710) Ibid, 1702.
711) LETCO v Liberia, Award of 31 March 1986 (1994) 2 ICSID Reports 343 et seq.
712) The tribunal referred to the unilateral reduction of the concession area by the
Government, rather inconsistently, also as 'expropriation'. Ibid, 375.
713) Ibid, at 374.
714) 'The Tribunal has extrapolated from historical figures an estimate for future prices
for each type of tree, assuming that such prices would have evolved similarly to
those prices that existed from 1973 to 1985.' Ibid, at 375.
715) Autopista Concesionada de Venezuela v Venezuela, Award of 23 September 2003,
para. 365.
716) Ibid.
717) Ibid, para. 346.
719) Ibid, referring to K Brieskorn, Vertragshaftung und responsabilitécontractuelle: Ein
Vergleich zwischen deutschem und französischem Recht mit Blick auf das
Vertragsrecht in Europa (Tübingen: Mohr Siebeck, 2010), 284–6, with further
references.
720) H Wöss et al, above, n. 369, refer to J O'Brien and R Gay, 'Lost Profits Calculation:
Methods and procedures' in N Fannon (ed.), The Comprehensive Guide to Lost Profits
Damages for Experts and Attorneys (Portland: Business Valuation Resources, 2011),
352–4.
722) Ibid, referring to G Treitel, The Law of Contract (11th edn, London: Thomson, Sweet &
Maxwell, 2003) 959–60, as well as to two cases, The Golden Victory [2007] UKHL 12 (HL)
and Johnson v Agnew [1979] 2 WRL 487(HL) 499.
102
723) Article 74, 2nd sentence, CISG. See also P Schlechtriem and I Schwenzer, The
Commentary on the UN Convention on the International Sale of Goods (2nd edn,
Oxford: Oxford University Press, 2005) Article 74.
724) Article 74, 1st sentence.
725) See UNIDROIT, Principles of International Commercial Contracts (Rome: UNIDROIT
2010) 268; see also H Wöss et al, above, n. 369, 220.
727) Ibid, 267; see also M Abdala and P Spiller, 'Chorzów's Standard Rejuvenated:
Assessing Damages in Investment Treaty Arbitration' (2008) 15 Journal of
International Arbitration 103–20.
728) See above, Chapter 2, para. 2.74.
730) A Damodaran, Investment Valuation: Tools and Techniques for Determining the Value
of Any Asset (3rd edn, Hoboken, NJ: Wiley, 2012) 2.
731) Rumeli Telekom A.S. and Telsim Mobil Telekomikasyon Hizmetleri A.S. v Republic of
Kazakhstan, Award of 28 July 2008 (in the annulment proceeding the lack of
reasoning was specifically challenged); Gemplus v Mexico, Award of 16 June 2010
(price at which the property would change hands was only estimated, from this
dividends received were discounted); Antoine Abou Lahoud and Leila Bounafeh-Abou
Lahoud v Democratic Republic of the Congo, Award of 7 February 2014, para. 600 (DCF
method not regarded to bring precise results, thus discretionary power in
determining the total amount of sales) paras 14–26.
732) T Wälde and B Sabahi, above, n. 547, 1103–5.
733) See, e.g., Benvenuti & Bonfant v Congo, Award of 15 August 1980, para. 4.4; Atlantic
Triton v Guinea, Award of 21 April 1986, at 17; Antoine Goetz & Others v Burundi, Award
of 21 June 2012, para. 293.
734) See Article 38, para. 2 of the Statute of the International Court of Justice, 33 UNTS
993.
735) See, e.g., Klöckner v Cameroon, Award of 21 October 1983 (1994) 2 ICSID Reports 2, 77.
In the subsequent annulment proceeding, the ad hoc committee questioned this as
a decision on equity rather than on law. It also criticized the lack of sufficient
reasoning and annulled the award. Klöckner v Cameroon, Decision on Annulment of 3
May 1985 paras 172 et seq; see also Pey Casado v Chile, Decision on the Application
for Annulment of 18 December 2012, paras 246–87; in Rumeli v Kazakhstan, the ICSID
ad hoc committee did not annul the award on this ground but stated that, although
it had denied the respondent's application for annulment in its entirety, the
application was not fundamentally lacking in merit. Particularly on the question of
damages, it raised a claim that required extended consideration, so that the
parties must each bear their own counsel fees and contribute equally to meeting
the costs of the annulment proceeding. Rumeli v Kazakhstan, Decision on the
Application for Annulment of 25 March 2010, para 184.
736) North Sea Continental Shelf Cases (Federal Republic of Germany v Denmark, Federal
Republic of Germany v the Netherlands), Judgment of 20 February 1969, ICJ Reports
1969, 3, para. 85.
737) Judgments of the Administrative Tribunal of the ILO upon Complaint Made against
UNESCO, Advisory Opinion of 23 October 1956, ICJ Reports 1956, 100 et seq; quoted,
inter alia, in Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 78; and
in Himpurna California Energy Ltd v PT (Persero) Perusahaan Listruik Negara (PLN),
Final Award of 4 May 1999 (2000) 25 Yearbook of Commercial Arbitration 13, para. 238;
see also R Jennings, 'Equity and Equitable Principles' (1986) 42 Annuaire suisse de
droit international 27, 29; I Seidl-Hohenveldern, 'L'évaluation des dommages dans
les arbitrages transnationaux' (1987) 33 Annuaire français de droit international 7, 27.
136.
739) The arbitrator emphasized that the US$ 8 million demanded and paid for the
concession implied a high probability of the existence of oil reserves in the area.
Ibid, at 189.
740) Ibid, at 190.
741) LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 141, 200 et seq; see also the
analysis of the Iran–US Claims Tribunal in Amoco International Finance Corporation v
Iran, 15 Iran–US CTR (1987) 189, para. 206.
743) Ibid, at 214.
745) See more details in R Young and W Owen, 'Valuation Aspects of the Aminoil Award'
in R Lillich (ed.), The Valuation of Nationalized Property in International Law
(Charlottesville: University Press of Virginia, 1987), vol. 4, 3, 27 et seq.
747) Ibid.
748) Técnicas Medioambientales SA v Mexico, Award of 29 May 2003 (2004) para. 190,
referring to Southern Pacific Properties v Egypt at n. 229.
749) Ibid, with reference at n. 228 to Aminoil v Kuwait and Himpurna California v PLN.
750) Ibid, para. 142.
103
751) American International Group v Iran, 4 Iran–US CTR (1983) 96, 109 (emphasis added).
Similarly, the tribunal in Thomas Earl Payne made an 'approximation of the value of
claimant's interest' replacing a more accurate calculation of the amount of
damages. Thomas Earl Payne v Iran, 12 Iran–US CTR (1986) 3, 15. See, however, the
critical commentary by C F Amerasinghe, 'Issues of Compensation for the Taking of
Alien Property in the Light of Recent Cases and Practice' (1992) 41 ICLQ 22, 64–5.
752) Swisslion v Macedonia, Award of 6 July, para. 344.
753) Impregilo v Argentina, Award of 21 June 2011, para. 371; Unglaube v Costa Rica, Award
of 16 May 2012, para. 299.
754) Amco Asia v Indonesia (Amco II), Award of 5 June 1990, para. 238; Himpurna California
Energy Ltd v PT (Persero) Perusahaan Listruik Negara (PLN), Final Award of 4 May 1999,
para. 237; Lemire v Ukraine, Award of 28 March 2011, para. 246; Swisslion v Macedonia,
Award of 6 July, para. 345; Gold Reserve v Venezuela, Award of 22 September 2014,
paras 685–6.
756) Funnekotter v Zimbabwe, Award of 22 April 2009, para. 124. This was, however, not
accepted by the tribunal which evaluated the damages suffered at the date of
dispossession on the basis of the market value.
757) See also B Sabahi, K Duggal, and N Birch, above, n. 503, 1129.
758) See above, paras 3.09 et seq; see also F Francioni, 'Compensation for
Nationalisation of Foreign Property: the Borderland between Law and Equity' (1975)
24 ICLQ 255; similarly, B Clagett, 'Just Compensation in International Law: The Issues
before the Iran–US Claims Tribunal' in R Lillich (ed.), The Valuation of Nationalized
Property in International Law (Charlottesville: University Press of Virginia, 1987), vol.
4, 31, 89; C F Amerasinghe, 'The Quantum of Compensation for Nationalised Property'
in R Lillich (ed.), Valuation of Nationalized Property in International Law
(Charlottesville: University Press of Virginia, 1975), vol. 3, 91, 124–5; see also
(cautiously of the same opinion) I Seidl-Hohenveldern, 'L'évaluation des dommages
dans les arbitrages transnationaux' (1987) 33 Annuaire Français de Droit International
7, 29: '[F]iat justitia pereat (tertius) mundus?'.
759) See Russian Indemnities (Russia v Turkey), Award of 11 November 1912, 11 RIAA, 431; in
numerous ICSID proceedings against Argentina after the country's economic crisis in
2001/2, this issue has been discussed. See A Reinisch, 'Necessity in International
Investment Arbitration—An Unnecessary Split of Opinions in Recent ICSID-Cases?
Comments on CMS v Argentina and LG&E v Argentina' (2007) 8 JWIT 191.
760) See for a comprehensive discussion, W Burke-White and A von Staden, 'Investment
Protection in Extraordinary Times: The Interpretation and Application of Non-
Precluded Measures Provisions in Bilateral Investment Treaties' (2008) 48 Virginia
Journal of International Law 307.
761) See for a discussion from an economic analysis of law A van Aaken, above, n. 25.
762) Himpurna California Energy Ltd v PLN, Award of 4 May 1999 (2000) 25 YCA 13, para.
318.
764) See Statement of Arbitrator de Fina, ibid, at 108; J Gotanda, above, n. 372, 97 et seq.
765) CME Czech Republic BV v Czech Republic, Separate Opinion on the Issues at the
Quantum Phase of 14 March 2003 (2006) 9 ICSID Reports 412.
768) See further below, Chapter 5, Section A(6), paras 5.65 et seq.
770) Articles on the Responsibility of States for Internationally Wrongful Acts, UN GA
Resolution No. 56/83 of 12 December 2001, Annex.
771) Ibid, para. 331.
772) Ibid, para. 355. The ad hoc committee which had to decide on the application for
annulment of the award criticized the tribunal heavily for the lack of distinction
between the treaty clause on emergency and the customary law rule of Article 25 on
necessity. It did not, however, annul the award for this reason. See CMS v Argentina,
Decision on the Application for Annulment of 25 September 2007, paras 101 et seq.
773) LG&E v Argentina, Decision on Liability of 3 October 2006, para. 257.
774) Ibid, para. 266.
775) See A Reinisch, 'Necessity in International Investment Arbitration—An Unnecessary
Split of Opinions in Recent ICSID-Cases? Comments on CMS v Argentina and LG&E v
Argentina' (2007) 8 JWIT 191.
776) Continental Casualty v Argentina, Award of 5 September 2008, para. 236.
777) Sempra v Argentina, Award of 28 September 2007, paras 344–97.
778) Enron v Argentina, Award of 22 May 2007, paras 303–42.
779) Sempra v Argentina, Decision on the Application for Annulment of 29 June 2010,
paras 159–85. By contrast, the ad hoc committee in CMS v Argentina limited itself to
heavily criticizing this lack of distinction, but ultimately refrained from annulment.
See CMS v Argentina, Decision on the Application for Annulment of 25 September
2007, paras 134–6.
780) Enron v Argentina, Decision on the Application for Annulment of 30 July 2010, paras
347–405.
104
781) Burke-White and von Staden, above, n. 760, 33.
105
Document information 4. International Standards, Bases of Value, and Valuation
Approaches
Publication 4.01 Numerous methods and techniques have been developed for the valuation of
Calculation of economic assets. They are often different from country to country, because different
Compensation and national laws and contexts require different forms of valuation for various purposes, such
Damages in International as taxation, financial reporting, mergers and acquisitions, or inheritance. However, the
Investment Law (Second consensus regarding business appraisal professional standards has grown. (1) The modern
Edition) globalized economy has made it necessary to identify uniform or at least comparable
principles. (2) A number of international standards, recommendations, and guidelines
provide valuation principles that are applicable internationally. In the following, some of
Bibliographic P 164 the most influential standards and references will be introduced. They all emphasize
that for any valuation the basis of value has to be identified at the outset. After a short
reference overview of the bases of value potentially relevant for investment arbitration, the various
'4. International Standards, valuation approaches, that is, the market approach, the income approach, and the asset-
Bases of Value, and based approach, will be discussed. Finally, some considerations will be given to the issue
Valuation Approaches', in of transparency and the use of experts in arbitration proceedings.
Irmgard Marboe ,
Calculation of A. International Standards
Compensation and
Damages in International 4.02 The globalization of the economy has created the need for internationally
Investment Law (Second comparable standards and principles for the valuation of economic assets. Generally
Edition), Oxford accepted valuation principles are particularly important for the resolution of
International Arbitration international investment disputes.
Series, (© Irmgard Marboe 4.03 Traditionally, valuation standards existed only at the national level responding to
2017; Oxford University laws requiring valuation, such as commercial law, corporate law, inheritance law, and tax
Press 2017) pp. 163 - 212 law, which are inherently national. (3) Attempts have been made to find a better
uniformity at least at the regional level. In Europe, the Fédération des Experts Comptables
P 165 Européens published a 'Guide for Carrying out Business Valuations' in 2001. (4) The
globalization of investment markets made it necessary to find ways of making valuations
comparable also at the international level, because otherwise differences among
national or regional valuation would increasingly lead to misunderstandings and
confusion. A number of international institutions have engaged in international standard
setting and the development of guidelines. In the following, the works of the International
Valuation Standards Council, the World Bank, the Multilateral Investment Guarantee
Agency, and the UN Compensation Commission will briefly be discussed.
(1) International Valuation Standards

4.04 The International Valuations Standards Council (IVSC) is the successor body to the
International Valuation Standards Committee which, from the early 1980s until 2007,
developed and published the International Valuation Standards. (5) In 2006, the former
Committee established a Critical Review Group with a remit of considering how the
standards could be improved to meet the requirements of the evolving market for
valuation. As a result, the 2011 edition of the International Valuation Standards
introduced major changes in style and presentation compared with earlier versions. (6)
The most recent edition was published in 2013. (7)
4.05 The IVSC is an independent, not-for-profit, private sector organization to produce
and implement universally accepted standards for the valuation of assets across the
world in the public interest. (8) Its mission is to establish and maintain effective, high-
quality international valuation and professional standards, and to contribute to the
development of the global valuation profession. (9) Today, institutions and organizations
from over fifty countries are members of the IVSC. (10) Representatives meet regularly to
review the standards and address how best to promote them across the globe. (11)
4.06 The Council dedicated its work to the development of internationally accepted
standards for the valuation of property. In its work, it also incorporates, as appropriate,
the work of the International Accounting Standards Board (IASB), another not-for-profit,
P 166 public interest organization with oversight by public authorities. (12) Its governance
and due process are designed to keep standard setting independent from special
interests while ensuring accountability to stakeholders around the world. The IASB works
on the international standardization and harmonization of financial reporting which
culminated in the promulgation of the International Financial Reporting Standards
(IFRS), (13) formerly International Accounting Standards (IAS). (14)
4.07 The International Valuation Standards of 2013 (hereinafter IVS 2013) contain (1) 'The
IVS Framework' (serving as a preamble to all the other IVS standards, setting forth
generally accepted valuation principles and concepts that are to be followed when
applying the other standards); (2) 'IVS General Standards' (setting forth requirements for
the conduct of all valuation assignments, except as modified by an Asset Standard or a
Valuation Application); (3) 'IVS Asset Standards' (including requirements setting forth any
additions or modifications to or modifications of the requirements in the General
Standards and a commentary providing background information on the characteristics of
each asset type that influence value and identifies the common valuation approaches
106
and methods used); (4) 'IVS Valuation Applications' (addressing common purposes for
which valuations are required'; and (5) 'Technical Information Papers'. (15) The Glossary
which used to be included until the 2007 edition of the IVS does not form part of the
standards any more, but is published on the website of the IVSC. (16) It is updated on 1
January and 1 July each year.
4.08 The 'IVS Framework' emphasizes that applying the principles contained in the
P 167 standards does not remove the need for the exercise of judgement, but that it 'must be
applied objectively and should not be used to overstate or understate the valuation
result'. (17) It addresses the inherent tension between 'judgement' and 'objectivity' in the
following way:
The process of valuation requires the valuer to make impartial judgements as
to the reliance to be given to different factual data or assumptions in arriving
at a conclusion. For a valuation to be credible, it is important that those
judgements can be seen to have been made in an environment that promotes
transparency and minimises the influence of any subjective factors on the
process. (18)
4.09 Under the IVS, it is therefore important that the valuation is 'credible' and free from
bias. The IVSC Code of Ethical Principles for Professional Valuers (19) provides an example
of an appropriate framework of conduct rules. This does not, however, mean that every
valuation requires an 'objective' valuation approach. The 'IVS Framework' also points out
that judgement must 'be exercised having regard to the purpose of the valuation, the
basis of value and any other assumptions applicable to the valuation'. (20)
4.10 With regard to the 'basis of value' the 'IVS Framework' does not only include the
'Market Value' basis which indicates the most likely price that would be achieved in an
hypothetical exchange in a free and open market, but also the 'benefits that a person or
an entity enjoys from ownership of an asset' as a second category, which is defined in the
IVS as 'investment value' or 'special value'. (21) A third category is 'the price that would
be reasonably agreed between two specific parties for the exchanges of an asset', which
is defined in the IVS as 'fair value'. (22) It follows that an 'objective' valuation should be
one that is credible and free from bias. This objectivity should not be confused with a
valuation on the market value basis.
4.11 In the context of international investment arbitration the 'Basis of Valuation' is to be
set out by the arbitral tribunal which derives it from the applicable law. In doing so, it
defines the scope of work for the valuation experts.
4.12 The International Valuation Standards incorporate different national and regional
approaches to valuation. They provide comprehensive guidelines for the assessment of
market value, investment value, or special value, depending on the circumstances. (23)
This makes them useful for calculating both compensation and damages in international
P 168 investment disputes.
(2) World Bank Guidelines

4.13 In its 'Guidelines on the Treatment of Foreign Direct Investment' (24) the World Bank
also deals with the issue of valuation. It does so in the context of expropriation and
unilateral termination of contracts. (25) In these cases, compensation should be
'adequate, effective and prompt'. (26) Compensation would be considered 'adequate', if
it were equivalent to the 'fair market value'. (27)
4.14 Without seeking to impose rigid criteria or hard and fast rules, the Guidelines
formulate some proposals for the calculation of fair market value. (28) For a going
concern with a proven record of profitability, fair market value should be assessed by the
DCF method. The Guidelines give a short explanation on how this method should be
applied:
[T]he cash receipts realistically expected from the enterprise in each future
year of its economic life as reasonably projected minus that year's expected
cash expenditure, after discounting this net cash flow for each year by a factor
which reflects the time value of money, expected inflation, and the risk
associated with such cash flow under realistic circumstances. Such discount
rate may be measured by examining the rate of return available in the same
market on alternative investments of comparable risk on the basis of their
present value. (29)
4.15 For enterprises without profitability, the Guidelines suggest reference to the
liquidation value. (30) Other assets should be valued on the basis of their replacement
value. (31) Also, the book value method could be applied, but only if it has been assessed
recently and, therefore, could be considered as representing an acceptable
approximation to the replacement value. (32)
4.16 The World Bank Guidelines are recommendations and do not have a binding
character. They enjoy, however, a certain authority due to their truly international
character and the diligent studies on which they are based. Before formulating these
Guidelines, the World Bank thoroughly analysed international state practice as well as
P 169
107
P 169 the practice of international courts and tribunals in order to arrive
at results and
conclusions which are acceptable as broadly and internationally as possible. (33)
4.17 Despite the generally positive reception of the Guidelines in legal scholarship, (34) it
has taken some time until they were recognized in practice. The proposed valuation
principles, for example, are not referred to in bilateral investment treaties. More than
twenty years after their publication, they have only rarely been reflected in arbitral
awards. (35)
(3) MIGA
4.18 The scope of work of the Multilateral Investment Guarantee Agency (MIGA) is to
ensure direct foreign investment against political risk. (36) With regard to insurance
events like 'expropriation or similar measures' (37) or 'breach of contract' (38) it is
necessary to calculate the amount payable to the investor. One may ask if there are
general principles which can also be used in other international valuation contexts.
4.19 The basis for payment in this context is a contract between the Agency and the
investor. (39) This contract contains special provisions both on the amount payable upon
the occurrence of the event insured against and also the amount of the insurance
premium. Thus far there is no difference between an ordinary insurance contract and a
private insurance company. Article 16 of the MIGA Convention, however, provides that the
Agency shall not cover the total loss of the guaranteed investment. According to the
Operations Regulations the amount of guarantee for equity interests should not exceed
the amount invested plus earnings included in the coverage or, for non-equity direct
investments, the value of the resources contributed to the investment. (40) Loans may be
P 170 guaranteed in the amount of the principal plus accumulated interest, limited,
however, to 99 per cent, while 95 per cent is the upper limit for all other investments. (41)
If no other agreement has been reached, compensation upon expropriation is limited to
the net book value of the project enterprise or, if the investment consists only in tangible
assets, the book value of such tangible assets. (42)
4.20 It follows that the valuation in the context of investment insurance is guided by
specific rules which do not reflect the concepts of fair market value or full repararation.
On the contrary, the Agency is even explicitely barred from agreeing to pay the full
amount of loss incurred. In addition, as in all insurance contracts, the concrete amount
guaranteed depends on the amount of the insurance premium and other factors, such as
the nature and extent of the risk insured. The determination of the amount payable,
therefore, is based on many other conditions besides the 'value' of the investment. The
MIGA Convention does not provide for 'full' or 'adequate' compensation, but leaves it to
the parties to negotiate the amount payable in case of injury. (43) Nevertheless, some
tribunals have relied on the 'insurance value' in international investment disputes. (44)
(4) UN Compensation Commission

4.21 The United Nations Compensation Commission (UNCC) was created in 1991 as a
subsidiary organ of the UN Security Council to process claims and pay compensation for
losses and damage suffered as a direct result of Iraq's unlawful invasion and occupation
of Kuwait. (45) The claims were resolved by panels, each of which was made up of three
Commissioners who were independent experts in different fields including law,
accountancy, loss adjustment, insurance, and engineering. Technical experts and
P 172 consultants assisted the panels in their verification and valuation of the claims. The
panels submitted their recommendations on the claims to the Governing Council for
approval. (46)
4.22 In its Decision No. 9, the Governing Council published 'Propositions and Conclusions
on Compensation for Business Losses: Types of Damages and Their Valuation'. (47) This
Decision was to apply to compensation for the loss of earnings or profits and other
business losses covered by Security Council Resolution 687 (1991). (48) The basic premise
underlying all of the findings concerning business losses is that, pursuant to paragraph 16
of Security Council Resolution 687 (1991), Iraq 'is liable under international law for any
direct loss, damage, including environmental damage and the depletion of natural
resources, or injury to foreign Governments, nationals and corporations as a result of
Iraq's unlawful invasion and occupation of Kuwait'. (49) However, a violation of the duty
to mitigate damages by the victim would result in a reduction in the amount of damages.
(50)
4.23 The Governing Council stated that the propositions and conclusions contained in this
Decision were not intended to be a comprehensive statement of relevant principles. (51)
In particular, they must be regarded as an attempt to administer a very large number of
claims in an efficient and timely manner. (52) This entailed a rather restrictive
consideration of evidence, in particular without hearing the respondent and based
mainly on accounting documents. (53) However, the propositions and conclusions in
Decision No. 9 represent an interesting approach to the valuation of business losses
caused to individuals in a case of state responsibility. They have been applied in a large
number of decisions and, therefore, could provide a useful point of reference for other
international instances concerned with the valuation of business claims in cases of state
responsibility. (54)
108
4.24 Decision No. 9 deals first with the issue of contract claims. It notes that Iraq is liable
for contract damages under 'general contract law' which includes 'actual losses' and 'lost
profits' as far as they can be calculated with reasonable certainty. Liquidated damages
could be allowed as long as they did not exceed the loss actually suffered. (55) In any
case, Iraq should not be allowed to invoke force majeure or similar contract provisions, or
general principles of contract excuse, to avoid its liability. (56)
4.25 Second, the valuation of tangible assets that have been lost because of
expropriation, removal, theft, or destruction by Iraqi authorities is addressed. Whether
the taking of property was lawful or not should not be relevant for Iraq's liability if it did
not provide for compensation. (57) Depending on the type of asset and the circumstances
of the case, one of several valuation methods may be used. The Decision refers
particularly to book value and replacement value. It points out that replacement value
would not normally allow for replacement of an old item with a new one. (58)
4.26 As regards income-producing properties, the valuation principles proposed should
be applied on the premise that the business affected was a going concern, that it had the
capacity to continue to operate and to generate income in the future. (59) In the event
that the business has been rebuilt and resumed, or that it could reasonably have been
expected that the business could have been rebuilt and resumed, compensation may
only be claimed for the loss suffered during the relevant period. (60) The Governing
Council does not rule out book value, but notes that for going concerns the usual
valuation method is by reference to the market value of similar properties. Where such
market value could not be ascertained, the economic or current value of that asset could
be assessed by the discounted cash flow (DCF) method or by the price/earnings (P/E)
method. (61)
4.27 The Governing Council noted that the valuation of lost future earnings and profits
should focus on past performance rather than on forecasts and projections into the
P 173 future. It should be calculated by a multiple of past earnings and profits. (62) This
shows the clear preference for the simplified method of 'multiples' rather than the more
sophisticated but allegedly more accurate method of discounting future cash flows. (63)
4.28 It is beyond the scope of this book to assess the valuation practice of the UNCC in
more detail. (64) Nevertheless, it is notable that in cases of reparations for an unlawful
invasion, the valuation of damages incurred to foreign investors poses similar problems
to those in international investment disputes.
B. Bases of Value
4.29 The standards and principles on valuation mentioned above share a common
premise, namely that value is not a fact but an opinion and, therefore, a relative concept.
(65) Pratt, in his influential textbook on business valuation, explains: 'The word value
means different things to different people. Even to the same people, value means
different things in different contexts … Without carefully defining the term value, the
conclusions reached in the valuation report have no meaning.' (66)
4.30 At the beginning of every valuation it is therefore necessary to define the basis of the
valuation. The 'basis of value' is defined by the IVS as 'a statement of the fundamental
measurement assumptions of a valuation'. (67) The applicable definition of value is a
legal question rather than a financial (appraisal) question, as value is defined differently
in different legal contexts. (68)
4.31 The basis of valuation describes the fundamental assumptions on which the reported
value will be based, for example, the nature of the hypothetical transaction, the
P 174 relationship and motivation of the parties, and the extent to which the asset is
exposed to the market. The appropriate basis will vary depending on the purpose of the
valuation. A basis of value should be clearly distinguished from:
(a) the approach or method used to provide an indication of value,
(b) the type of asset being valued,
(c) the actual or assumed state of an asset at the point of valuation,
(d) any additional assumptions or special assumptions that modify the fundamental
assumptions in specific circumstances. (69)
4.32 Valuations may require the use of different bases of value that are defined by
statute, regulation, private contract, or other document. (70) Usually, there is more than
one method to be applied in order to arrive at the value described in the basis of
valuation. (71) As Pratt notes:
No single valuation method is universally applicable to all appraisal purposes.
The context in which the appraisal is to be used is a critical factor. Different
statutory, regulatory, and case precedent standards govern valuation of
businesses and business interests under various jurisdictions for diverse
purposes. (72)
4.33 The basis of value can be the market value basis, as an objective approach, or other
bases of value. (73) The 'basis of value' is a definition of the type of value being sought, in
other words, it addresses the questions: 'value to whom?' and 'under what
109
circumstances?' (74)
4.34 The basis of value is critical to understanding valuation in the judicial and regulatory
context. (75) According to Fishman, Pratt, and Morrison, there are two fundamental
premises of value: value in exchange and value to the holder, which can be defined in the
following way:
Value in exchange: Value in exchange is the value of the business or business
interest changing hands, in a real or a hypothetical sale. Accordingly,
discounts, including those for lack of control and lack of marketability, are
considered in order to estimate the value of the property in exchange for cash
or cash equivalent. The fair market value standard and, to some extent, the
fair value standard fall under the value in exchange premise.
Value to the holder: The value to the holder premise represents the value of a
property that is not being sold but, instead, is being maintained in its present
P 175 form by its present owner. The property does not necessarily have to be
marketable in order to be valuable. We discuss later, however, that the value
to the holder may be more or less than the value in exchange. The standard of
investment value falls under the premise of value to the holder, as does, in
certain cases, fair value.
These two premises represent the theoretical underpinnings of each standard
of value. In other words, they represent the framework under which all other
assumptions follow. (76)
4.35 These two different premises can be adopted in the investment arbitration context
as follows: the first premise, 'value in exchange', refers to the standard in expropriation
cases requiring objective–abstract valuation; the second premise, 'value to the holder',
describes what has to be assessed in cases of international law violations or breaches of
contract, requiring subjective–concrete valuation. (77)
4.36 Furthermore, the valuation date (78) and other premises (79) important for the
valuation must be identified. On this basis, the valuation expert must choose the
method(s) of valuation, explain the result achieved, and prepare appropriate
documentation. The IVS emphasize that it is important that the intended recipient of the
valuation advice understands what is to be provided and any limitations on its use
before it is finalized and reported. (80) Fishman, Pratt, and Morrison highlight that it is
essential for the valuation expert to have a clear understanding of what the appropriate
standard of value should be for the given circumstance, which 'includes seeking
clarification from legal counsel, preferably in writing'. (81)
4.37 In the context of international investment arbitration, the tribunal identifies the
P 176 basis of valuation as determined by the applicable legal rules. It has been shown in
Chapter 3 that, in case of lawful expropriations, this standard is the fair market value at
the expropriation date, thus the hypothetical value in exchange at that date. In case of a
violation of an international obligation by the host state, the rules on the law of state
responsibility point to the principle of full reparation, thus the value to the owner,
evaluated at the time of the award. This is also the standard in breach of contract cases
depending, however, on the specific provisions of the contract. The different bases of
value shall now be analysed in more detail.
(1) Market Value Basis of Valuation

4.38 The IVS define the 'market value' basis of valuation as follows:
Market value is 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. (82)
4.39 In this context, 'the estimated amount'
refers to a price expressed in terms of money payable for the asset in an arm's
length market transaction. Market value is the most probable price reasonably
obtainable in the market on the valuation date in keeping with the market
value definition. It is the best price reasonably obtainable by the seller and
the most advantageous price reasonably obtainable by the buyer. This
estimate specifically excludes an estimated price inflated or deflated by
special terms or circumstances such as atypical financing, sale and leaseback
arrangements, special considerations or concessions granted by anyone
associated with the sale, or any element of special value. (83)
4.40 The concept of 'market value' presumes a price negotiated in an open and
competitive market where the participants are acting freely. (84) The market for an asset
could be an international market or a local market. It could consist of numerous buyers
and sellers, or could be one characterized by a limited number of market participants.
The market in which the asset is offered for sale is the one in which the asset being
exchanged is normally exchanged.
110
4.41 The 'market value' of an asset, according to the IVS, shall reflect 'its highest and best
use'. (85) The highest and best use is the use of an asset that maximizes its potential and
that is possible, legally permissible, and financially feasible. The highest and best use
may be for continuation of an asset's existing use or for some alternative use. This is
determined by the use that a market participant would have in mind for the asset when
P 180 formulating the price that it would be willing to bid. Accordingly, the determination of
the highest and best use involves consideration of the following:
(a) to establish whether a use is possible, regard will be had to what would be
considered reasonable by market participants,
(b) to reflect the requirement to be legally permissible, any legal restrictions on the
use of the asset, for example, zoning designations, need to be taken into account,
(e) the requirement that the use be financially feasible takes into account whether an
alternative use that is physically possible and legally permissible will generate
sufficient return to a typical market participant, after taking into account the costs
of conversion to that use, over and above the return on the existing use. (86)
4.42 In other valuation standards definitions, the 'highest price' is even explicitly
mentioned. In the AICPA International Glossary of Business Valuation Terms, for example,
'fair market value' is defined as:
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, acting at arm's length in an open and
unrestricted market, when neither is under an obligation to buy or sell and
when both have reasonable knowledge of the relevant facts. [NOTE: In Canada,
the term 'price' should be replaced with the term 'highest price'.] (87)
4.43 It is notable that the IVS do not use the term 'fair market value'. In the 2007 edition,
the IVS pointed out that it was not necessary and not advisable to put the adjective 'fair'
in front of 'market value' as this would bear the risk of confusion with 'fair value'. (88)
4.44 According to the IVS 2013, 'fair value' is the 'estimated price for the transfer of an
asset or liability between identified knowledgeable and willing parties that reflects the
respective interests of those parties'. (89) It notes that this definition is different from
that in the IFRS according to which 'fair value' is generally consistent with 'market value':
(90)
For use in financial reporting under International Financial Reporting
Standards, fair value has a different meaning: ii. In IFRS 13 'Fair Value is 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'. (91)
4.45 According to the IVS, for purposes other than use in financial statements, fair value is
to be distinguished from market value as follows:
Fair value requires the assessment of the price that is fair between two
identified parties taking into account the respective advantages or
disadvantages that each will gain from the transaction. It is commonly applied
in judicial contexts. In contrast, market value requires any advantages that
would not be available to market participants generally to be disregarded.
Fair value is a broader concept than market value. Although in many cases the
price that is fair between two parties will equate to that obtainable in the
market, there will be cases where the assessment of fair value will involve
taking into account matters that have to be disregarded in the assessment of
market value, such as any element of special value arising because of the
combination of the interests. (92)
4.46 Examples of the use of 'fair value' include:
(a) determination of a price that is fair for a shareholding in a non-quoted business,
where the holdings of two specific parties may mean that the price that is fair
between them is different from the price that might be obtainable in the market,
(b) determination of a price that would be fair between a lessor and a lessee for either
the permanent transfer of the leased asset or the cancellation of the lease liability.
(93)
4.47 However, it seems that this strict distinction between 'market value' and 'fair value'
is not generally respected or applied in business valuation practice. Pratt and Nicolita
note:
In the United States, the most widely recognized and accepted standard of
value related to business valuations is fair market value. With regard to
business valuations, it is the standard that applies to virtually all federal and
state tax matters, such as estate taxes, gift taxes, inheritance taxes, income
taxes, and ad valorem taxes. It is also the legal standard of value in many
111
other—though not all—valuation situations. (94)
4.48 The authors refer to the definition by the American Society of Appraisers according
to which 'fair market value' is 'the amount at which property would change hands
between a willing seller and a willing buyer when neither is acting under compulsion and
when both have reasonable knowledge of the relevant facts' and point out that this
definition is in accordance with that found in the Internal Revenue Code and Revenue
Ruling 59–60. (95)
4.49 The Royal Institution of Certified Surveyors also notes that, with regard to the
valuation of business and business interest, but also more generally, the 'bases of value'
typically encountered are 'fair value, fair market value, market value, open market value,
investment value, owner value and net realisable value'. (96)
4.50 It follows that for the purpose of establishing the basis of value, an international
tribunal must look carefully at the legal basis for the valuation. If the applicable BIT, for
example, refers to 'fair value' and not to '(fair) market value', the difference between the
two standards might become relevant. Whether the standards of 'fair compensation' or
'just compensation' which appear in some BITs reflect rather 'fair value' or 'market value'
cannot be generally determined. The tribunal must interpret these provisions in
application of the rules of treaty interpretation. (97) So far, tribunals tend to interpret the
standard of 'fair value' in the same way as 'fair market value'. (98)
4.51 As has been discussed in Chapter 3, the market value or 'objective' basis of value is
required in cases of lawful expropriations. (99) Tribunals have also resorted to this basis
of value in cases of unlawful expropriations, other violations of international law, or even
contractual obligations. In some cases, this was explained by an argumentum e maiore ad
minus or by analogy, in other cases the tribunals relied on the submissions of the parties.
(100)
(2) Bases Other Than Market Value

4.52 While market value is considered to be a widely accepted basis of value for a wide
range of applications, alternative valuation bases might be appropriate in specific
circumstances. The IVS point out that there are two other principal categories as 'basis of
valuation':
(b) The second is to indicate the benefits that a person or an entity enjoys from
ownership of an asset. The value is specific to that person or entity, and may have
no relevance to market participants in general. Investment value and special value
as defined in these standards fall into this category.
(c) The third is to indicate the price that would be reasonably agreed between two
specific parties for the exchange of an asset. Although the parties may be
unconnected and negotiating at arm's length, the asset is not necessarily exposed
in the market and the price agreed may be one that reflects the specific advantages
or disadvantages of ownership to the parties involved rather than the market at
large. Fair value as defined in these standards falls into this category. (101)
4.53 In the following section the respective concepts will be explained in more detail in
order to find out to what extent they may be useful for the calculation of damages in
international investment arbitration.
(a) Investment Value or Worth
4.54 The first category of the bases other than market value deals with the concepts of
'investment value' and 'special value'. The IVS define 'investment value' as follows:
Investment value is the value of an asset to the owner or a prospective owner
for individual investment or operational objectives.
This is an entity-specific basis of value. Although the value of an asset to the
owner may be the same as the amount that could be realised from its sale to
another party, this basis of value reflects the benefits received by an entity
from holding the asset and, therefore, does not necessarily involve a
hypothetical exchange. Investment value reflects the circumstances and
financial objectives of the entity for which the valuation is being produced. It
is often used for measuring investment performance. Differences between the
investment value of an asset and its market value provide the motivation for
buyers or sellers to enter the marketplace. (102)
4.55 In the United Kingdom, the Royal Institution of Chartered Surveyors (RICS), which has
adopted the IVS into its national professional valuation standards, (103) explains that
'investment value' is another word for 'worth' which indicates that the operator will
derive 'worth' from current and potential net profits from an operational entity operating
in the chosen format. While one particular operator may be one potential bidder in the
market, the valuer will need to understand the requirements and achievable profits of
other potential bidders, along with the dynamics of the open market. (104) The reasons
for the difference of opinions about the 'investment value' or 'worth' of an asset include,
in particular
112
1. Differences in estimates of future earning power.
2. Differences in perception of the degree of risk.
3. Differences in tax status.
4. Synergies with other operations owned or controlled. (105)
4.56 Individual perceptions are particularly relevant, when an income-based valuation
method is applied. In this case, the assumptions and possibilities of one particular
investor may differ greatly significantly the perceptions of market participants, which
may lead to very different results. Pratt and Nicolita note:
Investment value reflects the subjective relationship between a particular
investor and a given investment. It differs in concept from market value,
although investment value and market value indications sometimes may be
P 181 similar. If the investor's requirements are typical of the market, investment
value will be the same as market value. (106)
4.57 The concept of 'investment value' contains a number of elements that can be
relevant for valuations in international investment arbitration. First, it is a subjective–
concrete concept. This makes it prima facie interesting for use in international damages
cases. The valuation experts point out that the value a particular investor attaches to an
asset might be different from the market value. This is usually the case if an investor has
paid or invested more than the market would consider reasonable. Nevertheless, the
investor has done it, for whatever reason. If the state acts unlawfully and destroys or
impairs the investment, why should it only pay the market value and not restore the
investor the sum he or she has invested?
4.58 This would be particularly questionable if the state has benefited from the
overpayment itself, for example, by acceptance of the high price for a concession which,
for whatever reason, the investor wanted to acquire. These were the facts of the case in
Azurix v Argentina. (107) The tribunal noted that no well-informed investor would have
paid the price of US$ 449 million for the concession at the time of the unlawful
interference by Argentina in March 2002. (108) It referred to the much lower competing
bids at the time of the public tender a few years earlier and set the value of the
concession at US$ 60 million. (109) As a result, the Argentine state could keep the
overpayment.
4.59 This example shows the importance of distinguishing between 'investment value'
and 'market value' of an investment. Yet, investment tribunals are usually not aware of
the difference. The tribunal in Vivendi v Argentina, (110) for example, noted:
Until their closing argument and Post-Hearing Brief, Claimants did not
advance or rely on generally accepted alternative means of calculating fair
market value, such as 'book value'—the net value of an enterprise's assets,
'investment value'—the amount actually invested prior to the injurious acts,
'replacement value'—the amount necessary to replace the investment prior to
the injurious acts, or 'liquidation value'—the amount a willing buyer would pay
a willing seller for the investment in a liquidation process …
Of these alternatives, the 'investment value' of the concession appears to offer
the closest proxy, if only partial, for compensation sufficient to eliminate the
consequences of the Province's actions. (111)
4.60 The tribunal did not differentiate between the 'basis of value' and the different
types of 'asset valuation approach', (112) and did not explain why the investment value
P 183 could be equivalent to the market value, in particular as the tribunal found the
company at the time of the award 'to be of no or nominal value'. (113) Be that as it may,
the result was in line with the subjective–concrete valuation approach which would have
been warranted anyway in that case.
4.61 Finally, it is important that the investment value, according to the IVS, 'reflects the
benefits received by an entity from holding the asset, and, therefore, does not
necessarily involve a hypothetical exchange'. (114) This fits particularly well with the
circumstances of damages cases, as usually the injured party would not have wanted to
sell the property at the date when the unlawful interference happened. It is more
appropriate to assume that he or she wanted to keep the asset and continue to benefit
from it.
(b) Special Value, Synergistic Value, Price
4.62 Further examples of values other than market value addressed by the IVS 2013 are
'fair value', 'special value', and 'synergistic value'. 'Fair value', as already discussed, is
often used as an objective value, but may also have subjective elements. (115) The two
remaining types of value, 'special value' and 'synergistic value' are clearly subjective
values. The IVS explain 'special value' as follows:
Special Value can arise where an asset has attributes that make it more
attractive to a particular buyer, or to a limited category of buyers, than to the
general body of buyers in a market. These attributes can include the physical,
113
geographic, economic or legal characteristics of an asset. Market Value
requires the disregard of any element of Special Value because at any given
date it is only assumed that there is a willing buyer, not a particular willing
buyer. (116)
4.63 In the context of international direct investment, specific attributes of assets, such
as the physical, geographic, economic, or legal characteristics, are the rule rather than
the exception. International investment projects often have unique characteristics. Even
if there are tools to calculate an objective value based on market parameters for those
projects, the use of an abstract value is rather limited. Even if the standard of
compensation upon expropriation refers to a hypothetical sale, this is not the premise
under which the investor holds the investment. It is rather the value of the investment to
the particular investor that makes him keep or sell the investment.
4.64 Finally, the 'synergistic value' is an 'additional element of value created by the
combination of two or more assets or interests where the combined value is more than
the sum of the separate values'. (117) If the synergies are only available to one specific
owner or buyer, it is a case of 'special value'. (118)
4.65 Synergistic value is one of the most important reasons why actual buyers pay more
for an asset than the market value. This was, for example, shown in CME v Czech Republic
where the price for the company offered by a concrete interested buyer was almost
double the company's market value as assessed by the tribunal on the basis of the
valuation experts' DCF analyses. (119)
4.66 In this context it is appropriate to analyse the significance of 'prices' for valuation
purposes. The IVS provide the following definition:
Price is the amount asked, offered, or paid for an asset. Because of the
financial capabilities, motivations or special interests of a given buyer or
seller, the price paid may be different from the value which might be ascribed
to the asset by others. (120)
4.67 According to the definition in Black's Law Dictionary 'price' is the 'amount of money
or other consideration asked for or given in exchange for something else; the cost at
which something is bought or sold'. (121) 'Cost' is defined as the 'amount paid or charged
for something; price or expenditure'. (122)
4.68 It follows that price is an historic fact (except when qualified as 'asked' or 'offered'),
while value is an opinion. It is only under perfect market conditions that value in use
would equate with value in exchange. (123) The market of international investments is not
perfect and therefore 'price' and 'value' are different things. The difference between
subjective and objective value plays an important role here.
4.69 One of the most convincing arguments to support the need for differentiation
between the value of an asset to a particular entity, thus the 'investment value', and the
'market value' is that the difference between the two values motivates buyers and sellers
to enter the marketplace. (124) If there were no difference between subjective and
objective values, no transactions would take place and there would be no market. It is,
therefore, necessary to distinguish carefully between 'price' and 'value'.
(c) Contractual Value
4.70 Another category of non-market value basis are valuations 'defined by statute,
regulation, private contract or other document'. (125) Valuations based on a 'contract or
P 184 other document' are particularly relevant in international investment disputes,
because many investment projects involve contracts with the respondent state, state
entities, or state-owned enterprises. The provisions of this contract naturally have a
decisive impact on the value of the investment. This means that, for valuation purposes,
the contractual provisions must be applied, even if the contract itself is not subject to
the jurisdiction of the tribunal. (126)
4.71 Contract-based valuations are subjective insofar as the provisions of the contract
reflect the specific relationship between the parties. The contract incorporates the
intentions of the contracting parties, based on their respective expectations and
competences. They might have agreed on specific terms which do not have to have
anything to do with an 'objective' market value. (127) Due to the principle of party
autonomy the contracting parties are almost entirely free to define the economic
conditions of the contract. This includes the possibility of incorporating objective
elements, for example, reference to raw material prices, inflation rates, consumer or
producer price indexes, but also subjective elements, such as renegotiation clauses. (128)
4.72 Contracts may prescribe different valuation definitions and assumptions, the
detailed application of which may require an approach different from that required by
general valuation standards. The contract may, for example, include liquidated damages
or criteria for setting the price payable under an option. In all cases it is important that
the valuer must be informed about all the premises and assumptions relevant for the
valuation.
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C. Valuation Approaches
4.73 After the establishment of the basis of value, an appropriate valuation approach and
valuation methods must be selected. One or more valuation approaches may be used in
order to arrive at the valuation defined by the appropriate 'basis of value'. (129) A
valuation approach refers to generally accepted analytical methodologies that are in
P 185 common use. Each approach has alternative methods of application. The existing
recognized valuation approaches and methods are common to virtually all types of
valuation, including real property, personal property, businesses, and financial interests.
However, valuation of different types of assets may require different approaches or
methods. (130)
4.74 The most common approaches used in practice and discussed in the IVS as well as in
academic writing are the market approach (or sales comparison approach), the income
capitalization approach (including discounted cash flow analysis), and the asset-based
valuation approach (or cost approach). (131) These three approaches 'all are based on the
economic principles of price equilibrium, anticipation of benefits or substitution'. (132)
However, it is recommended to use more than one valuation approach or method, where
there are insufficient factual or observable inputs for a single method to produce a
reliable conclusion. (133) In the following, the three different types of valuation
approaches shall be briefly introduced. Their application in international judicial
practice has advantages and drawbacks (134) which involve a variety of challenges.
(1) Market Approach

4.75 The market or sales comparison approach provides an indication of value by
comparing the subject asset with identical or similar assets for which price information is
available. (135) In general, an asset being valued is compared with sales of similar
properties that have been transacted in the market. Listings and offerings may also be
considered as a source of information. (136) With regard to business valuation, the IVS
provides:
C15. The market approach compares the subject business to similar businesses, business
ownership interests, and securities that have been exchanged in the market and
any relevant transactions of shares in the same business. Prior transactions or offers
for any component of the business may be also indicative of value.
C16. The three most important common sources of data used in the market approach are
public stock markets in which ownership interests of similar businesses are traded,
the acquisition market in which entire businesses are bought and sold, and prior
P 186 transactions in the ownership of the subject business.
C17. There needs to be a reasonable basis for comparison with and reliance upon similar
businesses in the market approach. These similar businesses should be in the same
industry as the subject business or in an industry that responds to the same
economic variables. Factors to be considered in whether a reasonable basis for
comparison exists include the following:
• similarity to the subject business in terms of qualitative and quantitative
business characteristics,
• amount and verifiability of data on the similar business,
• whether the price of the similar business represents an arm's length
transaction. (137)
4.76 It is first of all important to find a reasonable basis for comparison. A comparative
analysis of qualitative and quantitative similarities and differences between similar
businesses and the subject business should be made. (138) When 'anecdotal valuation
benchmarks' are used as a short-cut market approach, it is important to show that buyers
and sellers place significant reliance on them. (139) Even where this is the case, a cross
check should be undertaken using at least one other method.
4.77 A variant of the market approach is the reliance on share prices of publicly traded
companies or the use of 'valuation ratios', usually price divided by some measure of
income or net assets. (140) In the use of such 'multiples', (141) adjustments may be
necessary in order to account for 'differences in risk and expectations of the similar
businesses and the subject business' and 'ownership interest and interests in the similar
businesses with regard to the degree of control, marketability, or the size of the holding'.
(142)
4.78 Market prices seemingly have the advantage of representing a statement of value
that is rather easy to find and to understand. On the other hand, one must be careful not
to confuse price and value. For the individual decision to buy or sell, price and value are
almost inevitably different. (143) It is, therefore, necessary to have a larger number of
buyers and sellers to arrive at a price that mirrors the market mechanism of demand and
supply. Furthermore, other preconditions of the market are required, such as
transparency, and the absence of monopolistic or oligopolistic positions.
4.79 In Europe, for example, information about business transactions is frequently kept
P 187 confidential. Furthermore, the comparability of businesses is put into question. The
German Federal Court stated that, due to the individual characteristics of every business,
115
there is no market on which a market price could be established. (144)
4.80 In the United States, the above-mentioned conditions are more available and the
confidence in market forces is stronger. (145) Relevant data are collected and published
on a large scale and represent an important source of information for potential buyers
and sellers in the particular industries. The comparative public company approach, for
example, compares data of publicly traded companies with similar companies which are
not publicly traded. (146) Market prices play an important role for the valuation of
individual assets, such as machinery and equipment. (147)
4.81 The comparability criterion seems to be a major problem in the area of foreign
direct investment. (148) The businesses in question usually concern large and unique
projects, such as the extraction of natural resources or the building (and operating) of
infrastructure, such as gas, oil, or water supply, as well as housing or road projects. It is
hard to find really comparable projects which could provide suitable market prices.
(a) Stock Prices
4.82 It appears to be a rather simple exercise to assess the value of a company that is
publicly traded by multiplying the price of a single share by the number of shares issued.
(149) The price of the stock seems to be the most reliable and objective indicator of value
because
[t]he public capital markets in the United States (as well as in other countries)
reprice thousands of stocks every day, mostly through transactions among
financial buyers and sellers who are well-informed (because of stringent
disclosure laws, at least in the United States) and have no special motivation
or compulsion to buy or sell. This constant repricing gives up-to-the-minute
evidence of prices that buyers and sellers agree on for securities in all kinds of
P 188 industries relative to the fundamental variables perceived to drive their
values, such as dividends, cash flows, and earnings. (150)
4.83 However, the total of a company's stock prices does not necessarily reflect the value
of the entire company. First, it is generally accepted that discounts and premiums have
to be considered depending, in particular, on the number of shares (minority/control)
and (lack of) marketability. (151) Furthermore, the prices of publicly traded stock are
frequently rather volatile, reflecting not always purely economic but also political and
psychological motives. This can partly be explained by the fact that shareholders do not
only expect benefits from the dividends but also from an increase in the stock prices.
(152)
4.84 Nevertheless, it is the purpose of the stock to balance supply and demand and to
facilitate transactions of company shares on a market value basis. If the stock is
considerably undervalued, the risk of a 'hostile takeover' emerges. (153) It follows that
stock prices are still considered as an important yardstick.
4.85 To conclude, due to the above-mentioned limitations, the use of prices quoted on
the stock exchange cannot replace the valuation of an asset using other methods. It can,
however, be used in the plausibility evaluation of other methods. In order to balance out
irrational movements, it is also recommended not to select a single date but a longer
timeframe. (154)
(b) Prior Transactions
4.86 The IVS refer to 'prior transactions or offers for any component of the business' (155)
as indicative of value under the market approach. However, in addition to the general
caveat to avoid confusing value and price, (156) other adjustments may be necessary. This
is particularly true when the transactions in the subject business took place a long time
ago. In this case, adjustments need to be made for the passage of time and for changed
circumstances in the economy, the industry, and the business itself.
(c) Multiples
4.87 A simplified variant of the market or comparable company approach is the use of
multiples. To arrive at the value of an asset by using multiples, a particular variable of
P 189 the company's performance is chosen, such as cash flow, earnings, profits, EBIT, (157) or
EBITDA, (158) and multiplied by a certain factor. (159) This factor is primarily derived from
sales prices of comparable enterprises. (160) Multiples are regularly published for
specific types of enterprises and industries.
4.88 The use of multiples does not only reflect the market approach of valuation but also
the income approach as it is based on the assumption that the value of an object is not
related to its historical cost but to its future performance. Multiples are relatively easy to
employ but also rather inexact. They are also used in valuations by so-called 'rules of
thumb'. (161) Valuations by multiples are generally recommended only for smaller
businesses but in practice they are also applied to larger enterprises.
(2) Income Approach

4.89 According to the prevailing opinion, the value of an asset is represented by its
116
ability to yield financial benefits to its owner. (162) This is true for entire businesses, but
also for shares in businesses, immovable property, and intangible assets, such as rents
and annuities. For the purpose of valuation, it is, therefore, necessary to estimate
expected future financial benefits and discount them to present value. According to the
IVS, the 'income approach provides an indication of value by converting future cash flows
to a single current capital value'. (163) The explanation in more detail is the following:
This approach considers the income that an asset will generate over its useful
life and indicates value through a capitalization process. Capitalisation
involves the conversion of income into a capital sum through the application
of an appropriate discount rate. The income stream may be derived under a
contract or contracts, or be non-contractual, eg the anticipated profit
generated from either the use of or holding of the asset. (164)
4.90 There are different methodologies to arrive at the present value of future benefits.
The most important ones are the capitalization of earnings method and the discounted
P 191 cash flow (DCF) method. They are based on the same premises but are different in
respect of the relevant income parameters and the choice of the discount rates. Methods
that fall under the income approach include:
• income capitalization, where an all-risks or overall capitalization rate is applied to
a representative single period income,
• discounted cash flow where a discount rate is applied to a series of cash flows for
future periods to discount them to a present value,
• various option pricing models.
While the first two methods have already been reflected in international investment
arbitration practice, this is not the case with the third one. It is a relatively new valuation
method, which is primarily applied in portfolio management, in acquisition analysis, and
in corporate finance. (165)
(a) Basis of Income: Profits, Earnings, Cash Flow?
4.91 The basis for measuring the future income stream in modern valuation practices is
usually not future profit or net earnings, but future 'cash flow'. (166) The term 'cash flow'
originated in the United States where it was introduced as a new means of valuation of
corporate enterprises and stock analysis as an alternative to the widespread
price/earnings ratio. The cash flow was regarded as a better indicator of the value than
'earnings', as the latter depends a lot on the accounting principles applied which are
different from country to country, making them unsuitable for international comparisons.
(167) Furthermore, the principle of reasonable commercial assessment in the accounting
discipline tends to underestimate assets and overestimate liabilities. In addition,
'earnings' as an accounting concept often includes a certain element of discretion, known
as 'creative accounting'. (168) The DCF analysis, by contrast, excludes those
disadvantages by focusing only on the real cash inflows and outflows in a certain period
of time. (169) Cash flow analysis, therefore, was increasingly used for a number of
different purposes, including the evaluation of the performance of managers and the
rating of companies. The so-called 'shareholder value' as an alternative to the focus on
earnings per quarter is also closely connected to the cash flow analysis. (170)
4.92 Cash flow is 'cash generated over a period of time by an asset, group of assets, or
business enterprise. Usually used with a qualifying word or phrase.' (171) The 'qualifying'
words make clear, how the cash flow is derived:
'Free Cash Flows to Equity' are cash flows 'available to pay out to equity
owners after funding operations of the business, making necessary capital
investments, and increasing or decreasing debt financing.'
'Free Cash Flows to the Firm' are cash flows 'available to pay out to equity
holders and debt investors after funding operations of the business enterprise
and making necessary capital investments.'
'Nominal Cash Flows' are cash flows 'expressed in monetary terms in a given
period or series or periods.'
'Real Cash Flows' are '[n]ominal cash flows adjusted to exclude the effect of
price changes over time.' (172)
4.93 The first two definitions show the difference between 'equity value' and 'enterprise
value' (also 'entity value' or 'firm value'). The latter two definitions show the different
approaches to inflation. Furthermore, income and cash flow can be measured pre-tax or
post-tax. In all of these cases it is important that the capitalization or discount rate
applied is consistent with the definition of income of cash flow used. (173)
4.94 The net cash flow is a concept that makes the performance of companies more
comparable, even on an international level. Sometimes, cash flows are also calculated on
the basis of Earnings before Interest and Taxes (EBIT) (174) or Earnings before Interest,
Taxes, Depreciation and Amortization (EBITDA). (175)
117
(b) Going Concern
4.95 Usually, the income approach is used for the valuation of going concerns, that is,
operational entities. 'Going concern' is a valuation premise which refers to the value 'in
continued use, as a mass assemblage of income-producing assets, and as a going concern
business enterprise'. (176) It is contrasted to 'value as an assemblage of assets', (177)
'value as an orderly disposition', (178) or 'value as a forced liquidation'. (179) The RICS
Valuation Standards note that '[e]xcept in the case where there are strong indications to
P 192 the contrary, the presumption is that of a “going concern” and that the asset will
continue to have a useful life for the foreseeable future'. (180) Gabehart and Brinkley
describe it as 'a company that has its doors open and is conducting business in an
ordinary fashion'. (181)
4.96 The World Bank Guidelines define 'going concern' in the following way:
[A]n enterprise consisting of income-producing assets which has been in
operation for a sufficient period of time to generate the data required for the
calculation of future income and which could have been expected with
reasonable certainty, if the taking had not occurred, to continue producing
legitimate income over the course of its economic life in the general
circumstances following the taking by the State … (182)
4.97 Under the World Bank's definition, the income approach should thus be applied only
if the asset has already operated successfully in the past. Similarly, the UNCC proposes a
going concern valuation if future earning and profits could be based on prior earnings or
profits. (183) This is not entirely in accordance with the IVS and the RICS Valuation
Standards which do not put emphasis on past performance but rather on future
prospects.
(c) Forecasting
4.98 The main problem of the income approach is the forecast of future cash flows. It
requires the collection of extensive information and, based on such information, an
analysis of the asset's past, present, and future situation. The forecast needs to be
checked for plausibility in order to determine its reasonableness and lack of
contradiction. (184) It includes an analysis of the company's share in the respective
market, general and industry-specific economic conditions, the production, finance, and
competition relations and their development in the future. Both negative and positive
factors must be included.
4.99 The analysis of past performance serves as the basis for projection of future
developments and for carrying out a plausibility analysis. (185) It is necessary to identify
the key elements for past success. (186) The data have to be analysed in view of the
specific markets, entity-based information, and the financial position of the business,
taking account of past and future developments including adjustments for exceptional
factors. (187) It is, therefore, essential to analyse to what extent past results can be used
P 193 for the forecast. It is not enough to simply transform past data into data for the future.
(188) The data obtained are not necessarily representative for the future, because
circumstances might have changed or are expected to change. (189)
4.100 It is important to identify the so-called 'value drivers', the factors that determine
the success or failure of the company. (190) They result both from economic
circumstances—thus the 'market'—and the individual qualities of the valuation object.
4.101 There are various forecasting techniques for processing the data and their
projection into the future. Besides intuitive forecast methods, a number of
mathematical-statistical techniques have been developed, such as the time series
analysis or the regression analysis, stochastic data aggregation, such as the sensitivity
analysis, the decision tree analysis, or the so-called Monte Carlo Simulation. (191)
4.102 In order to deal with the inherent uncertainty, usually the projection period is
divided into two or more phases. (192) This takes into consideration that the forecast
becomes less exact and reliable with the extension of the forecast period. (193) The more
immediate first phase usually covers a period of three to five years where there are
normally sufficiently detailed forecast data available. (194) The years covered in the
subsequent phases are normally based on more or less general projections of the
detailed forecasts made for the first phase, (195) but need to be checked and, if
necessary, adjusted. (196) Due to the large number of influencing factors it is advisable to
prepare a number of different projections in order to highlight the extent of uncertainties
of future business profits and to explain how to reflect those uncertainties as an element
P 195 of the value calculation.
4.103 At the end of the forecast period, businesses have a terminal value, also termed
'residual value' or 'continuing value', which has to be added to the present value of future
income. (197) At the minimum, terminal value represents the liquidation value of the
assets at the end of the forecasting period.
(d) Discounting
4.104 In order to calculate the present value of the expected aggregate amount of
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income, an appropriate discount rate must be applied. This follows from the financial
principle that '[a] dollar today is worth more than a dollar tomorrow'. (198) The 'dollar
today' can be invested immediately and yield a return, as a minimum interest on a
savings vehicle. Therefore, the discount rate on a future amount of money must be at
least equal to the rate of interest on this alternative investment.
4.105 (i) Basic Principles The discount factor helps to calculate the present value of an
amount of money expected in the future. (199) It is usually represented by the reciprocal
of 1 plus the rate of return.
4.106 It follows that the present value (PV) of future income (C1) can be illustrated by the
following formula:
4.107 The rate of return (r) is the reward that investors demand for a delayed payment. In
order to arrive at the present value of this delayed payment, the expected payoffs are
discounted by the rate of return of alternative investment opportunities. This rate is also
termed the discount rate, hurdle rate, or opportunity cost of capital. For calculating the
present value of an income stream of a number of years (t), the discounted cash flow
(DCF) formula should be applied: (200)
4.108 It follows that the discount factor increases with the distance in time. The longer
one has to wait for the money, the lower its present value. (201)
4.109 For the selection of the discount rate it is important to identify the rates on
alternative investments available to potential buyers or investors. The greatest difficulty
lies in the comparability of the investment, in particular in terms of risk. In this context,
risk can be defined as 'the degree of uncertainty as to the realization of expected future
economic income'. (202)
4.110 Entrepreneurial engagement is always connected with risk. This risk is represented
by a risk premium which investors demand for a risky undertaking, following the financial
principle that '[a] safe dollar is worth more than a risky one'. (203) In valuation practice,
'the mechanism by which the assessment of risk is translated into its effect on value
normally is the discount rate'. (204)
4.111 However, this is not applied to all types of risk. An enterprise's risk is usually
divided into 'systematic' ('market') risk and 'unsystematic' ('specific') risk. (205) The
former entails, for example, general economic conditions, environmental risks, and
political environment—thus generally events or problems that are equal for all
businesses or for the entire industry. Examples of 'unsystematic' risks are risks specific to
the company, such as the market position of the company (market share, competition,
market barriers, etc.), qualification of management, and the financial situation of the
business. (206)
4.112 There are different ways to deal with these different kinds of risks. Two approaches
are most prominently employed by valuation experts, namely (1) the 'build-up'
procedure, and (2) the 'Weighted Average Cost of Capital (WACC)'. (207) The latter is
closely connected to the Capital Asset Pricing Model (CAPM). (208)
4.113 With the first approach, the discount rate is comprised of various components that
are added up to 'build up' the discount rate. (209) The first building block is the 'risk-free
rate' which should correspond to a generally available savings vehicle, such as
government bonds. The second block is the 'systematic risk', an incremental factor that
investors request for the additional risk of not investing in savings vehicles but in equity
P 196 capital.
4.114 Very simply put, the discount rate, or rate of return that investors require,
incorporates the following elements:
1. A 'risk-free rate' (the amount that an investor feels certain of realizing over the
holding period). This includes:
a. a 'rental rate' for forgoing the use of funds over the holding period
b. the expected rate of inflation over the holding period
2. A premium for risk. This includes:
a. systematic risk (that risk that relates to movements in returns on the
investment market in general)
b. unsystematic risk (that risk that is specific to the subject investment). (210)
4.115 To induce investors to invest in equities or securities they expect some additional
119
return for the risk they incur. The market thus requires an equity risk premium over the
risk-free rate. (211) Kantor summarizes the concept of 'equity risk premium' in the
following way:
An equity investment in a business is acknowledged to be riskier than a debt
investment in the same business. Discount rates for investments must
therefore incorporate a component to reflect this equity risk premium; a rate
of return added to a risk-free rate to reflect the additional risk of equity
instruments over risk-free instruments. For U.S. markets, experts often rely on
data from Ibbotson Associates for this purpose. (212)
4.116 The risk-free and the systematic risk components together can be regarded as the
'base' discount rate as the most objective and verifiable component of the overall
discount rate. (213) The 'unsystematic risk' is far more complicated. Expert witnesses
often refer to forecasts for the company prepared for a transaction before the dispute
arose, such as seeking finance in the capital markets, considering an M&A transaction, or
contemplating an initial public offering of its capital stock. (214) The rate chosen in these
circumstances may provide persuasive evidence in the arbitration procedure, because
business managers and bankers developing revenue and expenses projections usually
take a realistic approach towards formulating their projections. (215) However, the
determination of the 'specific risk' component remains a sensitive issue.
4.117 An additional component in the 'build-up' procedure may be added to reflect the
P 197 fact that smaller companies tend to have higher risks than larger companies. (216)
Thus, the so-called 'size premium' would increase the discount rate of smaller
companies. However, not all experts accept that a size premium exists. Furthermore, the
proper use of a size premium in developing countries is controversial. (217)
4.118 Other characteristics of an investment may also be incorporated into the discount
rate, such as the degree of minority ownership versus control position represented by the
investment and the degree of ready marketability or lack of marketability. (218)
4.119 (ii) The Capital Asset Pricing Model (CAPM) The second approach to determining the
discount rate is to rely more confidently on market forces. The risk of a particular
enterprise is, thus, as big as the market participants estimate it. The most widely used
types of the DCF method rely on the Capital Asset Pricing Model (CAPM). (219) According to
this model, investors can avoid or balance the unsystematic risk by diversification, thus
by holding a diversified portfolio of various investments. (220) The market risk, that
cannot be diversified, stems from the fact that there are economy-wide perils that
threaten all businesses. (221) Koller, Goedhart, and Wessels recommend using a common
global market risk premium around the world 'because capital markets have become
global, in the sense that a considerable share of all equity trades is now international,
and global traders, primarily large institutional investors, draw their capital from and
invest it all over the world.' (222)
4.120 The unsystematic or specific risk of a company is, under this approach, not included
in the discount rate. Instead, it should be reflected in the forecast, thus, in the numerator
of the present value formula. (223) The same may apply for the so-called 'country risk',
(224) but there is not yet a uniform rule or practice in this regard. (225)
4.121 The systematic or market risk, on the other hand, is identified on the basis of a
comparison with enterprises of the same or similar industries. As a point of reference, the
US stock index Standard & Poor's 500, which contains information about the performance
of a representative portfolio of publicly traded companies, is frequently used. (226)
4.122 An important function in this respect is the so-called 'beta' factor. It indicates to
P 198 what extent the returns of a company correlate to changes of the market rate of return.
(227) The market rate of return or the 'market risk premium' has a beta of 1. A beta
between 0 and 1 means a lower volatility, a beta greater than 1 means higher volatility
and, thus, higher risk. Risk-free investments have a beta of 0. The higher the beta, the
higher is the risk and thus the required equity risk premium. (228) According to the CAPM,
the relation between beta and the market risk premium is linear. This means that an
investment with a beta of 0.5 may expect half of the market rate of return. (229) The cost
of equity, according to the CAPM, is the expected rate of return of the firm's common
stock: (230)
(rm-rf) = market risk premium

rm = market rate of return
rf = risk free interest rate
4.123 The relation between the DCF formula and beta enables future risks to be
evaluated. (231) The use of covariances (232) can help to further develop and refine the
CAPM. (233)
4.124 The beta is a result of past performances and experiences, both of the enterprise
itself and the entire industry concerned. (234) Industry betas give information on the
120
different industries' risk sensitivities and are important orientation guides for investors.
(235) However, the income approach is directed towards the future, which means that it is
necessary to analyse whether the historical beta is also representative for the future,
which is not necessarily the case. (236)
4.125 (iii) Inflation It is obvious that rises in prices caused by inflation have an effect on
P 199 the financial benefits. In a way, they increase 'automatically'. It is less obvious,
however, whether the expected rises in prices should be incorporated in the present
value calculations or not, and thus, whether the calculation should be in nominal or in
real terms.
4.126 Valuation experts largely agree that it would not be appropriate to simply adjust
the future income stream by an inflation factor, according to the general formula for
calculating nominal future cash flows into real cash flows: (237)
4.127 The reason is that the inflation rate is often not directly reflected in increases in
prices or costs of the enterprise. Their fluctuations can deviate quite considerably from
the general inflation rate and are often different for various input factors. Furthermore,
and more importantly, it has to be pointed out that the discount rate is also a nominal
rate which already contains an inflation premium. (238) It follows that, for forecasting and
discounting, real terms are only used if the inflation rate is extraordinarily high. (239)
4.128 (iv) Country Risk The valuation may also need to address country risk. On the one
hand, there is the general economic situation in a particular country which influences the
prospects of an investment. This influence can be positive, by potentially larger growth
rates, and negative, by uncertainties regarding suppliers and efficiency. On the other
hand, there is the so-called political risk. This includes acts or omissions by the
authorities after a change in government or policy. It includes also so-called
'opportunistic behaviour' of host states who expect an economic or political advantage
from not fulfilling their obligations in relation to foreign investors. (240)
4.129 So far, there is no generally accepted way to measure country risk. One approach is
to add a country risk premium to the discount rate. Some valuation experts calculate the
country risk on the basis of the country's US$ sovereign debt over the US$ risk-free rate.
(241) This is regarded as one of the easiest and most accessible approaches as the rating
assigned to a country's debt is published by rating agencies, such as Standard & Poors,
Moody's Investors Service, and Fitch. (242) These ratings measure default risk, rather than
P 200 equity risk, but, as Damodaran notes, 'they are affected by many of the factors that
drive equity risk—stability of a country's currency, its budget and trade balances, and its
political stability, for instance'. (243) Analysts who use default spreads as measures of
country risk typically add them on to the cost of both equity and debts of every company
traded in that country. (244)
4.130 Another approach for determining a country risk premium to the discount rate is to
refer to the relative standard deviation in stock prices, because higher standard
deviations are generally associated with more risk. (245) Others use the country default
spreads with the country rating as a first step, but then look at the volatility of the equity
market in a country relative to the volatility of the country bond used to estimate the
spread, thus a combination of default spreads and relative standard deviations. (246)
4.131 An entirely different approach is to model risks explicitly in the cash flow
projections. (247) The 'scenario DCF' approach simulates alternative trajectories for future
cash flows. (248) The first scenario would reflect 'business as usual' without major
distress. The second should reflect cash flows assuming that one or more country risks
materialize. (249) This is consistent with the general finance theory according to which
cost of capital should not reflect risk that can be diversified. This does not mean that
diversifiable risk is irrelevant for a valuation, but the possibility of future events shall be
incorporated in the estimation of expected cash flows. This approach arguably provides a
more solid analytical foundation and more robust understanding of the value than
incorporating country risk in the discount rate. (250)
4.132 Two main arguments can be advanced in favour of the scenario DCF to evaluate
country risk: first, country risk does not affect companies in a given country equally, so
that there might be significant differences in the effects on different companies. Some
companies might be affected more than others, others might even benefit. Natural
resources projects, whether exporting or importing raw materials, infrastructure
P 201 projects, banks, hotels, retailers, etc. may be affected quite differently by a particular
negative development in the country. (251)
4.133 Second, any projection of cash flow in an emerging market will necessarily include
some caution as regards future prospects. When discussing and explaining investments in
emerging markets managers will inevitably try to identify specific risk factors which
might affect the project, also in order to plan to mitigate them. It will help the investors
better to address these risks than using a so-called black-box addition to the discount
rate. (252) As a result, the cash flows will already include certain identifiable risks, so that
adding a country-risk premium to the discount factor would lead to double counting of
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the country risk.
(3) Asset-Based or Cost Approach

4.134 According to the asset value or cost approach, the value of different component
parts determines the overall value of an object. The basic concept of the asset-based
approach is that, if all assets and liabilities are revalued to current values, the difference
between the assets and the liabilities represents the value of the object. (253) The cost
approach is explained by the IVS as follows:
The cost approach provides an indication of value using the economic
principle that a buyer will pay no more for an asset than the cost to obtain an
asset of equal utility, whether by purchase or by construction.
This approach is based on the principle that the price that a buyer in the
market would pay for the asset being valued would, unless undue time,
inconvenience, risk or other factors are involved, be not more than the cost to
purchase or construct an equivalent asset. Often the asset being valued will
be less attractive than the alternative that could be purchased or constructed
because of age or obsolescence. Where this is the case, adjustments may need
to be made to the cost of the alternative asset depending on the required
basis of value. (254)
4.135 The advantage of this approach is that, in comparison with the income approach, it
appears to be less speculative. It looks into the past and not into the future and is
seemingly much simpler to apply than the highly complex forecasting and discounting
processes. Evidence is usually available and no prognoses about the future are required.
4.136 The disadvantage is, however, that many assets and liabilities, such as certain
intangible assets and goodwill, are not appropriately reflected on a company's balance
sheet. (255) Furthermore, the asset-based approach does not consider the combination
P 203 of the assets, and thus the value of the entity as a whole. Finally, in business reality
income-based and market-based valuations are widespread, while asset-based
valuations are rarely applied. It follows that valuation guidelines generally do not
recommend the asset-based approach.
4.137 The IVS advise against using the cost approach for businesses or business interest,
except in the case of early stage or start-up businesses where profits and/or cash flows
cannot reliably be determined and adequate market information is available on the
entity's assets. (256)
4.138 Others add that the asset-based approach may be used to evaluate holding
companies, financial institutions, agricultural businesses, and other asset-intensive
businesses, as well as companies that may not be financially viable as operating entities.
(257) In any case it is important to establish the present value of the assets and not only
their historic cost. In the following, some of the possible methods to do this, namely the
(adjusted) book value, the replacement value, and the liquidation value, shall be
discussed.
(a) Book Value
4.139 The book value is determined on the basis of the balance sheet of the company. The
assets appear at their historic cost less annual depreciation. (258) The extent of the
depreciation depends on the applicable accounting principles as well as on
entrepreneurial decisions in terms of tax optimization and other issues. (259)
4.140 The IVS define 'book value' as 'carrying amount', namely as the 'amount at which an
asset is recognised in the financial statements of an entity after deducting any
accumulated depreciation and any accumulated impairment losses'. (260)
4.141 The definition in the World Bank Guidelines also contains the difference between an
'enterprise' and a 'taken tangible asset':
'[B]ook value' means the difference between the enterprise's assets and
liabilities as recorded on its financial statements or the amount at which the
taken tangible assets appear on the balance sheet of the enterprise,
representing their cost after deducting accumulated depreciation in
accordance with generally accepted accounting principles. (261)
4.142 The main problem of using book value for valuation purposes is that the numbers
appearing in the accounting books or the balance sheet of the business reflect the
application of accounting principles that serve other purposes than those of valuation,
such as financial reporting or tax assessment. They are the result of the application of
rules and entrepreneurial decisions in the exercise of the discretion granted by such
rules. (262) Furthermore, the principle of precaution demands commercial enterprises
understate the value of assets and overstate the value of liabilities. (263) It follows that
the book value usually understates the value of an asset or a business.
4.143 Valuation experts, therefore, are against using book values for valuation purposes.
(264) They emphasize that it is only by coincidence that book value reflects the actual
122
value of an object. After a detailed analysis of the relationship of generally accepted
accounting principles with questions of value, McCosker comes to the conclusion:
Overall, generally accepted principles of accounting result in a book value of
owner's equity that usually is less than fair value, occasionally is greater than
fair value, and only by coincidence is equal to fair value. Book value is not
intended to be an equitable basis for settling nationalization claims and
should not be used for that purpose. (265)
4.144 Similarly, Pratt and Nicolita point out that the terms 'book value' or 'net book
value' are merely 'accounting jargon', and that 'accounting book value is not a business
valuation method at all, although it is popular in buy-sell agreement formulas'. (266)
Lieblich argues along the same lines:
It is also worth noting that the phrase 'book value' is itself a misnomer,
because it has nothing to do with 'value' properly defined, but refers instead
to the manner in which certain accounting conventions treat assets recorded
on a firm's balance sheet using a variety of assumptions and decisions having
little or nothing to do with 'value'. (267)
4.145 In order to overcome the above-mentioned deficiencies, book value is sometimes
adjusted or transformed in such a way as to make it more representative of the value of
an asset. Scholars, practitioners, and arbitral tribunals have developed different ways of
P 204 arriving at an 'adjusted book value' (ABV).
4.146 Stauffer, for example, (268) contends that adjusted book values are more
appropriate for valuations in legal disputes because, in contrast to the wilderness of
international business transactions, speculative elements have no place in this context.
He bases his proposals for adjustment both on an economic theory and on empirical
data. The first important adjustment, according to Stauffer, has to be made for inflation.
The balance sheets only show the historic cost of an asset—less depreciation—without
reflecting the devaluation of money in the meantime. (269) Second, expenses for research
and development must be capitalized and not be accounted for as 'expenses'. They
contribute considerably to the success of the company and should, therefore, be treated
in the same way as the initial investment or other investments in fixed assets. (270) These
two adjustments alone would already account for a valuation of 50 per cent above the
original book value. (271) Nevertheless, Stauffer proposes a third adjustment of the book
value, namely the modalities of accounting for depreciation. He emphasizes that the
depreciation should correspond to the real devaluation of the asset, for example, in
terms of cash flow generating ability. In the valuation context, the accounting
conventions as regards depreciation should be disregarded. (272)
4.147 Stauffer refers to a number of empirical studies that prove that this valuation
approach reflects prices actually paid in economic practice. (273) The available data
show that the relation of ABV and the enterprise value as assessed by a DCF analysis have
been relatively close. The relationship between book value and market value is named
after its founder 'Tobin's q' and was originally an indicator for the relative success of an
enterprise in relation to its competitors. (274) The respective studies have proven that
the 'market value is rarely a large multiple of unadjusted or unconformed NBV'. (275)
Furthermore, a comparison of the stock prices of thirty large oil companies with the
companies' asset values confirmed that even the stock value of the companies was
largely in accordance with the ABV. (276) The reason may, however, also be that, in the
P 205 United States, the SEC mandates that oil and gas reserves of public companies are not
carried on the balance sheet at historical cost but at their discounted present value on
the basis of an income-based valuation method. (277) This is not the case with most other
assets.
4.148 Experienced economists point to the fact that the significance of the ABV usually
works with companies with normal rates of return. Extraordinarily high or low rates are
rather rare and cannot be explained or appropriately reflected by this method. Stauffer
notes that extraordinarily high and 'abnormally poor performance must be explained,
since, by definition most firms or ventures realize “average” rates of return'. (278) This is
also confirmed by Lou Wells who supports the use of the book value method for recently
established businesses: (279)
When the investment is very recent, or still in process of being made, there is
an obvious and often easier alternative to using NPV of future cash flow to
determine FMV. If the project was expected to generate 'normal' rates of
return for the business, then the amount of investment itself provides a
reasonable starting point for determining FMV. In most cases, the FMV of
recently acquired assets is unlikely to be substantially different from the cost
of those assets. Cost of investment will approximate what a buyer might pay;
moreover, the investor who receives his investment back can invest the sum in
another project, earn normal returns, and be equally well off. For most
unfinished projects, this should end the calculations. (280)
4.149 This means that book value, despite the objections mentioned above, in certain
123
circumstances and if appropriately adjusted can nevertheless be useful as a guide or
reference for the purposes valuation in international investment arbitration.
(b) Replacement Value
4.150 Replacement value represents the most appropriate form of the cost or asset-
based approach. Replacement value is generally defined as the current cost of an asset
offering similar function and equivalent utility. (281) In contrast to book value it is not
based on historical costs but on actual prices on the market. In comparison to the
P 206 income-based valuation methods, it has the advantage that it contains less
speculative elements. The disadvantage is, however, that it disregards future prospects.
4.151 According to the IVS, the cost approach in the form of the replacement value can be
explained as follows:
This approach is based on the principle that the price that a buyer in the
market would pay for the asset being valued would, unless undue time,
inconvenience, risk or other factors are involved, be not more than the cost to
purchase or construct an equivalent asset. Often the asset being valued will
be less attractive than the alternative that could be purchased or constructed
because of age or obsolescence.
Where this is the case, adjustments may need to be made to the cost of the
alternative asset depending on the required basis of value. (282)
4.152 The World Bank Guidelines recommend using it in particular for valuations which
are not dealing with going concerns. (283) The replacement value is useful for many
different purposes. (284) It can be applied for determining market value or other values.
Usually, a 'depreciated replacement' approach will be appropriate. (285)
(c) Liquidation Value
4.153 The third type of an asset-based valuation is the liquidation value. It becomes
relevant when the valuation object does not have future profitability and its highest and
best use would be the sale of it. It is usually regarded as the lower limit of the value of
any asset. The World Bank Guidelines recommend using it for the valuation of companies
that do not have a proven record of profitability. (286) The principle is fairly
straightforward: the prices that could be obtained for the individual assets in a
liquidation sale are decisive. This corresponds to a common definition: 'Liquidation
value means the net amount that can be realised (after liquidation expenses) in either an
orderly or a forced sale of the business assets or some portion of them'. (287)
4.154 It is, however, not clear under which conditions the liquidation takes place, as
regards, for example, timing and marketing. It is obvious that sufficient time and
enhanced marketing activities contribute to achieving higher prices for liquidated assets.
P 207 In a forced sale scenario, neither of the two conditions works in favour of the owner.
(288) How should the different liquidation scenarios be reflected in the valuation? The
International Valuation Standards emphasize in their definition of liquidation value that
the conditions of the liquidation need to be identified clearly
The net amount that would be realized if a business is discontinued and its
assets are sold individually. The appropriate bases of value and any
appropriate additional qualifying assumptions should also be stated. (289)
4.155 As a general rule, the valuation premise is that all of the assets of the business will
be sold individually and that they will enjoy normal exposure to their appropriate
secondary market. (290) This scenario can be described as 'value as an orderly
disposition':
Value in exchange, on a piecemeal basis (not in part of a mass assemblage of
assets), as part of an orderly disposition; this premise contemplates that all
the assets of the business enterprise will be sold individually, and that they
will enjoy normal exposure to their appropriate secondary market. (291)
4.156 By contrast, if such an orderly dispossession is not possible, the value will be
determined as 'value as a forced liquidation'
Value in exchange, on a piecemeal basis (not in part of a mass assemblage of
assets), as part of a forced liquidation; this premise contemplates that the
assets of the business enterprise will be sold individually, and that they will
experience less than normal exposure to their appropriate secondary market.
(292)
4.157 It is characteristic in the liquidation scenario that the sale is an asset-by-asset sale
and not a sale of an overall business. (293) Goodwill and other unidentified intangible
values attached to the business as a whole are generally not considered. By contrast,
intangible assets that can be sold separately, like patents, trade-marks, copyrights, or
data bases, may have a positive liquidation value.
124
D. Transparency
4.158 Statements about value are generally based on a number of assumptions that have
a decisive influence on the result. All the standards and guidance documents on
valuation mentioned above emphasize that it is of utmost importance that the
P 208 assumptions and premises of the valuation are clearly disclosed and explained. (294)
Above all, it is necessary to report on the function of the valuer, the purpose of the
valuation, the basis of value, and the valuation date. The choice of the valuation method
must be explained, an adequate description of the procedures be carried out, and the
scope and quality of underlying data, as well as the extent of estimates and assumptions
together with considerations underlying them have to be set out. Working papers must
enable a knowledgeable third party to understand the result of the valuation and
estimate the effects on the valuation of any assumptions made. To the extent
simplifications are considered permissible, these are also to be demonstrated.
4.159 It is important to ensure transparency of the valuation and to shed light on what is
frequently an opaque process. (295) In this respect it is most welcome to see the recent
developments whereby tribunals delve more deeply into the quantum issues and explain
in greater detail the reasoning behind the quantum portion of their award. (296) This
could even be strengthened by specific comments by the tribunals on the work of the
experts and their valuation models in its award. (297) The high standards of ethics
contained in the respective standards for valuation experts and accountants could and
should be transferred to judicial proceedings when they reach the stage of determining
the amount of compensation or damages.
4.160 Furthermore, it is no longer accepted in international arbitrations that arbitrators
rely on their 'discretion' to cover a lack of preparedness to deal with and explain
economic principles. In ICSID arbitrations, this failure can amount to a ground for
annulment. (298) It is therefore necessary to dedicate sufficient time and attention to the
issue of calculation in order to help better understand the assumptions and the results.
Fortunately, in recent investment arbitration, a trend in this direction is already notable.
However, the lack of clarity in the distinction of different standards and bases of value
and the incorrect use of terms still represent a problem. It is therefore necessary to
increase these efforts and thereby contribute to more transparency and legal security. It
would also help to strengthen the general preventive function of international investment
P 209 law.
E. Experts in Arbitration Proceedings

4.161 Employing experts should help the tribunal better understand the complexities
involved in calculating compensation and damages (299) and has recently become the
rule rather than the exception, even though this increases the costs of resolving the
dispute and may slow the process. (300) The issue of how to make the best use of
valuation experts has attracted the attention in the international community of scholars
and practitioners. (301) The debate is furnished by the different traditions of common law
and civil law. While in the United States the use of party-appointed experts is the rule
and tribunal-appointed experts are fairly rare, the continental approach is for the
tribunal to appoint its own experts. (302)
4.162 In addition, different professional codes or codes of conduct apply to experts in
accountancy and other economic analyst, which raises a number of ethical questions.
(303) Such codes are also different from country to country which may lead to unequality
of arms in international proceedings. Also the interest of experts in future engagements
and financial rewards has been identified as a problem in terms of their objectivity and
impartiality. Party appointed experts may act as an advocate to further the position of
their clients, and try to influence the tribunal in the respective direction. (304) Not only
overt bias but also unconscious bias is regarded as a problem in the use of experts in
international arbitrations. (305) The Code of Ethical Principles for Professional Valuers'
summarize the fundamental principles of the integrity of the valuation process as follows:
It is fundamental to the integrity of the valuation process that those who rely
on valuations have confidence that those valuations are provided by valuers
P 210 who have the appropriate experience, skill and judgement, who act in a
professional manner and who exercise their judgement free from any undue
influence or bias. (306)
4.163 The professional valuers are expected to act with 'objectivity', thus not to allow
conflict of interest, or undue influence or bias to override professional or business
judgement. This does not mean that the valuation expert must always give an 'objective'
view on the value, as the objectivity or subjectivity of the value depends on the basis of
value as indicated by the legal rules applicable, but rather that the expert must strictly
follow the assignment made to him by the party or by the tribunal. On this basis, he or
she has to follow the above-mentioned rules of transparency and clarity.
4.164 Nevertheless, the valuations presented by the experts still often lead to divergent
opinions of value. (307) What should the tribunal do? In some cases, the tribunals set the
amount of compensation exactly halfway between the claimant's and the respondent's
valuations, (308) thus appearing to 'split the baby'. (309) This, of course, would encourage
125
the parties to overestimate or underestimate the claims.
4.165 One way to avoid this is the so-called 'final offer arbitration'. (310) According to this
approach, the tribunal calls for each party to propose to the tribunal the amount of
damages that the claimant is entitled to. The tribunal would then choose between the
two totals. The advantage of this process is that it forces parties to be more reasonable in
their positions or more realistic in their assessment of their positions. It is meant to
narrow down the differences between the parties and may even facilitate a settlement of
the dispute.
4.166 Another solution could be a tribunal-appointed expert who should evaluate the
numbers put forward by the parties. (311) However, the costs of such a tribunal-appointed
P 211 expert may be considerable. Furthermore, the parties may be concerned that the
independent expert will become de facto the fourth, and decisive, arbitrator on the
compensation or damages issue. (312) The continental practice of a tribunal-appointed
expert is therefore only advisable in exceptional cases in international investment
arbitration.
4.167 This is particularly true in view of the fact that in investment cases, claimants have
usually already employed their own party-appointed experts in the process of the
preparation and presentation of the claim. The decisive question then appears to be
whether the respondent also employs a party-appointed expert or not. If the respondent
also does so, to assign a third expert would in effect be a waste of costs and time. The
tribunal should rather find a way to assess and examine the two valuation reports,
whether by cross-examination or by additional orders to the parties. (313)
4.168 The most appropriate way to deal with this situation would be to compare the two
reports and identify those aspects of the valuation where there is agreement and where
there is disagreement. The tribunal could also request the experts to develop and submit
such lists of agreements and disagreements. (314) On this basis, it can make its own
assessment either in an oral hearing or by supplemental reports.
4.169 This way of proceeding would best correspond to and reflect the 'arbitration
dynamic'. (315) The outcome of the process may not reflect the absolutely correct number
corresponding to the valuation method as prescribed by the legal basis of the claim.
However, it is an appropriate way to arrive at a mutually acceptable and at the same
time carefully reasoned result. And it has to be kept in mind that also valuation experts
concede that '[b]usiness value and valuation is not an exact science. Opinions of value
will depend greatly upon the knowledge, skills, and experience of those practitioners
doing the appraisal.' (316)
4.170 In order to be in a position to come as close as possible to the most appropriate
result, an arbitral tribunal needs basic knowledge about the most important valuation
principles and methods which are known and applied in international valuation practice.
On this basis, it will be able to perform its task of applying the law and paying attention
also to economic principles. The following chapter will look at how international courts
P 211 and tribunals have met this challenge in practice.
References
1) S Pratt and A Nicolita, Valuing a Business. The Analysis and Appraisal of Closely Held
Companies (5th edn, New York: McGraw-Hill, 2008) 4.
2) J Fishman, S Pratt, and W Morrison, Standards of Value. Theory and Applications (2nd
edn, Hoboken, NJ: Wiley, 2013) 32.
126
3) In the United States, the Uniform Standards of Professional Appraisal Practice
(USPAP) were developed as a reaction to the debt crisis in the 1980s. USPAP was
adopted by Congress in 1989 and contains standards for all types of appraisal
services, including real estate, personal property, business, and mass appraisal.
Compliance is required for state-licensed and state-certified appraisers involved in
federally related real estate transactions. USPAP is updated every two years so that
appraisers have the information they need to deliver unbiased opinions of value.
See
<https://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/T
AF/USPAP.aspx>. In 2007, the American Institute of Certified Public Accountants
(AICPA) issued a Statement on Standards for Valuation Services (SSVS) No. 1 on
'Valuation of a Business, Business Ownership Interest, Security, or Intangible Assets'.
It establishes standards for AICPA members engaged to estimate the value of a
business, business ownership interest, security, or intangible assets in various
contexts, including litigation. See
<http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/Standards/
DownloadableDocuments/SS...>. See also M Kantor, Valuation for Arbitration—
Compensation Standards, Valuation Methods and Expert Evidence (The Hague: Kluwer,
2008) 13. The full text of the Statement on Standards for Valuation Services No. 1 is
reprinted as Appendix 2, 319 et seq; in Germany, the Institute of Certified
Accountants (Institut der Wirtschaftsprüfer, IDW) published principles on carrying
out business valuations, the Grundsätze zur Durchführung von
Unternehmensbewertungen (IDW S1), on 28 June 2000, reprinted in: H Haeseler and F
Kros, Unternehmensbewertung: Grundlagen der Bewertung von Unternehmen und
Beteiligungen (Vienna: Orac, 2002) 111 et seq; see also the detailed commentary in
the IDW Handbook of 2002, see Institut der Wirtschaftsprüfer (ed.), Wirtschaftsprüfer-
Handbuch 2002, vol. II (2002) 1–149; in the United Kingdom, the Royal Institution of
Chartered Surveyors is the standard setter for valuation. It started early to
incorporate international standards into its national standard. See Royal Institution
of Chartered Surveyors, RICS Valuation—Professional Standards Global. January 2014
(London: Royal Institution of Chartered Surveyors, 2015).
4) Fédération des Experts Comptables Européens, Guide for Carrying out Business
Valuations (Brussels, July 2001), available at
<http://www.fee.be/images/publications/sme-smp/Business_Valuation_-
_a_guide_for_SMEs1632005411115.PDF>.
5) See IVSC, International Valuation Standards (London: IVSC, 2007). These standards
have been widely reflected in publications on valuation in international investment
arbitration, see, e.g., M Kantor, above, n. 3, 3–4, 8–9, 13, 31, 60, 97, 131, 342; see more
recently R Walck, 'Methods of Valuing Losses' in M Bungenberg, J Griebel, S Hobe,
and A Reinisch (eds), International Investment Law. A Handbook (Baden-Baden:
Nomos, 2015) 1045, 1049; R Walck, 'Logic and Ethics in the Practice of Expert Witness
Service' (2016) 3(1) Journal on Damages in International Arbitration 149, 165.
6) IVSC, International Valuation Standards 2011 (London: IVSC, 2011) 5.
7) IVSC, International Valuation Standards 2013 (London: IVSC, 2013).
8) See the website of the IVSC, <https://www.ivsc.org>.
9) See <https://www.ivsc.org/about>.
10) See <https://www.ivsc.org/about/members/our-members>.
11) See <https://www.ivsc.org/about>.
12) See the website of the International Accounting Standards Board (IASB),
<http://www.ifrs.org/About-us/Pages/IFRS-Foundation-and-IASB.aspx>.
13) International Financial Reporting Standards (IFRS), see
<http://www.iasplus.com/en/standards/ifrs>; see also A Mirza et al, IFRS—Practical
Implementation Guide and Workbook (2nd edn, Hoboken, NJ: Wiley, 2010).
14) In the European Union (EU), the IFRS (formerly IAS) are binding for all companies
listed on the stock exchange since 2005, see Regulation (EC) No. 1606/2002 of the
European Parliament and of the Council of 19 July 2002 on the application of
international accounting standards [2002] OJ L243/1. This should contribute to a
better functioning of the internal market and to the efficient and cost-effective
functioning of the capital market as well as to the protection of investors and the
maintenance of confidence in the financial markets. Furthermore, the member
states are encouraged to expand the use of those standards also to other
companies. However, there is some doubt whether the complex IFRS which require
the inclusion of a lot of information will be reasonable for small and medium-sized
companies. In the United States, the American Securities and Exchange Commission
(SEC) still requires compliance with the US-GAAP so that comparability is only to be
reached by gradual approximation. However, as Koller states: 'Fortunately, …
international accounting differences have rapidly diminished. Most of the world's
major economies have now adopted either International Financial Reporting
Standards (IFRS) or U.S. generally accepted accounting principles (GAAP), and these
two standards are rapidly converging.' T Koller, M Goedhart, and D Wessels,
Valuation: Measuring and Managing the Value of Companies (6th edn, New York: Wiley
& Sons, 2015) 621.
15) IVS 2013, above, n. 7, 12.
16) IVSC, 'Glossary', see <https://www.ivsc.org/standards/glossary>.
127
17) IVS 2013, above, n. 7, 12.
18) Ibid.
19) IVSC, Code of Ethical Principles for Professional Valuers (London: IVSC, 2011).
20) IVS 2013, above, n. 7, 12 (emphasis in original).
21) Ibid, at 17.
22) Ibid.
23) See the discussion of the bases of value and valuation approaches further below,
Sections B and C.
24) World Bank, 'Legal Framework for the Treatment of Foreign Investment, vol 2, Report
to the Development Committee and Guidelines on the Treatment of Foreign Direct
Investment' (1992) 31 ILM 1363.
25) See Section IV, entitled 'Expropriation and Unilateral Alterations or Termination of
Contracts', ibid, at 1382–3.
26) Section IV(2), ibid, at 1382.
27) Section IV(4), ibid, at 1382.
28) See World Bank, above, n. 24, 1368 and 1376 et seq.
29) Section IV(6), bullet 2, ibid, at 1383; see the explanation in the above-mentioned
Report, (1992) 31 ILM 1363, 1376.
30) Section IV(6), bullet 3, (1992) 31 ILM 1383.
31) Section IV(6), bullet 4, ibid, 1382.
32) Section IV(6), bullet 5, ibid, 1382–3; see the explanation in the above-mentioned
Report (1992), ibid, 1363, 1377.
33) World Bank, 'Legal Framework for the Treatment of Foreign Investment, vol. 1, Survey
of Existing Instruments' (Washington: World Bank Group, 1992) 7.
34) See, e.g., P Weil, 'The State, the Foreign Investor, and International Law. The No
Longer Stormy Relationship of a Ménage à Trois' (2000) 15 ICSID Rev.-FILJ 401 et seq.
35) See, e.g., the rejection of the DCF method in Wena v Egypt, although one of the hotels
had already been in operation for eighteen months. Wena Hotels Ltd v Egypt, Award
of 8 December 2000 para. 123; see also Técnicas Medioambientales SA v Mexico,
Award of 29 May 2003, para. 186. But see the explicit reference to the Worldbank
Guidelines in Rumeli v Kazakhstan, Award of 29 July 2008, para. 811, and in Tidewater
v Venezuela, Award of 13 March 2015, paras 139, 144, 152–65, 185.
36) See the Preamble of the Convention Establishing the Multilateral Investment
Guarantee Agency of 11 October 1985 (1985) 24 ILM 1605; see also I Shihata, 'The
Multilateral Investment Guarantee Agency (MIGA) and the Legal Treatment of
Foreign Investment' (1987) 203 RdC 95; H Rindler, Der Schutz von
Auslandsinvestitionen durch die MIGA.Unter besonderer Berücksichtigung der
Beteiligungsgarantie des Bundes und des völkerrechtlichen Investitionsschutzes
(Vienna: Manz, 1999) 112 et seq.
37) Article 11(a)(ii) MIGA Convention.
38) Article 11(a)(iii) MIGA Convention.
39) See, e.g., the model Contract of Guarantee for Equity Investments,
<http://www.miga.org/documents/disclosure/Contract%20of%20Guarantee%20for%
20Equity%20Investments.pdf>.
40) See Article 2.07 of the Operational Regulations (as amended, 6 January 2015)
<http://www.miga.org/documents/Operations-Regulations.pdf>.
41) See ibid, Article 2.09.
42) Article 4.4 of the General Conditions of Guarantee for Equity Investments (fifth
revision, 1 October 2007),
<http://www.miga.org/documents/disclosure/Contract%20of%20Guarantee%20for%
20Equity%20Investments.pdf>.
43) Article 16 MIGA Convention.
44) See below, Chapter 5, Section D(4), paras 5.302 et seq.
45) <http://www2.unog.ch/uncc/>. See generally V Heiskanen, 'The United Nations
Compensation Commission' 296 RdC (2002) 255; H Van Houtte et al, 'The United
Nations Compensation Commission' in P de Greiff (ed.), The Handbook of Reparations
(Oxford: Oxford University Press, 2006) 321–89; A Gattini, 'The United Nations
Compensation Commission: Old Rules, New Procedures on War Reparations' (2002)
13 EJIL 161–81; N Wühler, 'The United Nations Compensation Commission; A New
Contribution to the Process of International Claims Resolution' (1999) 2 Journal of
International Economic Law 249–72; N Ulmer, 'Claimant's Expectations from the
United Nations Compensation Commission'(1998) 15 Journal of International
Arbitration 7–14; P Malanczuk, 'International Business and New Rules of State
Responsibility? The Law Applied by the United Nations (Security Council)
Compensation Commission for Claims Against Iraq' in K Boeckstiegl (ed.),
Perspectives of Air Law, Space Law and International Business Law for the Next
Century: Proceedings of an International Colloquium Cologne, 7–9 June 1995 to
Celebrate the 70th Anniversary of the Institute of Air and Space Law and the 20th
Birthday of the Chair for International Business Law (Cologne et al: Hexmann, 1996)
117–45; R Lillich (ed.), The United Nations Compensation Commission (Irvington, NY:
Transnational, 1995).
46) See further R Lillich, above, n. 45.
47) Decision taken by the Governing Council of the United Nations Compensation
Commission during the resumed Fourth Session, at the 23rd meeting, held on 6
March 1992. UN Doc. S/AC.26/1992/9.
128
48) Ibid, para. 1.
49) Ibid, para. 2.
50) Ibid, para. 6.
51) Ibid, para. 4.
52) See D Caron and B Morris, 'The UN Compensation Commission: Practical Justice, Not
Retribution' (2002) 13 EJIL 183–99.
53) See R Mundkur and M Mucchetti, 'The Intersection of International Accounting
Practices and International Law: The Review of Kuwaiti Corporate Claims at the
United Nations Compensation Commission' (2001) 16 American University
International Law Review 1195–239; see also H Van Houtte et al, 'The United Nations
Compensation Commission' in P de Greiff (ed.), The Handbook of Reparations
(Oxford: Oxford University Press, 2006) 321–89; a comprehensive and structured
analysis of the valuation practice of the UNCC is, however, still missing.
54) On the judicial character of the UNCC see D Campanelli, 'The United Nations
Compensation Commission: Reflections on its Judicial Character' (2005) 4 The Law
and Practice of International Courts and Tribunals 107–39; C Brower and R Lillich,
'Opinion Regarding the Jurisdiction and Powers of the United Nations Compensation
Commission' (1997) 38 Virginia Journal of International Law 25–50.
55) Decision No. 9 taken by the Governing Council of the UNCC, above, n. 47, para. 8:
'Where Iraq itself was a contracting party and breached its contractual obligations,
Iraq is liable under general contract law to compensate for all actual losses suffered
by the other contracting party, including, inter alia, losses relating to specially
manufactured goods. Future lost profits may be compensable in such a case if they
can be calculated under the contract with reasonable certainty. An alternative
measure of damages may apply where a governing contract specifically provides for
a particular measure, except that the amount of compensation provided should not
exceed the loss actually suffered.'
57) Ibid, para. 12.
58) Ibid, para. 15.
59) Ibid, para. 16.
60) Ibid, para. 17.
61) Ibid, para. 18.
62) Ibid, para. 19.
63) See, for the different possibilities to apply the 'income-approach', below, Chapter 5,
Section B.
64) For a comprehensive summary of valuation approaches by the UNCC see IOM (ed.),
Property Restitution and Compensation. Practices and Experiences of Claims
Programmes (Geneva: IOM, 2008) 181 et seq; for a survey of the so-called 'E 4' claims
on business losses see R Mundkur and M Mucchetti, above, n. 53, 1195–239.
65) See above, para. 4.15, the definition of 'value' by the USPAP. See also the definition
in the 'Glossary of Terms for International Valuation Standards' in IVSC, International
Valuation Standards (London: IVSC, 2013) 421: 'The price most likely to [be]
concluded by the buyers and sellers of a good or service that is available for
purchase. Value establishes the hypothetical or notional price that buyers and
sellers are most likely to conclude for the good or service. Thus, value is not a fact,
but an estimate of the likely price to be paid for a good or service available for
purchase at a given time.'
66) S Pratt and A Nicolita, above, n. 1, 41.
67) 'IVS Framework' in IVS 2013, above, n. 7, 17; see also 'Glossary, above, n. 16; similarly
FEE Guide (2001) 5, 10.
68) A Pratt and A Nicolita, The Lawyer's Business Valuation Handbook (2nd edn, Chicago:
ABA, 2010) 1.
69) See 'IVS Framework', in IVS 2013, above, n. 7, 17.
70) Ibid.
71) See ibid.
72) S Pratt and A Nicolita, above, n. 1, 40 (emphasis in original); see also T Copeland et
al, Valuation: Measuring and Managing the Value of Companies (New York: Wiley &
Sons, 2000) 3–4; S Gabehart and R Brinkley, The Business Valuation Book (New York:
Amacom, 2002) 29–30; T West and J Jones (eds), The Handbook of Business Valuation
(New York: Wiley & Sons, 1999) 3–4.
73) The IVS 2013 distinguish three categories of the basis of valuation: (1) market value,
(2) investment value or special value, and (3) fair value. See IVS 2013, above, n. 7, 17.
75) J Fishman, S Pratt, and W Morrison, above, n. 2, 2.0.
76) J Fishman, S Pratt, and W Morrison, above, n. 2, 20–1.
129
77) Damodaran seems to only accept 'value in exchange' objective and thus market
value as a standard. He rejects the 'bigger fool' theory, which argues that the value
of an asset is irrelevant as long as there is a 'bigger fool' around to buy it. As
valuation approaches, he only accepts (1) the DCF method, (2) the relative valuation,
i.e. multiples, and (3) contingent claim valuation using option pricing models. This is
in contrast to the IVS and other authors who would also accept the asset-based
approach, which he touches only in passing. The reason may be that Damodaran, at
least in his book, Investment Valuation, concentrates only on three purposes of
valuation: (1) portfolio management, (2) acquisition analysis, and (3) corporate
finance. These contexts are rather different from a situation of investment
arbitration, where the question is to evaluate compensation or damage relating to
events in the past and not to give advice for investment or managerial decisions for
the future. However, for valuations on market value basis in the context of
expropriations, his insights are of course most useful. See A Damodaran, Investment
Valuation: Tools and Techniques for Determining the Value of Any Asset (3rd edn,
Hoboken, NJ: Wiley, 2012) 1–2, 6–9, 22.
78) S Pratt and A Nicolita, above n. 1, 39–40.
79) Other premises include 'value as a going concern, 'value as an assemblage of
assets', 'value as an orderly disposition', and 'value as a forced liquidation'. See S
Pratt and A Nicolita, above, n. 68, 21–2.
80) See 'IVS General Standards' in IVS 2013, above, n. 7, 26.
81) J Fishman, S Pratt, and W Morrison, above, n. 2, 21.
82) See 'IVS Framework', in IVS 2013, above, n. 7, 18 (emphasis in original). See also
'Glossary', above, n. 16. The different elements of this definition are explained and
defined in more detail in 'IVS Framework', in IVS 2013, above, n. 7, 18–19.
83) See 'IVS Framework', in IVS 2013, above, n. 6, 18 (emphasis in original).
84) Ibid, at 20.
85) Ibid.
86) Ibid, at 20.
87) International Glossary of Business Valuation Terms, AICPA Statement, above, n. 3, 44.
88) 'Concepts Fundamental to Generally Accepted Valuation Principles' in IVSC,
International Valuation Standards (London: IVSC, 2007) 28.
89) See 'IVS Framework', in IVS 2013, above, n. 7, 21. See also 'Glossary', above, n. 16.
90) Ibid.
91) See 'Glossary', above, n. 16.
93) Ibid.
94) S Pratt and A Nicolita, above, n. 1, 41; see also Pratt and Nicolita, Lawyer's Business
Valuation, above, n. 68, 2; see also J Fishman, S Pratt, and W Morrison, above, n. 2, 22.
95) S Pratt and A Nicolita, above, n. 1, 41–2.
96) See RICS, Valuation—Professional Standards January 2014, above, n. 3, 76, 99. This is
even more notable as the IVS 2013 are included as an annex to the same RICS
Professional Standards.
97) Articles 31 and 32 of the Vienna Convention on the Law of Treaties.
98) See Khan Resources v Mongolia, Award of 2 March 2015, paras 409, 420.
99) See above, Chapter 2, Section C(1), paras 2.98–2.101.
100) See above, Chapter 3, Section B(1)(b), paras 3.159–3.173.
101) 'IVS Framework', in IVS 2013, above, n. 7, 17.
102) See 'IVS Framework', in IVS 2013, above, n. 7, 20–1; see also 'Glossary', above, n. 16.
103) RICS, Valuation—Professional Standards January 2014, above, n. 3.
104) Ibid, at 88.
105) S Pratt and A Nicolita, above, n. 1, 43; see also S Gabehart and R Brinkley, above, n.
72, 25 et seq; T West and J Jones, above, n. 72, 3.
107) Azurix Corporation v Argentina, Award of 14 July 2006.
108) Ibid, para. 426.
109) Ibid, para. 429.
110) Vivendi v Argentina (Vivendi II), Award of 20 August 2007.
111) Ibid, para. 8.3.12-3.
112) See further below, Chapter 5, Section C, paras 5.274 et seq.
113) Vivendi v Argentina (Vivendi II), Award of 20 August 2007, para. 8.3.19.
115) See the definition above, para. 4.45, as well as the example referred to in para. 4.46
and the subsequent discussion.
117) Ibid; see also 'Glossary', above, n. 16.
119) A Scandinavian broadcasting enterprise had agreed to pay US$ 400 million for the
company which was shortly afterwards expropriated by the Czech Republic. The
tribunal deducted a number of elements from this price, including the synergistic
effects, and awarded US$ 200 million as representing the company's market value
at the expropriation date. See CME v Czech Republic, Final Award on Damages of 14
130
121) B Garner (ed.), Black's Law Dictionary (10th edn, St. Paul, MN: Thompson West, 2014)
1380.
122) Ibid, at 422. See also J Fishman, S Pratt, and W Morrison, above, n. 2, 18.
123) A Baum, N Nunnington, and D Mackmin, The Income Approach to Property Valuation
(London: EG Books, 2006) 69.
126) See, e.g., the numerous cases against Argentina under the auspices of ICSID. In many
of them, the basis of the investment was a long-term contract which was interfered
with by the unlawful Argentine measures. See, e.g., CMS v Argentina, Award of 12 May
2005; LG&E v Argentina, Decision on Liability of 3 October 2003.
127) See Bridas v Turkmenistan, Partial Award of 25 June 1999, published in parts in R D
Bishop, J Crawford, and W M Reisman, Foreign Investment Disputes: Cases, Materials
and Commentary (The Hague: Kluwer Law International, 2005) 1270 et seq.
128) This is frequently the case in public long-term contracts. See H Wöss, A Rivera, P
Spiller, and S Dellepiane, Damages in International Arbitration under Complex Long-
term Contracts (Oxford: Oxford University Press, 2014) 34 et seq, 253.
130) See 'IVS 102 Implementation', in IVS 2013, above, n. 7, 33.
131) See 'IVS Framework', in IVS 2013, above, n. 7, 24 et seq; see also the 'IVS 200 Business
and Business Interests', in IVS 2013, above, n. 7, 43 et seq; see also M Kantor, above,
n. 3, 8 et seq.
132) 'IVS Framework', in IVS 2013, above, n. 7, 24.
133) See 'Concepts Fundamental to Generally Accepted Valuation Principles', in IVS 2013,
above, n. 7, 33.
134) See also T Waelde and B Sabahi, 'Compensation, Damages, and Valuation' in P
Muchlinski et al (eds), The Oxford Handbook of International Investment Law (Oxford:
Oxford University Press, 2008) 1049.
136) Ibid.
137) See 'IVS 200 Business and Business Interests', in IVS 2013, above, n. 7, 43.
138) Ibid, at 44.
139) Ibid, at 44.
140) Ibid.
141) See discussion and examples below, paras 4.86–4.87.
142) See 'IVS 200 Business and Business Interests', above, n. 137, 44.
143) See above, paras 4.66–4.69.
144) In an often-quoted judgment the German Federal Court held that there was no
market for commercial enterprises, because due to their diversity the formation of
a market price was not possible. See judgment by the BGH of 17 January 1973 IV ZR
142/70, DB 1973, 563: 'Es gibt für Handelsunternehmen wegen ihrer individuellen
Verschiedenheit keinen Markt, auf dem sich ein Preis bilden könnte'. See also M
Schäfer, Enteignungsstandard und Unternehmensbewertung bei Enteignungen im
allgemeinen Völkerrecht (Heidelberg: Verlag Recht und Wirtschaft, 1997) 140 with
further references.
145) S Gabehart and R Brinkley, above, n. 72, 39–40.
146) T West and J Jones, 'The Market Approach Using Public Company Data' in T West and J
Jones (eds), The Handbook of Business Valuation (New York: Wiley & Sons, 1999) 197 et
seq.
147) A Bealmear, 'Machinery and Equipment Valuation Approaches and Methods' in T
West and J Jones (eds), The Handbook of Business Valuation (New York: Wiley & Sons,
1999) 143 et seq, 146–7.
148) See the detailed analysis of the comparability criterion by M Kantor, above, n. 3,
119–30.
149) See, e.g., IFRS 13:77: 'A quoted market price in an active market provides the most
reliable evidence of fair value and is used without adjustment to measure fair value
whenever available, with limited exceptions.'
151) Pratt and Nicolita, Lawyer's Business Valuation, above, n. 66, 196 et seq.
152) The expected return is the market capitalization rate. If an increase of the dividend
is also expected, the valuation must also include a growth rate. See R Brealey and S
Myers, Corporate Finance (11th edn, Boston et al: McGraw-Hill, 2014) 80–1.
153) S Pratt and A Nicolita, above, n. 1, 315; T Koller, M Goedhart, and D Wessels, above, n.
14, 5.
154) T Waelde and B Sabahi, above, n. 134, 1049, 1070–1 with further references.
155) See IVS 200 Businesses and Business Interests, in IVS 2013, above, n. 7, 43.
156) See above, Section B(b)(ii), para. 4.68–4.69.
157) Earning before Interest and Taxes.
158) Earning before Interest, Taxes, Depreciations and Amortization.
159) A Damodaran, above, n. 77, 453; S Pratt and A Nicolita, above, n. 1, 203 et seq.
160) See A Damodaran, above, n. 77, 453 et seq. In the chapter on 'Relative Valuation' he
deals in detail with the advantages and disadvantages of multiples, emphasizing (at
453) that '[w]hile multiples are easy to use and intuitive, they are also easy to
misuse'.
131
161) T West, 'Rules of Thumb: What They Are and How to Use Them' in T West and J Jones
(eds), The Handbook of Business Valuation (New York: Wiley & Sons, 1999) 150, 153.
162) S Pratt and A Nicolita, above, n. 1, 56; A Damodaran, above, n. 77, 1; T Koller, M
Goedhart, and D Wessels, above, n. 14, 103; S Gabehart and R Brinkley, above, n. 72,
35–6; W Lieblich, 'Determining the Economic Value of Expropriated Income-
Producing Property in International Arbitrations' (1991) 8 Journal of International
Arbitration 59, 61 et seq.
163) See 'IVS Framework', in IVS 2013, above, n. 7, 58 (emphasis in original).
164) Ibid.
165) See A Damodaran, above, n. 77, 6.
166) Ibid, at 11 et seq; S Pratt and A Nicolita, above, n. 1, 56; T Koller, M Goedhart, and D
Wessels, above, n. 14, 103.
167) Lieblich, who considered this 'accounting concept' as inappropriate for the
purposes of valuation, was critical towards the profits as the basis for measuring
future income. See W Lieblich, above, n. 162, 62.
168) See T Sénéchal, 'Forecasting Technique in Business Interruption Claims: Solving the
Creative Accounting Dilemma?' (2007) TDM 4(6) <http://www.transnational-dispute-
management.com>.
169) T Koller, M Goedhart, and D Wessels, above, n. 14, 18 et seq.
170) A Rappaport, Creating Shareholder Value: The New Standard for Business
Performance (New York: The Free Press, 1986, 2nd edn, 1998).
172) Ibid.
173) See 'IVS 200 Business and Business Interests', in IVS 2013, above, n. 7, 44.
174) This is also called 'operating income'. See S Gabehart and R Brinkley, above, n. 72,
35.
175) Ibid.
176) S Pratt and A Nicolita, above, n. 1, 47; Pratt and Nicolita, Lawyer's Business Valuation,
above, n. 66, 11.
177) 'Value in place, as part of a mass assemblage of assets, but not in current use in the
production of income, and not as a going-concern business enterprise.' S Pratt and A
Nicolita, above, n. 1, 47.
178) Ibid, at 47–8; see further below, at 'Liquidation Value'.
179) Ibid, at 48; see further below, at 'Liquidation Value'.
180) See RICS, Valuation—Professional Standards January 2014, above, n. 3, 99.
181) S Gabehart and R Brinkley, above, n. 72, 28.
182) World Bank Guidelines on the Treatment of Foreign Investment, section IV(6), first
indent, (1992) 31 ILM 1363, 1383.
183) Decision No. 9 taken by the Governing Council of the UNCC, above, n. 47, para. 19.
185) Ibid, at 298.
186) A Rappaport, above, n. 170, 50; T Koller, M Goedhart and D Wessels, above, n. 14, 165.
187) T Koller, M Goedhart and D Wessels, above, n. 14, 190 et seq.
188) S Pratt and A Nicolita, above, n. 1, 86: 'The history of the company should put the
business in the proper context for the user of the valuation analysis. A relatively
brief history will suffice in most cases. The history should indicate how long the
company has been in business and some chronology of major changes, such as form
of organization, controlling ownership, location of operations, and lines of business.
Sometimes predecessor companies are a relevant part of the background. A
detailed explanation of the history may be required in some instances, and
sometimes certain transactions that fundamentally contributed to the company's
composition, as of the valuation date, should be included.'
189) See, to the contrary, however, UNCC Guidelines for Valuation, Decision of the
Governing Council No. 9, above, paras 4.26–4.27.
190) A Rappaport, above, n. 170, 50; T Koller, M Goedhart, and D Wessels, above, n. 14, 430
et seq.
191) R Brealey and S Myers, above, n. 152, 254 et seq.
193) Ibid.
194) Ibid.
195) The forecast assumptions must be analysed for their relevance beyond the time
horizon of the first phase. This concerns, in particular, changes on the sales and
procurement markets, the product and market potential, the market and
competitive position of the products, future market opportunities, future marketing
costs, reasearch and development costs, pensions, and reflection of cost reduction
and restructuring measures. Ibid, at 192 et seq.
196) Ibid. If there are too many uncertainties, the sale in an orderly liquidation can also
be assumed which would represent the minimal value at the end of the forecast
period.
197) Ibid, at 213 et seq.
198) See R Brealey and S Myers, above, n. 152, 18. For a comprehensive explanation and
analysis of practical problems with the selection and application of an appropriate
discount rate, see ibid, at 18 et seq, and 105 et seq.
199) Ibid, at 20.
132
200) Ibid, at 24.
201) Ibid, at 20.
203) R Brealey and S Myers, above, n. 152, 22.
205) Pratt and Nicolita use the terms 'systematic' and 'unsystematic' risk. See ibid, at
185. Brealey and Myers prefer the terms 'market' and 'specific' risk and explain in
footnotes that 'market risk' is also called 'systematic risk' or 'undiversifiable risk'.
'Specific risk' is also called 'unsystematic risk', 'residual risk', 'unique risk', or
diversifiable risk'. See R Brealey and S Myers, above, n. 152, 174; see also W De
Maiseneire and L Keuleneer, 'Valuation of Companies: Discounted Cash Flow,
Adjusted Present Value, Decision-Tree Analysis and Real Options' in L Keuleneer and
W Verhoog (eds), Recent Trends in Valuation (Chichester: Wiley & Sons, 2003) 7, 12.
206) S Pratt and A Nicolita, above, n. 1, 185–7; see also M. Kantor, above, n. 3, 145 et seq.
207) M Kantor, above, n. 3, 143.
208) See further in detail below.
210) Ibid, at 183 (footnote omitted).
213) Ibid, at 144.
214) Ibid, at 155.
215) Doing otherwise 'would quickly put them into the ranks of the unemployed', as
Kantor puts it. See ibid, at 157.
216) Pratt and Nicolita, Lawyer's Business Valuation, above, n. 66, 121; S Pratt and A
Nicolita, above, n. 1, 184–6.
219) R Brealey and S Myers, above, n. 152, 190 et seq; W De Maiseneire and L Keuleneer,
above, n. 205, 7, 12 et seq.
221) Ibid, at 174.
222) T Koller, M Goedhart, and D Wessels, above, n. 14, 626.
223) S Pratt and A Nicolita, above, n. 1, 187; FEE Guide (2001) 21.
225) See the discussion on 'country risk' further in Section (iv).
226) The 'Standard & Poor's 500' is a stock index which consists of a diversified portfolio
of different stocks. See S Pratt and A Nicolita, above, n. 1, 187.
227) R Brealey and S Myers, above, n. 152, 178; S Pratt and A Nicolita, above, n. 1, 187; W
De Maiseneire and L Keuleneer, above, n. 205, 7, 12.
228) See A Rappaport, above, n. 170, 58; R Brealey and S Myers, above, n. 152, 167.
230) Ibid, at 222.
231) Ibid, at 218 et seq; W De Maiseneire and L Keuleneer, above, n. 205, 7, 14.
232) One of the additional refinements is that the present value of a risky project
depends also on the covariance of the cash flows with the market rates of return.
See further R Brealey and S Myers, above, n. 152, 175 et seq.
233) The CAPM, already developed in the 1960s, is today widely used in economic
practice. It does not, however, consider a number of influential factors. Therefore,
other theories have also gained ground, such as the arbitrage pricing theory which
also includes macroeconomic factors, such as the level of industrialization, the
inflation rate, and the difference between long-term and short-term interest. The
different theories have, however, two important aspects in common: a) investors ask
higher rates of return for riskier projects, and b) investors dislike taking risks that
cannot be diversified. See more details in ibid, at 204 et seq and W De Maiseneire
and L Keuleneer, above, n. 205, 7, 15 et seq.
235) See, e.g., the collection by A Damodaran, Betas by Sector,
<http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html>.
See also the online data base Betas Intercom, <http://betas.intercom.net>.
237) Ibid, at 61.
238) T Koller, M Goedhart, and D Wessels, above, n. 14, 129, 209–11; M Kantor, above, n. 3,
146.
240) H Wöss et al, above, n. 128, 248 et seq; see also Anne van Aaken, 'International
Investment Law between Commitment and Flexibility: A Contract Theory Analysis'
(2009) 12 Journal of International Economic Law 507, 523.
241) T Koller, M Goedhart, and D Wessels, above, n. 14, 729; A Damodaran, above, n. 77,
167–77.
242) A Damodaran, above, n. 77, 167.
243) Ibid. More sceptical about using simply the sovereign risk premium are Koller,
Goedhart and Wessels, as in many sectors of the economy, such as consumer goods
or raw-materials, cash flows are only weakly correlated with local government bond
payments. T Koller, M Goedhart, and D Wessels, above, n. 14, 734.
133
244) A Damodaran, above, n. 77, 168.
245) T Koller, M Goedhart, and D Wessels, above, n. 14, 729; A Damodaran, above, n. 77,
169. Damodaran notes, however, while this approach has intuitive appeal, it may be
misleading, as some risky emerging markets have low standard deviations for their
equity markets because the markets are illiquid. See A Damodaran, above, n. 77,
169.
246) Damodaran believes that the larger country risk premium emerging from this
approach is the most realistic for the immediate future, but that country risk
premiums will change over time, as countries can mature and become less risky. A
Damodaran, above, n. 77, 170–1.
248) Ibid, at 723.
249) Ibid, at 721.
250) Ibid, at 723.
251) Ibid, at 721.
253) S Gabehart and R Brinkley, above, n. 72, 24; Pratt and Nicolita, Lawyer's Business
Valuation, above, n. 66, 109.
254) See 'IVS Framework', in IVS 2013, above n. 7, 25.
257) Pratt and Nicolita, Lawyer's Business Valuation, above, n. 68, 113.
258) S Gabehart and R Brinkley, above, n. 72, 24; see also Decision No. 9 taken by the
Governing Council of the UNCC, above, n. 47, para. 15.
259) See in this context also the problems of 'creative accounting' as discussed in T
Sénéchal, above, n. 168.
261) World Bank (ed.), 'Legal Framework for the Treatment of Foreign Investment', vol. 2
(31 ILM 1363, 1377, 1992). The Guidelines recommend using the book value only in
cases where such book value has only recently been assessed. Then it can be
regarded as providing an acceptable approximation to the replacement value or
other market-related value.
262) See J S McCosker, 'Book Values in Nationalization Settlements' in R Lillich (ed.),
Valuation of Nationalized Property in International Law, vol. 2 (Charlottesville:
University Press of Virginia, 1973) 36, 48; S Gabehart and R Brinkley, above, n. 72, 24.
263) W Lieblich, above, n. 162, 66 et seq.
264) See, e.g., S Gabehart and R Brinkley, above, n. 72, 24; W Lieblich, above, n. 162, 66 et
seq.
265) See J S McCosker, above, n. 262, 36, 51.
266) S Pratt and A Nicolita, above, n. 1, 352; see also J M Risius, Business Valuation: A
Primer for Legal Professionals (Chicago: ABA Publishing, 2008) 23.
267) W Lieblich, above, n. 162, 69 with further references.
268) T R Stauffer, 'Valuation of Assets in International Takings' (1996) 17 Energy LJ 459.
269) See ibid, at 483.
270) T R Stauffer refers in particular to the proposals made by B Lev and T Sougioannis,
'Industrial Capitalization Amortization and Value-Relevance of R&D' (1996) 21 J of
Acct & Econ 107 et seq. See also T R Stauffer, 'Economic Profitability of Oil
Companies' (1993) XVII OPEC Review 163 et seq. The US-GAAP would recognize such
booking, if it is disclosed appropriately.
271) This is particularly true for small and medium-sized companies. T R Stauffer, above,
n. 268, 468.
272) As, e.g., in the case of an oil rig. Ibid, at 469.
273) In the 1980s, more than 200 oil companies were evaluated for a number of years on
the order of the American SEC. These publications allow a comparison of the book
values and the DCF values of the companies which actually were not very different
from each other. See ibid, at 475.
274) E Linberg and S A Ross, 'Tobin's “q” and Industrial Organization' (1981) 54 Journal of
Business 1.
275) T R Stauffer, above, n. 268, 473 (emphasis in original).
276) 'Oil companies have not sold above conformed book value for almost 20 years.
There was considerable variability, however, and a few firms were valued higher
than book value in the later 1980s. It was rare, but those are the exceptions which
“prove” the rule.' Ibid, at 477.
277) United States Securities and Exchange Commission (SEC), Accounting Series Release
No. 253: Disclosure of Oil and Gas Reserves and Operations (1978). See the insightful
analysis by J P Boone, 'Oil and Gas Reserve Value Disclosures and Bid-Ask Spreads'
(1998) 17 Journal of Accounting and Public Policy 55.
278) Ibid, at 486.
134
279) As a variant of the book value method, the repayment of the investment undertaken
is sometimes seen. See P D Friedland and E Wong, 'Measuring Damages for
Deprivation of Income-Producing Assets: ICSID Case Studies' (1991) 6 ICSID Rev.-FILJ
400, 405, in footnote 22, referring to Benvenuti & Bonfant v Congo, Award of 15 August
1980 (1993) 1 ICSID Reports 330.
280) L T Wells, 'Double Dipping in Arbitration Awards? An Economist Questions Damages
471, 475.
281) See 'Glossary', above, n. 16; see also World Bank, above, n. 24, 1383; Decision No. 9
taken by the Governing Council of the UNCC, above, n. 47, para. 15.
283) World Bank, above, n. 24, 1377.
284) The Glossary of the IVS defines the 'cost approach' as: ' 'A valuation approach based
on the economic principle that a buyer will pay no more for an asset than the cost
to obtain an asset of equal utility, whether by purchase or by construction'. See
'Glossary', above, n. 16.
285) See the definition of 'depreciated replacement cost method': 'A method under the
cost approach that indicates value by calculating the current replacement cost of
an asset less deductions for physical deterioration and all relevant forms of
obsolescence.' See 'Glossary', above, n. 16. See also Decision No. 9 taken by the
Governing Council of the UNCC, above, n. 47, para. 15: 'Replacement value would not
normally allow for replacement of an old item with a new one'.
286) World Bank, above n. 281, section IV(6), third indent, 1383.
287) Pratt and Nicolita, Lawyer's Business Valuation, above, n. 68, 13.
288) S Gabehart and R Brinkley, above, n. 72, 28–9.
291) S Pratt and A Nicolita, above, n. 1, 47–8.
292) Ibid, at 48.
294) The standard setters on valuation pay a lot of attention to this aspect and regularly
revise and extend their respective rules on valuation reporting and their codes of
conduct. See, e.g., the 'IVS 103 Reporting', in IVS 2013, above n. 7, 35-38; 'Code of
Ethical Principles for Professional Valuers', above, n. 19; see also S Pratt and A
Nicolita, above, n. 1, 486–7.
295) Walck, 'Logic and Ethics in the Practice of Expert Witness Services', above, n. 5.
296) Ibid.
297) H Rosen, 'How Useful Are Party-Appointed Experts in International Arbitration?'
(2014) 2 Journal of Damages in International Arbitration 2.
298) As Ball notes, the international community is looking for awards that are not only
reasoned, but 'well reasoned'. M Ball, 'Assessing Damages in Claims by Investors
Against States' (2001) 16 ICSID Rev.-FILJ 408, 428. He notes that even outside ICSID,
there may be grounds for setting aside awards, if they lack appropriate reasoning.
So far, only a few cases have noted the failure to state reasons and annulled an
award on this ground. Klöckner v Cameroon, Decision on Annulment of 3 May 1985,
paras 172 et seq; see also Pey Casado v Chile, Decision on the Application for
Annulment of 18 December 2012, paras 35–8. In Rumeli v Kazakhstan, the award was
not annulled, but the question of damages had required extended considerations
which the tribunal reflected in the decision on costs. See Rumeli v Kazakhstan,
Decision on the Application for Annulment of 25 March 2010, paras 155–79, 184.
299) R Walck, above, n. 5, 162; P Wood, 'Lawyers and Economists: Who Rules the World?'
(2010) 11 Business Law International 145; H Wöss et al, above, n. 128, 229–32; M Ball,
above, n. 298, 418; J Gotanda, 'Damages in Private International Law' (2007) 326 RdC
185.
300) In investment arbitration, the sums are usually sufficiently large so that these
potential drawbacks are outweighed by the benefits. See Gotanda, above, n. 299,
with reference to A Redfern and M Hunter, Law and Practice of International
Commerical Arbitration (1999) 323–4.
301) See H Rosen, above, n. 297; D Jones, 'Party Appointed Experts: Can They Be Usefully
Independent?' 8 TDM (2011, Issue 1), 4; M Kantor, above, n. 3, 2, 279 et seq; J Gotanda,
above, n. 299, 185; E Baker and A Lavers, 'The Experts in Dispute Resolution: A
Common Law Perspective' (2004) 70 Arbitration 11–18; K Rendall, 'Role of the
Expert/Adjudicator in Support of Arbitration in International Long-Term Contracts'
(1999) 27 International Business Lawyer 201–7.
302) H Rosen, above, n. 297; see also M Kantor, above, n. 3, 3, referring to S Elsing and J
Townsend, 'Bridging the Common Law–Civil Law Divide in Arbitration' (2002) 18
Arbitration International 59, 63–4.
303) R Walck, above, n. 5, 151–8, who notes that entire conferences have been dedicated
in the past years to address this problem; see also H Rosen, above, n. 297.
304) R Walck, above, n. 5.
305) D Jones, above, n. 301, 5; R Walck, above, n. 5.
306) 'Code of Ethical Principles for Professional Valuers', above, n. 19, 3.
135
307) The PWC study on damages in arbitration of 2015 showed that the amount quantified
by respondents' experts was, on average, only 13% of the amount quantified by
claimants' experts. PricewaterhouseCoopers, 2015—International Arbitration
Damages Research—Closing the Gap between Claimants and Respondents, available
at <http://www.pwc.co.uk/services/forensic-services/disputes/2015-
internationalarbitration-damages-resea...>; reprinted in (2016) 3 Journal of Damages
in International Arbitration 99, 100.
308) e.g. Compañía del Desarollo de Santa Elena SA v Republic of Costa Rica, Award of 17
February 2000 (2000) 15 ICSID Rev.-FILJ 169, para. 95; see the commentary by C N
Brower and J Wong, 'General Valuation Principles: The Case of Santa Elena' in T
Weiler (ed.), International Investment Law and Arbitration (London: Cameron May,
2005) 747, 774.
309) Gotanda, above, n. 299, 168.
310) Ibid, at 184, with reference to E Meth, 'Final Offer Arbitration: A Model for Dispute
Resolution in Domestic and International Disputes' 10 American Review of
International Arbitration (1999) 383, 389–90.
311) This was, e.g., the case in Starrett Housing Corp v Iran, 16 Iran–US CTR (1987) 112;
Shahine Shaine Ebrahimi v Iran, 30 CTR (1994) 170; CMS v Argentina, Award of 12 May
2005, paras 50, 418; Enron Corporation Ponderosa Assets LP v Argentina, Award of 22
May 2007, para. 38; Sempra Energy v Argentina, Award of 28 September 2007, para.
399; National Grid v Argentina, Award of 3 November 2008, para. 46; El Paso v
Argentina, Award of 31 October 2011, para. 41.
313) There are several innovative techniques to cause the experts to collaborate with, or
confront, each other, including witness conferencing, 'hot tubbing,' joint expert
reports, etc. See R Walck, above, n. 5, 165; see also H Wöss et al, above, n. 128, 230–1.
314) This approach is also endorsed by M Kantor, above, n. 3, 283; H Wöss et al suggest
that the tribunal uses 'decision tree methods' to avoid being confused by
misleading arguments and to ask the right questions. See H Wöss et al, above, n. 128,
232.
315) T Waelde and B Sabahi, above, n. 134, 1049, 1063–4.
316) D McIver, 'Valuation Issues from an Intermediary's Perspective' in T West and J Jones
(eds), The Handbook of Business Valuation (New York: Wiley & Sons, 1999) 29, 30.
136
Document information 5. Methods of Valuation in International Practice
A. Market or Sales Comparison Approach
Publication 5.01 The market-based approach of valuation looks at 'the market' as the final arbiter of
Calculation of
Compensation and different perceptions of value. Stock prices, prior transactions, offerings, partial or
Damages in International comparable sales, the comparative company approach and multiples are different
Investment Law (Second variants of the market approach which can be used for the calculation of compensation
Edition) and damages. It should be recalled that the 'market approach' is different from the '(fair)
market value' basis of valuation. The latter is supposed to reflect the price a
'hypothetical willing buyer' would pay a 'hypothetical willing seller', while the former
reflects 'actual' prices paid or received in the market. (1)
Bibliographic 5.02 This difference is not always accurately reflected in international jurisprudence. The
reference Iran–US Claims Tribunal in Amoco International Finance v Iran noted, for example, that
'5. Methods of Valuation in 'where the nationalized undertaking is a corporation the capital stock of which is freely
International Practice', in traded in the stock exchange', the 'market value' was appropriate to determine
Irmgard Marboe , compensation for expropriation. (2) By contrast, in the absence of a market, the 'market
Calculation of value' as a valuation basis was inappropriate and artificial, (3) because a 'pyramid of
Compensation and hypotheses' was necessary and the owner of the expropriated asset 'usually is not a
Damages in International willing seller'. (4) However, it is exactly this 'hypothesis' which has to be made in the
Investment Law (Second determination of '(fair) market value'. Conversely, the market approach looks at prices
Edition), Oxford which were paid or offered in reality.
International Arbitration 5.03 International courts and tribunals relied on various variants of the market approach
Series, (© Irmgard Marboe in their assessment of quantum depending on the evidence available and the
2017; Oxford University submissions by the parties.
Press 2017) pp. 214 - 326
(1) Stock Prices
5.04 The opinions about the usefulness of prices of stocks and shares of a company for
valuation purposes are diverse. On the one hand, there is a certain scepticism due to the
frequent and often irrational fluctuations of stock prices. The tribunal in Delagoa Bay put
this in the following words:
[T]he gambling value of securities of any enterprise that is being formed, as
also their face value whether paid up or not, may considerably differ either
P 215 way from their actual and intrinsic value as it would result from the average
income which alone constitutes the real value of the enterprise. (5)
5.05 In the Barcelona Traction case, both the claimant and the respondent rejected the
stock prices as reliable indicators of the value of the company. (6) The tribunal in
Reineccius et al v Bank for International Settlements did not base the valuation of
compensation after the expropriation of the bank on the value of its shares, which were
traded on various stock exchanges, because it considered this to be an 'unreliable basis'.
(7)
5.06 In Lithgow et al v United Kingdom, the claimants argued before the European Court of
Human Rights (ECtHR) that a multiple of the price paid for individual shares would not
reflect the price a willing buyer would be ready to pay for the entire company. (8) Such a
willing buyer would have more information on the company's economic perspectives and
would include it in the valuation. Furthermore, in economic practice, a control premium
would usually be paid if a majority of the shares of a company was bought. (9)
Nevertheless, the Court regarded the stock value as a valid basis for the calculation of
compensation and denied a violation of Article 1 of the First Protocol. It conceded,
however, that this was not necessarily representing the full market value (10) but
nevertheless sufficient and within the state's margin of discretion as regards
expropriations of its own nationals. (11)
5.07 The Iran–US Claims Tribunal generally seemed to have a rather positive attitude
towards share prices. According to Brower and Brueschke, stock prices were an important
factor in the valuation of companies noting that '[w]here there is an actively-traded
market for property of a business entity's stock that has been the subject of a taking, the
Tribunal has advocated the actual market value as best quantification of the full
equivalent'. (12)
5.08 The tribunal in American International Group v Iran stated that 'the valuation should
be made on the basis of the fair market value of the shares in Iran America at the date of
nationalization'. (13) Nevertheless, due to the lack of an active market at the time of the
P 216 expropriation, a different valuation method was applied. (14) In INA v Iran, where the
claimant had purchased the shares in an insurance company approximately one year
before its nationalization, the tribunal agreed that 'the price paid is a fair measure of the
value of the shares on the date of the nationalisation'. (15) In Khosrowshahi v Iran, the
Iran–US Claims Tribunal found 'particularly relevant the evidence relating to known
trading prices of Alborz shares' and based its valuation on the prices of shares from the
stock exchange eight months before the expropriation. (16) However, in order to account
for the circumstances of the Iranian revolution and its economic repercussions it made
reductions of 25 and 30 per cent. (17)
137
5.09 ICSID tribunals also regarded stock prices as an important indicator for the value of
an investment, albeit with limits. The tribunal in AGIP v Congo based its valuation of the
50 per cent share of the expropriated company on the 'shares representing 50% of its
capital'. (18) This represented, however, only a small part of the claim which also
comprised a series of repudiations by the Government of its contractual obligations
which were much more substantial. (19)
5.10 The tribunal in CMS v Argentina found that stock prices could be a suitable indicator
of the value of a company in principle. (20) However, as the company's shares were not
publicly traded on a stock exchange, (21) it rejected the stock prices of another natural
gas transporter and three natural gas distributors listed on the Argentine stock exchange
as an appropriate valuation reference because it was of the opinion that those
companies were not sufficiently comparable. (22) Instead, it decided to apply an income-
based valuation approach. (23)
5.11 In Enron v Argentina, the company's shares were traded on both the Buenos Aires and
New York stock exchanges. (24) However, the tribunal found that, when markets were
illiquid or the volume of transactions was limited, market capitalization might provide
P 217 distorted valuation indications. (25) In this case, longer periods of time should be
taken into consideration so as to determine relevant averages. (26) In such a situation,
the stock exchange value should be referred to mainly to confirm the result achieved by
other valuation approaches. (27) The tribunal in Enron v Argentina clarified that 'the use
of market capitalisation is intended only as a reference value and not as a valuation tool
itself'. (28)
5.12 Stock prices are likely not appropriate when a subjective–concrete valuation is
warranted in order to achieve full reparation. In LG&E v Argentina, the tribunal rejected
the reliance by claimants on the stock price and large share purchase values, (29) as it
found that the impact on the asset value would not reflect the actual damages incurred
by claimants and that the fair market value was not the appropriate valuation base. (30)
5.13 A special application of the stock price for valuation purposes can be the exchange-
ratio of stock in case of mergers and acquisitions. The tribunal in CME v Czech Republic,
while not taking up the argument of the Czech Government, that the damage incurred
could be measured on the basis of the slump in the holding company's stock prices, (31)
regarded the exchange ratio of 0.5 to 1 between the shares of a prospective buyer's
company and the claimant's company as a confirmation of the result of its valuation. (32)
5.14 Stock prices were used by various tribunals dealing with the demise of the Russian
P 218 petroleum company Yukos. In Rosinvest v Russia, after the tribunal had overcome
jurisdictional hurdles, (33) it decided that the claimants had been expropriated
unlawfully by a series of measures from 16 December 2004 until 5 August 2007. (34) The
claimant sought compensation 'equal to its share of the real value of the assets that the
Russian Federation expropriated from Yukos as of the date of the final award', (35) which
amounted to US$ 183.2 million. (36) The claimant had purchased seven million ordinary
shares of Yukos on the Russian stock market in November and December 2004,
apparently at a price of US$ 11.66 million. (37) The tribunal noted that claimant had
made its investment, when '[t]he market was fully informed of Respondent's likely action
in respect of Yukos from July 2004'. (38) Due to the fluctuation of Yukos' share price, the
determination of the valuation date was decisive. The tribunal found that it should be 24
January 2007, the day on which a 'Participation Agreement' with the claimant's parent
company was terminated so that the economic risk was taken over by the claimant. (39)
At that point in time, the claimant's investment, measured on the basis of Yukos' stock
prices, was US$ 3.5 million, which the tribunal awarded. (40)
5.15 The fluctuation of stock prices over time is the biggest problem for their use as a
reliable valuation measure. Yukos' share prices fluctuated between US$0.42 and 4.32 per
share on the Moscow Interbank Currency Exchange (MICEX), and between US$0.44 and 4.27
per share on the Russian Trading System (RTS). (41) Stock prices thus do not reliably
represent the value of a company, but often reflect moods of the market. The tribunal in
Rosinvest v Russia agreed that the claimant had 'made an investment at such point in
time when the market had in fact overreacted to transient events and the price was
unjustifiably low'. (42) The use of stock prices in Rosinvest v Russia could be explained by
the fact that the claimant held only a minority interest in Yukos, and that the claimant
P 219 also based the valuation of the claim on them. (43)
5.16 Consequently, when an investor is only a minority shareholder, stock prices seem to
be a practical reference for the assessment of quantum. This is particularly so, when
investors themselves present their claims on the basis of stock prices. In Quasar de
Valores, another Yukos case, the claimants claimed US$ 2.6 million for their 73,000 shares
in Yukos. (44) The tribunal agreed with the claimants' expert that stock prices were the
most appropriate reference as 'the value of a portfolio investment is simply given by the
market'. (45) The valuation date was the date of the expropriation which the tribunal
determined to be 23 November 2007, when Yukos was removed from the Russian United
Register of Companies. (46) However, at that date, the value of Yukos was nil. The tribunal
therefore aimed at estimating the stock price at that date, had the expropriation not
taken place, (47) and assessed an 'expected stock price' on the expropriation date, based
on a comparison with four Russian oil companies. (48)
138
5.17 The comparison of the development of share prices with other companies in the
same industry aims at producing a 'hypothetical stock price'. This was necessary, as the
tribunal had determined that the expropriation date was the date at the very end of a
series of measures leading to the total deprivation of the claimants' property. As
discussed above, (49) a solution for cases of creeping expropriations could be to separate
the expropriation date from the valuation date in order to avoid that the state can
benefit from the gradual depreciation of the asset by its own acts. On the other hand,
both the expropriation and the valuation date could be set at the beginning of the series
of measures, when the value of the investment was not yet impaired. (50) In Quasar de
P 220 Valores this date could have been the day on which the Russian Tax Ministry issued a
resolution demanding payment of 99.4 billion roubles within two days, as proposed by
the claimants. The tribunal challenged that date, suggesting that other dates would also
be possible, such as the date when the re-audit of Yukos began, when Mr Khodorkovsky
was arrested, or even early 2002 before the earliest arguable indication of Yukos being
targeted became known. (51) It is certainly a difficult decision to determine the most
significant date. In addition, the date proposed by the claimant would have had the
advantage that simply the stock price at that date could have been chosen. This stock
price was US$ 14. As it was a valuation under the premise of a 'lawful expropriation', (52)
no further adjustments and only an additional award of interest would have been
necessary. (53)
5.18 The tribunal in Yukos v Russia, in contrast to the two preceding cases did not use
stock prices for the valuation of the damages due to the claimants. The claimants
presented valuations based on the discounted cash flow (DCF) method, the comparable
companies method, and the comparable transactions method. (54) Stock prices were
only used to confirm the valuation carried out under these methods. Yukos' enterprise
value was based on the market capitalization of Russian state-owned company Rosneft,
which had taken over Yukos after its dissolution. (55)
5.19 The tribunal in Crystallex v Venezuela used the stock market approach in
combination with market multiples to arrive at the amount of compensation after the
expropriation of the claimant's investment in the areas called 'Las Cristinas', one of the
largest undeveloped gold deposits in the world. (56) Also in Rusoro v Venezuela stock
prices were used in combination with other valuations. (57) The tribunal in Crystallex v
P 225 Venezuela made a detailed and informative statement in which it explained why it
found that the stock market approach was appropriate and reliable:
First, as a general matter, the stock market methodology reflects the market's
assessment of the present value of future profits, discounted for all publicly
known or knowable risks (including gold prices, contract extensions,
management, country risk, etc.) without the need to make additional
assumptions. In other words, the use of the stock market approach eliminates
the need to resort to such assumptions, as the market factors in all risks and
costs associated to the asset. The second reason why in this particular case
the stock market may be relied upon is that Crystallex was a one-asset
company and the rights which Crystallex enjoyed under the MOC in relation to
Las Cristinas were that single asset. Thus, any buyer acquiring the totality of
Crystallex's shares would have acquired the entire value of Crystallex's rights
under the MOC and would in principle have been interested foremost and
possibly exclusively in and valued the company on the basis of that single
asset. Third, Crystallex's stock was actively and heavily traded on two main
stock exchanges for mining companies so that transactions were occurring with
sufficient frequency and sufficient volume to provide pricing information on
an ongoing basis that reflects the expectations of a multitude of arm's length
buyers and sellers on the underlying value of the company. Reciprocally, as
the buyers do first think of the Claimant as a one-asset company, it is obvious
that the stock value will reflect that asset valuation. (58)
5.20 It can be concluded that the use of stock prices is multifaceted. On the one hand, the
evidentiary value of listed share prices is certainly appreciated. On the other hand, stock
prices are highly volatile and often change considerably within short periods of time. It
may be argued that it is better to select not a point in time, but longer periods of time,
which would allow averaging out at least shorter-term swings in market moods. In any
case, stock prices are useful in particular in combination with other valuation
approaches or for controlling results achieved by other valuation methods.
(2) Prior Transactions

5.21 Prices actually paid or received in prior transactions appear to be a favoured
anchorage for valuation in international arbitration. They seem to represent reliable
evidence for the 'value' of an asset. The purchase or sale may have been made some time
ago, but the fact that an actual buyer was ready to pay a certain amount of money
provides a strong indication of the value of the asset in question. However, it should not
be overlooked that 'value' and 'price' are not the same and need to be distinguished. A
paid 'price' is a fact and may as such be objectively determined, but it may express the
'value' only to one particular buyer in a particular situation and thus represent a
subjective valuation. As noted above, 'price' is a fact, and 'value' is an opinion. (59)
139
5.22 Prices obtained for the sale of moveable property have been regarded as
particularly appropriate for determining market value, as, for example, the Iran–US
Claims Tribunal explained in Gould Marketing v Iran:
The Claimant recognized that the … value of six of the Respondent's radios
which the Claimant sold to another customer must be deducted from its
claims. The contract price of these six radios was U.S. $258,696, which is the
best available evidence of their value. (60)
5.23 The acquisition price of a company as a whole, on the other hand, may turn out to be
more problematic. One aspect is the time factor. (61) In Phelps Dodge v Iran, the original
investment had taken place six years before. (62) Nevertheless, the tribunal awarded the
amount paid by the investor without deducting or increasing it. (63) It held that, despite
the negative effects of the Iranian revolution, the company could reasonably have been
expected to become profitable again in the long term. (64) The price paid, therefore,
appeared to best reflect the value of the property in question. (65)
5.24 In CME v Czech Republic, a Scandinavian broadcasting enterprise wanted to purchase
the Dutch holding company of the claimant, which held a number of television stations in
Middle and East Europe, half a year before the expropriation took place. (66) The
claimant argued that '[o]ne of the best possible indicators of an enterprise's fair market
value is what an actual willing buyer thinks it is worth'. (67) The contract had been validly
concluded between the two companies, which was an important reason for the tribunal to
give the valuation by the purchaser particular weight:
The Tribunal's view is that the SBS transaction entered into between CME
Media Ltd and SBS gives an objective view of the fair market value of CNTS in
February/ March 1999 by a third party purchaser on the basis of arms-length
negotiations. (68)
5.25 However, the Scandinavian company shortly afterwards withdrew from the contract
and paid a contractual penalty of US$ 8.2 million. (69) Also for other reasons, the
significance of the actual purchase price for the value of the company could be
questioned. The Scandinavian broadcasting firm expected and calculated substantial
synergy effects for the merged company from the purchase of a number of smaller
television companies in Middle and Eastern Europe, (70) and the purchase price had not
been paid in cash but, instead, CME shareholders were being offered shares in SBS, which
were subject to the fluctuation of the stock market. (71) Nevertheless, the tribunal found
the purchase agreement representing US$ 400 million to be the best available evidence.
(72) However, it made certain adjustments connected to the specific conditions of the
contract, which led to a considerable reduction of the purchase price offered. (73)
5.26 Only one and a half years after the award, CME announced that 56 per cent of its
television channel, TV Nova, was sold for US$ 642 million. (74) This shows that the price an
actual willing buyer is ready to pay might differ considerably from the estimated price a
hypothetical willing buyer is expected to pay.
5.27 Another example of a prior transaction as a reference for the value of an investment
is the price obtained in a public tender. In Técnicas Medioambientales v Mexico, (75) the
claimant had bought a piece of land, buildings, and the technical equipment for a
landfill from a district authority in 1996. The tribunal took the price paid as an important
yardstick for the value of the property in 1998, the date of the expropriation:
The Respondent acknowledges that the price obtained in a public tender '… is
an efficient manner to determine the price of the assets sold …' … The Arbitral
Tribunal finds that upon the 1996 sale the Landfill's market value was US$
4,028,788, and will take that figure as a starting point for subsequent analysis.
(76)
5.28 By contrast, the tribunal in Azurix v Argentina (77) did not take the price paid in a
public tender as the best available evidence. As pointed out above, (78) the tribunal
found that the price paid for a water and sewerage concession in the amount of 439
million pesos (79) did not represent the fair market value at the time of the unlawful act
of the state. It therefore reduced to US$ 60 million the amount to be paid to the
successful claimant. (80)
5.29 Despite the fact that prices actually paid for companies or other business assets are
often influenced by the perceptions of the individual buyers and concrete circumstances,
they have often been as reliable evidence of the market value. However, it has to be kept
in mind that 'price' and 'value' are different things so that adjustments may be necessary.
(3) Offerings
5.30 Prices offered for transactions that did not materialize have less evidentiary weight
for the 'market value' of an object than prices actually paid. Nevertheless, they may
sometimes be considered as appropriate evidence for the value of an asset at some
point in time.
5.31 The Iran–US Claims Tribunal in James A Saghi v Iran took a written offer of an
140
interested buyer five years before the expropriation date as the basis for the valuation of
the market value. (81) It noted:
KCC's offer in 1975 to purchase a 45% equity stake in N.P.I…. is potentially
important evidence despite the fact that it was made 5 years before the date
of the taking. As stated above, the fair market value of a company can best be
defined as 'the amount which a willing buyer would have paid a willing seller
…' KCC clearly was such a willing buyer and must have been reasonably well
informed about N.P.I as a result of the relationship between the companies
extending over many years. (82)
5.32 The tribunal found, however, that this amount had to be adjusted, taking into
account the negative effects of the Iranian revolution and inflation. (83)
5.33 Other adjustments from prices offered could concern the physical quality and status
of maintenance of the assets to be valued. In United Painting v Iran, the Iran–US Claims
Tribunal held that the price offered by the Iranian business partner of the claimant for
expropriated sandblasting and painting equipment was unusually high in view of the fact
that the equipment was used and most likely depreciated over the two years since its
purchase for the project. (84) The Iran–US Claims Tribunal thus tended to anchor its
valuation on prices offered, (85) but also adjusted them to the extent it found it
necessary.
5.34 In Middle East Cement v Egypt, the claimants presented written correspondence
about a planned sale of the ship Poseidon for which an advance had already been made.
(86) The ICSID Tribunal, however, rejected the valuation by this willing buyer in the
amount of US$ 1.324 million and awarded only half of the scrap value of the ship in the
amount of US$ 477,718. (87)
5.35 By contrast, the tribunal in Khan Resources v Mongolia found that the true value of
the claimants' investment was reflected by three offers made for the mine or for Khan
Canada's shares in and around the relevant period. (88) However, it found that all three
offers suffered from clear 'value-affecting factors' and therefore needed adjustments to
reflect the change in value between the valuation date and the date of any given offer.
(89)
5.36 These cases show that the prices contained in offerings of a third 'willing buyer' may
play a certain role in anchoring the valuation. Nevertheless, they often need adjustment
and are sometimes not at all regarded as a reliable benchmark for the market value.
(4) Partial Sales

5.37 Sometimes, parties present evidence of sales of parts of the company or of
equipment and try to extrapolate from these prices an amount for the entire asset.
Tribunals have not easily accepted such figures as useful for the assessment of the
P 226 amount of compensation or damages.
5.38 In Southern Pacific v Egypt, the claimant submitted that the value of the entire
company could be valued on the basis of prior sales of parts of the projects. Concretely, it
presented three different transactions and offers:
1. the sale of 12,500 shares (25 per cent of the company) to two members of the Saudi
royal family at a price of US$ 700 per share;
2. the offer of a third member of the Saudi royal family, to buy 7,500 shares at a price
of US$ 850 per share;
3. the redemption of a number of shares by SPP (ME) at prices between US$ 598 and
US$ 630 per share. (90)
5.39 The tribunal, however, found that the extrapolated amount (between US$ 33 and 42.5
million) was too high, in particular because the book value of the project at the time of
expropriation was negative. In addition, the money of Saudi princes likely represented
risk capital and other buyers could not easily be found to buy the shares at such prices.
The tribunal expressed its scepticism in the following words:
In the Tribunal's view, the purchase and sale of an asset between a willing
buyer and a willing seller should, in principle, be the best indication of the
value of the asset. This is certainly true in the case of a perfectly competitive
market having many buyers and sellers in which there are no external controls
or internal monopolistic arrangements. In the present case, however, there
was a very limited number of transactions and there was no market as such for
the shares that were sold. The price at which the shares were sold was
privately negotiated. In these circumstances, the Tribunal does not believe
that the share transactions can be used to accurately measure the value of
SPP (ME)'s investment in ETDC. (91)
5.40 Also in CME v Czech Republic, the tribunal examined whether the price of a share of
the enterprise should play a role in the valuation of the entire company. The transaction
in question concerned the acquisition of a 5.8 per cent share of the claimant's company
by the Czech business partner. The tribunal came to the conclusion that this transaction
141
was not representative because it only related to a very small share and was motivated
to exclude an offer made by a 'questionable third party'. (92) Furthermore, the
transaction had taken place two years before the valuation date. (93) Its extrapolation
would have led to a sum US$ 100 million above the amount an actual willing buyer was
willing to pay for the entire company.
5.41 In Starrett Housing v Iran, the prices obtained for sales of a number of apartments in
a large housing project played an important role for the valuation. (94) These sales,
P 227 however, did not represent sales of the company itself but were part of the investor's
business operation. The sales prices were, therefore, chosen to estimate the future
income based on these sales. The tribunal actually conducted a DCF analysis. (95)
5.42 In Enron v Argentina, the tribunal noted that the price actually paid for 15.2 per cent
of the shares of the company and an option to purchase another 4.3 per cent was US$
148.5 million. (96) The tribunal found that these transactions of 2006, thus one year before
the date of the award, 'provide an accurate and realistic base for the estimate of the
current fair market value of the company'. (97) It was of the opinion that a market
transaction with such characteristics is preferable to the use of the DCF, which implies a
number of uncertainties derived from assumptions about the future that may or may not
turn out to be true. (98) The tribunal found that the difference between the 'current fair
market value' at the time of the award in 2007 and the value of the company in 2001
before the incriminated measures were adopted would represent the damage actually
suffered by the claimants. (99)
5.43 The tribunal in National Grid v Argentina noted the inherent difficulties involved in
finding comparable transactions given that electricity transmission was a monopoly.
(100) However, it found that a transaction involving shares in the Argentinian energy
transmission company Transener, in which the claimant had invested, could present a
useful point of reference. It held that the transaction involving the sale of Petrobras
Energía's 26.32 per cent stake in Transener was as a useful proxy to assess the price of
National Grid's shares at the time, subject to some adjustments reflecting the impact of
the economic crisis in Argentina and to attempting to carry out the intent and spirit of
the regulatory framework of the investment. (101)
(5) Comparable Sales

5.44 Prices actually paid on the market for comparable assets is an important and
practical variant of the market approach. In international jurisprudence it has been
regarded as particularly significant for the valuation of machinery and equipment and for
real estate. The reason is that these assets are usually bought and sold on a large scale so
that the prices actually paid may reasonably be deemed to reflect the market value. This
'comparable sales' approach has, therefore, been applied in a number of cases. If the
P 228 comparability was not entirely convincing, adjustments were made.
5.45 In Sedco v NIOC, the claimant asserted that comparable oil rigs with less equipment
had been sold at higher prices to buyers in Dubai than those to be valued in Iran. The
Iran–US Claims Tribunal acknowledged the 'comparable sales' in this case as a 'useful but
only approximate guide'. (102)
5.46 With regard to the valuation of real estate, the Iran–US Claims Tribunal frequently
asked specialized experts to provide information about prices actually paid in the real
property market. (103) However, the tribunals also critically examined these reports. If
the criteria of comparability were no longer correct, or if the expert opinions did not
convince the tribunal for other reasons, the valuation was only very roughly based on the
prices actually paid on the market. (104)
5.47 In Mohtadi v Iran, the Iran–US Claims Tribunal started with the valuation based on
market data of the respective real estate, (105) but then took into account 'the particular
ownership right or rights affected by the government's actions … less the value retained
after the interference had occurred'. (106)
5.48 In international judicial practice also other sources of information on market prices
are used for the valuation of real property, for example, published brochures of a real
property agency and information obtained from local notaries. (107)
5.49 The tribunal in Funnekotter v Zimbabwe had to evaluate a number of farms which
had been expropriated by Zimbabwe by various acts and omissions between 2001 and
2003. (108) The claimants had evaluated the farms as real property with specific
agricultural characteristics in the market of 2001/02. The respondent had submitted an
evaluation of the properties at less than 10 per cent of that value, in accordance with
methods used by the Zimbabwe authorities for valuation of rural lands. The tribunal
found that the national valuation method was inapplicable, but also that the
assumptions of the claimants' expert were too optimistic in view of the market for rural
P 229 properties in Zimbabwe in 2001/02. The tribunal adjusted the claimants' valuation by
taking into account the particular characteristics of the different farms, considering the
quality of the soils (dry arable land, good or rough grazing, irrigated land), the production
of the farms (tobacco, maize, wheat, flowers, vegetables, fruits, cattle, etc.) and the
equipment, their importance, and their state (homestead, farm buildings, roads, fencing,
irrigation systems, water and electricity facilities, greenhouses, etc.). (109)
142
5.50 With regard to moveable assets, the tribunal in Funnekotter v Zimbabwe evaluated
them on the basis of the price they could achieve on the market. (110) Some of the figures
advanced by the claimants seemed too high, taking into account the economic situation
prevailing in Zimbabwe in 2001/02. (111) The tribunal also decided that the age and the
state of a number of moveables (such as tractors or vehicles) should be taken into
account in respect of their market value. The tribunal thus found it important to attach a
realistic value which would be attainable on the market for the moveable assets, in
particular in the difficult economic conditions in Zimbabwe at the relevant time.
5.51 As regards the valuation of entire business on the basis of comparable sales, the
situation is more complicated. Businesses are often very specific in nature and difficult
to compare. (112) Frequently, there are no comparable transactions which could form the
basis of a comparison. (113) Furthermore, even if there are, the buyers could have
particular motives which are specific and cannot be generalized. (114)
5.52 Nevertheless, the tribunal in Kardassopoulos v Georgia noted its special situation
that it had 'available to it three arm's-length, contemporaneous transactions (or
potential transactions) to assist in valuing an investment'. (115) It referred to the decision
in Sapphire, where the arbitrator held that 'the concessions which must be appraised are
P 230 not situated in an area where rights of extraction are often the object of sale
transactions', (116) but after assessing transactions in neighbouring territories, concluded
that it would be 'difficult to see what other proof could reasonably have been required of
the plaintiff'. (117) Also the tribunal in Enron v Argentina had considered market
transactions with regard to the claimants' participation in another natural gas
transportation company, namely a swap and a share sale transaction. (118)
5.53 While the claimants' expert only ascribed a 10 per cent weight to the comparable
sales approach, the tribunal in Kardassopoulos v Georgia found it appropriate to rely
entirely on the three comparables to arrive at the fair market value of the claimants'
investment. (119) The most significant evidence represented the sale transaction
involving the asset in question sixteen days after the expropriation. All of the three
transactions or offers were in a rather narrow range of value, namely between US$ 28.1
million and US$ 30.6 million. (120)
5.54 The tribunal in Siag v Egypt relied on the claimants' expert valuation based on
comparable projects in the Sinai and the Red Sea. (121) However, in view of the
'uniqueness' of the property and the difficulties connected to it, a 20 per cent discount
was applied. (122)
5.55 Determining the market value by comparable sales transactions seems to be a
reliable method particularly with regard to real property, even though adjustments may
be necessary to address special characteristics. Applying the comparable sales approach
to entire businesses is more complicated, because it is difficult to find transactions
which are truly comparable for valuation purposes. This is why the comparable sales
approach has only rarely been applied with respect to entire companies or
comprehensive investment projects. A variant and simplified form of the comparable
sales approach is, however, available and also increasingly applied in international
judicial practice, namely the comparable companies approach and the use of multiples.
(6) Comparable Companies and Multiples

5.56 The market approach can consist in a valuation of a company with reference to other
companies not as a whole, but on the basis of a 'unit of comparison'. (123) While in real
estate, the price per square metre (or foot) is a common unit of comparison, in business
P 233 valuation the units of comparison usually are in some form of measurement of various
items of income-producing capacity or asset value. (124) These units of comparison are
called 'multiples'. (125)
5.57 In early cases, international tribunals were only rarely confronted with party
submissions referring to multiples. (126) More recently, the use of multiples by claimants
has increased and tribunals have become more acquainted with this method.
5.58 In CME v Czech Republic, the use of multiples was discussed in remarkable detail.
(127) The US$ 400 million purchase offer of the Scandinavian broadcasting enterprise,
which the tribunal considered decisive, (128) was based on a multiples valuation. In a
first valuation, a multiple of 9.1 was applied on the 'Station Operating Cash Flow' which
led to an amount of US$ 471.76 million for a 99 per cent share of the company. (129) The
multiple was based on the Scandinavian company's stock exchange value. (130) In a later
valuation, immediately before the conclusion of the purchase contract, a multiple of 8
was applied which resulted in an amount of US$ 409.9 million for the entire company.
(131) The tribunal used this figure for its calculation of compensation after the
expropriation of the company: (132)
The valuation of CNTS at USD 400 million is largely driven by the application
of the multiple 8.0, which was selected by SBS (and obviously accepted by
CME) in reference to Eastern European operators risk in contrast to other
countries, where SBS operated its broadcasting stations … A multiple of more
than 8.0 would assume a general investment climate for the 'Eastern European
operator', better than given (and experienced by CME) in practice. (133)
143
5.59 The claimant's expert confirmed the plausibility of the DCF analysis as applied in
the arbitral procedure also by the use of multiples. The expert had selected twenty-nine
broadcasting enterprises in the United States, Europe, and Asia and compared their
EBIDTA multiples. (134) Eventually, a 10.6 EBIDTA multiple was chosen on the basis of
comparable European broadcasting enterprises. (135) This was, however, challenged by
the respondent who pointed out that multiples of broadcasting enterprises in Western
Europe and in the United States could not be regarded as representative for Eastern
European enterprises. (136)
5.60 The case Yukos v Russia is another example for the application of the comparable
companies method. The tribunal found that, after an unlawful expropriation under the
Energy Charter Treaty, (137) claimants were entitled to three heads of damages: (1) value
of claimants' shares, (2) value of the dividends up to the valuation date, and (3) pre-
award simple interest on these amounts. (138) As regards the value of claimant's shares,
the tribunal decided 'that the “corrected” comparable companies figure is the best
available estimate for what Yukos would have been worth on 21 November 2007 but for
the expropriation'. (139)
5.61 The claimants had used a comparable companies approach, based on data
available for a pool of Russian and international oil companies. (140) The companies
were deemed to have similar characteristics to Yukos, in particular concerning
production, reserves, profitability, revenue growth, and financing structure. The claimants
established the ratios between the enterprise value of these companies and relevant
operating or financial metrics (EBITDA, reserves, and production) and then applied these
ratios to the relevant metrics of Yukos in order to estimate the latter's enterprise value.
(141)
5.62 However, the tribunal found that the RTS Oil and Gas index, based on prices of
trades executed in securities admitted to trading on the Moscow Stock Exchange, (142)
was a more appropriate unit for comparison. (143) In order to arrive at the value of Yukos'
shares as of the date of the award, the tribunal multiplied the best available estimate of
the value as of the expropriation date (21 November 2007) with a factor that reflected the
developments of the RTS Oil and Gas index between 21 November 2007 and 30 June 2014.
(144) Based on the index, the tribunal arrived at an adjustment factor of 60.79 per cent.
(145)
5.63 The tribunal in Yukos v Russia applied the comparable companies method, because
it had more confidence in this method than in the DCF or comparative transaction
method. (146) The market approach helped to verify data on value which were publicly
available and used in business practice. The case shows the acknowledgement of the
advantages of the market approach in the valuation of damages.
5.64 The tribunal in Tza Yap Shum v Peru also used the comparable companies method,
but referred to another unit of comparison, namely the book value. (147) The claimant's
expert had suggested four comparable fishing companies in Latin America and looked at
the ratio between their book value and market price. The multiple calculated on this
basis was 1.48 for the year 2004. The tribunal applied this factor to the book value of the
company, in which the claimant held 90 per cent of the shares, and thus arrived at the
amount to be awarded on the basis of an 'adjusted book value'. (148)
5.65 The above-mentioned practice shows that tribunals have become familiar with the
P 235 use of multiples in international proceedings. As the concept is fairly easy to
understand, they have also been in a position to examine the assumptions of the parties
and to exercise their own judgement. Even though multiples have the disadvantage of not
representing a very precise method, valuations in arbitral proceedings are also
approximations. It depends whether the main parameters of the method are acceptable
and convincing in a particular case. Furthermore, tribunals may take into consideration
that the use of multiples, due to its simplicity and practicability and despite its
deficiencies, is widespread in practice so that it may well find that the 'hypothetical
willing buyer' would apply it.
B. The Income Approach

5.66 International courts and tribunals have regarded the income approach with
scepticism for a long time. The necessary forecasts as well as the discounting process
appeared to be barely comprehensible for lawyers who were not specially trained in
economic disciplines. This has led one commentator to observe:
Si on regarde cette liste de faits futurs que le taux d'escompte doit prendre
en considération, on comprend bien la méfiance des juristes devant les
calculs d'experts-comptables choisis par les parties qui, tout en arrivant à des
résultats fort disparates, assurent pourtant que les facteurs qu'ils emploient
anticipent d'une façon exacte ces événements futurs. Ces calculs contiennent
tant d'éléments de conjecture qu'ils paraissent aux non-initiés à la science
comptable guère moins spéculatifs et tout aussi obscure que les prophéties
de Nostradamus. (149)
5.67 It follows that the income approach has frequently been rejected in international
144
practice. (150) The main and recurring argument was that prognoses about the future are
inherently speculative and that speculative elements cannot be used in the
determination of compensation or damages. The tribunal in Amoco International Finance
v Iran held in its often-quoted statement, that: '[o]ne of the best settled rules of the law
of international responsibility of States is that no reparation for speculative or uncertain
damages can be awarded'. (151)
5.68 This reluctance has been predominant despite the fact that the income approach
was the most widely used approach in economic reality and, thus, routinely applied by
valuation experts in many different contexts. (152)
5.69 One of the arguments was that the income approach, even if it was widely used in
business practice, would not be appropriate in international disputes between
individuals and foreign states because claimants and respondents in such circumstances
could not properly be compared to buyers and sellers in economic life. The Final Award
in CME v Czech Republic reflects this discussion:
[T]here is no disagreement between the parties as to the fact that each of
these methods are among 'the most common means by which buyers and
sellers come to conclusions about company value.' However, such 'conclusions
about company value' are generally not undertaken in the context of
determining the extent to which one party may or may not be liable for
damages. (153)
5.70 Arbitrator Brownlie concurs with this opinion and elaborates on it in his Separate
Opinion:
[T]he commercial methods have a substantial defect. The commercial
methods have no relation to the Treaty provisions and thus float in the ether
unconnected with the actual subject of compensation, which is the specific
violation of the Treaty provisions determined at the first phase of these
proceedings … This approach is totally unrelated to the task at hand, which is
the calculation of the compensation relating to breaches of the specific Treaty
provisions. The DCF locutions simply do not overlap with the language of the
Treaty. (154)
5.71 Another argument against the income approach was that it would necessarily lead to
a multiple of the investments actually undertaken and would often be disproportionate
in relation to them. This could easily lead to unjust enrichment of the investor. (155)
However, international practice has also shown that the income approach does not
necessarily lead to a higher amount than other valuation methods. This was, for example,
P 236 reflected in the parties' submissions in Barcelona Traction. (156) Also, in the ICSID
arbitration in Benvenuti & Bonfant v Congo, the investment undertaken was higher than
the value of the claimants' shares based on forecast income. (157) This is generally the
case when an investment does not have promising commercial prospects.
5.72 The scepticism was, however, not unanimous. Some of the older cases accepted that
a calculation of future income was necessarily uncertain but that this could not exclude it
from being the object of compensation or damages. The tribunal in Delagoa Bay noted
that 'such a computation made in advance on the basis of purely theoretical data cannot
hope to be absolutely accurate but only comparatively likely'. (158)
5.73 More recent practice has increasingly acknowledged and applied the income
approach as an appropriate method of calculation of compensation and damages. The
Iran–US Claims Tribunal in its awards in Starrett Housing v Iran (159) and Phillips
Petroleum v Iran (160) paved the way for a broader acceptance in arbitral practice. Under
the auspices of ICSID, the tribunal in Amco v Indonesia was the first which based its
valuation on the income approach. (161) After an interval of a number of years, more
awards followed, such as CMS v Argentina, (162) ADC v Hungary, (163) Enron v Argentina,
(164) Sempra v Argentina, (165) LG&E v Argentina, (166) Lemire v Ukraine, (167) El Paso v
Argentina, (168) Unglaube v Costa Rica, (169) EDF v Argentina, (170) Occidental v Ecuador,
P 238 (171) Abengoa v Guatemala, (172) TECO v Guatemala, (173) Gold Reserve v Venezuela, (174)
Mobil Cerro Negro v Venezuela, (175) Flughafen Zürich v Venezuela, (176) OI European Group
v Venezuela, (177) Tidewater v Venezuela, (178) Suez v Argentina, (179) and Quiborax v
Bolivia. (180)
5.74 The tribunal in Enron v Argentina emphasized the increasing acceptance of income-
based valuation methods not only in business but also in international arbitration
practice:
Since DCF reflects the companies' capacity to generate positive returns in the
future, it appears as the appropriate method to value a 'going concern' as TGS.
Moreover, there is convincing evidence that DCF is a sound tool used
internationally to value companies, albeit that it is to be used with caution as
it can give rise to speculation. (181)
5.75 Outside ICSID, tribunals have also applied the income approach for the calculation
of compensation and damages more frequently. Examples include Himpurna California v
145
PLN and Karaha Bodas v Pertamina, (182) Bridas v Turkmenistan, (183) National Grid v
Argentina, (184) Walter Bau v Thailand, (185) and Mobil Cerro Negro v Argentina. (186)
5.76 NAFTA tribunals have also applied the income approach, for example, in S D Myers v
Canada, (187) Archer Daniels v Canada, (188) and Cargill v Mexico. (189)
5.77 Under the ECT, the tribunals in Kardassopoulos v Georgia (190) and Anatolie Stati v
Kazakhstan (191) have used an income valuation approach.
5.78 The income approach can be used for both objective and subjective valuations. It
has been applied to determine the fair market value standard in expropriation cases,
but also in cases of fair and equitable treatment violations. The tribunal in CMS v
Argentina pointed out:
[T]he Tribunal is persuaded that the cumulative nature of the breaches
discussed here is best dealt with by resorting to the standard of fair market
value. While this standard figures prominently in respect of expropriation, it is
not excluded that it might also be appropriate for breaches different from
expropriation if their effect results in important long-term losses. (192)
The fair market value standard represented the basis for the application of the income
valuation approach, for example, in Enron v Argentina, (193) Sempra v Argentina, (194)
Abengoa v Guatemala, (195) Mobil Cerro Negro v Venezuela, (196) Flughafen Zürich v
Venezuela, (197) and Tidewater v Venezuela. (198)
5.79 The income approach was also used for the valuation of damages and or full
reparation, as, for example, in Amco v Indonesia, (199) Himpurna California v PLN and
P 241 Karaha Bodas v Pertamina, (200) SD Myers v Canada, (201) ADC v Hungary, (202) LG&E v
Argentina, (203) Lemire v Ukraine, (204) Archer Daniels v Canada, (205) Walter Bau v
Thailand, (206) TECO v Guatemala, (207) and Quiborax v Bolivia. (208)
5.80 Despite the notable broader acceptance of the income valuation approach in
general, several tribunals still rejected it for various reasons. (209) These include Wena
Hotels v Egypt, (210) Pope & Talbot v Canada, (211) Siemens v Argentina, (212) Vivendi v
Argentina, (213) and Khan Resources v Mongolia. (214)
5.81 The income valuation approach was also used in combination with other methods,
(215) to confirm the result achieved by other approaches or to make up some of the
uncertainties connected to it. (216) This is in conformity with international valuation
standards according to which using more than one valuation approach or method is
especially recommended where there are insufficient factual or observable inputs for a
single method to produce a reliable conclusion. (217)
(1) Basis of Income: Profits, Earnings, Dividends, Cash Flows?

5.82 While lost profits may be due as an item of damages to achieve full reparation, it is
important to understand the income valuation approach (218) as another way of
measuring the value of an asset which is necessary in expropriation cases. (219)
5.83 The most important reason for the application of the income approach is it is widely
used in business practice. (220) The basis for valuing future income has however often not
been identified very precisely. In arbitral practice, it encompassed 'net earnings', (221)
'future costs and revenues', (222) or 'profits'. (223) 'Cash flows' have not been in the focus
of tribunals in their calculation of damages and compensation for a long time. (224) , (225)
5.84 In more recent practice, 'cash flows' are increasingly used as the basis of value of
future income. The tribunal in CME v Czech Republic referred to future 'operating
cashflows' as the relevant factor for the valuation of future income, describing them as
'cash receipts minus cash payments, such as debt service'. (226) The relevant cash flows
should reflect the earnings coming from advertising as the most important source of
income (227) and be contrasted with the costs for programme production and acquisition.
(228)
5.85 The tribunal in CMS v Argentina entered into the discussion of the identification of
the relevant cash flow in some detail. (229) It referred to the two methodologies
presented by the claimant's expert. While the expert favoured the computation of
'indirect equity value', the tribunal followed the advice of its own expert and chose the
'direct equity value'. (230) The tribunal presented the two alternatives in the following
summarized form:
One can start computations with the cash flows to the firm before interest and
debt repayments, discount such flows at the weighted average cost of capital
(the 'WACC') and add the discounted cash flows to the firm to establish its
value; then, the value of debt is subtracted and the residual value is the value
of equity ('the indirect equity value'). Alternatively, one can compute first the
cash flow to equity (cash flows from operations, minus interest and debt
repayments), discount them at the cost of equity ('COE') and add the
discounted cash flows to equity to establish the value of equity ('the direct
equity value'); then one adds the value of debt to establish the value of the
firm. (231)
146
5.86 Frequently, tribunals did not explain the basis of income in detail, (232) but
basically relied on the claimants expert computations, considering adjustments of
certain parameters. (233) However, it has to be borne in mind that assumptions made by
the experts may be challenged and changed by the tribunals. (234)
5.87 For the valuation of damages or full reparation, in contrast to fair market value,
tribunals may also choose dividends as the basis of income. As the tribunal in LG&E v
Argentina found that neither the stock market price of shares nor the DCF would properly
account for the accrued loss, (235) it decided to concentrate on the 'dividends' lost as the
most appropriate measure of damage and summarized in a procedural order:
A calculation will be made of the dividends that would or could have been
generated without any change in the tariff system. Dividends received by the
Claimants will be subtracted from this figure, after which the damages
suffered during the State of Necessity will be subtracted from this amount.
(236)
5.88 While international practice increasingly accepts income-based valuation
approaches the basis or unit of income referred to is not always clear. Different tribunals
P 242 have chosen different bases of income as the relevant measure of compensation or
damages. Generally, it can be said that cash flows and the DCF method are an
appropriate basis for calculating an objective fair market value, while dividends,
earnings, or profits are more suitable to assess the subjective-concrete damage incurred
by a party.
(2) Going Concern

5.89 The World Bank Guidelines indicate that the income approach should be applied for
valuing 'going concerns'. (237) This was also the practice of the UNCC. (238) On the other
hand, the judgment in Factory at Chorzów pointed out that it was sufficient to take the
'normal and duly foreseen development of the industrial activity' for determining the
future profitability of the factory, even though the construction of the factory had not yet
been completed:
The fact that the chemical factory was not only not working but not even
completed, at the time of transfer of the territory to Poland, can be of no
importance; for chemical industry of this kind was expressly mentioned in the
articles of the Oberschlesische Company as one of the objects of that
Company's activities …; thus the entry into working of the factory was only the
normal and duly foreseen development of the industrial activity which the
Oberschlesische had the right to exercise in Polish Upper Silesia. (239)
5.90 Arbitral tribunals have referred to the 'going concern' premise in order to explain
the application or rejection of the income approach. The tribunal in Aminoil v Kuwait
formulated an often-quoted description of a 'going concern', namely as an 'undertaking
itself as an organic totality—or going concern—therefore as a unified whole the value of
which is greater than of its component parts …'. (240)
5.91 The Iran–US Claims Tribunal in Amoco International Finance v Iran specified that 'the
undertaking was a “going concern” which had demonstrated a certain ability to earn
revenues and was, therefore, to be considered as keeping such ability for the future: this
is an element of its value at the time of the taking'. (241) The tribunal in Tovakoli v Iran
P 243 held that '[i]n determining whether a company is a going concern, the Tribunal
generally examines whether it had a reasonable prospect of being able to continue its
operations after the Revolution'. (242)
5.92 The qualification as a 'going concern' does not necessarily entail a valuation based
on the income approach, nor does the lack of 'going concern' exclude the application of
the income approach. (243) In both Aminoil v Kuwait and Amoco v Iran, in the end the
asset value was the most important factor in the valuation. The 'going concern'
qualification was only reflected as additional item of value for goodwill or likely future
profitability. (244)
5.93 It has to be pointed out that, according to international valuation standards, the
existence of a 'going concern' is not a condition for the application of an income-based
valuation method. (245) It is only important that, in the opinion of the valuer, the asset is
likely to yield economic benefits to the owner in the future.
5.94 Several tribunals relied on income valuation methods even though the asset in
question was not a going concern. In S D Myers v Canada, the company had not yet started
operations, but after it had found that the Canadian export prohibition of a hazardous
waste substance between November 1995 and February 1997 constituted a violation of
national treatment (246) and fair and equitable treatment, (247) it stated that the
P 244 damage suffered by the investor should be determined by the overall economic losses
sustained, not only those that appear on the balance sheet of its investment. (248) The
loss was measured on the basis of the lost net income stream. (249)
5.95 Nevertheless, the lack of the going concern quality has often led tribunals to reject
income-based valuation methods. (250) The absence of past performance was frequently
147
reason enough for excluding considerations of future prospects.
(3) Forecasting
(a) Analysis of Past Performance
5.96 The analysis of past performance provides an important basis for the valuation of
investments based on the income-approach. Tribunals have seen historical data as a
strong evidence for future prospects. However, the results of the past cannot simply be
projected into the future. Various factors of a political and economic nature must be
taken into consideration. (251)
5.97 Assuming a relatively stable economic environment, the first ICSID tribunal in Amco v
Indonesia (Amco I) took the results from a fifteen-month period of operation as the 'base
period' and used it for its calculation of damages. (252) The second tribunal, Amco II, also
took this 'base period' and extrapolated it into the future, but adopted a slightly
different approach, namely to divide the calculation into two phases, one before and one
after the date of the award. (253)
5.98 The analysis of past performance can also provide an insight into whether there was
not only stability but even a potential for growth. In CME v Czech Republic, the tribunal
referred to past 'net revenues', 'broadcast cash flow', and 'EBITDA' as relevant data of the
company's performance. (254) They showed the considerable success of the broadcasting
company and the TV channel, in particular also its constant growth and stability. The
tribunal projected that the company would continue to increase its revenues and this
was, in fact, confirmed by the subsequent development. (255)
5.99 Particular difficulties arise in times of political or economic turmoil. The analysis of
past performance might then not be suitable for estimating future income. With respect
P 245 to the effects of the Iranian revolution, the tribunal in Starret Housing v Iran found that
the sale of apartments could not simply be projected into the future, but it assumed that
the recession caused by the Iranian revolution would not have a long-lasting effect and
would be overcome after a while. (256)
5.100 Uncertainty exists also with respect to the fluctuating prices of commodities. To
what extent prices of the past are indicative for prices in the future is controversial.
Whether this alone disqualifies the income approach can be disputed. While the tribunal
in Phillips Petroleum v Iran found that the overall fluctuations of production and prices of
oil 'could be expected to be not too significant', (257) the tribunal in Rusoro v Venzuela
emphasized that the price at which products could be sold must be 'determined with
reasonable certainty'. (258)
5.101 In general, arbitral tribunals have accorded considerable evidentiary weight on the
analysis of past performance. The mere projection of past performance into the future
will, however, be appropriate only in rare cases. Usually, and in accordance with the
income approach valuation method as used in economic practice, adjustments reflecting
changed political and economic circumstances are necessary.
(b) Value Drivers
5.102 The so-called 'value drivers' are the decisive indicators to estimate future income.
It is important for tribunals to understand the most important factors determining the
value of the company. Usually the required information will be furnished by valuation
experts, which the tribunals must assess.
5.103 The value of petroleum concessions, for example, is driven by the size of the oil
reserves and the market price of oil. (259) As regards the oil reserves, the expertise of
geologists usually delivers suitable results. (260) More difficult is the prognosis about
future oil prices. In this regard, the tribunal in Phillips Petroleum v Iran held:
While experience shows that forecasting future crude oil prices is difficult and
open to a high risk of being proved wrong by the subsequent realities of the
actual market, the Tribunal's objective here is to determine the range of
expectations that seemed reasonable in September 1979, not the accuracy of
those expectations in fact. (261)
5.104 In Starrett Housing v Iran, the measure of value was the expected profit from the
P 246 sale of apartments. (262) The revenues from the sale of apartments had to be
determined based on the number of apartments to be sold and the prices to be paid.
(263) On the other hand, costs and expenses necessary for the development of the site
and the construction of the houses had to be deducted. (264)
5.105 The tribunal in CME v Czech Republic needed to identify the value driving factors of
a broadcasting company. (265) According to the claimant's expert, the main drivers for
valuation were the large audience share (70 per cent at the beginning in 1994/95, and still
55–65 per cent in 1999); the TV advertising market share; international treaties allocating
the broadcast spectrum capacity of only four television stations having national coverage
(two of the four TV stations being public and subject to advertising restrictions, such as
prohibition of interstitials, maximum duration of advertising), the second private TV
station being fairly small (audience share at 17 to 18 per cent); structural barriers to
148
competition from other regional and foreign broadcasters, primarily because of the
language barrier; competition from cable or satellite television being modest because of
the costs of installing cable infrastructure and dubbing; and the fact that additional high
quality programming for broadcasting would be difficult to acquire since the claimant
already had long-term deals with the major US sources of programming. (266)
5.106 A significant value driver is the market share. (267) In this respect the 'first mover'
competition advantage plays an important role. Yet, in CME v Czech Republic the tribunal
found that it would have been eroded over time because of 'economic logic' and
experience together with convergence of European media markets. (268)
5.107 The 'first mover' competition advantage was significant in S D Myers v Canada. (269)
The investor had previously operated only in the United States, so that the tribunal
looked carefully at its extensive preparatory and successful marketing activities for the
P 247 market in Canada. (270) A decisive factor for the calculation was the 'first mover
advantage' of the claimant, because the competitive price offered and certain
geographical advantages granted high probability that the investment would have been
commercially successful. This was so even though the business had only been a 'start-up'
venture. (271) After the export ban had been lifted, 50 per cent of the material had been
processed by the Canadian competitors. The recognized value drivers included the
estimated quantity of material that would have been processed by the claimant. The
income actually achieved in the 'window of opportunity' of eighteen months when the
border had been open only played a minor role in these calculations. (272) The tribunal
took it for granted that the claimant would have been much more successful than it
actually was without the unlawful closure of the border due to its specific advantages, its
engagement, and its particular know-how. (273)
5.108 In the wake of the Argentinian pesification and other measures in 2002 a number of
gas transportation and distribution companies were affected. ICSID tribunals confronted
with the task of valuing the damage incurred mainly relied on the tariffs of gas and the
consumption patterns as the main drivers of value of the companies' success. In CME v
Argentina, the tribunal referred to the demand for gas, the tariff adjustments, and the
operations and maintenance expenditures. (274) The tribunal in Enron v Argentina did not
discuss the demand for gas explicitly but concentrated mainly on the tariff base and its
adjustments. (275) The working capital and investments in fixed assets were considered
as being part of the 'tariff base'. (276) The tribunal in Sempra v Argentina addressed the
issue of consumption in addition to the tariff adjustments as relevant factors for the
valuation. (277) It also found that the 'asset base' of the gas distribution company was a
'major factor' for the quinquennial tariff review foreseen in the concession. (278) The
tribunal in LG&E v Argentina referred to the tariff adjustments and the average annual
growth of gas volumes as the most important factors for valuation. (279)
5.109 In ADC v Hungary, the respective drivers for valuation of a concession to operate an
airport terminal consisted in the 'right to conduct the terminal operations and to collect
the terminal revenues'. (280) The fact that the airport in question was one of the fastest
P 248 growing airports in the world also played an important role.
5.110 The main value driver for the valuation of the airport concession in Flughafen Zürich
v Venezuela was the passenger traffic. In that case, the tribunal found that this traffic
should be based on reasonable expectations at the time of the expropriation and not on
the actual low passenger traffic. (281) The identification of the appropriate value drivers
requires a profound knowledge about the respective industry. In this respect, tribunals
depend to a large extent on the specific expertise of valuation experts.
(c) Business Plans
5.111 For a reliable forecasting of performance tribunals need most reliable evidence.
Business plans of some time in the past represent prima facie rather strong and credible
evidence for expected future prospects as they have been drawn up for purposes
unrelated to the dispute at hand. (282) They were prepared for and presented to
investors and financing institutions to convince them of the viability of the respective
project or company. If they were approved, they seemed to be plausible, at least from
the perspective as of the date of the presentation. If that date is close to the valuation
date, the relevance of such business plans bears considerable evidentiary weight.
5.112 For the valuation of the size of the oil reserves figures contained in business plans
prepared for internal and external purposes seem to reflect reliable estimations of the
size of the reserves. Such business plans were chosen in Phillips Petroleum v Iran, where
the tribunal was confronted with two expert opinions which differed by a factor of two. In
order to find a solution to these discrepancies, the tribunal referred to the estimation
which the parties had agreed on when establishing a joint company for the exploration
and exploitation of oil. It turned out that those estimates were closer to the figures
submitted by the claimant than to those of the respondent (283) confirming the
evidentiary weight given to business plans made in the past.
5.113 Business plans presented in the course of mergers and acquisitions in the past are
also strongly persuasive. The tribunal in CME v Czech Republic based its forecast on
negotiations between the claimant and the Scandinavian broadcasting company in
connection with the planned acquisition. The plausibility of such prognoses was double-
149
checked by use of studies of independent financial analysts, (284) as well as general
P 249
economic prognoses and other publicly available information. (285) An important
factor was that the prognoses turned out to be correct or even conservative at the time of
the award. (286)
5.114 In CMS v Argentina, the claimant's expert report used the forecast figure prepared
for internal use in the context of the unchanged regulatory framework. (287) The use of a
company's internal forecast prepared in the normal course of business was an
acceptable starting point for the valuation of the company by the tribunal which saw 'no
reason to reject it'. (288) However, it made a number of modifications to the expert's
assumptions. (289)
5.115 In ADC v Hungary, the tribunal relied on the internal business plan of the company
which had been discussed and accepted by the owners a few days before the
expropriation. It explained that the business plan in this case 'constitutes the best
evidence before the Tribunal of the expectations of the parties at the time of
expropriation for the expected stream of cash flows'. (290)
5.116 An approved business plan by a bank was the best evidence for the tribunal in
Abengoa v Mexico to calculate the loss incurred by the indirect expropriation of the
investors' licence for a hazardous waste landfill. The tribunal pointed out that the plan
had been elaborated and approved by the bank before the dispute arose. This gave the
tribunal the opportunity to apply the DCF method despite the very short duration of the
operation of the landfill. (291)
(d) Economic Circumstances
5.117 The forecast must also take into account economic circumstances which would have
influenced the company's performance even in the absence of the expropriation or the
unlawful act. From the perspective of some years, this is often a difficult task. The
economic circumstances are constantly changing, and it is important to distinguish
between those factors which have to be included in the valuation and those which have
to be excluded.
5.118 The criteria as developed by the Iran–US Claims Tribunal in American International
Group v Iran, namely to exclude the effects of actions taken by the nationalizing state in
relation to the enterprise but to include changes in the general political, social, and
P 250 economic conditions, (292) have turned out to be difficult to put into practice. The
tribunal itself only arrived at an 'approximation' of the value of the expropriated
company, taking into account 'all the relevant circumstances of the case'. (293)
5.119 In Thomas Earl Payne v Iran, the difference between the effects of the actions taken
by the state and the general economic changes was fairly obvious. (294) As the enterprise
was operating in the distribution of films— particularly of US films—and in the electronic
industry, it would have been affected by the new economic circumstances after the
Islamic revolution in Iran. (295) This was independent from concrete threats or unlawful
behaviour of the Government in relation to the claimant.
5.120 Similarly, the case CBS v Iran concerned the Iranian subsidiary of the New York
corporation CBS, which was operating in the music industry in Iran. (296) The tribunal
rejected the valuation of the company based on an income valuation approach in its
entirety because of the changed social circumstances in Iran, '[i]n particular, in view of
the policy of the new Iranian Government against music, especially Western music'. (297)
5.121 The demand of certain products in the future also depends on the development of
the specific industry. The prospects of selling luxury products, household articles, or craft
supplies will have to be evaluated differently. The tribunal in Sola Tiles v Iran addressed
the changed social circumstances (298) and found that in the Iranian society after the
revolution the demand for luxury tiles had markedly declined to the point where future
prospects of the company no longer existed. (299) Due to the lack of a market for such
products, the valuation of goodwill and future prospects of the company was not
accepted. (300) On the other hand, the prospects of a company in the wire and cable
P 251 industry were not necessarily bad. (301) Nevertheless, the tribunal found that future
prospects and goodwill were 'highly speculative' (302) and rejected the application of the
income valuation method. (303)
5.122 On the other hand, the Iran–US Claims Tribunal in Khosrowshahi v Iran emphasized
that the company's products would also be needed after the revolution in Iran. It
explained that the company 'produced a wide variety of basic products including
pharmaceuticals, toiletries, household cleaning products and foodstuffs. Even in the
midst of revolutionary turmoil, it can be expected that a market for these goods would
have continued to exist.' (304) Thus the company did have future prospects according to
the tribunal.
5.123 The jurisprudence of the Iran–US Claims Tribunal concerning the distinction
between the effects of changes in economic circumstances and the effects of the
expropriation or the unlawful act appears to provide useful guidance for the valuation of
future prospects. (305) It has also been taken up in cases involving Argentina in the wake
of its economic crisis in 2001/02. (306)
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(e) Role of Contracts
5.124 If future prospects are connected to a contract or a concession, the terms of the
contract play an important role in the calculation of compensation and damages. Higgins
regretted that disputes between host states and foreign investors are often reduced to
the controversy between the mere invocation of state sovereignty on the one hand and
the principle of pacta sunt servanda on the other. (307) A more flexible approach would
include the possibility and legitimacy of alterations or adaptions of contractual
provisions in long-term contracts. This would provide more flexibility to tribunals in the
valuation of such contracts.
5.125 The arbitral tribunal in Aminoil v Kuwait referred to 'legitimate expectations' which
must be taken into account concerning possible alterations of the long-term concession.
(308) The expectations of investors concern possible adaptations of terms of the contract
P 253 on the one hand, and the possibility of extensions on the other.
5.126 (i) Adaptation of Contractual Provisions Arbitral practice has discussed the
adaptation of contractual provisions primarily with respect to long-term oil concessions.
But it may play a role also in relation to other long-term contracts.
5.127 In Aminoil v Kuwait, the tribunal was of the opinion that the volatility of the oil price,
the policy of petroleum exporting countries in the 1970s, and the numerous
nationalizations at the time had an effect on the legitimate expectations of the claimant.
(309) In view of the fact that the parties had already renegotiated the contract several
times, (310) the tribunal did not accept that the expected future income should be
calculated on the basis of the original contract terms. (311) In particular, it rejected the
idea that certain very favourable clauses would remain unchanged for the entire duration
of the concession. (312) The company should only be entitled to a 'reasonable rate of
return' and the 'contractual equilibrium' of rights and obligations should be maintained.
(313)
5.128 The Iran–US Claims Tribunal in Phillips Petroleum v Iran concluded that the value of
the claimant's interest in September 1979 would have been reduced significantly by
virtue of the perceived risk that 'a buyer might encounter irresistible future pressures to
modify the JSA in ways that would greatly reduce the anticipated future profitability of
those JSA interests'. (314)
5.129 Such considerations play an even more important role, if the contract itself
contains revision clauses. This became clear in Autopista v Venezuela where the tribunal
did not accept the claimant's submission that the rights and obligations would remain
largely unchanged during the thirty-year term of the contract. The concession itself
contained provisions on regular updates which, even if interpreted differently by the
parties to the dispute, according to the tribunal, showed that the parties had expected
the possibility of fluctuating income and the necessity of adaptations. (315)
5.130 The tribunal in Himpurna California v PLN also addressed the issue of legitimate
expectations. (316) The respondent, referring to Aminoil v Kuwait, submitted that the
serious changes in the economic situation of the country (317) would have compelled
adaptations of the contractual provisions with a view to arriving at a 'reasonable rate of
return'. The tribunal, however, rejected this argument in this case, (318) because the
contract had been explicitly drafted in such a way that the risk of currency devaluation
and other state actions had to be borne by the respondent, (319) implying thus a
guarantee of purchase by the contracting partner. According to the tribunal, neither force
majeure nor clausula rebus sic stantibus could be validly invoked.
5.131 In CMS v Argentina, the tribunal rejected the possibility of the extension of the
contact for another ten years (320) as well as the increase in the percentage for
maintenance and operation of the gas pipelines. (321) With respect to the agreed
contractual possibility of the adaptation of tariffs after the year 2013, the tribunal
supposed a decrease in the tariff of 5 per cent in the 'no pesification scenario'. (322) In
the 'pesification scenario', by contrast, the tribunal presumed an increase of the tariff to
balance the currency devaluation and the departure of the index adjustments. The
tribunal held:
With the disappearance of the US PPI adjustment, it would be strange to say
the least that TGN would be left in a situation where, as forecasted by Mr.
P 254 Wood-Collins, its domestic sales revenue would remain completely flat for
the next 22 years; … it is difficult to believe that TGN would not have been able
to convince ENARGAS that this was an unacceptable situation and that some
increase in the tariff was required on the occasion of its Five Year Reviews.
(323)
5.132 Even though the contracts contained purchase guarantees the tribunal was of the
opinion that these guarantees could not be regarded as guarantees of a certain quantum
of income, but that certain adjustments could have been expected, because 'taking into
account the magnitude of the crises faced by Argentina, it would be highly unrealistic to
assume that some adjustments to those ship-or-pay contracts would not have been made
between the parties concerned'. (324)
5.133 On the other hand, lost profits were awarded in Al-Kharafi v Libya by the Arab
151
Investment Court in Cairo despite the fact that the contract had already been breached
at a very early stage. Construction work had never started due to assaults against the
workers and other problems concerning, inter alia, the ownership of the land. In 2010, the
Libyan Minister of Economy aborted the project. Essentially referring to court doctrine
and jurisprudence of Libyan law, the Court eventually awarded lost profits for the
remaining life of the contract, a period of eighty-three years. (325)
5.134 These cases show that tribunals may include in their valuation of future prospects
the possibility that the terms of a long-term contract might change over time. It depends
on the particular formulation of the contract and the underlying circumstances—such as
express 'guarantees' by host states without which the investor would not have agreed to
the contract—whether such possible changes should be considered in the income-based
valuation.
5.135 (ii) Extension of Contracts Frequently, long-term contracts or concessions contain
provisions of possible extension. This extension can depend on mutual agreement or
depend on the fulfilment of certain conditions. This possibility of extension also forms
part of the legitimate expectations of the investor.
5.136 If the contract provided for an extension only in case of an agreement between the
parties, the arbitral tribunal usually did not include it in the valuation. In Shufeldt, for
example, the arbitral tribunal did not accept the possible extension for valuation
purposes. (326) In Bridas v Turkmenistan, the tribunal also excluded this possibility and
explained:
It is obvious that as matters now stand, the Turkmenian side would not agree.
Based on the conduct of the Claimant both before and in the arbitration, it is
P 256 the opinion of the arbitrators that a refusal by the Government and the
Respondents would be reasonable and the term would not have been
extended beyond 25 years. (327)
5.137 In LETCO v Liberia, however, the tribunal found that the timber concession which
originally had been concluded for twenty years would have been extended for another
fifteen years. (328) The tribunal pointed out that the possibility of extension was
formulated in the contract as an option of the concessionaire. He had the right to extend
the contract only on the condition that the contractual obligations had been fulfilled and
all the taxes and duties had been paid. (329) According to the tribunal, the investor would
have fulfilled all these conditions in view of his performance so far. (330) The remaining
term of the contract was thus twenty-four years, and the larger portion of the 'lost profits'
stemmed from the second period, namely US$ 4,110,809, in comparison to US$ 2,009,380
of the first period. (331) The main reason was that the tribunal assumed only 70 per cent
of the variable costs for the second cut (332) and enough capacity to accelerate the
production in order to terminate the works until the end of the concession. (333) The
tribunal thereby accepted the rather optimistic submissions of the claimant. (334)
5.138 In CME v Czech Republic, the extension of the TV licence was also taken for granted.
The respondent had opposed the contention that the licences would have been
extended. However, the tribunal referred to the fact that, 'generally, broadcasting
licenses in Europe are renewed as a matter of ordinary administrative practice'. (335) The
tribunal noted that the parties could identify to the tribunal only one known case (an
English broadcasting licence) in Europe in which a broadcasting licence was not renewed,
although the licence requirements were fulfilled by the licence owner. (336) Furthermore,
the interested buyer, the Scandinavian broadcasting company, had also not seriously
considered a non-renewal of the licence. (337) In addition, the tribunal referred to the
fact that the Media Council of the Czech Republic had meanwhile extended the licence of
the Czech partner enterprise, with which the claimant had collaborated, until 2017. (338)
5.139 It may be concluded that the possibility of the extension of a contract at the time of
its conclusion is not always included in the valuation, but that tribunals have taken into
account subsequent developments. This is not problematic, if the valuation standard is
'full reparation', both in cases of state responsibility and in breach of contract cases,
because the valuation date in these cases should, in principle, be the date of the award.
(339) If the standard, however, is supposed to be the fair market value at the
expropriation date, later developments should be disregarded. In this case, only the
perspectives as of the date of the conclusion of the contract should be considered. (340)
(f) Comparison of Two Future Scenarios—'But for' Approach
5.140 The comparison of two future scenarios as a means of determining damages on the
basis of a lost income stream is known as the 'sales projections' or 'but for' method:
The sales projections, or 'but for', method entails the creation of a
performance model for the subject company, complete with growth and return
estimates. Using the model, operations for the subject company are projected
during the damages period absent (i.e. 'but for') the alleged effects of the
defendant's actions. The returns suggested by the model are then compared
with the actual results realized by the company during the period. (341)
5.141 If the unlawful act of a state destroys or impairs long-term investments, it appears
152
appropriate to measure the damage incurred by a projection of the future income after
the breach and compare it with the hypothetical future income without the breach. The
difference between those two scenarios is equal to the damage caused by the unlawful
act.
5.142 Although this method appears to be a model example of the application of the
differential method, arbitral practice has also used it to determine the fair market value.
This was also the case after violations of BIT standards other than expropriation. (342)
Due to the lack of a BIT standard of compensation for those violations, tribunals applied
per analogiam the expropriation standard. (343) Other tribunals applied the 'but for'
method on the basis of the customary law standard of full reparation. (344)
5.143 The 'but for' method was repeatedly referred to in cases against Argentina where
ICSID tribunals had to evaluate the consequences of the Argentinian emergency measures
during its economic crisis in 2002. The acts of the Government included the suspension of
P 257 tariff adjustments, the prohibition of increases in tariffs, the calculation of the tariffs in
US dollars, and the lifting of the linkage between the US dollar and the peso, the so-
called 'pesification'. (345)
5.144 The claimant in CMS v Argentina was affected by these measures insofar as it had
invested in operations in the transport and delivery of gas on the basis that it could
generate income out of this business in US dollars and that the respective tariffs would
be regularly adjusted according to the US producer price index. (346) The tribunal found
that the measures of the Argentine Government had not amounted to expropriation (347)
but constituted violations of fair and equitable treatment (348) and the umbrella clause
contained in the BIT. (349) The damages due should be calculated by a comparison of the
fair market value of the investment with and without the unlawful act of the state.
5.145 In order to calculate this difference the tribunal largely followed the claimant's
experts, comparing the scenario 'without pesification' with the scenario 'with
pesification':
Mr. Wood-Collins is the only expert to have estimated the value loss suffered
by CMS on its TGN's shares. In doing so, he used the forecasted figures
prepared by TGN for its internal use in 2000, in the context of an unchanged
regulatory environment. From this basis, he produced two scenarios, one for
the 'no regulatory change' context (or 'without pesification', as the Tribunal
will describe it) and the other for the 'new regulatory environment' (or 'with
pesification'). (350)
5.146 Both scenarios were valued by the DCF method. The tribunal referred, in this
context, to the fair market value as defined by the International Glossary of Business
Valuation Terms of the American Society of Appraisers. (351) The calculation was rather on
the assumption that the investor kept the ownership of the shares. However, the tribunal
obliged the claimant to transfer the shares to the respondent for a determined price, at
the option of the latter, within one year. (352)
5.147 In Enron v Argentina, the tribunal was also of the opinion that the difference
between the fair market value with and without the pesification would best represent the
P 258 damage actually caused by the unlawful acts of the Argentine Government. (353) The
claimant in this case had also invested in the transport and delivery of gas and based its
calculations on a fixed exchange rate between the peso and the US dollar as well as on
tariff increases based on the US PPI. The no-pesification scenario was calculated by the
DCF method. For valuing the pesification scenario, however, the tribunal referred to a
price actually paid for a share of the respective company a few months before the
tribunal award. (354) The price actually paid appeared to be the most appropriate
measure of value of the company in the pesification scenario. (355)
5.148 In Sempra v Argentina, the claimant had also invested in the gas distribution
industry. (356) The tribunal again referred to the fair market value for determining the
damage caused by the violation of fair and equitable treatment contained in the
applicable BIT. The tribunal explained that it would subtract the value under the
pesification scenario from the value without pesification. In addition, it found that so-
called 'historical damages' had to be added, namely producer price index adjustments
in 2000 and 2001 and the non-payment of subsidies:
The damages suffered are then arrived at by first stating the value of the firms
under the but-for scenario, from which the value under the pesification
scenario is subtracted and the value of the historical damages is added (or
Damages = C -B+A). (357)
5.149 It is notable that the tribunal emphasized also taking into account the difficult
economic situation in Argentina in the 'but for' scenario. It pointed out that this situation
would have affected the investor's income stream even without the respondent's
violation of the BIT:
This conclusion does not mean that, under the but-for scenario, CGP and CGS
would have merrily sailed through the major economic crisis which Argentina
suffered and brought home large returns on equity, as if nothing had ever
153
happened. In particular, the Tribunal is of the view that CGP and CGS would
have been called upon to shoulder some of the burden of the general
economic crisis and might have been faced with the need to reduce some of
the increases to which they might otherwise have felt they were entitled to;
moreover, and in a significant way under the but-for scenario, gas
consumption and tariff rates would have been significantly impacted, with the
consequent results on the value of the firm. (358)
5.150 The 'but for' approach is also, and even more appropriately, useful for the valuation
of damages and full reparation. It almost ideally represents the 'differential method'
necessary for assessing losses under a subjective–concrete valuation perspective. (359)
The ICSID Tribunal in LG&E v Argentina expressly objected to the application of the fair
P 259 market value standard after a violation of the obligation to fair and equitable
treatment but also calculated the damage under a 'but for' approach. (360) The
calculation of damages was based on the premise that, had Argentina maintained the
tariff regime, the dividends received by claimants would have been in effect greater than
those actually paid out. The 'but for' calculation was limited to the difference of
dividends expected under the no-pesification scenario and dividends actually received,
but did not include other elements of damage. (361)
5.151 The 'but for' method can also be applied for damages incurred in the past. In the
NAFTA case Mobil v Canada, the tribunal found a breach of Article 1106 concerning the
performance requirement prohibition. (362) It evaluated the damages on the basis of
incremental spending for research and development in accordance with the incriminated
'Guidelines for Research and Development Expenditures'. The tribunal applied the
historic ratio between incremental and ordinary course spending for the valuation of
damages. This was a use of the 'but for' approach with regard to the past. Also the
tribunal in TECO v Guatemala limited the evaluation of lost cash flows of the electricity
distribution company caused by the unlawful unilateral change of tariffs to a period in
the past. (363)
(g) Valuation Phases
5.152 Valuation experts usually divide the forecast period into various phases. (364) In
arbitral practice the division of the forecast period has sometimes been reflected by a
separate valuation of the damage before and after the date of the award. This was, for
example, the case in the second award in Amco v Indonesia (Amco II) where the tribunal
calculated first the damage incurred from the date of the breach until the date of the
award and then the damaging effects of the wrongful act from the date of the award in
the future:
The assessment will be divided into two periods, from July 9, 1980 until the
end of 1989; and from 1990 until 1999 … But as to valuation techniques, for
1980–89 the Tribunal will not use the perspective of what the reasonable
businessman in 1980 could foresee, because for this period it can use known
data for relevant factors … (365)
5.153 For the first phase, the tribunal took the results of a fifteen-month 'base period' and
extrapolated them until the date of the award, using known data in respect of inflation,
P 260 taxes, and exchange rates. (366) For the second phase, the tribunal still relied on the
'base period' but needed to forecast the other parameters. It did so by taking the
average of the inflation rate, taxes, and exchange rate of the last few years and projecting
them into the future. (367) By contrast, the tribunal in LETCO v Liberia relied on different
data in the 'first cut' and the 'second cut', because the fixed and variable costs would be
less than with regard to the former. (368) , (369)
5.154 A division of the forecast period under a DCF analysis was effected in CME v Czech
Republic. (370) The first phase related to internal business plans of the company and
forecasts by the interested willing buyer, the Scandinavian broadcasting enterprise, until
the year 2003. (371) The second phase encompassed the period until 2008 which was still
based on verifiable and comparable business data about which the parties did not
disagree significantly. Only the third phase after 2008 which had to be regarded in
connection with the projected extension of the TV licence, was problematic. The claimant
included this third phase in the calculation and extrapolated the forecast for another
three years. The value beyond that date was identified as the 'terminal value' or
'continuing value' and was determined by a further extrapolation of the forecasts. (372)
The respondent rejected the inclusion of these last two phases as it disagreed with the
assumption that the licence would have been renewed and in particular that the licence
would have been renewed under the same favourable conditions. Furthermore, it
contested the assumptions of the future business opportunities, in particular the
advertising market share and the audience share, as far too optimistic, also because of
their assumed constant growth rates. (373) The tribunal agreed in principle with the
claimant to include the third phase and the terminal value, but disagreed with the
weighting of the different phases. It pointed out that the differences in the valuation of
the company in the first two phases were only minor, but that in particular the inclusion
of the third phase and the 'terminal value' contributed to a gap between the parties'
valuations of more than US$ 200 million. (374)
154
5.155 The 'terminal value' after the projected valuation phase can be either the going
P 261 concern value, if there are future prospects of the investment, or the liquidation value.
(375) Another possibility to define valuation phases is to distinguish between pre-breach
and post-breach damages. (376)
5.156 The division of the forecast period into two or more phases has proved to be of
assistance to arbitral tribunals in better identifying the different parameters of the
valuation. It puts them in a better position to address the points of agreement and
disagreement in the parties' valuations. This offers the chance to estimate the future
income not only very roughly, but rather to develop and render a better reasoned award.
(4) Discounting and Country Risk

5.157 In arbitral practice, the process of discounting is usually based on the submissions
of the parties and the experts. The choice of the discount rate, whether built-up rate or
Weighted Average Cost of Capital (WACC), is usually not explicitly ordered by tribunals.
Instead, they evaluate the proposed discount rates by the parties. On this basis, they
make their own assessments, which have been remarkably more detailed in recent
jurisprudence than some years ago.
5.158 With regard to the discount rate the question arises, which risk factors should be
reflected in the projection of cash flows and which should be reflected in the discount
rate. According to international valuation practice, the 'specific risk' (or 'undiversifiable
risk') of a business should not be reflected in the discount rate, but in the cash flow
forecast. (377) This allows estimating more precisely the economic prospects of the
valuation object. Only the 'market risk' (or 'diversifiable risk') should be reflected in the
discount rate. The reality in investment arbitration does not, however, always reflect
these considerations.
5.159 A good example where this approach was applied was CME v Czech Republic. In its
valuation of the claimant's interest in a TV station, the tribunal followed the above-
mentioned approach and incorporated the specific risks of the company in its
projections of cash flows, and not in the discount rate. (378) The main risk consisted in the
loss of market shares to one existing competitor. This risk was assessed on the basis of a
due diligence report made by an interested buyer only a few months before. (379) This
interested buyer, however, had not reflected the risk by the cash flow projections or in
P 262 the discount rate, but by the selection of a lower multiple. (380) In order to confirm this
valuation, the tribunal referred to DCF calculations put forward by both parties to the
disputes. The tribunal explained the choice of the discount rate by the claimant's expert
as follows:
Dr. Copeland applied a discount rate based on the weighted average cost of
capital in accordance with conventional valuation practice. This calculation is
necessary to determine the current value of a stream of cash flow extending
into the future. It involves a process of attaching a notional optimal capital
structure to a standalone CNTS (here Dr. Copeland used a 30% debt–70%
equity structure), determining a risk-discounted return rate on equity and
debt, and using that rate to reduce projected future earnings streams to a
present value. (381)
5.160 If this approach is followed, it should not be too controversial to identify an
appropriate discount rate in most cases. The market risk of an investment in a particular
country is known, and so is a company's equity/debt ratio. (382)
5.161 Agreement between the opposing parties' experts on the discount rate should thus
not be too surprising. (383) If the discount rate is based on the WACC and the CAPM, (384)
only the 'systematic risk' of a company should be reflected in the discount rate. In CME v
Czech Republic, the experts not very surprisingly assessed the systematic risk of a TV
broadcasting company in the Czech Republic in the same way. The specific or
'unsystematic' risk of the company was reflected in the cash flow forecasts of the parties'
experts, (385) which differed considerably and were addressed by the tribunal in detail.
(386)
5.162 Similarly, the tribunal in ADC v Hungary applied the DCF method by using the WACC
P 264 and the CAPM. (387) It rejected the criticisms of the respondent as to the market risk
premium, the country risk premium, and the lack of discounts for illiquidity or absence of
control. (388) With respect to the 'beta' it agreed that a 'beta' of various representative
airports had been applied. (389) It pointed out that the approach and method were
reasonable and reliable and in line with the pertinent standard of international law. (390)
5.163 Also in CMS v Argentina, the systematic risk was included in the discount rate, while
the specific risk was incorporated in the forecasts. (391) The tribunal, however, found that
the systematic risk applied by the claimant's experts under the pesification scenario was
too high as it assumed that similar shocks of the same magnitude as the pesification
shock would be repeated, which the tribunal did not find appropriate. (392) It reduced
the discount rate, therefore, from 45.04 per cent to 18 per cent. (393) On the other hand, it
slightly increased the discount rate applied for the non-pesification scenario, (394)
because the country risk premium was based on debts and, according to the tribunal,
shareholders would bear a higher risk than debtholders. (395) The discount rate was
155
accordingly increased from 13.34 per cent to 14.5 per cent. (396)
5.164 In Enron v Argentina, the experts of both parties applied the WACC but selected
slightly different figures, namely 12.24 and 14.86 per cent respectively. (397) The tribunal's
expert suggested using a higher premium for risk than that applied by the claimant,
namely 12.6 per cent, apparently reflecting an increased unsystematic risk and inflation.
(398)
5.165 In Sempra v Argentina, the tribunal accepted the WACC as presented by the
claimant both for the pesification and the non-pesification scenarios. (399) The main
reason was that the parties had arrived at relatively similar figures. The tribunal
considered that the discount rate under the pesification scenario could have been even
larger to reflect the greater uncertainty in the new regulatory context which would have
increased the damages suffered by the claimant. (400) It, therefore, decided to apply the
figures presented by the claimant, namely 13.77 per cent and 14.12 per cent respectively
for the two affected enterprises. (401)
5.166 The tribunal in Alpha Projektholding v Ukraine accepted the discount rate of 12.14
per cent as presented by the claimant's expert. (402) In its reasoning it referred also the
debt-to-equity ratio for the determination of the appropriate WACC:
The 12.14% figure represented the weighted average cost of capital (WACC)
based on the debt-to-equity ratio of the Hotels & Motels category for
emerging markets reported in Bloomberg. In response, EBS asserted that 'it
would not be correct to apply debt to equity for the agreement, which has “its
own” assets but not for the SE Dnipro Hotel. In this specific situation it would
have been 100% equity, instead of 60% equity ratio applied which would bring
WACC to 14.42% instead of 12.1% applied.' LECG cited several authorities in
support of the proposition that 'the target capital structure must be used,
instead of that of the actual firms being valued.' (403)
5.167 In EDF v Argentina, the tribunal took made a considerable effort to explain in detail
the use of the CAPM and the appropriate discount rate. (404) It also discussed the
difficulties in the selection of the correct beta factor:
According to LECG, data of beta assessments from developing countries' stock
exchanges are highly volatile and unreliable … In addition, betas of several
companies are often needed, as this makes the sample much more stable.
Respondent's experts also advance that it is difficult to find relevant local
companies in the local stock exchange that are comparable with EDEMSA.
Finding such views reasonable, the Tribunal is convinced that a more reliable
beta value is yielded by estimating the beta for an equivalent company in a
developed economy such as the U.S., and then adjusting to reflect the extra
return required for investing in a developing economy. In this connection, the
Tribunal finds more suitable the raw beta measurements established by
Ibbotson, rather than relying on assessment of the few U.S. companies
selected by MBG. (405)
5.168 The tribunal noted also the respondent's method in calculating the country risk
premium. However, the tribunal was not convinced to render an excessive value of
country risk premium and then apply a 10 per cent ceiling to their historical average, as
P 265 proposed by the respondent, without sufficient justification. Instead it found that the
cost of equity should follow the formula:
(406)
Applying this formula to the company yielded a cost of capital of 12.97 per cent. (407)
5.169 In the various investment arbitration cases against Venezuela, the country risk was
of particular interest for the calculation of compensation or damages and was reflected
differently in different awards. However, this does not mean that the results were
necessarily inconsistent or contradictive, because the cases concerned lawful
expropriations on the one hand, and unlawful acts on the other. It is therefore not
surprising that different considerations of country risk may have come into play.
5.170 In two cases, the tribunals found that the expropriations were lawful, namely in
Mobil Cerro Negro v Venezuela (408) and Tidewater v Venezuela. (409) If an expropriation is
regarded as lawful, the respondent acted in compliance with the applicable legal
framework. Under the pertinent rules of international law, compensation should amount
to the fair market value of the asset at the time of the expropriation or before the
expropriation became known. The valuation should thus follow on an objective, market
related, basis and not reflect any change because of the act of the expropriation itself.
These considerations may certainly influence the views on country risk and the selection
of the discount rate.
5.171 In Mobil Cerro Negro v Venezuela, the claimant's expert suggested a discount rate at
the cost of capital of 8.7 per cent. (410) The respondent contended that the CAPM
methodology was of little relevance in determining the value of an international oil
project because it did not take into consideration the country risk. (411) The claimants
156
replied that the country risk was largely composed of the risk of uncompensated
expropriation, which could not be taken into consideration in order to evaluate
compensation in case of such an expropriation. In addition, the claimants submitted that
this would be incompatible with Article 6 of the BIT and the principle of full reparation.
(412) Yet, this argument overlooked that the standard of compensation contained in BITs
is not the full reparation standard.
5.172 The tribunal was therefore correct to reject the valuation which did not take the
P 266 expropriation risk into account. The respondent's experts, by contrast, had used a
discount rate, which included the confiscation risk and other relevant elements. On this
basis, they arrived at discount rates ranging from 18.5 per cent to 23.9 per cent. The
tribunal decided to apply a discount rate of 18 per cent, the same rate applied in a
previous ICC arbitration. (413) With regard to the inclusion of country risk, the tribunal
explained:
[C]ompensation must correspond to the amount that a willing buyer would
have been ready to pay to a willing seller in order to acquire his interests but
for the expropriation, that is, at a time before the expropriation had occurred
or before it had become public that it would occur. The Tribunal finds that, it
is precisely at the time before an expropriation (or the public knowledge of an
impending expropriation) that the risk of a potential expropriation would
exist, and this hypothetical buyer would take it into account when
determining the amount he would be willing to pay in that moment. The
Tribunal considers that the confiscation risk remains part of the country risk
and must be taken into account in the determination of the discount rate.
(414)
5.173 The tribunal in Tidewater v Venezuela noted that 'the element of greatest difference
between the approaches of the experts is the premium to be applied to the risk of
investing in a particular country, here Venezuela'. (415) The claimants' expert had
adopted a country risk premium of 1.5 per cent, in contrast to the respondent's 14.75 per
cent. The explanation for the low discount rate was that political risk ought to be
excluded from it. The existence of the investment protections contained in the
Venezuela–Barbados BIT meant that the 'real risks of the Government acting in a very
negative way towards any private investment' (416) should be excluded. To include such
risks would confer an illegitimate benefit on the state.
5.174 The tribunal rejected this view pointing out that the BIT did not prohibit all state
taking of private property. It only prescribed the state must pay compensation in the
amount of the 'market value' of the investment in such a case. (417)
[The] Tribunal should consider the value that a willing buyer would have
placed on the investment. In determining this value, one element that a buyer
would consider is the risk associated with investing in a particular country.
Such a factor is not specific to the particular State measure that gives rise to
the claim … Rather the country risk premium quantifies the general risks,
including political risks, of doing business in the particular country, as they
applied on that date and as they might then reasonably have been expected
to affect the prospects, and thus the value to be ascribed to the likely cash
flow of the business going forward. (418)
5.175 The tribunal's view was that the country risk premium for Venezuela in 2009 of 14.75
would represent a reasonable and rather conservative premium, (419) pointing to the
country risk premium of 18 in Mobil Cerro Negro v Venezuela. As the exproprition was
P 267 lawful, the valuation must include a country risk premium.
5.176 A different scenario is the valuation of property subjected to an unlawful act by the
host state. This question was discussed thoroughly in Gold Reserve v Venezuela (420) and
Flughafen Zürich v Venezuela. (421) In both cases, the tribunals found that Venezuela had
acted unlawfully. It followed from this under the law of state responsibility 'full
reparation' was due for the damage incurred. In this context it seems to be logical that
the state should not benefit from its own acts and request a 'country risk' discount in
order reduce its payment obligation.
5.177 The tribunal in Gold Reserve v Venezuela found that Venezuela had breached Article
2 of the Canada–Venezuela BIT by terminating the concessions without proper reasoning
and by physically seizing the claimant's assets. The tribunal held that the actions of the
respondent were 'particularly egregious'. (422) In this case, the tribunal agreed with the
claimant's expert that 'it is not appropriate to increase the country risk premium to
reflect the market's perception that a State might have a propensity to expropriate
investments in breach of BIT obligations'. (423) The tribunal considered, however, that the
country risk premium adopted by the expert was too low, as it took into account only
labour risks and not other genuine risks that should be accounted for—including political
risk, other than expropriation. The tribunal pointed out that the expert had not taken
adequate account of these other risks when estimating the country risk premium. The
tribunal also noted that no expropriation had occurred and that the claimant's failure to
exploit the concessions within the required timeframes provided the legal basis on which
the respondent terminated the concessions. The tribunal therefore increased the country
157
risk from 1.5 per cent to 4 per cent. It calculated that using a 4 per cent country risk
premium resulted in a cost of equity of 11.92 per cent, with a resulting WACC rate of 10.09
per cent, rather than 8.22 per cent as used by the claimant. The tribunal applied this
discount rate on the lost projected future cash flows.
5.178 In Flughafen Zürich v Venezuela, the tribunal decided that the measures adopted by
Venezuela constituted a 'direct expropriation, more concretely, a nationalization of the
investment'. (424) The measures were not lawful, because they were in violation of
Venezuelan law, as confirmed by the administrative court, and were not accompanied by
the payment of compensation. (425) As regards the discount rate and the country risk
premium, the tribunal agreed with the discount rate as proposed by the claimant. It
found that a country could not benefit from a wrongful act attributable to it to increase
country risk. However, at the time the investments were made in 2004, the country risk
P 268 already existed (7.9 per cent country-risk rate). Furthermore, the claimants had used a
15 per cent discount rate when developing their investment business plan. (426)
Therefore, the tribunal set the discount rate at 14.4 per cent. This corresponded in fact to
the discount rate proposed by the respondent, in contrast to the 4.6 per cent rate
submitted by the claimant.
5.179 In conclusion it can be said that the tribunals in the cases against Venezuela
calculated compensation and damages in accordance with the principles of international
law and international valuation standards. Excluding the country risk in some cases and
including it in others is neither contradictory nor inconsistent, even if it seems to be so at
first sight.
5.180 A case which does not seem to fit in this line of jurisprudence appears to be OI
European Group v Venezuela. (427) In this case, the tribunal held that the expropriation
was unlawful, because Venezuela had left the claimant in a state of uncertainty as to
which specific assets were being expropriated, such as business assets, companies
including liabilities, bank accounts, goodwill, know-how, and technology, which
amounted to a lack of due process. (428) With regard to the discount rate the tribunal
found that the tables presented by the claimant's expert showed a very low discount
rate. The rate of 2 per cent corresponded to Italy, which did not satisfy the tribunal.
Instead, country risk should reflect risks of public debt and market volatility. (429) By
contrast, it should not reflect the specific expropriation risk. The tribunal increased the
country risk to 6 per cent which led to a discount rate of 23 per cent, as opposed to the
20.39 per cent proposed by the claimant. The rather high result was a consequence of the
high discount rate used by the claimants. This award does therefore not run counter the
line of jurisprudence discussed above.
5.181 This overview of investment arbitration practice shows that the discount rates in
recent cases are more reflected upon than previously. They are increasingly based on
valuation methods commonly used in business practice, namely the DCF method using
WACC and CAPM. The discount rates selected by the parties also reflected the ideas of
these models. It follows that the specific or 'unsystematic' risk of the company is
generally not reflected in the discount rate, but in the cash flow projections. By contrast,
the 'systematic' risk of a company is assessed similarly by the experts. This puts the
tribunal in a position to concentrate more on the estimation of the cash flow projections.
Country risk forms part of the 'systematic' risk and is therefore predominantly reflected
in the discount rate. However, a high discount rate should not help a state to benefit from
its own wrongdoing. The difference between lawful and unlawful acts of a host state
P 269 should have an influence on the choice of the discount rate.
(5) Inflation
5.182 International practice has not been consistent as regards the reflection of inflation
in the income valuation approach. In Phillips Petroleum v Iran, for example, the
claimant's expert chose a discount rate of 4.5 per cent which did not include inflation.
This was consistent insofar as 'the future expected cash flows are expressed in constant
1979 dollars, the Claimant's discount rate contains no additional factor for inflation'. (430)
5.183 By contrast, the discount factor applied in Amco v Indonesia should not only reflect
risk but also inflation. In this regard, the parties submitted diverging numbers, ranging
from 3 per cent to 34 per cent. (431) The tribunal eventually chose a risk factor of 4 per
cent, (432) increased by an inflation factor of 6.82 per cent which reflected the average
inflation between 1985 and 1989. (433) The future profits until the end of the licence were,
therefore, discounted by a discount rate of 10.82 per cent to their 'net present value'.
(434)
5.184 In more recent awards, tribunals have not separately added an inflation factor to
the discount rate as, in accordance with the economic valuation principles, forecasting
and discounting should be based on nominal terms and the discount rate already
contains an inflation premium. It is therefore prevailing practice to apply discount rates
without adding an additional factor for inflation. One exception is Enron v Argentina,
where the tribunal's expert suggested increasing the claimant's discount rate to account
also for inflation. (435)
5.185 The inflation aspect is also important with regard to the valuation of 'but for'
scenarios. (436) In Enron v Argentina, the value of the regulated business in the
158
pesification scenario latter should be assessed by reference to a purchase price actually
paid by a willing buyer in 2006, because the tribunal found that this price would provide
an accurate and realistic base for the estimate of the current fair market value of the
business. (437) However, the way the tribunal took the inflation of the peso between 2001
and 2006 into account is not entirely comprehensible. It first assessed that the total net
value of the claimants' participation in the regulated business on 31 December 2001, the
P 270 day before the emergency measures had been adopted, (438) was US$ 129 million.
(439) The price paid for the same interest in 2006 was US$ 62.5 million. (440) It would
appear that the inflation between 2001 and 2006 should be taken into account by
increasing the value of 2001 by the inflation rate and subtracting from this amount the
current value of the interests in order to arrive at the difference between the non-
pesification scenario and the pesification scenario. This would have resulted in an
amount of damages of approximately US$ 141.3 million. However, the tribunal chose the
opposite approach. It decreased the actual value by the inflation rate and subtracted
the amount from the US$ 129 million of 2001. This resulted in an amount of damages of
only US$ 38.6 million under this item of damages. (441) In doing so, the tribunal
effectively passed the burden of the inflation of the peso of an average 14.5 per cent per
annum to the victim of the unlawful act. The rate of pre-award interest, by contrast, was
only between 4 and 6.5 per cent (based on the LIBOR plus two). (442)
5.186 The influence of inflation on the financial outcome of the valuation is certainly
considerable. Nevertheless, in applying the income valuation approach it has turned out
to be more appropriate not to include it as a separate parameter. In arbitral practice,
nominal figures have usually been taken for the forecast of cash flows while inflation was
implied in the discount rate, both under a built-up discount rate or under the
WACC/CAPM.
(6) Reasons for Rejecting the Income Approach in International Practice

5.187 Despite the general use of income-based valuation methods in economic practice
and by valuation experts, international jurisprudence has long regarded them with
reluctance. Even if this has changed in recent years, there are still considerable
uncertainties which tribunals feel uncomfortable with. The tribunal in Rusoro v Venezuela
summarized six criteria and pointed out that DCF would be appropriate only if all or at
least a significant part of them were met:
(1) an established historical record of financial performance;
(2) reliable projections of future cash flows, ideally in the form of a detailed business
plan adopted at a time prior to the event giving rise to the claim, prepared by the
company's officers and verified by an impartial expert;
(3) prices at which the enterprise will be able to sell its products or services can be
P 271 determined with reasonable certainty;
(4) the business plan can be financed with self-generated cash, or, if additional cash is
required, there must be no uncertainty regarding the availability of financing;
(5) a meaningful WACC, including a reasonable country risk premium, can be
established; and
(6) the enterprise is active in a sector with low regulatory pressure or the impact of
regulation on future cash flows is possible to establish with a minimum of certainty.
(443)
While some of these criteria are supported by valuation theory and practice, others
are more controversial. In the following section, the most important arguments as
reflected in arbitral practice are briefly addressed.
(a) Insufficient Past Performance
5.188 Arbitral practice has rejected an income valuation approach when the company
was not a going concern or did not have a record of past performance. The main argument
was that without a past record future calculations would be wholly speculative. The
necessary period of an estimation of future performance of an investment is not entirely
clear.
5.189 The Iran–US Claims Tribunal in American International Group v Iran found that even
a period of four and a half years was too short for establishing an appropriate forecast for
future profitability. (444) It conceded, however, that this was particularly true for the
insurance industry where the profits follow a cyclical pattern requiring longer periods of
observation. If the business was operating in the past but had experienced losses, such as
in CBS v Iran, the Iran–US Claims Tribunal also declined to apply an income-based
valuation. (445)
5.190 In Benvenuti & Bonfant v Congo, only one shipment of mineral water had been
delivered which was not enough for a 'going concern'. The evaluation of the claimant's
company according to the tribunal could thus not be based on its expected earnings,
even though the company had already concluded a number of contracts for further
deliveries. (446)
5.191 Similarly, the tribunal in Asian Agricultural Products v Sri Lanka found that only two
P 272 shipments of shrimp to Japan were not sufficient to demonstrate that the business had
159
'a certain ability to earn revenues' able to keep itself commercially viable as a source of
reliable supply on the Japanese market. (447) The tribunal found that to ascertain
'goodwill' requires a prior presence on the market for at least two or three years, which is
the minimum period needed in order to establish continuing business connections, and
to create and develop the marketing network of the company's products. (448)
5.192 The ICSID Tribunal in American Manufacturing and Trading v Zaire also stated that
future profits were 'not at all measurable without solid basis on which to found any profit
to take or for predicting growth or expansion of the investment made'. (449)
5.193 In Southern Pacific Properties v Egypt the investor had already sold 386 parcels
representing 6 per cent of the project which the tribunal, however, considered to be
insufficient for conducting an income-based valuation because the project was still 'in its
infancy'. (450) In the tribunal's view, 'the DCF method is not appropriate for determining
the fair compensation in this case because the project was not in existence for a
sufficient period of time to generate the data necessary for a meaningful DCF
calculation'. (451)
5.194 In the NAFTA arbitration on Metalclad v Mexico, the application of the income-
based valuation was also rejected because the hazardous waste fill had not yet started
operation. Although the claimant had put forward a DCF calculation, the tribunal rejected
it and followed the respondent's argument that a discounted cash flow analysis would be
inappropriate because the landfill had never been operative and any award based on
future profits would have been 'wholly speculative'. (452) More generally, the tribunal
noted:
Normally, the fair market value of a going concern which has a history of
profitable operation may be based on an estimate of future profits subject to
a discounted cash flow analysis … However, where the enterprise has not
operated for a sufficiently long time to establish a performance record or
where it has failed to make a profit, future profits cannot be used to
determine going concern or fair market value. (453)
5.195 In Wena Hotels v Egypt, the ICSID Tribunal rejected the DCF method because of the
P 274 short duration of the operation and the lack of sufficient data. (454) The tribunal
agreed with Egypt that, 'in this case, Wena's claims for lost profits (using a discounted
cash flow analysis), lost opportunities and reinstatement costs are inappropriate—
because an award based on such claims would be too speculative'. (455) One of the
claimant's hotels had operated for eighteen months, but the renovation works at the
other had not yet been completed. (456) On the other hand, it might be recalled that the
ICSID tribunal in Amco v Indonesia found fifteen months of operation of the hotel as
sufficient for applying an income-based valuation method. (457)
5.196 The tribunal in Técnicas Medioambientales v Mexico considered the more than two-
year period of operation of the hazardous waste fill to be too short to conduct a DCF
analysis:
The non-relevance of the brief history of operation of the Landfill by Cytrar—a
little more than two years—and the difficulties in obtaining objective data
allowing for application of the discounted cash flow method on the basis of
estimates for a protracted future, not less than 15 years, together with the fact
that such future cash flow also depends upon investments to be made—
building of seven additional cells—in the long term, lead the Arbitral Tribunal
to disregard such methodology to determine the relief to be awarded to the
Claimant. (458)
5.197 Several other tribunals have rejected the income approach, because of a lack of
past performance and reliable data on which a meaningful projection of future income
could be made. (459) Nevertheless, it has to be pointed out that a number of investment
tribunals have applied an income valuation approach in cases were there was no track
record. This is not only true for cases where the valuation could be based on solidly
formulated long-term contracts but also in cases where the future profitability depended
on economic circumstances, such as consumer demand and expenditure. The tribunal in
Enron v Argentina noted in this respect that 'the calculation of such value is based on
reasonable estimates of future demand, revenue and expenditures and excludes
consideration of past performance or returns. Historical return on investment is therefore
irrelevant for determining damages.' (460)
(b) No Future Prospects
5.198 Unlike the lack of past performance, the lack of future profitability is a real barrier
for the application of the income approach. Valuation experts would agree that, in this
case, a valuation based on future cash flows or profits would be inappropriate.
International tribunals have also based their rejection of this method on this ground.
5.199 The tribunal in Siemens v Argentina did not find that it was likely that the
investment concerning the production and distribution of electronic identity cards in
Argentina would have been profitable, even without the unlawful act. (461) In Impregilo v
Argentina, the tribunal pointed out that the water and sewage concession in the province
160
of Buenos Aires concerned a poor area with a limited collectivity rate. (462) The tribunal
rejected to apply an income-based valuation due to its doubts on the profitability of the
concession. Several other tribunals have also rejected the income approach on the basis
of lack of future prospects. (463)
(c) Divergence of Amount of Investment and Expected Profits
5.200 Tribunals sometimes referred to the striking divergence between the amounts
invested and the present value of future income as an argument to reject the income-
based valuation approaches. The Iran–US Claims Tribunal held in Amoco International
Finance v Iran:
With the DCF method as used in this Case, the alleged value of the undertaking
has no relation whatsoever to the value of these elements—and therefore to
the investment made in order to create the concern and to maintain its
profitability. The replacement value, that is the investment necessary to
create a similar undertaking, is no more taken into consideration. The
capitalization of the future earnings will probably amount to a much higher
figure, which could lead to unjust enrichment for the beneficiary of such
compensation, since he could hypothetically, establish a similar enterprise
with comparable earnings, spending only a portion of the compensation
received … (464)
5.201 In the arbitration in SPP v Egypt before the ICC, (465) the investors had invested US$
5 million but claimed an amount of US$ 42.5 million based on a DCF calculation. The
P 275 tribunal held: 'The calculation put forward by the Claimants produces a disparity
between the amount of the investment made by the Claimants and its supposed value at
the material date'. (466)
5.202 The ICSID Tribunal in Wena Hotels v Egypt referred to this award and explained its
rejection of the DCF method also by the considerable divergence of the sum invested in
the amount of US$ 8.8 million and the claimed £45.7 million for lost income and business
opportunities. (467) This was later taken up by the ICSID Tribunal in Autopista v Venezuela
in order to explain its rejection of the claim to lost profits under the terminated
concession contract. (468)
5.203 Similarly, the ICSID Tribunal in Técnicas Medioambientales v Mexico noted the big
difference between the amount invested and the alleged value of the landfill based on
future expected cash flows:
The Arbitral Tribunal has noted … the considerable difference in the amount
paid under the tender offer for the assets related to the landfill—US$
4,028.788— and the relief sought by the Claimant, amounting to US$
52,000.000, likely to be inconsistent with the legitimate and genuine estimates
on return on the Claimant's investment at the time of making the investment.
(469)
5.204 From a valuation perspective, this argument is, however, not persuasive. The
amounts invested and the value of the investment are not always proportional to each
other. (470) On the contrary, if an investment turns out to be particularly promising the
host state could be motivated to expropriate it or to otherwise impair it. Great care must
therefore be taken not to link the amount of compensation or damages closely to the
investment actually undertaken, if the investment has good future prospects.
(d) Divergence of Submissions by the Parties
5.205 The estimations of the parties in view of future economic factors and developments
which play the decisive role in income-based valuation methods may be very different. If
these differences are too big, tribunals have sometimes been inclined to reject the
income valuation method altogether. This is particularly true if the disparities cannot be
P 276 verified or assessed by other evidence.
5.206 The ICSID Tribunal in Técnicas Medioambientales v Mexico, for example, rejected the
DCF method and noted 'the remarkable disparity between the estimates of the two
expert witnesses upheld throughout the examination directed by the parties and the
Arbitral Tribunal at the hearing held on May, 20–24, 2002'. (471)
5.207 Also in CME v Czech Republic, the different DCF calculations by the parties resulted
in a gap of roughly US$ 210 million. The tribunal thus did not base its calculation of
damages on the DCF method, but only applied it as a confirmation of its valuation based
on the market approach. (472)
5.208 In Crystallex v Venezuela, the investor claimed US$ 3.16 billion as representing the
fair market value of its investment at the time of the expropriation, while the respondent
contended that no compensation or damages at all should be awarded, because the
claimant's claim was entirely speculative and unsupported. (473) The tribunal agreed
that the income approach was not reliable and excessively speculative in this case. Also
the tribunal in Tenaris v Venezuela was confronted with largely diverging amounts
resulting from the parties' calculations (US$ 239 million as opposed to zero) and rejected
161
the DCF method, which it found to be tainted by too much uncertainty. (474)
(e) The Financial Situation of the Company
5.209 In order to assess the future prospects of a company, some tribunals have taken its
financial position into consideration. The ICSID Tribunal in Asian Agricultural Products v
Sri Lanka, for instance, had certain doubts about the financial situation of the company
and mentioned it as a further reason for the rejection of the income approach. It noted
that the company was incurring losses and was under-capitalized. (475)
5.210 The tribunal in Wena Hotels v Egypt also raised doubts on the financial position of
the investor's project and noted that 'there is some question whether Wena had sufficient
finances to fund its renovation and operation of the hotels'. (476) In Rusoro v Venezuela,
the tribunal noted that the business plan presented by the claimant required additional
funding in an amount of USD 310 million but that there was no certainty that Rusoro
would have been able to secure the financing for this new investment. (477)
5.211 The availability of sufficient financial means, however, should not be regarded as a
P 278 decisive factor for the acceptance of the income valuation approach. The use of
external finance is frequently inevitable for economic operations and investments, in
particular also for opening-up and developing market opportunities. This aspect should
therefore only be used as an additional argument.
(f) Valuation Procedure too Expensive
5.212 The procedure of forecasting and discounting the future economic benefit of a
business usually requires considerable time and money, including by the employment of
valuation experts. It may therefore not be appropriate in all cases to deploy such a
complex valuation procedure. If the business or asset is not particularly valuable, the
income valuation procedure might not be worthwhile. International investment
arbitration has only rarely dealt with very small projects but it is nevertheless useful to
keep this aspect in mind.
5.213 The Iran–US Claims Tribunal in INA v Iran was confronted with a claim of US$
285,000 which was only slightly above the minimum limit of claims of the jurisdiction of
the tribunal in the amount of US$ 250,000 according to Article III(3) of the Claims
Settlement Declaration. (478) Although valuation based on the income approach was in
principle feasible and would most probably have led to a higher amount, the claimant
renounced undertaking a DCF calculation and only claimed the amounts originally
invested. The tribunal noted that: 'INA considers, however, that the expense of such a
valuation was not warranted in view of the relatively small amount involved in this case.
INA therefore claims only an amount equal to its purchase price for the shares.' (479)
5.214 It largely depends on the difference between the economic situation of the
company at the time when the investment was made and at the valuation date. If the
difference is not too large, the value at the time of the investment could be suitable
indicator. In addition, later performance of the company itself or of comparable
companies can also be taken into account. (480)
5.215 The best alternative to the application of a complex and expensive income
valuation method would be to present the price paid or offered in a recent or planned
arm's-length transcation involving the valuation object. Despite the notable difference
between 'value' and 'price' as a matter of principle, an agreed price generally finds
broad acceptance as evidence of the value of an asset in question. (481)
C. The Asset-Based or Cost Approach

5.216 The advantage of the asset-based or cost approach is that it seems to be far less
difficult to apply than the income approach with its complex forecasting and discounting
processes. It looks into the past and not into the future so that is does not involve
'speculative' elements. (482) These virtues are generally highly appreciated in arbitral
practice. Despite the increasing acceptance of the market and the income approaches,
valuation on the basis of assets or costs has remained an attractive option. However,
there are also a number of drawbacks of this valuation approach. (483)
(1) Book Value

5.217 Book value has generally been regarded as inappropriate for determining the value
of an asset. The tribunals in Aminoil v Kuwait and LIAMCO v Libya, for example, held that
book value should not be applied even in cases of lawful expropriations. (484) The
tribunal in Aminoil v Kuwait emphasized that book value would not be acceptable in
particular for investments made many years ago. (485)
5.218 Similarly, the Iran–US Claims Tribunal noted that the 'book value method is used
mainly for liquidation purposes'. (486) The tribunal made clear that in the case of
valuation of companies, future prospects and combination effects must be included in
the valuation. However, the allegation that book value is used for 'liquidation purposes'
may be questioned as liquidation value is usually defined as the net amount that can be
realized in either an orderly or a forced sale of the business assets or some portion of
them. (487) This definition does not coincide with the definition of book value.
162
5.219 The rejection of book value for valuation purposes has been reiterated by the Iran–
P 279 US Claims Tribunal in various cases. (488) In Amoco International Finance v Iran, the
tribunal held that 'the theory that net book value is the appropriate standard of
compensation in all cases of lawful expropriation overlooks the fact that a nationalized
asset is not a collection of discrete tangible goods (equipment, stocks, and possibly,
grounds and buildings). It can include intangible items as well, such as contractual rights
and other valuable assets, such as patents, knowhow, goodwill, and commercial
prospects.' (489)
5.220 ICSID tribunals occasionally did refer to the book value, sometimes as the starting
point of the valuation. The tribunal in Asian Agricultural Products Ltd v Sri Lanka, for
example, accepted only the amounts appearing in the balance sheet of the company for
the calculation of damages after a breach of the respondent's treaty obligations. The
assets were compared with all the outstanding indebtedness thereof at the relevant
time. (490)
5.221 The ICSID Tribunal in Siemens v Argentina found the book value to be an appropriate
measure of damage when the investment was made not long ago. It pointed out that 'the
book value method applied to a recent investment is considered an appropriate method
of calculating its fair market value when there is no market for the assets expropriated'.
(491) The tribunal apparently relied on the submissions of the claimant who had
demanded the book value plus an amount to reflect lost profits. (492) The tribunal did
not find it likely that the investment would have been profitable, so that it awarded only
book value. It also and added expenses incurred and consequential damages. (493) In
Tidewater v Venezuela, the tribunal rejected the contention that the expropriation was
unlawful because compensation under the national Reserve Law was limited to book
value. (494) Referring to the World Bank Guidelines it held that, in some cases, the
appropriate valuation may indeed be the book value. (495)
5.222 In the ad hoc arbitration Reineccius v Bank for International Settlements, (496) the
P 280 tribunal referred to the book value as the best available evidence for the value of a
bank compared to other companies. The tribunal found that the balance sheet gives a
fairly accurate picture of the actual worth of the enterprise. (497) It pointed out that the
balance sheet offers a relatively exact picture of the value of the enterprise. It noted,
however, that the value of the 'fully amortised buildings and land … would always be
open to discussion'. (498) This demonstrates the problem of the book value. Although the
buildings and the land no longer had any book value, they were not completely worthless.
In the case at hand the book value calculation was in accordance with the submissions of
the parties, the statutes of the bank, and its previous valuation practice. (499)
5.223 Generally, it is rather unusual and rare that international practice has relied on the
book value for determining the value of entire companies or investment projects. This is
in accordance with international valuation principles and meets the concerns of the
valuation experts.
(a) Acceptance of Book Value for Particular Items
5.224 While book value as a measure of value for entire companies or projects has
predominantly been rejected in international practice, it has not infrequently been
applied for the valuation of smaller items. The Iran–US Claims Tribunal, for example,
referred to it with regard to plant and equipment. In William Pereira v Iran, the office
premises and the company car were valued under the book value. (500) In Computer
Sciences v Iran, (501) Dames and Moore v Iran, (502) and United Painting v Iran, (503) the
tribunals applied the book value for valuing office equipment in accordance with the
claimants' submissions. The claimant in Sedco v NIOC claimed the application of book
value on parts of the expropriated enterprise, in particular on the inventory. (504) In
relation to immoveable assets, however, it asked for adjustments for inflation. (505)
5.225 In Eastman Kodak v Iran the Iran–US Claims Tribunal did not accept the book value
method as submitted by the claimant. (506) Rather, it relied on the liquidation value for
P 281 valuing the plant and equipment. Despite the fact that this represented only a small
portion (US$ 400,000) of the (inflation-adjusted) book value (US$ 3.2 million), (507) the
tribunal was correct in applying it because the liquidation value better corresponded to
the economic reality than the book value. However, the book value was applied with
regard to 'outstanding promissory notes' as long-term investments of Eastman Kodak in
its subsidiary Rangiran. In accordance with the principle of precaution, the obligations
were considered at 50 per cent of their nominal value in order to account for the
uncertain economic situation of the company at the time. (508)
(b) Adjustment of Book Value
5.226 Book value can be adjusted to account for its above-mentioned deficiencies and to
make it more representative for the value of an asset. (509) The Iran–US Claims Tribunal
has done so on several occasions. In Sedco v NIOC, the claimant submitted a valuation of
the expropriated oil rigs on the basis of the 'current net book value' which referred to the
book value as adjusted for inflation. (510) The tribunal noted that this current net book
value would represent 91.7 per cent of the 'actual value'. (511) It did not, however, explain
what it understood by 'actual value', the replacement value, the market value, or the
liquidation value.
163
5.227 In Sedco v IMICO, the claimant submitted a valuation of buildings, equipment, and
machinery also on the basis of the 'current net book value'. (512) The tribunal agreed, in
principle, that the 'current net book value' would reflect the market value better than
historic costs but it contended that in the concrete case at hand this value would be too
high in light of the actual economic situation. It concluded that it would have been
difficult to sell the assets and then only for less than the estimated current net book
value. (513) It follows that the tribunal actually referred to the liquidation value of the
barges. It eventually reduced the current net book value by approximately one quarter.
P 282 (514) From this amount it deducted outstanding debts of the company so that the
claimant did not receive any compensation for its expropriated barges. (515)
5.228 In Tavakoli v Iran too, the Iran–US Claims Tribunal referred to the 'adjusted net
asset value', (516) but then valued the different assets on the basis of their achievable
sales prices which again represented a valuation based on the liquidation value. (517) In
Shahine Shaine Ebrahimi v Iran, (518) the tribunal asked for a valuation based on book
values as adjusted by inflation, but also included the future prospects of the asset. (519)
In order to arrive at values more closely related to the market, several complex
adjustments were necessary, such as the valuation of outstanding accounts receivable
and open contracts. (520) As far as intangible assets were concerned, the expert
expressed the opinion that this would only be appropriate if extraordinary returns could
be expected because 'equipment is likely to be worth more than its replacement cost if
(and only if) the firm can use it to earn an abnormal rate of return—that is, a rate of return
in excess of the cost of capital'. (521) With respect to the revolutionary turmoil in Iran the
expert even noted a negative goodwill as of 13 November 1979. (522)
5.229 In Siemens v Argentina, the tribunal decided to apply the book value for the
valuation of damages, but considered adjustments concerning interest, (523)
supplementary tax entries, (524) and risk allocation. (525) With regard to the latter it
pointed out that 'since the Tribunal has allowed compensation for consequential
P 283 damages, as explained later, the provisioning for risks related to Contract termination
would lead to double counting and is disallowed for purposes of the book value
calculation'. (526)
5.230 The tribunal in Tza Yap Shum v Peru also applied an 'adjusted book value' by using
a factor derived from four Latin American comparable companies' book value/market
price ratio. (527)
5.231 Already this brief overview shows that arbitral practice has often not carefully
distinguished between the various asset valuation approaches—the book value, the
liquidation value, and the replacement value. Furthermore, when adjustments were
necessary, they were often no less complicated and dependent on judgement than the
application of other methods.
(c) 'Sunk Investment' and Wasted Costs
5.232 The repayment of investments undertaken—the 'sunk investment' (528) —is
sometimes referred to as a variant of the book value method. (529) This is not entirely
correct as the book value by definition is reduced by depreciation, which is not the case
if the entire sum of the investment undertaken is paid back more than one year later.
5.233 International practice has been diverse in its acceptance of the sunk investment as
a means for calculating compensation or damages. The tribunal in Norwegian Shipowners
was 'adverse to the view that the compensation should be based upon the mere
reimbursement of expenses', because the 'reimbursement of expenses, disproportionate
to the value of their property, cannot form the basis of just compensation.' (530)
5.234 However, several international tribunals have based their valuation on sunk
investments, both for the valuation of the fair market value and for calculating damages.
This was particularly so when the application of other valuation methods appeared to be
too speculative.
5.235 The UNCC has frequently relied on the amounts of investments and expenses
undertaken in its practice of evaluating claims against Iraq, as those amounts were
P 284 relatively easy to prove. (531) In view of the insecure situation in Iraq after the
invasion, the application of other methods, such as income-based valuation methods,
was hardly feasible.
5.236 In Phelps Dodge v Iran, the Iran–US Claims Tribunal rejected reference to the going
concern value because the construction of the wire and cable production factory had just
been completed at the time of the expropriation and production had not yet started.
Taking into account all relevant evidence, the tribunal concluded 'that the value of
Phelps Dodge's ownership interest in SICAB on 15 November 1980 was equal to its
investment …'. (532)
5.237 Similarly, the ad hoc tribunal in Biloune v Ghana decided that a valuation of the fair
market value of the investment on the basis of expected profits was not appropriate.
(533) The claimant had claimed either (1) the loss of the 'contractual rights to develop
and operate the Marine Drive Project' (534) or (2) the 'historical investment value of the
project'. (535) Due to the early termination of the project by the expropriation, the
tribunal regarded the total amount of investments undertaken as the best measure of the
164
fair market value of the property. (536) Furthermore, the tribunal awarded interest and
costs to the claimant. (537)
5.238 In other cases of indirect expropriations, the repayment of the investments made
was reasoned in a similar way. The NAFTA Tribunal in Metalclad v Mexico rejected the
application of the DCF method, (538) calculated the fair market value on the basis of the
claimant's actual investment in the project, and agreed 'with the Parties that the fair
market value is best arrived at in this case by reference to Metalclad's actual investment
in the project'. (539)
5.239 The argument of the ICSID Tribunal in Wena Hotels v Egypt was almost identical
because, of the two hotels in Luxor and Cairo, only one had been operating for a couple of
months. With regard to the valuation method the tribunal agreed 'with the Parties that
the proper calculation of the “market value of the investment expropriated immediately
before the expropriation” is best arrived at, in this case, by reference to Wena's actual
investments in the two hotels'. (540)
5.240 The repayment of investment in those cases can, however, not be properly
considered as an application of the book value method. The investments had already
P 285 been made a number of years ago and the tribunals did not refer to any depreciation
which should be taken into account or, on the other hand, be added back. Rather, the
repayment can be more properly understood as the 'restitution' of the investments
undertaken. The ICSID Tribunal in Vivendi v Argentina referred to this as 'investment
value'. (541) It calculated the amount of damages by adding up all the amounts of
investments and expenses undertaken later. (542) Also the ICSID Tribunal in Siemens v
Argentina allegedly applying the 'book value' added up all the investments undertaken
for the project, minus amounts disallowed on account of excessive interest rates, tax
credits, and risk associated with the contract termination. (543)
5.241 In Meerapfel v CAR, after the tribunal had found that there had been an indirect
expropriation by a series of measures, it declined the claimant's claim for compensation
for the lost tobacco harvest, as determined by the average price of the tobacco. (544) It
found that there was no future profitability of the investment so that the damage caused
by the CAR was already fully repaired by the amount representing the investment. (545)
5.242 It is, however, doubtful whether the amount of investments actually undertaken is
in fact a substitute for the fair market value. It is not certain that a hypothetical willing
buyer would pay to the investor all the expenses actually spent. He would only do so if
the value of the investment actually was equal to the expenses undertaken. This is not
necessarily the case.
5.243 However, as the cases mentioned were not concerned with lawful expropriations,
the fair market value was not decisive anyway. What is important in cases of state
responsibility such as those quoted above, is the customary international law standard of
full reparation. (546) In this respect, the tribunals might well find that full reparation
could best be achieved by a repayment of investments and expenses undertaken plus an
appropriate rate of interest. Whether this also corresponds to the fair market value of the
investment is only of secondary importance. (547)
5.244 The concrete damage incurred, by contrast, can be represented by the investments
actually undertaken, if additional financial loss in the form of lost profits has not been
suffered. This is the case when the investment would not have been profitable even in the
absence of the unlawful act of the state. This can be assessed from the perspective of the
P 286 date of the award with the benefit of hindsight.
5.245 International tribunals have applied the sunk investment approach in particular
with respect to violations of treaty standards, such as fair and equitable treatment or full
protection and security. In Pope & Talbot v Canada, damages had to be calculated after a
violation of NAFTA Article 1105 (fair and equitable treatment). (548) The closure of the
border by the Export Control Regime on the export of timber had, according to the
tribunal, not amounted to an expropriation. (549) The tribunal decided that the unlawful
interference lasted for only seven days, for which reason the amount of damages was
rather modest. The only items of damages accepted were the 'out of pocket expenses'
which consisted mainly in costs for legal advice, lobbying, and experts. (550) It did not
award an amount for lost profits because the company had enough inventory stock to
bridge the seven-day gap. (551)
5.246 The tribunal in MTD v Chile also awarded only investments actually undertaken and
expenses incurred after a violation of the BIT between Malaysia and Chile with respect to
the obligation to fair and equitable treatment. (552) The foreign investors' construction
project had first been approved by the competent central authorities, but was later
rejected for not being in accordance with the urban planning and zoning regulations of
the regional Government. (553) Before calculating the amount of damages payable, the
tribunal emphasized the difference between compensation upon expropriation and the
standard of reparation enounced by the PCIJ in Factory at Chorzów:
The Tribunal first notes that the BIT provides for the standard of compensation
applicable to expropriation, 'prompt, adequate and effective' (Article 4(c)). It
does not provide what this standard should be in the case of compensation for
165
breaches of the BIT on other grounds. The Claimants have proposed the classic
standard enounced by the Permanent Court of Justice in the Factory at
Chorzów: compensation should 'wipe out all the consequences of the illegal
act and re-establish the situation which would, in all probability, have existed
if that had not been committed.' The Respondent has not objected to the
application of this standard and no differentiation has been made about the
standard of compensation in relation to the grounds on which it is justified.
Therefore, the Tribunal will apply the standard of compensation proposed by
the Claimants to the extent of the damages awarded. (554)
5.247 The tribunal awarded (1) the restitution of the original investment, (2) expenses
incurred in connection with the project, and (3) financial costs insofar as they were
P 287 caused by the behaviour of the respondent. (555) The residual value of the investment
was deducted from the resulting amount as well as 50 per cent for 'contributory
negligence'. (556)
5.248 In Impregilo v Argentina, the tribunal rejected the income-based valuation due to
its doubts on the profitability of the concession in a risk area with a poor population and
a low collectivity rate. Nevertheless, the investments made were substantial, and the
tribunal based its award on the capital contributions made by the claimant. (557)
5.249 The tribunal in Arif v Moldova made two alternative valuations of wasted costs,
depending on whether the respondents made use of the restitution order in the award to
restore the affected airport shop to the claimant at satisfactory conditions within sixty
days. (558) If that was the case, the costs wasted would only amount to the stock actually
written off and operating costs that have been wasted as a result of the delays in opening
the store. If the offer was not satisfactorily made, the respondent should pay all of the
costs that the claimant incurred and which were wasted due to the interference in
violation of the obligation of fair and equitable treatment, consisting of capital
expenditure, operating expenditures, operating costs, and confectionary stock written
off. (559)
5.250 In Hassan Awdi v Romania, another case of a violation of fair and equitable
treatment, the tribunal rejected the DCF method proposed by claimants due to the
company's history of losses. (560) It found that compensation must be based on sunk
costs being the 'amount invested by Claimants regarding Rodipet in the expectation that
such amount would have been earned back had Law 442 remained in force'. (561)
5.251 Also, violations of contracts have sometimes resulted in awards of expenses
undertaken only. In Atlantic Triton v Guinea, (562) the calculation of the damage incurred
comprised all of the costs and expenses necessary for the renovation and conversions of
three Norwegian ships for the purpose of fishing in the tropical sea. The project had never
been profitable as it had not been possible to use the ships gainfully. The tribunal only
awarded expenses undertaken for the conversion of the ships and partly for personnel
P 288 and management.
5.252 The ICSID Tribunal in PSEG v Turkey decided that expenses incurred must be
refunded even though the investment had not been finally agreed upon. (563) It
maintained that already during the preparatory stage of a planned investment the
investor had been treated grossly unfairly, which amounted to a violation of the
obligation of fair and equitable treatment. (564) The tribunal awarded all the
investments undertaken and expenses incurred in the course of the preparation and
negotiation of the project.
(2) Replacement Value

5.253 Replacement value is the most appropriate form of the asset-based or cost
approach, as it does not refer to historical but to actual prices. The ICJ in the Corfu
Channel Case, valued the damage caused to the British ships HMS Saumarez and HMS
Volage by the explosion of mines on the basis of the costs to repair or to replace the
ships. (565) With regard to the destruction of the ship Saumarez, the Court considered 'the
true measure of compensation in the present case to be the replacement cost of the
Saumarez at the time of its loss'. (566) The decisive factor for the calculation was the
amount of money necessary to repair or to replace the ships. (567) In calculating the
amount of damages the Court noted that certain elements of the ships were still usable,
and that even a totally destroyed shipwreck still had scrap value. This scrap value was
deducted from the replacement cost. (568)
5.254 The 'depreciated replacement value' has been referred to in Aminoil v Kuwait. (569)
In this case, the depreciation was taken from experts' reports on the net book value (570)
and not on contemporary market data. In Phillips Petroleum v Iran, the tribunal used the
'depreciated replacement value' of the company's fixed assets to support and confirm
the valuation result of the DCF method. (571)
5.255 On the other hand, there might be circumstances where the depreciated
replacement cost is not appropriate. In order to restore the victim's financial position, it
might not be sufficient to award a depreciated replacement value. For arriving at 'full
P 290 reparation' it might be necessary to replace a used item by a new one. While this is
generally recommended for the valuation of intangible assets, (572) it may also be
166
appropriate for tangible assets.
5.256 In Oil Fields of Texas, (573) for example, after an indirect expropriation of three
blowout preventers, the Iran–US Claims Tribunal awarded an amount of money which
should put the claimant in the position to buy new items of such an equipment. It
explained this in the following way:
The question whether the equipment at issue was used or new is not as such
determinative as to its value. Rather, as the Claimant seeks and is entitled to
its replacement value, what has to be determined is the amount it would have
cost to replace the three blowout preventers that had been leased to and
were retained by NIOC, based on the market conditions for such equipment at
the time. The evidence shows that as of the beginning of July 1979, the
equipment in question was in great demand and that new equipment of the
type leased under the Lease Agreement was not readily available. There is
evidence that in 1979, one would have to wait eighteen months to obtain a new
blowout preventer. In addition, as evidenced by the Lease Agreement, the
equipment commanded significant rental income. (574)
5.257 As an additional argument for the correctness of the principle of 'new for old' in this
case, the tribunal referred to the amount paid by an insurance company for another
blowout preventer destroyed by a fire. This amount had been equivalent to the value of a
new blowout preventer. (575) Arbitrator Mostafavi, however, did not agree and explained
in his Dissenting Opinion that he found that the claimant was unjustly enriched, because
all the claimant could possibly have been entitled to receive was comparable and
equivalent equipment in place of the equipment, and not better and more sound
equipment. (576)
5.258 Also in Petrolane Inc v Iran, the tribunal found the price of new drilling equipment
as replacement for the used equipment to be an appropriate basis for the calculation of
compensation for expropriated drilling equipment and referred to the actual conditions
of the market and the shortage of comparable equipment:
While the Tribunal has some doubts that used directional drilling equipment,
even when maintained as good as new, would normally have the same fair
market value as new directional drilling equipment, the only evidence in the
Case … indicates that the Claimant's used equipment did have such a value as
a result of the unusual circumstances at the time. (577)
5.259 The respondent had not submitted alternative valuation proposals so that the
tribunal adopted those of the claimant. Only the value of used fittings was deducted,
such as the so-called 'stabilizer sleeves', which were regarded as wear and tear elements
and, therefore, not subject to replacement. (578)
5.260 The ICSID Tribunal in Lahoud v DRC found the replacement value appropriate to
assess material damage in the form of equipment and stock, as submitted by the
claimants. (579) However, it was not entirely satisfied with the claimants' experts listing,
in particular concerning the reflection of amortization of used equipment. In order to find
a consistent relation to the sums appearing on the balance sheet, it applied an average
of 47 per cent to the gross book value of the different items. (580)
5.261 The replacement value aims at the physical restoration of destroyed or lost assets.
It therefore appears beneficial to the injured person, in particular if the valuation follows
the 'new for old' approach. Yet, the replacement value as an asset-based valuation
approach still does not take into consideration the loss of income opportunities.
(3) Liquidation Value

5.262 International arbitration has referred to the liquidation value not only in cases
where the investment in question had no future prospects, (581) but also when the
claimants explicitly based their claims on it. (582) However, tribunals have not always
assumed a liquidation scenario, but applied, in fact, adjusted book value or other values,
including insurance value. (583)
5.263 Tribunals usually used the liquidation value when they considered that the
valuation object had no future prospects and an application of the income-based
valuation approach would not be appropriate. The liquidation value was, however, not
always applied in accordance with international valuation standards according to which
it is the 'net amount that would be realized if a business is discontinued and its assets
are sold individually'. (584)
5.264 The Iran–US Claims Tribunal applied the liquidation value in the above-mentioned
sense when it found that due the Iranian revolution or other social and economic
circumstances the company would not be profitable in the future. In Sola Tiles v Iran it
held that the company which was selling luxury tiles would not have future business
P 291 prospects. (585) It decided that the value of the company should only be determined
on the basis of its tangible assets, such as its showrooms, its stock inventory of tiles and
furniture, as well as its accounts receivable. (586)
167
5.265 In Tavakoli v Iran, the tribunal also valued the tangible assets of the company
under the assumption of the dissolution of the company and the sale of its assets. (587)
However, it was of the opinion that the valuation of the individual assets must take into
account how they could be used in the future. (588) In this respect, the tribunal cautiously
assumed positive prospects and concluded 'that WIG was a going concern on the date of
expropriation … [T]his would have some impact on the amount for which WIG would have
been able to sell its assets'. (589) It thus referred to the liquidation value, but at the same
time conceded that the company had been a going concern, which appears somewhat
paradoxical. The claimants had requested a valuation on the basis of the adjusted book
value (590) which was, however, rejected by the tribunal. It eventually evaluated the
individual items of the company's tangible assets on the basis of their market prices.
(591)
5.266 The valuation of the ICSID Tribunal in Middle East Cement v Egypt may also be
referred to in the present context. The tribunal had to value the expropriated ship which
in the meantime had been auctioned in Egypt. It did not consider the resulting auction
price as representative for the market value of the ship, in particular because the auction
procedure had been defective (592) and comprised a very negative description of the
condition of the ship and its equipment. (593) The claimant had requested the insurance
value of the ship or the amount an interested willing buyer was ready to pay a couple of
years before. (594) Nevertheless, the tribunal ascertained the scrap value of the ship
which was equal to the price per ton of scrap multiplied by the overall weight of the ship.
P 292 (595) However, instead of taking the scrap value as the lower limit of a 'liquidation
value', the tribunal reduced this scrap value even further. (596) The facts of the case do
not suggest that the ship was ready for the scrap heap. The scrap value should thus, if at
all, be regarded as representative for the lower limit of the valuation. While the tribunal
had declared the auction unlawful, (597) it still reduced the achieved price by almost 50
per cent.
5.267 Whether a sales price achieved in a liquidation sale could be representative for the
market value was also discussed in Tenaris v Venezuela. (598) The investor had acquired a
shareholding in Matesi Materiales Siderurgicos (Matesi), a Venezuelan company which
produced high quality hot briquetted iron, a component used in the production of steel.
Pursuant to several Presidential Decrees, Matesi was nationalized on 30 April 2008. The
ICSID Tribunal rejected both the DCF method and the market multiples approach and
decided that the price originally paid by the investor for the shareholding in Matesi in
March 2004 would best represent the fair market value of the investment at the time of
the expropriation. While the evidence showed that the sale had been part of a
liquidation process of the previous owner of the plant, the tribunal found that the
involvement of a financial adviser and the professional preparation and implementation
of the sales process was sufficient to ensure that the sale was 'freely entered into by the
buyers and seller, at arm's length, in a reasonably open market, with both the seller and
the buyers having reasonable knowledge of the relevant facts and other market
circumstances', (599) and not a sale under distress or compulsion. The fact that four years
had passed between the date of the transaction and the expropriation did not alter the
conclusion of the tribunal. The reasoning in this regard is not in line with the liquidation
premise. Generally, the liquidation should be assumed as of the valuation date and not
four years before. The tribunal in fact applied a sunk investment approach.
5.268 International tribunals have referred to the liquidation value in particular when
claimants relied on it in their submissions. However, rather rarely was the liquidation
value determined by the price achievable in an orderly liquidation, as the economic
definition would require. (600)
5.269 The Iran–US Claims Tribunal referred to the liquidation value in Tippetts v TAMS-
AFFA, (601) which concerned the valuation of the claimant's shares in the Iranian
enterprise TAMS-AFFA which had been created for the planning and undertaking of
construction works at the international airport in Tehran. The tribunal had found that the
institution of managers by the Government constituted an indirect expropriation. (602)
P 293 The tribunal noted that the 'Claimant in the instant case seeks only dissolution value of
its interest in TAMS-AFFA, i.e. the value of TAMS-AFFA after collection of all assets and the
discharge of all obligations'. (603) The tribunal conducted a 'very rough evaluation of the
assets and liabilities involved' (604) and arrived at a lump sum which was awarded
without further reasoning.
5.270 In Harold Birnbaum v Iran, the Iran–US Claims Tribunal valued the claimant's 8.6
per cent share in the company AFFA by reference to the 'liquidation value' although the
claimant in this case had asked for an 'adjusted net asset value'. (605) The tribunal found
that the value as defined and applied by the claimant (606) would be equivalent to the
'dissolution' or 'liquidation value'. (607) Yet, it based its valuation on historic purchase
prices and increased it by an inflation factor of 25 per cent. This basically resulted in an
adjusted book value. (608) Furthermore, the tribunal valued irrecoverable accounts
receivable (609) and offset open tax liabilities. (610) The tribunal in Fereydoon Ghaffari v
Iran, confronted with the same facts as in the previous cases, (611) emphasized that it was
necessary to avoid 'conflicting decisions' and, (612) therefore, stayed with the approach
taken in Tippetts et al v TAMS-AFFA.
5.271 The tribunal in Sedco Inc v NIOC explained its application of the liquidation value in
168
remarkable detail. (613) The claimant had based its claim on the liquidation value,
P 294 assuming, 'in effect, the winding up of SEDIRAN's affairs and the dispositions of its
assets—most of which were movable—on the open market'. (614) However, in carrying out
the valuation the tribunal actually did not use the liquidation value, but instead, for
some oil rigs referred to their insurance value, (615) and for another group of oil rigs to an
adjusted book value. (616)
5.272 Similarly, in Sedco v IMICO the claimant had requested its shares in the Iranian
shipbuilding company IMICO to be valued on the basis of the liquidation value. (617) The
Iran–US Claims Tribunal partly applied adjusted book values, (618) but also referred to
possible sales prices for the barges, stock, and inventory and thus effectively used the
liquidation value. (619)
5.273 The liquidation value was prominently present in the jurisprudence of the Iran–US
Claims Tribunal reflecting the political and economic circumstances of the Islamic
Revolution. By contrast, in more recent investment arbitration practice claimants are
rather reluctant to rely on the liquidation value. They likely avoid the liquidation
scenario, even if prospects are uncertain. The minimum claimed tends to be the sunk
investment, rather than the liquidation value.
D. Other Approaches
5.274 In addition to the above-mentioned three main valuation methods, other
approaches have also been used in international investment arbitration practice by use
of different arguments.
(1) Mixed Methods

5.275 Due to the traditional scepticism towards income-based valuation approaches,
P 295 tribunals frequently started with asset- or cost-based valuation. If this on its own
seemed to be insufficient and inappropriate under the circumstances, tribunals
sometimes increased the resulting figure by an extra amount in order to account for the
loss of income opportunity. This 'mixed approach' was not always based on precise
calculations but rather reflected an overall assessment.
5.276 In LIAMCO v Libya, for example, the arbitrator first determined the asset value by
reference to the book value. (620) In addition, for the loss of the concession rights a lump
sum (621) which according to the tribunal was necessary to account for 'the great initial
expenses and risks taken by LIAMCO in their pioneer works and subsequent activities'
(622) was awarded.
5.277 The tribunal in Aminoil v Kuwait started by valuing the 'fixed assets' by a
'depreciated replacement value'. (623) The valuation of the 'non-fixed assets' was based
on a common report of the parties. The tribunal aimed at determining the value of the
company as a going concern, (624) without, however, clearly distinguishing between the
different items of value. In the end, it awarded a lump sum (625) which makes it is
impossible to discern how it weighted the different elements.
5.278 After the Iran–US Claims Tribunal in Amoco International Finance v Iran had
explicitly rejected the DCF method, (626) it nevertheless demanded information on 'the
estimated value of Khemco's intangible assets at the same date, including goodwill and
commercial prospects'. (627) It remains open, however, how the tribunal would have
valued the company because the parties eventually terminated the dispute by agreeing
on the valuation issue. (628)
5.279 The award in Sedco v NIOC may also be mentioned in the present context. (629) The
claimant submitted that the expropriation of its oils rigs had not only led to a loss of the
value of those oil rigs but also to the loss of income from their rental. (630) The tribunal,
P 296 in addition to awarding the replacement value of the oil rigs, increased this amount by
an award of lost profits for the period of time necessary to put the new rigs in place. The
loss of income was calculated from sixty days after the expropriation because this was
the approximate time necessary to remove the rigs and install them somewhere else. The
tribunal accepted the approach submitted by the claimant in principle and noted that
the award of lost profits in addition to the asset value was justified because it appeared
'to be a direct loss resulting from the unavailability of the rigs to Claimant for use
elsewhere'. (631)
5.280 The ICSID Tribunal in Benvenuti & Bonfant v Congo also valued the assets and the
lost income separately and added them together. (632) The point of departure was the
amount of the original investment, as alleged by the claimant, because this would
represent the best and most 'objective' criterion. (633)
5.281 In Southern Pacific Properties v Egypt, the tribunal had first rejected the DCF
method, (634) but found that possible future income should not be neglected. The
tribunal assumed that the value of the project at the expropriation date was higher than
just the out-of-pocket expenses incurred so far. As a confirmation, the tribunal referred to
the 383 parcels already sold. Although these amounted to only 6 per cent of the project,
they had yielded US$ 10,211,000 which was more than twice the amount of expenses
incurred so far. (635) The tribunal concluded that it was necessary to reflect the 'loss of
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making a commercial success out of the project' and increased the amount awarded
accordingly. (636)
5.282 In American Manufacturing and Trading v Zaire the value of the destroyed buildings
and other assets as determined by an expert was supplemented by an amount of
P 298 approximately the same size for the loss of the business opportunity. (637) The tribunal
did not explain how it arrived at this amount, but only noted that it intended to 'opt for a
method that is most plausible and realistic in the circumstances of the case, while
reflecting all other methods of assessment which would serve unjustly to enrich an
investor'. (638)
5.283 In Sedelmayer v Russia, the tribunal found that the 'actual value' of the
expropriated investment consisted in the value of tangible assets, such as office
equipment and vehicles. In addition, the twenty-five-year contract to commercially use
the buildings in the so-called 'Stone Island' in St Petersburg had to be evaluated. (639) It
was valued by its 'rental value' estimated at US$ 372,000 per year. In view of the long
duration of the twenty-five-year contract and taking into account the costs for
maintenance and similar works plus the partially private use, the tribunal awarded a
lump sum of US$ 1.5 million for this additional item of compensation.
5.284 The ICSID Tribunal in Técnicas Medioambientales v Mexico also engaged in valuing
the future prospects of the investment in addition to the asset value. (640) It found that
the investment had been productive and had added value to the landfill in question.
(641) It thus found it appropriate to increase the asset-based value by an amount of lost
profits. The tribunal added two years' lost profit. The reasoning behind the choice of the
two-year period is, however, not entirely clear. The tribunal considered that due to
increased protests of the population against the landfill, (642) 'an informed buyer of the
Landfill would have assumed that it had to be relocated due to community pressure and
that such relocation might take about two years'. (643) It is not evident why the profits
during the period of relocation should be an appropriate measure of the lost income
opportunity, because during this period certainly no profits would have been earned. The
result might be compromise between the submission of the claimant who relied on the
DCF method (644) and those of the respondent who found the net earnings of one year an
appropriate measure of lost profit. (645)
5.285 The inappropriateness of the combination of asset-based valuation and income-
based valuation was highlighted in Siemens v Argentina, where the claimant had asked,
first, for the value of lost assets and, second, for lost profits based on the DCF method.
The tribunal rejected this approach and clearly pointed out that, normally, 'the two
methods are regarded as alternative means of valuing the same object. Here, however,
Siemens's expert has applied the two in tandem …'. (646)
5.286 Despite the conceptual flaws, the combination of asset-based and income-based
methods and the damnum emergens/lucrum cessans dichotomy have continued to be
applied in international arbitration practice. (647) However, as it entails the risk of
double counting, it is not recommended. (648)
5.287 A combination of asset-based valuation and income-based valuation may in
principle be modified in one way or another in order to avoid the above-mentioned
deficiencies. (649) However, in economic valuation practice mixed approaches are not
used. Tribunals may exercise their discretion, in order to account for the 'loss of a chance'
or 'loss of opportunity'. An example might be start-up companies with a business model
that is not existent on the market, where there are no comparable companies, and many
factors concerning future prospects are uncertain. (650) However, on the basis of
internationally accepted valuation principles the asset-based approach and the income-
based approach should be used alternatively and not cumulatively. An option to
combine various valuation approaches is to accord them a respective weight. Such a
combination, which is increasingly used in international practice, allows for controlling
the outcomes of the respective methods and for finding the most appropriate result.
(2) Contract-based Valuation

5.288 Contracts play an important role for the valuation of investments. In international
disputes they have sometimes rendered the valuation simple, for example, when the
contract foresaw an anticipated redemption price or liquidated damages. In Delagoa
P 299 Bay, the calculation of damages after an unlawful unilateral termination of a railway
concession could be based on the calculation of profits for the remaining thirty-five years
of the concession, (651) increased by the redemption price as agreed between the parties
as of the end of the concession. (652) The contract provided that this redemption price
should be the average of the profits of the last seven years multiplied by 20. (653) The
tribunal, therefore, calculated an 'anticipated redemption'. (654)
5.289 Also, in Lena Goldfields the tribunal applied a provision in the contract for the
calculation of damages. (655) The parties had agreed that, in case the government
wanted to get the concession rights back, it must pay an 'optional redemption price'. This
price was defined in Article 84 of the concession contract as follows:
[T]he purchase price is to be 'determined by multiplying the average annual
income by the number of years remaining to the end of the concession, with
170
discount of incomes intended to be paid in advance' (i.e., under the
redemption) 'of 5 per cent per annum,' and that 'on calculating the income
Lena is bound to be guided by the methods generally adopted in large mining
and metallurgical enterprises of England and the U.S.A.' These methods the
Court has followed in its calculations. (656)
5.290 This meant that the average profits of the past years must be multiplied by the
number of remaining years. This amount should be discounted by 5 per cent in order to
account for the early payment. It is not clear if and how the tribunal actually complied
with this provision because precisely this part on the calculation of damages has
P 300 remained unpublished. (657) It referred, in addition to the contractual provision, to the
role of good commercial management, technical skill, and up-to-date development for
the generation of future profits. (658)
5.291 In Lighthouses Arbitration, the concession contract provided for a right of the
grantor state at any time to put an end unilaterally to the lighthouses concession under
the condition of first paying the concessionaire or at least guaranteeing the payment of
compensation as previously determined by the parties or, in case of disagreement, by
arbitration. (659) The tribunal attempted to determine the amount of compensation most
likely agreed between the parties twenty years before the expiration of the concession. It
came to the conclusion that it would be based on the amount of profits to be expected
until the end of the concession and held that compensation 'must be assessed on the
basis of the data available at the date of the termination by calculating the annual
profits which Callas & Michel would have derived from the concession had they operated
it over the twenty years in question'. (660)
5.292 In Autopista v Venezuela, the concession agreement contained a clause entitling the
claimant to recover its lost profits in the event of a valid termination. (661) The parties
were in principle in agreement that the amount of lost profits should be calculated on
the basis of expected cash flows under the concession agreement. There was
disagreement, however, as to whether the cash flow should be related to the investments
planned or only to those actually undertaken. (662) Yet, the tribunal did not award any
lost profits, because it found that it was very unlikely that the project would have been
profitable at all. (663)
5.293 The ICSID Tribunal in PSEG v Turkey held that it would have no difficulty in
calculating future profits on the basis of a self-contained and fully detailed contract,
(664) even without a past performance record. (665) However, the essential commercial
terms of the contract necessary for calculating future profits had never been finalized
P 301 between PSEG and Turkey (666) so that the tribunal did not award lost profits at all.
5.294 The ICSID Tribunal in Siag v Egypt evaluated the claimants' investment in a hotel
development project on the basis of comparable projects in the Sinai and the Red Sea.
(667) The tribunal found that the claimants had suffered an unlawful expropriation and a
violation of the provisions on fair and equitable treatment as well as on full protection
and security contained in the BIT between Italy and Egypt. (668) However, in its valuation
of the claims for the BIT violations, the tribunal referred also to the contract between
Siag Touristic and Egypt, which was the basis of the claimants' investment. (669)
According to this contract, Egypt should receive 50 per cent of the value of land, should
Siag Touristic transfer title of the property to a third party. The tribunal found that this
contractual provision had the effect that immediately prior to the expropriation, Siag
Touristic's beneficial interest in the property was only 50 per cent. It therefore reduced
the amount derived from the comparable sales method by 50 per cent. (670)
5.295 In many other investment disputes, the damage incurred was defined by an
underlying contract, sometimes with reference to external economic parameters. This is
the case for almost all concession contracts, where the price for the services is not paid
directly by the state but by the consumers, such as, for example, for water and electricity
supplies. (671) Other contract cases are specifically concluded between the parties and
establish mutual obligations which are then decisive for the valuation by the tribunal.
(672) Long-term complex investment contracts require particular expertise and usually
also the help of valuation experts. (673) An important aspect is, whether the contract
contains specific assurances against risks, including expropriation risk.
5.296 Contracts reflect the specific relationship between the parties. It follows that the
exact terms of the contract are crucial for role in the calculation of damages. In case of
P 302 long-term contracts it is advisable to include provisions on 'redemption prices' or
similar mechanisms that allow prior estimation of the 'cost' of a breach, as was
remarkably the practice in some of the older concessions contracts. This would facilitate
the work of the tribunals and at the same time assure the respect of the parties'
intentions and expectations at the time of the conclusion of the contract.
(3) Court and Arbitral Decisions

5.297 Investment tribunals are sometimes confronted with national court or arbitral
decisions in favour of a foreign investor which were not respected by the host state. In
case of the existence of a BIT between the respective state and the home state of the
investor, recourse to international arbitration is possible and can lead to an award of
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compensation or damages reflecting the amount decided by the national court or
arbitral tribunal. The question arises, whether additional damage can or will be awarded.
5.298 In Desert Line v Yemen, the claimant, a construction company was engaged in the
building of asphalt roads in Yemen. It resorted to national arbitration after several
breaches of contract and was awarded a substantial sum, which the respondent failed to
pay. The respondent then coerced the claimant, including through physical duress, into
signing a Settlement Agreement for a much lower sum. The claimant turned to ICSID
arbitration, and the tribunal decided that the conclusion of the Settlement Agreement
contravened the fair and equitable treatment standard under Article 3 of the BIT
between Oman and Yemen. (674) The ICSID Tribunal awarded, as the principal, the
amount fixed by the Yemeni arbitral tribunal. In addition, an amount of US$ 1 million was
awarded for 'moral damages'. (675) The tribunal reflected the exceptional circumstances
and the physical pressure which was exerted to the executives of the claimant company.
The award of 'moral damages' is thus one possibility to address the additional harm done
to investors by not respecting national arbitral award. This has, however, remained an
exception.
5.299 The tribunal in Saipem v Bangladesh concerned a pipeline project, based on a
contract between Saipem and Petrobangla, a state entity, sponsored by the World Bank
and largely financed by the International Development Agency. Due to significant delays,
ICC arbitration was instituted, but heavily attacked by Petrobangla before national
courts. The ICC award was rendered on 9 May 2003. Upon an application by Petrobangla,
the Supreme Court of Bangladesh held that the award was 'a nullity' and 'non-existent' so
that it could neither be set aside nor be enforced. (676) The ICSID Tribunal found that the
P 303 respondent had committed a violation of Article 5 BIT by the decision of local courts,
including the Supreme Court, to revoke the authority of the ICC arbitrators. Compensation
due under the BIT should be 'immediate full and effective' and 'be equivalent to the real
market value of the investment …'. (677) The tribunal, however, decided that the BIT
standard was not applicable because it set out the measure of compensation for lawful
expropriation, which this one was not. Consequently, the tribunal applied the principles
of customary international law as set out in Chorzów Factory. (678) The tribunal found that
the amount awarded in ICC award constituted the best evaluation of the compensation
due under the Chorzów Factory principle. (679) As a result, the tribunal awarded the
amount of the ICC award, plus interest. However, costs, and legal and related expenses
incurred by Saipem in local court proceedings to defend itself were not awarded,
because they 'are not part of Saipem's initial investment' and have not 'been the object
of an expropriation'. (680) As a result, the claimant did not receive anything more than if
the respondent had immediately complied with the ICC award. This appears
unsatisfactory. However, the tribunal found itself bound by the narrow jurisdictional
clause in the underlying Bangladesh–Italy BIT.
5.300 White Industries v India, an arbitration under UNCITRAL rules, concerned the
development of a coal mine in Piparwar, India. After an ICC arbitration award on 27 May
2002 in White's favour, White attempted to enforce the award in the Indian courts.
However, Coal India attempted to have the ICC Award set aside on various grounds and
delayed enforcement for more than nine years. (681) The UNCITRAL tribunal concluded
that the nine years of the set aside application, and the Supreme's Court inability to hear
White's jurisdictional appeal for over five years amounted to undue delay and a breach
of India's BIT obligations. (682) As regards the calculation of damages, the tribunal
referred to the Chorzów Factory case and found that the claimant must be restored to the
position it would have enjoyed had the breach of the BIT not occurred. (683) The tribunal
ordered the amount payable under the ICC Award plus interest, and in addition costs and
fees incurred in the ICC arbitration. The respondent was ordered to pay the costs and
expenses of the claimant's witnesses. (684) Again, the claimant did not receive anything
for costs incurred for the litigation before the Indian courts.
5.301 The investment arbitration cases involving national court and arbitral decisions
P 304 show that the principle of full reparation under the Chorzów Factory is regularly
referred to as the appropriate standard. However, whether full reparation is achieved, if
successful claimants do not receive anything in addition to the original award remains an
open question. The award of moral damages, as decided in Desert Line v Yemen, has
remained an exception and is not warranted in all cases. Material damages are certainly
incurred during years of litigation before national instances. At least, all of the costs of
the investment arbitration should be awarded to the successful claimants. Withe
Industries v India did show some flexibility and decided that the respondent had to pay
the costs and expenses of the claimant's witnesses, but this still falls short of full
reparation for the damage incurred.
(4) Insurance Value

5.302 Assets are also valued in the context of insurance contracts. However, as mentioned
above, (685) the amount insured depends on many factors relatively unrelated to the
'value' of the object. Article 16 of the MIGA Convention even expressly states that the
contracts have to be concluded in such a way that, in case the event insured against
occurs, there will only be partial compensation. (686) This will motivate the insured
person to act prudently.
172
Article 16 provides that the Agency cannot cover under a contract of guarantee
the total loss sustained by an investor. This provision is designed to
discourage possible irresponsible conduct by investors relying on total loss
cover (commonly referred to as 'moral hazard'). (687)
5.303 The percentage of indemnification is based on the practice of national investment
insurance agencies and lies usually between 70 and 95 per cent. (688)
5.304 In addition, the enterprise's risk managing approach plays an important role. (689)
Companies usually buy insurance against a variety of hazards, including fire, accidents,
third party liability, and others. (690) They generally use insurance policies to reduce
their diversifiable risk, but find others ways to avoid macro risks. (691) These choices and
approaches have their own logic and specific reasons, but are usually not suitable
P 305 indicators of the value of the company.
5.305 The investor can, for many different reasons, decide to insure less than the full
value of the business. Also, the insurer might establish certain conditions. (692) The
insurance value is, therefore, of little significance for the value of an asset.
5.306 Nevertheless, arbitral practice has sometimes referred to the insurance value for
the calculation of compensation or damages. The Iran–US Claims Tribunal found in Sedco
v NIOC that it was a 'helpful and independent indication' for establishing the fair market
value of the expropriated oil rigs. (693) In Oil Fields of Texas v Iran, the value of the
destroyed and expropriated oil blowout preventer was confirmed by reference to the
insurance proceeds on a similar destroyed blowout preventer. (694) In other cases, the
insurance value was correctly excluded as 'irrelevant' for the purpose of calculating
compensation or damages in investor–state arbitration. (695)
(5) Tax Value

5.307 The valuation of assets for taxation serves specific purposes. These purposes are
defined by national politics and incorporated in national tax laws and regulations. The
tax value of an asset is therefore hardly significant for its economic value. It seems,
therefore, obvious that it cannot be useful for the purposes of calculation of
compensation or damages in international investment arbitration.
5.308 Nevertheless, in some investment protection treaties, the 'declared tax value' is
mentioned as one possible parameter of the value of expropriated property. NAFTA
Article 1110, paragraph 2 provides that '[V]aluation criteria shall include going concern
value, asset value including declared tax value of tangible property, and other criteria, as
appropriate, to determine fair market value.' (696)
5.309 The Iran–US Claims Tribunal in Fereydoon Ghaffari v Iran, however, did not accept
the 'real estate tax assessments' (697) put forward by the respondent as appropriate
evidence for the evaluation of the amount of damages:
The tax assessments … do not explain the basis for the calculation of the tax.
In particular, these assessments are silent as to whether the tax was
P 306 calculated based on rent that had in fact been paid to the person whom the
assessment identify as 'taxpayers', or whether, on the contrary, the tax amount
was based on the average rent prevailing in downtown Tehran for property in
the same range as AFFA's office building. (698)
5.310 The ICSID Tribunal in Metalclad v Mexico, by contrast, considered it as appropriate
evidence for the amount of investments undertaken by the claimant. (699) The
respondent contended that this tax statement in itself would not provide sufficient
evidence that the investments had actually been made. Yet, the tribunal held 'that the
tax filings of Metalclad, together with independent audit documents supporting those tax
filings, are to be accorded substantial weight'. (700) Consequently, the tribunal awarded
the amount of the investments undertaken on the basis of the claimant's tax filings.
5.311 In Gemplus v Mexico, the relevance of the 'declared tax value', as it appeared in the
applicable BIT between Mexico and France, was discussed as a possible valuation
approach, not only for compensation upon expropriation but also for the violation of the
fair and equitable treatment standard. (701) The respondent submitted that the tribunal
should apply the declared tax value on the basis of claimants' tax returns prior to the BIT
breaches. The claimants, however, successfully contested the usefulness of the declared
tax value, because the tax figures did not represent the value of the investment, they
were not obtained by carrying out the due diligence necessary to conduct an asset-based
valuation, they did not reflect intangible assets, and they failed to account for liabilities.
(702)
5.312 International practice only rarely relies on tax values for valuation purposes.
Financial statements made for the assessment and paying of taxes are mainly used to
confirm a claim based on other evidence. They may also be used as evidence that certain
investments or payments have actually been made or received. Much depends on the
particular national tax law, which is usually unrelated to the valuation criteria in
international investment disputes. In addition, tax regulations generally lead to a
relatively rapid depreciation of assets, but this cannot mean that economic assets not
173
having any tax value at all after a certain period of time are expropriated or destroyed
without triggering the right to receive compensation or damages. (703)
E. Consequential Damages
5.313 The compensability of consequential damage is one of the most important
P 308 differences between the objective–abstract and the subjective–concrete valuation
approach. While the former aims at replacing only the value of the property deprived,
impaired, or destroyed, the subjective approach also considers further consequences
and damage resulting from the unlawful act. According to the principle of full reparation,
consequential damage be included in the calculation.
5.314 However, it is not always evident what represents 'damages for loss sustained which
would not be covered by restitution in kind or payment in place of it' as the PCIJ
formulated it in Factory at Chorzów. (704) In particular, the necessary causal link is crucial
to avoid both under- and overcompensation. (705) International courts and tribunals are
seriously concerned to avoid decisions based on speculative and uncertain
developments, (706) which is especially relevant in respect of consequential damages.
(707)
5.315 In order to limit the extent of consequential damages, sometimes the distinction
has been made between 'direct' and 'indirect' damages. (708) Another proposal refers to
the criterion of 'adequacy', according to which only damage 'adequately' caused should
be compensated, referring to the 'natural' or 'normal' course of events. (709) Others have
underlined the Roman law principle of in jure causa proxima non remota inspicitur
incorporated in the 'principle of proximate causality'. (710)
5.316 International practice seems so far to have awarded consequential damages, when
they were 'adequately caused', (711) 'established', (712) and/or 'reasonable'. (713) A
variety of different types of damage have been accepted as compensable in
international practice.
(1) Liability to Subcontractors

5.317 Consequential damage can consist in payments to subcontractors. If such payments
have not yet been made, they do not represent damage actually incurred, but they might
be future or even 'potential' damage caused by the unlawful act. If the amount of money
due to subcontractors is not evident at the time of the investment arbitration, either
because the subcontractor has not presented its final bill or the amount is disputed, this
element of damage might appear 'uncertain' or 'speculative'. Nevertheless, a few
tribunals have included the 'potential liability' to subcontractors as an item of damages
in their awards.
5.318 The ICSID Tribunal in Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal
was confronted with a claim for damages for 'architectural fees' which the investor had to
pay to a subcontractor on the basis of an architecture, city planning, and engineering
contract for implementing the investment project, a 15,000 unit housing project in
Senegal. (714) However, the extent of the amounts payable to the architects was disputed
because the premature termination of the contract had led to only partially executed
services. (715) The tribunal stated with regard to amounts payable by the respondent on
the basis of such a 'potential liability' of the investor:
Only the Senegalese courts have jurisdiction to rule on a dispute between
BEHC and SOABI, arising from the BEHC contract. On the other hand, this
P 309 Tribunal has jurisdiction to rule on the dispute between SOABI and the
Government concerning the latter's obligation to indemnify the former owner
for its loss. In keeping with jurisdictional considerations, it is appropriate for
the Tribunal to take as its point of departure, in determining the amount owed
by the Government, the amount which SOABI will ultimately be ordered to pay
(or which will be settled upon by mutual consent of the parties). (716)
5.319 The tribunal then ordered the Government to reimburse SOABI for any amount that
the latter might be obliged to pay to BEHC (following a judgment of the Senegalese courts
or settlement among the three parties concerned) and set an upper limit of this
'potential liability', based on its own calculations. (717)
5.320 The tribunal in AAPL v Sri Lanka recommended that the parties should conclude an
agreement to transfer all the shares in the project company to the Government of Sri
Lanka or a governmental entity with the understanding that said transfer should entail 'in
exchange the passing of any potential liability' to the new owner of the shares. (718)
5.321 The ICSID Tribunal in Siemens v Argentina rejected the 'potential liability'
represented as an item of damages, (719) but noted that Argentina had affirmed that it
had taken the necessary measures to ensure that the subcontractors' claims were
transferred to Argentina. So the tribunal decided:
The Tribunal acknowledges this affirmation and decides that Argentina should
hold the Claimant, its subsidiaries and affiliates, wherever located, harmless
from, and indemnify same in respect of, any claims heretofore or hereafter
174
asserted against any of them by any of the following subcontractors to SITS in
relation to the Contract: … (720)
5.322 In other cases, tribunals have generally accepted potential liability but rejected
them in the concrete circumstances because of lack of sufficient evidence. (721) It can
therefore be concluded that international practice recognizes potential liability as a
consequence of an unlawful act in principle, but tends to reject it frequently because of
lack of proof.
(2) Costs for Damage Limitation, Repair, and Maintenance

5.323 The expenses incurred for mitigating damage and for repair and maintenance works
as an item of damages tend not to be controversial as a matter of principle.
Nevertheless, in international proceedings it is not always easy to establish their extent
P 310 and the causal link with the unlawful act by appropriate evidence.
5.324 The UN Compensation Commission has developed a rich jurisprudence in this
respect. Being very restrictive concerning awards on lost profits, it made considerable
efforts to comprehensively acknowledge all costs and expenses actually incurred by
numerous affected individuals as a consequence of Iraq's invasion of Kuwait. Decision No.
7 provided that expenses incurred for the untimely departure or for an unintended
prolonged stay of a company's personnel should be taken into account. (722) Respective
transport, travel, residence, and other costs have, therefore, been regularly accepted.
(723) Also 'project termination costs', such as costs for the protection of assets were
accepted as consequential damages. (724) In addition, costs for personnel who had
become unnecessary after the invasion were recognized, (725) in particular, if the
resulting turmoil had rendered productive work impossible. (726) The necessary evidence
was usually available because of the transfer of the company's account books and other
records.
5.325 The Iran–US Claims Tribunal also recognized in principle the compensability of
'termination costs' (727) and 'repatriation costs'. (728) In particular, it accepted storage
costs as well as costs for personnel necessary for maintaining the operation of the
business or for its dissolution. (729) Also, losses caused by sales of items below their
market value have been awarded as consequential damages. (730) The same was true for
costs for a necessary bank loan. (731)
5.326 In many cases, however, the application of a strict standard of evidence excluded
certain costs from being considered in the damages award. (732) For example, in Pope &
P 311 Talbot v Canada the tribunal argued that the costs for personnel were—in absence of
solid proof to the contrary—part of the ordinary business expenses regardless of how long
the staff was occupied with the consequences of the unlawful act. (733) Also the tribunal
in Siag v Egypt decided that 'salaries and benefits' as well as interest for 'bank loans'
were not caused by the unlawful acts and/or could not be supported by sufficient
evidence. (734) On the other hand, 'construction costs' were accepted as an item of
'discrete damages'. (735)
(3) Costs and Expenses of Pursuing the Claim

5.327 Costs and expenses connected with the pursuance of a claim in international
investment disputes can sometimes by considerable. (736) They encompass not only
costs for legal representation and arbitration fees, but also expenses in connection with
the gathering of information and evidence and include travel and hotel costs as well as
costs for expert reports for substantiating the claim. These expenses are too often merely
regarded as 'costs' and are consequently only included in the decision on costs.
Frequently, tribunals refer to their 'discretion' with regard to the issue of costs (737) and
do not engage in further reasoning. (738)
5.328 As Gotanda notes, international tribunals are somewhat reluctant to shift costs and
fees. (739) The reason might be that the practice of awarding costs and fees varies
P 312 significantly from country to country. (740) The majority of countries follow the
principle that 'costs follow the event'. (741) Under this principle, the prevailing party is
entitled to all costs incurred in litigating the dispute, or at least a portion of them. (742)
The most notable exception to the majority rule is the practice in the United States,
where parties are generally required to bear their own expenses, including attorney's
fees. (743)
5.329 The practice of the Iran–US Claims Tribunal largely reflects the American approach.
Generally, the prevailing party did not get an award of costs in its favour. (744) Judge
Aldrich explained this by the fact that American claimants usually had much larger
amounts of expenses and costs than the Iranian parties and that they would have to bear
those costs also, if they had litigated their case before American courts. (745)
5.330 Other international instances also often make each party responsible for its own
costs and decide that the parties should share the costs of the proceedings equally
between themselves. (746) This seems to be unsatisfactory in view of the aim to achieve
full reparation. Instead of being made whole, the injured party has to spend a large part
of the amount awarded on litigation costs. Also general preventive reasons speak against
this practice because a respondent would not face an additional financial disadvantage
175
for its unlawful behaviour.
5.331 In order to remedy this situation, the expenses and costs—at least those outside the
arbitral process itself—could be regarded as 'damage caused by the unlawful act', and
thus as 'consequential damage'. In the following, some arbitral tribunals which have
chosen to award costs as an item of damages shall be presented.
5.332 In Robert H May, the tribunal considered the expenses incurred by the claimant in
pursuance of his claim as damnum emergens which would have to be compensated in full.
(747) The tribunal referred to the troubles connected with international arbitral
proceedings:
It has taken Mr. May just over two years to obtain a settlement of his claim
against the Guatemalan Government. He has had to undertake journey upon
journey to bring the matter before the United States Government, and to
induce them to intervene in his favour; he has had to engage, at heavy rates,
the services of eminent lawyers, whose reputation would insure a hearing from
overworked officials, and whose opinions, based upon the stern logic of facts,
would have weight with the legal advisers of his Government. Many of the
P 313 leading witnesses were scattered over the face of the world, and May has
had to undergo the expenses of reaching them … For all these and for other
causes, which it would take too long to enumerate, I hold that Mr. May is
entitled to substantial damages from the Government of Guatemala, who are
legally responsible for the two years' delay in the settlement of their debt to
him. (748)
5.333 The tribunal in Shufeldt also accepted the loss of income of the claimant while he
was pursuing his claim as compensable damnum. (749) Similarly, the tribunal in Dr Marion
Cheek awarded 3 per cent of the principal as 'costs of recovering the amount'. (750)
5.334 In more recent investment arbitration, tribunals have not entered into details of
the discussion of the expenses for pursuing the claim. From time to time, however, they
recognized that these expenses must be reflected in the award of damages. For example,
the ICSID Tribunal in Southern Pacific Properties v Egypt should actually have assessed the
objective 'value of the property' after a lawful expropriation. Nevertheless, it counted
together a number of items of damages, including more than US$ 5 million for 'legal,
audit, and arbitration costs'. (751) It admitted that this was a 'high figure' but said that it
was justified by the 'extraordinary length and complication of the proceedings in this
case'. (752)
5.335 Also in Autopista Concesionada v Venezuela, the costs for pursuing the claim were
recognized as 'out of pocket expenses'. (753) These costs encompassed costs for legal
representation outside the arbitral proceedings because the claimant had to fight a
number of legal proceedings against it under national law. (754) Furthermore, the tribunal
accepted certain administrative costs of the claimant as compensable damage, because
the non-fulfilment of Venezuela's contractual obligation had caused a provable increase
of those costs. Among these were negotiations with banks about loans in order to keep
the project alive despite the respondent's breaches. (755) This contrasts, for example,
with the decision in Pope & Talbot v Canada where the tribunal had considered
P 314 management time to be a fixed cost because the managers received annual salaries
that 'did not vary in respect of the issues or matters to which each of them devoted their
working time'. (756)
5.336 In Siag v Egypt, legal expenses incurred before domestic courts were accepted as
an item of damages, even despite the lack of invoices, receipts, or other documents. (757)
The ICSID Tribunal found that there was 'no doubt that the claimants had to employ
Egyptian lawyers as well as in-house lawyers' (758) during the long period of litigation.
The estimate presented by the claimants was 'in excess of USD 2,500,000' of which the
tribunal awarded US$ 1 million in addition to the US$ 6,000,000 for the costs incurred in
the ICSID arbitration. (759)
5.337 The tribunal in Swisslion v Macedonia found a 'minor breach' of the fair and
equitable treatment standard of the BIT, on the basis of a series of measures by the
respondent that collectively amount to a composite act. (760) The claimant claimed
compensation in the amount of € 19,013,000 on the basis of the DCF method, alternatively
the value of actual investments plus interest. (761) The tribunal only arrived at an
'appropriate estimation of damages' having regard to the professional fees incurred by
Swisslion in the two local proceedings which were part of the composite act. (762) It
eventually arrived at an amount of damages that should compensate the legal costs the
investor incurred contesting the securities regulation and criminal investigation
measures, the diversion of its management's time in responding to heightened controls
imposed by the Ministry of Economy, and an allocation of lost sales resulting from the
investor's reputational damage. (763) This resulted in a comparatively modest amount of
€ 350,000. The tribunal in this case based its calculation of damages almost exclusively
on the amount of legal expenses incurred by the investor in proceeding at the national
level to fight against the unlawful measure. Even if the amount seems modest, it shows
that investment arbitration is also open for 'minor breaches' of BIT standards with
corresponding 'minor' awards.
176
5.338 On the other hand, the very high award on costs in the amount of US$ 10 million in
CSOB v Slovakia shows that legal expenses can be an important part of the damage
caused. (764) The tribunal awarded them as 'costs' to be paid to the prevailing claimant,
thus not as 'damages', but noted that CSOB's employees had prepared specific
P 315 contributions that were caused by the proceedings, including several statements filed
with the tribunal which justified the request for recovery of the associated costs. (765)
5.339 Both the 'loser pays' principle and the principle of full reparation were evoked in
ADC v Hungary. (766) The tribunal found first that, in the present case, it could 'find no
reason to depart from the starting point that the successful party should receive
reimbursement from the unsuccessful party'. (767) The tribunal then emphasized that
'were the Claimants not to be reimbursed their costs in justifying what they alleged to be
egregious conduct on the part of Hungary it could not be said that they were being made
whole'. (768)
5.340 The combination of the aspect of full reparation and the 'loser pays' principle was
referred to also in Desert Line v Yemen. (769) The tribunal awarded US$ 400,000 for legal
expenses to the claimant and divided the arbitration costs 30:70 in favour of the
claimant. In its reasoning, the tribunal explained:
On the one hand, a party injured by a breach must be fully compensated for
its losses and damages, which include arbitration costs and its own legal
expenses. On the other hand, the 'loser-pays' principle is not absolute, in
particular when the Claimant succeeds only partially. (770)
5.341 The principle of full reparation or the 'loser pays' principle should in principle
include damage caused by costs and expenses paid in pursuing claims at the national
and the international level. This may contribute to the better implementation of legal
rights and obligations and generate important general preventive effects. In addition, the
proportionate allocation of costs could also contribute to a realistic valuation by
claimants because the issue of whether or not they prevail is usually measured in terms
of the proportion of the amount claimed.
F. Moral Damages
5.342 For a long time, moral damages have not figured prominently in investment
arbitration. Investor–state disputes were regarded as purely economic matters
concerning damage to property, contracts, or other business interests so that they
focused almost exclusively on material damage. However, increasingly investors turn to
tribunals claiming reparation also for non-material damage, in particular since an ICSID
P 317 Tribunal in Desert Line v Yemen awarded such damages in 2008. (771) This was only the
second time that an investment tribunal had awarded moral damages after the tribunal
in Benvenuti & Bonfant v Congo in 1980, which was authorized by the parties to decide ex
aequo et bono. (772) Since then, claimants have frequently put forward claims for moral
damages, but so far, no other investment tribunal has found them sufficiently
substantiated. (773)
5.343 Claims for moral damages are in principle recognized in almost all national legal
systems and under the law of state responsibility. The general principle under the law of
state responsibility is enshrined in Article 31 of the Articles on States Responsibility
according to which compensable '[i]njury includes any damage, whether material or
moral, caused by the internationally wrongful act'. (774) The Commentary distinguishes
'material' damage as 'damage to property or other interests of the State and its nationals
which is assessable in financial terms' from 'moral' damage which 'includes such things as
individual pain and suffering, loss of loved ones or personal affront associated with an
intrusion on one's home or private life'. (775) It follows that under the law of state
responsibility 'moral damage' is equivalent to 'non-material damage'. The ILC text does
not differentiate more precisely between 'moral damage' and the more neutral concepts
of 'non-material' or 'immaterial' damage. This has led to the concern that under the
disguise of 'moral' damage in effect 'punitive' damages could enter through the
backdoor. (776)
5.344 The availability of moral damage in international law has been explained by the
United States–Germany Mixed Claims Commission in its often-quoted decision in the
Lusitania case in the following way:
That one injured is, under the rules of international law, entitled to be
compensated for an injury inflicted resulting in mental suffering, injury to his
feelings, humiliation, shame, degradation, loss of social position or injury to
his credit or to his reputation, there can be no doubt, and such compensation
should be commensurate to the injury. Such damages are very real, and the
mere fact that they are difficult to measure or estimate by money standards
makes them none the less real and affords no reason why the injured person
should not be compensated therefor as compensatory damages, but not as a
penalty. (777)
5.345 The Lusitania decision combines damage incurred by a natural person, such as
'suffering, injury to feelings, humiliation, shame, degradation', with injury to 'credit or
177
reputation', which can also affect a legal entity and have measurable financial
consequences. While different types and definitions of moral damages have been
identified in academic writing, (778) three types can most practically be distinguished in
investment arbitration, as summarized by Sabahi:
(1) Damage to personality rights of individuals. These include 'individual pain and
suffering, loss of loved ones, or personal affront associated with an intrusion on
one's home or private life'. This is the typical type of non-material damage that
natural persons suffer. Corporations, as juridical persons, cannot suffer such
damages.
(2) Damage to reputation. This type of damage seems to have a dual character, as it
may have clear monetary consequences and hence in some cases be considered as
material.
(3) 'Legal damage'. That is the harm that results from the ipso facto violation of an
international obligation. (779)
5.346 The first type of damages are not problematic, if the investor and claimant is a
natural person. But can they also be rightfully claimed by legal entities, which are the
majority of claimants in investor–state arbitrations? Can a company claim moral
P 321 damages for injury suffered by its organs or employees? Commentators note that the
tribunal in Desert Line v Yemen 'seems to answer this question in the affirmative' (780)
and 'displayed considerable flexibility on this issue'. (781) A sound theoretical basis for
awarding moral damages to a legal entity for the injury suffered by its organs or
employees seems however still to be lacking. One proposal is to refer by analogy to the
doctrine of state espousal based on the 'Vattelian fiction that injury to an individual is
equal to the injury of the home state of the individual'. (782) This analogy could be used
to formulate a doctrine of 'corporate espousal' according to which damage to an
employee of a corporation would be considered as damage to the corporation itself. (783)
Another consideration is that harassment of the executives affected the performance of
the company and/or that investment arbitration is the only forum where the executives
could (indirectly) obtain redress for the harm suffered. (784)
5.347 So far, tribunals have not entered more deeply into the discussion on the
jurisdiction and admissibility of moral damages and have, with a few exceptions, (785)
not questioned their competence in principle to award such damages. (786) They seem to
follow the overall reasoning of the tribunal in Desert Line v Yemen according to which
moral damages are 'generally accepted in most legal systems' and that there are 'no
reasons to exclude them'. (787)
5.348 The tribunal in Desert Line v Yemen did not differentiate between types (1) and (2) of
moral damages mentioned above, despite their distinct character. It decided that the
respondent
shall be liable to reparation for the injury suffered by the Claimant, whether it
be bodily, moral or material in nature. The arbitral tribunal agrees with the
Claimant that its prejudice was substantial since it affected the physical
health of the Claimant's executives and the Claimant's credits and reputation.
(788)
5.349 It can be concluded that it is not entirely settled on which ground arbitral tribunals
may award moral damages for injury done to a company's organs or employees—type (1)
moral damages as mentioned above. On the other hand, other non-material damage,
such as loss of credit or reputation—type (2) moral damages—can certainly be made
subject of a claim for moral damages by a company in investment arbitration.
5.350 As regards type (3) moral damages—'legal damage' sustained from the ipso facto
violation of an international obligation (789) —the question arises, whether such
immaterial damage can justify a separate claim for indemnification or whether the award
of a tribunal deciding on liability and damages in favour of the investor is a sufficient
remedy. The injury caused to a state by a violation of international law is excluded from
compensation as not 'financially assessable' and is generally the subject matter of
'satisfaction'. (790) A declaration of the wrongfulness of the act by a competent court or
tribunal is one of the most common forms of satisfaction. (791)
5.351 Tribunals seem to apply this logic of 'satisfaction' in investment arbitration as well.
The tribunal in Pey Casado v Chile decided that 'the issuance of the present award, in
particular because of its recognition of the rights of the claimants and of the denial of
justice of which they were victims, constitutes in itself substantial and sufficient moral
satisfaction'. (792) Similarly, the tribunal in Lemire v Ukraine decided that 'the moral
aspects of [Mr Lemire's] injuries have already been compensated by the awarding of a
significant amount of economic compensation'. (793)
5.352 If the investor does not receive any damages because material loss caused could
not be proven, this logic would not apply. However, tribunals have so far not
compensated mere 'legal damage' by an award of moral damages. (794) An option might
be an allocation of costs by which the successful claimant is completely held harmless.
(795) This solution has been chosen in cases where host states rejected 'frivolous'
procedures by foreign investors and claimed 'moral damages' for the damage and
178
alleged loss of reputation incurred. The tribunals in Europe Cement v Turkey, (796) Cement
v Cementownia 'Nowa Huta' v Turkey, (797) Iberdrola v Guatemala, (798) and Transglobal
Green Energy v Panama (799) supported the respondents' view that the claims were ill-
founded and an abuse of process so that the claimants had to pay all of the costs of the
arbitration and the legal costs of the respondent.
5.353 The reasons why tribunals have not awarded moral damages since Desert Line v
Yemen again is the high threshold that has been established in jurisprudence. The
tribunal in Desert Line v Yemen found that moral damages may 'in exceptional
circumstances' (800) be claimed and highlighted the 'physical duress exerted on the
executives of the Claimant, which was malicious and, therefore, constitutive of a fault-
based liability'. (801)
5.354 The criterion of 'malicious' and 'constitutive of fault based liability' is notable as,
under the general law of state responsibility, the responsibility of a state is independent
from any mental element of conduct, such as intention to harm. (802) The reference to
'fault' can imply that tribunals, in such cases of egregious behaviour, can use their
discretion in order to award a higher amount of damages. However, this argument comes
close to calling for punitive damages, which are generally not available under
5.355 The criterion of 'exceptional circumstances' was analysed in more detail by the
tribunal in Lemire v Ukraine, (804) which summarized the decisions in Lusitania, Desert
Line v Yemen, and Siag v Egypt (805) as follows:
The conclusion which can be drawn from the above case law is that, as a
general rule, moral damages are not available to a party injured by the
wrongful acts of a State, but that moral damages can be awarded in
exceptional cases, provided that
• the State's actions imply physical threat, illegal detention or other
analogous situations in which the ill-treatment contravenes the norms
according to which civilized nations are expected to act;
• the State's actions cause a deterioration of health, stress, anxiety, other
mental suffering such as humiliation, shame and degradation, or loss of
reputation, credit and social position; and
• both cause and effect are grave or substantial. (806)
5.356 Several tribunals have referred to these criteria as the international 'standard' for
an award of moral damages and denied the 'exceptional circumstances'. (807) The
tribunal in Arif v Moldova, however, was more sceptical and noted that
the formulation of the principles of the award of moral damages in Lemire was
based on a limited discussion of three cases, with no broader consideration of
underlying principles or policies. The statement might serve as a summary of
the issues in these cases, but it should not be taken as a cumulative list of
criteria that must be demonstrated for an award of moral damages. (808)
5.357 The tribunal preferred to go back to the older Lusitania case which 'leaves the
Tribunal with an element of discretion, but within the general framework that moral
damages are an exceptional remedy'. (809) It emphasized the need to restrict moral
damages to exceptional cases, because a 'pecuniary premium for compensation for such
sentiment, in addition to the compensation of economic damages, would have an
enormous impact on the system of contractual and tortious relations'. (810) It would
'systematically create financial advantages for the victim which go beyond the
traditional concept of compensation'. (811) Moral damages should be limited to cases
'when both the conduct of the violator and the prejudice of the victim are grave and
substantial'. (812)
5.358 According to the tribunal in Arif v Moldova, the dividing line between normal and
P 323 exceptional in commercial life must be determined by a precise appreciation of the
facts. (813) In this regard, the tribunal took the situation in an emerging market economy
characterized by instability and unpredictability, as well as weak economic and political
institutions into account. (814) These criteria and the tribunal's noting of 'the necessity of
mental fortitude' (815) of which the claimant must have been aware of, however, do not
lower the high threshold for moral damages as set previously by the tribunal in Lemire v
Ukraine. (816)
5.359 With regard to the quantification of damages for moral injury, the umpire in
Lusitania, noted that 'it is manifestly impossible to compute mathematically or with any
degree of accuracy or by any use of any precise formula the damages sustained', (817) but
that 'compensation must be adequate and balance as near as may be the injury
suffered'. (818) He provided some guidance as to what should be considered in the
determination of an award of moral damages, such as the amount of lost earnings and
other pecuniary loss of a deceased after a fatal injury, but also 'the amount which will
reasonably compensate an injured man for suffering excruciating and prolonged physical
pain; and many other inquiries concerning elements universally recognized as
constituting recoverable damages'. (819)
179
5.360 It is certainly difficult to evaluate human pain and suffering, the type (1) damages
as identified above, by pecuniary means. In addition to the 'arbitrators' collective
understanding of what is equitable, reasonable and proportionate', (820) guidance can
be taken from human rights jurisprudence. (821) The ICJ in Diallo awarded US$ 85,000 for
'moral and mental harm, including emotional pain, suffering and shock, as well as the
loss of his position in society and injury to his reputation as a result of his arrests,
detentions and expulsion by the DRC', as alleged by the claimant. (822) In arriving at that
amount, the ICJ looked at the practice of the United Nations Human Rights Committee,
the African Commission on Human and People's Rights, the ECtHR, and the Inter-
American Court of Human Rights. (823)
5.361 As regards compensation for damages to reputation, referred to as type (2)
damages above, including loss of goodwill, creditworthiness, or even business
opportunities, quantification appears to be easier, because they have an economic
underpinning and can be substantiated by evidence.
5.362 In Benvenuti & Bonfant v Congo, the tribunal was confronted with a claim for
'compensation for intangible loss' by the claimant, who submitted that it had lost work
and investment opportunities in Italy, was no longer able to resume its own activities in
Italy by reason of lack of capital having invested all its financial resources in Congo, had
lost its credit with suppliers and banks, and had suffered the loss of its own organization
and management level following its forced and hasty departure from the Congo. The
tribunal noted the lack of evidence capable of establishing the truth of the claims under
this head and also doubted certain statements and allegations, but due to its
authorization to decide ex aequo et bono it awarded an amount of 5,000,000 CFA
(approximately € 7,600). The tribunal awarded this sum as damages for intangible loss
taking into account the measures which the claimant was subjected to and the
proceedings resulting therefrom, which had disturbed the claimant's activities. (824)
5.363 The claimant in Desert Line v Yemen referred to the Fabiani Case and asked for 40
million Omani Rials (approximately US$ 104 million) for 'moral damages including loss or
P 324 reputation'. (825) The tribunal observed that it was difficult, if not impossible, to
substantiate a prejudice of the kind ascertained in the present award. However, it
referred to the Lusitania case and confirmed that non-material damages may be 'very
real, and the mere fact that they are difficult to measure or estimate by monetary
standards makes them none the less real and affords no reason why the injured person
should not be compensated'. (826) The tribunal reduced the amount claimed
significantly and awarded US$ 1 million for moral damages, including for loss of
reputation, without interest. The tribunal conceded that '[t]his amount is indeed more
than symbolic yet modest in proportion to the vastness of the project'. (827)
5.364 Damages for loss of reputation, goodwill, creditworthiness, or business
opportunities have a dual character and can be part of a claim for material and for moral
damage. As the threshold for moral damages is high, it might be possible to formulate
some of those claims as material damages. The submission of sufficient evidence may be
a challenge, (828) but in a few cases tribunals have accepted such damages.
5.365 Some older arbitral awards are noteworthy in this respect. In Shufeldt, the tribunal
awarded a lump sum of US$ 35,000 for 'loss of time, injury to credit, and grave anxiety of
mind on account of the cancellation of the contracts'. (829) The tribunal in Robert H May
emphasized the troubles the claimant had suffered because of the unlawful behaviour of
the state:
[H]e has been entirely debarred from seeking remunerative work, and his
credit, which, on the showing of this Government, was so excellent to cause his
pay checks to be received as cash by all his neighbors, is nearly, if not entirely,
suspended until the decision of the arbitrator be known. (830)
5.366 Similar considerations have appeared more recently in Funnekotter v Zimbabwe.
(831) The claimants submitted that each of them must be compensated in the amount of
US$ 40,000 for the disturbance to them and their families from the decisions taken by the
Zimbabwe authorities. (832) The claimants had owned large commercial farms in
Zimbabwe, but were deprived of their properties between 2001 and 2003 through the
invasion by settlers, war veterans, and various legal and administrative acts by the host
P 326 state. The tribunal agreed that the claimants 'must obtain reparation for the
disturbances resulting from the taking over of their farms and for the necessity for them
to start a new life often in another country'. (833) It evaluated the damages in this respect
for each claimant at € 20,000, in addition to the amount of compensation for the
expropriated properties. Claimants later brought forward further claims asking for
'100,000 Euros for moral damages', (834) which the tribunal rejected. However, it noted
that this was because those claims were formulated only at a very late stage of the
proceedings and 'that those new claims partially concerned damages already
compensated by the allocation of disturbances indemnity'. (835) It follows that the
tribunal regarded the 'disturbances indemnity' at least 'partially' as compensation for
moral damages. (836)
5.367 The tribunal in Swisslion v Macedonia also based an award of 'reputational damage'
on economic considerations. (837) It held that the uncertainty surrounding the investment
180
as a result of the acts of the respondent state, including criminal charges, clouded the
prospects of the company. The tribunal found the estimate of the claimant's experts
suitable for evaluating part of the measure's impact on the claimant based on loss of
export sales and loss of domestic sales, amounting to € 0.3 million and € 0.06 million
respectively. (838) The tribunal found that two-thirds of the losses could be attributed to
the measures found to have been contrary to the fair and equitable treatment violation.
It also added legal fees incurred at the national level and diversion of management time,
awarding a total of € 350,000 to the claimant. (839)
5.368 As regards quantification for mere 'legal damage', identified as moral damage type
(3), in addition to the above-mentioned solution through an award on costs, (840) resort
can be made again to the ECtHR. As that Court has recently changed its jurisprudence
with respect to the distinction between lawful and unlawful expropriations, (841) it has
increased the role of moral damage in this context. An amount of 'non-pecuniary damage'
should be awarded to account for the frustration caused by the unlawful act, as it
explained in Guiso-Gallisay v Italy:
The Court considers that the feelings of powerlessness and frustration arising
from the unlawful dispossession of their property has caused the applicants
considerable non-pecuniary damage that should be compensated in an
appropriate manner. Ruling on an equitable basis, as required by Article 41 of
the Convention, it decides to award EUR 15,000 to each of the applicants
under this head, or EUR 45,000 in total. (842)
5.369 This formulation and the practice of awarding non-pecuniary damage has since
then been repeated by the ECtHR in cases of unlawful expropriation. (843) Such practice
of using 'non-pecuniary damage' is not directly transferable investment arbitration for a
number of reasons. Most importantly, the ECtHR has the competence to award 'on an
equitable basis' pursuant to Article 41 of the European Convention on Human Rights
(ECHR), which arbitral tribunals usually do not have. This should however not rule out the
possibility that they can use their existing competence to award 'full reparation' for
injury, not forgetting the 'feelings of powerlessness and frustration' and also loss of
reputation and business opportunities which are inherently connected to a violation of
an international obligation. This could avoid the situation whereby successful claimants,
when material damages cannot be awarded due to lack of sufficient evidence or
P 326 causation, do not receive any damages at all.
References
1) See also M Kantor, Valuation for Arbitration (The Hague: Kluwer, 2008) 13: 'Arbitrators
should be aware that references to the Market-Based Approach are occasionally
confused with references to the similar sounding concept of market value. These
are, however, different concepts; the Market-Based Approach, like the Income-
Based and Asset-Based Approaches, is just one means of determining the market
value of a business.'
3) Ibid, para. 219.
4) Ibid. This confusion of market value standard and market approach of valuation is
also reflected in the commentaries of this practice. See, e.g., M Pellonpää and M
Fitzmaurice, 'Taking of Property in the Practice of the Iran–US Claims Tribunal'
(1988) 19 Netherlands Yearbook of International Law 53, 133.
5) Delagoa Bay and East African Railway Company, Award of 30 May 1900 in M
Whiteman, Damages in International Law, vol. 3 (Washington: Government Printing
Office, 1943) 1694, 1699.
6) See the detailed analyses by G White, 'The Problem of Valuation in the Barcelona
Traction Case' in R Lillich (ed.), Valuation of Nationalized Property in International
Law, vol. 1 (Charlottesville: University Press of Virginia, 1972) 43, 57.
7) Reineccius v Bank for International Settlements, Award of 22 November 2002, para.
196.
8) Lithgow et al v United Kingdom, 8 July 1986, ECHR Ser A, No. 102, paras 98, 129.
9) Ibid, paras 98, 129, 148 et seq.
10) Ibid, paras 121, 129.
11) Ibid, paras 112 et seq, with references to James et al v United Kingdom, 21 February
1986, ECHR Ser A, No. 98, paras 58 et seq.
12) C N Brower and J Brueschke, The Iran–US Claims Tribunal (The Hague et al: Martinus
Nijhoff Publishers, 1998) 539.
14) Ibid, at 108–9.
15) INA v Iran, 8 Iran–US CTR (1985) 373, 380.
16) Khosrowshahi v Iran, 30 Iran–US CTR (1994) 76, para. 47. Also with respect to the
second expropriated company the tribunal considered the stock price as
'particularly relevant'. Ibid, para. 88.
181
18) AGIP v Congo, Award of 30 November 1979, para. 18. From the published parts of the
award, however, it is not clear how the tribunal arrived at the amount of FF 2.8
million.
19) Only the debts from deliveries amounted to LIT 202,807,838, US$ 333,297.76, and FF
968,071.86. The sum payable by AGIP as 'guarantor' alone amounted to FF
16,688.388. Ibid, at 328–9.
20) The tribunal held: 'In the case of a business asset which is quoted on a public
market, that process can be a fairly easy one, since the price of the shares is
determined under conditions meeting the above mentioned definition'. CMS v
Argentina, Award of 12 May 2005, para. 402.
22) Ibid.
23) See further below, paras 5.177 et seq.
24) Enron v Argentina, Award of 22 May 2007, para. 381.
26) Ibid. See also T Waelde and B Sabahi, 'Compensation, Damages and Valuation' in P
Muchlinski, F Ortino, and C Schreuer (eds), The Oxford Handbook of International
Investment Law (Oxford: Oxford University Press, 2008) 1047, 1071.
27) The tribunal in Enron v Argentina first concluded that to use the stock value of
December 2001 would result in grave distortion, since at that point the unfolding
crisis had led to wide speculation. The tribunal accordingly referred to a range of
stock prices between September and November 2001. The figures resulting from the
DCF analysis as submitted by the claimant were systematically below the stock
exchange prices. The tribunal was accordingly satisfied that the figures resulting
from DCF did not show unreasonable differences to the stock market value.
Secondly, the tribunal referred to the price actually paid for a small share of the
company in 2006. This price, if extrapolated, would have resulted in a value of US$
762.5 million. The stock exchange value, however, at this time was US$ 855 million.
The tribunal found that this might be explained by the fact that price was
negotiated in 2004 and executed in 2006. The tribunal noted that the stock market
value of the company in 2004 floated between US$ 589 million and US$ 869 million.
Therefore, the extrapolated sum fell well within this range. Enron v Argentina, Award
of 22 May 2007, paras 425–8, 437.
31) As the decisive event, one could specify the press announcement of the suspension
of CNTS's operations. Accordingly, the difference between the stock value before
and after this announcement could be regarded as the proper measure of damage
incurred. On this basis, the loss of value was US$ 52.2 million compared to the loss
of value as measured by the tribunal in the amount of US$ 289.5 million. See CME v
Czech Republic, Final Award on Damages of 14 March 2003, paras 331 and 620.
32) Ibid, paras 550–1. The tribunal noted that this was also in accordance with the
valuation by the tribunal, considering that the offer of SBS also included a 'price of
peace' in the amount of US$ 125 million. Ibid, para. 552.
33) Jurisdiction was established by use of the MFN clause in Article 3 of the UK–Soviet
BIT in comparison with its Article 8 providing for international arbitration only
'concerning the amount of compensation … or concerning any other matter
consequential upon an act of expropriation' with Article 8 of the Denmark–Russia
BIT allowing 'any dispute which may arise between an investor…' to be brought
before international arbitration. Rosinvest v Russia, Award on Jurisdiction of 5 May
2007, paras 124–39.
37) Rosinvest v Russia, Award on Jurisdiction of 5 May 2007, para. 2; Rosinvest v Russia,
Award of 12 September 2010, para. 5.
39) See on the issue of the choice of the valuation date above, Chapter 3, Section C; and
also I Marboe, 'Valuation in Cases of Expropriation' in M Bungenberg, J Griebel, S
Hobe, and A Reinisch (eds), International Investment Law. A Handbook (Baden-
Baden: Nomos, 2015) 1057, 1071.
40) Rosinvest v Russia, Award of 12 September 2010, paras 675–6.
41) The respondent pointed out that one year later the prices fluctuated considerably,
from US$1.17 in September 2005, US$1.63 in November 2005, US$2.01 in December
2005, and the high as of February 2006 was US$2.25 on the Moscow Interbank
Currency Market. The fluctuations were similar at the Russian Trading Stock.
42) Rosinvest v Russia, Award of 12 September 2010, para. 666. It is even more difficult
to understand why the tribunal did not see this 'unjustifiably low' price of US$ 11.66
million for the shares in 2004, plus interest, as the minimum to be awarded.
Instead, the tribunal determined the much lower aggregated stock price of US$ 3.5
million as of January 2007, including interest only from that date, long after the
expropriatory acts started and even after the institution of arbitral proceedings in
October 2005.
182
43) This is however not entirely clear from the published parts of the award. The
tribunal only noted that 'Claimant relies on the LECG Report to demonstrate that
Claimant's share of the real value of Yukos' expropriated assets could conservatively
be valued at US$ 183.2 million, as at 31 August 2009' (emphasis added). Rosinvest v
Russia, Award of 12 September 2010, para. 639.
44) Quasar de Valores v Russia, Award of 20 July 2012, para. 187.
46) Ibid, para. 226. As regards the choice of the valuation date, see more in detail
above Chapter 3, Section 3, and I Marboe, 'Quasar de Valores SICAV S.A. and others v.
The Russian Federation. Another Chapter of the Yukos Affair' (2013) 28 ICSID Review
247, 251–2.
47) The claimants' expert produced a comprehensive report in which he laid down the
hypothetical development of Yukos' stock prices in comparison with four Russian oil
companies. Quasar de Valores v Russia, Award of 20 July 2012, para. 210.
49) See above, Chapter 3, Section C(1)(c).
50) This can be argued on the basis of Article 15 of the ILC Articles of the Responsibility
of States for Internationally Wrongful Acts, UN GA Resolution No. 56/83 of 12
December 2001, Annex. See the discussion above, Chapter 3, Section C(1)(c).
53) The tribunal applied the method of 'projected stock value' as of 23 November 2007
as presented by the claimant's expert and only challenged a few assumptions. Most
importantly, it took a different reference date. Instead of 14 April 2004, the date of
the tax resolution, it chose 19 December 2003, when the claimants made their first
investment. This resulted in a 'projected stock price' of US$ 27.76 per share. The
tribunal conceded that the 'downward adjustment might lack precision' but found
that under the present circumstances it adequately compensated the claimants
and avoided a windfall being awarded. Ibid, para. 217. While it was a downward
adjustment of approximately 23% in respect of the claimants' valuation, it was still
almost 50% higher than the stock price at the date of the tax resolution. But,
overall, the claimants were not over-compensated by the award of approximately
US$ 2.02 million, because they did not receive any reimbursement of their costs,
which amounted to US$ 14 million. Even if this amount appears high, the
comprehensive valuation expert report alone must have been a significant part of
it. The reason for the rejection of the claim for costs was that the proceeding had
been financed by a third party, Menatep. The tribunal thus found that the claimants
had not incurred any costs, and that Menatep was the claimants' 'Good Samaritan'.
Ibid, para. 224. See more in detail on this issue, I Marboe, above, n. 46, 253.
55) The result of this calculation was an enterprise value of about US$ 4.5 billion lower
than the enterprise value calculated on the basis of the other methodologies. Ibid,
para. 1719.
56) Crystallex v Venezuela, Award of 4 April 2016, para. 6.
57) Rusoro v Venzuela, Award of 22 August 2016, paras 787–90.
58) Ibid, para. 890. The tribunal considered that the claimant's stock market method,
with the adjustments made above, provided a reasonable and reliable basis to
quantify the claimant's damages. The application of the variables led to a figure of
US$ 1,295.16 million. Ibid, para. 895.
59) See above, Chapter 4, Section B(2)(b), in particular at para. 4.68.
60) Gould Marketing v Iran, 6 Iran–US CTR (1984) 272, 286.
61) In some early cases, offerings which had been made a long time before had also
been used as references for the valuation. For instance, in De Sabla, the offer of an
interested buyer for the expropriated land had been made twenty-one years before
the valuation date and the tribunal did not consider inflation or other value
influencing factors. Marguerite de Joly de Sabla (United States v Panama) 29 June
1933, 6 RIAA, 358, 368. The Panamanian Commissioner dissented, because he found
that the evidence submitted was insufficient. Marguerite de Joly de Sabla (United
States v Panama) Dissenting Opinion of the Panamanian Commissioner, 6 RIAA, 370.
62) Phelps Dodge v Iran, 10 Iran–US CTR (1987) 121, para. 1.
63) Ibid, para. 31.
64) Ibid, para. 30.
65) M Pellonpää and M Fitzmaurice, above, n. 4, 149.
66) CME v Czech Republic, Final Award on Damages of 14 March 2003, para. 100.
67) Ibid, para. 140, referring to C N Brower and J Brueschke, above, n. 12, as well as to
the cases INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 382–3, and James A Saghi v
Iran, 29 Iran–US CTR (1993) 20, 49.
68) CME Czech Republic BV v Czech Republic, Final Award on Damages of 14 March 2003,
para. 514.
70) Ibid, para. 517. This was one of the respondent's arguments, see para. 354, but also
supported by Brownlie in his Separate Opinion, CME v Czech Republic, Separate
Opinion Brownlie on the Issues at the Quantum Phase of 14 March 2003 (2006) 9
ICSID Reports 412, para. 103.
183
71) This was another of the respondent's arguments and supported by Brownlie, see
CME Czech Republic BV v Czech Republic, Final Award on Damages of 14 March 2003,
para. 355; Brownlie in his Separate Opinion, above, n. 70, para. 103.
72) 'The comparison of the two SBS board meeting presentations of 19 February 1999
and 29 March 1999 clearly spell out that the estimated value of CNTS as a basis for
the merger transaction was USD 400 million for a 100% shareholding in CNTS.' CME
Czech Republic BV v Czech Republic, Final Award on Damages of 14 March 2003, para.
528.
73) The tribunal fixed the market value of the expropriated company at US$ 290
million. The deduction was caused by the 'Zelezny Factor' and the 'Residual Value'
of the company. Ibid, para. 620.
74) See Financial Times of 4 December 2004: 'CME Agrees $642m Czech TV Station Deal'.
75) Técnicas Medioambientales SA v Mexico (2004) 19 ICSID Rev.-FILJ 158.
76) Ibid, para. 191. The tribunal made certain adjustments to account for the
developments between 1996 and 1998, including subsequent investments and the
profitability of the company.
77) Azurix Corp v Argentina, Award of 14 July 2006,
<http://ita.law.uvic.ca/documents/AzurixAwardJuly2006.pdf>.
78) See above, Chapter 4, Section B(b)(i), para. 4.71.
79) Azurix v Argentina, Award of 14 July 2006, para. 41. This was, according to the
claimant, equivalent to US$ 449 million. Ibid, para. 411.
81) James A Saghi v Iran, 29 Iran–US CTR (1993) 20, para. 81.
82) Ibid, para. 91.
83) Ibid, paras 97 et seq. The negative impacts of the revolution were considered more
important than the positive ones so that the amount awarded was slightly above
the price offered, but due to inflation represented less than the value of 1975. The
tribunal awarded US$ 5.5 million, which was slightly above the offer at US$ 4.75
million in 1975. James A Saghi v Iran, 29 Iran–US CTR (1993) 20, paras 81 and 103.
84) The tribunal referred to the prices offered for the equipment by the Iranian
business partner, but reduced them because the items sold had been the more
valuable and well-preserved items. United Painting Company Inc v Iran, 23 Iran–US
CTR (1989) 351, paras 73–4.
85) This was, however, not always the case. In Sola Tiles v Iran it referred to the
valuation of an interested willing buyer who had valued the entire company for
investment purposes one year before the expropriation, but did not, however, base
its calculation of the amount to be awarded to the claimant on that offer. Sola Tiles
Inc v Iran, 14 Iran–US CTR (1987) 223, paras 53 et seq.
86) Middle East Cement v Egypt, Award of 12 April 2002, para. 148.
88) Khan Resources v Mongolia, Award of 2 March 2015, paras 411 et seq. The tribunal
had first discussed and rejected the DCF method, the market comparables
approach, and the market capitalization approach. See ibid, paras 391–409.
90) Southern Pacific Properties v Egypt, Award of 20 May 1992, para. 192.
94) Starrett Housing Corporation v Iran, 16 Iran–US CTR (1987) 112, paras 309 et seq.
95) See below, paras 5.79 et seq.
98) Ibid.
99) The application of the 'differential method' in this case was correct in principle.
However, the tribunal compared the two values as of the date before the measure
and not as of the date of the award. As a result, the claimant had to bear the burden
of the inflation of the peso. The restitution approach as formulated by the PICJ in
Factory at Chorzów was clearly not met. This resulted in considerable
undercompensation of the claimants. See further below, para. 5.244.
100) National Grid v Argentina, Award of 3 November 2008, para. 287.
101) Ibid, para. 287.
102) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, para. 76. The tribunal
considered the insurance value to be the better reference for the value of the oil
rigs in this case. Ibid, paras 41 and 76–7. See further below, para. 5.380.
103) Mohtadi v Iran, 32 Iran–US CTR (1996) 124, paras 93 et seq; Moussa Aryeh v Iran, 33
Iran–US CTR (1997) 368, para. 98; George Davidson v Iran, 34 Iran–US CTR (1998) 3,
paras 112 et seq; Kamran Hakim v Iran, 34 Iran–US CTR (1998) 67, paras 114 et seq.
104) Mohtadi v Iran, 32 Iran–US CTR (1996) 124, paras 98 et seq; Kamran Hakim v Iran, 34
Iran–US CTR (1998) 67, paras 125 et seq.
105) Mohtadi v Iran, 32 Iran–US CTR (1996) 124, paras 98 et seq.
106) Ibid, para. 102. In doing so, the tribunal actually determined the individual and
concrete damage incurred, only roughly based on comparable sales.
184
107) See, e.g., Motais de Narbonne v France (just satisfaction) ECHR No. 48161/99, 27 May
2003, para. 22; Papavstravou v Greece (just satisfaction) ECHR No. 46372/99, 18
November 2004, para. 7, referring to a national court judgment that had determined
the amount of compensation for an expropriated real property in the same vicinity
expropriated for the purposes of the Olympic Games in 2004.
108) Funnekotter v Zimbabwe, Award of 22 April 2009, para. 98.
109) Ibid, para. 132. These led to a reduction of approximately 30% of the value as
claimed by the claimants.
110) Ibid, para. 135.
111) Ibid.
112) The tribunal in Occidental v Ecuador decided that it could derive no assistance from
an analysis of seven transactions which the respondent had submitted as
comparable sales. It agreed with the claimants that 'each oil and gas property
presents a unique set of value parameters'. Occidental v Ecuador, Award of 5
October 2012, para. 787. Commentators were critical of this decision, however,
arguing that the tribunal had not properly analysed this point. See B Sabahi and K
Duggal, 'Occidental Petroleum v Ecuador (2012). Observations on Proportionality,
Assessment of Damages and Contributory Fault' (2013) 29 ICSID Review, 279, referring
to M Kantor, 'Money Column: It Just Can't Compare' (2013) 8(1) GAR.
113) For this reason, the tribunal in Yukos v Russia did not apply it. It noted that 'both
Parties agree that, in fact, there were not comparable transactions'. Yukos v Russia,
Award of 18 July 2014, para. 1785. See also the rejection of the comparable sales
valuation due to a lack of comparable transactions in Al-Bahloul v Tajikistan, Award
of 8 June 2010, para. 97.
114) The tribunal in Kardassopoulos v Georgia discussed the offer of a particular buyer
which was based on a 'special interest' and a 'strategic value that it attached to
GTI's rights'. Kardassopoulos v Georgia, Award of 3 March 2010, para. 598.
115) Ibid.
116) Sapphire v NIOC, Award of 13 March 1963, (1967) ILR 136, 161.
117) Ibid, at 189.
119) Kardassopoulos v Georgia, Award of 3 March 2010, para. 603.
120) The tribunal thus awarded US$ 15.1 million to each of the two claimants. Ibid, para.
645.
121) Siag v Vecchi, Award of 1 July 2009, paras 573–5.
122) Ibid, paras 575–6, 584. In addition, a contractual provision was applied that led to a
reduction of the amount by 50%. See in more detail below, para. 5.294.
123) S Pratt and A Nicolita, The Lawyer's Business Valuation Handbook (2nd edn, Chicago:
ABA, 2010) 86.
124) Ibid.
125) T Koller, M Goedhart, and D Wessels, Valuation. Measuring and Managing the Value of
Companies (5th edn, New York: Wiley & Sons, 2010) 130.
126) In Thomas Earl Payne, the claimant valued his two enterprises in the film and
electrical industries on the basis of a multiple of the net average earnings of the
three years before the taking and suggested 'a multiple of 10 times net average
earnings for the three years preceding the taking'. Thomas Earl Payne v Iran, 12 Iran–
US CTR (1986) 3, para. 31. The tribunal, however, doubted that the average earnings
of the company over the past three years could be a reliable indicator for its future
prospects. Ibid, para. 36. The claimant in Phelps Dodge v Iran tried to base the value
of his business in the wire and cable production industry on an earnings multiplier
derived from comparative earnings multipliers of US enterprises in the same
industry. The tribunal, however, rejected the valuation by multiples in this case
because it did not find that US enterprises were sufficiently comparable to start-up
enterprises in the same business in Iran. Phelps Dodge Corporation v Iran, 10 Iran–US
CTR (1986) 121, para. 29.
127) CME v Czech Republic, Final Award on Damages of 14 March 2003, paras 166 et seq.
128) See above, at paras 5.24–5.25.
129) CME v Czech Republic, Final Award on Damages of 14 March 2003, para. 515. The
multiple 9.1 corresponded to 80% of the internal multiple of the Scandinavian
company to reflect the Eastern European risk because as an Eastern European
Operator, CME's private market multiples would be at a 15–25% discount to the
corresponding SBS multiples. Ibid, para. 516.
130) This multiple was, however, slightly increased on the basis of financial market
analyses. This 'intrinsic share value' of US$ 35 per share was US$ 7.5 higher than the
contemporary stock price. Ibid, para. 516.
131) Ibid, para. 523.
132) In the course of the proceedings, the claimant argued in favour of higher multiples
(11.3 or 12) which were, however, not accepted by the tribunal. See ibid, para. 526.
133) Ibid, paras 561–2.
134) The experts refer to this as a 'trading multiple analysis'. CME Czech Republic BV v
Czech Republic, Final Award on Damages of 14 March 2003 (2006) 9 ICSID Reports 246,
paras 166 et seq.
135) Ibid, para. 166.
185
136) The respondent contended that 'Dr. Copeland has failed to recognize the fact that
the capital markets simply do not value Central and Eastern European companies
on the same trading multiples as established Western European Broadcasters'. Ibid,
para. 367.
137) The tribunal confirmed its jurisdiction in this case on the basis of a provisional
application of the Energy Charter Treaty. See Yukos v Russia, Interim Award on
Jurisdiction and Admissibility of 30 November 2009, para. 601. However, this Interim
Award was challenged by Russia before the Hague District Court, which decided to
squash the Interim Award and the Final Award, because the tribunal wrongly
declared itself competent in the arbitration. See The Russian Federation v Veteran
Petroleum Limited, Yukos Universal Limited, and Hulley Enterprises Limited, The
Hague District Court, Chamber of Commercial Affairs, Judgment of 20 April 2016,
para. 5.96. This judgment is under appeal at the time of writing.
139) Ibid, para. 1784.
140) The Russian oil companies were Rosneft, Gazprom Neft, Lukoil, TNK-BP, and
Surgutneftegaz, and the international oil companies were BP, Chevron, Conoco-
Philips, Exxon-Mobil, Royal Dutch Shell, and Total SA. Ibid, para. 1715.
141) The net income, EBITDA, reserves, and production of Yukos were derived from the
'pro-forma financial statements' established in the context of the DCF method. Ibid,
para. 1715.
142) It included the preferred or common shares of nine Russian oil and gas companies,
the most important of which are Gazprom, Lukoil, Novatek, Rosneft, and
Surgutneftegaz. Ibid, para. 1788.
143) It noted that the methodology for establishing the index as well as its current and
historical values were transparent and publicly available on the webpage of the
Moscow stock exchange, and that both parties had referred to it as a reliable
indicator reflecting the changes in the value of Russian oil and gas companies. Ibid,
para. 1788.
144) The index on the latter date was taken from an average between 6 January 2014 to
24 June 2014 in order to eliminate random fluctuations. Ibid, para. 1821.
145) By applying this factor to the amount of US$ 61.076 billion, which was the value of
Yukos at the expropriation date, the tribunal arrived at an equity value of Yukos as
of 30 June 2014 in the amount of US$ 42.625 billion. Ibid. The claimants' share in
Yukos was 70.5%, so that the calculated pro rata share was US$ 30.049 billion. Ibid,
para. 1822.
146) With regard to the DCF method, the tribunal noted that the claimants' expert had
admitted that his analysis was influenced by his own pre-determined notions as to
what would be an appropriate result. As regards the comparative transactions
method, both parties agreed that there were no comparable transactions. Ibid,
para. 1785.
147) Tza Yap Shum v Peru, Award of 7 July 2011, para. 264.
148) The adjusted book value was US$ 873,673,60, of which 90% amounted to US$
786,306,24. This was the total amount awarded, as the tribunal rejected further
claims for moral damage. See further below, Section C(1)(c).
149) I Seidl-Hohenveldern, 'L'évaluation des dommages dans les arbitrages
transnationaux' (1987) 33 Annuaire français de droit international 7, 24; explicitly
quoted in Asian Agricultural Products Ltd v Sri Lanka, Award of 27 June 1990 (1997) 4
ICSID Reports 246, para. 104. See also S K Khalilian, 'The Place of Discounted Cash
Flow in International Commercial Arbitration: Awards by Iran–U.S. Claims Tribunal'
(1991) 8 Journal of International Arbitration 31 et seq.
150) See, e.g., Amoco International Finance v Iran, 15 Iran–US CTR (1987) 189, para. 238;
Phelps Dodge Corp v Iran, 10 Iran–US CTR (1986) 121, para. 30; Metalclad v Mexico,
Award of 30 August 2000 (2001) 40 ILM 36, para. 121; and Wena Hotels v Egypt, Award
of 8 December 2000, para. 122.
151) Amoco International Finance v Iran, 15 Iran–US CTR (1987) 189, para. 238; see also
Phelps Dodge Corp v Iran, 10 Iran–US CTR (1986) 121, para. 30; Metalclad v Mexico,
Award of 30 August 2000, para. 121; and Wena Hotels v Egypt, Award of 8 December
2000, para. 122.
152) Kantor notes: 'The contrast between the preference among international investment
tribunals for Asset-Based methods and the preference among valuation
organizations and professionals for Income-Based methods is striking'. M Kantor,
above, n. 1, 53.
153) CME v Czech Republic, Final Award on Damages of 14 March 2003, para. 359 (emphasis
in original).
154) CME v Czech Republic, Separate Opinion Brownlie on the Issues at the Quantum
Phase of 14 March 2003, paras 97, 99.
155) See the argumentation of the tribunal in Amoco International Finance v Iran: 'The
capitalization of the future earnings will probably amount to a much higher figure,
which could lead to unjust enrichment for the beneficiary of such compensation,
since he could, hypothetically, establish a similar enterprise with comparable
earnings, spending only a portion of the compensation received, and earn
additional revenues with the remaining part', Amoco International Finance
Corporation v Iran, 15 Iran–US CTR (1987) 189, para. 231.
186
156) In Barcelona Traction Light and Power Company (Belgium v Spain), even though no
judgment on the merits could be achieved, valuation matters played an important
role. The parties referred to all three valuation approaches in their submissions.
Spain relied on the income approach in order to show that the damage was minimal
due to the lack of future profitability. Belgium, by contrast, relied on the asset
approach in order to get reparation for the tangible assets lost. Both parties
rejected the market value in the form of stock prices as a reliable indicator for the
value of the company. See further G White, above, n. 6, 43 et seq.
157) The 40% of the investment actually undertaken which represented the claimants'
share amounted to CFA 122,000,000, while the valuation based on forecast income
was CFA 110,098,936. Benvenuti & Bonfant v Congo, Award of 15 August 1980, para.
4.78.
158) Delagoa Bay and East African Railway Company, Award of 30 May 1900, reprinted in
pertinent part in M Whiteman, above, n. 5, 1694, 1699.
159) Starrett Housing Corporation v Iran, Final Award, 16 Iran–US CTR (1987) 112, 201–24.
160) Phillips Petroleum Company Iran v Iran, 21 Iran–US CTR (1989) 79, 122–45.
161) Amco Asia v Republic of Indonesia (Amco I) Award of 20 November 1984 (1993) 1 ICSID
Reports 413, 501–6; Amco Asia v Indonesia (Amco II) Award of 5 June 1990 (1993) 1
ICSID Reports 569, 609–27.
162) CMS v Argentina, Award of 12 May 2005, paras 416–69.
163) ADC v Hungary, Award of 2 October 2006, paras 501–16.
164) Enron v Argentina, Award of 22 May 2007, paras 405–36.
165) Sempra v Argentina, Award of 28 September 2007, paras 416–66.
166) LG&E v Argentina, Award of 25 July 2007, paras 59–101.
167) Lemire v Ukraine, Award of 28 March 2011, para. 254 (both parties agreed on DCF).
168) El Paso v Argentina, Award of 31 October 2011, paras 682–7, 711–42 ('but for' values of
the stakes in the companies representing the fair market value with and without the
effect of the measures).
169) Unglaube v Costa Rica, Award of 16 May 2012, para. 309 (income capitalization
approach based on the property's highest and best use).
170) EDF v Argentina, Award of 11 June 2012, paras 1238 et seq (both parties agreed on
DCF, but submitted very different DCF models).
171) Occidental v Ecuador, Award of 5 October 2012, paras 708 et seq ('but for' DCF).
172) Abengoa v Guatemala, Award of 18 April 2013, para. 688 (DCF is the 'only method to
fully compensate Claimant' despite very short time of operation).
173) TECO v Guatemala, Award of 19 December 2013, para. 748 (damages for lost cash
flows by comparing the effects of tariffs).
174) Gold Reserve v Venezuela, Award of 22 September 2014, para. 832 (DCF valuation with
reference to comparable companies and transactions would result in a reasonable
methodology).
175) Mobil Cerro Negro v Venezuela, Award of 9 October 2014, paras 307–74 (applies DCF
on basis of submission by the parties making its own adjustments).
176) Flughafen Zürich v Venezuela, Award of 18 November 2014, para. 783 (applied DCF
method as agreed by both parties; validated by comparison of comparable
companies and transactions).
177) OI European Group v Venezuela, Award of 10 March 2015, paras 784–97 (both parties
agreed on use of DCF method, but paired with additional methodologies, such as
comparable companies/transactions).
178) Tidewater v Venezuela, Award of 13 March 2015, para. 165 (DCF method, since
company was a proven going concern).
179) Suez v Argentina, Award of 9 April 2015, paras 95 et seq (DCF method should be
applied; tribunal discusses Free Cash Flow, Adjusted Present Value, and Flow to
Equity, applying the latter two which arrived at nearly identical results).
180) Quiborax v Bolivia, Award of 16 September 2015, paras 343–7, 364–502 (sufficient
record of operations and prospective profitability to justify applying the DCF
method to value the concessions).
181) Enron Corp v Argentina, Award of 22 May 2007, para. 385 (footnotes omitted).
182) Himpurna California Energy Ltd v Indonesia, Final Award of 4 May 1999 (2000) 25 YCA
13; Karaha Bodas v Pertamina, Arbitral Tribunal, Final Award of 18 December 2000,
summarized in pertinent part in Karaha Bodas Co v Perusahaan Pertambangan
Minyak dan Gas Bumi Negara, 364 F.3d 274, 282–5 (5th Cir 2004).
183) Bridas SAPIC v Government of Turkmenistan, Partial Award of 25 June 1999, excerpts
reprinted in R D Bishop, J Crawford, and W M Reisman, Foreign Investment Disputes.
Cases, Materials and Commentary (The Hague: Kluwer, 2005) 1270 et seq.
184) National Grid v Argentina, Award of 3 November 2008, paras 275 et seq (comparable
transactions method, but also looking at DCF).
185) Walter Bau v Thailand, Award of 1 July 2009, para. 14.21 (DCF method most
appropriate in the present case).
186) Mobil Cerro Negro v Argentina, ICC Award of 23 December 2011, paras 770–8
(accepting data and historical results, but applying 18% discount rate).
187) S D Myers Inc v Government of Canada, Second Partial Award on Damages of 21
October 2002, paras 220–301.
188) Archer Daniels v Canada, Award of 21 November 2007, paras 287–93 (quantum of
damages depends on the amount of lost profits that have been proved).
187
189) Cargill v Mexico, Award of 18 September 2009, paras 538–40 (present value of net
lost cash flows equal to 'but for' quantity of HFCS that would have been sold,
multiplied by the price of HFCS).
190) Kardassopoulos v Georgia, Award of 3 March 2010, para. 595 (valuation of claimants'
50% interest in GTI's rights, based on the income and market approach).
191) Anatolie Stati v Kazakhstan, Award of 19 December 2013, para. 1617 (parties and
tribunal agree that DCF method is appropriate for calculation).
194) Sempra v Argentina, Award of 28 September 2007, paras 404, 416.
195) Abengoa v Guatemala, Award of 18 April 2013, para. 688.
196) Mobil Cerro Negro v Venezuela, Award of 9 October 2014, paras 307–8.
197) Flughafen Zürich v Venezuela, Award of 18 November 2014, paras 739, 741.
198) Tidewater v Venezuela, Award of 13 March 2015, para.145.
199) Amco Asia Corp v Indonesia (Amco II), Award of 5 June 1990.
200) Himpurna California Energy Ltd v Indonesia, Final Award of 4 May 1999 (2000) 25 YCA
13. Karaha Bodas Co, LCC v Perusahaan Pertambangan Minyak dan Gas Bumi Negara
(Pertamina) and PT PLN (Persero), Final Award of 18 December 2000 (2001) 16
International Arbitration Report, C-2.
201) S D Myers v Canada, Second Partial Award on Damages of 21 October 2002, paras 94,
174.
203) LG&E v Argentina, Award of 25 July 2007, paras 37–45, 59.
204) Lemire v Ukraine, Award of 28 March 2011, para. 152.
205) Archer Daniels v Canada, Award of 21 November 2007, paras 275–87.
206) Walter Bau v Thailand, Award of 1 July 2009, para. 14.28.
207) TECO v Guatemala, Award of 19 December 2013, para. 719.
209) See in more detail below, paras 5.246 et seq.
210) Wena Hotels v Egypt, Award of 8 December 2000.
211) Pope & Talbot and Canada, Award in Respect of Damages of 31 May 2002, para. 84.
212) Siemens v Argentina, Award of 6 February 2007, paras 355–7.
213) Vivendi v Argentine Republic (Vivendi II), Award of 20 August 2007, para. 8.3.11.
214) Khan Resources v Mongolia, Award of 2 March 2015, para. 423. See also Siag v Egypt,
Award of 1 July 2009, para. 566; Bahloul v Tajikistan, Award of 2 September 2009,
para. 98; Railroad Development v Guatemala, Award of 29 July 2012, para. 269; Tza
Yap Shum v Peru, Award of 7 July 2011, paras 261–3; Impregilo v Argentina, Award of 21
June 2011, para. 373; Meerapfel v Moldova, Award of 21 May 2011, para. 393; Arif v
Moldova, Award of 8 April 2013, para. 576; Abengoa v Mexico, Award of 18 April 2013;
Hassan Awdi v Romania, Award of 2 March 2015, para. 514; Tenaris v Venezuela, Award
of 29 January 2016, para. 527.
215) CME v Czech Republic, Final Award on Damages of 14 March 2003, see above, paras
5.24–5.26 and paras 5.58–5.59; Gold Reserve v Venezuela, Award of 22 September
2014, para. 832; Flughafen Zürich v Venezuela, Award of 18 November 2014, para. 783;
OI European Group v Venezuela, Award of 10 March 2015, paras 784–97.
216) The tribunal in Gold Reserve v Venzuela found that the DCF method was not reliable,
since the Brisas Project had never been a functioning mine with a history of cash
flows, but that also the comparables method was not appropriate, since the
comparables were not sufficiently similar. It found, however, that the DCF valuation
with reference to comparable companies and transactions would result in a
reasonable methodology. Gold Reserve v Venezuela, Award of 22 September 2014,
para. 832.
217) IVSC, International Valuation Standards (London: IVSC, 2013) 24.
218) The DCF method is not equal to lucrum cessans and asset value does not represent
damnum emergens, as the tribunal in Amoco International Finance v Iran put it.
Amoco International Finance v Iran, 15 Iran–US CTR (1987) 189, para. 229. See S K
Khalilian, 'The Place of the DCF-Method in International Commercial Arbitrations:
Awards by the Iran-United States Tribunal' (1991) 8 Journal of International
Arbitration 31 et seq; similarly C Chatterjee, 'The Use of the DCF-Method in the
Assessment of Compensation. Comments on the Recent World Bank Guidelines on
the Treatment of Foreign Direct Investment' (1993) 10 Journal of International
Arbitration 19 et seq.
219) '[T]he Claimant's calculations of anticipated revenues [are not considered] as a
request to be awarded lost future profits, but rather as a relevant factor to be
considered in the determination of the fair market value of its property interest at
the date of the taking.' Phillips Petroleum Co Iran v Iran, 21 Iran–US CTR (1989) 79,
para. 112.
220) 'The Tribunal recognizes that a prospective buyer of the asset would almost
certainly undertake such a DCF analysis to help it determine the price it would be
willing to pay and the DCF calculations are, therefore, evidence the Tribunal is
justified in considering in reaching its decision on value.' Phillips Petroleum Co Iran
v Iran, 21 Iran–US CTR (1989) 79, para. 112.
221) Phillips Petroleum Co v Iran, 21 Iran–US CTR (1989) 79, para. 112.
188
222) Starrett Housing Corporation v Iran, 16 Iran–US CTR (1987) 112, para. 273. The income-
based calculation only concerned the smaller part of the claim amounting to US$
2.5 million, while the greater part consisted in the repayment of loans in the amount
of US$ 33.9 million.
223) The tribunal in Amco v Indonesia found the 'average monthly net profit of the hotel
for the fifteen month period' a sound base for calculating the amount of damages.
Amco v Indonesia (Amco II), Award of Award of 5 June 1990, para. 202.
224) The tribunal in Amco v Indonesia denied 'entitlement to cash flow' and
consequently identified the amount to be awarded as 'US present Value of Profits'.
Ibid, paras 223–4.
225) As regards the definition and qualities of cash flows see above, Chapter 4, Section
C(1)(a).
226) CME v Czech Republic, Final Award on Damages of 14 March 2003, para. 160. The
starting point of the valuation was the balance sheets between 1994 and 1999, in
accordance with US-GAAP. Ibid, paras 123 et seq.
227) The advertising market share was, therefore, the most important element for the
projected cash flow. Ibid, para. 578.
228) Ibid, paras 593–4.
229) CMS v Argentina, Award of 12 May 2005, paras 430–3.
230) Ibid, para. 433.
231) Ibid, para. 430.
232) See, e.g., the tribunal Enron v Argentina, which just endorsed the DCF method as a
reliable approach to calculate damages. Enron v Argentina, Award of 22 May 2007,
para. 386.
233) These adjustments may concern assumptions relating to both the forecasting and
the discount rate. See above, Chapter 4, Section C(2).
234) Tribunals have become more active in challenging the assumption of experts. They
have engaged in detailed discussions on various parameters and also asked the
experts for submitting models which would allow changing certain assumptions. On
the role of experts in arbitration proceedings see in more detail Chapter 4, Section
E.
236) Ibid.
237) World Bank Guidelines on the Treatment of Foreign Investment, section IV(6), first
indent (1992) 31 ILM 1363, 1383; see above, Chapter 4, Section A(2)(b).
238) See above, Chapter 4, Section A(4).
240) Aminoil v Kuwait (1982) 21 ILM 976, para. 178; council to the parties later commented
on this award, see R Young and W Owen, 'Valuation Aspects of the Aminoil Award' in
R Lillich (ed.), The Valuation of Nationalized Property in International Law, vol. 4
(Charlottesville: University Press of Virginia, 1987) 3 et seq; A Redfern, 'The
Arbitration between the Government of Kuwait and Aminoil' (1984) 55 BYIL 65 et seq;
see also D Bowett, 'Claims between States and Private Entities: The Twilight Zone of
International Law' (1986) 35 Catholic University Law Review 929 et seq; see also
American International Group v Iran, 4 Iran–US CTR (1983) 96, 109.
241) Amoco International Finance v Iran, 15 Iran–US CTR (1987) 189, para. 203. It specified
that '[g]oing concern value encompasses not only the physical and financial assets
of the undertaking, but also the intangible valuables which contribute to its earning
power, such as contractual rights (supply and delivery contracts, patent licences
and so on), as well as goodwill and commercial prospects'. Ibid, para. 255.
242) Ibid, para. 95. The tribunal referred to the consistent jurisprudence in this respect,
in particular to Phelps Dodge Corp et al v Iran, 10 Iran–US CTR (1986) 121
('manufacturing company had not yet commenced production'); Sola Tiles v Iran, 14
Iran–US CTR (1987) 223 ('Revolution adversely affected the market for luxury tiles');
Motorola v Iran National Airlines Corporation, 19 Iran–US CTR (1988) 73 ('limited
market for sophisticated communications equipment after the Revolution'); CBS v
Iran, 25 Iran–US CTR (1990) 131 ('market for western music detrimentally impacted
by Revolution'); Faith Lita Khosrowshahi v Iran, 30 Iran–US CTR (1994) 76, para. 44;
Shahine Shaine Ebrahimi v Iran, 30 Iran–US CTR (1994) 170, para. 97.
243) In Amoco International Finance v Iran, the 'going concern value' was also sharply
distinguished from income-based calculation techniques, such as the DCF method.
Amoco International Finance v Iran, 15 Iran–US CTR (1987), paras 227 et seq. In
Tavakoli v Iran, the going concern test was made in order to assess the value of the
company under a hypothetical liquidation. Tavakoli v Iran, 33 Iran–US CTR (1997) 206
et seq.
244) In Aminoil v Kuwait, the tribunal based the valuation on a 'depreciated replacement
value' of the tangible assets. Aminoil v Kuwait, Award of 24 March 1982, paras 166–7.
In Amoco International Finance v Iran, the tribunal did not decide upon the
valuation but only gave instructions for the valuation at a later stage. The amount
payable to the claimant was later agreed between the parties, but the Award on
Agreed Terms does not allow a more thorough interpretation of how this result was
reached. See Amoco International Finance v Iran, Award on Agreed Terms, 25 Iran–US
CTR (1990) 314, 317.
189
245) The reason is that any value of any asset, in economic practice, is to be valued on
the basis of its future profitability. See above, Chapter 4, Section C(2). If there is no
future profitability, a willing buyer would simply not buy the asset and a rational
owner would sell the assets under the liquidation premise. See above, Chapter 4,
Section C(3)(c).
246) As contained in NAFTA Article 1102, S D Myers Inc v Canada, Partial Award of 13
November 2000 (2005) 8 ICSID Reports 18, para. 256.
247) As contained in NAFTA Article 1105. Ibid, para. 268. The arguments submitted by the
respondent that the export prohibition was a measure for environmental protection
was not accepted by the tribunal. It found that the reason was rather the intended
protection of the national waste disposal industry. Ibid, paras 251 et seq.
248) S D Myers Inc v Canada, Second Partial Award of 21 October 2002 (2005) 8 ICSID
249) Ibid, para. 174.
250) See the discussion of cases below, paras 5.247 et seq.
251) See Chapter 4, Section C(2)(c).
252) Amco Asia v Indonesia (Amco I), Award of 20 November 1984, para. 274.
253) After the annulment of the first award of 20 November 1984 by the ad hoc
Committee on 16 May 1986, a second tribunal decided on the final award. A second
application of annulment was rejected on 17 December 1992. Amco Asia Corp v
Indonesia (Amco II), Award of 5 June 1990, paras 203, 284.
254) CME Czech Republic BV v Czech Republic, Final Award on Damages of 14 March 2003
255) Ibid, paras 129, 131–2.
256) Starrett Housing Corporation v Iran, 16 Iran–US CTR (1987) 112, para. 305. The prices
actually paid after 1980 confirmed this assumption. Ibid, para. 316.
257) Phillips Petroleum Co Iran v Iran, 21 Iran–US CTR (1989) 79, para. 163.
258) Rusoro v Venezuela, Award of 22 August 2016, para. 759.
259) See, e.g., LIAMCO v Libya (1982) 62 ILR 141, 213 et seq; Phillips Petroleum Co Iran v
Iran, 21 Iran–US CTR (1989) 79, paras 117 et seq.
260) See, e.g., Phillips Petroleum Co Iran v Iran, 21 Iran–US CTR (1989) 79, para. 119.
261) Ibid, para. 125.
262) 'Thus, to arrive at the Project's fair market value, the Expert (i) calculated the
remaining revenues in the Project, (ii) calculated the remaining costs in the Project,
and (iii) applied a discount rate to the resulting cash flow. This discount rate was
based on return on capital expected by a reasonable businessman on 31 January
1980 as well as on the expected rate of inflation, rate of real interest, and rate of
risk.' Ibid, para. 32.
263) The tribunal noted: 'The valuation method adopted by the Expert required a
determination of the total amount of revenues that a reasonable businessman
purchasing the Project on 31 January 1980 would expect to receive from the
completed Project. The revenues would be derived from sales and resales of
apartments, sales of extra parking spaces, and sales from heavy duty construction
equipment.' Ibid, para. 302.
264) Ibid, paras 324 et seq. Income taxes were reflected only after the discounting
process. Ibid, para. 345. Sometimes, taxes are already deducted from the
beginning. See the 'indirect' determination of cash flows above, para. 5.88.
265) CME Czech Republic v Czech Republic, Final Award on Damages of 14 March 2003
(2006) 9 ICSID Reports 246, paras 109 et seq.
267) See, ibid, para. 565.
268) Ibid, paras 565, 571.
269) The tribunal noted: 'The Tribunal has taken due notice of SDMI's successful
experience of seizing marketing opportunities in the USA, but at the same time
acknowledges that the Canadian market had certain distinctive features'. Ibid,
para. 173.
270) Ibid, para. 182.
272) Ibid, para. 226.
273) It, therefore, awarded an amount of CAN$ 6.05 million, plus compound interest. Ibid,
para. 301.
274) CMS v Argentina, Award of 12 May 2005, paras 442 et seq.
275) Enron v Argentina, Award of 22 May 2007, paras 408 et seq.
276) Ibid, para. 410.
277) Sempra v Argentina, Award of 28 September 2007, paras 416 et seq.
278) Ibid, para. 418.
281) Flughafen Zürich v Venezuela, Award of 18 November 2014, paras 855–8.
282) The tribunal in Rusoro v Venezuela pointed out that the business plan should be
'adopted in tempore insuspecto, prepared by the company's officers and verified by
an impartial expert'. Rusoro v Venezuela, Award of 22 August 2016, para. 759.
283) See Phillips Petroleum Co Iran v Iran, 21 Iran–US CTR (1989) 79, paras 119, 120–1, and
124.
190
(2006) 9 ICSID Reports 246, para. 1.62.
285) Ibid, para. 163.
286) Ibid, para. 131. This also concerned the inflation rate which was was only 4.5% rather
than 7.8%. This, however, had little impact as both the forecasting and the
discounting were based on nominal figures. Ibid, para. 163.
287) CMS Gas Transmissions Company v Argentine Republic, Award of 12 May 2005 (2005)
44 ILM 1205, para. 422.
288) Ibid.
291) Abengoa v Mexico, Award of 18 April 2013, para. 691.
292) American International Group v Iran, 4 Iran–US CTR (1983) 96, 107; see above, Chapter
3, Section C(1)(a), para. 3.273.
294) Thomas Earl Payne v Iran, 12 Iran–US CTR (1986) 3.
295) 'Also, it must be observed that Berkeh was clearly seriously affected by the new
restrictions on the importations of films imposed by the Iranian Government.' Ibid,
para. 35.
296) The business included in particular 'manufacturing, importing, exporting and
marketing tapes and records, and publishing music, in Iran'. CBS Inc v Iran, 25 Iran–
US CTR (1990) 131, para. 12.
297) Ibid, para. 52. The tribunal came to the conclusion that the company had 'no value'.
For this reason, it did not even address the issue of expropriation any longer. Ibid,
para. 60.
298) Sola Tiles Inc v Iran, 14 Iran–US CTR (1987) 223 et seq.
299) 'Simat's trade consisted largely of selling specialised luxury tiles, the market for
which depended in large measure on the continued construction of luxury houses
and apartments. The question presents itself—though neither party offered
evidence on this point—whether Simat could have expected to continue importing
large quantities of tiles without experiencing problems …'. Ibid, para. 63.
300) 'The impact of such development on the value of the goodwill element of Simat's
business by the time of the expropriation in 1979 must have been dramatic. Given
the picture that emerges, Simat's prospects of continuing active trading after the
Revolution were not, in the view of the Tribunal, such as to justify treating Simat as a
going concern so as to assign any value to goodwill.' Ibid, para. 64.
301) Phelps Dodge Corporation et al v Iran, 10 Iran–US CTR (1986) 121, para. 30.
302) Ibid.
303) '[T]he Tribunal could not properly ignore the obvious and significant negative
effects of the Iranian Revolution on SICAB's business prospects, at least in the short
and medium term.' Ibid, para. 30. See also the critical comments by M Pellonpää
and M Fitzmaurice, above, n. 4, 149.
304) Khosrowshahi v Iran, 30 Iran–US CTR (1994) 76, para. 44.
305) See, e.g., M Pellonpää and M Fitzmaurice, above, n. 4, 147; J Westberg, International
Transactions and Claims Involving Government Parties. Case Law of the Iran–United
States Claims Tribunal (Washington: International Law Institute, 1991) 244 et seq.
306) See above Chapter 3, Section D(2), and below Section (f), paras 5.140 et seq.
307) R Higgins, 'The Taking of Property by the State' (1982) 176 RdC 259, 269. See also R
Dolzer, 'New Foundations of the Law of Expropriation of Alien Property' (1981) 75 AJIL
553, 579–80; similarly, I Seidl-Hohenveldern, 'International Economic Law' (1986) 198
RdC 9, 181; I Seidl-Hohenveldern, above, n. 149, 7, 28.
308) 'Both Parties to the present litigation have invoked the notion of “legitimate
expectations” for deciding on compensation. That formula is well advised, and
justifiably brings to mind the fact that, with reference to every long-term contract,
especially such as involve an important investment, there must necessarily be
economic calculations, and the weighing up of rights and obligations, of chances
and risks, constituting the contractual equilibrium.' Aminoil v Kuwait, Award of 24
310) It rejected, however, the idea that the widespread practice of renegotiations of oil
concessions had created new customary law in this respect. Ibid, paras 154 et seq.
312) Ibid, para. 154. Fitzmaurice, however, rejected in his Separate Opinion the idea of
factoring in such renegotiations because the parties to a contract would normally
only agree on changes to the terms of the contract, if the disadvantages are
balanced by advantages. Aminoil v Kuwait, Separate Opinion Fitzmaurice (1982) 21
ILM 1043, para. 28. In contrast, I Seidl-Hohenveldern argues that economic
constraints could also lead to less favourable results after the negotiations which
would have a negative influence on future prospects. I Seidl-Hohenveldern, above,
n. 149, 24.
313) Aminoil v Kuwait, Award of 24 March 1982, para. 148.
314) Phillips Petroleum Co Iran v Iran, 21 Iran–US CTR (1989) 79, para. 153; see also Amoco
International Finance Corp v Iran, 15 Iran–US CTR (1987) 189, para. 263.
191
<http://www.worldbank.org/icsid/cases/Award_Total.pdf>, para. 356.
Award of 4 May 1999 (2000) 25 YCA 13, paras 234 et seq.
317) The tribunal referred several times to the respondent's submission describing the
catastrophic economic situation of Indonesia at the time: '1998 to 1999, the
Indonesian economy contracted by 15%, resulting in more than 5 million workers
losing their jobs. The rupiah … has lost more than 80% of its value since the crisis
first erupted. Out of a popluation of 200 million, the number of seriously poor
people in Indonesia is projected to reach 130 million in 1999 as a result of the
impact of the decline in job opportunities and an inflation rate that exceeded 75%
last year.' Ibid, para. 182.
318) Ibid, para. 294.
319) '[T]he Parties to the ESC did not rely on the Civil Code, but chose—as they had every
right to do—to fashion a contractual allocation of risk … that only the claimant may
claim that an act of the GOI [Government of Indonesia] constitutes an event of force
majeure. Thus, the Parties rejected the possibility that PLN could rely on a
governmental act—even in response to an economic crisis, as with Presidential
Decree 39/1997—to undo its contractual obligations.' Ibid, paras 193–4.
321) '[D]uring a period of steep decline in sales, it would be unrealistic to expect that
there would not be an appreciable increase in the proportion of O&M to sales.
There is a significant amount of rigidity in this type of expenditures in a regulated
industry where the maintenance of safety has to be paramount …, even when growth
in sales has returned, the requirements for safety do not decrease and with aging
equipment, maintenance expenditures will tend to rise rather than decline.' Ibid,
paras 460–1.
322) Under the no pesification scenario the clamaint's expert assumed an average yearly
revenue increase which by 2027 would have amounted to close to a 100% rate of
return. The tribunal found it unlikely that the competent Argentine authority would
have allowed for such returns: 'While the Tribunal is willing to concede that a
certain amount of recuperation might have been allowed by ENARGAS, it is difficult
to conceive that it could have tolerated the kind of escalation described above,
without making downward adjustments to the tariff on the occasion of its Five Year
Review starting in 2013'. Ibid, para. 456.
323) The tribunal noted that the respondent had already offered a 7% tariff increase. It,
therefore, assumed a 5% increase on the occasion of each five-year tariff review.
Ibid, para. 457.
324) Ibid, para. 444.
325) The Arab Investment Court awarded damages in the amount of US$ 900 million. See
Al-Kharafi & Sons Co v Libya, Final Arbitral Award, 22 March 2013, Cairo Arab
Investment Court, 374 et seq.
326) Shufeldt Claim (United States v Guatemala), Award of 2 November 1929, 2 RIAA, 1079,
1083.
327) Bridas SAPIC v Turkmenistan, Partial Award of 25 June 1999, published in part in R
Bishop, J Crawford, and W Reisman, above, n. 183, 1270, 1272.
328) LETCO v Liberia, Award of 31 March 1986 (1994) 2 ICSID Reports 343, 373.
329) Ibid, at 373.
330) On this basis, the calculation of future profits included not only the revenues from
the so-called 'first cut' but also from a 'second cut' of timber after several years.
Ibid.
331) This resulted in US$ 6,120,189 as lost profits, in comparison to the net patrimonial
worth of US$ 1,975,715. Ibid, at 377.
332) Ibid, at 376.
333) Ibid, at 375, 376.
334) This may be explained by the fact that the respondent ceased to participate in the
proceedings after the nomination of the arbitrator. See ibid, at 354 et seq.
336) Ibid, para. 605.
337) Ibid.
338) Ibid.
339) See above, Chapter 3, Section C(2)(b).
340) See above, Chapter 3, Section C(1)(a).
341) S Pratt and A Nicolita, Valuing a Business: The Analysis and Apprasial of Closely Held
Companies (5th edn, New York: McGraw-Hill, 2008) 1025.
342) See, e.g., CMS Gas Transmissions Company v Argentina, Award of 12 May 2005 (2005)
44 ILM 1205, para. 410.
343) See above, Chapter 3, Section B(1)(b), paras 3.152 et seq.
344) LG&E v Argentine Republic, Award of 25 July 2007, paras 36, 58.
345) See A Reinisch‚ 'Necessity in International Investment Arbitration—An Unnecessary
Split of Opinions in Recent ICSID-Cases? Comments on CMS v Argentina and LG&E v
Argentina' (2007) 8 JWIT 191.
347) Ibid, paras 263–4.
192
348) Ibid, para. 281.
349) Ibid, para. 303.
350) Ibid, para. 422.
351) Ibid, para. 402.
352) 'Moreover, the Tribunal concludes that the Claimant must transfer to the
Respondent the ownership of its shares in TGN, upon payment by the Respondent of
the additional sum of USD 2,148,100 … the Government of Argentina will have a time
limit of one year from the date of this award to purchase CMS' shares in TGN.' Ibid,
para. 469.
353) Enron Corporation and Ponderosa Assets v Argentine Republic, Award of 22 May 2007,
<http://www.investmentclaims.com/IIC_292_(2007).pdf>, para. 361.
354) Ibid, para. 389.
355) This value had, however, to be adjusted for inflation. This has resulted in a further
reduction of the claimant's remedy. See below, para. 5.244.
356) Sempra Energy International v Argentine Republic, Award of 28 September 2007,
<http://www.icsid.worldbank.org>.
357) Ibid, para. 412.
358) Ibid, para. 436.
359) See above, Chapter 3, Section B(1)(a).
360) LG&E Energy Corp et al v Argentina, Award of 25 July 2007,
<http://www.investmentclaims.com/IIC_295_(2007).pdf>, para. 35.
362) Mobil v Canada, Award of 22 May 2012, paras 427, 487.
363) The tribunal awarded 'lost profits' between 2008 and 2010 'as the the difference
between the actual historical results and the cash flow projection made'. TECO v
Guatemala, Award of 19 December 2013, para. 335.
364) See above, Chapter 4, Section C(2).
365) Amco Asia Corp v Indonesia, Award of 5 June 1990 (Amco II) (1993) 1 ICSID Reports 569,
para. 196.
ICSID Reports 343, 373; see already above para. 5.137.
369) Ibid, at 376.
(2006) 9 ICSID Reports 246, paras 572 et seq.
373) Arbitrator Brownlie largely agreed with these contentions in his Separate Opinion.
CME v Czech Republic, Separate Opinion Brownlie on the Issues at the Quantum
Phase of 14 March 2003, para. 70.
374) CME v Czech Republic, Final Award on Damages of 14 March 2003, para. 574. The two
parties did, however, concur that the residual value of the company would amount
to 60% of the total value of the company. Ibid, para. 576.
375) The tribunal in Alpha Projektholding v Ukraine decided that the terminal value of
the investment should not be evaluated as a going conern but at its liquidation
value. See Alpha Projektholding v Ukraine, Award of 8 November 2010, paras 501–8.
377) See Chapter 4, Section C(2)(d).
379) This due diligence report made reference to the fact that the owner of the only
competitor was at the same time a business partner of the company to be valued.
Therefore, the report primarily addressed the risk that this partner would not
continue to cooperate in the future. See CME Czech Republic BV v Czech Republic,
Final Award on Damages of 14 March 2003 (2006) 9 ICSID Reports 246, para. 518.
381) Ibid, para. 164.
382) In CME v Czech Republic, the tribunal accordingly noted that '[t]he experts agreed on
the same discount rate of 10.83%'. Ibid, para. 564.
383) But see N Rubins and S Kinsella, International Investment, Political Risk and Dispute
Resolution: A Practitioner's Guide (Dobbs Ferry, NY: Oceana, 2005) 256.
384) See above, Chapter 4, Section (2)(d).
385) The tribunal noted that the claimant's expert considered the following factors in the
DCF analysis: (i) the company's future operating cash flows, (ii) the 'continuing value'
of the company based on expected cash flows growing at a constant rate after the
forecast period; and (iii) a discount rate, based on a company's weighted average
costs of capital. See CME Czech Republic BV v Czech Republic, Final Award on
Damages of 14 March 2003 (2006) 9 ICSID Reports 246, para. 160. The assumptions of
the claimant's expert were contrasted by the respondent's expert, in particular, by
a reduction of the forecast period, a reduction of the growth rate of the Czech gross
TV advertising market and the company's share of this advertising market, an
increase of the growth of net advertising expenditure and production costs as well
as a reduction of the 'first mover' advantage. See ibid, paras 360 et seq.
193
386) The value based on the forecasts according to the claimant's expert amounted to
US$ 556 million, while according to the respondent's experts, the forecasts only
resulted in a value of the company of US$ 335 million. See CME Czech Republic BV v
Czech Republic, Final Award on Damages of 14 March 2003 (2006) 9 ICSID Reports 246,
paras 165, 178, and 345. See the tribunal's analysis at paras 563 et seq.
387) The claimant's expert had argued that the cost of equity was equal to the return on
risk-free securities, plus systemic risk of the investment (beta), multiplied by the
market risk premium. ADC v Hungary, Award of 2 October 2006, para. 511.
388) Ibid, para. 511.
389) Ibid.
390) The tribunal was very satisfied with the way the damages claim was presented: 'The
Tribunal would like to point out here that the LECG reports are, in the Tribunal's
view, an example as how damages calculations should be presented in
international arbitration; they reflect a high degree of professionalism, clarity,
integrity and independence by financial expert witnesses. LECG's valuation is fully
validated by the amount of the acquisition by BAA of Budapest Airport Rt. on
December 22, 2005 …'. Ibid, para. 516.
391) The tribunal noted: 'The impact of the measure is already impounded in the cash
flows being valued, pesified tariffs translating into much lower dollar cash flows.
That negative event has taken place and has had its negative impact upon cash
flows, current and future, but some kind of normalcy should rule the future. Already,
there are encouraging signs in that regard in the Argentine economy.' CMS v
Argentina, Award of 12 May 2005 (2005) 44 ILM 1205, para. 451.
392) Ibid.
393) Ibid, para. 452.
394) The claimant's expert 'used a 'risk-free' rate of 5.94, a country risks premium of
5.21% based on the equity risk premium of TGN's debt over the US Treasury rate,
and a 2.296% equity risk premium (market equity risk premium of 5.6% multiplied
by TGN's beta factor of 0.41)'. Ibid, para. 454.
395) Ibid.
396) Ibid, para. 455.
398) The tribunal noted: 'While the ENARGAS did not reach a final determination on this
matter [the calculation of tariffs], the figures discussed at the time reflected the
options available and its most likely outcome'. Ibid, para. 412.
399) Sempra v Argentina, Award of 28 September 2007, para. 431.
400) Ibid.
401) Ibid, at 431 and 458.
402) Alpha Projektholding v Ukraine, Award of 8 November 2010, para. 483.
403) Ibid, para. 482, footnotes omitted.
404) EDF v Argentina, Award of 11 June 2012, paras 1244–85.
405) Ibid, para. 1250.
406) Ibid, para. 1267.
407) Ibid, para. 1268.
408) Mobil Cerro Negro v Venezuela, Award of 9 October 2014.
409) Tidewater v Venezuela, Award of 13 March 2015.
411) Ibid, para. 362.
412) Ibid, para. 363.
413) Ibid, para. 367.
414) Ibid, para. 365.
415) Tidewater v Venezuela, Award of 13 March 2015.
416) Ibid, para. 183.
417) Ibid, para. 185.
418) Ibid, para. 186.
419) Ibid, para. 190.
420) Gold Reserve v Venezuela, Award of 22 September 2014.
421) Flughafen Zürich v Venezuela, Award of 18 November 2014.
423) Ibid, para. 841.
424) Flughafen Zürich v Venezuela, Award of 18 November 2014, para. 509.
425) Ibid, para. 511.
426) Ibid, para. 882.
427) OI European Group v Venezuela, Award of 10 March 2015.
428) Ibid, paras 399–403.
429) Ibid, para. 782.
430) Phillips Petroleum Corporation v Iran, 21 Iran–US CTR (1989) 79, 133 at n 39.
431) Amco Asia Corp et al v Republic of Indonesia (Amco II), Award of 5 June 1990 (1993) 1
432) 'After studying all the factors involved and in particular the fact that the projected
hotel earnings have been based on known historic results, the trend in the US dollar
and rupiah exchange rate, and given that Amco will receive in 1990 compensation
paid in United States dollars, the Tribunal is of the view that a 4% risk factor should
be adopted.' Ibid, para. 281.
194
434) Ibid, para. 282.
435) Enron Corporation and Ponderosa v Argentine Republic, Award of 22 May 2007, para.
411.
436) Ibid.
437) Ibid, para. 429.
439) Ibid, para. 423.
440) Ibid, para. 430.
441) Ibid, para. 438.
442) Ibid, para. 452.
444) '[T]he company had been conducting its business for a little more than 4½ years,
and such a short period must be deemed to provide an insufficient basis for
projecting future profits.' American International Group v Iran, 4 Iran–US CTR (1983)
96, 108.
445) The claimant has submitted such a valuation on one hand on the basis of a 'pro
forma after-tax profit' derived from the results of CMS subsidiaries in the world, and
on the other on marketing plans developed at the beginning of the operations in
Iran. Both approaches were rejected because they did not reflect 'the specific
situation in Iran at and after the time of the revolution'. CBS Inc v Iran, 25 Iran–US
CTR (1990) 131, para. 52.
446) The tribunal did, however, consider future profitability: 'As to the last three years,
the Tribunal considers on the other hand, that if the contract had been performed
as agreed PLASCO would have made sufficient profits to pay the 5% dividend'.
Benvenuti & Bonfant v Congo, Award of 15 August 1980, para. 4.71.
447) Asian Agricultural Products v Sri Lanka, Award of 27 June 1990, para. 105.
448) Ibid, para. 103.
449) American Manufacturing and Trading v Zaire, Award of 21 February 1997 (1997) 36 ILM
1531, para. 7.14.
450) Ibid.
452) Metalclad Corp v Mexico, Award of 30 August 2000 (2001) 40 ILM 36, para. 121.
453) Ibid, paras 119–20. The tribunal referred explicitly to earlier ICSID awards, such as
AGIP v Congo, Benvenuti & Bonfant v Congo, and Asian Agricultural Products Ltd v Sri
Lanka, and to awards by the Iran–US Claims Tribunal, such as Sola Tiles v Iran and
Phelps Dodge v Iran. The reference to AGIP v Congo, however, is not fully persuasive
as the tribunal acknowledged the claim to lost profits but awarded only the
symbolic amount of FF 3 as claimed by the claimant. See AGIP SpA v Congo, Award of
30 November 1979 (1993) 1 ICSID Reports 306, para. 100.
454) Wena Hotels Ltd v Egypt, Award of 8 December 2000 (2002) 41 ILM 896, para. 123.
455) Ibid, para. 122. The tribunal mentioned only in an endnote that the expert report of
the claimant referred to a 'profit' of the hotel in Luxor of £4 million and for the Nile
Hotel of £21.3 million, whereas the respondent's expert presumed a profit for the
Luxor Hotel at less than £10,000 and for the Nile Hotel a loss. It is not entirely clear,
however, whether these figures should represent actual 'profits' of the hotel or the
'value' based on the DCF method. Ibid, para. 115, endnote 269. The tribunal referred
to the awards in Metalclad v Mexico, Southern Pacific Properties v Egypt, and
American Manufacturing and Trading v Zaire which had also rejected the income
valuation approach. Ibid, para. 123.
456) Wena Hotels v Egypt, Award of 8 December 2000 (2002) 41 ILM 896, para. 123.
458) Técnicas Medioambientales v Mexico, Award of 29 May 2003, para. 186.
459) Siag v Egypt, Award of 1 July 2009, para. 566; Bahloul v Tajikistan, Award of 2
September 2009, para. 98; Gemplus v Mexico, Award of 16 June 2010, paras 13.70–2;
Meerapfel v Moldova, Award of 21 May 2011, para. 393; Impregilo v Argentina, Award of
21 June 2011, para. 373; Tza Yap Shum v Peru, Award of 7 July 2011, paras 261–3; Arif v
Moldova, Award of 8 April 2013, para. 576; Abengoa v Mexico, Award of 18 April 2013;
Hassan Awdi v Romania, Award of 2 March 2015, para. 514.
462) Impregilo v Argentina, Award of 21 June 2011, paras 317–18.
463) See, e.g., Bahloul v Tajikistan, Award of 2 September 2009, para. 98; Impregilo v
Argentina, Award of 21 June 2011, para. 373; Meerapfel v Moldova, Award of 21 May
2011, para. 393; Railroad Development v Guatemala, Award of 29 July 2012, para. 269;
Khan Resources v Mongolia, Award of 2 March 2015, para. 423; Tenaris v Venezuela,
Award of 29 January 2016, para. 527 (uncertain future prospects).
464) Amoco International Finance Corporation v Iran, para. 231.
465) SPP (Middle East) Limited, Southern Pacific Properties Limited v Arab Republic of
Egypt, General Company for Tourism and Hotels, ICC Award of 11 March 1983 (1983) 22
ILM 752. This award, however, was later invalidated by a French court because of
lack of consent to jurisdiction of the ICC by the respondent. The calculation of
damage was not directly affected and is, therefore, still of —at least academic—
interest.
195
466) Ibid, para. 65. The tribunal referred to difficulties of the project from the outset,
including protests from environmentalists and the impending cancellation of
contracts, so that the future prospects from the beginning had to be regarded as
being significantly reduced. It therefore based its valuation on the amount of
investments made, increased by an 'incremental factor' which would correspond to
the actual increase in value of the project at the time of the expropriation. See ibid,
at 783; see also the affirmative comments by I Seidl-Hohenveldern, above, n. 149, 7,
23–4.
467) Wena Hotels v Egypt, Award of 8 December 2000, para. 123.
468) Ibid, para. 123; Autopista Concesionada v Venezuela, Award of 23 September 2003,
para. 359.
470) As the tribunal in Gemplus v Mexico noted: '[I]t is wrong in principle to base such
returns on the relatively small contributions made by the Claimants as the
Concessionaire's minority shareholders. The Tribunal does not consider that the
value of the Claimants' shares, on the facts of this case, bore any material
relationship to the Concessionaire's future returns (or profits): this was to be a
lucrative investment for the Claimants, albeit subject to high risks.' Gemplus v
Mexico, Award of 16 June 2010, paras 13–73.
473) Crystallex v Venezuela, Award of 4 April 2016, paras 719–20, 758–63.
474) Tenaris v Venezuela, Award of 29 January 2016, paras 521–7.
478) 1 Iran–US CTR (1981–82) 10.
479) INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 380.
480) In INA, the tribunal held the claimant's proposal to value the shares on the basis of
the purchase price of 1978 'not only reasonable but, in fact, conservative'. Ibid, at
383.
481) Tenaris v Venezuela, Award of 29 January 2016, paras 551–6; see also S Ripinsky and K
Williams, Damages in International Investment Law (London: BIICL, 2008) 189; Kantor,
above, n. 1, 17–18.
482) See above, Chapter 4, Section (3).
483) See above, Chapter 4, Section (3).
484) Arbitrator Mahmassani in LIAMCO v Libya found that the respondent's suggestion to
calculate compensation on the basis of the 'net book value' was one of 'two
irreconcilable unacceptable extremes'. LIAMCO v Libya, Award of 12 April 1977 (1982)
62 ILR 141, 208; Aminoil v Kuwait, Award of 24 March 1982, paras 155 et seq; see also C
Gray, Judicial Remedies in International Law (Oxford: Oxford University Press, 1990)
205.
485) Due to the time which had passed since the beginning of the concession (1948) and
the investments made later, there was no relationship between the book value and
the actual value at the time of the expropriation in 1977. According to the tribunal,
the net book value may be suitable only in case of a recent investment. Aminoil v
Kuwait, Award of 24 March 1982, para. 165.
486) American International Group v Iran, 4 Iran–US CTR (1983), 96, 109. This was later
taken up by other tribunals, see, e.g., Thomas Earl Payne, 12 Iran–US CTR (1986) 3,
para. 30; Khosrowshahi v Iran, 30 Iran–US CTR (1994) 76, para. 34; Vera-Jo Miller et al v
Iran, 33 Iran–US CTR (1997) 272, para. 216.
487) See S Pratt and A Nicolita, above, n. 123, 12.
488) Amoco International Finance Corporation v Iran, 15 Iran–US CTR (1987) 189, para. 255;
Motorola Inc v Iran Airlines Corporation v Iran, 19 Iran–US CTR (1988) 73, para. 68; in
Starrett Housing Corporation v Iran, the tribunal held: 'As noted, the Expert made his
valuation in three stages. First, he determined Shah Goli's adjusted book value on
the date of taking. Then, recognizing that this book value does not represent fair
market value, he determined the price a reasonable buyer would pay for the
Project.' Starrett Housing Corporation v Iran, 16 Iran–US CTR (1987) 112, para. 279
(emphasis added).
489) Amoco International Finance Corporation v Iran, 15 Iran–US CTR (1987) 189, para. 255.
490) Asian Agricultural Products Ltd v Sri Lanka, Award of 27 June 1990, para. 98. Further
claims of the investor were rejected so that the calculation remained limited to the
book value. Ibid, para. 99. Friedland and Wong, however, find that the claimant was
indemnified by the placement value of the assets. P D Friedland and E Wong,
'Measuring Damages for Deprivation of Income-Producing Assets: ICSID Case Studies'
(1991) 6 ICSID Rev.-FILJ 400, 421.
492) This lucrum cessans, according to the claimant, should be calculated under the DCF
method. Ibid.
493) The tribunal referred to the 'skeleton operation', which was maintained after the
expropriation and to 'unpaid bills for services rendered'. Ibid, para. 386.
196
495) Ibid, para. 145; see also Mobil Cerro Negro v Venezuela, Award of 9 October 2014,
para. 303.
496) Reineccius et al v Bank for International Settlements, Award of 22 November 2002,
para. 195.
497) Ibid, para. 197, referring to an internal paper submitted by the respondent entitled
'Valuation Report and Suggested Transaction Price Range'.
498) Ibid.
499) 'Having determined that a proportionate share of net asset value is the method
required by the Constituent Instruments as confirmed by the past practice of the
Bank ….' Reineccius et al v Bank for International Settlements, Award of 22 November
2002, para. 195.
500) William L Pereira Associates v Iran, 5 Iran–US CTR (1984) 198, 227.
501) Computer Sciences Corporation v Iran, 10 Iran–US CTR (1986) 269, 303; see also J A
Westberg, above, n. 305, 251; D Shelton, Remedies in International Human Rights Law
(3rd edn, Oxford: Oxford University Press, 2015) 155.
502) Dames and Moore v Iran, 4 Iran–US CTR (1983) 212 et seq.
503) United Painting Company Inc v Iran, 23 Iran–US CTR (1989) 351 et seq.
504) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, paras 88 et seq, 314 et seq.
505) Ibid, paras 304 et seq. See further below, para. 5.302.
506) Eastman Kodak Company v Iran, 27 Iran–US CTR (1991) 3, para. 58.
507) Ibid, paras 15, 19.
509) See above, Chapter 4, Section C(ii).
511) The tribunal noted: 'On that basis, i.e., of current net book value representing
approximately 91.7% actual value, the resulting value would have to be revised from
$76,600.000 to approximately $62,500.000. The value resulting from this analysis of
the relationship of current net book value to actual value falls within the fairly wide
range of values suggested by the various indications adduced by Claimant. It
appears reasonable in view of the record. The Tribunal therefore finds $ 62,500.000
to be appropriate valuation of the SEDIRAN rigs.' Ibid. According to Westberg, the
tribunal revised this value on the basis of its own judgment. However, an estimation
by Deloitte Haskins & Sells submitted later by the claimant also contained this
reduction. See J A Westberg, above, n. 305, 248.
512) The claimant submitted that the book value without adjustments would only reflect
historical cost minus an arbitrary depreciation factor. Sedco v IMICO, 21 Iran–US CTR
(1989) 31, para. 59.
514) '[T]he tribunal finds it equitable to reduce their value by approximately $6,500.000.
Thus the Tribunal estimates the fair market value of IMICO's buildings, equipment,
and machinery at about U.S. $17,000.000.' Ibid.
515) Ibid, para. 63. Arbitrator Aldrich concurs in his separate opinion with this approach
but rejected the deduction of tax obligations because they were not owed directly
by Sedco but by IMICO. Sedco v IMICO, Separate Opinion Aldrich, 21 Iran–US CTR
(1989) 61.
516) The tribunal held: 'This value includes no amount in respect of WIG's future
earnings, goodwill or other intangible value, but just the value of WIG's tangible
assets, securities and accounts receivable, less its liabilities as of 16 November
1979'. Tavakoli v Iran, 33 Iran–US CTR (1997) 206, para. 92.
517) The tribunal explained: '[A]lthough bearing in mind that the economic environment
in Iran after the Revolution was less buoyant than it had been previously and that
this would have some impact on the amount for which WIG would have been able to
sell its assets'. Ibid, para. 129, referring to Tippetts et al v TAMS-AFFA and Harold
Birnbaum v Iran, Tavakoli v Iran.
518) Shahine Shaine Ebrahimi v Iran, 30 Iran–US CTR (1994) 170, paras 103 et seq.
519) 'The Tribunal agrees with the Parties and the Expert that the book value of GB's
fixed assets must be adjusted.' Ibid, para. 145.
520) Ibid, paras 108 et seq, 158 et seq.
521) Ibid, para. 155.
522) Ibid. Arbitrator Allison, however, heavily criticized this in his Separate Opinion. He
maintained that even in the absence of future prospects—which in this case was not
evident in view of the positive result of the company in the past and the realistic
expectations of the ongoing apartment project—the Iran–US Claims Tribunal in its
practice had always considered it as the minimum to award the value of the
particular assets. A diminution of this value because of a 'negative' goodwill would
also be against the parties' contentions as the respondent had also submitted a
goodwill of 'zero' and thus not a negative figure. Shahine Shaine Ebrahimi v Iran,
Separate Opinion Allison, 30 Iran–US CTR (1994) 236, paras 53 et seq, 64 et seq.
523) Siemens AG v Argentine Republic, Award of 6 February 2007, paras 368 et seq.
524) Ibid, para. 373.
525) Ibid, para. 374.
526) Ibid.
527) Tza Yap Shum v Peru, Award of 7 July 2011, para. 264. This valuation can also be
regarded as an application of the comparable companies or multiples method.
528) M Kantor, above, n. 1, 49 et seq.
197
529) P D Friedland and E Wong, above, n. 490, 405.
530) Norwegian Shipowners' Claim, Award of 13 October 1922, 1 RIAA, 309, 338.
531) See, e.g., Reports and Recommendations made by the Panel of Commissioners
concerning the First Instalment of 'E2' Claims, 3 July 1998, S/AC.26/1998/7; Reports
and Recommendations made by the Panel of Commissioners concerning the First
Instalment of 'E3' Claims, 17 December 1998, S/AC.26/1998/13; Reports and
Recommendations made by the Panel of Commissioners concerning the First
Instalment of 'E4' Claims, 19 March 1999, S/AC.26/1999/4.
532) Phelps Dodge Corporation et al v Iran, 10 Iran–US CTR (1986) 121, para. 31.
533) Biloune v Ghana (Jurisdiction, Liability), Award of 27 October 1989 (1994) 95 ILR 183,
211.
534) Biloune v Ghana (Damages and Costs), Award of 30 June 1990 (1992) 95 ILR 211, 218.
535) Ibid, at 229.
536) Ibid.
537) Ibid, at 229–30.
538) Metalclad Corp v Mexico, Award of 30 August 2000, para. 120; see above, para. 5.194.
539) Metalclad Corp v Mexico, Award of 30 August 2000, para. 122. Expenses undertaken in
the preparation of the investment have, however, not been accepted as damage.
Ibid, para. 125.
541) Vivendi v Argentina (Vivendi II), Award of 20 August 2007, para. 8.3.13; see above,
Chapter 4, Section B(b)(i), para. 4.72.
542) Vivendi v Argentina (Vivendi II), Award of 20 August 2007, para. 8.3.18.
544) Meerapfel v CAR, Award of 21 May 2011, para. 385.
545) Ibid, para. 393.
547) It is important only insofar as the fair market value represents the lower limit of the
amount of damages due. See above, Chapter 3, Section A(5)(c), para. 3.321.
548) Pope & Talbot v Canada, Interim Award of 26 June 2000, paras 105 et seq.
549) Ibid, para. 105.
550) The accepted 'heads of damages' were: investor's out of pocket expenses, legal fees
and disbursements, accountant's fees and disbursements, and a lobbyist. See Pope
& Talbot v Canada, Award in Respect of Damages of 31 May 2002, paras 85 et seq.
552) MTD Equity v Chile, Award of 25 May 2004, paras 215 et seq.
554) Ibid, para. 238.
555) Ibid, para. 240.
556) Ibid, para. 243.
557) The tribunal awarded approximately US$ 21.3 million, plus 6% interest annually
compounded. Impregilo v Argentina, Award of 21 June 2011, para. 381.
558) Arif v Moldova, Award of 8 April 2013, para. 572.
559) Ibid, para. 582.
560) Hassan Awdi v Romania, Award of 2 March 2015, para. 514.
561) Ibid. With regard to the claimants' investment in 'Casa Bucur', the tribunal rejected
that claimants lost their investment due to the BIT breaches and therefore only
accepted reimbursement of the price paid as overall compensation for the breach
of the fair and equitable treatment standard. Ibid, para. 463.
562) Atlantic Triton Company Limited v Guinea, Award of 21 April 1986 (1995) 3 ICSID
Reports 13, 28.
563) PSEG v Turkey, Award of 19 January 2007, paras 316 et seq.
564) Ibid, para. 256.
565) The Corfu Channel Case (United Kingdom v Albania) (Merits), ICJ Reports 1949, 4, 12 et
seq.
566) The Corfu Channel Case (United Kingdom v Albania) (Assessment of the Amount of
Compensation), ICJ Reports 1949, 243, 249.
567) Ibid, at 248 et seq.
568) Ibid, at 249.
569) Aminoil v Kuwait, Award of 24 March 1982, para. 178.
571) Phillips Petroleum Corporation v Iran, 21 Iran–US CTR (1989) 79, para. 161. The tribunal
used information from the International Financial Statistics of the IMF which led to
an increase of the net book value by 35 to 40%. This is not, however, a
determination of a replacement price but rather an inflation-adjusted book value.
573) Oil Fields of Texas Inc v Iran, 12 Iran–US CTR (1986) 308.
574) Ibid, para. 44. See also Petrolane Inc v Iran, 27 Iran–US CTR (1991) 64, para. 108 and
discussion below, paras 5.334 et seq.
575) Oil Fields of Texas v Iran, 12 Iran–US CTR (1986) 308, para. 45.
576) Oil Fields of Texas Inc v Iran, Dissenting Opinion Mostafavi, 12 Iran–US CTR (1986) 324,
334.
577) Petrolane Inc v Iran, 27 Iran–US CTR (1991) 64, para. 108.
578) Ibid, paras 107–8.
198
579) Lahoud v DRC, Award of 7 February 2014, para. 572.
580) Ibid, para. 579.
581) This was the case, e.g., in Sola Tiles Inc v Iran, 14 Iran–US CTR (1987) 223, para. 63;
Tavakoli v Iran, 33 Iran–US CTR (1997) 206, paras 131 et seq; Middle East Cement
Shipping and Handling Co SA v Egypt, Award of 12 April 2002 (2003) 18 ICSID Rev.-FILJ
602, para. 143.
582) e.g. Tippetts et al v TAMS-AFFA, 6 Iran–US CTR (1984) 219, 226; Harold Birnbaum v Iran,
29 Iran–US CTR (1993) 260, para. 40; Fereydoon Ghaffari v Iran, 31 Iran–US CTR (1995)
60, para. 101; Kamran Hakim v Iran, 34 Iran–US CTR (1998) 67, para. 124; Sedco Inc v
NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180, 182; Sedco v IMICO, 21
Iran–US CTR (1989) 31, para. 58.
583) See, for a more detailed discussion of the cases, below, paras 5.302 et seq.
584) IVSC, Glossary, 'Liquidation Value'
<https://www.ivsc.org/standards/glossary#letter_l>.
585) Sola Tiles Inc v Iran, 14 Iran–US CTR (1987) 223, para. 60.
587) Tavakoli v Iran, 33 Iran–US CTR (1997) 206, paras 131 et seq.
588) Concerning the significance of the going concern quality of the enterprise see
above, para. 5.107.
589) Tavakoli v Iran, 33 Iran–US CTR (1997) 206, para. 129 (emphasis added).
590) The claimants had shares in the Iranian company WIG (Western Industrial Group)
which developed an industrial area near the city of Kermanshah. Due to the
revolutionary changes in Iran they did not see significant future prospects for the
company and requested an adjusted net asset value. Ibid, para. 92.
591) See, e.g., the orientation on prices previously paid for real property sold by the
company. Ibid, para. 134.
592) The deficiency of the auction was so striking that it has been regarded as a violation
of due process of law and an indirect expropriation. See Middle East Cement
602, para. 143.
593) The ship was described as being 'covered with rust, not having winches and non-
operating in its present condition'. It also lacked in particular a description of its
rather valuable technical equipment on board, such as a number of cranes. Ibid,
para. 147.
594) The insurance value was US$ 5 million and the price agreed between Mubarak
Shipping Co and Transbulk Shipping SA in 1990 was US$ 1.324 million. Ibid, para.
148.
595) The value of the equipment and the cranes were, thus, not included in the scrap
value. Ibid, para. 149.
596) Ibid, para. 150.
597) Ibid, para. 147.
598) Tenaris v Venezuela, Award of 29 January 2016, paras 264–6.
599) Ibid, para.
600) See above, para 4.153–7.
601) Tippetts et al v TAMS-AFFA, 6 Iran–US CTR (1984) 219.
602) See above, Chapter 3, Section A(3), para. 3.51.
603) Tippetts et al v TAMS-AFFA, 6 Iran–US CTR (1984) 219, 226.
604) Ibid.
605) Harold Birnbaum v Iran, 29 Iran–US CTR (1993) 260, paras 39, 40.
606) The tribunal noted: 'The Claimant proposes to determine his share of AFFA's
“adjusted net asset value” as follows. He calculates the value of AFFA's tangible
assets, including fixed assets, securities, and accounts receivable, on the date of
the deprivation and subtracts AFFA's liabilities on that date; this operation yields
AFFA's net worth. The Claimant then calculates the value of his 8.6% gross share on
the basis of AFFA's net worth. Finally, he arrives at his net share value by subtracting
from his gross share value the amount by which his liabilities to AFFA exceeded
AFFA's liabilities to him.' Ibid, para. 39.
608) The tribunal emphasized that the consequences of the Islamic revolution which
'temporarily depressed the commercial real estate market in Tehran' should not be
ignored. However, due to the absence of information on contemporary market
prices the tribunal only reduced the inflation factor from 40.9% to 25%. Ibid, para.
63.
610) This is, however, not directly connected to the determination of the liquidation
value, but the tribunal treated it that way. Ibid, para. 143; see also Fereydoon
Ghaffari v Iran, 31 Iran–US CTR (1995) 60, para. 101; Kamran Hakim v Iran, 34 Iran–US
CTR (1998) 67, para. 124.
611) Fereydoon Ghaffari v Iran, 31 Iran–US CTR (1995) 60, para. 101.
612) Harold Birnbaum v Iran, 29 Iran–US CTR (1993) 260, para. 71; Fereydoon Ghaffari v
Iran, 31 Iran–US CTR (1995) 60, para. 30. See, in a different context, Tavakoli v Iran, 33
Iran–US CTR (1997) 206, para. 74. The tribunal in this case referred to the award in
Kiaie v Iran where the expropriation of the respective company had already been
decided upon. Kiaie v Iran, 32 Iran–US CTR (1996) 42, para. 37.
199
613) See in respect of this case, the three following awards of the Iran–US Claims
Tribunal: Sedco Inc v NIOC, First Interlocutory Award, 9 Iran–US CTR (1985) 248; Sedco
Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180; Sedco Inc v NIOC,
Final Award, 15 Iran–US CTR (1987) 23.
614) Sedco Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180, 182.
615) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, para. 76; see further below,
paras 5.302–5.306.
616) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, para. 297; see above, paras
5.226–5.231.
617) 'In its pleadings and at the Hearing the Claimant made it clear that it does not seek
to recover the “going concern” value of its investment in IMICO. Rather, it seeks a
share of IMICO's dissolution value, which it proposes to determine by calculating
the value of IMICO's fixed assets, accounts receivable, and liquid assets on the date
of expropriation and subtracting IMICO's liabilities on that date.' Sedco v IMICO, 21
Iran–US CTR (1989) 31, para. 58.
618) This included buildings, technical equipment, and machinery. Ibid, para. 59.
619) 'Evidence presented by the Respondents concerning the considerable amount of
obsolete stocks (“dead stocks”) in the warehouse, and the customary price
resistance by potential buyers and physical shortage encountered when seeking to
sell a warehouse inventory require a downward adjustment of the Claimant's
estimate.' Ibid, para. 61.
620) The book value included reductions because of depreciation and amortization.
LIAMCO v Libya, Award of 12 April 1977 (1982) 62 ILR 141, 211.
621) The tribunal, 'applying the measure of “equitable compensation” hereabove
adopted, has reached the conclusion that a lump sum of $66,000,000 (sixty six
million American dollars) should be a reasonable equitable indemnification for the
nationalization of the concession rights of LIAMCO's interest in Concession No. 20,
Raguba field'. Ibid, at 214.
622) Ibid, at 213.
623) Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 178(3); see above,
para. 5.254.
624) As to the often-quoted defintion of the 'going concern', see above, para. 5.104.
625) '… a sum estimated at $ 206,041,000.' Aminoil v Kuwait, Award of 24 March 1982
(1982) 21 ILM 976, para. 178(3).
626) Amoco International Finance Corporation v Iran, 15 Iran–US CTR (1987) 189, paras 232
et seq, 248 et seq.
627) Ibid, para. 267.
628) The award eventually agreed upon was US$ 60 million. Amoco International Finance
Corporation v Iran, Award on Agreed Terms, 25 Iran–US CTR (1990) 314, 315.
629) Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, paras 78 et seq.
631) Sedco Inc v NIOC, Second Interlocutory Award, 10 Iran–US CTR (1986) 180, 182, at n. 6.
The period of lost profits eventually awarded was nine months. It was, however, not
based on the numbers submitted by the claimant for lost rental in Dubai, namely
US$ 5,000 per day, but on the rents asked by the company itself previously in Iran,
namely US$ 3,787 per day. Sedco Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23,
para. 85. The respondent had alleged that the figures presented by the claimant
had been manipulated and that in fact it could have expected a profit much lower
than the daily amount claimed. Ibid, para. 82.
632) Benvenuti & Bonfant v Congo, Award of 15 August 1980 (1993) 1 ICSID Reports 330, 366.
633) Ibid, para. 4.78.
635) The tribunal noted: '[T]he value of the Claimant's investment in May 1978 when the
project was cancelled exceeded their out of pocket expenses by at least $
3,098.000'. Southern Pacific Properties (Middle East) v Egypt, Award of 20 May 1992
637) While the loss of assets amounted to US$ 4,452.500 according to the tribunal
appointed expert, the award totalled US$ 9 million. American Manufacturing and
Trading Inc v Zaire, Award of 21 February 1997 (1997) 36 ILM 1531, paras 7.19 et seq.
Arbitrator Mbaye appended a 'Declaration' in which he criticized this imprecise
approach. While he concurred with the considerations of the tribunal as a matter of
principle, he found that the amount of US$ 9 million by far exceeded the damage
actually incurred by the investor. He stated that the total amount of damages
should not have gone beyond US$ 4 million. American Manufacturing and Trading Inc
v Zaire, Declaration by Kéba Mbaye, arbitrator (1997) 36 ILM 1561.
638) American Manufacturing and Trading Inc v Zaire, Award of 21 February 1997 (1997) 36
ILM 1531, para. 7.15.
639) Sedelmayer v Russia, Award of 7 July 1998,
<http://ita.law.uvic.ca/documents/investment_sedelmayer_v_ru.pdf>, paras 3.1.1 et
seq.
640) The tribunal has rejected the DCF method as not appropriate in the present case.
See above, para. 5.256.
200
641) 'It cannot be denied that the investment in the Landfill was productive and added
value to the former Landfill's operation as well as goodwill, or that the Claimant was
deprived of its investment's profits, and value added and goodwill, or that the
Claimant's losses also include lost profits.' Técnicas Medioambientales SA v Mexico,
Award of 29 May 2003 (2004) 19 ICSID Rev.-FILJ 158, para. 194.
642) Ibid, para. 193.
643) Ibid, para. 195.
644) The DCF method was rejected by the tribunal. Ibid, para. 194. See above, para. 5.256.
645) 'Such increased productivity is necessarily based on Cytrar's managerial and
organizational skills and on gaining new clients, to the extent that the Respondent
is willing to acknowledge at least net income for one additional year for an amount
of US $ 314,545.' Ibid, para. 194.
647) Pey Casado v Chile, Award of 8 May 2008, paras 680–3; Duke Energy v Ecuador, Award
of 18 August 20018, para. 444; Alpha Projektholding v Ukraine, Award of 8 November
2010, para. 513; Micula v Romania, Award of 11 December 2013, paras 1238 et seq (the
tribunal awarded the full amount of direct damages for increased costs, and also
accepted lost profits due to higher costs for raw material); Lahoud v DRC, Award of 7
February 2014, paras 573 et seq.
648) See also S Ripinsky and K Williams, Damages in International Investment Law
(London: BIICL, 2008) 233, calling the combination of asset-based and income-based
valuation a 'hybrid approach'. See also S Ripinsky, 'Damnum Emergens and Lucrum
Cessans in Investment Arbitration: Entering through the Back Door' in A Bjorklund, I
Laird, and S Ripsinsky, Investment Treaty Law. Current Issues III (London: BIICL, 2009)
47, 59–60.
649) See the claimant's submissions in Railroad Development v Guatemala, Award of 29
June 2012, para. 244.
650) See S Ripinsky and K Williams, above, n. 648, 234.
651) Delagoa Bay and East African Railway Company, Award of 30 May 1900, reprinted in
pertinent part in M Whiteman, above, n. 5, 1694 et seq. The reason for the unilateral
termination was that the respondent had demanded to prolong the railway by eight
kilometres which the concessionaires could not do in the remaining eight months.
Ibid, at 1697. The tribunal found: 'It is therefore in light of the report of the technical
experts that an appraisement of the line must be made and the indemnity for those
who where dispossessed fixed, which indemnity must in principle be reckoned
according to the capitalized income'. Ibid, at 1699.
652) Ibid.
653) Ibid.
654) Ibid.
655) The tribunal claimed to apply the principle of 'unjust enrichment' which was,
however, due to the obvious contractual bases of the claim, not entirely
comprehensible: 'The Court further decides that the conduct of the Government was
a breach of the contract going to the root of it. In consequence, Lena is entitled to
be relieved from the burden of further obligations thereunder and to be
compensated in money for the value of the benefits of which it had been wrongfully
deprived. On ordinary legal principles this constitutes a right of action for damages,
but the court prefers to base its award on the principle of “unjust enrichment”,
although in its opinion the money result is the same.' Lena Goldfields, Award of 2
September 1930 (1950) 36 Cornell Law Quarterly 42, para. 25. In respect of this rather
complicated formulation and reasoning see C Schreuer, 'Unjustified Enrichment in
International Law' (1974) 22 American Journal of International and Comparative Law
281, 288 ICSID Rev.-FILJ 9.
656) Lena Goldfields, Award of 2 September 1930 (1950) 36 Cornell Law Quarterly 42, para.
26; see also W Lieblich, 'Determination by International Tribunals of the Economic
Value of Expropriated Enterprises' (1990) 7 Journal of International Arbitration 37, 41–
2.
657) According to Clagett, the tribunal applied in the unpublished part of the decision
the discounted cash flow method. See B Clagett, 'Just Compensation in International
Law: The Issues before the Iran–US Claims Tribunal' in R Lillich (ed.), The Valuation
of Nationalized Property in International Law, vol. IV (1987) 31, 63. However, the
published parts show that the tribunal referred to the 'annual profits'. It is not clear
which method was applied. Schäfer suggests that it was a capitalization of earnings
method. See M Schäfer, Entschädigungsstandard und Unternehmensbewertung bei
Enteignungen im allgemeinen Völkerrecht (Heidelberg: Verlag Recht und Wirtschaft,
1997) 155.
658) Lena Goldfields, Award of 3 September 1930 (1950) 36 Cornell Law Quarterly 31, para.
26.
659) Lighthouses Arbitration (France v Greece), Award of 24 July 1956 23 ILR (1956) 298, 300.
The tribunal held that Greece had not made adequate increases in the tariffs to
compensate for the loss caused by the devaluation of the drachma which
constituted a breach of the concession contract. Ibid, at 346.
660) Ibid, at 300.
661) Autopista Concesionada v Venezuela, Award of 23 September 2003, para. 354.
201
662) Ibid. While the claimant argued that a real return of 15.21% had been agreed on the
basis of the entire term of the project, the respondent maintained that this
percentage should only be applied on investments actually undertaken.
663) See above, Chapter 3, Section B(2)(c), para. 3.210.
664) PSEG v Turkey, Award of 19 January 2007, para. 312.
665) Ibid.
666) Ibid.
668) Siag v Vecchi, Award of 1 July 2009, paras 443 et seq.
669) Ibid, paras 577–84.
670) Ibid, para. 584. This amount was increased by an award of 'discrete damages' and
costs for legal expenses. See below, para. 5.336.
671) See, e.g., CMS v Argentina, Award of 12 May 2005; Enron v Argentina, Award of 22 May
2007; Azurix v Argentina, Award of 2007; Vivendi v Argentina (Vivendi II), Award of 20
August 2007; El Paso v Argentina, Award of 2007; Suez v Argentina, Award of 30 July
2010; Chevron v Ecuador, Award of 31 August 2011; EDF v Argentina, Award of 11 June
2012; Impregilo v Argentina, Award of 21 June 2012; Railroad Development v
Guatemala, Award of 29 June 2012; SAUR v Argentina, Award of 22 May 2014; Gold
Reserve v Venezuela, Award of 22 September 2014; Mobil Cerro Negro v Venezuela,
Award of 9 October 2014; Flughafen Zürich v Venezuela, Award of 18 November 2014;
Hassan Awdi v Romania, Award of 2 March 2015; Tidewater v Venezuela, Award of 13
March 2015.
672) Duke Energy v Ecuador, Award of 18 August 2008, para. 444; SGS v Paraguay, Award of
10 February 2012, para. 182; Deutsche Bank v Sri Lanka, Award of 31 October 2012,
para. 572; Italia Ukraina v Naftogaz, Award of 19 December 2012, para. 18.2; SAUR v
Argentina, Award of 22 May 2014, paras 365 et seq; Pluspetrol v Perupetro, Award of 21
May 2015, para. 204.
673) See H Wöss, A Rivera, P Spiller, and S Dellepiane, Damages in International
Arbitration under Complex Long-Term Contracts (Oxford: Oxford University Press,
2014) 246 et seq.
674) Desert Line v Yemen, Award of 6 February 2008, para. 194.
675) Ibid, para. 291. See further below, Section F.
677) Ibid, para. 201.
678) Ibid.
679) Ibid, para. 202.
680) Ibid, para. 205.
681) White Industries v India, UNCITRAL, Award of 30 November 2011, para. 3.2.54.
682) Ibid, para. 11.4.
683) Ibid, para. 14.3.3.
684) Ibid, para. 15.1.2.
685) See the conditions of insurance under the MIGA, above, Chapter 4, Section A(3)(c),
paras 4.37 et seq.
686) See Article 16 of the MIGA Convention: 'The terms and conditions of each contract of
guarantee shall be determined by the Agency subject to such rules and regulations
as the Board shall issue, provided that the Agency shall not cover the total loss of
the guaranteed investment. Contracts of guarantee shall be approved by the
President under the direction of the Board.' (1986) 1 ICSID Rev.-FILJ 145 et seq, 158–9.
687) Commentary on the Convention Establishing the Multilateral Investment Guarantee
Agency (1986) 1 ICSID Rev.-FILJ 193 et seq, para. 10.
688) Ibid.
689) See R Brealey and S Myers, Principles of Corporate Finance (11th edn, Boston et al:
McGraw-Hill Higher Editions, 2014) 659 et seq.
690) Ibid, 662.
691) Ibid.
692) C Hunt, 'Valuation Experience of Government Investment Insurance Operations' in R
Lillich (ed.), The Valuation of Nationalized Property in International Law, vol. 3
(Charlottesville: University Press of Virginia, 1975) 69, 87–8.
694) Oil Fields of Texas Inc v Iran, 12 Iran–US CTR (1986) 308, paras 31 et seq. As regards
the replacement value approach taken in the first place, see above, paras 5.256–
5.257.
695) Phelps Dodge Corporation et al v Iran, 10 Iran–US CTR (1986) 121, paras 15, 17; see also
I Seidl-Hohenveldern, 'Subrogation under the MIGA Convention' (1987) 2 ICSID Rev.-
FILJ 111, 114–15; also in Middle East Cement v Egypt, an arbitration under the auspices
of ICSID, the insurance value of the expropriated ship was not taken into
consideration although it had been advanced by the claimant. Middle East Cement
602, paras 148 et seq.
696) Emphasis added. See also the draft text of Article 8.12 CETA which provides:
'Valuation criteria shall include going concern value, asset value including the
declared tax value of tangible property, and other criteria, as appropriate, to
determine fair market value.'
697) Fereydoon Ghaffari v Iran, 31 Iran–US CTR (1995) 60, para. 47.
202
699) Metalclad Corp v Mexico, Award of 30 August 2000 (2000) 40 ILM 36, para. 123.
700) Ibid, para. 124.
701) Gemplus v Mexico, Award of 16 June 2010, paras 13.53–4.
702) Ibid, para. 13.41.
703) See also I Seidl-Hohenveldern, above, n. 149, 7, 19.
704) Case Concerning the Factory at Chorzow, PCIJ 1928 Ser A, No. 17, 47.
705) This was, as is well known, discussed in the Alabama arbitration where the US had
claimed very high amounts of damages representing the losses of the prolongation
of the war. See Alabama Arbitration (United States v United Kingdom), Award of 14
September 1872, in J B Moore, Digest of International Arbitrations of which the United
States has been a Party, vol. 1 (Washington: GPO, 1898) 495, 646. Similarly, in Naulilaa
(Portugal v Germany), Damages, 30 June 1930, 2 RIAA, 1035 et seq and Trail Smelter
(United States v Canada), 16 April 1938, 3 RIAA, 1911, very high amounts for
consequential damages had been claimed.
706) See Amoco International Finance Corporation v Iran, 15 Iran–US CTR (1987) 189, para.
238; see above, paras 5.247 et seq and Chapter 3, Section B(2)(c), paras 3.204 et seq.
707) See, e.g., Asian Agricultural Products Ltd v Sri Lanka, Award of 27 June 1990 (1997) 4
ICSID Reports 246, para. 104.
708) Black's Law Dictionary treats 'consequential damages' and 'indirect damages' as
synonyms. 'Consequential damages' are accordingly '[l]osses that do not flow
directly and immediately from an injurious act but that result indirectly from the
act.—Also termed indirect damages' (emphasis in original), see B Garner (ed.),
Black's Law Dictionary (10th edn, St Paul: Thomson Reuters, 2014) 472. Umpire Parker
early on criticized the sometimes confusing use of the term 'indirect damages'. See
War Risk Insurance Premium Claims (United States v Germany), 1 November 1923, 7
RIAA, 44, 62–3; see also Salvioli: 'Il y a des dommages qui doivent être indemnisés,
il y en a d'autres qui ne donnent pas lieu à indemnisation. La première catégorie
est constituée par les dommages, qui sont la conséquence de l'acte illicite. Ce
principle—directement ou indirectement—est acceptée par la jurisprudence
internationale, et à la vérité il ne pouvait pas en être autrement. Il n'existe pas de
décisions qui après avoir dit, par exemple, qu'un certain dommage est la
conséquence d'un acte illicite, affirment—en même temps—qu'il ne doit pas être
indemnisé. […] Tout cela est évident quel que ce soit le mot employé.' G Salvioli, 'La
responsabilité des Etats et la fixation des dommages et intérêts par les tribunaux
internationaux' 28 RdC (1929) 231, 244.
709) E Schneider, 'Consequential Damages in the International Sale of Goods: Analysis of
Two Decisions' (1995) 16 Journal of International Business Law 615–68; L Castellanos-
Jankiewicz, 'Causation and International State Responsibility' (2012) ACIL Research
Paper No. 2012-07 (SHARED Series).
710) See the 'Principle of Proximate Causality' in B Cheng, General Principles of Law as
Applied by International Tribunals (London: Stevens and Sons Ltd, 1953) 241, 245. See
also Administrative Decision No. II of the German–American Mixed Claims
Commission: 'This is but an application of the familiar rule of proximate cause—a
rule of general application both in private and public law'. 1 November 1923, 7 RIAA,
29.
711) See the German–American Claims Commission: 'It matters not whether the loss be
directly or indirectly sustained so long as there is a clear, unbroken connection
between Germany's act and the loss complained of. It matters not how many links
there may be in the chain of causation connecting Germany's act with the loss
sustained, provided there is no break in the chain and the loss can be clearly,
unmistakably, and definitely traced, link by link, to Germany's act.' Administrative
Decision No. II, 1 November 1923, 7 RIAA, 29–30. See more recently, the ICSID Tribunal
in Desert Line v Yemen deciding on the 'loss of business opportunities in Oman and
Yemen' claimed by the claimant: 'The Arbitral Tribunal reasons in the same terms
as it did in the previous subsection dedicated to the Claimant's inability to exercise
the buy-back option. Therefore, it holds that the Claimant was not able to
sufficiently establish the adequate causation between the damages it alleges and
the alleged illicit behaviour of the Respondent.' Desert Line v Yemen, Award of 6
February 2008, para. 282.
712) See Article 31(2) of the ILC Articles on State Responsibility: 'The compensation shall
cover any financially assessable damage including loss of profits insofar as it is
established' (emphasis added). See above, Chapter 3, Section B(1), para. 3.115.
713) '[I]ncidental expenses are compensable if they were reasonably incurred.' See J
Crawford, The International Law Commission's Articles on State Responsibility.
230; see also S Ripinsky and K Williams, above, n. 648, 306.
714) SOABI v Senegal, Award of 25 February 1988, para. 8.01.
715) Ibid, para. 8.15.
716) Ibid, para. 8.23.
717) Ibid.
720) Ibid, para. 387.
203
721) See, e.g., Southern Pacific Properties v Egypt, Award of 20 May 1992, paras 242–3;
Middle East Cement v Egypt, Award of 12 April 2002, paras 152–6; PSEG v Republic of
Turkey, Award of 19 January 2007, paras 322–6.
722) Article 21(b) of Decision No. 7 of the Governing Council of the United Nations
Compensation Commission, 17 March 1992, UN-Doc. S/AC 26/1991/7/Rev 1.
723) See, e.g., Report and Recommendations on the First Instalment of 'E2' Claims, 3 July
1998, paras 133 et seq; Report and Recommendations made by the Panel of
Commissioners Concerning the First Installment of 'E3' Claims, 17 December 1998,
paras 177 et seq, 283 et seq; Report and Recommendations made by the Panel of
Commissioners Concerning the Fourth Instalment of 'E3' Claims, 30 September 1999,
paras 195 et seq.
724) Report and Recommendations made by the Panel of Commissioners Concerning the
First Instalment of 'E3' Claims, 17 December 1998, para. 346.
725) Report and Recommendations made by the Panel of Commissioners Concerning the
First Instalment of 'E3' Claims, 17 December 1998, paras 375 et seq, 398 et seq, 409 et
seq.
726) Ibid, para. 121.
727) Ultrasystems Inc v Iran, 2 Iran–US CTR (1983) 100, 111.
728) Sylvana Technical Systems v Iran, 8 Iran–US CTR (1985) 298, 319; Computer Sciences
Corporation v Iran, 10 Iran–US CTR (1986) 269, 290.
729) General Electric Company v Iran, 26 Iran–US CTR (1994) 148, paras 56 et seq. See also
G Aldrich, The Jurisprudence of the Iran–United States Claims Tribunal: An Analysis of
the Decisions of the Tribunal (Oxford: Oxford University Press, 1996) 296; J Crawford,
above, n. 713, 230.
730) General Electric Company v Iran, 26 Iran–US CTR (1994) 148, paras 56 et seq. See also
J Crawford, above, n. 713, 230.
731) Uiterwyk Corp v Iran, 19 Iran–US CTR (1988) 107, para. 117; Watkins-Johnson Co et al v
Iran, 22 Iran–US CTR (1989) 218, para. 114; see also G Aldrich, above, n. 729, 297.
732) See, e.g., McCollough and Co Inc v The Ministry of Post, Telegraph and Telephone et al,
11 Iran–US CTR (1986) 3, 18.
733) The tribunal held: 'The Tribunal considers management time to be a fixed cost. The
evidence revealed that the management who were involved in matters covered by
the present claim were paid annual salaries that did not vary in respect of the
issues or matters to which each of them devoted their working time.' Pope & Talbot
v Canada, Award in Respect of Damages of 31 May 2002, para. 82.
734) Siag v Egypt, Award of 1 July 2009, paras 588–92.
735) Ibid, para. 587. Also legal expenses in pursuing the claim were regarded as
recoverable damages. See below, para. 5.336.
736) e.g. in CSOB the tribunal awarded the sum of US$ 10 million as a contribution of the
costs to the claimant. CSOB v Slovak Republic, Award of 29 December 2004, para.
372. In ADC v Hungary, the claimant received US$ 7.6 million for his costs and
expenses. ADC v Hungary, Award of 2 October 2006, para. 542.
737) Article 61(2) of the ICSID Convention provides that: '[i]n the case of arbitration
proceedings the Tribunal shall, except as the parties otherwise agree, assess the
expenses incurred by the parties in connection with the proceedings, and shall
decide how and by whom those expenses, the fees and expenses of the members of
the Tribunal and the charges for the use of the facilities of the Centre shall be paid.
Such decision shall form part of the award.' Article 40(1) and (2) of the UNCITRAL
Rules provide that: '(1) Except as provided in paragraph 2, the costs of arbitration
shall in principle be borne by the unsuccessful party. However, the arbitral tribunal
may apportion each of such costs between the parties if it determines that
apportionment is reasonable, taking into account the circumstances of the case. (2)
With respect to the costs of legal representation and assistance referred to in
article 38, paragraph (e), the arbitral tribunal, taking into account the
circumstances of the case, shall be free to determine which party shall bear such
costs or may apportion such costs between the parties if it determines that
apportionment is reasonable.'
738) As Schreuer et al put it: 'The practice of ICSID tribunals in apportioning costs is
neither clear nor uniform'. C Schreuer, L Malintoppi, A Reinisch, and A Sinclair, The
ICSID Convention. A Commentary (2nd edn, Cambridge: Cambridge University Press,
2009) Article 61, para. 19.
739) J Y Gotanda, 'Damages in Private International Law' (2007) 326 RdC 313.
740) Ibid.
741) Ibid, at 265.
742) See M Weiniger and N Mackey, 'Costs: Do Recent Trends Represent a Dramatic Shift
in Tribunal Practice?' 2007 TDM 4(6) <http://www.transnational-dispute-
management.com>.
743) Ibid.
744) G Aldrich, above, n. 729, 479.
745) The second Chamber generally rejected awarding costs to the prevailing party,
while the other two Chambers frequently awarded at least small portions of costs
and expenses. Ibid, at 480.
746) Gotanda refers to Craig who commented on this reluctance 'perhaps in order to
avoid adding insult to injury'. J Y Gotanda, above, n. 739, 313.
204
747) Robert H May (United States v Guatemala), Award of 16 November 1900 in M
Whiteman, above, n. 5, 1704, 1709.
748) Ibid.
749) The tribunal added to the damnum twenty-one different claims, such as expenses
for animals, buildings, and equipment, which had been made in view of the ten-
year term of the contract. The claimant's lost income of two years was also added,
as well as a lump sum of US$ 35,000 for 'loss of time, legal costs etc'. Shufeldt Claim
(United States v Guatemala), Award of 2 November 1929, 2 RIAA 1079, 1101.
750) Dr Marion Cheek (United States v Siam), Award of 21 March 1889, in M Whiteman,
above, n. 5, 1646, 1652.
752) Ibid, para. 211.
753) Autopista Concesionada v Venezuela, Award of 23 September 2003, para. 274.
754) However, Venezuela should only make up for those expenses necessary to defend
challenges by members of the National Assembly but not those initiated by private
competitors. Therefore, the tribunal halved the amount of legal expenses
submitted. Ibid, paras 274–5.
755) The tribunal, however, found that the increase in administrative costs in relation to
the earlier plans was exaggerated. It therefore accepted Venezuela's submission
and reduced the amount by 10% (or US$ 882,000). Ibid, para. 302.
757) Siag v Egypt, Award of 1 July 2009, para. 593.
758) Ibid.
759) Ibid, para. 631.
760) Swisslion v Macedonia, Award of 6 July 2012, para. 275.
762) Ibid, para. 344. It noted that it was not possible to quantify the damages with
certainty, quoting Southern Pacific Properties v Egypt. Ibid, para. 345.
763) Ibid, paras 337, 350.
764) CSOB v Slovak Republic, Award of 29 December 2004, para. 372.
765) Ibid, para. 371.
767) Ibid.
768) Ibid.
769) Desert Line v Yemen, Award of 6 February 2008, paras 299–304.
770) Ibid, para. 303.
771) Desert Line v Yemen, Award of 6 February 2008, paras 289–91. The tribunal awarded
US$ 1 million for 'moral damages, including loss of reputation', without interest.
Ibid, para. 291. The tribunal had first rejected the claimant's claim for lost business
opportunities in Oman and Yemen due to a lack of proven causation, but then found
the claim for moral damages well-founded. The claimant had submitted that its
executives suffered the stress and anxiety of being harassed, threatened, and
detained by the respondent and by armed tribes. It stated that it had suffered
significant injury to its credit and reputation, and loss of prestige.
772) Benvenuti & Bonfant v Congo, Award of 15 August 1980, para. 4.95.
773) As an exception should be mentioned the award in Al-Kharafi v Libya, in which the
Arab Investment Court decided that the claimant company was entitled to
compensation for the moral damages 'it incurred as a result of the damage to its
worldwide professional reputation after the Defendants' abusive cancellation of the
important project that they previously approved' at the amount of US$ 30 million,
in addition to US$ 900 million compensation for lost profits and opportunities. As
the law applicable was the Unified Agreement for the Investment of Arab Capital in
the Arab States and Libyan civil law, this award is not directly relevant for
traditional investment arbitration, but still interesting. See Al-Kharafi v Libya, Final
Arbitral Award of 22 March 2013, Arab Investment Court, 369.
774) (Emphasis added), see Articles on the Responsibility of States for Internationally
Wrongful Acts, UN-Doc. A/Res/ 56/83, Annex.
775) J Crawford, above, n. 713, 202, 223.
776) The line between 'moral' and punitive' damages was for example blurred by the
ICSID Tribunal in Siag v Eygpt which noted that 'the recovery of punitive or moral
damages is reserved for extreme cases of egregious behavior'. Siag v Eygpt, Award of
1 June 2009, para. 545. See also S Jagusch and T Sebastian, 'Moral Damages in
Investment Arbitration: Punitive Damages in Contemporary Clothing' (2012) 29
Journal of International Arbitration 45; S Wittich, 'Punitive Damages' in J Crawford, A
Pellet, and S Olleson (eds), The Law of International Responsibility (Oxford: Oxford
University Press, 2010) 667.
777) Opinion in the Lusitania cases (United States v Germany), Decision of the Mixed
Claims Commission of 1 November 1923, 7 RIAA, 32, 40.
205
778) P Dumberry, 'Compensation for Moral Damages in Investor–State Arbitration
Disputes' (2010) 27 Journal of International Arbitration 247, 248–9; P Dumberry, 'Moral
Damages' in M Bungenberg, J Griebel, S Hobe, and A Reinisch (eds), International
Investment Law. A Handbook (Baden-Baden: Nomos, 2015) 1130, 1132; S Wittich, 'Non-
Material Damage and Monetary Reparation in International Law' (2004) 15 Finish
Yearbook of International Law 329, 330; S Alexandrov, 'The Present and Future of
Moral Damages in Investment Arbitration' in B Sabahi, N Birch, I Laird, and J A Rivas
(eds), Revolution in the International Rule of Law. Essays in Honour of Don Wallace, Jr
(Huntington: Juris, 2014) 515, 516–17.
779) B Sabahi, Compensation and Restitution in Investor–State Arbitration (Oxford: Oxford
University Press, 2011) 136–7 (emphasis in original, footnotes omitted).
780) Ibid, at 139.
781) S Ripinsky and K Williams, above, n. 648, 311.
782) B Sabahi, above, n. 779, 140. The most recent case in which an award of moral
damages has been awarded to a state whose national has suffered moral injury is
the Diallo case, in which Guinea was awarded an amount of US$ 85,000 'for the non-
material injury suffered by Mr. Diallo'. See Case Concerning Ahmadou Sadio Diallo
(Republic of Guinea v Democratic Republic of the Congo) Judgment of 12 June 2012, ICJ
Reports 2012, 323, 345.
783) Ibid.
785) In Biloune v Ghana, the tribunal denied to have jurisdiction about the arrest and
detention of Mr Biloune, because its 'competence is limited to commercial disputes
arising under a contract entered into in the context of Ghana's Investment Code …
Thus, other matters—however compelling the claim or wrongful the alleged act—are
outside the Tribunal's jurisdiction.' Biloune v Ghana (Jurisdiction, Liability), Award of
27 October 1989 (1994) 95 ILR 183, 203. In Generation Ukraine v Ukraine, the tribunal
also found that the claim for moral damages was outside its jurisdiction, because
the particular cause of action was based on the Ukrainian constitution and not on
the breach of the BIT. Generation Ukraine v Ukraine, Award of 16 September 2003,
para. 17.6. See also S Alexandrov, above, n. 778, 530. He notes, however, that other
tribunals have accepted jurisdiction for moral damages also in cases of breaches of
national law, such as the tribunals in Bogdanov v Moldova, SCC Case, Award of 30
May 2010, para. 98, and Bogdanov v Moldova, SCC Case, Award of 22 September 2005,
para. 17.
786) Tecmed v Mexico, Award of 29 May 2003, para. 198; Pey Casado v Chile, Award of 8 May
2008, para. 704; Funnekotter v Zimbabwe, Award of 2009, para. 140; Siag v Egypt,
Award of 1 June 2009, para. 505; Lemire v Ukraine, Award of 28 March 2011, para. 326;
Meerapfel v CAR, Award of 21 May 2011, para. 434; Tzu Yap Shum v Peru, Award of 7
July 2011, para. 281; Inmaris Perestroika v Ukraine, Award of 1 March 2012, para. 428;
Arif v Moldowa, Award of 8 April 2013, para. 584; Rompetrol v Romania, Award of 6
May 2013, para. 289; Stati v Kazakhstan, Award of 19 December 2013, para. 1786;
Lahoud v Congo, Award of 7 February 2014, para. 620; OI European Group v Venezuela,
Award of 2015, para. 905; Quiborax v Bolivia, Award of 16 September 2015, para. 600.
789) See B Sabahi, above, n. 779, 144, with reference to Anzilotti as one of the first
scholars to support the idea that the violation of a rule of international law, ipso
facto, causes damage. D Anzilotti, 'La Responsabilité Internationale des Etats à
Raison des Dommages Soufferts par des Etrangers' (1906) 13 RGDIP 5.
790) J Crawford, above, n. 713, 218. It can, however, also take the form of the payment of
an amount of money, such as the US$ 2 million in the Rainbow Warrior affair
'recommended' by the arbitral tribunal to be paid by France to set up a fund to
promote close and friendly relations between the citizens of New Zealand and
France. In re Rainbow Warrior, Decision of 30 April 1990, 217, 275.
791) J Crawford, above, n. 713, 233. The award or judgment in itself is not sufficient, it
must be accompanied by an explicit declaration which is clear and self-contained.
Ibid, with reference to the Corfu Channel case.
792) Pey Casado v Chile, Award of 8 May 2008, para. 704 (translation from the French
original).
793) Lemire v Ukraine, Award of 28 March 2011, para. 233; see also Meerapfel v CAR, Award
of 21 May 2011, para. 434.
794) The tribunal in Rompetrol v Romania discussed the claimant's claim to moral
damages in this context to a certain detail, but ultimately rejected it. Rompetrol v
Romania, Award of 6 May 2013, paras 289–93. The claimant in Biwater Gauff v
Tanzania expressly rejected moral damages, even though they had not been
claimed or quantified by the claimant. Biwater Gauff v Tanzania, Award of 24 July
2008, para. 808. Arbitrator Born rejected the view that a favourable award was
sufficient reparation for moral harm. Biwater Gauff v Tanzania, Award of 24 July 2008,
Concurring and Dissenting Opinion, paras 32–3.
795) See B Sabahi, above, n. 779. This was, however, not done in Biwater Gauff v Tanzania
or in Rompetrol v Romania.
796) Europe Cement v Turkey, Award of 13 August 2009, para. 182.
797) Cementownia 'Nowa Huta' v Turkey, Award of 17 September 2009, para. 178.
206
798) Iberdrola v Guatemala, Award of 17 August 2012, para. 518.
799) Transglobal Green Energy v Panama, Award of 2 June 2016, para. 130.
800) Ibid, para. 289.
801) Ibid, para. 290. This criterion was taken up in Inmaris Perestroika v Ukraine to deny
an award of moral damages. See Inmaris Perestroika v Ukraine, Award of 1 March
2012, para. 428; see also Stati v Kazakhstan, Award of 19 December 2013, para. 1786.
802) See J Crawford, above, n. 713, 84.
803) See S Jagusch and T Sebastian, above, n. 776, 45.
804) Lemire v Ukraine, Award of 28 March 2011, paras 326 et seq.
805) The ICSID Tribunal in Siag v Eygpt had noted that 'the recovery of punitive or moral
damages is reserved for extreme cases of egregious behavior'. Siag v Eygpt, Award of
1 June 2009, para. 545.
806) Ibid, para. 333.
807) Tzu Yap Shum v Peru, Award of 7 July 2011, para. 281; OI European Group v Venezuela,
10 March 2015, para. 909.
808) Arif v Moldova, Award of 8 April 2013, para. 590 (emphasis added). See also S
Alexandrov, above, n. 778, 526–7.
809) Arif v Moldova, Award of 8 April 2013, para. 591.
810) Ibid, para. 592.
811) Ibid.
812) Ibid.
813) Ibid, para. 603.
814) Ibid, para. 604.
815) Ibid, para. 605.
816) See Lahoud v DRC, Award of 7 February 2014, para. 622; Quiborax v Bolivia, Award of
16 September 2015, para. 618; see also S Alexandrov, above, n. 778, 527.
817) Opinion in the Lusitania cases (United States v Germany), Decision of the Mixed
Claims Commission of 1 November 1923, 7 RIAA, 32, 36.
818) Ibid.
819) Ibid.
821) National and international courts quantify damages for human rights violations on a
regular basis in the exercise of discretion. See E Baginska (ed.), Damages for
Violations of Human Rights. A Comparative Study of Domestic Legal Systems (Cham:
Springer International Publishing, 2016); D Shelton, Remedies in International Human
Rights Law (3rd edn, Oxford: Oxford University Press, 2015) 346–63.
822) Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Respublic of
the Congo) Judgment of 12 June 2012, ICJ Reports 2012, 323, 334.
823) Ibid, 335. Judge Greenwood explained in his Declaration that the Court had looked
at specific sums awarded by the ECtHR in Al-Jedda v United Kingdom, where it
considered a figure of € 25,000 (equivalent to approximately US$ 36,000 at the rate
of exchange on the date of that judgment) sufficient for a detention which lasted
more than three years. In Lupsa v Romania it considered that a sum of € 15,000 was
equitable in respect of both moral and material damage in the case of a man who
was unlawfully expelled from the respondent state after residing there for fourteen
years, during which he had founded a family and established a business in the
country. The Inter-American Court of Human Rights in Gutiérrez- Soler v Colombia
awarded US$ 100,000 to a man who had been tortured into signing a false
confession, persecuted for an offence he had not committed, and separated from
his family for so long that he lost all contact with his child for several years. The
Court took also an 'instructive' look at the case of M/V 'Saiga' (No. 2) (Saint Vincent
and the Grenadines v Guinea) before the International Tribunal for the Law of the
Sea. In that case, Guinea argued that compensation for moral damage in relation to
unlawful detention should not exceed US$ 100 per day. Judge Greenwoord noted
that this figure seemed to have been derived from arbitral awards given several
decades earlier, but that it still stood in marked contrast to the sums claimed by
Guinea in the case at hand. Case Concerning Ahmadou Sadio Diallo (Republic of
Guinea v Democratic Republic of the Congo) Declaration of Judge Greenwood, ICJ
Reports 2012, 391, 394. Judge ad hoc Mahiou found on this issue that the judgment
had adopted a particularly restrictive view. He submitted that the Court had not
sufficiently ascertained what the injuries were exactly and what the amount of
compensation was that would fully make good the damage suffered. He noted that a
sum greater than US$ 85,000 would have been fairer. The decision on the amount of
compensable injuries was the reason that he did not subscribe fully to the solution
reached. Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic
Republic of the Congo) Separate Opinion of Judge ad hoc Mahiou, ICJ Reports 2012,
396, 398, 400.
824) Benvenuti & Bonfant v Congo, Award of 15 August 1980, para. 4.96.
825) Desert Line v Yemen, Award of 6 February 2008, para. 286. The Fabiani case was an
arbitration between France and Venezuela. See Fabiani (France v Venezuela), Award
of 30 December 1896, reported in M Whiteman, above, n. 5, 1786. It was also quoted
in Compañía del Desarrollo de Santa Elena SA v Costa Rica, Award of 17 February
2000, para. 95 as an early example of an award of compound interest.
207
826) Lusitania Case (US v Germany), Award of November 1923, 7 RIAA 32, 42; quoted with
approval in J Crawford, above, n. 713, 223 et seq.
827) Desert Line v Yemen, Award of 6 February 2008, para. 291. Sabahi rightfully criticizes
the rejection of interest on that amount, because 'post-award interest on
compensation for moral damages seems appropriate as, at that point, the money
belongs to the claimant, and, until the time of payment, the claimant will lose the
opportunity to invest it'. B Sabahi, above, n. 779, 146.
828) The ICSID Tribunal SOABI v Senegal rejected the claim to 'general damages for loss
of goodwill and loss of commercial financing' because it regarded such damage as
'wholly hypothetical'. SOABI v Senegal, Award of 25 February 1988, para. 10.01; see
also Atlantic Triton v Guinea, Award of 21 April 1986, para. 3.2.
829) Shufeldt Claim (United States v Guatemala), Award of 2 November 1929, 2 RIAA, 1079,
1101.
830) Robert H May (United States v Guatemala), Award of 16 November 1900 in M
Whiteman, above, n. 5, 1704, 1709.
831) Funnekotter v Zimbabwe, Award of 22 April 2009.
832) Ibid, para. 137.
833) Ibid, para. 138.
834) Ibid, para. 1139.
835) Ibid, para. 140.
836) Ibid. See also B Sabahi, above, n. 779, 143.
837) Swisslion v Macedonia, Award of 6 July 2012, para. 350. See also S Alexandrov, above,
n. 778, 518.
839) Ibid.
841) See above, Chapter 3, Section C(1)(b), paras 3.300 et seq.
842) Guiso-Gallisay v Italy, ECHR 58858/00, Grand Chamber, Judgment of 22 December
2009 (just satisfaction) para. 102.
843) See, e.g., Dedda and Fragassi v Italy, ECHR 19403/03, Judgment of 12 April 2011, paras
15–19.
208
Document information 6. Interest
6.01 Interest represents an important aspect in international proceedings from a
Publication financial point of view. Depending on the period of time between the origin of the claim
Calculation of and the actual payment of compensation or damages interest can amount to a
Compensation and considerable portion of the award. Sometimes it may even exceed the principal. (1)
Damages in International 6.02 This importance has long been underestimated. The decisions on interest were often
Investment Law (Second poorly reasoned, and literature addressed it rather scarcely. (2) More recently, the
Edition) awareness is growing and tribunals and academia devote considerably more attention to
it. (3) The main questions with regard to the interest claim are
1. the rate of interest,
Bibliographic 2. the period of interest, and
reference 3. the question of whether interest should be compounded.
'6. Interest', in Irmgard
Marboe , Calculation of 6.03 These questions should be answered with regard to the function of interest in the
Compensation and respective legal framework. (4) On this premise, it seems appropriate to differentiate
Damages in International between interest before the judgments or awards ('pre-award interest') and interest after
Investment Law (Second P 329 them ('post-award interest'). (5) The former represents an item of compensation or
Edition), Oxford damages, the latter could be regarded as default charges for the non-payment of a debt.
International Arbitration (6) Post-award interest is also meant to encourage prompt compliance with the judgment
Series, (© Irmgard Marboe or the arbitral award. (7)
2017; Oxford University 6.04 Interest represents an important part of compensation or damages, but it is not a
Press 2017) pp. 327 - 406 separate remedy. Under the law of state responsibility, interest 'shall be payable when
necessary in order to ensure full reparation'. (8) Jurisdiction to decide on the interest
claim usually follows from the jurisdiction to decide the principal. The Iran–US Claims
Tribunal held in this respect:
Such claims for interest are part of the compensation sought and do not
constitute a separate cause of action requiring their own independent
jurisdictional grant. This Tribunal … has regularly treated interest, where
sought, as forming an integral part of the 'claim' which it has a duty to decide.
(9)
6.05 More recently, the ICSID Tribunal in Vivendi v Argentina (Vivendi II) confirmed:
Absent treaty terms or provision in the governing law to the contrary, it is
generally accepted that international tribunals may award interest to an
injured claimant; indeed the liability to pay interest is now an accepted legal
principle. (10)
6.06 The Governing Council of the United Nations Compensation Commission (UNCC)
decided that '[i]nterest will be awarded from the date the loss occurred until the date of
payment, at a rate sufficient to compensate successful claimants for the loss of use of the
principal amount of the award'. (11)
6.07 Sometimes, the competence to award interest is explicitly provided for in an
international treaty, such as in Article 1135(1) NAFTA according to which the tribunal 'may
award, separately or in combination, only: (a) monetary damages and any applicable
interest'. The Energy Charter Treaty (ECT) also contains such a provision in its Article 26(8):
'The awards of arbitration, which may include an award of interest, shall be final and
binding upon the parties to the dispute'.
6.08 Article 46 of the ICSID Convention stipulates that the tribunal shall, if requested by a
party, 'determine any incidental or additional claims or counterclaims arising directly
P 330 out of the subject-matter of the dispute provided that they are within the scope of the
consent of the parties and are otherwise within the jurisdiction of the Centre'. This may
include an award of interest. (12) BITs usually include an explicit reference to interest in
their provisions on the amount of compensation in case of expropriation and in their
provisions on dispute settlement. (13)
A. The Function of Interest

6.09 In general, interest should compensate the temporary withholding of money. As
formulated by the Iran–US Claims Tribunal in McCollough v Ministry of Post, (14) the
purpose of interest is 'to compensate for the delay with which the payment to the
successful party is made'. (15) This means that, in the first place, interest should address
the claimant's financial disadvantage of not being able to dispose of the amount of
money. This disadvantage materializes either in loss of profit from alternative
investments or in costs for a loan.
6.10 Equally, the debtor gains a financial profit through the withholding of the amount. In
the meantime, he or she can yield returns from investing the money or spare the costs of
loans. Therefore, the non-payment of an amount of money owed typically results in unjust
enrichment of the debtor. The prevention of the debtor's enrichment can thus also be
seen as a function of the interest claim.
209
6.11 It follows that, for the assessment of the financial consequences of the delay, two
different perspectives have to be borne in mind: the first is comparable to a damages
claim and leads to a valuation from the perspective of the successful claimant. The
second evaluates the enrichment of the debtor gaining an advantage by the temporary
non-payment and leads to a valuation from the perspective of the respondent. In both
cases, the differential method can be used to assess the amount of interest due.
6.12 In addition, the valuation can be made from the perspective of a non-involved third
party. (16) This alternative leads to an objective valuation where neither the concrete
P 331 damages of the creditor nor the concrete profits of the debtor are alone decisive. For
example, legal or statutory interest, as contained in many legal systems, can be regarded
as such an objective solution. But also interest based on significant benchmark rates,
such as interbank rates or base rates can be regarded as an abstract valuation of the
financial consequences of delayed payment. There are thus several functions and three
possible perspectives for the determination of interest in international investment
disputes.
(1) 'Prompt' Compensation

6.13 In the context of expropriations of foreign property the claim to interest results from
the requirement that compensation has not only to be 'adequate and effective' but must
also be 'prompt'. (17) 'Prompt' means 'paid without delay'. (18) Only in exceptional cases
are delayed payments permitted and only if they are combined with the payment of
interest. According to the World Bank Guidelines, compensation
may be paid in installments within a period which will be as short as possible
provided that reasonable, market-related interest applies to the deferred
payments in the same currency. (19)
6.14 The NAFTA, (20) the ECT, (21) Model BITs, (22) and numerous BITs concluded between
states also establish that the payment of compensation has to be 'prompt' or 'without
delay', in addition to 'adequate' and 'effective'. Sometimes, the requirement of interest
is specifically stated and more precisely defined. Article 1110 NAFTA refers to 'interest at
a commercially reasonable rate for that currency from the date of expropriation until the
date of actual payment'. (23) Article 13 ECT states that '[c]ompensation shall also include
interest at a commercial rate established on a market basis from the date of Expropriation
until the date of payment'. (24)
6.15 Similar definitions are contained in the US (25) and in the Canadian Model BITs. (26)
Nevertheless, it remains open which market should be relevant. Is it the market of the
home state of the investor or of the host state? Or should it be the international financial
markets? Should lending rates or borrowing rates be applied? Article 1110 NAFTA refers to
the currency in which compensation is due. Differences are made between a 'G7 currency'
P 332 and others. (27) Payment in a 'G7 currency' is clearly preferred, but if compensation is
paid in another currency, an interest rate must be chosen which ensures that the result
remains the same, that is, the 'commercially reasonable rate' for a G7 currency from the
date of expropriation. Article 1110(5) NAFTA explains how to achieve this result:
If a Party elects to pay in a currency other than a G7 currency, the amount paid
on the date of payment, if converted into a G7 currency at the market rate of
exchange prevailing on that date, shall be no less than if the amount of
compensation owed on the date of expropriation had been converted into
that G7 currency at the market rate of exchange prevailing on that date, and
interest had accrued at a commercially reasonable rate for that G7 currency
from the date of expropriation until the date of payment. (28)
6.16 This explicit differentiation by the type of currency is also found, for example, in the
Free Trade Agreement between the United States and Australia (29) and the United
States and Chile (30) as well as in the US Model BIT of 2012. (31)
6.17 Although it still remains unclear what exactly is meant by market-related interest,
the concrete damage incurred by the expropriated individual or the concrete enrichment
of the state does not seem to be decisive. Rather the references to 'market rates' suggest
choosing an objective–abstract approach.
(2) 'Full' Reparation

(a) State Responsibility
6.18 In cases of state responsibility the duty to pay interest results from the obligation to
'full reparation'. In this respect, Article 38 of the ILC Articles on State Responsibility
states:
Interest on any principal sum payable under this Chapter shall be payable
when necessary in order to ensure full reparation. The interest rate and mode
of calculation shall be set as to achieve that result. (32)
6.19 It follows that the function of interest in case of state responsibility is to remedy the
210
damage suffered by the injured party as far as money can do in full. According to the
Commentary to the ILC Articles, interest is neither a separate form of reparation nor an
P 334 indispensable part of compensation in all cases. (33) However, interest must be awarded
when it is necessary to make good the damage caused by a violation of international
law. (34) This includes damage incurred by the temporary withholding of money.
6.20 In international jurisprudence on inter-state disputes, interest as an item of
damages did not receive much attention. Notable exceptions include Illinois Central
Railroad v Mexico (35) or Administrative Decision No III of the United States–German Mixed
Claims Commission. (36) In the Wimbledon case, the Permanent Court of International
Justice awarded interest only for the period between the judgment and the date of
payment. (37) The International Court of Justice in the Corfu Channel case did not mention
any interest at all. (38) In Diallo, it ordered only post-award interest. (39)
6.21 In the ILC there was essentially agreement that the finer details concerning the
interest claim, such as the rate and the period of interest, or the issue of compounding,
could not be determined more precisely. (40) The question of whether and how much
interest should be awarded was left to be decided on a case-by-case basis. This explains
the relatively vague formulation of Article 38.
6.22 The entitlement to interest depends primarily on the valuation method and the date
applied for the calculation of the principal. Care must be taken to avoid double counting.
(41) The Commentary to the ILC Article points out that lost profits and interest cannot be
awarded for the same period since the same capital cannot yield interest and profit at
the same time. (42) However, this applies only when lost profits are awarded up to the
date of the award and at the date of the award. If they are discounted back to the date of
the breach, interest needs to be awarded in order to make the claimant whole. (43) In
this context, the question arises how the rate applied for discounting and the interest
rate should correlate. (44)
6.23 In general, the principle of full reparation requires a determination of the concrete
damage caused by the delay from the perspective of the injured party.
(b) Breach of Contract
6.24 Whether and to what extent interest is due after breaches of international contracts
is a particularly complex question. The decisions of arbitral tribunals are extremely
diverse in this respect. This was noted by the Iran–US Claims Tribunal in McCollough v
Ministry of Post:
[N]o uniform rule of law relating to interest has emerged from the practice in
transnational arbitration, in contrast to the well developed rules regarding the
determination of the standard of compensation for damages resulting from a
breach of contract, where the rule of full compensation usually is applied. (45)
6.25 However, there seems to be general agreement that also in cases of contract breach
the purpose of interest is to make good the damage caused by the temporary withholding
of money. The ICC Tribunal in ConocoPhillips v PDVSA explained this rather clearly:
[W]hile interest rates may serve different purposes, the purpose of such rates
with regard to compensation of damages for contractual breach is generally to
ensure full compensation of a claimant by restoring it to the position it would
have enjoyed if the contractual breach he suffered had not occurred. (46)
6.26 International codifications of contract law provide formulas to ensure interest for
delay in payment, (47) but for any excessive loss caused by the delay, damages can be
claimed according to the general rules. The CISG, for example, states:
If a party fails to pay the price or any other sum that is in arrears, the other
party is entitled to interest on it, without prejudice to any claim for damages
recoverable under article 74. (48)
6.27 Similarly, Article 9:509, paragraph 2 of the Principles of European Contract Law (49)
and Article 7.4.9 of the UNIDROIT Principles of International Commercial Contracts
provide for interest insofar as the financial loss caused by the delay is not covered
P 336 completely. It can therefore be concluded that, also after breaches of contract,
interest aims at full reparation of the damage caused by the delayed payment from the
perspective of the injured party.
(3) Prevention of Enrichment

6.28 The temporary withholding of money typically entails a financial advantage for the
debtor. In the present context, it is the state who gains this advantage through the
withholding of an amount of compensation or damages. The prevention of such
enrichment can also be a function of an award on interest.
6.29 In this connection it is remarkable that the PCIJ, to explain the choice of an interest
rate of 6 per cent in the Wimbledon case, 'considered that in the present financial
situation of the world and having regard to the conditions prevailing for public loans, the
211
claimed 6% is fair'. (50) The explicit reference to 'public loans' shows that the Court took
into account that the state, in effect, borrowed money from the aggrieved party. The
interest rate should consequently correspond to the rate the state would otherwise have
to pay for 'public loans'. The Court ordered payment of this interest to prevent the state
being unjustly enriched to the detriment of the claimant.
6.30 The ILC in its Articles on State Responsibility did not take the aspect of enrichment
explicitly into consideration. The materials and comments on Article 38 show that the
issue of an award on interest should primarily be determined from the perspective of the
injured party. (51) This does not, however, exclude the notion that the prevention of unjust
enrichment of the responsible state could or should play a certain role.
6.31 International investment tribunals, in some cases, referred to the enrichment aspect
in their decisions on interest. The ICSID tribunal in Compañía del Desarrollo de Santa
Elena, SA v Costa Rica, (52) for example, alluded to this aspect. The compensation for an
essentially lawfully expropriated natural reserve had not been paid for over two
decades. The tribunal explained the relatively high amount of interest—which even
exceeded the amount of compensation itself—by considering that 'the taking state is not
entitled unjustly to enrich itself by reason of the fact that the payment of compensation
has been long delayed'. (53)
6.32 The Iran–US Claims Tribunal also referred to the prevention of enrichment as an
additional function of an interest claim. In Reynolds Tobacco v Iran it emphasized that
'the respondent in such cases has been unjustly enriched by having wrongfully had the
use of the claimant's money during that period'. (54)
6.33 If interest is independent from the conditions of a damages claim, in particular
without proof of damage actually incurred, the prevention of enrichment might serve as
an even better justification for it than the principle of full reparation. (55) International
codifications of contract law generally allow interest independent from any evidence of
damage actually incurred and thus are in accordance with this approach. (56)
6.34 The prevention of unjust enrichment of the debtor may, even if not explicitly
mentioned or recognized, serve as an additional aspect on the question of how interest
should be awarded in international investment disputes.
(4) Improvement of Payment Practices

6.35 Interest can serve as an incentive to pay the debt as soon as possible. In case of
delay, the amount due increases over time. The function of improving payment
compliance is thus also inherent in the interest claim.
6.36 However, the encouragement to prompt payment will only be appropriate and
effective if the interest on the delayed payment is not lower than interest which is paid
or asked for on the market for the use of the sum of money in the meantime. From an
economic point of view, it is not reasonable to pay a debt early, if the profits from
interest on invested money or the cost of loans are higher.
6.37 This has to be taken into account in particular with regard to post-award interest. Its
specific purpose is to create an effective incentive to comply with a judgment or an
arbitral award without delay. (57) Post-award interest has almost a punitive function as is,
for example, reflected in the jurisprudence of the ECtHR where interest on the amounts
awarded only begins to run after a certain period of time, usually three months. (58) Such
'default interest' can be regarded as a 'penalty' for not meeting the payment terms as
P 337 decided by the Court. If payment is effected within the three-month period, no post-
award interest has to be paid. In this way, prompt payment is obviously financially
rewarded. A number of investment tribunals have also chosen this approach. (59)
6.38 On the other hand, some investment tribunals have not awarded post-award interest
at all, as they considered them ultra petita if they had not explicitly been claimed. (60) In
doing so, they are renouncing the setting of an incentive to comply promptly with the
award.
6.39 In order to create an effective stimulus for prompt payment, interest must not be
lower than market interest readily available for financial investments. Furthermore, it
should not be lower than interest the debtor has to pay on its loans, either. In the
following, we will analyse to what extent these principles are implemented in practice.
B. Pre-award Interest
6.40 Interest which accumulates before and until the judgment or arbitral court decision
is usually referred to as 'pre-award interest' or 'compensatory interest'. (61) In French, it
is known as 'dommages-intérêts compensatoires', or just 'intérêts compensatoires'. (62) In
Spanish, the term 'intereses compensatorios' is used. (63) In German, there is no
corresponding term, but interest with relation to damages is called 'Zins(en)schaden'
('interest as damage'). (64)
6.41 Pre-award interest can already be ascertained as an aggregated amount at the time
of the decision on damages. As a matter of principle it is not necessary to leave it to the
parties to calculate the sum based on the interest rate, the period of interest, and the
212
P 338 issue of compounding. For the benefit of transparency and comprehensibility it is
necessary to explain these parameters of the interest calculation clearly, but the
tribunal can make the calculation itself as there is no remaining uncertainty preventing it
from doing so. (65) This would better reflect the quality of pre-award interest as an
integral part of the compensation or damages claim.
(1) Interest Rate

6.42 As regards the choice of the interest rate, tribunals enjoy a large margin of discretion
but also need to respect certain principles. This section will examine which rates are in
principle available, which rates are the most appropriate, and which rates are commonly
applied in practice.
6.43 The Iran–US Claims Tribunal confronted with a very diverse practice of pre-award
interest rates, including 6, (66) 8, (67) 10, (68) and 12 per cent, (69) searched for clear and
comprehensive criteria for the determination of the interest rate. Eventually, it
developed two different approaches, one in the wake of Sylvana Technical Systems v Iran,
and the other in the wake of McCollough v Ministry of Post. (70)
6.44 In Sylvana Technical Systems v Iran, the Iran–US Claims Tribunal found that full
reparation could best be achieved by referring to the interest the injured party could
have obtained by investing in securities in his own country:
[T]he Tribunal will derive at a rate of interest based approximately on the
amount that the successful claimant would have been in a position to have
earned if it had been paid in time and thus had the funds available to invest
in a form of commercial investment in common use in its own country. (71)
6.45 The tribunal in McCoullogh v Ministry of Post, by contrast, characterized this as a
P 339 'rigid' solution and found that 'the rate of interest must be reasonable, taking due
account of all pertinent circumstances, which the Tribunal is entitled to consider by
virtue of the discretion it is empowered to exercise in this field'. (72) In this respect the
following factors should specifically be taken into account:
(i) any pertinent contractual stipulations (which, when they exist, are usually followed
for the determination of the rates);
(ii) the rules and principles of the law applicable to the contract;
(iii) the nature of the facts generating the damage;
(iv) the nature or level of the compensation awarded, particularly if it extends to the
lost profit or includes a profit in the costs to be reimbursed;
(v) the knowledge that the defaulting party could have had of the financial
consequences of its default;
(vi) the rates in effect on the markets concerned; and
(vii) the rate of inflation, etc. (73)
6.46 This enumeration of so many different criteria illustrates factors that could be
considered in the determination of interest, but it does not provide a systematic
guidance and does not explain the rationale of interest in a given case. (74)
6.47 In the following, several of the relevant criteria for determining pre-award interest
will be analysed more closely. First, the usefulness of legal interest rates and the
importance of party agreements shall be examined. Furthermore, the possibility of
applying market-related interest will be discussed. Finally, we will look at what has been
considered to be 'fair' interest, without a particular referential rate, in the practice of
international courts and tribunals.
6.48 With regard to market-related interest, interest which must be paid for taking out a
loan, either by the claimant or by the respondent, may be considered. From the
perspective of the claimant one could also consider the cost of capital as representing
the time value of money.
6.49 Market-related interest could also represent the loss from alternative investments.
Government bonds play an important role in this respect, as they represent investments
from the perspective of the investor and borrowing rates from the perspective of the
state.
6.50 Finally, interbank interest, such as the LIBOR or the EURIBOR, have gained increasing
importance for many different kinds of financial instruments. Recent international
P 340 jurisprudence has taken these developments into account.
6.51 All these types of market-related interest have in common that they take inflation
into account. (75) It follows that the devaluation of the amounts of compensation or
damages in the course of time does not have to be considered separately. (76)
(a) Legal Interest
6.52 Most legal systems contain provisions on legal interest. (77) This reflects the principle
that a delay in payment typically entails a financial loss for the creditor and an
unjustified advantage for the debtor. Legal interest also serves the function of relieving
213
the creditor from proving actual damage caused by delay. He or she can simply refer to
the provisions on legal interest as an overall remedy for the financial loss suffered. In this
way, the injured party gets a legally protected minimum for the damage incurred by the
delay.
6.53 However, in international law such a form of legal interest is not available. There is
no legally protected minimum and hardly any guidance for international courts and
tribunals confronted with the issue. (78) Treaty provisions dealing with compensation
upon expropriation generally contain rather vague references to the question of interest
and in particular do not contain precise interest rates. (79) Under the law of state
responsibility, the rate is also not defined (80) and has to be determined on a case-by-
case basis.
6.54 In international cases of contract breach, the situation seems to be better because
choice of law clauses or rules may point to a specific national law and its legal rate of
interest. However, in practice, the choice of the law applicable often turns out to be less
than straightforward and considerable uncertainty remains. (81) Furthermore, some legal
P 341 orders consider interest to be a substantive legal issue while others see it as a
procedural issue which renders the matter even more complicated. (82) One can,
therefore, agree with Gotanda who noted that '[b]ecause there currently appears to be no
consensus as to which of the above rules an arbitrator should apply in a given case, it is
virtually impossible to specify which national law will be applied to resolve issues
relating to the payment of interest'. (83)
6.55 Nevertheless, many arbitral tribunals have relied on legal interest. (84) The choice of
the national law applicable was effectuated on the basis of a variety of different criteria
which are hardly representative of general principles. (85)
6.56 In any case, legal interest only is of limited use in the present context. In
expropriation and in damages cases, interest should reflect as much as possible
economic reality. This results from the above-mentioned functions of interest. As a rule,
legal interest cannot serve these functions. This is especially so if they contain fixed
interest rates without any connection to the interest rates offered or demanded on the
market. They are often not changed for years and do not reflect economic conditions.
Depending on the actual situation of the economy, they are sometimes too high and
sometimes too low. They also do not take inflation variations into account.
6.57 Even if the legal interest of a given national law points to a market-related
benchmark rate, it is questionable whether such interest is useful in the legal framework
of international investment disputes. The member states of the European Union, for
example, had to introduce market-related legal interest pursuant to Directive 2011/7/EU
of the European Parliament and of the Council on combating late payment in commercial
transactions. (86) According to this Directive, the minimum legal interest should be eight
percentage points above the reference rate, which is the interest rate applied by the
European Central Bank to its most recent main refinancing operations; or the marginal
interest rate resulting from variable-rate tender procedures for the most recent main
refinancing operations of the European Central Bank. (87) Due to the current very low or
even negative interest set by the European Central Bank the interest rate is currently
around 8 per cent. (88) This is still a relatively high interest rate, which aims at effectively
P 342 combating late payment practices negatively disrupting, in particular, business of
small and medium size companies (SMEs).
6.58 International practice has largely found legal interest as being inadequate in
expropriation and damages cases. The ICSID Tribunal in Southern Pacific Properties v
Egypt had initially decided on the application of the Egyptian legal interest rate of 5 per
cent. (89) It then stressed, however, that such a rate would not remedy the damage
actually incurred. This was, in particular, due to the high inflation between the
cancellation of the project in 1978 and the award in 1992, which had caused a
considerable loss in relation to the purchasing power of the dollar:
The five percent rate of interest which the Tribunal has determined to be
applicable in this case does not fully compensate the Claimants for the losses
which they incurred as a consequence of being deprived of money owed them
between the time when the project was cancelled and the date of this Award.
The reason that the five percent rate does not make the Claimants whole is
that, since the project was cancelled in 1978, there has been a significant
devaluation of the US dollar. (90)
6.59 For this reason, the tribunal, relying on Aminoil v Kuwait, (91) decided to take
inflation into account separately. It took a 'deflation factor' from the statistics of the
International Monetary Fund on the basis of the US Consumer Price Index and adjusted
the various sums by this factor. (92)
6.60 The tribunal emphasized that this adjustment for inflation was only necessary for
legal interest, while a market-oriented interest rate would already have included
inflation. (93) It chose the rate of 5 per cent on the basis of Egyptian commercial law
(instead of 4 per cent according to civil law) because the affected investment was a
commercial enterprise. (94) In addition, it referred to the applicability of the Egyptian
limitations on interest according to which compound interest was not allowed and
214
interest must not exceed the principal. (95)
6.61 It is doubtful, whether national limitations with respect to the principal or regarding
compounding are in accordance with international law. If the time between the event
giving rise to the claim and the date of payment is very long, it is not evident why interest
P 343 should stop accruing as soon as it reaches the amount of the principal. The state in
default would gain an unwarranted advantage at the expense of the claimant which is not
provided for in the applicable international rules. The incentive to pay the amount
promptly would even diminish. The prohibition of compound interest, furthermore, would
be inconsistent with economic reality in which compound interest, as opposed to simple
interest, is the norm.
6.62 Other tribunals involving Egypt as respondent accordingly did not follow the
approach of the tribunal in Southern Pacific Properties v Egypt. The ICSID Tribunal in Wena
Hotels v Egypt disregarded Egyptian legal interest and applied market-related interest.
(96) It referred, in an endnote (97) to the interest rate government bonds in Egypt were
yielding and awarded interest at a rate of 9 per cent. In addition, interest was calculated
on a quarterly compounded basis which ultimately accounted for almost one and half
times the principal. The ICSID Tribunal in Middle East Cement v Egypt awarded 6 per cent,
also compound interest and without a limitation. (98) In Siag v Egypt, the ICSID Tribunal
chose the six-month LIBOR rate, as provided for in the applicable BIT for lawful
expropriations, compounded six-monthly, also without limitation as regards the amount
of the principal. (99)
6.63 There are, however, also cases where the tribunals applied national legal interest
rates. The ICSID Tribunal in Amco Asia v Indonesia, for example, referred to Indonesian
legal interest when it chose the rate of 6 per cent. (100) In addition, it noted that the
interest awarded 'should be considered as part of the compensation granted to the
Claimants, in order for the same to come as close as possible to the full compensation
prescribed by international law'. (101)
6.64 An example of a non-ICSID case relying on national legal interest rates is CME v Czech
Republic where the tribunal based its decision on interest on Czech civil law, (102)
reasoning that neither the applicable BIT nor customary international law provided for
an interest rate. (103) The Czech interest rate was determined as double the bank rate of
the Czech National Bank which corresponded to a rate of 10 per cent. The tribunal
considered this rate to be appropriate and sufficient also in relation to the requirements
of international law. On the other hand, this served as a reason for not allowing
P 345 compound interest:
[I]n accord with international law principles and international arbitration

practice, the tribunal does not award compound interest since the purpose of
compensation—to 'fully' compensate the damage sustained—in this case does
not require the awarding of compound interest, having regard to the generous
interest provision of the Czech Statute. (104)
6.65 Reference to national legal interest is not necessarily connected to a determined
rate of interest. In SOABI v Senegal, the ICSID Tribunal applied Senegalese law in
accordance with Article 42 of the ICSID Convention but only concluded from it that
interest would have to serve to fully repair the damage, setting the interest rate at 10 per
cent. (105)
6.66 Other tribunals pointed out that national rules on legal interest were not applicable
in cases of state responsibility. (106) The NAFTA Tribunal in Pope & Talbot v Canada
emphasized that it 'was not bound by domestic law', but referred to the legal rate of 5
per cent as a 'helpful benchmark for setting interest'. (107) The legal interest rate of the
host state can be regarded as helpful to establish that the interest rate chosen in the
award should not be lower than the host state's own legal interest rate. (108)
6.67 It can be concluded that in international investment disputes national legal interest
rates are generally not adequate. Usually, legal interest rates cannot fulfil the functions
interest claims have in this context. This is all the more true in case of fixed and not
market-related legal interest rates.
6.68 However, national legal interest rates can serve as a point of departure or reference.
They represent what a state recognizes as the legal minimum itself. Adjustments should
then make sure that the above-mentioned functions of interest can be fulfilled.
(b) Agreed Interest
6.69 Due to the principle of party autonomy in international arbitration an explicit
agreement of the parties on the question of interest plays an important role. The Iran–US
Claims Tribunal in Reynolds Tobacco v Iran even characterized the priority of party
agreement as a general principle of contract law and pointed out that '[u]nder generally
accepted principles of contract law, a contractually stipulated rate of interest is
normally binding upon the parties'. (109)
6.70 This party autonomy is only limited as regards disproportional and usurious interest.
The Iran–US Claims Tribunal, however, recognized a rather large margin of discretion in
this respect. In Anaconda v Iran, for example, the tribunal did not accept the submission
215
of the respondent that interest above 12 per cent would be exorbitant. (110) The agreed
interbank interest rate plus 2 percentage points, thus 13.16 per cent, was applied with
regard to unpaid bills as pre-award interest. (111) However, on the damage caused by
costs incurred after the termination of the contract, only 'reasonable interest' at a rate of
10.5 per cent was awarded. (112)
6.71 In Reynolds Tobacco v Iran agreed interest in the form of the LIBOR plus 2 percentage
points, thus 13.54 per cent interest, was awarded. (113) The Iran–US Claims Tribunal did
not even have a problem, in Reading & Bates Drilling Company v Iran, with granting
interest at 18 per cent per annum. (114) On the other hand, an agreement on
comparatively low 6 per cent interest was also accepted. (115) It can therefore be
concluded that the Iran–US Claims Tribunal generally accepted contractually agreed
interest for the calculation of pre-award interest, regardless of whether they were higher
or lower than those which would have been awarded without an agreement. (116)
6.72 Also ICSID tribunals widely respected contractual agreements on interest between
the parties. In Autopista Concesionada v Venezuela, the ICSID Tribunal applied the
interest rate contained in the contract on the construction and operation of a highway for
the purpose of deciding interest on losses incurred by the claimant after a justified
termination of the contract. The tribunal emphasized that the contract contained a clear-
cut rule to determine the interest rate and if the respondent wished to apply the legal
interest rate of 3 per cent per annum instead, it had to establish that Venezuelan law
prohibited the contractual rate. (117) The parties had agreed upon two alternative
methods, namely a 10 per cent flat rate or a 'bank rate' which was defined as interest
'calculated monthly at a rate equal to the average lending rate of the five (5) principal
banks in the country, in accordance with the latest classification issued by the Banco
P 347 Central de Venezuela'. (118) The tribunal applied the latter to pre-termination and
post-termination losses, but did not calculate the exact rates, referring only to the
methodology of their determination.
6.73 Such a calculation was made by the ICSID Tribunal in CDC v Seychelles which
awarded different interest on different loans by setting actual amounts per day: 'From
August 25, 2003 interest continues to accrue at the daily rates of £53.63 per day and
£557.37 per day on the 1990 Loan Agreement and Guarantee and the 1993 Loan Agreement
and Guarantee respectively, making a total of £611.00 per day'. (119)
6.74 Contractually agreed interest was even upheld when the dispute did not concern a
breach of contract but an interference with property rights by the state. (120) The ICSID
Tribunal in Fedax v Venezuela used the LIBOR at six months as contained in the
promissory notes at issue for the calculation of pre-award interest after a violation of the
BIT. (121)
6.75 In Pluspetrol v Perupetro, the rate agreed between the parties in the License
Agreement for the Exploitation of Hydrocarbons on late payments, namely the US prime
rate plus 3 percentage points, was also applied for setting the pre-award interest rate.
(122)
6.76 Tribunals have also applied interest rates which were submitted by respondents in
the course of the proceedings. Such submissions come close to an 'agreement' on
interest, as they imply the acknowledgement of the appropriateness of the respective
rate. In Benvenuti & Bonfant v Congo, the tribunal concluded that it was reasonable to
apply the interest rate submitted by the respondent also on the sum awarded against it:
The Tribunal observes, however, that the Government, in its Memorial in
Defence, suggested a rate of interest of 10% in connection with its
counterclaim. By virtue of its power to rule ex aequo et bono, the Tribunal
considers it equitable to adopt this rate … (123)
6.77 Similarly, the Iran–US Claims Tribunal awarded interest against Iran or Iranian
respondents, because they frequently also requested interest in their submissions
despite the prohibition of interest in Islamic law. (124)
(c) Borrowing Rate
6.78 The damage incurred by the claimant through the delay can be represented by the
costs of a loan. If the injured party does not dispose of sufficient financial means, it must
either charge its account or take out a loan. Many enterprises make use of debt capital to
finance their business. Even if there is enough equity capital, this does not mean that
there is always enough liquidity. The capital could be bound up in real estate, machinery,
and equipment, which means that current payments must be financed by debt.
6.79 In this sense, Arbitrator Holtzmann argued in favour of borrowing interest as an
appropriate reference in his Separate Opinion in Sylvana Technical Systems v Iran. (125)
He pointed out that it 'is reasonable to assume that most businesses habitually borrow
while fewer regularly invest in certificates of deposit'. (126)
6.80 The borrowing rate of the claimant as the reference rate for pre-award interest is
also reflected in international codifications of contract law. The Principles of European
Contract Law refer to an average interest rate for short-term loans in the currency as
agreed in the contract for prime borrowers at the agreed place of payment:
216
If payment of a sum of money is delayed, the aggrieved party is entitled to
interest on that sum from the time when payment is due to the time of
payment at the average commercial bank short-term lending rate to prime
borrowers prevailing for the contractual currency of payment at the place
where payment is due. (127)
6.81 Similarly, Article 7.4.9(2) of the UNIDROIT Principles on International Commercial
Contracts provides:
The rate of interest shall be the average bank short-term lending rate to prime
borrowers prevailing for the currency of payment at the place for payment, or
where no such rate exists at that place, then the same rate in the State of the
currency of payment. In the absence of such a rate at either place the rate of
interest shall be the appropriate rate fixed by the law of the State of the
currency of payment. (128)
6.82 The decisive interest rate referred to, in this context, is the so-called prime rate.
However, other borrowing rates could also be considered. The different possibilities shall
briefly be examined in the following.
6.83 (i) Prime Rate The prime rate represents the interest rate that commercial banks
charge their most creditworthy borrowers, such as large corporations. (129) This means
P 348 that the banks have a very minor risk. Only a few businesses qualify for the prime rate.
However, it is the basis and point of departure for negotiations about other loans so that
it is also called the 'base rate'.
6.84 In the United States, the base rate refers to the Federal Funds Rate of the American
Federal Reserve System and usually lies at 3 percentage points above it. (130) It is
relatively similar in all of the larger banks and used as the base lending rate to which a
margin is added based primarily on the amount of risk associated with a loan. The US
prime rate is currently 3.5 per cent (November 2016). (131) This is relatively low compared
to some years ago, when it was 7.75 per cent (September 2007) or 8.25 per cent (June
2006). (132)
6.85 Arbitrator Holtzmann in Sylvana Technical Systems v Iran advocated the prime rate
as a representative rate because the differences in rates actually charged would not be
very big in practice. He pointed out that 'although the prime rate is not applicable to all
businesses, it is generally representative because the difference between it and other
lending rates is relatively small'. (133) An additional advantage would be that the prime
rate, as opposed to other indexed interest rates, would not fluctuate strongly. (134)
6.86 The prime rate may also be agreed upon in international contracts. This was, for
example, the case in Anaconda-Iran v Iran, increased by two percentage points, (135)
reflecting the fact that not all businesses actually receive loans under prime rate
conditions.
6.87 The Iran–US Claims Tribunal usually referred to the US prime rate. The use of the
prime rate of the investor's home state presumes that the investor would have taken out
a loan in its home state in order to bridge the gap caused by the delay in payment.
6.88 The prime rate in the currency of the country of the business can also be used. This
was, for example, the case in S D Myers v Canada. The tribunal was of the opinion that the
borrowing rate of the investor should be decisive, yet not in his home state, but rather in
the host state, Canada, because the Canadian dollar had been the currency of account.
P 349 (136) The standard Canadian prime rate was accordingly taken as the reference rate,
increased by one percentage point. (137) This reflected the fact that the prime rate only
represented the minimum interest rate for businesses available only to the most solvent
clients but not to all businesses. (138)
6.89 Two percentage point were added to the US prime rate in Teco v Guatemala, (139)
while in Pluspetrol v Perupetro it was three percentage points. (140) In Mobil Cerro Negro v
Venezuela, (141) Chevron v Ecuador, (142) Mobil Cerro Negro v PDVSA, (143) and Cargill v
Mexico, (144) no premium was added to the US or New York prime rate.
6.90 The 'prime' or 'base' rate plays an important role in negotiations about company
loan conditions in Anglo-American countries. As such, it seems to be an appropriate basis
for the assessment of the damages incurred by delayed payment. However, it must be
taken into account that not all enterprises can borrow money from the banks at the prime
rate so that an increase by a few percentage points might be necessary. The question
then arises, how many percentage points are appropriate. The practice of tribunals is not
entirely consistent, but the variations remain rather limited. In addition, the prime rate
as such fluctuates less than other commercial benchmarks, for example, the LIBOR. These
advantages add to the conceptual logic of the application of the prime rate as a proxy for
the borrowing rate of the investor.
6.91 (ii) Borrowing Rate of the Investor While the prime rate represents an approximation
of the investor's borrowing rate, one could also think of applying the actual borrowing
rate of the investor. As a matter of principle, this could be an appropriate way of
remedying the concrete loss incurred by the delay because he or she must finance the
funds in the meantime.
217
6.92 It appears, however, very difficult to identify the borrowing rate of the investor.
Sénéchal has summarized the difficulties in the following way:
The 'total debt' ratio of a firm is defined as the ratio of short-term and long-
term debt, finance leases and preferred stock to the value of the firm (Market
capitalization plus book value of debt). In other words, the cost of debt is
P 350 equivalent to the risk-free rate plus a margin that reflects the credit and
market risk of the debt issued by a company. This market risk of debt is often
difficult to estimate and depends on many assumptions and variables that
could lead to arbitrary results. Second, there is no international standard to
arrive at a precise figure for the cost of borrowing. (145)
6.93 It is possible to estimate the cost of borrowing, for example, by averaging the
different interest margins over the risk-free rate over the years or by assuming an average
debt profile for the company under review. (146) One could also try to obtain the ratio of
finance charges over the debt for similar firms over a period of time and take a weighted
average. (147) These methods, however, depend on many assumptions and variables and
on the exercise of judgement. In order to avoid an arbitrary result the tribunal must
become truly acquainted with the internal structures, the risk profile, and finance
practices of the company.
6.94 An estimation of the borrowing rate of the investor may be arrived at by using
interbank rates and adding additional percentage points. The tribunal in National Grid v
Argentina found it appropriate and realistic to assume that the claimant would have
applied the sums received either to eliminate existing debts or avoid incurring
additional debt. (148) It decided therefore that the appropriate interest rate should be
an average interest rate which the claimant would have paid to borrow. As regards the
uncertainty of that rate, the tribunal held:
In the absence of Claimant's borrowing rate in the record, the Tribunal will
utilize a widely recognized conservative measure, which has been adopted in
the awards of previous international arbitration tribunals, namely LIBOR plus
2%. (149)
6.95 The tribunal in Tidewater v Venezuela was more straightforward in applying the
claimants borrowing rate. (150) It noted that the claimants' expert had pointed out that
the parent company of the claimants was able to borrow at rates between 4.35 per cent
and 4.47 per cent during the period in question. The tribunal thus considered 'that an
interest rate of 4.5% most closely meets the standard agreed between Venezuela and
Barbados in Article 5 of the BIT'. (151) In support of that rate, the tribunal pointed out that
the claimants had proposed in the alternative either the US prime rate plus 2 percentage
point or the LIBOR plus four percentage points. In each case, these both averaged 5.2 per
cent.
6.96 The actual borrowing rate of the investor could be an adequate means of
compensating the loss incurred over a certain period of time assuming that investors
P 351 usually borrow money to finance their activities. However, arbitral practice is rather
reluctant to apply this rate. If there is sufficient evidence that an investor had to take out
a loan to bridge the lack of financial resources the chances should increase. Interbank
rates have been used as an approximation, but tribunals have often not been clear
whether this choice was justified by an estimation of the borrowing rate of the investor or
as an 'investment alternative'. (152)
6.97 (iii) Cost of Capital of the Investor Another approach could be to refer to the cost of
capital of the investor. The cost of capital is an 'opportunity cost', that is the expected
rate of return that investors would have to give up by investing in the subject investment
instead of investing in available alternative investments that are comparable in terms of
risk and other investment characteristics. (153) In order to establish a company's cost of
capital a number of factors have to be considered, such as the level of risk-free interest
rates, the equity risk premium, and the risk inherent in the anticipated benefit stream.
(154)
6.98 As the cost of capital is a measure used for discounting investment cash flows on
specific projects and for pricing of products, it depends on a number of assumptions. It
has to be borne in mind that the level of political, economic, and business risks to be
undertaken by an individual investor is a matter of preference. (155)
6.99 One possibility to eliminate the subjective preferences is to refer to the Weighted
Average Cost of Capital (WACC) of the investment as a measure of pre-award interest.
Under the underlying Capital Asset Pricing Model (CAPM) the risk premium portion of the
expected return on a security is a function of that security's systematic risk. (156) The
systematic risk of a particular investment is measured by its beta. (157) The idea behind
using the investment's WACC as the pre-award interest rate is that the investor could put
his money in an investment of similar qualities during the time of the delayed payment.
6.100 It depends on the information available in a given investment dispute whether the
cost of capital or the WACC can be identified in a plausible way. As the function of
P 352 interest is to make good the damage caused by delayed payment, the cost of capital
approach is not excluded as a matter of principle. Gotanda and Sénéchal noted,
218
however, that applying the cost of capital as the pre-award interest rate can easily lead
to a 'battle of experts'. (158) Abdala, López Zaidcoff, and Spiller submit in this respect
that much of the necessary information will already be used for the quantification of the
principal, in particular when a DCF valuation method is applied, so that the challenges
involved are not insurmountable. They argue that the cost of capital is the most
appropriate pre-award interest rate. Its application would help to avoid
undercompensation by 'invalid round trips'—using a high rate for discounting future cash
flows and a low pre-award interest rate up to the date of the award. (159)
6.101 Smith and Vikis argue that the cost of capital should be applied for setting the pre-
award interest rate when compensation is determined on a 'backward basis' which
involves looking back in time to assess the sunk investment costs as a reliance loss. (160)
In these circumstances the tribunal could maximize certainty of full reparation by
winding the clock back to the time the capital was supplied. Dolgoff and Duarte-Silva, by
contrast, express doubts against the appropriateness of the cost of capital as the pre-
award interest rate, most importantly because the cost of capital represents an ex ante
expectation involving certain risks, while pre-award interest is an ex post calculation of
compensation only requiring time-value adjustments to an awarded damages amount
known with certainty. (161)
6.102 Arbitral practice has discussed the use of the cost of capital for determining the
interest rate several times. Claimants in the ISCID case PSEG v Turkey submitted the
WACC for determining pre-award interest relating to expenses made before and after the
wrongful act by the respondent state. (162) The estimated rate was 12 per cent 'based on
the opportunity cost to the Project Company at that particular point in time and the
length of time since the investment was made until the date of expropriation'. (163) This
approach should thus put the investors back in the position they would be in, if they had
never made the investment and would have invested in another project. The tribunal's
assessment of the principal was based only on historical costs rejecting any damages for
lost prospects. Nevertheless, the tribunal was not persuaded by the claimants' argument
that the cost of capital offered an appropriate basis for the interest rate:
As noted above, the cost of equity is based on subjective determinations by
the investors. For this reason it does not offer a useful basis for calculating
P 353 interest that aims at the protection of the value of funds spent rather than
the value of expropriated assets, which was in the first place the assumption
behind the Claimant's choice. (164)
6.103 The ICSID Tribunal in EDF, SAUR and León v Argentina rejected the WACC because
'[n]o evidence has been presented that Claimants could or would have earned the high-
risk WACC rate'. (165) Instead it applied the risk-free rate for the ten-year US Treasury
bonds.
6.104 In Swisslion v Macedonia, another ICSID Tribunal rejected the claimant's submission
to calculate pre-award interest on the basis of its WACC. (166) It explained rather
cursorily that the claimant had 'requested an award of interest that would accrue at the
rate of its WAAC, specified at 13.3%. The Tribunal did not accept the expropriation claim
and considers that an interest award based on the claimant's WAAC is not appropriate.'
(167) The tribunal applied instead the LIBOR rate provided for in the BIT for
compensation upon expropriation. (168)
6.105 The ICSID Tribunal in TECO v Guatemala also rejected the claimant's proposal to use
the WACC for setting pre-award interest. The claimant had suffered damage by the
unilateral setting of tariffs for the electricity distribution by the Guatemalan electric
power agency (CNEE). (169) The tribunal determined that the damage consisted in the lost
cash flows from 2008 until October 2010, when the claimant sold its stakes in the
respective Guatemalan electricity company to a Colombian company. The claimant
asked for an interest rate of 8.8 per cent based on the electricity company's WACC in
October 2010. (170) The tribunal found that applying the WACC of the company post-
October 2010 would not make sense, because the claimant had sold its interest in the
Guatemalan company and ceased to assume its operating risks. (171) It agreed with the
respondent that a risk-free rate should be applied and chose the US prime rate plus a 2
per cent premium. (172)
6.106 The ICC Tribunal in ConocoPhillips v PDVSA is a notable example which applied the
WACC as rate for pre-award interest. (173) The tribunal found the respondent liable for
P 354 damages caused by curtailments in production of petroleum imposed by the
Government of Venezuela and by the implementation of certain OPEC decisions, which
should have been mitigated by contractual arrangements and guarantees. (174)
Claimants' expert chose to apply a rate of 10.55 per cent corresponding to the equity cost
of the relevant funds. He relied on the CAPM and used data from US capital markets. (175)
The tribunal found the approach convincing and noted:
In the present case, Claimant 2 is supplier of capital for a project from which it
expected to receive certain cash flow, from which it also expected to obtain a
rate of return. Under such circumstances, the interest rate to be applied
should measure the opportunity cost of capital, i.e. the cash flows Claimant 2
was deprived of as a result of Respondent's contractual breach which, had
219
they been timely received by Claimant 2, it would have had the opportunity to
apply them to the Project or some alternative productive use. On the contrary,
the principle of full compensation would not be satisfied. (176)
6.107 The tribunal pointed out that relying on the cost of equity as well as on the DCF
method and the CAPM methods was a widely recognized method of determining the
opportunity cost of the lost cash flows or incomes. (177) It emphasized that the LIBOR rate
proposed by the respondent, which was contained in an association agreement between
the parties, was not directly applicable to the present dispute and that the respondent
had not challenged or otherwise provided alternatives to the calculation of the 10.55 per
cent interest rate or the mathematics of such calculation. For that reason, the majority of
the tribunal did not see a reason to deviate from the calculation provided by the
claimant's expert. (178)
6.108 While in principle the application of the cost of capital appears to be economically
consistent, tribunals are generally still reluctant to accept it as a basis for pre-award
interest. The perception seems to prevail that the cost of capital would only represent
the investor's expectations whose business plans and forecasts may be too optimistic.
These doubts could be countered by corroborating the investor's expectations by other
data, such as historic returns or third party data on the cost of equity in the host country.
(179) However, tribunals still tend to prefer rates of risk-free investment alternatives or
borrowing rates.
6.109 (iv) Borrowing Rate of the State Late payment of compensation or damages by
states can also be regarded as a loan granted by the investor. This approach is referred
P 355 to in economic and legal literature as the 'coerced loan theory'. (180) According to this
approach, the pre-award interest rate should correspond to the short-term borrowing
rate of the respondent. (181)
6.110 It follows that the amount of interest has nothing to do with the claimant's actual
loss, but rather depends on the respondent's risk characteristics. (182) It measures the
financial effect of the delay from the perspective of the respondent. The borrowing rate
of the respondent as a reflection of a 'coerced loan' has several times been argued by
claimants, but rarely been applied by tribunals. (183)
6.111 The perspective of the respondent is important when it comes to the prevention of
enrichment which is an additional function of the interest claim. While this is only of
secondary importance concerning pre-award interest, it becomes more relevant with
regard to post-award interest. The 'default risk' of the respondent is mirrored in its
borrowing rate. (184) The 'coerced loan theory' would thus better fit to the determination
of post-award interest.
6.112 (v) Average Borrowing Rate In Europe, the 'best' borrowing rate for businesses as an
equivalent to the Anglo-American prime rate has not played an important role, while the
determination of an 'average' borrowing rate has been impeded by the lack of published
data. The need for more transparency in business loans was addressed in the 'European
Union by Council Regulation (EG) No 2533/98 of 23 November 1998 concerning the
collection of statistical information by the European Central Bank'. (185) This Regulation
determined that data on business loans in all member states should be collected and
published. The European Central Bank then issued further Regulations which defined the
data to be submitted more precisely (186) .
6.113 Recent data show that the average borrowing rate for business corporations in the
P 356 Euro area ranged between 1.28 per cent to 2.65 per cent. (187) Such low borrowing rates
are a relatively new phenomenon. They hardly cover inflation. It may therefore be
questioned whether their application will appropriately reflect the time value of money.
Nevertheless, they represent a 'market-related interest' as it is generally required in case
of expropriation compensation. In damages cases it can serve as a point of departure for
the calculation of the damage actually incurred by the delay in payment.
6.114 Since the average borrowing rate for businesses is not derived from a small number
of privileged business loans, as opposed to the prime rate, an increase of the interest
rate would not be necessary as a matter of principle. The obvious disadvantage is that
data about business interest rates are only collected and published systematically in the
EU and not at the international level.
(d) Investment Alternatives
6.115 According to the approach formulated in Sylvana Technical Systems v Iran, the rate
of pre-award interest should be based on interest the investor could have earned if it
had been paid in time and thus had funds available for an alternative investment. (188)
The crucial question is which investments represent an adequate alternative for the
investor. Interest potentially earned on investment alternatives depends on many
factors, most importantly the risk connected to the investment, its maturity, and the
currency of the investment. It needs to be established what he or she would have done
with the money, if the respondent had paid in due time.
6.116 Frequently it is argued that low-risk or risk-free investment alternatives should be
used as a point of reference. This would serve the principles of fairness and transparency
as well as the foreseeability of the decision. Gotanda proposed 'a certificate of deposit,
220
money market account or commercial savings account. It should be accessible to the
average entity in the claimant's position, and generally availed of by similarly situated
entities.' (189) A choice of such securities would 'serve the need for consistency and
predictability, while eliminating the use of rates that would involve more risk or less
liquidity than normally encountered by prudent investors'. (190)
6.117 On this basis, Gotanda formulated the following proposal for the calculation of
P 357 interest to be included in the Model Law on International Commercial Arbitration of
the United Nations Commission on International Trade Law (UNCITRAL):
The parties are free to agree on the payment of compensatory interest or the
rules of law applicable to a claim for such interest. Failing any such
designation by the parties, the arbitral tribunal shall presume that any award
of monetary damages shall include interest from the date of default to the
date when the award is paid in full …
The arbitral tribunal shall presume that interest accrues at a rate
corresponding to that of a savings vehicle commonly used in the country of the
currency in which payment is to be made and is to be compounded quarterly.
(191)
6.118 However, this proposal has not been put into practice. (192) In a later article,
Gotanda, together with Sénéchal, developed a new proposal for the selection of an
interest rate, namely using a risk-free rate (e.g. government bonds) plus a market-risk
premium (as measured by an historical average of the excess of the market return over
the risk-free rate). (193) The rationale for using this approach, equivalent to using a
market rate of return, is based on the assumption that businesses will generally tend to
demand an extra pay-off above the risk-free rate for investing in an asset with some level
of risk. (194) The determination of the risk premium is explained as follows:
[T]he expected market risk premium is the difference between the risk-free
rate and the market-risk (Rm-Rf). The extreme volatility of the stock and bond
markets makes a long measurement period essential. Therefore, this risk
premium must be a historical average of the excess of the market return over
the risk-free rate. Information on market risk is easily available. For instance,
the London Business School has determined the risk premia in the U.S. for the
period 1900–2001 was 5.6% (geometric mean of risk premia relative to Bills)
and the prospective risk premia for U.S. to be 5.3%. (195)
6.119 The calculation of such a market rate of return is quite easy as market rates of
return are readily available from financial market public information on a regular basis.
(196)
6.120 So far, international jurisprudence has been inconsistent in the selection of
investment vehicles as references for the applicable interest rate. The arbitral tribunal in
Sylvana Technical Systems v Iran proposed criteria which should lead to more coherence
and suggested the six-month certificates of deposit in the United States as an
P 358 appropriate point of reference. (197) The tribunal pointed out that these almost risk-
free fixed-interest securities with a maturity of six months would be available to all
interested persons:
[I]t is desirable to have uniformity of treatment of a large number of parties in
many cases, and therefore, a rate of interest based on return on investment
during the relevant period is more appropriate. Uniformity can be
accomplished by basing interest in Awards on the rate of return on certificates
of deposit, which are available to all investors at substantially the same rates.
(198)
6.121 On this basis, the tribunal ultimately awarded interest at 12 per cent. (199) A number
of awards of the Iran–US Claims Tribunal followed these considerations and determined
interest accordingly. (200) Interest on this investment vehicle, however, would today only
yield 0.6 per cent (end of 2016), (201) and not 12.12 per cent as at the time of Sylvana
Technical Systems v Iran. (202)
6.122 In ICSID arbitrations, US six-month certificates of deposit (203) and US Treasury Bills
(204) have been referred to relatively frequently. They were considered to be 'an
appropriate investment alternative' (205) and 'reasonable and fair'. (206) The tribunal in
Occidental v Ecuador noted that the claimants had requested the US Government
Treasury Bill rate which reflected a 'prudent, risk-free and conservative re-investment
practice'. (207) However, it is doubtful that a reasonable investment alternative for a
foreign investor is indeed a risk-free financial instrument denominated in US dollars, in
particular in times when the Federal Reserve decides to keep reference interest rates
very low.
6.123 The tribunal in Yukos v Russia, after considering with great diligence various options
put forward by the claimants (208) and in academic writing, (209) found the investment
P 359 alternative approach more convincing than other approaches. It noted that several
tribunals had adopted the investment alternative approach using US debt instruments
221
even when the claimant was not a US investor. (210) It concluded that, 'in the exercise of
its discretion', pre-award interest should be awarded on a rate based on ten-year US
Treasury bond rates, which was 3.389 per cent. (211)
6.124 Other tribunals have chosen government bonds of the host state as a reference for
the 'investment alternative' of the claimant. The tribunal in Wena Hotels v Egypt, for
example, referred to government bonds of the host state. It chose an interest rate of 9 per
cent and added in a footnote that '[g]overnment bonds in Egypt are currently yielding
10% …'. (212) A further explanation about the choice of this rate was not given. One
interpretation could be that the tribunal assumed that the investor, if he had the money
at his disposal, would have invested in Egyptian government bonds. The ad hoc
committee, in the subsequent annulment proceedings, confirmed this decision as one of
a number of possibilities available to the tribunal within its discretion. (213)
6.125 In Feldman v Mexico, the tribunal also focused on lost interest on investment in the
respondent state. The claimant had been discriminated against with regard to tax
refunds in violation of NAFTA Article 1102. The tribunal awarded interest on the non-
refunded amounts at a rate 'in accordance with the interest rate paid on Federal
Treasury Certificates or bonds issued by the Mexican Government, with a maturity of 28
days …'. (214)
6.126 The tribunal in Quasar des Valores v Russia based the rate of pre-award interest on
the 'Russian sovereign medium-term dealt in US Dollars [which] had a yield of 6.434%'.
(215) The tribunal noted that the proper measure of interest would be to put claimants
into the position they would have been in if there had been compliance with the BIT. The
claimant had submitted the respective rate which had not been questioned by the
respondent. (216)
6.127 It can be concluded that different investment alternatives have been used as a
point of reference for choosing an appropriate rate for pre-award interest in investment
arbitration. For the selection of the alternative investment it should be recognized that a
P 360 reasonable investor would normally not only invest in risk-free securities but would
accept a certain risk in return for a higher interest rate. The approach developed by
Gotanda and Sénéchal, namely to choose a risk-free rate plus the market-risk premium,
could serve as a solution, but is not yet widely reflected in arbitral practice. One
example is the ICSID case Alpha Projektholding v Ukraine. (217) The claimant proposed the
twelve-month LIBOR rate, compounded annually, but the tribunal found 'that a more
appropriate rate is the risk-free rate plus the market risk premium'. (218) The risk-free
rate was the rate for ten-year US treasury bonds, given that the ten-year maturity most
closely matches the duration of the cash flows. (219) This rate plus the market risk
premium was, according to the claimant's expert, 9.11 per cent in total. The tribunal
believed that 'this rate better reflects the opportunity cost associated with Claimant's
losses, adjusted for the risks of investing in Ukraine'. (220) It remains to be seen whether
other tribunals will follow this approach, in particular in times of very low interest rates
on risk-free securities. It will remain a challenge to tribunals to choose an investment
alternative that can be assumed to be appropriate and reasonable.
(e) Government Bonds
6.128 States may issue bonds in order to finance their national budget deficit. If they are
in financial trouble or in urgent need of capital they usually offer high interest rates,
while government bonds in stable national economies generally yield relatively low
interest.
6.129 Usually, there is also an important secondary market for bonds. They can be bought
and sold after the date of issuance. They then have a remaining time to maturity and a
market value which may differ from the face value. The nominal interest rate remains the
same. The relation between the market value and the nominal interest rate indicates the
actual interest rate. The actual revenue from interest on government bonds, therefore,
varies depending on the date of assessment.
6.130 The role of government bonds as a reference for the determination of interest rates
in international arbitration was particularly interesting in CSOB v Slovak Republic. (221)
The claimant had submitted that it could have invested the money in Slovak government
bonds. (222) The tribunal, however, pointed out that the rate of up to 42.53 per cent was
connected to the high inflation at the time and the relatively high risk. Specific evidence
would have been needed to prove that the claimant would have invested the money in
P 361 this manner:
However, it has not been proven that CSOB would have invested the whole
amount from the SI loan in Slovak Government Bonds, e.g. in 1996, when the
interest rate was at 42,53%, probably reflecting not only a high inflation of the
SKK, but also higher risk of default. (223)
The tribunal, consequently, did not accept the Slovak government bonds as a basis for
deciding the interest claim.
6.131 On the other hand, the ICSID Tribunal in Wena Hotels v Egypt, in its decision on
interest, referred to Egyptian government bonds without asking for specific evidence.
222
(224) The consideration of 'government bonds in Egypt' could be interpreted as an
assumption that the investor would have invested the money in those Egyptian bonds
during the time of the temporary withholding of money. (225) Another explanation could
be that the state possessed money which it was no longer entitled to so that it was
unjustifiably enriched. The amount of enrichment consisted in the amount of
compensation plus interest the state would have otherwise been obliged to pay for
government bonds.
6.132 The savings on the interest payment can therefore be interpreted as a charge for a
loan that the investor unwillingly grants the state. Interest on such a 'coerced loan' helps
to avoid a situation where the withholding of money is more advantageous for the state
than prompt payment. (226) These considerations were decisive in the Wimbledon case
when the interest rate of 6 per cent with reference to the 'public loans' was chosen by the
PCIJ. (227)
6.133 In Tenaris v Venezuela the government bond rate chosen by the tribunal as reference
for determining pre-award interest was 9 per cent. (228) The tribunal found that a
borrowing rate would be appropriate to reflect the costs to the claimants to borrow (i.e.,
replace) the amounts expropriated. The claimants had put forward that the interest rate
should be equivalent 'to the rate Venezuela would have had to pay to borrow money in
April 2008 (9.75%)'. (229) The respondent had argued for a combination of a 4 per cent 'no
risk rate' with a country risk premium of 4.6 per cent which would yield 8.6 per cent
'borrowing rate'. The tribunal compared the two borrowing rates submitted by the parties
and found that 9 per cent was a reasonable and fair rate for pre-award interest. (230)
6.134 To consider the interest rate of the host state's government bonds represents the
possibility of preventing the state's enrichment in an economically adequate manner. It
P 362 also creates an incentive for the state to pay promptly. This double effect can be
achieved if the bonds of the respondent state and not those of the home state of the
investor or of any other state are taken as a reference.
6.135 Interest on government bonds of the United States or other home states of investors
are not ideal for representing borrowing costs. Through comparatively low interest rates
in stable economies with low inflation, the problem of unjustified enrichment of the
respondent is not appropriately addressed. In addition, interest on risk-free government
bonds does not adequately account for the damage actually incurred by the claimant. It
assumes that the investor would have used the amount of damages, if it had received it
on time, for investing in such risk-free securities. This is not a realistic but for scenario to
be applied in the calculation of damages.
6.136 Nevertheless, US treasury bonds represent a low risk rate which is frequently
applied by arbitral tribunals. (231) Similarly, US certificates of deposit, usually at a
maturity of six months, are often preferred to higher risk rates. (232)
(f) Interbank Interest
6.137 International contracts and international tribunal awards increasingly refer to so-
called interbank interest rates. The most significant interbank rates are the LIBOR
(London Interbank Offered Rate) and the EURIBOR (European Interbank Offered Rate).
National interbank rates are less important, but also sometimes referred to in
international investment arbitration depending on the specific legal framework. (233)
Interbank interest rates represent an important benchmark for interest rates for short-
term loans and interest on deposits. Usually, interest rates for loans bear a surcharge on
the interbank interest rate which depends on various criteria such as the
creditworthiness of the client and the period of the loan.
6.138 International business relations and financial transactions rely to a large extent on
the London LIBOR. It represents the interest rate at which banks offer to lend funds
(wholesale money) to one another in the international interbank market. (234) LIBOR is an
average interest rate at which so-called 'panel banks' lend funds to one another. The
selection of the 'panel banks' is made every year by the ICE Benchmark Administration
P 363 (IBA) with assistance from the Foreign Exchange and Money Markets Committee
(FX&MMC). (235) The LIBOR is rated in five currencies and for seven maturities. (236) The
following table provides a brief overview of the trend of the US$ LIBOR and the Euro
LIBOR in the past years:
LIBOR (US$)(237)
2000 2005 2008 2009 2010 2012 2014 2016
6 months 6.696% 3.775% 3.060% 1.100% 0.519% 0.687% 0.329% 0.929%
1 year 6.866% 4.033% 3.089% 1.559% 0.923% 1.013% 0.561% 1.251%
LIBOR (Euro)(238)
2000 2005 2008 2009 2010 2012 2014 2016
6 months 4.563% 2.234% 4.724% 1.421% 1.040% 0.755% 0.270% -
0.148%
223
2000 2005 2008 2009 2010 2012 2014 2016
1 year 4.799% 2.332% 4.822% 1.604% 1.327% 1.072% 0.434% -
0.027%
While in 2000, the six-month LIBOR for the US dollar was at 6.7 per cent, in 2005 it fell to
3.8 per cent, arriving at the lowest rate at 0.3 per cent in 2014 and slightly recovering in
2016. The six-month LIBOR for the Euro was not always lower, as can be seen for example
in 2008, but beginning of 2016 it was even negative, namely, 0.148 per cent for six months
and -0.027 per cent for one-year maturity. (239) This shows that the choice of the currency
and the maturity play an important role. (240)
6.138a In Europe, the EURIBOR assumes an important role as a benchmark for interest
rates of loans and securities. It is the rate at which Euro interbank term deposits are
offered by one prime bank to another prime bank within the European Monetary Union
P 364 (EMU) zone. (241) The banks quoting for EURIBOR have been selected to ensure that the
diversity of the Euro money market is adequately reflected. Since its first publication in
1998, the EURIBOR has gained growing importance, being used as a reference in a wide
range of financial instruments, including loans to SMEs and households. (242) It is also
quoted in different maturities from overnight to twelve months. Similarly to the LIBOR, it
has also experienced a considerable fluctuation and a decrease in recent years. The six-
month EURIBOR stood at 3.5 per cent in 2000, rose in 2008 to 4.7 per cent, but fell in 2010
to less than 1 per cent and since then decreased until the beginning of 2016 to as low as -
0.061 per cent for six months' maturity and 0.042 per cent for one year. (243)
EURIBOR(244)
2000 2005 2008 2009 2010 2012 2014 2016
6 months 3.523% 2.210% 4.708% 2.945% 0.996% 1.606% 0.387% -
0.061%
1 year 3.885% 2.351% 4.733% 3.025% 1.251% 1.937% 0.555% 0.042%
6.139 In the present context, two qualities of interbank interest rates are of particular
significance: first, they are market-oriented because they reflect actual economic
realities on the financial markets. Second, they can be regarded as 'objective' because
they reflect neither the perspective of the claimant nor that of the respondent in a given
international investment dispute. They are derived from interbank transactions and used
as a benchmark for negotiations on interest on loans or investments.
6.140 These qualities predestine interbank interest rates to application in international
expropriation cases. According to international law, interest on compensation for
expropriation should be market-oriented and appropriate. Because in the case of a
lawful expropriation neither the actual loss of the affected person nor the concrete
enrichment of the state is determinative, such an intermediate referential interest rate
appears to be most appropriate.
6.141 Several BITs contain explicit reference to the LIBOR with respect to the interest
payable upon compensation in case of expropriation. For example, the BIT between Italy
and Egypt provides in its Article 5, subclause (iv), that 'compensation shall include
interest at the current six month LIBOR rate of interest from the date of nationalisation or
expropriation until the date of payment'. (245) The ICSID tribunal in Siag v Egypt applied
P 365 the LIBOR rate, even though the expropriation was unlawful and other BIT violations
had been committed, but it found that 'there is no reason not to hold that they are
similarly adequate to compensate in case of delayed payment of compensation for an
unlawful expropriation'. (246) It ordered 'that interest should be paid on all sums of
damages awarded hereunder, at the six month LIBOR rates applicable from time to time
since 23 May 1996 through until the date of payment, with such interest being
compounded six-monthly'. (247)
6.142 The BIT between Macedonia and Switzerland also refers to the LIBOR rate in its
provision on compensation upon expropriation. (248) The tribunal in Swisslion v
Macedonia applied this rate, even though it had rejected the expropriation claim.
However, it found that '[the] only provision of the Treaty that makes any reference to a
rate of interest is, of course, Article 5, which deals with expropriation. Under that
provision, interest is to be calculated on the annual LIBOR basis.' (249)
6.143 In Lemire v Ukraine the applicable BIT between the United States and Ukraine
provided in its Article III that compensation upon expropriation should 'include interest
at a commercially reasonable rate, such as LIBOR plus an appropriate margin, from the
date of expropriation'. (250) The tribunal found that '[a]lthough the rule refers to
expropriation, it can be extended without difficulty to compensation for violations of
other provisions of the BIT'. (251) While there was agreement between the parties on the
generic use of LIBOR as a reference rate, they disagreed on the margin which should be
used to increase it. (252) While the claimant proposed 2 per cent 'to keep in line with the
practice of ICSID Arbitral Tribunals', (253) the respondent pointed out that there was no
justification for the application of a rate of LIBOR plus 2. (254) The tribunal agreed with
the claimant and noted that 2 per cent was a 'reasonable margin, which reflects the
surcharge which an average borrower would have to pay for obtaining financing based on
224
LIBOR'. (255) The tribunal was thus of the opinion that the function of interest in the case
at hand was to compensate the claimant for actual or potential borrowing costs. It
explained this in more detail as follows:
As regards the addition of a margin to the LIBOR reference rate, the Tribunal
sides with Claimant. LIBOR reflects the interest at which banks lend to each
P 366 other money. Loans to customers invariably include a surcharge, and this
surcharge must be inserted in the calculation of interest to reflect the
financial loss caused to Claimant by the temporary withholding of money. A
claimant to whom money is awarded would not be fully compensated, if the
interest rate applied did not include an appropriate margin. This is
acknowledged by Article III.1 of the BIT, which expressly provides that the
LIBOR rate should be increased by 'an appropriate margin'. (256)
6.144 It follows from the above that interbank interest rates can not only serve a useful
purpose in the context of expropriations, also in damages cases. As here the financial loss
actually incurred is determinative, the interbank interest rate in its 'generic' form would
not be sufficient. As it is usual practice to add a surcharge on the interbank rates for
commercial loans to customers, this should also be done with regard to the interest on an
amount of damages. This could adequately reflect the financial loss of the claimant
caused by the temporary withholding of money. It assumes that in the meantime the
claimant must take out a loan to bridge the gap. The amount of the surcharge should be
determined by reference to surcharges actually demanded for business loans. A margin
of 2 percentage points appears relatively widely accepted, but also surcharges of 4
percentage points or only 1 percentage point are used in international investment
arbitrations.
6.145 The tribunal in Biloune v Ghana was one of the first to choose the six-month LIBOR
to remedy the financial loss of the claimant caused by the lapse of time. It calculated the
average of the respective LIBOR between the unlawful expropriation and the time of the
award. (257) The result was an interest rate of 8.5412 per cent. In this case, no surcharge
was added. The corresponding amount was computed and added to the principal sum.
(258) The rate of post-award interest was also decided by reference to the six-month
LIBOR at the rate applicable at the date of the award.
6.146 In Maffezini v Spain the amount of 30 million pesetas had been unlawfully
transferred from a time-deposit account. It is noteworthy that the tribunal did not focus
on the concrete interest which the claimant could have earned on that specific account
but chose the twelve-month LIBOR for the Spanish peseta for the purpose of setting the
interest rate on the amount of damages.
The Tribunal finds it reasonable to fix as interest rate the LIBOR rate for
Spanish peseta for each annual period since February 4, 1992 and for the
proportion that corresponds to the period between February 4, 2000 and the
date of the Award. [In accordance with British Bankers Association Financial
Data.] (259)
6.147 Another example is MTD v Chile. The claimant requested an interest rate of 8 per
P 367 cent, whereas the respondent state submitted that the interest rate for dollar
investments in Chile or the average annual LIBOR would be appropriate. (260) The
tribunal chose the LIBOR and reasoned as follows:
This being an international tribunal assessing damages under a bilateral
investment treaty in an internationally traded currency related to an
international transaction, it would seem in keeping with the nature of the
dispute that the applicable rate of interest be the annual LIBOR on November
5 of each year since November 5, 1998 until payment of the awarded amount of
damages. (261)
6.148 Subsequent tribunals have frequently awarded LIBOR rates plus additional
percentage points. Often it was the six-months LIBOR plus two percentage points. (262)
This has been referred to as 'an average interest rate which Claimant would have paid to
borrow from that date to the present' (263) or 'a commercially reasonable borrowing rate
over the relevant period … consistent with recent practice amongst ISCID tribunals and
the prevailing scholarly view'. (264)
6.149 Other tribunals have chosen LIBOR plus four percentage points. (265) In
Kardassopoulos and Fuchs v Georgia, the main reason was that the Pipeline Construction
and Operating Agreement (PCOA) contained the LIBOR rate plus four percentage points.
The tribunal found that 'in order to achieve full reparation in the circumstances of these
cases, the PCOA rate … provides the best available evidence of what constitutes a fair
commercial rate in the present context, and accordingly the Tribunal decides that it is
appropriate to award interest at the rate of LIBOR + 4%.' (266) Interest was compounded
semi-annually and resulted in an aggregate amount of pre-award interest that was
double the principal. (267) In the NAFTA case Mobil Investments and Murphy Oil v Canada,
P 369 the tribunal chose the twelve-months Canadian dollar LIBOR rate plus four percentage
points, compounded monthly. (268)
225
6.150 At the other end of the spectrum LIBOR plus one percentage point (269) or without
any additional percentage point was awarded. (270) Other tribunals have used the LIBOR
as a benchmark and added special amendments. (271) The LIBOR without any addition
was awarded by the tribunal in Rosinvest v Russia. (272) The tribunal stated that the
applicable BIT between the United Kingdom and the USSR of 1989 provided for 'interest
at a normal commercial rate'. (273) The tribunal stated that this provision was only
applicable to lawful expropriations, but that both parties had relied on it also with
regard to a finding of unlawful expropriation. (274) The tribunal considered that 'in view
of the term “normal” in Article 5(1), the LIBOR rate should be applicable without any
addition'. (275) In view of the function of pre-award interest, it may be questioned
whether the interbank rate without any addition is appropriate, but neither the language
of the BIT nor the parties provided the tribunal with more guidance.
6.151 The EURIBOR has also been used more frequently in recent years, usually also at a
six-months maturity with an addition of two percentage points. (276) As the tribunal in
Hrvatska Elektropriveda v Slovenia explained, the EURIBOR seems to be more
appropriate in investment disputes within Europe, when the currency of account is Euros:
The Tribunal observes that it is common in investment treaty cases to tie the
interest rate to LIBOR—although in the present case, where the currency is
euros, it is more appropriate to use EURIBOR. This represents an objective,
market-orientated rate, well suited to ensuring that the consequences of the
breach are indeed wiped out. Although the Tribunal recognises that German
bonds provide a valuable benchmark, the complexity of Mr Jones' calculations
to determine yield are not practicable. The Tribunal prefers an interest rate
that is more simply expressed. For this reason, the Tribunal finds that the
average six-month EURIBOR is appropriate in the present case. (277)
6.152 National interbank interest rates have also played a certain role in international
arbitral practice. The ICSID Tribunal in Atlantic Triton v Guinea determined that the rate
of the pre-award interest should be 9 per cent which corresponded to the interbank
interest rate in the United States. (278) The contract under dispute had been concluded
between a Norwegian enterprise and the African Republic of Guinea. Since the currency
of the contract was the US dollar, 'the Tribunal judging equitably sets the interest rate at
9% which is presently the basic inter-bank interest rate in the United States'. (279)
6.153 In CME v Czech Republic, the claimant submitted that a subsidiary had received a
loan at the rate of the Czech interbank interest rate, the PRIBOR (Prague Interbank
Offered Rate), for twelve months plus 3.5 percentage points. (280) At the relevant time,
the PRIBOR was set at 3.4 per cent which resulted in an interest rate of 7.9 per cent. The
tribunal found this irrelevant, since the loan in question was only a very small amount in
relation to the size of the amount of compensation or damages to be decided upon in the
arbitral proceedings.
6.154 In CSOB v Slovak Republic, the ICSID Tribunal plausibly argued that interest on
damages after a violation of a loan agreement between two formerly state-owned banks
could best be defined by reference to a national interbank interest rate—in this case—
the Slovakian BRIBOR:
[T]he Tribunal decides to retain the BRIBOR rate as determined by the
National Bank of Slovakia for lending money on a three months basis. In the
Tribunal's view, the 3-months BRIBOR rate can be considered under the
particular circumstances of the Slovak Republic's obligation to cover SI's
losses as a solution most closely based on the trade usages to which the Czech
Commercial Code refers … (281)
6.155 In Micula v Romania, the Romanian Interbank Offered Rate (ROBOR) was put
forward by the claimants. (282) They argued that
ROBOR is the rate at which banks lend to each other, that is set by the market
and which accurately reflects Romania's underlying economic conditions.
Therefore at times of high inflation, which occurred in Romania in the period
relevant to this dispute, it is logical that ROBOR rose accordingly, including to
30% at one point. However, due to the manner in which ROBOR is calculated
and applied, it cannot sensibly be contended that it is not an appropriate
rate for the calculation of interest when a claimant borrows from Romanian
banks and/or borrows in RON. (283)
The tribunal agreed in principle with the claimants and found that the appropriate rate
should compensate them for their cost of borrowing money during the relevant period. It
emphasized that the basis of operations was RON and that the claimants were Romanian
P 370 nationals with their principal place of business in Romania, and 'the fact that they
could borrow in Euro does not detract that the currency in the place where they operate
was and remains RON'. (284) As regards the question of the premium, the tribunal found
the argument persuasive that the claimants were not international companies and could
not borrow at only two points above the interbank offered rate, as frequently awarded by
other investment tribunals. The tribunal thus awarded interest at three-months ROBOR
226
plus 5 per cent, compounded on a quarterly basis. (285)
6.156 In Abengoa v Mexico, the tribunal based the rate of 5 per cent interest on the
Mexican interbank rate, the Tasa de Interés Interbancaria de Equilibrio (TIEE—
Equilibrium Interbank Interest Rate), rejecting the higher legal interest rates of 6 and 9
per cent. (286)
6.157 To summarize, interbank interest has the advantage that the rate is market-
oriented and easy to find. International interbank interest rates, such as the LIBOR or the
EURIBOR, are international in nature, which makes them particularly appropriate for
being used in international proceedings. On the other hand, as has been shown above,
interbank interest rates tend to fluctuate quite strongly. The use of an average value over
a longer period of time could moderate this disadvantage.
6.158 Interbank interest seems to be a useful and appropriate reference for determining
interest on compensation in cases of lawful expropriation. It represents a benchmark for
interest on both loans and investments and can, therefore, be regarded as a truly market-
oriented objective–abstract interest. However, it is not clear whether the interbank rate
should be taken as it is or whether it needs to be increased by a surcharge. Some BITs
have included interbank rates in their provision on compensation upon expropriation
and suggested to add a premium. How high this premium should be and which criteria
should be applied to define it is usually left open. Tribunals seem to interpret the
premium as a means to approximate borrowing rates.
6.159 Interbank rates can also be useful in international damages cases. Here, the
premium becomes even more important. The damage caused by the delay is usually
greater than the interbank interest rate, because customers usually do not receive loans
at the interbank interest rate without a surcharge. However, it is not clear how this
surcharge should be determined. A number of tribunals have chosen to apply a surcharge
of two percentage points, other have applied four or five, again others one or none. An
explanation for these choices is often not adequately provided, despite their
P 371 considerable impact on the result on the aggregate amount of interest.
(g) 'Fair' Interest in Practice

6.160 In the practice of international courts and tribunals, the use of interest rates with
no explicit referential rate is rather widespread. Express or implied references to
previous cases have resulted in the application of interest rates at 'fair' rates between 5
per cent and 17.5 per cent. This practice includes expropriation and damages cases.
6.161 (i) Expropriation Cases In expropriation cases, compensation should, as a matter of
principle, bear interest on a market-related basis. (287) Nevertheless, international
practice has frequently recurred to 'fair' or 'reasonable' interest without further
explanation.
6.162 The Iran–US Claims Tribunal in its decisions in American International Group v Iran
and INA v Iran and awarded interest on the amounts of compensation at a 'reasonable
annual rate of 8,5%'. (288)
6.163 In Aminoil v Kuwait, a rate of 7.5 per cent was regarded as 'reasonable'. (289) The
tribunal, however, added ten percentage points in order to address the negative impact
of currency devaluation which resulted in an annual rate of 17.5 per cent. This generous
consideration of inflation was explained by a reference to a 'reasonable rate of return'
agreed upon by the parties in the concession contract. The long-term maintenance of the
value had been of considerable concern to the parties demonstrated by the inclusion of
a 'gold clause' in the contract and later by a currency basket. The intention of the parties
was thus accounted for also in the determination of the interest rate. (290)
6.164 In Compañía del Desarrollo de Santa Elena v Costa Rica, the issue of the applicable
interest rate was of considerable importance because the expropriation had already
occurred twenty-two years before. The tribunal held that 'the amount of compensation
should reflect, at least in part, the additional sum that this money would have earned,
had it, and the income generated by it, been reinvested each year at generally prevailing
rates of interest'. (291) Nevertheless, the tribunal did not decide on a particular interest
rate but awarded an aggregate amount of US$ 16 million of which only US$ 4 .15 million
represented the value of the investment at the time of the expropriation. The rest was
the interest accrued until the time of the award. Considering that interest was
compounded this corresponded to an interest rate of 6 per cent. (292) This was also the
P 373 interest rate the tribunal chose for post-award interest.
6.165 (ii) Damages The solutions of international tribunals concerning pre-award interest
rates in cases of state responsibility vary considerably. Article 38 of the ILC's Articles on
State Responsibility provides for a wide margin of discretion in order to achieve full
reparation. (293) International practice has identified different rates as 'fair' under this
aspect. (294)
6.166 In Wimbledon, the PCIJ referred to the interest rate of 6 per cent as a 'fair' rate
referring to the prevailing economic conditions (295) but only applying this rate to post-
award interest. (296)
6.167 The interest rate of 6 per cent was frequently referred to as a 'fair rate' in
227
subsequent international practice. The ICSID Tribunal in Middle East Cement v Egypt, for
example, noted rather cursorily that 'in view of the rates in financial markets during the
relevant period, a rate of 6% p.a. is appropriate'. (297) The tribunal in Metalclad v Mexico
explained that 'to restore the Claimant to a reasonable approximation of the position in
which it would have been if the wrongful act had not taken place, interest has been
calculated at 6% compounded annually'. (298) Also without any particular explanation,
the ICSID Tribunal in Técnicas Medioambientales v Mexico chose the interest rate of 6 per
cent. (299) In Vivendi v Argentina (Vivendi II) the interest rate of 6 per cent was regarded as
a reasonable approximation to the returns the investor could have earned if he had
invested the money elsewhere. (300)
6.168 The tribunal in Impregilo v Argentina found that the 15 per cent as claimed by the
claimant appeared to be excessive. (301) It considered that 6 per cent would be
'adequate and reasonable in the circumstances of this case'. (302) In Desert Line v Yemen,
the claimant had claimed 7 per cent compounded, (303) the term rate of his borrowings,
but the tribunal without any closer examination considered that 'the appropriate rate of
interest in this case is the simple rate of 5% per annum'. (304)
6.169 Higher interest rates were also considered to be 'fair' in international arbitral
practice. The tribunal in Antoine Goetz v Burundi demanded a rate 'à un taux commercial
raisonnable', (305) which in the subsequent settlement agreement between the parties
was set at 8 per cent. (306)
6.170 The arbitral tribunal in Asian Agricultural Products v Sri Lanka considered an
interest rate of 10 per cent as 'reasonable and appropriate and in accordance with a long
established rule of international law'. (307)
6.171 This corresponds to the approach of the Iran–US Claims Tribunal as adopted in
McCollough v Ministry of Post. The arbitral tribunal, after examining various criteria, (308)
determined that 'a fair rate of interest to be awarded on all the amounts determined to
be due and owing to the Claimant is 10% per annum'. (309) Even though the tribunal had
strongly argued against a fixed selection of interest rates, its interest rate of 10 per cent
was later frequently taken up without further reasoning. A number of subsequent
tribunals did not examine the criteria developed by the tribunal in McCollough v Ministry
of Post in more detail but awarded an interest rate of 10 per cent with only succinct
reference to this award and the conclusion that 10 per cent would be 'fair'. (310) In the
1990s, the Iran–US Claims Tribunal also regarded lower interest rates as 'fair'. This was, for
example, the case with interest rates of 9.75, (311) 9.5, (312) and 8.6 per cent. (313)
6.172 The tribunal in Tenaris v Venezuela found that a rate of 9 per cent would be 'fair and
reasonable for pre-award interest'. (314) It arrived at this rate by using the 'borrowing
rate' of Venezuela which was approximately 9.75 per cent. Then it noted that the
respondent's expert had compared the six-month LIBOR and ten-year Treasury rates and
concluded that they were around 4 per cent. To this, he supplemented a factor covering
political risk and other macroeconomic factors, the so-called country risk premium. (315)
A combination of the 4 per cent 'no risk rate' with a country risk premium of 4.6 per cent
would yield an 8.6 per cent 'borrowing rate'. (316) The tribunal determined the 'fair and
P 375 reasonable' rate between this rate and the actual borrowing rate of 9.76 per cent.
(2) Dies a quo

6.173 The period of interest represents an additional important aspect for the assessment
of interest in international investment disputes. The date from which interest is to accrue
(dies a quo) must be determined consistently with the other parameters of the
calculation of compensation and damages. If the valuation date is the date of the award,
granting pre-award interest would amount to double counting. If the valuation date lies
in the past, the start of the interest period is not always clear.
(a) Expropriations
6.174 The beginning of the interest period in cases of expropriations is determined by the
day on which compensation should have been paid. (317) Ideally, compensation is paid
'promptly' on the date of expropriation or even prior to that date. If payment was not
'prompt', pre-award interest shall compensate this defect.
6.175 In cases of direct expropriations the starting date of interest usually does not pose
a major problem. In case of nationalizations of entire industries, it is usually the date of
the legal instrument providing for the nationalization. (318) When property is
expropriated by a specific legal instrument, such as a decree, (319) or a withdrawal of a
concession, (320) tribunals regularly took the date of the respective legal act as the
starting date of interest.
6.176 In Southern Pacific Properties v Egypt, the respondent submitted that on the basis of
national law, interest could only accrue from the time of the initiation of judicial
proceedings. The tribunal did not agree with this approach and held:
[I]t is legitimate to apply the logical and normal principle usually applied in
cases of expropriation, namely, that the dies a quo is the date on which the
dispossession effectively took place, since it is from that date that the
deprivation has been suffered. This principle is supported by the doctrine and
228
the jurisprudence of international tribunals. (321)
6.177 The decision in LIAMCO v Libya, according to which interest only begins to accrue at
the date of the award can, therefore, be regarded as an exception in expropriation cases.
The tribunal explained that it was not possible to award interest from an earlier date
because the actual amount was only fixed at the time of the issuance of the award. (322)
6.178 As regards indirect expropriations, the determination of the expropriation date—
and thereby the beginning of the period of interest—is difficult. (323) This is particularly
true in the case of creeping expropriations where the deprivation of property does not
occur in a single act but by various acts and omissions by the state over an extended
period of time. (324)
6.179 Once the expropriation date is determined, it is generally regarded as being
identical with the beginning of the interest period. (325)
(b) State Responsibility
6.180 As regards the period of interest in cases of state responsibility, Article 38 of the ILC
Articles on State Responsibility states: 'Interest runs from the date when the principal
sum should have been paid until the date the obligation to pay is fulfilled'. (326)
6.181 Even though this seems to be a clear provision, it does not answer the question,
when interest must start to accrue. It does not clarify 'when the principal sum should
have been paid'. (327) It seems only that the date of a specific demand or reminder is not
important. (328) The decisive date should rather be the date when the payment should
have been effectuated in the first place. But when is the responsible state obliged to
pay? Is it the date of the wrongful act? Is it the date when the damage was incurred? Or is
it the date when the actual amount of damages has been assessed or is assessable?
6.182 The ILC was conscious of the different options and of the heterogeneity of
international practice in this regard. (329) It obviously did not want to define strict rules
P 376 or identify more specific guidelines but preferred to allow for further flexibility. The
beginning of the interest period should above all be oriented towards achieving full
reparation and take into consideration the ways in which the amount of the principal has
been calculated. (330)
6.183 Article 38 deals only with compensatory or pre-award interest. Interest which starts
to accrue only after the judgment or award is not included in the ILC's text but is
regarded as a procedural matter. (331) In the following, a few alternatives for determing
the dies a quo shall be analysed.
6.184 (i) Date of the Unlawful Act The date of the internationally wrongful act seemed to
many international arbitral tribunals to be the logical and correct consequence of the
principle of full reparation after a violation of international law. The ICSID Tribunal in
Asian Agricultural Products v Sri Lanka expressed this in a very clear manner and held
that 'interest becomes an integral part of the compensation itself, and should run
consequently from the date when the State's international responsibility became
engaged'. (332)
6.185 A number of other tribunals followed this approach, as for example Emilio Agustín
Maffezini v Spain, (333) Técnicas Medioambientales v Mexico, (334) MTD v Chile, (335) CMS v
Argentina, (336) Impregilo v Argentina, (337) Swisslion v Macedonia, (338) and Lahoud v DRC.
(339)
6.186 However, this date is not always easily ascertainable. In Metalclad v Mexico, for
example, the tribunal noted that 'Mexico's international responsibility is founded upon
an accumulation of a number of factors'. (340) From the different dates to be considered,
the tribunal eventually chose the one on which the application for the construction of the
waste fill was rejected by the local authorities. (341) This determination was, however,
later invalidated by the Supreme Court of British Columbia. (342) Judge Tysoe was of the
P 377 opinion that interest should only start to accrue from the date of the Ecological Decree
that declared the area a protected natural reserve two years later. (343)
6.187 (ii) Date of Occurrence of Damage The date of the unlawful act is not always the
appropriate dies a quo in order achieve full reparation of the damage caused. Another
option is the date the damage actually occurred, as was proposed by ILC Special
Rapporteur Crawford. (344) The lack of contemporaneity of the date of the unlawful act
and the beginning of the interest period does not pose a major problem as the
occurrence of damage is not a precondition of state responsibility. Furthermore, the
obligation to pay cannot arise earlier than the damage. The date of the occurrence of
damage should, therefore, be the earliest possible date interest could possibly start to
accrue.
6.188 A lack of contemporaneity of the unlawful act and the occurrence of damage could
be observed in CME v Czech Republic. The unlawful act of the respondent Government
consisted in an alteration of the legal conditions for a broadcasting licence long before
the lack of protection actually materialized and disrupted the investment. (345) The
tribunal decided that the valuation date should be the date when the damage actually
occurred (346) which would have also been appropriate for the dies a quo. Yet, as regards
the starting date of interest, the tribunal decided to apply Czech law which demanded an
229
explicit reminder for the accrual of interest. (347)
6.189 In order to determine the dies a quo when a violation of an international obligation
consists in an omission reference may be made to Article 14(3) of the ILC Articles,
according to which the breach of an international obligation requiring a state to prevent
a given event occurs when the event occurs and extends over the entire period, during
which the event continues and remains not in conformity with that obligation. (348) The
'event' the state is obliged to prevent is not necessarily damage. However, its existence is
necessary for calculating financial reparation. Interest should, therefore, start to accrue
when financially assessable damage occurs.
6.190 Several tribunals have identified the date on which payment obligations became
due as the date on which the damage occurred. The ICSID Tribunal in AGIP v Congo, for
P 379 example, awarded 'interest on the sums mentioned in headings (a), (b) and (c) as from
the date at which the various sums fell due to AGIP or were paid by it, until the date of
effective payment by the Government …'. (349)
6.191 Similarly, in Siemens v Argentina the tribunal awarded interest when the financial
damage actually occurred, which meant 'as from May 18, 2011, in the case of
compensation of the value of the investment, January 1, 2000 in the case of compensation
on account of unpaid bills by the Government, and January 11, 2002 in the case of
compensation on account of consequential damages, all until the date of dispatch of this
Award to the parties'. (350)
6.192 In Abengoa v Mexico, the tribunal ordered interest on the sums for reimbursement
of the VAT, with a scaling for different parts of the amount starting from different dates.
(351)
6.193 Different starting dates of interest were also identified by the tribunal in Micula v
Romania which decided that
i. With respect to the claims for increased cost of sugar and other raw materials,
interest shall be calculated from 1 March 2007.
ii. With respect to the claim for the lost opportunity to stockpile sugar, interest shall
be calculated from 1 November 2009.
iii. With respect to the claim for lost profits on sales of finished goods, interest shall be
calculated from 1 May 2008. (352)
6.194 The tribunal in Suez v Argentina also decided various starting dates of interest
which were the different dates of the valuation of each item of damages for the four
claimants. (353)
6.195 (iii) Date of Initiation of Legal Proceedings Another option of the dies a quo is the
date on which judicial or arbitral proceedings are initiated, (354) based on national law
provisions, (355) submissions by the parties, (356) or the tribunal's discretion. (357)
6.196 The arbitral tribunal in Asian Agricultural Products v Sri Lanka which had decided
that interest should run from the date when the state's international responsibility
became engaged (358) still calculated interest only from the date at which arbitral
proceedings had been initiated. (359) It explained this by reference to the applicable BIT
where the state parties had agreed on a three-month period of obligatory negotiations
before arbitration could be initiated. During this 'waiting period', in the tribunal's view,
no interest should accrue.
6.197 The tribunal in CME v Czech Republic mentioned, in addition to its reference to
national law, (360) that the respondent only gained knowledge about the claim for
damages at the moment of the initiation of arbitral proceedings. (361)
6.198 The date of initiation of arbitral proceedings is generally not compatible with the
various functions of interest and may only with difficulty be justified on legal or economic
grounds.
(c) Breaches of Contract
6.199 The determination of the dies a quo in contract cases depends on the date the
obligation was due under the terms of the contract. Only on this basis is it possible to
assess the damage caused by the delay. The date and time of the default can be derived
from the contract itself, from factual circumstances of the case, and from factual
applicable law. (362)
6.200 The Iran–US Claims Tribunal, in McCollough v Ministry of Post, pointed to the lack of
consistency of international practice in the determination of the period of interest (363)
and held:
This delay, however, varies in relation to the date determined to be the time
when the obligation to pay arose. This date can either be the date when the
underlying damages occurred, the date when the debt was liquidated, the
date of a formal notice to pay, the date of the beginning of the arbitral or
judicial proceedings, the date of the award or of the judgment determining the
amount due, or the date when the judicial or arbitral decision reasonably
should have been executed. (364)
230
6.201 While the latter two dates refer to the beginning of moratory or post-award interest,
which will be dealt with in the next section, the dates before the award are relevant for
the determination of compensatory or pre-award interest. They will be analysed further.
P 380
6.202 (i) Date of Breach Whether an act or an omission represents a breach of contract
depends above all on the terms of the contract and the circumstances. It can, for
example, be the point in time at which it became evident that the contracting partner
would not pay the bill for the goods duly delivered, and not the date of the invoice. (365)
6.203 In other cases, the dates of unpaid bills are considered as decisive for the
determination of the date of the breach of contract and also for the beginning of interest.
(366) When payment advances were not duly paid they could also bear interest as from
the date agreed. (367) Generally, the time at which a breach of contract occurs, in the
absence of facts or agreements to the contrary, is decisive for the starting of interest.
6.204 (ii) Invoice Dates and Terms of Payment Billing serves the purpose of concretely
fixing payment obligations and informing the contracting partner about them. From this
moment the extent of the claim of the creditor is known to the debtor. In business
practice, however, interest is not charged immediately from this date. Implicit waivers of
interest for a certain period are usually implied. (368) This is not the case if the parties
expressly excluded it in the contract. (369) It follows that it depends primarily on the
terms of the contract whether the billing entails the immediate obligation to pay or not.
(370)
6.205 If the parties have agreed on specific payment terms, the debtor cannot be
considered to be in default earlier. Only after the lapse of the agreed period of time may
interest accrue.
6.206 Similarly, if the debtor had the contractual right to object to the bill within a
certain period of time default is not assumed before this period has passed. (371)
6.207 Even in the absence of such an explicit objection period, the debtor was in default
only after a certain period of time after which one could reasonably expect that the bill
should have been paid. In this sense, the Iran–US Claims Tribunal held in Exxon Research
P 382 and Engineering v Iran:
Exxon Research also seeks interest on the amounts awarded under the
Seventh Refinery Project calculated as from the date the invoices were issued.
It appears more reasonable, however, in the absence of any contractual
provision in this respect, to award interest based on the assumption that NIOS
was obligated to pay the invoices within 30 days of presentation. (372)
6.208 In Bechtel v Iran the Iran–US Claims Tribunal even allowed for a two-month term
because it considered 'that it would have been reasonable to allow two months before
IEC might have expected to make payment'. (373)
6.209 In case of several open invoices, the date of the most recent invoice was usually
decisive. (374) In Sedco v NIOC, however, the beginning of the interest period on several
open invoices between 21 October 1978 and 19 December 1979 was set at 21 May 1979,
which was the 'midpoint' of the dates of the open invoices. (375)
6.210 In Duke Energy v Ecuador, the tribunal order interest from the date on which each
fine became due and payable. (376)
6.211 These examples show the difficulty and complexity of the determination of the dies
a quo on the bases of invoice dates and terms of payment.
6.212 (iii) Date of Reminder Another possibility for the selection of the starting point of
interest is to make it dependent on a reminder and an explicit claim for interest. This
view was reflected in the award of the Permanent Court of Arbitration in the well-known
Russian Indemnities case. (377)
6.213 In the course of a comparative legal analysis Gotanda also came to the conclusion
that the different national rules on interest have one principle in common, namely that it
is not sufficient that default occurs objectively but that the debtor must also have the
subjective knowledge and the possibility of being conscious of it. Otherwise, the debtor
could assume that the creditor implicitly allows the delay and that no damage occurs
because of it. (378)
6.214 Gotanda, therefore, proposes proceeding by a two step-approach: first, it has to be
examined whether the parties have already agreed that non-compliance with the
obligation must be regarded as default. If such an agreement does not exist, interest
should accrue (1) from the time the debtor has been informed about the default or (2) the
time of initiation of arbitration, depending on which is earlier. (379)
6.215 This proposal reflects the principle that interest has generally to be paid in case of
default but that equitable considerations with regard to the situation of the debtor
should also be taken into account. Gotanda explains that this approach 'provides the
debtor with an opportunity to resolve the matter promptly. In addition, it encourages the
claimant to be diligent in resolving contract claims.' (380)
231
6.216 The requirement of an explicit reminder does, however, not appear in international
codifications of contract law. Article 7.4.9(1) of the UNIDROIT Principles on International
Commercial Contracts states:
If a party does not pay a sum of money when it falls due the aggrieved party is
entitled to interest upon that sum from the time when payment is due to the
time of payment whether or not the non-payment is excused. (381)
6.217 In the same vein, Article 78 CISG (382) and Article 9:509 PECL (383) do not require a
reminder for the purpose of the beginning of the interest period. They refer only to the
due date of payment.
6.218 (iv) Termination of Contract The Iran–US Claims Tribunal sometimes assumed an
implicit termination of a contract instead of a breach of the same. (384) The beginning of
the interest period in these cases was set at the date of the termination of the contract.
(385)
6.219 The ICSID Tribunal in Autopista Concesionada v Venezuela dealt with a justified
termination of a contract by the investor because the respondent had not fulfilled its
contractual obligations. (386) In this case, interest was computed separately on all the
amounts spent by the investor (pre-award out-of-pocket expenses, pre-award assets
contribution, etc.) from the date when they were actually spent. (387) This resulted in
P 383 different interest periods for the different amounts of money.
6.220 (v) Date of Initiation of Legal Proceedings Compensatory interest in contract cases
was sometimes only awarded from the date of the initiation of legal proceedings. One
could argue that only from this point in time is the exact amount of money claimed
known to the debtor. In Atlantic Triton v Guinea the ICSID Tribunal granted pre-award
interest only from the date of the formal request for arbitration. (388) The Iran–US Claims
Tribunal in Phibro v Iran also calculated interest only from the initiation of arbitral
proceedings even though the amounts on the invoices were known to the debtor earlier.
(389)
(3) Compound Interest

6.221 The difference between simple interest and compound interest is rather
considerable from a financial point of view. While in economic life compound interest on
loans and deposits is widely accepted, its application in international investment
arbitration is a relatively recent phenomenon.
6.222 In addition, the compounding intervals have to be taken into account, as a brief
example illustrates: the amount of € 1 million yields simple interest in the amount of €
600,000 after ten years at an annual interest rate of 6 per cent. The same amount yields
interest in the amount of € 790,848, if interest is compounded annually, (390) a difference
of € 190,848. If interest is compounded quarterly, the same amount yields interest of €
829,092 in ten years. Thus, the shortening of the compounding interval from one year to a
quarter of a year results in an additional € 38,244 in ten years.
6.223 This example shows that compounding and the choice of the compounding interval
have a significant financial impact on the amount of money. In economic life, interest is
compounded annually, quarterly, monthly, daily, or even continuously. There are no
general rules or practices regarding the compounding interval. It depends mainly on the
type of financial product and the respective agreements. (391)
(a) Repudiation in Early Cases
6.224 In international judicial or arbitral practice, the attitude towards awarding
compound interest has gradually changed in the past decades. Until the late 1980s
compounding was regularly repudiated, often by reference to Whiteman's considerations
of 1943:
There are few rules within the scope of the subject of damages in international
law that are better settled than the one that compound interest is not
P 385 allowable. Although in rare cases … compound interest, or its equivalent,
has been granted, tribunals have been almost unanimous in disapproval of its
allowance. This is particularly true when the attention of the tribunal has been
especially called to the point. (392)
6.225 Whiteman conceded that in some cases compound interest had been awarded, for
example, in Fabiani's Case (393) and in Chemins de Fer Zeltweg-Wolfsberg (394) but held
that these were 'rare cases'. (395) The Iran–US Claims Tribunal shared this opinion (396)
and rejected claims for compound interest regularly, although they had been claimed
repeatedly. (397)
6.226 One of the main reasons given was the rapid accrual which would easily allow
interest to exceed the principal. In Anaconda-Iran v Iran, the US prime rate had explicitly
been agreed upon in the contract between the parties, which according to the claimant,
included compound interest. (398) The arbitral tribunal, however, did not share this view.
It maintained that this would lead to a disproportionate financial benefit for the
claimant:
232
[T]o implement such a contractual clause would cause a benefit, and indeed a
profit, to accrue to the successful party, which would be wholly out of
proportion to the possible loss that the successful party might have incurred
by not having the amounts due at its disposal. (399)
6.227 This categorical rejection has, however, provoked criticism. In Starrett Housing v
Iran, (400) Arbitrator Holtzmann pointed out that the damage actually incurred would not
be remedied without compound interest. He wrote in his Concurring Opinion:
[T]he Respondents were fully aware that Starrett was borrowing money from
U.S. banks on a compound basis in order to finance the Project … Starrett, like
most contractors, operated on the basis of back-to-back loans and a
substantial line of credit with their banks. It is normal commercial practice
that banks customarily charge compound interest to finance credit facilities.
(401)
6.228 According to Holtzmann, the considerations of Whiteman of 1943 would no longer
meet the requirement of modern economic reality and '[w]hether or not such a rule
existed before 1943, it is no longer justifiable'. (402) He came to the conclusion that
'[m]odern economic reality, as well as equity, demand that injured parties who have
themselves suffered actual compound interest charges be compensated on a compound
basis in order to be made whole'. (403)
6.229 F A Mann developed these ideas further and maintained that compound interest
should generally be recognized as an item of damage:
It follows that even in the absence of a clause indemnifying a contracting
party against 'direct loss and/or expense,' compound interest reasonably
incurred by the injured party should be recoverable as an item of damage.
This, it is submitted, should not only be English law, but should be accepted
wherever damages are allowed and should, therefore, be treated as a general
principle of law. (404)
Amongst other considerations, Mann pointed to actual economic realities both in private
and in business life:
It is a fact of universal experience that those who have a surplus of funds
normally invest them to earn compound interest. This applies, in particular, to
bank deposits or savings accounts. On the other hand, many are compelled to
borrow from banks and therefore must pay compound interest. This applies, in
particular, to business people whose own funds are frequently invested in
brick [sic] and mortar, machinery and equipment, and whose working capital
is obtained by way of loans or overdraft from banks. (405)
6.230 The argument that compound interest rapidly increases the amount of interest and
easily exceeds the principal he countered in the following way:
Finally, it is completely wrong to attach any significance to the fact that the
award of interest or compound interest may lead to the payment of a sum
exceeding the capital due from the wrongdoer. This may happen in many
cases as a result of the wrongdoer's delaying tactics or the court's work load.
But during that period the wrongdoer has enjoyed the fruits of the money
withheld. (406)
6.231 In view of the Iran–US Claims Tribunal's negative attitude, Mann pointed out that
referential investment alternatives as proposed in Sylvana Technical Systems v Iran,
namely the US six-month certificates of deposit, also yielded interest on a compound
basis. He then asked 'whether the Tribunal realised that investment in six-months
certificates of deposit involves earning compound interest'. (407)
6.232 Brower and Brueschke also noted in their evaluation of the practice of the Iran–US
P 386 Claims Tribunal:
One of the lessons of the Tribunal is that, in the future, in such institutions as
the Tribunal, the rule against compound interest might bear reexamination, in
particular as an effective remedy to be employed by the Tribunal selectively
if confronted with wholly unjustified delaying tactics. The mere threat of such
interest might assist the process to run more smoothly. (408)
6.233 Gotanda expanded these considerations on the basis of a comparative legal
analysis and came to the following conclusion:
Most legal systems award simple interest to compensate a claimant for the
loss of the use of money. By contrast, today most financing and investment
vehicles available to parties in transnational business involve compound
interest. Thus, if the goals of interest are to promote compensation and
restitution, then simple interest falls short of attaining those goals.
Fortunately, there is no rule of international law prohibiting compound
233
interest. (409)
6.234 According to Gotanda, compound interest should not only be awarded if a
corresponding agreement of the parties had been concluded, but also if the claimant had
to bear financing costs bearing compound interest, or if he proves that he would have
earned compound interest:
Applying these principles would better compensate a claimant for the loss of
the use of money than the traditional practice of awarding only simple
interest. Such an approach would also reconcile the practice of awarding
interest with modern economic practices. (410)
6.235 With respect to the compounding interval Mann pointed to the diverse practice of
banks:
The practice as to rests varies considerably. Monthly, quarterly, half-yearly,
yearly rests occur, and in a specific case it may be necessary to investigate
local practices. But it is likely that a judge who would award quarterly or half-
yearly rests would not go far wrong. (411)
6.236 The diversity of compounding intervals on loans and deposits still exists. A survey of
the ICC Banking Commission showed that annually, quarterly, monthly, or daily are the
most common options. (412) In the absence of a standard compounding period, Sénéchal
proposed on the conservative side using a one-year compounding interval. (413) On the
other hand, one could also suggest that, if a certain financial product has been chosen as
a reference for setting the interest rate, the compounding interval of this instrument
should be used by the arbitral tribunal as the compounding interval of pre-award
P 387 interest.
(b) Increasing Acceptance in Recent Jurisprudence

6.237 One of the first arbitrations that awarded compound interest was Aminoil v Kuwait
where interest at a rate of 17.5 per cent was compounded annually. (414) The tribunal did
not, however, provide further reasoning for this decision.
6.238 Under the auspices of ICSID, tribunals started awarding compound interest in the
1980s. The tribunal in Atlantic Triton v Guinea decided that 'the interest, calculated at a
rate that the Tribunal has set at 9% … shall be capitalized and will itself bear interest at
the same rate'. (415)
6.239 A real change of trend towards accepting compound interest became obvious in the
year 2000. In February, the tribunal in Compañía del Desarrollo de Santa Elena v Costa
Rica dealt with this issue of compound interest in remarkable detail. (416) It referred to a
number of cases which had awarded compound interest in the past (417) and relied
extensively on the arguments advanced by F A Mann. The most important argument for
the tribunal was that the expropriating state would have been unjustifiably enriched, if
interest had not been awarded on a compound basis. The tribunal, however, did not set
an interest rate and a compounding interval, but awarded a lump sum which included
interest exceeding the principal sum of US$ 4.15 million by US$ 11.85 million. (418)
6.240 In August 2000, the tribunal in Metalclad v Mexico awarded compound interest in a
case concerning violations of several NAFTA provisions. (419) It awarded pre-award
interest annually compounded at a rate of 6 per cent to put the claimant in a financial
situation as close as possible to the one he would have been in if the unlawful act had not
been committed. (420) Post-award interest, by contrast, should be compounded monthly.
(421)
6.241 In November 2000, the tribunal in Maffezini v Spain awarded pre-award interest also
compounded on an annual basis. It explained that '[s]ince the funds were withdrawn from
a time-deposit account of Mr. Maffezini, it is appropriate in this case to order the
payment of interest compounded on an annual basis from February 4, 1992'. (422)
P 388
6.242 Finally, in December 2000, the tribunal in Wena Hotels v Egypt awarded compound
interest (423) and referred, in particular, to Metalclad v Mexico, according to which
compound interest was necessary to put the claimant approximately in the same
financial position he would have been in without the unlawful act. (424) Furthermore, it
concurred with Gotanda's conclusion that:
[A]lmost all financing and investment vehicles involve compound interest … If
the claimant could have received compound interest merely by placing its
money in a readily available and commonly used investment vehicle, it is
neither logical nor equitable to award the claimant only simple interest. (425)
6.243 The tribunal reflected extensively on the arguments of Arbitrator Holtzmanns in
Starrett Housing v Iran and the opinion of F A Mann in order to conclude that: 'compound
interest may be and, in absence of special circumstances, should be awarded to the
claimant as damages by international tribunals'. (426) The tribunal awarded interest
compounded on a quarterly basis, which deviated from the earlier ICSID practice but
234
which was in accordance with the proposals of Mann (427) and Gotanda. (428) After this
changing trend in 2000, compound interest started to be increasingly accepted by
international investment tribunals to the extent that compound interest, and not simple
interest, became the rule rather than the exception.
6.244 In 2002, the tribunal in Middle East Cement v Egypt awarded interest at 6 per cent
compounded annually (429) and supported its decision by reference to the earlier cases
pointing out that 'international jurisprudence and literature have recently, after detailed
consideration, concluded … that compound (as opposed to simple) interest is at present
deemed appropriate as the standard of international law in such expropriation cases'.
(430) The tribunal saw 'no reason to repeat the detailed reasoning of or depart from this
practice'. (431) In 2003, the tribunal in Técnicas Medioambientales v Mexico, therefore,
could already rely on a rather settled international jurisprudence on the issue of
compounding. It decided to award interest at a rate of 6 per cent which was to be
compounded annually (432) and reasoned:
The application of compound interest has been accepted in a number of
awards … In connection with this case, in the opinion of the Arbitral Tribunal,
application of compound interest is justified as part of the integral
compensation owed to the Claimant as a result of the loss of its investment.
(433)
P 389
6.245 Similarly, the tribunal in MTD v Chile, in 2004, awarded compound interest on an
annual basis on the annual LIBOR at specific dates. It emphasized that compound
interest was 'more in accordance with the reality of financial transactions and a closer
approximation to the actual value lost by an investor'. (434)
6.246 Subsequent practice followed this path. As the tribunal in LG&E v Argentina noted,
'compound interest would better compensate the Claimants for the actual damages
suffered since it better reflects contemporary financial practice'. (435) The tribunal in
Lemire v Ukraine explained that 'an unpaid lender has to resort to the LIBOR market, in
order to fund the amounts due but defaulted, and the lender's additional funding costs
have to be covered by the defaulting borrower'. (436) Rarely other considerations also
played a role, such as the length and conduct of the proceedings. (437)
6.247 The compounding intervals of pre-award interest in most cases varied between
compounded annually (438) or semi-annually. (439) A few tribunals have compounded
P 390 quarterly (440) or monthly. (441) Sometimes, no compounding interval was indicated.
(442) Benchmark rates and the compounding periods should match so that, for example,
interest based on six-month US certificates of deposit is compounded semi-annually,
and not annually. (443)
6.248 This brief overview shows that compound interest as opposed to simple interest is
predominantly accepted in recent international investment arbitration. It is regarded as
better reflecting actual economic realities both for the purpose of remedying the loss
actually incurred by the injured party and for the prevention of unjustified enrichment of
the respondent state.
(c) Exceptions
6.249 Despite the above-mentioned increasing acceptance of compound interest in
international practice, some investment tribunals rejected the respective submissions by
the parties. The tribunal in Autopista Concesionada v Venezuela, for example, examined
whether compound interest should be awarded on the basis of an agreement by the
parties, of national law, or of international law. (444) It emphasized that the case had to
deal with a breach of contract and not with an expropriation. Consequently, the decisions
in Wena Hotels v Egypt and Compañía del Desarrollo de Santa Elena v Costa Rica in favour
of compound interest were not considered to be comparable. Furthermore, the tribunal
pointed to the award in Compañía del Desarrollo de Santa Elena v Costa Rica which had
expressly emphasized the difference between expropriations and cases 'of simple
breach of contract' and had held that 'there is a tendency in international jurisprudence
to award only simple interest … in relation to breach of contract'. (445) From this, the
tribunal drew the conclusion not to award compound interest and held that 'there is no
well established principle of international law requiring the award of compound interest
in the present case'. (446)
6.250 The distinction between expropriation and other breach of contract was also
pointed out in other cases. In Duke Energy v Ecuador, the tribunal decided that the
respondent had violated the Power Purchase Agreements by not complying with the
payment mechanisms nor with the Payment Trust Agreements and thus had breached
both Ecuadorian law and the BIT. As regards the calculation of damages, the tribunal
P 391 referred to Ecuadorian law which prohibited compound interest. (447) Also in
Pluspetrol v Perupetro, interest was only awarded as agreed in the License Agreement and
thus without compounding. (448)
6.251 In other cases only simple interest was awarded, where the subject matter
concerned the lack of enforcement of previous arbitral awards that had included an
235
award of interest without compounding. These include Desert Line v Yemen (449) and
Saipem v Bangladesh. (450) Simple interest was also awarded when compound interest
was not claimed by the claimant, such as in SGS v Paraguay. (451)
6.252 The tribunal in CMS v Argentina, another case not involving an expropriation, did
not award compound interest, either. (452) It discussed this issue rather briefly and held:
The Claimant has requested that the interest should be set at the average rate
applicable to U.S. six-month certificates of deposit, compounded semi-
annually starting on August 18, 2000 … The Tribunal is of the opinion that the
U.S. Treasury Bills rate is more appropriate under the circumstances and that
interest should be simple for the period extending from August 18, 2000 …
(453)
6.253 In the NAFTA case of Archer Daniels v Mexico, the tribunal also decided that the rate
of US Treasury Bills would be the most appropriate reference rate for interest and
pointed out that 'since this is not an expropriation case, but rather concerns the
appropriate compensation to be paid to Claimants for the injury caused as the
Respondent's breach of the national treatment and performance requirements
obligations under Chapter Eleven, the Tribunal's view is that simple interest is
appropriate in the present case'. (454)
6.254 However, in expropriation cases too, tribunals have sometimes rejected compound
interest, such as in Abengoa v Mexico (455) and Lahoud v DRC. (456)
6.255 Other tribunals rejected compound interest on the ground that claimants could not
prove that they would have earned or spent compound interest. The ICSID Tribunal in
CSOB v Slovak Republic pointed out that:
[I]t has not been shown convincingly that 'common business practice' in the
Slovak Republic supported capitalization of interest. Under these
circumstances, awarding compound interest as part of the compensation for
CSOB's damage would amount to pure speculation. Therefore, the Tribunal's
interest computation does not retain compound interest. (457)
P 392
6.256 In some cases, the high amount of the principal seems to raise reluctance on the
part of the tribunal to increase it by an amount of compound interest. The CME v Czech
Republic, compound interest was rejected on the ground that the 'generous' interest at a
rate of 10 per cent would already fully repair the damage incurred by the delay. (458) The
tribunal had carefully considered recent arbitral practice and scholarly writing on the
issue of compounding which increasingly supported the awarding of compound interest.
However, it pointed out that the claimant 'did not demonstrate that it borrowed money
from the bank and paid compound interest'. (459) The claimant had, in fact, taken out a
loan in Czech crowns at a rate of 12 per cent, but the tribunal found that the loan which
only related to a very small sum would not be sufficient to justify the application of this
interest, compounded or not, to the entire amount of the award. (460)
6.257 The tribunal in Yukos v Russia found, after awarding US$ 50 billion as principal, that
'in the circumstances of this case, it would be just and reasonable to award Claimants
simple pre-award and post-award interest compounded annually'. (461) The tribunal in
Rosinvest v Russia had earlier noted that the practice to award compound interest 'is by
no means unanimous' (462) and emphasized that the tribunal was not bound to award
compound interest and must consider 'the damage done and nature of Claimant's
investment in its assessment of the interest due'. (463) The tribunal in Rosinvest v Russia
found that applying compound interest to the damages sum in this case 'would be unjust
in light of the speculative nature of the investment'. (464)
6.258 The reluctance of some tribunals to award compound interest on various grounds
shows that compound interest as an item of compensation or damages is not yet
unanimously recognized in international practice. However, there is a tendency to regard
compound interest as the rule rather than the exception, in particular after
expropriations. In breaches of contract cases, national laws on interest and their
limitation may limit the possibility or readiness of tribunals to award compound interest.
Simple interest may also only be awarded if they are claimed or if for other reasons the
jurisdiction to decide on them is limited. Generally, investment arbitration is
increasingly recognizing the reality of compound interest in economic life. Nevertheless,
compound interest is still within the discretion of the tribunals and needs to be argued
P 395 on a case-by-case basis.
C. Post-award Interest
6.259 Interest which begins to accrue after a judgment or an award is referred to as post-
award interest, moratory interest, (465) or default interest. (466) In French it is referred to
as 'intérêts moratoires'; (467) in German they are 'Urteilszinsen', (468) 'Prozesszinsen', (469)
or 'Zukunftszinsen'. (470)
6.260 Post-award interest is different from pre-award interest in several respects. As
236
opposed to the latter, the final amount is not defined, since the fulfilment of the
payment obligation still lies in the future. Hence an aggregate amount cannot be
calculated, as is the case with pre-award interest. The ILC distinguished it from pre-
award interest as 'a matter of procedure' and thus did not deal with it in the context of
the rules on state responsibility. (471)
6.261 Beyond that, no doubt remains with regard to the payment obligation once a
judgment or award has been rendered. The respondent is simply in default if it does not
fulfil this obligation. The default may be penalized by interest that is no longer limited
by the concrete damage actually incurred by the injured party. For example, the default
interest according to Directive 2011/7/EU of the European Parliament and of the Council
on combating late payment in commercial transactions amounts to at least eight
percentage points above the reference rate. (472)
6.262 Higher interest would be in line with the specific function of post-award interest,
namely to serve as an effective incentive to comply with the terms of the judgment or
award as expediently as possible. It would also contribute to the effectiveness of
international jurisprudence and legal certainty. In view of this, the case can be made to
handle post-award interest and pre-award interest in a different manner. (473)
(1) Dies a quo

6.263 The date on which post-award interests starts to accrue can be the date of the
award, but also a point in time thereafter to create an incentive for prompt payment.
After such a 'grace period', interest could run from the date of the award or from the end
of that period. International practice is diverse as regards the setting of the starting date
of post-award interest. Often it is decided that pre-award interest should simply
continue until payment. (474)
(a) Continuation of Pre-award Interest
6.264 The continuation of pre-award interest seems to be most suitable in cases of lawful
expropriations since interest 'until payment' (475) is due according to pertinent
international law. Yet, in some cases no post-award interest was awarded, (476) and in
others, the tribunals differentiated diligently between pre-award interest and post-
award interest. (477)
6.265 In the practice of the Iran–US Claims Tribunals, with the exception of a few early
decisions, (478) interest regularly accrued 'until the date on which the Escrow Agent
instructs the Depositary Bank to effect payment out of the Security Account'. (479) Since a
separate trust account had been opened for the American claimants from which sums
were paid, it was not necessary to provide incentives for the prompt fulfilment of the
arbitration rulings. (480) In cases of claims by Iranian citizens, who did not have the
advantage of such a trust account, the end of the interest period was either not
established, (481) or lasted until the time of payment (482) or the time of the award. (483)
6.266 In cases of BIT violations and contract breaches, interest also often continues to
accrue without differentiation until payment is made. This can be explained by the
purpose of interest, both pre-award and post-award, to provide full reparation of the
injury caused, as formulated by the tribunal in Amco Asia v Indonesia:
[I]nterest thus awarded for the period elapsed between the said date and the
date of payment of the sum awarded, should be considered as part of the
compensation granted to Claimants, in order for the same to come as close as
possible to the full compensation prescribed by international law. (484)
6.267 In Asian Agricultural Products v Sri Lanka, the payment of pre-award interest
extended to the date of effective payment after the award. The tribunal decided that
'interest continues to run as a part of the compensation allocated to the Claimant up to
the date of the payment of the sum awarded'. (485) The ICSID tribunals in Fedax v
Venezuela, (486) Antoine Goetz v Burundi, (487) Técnicas Medioambientales v Mexico, (488)
Autopista Concesionada v Venezuela, (489) MTD v Chile, (490) and CSOB v Slovak Republic
(491) also did not differentiate between pre-award interest and post-award interest. This
was also the case in the NAFTA arbitration in S D Myers v Canada (492) and ad hoc
arbitrations, such as CME v Czech Republic (493) and Quasar de Valores v Russia. (494)
(b) Date of the Award
6.268 The date of the award as the starting point of interest is appropriate upon two
considerations: first, it can be argued that only at the date of the award are the amount
of damage and the payment obligation established with certainty so that only then the
payment obligation can be fixed. Secondly, if the valuation date is the date of the award,
interest only runs from this date. This includes cases where tribunals calculate an
aggregate amount of pre-award interest up until the date of the award.
6.269 Under these considerations, only post-award interest may be awarded. The PCIJ
explained this in Wimbledon in the following way:
[T]his interest, however, should run not from the day of the arrival of the
'Wimbledon' at the entrance of the Kiel Canal, as claimed by the applicants,
237
P 396 but from the date of the present judgment, that is to say from the moment
when the amount of the sum due has been fixed and the obligation to pay has
been established. (495)
6.270 In the view of the PCIJ, such post-award interest was not 'default interest', but rather
'interim interest', since the Court did not want to consider the possibility of non-
compliance with its ruling. The German Government was given a period of three months
to address the financial and administrative necessities for the payment of the amount of
damages. The interest awarded was deemed to compensate only the delay in payment
resulting from these three months:
The Court does not award interim interest at a higher rate in the event of the
judgment not being complied with at the expiration of the time fixed for
compliance. The Court neither can nor should contemplate such a
contingency. (496)
6.271 The tribunal in LIAMCO v Libya also only awarded post-award interest at a rate of 5
per cent as 'applicable to commercial matters'. (497) It justified this decision by
determining that an exact sum was only established at the time of the award. Therefore,
no interest could be awarded before this date. (498) The tribunal in Lemire v Ukraine also
awarded interest only as of the date of the award, because '[t]his is the date when the
actual amount of damages is established, the date when Respondent's obligation to pay
the compensation arises and, consequently, the appropriate date for interest to start
accruing'. (499)
6.272 Other tribunals awarded only post-award interest because the valuation date was
the date of the award and/or any pre-award interest was already calculated up until the
date of the award as part of the total amount of compensation or damages. (500)
6.273 Such a practice is generally preferable, as the calculation of post-award interest
becomes easier when the amount owed at the time of the award is already established
precisely. It would also correspond better to the slightly different function of post-award
interest, namely not only to compensate for the financial loss incurred by the passing of
time, but also to accelerate compliance with the award and to discourage delaying
P 397 attempts.
(c) Grace Period

6.274 The function of post-award interest is perhaps best served if the tribunal sets a
time limit for the respondent to comply with the award and decides that only thereafter
does post-award interest start accruing. This time limit is usually referred to as 'grace
period'. (501) Such a grace period creates a clear break between pre-award interest and
post-award interest and provides an incentive for expedient compliance with the award.
This is particularly true if the grace period is completely free of interest.
6.275 The practice of granting grace periods in investment arbitration is very diverse. In
cases of lawful expropriations, where payment of interest 'until payment' (502) should be
part of the compensation, grace periods are rather unusual. The ICSID Tribunal in
Southern Pacific Properties v Egypt calculated US$ 27,661,000 as the total sum payable,
consisting of various main payment sums and pre-award interest. It then held that 'the
amount of US $27,661.000 shall earn simple interest of five percent per annum, beginning
30 days after the date on which this Award is notified to the Respondent, until the date of
payment'. (503) This gave the respondent a period of thirty days in which no interest
accrued and which provided the opportunity to make the necessary arrangements for
compliance with the award. Similarly, the ICSID Tribunal in Compañía del Desarrollo de
Santa Elena v Costa Rica allowed an interest-free period of time to pay the compensation
due after a lawful expropriation, but limited it to twenty-one days. (504)
6.276 The tribunal in Rosinvest v Russia applied a provision of the applicable BIT which
stipulated that, in case of expropriation, compensation 'shall be made within two months
of the date of expropriation'. (505) The tribunal referred to this as a 'two months grace
period expressly provided in Article 5.1' (506) and awarded interest from two months
after the valuation date until the date of payment. (507) This grace period thus did not
separate pre-award from post-award interest but accentuated that compensation upon
expropriation did not require interest from the time of the expropriation if the BIT itself
provided for a 'grace period'.
6.277 Grace periods have also been allowed in cases of BIT violations. However, they have
P 398 not always been free of interest. The ICSID Tribunal in Middle East Cement v Egypt
allowed a period of thirty days for compliance with the award. (508) Nevertheless, pre-
award interest continued to accrue during this time and was added to the principal. (509)
6.278 Such a method was also applied with regard to a forty-five-day grace period in
Metalclad v Mexico. (510) Other arbitral tribunals stopped interest accrual in the
meantime and allowed a period free of interest. This period lasted, for example, for
thirty days in Wena Hotels v Egypt, (511) LG&E v Argentina, (512) and Siag v Egypt, (513) and
sixty days in CMS v Argentina (514) and in Lemire v Ukraine. (515) In Yukos v Russia, the
tribunal granted a grace period of 180 days before interest would accrue, 'in view of the
significant amount of damages which Respondent owes Claimants'. (516)
238
6.279 The ICSID award in Maffezini v Spain had an additional refinement. The interest-free
period was sixty days. However, if the award was not complied with in this time, post-
award interest amounting to 6 per cent, with monthly capitalization would become due
as of the date of the award. (517) Post-award interest therefore was owed retroactively
only in case of non-compliance. (518)
6.280 The ECtHR in its early jurisprudence on 'just satisfaction' did not award any form of
post-award interest. The underlying consideration was similar to that of the PCIJ, which
did not want to explicitly consider the possibility of non-compliance by the respondent
state. The Court's view in Pine Valley v Ireland on the question of 'Interest on the Courts'
Award', was:
The applicants also sought interest on the sums awarded (at least, those for
pecuniary damage and for costs) for the period between the date of the
present judgment and the date of payment … The Court does not consider it
appropriate to accede to it in this instance. (519)
6.281 However, it later began awarding post-award interest regularly. As a rule, a period
of three months was conceded for compliance with the judgment. (520) This is also the
P 399 period of time the PCIJ allowed the German state in Wimbledon. The convicted member
state was supposed to be able to meet its payment obligation within this period of time.
'Default interest', as the ECtHR calls it, begins to accrue after this period of time has
passed.
(2) Interest Rate

6.282 In cases where post-award interest is determined as a simple continuation of pre-
award interest, (521) no separate consideration on the rate of post-award interest takes
place. Only in cases where tribunal distinguish between the two, a rate of post-award
interest has to be established.
6.283 As mentioned above, the PCIJ referred to 'public loans' in the Wimbledon case for
the establishment of post-award interest. This reflects the idea of a 'coerced loan' which
the claimant grants the respondent and aims to avoid unjust enrichment. (522) In order to
create a financial incentive for the state to meet its obligation promptly, a rate higher
than applied to pre-award interest may be considered. This does not add a 'punitive'
element to the interest rate, because the borrowing rate of the respondent does not
represent a punishment but merely reflects the respondent's default risk. (523)
6.284 The interest rate for government bonds was used as a reference for post-award
interest in Marvin Feldman v Mexico, where the NAFTA Tribunal awarded 'simple interest
at the rate calculated in conformity with the Mexican Government Treasury Certificates
interest rates (CETES) at maturity of 28 days'. (524) The tribunal in Wena Hotels v Egypt
chose the Egyptian government bonds not only as a reference for pre-award interest, but
for post-award interest (525) as well.
6.285 The tribunal in Southern Pacific Properties v Egypt also applied the Egyptian legal
interest rate for default (526) but, as opposed to pre-award interest, no 'deflation factor'
P 402 was added.
6.286 The arbitral tribunal in Compañía del Desarrollo de St Elena v Costa Rica did not
state any reason for the choice of an interest rate of 6 per cent for post-award interest.
(527) The tribunals in Metalclad v Mexico (528) and Middle East Cement v Egypt (529) chose
the 'fair' 6 per cent rate but did not explain their choice in a more detailed manner. In
LIAMCO v Libya the tribunal referred to the 'most usual rate of 5%, applicable to
commercial matters'. (530) Post-award interest can therefore be treated as interest for
default in commercial cases.
6.287 Also other rates are possible as a reference for post-award interest, such as
interbank interest rates. The ICSID Tribunal in LETCO v Liberia chose to base post-award
interest rate on international financial markets, namely 'the annual rate of LIBOR at three
months'. (531)
6.288 Whether one reference rate is higher or lower than the other is not always clear due
to considerable fluctuations of market-related interest. For example, without information
on historic interest rates it is not evident whether the pre-award interest set in Maffezini v
Spain on the basis of the LIBOR for the Spanish peseta, was higher or lower than the post-
award interest which was set at 6 per cent. (532) In National Grid v Argentina, pre-award
interest was based on LIBOR plus two percentage points, but post-award interest was
awarded at the average rate payable on six-month US Treasury Bills, compounded semi-
annually. (533) As a rule, borrowing rates are higher than rates on deposits, so that, in this
case, pre-award interest was higher than post-award interest. The tribunal explained the
choice of this risk-free rate by considering that the function of post-award interest was
essentially a protection of the value of the award against inflation. (534)
6.289 In other cases, LIBOR was taken only for post-award interest, as opposed to the risk-
free rate on pre-award interest. The tribunal in Occidental v Ecuador found that the US
six-month LIBOR, compounded monthly, should be applied to post-award interest, as
opposed to pre-award interest based on the US Government Treasury Bill rate. (535)
Similarly, the tribunal in Gold Reserve v Venezuela applied the LIBOR plus two percentage
239
points to post-award interest, because it considered 'that continuing a risk-free rate
would be inappropriate'. (536)
6.290 In CMS v Argentina pre-award interest was calculated on the basis of US Treasury
Bills on an annual average, while post-award interest was based on US Treasury Bills on a
semi-annual average. The tribunal determined pre-award interest on the basis of
historical data precisely, while the rate of post-award interest remained necessarily
open:
The Tribunal is of the opinion that the U.S. Treasury Bills rate is more
appropriate under the circumstances and that the interest should be simple
for the period extending from August 18, 2000, to 60 days after the date of this
decision or the date of effective payment if before. For this period the interest
rate shall be 2.51% which corresponds to the annualized average rate for the
U.S. Treasury Bills as reported by the Federal Reserve Bank of St. Louis.
Thereafter, the interest shall be the arithmetic average of the six-month U.S.
Treasury Bills' rates observed on the afore-mentioned date and every six
months thereafter, compounded semi-annually. (537)
6.291 The European Court of Human Rights (ECtHR) has also differentiated between pre-
award and post-award interest. Since 2004 it has introduced an interesting new approach
with regard to post-award interest, namely not to refer any longer to legal interest rates,
(538) unexplained currency-based interest rates, (539) or other interest rates. (540)
Instead, it now consistently applies the European Central Bank's marginal lending rate to
which should be added three percentage points. (541) As the current marginal lending
rate is 0.25 per cent, this rate amounts to 3.25 per cent (since March 2016). (542)
6.292 Another benchmark interest of the European Central Bank was used for the new
provisions of default interest law in Europe. All EU member countries had to introduce
default interest by law (at least) eight percentage points above the interest rate of the
most recent refinancing operation of the European Central Bank before the first day of
the respective semi-annum basic interest rate. (543) As this rate is currently 0 per cent
(since March 2016), (544) an EU-wide default interest rate is at the minimum 8 per cent.
6.293 This relatively high interest rate shows that default interest must fulfil various
functions, such as encourageing creditors to show better payment habits, disciplining
defaulters, and at least partly also covering the risk of complete default.
(3) Compound Interest

6.294 The increasing acceptance of compound interest in international practice has also
extended to post-award interest. This is logical and comprehensible when no difference
is made between pre-award interest and post-award interest, (545) or when interest is
calculated by the same method despite a certain grace period in between.
6.295 However, due to the slightly different functions of pre-award interest and post-
award interest, different solutions as regards the issue of compounding can also be
considered, including shorter compounding intervals. This was shown, for example, in
Metalclad v Mexico: while pre-award interest was capitalized on a yearly basis, post-
award interest was capitalized on a monthly basis after the payment period of forty-five
days expired. (546) Also in Maffezini v Spain pre-award interest was compounded
annually, while post-award interest was compounded monthly. (547) The tribunal in CMS v
Argentina decided that only post-award interest be compounded. (548)
6.296 The tribunal in Occidental v Ecuador discussed the differentiation and awarded
pre-award interest at the rate of US Government Treasury Bills, compounded annually,
but post-award interest at the US dollar six-months LIBOR rate, compounded monthly:
It is not uncommon for tribunals to distinguish between pre- and post-award
interest and in the present case it seems appropriate to do so, … the Tribunal
considers that it would be fair to order that post-award interest should accrue
in favour of the Claimants at the U.S. 6 month LIBOR rate compounded on a
monthly basis. (549)
P 403
6.297 Similarly, the tribunal in Yukos v Russia awarded simple pre-award interest, but
post-award interest, after a grace period of 180 days, on principal and cost compounded
annually. (550)
6.298 By contrast, the ICSID Tribunal in Companía de Desarollo de St Elena v Costa Rica,
after having made a ground-breaking decision as regards the compounding of pre-award
interest, only awarded simple post-award interest. (551) This may come as a surprise and
shows that the different functions of interest are not always consistently reflected in the
practice of international investment tribunals.
6.299 Shorter compounding intervals lead to higher post-award interest than pre-award
interest and can be used as an additional incentive for expeditious payment and
prevention of the failure to comply promptly with the award.
240
D. Conclusions on Interest
6.300 The decisions on interest in international investment arbitration should reflect the
specific functions of interest in the context of calculating compensation and damages.
With regard to pre-award interest and post-award interest a differentiated approach
might be appropriate.
6.301 In the context of expropriations, the criterion of 'promptness' is relevant for the
determination of interest on amounts of compensation paid belatedly. In damages cases,
the principle of 'full reparation' is central which means that interest should remedy the
concrete loss incurred by the injured party because of the delayed payment. In addition,
interest has the function of preventing unjust enrichment of the debtor of a payment
obligation. In all cases, an economic approach is preferable. Legal interest with fixed
statutory rates is usually not able to fulfil the functions as mentioned. However, the
respondent's statutory rate may be used as a helpful benchmark representing the legal
minimum recognized by the state itself.
6.302 Interest on amounts of damages could be determined by reference to interest
forgone on investment or by interest on loans the injured party has to take out. Concrete
damage incurred by the costs of a loan certainly represents an item of damage. If,
however, there is no proof of a loan actually taken out or of interest on investment
actually forgone, the tribunal can instead choose an appropriate referential interest rate.
P 404
6.303 With regard to an appropriate rate on investment alternatives, a variety of
securities or bonds can be chosen as a reference. As the behaviour of a reasonable
person should be assumed, the referential security should be relatively low-risk.
International investment tribunals have frequently chosen the rate of US six-month
certificates of deposit or US Treasury Bills as a referential rate on investment. Another
option is to choose a risk-free rate (e.g. from government bonds) and increase it by a
market-risk premium, as measured by an historical average of the excess of the market
return over the risk-free rate.
6.304 With regard to the choice of an appropriate borrowing rate, arbitral practice has
sometimes referred to the so-called 'prime' or 'base' rate. In Anglo-American countries
this rate is widely used as an important referential interest rate that banks offer their
most creditworthy customers. As most enterprises cannot borrow at this rate, surcharges
need to be added for a more realistic borrowing rate. The same is true for interest based
on interbank rates, such as the LIBOR and EURIBOR. These rates indicate the rate at
which banks can borrow from each other on the interbank market. Individuals and
companies usually cannot borrow under the same conditions so that a premium of
several percentage points seems appropriate. Tribunals have repeatedly applied LIBOR
and EURIBOR, usually increased by one, two, or four percentage points.
6.305 In order to prevent unjust enrichment of the debtor, the unsuccessful respondent
state should, as a matter of principle, pay interest at a rate at it pays for its debts. This
would appropriately reflect the fact that the investor actually gives a loan to the state.
However, these rates may be rather high for countries in economic and political
difficulties. Tribunals have therefore often rejected them. However, to create an incentive
to pay promptly and to avoid unjust enrichment is a particular function of post-award
interest.
6.306 Even if international practice has not consistently differentiated between pre-
award and post-award interest, some tribunals did make a difference and awarded
higher post-award interest, including by shorter compounding intervals.
6.307 In addition, the period of interest accrual is important, both from a legal and from a
financial perspective. In expropriation cases, interest will accrue from the date of
expropriation which is widely recognized in international practice. Under the law of state
responsibility interest shall accrue from the date when the principal should have been
paid. An explicit reminder is not necessary. In cases of breach of contract the beginning
of the interest period depends on various factors, such as the terms of the contract, the
law applicable, commercial practice, and the circumstances of the case.
6.308 Finally, it was shown that, in contrast to earlier practice and scholarly writing,
international investment tribunals have increasingly awarded compound instead of
P 405 simple interest. However, this trend, noticeable since 2000, is not uniform. Tribunals
exercise discretion in this respect and tend to award simple interest in cases where
already the principal amounts are a very high.
6.309 In order to reflect the particular functions of interest, pre-award interest should not
only be determined with respect to the period, rate, and compounding, but also
calculated as an aggregate amount as at the date of the award. This would demonstrate
that interest represents an integral part of compensation or damages. Post-award
interest then could start to run from the time of the award or some time later and could
be set in a way that creates an incentive for the respondent to comply promptly with the
award. Thereby, interest in international investment arbitration would not only remedy
financial losses incurred but also contribute to prompt compliance with awards and
P 405 discourage attempts at delay.
241
References
1) See, e.g., Aminoil v Kuwait where the principal was US$ 83 million and the amount of
interest reached US$ 96 million. Aminoil v Kuwait, Award of 24 March 1982 (1982) 21
ILM 976, 1042. In Compañía del Desarrollo de Santa Elena v Costa Rica the amount of
compensation was US$ 4.15 million; the principal plus interest amounted to US$ 16
million. Compañía del Desarrollo de Santa Elena v Costa Rica, Award of 17 February
2000, paras 95, 107. In Wena Hotels v Egypt too, interest exceeded the principal. The
latter was set at US$ 8.8 million; together with interest the total award amounted to
US$ 20.6 million. Wena Hotels v Egypt, Award of 8 December 2000, paras 127, 136. In
Kardassopoulos and Fuchs v Georgia, the principal for each claimant amounted to
US$ 15.1 million, and the aggregate amount of pre-award interest was US$
30,024,736.83, also for each claimant. Kardassopoulos and Fuchs v Georgia, Award of
3 March 2010, paras 646, 668.
2) Some noteworthy exceptions included J Colón and M Knoll, 'Prejudgment Interest in
International Arbitration' (2007) TDM 4(6); T Sénéchal, 'Time Value of Money: A Case
Study' (2007) TDM 4(6); J Gotanda, 'A Study of Interest' (August 2007) Villanova
University School of Law/Public Law and Legal Theory Working Paper No 2007–10; J
Gotanda, 'Compound Interest in International Disputes' [2004] Oxford University
Comparative Law Forum 2; C Brower and J Brueschke, The Iran–US Claims Tribunal
(The Hague: Martinus Nijhoff Publishers, 1998) 615 et seq; J Gotanda, Supplemental
Damages in Private International Law (The Hague: Kluwer Law International, 1997); J
Gotanda, 'Awarding Interest in International Arbitration' (1996) 90 AJIL 40; F A Mann,
'Compound Interest as an Item of Damages in International Law' (1988) UC Davis Law
Review 577.
3) A Dolgoff and T Duarte-Silva, 'Prejudgment Interest: An Economic Review of
Alternative Approaches' (2016) 33 Journal of International Arbitration 99–114; J
Gotanda, 'Interest' in M Bungenberg, J Griebel, S Hobe, and A Reinisch (eds),
International Investment Law (Baden-Baden: Nomos, 2015) 1142–53; I Uchkunova Inna
and O Temnikov, 'A Procrustean Bed: Pre- and Post-Award Interest in ICSID
Arbitration' (2014) 20 ICSID Review 648–68; M Beeley and R Walck, 'Approaches to
the Award on Interest by Arbitration Tribunals' (2014) 1 The Journal of Damages in
International Arbitration 51–76; M Smith and R Vikis, 'Whose Money is it and Should it
Matter? An Essay on the Cost of Capital in International Arbitration' (2013) 10
Transnational Dispute Management, issue 4; M Abdala, P L Zadicoff, and P Spiller,
'Invalid Round Trips in Setting Pre-Judgment Interest in International Arbitration'
(2011) 5 World Arbitration and Mediation Review 1–19; E Lauterpacht and P Nevill,
'Interest' in J Crawford, A Pellet, and S Olleson (eds), The Law of International
Responsibility (Oxford: Oxford University Press, 2010) 613–22; T Sénéchal and J
Gotanda, 'Interest as Damages' (2009) 47 Columbia Journal of Transnational Law 491;
S Ripinsky and K Williams, Damages in International Investment Law (London: BIICL,
2008) 361–91; M Kantor, Valuation for Arbitration (The Hague: Kluwer, 2008) 261–87.
4) Similar to the functional approach with regard to other valuation issues, see above
Chapter 2. With regard to the importance of the function of interest see also I
Uchkunova and O Temnikov, above, n. 3, 651–2; A Dolgoff and T Duarte-Silva, above,
n. 3, 99; Gotanda, 'Interest', in Bungenberg et al, above, n. 3, 1143; Ripinsky, above, n.
3, 362–3.
5) See M Whiteman, Damages in International Law, vol. III (Washington: Government
Printing Office, 1943) 1913; also J Gotanda, 'Awarding Interest in International
Arbitration', above, n. 2, 40, and J Gotanda, Supplemental Damages, above, n. 2, 1–2.
6) The European Court of Human Rights (ECtHR) and the Court of Justice of the
European Union (CJEU), therefore, use the term 'default interest' or 'intérêts
moratoires'. See further below, Section C. For a clear differentiation between pre-
award interest as an item of damages and post-award interest as default interest on
a debt see CSOB v Slovak Republic, Award of 29 December 2004, para. 341; Gold
Reserve v Venezuela, Award of 22 September 2014, para. 856.
7) Unglaube v Costa Rica, Award of 16 May 2012, para. 326.
8) Article 38(1) of the Articles on the Responsibility of States for Internationally
Wrongful Acts, Resolution of the GA of 21 December 2001, A/Res/56/83, Annex.
9) Islamic Republic of Iran v United States of America, Case No. A 19, Decision of 30
September 1987, 16 Iran–US CTR (1988) 285, para. 12.
10) Vivendi Universal v Argentina (Vivendi II), Award of 20 August 2007, para. 9.2.1.
11) Decision No. 16 of the UNCC Governing Council, Awards of Interest, 4 January 1993,
S/AC.26/1992/16, para. 1.
12) C Schreuer, L Malintoppi, A Reinisch, A Sinclair, The ICSID Convention. A Commentary
(2nd edn, Cambridge: Cambridge University Press, 2009) Article 46, paras 43 et seq.
13) See Article 6 para. 3 of the US Model BIT 2012: '[T] the compensation referred to in
paragraph 1(c) shall be no less than the fair market value on the date of
expropriation, plus interest at a commercially reasonable rate for that currency,
accrued from the date of expropriation until the date of payment.' See also Article
34 para. 1 of the US Model BIT 2012: 'Where a tribunal makes a final award against a
respondent, the tribunal may award, separately or in combination, only: (1)
monetary damages and any applicable interest …'
242
14) McCollough & Co Inc v Ministry of Post, Telegraph and Telephone, 11 Iran–US CTR
(1986) 3.
15) Ibid, para. 98. Quoted by, among others, J Gotanda, Supplemental Damages, above,
n. 2, 13; Schreuer et al, above, n. 12, para. 43.
16) See above, Chapter 2, Section B(1)(b).
17) See above, Chapter 3, Section A.
18) World Bank (ed.), 'Legal Framework for the Treatment of Foreign Investment', vol. 2,
Report to the Development Committee and Guidelines on the Treatment of Foreign
Investment (hereinafter 'World Bank Guidelines') (1992) 31 ILM 1363, 1383.
19) Ibid.
20) Article 1110 para. 3 NAFTA.
21) Article 14 paras 2 and 1(g) ECT.
22) Article 6 para. 2(a) US Model BIT (2012); Article 4 para. 2 German Model BIT; Article
13 para. 3 Canada Model BIT (2004).
23) Article 1110 para. 4 NAFTA (emphasis added).
24) Article 13 para. 1 ECT (emphasis added).
25) Article 6 para. 3 US Model BIT (2012).
26) Article 13 para. 3 Canada Model BIT (2004).
29) Article 11.7 Free Trade Agreement USA–Australia.
30) Article 10.9 Free Trade Agreement USA–Chile.
31) Article 6 para. 4 US Model BIT (2012).
32) Article 38(1), Articles on the Responsibility of States for Internationally Wrongful
Acts, Annex to General Assembly Resolution 56/83 of 12 December 2001, UN Doc
A/Res./56/83.
33) See J Crawford, The International Law Commission's Articles on State Responsibility,
235.
34) The Commentary notes in this respect: 'Interest is not an autonomous form of
reparation, nor is it a necessary part of compensation in every case'. Ibid. See, e.g.,
SGS v Paraguay, Award of 10 February 2012, para. 172.
35) Illinois Central Railroad Co (United States v Mexico), 6 December 1926, 4 RIAA, 134.
36) Administrative Decision No III, 11 December 1923, 7 RIAA, 64, 66.
37) Case of the SS Wimbledon (Great Britain, France, Italy, Japan v Germany), Judgment of
17 August 1923, PCIJ 1923 Ser A, No. 1, 32.
38) The Corfu Channel Case (United Kingdom v Albania), Assessment of the Amount of
Damages, Judgment of 15 December 1949, ICJ Reports 1949, 243, 249–50.
39) Case Concerning Ahmadou Sadio Diallo (Guinea v DRC), Judgment of 19 June 2012, ICJ
Reports 2012, 322, para. 56.
40) Report of the International Law Commission on the work of its forty-fifth session, UN
Doc. A/CN.4/SER.A/1993/Add.1, Yearbook of the International Law Commission 1993,
vol. II, Part Two, 73; J Crawford, Third Report on State Responsibility, UN Doc.
A/CN.4/507/Add.1, para. 197.
41) This principle was respected, e.g., in Amco Asia v Indonesia (Amco I), Award of 20
November 1984, para. 281; Liberian Eastern Timber Corporation (LETCO) v Liberia,
Award of 31 March 1986 (1994) 2 ICSID Reports 343, 379; S D Myers v Canada, Second
Partial Award of 21 October 2002, para. 303.
42) J Crawford, above, n. 33, 239.
43) S Ripsinky and K Williams, above, n. 3, 378.
44) Abdala, Zadicoff, and Spiller argue that tribunals tend to make 'invalid round trips'
by using a high discount rate and a low pre-award interest rate and so fail to
provide full reparation. M Abdala, P L Zadicoff, and P Spiller, above, n. 3, 3; see also
H Wöss, A Rivera, P Spiller, and S Dellepiane, Damages in International Arbitration
under Complex Long-Term Contracts (Oxford: Oxford University Press, 2014) 283–5;
examples of such invalid round trips allegedly included CMS v Argentina, Award of
12 May 2005, paras 450–5, and El Paso v Argentina, Award of 31 October 2011, para.
747.
45) McCollough v Ministry of Post, 11 Iran US CTR (1986) 3, para. 97.
46) Phillips Petroleum and ConocoPhillips v PDVSA, Award of 17 September 2012, para.
295.
47) See, e.g., Article 9:509(1) PECL or Article 7.4.9(2) of the UNIDROIT Principles of
International Commercial Contracts.
48) Article 78 CISG. This implies that legal interest according to the conflict of law rules
is applicable.
49) 'The aggrieved party may in addition recover damages for any further loss so far as
these are recoverable under this Section.' Article 9:509(2) PECL.
50) Case of the SS Wimbledon (Great Britain, France, Italy, Japan v Germany), PCIJ 1923 Ser
A, No. 1, 32.
51) Report of the ILC on the work of its forty-fifth session, UN Doc. A/48/10, Yearbook of
the International Law Commission 1993, vol. II, Part II, 73; Report of the ILC on the
work of its fifty-second session, UN Doc. A/55/10, 53 and 68–9; J Crawford, above, n.
40, 42; J Crawford, above, n. 33, 235 et seq.
52) Compañía del Desarrollo de Santa Elena v Costa Rica, Award of 17 February 2000
(2000) 15 ICSID Rev.-FILJ 169.
243
54) R J Reynolds Tobacco v Iran, Final Award, 8 Iran–US CTR (1985) 55, 60.
55) See Sempra Metals Limited (formerly Metallgesellschaft Limited) (Respondents) v Her
Majesty's Commissioners of Inland Revenue and another (Appellants), House of Lords,
Judgment of 18 July 2007, [2007] UKHL 34, para. 30; State Bank of New South Wales
Ltd v Federal Commissioner of Taxation, Federal Court, Judgment of 9 November 1995,
95 ATC 4734, at 4741; P Birks, Unjust Enrichment (2nd edn, Oxford: Oxford University
Press, 2005) 167–8; P Davenport and C Harris, Unjust Enrichment (Sydney: The
Federation Press, 1997) 59.
56) See Article 78 CISG, Article 9:509 PECL, and Article 7.4.9 UNIDROIT Principles of
International Commercial Contracts. See above, at paras 6.26–7.
57) J Gotanda, Supplemental Damages, above, n. 2, 58.
58) See below, Section C.
59) Examples will be discussed further below, in Section C.
60) Enron v Argentina, Award of 22 May 2007, ICSID Case No. ARB/01/3, para. 452; Sempra
v Argentina, Award of 28 September 2007, ICSID Case No. ARB/02/16, para. 485.
61) See, amongst many others, M Whiteman, above, n. 5, 1913; J Gotanda, Supplemental
Damages, above, n. 2, 1.
62) J Ortscheidt, L'évaluation des dommages dans l'arbitrage commercial international
(Paris: Dalloz, 2001) 281.
63) <http://www.websters-online-
dictionary.org/translation/Spanish/intereses+compensatorios>.
64) P Kindler, Gesetzliche Zinsansprüche im Zivil- und Handelsrecht (Tübingen: Mohr
Siebeck, 1996) 337; G Graf, 'Die Neuregelung der Rechtsfolgen des Zahlungsverzugs.
Eine kritische Analyse des ZinsRÄG' (2002) WBl 437. In the decisions of the CJEU,
compensatory interest is translated by the term 'Ausgleichszinsen'. See Cases 27/59
and 39/59 Campolongo v Hohe Behörde [1960] ECR 821, 853 (German version). See I
Marboe, 'Zinsen im Europäischen Gemeinschaftsrecht' in H F Köck, A Lengauer, and G
Ress (eds), Europarecht im Zeitalter der Globalisierung. Festschrift für Peter Fischer
(Vienna: Linde, 2004) 329, 341.
65) See A Dolgoff and T Duarte-Silva, above, n. 3, 99; notable examples include Biloune v
Ghana, Award on Damages and Costs, Award of 30 June 1990 (1994) 95 ILR 211, 231;
Liberian Eastern Timber Corporation (LETCO) v Liberia, Award of 31 March 1986 (1994) 2
ICSID Reports 343, 379; Pope & Talbot v Canada, Award in Respect of Damages of 31
May 2002, para. 90; Marvin Feldman v Mexico, Award of 16 December 2002, para. 205;
National Grid v Argentina, Award of 3 November 2008, 294; Kardassopoulos and Fuchs
v Georgia, Award of 3 March 2010, para. 668; Alpha Projektholding v Ukraine, Award of
8 November 2010, para. 514; Chevron v Ecuador, Award of 31 August 2011, para. 350;
Unglaube v Costa Rica, Award of 16 May 2012, para. 325; Phillips Petroleum and
ConocoPhillips v PDVSA, Award of 17 September 2012, para. 304; Yukos v Russia, Final
Award of 18 July 2014, para. 1823; Pluspetrol v Perupetro, Award of 21 May 2015, para.
219.
66) William L. Pereira v Iran, 5 Iran–US CTR (1984) 198, 224, 226.
67) Nasser Espahanian v Bank Tejarat, 2 Iran–US CTR (1983) 157, 169.
68) Blount Brothers v Ministry of Housing, 3 Iran–US CTR (1983) 225, 235; Dames & Moore v
Iran, 4 Iran–US CTR (1983) 212, 224; Morrison-Knudsen Pacific Ltd v Ministry of Roads
and Transportation, 7 Iran–US CTR (1984) 54, 89.
69) Gould Marketing v Ministry of Defence, 6 Iran–US CTR (1984) 272, 287.
70) The first approach was elaborated and consistently applied by Chamber One and
Two of the Iran–US Claims Tribunal, while the latter was relied upon by Chamber
Three. See C Brower and J Brueschke, above, n. 2, 622; see also S Ripinsky and K
Williams, above, n. 3, 368.
71) Sylvana Technical Systems Inc v Iran, 8 Iran–US CTR (1985) 298, 320.
(1986) 3, para. 99.
74) See also S Ripinsky and K Williams, above, n. 3, 372–3.
75) In Autopista Concesionada v Venezuela, Aucoven's financial expert agreed that the
contractual 5-bank interest rate chosen by Aucoven was a nominal rate, which
included both a 'real' interest component and a CPI component. The expert
testified that 'the 5-bank rate‚ already includes the inflation, so there is no need for
further adjustment for inflation in that rate'. Autopista Concesionada de Venezuela v
Venezuela, Award of 23 September 2003, para. 400.
76) See also T Sénéchal, 'Present-day Valuation in International Arbitration: A
Conceptional Framework for Awarding Interest' in L Lévy and F de Ly (eds), Interest,
Auxiliary and Alternative Remedies in International Arbitration (Paris: ICC Publication,
2008) 219, 226.
77) In a few Islamic countries there is a total or partial prohibition of interest on the
basis that interest is not compatible with Islamic Sharia. See the informative
overview on the different solutions of Islamic countries in this respect by N Comair-
Obeid, 'Recovery of Damages for Breach of an Obligation of Payment' in Y Derains
and R Kreindler (eds), Evaluation of Damages in International Arbitration (Paris:
International Chamber of Commerce, 2006) 133.
244
78) In Russian Indemnities it was only established that there is a general principle of law
which could be derived from the comparison of different legal systems that interest
is generally due for delayed payment. The arbitral tribunal, however, did not go into
further detail, such as the rate or other parameters of the interest claim. Russian
Indemnities (Russia v Turkey), Award of 11 November 1912, 11 RIAA 421.
80) See above, Section A(2)(a).
81) J Gotanda, 'Awarding Interest in International Arbitrations', above, n. 2, 51.
82) Ibid, 52.
83) Ibid.
84) J Gotanda, Supplemental Damages, above, n. 2, 47 et seq.
85) In view of this problem, Gotanda comments: '[i]n short, using choice-of-law rules to
select a national law to resolve an interest claim can often be a difficult process
that leads to arbitrary and unpredictable results.' J Gotanda, 'Awarding Interest in
International Arbitrations', above, n. 2, 53.
86) Directive 2011/7/EU of the European Parliament and of the Council on combating
late payment in commercial transactions of 16 February 2011, [2000] OJ L200/35.
87) See Article 2(7) of the Directive.
88) Since June 2016, the reference rate has been -0.62%. Thus, the default interest rate
in the EU is currently not less than 7.48%. Most EU member states have
implemented a higher interest rate, such as 8.5% (UK), 8.17% (Germany), 8.05%
(France), or 9.08% (Austria). See the website of the European Commission
<https://ec.europa.eu/growth/smes/support/late-payment_e>.
91) Aminoil v Kuwait, Award of 24 March 1982, paras 168 et seq.
92) The purchasing power of US$ 100 in May of 1978 was equivalent to the purchasing
power of US$ 220.74 in December of 1991. Southern Pacific Properties v Egypt, Award
of 20 May 1992, para. 243.
93) Ibid, para. 238. In view of the difficulties with the inadequate Egyptian legal interest
one might ask why the tribunal had relied on Egyptian law at all. The reason is that
it applied Article 42 of the ICSID Convention for the choice of the law applicable
and found that 'interest be determined according to Egyptian Law because there is
no rule of international law that would fix the rate of interest or proscribe
limitations imposed by Egyptian law'. Ibid, para. 222.
96) Wena Hotels v Egypt, Award of 8 December 2000, paras 128–30.
97) Ibid, endnote 289.
98) It held that 'the provision in Egyptian law on which Respondent relies is not
applicable to claims based on the BIT, i.e. public international law'. Middle East
Cement v Egypt, Award of 12 April 2002, para. 174.
100) The tribunal noted: 'Indeed, the legal rate of interest according to Indonesian law is
of six per cent (6%) per year (Regulation of 30 May 1848, still in force)'. Amco Asia
Corp v Indonesia (Amco I), Award of 20 November 1984, para. 281.
101) Ibid.
103) See ibid, para. 637: 'Neither the Treaty nor international law provide for a [sic]
interest rate to be applied'.
104) Ibid, para. 643.
1988, paras 6.37, 12.05 et seq.
106) MTD Equity v Chile, Award of 25 May 2004, paras 249–51.
107) Pope & Talbot v Canada, Award in Respect of Damages of 31 May 2002, para. 88.
108) I Uchkunova and O Temnikov, above, n. 3, 655.
109) R J Reynolds Tobacco Co v Iran, 7 Iran–US CTR (1984) 181, 192. See also William L
Pereira v Iran, 5 Iran–US CTR (1984) 198, 226; Howard, Needles, Tammen & Bergendoff
v Iran, 11 Iran–US CTR (1986) 302.
110) Anaconda-Iran Inc v Iran, Interlocutory Award, 13 Iran–US CTR (1988) 199, para. 137.
111) Anaconda-Iran Inc v Iran, Final Award, 28 Iran–US CTR (1992) 320, para. 121.
113) R J Reynolds Tobacco Co v Iran, 7 Iran–US CTR (1984) 181, 193.
114) Reading & Bates Drilling Company v Iran, 18 Iran–US CTR (1988) 164, para. 24.
115) William L Pereira Associates, Iran v Iran, 5 Iran–US CTR (1984) 198, 224, 226; Howard,
Needles, Tammen & Bergendoff v Iran, 11 Iran–US CTR (1986) 302, para. 148.
116) See also C Brower and J Brueschke, above, n. 2, 626 with further references.
245
para. 383. As Article 1.746 of the Venezuelan Civil Code did not contain such a
prohibition, the contractual rate was applicable. However, the reasoning of the
tribunal is ambiguous. On the one hand, it recalled that there was 'no rule of
international law that would fix the rate of interest or proscribe the limitations
imposed by [domestic] law', quoting SPP v Egypt, para. 222, but, on the other hand,
noted that 'the Tribunal's exclusive reliance on Venezuelan law is justified'. Ibid,
para. 386. It is thus unclear whether the tribunal would have upheld a limitation
required under Venezuelan law.
118) Ibid, para. 382.
119) CDC Group v Seychelles, Award of 29 June 2005, para. 62.
120) Eastman Kodak Company v Iran, 27 Iran–US CTR (1991) 3, para. 30. The tribunal
awarded 8 per cent interest as determined by the promissory notes instead of 10
per cent as claimed by the claimant. Ibid, para. 60.
121) Fedax NV v Venezuela, Award of 9 March 1998, para. 32.
122) Pluspetrol v Perupetro, Award of 21 May 2015, para. 207.
123) SARL Benvenuti & Bonfant v Congo, Award of 15 August 1980, ICSID Case No.
ARB/77/2, para. 4.100.
124) See J Westberg, International Transactions and Claims Involving Government Parties.
Case Law of the Iran–US Claims Tribunal (Washington: International Law Institute,
1991) 253 et seq; J Gotanda, Supplemental Damages, above, n. 2, 38 et seq.
125) Sylvana Technical Systems Inc v Iran, 8 Iran–US CTR (1985) 298, 321 in fn. 13.
126) Ibid.
127) Article 9:509(1) PECL.
128) Article 7.4.9(2) of the UNIDROIT Principles of International Commercial Contracts.
129) See the website of the US Board of Governors of the Federal Reserve System,
<https://www.federalreserve.gov/faqs/credit_12846.htm>; see also Sylvana
Technical Systems v Iran, 8 Iran–US CTR (1985) 298, 321 in fn. 12.
130) See the website of FedPrimeRate.com, <http://www.fedprimerate.com/>.
131) Ibid.
132) See the overview of historical prime rates at the website of FedPrimeRate.com,
<http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm#curren
t>.
133) Sylvana Technical Systems Inc v Iran, 8 Iran–US CTR (1985) 298, 321 in fn. 13.
134) Ibid.
135) Anaconda-Iran Inc v Iran, Interlocutory Award, 13 Iran–USCTR (1988) 199, para. 135.
Therefore, in the Final Award the prime rate of the Chase Manhattan Bank was
referred to: '[T]he Tribunal has calculated the average of the prime rate charged by
the same bank [the Chase Manhattan Bank] from 1 June 1979 through the date of the
final disposition of this Case to be 11.16%, to which 2% must be added in
accordance with the Interlocutory Award'. Anaconda-Iran v Iran, Final Award, 28
Iran–US CTR (1992) 320, para. 121.
136) The tribunal noted that 'based on the bids made to potential Canadian customers
(and the revenue from the seven completed contracts), the currency of account of
the transactions between SDMI/MYERS Canada and their Canadian customers was
(or was to be) CAN$'. S D Myers v Canada, Second Partial Award of 21 October 2002,
para. 305.
137) Ibid, para. 307.
138) This was also one of the main criticisms of Arbitrator Holtzmann's Opinion in
Sylvana Technical Systems Inc v Iran. He pointed out that not all enterprises could
borrow in these conditions because 'borrowing rates vary depending on the credit
rating of each particular party, not all of whom are able to borrow at the prime rate,
and some of whose credit standings may change during the relevant period'.
Sylvana Technical Systems Inc v Iran, 8 Iran–US CTR (1985) 298, 321.
139) Teco v Guatemala, Award of 19 December 2013, paras 766 et seq.
142) Chevron v Ecuador, Award of 31 August 2011, para. 350.
143) Mobil Cerro Negro v PDVSA, Award of 23 December 2011, para. 854.
144) Cargill v Mexico, Award of 18 September 2009, para. 544.
145) T Sénéchal, above, n. 2.
146) Ibid.
147) Ibid.
149) Ibid.
150) Tidewater v Venezuela, Award of 13 March 2015, paras 207–9.
151) Ibid, para. 207.
152) The tribunal in Siag v Egypt chose the LIBOR to counter the higher rates suggested
by the claimants based on cost of financing. See Siag v Egypt, Award of 1 June 2009,
paras 596–8; see also I Uchkunova and O Temnikov, above, n. 3, 657.
153) S Pratt and A Nicolita, Valuing a Business. The Analysis and Appraisal of Closely Held
Companies (5th edn, New York: McGraw Hill, 2008) 181.
154) Ibid, 181–6.
246
155) This is one of the reasons why Sénéchal does not recommend using the cost of
capital as a benchmark for pre-award interest. Other reasons include the fact that
the cost of capital model is constructed on the assumption that financial markets
are dominated by rational, risk-averse investors, who seek to maximize satisfaction
from return on their investment. Other cost of capital assumptions include that the
market is efficient, frictionless, and without imperfections such as transaction costs,
taxes, and restrictions on borrowing and short selling. In addition, it assumes that
investors base their judgement on a common time horizon. See T Sénéchal, above,
n. 2, at 135.
156) S Pratt and A Nicolita, above, n. 153, 187. See also above, Chapter 4.
158) T Sénéchal, above, n. 76, 228.
159) M Abdala, P L López Zaidcoff, and P Spiller, above, n. 3, 12.
160) M Smith and R Vikis, above, n. 3, 5.
161) A Dolgoff and T Duarte-Silva, above, n. 3, 102.
162) PSEG v Turkey, Award of 19 January 2007, para. 341.
163) Ibid (emphasis added).
164) Ibid, para. 345. The tribunal eventually awarded six-month average LIBOR plus two
percentage points, compounded semi-annually. Ibid, para. 348.
165) EDF, SAUR and León v Argentina, Award of 11 June 2011, para. 1325.
167) Ibid.
168) It did so by explaining that '[t]he only provision of the Treaty that makes any
reference to a rate of interest is, of course, Article 5, which deals with
expropriation'. Ibid.
169) TECO v Guatemala, Award of 19 December 2013, para. 711.
170) Ibid, para. 762.
171) Ibid, para. 766.
172) Ibid, para. 768. In doing so, the tribunal addressed what Smith and Vikis call the
'factual uncertainty' regarding assumptions on post-breach behaviour of the
claimant or the respondent. In case of doubt, tribunals apparently tend to opt for
the risk-free rate. See M Smith and R Vikis, above, n. 3, 5.
173) Phillips Petroleum and ConocoPhillips v PDVSA, Award of 17 September 2012, para.
295.
174) Ibid, para. 235.
175) Ibid, para. 291.
176) Ibid, para. 295.
177) Ibid, with references to literature in fn. 243.
178) Ibid, para. 295.
179) M Beeley and R Walck, above, n. 3, 63, referring amongst others to the often-cited
Roger Ibbotson's research on historic rates of return, including calculations of
international cost of capital.
180) J Colón and M Knoll, above, n. 2, 11; Uchkunov and Temnikov, above, n. 3, 656; A
Dolgoff and T Duarte-Silva, above, n. 3, 103–5.
181) This is explained by the fact that the holder of an unsatisfied judgment would be
treated in a bankruptcy action like the holder of an unsecured debt. J Colón and M
Knoll, above, n. 2, 11.
182) Ibid.
183) See, e.g., Archer Daniels v Mexico, Award of 21 November 2007, para. 294; Railroad
Development v Guatemala, Award of 29 June 2012, para. 278; Yukos v Russia, Award of
18 July 2014, para. 1642; Gold Reserve v Venezuela, Award of 22 September 2014,
para. 850; Khan Resources v Mongolia, Award of 2 March 2015, para. 423; as regards
the awards applying the respondent's borrowing rate see the examples for the rate
of 'government bonds' of the respondent state, Section B(1)(e).
184) A Dolgoff and T Duarte-Silva argue that the respondent's borrowing rate is
appropriate for post-award interest, because once the award is final, it can become
a marketable asset in its own right, devoid of any litigation risk, but still afflicted
with default risk. See A Dolgoff and T Duarte-Silva, above, n. 3, 114.
185) Council Regulation (EC) No. 2533/98 of 23 November 1998 concerning the collection
of statistical information by the European Central Bank [1998] OJ L318/8.
186) See, e.g., Regulation (EU) No. 1072/2013 of the European Central Bank of 24
September 2013 concerning statistics on interest rates applied by monetary
financial institutions (recast) (ECB/2013/14) [2013] OJ L297/51.
187) In September 2016, the interest rate on new loans of over €1 million with a floating
rate and an initial rate fixation period of up to three months was 1.28%. The rate for
new loans of the same size with an initial rate fixation period of over ten years was
1.70%. In the case of new loans of up to €250,000 with a floating rate and an initial
rate fixation period of up to three months, the average rate charged remained at
2.65%. See European Central Bank, Euro Area Bank Interest Statistics: September
2016, Press Release of 3 November 2016, available at
<https://www.ecb.europa.eu/press/pdf/mfi/mir1611.pdf>.
188) Sylvana Technical Systems v Iran, 8 Iran–US CTR (1985) 298, 320.
189) J Gotanda, 'Awarding Interest in International Arbitration' (1996) 90 AJIL 40, 59.
190) Ibid.
191) Ibid, at 56.
247
192) The 2006 updated version of the UNCITRAL Model Law on International Commercial
Arbitration did not contain a provision on the determination of interest. See
<http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/ml-arb/07-
86998_Ebook.pdf>.
193) T Sénéchal and J Gotanda, 'Interest as Damages' (2008) Villanova Law/Public Policy
Research Paper No. 2008-06, available at <http://www.ssrn.com/abstract=116384>.
194) Ibid.
195) Ibid, with references to E Dimson, P Marsh, and M Staunton, 'Global Evidence on the
Equity Risk Premium' (2003), available at
<http://papers.ssrn.com/sol3/papers.cfm?abstract_id=431901>.
196) Ibid.
197) Sylvana Technical Systems v Iran, 8 Iran–US CTR (1985) 298, 320 et seq. See also J
Law of the Iran–US Claims Tribunal (Washington: International Law Institute, 1991)
258.
199) Ibid, at 322.
200) See Computer Sciences Corporation v Iran, 10 Iran–US CTR (1986) 269, 304; Oil Fields
of Texas v Iran, 12 Iran–US CTR (1986) 308, para. 49; Sola Tiles v Iran, 14 Iran–US CTR
(1987) 223, para. 66; Tavakoli v Iran, 33 Iran–US CTR (1997) 206, para. 250; Vera-Jo
Miller Aryeh et al v Iran, 33 Iran–US CTR (1997) 272, para. 252; George Davidson v Iran,
34 Iran–US CTR (1997) 3, para. 119.
201) See the website of Bankrate Inc, which surveys approximately 4,800 financial
institutions in all fifty US states to provide rate information to consumers, see
<http://www.bankrate.com/brm/rate/deposits_home.asp>.
203) CMS v Argentina, Award of 12 May 2005, para. 471; Azurix v Argentina, Award of 14 July
2006, para. 440; Siemens v Argentina, Award of 6 February 2007, para. 396.
204) LG&E v Argentina, Award of 25 July 2007, para. 104; Occidental v Ecuador, Award of 5
October 2012, para. 842; Gold Reserve v Venezuela, Award of 22 September 2014,
para. 853.
205) Siemens AG v Argentina, Award of 6 February 2007, para. 396.
207) Occidental v Ecuador, Award of 5 October 2012, para. 842.
208) The claimants had suggested to use (1) LIBOR plus two or four percentage points, (2)
Russian sovereign bonds issued in US$, or (3) the US prime rate plus 2%. Yukos v
Russia, Award of 18 July 2014, para. 1642.
209) Ibid, paras 1655–75.
210) Ibid, para. 1684, referring to Alpha Projektholding v Ukraine, Award of 8 November
2010, para. 514 and fn. 666; EDF, SAUR, Leon v Argentina, Award of 11 June 2012, paras
1325 et seq, and Gemplus v Mexico, Award of 16 June 2010, para. 16.24.
211) Yukos v Russia, Award of 18 July 2014, paras 1685, 1686.
212) Wena Hotels v Egypt, Award of 8 December 2000, endnote 289.
213) Wena Hotels v Egypt, Decision on the Application for Annulment of 5 February 2002,
para. 53.
214) Marvin Feldman v Mexico, Award of 16 December 2002, para. 205.
215) Quasar de Valores, Award of 20 July 2012, para. 226.
216) Ibid, para. 226.
217) Alpha Projektholding v Ukraine, Award of 8 November 2010, para. 514.
218) Ibid.
219) Ibid, at fn. 666.
220) Ibid, para. 514.
222) Ibid.
223) Ibid, para. 332.
224) See above, n. 212.
225) See already the discussion above, para. 6.117.
226) See the discussion on the borrowing rate of the state, above Section B(1)(c)(iv).
228) Tenaris v Venezuela, Award of 29 January 2016, para. 587.
229) Ibid, para. 586.
230) Ibid, para. 587.
231) CMS v Argentina, Award of 12 May 2005, para. 471; LG&E v Argentina, Award of 25 July
2007, para. 104; Archer Daniels v Mexico, Award of 21 November 2007, para. 300; Tzw
Yap Shum v Peru, Award of 7 July 2011, para. 290; Unglaube v Costa Rica, Award of 16
May 2012, para. 323; Occidental v Ecuador, Award of 5 October 2012, para. 842; Gold
Reserve v Venezuela, Award of 22 September 2014, para. 853; EDF, SAUR and León v
Argentina, Award of 11 June 2012, para. 1336, III; Anatolie Satie v Kazakhstan, Award of
19 December 2013, para. 1854; Suez v Argentina, Award of 19 April 2015, para. 117.
232) Azurix v Argentina, Award of 14 July 2006, para. 440; Siemens v Argentina, Award of 6
February 2007, para. 396.
233) See some examples further below.
234) See the Financial Times lexicon <http://lexicon.ft.com/Term?term=LIBOR>.
248
235) A panel is made up for each currency consisting of at least eight and a maximum of
sixteen banks which are deemed to be representative for the London money
market. Until 2013, the LIBOR was fixed by the British Bankers' Association, but in
the wake of the so-called 'LIBOR-Scandal' in 2012 which revealed the manipulation
of the LIBOR by a few big US and European banks it became a regulated activity.
See the Financial Times lexicon <http://www.ft.com/indepth/libor-scandal>.
236) USD LIBOR, GBP LIBOR, EUR LIBOR, JPY LIBOR, CHF LIBOR; the maturities are
overnight (one day), one week, one month, two months, three months, six months,
and twelve months. See the website of Global Rates <http://www.global-
rates.com/interest-rates/libor/libor-information.aspx>.
237) See the website of global-rates <http://www.global-rates.com/interest-
rates/libor/american-dollar/usd-libor-interest-rate-6-months.as...>.
238) See the website global-rates <http://www.global-rates.com/interest-
rates/libor/european-euro/2016.aspx>.
239) Ibid.
240) See also M Beeley and R Walck, above, n. 3, 75.
241) See the website of the European Money Market Institute <http://www.emmi-
benchmarks.eu/euribor-org/about-euribor.html>.
benchmarks.eu/euribor-org/euribor-reform.html>.
243) See <http://www.euribor.org/html/content/euribor_data_previousyears.html>.
benchmarks.eu/euribor-org/euribor-rates.html>.
245) Article 5(iv) Agreement for the Promotion and Protection of Investments between
the Republic of Italy and the Arab Republic of Egypt of 2 March 1989.
247) Ibid, para. 598.
248) Article 5(1) of the Agreement between the Macedonian Government and the Swiss
Federal Council on the Promotion and Reciprocal Protection of Investments of 26
September 1996 reads: '…The amount of compensation, including interest
calculated on the annual LIBOR basis, shall be settled in a convertible currency and
paid without delay to the person entitled thereto without regard to its residence or
domicile.'
250) Treaty between the United States of America and Ukraine concerning the
Encouragement and Reciprocal Protection of Investment of 4 March 1994, entered
into force on 16 November 1996; see Lemire v Ukraine, Award of 28 March 2011, para.
147.
252) Ibid, para. 354.
253) Ibid, para. 346.
254) Ibid, para. 350.
255) Ibid, para. 356.
256) Ibid, para. 355 (emphasis in original).
257) Biloune v Ghana, Award on Damages and Costs of 30 June 1990 (1994) 95 ILR 211, 230.
258) Ibid, at 231.
259) Emilio Agustín Maffezini v Spain, Award of 13 November 2000, para. 96.
260) MTD v Chile, Award of 25 May 2004, para. 249.
261) Ibid, para. 251. The tribunal, therefore, did not accept the respondent's submission
concerning the 'average annual LIBOR' but used the specific LIBOR interest rates at
certain key dates at annual intervals, namely '(i) 5.03813% in 1998, (ii) 6.16% in 1999,
(iii) 6.71625% in 2000, (iv) 2.24625% in 2001, (v) 1.62% in 2002, and (vi) 1.4925% in
2003'. Ibid, para. 251. This reflected the strong fluctuation of the LIBOR in the period
under consideration.
262) PSEG v Turkey, Award of 19 January 2007, para. 348; Enron v Argentina, Award of 22
May 2007, para. 452; Sempra v Argentina, Award of 28 September 2007, para. 486;
Rumeli v Kazakhstan, Award of 28 July 2008, para. 818; Continental Casualty v
Argentina, Award of 5 September 2008, para. 314; National Grid v Argentina, Award of
3 November 2008, para. 294; Lemire v Ukraine, Award of 28 March 2011, para. 351, see
the discussion already above; El Paso v Argentina, Award of 31 October 2011, para.
743; Railroad Development v Guatemala, Award of 29 June 2012, paras 278–9; Lahoud
v DRC, Award of 7 February 2014, para. 631; Khan v Resources v Mongolia, Award of 2
March 2015, para. 425; Quiborax v Bolivia, Award of 16 September 2015, para. 517 (but
the tribunal did not use six-months LIBOR, instead referring to 'one year LIBOR +
2%', which it deemed a suitable rate for debts in US currency owed outside the
United States over the relevant periods).
264) Khan v Resources v Mongolia, Award of 2 March 2015, para. 425.
265) Kardassopoulos and Fuchs v Georgia, Award of 3 March 2010, para. 661; Flughafen
Zürich v Venezuela, Award of 18 November 2014, para. 965; OI European Group v
Venezuela, Award of 10 March 2015, para. 944; Mobil Investments and Murphy Oil v
Canada, Award of 20 February 2015, para. 170.
266) Kardassopoulos and Fuchs v Georgia, Award of 3 March 2010, para. 661.
249
267) While the principal was for each claimant US$ 15.1 million, pre-award interest
amounted to US$ 30,024,736.83. Ibid, paras 646, 668.
268) Mobil Investments and Murphy Oil v Canada, Award of 20 February 2015, para. 170.
269) SGS v Paraguay, Award of 2012, para. 188 (US$ thirty-day LIBOR rate); Crystallex v
Venezuela, Award of 4 April 2016, para. 934 (six-months average US$ LIBOR rate).
270) This was the case when the BIT provided for it for the determination of
compensation upon expropriation. See already above the discussion of Siag v
Egypt, Award of 1 July 2009, para. 597, and Swisslion v Macedonia, Award of 6 July
2012, para. 358.
271) Funnekotter v Zimbabwe, Award of 22 April 2009, para. 144 (adding 'political risk' and
arriving at a 10% rate); Deutsche Bank v Sri Lanka, Award of 31 October 2012, para.
575 (based on a nine-month LIBOR rate plus a market-based funding spread based
on credit risks associated with DB, based on DB's one-year credit default swap rate
of 1.12%).
273) Article 5(1) of the Agreement between the Government of the United Kingdom and
the Government of the USSR for the Promotion and Reciprocal Protection of
Investments, London, 6 April 1989.
275) Ibid, para. 686.
276) Walter Bau v Thailand, Award of 1 July 2009, para. 16.1; Meerapfel v Central African
Republic, Award of 21 May 2011, para. 406; Hassan Awdi v Romania, Award of 2 March
2015, para. 518; Hrvatska Elektropriveda v Slovenia, Award of 17 December 2015,
paras 553–4.
277) Hrvatska Elektropriveda v Slovenia, Award of 17 December 2015, para. 553; see also
Franck Charles Arif v Moldova, Award of 8 April 2013, para. 620 (although without a
premium and not compounded).
278) Atlantic Triton v Guinea, Award of 21 April 1986 (1995) 3 ICSID Reports 13, 30.
279) Ibid.
280) CME v Czech Republic, Award of 14 March 2003, para. 646.
282) Micula v Romania, Award of 11 December 2013, paras 262, 1250 et seq.
283) Ibid, para. 1256.
284) Ibid, para. 1270.
285) Ibid, para. 1272.
288) American International Group v Iran, 4 Iran–US CTR (1983) 96, 110. The formulation is
almost identical in INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 384.
289) Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, 1042.
291) Compañía del Desarrollo de Santa Elena v Costa Rica, Award of 17 February 2000,
para. 104.
292) This can be calculated by the formula on compound interest. The result on the basis
of 6% would be US$ 19.1 million. The tribunal, however, reduced the amount
because the investor had retained possession of the piece of land during the entire
period and could use it, at least to a limited extent. Ibid, paras 105–6.
293) See above, Section A(2)(a).
294) In Sapphire v NIOC, the arbitrator chose a 'usual rate' of 5% without further
explanation. Sapphire International Petroleums Ltd v NIOC, Award of 15 March 1963
(1967) 35 ILR 136, 190.
296) See also R Lillich, 'Interest in the Law of International Claims' in Finnish Branch ILA
(ed.), Essays in Honour of Voitto Saario and Toivo Sainio (Helsinki: Finnish Branch ILA,
1983) 51, 58.
298) Metalclad v Mexico, Award of 30 August 2000, para. 128.
299) After having dealt with the issue of compounding in some detail, it held that the
amount awarded would accrue interest at an annual rate of 6%, compounded
annually. Técnicas Medioambientales v Mexico, Award of 29 May 2003, para. 197.
300) Vivendi Universal v Argentina (Vivendi II), Award of 20 August 2007, para. 9.2.8.
301) Impregilo v Argentina, Award of 21 June 2011, para. 383.
302) Ibid.
304) Ibid, para. 295.
305) Antoine Goetz v Burundi, Award of 10 February 1999, para. 135.
306) Ibid, at 519; see also Antoine Goetz v Burundi, Award of 21 June 2012, para. 303.
309) McCollough & Co Inc v Ministry of Post, Telegraph and Telephone, 11 Iran US CTR
(1986) 3, para. 104.
310) See also C Brower and J Brueschke, above, n. 2, 623.
311) Harold Birnbaum v Iran, 29 Iran–US CTR (1993) 260, para. 150.
312) Petrolane Inc v Iran, 27 Iran–US CTR (1991) 64, para. 161; James A Saghi v Iran, 29 Iran–
US CTR (1993) 20, para. 106.
250
313) Shahine Shaine Ebrahimi v Iran, 30 Iran–US CTR (1994) 170, para. 176.
314) Tenaris v Venezuela, Award of 29 January 2016, para. 587.
315) Ibid.
316) Ibid.
317) As regards the expropriation date see the analysis above, Chapter 3, Section C(1).
318) The arbitral tribunals in American International Group v Iran and INA v Iran, e.g.,
referred concordantly to the date of the decree of 25 June 1979 on the
nationalization of the Iranian insurance industry. American International Group v
Iran, 4 Iran US CTR (1983) 96, 110; see also INA Corp v Iran, 8 Iran US CTR (1985) 373,
384.
319) The ICSID Tribunal in Compañía del Desarrollo de Santa Elena v Costa Rica also
calculated interest from the date of the expropriating decree. Compañía del
Desarrollo de Santa Elena v Costa Rica, Award of 17 February 2000, para. 105.
320) The arbitral tribunal in Aminoil v Kuwait referred to the date of Decree Law No. 124
of 19 September 1977 which withdrew the oil concession. Aminoil v Kuwait, Award of
24 March 1982 (1982) 21 ILM, 976, 979, 1042.
323) See above, Chapter 3, Section C(1)(b).
324) This was criticized by Reisman and Sloane because the determination of a date at
the end of the chain of acts and omissions would lead to a continuous decrease in
value of the property from which the state would benefit. They argue, therefore, in
favour of separating the expropriation date from the valuation date. It is not clear
whether this means that the beginning of the interest period should also be the
valuation date or the expropriation date. See M Reisman and R Sloane, 'Indirect
Expropriation and its Valuation in the BIT Generation' (2003) 74 BYIL 115, 146. See
also above, Chapter 3, Section C(1)(b).
325) See, e.g., Tippetts et al v TAMS-AFFA, 6 Iran–US CTR (1984) 219, 225, 229; Starrett
Housing Corp v Iran, 16 Iran–US CTR (1987) 112, para. 369; Antoine Goetz et al v
Burundi, Award of 10 February 1999, 517; Biloune and Marine Drive Complex v Ghana,
Award on Damages and Costs of 30 June 1990 (1994) 95 ILR 211, 230; Quasar de
Valores, Award of 20 July 2012, para. 226; Flughafen Zürich v Venezuela, Award of 18
November 2014, para. 965; Mobil Cerro Negro v Venezuela, Award of 9 October 2014,
para. 398; OI European Group v Venezuela, Award of 10 March 2015, para. 932.
326) Article 38 para. 2 of the ILC Articles on the Responsibility of States for
Internationally Wrongful Acts, Annex to General Assembly Resolution 56/83 of 12
December 2001, UN Doc A/ Res./56/83.
327) This is also conceded in the Commentary, according to which the question of the
'starting date' still represents one of the 'complex issues'. J Crawford, above, n. 33,
238.
328) This was, however, the proposal of Crawford in the Third Report on State
Responsibility, UN Doc A/CN.4/507/Add.1, para. 212. See also the Russian Indemnities
case, Affaire de l'Indemnité Russe, Award of 11 November 1912, 11 RIAA, 421, 442.
329) Report of the International Law Commssion on the work of its fifty-second session,
UN Doc A/55/10, Supplement No. 10, 68.
330) The Commentary points out that care must be taken not to award interest for the
same period for which lost profits have been awarded, as one and the same capital
cannot earn profits and interest at the same time. See J Crawford, above, n. 33, 239.
331) The Commentary in this respect says: 'Article 38 does not deal with post-judgment
or moratory interest. It is only concerned with interest that goes to make up the
amount that a court or tribunal should award, i.e. compensatory interest. The power
of a court or tribunal to award post-judgment interest is a matter of procedure.'
Ibid, at 239.
334) Técnicas Medioambientales SA v Mexico, Award of 29 May 2003, para. 197.
335) MTD v Chile, Award of 25 May 2004 (2005) 44 ILM 91, para. 247.
337) Impregilo v Argentina, Award of 21 June 2011, para. 384.
340) Metalclad v Mexico, Award of 29 May 2003, para. 128.
341) Ibid.
342) United Mexican States v Metalclad Corporation, Supreme Court of British Columbia,
Vancouver, Judgment of 2 May 2001,
<http://naftaclaims.com/Disputes/Mexico/Metalclad/MetalcladJudgement.pdf>.
343) Ibid, para. 134.
344) Report of the International Law Commission on the work of its fifty-second session,
UN Doc. A/55/10, Supplement No. 10, 69.
345) CME v Czech Republic, Partial Award on the Merits of 13 September 2001 (2006) 9
346) CME v Czech Republic, Final Award on Damages of 14 March 2003 (2006) 9 ICSID
347) Ibid, para. 630.
251
348) Article 14(3) of the ILC Articles on the International Responsibility of States for
Internationally Wrongful Acts, Annex to General Assembly Resolution 56/83 of 12
December 2001, UN Doc A/ Res./56/83. See also J Crawford, above, n. 33, 140.
349) AGIP v Congo, Award of 30 November 1979 (1993) 1 ICSID Reports 306, 329.
350) Siemens v Argentina, Award of 6 February 2007, para. 403.7.
352) Micula v Romania, Award of 11 December 2013, para. 1329.
353) Suez v Argentina, Award of 19 April 2015, para. 105.
354) In this sense, the ICSID Tribunal in Amco Asia v Indonesia held: 'The Tribunal notes
that in international law, the starting point of interest has been generally fixed
either at the date of the wrong, or at the date of the presentation of the claim to the
competent international authority'. Amco Asia v Indonesia (Amco I), Award of 20
November 1984, para. 281.
355) Ibid, para. 239; Marvin Feldman v Mexico, Award of 16 December 2002, para. 205; CME
v Czech Republic, Final Award on Damages of 14 March 2003, paras 631 et seq.
356) Atlantic Triton v Guinea, Award of 21 April 1986 (1995) 3 ICSID Reports 13, 30; following
the application of the claimant also Pope & Talbot v Canada, Award in Respect of
Damages of 31 May 2002, para. 90.
357) S D Myers v Canada, Second Partial Award of 21 October 2002, para. 303.
358) See above, n. 332.
360) See above, n. 102.
362) See in this respect the comparative analysis by J Gotanda, 'Awarding Interest in
International Arbitration', above, n. 2, 42 et seq.
363) McCollough & Co Inc v Ministry of Post Telegraph and Telephone, 11 Iran–US CTR
(1986) 3, para. 97.
365) R J Reynolds Tobacco Co v Iran, Interlocutory Award, 7 Iran–US CTR (1984) 181, 189;
Final Award, 8 Iran–US CTR (1985) 55, 60.
366) Intrend International Inc v Iranian Air Force, 3 Iran–US CTR (1983) 110, 117.
367) Exxon Research and Engineering Co v Iran, 15 Iran–US CTR (1987) 3, para. 68.
368) R J Reynolds Tobacco Co v Iran, Final Award, 8 Iran–US CTR (1985) 55, 60.
369) In Reynolds Tobacco v Iran the tribunal noted that the '[s]eller's occasional or
contined [sic] omission to claim interest hereunder shall not be constructed as a
waiver'. See Reynolds Tobacco Co v Iran, Interlocutory Award, 7 Iran–US CTR (1984)
181, 191.
370) American Bell International Inc v Iran, Final Award, 12 Iran–US CTR (1986) 170, para.
120.
371) In Bechtel v Iran the parties had contractually agreed on a thirty-day period within
which objections to the invoice could be raised. Thus, in the absence of an
objection, '[a]ccording to the agreement the amounts became due within thirty days
after receipt of the final invoice by IDRO'. Bechtel Inc v Iran, 14 Iran–US CTR (1987)
149, para. 39. Similarly, in American Bell International v Iran a thirty-day period was
considered to have been implicitly agreed because the Iranian telecommunication
enterprise had the right to object to the invoice within thirty days. Compensatory
interest, therefore, could only start to accrue thirty days after the date of the
issuance of the invoice. See American Bell International Inc v Iran, Interlocutory
Award, 6 Iran–US CTR (1984) 74, 85; Final Award, 12 Iran–US CTR (1986) 170, paras 199,
203.
372) Exxon Research and Engineering Co v Iran, 15 Iran–US CTR (1987) 3, para. 69. Similarly,
in Telecommunications Co of Iran v United States, the dies a quo was set exactly at
thirty days after the issuance of the invoice although nothing similar had been
agreed in the contract. On the contrary, the claimant had asked for interest from the
date of the invoice. Telecommunications Co of Iran v United States, 23 Iran–US CTR
(1989) 320, paras 59, 73.
373) Bechtel, Inc v Iran, 14 Iran–US CTR (1987) 149, para. 57.
374) American Bell International Inc v Iran, Final Award, 12 Iran–US CTR (1986) 170, paras
199, 208.
375) Sedco, Inc v NIOC, Final Award, 15 Iran–US CTR (1987) 23, 184, in fn. 158.
376) Duke Energy v Ecuador, Award of 18 August 2008, paras 466, 491.
377) Russian Indemnities (Russia v Turkey), Award of 11 November 1912, 11 RIAA 421, 422.
378) J Gotanda, 'Awarding Interest in International Arbitration', above, n. 2, 58.
379) Ibid.
380) Ibid, at 59.
381) UNIDROIT (ed.), Principles of International Commercial Contracts (Rome: UNIDROIT,
2010) 279.
384) See above, Chapter 3, Section B(2)(c)(ii).
385) Blount Brothers v Ministry of Housing, 3 Iran–US CTR (1983) 225, 235; Exxon Research
and Engineering Co v Iran, 15 Iran–US CTR (1987) 3, para. 68.
para. 234.
252
388) Atlantic Triton v Guinea, Award of 21 April 1986 (1995) 3 ICSID Reports 13, 30.
389) Phibro Corp v Iran, 26 Iran–US CTR (1989) 320, para. 63.
390) This can be explained by the simple formula on compound interest:
.
391) J Gotanda and T Sénéchal, above, n. 3, at fn. 125; see also T Sénéchal, above, n. 76,
231.
392) M Whiteman, above, n. 5, 1997. Some older 'rare cases' are referred to in a footnote.
These cases were later taken up by investment tribunals to show that compound
interest was, in fact, already available many years ago. See, e.g., the ICSID Tribunal
in Compañía del Desarrollo de Santa Elena v Costa Rica. See further details below, n.
326.
393) Fabiani (France v Venezuela), Award of 30 December 1896, reported in M Whiteman,
above, n. 5, 1786.
394) Chemin de Fer Zeltweg-Wolfsberg, (Austria v Yugoslavia), Award of 12 May 1934, 3 RIAA,
1795.
395) See Compañía del Desarrollo de Santa Elena v Costa Rica, see further below, n. 417.
396) R J Reynolds Tobacco v Iran, 7 Iran–US CTR (1984) 181, 191.

397) See, e.g., Sylvana Technical Systems Inc v Iran, 8 Iran–US CTR (1985) 298, 320;
Anaconda-Iran Inc v Iran, Interlocutory Award, 13 Iran–US CTR (1988) 199, paras 138 et
seq; Starrett Housing Corp v Iran, 16 Iran–US CTR (1987), 199, para. 370. See also C
Brower and J Brueschke, above, n. 2, 620.
399) Ibid, para. 139.
400) Starrett Housing Corp v Iran, 16 Iran–US CTR (1987) 112.
401) Starrett Housing Corp v Iran, Concurring Opinion Holtzmann, 16 Iran–US CTR (1987)
237, 252.
402) Ibid, at 253.
403) Ibid, at 254.
404) F A Mann, above, n. 2, 584.
405) Ibid, at 585.
406) Ibid.
407) Ibid, at 580.
408) C Brower and J Brueschke, above, n. 2, 629–30.
409) J Gotanda, 'Compound Interest', above, n. 2, text after fn. 324.
410) Ibid.
411) F A Mann, above, n. 2, 585.
412) T Sénéchal, above, n. 76, 231.
413) Ibid, at 233.
414) Aminoil v Kuwait, Award of 24 March 1982 (1982) 21 ILM 976, para. 178(6).
415) Atlantic Triton v Guinea, Award of 21 April 1986 (1995) 3 ICSID Reports 13, 33. As to the
interest rate see above, para. 6.142.
paras 97 et seq.
417) In addition to Aminoil v Kuwait, see also Fabiani (France v Venezuela), Award of 30
December 1896, reported in M Whiteman, above, n. 5, 1786, and Chemin de Fer
Zeltweg-Wolfsberg (Austria v Yugoslavia), Award of 12 May 1934, 3 RIAA, 1795, para. 98.
para. 104.
419) Metalclad Corp v Mexico, Award of 30 August 2000, para. 128.
420) Ibid.
421) Ibid, para. 131. See further below, para. 6.284.
424) Ibid.
425) Ibid, para. 129 with reference to J Gotanda, 'Awarding Interest in International
Arbitration' (1996) 90 AJIL 40, 61.
426) Ibid, para. 129, with references to the above-mentioned considerations by F A Mann,
above, n. 2.
427) See above, n. 404–7.
428) See above, n. 409–10.
430) Ibid, para. 174 with reference to the above-mentioned ICSID awards of the year
2000.
431) Ibid.
432) Ibid, para. 197.
253
437) The tribunal in Railroad Development v Guatemala referred to the 'length of these
proceedings because of two jurisdictional phases in which the jurisdictional
objections of Respondent were rejected, and several postponement in the
procedural calendar at the Government's request'. Railroad Development v
Guatemala, Award of 29 June 2012, para. 281.
438) Siemens v Argentina, Award of 6 February 2007, para. 399; Vivendi Universal v
Argentina (Vivendi II), Award of 20 August 2007, para. 11.1; Continental Casualty v
Argentina, Award of 5 September 2008, para. 314; Gemplus v Mexico, Award of 16 June
2010, para. 16.26; Alpha Projektholding v Ukraine, Award of 8 November 2010, para.
514; Impregilo v Argentina, Award of 21 June 2011, para. 383; EDF, SAUR and León v
Argentina, Award of 11 June 2012, disposition no. III; Goetz v Burundi, Award of 21 June
2012, para. 307; Quasar de Valores, Award of 20 July 2012, para. 228; Occidental v
Ecuador, Award of 5 October 2012, para. 845; TECO v Guatemala, Award of 19
December 2013, paras 766–7; SAUR v Argentina, Award of 22 May 2014, para. 433; Gold
Reserve v Venezuela, Award of 22 September 2014, para. 855; Mobil Cerro Negro v
Venezuela, Award of 9 October 2014, para. 399; Flughafen Zürich v Venezuela, Award
of 18 November 2014, para. 962; Khan Resources v Mongolia, Award of 2 March 2015,
para. 425; OI European Group v Venezuela, Award of 10 March 2015, para. 953;
Quiborax v Bolivia, Award of 16 September 2015, paras 520–1; Crystallex v Venezuela,
Award of 4 April 2016, para. 940.
439) PSEG v Turkey, Award of 19 January 2007, para. 348; Enron v Argentina, Award of 22
May 2007, para. 452; Sempra v Argentina, Award of 28 September 2007, para. 486;
Rumeli v Kazakhstan, Award of 28 July 2008, para. 818; Funnekotter v Zimbabwe,
Award of 22 April 2009, para. 146; Walter Bau v Thailand, Award of 1 July 2009, para.
16.1; Siag v Egypt, Award of 1 July 2009, para. 595; Kardassopoulos v Georgia, Award of
3 March 2010, para. 667; Lemire v Ukraine, Award of 28 March 2011, paras 357 et seq;
Tza Yap Shum v Peru, Award of 7 July 2011, para. 291; El Paso v Argentina, Award of 31
October 2011, para. 746; Unglaube v Costa Rica, Award of 16 May 2012, para. 324;
Swisslion v Macedonia, Award of 6 July 2012, para. 358; Anatolie and Gabriel Stati v
Kazakhstan, Award of 18 December 2013, para. 1855; Hassan Awdi v Romania, Award
of 2 March 2015, para. 519; Suez v Argentina, Award of 9 April 2015, para. 117; Hrvatska
Elektropriveda v Slovenia, Award of 17 December 2015, paras 559–60; Tenaris v
Venzuela, Award of 29 January 2016, para. 594.
440) Micula v Romania, Award of 11 December 2013, para. 1272; Tidewater v Venezuela,
Award of 13 March 2015, para. 209.
441) Mobil Investments v Canada, Award of 20 February 2015, para. 170.
442) LG&E v Argentina, Award of 25 July 2007, paras 103, 115; Railroad Development v
Guatemala, Award of 29 June 2012, para. 281.
443) See M Beeley and R Walck, above, n. 3, 62, referring to Siemens v Argentina, in which
a rate based on six-month US certificates of deposit was compounded annually, not
semi-annually. See Siemens v Argentina, Award of 6 February 2007, paras 396–400;
see also J Gotanda, 'A Study of Interest', above, n. 3, 25.
paras 394 et seq.
445) Ibid, para. 394.
446) Ibid, para. 395.
447) The tribunal referred to Article 244 of the Ecuadorian Constitution and Article 2140
of the Ecuadorian Civil Code. Duke Energy v Ecuador, Award of 18 August 2008, para.
457. See also the discussion of this case and the arguments about the importance of
the distinction between expropriation and breach of contract cases in Occidental v
Ecuador, Award of 5 October 2012, para. 838.
451) SGS v Paraguay, Award of 10 February 2012, paras 169, 197.
453) Ibid, paras 470–1.
454) Archer Daniels v Mexico, Award of 21 November 2007, para. 298.
457) CSOB v Slovak Republic, Award of 29 December 2004, para. 349; similarly the
tribunal in Meerapfel v Central African Republic denied compound interest, because
the claimant could not prove that he would have earned 12% compound interest, in
particular not in the Central African Republic. Meerapfel v Central African Republic,
Award of 12 May 2011, para. 405; see also Franck Charles Arif v Moldova, Award of 8
459) Ibid, para. 646.
460) See above, n. 280.
461) Yukos v Russia, Award of 18 July 2014, 1689.
463) Ibid.
464) Ibid, para. 690.
465) See M Whiteman, above, n. 5, 1313; J Gotanda, Supplemental Damages, above, n. 2,
56; J Crawford, above, n 33, 239.
254
466) This is, in particular, the case in the jurisprudence of the ECHR and the ECJ.
467) See, in detail, J Ortscheid, La réparation du dommage dans l'arbitrage commercial
international (Paris: Dalloz, 2001) 220 et seq.
468) R Schmitz, Zinsrecht. Zum Recht der Zinsen in Deutschland und in der Europäischen
Union (Münster: LIT, 1994) 67.
469) Ibid, at 279.
470) Ibid, at 259.
472) See Article 2(6) of the Directive 2011/7/EU of the European Parliament and of the
Council on combating late payment in commercial transactions of 16 February 2011,
[2011] OJ L48/1; see above, para. 6.57. Since June 2016, this interest rate is -0.62%.
Thus, the default interest rate in the EU is currently at the minimum 7.48%. See the
website of the European Central Bank
<https://www.ecb.europa.eu/stats/monetary/rates/html/index.en.html>.
473) Arguments in favour of a different treatment of pre-award and post-award interest
are also advanced by A Dolgoff and T Duarte-Silva, above, n. 3, 114, and I Uchkunova
and O Temnikov, above, n. 3, 652, 668. They refer to the different types of risks
involved and the function of post-award interest to encourage prompt payment.
474) However, some tribunals found that the continuation of pre-award interest beyond
the date of the award, without an explicit request, would not be within its
jurisdiction. See Enron v Argentina, Award of 22 May 2007, para. 452; Sempra v
Argentina, Award of 28 September 2007, para. 485.
475) See above, paras 6.13–6.17. See, e.g., Sedelmayer v Russia, Award of 7 July 1998, para.
3.6.3; Mobil Cerro Negro v Venezuela, Award of 9 October 2014, para. 404; Tidewater v
Venezuela, Award of 13 March 2015, para. 217.
476) See, e.g., INA Corporation v Iran, 8 Iran–US CTR (1985) 373, 384, or American
International Group v Iran, 4 Iran–US CTR (1983) 96, 110. In Aminoil v Kuwait the
tribunal awarded the amount of compensation including interest on the basis of
being payable on 1 July 1982, without mentioning post-award interest. Aminoil v
Kuwait, 24 March 1982 (1982) 21 ILM 976, para. 179.
477) See, e.g., Southern Pacific Properties v Egypt, 20 May 1992 (1992) 3 ICSID Reports 189,
para. 257; Compañía del Desarrollo de Santa Elena v Costa Rica, 17 February 2000
(2000) 15 ICSID Rev.-FILJ 169, para. 111. See further cases and discussion below, paras
6.274 et seq.
478) See, e.g., RayGo Wagner Equipment Company v Star Line Iran Company, 1 Iran–US CTR
(1982) 411, 414–15.
479) See, e.g., Sylvana Technical Systems Inc v Iran, 8 Iran–US CTR (1985) 298, 322;
McCollough & Co Inc v Ministry of Post, 11 Iran–US CTR (1986) 3, 34; see also C Brower
and J Brueschke, above, n. 2, 629 with further reference to jurisprudence.
(1986) 3, para. 98.
481) Telecommunications Co of Iran v United States, 23 Iran–US CTR (1989) 320, para. 73.
482) Avco Corporation v Iran, 19 Iran–US CTR (1988) 200, para. 142.
483) Ibid.
484) Amco Asia Corp v Indonesia (Amco I), Award of 20 November 1984 (1993) 1 ICSID
485) Asian Agricultural Products Ltd v Sri Lanka, Award of 27 June 1990 (1997) 4 ICSID
486) Fedax NV v Venezuela, Award of 9 March 1998 (1998) 37 ILM 1391, para. 33.
487) Antoine Goetz et al v Burundi, Award of 10 February 1999 (2000) 15 ICSID Rev.-FILJ 457,
517.
paras 405, 408, 411, and 414.
492) S D Myers Inc v Canada, Second Partial Award of 21 October 2002 (2005) 8 ICSID
493) CME v Czech Republic, Final Award on Damages of 14 March 2003 (2006) 9 ICSID
495) Case of the SS Wimbledon, PCIJ 1923 Ser A, No. 1, 32.
496) Ibid.
498) The tribunal held: 'But as, in general law, interest on damages is due on claims of
money whose amount is known (abovementioned terms of the Libyan Civil Code) it
cannot accrue for unliquidated damages before their judicial ascertainment and
liquidation. Consequently, this Tribunal has to apply it only from the time of the
final assessment of damages at the date of this Award.' Ibid.
500) LETCO v Liberia, Award of 31 March 1986 (1994) 2 ICSID Reports 343, 379; Pope & Talbot
Inc v Canada, Award in Respect of Damages of 31 May 2002, para. 90; Marvin Feldman
v Mexico, Award of 16 December 2002, para. 205; ADC v Hungary, Award of 2 October
2006, para. 520; Yukos v Russia, Award of 18 July 2014, para. 1686.
255
501) J Crawford, above, n. 40, paras 210, 212.
502) See, e.g., Article 1110 NAFTA, Article 13 ECT, or Article 6 para. 3 of the US Model BIT
(2012) and Article 13 para. 3 of the Canadian Model BIT (2004). See above, Section
A(1).
503) Southern Pacific Properties v Egypt, Award of 20 May 1992 (1992) 3 ICSID Reports 189,
para. 257.
para. 111.
505) Article 5(1) of the Agreement between the Government of the United Kingdom and
the Government of the USSR for the Promotion and Reciprocal Protection of
Investments, London, 6 April 1989; see Rosinvest v Russia, Award of 22 September
2010, para. 43.
507) Ibid, para. 692.
509) Ibid, para. 178.
510) Metalclad v Mexico, Award of 30 August 2000, para. 131.
513) Siag v Egypt, Award of 1 July 2009, para. 631(VI)(b).
518) Ibid.
519) Pine Valley Developments Ltd and Others v Ireland (just satisfaction), ECHR Ser A, No.
246-B, Judgment of 9 February 1993, paras 21–2.
520) See, e.g., Akkus v Turkey, ECHR 1997-IV No 19263/92, para. 43; Aka v Turkey, ECHR
1998-VI No 19638/92, para. 61; Vasilescu v Romania, ECHR 1998-III No. 27053/95, para.
67; Brumarescu v Romania (just satisfaction) ECHR 2001-I No. 28342/95, para. 31;
Beyeler v Italy (just satisfaction) ECHR No. 33202/96, 28 February 2002, para. 31;
Iatridis v Greece (just satisfaction) ECHR 2000-XI No. 31107/96, para. 61; Motais de
Narbonne v France, ECHR No. 48161/99, 2 July 2002, para. 29; Kartal Makina Sanayi Ve
Ticaret Koll Sti v Turkey (No 2) ECHR No. 50011/99, 7 October 2004, para. 27; Ugur et al
v Turkey, ECHR No. 49690/99, 7 October 2004, para. 27; Belvedere Alberghiera Srl v
Italy (satisfaction equitable) ECHR No 31524/96, 30 October 2003, para. 52; Terazzi
SRL v Italy (satisfaction equitable) ECHR No. 27265/95, 26 October 2004, para. 49;
Papastavrou et al v Greece (just satisfaction) ECHR No. 46372/99, 18 November 2004,
para. 26.
521) See above, Section C(1)(a).
523) The respondent's borrowing rate can be high, when the economic and political
situation of the country is regarded as risky by the financial market. The 'default
risk' is the risk that the state may eventually not honour the award. It can thus be
appropriate for assessing post-award interest. See A Dolgoff and T Duarte-Silva,
above, n. 3, 114. In favour of a higher rate for post-award interest are I Uchkunova
and O Temnikov, above, n. 3, 668. More sceptical and cautious to avoid any punitive
element are S Ripinsky and K Williams, above, n. 3, 389–90.
524) Marvin Feldman v Mexico, Award of 16 December 2002, para. 206.
526) Southern Pacific Properties v Egypt, Award of 20 May 1992, 257.
527) Compañía del Desarrollo de St Elena v Costa Rica, Award of 17 February 2000, para.
111.
528) Metalclad v Mexico, Award of 30 August 2000, 216, para. 128.
ICSID Reports 343, 379.
532) Emilio Agustín Maffezini v Spain, Award of 13 November 2000, paras 96–7.
534) Ibid, in fn. 122.
537) CMS v Argentina, Award of 12 May 2005, para. 471; similarly referring to six-months
US Treasury Bills for post-award interest after a grace period, LG&E v Argentina,
Award of 25 July 2007, para. 115.
538) See, e.g., Iatridis v Greece (just satisfaction), ECHR 2000-XI No. 31107/96, para. 61:
'According to the information available to the Court, the statutory rate of interest
applicable in Greece at the date of adoption of the present judgment is 6% per
annum'. Similarly, Motais de Narbonne v France, ECHR No. 48161/99, 2 July 2002,
para. 31: 'Selon les informations dont dispose la Cour, le taux d'intérêt légal
applicable en France à la date de l'adoption du présent arrêt est de 4.26% l'an'.
256
539) See the reasoning in Brumarescu v Romania (just satisfaction), ECHR 2001-I No.
28342/95, para. 31: 'As the sums awarded are denominated in United States dollars,
the Court considers it appropriate to set the rate of default interest applicable at
6% per annum'. Similarly, Akkus v Turkey, ECHR 1997-IV No. 19263/92, para. 43:
'[T]hese amounts, determined in US dollars, shall bear simple interest at an annual
rate of 5% from the expiry of the above-mentioned three months until settlement'.
540) See, e.g., Vasilescu v Romania, ECHR 1998-III No. 27053/95, para. 67: '[T]hat simple
interest at an annual rate of 3.36% shall be payable on these sums from the expiry
of the above-mentioned three months until settlement'. See, by contrast, Aka v
Turkey, ECHR 1998-VI No. 19638/92, para. 61: '[T]hese amounts shall bear simple
interest at an annual rate of 5.5% from the expiry of the above-mentioned three
months until settlement'.
541) See, e.g., Kliafas et al v Greece, ECHR No. 66810/01, para. 41; Kartal Makina Sanayi Ve
Ticaret Koll Sti v Turkey (No 2), ECHR No. 50011/99, 7 October 2004, para. 27; Ugur et
al v Turkey, ECHR No. 49690/99, 7 October 2004, para. 27; Belvedere Alberghiera Srl v
Italy (satisfaction equitable), ECHR No. 31524/96, 30 October 2003, para. 52; Terazzi
Srl v Italy (satisfaction equitable), ECHR No. 27265/95, 26 October 2004, para. 49;
Papastavrou et al v Greece (just satisfaction), ECHR No. 46372/99, 18 November 2004,
para. 26; Guiso-Gallisay v Italy, ECHR No. 58858/00, 22 December 2009, para. 114;
Dedda and Fragassi v Italy, ECHR No. 19403/03, 12 April 2011, para. 24.
542) See the website of the European Central Bank,
544) See the website of the European Central Bank,
545) See above, Section C(1)(a).
546) Metalclad v Mexico, Award of 30 August 2000, para. 131. Uchkunova and Temnikov
support the selection of shorter compounding intervals on post-award interest. See
I Uchkunova and O Temnikov, above, n. 3, 668.
547) Emilio Agustín Maffezini v Spain, Award of 13 November 2000, paras 96–7.
550) Yukos v Russia, Award of 18 July 2014, paras 1689–92.
551) Companía de Desarollo de St Elena v Costa Rica, Award of 17 February 2000, para. 111:
'In the event that full payment of the amount of this Award is not made …, simple
interest on the said sum … shall be payable at the rate of six percent per annum …'.
KluwerArbitration
257
KluwerArbitration
Document information 7. Conclusions

7.01 The increased awareness of the importance of the calculation of compensation and
Publication damages in international practice has led to a rich case law and accompanying academic
Calculation of discourse in recent years. The gap between lawyers and economic experts in the area of
Compensation and valuation seems to become smaller and so too is the gap between the legal and
Damages in International economic principles governing the calculation of damages and compensation. One
Investment Law (Second notable development is the growing recognition of the distinction between
Edition) 'compensation' for lawful expropriations and 'damages'—or 'reparation'—in cases of
unlawful acts. While 'compensation' is often referred to as the 'treaty standard'—as
contained in an applicable investment protection treaty—'reparation' is recognized as
the standard of customary international law in accordance with the principles
Bibliographic elaborated by the PCIJ in its seminal judgment in the case Factory at Chorzów and as
reference codified by the ILC in its Articles on State Responsibility in 2001. Numerous tribunals
have referred to this distinction, even when they did not find that it would make a
'7. Conclusions', in Irmgard practical difference for the calculation in the case at hand.
Compensation and 7.02 While compensation for lawful expropriation is not necessarily only a treaty standard
Damages in International —a customary international law standard of compensation for lawful expropriations
Investment Law (Second might also be discernible—it is a primary obligation under international law. By contrast,
Edition), Oxford the rules on state responsibility are secondary obligations under international law, which
International Arbitration determine the consequences of an act of a state in violation of a primary obligation. They
Series, (© Irmgard Marboe include the rules on the form of reparation, but also other important rules, including on
2017; Oxford University circumstances precluding wrongfulness.
Press 2017) pp. 407 - 416
7.03 A third group of claims subject to valuation are claims for damages for breach of
P 408 contract. These follow in principle the respective national contract law applicable.
However, when it comes to the valuation of damages claims for breaches of long-term
investment contracts, the specific provisions of the contract and the generally accepted
principle of 'full reparation' of the damage incurred by the injured party have turned out
to be more relevant. A limitation or special prerequisite for an award of lost profits under
national law is possible in principle, but has not played a practical role in international
investment practice. The real valuation problems do not stem from the law applicable,
but from factual and practical questions, such as causation, evidence, and the impact of
economic conditions in a country over a long period of time.
7.04 The following provides a summary of the most important principles for the valuation
of calculation of compensation and damages in investment disputes and of their
reflection in international investment arbitration practice.
A. Interrelation between the Claim's Legal Basis and the Valuation Basis
7.05 Under generally accepted international valuation standards, a valuation can only be
made on a particular 'basis of value', which is a statement on the fundamental
measurement assumptions of a valuation. In arbitral practice this is often referred to as
the 'valuation standard'. At the beginning of any valuation it is necessary to define for
which purpose and for whom a valuation is being carried out. In the context of
international investment disputes the basis of value is determined by the legal rules
applicable. As mentioned above, this may be an international investment treaty,
international customary law, or a contract.
7.06 The standard of compensation for expropriation is often defined in an investment
treaty applicable to the dispute. It has been shown that the respective provisions
frequently choose the fair market value as the standard of valuation. (1) This standard
reflects the price a hypothetical willing buyer would pay a hypothetical willing seller
when both have reasonable knowledge of the relevant facts and neither is under an
obligation to buy or sell. This standard corresponds to the 'market value' basis under
international valuation standards describing an 'objective–abstract' valuation approach,
where the different perceptions of the value by the market participants are balanced.
Business valuations are commonly sought and performed under the market value basis.
(2)
7.07 However, the fair market value is not the only valuation standard or basis of value,
P 409 whether in economic life or under the law applicable in international investment
disputes. It has been shown that the violation of a legal obligation under international
law entails the obligation to make 'reparation'. (3) The payment of 'damages' is necessary
in cases of breach of contract. (4) The purpose of reparation or damages is to provide 'full
reparation'. This means that the injured person shall be put into the financial position he
or she would have been in, if that illegal act had not been committed. This principle has
been formulated in the context of state responsibility by the PCIJ in Factory at Chorzów
and confirmed by the ILC in Articles 31 and 36 on the Responsibility of States for
Internationally Wrongful Acts. (5) For contractual obligations, the principle of full
reparation is regarded as a general principle of contract law, which is not only contained
in national contract laws, but also included in international codifications of contract law,
such as the UN Convention on Contracts for the International Sale of Goods (CISG), the
UNIDROIT Principles on International Commercial Contracts, and the Principles of
European Contract Law (PECL).
7.08 The fact that ILC Articles 31 and 36 on State Responsibility use the term
'compensation' as the form of monetary reparation in the English version of the text has
contributed to the persisting lack of awareness of the distinction between 'compensation'
as the primary obligation of the international law on expropriations and the secondary
obligation to provide 'full reparation' after an unlawful act of a state has been
committed. In other languages, such as German, a different term is used which makes this
distinction clearer. The reason for the lack of distinction might be that in English the two
terms, 'compensation' and 'damages', are often used interchangeably, while in other
languages or legal systems the distinction between the different concepts for monetary
redress is more precise. This does not, however, change the fact that the legal concept
and rules of primary obligations of international law are different from the purposes of
secondary rules of international law, even if the words used are identical.
7.09 The secondary obligation to provide 'full reparation' according to Article 31 of the ILC
Articles, as enunciated by the PCIJ in Factory at Chorzów, is to 'wipe out all the
consequences of the illegal act' and re-establish as far as possible the situation that
would 'in all probability, have existed, if that act had not been committed'. (6) This
'Chorzów-standard' requires a comparison of the actual financial situation of the victim
with the financial situation he or she most probably would be in without that act. This
comparison of the two situations can be termed the 'differential method' after Mommsen
who developed the concept in Germany in the nineteenth century for measuring damages
1
in civil law litigations. In valuation practice, 'but for' methods are used for the calculation
P 410 of damages by a comparison of sales projections.
7.10 The differential method and 'but for' methods help to assess the damage actually
incurred by the victim. They do not refer to a 'hypothetical third person' but concentrate
on the concrete financial loss suffered by a person injured. It can therefore be regarded
as a 'subjective–concrete' valuation approach, as opposed to the 'objective–abstract'
valuation approach in cases of lawful expropriations. Such subjective-concrete
valuations are not uncommon in business life. They are reflected, for example, in the
'investment value' or 'worth' of an asset or, more generally, as a valuation base 'other
than market value'.
7.11 One of the differences between the fair market value standard of compensation upon
expropriation and the Chorzów-standard is the valuation date. (7) While in the former
case the valuation date is the date of the expropriation, in the latter case the valuation
date should be the date of the award. This corresponds best to 'restitution', which is the
primary form of reparation under international law. Furthermore, it is the best way the
comparison of the actual and the hypothetical financial situation of the injured person
can be made in a meaningful manner. Only in cases of unlawful expropriations does the
fair market value of the asset at the expropriation date represent the lower limit of the
award, because the primary obligation prescribes this limit. With regard to violations of
other treaty provisions, such as 'fair and equitable treatment', 'full protection and
security', or 'national treatment', or customary law violations, no such lower limit exists.
In these cases, the calculation of damages must only be based on the comparison of the
two financial situations. The same is true for contract claims where the 'fair market value'
is not helpful, because the contractual rights and obligations are individualized as
between the parties and not measurable by reference to a hypothetical willing buyer.
7.12 The subjective–concrete approach allows also for considerations of contributory
negligence and mitigation of damage. They imply the existence of corresponding duties
of the parties, namely the obligation not to be negligent and the obligation to engage in
keeping the damage as limited as possible. Furthermore, it provides the basis for
compensation of consequential damages and for set-off of benefits.
7.13 The analysis of international practice has shown, however, that the valuations
performed are not always in accordance with the principles mentioned above. The
objective standard, for example, has sometimes been used in cases where the subjective
standard would have been pertinent. This was usually the case when the claimants
themselves so requested. Furthermore, the objective standard could be a reflection of
the argumentum a majore ad minus, thus regarding the objective standard as the
'minimum' to be awarded and not enquiring about additional subjective damage, if
P 411 neither the claimant nor the circumstances so suggested.
B. The Choice of a Valuation Method

7.14 After the establishment of a valuation standard or 'basis of value' it is necessary to
choose a valuation approach, which leads to one or more valuation methods. It has been
shown that under international valuation standards three approaches are most
commonly sought: the market approach, the income approach, and the asset- or cost-
based approach. All of these valuation methods can be used both for the objective fair
market value standard and for the subjective Chorzów standard. In international practice,
all three approaches have been regularly applied, often in combination with each other,
and for controlling the results.
7.15 The market approach, which provides an indication of value by comparing the
subject asset with identical or similar assets for which price information is available,
appears in international practice in various forms. The stock exchange value of publicly
traded companies, though a strong indicator of 'market value', has been regarded with a
certain scepticism, not only because of the volatility of the stock market but also for its
disregard of control premiums which a willing buyer would be expected to pay for the
entire company. For companies not publicly traded the search for a comparable public
company has often remained unsuccessful in international investment disputes. By
contrast, prior sales prices of the company or shares in it have been regarded as more
reliable indicators of the market value. However, several tribunals did not find the prices
paid for only a small number of shares to be representative of the value of the company
as a whole. Multiples have increasingly been used by claimants and their experts as a
relatively easily understandable way of valuation. Tribunals have become more familiar
with this technique and accept it more frequently, but sometimes challenge the choice of
the multiples proposed.
7.16 The application of the income approach, which provides an indication of value by
converting future profits, income, or cash flows to a current value, has undergone an
interesting development. While it has long been regarded as speculative and contingent
on too many variables, tribunals in recent awards have increasingly accepted the
valuations submitted by claimants based on the income approach. This trend, however,
is not unanimous. A few tribunals have still rejected the income valuation approach,
mainly because of the lack of a sufficient performance record and/or probability of
economic success in the future. (8) Generally, however, it seems that tribunals
increasingly recognize that the income approach, even though it depends on forecasts
into the future, is the most widely used valuation approach in international business and
the basis of numerous investment decisions. It should, therefore, also be reflected in the
P 412 disputes about those investments. Several tribunals have, consequently, engaged in
the discussion of the different assumptions of the discounted cash flow (DCF) or similar
income-based valuation methods. They have done so either by employing their own
valuation experts or, if both parties have already done so, by cross-examining and
checking the two opposing expert reports for their similarities and differences. In doing
so, they have increasingly arrived at well-reasoned calculations of compensation and
damages. This does not exclude that, in some cases, certain assumptions or adjustments
have not been entirely comprehensible, for example, as regards the issue of inflation. (9)
7.17 The asset- or cost-based approach, which is based on the principle that the value of
an asset is best presented by its cost or the cost of obtaining an asset of equal utility,
represents the valuation method which is still appreciated by many tribunals because of
its allegedly non-speculative nature. Even though it is generally recognized that the costs
actually spent or figures appearing on balance sheets do not necessarily have anything to
do with the 'value' of an asset, they are still attractive as a measure of calculation of
compensation and damages. The lack of speculative elements and complex
mathematical and economic considerations seems to outweigh the conceptual flaws of
this approach. However, the repayment of 'sunk investment' might also be to the
advantage of the injured party because the amounts actually invested do not necessarily
reflect the actual value of the investment. If the investor has spent more than the
investment was eventually worth, he might not be dissatisfied, if he gets back the
investments and expenses undertaken.
2
7.18 In addition to the above-mentioned three generally accepted valuation approaches,
international tribunals have also applied 'mixed approaches'. Fairly widespread still is
the combination of the asset-based valuation with the income valuation approach. This
practice is, however, not in accordance with generally accepted valuation principles
according to which either the income or the asset- or cost-based approach should be
applied. By contrast, a combination of several valuation methods by weighing them and
adding them together has been developed as an innovative and acceptable way of
dealing with uncertainty. Rather unreliable practices are valuations based on 'insurance
value' or 'tax value'. These values reflect the valuation undertaken for specific purposes
in specific contexts. They could only in exceptional cases be useful for controlling the
valuation based on other methods.
7.19 Incidental expenses and other consequential damages should be taken into
consideration, if the valuation standard is 'full reparation'. They include financial
consequences as a result of the unlawful act, including costs for reparation, maintenance,
or mitigation of damage. Expenses incurred in the pursuance of the claim could also be
regarded as consequential damage. An analysis of international practice has shown that
P 413 these expenses are sometimes regarded as an item of damages and sometimes part of
the 'costs' of the arbitration and, therefore, included in the costs decision. The latter
alternative has the disadvantage that tribunals are often reluctant to shift the costs and
prefer to rule that each party should bear its own costs. In order to arrive at 'full
reparation', however, those costs and expenses should be not be disregarded as part of
the harm caused by the unlawful act and be awarded to the successful party accordingly.
Some recent tribunals have already reflected and implemented these considerations.
7.20 Finally, moral damages are, as a matter of principle, available in international
investment disputes. However, as the analysis of recent arbitral practice has shown, the
threshold for such damages is relatively high. Tribunals consistently require 'exceptional
circumstances' which have to be assessed in the context of the overall economic,
political, and legal situation of the host state. Conversely, the awards for moral damages
may be rather low. Even if reference is made to the case law of human rights courts, the
amounts awarded serve to provide a symbolic more than economic relief. In order to
reflect particularly egregious behaviour by a respondent state which caused non-
material damage to the investor, other remedies could be further explored, such as
financially assessable loss of reputation and creditworthiness, or appropriate awards on
costs.
C. Interest
7.21 An award of interest is a necessary element of any award on compensation and
damages in order to reflect the financial loss incurred through the passage of time. It is
the task of tribunals to determine the rate of interest, the period of interest, and to
decide whether interest should be compounded. In these decisions the particular
function of interest should be kept in mind. It is slightly different for pre-award and for
post-award interest.
7.22 Interest in cases of lawful expropriations has the function of ensuring 'prompt'
payment of compensation. If prompt payment is not made, the award of interest shall
balance the delay. Interest also serves to ensure 'full reparation', if damage was inflicted
by a violation of an international or of a contractual obligation. Furthermore, it has the
function of preventing unjust enrichment of the debtor.
7.23 In order to fulfil these functions, interest should reflect economic realities. Legal
interest with statutory rates as provided for in many national laws can hardly achieve this
goal. (10) Rather it is necessary to identify what kind of interest, based on economic
P 414 realities, should be awarded.
7.24 There are several approaches to choosing an appropriate interest rate: from the
perspective of the successful claimant, interest could reflect an investment alternative
available. On the other hand, a borrowing rate would be appropriate under the premise
that claimants have to borrow money in the meantime. Also the borrowing rate of the
respondent state seems to be the suitable, as it actually receives a 'loan' from the
successful claimant during the period of non-payment of compensation or damages. The
withholding of money effectively represents a 'coerced loan'.
7.25 International practice has so far not provided clear answers as to which approach
should be applied on awards of compensation and damages. As regards investment
alternatives for the claimant, interest expected from savings vehicles, such as US six-
month certificates of deposit or US Treasury Bills, were frequently used as a reference.
Their rate is, however, rather low and it seems illogical that companies would invest
money in such low-interest securities. Some propose that a savings rate be used, namely
the risk-free interest rate in securities, increased by a market capitalization rate.
7.26 As companies frequently finance their operations through debt rather than investing
in securities, it is probably more appropriate to use the borrowing rate of the claimant. If
there is no evidence of a loan actually taken out, its normal borrowing rate could be
taken as a reference. In Anglo-American countries the so-called 'prime' or 'base' rate
represents an important reference rate. It is the rate that the banks offer to their most
creditworthy customers. Most enterprises, however, cannot borrow at this rate, so that an
appropriate surcharge needs to be added. The same is true for interest based on
interbank rates, such as the LIBOR and EURIBOR. These rates indicate at which rate banks
can borrow from each other on the interbank market. Individuals and companies usually
cannot borrow under the same conditions. Thus, a premium of several percentage points
seems appropriate. Tribunals have increasingly used this approach and applied LIBOR
and EURIBOR plus several (usually one, two, or four) percentage points.
7.27 In order to prevent unjust enrichment of the host state, the lower limit of the interest
rate should be the respondent state's rate for government bonds. However, these rates
may be rather high for countries in economic and political difficulties. Tribunals have
therefore often rejected them. Nevertheless, it should be kept in mind that interest, and
in particular post-award interest, has the function of providing an incentive for the state
to pay the debt as quickly as possible.
7.28 The period of interest plays also an important role for the award on interest. In cases
of expropriation, interest starts accruing at the expropriation date. Under the law of state
responsibility interest shall accrue from the date, when the principal should have been
paid. This date is not entirely clear, however, and raises a number of questions. It seems
at least to be clear that an explicit reminder is not necessary. In cases of breach of
P 415 contract the beginning of the interest period depends on various factors, such as the
agreement of the parties, the law applicable, commercial practice, and the
circumstances of the case. In general, the rate and the period of interest should be
selected in such a way that 'full reparation' of the damage incurred is achieved.
7.29 Finally, the issue of compound interest has to be resolved. After a long period of
rejection of compound interest in international practice and commentaries, this attitude
3
changed in 2000. Various tribunals in that year awarded compound interest, mostly on
the grounds that, in economic and business reality, both lending and borrowing interest
are usually compounded. Nevertheless, some tribunals rejected the award of compound
interest, maintaining that the principal was sufficient to make the claimant whole. This
was particularly the case when the principal amount was already very high. Nevertheless,
the rejection of compounding overlooks the fact that interest also has the function of
preventing unjust enrichment and providing an incentive to pay the debt as quickly as
possible. This is particularly true for post-award interest.
7.30 The analysis of legal and economic principles and their application in international
practice aims at providing some guidance for the valuation of compensation and
damages in international investment disputes. The discussion of quantum should not be
reserved to the final stage of the proceedings. Many questions require to be clarified at
an earlier stage. The necessary information and data should be collected in good time,
otherwise this might take additional time and prolong the arbitration process. As early as
the beginning of the merits phase, after jurisdiction has been established, a detailed
quantification should be prepared. Even if the arbitration is bifurcated and the issue of
quantum is postponed, important issues, such as the standard of valuation and the
valuation date, need to be decided early.
7.31 In preparing the quantum phases well, the parties can be of considerable help to the
tribunal in achieving a well-reasoned and comprehensible award. This is beneficial for its
implementation and thus serves the overall goal of the arbitration process, namely to
P 415 ensure that the rule of law is observed.
References
1) See above, Chapter 3, Section A(1)(b).
2) See above, Chapter 4, Section B(1).
6) See above, Chapter 2, Section B(2)(a), para. 2.73.
7) See above, Chapter 3, Section C.
4
Document information Appendix 1. Table of ICSID Cases since 2008
Case Investment affected Violations found Economic loss claimed Standard of Amount decided &
Publication & measures at issue compensation/reparation valuation method
Calculation of Desert Line Projects LLC Desert Line Projects Conclusion of Claimant: Full reparation according Amount awarded:
Compensation and v The Republic of Yemen LLC, a construction Settlement to Art. 31 ILC Articles
company Agreement (i) Amounts due claimed by claimant (para. 3,585,446,554 Yemeni Rials
Damages in International Award of 6 February under the at the exchange rate of 9
Investment Law (Second established under contravened FET 227)
2008 the laws of Oman, standard under Art. 3 contracts and/or August 2004
Edition) began construction BIT (para. 194) the Yemeni Yemeni Arbitral Award
ICSID Case No. Arbitral Award shall be implemented in = amount of Yemeni
ARB/05/17 of asphalt roads in Arbitral Award of
Yemen in 1997; (ii) Late release of its entirety, and be fully
Applicable law: between 1999 and bank guarantees respected as definitively 19,968,478,429 Yemeni
Bibliographic Oman–Yemen BIT
2002, it started (iii) Illegal blocking of
binding on both parties Rials minus payments
(para. 205) already made and
several road
reference (1998/2000)
construction
equipment
(iv) Inability to Measure of damages
reductions for
uncompleted road works
'Appendix 1. Table of ICSID projects; after non-
exercise a buy- includes the amounts (paras 247–9)
Cases since 2008', in payment by that would have been
respondent, the back option with All other claims
Irmgard Marboe , respect to a paid had the Yemeni
dismissed due to lack of
parties agreed to an Arbitral Award been
Calculation of arbitration in property in Oman causation
Compensation and that claimant was respected (para. 246)
Yemen. Claimant
Damages in International was awarded almost forced to sell in Moral damages: Moral damage:
relation to the
Investment Law (Second 20 billion Yemeni
contract generally accepted in US$ 1,000,000
Edition), Oxford Rials, which
(v) Loss of business most legal systems (para. including for loss of
International Arbitration respondent failed 289)
to pay. Respondent opportunities reputation; in particular
Series, (© Irmgard Marboe P 419 the physical duress
coerced claimant (vi) Moral damages Non-material damages
2017; Oxford University through physical may be very real, and the exerted on the
Press 2017) pp. 417 - 484 duress into signing Moral damages: mere fact that they are executives of the
a Settlement difficult to measure claimant was malicious
loss of reputation:
Agreement for a 40,000,000 Omani Rial makes them none the less and therefore
much lower sum. (OR) (about US$ real, referring to Lusitania constitutive of fault-
and ILC Commentary based liability; prejudice
103,896,120) was substantial (para.
(para. 289)
290)
Claimant's claim
'exaggerated' (para. 290)
Victor Pey Casado et The dispute 2008 Award: Violation 2008 Award Claimants: 2008 Award: Tribunal 2008 Award: Amount
Fondation 'Presidente concerns the of FET of Art. 4 BIT by rejects standard of awarded:
Allende' v Republic of consequences of a denial of justice US$ 52,842,081 compensation for
Chile confiscation by the (paralyzing or expropriation under Art. 5 US$ 10,132,690.18
damnum emergens
government of rejecting restitution BIT, because the Which corresponds to
Award of 8 May 2008 Chile, in 1973 in the claims, most US$ 344,505,593 expropriation took place the amount of 343.578,61
Decision on the wake of the military importantly in 1973, before the entry UF (inflation-indexed
coup, of the assets concerning a lucrum cessans (para. into force of the BIT (para.
application for 683) accounting unit) paid by
annulment of the of two newspaper confiscated printing 687). the government of Chile
Republic of Chile of 18 publishing press) and by In accordance with
The tribunal notes the to other persons
December 2012 companies, discrimination general principles of
Consorcio (paying lack of evidence produced pursuant to the
international law and compensation Law of
Award of 13 September Publicitario y compensation not to Chilean law, based on by the claimants, due to
2016 (Resubmission) Periodístico S.A. the claimants, but— the difficulties to obtain 1995, based on Decision
expropriation under Art. No. 43 of 28 April 2002
proof of their damages
ICSID Case No. ARB/98/2 (CPP S.A.) and based on a 5 BIT, which, however,
(paras 689–90); finds that and assigned on 11 April
Empresa restitution and due to temporal reasons
(Award in French and Periodística Clarín compensation Law of was not within the the amount paid to other 2002 (paras 694, 699).
Ltda (EPC Ltda), 1998 and Decision No. persons places the Ad moral damages:
Spanish) jurisdiction of the
which were owned 43 of 28 April 2000—to tribunal (para. 682) claimants in the situation
by the two other persons, who in which they would be, if 'the issuance of the
'to be augmented, in they had been treated present award, in
claimants, Mr had not been owners
Casado, a Spanish of the confiscated particular, by reparation justly and equitably and particular because of its
national, and assets) (para. 674). for moral damages without denial of justice recognition of the rights
inflicted to M. Pey (para. 702). of the claimants and of
Fondation
'Presidente Allende', Casado' (para. 683) the denial of justice of
which they were victims,
a Spanish
foundation. While constitutes in itself
substantial and
the original
confiscation was sufficient moral
satisfaction' (para. 704)
not within the
jurisdiction of the
tribunal ratione
temporis,
subsequent acts by
the Chilean
Government
allegedly deprived
the claimants of any
compensation for
their former
P 420 property.
Applicable Law: 2012 Annulment 2016 Award: 2016 Award: 2016 Award:
Decision: Award
Spain–Chile BIT annulled in respect of Claimants: Art. 31 ILC Articles, No damages, because
(1991/1994) its decision on Chorzów standard, claimants have not met
US$ 338,3 mio necessary to isolate which the burden of proof
damages for serious
departure from a equal to the conduct was wrongful act (para. 234)
fundamental rule of compensation due for and to establish
causation (para. 204) Tribunal could not
procedure (right to the shares of CPP and permit original, time-
be heard) and failure EPC Ltda on the basis of Three steps are necessary barred, expropriation
to state reasons FMV at the time of the for the assessment of claims to be
(method of First Award, 8 May 2008 reparation due under reintroduced 'by the
calculation is (paras 89, 109). international law: back door in the guise of
contradictory). US$ 94.1 mio in the a FET breach many years
(1) establishment of the later' (para. 244).
2016 Award: alternative, based on breach, (2) ascertainment
P 421 unjust enrichment (para. of the injury caused by Moral damages:
Jurisdiction and 111).
liability are res the breach, and (3)
determination of the burden of proof also
judicata, tribunal Moral damages: necessary and not met
only needs to decide appropriate quantum
'given the character (para. 217) (para. 243).
on damages.
assassination of Mr. Pey Had the tribunal found
Casado' in the amount of the claim to material
US$ 10 mio, and US$ damage established, it
500.000 for the would have been
Foundation Presidente prepared to consider the
Allende (paras 114–15). subsidiary and
alternative that moral
injury was a factor to be
taken into account (para.
243).
5
& measures at issue compensation/reparation valuation method
Rumeli Telekom A.S. and Rumeli and Telsim, 1) Violation of Claimants: Expropriation: Amount awarded:
Telsim Mobil telecommunication FET (via MFN in
Telekomikasyon companies, BIT) (standard US$ 227 million BIT provides for 'real US$ 125 million
Hizmetleri A.S. v Republic incorporated in discussed in value', FIL for 'FMV';
based on a DCF Tribunal refers to WB
tribunal holds that in the
of Kazakhstan Turkey, had stakes view of CIL, valuation, compares well Guidelines, notes that
in KaR-Tel, a BITs and context of the FIL, 'FMV'
Award of 29 July 2008 with the US$ 350 million must be taken to have a DCF valuation would
Kazakhstan limited arbitral paid for 100% (para. 799) likely have informed a
liability partnership practice, paras non-technical meaning
Decision on the and to convey a measure discussion between a
application for for the provision of 581ff) Based on their multi- willing buyer and a
mobile million-dollar of value which can be
annulment of 25 March 2) Expropriation applied whether or not awilling seller in October
2010 telecommunication ('creeping' investment, contribution 2003 (para. 810) so that
services. of know-how and FMV in a technical sense
expropriation) the US$ 228 million can
can be ascertained in the
ICSID Case No. in violation of training, and the fact be used as a starting
ARB/05/16 Once Kar-Tel's that, a year after the particular case. No
success was assured Art. III BIT and point; yet the price paid
particular distinction can
Kazakh FIL by valuation of claimants' by an actual buyer one
Applicable law: (including by a 15- shares by the courts, be drawn between 'real
year licence to the decision of year later was
vale' and 'FMV' (para. 786).
Kazakhstan–Turkey the Investment these were offered for 20 'substantially lower'
operate a mobile million US$ and a
BIT (1992/1995), Committee Valuation date: (corresponding to US$
Kazakh Law phone network), company purchased
several steps were which was then 210 million); without
collusively and KaR-Tel for more than In cases of creeping further explanation, the
taken which 350 million US$ (para. expropriation, it may be a tribunal concluded that
resulted in the improperly
communicated 717). matter of judgment rather an award of US$ 125
expulsion of than of direct and clear
claimants from the and which million would
proceeded via evidence; depends on adequately compensate
partnership. whether any initial
a series of the claimants for the
court expropriatory act 'was expropriation of their
P 422 known to be irrevocable' shares and will give them
decisions,
culminating in (para. 788). full reparation for the
the final injury caused by the
decision of the internationally wrongful
Presidium of acts (para. 814).
the Supreme
Court (para.
708); the
valuation of
the shares was
manifestly and
grossly
inadequate, so
that the
expropriation
was unlawful
(para. 706).
Measures: Respondent: FET: 2010 Annulment Decision:

Committee notes that
1) Termination No compensation ILC-Articles and Chorzów figure of US$ 125 million
of Investment should be awarded, principle (paras 789ff) is stated in the award
Contract by because claimants did without an explanation
the Kazakh not make investments in Loss is 'in fact the
expropriation of their of the mathematical
Investment the amount alleged, for calculation undertaken
Committee reasons of public policy shares' so that 'the
correct approach is to by the tribunal; however,
2) Compulsory should not benefit from
their fraud, and KaR-Tel award such compensation the position as to
transfer of as will give back to damages was handled
claimants' was insolvent (para. 716). with considerable care
Claimants the value to
60% stake in them of their shares at (para. 178 ff).
KaR-Tel to the time when the
the benefit of → Estimation of damages
expropriation took place' is not an exact science
its remaining (para. 793).
shareholders, and that the tribunal has
i.e. the local a measure of discretion.
partners → Tribunal applied the
3) Valuation of DCF analysis but made
claimants' clear that it was only an
60% share at approximation.
less than US$
3,000, → It was right in
P 423 balancing a number of
whereas, less
than a year countervailing
later KaR-Tel considerations.
was sold for
US$ 350
million
2010 Annulment
Decision: Among
other reasons, the
award was
challenged because
the calculation of
damages allegedly
was erroneous,
illogical,
inconsistent, and
insufficient (failure
to give reasons).
Application for
annulment was
dismissed in its
entirety.
6
Duke Energy ElectroquilDuke Energy, 1) Contractual Claimants: With regard to violations Amount awarded:
Partners & Electroquil incorporated in violations of of power purchase
S.A. v Republic of Delaware, invested PPAs (para. 1) US$ 24,720,904 agreements and US$ 5,578,566
Ecuador in Electroquil, a 243) by not damages as a unjustified fines Compensation
power generation complying with result of (violations 1, 2): consisting of damnum
Award of 18 August 2008 company the payment Ecuador's Ecuadorian Civil Code: emergens and lucrum
ICSID Case No. incorporated in mechanism unlawful conduct, 'compensation for cessans (para. 444).
ARB/04/19 Ecuador. The provided including damages includes
dispute arose out of under the PPAs compound damages and loss of 'Commercial losses'
Applicable law: several Power nor with the interest until profits, whether they arise (para. 446): Interest for
Purchase Payment Trust 2005; from not having late payments and sums
Ecuador–USA BIT Agreements (PPAs) Agreements performed the obligation, of unjustified fines plus
(1993/1997), • in the interest (paras 448–9;
Ecuadorian Law, and related 2) Unjustified or from faulty
agreements entered alternative performance, or from para. 460)
International Law imposition of US$
into between the some of the delay in performance'
parties for electric 19,263,434 (paras 442–3) damages This also encompasses
fines impairment full reparation under the
power generation. submitted by that could have been Chorzów standard for
As of mid-1996, to the foreseen at the time of
claimants value of violation of the Umbrella
Ecuador started (para. 292) conclusion of the
levying a series of claimants' contract; when obligation clause and avoids risk of
3) Umbrella investment double recovery (para.
fines against is to pay an amount of 476).
Electroquil. In clause of BIT in money, no proof of harm,
addition, disputes (paras 323–5) Electroquil, is presumed by the
arose with regard to 4) FET standard including passage of time and
the establishment in BIT with compound reflected in the rate of
of the Payment respect to interest interest (para. 444)
Trusts provided for Payment until 2005
in the agreements, Trusts (para. 2) US$ 358,954
and with regard to 364) costs incurred in
the exemption from local arbitration
taxes and customs
duty. Furthermore, a Broken down as:
P 424 dispute arose in the US$ 7,292,114 nominal
context of a local unjustified fines +
arbitration which
claimant initiated in
2001, but
respondent
declined to
participate.
Rejected interest for US$ 1,008,614 With regard to violations Tribunal reached this
most of the late of BIT standards result by taking the
payments under the unjustified customs (violations 3, 4): CIL: ILC principal amount
contracts due to Art. duties + Articles Art. 31 (1), Chorzów requested by claimants
1161 Ecuadorian Civil Interest: standard (paras 467–8) based on fines and
Code (para. 280) customs duties (US$
US$ 7,233,936 8,300,727) and reduced it
Rejected denial of based on its findings on
justice with regard to on fines + liability/having rejected
alleged unjustified US$ 105,712 several claims put
customs duties (para. forward to US$ 5,578,566
403) on customs duties + US$ (para. 462).
8,421,050
for late payments
Continental Casualty Continental FET standard in BIT; Claimant: Loss sustained consists in Amount awarded:
Company v Argentine Casualty, only with regard to the US$ equivalent of the
Republic incorporated in treasury bills (LETEs) Expopriation: 'pesified' amount of the US$ 2.8 million
Illinois, invested in (para. 304) US$ 46,412,000 LETEs in November– As the equivalent to the
Award of 5 September an insurance December 2004, as
2008 Argentina had offered 'pesified' amount of
company FET violation: indicated by claimant in LETEs, as indicated by
a swap against newly
ICSID Case No. ARB/03/9 incorporated in issued securities, US$ 32,653,000
an amount of US$ 2.8 claimant in an amount of
Argentina, CAN million, plus interest US$ 2.8 million, plus
Applicable law: Asegurado de namely GDP-linked Contracts Observance: thereunder (para. 265).
derivative interest thereunder
Argentina–USA BIT Riesgos del Trabajo, (para. 265)
S.A. It claimed that investments (para. US$ 20,334,000 Claimant had not
(1991/1994), legislative measures 220). specified whether interest Corresponding to
International Law Transfers: should be compounded;
by Argentina This was regarded as claimant's 'capital loss'
directly and US$ 14,631,000 'As a general principle, (para. 305)
a violation of FET, almost invariably, justice
indirectly affected because of late date 1)
its investment From devaluation requires that the Rejected: amount due to
of the offer of funds due to wrongdoer who has 'pesification' as well as
through (December 2004) for default and
restructuring, inability of deliberately failed to pay
when financial withdrawal (para. compensation should pay revocation of contractual
'pesification', and conditions were
freezing of bank 237). interest for the period rights (para. 304)
evolving towards during it has withheld
P 425 accounts. normality, the 2) Loss through
'pesification' and that compensation
reduced percentage unlawfully. Moreover, a
of the original value restructuring of
Governmental wrongdoer …may be
of the debt, and the
condition that any Loans and LETEs unjustly enriched…' (para.
as well as 308)
other rights would be
waived (para. 221). application of
capital gain tax
For all other claims, (para. 247; para.
the tribunal accepted 267).
applicability of Art. XI
BIT (emergency
clause) and Art. 25 ILC
Articles (para. 236).
7
Bernardus Henricus Claimants owned Violation of Art. 6 BIT Claimants: Art. 6(c) BIT: Amount awarded:
Funnekotter and others large commercial (expropriation) by
v Republic of Zimbabwe farms in Zimbabwe; not paying just US$ 10,690,000 'genuine value of the US$ 8,220,000
between 2001 and compensation for investments affected …
Award of 22 April 2009 2003, they were (valuation of each farm shall include, but not Valuation method:
dispossession. The as production unit at its exclusively, the net asset
ICSID Case No. ARB/05/6 deprived of their tribunal observes market value in 2001) 'value of the investment,
properties through that the conditions value thereof as certified independently of the
Applicable law: invasion by settlers enumerated in Art. 6 Consisting of by an independent firm of origin and past success
and war veterans are cumulative, i.e. 'if auditors' of their investment'
Netherlands– 1) Immovable (para. 124)
Zimbabwe BIT and/or through any of those property 'In certain cases, the net
various orders conditions is asset value, i.e., the value
(1996/1998), taken by the violated, there is a 2) Movable assets 'Genuine value must be
International Law as recorded in the determined on the basis
government under breach of Article 6'; 'it In addition moral accounts, will not of the market value of
the 1992 Land will not be necessary damages: US$ 40,000, correspond to the the whole farm at the
Acquisition Act; for it to consider later €100,000 Euros per genuine value. If the net
finally an whether … the other time of expropriation'
person asset value is lower than (para. 130)
amendment of the conditions provided the genuine value,
Constitution in 2005 for in that Article … compensation will be
P 426 formalized the have also been higher than the net asset
expropriation of the breached' (para. 98). value' (para. 122)
farms; the owners
received no → No need to set aside
compensation; in Art. 6(c) under the MFN
addition, the Land clause
Occupiers Act of → Lawful/unlawful
2001 regarded
certain settlers and distinction irrelevant as
war veterans as 'it is not alleged that
there was some increase
'protected of the value … between
occupiers'.
taking and the date of the
present award' (para. 112)
Respondent: Market value of

US$ 872,947 1) Immovable
property
(value of the arable land
plus permanent 2) Movable assets
improvements made to Date: 'Date of
it, at replacement costs dispossession'
applying to these costs a
depreciation rate) → Date of issuance of
expropriation orders
(even though claimants
had previously been
forced to abandon their
farms) (para. 115); in
some cases date of entry
into force of the Land
Occupiers Act of 2001
(para. 119)
'Moral' damages: €20,000
per person for the
disturbances resulting
from the taking and the
necessity for them to
start a new life often in
another country (para.
138)
Saipem S.p.A. v The A pipeline project, The actions of the Claimants: The compensation Amount awarded:
People's Republic of based on a contract Bangladeshi courts standard of Art. 5 BIT is
Bangladesh between Saipem did not constitute a 1) Amounts awarded not applicable because it US$ 5,883,770.80 + US$
and Petrobangla (a direct expropriation, in ICC award: sets out the measure of 265,000.00 + €110,995.92
Award of 30 June 2009 state entity), but rather a 'measure US$ 5,883,770.80 compensation for lawful = amount of ICC Award
ICSID Case No. ARB/05/7 sponsored by the having similar effects' plus 3.375% expropriation which this (para. 204)
WB and largely within the meaning of interest, US$ one is not.
Applicable law: financed by IDA, was Art. 5(2) BIT. Such 265,000.0 + Reasoning:
€110,995.92 (costs) → Tribunal applies the
Bangladesh–Italy BIT significantly actions resulted in
principles of CIL as set out Expropriation of the
P 427 (1990/1994), delayed. ICC substantially 2) Costs, legal fees
arbitration was depriving Saipem of in Chorzów Factory (para. right to arbitrate the
Bangladeshi Law, and related 201) dispute in Bangladesh
instituted, but the benefit of the ICC expenses incurred
International Law heavily attacked by Award. The decision under the ICC Arbitration
in local court → Amount awarded in ICC Rules corresponds to the
Petrobangla before of the Bangladeshi proceedings to Award constitutes the value of the award
national courts. The Supreme Court that defend itself best evaluation of the
ICC award was the ICC Award was 'a rendered without the
3) Interest at six- compensation due under undue intervention of
rendered on 9 May nullity' was the Chorzów Factory the courts of
2003. Upon an tantamount to a months LIBOR
from various principle (para. 202). Bangladesh.
application by taking of the residual
Pretrobangla, the contractual rights dates (para. 85)
Date: Date of original
Supreme Court of arising from the Respondent: award plus interest
Bangladesh held investments as (para. 216).
that the award was crystallized in the ICC At the time of the alleged
'a nullity' and 'non- Award. It amounted expropriatory act Denied:
existent' so that it to an expropriation (revocation of the
authority of the Costs, legal and related
could neither be set within the meaning of expenses incurred by
aside nor be Art. 5 BIT (para. 129). arbitrators), there was
no ICC Award Saipem in local court
enforced (para. 50). proceedings to defend
P 428 → Compensation should itself, because they 'are
be made on basis of not part of Saipem's
what sums remain due initial investment' and
under the pipeline have not 'been the
contract (para. 198). object of an
expropriation' (para. 205)
8
Waguih Elie George Siag Claimants invested 1) Unlawful Claimants: FMV of the property in May Amount awarded:
& Clorinda Vecchi v The in a hotel/resort expropriation 1996 = minimum (para.
Arab Republic of Egypt development in violation of Approximately US$ 200 576) US$ 74,550,794.75
project; a parcel of Art. 5 BIT million (plus interest)
Award of 1 July 2009 land was allocated (paras 443ff) based on either a 'lost 'compensation provisions Valuation method:
to them in 1989; in 2) business opportunity' within Art. 5 BIT are not DCF-method rejected,
ICSID Case No. Failure to DCF valuation of the applicable for present
ARB/05/15 1990 construction provide full because not a project
work begun. project or a 'comparable purposes except as to the which lends itself to a
protection transactions' valuation guidance it may provide robust DCF analysis
Applicable law: (violation of
Claimants allege of the property. on the appropriate (para. 566)
Italy–Egypt BIT that through a Art. 4(1) BIT), interest rate', because 'it
(1989/1994) series of acts and (paras 445ff) Plus discrete damages: was not a lawful • Uncertain because
omissions 3) Violation of • Construction expropriation to which Art of short operating
commencing in FET in Art. 2 BIT costs for 5 of the BIT applied' (para. history (para. 570)
1995, Egypt (paras 449ff) improvement of 539) • 'moving parts'
expropriated their property that contribute to
investment. The 'however, …, in the
• Salaries and present case the DCF can change
courts of Egypt on result of absolute
several occasions benefits, rents distinction between
and utility bills, compensation for a lawful value of a
passed orders business (para.
declaring the taking travel and fares, expropriation and
costs of studies compensation for an 568)
of the property by
Egypt to be invalid undertaken unlawful expropriation Comparable Sales
and granting • Bank loans (Siag may not make a Valuation:
declaratory and could not repay significant practical
injunctive relief, but them because of difference', distinguishing → 20% discount to
frozen accounts, this case from Vivendi claimant's expert
the court orders valuation based on
were never penalty interest at where 'lost profits' were
16% incurred) 'arguably recoverable comparable projects in
complied with. the Sinai and the Red
pursuant to the more
• Legal expenses for generous damages regime Sea, in view of the
litigation in under CIL' (para. 541); uniqueness of the
Egypt's domestic declining 'punitive' or project
courts (para. 631) 'moral' damages (paras
544ff)
Basis for compensation:
value of expropriated
asset prior to
expropriation (para. 542)
P 429
Respondents: Discrete damages: → under Art. 10 of the

contract between Siag
Egypt claimed lawful • Construction costs and Egpyt any sale of the
expropriation, • Salaries and property to third parties
compensation based on benefits would have resulted in
'the market value' (Art. payment of only 50% of
5(iii) BIT). Egypt • Bank loan (penalty
interest) the price → 'an award of
mentioned two damages should, as far
transactions which • Legal expenses as possible, put the
occurred near in time to injured party in the
the expropriation position he or she would
providing a 'readily have been in had there
ascertained' market been no expropriation
value. The first implied a (para. 582) → claimants
total value for Siag only owned 95.27% of
Touristic of US$ 3 million. property → Final figure:
The second implied a US$ 69.11 million (para.
total value for the 584)
project of approx. US$
2,800,000. Total Damages
US$ 69.11 million for loss
of investment US$ 4.44
million for construction
work (paras 585ff)
US$ 1 million for legal
expenses (no invoices
presented, but tribunal
P 430 finds it 'appropriate')
9
Gemplus S.A., SLP S.A., Claimants had Violation of FET, Claimants: Measures of Amount awarded:
Gemplus Industrial S.A. successfully because the indemnification under
de C.V. v United Mexican participated in a respondent's conduct US$ 227,826,772 (Talsud) both BITs relate to lawful US$ 4,483,164 for
States; consortium for a between 25 June 2001 and US$ 128,933,464 expropriation and do not Gemplus, and
tender to operate and 13 December 2002 (Gemplus) plus pre- expressly address
Talsud S.A. v United award and post-award US$ 6,458,721 for Talsud
the national vehicle was 'manifestly compensation for
Mexican States registry in Mexico to irrational, arbitrary interest, based on DCF- unlawful expropriation,; = value of the
protect the property and perverse, being method; similar amounts neither BIT expressly investments at the
Award of 16 June 2010 being derived from the
assets of Mexican also conducted in provides for any separate valuation date
ICSID Cases Nos citizens and to bad faith towards the market value of shares measure of compensation
ARB(AF)/04/3 & (Part XIII, paras 13–16). (= US$ 5,853,417 for
combat crime. Claimants and their in respect of breach of the Gemplus, and US$
ARB(AF)/04/4 Registration was rights as investors The market value FET standards (Part XII,
mandatory and under the two BITs' paras 12–13, 12–53) 8,487,455 for Talsud)
Applicable law: measure of both BITs is
should include new (Part VII, paras 7–76). 'consistent with the minus dividends
France–Mexico BIT and used vehicles. Valuation date: received ('past
Unlawful standard expressed in
(1998/2000) The Concession payments').
Agreement was expropriation by the most other treaties and Referring to Article 15 ILC
Argentina–Mexico BIT respondent, CIL' (Part XII, paras 12–14) Articles with regard to Rejects DCF method,
signed in breaches consisting of a
(1996/1998) September 1999. In 'indirectly with the Respondent: because Concessionaire
Requisition on 25 composite act,
2000, the determines the relevant was not operating as a
Concessionaire June 2001 and directly 'asset value and going concern, lack of
with the Revocation 'declared tax' value date as 24 June 2001, sufficient factual basis
faced growing being the first of the acts
political difficulties, on 13 December 2002, methods should be for estimating future
in violation of Articles preferred over the DCF in the series, the date
connected to the cash flows (Part XIII,
cost of registering 5 (1) of the Argentina method which is wholly preceding the unlawful paras 13–70 et seq);
BIT and speculative and Requisition of 25 June
used vehicles impermissible due to the 2001 (Part XII, paras 12–43 Yet, the claimants' shares
amongst others. lack of a proven track et seq.). must be valued by
After national reference 'to the
elections, the record of profitable
operations (Part XII, Concessionaire's
obligation to paras 12–30, XIII, paras reasonably anticipated
register used 13–46 et seq.); loss of future profits'
vehicles was (Part XIII, paras 13–75),
suspended. including significant
uncertainties; the
chances of success were
less than 50 per cent;
P 431 tribunal refers to
literature and cases to
discuss the 'loss of a
chance';
Administrative Article 5 (1) of the Compensation for 'lost

intervention of the French BIT' (Part VIII, opportunity' to make
public service of the paras 8–27). future profits for the
national vehicle remainder of the
registry was ordered Concession Agreement of
between 2000 and 8.25 years was not 100%
2001, which was and not zero; would be a
followed by the factor between a willing
requisition of the buyer and seller; plus
Concessionaire's exercise of 'arbitral
operation on discretion' (Part XIII,
grounds of national paras 13–95 et seq)
security. The
Concession
Agreement was
revoked in
December 2002.
P 432
Alpha Projektholding Alpha, an Austrian 1) Expropriation in Claimant: Standard not explicitly Amount awarded:
GmbH v Ukraine limited liability violation of Art. 4(1) discussed.
company, had BIT, because, after the US$ 11,372,000 US$ 2,979,232
Award of 8 November entered into a corporatization Valuation date:
2010 composed of the Total damages:
series of commercial process in 2003, the following elements, Date of expropriation (1
ICSID Case No. arrangements state authorities, expressed in terms of July 2004) as the first day • Historical losses
ARB/07/16 regarding the disenchanted with 2004 NPV: of the month after of US$ 117.421 +
reconstruction and the arrangement claimant received its last US$ 142.204
Applicable law: renovation of between the claimant • Historical losses payment; while • Revenue forgone
several floors of a and the hotel, of US$ 371,000 subsequent actions of the of US $ 2,209,822
Austria–Ukraine BIT
(1996/1997), Ukrainian hotel in Kiev. ordered the stop in (outstanding government perpetuated • US$ 523,151
Law payments. payments) the non-payment to
The events giving • Terminal value of
rise to the → expropriation by • Forgone income claimant, the US$ 34,820
arbitration include substantially and of US$ 6,529 million expropriation and other
(income claimant BIT violations occurred at • Adjustment to
the temporary permanently overpayment, US$
suspension of depriving the would have the time payment ceased,
payments, the investment of received between never to be resumed 21,937 must be
2004 and 2015) (para. 481) deducted
transformation of economic value
the hotel from a (paras 372ff, 408ff) 2) • Terminal value of Discount rate:
state-owned FET under Art. 2(1) BIT the joint activity
enterprise into a (para. 416) of US$ 2,567 million Tribunal followed
state-owned Open claimant's submission
Joint Stock → legitimate Respondent: on WACC (12.41%),
Company, the expectations that the because 'the target
government would Largely agrees with capital structure must be
transfer of methodology but
management of the not interfere with the used, instead of that of
contractual objects to the minimum the actual firms being
hotel to the State monthly payment
Administration of relationship between valued' (para. 483).
the claimant and the requirement and the
Affairs and the entitlement to terminal
cessation of hotel (paras 420ff)
value because the
payments to the improvements belonged
claimant. to the hotel; proposed
discount rate of 14.42%
based on debt-equity
ratio.
P 433
10
Joseph Charles Lemire v Lemire, a US citizen, Violation of FET Claimant: Calculation Relief must consist in an Amount awarded: US$
Ukraine owned a local radio standard established based on the order to pay 8,717,850
station, Gala Radio, in Art. II.3 of the BIT comparison of a base compensation equal to
Award of 28 March 2011 in Ukraine. He scenario, which the damages caused Valuation method:
became one of the The executive branch represents the value of (para. 146).
Decision on Annulment of the government Difference between a real
of 8 July 2013 leading Gala Radio as it operates 'as is' value and a
broadcasters in the acted wrongfully by today, with four FMV is of little use in
awarding significant alternative hypothetical present arbitration, as the hypothetical 'but for'
ICSID Case No. Kyiv area. Over the value (paras 244, 253).
ARB/06/18 years, Gala's main numbers of radio scenarios under breach does not amount
competitors, licences directly, different assumptions to the total loss or Damages must not be
Applicable law: without transparency what its present value deprivation of an asset 'speculative' (para. 245),
controlled by
powerful Ukrainian or publicity and would have been, if the (para. 148). but proved with
USA–Ukraine BIT without meeting the violation of the FET
(1994/1996) investors, were able Chorzów standard (para. reasonable certainty;
to obtain between requirements of or standard had not less certainty is required
following the 149ff)
38 and 56 additional occurred, i.e. 'but for' in proof of actual
frequencies, while procedures valuation (para. 122). Art. 36.2 ILC Articles (para. amount, there must be
Gala, although it established in the 151) 'reasonable confidence'
tried incessantly Ukrainian Law on Applying the DCF (paras 246ff).
Television and methodology, amount Calculation 'cannot be
and presented more made in the abstract'
than 200 Broadcasting (para. claimed ranges between
applications, was 110). US$ 30,469, 000 and US$ must be 'case specific'
46,651,000 (currency in (para. 152).
only able to secure
a single licence, in a US$).
small village in rural
P 434 Ukraine.
2013 Decision on If 'country risk' discount 'Causation' is crucial, Loss of a chance? =

annulment: factor is applied, sums needs to be 'sufficiently damage through a
are 10% lower (para. 223). close' (i.e. not too remote) foreseeable and
The application for (para. 155). proximate chain of
annulment by Cross-checked by EBITDA events (para. 252).
Ukraine on the valuation resulting in Proof of causation needs
basis of manifest similar numbers (para. (A) cause, (B) effect, and (C) Tribunal notes
excess of powers, 225) a logical link between the agreement of both
departure from a two (para. 157ff). experts with DCF analysis
fundamental rule of + Moral damages: (para. 254), applies it
procedure and Comparison of the with adjustments;
US$ 3 million 'present value' in five
failure to state
reasons, was Respondent: different scenarios (para. • Discount rate:
rejected. 218); DCF method; EBITDA Discussion about
Revenues and costs multiples to cross- check; 'country risk'
understated; profits also comparable (paras 275ff);
never generated more transactions should amount to
than US$ 121,000 per 18.51% for
year; Scenario I and II
Damages claimed are (as proposed by
respondent).
disproportionate to the
capital invested (less • Free cash flow
than US$ 1 million in 15 estimates as
years) (paras 131ff) proposed by
claimant largely
Cross-check by accepted as
comparable transactions reasonable (paras
(mergers and 288ff).
acquisitions) (para. 231)
→ NPV II minus NPV I
Currency of calculations results in loss suffered of
in UAH, only final US$ 8,717,850 (paras
amount converted in 296ff)
P 436 US$ (para. 229).
Comparable transaction:
Confirms reasonableness
of amount (para. 307ff)
Moral damages:
Rejected only in
'exceptional
circumstances'; and
moral aspects of Lemire's
injuries already
compensated by
awarding a significant
amount of compensation
(para. 344).
M. Meerapfel Söhne AG v Meerapfel Söhne, a Indirect Undisclosed Under general Amount undisclosed
Central African Republic Swiss company, was expropriation by a international law and Valuation:
the majority series of measures, under the Protocol, CAR is
Award of 21 May 2011 shareholder in a such as imposition of under an obligation to Value of the lost tobacco
joint venture taxes, prohibition of pay prompt and adequate harvest, as determined
ICSID Case No. by the average price of
ARB/07/10 (société A), a exports, non-respect compensation, even if the
tobacco-farming of judicial decisions, other conditions are the tobacco (para. 385).
Applicable law: business in the CAR. requisition of assets, complied with (para. 374). Tribunal declines lost
Societé A faced and the repudiation By not paying profits and loss of a
Protocol of Agreement various problems in of the Protocol of compensation, CAR has chance, as there was no
with CAR (Switzerland relation to CAR Agreement (para. 354). violated its contractual future profitability of the
CAR BIT not investment. The damage
applicable) customs, tax obligations.
authorities, and caused by CAR was
local shareholders. Moral damages: already fully repaired by
After civil Concerning the eviction, the amount representing
proceedings in local there was insufficient the investment (para.
courts, the claimant proof of stress or harm 393). Expenses for
entered into a caused to individuals; amicable solution:
Protocol of also the non-observance Declined because
Agreement with CAR of CAR's own judgments incurred at the
in 2006 (contained and the resulting denial claimant's own risks
ICSID Arbitration of justice did not give rise
P 437 to moral damages. The Moral damages:
clause). During the
2006 harvest, CAR resulting damages were Although CAR made
requisitioned assets primarily financial and 'excessive' and
of the claimant and not moral and as such 'exaggerated'
repudiated the already sufficiently statements, these were
Protocol. compensated by the made in an adversarial
expropriation claim proceedings and did not
(referring to Benvenuti & cause injury justifying
Bonfant, Desert Line, compensation.
SOABI, Tecmed, and Pey
Casado, paras 426ff).
11
Impregilo S.p.A. v The dispute Violation of BIT Claimant: Chorzów standard: Amount awarded:
Argentine Republic concerns through failure to Impregilo should in
concession of water afford FET (para. 331). Loss assessed by a principle be placed in the US$ 21,294,000
Award of 21 June 2011 and sewage services combination of (1) asset- same position as it would
The Emergency Law of based method and (2) Valuation method:
Decision on Annulment under a Concession have been, had
Contract concluded 6 January 2002 had income method, Argentina's FET violation Tribunal doubts
of 24 January 2014 dramatic negative attaching more weight to
between an not occurred (para. 361). profitability of the
ICSID Case No. Argentine company impacts on the the latter (two-thirds) concession, because it
ARB/07/17 and the Province of economic prospects and less to the former However, it 'cannot be covered a risk area with a
Buenos Aires, in of the concession, in (one third) established with certainty poor population and a
Applicable law: which Impregilo particular the in what situation low collectivity rate
S.p.A, a company 'pesification' of tariffs →US$ 87,156,098 (as of Impregilo would have (para. 373).
Argentina–Italy BIT and the freeze of July 2006) and US$ been' 'it would be
(1990/1993), incorporated in 119,362,503 (as of October
International law Italy, had a tariffs (paras 317ff). unreasonable to require
dominating Since the disturbance 2008), including an precise proof of the
of the equilibrium interest rate of 15% extent of the damage
interest. (para. 372)
between rights and sustained' → 'reasonable
P 438 obligations in the probabilities and
concession was estimates have to suffice
essentially due to the as a basis for claims for
measures taken by compensation' (para. 371)
the Argentine
legislator, it must
have been incumbent
on the Argentina to
act to effectively
restore an
equilibrium on a new
or modified basis
(para. 330).
On 11 July 2006, the By failing to do so, Respondent: No sufficient degree of

Concession Contract Argentina aggravated probability that the
was terminated by the situation to such Concession had no concession, even in the
the Province of extent as to economic value, no absence of the FET
Buenos Aires constitute a breach of compensation would be violation, would have
because of alleged FET (para. 331). justified (para. 372). been profitable (para.
violations of the 375).
terms of the
contract. It Not possible to evaluate
transferred the potential losses or gains
company's water in precise figures but
and sewage service considers that Argentina
concession to should be obliged to
another company restitute the investment
(para. 48). as compensation for its
FET violation (para. 379)
2014 Annulment
Decision: → Compensation to be
awarded 'should be
Application for based only on the capital
annulment contribution made'
submitted by (para. 381).
Argentina (that the
tribunal exceeded
its powers)
dismissed in its
entirety.
Tza Yap Shum v The The Chinese Interim measures of Claimant: Not the standard Amount awarded:
Republic of Peru national Tza Yap 28 January 2005 contained in Art. 4 of the
Shum invested in constitute an indirect Damages based on the BIT, because the US$ 786,306.24
Award of 7 July 2011 TSG del Perú S.A.C., a expropriation in DCF value of TSG: established conditions (paras 261–73)
Decision on Annulment Peruvian company violation of Art. 4 of 56,497,500 Sol (app. US$ were not met, so CIL has
of 12 February 2015 involved in the the BIT, because they 17 million) to be applied (para. 253). Valuation method:
purchase and were arbitrary (para. • DCF inappropriate basis
exportation of 218). Moral damages:
fishmeal, primarily for compensation
15 million Sol (app. US$ because of lack of
for Asian markets.
4.5 million) historical record (three
P 439 years of operation of
which two produced
negative results, no
benefits to be expected
between 2005 and 2008)
ICSID Case No. ARB/07/6 In 2004, TSG was Respondents: Respondent is obliged to • Compensation based
subjected to an make full reparation for on TSG's adjusted book
Applicable law: audit, conducted by No value, or US$ 771,856 the injury caused (Art. value on 31 December
Peru's taxing maximum of (= the 31(1) ILC Articles), 2004 would best
Peru–China BIT company's adjusted
(1994/1995), authority (SUNAT). reparation must, as far as represent the price
TSG's books and book value at the time possible, wipe out the claimant would have
International Law immediately before the
records were held consequences of the obtained in the market:
not to adequately expropriation) illegal act (Chorzów
reflect values for the principle) (para. 254). (1) Book value of US$
raw material used 590.329
and sales. Back (2) Multiplied by a
taxes and fines factor taken from
totalling app. 10 comparable
million Peruvian companies (Latin-
solares were American fish
imposed. TSG filed a companies), at the
challenge to example of the
SUNAT's finding. ratio book
Nonetheless, SUNAT value/market
also imposed price, as proposed
interim measures by respondent's
which directed all expert.
Peruvian banks to
retain the funds of
TSG.
P 440
12
2015 Annulment Moral damages:
Decision: Peru's
application for Rejected, because the
annulment conditions as elaborated
dismissed in its in arbitral practice
entirety. (quoting Lemire) were
not met by the measures
at issue (not sufficiently
serious, not physical).
El Paso Energy El Paso, a company Violation of the FET Claimant: BIT does not specify the Amount awarded:
International Company v incorporated in standard under Art. standard for evaluating
The Argentine Republic Delaware, had II(2)(a) BIT Claims 'loss in value' of damages for breach of US$ 43,030,000
invested in two its Argentine assets as a FET, so the appropriate
Award of 31 October While none of the result of the Valuation method:
Argentine energy standard of reparation
2011 companies (oil measures taken in government's measures under international law is DCF method applied,
isolation would be (para. 688). compared the 'actual'
Decision on Annulment producing CAPSA regarded as
compensation for the
of 22 September 2014 and electric power losses suffered by the and 'but for' values of
generator CAPEX). violations of the FET (1) US$ 147,000,000
party affected, as the stakes in the
standard, the (DCF method)
ICSID Case No. Starting in established by the PCIJ in companies, representing
ARB/03/15 December 2001, tribunal took an difference Chorzów (para. 700), the FMV of each company
Argentina had taken overall view of the between value of quoting SD Myers (para. with and without the
Applicable law: measures, which situation and stakes with and 701), but also CMS as effect of the measures.
allegedly rendered analysed the without the regards the 'difference in
Argentina–USA BIT measures According to the tribunal
(1991/1994) the investment consequences of the FMV of the investment
worthless and the general behaviour of (2) US$ 210,000,000 resulting from the treaty appointed expert:
companies unable Argentina (para. 459). (transactions breach'; FMV as defined in As regards the WACC,
to function In conclusion, the method) International Glossary of discount rates set at
independently. measure, by their difference Business Valuation Terms 15.45% for electricity and
These measures cumulative effect, between the by ASA (para. 702). at 15.43% for
included the amounted to a hypothetical 'but hydrocarbons; tribunal
freezing of bank violation of the FET for' sale price of discusses oil prices,
P 441 deposits, foreign standard (para. 519). stakes without disadvantages and
exchange controls, measures and sale benefits accruing from
the 'pesification', prices actually pesification and other
the elimination of obtained from measures; agrees that a
adjustment clauses, divestiture in discount rate should be
the forcing of 2003. applied to the debt value
electricity and gas of the companies.
companies to
continue
performance of
their public
contracts and the
withholdings of
hydrocarbon
exports. El Paso
sold its shares in
2003 and initiated
proceedings against
Argentina.
2014 Annulment No violation of Respondents: Valuation date: Value collected by
Decision: The umbrella clause ('the claimant for the sale of
Application for so-called umbrella Alleged that the loss was Quoting Amco Asia and the companies shall not
Annulment of the clause cannot not caused since El Paso Art. 36 ILC Articles, that it be deducted since the
Award presented by elevate any contract sold shares in bad should be determined DCF calculation departed
Argentina dismissed claims to the status macroeconomic with reference to a date from the assumption
in its entirety. of treaty claims as El conditions. subsequent of that that shares were kept.
Paso cannot claim a internationally wrongful
DCF embodies a wide act (para. 710).
contractual right of range of inherently
its own in this case', speculative elements Extensive discussion of
para. 538) (para. 695). causation. The test was
whether there was a
'sufficient link' between
P 442 the treaty violation and
the alleged damage (para.
682).
SGS Société Générale de 1996 contract Violation of Art. 11 Claimants: Claimant is entitled to Amount awarded:
Surveillance S.A. v The between SGS, a (umbrella clause), damages equal to the
Republic of Paraguay Swiss company, and para. 67. Requested damages amount of the unpaid Claimant is entitled to
the Ministry of equal to the sum of invoices plus interest the entire amount of the
Award of 10 February Finance of Paraguay 'Respondent ignores unpaid invoices (= US$ accruing from July 1999 unpaid invoices totalling
2012 on the performance the fact that, in 39,025,950.86) plus (para. 180) =date of US$ 39,025,950.86 (para.
addition to agreeing interest accruing from 182).
Decision on Annulment of pre-shipment to the forum July 1999 through
contract termination, not
of 19 May 2014 inspection and of invoice issuance, as Detailed explanation on
certification selection clause in February 2011 (=US$ 22.5 claimed by the Claimant
the Contract, it million, paras 167ff) interest, as a 'virtually
ICSID Case No. services for cargo universal principles of
ARB/07/29 destined for separately agreed to Respondent had
arbitration in Respondent: conceded that, if claimant international law and
Paraguay (customs
Applicable law: duties). SGS claimedaccordance with the Did not dispute the were to prevail on its Art. international arbitration
BIT. By doing so, 11, claimant would be practice', referring also
Switzerland–Paraguay that Paraguay's mathematical
BIT (1992/1992) failure to pay Respondent offered calculations, but entitled to damages (para. to ILC Articles (para. 184);
to Swiss investors an
invoice violated Art. contested underlying 180). 'Interest is not an
11 BIT (umbrella alternative forum for assumptions (mere independent head of
clause). dispute settlement. contract claims, lack of damage, but an aspect of
The BIT arbitration mitigation by not the full reparation due
2014 Annulment mechanism formed pursuing claims before for a loss.' (para. 172)
Decision: part of the applicable national courts, by not
legal framework and terminating the
Application by became, in effect, an
Paraguay dismissed irrevocable part of contract) (paras 175ff)
in its entirety. the bargain.' (para.
107)
Marion Unglaube and German investor Measure tantamount Claimants requested Not apply BIT standard of Amount awarded:
Reinhard Unglaube v Reinhard Unglaube to expropriation, Art. compensation for the expropriation
Republic of Costa Ricawanted to extend 4(2) BIT with regard to value of the property at compensation, 'binding Compensation for the
his eco-tourist a 75-meter strip at the coast by an 'income only with respect to a said property, to pay to
Award of 16 May 2012 hotel complex in the coast which had capitalization approach lawful taking of property' the successful claimant
only, Marion Unglaube
ICSID Case No. ARB/08/1 Playa Grande, Costa been the property of based on the Property's (para. 306) →Chorzów; 'not
the sum of
Rica. The Marion Unglaube: highest and best use', a matter a great
ICSID Case No. authorities refused, namely developing 32 consequence regarding
Tribunal did not find
P 443 ARB/09/20 arguing that the
expropriation of the
single family residences. the case before us' (para.
project was in close 307)
Applicable law: proximity to the Las remainder piece of
Baulas de land.
Germany–Costa Rica
BIT (1994/1998) Guanacaste
National Marine
Park (home to the
nesting site of the
leatherback turtle,
in danger of
extinction).
13
Unglaube had Detailed discussion References to 'Sales and Under both the Chorzów US$ 3.1 million
received permits whether listings of lots approach and the
from the expropriation was comparable', allotting language of the BIT, it plus interest (total
government to 'lawful' or not (paras US$ 5,190.000 to the 75- finds that the applicable amount payable of US$
enlarge the hotel. 202ff); the Meter Strip standard is FMV, but (1) 4,065,900.33).
Precautions were requirements 'must higher value and (2) Valuation method:
taken to protect the be fulfilled Respondent: incidental expenses are
turtles. cumulatively', or the Has already deposited recoverable in case of Is not 'a going business
expropriation will be US$ 750,000 for payment. unlawfulness (para. 307). concern'; tribunal
Unglaube's wife also considered unlawful applies FMV; 'highest and
initiated Rest of payments should Valuation date:
(para. 204). be offset by payments best use', development
proceedings, plans for single homes
alleging similar Respondent did not made in domestic Important, but problem
proceeding. Relies on because of various are reasonable (para.
breaches. The two make timely 309).
cases are treated in arrangements to BIT standard. Expert attempts to expropriate
consolidated determine payment, valued the 75-Meter Strip (2003, 2004, 2005, 2008) Real estate market
manner. even though the BIT at US$ 300,000 plus (para. 315) volatile, value depends a
(and its protocol) was interest (para. 303). lot on valuation date;
Tribunal takes 1 January
rather detailed (paras 2006 (before market peak) tribunal largely agrees
206–9, 223). (para. 318) with claimants'
suggestions, but does
Extensive reference to 1 July 2006 (claimant, para. not accept the entire
P 444 CDSE award on 299) amount, because this
expropriation for a would 'implicitly be
national park. accepting all of the
Also to Funnekotter assumptions and
(2009) and adjustments utilized';
Theodoraki v. Greece finds it 'fair and
(ECtHR 2008). reasonable' to value the
loss at US$ 3.1 million.
Denying FET valuation
(para. 279) and FPS
violation (para. 288)
EDF International S.A., EDFI, together with BIT violation (1) with Claimants: Tribunal concluded that Amount awarded: US$
SAUR International S.A. SAUR International respect to specific fairest measure of 136,138,430
and León and Credit Lyonnais commitments Claimants claim that damages was the 'genuine
Participaciones Bank, controlled undertaken and (2) they were entitled to US$ value' of the investment Valuation method:
Argentinas S.A. v Edemsa (Empresa breach of FET 209 million as 'return of as established in Art. 5 BIT
the full amount of their Parties agreed on use of
Argentine Republic Distribuidora de standard (Art. 3 BIT) (on expropriation); as Art. DCF method, but
Electricidad de (para. 994). actual investment' (para. 4 does not provide an
Award of 11 June 2012 595). In 2004, they sold submitted very different
Mendoza S.A.). The 'alternative formulation DCF models.
claimants claimed • No their shares for US$ 2 for determining the value'
Decision on Annulment discrimination, million (para. 597).
of 5 February 2016 losses arising out of Tribunal based valuation
it 'finds it appropriate to
governmental arbitrariness, examine the value … had on 'return on
and Taking the difference in
ICSID Case No. mistreatment of it not been reduced by investment' of the initial
ARB/03/23 their investments in unreasonable the value of 'but for' and the Emergency Measures' purchase price for the
an electricity or unjustified 'actual' scenarios (para. (para. 1210) shares of US$ 209
Applicable law: treatment 603).
distribution million; this was a
concession in (para. 1101). Claimants' expert used Valuation date: 'reasonable' price, as
Argentina–France BIT
(1991/1993), Argentina's • No violation of the DCF method, 31 December 2001 several other bids were
Argentina– Mendoza province, full protection applying a 11.34% WACC close (para. 1238ff); the
Belgium/Luxemburg including the freeze and security (para. 640). As requested by claimant, present value of that
BIT (1990/1994) of the tariff regime (para. 1108) which is immediately investment at the
and no Alternatively book value: before the Emergency valuation date was US$
and the pesification US$ 191,335,825 (para.
of the contracts indirect Measures (para. 705) 147,750,151.
P 446 with third parties. expropriation, 696).
The claimants Art. 5 BIT (para.
distinguished 1118).
between 'Pre-
Emergency Respondent rejects
Measures' and claims 'since the
'Emergency Laws value today is higher
and Renegotiations than the value before
Process'. They privatisation' (para.
asserted breaches 866); claimants made
of the standards of a bad business
fair and equitable decision to sell their
treatment, investment in EDEMSA
expropriation and before the recovery of
full security and the economy (para.
protection under 876)
the applicable BITs.
Annulment Decision Rejects book value Relief claimed: at least The terms of the sale of
2016: because it is US$ 123.9 million for the shares in 2005 for 2
'dependent on a injuries caused by the million US$ were
Application by company's Emergency Laws and assessed against the
Argentina dismissed accounting failure of renegotiations; 'duty to mitigate
in its entirety. standards… no or US$ 147.8 million damages' (para. 1302),
Argentina had also relationship to based on their own bid because they did not
challenged the market values' (para. for ENDEMSA, or US$ contain a clause how the
calculation of 800) 125.2 million offered by subsequent raise in
damages, including the second highest tariffs could be reflected;
the applicable bidder; in either event, the buyer sold the shares
standard ('genuine the actual price received in 2007 for US$ 52.8
value' as provided from the sale of EDEMSA million
for expropriations needed to be discounted
(para. 880). (referring to MTD v. Chile
in the BIT) (paras and the duty to mitigate
353ff). Plus 'historic damages': damages
damages for Pre-
Emergency Measures → US$ 133.6 million
provincial actions of US$ In addition:
7,202,196 million (para.
717) US$ 2.5 million in
damages as a result of
Respondent: Pre-Emergency Measures'
Agreed that DCF most adverse impact.
appropriate tool (para. Tribunal largely adopted
802), but criticised the claimants' expert's
assumptions by model, using its WACC,
claimants (WACC, country beta, etc. and taking 31
risk, beta …) (paras 819ff) December 2001 as the
valuation date (paras
1183ff).
14
Antoine Goetz & OthersThe claimants As to AFFIMET: Claimants request: The parties authorized Amount awarded:
and S.A. Affinage des (Belgian nationals) the tribunal to use its
Metaux v Republic of were the principal According to a 2001 • Market value of discretion (to decide ex US$ 1 million (as
Burundi shareholders of annex to the protocol expropriated aequo et bono) in the reparation for measures
several Burundian of agreement of 1998, investments (para. decision on damages and against ABC);
Award of 21 June 2012 companies, the S.A. the amount of US$ 298) interest, once the state's
3,420,687 was paid by €175,000 (as reparation
ICSID Case No. ARB/01/2 African Bank of Plus expenses for responsibility was for measures against
Commerce (ABC), S.A. the respondent so their attempts to established (para. 293).
that the dispute AFFIMET, CCA and
Applicable law: AFFIMET, S.A. City obtain
Connexion Airlines subject of the earlier compensation for The tribunal recognized CCA Maintenance)
Belgium/Luxembourg– arbitration was finally expropriated constant practice in
(CCA) and S.A. CCA
Burundi BIT Maintenance. They closed (paras 178–9). property in the international law that the
(1989/1993) (Award in The retaliatory amount of US$ difficulties encountered
French) set out that AFFIMET
had been the holder measures between 1,500,000 (para. in evaluating damages
of a certificate of 2000 and 2002 290) should not prevent the
'entreprise franche' constituted a victim from receiving
violation of the Plus loss of reparation, referring to
(open enterprise) earnings caused
which was special convention of SSP v Egypt (para. 298).
1998 and of Art. 3 (1) by temporary and
withdrawn from it in then permanent
1995. An ICSID BIT concerning FET
(paras 208–9). closure of
tribunal (Case No companies (para.
ARB/95/3) had 291).
decided in 1998 that
P 447 this withdrawal was Alternatively, for the
an unlawful taking. non-respect of the
The award was protocol of 1998 the sum
followed by a of 14.990.778.460 BIF
protocol of (para. 292) (~ US$ 8.9
agreement and a million)
special convention,
which provided for
the restitution of
the benefits of the
'free zone' regime
and the
reimbursement of
taxes paid during
the period of
withdrawal. Burundi
did not comply with
its obligations, and
the claimants
sought various
enforcement
measures at Belgian
and French courts.
Burundi took
retaliatory
measures against
AFFIMET and the
other companies,
which eventually,
needed to close
down Claimants had
to leave the country
hastily to escape
imprisonment.
As to ABC: Burundi Respondent: claimants The tribunal deciding
forced ABC to close had not provided any aequo et bono awards
down for non- evidence for their these sums, in view of
compliance with damages claims (para. the particular
some regulations; the 294). circumstances—Antoine
tribunal did not find Goetz died in 2005, Alain
this reaction justified Alternatively, maximum Goetz had to leave
→ indirect 19,518,957 BIF for thecountry hastily to
expropriation (para. AFFIMET, 35,551,691 BIF escape imprisonment
258) for CCA and 1,949,583 BIF (paras 297–9).
for CCA Maintenance,
As to CCA and CCA totalling 57,020,231 BIF
Maintenance: (corresponding to US$
46,282) (para. 294).
measures by Burundi
amounted to FET
violation (para. 266)
Burundi sought US$ 1
million as
counterclaim for
ABC's failure to
honour the terms of
P 448 the 'free-zone'
certificate.
Jurisdiction upheld
(para. 285), but claim
rejected for lack of
evidence (para. 287).
15
Railroad Development In 1997, Guatemala Violation of minimum Claimant: Not expropriation Amount awarded:
Corporation v Republic granted a standard of standard but Art. 31.1 ILC
of Guatemala concession to the treatment (Art. 10.5 US$ 64,035,859 in Articles (para. 260) US$ 6,576,861 (investment
US-based Railroad CAFTA). damages, plus costs and in phases I and II) + US$
Award of 29 June 2012 Development attorneys' fees incurred Tribunal calculates on 1,350,429 (operating the
Corporation (RDC) Guatemala's actions in prosecuting its CAFTA bases that shares have to railroad for another year
ICSID Case No. were 'arbitrary, claims (para. 54). be transferred to after the Lesivo) + '82%
ARB/07/23 to restore and
develop grossly unfair, [and] Respondent, referring to (the percentage of shares
unjust', referring to Damages should cover CMS v Argentina (para. in FVG held by Claimant)
Applicable law: Guatemala's railway
system. RDC Waste Management II the FMV of its 263) of $4,121,281.62
Dominican Republic–
concluded several (para. 235 on arbitrary investment, including ($3,379,450.93)–the NPV of
Central America–
contracts with the nature of the lesivo); the adjusted amount of Art. 10.5 on the minimum the existing real estate
United States of the investment as of the standard of treatment is leases measured over
government railway Tribunal emphasized date of the violations of to be interpreted in
America Free Trade their remaining life as of
agency to operate that the lesivo CAFTA, consequential accordance with
Agreement (2003) the newly-privatized the date of Lesivo–minus
procedure may be damages of lost profits customary international 82% of rents paid to FVG
rails for 50 years. As easily abused by from that date to the law → Art. 31 (1) ILC Articles under such leases post-
the progress Guatemala (para. 233), end of the Usufruct,
remained slow and lesivo and until payment
as it allows the (para. 239). by respondent of the
RDC did not finish government to ex
planned projects, compensation here
post facto declare its awarded. Because
Guatemala declared own regulations
RDC's contracts to tribunal cannot
illegal. determine at this time
be lesivo, e.g.
injurious to the when respondent will
state's interests. pay the award, there will
RDC claimed that be a need for a final
the lesivo calculation of this
declaration amount.' (para. 283.2)
P 449 constituted an
indirect
expropriation in
violation of CAFTA
Art. 10.7.1, that
Guatemala violated
the minimum
standard of
treatment of CAFTA
(Art. 10.5) and the
national treatment
standard (Art. 10.3).
(First dispute 2013 Decision on the But: Tribunal rejected Standard of full Reparation due to Restitution:
resolution under request for a that lesivo procedure reparation (Chorzów) claimant should be
CAFTA rules) supplementary constitutes an should be applied (para. subject to claimant On payment of the
decision and indirect 243). relinquishing its rights awarded compensation,
rectification: expropriation on the under all the contracts claimant shall forfeit and
Partially accepted: part of Guatemala Valuation: (since FVG was the party to renounce all its rights
The tribunal (para. 152) and the under the Usufruct
Amount invested and the the usufruct contracts, Contracts and transfer to
rejected the part claim of violation of lost profits, the the tribunal conditioned
relating to 'Not national treatment payment of the award respondent claimant's
possibility of double shares in FVG. (para.
Discounting the standard (paras 153ff). counting is avoided by upon the transfer of the
Actual Rents 283.3)
amortizing its sunk costs claimant's shares in FVG
Received by FVG over the life of the to the respondent) (para. Tribunal agreed with
since the Lesivo usufruct after the Lesivo 267) respondent that claim of
Resolution', but Declaration (para. 244) lost profits was
rectified the award Concerning the rents for
leasing the real estate speculative (para. 269).
in para. 277 and Prior profitability not
para. 283(2). They required to recover lost → a discount rate of 12.9%
shall be deleted and profits, possible to plus 2.66 percentage
replaced by justify on grounds of points plus 1.8 percentage
'$6,818,865' and track record of points (the effect of using
'$5,591,469.30' successful investments FVG's cost of capital), for a
respectively. in similar circumstances total of 17.36%, would be
(para. 246). an appropriate discount
Respondent: rate to calculate the NPV
of existing leases
Claimant applies
Chorzów in a way that → Only leases in place at
compensates it twice for the time of the Lesivo
its investment; Declaration taken into
highlights the account (para. 275)
P 450 speculative character of
future profits (paras
251ff).
Swisslion DOO Skopje v Swisslion was a FET Art. 4(2) BIT Claimant: Tribunal only arrives at an Amount awarded:
The Former Yugoslav company organized 'appropriate estimation
Republic of Macedonia under the law of Tribunal ascertained Compensation of of damages' having regard €350,000 plus interest
(FYROM) FYROM, owned by a 'minor breach' of €19,013,000 (para. 73) to the professional fees
the FET standard, on Valuation method:
DRD Swisslion AG, On the basis of DCF; incurred by Swisslion in
Award of 6 July 2012 incorporated under the basis of 'a series the two local proceedings Damages awarded for the
of measures that alternatively it claimed
ICSID Case No. the Swiss law, whose 'the value of actual found to be part of the legal costs the investor
main business was collectively amount composite act (para. 344). incurred contesting the
ARB/09/16 to a composite act investments plus
the production of interest' (para. 72). securities regulation and
Applicable law: biscuits and snacks. (para. 275). It held that it was not criminal investigation
After parliamentary Respondent: possible to quantify the measures, the diversion
Macedonia– Treaty breach arose damages with certainty,
elections in 2006, from measures by of its management's time
Switzerland BIT Tribunal should in any quoting SPP v. Egypt in responding to
(1996/1997) the claimant state agencies 'taken event reject the
company was faced (para. 345). heightened controls
prior to or on the claimant's claim for
with various acts margins of the imposed by the Ministry
compensation, because of Economy, and an
and omission by contractual it is 'fundamentally
respondent's litigation', including allocation of lost sales
authorities, flawed' and 'absurdly resulting from the
the Ministry of exaggerated' (para. 95).
including judicial Economy's failure to investor's reputational
proceeding, in the timely respond to the damage (paras 337, 350)
course of which one investor's inquiries
of its investment certain
contracts was administrative
terminated and a actions taken by
portion of its equity Macedonian
investment in a securities regulators
Macedonian and the publication
enterprise of information
transferred to the relating to a criminal
respondent's investigation of the
Ministry of investor (paras 276,
Economy. 337)
P 451
16
Occidental Petroleum Occidental Violation of the Claimants: Chorzów standard Amount awarded:
Corporation and Petroleum Corp. 'principle of (claimed by claimant and
Occidental Exploration ('Oxy') started proportionality' Requested full FMV of respondent, paras 582–5, US$ 1,769,625,000 plus
and Production business in Ecuador under Ecuadorian the Participation and others); pre-award interest
Company v The Republic in the mid-1980s and international law Contract (para. 704).
Tribunal also refers to Valuation method:
of Ecuador under a service constituting a Respondent:
contract with valuation of the FET FMV (para. 704ff) Tribunal determined NPV
Award of 5 October 2012 Petroecuador, standard (Art. II.3(a) Objected to the claim by Tribunal determines 'as of the DCFs generated
Decision on Annulment Ecuador's national BIT), quoting MTD, raising four issues: mandated by Art. III of the production as of May
of the Award of 2 oil company. After LG&E, Tecmed, Azurix BIT the FMV of this 2006 → US$ 2.3 billion
• Impact of law 42 This sum was reduced by
November 2015 changes in (paras 404, 452) and a (windfall profits investment (para. 707);
legislation, Ecuador measure 'tantamount reduced by 25% because 25%.
ICSID Case No. and Oxy entered to expropriation' (Art. tax enacted in
April 2006) of wrongful conduct of Even though investor
ARB/06/11 into a Participation III of the BIT), quoting Claimant (para. 825);
• VAT Interpretative rejecting unjust had transferred 40% of
Contract to explore Metalclad v Mexico
Applicable law: and exploit (para. 455). Act its participation rights to
enrichment (paras 653–4); another oil company, the
Ecuador–USA BIT hydrocarbons in the • Farmout Art. 31 ILC (und Art. 39 ILC
Ecuadorian Amazon majority proceeded to
(1993/1997) Agreement (by on contributory calculate the investor's
region in 1999. In which the negligence); refers to MTD damages on the basis of
2006, the claimant farmed to rely on 'margin of
Ecuadorian Minister 100% of its participation
out 40% of its estimation' (para. 686); rights, treating the
of Energy and Mines interest to a third transfer as 'inexistent' or
declared the party) method of valuation DCF
caducidad as applied by experts; an 'absolute nullity' for
• Claimant's alleged tribunal makes purposes of determining
(termination) of the fault prior to the adjustments (paras 722ff). damages (paras 634, 655–
P 452 participation caducidad 6). But tribunal also
contract by decree concluded that investor
of May 2006, in
response to the had failed to seek
authorization from
investor's Ecuador prior to
unauthorized
transfer of its executing the transfer
agreement, and due to
participation rights 'contributory fault', it
to another oil
reduced the amount by
company. The 25% (paras 686–87)
claimants sought
compensation for
the loss of the
contract.
2015 Annulment
Decision:
application for
partial annulment
since ratione
personae
jurisdiction was
exercised over a
Chinese company,
without any
entitlement arising
out of the Treaty or
the Participation
Contract. Committee
confirmed manifest
P 453 excess of powers
and ordered the
partial annulment
of the award,
reducing also
damages.
Deutsche Bank AG v Deutsche Bank (DB) FET standard as Amount requested by Contract claim and treaty Amount awarded:
Democratic Socialist created a specific contained in Art. 2 (1) claimants: claim are analytically
Republic of Sri Lanka derivative BIT (para. 491) By distinct (referring to US$ 60,368,993
instrument allowing acting in relation to US$ 60,846,250 Abaclat, para. 557). Once
Award of 31 October = loss amount as of the
Sri Lanka's state- the Supreme Court (amount to which it was the damage issue is Early Termination Date
2012 owned Ceylon Interim Order, the reached, the state may
entitled according to
ICSID Case No. ARB/09/2 Petroleum Company Central Bank's Hedging Agreement not refer the investor to
(CPC) to limit (or investigation and the following the exercise of the contract claim,
Applicable law: 'hedge') its Stop-Payment Order its right of termination (referring to Nycomb,
exposure to oil of 16 December 2008, on 3 December 2008). para. 562). DB has suffered
Germany–Sri Lanka BIT price increases and Sri Lanka has a loss amounting to the
(1963/1966)
variations over one breached the fair and sum that it would have
year. When the equitable treatment received pursuant to the
worldwide oil prices standard (ibid). Hedging Agreement if
marked a there had not been
considerable drop Indirect breaches of the treaty
in 2008, CPC had to expropriation as (para. 572)
make significant contained in Art. 4(2)
monthly payments BIT (para. 524). The
to DB in order to taking of DB's rights
cover these price under the Hedging
P 454 Agreement was a
variations. CPC
subsequently financially motivated
defaulted and and illegitimate
prompted DB to regulatory
terminate the expropriation by a
agreement and regulator lacking in
initiate ICSID independence (ibid).
arbitration
proceedings.
17
Franck Charles Arif v Franck Charles Arif, a Violation of FET (Art. 3 Claimant: Chorzów standard, Arts Amount awarded:
Republic of Moldova French national, was BIT), as regards 31–36 ILC Articles (paras
the owner of Le investment in the • Loss of profits in 559ff) In relation to the airport
Award of 8 April 2013 Bridge Corporation, airport store, because relation to the store 6,565,429 MDL, if
a Moldovan the actions of the border stores; Tribunal ordered respondent makes a
ICSID Case No. restitution and satisfactory proposal to
ARB/11/23 company, who had respondent were a • Loss of profits in
won a tender for breach of the relation to the compensation as claimant for his
Applicable law: operating a series of legitimate airport store; and alternatives (para. 571) investment and the
duty-free stores in expectations of the parties agree to the
France–Moldova BIT • Moral damages → With remedy of opening and operation
Moldova. The investor of a secure compensation suspended of the airport store. If no
(1997/1999) Expert: DCF method
results of the tender legal framework to for a period of 90 days
were formalized in operate a duty-free (paras 573ff) satisfactory restitution
an agreement airport store (para. → Within 60 days, occurs, then respondent
→ Loss of profits respondent should make shall pay damages of
between Le Bridge 547). calculated as the
and the Customs a proposal to claimant for 35,136,294 MDL
Service of Moldova No violation of FET difference between the the restitution of the
with regard to the actual financial Valuation method:
in 2008. Le Bridge investment in the airport
investments in the performance of the store, incl. proposals as to Tribunal considers that
signed lease
agreements relating border duty-free; not airport shop (which appropriate guarantees the DCF methodology is
P 455 demonstrated that never opened or earned for the legality of a new not appropriate for a
to stores at several
border crossings the delays caused by revenue, but did incur lease agreement (para. business that never
the fire authorities expenses) and the cash 572) operated (para. 576)
from Romania to flows that the airport
Moldova (paras 49ff) were not the result of
and a lease justifiable concerns shop would have Moral damages: → Damages calculated on
by the appropriate achieved had it not been wasted costs as
agreement relating prevented opening Rejected, because Arif was proposed by claimant's
to a duty free store authorities; challenge aware of unpredictability
at Chisinau Airport. of tender process, (para. 574); calculated on expert, considering
even though two bases: loss of profits of economic and political capital expenditures,
For alleged and wasted costs institutions; that in operating costs, and the
violations of fire successful before the Moldova state
courts, had not yet (identified as alternative stock purchased for the
safety regulations, claims). institutions were weak, airport shop (para. 577)
the duty free shops led to the closure of
that governance not yet
needed to be closed the stores; comparable to the
or could not even expropriation; denial
situation in long-
be opened. In of justice; established democracies
addition, the tender unreasonable or
arbitrary measures; and market economies
process was (paras 604ff)
challenged and full protection and
eventually found security;
invalid by domestic discrimination
judicial decisions. rejected.
Moral damages: No exposal to physical

violence, armed threats,
€5,000,000 for the pain, deprivation of liberty or a
stress, shock, anguish, forceful taking of property
humiliation and shame (para. 607); actions did
suffered as a result of not reach the necessary
Moldova's acts and level of gravity and
omissions in relation to intensity (para. 615).
his investments,
referring to Fabiani
(para. 562).
Abengoa, S.A. y COFIDES, The claimant Indirect Claimants: Tribunal and parties refer Amount awarded:
S.A. v United Mexican companies expropriation in to the Chorzów standard
States domiciled in Spain, violation of Art. V of 846,400,000 MXN = (para. 677) 491,809,534 MXN
were owners of a the BIT. 559,100,000 MXN (loss of = 403,080,533 MXN (for
Award of 18 April 2013 Mexican company Expropriation
Violation of the FET business valuated with compensation: the expropriation) +
(in Spanish) which was granted
authorizations by standard pursuant to cash flow) 42,45 1,144 MXN (lost
Art. IV of the BIT. Art. V.2(a) of the BIT profits in the period
ICSID Case No. the municipality of + 119,700,000 MXN (for provides for the FMV before the expropriation,
ARB(AF)/09/2 Zimapán for the lost profits) para. 746) + 7,878,107.77
construction of a Valuation date: MXN (additional
Applicable law: +
hazardous waste Parties agreed on the expenses for
Spain–Mexico BIT landfill and
valuation date, 12 March transportation and
(2006/2008) treatment plant. 2010 (= date of provisions before the
P 456 expropriation) expropriation date)
+ 17,541,797 MXN
(reimbursement of VAT)
+ 20,857,952.77 MXN (costs
of the arbitration)
The opening of the 167,600,000 MXN (for the FET violation: Valuation method:
landfill and costs caused by the
treatment plant in actions) Tribunal considers DCF only method to fully
the Mexican state of damages incurred in compensate claimant,
Hidalgo was + addition expropriation since calculation based
allegedly stalled compensation for on costs would not take
Damages for the unlawful acts between into account the lost
through acts by the rejection of
municipality and March 2008 and March profits suffered (para.
reimbursement of VAT 2010, thus before the 688), despite the very
certain federal
authorities, Interest: expropriation date (a) lost
short time of operation,
including Mexico's profits (b) additional because business plan
Pre-award 6% or 9% expenses approved by a bank is
Ministry of the (based on Mexican
Environment and reasonable (paras 689–
commercial and civil Discussion of tax 91). Use of multiples
Natural Resources treatment of the
law), and post-award would be more
and the Ministry of 13.5% compensation (paras 770– speculative, lack of
the Interior. Due to 7; rejecting any
protests of the local transparent market
Respondent: consideration of taxes (para. 688).
residents the with regard to the amount
municipal council of Pre and post-award
interest at 4.38% awarded) Discount rate:
Zimapán withdrew
the project's licence Claimants 11.69% based
to deposit toxic on cost of capital and
P 457 waste at the site. In debt (para. 719);
doing so the council
cited irregularities Tribunal 15.01%
(respondent proposed
in the granting of 15.01 to 26.16% due to
the permit by the
risk, paras 719–20)
previous mayor.
18
Total S.A. v Argentine Total, a company Breach of FET (A) Losses in the gas CIL, which requires 'full Amount awarded:
Republic incorporated in contained in Art. 3 BIT transportation reparation for the injury
France, had a (paras 184, 346, 444, sector: caused by its US$269,928,000
Award of 27 November number of 455, 461 DoL) internationally wrongful
2013 investments in • Investment act', referring to Art. 31.1.1 (A) Losses in the gas
Rejected violations of in TGN: transportation
Decision on Liability of Argentina in gas Art. 4 BIT (MFN) and
ILC Articles, Vivendi II, CMS sector:
27 December 2010 transportation US$ 95.2 (para. 26);
(Transportadora de Art. 5 BIT million (for • US$80.3
ICSID Case No. ARB/04/1 Gas del Norte, TGN), (expropriation). 19.2% BIT contains no specific million for
hydrocarbons equity provision for reparation losses
Annulment Decision of 1 exploration and Rejected defences by for violation of Art. 3;
Argentina relating to stake) related to
February 2016 Total's
production and the state of necessity. • Damages as however, tribunal
Applicable law: power generation Technical considers that Art. 5(2) (on stake in
industries. It Application for Operator of expropriation) reflects CIL TGN;
France–Argentina BIT alleged that a annulment by • US$ 4.9
TGN: US$ principles 'relating to the
(1991/1993) number of measures Argentina dismissed 6.1 million obligation of full million, for
taken by Argentina, in its entirety. (para. 89) compensation for losses
most of which wrongful damage', so that related to
derived from or (B) Losses in the
electricity sector: it may guide it in Total's
followed Law determining the rights as
25.561/02 (the losses of Total's
stake in Central compensation under Technical
'Emergency law'), Operator of
breached or Puerto and HPDA Article 3 of the BIT (para.
US$ 485.6 million 26); damages under the TGN.
revoked the heading of indirect
commitments it had (para. 112) (B) Losses in the
expropriation would not electricity sector:
made to attract (C) Losses in be different from damages
investment and Hydrocarbons: due to breach of FET • US$123.3
upon which Total taxes on exports standard (para. 198 DoL) million for
had relied in imposed losses
making its retroactively related to
investments. These Total's
measures include stake in
P 458 Central
• the
Puerto and
'pesification'; HPDA.
• the abolition
of the (C) Losses in
Hydrocarbons
adjustment Exploration and
of public
service tariffs
based on the
US PPI; and
• the freezing
of the gas
consumer
tariff
US$7,828,000 + legalcosts *) Tribunal declared that Exploitation (Oil and
of US§ 77,862.43 (paras also future requests for Gas):
181, 183); additional retroactive taxes
on exports from Tierra del • US$7,628,000, for
losses in domestic sales Fuego for the period withholding taxes
of natural gas in 2002– 2002–2006 would be in on exports from
2004: breach of Art. 3 BIT. Tierra del Fuego
Should Total S.A. or Total during the period
US$ 112.3 million; of 2002–2006,
Austral be compelled to
losses in domestic sales pay any such taxes to imposed
of natural gas in 2004– Argentina's tax retroactively)
2006: authorities, claimant losses in domestic
would be entitled to sales of natural
US$ 28.2 million; gas in 2002–2004:
recover any such taxes
limitations of gas with interest (paras 191 • US$43 million, due
exports: 281). to Argentina's
intervention and
US$2.4 million + $ 381,454 lack of compliance
for legal costs (paras
237–8) with the
benchmark price.
Five 'Guiding Principles losses in domestic
and Methdology' for the sales of natural
calculation of quantum gas in 2004–2006:
a) CIL, Chorzów • US$8.4 million
Factory, ILC limitations of gas
Articles exports:
b) Impact on FMV of • US$2.4 million
Total's
investments in Valuation method:
Argentina; DCF appears to be the
c) DCF methodology method most widely
most reliable way followed; but also APV
to hypothetical (as submitted by
FMV; d) compare Argentina) be examined
two scenarios (para. 28); comparing
(counter-factual actual and but-for
or 'but-for' and scenario does not lead
'actual'). to uncontested results
(para. 29)
e) Interest (para. 16).
→ some discretion is
generally accorded to
P 459 tribunals (para. 32)
19
Ioan Micula, Viorel Micula The Micula brothers, Violation of the FET Claimants: Full reparation on basis of Amount awarded:
and others v Romania Swedish citizens, standard contained Art. 31 ILC Articles and as
were active in the in the BIT by the € 613.7 million for: articulated in Chorzów 376,433,229 RON =
Award of 11 December food and beverage premature revocation case (paras 916–17)
2013 (a) Increased costs for RON 85,100,000 (for
industry of of the customs duties imported raw materials; Respondent did not increased costs of sugar)
ICSID Case No. Romania. In 1999, exemptions. (b) Lost sales of products dispute the principle of +
ARB/05/20 they decided to sugar free of customs
expand their full reparation, but RON 17,500,000 (for
tax; (c) Financial contends that claimants
Applicable law: businesses and penalties incurred to the have not met their burden increased costs of other
Sweden–Romania BIT founded a state-of- state for delays in tax raw materials) +
(2002/2003) the-art food of proof with
payments; RON 18,133,229 (for the
production lost opportunity to
company and
brewery stockpile sugar) +
P 460
(European Food), (d) Lost opportunities to respect to the damage RON 255,700,000 (for lost
wheat and corn complete or initiate suffered, and have failed profits on sales of
mills (Starmill) as incremental investments to prove that the damages finished goods)
well as a packaging (malt, can and alleged were caused by
facility (Multipack). cogeneration plants); Romania's breaches of the Valuation:
Incentives had been and (e) Lost incremental BIT (para. 918). Claimants suggested
offered by Romania sales of private-label three valuation methods,
to attract investors, beer that would have As regards causation,
respondent refers to one of which was
one of which was been profitable with accepted by the tribunal:
the exemption from completion of the cost- Biwater 'sufficient link
paying customs saving investments between the wrongful act • Method A:
duties on imported (para. 884). and the damages in expectation
raw materials for question' and that model based on
the period of 10 later specified applying causation must be direct loss of
years. In 2005, three different methods: proximate (i.e. not too claimants by
however, Romania remote or being forced to
• Method A: inconsequential) (paras
revoked this accepted (see pay higher prices
exemption about 921ff). for sugar and
other column)
four years early other raw
since it was held to • Method B: materials, as well
be incompatible claimants would as the lost profits
with EU state aid have used existing on sales of
laws, which the EU plant to sell larger finished goods.
Commission quantities =
confirmed in the rejected Tribunal rejected most of
P 461 • Method C: the lost opportunity
proceedings. arguments, but accepted
claimants would
not have that claimants planned
expanded into to stockpile amounts of
food production sugar ('but for' scenario).
as they did in 1999
had they known
that the
incentives would
not last 10 full
years = rejected
TECO Guatemala TECO, a company Violation of FET Claimant: Tribunal did not mention Amount awarded:
Holdings, LLC v The established under standard under Art. a particular standard, but
Republic of Guatemala the laws of 10.5 of the CAFTA-DR US$ 243.6 million: referred to the agreement US$ 21,100,552
Delaware, held a (since the tariff review US$ 21,100,552 for cash of both parties on the Valuation:
Award of 19 December 24.3% share in process for the methodology to be
2013 flows lost between
Empresa Eléctrica period 2008–2013 was August 2008 and October applied to both heads of Tribunal confirmed
ICSID Case No. de Guatemala arbitrary and 2010 (difference between damages, i.e. the damages for cash flows
ARB/10/23 (EEGSA), a breached due 'but for' cash flows based difference between an lost between 2008 and
Guatemalan process). on the tariffs proposed actual scenario and a 'but 2010 by comparing the
Applicable law: CAFTA- company that was by their consultant and for scenario' (para. 719) hypothetical scenario
DR entitled under an the ones used by CNEE) Tribunal found in based on agreed tariffs
Authorization and the actual historical
Agreement of 1998 + sufficient evidence that results.
to distribute the transaction price
US$ 222,484,783 million for would have reflected the Second claim concerning
electricity in several loss in value of EEGSA's higher revenues of the loss of share value was
departments of
Guatemala for a shares; based on three company (para. 754). Thus, rejected: tribunal
methods: DCF (60%), it agreed with respondent confirmed that the 2010
period of 50 years. comparable publicly sale was based on the
While the tariffs had that the claim in this
traded company (30%) respect was speculative existing tariffs
been determined in and comparable unilaterally set by CNEE,
a mutual adoption (para. 757).
procedure without transactions (10%). however there was
insufficient evidence of
disagreement for the existence and
years, during the
tariff review process quantum of the losses
that were allegedly
and pricing for the suffered as a
period 2008–2013,
consequence (para. 749).
the Guatemalan
P 462 electric power
agency (CNEE)
unilaterally set the
tariffs for EEGSA,
whose complaints
before domestic
courts were
ultimately
dismissed by the
Constitutional
Court. In October
2010, interests in
EEGSA were sold to a
Colombian company
for US$ 605 million
(TECO's share was
US$181.5 million).
20
Respondent:
Agreed on methodology
to be applied and on DCF
model to calculate, but
disagreed on three
aspects of the 'but for'
scenario: the New
Replacement Value, the
Capital Replacement
Factor and the level of
capital expenditures.
Antoine Abou Lahoud The claimants, Violation of FET Claimants: Noting that the Congolese Amount awarded:
and Leila Bounafeh-Abou
Lebanese nationals, standard of Art. 25 of Investment Code does not
Lahoud v Democratic held shares of the Investment Code. US$ 763.978 (for material propose a standard for US$ 1,728,194
Republic of the Congo IMPOREX, a damage caused by compensation, the
Unlawful looting) US$ 51,218 + 15,000 + 8,222
company tribunal refers to the (for material damage)
Award of 7 February established in expropriation Chorzów standard (para.
2014 Congo. Its main pursuant to Art. 26 of + 556). + US$ 45,908 (loss of
the Investment Code US$ 841,022 (for loss of expected revenues)
Decision on the Request sectors of activity (because lack of Respondent argues that
for Annulment of 29 were (i) electricity, expected profit from
(ii) trade public purpose and sales of goods) claimants failed to + US$ 1,555,685 (value of
March 2016 no payment of mitigate their damages, the company)
exploitation of +
(in French) wood, and (iii) heavy compensation). but tribunal finds that
claimants satisfied this
ICSID Case No. ARB/10/4 machinery and US$ 17,645,000 (for the obligation as far as it
vehicles and their value of the company)
Applicable law: spare parts. The applied (para. 630).
P 463 facilities rented by +
Investment Law–Congo IMPOREX where
(2002) owned by
CONGOFRINGO. The
facilities were made
subject to a
ministerial decree
of July 1997 and a
decision of May 2004
and ultimately
owned by the
Congolese state.
Claimants alleged
that they had been
banished from the
facilities and that
their investment
was destroyed.
Application of Moral Damages Valuation:
Congolese and
international law US$ 3,000,000 Material damage:
according to Art. 42(1) arithmetic mean of
of the ICSID replacement value
Convention, para. 365. established by IMPOREX
(47% of gross book value
Annulment Decision 2004) and the residual
2016: value for each category
of assets (para. 579).
Application by DRC
dismissed in its Lost profits from sale: on
entirety; the basis of previously
achieved sales margins
respondent to bear (paras 590ff).
all costs of the
P 464 arbitration and pay Loss in value of the
50% of the claimants' business: tribunal
cost, plus LIBOR plus rejecteds DCF method for
2% interest not bringing precise
results; exercises its
discretionary power in
determining the total
amount of sales (30% of
the amount argued by
claimants) (para. 600).
Moral damages rejected.
21
SAUR International S.A. v Saur International Violation of FET Claimant: Full reparation, as Amount awarded:
Argentine Republic (Sauri), a French standard by the supported by the parties,
company, had won a breach of the second Initially according to Chorzów, US$ 39,990,111
Award of 22 May 2014 tender in the MOU concluded which 'includes damnum
US$ 143,900,000 (for its (a little more than half of
(in Spanish) privatization of between the Province US$ 72,400,000 emergens and lucrum the amount invested,
Obras Sanitarias des of Mendoza and OSM investment), cessans', referring to Art. para. 395)
ICSID Case No. Mendoza (OSM) which gave the subsequently limited to 36(2) ILC Articles (para.
ARB/04/4 holding the principles of the first US$ 40,255,000 (because 160). Valuation:
concession of MOU legally binding the second MOU
Applicable law: Tribunal agreed with Two separate categories:
public water effect and provided excluded claims for
Argentina–France BIT services of the for a revision of claimant that ex post data Investments in shares of
damages before signing could be used for the
(1991/1993) Province of tariffs, a price the MOU, para. 129). OSM and investments as
Mendoza. Sauri was increase, the calculation of the 'as if'
the technical operator.
a member of a settlement of Calculation based on an scenario, as long as they
consortium and outstanding loans 'as if' DCF valuation: the were foreseeable and not Shares: DCF model based
designated as the and debts, and a value the company surprising (para. 263). on income reflecting
Technical Operator. waiver of the fees would have, had the hypothetical price
Sauri had two different increases under the
After the 2002 increase (para. 65). second MOU not been sources of revenue from
Emergency
The delay of the
violated, discounted OSM: (1) dividends from its second MOU (paras 183–
Measures by back to the date when it 4); cash flow was
second MOU and the should have entered shares and (2) income as calculated as EBITDA,
Argentina, the the technical operator of
Province of lack of price increase into force (2007) discount rate 6%, based
led to serious OSM (para. 135).
Mendoza and OSM on the WACC between
signed two MOUs financial problems of Respondent: 6.4% and 10.9%; 6% was
(2005, 2007) in which OSM and contributed (1) no damages for also the rate of return
they defined to the collapse in the guaranteed by the
provision of drinking FET, because both
principles of parties failed in second MOU (para. 305);
renegotiation of the water (para. 84). net debts were deducted,
their duties
concession contract during 2007–2009 and the resulting
Expropriation by the
concerning new cumulative facts of (para. 145) amount converted into
tariffs and higher US$ 20,907,000.
the administrative, (2) no compensation
P 465 fees on revenues. intervention, the for expropriation, Technical operator:
Due to the delay of termination of the because value as Tribunal applied
the second MOU, concession contract of the claimant's expert's
the former prices and transfer to a new expropriation method of calculating
stayed in force. The concessionaire (para. date in August OSM's income taking the
provincial 84). 2009 was zero 3% royalty for Sauri for
authorities (para. 145) 2008–2023, which
conducted an equalled an uncollected
administrative revenue of US$ 19,301,000
intervention, which
was followed by a
physical takeover of
OSM in August 2009.
In 2010, the
Governor declared
the concession
contract as
terminated, leading
to the automatic
termination of the
technical operator
agreement.
Gold Reserve Inc. v Gold Reserve Inc., a Violation of FET Claimant: Chorzów standard: best Amount awarded:
Bolivarian Republic of
mining company under Art. 2 of the BIT: achieved by using 'a FMV
Venezuela incorporated in through not signing US$ 1,735,124,200 methodology', because US$ 713,032,000
Canada, purchased Initiation Act without based on a weighted the consequence of the Valuation:
Award of 22 September shares of the proper reasoning and serious breach was to
2014 average method
Venezuelan Brisas termination of the consisting of the DCF deprive the investor Tribunal held that DCF
ICSID Case No. Company and concessions; actions method (50%), the totally of its investment; method was not reliable
ARB(AF)/09/1 thereby obtained were 'particularly comparable publicly also in accordance with since the Brisas Project
two mining egregious' and traded company method the submissions of the had never been a
Applicable law: concessions in compensation should (35%), and the parties (para. 681) functioning mine with a
history of cash flows;
Canada–Venezuela BIT Southeastern reflect the comparable transaction Valuation date:
also comparables
Venezuela for the 'seriousness of the method (15%).
(1996/1998) extraction of gold, violation' (para. 615) method was not
14 April 2008 (= date of
copper, and Respondent relies on revocation of appropriate, since
molybdenum. No expropriation. the DCF method, without construction permit, para. comparables were not
Concessions were No breach of FPS suggesting its own 24) (para. 681) sufficiently similar.
granted for 20 years standard. calculation but making However, DCF valuation
with option of adjustments to that with reference to
extension for two presented by claimant. comparable companies
additional ten-year and transactions would
terms. The result in a reasonable
concessions were methodology (para. 832).
part of a larger WACC: Tribunal disagreed
Brisas Project, a with the WACC models of
construction permit
was issued in 2007. the parties (8.22% and
P 466 16.5%–23.8%) and
Claimants complied applied a WACC of 10.09%
with conditions and
requested signature
by the Venezuelan
Ministry of
Environment of the
Initiation Act.
However, the Brisas
Project was
prohibited and the
construction permit
was revoked for
reasons of public
order (para. 24).
Extension of the
Brisas concession
was never granted.
In October 2009,
Venezuela seized
Gold Reserve's
assets and occupied
the Brisas Project
site. The other
concession was also
terminated by
Venezuela, alleging
breaches by the
claimants.
22
Country risk: Country risk:
Expropriation risk
Claimants claim to should be excluded: 4%
exclude expropriation
risk, 1.5% would
represent normal
country risk premium;
Respondent: Country
risk premium should be
6.7% to 16.4%.
P 467
Mobil Corporation, Mobil Corporation Lawful expropriation Claimants: For expropriation: 'just Amount awarded:
Venezuela Holdings B.V.,(organized under in June 2007 compensation' as
Mobil Cerro Negro the laws of the Cerro Negro Project: US$ required in Art. 6 BIT on US$ 1,600,042,482
Holding, Ltd, Mobil Netherlands) (did not violate due 14.5 billion due to expropriation (para. 307)
process requirements measures taken before = US$ 1,411.7 million (for
Venezolana de Petroleos invested in two oil expropriation of Cerro
Holdings, Inc, Mobil production and and the mere fact expropriation and loss For FET violation:
that an investor had of interests in the 'damages suffered as a Negro Project
Cerro negro, Ltd, and exploration projects investments)
Mobil Venezolana de in Venezuela. (The not received project due to consequence of this
Petroleos, Inc. v The four other compensation does expropriation; of which breach' (para. 265) + US$ 179.3 million (for
Bolivarian Republic of claimants, two US not itself render an measures taken before expropriation of
expropriation the expropriation Valuation date:
Venezuela companies and two investments in the La
Bahamas unlawful; it is not amounts to US$ 53.6 Expropriation: Ceiba Project)
Award of 9 October 2014 companies, were its disputed that million (para. 265) Immediately after the
negotiations about failure of negotiations + US$ 9,042,482 (for FET
ICSID Case No. 100% direct and Expropriation violations between 2006
indirect the amount of between the parties and
ARB/07/27 compensation took compensation: DCF and 2007)
subsidiaries.) before expropriation on
Applicable Law: Following the 2001 place) (paras 288–306) based on volume of 27 June 2007 (para. 307) Net of Venezuelan tax
production, oil price,
Hydrocarbons Law Breach of the FET revenues from other
Netherlands– and the 2007 Decree FET violation: period Valuation:
Venezuela BIT standard contained products, royalties and between October 2006
(1991/1993), Law 5200, all in Art. 3(1) of the BIT extraction tax, cost of and June 2007 Cerro Negro Project:
projects were (through the operation and capital
Venezuelan
Investment Law (1999) nationalized by production and investment, special Double recovery: Tribunals applies DCF on
requesting all export curtailment contributions, and basis of submission by
companies to turn Tribunal takes note that parties making its own
measures from income tax claimants are willing to
into 'mixed October/November adjustments
companies' (state 2006 to April 2007) Discount rate: Based on make the required
owns more than WACC (= 8.7%) reimbursements in order Discount rate:
(para. 264) to avoid double recovery
50%, all production Tribunal discussed
to be sold to the Country risk: in relation to the
Expropriation risk damages awarded in the whether 'confiscation
state owned PDVSA) should be excluded risk' should be included
otherwise, ICC arbitration. or excluded; it considers
Venezuela would that the confiscation risk
'directly assume the remains part of the
activities of these country risk and must be
associations'. After taken into account in the
months of failed determination of the
negotiations, discount rate (para. 365);
Venezuela seized other arbitral tribunals
P 468 the investments. have adopted discount
rates in comparable
cases between 18.5 to
21% (para. 367); tribunal
sets discount rate at 18%
(same as ICC award).
Regarding this Respondent: Country Double recovery will thus As for La Ceiba Project,
dispute, an ICC risk should be included, be avoided (paras 271, 381, tribunal confirmed
award was rendered discount rate should be 404.e) actual investment
on 23 December 18.5% to 23.9% approach as requested
2011. by claimants (para. 385).
Flughafen Zürich A.G. The claimants (a Expropriation under Claimants: Switzerland–Venezuela Amount awarded:
and Gestión e Ingeniería Swiss and a Chilean both BITs (para. 509) BIT: Market value of the
IDC S.A. v Bolivarian company) US$ 652,000 (for costs investment immediately US$ 9,714,130.5
Republic of Venezuela negotiated with the The adopted incurred in the strategic before the expropriatory
measures constituted development of the Valuation:
Governor of the measures were taken
Award of 18 November State of Nueva a 'direct airport project, para. 753) (para. 739) Tribunal applied DCF
2014 Esparta a expropriation, more method–as agreed by
P 469 concretely, a + US$ 43,870,615 as value
(in Spanish) concession to both parties; however,
operate the Isla nationalization of the of the operating validated by comparison
investment' (para. company
ICSID Case No. Margarita Airport. of comparable
ARB/10/19 509). + US$ 325,743 as value for companies and
the services company transactions (para. 783).
Applicable law:
Venezuela–Chile BIT
(1993/1995),
Venezuela–
Switzerland BIT
(1993/1994)
23
The contract The measures were DCF method applied, Chile–Venezuela BIT: Passenger traffic,
needed approval by not lawful, because based on passenger 'effective and adequate' operating costs and the
the National they were in violation traffic, operating costs (para. 741) discount rate were three
Assembly. Pending of Venezuelan law, as and discount rate. relevant factors to be
the decision, the confirmed by the Tribunal considers this decided: passenger
Governor granted administrative court, Discount rate: similar, even if less traffic should be based
the concession by a and were not precise (para. 742) on reasonable
Proposed 4.6% based on
decree and entered accompanied by the WACC (para. 791), no Tribunal rejects expenses expectations at the time
into a contract with payment of country risk added for the strategic of expropriation, not
the claimants. In compensation (para. development, because no actual passenger traffic,
2004, a new 511). Respondent: against the relation to expropriation as this could not be
Governor granting of (para. 755) taken to diminish the
challenged the No violation of the compensation; value of the expropriated
legality of the FET standard, without Tribunal also rejects property (paras 855–8).
decree and issued a prejudice to the later agreed on the compensation for the
resolution findings on denial of application of the DCF services company because 33% expenses-to-total-
justice (para. 599). method; it had no independent income ratio applied in
(Resolución 0001-5)
which revoked it value (paras 920–5) relation to other airports
Denial of justice with rejected the proposal by operated by claimants in
and nullified the regard to the 2009 the tribunal to agree on Valuation date:
contract. A few days a joint expert report, but Chile, not in Zürich (para.
decision of the 874)
later, the airport Supreme Court to submitted its own report Expropriation occurred
was taken over by hand over the control using the same on 30 December 2005,
the police force. The of the airport to the parameters but different when the Government
administrative court government, in numbers took over the control of
declared that the contrast to earlier the airport, with the
state had violated judicial decisions and support of police forces
claimant's due pending proceedings (para. 508)
process rights and before the regional
ordered to return administrative court
the airport. (found by the
Nevertheless, the majority, para. 698)
state took over the
airport 'for public
interest reasons',
but recognized the
right to
compensation of
the value of the
P 470 investment and 50%
of the value of lost
benefits (para. 86).
In 2009, the
Supreme Court
decided to hand
over the airport to
the Venezuelan
government,
despite pending
proceeding before
the regional
administrative court
(para. 104).
Discount rate: Discount rate:
Composed of risk- free 14.4% discount rate as
rate, market risk proposed by claimant;
premium, country risk country could not
premium = 17.28%, to be benefit from a wrongful
adjusted at real terms act attributable to it to
(minus inflation) should increase country risk; yet
be 14.4% at the time the
investments were made
in 2004, the country risk
already existed (7.9%
country-risk rate),
claimants had used 15%
discount rate when
developing their
investment business
plan (para. 882).
24
Hassan Awdi, Enterprise Claimants (Hassan Breach of the FET Claimant: Tribunal rejects Amount awarded:
Business Consultants, Awdi and two standard arising out claimants' analysis and
Inc. and Alfa El companies of Art. II(2)(a) BIT: 'Principal claim': conclusions based on €7,690,528.59
Corporation v Romania controlled by him) Romania's failure to €105,597,000 (for Rodipet expropriation, a BIT
and Rodipet Courier) €7,543,176.59 EUR to Awdi
had purchased remedy the repeal of violation that has been for Rodipet plus interest
Award of 2 March 2015 Rodipet, a press Law 442 and to excluded (para. 514).
+ €56,318,000 (for
ICSID Case No. distribution reimburse the price Supremo Media) + €147,352 to Alfa El
company previously paid for Casa Bucur to In view of the FET Corporation for Casa
ARB/10/13
owned by Romania, the claimants (para. + €1,484,000 (for Balbec violation, it considers Bucur
Applicable law: and Casa Bucur, a 440) Retail) appropriate to base
historical estate compensation on sunk
Romania–USA BIT which they turned No violation of + cost (para. 514).
(1992/1994) obligation not to
into a luxury moral damages in an
boutique hotel and impair investments amount corresponding
restaurant. The by arbitrary or
P 471 discriminatory to 5% of awarded
privatization damages but no less
contract for Rodipet measures under Art. than €10,000,000
imposed II(2)b
obligations upon
the claimants
(capital infusions,
technical
investments) and
the respondents
(tax benefits and
the issuance of a
concession for 49
years over land
housing press
distribution points).
The concession was
based on Law 442,
subsequently
declared
unconstitutional by
the Romanian
Supreme Court. The
Privatization
Contract was
terminated due to
alleged failures by
claimants to comply
with obligations.
Following a change
in restitution laws,
the estate was
ordered to be
returned to former
owners and
claimants were
evicted from the
estate by police.
No expropriation: + US$ 500,000 and Tribunal rejects Valuation method:
€10,000,000 for Casa compensation with regard
The tribunal held Bucur (for works to other companies of the DCF method rejected due
that claimants cannot performed on the estate Rodipet Group in the to Rodipet's history of
claim expropriation and the loss of profit on absence of evidence that losses. Compensation
or denial of justice the hotel and their involvement had must be based on sunk
since they had restaurant) (para. 481). profited Rodipet and had costs being the 'amount
knowledge of the been accepted as falling invested by Claimants
legal risk of within the scope of the regarding Rodipet in the
restitution. Privatization Contract expectation that such
(para. 515). amount would have been
earned back had Law 442
Moral damages claims remained in force' (para.
rejected (para. 516). 514).
As for Casa Bucur, the
tribunal rejected that
claimants lost their
investment due to the
BIT breaches, only
accepted reimbursement
of the price paid as
overall compensation for
breach of the FET
standard (para. 463).
P 472
25
OI European Group B.V. v Claimant held Unlawful Claimant: Art. 6(c) of the BIT Amount awarded:
Bolivarian Republic of majority interests in expropriation, contains three
Venezuela two Venezuelan violation of Art. 6 BIT US$ 929,544,714 requirements for US$ 372,461,982
companies (OIdV = US$ 729,821,323 (73% of compensation after Valuation method:
Award of 10 March 2015 and Favianca) which Due to Because of expropriation: 'market
lack of due process the companies' market
ICSID Case No. owned glass- value) value of the investment', Parties agreed on use of
packaging (Venezuela left valuation date shall be DCF, tribunal agrees with
ARB/11/25 claimant in
production, + US$ 16,833,383 (excess immediately before the respondent that it
Applicable law: processing and uncertainty which cash flow) measures were taken or should be paired with
distribution plants. specific assets were became public, and additional
Netherlands– The technology being expropriated, + US$ 54,292,257 (losses currency be chosen by methodologies (e.g.
Venezuela BIT used in the plants such as business out of repatriation of claimant. comparable
(1991/1993) assets, companies dividends) companies/transactions)
was state-of-the-art
equipment including liabilities, + US$ 50,566,759 (harm Parties agreed on to achieve the most
provided by the OI bank accounts, definition of 'market reliable result.
goodwill, know-how caused to business value' being the price that
Group. 2002 activities in Brazil) Tribunal applies
legislation provided and technology, etc) a hypothetical purchaser
for legal guarantees (paras 399–403). + US$ 68,030,992 would be willing to pay parameters used by the
(damages of misuse of with knowledge of the parties and adds cash
for private + Lack of payment of flow excess to the
companies and intellectual property) context in a free market
just compensation (para. 649). resulting market value.
better exchange (excessive and + US$ 10,000,000 (for
rates. On 26 October unjustified delays) moral damages) Valuation date: -Beta: sribunal follows
2010, President (paras 425–6). claimant's choice (paras
Hugo Chavez issued Discount rate: 26 October 2010 (= date of 784–97)
a Presidential Yet, expropriation the Presidential Decree
Decree was in public interest WACC of 20.39% expropriating OIdV's -Discount rate:
expropriating OIdV's and not Country risk of 2% assets) WACC of 23% Country risk
assets. The plants discriminatory (paras
382, 384, 411). Moral damages rejected of 6% (based on
were placed under after detailed discussion Damodaran tables; 2%
custody of the
National Bolivarian on the standard for 'moral would be equal to Italy
damages' (paras 899–917). which is not justifiable,
Guard. After but country risk should
unsuccessful reflect risks of public
amicable settlement debt and market
procedure, volatility, not specific
Venezuela turned to expropriation risk) (para.
the non-amicable, 782).
judicial phase of
expropriation, in
P 473 which claimant
refused to
participate. The
plants were placed
under the
supervision of a
state-owned
company. Venezuela
also imposed a
substantial fine on
OIdV for alleged
violations of
domestic law and
granted free access
to the plants to
third parties
despite objection
by OI.
Violation of FET Respondents: In addition comparable
standard under Art. companies method,
3(1) BIT (para. 540). Contended that market referring to EBITDA
value of expropriated multiples, which
Arbitrary measures, assets was US$ confirms DCF valuation
but no denial of 113,807,000 (paras 857–79)
justice (since
claimant failed to Discount rate:
participate in WACC of 25.78%
proceedings)
Country risk of 6%
Tidewater Investment Tidewater group, a Expropriation of Claimants: FMV as standard as Amount awarded:
SRL and Tidewater supplier of marine investment in contained in Art. 5 BIT and
Caribe, C.A. v The transportation SEMARCA. US$ 217–234 million (ex as also required under US$ 46,400,4000
Bolivarian Republic of services in the Gulf post basis) and US$ 103– CIL, as reflected in the WB
Tribunal discussed in 141 million (ex ante DCF method applied
Venezuela of Mexico, had Guidelines and ILC Articles (para. 165), company was
acquired SEMARCA detail the lawfulness basis) (paras 53,60ff). (paras 151ff)
Award of 13 March 2015 in Venezuela, which of the expropriation, going concern for some
including its Combination of three Important to distinguish fifty years with
ICSID Case No. ARB/10/5 provided services to consequences upon methodologies based on between lawful and substantial operating
Venezuela's
Applicable law: national oil valuation, concludes ex ante and ex post unlawful expropriations, income.
that expropriation approaches: DCF analysis because compensation is
companies (PDVSA assisted by the Elements: Scope of
Venezuela–Barbados Petroleo, CVP, and 'was lawful, since it different: fair business (services
BIT (1994/1995), wants only comparable publicly compensation at the date
PetrocSucre) performed by 15 vessels
Venezuelan without an official compensation' (para. traded companies of expropriation vs on Lake Maracaibo)
Investment Law (1999) concession, but on 146). approach plus the restitution in kind or
P 474 comparable transactions monetary equivalent
1 the basis of short- approach.
term contracts. Due (para. 142).
to the fall of oil
prices in 2008,
PDVSA became
unable to conduct
its payments to
SEMARCA (total of
US$ 40,000,000).
Following the
enactment of the
Reserve Law of 7 May
2009, which reserved
assets and series
related to
hydrocarbon
activities to the
state, SEMARCA's
assets on Lake
Maracaibo, its
headquarters and 11
vessels (and later
another 4 vessels)
were seized.
26
Tribunal left aside Discount factor: Standard of FMV does not Accounts receivables:
the other causes of denote a particular
action (FET, arbitrary Equity risk: 5% (to reflect method of valuation, may Outstanding receivables
and discriminatory investment risk in indeed be the book value to be included in value
treatment, national relation to risk-free US (para. 145). of the company
treatment, MFN) as Treasury bonds)
Valuation is necessarily a Historical cash flows:
they would not add Country risk: 1.5%
anything to the matter of 'informed Include whole period
(because political risk estimation' (para. 164).
question of liability should be excluded; 2006–2009 (even though
or the quantum of state controls the risks, Valuation date: disproportionally high in
damages (paras 148– can increase it and 2009), including ex post
50). obtain an illegitimate 7 May 2009 (date of basis
benefit) (para. 183) Reserve Law)
Discount factor:
Respondents: Ex post/ex ante:
Equity risk: 6.5% (long-
US$ 1.68 million Tribunal 'is not required term market risk
to shut its eyes to events premium)
P 475 Confirmed DCF as the subsequent to the date of
only methodology to be injury'. Country Risk: 14.75
used. (necessary to separate
Discount factor: liability and valuation;
BIT is not an insurance
Equity risk: 6.5% (long- policy; a hypothetical
term arithmetical mean willing buyer would
in the industry) include risk of
expropriation; this is not
Country risk: 14.75% permitting a respondent
Business risk: Should be state to profit from its
added, as claimants own wrong; the country
depended on a single risk quantifies general
customer risk, including political
risk. Recent decisions
have applied 18% (paras
182–90, referring to Mobil
Cerro Negro, Himpurna,
Lemire)
Business risk: no
additional discount for
single customer
concentration.
Pluspetrol Perú Dispute concerns Claimants (!) failed to Respondent: Compliance with terms of Amount awarded to
Corporation and others 'License Agreement comply with their the contract with regard Respondent:
v Perupetro S.A. for the Exploitation obligations to Damages for violation of to the calculation of
of Hydrocarbons in properly calculate the a contract, both under royalties. US$ 48,823,826
Award of 21 May 2015 Block 56' (License royalty agreed in the international law and
Peruvian law, which Tribunal agreed with Valuation:
(in Spanish) Agreement) about License Agreement to
the amount of the ten shipments of governed the License alternative valuation by The damages were
ICSID Case No. royalties payable for natural gas in Agreement (para. 180). respondent with calculated as the
ARB/12/28 natural gas dispute. differentiated calculation difference between the
In absence of of royalties, depending on royalty paid and the
shipments exported inexcusable negligence
Applicable law: from Peru to the the final destination of royalty that should have
and intent, damages the respective shipments been paid based on the
Contract (Contrato de coast in the Gulf of should put the injured
Licencia para la Mexico between (para. 204). factual final destinations
party in the position it
Explotación de August 2010 and would be in absence of of the shipments.
Hidrocarburos en el March 2011. When the violation of the
Lote 56, 2004) respondent notified obligation (para. 181).
claimants its
intention to Amount claimed: US$
terminate the 80,153,962 (royalties due)
License Agreement minus US$ 27,877,732
due to the alleged (royalties paid) = US$
violation of 52,276,230 (para. 183)
claimants'
contractual Alternatively: US$
48,823.826 (para. 186)
obligations,
claimants initiated Claimants disagreed on
arbitration interest rate (para. 203).
proceedings to
resolve the dispute
P 476 about the royalties
(paras 51–53).
27
Suez, Sociedad General Claimants had Violation of FET Claimants: All three BITs provide that Amount awarded:
de Aguas de Barcelona established and standard (by refusing tribunal should apply
S.A. and Vivendi funded Aguas to adjust tariffs and Suez: 'relevant principles of US$ 404,539,050
Universal S.A v The Argentinas S.A. through its treatment US$ 186 million (loss on international law', thus Suez: US$ 223,043,289
Argentine Republic (AASA), an Argentine with force of AASA guaranteed debt) + the tribunal applies CIL
company, which was when trying to (para. 23). AGBAR: US$ 123,276,448
Decision on Liability of granted a 30-year renegotiate the US$ 132.6 million (loss on
30 July 2010 concession to concession) equity) + ILC Articles and Chorzów Vivendi: US$ 37,261,504
operate water and standard (para. 27) AWG: US$ 20,957,809
Award of 9 April 2015 No direct or indirect US$ 243.7 million (loss on
waste-water services management fees) + Application of principle of
ICSID Case No. in and around the expropriation Valuation:
'full compensation':
ARB/03/19 city of Buenos Aires No denial of full US$ 9 million (loss on
Damages = [V without Tribunal appointed its
Jointly with in 1993. Claimants protection and earned but unpaid own expert (para. 12).
faced a number of security management fees as of measures]–[V with
AWG Group Limited v The legal and regulatory 2002) + measures] (para. 28) Loss on guaranteed debt
Argentine Republic measures (in the Suez and Vivendi Undisputed factual total
aftermath of the Universal S.A. were US$ 1.6 million (losses Loss = stream of revenue, debt guaranteed
(UNCITRAL) 'cash flow', expected to be
Argentine financial incorporated in on unpaid dividends) payments to all
Applicable law: France, Sociedad received over the
crisis) which led to Vivendi: remaining term of the multilateral financial
France–Argentina BIT 'forced' General de Aguas de institutions of US$
renegotiations of Barcelona S.A. US$ 35.2 million (loss on Concession Contract 297,792,408,
(1991/1993), (AGBAR), was (para. 29)
Argentina–Spain BIT the concession, and guaranteed debt) + disagreement only
(1991/1992), Argentina's incorporated in Valuation period: whether legal fees of
unwillingness to Spain, and AWG US$ 25.1 million (loss on approximately US$
Argentina–UK BIT raise the tariff for Group Ltd (AWG) was equity) + 6 January 2002 (first 557,000 incurred by the
(1990/1993) water and waste- incorporated in the breach of FET) to 2023 (end claimants in making the
US$ 0.3 million (loss on of the Concession) (para. March 2006 Purchase
water services, UK so that three BITs past due dividends)
which destroyed the were applicable. 36) Agreement should be
value of the Sociedad General de included. Tribunal
investment. In 2006, Aguas de Barcelona confirms they are part of
Argentina (AGBAR): the loss (para. 62).
terminated the
concession and
transferred the
water and waste-
water services
system to a state
entity. Argentina
P 478 argued this was
legitimate due to
violations of AASA's
obligations
pursuant to the
concession
agreement.
US$ 116.5 million (loss Double recovery: Loss on Management
on guaranteed debt) + Argentina could invoke in fees:
respective proceedings, if
US$ 83.1 million (loss on Suez was entitled under
it had already paid (para.
equity) + 40). a Management Contract
to receive fees for the
US$ 1 million (loss on Dismissed Suez' claim for management, control,
past due dividends) US$ 7 million technology transfer and
AWG: management fees unpaid know-how. This was
in 2001, because not calculated until 2023 and
US$ 19.8 million (loss on caused by Argentina's then discounted to 2001,
guaranteed debt) + US$ actions (para. 86). actualizing that value by
14.1 million (loss on applying the Eurodollar
equity) + US$ 0.2 million Dismissed claims for unpaid rate, compounded semi-
(loss on past dividends) dividends, as they were annually until 1
(para. 21) included in the November 2014 (para. 83)
shareholders' equity and
would represent double Loss on equity:DCF
recovery (para. 104). method should be
applied; tribunal
discusses Free Cash Flow,
Adjusted Present Value,
and Flow to Equity,
applying the latter two
which arrived at nearly
identical results (paras
95, 101).
Quiborax S.A. and Non-Quiborax S.A. (a Unlawful Claimants: 'The treaty standard does Amount awarded:
Metallic Minerals S.A. v
Chilean company expropriation in not apply to unlawful
Plurinational State ofthat supplies US$ 61,481,461 (for
violation of Art. VI of expropriations, which are US$ 48,619,578
Bolivia borates in South the BIT damages suffered due to governed by the full
the loss of their Valuation:
America) became reparation principle as
Award of 16 September interested in the Violation of FET investment in Bolivia) + articulated by the PCIJ in The tribunal finds NMM's
2015 fields of standard pursuant to US$ 4 million (for moral the Chorzów case and mining activity to have a
Art. IV(1) of the BIT damages) 'sufficient record of
ICSID Case No. ARB/06/2 neighbouring later expressed in the ILC
Bolivia as potential Unreasonable or DCF analysis is the Articles.' (para. 326) operations and
Applicable law: additional sources discriminatory appropriate method to prospective profitability
of raw material and Valuation date: Date of the to justify applying the
Bolivia–Chile BIT measures in breach of value the FMV of NMM, Award, using 30 June 2013 DCF method to value the
entered into a Art. III(2) of the BIT (by since it qualifies as a
(1994/1999) contract with as proxy (majority concessions.'
impairing the free going concern with a opinion) (para. 385)
Compañía Minera proven track record of Tribunal discusses the
Río Grande Sur S.A. administration, profitability. Moral damages dismissed various sources of cash
('Rio Grande'), a maintenance, use, (tribunal agrees with
Bolivian mining enjoyment, Discount rate: flows, both for past and
Bolivia and Lemire that future cashflows
company that extension, transfer, the threshold to award
owned concession sale, and WACC in 2004 and 2013 (reserves and resources,
presented, in the moral damages is high, production profile,
rights for a major liquidation of the alternative. exceptional remedy, para. prices & costs, other
Bolivian borate investments) 618). variables).
field. The contract Country risk:
was restructured Discount rate:
and Rio Grande 4.24% in 2004, 2.67% in
handed over its 2013 (low risk, also WACC 18.4%
mining concessions because products are
sold outside Bolivia) Country risk: 9.75% (as
to a separate published by Damodaran
company called Non Respondent: and quoted by both
Metallic Minerals parties, though in a
S.A. ('NMM'). FMV must be established different manner),
Quiborax then by reference to the net country risk in 2004
purchased a amounts invested in (reflects better the actual
majority stake in accordance with Art. VI(2) risk than the low risk
NMM. However, in of the BIT proposed by claimant)
P 479 2005, NMM's mining
concessions were Discount rate:
revoked by the WACC only in 2004
Bolivian
government. Country risk:
13.83%
28
Hrvatska Claimant (the Slovenia violated the Claimant: Claimant argued on basis Amount awarded:
Elektroprivreda D.D. v national Croatian 2001 Agreement, of Factory at Chorzów and
Republic of Slovenia electricity company, because the two 2002 € 29,472,307 Art. 31(1) ILC Articles (para. € 19,987,009
HEP) was party to offers were materiallyplus interest and costs 248). Valuation method:
Decision on the Treaty agreements with the different from the
Interpretation Issue of (para. 258) Respondent denied
national electricity Agreement in 2001 Tribunal appointed an
12 June 2009 company of (para. 213). Valuation: applicability of ILC independent expert
Slovenia according Articles, instead asked the (para. 41), who called
Award of 17 December All claims under the Cost of electricity tribunal 'to put in place
2015 to which each claimant's model
partner had a right Energy Charter Treaty obtained from other what the Tribunal 'replacement model' and
ICSID Case No. of 50% of the were dismissed (para. sources = 'Factor X' determines the parties the respondent's model
ARB/05/24 output and a 202 (B), Decision on Cost of electricity that had agreed upon by way 'financial model' (para.
liability of 50% for Treaty Interpretation should have been of financial settlement 275)
Applicable law: the plant's debts of 2009). under the 2001
supplied under the 2001 Agreement.' (para. 259) Both parties approached
Croatia–Slovenia (the parity Agreement = 'Factor Y' compensation on the
Agreement regarding principle). Slovenia Tribunal refers to Art. 36 same basic calculation:
the Investment, Use adopted a number Calculation: of the ILC Articles to point
and Dismantling of of measures that X–Y = € 29.5 million (para. out that the claimant 'can X= factual scenario
Nuclear Power Plant HEP considered 251) only recover in
Krško (2001 inconsistent with compensation the loss Y= counterfactual
Agreement) the parity principle. Respondent: that it has actually scenario 'X minus Y'
The 2001 Agreement suffered' (para. 238). (para. 348)
Energy Charter Treaty should resolve HEP would have used
outstanding imported electricity as
disputes and the primary replacement
provide that for electricity during the
electricity deliveries period in issue, whose
would resume on 30 costs had been less than
June 2002. HEP would have paid
over the same period
under the 2001
P 480 Agreement (para. 266)
Slovenia did not Tribunal included import

ratify the 2001 costs in the factual
Agreement and did scenario (para. 470),
not resume resulting in € 21,558,000
deliveries until as damage caused.
February 2003.
Also 'benefits' received
by HEP in the factual
scenario that would not
have existed in the
counterfactual scenario
considered (para. 471)
→ € 1.571 million
deduction (para. 517).
Tenaris S.A. and Talta-

Tenaris Expropriation in Claimants: Tribunal quotes BIT US$ 87.3 million adding
Trading E Marketing (incorporated under violation of both BITs provisions on the FMV of Talta's
Sociedade Unipessoal the laws of the applicable (paras US$ 235.9 million expropriation interest in Matesi (US$
LDA v Boliavarian Grand Duchy of 493–97) by violating for the taking of compensation and finds 60.2 million) and the
Republic of Venezuela Luxembourg), a Venezuelan law and claimants' equity stake that this 'language from value of the Talta loan
supplier of steel the BIT provisions on in Matesi treaties is very similar to (US$ 27.1 million) (para.
Award of 29 January tubes and related legal procedure. that contained in the ILC 570)
2016 services for the + US$ 27.1 million for the Articles, which are
energy industry and Quoting ADC v taking of Talta's loan to currently considered to + pre-award interest in
ICSID Case No. Hungary pointing out the amount of US$
ARB/11/26 other industrial Matesi (para. 501) be the most accurate
applications owned that there has not reflection of customary 85,501,213.70
Applicable law: been 'a reasonable Valuation:
Talta (Portugal), international law' (para. = US$ 172,801,213.70
Venezuela's only chance within a primarily DCF method 515) quoting
P 481 Belgium/Luxembourg– producer of reasonable time to
analysing both the
Venezuela BIT claim its legitimate
(1988/2004), Portugal– stainless steel pipes rights and have its
actual performance of
Venezuela BIT for the oil and gas the Matesi plant as well
industry. Through claims heard.' (para.
(1994/1995) 496) as projections of likely
Talta, Tenaris held a future performance and
shareholding in revenues, discounted
Matesi Materiales back to the date of
Siderurgicos S.A. expropriation (para. 502);
(Matesi), a company alternative valuation use
established under of 'market multiples'
the laws of from comparable
Venezuela, which publicly-traded
produces high companies, based on (1)
quality hot market value to book
briquetted iron, a equity and (2) market
component used in value to book value of
the production of assets (para. 503)
steel. The
companies assert
that the use and
enjoyment of their
investment was lost
as a result of
indirect
expropriation of
their investment in,
and pre-
nationalisation
interference with,
their investments in
Matesi.
Allegation of BIT- Respondent: Art. 36 ILC Articles (para. DCF method rejected for
violations in the pre- 516) and Chorzów (para. brevity of operation
nationalization FMV as determined by 517). 'There is no dispute (para. 526), and multiples
phase dismissed. DCF method is US$ 0 that the correct date of rejected due to unique
expropriation is 30 April market circumstances,
2008.' (para. 518) 'The similar companies for
Parties' experts are also in comparison not
agreement that FMV…' available (para. 529).
(para. 519).
The sales price of US$
60.2 million for Talta's
interest in Matesi,
bought in March 2004,
was an appropriate
reflection of the FMV of
Talta's interest in the
Matesi plant (para. 566).
The Matesi sale took
place as part of a
liquidation sale (para.
564).
29
Crystallex International Crystallex Violation of FET Claimant: Compensation US$ 1,202 million
Corporation v Bolivarian (incorporated in standard by requirement of Art. VII (1)
Republic of Venezuela Canada) had made frustrating Crystallex' US$ 3.16 billion (para. 719) BIT only for compliant Tribunal considers 4
investments in the legitimate valuation methods as
Award of 4 April 2016 in the amount of the FMV expropriations; parties put forward by claimant:
areas called 'Las expectations arising as of 3 February 2011. dispute whether also
ICSID Case No. Cristinas', one of the out of the specific applicable for BIT (1) Stock market
ARB(AF)/11/2 largest promise. Engaged in Restitution has become violations; discussion approach
undeveloped gold arbitrary conduct in impossible. rather theoretical and
Applicable law: deposits in the denying the Permit devoid of significant (2) P/NAV method
world. The dispute and rescinding the practical effects (paras (3) Market multiples
Canada–Venezuela BIT arose out of certain MOC, and committing 842–3). Tribunal follows method
(1996/1998)
measures taken by several acts lacking BIT standard as full (4) Indirect sales
Venezuela which transparency and reparation under Chorzów comparison
P 482 affected claimant's consistency; thereby may require valuation at method
investments caused all of the the date of the award
relating to four investments made by (para. 843).
mining concessions, Crystallex worthless
Cristina 4, 5, 6, and (para. 623).
7, located within the
municipality of
Sifontes in the State
of Bolivar in the
Guayana region in
southeast
Venezuela.
In particular, Expropriation: Net of applicable taxes. Neither party argued in Plus Cost approach 'for
Venezuela's April favour of the date of the informative purposes' to
2008 denial of a Violation of Art. VII (1) Respondent: award (para. 844). show the breadth of the
permit to Crystallex BIT by not paying or investments made by the
offering Restitution is not an Valuation date:
to exploit the gold available remedy. claimant (para. 888).
deposits at Las compensation (paras
717–18). Parties disagreed on Finds that forward
Cristinas, and the BIT standards, and not expropriation date;
rescission by the CIL, is the applicable looking methodologies
No violation of public tribunal in favour of 13 are appropriate to assess
Corporación purpose, non- standard. April 2008 as then events
Venezolana de FMV.
discrimination or due Claimant is not entitled surrounding the permit
Guyana (CVG), the process (quoting ADC- to damages other than denial occurred and the Actually relies on (1)
state-run standard of due the FMV at the time of mining site came to a stock market approach
corporation tasked process, paras 713– the alleged taking (13 standstill (paras 854–8). and (2) market multiples
with stimulating 16). approach; rejects the
economic activity in April 2008).
other two as not reliable
the Guayana region, But no damages should and excessively
of the Mine be awarded, because the speculative (para. 916)
Operation Contract alleged damages are
(MOC) in February 'highly speculative, if not The two approaches lead
2011. entirely fictional', no to results that are largely
causal link (para. 720). consistent with each
other, takes the average
of the two figures (para.
917).
P 483
Rusoro Mining Limited v

Rusoro (a publicly Unlawful Claimant: Standard: US$ 966.5 million
Bolivarian Republic oftraded Canadian expropriation,
Venezuela company) had because the (1) US$ 2.23 billion 'genuine value' as referred (value of the investment)
several gold mining respondent complied (FMV of Rusoro's to in Art. VII of the BIT is
Award of 22 August 2016 rights and projects investment in equivalent to the FMV, as + US$ 1,277,002
only with three of the
in Venezuela. In four requirements Venezuela) agreed by the parties (cash flows lost through
ICSID Case No. (paras 647, 751)
ARB(AF)/12/5 2009 and 2010, established in the (2) US$ 85.4 million export restrictions)
Venezuela enacted BIT, but failed to lost cash flows Valuation date:
Applicable law: regulatory measures comply with the between 2009 and Six different approaches
2011 16 September 2011, as for valuation of
Canada–Venezuela BIT increasing the
percentage of gold
fourth, 'prompt,
adequate and agreed between the investment:
(1996/1998) (3) pre-award and
to be sold to the effective post-award parties (para. 647) (1) amounts invested
Central Bank of compensation'; the interest (para. Six 'prerequisites' for by Rusoro (US$
Venezuela at the respondent's offer in 635) 774.3 million)
international price the Decree application of the DCF
Using a weighted method: (2) adjusted
of gold established a cap investment
(denominated in which was not average of three (1) historical record
different methods: valuation (US$
USD) at the Official foreseen in the BIT or (2) detailed business 1,128,7 million)
Exchange Rate, and in domestic (1) comparable plan, verified by
limited the Venezuelan law, and (3) book value of the
publicly traded impartial expert investment (US$
percentage of gold the concrete offer
allowable for made to the claimant companies (CPTC: (3) sales prices of 908 million)
50%) products or
export. On 16 was significantly (4) Maximum market
September 2011, below the cap (paras (2) Comparable services capitalization
Venezuela adopted 408–10). transactions, determined with (US$ 706 million,
a Decree which using multiples reasonable in 2008)
reserved the gold Creeping (CT: 20%) certainty
expropriation (5) Final market
extraction and (3) DCF (30%) (4) no uncertainty valuation (US$
exploitation dismissed (para 438). about availability
Respondent: 125.6 million, in
activities to the No FET or FPS of funding 2011)
state (the violation, no US$ 1.5 million (para. (5) meaningful WACC
'Nationalization (6) valuation by
violation of Art. VIII of 646) possible, including claimant's expert
Decree'). the BIT (transfer of reasonable country
Negotiations with (US$ 2.23 billion)
funds), but violation risk premium
P 484 the affected owners of para. 6 (d) of the
were set at three (6) regulatory pressure
Annex to the BIT low or impact on
months (later (restrictions on
extended to six cash flows
exportation) (para. predictable (para.
months) to agree on 596).
the amount of 759)
compensation or on
the formation of a
'mixed company'
with state equity
participation of at
least 55%. The
Nationalization
Decree set the
maximum price to
be paid at the book
value. After failure
of negotiations, all
of Rusoro's mining
rights and other
assets were taken
over by the
Government in April
2012.
30
(1), (5), and (6)
eliminated;
applied: (4) weighing
25%, (3) weighing 25%,
and (2) weighing 50%
→ tribunal rejects
income approach,
accepts market approach
(25%), but relies
primarily on cost-based
approach, i.e. book value
and adjusted book value
P 484 (75%).
31
Document information Appendix 2. Table of NAFTA Cases since 2008
Case Investment Violations Economic loss Standard of Amount decided & Interest & costs
Publication affected &
measures at
found claimed &
valuation by
compensation/reparation valuation method
Calculation of issue respondent
Compensation and
Damages in International Archer DanielsClaimants Breach of Art. Claimants: Mexico Full reparation (ILC Amount awarded: Interest:
Investment Law (Second Midland claimed that 1102 NAFTA is required to Articles, paras 275ff);
Company and their (national compensate the referring to S D Myers US$ 33,510,091 Simple interest
Edition) Tate & Lyle investments in treatment, damage caused by (NAFTA drafters left at the rate paid
= loss of profits in the for US Treasury
Ingredients the high paras 193ff, the tax, in standard open), Feldman, period 2002–2006
Americas, Inc.fructose corn para. 213) accordance with Pope & Talbot bills, as the
v United syrup industry Art. 1135 NAFTA (considerable discretion, Loss of profits was award is in US$,
Bibliographic Mexican in Mexico had Art. 1106 NAFTA (paras 253ff).
(performance
reasonable approaches) triggered by loss of calculated for
States been sales; claimants have each month
reference adversely requirements, Damages suffered • Quantum of submitted evidence from 31
'Appendix 2. Table of NAFTA Award of 21 impacted by paras 214ff, as investors, as damages in the of the sharp drop in December 2005
November Mexico's 2002 227) well as as present case sales of HFCS (= date on
Cases since 2008', in 2007 exporters of depends on the which damages
Irmgard Marboe , adoption of a immediately
tax on fructose into amount of lost following the date on were
Calculation of ICSID Case Mexico (para. 255) profits that have calculated, as
No. beverages that which the tax took
Compensation and ARB(AF)/04/5) contain high → diminution in
been proved (para. effect on 1 January submitted by
Damages in International fructose corn 287) 2002. claimants and
the FMV of the not questioned
Investment Law (Second syrup (HFCS). investment should • Tribunal rejects the
Quantum of damages by respondent)
Edition), Oxford be calculated on FMV, because it was
They alleged not an depends on the until payment.
International Arbitration that the tax the basis of lost amount of lost
profits (para. 257) expropriation Claimants: Rate
Series, (© Irmgard Marboe aimed at (para. 283) profits that have
protecting been proved (para. of 5.5%,
2017; Oxford University Respondent: compounded
Mexico's damages should 287)
Press 2017) pp. 485 - 490 domestic annually (=
not be paid for (The subsequent five current
sugar losses suffered in paragraphs are not
producers by government
respect of cross disclosed.) bond rate of
excluding high border trade in
fructose corn US$
goods or services. denominated
syrup from the The US has
soft drink debt of Mexico)
submitted in S.D.
sweetener Myers that losses Respondent:
market; that resulting from
the reduced imports Simple
imposition of would not be interest, rate of
the tax suffered in the US Treasury
amounted to entity's capacity as bills for an
an indirect an investor (para. award
expropriation. 256). denominated
in US$; refers
to Article 1110
(expropriation,
guidance for
interest)
Costs:
Each party bear
its own legal
fees and costs
and half of the
costs of the
P 487 arbitration.
Cargill, Inc. v Cargill was Breach of Art. Claimant: Tribunal agrees with Amount awarded: Interest:
United selling high 1102 NAFTA claimant that the
Mexican fructose corn (national US$ 123,813,029 as appropriate approach to US$ 77,329,240 Rate equal to
States syrup in treatment) damages for the assessing damages in this the US monthly
net lost cash flows Valuation: bank loan
Mexico proceeding is to
Award of 18 through its Violation of that Cargill and determine the present Confirmed valuation prime rate from
September Mexican fair and Cargill de Mexico value of net lost cash by claimants with 1 January 2008
2009 subsidiary equitable would have flows. adjustments: PV of until full
Cargill de treatment garnered from net cash flow loss of payment,
ICSID Case (breach of Art. HFCS sales from Difficulties in projecting Cargill from June 2002 compounded
No. Mexico S.A. de
C.V. In 1105 NAFTA) January 2002 the overall market, the to end of December annually, as
ARB(AF)/05/2 through 2007 → claimant's market share, 2007; detailed claimed by
December 2001 Breach of Art.
Mexico Calculated net lost and the appropriate price reasoning on claimant,
1106 NAFTA cash flow from and demand in light of because
imposed a (performance adjustments: change
20% tax and gross 'but for' lost claimant's four-year of compensable claimant 'has
requirements), cash flow (product absence from a effectively
an import since it period, change of
permit of quantity of HFCS competitive market. growth rate of loaned this
conditioned a that would have However, these sum to
requirement tax advantage Mexican HFCS market,
on imported been sold and the projections are not so the claimant's market respondent for
on the use of per-unit profits unusual or difficult that the duration of
soft drinks domestically share between
containing they would have employment of the January and June this dispute'
produced been earned from method is inappropriate 2002, market price. (para. 544).
high fructose cane sugar.
corn syrup sales, para. 433) in this proceeding (paras Discussion whether
444ff). Respondent:
(HFCS) which No Respondent values lost profits under Simple interest
was claimed to expropriation the loss at US$ scope of investment based upon US
be an (no breach of 4,276,000 (para. protection or merely Treasury bills,
interference Art. 1110), 443) using the trade in goods. because award
with Cargill's since no claimant's is
investment. radical financial expert's denominated
HFCS revenues deprivation of DCF model with in US$
fell 80% over claimant's slightly lower
the first three overall projection on price Costs:
days of the investment. plus a deduction
tax. Respondent
for mitigation for shall bear all
claimant's costs of
contributory fault. arbitration and
half of the
claimant's
costs of
representation,
considering
the success of
the claimant's
submissions
P 488 (para. 547).
32
Case Investment Violations Economic loss Standard of Amount decided & Interest & costs
affected & found claimed & compensation/reparation valuation method
measures at valuation by
issue respondent
Mobil Dispute Decision (by Claimants: Guidelines triggered an Amount awarded: Interest:
Investments relates to two majority) that obligation to make
Canada Inc. petroleum the 2004 two types of losses expenditures that 1) Mobil The amounts
and Murphy development Guidelines are claimed: continues over the life of Investments: for incremental
Oil projects, the breached Art. total: CND expenditures
1) 'incremental the projects. It amounts 13,893,013 shall bear
Corporation v Hibernia and 1106 spending': to a continuing breach
Canada Terra Nova (performance resulting in ongoing = CND interest at the
amounts 12-month CDN
projects in requirement already damage to the claimants' 10,310,605
Decision on Canada, of prohibition) interests in the (compensation LIBOR rate +
Liability and spent on 4%,
which the and give rise R&D or E&T investment (para. 429 for
on Principles claimants, to a right to DoL). incremental compounded
of Quantum of as a result monthly (as
both US- claim of the expenditures)
22 May 2012 incorporated compensation → Not only damages that + CND 3,582,408 calculated by
Guidelines. occurred in the past but claimants and
Award of 20 companies, (para. 487 (compensation
held shares. In DoL). 2) advance also the incurring of for shortfall) not disputed
February 2015 'shortfall' losses which become by respondent)
2004, the 2) Murphy Oil:
ICSID Case Canadian No violation losses, quantifiable and must be from 23 July
No. Newfoundland of Art. 1105 being the paid sometime in the total: CND 2012 (of the
ARB(AF)/07/4 and Labrador (FET and full difference future ('future damages') 3,401,247 first damages
Offshore protection between (para. 427 DoL) = CND 2,273,635 submission) to
See also: Petroleum and security). spending (for the date of the
(2016) 3 The
Board undertaken → Apply standard of incremental Award (earlier
Journal of
adopted pursuant to 'reasonable certainty' expenditures) interest was
Damages in the (para. 439 DoL) already
Guidelines for + CND 1,127,612
International Research and Guidelines → Claimants must prove (for shortfall) included in the
Arbitration, and the 'that a call for payment calculation)
No. 1 Development Valuation:
Expenditures spending has been made or that
required by damages have otherwise Costs:
which were 1) Incremental
alleged to be the occurred (i.e. that they are The parties
Guidelines. 'actual') (para. 488 DoL). spending:
more whether shall bear their
restrictive and Numbers of losses expenditures own legal
onerous than and expenditures claimed were costs, costs of
the provisions however are not motivated by arbitration
of existing disclosed in the the Guidelines, shall be borne
agreements public version of whether they in equal share.
concerning the award. would not
the project. Because the
have been case involved
The 2004 Respondent: made 'but for'
Guidelines novel and
A large part of the the Guidelines complex issues
allegedly claimants' (para. 37). concerning the
require the spending would 2) Shortfall is interpretation
claimants and have taken place in only partially of NAFTA and
other the ordinary compensable.
investors in the
course of business quantification
offshore in the absence of →Application of the of damages
P 489 petroleum the 2004 historic ratio
projects to (para. 176);
Guidelines and is between incremental
pay millions of therefore not and ordinary course
dollars per compensable. spending, as
year for suggested by
research and respondent; minor
development. adjustments in
calculating the
historical ratio of
incremental
spending (tax
benefits), but no
deduction for the
royalty regime also
allowing deductions
based on R&D
expenditures (para.
147)
Money need not have → It is fair and

P 489 been expended for appropriate.
compensation to be due,
but there must be a firm
obligation to make a
payment (para. 440 DoL).
33
Document information Appendix 3. Table of ECT Cases since 2008
P 492 Energy Charter Treaty Arbitrations 2008–16
Publication Case Investment Violations found Economic loss Standard of Amount decided & Interest &
Calculation of affected & claimed & valuation compensation/reparation valuation method costs
Compensation and measures at by respondent
Damages in International issue
Investment Law (Second Europe Cement Europe Cement Dismissed for Claimant: No jurisdiction No damages awarded. Costs:
Edition) Investment and Investment and lack of
Trade S.A. Trade S.A., a jurisdiction. Not less than Moral damages: Claimants shall
(Poland) v company $3,800,000,000 (para. pay the
Claimant failed 26) No exceptional respondent
Republic of Turkey incorporated circumstances such as
Bibliographic Award of 13
under the laws to establish that
it had an Respondent: physical duress are
US$
3,907,383.14
of Poland,
reference August 2009 brought a claim investment in
Turkey at the
Moral damages:
present in this case to
justify moral damages.
representing
its legal costs
'Appendix 3. Table of ECT ICSID Case No. against Turkey
concerning the relevant time, as an established Any potential and expenses
Cases since 2008', in ARB(AF)/07/2 the claim of remedy for moral reputational damage and US$
termination on
Irmgard Marboe , 11 June 2003 of Europe Cement damage, that in the suffered by the 129,740
Calculation of concession must be present case the respondent would be representing
Compensation and dismissed for conduct of Europe remedied by the its share of the
agreements Cement in bringing a
Damages in International granted in 1998 lack of reasoning and cost of the
by the Turkish jurisdiction 'jurisdictionally conclusions set out in arbitration.
Investment Law (Second (para. 145). baseless claim the ward, including an
Edition), Oxford Ministry of asserted in bad faith Claim to
Energy relating award of costs which is jurisdiction
International Arbitration to the and for an improper significant. This provides
purpose' had caused was based on
Series, (© Irmgard Marboe generation, a form of 'satisfaction' an assertion of
the Republic of for the respondent (para.
2017; Oxford University transmission, Turkey 'intangible ownership
Press 2017) pp. 491 - 500 distribution, 181). which was
and marketing but no less real loss',
quoting Desert Line fraudulent, an
of electricity in (para. 128) award of full
certain parts of costs will
Turkey. compensate
respondent for
having to
defend a claim
that had no
jurisdictional
basis and
discourage
others from
pursuing such
unmeritorious
claims (para.
185).
Interest on
costs:
5% simple
interest after
30 days, in the
event of non-
payment.
Cementownia Claimant, a Claims Claimant: No jurisdiction No damages awarded. Costs:

'Nowa Huta' S.A. v Polish entity, dismissed in
Republic of Turkey allegedly held their entirety for Not less than US$ 4 Moral damages: Claimant shall
shares in the two reasons: billion. bear the
Award of 17 The tribunal found that arbitration
Turkish
September 2009 electricity a) Failure of the Respondent: there has been an abuse costs as well as
claimant to of process by the the
ICSID Case No. companies Moral damages: claimant. A symbolic
Çukurova prove that it respondent's
ARB(AF)/06/2 owned or Due to compensation for moral legal fees and
Elektrik A.S. Cementownia's damages may indeed aim
('CEAS') and controlled an expenses
investment in egregious and at indicating a totalling US$
Kepez Elektrik condemnation for abuse
Türk A.S. accordance with malicious conduct in 5,304,822.06.
this case pursuing a of process. However, in Tribunal
('Kepez'). baseless claim and the case at hand, the applied the
making spurious tribunal deems it more 'costs follow
allegations against appropriate to sanction the event'
P 493 Turkey with the the claimant with principle,
intent of damaging respect to the allocation making the
its international of costs (para. 171). losing party
stature and bear all of the
reputation 'there is costs of the
no principal reason proceeding
why equivalent relief and attorney
should not be fees due to the
available to the claimant's
respondent State in non-
an appropriate case' cooperation,
(para. 165). failure of
claims and bad
faith (para.
177).
34
Case Investment Violations found Economic loss Standard of Amount decided & Interest &
affected & claimed & valuation compensation/reparation valuation method costs
measures at by respondent
issue
On 20 February Arts 1(6), 1(7), Interest on
2001, a new and 26(1) of the costs:
Electricity ECT;
Market Law was In the event of
enacted by b) Claim was non-payment
Turkey, fraudulent and within 30 days
consistent with brought in bad of notification
the then- faith (since it of the award,
existing EU attempted to interest be at
Directive 96/92. gain access to the 6-month
Transmission of international successive
electricity jurisdiction EURIBOR rate
would without having plus 2% for
henceforth be made an each year,
operated by a investment). compounded
State-owned semi-annually.
company, the
Turkish
Electricity
Transmission
Joint Stock
Company
('TEIAS').
Companies such
as CEAS and
Kepez, would
no longer be
allowed to
engage in
electricity
transmissions.
Ioannis Kardassopoulos In respect of Claimants: Tribunal contends that Amount awarded: Interest:
Kardassopoulos and Fuchs Kardassopuolos: Art. 13 ECT is applicable
and Ron Fuchs v formed a joint No less than FMV as only for lawful Kardassopoulos: Pre-award:
The Republic of venture (GTI) Expropriation, of valuation date expropriations (para. 502); US$ 15.1 million for the
unlawful plus US$ 137,901 To both
Georgia with the state-
owned Georgian because not expenses in Distancing itself from ADC unlawful expropriation claimants at
Award of 3 March oil company for carried out with compensation and Siemens, holds that (para. 645) the rate of the
2010 due process of commission 'there must be a factual 6-month LIBOR
cooperating in Fuchs: + 4% in
law and without procedure (para. 66); basis on which to award
ICSID Cases Nos. oil exploitation, provision of on basis of such higher recovery. Any US$ 15.1 million for the accordance
ARB/05/18 and market FET violation (para. 646) with Art. 38 ILC
development, 'prompt, determination of such recovery must,
ARB/07/15 adequate and valuation date by furthermore, measure the Articles as a
and 'fair
distribution in effective' tribunal as of damage sustained and
compensation November 1995: not impose punitive commercial
1992; GTI rate' (para.
obtained a 30- (para. 408) damages' (para. 513).
659), as
year contained in
concession. Pipeline
Construction
and Operating
Agreement
'PCOA' of 1996
P 494 (para. 661)
as of the date
of the
expropriation
(20 February
1996)
compounded
semi-annually
to the date of
the award.
35
issue
Applicable law: In February In respect of US$ 30.2 million Tribunal finds that Valuation method: Aggregated
1996, Georgia Fuchs: claimants would likely amount of pre-
In respect of issued a decree (para. 543) have sold their shares in Of claimants' 50% award interest
Kardassopoulos: (No 178) that FET under Art. 1995 (para. 515) and interest in GTI's rights, for each
Energy Charter 2(2) Respondent: based on the income
terminated therefore the FMV of the claimant is US$
Treaty, Georgia– GTI's Georgia/Israel Between US$ 801,985 investment as of that date and market approach 30,024,736.83.
Greece BIT concession and BIT (para. 451) and US$ 4,974,177 should be decisive (para. (para. 595):
(1994/1996); turned rights (as claimed by 517). Post-award:
claimant) • Tribunal agrees
In respect of previously held that 'it matters To each
by GTI to a With regard to FET: Art. 36
Fuchs: Georgia– ILC Articles should be not to a claimant at the
Israel BIT consortium of hypothetical rate of the 6-
transnational applied (para. 532), but '[t]
(1995/1997) here is no basis, in willing seller how month LIBOR
oil companies. the buyer in effect as at
While a principle, on which to
differentiate between the proposes to the date of the
compensation extract profit from award plus 4%,
commission was damage caused as
between Mr. an asset, but only compounded
to be what the semi-annually
established to Kardassopoulos and Mr.
Fuchs' (para. 534) so that hypothetical from the date
determine the buyer is willing to of the award.
amount of also the FMV as of 1995
should be applied (para. pay for the
compensation investment' (para. Costs:
due, after a 537).
598); Tribunal finds
change in
government the • Three arm's- it appropriate
length, and fair to
respective award the
commission contemporaneous
concluded that transactions (or claimants their
P 495 potential costs of the
the claimants arbitrations,
were not transactions)
entitled to any available to assistincluding legal
in valuing the fees, experts'
compensation. fees,
investment in a
narrow range of administrative
fees, and the
value, i.e. US$ 28.1
million to 30.6 fees of the
million (para. tribunal. The
598). tribunal finds
the total fees
Tribunal rejects assessed by
reimbursement of the claimants
expenses related to to be
pursuit of the reasonable, i.e.
compensation US$ 6,235,429,
commission process, as well as total
totalling US$ 275,803. It disbursements
does not consider, 'in assessed, i.e.
the absence of any US$ 1,706,868
evidence to the contrary, (para. 692)
that these expenses
would have been
recoverable from the
compensation
commission' (para. 648).
Mohammad Claimant, an 2009 Partial Claimant: Primarily referring to the Amount awarded: Costs:
Ammar Al-Bahloul Austrian Award: ILC Articles, in particular
v Republic of national, Respondent is • Compensatory Art. 36 (para. 66); No damages ordered. Claimant has
Tajikistan allegedly had liable for breach damages for not prevailed
losses (lost However, claimant 'has Valuation: in the second
the ability to of its obligation
Partial Award on build up third- under Art. 10(1) profits, etc.) chosen his own Tribunal rejected: phase of the
Jurisdiction and party capital ECT ('Promotion for the methodology': the proceedings,
Liability of 2 wrongful valuation should be Application of DCF method: however the
necessary for Protection and Generally approved DCF
September 2009 the exploration Treatment of delay of the based on the difference in respondent
of Investments') by issuance of the value the licences method, however not for shall pay to
Final Award of 8 the necessary would have had without this case since claimant's claimant a
June 2010 hydrocarbons failing to argument contains too
in four areas for perform its exclusive the breach (if issued in portion of its
SCC Case No. V which he contractual licence in the 2001) and the value they many uncertain incurred costs
(064/2008) should have undertaking to East had in 2009 assuming the assumptions ('that he (€ 300,000),
Soupeteau licences were issued would have been able to since the
SCC Arbitration been granted ensucre the acquire financing, that
licenses by the licence to carry area in the (para. 68). respondent
Rules respondent. out solely and amount of upon exploration he has failed to
US$ 27,780,000 would have found participate
The exploration exclusively hydrocarbons and that
would have geological • in the Rengan and cooperate
been successful exploration and area in the he would have been able in the
amount of to exploit and sell the proceedings
and allowed natural resource oil'). This also destroys
him to procure exploitation US$ 55,160,000 (para. 119).
further capital pursuant to four the causality between
• in the the breach committed Interest:
for the agreements Sargazon area and the loss of alleged
production, signed in 2000 in the amount Claimant has
transportation, between future cash flows. not claimed
of US$
and sale of the claimant and 87,220,000 interest on
hydrocarbons the costs, so that
(para. 28). • in the no interest on
Yalgyzkak cost were
area in the awarded (para.
P 496 amount of 120).
US$ 58,300,000
(para. 35)
Respondent did State Committee The expected value Lost profits: Since overly Respondent
not issue the on Oil & Gas of (EV) of the four speculative. shall bear 50%
licences as the Republic of licences was of the
promised and Tajikistan. explained as the net Comparable sales arbitration
issued certain present value (NPV) valuation: Not possible costs
hydrocarbon at its probability of due to lack of amounting to
licences for the success (POS) less comparable € 524,977 and
subject areas to the NPV of its transactions. 8,125 SEK
other probability of failure →Tribunal concludes (paras 121–3).
companies, (being 1—POS) (para. that it cannot order
such as 32); claimant damages due to a lack of
Gazprom and explicitly considered a substantiated basis for
Tethys other methods for assessment, although it
Petroleum Ltd the calculation of his is established that the
(para. 30). damage (such as the respondent has violated
cost method/asset the BIT (para. 98).
based approach or
the market value) as
inappropriate (paras
33, 68).
36
issue
Anatolie and Claimants Violation Art. Claimants: ICL, Chorzów Standard Amount awarded: Interest:
Gabriel Stati, invested more 10(1) ECT [FET]: (para. 1527)
Ascom Group S.A., than US$ 1 '… was a string US$ 478,927,000 (for US$ 508,130,000 minus At the rate of 6
Terra Raf Trans billion into oil of measures of Tolkyn fields); 'Since the Tribunal cannot debts of US$ 10,444,899 months US
Traiding Ltd v and gas fields coordinated order restitution and Treasury bills
US$ 197,013,000 (for restitution is not a relief → Net amount awarded: from 30 April
Republic of and harassment by Borankol fields);
Kazakhstan constructed an various sought by Claimants, the US$ 497,685,101 2009 until
important institutions of US$ 96,808,000 (for Tribunal's award should payment,
Award of 19 liquefied respondent and Munaibay Oil); include future cash flows compounded
December 2013 petroleum gas has to be of the assets taken.' (para. semi-annually.
(LPG) plant. considered as a US$ 245,000,000 (LPG 1531)
SCC Case No. Plant) cost plus 'Tribunal
116/2010 After an breach of the discretionary agrees with
accusation of obligation to Respondent
portion of US$
P 497 SCC Arbitration Anatolie Stati treat investors 84,077,000; that
Rules by the fairly and according to
Moldovan equitably' (para. US$ 31,330,000 arbitral
president, the 1086) (contract 302) cost practice in
Kazakh plus discretionary comparable
President portion of US$ cases, the rate
ordered that 1,498,017,000 of a
the Government conservative
initiate investment
thorough should be
inspections and used. … as the
audits of Stati's damages will
companies. be awarded in
Criminal US-Dollars, as
proceedings confirmed by
were initiated. previous
On 28 April 2009, arbitral
KMG's general practice, the
manager, was Tribunal
arrested. considers that
Furthermore, the rates of 6
the state months US
assessed tax treasury bills
illegalities and over the
imposed relevant
punishments. period are the
Claimants appropriate
alleged to have rate.' (para.
been coerced 1854).
into selling 'Claimants
their could be
investments to expected to
the state- reinvest their
owned oil interest gains
company at a every 6 months
firesale price and that,
which they therefore,
refused to do. interest has to
Eventually, the be
Government compounded
seized the semi-annually.'
investments. (para. 1855)
Valuation: 'However, the Tribunal Valuation method: Costs:

does not agree with
(1) KPM and TNG Claimants that this Quantum related to Respondent
lost revenue approach would Borankol and Tolkyn shall bear 75%
they would automatically mean that fields: and claimants
have earned no debts of the seized 25% of
from their Parties and tribunal arbitrations
companies can be agree that the DCF
planned deducted at all.' (para. costs,
production; method is appropriate respondent
1532) for calculation (para.
(2) The gap in the shall also bear
Valuation date: 1617). Tribunal applied 50% of
development Deloitte's comparable
efforts claimant's
Claimants argue 14 transactions analysis, legal costs
depressed the October 2008 (date of leading to a combined
production (referring to
President's Order); asset value (para. 1626). the principle
curve at respondent argues 21 July
Tolkyn and Quantum Related to 'costs follow
2010 (date on which the event',
Borankol claimants irreversibly lost Contract 302 Properties:
P 498 more than it para. 1882)
rights after alleged Valuation based on
would have expropriation);
been, had claimants' out of pocket
claimants tribunal relies on 30 April investment expenses.
been able to 2009 as the valuation date Quantum Related to the
develop the (State sequestration of LPG Plant:
fields without claimants' KPM and TNG
respondent's shares and assets →Actual Tribunal applies offer
conduct; damages occurred) made for the LPG Plant
(3) Claimants by State–owned KMG for
were unable US$ 199 million as best
source for valuation
to sufficiently (para. 1747).
respond to
the watering No moral damages
issues at the ordered, threshold of
Tolkyn field. Desert Line case, where
armed tribes attacked
the investor's premises
not met (para. 1784).
37
issue
Hulley Enterprises The disputes Respondent Amount claimed: 'The nature or extent of Amounts awarded: Pre-award
Ltd (Cyprus) v between the breached its the reparation to be made interest:
Russian parties in the treaty The entire value of for the breach of an Hulley Enterprises Ltd:
Federation three parallel obligation the investments as international obligation' Not in respect
well as the benefits US$ 39,971,834,360 of damages
proceedings under Art. 13 ECT (Art. 36/2 PCIJ Statute,
UNCITRAL involve various [expropriation] the investors should identically in Art. 36/2 ICJ Yukos Universal Ltd: representing
measures taken (paras 1580, have received from Statute); the value of
PCA Case No. AA their investments, in US$ 1,846,600,687 shares (valued
226 by the 1585). 'Having
respondent found total Chorzów-principle, Veteran Petroleum Ltd: as of the date
Yukos Universal against Yukos, a Respondent of the award,
US$ 114.174 billion ILC Articles (Arts 31, 36, 39) para. 1686);
Ltd (UK–Isle of joint stock liable under (para. 73). US$ 8,203,032,751
Man) v Russian company international Contributory fault: Claimants total: In respect of
Federation incorporated in law for breach of Respective the dividend
Russia in 1993, Art. 13 ECT, the claimants: Art. 39 ILC Articles Art. 31 US$ 50,020,867,798
UNCITRAL ILC Articles stream 'the
the largest oil Tribunal does Hulley Enterprises average yield
PCA Case No. AA company in the not need to Claimants 'should pay a Valuation method:
Ltd US$ 93.229 billion of ten-year US
227 Russian consider price for Yukos' abuse of Heads of damages: Treasury
Federation that whether Yukos Universal Ltd the low-tax regions by bonds over the
Veteran had emerged Respondent's US$ 4.666 billion some of its trading (1) Value of
Petroleum Trust period from 1
after the actions are also entities, including its claimants' shares January 2005 to
(Cyprus) v dissolution of in breach of Veteran Petroleum questionable use of the (2) Value of the 30 May 2014 as
Russian the Soviet Article 10 of the Ltd US$ 16.279 billion Cyprus–Russia DTA, which dividends up to
Federation (para. 110) the applicable
Union, in the Treaty' (para. contributed in a material the valuation date rate of
UNCITRAL period between 1585). Respondent submits way to the prejudice (3) Pre-award simple interest, which
July 2003 and that claimants have which they subsequently interest on these the Tribunal
PCA Case No. AA November 2007 failed to establish suffered at the hand of has
228 (para. 63). amounts (para.
any entitlement to the Russian Federation' 1778) determined to
damages and have (para. 1634). be 3.389
Interim Award on The measures Ad (1): 'corrected'
Jurisdiction and complained of not incurred any Valuation date: percent.' (para.
Admissibility of 30 include criminal damages at all (paras comparable companies 1687); not
97–104, 111). Tribunal addressed two figure is the best compounded
November 2009 prosecutions, available estimate for
harassment of issues: (a) Date of the Post-award
Yukos, its expropriation is the date what Yukos would have interest:
of the YNG auction (b) been worth on 21
employees and November 2007 but for
related persons Claimants have a right to Shall be due
and entities; choose between date of the expropriation (para. on damages
the expropriation and 1784), taking the RTS Oil and costs after
massive tax and Gas index based on a grace period
reassessments, date of the award in the
VAT charges, event of an illegal prices of trades executed of 180 days, at
expropriation (paras on the Moscow Stock the rate of the
fines, asset Exchange (para. 1788)
freezes, and 1759–69) 'yield on ten-
other measures year US
against Yukos Treasury
to enforce the bonds as of 15
tax January 2015
reassessments; and then the
the forced sale dates of
of Yukos' core compounding
oil production yearly
asset; and other thereafter'
measures (para. 1692),
culminating in compounded
the bankruptcy annually (para.
P 499 of Yukos in 1689)
August 2006, the
subsequent
sales of its
remaining
assets, and
Yukos being
struck off the
register of
companies in
November 2007
(para. 63).
Final Award of 18 Ad (2): Starting points are Costs:

July 2014 'Yukos lost cash flows'
(ie, free cash flows to Respondent,
equity), as calculated by the
claimants' expert based unsuccessful
on historical party, shall
information, as adjusted bear the costs
by the tribunal (paras of the
1793, 1811) arbitration
(para. 1869).
Deduction for contributory
negligence: Respondent
must
'in the exercise of its reimburse
wide discretion' it 'is fair claimants US$
and reasonable' to 60 million as
apportion responsibility part of their
between claimants and costs as 'fair
respondent as 25% and and
75% (para. 1637) reasonable in
the
circumstances',
approximately
75% of the
claimants
grand total of
costs (para.
1887).
38
issue
Khan Resources in the Respondent Claimant: Relevant damages Amount awarded: Interest:
Inc., Netherlands, breached principles are based in
and CAUC obligations US$ 255 million two various sources of law US$ 80,000,000 At the rate of
Khan Resources Holding toward the LIBOR plus 2%,
B.V., and (before interest and —the Mongolian Foreign Valuation: compounded
Company Ltd, claimants under not subject to Investment Law and the
an entity Art. 8.2 of the Tribunal finds that the annually, from
CAUC Holding Mongolian taxation) ECT, as well as 1 July 2009
Company Ltd v incorporated in Foreign (para. 259) true value of Khan's
the British Investment Law investment is reflected until the date
P 500 The Government of payment
of Mongolia Virgin Islands, in relation to by three offers made for
were involved in the mining and the mine or for Khan Reasoning:
a joint venture exploration Canada's shares in and 'reflects a
known as the licenses. around the relevant commercially
Central Asian Through the period (paras 411ff). reasonable
Uranium operation of the borrowing rate
Company Ltd, to umbrella clause, over the
develop a Article 10(1) of relevant
uranium the ECT is period …
exploration and violated (para. consistent
extraction 366) with recent
project in practice
Dornod amongst ICSID
('Dornod tribunals and
Project'). the prevailing
Claimants scholarly view'
obtained (para. 425)
mining and
exploration
licenses.
Following
inspections of
the Dornod site
by the State
Specialized
Inspection
Agency of
Mongolia,
several
violations of
Mongolian law
were reported.
On 10 July 2009,
the mining
licenses were
suspended for a
period of three
months for
Khan's failure
to remedy the
alleged
violations. The
licences were
subsequently
fully
invalidated.
Decision on Violation of Art. Respondent: Mongolian and customary DCF rejected, because it Rejects
Jurisdiction of 25 8.2 of the international law (para. is uncertain: (i) whether claimants'
July 2012 Foreign Claimants could not 368). the mine would actually argument that
Investment Law have brought the have reached they have been
Award on the meant that an Dornod Project into Customary international production; (ii) if it did, forced to take
Merits of 2 March expropriation production (para. law principles set out in on what terms the an involuntary
2015 had occurred 266); should tribunal the Chorzów Factory case parties would have loan from the
and that this determine that apply, as neither the ECT participated in the government
PCA Case No. damages are due, nor Mongolian law set out venture; and (iii) whether
2011–09 expropriation and that the
was illegal. they should be a specific standard of the claimants would still respondent's
UNCITRAL limited to the compensation for illegal have been involved in borrowing rate
Arbitration Rules amount that the expropriation' (para. 369); the Dornod Project at all. of 7.14%
claimants actually 'fair market value' in this should be the
See also: (2015) 2 invested in the case (para. 370). Market comparables appropriate
The Journal of Dornod Project—i.e. rejected, because the
Damages in Respondent also refers to comparables proposed interest rate
US$ 16.7 million (para. 423).
International (para. 267) the Chorzów Factory were companies in
Arbitration, No. standard (para. 369) and different countries, Costs:
2 to the FMV (paras 371, 372). under incomparable
There are no
Disagreement on the most conditions. 'extraordinary
appropriate methodology Share prices (Quoted factors' that
to be used to assess the Market Price—QMP) also would cause
FMV of the claimants' rejected because the the tribunal to
investment (para. 373). market was already depart from
Valuation date: suspicious of Mongolia's the principle
motives (para. 407). 'costs follow
1 July 2009 (as agreed by the event' as
the parties) (para. 410) 'Sunk investment' also contained in
rejected, although this Art. 42 of the
approach can serve as a UNCITRAL
'bottom line' below Rules; all costs
which compensation of arbitration
should not fall (para. to be borne by
409). the
respondent, as
well as a
portion of
claimant's
legal costs
(para. 432), in
total US$
P 500 9,074,143.51
39
Document information Appendix 4. Table of Ad hoc Investment Arbitration
Cases since 2008
Publication Case Investment Violations found Economic loss claimed & Standard of Amount decided Interest & costs
Calculation of affected & valuation by respondent compensation/reparation & valuation
Compensation and Measures at method
Damages in International issue
Edition) National Grid Legislative 1) FET standard Claimant: Art. 5 of the BIT provides Amount awarded: Interest:
P.L.C. v measures because only guidance for
Argentine ('pesification') respondent US$ 112,400,000 (para. 265) expropriation, but the BIT US$ 53,592,439.25 Pre-award: LIBOR
Republic by Argentina (a) does not provide plus 2% (average
Loss in share value = US$ 38.8 interest rate
Bibliographic UNCITRAL
through its
'Emergency Law'
fundamentally
changed the
consisting of guidance regarding
compensation standards
million which claimant
reference Award of 3 of 6 January 2002
and
legal
framework on
1) US$ 59,069,583 as for other kinds of
the loss of value of violations; the tribunal
+ US$ would have paid
14,792,439.25 pre- to borrow).
'Appendix 4. Table of Ad November Average 6-month
2008 accompanying the basis of its investment as of needs to revert to CIL, i.e. award interest
hoc Investment Arbitration measures, which 1 January 2002, to ILC Articles, Art. 31(1): dollar LIBOR rate
Cases since 2008', in Applicable namely the Valuation method: from 2002 has
causing losses claimant had 'full reparation for the
Irmgard Marboe , law: to the claimant made the difference of the injury' and the Chorzów Comparable been 3.15%,
as shareholder investment, FMV with and standard (paras 269–70) adding 2% to
Calculation of Argentina–UK of a company transactions
Compensation and BIT (b) no without the method, but also that base rate,
measures, applying Compensation should the operative
Damages in International (1990/1993), incorporated
Argentina,
in meaningful
negotiations the DCF method reflect the 'loss of value of looking at DCF. rate to the date
Investment Law (Second International Companía took place for (para. 263) the Claimant's shares' in Loss of FMV of an of the award
Edition), Oxford Law, Transener as a result of operating shall be 5.15%
Argentine Law Inversora en two years, and 2) US$ 22,321,139 for the respondent's business entity, compounded
International Arbitration Transmisión (c) respondent the opportunity measures and other semi-annually,
Eléctrica S.A. required that 'there is
Series, (© Irmgard Marboe cost of equity lost actions (para. 274)
considerable resulting in US$
2017; Oxford University (Citelec), which Transener between 1 January
held shares of renounce to 2002 and 18 August Measures were taken at a merit' using the 14,792,439.25
Press 2017) pp. 501 - 516 the Argentine the legal 2004, when time of economic crisis, DCF method Post-award:
electric power remedies it claimant sold its tribunal must assess the (para. 275). Average rate
company may have as a ownership interest; effect of such crisis, Projection of payable on six-
Transener. condition to based on the rate irrespective of the future cash flows month US
renegotiate of 12.94%, which measures (para. 274) is less Treasury bills,
the was Transener's speculative in compounded
Consession approved return Valuation date present case, as semi-annually.
(para. 179) on equity 25 June 2002 (1) in the 1998
2) Protection pre-crisis five- Costs:
3) US$ 31,009,278 for
and constant the lack of use of Breach of FET standard year tariff review, Respondent and
security to the the money owed to did not occur at the time the rate claimant shall be
investment claimant from 18 the measures were taken structures were responsible for
because the August 2004 to the on 6 January 2002, but approved by 75% and 25%
changes date of payment; when the respondent ENRE, and (2) the respectively, of
introduced in based on required that companies tariffs had the fees and
the claimant's such as the claimant already been expenses. Each
Regulatory historical return renounce to the legal agreed to, and party shall bear
Framework by on equity, which as remedies they may have the power was its own costs and
P 503 the Measure, 10.9% (para. 265) recourse as a condition to not sold in the counsel fees.
which re-negotiate the private
effectively concession (para. 180). commercial
dismantled it, market, but to an
and the agency of the
uncertainty Argentine
reigning Government
during the (para. 277).
two years
preceding the
sale of its
shares; does
not find that
this
protection is
inherently
limited to
protection
and security
of physical
assets (para.
190)
Respondent: Yet, 'it is wise,
apart from
Compensation should be Claimant's DCF
limited to the proceeds of analysis, to have
sale of the claimant's access to other
shares; claimant data or
negligently overpaid in approaches'
purchasing its interest in (para. 285)
Transener and disposed
of its interest in an → The price
unnecessarily hurried offered by Eton
fashion, thereby incurring Park for the
self-inflicted financial shares of
injury (para. 266) Petrobras
Energía as a
point of
reference for the
value of
claimant's
investment;
based on this
price, the value
would have been
US$ 52.9 million
(para. 288)—
minus the
proceeds of sale
of the shares to
Dolphin, US$ 14
million (para.
290); tribunal's
awareness of
'mixing
approaches'
reflected in fn.
115
40
Case Investment Violations found Economic loss claimed & Standard of Amount decided Interest & costs
affected & valuation by respondent compensation/reparation & valuation
Measures at method
issue
Walter Bau AG Claimant Walter FET standard Claimant: Relevant are the Amount awarded: Interest:
v The Kingdom Bau AG (in through a series of legitimate expectations of
of Thailand liquidation), a cumulative acts and Financial losses due to the claimant at the time €29.21 million at the 6-month
company in omission, which respondent's refusal to of signing MoA2 in 1996 successive
UNCITRAL allow an increase in tolls, Tribunal rejected EURIBOR rate
corporated in taken together (para. 13.10). methods
the reduction of tolls in plus 2% for each
Award of 1 July Germany, acting constitute a breach
2004, the shutdown of the Valuation date: presented by the year, beginning
2009 through its of FET obligations parties, because
insolvency (para. 12.43) Don Muang Airport. on 3 December
The BIT entered into force claim is based on 2006 until
Applicable administrator on 20 October 2004. far more than
law: Werner payment,
'inherently compounded
Germany– Schneider, was speculative
shareholder in a semi-annually
P 504 Thailand BIT elements': (para. 16.1)
joint venture
(2002/2004) company Don
Muang Tollway
Co. Limited
(DMT). DMT
became
concessionaire
under a
Concession
Agreement for
construction of
a toll road for 25
years, signed on
21 August 1989
(para. 2.35).
Concession Breach of FET Valuation: Damages should start to The IRRE would Interest on
Agreement was obligations by: be calculated from that automatically award on costs
amended several Internal rate of Return on date (para. 13.2). assume that at the same rate
times; most (a) Lengthy Equity (IRRE), a intermediate from the date of
relevant is refusal to calculation of lost Thus, the tribunal's task is each flows are the award (para.
Amendment raise tolls as returns, on the basis that to determine damages reinvested, not 16.2)
MoA2 in required by claimant would have suffered by claimant from at a market rate
November 1996 the MoA2; earned the expected IRRE the entry into force of the but at the IREE, Dies a quo:
(para. 4.26). (b) Changes to on its investment but for BIT (para. 14.1) which leads to
the acts and omissions of 3 December 2006
Respondent the road The best way to assess over- and (date of sale of
decided to network which the respondent. damages: sometimes shares by
reduce tolls went well Discount rate: WACC (para. understatements claimant)
charged to beyond what 14.34) (a) Estimate fair value (para. 14.7)
drivers, made can be of the claimant's Costs:
changes in the considered as Respondent (para. 14.4) shares on 3 →DCF method
'traffic Amount Invested December 2006 (= most Claimant shall
road network pay half the
and temporarily management'; Approach (return of sums the sales date of appropriate in
closed the Don invested plus pre-award those shares); said the present case respondent's
(c) Short-term costs and
Muang Airport. total closure interest) (para. 14.4), value, computed in (para. 14.21)
THB, should be respondent shall
of Don Muang because 'calculation of → The investor pay half the
Airport (para. lost profits is highly converted into might have
Euros at the claimant's costs
12.44) uncertain or speculative'; expected to hold (para. 15.6)
exchange rate in the present
quotes several awards effect on that date value ('PV') of
where this approach was Respondent
(= but-for value) remaining cash must pay to the
applied because projects
had not started or (b) Subtract the flows (the price claimant for
operated only for a short proceeds of sale on received if it costs € 1,806,560
P 505 period and remained of a 3 December 2006 were to sell its (para. 15.8)
very speculative nature (c) Add dividends interest), plus
(Metalclad, PSEG, Tecmed, which would have the compounded
MTD, Siemens, Wena been received in value (at the cost
Hotels, SPP) (paras 14.13ff) 2005 and 2006 had of equity) of
MoA2 been applied, dividends
compounded to 3 already received
December and then (para. 14.22)
converted into
Euros (para. 14.28)
Discount rate: Cost of Cashflows:
Equity (CoE) (para. 14.34)
'but-for
dividends
should be based
on the forecast
of revenues and
costs made at
the time of
signing of MoA2'
(para. 14.30),
projected on
traffic, tolls, and
financing
Discount rate:
CoE, not WACC, of
14.13 (paras 14.35,
14.41)
41
Measures at method
issue
Rosinvestco Claimant, an Unlawful Claimant: Tribunals followed Amount awarded: Interest:
UK Ltd v Theinvestment expropriation claimant's claim to apply
Russian company violating Art. 5 BIT by US$ 276.1 million CIL and the Chorzów US$ 3.5 million LIBOR rate until
Federation incorporated a series of measures standard (paras 637, 663). full payment
= the value of claimant's Claimant made a
under English from 19 December shareholding 'speculative in accordance
Stockholm law and based in 2004 to 5 August 2007 But followed
Chamber of respondent's argument investment' in with Art 5 (1) BIT
London, (para. 633) or US$ 220.4 million Yukos shares at a 'normal
Commerce purchased a that claimant had no
(SCC) In particular, the = value that investment legitimate expectation of (para. 668). commercial rate',
total of 7 million thus LIBOR
shares of Yukos auction of YNG in would have had absent a return of the quantum it Tribunal found
Award of 12 which respondent's unlawful sought; at the time of without any
September Oil Company respondent's addition (para.
then traded on Baikalfinansgroup, a expropriation (para. 45(a)) claimant's investment in submission
2010 completely unknown 2004, as the market was 686);
the Moscow According to claimant's regarding
SCC Case No. stock exchange company, which was expert: Conservatively fully informed of compensation Dies a quo:
Arb.V079/2005 on 17 November just created before valued at US$ 183.2 respondent's likely action more persuasive.
and 1 December the auction and in respect of Yukos from The 'but for' 24 March 2007
Applicable disappearing right million (para. 639) July 2004; it could not
2004. Claimant approach used (i.e. date of the
law: after the auction and Claimant alleged that the accept claimant's alleged by claimant's
specializes in termination of
assigning its investor may be optimistic expectations expert did not
UK–Soviet BIT purchasing interests to Russian the Participation
(1989/1991), shares at presumed to understand regarding the future sufficiently take Agreements, plus
moments of state-owned the market risks, when it development of the value into account the 2 months' grace
market distress, Roseneft, was rigged makes the investment. of the investment (paras nature of period provided
judging that the (para. 620). But when an investment 664ff) claimant's in Art. 5 (1) BIT)
P 506 market has becomes worthless, not investment and
overreacted and because of market that claimant
undervalued a movements, but because made a
company's of unlawful government speculative
assets. actions, an investor does investment
not lose its rights under (para. 669).
treaties, such as the UK–
Soviet BIT. Yukos would
have appreciated, but for
the unlawful events of
respondent (paras 6, 93).
Denmark– Some of these Valuation date: Respondent had Any award of No

Russia BIT investments submitted that the damages that compounding,
(1993/1996) turn out to be Date of the award company, which owned rewards the taking into
profitable, and Respondent: and controlled claimant, speculation by account nature
(p. 106, para. some do not. was a notorious US-based claimant with an of the
137) MFN Asked to dismiss 'vulture fund' and an amount based investment and
clause On 19 December claimant's claims on the archetype of pre-cash on an ex-post that arbitration
applied to 2004, the RF merits in their entirety, in Wall Street 'anything analysis would practice is not
establish sized and the alternative declaring goes' capitalism (para. 5). be unjust (para. unanimous
jurisdiction auctioned that claimant is not 670). (paras 688ff)
Yuganskneftegaz entitled to any damages Valuation date:
(YNG), the (para. 50). Participation Claimant had
largest 24 January 2007, the date Agreements had requested LIBOR
production of the termination of the the effect to plus 4%,
facility of Yukos Participation Agreements transfer any risks compounded
on the basis of (Participation Agreements regarding the semi-annually
tax assessments were internal agreements investment to
it had levied on between claimant and its the parent Respondent:
Yukos. Yukos parent company, which company. The One-year LIBOR
shares lost all of transferred some risk was taken or EURIBOR
their value, and economic interest in the over by claimant uncompounded.
Yukos was Yukos shares to the latter, only at the time
but claimant remained Costs:
ultimately the Participation
cancelled from the formal and legal Agreements were Each party bears
the company owner of Yukos shares, terminated its own. Costs of
registry. para. 341). (para. 672). legal
representation
Therefore, the (Art. 41 SCC
calculation of Arbitration
damages should Rules),
be applied as arbitration costs
from 24 January (Art. 39) shall be
2007, i.e. the borne in equal
value of Yukos shares between
shares at that claimant and
P 507 date (para. 674). respondent.
42
Measures at method
issue
Chevron Claimants were Violation of Art. II(7) Claimants: Tribunal applies the Amount awarded: Interest:
Corporation entitled to BIT, requiring that Chorzów standard, which
(USA) and explore oil each party 'shall US$ 649,786,333, including both sides agree to be the US$ 77,739,696.94 Pre-award:
Texaco reserves in provide effective compound interest up to controlling authority; the compound
31 December 2010. Partial Award: interest at the
Petroleum Ecuador under a means of asserting tribunal's 'but for'
Company series of claims and enforcing analysis must undo not US$ New York prime
Direct Damages (US$
(USA) v The agreements with rights with respect to 354,558,145) only the damages that 698,621,904.84 = rate until date of
Republic of the Ecuadorian investment, have arisen but must also the amount award, totalling
Ecuador Government investment + Ecuadorian Interest restore the liabilities that Ecuadorian US$ 18,615,672.23
since 1964. They agreements, and were avoided but for the judgments in at the date of the
UNCITRAL (US$ 344,063,760) favour of TexPet award
permitted investment wrong (para. 308 FA).
Partial Award TexPet to authorizations'. - 25% tax should have rate contained in
Tribunal must assess the been rendered
on the Merits explore and Such a breach was effect of Ecuadorian taxes 1973 Agreement
of 30 March exploit oil = US$ 523,966,429 on 21 December for late
reserves in completed by reason as part of the situation 2006, before
2010 of undue delay at the + Pre-award interest until that would have payments
Ecuador's 13 December 2010 (para. considering the
Final Award of Amazon region, date of the Notice of prevailed, if the unlawful effect of Dies a quo:
31 August 2011 but required it Arbitration in 2006. 338 FA) act had not been applicable taxes
to provide a The cases had been Claimant submits that committed (para. 309 FA). on principle and 22 December
PCA Case No. percentage of its pending for 13 to 15 25% 'general income tax' Total damages: interest (para. 2006 (one day
34877 years (para. 270 PA). 550 PA) after the Notice
crude oil to the should be applied to of Arbitration)
Applicable government to According to the both direct damages and Direct damages
help meet Ecuadorian interest (para. (='Contract value') This was
law: tribunal, this achieved by Post-award:
Ecuadorian constitutes a lex 317 FA) + interest at New York adding the compound
Ecuador–USA domestic
BIT consumption
specialis with greater Respondent submits that prime rate (as contained 'Contract Value' interest at the
(1993/1997)
specificity than the the 87.31% Unified Tax in the 1973 Agreement) (US$ 354,558,145) New York prime
needs. The customary law and the amount rate (annual)
remainder of the Rate continued to be
oil could be
standard of denial of applicable despite several • taxes (para. 312 FA) of interest at the from the date of
justice; as there is no tax reforms (para. 323 FA) Taxes are different: New York prime award until
P 508 exported at evidence that rate under the payment
prevailing additional damages 1) On 'Contract Value': 1973 Agreement
international have been caused by 87.31% Unified Tax (–344,063,759.84)
market prices other breaches of Rate which (para. 312 FA).
which were the continued to be
substantially applicable despite Final amount:
higher than several tax reforms 'Contract Value'–
domestic prices (para. 327 FA)
(para. 128 PA). tax = –
Between 2) On interest: 25% 44,993,428.60
December 1991 general income tax
and December rate (para. 336 FA) + Interest – tax =
1993, TexPet US$ 32,746,268.34
filed several (para. 337 FA)
breach of Double recovery
contract cases avoided by
against the claimants'
Ecuadorian express
undertaking to
prevent such an
outcome, to the
extent they are
successful before
national courts
(para. 557 PA).
Government BIT or of CIL, those Valuation date:

before national claims need no
courts, because longer be decided BIT violation was
respondent had (para. 275 PA). completed by 21
misstated December 2006, at the
domestic needs After the Notice of date of the Notice of
and Arbitration, Arbitration (para. 313 FA).
consumption Ecuadorian courts
and thereby had rendered
appropriated judgements. Yet,
more oil than it theses could only
was entitled to affect questions of
at the domestic causation and
market price damages that follow
(para. 135 PA). from that breach
Political turmoil (para. 273 PA).
shook Ecuador
affecting also
the judiciary.
Claimants'
pending cases
had not been
decided when
they sent a
Notice of
Arbitration in
December 2006.
43
Measures at method
issue
White White Industries Obligation to Claimant: With regard to quantum, Amount awarded: Interest:
Industries Australia Limited provide 'effective tribunal addressed two
Australia (White means of asserting AUD 4,085,180 payable questions: AUD 4,085,180 simple interest
Limited v The Industries), claims and enforcing under the ICC Award; payable under at 8% per annum
Republic of headquartered rights', Art. 4(2) of the (a) Was the ICC award the ICC Award until payment, as
+ AUD 4,033,397.07, being enforceable under decided in the
India in Sydney, BIT and Art. 4(5) of interest at the rate of 8% + Interest at the
Australia, had the India-Kuwait BIT; the laws of India? ICC Award
UNCITRAL as set out in the ICC rate of 8% from
entered into a
'effective means' Award, from 24 March 1998 (b) What 24 March 1998 Dies a quo:
Award of 30 contract with to 27 July 2010, on the ICC compensation until payment
Coal India standard required to restore 24 March 1998%,
November incorporated by the award, and continuing at
2011 Limited (Coal a rate of AUD 895.38 per White to the + AUD 84,000 as set out in the
India) most-favoured- position it would payable under ICC Award
P 509 nation (MFN) day from 27 July 2010
Applicable concerning the have enjoyed had the ICC Award
law: development of provision of the BIT India's breach of
a coal mine in the BIT not
Australia– Piparwar, India. occurred? (para.
India BIT 14.1.1)
(1999/2000) After an ICC
arbitration
award on 27 May
2002 in White's
favour, White
attempted to
enforce the
award in the
Indian courts.
However, Coal
India attempted
to have the ICC
Award set aside
on various
grounds and
delayed
enforcement for
more than 9
years.
Tribunal concluded + US$ 84,000 payable Conclusions: (for the fees and Costs:
that the nine years of under the ICC Award for expenses
the set aside the fees and expenses of (a) ICC award was Respondent to
application, and the the arbitrators (converted enforceable under of the bear 86.249.82
Supreme's Court to AUD 150,892) the laws of India Arbitrators) AUD for
inability to hear (para. 14.2.66) claimant's
+ AUD 500,000 payable + AUD 500,000 witness fees and
White's (b) White is entitled to payable under
jurisdictional appeal under the ICC Award (for be restored to the expenses,
White's costs in the the Award (for together with 8%
for over five years position it would White's costs in
amounted to undue arbitration); have enjoyed had interest from the
the date of award.
delay and a breach of + The costs incurred by the breach of the
India's BIV White in pursuing the BIT not occurred ICC arbitration) Costs of the
obligations (para. Indian court proceedings, (see Chorzów arbitration
11.4). Factory case) (para. No award for
settlement negotiations costs incurred otherwise borne
and this arbitration (such 14.3.3) equally between
for litigation
costs to be assessed) Referring to before Indian the parties.
Saipem v courts.
+ Interest on respective Bangladesh (para. Claimant had
amounts (para. 4.7.2) 12.3.3) submitted that
respondent
ought to bear
the costs and
expenses of
claimant's
witnesses (para.
15.1.2)
Mobil Cerro Claimant had 'Discriminatory Claimants: Valuation standard Amount awarded: Interest:
Negro Ltd v entered into a Measures' occurred contained in Art. 15 AA
Petroleos de joint venture and caused a The cumulative damages 1997: US$ 746,937,958 Post-award
Venezuela SA, with PDVSA Cerro 'Materially Adverse exceed US$ 10 billion, compound
before any discounting to On the scope of total of US$ interest at the
PDVSA Cerro Negro Impact' as defined in 907,581,000
Negro SA (respondent No. Clause XV of the AA present value (under the arbitration, Art. 15.1(b): New York prime
2) to exploit oil 1997. contractual formula). (US$ 12,681,000 rate (annual) on
ICC 'an award for damages to
resources in the Material losses caused by: compensate the Foreign for 2007 and US$ the principal
Cerro Negro area Respondent No. 2 894,900,000 for amount
Award of 23 (PDVSA-CN) is liable
December in the Orinoco the period from from the date of
Oil Basin. for the economic 2008–35) minus award until
2011 consequences of
P 510 Financial US$ 96,073,622 payment
ICC Arbitration incentives and Discriminatory and US$
Case No. protections were Measures according 64,569,420 as
15416/JRF/CA included in an to Clause XV. counterclaim by
Association respondents
Applicable Agreement of (para. 865)
law: 1997 (AA 1997),
Contractual which was
claim (not approved by the
claim for Venezuelan
expropriation Congress. The
under contractual
international protections
law) provided to
indemnify
claimant for 'any
expropriation or
seizure' and for
other
'Discriminatory
Measures'
imposed by the
Government that
caused a
'Materially
Adverse Impact'
on claimant's
cash flow. In
addition,
respondent No.
1 guaranteed the
performance of
the AA 1997 by a
Guaranty of 28
October 1997.
44
Measures at method
issue
After a change in Respondent No. 1 (1) direct Party for the economic Valuation: Dies a quo:
government, (PDVSA) is liable for expropriation of consequences of the
the economic Discriminatory Measure Reference As this was not
Venezuela tried Mobil-CN's (Threshold) Cash an expropriation
to regain control consequences of the interests in Joint suffered by it to date and
same Discriminatory recommendations on Flow less the claim and not a
over the oil Venture Adjusted Net breach of the AA
exploitation Measures due to the amendments to the
Guaranty of 28 (2) measures that Agreement that would Cash Flow at US$ 1997, the issue of
project October 1997 in preceded restore the economic 12,681,000. pre-award
gradually from expropriation, interest is
2004. Ultimately, favour of the above benefit that the Foreign NPV of the
Association including Party would have received treated
it seized the Threshold Cash contractually;
project's assets Agreement. (i) repudiation had the Discriminatory Flow for 2008–35
Measure not occurred' respondents did
without But no breach of AA of Royalty as of 25 not know how
compensation in Reduction (para. 657) September 2007
1997 (para. 796) much to pay
2007. Agreement Limitation of amounts to US$ under AA till
and respondents' obligation 894.9 million, issuance of
imposition contained in Art. 15.2(a) accepting data award, so only
of extraction (para. 657) and historical post-award
tax, results as interest awarded
(ii) refusal to Detailed calculation presented by (para. 854)
allow method to be applied claimants, but
expansion contained in Annex G to applying a 18% Costs:
of Project as the AA 1997, in Arts 7.1 to discount rate
Claimants
previously 7.5 (paras 659ff) (paras 770–8)
prevailed with
agreed, In accordance with Art. 7.4, Reference their claim, but
(iii) increases in this means to determine (Threshold) Cash failed in
income whether there was a 5% Flow formula, substantial part
taxes on difference between the according to Art. of the quantum;
Orinoco Oil But-For Cash Flow (the Net 7.3 of Annex G each party could
Belt Cash Flow absent the (para. 666): not quantify
participants, Discriminatory Measures) their claims
TR-TROY-CEX-TIT, before these
(iv) curtailment and the Net Cash Flow. whereby:
of The '5% hurdle' has been were decided by
production met in the calculation of TR = total liftings this award (para.
and exports both parties (para 662). multiplied by the 884)
from the Base Price, plus Costs of
Cerro Negro Joint Revenues procedure
Joint TROY = Royalties should be
Venture. CEX = Chargeable shared equally
Expenditures and each party
shall bear its
TIT = Income own costs (para.
Taxes 886)
Taxes:
Tribunal ordered
respondents
P 511 (para. 896)
(i) To pay the
aggregate
amount of
taxes that
the
tribunal
deducted
when
applying
the DCF
formula
after tax
on behalf
of Mobile
CN
(ii) To pay on
behalf of
Mobil CN
any
additional
tax
liability
(iii) Generally
to hold
Mobile CN
harmless
from any
such tax
liabilities
45
Measures at method
issue
Quasar de The claimants, Expropriation, Claimants: Art. 6 BIT on lawful Amount awarded: Interest:
Valores SICAV Spanish because the Russian expropriation is
S.A, Orgor de investment Federation's real US$ 2,625,810 plus interest applicable (para. 215), Various 6.434%
Valores SICAV funds and stock goal was to (para. 187) amounts, compounded
S.A., GBI 9000companies, expropriate Yukos, 'value' of expropriated amounting to a annually
Claimants argued that the assets needed to be total of US$ 2 (Russian
SICAV S.A. v claimed that and not to value was equivalent to
The Russian their legitimately collect assessed. million, to sovereign
the price of the shares of different medium-term
Federation investments in taxes (para. 177). Yukos as traded on the Claimants had conceded
Yukos American claimants (para. dealt in US
SCC Tribunal had only stock market; Yukos had a that they could not, under 227) Dollars had a
Depository value of US$ 83 billion, the terms of the BIT, seek
Receipts were jurisdiction on yield of 6.434%),
Award on calculation of claimants had 73.000 compensation for Valuation: as claimed by
Preliminary expropriated as shares, out of some 2.2 unlawful expropriation
compensation for Stock prices claimant and not
Objections of a result of 'lawful' billion outstanding (para. 188). contested by
20 March 2009 measures taken shares (para. 187) taken as the
by the Russian expropriation; The tribunal accepted in most respondent
Award of 20 government disregards therefore Valuation date: principle the claimants' appropriate (para. 226).
July 2012 against the the lawfulness or not approach compensation reference, as one
of the expropriation 23 November 2007, the Dies a quo:
Russian oil be 'consonant with the can agree that
SCC No. (paras 178, 186, 215) 'time of the taking', when customary international 'the value of a 23 November
24/2007 company Yukos.
They allege that Indirect law standard for recovery portfolio 2007
Applicable the respondent expropriation can be in the event of lawful investment is (expurgation of
law: unlawfully the result of a expropriation and Article simply given by Yukos from
dispossessed pattern of conduct 6 of the BIT (para. 188) the market' Russian United
Spain–Russia Yukos of its (para 45). should be represented by (para. 206) Register of
BIT assets and 'their proportionate share Companies) until
P 512 (1990/1991) expropriated its Expropriation may of Yukos' market value'. Tribunal payment— as
shareholders by result from a series compared the claimed by
of actions which Difficult choice of the share prices of claimant and not
a variety of valuation date (see also Yukos at a
abuses of taken individually contested by
executive and may not amount to Rosinvest). variety of dates, respondent
such. starting from (para. 226)
judicial power December (US$
(para. 3 APO). 10.80), when
claimants made
their first
purchase to
November 2007
(US$ 27.76).
Yukos was removed from Valuation date: Tribunal Costs:

the Unified Register of conceded that
Companies in the wake of Tribunal chose 19 the downward Claimants shall
the end of the bankruptcy December 2003 as the adjustment bear € 837,655
proceedings (para. 189). reference date (when the might lack and respondents
claimants made their first precision, but € 139,874.
Respondent: purchase of Yukos stock) adequately
(para. 216). Claimants
Questions 23 November compensated broadly
2007 as relevant date, as claimants for prevailed, but
this was several years their the usual
after most of the investments and arguments in
expropriatory events of avoided allocating costs
which claimants complain awarding a were not
(para. 190). windfall (para. applied, because
217). the case was
financed by a
third party,
Menatep (para.
222).
Phillips Claimants had Claimants sought Claimants: PDVSA is liable for any US$ 38,500,000 Interest:
Petroleum invested in relief for the damage or loss resulting
Company extra-heavy oil economic harm US$ 62,280,000 lost from Maraven's failure to representing the 10.55%
Venezuela projects in the caused by the OPEC income caused by PDVSA's comply with the 'nominal value of representing the
Limited Orinoco Belt, the curtailments failure to comply with its obligations under the losses' as cost of equity as
(Bermuda) and Petrozuata imposed on the obligation under the Petrozuata Side Letter, in determined by claimed by
ConocoPhillips Project and the Petrozuata and the PDSVA Guaranty, causing particular to absorb the the claimant's claimants,
Petrozuata Hamaca Project, Hamaca Projects substantially less income relevant production expert (para. 288) compounded
P 513 B.V. (The via association between November than they were entitled to curtailments (para. 282). plus pre-award annually;
Netherlands) v agreements. In 2006 and May 2007. under the terms of the interest,
Petroleos de 2006, at an OPEC Side Letter and the updated as of 15
Venezuela, S.A. Conference, The tribunal decided Guaranty, including September 2012
(Venezuela) that the second compound interest until amounts to: US$
claimant 31 December 2011 66,876,773.81
46
Measures at method
issue
ICC Venezuela (ConocoPhillips) was Valuation: As regards Respondent:
announced that protected by the calculation of
Award of 17 it would reduce Petrozuata Side Size of oil production pre-award LIBOR rate, as
September voluntarily its Letter and a reductions and the interest: contained in the
2012 total oil Guaranty so that differential export Petrozuata
production PDVSA was liable for volumes that would have 'the purpose of Association
ICC No. been sold in the absence such rates with Agreement (para.
16848/JRF/CA level. Further damage caused to
curtailments ConocoPhillips of OPEC mandates, then regard to 293)
Applicable were decided at (para. 235). valued such volumes from compensation of
November 2006 to May damages for Aggregated
law: subsequent updated amount
OPEC meetings. In contrast, PDVSA 2007 by looking at the contractual
Laws of the was not liable to the average monthly prices at breaches is of US$ 62,280,000
Republic of The curtailments as of 31
remained in first claimant which the curtailed generally to
Venezuela (Phillips Petroleum) volumes could have been ensure full December 2011,
(Hamaca place between further updated
October 2006 for any such damage sold in the market place, reparation of a
Project) and under the Hamaca updated to 31 July 2011 claimant by at 15 September
Laws of the and April 2007. In 2012 to US$
February 2007, Guaranty (para. 265). ('actualized nominal lost restoring it to
Republic of profits') by applying the the position it 66,876,773.81
Venezuela Venezuela
promulgated a corresponding project's would have Post-award
and generally 'Nationalization cost of equity, using the enjoyed if the interest:
accepted CAPM (10.55% for the contractual
principles of Decree' 10.55%,
requiring all Petrozuata Project) (para breach he
international associations to 272) suffered had not compounded
law to the migrate to occurred' (para quarterly, until
extent that Respondent: 295) payment
such 'mixed
companies' with No entitlement to Costs:
principles do a state entity compensation for
not owning at least damages as a result of the Arbitration costs
contradict 60% of the curtailments (para 280). shall be equally
the law of the shares. Failing borne by each
Republic of an agreement on side on a 50/50
Venezuela the terms of basis. Each party
(Petrozuata transition, the bears its own
P 514 Project) Petrozuata and legal costs.
Hamaca projects
passed under
the operational
and legal
control of PDVSA
in May/June
2007.
Italia Ukraina Italia Ukraina Breach of Gas Supply Claimant: Contractual clause on US$ 12.7 million Interest:
Gas S.p.A. v Gas S.p.A (IUGAS), Agreement by contract penalties contract
Naftogaz an Italian Naftogaz in the wake US$ 186 million for penalties Swedish official
company, of Russia's contract penalties reference rate
SCC involved in curtailment of The tribunal plus 8% per
IUGAS argued that penalty rejected IUGAS annum
Separate trading and natural gas should be calculated on
transporting shipments from approaches →
Award of 19 the basis of the market Penalty was to ('in accordance
October 2010 natural gas, in Central Asia to value of the gas at or in be calculated on with IUGAS'
Award of 19 2003, entered Ukraine. vicinity of the delivery method of
into a Gas the basis of the
December point → IUGAS requested Contract price calculation')
2012 Supply the tribunal to order
Agreement with (and not on Costs:
Naftogaz to pay basis of
SCC Naftogaz contractually agreed substitution Each party shall
Arbitration V (Ukraine's
national oil
penalties in the amount costs or a bear its counsel
007/2008 of US$ 168 million plus renegotiated fees and the
company). After interest, plus capitalized
the curtailment price). parties shall
See also: interest in the amount of equally share
Quantum of natural gas US$ 18 million. + Interests to be arbitration costs.
P 515 Quarterly 2Q shipment from In the alternative:
paid 'in
2013, Issue 05, Central Asia to accordance with
3-5. Ukraine by Contractual penalties in IUGAS' method of
Russia, Naftogaz the amount of US$ 204 calculation)
agreed to million plus interest plus
receive supplies capitalized interest in the
only from amount of US$ 20 million
Gazprom's (based on an estimated
subsidiary Contract price)
RosUksEnergo
(prohibited to
resale gas).
Naftogaz ceased
to supply IUGAS.
The Separate
Award of 2010
condemned
Naftogaz to pay
contractual
penalties to
IUGAS, but
rejected IUGA's
claims for
damages for
breach of the
Contract.
47
Measures at method
issue
Mohamed In 2006, claimant Breach of contract Claimant: Tribunal referred to Amount awarded: Interest:
Abdulmohsen had obtained (Art. 5 of contract)— Libyan Civil Code, Libyan
Al-Kharafi & approval and a US$ 5,030,000 in
breach of obligation Supreme Court, UNIDROIT US$ 935 million 4% interest rate
Sons Co. v licence to compensation of the
to hand over plot of Principles of on all amounts
value of losses and including US$ 30 from date of
Libya and establish a land; International Commercial million
others major touristic expenses incurred by the Contracts (2010 edn), issuance of the
Breach of Libyan Civil office of the plaintiff compensation arbitral award
investment international arbitration for moral
Arab project in Code—in particular, company starting the jurisprudence, in until payment.
Investment breach of obligation date of its inauguration damages (pp.
Shabiyat Tajura particular jurisprudence 368f), US$ 5 Costs:
Court to perform the
in Tripoli. The in Libya pursuant to of ICC (Case No. 10422,
contract in good Decision No. million in value
Award of 22 project would where lost profits were of losses and Attorney's fees to
have included faith; calculated on the basis of be borne by each
March 2013 (135) of 2006 until the expenses (pp.
hotel Breach of Libyan date of its closure net margin). 367f), and US$ party, costs for
Applicable accommodation,investment law— 900 million in arbitration costs
law: villas and a + US$ 1,089,000,000 It estimated and expenses to
Decision 203/2010 compensation taking into compensation
shopping mall.was an arbitrary for lost profits be borne by
The Unified in compensation of lost consideration all the Respondent US$
decision similar to resulting from
P 516 Agreement By 2010, the
freezing and
profits after due aspects of the material
real and certain 1,940,000.
for the claimant had consideration of the and moral damages, as
Investment of not received the confiscation; operation and well as of the lost profits. lost
Arab Capital land necessary Breach of Unified management of the opportunities.
in the Arab for the project for ninety years In order to interpret 'lost
Agreement for the profits', the tribunal As regards lost
States (the realization of Investment of Arab
UA) the project, + US$ 50 million in referred to doctrine and profit, the
Capital in the Arab jurisprudence in Libyan tribunal reduced
(1980/1981) although States through compensation of moral the period of
significant arbitrary damages to the investment of 90
money spent in cancellation of the company's reputation in years as
preparation of investment project the financial and indicated in the
it. By Decision based on decision of business market inside Prime Global
203/2010, the Minister of Economy Kuwait Report to 83
Minister of (United Agreement years (p. 377). In
Economy and internationally
integral part of order to
cancelled the Libyan law and (pp. 53f of award) calculate the
investment prevails over other amount, the
licences and laws). tribunal adopted
annulled the an average of the
approval of the amounts
project. indicated in the
four reports (US$
2,092 394,150), p.
379, and then
reduced the
amount to US$
900 million.
Claims brought Claimant presented four law (p. 372), concluding

against State of reports to support his that the law required the
Libya, Libyan claim for compensation: compensation of the
Ministry of damage caused by the
Economy, • Ernst&Young loss of a certain and real
General Report opportunity and damage
Authority for • Prime Global that certainly occurred or
Investment Report which occurrence in the
Promotion and • Report of the future is certain (p. 374).
P 516 Privatization Libyan expert
Affairs, Libyan Ahmad Ghatour
Ministry of and Assoc.
Finance & Libyan
Investment • Report of sworn
Authority. expert Habib Al-
Masri
48
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Document information General Editor's Preface

COURT OF JUSTICE OF THE EUROPEAN UNION

INTER-AMERICAN COURT OF HUMAN RIGHTS

INTERNATIONAL COURT OF JUSTICE, PERMANENT COURT OF INT ERNATIONAL

INTERNATIONAL TRIBUNAL FOR THE LAW OF THE SEA

IRAN–UNITED STATES CLAIMS TRIBUNAL

OTHER INTERNATIONAL ARBITRAL TRIBUNALS OR CLAIMS COMMISSIONS

United States of America

Treaties and Conventions

Document information 1. Introduction

B. The Functions in Detail

(1) The Function of Compensation upon Expropriation under International Law

the price, expressed in terms of cash equivalents, at which property would

(2) The Function of Damages

C. Consequences for the Calculation

(1) Objective–abstract Valuation

(2) Subjective–concrete Valuation

(3) Selection of a Valuation Method

(1) The Standard of Compensation

(1) No Party may directly or indirectly nationalize or expropriate an

(2) The Role of Compensation for the Lawfulness of the Expropriation

(3) Can Indirect Expropriations ever be Lawful?

[I]t is difficult to envision a de facto or 'creeping' expropriation ever being

(4) Violation of Stabilization Clauses

(5) The Difference between Lawful and Unlawful Expropriations

(c) Compensation versus Reparation

B. Reparation and Damages

(1) Violations of International Law

(2) Breaches of Contract

(3) Simultaneous Violation of International and Contractual Obligations

(4) Reasons for Reducing the Amount of Damages

C. The Valuation Date

(1) The Valuation Date in Expropriation Cases

In the present case the compensation to be awarded to the applicants is not

(2) The Valuation Date in Other Cases

D. The Exercise of Discretion and Equity Considerations

(1) Estimation and Equity

(2) Relevance of the Respondent's Economic Situation

(1) International Valuation Standards

(2) World Bank Guidelines

(4) UN Compensation Commission

(1) Market Value Basis of Valuation

(2) Bases Other Than Market Value

(1) Market Approach

(2) Income Approach

(rm-rf) = market risk premium

(3) Asset-Based or Cost Approach

E. Experts in Arbitration Proceedings

(2) Prior Transactions

(4) Partial Sales

(5) Comparable Sales

(6) Comparable Companies and Multiples

B. The Income Approach

(1) Basis of Income: Profits, Earnings, Dividends, Cash Flows?

(2) Going Concern

(4) Discounting and Country Risk

(6) Reasons for Rejecting the Income Approach in International Practice