When the violation committed by the responsible State is a lawful expropriation, investment treaties commonly provide for the use of the value of the investment, or more precisely its fair market value (i.e. the reasonable price that would have been paid on a competitive market by the buyer to the seller of the asset, acting at arms length),1 as a standard to calculate the quantum of compensation. They have generally considered that fair market value reflects the “prompt, adequate and effective”, “fair”, “reasonable”, “just” or “genuine” compensation required under international law for a treaty breach2 and the Chorzow full reparation principle.3
In this case, the quantum of compensation is mainly delimited by the nature and extent of the damages caused to the investor and shall correspond to the amount of damages calculated on the basis of the value of the investment.4 See further Valuation methods, Compensation for lawful expropriation and Prompt, adequate and effective compensation.
The date chosen for the valuation of the investment (date of the violation or date of the award) is of crucial importance (regardless of the violation involved). Indeed, the investment is valued on the basis of the information available on the valuation date. In accordance with an ex ante approach, information subsequent to the valuation date is not taken into account. Under an ex post approach, information subsequent to the valuation date is also taken into account. The choice of the approach necessarily affects the value of the investment itself and the amount of compensation granted and is, for this reason, regularly debated before tribunals.5 See further Valuation dates, Section I.A.
AAPL v. Sri Lanka, ICSID Case No. ARB/87/3, Award, 27 June 1990, para. 96; SPP v. Egypt, ICSID Case No. ARB/84/3, Award, 20 May 1992, para. 197; Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000, para. 73; CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 402; Azurix v. Argentina (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 424; Enron v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007, para. 361; Crystallex v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, paras. 850-852; NAFTA, adopted on 17 December 1992, Art. 1110(2); Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, para. 283; Metalclad Corporation v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, para. 118.
Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, paras. 365-386; Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Dissenting Opinion of Brigitte Stern, 16 September 2015, paras. 26-29; Conocophillips Petrozuata B.V., Conocophillips Hamaca B.V. and Conocophillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and the Merits, 3 September 2013, paras. 342-343; Veteran Petroleum Limited (Cyprus) v. Russia, PCA Case No. 2005-05/AA228, Final Award, 18 July 2014, paras. 1763-1769; Yukos Universal Limited (Isle of Man) v. Russia, PCA Case No. 2005-04/AA227, Final Award, 18 July 2014, paras. 1763-1769; Hulley Enterprises Limited (Cyprus) v. Russia, PCA Case No. 2005-03/AA226, Final Award, 18 July 2014, paras. 1763-1769; Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, paras. 756-764; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/01, Award, 21 July 2017, para. 1115; Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe, ICSID Case No. ARB/10/25, Award, 28 July 2015, paras. 755-763.
AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v. Republic of Kazakhstan, ICSID Case No. ARB/01/6, Award, 7 October 2003, para. 12.1.1; CME Czech Republic B.V. v. The Czech Republic, Final Award, 14 March 2003, paras. 493, 497, 501-502; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/01, Award, 21 July 2017, para. 1033; Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Award, 13 March 2015, paras. 138-139; OOO Manolium Processing v. The Republic of Belarus, PCA Case No. 2018-06, Final Award, 22 June 2021, paras. 615-617.
When the applicable treaty is silent regarding compensation standards, the principles of customary international law defined by the International Court of Justice in the Factory at Chorzów case6 and codified in Articles 31 and 36 of the ILC Articles are in principle applicable.7 In accordance with the principle of full reparation, compensation must fully repair the damage caused by the wrongful act of the host State by putting the investor back in the financial position in which he would have been had the wrongful act never occurred.8 See further Damages in investment arbitration.
However, no indication is given by customary international law as to the methodology for calculating the amount of compensation for the purpose of ensuring that this reparation is indeed full, i.e. the quantum of compensation. The principles of customary international law have been applied in particular in cases of unlawful expropriation,9 and non-expropriation violations,10 which may be more favourable to the investor’s compensation than if the provisions of the investment treaty had been applied, the compensation not necessarily being limited to the market value of the expropriated property.11
AMT v. Zaire, ICSID Case No. ARB/93/1, Award, 21 February 1997, para. 6.21; Myers v. Canada, First Partial Award, 13 November 2000, para. 315; MTD v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, para. 238; Petrobart v. Kirghizstan, SCC Case No. 126/2003, Award, 29 March 2005, para. 78; Vivendi v. Argentine (I), ICSID Case No. ARB/97/3, Award, 20 August 2007, para. 8.2.7; Biwater v. Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 776; Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010, paras. 533-534; Gemplus v. Mexico (ICSID Case No. ARB(AF)/04/3), 16th june 2010, para. 12.51; Talsud v. Mexico (ICSID Case No. ARB(AF)/04/4), Award, 16 June 2010, para. 12.51; Lemire v. Ukraine (II), ICSID Case No. ARB/06/18, Award, 28 March 2011, paras. 149-150; Murphy v. Ecuador (II), Final Partial Award, 6 May 2016, para. 424; Bank Melli Iran (Iran) and Bank Saderat Iran (Iran) v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, paras. 738-741.
ADC v. Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, paras. 481, 483; Siemens v. Argentina, ICSID Case No. ARB/02/8, Award, 6 February 2007, paras. 349-351; Vivendi v. Argentina (I), ICSID Case No. ARB/97/3, Award II, 20 August 2007, para. 8.2.3; Saipem v. Bangladesh, ICSID Case No. ARB/05/7, Award, 30 June 2009, para. 201; Marion Unglaube v. Costa Rica (ICSID Case No. ARB/08/1); Reinhard Unglaube v. Costa Rica (ICSID Case No. ARB/09/20), Award, 16 May 2012, para. 306; Crystallex v. Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 846; Vestey v. Venezuela, ICSID Case No. ARB/06/4, Award, 15 April 2016, paras. 329 and 331; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, para. 155; Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India, PCA Case No. 2016-07, Final Award, 21 December 2020, para. 1859.
Lemire v. Ukraine (II), ICSID Case No. ARB/06/18, Award, 28 March 2011, para. 146; Impregilo v. Argentina (I), ICSID Case No. ARB/07/17, Award, 21 June 2011, para. 361; Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 329; Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Dissenting Opinion of Brigitte Stern, 16 September 2015, para. 24; Murphy v. Ecuador (II), Final Partial Award, 6 May 2016, para. 423; Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, Award, 27 September 2017, paras. 1083-1084; Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017, paras. 662-664; UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award, 9 October 2018, para. 511.
Vivendi v. Argentina (I), Award, 20 August 2007, ICSID Case No. ARB/97/3, para. 8.2.5; Kardassopoulos v. Georgia, Award, 3 March 2010, ICSID Case No. ARB/05/18, para. 513; Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award, 3 March 2010, para. 513; Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 775; Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, Award, 27 September 2017, para. 1084.
Nevertheless, the fair market value method was applied in some cases of unlawful expropriation by reference to international customary law,12 although it was rejected by other arbitral tribunals.13 It was calculated “independently of the origin and past success”14 of the investment, sometimes by reference to its "highest and best use" before the expropriation took place,15 and while taking into consideration the confiscation risk as it “remains part of the country risk”.16 Some took into account lost profits as well.17 (See also Valuation Date)
Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian Republic of Venezuela II, ICSID Case No. ARB/12/23, Award, 12 December 2016, para. 396; AGIP S.p.A. v. People's Republic of the Congo, ICSID Case No. ARB/77/1, Award, 30 November 1979, para. 88; ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, paras. 499, 501-502; Stabil, Crimea-Petrol LLC, Elefteria LLC, Novel-Estate LLC and others v. The Russian Federation, PCA Case No. 2015-35, Final Award, 12 April 2019, para. 266.
Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Award, 30 June 2009, para. 201; CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telcom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09, Award on Quantum, 13 October 2020, para. 205; Bank Melli Iran (Iran) and Bank Saderat Iran (Iran) v. The Kingdom of Bahrain, PCA Case No. 2017-25, Final Award, 9 November 2021, paras. 761-771.
But also see Dissenting Opinion in Siag v. Egypt.
Middle East Cement Shipping and Handling Co. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002, para. 127-128; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux) v. Argentine Republic (I), ICSID Case No. ARB/97/3, Award II, 20 August 2007, para. 8.3.3; AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v. Republic of Kazakhstan, ICSID Case No. ARB/01/6 , Award, 7 October 2003, para. 12.1.1; Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Final Award, 15 February 2018, para. 809; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Dissenting Opinion of Professor Francisco Orrego Vicuña (Award), para. 20; Joseph Houben v. Republic of Burundi, ICSID Case No. ARB/13/7, Award, 12 January 2016, paras. 225-226.
In other cases, the standards of compensation prescribed in the investment treaty for lawful expropriations have also been applied to unlawful expropriations,18 in particular when the tribunal considered that the distinction between lawful and unlawful expropriations made no practical difference.19 See also Compensation for lawful expropriation, Section III.A. and Fair market value.
Metalclad v. Mexico, Award, 30 August 2000, ICSID Case No. ARB(AF)/97/1, paras. 118-122; Wena Hotels v. Egypt, Award, 8 December 2000, ICSID Case No. ARB/98/4, para. 118; Middle East Cement v. Egypt, Award, 12 April 2002, ICSID Case No. ARB/99/6, paras. 144-146; Tecmed v. Mexico, Award, 29 May 2003, ICSID Case No. ARB(AF)/00/2, para. 187; Rumeli v. Kazakhstan, Decision of the ad hoc Committee on annulment, 25 March 2010, ICSID Case No. ARB/05/16, para. 150; Guaracachi America, Inc. and Rurelec PLC v. Plurinational State of Bolivia, PCA Case No. 2011-17, Award, 31 January 2014, para. 613; British Caribbean Bank Ltd. v. Government of Belize, PCA Case No. 2010-18/BCB-BZ, Award, 19 December 2014, paras. 260-261; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, paras. 187-188; Mr. Franz Sedelmayer v. The Russian Federation, Arbitration Award, 7 July 1998, para. 365; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, paras. 785-786; Les Laboratoires Servier, S.A.S., Biofarma, S.A.S., Arts et Techniques du Progres S.A.S. v. Republic of Poland, Award, 14 February 2012, paras. 643-645; Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1, Award, 12 July 2019, paras. 277-280.
Waguih Elie George Siag & Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, paras. 532-541; Tenaris S.A. and Talta - Trading e Marketing Sociedade Unipessoal Lda. v. Bolivarian Republic of Venezuela (II), ICSID Case No. ARB/12/23, Award, 12 December 2016, paras. 396-397; Marion Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/08/1, Award, 16 May 2012, para. 307; Reinhard Hans Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012, para. 307; Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, 30 December 2016, paras. 602, 614; CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telcom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09, Award on Quantum, 13 October 2020, para. 205.
C. Compensation for breaches of other standards of protection depriving the investor of the value of its investment
Similarly, when the violation at stake is a breach of other standards of protection than expropriation (for example, a breach of fair and equitable treatment) which has effects equivalent to an expropriation (i.e. the total loss of value of the investment or its significant devaluation), the measure of compensation is often calculated on the basis of the (fair market) value of the investment, usually on the basis of the applicable treaty’s compensation clause concerning lawful expropriations, i.e. the ECT,20 and (especially if there is also a violation related to an expropriation).21 However, compensation is not necessarily limited to the value of the investment if other categories of damages are reparable apart from the loss of the investment (e.g. incidental expenses incurred as a result of the wrongful act).
AAPL v. Sri Lanka, ICSID Case No. ARB/87/3, Award, 27 June 1990, paras. 67, 88, 95-96; AMT v. Zaire, ICSID Case No. ARB/93/1, Award, 21 February 1997, para. 7.13; Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, paras. 113 and 122; CME v. Czech Republic, 13 September 2001, para. 618; CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 410; Azurix v. Argentina (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 424; Enron v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007, paras. 359-363; Vivendi v. Argentina (I), ICSID Case No. ARB/97/3, Award, sentence du 20 août 2007, para. 8.2.8; Sempra v. Argentina, ICSID Case No. ARB/02/16, Award, 28 September 2007, paras. 403 and 411-412; BG v. Argentina, Award, 24 December 2007, paras. 438-444; Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010, para. 534; Gemplus v. Mexico (ICSID Case No. ARB(AF)/04/3), Award, 16 June 2010, para. 12.52; Talsud v. Mexico (ICSID Case No. ARB(AF)/04/4), Award, 16 June 2010, para. 12.52; Total v. Argentina, ICSID Case No. ARB/04/1, Award, 27 November 2013, para. 26; Anatolie Stati and others v. Republic of Kazakhstan, SCC Case No. V116/2010, Award, 19 December 2013, para. 1460; Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, para. 678-681; Ron Fuchs v. Georgia, ICSID Case No. ARB/07/15, Award, 3 March 2010, para. 534; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, paras. 792-793, 805; (DS)2, S.A., Peter de Sutter and Kristof De Sutter v. Republic of Madagascar (II), ICSID Case No. ARB/17/18, Award, 17 April 2020, paras. 399-400, 403; Valeri Belokon v. Kyrgyz Republic, PCA Case No. AA518, Award, 24 October 2014, paras. 288-290, 294.
Ascom Group S.A., Anatolie Stati, Gabriel Stati and Terra Raf Trans Traiding Ltd. v. Republic of Kazakhstan, SCC Case No. 116/2010, Award, 19 December 2013, paras. 1460-1461; Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Final Award, 15 February 2018, paras. 804-805; Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award, 16 May 2018, para. 566.
When the violation does not have an effect equivalent to an expropriation, tribunals decide on the amount of compensation based on the nature and extent of the damages claimed by the investor. In this vein, arbitral tribunals rejected fair market value based calculations since this approach entails that the investor loses the full value of its asset.22 Similarly, NAFTA tribunals have ruled that the fair market value standard of Article 1110(2) for expropriation is not applicable to claims based on other standards of protection.23
In this case, the quantum often corresponds to the amount of losses actually suffered as a result of the violation,24 which covers various categories of damages (e.g. reimbursement of expenses incurred by the investor25 or of taxes or tax rebates from which the investor should have benefited,26 payment of the price stipulated in the contract for services provided by the investor;27 or compensation for losses relating to dividends held by shareholders based on the amount of lost dividends according to the actual loss method).28 The fair market value method was used to calculate the difference between the fair market value of the investment and its current value due to the breaches by the host State (i.e. “value of the loss”),29 notably by reference to customary of international law.30 This should not be confused with compensating the investor for the full market value.31
Depending on the specific circumstances of the case, the quantum may also include lost profits causally linked to the violation.32 When the applicable treaty does not specify the compensation standard to use for non-expropriation violations, some tribunals have refused to apply the fair market value methodology used for expropriation.33
CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, paras. 464-467; Enron v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007, paras. 176-181; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Award, 25 February 2016, paras. 124-127.
Myers v. Canada, Second Partial Award, 21 October 2002, paras. 100 and 174; LG&E v. Argentina, Award, 25 July 2007, ICSID Case No. ARB/02/1, paras. 35-36 and 47; Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Final Award, 15 February 2018, paras. 805-809; SAUR International v. Argentine Republic, ICSID Case No. ARB/04/4, Award, 22 May 2014, paras. 85-86; UAB E energija (Lithuania) v. Republic of Latvia, ICSID Case No. ARB/12/33, Award of the Tribunal, 22 December 2017, paras. 1127-128.
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 194; S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award, 13 November 2000, paras. 306-308; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, paras. 277-283; PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007, paras. 305-309; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Award, 25 July 2007, paras. 37-39; S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Second Partial Award, 21 October 2002, para. 144.
Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Award, 25 February 2016, paras. 124-127; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Award, 25 July 2007, paras. 34-36; PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007, paras. 305-309; Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/04/16, Dissenting Opinion of Antonio Remiro Brotóns, paras. 14-19.
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 194; Archer Daniels Midland and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, para. 283; S.D. Myers, Inc. v. Government of Canada, Partial Award (Merits), 13 November 2000, paras. 306-307.
El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, paras. 702-703; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Award, 14 July 2006, para. 424-425; CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 409-410; Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, para. 361-363; Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award, 28 September 2007, para. 403-404; SolEs Badajoz GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, Award, 31 July 2019, para. 476.
ESPF Beteiligungs GmbH, ESPF Nr. 2 Austria Beteiligungs GmbH, and InfraClass Energie 5 GmbH & Co. KG v. Italian Republic, ICSID Case No. ARB/16/5, Award, 14 September 2020, para. 884; Greentech Energy Systems A/S, NovEnergia II Energy & Environment (SCA) SICAR, and NovEnergia II Italian Portfolio SA v. The Italian Republic, SCC Case No. V 2015/095, Award, 23 December 2018, paras. 550-552.
The damnum emergens corresponds to the actual losses suffered by the investor (i.e. total loss or partial diminution in the value of the investment, loss of capital spent on the investment, incidental expenses incurred as a result of the unlawful act); while the lucrum cessans is equivalent to the loss of profits. See further Lost Profits. The unlawful act may simultaneously give rise to damnum emergens and lucrum cessans or damnum emergens may cause lucrum cessans.34 By covering damnum emergens and lucrum cessans, compensation tends to conform to the principle of full reparation.
In addition to constituting a category of losses, damnum emergens understood as opposed to lucrum cessans is also used as a variable to determine the extent of compensable damages and the quantum of compensation. Therefore, in the event of a breach of contractual obligations,35 the amount of compensation is determined according to the damnum emergens and the lucrum cessans. The compensation must place the party to whom it is granted in the financial position in which it would have been if the contract had been performed in accordance with what the parties had foreseen at the time of its conclusion.
In order to be full, compensation includes the damnum emergens (e.g. the value of physical assets or the expenses relating to the execution of the contract incurred by the investor) as well as the lucrum cessans (e.g. the net profit that the contract would have generated if the wrongful act had not occurred).36 Damnum emergens does not generally raise any difficulties and is, by its nature, always recoverable37 as it is easy for the investor to provide evidence of the expenses incurred. However, the lucrum cessans shall be “the direct fruit of the contract and not too remote or speculative”,38 which is more difficult to prove.
The distinction damnum emergens/lucrum cessans has also been used with regard to expropriation but it is no longer the case.
Amoco International Finance Corporation v. Iran, IUSCT Case No. 56, Partial Award (Award No. 310-56-3), 14 July 1987, paras. 192-193; Sedco, Inc. v. National Iranian Oil Company, Interlocutory Award (Award No. ITL 59-129-3), 27 March 1986, IUSCT Case Nos. 128 and 129 paras. 21-24; Factory at Chorzów (Merits), PCIJ Series A. No. 17, Judgment, 13 September 1928, p. 47.
Sapphire v. NIOC, Arbitral Award, 15 March 1963, pp. 185-186; LIAMCO v. Libya, Award, 12 April 1977, paras. 354, 359; AMINOIL v. Kuwait, Final Award, 24 March 1982, para. 147; Himpurna v. PT. (Persero) PLN, Final Award, 4 May 1999, paras. 235 and 290-347; Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Award, 23 September 2003, para. 354; Laurent Jean-Marc Parienti v. Republic of Panama and Autoridad de Tránsito y Transporte Terrestre, UNCITRAL, Award, 27 January 2005, para. 115; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 November 2007, para. 281.
Shufeldt Claim (Guatemala, U.S.A.), Decision of the Arbitrator, 24 July 1930, p. 1099; Myers v. Canada, Partial Award (Merits), 13 November 2000, para. 317; Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others, Judgment of the Cairo Court of Appeal (Unofficial English Translation), 3 June 2020, para. 14; Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020, para. 685; William Ralph Clayton, William Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Government of Canada, PCA Case No. 2009-04, Award on Damages, 10 January 2019, paras. 276-277.
Interest is a sum paid or payable “as compensation for the temporary withholding of money.”39 It is therefore the loss of enjoyment of a sum of money owed by the host State to the investor as compensation that is compensated: “[t]he object of an award of interest is to compensate40 the damage resulting from the fact that, during the period of non-payment by the debtor, the creditor is deprived of the use and disposition of that sum he was supposed to receive.” There are two categories of interest: pre-award interest (compensating the investor for the period between the time when damages were caused by the unlawful act and the date of the award) and post-award interest (compensating the investor for the period between the date of the award and the date when the award is paid). See further Interest rates.
Few BITs provide for the payment of interest as part of expropriation compensation provisions.41 In the absence of any such provision and outside cases of expropriation, tribunals may refer to Article 38 of the Articles of the ILC, which provides that “interest on any principal sum due (…) shall be payable when necessary in order to ensure full reparation”42 conditional upon the award of compensation by the arbitral tribunal and is calculated on the basis of the amount of such compensation. The award of interest is not automatic and only occurs if it is necessary to ensure full reparation in order to put the investor back in the position it would have been in had the State not committed a wrongful act.43
Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, para. 128; LG&E v. Argentina, ICSID Case No. ARB/02/1, Award, 25 July 2007, para. 55; Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010, para. 659; Micula v. Romania (I), ICSID Case No. ARB/05/20, Final Award, 11 December 2013, para. 1265; Murphy v. Ecuador (II), Partial Final Award, 6 May 2016, para. 513; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, para. 185; ESPF Beteiligungs GmbH, ESPF Nr. 2 Austria Beteiligungs GmbH, and InfraClass Energie 5 GmbH & Co. KG v. Italian Republic, ICSID Case No. ARB/16/5, Award, 14 September 2020, para. 928.
Neither investment treaties nor customary international law precisely define the rate or method of calculating interest. However, some BITs refer to the interest at the rate provided by the law of the host State;44 to the interest at the applicable commercial rate established on the market basis for the currency of payment;45 or to the London Interbank Offered Rate46 (which is often used because it is considered as “a reasonable risk-free commercial rate”).47 Many, however, provide only guidelines by indicating that interest should be calculated at the normal or reasonable commercial rate.48 Unless otherwise agreed by the parties or specified in the applicable investment treaty, arbitral tribunals enjoy a considerable margin of discretion that is limited only by the need to obtain a fair or reasonable rate.49 See further Interest rates, Section II.A.
Israel-Moldova BIT (1997), Article 5(1); Sedelmayer v. Russia, Arbitration Award, 7 July 1998, paras. 460-462; Swembalt v. Latvia, Decision by the Court of Arbitration (Award), 23 October 2000, para. 45; Feldman v. Mexico, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 205; CME v. Czech Republic, Final Award, 14 March 2003, paras. 636-641; Occidental v. Ecuador (I), LCIA Case No. UN3467, Award, 1 July 2004, para. 211.
Burlington v. Ecuador, ICSID Case No. ARB/08/5, Decision on Reconsideration and Award, 7 February 2017, para. 535; Maffezini v. Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000, para. 96; MTD v. Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, para. 250; Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010, para. 661; Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited (“Bapex”) and Bangladesh Oil Gas and Mineral Corporation (“Petrobangla”), ICSID Case No. ARB/10/11 and ARB/10/18, Decision on the Payment Claim, 11 September 2014, para. 292; Mobil Investments v. Canada (I), ICSID Case No. ARB(AF)07/4, Award, 20 February 2015, para. 178; Oxus Gold v. Uzbekistan, Final Award, 17 December 2015, para. 990; von Pezold and others v. Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 950; Houben v. Burundi, ICSID Case No. ARB/13/7, Award, 12 January 2016, para. 258; Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe, ICSID Case No. ARB/10/25, Award, 28 July 2015, para. 945.
Santa Elena v. Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000, para. 103; Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010, para. 659; Houben v. Burundi, ICSID Case No. ARB/13/7, Award, 12 January 2016, para. 256; Murphy v. Ecuador (II), Partial Final Award, 6 May 2016, para. 514.
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