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Investor Conduct (Damages)

I. Introduction

1.

International law recognises the relevance of the conduct of the injured party in the determination of reparation. For example, the investor-State dispute mechanism does not protect the investor from its own “bad business judgments”.1 In this context, arbitral tribunals have considered two factors,2 which are normally addressed separately:3 the investor’s contributory fault and its duty to mitigate its losses.

II. Contributory fault

A. Principle

4.

However, not every contribution triggers a reduction of damages; it must be material and significant.6 As explained in the Commentary to the ILC Articles, Article 39 embodies a restrictive notion of contributory fault.7

B. Impact of contributory fault on damages

6.

For instance, in MTD v. Chile, the tribunal considered that the claimants contributed to their losses; as a result “the Claimants should bear part of the damages suffered” and awarded them only 50% of the damages they had suffered.9 The ICSID annulment committee upheld the validity of this finding and noted the margin of estimation that tribunals enjoy when apportioning fault.10 This discretionary power was acknowledged by subsequent tribunals.11

7.

Moreover, in Copper Mesa v. Ecuador, the tribunal took into account the claimant’s negligent conduct and reduced the amount of damages awarded by 30%.12 In Occidental v. Ecuador, the Tribunal held that “an award of damages may be reduced if the claiming party also committed a fault which contributed to the prejudice it suffered and for which the trier of facts, in the exercise of its discretion, considers the claiming party should bear some responsibility.” As a result, the tribunal reduced the compensation awarded by 25%.13 Similarly, in Yukos v. Russia, the tribunal considered that the claimants had “contributed to the extent of 25 percent to the prejudice which they suffered as a result of Respondent's destruction of Yukos.14

III. Burden of proof and causation for contributory fault

8.

The burden of proving that an intervening event (e.g., a factor attributable to the victim or a third party) caused the damage alleged is on the respondent State15 unless the injury can be shown to be severable in causal terms from that attributed to the State.16 Arbitral tribunals have considered that in order to exclude or reduce compensation due to the investor’s contributory fault “it is necessary not only to prove said omission or fault, but also to establish a causal link between the omission or fault and the harm suffered.”17

IV. Mitigation of damages

A. Principle

10.

The Commentary to the ILC Articles notes that the question of mitigation of damages is “[a] further element affecting the scope of reparation” and that “a failure to mitigate by the injured party may preclude recovery to that extent”.20 The principle that claimants must take reasonable steps to mitigate their losses is a well-established principle in investment arbitration,21 and as the Middle East Cement v. Egypt tribunal noted, it “can be considered to be part of the General Principles of Law which, in turn, are part of the rules of international law.”22

11.

This duty to mitigate arises “from the moment that [the investor] was aware of the circumstances giving rise to the breach.”23

B. Burden and standard of proof

C. Limits

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