Under international customary law, States are required to provide full reparation to investors for harm caused by internationally wrongful acts. This principle was articulated by the Permanent Court of International Justice in the landmark Chorzów Factory case, pursuant to which the goal of full reparation is to wipe out all the consequences of the illegal act,1 and followed by the International Law Commission’s Draft Articles on Responsibility of States for Internationally Wrongful Acts in Article 31(1).2 There is however no indication of what method should be adopted in order to evaluate the exact amount of damages due which equates to wiping out all the consequences of the illegal act.3
El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 700; UP and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award, 9 October 2018, para. 511; Flemingo DutyFree Shop Private Limited v. Republic of Poland PCA Case No. 2014-11, 12 August 2016, para. 866; LSG Building Solutions GmbH and others v. Romania, ICSID Case No. ARB/18/19, Decision on Jurisdiction, Liability and Principles of Reparation, 11 July 2022, para. 1311.
CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 409; South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 22 November 2018, para. 799; Mohamed Abdel Raouf Bahgat v. Arab Republic of Egypt, PCA Case No. 2012-07, Final Award, 20 April 2020, para. 429.
BITs and multilateral treaties routinely include standards for calculating damages in cases of lawful expropriation.5
Some treaties provide for review of valuation methods employed in assessing the amount of damages due in expropriation claims by the relevant judicial or other independent authority.13 See further Compensation for Lawful Expropriation
In the case of a breach of a treaty such as an unlawful expropriation or breaches of fair and equitable treatment, full protection and security or non-discrimination treatment, there is no indication on the valuation standard which should be used by the tribunal in assessing the damages due.14 In such case, the tribunal should determine the measure of compensation appropriate to the specific circumstances of the case15 bearing in mind however that “whatever precise approach is taken, it should reflect the general principle of international law that compensation should undo the material harm inflicted by a breach of an international obligation.”16
Some tribunals stress that while conducting such exercises, the tribunal should, to the greatest extent possible, extend by analogy certain rules which an underlining treaty provides for calculating damages in cases of expropriation or other violations,17 such as standard of fair market value.18
Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020 para. 672; OAO “Tatneft” v. Ukraine, PCA Case No. 2008-8, Award, 29 July 2014, para. 540; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011, para. 700; Sunlodges Ltd and Sunlodges (T) Limited v. The United Republic of Tanzania, PCA Case No. 2018-9, Award, 20 December 2019, para. 449; Olympic Entertainment Group AS v. Ukraine, PCA Case No. 2019-18, Award, 15 April 2021, para. 155; Lion Mexico Consolidated L.P. v. United Mexican States, ICSID Case No. ARB(AF)/15/2, Award, 20 September 2021, para. 620.
Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, paras. 194-195; S.D. Myers, Inc. v. Government of Canada, Partial Award (Merits), 13 November 2000, para. 309; South American Silver Limited (Bermuda) v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 22 November 2018, para. 799; Valores Mundiales, S.L. and Consorcio Andino S.L. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/13/11, Award, 25 July 2017, para 696.; Perenco Ecuador Limited v. Republic of Ecuador, ICSID Case No. ARB/08/6, Decision on Annulment, 28 May 2021, para. 363; UAB E energija (Lithuania) v. Republic of Latvia, ICSID Case No. ARB/12/33, Decision on Annulment, 8 April 2020, para. 215; Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador (II), ICSID Case No. ARB/06/11, Decision on Annulment of the Award, 2 November 2015, para. 412; Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Decision on Application for Annulment, 5 February 2002, para. 91; Hydro S.r.l., Costruzioni S.r.l., Francesco Becchetti, Mauro De Renzis, Stefania Grigolon, Liliana Condomitti v. Republic of Albania, ICSID Case No. ARB/15/28, Decision on Annulment, 2 April 2021, para. 212; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Decision of the ad hoc Committee, 25 March 2010, para. 146.
The tribunal in the Crystallex case explained that “[v]aluation is not an exact science. There often is no single value of a business. Rather, there are typically a range of values. Similarly, there is no one methodology best suited for determining the fair market value of the investment lost in every situation. Tribunals may consider any techniques or methods of valuation that are generally acceptable in the financial community, and whether a particular method is appropriate to utilize is based on the circumstances of each individual case. A tribunal will thus select the appropriate method basing its decision on the circumstances of each individual case, mainly because a value is less an actual fact than the expression of an opinion based on the set of facts before the expert, the appraiser or the tribunal.”20
There are three basic approaches to valuation:
There is no consistency in valuation methods applied by the tribunals. However, according to PwC International Arbitration Damages Research (2017 update),24 the tribunals tend to prefer income based and forward-looking approaches over methodologies reliant on historical figures. Discounted cash flow (DCF) is the most commonly used valuation method in investment arbitration.25 PwC’s International Arbitration Damages Research (2017 update)26 states that it seems that the “[t]ribunals have become increasing comfortable with DCF methodologies over the years but remain unwilling to accept valuations which they consider are based on overly speculative data.”27 In particular, the tribunal in Watkins Holdings observed that “the DCF method is widely favoured in the renewable energy sector given that they have a simple business model with predictable income and costs. The DCF method has been applied in a number Energy Charter claims namely, Eiser,28 Masdar,29 Antin,30 Novenergia,31 Foresight.32”33
Waincymer, J.M., Procedure and Evidence in International Arbitration, Kluwer Law International, 2012, point 14.8.3.
Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, paras. 762-770; Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016, para. 887; Yukos Universal Limited (Isle of Man) v. The Russian Federation PCA Case No. 2005-04/AA227, Final Award, 18 July 2014, para. 1782; 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. 328.
Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 758; 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. 684-686; Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 793.
Sabahi, B., Rubins, N., et al., Investor-State Arbitration, 2nd ed., Oxford University Press, 2019.
Derains, Y. (ed.), Evaluation of Damages in International Arbitration, ICC, 2006.
Marboe, I., Calculation of Compensation and Damages in International Investment Law, 2nd ed., Oxford International Arbitration Series, Oxford University Press, 2017.
Kantor, M.A., Valuation for Arbitration, International Arbitration Law Library, Vol. 17, Kluwer Law International, 2008
The Guide to Damages in International Arbitration - Second Edition, Global Arbitration Review.
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