I. Compensation as a form of reparation
General principles of law dictate that anyone committing an unlawful act must repair the damages resulting from that act. Sovereign States are not exempt from the obligation to repair.
The Court held 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.”2
With that in mind, the Court found that restitution is the ideal remedy to repair the damages resulting from a State’s wrongful acts.3 The Court noted, however, that restitution might be impossible sometimes.4 It thus held that monetary compensation could serve as an alternative to repair damages when restitution is impossible.5
Although there has been some debate on whether arbitral tribunals in investor-State disputes have the power to order restitution,7 virtually everyone agrees that investor-State tribunals have jurisdiction to award compensation when the respondent State has breached its treaty obligations.8 On that basis, and because restitution is probably not an option, compensation is the usual remedy in investor-State arbitrations.9
Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v. Kingdom of Spain, ICSID Case No. ARB/13/31, Award, 15 June 2018, para. 636; Nykomb Synergetics Technology Holding AB v. Republic of Latvia, SCC Case No. 118/2001, Arbitral Award, 16 December 2003, para. 5.1.5; International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, 2001, Art. 3.
A. Standard of compensation in investor-State arbitration
To award compensation, investor-State tribunals must first find that the respondent State has breached its treaty obligations (i.e., committed an international wrongful act). Based on that finding, compensation must seek to eliminate the consequences of the wrongful act.12 In other words, a tribunal may not order compensation without a treaty violation.
CME Czech Republic B.V. v. Czech Republic, Partial Award, 13 September 2001, para. 502; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003, para. 195; AIG Capital Partners, Inc. and CSJC Tema Rel Estate Compnay v. Republic of Kazakhstan, ICSID Case No. ARB/01/6, Award, 7 October 2003, para. 12.1.1; BG Group Plc v. Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, paras. 423–429; Joseph Houben v. Republic of Burundi, ICSID Case No. ARB/13/7, Award, 12 January 2016, para. 221; S.D. Myers, Inc. v. Government of Canada, Partial Award, 13 November 2000, paras. 311-315; 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. 359; British Caribbean Bank Limited v. The Government of Belize, PCA Case No. 2010-18/BCB-BZ, Award, 19 December 2014, para. 288.
AES Solar and others (PV Investors) v. Spain, PCA Case No. 2012-14, Final Award, 28 February 2020, para. 669; Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020, para. 677; Shelton, D., Righting Wrongs: Reparations in the Articles on State Responsibility, The American Journal of International Law, 2002, pages 833 - 856.
B. Assessment of damages
To determine the amount of compensation, investor-State tribunals must assess the damages that the respondent State’s wrongful acts have caused. The investor will bear the burden of proving such damages. On that basis, tribunals require that the parties establish the damages through reliable evidence.13 Accordingly, tribunals will not award compensation for speculative damages.14
Contrary to punitive damages, satisfaction provides some sort of moral reparation. Satisfaction may consist of an apology or any other kind of acknowledgement from the respondent State.19 Punitive damages, on the other hand, would exceed full reparation because they would over-compensate the investor by awarding more than the actual damages suffered.
Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V. v. The United Mexican States, ICSID Case No. ARB(AF)/04/3, Award, 16 June 2010, para. 12.56; Murphy Exploration and Production Company International v. Republic of Ecuador II, PCA Case No. 2012-16 (formerly AA 434), Partial Final Award, 6 May 2016, para. 487; Compañía de Aguas del Aconquija S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 August 2007, para. 8.3.3.
Waguih Elie George Siag & Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, paras. 544 - 546; S.D. Myers, Inc. v. Government of Canada, Second Partial Award, 21 October 2002 para. 149; Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Award, 3 March 2010, para. 513.
Europe Cement Investment & Trade S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009, para. 181; Desert Line Projects LLC v. Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, paras. 290-291; Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. State of Libya and others, Final Arbitral Award, 22 March 2013, para. 369.
II. Relation between breach and causation
In other words, the burden of proof is directly on the injured party. The claimant must show the existence of a violation and a causal link between such violation and the amount of damages claimed.22
Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Award II, 13 September 2016, para. 217; The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award, 6 May 2013, para. 190; Shelton, D., Righting Wrongs: Reparations in the Articles on State Responsibility, The American Journal of International Law, 2002, pp. 846 - 847.
BG Group Plc. v. Republic of Argentina, Award, 24 December 2007, para. 428; MNSS B.V. and Recupero Credito Acciaio N.V. v. Montenegro, ICSID Case No. ARB(AF)/12/8, Award, 4 May 2016, para. 356; Shelton, D., Righting Wrongs: Reparations in the Articles on State Responsibility, The American Journal of International Law, 2002, pp. 846 - 847.
III. Methodology of arbitral tribunals in assessing damages
Investor-State tribunals have accepted and followed these approaches to calculate value:
Tidewater Investment SRL and Tidewater Caribe, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Annulment, 27 December 2016, para. 192; Víctor Pey Casado and President Allende Foundation v. Republic of Chile I, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile, 18 December 2012, para. 286.