Author

Ms Nour Nicolas

International Associate - Curtis Mallet-Prevost, Colt & Mosle LLP

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Damages: Restitutio in Integrum

I. Definition

1.

It is a general principle of international law that a State responsible for an internationally wrongful act must make full reparation for the injury caused.1

2.

Reparation is intended to make the party injured by the illegal act "whole" and place it in the same position as it would have been in, had the breach not occurred.2

II. Scope of application: unlawful acts

3.

This stands true for all illegal acts, whether the breach is one of contract or of an international obligation3 (and regardless of the nature of the treaty standard).4

4.

Tribunals distinguish between a lawful expropriation and an illegal act, and accordingly adopt different standards of reparation. While compensation for a lawful expropriation usually follows the standard set by the investment treaty, reparation for illegal acts is normally governed by the customary international law rule of "full reparation".5

III. Nature of restitution

5.

Restitutio in integrum must in principle be achieved by restitution in kind. It is only when specific performance is impossible or entails a disproportionate burden that monetary Compensation becomes appropriate.6 It is commonly agreed upon that compelling the State to repeal its laws, re-instate the investor in its rights in a concession or generally reverse the illegal measure it has taken, constitutes a disproportionate interference with the State’s exercise of its sovereignty.7 Compensation by financial means has therefore become the adequate and normal remedy, and must correspond to the value which restitution in kind would carry.8

6.

Some tribunals have nevertheless awarded specific performance.9

IV. Scope of restitution

A. Principle: all provable losses are recoverable

B. Implications: date of valuation

9.

The date of valuation of the damages can be ex-ante (at the date of the breach) or ex-post (at the date of the award).

10.

Whereas in the case of a lawful expropriation, the date of dispossession (or when it was made public) serves as date of valuation (ex-ante), in the case of an international law violation, and in the name of full reparation, tribunals preserve a margin to appreciate whether an ex-ante or an ex-post approach is appropriate.13

11.

The case-law shows that the election of the Date of Valuation will depend on the facts, circumstances and submissions before the Tribunal in each case, in order to comply with the reparation principles (causation, full reparation, etc.).14 Tribunals will typically adopt an ex post approach when it has been proven that the investment has gained a greater value since the date of the breach up to the time of the award, in order to grant compensation that is most proximate to restitutio in integrum.15 See further Date of Valuation.

C. Limitation

12.

Restitution in integrum must serve as both, a guideline and a limitation (overcompensation).16 It can neither lead to the enrichment of the aggrieved party17 nor form a basis for the punishment of the responsible State by awarding excessive or punitive damages.18 Accordingly, the allocation of moral damages is also seen to be inappropriate because it accords the injured party a better financial position than the one it would have had otherwise.19

13.

Nevertheless, this limitation is sometimes disregarded in practice: there is a tendency to award moral damages in “exceptional cases”.20 Tribunals have also acknowledged the possibility of allocating punitive damages, albeit limited to very “egregious” situations.21 The predominant investment jurisprudence however still refutes exemplary damages.

14.

There is also ample authority which suggests that the obligation to make full reparation should be reduced after considering mitigating factors,22 such as: contributory negligence,23 failure to mitigate damages, intervening of concurrent causes,24 the application of the principle of proportionality,25 etc.

Bibliography

Marboe, I., Calculation of Compensation and Damages in International Investment Law, 2nd ed., Oxford International Arbitration Series, 2017.

Crawford, J., The International Law Commission’s Articles on State Responsibility. Introduction, Text and Commentaries, Cambridge University Press, 2002.

Cheng, B., General Principles of Law as Applied by International Courts and Tribunals, London: Stevens and Sons Ltd, 1987.

Schwarzenberger, G., International Law as Applied by International Court and Tribunals, London; Stevens and Sons Ltd, 1957.

Brownlie, I., State Responsibility, Part I, Oxford: Oxford University Press, 1983.

Ripinsky, S. and Williams, K., Damages in International Investment Law, British Institute of International and Comparative Law, 2008.

Van Aaken, A., Primary and Secondary Remedies in International Investment Law and National State Liability: A Functional and Comparative View, in Schill, S. (ed.), International Investment Law and Public Law, Oxford University Press, 2010, pp. 721-754.

Schachter, O., International Law in Theory and in Practice, 178 Collected Courses, Academy of International Law, 1982.

Sabahi, B., Rubins, N. and Wallace, D.Jr., Investor-State Arbitration, XXI Compensation, Damages, and Restitution, 2nd ed., 2019.

Claggett, B., 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, University Press of Virginia, 1987, p. 31.

Reisman, M. and Sloane, R., Indirect Expropriation and Its Valuation in the BIT Generation, British Yearbook of International Law, 2003; 74:1.

Salacuse, J., The Law of Investment Treaties, 16 The Consequences of Treaty Violations, Oxford International Law Library, 2015.

Sabahi, B., Compensation and Restitution in Investor-State Arbitration: Principles and Practice, 2011.

Stern, B., Le Préjudice dans la théorie de la responsabilité internationale, Pedone, 1973.

Kotuby, C. Jr and Sobota, A., General Principles of Law and International Due Process: Principles and Norms Applicable in Transnational Disputes, Oxford University Press, 2017.

Brower, C. and Brueschke, J., The Iran-United States Claims Tribunal, Kluwer Law International, 1998.

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