Claims for moral damages are rather new in investment arbitration.2 Their importance and frequency has increased in recent years.3 In a number of cases, arbitral tribunals have rejected claims for moral damages, mainly on the basis of lack of proof.4 In others, claims for compensation of moral damages have been accepted.5
Compensation of moral damages arises from the obligation under customary international law of full reparation of an injury (whether material or moral) caused by an internationally wrongful act,6 as codified in the Articles on Responsibility of States for Internationally Wrongful Acts.7 Recoverability of moral damages is widely accepted in most legal systems and arbitral practice.8 For instance, it has been recognized in France, for both natural persons9 and legal persons,10 in the United-Kingdom,11 in Russia,12 in Chile,13 in Libya,14 in Egypt,15 in Lebanon,16 in Yemen,17 in the Philippines18 and in Azerbaidjan.19
Moral damages may remedy different types of non-material harm in the context of investment arbitration, including damages to personality and reputation,20 to physical health,21 individual pain and suffering,22 personal affront associated with an intrusion on one’s home or private life,23 and also for legal entities and corporation,24 for instance in case of loss of business credit, reputation, good will and opportunities.25
IV. Whose moral damages can be claimed
Moral damages are available to investors that are both natural26 and legal persons,27 even if awarding moral damages remains rather rare in international investment disputes.28 Some tribunals have considered that the question of moral damages in international investment arbitration remains controversial29 and that a considerable degree of caution is prompted in respect of moral damages of corporate investors.30
No clear and consistent arbitral practice regarding award of moral damages has yet emerged. As one tribunal has noted, a general principle, like abuse of process, for instance, could hardly be regarded a sufficient legal basis for an award of moral damages.33 The absence of economic harm is not sufficient for an award of moral damages.34 Besides, the award of moral damages could be precluded on the basis of the “unclean hands” doctrine.35
A. Exceptional circumstances or gravity requirement
The Desert Line v. Yemen tribunal introduced the “exceptional circumstances” requirement of the moral damages claim.36 Subsequent tribunals have readily accepted this requirement.37 The element has also been referred to as a “gravity” requirement.38 The threshold of gravity and substantiality has not been met in several cases.39
There is no precise definition of what constitutes “exceptional circumstances” when evaluating moral damages claims. On the basis of the existing case law, it is possible to establish some indicative non-cumulative criteria for the “exceptional circumstances” test:
B. "Malicious" and "fault based" conduct of the respondent
VI. Proof of moral damages
A. Burden of proof
B. Standard of proof
The International Court of Justice (“ICJ”) held in the Diallo case that “non-material injury can be established even without specific evidence”.47 Arbitral tribunals, however, have dismissed moral damages claims as unsubstantiated or unproven on several occasions.48 In evaluating the claims, investment tribunals tend to rely on the “balance of probabilities” standard.49
VII. Relief and quantum
Quantification of moral damages is a difficult task52 that must not stay on the way of granting compensation to the party that suffered moral harm.53 The ICJ has held that award of moral damages should rest on “equitable considerations”.54 Arbitral practice is scares on the issue of quantum in moral damages claims and contains little consistent guidelines. Arbitral tribunals usually enjoy significant discretion in determining the amount of moral damages.55
Compensation has ranged from a small sum on equitable grounds56 to millions of dollars, including awards of USD 1,000,00057 and USD 30,000,000.58
VIII. Moral damages as counterclaims
Articles in Academic Journals
Dumberry, P., Why and How Arbitral Tribunals Award Compensation For Moral Damages?, Kluwer Arbitration Blog, 2010.
Dumberry, P., Satisfaction as a Form of Reparation for Moral Damages Suffered by Investors and Respondent States in Investor-State Arbitration Disputes, Journal of International Dispute Settlement, 2012, Issue 3, p. 205.
Dumberry, P. and Cusson, S., Wrong Direction: “Exceptional Circumstances” and Moral Damages in International Investment Arbitration, The Journal of Damages in International Arbitration, 2014, Issue 1, p. 33.
Moyano García, J. P., Moral Damages in Investment Arbitration: Diverging Trends, Journal of International Dispute Settlement, 2015, Issue 6, p. 485.
van Houtte, H. and McAsey, B., Future Damages in Investment Arbitration— a Tribunal with a Crystal Ball?, in Caron, D.D., Schill, S. W., Cohen Smutny, A. and Triantafilou, E.E. (eds.), Practising Virtue, Oxford University Press, 2015, p. 2.
Mohtashami, R., QC, Holland, R., and El-Hosseny, F., Non-Compensatory Damages in Civil- and Common-Law Jurisdictions – Requirements and Underlying Principles, The Guide to Damages in International Arbitration, Oxford University Press, 2015.
Vasudev, S., Damages for Non-Material Harm in Investment Treaty Arbitration, 37 ASA Bulletin, 2019, Issue 37, p. 97.
Wong, J., Making a Muddle of Moral Damages, Kluwer Arbitration Blog, 2014.
Sabahi, B., Compensation and Restitution in Investor-State Arbitration, Principles and Practice, International Economic Law Series, 2011.
Crawford, J., Pellet, A. and Olleson, S., The Law of International Responsibility, Oxford Commentaries on International Law, Oxford University Press, 2010.
International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts with Commentaries, Report of the Commission to the General Assembly on the Work of its Fifty-Third Session,Yearbook of the International Law Commission, 2001, Vol. II, Part Two.
Crawford, J., Peel, J. and Olleson, S., The ILC's Articles on Responsibility of States for Internationally Wrongful Acts: Completion of the Second Reading, European Journal of International Law, Vol. 12, Issue 5, 1 December 2001.
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