Author

Mr Julio Rivera Ríos

Associate - Debevoise & Plimpton LLP

Editors
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Reparation

I. Definition

1.

Under international law, a State responsible for an international wrongful act must make full reparation for the injury caused by the internationally wrongful act.1 In Chorzów, the leading case in this context, the Permanent Court of International Justice determined that the obligation to make full reparation entails wip[ing] out all the consequences of the illegal act and reestablish[ing] the situation which would, in all probability, have existed if that act had not been committed”.2

II. Forms of reparation

2.

Full reparation can take the form of restitution, compensation and satisfaction, which, separately or in combination, will discharge the obligation to make full reparation.3

3.

The responsible State must first endeavor to make restitution, that is to “re-establish the situation which existed before the wrongful act was committed”.4 Investment tribunals have recognized restitution as the primary remedy5 but have generally been reluctant to award it given that it may be regarded as an undue interference with the sovereignty of the respondent State6 7 and due to the practical difficulties in supervising its enforcement.8

4.

Should restitution be impossible or impractical,9 the responsible State must pay compensation that covers “any financially assessable damage including loss of profits insofar as it is established”10 and interest, when appropriate.11

5.

Where restitution and compensation are unavailable, the responsible State must provide satisfaction, which can take different forms such as a declaration of wrongfulness or the award of a symbolic monetary compensation.12 States have sometimes requested the remedy of satisfaction for the reputational damage suffered as a result of frivolous claims brought by investors.13

III. Reparation under the International Law Commission (ILC) Articles on State Responsibility

6.

Part Two of the ILC Articles on State Responsibility codifies the full reparation principle as applicable to the responsibility for the breach of inter-State obligations.14 Investment tribunals have recognized that Part Two of the ILC Articles is in principle limited to inter-State disputes,15 yet the vast majority routinely invokes its rules on full reparation as a reflection of customary international law applicable to breaches of investment treaties, inasmuch as it is not modified or excluded by a special rule to the contrary.16

IV. Reparation for breaches of investment contracts

7.

The calculation of damages for breach of contract is determined by the applicable contract law. The principle of full reparation is generally present in national contract laws17 and international codifications18 to which choice-of-law clauses often point. In the leading case Sapphire, the tribunal memorably observed that “the object of damages is to place the party to whom they are awarded in the same pecuniary position that they would have been in if the contract had been performed in the manner provided for by the parties at the time of its conclusion”.19

V. Limits on reparation

8.

The obligation to make full reparation should not exceed the injury actually suffered as a consequence of the wrongful act. Investment tribunals strive to avoid overcompensating investors namely by:

  1. Demanding evidence of the quantum of damages;20
  2. Requiring proof of causation;21
  3. Excluding speculative or uncertain damages;22
  4. Prohibiting double counting for the same loss;23
  5. Reducing damages to the extent of the investor’s contributory negligence;24
  6. Precluding recovery to the extent of the investor’s failure to mitigate damages;25
  7. Granting and offsetting damages claimed or awarded, respectively, on counterclaims;26
  8. Excusing or deferring the payment of compensation in necessity cases (see Article 27(b) of the ILC Articles on State Responsibility);27 28
  9. Enforcing contractual limitations set on damages.29

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