• Tutoriel vidéo


Docteur Caroline Breton

Associate Researcher - University Paris Nanterre


M. Antolín Fernández Antuña

Arbitrator & Counsel, Managing Partner - Antuña & Partners

See all

Damages: Lost Profits

I. Notion of lost profits


The loss of profits suffered constitutes a material damage. It corresponds, in a but-for scenario, to profits which the investor would have been entitled if his investment had continued to operate normally, that is, if the host State had not committed any wrongful act. The loss of profits (lucrum cessans) is generally opposed to effective losses (damnum emergens).1

II. Principle of compensation for lost profits and its limits


The compensation covers any financially assessable damage “including loss of profits insofar as it is established”.2 By taking into account the loss of profits, the standard of full reparation3 is achieved: the compensation puts the wronged party back in the financial situation in which it would have been without the unlawful act having occurred. Arbitral tribunals have long since accepted the principle of compensation for loss of profits.4


There are however some exceptions to compensation of lost profits,5 notably in cases of lawful expropriation,6 or when circumstances of the case make it impossible to make a reasonable assessment of lost profits.7 Besides, only legitimate lost profits may be recoverable.8


Moreover, lost profits can be compensated only to the extent that this would not enable double recovery9 or excessive recovery.10

III. Categories of recoverable lost profits


Three main categories of recoverable loss of profits can be identified.

(a) Firstly, the loss of profits may result from “the temporary loss of use and enjoyment of the income-producing asset”.11 The property title to the asset is not questioned, compensation amounts to “the income to which the claimant was entitled by virtue of undisturbed ownership"12 during the period in which he had lost the enjoyment of it.

(b) Secondly, the loss of profits may follow “the unlawful taking of income-producing property”.13 The property title to the asset is questioned and compensation generally covers losses incurred between the date of expropriation and the date of settlement of the dispute.14

(c) Thirdly, the loss of profits may relate to concessions and other contractually protected interests.15 Compensation is granted for profits anticipated after the date of settlement of the dispute16 until the right is extinguished (for example, when the future income that the investor can expect is stipulated in the contract).

IV. Conditions of compensation for lost profits

A. A reasonable degree of certainty of profits


The loss of profits must be probable and reasonably foreseeable: there must be a "reasonable" degree of certainty that profits would have been earned but for the commission of the unlawful act.17


In Micula vs. Romania (I), the tribunal found that the claimants must prove (i) that they “were engaged in a profit-making activity (or, at the very least, that there is sufficient certainty that they had engaged or would have engaged in a profit-making activity but for the revocation of the incentives), and (ii) that the activity would have indeed been profitable (at the very least, that such profitability was probable).”18 Tribunals thus verify whether, prior to the unlawful act, the going concern19 or investment was viable, i.e. whether the investor had recorded profitable operations over a sufficiently long period of time (track record).20


Other criteria may also be used to prove, with reasonable certainty, that the activity could have been profitable. Tribunals may take into account:

(a) The contract if any, concluded between the investor and the host State when giving indications of the income or profits to which the investor may be entitled if it is performed under the conditions provided for in the contract.21 However, in many long-term contracts, it is “most difficult if not impossible to calculate such future profits with certainty, particularly if the contract is subject to adjustment mechanisms and other possible variations with time”.22 

(b) The degree of progress of the investment project at the time of the commission of the unlawful act23 as well as the importance of the amounts invested compared to the amount required for compensation for loss of profits.24 If the project is at a very early stage and the amount invested by the investor in the project is too small, compensation is excluded.

(c) The success of other investment projects carried out in similar circumstances.25

(d) Post-valuation date data.26 (See also Valuation Date)


If, based on these different criteria, the loss of future profits remains uncertain (especially when the enterprise or activity is recent), tribunals may compensate not for the loss of future profits, but for the loss of business opportunity or loss of chance.27 In this case, the investor would have had the opportunity to make profits if the intervention of the unlawful act had not deprived him of this opportunity.28

B. A causal link


Only lost profits caused by a wrongful act by the respondent State can be compensated.29 In this vein, arbitral tribunals will take into consideration whether the State’s actions contributed to hinder profitability.30 See also Causation

C. An estimation of the amount of the lost profits


Arbitral tribunals accept approximation in the valuation of the amount of damages,31 as lost profits need not be proven with complete certainty (See subsection A above), and the assessment of lost profits “is not a precise science”,32 which gives the tribunal some discretion in the calculation of damages.33 As such, no absolute certainty as to the amount is required, but the estimated amount must be reasonably probable.34


However, tribunals do not accept speculation.35 For instance, claims based on sales onwards to a purchaser are not considered speculative.36 Awards may be annulled by national courts on the ground that the tribunal awarded an amount for the loss of profits which was “considered grossly unfair, artificially exaggerated, not adjusted or balanced at all.”37

V. Standard and burden of proof

A. Burden of proof


The burden to establish quantum relies on the party which alleges damage.38 The burden shifts when the wrongdoer makes it difficult to prove the alleged compensation.39 See further Burden of Proof

B. Standard of proof


The existence of profits losses must be established with certainty, unlike the quantification of damages.40


The degree of proof of the loss of opportunity and its amount is higher: “[w]hile it is true that no absolute certainty of proof can be required for such losses in the future, a high threshold of sufficient probability must be applied to a claim for lost opportunity”.41 However, if the lack of evidence is directly attributable to the wrongful conduct of the host State, it is considered that even if it is extremely difficult to assess the value of the loss of opportunity pecuniarily, it would be unfair to deprive or diminish the compensation awarded by failing to take into account the value of the loss of opportunity.42

VI. Assessment method used by arbitral tribunals


The loss of profits is both an independent head of claim and an element in determining the amount of compensation. For example, it is used to assess the market value of the investment43 according to the discounted cash flow method (DCF).44


Some tribunals did not have recourse to a DCF analysis to determine lost profits but applied a rate of return on investment.44

Sélectionner un mot clé :
1 /

Accédez instantanément à la jurisprudence, aux traités et à la doctrine les plus pertinents.

Commencez votre période d'essai

Déjà enregistré ?