In conventional international law, in particular in icj jurisprudence, equitable circumstances play a role not only, for example, in boundary determinations, 231 but

end p.1103

also in other areas. 232 Equity, as a subjective, discretionary standard, on the other hand, plays a minor role in international commercial arbitration. It is largely recognized that the parties have to explicitly agree to a tribunal applying an ‘ex aequo et bono’ approach. 233 Tribunals relying on equity—if defined as a concept beyond the legal rules applicable—risk their awards being set aside, 234 though that risk may occur when it comes to damages assessment as there has been an international and comparative law tradition recognizing a wide ‘margin of appreciation’ for courts and tribunals in the determination of damages. 235 Equitable circumstances should therefore—very much in the international law tradition 236—be seen as a ‘legal’—not ‘ex aequo et bono’—criterion that allows correction of outcomes achieved by application of normal standards, but not consistent with the overall purpose and policy of the investment treaty.

Some investment arbitration awards and treaties have considered equitable circumstances in assessing damages. 237 Others—where the compensation award had little relation to the reasoning—have stated that it is ‘considered just and reasonable to take some measure of account of all elements of an undertaking’. 238 What arises from this less than conclusive evidence is that tribunals cannot replace a proper application of the existing law on compensation exclusively by equitable considerations; equitable circumstances, however, can be relied upon in order to

end p.1104

determine the exact point of compensation on a range that has been suggested by the competing valuations of the parties. The principle therefore corrects the results that appear excessive; in essence, it can serve as an emergency brake for tribunals when faced with exorbitant values produced by an application of the NPV/DCF method when the tribunal otherwise has difficulties in controlling the speculations inherent in this method. The Himpurna v Indonesia (a long-term contract dispute) tribunal felt it necessary to apply, under a different name, the principle of equitable circumstances (labelled: abuse of right). 239

Tribunals ultimately, when choosing between competing and equally plausible and legitimate valuation methods, and in weighing the significant assumptions (in particular, discount rate and risk factors) underlying such models, cannot avoid exercising discretion. This is where they will be influenced by equitable considerations. 240 For transparency purposes, it is better if they acknowledge their reliance on equitable principles. This latter approach may save the tribunal in a post-award attack for lack of reasoning. 241

Finally, it would be useful to identify the range of equitable considerations that could be relied upon—rather than just relying on a residual concept of subjective justice. General principles of international law and law contain a number of identifiable subordinate principles which are in-between ‘hard law’ and subjective justice and can be resorted to. 242

end p.1105

(8) Interest 243

(a) Introduction

There is no uniform practice on awarding interest in international investment law. 244 Counsel for claimant and respondent will find ample precedent to support their respective positions. This study is too short to solve the issue once and for all, but we will attempt to provide guidance in order to somewhat reconcile and justify this amalgam of precedents. First, it is necessary to identify the key variables that have a bearing on the amount of interest. These variables are as follows:

• Should there be simple interest or compound interest?

• What should be the rate of interest?

• What is the date from which interest should be awarded?

Secondly, it is imperative to understand the link between compensation and interest. Interest payment in investment awards is an integral part of the calculation of compensation and damages; 245 it is nothing but the application of the Chorzow logic to the loss of the time value of money. In all modern cases where a forward-looking valuation model (such as DCF or NPV) is applied, therefore, the tribunals have to be extra-careful not in effect to award interest twice, because the lost time value of money has been built into these valuation models.

There may also be issues about the currency of the compensation; governments frequently try to restrict compensation by paying in non-convertible currency, providing bonds traded below value or providing only compensation for re- investment. The principle under most investment treaties is payment in convertible currency. 246

end p.1106

(b) Simple v Compound Interest

The norm, until recently, has been to award simple interest. 247 That practice, however, seems to be changing rather in favour of awarding compound interest 248 whenever the injured party can prove that it could only be made whole (Chorzow principle) by receiving compound interest. This may require providing evidence that it, for instance, paid compound interest on borrowed substitute funds to fulfil its obligations towards the other party; or it ‘could have received compound interest … by placing its money in a readily available and commonly used investment vehicle …’. 249 Recent investment awards confirm this. In fact, most recent awards provide for compound interest—in spite of earlier practices against awarding compound interest. 250

(c) Rate of Interest

The rates vary between six-month US certificates of deposit (reflecting a prudent, risk-free standard corporate re-investment practice), prime borrowing rates (reflecting high-class corporate borrowers), rates derived from the contractual relationship, 251 or rates that have to be specifically proved by claimants for their particular case. 252 There are many candidates for the right interest rate as confirmed by precedents. 253 Absolute figures—such as the interest rates quoted—are of no

end p.1107

relevance at all since they will reflect rates of interests prevailing at the time. Interest rates can be either generic (ie generally prevailing at the time for first-class companies) or individualized (eg the specific rates payable by the particular claimant-investor or companies in its class). The proper approach seems to be to apply generic rates 254 except if the claimant proves satisfactorily that, with prudent management, it would have achieved or had to pay a higher rate. 255

Another significant difference is if the interest rate is derived from either an investment or a debt perspective. Debt-based interest rates are logically higher as they include profit, risk, and cost elements for the lender. The proper approach again seems to be to choose a rate that a prudent investor managing another individual's money would have chosen with minimal risk-taking. 256 Only if the claimant- investor can prove that it had to increase its debt level rather than invest this type of money should the higher debt-related interest rate be used.

(d) Date from which the Interest Should Accrue

Article 38(2) of the ILC Articles provides that the interest obligation start ‘from the date when the principal sum should have been paid until the date the obligation is fulfilled’. That presumably translates in takings' cases into the date of the taking (when compensation under international law—‘prompt’—is payable). In quasi- expropriatory breach of contract cases, the relevant starting date is when the contract was no longer fulfilling a useful economic function. Should one use investment arbitration to adjudicate on all contract issues (eg under the umbrella clause), it would be the date from which damages are due under the law applicable;

end p.1108

which may require among other things default on the part of the state. It is not enough, however, to refer to the ‘circumstances of each case’ and arbitral ‘discretion’ to define the starting date. 257 The visualization of the transaction host state and investor could have negotiated to buy out the investor from his right may help to fix the relevant date as would applicable national tort or contract law.

In the novel, mainly non-expropriatory standards of treatment, the relevant date should be when the state becomes aware or should have become aware that a serious case of breach of the treaty exists. It is from that moment onwards that the state is under an obligation to repair the damage caused.

Another possible date is when the breach becomes effective as against the investor; 258 but states may often not be aware of difficulties of this nature, in particular in cases of general regulation where the anti-foreigner discrimination emerges only subsequently when its implementation is anticipated or when it is actually applied. In such a scenario, however, the investor in principle shall not profit from fixing too early a date, when for instance the investor had continued its operations unharmed because the new rule was not yet applied; nor should the state profit by the setting of a later date (eg substantially after the harm was done because the state claims ignorance of both breach and harm).

It is essential that the starting date for interest be aligned with the end date of the calculation of the principal of the compensation/damage. 259 Visualizing the compensation mechanism as a hypothetical buy-out of the claimant helps: the moment a fictitious buy-out price is agreed (ie the principal of the compensation payment), then an interest rate can and should be added onto that principal.

(e) Pre-award and Post-award Interest

National laws often distinguish between pre-judgment and post-judgment interest. 260 There is no particular reason to distinguish between these concepts in investment arbitration. At most, the investor is somewhat more certain of payment after the award (though not absolutely certain) than before the award. But one should not over-complicate interest issues by complex risk theory. In general, the pre-award interest rate should therefore be the post-award interest rate. The only question is if they should be expressed in nominal terms (x%) or by reference to a benchmark (eg US dollar prime borrowing rate as published each 1 July in the Wall Street Journal).

end p.1109

Since the past is known to the tribunal, it might be better to express the interest rate for the past in nominal, absolute terms, and leave at least the possibility of a substantial change of interest rates open by expressing the post-award interest rate as an absolute figure (on the day of the judgment), but open it up for automatic adaptation if the underlying benchmark quotation should change.

(f) Interest and Islamic Law 261

A special issue is the implication of Sharia law for some types of Muslim states or borrowers. 262 Since interest payment is forbidden according to the prevailing Sharia perspective, an alternative has to be found. It should not penalize claimant or respondent for an aversion to formal interest payments. One response—applied anyway by tribunals with less detailed reasoning in the past—is to let the tribunal adjust the principal of the award in line with equitable principles; these will inevitably take into account the claimant's additional harm by being paid with delay and any unjust enrichment of the respondent because of the delay. Unjust enrichment identified from the actual or estimated gain the respondent has made should be Sharia-compliant. The award should not be substantially different, but should avoid using the concept and the precise calculation mechanism of interest in the reasoning and the formal operative decision of the award. An alternative would be liquidated damages—but that would have to be spelled out in the original contract.

(9) Burden of Proof, Evidence, and Procedure

The allocation of the burden of proof is an essential and not satisfactorily developed part of investment arbitration. 263 It comes into play when, for the tribunal, there is

end p.1110

no clear conclusion on the evidence presented. 264 But a more systematic approach to the burden of proof also helps tribunal and parties to organize their submission of evidence. Essentially, the claimant has to prove damages and their likely causation by conduct contrary to the treaty obligations; but such proof can be established by showing, prima facie, a typical and in business highly likely course of events (eg that damages suffered by a subsidiary will as a rule be equivalent to the damage suffered by the parent, that there are interest costs of financing financial losses). The respondent has then to refute such prima-facie proof either by providing sufficient contrary detail in the specific case or by pointing to the equal plausibility of another typical course of events. If the respondent relies on exceptional events to refute claims for specific damage elements, it has to prove them, as the party putting forward a defence considered relevant by the tribunal has the burden of proof (legal and factual) for it. The respondent, for example, will have the burden to prove compensation-reducing elements (eg failure to mitigate damage; contributory negligence; equitable circumstances; substantial third-party intervention or supervening circumstances), while the claimant has to prove damage-enhancing elements (eg particular egregiousness). The burden of a party does not only cover facts to sustain its argument, but also legal points sustaining its position.

Tribunals frequently use what appear to be evidentiary rules (or conventions) to reject indirect damage claims (expenses, consequential damages) as not having been substantiated enough. 265 This may simply reflect the claimant's failure to submit a substantially detailed claim (rather than a grand overall assertion); but it may also show a tendency for tribunals to be more strict about claims for ‘indirect’ or ‘consequential’ damages.

The general principle is reversed if particular evidence is under the control of a party which refuses to disclose it or when particular facts are rather within its ‘sphere of responsibility’. 266 Similarly, if a party does not seriously and in a substantiated way contest the other party's allegation, this can be qualified as implicit

end p.1111

admission. The rules on evidence for damages call for a more in-depth examination with the help of comparative law.

This chapter generally prefers a separate procedural phase, hearing, and award on damage in complex cases. It also takes a favourable position in general on the use of tribunal experts. 267

(10) Other Issues

There are other significant issues that cannot be dealt with in this chapter. Compensation in investment disputes differs from the damages concept in contract law (on which commercial arbitrators will tend to rely). It is influenced most of all by expropriation analysis, which focuses on the value of the direct loss of the proprietary assets taken, and not on consequential, indirect, remote, and ancillary consequences. Treaty-based compensation cannot provide an exhaustive insurance system for every indirect financial loss that may occur; 268 that is part of the general business risk. The more extensive and less solid the scope for compensation awarded, the less will investment arbitration acquire the political acceptance it still needs.

Losses claimed for ‘business reputation’ should in most cases be considered as too remote, without, though, full exclusion in cases of egregious state conduct. 269 Non-financial remedies—for example, a quotable statement by the respondent on the ‘integrity’ of the claimant or a similar statement in an award will sometimes be suitable for ‘wiping out’ even specific and substantiated reputational damage. The tribunal should also use the non-financial remedies at its disposal, for example, ‘satisfaction’ under the ILC Articles, which can be a statement made by the tribunal, by the respondent, or a ‘symbolic’ payment of a minimal amount. 270 On a Chorzow

end p.1112

analysis, costs of management, legal, and expert time caused by the breach cannot be excluded from compensation, but they require specific and substantiated proof so they can be distinguished from ‘normal’ business expenses incurred even without the breach and its consequences. 271 Tribunals' practice—if surveyed in more depth—might suggest that the more ‘indirect’ the damage, the higher the evidentiary requirement, that is, use of a procedural instrument to achieve the effect of a substantive rule with a presumption against consequential damages. Costs of legal representation during the dispute are rather subject to specific cost rules (including Art 40 of the UNCITRAL Rules) than part of the damages analysis. While the Chorzow approach would lead to a larger number of categories for damages, it cannot be applied unconditionally. All legal systems impose some ‘normative’ screen on ‘natural damages’. Unusual or excessive costs will as a rule be disregarded unless there are compelling circumstances. An ‘objective’ standard will be super-imposed on or replace ‘subjective’ damages if these fall out of the ordinary. 272 These issues, again, require a separate treatment that has to examine comparative law of damages and place it in the specific context of investor-state disputes under international law.

Modern extensions of the concept of damages—for example, into environmental and resource damage 273—seem at present not relevant for investment claims as they refer to what is essentially a ‘public’ or ‘social’ damage. But such issues will be (and have been) part of the defence armoury of state defendants in raising counterclaims; 274 the modern version of the 1970s ‘deduction for excess profits’ is deduction for natural resource damage. While such claims have already been raised (Ecuador; Russia), they have not yet been the subject of in-depth comment or adjudication.

Tax issues can play a substantial role in the assessment of contractual damages, though probably less so for compensation. 275 They will be less relevant for valuation based on historic cost/income, but quite relevant for valuation based on future income; here, likely taxes (again a speculative issue) will be deducted from future cash flows. 276 Care must be taken not to allow for double reduction, for example, as

end p.1113

part of the valuation process and by exposure of the award to subsequent taxation. 277 The proposition seems sound that the tribunal as a rule has no jurisdiction to rule over applicable tax law except if the tax at stake is not contested. 278 The question of the deductibility of prospective future tax changes, in particular windfall profit taxes, cannot be settled here. 279

Concluding Remarks

Like everything else, the law and practice of compensation moves with the times—and here in particular with the way modern financial practices for valuation of assets under circumstances of risk and uncertainty evolve. The main ‘fashion’ has been the paradigm change from backwards (‘historic cost’) to forwards (‘net present value of future cash flows’). But these modern standards are not infallible; they are continuously being supplemented by more recent financial inventions—and that is likely to continue. If we take a sober look comparing the ‘old-fashioned’ historic-cost standard with the modern ‘prospective earnings potential’ method, the old-fashioned standard has virtues which are well recognized by the leading investors: it provides objectively identifiable and reasonably certain inputs while the forward-looking method in essence relies on speculation. In perfect market conditions, these methods should lead to the same result. While tribunals have paid lip-service to modernity, they have moved cautiously and as a rule rejected ‘speculative elements’—which is

end p.1114

in essence the very core of the net present value method. In these circumstances, the proper approach, for the time being, should be to use both the historic method and supplement it cautiously with calculations based on the prospective, future earnings method as only a corrective element, for example, in cases where the historic-cost method is likely to diverge substantially from the current market value. Current market value, while generally endorsed, is itself in most situations of little help as investment projects are not commodities with ready market-based price quotes, but rather very individualized projects for which market prices are rarely available—and if so, as a rule heavily fluctuating, in particular if risk perceptions are priced in properly. The main challenge is how to avoid double recovery, in particular in cases of cancellation of long-term contracts. Reliance on the forward-looking method carries a particular risk of double recovery.

Valuation for compensation is essentially torn between two conflicting poles: on one hand, a subjective approach where the individual situation of the investor (always volatile, changing, and hard to identify objectively) is relied upon (eg to calculate interest rates, value an asset, identify risk relevant for discount rates) and, on the other hand, a more standardized or generic approach where an ‘objective’ generic comparator is used to identify the value and compensation due to the investor. This approach is often found in law—for example, in the issue of pre-quantified penalties as an expression of presumed damages. In legal history, ‘objective’ approaches (eg ‘penalty tariffs’) seem to have been around first; the 19th century with its emphasis on individual freedom moved towards the ‘subjective’ approach. At present, the complexity and unpredictability of individual situations suggest perhaps a reversal to an again more ‘objective’ and ‘standardized’ approach, in particular with respect to the assessment of damages, valuation for compensation, risk, discount, and interest rates. Our suggestion is to start with the generic approach, use it to create a presumption for damages, and only deviate if the individual situation of the investor can be shown to be significantly different and if this relevance can be shown to be known to the host state. In our prudent approach, the ‘objective’ condition is in principle preferable and should set up a presumption, but not exclude, if substantiated in a satisfactory way, a more subjective assessment. The more subjective, speculative, volatile, and uncertain, the more tribunals should be able to revert to and rely on objective comparators as the principal foundation for their determination.

The particular challenge—so far neither properly identified nor discussed satisfactorily in the jurisprudence—is how to calculate compensation in the case of breach of the non-expropriatory disciplines—national treatment, denial of justice, and fair and equitable treatment in particular. It is premature to come up with a proposal for a conclusive set of rules here. Tribunals and counsel should envisage much more the use of non-financial remedies that can be categorized as ‘restitution’, in particular a preliminary order to lift a discriminatory treatment (‘annulment’ in administrative law terms), to re-do an administrative or judicial decision in full compliance with due process, or to seek other administrative remedies that provide full satisfaction

end p.1115

to the investor and which correspond to the detriment suffered. The approach by the Goetz/Burundi tribunal recommends itself here. Only if such remedies—for example, by interim awards—prove to be impractical or are not allowed under the respective treaty, should one consider financial compensation as the remedy of last recourse. In this case, the currently unresolved problem is to compare the situation the investor is in due to the breach of the treaty obligation by the government with a situation the investor would have been in had the government conducted its affairs properly in compliance with the applicable treaty rules. Tribunals, so far, have tried to avoid these difficult questions by identifying easily and objectively ascertainable obligations—for example, non-payment of contractually due obligations or over-imposition of tax duties—to determine the compensation due in such situations. It remains to be seen how the jurisprudence in this respect will develop, but comparative and international administrative law would seem to provide the best material for ‘benchmarking’ and analogy, with its preference for injunctive ‘restitution’ or annulment over financial compensation, its linking of compensation with the egregiousness of the relevant breach of legal rules and its balancing between legitimate regulatory and investor interests. 280 The right way to firmly establish investment arbitration as an instrument of international good governance and sustainable economic development is a two-step rhythm reminiscent of the seminal US Supreme Court decision in Marbury v Madison : bold in principle, but prudent with respect to the consequences.

end p.1116

end p.1117

Appendix 1: Table of Damages Award Sector Damages awarded (US$ unless otherwise indicated) 1 AAPL Shrimp farm 514,720 ADC Renovation and expansion of airport 83,823,693 AIG v Kazakhstan Construction of residential housing complex 9,951,709 Amco Hotel licence 2,677,126 Aminoil Oil concession 179,750,764 Autopistas Highway and bridge construction Bs 2,055,288,000 Azurix Privatization of water and sewerage services 165,240,753 Benvenuti & Bonfant Manufacturing plastic bottles CFA 323,179,189 + US$ 15000 Biederman v Kazakhstan Unpublished N/A Bogdanov Breach of a privatization contract 694,896 lei + 25,457 euro CME TV broadcasting 350,758,000 CMS Natural gas 149,081,000 CSOB Banking 1,050,000,000 Fedax v Venezuela Promissory notes 810,345 Feldman Tobacco export 1,700,000 Goetz Revocation of a free trade zone license Settled and accompanied by 2,989,636 reimbursing claimant for certain taxes Himpurna BOT contract (power plant) 391,711,652 Lemire v Ukraine settled Liamco Oil concession 80,085,677 Maffezini Chemical products factory 57,641,265.28 Spanish pesos ME Cement Cement import and distribution 3,749,000 Metalclad Waste disposal 16,685,000 MTD Construction 7,163,000 Myers Waste disposal 6,126,000 Nykomb Natural gas 1,600,000 Occidental Petroleum Oil exploration and production 75,075,000 Petrobart Natural gas 1,414,000 Pope & Talbot Softwood lumber 462,000 PSEG Global et al v Turkey Power plant 9,061,479 + 13,553,563.80 (costs and attorneys' fees) = 22,615,042 Saar Papier v Poland Recycling paper products 1.2 million euro Sedelmayer Security services 2,761,000 SPP Hotel Business 27,661,000 Swembalt Shipping 2,882,000 Tecmed Waste disposal 7,027,000 Wena Hotels Hotel management 20,601,000 end p.1118

Select Bibliography

Abdala, M, and Spiller, P, ‘Damage Valuation of Indirect Expropriation in Public Services’, 4(3) TDM (2003)

Affolder, N, ‘Awarding Compound Interest in International Arbitration’, 12 Am Rev Int'l Arb 45 (2001)

Akehurst, M, ‘Equity and General Principles of Law’, 25 Int'l & Comp LQ 801 (1976)

Aldrich, GH, The Jurisprudence of the Iran-United States Tribunal (Oxford, Clarendon Press, 1996)

Al-Qureshi, Z, ‘Indirect Expropriation in the Field of Petroleum’, 5(6) JWIT 897 (2004)

__ , ‘Quantum of Compensation for Nationalised Property’, in R Lillich (ed), Valuation of Nationalized Property, Vol III (Charlottesville, Va, University Press of Virginia, 1972)

Amerasinghe, CF, ‘Issue of Compensation for the Taking of Alien Property in the Light of Recent Cases and Practice’, 41 Int'l & Comp LQ 22 (1992)

Ayres, I, and Gertner, R, ‘Filling Gaps in Incomplete Contracts’, 99 Yale LJ 87 (1989)

Ball, M, ‘Assessing Damages in Claims by Investors against States’, 32 ICSID Rev—FILJ 408 (2001)

Bar, C von, The Common European Law of Torts: Damage and Damages, Liability for and without Personal Misconduct, Causality, and Defences (Oxford, Oxford University Press, 2000)

Ben Hamida, W, ‘L'Arbitrage transnational face a un desordre procedural: la concurrence des procedures et les conflits de juridictions’, 2005 AFDI 563

__ , ‘La Notion d'investisseur’, Cahiers de l'Arbitrage 2005/3 Black's Law Dictionary (8th edn, 2004)

Blomeyer, A, ‘Types of Relief Available (Judicial Remedies)’, in M Cappelletti (ed), International Encyclopaedia of Comparative Law, Vol XVI (Tubingen, Mohr, 1982)

Bobbit, P, Shield of Achilles (New York, Knopf, 2002)

Born, G, International Commercial Arbitration (Ardsley, NY, Transnational Publishers and Kluwer, 2nd edn, 2001)

end p.1119

Bowett, DW, ‘Claims between States and Private Entities: The Twilight Zone of International Law’, 35 Cath U L Rev 929 (1986)

Brans, E, Liability for Damage to Public Natural Resources (The Hague, Kluwer, 2001)

Bronckers, M, and van den Broek, N, ‘Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement’, 8(1) J Int'l Econo L 101 (2005)

Brower, C and Brueschke, J, The Iran-United States Claims Tribunal (The Hague, Martinus Nijhoff Publishers, 1998)

__ , and Sharpe, J, ‘Multiple and Conflicting International Arbitral Awards’, 4(2) JWIT 211 (2003)

__ , and Wong, J, ‘General Principles of Valuation: The Case of Santa Elena’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

Brownlie, I, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003)

Caron, D, and Morris, B, ‘The UN Compensation System: Practical Justice, Not Retribution’, 13 EJIL 183 (2002)

Chayes, A, ‘Supreme Court 1981 Term’, 96(1) Harv L Rev 4 (1982)

Cheng, B, General Principles of Law as Applied by International Courts and Tribunals (London, Stevens and Sons, 1953)

__ , ‘The Rationale of Compensation for Expropriation’, 44 Grotius Society 267 (1958)

Clagett, B M, ‘Just Compensation in International Law: The Issues before the Iran-U.S. Claims Tribunal’, in R Lillich (ed), Valuation of Nationalized Property, Vol IV (Charlottesville, Va, University Press of Virginia, 1987)

__ , ‘Present State of the International Law of Compensation for Expropriated Property and Repudiated State Contracts’, in Holgren (ed), Private Investors Abroad: Problems and Solutions in International Business (New York, Matthew Bender, 1989)

Cooper, G (ed), Tax Avoidance and the Rule of Law (Amsterdam, IBFD Publications, 1997)

Craig, P, EU Administrative Law (Oxford, Oxford University Press, 2006)

Crawford, J, The International Law Commission's Articles on State Responsibility: Introduction, Text, and Commentaries (Cambridge, Cambridge University Press, 2002)

Dalhuisen, J H, Dalhuisen on International Commercial, Financial and Trade Law (Oxford, Hart, 2000)

De Smith, S, Woolf, H, and Jowell, J, Judicial Review of Administrative Action (London, Sweet & Maxwell, 5th edn, 1995)

Denza, E, and Brooks, S, ‘Investment Protection Treaties: United Kingdom Experience’, 36 Int'l & Comp LQ 908 (1987)

Derains, Y, and Kreindler, R (eds), Evaluation of Damages in International Arbitration (Paris, ICC Services Publ Dept, 2006)

__ , ‘New Foundations of Expropriation Law’, 75 Am J Int'l L 553 (1981)

Dolzer, R, ‘Indirect Expropriation of Alien Property’, 1 ICSID Rev-FILJ 41 (1986)

__ , and Stevens, M, Bilateral Investment Treaties (The Hague, Martinus Nijhoff Publishers, 1995)

Downes, T, ‘Trawling for a Remedy: State Liability under Community Law’, 17 Legal Studies 286 (1997)

El-Malik, W, Mineral Investment under the Shari'a Law (London, Graham & Tr0tman, 1993)

Endicott, M, ‘Remedies in Investor-State Arbitration: Restitution, Specific Performance and Declaratory Awards’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007)

end p.1120

Faruque, A, ‘Legal Protection v Functional Value’, 23 J Int'l Arb 317 (2006)

Friedland, P D, and Wong, E, ‘Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies’, 6 ICSID Rev—FILJ 400 (1991)

Gaillard, E, La Jurisprudence du CIRDI (Paris, Pedone, 2004)

Galligan, D J, Administrative Law (Aldershot, Dartmouth, 1992)

Garcia Amador, F V, ‘State Responsibility’, ILC Commission 13th session 1961, Doc A/CN4.134 and Add.1m 4th Report

Girvan, N, Corporate Imperialism (White Plains, NY, Sharpe, 1976)

__ , ‘Awarding Interest in International Arbitration’, 90 Am J Int'l L 40 (1996)

Gotanda, J Y, ‘Awarding Compound Interest in International Disputes’, 2004 Oxford University Comparative Law Forum 2 (2004)

__ , ‘Recovering Lost Profits in International Arbitrations’, 30 Geo J Int'l L 61 (2004)

Graham, B, and Zweig, J, The Intelligent Investor: The Definitive Book on Value Investing (New York, Harper Business Essentials, revised edn, 2003)

Gray, C, Judicial Remedies in International Law (Oxford, Clarendon Press, 1990)

Hagstrom, R, The Warren Buffett Way ( Hoken, NJ, Wiley, 2004)

__ , ‘La Determination et l'evaluation du dommage reparable’, inE Gaillard, Transnational Rules in International Commercial Arbitration (Paris, ICC Pub, 1993)

Hanotiau, B, ‘L'Arbitrabilite’, 296 Recueil des Cours 29 (2002)

Harris, DJ, O'Boyle, M, and Warbrick, C, Law of the European Convention on Human Rights (London, Butterworths, 1995)

Higgins, R, ‘The Taking of Property by the State’, 176 Recueil des Cours 259 (1982)

Hindelang, S, ‘Bilateral Investment Treaties, Custom and A Healthy Investment Climate: The Question of Whether BITs Influence Customary International Law Revisited’, 5 JWIT 789 (2004)

Hunter, M, and Sinclair, A, ‘Changed Circumstances: Aminoil Revisited’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

Jorgensen, N, ‘A Reappraisal of Punitive Damages in International Law’, 68 Brit YB Int'l L 247 (1997)

Kahn, P and W?lde, T, New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007)

Kantor, M, ‘Damages in CMS v Argentina’, TDM (2006)

Kazazi, M, Burden of Proof and Related Issues: A Study on Evidence before International Tribunals (The Hague, Kluwer, 1996)

Kingsbury, B, Krisch, N and Stewart, R B, ‘The Emergence of Global Administrative Law’, 68 L & Contemp Probs 15 (2005)

Kjos, H E, ‘Counterclaims in Investment Arbitration’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2006)

Lalive, P, ‘The First World Bank Arbitration (Holiday Inns v. Morocco)—Some Legal Problems’, 1 ICSID Reports 680 (1993)

Land, B, ‘Similarities and Differences between Mining and Petroleum Investment: A Comparison of Industry Characteristics, Company Decisions and Host Government Regulation’, 5(2) Oil, Gas & Energy L Intelligence (2007)

Laubad?re, A, Venezia, J, and Gaudemet, Y, Droit administratif (Paris, Librairie g?n?rale de droit et de jurisprudence, 14th edn, 1992)

Lauterpacht, E, ‘International Law and Private Foreign Investment’, 4 Ind J Global Legal Stud 259 (1996–7)

end p.1121

Lazareff, S, ‘Assessing Damages—Are Arbitrators Good at it? Should they be Assisted by Experts? Should they be Entitled to Decide ex aequo et bono?—Some War Stories’, 6(1) JWIT 17 (2005)

Le Fall, JP, ‘Fiscalit? et arbitrage’, Rev de l'Arb (1994)

Leben, C, ‘La Th?orie du contrat d'?tat’, 302 Recueil des Cours 197 (2003)

Legum, B, ‘Lessons Learned from the NAFTA’, 19 ICSID Rev—FILJ 344 (2005)

Lieblich, WC, ‘Determinations by International Tribunals of the Economic Value of Expropriated Property’, 7 J Int'l Arb 37 (1990)

__ , ‘Determining the Economic Value of Expropriated Income-Producing Property in International Arbitrations’, 8 J Int'l Arb 59 (1991)

Lillich, R, and Weston, B, International Claims: Their Settlement by Lump Sum Agreements (Charlottesville, Va, University Press of Virginia, 1975).

Lowe, J (ed), The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend (New York, Chichester, Wiley, 1999)

McLean, B, and Elkind, P, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York, Penguin, 2003)

Manciaux, S, ‘Changement de l?gislation fiscale et arbitrage international’, 2001 Rev Arb 311

Mann, FA, ‘Compound Interest as an Item of Damage in International Law’, in Further Studies in International Law (Oxford, Clarendon Press, 1990)

Marboe, I, ‘Compensation and Damages in International Law—The Limits of “Fair Market Value”?’, 7(5) JWIT 723 (2006)

Marrella, F, and Marboe, I, ‘ “Efficient Breach” and Economic Analysis of International Investment Law’, TDM (March 2007)

Mendelson, MH, ‘What Price Expropriation, Compensation for Expropriation: The Case Law’, 79 Am J Int'l L 414 (1985)

Merrill, T, ‘Incomplete Compensation for Taking’, 11 NYU Env L J 110 (2002)

Meyer, J, Quintero, S, and Shao, J, ‘The Effect of Risk on the Value of Lost International Business Profits’, 7 Int'l J of Value-Based Management 107 (1994)

Muchlinski, P, ‘?“Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 Int'l & Comp LQ 527 (2006)

Munkman, ALW, ‘Adjudication and Adjustment—International Judicial Decision and the Settlement of Territorial and Boundary Disputes’, 46 Brit YB Int'l L 1 (1972–3)

Norton, PA, ‘A Law of the Future or a Law of the Past? Modern Tribunals and the International Law of Expropriation’, 85 Am J Int'l L 474 (1991)

OECD, International Investment Law—A Changing Landscape (Paris, OECD, 2005)

Orrego-Vicuna, F, ‘Some International Law Problems Posed by the Nationalization of the Copper Industry by Chile’, 67 Am J Int'l L 711 (1973)

Pasqualucci, J, The Practice and Procedure of the Inter-American Court of Human Rights (New York, Cambridge University Press, 2003)

Paulsson, J, Denial of Justice in International Law (Cambridge, Cambridge University Press, 2005)

Polkinghorne, M, ‘The Withholding of Documentary Evidence in International Arbitration: Remedies for Dealing with Uncooperative Parties’, 20 ADR & the Law 199 (2006)

Posner, R, Economic Analysis of Law (Boston, Little Brown, 3rd edn, 1986)

Rajarao, V, ‘Determining Damages in Cross-Border Disputes’, TDM (2007)

end p.1122

Reiner, A, ‘The Standards and Burden of Proof in International Arbitration’, 10 Arb Int'l 328 (1994)

Reinisch, A, ‘Expropriation’, 2(5) TDM (2005)

Reisman, WM, and Sloane, RD, ‘Indirect Expropriation and its Valuation in the BIT Generation’, 74 Brit YB Int'l L 115 (2003)

(The) Restatement (Third) of the Foreign Relations Law of the US (ALI, 1987)

Rosenne, S, ‘Equitable Principles and the Compulsory Jurisdiction of International Tribunals’, in E Diez, J Monnier, JP Muller, H Raimann, and L Wildhaber (eds), Festschrift fur Rudolf Bindschedler (Bern, Verlag Stampfli, 1980)

Rubins, N, ‘Must the Victorious Investor-Claimant Relinquish Title to Expropriated Property?’ 4(3) JWIT 481 (2003)

__ , ‘The Notion of “Investment” in International Investment Arbitration’, in Horn and Kroel (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer, 2004)

Sabahi, B, ‘The Calculation of Damages in International Investment Law’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007)

Sand, PH, ‘Compensation for Environmental Damage from the 1991 Gulf War’, 35 Env Policy & L 244 (2005)

Sandifer, DV, Evidence before International Tribunals (Chicago, Foundations Press, 1939)

Schachter, O, ‘Compensation for Expropriation’, 78 Am J Int'l L 121 (1985)

Schall, L, Sundem, G, and Geijsbeek, W, ‘Survey and Analysis of Capital Budgeting Methods’, 33 J Fin 281 (1978)

__ , ‘Unjustified Enrichment in International Law’, 22 Am J Comp L 281 (1974)

__ , ‘Non-Pecuniary Remedies in ICSID Arbitration’, 20(4) Arb Int'l 325 (2004)

Schreuer, C, ‘Fair and Equitable Treatment in Arbitral Practice’, 6(3) JWIT 357 (2005)

__ , ‘Shareholder Protection in International Investment Law’, 2(3) TDM (2005)

Schwarze, J, European Administrative Law (London, Sweet & Maxwell, 1992)

__ , ‘Judicial Review of European Administrative Procedure’, 68 Law & Contemp Probs 85 (2004)

Schwebel, S, ‘The United States 2004 Model Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law’, in G Aksen, KH Bockstiegel, MJ Mustill, PM Patocchi, and MW Whitesell (eds), Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris, ICC Pub, 2005)

Seidl-Hohenveldern, I, ‘L'Evaluation des dommages dans les arbitrages transnationaux’, 33 Annuaire fran?ais de droit international 7 (1987)

Shaw, MN, International Law (Cambridge, Cambridge University Press, 5th edn, 2003)

Sheppard, A, ‘The Distinction between Lawful and Unlawful Expropriation’, ECT Conference, Stockholm (June 2005)

Shihata, I, ‘Some Observations on the Question of RIBA and the Challenges Facing “Islamic Banking”’, 7 CEPMLP Internet Journal 7 (1998)

Shiller, RB, Irrational Exuberance (Princeton, Princeton University Press, 2nd edn, 2005)

Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004)

Stauffer, T, ‘Valuation of Assets in International Takings’, 17 Energy LJ 459 (1996)

end p.1123

Stephan, Paul, ‘Barbarians Inside the Gate: Public Choice Theory and International Law’, 10 Am Univ J Int'l L & Policy 745 (1995)

Treitel, G, Remedies for Breach of Contract, International Encyclopaedia of Comparative Law (T?bingen, Mohr, 1976)

van Harten, G, ‘A Return to Gay Nineties? The Political Economy of Investment Arbitration’, 4(5) TDM (2007)

__ , Investment Treaty Arbitration and Public Law (Oxford, Oxford University Press, 2007)

Vogel, K, Klaus Vogel on Double Taxation Conventions (Deventer, Kluwer, 3rd edn, 1997)

__ , Juristische Folgenorientierung (Frankfurt, Athenaeum, 1979)

__ , and Ndi, G, ‘Stabilising International Investment Commitments’, 31 Texas Int'l LJ 215-68 (1996)

W?lde, T, ‘A Requiem for the “New International Economic Order”’, in G Hafner, G Loibl, A Rest, L Sucharipa-Behrmann, and K Zemanek (eds), Festschrift Ignaz Seidl-Hohenveldern (The Hague, Kluwer International, 1998)

__ , and Kolo, A, ‘Environmental Regulation, Investment Protection and Regulatory Taking in International Law’, 50 Int'l & Comp LQ 811 (2001)

__ , and Hober, K, ‘The First Energy Charter Treaty Arbitral Award’, 22 J Int'l Arb 83 (2005)

__ , ‘The Umbrella Clause in Investment Arbitration’, 6 JWIT 183 (2005)

__ , ‘The Serbian Loans Case—A Precedent for Investment Treaty Protection for Foreign Debt?’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

__ , ‘Efficient Management of Transnational Disputes: Mutual Gain by Mediation or Joint Loss in Litigation’, 22 Arb Int'l 205 (2006)

Wallace Jr, D, ‘Fair and Equitable Treatment and Denial of Justice: Loewen v. United States and Chattin v. Mexico’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

Weiler, T, ‘Saving Oscar Chin: Non-discrimination in International Investment Law’, in T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley, NY, Transnational Publishers, 2004)

__ , and Diaz, LM, ‘Causation and Damages in NAFTA Investor-State Arbitration’, in T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley, NY, Transnational Publishers, 2004)

Wells, L, ‘ “Double Dipping in Arbitration Awards?” An Economist Questions Damages Awarded to Karaha Bodas Company in Indonesia’, 19(4) Arb Int'l 471 (2003)

__ , and Ahmed, R, Making Foreign Investment Safe: Property Rights and National Sovereignty (Oxford, Oxford University Press, 2007)

Werner, J, ‘The 11th Geneva Global Arbitration Forum: Settling Disputes on a Shrinking Planet’, 6(1) JWIT 5 (2005)

Whiteman, MM, Damages in International Law (US Gov Print Off, 1943)

Yala, F, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement? Some “Un-Conventional” Thoughts on Salini, SGS & Mihaly’, 1(4) TDM (2004) Footnotes ? The authors wish to thank the following individuals for their comments on earlier drafts of this chapter: Veijo Heiskanen, Nick Gallus, David Mildon, Irmgard Marboe, Andres Rigo, Geoff Senogles, Mark Kantor, Susan Rose-Ackerman, and Louis Wells. The views expressed in this study and possible errors belong to the authors. 1 Recent informal statistics show that out of close to 100 investment awards over the last 20 years, less than 30 have led to an award of compensation for claimants. Except for the recent awards against the Argentine Republic and CSOB v Slovak Republic and CME v Czech Republic , the awards have often not been very large, in particular in relation to the claim. In the case of NAFTA Chapter 11, no claim against the USA has so far succeeded and only very few, with generally low damages awards, against Canada and Mexico. These statistics are not exact as they are not published and do not include unpublished awards. For a list of the damages awards identified by F Ortino on OGEMID 2006 as well as some contract-based awards, which are the equivalent of modern treaty-based awards, see Appendix 1 below. The great majority of the arbitration awards cited in this study are available at <http://www.investmentclaims.com>. Awards rendered in claims commissions are also relevant for the purposes of this study. 2 See most recently A Sheppard, ‘The Distinction between Lawful and Unlawful Expropriation’, ECT Conference, Stockholm (June 2005); see also Charles N Brower and Jason Brueschke, The Iran-United States Claims Tribunal (The Hague, Martinus Nijhoff Publishers, 1998) 490 ff. 3 But P Craig, EU Administrative Law (Oxford, Oxford University Press, 2006) 764 ff uses the term ‘damages’, though with an approach that reflects the administrative law perspective which is clearly much more narrow than the notion of damages for breach of contract. 4Black's Law Dictionary defines damages as follows ‘[d]amages are the sum of money which a person wronged is entitled to receive from the wrongdoer as compensation for the wrong’. Frank Gahan, The Law of Damages (London, Sweet & Maxwell, 1936) 1. Black's Law Dictionary, (8th edn, 2004). See also Irmgard Marboe, ‘Compensation and Damages in International Law—The Limits of ‘Fair Market Value’, 7(5) JWIT 723, 725 (2006) (associating compensation with lawful and damages with unlawful expropriations). 5 See p 1068 below. 6Black's Law Dictionary defines compensation as follows: ‘[p]ayment of damages, or any other act that a court orders to be done by a person who has caused injury to another. In theory, compensation makes the injured person whole.’ Ibid . Note also the compensation procedure under the GATT Art XXIII for nullification or impairment by measures which may be lawful but contrary to the objectives of the GATT. 7‘Non-pecuniary remedies’ (or remedies) constitute another form of reparation that a person guilty of committing a wrongful act may be obliged to provide under certain circumstances. Non-pecuniary remedies are not discussed in this chapter, however. Thomas W W?lde will discuss them in a separate forthcoming report. See also C Schreuer, ‘Non-pecuniary Remedies in ICSID Arbitration’, 20(4) Arb Int'l 325 (2004); and Martin Endicott, ‘Remedies in Investor-State Arbitration: Restitution, Specific Performance and Declaratory Awards’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007) ch 11. 8‘Tortfeasor’ is probably the concept that comes closest to describing a state in breach of investment treaty obligations, including in contract breaches covered by an ‘umbrella clause’. 9 For a classic discussion of the principle of unjust enrichment in international law and its potential impact on awarding remedies, see CH Schreuer, ‘Unjustified Enrichment in International Law’, 22 Am J Comp L 281 (1974) (arguing that in 1974 restitution for unjust enrichment constituted (at least) a decision-making technique in contrast to a general rule or principle); ibid, EPIL, IV, 1244 (with addendum of 1999); see also Sea-Land Services case, Award No. 135-33-1, 6 Iran-US Cl Trib Rep 149 (1984) (holding that the principle of unjust enrichment has ‘been assimilated into the catalogue of general principles of law available to be applied by international tribunals … The principle finds an obvious field of application in cases where a foreign investor has sustained a loss whereby another party has been enriched, but which does not arise out of an internationally unlawful act which would found a claim for damages’). Ibid , text following n 13. 10 S Manciaux, ‘Changement de l?gislation fiscale et arbitrage international’ (2001) Rev Arb 311–42. To the extent investment treaties reinforce incentives of good governance in host states, compensation payable adds to the signalling effect of a tribunal award. T W?lde, ‘The Specific Nature of Investment Arbitration’ in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007) ch 2. 11 For a recent survey of the damages awards, see Gus van Harten, ‘A Return to Gay Nineties? The Political Economy of Investment Arbitration’, 4(5) TDM (2007). More recently, see G van Harten, Investment Treaty Arbitration and Public Law (Oxford, Oxford University Press 2007) 101–9. Van Harten takes a fundamentally critical view of investment arbitration. His argument that investment arbitration should be seen as essentially distinct from commercial arbitration, however, is not dissimilar to our—more moderate—view that concepts of public law and state liability as identifiable from comparative administrative law should inform the interpretation of damages/compensation concepts under investment treaties. Van Harten selects from the relevant comparative jurisprudence only those elements that limit the obligation to pay damages. Comparative public law, however, could also be useful in other ways. For example—as used in W?lde's Separate Opinion in Thunderbird v Mexico—it can be used to reach the opposite result, ie comparative law on state liability can lead to compensation by taking into account the legitimate expectations of the investor (as a subcategory of the fair and equitable treatment standard) and perhaps increase the amount of compensation due. But van Harten's critique, in particular with respect to the tendency of tribunals to apply commercial arbitration approaches, without questioning possibly inappropriate standards for calculating damages, seems valid. It is likely that the critiques, following van Harten's logic, question the extensive rather than a careful and selective application of damages concepts used in commercial arbitration to investment arbitration. This report as it stands is intended to survey current investment jurisprudence on damages rather than provide an overall critique. But it is necessary to point out that the current jurisprudence may increasingly undergo critical scrutiny from a comparative ‘state liability’ view of investment arbitration. 12 For some theoretical ideas, see T Merrill, ‘Incomplete Compensation for Taking’, 11 NYU Env LJ 110 (2002). For a more general view on economic analysis in international law, see Paul Stephan, ‘Barbarians Inside the Gate: Public Choice Theory and International Law’, 10 Am Univ J Int'l L & Policy 745 (1995). 13 These communities include investment arbitration practitioners and academics; government officials dealing with investment treaties; and the—throughout—critical NGO community, with a reflection of such views also in the media. 14 That sentiment is best encapsulated in Professor Brownlie's dissent in the CME award (CME v Czech Republic, UNCITRAL Arbitration, Final Award of 14 March 2003)—notwithstanding the weakness of the legal argument; the emotional argument is the one that reflects the sentiment in governments and ‘civil society’. Post-CME developments in Czech Republic support this observation. In fact, the Czech Republic has already signalled the termination of some of its BITs with some EU member states to foreclose the possibility of arbitration proceedings being initiated through companies, which have been established in those countries merely for the purpose of benefiting from the BIT. See Investment Treaty News, 29 March 2006, available at <http://www.iisd.org/pdf/2006/itn_mar29_2006.pdf>. 15 The largely restrictive ideas now developed by the USA in its new BIT model reflect this backlash. See also S Schwebel, ‘The United States 2004 Model Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law’, in G Aksen, KH Bocktigel, MJ Mustill, PM Patocchi, and AM Whitesell, Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris, ICC Pub, 2005). 16‘Excessive’ is a value- and politically loaded term. What is excessive to one party and its sympathizers is under-compensation for the other. An ‘excessive award’ is one which goes substantially beyond what could and should be determined on the basis of mainstream rules and practices. 17 B Legum, ‘Lessons Learned from the NAFTA’, 19 ICSID Rev—FILJ 344 at 346–8 (2005). 18 For a view of investment arbitration as an international form of administrative-law review of governmental action: W?lde, above n 10; J Paulsson, Denial of Justice (Cambridge, Cambridge University Press, 2005) at 185 (‘increasing awareness that the public law nature of these cases demands a different approach’); E Gaillard, La Jurisprudence du CIRDI (Paris, Pedone, 2004) at 7. 19 This is explained in some detail by Craig, above n 3, at 765 ff where the higher thresholds for damage payments in ECJ jurisprudence—’sufficiently flagrant violation of a superior rule of law for the protection of the individual’—Schoeppenstedt case 5/71, at para 11—are also accompanied by an apparently wider notion of assumption of risk and of duty to mitigate loss. J Pasqualucci, The Practice and Procedure of the Inter-American Court of Human Rights (New York, Cambridge University Press, 2003) at 234; the ECHR is limited to ordering financial compensation: Zanghi v Italy 194 C ECHR (Ser A) (1991) para 26. ECHR jurisprudence in Art 1 of the Additional Protocol does not provide full compensation in all circumstances as the Court strikes a ‘fair balance’ between regulatory interest and property protection, James v UK 8 ECHR 123 (1986) para 48. ECHR property protection is recognized to be at a lower level than modern investment treaties. 20 Pasqualucci, above n 19 at 239 on LACHR practice: restitution to include reparation, satisfaction, assurances that violations will not be repeated—with a proportionality between injury and violation. Castillo Petruzzi v Peru (Merits) Inter-Am Ct HR 30 May 1999, Ser C No. 52, Res 13. 21 See here in particular the Bridas v Turkmenistan award(s)—rendered on the basis of a commercial arbitration agreement, not on the basis of an investment treaty. 22Factory at Chorz?w (Germany v Poland), Merits, 1928 PCIJ (Series A) No. 17, p 47 (Chorz?w Factory). The Chorz?w Factory judgment essentially laid down a standard for compensation and terms of reference for experts, to be appointed by the Court to calculate such compensation. The parties settled before a report by the experts presumably to be endorsed by a final PCIJ judgment. The judgment is invariably cited as the authority for damage awards in investment arbitrations. It should be noted that the judgment was exclusively concerned with the interpretation of Art 23 of a German-Polish convention (‘Geneva Convention’), hence it concerned an inter-state dispute. Ibid at 27. The Court went on to state that ‘The rules of law governing the reparation are the rules of international law in force between the two states concerned, and not the law governing relations between the state which has committed a wrongful act and the individual who has suffered damage … the damage suffered by an individual is never therefore identical in kind with that which will be suffered by a state; it can only afford a convenient scale for the calculation of the reparation due to the state.’ Ibid at 28. 23 Professor Dupuy in TOPCO noted that this statement ‘had only the value of an obiter dictum and not of a true ratio decidendi since restitution in kind was not formally requested and the impossibility of restitution in kind had been established by agreement between the parties. But the fact remains that the principle was expressed in such general terms that it is difficult not to view it as a principle of reasoning having the value of a precedent … .’ Texaco/Calasiatic (TOPCO) v Libya , Award, 17 ILM 3 (1978) para 98. 24 See also commentary 3 to Art 35 of the International Law Commission Articles on state responsibility (ILC Articles) in J Crawford, The International Law Commission's Articles on State Responsibility: Introduction, Text, and Commentaries (Cambridge, Cambridge University Press, 2002) at 213. The ILC Articles were adopted by the Commission on 31 May and 3 August 2001. See Report of the ILC, 53rd Session, available at <http://www.un.org/law/ilc/reports/2001/2001report.htm>, visited on 21 September 2004. 25 Marboe, above n 4 at 733 (referring to the deployment of such a ‘differential method’ in the law of damages in the 19th century). 26 See eg the CMS tribunal's discussion of the impact of future regulatory developments on the value of CMS's investment. CMS v Argentina , ICSID Case No. ARB/01/8, Award on Merits (2005) paras 419, 444, 183, 248. In the damages literature surveyed, it is very hard to find a clear statement of whether the comparison of the real course of events with the hypothetical one involves just ‘thinking away’ all of the damage-causative governmental conduct or just ‘thinking away’ the ‘unlawful’ nature; in the latter case, one has to compare the real course of events with the hypothetical course if the government could have pursued its policies and would have pursued its policies in a lawful way; see Craig, above n 19 at 779. 27 Note the discussions in both the SD Myers v Canada , Second Partial Award (Damages, October 2002) 54 ff and CMS v Argentina , above n 26 (para 444—speculating on: the demand for gas, adjustments to contracts, and other factors). 28Amoco International Finance Co v Iran , 21 Iran-USCTR 79 (1987) para 238. 29Texaco/Calasiatic , above n 23 at 505–7; see also the discussion of remedies in all three Libyan contemporaneous awards in Endicott, above n 4. 30 Judge Higgins elaborates on this issue in her Hague Academy lecture as follows: ‘In many cases, of course, restitutio is not sought … . There can be a variety of reasons for this. It can be because restitution is indeed impossible—for example, if the nationalized assets have already passed into the hands of a bona fide third party purchaser …the nationalized property may no longer exist in the same form … damages [may] represent a compensation that is satisfactory in all the circumstances … . Problems of effectiveness in relation to restitution are of course closely related to the difficulty of ordering specific performance against a state. Arbitration Tribunals feel that … they cannot order specific performance … .’ Rosalyn Higgins, ‘The Taking of Property by the State’, 176 Recueil des Cours 259 (1982) at 315–17. 31 For an extensive discussion impregnated by the 19th century symbolism of the nation state, see FV Garcia Amador, ‘State Responsibility’, ILC Commission 13th session 1961, Doc A/CN.4/134 and Add.1m 4th Report (1961) paras 62 ff (note his referral to some cases where change of a legal relationship established under national law was chosen as appropriate remedy). Veijo Heiskanen believes that this impossibility is the principal reason why restitution is not the preferred remedy. Because ‘by the time the dispute has ripened to a stage where arbitration is the only recourse (negotiations having failed), the relationship between the investor and the State has soured to the point that the investor no longer sees a reasonable basis for the investment and prefers to bail out. At the same time, the discretion of an arbitral tribunal is always limited by the parties' argument. If the claimant only seeks compensation and not restitution (which is typically the case), the tribunal cannot award “more” than what has been requested without breaching the non ultra petita rule … .’ Veijo Heiskanen's comments on the Draft ILA Report, on file with the authors. Cf Antoine Goetz and others v Republic of Burundi , ICSID Case No. ARB/95/3, Award of 10 February 1999, text accompanying n 46 below. 32 In the practice of the ICJ, ‘it is well established that the ultra petita rule, while limiting what may be ruled upon in its dispositif, does not operate to preclude the Court from dealing with certain other matters “in the reasoning of its Judgment, should it deem this necessary or desirable” ’. Case Concerning Oil Platforms ( Iran v United States ), Separate Opinion of Judge Higgins, 42 ILM 1334 (2003) paras 14 and 42. In the context of the ICSID Convention, if a tribunal's award goes beyond the parties' prayers for relief, then it could be subject to annulment under Art 52(1)(b) of the ICSID Convention for ‘manifest excess of powers’. See statement of Aaron Broches, ICSID History, Vol II (1968) at 850. However, it is sometimes difficult to determine if a remedy provided by a tribunal is covered by the ‘petitum’. That is particularly so if the parties request rests upon the concept of financial compensation based on the expropriation model, see Section 4 below, while the tribunal is more inclined to award financial compensation based on the novel, non-expropriation breaches such as national treatment or breach of the fair and equitable standard. Tribunals can enter into a dialogue with the parties to clarify what the ‘petitum’ is. In principle, tribunals cannot award a remedy that is substantially different from the one sought by the parties, but they can award a remedy that is implicitly or explicitly contained (as a ‘minus’ in the petitum for a ‘maius’) of a party's request. For a comparative survey of judicial remedies: A Blomeyer, ‘Types of Relief Available (Judicial Remedies)’, in M Cappelletti (ed), International Encyclopaedia of Comparative Law (T?bingen, Mohr, 1982) ch 4. 33‘Money is the common measure of valuable things’. Garcia Amador, above n 31 at para 71 quoting Grotius. 34Art 35(2) of the ILC Articles requires a responsible state to make restitution, provided and to the extent that it ‘does not involve a burden out of all proportion to the benefit deriving from restitution instead of compensation’. 35 Though financial compensation as an alternative or complement to the conventional WTO remedies is often discussed. See eg M Bronckers and N van den Broek, ‘Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement’, 8(1) J Int'l Econo L 101 (2005) 103 (noting that compensation under the WTO system is only theoretically available, because it is subject to the willingness of the losing party to pay). Craig, above n 3 at 748 and 766, suggesting that in European administrative practice annulment is the ‘normal’ consequence of a breach of law, with ‘damages’ only available for particularly serious ‘superior’ rules in favour of individuals. 36 See eg DJ Galligan, Administrative Law (Aldershot, Dartmouth, 1992); Andr? de Laubad?re, Jean-Claude Venezia, and Yves Gaudemet, Droit administratif (Paris, Librairie g?n?rale de droit et de jurisprudence, 14th edn, 1992); Abram Chayes, ‘Supreme Court 1981 Term’, 96(1) Harv L Rev 1 (1982) 46 (‘in public law litigation, the dominant form of relief is prospective and affirmative rather than compensatory …’). Craig, above n 3 at 749 ff. 37 T Downes, ‘Trawling for a Remedy: State Liability under Community Law’, 17 Legal Studies 286 (1997) at 287–8 (discussing in particular the seminal Francovich case—financial liability in case of delay of implementation of a directive bestowing specific individual rights). On EU administrative law, see J Schwarze, European Administrative Law (London, Sweet & Maxwell, 1992); S De Smith, H Woolf and J Jowell, Judicial Review of Administrative Action (London, Sweet & Maxwell, 5th edn, 1995); see also B Kingsbury, N Krisch, and Richard B Stewart (eds), ‘The Emergence of Global Administrative Law’, 68 L & Contemp Probs 15 (2005). 38 See eg the intense dissent by Professor Ian Brownlie in the CME case. 39 Philip Bobbit, Shield of Achilles (New York, Knopf 2002) at 798; JH Dalhuisen, Dalhuisen on International Commercial, Financial and Trade Law (Oxford, Hart, 2000) p vii. 40 Pasqualucci, above n 19 at 232–77, with reference to both the European and Latin American practice. 41 See generally Schreuer, above n 6; for a more cautious approach, see C Gray, Judicial Remedies in International Law (Oxford Clarendon Press 1990) 12; G Treitel, Remedies for Breach of Contract, International Encyclopaedia of Comparative Law (T?bingen, Mohr, 1976) 174 ff (discussing the discretion of judges in choosing a variety of assessment methods to award damages in common law and civil law systems); and Blomeyer, above n 32. 42Rainbow Warrior Case 20 UNRIAA 217 (1990) 270 (where the tribunal said ‘[t]he authority to issue an order for the cessation or continuance of a wrongful act or omission results from the inherent powers of a competent tribunal which is confronted with the continuous breach of an international obligation which is in force and continues to be in force.’). 43 Blomeyer, above n 32 (explaining a variety of remedies that one could seek in national courts). 44 Some investment treaties limit the power of the tribunal to award restitution of property or monetary remedies in lieu thereof. See eg Art 34 of the US Model BIT of 2004, available at <http:\\www.ustr.gov> Art 54 of the ICSID Convention (limiting the obligation of state parties to the Convention to enforcement of pecuniary remedies); Art 26(8) second sentence ECT (requires that the award contain an option allowing the state party to the dispute to provide monetary remedies in lieu of any other remedy); and Art 1135 of the NAFTA (same). 45 In Petrobart , for instance, the issue of specific performance was raised by the state in the context of its response to claimant's prayer for lost profits. The Kyrgyz Republic stated that specific performance is the primary remedy for breach of obligations under international law and that ‘the Republic could therefore be ordered’ to continue to perform the obligations arising out of the parties' contract. Petrobart also agreed, but said that specific performance under the circumstances of the case was not possible, because among other things the contract is no longer in force. Petrobart v Kyrgyz Republic , SCC Arbitration No. 126/2003, Award of 29 March 2005, at 78. 46Goetz , above note 31 at para 137. 47 Using ‘replacement value’ is close to the historic cost-based approach; liquidation value is rather a sort of market value (though necessarily subject to the discount pressures that would be likely in case of a true liquidation). Replacement value was used in the Corfu Channel case (Judgment on Compensation) at 249, to value the destroyed ship; also in American Independent Oil Company (‘Aminoil’) v Government of State of Kuwait , 21 ILM 976 (1982) para 165, and as a supplementary measure also in Oil Fields of Texas v NIOC , 12 Iran-US CTR 308 (1986) para 43, and Phillips Petroleum v Iran and NIOC , Award No. 425-39-2, 21 Iran-US CTR79 (29 June 1989) paras 160–2. 48 This method was used in CME , above n 14 (Final Award); see also comment by Rajarao, ‘Determining Damages in Cross-Border Disputes’, TDM 2007. 49 See eg the comments made in the 11th Geneva Global Arbitration Forum, ‘Settling Disputes on a Shrinking Planet’, 6(1) JWIT 17 (2005). Martin Hunter and Anthony Sinclair, ‘Changed Circumstances: Aminoil Revisited’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005) 347 (hereinafter: ‘Weiler ed 2005’); but see the careful discussion of damages in the Myers v Canada award, above n 27. 50 See eg Charles N Brower and Jarrod Wong, ‘General Principles of Valuation: The Case of Santa Elena’, in Weiler ed 2005, above n 49 at 774 (the authors note that the Santa Elena tribunal ‘picked the half-way mark between the parties respective 1978 appraisals’). See also SPP v Egypt , ICC Award, 22 ILM 752 (1983) 771. For an analysis of these cases, see Markham Ball, ‘Assessing Damages in Claims by Investors against States’, 32 ICSID Rev—FILJ 408 (2001) at 426 ff. 51 Ibid at 426 (Markham Ball suggests that very rough splitting with round numbers without a specific link to a rational analysis was applied in SOABI v Senegal , ICSID Case No. ARB/82/1 (‘all account of the loss’); AMT v Zaire , ICSID Case No. ARB/93/1 (‘in the tribunal's exercise of its discretionary and sovereign power to determine the quantum of compensation’); AIG v Iran , 4 Iran-US CTR 96 (1983) (‘tribunal will have to make an approximation of that value, taking into account all relevant circumstances’). 52 See eg Generation Ukraine v Ukraine , ICSID Case No. ARB/00/9 (2003), 22 ILM 404 (2005) paras 24.6–24.8 (‘the tribunal—unusually—made the losing claimant pay a modest part of respondent's legal representation cost (US$ 100,000) because of an exorbitant claim not substantiated in anyway (9.4 billion US$ claim). For an extensive survey of cost decisions in investment disputes see W?lde, Separate Opinion, in Thunderbird . 53 See comment by S Lazareff, ‘Assessing Damages—Are Arbitrators Good at it Should they be Assisted by Experts Should they be Entitled to Decide ex aequo et bono?—Some War Stories’, 6(1) JWIT 17 (2005) 17–18; M Kantor and D Rudo, ‘Help for Arbitrators (and Judges) Valuing Business Interests’, Draft, July 2006, on file with the authors. 54CMS v Argentina , ICSID Case No. ARB/01/8, Award on Merits (2005) para 435 (‘Tribunal, with the help of its own experts, built its own model’); see also Starrett Housing Corporation et al v Iran et al , Award No. ITL 32-24-1, 4 Iran-US CTR 122, 157 (19 December 1983); Phillips Petroleum v Iran and NIOC , Award No. 425-39-2, 21 Iran-US CTR 79 (29 June 1989); see also Brower and Brueschke, above n2 at 576–83. 55 For a discussion of moral hazard in international loans and bonds, see Janet Lowe (ed), The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend (New York, Chichester Wiley, 1999). L Wells and R Ahmed, Making Foreign Investment Safe: Property Rights and National Sovereignty (Oxford, Oxford University Press, 2007) 201; R Posner, Economic Analysis of Law (Boston, Little Brown, 3rd edn, 1986) at 108 (‘Notice how careful the law must be not to exceed compensatory damages if it doesn't want to deter efficient breaches’). One has to weigh here the fact that some disputes will not be arbitrated (which should rather favour higher compensation in those cases which do) versus the fact that the prospect of compensation (including risk and litigation cost) should not make investors careless in assuming and managing such risk; I Ayres and R Gertner, ‘Filling Gaps in Incomplete Contracts’, 99 Yale LJ 87 (1989) at 87. 56 John Gotanda, ‘Recovering Lost Profits in International Arbitrations’, 30 Geo J Int'l L 61 (2004) 111 (‘tribunals should be mindful that where the claimant seeks both damnum emergens and lucrum cessans, they need to be careful to avoid double counting to ensure the claimant obtains the benefit of the bargain and no more’); see also Louis Wells, ‘ “Double Dipping in Arbitration Awards?” An Economist Questions Damages Awarded to Karaha Bodas Company in Indonesia’, 19(4) Arb Int'l 471 (2003) at 472 ff (criticizing the KBC award for awarding both damnum emergens and lucrum cessans to claimants); Crawford, above n 24, commentary on Art 36, at p 227; Marboe, above n 4, at 747 (finds double recovery in Letco v Liberia as net worth plus future profits were awarded). 57 WM Reisman and RD Sloane, ‘Indirect Expropriation and its Valuation in the BIT Generation’, 74 Brit YB Int'l L 115 (2003) 138 (‘lucrum cessans … (is) essentially a fine “… to permit” tribunals to penalize egregious conduct …’). For an extensive and helpful discussion of the risk and methods of avoiding the risk of double recovery see Kantor and Rudo, above n 53 at 36. See below on the ‘punitive function’ of compensation awards. 58 Lost profits were awarded inter alia in Soci?t? Ouest Africaine des B?tons Industriels (SOABI) v Senegal , ICSID Case No. ARB/82/1, Award of February 25, 1988, paras 7.01–7.18; and Liberian Eastern Timber Corporation (Letco) v Republic of Liberia , ICSID Case No. ARB/83/2, Award of 31 March 1986, 2 ICSID Rep 346 (1994) 373–7. 59 In essence, here we are talking about the financial effect of the loss of use of a damaged asset from date of loss to date of compensation. This is commonly handled by valuation experts in business insurance claims as a ‘business interruption claim’. See also Kuwait Petroleum Corporation's loss of production claim in Report and Recommendations made by the Panel of Commissioners Concerning the Fourth Instalment of ‘E1’ claims of 14 April 2000 available at <http://www2.unog.ch/uncc/>. 60 See persuasive critique of KBC v Indonesia by Wells, above n 56; see also Wells and Ahmad, above n 55 at 212 with reference to DW Bowett, ‘Claims Between States and Private Entities: The Twilight Zone of International Law’, 35 Cath U L Rev 929 (1986) 931–2; T Stauffer, ‘Valuation of Assets in International Takings’, 17 Energy LJ 459 (1996) 459–88. 61 Crawford, above n 56 at 227 n 593. 62Aminoil v Kuwait , above n 47 para 178; World Bank Guidelines (1992) IV(6). 63INA v Iran 8 Iran-USCLT Rep 373 (1985) 383; SEDCO Inc v Iran Marine Industrial Company Award No. 419-128/129-2, 30 March 1989, 21 Iran-US CTR 31 (1987) 34–5; Starrett Housing Corporation et al v Iran et al Award No. ITL 32-24-1, 4 Iran-US CTR 122, 157 (19 December 1983) 122–3; Phillips Petroleum , above n 47 at 122; Compa?ia del Desarrollo de Santa Elena SA v Republic of Costa Rica , ICSID Case No. ARB/96/1, Award of February 2000 at para 70; Asian Agricultural Products Limited (‘AAPL’) v Democratic Socialist Republic of Sri Lanka , ICSID Case No. ARB/87/3, Award of 27 June 1990, 4 ICSID Reports 245, at para 96. 64 But both the market benchmarking method and its proxies take into account future prospects, either in the cost-accounting by valuing matters such as goodwill, management, and the ‘package’ of individual assets assembled into a business, or by incorporating future income (which includes much more than profits, a narrower, and more ambiguous concept). 65 Marboe, above n 4, at 728; Siemens AG v Argentine Republic , ICSID Case No. ARB/02/8, Final Award of 6 February 2007, paras 379–84 avoids the double recovery trap by relying on a number of reasons. It could have simply said: compensation for all investment plus a measure (even if discounted) of future profit would amount to double recovery. 66 The confrontation of these groups after the takeover of Communism (post-World Wars I and II), and after de-colonization and during the period when developing countries claimed a ‘New International Economic Order’ intensified. See generally Thomas W?lde, ‘A Requiem for the “New International Economic Order’, in G Hafner, G Loibi, A Rest, L Sucharipa-Behrmann, and K Zemanek (eds), Festschrift Ignaz Seidl-Hohenveldern (The Hague, Kluwer International, 1998) at 771. 67‘Western’ was in the past synonymous with ‘capital-exporting’ countries. But this is changing. We should assume that this position is also becoming the position of countries such as China, India, and Russia to the extent that these now very successful economies become significant and in particular net capital exporters. Professor Sornarajah's position will then be limited to finding support in economically failing countries and now re-radicalized major oil producers with no success in economic diversification. On his position see generally M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004). 68UNGA Res 1803—‘appropriate compensation’ ‘in accordance with the rules in force in the state taking such measures’. It could be argued that this resolution indicated emerging customary international law in 1961, but it was superseded, first, by the move towards more radical NIEO positions in 1974 by the UNGA, and then by the counter-move in the investment treaty movement which accelerated in the 1980s, partly to counter the impact of the UN resolutions. Eileen Denza and Shelagh Brooks, ‘Investment Protection Treaties: United Kingdom Experience’, 36 Int'l & Comp LQ 908 (1987) 909–10. 69The Restatement (Third) of the Foreign Relations Law of the US (American Law Institute, 1987) § 712 n 2 still represents the most succinct authoritative statement on this issue. See also Texaco v Libya , above n 23 at 27 ff; PA Norton, ‘A Law of the Future or A Law of the Past? Modern Tribunals and the International Law of Expropriation’, 85 Am J Int'l L 474 (1991) 478–9; Ball, above n 50 at 413–14; BM Clagett, ‘Present State of the International Law of Compensation for Expropriated Property and Repudiated State Contracts’, in Holgren (ed), Private Investors Abroad: Problems and Solutions in international Business, § 12.04[3] (New York, Matthew Bender, 1989); MH Mendelson ‘What Price Expropriation, Compensation for Expropriation: The Case Law’, 79 Am J Int'l L 414 (1985) 414–20; Ian Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) 509–12; CF Amerasinghe, ‘Issue of Compensation for the Taking of Alien Property in the Light of Recent Cases and Practice’, 41 Int'l & Comp LQ 22 (1992) 23; Oscar Schachter, ‘Compensation for Expropriation’, 78 Am J Int'l L 121 (1985) 129–30. 70UNGA Res 3201 and 3202 of 1974; 3281 of 1974; M Sornarajah, above n 67 at 435–85. 71 M Shaw, International Law (Cambridge, Cambridge University Press, 5th edn, 2003) 750. The reference to the lower compensation standards in some (not all) lump-sum settlements is not persuasive because inter alia all of the lump-sum settlement cases occurred in the context of large political crises where capacity to pay compensation was severely limited; in most other cases, there was a limited budget made available (eg UNCC; Iran-US Cl Trib). See generally R Lillich and B Weston, International Claims: Their Settlement by Lump Sum Agreements (Charlottesville, Va, University Press of Virginia, 1975). 72 See R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague, Martinus Nijhoff Publishers, 1995) 109. 73 With over 2,500 BITs at present plus the probably close to 1,500 treaty relationships established between states through multilateral treaties such as the ECT, the NAFTA, and a number of Asian and Latin American treaties. Note just Schwebel, above n 15 and S Hindelang, ‘Bilateral Investment Treaties, Custom and A Healthy Investment Climate: The Question of Whether BITs Influence Customary International Law Revisited’, 5 JWIT 789 (2004); Reisman and Sloane, above n 57 at n 158 (suggesting that per BITs and arbitral awards ‘the broader conception of expropriation embodied by BITs to some extent has become—and to some extent remains in the process of becoming—customary international law insofar as states begin to acknowledge these standards as legally binding in contexts not governed by BITs.’). While it is very difficult to identify any judgment or award that is aligned with the NIEO position, all recent as well as older arbitral awards confirm the principle of full compensation. See eg Myers v Canada , First Partial Award, 13 November 2000 at paras 259, 262; CME , above n 14 at para 497; Metalclad Corporation v United Mexican States , ICSID Case No. ARB(AF)/97/1, Award of 30 August 2000, at paras 118–19. See also the following Iran-US Cl Trib cases: INA , above n 63 at 380; Tippets et al v Iran , 6 Iran-US Cl Trib 219 (1984) 225; Sola Tiles v Iran , Award No. 298-317-1, 14 Iran-US Cl Trib 223 (1987) at para 42; Amoco International Finance Co v Iran , 15 Iran-US Cl Trib 189 (1987) at para 207. Cf Sornarajah, above n 67 at 205, 213 ff. 74 Norton, above n 69 at 489–90. This does not mean that this consensus could not disappear again in the future, under the impact of inevitable economic and financial national and global crises, with an impact on customary international law. 75 For a more extensive discussion, see Marboe, above n 4 at 735–43. MA Abdala and PT Spiller, ‘Damage Valuation of Indirect Expropriation in International Arbitration Cases’, 4(3) TDM (2003). 76 Ball, above n 50 at 418; for a critical discussion, see Ignaz Seidl-Hohenveldern, ‘L'?valuation des dommages dans les arbitrages transnationaux’, 33 Annuaire fran?ais de droit international 7 (1987) 17–22. 77Amoco International , above n 73 at 1367 (‘market value is an ambiguous concept, to say the least … when an open market does not exist for the expropriated asset or for goods identical or comparable to it’). 78 Benjamin Graham and Jason Zweig, The Intelligent Investor: The Definitive Book on Value Investing (Harper Business Essentials, revised edn, 2003) 201–3 and 213–14. 79 Robert J Shiller, Irrational Exuberance (Princeton, Princeton University Press, 2nd edn, 2005) 128–9. 80 B McLean and P Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York, Penguin, 2003) 129–30 (discussing Enron's artificial marking up of the price of one of its acquired companies, Mariner, to fill a gap in its book). See eg Azurix v Argentina where the compensation due was reduced because the tribunal considered that Azurix (Enron) had heavily overbid in the Argentine privatization tender. Azurix Corp v Argentine Republic , ICSID Case No. ARB/01/12, Final Award, 14 July 2006. 81 A known political risk that markets accepted and factored into their price earlier can suddenly destroy market value if the mere mood of the market, reacting to no or only small additional pieces of information, changes. The share price of Yukos Oil, for instance, dropped from over 40 to under 1 within a year (2004), when tension between Yukos and the government of Russia had been known about from the beginning. See Leuthaeusser Report to EP in the Yukos claim in Houston, available at TDM 2006 (<http:\\www.transnational-dispute-management.com>). 82 In the CME case, the tribunal used prior offers to establish its valuation; CME , above n 14 at para 553. W?lde, in a 2006 Expert Opinion, suggested that a write-off under SEC rules and the absence of any offers for an investment indicates a severe or total economic deprivation (under Art 1110 of the NAFTA). Several OPIC claims also use an accounting write-off to determine both the fact of indirect expropriation and the value of the taken assets. See Ponderosa Assets , OPIC Memorandum of Determinations, 2 August 2005, p 6, available at <http://www.investmentclaims.com>. 83 See eg the description of net book value method in Stauffer, above n 60 at 461; WC Lieblich, ‘Determining the Economic Value of Expropriated Income-Producing Property in International Arbitrations’, 8 J Int'l Arb 59 (1991) 69; Todd Weiler and Luis Miguel Diaz, ‘Causation and Damages in NAFTA Investor-State Arbitration’, in T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley, NY, Transnational Publishers, 2004) 199 (hereinafter ‘Weiler ed 2004’). 84 Accounting done on the basis of securities regulation—eg US SEC rules—may also provide a better indication of value than party-appointed expertise. 85 Weiler and Diaz, above n 83 at 199. 86 Book value is normally taken to represent depreciated value of an asset as disclosed on a company's balance sheet. Depreciation, as an accounting concept, refers to the average or expected decline in the value of an asset during its useful life. A variety of methods may be used to calculate the amount of depreciation, such as the straight-line method or declining balance method, and so forth. Choice of these methods as well as that of the useful life are relatively subjective, which, in some circumstances, could produce misleading results. 87 PD Friedland and E Wong, ‘Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies’, 6 ICSID Rev—FILJ 400 (1991) 406; See also Amco v Indonesia , Resubmitted Case, Award of 5 June 1990, 1 ICSID Reports 615, para 190 (NBV is ‘unsuited to placing a party in the position of his contract having been performed’). 88 An excellent illustration of methods to manipulate, in particular net income data, may be found in Mclean and Elkind, above n 80 at 367–9. 89 In addition, long-term historical trends have a tendency to continue and say more about a business's solidity and market position than projections based on a very short history of performance. Graham and zweig, above n 78. 90 Ibid at 31. 91 Paulsson, above n 18 at 216. 92 Hugo Perezcano Diaz, ‘Damages in Investor-State Arbitration: Applicable Law and Burden of Proof’, in Y Derains and R Kreindler (eds), Evaluation of Damages in International Arbitration (Paris, ICC Institute of World Business Law, 2006) 125–7 (referring to Amoco v Iran ; Metalclad v Mexico ; AAPL v Sri Lanka ; Autopistas v Venezuela cases). One way to deal with ‘speculative forecasts’ (with acknowledgement to David Mildon) would be to let the tribunal adjust an award after a set period. But that would be contrary to the search for ‘finality’ of an award, though the SGS v Philippines tribunal introduced in effect the concept of a ‘suspended tribunal with suspended jurisdiction’. 93 B Land, ‘Similarities and Differences between Mining and Petroleum Investment: A Comparison of Industry Characteristics, Company Decisions and Host Government Regulation’ (1994), 5(2) OGEL (2007) 18. A not yet public Expert Opinion by W?lde deals with the implication of exploration risk for investor protection. 94 While historic cost may at times have to be multiplied in the case of petroleum exploration and similar high-risk activities, it may at other times also have to be downgraded, eg in case of excessive and wasteful expenditures (‘goldplating’), where the relation of expenditure to current value becomes tenuous. This aspect reinforces the need to use and compare alternative valuation methods to develop a reasonable valuation range. 95 DCF-based compensation was applied in several Iran-US Cl Trib cases such as Starrett Housing , above n 63 at paras 32 and 279, and Philips Petroleum , above n 47 at 123; but not in Amoco , above n 73. It was also applied in Amco v Indonesia (Resubmitted), above n 87 at para 196; CMS v Argentina , above n 27 (for fair and equitable treatment); CME , above n 14 at para 416 (partially, in addition to the comparable transaction method). It was explicitly not applied in Aminoil , above n 47, and Amoco v Iran , above n 73. See also AAPL v Sri Lanka , above n 63 at para 102; Metalclad , above n 73 at paras 119–21; SPP v Egypt , ICSID Case No. ARB/84/3, Award of 20 May 1992 at paras 184–91; Wena Hotels Limited v Arab Republic of Egypt , ICSID Case No. ARB/98/4, Award of 8 December 2000 at para 122; T?cnicas Medioambientales Tecmed, SA v United Mexican States , ICSID Case No. ARB(AF)/00/2, 29 May 2003 at para 186. 96 See eg L Schall, G Sundem, and W Geijsbeek, ‘Survey and Analysis of Capital Budgeting Methods’, 33 J Fin 281 (1978) (‘The theoretical and empirical foundations of the DCF method as it is applied today were largely in place by the mid-1960s’), cited in WC Lieblich, ‘Determinations by International Tribunals of the Economic Value of Expropriated Property’, 7 J Int'l Arb 37 (1990) 37 n 4. 97 Ball, above n 50 at 414; Seidl-Hohenveldern, above n 76 at 728–30; Marboe, above n 4 at 737 ff. Some of the other methods used to value investments include Replacement Value Method (see the discussion of the application of this method in Thomas Earl Payne v Iran at Brower and Brueschke, above n 2 at 565) and Liquidation Value Method (applied in SEDCO). For a discussion of these methods, see Friedland and Wong, above n 87 at 405–8. 98 Enron, a Houston company that later suffered the largest US bankruptcy in history, was famous for employing the most sophisticated financial analyst graduates from Harvard Business School and McKinsey Consulting. It was equally famous for overbidding by several times on project tenders. It simply used the most optimistic assumptions, the lowest discount rate, and minimized assumptions of risk. McLean and Elkind, above n 80 at 114–18. For a discussion of the plausibility of different opinions with respect to valuation of prospective future income, see Marboe, above n 4 at 729. 99 Graham and Zweig, above n 78; Robert G Hagstrom, The Warren Buffett Way (Hoboken, NJ, Wiley & Sons Inc, 2nd edn, 2004). 100 Valuing an asset as opposed to a business or project, which is often simply a collection of assets employed to fulfil a common commercial cause, could be different. Asset valuation looks at costs (historic, replacement, usage, condition, benchmark, scarcity, market); whereas business valuation and large-scale loss of profit/business interruption valuations draw on many common valuation methodologies, which are more forward looking. 101 Stauffer, above n 60 at 459–60. 102 T W?lde, Juristische Folgenorientierung (Frankfurt, Athenaeum, 1979). 103 Kantor and Rudo, above n 53. 104 Stauffer, above n 60 at 462; cf Lieblich, above n 83 at 69; Friedland and Wong, above n 87 at 406; Weiler and Diaz, above n 83 at 199. 105 See eg Phillips Petroleum , above n 47 at paras 111–16, 154–8; cf Amoco International , above n 73. 106 See eg SPP v Egypt , ICC Award 3493 of 11 March 1983, 3 ICSID Rep 46, at para 65; AAPL v Sri Lanka , above n 63 at para 104; Metalclad , above n 73 at paras 120–5; Wena Hotels , above n 95 at paras 123–4. The Autopista tribunal, relying on the cited cases, concluded that ‘These decisions show that ICSID tribunals are reluctant to award lost profits for a beginning industry and unperformed work’. Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela , Case No. ARB/00/5, Award of 23 September 2003 at para 360. The practice of Iran-US Cl Trib confirms this conclusion. See ibid citing GH Aldrich, The Jurisprudence of the Iran-United States Tribunal (Oxford, Clarendon Press, 1996) 294. An unpublished recent award—Biederman v Kazakhstan—reportedly also reflects reluctance to award compensation value based on profit expectations through to a distant future when no substantial record of earnings was available. Earlier: Dorner Claim. 107 Seidl-Hohenveldern emphasizes the lack of confidence of lawyers towards the accounting experts chosen by the parties who ‘tout en arrivant a des r?sultants fort disparates, assurent pourtant que les facteurs qu'ils emploient anticipent d'une fa?on exacte ces ?v?nements futurs. Ces calculs contiennent tant d'?l?ment de conjecture qu'ils paraissent aux non-initi?s ? la science comptable gu?re moins sp?culatifs et tout aussi obscures que les proph?ties de Nostradamus'. Seidl-Hohenveldern, above n 76 at 24. 108 See Crawford, above n 56 at 228–9; MM Whiteman, Damages in International Law (US Gov Print Off, 1943) 1837; United Nations Compensation Commission (UNCC) Governing Council (GC) Decision 9, UNCC GC, Resumed 4th Sess, para 15, UN Doc S/AC.26/1992/9 (1992); Weiler and Diaz, above n 83 at 196; scepticism against DCF calculations is expressed in: Tecmed v Mexico , above n 95 at para 186; Wena Hotels v Egypt , above n 95 at para 122; Biloune v Ghana 95 ILR 183 (1990) 228–9; Autopista v Venezuela , above n 106 at paras 362–3. 109 This—most solid—valuation technique requires an extensive period (best 10 years or more) of operations and thus would not be applicable to disputes that break out during or shortly after the development of a project. 110 On replacement value and other less used concepts—tax value, insurance value, unjust enrichment—see Seidl-Hohenveldern, above n 76 at 19–23. 111 Contrast CME , above n 14 at 151 (where the compensation was calculated assuming the extension of a TV licence) with CMS , above n 27, at paras 419 and 439 (where the tribunal disregarded the prospect of licence extension in 2027). See also Maritime International Nominees Establishment (MINE) v Republic of Guinea , ICSID Case No. ARB/84/4, Award of 6 January 1988, 4 ICSID Reports 61 (1997) 75–6; Jaffa-Jerusalem Railway Arbitration of 1922 had a cut-off at the end of the concession's duration. Note discussion in Kantor and Rudo, above n 53 at 43 and 44 with reference to domestic courts and ICC awards discussion of the proper duration. One of the quoted awards uses the mitigation principle to reduce the duration of the DCF/NPV calculation, another award uses the full duration of a contract. The link between mitigation and duration issues has not as yet been properly analysed for investment and related quasi-investment long-term contract disputes. 112 Risk is usually commensurate with reward. That correlation may not hold in all situations but is one of the essential tenets of investment. High rewards without risk are as a rule suspicious. 113 See Paulsson, above n 18 at 216 (‘tribunals are seldom persuaded to give indirect damages for the loss of high-yield ventures, but rather consider that a prudent rate of return on safe money markets are the appropriate standards’). That view also informed the application of a ‘good faith/abuse of rights’ standard to reduce such damages in the Himpurna award (which Mr Paulsson chaired). Without resorting to abuse of rights doctrine, the same result could be reached by using a discount rate which would reflect the much higher risk for a very long-term, projected high-yield venture in a high-risk country. 114CMS v Argentina , above n 27 at para 419. The effect of an economic crisis therefore needs to be examined in the merits phase (excuse for non-performance?), but also in the damages phase of an investment dispute; cf Phelps Dodge v Iran , Award No. 218-135-2, 19 March 1986, 10 Iran-US Cl Trib 157 (1986) paras 30–1. 115 If one visualizes future events as a ‘bell curve’, with the main probabilities in the middle and extreme events (very high or very low values as small probabilities) at the two margins of the bell curve, then tribunals should apply a conservative method and rely on the events that show up as ‘mainstream’ probability in the centre of the bell curve. 116 David Mildon suggests correctly that it is better to use the term ‘margin of appreciation’ than ‘discretion’, which in different legal cultures has a different meaning, with an English public law approach accepting a wider range of ‘discretion’, while in civil law administrative laws (eg France or Germany) the term discretion triggers automatically a quest for ‘detournement de pouvoir’ or ‘Ermessensmissbrauch’. 117‘Excess values’ can be visualized as being located at the two fringes of a bell curve. Their origin is often in the dynamics of litigation, which compels both parties to push their experts to come up with very high values to influence the point in the middle where tribunals often like to find themselves. The proper method to deal with such excess values is—as often done in statistical analysis—to disregard them if not solidly and persuasively reasoned. 118 See eg Myers v Canada , above n 27. 119 W Buffet and B Graham (referring to style of ‘value’ rather than ‘growth’ perspective). 120 Early-period earnings suffer from two shortcomings in establishing a reasonably solid value: first, they will be depressed by start-up costs; and secondly, they may be inflated by early-movers’ advantage; if a project appears to be very profitable, it is then likely to attract competition which will often drive profitability down. 121Metalclad , above n 73 at para 120; Sola Tiles , above n 73 at para 64; AAPL v Sri Lanka , above n 63 at 292–3; Phelps Doge v Iran , above n 114 at 132–3; Biloune v Ghana , supra note 108 at 228–9; Autopista v Venezuela , above n 106 at para 326; (reportedly) AIG v Kazakhstan (not published). See also Weiler and Diaz, above n 83 at 208–9. Biederman v Kazakhstan (information with the authors). 122 Brower and Brueschke, above n 2 at 435. 123 T W?lde and A Kolo, ‘Environmental Regulation, Investment Protection and Regulatory Taking in International Law’, 50 Int'l & Comp LQ 811 (2001); A Reinisch, ‘Expropriation’, 2(5) TDM (2005); Z Al-Qureshi, ‘Indirect Expropriation in the Field of Petroleum’, 5(6) JWIT 897 (2004); R Dolzer, ‘Indirect Expropriation of Alien Property’, 1 ICSID Rev-FILJ 41 (1986). 124 Ibid . 125 Reisman and Sloane, above n 57 at 140–1; Merrill, above n 12 at 116. 126 But note Marboe, above n 4 at 758 (the author suggests comparing value before and after the regulation. But this does not take into account that the government may have lawfully pursued its policy by alternative regulation. That may produce a significantly lower value. We suggest that both approaches should be considered and compared). 127 See generally N Rubins, ‘Must the Victorious Investor-Claimant Relinquish Title to Expropriated Property?’, 4(3) JWIT 481 (2003). 128 See the recent US Supreme Court case of Lingle v Chevron USA Inc (04-163) 363 F 3d 846 (2005), reversed and remanded. 129 In commercial law, analogous issues have been dealt with in Paula Lee Ltd v Robert Zehil & Co Ltd , 2 All ER 390 (QBD 1983) (Lord Mustill); see also Lion Nathan v CC Bottlers (1996) 1 WLR 1438 at 1446 (Lord Hoffman). 130 Compensation by the ECHR under Art 1 of the Additional Protocol (itself quite close to the concept of ‘regulatory expropriation’) seems to be oriented at these criteria, which may be more suitable for ‘indirect expropriation’ than conventional formal expropriation analysis. See DJ Harris, M O'Boyle, and C Warbrick, Law of the European Convention on Human Rights (London, Butterworths, 1995) at 532, 533 (noting that the ‘level of compensation must be reasonably related to the value of the property taken’, but does not require full compensation). 131 See eg Art 13 of ECT: ‘Such compensation shall amount to the fair market value of the Investment expropriated at the time immediately before the Expropriation or impending Expropriation became known in such a way as to affect the value of the Investment (hereinafter referred to as the “Valuation Date”)’. This formulation suggests that the ‘valuation date’ is not meant to be a point in time—suggestive of conventional formal expropriation with an effective date, but can as well be a ‘period of time’. 132 In principle and theory, the normal market value of an investment project at any time should be discounted by the risk (probability) of expropriation and similar political risk, with an addition for the amounts and probabilities of compensation (minus the cost/risk of litigation). 133Santa Elena v Costa Rica , above n 63 at para 76; see also the extended commentary by Brower and Wong, above n 50. 134 But see Reisman and Sloane's reference to Starrett Housing (1984), 123 ILM 1090, 1133, 1137, in Reisman and Sloane, above n 57 at 149. 135 This issue is the focus of the Reisman and Sloane article. See ibid . 136 That has in particular been the case with the Iran-US Claims Tribunal creeping expropriations, see generally Brower and Brueschke, above n 2; note also the occupation of the factory in the Case Concerning Elettronica Silua SpA (ELSI) v Italy ( US v Italy ), 1989 ICJ Rep at 69. 137 See Reisman and Sloane, above n 57 at 138 and 139 (too late a point of time as ‘valuation date’ would reward states for ‘accomplishing expropriation tranche par tranche rather than d'un coup and to encourage states to accomplish expropriation furtively’—and a ‘delictor may not benefit from its own delict’); see also Starrett Housing , above n 63 at 1133 (‘valuation must exclude any diminution in value attributable to wrongful acts of the expropriating government’). ‘The depressing effect on values of threats or acts of nationalisation must be ignored in ascertaining the market value of subsequently nationalised enterprises’. Reisman and Sloane, above n 57. 138 The only extensive treatment we could find is chapter VIII in Jan Paulsson's Denial of Justice—focusing on compensation for denial of justice. It is not clearly established if ‘denial of justice’ is a subcategory of the fair and equitable treatment or the ‘constant security and protection’ obligation or comes into play with investment treaties through references to customary international law standards. 139CMS v Argentina , above n 27 at para 410; see also Azurix v Argentina , above n 80 at paras 420, 424 ff. 140 See eg the discussion of Nykomb v Latvia , below at n 152 and the accompanying text. 141 See the analysis of Chorzow Factory dictum at text accompanying n 23 above. 142 For a recent discussion of this issue, see T Weiler, ‘Saving Oscar Chinn: Non-discrimination in International Investment Law’ in Weiler ed 2004, above n 83 at 159; See also Borzu Sabahi, ‘National Treatment: Is Discriminatory Intent Required’, in T Weiler (ed), Investment Treaty Arbitration: A Debate and Discussion (Hustington, NY, Juris Publishing, forthcoming). W?lde has prepared a study to be published in the forthcoming Liber Amicorum for Fernando de Trazegnies, Lima, Peru. 143 National treatment requires three essential tests: comparison (‘likeness’), difference in treatment and absence or presence of legitimate reasons. See generally Weiler, above n 142; SD Myers v Canada , UNCITRAL Arbitration (NAFTA), 13 November 2000 at paras 130 ff; Feldman v Mexico , ICSID Case No. ARB (AF)/99/1, Award of 16 December 2002 at para 166; Nykomb Synergistics Technology Holding AB v Latvia , SCC Arbitration, December 2003 at 34. 144Myers , above n 27 at para 197. As noted, it may be better to view this as a ‘margin of appreciation’ rather than as ‘discretion’ in the sense it is used in comparative administrative law. 145 See eg CME ; Pope and Talbot Inc v Canada , UNCITRAL Arbitration under Chapter 11 of NAFTA; Myers ; Saluka Investments BV v Czech Republic . A separate remedies phase allows all— tribunal and parties—to focus properly on the issue of remedies. It avoids unnecessary early investment of time and money by all players on the issue of damages. It also allows the parties to engage in settlement negotiations with a much clearer view of the case already decided in principle. 146 Nor have they considered the possibility of awarding non-monetary remedies. That is more understandable under NAFTA Article 1135 where ‘final’ awards can only provide for monetary compensation. But, under international law, as the extensive discussion of remedies in the ILC Articles shows, non-pecuniary remedies may also be awarded, although they may not be enforceable if an award has been rendered under the ICSID Convention. See Sect (1)(d)(ii) above. 147 See eg CME v Czech Republic , above n 14, where the tribunal relied upon the fair market value analysis using a recent arm's-length offer to buy the enterprise as the starting point for valuation. 148Occidental Exploration and Production Company v The Republic of Ecuador , Final Award, LCIA Case No. UN3467 (2004) para 205. 149 It noted inter alia that ‘… In the absence of discrimination that also constitutes indirect expropriation or is tantamount to expropriation, a claimant would not be entitled to the full market value of the investment which is granted by NAFTA Article 1110. Thus, if loss or damage is the requirement for the submission of a claim, it arguably follows that the Tribunal may direct compensation in the amount of the loss or damage actually incurred.’ Feldman v Mexico , above n 143 at para 194. 150 Ibid paras 199–201. 151 Ibid para 206. In Feldman , there was an additional discriminatory element in the fact that Feldman was extensively audited, but the competitor was not. Should the tribunal have awarded to Feldman the audit costs? Should it have ordered the parties to negotiate an acceptable tax refund system based on the audits carried out on its competitor and only awarded compensation as a last resort if such post-award negotiation had failed? Such a multi-step remedy would have come much closer to the way WTO remedies operate. Could the tribunal order Mexico to stop discrimination by providing tax refunds either to both or to none, and to ensure the tax audits were carried out in a similar way—and again keep compensation for a phase of ‘final award’? 152 T W?lde and K Hober, ‘The First Energy Charter Treaty Arbitral Award’, 22 J Int'l Arb 83 (2005). The award was published in TDM. 153 Why it awarded the full underpayment for the future of the contract but only one-third for past underpayment is not very clear. 154Myers , above n 27 at paras 222 and 228. 155 Modulating remedies would also help to better reflect the relative gravity of a breach, and to exercise arbitral restraints where a tribunal's decision-making transgresses the border beyond which it becomes public policy-making without legitimacy and without the required resources and expertise. Bronckers and van den Broek, above n 35 at 111 ff, make the same argument for the WTO. 156 Breaches of this standard are typically examined in parallel to an ‘indirect expropriation’ claim. Tribunals seem to prefer basing their awards on breach of fair and equitable treatment rather than on ‘indirect expropriation’. It is noteworthy, however, that in several recent awards the tribunals have in effect and explicitly applied an expropriation type of compensation to fair and equitable treatment claims. See eg CMS v Argentina , above n 27; and Azurix v Argentina , above n 80. 157 See eg CMS v Argentina , above n 27 at para 410; see also Azurix v Argentina , above n 80 at paras 420, 424 ff. This jurisprudence raises the question of whether it is possible to sharply delineate the various ‘heads of claim’ or ‘causes of action’ in the perhaps more common-law civil litigation style or if these various ‘heads of claim’ only represent a different aspect of an overall treaty delict of ‘abuse of governmental power’ against foreign investors. The latter position would suggest a more unified approach to damages—except for formal expropriation. 158 It has been suggested that this standard is subsumed under fair and equitable treatment. See eg Don Wallace, Jr, ‘Fair and Equitable Treatment and Denial of Justice: Loewen v. United States and Chattin v. Mexico’, in Weiler ed 2005, above n 49. One could also consider it part of a more extensive notion of ‘constant security and protection’ or part of the reference in investment treaties to customary international law. 159Myers , above n 27 at para 94. See also CMS , above n 27 at para 409 (‘The tribunal in CMS v Argentina, based on the same rationale exercised its discretion to ‘identify the standard best attending to the nature of the breaches found.’); MTD Equity Sdn Bhd and MTD Chile SA v Republic of Chile , ICSID Case No. ARB/01/7, 25 May 2004, at para 238. 160CMS , above n 27 at 410. Similarly, the Azurix tribunal, in the absence of expropriation, found fair market value to be appropriate standard: Azurix , above n 80 at para 421. Between book value and actual investment value, the tribunal chose the latter, but substantially reduced it, because, among other things, no well-informed investor in March 2005 (the bidding time) would have paid the price paid by Azurix in mid-1999 to acquire the concession. Ibid at para 426. The application of an expropriation model in both cases also suggests that the breach of the fair and equitable standard was considered to be effectively very close to an expropriation, thus justifying that approach. But see criticism of CMS tribunal’s adoption of fair market value by Marboe, above n 4 at 757. 161Petrobart , above n 45 at 84. 162 See Paulsson, above n 18 at 168 ff with references to the Timofeyev, Fabiani, and Montano cases. 163 Ibid at 225–7. 164 That, however, invites substantial exercise of discretion and speculation, but it may also lead to politically and financially palatable awards for the claimant, which provide a sanction and an incentive to encourage respondent states to remedy the situation on their own, normally after a separate award on the merits and before the damages phase of the procedure, as in the Goetz v Burundi case. See text accompanying n 46 above. 165 Sometimes conceptualized as ‘detrimental reliance’ or various forms of ‘estoppel’ and venire contra factum proprium. It has emerged in recent cases such as Metalclad , Tecmed , MTD , Occidental , CMS , Waste Management , Thunderbird , Saluka ; and in the unpublished Biederman-Kazakhstan award as a self-standing investment discipline. For an extensive analysis of the development of this standard in investment arbitration and linked to comparative and international law, see Separate Opinion of W?lde and the award of the tribunal in Thunderbird ; Brower and Brueschke, above n 2 at 425; see also C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’, 6(3) JWIT 357 (2005) 374; OECD, International Investment Law—A Changing Landscape (Paris, OECD, 2005) 118; R Dolzer, ‘New Foundations of Expropriation Law’, 75 Am J Int'l L 553 (1981) at 579. 166 Separate Opinion in Thunderbird v Mexico , Award of 26 January 2006, at para 30; see also Saluka v Czech Republic , UNCITRAL Arbitration, Partial Award on Liability, 17 March 2006 at para 300 (stating that the object and purpose of the Netherlands-Czech BIT require a balancing approach towards the interpretation of the BIT and the mutual rights and obligations of the state and investor). 167 An equivalent effect to such ‘balancing’ with an influence on compensation is achieved where awards apply compensation-reducing factors such as failure to mitigate the risk (MTD v Chile ). See Sect (6)(b) below. See also Case Concerning the Gabcikovo-Nagymaros Project (Hungary v Slovakia), 1997 ICJ Reports, p 55, para 80; Bogdanov v Moldova (Russia-Moldova BIT), SCC Arbitral Award of 22 September 2005 at 19. (The sole arbitrator held that Moldova breached its obligation to provide fair and equitable treatment by devising and implementing a contractual compensation scheme with the investor, which practically did not allow the investor to recover the compensation that it had legitimately expected to receive. She, however, noted that the investor was partially responsible too, because he did not make sure that the compensation scheme would work properly. As a result, the sole arbitrator reduced the compensation taking into account what was caused by the respondent's fault.) On ECJ practice excluding from compensation for breach of legitimate expectation lost profit, see Craig, above n 19 at 779. 168 Reisman and Sloane's argument in favour of modulating compensation according to the egregiousness of state conduct (discussed at text accompanying n 57 above) is hence relevant in the ‘fair and equitable (legitimate expectation)’ context as well. The concept of ‘indirect expropriation’ is at times quite close, and difficult to distinguish, from breaches of legitimate expectation. 169 So used in Aminoil , above n 47 at paras 148 ff. Given the recent resurgence of this principle, a more systematic analysis of its application to the determination of compensation/damages seems warranted. It could operate both to expand compensation (ie be relied upon by a tribunal to choose a particular valuation proposition made by the parties) or to delimit compensation. 170 For a recent and authoritative overview of the state contract jurisprudence and doctrines of recent date, see C Leben, ‘La Th?orie du contrat d'?tat’, 302 Recueil des Cours 197 (2003). 171 See generally N Rubins, ‘The Notion of “Investment” In International Investment Arbitration’, in N Horn and S Kr?ll (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer, 2004); F Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement? Some “Un-Conventional” Thoughts on Salini, SGS & Mihaly’, 1(4) TDM (2004). 172 Governmental actions could amount to expropriation, if the government takes away the economic value of the contract. See Crawford, above n 24 at 229–30; and Brower and Brueschke, above n 2 at 417–27. Or they could amount to breach of ‘fair and equitable treatment’ standard, if the government frustrates legitimate expectations arising out of contracts. Or they could violate national treatment standard, if the state observes comparable contracts with domestic investors and breaches those with foreign investors. See eg Nykomb v Latvia , above n 143 at 34. Finally, they may breach the ‘umbrella clauses’ of a treaty, although there is no consensus as to how this may take place. See eg SGS Soci?t? G?n?rale de Surveillance SA v Islamic Republic of Pakistan , ICSID Case No. ARB/01/13, Decision on Objections to Jurisdiction, 6 August 2003 (completely ignoring the clause); cf SGS Soci?t? G?n?rale de Surveillance SA v Republic of the Philippines , ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction, 29 January 2004 (accepting that the clause could transform a breach of contract to a breach of the BIT); cf Fedax v Venezuela , ICSID Case No. ARB/96/3, Award of 9 March 1998 and Eureko v Poland , Ad hoc UNCITRAL Arbitration, Partial Award on Liability, 19 August 2005 (apply it to breach of any obligation). At the other extreme is the theory advanced by the SGS claimant in both cases, according to which an umbrella clause ‘lifts’ any contract dispute (commercial or not) to the level of treaty jurisdiction. Our analysis suggests that umbrella clauses protect contracts against governmental interference that abuses the dual role of the government as regulator and as contract party, but does not amount to expropriation; therefore, purely commercial contract disputes are not covered. T W?lde, ‘The Umbrella Clause in Investment Arbitration’, 6 JWTI 183 (2005) 183–237. Updated and shorter version in: C Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (New York, JurisNet, 2006). The recent CMS , LG&E , ICSID Case No. ARB/02/1 and Pan American v Argentina , ICSID Case No. ARB/03/13, cases confirm W?lde's view that the umbrella clause is limited to breaches/interferences of a governmental character, while the Eureko v Poland case (though without detailed discussion) does not confirm this qualification. 173 There is considerable doctrinal and conceptual confusion over the right remedy for breach of a contract in the context of investment treaty arbitration, however. Confusion arises when a compensation analysis sails often under the name of damages and a damage analysis is flagged as an expropriation-type of compensation. The issue becomes further complicated when international tribunals decide disputes on the basis of breach of contract (as opposed to breach of a treaty) and applicable (national) law. In such situations, the analyses are often influenced by ‘international law’ considerations, and that is in principle again the expropriation-cum-compensation perspective. 174 The claimant would receive in theory what a willing buyer at an arm's-length negotiation, taking into account risks such as government risk, would pay for the contract. See Sect (1)(c) and (3)(b)(v) above, discussions regarding the future net income and discount rates. 175 The issue has to be left open: there are also arguments for incorporating a risk-based discount factor into a contractual damages’ perspective. On the other hand, it may be argued that the state as a party to a contract should not benefit from prospects of unlawful conduct towards the contract. Perhaps a distinction can be made between purely contractual conduct and state conduct towards the contract (renegotiation, hardship, force majeure, imprevision) which could justify contract termination or unilateral adaptation. The issue is as yet unresolved; a full compensation analysis for investment disputes relating to contractual rights requires an in-depth study. 176 Third-party damage causation: Lauder v Czech Republic , UNCITRAL Arbitration, Final Award of 2001 at para 235, versus CME v Czech Republic , Partial Award, September 13, 2001 at paras 575 ff; on the related concept of ‘concurrent causes’ see commentary 13 to ILC Art 12. With extensive reference to ICC awards: B Hanotiau, ‘La determination et l'evaluation du dommage reparable’, in E Gaillard (ed), Transnational Rules in International Commercial Arbitration (Paris, ICC Pub No. 480/4, 1993) at 214 ff. 177Amco v Indonesia , Resubmission, Award of 5 June 1990, 17 YB Com Arb 73 at 98–9; Crawford, above n 24 at 229. 178 See text accompanying nn 54 and 55 above; see also Wells' comments on KBC, above n 56. 179 Presumably at the root of the generally criticized KBC award. See also Marboe, above n 4 at 746 (concurring with the argument that otherwise states could be induced to use their governmental powers to escape from deals no longer seen as advantageous). 180 B Cheng, General Principles of Law as Applied by International Courts and Tribunals (London, Stevens and Sons Ltd, 1953) 253 (‘… the principle of integral reparation in responsibility has to be understood in conjunction with that of proximate or effective causality which is valid both in municipal and international law’). 181 Garcia Amador, above n 31 at paras 157 ff (lucrum cessans was there discussed as a case of an ‘indirect damage’ that should be compensable if not ‘too remote or speculative’, with reference to the Rice and Shufeldt cases). 182Art 31(2) of the ILC Articles provides that: ‘Injury includes any damage, whether material or moral, caused by the internationally wrongful act of a State’. See also the discussion of this issue in B Sabahi, ‘Calculation of Damages for Breach of International Investment Contracts’ in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007) ch 12. 183 See Crawford, above n 24 at 204–5. Cf also Garcia Amador, above n 31 at 40–4. 184 But see Myers , above n 27 at 143–6 (dismissing the parties' reliance on the concept of foreseeability as developed in contract law and stating instead that the damages for breach of a treaty should be more similar to the concept of causation in tort law); the differences between ‘not foreseeable’ and ‘too remote’, however, is not very clear. SPP (ICC Award), above n 106 (applying foreseeability concept for breach of contract); cf Amco (Resubmitted), above n 87 at 612 (stating that foreseeability relates to causation and damages). The principle does not require the party to anticipate the quantum of loss at the time of breach. 185CME (2001), above n 176 para 583; see also Decision 15, UNCC GC, 8th Sess, UN Doc S/AC.26/1992/15/ (1992), para 9, commentary II and III to para 6 of Decision 9 (‘[w]here the full extent of the loss, damage, or injury arose as a direct result of Iraq's unlawful invasion and occupation of Kuwait, it should be compensated notwithstanding the fact that it may also be attributable to the trade embargo and related measures’). 186CME (2001), above n 176 at para 582. The Lauder v Czech Republic tribunal—on the same facts, but on the basis of a formally different treaty—considered Zelezny's intervening role as crucial and found that the damage was primarily caused not by the public agency, but by Zelezny. Thus, the tribunal ruled that awarding damages would not be appropriate. Lauder , above n 176 at para 235. See also Brower and Sharpe, ‘Multiple and Conflicting International Arbitral Awards’, 4(2) JWIT 211 (2003) 213–14. 187DornerClaim (1954), 21 ILR 164 (1954) 164–5. 188 Marboe, above n 4 at 759. 189Santa Elena , above n 63 at paras 76–95 (where developments subsequent to the expropriation were taken into account). 190 N Girvan, Corporate Imperialism (White Plains, NY, Sharpe, 1976); for a discussion, see Seidl-Hohenveldern, above n 76 at 14; F Orrego-Vicuna, ‘Some International Law Problems Posed by the Nationalization of the Copper Industry by Chile’, 67 Am J Int'l L 711 (1973) at 725; Sornarajah, above n 67 at 477–9; UNCC Panel of Commissioners discussion of ‘extraordinary profits’ in Kuwait Petroleum Co v Iraq Report and Recommendations made by the Panel of Commissioners concerning the Fourth Instalment of ‘E1' Claims”, S/AC.26/2000/16, paras 167 ff (panel dismissed Iraq's request for reduction of compensation due based on the extraordinary profits that claimant made). 191 See summary in Seidl-Hohenveldern, above n 76 at 14, with reference to Wengler. This argument is effectively a ‘caveat investor’ motto, which carries the risk that the key function of investment treaties—protection in high-risk countries—is effectively thwarted. For an effort at explaining such ‘caveat investor’ propositions, see P Muchlinski, ‘ “Caveat Investor” The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 Int'l & Comp LQ 527 (2006) at 554. One should be careful in using a reasonable standard of due diligence under the ‘mitigation’ and ‘contributory negligence’ heading, but not exonerate high-risk countries from application of investment treaties; the main function of such treaties is to provide protection in high-risk countries, and not in situations where there is no risk. 192 See also Article 39 of the ILC Articles and the commentary in Crawford, above n 24 at 240 ff (Art 39 provides that ‘In the determination of reparation, account shall be taken of the contribution to the injury by wilful or negligent action or omission of the injured State or any person or entity in relation to whom reparation is sought’). For a (brief) comparative law review see Taniguchi, ‘The Obligation to Mitigate Damages’, in Derains and Kreindler, above n 92 at 79; C von Bar, The Common European Law of Torts, Vol 2 (Oxford, Oxford University Press, 2000) para 526; Garcia Amador, above n 31 at 173, 174 (referring to several older commission claims cases); for application of the principle in EU/comparative administrative law, see Craig, above n 19 at 777. 193 See ICC Award Case No. 7006, 1992, 18 YB Com Arb 58 (1993); see also Bridas v Turkmenistan (tribunal deduct US$50 m because Bridas had not followed arbitrators' advice over a strategy to mitigate the damages); the case is specific because Bridas had been unwilling to work with the tribunal's recommendations to mitigate damages, thus involving presumably a higher-level breach. Bridas v Turkmenistan , ICC Case No. 9058/FMS/KGA, Final Award of 26 January 2001, at 12, 13. Hanotiau, above n 176 at 216 ff, summarizing ICC arbitral practice. 194SPP (ICC Award), above n 106 at paras 64–5. To this list we should also add the rule against double-recovery or double-counting, whose application in a different context was discussed earlier. 195 See MTD , above n 159 at paras 242–3; Bogdanov , above n 167 at 19 (the sole arbitrator reduced the amount of the damages because the claimant had failed to take the necessary precautions by clarifying some of the terms of a privatization contract, whose breach was at issue); and Azurix , above n 80 at para 426 (the tribunal reduced the damages because the claimant had paid an unreasonably high price to acquire the contract). See also the ICJ judgment in Gabcikovo-Nagymaros, above n 167 at para 80; Middle East Cement Shipping and Handling Co SA (‘ME Cement’) v Arab Republic of Egypt , ICSID Case No. ARB/99/6, Award of 12 April 2002 at para 167. 196 The issue has come up in Nykomb-Latvia , above n 143 (tribunal rejected the respondent's argument that acceptance of a power sales agreement at a lower tariff than originally committed constituted a waiver/voluntary change of the investor's contract rights); see also Siemens v Argentina , above n 65 at para 221 and other Argentine cases where the respondent claimed (without success) that acceptance by the claimant of a formal process of renegotiation constituted a waiver of its rights. 197 On damage mitigation as part of the ‘efficient breach’ concept, see F Marrella and I Marboe, ‘ “Efficient Breach” and Economic Analysis of International Inveatment Law’, TDM (March 2007). 198 Reisman and Sloane, above n 57 at 130. 199 Craig, above n 19 at 778, reports that the ECJ identifies damages when the effects of the regulation exceed the ‘bounds of economic risk inherent in the activity in question’. 200 It also provides within the internal dynamics of tribunal decision-making a concept to achieve and justify compromise and, simultaneously, in the dynamics of tribunal relationships with both parties, an instrument to make an award against the government more palatable—two steps forward, one step back. 201 Craig, above n 19 at 777, on two ECJ decisions pointing towards this approach. 202 So presumably in SGS v Philippines , Encana v Ecuador , Arbitration, LCIA Case No. UN3481, Final Award of 3 February 2006 and Loewen v US , ICSID Case No. ARB (AF)/98/3 (NAFTA), Award of 26 June 2003; see Paulsson, above n 18 at 100 ff. 203Loewen v US stands for an unreasonable requirement to pursue a remedy that seems to have been far from self-evident and practical. 204 Except in the recent gas industry nationalization debate in Bolivia, 2006 (reported in the Financial Times). 205 On counterclaims in the Aminoil v Kuwait case, see Hunter and Sinclair, above n 49 at 369–80; HE Kjos, ‘Counterclaims in Investment Arbitration’, in Kahn and W?lde, above n 182. 206 There are currently two investment disputes where this issue plays a role; one is Yukos/Menatep v Russia . On the abuse potential of the anti-avoidance tax principle see K Vogel, Klaus Vogel on Double Taxation Conventions (Deventer, Kluwer Law and Taxation, 3rd edn, 1997) paras 119, 110; G Cooper (ed), Tax Avoidance and the Rule of Law (Amsterdam, IBFD Publications in association with the Australian Tax Research Foundation, 1997). But see the rejection of a tax counterclaim in Saluka v Czech , above n 166 at paras 20 and 181 (summarizing the 2004 Decision on Jurisdiction over the Counterclaim) because it was not ‘closely connected’ enough to the original claim. Note case comment by A Hoffmann in 3(5) TDM (2006); see also Borzu Sabahi's commentary on Saluka award on jurisdiction over counterclaims, forthcoming in Oxford University Press online investment arbitration database, on file with the authors. 207 Cf Saluka v Czech Republic , Jurisdiction over Counterclaims, 7 May 2004. 208 T W?lde, ‘The Serbian Loans Case—A Precedent for Investment Treaty Protection for Foreign Debt?’ in Weiler ed 2005, above n 49 at 383. 209 For: Amerasinghe, ‘Quantum of Compensation for Nationalised Property’, in R Lillich (ed), The Valuation of Nationalized Property, Vol III (Charlottesville, Va, University Press of Virginia, 1972) at 124; Schachter, above n 69 at 124 . 18; Higgins, above n 30 at 293–4; cf B Cheng, ‘The Rationale of Compensation for Expropriation’, 44 Grotius Society 267 (1958) 308–9; B Clagett, ‘Just Compensation in International Law: The Issues Before the Iran-U.S. Claims Tribunal’, in R Lillich (ed), The Valuation of Nationalized Property in International Law, Vol IV (Charlottesville, Va, University Press of Virginia, 1987) 89. 210 Only modern practice seems now to require a detailed reasoning of compensation awards; in the past (perhaps with less rigorous accountancy skills available), discretionary powers of tribunals were generally accepted; Garcia Amador, above n 31 at para 116; Whiteman, above n 108, Vol II at 833. 211 Seidl-Hohenveldern, above n 76 at 28–9; but see CMS , above n 27 at para 444 (the tribunal however did rely on the financial crisis to reject the claimant's argument that a take or pay contract would immunize the latter from the risks associated with the crisis; cf Himpurna California Energy Ltd v Pt Perusahaan Listruik Negara (Bermuda v Indonesia), UNCITRAL Arbitration 1999, Mealy Publications, Inc, King of Prussia, PA, Vol 14, No. 12, 12/99 A-1, para 501); see also Jahn et al v Germany , Nos. 46720/99; 72203/01; 72552/01, [2005] ECHR 444, 30 June 2005 at para 113 (the state has a wide margin of appreciation when passing laws in the context of a change of political and economic regime). See also LG&E , ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 at para 242. It is also useful to note that in the Serbian Loan case, the PCIJ judgment, later in a second phase arbitration had to be modified to respond to Serbia's ability to pay. See generally W?lde, above n 208. This was dormant for 30 years, but is now re-emerging in investment disputes, when government gave guarantees that could not be sustained in case of a national (Argentina) or regional (Asian) or possible global financial crisis. Tribunals such as the Himpurna have used the equivalent of equitable considerations (abuse of rights) to reduce compensation. Himpurna , paras 520–2. See also CMS (2005) para 444 (the tribunal rejected the respondent's invocation of the state of necessity under international law in order to avoid responsibility; but considered the crisis to question the claimant's assumptions with respect to the proposed value of the lost business); cf LG&E v Argentina (2006) dispositif (the tribunal accepted Argentina's plea of necessity during a 17-month period, hence exonerating it from payment of compensation for losses caused during that period). 212 The foreign investor should normally not bear the consequences of the crisis. Any other rule would be contrary to the objective of investment treaties, which is promotion of investment. But the crisis and resulting inability to pay may have an impact on how compensation is calculated. If a forward-looking method is adopted, then the assumptions used must take into account the difficulties—eg of maintaining utility tariffs or demand expectations that are no longer economically feasible. See CMS , above n 27 para 244 (referring to the Gaz de Bordeaux case). While contractual guarantees may allocate this risk to the government, the NPV/DCF approach looks primarily at factual probabilities, not legal obligations. The risk of a long-term contract, with unrealistic government guarantees in a time of economic crisis, is substantial—and that risk will have to be factored into an appropriate risk-reflective discount rate. 213 Garcia Amador, above n 31 at paras 171, 172; note also the—inconclusive—discussion in Azurix , above n 80 at paras 434–6. Unjust enrichment, however, may be used both to delimit compensation, but also to enhance compensation. It should be seen as a complementary and corroborative—rather than primary—method to help define the compensation value. 214 See Amoco International , above n 73 at paras 189 ff; most recently see Sheppard, above n 2 (suggesting that one should in the main see compensation as independent of its lawfulness (which differs from the Chorzow judgment) except for egregious situations). 215 On punitive damages in international law, see Weiler and Diaz, above n 83 at 189; N Jorgensen, ‘A Reappraisal of Punitive Damages in International Law’, 68 Brit YB Int'l L 247 (1997). See also Reisman and Sloane, above n 57 at 138 (‘we find no basis for such a punitive award under customary international law at this time’—a statement that is immediately after contradicted by allowing ‘what is called lucrum cessans’ ‘for some creeping expropriations’). Classic international law seems to have been much more ready to accept the punitive character of damages: Garcia Amador, above n 31 at paras 140, 145 (‘reparation of an injury caused to an alien individual is fairly often frankly “punitive” in character’). 216 eg diminishing the value before expropriation by continued threats, Reisman and Sloane, above n 57 at 146, or expropriation motivated by racial discrimination or ethnic persecution. See Sornarajah, above n 67 at 398–9. The question of the impact of unlawful measures on compensation also involves equitable considerations and tribunal dynamics. Equitable considerations are discussed below. With respect to the dynamics of the tribunal, while a consensus-oriented tribunal chair will want to manage the damages deliberations in such a way as to bring both arbitrators on board, a breach considered ‘egregious’ by both co-arbitrators will require fewer concessions on the compensation front to reach a unanimous award. 217 Raised by T W?lde and G Ndi, ‘Stabilising International Investment Commitments’, 31 Texas Int'l LJ 215–68 (1996); see also the discussion of Iran-US Cl Trib awards in Brower and Brueschke, above n 2 at 499–502; the gist of these awards is a reluctance to read into stabilization clauses a prohibition on expropriation, but not to exclude such a view altogether. 218Aminoil , above n 47 at paras 179, 196, suggests (as does Revere Brass & Copper ) that a stabilization clause will (or may) qualify an expropriation as unlawful with the consequence (according to some views) of higher compensation. For a survey of other authorities, see A Faruque, ‘Legal Protection v Functional Value’, 23 J Int'l Arb 317 (2006). 219 C Schreuer, ‘Shareholder Protection in International Investment Law’, 2(3) TDM (2005) text following nn 79 to the end. But ‘indirect damages’ is also used to describe something akin to ‘consequential losses’ or more remote damages. It may be better to speak here of ‘derivative damages’. 220Barcelona Traction, Light and Power Company, Limited (New Application, 1962), Judgment 5 February 1970, 1970 ICJ Rep 1970, p 3, at p 4, para 47; see also ELSI, above n 136 at para 106. 221 Rubins, above n 171; Yala, above n 171. 222 Schreuer, above n 219 at 18; see also reference to Mondev International Ltd v United States , ICSID Case No. ARB(AF)/99/2 (NAFTA), Award, 2002, at paras 82, 83. 223CMS v Argentina , Decision on Objection to Jurisdiction, 17 July 2003, at paras 59, 66–9; Azurix , above n 80 at paras 69, 73; Enron Corp and Ponderosa Assets, LP v Argentina , Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 273, paras 43–9, 58–60; Siemens v Argentina , ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 at paras 125, 136–50; Gami v Mexico , UNCITRAL Arbitration (NAFTA), 15 November 2003 at paras 29, 33, 35 (‘the fact that a host state does not explicitly interfere with share ownership is not decisive. The issue is rather whether a breach of NAFTA leads with sufficient directness to loss or damage in respect of a given investment’). The great majority of investment treaties have not directly dealt with the issue of shareholders' right to recover indirect damages; but some have done that. See NAFTA Arts 1116 and 1117; see also ECT Art 26(7). 224 For further support for the ‘economic identity’ and ‘economic’ rather than ‘legal-formal’ approach, see also: Ceskoslovenska obchodni banka, (‘CSOB’) v Slovak Republic , ICSID Case No. ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999, at paras 72–5; Holiday Inns v Morocco , cited in PLalive, ‘The First World Bank Arbitration (Holiday Inns v.Morocco)—Some Legal Problems’, 1 ICSID Reports 680(1993) at 680; Klockner v Cameroon ; SOABI v Senegal ; Fedax v Venezuela . 225Enron v Argentina , above n 223 at paras 50 and 52. 226Gami v Mexico , above n 223 at para 33; one should also take into account the discussion of the Methanex Corporation v United States , UNCITRAL Arbitration (NAFTA), First Partial Award, 7 August 2002, at paras 134 ff; it focuses on the NAFTA language ‘relate to’, but does express the general concept that developments which are not directly related can be more easily ignored than developments with a quite direct link. What is ‘direct’ is not only a scientific inquiry, but a legal inquiry which identifies which links are relevant and which are not. 227 It should be noted that tax law approaches focusing more on the economic reality may ‘consolidate’ the financial situation of the subsidiary with the parent's. 228 Brief remarks in the award suggest the tribunal may have wanted to have more substantiated submissions on the identity of subsidiary and parent damage for past underpayments; but since the contract was, in the tribunal's eyes, quite clear for past and future, it was not easy to follow the tribunal's reasoning which in effect required full tariff payment for the future, but did not recognize past underpayment for two-thirds. 229Azurix , above n 80 at para 431. 230 See Yannaca-Small, ch 25 below. 231 On boundary delimitations, see ALW Munkman, ‘Adjudication and Adjustment—International Judicial Decision and the Settlement of Territorial and Boundary Disputes’, 46 Brit Y Int'l L 1 (1972–3); S Rosenne, ‘Equitable Principles and the Compulsory Jurisdiction of International Tribunals’ in E Diez, J Monnier, JP Muller, H Raimann, and L Wildhaber (eds), Festschrift fur Rudolf Bindschedler (Bern, Verlag Stampfli, 1980) 408. 232 See eg Corfu Channel Case (UK v Albania) Assessment of the Amount of Compensation Due from the People's Republic of Albania to United Kingdom, 1949 ICJ Reports at 244 and 248. 233 See generally Gary Born, International Commercial Arbitration (Ardsley, NY, Transnational Publishers and Kluwer, 2nd edn, 2001) at 556–7. 234 Seidl-Hohenveldern, above note 76 at 27. 235 M Akehurst, ‘Equity and General Principles of Law’, 25 Int'l & Comp LQ 801 (1976) at 803; also Hanotiau, above n 176 at 220, who points to the role of equitable principles in arbitration practice, in particular where specific proof of damages appears difficult or a global appreciation of the damages suggests a lump-sum (chiffre forfaitaire) amount. 236 Cf eg in particular the North Sea Continental Shelf (1969) case where the ICJ used equitable circumstances to correct a practically and politically problematic solution indicated by the more formal criteria of boundary delimitation. Ibid, paras 90–1. 237 In Santa Elena v Costa Rica , for instance, the tribunal relied on the jurisprudence of Iran-USCT in Philips Petroleum where the latter tribunal, itself relying on Starrett Housing , opined that in determining the fair market value of a company, the tribunal should consider all the circumstances including the equitable circumstances. See Santa Elena , above n 63 at para 92 and references therein. Cf E Lauterpacht, ‘International Law and Private Foreign Investment’, 4 Indiana J Global Legal Stud 259 (1996–7) 269; Libyan American Oil Co (‘Liamco’) v Libya , 62 ILR 140 (1981) 150–2 and 160 (‘reasonable equitable indemnification’). 238Aminoil , above n 47 at para 164; JF Lalive, in a personal discussion (with Michael Schneider present), explained to Thomas W?lde that the parties had agreed on a specific compensatory amount and that the tribunal was asked, without further explanation, to simply endorse it. This would explain the missing link between the amount and the reasoning. That has been disputed by Hunter and Sinclair, above n 49. 239Himpurna v Indonesia , above n 211. In this case, Indonesia had entered into a take-or-pay contract with Himpurna. Later, as a result of the financial crisis of 1997, it became unable to fulfil its obligations under the contract. The tribunal reasoned that the strict application of the NPV/DCF method to value Himpurna's investment would amount to an abuse of rights. It could have reached the same results, however, more easily by applying a higher discount rate (eg at or over 25%), given the high-risk nature of a one-sided contract in a developing country, and, secondly, by instead applying the equitable-circumstances corrective function. Cf CMS , above n 27 at paras 418, 444, 248, 183 (The claimant had to ‘share some of the costs of the crisis’ and noting that the crisis would have made tariff income, also by way of regulatory tariff changes, less than would otherwise have been estimated). 240 Aldrich, above n 106 at 241 (‘I believe that when they are making a complex judgment such as one regarding the amount of compensation due for expropriation or rights to lift and sell petroleum products, equitable considerations will inevitably be taken into account, whether acknowledged or not’). 241 That is also the modern approach to judicial review of administrative discretion. J Schwarze, ‘Judicial Review of European Administrative Procedure’, 68 Law & Contemp Probs 85 (2004) 94 ff; see also Paulsson, above n 18 at 180 ff, on the due process with respect to discretionary powers. 242 These include unjust enrichment, the concept that nobody should profit from their own fault—the risk should be borne by those who can best control it—good faith, and abuse of right. Some awards suggest that even if the facts of a case do not meet the high threshold of some ‘hard law’ concepts (eg force majeure), a tribunal still may consider that these are so far off as to be completely disregarded (note the link between the application of the abuse of right concept to limit damages in Himpurna v Indonesia , as discussed in nn 113 and 211 above). That would suggest that equitable circumstances are used to soften the impact of hard law—the very origin of the concept of equity in common law. Garcia Amador, above n 31 at 43, 44, considers ‘unjust enrichment’ as a principle to delimit a damage assessment and ‘double recovery’ as a case of inappropriate unjust enrichment. 243 See generally Crawford, above n 56 at 235–9; Brower and Brueschke, above n 2 at 615–30; Brower and Wong, above n 50 at 768–75; JY Gotanda, ‘Awarding Compound Interest in International Disputes’, 2004 Oxford University Comparative Law Forum 2 (2004); FA Mann, ‘Compound Interest as an Item of Damage in International Law’ in Further Studies in International Law (Oxford, Clarendon Press, 1990) 377; briefly, Ball, above n 50 at 429; J Colon and M Knoll, ‘The Calculation of Prejudgment Interest’ (2005 draft). 244 Although there seems to be no doubt that awarding interest is the prevailing practice today. See Art 38 of ILC Articles. 245 Brower and Brueschke, above n 2 at 615 (summarizing the approach of the Iran-US Cl Trib); Sylvania v Iran , 8 Iran-US Cl Trib 298 (1985) at para 100 (‘derive a rate of interest based approximately on the amount that the successful claimant would have been in a position to have earned if he had been paid in time and thus had the funds available to invest in common use in its [sic] own country’). 246Siemens v Argentina , above n 65 at para 361. 247 The most up-to-date survey is Gotanda, above n 243 available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=561263>. See also Natasha Affolder, ‘Awarding Compound Interest in International Arbitration’, 12 Am Rev Int'l Arb 45 (2001). SPP v Egypt (ICSID Award), above n 95 at paras 225–31, reject compound interest by relying on domestic law in the absence of a relevant rule of international law. Similarly in Austopistas v Venezuela , above n 106 at paras 391, 392. But the Chorzow principle would rather suggest compound interest, as it reflects the actual damage (loss of compound interest on investment or having to pay compound interest as financing charges). 248 In fact, international law does not contain any rule prohibiting payment of compound interest. See Santa Elena v Costa Rica , above n 63 at para 103. 249 JY Gotanda, ‘Awarding Interest in International Arbitration’, 90 Am J Int'l L 40 (1996) at 61. 250Metalclad , above n 73 at para 131 (annually compounded); Emilio Agust?n Maffezini v Kingdom of Spain , ICSID Case No. ARB/97/7, 13 November 2000 at para 96 (LIBOR for Spanish peseta compounded annually); Santa Elena , above n 63 at paras 96 ff (compounded semi-annually); Wena Hotels , above n 95 at 919 (compounded quarterly at 9%); Aminoil , above n 47 at para 178 (compounded annually—at 17%); MTD , above n 159 (Annual LIBOR at 5 November (the day after breach) of each year, compounded annually); for an earlier reluctance, in particular in Iran-US Cl Trib, see Brower and Brueschke, above n 2 at 629; cf CME , above n 14 (Final Award) (10% simple); Feldman , above n 143; Occidental v Ecuador , above n 148 (4% simple); Santa Elena , above n 63 (6% simple); Azurix , above n 80 (2006) at para 440 (at the rate applicable to US six-month certificates of deposit, compounded semi-annually); PSEG v Turkey , ICSID Case No. ARB 02/5, Award of 19 January 2007, at para 348 (LIBOR plus 2 compounded semi-annually); Siemens v Argentina , above n 65 at paras 399–401. 251 Brower and Brueschke, above n 2 at 624 and 625; see especially Anaconda v Iran , 13 Iran-US Cl Trib Rep 199 (1988) with a discussion of usury (rates over 12%). 252 Gotanda, above n 247, text accompanying nn 276–7. 253Aminoil , above n 47 at para 178 (‘In order to establish what is due in 1982, account must be taken both of a reasonable rate of interest, which could be put at 7.5%, and of a level of inflation which the Tribunal fixes at an overall rate of 10%,—that is to say at a total annual increase of 17.5% in the amount due, over the amount due for the preceding year.’); Sylvania , above n 245 (12.2%; these rates reflected then prevailing high interest rates in an inflationary environment); Santa Elena , above n 63 (a rate that was either 13.13% simple interest or 6.40% compound interest—supposedly 30% lower than ‘generally prevailing rates’, Brower and Wong, above n 50 at 773–4); rates were subsequently derived from a relevant benchmark—here six-month US certificates of deposit rates. Sometimes, rates prevailing in the host state were applied. Presumably, the rate in the investor's home state is in most cases the pertinent one. Brower and Brueschke, above n 2 at 621–3; Metalclad , above n 73 at para 128 (6% compounded annually, before and after the judgment). 254 See the SS Wimbledon case PCIJ Series A No.1, p 23 (1923) where the PCIJ determined a rate of 6% on the basis of the ‘present financial situation of the world’ and the conditions prevailing for ‘public loans’. That is the equivalent, today, of the US government bonds (with the issue open a long-term rate, somewhat higher, or a short-term rate (eg six-month certificates of deposit rates) is to be chosen). PSEG v Turkey , above n 250 (six-month LIBOR plus 2). 255 Gotanda, above n 247, text following n 299 (suggests that claimant should show it would have invested the money owed or (after n 188) that it had to pay the cost of additional financing charges because of the breach and the resultant outstanding claim against respondent). 256 That is essentially something akin to the six-month rate on risk-free US $ or Euro certificates of deposit or bank rates, depending on whether the investor operates mainly in a US dollars or euro financial environment. Siemens v Argentina , para 126: 2.66%: US six-month Certificates of Deposit. 257 Crawford, above n 24 at 238, 239 n 652. 258 The practice of the Iran-US Claims Tribunal was ‘from the date that compensable damages arose due to the taking or from the date that a debt or other obligation became due’. See Brower and Brueschke, above n 2 at 629, with the references in n 2990. 259 This approach is possibly already implicit in the Wimbledon case, above n 254; interest was payable only from the ‘moment when the amount of the sum due has been fixed and the obligation to pay has been established’. 260 Gotanda, above n 247; Metalclad , above n 73 at para 120. 261 See generally Gotanda, above n 249. 262 W El-Malik, Mineral Investment under the Shari'a Law (London, Graham & Trotman, 1993); I Shihata, ‘Some Observations on the Question of RIBA and the Challenges Facing “Islamic Banking” ’ (1998), 7 CEPMLP Internet Journal 7 (1998). For example, Saudi Arabia has acceded to the ICSID Convention and thus is obliged to enforce an ICSID award. Unlike the New York Convention, where Art V would be invoked to refuse enforcement of an award with interest (or the interest portion of an award), under Sharia law rules conceived as part of public policy, the ICSID Convention does not include a public policy exception. But under internal rules and practices, it is not possible to enforce an award with interest. 263 See generally M Kazazi, Burden of Proof and Related Issues: A Study on Evidence before International Tribunals (The Hague, Kluwer Law International, 1996); DV Sandifer, Evidence before International Tribunals (Chicago, Foundations Press 1939); A Reiner, ‘The Standards and Burden of Proof in International Arbitration’, 10 Arb Int'l 328 (1994) (in particular p 336: ‘surprisingly low standards of proof are applied … to the measure of damages’). Note also several other comments on this question in the same issue of Arbitration International; on issues of burden of proof with respect to (competition-law-related) damages, see EU Green Paper, COM (2005) 6732 final of 19/12/2005. More specifically for investment disputes, see Perezcano, in Derains and Kreindler, above n 92 at 119–29. 264 A claim was dismissed for insufficient proof of damages in Generation Ukraine v Ukraine , para 19; see also Gami v Mexico , above n 223 at paras 132–3. 265Azurix v Argentina , above n 80 at para 432. That seems to be very much also the international human rights' courts approach: eg LACHR in Mayagna Awas Tingni v Nicargua (Merits 2001, para 2). 266 M Polkinghorne, ‘The Withholding of Documentary Evidence in International Arbitration: Remedies for Dealing with Uncooperative Parties’, 5(2) TDM (2005) 13–16; Methanex v United States , Award of 3 August 2005, at 154, para 56. 267 On expert issues and procedure, see Kantor and Rudo, above n 53 at 59, 60; M Kantor, ‘Damages in CMS v Argentina’, TDM (2006) (highlighting the CMS tribunal's use of its own experts). 268 This is frequently emphasized in awards: cf only Maffezini v Spain , above n 250 at para 64 (‘no insurance policies against bad business judgments’); MTD v Chile , above n 159 at para 178 (‘BITs are not an insurance against business risk’). 269 Claimant for its moral damages, consisting of injury to the health of its executives, to its credit, and to its reputation. It noted, however, that such damages are only ‘exceptionally’ awarded. Desert Line Projects LLC v The Republic of Yemen , ICSID Case No. ARB/05/17, Award of 6 February 2008 at paras 289–91. Craig, above n 19 at 779 on ECJ practice: only exceptionally award of non-material damage—Kampffmeyer v Commission (1967) ECHR 245, 266–7. 270 Garcia Amador, above n 31 at paras 73 ff. (he lists the remedy of an ‘apology’, which is very effective (but little used) in dispute resolution); ibid at para 132 on reputational damage, which is only recognized in severe cases, eg bankruptcy or substantial damage to one's financial credit. 271Pope & Talbot v Canada , UNCITRAL Arbitration (NAFTA), Award on Damages, 31 May 2002 at para 82 (denial of management time but acceptance of accounting, legal, lobbying fees and other ‘out of pocket expenses’); Autopista v Venezuela , above n 106 at paras 302, 303; MTD v Chile , above n 159 at paras 240 ff (investment, additional expenses, and financial cost). 272 eg PSEG v Turkey , above n 250 at paras 332–4. 273 See eg PH Sand ‘Compensation for Environmental Damage from the 1991 Gulf War’, 35 Env Policy & L 244 (December 2005); D Caron and B Morris, ‘UN The Compensation Commission: Practical Justice, not Retribution’, 13 EJIL 183 (2002); E Brans, Liability for Damage to Public Natural Resources (The Hague, Kluwer, 2001). 274 States can only raise a tax counterclaim if the tribunal has jurisdiction, which will be rare: B Hanotiau, ‘L'Arbitrabilite’, 296 Recueil des Cours 25 (2002) 177; that may be different if the tax issues are inextricably linked to the investor's claim. 275CSOB v Slovak Republic , above n 224 at paras 360 ff. 276 J Meyer, S Quintero, and J Shao, ‘The Effect of Risk on the Value of Lost International Business Profits’, 7(2) Int'l J of Value-Based Management 107 (1994) at 119 and 120. 277Brit Transport Comm v Gourley , 1956 AC 185; cf US Tax Court, RJR Nabisco v Internal Revenue Services , TC Memo 1998-252 (on taxability of Aminoil award: compensation for delay in payment should be considered as taxable income, payment for termination concession/expropriation as long-term capital gain. Withholding taxes on dividends are probably not to be taken into account). Kantor and Rudo, above n 53 at 49. ICC Award No. 6233/1992: compensation that does not replace otherwise taxable remuneration not taxable; see also Hanotiau, above n 274 at 176–7. 278 JP Le Fall, ‘Fiscalit? et arbitrage’, Rev de l'Arb (1994) at 3–38; for a brief reference to a tax gross-up claim see PSEG v Turkey , above n 250 at paras 338–40; if future income is incorporated into a DCF/NPF model net of prospective taxes, then the award should be net of taxes too. If the host state taxes the award determined on a future net-of-tax basis, a gross-up would have to be considered. Host state taxation (income, capital gains, or benefits through tax deductibility) should as a rule be disregarded; LACHR practice is to order reparations free of taxation, Pasqualucci, above n 19 at 283. 279 See especially James Loftis's comments on UNCC awards, noting that the awards on lost oil production were net of royalties, but not net of other taxes which might be claimed on the awards. Subject of the email: Capital (income?) gains taxes on arbitral awards? OGEMID Archives, 21 September 2006. Cf paras 45–454 of 2nd E1 Claims, UN Doc s/AC.26/1999/10 and Report and Recommendations of the Panel of Commissioners Concerning the Fourth Instalment of ‘E1’ Claims, S/AC.26/2000/16, paras 61–2; see also Stewart Boyd (same date), and Mark Kantor in OGEMID archives on this same issue. 280 Cf the reference to van Harten, above n 11 at 101–6. Select Bibliography

Abdala, M, and Spiller, P, ‘Damage Valuation of Indirect Expropriation in Public Services’, 4(3) TDM (2003)

Affolder, N, ‘Awarding Compound Interest in International Arbitration’, 12 Am Rev Int'l Arb 45 (2001)

Akehurst, M, ‘Equity and General Principles of Law’, 25 Int'l & Comp LQ 801 (1976)

Aldrich, GH, The Jurisprudence of the Iran-United States Tribunal (Oxford, Clarendon Press, 1996)

Al-Qureshi, Z, ‘Indirect Expropriation in the Field of Petroleum’, 5(6) JWIT 897 (2004)

__ , ‘Quantum of Compensation for Nationalised Property’, in R Lillich (ed), Valuation of Nationalized Property, Vol III (Charlottesville, Va, University Press of Virginia, 1972)

Amerasinghe, CF, ‘Issue of Compensation for the Taking of Alien Property in the Light of Recent Cases and Practice’, 41 Int'l & Comp LQ 22 (1992)

Ayres, I, and Gertner, R, ‘Filling Gaps in Incomplete Contracts’, 99 Yale LJ 87 (1989)

Ball, M, ‘Assessing Damages in Claims by Investors against States’, 32 ICSID Rev—FILJ 408 (2001)

Bar, C von, The Common European Law of Torts: Damage and Damages, Liability for and without Personal Misconduct, Causality, and Defences (Oxford, Oxford University Press, 2000)

Ben Hamida, W, ‘L'Arbitrage transnational face a un desordre procedural: la concurrence des procedures et les conflits de juridictions’, 2005 AFDI 563

__ , ‘La Notion d'investisseur’, Cahiers de l'Arbitrage 2005/3 Black's Law Dictionary (8th edn, 2004)

Blomeyer, A, ‘Types of Relief Available (Judicial Remedies)’, in M Cappelletti (ed), International Encyclopaedia of Comparative Law, Vol XVI (Tubingen, Mohr, 1982)

Bobbit, P, Shield of Achilles (New York, Knopf, 2002)

Born, G, International Commercial Arbitration (Ardsley, NY, Transnational Publishers and Kluwer, 2nd edn, 2001)

end p.1119

Bowett, DW, ‘Claims between States and Private Entities: The Twilight Zone of International Law’, 35 Cath U L Rev 929 (1986)

Brans, E, Liability for Damage to Public Natural Resources (The Hague, Kluwer, 2001)

Bronckers, M, and van den Broek, N, ‘Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement’, 8(1) J Int'l Econo L 101 (2005)

Brower, C and Brueschke, J, The Iran-United States Claims Tribunal (The Hague, Martinus Nijhoff Publishers, 1998)

__ , and Sharpe, J, ‘Multiple and Conflicting International Arbitral Awards’, 4(2) JWIT 211 (2003)

__ , and Wong, J, ‘General Principles of Valuation: The Case of Santa Elena’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

Brownlie, I, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003)

Caron, D, and Morris, B, ‘The UN Compensation System: Practical Justice, Not Retribution’, 13 EJIL 183 (2002)

Chayes, A, ‘Supreme Court 1981 Term’, 96(1) Harv L Rev 4 (1982)

Cheng, B, General Principles of Law as Applied by International Courts and Tribunals (London, Stevens and Sons, 1953)

__ , ‘The Rationale of Compensation for Expropriation’, 44 Grotius Society 267 (1958)

Clagett, B M, ‘Just Compensation in International Law: The Issues before the Iran-U.S. Claims Tribunal’, in R Lillich (ed), Valuation of Nationalized Property, Vol IV (Charlottesville, Va, University Press of Virginia, 1987)

__ , ‘Present State of the International Law of Compensation for Expropriated Property and Repudiated State Contracts’, in Holgren (ed), Private Investors Abroad: Problems and Solutions in International Business (New York, Matthew Bender, 1989)

Cooper, G (ed), Tax Avoidance and the Rule of Law (Amsterdam, IBFD Publications, 1997)

Craig, P, EU Administrative Law (Oxford, Oxford University Press, 2006)

Crawford, J, The International Law Commission's Articles on State Responsibility: Introduction, Text, and Commentaries (Cambridge, Cambridge University Press, 2002)

Dalhuisen, J H, Dalhuisen on International Commercial, Financial and Trade Law (Oxford, Hart, 2000)

De Smith, S, Woolf, H, and Jowell, J, Judicial Review of Administrative Action (London, Sweet & Maxwell, 5th edn, 1995)

Denza, E, and Brooks, S, ‘Investment Protection Treaties: United Kingdom Experience’, 36 Int'l & Comp LQ 908 (1987)

Derains, Y, and Kreindler, R (eds), Evaluation of Damages in International Arbitration (Paris, ICC Services Publ Dept, 2006)

__ , ‘New Foundations of Expropriation Law’, 75 Am J Int'l L 553 (1981)

Dolzer, R, ‘Indirect Expropriation of Alien Property’, 1 ICSID Rev-FILJ 41 (1986)

__ , and Stevens, M, Bilateral Investment Treaties (The Hague, Martinus Nijhoff Publishers, 1995)

Downes, T, ‘Trawling for a Remedy: State Liability under Community Law’, 17 Legal Studies 286 (1997)

El-Malik, W, Mineral Investment under the Shari'a Law (London, Graham & Tr0tman, 1993)

Endicott, M, ‘Remedies in Investor-State Arbitration: Restitution, Specific Performance and Declaratory Awards’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007)

end p.1120

Faruque, A, ‘Legal Protection v Functional Value’, 23 J Int'l Arb 317 (2006)

Friedland, P D, and Wong, E, ‘Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies’, 6 ICSID Rev—FILJ 400 (1991)

Gaillard, E, La Jurisprudence du CIRDI (Paris, Pedone, 2004)

Galligan, D J, Administrative Law (Aldershot, Dartmouth, 1992)

Garcia Amador, F V, ‘State Responsibility’, ILC Commission 13th session 1961, Doc A/CN4.134 and Add.1m 4th Report

Girvan, N, Corporate Imperialism (White Plains, NY, Sharpe, 1976)

__ , ‘Awarding Interest in International Arbitration’, 90 Am J Int'l L 40 (1996)

Gotanda, J Y, ‘Awarding Compound Interest in International Disputes’, 2004 Oxford University Comparative Law Forum 2 (2004)

__ , ‘Recovering Lost Profits in International Arbitrations’, 30 Geo J Int'l L 61 (2004)

Graham, B, and Zweig, J, The Intelligent Investor: The Definitive Book on Value Investing (New York, Harper Business Essentials, revised edn, 2003)

Gray, C, Judicial Remedies in International Law (Oxford, Clarendon Press, 1990)

Hagstrom, R, The Warren Buffett Way ( Hoken, NJ, Wiley, 2004)

__ , ‘La Determination et l'evaluation du dommage reparable’, inE Gaillard, Transnational Rules in International Commercial Arbitration (Paris, ICC Pub, 1993)

Hanotiau, B, ‘L'Arbitrabilite’, 296 Recueil des Cours 29 (2002)

Harris, DJ, O'Boyle, M, and Warbrick, C, Law of the European Convention on Human Rights (London, Butterworths, 1995)

Higgins, R, ‘The Taking of Property by the State’, 176 Recueil des Cours 259 (1982)

Hindelang, S, ‘Bilateral Investment Treaties, Custom and A Healthy Investment Climate: The Question of Whether BITs Influence Customary International Law Revisited’, 5 JWIT 789 (2004)

Hunter, M, and Sinclair, A, ‘Changed Circumstances: Aminoil Revisited’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

Jorgensen, N, ‘A Reappraisal of Punitive Damages in International Law’, 68 Brit YB Int'l L 247 (1997)

Kahn, P and W?lde, T, New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007)

Kantor, M, ‘Damages in CMS v Argentina’, TDM (2006)

Kazazi, M, Burden of Proof and Related Issues: A Study on Evidence before International Tribunals (The Hague, Kluwer, 1996)

Kingsbury, B, Krisch, N and Stewart, R B, ‘The Emergence of Global Administrative Law’, 68 L & Contemp Probs 15 (2005)

Kjos, H E, ‘Counterclaims in Investment Arbitration’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2006)

Lalive, P, ‘The First World Bank Arbitration (Holiday Inns v. Morocco)—Some Legal Problems’, 1 ICSID Reports 680 (1993)

Land, B, ‘Similarities and Differences between Mining and Petroleum Investment: A Comparison of Industry Characteristics, Company Decisions and Host Government Regulation’, 5(2) Oil, Gas & Energy L Intelligence (2007)

Laubad?re, A, Venezia, J, and Gaudemet, Y, Droit administratif (Paris, Librairie g?n?rale de droit et de jurisprudence, 14th edn, 1992)

Lauterpacht, E, ‘International Law and Private Foreign Investment’, 4 Ind J Global Legal Stud 259 (1996–7)

end p.1121

Lazareff, S, ‘Assessing Damages—Are Arbitrators Good at it? Should they be Assisted by Experts? Should they be Entitled to Decide ex aequo et bono?—Some War Stories’, 6(1) JWIT 17 (2005)

Le Fall, JP, ‘Fiscalit? et arbitrage’, Rev de l'Arb (1994)

Leben, C, ‘La Th?orie du contrat d'?tat’, 302 Recueil des Cours 197 (2003)

Legum, B, ‘Lessons Learned from the NAFTA’, 19 ICSID Rev—FILJ 344 (2005)

Lieblich, WC, ‘Determinations by International Tribunals of the Economic Value of Expropriated Property’, 7 J Int'l Arb 37 (1990)

__ , ‘Determining the Economic Value of Expropriated Income-Producing Property in International Arbitrations’, 8 J Int'l Arb 59 (1991)

Lillich, R, and Weston, B, International Claims: Their Settlement by Lump Sum Agreements (Charlottesville, Va, University Press of Virginia, 1975).

Lowe, J (ed), The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend (New York, Chichester, Wiley, 1999)

McLean, B, and Elkind, P, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York, Penguin, 2003)

Manciaux, S, ‘Changement de l?gislation fiscale et arbitrage international’, 2001 Rev Arb 311

Mann, FA, ‘Compound Interest as an Item of Damage in International Law’, in Further Studies in International Law (Oxford, Clarendon Press, 1990)

Marboe, I, ‘Compensation and Damages in International Law—The Limits of “Fair Market Value”?’, 7(5) JWIT 723 (2006)

Marrella, F, and Marboe, I, ‘ “Efficient Breach” and Economic Analysis of International Investment Law’, TDM (March 2007)

Mendelson, MH, ‘What Price Expropriation, Compensation for Expropriation: The Case Law’, 79 Am J Int'l L 414 (1985)

Merrill, T, ‘Incomplete Compensation for Taking’, 11 NYU Env L J 110 (2002)

Meyer, J, Quintero, S, and Shao, J, ‘The Effect of Risk on the Value of Lost International Business Profits’, 7 Int'l J of Value-Based Management 107 (1994)

Muchlinski, P, ‘?“Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 Int'l & Comp LQ 527 (2006)

Munkman, ALW, ‘Adjudication and Adjustment—International Judicial Decision and the Settlement of Territorial and Boundary Disputes’, 46 Brit YB Int'l L 1 (1972–3)

Norton, PA, ‘A Law of the Future or a Law of the Past? Modern Tribunals and the International Law of Expropriation’, 85 Am J Int'l L 474 (1991)

OECD, International Investment Law—A Changing Landscape (Paris, OECD, 2005)

Orrego-Vicuna, F, ‘Some International Law Problems Posed by the Nationalization of the Copper Industry by Chile’, 67 Am J Int'l L 711 (1973)

Pasqualucci, J, The Practice and Procedure of the Inter-American Court of Human Rights (New York, Cambridge University Press, 2003)

Paulsson, J, Denial of Justice in International Law (Cambridge, Cambridge University Press, 2005)

Polkinghorne, M, ‘The Withholding of Documentary Evidence in International Arbitration: Remedies for Dealing with Uncooperative Parties’, 20 ADR & the Law 199 (2006)

Posner, R, Economic Analysis of Law (Boston, Little Brown, 3rd edn, 1986)

Rajarao, V, ‘Determining Damages in Cross-Border Disputes’, TDM (2007)

end p.1122

Reiner, A, ‘The Standards and Burden of Proof in International Arbitration’, 10 Arb Int'l 328 (1994)

Reinisch, A, ‘Expropriation’, 2(5) TDM (2005)

Reisman, WM, and Sloane, RD, ‘Indirect Expropriation and its Valuation in the BIT Generation’, 74 Brit YB Int'l L 115 (2003)

(The) Restatement (Third) of the Foreign Relations Law of the US (ALI, 1987)

Rosenne, S, ‘Equitable Principles and the Compulsory Jurisdiction of International Tribunals’, in E Diez, J Monnier, JP Muller, H Raimann, and L Wildhaber (eds), Festschrift fur Rudolf Bindschedler (Bern, Verlag Stampfli, 1980)

Rubins, N, ‘Must the Victorious Investor-Claimant Relinquish Title to Expropriated Property?’ 4(3) JWIT 481 (2003)

__ , ‘The Notion of “Investment” in International Investment Arbitration’, in Horn and Kroel (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer, 2004)

Sabahi, B, ‘The Calculation of Damages in International Investment Law’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007)

Sand, PH, ‘Compensation for Environmental Damage from the 1991 Gulf War’, 35 Env Policy & L 244 (2005)

Sandifer, DV, Evidence before International Tribunals (Chicago, Foundations Press, 1939)

Schachter, O, ‘Compensation for Expropriation’, 78 Am J Int'l L 121 (1985)

Schall, L, Sundem, G, and Geijsbeek, W, ‘Survey and Analysis of Capital Budgeting Methods’, 33 J Fin 281 (1978)

__ , ‘Unjustified Enrichment in International Law’, 22 Am J Comp L 281 (1974)

__ , ‘Non-Pecuniary Remedies in ICSID Arbitration’, 20(4) Arb Int'l 325 (2004)

Schreuer, C, ‘Fair and Equitable Treatment in Arbitral Practice’, 6(3) JWIT 357 (2005)

__ , ‘Shareholder Protection in International Investment Law’, 2(3) TDM (2005)

Schwarze, J, European Administrative Law (London, Sweet & Maxwell, 1992)

__ , ‘Judicial Review of European Administrative Procedure’, 68 Law & Contemp Probs 85 (2004)

Schwebel, S, ‘The United States 2004 Model Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law’, in G Aksen, KH Bockstiegel, MJ Mustill, PM Patocchi, and MW Whitesell (eds), Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris, ICC Pub, 2005)

Seidl-Hohenveldern, I, ‘L'Evaluation des dommages dans les arbitrages transnationaux’, 33 Annuaire fran?ais de droit international 7 (1987)

Shaw, MN, International Law (Cambridge, Cambridge University Press, 5th edn, 2003)

Sheppard, A, ‘The Distinction between Lawful and Unlawful Expropriation’, ECT Conference, Stockholm (June 2005)

Shihata, I, ‘Some Observations on the Question of RIBA and the Challenges Facing “Islamic Banking”’, 7 CEPMLP Internet Journal 7 (1998)

Shiller, RB, Irrational Exuberance (Princeton, Princeton University Press, 2nd edn, 2005)

Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004)

Stauffer, T, ‘Valuation of Assets in International Takings’, 17 Energy LJ 459 (1996)

end p.1123

Stephan, Paul, ‘Barbarians Inside the Gate: Public Choice Theory and International Law’, 10 Am Univ J Int'l L & Policy 745 (1995)

Treitel, G, Remedies for Breach of Contract, International Encyclopaedia of Comparative Law (T?bingen, Mohr, 1976)

van Harten, G, ‘A Return to Gay Nineties? The Political Economy of Investment Arbitration’, 4(5) TDM (2007)

__ , Investment Treaty Arbitration and Public Law (Oxford, Oxford University Press, 2007)

Vogel, K, Klaus Vogel on Double Taxation Conventions (Deventer, Kluwer, 3rd edn, 1997)

__ , Juristische Folgenorientierung (Frankfurt, Athenaeum, 1979)

__ , and Ndi, G, ‘Stabilising International Investment Commitments’, 31 Texas Int'l LJ 215-68 (1996)

W?lde, T, ‘A Requiem for the “New International Economic Order”’, in G Hafner, G Loibl, A Rest, L Sucharipa-Behrmann, and K Zemanek (eds), Festschrift Ignaz Seidl-Hohenveldern (The Hague, Kluwer International, 1998)

__ , and Kolo, A, ‘Environmental Regulation, Investment Protection and Regulatory Taking in International Law’, 50 Int'l & Comp LQ 811 (2001)

__ , and Hober, K, ‘The First Energy Charter Treaty Arbitral Award’, 22 J Int'l Arb 83 (2005)

__ , ‘The Umbrella Clause in Investment Arbitration’, 6 JWIT 183 (2005)

__ , ‘The Serbian Loans Case—A Precedent for Investment Treaty Protection for Foreign Debt?’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

__ , ‘Efficient Management of Transnational Disputes: Mutual Gain by Mediation or Joint Loss in Litigation’, 22 Arb Int'l 205 (2006)

Wallace Jr, D, ‘Fair and Equitable Treatment and Denial of Justice: Loewen v. United States and Chattin v. Mexico’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005)

Weiler, T, ‘Saving Oscar Chin: Non-discrimination in International Investment Law’, in T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley, NY, Transnational Publishers, 2004)

__ , and Diaz, LM, ‘Causation and Damages in NAFTA Investor-State Arbitration’, in T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley, NY, Transnational Publishers, 2004)

Wells, L, ‘ “Double Dipping in Arbitration Awards?” An Economist Questions Damages Awarded to Karaha Bodas Company in Indonesia’, 19(4) Arb Int'l 471 (2003)

__ , and Ahmed, R, Making Foreign Investment Safe: Property Rights and National Sovereignty (Oxford, Oxford University Press, 2007)

Werner, J, ‘The 11th Geneva Global Arbitration Forum: Settling Disputes on a Shrinking Planet’, 6(1) JWIT 5 (2005)

Whiteman, MM, Damages in International Law (US Gov Print Off, 1943)

Yala, F, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement? Some “Un-Conventional” Thoughts on Salini, SGS & Mihaly’, 1(4) TDM (2004) Footnotes ? The authors wish to thank the following individuals for their comments on earlier drafts of this chapter: Veijo Heiskanen, Nick Gallus, David Mildon, Irmgard Marboe, Andres Rigo, Geoff Senogles, Mark Kantor, Susan Rose-Ackerman, and Louis Wells. The views expressed in this study and possible errors belong to the authors. 1 Recent informal statistics show that out of close to 100 investment awards over the last 20 years, less than 30 have led to an award of compensation for claimants. Except for the recent awards against the Argentine Republic and CSOB v Slovak Republic and CME v Czech Republic , the awards have often not been very large, in particular in relation to the claim. In the case of NAFTA Chapter 11, no claim against the USA has so far succeeded and only very few, with generally low damages awards, against Canada and Mexico. These statistics are not exact as they are not published and do not include unpublished awards. For a list of the damages awards identified by F Ortino on OGEMID 2006 as well as some contract-based awards, which are the equivalent of modern treaty-based awards, see Appendix 1 below. The great majority of the arbitration awards cited in this study are available at <http://www.investmentclaims.com>. Awards rendered in claims commissions are also relevant for the purposes of this study. 2 See most recently A Sheppard, ‘The Distinction between Lawful and Unlawful Expropriation’, ECT Conference, Stockholm (June 2005); see also Charles N Brower and Jason Brueschke, The Iran-United States Claims Tribunal (The Hague, Martinus Nijhoff Publishers, 1998) 490 ff. 3 But P Craig, EU Administrative Law (Oxford, Oxford University Press, 2006) 764 ff uses the term ‘damages’, though with an approach that reflects the administrative law perspective which is clearly much more narrow than the notion of damages for breach of contract. 4Black's Law Dictionary defines damages as follows ‘[d]amages are the sum of money which a person wronged is entitled to receive from the wrongdoer as compensation for the wrong’. Frank Gahan, The Law of Damages (London, Sweet & Maxwell, 1936) 1. Black's Law Dictionary, (8th edn, 2004). See also Irmgard Marboe, ‘Compensation and Damages in International Law—The Limits of ‘Fair Market Value’, 7(5) JWIT 723, 725 (2006) (associating compensation with lawful and damages with unlawful expropriations). 5 See p 1068 below. 6Black's Law Dictionary defines compensation as follows: ‘[p]ayment of damages, or any other act that a court orders to be done by a person who has caused injury to another. In theory, compensation makes the injured person whole.’ Ibid . Note also the compensation procedure under the GATT Art XXIII for nullification or impairment by measures which may be lawful but contrary to the objectives of the GATT. 7‘Non-pecuniary remedies’ (or remedies) constitute another form of reparation that a person guilty of committing a wrongful act may be obliged to provide under certain circumstances. Non-pecuniary remedies are not discussed in this chapter, however. Thomas W W?lde will discuss them in a separate forthcoming report. See also C Schreuer, ‘Non-pecuniary Remedies in ICSID Arbitration’, 20(4) Arb Int'l 325 (2004); and Martin Endicott, ‘Remedies in Investor-State Arbitration: Restitution, Specific Performance and Declaratory Awards’, in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007) ch 11. 8‘Tortfeasor’ is probably the concept that comes closest to describing a state in breach of investment treaty obligations, including in contract breaches covered by an ‘umbrella clause’. 9 For a classic discussion of the principle of unjust enrichment in international law and its potential impact on awarding remedies, see CH Schreuer, ‘Unjustified Enrichment in International Law’, 22 Am J Comp L 281 (1974) (arguing that in 1974 restitution for unjust enrichment constituted (at least) a decision-making technique in contrast to a general rule or principle); ibid, EPIL, IV, 1244 (with addendum of 1999); see also Sea-Land Services case, Award No. 135-33-1, 6 Iran-US Cl Trib Rep 149 (1984) (holding that the principle of unjust enrichment has ‘been assimilated into the catalogue of general principles of law available to be applied by international tribunals … The principle finds an obvious field of application in cases where a foreign investor has sustained a loss whereby another party has been enriched, but which does not arise out of an internationally unlawful act which would found a claim for damages’). Ibid , text following n 13. 10 S Manciaux, ‘Changement de l?gislation fiscale et arbitrage international’ (2001) Rev Arb 311–42. To the extent investment treaties reinforce incentives of good governance in host states, compensation payable adds to the signalling effect of a tribunal award. T W?lde, ‘The Specific Nature of Investment Arbitration’ in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007) ch 2. 11 For a recent survey of the damages awards, see Gus van Harten, ‘A Return to Gay Nineties? The Political Economy of Investment Arbitration’, 4(5) TDM (2007). More recently, see G van Harten, Investment Treaty Arbitration and Public Law (Oxford, Oxford University Press 2007) 101–9. Van Harten takes a fundamentally critical view of investment arbitration. His argument that investment arbitration should be seen as essentially distinct from commercial arbitration, however, is not dissimilar to our—more moderate—view that concepts of public law and state liability as identifiable from comparative administrative law should inform the interpretation of damages/compensation concepts under investment treaties. Van Harten selects from the relevant comparative jurisprudence only those elements that limit the obligation to pay damages. Comparative public law, however, could also be useful in other ways. For example—as used in W?lde's Separate Opinion in Thunderbird v Mexico—it can be used to reach the opposite result, ie comparative law on state liability can lead to compensation by taking into account the legitimate expectations of the investor (as a subcategory of the fair and equitable treatment standard) and perhaps increase the amount of compensation due. But van Harten's critique, in particular with respect to the tendency of tribunals to apply commercial arbitration approaches, without questioning possibly inappropriate standards for calculating damages, seems valid. It is likely that the critiques, following van Harten's logic, question the extensive rather than a careful and selective application of damages concepts used in commercial arbitration to investment arbitration. This report as it stands is intended to survey current investment jurisprudence on damages rather than provide an overall critique. But it is necessary to point out that the current jurisprudence may increasingly undergo critical scrutiny from a comparative ‘state liability’ view of investment arbitration. 12 For some theoretical ideas, see T Merrill, ‘Incomplete Compensation for Taking’, 11 NYU Env LJ 110 (2002). For a more general view on economic analysis in international law, see Paul Stephan, ‘Barbarians Inside the Gate: Public Choice Theory and International Law’, 10 Am Univ J Int'l L & Policy 745 (1995). 13 These communities include investment arbitration practitioners and academics; government officials dealing with investment treaties; and the—throughout—critical NGO community, with a reflection of such views also in the media. 14 That sentiment is best encapsulated in Professor Brownlie's dissent in the CME award (CME v Czech Republic, UNCITRAL Arbitration, Final Award of 14 March 2003)—notwithstanding the weakness of the legal argument; the emotional argument is the one that reflects the sentiment in governments and ‘civil society’. Post-CME developments in Czech Republic support this observation. In fact, the Czech Republic has already signalled the termination of some of its BITs with some EU member states to foreclose the possibility of arbitration proceedings being initiated through companies, which have been established in those countries merely for the purpose of benefiting from the BIT. See Investment Treaty News, 29 March 2006, available at <http://www.iisd.org/pdf/2006/itn_mar29_2006.pdf>. 15 The largely restrictive ideas now developed by the USA in its new BIT model reflect this backlash. See also S Schwebel, ‘The United States 2004 Model Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law’, in G Aksen, KH Bocktigel, MJ Mustill, PM Patocchi, and AM Whitesell, Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (Paris, ICC Pub, 2005). 16‘Excessive’ is a value- and politically loaded term. What is excessive to one party and its sympathizers is under-compensation for the other. An ‘excessive award’ is one which goes substantially beyond what could and should be determined on the basis of mainstream rules and practices. 17 B Legum, ‘Lessons Learned from the NAFTA’, 19 ICSID Rev—FILJ 344 at 346–8 (2005). 18 For a view of investment arbitration as an international form of administrative-law review of governmental action: W?lde, above n 10; J Paulsson, Denial of Justice (Cambridge, Cambridge University Press, 2005) at 185 (‘increasing awareness that the public law nature of these cases demands a different approach’); E Gaillard, La Jurisprudence du CIRDI (Paris, Pedone, 2004) at 7. 19 This is explained in some detail by Craig, above n 3, at 765 ff where the higher thresholds for damage payments in ECJ jurisprudence—’sufficiently flagrant violation of a superior rule of law for the protection of the individual’—Schoeppenstedt case 5/71, at para 11—are also accompanied by an apparently wider notion of assumption of risk and of duty to mitigate loss. J Pasqualucci, The Practice and Procedure of the Inter-American Court of Human Rights (New York, Cambridge University Press, 2003) at 234; the ECHR is limited to ordering financial compensation: Zanghi v Italy 194 C ECHR (Ser A) (1991) para 26. ECHR jurisprudence in Art 1 of the Additional Protocol does not provide full compensation in all circumstances as the Court strikes a ‘fair balance’ between regulatory interest and property protection, James v UK 8 ECHR 123 (1986) para 48. ECHR property protection is recognized to be at a lower level than modern investment treaties. 20 Pasqualucci, above n 19 at 239 on LACHR practice: restitution to include reparation, satisfaction, assurances that violations will not be repeated—with a proportionality between injury and violation. Castillo Petruzzi v Peru (Merits) Inter-Am Ct HR 30 May 1999, Ser C No. 52, Res 13. 21 See here in particular the Bridas v Turkmenistan award(s)—rendered on the basis of a commercial arbitration agreement, not on the basis of an investment treaty. 22Factory at Chorz?w (Germany v Poland), Merits, 1928 PCIJ (Series A) No. 17, p 47 (Chorz?w Factory). The Chorz?w Factory judgment essentially laid down a standard for compensation and terms of reference for experts, to be appointed by the Court to calculate such compensation. The parties settled before a report by the experts presumably to be endorsed by a final PCIJ judgment. The judgment is invariably cited as the authority for damage awards in investment arbitrations. It should be noted that the judgment was exclusively concerned with the interpretation of Art 23 of a German-Polish convention (‘Geneva Convention’), hence it concerned an inter-state dispute. Ibid at 27. The Court went on to state that ‘The rules of law governing the reparation are the rules of international law in force between the two states concerned, and not the law governing relations between the state which has committed a wrongful act and the individual who has suffered damage … the damage suffered by an individual is never therefore identical in kind with that which will be suffered by a state; it can only afford a convenient scale for the calculation of the reparation due to the state.’ Ibid at 28. 23 Professor Dupuy in TOPCO noted that this statement ‘had only the value of an obiter dictum and not of a true ratio decidendi since restitution in kind was not formally requested and the impossibility of restitution in kind had been established by agreement between the parties. But the fact remains that the principle was expressed in such general terms that it is difficult not to view it as a principle of reasoning having the value of a precedent … .’ Texaco/Calasiatic (TOPCO) v Libya , Award, 17 ILM 3 (1978) para 98. 24 See also commentary 3 to Art 35 of the International Law Commission Articles on state responsibility (ILC Articles) in J Crawford, The International Law Commission's Articles on State Responsibility: Introduction, Text, and Commentaries (Cambridge, Cambridge University Press, 2002) at 213. The ILC Articles were adopted by the Commission on 31 May and 3 August 2001. See Report of the ILC, 53rd Session, available at <http://www.un.org/law/ilc/reports/2001/2001report.htm>, visited on 21 September 2004. 25 Marboe, above n 4 at 733 (referring to the deployment of such a ‘differential method’ in the law of damages in the 19th century). 26 See eg the CMS tribunal's discussion of the impact of future regulatory developments on the value of CMS's investment. CMS v Argentina , ICSID Case No. ARB/01/8, Award on Merits (2005) paras 419, 444, 183, 248. In the damages literature surveyed, it is very hard to find a clear statement of whether the comparison of the real course of events with the hypothetical one involves just ‘thinking away’ all of the damage-causative governmental conduct or just ‘thinking away’ the ‘unlawful’ nature; in the latter case, one has to compare the real course of events with the hypothetical course if the government could have pursued its policies and would have pursued its policies in a lawful way; see Craig, above n 19 at 779. 27 Note the discussions in both the SD Myers v Canada , Second Partial Award (Damages, October 2002) 54 ff and CMS v Argentina , above n 26 (para 444—speculating on: the demand for gas, adjustments to contracts, and other factors). 28Amoco International Finance Co v Iran , 21 Iran-USCTR 79 (1987) para 238. 29Texaco/Calasiatic , above n 23 at 505–7; see also the discussion of remedies in all three Libyan contemporaneous awards in Endicott, above n 4. 30 Judge Higgins elaborates on this issue in her Hague Academy lecture as follows: ‘In many cases, of course, restitutio is not sought … . There can be a variety of reasons for this. It can be because restitution is indeed impossible—for example, if the nationalized assets have already passed into the hands of a bona fide third party purchaser …the nationalized property may no longer exist in the same form … damages [may] represent a compensation that is satisfactory in all the circumstances … . Problems of effectiveness in relation to restitution are of course closely related to the difficulty of ordering specific performance against a state. Arbitration Tribunals feel that … they cannot order specific performance … .’ Rosalyn Higgins, ‘The Taking of Property by the State’, 176 Recueil des Cours 259 (1982) at 315–17. 31 For an extensive discussion impregnated by the 19th century symbolism of the nation state, see FV Garcia Amador, ‘State Responsibility’, ILC Commission 13th session 1961, Doc A/CN.4/134 and Add.1m 4th Report (1961) paras 62 ff (note his referral to some cases where change of a legal relationship established under national law was chosen as appropriate remedy). Veijo Heiskanen believes that this impossibility is the principal reason why restitution is not the preferred remedy. Because ‘by the time the dispute has ripened to a stage where arbitration is the only recourse (negotiations having failed), the relationship between the investor and the State has soured to the point that the investor no longer sees a reasonable basis for the investment and prefers to bail out. At the same time, the discretion of an arbitral tribunal is always limited by the parties' argument. If the claimant only seeks compensation and not restitution (which is typically the case), the tribunal cannot award “more” than what has been requested without breaching the non ultra petita rule … .’ Veijo Heiskanen's comments on the Draft ILA Report, on file with the authors. Cf Antoine Goetz and others v Republic of Burundi , ICSID Case No. ARB/95/3, Award of 10 February 1999, text accompanying n 46 below. 32 In the practice of the ICJ, ‘it is well established that the ultra petita rule, while limiting what may be ruled upon in its dispositif, does not operate to preclude the Court from dealing with certain other matters “in the reasoning of its Judgment, should it deem this necessary or desirable” ’. Case Concerning Oil Platforms ( Iran v United States ), Separate Opinion of Judge Higgins, 42 ILM 1334 (2003) paras 14 and 42. In the context of the ICSID Convention, if a tribunal's award goes beyond the parties' prayers for relief, then it could be subject to annulment under Art 52(1)(b) of the ICSID Convention for ‘manifest excess of powers’. See statement of Aaron Broches, ICSID History, Vol II (1968) at 850. However, it is sometimes difficult to determine if a remedy provided by a tribunal is covered by the ‘petitum’. That is particularly so if the parties request rests upon the concept of financial compensation based on the expropriation model, see Section 4 below, while the tribunal is more inclined to award financial compensation based on the novel, non-expropriation breaches such as national treatment or breach of the fair and equitable standard. Tribunals can enter into a dialogue with the parties to clarify what the ‘petitum’ is. In principle, tribunals cannot award a remedy that is substantially different from the one sought by the parties, but they can award a remedy that is implicitly or explicitly contained (as a ‘minus’ in the petitum for a ‘maius’) of a party's request. For a comparative survey of judicial remedies: A Blomeyer, ‘Types of Relief Available (Judicial Remedies)’, in M Cappelletti (ed), International Encyclopaedia of Comparative Law (T?bingen, Mohr, 1982) ch 4. 33‘Money is the common measure of valuable things’. Garcia Amador, above n 31 at para 71 quoting Grotius. 34Art 35(2) of the ILC Articles requires a responsible state to make restitution, provided and to the extent that it ‘does not involve a burden out of all proportion to the benefit deriving from restitution instead of compensation’. 35 Though financial compensation as an alternative or complement to the conventional WTO remedies is often discussed. See eg M Bronckers and N van den Broek, ‘Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement’, 8(1) J Int'l Econo L 101 (2005) 103 (noting that compensation under the WTO system is only theoretically available, because it is subject to the willingness of the losing party to pay). Craig, above n 3 at 748 and 766, suggesting that in European administrative practice annulment is the ‘normal’ consequence of a breach of law, with ‘damages’ only available for particularly serious ‘superior’ rules in favour of individuals. 36 See eg DJ Galligan, Administrative Law (Aldershot, Dartmouth, 1992); Andr? de Laubad?re, Jean-Claude Venezia, and Yves Gaudemet, Droit administratif (Paris, Librairie g?n?rale de droit et de jurisprudence, 14th edn, 1992); Abram Chayes, ‘Supreme Court 1981 Term’, 96(1) Harv L Rev 1 (1982) 46 (‘in public law litigation, the dominant form of relief is prospective and affirmative rather than compensatory …’). Craig, above n 3 at 749 ff. 37 T Downes, ‘Trawling for a Remedy: State Liability under Community Law’, 17 Legal Studies 286 (1997) at 287–8 (discussing in particular the seminal Francovich case—financial liability in case of delay of implementation of a directive bestowing specific individual rights). On EU administrative law, see J Schwarze, European Administrative Law (London, Sweet & Maxwell, 1992); S De Smith, H Woolf and J Jowell, Judicial Review of Administrative Action (London, Sweet & Maxwell, 5th edn, 1995); see also B Kingsbury, N Krisch, and Richard B Stewart (eds), ‘The Emergence of Global Administrative Law’, 68 L & Contemp Probs 15 (2005). 38 See eg the intense dissent by Professor Ian Brownlie in the CME case. 39 Philip Bobbit, Shield of Achilles (New York, Knopf 2002) at 798; JH Dalhuisen, Dalhuisen on International Commercial, Financial and Trade Law (Oxford, Hart, 2000) p vii. 40 Pasqualucci, above n 19 at 232–77, with reference to both the European and Latin American practice. 41 See generally Schreuer, above n 6; for a more cautious approach, see C Gray, Judicial Remedies in International Law (Oxford Clarendon Press 1990) 12; G Treitel, Remedies for Breach of Contract, International Encyclopaedia of Comparative Law (T?bingen, Mohr, 1976) 174 ff (discussing the discretion of judges in choosing a variety of assessment methods to award damages in common law and civil law systems); and Blomeyer, above n 32. 42Rainbow Warrior Case 20 UNRIAA 217 (1990) 270 (where the tribunal said ‘[t]he authority to issue an order for the cessation or continuance of a wrongful act or omission results from the inherent powers of a competent tribunal which is confronted with the continuous breach of an international obligation which is in force and continues to be in force.’). 43 Blomeyer, above n 32 (explaining a variety of remedies that one could seek in national courts). 44 Some investment treaties limit the power of the tribunal to award restitution of property or monetary remedies in lieu thereof. See eg Art 34 of the US Model BIT of 2004, available at <http:\\www.ustr.gov> Art 54 of the ICSID Convention (limiting the obligation of state parties to the Convention to enforcement of pecuniary remedies); Art 26(8) second sentence ECT (requires that the award contain an option allowing the state party to the dispute to provide monetary remedies in lieu of any other remedy); and Art 1135 of the NAFTA (same). 45 In Petrobart , for instance, the issue of specific performance was raised by the state in the context of its response to claimant's prayer for lost profits. The Kyrgyz Republic stated that specific performance is the primary remedy for breach of obligations under international law and that ‘the Republic could therefore be ordered’ to continue to perform the obligations arising out of the parties' contract. Petrobart also agreed, but said that specific performance under the circumstances of the case was not possible, because among other things the contract is no longer in force. Petrobart v Kyrgyz Republic , SCC Arbitration No. 126/2003, Award of 29 March 2005, at 78. 46Goetz , above note 31 at para 137. 47 Using ‘replacement value’ is close to the historic cost-based approach; liquidation value is rather a sort of market value (though necessarily subject to the discount pressures that would be likely in case of a true liquidation). Replacement value was used in the Corfu Channel case (Judgment on Compensation) at 249, to value the destroyed ship; also in American Independent Oil Company (‘Aminoil’) v Government of State of Kuwait , 21 ILM 976 (1982) para 165, and as a supplementary measure also in Oil Fields of Texas v NIOC , 12 Iran-US CTR 308 (1986) para 43, and Phillips Petroleum v Iran and NIOC , Award No. 425-39-2, 21 Iran-US CTR79 (29 June 1989) paras 160–2. 48 This method was used in CME , above n 14 (Final Award); see also comment by Rajarao, ‘Determining Damages in Cross-Border Disputes’, TDM 2007. 49 See eg the comments made in the 11th Geneva Global Arbitration Forum, ‘Settling Disputes on a Shrinking Planet’, 6(1) JWIT 17 (2005). Martin Hunter and Anthony Sinclair, ‘Changed Circumstances: Aminoil Revisited’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005) 347 (hereinafter: ‘Weiler ed 2005’); but see the careful discussion of damages in the Myers v Canada award, above n 27. 50 See eg Charles N Brower and Jarrod Wong, ‘General Principles of Valuation: The Case of Santa Elena’, in Weiler ed 2005, above n 49 at 774 (the authors note that the Santa Elena tribunal ‘picked the half-way mark between the parties respective 1978 appraisals’). See also SPP v Egypt , ICC Award, 22 ILM 752 (1983) 771. For an analysis of these cases, see Markham Ball, ‘Assessing Damages in Claims by Investors against States’, 32 ICSID Rev—FILJ 408 (2001) at 426 ff. 51 Ibid at 426 (Markham Ball suggests that very rough splitting with round numbers without a specific link to a rational analysis was applied in SOABI v Senegal , ICSID Case No. ARB/82/1 (‘all account of the loss’); AMT v Zaire , ICSID Case No. ARB/93/1 (‘in the tribunal's exercise of its discretionary and sovereign power to determine the quantum of compensation’); AIG v Iran , 4 Iran-US CTR 96 (1983) (‘tribunal will have to make an approximation of that value, taking into account all relevant circumstances’). 52 See eg Generation Ukraine v Ukraine , ICSID Case No. ARB/00/9 (2003), 22 ILM 404 (2005) paras 24.6–24.8 (‘the tribunal—unusually—made the losing claimant pay a modest part of respondent's legal representation cost (US$ 100,000) because of an exorbitant claim not substantiated in anyway (9.4 billion US$ claim). For an extensive survey of cost decisions in investment disputes see W?lde, Separate Opinion, in Thunderbird . 53 See comment by S Lazareff, ‘Assessing Damages—Are Arbitrators Good at it Should they be Assisted by Experts Should they be Entitled to Decide ex aequo et bono?—Some War Stories’, 6(1) JWIT 17 (2005) 17–18; M Kantor and D Rudo, ‘Help for Arbitrators (and Judges) Valuing Business Interests’, Draft, July 2006, on file with the authors. 54CMS v Argentina , ICSID Case No. ARB/01/8, Award on Merits (2005) para 435 (‘Tribunal, with the help of its own experts, built its own model’); see also Starrett Housing Corporation et al v Iran et al , Award No. ITL 32-24-1, 4 Iran-US CTR 122, 157 (19 December 1983); Phillips Petroleum v Iran and NIOC , Award No. 425-39-2, 21 Iran-US CTR 79 (29 June 1989); see also Brower and Brueschke, above n2 at 576–83. 55 For a discussion of moral hazard in international loans and bonds, see Janet Lowe (ed), The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend (New York, Chichester Wiley, 1999). L Wells and R Ahmed, Making Foreign Investment Safe: Property Rights and National Sovereignty (Oxford, Oxford University Press, 2007) 201; R Posner, Economic Analysis of Law (Boston, Little Brown, 3rd edn, 1986) at 108 (‘Notice how careful the law must be not to exceed compensatory damages if it doesn't want to deter efficient breaches’). One has to weigh here the fact that some disputes will not be arbitrated (which should rather favour higher compensation in those cases which do) versus the fact that the prospect of compensation (including risk and litigation cost) should not make investors careless in assuming and managing such risk; I Ayres and R Gertner, ‘Filling Gaps in Incomplete Contracts’, 99 Yale LJ 87 (1989) at 87. 56 John Gotanda, ‘Recovering Lost Profits in International Arbitrations’, 30 Geo J Int'l L 61 (2004) 111 (‘tribunals should be mindful that where the claimant seeks both damnum emergens and lucrum cessans, they need to be careful to avoid double counting to ensure the claimant obtains the benefit of the bargain and no more’); see also Louis Wells, ‘ “Double Dipping in Arbitration Awards?” An Economist Questions Damages Awarded to Karaha Bodas Company in Indonesia’, 19(4) Arb Int'l 471 (2003) at 472 ff (criticizing the KBC award for awarding both damnum emergens and lucrum cessans to claimants); Crawford, above n 24, commentary on Art 36, at p 227; Marboe, above n 4, at 747 (finds double recovery in Letco v Liberia as net worth plus future profits were awarded). 57 WM Reisman and RD Sloane, ‘Indirect Expropriation and its Valuation in the BIT Generation’, 74 Brit YB Int'l L 115 (2003) 138 (‘lucrum cessans … (is) essentially a fine “… to permit” tribunals to penalize egregious conduct …’). For an extensive and helpful discussion of the risk and methods of avoiding the risk of double recovery see Kantor and Rudo, above n 53 at 36. See below on the ‘punitive function’ of compensation awards. 58 Lost profits were awarded inter alia in Soci?t? Ouest Africaine des B?tons Industriels (SOABI) v Senegal , ICSID Case No. ARB/82/1, Award of February 25, 1988, paras 7.01–7.18; and Liberian Eastern Timber Corporation (Letco) v Republic of Liberia , ICSID Case No. ARB/83/2, Award of 31 March 1986, 2 ICSID Rep 346 (1994) 373–7. 59 In essence, here we are talking about the financial effect of the loss of use of a damaged asset from date of loss to date of compensation. This is commonly handled by valuation experts in business insurance claims as a ‘business interruption claim’. See also Kuwait Petroleum Corporation's loss of production claim in Report and Recommendations made by the Panel of Commissioners Concerning the Fourth Instalment of ‘E1’ claims of 14 April 2000 available at <http://www2.unog.ch/uncc/>. 60 See persuasive critique of KBC v Indonesia by Wells, above n 56; see also Wells and Ahmad, above n 55 at 212 with reference to DW Bowett, ‘Claims Between States and Private Entities: The Twilight Zone of International Law’, 35 Cath U L Rev 929 (1986) 931–2; T Stauffer, ‘Valuation of Assets in International Takings’, 17 Energy LJ 459 (1996) 459–88. 61 Crawford, above n 56 at 227 n 593. 62Aminoil v Kuwait , above n 47 para 178; World Bank Guidelines (1992) IV(6). 63INA v Iran 8 Iran-USCLT Rep 373 (1985) 383; SEDCO Inc v Iran Marine Industrial Company Award No. 419-128/129-2, 30 March 1989, 21 Iran-US CTR 31 (1987) 34–5; Starrett Housing Corporation et al v Iran et al Award No. ITL 32-24-1, 4 Iran-US CTR 122, 157 (19 December 1983) 122–3; Phillips Petroleum , above n 47 at 122; Compa?ia del Desarrollo de Santa Elena SA v Republic of Costa Rica , ICSID Case No. ARB/96/1, Award of February 2000 at para 70; Asian Agricultural Products Limited (‘AAPL’) v Democratic Socialist Republic of Sri Lanka , ICSID Case No. ARB/87/3, Award of 27 June 1990, 4 ICSID Reports 245, at para 96. 64 But both the market benchmarking method and its proxies take into account future prospects, either in the cost-accounting by valuing matters such as goodwill, management, and the ‘package’ of individual assets assembled into a business, or by incorporating future income (which includes much more than profits, a narrower, and more ambiguous concept). 65 Marboe, above n 4, at 728; Siemens AG v Argentine Republic , ICSID Case No. ARB/02/8, Final Award of 6 February 2007, paras 379–84 avoids the double recovery trap by relying on a number of reasons. It could have simply said: compensation for all investment plus a measure (even if discounted) of future profit would amount to double recovery. 66 The confrontation of these groups after the takeover of Communism (post-World Wars I and II), and after de-colonization and during the period when developing countries claimed a ‘New International Economic Order’ intensified. See generally Thomas W?lde, ‘A Requiem for the “New International Economic Order’, in G Hafner, G Loibi, A Rest, L Sucharipa-Behrmann, and K Zemanek (eds), Festschrift Ignaz Seidl-Hohenveldern (The Hague, Kluwer International, 1998) at 771. 67‘Western’ was in the past synonymous with ‘capital-exporting’ countries. But this is changing. We should assume that this position is also becoming the position of countries such as China, India, and Russia to the extent that these now very successful economies become significant and in particular net capital exporters. Professor Sornarajah's position will then be limited to finding support in economically failing countries and now re-radicalized major oil producers with no success in economic diversification. On his position see generally M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004). 68UNGA Res 1803—‘appropriate compensation’ ‘in accordance with the rules in force in the state taking such measures’. It could be argued that this resolution indicated emerging customary international law in 1961, but it was superseded, first, by the move towards more radical NIEO positions in 1974 by the UNGA, and then by the counter-move in the investment treaty movement which accelerated in the 1980s, partly to counter the impact of the UN resolutions. Eileen Denza and Shelagh Brooks, ‘Investment Protection Treaties: United Kingdom Experience’, 36 Int'l & Comp LQ 908 (1987) 909–10. 69The Restatement (Third) of the Foreign Relations Law of the US (American Law Institute, 1987) § 712 n 2 still represents the most succinct authoritative statement on this issue. See also Texaco v Libya , above n 23 at 27 ff; PA Norton, ‘A Law of the Future or A Law of the Past? Modern Tribunals and the International Law of Expropriation’, 85 Am J Int'l L 474 (1991) 478–9; Ball, above n 50 at 413–14; BM Clagett, ‘Present State of the International Law of Compensation for Expropriated Property and Repudiated State Contracts’, in Holgren (ed), Private Investors Abroad: Problems and Solutions in international Business, § 12.04[3] (New York, Matthew Bender, 1989); MH Mendelson ‘What Price Expropriation, Compensation for Expropriation: The Case Law’, 79 Am J Int'l L 414 (1985) 414–20; Ian Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) 509–12; CF Amerasinghe, ‘Issue of Compensation for the Taking of Alien Property in the Light of Recent Cases and Practice’, 41 Int'l & Comp LQ 22 (1992) 23; Oscar Schachter, ‘Compensation for Expropriation’, 78 Am J Int'l L 121 (1985) 129–30. 70UNGA Res 3201 and 3202 of 1974; 3281 of 1974; M Sornarajah, above n 67 at 435–85. 71 M Shaw, International Law (Cambridge, Cambridge University Press, 5th edn, 2003) 750. The reference to the lower compensation standards in some (not all) lump-sum settlements is not persuasive because inter alia all of the lump-sum settlement cases occurred in the context of large political crises where capacity to pay compensation was severely limited; in most other cases, there was a limited budget made available (eg UNCC; Iran-US Cl Trib). See generally R Lillich and B Weston, International Claims: Their Settlement by Lump Sum Agreements (Charlottesville, Va, University Press of Virginia, 1975). 72 See R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague, Martinus Nijhoff Publishers, 1995) 109. 73 With over 2,500 BITs at present plus the probably close to 1,500 treaty relationships established between states through multilateral treaties such as the ECT, the NAFTA, and a number of Asian and Latin American treaties. Note just Schwebel, above n 15 and S Hindelang, ‘Bilateral Investment Treaties, Custom and A Healthy Investment Climate: The Question of Whether BITs Influence Customary International Law Revisited’, 5 JWIT 789 (2004); Reisman and Sloane, above n 57 at n 158 (suggesting that per BITs and arbitral awards ‘the broader conception of expropriation embodied by BITs to some extent has become—and to some extent remains in the process of becoming—customary international law insofar as states begin to acknowledge these standards as legally binding in contexts not governed by BITs.’). While it is very difficult to identify any judgment or award that is aligned with the NIEO position, all recent as well as older arbitral awards confirm the principle of full compensation. See eg Myers v Canada , First Partial Award, 13 November 2000 at paras 259, 262; CME , above n 14 at para 497; Metalclad Corporation v United Mexican States , ICSID Case No. ARB(AF)/97/1, Award of 30 August 2000, at paras 118–19. See also the following Iran-US Cl Trib cases: INA , above n 63 at 380; Tippets et al v Iran , 6 Iran-US Cl Trib 219 (1984) 225; Sola Tiles v Iran , Award No. 298-317-1, 14 Iran-US Cl Trib 223 (1987) at para 42; Amoco International Finance Co v Iran , 15 Iran-US Cl Trib 189 (1987) at para 207. Cf Sornarajah, above n 67 at 205, 213 ff. 74 Norton, above n 69 at 489–90. This does not mean that this consensus could not disappear again in the future, under the impact of inevitable economic and financial national and global crises, with an impact on customary international law. 75 For a more extensive discussion, see Marboe, above n 4 at 735–43. MA Abdala and PT Spiller, ‘Damage Valuation of Indirect Expropriation in International Arbitration Cases’, 4(3) TDM (2003). 76 Ball, above n 50 at 418; for a critical discussion, see Ignaz Seidl-Hohenveldern, ‘L'?valuation des dommages dans les arbitrages transnationaux’, 33 Annuaire fran?ais de droit international 7 (1987) 17–22. 77Amoco International , above n 73 at 1367 (‘market value is an ambiguous concept, to say the least … when an open market does not exist for the expropriated asset or for goods identical or comparable to it’). 78 Benjamin Graham and Jason Zweig, The Intelligent Investor: The Definitive Book on Value Investing (Harper Business Essentials, revised edn, 2003) 201–3 and 213–14. 79 Robert J Shiller, Irrational Exuberance (Princeton, Princeton University Press, 2nd edn, 2005) 128–9. 80 B McLean and P Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York, Penguin, 2003) 129–30 (discussing Enron's artificial marking up of the price of one of its acquired companies, Mariner, to fill a gap in its book). See eg Azurix v Argentina where the compensation due was reduced because the tribunal considered that Azurix (Enron) had heavily overbid in the Argentine privatization tender. Azurix Corp v Argentine Republic , ICSID Case No. ARB/01/12, Final Award, 14 July 2006. 81 A known political risk that markets accepted and factored into their price earlier can suddenly destroy market value if the mere mood of the market, reacting to no or only small additional pieces of information, changes. The share price of Yukos Oil, for instance, dropped from over 40 to under 1 within a year (2004), when tension between Yukos and the government of Russia had been known about from the beginning. See Leuthaeusser Report to EP in the Yukos claim in Houston, available at TDM 2006 (<http:\\www.transnational-dispute-management.com>). 82 In the CME case, the tribunal used prior offers to establish its valuation; CME , above n 14 at para 553. W?lde, in a 2006 Expert Opinion, suggested that a write-off under SEC rules and the absence of any offers for an investment indicates a severe or total economic deprivation (under Art 1110 of the NAFTA). Several OPIC claims also use an accounting write-off to determine both the fact of indirect expropriation and the value of the taken assets. See Ponderosa Assets , OPIC Memorandum of Determinations, 2 August 2005, p 6, available at <http://www.investmentclaims.com>. 83 See eg the description of net book value method in Stauffer, above n 60 at 461; WC Lieblich, ‘Determining the Economic Value of Expropriated Income-Producing Property in International Arbitrations’, 8 J Int'l Arb 59 (1991) 69; Todd Weiler and Luis Miguel Diaz, ‘Causation and Damages in NAFTA Investor-State Arbitration’, in T Weiler (ed), NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley, NY, Transnational Publishers, 2004) 199 (hereinafter ‘Weiler ed 2004’). 84 Accounting done on the basis of securities regulation—eg US SEC rules—may also provide a better indication of value than party-appointed expertise. 85 Weiler and Diaz, above n 83 at 199. 86 Book value is normally taken to represent depreciated value of an asset as disclosed on a company's balance sheet. Depreciation, as an accounting concept, refers to the average or expected decline in the value of an asset during its useful life. A variety of methods may be used to calculate the amount of depreciation, such as the straight-line method or declining balance method, and so forth. Choice of these methods as well as that of the useful life are relatively subjective, which, in some circumstances, could produce misleading results. 87 PD Friedland and E Wong, ‘Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies’, 6 ICSID Rev—FILJ 400 (1991) 406; See also Amco v Indonesia , Resubmitted Case, Award of 5 June 1990, 1 ICSID Reports 615, para 190 (NBV is ‘unsuited to placing a party in the position of his contract having been performed’). 88 An excellent illustration of methods to manipulate, in particular net income data, may be found in Mclean and Elkind, above n 80 at 367–9. 89 In addition, long-term historical trends have a tendency to continue and say more about a business's solidity and market position than projections based on a very short history of performance. Graham and zweig, above n 78. 90 Ibid at 31. 91 Paulsson, above n 18 at 216. 92 Hugo Perezcano Diaz, ‘Damages in Investor-State Arbitration: Applicable Law and Burden of Proof’, in Y Derains and R Kreindler (eds), Evaluation of Damages in International Arbitration (Paris, ICC Institute of World Business Law, 2006) 125–7 (referring to Amoco v Iran ; Metalclad v Mexico ; AAPL v Sri Lanka ; Autopistas v Venezuela cases). One way to deal with ‘speculative forecasts’ (with acknowledgement to David Mildon) would be to let the tribunal adjust an award after a set period. But that would be contrary to the search for ‘finality’ of an award, though the SGS v Philippines tribunal introduced in effect the concept of a ‘suspended tribunal with suspended jurisdiction’. 93 B Land, ‘Similarities and Differences between Mining and Petroleum Investment: A Comparison of Industry Characteristics, Company Decisions and Host Government Regulation’ (1994), 5(2) OGEL (2007) 18. A not yet public Expert Opinion by W?lde deals with the implication of exploration risk for investor protection. 94 While historic cost may at times have to be multiplied in the case of petroleum exploration and similar high-risk activities, it may at other times also have to be downgraded, eg in case of excessive and wasteful expenditures (‘goldplating’), where the relation of expenditure to current value becomes tenuous. This aspect reinforces the need to use and compare alternative valuation methods to develop a reasonable valuation range. 95 DCF-based compensation was applied in several Iran-US Cl Trib cases such as Starrett Housing , above n 63 at paras 32 and 279, and Philips Petroleum , above n 47 at 123; but not in Amoco , above n 73. It was also applied in Amco v Indonesia (Resubmitted), above n 87 at para 196; CMS v Argentina , above n 27 (for fair and equitable treatment); CME , above n 14 at para 416 (partially, in addition to the comparable transaction method). It was explicitly not applied in Aminoil , above n 47, and Amoco v Iran , above n 73. See also AAPL v Sri Lanka , above n 63 at para 102; Metalclad , above n 73 at paras 119–21; SPP v Egypt , ICSID Case No. ARB/84/3, Award of 20 May 1992 at paras 184–91; Wena Hotels Limited v Arab Republic of Egypt , ICSID Case No. ARB/98/4, Award of 8 December 2000 at para 122; T?cnicas Medioambientales Tecmed, SA v United Mexican States , ICSID Case No. ARB(AF)/00/2, 29 May 2003 at para 186. 96 See eg L Schall, G Sundem, and W Geijsbeek, ‘Survey and Analysis of Capital Budgeting Methods’, 33 J Fin 281 (1978) (‘The theoretical and empirical foundations of the DCF method as it is applied today were largely in place by the mid-1960s’), cited in WC Lieblich, ‘Determinations by International Tribunals of the Economic Value of Expropriated Property’, 7 J Int'l Arb 37 (1990) 37 n 4. 97 Ball, above n 50 at 414; Seidl-Hohenveldern, above n 76 at 728–30; Marboe, above n 4 at 737 ff. Some of the other methods used to value investments include Replacement Value Method (see the discussion of the application of this method in Thomas Earl Payne v Iran at Brower and Brueschke, above n 2 at 565) and Liquidation Value Method (applied in SEDCO). For a discussion of these methods, see Friedland and Wong, above n 87 at 405–8. 98 Enron, a Houston company that later suffered the largest US bankruptcy in history, was famous for employing the most sophisticated financial analyst graduates from Harvard Business School and McKinsey Consulting. It was equally famous for overbidding by several times on project tenders. It simply used the most optimistic assumptions, the lowest discount rate, and minimized assumptions of risk. McLean and Elkind, above n 80 at 114–18. For a discussion of the plausibility of different opinions with respect to valuation of prospective future income, see Marboe, above n 4 at 729. 99 Graham and Zweig, above n 78; Robert G Hagstrom, The Warren Buffett Way (Hoboken, NJ, Wiley & Sons Inc, 2nd edn, 2004). 100 Valuing an asset as opposed to a business or project, which is often simply a collection of assets employed to fulfil a common commercial cause, could be different. Asset valuation looks at costs (historic, replacement, usage, condition, benchmark, scarcity, market); whereas business valuation and large-scale loss of profit/business interruption valuations draw on many common valuation methodologies, which are more forward looking. 101 Stauffer, above n 60 at 459–60. 102 T W?lde, Juristische Folgenorientierung (Frankfurt, Athenaeum, 1979). 103 Kantor and Rudo, above n 53. 104 Stauffer, above n 60 at 462; cf Lieblich, above n 83 at 69; Friedland and Wong, above n 87 at 406; Weiler and Diaz, above n 83 at 199. 105 See eg Phillips Petroleum , above n 47 at paras 111–16, 154–8; cf Amoco International , above n 73. 106 See eg SPP v Egypt , ICC Award 3493 of 11 March 1983, 3 ICSID Rep 46, at para 65; AAPL v Sri Lanka , above n 63 at para 104; Metalclad , above n 73 at paras 120–5; Wena Hotels , above n 95 at paras 123–4. The Autopista tribunal, relying on the cited cases, concluded that ‘These decisions show that ICSID tribunals are reluctant to award lost profits for a beginning industry and unperformed work’. Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela , Case No. ARB/00/5, Award of 23 September 2003 at para 360. The practice of Iran-US Cl Trib confirms this conclusion. See ibid citing GH Aldrich, The Jurisprudence of the Iran-United States Tribunal (Oxford, Clarendon Press, 1996) 294. An unpublished recent award—Biederman v Kazakhstan—reportedly also reflects reluctance to award compensation value based on profit expectations through to a distant future when no substantial record of earnings was available. Earlier: Dorner Claim. 107 Seidl-Hohenveldern emphasizes the lack of confidence of lawyers towards the accounting experts chosen by the parties who ‘tout en arrivant a des r?sultants fort disparates, assurent pourtant que les facteurs qu'ils emploient anticipent d'une fa?on exacte ces ?v?nements futurs. Ces calculs contiennent tant d'?l?ment de conjecture qu'ils paraissent aux non-initi?s ? la science comptable gu?re moins sp?culatifs et tout aussi obscures que les proph?ties de Nostradamus'. Seidl-Hohenveldern, above n 76 at 24. 108 See Crawford, above n 56 at 228–9; MM Whiteman, Damages in International Law (US Gov Print Off, 1943) 1837; United Nations Compensation Commission (UNCC) Governing Council (GC) Decision 9, UNCC GC, Resumed 4th Sess, para 15, UN Doc S/AC.26/1992/9 (1992); Weiler and Diaz, above n 83 at 196; scepticism against DCF calculations is expressed in: Tecmed v Mexico , above n 95 at para 186; Wena Hotels v Egypt , above n 95 at para 122; Biloune v Ghana 95 ILR 183 (1990) 228–9; Autopista v Venezuela , above n 106 at paras 362–3. 109 This—most solid—valuation technique requires an extensive period (best 10 years or more) of operations and thus would not be applicable to disputes that break out during or shortly after the development of a project. 110 On replacement value and other less used concepts—tax value, insurance value, unjust enrichment—see Seidl-Hohenveldern, above n 76 at 19–23. 111 Contrast CME , above n 14 at 151 (where the compensation was calculated assuming the extension of a TV licence) with CMS , above n 27, at paras 419 and 439 (where the tribunal disregarded the prospect of licence extension in 2027). See also Maritime International Nominees Establishment (MINE) v Republic of Guinea , ICSID Case No. ARB/84/4, Award of 6 January 1988, 4 ICSID Reports 61 (1997) 75–6; Jaffa-Jerusalem Railway Arbitration of 1922 had a cut-off at the end of the concession's duration. Note discussion in Kantor and Rudo, above n 53 at 43 and 44 with reference to domestic courts and ICC awards discussion of the proper duration. One of the quoted awards uses the mitigation principle to reduce the duration of the DCF/NPV calculation, another award uses the full duration of a contract. The link between mitigation and duration issues has not as yet been properly analysed for investment and related quasi-investment long-term contract disputes. 112 Risk is usually commensurate with reward. That correlation may not hold in all situations but is one of the essential tenets of investment. High rewards without risk are as a rule suspicious. 113 See Paulsson, above n 18 at 216 (‘tribunals are seldom persuaded to give indirect damages for the loss of high-yield ventures, but rather consider that a prudent rate of return on safe money markets are the appropriate standards’). That view also informed the application of a ‘good faith/abuse of rights’ standard to reduce such damages in the Himpurna award (which Mr Paulsson chaired). Without resorting to abuse of rights doctrine, the same result could be reached by using a discount rate which would reflect the much higher risk for a very long-term, projected high-yield venture in a high-risk country. 114CMS v Argentina , above n 27 at para 419. The effect of an economic crisis therefore needs to be examined in the merits phase (excuse for non-performance?), but also in the damages phase of an investment dispute; cf Phelps Dodge v Iran , Award No. 218-135-2, 19 March 1986, 10 Iran-US Cl Trib 157 (1986) paras 30–1. 115 If one visualizes future events as a ‘bell curve’, with the main probabilities in the middle and extreme events (very high or very low values as small probabilities) at the two margins of the bell curve, then tribunals should apply a conservative method and rely on the events that show up as ‘mainstream’ probability in the centre of the bell curve. 116 David Mildon suggests correctly that it is better to use the term ‘margin of appreciation’ than ‘discretion’, which in different legal cultures has a different meaning, with an English public law approach accepting a wider range of ‘discretion’, while in civil law administrative laws (eg France or Germany) the term discretion triggers automatically a quest for ‘detournement de pouvoir’ or ‘Ermessensmissbrauch’. 117‘Excess values’ can be visualized as being located at the two fringes of a bell curve. Their origin is often in the dynamics of litigation, which compels both parties to push their experts to come up with very high values to influence the point in the middle where tribunals often like to find themselves. The proper method to deal with such excess values is—as often done in statistical analysis—to disregard them if not solidly and persuasively reasoned. 118 See eg Myers v Canada , above n 27. 119 W Buffet and B Graham (referring to style of ‘value’ rather than ‘growth’ perspective). 120 Early-period earnings suffer from two shortcomings in establishing a reasonably solid value: first, they will be depressed by start-up costs; and secondly, they may be inflated by early-movers’ advantage; if a project appears to be very profitable, it is then likely to attract competition which will often drive profitability down. 121Metalclad , above n 73 at para 120; Sola Tiles , above n 73 at para 64; AAPL v Sri Lanka , above n 63 at 292–3; Phelps Doge v Iran , above n 114 at 132–3; Biloune v Ghana , supra note 108 at 228–9; Autopista v Venezuela , above n 106 at para 326; (reportedly) AIG v Kazakhstan (not published). See also Weiler and Diaz, above n 83 at 208–9. Biederman v Kazakhstan (information with the authors). 122 Brower and Brueschke, above n 2 at 435. 123 T W?lde and A Kolo, ‘Environmental Regulation, Investment Protection and Regulatory Taking in International Law’, 50 Int'l & Comp LQ 811 (2001); A Reinisch, ‘Expropriation’, 2(5) TDM (2005); Z Al-Qureshi, ‘Indirect Expropriation in the Field of Petroleum’, 5(6) JWIT 897 (2004); R Dolzer, ‘Indirect Expropriation of Alien Property’, 1 ICSID Rev-FILJ 41 (1986). 124 Ibid . 125 Reisman and Sloane, above n 57 at 140–1; Merrill, above n 12 at 116. 126 But note Marboe, above n 4 at 758 (the author suggests comparing value before and after the regulation. But this does not take into account that the government may have lawfully pursued its policy by alternative regulation. That may produce a significantly lower value. We suggest that both approaches should be considered and compared). 127 See generally N Rubins, ‘Must the Victorious Investor-Claimant Relinquish Title to Expropriated Property?’, 4(3) JWIT 481 (2003). 128 See the recent US Supreme Court case of Lingle v Chevron USA Inc (04-163) 363 F 3d 846 (2005), reversed and remanded. 129 In commercial law, analogous issues have been dealt with in Paula Lee Ltd v Robert Zehil & Co Ltd , 2 All ER 390 (QBD 1983) (Lord Mustill); see also Lion Nathan v CC Bottlers (1996) 1 WLR 1438 at 1446 (Lord Hoffman). 130 Compensation by the ECHR under Art 1 of the Additional Protocol (itself quite close to the concept of ‘regulatory expropriation’) seems to be oriented at these criteria, which may be more suitable for ‘indirect expropriation’ than conventional formal expropriation analysis. See DJ Harris, M O'Boyle, and C Warbrick, Law of the European Convention on Human Rights (London, Butterworths, 1995) at 532, 533 (noting that the ‘level of compensation must be reasonably related to the value of the property taken’, but does not require full compensation). 131 See eg Art 13 of ECT: ‘Such compensation shall amount to the fair market value of the Investment expropriated at the time immediately before the Expropriation or impending Expropriation became known in such a way as to affect the value of the Investment (hereinafter referred to as the “Valuation Date”)’. This formulation suggests that the ‘valuation date’ is not meant to be a point in time—suggestive of conventional formal expropriation with an effective date, but can as well be a ‘period of time’. 132 In principle and theory, the normal market value of an investment project at any time should be discounted by the risk (probability) of expropriation and similar political risk, with an addition for the amounts and probabilities of compensation (minus the cost/risk of litigation). 133Santa Elena v Costa Rica , above n 63 at para 76; see also the extended commentary by Brower and Wong, above n 50. 134 But see Reisman and Sloane's reference to Starrett Housing (1984), 123 ILM 1090, 1133, 1137, in Reisman and Sloane, above n 57 at 149. 135 This issue is the focus of the Reisman and Sloane article. See ibid . 136 That has in particular been the case with the Iran-US Claims Tribunal creeping expropriations, see generally Brower and Brueschke, above n 2; note also the occupation of the factory in the Case Concerning Elettronica Silua SpA (ELSI) v Italy ( US v Italy ), 1989 ICJ Rep at 69. 137 See Reisman and Sloane, above n 57 at 138 and 139 (too late a point of time as ‘valuation date’ would reward states for ‘accomplishing expropriation tranche par tranche rather than d'un coup and to encourage states to accomplish expropriation furtively’—and a ‘delictor may not benefit from its own delict’); see also Starrett Housing , above n 63 at 1133 (‘valuation must exclude any diminution in value attributable to wrongful acts of the expropriating government’). ‘The depressing effect on values of threats or acts of nationalisation must be ignored in ascertaining the market value of subsequently nationalised enterprises’. Reisman and Sloane, above n 57. 138 The only extensive treatment we could find is chapter VIII in Jan Paulsson's Denial of Justice—focusing on compensation for denial of justice. It is not clearly established if ‘denial of justice’ is a subcategory of the fair and equitable treatment or the ‘constant security and protection’ obligation or comes into play with investment treaties through references to customary international law standards. 139CMS v Argentina , above n 27 at para 410; see also Azurix v Argentina , above n 80 at paras 420, 424 ff. 140 See eg the discussion of Nykomb v Latvia , below at n 152 and the accompanying text. 141 See the analysis of Chorzow Factory dictum at text accompanying n 23 above. 142 For a recent discussion of this issue, see T Weiler, ‘Saving Oscar Chinn: Non-discrimination in International Investment Law’ in Weiler ed 2004, above n 83 at 159; See also Borzu Sabahi, ‘National Treatment: Is Discriminatory Intent Required’, in T Weiler (ed), Investment Treaty Arbitration: A Debate and Discussion (Hustington, NY, Juris Publishing, forthcoming). W?lde has prepared a study to be published in the forthcoming Liber Amicorum for Fernando de Trazegnies, Lima, Peru. 143 National treatment requires three essential tests: comparison (‘likeness’), difference in treatment and absence or presence of legitimate reasons. See generally Weiler, above n 142; SD Myers v Canada , UNCITRAL Arbitration (NAFTA), 13 November 2000 at paras 130 ff; Feldman v Mexico , ICSID Case No. ARB (AF)/99/1, Award of 16 December 2002 at para 166; Nykomb Synergistics Technology Holding AB v Latvia , SCC Arbitration, December 2003 at 34. 144Myers , above n 27 at para 197. As noted, it may be better to view this as a ‘margin of appreciation’ rather than as ‘discretion’ in the sense it is used in comparative administrative law. 145 See eg CME ; Pope and Talbot Inc v Canada , UNCITRAL Arbitration under Chapter 11 of NAFTA; Myers ; Saluka Investments BV v Czech Republic . A separate remedies phase allows all— tribunal and parties—to focus properly on the issue of remedies. It avoids unnecessary early investment of time and money by all players on the issue of damages. It also allows the parties to engage in settlement negotiations with a much clearer view of the case already decided in principle. 146 Nor have they considered the possibility of awarding non-monetary remedies. That is more understandable under NAFTA Article 1135 where ‘final’ awards can only provide for monetary compensation. But, under international law, as the extensive discussion of remedies in the ILC Articles shows, non-pecuniary remedies may also be awarded, although they may not be enforceable if an award has been rendered under the ICSID Convention. See Sect (1)(d)(ii) above. 147 See eg CME v Czech Republic , above n 14, where the tribunal relied upon the fair market value analysis using a recent arm's-length offer to buy the enterprise as the starting point for valuation. 148Occidental Exploration and Production Company v The Republic of Ecuador , Final Award, LCIA Case No. UN3467 (2004) para 205. 149 It noted inter alia that ‘… In the absence of discrimination that also constitutes indirect expropriation or is tantamount to expropriation, a claimant would not be entitled to the full market value of the investment which is granted by NAFTA Article 1110. Thus, if loss or damage is the requirement for the submission of a claim, it arguably follows that the Tribunal may direct compensation in the amount of the loss or damage actually incurred.’ Feldman v Mexico , above n 143 at para 194. 150 Ibid paras 199–201. 151 Ibid para 206. In Feldman , there was an additional discriminatory element in the fact that Feldman was extensively audited, but the competitor was not. Should the tribunal have awarded to Feldman the audit costs? Should it have ordered the parties to negotiate an acceptable tax refund system based on the audits carried out on its competitor and only awarded compensation as a last resort if such post-award negotiation had failed? Such a multi-step remedy would have come much closer to the way WTO remedies operate. Could the tribunal order Mexico to stop discrimination by providing tax refunds either to both or to none, and to ensure the tax audits were carried out in a similar way—and again keep compensation for a phase of ‘final award’? 152 T W?lde and K Hober, ‘The First Energy Charter Treaty Arbitral Award’, 22 J Int'l Arb 83 (2005). The award was published in TDM. 153 Why it awarded the full underpayment for the future of the contract but only one-third for past underpayment is not very clear. 154Myers , above n 27 at paras 222 and 228. 155 Modulating remedies would also help to better reflect the relative gravity of a breach, and to exercise arbitral restraints where a tribunal's decision-making transgresses the border beyond which it becomes public policy-making without legitimacy and without the required resources and expertise. Bronckers and van den Broek, above n 35 at 111 ff, make the same argument for the WTO. 156 Breaches of this standard are typically examined in parallel to an ‘indirect expropriation’ claim. Tribunals seem to prefer basing their awards on breach of fair and equitable treatment rather than on ‘indirect expropriation’. It is noteworthy, however, that in several recent awards the tribunals have in effect and explicitly applied an expropriation type of compensation to fair and equitable treatment claims. See eg CMS v Argentina , above n 27; and Azurix v Argentina , above n 80. 157 See eg CMS v Argentina , above n 27 at para 410; see also Azurix v Argentina , above n 80 at paras 420, 424 ff. This jurisprudence raises the question of whether it is possible to sharply delineate the various ‘heads of claim’ or ‘causes of action’ in the perhaps more common-law civil litigation style or if these various ‘heads of claim’ only represent a different aspect of an overall treaty delict of ‘abuse of governmental power’ against foreign investors. The latter position would suggest a more unified approach to damages—except for formal expropriation. 158 It has been suggested that this standard is subsumed under fair and equitable treatment. See eg Don Wallace, Jr, ‘Fair and Equitable Treatment and Denial of Justice: Loewen v. United States and Chattin v. Mexico’, in Weiler ed 2005, above n 49. One could also consider it part of a more extensive notion of ‘constant security and protection’ or part of the reference in investment treaties to customary international law. 159Myers , above n 27 at para 94. See also CMS , above n 27 at para 409 (‘The tribunal in CMS v Argentina, based on the same rationale exercised its discretion to ‘identify the standard best attending to the nature of the breaches found.’); MTD Equity Sdn Bhd and MTD Chile SA v Republic of Chile , ICSID Case No. ARB/01/7, 25 May 2004, at para 238. 160CMS , above n 27 at 410. Similarly, the Azurix tribunal, in the absence of expropriation, found fair market value to be appropriate standard: Azurix , above n 80 at para 421. Between book value and actual investment value, the tribunal chose the latter, but substantially reduced it, because, among other things, no well-informed investor in March 2005 (the bidding time) would have paid the price paid by Azurix in mid-1999 to acquire the concession. Ibid at para 426. The application of an expropriation model in both cases also suggests that the breach of the fair and equitable standard was considered to be effectively very close to an expropriation, thus justifying that approach. But see criticism of CMS tribunal’s adoption of fair market value by Marboe, above n 4 at 757. 161Petrobart , above n 45 at 84. 162 See Paulsson, above n 18 at 168 ff with references to the Timofeyev, Fabiani, and Montano cases. 163 Ibid at 225–7. 164 That, however, invites substantial exercise of discretion and speculation, but it may also lead to politically and financially palatable awards for the claimant, which provide a sanction and an incentive to encourage respondent states to remedy the situation on their own, normally after a separate award on the merits and before the damages phase of the procedure, as in the Goetz v Burundi case. See text accompanying n 46 above. 165 Sometimes conceptualized as ‘detrimental reliance’ or various forms of ‘estoppel’ and venire contra factum proprium. It has emerged in recent cases such as Metalclad , Tecmed , MTD , Occidental , CMS , Waste Management , Thunderbird , Saluka ; and in the unpublished Biederman-Kazakhstan award as a self-standing investment discipline. For an extensive analysis of the development of this standard in investment arbitration and linked to comparative and international law, see Separate Opinion of W?lde and the award of the tribunal in Thunderbird ; Brower and Brueschke, above n 2 at 425; see also C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’, 6(3) JWIT 357 (2005) 374; OECD, International Investment Law—A Changing Landscape (Paris, OECD, 2005) 118; R Dolzer, ‘New Foundations of Expropriation Law’, 75 Am J Int'l L 553 (1981) at 579. 166 Separate Opinion in Thunderbird v Mexico , Award of 26 January 2006, at para 30; see also Saluka v Czech Republic , UNCITRAL Arbitration, Partial Award on Liability, 17 March 2006 at para 300 (stating that the object and purpose of the Netherlands-Czech BIT require a balancing approach towards the interpretation of the BIT and the mutual rights and obligations of the state and investor). 167 An equivalent effect to such ‘balancing’ with an influence on compensation is achieved where awards apply compensation-reducing factors such as failure to mitigate the risk (MTD v Chile ). See Sect (6)(b) below. See also Case Concerning the Gabcikovo-Nagymaros Project (Hungary v Slovakia), 1997 ICJ Reports, p 55, para 80; Bogdanov v Moldova (Russia-Moldova BIT), SCC Arbitral Award of 22 September 2005 at 19. (The sole arbitrator held that Moldova breached its obligation to provide fair and equitable treatment by devising and implementing a contractual compensation scheme with the investor, which practically did not allow the investor to recover the compensation that it had legitimately expected to receive. She, however, noted that the investor was partially responsible too, because he did not make sure that the compensation scheme would work properly. As a result, the sole arbitrator reduced the compensation taking into account what was caused by the respondent's fault.) On ECJ practice excluding from compensation for breach of legitimate expectation lost profit, see Craig, above n 19 at 779. 168 Reisman and Sloane's argument in favour of modulating compensation according to the egregiousness of state conduct (discussed at text accompanying n 57 above) is hence relevant in the ‘fair and equitable (legitimate expectation)’ context as well. The concept of ‘indirect expropriation’ is at times quite close, and difficult to distinguish, from breaches of legitimate expectation. 169 So used in Aminoil , above n 47 at paras 148 ff. Given the recent resurgence of this principle, a more systematic analysis of its application to the determination of compensation/damages seems warranted. It could operate both to expand compensation (ie be relied upon by a tribunal to choose a particular valuation proposition made by the parties) or to delimit compensation. 170 For a recent and authoritative overview of the state contract jurisprudence and doctrines of recent date, see C Leben, ‘La Th?orie du contrat d'?tat’, 302 Recueil des Cours 197 (2003). 171 See generally N Rubins, ‘The Notion of “Investment” In International Investment Arbitration’, in N Horn and S Kr?ll (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer, 2004); F Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement? Some “Un-Conventional” Thoughts on Salini, SGS & Mihaly’, 1(4) TDM (2004). 172 Governmental actions could amount to expropriation, if the government takes away the economic value of the contract. See Crawford, above n 24 at 229–30; and Brower and Brueschke, above n 2 at 417–27. Or they could amount to breach of ‘fair and equitable treatment’ standard, if the government frustrates legitimate expectations arising out of contracts. Or they could violate national treatment standard, if the state observes comparable contracts with domestic investors and breaches those with foreign investors. See eg Nykomb v Latvia , above n 143 at 34. Finally, they may breach the ‘umbrella clauses’ of a treaty, although there is no consensus as to how this may take place. See eg SGS Soci?t? G?n?rale de Surveillance SA v Islamic Republic of Pakistan , ICSID Case No. ARB/01/13, Decision on Objections to Jurisdiction, 6 August 2003 (completely ignoring the clause); cf SGS Soci?t? G?n?rale de Surveillance SA v Republic of the Philippines , ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction, 29 January 2004 (accepting that the clause could transform a breach of contract to a breach of the BIT); cf Fedax v Venezuela , ICSID Case No. ARB/96/3, Award of 9 March 1998 and Eureko v Poland , Ad hoc UNCITRAL Arbitration, Partial Award on Liability, 19 August 2005 (apply it to breach of any obligation). At the other extreme is the theory advanced by the SGS claimant in both cases, according to which an umbrella clause ‘lifts’ any contract dispute (commercial or not) to the level of treaty jurisdiction. Our analysis suggests that umbrella clauses protect contracts against governmental interference that abuses the dual role of the government as regulator and as contract party, but does not amount to expropriation; therefore, purely commercial contract disputes are not covered. T W?lde, ‘The Umbrella Clause in Investment Arbitration’, 6 JWTI 183 (2005) 183–237. Updated and shorter version in: C Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (New York, JurisNet, 2006). The recent CMS , LG&E , ICSID Case No. ARB/02/1 and Pan American v Argentina , ICSID Case No. ARB/03/13, cases confirm W?lde's view that the umbrella clause is limited to breaches/interferences of a governmental character, while the Eureko v Poland case (though without detailed discussion) does not confirm this qualification. 173 There is considerable doctrinal and conceptual confusion over the right remedy for breach of a contract in the context of investment treaty arbitration, however. Confusion arises when a compensation analysis sails often under the name of damages and a damage analysis is flagged as an expropriation-type of compensation. The issue becomes further complicated when international tribunals decide disputes on the basis of breach of contract (as opposed to breach of a treaty) and applicable (national) law. In such situations, the analyses are often influenced by ‘international law’ considerations, and that is in principle again the expropriation-cum-compensation perspective. 174 The claimant would receive in theory what a willing buyer at an arm's-length negotiation, taking into account risks such as government risk, would pay for the contract. See Sect (1)(c) and (3)(b)(v) above, discussions regarding the future net income and discount rates. 175 The issue has to be left open: there are also arguments for incorporating a risk-based discount factor into a contractual damages’ perspective. On the other hand, it may be argued that the state as a party to a contract should not benefit from prospects of unlawful conduct towards the contract. Perhaps a distinction can be made between purely contractual conduct and state conduct towards the contract (renegotiation, hardship, force majeure, imprevision) which could justify contract termination or unilateral adaptation. The issue is as yet unresolved; a full compensation analysis for investment disputes relating to contractual rights requires an in-depth study. 176 Third-party damage causation: Lauder v Czech Republic , UNCITRAL Arbitration, Final Award of 2001 at para 235, versus CME v Czech Republic , Partial Award, September 13, 2001 at paras 575 ff; on the related concept of ‘concurrent causes’ see commentary 13 to ILC Art 12. With extensive reference to ICC awards: B Hanotiau, ‘La determination et l'evaluation du dommage reparable’, in E Gaillard (ed), Transnational Rules in International Commercial Arbitration (Paris, ICC Pub No. 480/4, 1993) at 214 ff. 177Amco v Indonesia , Resubmission, Award of 5 June 1990, 17 YB Com Arb 73 at 98–9; Crawford, above n 24 at 229. 178 See text accompanying nn 54 and 55 above; see also Wells' comments on KBC, above n 56. 179 Presumably at the root of the generally criticized KBC award. See also Marboe, above n 4 at 746 (concurring with the argument that otherwise states could be induced to use their governmental powers to escape from deals no longer seen as advantageous). 180 B Cheng, General Principles of Law as Applied by International Courts and Tribunals (London, Stevens and Sons Ltd, 1953) 253 (‘… the principle of integral reparation in responsibility has to be understood in conjunction with that of proximate or effective causality which is valid both in municipal and international law’). 181 Garcia Amador, above n 31 at paras 157 ff (lucrum cessans was there discussed as a case of an ‘indirect damage’ that should be compensable if not ‘too remote or speculative’, with reference to the Rice and Shufeldt cases). 182Art 31(2) of the ILC Articles provides that: ‘Injury includes any damage, whether material or moral, caused by the internationally wrongful act of a State’. See also the discussion of this issue in B Sabahi, ‘Calculation of Damages for Breach of International Investment Contracts’ in P Kahn and T W?lde (eds), New Aspects of International Investment Law (The Hague, Martinus Nijhoff Publishers, 2007) ch 12. 183 See Crawford, above n 24 at 204–5. Cf also Garcia Amador, above n 31 at 40–4. 184 But see Myers , above n 27 at 143–6 (dismissing the parties' reliance on the concept of foreseeability as developed in contract law and stating instead that the damages for breach of a treaty should be more similar to the concept of causation in tort law); the differences between ‘not foreseeable’ and ‘too remote’, however, is not very clear. SPP (ICC Award), above n 106 (applying foreseeability concept for breach of contract); cf Amco (Resubmitted), above n 87 at 612 (stating that foreseeability relates to causation and damages). The principle does not require the party to anticipate the quantum of loss at the time of breach. 185CME (2001), above n 176 para 583; see also Decision 15, UNCC GC, 8th Sess, UN Doc S/AC.26/1992/15/ (1992), para 9, commentary II and III to para 6 of Decision 9 (‘[w]here the full extent of the loss, damage, or injury arose as a direct result of Iraq's unlawful invasion and occupation of Kuwait, it should be compensated notwithstanding the fact that it may also be attributable to the trade embargo and related measures’). 186CME (2001), above n 176 at para 582. The Lauder v Czech Republic tribunal—on the same facts, but on the basis of a formally different treaty—considered Zelezny's intervening role as crucial and found that the damage was primarily caused not by the public agency, but by Zelezny. Thus, the tribunal ruled that awarding damages would not be appropriate. Lauder , above n 176 at para 235. See also Brower and Sharpe, ‘Multiple and Conflicting International Arbitral Awards’, 4(2) JWIT 211 (2003) 213–14. 187DornerClaim (1954), 21 ILR 164 (1954) 164–5. 188 Marboe, above n 4 at 759. 189Santa Elena , above n 63 at paras 76–95 (where developments subsequent to the expropriation were taken into account). 190 N Girvan, Corporate Imperialism (White Plains, NY, Sharpe, 1976); for a discussion, see Seidl-Hohenveldern, above n 76 at 14; F Orrego-Vicuna, ‘Some International Law Problems Posed by the Nationalization of the Copper Industry by Chile’, 67 Am J Int'l L 711 (1973) at 725; Sornarajah, above n 67 at 477–9; UNCC Panel of Commissioners discussion of ‘extraordinary profits’ in Kuwait Petroleum Co v Iraq Report and Recommendations made by the Panel of Commissioners concerning the Fourth Instalment of ‘E1' Claims”, S/AC.26/2000/16, paras 167 ff (panel dismissed Iraq's request for reduction of compensation due based on the extraordinary profits that claimant made). 191 See summary in Seidl-Hohenveldern, above n 76 at 14, with reference to Wengler. This argument is effectively a ‘caveat investor’ motto, which carries the risk that the key function of investment treaties—protection in high-risk countries—is effectively thwarted. For an effort at explaining such ‘caveat investor’ propositions, see P Muchlinski, ‘ “Caveat Investor” The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 Int'l & Comp LQ 527 (2006) at 554. One should be careful in using a reasonable standard of due diligence under the ‘mitigation’ and ‘contributory negligence’ heading, but not exonerate high-risk countries from application of investment treaties; the main function of such treaties is to provide protection in high-risk countries, and not in situations where there is no risk. 192 See also Article 39 of the ILC Articles and the commentary in Crawford, above n 24 at 240 ff (Art 39 provides that ‘In the determination of reparation, account shall be taken of the contribution to the injury by wilful or negligent action or omission of the injured State or any person or entity in relation to whom reparation is sought’). For a (brief) comparative law review see Taniguchi, ‘The Obligation to Mitigate Damages’, in Derains and Kreindler, above n 92 at 79; C von Bar, The Common European Law of Torts, Vol 2 (Oxford, Oxford University Press, 2000) para 526; Garcia Amador, above n 31 at 173, 174 (referring to several older commission claims cases); for application of the principle in EU/comparative administrative law, see Craig, above n 19 at 777. 193 See ICC Award Case No. 7006, 1992, 18 YB Com Arb 58 (1993); see also Bridas v Turkmenistan (tribunal deduct US$50 m because Bridas had not followed arbitrators' advice over a strategy to mitigate the damages); the case is specific because Bridas had been unwilling to work with the tribunal's recommendations to mitigate damages, thus involving presumably a higher-level breach. Bridas v Turkmenistan , ICC Case No. 9058/FMS/KGA, Final Award of 26 January 2001, at 12, 13. Hanotiau, above n 176 at 216 ff, summarizing ICC arbitral practice. 194SPP (ICC Award), above n 106 at paras 64–5. To this list we should also add the rule against double-recovery or double-counting, whose application in a different context was discussed earlier. 195 See MTD , above n 159 at paras 242–3; Bogdanov , above n 167 at 19 (the sole arbitrator reduced the amount of the damages because the claimant had failed to take the necessary precautions by clarifying some of the terms of a privatization contract, whose breach was at issue); and Azurix , above n 80 at para 426 (the tribunal reduced the damages because the claimant had paid an unreasonably high price to acquire the contract). See also the ICJ judgment in Gabcikovo-Nagymaros, above n 167 at para 80; Middle East Cement Shipping and Handling Co SA (‘ME Cement’) v Arab Republic of Egypt , ICSID Case No. ARB/99/6, Award of 12 April 2002 at para 167. 196 The issue has come up in Nykomb-Latvia , above n 143 (tribunal rejected the respondent's argument that acceptance of a power sales agreement at a lower tariff than originally committed constituted a waiver/voluntary change of the investor's contract rights); see also Siemens v Argentina , above n 65 at para 221 and other Argentine cases where the respondent claimed (without success) that acceptance by the claimant of a formal process of renegotiation constituted a waiver of its rights. 197 On damage mitigation as part of the ‘efficient breach’ concept, see F Marrella and I Marboe, ‘ “Efficient Breach” and Economic Analysis of International Inveatment Law’, TDM (March 2007). 198 Reisman and Sloane, above n 57 at 130. 199 Craig, above n 19 at 778, reports that the ECJ identifies damages when the effects of the regulation exceed the ‘bounds of economic risk inherent in the activity in question’. 200 It also provides within the internal dynamics of tribunal decision-making a concept to achieve and justify compromise and, simultaneously, in the dynamics of tribunal relationships with both parties, an instrument to make an award against the government more palatable—two steps forward, one step back. 201 Craig, above n 19 at 777, on two ECJ decisions pointing towards this approach. 202 So presumably in SGS v Philippines , Encana v Ecuador , Arbitration, LCIA Case No. UN3481, Final Award of 3 February 2006 and Loewen v US , ICSID Case No. ARB (AF)/98/3 (NAFTA), Award of 26 June 2003; see Paulsson, above n 18 at 100 ff. 203Loewen v US stands for an unreasonable requirement to pursue a remedy that seems to have been far from self-evident and practical. 204 Except in the recent gas industry nationalization debate in Bolivia, 2006 (reported in the Financial Times). 205 On counterclaims in the Aminoil v Kuwait case, see Hunter and Sinclair, above n 49 at 369–80; HE Kjos, ‘Counterclaims in Investment Arbitration’, in Kahn and W?lde, above n 182. 206 There are currently two investment disputes where this issue plays a role; one is Yukos/Menatep v Russia . On the abuse potential of the anti-avoidance tax principle see K Vogel, Klaus Vogel on Double Taxation Conventions (Deventer, Kluwer Law and Taxation, 3rd edn, 1997) paras 119, 110; G Cooper (ed), Tax Avoidance and the Rule of Law (Amsterdam, IBFD Publications in association with the Australian Tax Research Foundation, 1997). But see the rejection of a tax counterclaim in Saluka v Czech , above n 166 at paras 20 and 181 (summarizing the 2004 Decision on Jurisdiction over the Counterclaim) because it was not ‘closely connected’ enough to the original claim. Note case comment by A Hoffmann in 3(5) TDM (2006); see also Borzu Sabahi's commentary on Saluka award on jurisdiction over counterclaims, forthcoming in Oxford University Press online investment arbitration database, on file with the authors. 207 Cf Saluka v Czech Republic , Jurisdiction over Counterclaims, 7 May 2004. 208 T W?lde, ‘The Serbian Loans Case—A Precedent for Investment Treaty Protection for Foreign Debt?’ in Weiler ed 2005, above n 49 at 383. 209 For: Amerasinghe, ‘Quantum of Compensation for Nationalised Property’, in R Lillich (ed), The Valuation of Nationalized Property, Vol III (Charlottesville, Va, University Press of Virginia, 1972) at 124; Schachter, above n 69 at 124 . 18; Higgins, above n 30 at 293–4; cf B Cheng, ‘The Rationale of Compensation for Expropriation’, 44 Grotius Society 267 (1958) 308–9; B Clagett, ‘Just Compensation in International Law: The Issues Before the Iran-U.S. Claims Tribunal’, in R Lillich (ed), The Valuation of Nationalized Property in International Law, Vol IV (Charlottesville, Va, University Press of Virginia, 1987) 89. 210 Only modern practice seems now to require a detailed reasoning of compensation awards; in the past (perhaps with less rigorous accountancy skills available), discretionary powers of tribunals were generally accepted; Garcia Amador, above n 31 at para 116; Whiteman, above n 108, Vol II at 833. 211 Seidl-Hohenveldern, above n 76 at 28–9; but see CMS , above n 27 at para 444 (the tribunal however did rely on the financial crisis to reject the claimant's argument that a take or pay contract would immunize the latter from the risks associated with the crisis; cf Himpurna California Energy Ltd v Pt Perusahaan Listruik Negara (Bermuda v Indonesia), UNCITRAL Arbitration 1999, Mealy Publications, Inc, King of Prussia, PA, Vol 14, No. 12, 12/99 A-1, para 501); see also Jahn et al v Germany , Nos. 46720/99; 72203/01; 72552/01, [2005] ECHR 444, 30 June 2005 at para 113 (the state has a wide margin of appreciation when passing laws in the context of a change of political and economic regime). See also LG&E , ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 at para 242. It is also useful to note that in the Serbian Loan case, the PCIJ judgment, later in a second phase arbitration had to be modified to respond to Serbia's ability to pay. See generally W?lde, above n 208. This was dormant for 30 years, but is now re-emerging in investment disputes, when government gave guarantees that could not be sustained in case of a national (Argentina) or regional (Asian) or possible global financial crisis. Tribunals such as the Himpurna have used the equivalent of equitable considerations (abuse of rights) to reduce compensation. Himpurna , paras 520–2. See also CMS (2005) para 444 (the tribunal rejected the respondent's invocation of the state of necessity under international law in order to avoid responsibility; but considered the crisis to question the claimant's assumptions with respect to the proposed value of the lost business); cf LG&E v Argentina (2006) dispositif (the tribunal accepted Argentina's plea of necessity during a 17-month period, hence exonerating it from payment of compensation for losses caused during that period). 212 The foreign investor should normally not bear the consequences of the crisis. Any other rule would be contrary to the objective of investment treaties, which is promotion of investment. But the crisis and resulting inability to pay may have an impact on how compensation is calculated. If a forward-looking method is adopted, then the assumptions used must take into account the difficulties—eg of maintaining utility tariffs or demand expectations that are no longer economically feasible. See CMS , above n 27 para 244 (referring to the Gaz de Bordeaux case). While contractual guarantees may allocate this risk to the government, the NPV/DCF approach looks primarily at factual probabilities, not legal obligations. The risk of a long-term contract, with unrealistic government guarantees in a time of economic crisis, is substantial—and that risk will have to be factored into an appropriate risk-reflective discount rate. 213 Garcia Amador, above n 31 at paras 171, 172; note also the—inconclusive—discussion in Azurix , above n 80 at paras 434–6. Unjust enrichment, however, may be used both to delimit compensation, but also to enhance compensation. It should be seen as a complementary and corroborative—rather than primary—method to help define the compensation value. 214 See Amoco International , above n 73 at paras 189 ff; most recently see Sheppard, above n 2 (suggesting that one should in the main see compensation as independent of its lawfulness (which differs from the Chorzow judgment) except for egregious situations). 215 On punitive damages in international law, see Weiler and Diaz, above n 83 at 189; N Jorgensen, ‘A Reappraisal of Punitive Damages in International Law’, 68 Brit YB Int'l L 247 (1997). See also Reisman and Sloane, above n 57 at 138 (‘we find no basis for such a punitive award under customary international law at this time’—a statement that is immediately after contradicted by allowing ‘what is called lucrum cessans’ ‘for some creeping expropriations’). Classic international law seems to have been much more ready to accept the punitive character of damages: Garcia Amador, above n 31 at paras 140, 145 (‘reparation of an injury caused to an alien individual is fairly often frankly “punitive” in character’). 216 eg diminishing the value before expropriation by continued threats, Reisman and Sloane, above n 57 at 146, or expropriation motivated by racial discrimination or ethnic persecution. See Sornarajah, above n 67 at 398–9. The question of the impact of unlawful measures on compensation also involves equitable considerations and tribunal dynamics. Equitable considerations are discussed below. With respect to the dynamics of the tribunal, while a consensus-oriented tribunal chair will want to manage the damages deliberations in such a way as to bring both arbitrators on board, a breach considered ‘egregious’ by both co-arbitrators will require fewer concessions on the compensation front to reach a unanimous award. 217 Raised by T W?lde and G Ndi, ‘Stabilising International Investment Commitments’, 31 Texas Int'l LJ 215–68 (1996); see also the discussion of Iran-US Cl Trib awards in Brower and Brueschke, above n 2 at 499–502; the gist of these awards is a reluctance to read into stabilization clauses a prohibition on expropriation, but not to exclude such a view altogether. 218Aminoil , above n 47 at paras 179, 196, suggests (as does Revere Brass & Copper ) that a stabilization clause will (or may) qualify an expropriation as unlawful with the consequence (according to some views) of higher compensation. For a survey of other authorities, see A Faruque, ‘Legal Protection v Functional Value’, 23 J Int'l Arb 317 (2006). 219 C Schreuer, ‘Shareholder Protection in International Investment Law’, 2(3) TDM (2005) text following nn 79 to the end. But ‘indirect damages’ is also used to describe something akin to ‘consequential losses’ or more remote damages. It may be better to speak here of ‘derivative damages’. 220Barcelona Traction, Light and Power Company, Limited (New Application, 1962), Judgment 5 February 1970, 1970 ICJ Rep 1970, p 3, at p 4, para 47; see also ELSI, above n 136 at para 106. 221 Rubins, above n 171; Yala, above n 171. 222 Schreuer, above n 219 at 18; see also reference to Mondev International Ltd v United States , ICSID Case No. ARB(AF)/99/2 (NAFTA), Award, 2002, at paras 82, 83. 223CMS v Argentina , Decision on Objection to Jurisdiction, 17 July 2003, at paras 59, 66–9; Azurix , above n 80 at paras 69, 73; Enron Corp and Ponderosa Assets, LP v Argentina , Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 273, paras 43–9, 58–60; Siemens v Argentina , ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 at paras 125, 136–50; Gami v Mexico , UNCITRAL Arbitration (NAFTA), 15 November 2003 at paras 29, 33, 35 (‘the fact that a host state does not explicitly interfere with share ownership is not decisive. The issue is rather whether a breach of NAFTA leads with sufficient directness to loss or damage in respect of a given investment’). The great majority of investment treaties have not directly dealt with the issue of shareholders' right to recover indirect damages; but some have done that. See NAFTA Arts 1116 and 1117; see also ECT Art 26(7). 224 For further support for the ‘economic identity’ and ‘economic’ rather than ‘legal-formal’ approach, see also: Ceskoslovenska obchodni banka, (‘CSOB’) v Slovak Republic , ICSID Case No. ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999, at paras 72–5; Holiday Inns v Morocco , cited in PLalive, ‘The First World Bank Arbitration (Holiday Inns v.Morocco)—Some Legal Problems’, 1 ICSID Reports 680(1993) at 680; Klockner v Cameroon ; SOABI v Senegal ; Fedax v Venezuela . 225Enron v Argentina , above n 223 at paras 50 and 52. 226Gami v Mexico , above n 223 at para 33; one should also take into account the discussion of the Methanex Corporation v United States , UNCITRAL Arbitration (NAFTA), First Partial Award, 7 August 2002, at paras 134 ff; it focuses on the NAFTA language ‘relate to’, but does express the general concept that developments which are not directly related can be more easily ignored than developments with a quite direct link. What is ‘direct’ is not only a scientific inquiry, but a legal inquiry which identifies which links are relevant and which are not. 227 It should be noted that tax law approaches focusing more on the economic reality may ‘consolidate’ the financial situation of the subsidiary with the parent's. 228 Brief remarks in the award suggest the tribunal may have wanted to have more substantiated submissions on the identity of subsidiary and parent damage for past underpayments; but since the contract was, in the tribunal's eyes, quite clear for past and future, it was not easy to follow the tribunal's reasoning which in effect required full tariff payment for the future, but did not recognize past underpayment for two-thirds. 229Azurix , above n 80 at para 431. 230 See Yannaca-Small, ch 25 below. 231 On boundary delimitations, see ALW Munkman, ‘Adjudication and Adjustment—International Judicial Decision and the Settlement of Territorial and Boundary Disputes’, 46 Brit Y Int'l L 1 (1972–3); S Rosenne, ‘Equitable Principles and the Compulsory Jurisdiction of International Tribunals’ in E Diez, J Monnier, JP Muller, H Raimann, and L Wildhaber (eds), Festschrift fur Rudolf Bindschedler (Bern, Verlag Stampfli, 1980) 408. 232 See eg Corfu Channel Case (UK v Albania) Assessment of the Amount of Compensation Due from the People's Republic of Albania to United Kingdom, 1949 ICJ Reports at 244 and 248. 233 See generally Gary Born, International Commercial Arbitration (Ardsley, NY, Transnational Publishers and Kluwer, 2nd edn, 2001) at 556–7. 234 Seidl-Hohenveldern, above note 76 at 27. 235 M Akehurst, ‘Equity and General Principles of Law’, 25 Int'l & Comp LQ 801 (1976) at 803; also Hanotiau, above n 176 at 220, who points to the role of equitable principles in arbitration practice, in particular where specific proof of damages appears difficult or a global appreciation of the damages suggests a lump-sum (chiffre forfaitaire) amount. 236 Cf eg in particular the North Sea Continental Shelf (1969) case where the ICJ used equitable circumstances to correct a practically and politically problematic solution indicated by the more formal criteria of boundary delimitation. Ibid, paras 90–1. 237 In Santa Elena v Costa Rica , for instance, the tribunal relied on the jurisprudence of Iran-USCT in Philips Petroleum where the latter tribunal, itself relying on Starrett Housing , opined that in determining the fair market value of a company, the tribunal should consider all the circumstances including the equitable circumstances. See Santa Elena , above n 63 at para 92 and references therein. Cf E Lauterpacht, ‘International Law and Private Foreign Investment’, 4 Indiana J Global Legal Stud 259 (1996–7) 269; Libyan American Oil Co (‘Liamco’) v Libya , 62 ILR 140 (1981) 150–2 and 160 (‘reasonable equitable indemnification’). 238Aminoil , above n 47 at para 164; JF Lalive, in a personal discussion (with Michael Schneider present), explained to Thomas W?lde that the parties had agreed on a specific compensatory amount and that the tribunal was asked, without further explanation, to simply endorse it. This would explain the missing link between the amount and the reasoning. That has been disputed by Hunter and Sinclair, above n 49. 239Himpurna v Indonesia , above n 211. In this case, Indonesia had entered into a take-or-pay contract with Himpurna. Later, as a result of the financial crisis of 1997, it became unable to fulfil its obligations under the contract. The tribunal reasoned that the strict application of the NPV/DCF method to value Himpurna's investment would amount to an abuse of rights. It could have reached the same results, however, more easily by applying a higher discount rate (eg at or over 25%), given the high-risk nature of a one-sided contract in a developing country, and, secondly, by instead applying the equitable-circumstances corrective function. Cf CMS , above n 27 at paras 418, 444, 248, 183 (The claimant had to ‘share some of the costs of the crisis’ and noting that the crisis would have made tariff income, also by way of regulatory tariff changes, less than would otherwise have been estimated). 240 Aldrich, above n 106 at 241 (‘I believe that when they are making a complex judgment such as one regarding the amount of compensation due for expropriation or rights to lift and sell petroleum products, equitable considerations will inevitably be taken into account, whether acknowledged or not’). 241 That is also the modern approach to judicial review of administrative discretion. J Schwarze, ‘Judicial Review of European Administrative Procedure’, 68 Law & Contemp Probs 85 (2004) 94 ff; see also Paulsson, above n 18 at 180 ff, on the due process with respect to discretionary powers. 242 These include unjust enrichment, the concept that nobody should profit from their own fault—the risk should be borne by those who can best control it—good faith, and abuse of right. Some awards suggest that even if the facts of a case do not meet the high threshold of some ‘hard law’ concepts (eg force majeure), a tribunal still may consider that these are so far off as to be completely disregarded (note the link between the application of the abuse of right concept to limit damages in Himpurna v Indonesia , as discussed in nn 113 and 211 above). That would suggest that equitable circumstances are used to soften the impact of hard law—the very origin of the concept of equity in common law. Garcia Amador, above n 31 at 43, 44, considers ‘unjust enrichment’ as a principle to delimit a damage assessment and ‘double recovery’ as a case of inappropriate unjust enrichment. 243 See generally Crawford, above n 56 at 235–9; Brower and Brueschke, above n 2 at 615–30; Brower and Wong, above n 50 at 768–75; JY Gotanda, ‘Awarding Compound Interest in International Disputes’, 2004 Oxford University Comparative Law Forum 2 (2004); FA Mann, ‘Compound Interest as an Item of Damage in International Law’ in Further Studies in International Law (Oxford, Clarendon Press, 1990) 377; briefly, Ball, above n 50 at 429; J Colon and M Knoll, ‘The Calculation of Prejudgment Interest’ (2005 draft). 244 Although there seems to be no doubt that awarding interest is the prevailing practice today. See Art 38 of ILC Articles. 245 Brower and Brueschke, above n 2 at 615 (summarizing the approach of the Iran-US Cl Trib); Sylvania v Iran , 8 Iran-US Cl Trib 298 (1985) at para 100 (‘derive a rate of interest based approximately on the amount that the successful claimant would have been in a position to have earned if he had been paid in time and thus had the funds available to invest in common use in its [sic] own country’). 246Siemens v Argentina , above n 65 at para 361. 247 The most up-to-date survey is Gotanda, above n 243 available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=561263>. See also Natasha Affolder, ‘Awarding Compound Interest in International Arbitration’, 12 Am Rev Int'l Arb 45 (2001). SPP v Egypt (ICSID Award), above n 95 at paras 225–31, reject compound interest by relying on domestic law in the absence of a relevant rule of international law. Similarly in Austopistas v Venezuela , above n 106 at paras 391, 392. But the Chorzow principle would rather suggest compound interest, as it reflects the actual damage (loss of compound interest on investment or having to pay compound interest as financing charges). 248 In fact, international law does not contain any rule prohibiting payment of compound interest. See Santa Elena v Costa Rica , above n 63 at para 103. 249 JY Gotanda, ‘Awarding Interest in International Arbitration’, 90 Am J Int'l L 40 (1996) at 61. 250Metalclad , above n 73 at para 131 (annually compounded); Emilio Agust?n Maffezini v Kingdom of Spain , ICSID Case No. ARB/97/7, 13 November 2000 at para 96 (LIBOR for Spanish peseta compounded annually); Santa Elena , above n 63 at paras 96 ff (compounded semi-annually); Wena Hotels , above n 95 at 919 (compounded quarterly at 9%); Aminoil , above n 47 at para 178 (compounded annually—at 17%); MTD , above n 159 (Annual LIBOR at 5 November (the day after breach) of each year, compounded annually); for an earlier reluctance, in particular in Iran-US Cl Trib, see Brower and Brueschke, above n 2 at 629; cf CME , above n 14 (Final Award) (10% simple); Feldman , above n 143; Occidental v Ecuador , above n 148 (4% simple); Santa Elena , above n 63 (6% simple); Azurix , above n 80 (2006) at para 440 (at the rate applicable to US six-month certificates of deposit, compounded semi-annually); PSEG v Turkey , ICSID Case No. ARB 02/5, Award of 19 January 2007, at para 348 (LIBOR plus 2 compounded semi-annually); Siemens v Argentina , above n 65 at paras 399–401. 251 Brower and Brueschke, above n 2 at 624 and 625; see especially Anaconda v Iran , 13 Iran-US Cl Trib Rep 199 (1988) with a discussion of usury (rates over 12%). 252 Gotanda, above n 247, text accompanying nn 276–7. 253Aminoil , above n 47 at para 178 (‘In order to establish what is due in 1982, account must be taken both of a reasonable rate of interest, which could be put at 7.5%, and of a level of inflation which the Tribunal fixes at an overall rate of 10%,—that is to say at a total annual increase of 17.5% in the amount due, over the amount due for the preceding year.’); Sylvania , above n 245 (12.2%; these rates reflected then prevailing high interest rates in an inflationary environment); Santa Elena , above n 63 (a rate that was either 13.13% simple interest or 6.40% compound interest—supposedly 30% lower than ‘generally prevailing rates’, Brower and Wong, above n 50 at 773–4); rates were subsequently derived from a relevant benchmark—here six-month US certificates of deposit rates. Sometimes, rates prevailing in the host state were applied. Presumably, the rate in the investor's home state is in most cases the pertinent one. Brower and Brueschke, above n 2 at 621–3; Metalclad , above n 73 at para 128 (6% compounded annually, before and after the judgment). 254 See the SS Wimbledon case PCIJ Series A No.1, p 23 (1923) where the PCIJ determined a rate of 6% on the basis of the ‘present financial situation of the world’ and the conditions prevailing for ‘public loans’. That is the equivalent, today, of the US government bonds (with the issue open a long-term rate, somewhat higher, or a short-term rate (eg six-month certificates of deposit rates) is to be chosen). PSEG v Turkey , above n 250 (six-month LIBOR plus 2). 255 Gotanda, above n 247, text following n 299 (suggests that claimant should show it would have invested the money owed or (after n 188) that it had to pay the cost of additional financing charges because of the breach and the resultant outstanding claim against respondent). 256 That is essentially something akin to the six-month rate on risk-free US $ or Euro certificates of deposit or bank rates, depending on whether the investor operates mainly in a US dollars or euro financial environment. Siemens v Argentina , para 126: 2.66%: US six-month Certificates of Deposit. 257 Crawford, above n 24 at 238, 239 n 652. 258 The practice of the Iran-US Claims Tribunal was ‘from the date that compensable damages arose due to the taking or from the date that a debt or other obligation became due’. See Brower and Brueschke, above n 2 at 629, with the references in n 2990. 259 This approach is possibly already implicit in the Wimbledon case, above n 254; interest was payable only from the ‘moment when the amount of the sum due has been fixed and the obligation to pay has been established’. 260 Gotanda, above n 247; Metalclad , above n 73 at para 120. 261 See generally Gotanda, above n 249. 262 W El-Malik, Mineral Investment under the Shari'a Law (London, Graham & Trotman, 1993); I Shihata, ‘Some Observations on the Question of RIBA and the Challenges Facing “Islamic Banking” ’ (1998), 7 CEPMLP Internet Journal 7 (1998). For example, Saudi Arabia has acceded to the ICSID Convention and thus is obliged to enforce an ICSID award. Unlike the New York Convention, where Art V would be invoked to refuse enforcement of an award with interest (or the interest portion of an award), under Sharia law rules conceived as part of public policy, the ICSID Convention does not include a public policy exception. But under internal rules and practices, it is not possible to enforce an award with interest. 263 See generally M Kazazi, Burden of Proof and Related Issues: A Study on Evidence before International Tribunals (The Hague, Kluwer Law International, 1996); DV Sandifer, Evidence before International Tribunals (Chicago, Foundations Press 1939); A Reiner, ‘The Standards and Burden of Proof in International Arbitration’, 10 Arb Int'l 328 (1994) (in particular p 336: ‘surprisingly low standards of proof are applied … to the measure of damages’). Note also several other comments on this question in the same issue of Arbitration International; on issues of burden of proof with respect to (competition-law-related) damages, see EU Green Paper, COM (2005) 6732 final of 19/12/2005. More specifically for investment disputes, see Perezcano, in Derains and Kreindler, above n 92 at 119–29. 264 A claim was dismissed for insufficient proof of damages in Generation Ukraine v Ukraine , para 19; see also Gami v Mexico , above n 223 at paras 132–3. 265Azurix v Argentina , above n 80 at para 432. That seems to be very much also the international human rights' courts approach: eg LACHR in Mayagna Awas Tingni v Nicargua (Merits 2001, para 2). 266 M Polkinghorne, ‘The Withholding of Documentary Evidence in International Arbitration: Remedies for Dealing with Uncooperative Parties’, 5(2) TDM (2005) 13–16; Methanex v United States , Award of 3 August 2005, at 154, para 56. 267 On expert issues and procedure, see Kantor and Rudo, above n 53 at 59, 60; M Kantor, ‘Damages in CMS v Argentina’, TDM (2006) (highlighting the CMS tribunal's use of its own experts). 268 This is frequently emphasized in awards: cf only Maffezini v Spain , above n 250 at para 64 (‘no insurance policies against bad business judgments’); MTD v Chile , above n 159 at para 178 (‘BITs are not an insurance against business risk’). 269 Claimant for its moral damages, consisting of injury to the health of its executives, to its credit, and to its reputation. It noted, however, that such damages are only ‘exceptionally’ awarded. Desert Line Projects LLC v The Republic of Yemen , ICSID Case No. ARB/05/17, Award of 6 February 2008 at paras 289–91. Craig, above n 19 at 779 on ECJ practice: only exceptionally award of non-material damage—Kampffmeyer v Commission (1967) ECHR 245, 266–7. 270 Garcia Amador, above n 31 at paras 73 ff. (he lists the remedy of an ‘apology’, which is very effective (but little used) in dispute resolution); ibid at para 132 on reputational damage, which is only recognized in severe cases, eg bankruptcy or substantial damage to one's financial credit. 271Pope & Talbot v Canada , UNCITRAL Arbitration (NAFTA), Award on Damages, 31 May 2002 at para 82 (denial of management time but acceptance of accounting, legal, lobbying fees and other ‘out of pocket expenses’); Autopista v Venezuela , above n 106 at paras 302, 303; MTD v Chile , above n 159 at paras 240 ff (investment, additional expenses, and financial cost). 272 eg PSEG v Turkey , above n 250 at paras 332–4. 273 See eg PH Sand ‘Compensation for Environmental Damage from the 1991 Gulf War’, 35 Env Policy & L 244 (December 2005); D Caron and B Morris, ‘UN The Compensation Commission: Practical Justice, not Retribution’, 13 EJIL 183 (2002); E Brans, Liability for Damage to Public Natural Resources (The Hague, Kluwer, 2001). 274 States can only raise a tax counterclaim if the tribunal has jurisdiction, which will be rare: B Hanotiau, ‘L'Arbitrabilite’, 296 Recueil des Cours 25 (2002) 177; that may be different if the tax issues are inextricably linked to the investor's claim. 275CSOB v Slovak Republic , above n 224 at paras 360 ff. 276 J Meyer, S Quintero, and J Shao, ‘The Effect of Risk on the Value of Lost International Business Profits’, 7(2) Int'l J of Value-Based Management 107 (1994) at 119 and 120. 277Brit Transport Comm v Gourley , 1956 AC 185; cf US Tax Court, RJR Nabisco v Internal Revenue Services , TC Memo 1998-252 (on taxability of Aminoil award: compensation for delay in payment should be considered as taxable income, payment for termination concession/expropriation as long-term capital gain. Withholding taxes on dividends are probably not to be taken into account). Kantor and Rudo, above n 53 at 49. ICC Award No. 6233/1992: compensation that does not replace otherwise taxable remuneration not taxable; see also Hanotiau, above n 274 at 176–7. 278 JP Le Fall, ‘Fiscalit? et arbitrage’, Rev de l'Arb (1994) at 3–38; for a brief reference to a tax gross-up claim see PSEG v Turkey , above n 250 at paras 338–40; if future income is incorporated into a DCF/NPF model net of prospective taxes, then the award should be net of taxes too. If the host state taxes the award determined on a future net-of-tax basis, a gross-up would have to be considered. Host state taxation (income, capital gains, or benefits through tax deductibility) should as a rule be disregarded; LACHR practice is to order reparations free of taxation, Pasqualucci, above n 19 at 283. 279 See especially James Loftis's comments on UNCC awards, noting that the awards on lost oil production were net of royalties, but not net of other taxes which might be claimed on the awards. Subject of the email: Capital (income?) gains taxes on arbitral awards? OGEMID Archives, 21 September 2006. Cf paras 45–454 of 2nd E1 Claims, UN Doc s/AC.26/1999/10 and Report and Recommendations of the Panel of Commissioners Concerning the Fourth Instalment of ‘E1’ Claims, S/AC.26/2000/16, paras 61–2; see also Stewart Boyd (same date), and Mark Kantor in OGEMID archives on this same issue. 280 Cf the reference to van Harten, above n 11 at 101–6. Authors: Vladim?r Bala? ? Keywords: Review of arbitral awards – Annulment (ICSID) – Failure to apply applicable law – Failure to state reasons – Conduct of proceedings – Awards This chapter begins by summing up the development of opinions on the possibility of review of the decisions of international tribunals in general. It analyses several key decisions of ad hoc committees established in accordance with the provisions of Article 52 of the ICSID Convention. It concludes with an assessment of whether it is necessary to broaden the scope of the review of arbitral awards in investment disputes, and particularly whether it would be convenient to introduce into investment disputes an appellate system allowing for the review of the merits of investment disputes.

0subscriber_article?script=yes&id=%2Fic%2FMonograph%2Flaw-iic-9780199231386&recno=62&searchType=browse Chapter 27 Review of Awards

(1)Revision of International Arbitral Decisions: The Background1127

(a) The Notion of International (Investment) Arbitration 1128

(b) Different Forms of Review in Investment Arbitration 1130

(c) A Historical Excursus 1131

(d) Judicial Review—Continental Traditions 1134

(2)Review of Arbitral Awards in Investment Disputes1136

(a) Annulment Procedure under the ICSID Convention and the Issue of the Applicable Law 1137

(b) Experience with Award Revisions in ICSID 1146

(c) Review of Arbitral Awards in (International) Commercial Arbitration—Mixed Views 1150

Concluding Remarks1151

RUDYARD Kipling once said that nothing was settled until it was settled right. 1 Could or should this idea be used as the motto for the settlement of international investment disputes? 2 In my short contribution, I should like to deal with the fundamental question of whether and under what circumstances this principle can be applied also to the settlement of disputes in international law, with particular regard to international (investment) arbitration.

I have tried to find an answer to a similar question in an article for the Czech professional public. 3 In that article I dealt with the issue of review of decisions generally in the settlement of international economic disputes, affording only a fleeting mention of the possibilities of review within the ICSID framework. The main purpose of the quoted Czech article was, in fact, to draw the reader's attention principally to one of the aspects of the relatively newly developing settlement of disputes in the World Trade Organization. As these issues are becoming, once again, an integral part of legal discussions on the issue of investment disputes, I believe that a brief review of the past would not go amiss.

The present chapter will first sum up briefly the development of opinions on the possibility of review of the decisions of international tribunals in general. It is obvious that international investment arbitrations fall under the notion of dispute settlement in public international law. It is equally obvious, however, that the drafters of the relevant international treaty and, in the end, also the arbitrators themselves have also drawn—and are still drawing to a considerable extent—from private law, in the first place from international commercial arbitration. Subsequently, the chapter will attempt to analyse briefly several key decisions of ad hoc committees established in accordance with the provisions of Article. 52 of the ICSID Convention. 4 In the conclusion, I shall briefly assess whether it is necessary to broaden the scope of the review of arbitral awards in investment disputes and particularly whether it would

end p.1126

be convenient to introduce into investment disputes an appellate system allowing for the review of the merits of investment disputes.

Marginally, I should like to mention that the review of a legal act concerns, naturally, an allegedly or actually defective act. Similarly, as court decisions, arbitral awards can suffer from various defects. With respect to the review procedure, it is important whether the defect is such that it could influence the decision and cause its factual wrongness. 5 Generally, a decision can be considered defective because of errors in appreciation of the facts or it can just suffer from various legal defects, such as procedural errors or errors in interpretation and/or application of law. In arbitration, the view of defectiveness is rather narrow and a defective act is deemed generally to be an act that shows only legal defects of some kind. In most cases of the review of an arbitral award, regardless of whether the award was rendered in commercial arbitration or in international investment disputes, 6 such an award is considered defective if it does not comply with the relevant legal rules of procedure.

(1) Revision of International Arbitral Decisions: The Background

Before dealing with the possibility of revision of awards rendered within the framework of investment disputes, we shall discuss the definition of the notion of international arbitration as well as the different forms of review of investment awards. Moreover, this section will provide a brief historical excursus on revision in international law as well as an examination of the concept of judicial review in the continental legal tradition.

end p.1127

(a) The Notion of International (Investment) Arbitration

The notion of arbitration may cover various types of dispute settlement, in particular the settlement of disputes between different subjects, the object of which involves various claims arising from various legal relations. Although it is possible to find numerous identical features in different types of arbitration proceedings, it is also true that many differences also exist, particularly in light of the character of the parties to the dispute and the object of the dispute. That is probably also the reason why, from a historical perspective, views have changed over some procedural aspects of arbitration proceedings. Among the disputed issues, one finds the question of whether it is appropriate to permit revision of the arbitral award, and if so, whether it is appropriate to limit such revision to procedural aspects only or to allow review of merits as well. 7

According to Schlochauer, arbitration is the process of dispute settlement between states by means of arbitration tribunals appointed by the parties, where the tribunal may be established before or after a dispute has arisen between the parties. 8Article 37 of the Hague Convention on the Peaceful Settlement of International Disputes of 1907 (cf Hague Peace Conferences of 1899 and 1907) provides that the aim of international arbitration is the settlement of disputes between states by the judges appointed by them on the basis of respect for law. Recourse to arbitration involves also the obligation to abide by the award in good faith. 9 Even though arbitration proceedings may arise between states also in the framework of investment disputes (eg in connection with the interpretation of investment treaties), we shall not deal much with this type of arbitration.

According to the same author, the notion of international arbitration does not include mixed arbitration tribunals, which deal with the claims of private natural or legal persons from foreign states, as such disputes have been generally litigated by the state of nationality of the private person concerned through diplomatic protection. 10 The institution of mixed arbitration tribunals has its origin in the Mixed Claims Commissions established in the 19th century between the USA and the

end p.1128

states of South and Central America, although most of these commissions actually satisfied the definition of international arbitration tribunals with reference to the de facto restriction of their competence to settle the disputes between states. Mixed arbitration tribunals were established in great numbers on the basis of peace treaties after World War I. As a result of the broad spectrum of provisions dealing with the consequences of the war, the number of cases decided by mixed arbitration tribunals exceeded by a large margin the number of all international arbitration awards ever rendered. The number of mixed arbitration tribunals established after World War II includes in particular two tribunals established according to Articles 29 and 32 of the London Agreement on German External Debts 1953 (Annexes I and IV), the Arbitral Commission on Property, Rights and Interests in Germany 1954, and the Austro-German Property Treaty Arbitral Tribunal, 1957, established according to Article 108 of this treaty. 11

The classification of the settlement of investment disputes by arbitration according to this criterion is not entirely clear. On the other hand, it is clear that with reference to the parties to the dispute, it can be considered a category approaching mixed disputes, as it involves disputes between states and investors (juridical or natural persons) of another state. However, the current system of investment dispute settlement developed from the espousal by states of claims of their nationals through diplomatic protection. This is attested to by the decisions of the International Court of Justice in such notorious cases as Nottebohm , Elettronica Sicula , and others. 12 However, as this system proved cumbersome and started hindering the development of cross-border economic cooperation, 13 states started looking for another model. 14 The result was a number of bilateral investment treaties (BITs) (supplemented also with several multilateral treaties) that have gradually replaced FCN treaties negotiated in the 19th century and well into the 1930s, which were based on the old model of espousal of claims. 15 The earliest BIT dates back to 1959 (between Germany and Pakistan) and the Washington Convention (establishing ICSID) came a few years later in 1965. The treaties on the protection of investments concerned, in particular, two types of disputes: (a) disputes between the parties to the treaty concerning the interpretation of the treaty itself and (b) disputes between a state and an

end p.1129