Originally from Journal of Damages in International Arbitration

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When you are studying any matter, or considering any philosophy, ask yourself only: What are the facts, and what is the truth that the facts bear out. Never let yourself be diverted, either by what you wish to believe, or what you think could have beneficent social effects if it were believed; but look only and solely at what are the facts.  
 —Bertrand Russell

I.  INTRODUCTION

Quantification of damages is one of the most complex areas of international investment arbitration. A recurring issue in that context is compensating an aggrieved investor for loss of a business with little or no track record of profitability. Three paradigms have emerged on this issue in the practice of arbitral tribunals.

The prevalent paradigm employed by international tribunals is to reimburse the aggrieved party the amounts that he actually invested in a project (also known as sunk costs and out-of-pocket expenses). In such situations, arbitral tribunals generally refuse to quantify damages using valuation methods that take into account the ability of a business to generate cash into the future (forward-looking damages), including lost profits and or fair market value of investment. The main basis for such refusal is that, in international law, damages cannot be awarded for losses that are speculative and uncertain. A leading case in the modern jurisprudence of international arbitral tribunals applying this approach is Biloune v. Ghana.  Biloune, together with the great majority of decisions dealing with similarly situated businesses, refused to award speculative forward-looking damages.  

The second paradigm is one exemplified by the decision of the tribunal in Gemplus v. Mexico,  whereby the tribunal invoking the concept of “loss of opportunity” awarded damages beyond the amounts actually invested, even though the lost business had little operational track record.