Originally from Investment Treaty Arbitration and International Law - Volume 8

I. INTRODUCTION

On 25 May 2004, the MTD v. Chile2 tribunal reduced the damages awarded to claimant by 50% due to the investor’s contributory negligence. In late 2012, the Occidental v. Ecuador3 tribunal reduced the amount of damages by 25% (almost US$ 600 million) based on a “principle of proportionality” and claimants’ fault. More recently, the Al-Kharafi v. Libya tribunal reduced damages by 60% (from US$ 2 billion to US$ 900 million) based on political reasons4. Although the facts of these cases may differ, there is a common ground. In each of these cases, tribunals ordered a reduction of damages based on a purely discretionary allocation of liability.

The purpose of this paper is to vindicate the predictability and certainty required in the system of investor State arbitration where acts of sovereignty carried out by States or State entities are challenged and ruled upon by international tribunals. The author will argue that equity considerations have substantially permeated into this legal system in which allocation of liability and damages calculations are (and should be) based on entrenched legal standards and well-established principles of valuation. These principles are sometimes quashed by tribunals deciding on the amount of damages effectively as amiable compositeurs (ex aequo et bono). The latter compromises the predictability of legal standards and the mathematical precision of damages calculations.