Originally from Investment Treaty Arbitration and International Law - Volume 10

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I.    INTRODUCTION

The growth of investor-state dispute settlement (“ISDS”) cases over the past 10-15 years is well documented.  This increase in ISDS cases, and corresponding awards, has fueled an increasing emphasis by counsel and arbitrators to justify different methodologies for assessing damages claimants seek for lawful or unlawful expropriation.  A 2015 consultancy group’s study of 95 public international arbitration awards indicates that tribunals are increasing their focus on the issue and on the explanation of their damages determinations.  Prior to 2000, tribunals devoted approximately 8 pages of their award to the issue of damages.   From 2011-2014, the effort tribunals devoted to damages increased to appropriately 34 pages per award.   Although that study indicates that the increased length of damages sections corresponds generally with an increase in the total length of awards, this finding does indicate that damages are being discussed by Tribunals in greater depth than ever before.  

With the increased attention being placed on the valuation of damages in awards, and academic literature, the past decade has seen significant developments in the methodology and calculation of damages.  These developments include (i) the broad acceptance of forward looking valuation methods, particularly the Discounted Cash Flow (“DCF”) model and related anchoring effect of battle of experts, (ii) application of ‘claimant’s choice’ in selection of the valuation date, and (iii) the now widely accepted use of compound versus simple interest.  Some of these developments now seem settled while others are still being debated.  However, although largely mechanical in nature, these developments over the past ten or so years have huge implications on the process and ultimate dollar amounts awarded by ISDS tribunals.  Therefore, the question presented here is whether these developments have benefitted investors at the expense of the respondent states, often less developed or “transitioning” economies. 

This paper starts by setting out the reparation principle of the Chorzów Factory case (Section II), then will proceed to discuss issues (i)-(iii) above by concluding the DCF model, when applied in the adversarial process, results in uncertainty in creating a fair valuation (Section III), that the recent trend in moving the valuation date to the date of the award is an “ultraminority” position “biased in favor of the investors” (Section IV), and the legal foundation for awarding compound interest over simple interest primarily exists in modern jurisprudence, a trend, again, that favors investors at the expense of the states (Section V).