Originally from Journal of Damages in International Arbitration

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This Article deals with the little-discussed implications in the current BIT regime of investor conduct when investments are threatened with expropriation and other unlawful state conduct. In municipal legal systems, such as that of the U.S., the law seeks to foster efficient economic outcomes by encouraging commercial parties to mitigate their losses, including by means of doctrines such as “anticipatory breach” and “comparative fault”. The commercial reflex of the investor in such a regime often will be to sell a threatened investment if a commercially reasonable offer is made. Indeed, failure to do so may reduce the recovery possible in litigation due to the investor’s “failure to mitigate”, or some similar reason. Municipal law, thus, creates economic incentives to balance, on the one hand, the right of an injured party to compensation and, on the other, the possibility that it may be wasteful to order the wrongdoer to provide a full recovery if it was within the injured party’s ability to limit the damage resulting from the acts complained of.

Public international law, in contrast, may require to a greater extent that the investor has to wait and suffer a taking, or an otherwise egregious systematic conduct by the state impairing the value of the investment, in order to have international legal recourse against the state. As this article will discuss, this results flows from the application of the law of state responsibility in the investment law context. For the reasons set out below, a naked threat of expropriation may be regarded at international law as an “inchoate” act, meaning that the state did not yet have an opportunity to put to use its systemic safeguards against breaches of international obligations.