Originally from Journal of Damages in International Arbitration

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Under the standards of compensation found in Chorzów, should enhanced compensation greater than the value of the investment at the time of the taking be available in all cases of unlawful expropriation, or could compensation equal to only the value at the time of the taking in some instances be sufficient to “cure” an unlawful taking? This piece explores this issue, beginning within Chorzów and examining the background and holding of this oft-cited opinion. Then a number of arbitration awards in the modern investor-state regime are looked at and how they have addressed this issue. Together, these sources help create a structure demonstrating when a cure for uncompensated expropriation may be appropriate.

I.  THE FACTORY AT CHORZÓW

Chorzów is the most widely cited to, if not the canonical, authority on the standard of damages in international investment arbitration and in other fields of international law. The commonly quoted statement is the Court’s articulation of the customary international law standard of the object and purpose of reparation: "The essential principle contained in the actual notion of an illegal act-a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals-is that reparation must, as far as possible, wipe-out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed."

The Court extended this principle to the payment of damages, explaining, "Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it-such are the principles which should serve to determine the amount of compensation due for an act contrary to international law."