Solving Issues in the Quantification of ISDS Claims

The First Edition of Global Arbitration Review’s Guide to Investment Treaty Protection and Enforcement covers the practical side of investor–state disputes and provides guidance on how to strategize at every stage of a dispute. Compass Lexecon economists Boaz Moselle, Ruxandra Ciupagea and Juan Carlos Bisso contribute a chapter focussed on resolving two specific issues raised by the relevant standard used to assess damages arising from investment treaty violations and discuss different approaches to address them.

The ‘full reparation’ standard used to assess damages arising from investment treaty violations seeks to ‘wipe out all 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 application of this standard requires us to identify ‘the situation which would, in all probability have existed if that act had not been committed’. A discounted cash flow model can be used to determine a ‘financial value’ or ‘amount’ corresponding to this situation, as well as a value or amount for the situation that actually existed (i.e., the actual scenario). However, that leaves open one important question: what date should be considered in making this determination? In other words, what is the appropriate ‘date of assessment’? Do we need to restore the situation that would have existed at the date of the alleged treaty breach, at the date of award, or at some other point in time? The applicable standards under public international law do not identify this date and, in our experience, different approaches have been adopted by different tribunals.

In this chapter, we first discuss the choice of the date of assessment, focusing on two possible approaches: ex post and ex ante. We then address a further question that follows on naturally and inevitably from this discussion. Because losses pre-date the award, the injured party will have waited to receive compensation. Under both approaches, it is normally accepted that they should be compensated for that delay by adding on interest. We therefore end this chapter with a discussion of the appropriate interest rate to use to bring historical damages (where applicable) forward to the date of award.

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Accreditation: An extract from the first edition of GAR’s The Guide to Investment Treaty Protection and Enforcement. The whole publication is available here.