Issues of Compensation for Non-Expropriatory Breaches in International Investment Law
ABSTRACT: Cross-border investment is an important phenomenon of the contemporary world. Accordingly, the rules regulating transnational investments – international investment law – have been fast developing, among which are those relating to investor-State dispute resolution. Most of the investor-State disputes involve treatment to foreign investors such as the host States’ obligations in respect of direct and indirect – regulatory and creeping – expropriation and treaty breaches which are not expropriatory in nature – fair and equitable treatment, full protection and security, and non-discriminative treatment. In such cases, the arbitral tribunals are obliged to deal with these issues in accordance with the applicable laws and rules of the bilateral investment treaties, the investment chapter of free trade agreements and customary international law. Yet, no investment treaty or free trade agreement contains provisions on compensation for non-expropriatory breaches. Investment tribunals have therefore assumed the obligation, if not an opportunity, in developing the standards of compensation and methods for calculating the quantum. Practice shows that tribunals have consistently adopted the fair market value, which is considered the standard for compensation in case of expropriation, as the standard for non-expropriatory breaches, albeit the justifications for adopting the standard are by no means consistent. Actual losses suffered and benefits denied, and moral damages have also been adopted. As determination of compensation for non-expropriatory breaches is utmost important in investment arbitration and at the same time, the inconsistency of investment arbitration decisions is not improving, the international community should respond to the situation without delay.