Crippling Compensation in the International Law Commission and Investor–State Arbitration

Abstract

Is there an exception to the principle of full reparation in international investment arbitration for cases in which full compensation is crippling for the responsible State or its peoples? The routine presentation and consideration of billion-dollar-plus investment arbitration claims in the first half of 2021 suggests that this subject has not been invented in order to enable it to be written about but is one of considerable importance for the field of international investment law and its actors. The frame of reference in a discussion about compensation in investment law is provided by the law of State responsibility, strongly shaped by the 2001 International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts (2001 ILC Articles on State Responsibility), which treat crippling compensation as permissible as a matter of content of responsibility. The argument for the permissibility of crippling compensation explicitly assumed the rarity of such claims; safeguards in primary, secondary, and tertiary rules for the few cases when they did arise; and the enlightened self-interest of States as repeat-playing actors in not making them—and perhaps implicitly scepticism about compound interest and Discount Cash Flow valuation. None of these assumptions holds true in modern investor State arbitration. Nevertheless, the predominant reaction to crippling compensation claims has been silence by tribunals and respondent States, suggestive in legal terms of endorsement of their permissibility in line with the 2001 ILC Articles on State Responsibility. There is some scope for addressing crippling compensation within the 2001 ILC Articles on State Responsibility, both indirectly (challenging the meaningfulness of the question in the first place or considering crippling compensation as part of the general discussion of the content of responsibility) and directly, under the rubrics of circumstances precluding wrongfulness and enforcement. The case can also be made for moving beyond the 2001 ILC Articles on State Responsibility, by emphasising the difference between implementation of responsibility in inter-State and investor–State legal relations or even directly arguing for a change of the applicable customary rule.

Investor-state disputes threaten the global green energy transition

“…The result has been hugely inflated monetary awards in the hundreds of millions and even billions of dollars. In some cases, the amount of compensation awarded has been described as "crippling" because it is incommensurate to the state's capacity to pay (9). Governments don't always lose, but the rules are sufficiently vague to make it difficult to predict outcomes.…”