RESOLVING COMPENSATION ISSUES IN THE FIELD OF INTERNATIONAL INVESTMENT

Abstract

Investor–State arbitration awards have increased dramatically in recent years, often reaching hundreds of millions or even billions of dollars. This trend has raised concerns that tribunals are awarding speculative future profits without adequate guidance from treaties or international law. This article examines how compensation is determined in ISDS, identifies key problems, and explores solutions. Drawing on new empirical data and doctrinal sources (UNCTAD 2024; Bonnitcha & Brewin 2020) and on comparative case analysis (e.g. Spain’s renewable-energy disputes, Tethyan Copper v. Pakistan, Bear Creek v. Peru), we show that tribunals typically apply the customary “full reparation” rule (ARSIWA Art. 31) by estimating the fair market value of the investment plus lost profits. In practice, however, tribunals heavily favor income-based (DCF) valuations and ignore contextual factors (public interest, investor misconduct, state solvency) These practices yield excessive and inconsistent awards (e.g. ISDS Yukos awards ≈US$50B vs. the ECtHR’s €1.9B) and diminish state sovereignty. The article argues that treaty reform is needed to correct these issues: modern IIAs could prescribe preferred valuation bases, cap damages (e.g. at invested capital or state gain), and integrate equitable considerations (mitigation, contributory fault, proportionality) Such reforms would better align compensation with sustainable development and legitimate regulation, while still ensuring “full reparation” within reasonable bounds.