Introduction

International investment law is one of the fastest growing fields of international law. As a result of the proliferation of bilateral investment treaties (BITS), 1 the evolution of hybrid trade/investment treaties - such as NAFTA, CAFTA and the Energy Charter Treaty - and the ever-growing demand for foreign investment by capital-importing states, legal developments with respect to the protection of foreign investment are accelerating.

Despite the wealth of precedent establishing the rights and responsibilities of foreign investors and host governments alike, the law of damages in this area is comparatively thin. Although it is well established that a state must fully compensate foreign investors for injuries caused by its actions, 2 there is surprisingly little precedent directing tribunals on how best to satisfy this obligation in a predictable manner. Historically, private investors had no direct recourse if their investments were harmed by a foreign government, but instead were forced to press their own governments to espouse their claims through some form of diplomatic protection. 3 Only since the emergence of the BIT era have foreign investors regularly had the ability to have an independent body adjudicate the actions of a foreign government.

Given the relatively short period in which investor-state arbitration has occurred, it is not surprising that there has been little development in the law of damages. What is surprising, however, is that claimants, respondents and tribunals frequently seem at a loss as to how damages should be[Page165:] computed in a particular case. In many cases, regardless of the nature of the claim, it appears that the parties simply default to methodologies that have traditionally been applied in cases of total expropriation. Perhaps such reliance on the default methodologies is to be expected. The prohibition against uncompensated expropriation may be the oldest protection afforded to international investment, and therefore there is substantial precedent to guide claimants and tribunals. However, in non-expropriation cases, such as those where a host government breaches its duty of "fair and equitable treatment", fails to provide "minimum protection and security" to a foreign investment, or breaches a contractual obligation, reliance on the default methodologies has occasionally led to strained or unexpected outcomes and has been the subject of criticism.

Nevertheless, the arbitral jurisprudence reveals some basic guidelines that should instruct future tribunals and claimants as they seek to resolve international investment disputes: (a) the quantum of damages must be sufficient to eliminate the injurious effect of the state's unlawful actions; and (b) the method of calculating damages should be dictated by the type of investment.

1. The quantum of damages must eliminate the injurious effects of a state's unlawful acts

One of the earliest protections provided to foreign investors was the customary international law prohibition against uncompensated expropriation. 4 In the 1920s, it was recognized that customary international law required that states pay full compensation when expropriating the property of a foreign investor. 5 In the 1930s, the United States defined the notion of full compensation when, in response to a dispute over Mexico's nationalization of foreign-owned oil fields, US Secretary of State Cordell Hull announced that Mexico was internationally obligated to pay "prompt, adequate, and effective" compensation. 6 Known as the Hull Formula, this standard effectively became synonymous with the idea of full compensation. 7

Beginning in the late 1950s and early 1960s, a number of newly independent and developing states began to question the propriety of the Hull Doctrine. 8 Indeed, in the view of many of these states, the international legal requirement that governments fully compensate foreign nationals for the[Page166:] expropriation of their property was an impermissible infringement on state sovereignty. 9 In response, the United Nations General Assembly passed Resolution 3171, which declared that a state expropriating foreign property "is entitled to determine the amount of possible compensation and the mode of payment, and […] any disputes which might arise should be settled in accordance with the national legislation of [that] State". 10 This resolution appears to have been an effort to alter the existing norms of customary international law, invalidate the Hull Formula and sanction the payment of less than full compensation following the expropriation of property.

Despite the rhetorical value of General Assembly Resolution 3171, it had very little practical significance. International law continued to set the measure of compensation due in cases of expropriation. What changed, however, was the terminology used to describe the appropriate standard of compensation. As the sole arbitrator in the LIAMCO case noted, although "the classical formula of [prompt], adequate, and effective compensation remain[ed] as a maximum and a practical guide for assessment", it was not the sole standard of compensation permitted under international law. 11 Tribunals, therefore, spoke less frequently in terms of "prompt, adequate, and effective" compensation. Instead, they referred to "just", 12 "appropriate", 13 or "equitable" 14 compensation. For example, in Shahin Shaine Ebrahimi v. Iran, the tribunal held:

"While international law undoubtedly sets forth an obligation to provide compensation for property taken, international law theory and practice do not support the conclusion that the 'prompt, adequate, and effective' standard represents the prevailing standard of compensation [...]. Rather, customary international law favours an 'appropriate' compensation standard." 15

Similarly, in Compañia del Desarrollo de Santa Elena v. Costa Rica, the tribunal noted that:

"The vocabulary describing the amount of compensation properly payable in respect of a lawful taking has varied considerably from time to time. It comprises such words as 'full,' 'adequate,' 'appropriate,' 'fair' and 'reasonable.' Sometimes, the descriptive adjective is elaborated by the additional mention of 'market value." 16[Page167:]

Ultimately, the United Nations settled on a standard of "appropriate" compensation. 17

Today, regardless of the terminology used, it is clear that the level of damages awarded in international investment arbitration is supposed to be sufficient to fully compensate the affected party and to eliminate the consequences of the government's actions. 18 As one tribunal recently noted:

"The requirement of compensation to be 'just' and representative of the genuine value of the investment affected evokes the famous Hull Formula, which provides for the payment of prompt, adequate, and effective compensation for the taking of foreign owned property." 19

A significant indicator that states now recognize their obligation to fully compensate injured investors is the fact that the full compensation standard has been codified repeatedly in the text of bilateral investment treaties. As the tribunal in CME Czech Republic B.V. (The Netherlands) v. The Czech Republic noted:

"Today, these treaties are truly universal in their reach and essential provisions. They concordantly provide for payment of 'just compensation,' representing the 'genuine' or 'fair market' value of the property taken. Some treaties provide for prompt, adequate, and effective compensation amounting to the market value of the investment immediately before the expropriation or before the intention to embark thereon became public knowledge. Others provide that compensation shall represent the equivalent of the investment affected. These concordant provisions are variations on an agreed, essential theme, namely, that when a State takes foreign property, full compensation must be paid." 20

Thus, for example, both the 1992 and 2004 US Model Bilateral Investment Treaties state that an expropriation may only be taken "upon payment of prompt, adequate, and effective compensation", which is further defined as the fair market value of the expropriated property immediately before the expropriation took place. 21

In addition to ensuring that a foreign investor is made whole, at least one tribunal has found that the obligation to pay full compensation is essential to the very structure of international investment. The AMINOIL tribunal[Page168:] noted that it is a "fundamental precept" of international investment that damages "be calculated on a basis that such as to warrant the upkeep of a flow of investment in the future". 22

Although it is clear that an award of damages must be sufficient to make a claimant whole, the arbitral jurisprudence reveals that tribunals occasionally have difficulty determining precisely how to satisfy this requirement. This difficulty is particularly apparent in cases involving claims other than the classic example of total expropriation. The proper level of damages in cases where a host-government breaches its obligation to provide "fair and equitable" treatment could be different than in cases where that same government expropriates a foreign investment. Indeed, the proper amount of damages necessary to fully compensate a claimant turns on whether the investment itself is totally destroyed or merely impaired. International law, however, has not produced a meaningful body of law dealing with cases where an investment is not completely destroyed. While both customary international law and the vast majority of investment treaties expressly deal with the measure of compensation required in cases of expropriation, they are silent about compensation in cases where a government breaches other forms of investment protection. As is discussed below, some tribunals have overcome the lack of precedent or clear standards by applying the rules governing expropriation to other types of injuries. Although seemingly reasonable, the reflexive application of the expropriation paradigm to all breaches of international investment law has the potential to distort awards.

2. The method of calculating damages will be dictated by the nature of the investment

The general principle of "full compensation" governs the calculation of damages in international investment arbitrations. This principle, however, is not expressed in formulaic terms. Tribunals exercise broad discretion in determining how best to provide full compensation in any given case.

A state's obligation to pay damages arises only when that state breaches one or more of the numerous protections afforded to foreign investments. As bilateral investment treaties evolve, so too do the types of commercial and financial ventures that constitute an "investment". Today, protected investments include such diverse items as intellectual property rights, debt, [Page169:] equity, leases and mortgages, as well as traditional commercial and industrial enterprises. 23 The amount of damages owed in cases involving intellectual property rights, however, is likely far different than the damages owed in cases involving the destruction or impairment of a commercial or industrial enterprise. Similarly, the measure of damages will almost certainly be different in cases involving a fully operational enterprise than in cases where a proposed enterprise is still in the planning or construction phase. Regardless of the type of investment, however, the sole objective of any international tribunal when calculating damages should be to make the claimant whole. This is true whether the property rights at issue are tangible or intangible assets, because in every case, "the object of damages is to place the party to whom they are awarded in the same pecuniary position that they would have been" if the injury had not occurred. 24

As mentioned above, it does not appear that international investment law has developed to the point where claimants and tribunals can effectively determine how to accomplish this objective with predictability. The cases that deal with this issue, however, seem to fall into three categories.

First, there are cases where the tribunal does not expressly deal with the standard for determining damages. For example, in Pope & Talbot v. Government of Canada, the tribunal found that Canada breached NAFTA Article 1105's requirement to provide "fair and equitable" treatment. Although the investment was harmed by Canada's actions, it remained a viable enterprise. Consequently, the tribunal limited the claimant's damages to certain out of pocket expenses and rejected its claim for lost profits and various management expenses. 25 The tribunal, however, was virtually silent as to why these types of damages were appropriate for a breach of the fair and equitable treatment standard.

Second, there are cases where the tribunal has rejected the application of expropriation standards to non-expropriation claims. In S.D. Meyers, Inc. v. Government of Canada, the tribunal found that Canada had discriminated against the claimant (a US-owned company operating in Canada) and failed to provide an acceptable "minimum standard of treatment" to the claimant's investment when it enacted a regulation prohibiting companies from exporting PCB-contaminated waste to the United States for processing. In the tribunal's view, the regulation stripped the claimant of its competitive advantage -[Page170:] the ability to process waste cheaply in the United States - so as to lessen direct competition with Canadian-owned waste processing plants. 26 After determining Canada's liability, the tribunal engaged in a lengthy analysis of why it was inappropriate to apply the expropriation-based standards outside of the expropriation arena:

"Expropriations that take place in accordance with the framework of Article 1110 […] are lawful under Chapter 11 {of NAFTA} provided that compensation is paid in accordance with the […] fair market value of the asset […] formula. Under other provisions of Chapter 11, the liability of the host party arises out of the fact that the government has done something that is contrary to NAFTA and is "unlawful" as between the disputing parties. The standard of compensation that an arbitral tribunal should apply may in some cases be influenced by the distinction between compensating for a lawful, as opposed to an unlawful act. Fixing the fair market value of an asset that is diminished in value may not fairly address the harm done to the investor." 27

In the view of the tribunal, the lack of a clear standard in NAFTA for determining compensation in non-expropriation cases meant that tribunals were required to "determine a measure of compensation appropriate of the specific circumstances of the case, taking into account the principles of both international law and the provisions of NAFTA". 28 The tribunal felt that, in some cases, it would be appropriate to adopt the "fair market value" standard typically applied to expropriations, while in other cases tribunals would be forced to create new measures for valuing a claimant's damages. 29

Finally, there are cases that have simply applied the expropriation-based standards to other breaches of international investment law. In CMS Gas Transmission Co. v. Republic of Argentina, an ICSID tribunal held that the Government of Argentina breached its obligation to provide "fair and equitable treatment" to a US investor when it enacted a series of measures in early 2001. 30 The tribunal, [Page171:] however, calculated damages using the same methodology that has traditionally been applied in cases of total expropriation. After recognizing that the bilateral investment treaty "offer[ed] no guidance as to the appropriate measure of damages or compensation relating to fair and equitable and other breaches of the standards laid down in [the BIT]", the tribunal found that the circumstances of the case warranted compensation equivalent to the fair market value of the investment. 31 Although the tribunal recognized that "this standard figures prominently in respect of expropriation", it concluded that the standard "might also be appropriate for other breaches different from expropriation if their effect results in important long-term losses". 32

In Metalclad Corp. v. United Mexican States, the tribunal found that Mexico had breached its obligation to provide fair and equitable treatment under NAFTA Article 1105. The tribunal, nevertheless, calculated Metalclad's damages in accordance with the methodology set forth in NAFTA for calculating damages in expropriation cases. According to the tribunal, the use of the expropriation methodology was appropriate because Mexico's actions resulted in the complete destruction of the investment. 33

In theory, the similarity in treatment between expropriation and non-expro-priation cases is not surprising. International law requires that damages be sufficient to fully compensate a foreign investor for the harms caused by a host government, regardless of whether they are the result of expropriation or some other breach of law. Thus, in S.D. Meyers, the tribunal aptly noted that the measure of compensation in non-expropriation cases should "reflect the general principle of international law that compensation should undo the material harm inflicted by a breach of an international obligation". 34 In practice, however, the nature of the injury caused by breaches of the various protections accorded to foreign investments can differ greatly. For example, there likely will be a significant difference in the magnitude of harm caused in a case of total expropriation versus a case where a government has acted discriminatorily to a foreign investment, yet the investment continues as a going concern. Although in both cases a breach of international law has occurred, thus triggering the host-state's obligation to pay damages, the extent of the state's liability should be quite different. It is not clear, however, that the application of the methodologies traditionally applied in expropriation cases adequately compensates for this difference.

Going concerns

A "going concern" is generally understood to be a business enterprise with demonstrable future earning power. 35 In other words, it is a business that can show the likelihood of future profits. Where a going concern has been expropriated or its economic value has been impaired by state actions, its owner should be entitled to damages equal to the fair market value of the investment immediately before the injurious act occurred. 36[Page172:]

What constitutes fair-market value and how best to calculate it have been the subject of much debate. Fair market value is a term of art that has generally meant the price that a willing buyer would pay a willing seller in an arms-length transaction. Traditionally, international law has required that the fair market value of a company be calculated by reference to two factors: damnum emergens - the value of the investment, including tangible and intangible assets, property rights, good will and contract rights; and lucrum cessans - lost profits. 37 Consequently, tribunals often struggle to capture these seemingly disparate elements in their awards.

Treating damnum emergens and lucrum cessans separately, however, is viewed as unnecessary in most modern cases. From an economic perspective, investments have little real value other than their ability to generate a stream of profits over their lifetimes. For example, imagine a scenario in which there are two identical enterprises, both of which have the same capacity to generate identical profits over time. Now, imagine that the owner of the first enterprise paid twice what the owner of the second enterprise paid to establish their facilities. If both owners tried to sell these enterprises, they would each be valued based on their abilities to generate revenues. The fact that one investor paid more for his investment would be irrelevant, since a rational buyer would not be willing to pay more simply because the original owner overpaid. The same should be true if both companies were expropriated. The fair market value of the companies would be tied directly to their abilities to produce revenues, without regard to the amount of money invested. Tribunals, therefore, are not likely to adopt any distinction between damnum emergens and lucrum cessans if the result is to value equally productive assets differently.

1. The discounted cash flow methodology

The discounted cash flow or "DCF" method is a tool that measures the value of a business by projecting the net cash flow for a fixed period of time into the future and then discounting it back to present value as of the date of the injury. 38 The discount rate should reflect the time value of money in the host country and the relative risk associated with the particular investment. 39 The principal benefit of the DCF method is that, unlike other methodologies, it does not depend solely on past costs or historical measures of performance. Rather, it recognizes that the true[Page173:] economic value of a going concern is the stream of revenue that it can generate over its operative life - i.e., the true value of a business is the profits it will generate. 40 Consequently, the benefit of the DCF method is that it should fully compensate foreign investors by allowing a tribunal to award an amount that reflects the net present value of both the physical assets that have been lost (damnum emergens) and the profits that have been deprived (lucrum cessans). 41

Although the DCF method is the theoretically preferred method of calculating damages in cases involving going concerns, there are significant problems associated with its practical application.

First, it can be extremely difficult to apply, and it can produce quite disparate results depending on who is performing the analysis. As a practical matter, the claimant and respondent almost always compute two vastly different damages amounts, both of which were derived from the DCF method. 42 This divergence is in many ways tied to the DCF's principal benefit - i.e., it requires tribunals to look forward and to project a company's future performance. There is no single means by which to determine the future cash flow and profits of a going concern. Rather, parties and tribunals must extrapolate future performance from a company's current financial position, past profitability, market trends and industry analysis. Doing so involves significant assumptions and frequently turns into a battle of multiple experts. Likewise, it is often extremely difficult to calculate an appropriate discount rate. As a general matter, the discount rate is based on factors such as inflation, lending rates and market volatility in the host country. 43 Where these factors are subject to extreme fluctuation or are simply viewed as unreliable (such as in cases involving non-market economies), it can be extremely difficult for a tribunal to determine a fair and reasonable discount rate. Finally, it is often difficult to obtain the objective data necessary to allow a tribunal to calculate a company's future revenue stream. In the absence of such data, some tribunals have been reluctant to award lost profits and, therefore, have declined to apply the DCF method. 44 For example, in Autopista Concesionada de Venezuela C.A. v. Bolivarian Republic of Venezuela, an ICSID tribunal refused to award the claimant lost profits, because in its estimation, the claimant was not able to provide sufficient evidence that its projected profits were reasonable. 45[Page174:]

Second, many tribunals have concluded that the DCF method is only applicable when a tribunal is seeking to determine "the fair market value of a going concern which has a history of profitable operation." 46 Where an enterprise is new and thus lacking a performance record or where it has failed to make a profit, the DCF method may, in the view of some tribunals, be inappropriate to calculate the fair market value of an investment. 47 As a practical matter, however, the DCF method can be applied to value both new and established going concerns. The determinative issue in any case should be whether there is sufficient evidence on the record to permit a tribunal to reasonably calculate future revenues and to justify the award of lost profits.

Tribunals are split on what constitutes sufficient evidence. In Metalclad Corp. v. United Mexican States, for example, an ICSID tribunal refused to apply the DCF method because the investment at issue " was never operative and any award based on future profits would be wholly speculative". 48 Likewise, in Wena Hotels the tribunal rejected the DCF method because of the absence of an operating history that would provide a "solid base on which to found any profit" or to "predict [...] growth or expansion of the investment". 49 Similarly, in Société Ouest Africaine des Bétons Industriels (SOABI) v. State of Senegal, although the tribunal held that past and future losses are generally compensable if they are "ascertainable and direct", it declined to award the claimant damages for the loss of future profits, goodwill and commercial financing, because the claimant's inability to provide supporting documentation rendered such damages "wholly hypothetical". 50

In Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, the tribunal declared the DCF method to be inappropriate for two reasons. First, because "the project was not in existence for a sufficient period of time to generate the data necessary for a meaningful DCF calculation", the tribunal feared that using the DCF method would lead to an award of "possible but contingent and indeterminate damage which, in accordance with the jurisprudence of arbitral tribunals, cannot be taken into account". 51Second, the tribunal feared that the DCF method would award the claimant future profits that could not have been earned if its investment had continued to operate. In this case, the claimant entered into a fifty-year renewable agreement with the Egyptian government to[Page175:] develop and sell various "tourist complexes". 52 The project was cancelled (i.e., expropriated) little more than four years after the initial agreement was concluded. The cancellation of the project occurred following a change in Egyptian law that created protective zones around many of Egypt's historical sites, land on which SPP had been given authority to build its resort complex. Shortly thereafter, the United Nations passed the UNESCO Convention for the Protection of World Culture and Natural Heritage, an international agreement to preserve and protect culturally significant property. 53 To value its losses, SPP calculated its projected revenue stream for a period of eighteen years. In the tribunal's view, this was inappropriate because SPP would have been legally precluded from selling property after the date that the UNESCO Convention became binding on its signatories. 54 According to the tribunal, any activities conducted by SPP in the protected area after the UNESCO Convention entered into force would be "in violation of international law", and therefore "any profits that might have resulted from such activities are non-compensable." 55 As such, the tribunal refused to award lost profits.

By contrast, in Sapphire International Petroleum Ltd v. National Iranian Oil Co., the sole arbitrator awarded the claimant lost profits for the breach of an oil concession despite the fact that the land on which the concession was granted had yet to be explored. 56 The arbitrator accepted that it is a fundamental principal of international law that investors should be fully compensated for losses caused by government action and that such compensation includes both "the loss suffered (damnum emergens) […] and the profit lost (lucrum cessans) […] ." 57 Although the arbitrator acknowledged that the existence of lost profits was "uncertain", he held:

"it is not necessary to prove the exact damage suffered in order to award damages. On the contrary, when such proof is impossible, particularly as a result of the behaviour of the author of the damage, it is enough for the judge to be able to admit with sufficient probability the existence and extent of the damage." 58

Drawing on French and American case law, the arbitrator accepted the notion that investors should be compensated for the "loss of opportunity"- i.e., "when the victim had lost the opportunity of making a profit as aresult of what someone else had done". 59 According to this notion, the fact that the existence of lost profits is uncertain is not determinative of[Page176:] whether they should be awarded. 60 Instead, the key issue is the claimant's position at the time that its opportunity was lost. 61 Tribunals should "accept that this opportunity itself has a value whose loss gives rise to compensation". 62 Of course, the arbitrator in Sapphire did not simply accept the claimant's assertion that it would have earned a profit had the concession been fully developed. As would be expected, the claimant was required to demonstrate "a sufficient probability of success" that the concession would have produced oil. 63 Ultimately, relying on expert reports and testimony, the arbitrator found that the claimant had met that burden.

2. The abuse of right doctrine as a constraint on damages in international investment arbitration

Recently, a new issue has arisen in the continuing controversy over whether to apply the DCF method to calculate the fair market value of a foreign investment: the abuse of right doctrine. 64 In two related cases, Himpurna California Energy Ltd v. PT (Persero) Perusahaan Listruik Negara65 and Patuha Ltd v. PT (Persero) Perusahaan Listruik Negara, the claimants entered into concession agreements with a foreign government to build power plants and to sell the power generated by those plants back to the government.

A dispute arose and the government refused to purchase power as required by the agreement. The claimants ultimately submitted their disputes to arbitration, seeking billions of dollars in damages for both wasted costs (damnum emergens) and lost profits (lucrum cessans).

The ad hoc tribunals empanelled to arbitrate these disputes ultimately determined that the host government had, in fact, breached its agreements with Himpurna and Patuha. With respect to damages, the tribunals found that both Himpurna and Patuha were entitled to reimbursement of funds that they could prove had been spent in reliance on the contracts. 67 The tribunals, however, refused to accept either Himpurna's or Patuha's calculation of lost profits. Although acknowledging that investors are entitled to recoup lost profits, the tribunals refused to calculate the quantum of lost profits in a way that would economically harm the host government. 68 According to both tribunals, to do so would constitute an "abuse of right":

"This is a case where the doctrine of abuse of right must be applied in favour of [the host government] to prevent the claimant's undoubtedly legitimate rights from being extended beyond tolerable norms, on the ground that it would be intolerable in the present case to uphold claims for lost profits from investment not yet incurred." 69[Page177:]

In the tribunal's view, accepting Himpurna's and Patuha's calculations of lost profits would be tacit acknowledgment that they had "an unfettered right to create ever-increasing losses for the State of Indonesia (and its peoples) by generating energy without any regard to whether or not PLN had any use for it. Even if such right may be said to derive from explicit contractual terms […] performance of the contract would be ruinous to the Respondent." 70 What troubled the tribunals most was the potentially crippling effect that awarding full compensation to the claimants would have on the host government. 71 Consequently, the tribunals awarded Himpurna and Patuha less than ten percent of their claimed lost profits. 72

The application of the abuse of right doctrine in the Himpurna and Patuha has been controversial. 73 Simply stated, the abuse of right doctrine provides that situations may exist in which the exercise of a legally protected right by one party may result in unacceptable injury to an adverse party or to broader societal interests. 74 This doctrine has not typically been applied in the context of international investment disputes and has been accepted in only a small number of domestic jurisdictions. 75 Its emergence in the Himpurna and Patuha arbitrations creates a potentially awkward precedent. In neither case did the tribunals limit the award of lost profits because of any bad faith or malfeasance on the part of the claimants. Rather, the sole reason was the potential economic impact on the host government.

It remains to be seen whether the abuse of right doctrine is widely followed by subsequent tribunals, since its application would appear to be inconsistent with established international law. It should be noted that, as a practical matter, tribunals could achieve the same ends without relying on the abuse of right doctrine, given the substantial discretion inherent in the DCF methodology. For instance, if the circumstances so warranted, tribunals could limit the timeframe in which future revenues would be projected. Alternatively, the discount rate could be adjusted to account for the risk of harm to the host government associated with an award of future profits. In either case, the result would be to lessen the amount of damages by reducing the amount of future profits included in the final award. [Page178:]

Alternatives to the discounted cash flow methodology in calculating damages for enterprise-type investments

If a tribunal is reluctant to apply the DCF methodology, it must consider alternative means of calculating the fair market value of an investment. There are several generally accepted alternatives, including: "book value", the net value of an enterprise's assets; "investment value", the amount actually invested prior to the injurious act, "replacement value", the amount necessary to purchase the individual components of the investment at issue on the day immediately before the injurious act occurred; or "liquidation value", the amount a willing buyer would pay for an enterprise's assets in a liquidation process. 76

None of these alternative methods is perfect and, indeed, each is appropriate only in limited circumstances. For instance, replacement value assumes that it is possible to reconstruct the value of the entire investment simply by replacing the physical assets. Lost in this methodology is the value that comes from, for example, existing customer relationships, a skilled work force and opportunities in established markets. Merely reconstructing the physical assets of a going concern cannot recreate these intangible assets, and therefore may not fully restore the value of the investment. The use of "book value" has different, but equally significant problems. The "book value" method calculates damages based on the difference between an investment's assets and liabilities as recorded in its financial statements, or the amount at which the investment appears on the investor's balance sheet after deducting accumulated depreciation in accordance with generally accepted accounting principles. 77 As a general matter, "the net book value of an asset has the advantage of being easily and objectively assessed". 78 In practice, however, this method of valuation is only recommended in cases where the book value of the investment has been recently assessed and can, therefore, be deemed to be a fair substitute for the replacement value. 79 As the AMINOIL tribunal stated, "the net book value method may be suitable when it is a case of a recent investment, the original cost of which is not far from that of the present replacement cost. But when that is not so, other methods are indicated." 80

Despite the problems associated with these (and other non-DCF) methodologies, they occasionally represent the only means of valuing an investment. Tribunals must be free to calculate damages in a manner best suited to the[Page179:] facts of a particular case. This is especially true where the investment is comprised solely of intangible assets. In Fedax N.V. v. The Republic of Venezuela, the investment at issue consisted of six promissory notes issued by the Government of Venezuela. 81 After finding that ICSID properly had jurisdiction over the matter, 82 the parties ultimately reached a settlement on the merits but could not agree on the final amount of payment due from Venezuela. The tribunal, therefore, was forced to calculate damages just as it would if it had arbitrated the merits of the dispute. Rather than apply the DCF methodology or some other formula to determine the extent of damages, the tribunal looked to the precise terms of the promissory notes, determined the outstanding principal and calculated the interest due to compute the final award. 83

In Ceskoslovenska obchodni banka a.s. (CSOB) v. Slovak Republic, a tribunal was again confronted with intangible assets - bank loans. 84 After finding that the Slovak Republic had breached its contractual obligations to CSOB, the tribunal employed a complicated hybrid methodology to calculate damages that considered whether to award lost profits, compound interest and the effect that fluctuating tax rates should have on the award. The tribunal's approach was governed by Czech law, which provided that compensation should consist of "actual damage" (damnum emergem) and "lost profits" (lucrum cessans). 85 Although Czech law required the tribunal to consider the two principal elements of the DCF method in calculating damages, the application of that method was clearly inappropriate given the nature of the asset involved. Thus, the tribunal calculated damages under domestic statutory provisions applicable to bank loans. This flexibility is essential in cases where established methodologies simply cannot be used to calculate appropriate levels of damages.

Awarding interest in international investment arbitration

One of the least developed and arguably most important aspects of calculating damages is the proper measure for the award of interest. International investment arbitration most often involves substantial sums of money. Moreover, a significant amount of time frequently elapses between the date on which a claimed injury occurs and the date on which an arbitral award is issued. Thus, interest may represent a significant portion of the final award and, in fact, it is not uncommon for the interest portion of an award to substantially exceed the actual damages. 86[Page180:]

It is generally accepted that international tribunals may award interest to an injured claimant. 87 Indeed, as one scholar has noted, "the practice has become so widespread, it can be said that the liability to pay interest as part of an award of damages is an accepted international legal principal". 88 The type and amount of interest to be applied will largely be dictated by the applicable concession agreement, investment contract or bilateral investment treaty. If any one of these documents specifically addresses the issue of interest in awards, tribunals will generally award interest in accordance with its terms. 89 In the absence of an express contract or treaty provision, or if an existing provision is ambiguous, tribunals will look to law governing the dispute. 90 In cases involving breach of a concession agreement or other investment contract, this law will most likely be the law set forth in the contract. In treaty-based cases, or in contract cases lacking a choice-of-law provision, tribunals will almost always look to international law to determine the question of interest. 91

The "tendency in international jurisprudence [is] to award only simple interest". 92 This tendency may stem from a belief that compound interest is prohibited in many domestic legal systems or by international law. 93 This belief, however, is questionable. Although compound interest may be disfavoured, many legal systems do permit courts and tribunals to award compound interest in specified circumstances. 94 It may also stem from a belief that compound interest is punitive in nature and could lead to an excess award. 95 Again, this belief is also questionable. As the Santa Elena tribunal noted, however, "It is not the purpose of compound interest to attribute blame to, or to punish, anybody for the delay in the payment made to the expropriated owner; it is a mechanism to ensure that the compensation awarded the Claimant is appropriate in the circumstances." 96

Regardless of the reason why international tribunals have been reluctant to award compound interest, there is a growing perception that this reluctance runs counter to established legal principals and basic economic realities. 97 As the Santa Elena tribunal noted:

"Where an owner of property has at some earlier time lost the value of his asset but has not received the monetary equivalent that then became due to him, the amount of compensation should reflect, at least in part, the additional sum that his money would have earned, had it, and the income generated by it, been reinvested each year at generally prevailing rates of interest." 98[Page181:]

Drawing on the Santa Elena rationale, a number of tribunals have recently begun to express the view that compound interest should be generally available in international investment disputes. For example, in Pope & Talbot v. Canada, the tribunal stated, "applicable rules of international law […] call for the award of appropriate interest, including compounding, as one of the elements of compensation." 99 Expanding on this view, the tribunal in Wena Hotels v. Egypt stated that it:

"believes that an award of compound (as opposed to simple) interest is generally appropriate in most modern commercial arbitrations. As Professor Gotanda has observed, 'almost all financing and investment vehicles involve compound interest … If the claimant could have received compound interest merely by placing its money in a readily available and commonly used investment vehicle, it is neither logical nor equitable to award the claimant only simple interest'." 100

Likewise, in MTD Equity v. Republic of Chile, an ICSID tribunal held that awarding compound interest "is more in accordance with the reality of financial transactions and a closer approximation to the actual value lost by an investor". 101 The common theme that runs through all of the decisions in which compound interest has been awarded is the desire to provide claimants with full compensation - i.e., to place the claimant in the position it would have been had it never been injured. 102

Despite these precedents, there is no clear guidance as to when an award of compound interest should be made. Although international law does not require a tribunal to award compound interest, 103 there appears to be a growing recognition that compound interest may be necessary to fully and adequately compensate an injured investor.

Conclusion

Just as the substantive aspects of international investment law are continuing to expand, so too are the rules governing damages. Although there exist general principles to guide parties and tribunals in calculating "appropriate" damages in a particular case, there are no bright-line formulae that can be applied with regularity. Perhaps, at least for the moment, it is better this way. As the scope of protections accorded international investments evolves[Page182:] and the types of undertakings that qualify as "investment" expand, it is important that tribunals have the flexibility to respond adequately. Flexibility and adaptability, therefore, are crucial. However, the law should provide a measure of certainty and predictability. To date, the only two "certainties" appear to have developed are the dual guidelines set for the above: (a) the quantum of damages must be sufficient to eliminate the injurious effect of the state's unlawful actions; and (b) the method of calculating damages should be dictated by the type of investment. These guidelines should be sufficient to permit both the flexibility essential to the proper functioning of the international arbitral system and the stability needed to ensure its long-term viability. [Page183:]

1
Over 2,300 BITS are currently in force among approximately 180 countries. See Bishop, Crawford, Reisman, Foreign Investment Disputes, Kluwer 2005, 1.

2
See, e.g., Restatement (Third) of the Foreign Relations Law of the United States, § 712; International Law Commission Articles on State Responsibility, 53rd Sess., 2001, Article 31 ("The responsible State is under an obligation to make full repatriation of the injury caused by the internationally wrongful act."); Brice Clagett, 'Just Compensation in International Law: The Issues Before the Iran-United States Claims Tribunal', in The Valuation of Nationalized Property in International Law, Vol. IV, Lillich ed. 1987 ("One of the most hotly debated issues of public international law in recent years has been whether that law requires the payment of compensation when a nation expropriates the property of an alien investor and, if so, what the standard is for determining the amount of that compensation.").

3
See, e.g., Curtis A. Bradley, Customary International Law and Private Rights of Action, 1 Chicago Journal of International Law 421, 2000.

4
See, e.g., W. Michael Reisman & Robert D. Sloane, Indirect Expropriation and its Valuation in the BIT Generation, 2003 British Year Book of International Law 115, 116 (noting that "the prototypical FCN treaty did little more than impose upon the host state an obligation not to expropriate covered foreign investments without paying compensation for them.").

5
Factory at Chorzow (Ger. v. Pol.) (Indemnity), 1928 PCIJ (ser. A) No.17 (Judgment of Sept. 17) (holding "The essential principal 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 reestablish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear [must be made] … . ").

6
See Hackworth, Digest of International Law, Vol. 3, 655-65 (1942).

7
See text, infra at note 18, citing, CME Czech Republic B.V. (The Netherlands) v. The Czech Republic, UNCITRAL Final Award of 14 March 2003, § 497.

8
See, e.g., Gloria Sandrino, The NAFTA Investment Chapter and Foreign Direct Investment in Mexico: A Third World Perspective, 27 Vanderbilt Journal of Transnational Law 259, 318, 1994 ("Most third world states oppose such high standards of valuation, and instead argue for 'appropriate compensation [...] taking into account [...] all circumstances that the State considers pertinent.'").

9
In response to the Hull Formula, many developing countries, particularly in Latin America, adopted the Calvo Doctrine, which provides that "there is in international law no rule universally accepted in theory nor carried out in practice, which makes obligatory the payment of immediate compensation nor even of deferred compensation, for expropriations of a general and impersonal character." See, e.g., L. Holzgrefe & Robert O. Keohane, Humanitarian Intervention: Ethical, Legal, and Political Dilemmas, 2003, pp. 26-27.

10
UN General Assembly Resolution 3171 (XXVII), Permanent Sovereignty Over Natural Resources, 28 UN GAOR Supp., No. 30, at 52, UN Doc. A/390, 1973, reprinted in 13 ILM 238, 1974.

11
Libyan American Oil Co. (LIAMCO) v. Libyan Arab Republic, 20 ILM 1, 86 (1981) (Mahmassani, sole arbitrator, 1977).

12
See id. at 79 (deeming the award to be "just and appropriate compensation").

13
See, e.g. Shahin Shaine Ebrahimi v. Iran, Iran-US Cl. Trib. Award 560-44/46/47-3 of 12 October 1994, § 88 (" …. The gradual emergence of this rule aims at ensuring that the amount of compensation is determined in a flexible manner, that is, taking into account the specific circumstances of each case. The prevalence of the 'appropriate' compensation standard does not imply, however, that the compensation quantum should be always 'less than full'."); In the Matter of the Arbitration between Kuwait and American Independent Oil Co.,(AMINOIL), Final Award, 24 March 1982, § 144, reprinted in 21 ILM 976, 1034, 1982 (finding that the claimant was entitled only to "appropriate" compensation following the lawful expropriation of its investment by the Kuwaiti government.).

14
See, e.g.,LIAMCO at 86 ("it would be reasonable and just to adopt the formula of 'equitable compensation' as a measure for the estimation of damages in the present dispute. This formulation is certainly in complete harmony with the general trend of international theory and practice on the concepts of sovereignty …").

15
Iran-US Cl. Trib. Award 560-44/46/47-3 of 12 October 1994, § 88.

16
Compañia del Desarrollo de Santa Elena v. Costa Rica , Final Award, ARB/96/1, 17 February 2000, § 69, reprinted in 39 ILM 1319, 1329 (2000).

17
See United Nations General Assembly Resolution 1803. Notably, in debates surrounding General Assembly Resolution 1803, the United States maintained that the phrase "appropriate compensation" made "in accordance with international law" meant "prompt, adequate and effective" compensation as required under international law. See Andrew T. Guzman, Why LDC's Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38 Virginia Journal of International Law 639, 649 (1998).

18
See, e.g., CME Czech Republic B.V. Final Award, 14 March 2003, § 501.

19
Ibid., § 497 (internal quotations omitted).

20
Ibid.

21
Treaty Between the Government of the United States of America and Government of [Country] Concerning the Encouragement and Reciprocal Protection of Investment, 2004, available at http://www.state.gov/documents/organization/38710.pdf.

22
AMINOIL, 21 ILM at 1033, § 147.

23
For example, the new US Model BIT defines the term investment as follows: Every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment […]. Forms that an investment may take include: (a) an enterprise; (b) shares, stocks, and other forms of equity; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts, (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable, or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.

24
Sapphire International Petroleum Ltd v. National Iranian Oil Co.,Arbitral Award, 15 March 1963, reprinted in 35 International Law Reports 136, 185-86 (applying this principle to breach of contract cases). See also Draft Convention on State Responsibility, 55 American Journal of International Law 545, 581, 1961, at Article 34.

25
Pope & Talbot v. Government of Canada, Award in Respect of Damages, NAFTA Chapter 11, 31 May 2002, § 81, 85.

26
S.D. Meyers, Inc.v. Government of Canada , UNCITRAL First Partial Award, 13 November 2000, § 251.

27
Ibid.,§ 308.

28
Ibid., § 309.

29
See ibid.

30
See generally CMS Gas Transmission v. The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005, available at http://www.cmsenergy.com/Invest/.

31
Ibid., § 409-10.

32
Ibid., § 410.

33
ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, § 113, reprinted in 40 ILM 36, 2001, (Finding the expropriation standard to be appropriate "since both situations involve the complete frustration of the operation of the landfill and negate the possibility of any meaningful return on Metalclad's investment.").

34
S.D. Meyers, Inc.,UNCITRAL Partial Award, 12 November 2000, § 315.

35
See, e.g., World Bank: Report to the Development Committee and Guidelines for the Treatment of Foreign Direct Investment, adopted 21 September 1992, reprinted in 31 ILM 1363, 1376, (1992) ("a 'going concern' means an enterprise consisting of income-producing assets which has been in operation for a sufficient period of time to generate the data required for the calculation of future income and which could have been expected with reasonable certainty, if the taking had not occurred, to continue producing legitimate income over the course of its economic life in the general circumstances following the taking by the State") ("World Bank Report").

36
See ibid ("Compensation will normally be 'appropriate' if it is 'adequate, effective and prompt'; 'adequate' compensation is fair market value immediately before public knowledge of the taking.").

37
See, e.g., Brice Clagett, "Just Compensation in International Law: The Issues Before the Iran-UN Claims Tribunal", III The Valuation of Nationalized Property in International Law 31, 61-62 n.86 ("International decisions rendered both before and after Chorzow Factory have declared as universally accepted rules of law that an investor cannot be fully compensated for the going-concern value of his expropriated interests unless he is awarded both the damage that has been sustained as a result of the taking and the reasonably ascertainable profit that has been missed.") (internal citations and quotations omitted).

38
See ibid ("'discounted cash flow value' means the cash receipts realistically expected from the enterprise in each future year of its economic life as reasonably projected minus that year's expected cash expenditure, after discounting this net cash flow for each year by a factor which reflects the time value of money, expected inflation, and the risk associated with such cash flow under realistic circumstances. Such discount rate may be measured by examining the rate of return available in the same market on alternative investments of comparable risk on the basis of their present value."). See also Asian Agricultural Products Ltd (AAPL)v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, 27 June 1990, § 102, reprinted in 30 ILM 577, 623 (1991) ("the projection of future profits in function of the 'Discounted Cash Flaw Method' (DCF) has to be envisaged simply as a tool to asses the level of Serendib's future profitability under all relevant circumstances.").

39
See Paul D. Freidland & Eleanor Wong, Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies, 6 ICSID Review - Foreign Investment Law Journal 400, pp. 406-407.

40
It is a well-established accepted economic principle that the value of property is determined by its capacity to generate future income. See, e.g., J. Williams, The Theory of Investment Value 1 (1938) ("in the end all prices depend on someone's estimate of future income."); I. Fisher,The Theory of Interest 12 (1954 ed.) ("The value of any property [...] is its value as a source of income [...]"); E. Solomon & J. Pringle, An Introduction to Financial Management 259 (1980 ed.) ("the age-old concept that the value of an asset depends not on its cost or its past usefulness but on its future usefulness [...] underlies the modern theory of value.").

41
See Brice Clagett, Remarks at the American Society of International Law 92nd Annual Meeting (1-4 April 1998), in 92 Proceedings of the American Society for International Law 303, 305 (1995).

42
See, e.g., Tecnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, 29 May 2003, § 184-85, reprinted in 43 ILM 133, 183-83 (2004) (noting the remarkable disparity between the amount of damages calculated by the claimant ($52 million) and the respondent ($2.1 million) under the DCF method.).

43
See, e.g., Amoco International Finance Co. v. Islamic Republic of Iran, Iran-US Cl. Trib. Partial Award No. 310-56-3, 14 July 1987, § 213, reprinted in 27 ILM 1314, 1365 (1988) ("it will be necessary to determine the proper discount rate, taking into account the probable risks, inflation and the real rate of interest.").

44
See, e.g., Tecnicas Medioambientales Tecmed, S.A. 43 ILM 134, § 186, ("the difficulties in obtaining objective data allowing for application of the discounted cash flow method on the basis of estimates for a protracted future, not less than 15 years, together with the fact that such future cash flow also depends upon investments to be made … building of seven additional cells […] in the long term, lead the Arbitral Tribunal to disregard such methodology to determine the relief to be awarded to the Claimant.").

45
Autopista Concesionada de Venezuela C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Award, 23 September 2003, § 353-55.

46
Wena Hotels v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000, § 123, reprinted in 41 ILM 896, 918 (2002).

47
See ibid. See also Metalclad Corp. § 119-20; Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, 20 May 1992, § 188, reprinted in 32 ILM 933, 973 (1993) ("In the Tribunal's view, the DCF method is not appropriate for determining the fair compensation in this case because the project was not in existence for a sufficient period of time to generate the data necessary for a meaningful DCF calculation.").

48
See ibid.

49
Wena Hotels, 41 ILM at 918, § 124. In Wena, the Claimant had operated one investment (a hotel) for less than eighteen months and was still in the process of renovating a second hotel. In addition, the tribunal found that there were some questions as to whether Wena had sufficient finances to fund the renovation and operation of its investments.

50
Société Ouest Africaine des Bétons Industriels (SOABI) v. State of Senegal, Award on the Merits, 25 February 1988, reprinted in 2 ICSID Reports 165, 171.

51
Southern Pacific Properties, 32 ILM 933, § 188-89 (noting that the project was in its infancy and, therefore, there was very little history on which to base projected revenues.).

52
Ibid., § 43-44.

53
Ibid., § 150.

54
Ibid., § 190 (finding that the "allowance of lucrum cessans may only involve those profits which are legitimate.").

55
Ibid., § 191.

56
Sapphire International Petroleum Ltd v. National Iranian Oil Co.,Arbitral Award, 15 March 1963, reprinted in 35 International Law Reports 136, 187.

57
See Ibid., at 186.

58
Ibid., at 187-88 (finding that "if the existence of damage is uncertain, it is nevertheless clear that the plaintiff had an opportunity to discover oil, an opportunity that both parties regarded as very favourable.").

59
Ibid.

60
See ibid.

61
See ibid.

62
Ibid.

63
Ibid., at 189.

64
In general, an action violates the abuse of rights doctrine if one of the following three factors is present: (1) the predominant motive for the action is to cause harm; (2) the action is totally unreasonable given the lack of any legitimate interest in the exercise of the right and its exercise harms another; and (3) the right is exercised for a purpose other than that for which it exists. See, e.g., Joseph M. Perillo, Abuse of Rights: A Pervasive Legal Concept, 27 Pacific Law Journal -Yearbook Commercial Arbitration37, 47 (Fall 1995).

65
Final Award, reprinted in 25 Yearbook Commercial Arbitration13 (2000) ("Himpurna Final Award").

66
Final Award, reprinted in 14 Mealey's International Arbitration Report B-1 (December 1999) ("Patuha Final Award").

67
Himpurna Final Awardat 78-79.

68
The Patuha tribunal held that "damages for the loss of a bargain may in principle be granted even when the victim of a breach has not yet incurred significant costs." Patuha Final Award at B-42.

69
Himpurna Final Awardat 93.

70
Ibid., at 90.

71
Patuha Final Award at B-42.

72
See ibid.

73
For a fuller discussion of these cases and the abuse of right doctrine, see, e.g., Irina Petrova, "Stepping on the Shoulders of a Drowning Man" The Doctrine of Abuse of Right as a Tool for Reducing Damages for Lost Profits: Troubling Lessons from the Patuha and Himpurna Arbitrations, 35 Georgetown Journal of International Law 455, 463 (2004); Louis T. Wells, Double Dipping in Arbitration Awards? An Economist Questions Damages Awarded to Karaha Bodas Company in Indonesia, 19 Arbitration International (No. 4) 471 (2003).

74
See Petrova at 463.

75
See Karaha Bodas Co., LLC.v. Perusahaan Pertambangan Minyak Dan Gas Bumi Nega, 364 F.3d 274, 306 (5th Cir. 2004) ("The abuse of rights doctrine is not established in American law.").

76
World Bank Report, 31 ILM at 1377.

77
Ibid.

78
Amoco International Finance Corp., 27 ILM at 1374, § 249.

79
See World Bank Report, 31 ILM at 1377 (1992).

80
AMINOIL, 21 ILM at 1038-39, § 165.

81
Fedax N.V.v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Award, 9 March 1998, § 1, reprinted in 37 ILM 1391, 1395 (1998).

82
See ibid, § 29, citing Decision on Jurisdiction of 11 July 1997.

83
See ibid, § 31-36.

84
Ceskoslovenska obchodni banka a.s. ("CSOB") v. Slovak Republic , ICSID Case No. ARB/97/4, Award, 29 December 2004.

85
Ibid., § 222

86
See e.g., Santa Elena, 39 ILM 1317, § 117 (awarding $4 million in damages and $12 million in compound interest.).

87
See, e.g., Middle East Cement Shipping & Handling Co.v. Egypt, ICSID Case No. ARB/ 99/6, Award, 12 April 2002, § 174 ("international jurisprudence and literature have recently, after detailed consideration, concluded that interest is an integral part of the compensation due after the award…"); Article 38(1) of the International Law Commission Articles on State Responsibility, 53rd Sess., 2001 ("Interest on any principal sum due under this chapter shall be payable when necessary in order to ensure full reparation."); UNIDROIT Principles on International Commercial Contracts, Article 7.4.9 ("If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the nonpayment is excused.").

88
John Gotanda, Supplemental Damages in Private International Law(Kluwer 1998), § 2.1.

89
See John Gotanda, Compound Interest in International Disputes, 34 Law & Pol'y Int'l Bus. 393, 431 (2003), citing, Anaconda-Iran v. Iran, 18 Iran-US Cl. Trib. Rep. 199, 233, 238-39 (1988); R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-US Cl. Trib. Rep. 191, 191-92 (1984).

90
See, e.g., McCollough & Co., Inc. v. Ministry of Post, Tel. & Tel., Award No. 225-89-3 (Chamber Three) of 22 April 1986, 11 Iran-US Cl. Trib. Rep. 3, § 90 ("Like any other decision of the Tribunal, a decision to award interest must be made on the basis of respect for law, and in this field as in any other, the applicable law is to be determined by the Tribunal in accordance with the guidelines contained in Article V of the Claims Settlement Determination."); LIAM CO, 20 ILM at 83 ("The arbitral tribunal takes into consideration the proper law of the contract … ").

91
See, e.g., Petrobartv. Kyrgyz Republic, Stockholm Chamber Case No. 126/2003 (Energy Charter Treaty), Final Award, 29 March 2005 at 88 (finding that interest should be calculated on the basis of international rules rather than national rules because "the claim is based on a treaty and is therefore a claim under international law."); Middle East Cement Shipping & Handling Co. v. Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002 (awarding compound interest despite the fact that such an award conflicted with Egyptian law. According to the tribunal, Egyptian law did not apply to BIT-based claims. Instead, these claims were governed by international law. The tribunal further stated that "compound (as opposed to simple) interest is at present deemed appropriate as the standard of international law in such expropriation cases.").

92
Santa Elena, 39 ILM at 1332, § 97. See also, James Crawford, Special Rapporteur, Third Report on State Responsibility, International Law Commission, 52nd Sess., 22 UN Doc. A/CN.4/507 (2000), § 208 ("the general view of courts and tribunals has been against the award of compound interest, and this is true even of those tribunals which hold claimants to be normally entitled to compensatory interest."); McCollough & Co., Inc. 11 Iran-US Cl. Trib. Rep. 3, § 96-97 ("Most awards allocate only simply interest, but occasionally compound interest has been awarded and sometimes a percentage is added to the interest in consideration of the rate of inflation. It is difficult to draw any distinct conclusions from so diverse a practice. The Tribunal can conclude, however, that no uniform rule of law relating to interest has emerged from the practice in transnational arbitration … ").

93
See Gotanda, Compound Interest in International Disputes at 394.

94
For a comparative analysis of laws relating to the awarding of compound interest, see ibid. generally.

95
See, e.g., Crawford, § 211 (" […] allowing compound interest could result in an inflated and disproportionate award, with an amount of interest greatly exceeding the principal amount owed.").

96
Santa Elena, 39 ILM at 1333, § 104.

97
See ibid, § 103. See also Crawford, § 211 (noting that awarding compound interest is permissible when the facts are sufficient to justify "some element of compounding as an aspect of full compensation".).

98
Santa Elena, 39 ILM at 1333, § 104. See also Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, 13 November 2000, § 96 (holding that it was appropriate to award compound interest because the money at issue was withdrawn from a time-deposit account which paid interest on a compound basis).

99
Pope & Talbot v. Government of Canada, Award in Respect of Damages, NAFTA Chapter 11, 31 May 2002, § 89.

100
Wena Hotels v. Egypt, ICSID Case No. ARB 98/4, Award, 8 December 2000, reprinted in 41 ILM 896, 919 (2002) (awarding 9 percent interest compounded quarterly). See also, Tecnicas Medioambientales Tecmed, S.A.,§ 196 ("in the opinion of the Arbitral Tribunal, application of compound interest is justified as part of the integral compensation owed to the Claimant as a result of the loss of its investment.").

101
MTD Equity v. Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, § 251, reprinted in 44 ILM 91, 129 (2005).

102
The WenaTribunal noted that that compounded interest will best "restore the Claimant to a reasonable approximation of the position in which it would have been if the wrongful act had not taken place", 41 ILM at 919, § 129.

103
See Autopista Concesionada de Venezuela C.A, § 393-97 ("there is no well established principle of international law requiring the award of compound interest … "). See also N. Affolder, Awarding Compound Interest in International Arbitration,The 2001 American Review of International Arbitration, pp. 68-69.