Compensation under International Law in Cases of Treaty Breach Resulting in Impairment of Business Performance

Abstract

A situation which has occurred in a string of fairly recent investment cases that raises the matter of quantification is one where the investor’s investment in the host state has taken the form of a local subsidiary and where certain state conduct has reduced its business prospects. This situation is, then, clearly distinguishable from one where the investor is deprived of the business altogether in a manner tantamount to expropriation. In this latter case, it is the rule that the investor is compensated by way of a lump sum payment somehow based on earnings that could be expected in the future but for the breaching conduct. But is compensation of a lump sum amount appropriate in the alternative of business impairment? In that scenario, the challenge of determining compensation is compounded by the need to assess not only one future income stream as a basis for a DCF calculation but two hypothetical income streams, in the ”as is” scenario and in the ”but for” scenario, exacerbating the margin of error to a significant degree. The view argued in this article is that in cases where business is impaired by treaty-breaching conduct by a state, the quantification should be limited to past time. It will exclude an excessively speculative element and it will provide an incentive for the state to re-instate a situation that would exist but for the breach.