Valuation in Investor-State Arbitration: Toward a More Exact Science

Abstract

The chapter focuses on compensation of fair market value as a means of achieving such reparation, as opposed to restitution, contractual formulas, or moral damages. It sets forth the framework of challenges facing investor-state arbitration, within the context of its continuing expansion. The chapter links those challenges to questions about the legitimacy of valuation. The chapter addresses two fundamental aspects of valuation. First, it discusses the issue of awarding interest. The recent trend toward awarding compound interest illustrates how convergence on damages methodologies furthers the legitimacy of arbitral awards. Second, it describes perhaps the prominent method of determining fair market value: discounted cash flow (DCF) analysis. The chapter suggests that tribunals should not reject a well-pleaded DCF analysis simply on the basis of “uncertainty,” “speculation,” and “going concern” tests. The experts would help arbitrators make valuation a more exact science, and that is critical for the legitimacy of investor-state arbitration. Keywords:discounted cash flow (DCF) analysis; exact science; fair market value; investor-state arbitration; legitimacy challenges