Originally from Journal of Damages in International Arbitration

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I.  INTRODUCTION

Investment treaty provisions often state the measure of compensation in the event that a foreign investment is compromised by the actions of a state. 

In cases of a wrongful act (confiscation  or violation of fair and equitable treatment), the duty of full reparation is defined in Articles 31 and 34–39 of the International Law Commission’s (ILC) articles on state responsibility.  The accepted standard of reparation in public international law was established in the Chorzów Factory case: 

Reparation must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed… Restitution in kind, or, if it is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it. 
Tribunals often decide that actual restitution cannot take place and proceed to determine a sum corresponding to the value which restitution in kind would bear.

This paper tries to ascertain if it is possible to translate legal terms into meaningful practices for valuation, in particular if there is a connection between standards of compensation (for both expropriation and confiscation) and valuation standards. In other words, would a damages expert know what to do if told to measure damages on a “full reparation” basis?

The next section argues that in the case of an expropriation, the standards of compensation vary widely and may not even be market based. The third section explores the standard of compensation in the case of confiscation by reference to the Factory at Chorzów tribunal.  The fourth section explores the differences between “fair market value”, “fair value,” and other valuation standards. The fifth section analyzes how the tribunal in the Rusoro v Venezuela case estimated the “genuine value” of Claimant’s investment;  and the last offers some conclusions.