The Criterion of Causation and Compensation in Non-Expropriatory Violations of International Investment Agreements in the Light of the Investment Arbitration Practice

This article aims to discover the standard of compensation for damages caused to foreign investors due to the non-expropriatory violations of bilateral or multilateral International Investment Agreements (IIA). A review of the investment arbitration practice as an important source of Foreign Investment Law, reveals that the amount of compensation in these cases is determined according to the standard put forward by the PCIJ in Chorzów Factory case as well as the relevant standards of the ILC Articles on Responsibility of States for Internationally Wrongful Acts. In cases where the violation of the IIA has amounted to expropriation, the payable compensation to the aggrieved investor would be determined in the same manner as an unlawful expropriation. In other cases, however, the assessment of compensation lies in the existence of a causal link between the wrongful act of the Host State and the damages caused to the investor. Despite the relative coherence of the arbitral tribunals’ rulings regarding the compensation standard in non-expropriatory violations in similar cases, this article concludes that the method by which the causal link is examined by arbitral tribunals remains utterly inconsistent, which can undermine the coherence and predictability of the international investment arbitration system.