The increasing size of awards of compensation made under international investment treaties is drawing greater scrutiny over the approaches that international investment tribunals use to arrive at these—at times staggering—amounts. One question being asked is: How are things being done elsewhere? A forthcoming IISD paper seeks to answer this question by comparing approaches to the awards of compensation being used in international property law cases heard before other international courts and tribunals. This includes the Permanent Court of International Justice, the International Court of Justice, and the European Court of Human Rights, among others.
By contrasting these approaches with those used by international investment tribunals, the forthcoming paper will seek to draw out some key policy considerations for the fundamental reform of compensation principles used in the international investment treaty arbitration space.
Q: What are the aims of the paper?
Esmé Shirlow, Associate Professor at the Australian National University (ES): The paper picks up from a previous IISD paper (IISD Best Practices: Compensation Under Investment Treaties) that looked at approaches that investment tribunals take to awarding compensation. The IISD Best Practice brief suggested that the practice of investment tribunals differs from that of other international courts and tribunals, and so this paper’s purpose is to investigate that in more detail. To do so, the paper examines the approaches adopted by six different international courts and tribunals to assessing claims for reparations and, specifically, to compensation in claims that are broadly analogous to investor–state disputes; that is, claims that involve allegations that a state has interfered with an individual’s private property rights.
In the paper, we look at a range of different international courts and tribunals and examine their comparative approach to compensation. We look at some of the very early international courts and tribunals like the Permanent Court of International Justice and the Court of International Justice, as well as regional courts like the European Court of Human Rights, the Inter-American Court of Human Rights, and the African Court on Human and Peoples’ Rights. We also consider the practice of more specialized regimes like the International Tribunal for the Law of the Sea.
What we’re hoping to do in this paper is draw out how each of these international courts and tribunals has analyzed claims to compensation in international private property cases. We are looking at how they converge in their practice amongst one another but also as against the practice of investment tribunals. We are also interested in what differences or innovations their practice shows and the extent to which that might be relevant to spurring innovations in the investment arbitration regimes and its ongoing reform process.
Q: What stood out to you about some of the approaches that you identified?
ES: One of the first things that stood out was how each of these international courts and tribunals has largely adopted the standard for reparations that applies under customary international law. Most of them have endorsed a view that a breach of an international obligation that protects an individual’s private property rights will entail a requirement on the breaching state to provide full reparation for any loss arising from that breach. This is the case even where an international court or tribunal is working by reference to a treaty that contains different language around reparations. For example, in the case of the African Court on Human and Peoples’ Rights and the Inter-American Court of Human Rights, the relevant treaty states that any breach of the treaty will occasion a requirement to make remedy, including a requirement to provide reparation and fair compensation. Despite that slightly different language, both of those courts have endorsed a view that the remedies required for any breach have to meet that standard of full reparation.
So, one of the interesting findings is that most of these international courts and tribunals are working by reference to a very similar overarching principle that a breach of international law will entail a requirement to make full reparation. This is the same principle applied by international investment tribunals.
Another interesting finding is the tendency of international courts and tribunals to award remedies in the form of restitution out of preference to other forms of relief like compensation. That comes from the full reparation standard under customary international law, but it also links closely to the institutional structures of the courts that we investigate in the paper. All of them are standing courts with a fairly robust institutional structure, which means that any awards of restitutionary relief can be enforced by the court or by the political body in a particular regime that can oversee compliance with the judgement. You can see how that might differ, for example, from an award of restitutionary relief in a more ad hoc regime like investment arbitration. In this case, once the decision maker makes its decision it is functus officio and has no enduring powers of assessing compliance with the award. In these cases, compensation or more one-off forms of relief might be preferred over a requirement to make restitution.
Another interesting feature arising out of this review of the practice of the international courts and tribunals is the tendency of many of them to resort to equitable principles to value loss, for both material and non-material damage. Many of these international courts and tribunals are resorting to equitable techniques which they describe as kind of a balance of considerations and fairness approach to evaluate the loss of individuals who’ve had their private property rights interfered with. Often that means that these international courts and tribunals are exercising significant degrees of discretion in setting the appropriate amount of compensation for any damage from a breach of international law. Typically, this will result in lower awards of compensation than you might see in a regime like investment arbitration, but it also means that the courts and tribunals aren’t necessarily bound by the evidence that’s submitted by the parties; they’re instead considering all of the factual circumstances surrounding a given breach, including, in some cases, the state’s own contextual circumstances and the nature of the breach at issue.
Q: What lessons do you think could be drawn from this comparative research for those looking to develop new treaty language or institutional reforms to address the way that international investment tribunals are approaching the award of compensation?
ES: One of the really important aims of this paper is to highlight that very different approaches to issues of compensation exist amongst international courts and tribunals, and those different approaches might provide inspiration or even warnings in considering how one particular international adjudicative regime could be reformed in order to change its approaches to compensation.
Interestingly, as I flagged, many of these international courts and tribunals are working by reference to a similar standard for assessing remedies under international law—the standard of full reparation—but those rules of customary international law will apply where states do not, themselves, in their treaties, stipulate more specific approaches. As such, states have quite a lot of discretion in treaties to adopt provisions directing international courts or tribunals to use particular approaches. Of course, they should be very specific in doing so, and, if they are looking to move away from the customary international law standard, they should ensure that the new approach clearly differs from the customary international law standard in a material way. Overall, it is important for states to note that they do have the flexibility to craft their own approaches for particular adjudicative regimes. They might also want to craft more specific approaches to influence how the full reparation standard, even if it is applied, is interpreted in practice.
Another interesting finding out of this comparative study is that many international courts and tribunals are using court-appointed experts to assess what compensation should be provided to applicants in any given case. That differs from the heavy reliance on party-appointed experts in the investment context. The procedural powers of an international court or tribunal and whether those procedural powers commit the court or tribunal to make use of court-appointed experts (and in what circumstances) and then how the role of those court-appointed experts is managed is one interesting way of approaching the compensation issue from a slightly different perspective. Equally, many of these other international courts or tribunals are much more integrated with domestic processes and will often work in a complementary fashion to domestic processes, including by referring questions of compensation back to domestic mechanisms for determination. This is another interesting area of potential reform to the investment arbitration system.
For those interested in this issue and in innovative ideas for reforming how investment tribunals approach the crucial issue of compensation, please stay tuned for the forthcoming IISD paper on this topic.
Watch the interview here:
Sarah Brewin is the Senior Law Advisor & Coordinator for IISD’s Advisory Services, Economic Law & Policy Program