The unnoticed legacy of the Yukos case: the dilemma of choosing the valuation date of an investment in investment arbitration

The mechanism for calculating compensation awarded to a foreign investor in disputes arising out of unlawful expropriation has become one of the most critical issues of modern investment arbitration. Despite the seemingly technical nature of the determination of the valuation date of an investment, it is the core element affecting the final amount of compensation. Until the mid-2000s, arbitral tribunals calculated the amount of compensation based on the date of the alleged violation by the State of the agreement on the protection of foreign investments and on the information available at that time. Any increase in the value of investments after expropriation seemed unlikely, and what usually happened was, on the contrary, a sharp decrease in the value of assets as a result of government actions. However, a different approach was soon developed in the academic literature and in practice according to which any increase in the value of investments that took place after the expropriation, but before the date of the award, should be taken into account by the arbitral tribunal when calculating the amount of compensation. According to the scholars, this rule follows from the well-known judgment of the Permanent Court of International Justice in the Chorzów Factory case, where it was stated that the amount of compensation should not necessarily be limited to the value of the property at the time of its seizure. This approach has been later developed due to the emergence of situations when the value of investments affected by government actions turned out to be significantly higher by the time of the arbitral award. An eloquent example is the Yukos case in which the date of the arbitral award rendered a decade later the actual expropriation, was chosen as the valuation date of investment. This method of determination of the valuation date of an investment has been criticized as distorting the meaning of the Chorzów Factory judgment and ignoring the absence of a causal relationship between the actions of the state to expropriate the investor’s property and fluctuations in world prices.