Determining compensable losses in investment treaty arbitration with the wrongful aspect approach

Abstract Breaches of investment-protection standards are typically remedied through awards of compensation. Calculating compensation comprises two distinct processes: determining investors’ compensable losses and valuing such losses. There are different methods for valuing losses, with each potentially yielding very different results. Determining an investor’s compensable losses apparently does not involve such choices: either the State’s breach is causal vis-à-vis certain losses, or it is not. But there are different approaches to determining investors’ compensable losses—and which one is used can (potentially significantly) change the final award of compensation. According to one approach, investors are awarded compensation for losses caused by the State’s conduct considered as a whole, while, according to the other, their compensable losses are limited to those caused by the wrongful aspect of the State’s conduct. Until now, these two approaches have been treated as alternatives, but they are better seen as complementary because they apply in different circumstances. This article puts forward the thesis that an investor’s compensable losses are limited to those caused by the wrongful aspect of the State’s conduct if it has breached an investment-protection standard with an objective fault element in it. In other cases, the other approach is applicable.