Reimagining the Damages Valuation Framework Underlying Fair and Equitable Treatment Standard Violations through a Three-Stage Contextualized Approach

Damages have been described as ‘the poor cousin of liability’.3 Yet damages valuation plays an essential, albeit often controversial, role in investor–State arbitration. Quantum questions require the participants—parties, counsel, experts and especially arbitrators—to think creatively and critically about the applicable framework underlying damages valuation. Consistency and rigor in the tribunal’s approach to damages contribute to the good administration of justice in a case. With that goal in mind, this article introduces a more structured legal framework underlying the valuation of damages arising from breaches of the fair and equitable treatment (FET) standard, which does justice to the unique nature of that standard and avoids ‘horse trading’ among tribunal members. Arbitrators may be inclined to apply valuation methodology associated with expropriation wholesale, or in slightly modified form, to FET claims notwithstanding the fundamental differences between FET and other standards, including with regard to the nature and level of the harm suffered by the investor. A structured approach featuring multiple stages must take account of these differences and must give factors such as contributory fault and valuation date their proper place through rigorous reasoning, lest the outcome, and justice itself, be compromised through over- or undercompensation.