Under public international law, the right to claim moral damages is enshrined in Article 31(2) of the Articles on Responsibility of States for Internationally Wrongful Acts pursuant to which the obligation of a State to make full reparation for the injury by the internationally wrongful act includes “any damage, whether material or moral”. The commentary on this Article specifies that moral damage includes “individual pain and suffering, loss of loved ones or personal affront associated with an intrusion on one’s home or private life.”[1]
The entitlement to compensation for moral damages under public international law was summarized in the Lusitania case, which is frequently cited in caselaw and doctrine, as follows:[2]
That one injured is, under the rules of international law, entitled to be compensated for an injury inflicted resulting in mental suffering, injury to his feelings, humiliation, shame, degradation, loss of social position or injury to his credit or to his reputation, there can be no doubt, and such compensation should be commensurate to the injury. Such damages are very real, and the mere fact that they are difficult to measure or estimate by money standards makes them none the less real and affords no reason why the injured person should not be compensated therefor as compensatory damages, but not as a penalty.
In turn, in investment arbitration, awarding moral damages has been subject to controversy.[3] In fact, investment arbitration has been perceived as an alternative dispute resolution method for economic matters only permitting foreign investors to seek compensation for harm caused by a host State in the form of, for instance, damage to property or business interest.[4] However, it has become rather common that, along with economic or material damages, investors seek compensation for moral damages, most commonly for loss of reputation caused by host State measures. For instance, in the Desert Line v. Yemen case, the claimant sought compensation for moral damages including loss of reputation. More particularly, the claimant argued that, as a result of Yemen’s breaches of its obligation under the BIT at stake “the Claimant’s executives suffered the stress and anxiety of being harassed, threatened and detained by the Respondent as well as by armed tribes; the Claimant has suffered a significant injury to its credit and reputation and lost its prestige; the Claimant’s executives have been intimidated by the Respondent in relation to the Contracts.”[5]
In a few rare cases, moral damages have also been sought by the host State against the investor. For instance, in the Cementownia v. Turkey case, Turkey argued that “Cementownia’s conduct […] has been egregious and malicious. It has asserted and pursued a baseless claim and it has made spurious allegations against Turkey with the intent of damaging its international stature and reputation.”[6]
In the following paragraphs, we will discuss how claims for moral damages have been handled by arbitral tribunals in investment arbitration and what criteria of assessment they usually apply.
Moral Damages as an Exceptional Remedy
Granting moral damages is in principle possible in investment arbitration. The arbitral tribunal in the Desert Line v. Yemen case held that “[e]ven if investment treaties primarily aim at protecting property and economic values, they do not exclude, as such, that a party may, in exceptional circumstances, ask for compensation for moral damages. It is generally accepted in most legal systems that moral damages may also be recovered besides pure economic damages. There are indeed no reasons to exclude them.”[7] In the same vein, the arbitral tribunal in the Cementownia v. Turkey case ruled that there “is nothing in the ICSID Convention, Arbitration Rules and Additional Facility which prevents an arbitral tribunal from granting moral damages.”[8]
However, arbitral tribunals have been rather unanimous that moral damages shall be awarded only in exceptional circumstances[9] requiring a high threshold,[10] which makes the granting of moral damages rare in practice. In fact, only a handful of arbitral tribunals have awarded moral damages to date.[11]
The term “exceptional circumstances” has given room to various interpretations. The arbitral tribunal in the Lemire v. Ukraine case held that in order to establish exceptional circumstances the following test needs to be met:[12]
- the State’s actions imply physical threat, illegal detention or other analogous situations in which ill-treatment contravenes the norms according to which civilized nations are expected to act;
- the State’s actions cause a deterioration of health, stress, anxiety, other mental suffering such as humiliation, shame and degradation, or loss of reputation, credit and social position; and
- both cause and effect are grave or substantial.
Subsequent tribunals, such as the Arif v. Moldova tribunal, have criticized the approach taken by the Lemire tribunal considering it to be rather restrictive. The tribunal noted that “the formulation of the principles of the award of moral damages in Lemire was based on a limited discussion of three cases, with no broader consideration of underlying principles or policies. The statement might serve as a summary of the issues in these cases, but it should not be taken as a cumulative list of criteria that must be demonstrated for an award of moral damages.[13] It then concluded that the tribunal disposed “of discretion, but within the general framework that moral damages are an exceptional remedy.”[14]
Claims for Moral Damages by a Legal Person
The right to seek compensation for moral damages by a legal person does not seem to be particularly challenged in investment arbitration. For instance, the arbitral tribunal in the Oxus v. Uzbekistan case held that “[m]oral damages have been considered admissible under international law and it is recognized that legal persons may be awarded moral damages, including loss of reputation, but the bar for recovery of such damages has been set high and they have been awarded only in exceptional circumstances.”[15]
Valuation of Moral Damages
One of the most peculiar issues regarding moral damages is determining their quantum. As noted in the Lusitania case, the calculation of damage for moral injury “is manifestly impossible to compute mathematically or with any degree of accuracy or by any use of any precise formula”.[16] In the same manner, the arbitral tribunal in the Desert Line v. Yemen case held that “it is difficult, if not impossible, to substantiate” a moral prejudice[17] and awarded USD 1,000,000 of moral damages in a discretionary manner.
Pure discretion regarding the quantum of moral damages was, however, approached with great caution by some subsequent tribunals. For instance, the arbitral tribunal in the Rompetrol v. Romania case considered that “a purely discretionary award of moral solace would be to subvert the burden of proof and the rules of evidence”.[18]
In this regard, some kinds of moral damages, such as loss of reputation, may be easier to value, since they have an economic underpinning. As stressed by Marboe, these damages “have a dual character and can be part of a claim for material and for moral damage. As the threshold for moral damages is high, it might be possible to formulate some of those claims as material damages.”[19]
Conclusion
In summary, claims for moral damages are recognized in investment arbitration as well as under public international law. However, a high threshold is applied meaning that moral damages are granted only in exceptional circumstances and assessed on a case-by-case basis, which makes their granting rather rare. Their exceptional character is also linked to the difficulties of their quantification, although several arbitral tribunals have confirmed having discretion in this regard.
[1] Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, Article 31, p. 92, para. 5.
[2] Opinion in the Lusitania cases (United States v. Germany), Decision of the Mixed Claims Commission of 1 November 1923, 7 RIAA, p. 40.
[3] See, e.g., Getma International v. The Republic of Guinea, ICSID Case No. ARB/11/29, Award, 16 August 2016, para. 453.
[4] I. Marboe, “Calculation of Compensation and Damages in International Investment Law”, Oxford University Press (2017), 2nd ed., para. 5-342.
[5] Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, para. 286.
[6] Cementownia “Nowa Huta” S.A. v. Republic of Turkey, ICSID Arbitration Case No. ARB(AF)/06/2, Award, 17 September 2009, para. 165.
[7] Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, para. 289.
[8] Cementownia “Nowa Huta” S.A. v. Republic of Turkey, ICSID Arbitration Case No. ARB(AF)/06/2, Award, 17 September 2009, para. 169.
[9] See, e.g., Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, para. 289; Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, para. 326; Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, 8 April 2013, para. 584; Quiborax S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 618; Oxus Gold v. The Republic of Uzbekistan, ad hoc (UNCITRAL), Final Award, 17 December 2015, para. 895.
[10] See, e.g., Quiborax S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Award, 16 September 2015, para. 618.
[11] See, e.g., Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008; Von Pezold v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015.
[12] Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, para. 333.
[13] Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, para. 590.
[14] Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, para. 591.
[15] Oxus Gold v. The Republic of Uzbekistan, ad hoc (UNCITRAL), Final Award, 17 December 2015, para. 895.
[16] Opinion in the Lusitania cases (United States v. Germany), Decision of the Mixed Claims Commission of 1 November 1923, 7 RIAA, p. 36.
[17] Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, para. 289.
[18] The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award, 6 May 2013, para. 289.
[19] I. Marboe, “Calculation of Compensation and Damages in International Investment Law”, Oxford University Press (2017), 2nd ed., para. 5-364.
