11 - Limitations on Liability

Summary

When host states are liable under investment treaties, they may seek, as a last line of defence, to reduce the extent of liability. Chapter 11 explores arguments respondents may put forward to this end. It shows that the wide discretion arbitral tribunals enjoy when awarding damages presents an opportunity for them to be mindful of the circumstances of armed conflict. These conditions may impact the compensation for lost profits or invite reliance on equitable principles. However, the chapter argues, concerns for economies involved in or recovering from armed conflict should guide tribunals only exceptionally. Contributory fault, on the other hand, may lead arbitrators to cap damages substantially if they find unlawful or unreasonable conduct on the claimant’s side. In contrast, states may raise counterclaims on the basis of investor misconduct during armed conflict only rarely. Overall, the chapter shows that the stage of damages is not the most promising avenue for states seeking to escape liability for armed conflict-related conduct. Focus must instead lie on the primary level of treaty drafting and interpretation.