A Case Against Crippling Compensation in International Law of State Responsibility
| DOI | http://doi.org/10.1111/1468-2230.12562 |
| Date | 01 November 2020 |
| Published date | 01 November 2020 |
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Modern Law Review
DOI:10.1111/1468-2230.12562
A Case Against Crippling Compensation in
International Law of State Responsibility
Martins Paparinskis∗
The obligation of States to provide full reparationfor inter nationally wrongful acts,including by
full compensation, is one of the bedrock principles of international law. The article challenges
this principle for cases where compensation is crippling for the responsible State or its peoples,
which can occur when State responsibility is implemented before international courts and tri-
bunals.The Inter national Law Commission’s decision not to qualify full reparation for instances
of crippling compensation in its inuential Articles on State responsibility was an unpersuasive
legal position to adopt in 2001, and its rationale has aged badly.However, the failure by States
and other actors to challenge it in the following two decades signied its endorsement by the
international legal process. Nevertheless, the case against the permissibility of crippling com-
pensation in modern international law can still be made, both on a case-by-case basis and at the
level of customary secondary rules of State responsibility.
INTRODUCTION
On 8 March 2019,an inter national arbitral tribunal constituted under a bilateral
investment treaty (BIT) rendered an award in the case ConoccoPhillips Petrozuata
BV and Ors vVenezuela (ConoccoPhillips),requiring Venezuela to pay compensa-
tion of around USD 8.7 billion.1On the same day,Venezuela was hit by a major
blackout that continued for almost a week.2One day before, the International
Monetary Fund (IMF) described Venezuela as ‘facing one of the most complex
situations that we have seen here at the Fund. And that’s a combination of food
and nutr ition cr ises, hyperination, a destabilized exchange rate, very debilitat-
ing human capital and physical productive capacity,and a very complicated debt
situation’.3The IMF had earlier projected a ve per cent fall of Gross Domestic
∗Reader in Public International Law,University College London. I am grateful to Attila Tanzi for
hosting me as the DSG Visiting Research Fellow at the University of Bologna, where this paper
was orig inally researched; to the Graduate Institute Geneva, University of Vienna, and the Oxford
Public International Law Discussion Group for the opportunity to present my work in progress;
to Chr istiane Ahlborn, John Crook, Robert Howse, Lise Johnson, Maria Lee, Sergio Puig, Jeremy
Sharpe, Ntina Tzouvala, and Meagan Wong for their insightful comments; and nally to the journal’s
anonymous peer reviewers for their constructive criticisms.All URLs last accessed 1 July 2020.
1ConoccoPhillips Petrozuata BV and Ors vVen e zu e la ICSID Case no ARB/07/30,Award,8 March
2019 at [1109]-[1110].
2 T. Phillips,‘Venezuela: Huge Power Outage Leaves Much of a Country in the Dark’ Guardian
8 March 2019; J.P.Daniels, ‘Venezuela:Power Retur ns after Blackout but Nor mal Service May
Be a Long Way O’ Guardian 14 March 2019.
3 ‘Transcript of IMF Press Brieng’ International Monetary Fund 7 March 2019 at https://www.
imf.org/en/News/Articles/2019/03/07/tr03072019-transcript- of-imf- press-brieng.
© 2020 The Authors.The Modern Law Review published by John Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2020)83(6) MLR 1246–1286
This is an open access article under the terms of the Creative Commons Attribution License, which permits use,distribution and repro-
duction in any medium,provided the original work is properly cited.
Martins Paparinskis
Product and a 10 million per cent ination rate for Venezuela in 2019.4The
ConoccoPhillips tribunal had already established its jurisdiction and Venezuela’s
responsibility,5therefore this award’s 1110 paragraphs over 331 pages were de-
voted only to compensation and valuation. The highly sophisticated counsel
and the tribunal engaged in considerable detail with legal and valuation issues
that related to disputed conduct and eect on the underlying investment –
without, however,attr ibuting any legal relevance to the economic and political
crisis facing Venezuela.The only point where this reality is acknowledged is in
a brief side nod to the discussion of country r isk assumptions, noting that the
autonomous standing of the particular project meant that there was ‘no point
in drawing conclusions from the risks implied in Venezuela’s sovereign debt,
close to collapsing’.6Nor is the possible eect of the compensation award on
the people of Venezuela treated as relevant,either on its own or taken together
with other compensation decisions handed down in recent years.7
It may seem odd that an international tribunal treats as legally irrelevant the
current conditions of the responsible State and the likely eect that compensa-
tion awards may have on it and its people,and that disputing parties (including
the State itself) do not raise such arguments. But it is entirely in line with the
established mainstream position in public international law of State responsibil-
ity, which revolves around the concept of full reparation.The traditional position
was set out in 1928 by the Permanent Court of International Justice (PCIJ) in
its judgment in Factory at Chorzów (Germany vPoland) (Chorzów):
The essential principle contained in the actual notion of an illegal act … is that
reparation must, as far as possible, wipe out all the consequences of the illegal act
and re-establish the situation which would,in all probability,have existed if that act
had not been committed. Restitution in kind, or, if this is not possible, payment of a
sum corresponding to the value which a restitution would bear; the award,if need
be,of damages for loss sustained which would not be covered by restitution in kind
or payment in place of it – such are the principles which should serve to determine
the amount of compensation due for an act contrary to international law.8
The ‘determin[ation of] the amount of compensation due for an act contrary
to international law’ through the lenses of ‘the consequences of the illegal act’
naturally focuses on the illegal act itself, and does not obviously call for consid-
eration of the situation of, or the eect of compensation on the wrongdoing
4 ‘Countr y Data: República Bolivariana de Venezuela’ International Monetary Fund October 2018
at https://www.imf.org/en/Countries/VEN#countrydata.
5ConoccoPhillips n 1 above,Decision on Jurisdiction and the Mer its, 3 September 2013;ibid,In-
terim Decision,17 January 2017.
6ConoccoPhillips n 1 above at [902].
7 See, among others, OI European Group BV vVen e zu e la ICSID Case no ARB/11/25, Award,10
March 2015 (USD 0.37 billion);Crystallex International Cor porationvVe nez uel a ICSIDAdditional
Facility Case no ARB(AF)/11/2, Award,4 April 2016 (USD 1.2 billion); Rusoro Mining Limited
vVen e zu e la ICSID Additional Facility Case no ARB(AF)/12/5, Award,22 August 2016 (close
to USD one billion); Valores Mundiales, SL and Or vVe ne z ue l a ICSID Case no ARB/13/11,
Award,25 July 2017 (close to USD 0.5 billion); Koch Minerals Sàrl and Or vVen e zu e la ICSID
Case no ARB/11/19, Award, 30 October 2017 (USD 0.3 billion).
8Factory at Chorzów (Germany vPoland) (Merits) 1928 PCIJ Series A no 17, 29, 47.
© 2020 The Authors.The Modern Law Review published by John Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2020) 83(6) MLR 1246–1286 1247
A Case Against Crippling Compensation
actor. For most of the history of international law this perspective,9designated
‘without respect to the cost or consequences for the wrongdoer’, was not par-
ticularly concerning.10 Just a decade ago, the leading contemporary author on
State responsibility noted in a co-authored piece that burdens resulting from
compensation awards by international tribunals were normally trivial when set
against the total resources of the State,and unlikely to have a noticeable impact
on the public treasury or on the ordinary taxpayer.11
The situation has changed since then. Tribunals in various elds of inter-
national law have granted compensation awards for more than USD 1 billion.
Many decisions arise out of procedures made available for non-State entities to
invoke State responsibility on their own account in relation to injury to eco-
nomic rights.12 In investment law, in addition to ConoccoPhillips noted above,
investor-State dispute settlement mechanisms have rendered USD one billion-
plus awards in 2014 (against Russia),13 2015 (against Ecuador),14 2016 (against
Ve n e z u e l a ) ,15 2018 (against Egypt),16 and 2019 against Pakistan17 and (repor t-
edly) Russia.18 But the practice is not limited to investment treaty arbitration.
In human rights law,the European Court of Human Rights (ECtHR) handed
down a EUR 1.86 billion judgment against Russia in 2014,19 and executions of
judgments concluded in recent years regarding deprivation of nationality and
functioning of judicial system required allocating respectively EUR 0.2520 and
9 See on the histor ical pedigree of reparations, Ahmadou Sadio Diallo (Guinea vDRC) (Com-
pensation) [2012] ICJ Rep 324, 347,Separate Opinion of Judge Cançado Trindade at Sections
III-IV.
10 D. Shelton, ‘Righting Wrongs: Reparations in the Articles on State Responsibility’ (2002) 96
AJIL 833, 844.
11 J. Crawford and J.Watkins, ‘International Responsibility’ in S.Besson and J. Tassioulas (eds), The
Philosophy of International Law (Oxford: OUP, 2010) 283, 294.
12 To use the language of the International Law Commission (ILC),‘Articles on State Responsibil-
ity for Internationally Wrongful Acts’ Yearbook of the International Law Commission 2001: Volume
II Part 2 UN Doc A/CN.4/SER.A/2001/Add.1 (Part 2) 26 (2001 ILC Articles), Art 33(2),
Commentary 4.
13 Yukos Universal Limited (Isle of Man) vRussia PCA Case no AA 227,Final Award, 18 July 2014
(Yukos vRussia) (USD 50 billion in three parallel cases,set aside by the Hague District Court,
Judgment of 20 April 2016, reversed by The Hague Court of Appeal, Judgment of 18 Februar y
2020).
14 Occidental Petroleum Corporation and Ors vEcuador ICSID Case no ARB/06/11,Award,5 October
2012 (USD 1.8 billion, reduced to one billion on annulment,Decision on Annulment of the
Award,2 November 2015 at [586]).
15 See note 7 above.
16 Unión Fenosa Gas,SA vEgypt ICSID Case no ARB/14/4, Award, 31 August 2018 (Unión Fenosa
Gas).
17 Tethyan Copper Company Pty Limited vPak istan ICSID Case no ARB/12/1, Award,12 July 2019
(Tethyan).
18 IARepor ter,‘As Russia is Held Liable in Two New BIT Cases,and Ordered to Pay Upwards of
$100 Million, We Round-up Developments in Crimea-Related Arbitrations’ 16 April 2019 at
https://www.iareporter.com/articles/as-russia- is-held-liable- in-two-new-bit- cases-and-orde
red-to-pay-upwards-of- 100-million- we-round-up-developments-in-cr imea-related-
arbitrations/.
19 App no 14902/04 OAO Neftyanaya Kompaniya Yukos vRussia (Just Satisfaction) Judgment of 15
December 2014.
20 Resolution CM/ResDH(2018)111 ‘Execution of the judgment of the European Court of Hu-
man Rights: Ališi´
c against Serbia and Slovenia’ (adopted by the Committee of Ministers on 15
March 2018 at the 1310th meeting of the Ministers’ Deputies).
1248 © 2020 The Authors.The Modern Law Review published by John Wiley & Sons Ltd on behalf of Modern Law Review Limited.
(2020) 83(6) MLR 1246–1286
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