Research On The Compensation For Damage Caused By Breach Of Contract Of Host Country In The International Investment Arbitration

As awareness of investor protection has increased,the amount of damages awarded in host state breach of contract disputes has increased dramatically.In the 2020 Tethyan Copper Company Pty Limited v.Pakistan case,Pakistan’s $5.9 billion award increased host country exposure in investor-host country disputes.Host states have come to believe that the level of risk in investor-host state dispute settlement clauses regarding the host state’s indemnity obligations implicitly outweighs the benefits of revealing a stable environment to attract foreign investment,i.e.they believe that investment treaties provide too much protection to foreign investors.While more international courts and arbitral tribunals have upheld the host country’s obligation to indemnify in the event of a breach of contract,there is no clear standard for determining this issue.The existing cases generally show that international courts and tribunals have applied general domestic law principles to incorporate domestic law into public international law,recognising the host state’s obligation to compensate and encompassing both tangible and intangible property losses.To some extent,dispute settlement clauses may be more important than the standard of substantive protection afforded to foreign investors by host countries in bilateral investment agreements.Investor-host country arbitration clauses allow investors to independently file arbitration claims directly against the host country in relation to their investments before international arbitral tribunals.The right of investors to take legal action against host countries under BITs is seen as an art in international investment law,essentially a tool created and used to protect the interests of foreign investors and to enhance the rule of law in host countries.However,for China,which has risen to become the world’s number one capital inflow country and the world’s second largest outward investor,it is important to construct risk prevention measures that are beneficial to China in the process of capital outward transfer,as well as to strive for damage compensation options that are beneficial to itself and to scientifically choose the best damage compensation strategy.Prior to 1998,disputes between foreign investors and China that could be submitted to ICSID arbitration were limited to "compensation disputes arising from expropriation and nationalisation".This was because when China ratified the Convention,it submitted a declaration under Article 25(4)of the Washington Convention stating that "the Chinese Government will only consider submitting disputes concerning compensation arising from expropriation and nationalisation to the Centre for arbitration".However,in 1998,when China signed a BIT with Barbados,China became willing to accept a more liberal or liberalised dispute settlement clause,agreeing to give general consent to arbitration of bilateral investment disputes,effectively replacing China’s earlier declaration under Article 25(4)of the Washington Convention limiting ICSID jurisdiction.In recent treaty practice,some Chinese BITs have moved to the use of the phrase "any legal dispute relating to an investment",which can be interpreted more broadly.The newer BITs allow "any investment dispute" to be referred to ICSID or ad hoc arbitration,making investment dispute resolution more liberal,but also increasing the risk of litigation in the host country and changing the cost of litigation for investors.At present,academic research on the issue of damages in investor-host country dispute resolution is mainly focused on expropriation and nationalisation,but less on the issue of liability of the host country for damages caused by the breach of the investment contract by the investor.In order to solve the problem of damages for breach of contract by the host country,we should first analyze the causes of action,the subjects of rights and obligations of the host country’s liability for damages for breach of contract,then explore the correlation between the host country’s breach of the investment contract and the breach of international treaties,interpret the mode of expression of the provisions on damages for breach of contract by the host country in international treaties,so as to study the standard issue of determining the host country’s liability for damages for breach of contract,and clarify the necessity,appropriateness and feasibility of the host country’s liability for damages.In this context,we will examine the necessity,appropriateness,feasibility and elements of liability of the host State.In the current practice of international investment arbitration,the international practice of choosing the standard of damages for breach of contract by the host state and the attitude revealed by the decisions of arbitral tribunals have increased the risk of litigation in the host state.A correct economic valuation of damages and a strategic approach to the calculation of damages can enable China and its investors to assume a lower risk in international economic and trade exchanges.