http://works.bepress.com/david_collins/1/

AN ECONOMIC JUSTIFICATION FOR RELIANCE REMEDIES AT ICSID

David Collins, Department of Law, City University London

Abstract

Tribunals of the International Center for the Settlement of Investment Disputes (“ICSID”) have shown a tendency to award monetary damages for a state’s interference with a private party’s investment activities based upon the actual costs of the investment rather than expected future profits. Similar to the reliance measure of American contract law, this standard of damages is a preferred alternative to the expectation measure standard because lost profits from investments are often highly speculative. To the extent that ICSID is not bound by a specific remedy as contractually selected by the parties, the tribunals’ decision to favor the more certain actual investment based damages in various situations (provided that these expenses can be verified) represents a rationale of economic efficiency. Although such reasoning is never explicitly enunciated by the tribunals, use of the reliance standard indicates an objective of error cost minimization and confidentiality assurance, which act as incentives for future foreign direct investment.