CNUDMI - A-CN.9-WG.III-WP.255

United Nations A/CN.9/WG.III/WP.255

General Assembly

Distr.: Limited 24 June 2025

Original: English

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United Nations Commission on International Trade Law Working Group III (Investor -State Dispute Settlement Reform) Fifty-second session Vienna, 2 2–26 September 2025

Possible reform of investor-State dispute settlement (ISDS)

Draft guidelines on the calculation of damages and compensation in investor -State dispute settlement

Note by the Secretariat

1. During its earlier deliberations, concerns identified by the Working Group included the inconsistency and unpredictability of awards on damages, 1 high amounts of compensation awarded by investor -State dispute settlement (ISDS) tribunals affecting the ability of States to regulate and provide public goods and services, 2 complexity in calculation of damages which contributed to higher cost and delays, 3 and the vast difference between the amount invested and the amount awarded as compensation. 4

2. At the thirty -eighth session in October 2019, the Secretariat was requested to consider how possible work on damages and compensation could be undertaken. 5

Accordingly, the Secretariat prepared a note on assessment of damages and compensation. 6 At the forty -third session, there was support to continue work on the assessment of damages and compensation, and the Secretariat was requested to draft text comprising draft provisions and guidelines that could address concerns about correctness and cons istency, as well as cost and duration, that damages and compensation presented. 7

3. At its forty -ninth session in September 2024, it was reiterated that guidelines could be prepared to assist tribunals in deciding on damages and compensation, and it was suggested that such guidelines could be developed in parallel with the draft provision on the assessment of damages and compensation. 8

3. At its forty -ninth session in September 2024, it was reiterated that guidelines could be prepared to assist tribunals in deciding on damages and compensation, and it was suggested that such guidelines could be developed in parallel with the draft provision on the assessment of damages and compensation. 8 __________________ 1 A/CN.9/930/Add.1/Rev.1 , para. 30. 2 A/CN.9/970 , paras. 36 –38. A/CN.9/1160 , para. 99. 3 A/CN.9/1124 , para. 91. 4 A/CN.9/WG.III/WP.220 , para. 5. 5 A/CN.9/1004 , para. 104. 6 A/CN.9/WG.III/WP.220 , para. 10 . 7 A/CN.9/1124 , para. 100. 8 A/CN.9/1194 , para. 104.A/CN.9/WG.III/WP.255

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4. Accordingly, the annex to this Note provides a draft of the guidelines on the calculation of damages and compensation in ISDS.

5. The Working Group may wish to note that a revised version of the draft provision on the assessment of damages and compensation (draft provision 20) is contained in document A/CN.9/WG.III/WP.253 . A number of other draft provisions on procedural and cross -cutting issues are relevant to the calculation of damages including on evidence, bifurcation, security for costs, allocation of costs, counterclaims, third -party funding, and shareholder claims.A/CN.9/WG.III/WP.255

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Annex

Draft guidelines on the calculation of damages and compensation in investor-State dispute settlement

1. The assessment and calculation of damages and compensation entails

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Annex

Draft guidelines on the calculation of damages and compensation in investor-State dispute settlement

1. The assessment and calculation of damages and compensation entails procedural, legal, and quantitative dimensions. As an inherently economic exercise, this process relies heavily on expert analysis, making it essential to consider procedural tools for shap ing the role and use of experts. Legally, damages are subject to principles and arbitral practice governing the entitlement to reparation, evidentiary standards, and limits on compensation. From a valuation perspective, while the computation of damages is guided by industry norms and practices, it remains bound by the applicable legal framework. The guidelines seek to assist tribunals in considering these elements.

2. The guidelines begin by taking stock of the analytical framework and developments in law. In addition, the guidelines highlight key issues to be addressed by adjudicators and indicates best practices that have emerged from arbitration cases.

They also iden tify potential areas of reforms and examine the form of such reforms to the extent that they depart from or go beyond applicable principles and arbitral practice.

3. Discussions on this topic are taking place simultaneously in other fora at the international level. One important initiative is being led by the United Nations Conference on Trade and Development (UNCTAD). In September 2024, UNCTAD released an international investment agreement (IIA) issues note on policy options for compensation and damages in IIAs .9 The IIA Issues Note outlines several approaches States can take to address concerns about large damages awards and gaps in the rules on compensation in IIAs, such as clarifying causation and mitigation factors, prescribing guidance on valuation techniques , and disincentivizing excessive claims.

Another development is occurring in the International Law Commission (ILC), which has adopted the topic of compensation for the damage caused by internationally wrongful acts in its programme of work. 10 The possible scope of topics includes the conditions for compensation, types of damages, causation, the financial condition of

Another development is occurring in the International Law Commission (ILC), which has adopted the topic of compensation for the damage caused by internationally wrongful acts in its programme of work. 10 The possible scope of topics includes the conditions for compensation, types of damages, causation, the financial condition of the responsible State, the relevance of equity and general principles of law, interest, contributory fault, and the practices of different courts and tribunals in determining compensation. 11 Coordination of these ongoing initiatives could avoid fragmentation of approaches.

4. Each section of the guidelines is followed by a set of recommendations intended to support the effective and efficient conduct of proceedings. These recommendations aim to assist tribunals in managing the process more efficiently, to streamline the process where possible, to raise the parties’ awareness of issues likely to be of particular interest to the tribunal, and to encourage the use of procedural tools available. They are designed to promote clarity and predictability through the establishment of cle ar procedural standards – ideally discussed and agreed upon with the parties – while also enhancing judicial economy. Given the prevailing arbitral jurisprudence and the divergences in the application of certain approaches – including with respect to disbursement procedures and the calculation and award of interest – the recommendations also seek to promote greater consistency and harmonization in practice to foster more coherent and transparent outcomes.

__________________ 9 UNCTAD, “IIA Issues Note: Compensation and Damages in Investor -State Dispute Settlement Proceedings” , available at https://unctad.org/system/files/official -document/diaepcbinf2024d3_en.pdf . 10 A/80/10 , paras. 23, 437. 11 A/79/10 , annex I.A/CN.9/WG.III/WP.255

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A. Organization of the arbitral proceedings

5. After making a finding of liability, a tribunal normally focuses on causation and

11 A/79/10 , annex I.A/CN.9/WG.III/WP.255

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A. Organization of the arbitral proceedings

5. After making a finding of liability, a tribunal normally focuses on causation and damages. Although this happens toward the end of the proceedings, there are certain steps that the parties and tribunal can take at an earlier stage to facilitate the tribuna l’s determination of these issues.

6. Initial procedural meeting and case management conferences : Parties normally set out the rules of the proceeding at the first procedural meeting. Even at this juncture, the parties and the tribunal should consider what procedures would be best suited to elicit damages experts’ evidence, narrow the issues in dispu te, and address preliminary matters. The International Institute for Conflict Prevention & Resolution

(CPR) suggests that factual and legal issues relevant to damages could be previewed with the parties during this meeting by discussing the evidence on lia bility, the linkage to damages, and the theory of harm. 12 This exercise could help refine and narrow the issues and facilitate the tribunal’s understanding and ability to administer the case. However, it may be practically difficult to engage in meaningful discussions at such an early stage before the nature and substance of the damages claim are fully devised by the parties. Therefore, this could be complemented with subsequent case management meetings when the specifics of the case are clearer, allowing the tribunal to address key issues in dispute, including o n the quantification of damages. Case management meetings could be scheduled at key milestones such as between written phases and before the hearing.

7. Bifurcated damages phase : In some cases, it may be appropriate to divide the proceedings, allowing the tribunal to first decide issues that could be dispositive or would assist it to move to the next stage. Although bifurcation of jurisdictional issues has been more common in pra ctice, some tribunals have bifurcated the assessment of damages. 13 A number of arbitration rules allow for bifurcation of proceedings.

would assist it to move to the next stage. Although bifurcation of jurisdictional issues has been more common in pra ctice, some tribunals have bifurcated the assessment of damages. 13 A number of arbitration rules allow for bifurcation of proceedings. Similarly, the International Bar Association Rules on the Taking of Evidence (IBA Rules) encourage tribunals in article 2(3)(b) to “identify to the Parties, as soon as it considers it to be appropriate any issues … for which a preliminary determination may be appropriate.” One of the main advantages of bifurcation is efficiency. By addressing jurisdiction and/or the merits at the outset, parties can save time and costs by dispensing with briefing on quantum if the claim fails, 14 narrowing the scope of the dispute for the quantum phase, and reaching early settlement.

8. Bifurcation may however not always achieve the intended effectiveness. Indeed, it is likely to be less suitable in cases where questions of liability are intertwined with issues such as causation, mitigation, or the existence of a breach -like expropriation.

In such cases, there may be duplication of the analysis of evidence and testimony of fact witnesses, undermining the cost and time savings. Furthermore, investors normally engage quantum and technical experts at an early stage to suppor t their claims and estimate quantum for purposes of deciding whether to pursue the claim and/or to obtain funding. The decision whether to bifurcate should be determined on a case -by-case basis, depending on: (i) timing and cost considerations; (ii) the tribunal’s perception of the efficiency of the proceedings going forward; and (iii) the utility of the quantum expert reports after the tribunal’s finding on liability. 15 If the __________________ 12 CPR International Committee on Arbitration, “Protocol on Determination of Damages in

Arbitration” (2010) , available at https://static.cpradr.org/docs/CPR -Protocol -on-Determinationof-Damages -in-Arbitration -fnl.pdf , p. 3. 13 Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. v. Argentina , ICSID Case No. ARB/03/19, Decision on Liability, 30 July 2010, paras. 272 –275; Electrabel SA

1. Hungary , ICSID Case No. ARB/07/19, Procedural Order No. 3, 27 March 2009, para. 3; Glencore Finance (Bermuda) Ltd. v. Plurinational State of Bolivia , PCA Case No. 2016 -39

(Glencore Finance v. Plurinational State of Bolivia), Procedural Order No. 2 (Decision on Bifurcation), 31 January 2018, para. 56. 14 Methanex Corporation v. United States of America , UNCITRAL, Final Award, 3 August 2005, para. 32. 15 Coropi Holdings Limited, Kalemegdan Investments Limited and Erinn Bernard Broshkov v. Republic of Serbia , ICSID Case No. ARB/22/14, Procedural Order No. 4, 21 August 2023, para. 21.A/CN.9/WG.III/WP.255

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quantification of damages is deferred, the tribunal may wish to provide a set of nonbinding parameters in the absence of a partial award based on the earlier phases of the case. This should not, however, preclude a party from also putting forward its full affirmative case to safeguard its due process rights.

9. Written submissions : Parties play a crucial role in ensuring that the tribunal has the necessary evidence and understanding to decide the case, including on the existence and quantification of damages. Certain tools and techniques can assist the

affirmative case to safeguard its due process rights.

9. Written submissions : Parties play a crucial role in ensuring that the tribunal has the necessary evidence and understanding to decide the case, including on the existence and quantification of damages. Certain tools and techniques can assist the tribunal in identifying the m ain issues in dispute, obtaining relevant evidence, and evaluating the impact of the experts’ assumptions on quantum.

10. First, an organizing document can be used to identify and particularize the damages sought to the breaches alleged. Counsel in investment arbitrations are accustomed to using schedules in document production. For example, the adoption of a device such as a “Scot t Schedule” can be usefully deployed to describe each claim, the amount sought, and the parties’ position on each issue. 16 The use of structured frameworks can compel a systematic and step -by-step reasoning on quantum.

11. Second, document production is the usual means by which information relevant to the case is obtained. While the exchange of documents normally occurs after the first round of written pleadings, some issues might only become apparent later in the process. It may t herefore be worthwhile for the first procedural order to allow the tribunal to revisit decisions on production requests related to damages or to permit a subsequent phase for collecting additional evidence on quantum. Any requests should be well -justified to avoid undue burdens and unnecessary delays.

12. Third, joint expert reports are often used to narrow areas of dispute though they may be ineffective when experts hold fundamentally divergent views. Instead, the tribunal may be more usefully assisted by the experts disclosing their instructions and key assumpt ions (see article 5(2)(b) IBA Rules) as well as preparing a sensitivity analysis showing the impact of those instructions and assumptions on the valuation result. 17 The differences in valuation often arise from the instructions and assumptions experts receive from instructing counsel rather than a true difference in their views.

If, however, the tribunal decides that adjustments to the financial model are warranted or considers another valuation methodology to be more appropriate, the parties should

result. 17 The differences in valuation often arise from the instructions and assumptions experts receive from instructing counsel rather than a true difference in their views. If, however, the tribunal decides that adjustments to the financial model are warranted or considers another valuation methodology to be more appropriate, the parties should be given the opportunity to make submissions to address any issues that have not yet been briefed to avoid awarding a remedy that the parties have not asked for.

13. Organization of hearing : The tribunal, in conjunction with the parties, may establish procedural rules in advance of the hearing to maximize the value of expert testimony. One option is to require the experts to meet and confer in advance of the hearing. In some cases, tribunals have instructed the parties’ experts to prepare a written report together on areas of agreement and disagreement. 18 This can help narrow the issues for the tribunal’s determination. A second option focuses on the rules governing the presentation of expert evidence. For example, the parties with the assistance of the tribunal may devise rules governing expert presentati ons, the scope and duration of cross -examination, the order of witness and expert examinations, the examination of co -experts, the use and prior exchange of demonstratives and visual aids, the handling of confidential information, and the admissibility of new evidence.

A third option that the tribunal may wish to consider is witness conferencing (also referred to as “hot -tubbing”; see article 8(4)(f) of the IBA Rules). This process essentially allows the tribunal to jointly examine the opposing experts, while allowing for some follow -up questioning by the parties. Hot -tubbing is intended to reveal areas __________________ 16 ADR Institute of Canada, “Using a ‘Scott Schedule’ in Arbitration” (6 December 2018), available at https://adric.ca/using -a-scott -schedule -in-arbitration/ . 17 The Chartered Institute of Arbitrators, article 6.1(a), Protocol for the Use of Party -Appointed Expert Witnesses in International Arbitration takes a different approach.

at https://adric.ca/using -a-scott -schedule -in-arbitration/ . 17 The Chartered Institute of Arbitrators, article 6.1(a), Protocol for the Use of Party -Appointed Expert Witnesses in International Arbitration takes a different approach. 18 S.D. Myers Inc v. Canada , UNCITRAL, Procedural Order No. 17, 26 February 2001, para. 12; Achemea BV v. Slovak Republic , UNCITRAL PCA Case No. 2008 -12, Final Award, 7 December 2012, paras. 61 –65; Anatolie Stati et al. v. Kazakhstan , SCC Case No. V 116/2010 (Stati et al. v. Kazakhstan), Award, 19 December 2013, para. 118.A/CN.9/WG.III/WP.255

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of agreement and disagreement, test the evidence, clarify technical issues, dispel weak arguments, and stimulate debate. It is good practice to agree before the hearing on the time to be allocated to this procedure, the extent of party participation, and t he topics to be covered to ensure a level playing field.

14. Post -Hearing : After the hearing, the tribunal may require additional assistance with assessing quantum issues. The tribunal may also request additional information or analyses from the parties and their experts.

15. Alternatively, the tribunal can undertake its own analysis of the parties’ models or appoint its own expert. The tribunal may engage an expert under most arbitration rules and some IIAs. However, tribunals should consider appointing an expert at an earlier stage in the process (particularly where one party has not chosen an expert) or in complex cases to better understand the underlying assumptions or methods. 19

Although arbitration rules vary, it is good practice for the tribunal to establish with the parties the extent of the expert’s participation, the form of its assistance, and the cost of the procedure. In addition, the parties should also be entitled to re view and

in complex cases to better understand the underlying assumptions or methods. 19 Although arbitration rules vary, it is good practice for the tribunal to establish with the parties the extent of the expert’s participation, the form of its assistance, and the cost of the procedure. In addition, the parties should also be entitled to re view and comment on the expert’s report and question the tribunal -appointed expert at a hearing.

16. Despite these measures, there is often a perceived risk that the tribunalappointed expert could become a de facto arbitrator. To allay such concerns, the expert’s role can be limited to that of a technical advisor (see the UNCITRAL Model Clause on Technical Advisers). For example, the expert can be confined to advising the tribunal on the model’s conformity with the tribunal’s findings 20 or serving as a facilitator by helping the tribunal understand the underlying forces driving the partyappointed experts’ divergent views on quantum. 21

17. Tribunals have a range of tools and techniques at their disposal to address issues on causation and quantum. Throughout the proceedings, the tribunal in consultation with the parties can design a procedure that not only fosters a greater comprehension of the theoretical and methodological aspects of the case but also improves the efficiency of the process , thereby minimizing delays and costs. Experts play a key role in the assessment of damages and therefore specific consideration should be given to their use in the proceedings. In addition, tribunals may wish to consider novel techniques to reduce anchorin g bias, for example, the use of blind damages assessments. The parties could be required to prepare and exchange their damages analyses, including the methodology, assumptions, and underlying rationale but withholding the final quantum figure from the trib unal. This would allow the tribunal to evaluate the legal and economic reasoning behind the claim without being influenced by a specific figure. Blind assessments could also ensure robust debate on the underlying methodology while minimizing cognitive bias in the tribunal’s assessment of quantum.

Recommendations Tribunals should schedule the initial procedural meeting and subsequent case

to evaluate the legal and economic reasoning behind the claim without being influenced by a specific figure. Blind assessments could also ensure robust debate on the underlying methodology while minimizing cognitive bias in the tribunal’s assessment of quantum.

Recommendations Tribunals should schedule the initial procedural meeting and subsequent case management meetings to preview the theory of the harm, discuss the evidence, and narrow the issues relating to damages. Tribunals should consider bifurcation of the damages phase by taking into account: (i) timing and cost considerations, (ii) considerations of efficiency of the proceedings, and (iii) the utility of the expert quantum reports after a finding on liability. __________________ 19 CMS Gas Transmission Company v. The Republic of Argentina , ICSID Case No. ARB/01/8 (CMS

1. Argentina), Award, 12 May 2005, para. 418. 20 J.A. Trenor, “Strategic Issues in Employing and Deploying Damages Experts” , in The Guide to Damages in International Arbitration , 3rd edition, Trenor (ed.) (2018), p. 169. 21 A. Douglas, “Procedural Tools to Facilitate the Quantification of Damages in Investor -State Arbitration” , in Contemporary and Emerging Issues on the Law of Damages and Valuation in International Investment Arbitration , Beharry (ed.) (2018), p. 20.A/CN.9/WG.III/WP.255

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Tribunals should use a structured framework to compel a systematic reasoning process on quantum. Tribunals could consider revisiting decisions on document production requests relating to damages or establishing a separate document production phase on quantum. Tribunals should require experts to disclose their instructions and key assumptions and to prepare a sensitivity analysis showing the impact of those instructions and assumptions on the valuation. Tribunal should tailor the proceedings for expert testimony, such as requiring experts

quantum. Tribunals should require experts to disclose their instructions and key assumptions and to prepare a sensitivity analysis showing the impact of those instructions and assumptions on the valuation. Tribunal should tailor the proceedings for expert testimony, such as requiring experts to identify areas of dispute, setting specific rules for presenting expert evidence at the hearing, and delineating a procedure for witness conferencing. Tribunals should consider engaging their own experts or technical advisors at an early stage of the proceedings to better understand the underlying methods, data, and assumptions in line with the approach set out in the UNCITRAL Model Clause on Technical Advisors.

B. Burden and standard of proof

18. In international adjudication, the party who asserts a fact bears the burden of proving it. 22 Some IIAs also expressly stipulate that it is the claimant’s burden to establish proof of ownership or control of the investment, nationality of investor, breaches of the IIA, and damages resulting therefrom. Accordingly, the claimant investor bears the b urden of proving its claims, whereas the respondent State must prove any defences or counter -claims it raises. 23 With respect to damages, the investor must establish “the fact of its loss or damage, its quantification in monetary terms and the necessary causal link between the loss or damage and the treaty breach.” 24 In other words, the investor must show: (i) the existence of injury, (ii) the causal nexus between its harm and the State’s conduct, and (iii) the amount of loss. The State, on the other hand, bears the burden of proving any defences it puts forward, such as alternate causes of the harm, or compensation -reducing circumstances, 25 or defects in the claimant’s valuation. Where a party is unable to proffer evidence, for example, due to the loss of access to documents, the tribunal may shift the burden of proof depending on the circumstances of the case. 26

alternate causes of the harm, or compensation -reducing circumstances, 25 or defects in the claimant’s valuation. Where a party is unable to proffer evidence, for example, due to the loss of access to documents, the tribunal may shift the burden of proof depending on the circumstances of the case. 26

19. As for the standard of proof, tribunals have not adopted a uniform approach.

When assessing damages, tribunals have adopted various standards, including “balance of probabilities”, 27 “sufficient certainty”, 28 “reasonable degree of __________________ 22 D. Sandifer, Evidence Before International Tribunals (University Press of Virginia) (1939), pp. 92 –93; Temple of Preah Vihear (Cambodia v. Thailand), Judgment (Merits), 15 June 1962, p. 16. 23 Glencore Finance v. the Plurinational State of Bolivia , Award, 8 September 2023, para. 268. 24 The Rompetrol Group N.V. v. Romania , ICSID Case No. ARB/06/3, Award, 6 May 2013, para. 190. 25 T. Wälde and B. Sabahi, “Compensation, Damages, and Valuation” , in Oxford Handbook of International Investment Law , Muchlinski et al. (eds .) (2008), p. 1111. 26 Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan , ICSID Case No. ARB/12/6, Award, 4 May 2021, para. 722. 27 Khan Resources Inc., Khan Resources B.V., and Cauc Holding Company Ltd. v. The Government of Mongolia , PCA Case No. 2011 -09 (Khan Resources v. Mongolia), Award, 2 March 2015, para. 375; Eco Oro Minerals Corp. v. Republic of Colombia , ICSID Case No. ARB/16/41 (Eco

of Mongolia , PCA Case No. 2011 -09 (Khan Resources v. Mongolia), Award, 2 March 2015, para. 375; Eco Oro Minerals Corp. v. Republic of Colombia , ICSID Case No. ARB/16/41 (Eco Oro v. Colombia), Award on Damages, 15 July 2024, para. 292; Gold Reserve Inc . v. Bolivarian Republic of Venezuela , ICSID Case No ARB(AF)/09/1 (Gold Reserve v. Bolivarian Republic of Venezuela), Award, 22 September 2014, para. 685. 28 Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela , ICSID Case No. ARB/00/5, Award, 23 September 2003, para. 351.A/CN.9/WG.III/WP.255

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certainty”, 29 “in all probability”, 30 “some level of certainty”, 31 and “probable and not merely possible”. 32 While the variation in terminology may trigger debate on the required level of evidentiary support, the identified standards suggest that tribunals should, at a minimum, ascertain that a fact is more likely than not. 33

20. Jurisprudence also varies on whether a different standard of proof applies to the existence of damage as compared to the quantification of that damage. 34 Even where tribunals have applied a lower standard of proof to the quantification of damages, they have held that it must not be based on a “conjecture or speculation ”, 35 but on “reasonable probabilities” 36 and a “persuasive factual basis”. 37 Disputes over the sufficiency of proof typically arise in relation to lost -profit claims. The Commentary to the ILC’s Draft Articles on the Responsibility of States for Internationally Wrongful Acts (ILC Commentary) clarifies that lost profits are generally awarded where “an anticipated income stream has attained sufficient attributes to be

sufficiency of proof typically arise in relation to lost -profit claims. The Commentary to the ILC’s Draft Articles on the Responsibility of States for Internationally Wrongful Acts (ILC Commentary) clarifies that lost profits are generally awarded where “an anticipated income stream has attained sufficient attributes to be considered a legally protected interest of sufficient certainty to be compensable”, for example “by virtue of c ontractual arrangements” or where there is “a well -established history of dealings”. 38 Given the divergence in views, tribunals should exercise caution, recognizing that there is no single approach and that the standard of proof may vary depending on the nature of the claim. Parties, in turn, should be mindful of these uncertainties in thei r submissions.

21. As a practical matter, tribunals should be careful to ensure that, when evaluating evidence of a claim, there is internal coherence among: the investment defined for jurisdictional purposes, any violations alleged to have been inflicted on that investment, and the economic harm alleged to have been caused by those violations on the investment. Pey Casado I is an example where the compensation awarded was not specially tied to the breach established by the tribunal. The award was annulled because the tribuna l had granted damages for a