CNUDMI - A CN.9 WG.III WP.261

United Nations A/CN.9/WG.III/WP.261

General Assembly

Distr.: Limited 21 November 2025

English only

V.25-18589 (E) 2518589

United Nations Commission on International Trade Law Working Group III (Investor -State Dispute Settlement Reform) Fifty-third session New York, 12–16 January 2026

Possible reform of investor-State dispute settlement

Submission from the Governments of Viet Nam and Nigeria

Note by the Secretariat

In preparation for the fifty -third session of Working Group III, the Governments of Viet Nam and Nigeria submitted a proposal with regard to draft provision 20 (Assessment of damages and compensation ) in document A/CN.9/WG.III/WP.253 . The text received by the Secretariat on 4 November 2025 is reproduced as an annex to this note in the form in which it was received.A/CN.9/WG.III/WP.261

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Annex

1. The Government s of Viet Nam and Nigeria ( the “Governments ”) take this opportunity to commend the ongoing investor -State dispute settlement (ISDS) reform process at Working Group III, and to express their sincere appreciation to the Secretariat for their continued efforts.

2. The Governments have reviewed the draft provisions on procedural and crosscutting issues (DP) as contained in document A/CN.9/WG.III/WP.253 . In section A , the Governments set out their proposed text on the reformulation of DP 20 to address “Assessment of damages and compensation”. The reformulated text is accompanied by short annotations in section B .

A. Proposed text

3. The Governments propose that DP 20 be reformulated as follows:

“Assessment of damages and compensation”. The reformulated text is accompanied by short annotations in section B .

A. Proposed text

3. The Governments propose that DP 20 be reformulated as follows:

Draft Provision 20: Assessment of damages and compensation

1. The Tribunal may award:

(a) Monetary damages and any applicable interest as specified in paragraph 2; or (b) Restitution of property, when direct expropriation is found, in which case the decision shall provide that the respondent may pay monetary damages representing the fair market value of the property at the date immediately before the expropriation or impend ing expropriation became publicly known, whichever is earlier, and any applicable interest as specified in paragraph 2 , in lieu of restitution.

2. The Tribunal may award simple pre -award and post -award interest at a risk-free rate. For greater certainty, interest shall not be calculated in ways deemed unlawful under the law of the respondent State at the time of the breach.

3. The Tribunal may award monetary damages for the purposes of paragraph 1, subparagraph (a) only insofar as such damages meet the following

criteria: (a) They shall only reflect legally compensable loss or damage that has been established to be caused directly by the breach; (b) They shall be based on an amount established by the claimant on the basis of clear and convincing evidence; (c) They shall not be speculative or hypothetical; and (d) They shall not, in any case, exceed the total expenditures (adjusted for inflation) incurred by the claimant in making its investment.

4. For the purposes of calculating the award of monetary damages under paragraph 1, subparagraph (a) , the Tribunal shall consider:

(a) Contributory fault of the Claimant, whether deliberate or negligent; (b) Failure by the claimant to make all reasonable efforts to mitigate loss or damage;

4. For the purposes of calculating the award of monetary damages under paragraph 1, subparagraph (a) , the Tribunal shall consider:

(a) Contributory fault of the Claimant, whether deliberate or negligent; (b) Failure by the claimant to make all reasonable efforts to mitigate loss or damage; (c) Repeal or modification of the measure alleged to constitute a breach of the Agreement; (d) Any other compensation received by the Claimant for the same loss or damage; (e) Foreseeability of the loss or damage at the time of breach;A/CN.9/WG.III/WP.261

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(f) The nature of the breach; (g) Any relevant equitable considerations; and (h) The financial and economic effect of the award on the respondent State, including whether it would have a crippling effect when considered alone or in combination with other compensation .

5. In circumstances where the investment consists of rights and obligations arising out of a contract, the award of monetary damages shall not exceed what the investor would have been entitled to for breach or repudiation of the underlying contract, under th e law governing that contract.

6. The Tribunal may only award monetary damages on the basis of expected future cash flows if the investment has been in operation in the territory of the respondent Contracting Party for a sufficient period of time and has a firmly established record of pro fitability.

(a) The principle for applying this calculation method should be limited to a case -by-case, fact-based inquiry, taking into account, among other factors, the extent of profit already generated by the investment. (b) Whenever the award of monetary damages is based on expected future cash flows, future profits shall be limited to a reasonable rate of return on the investment and not include any windfall profits.

7. The Tribunal shall not award punitive damages.

8. The Tribunal may, at the request of a disputing party or on its own

future cash flows, future profits shall be limited to a reasonable rate of return on the investment and not include any windfall profits.

7. The Tribunal shall not award punitive damages.

8. The Tribunal may, at the request of a disputing party or on its own initiative, appoint one or more experts to report to it in writing on issues related to the assessment or calculation of damages, subject to any terms and conditions agreed with the dispu ting parties.

9. The Tribunal may require that experts appointed by the parties, if any, on issues related to the assessment or calculation of damages work on the basis of a harmonized, clearly defined set of instructions based on similar assumptions.

The Tribunal may als o require: (a) A joint statement by the experts to explain any difference in their opinions;

(b) Alternative calculations in case the experts disagree on facts and legal approaches; and (c) Joint report by those experts.

B. Annotations to the proposed text

Paragraph 1

4. Paragraph 1 establishes that the Tribunal may award monetary damages, and in cases of direct expropriation, may also order restitution of property as a possible remedy. Regarding interest, the provision refers to Paragraph 2 for specification.

5. Subparagraph 1(b) specifies that in cases of direct expropriation, the respondent State has the option to choose between restitution of the property or payment of monetary damages. Where restitution is ordered, the Tribunal must also indicate the compensat ion to be paid in lieu of restitution, which shall represent the fair market value of the property at the time of expropriation.

Paragraph 2

6. Paragraph 2 governs the Tribunal’s authority to award interest.

7. Such interest should be calculated at a risk -free rate determined by the Tribunal.

Several delegations expressed concern that the term “reasonable rate ” grantsA/CN.9/WG.III/WP.261

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7. Such interest should be calculated at a risk -free rate determined by the Tribunal.

Several delegations expressed concern that the term “reasonable rate ” grantsA/CN.9/WG.III/WP.261

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excessive discretion to tribunals and could lead to inconsistent outcomes. 1 Referring instead to a risk -free interest rate provides greater predictability and consistency, and aligns with the approach adopted by some prior arbitral awards. 2

8. With respect to the type of interest, paragraph 2 stipulates that the interest shall be “simple,” consistent with customary international law. 3

9. The second sentence clarifies that the interest shall not be calculated in a manner that would be unlawful under the law of the respondent State at the time of the breach.

This aims to prevent the respondent State from subsequently altering domestic law to reduce or evade the financial consequences of its international responsibility.

Paragraph 3

10. Paragraph 3 sets out the criteria for determining legally compensable loss or damage, covering four elements: causation, burden and standard of proof, prohibition of speculative damages, and a cap on maximum compensable amount.

11. Subparagraph 3(a) provides that loss or damage must be directly caused by the wrongful aspect of the State’s measure and not by the measure in its entirety. This seeks to address inconsistencies in current ISDS practice, particularly with respect to the ap plication of the full reparation principle in cases of a breach of the fair and equitable treatment standard. 4 It also clarifies that causation must be proven by evidence.

12. Subparagraph 3(b) reflects that the claimant has the burden to establish the amount of compensable loss or damage, using the “clear and convincing evidence” standard of proof. This removes ambiguity surrounding the reference to “satisfactory evidence” prop osed in WP 253.

13. Subparagraph 3(c) requires that any award of monetary damages be based on

amount of compensable loss or damage, using the “clear and convincing evidence” standard of proof. This removes ambiguity surrounding the reference to “satisfactory evidence” prop osed in WP 253.

13. Subparagraph 3(c) requires that any award of monetary damages be based on non-speculative or non -hypothetical evidence. This responds to concerns over the use of income -based valuation methods, such as discounted -cash-flow (DCF), which relies heavily on pr ojections of future cash flows. 5

14. Finally, subparagraph 3(d) introduces a cap on damages to address concerns over excessive or speculative awards. This does not prohibit the use of income -based valuation methods or compensation for future lost profits, but it sets an upper limit on the amo unt that can be awarded. For the avoidance of doubt, the conditions under subparagraphs (a) to (c) must be satisfied for any award of damages, including those based on the claimant’s expenditures.

Paragraph 4

15. Paragraph 4 sets out an exhaustive list of mandatory factors that the Tribunal must consider when assessing damages. Subparagraph 4( a)-(d) reproduces the Secretariat’s earlier proposal in DP 20(3) in document A/CN.9/WG.III/WP.2 44, while subparagraphs 4( e)-(h) introduces additional elements for consideration.

16. Subparagraph 4( e) incorporates the concept of “foreseeability” as a criterion for establishing a causal link between the State ’s act and the resulting damage, aligning with the ILC’s Commentary on the Draft Articles on State Responsibility. 6 For the avoidance of doubt, “forseeability” refers to objective forseeability of the loss or damage at the time of breach, not the expectations of the investor. __________________ 1 Comments of Argentina to WP 231, p. 6; Comments of EU to WP 231, p. 25.

avoidance of doubt, “forseeability” refers to objective forseeability of the loss or damage at the time of breach, not the expectations of the investor. __________________ 1 Comments of Argentina to WP 231, p. 6; Comments of EU to WP 231, p. 25. 2 For example, in Infracapital v. Spain, the interest rate was based on the average yield of the 10year Spanish sovereign bond (1.29%). 3 UNCTAD (2024), p. 5; IISD (2020), pp. 9 -10. 4 See e.g. Kruck v Spain, ICSID Case No ARB/15/23, Decision on Jurisdiction, Liability, and Principles of Quantum (14 September 2022) para 354. 5 UNCITRAL, Report of Working Group III (Investor State Dispute Settlement Reform) on the work of its forty sixth session (Vienna, 9 13 October 2023), UN Doc. A/CN.9/1160, para. 109. 6 International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), Article 31, para. 10, p. 92.A/CN.9/WG.III/WP.261

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17. Subparagraph 4( f) introduces equitable considerations as an integral part of the principle of full reparation, consistent with the practice of other international courts and tribunals. 7 Such considerations may include: • the economic circumstances of the respondent State, • the extent to which the investment has contributed to the development of the respondent State, • the extent of profits already realized by the investor through the operation of the investment, • the extent to which the award of damages beyond a certain amount would unjustly enrich the investor, and • the conduct of the investor and its compliance with widely accepted responsible business conduct standards, such as the UN Guiding Principles on Business and

Human Rights.

investment, • the extent to which the award of damages beyond a certain amount would unjustly enrich the investor, and • the conduct of the investor and its compliance with widely accepted responsible business conduct standards, such as the UN Guiding Principles on Business and Human Rights.

18. These factors should be applied in particular when choosing the most appropriate valuation methods. Their consideration does not authorize tribunals to decide ex aequo et bono but ensures that awards are fair and proportionate.

19. Subparagraph 4 (g) address es another factor for consideration of the Tribunal which is the nature of the breach, such as whether the measure found in breach is for public interests, such as protection of the environment, and the extent to which the state appropriated any economic ben efits of the investment .

20. Subparagraph 4( h) requires tribunals to consider the potentially crippling effect of large damages awards on the respondent State, including its capacity to pay and the risk of exacerbating indebtedness of States. 8 This seeks to prevent awards that would undermine a State’s fiscal stability or development goals.

21. Other considerations may also be relevant on a case -by-case basis, but Tribunals are not obliged to consider them unless expressly listed in this paragraph.

22. Paragraph 5 addresses contract -based investments, emphasizing that when a treaty protects a contractual investment, the treaty should not expand the contractually agreed risk -reward allocation through the award of damages. To do so would contravene the principle of “ full reparation”. 9

Paragraph 6

23. Paragraph 6 addresses valuation methods used to calculate compensation. The growing reliance on income -based valuation methods (particularly DCF) in ISDS has raised concerns about the risk of inflated or speculative awards. This paragraph seeks a balance between prev enting speculative awards that lead to unjust enrichment while ensuring full reparation where justified.

24. The paragraph limits the application of DCF to “going concerns,” defined as “an enterprise consisting of income -producing assets which has been in operation for a

a balance between prev enting speculative awards that lead to unjust enrichment while ensuring full reparation where justified.

24. The paragraph limits the application of DCF to “going concerns,” defined as “an enterprise consisting of income -producing assets which has been in operation for a sufficient period of time to generate the data required for the calculation of future income and which could have been expected with reasonable certainty […] to __________________ 7 International Law Commission. (2001). Text of the articles on the responsibility of states for internationally wrongful acts. Yearbook of the International Law Commission, 2001, II (Part Two).

UN Doc. A/56/10, art 36, para 7, p. 100; Brinkman, ‘Redefining Compensation under International Law: the Methodology of the International Court of Justice in DRC v Uganda’ 87(3) Modern Law Review 728, 733; Oliver Hailes, ‘Unjust enrichment in investor –State arbitration: A principled limit on compensation for future income from fossil fuels’ (2022) 32 RECIEL 2. 8 IISD, ‘Compensation and Damages in Investor -State Dispute Settlement: Options for reform ’ (2024), p. 6; UNCTAD, ‘Compensation and Damages in Investor -State Dispute Settlement Proceedings’, IIA Issues Note, No.1, 2024 (UNCTAD/DIAE/PCB/INF/2024/3), p. 2. 9 Bonnitcha, Alvarez -Zárate, Menkes, Ostřanský, & Zhang, ‘The Assessment and Calculation of Damages in Treaty -based ISDS’, Academic Forum on ISDS Concept Paper 2025/1, p. 34; also Arato, ‘The Private Law Critique of International Investment Law’ (2019) 113 AJIL 1, 26 –7.A/CN.9/WG.III/WP.261

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continue producing legitimate income over the course of its economic life in the general circumstances.” 10

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continue producing legitimate income over the course of its economic life in the general circumstances.” 10

25. Tribunals may apply income -based valuation methods only where the investment has a firmly established record of profitability over a sufficient period of time, rather than mere commercial expectations. There is some flexibility regarding the determination of the sufficient period of time. However, for investments that have not become operational or have not yet generated any profits, the use of DCF is expressly excluded. The fact that income -based methods are sometimes used in a business context to value ea rly-stage or not -yet-operational investments is not a sufficient reason to justify their use in valuing early -stage projects in ISDS. 11 The rationale is twofold: (a) the “full reparation” principle limits compensation for future profits through causation and evidentiary standards; (b) ISDS tribunals lack the institutional accountability mechanisms found in business valuation contexts. 12 Thus, the application of this calculation method should be limited to a case -by-case, factbased inquiry , and mindful of already realized profits to prevent speculative or excessive awards.

26. Subparagraph 6(b) grants tribunals a degree of flexibility to determine a reasonable rate of return for investors, provided future income and expenses are not speculative. It also explicitly requires tribunals to avoid windfall gains, such as those arising from short -term commodity price spikes or other external market fluctuations.

Paragraph 7

27. Paragraph 7 explicitly prohibits the awarding of punitive damages, reaffirming their incompatibility with the compensatory nature of investment arbitration. This approach enjoys broad support among delegations. 13

Paragraphs 8 and 9

28. Paragraphs 8 and 9 address procedural aspects of the calculation of compensation and damages. These paragraphs, originally appearing in

their incompatibility with the compensatory nature of investment arbitration. This approach enjoys broad support among delegations. 13

Paragraphs 8 and 9

28. Paragraphs 8 and 9 address procedural aspects of the calculation of compensation and damages. These paragraphs, originally appearing in A/CN.9/WG.III/WP.2 31and later in square brackets in A/CN.9/WG.III/WP.253 , were excluded from Section A of the Cross -cutting and Procedural Issues dealing with expert evidence. 14 The Working Group may consider retaining them in the provisions dealing specifically with the calculation of compensation and damages.

__________________ 10 World Bank, Legal Framework for the Treatment of Foreign Investment: Volume II: Guidelines (Washington, D.C.: The International Bank for Reconstruction and Development/The World Bank, 1992), Guideline IV , Section 6(a), note (iv). 11 Bonnitcha, Alvarez -Zárate, Menkes, Ostřanský, & ZHANG, ‘The Assessment and Calculation of Damages in Treaty -based ISDS’, p. 36. 12 Ibid. 13 UNCITRAL, Report of Working Group III (Investor State Dispute Settlement Reform) on the work of its forty -sixth session (Vienna, 9 13 October 2023), UN Doc. A/CN.9/1160, para. 111. 14 ‘Report of Working Group III (Investor -State Dispute Settlement Reform) on the work of its fiftieth session (Vienna, 20 –24 January 2025)’, 7 February 2025, A/CN.9/1195, para 30.A/CN.9/WG.III/WP.261

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Comparative table

Current text in Working Paper A/CN.9/WG.III/WP.253 Proposed text

1. The Tribunal may award:

(a) Monetary damages; or

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Comparative table

Current text in Working Paper A/CN.9/WG.III/WP.253 Proposed text

1. The Tribunal may award:

(a) Monetary damages; or (b) Restitution of property, in which case the decision shall provide that the respondent may pay monetary damages representing the fair market value of the property at the time immediately before the expropriation or impending expropriation became known (whic hever is earlier) in lieu of restitution.

1. The Tribunal may award:

(a) Monetary damages and any applicable interest as specified in paragraph 2; or (b) Restitution of property, when direct expropriation is found, in which case the decision shall provide that the respondent may pay monetary damages representing the fair market value of the property at the date immediately before the expropriation or impending expropr iation became publicly known, whichever is earlier, and any applicable interest as specified in paragraph 2 , in lieu of restitution.

2. The Tribunal may award pre -award interest and post-award interest at a reasonable rate.

2. The Tribunal may award simple pre -award and postaward interest at a risk -free rate. For greater certainty, interest shall not be calculated in ways deemed unlawful under the law of the respondent State at the time of the breach.

4. The Tribunal shall only award monetary damages that are established on the basis of satisfactory evidence and that are not inherently speculative. [The Tribunal may award monetary damages on the basis of expected future cash flows only insofar as they are based on a case -by-case, fact -based inquiry that takes into consideration, among other factors, whether the investment has been in operation in the territory of the respondent Contracting Party for a sufficient period of time to establish a performance record of profitability.][The Tribunal shall not award monetary damages exceeding the total expenditures (adjusted for inflation) incurred by the

inquiry that takes into consideration, among other factors, whether the investment has been in operation in the territory of the respondent Contracting Party for a sufficient period of time to establish a performance record of profitability.][The Tribunal shall not award monetary damages exceeding the total expenditures (adjusted for inflation) incurred by the claimant in making its investment.]

3. The Tribunal may award monetary damages for the purposes of paragraph 1, subparagraph (a) only insofar as

such damages meet the following criteria: (a) They shall only reflect legally compensable loss or damage that has been established to be caused directly by the breach; (b) They shall be based on an amount established by the claimant on the basis of clear and convincing evidence; (c) They shall not be speculative or hypothetical; and (d) They shall not, in any case, exceed the total expenditures (adjusted for inflation) incurred by the claimant in making its investment .

3. In assessing or calculating monetary damages, the Tribunal shall only reflect loss or damage incurred by reason of, or arising out of, a breach of the Agreement. The Tribunal shall consider among others and as relevant:

(a) Contributory fault of the claimant, whether deliberate or negligent; (b) Failure by the claimant to make all reasonable efforts to mitigate loss or damage; (c) Repeal or modification of the measure alleged to constitute a breach of the Agreement; and (d) Any other compensation received by, or awarded to, the claimant with regard to the same breach.

4. For the purposes of calculating the award of monetary damages under paragraph 1, subparagraph (a) , the Tribunal

shall consider: (a) Contributory fault of the Claimant, whether deliberate or negligent; (b) Failure by the claimant to make all reasonable efforts to mitigate loss or damage; (c) Repeal or modification of the measure alleged to constitute a breach of the Agreement;

(a) Contributory fault of the Claimant, whether deliberate or negligent; (b) Failure by the claimant to make all reasonable efforts to mitigate loss or damage; (c) Repeal or modification of the measure alleged to constitute a breach of the Agreement; (d) Any other compensation received by the Claimant for the same loss or damage; (e) Foreseeability of the loss or damage at the time of breach; (f) The nature of the breach; (g) Any relevant equitable considerations; and (h) The financial and economic effect of the award on the respondent State, including whether it would have a crippling effect when considered alone or in combination with other compensation .A/CN.9/WG.III/WP.261

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Current text in Working Paper A/CN.9/WG.III/WP.253 Proposed text

5. In circumstances where the investment consists of rights and obligations arising out of a contract, the award of monetary damages shall not exceed what the investor would have been entitled to for breach or repudiation of the underlying contract, under the law governing that contract.

4. The Tribunal shall only award monetary damages that are established on the basis of satisfactory evidence and that are not inherently speculative. [The Tribunal may award monetary damages on the basis of expected future cash flows only insofar as they are based on a case -by-case, fact -based inquiry that takes into consideration, among other factors, whether the investment has been in operation in the territory of the respondent Contracting Party for a sufficient period of time to establish a performance rec ord of profitability.][The Tribunal shall not award monetary damages exceeding the total expenditures (adjusted for inflation) incurred by the claimant in making its investment.]

6. The Tribunal may only award monetary damages on the basis of expected future cash flows if the investment has been in operation in the territory of the respondent

Tribunal shall not award monetary damages exceeding the total expenditures (adjusted for inflation) incurred by the claimant in making its investment.]

6. The Tribunal may only award monetary damages on the basis of expected future cash flows if the investment has been in operation in the territory of the respondent Contracting Party for a sufficient period of time and has a firmly established record of prof itability.

(a) The principle for applying this calculation method should be limited to a case -by-case, fact -based inquiry, taking into account, among other factors, the extent of profit already generated by the investment. (b) Whenever the award of monetary damages is based on expected future cash flows, future profits shall be limited to a reasonable rate of return on the investment and not include any windfall profits.

5. The Tribunal shall not award punitive damages 7. The Tribunal shall not award punitive damages.

[6. The Tribunal may, at the request of a disputing party or on its own initiative, appoint one or more experts to report to it in writing on issues related to the assessment or calculation of damages, subject to any terms and conditions agreed with the disput ing parties.]

8. The Tribunal may, at the request of a disputing party or on its own initiative, appoint one or more experts to report to it in writing on issues related to the assessment or calculation of damages, subject to any terms and conditions agreed with the disput ing parties

[7. The Tribunal may require that experts appointed by the parties, if any, on issues related to the assessment or calculation of damages work on the basis of a harmonized, clearly defined set of instructions based on similar assumptions. The Tribunal may also require: (a) A joint statement by the experts to explain any difference in their opinions; (b) Alternative calculations in case the experts disagree on facts and legal approaches; and (c) Joint report by those experts.]

9. The Tribunal may require that experts appointed by the parties, if any, on issues related to the assessment or

difference in their opinions; (b) Alternative calculations in case the experts disagree on facts and legal approaches; and (c) Joint report by those experts.]

9. The Tribunal may require that experts appointed by the parties, if any, on issues related to the assessment or calculation of damages work on the basis of a harmonized, clearly defined set of instructions based on similar

assumptions. The Tribunal may also require: (a) A joint statement by the experts to explain any difference in their opinions; (b) Alternative calculations in case the experts disagree on facts and legal approaches; and (c) Joint report by those experts.