Ahan Gadkari here talks about the importance of considering the economic and political conditions of a host state when determining investor claims in investment arbitration. This article highlights the challenges faced by tribunals, using recent cases involving Venezuela as examples. It also emphasizes the need for a comprehensive strategy that takes into account all relevant circumstances and risks, advocating for stringent legality differentiation in determining quantum.
Abstract
The growth and success of an investment, and hence its profitability, are highly influenced by a variety of factors in the state in which the investment is made. Among these conditions are the economic and political climate. As a result, even the most inexperienced investor will consider the economic and political conditions prevalent in the host state prior to making an investment. These considerations may include the economy’s resilience, the rule of law, the host state’s overall attitude toward foreign investment, or the current tax structure.
With this backdrop in mind, it is not surprising that investment arbitration tribunals are regularly confronted with the issue of how to account for the host state’s economic and political context when determining the magnitude of investor claims. For example, in a number of recent instances taken against Venezuela, arbitrators were confronted with the difficult challenge of how to account for a discounted cash flow in the economic and political situation, mostly due to the adoption of an expropriation policy.
This paper will begin by outlining some of the fundamental concepts and methodologies underpinning quantum determinations in investment arbitration and will then discuss how tribunals have addressed economic and political realities in the host state when determining quantum. The latest Venezuela
cases will therefore get special attention. Following that, some of the practical
implications including so-called nation risk in a discounted cash flow analysis will be explained. This paper advocates for a strategy wherein stringent legality differentiation, incorporating all circumstances and dangers are taken into consideration.