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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Riccardo Loschi ([log in to unmask])

The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.

No. 315   October 4, 2021


In defense of quantum
Craig S. Miles*

In a recent Perspective, George Kahale, III bemoaned the so-called “dangerous” state of quantum in the world of investor-state dispute settlement (ISDS) and the alleged tendency of recent ISDS tribunals to award “surreal” amounts of damages that respondent states “could not afford to satisfy even if they were inclined to do so.”
Preliminarily, it should be noted that, whether or not respondent states could afford to pay such awards is not an issue arising out of, or caused by, the ISDS system. This suggests that criticism against certain awards may be aimed at giving cover for states to breach their international obligations: first, when violating foreign investors’ substantive rights in-country; and second, by refusing to pay when international tribunals order them to do so. It is notable in this respect that the two awards Kahale cites in his piece remain unpaid, as do many other final and unappealable ISDS awards. This is the actual “clear and present danger” to the ISDS system.
In any event, there is simply no “crisis” of mega claims. An analysis of ISDS awards shows that states win more often than they lose, and when they lose, investors are typically awarded only a fraction of the damages they seek. A recent report publicized in the Global Arbitration Review (analyzing 110 ISDS awards issued from 2017-2020) confirms this: respondent states won 53% of cases (down slightly from 57% in the prior reporting period); and in the 47% of cases that investors won, the median amount awarded was only US$ 39.2 million, representing a mean of just 36% of the amount claimed. Some might argue that this is evidence of “claim inflation,” but that is highly simplistic: damages are often reduced not because the claimant’s quantum case itself was “inflated” but rather because the tribunal reaches a different liability determination. Moreover, while some may scoff that even these reduced amounts still present significant financial burdens for states, such awards are generally intended to compensate for value and benefits that the state has already taken for itself.
Even assuming there were a crisis of mega claims, the following two consideration should be borne in mind. First, it is not correct that there are few rules to curb claim exaggeration. Claimants have to present credible quantum claims, and there are significant risks, both in terms of overall case credibility and cost-shifting, in not doing so. Second, there is no proliferation of professional experts giving exaggerated claims a veneer of credibility, nor are counsel and arbitrators ill-equipped to counter their assessments. Since time immemorial, the primary aim of dispute resolution is to determine compensation to the injured party. ISDS is no different—it is just that ISDS disputes often involve investments worth hundreds of millions (or billions) of dollars for long-term infrastructure or extractive projects. It is the duty of all ISDS participants to give quantum issues the careful attention they deserve, and it is the role of clients to select counsels (and counsels to select arbitrators and experts) who are best suited to this critical task. Where they fail to do so, they should bear the blame, not the ISDS system. Indeed, ISDS cases are bespoke, consensual international arbitrations—there is no real “system” to blame beyond the individual participants in any given case. Thus, while quantum issues could often benefit from additional hearing time—or even a separate hearing—the burden is on the participants to make this happen.
The use by some tribunals of discounted cash flow (DCF) to value non-producing projects should not be demonized. Almost all ISDS instruments require compensation to be based on “fair market value” or similar, and it is not seriously disputed that real market participants invariably use DCF as the primary tool of valuation, irrespective of the actual life phase of an investment. Despite this, a significant majority of ISDS tribunals rejects the use of DCF for early-stage projects, citing precisely the reasons Kahale advances. A limited exception has so far arisen in extractive industries, where ready and transparent market data exist on the key drivers of valuation. Indeed, cases like P&ID v. Nigeria and Tethyan v. Pakistan involved natural resources (gas and copper, respectively). While one may criticize the discount rates the tribunals used in conducting the DCF analysis to assess quantum, it would be misleading to conclude that those tribunals did not address the issue with due care. In fact, both tribunals provided detailed reasoning on the selection of the discount rate: disagreement does not a crisis make.
To conclude, there is no quantum “crisis”. But that is not to say that current practices are perfect. Parties and tribunals should devote more time and attention to quantum issues, particularly where liability is clear or even stipulated (e.g., nationalization cases). This could take the form of a separate quantum hearing, perhaps with the benefit of a tribunal-appointed quantum expert. Tribunals can and should engage more fully with real-market-valuations of assets. And states must be held to account at the enforcement stage, lest quantum awards—“mega” or otherwise—be worth less than the paper on which they are written.


* Craig S. Miles ([log in to unmask]) is partner in the Houston office of King & Spalding and one of the founding members of the firm’s International Arbitration practice. The author wishes to thank Peter Muchlinski, Sophie Nappert and an anonymous peer reviewer for their helpful peer review.


The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Craig S. Miles, ‘In defense of quantum,’ Columbia FDI Perspectives No. 315, October 4, 2021. Reprinted with permission from the Columbia Center on Sustainable Investment (http://ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].


For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Riccardo Loschi, [log in to unmask].


Most recent Columbia FDI Perspectives   

  • No. 314, George Kahale, III, ‘It’s quantum!,’ Columbia FDI Perspectives, September 20, 2021
  • No. 313, Shradha Mani, “FDI and CSR to promote social entrepreneurship and sustainable FDI: Lessons from India,” Columbia FDI Perspectives, September 6, 2021
  • No. 312, Tomoko Ishikawa, “Materializing corporate social responsibility in investor-state dispute settlement,” Columbia FDI Perspectives, August 23, 2021

All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives.

Other relevant CCSI news and announcements

  • Paid short-term consultancy available! CCSI is seeking a Legal and Policy Researcher to work on our International Investment Law and Policy portfolio of projects and provide research services on the laws, policies, and practices that shape international investment and its alignment with sustainable development and human rights. The consultant will work with CCSI’s Investment Law & Policy team. The work may be completed remotely, and may include travel when circumstances allow. For more information on the position, and to apply, please visit our website.
  • CCSI’s land team is hiring for two positions! CCSI is now hiring a Senior Legal or Policy Researcher to work on our Land, Agriculture & Food Systems portfolio of projects. This position will collaborate with CCSI’s Director and Research Staff to advance more responsible and rights-respecting laws, policies and practices in land and resource investments (e.g. agriculture, renewable energy and mining projects) at the local, national and international level. CCSI is also hiring a Legal or Policy Researcher to work on our Land, Agriculture & Food Systems portfolio of projects. This position will collaborate with CCSI’s Director and Research Staff to execute the Center’s applied research agenda on the laws, policies, and practices that shape investment and its alignment with sustainable development and human rights. For more information on both positions, and to apply, please visit our website.
  • On October 25, 2021, CCSI and the Columbia Climate School, with support from Iberdrola, will host Corporate Alignment to the Paris Agreement: From Ambition to Action, a virtual, global conference focused on corporate alignment with the Paris Agreement. For more details, including registration link, program, and speakers, please visit our website.
  • On October 14, 2021, CCSI, the Open Society Initiative for West Africa (OSIWA), Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI)-Uganda, and AfronomicsLaw.org will host Organizing for Alternatives: Redesigning Investment Governance. At this event, civil society organizations, policymakers, and academics will gather to explore alternative approaches to investment governance. Related topics that will be covered include how to tailor new approaches to specific regional and political contexts, how to align investment governance reform with climate and human rights obligations and programs such as Agendas 2030 and 2063, and how to strengthen cross-regional efforts to transform these alternatives from ideas into reality. Register here.


Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
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Columbia Center on Sustainable Investment
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"Increasing Transparency in Investment Facilitation: Focussed Support is Needed", "A Multilateral Investment Facilitation Agreement can Help Advancing Development", Investment Facilitation for Development: A Toolkit for Policymakers, "More Attention to Policies! Improving the Distribution of FDI Benefits. The Need for Policy-oriented Research, Advice and Advocacy", "More and Better Investment Now!", "Facilitating Sustainable FDI in a WTO Investment Facilitation Framework: Four Concrete Proposals", "Multinational Enterprises and the Global Investment Regime: Toward Balancing Rights and Responsibilities”, “The WIR at 30: Contributions to National and International Policymaking", "An Inventory of Concrete Measures to Facilitate the Flow of Sustainable FDI: What? Why? How?", "Insulating a WTO Investment Facilitation Framework from ISDS", "The Case for an Advisory Centre on International Investment Law", "The Potential Value-added of a Multilateral Framework on Investment Facilitation for Development" are available at https://ssrn.com/author=2461782 .

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