Limits to the Principle of ‘Full Compensation’

Economic Consulting | Law Business Research Ltd (Reprint)

December 3, 2018

Submissions dealing with damages often start with a reference to the 1928 Chorzów ruling by the Permanent Court of International Justice and a rehearsal of the principle of reparation:

Reparation must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed.

When this cannot be achieved through restitution, a financial compensation is sought. However, the mechanisms for assessing claimants’ economic harm are not always straightforward, for example, in situations where the amount that achieves this objective varies over time and where what might look like an appropriate compensation at a certain point in time does not look as appropriate a few years later, a difficulty that was raised already in the 1920s in the widely discussed decision relating to the illegal seizure of the Chorzów factory.

In this article, we identify how objectives not strictly related to the pursuit of a ‘full compensation’, such as the perceived necessity to create adequate economic incentives not to breach international laws or to only compensate foreseeable losses also often intrude in decisions. These principles sometimes result in awards that, for better or worse, can sometimes fail to achieve this aim.

This article was first published in Law Business Research Ltd, October 2018 and is republished with permission.

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