Investor State Arbitration and disputes between States and investors relating to the use of the States’ natural resources go back to the first half of the 20th century . Investor-state arbitration provisions in a treaty, permit a private investor from a state that is a party to the treaty to seek compensation for injuries that the investor suffers as a result of measures of another party state that are not consistent with the substantive obligations in the treaty. Concerns about the investor-state process are multiple and varied, however one of the most frequently raised question is ” Whether monetary compensation for moral damages should be paid? The answer to this question is, though moral damage is an elusive concept and is “difficult to measure or estimate by money standards” it nevertheless remains that it is “real” and must therefore be compensated. Moral damage is not a new concept in international law. It has long been recognized by international tribunals. The well-known basic principle of reparation in International law is stated in Article 31 of the ILC’s Articles on State Responsibility which provides that a state must make full reparation for any “injury” caused to another state by an internationally wrongful act. The same provision further states that the concept of “injury” includes “any damage, whether material or moral, caused by the internationally wrongful act of a State.”

Investors have claimed compensation for moral damages in several disputes. Arbitral tribunals established under investment treaties have also awarded monetary compensation for moral damages suffered by foreign investors as a result of treaty breaches committed by the host state of the investment. However, until now the issue of moral damages had arisen only in a handful of investor–state disputes. In 2008 and 2009 five arbitration awards discussed the issue. In Desert Line Projects LLC v. Yemen, the arbitral tribunal awarded an amount of U.S.$1 million in compensation to the claimant. The tribunal further held that Yemen should provide compensation to a corporation for its officers’ psychological suffering which resulted directly resulting physical actions, i.e. physical duress and measures of coercion, interference conducted by the army.

The concept of “moral” damage is a vague and uncertain concept. In its most broadest sense, it means the opposite of “material” damages, i.e. damages that entail a financial or an economic loss. Claims have been submitted for moral damages suffered by both natural persons and legal entities. However more recently, respondent states have also submitted counterclaims requesting compensation for moral damages alleging having suffered an injury to their reputation as a result of “fraudulent” arbitral proceedings commenced by foreign investors. There are a number of cases where the tribunal decided not to address the allegation raised by the claimant, tribunal dismissed a claim for moral damages because of its late filing, while two others rejected claims because they lacked jurisdiction over the disputes. Moreover in six cases, tribunals dismissed moral damages claims based on lack of evidence while in two of them they did so without discussing the issue. Thus, we can conclude that the question of compensation for moral damages is necessarily fact driven and will always depend on the specific circumstances of a case.