Awarding Damages in Times of Armed Conflict: An Emerging Standard of “Economic Capacity” for the Host State

This chapter considers what legal standards should be applied by an arbitration tribunal in the assessment of damages in the context of armed conflicts. It is argued that if a dispute arises within the context of an armed conflict, an arbitration tribunal needs to apply a different methodological approach than in times of peace. Specifically, investment arbitrators could engage with the concrete legal standard for the “economic capacity” of the host State that emerges from decisions made by the Eritrea-Ethiopia Claims Commission. The adoption of this standard could provide valuable guidance when confronting the difficult task of calculating damages in the context of armed struggles. In order to advance this argument, the chapter provides a general map of the current methods and sources applied by investment tribunals to assess damages in the absence of definitive written provisions in the relevant international investment agreements. It further discusses the “economical capacity” standard developed in the final award of the Eritrea-Ethiopia Claims Commission and the way that this conceptual development could be applied to investment arbitration in times of armed conflict.