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Damages, Country Risk, and Interest Rates


September 26, 2022
1:30 pm to 3:00 pm EDT


Moderator: Miguel Nakhle (Compass Lexecon, Executive Vicepresident)
Panelist: Olga Ukhaneva – Charles River Associates
Panelist: Carlos Pabón Agudelo (Infrastructure Economic Consulting, Managing Director)
Panelist: Matilde Flores (Chaffetz Lindsey)
Panelist: Miguel Lopez Forastier (Covington)
Panelist: Robert Patton (NERA)

When arbitral proceedings get to the quantum phase, a question lingers in the parties’ and counsel’s mind: How may the country risk affect the damages calculation.
Should an investor who has invested in a country that has routinely expropriated investors, or that has prominent legal security issues and is known for the lack of independence of its judiciary be penalized at the quantum stage for having invested in such high-risk environment, as opposed to an investor who has invested in a country with moderate track record of respect for the rule of law?

Are investment treaties not supposed to protect foreign investors precisely against violations of international law treaty standards—including, among others, expropriation without compensation, fair and equitable treatment, national treatment, full protection and security, most-favored nation treatment, and free transfers—consistent with the principle of full reparation set out by the PCIJ in Chorzow Factory? That is, by wiping out all the consequences of the illegal act and reestablishing the situation which would, in all probability, have existed if that act had not been committed. Should that not include projecting the lost profits that the investor would have received but for the breach of the treaty caused by the acts of State?

On the other hand, should the expectations of profits by an investor—and therefore his damages—be the same in a country with high political risk than in a country with lower risk? Tribunals have answered these questions differently. In Gold Reserve v Venezuela the tribunal ruled that “it is not appropriate to increase the country risk premium to reflect the market’s perception that a State might have a propensity to expropriate investments in breach of BIT obligations”, although the country risk premium should take into account “genuine risk . . . including political risk, other than expropriation.” By contrast, in Venezuela Holdings v Venezuela the tribunal considered that “the confiscation risk remains part of the country risk and must be taken into account in the determination of the discount rate.”

A follow up question is how do the mechanics work when a tribunal decides that the political risk should be accounted for? Asset valuation often relies on a discounted cash flow (DCF) analysis, where the future cash flow is discounted based on the cost of capital, which is a function of the risk of the project. That risk may be higher depending on the country where the capital is located. Thus, a higher discount rate results in a lower damages valuation. Often that discount rate is addressed through a country-risk premium (included in the cost of equity). This panel will address the above issues, and continue the discussion by analyzing various other questions, including:

  • How to conceptually evaluate the country risk – should expropriation risk be included?
  • What are the different types of exposures, i.e. risks, depending on the type of investments and types of assets?
  • How do you traditionally measure the country risk?
  • How to practically identify in the damages calculations the difference between including a high-country risk host State and a low-country risk host State?
  • Are their specific country-related risks potentially overlooked or otherwise not addressed?
  • Many business-related risks are rapidly growing, particularly in energy related sector.
    Which are those?
  • Should the myriad of risks identified be included in the country risk premium in the cost of capital or could cash flows be used instead?
  • How and why are interest rates used in a damages calculation?
  • What are the types of interest rates used, and are there controversies regarding the type of interest rate calculations used?

Contact us

September 26 - September 30

September 26 - September 30

International Dispute Resolution and the Ukraine-Russia Crisis

World Arbitration Update (“WAU”) invites you to attend a 75-minute webinar discussion by leading practitioners in the international dispute resolution field on the recent developments concerning the intersection of dispute resolution and the Ukraine-Russia crisis. According to the Kyiv School of Economics, Ukraine has so far experienced economic damage amounting up to $600 billion. Over $10 billion in airplane assets have been reportedly stranded in Russia setting off potentially large insurance claims and related disputes. Yale School of Management has collected data showing that almost 1,000 companies have publicly announced they are voluntarily curtailing operations in Russia to some degree beyond the bare minimum legally required by international sanctions. The Russian parliament continues to consider the expropriation of foreign assets. International disputes involving Russia and Ukraine are arising from the crisis and more likely to follow. Our speakers will discuss related topics, including: the impact of sanctions, the proposed formation of an international claims commission for Ukraine, the impact of the crisis on the legal profession, the potential and current international forums in which Ukrainian businesses and investors could submit legal recourse to address the consequences of the war in Ukraine, as well as an update on the ICJ case, Ukraine v. Russian Federation.

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September 26 - September 30

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The Actions of Russia, Countermeasures and Resulting International Disputes, Including Investor-State and Commercial Arbitration

September 26 at 6:00 pm to 7:30 pm GMT



JULY 12, 2022


6:00 pm to 7:30 pm GMT


Moderators: Gene Burd (FisherBroyles) (TBC)

Presenter: Rob Houston (K&L Gates Straits Law LLC)

Panelist: Tatyana Slipachuk (Of Counsel at Chief Legal Department of the Ukrainian Parliament, Special Advisor at Sayenko Kharenko Law Firm) (TBC)

Panelist: Raja Bose (K&L Gates Straits Law LLC) (TBC)

Panelist: Derek Loh (Deputy Director-General (Economic & Social), Attorney-General’s Chambers, Singapore) (TBC)

Panelist: Simon Chesterman (Dean, National University of Singapore School of Law) 

In response to the imposition of international sanctions on Russia for its invasion of Ukraine, Russia has imposed sweeping economic measures on foreign investors from States it considers “unfriendly”, including Singapore, the UK, the US, and EU Member States.  Both international sanctions on Russia and Russia’s own economic measures on foreign investors have had wide-ranging impacts across global market sectors, affecting foreign investors from around the world both directly through compliance mechanisms and indirectly through international commercial contracts.   

However, a number of venues exist for the resolution of the wide range of disputes anticipated to result from the current crisis.  In particular, foreign investors may still seek protection under investment treaties.  Currently, there are 62 BITs in force between Russia and other States, including 27 States that Russia has determined to be “unfriendly” as a result of international sanctions imposed on Russia.  Such treaties generally include substantive obligations to promote and protect foreign investment (e.g., to provide fair and equitable treatment, not to undertake unlawful expropriation of foreign investments, etc.) as well as for access to investment treaty arbitration against the Host State in certain circumstances.  Such public international law obligations under international investment treaties now appear at odds, for example, with recent economic measures imposed by Russia against foreign investors including: 

  • Currency Transfer Restrictions 

  • Transaction Approval Requirements 

  • Prohibition of Foreign Currency Export 

  • Restrictions on Debt Repayment 

  • Prohibition of Certain Exports and Imports 

  • Non-Enforcement of Intellectual Property Rights 

Also, the Russian Duma has considered additional measures (which many anticipate to be expropriatory) to effect the transfer of ownership or operation of certain foreign investments where foreign investors have ceased operating in Russia in the current climate of international sanctions. The resulting international legal climate arising from Russia’s actions in Ukraine breaks new ground in public and private international law. Practitioners are therefore broadly anticipating a wave of disputes both in international commercial arbitration and in investor-State arbitration, including with respect to claims advanced by covered investors in investment treaty arbitration against Russia for economic measures like the above.   

This panel will explore the implications of these developments both from a global perspective and a regional perspective in Southeast Asia, highlighting the following key points of interest: 

  • The Current International Sanctions Climate 

  • Regional Focus on International Sanctions in Southeast Asia 

  • Consideration of Current Venues for Disputes Arising from the Invasion of Ukraine 

  • Potential Mechanisms for Foreign Investors to Pursue Claims Arising from the Conflict in Ukraine in Investment Treaty Arbitration 

  • Anticipated Disputes and Issues in International Commercial Arbitration Prompted by the Conflict in Ukraine 

  • The Current Landscape for Sovereign Immunity and the Potential for Enforcement of Arbitral Awards Against State Assets 

This program will provide a brief summary of recent developments in relation to Russia’s invasion of Ukraine and identify key legal issues, including the interplay between international sanctions and customary international law (e.g., the characterization of countermeasures and the application of the law of State Responsibility (including State Defences) in Public International Law as well as issues arising in Private International Law and International Commercial Arbitration (such as Force Majeure).  The panel discussion will be followed by a Q&A period as well as a networking session.