This chapter sets out which creditor losses are recoverable as a matter of principle through investment arbitration, and explains why the quantum due on sovereign debt will generally be only partial compensation. Appropriate compensation could lie substantially below the debt's face value. This is because the legally protected expectation under the four treatment standards examined in the previous chapter is unlikely to correspond to the debt's full face value.

International law's philosophy of creditor protection

Non-compensable risks in investment arbitration

International courts and tribunals have repeatedly stressed that property rights and investment protection are ‘no insurance against ordinary commercial risks’. In the words of the Maffezini and CMS tribunals: ‘BITs are not insurance policies against bad business judgments.’ The Saluka Tribunal, noting the ‘serious risks to investing in IPB [a Czech bank]’, declined to find expropriation.

In Starrett Housing, the Iran–US Claims Tribunal explained that ‘investors in Iran, like investors in all other countries, have to assume the risk that the country might experience strikes, lockouts, disturbances, changes of the economic and political system and even revolutions … A revolution does not as such entitle investors to compensation under international law.’