By Dr Dogan Gultutan at the City Law School
Introduction
Moral damages are as real as material damages and, accordingly, must be compensated where appropriate in the particular case. This is not new law. The position as regards moral damages and its recoverability was settled over a century ago. In 1923 in the Opinion in the Lusitania Cases, the tribunal confirmed it in the following terms:
“That one injured is under the rules of international law, entitled to be compensated for an injury inflicted resulting in mental suffering, injury to his feelings, humiliation, shame, degradation, loss of social position or injury to his credit or to his reputation, there can be no doubt, and such compensation should be commensurate to the injury. Such damages are very real, and the mere fact that they are difficult to measure or estimate by money standards makes them none the less real and affords no reason why the injured person should not be compensated therefor as compensatory damages, but not as penalty.”
[Opinion in the Lusitania Cases, 40]
Similarly, the Permanent Court of International Justice enunciated in its decision in the Chorzów case the following principle of international law:
“The essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is that reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.”
[The Factory at Chorzów (Germany v. Poland)]
These seminal decisions were pivotal in paving the way for moral damages awards to claimant investors in investment arbitrations. The first and foremost example is the Desert Line award, an award delivered under the auspices of the International Centre for Settlement of Investment Disputes (ICSID).