Damages: Causation and Remoteness

1. Jeff Sullivan Senior Associate, Allen & Overy LLP Damages: Causation and Remoteness

2. Proximate cause in international law • ILC’s Articles on State Responsibility - Article 31: “The responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act.” • “Governments, like individuals, are responsible only for the proximate and natural consequences of their acts. International as well as municipal law denies compensation for remote consequences…” (The Dix case, R.I.A.A. ix, p. 119 (1903)).

3. Causation and remoteness • Causation: “It matters not whether the loss be directly or indirectly sustained so long as there is a clear, unbroken connection between Germany’s act and the loss complained of. It matters not how many links there may be in the chain of causation connecting Germany’s act with the loss sustained, provided there is no break in the chain and the loss can be clearly, unmistakably and definitely traced, link by link, to Germany’s act.” (Administrative Decision II, R.I.A.A. vii, p. 23 (1923))

4. Causation and remoteness • Remoteness: “Where the loss is far removed in causal sequence from the act complained of, it is not competent for this tribunal to seek to unravel a tangled network of causes and effects, or follow, through a baffling labyrinth of confused thought, numerous disconnected and collateral chains, in order to link Germany with a particular loss.” (Administrative Decision II, R.I.A.A. vii, p. 23 (1923))

5. The two part test: • There must be a direct causal link between the unlawful international conduct and the damages incurred. • The damages claimed must not be too remote; they must be a reasonably foreseeable consequence of the act that constituted the breach.

6. The Biwater Award – Factual background • Biwater was awarded three contracts by the Tanzanian government in 2003 for the management and operation of water and sewage services in Dar es Salaam. Biwater transferred leased the rights to a 51% owned subsidiary known as City Water. • City Water found itself in difficulty and requested renegotiation of the contract. The negotiations failed. The authority terminated the contract and called the performance bond. Tanzanian officials then deported City Water's senior management and took over its offices in order to take control of the company's assets and install new management

7. The Biwater Award “The key issue in this case is the factual link between the wrongful acts and the damage in question, as opposed to any issue as to remoteness or indirect loss.” (para 786) “…the Arbitral Tribunal concludes in all the circumstances that the actual, proximate or direct causes of the loss and damage for which BGT now seeks compensation were acts and omissions that had already occurred by 12 May 2005. In other words, none of the Republic’s violations of the BIT…in fact caused the loss and damage in question, or broke the chain of causation that was already in place.” (para 798)

8. The Biwater Dissent “…it should be clear that the Republic’s expropriatory, unfair and inequitable and other wrongful acts caused injury to BGT. [The expropriation] caused injury to City Water by depriving it prematurely of the use and enjoyment of its property….” (para 17) “…it is mistaken therefore to conclude, as the Tribunal does, that BGT’s claims fail on the grounds of causation. Rather, the proper question is what quantum of loss or monetary value to attribute the injury that the Republic caused to BGT.” (para 18)

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