Abstract

As international disputes increasingly arise from global challenges – from armed conflicts and ecological harm, to energy transition – questions of compensation for internationally wrongful acts have become more urgent. Across different areas, compensation is governed by the general rules of state responsibility unless special rules apply. Yet these general rules remain strikingly thin and abstract, due to the vast range of contexts in which they apply. In May 2025, the UN International Law Commission (ILC) added the topic ‘Compensation for the damage caused by internationally wrongful acts’ to its program of work, creating a critical opportunity to revisit this body of rules.

This article argues that, in the absence of clear guidance from customary international law, prevailing approaches to compensation developed in judicial or arbitral practice embed problematic normative and distributive choices, which can distort the intent behind primary rules and produce unintended consequences. While damages awards in investment arbitration can reduce an asset to its ‘market price’, income-based compensation for personal injury can reinforce global inequality. To illustrate this problem, it critically examines the treatment of compensation in investment arbitration using a comparison between domestic remedial rules and approaches to compensation in investment arbitration. It shows how compensation awards in this context have effectively reshaped the legal relationships associated with private property in domestic legal systems. Guided by the vaguely defined rule of ‘full reparation’, investment tribunals have applied market-based valuation methods – followed by the logic of private torts – to claims of a public law character. This effectively transforms policy and distributive decisions over an asset or resource into profitability forecasts in a hypothetical ‘free market’, disregarding the social and public dimensions of property recognized and protected in domestic legal systems and human rights law.

Crucially, this transformation arises not from deliberate law-making choice by states, but from analogical reasoning in judicial practice across different areas, which obscures the varied nature of different legal claims in international law. The second contribution of this article is to identify the structural law-making gaps that have shaped current approaches to compensation and to suggest how they might be addressed. Rather than codifying and reinforcing existing jurisprudence to achieve coherence across different areas, states and the ILC should confront, openly and transparently, the normative and distributive choices embedded in the application of compensation rules and tailor them to the specific characters of various claims in different contexts. Until detailed and context-sensitive compensation rules emerge through interstate negotiations, general principles of law, the third source listed in Article 38(1) of the ICJ Statute, can serve as an interim solution.

Keywords: compensation, UN International Law Commission, ILC, Compensation for the damage caused by internationally wrongful acts