International arbitration is encountering a growing number of disputes arising from complicated multiple contracts and actions in international investment. As these contracts deal with state parties, they are governed by international law. The problem in adopting public international law, as the system of law governing commercial relationships, is not a problem of principle, but of practice. Public international law, being concerned primarily with the relationships between states, is not particularly well equipped to deal with detailed contractual issues such as mistake, misrepresentation, time of performance, force majeure, or the measure of damages. The same criticism may be directed at the choice of ‘general principles of law’ as the governing law of a contract. The general principles of law recognized by civilized nations have been defined as the general principles of municipal jurisprudence, in particular of private law, insofar as they are applicable to relations of States.

The problem with the general principles is that they are just that: they deal with topics including the principle of good faith in treaty relations, abuse of rights, and the concept of state and individual responsibility. They are excellent as generalisations, but may lack sufficient detail for contractual relations.

The Principles of International Commercial Contracts (UPICC) are a widely accepted codification of transnational law set out by The International Institute for the Unification of Private Law (UNIDROIT), which present a set of detailed and practical legal rules to govern commercial relations.

The framers designed UNIDROIT’s Principles of International Commercial Contracts (UPICC) to settle private international commercial disputes, not international disputes between states and investors, which usually relate to expropriation issues. A crucial question emerges: can general principles of law codified in the UPICC serve as substantive law in investor-state or interstate arbitrations?

The present book, which is the result of a Ph.D. thesis presented at the University of Montreal, sheds light on the above questions now commonly faced by international commercial tribunals and practitioners. It explores the application of the principle of compensation in the practice of the Iran–United States Claims Tribunal (IUSCT). This study examines how the IUSCT, established in 1981, applies compensation rules and the relationship of those rules to the UPICC. Those who have participated in major international trade arbitrations know that questions linked to the assessment of damages give rise to bitter controversies, whose stakes can be considerable and depend more often on the resolution of pure questions of law. This paper studies these questions in detail, shedding light on the jurisprudence of the Iran–United States Claims Tribunal. This study thoroughly examines critical issues concerning the application of the principle of compensation in the practice of the Tribunal with a clear focus on the related rules in UPICC, which addresses issues of damages.  

IUSCT practice, involving more than 800 awards and decisions in investor-state disputes over more than 35 years, contains substantial jurisprudence in this field. This study proceeds through case studies and comparisons of the tribunal’s jurisprudence with UPICC’s principle of compensation and related rules in the Convention on Contracts for the International Sale of Goods, Vienna 1980. It explores the tribunal’s interpretation and application of the principle of compensation and the extent of the UPICC’s influence on the reasoning in its awards. The tribunal’s implicit—and more recently explicit— adoption of UPICC principles not only bolsters the UPICC’s authority, but also brings predictability and certainty to the application of UPICC rules and provides a useful model for other international tribunals. This study of the IUSCT awards strongly concludes that the UPICC, as a widespread and influential codification of the general principles of international commercial contract law, is superbly suited for application as substantive law in arbitrating international investment disputes.