Contributory negligence in investment arbitration is the circumstance where an injured party has materially contributed, to the damage caused by an internationally wrongful act of a State by a negligent act or omission.
In order to limit or reduce the amount of compensation, the contribution of the injured party is taken into consideration by arbitral tribunals in assessing the extent of reparation.
Don’t confuse, contributory negligence (or contributory fault) with a duty to mitigate losses. Although they are both “compensation-reducing factors,” the duty to mitigate losses arises after a breach of an international obligation has occurred. Even more, not every contribution to causation is sufficient in order to establish contributory negligence/fault.
There is a reduction of compensation due to contributory negligence in investment arbitration. The degree of reduction of compensation is generally left to the discretion of arbitral tribunals.
For instance, the Copper Mesa v. Ecuador tribunal decided to reduce compensation by 30%, the MTD v. Chile tribunal reduced damages by 50%, the Occidental Petroleum tribunal by 25%, and the same reduction was used by the Yukos tribunal.
Especially, when it seems that the tribunal’s findings are not based on any objective valuation method, the parties involved in the arbitration can deplore the lack of precision in tribunals’ assessment of the degree of reduction. This was, for example, the case in the annulment proceedings initiated against the award in the MTD v. Chile case, where the Respondent criticized the tribunal’s “failure to state its reasons upon which it diminished the award by an arbitrary and unexplained fifty percent.”
According to the Committee, the arbitral tribunal had to analyze the failings of the two parties and check if it had committed no error even though further reasons for the reduction of damages would have been useful.
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