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Compensation will be payable for damage caused by an internationally wrongful act, to the extent that such damage is not made good by restitution. This damage may be material or moral. Compensation covers any financially assessable damage and may include loss of profits so far as this is established in the given case. 49 Compensation for an affront or injury caused by a violation of rights not associated with actual damage to property or persons is not included. This is properly the subject matter of satisfaction. What is covered by satisfaction is moral damage to a State as such, as will be seen later.
Of the various forms of reparation, compensation is perhaps the most commonly sought in international practice, particularly in connection with the diplomatic protection of aliens. In the Gabcíkovo-Nagymaros Project Case, the ICJ stated in general terms: ‘It is a well-established rule of international law that (p. 295) an injured State is entitled to obtain compensation from the State which has committed an internationally wrongful act for the damage caused by it.’ 50 This applies in diplomatic protection as well as in other areas. In the Chorzów Factory Case (Merits) which involved the protection of alien property, albeit under an international agreement between the claimant State and the respondent State, the PCIJ said that it was ‘a principle of international law that the reparation of a wrong may consist in an indemnity’. 51 Moreover, an international court or tribunal which has jurisdiction with respect to a claim of State responsibility in general, has, as an aspect of that jurisdiction, the power to award compensation for damage suffered. Restitutio in integrum, despite its primacy as a matter of legal principle, is frequently unavailable or inadequate. It may be partially or entirely excluded either on the basis of the exceptions required in law 52 or because the injured State prefers compensation or for other reasons. Moreover, even where restitution is made, it may be insufficient to ensure full reparation. The role of compensation then is to fill in gaps so as to ensure full reparation for damage suffered. 53 As was outlined by the PCIJ, ‘Restitution in kind, or, if this is not possible, payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it—such are the principles which would serve to determine the amount of compensation due for an act contrary to international law.’ 54 Entitlement to compensation in monetary terms for such losses is supported by extensive case law, State practice, and the writings of jurists.
Compensation is different from satisfaction. As compared with satisfaction the function of compensation is to address the actual losses incurred as a result of the internationally wrongful act. Compensation corresponds to the financially assessable damage suffered by the injured State and its nationals. Its object is not to punish the responsible State nor does it have an exemplary character. 55Thus, compensation generally consists of a monetary payment, though it may (p. 296) sometimes take the form, as agreed, of other forms of value. It is true that monetary payments may be called for by way of satisfaction but they perform a function distinct from that of compensation. Monetary compensation is intended to offset, as far as may be, the damage suffered by the injured State through its nationals as a result of the breach of law. Satisfaction is concerned essentially with non-material injury, specifically non-material injury to the State, on which a monetary value can be put only in a notional and highly approximate way. However, compensation could involve payment for moral damage to the individual, ie for an abstraction which is given a monetary value.
The responsible State has an obligation to provide reparation for the consequences flowing from the commission of an internationally wrongful act. This obligation is confined to financially assessable damage, that is, any damage which is capable of being evaluated in financial terms. Financially assessable damage covers in any situation damage suffered by the State itself (to its property or personnel or in respect of expenditures reasonably incurred to remedy or mitigate damage flowing from an internationally wrongful act) as well as damage suffered by nationals, whether natural or legal persons, in respect of whom the State is exercising diplomatic protection.
The PCIJ and the ICJ have both dealt with claims for compensation in the exercise of diplomatic protection. Other tribunals which have done so include, more recently, the Iran-US Claims Tribunal.56 Compensation claims have also been settled by agreement, normally on a ‘without prejudice’ basis, the payment of substantial compensation being a term of the agreement. The general rules applied in these cases in assessing compensation are in accord with those stated above.
As to the appropriate heads of compensatable damage and the principles of assessment to be applied in quantification, these will vary. They depend upon the content of particular primary obligations, an evaluation of the respective behaviour of the parties and, more generally, a concern to reach an equitable and acceptable outcome. 57
As an illustration of how compensation is assessed, where there has been injury to a ship and its crew, may be taken the recent M/V Saiga (No 2) Case. Saint Vincent and the Grenadines sought compensation from Guinea following the wrongful arrest and detention of a Saint Vincent and the Grenadines' registered vessel, the Saiga, and its crew. The ITLOS awarded compensation of US $2,123,357 with interest. The heads of damage compensated included, inter alia, damage to the vessel, including costs of repair, losses suffered with respect (p. 297) to charter hire of the vessel, costs related to the detention of the vessel, and damages for the detention of the captain, members of the crew, and others on board the vessel. Saint Vincent and the Grenadines had also claimed compensation for the violation of its rights in respect of ships flying its flag occasioned by the arrest and detention of the Saiga. However, the Tribunal considered that its declaration that Guinea acted wrongfully in arresting the vessel in the circumstances, and in using excessive force, constituted adequate reparation. Claims regarding the loss of registration revenue due to the illegal arrest of the vessel and for the expenses resulting from the time lost by officials in dealing with the arrest and detention of the ship and its crew were also unsuccessful. In respect of the former, the tribunal held that Saint Vincent and the Grenadines failed to produce supporting evidence. In respect of the latter, the tribunal considered that such expenses were not recoverable, because they were incurred in the exercise of the normal functions of a flag State. 58
In a number of cases payments have been directly negotiated between injured and injuring States following wrongful attacks on ships causing damage or sinking of the vessel, and in some cases, loss of life and injury among the crew. 59 Similar payments have been negotiated where damage is caused to aircraft of a State, such as the ‘full and final settlement’ agreed between Iran and the US following a dispute over the destruction of an Iranian aircraft and the killing of its 290 passengers and crew. 60
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