Annals of the University of Oradea: Economic Science (Jul 2018)
ICSID CASES IN WHICH DAMAGES WERE AWARDED BASED ON MARKET APPROACH
Abstract
The foreign direct investments had encountered the need of a special organism to protect the investors and their rights. This organism was founded by the World Bank and it is called The International Centre for Settlement of Investment Disputes – ICSID. After the recognition of ICSID by the states, the foreign investment flow grew and the number of disputes start growing as well. If the host state is in breach of the Bilateral Investment Treaty, it will have to pay damages to the investor. In order to determine the quantum of the damages, a business valuation is needed. Enterprise valuation has become particularly important with business development, especially as a result of the development of stock market transactions. Business development has, among other things, led to the diversification of funding sources, so stock listing has become essential for many firms that require capital for their underlying investment projects. Besides the role of attracting capital for business development, the stock exchange is also the place for the creation, development and diversification of the investment portfolio of the various investors and, at the same time, the 'playground' of the speculators. None of these roles could be successfully accomplished in the absence of documented business reviews. Around these assessments, three main approaches were outlined: asset, revenue and market approach. Each of these approaches is based on a fundamental concept from which it proposes a mathematical computation method that results in an informative sum representing the estimated value of the evaluated business. These three methods are also the methods accepted by ICSID in establishing the damages that will be awarded in the judged cases. There are some conditions that have to be met in order to use one method instead of other. Usually the selection of the method it is dome by the evaluator, but the arbitrators that are judging the case can reject one method and select another one, based on their professional judgement.
