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In international law, a monetary or in-kind payment made by a state to remedy injury caused by an internationally wrongful act or lawful but harmful conduct.
Compensation is one of the principal forms of reparation recognised in international law, alongside restitution and satisfaction. It is owed by a state that has committed an internationally wrongful act when the injury cannot be made good by restitution. The doctrine is codified in Article 36 of the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA, 2001), which provides that compensation shall cover "any financially assessable damage including loss of profits insofar as it is established."
The foundational standard was articulated by the Permanent Court of International Justice in the Factory at Chorzów case (Germany v. Poland, 1928), which held that reparation must "wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed." Where full restitution is impossible, monetary compensation substitutes.
Compensation appears in several distinct contexts:
Compensation does not include punitive damages under general international law; quantum is restitutionary, aimed at the injury actually suffered.
Restitution restores the prior situation in kind (e.g., returning seized property), while compensation provides a monetary substitute when restitution is materially impossible or disproportionately burdensome. ARSIWA Article 36 makes compensation residual to restitution.
Generally no under classical doctrine — states espouse their nationals' claims via diplomatic protection. Exceptions exist in investor-state arbitration, human rights bodies (e.g., the European Court of Human Rights under Article 41 ECHR), and ad hoc mechanisms like the UN Compensation Commission.
Named after U.S. Secretary of State Cordell Hull's 1938 correspondence with Mexico over oil nationalisation, it requires 'prompt, adequate, and effective' compensation for expropriation. It is the standard typically incorporated into modern bilateral investment treaties.