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Award

Abbreviations

Abbreviation Meaning
1960 ESO Electricity Supply Ordinance of 1960
1994 ESA 1994 Electricity Supply Act
1997 RFA Request for Arbitration filed by WRB Enterprises Limited, 17 July 1997
2016 Acts Electricity Supply Act 2016, Act No. 19 of 2016, and Public Utilities Regulatory Commission Act 2016, Act No. 20 of 2016
CDC Initially, Colonial Development Corporation; now, Commonwealth Development Corporation
CESI Caribbean Energy Security Initiative
DCF Discounted Cash Flow
Domlec Dominica Electricity Services
ECERA Eastern Caribbean Energy Regulatory Authority
ECH Eastern Caribbean Holdings Limited
EU European Union
GRENLEC Grenada Electricity Services Company Limited
GPP Grenada Private Power Limited
GOG Government of Grenada
Government Government of Grenada
IDB Inter-American Development Bank
IRENA International Renewable Energy Agency
Local Directors Rupert Agostini, Nelson Louison, Chester Palmer, and Lawrence Samuel
MOU Memorandum of Understanding
NDC National Democratic Congress
NIS National Insurance Scheme
NNP New National Party
OAS Organization of American States
OECS Organisation of Eastern Caribbean States
PURC Public Utilities Regulatory Commission
PV Photovoltaic
RET Renewable Energy Technology
RFP Request for Proposals
RMI Rocky Mountain Institute
SPA Share Purchase Agreement between the Government of Grenada and Grenada Private Power Limited and WRB Enterprises, Inc. Relating to Shares of Grenada Electricity Services Limited, dated 14 September 1994
TCU Turks and Caicos Utility Company
WRB WRB Enterprises Limited
USAID U.S. Agency for International Development

I. OVERVIEW

1.
Grenada Electricity Services Company Limited ("GRENLEC" or the "Company") is the sole electric utility in Grenada, a country comprised of the main island of Grenada and the adjacent islands of Carriacou and Petite Martinique, in the Eastern Caribbean.
2.
Grenada achieved independence from Britain in 1979. Over the next 15 years, GRENLEC, then publicly owned, was chronically underfunded and its service characterized by electricity shortages. In 1992, the Government of Grenada ("GOG", the "Government" or the "Respondent") was advised by the World Bank and others to privatize the utility. The then party in power, the National Democratic Congress ("NDC") embraced the recommendation. The main party then in opposition, the New National Party ("NNP") opposed it. This political rivalry played out over the next 20 years and provides essential background to many of the events that led to the current dispute.
3.
Eventually, in 1994, the NDC government sold a controlling interest in GRENLEC to Grenada Private Power Ltd. ("GPP"), a Grenadian company in which WRB Enterprises Inc. ("WRB"), a closely held private company based in Tampa, Florida, United States of America, indirectly holds 75% of the shares (GPP and WRB, jointly, the "Claimants"). The privatization package included a Share Purchase Agreement ("SPA") dated 14 September 1994, signed between the Respondent and the Claimants, that was made conditional upon the GOG enacting a favourable regulatory structure in the 1994 Energy Supply Act ("1994 ESA") and the 1994 Public Utilities Commission Act ("PUCA"). The SPA specifically provided that upon the happening of any one of the "Repurchase Events", the Claimants would have the right to "put" their shares to the GOG, and the GOG would be obliged to repurchase them at a price calculated in accordance with the Second Schedule of the 1994 ESA ("Second Schedule").
4.
Twenty-two years later, the incoming NNP Government decided to restructure the electricity sector through sweeping changes to its regulation, production and distribution. The result, the Claimants say, was to trigger an obligation on the part of GOG to repurchase the Claimants’ shares in GRENLEC.
5.
On 22 March 2017, the Claimants "put" their GRENLEC shares to the GOG for repurchase, claiming compensation of EC $182,100,000 or EC $19 per share, pursuant to the statutory valuation formula in the Second Schedule. Following unsuccessful attempts to negotiate a solution, the GOG declared its rejection of any obligation to repurchase the shares and refused to pay the claim. Hence this arbitration.
6.
The principal issues are as follows:

(a) the Respondent says that its repurchase obligation is "void and unenforceable" under Grenadian law. The Claimants counter that the SPA is governed by international law and, by its own terms, expressly excludes rules of Grenadian law inconsistent with the repurchase obligation. Moreover, the GOG is estopped by its words and conduct over the years from challenging the validity of the repurchase provisions;

(b) the Respondent argues that the SPA repurchase obligation constitutes a penalty under Grenadian law, which renders it unenforceable, and in any event, the repurchase provisions are void as unconstitutional because their effect (and perhaps intent) is to fetter the authority of the GOG to regulate the electricity sector in the public interest. The Claimants respond that the repurchase obligation is neither a penalty nor unconstitutional

(c) the Claimants argue that in 1994, the GOG was expertly advised by Price Waterhouse ("PwC" for both Price Waterhouse and PricewaterhouseCoopers) whose consultants analysed the bidding process, the evolution of the bids and the statutory formula and declared the transaction to be appropriate and fair. The Respondent disputes the degree of PwC participation and states that the Government representatives, including Ministers, lacked relevant experience, and did not adequately protect Grenada's interest;

(d) the Respondent says that the Claimants committed "wilful malfeasance" in their management of GRENLEC which (under the express terms of the SPA) disentitles the Claimants from insisting on the GOG repurchase of the Claimants' shares. The Claimants dispute the "baseless" allegations of "wilful malfeasance" and state that, in any event, the GOG cannot rely on that defence because the SPA explicitly requires an ICSID declaratory order to that effect be obtained prior to the GOG taking an action that would otherwise trigger the repurchase demand;

(e) the Respondent says that the repurchase price payable under the SPA should be limited to fair market value determined by Discounted Cash Flow ("DCF") methodology rather than pursuant to the formula in the Second Schedule of the 1994 ESA, which is a bizarre formula inherited from the colonial past. Its application would produce compensation "extravagantly disproportionate" to the actual fair market value of the shares. The Claimants say that while the Second Schedule was rooted in a pre-independence Ordinance of 1960, it was given fresh life by the Government itself and inserted at the GOG’s insistence into the 1994 privatization. The Claimants say they are entitled to the specific performance of the agreed bargain;

(f) the Respondent says that any award to the Claimants must be offset by the amount of its counterclaim. The Claimants respond that the counterclaim is "fabricated" for strategic reasons and is so frivolous that the Respondent has never even bothered to quantify it.

7.
Fundamentally, the Parties clash over the proper characterization of the GRENLEC investment. The Claimants consider it a straight forward commercial investment whose terms were fairly negotiated and which the Claimants are entitled to enforce. If the Claimants are now entitled to compensation in excess of fair market value (which overpayment is denied), so be it. A deal is a deal. The Claimants say their stewardship of GRENLEC has benefited Grenada and they are entitled to their entitlements. The Respondent NNP Government, on the other hand, considers the Claimants to have been poor corporate citizens. The Claimants sought at all times to maximize their return on investment with little regard for meeting GRENLEC’s capital investment needs or the well-being of the island economy (including, in particular, the Claimants’ persistent failure to develop Grenada’s ample renewable energy resources).
8.
In the Tribunal’s view, it has no authority to judge whether or not in the period 1994 to 2016, the Claimants caused GRENLEC to behave as a good "corporate citizen" of Grenada. The task of the Tribunal is to determine whether the complex contractual arrangements between the Parties have been complied with and, if not, what remedy should be awarded.
9.
The Tribunal has concluded that neither the SPA (nor the Supplementary SPA) unconstitutionally fettered Government action. When the NNP party returned to Government in 2014, it was clearly not deterred in any way from enacting the 2016 restructuring legislation.
10.
The primary relief sought by the Claimants is, in effect, for specific performance of a "put" contract to repurchase the GRENLEC shares. In the Claimants’ prayer for relief, the Claimants distinguished between compensation claimed by way of specific performance EC $182,150,000 or damages in an equivalent amount plus costs.
11.
The main difficulty confronting the Respondent was not so much that the Government lacked legal arguments (on which point the Respondent was very creative) as it was the lack of factual evidence necessary to sustain the legal arguments that were put forward with considerable gusto.
12.
In the Tribunal’s view, for the reasons which follow, the Claimants are entitled to succeed albeit with somewhat less compensation than they are demanding. The SPA is valid. There is no penalty. The terms are not contrary to the Constitution of Grenada. The Respondent has not established either the procedural condition precedent or the substantive factual prerequisites to deny the Claimants compensation on the basis of "wilful malfeasance". The Claimants have established a "repurchase" event which requires the Respondent to pay compensation at the level agreed to in the Second Schedule. Accordingly, the Tribunal awards the Claimants Second Schedule compensation but calculated in a way that pays due regard to the differences of opinion among the quantum experts. The Claimants are also entitled to pre and post-Award interest and costs.

II. PROCEDURAL HISTORY

13.
On 5 May 2017, ICSID received a request for arbitration from Grenada Private Power Limited and WRB Enterprises, Inc. against Grenada (the "Request").
14.
On 15 May 2017, the Secretary-General of ICSID registered the Request in accordance with Article 36(3) of the ICSID Convention and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an arbitral tribunal as soon as possible in accordance with Rule 7(d) of ICSID’s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.
15.
The Parties agreed to constitute the Tribunal in accordance with Article 37(2)(a) of the ICSID Convention as follows: the Tribunal would consist of three arbitrators, one to be appointed by each Party and the third, the presiding arbitrator, to be appointed by agreement of the Parties.
16.
The Tribunal is composed of Hon. Ian Binnie, C.C., Q.C., a national of Canada, President, appointed by agreement of the Parties; Mr. Richard Boulton, Q.C., a national of the United Kingdom, appointed by the Claimants; and Ms. Olufunke Adekoya SAN, a national of the United Kingdom and the Federal Republic of Nigeria, appointed by the Respondent.
17.
On 9 November 2017, the Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules"), notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms. Jara Mínguez Almeida, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal.
18.
In accordance with ICSID Arbitration Rule 13(1), the Tribunal held a first session with the Parties on 5 January 2018 by teleconference.
19.
Following the first session, on 24 January 2018, the Tribunal issued Procedural Order No. 1 recording the agreement of the Parties on procedural matters. Procedural Order No. 1 provides, inter alia, that the applicable Arbitration Rules would be those in effect from 10 April 2006, that the procedural language would be English, and that the place of proceedings would be St. George's, Grenada. Procedural Order No. 1 also sets out a schedule for the merits phase of the proceedings.
20.
In accordance with Procedural Order No. 1, the Claimants filed a Memorial on the Merits dated 1 March 2018, including:

- Witness Statement of Mr. G. Robert Blanchard, Jr., dated 1 March 2018;

- Expert Report by Mr. John MH Ellison and Mr. Thomas Popovic, dated 1 March 2018, with Appendices 1 through 13, and Exhibits JETP-01 through JETP-49;

- Exhibits CE-0001 through CE-0055; and

- Legal Authorities CLA-0001 through CL-0028.

21.
On 11 June 2018, the Claimants filed the Request for Provisional Measure to restrain the Respondent from directly or indirectly using its regulatory powers to "obtain discovery outside the agreed arbitral process [provided for in Article 15 of] Procedural Order No. 1."1 According to the Claimants, the Respondent's demand [purportedly as a regulator] for "a massive amount of information"2 "outside of the agreed arbitral process"3 for document production, was "abusing its regulatory powers in an effort... [to] gain an unfair advantage in this arbitration"4 which "threatens the level playing field. and undermines the integrity of these proceedings."5 The Request for Provisional Measure was accompanied by Exhibits CE-0056 through CE-0061, Legal Authorities CLA-0029 through CLA-0048 and CER-0001.
22.
In response to the Tribunal's invitation, the Respondent filed observations on the Claimants' Request for Provisional Measure on 22 June 2018, opposing the Claimants' request.6
23.
On 29 June 2018, the Respondent filed the Counter-Memorial, including a counter-claim, accompanied by:

- Expert Report of Mr. Robert S. Mudge, The Brattle Group, dated 29 June 2018;

- Witness Statement of Mr. Chester Palmer dated 28 June 2018;

- Witness Statement of Mr. John Auguste dated 28 June 2018;

- Witness Statement of Minister Gregory Bowen dated 28 June 2018;

- Exhibits RE-0001 through RE-0119; and

- Legal Authorities RLA-0001 through RLA-0064.

24.
On the same date and in response to the Tribunal’s invitation, the Claimants filed comments on the Respondent’s observations of 22 June 2018.
25.
On 20 July 2018, the Tribunal issued Procedural Order No. 2 concerning the Claimants’ Request for Provisional Measure, which directed that the order against enforcement of the Minister’s 9 May 2018 request would continue in effect until 2 November 2018 unless sooner extended or varied by the Tribunal. This Order also set out a timetable for the Respondent to make a "substantive reply" and for the Claimants to file a rejoinder, without disrupting the existing procedural timetable.
26.
In accordance with Procedural Order No. 2, on 3 August 2018, the Respondent filed the Opposition to the Claimants’ Request for Provisional Measure, including Exhibits RE-0120 through RE-0133 and Legal Authorities RLA-0065 through RLA-0076.
27.
On 7 September 2018, the Claimants filed a Rejoinder to the Respondent’s Opposition to the Claimants’ Request for Provisional Measure, including Exhibits CE-0062 and CE-0063 and Legal Authorities CLA-0049 through CLA-0060.
28.
On 20 September 2018, the Tribunal held a hearing on provisional measures by telephone conference.
29.
On 26 September 2018, the Tribunal issued its Decision on Provisional Measures, which forms part of this Award.7 The Tribunal recommended by way of Provisional Measure that the Government defer the date for compliance with the Minister’s letter of 9 May 2018 until 30 March 2019, and that in the meantime, the Claimants are not to be considered in default of their informational obligations under the Electricity Supply Act 2016.
30.
On 29 November 2018, the Claimants filed a Reply Memorial, including:

- Reply Expert Report of Mr. John MH Ellison FCA FSSBV MEWI dated 29 November 2018 with Exhibits JE-0001 through JE-0016;

- First Expert Report of Dr. Boaz Moselle dated 29 November 2018 with Exhibits BM-0001 through BM-0080;

- Reply Expert Report of Mr. Thomas Popovic, a Senior Manager in KPMG LLP dated 29 November 2018 with Exhibits TPII-0001 through TPII-0011;

- Legal Opinion of Professor Jan Paulsson dated 28 November 2018;

- Second Witness Statement of Mr. G. Robert Blanchard, Jr. dated 29 November 2018;

- Witness Statement of Mr. Robert Blenker dated 29 November 2018;

- Exhibits CE-0026 (resubmitted) and CE-0064 through CE-0207; and

- Legal Authorities CLA-0061 through CLA-0132 as well as resubmitted Legal Authorities CLA-0025 and CLA-0050.

31.
By letter dated 14 January 2019, the Claimants sought an order from the Tribunal precluding the Respondent from filing with its Rejoinder a valuation of GRENLEC under the Statutory Valuation Methodology and precluding evidence of "a quantification of its Counterclaim in its Rejoinder or at a later date." The Claimants sought a complete dismissal of the nascent counterclaim which they argued had not yet been fleshed out in any detail.
32.
After receiving observations from the Respondent on 21 February 2019, the Tribunal issued Procedural Order No. 3 on 25 February 2019, permitting the Claimants to file a Reply on or before 10 May 2019, limited to the Claimants’ response to the evidence in the Rejoinder concerning (1) the Statutory Valuation, and (2) the particulars and quantification of the counterclaim. The Tribunal also stated in this Order that its ruling did not pre-judge the Claimants’ argument that the counterclaim is out of time and inadmissible. The admissibility issue would be dealt with once the written pleadings were closed. The Claimants’ additional costs associated with the 10 May 2019 Reply would be the subject of the Tribunal’s consideration in due course.
33.
On 29 March 2019, the Respondent filed a Rejoinder and Reply on Counterclaim, including:

- Second Witness Statement of Minister Gregory Bowen dated 29 March 2019;

- Second Witness Statement of Mr. John Auguste dated 29 March 2019;

- Second Witness Statement of Mr. Chester Palmer dated 29 March 2019;

- Expert Report of Mr. Robert S. Mudge of The Brattle Group dated 29 March 2019;

- Expert Report of Mr. Wilfred Baghaloo and Mr. Doran McClellan of PwC dated 29 March 2019, with Exhibits PWC SRL 01 to PWC SRL 16;

- Exhibits RE-0134 through RE-0437; and

- Legal Authorities RLA-0077 through RLA-0180 as well as Mudge II Workpapers.

34.
On 17 April 2019 the Claimants wrote to the Tribunal communicating the Parties’ agreement to extend the deadline to file the Response and certain other adjustments to the procedural calendar.
35.
On 1 May 2019, the Tribunal issued Procedural Order No. 4 concerning the procedural calendar reflecting the Parties’ agreed amendments.
36.
On 24 May 2019, the Claimants filed a response to the Respondent’s Rejoinder of 29 March 2019, including:

- Third Witness Statement of Mr. G. Robert Blanchard, Jr. dated 24 May 2019, with Appendices A through B;

- Supplemental Witness Statement of Mr. Benedict Brathwaite dated 24 May 2019, with Appendices A and B;

- Second Reply Expert Report of Mr. John MH Ellison FCA FSSBV MEWI dated 24 May 2019, with Exhibits JE-17 through JE-18;

- Second Reply Expert Report of Mr. Thomas Popovic, an Independent Contractor of KPMG LLP (US) dated 24 May 2019, with Exhibits TPIII-001 through TPIII-003;

- Exhibits CE-0208 through CE-0235; and

- Legal Authorities CLA-0133 through CLA-0141.

37.
On 28 May 2019, the Tribunal held a pre-hearing organizational meeting with the Parties by telephone conference.
38.
On 29 May 2019, the Tribunal issued Procedural Order No. 5 concerning procedural matters in anticipation of the hearing.
39.
In accordance with paragraph 16.3 of Procedural Order No. 1, as modified by Procedural Order No. 4, on 7 June 2019, the Claimants filed Exhibits CE-0236 through CE-0272 together with Legal Authorities CLA-0142 through CLA-0143, and the Respondent filed the additional exhibits RE-0438 through RE-0477.
40.
On 14 June 2019, the Tribunal issued Procedural Order No. 6 concerning the organization of the hearing.
41.
A hearing on the merits was held in Washington, D.C. from 17 June through 21 June 2019 (the "Hearing"). The following persons were present at the Hearing:

Tribunal:
Hon. Ian Binnie, C.C. Q.C. President
Ms. Olufunke Adekoya SAN Arbitrator
Mr. Richard Boulton, Q.C. Arbitrator

ICSID Secretariat:
Ms. Jara Minguez Almeida Secretary of the Tribunal

For the Claimants:

Counsel
Mr. Paul Friedland White & Case
Mr. Damien Nyer White & Case
Ms. Preeti Bhagnani White & Case
Mr. Barry Cameron Brewer White & Case
Ms. Mila Owen White & Case
Mr. Daniel Shults White & Case
Ms. Lillian Siegel White & Case
Mr. Thomas Alexander Crawford White & Case
Mr. Charlie Friedlander Global Legal & Strategic Advisors

Witnesses
Mr. G. Robert Blanchard Jr. WRB Enterprises Inc.
Mr. Robert Blenker WRB Enterprises Inc.
Mr. Benedict Brathwaite Grenada Electricity Services

Experts
Mr. John Ellison FTI Consulting
Ms. Olivia Roberts FTI Consulting
Mr. Thomas Popovic KPMG
Dr. Boaz Moselle Compass Lexecon

For the Respondent:

Counsel
Mr. Donald Francis Donovan Debevoise & Plimpton LLP
Ms. Natalie L. Reid Debevoise & Plimpton LLP
Ms. Akima Paul Lambert Debevoise & Plimpton LLP
Mr. Conway Blake Debevoise & Plimpton LLP
Mr. Romain Zamour Debevoise & Plimpton LLP
Mr. Adam Moss Debevoise & Plimpton LLP
Ms. Emily Hush Debevoise & Plimpton LLP
Ms. Perpetua Chery Debevoise & Plimpton LLP
Mr. Gregory Senn Debevoise & Plimpton LLP
Ms. Leslie-Ann Seon Seon & Associates
Ms. Linda Dolland Seon & Associates

Witnesses
The Hon. Gregory Bowen The Government of Grenada
Mr. Chester Palmer
Mr. John Auguste

Experts
Mr. Robert Mudge The Brattle Group
Ms. Lily Mwalenga The Brattle Group
Mr. Wilfred Baghaloo PricewaterhouseCoopers
Mr. Doran McClellan PricewaterhouseCoopers
Ms. Fiona Hyman PricewaterhouseCoopers
Mr. Roy Pacumio PricewaterhouseCoopers
Ms. Alaina Parris PricewaterhouseCoopers

Court Reporter:
Mr. David Kasdan Worldwide Reporting, LLP

42.
During the Hearing, the following persons were examined:

On behalf of the Claimants:

Witnesses
Mr. G. Robert Blanchard Jr. WRB Enterprises Inc.
Mr. Robert Blenker WRB Enterprises Inc.
Mr. Benedict Brathwaite Grenada Electricity Services

Experts
Mr. John Ellison FTI Consulting
Mr. Thomas Popovic KPMG
Dr. Boaz Moselle Compass Lexecon

On behalf of the Respondent:

Witnesses
The Hon. Gregory Bowen The Government of Grenada
Mr. Chester Palmer
Mr. John Auguste

Experts
Mr. Robert Mudge The Brattle Group
Mr. Wilfred Baghaloo PricewaterhouseCoopers
Mr. Doran McClellan PricewaterhouseCoopers

43.
On 26 July 2019, both Parties filed their responses to a set of questions posed by the Tribunal after the Hearing. The Claimants submitted with their response five annexes, and the Respondent attached Legal Authorities RLA-0181 and RLA-0182.
44.
On 30 July 2019, the Claimants filed the following:

- Claimants’ Submission on Costs dated 30 July 2019;

- The Claimants’ Statement of Costs dated 30 July 2019;

- Exhibits CE-0274 and CE-0275; and

- Legal Authorities CL-0144 through CL-0151.

45.
On the same date, the Respondent filed the following:

- The Respondent’s Submission on Costs dated 30 July 2019;

- The Respondent’s Statement of Costs dated 30 July 2019;

- Exhibits RE-0478 and RE-0479; and

- Legal Authorities RL-0183 through RL-0186.

46.
The proceeding was closed on 31 December 2019.

III. HISTORY OF THE DISPUTE

A. Origins of GRENLEC

47.
GRENLEC was incorporated as a private company on 27 September 1960.8 The following day, 28 September 1960, the GOG passed the Electricity Supply Ordinance of 1960 ("1960 ESO") setting up the initial regulatory framework. GRENLEC was the monopoly supplier and distributer of electricity in Grenada.9 Though nominally private, GRENLEC was controlled by the Colonial Development Corporation ("CDC"), a statutory corporation established by the British Government.10
48.
Under the terms of the 1960 ESO, GRENLEC was granted an eighty-year exclusive license for the generation, distribution, and transmission of electricity in Grenada including the outlying islands of Carriacou and Petit Martinique.11 The rate making procedure for electricity consumption was set out in the First Schedule to the 1960 ESO. There were criminal penalties for self-generation of electricity on the three islands unless authorized by GRENLEC; these included fines of up to EC $240 or even "imprisonment with or without hard labor for a period not exceeding six months."12
49.
The Second Schedule to the ESO laid out a repurchase formula applicable in the event the Government decided to revoke the arrangement. The formula contained two components: first, a calculation of the net value of the company according to Part I of the Second Schedule, and second, a calculation of the company's "goodwill" as defined and calculated by Part II of the Schedule.13 The compensation formula, with modifications, has survived for more than 50 years.

B. GRENLEC has Been an Ongoing Political Controversy Since Grenada’s Independence in 1979

50.
In 1979, the People's Revolutionary Government14 suspended Grenada's Constitution and laws, including the 1960 ESO. It nationalized GRENLEC. The Revolutionary Government fell in 1983, and its successors moved to return certain industries to the private sector with the financial assistance of the U.S. Agency for International Development, which envisioned, among other things, "the development of a program to privatize major state-owned enterprises."15 Privatization became a central plank in the economic and fiscal programme of the NDC, which at the time formed the Government of Grenada.16
51.
It was hoped that privatization would attract much needed financial investment.17 GRENLEC had promoted electrification across all the islands, but generation capacity did not keep up with demand. Rural areas were particularly disadvantaged.18
52.
To further complicate matters, an oil leakage from the Queens Park sub-station contaminated the soil and water in the surrounding area.19 Remediation of the contamination was estimated to cost between USD $750,000 and USD $1,000,000,20 which GRENLEC could ill afford. In addition, the Respondent concedes that before privatization GRENLEC lacked the necessary capital for making overdue investments in "new generators and improvements in the distribution network."21
53.
A 1992 Memorandum commissioned by the World Bank underscored the importance of privatisation, but cautioned that it should be done only alongside the development of a regulatory framework suitable for public-private partnerships:

An adequate regulatory framework should be developed accompanying the privatization of public utilities with monopolistic features. This is particularly urgent in the case of the Grenada Electricity Company, where private investors have indicated their interest in purchasing the operations.22 (emphasis added)

54.
The Respondent NNP Government now contends that the former NDC Government failed to create an "adequate regulatory framework". The Public Utilities Commission (1994) was designed (with input it says from WRB) to be "toothless".
55.
The World Bank noted that a problem with GRENLEC being part of the public sector was that "short-term political objectives can override concerns for long-term economic viability."23 The current NNP Government suggests that the 1994 privatization was structured to advance the "short-term political objectives" of the former NDC Government.

C. Privatization of GRENLEC

56.
In the second half of 1993, the GOG engaged consultants PwC to advise on privatization issues and to conduct a Request for Proposals ("RFP") process for GRENLEC's shares.24
57.
As part of their engagement PwC produced an information memorandum outlining the process for privatization and analyzing both GRENLEC and the regulatory framework,25 building on earlier work done by the power and telecommunications consultancy firm, Ewbank Preece.26 The RFP attracted a number of potential investors interested in purchasing the GRENLEC shares. PwC analysed the submitted bids27 and briefed the relevant Government ministers.
58.
As part of their due diligence, the GOG obtained various valuations of GRENLEC using different valuation methodologies.28 Using the DCF method, PwC arrived at a present value within a very wide range of EC $8.70 million to EC $59.05 million. The "comparable transaction" method produced a narrower range of EC $30.4 million to EC $39.5 million.29
59.
The RFP process attracted seven bids for the 50% stake in GRENLEC, including: (i) Algonquin Power Corporation (Canada); (ii) the CDC (England); (iii) IVO International (Finland); (iv) Power Systems, Inc. and NRECA International (USA); (v) Samsung/WSC (USA); (vi) Synergics, Inc. (USA); and (vii) WRB Enterprises (USA).30
60.
WRB had been founded in 1969 by members of the Winter, Rozier, and Blanchard families through the merger of two Caterpillar tractor and engine dealerships in Florida and South Carolina.31 At the time of its bid for GRENLEC, WRB had an existing investment in the Turks and Caicos Utility Company ("TCU") which produced a tenth of that country's electricity production, with the rest supplied by a different utility on the other islands.32
61.
Bids were assessed by PwC according to a variety of criteria including "[c]ommitment to existing employees, [q]ualifications as a strategic partner, [a] well-articulated business & management plan, [a] long-term investment plan, [c]ommitment to environmental clean-up, and [a] plan for the participation of local investors."33 The work of PwC was reviewed by the GOG's in-house negotiating team34 which included senior Ministers.
62.
The bids were assessed as follows:35

1993: Bidder's Scoring Summary
CriteriaWeightAlogonquinCDCIVOPSIGSynergicsWRB
1 Utility Expertise 13 39 65 65 26 39 46
2 Financial Strength of Bidder 13 33 65 65 13 26 39
3 Participation of Local investors 6 12 18 24 30 30 21
4 Net Present Value of Bid5 23 13 16 25 14 19
5 Cash Value of Bid 10 4721 7 50 27 39
6 Management Plan 10 15 25 35 10 40 50
7 Business Development Plan 8 28 28 28 16 28 28
8 Investment Plan 13 39 39 46 33 52 59
9 Employee Plan 10 30 15 35 40 50 50
10 Environmental Plan 8 28 8 24 16 16 32
11 Other Conditions of Sale4 12 8 10 4 12 16
Total306305355263334398

63.
Three of the bidders - WRB, Synergics, and IVO - were selected as finalists and asked to submit their best and final offers to the Government.36 The WRB bid assigned the lowest value of all the bids to GRENLEC itself (EC $38.0 million) but WRB scored high on the other criteria.37 The Respondent’s quantum expert, Mr. Robert Mudge, conceded that the purchase price paid by WRB was in the upper range of PwC’s pre-bid valuations.38
64.
The Respondent notes that the WRB proposal included a substantial amount of cash up-front39 and speculated that "[t]his was particularly attractive to the cash-strapped [NDC] Government of the day, which was looking to increase government spending in advance of an upcoming election."40 However, the Respondent does not allege that there was any illegality or impropriety in the selection of WRB.41 Nevertheless, the Respondent accuses WRB of breaking many of its pre-contract promises including:

• "to utilize existing employees and improve their skills rather than rely on a system of expatriate management";

• to make EC $17 million worth of capital investments projected through the end of 1998, including investments in renewable energy, wind turbines and hydro generation plants;

• WRB's "expectation" that "substantially all of the earnings of GRENLEC will be required to fund future capital investments to assure the long-term viability of GRENLEC. This plan will leave no funds available for dividend payments."42

65.
A Commission of Inquiry that the newly-elected NNP-led Government appointed in 1995 to investigate the circumstances of the GRENLEC sale, although critical of the privatization in some respects, found no evidence of impropriety.43

D. The 1994 Share Purchase Agreement

66.
The Government and the Claimants concluded the SPA on or about 14 September 199444 as part of a privatization package with the 1994 ESA and the PUCA. It is clear that WRB would not have completed the purchase without the 1994 ESA to provide protection for its investment.
67.
On 15 September 1994, GPP purchased 50 percent of GRENLEC's shares for EC $15 million, which assumed a 100% value of EC $30 million.45
68.
In addition to GPP's 50% stake, WRB also controlled the 11.4% of GRENLEC owned by Eastern Caribbean Holdings Limited ("ECH"), bringing the total shares of GRENLEC effectively controlled by WRB to 61.3%.46 In summary, WRB indirectly owned 50% of GRENLEC through its subsidiary GPP.47 GRENLEC's remaining shares were held by the GOG (10%), the National Insurance Scheme (11.6%), ECH (11.4%), and various local individuals and GRENLEC employees (17%).48

(1) Buy-Out Provisions

69.
WRB, GPP and the GOG built an "exit strategy" into their arrangement. Section 7.9 of the SPA provides that on the occurrence of one or more of fifteen designated "Repurchase Events,"49 of varied gravity, the Claimants would be entitled to demand that the Government purchase all its shares, with the purchase price "calculated on the basis specified in the Second Schedule to the ESA in effect on the Closing Date"50 (hereinafter sometimes referred to as "the put").
70.
The structure of the Second Schedule to the 1994 ESA reflected in part the formula contained in the 1960 ESO. The main exception was a modification in the calculation of "goodwill".51

(2) Extent of the Monopoly

71.
The 1994 ESA granted GRENLEC a monopoly over generation and distribution of electricity for a period of eighty years as had been the case with the CDC.52 The monopoly was protected by a number of restrictions on individuals and corporations including tight limits on the self-generation by Grenadians of electricity53 even for their own use.

(3) Calculation of Electricity Rates

72.
The 1994 ESA divided the electricity rate into four basic components: fuel charges, non-fuel charges, exogenous event adjustments, and special charges for fuel-conversion.54 Under the 1994 PUC Act, the PUC was empowered to review GRENLEC’s rates for statutory compliance. The Public Utilities Commission Act, 1994, s. 17(3)(a) provides:

If an act provides the method of determining rates payable... whether on the basis of an identified formula (such as the Retail Price Index - X (RPI-X) formula or formulas) or otherwise, the Commission shall adhere to such method... and to this extent, the concept of a fair Rate of Return on investment shall not apply. (emphasis added)55

73.
The Respondent contends that the rate-setting formula of the 1994 ESA unduly favoured GRENLEC as the formula permitted excessive passing on of cost increases to consumers and, the Respondent says, in practice the Claimants maximized every opportunity to increase rates. However, in cross-examination, the Minister for Public Utilities, Gregory Bowen was obliged to admit that the Government not GRENLEC was the source of the RPI-X rate-setting formula.56 Moreover, WRB had agreed to the "x" value most favourable to the Government’s desire for lower rates.57 Further, the rates were reviewable for statutory compliance by the PUC. The Respondent contends that the PUC was dysfunctional through the years 1994 to 2016. If so, the Claimants respond, the reason for this state of affairs was the NNP Government’s failure to make the necessary appointments to the PUC itself. If the result was dysfunctional, the Claimants say, dysfunctionality was the Government’s choice.

(4) Composition of the GRENLEC Board of Directors

74.
The GRENLEC Board is composed of twelve members.58 Six of these members are nominated by GPP.59 The Government and GRENLEC workers each nominate one member to the Board. The remaining four members are elected each year, for a one-year term at the Annual General Meeting of shareholders (the GPP group does not participate in the election of these four "local" members).60
75.
The Chairman of the Board was a WRB appointee and was empowered to resolve any Board impasse with a "casting" vote.61 The Respondent complains that the Claimants’ nominee invariably exercised the casting vote to advance the Claimants’ interest rather than the best interest of the economy of Grenada. This is another manifestation of the "good corporate citizen" debate. The Claimants say it was quite proper for the WRB-nominated Chairman to cast the deciding vote to advance WRB’s interest. The Government on the other hand, contends that the Chair ought to have considered GRENLEC’s broader public responsibilities as the island’s sole source of electrical power with great impact on the local economy.

(5) WRB’s Consulting Services Agreement

76.
As contemplated in the SPA, GRENLEC and WRB also executed a Management Consulting Services Agreement ("Management Agreement").62
77.
The Respondent contends the Management Agreement was never intended to be permanent, but was kept in place for no good reason by the Claimants using their control of the GRENLEC Board. According to the Respondent, the Claimants would make decisions first, management would then implement those decisions, and only then would the "local" GRENLEC directors be informed. When pressed on points of disagreement by the locally-appointed directors, the Respondent says that WRB would claim that the disputed measures were authorized by the Management Agreement.63
78.
The Respondent complains that the Parties envisaged that the scope and remuneration of the Management Agreement should be subject to "annual review and approval" by both WRB and GRENLEC Boards. However, in 1997, over the local directors’ objections, the Management Agreement was "renewed and continue[d] [to be] in force until further notice" at an increased annual fee of EC $600,000. The Management Agreement was not reviewed or approved annually by the GRENLEC Board for almost two decades. No itemized invoices were provided by WRB to GRENLEC explaining what services were rendered, or by whom.64
79.
Nevertheless, the GRENLEC Board minutes thereafter do not record any objection by the local directors. Mr. Palmer, a local director, testified that while he often disagreed with Board decisions (where he felt WRB's people voted in WRB's interest without regard to other stakeholders), he nevertheless frequently did not record his dissent.

E. A Change of Government Resulted in a Government Challenge to the Constitutionality of the Privatization

80.
The 1995 election returned to power the NNP which had been highly critical of the GRENLEC privatization while in opposition, and maintained this position once re-elected.65 It:

(a) established, as mentioned, a Commission of Inquiry to investigate the sale of GRENLEC;66

(b) constituted a legislative committee to investigate its allegation that GRENLEC was charging illegally high rates;67

(c) declared that for procedural reasons, the 1994 ESA had never taken effect;68 and

(d) sought renegotiation of various provisions of the SPA (including the purchase price for the GRENLEC shares).69

81.
Minister Gregory Bowen, the NNP Minister responsible for overseeing GRENLEC, warned WRB that renegotiation of the SPA was "not a matter of choice" and that it had "always been the clear position of this administration" that the SPA was "neither legally nor morally binding on the Government of Grenada" because the Prime Minister of Grenada, who had signed the instrument of ratification "had no authority from Parliament" to sign it.70
82.
When the Government declared its intention not to honour its alleged contractual obligations under the SPA and the 1994 ESA,71 WRB initiated an arbitration under ICSID seeking an award compelling the GOG to repurchase the GRENLEC shares for USD $18.7 million, as calculated under the Second Schedule.72 This demand implied a substantial capital gain over the EC $15 million purchase price. Settlement negotiations led to a Supplemental SPA, dated 1 July 199873 which affirmed the validity of the 1994 ESA plus other related relief.74
83.
The terms of settlement were confirmed by the ICSID Tribunal in an Award embodying the Parties' settlement agreement that incorporated the Supplemental SPA and ended the arbitration proceedings.75

F. GRENLEC’s Lawsuit Against the Local Directors

84.
In December 1999, four "local" directors, Rupert Agostini, Nelson Louison, Chester Palmer, and Lawrence Samuel, held a press conference accusing WRB of serious mismanagement of GRENLEC.76 They said the purchase of a prototype engine from Caterpillar International Power Systems, Inc. was marred by self-dealing77 in light of WRB's corporate connections78 and that relevant minutes of GRENLEC Board of Directors meeting were falsified. This was denied by WRB which said the purchase was through a European Investment Bank ("EIB") approved tendering process designed by the independent consultant, Seeling Bushea & Associates ("Bushea").79 Further, at the press conference the local directors claimed that WRB forced GRENLEC to pursue a dividend policy to maximize near-term profits for its shareholders - and principally WRB itself, as majority shareholder - at the expense of the company's long-term viability.80 WRB had neglected to make the necessary (and promised) capital investment in GRENLEC to ensure the proper operation of the utility.81 WRB had made no further capital investment in GRENLEC after the original share purchase, although further investment was made from time to time by GRENLEC itself from its own funds.
85.
WRB denied the allegations made by the four directors which it said "threatened GRENLEC's reputation, divided the Board, and disrupted employees and management."82
86.
The Claimants caused the GRENLEC Board to direct GRENLEC to sue the four directors83 for breach of fiduciary duties. The defendants counterclaimed that the business "is being carried on in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interest of all the shareholders."84 There have been settlement discussions but no settlement. The four directors refused to settle unless GRENLEC paid their legal fees. They contend that they spoke out in their capacity as GRENLEC directors and as such were entitled to reimbursement for legal expenses. WRB says payment of legal fees would amount to an admission of wrongdoing by the Claimants. The dispute remains before the courts.85 GRENLEC has not pursued its claims and the local directors have not moved to have the case dismissed for want of prosecution.

G. WRB Offered to Sell its Shares to the Government in 2013 at EC $8.27 a Share

87.
In late 2012, WRB proposed to sell its stake in GRENLEC to a third party buyer (which had already purchased WRB's shares in Domlec in the Dominican Republic) but under the SPA, the Government had a right of first refusal to purchase GPP's shares.86 WRB represented that it was in a position to sell both GPP's 50% stake and the 11.4% stake owned by ECH. Accordingly, the negotiations at the time were for the sale of 61.4% of the Company.87
88.
Eventually, the Government made WRB an offer of EC $5.49 per share.88 By letter dated 23 October 2013, WRB rejected this offer, but offered "to enter into exclusive negotiations with the GOG if the government [was] prepared to increase its offer to EC $8.27 per share."89
89.
The Government did not raise its offer. The negotiations died. WRB did not pursue to conclusion a sale of the GRENLEC shares to any other interested party at that time. However, the Respondent contends that WRB’s offer to sell at EC $8.27 a share provides an accurate benchmark of their value in 2013 which affords a good indication of the value of the shares in 2016 and supports the Respondent’s position that Second Schedule compensation is grossly in excess of the true value of the shares.

H. GRENLEC Pays a Special Dividend

90.
As the prospect of a government repurchase loomed, GRENLEC issued a special dividend to its shareholders90 of EC $57 million, or EC $3.00 per share.91 Regular dividends had routinely stood at less than EC $1.00 per share.
91.
To pay this dividend, GRENLEC took out a mortgage debenture loan on 29 February 2016 from CIBC FirstCaribbean International Bank for EC $48 million.92 The Respondent says that recourse to a loan shows the dividend was wrongly declared because, as of the end of 2015, GRENLEC had only slightly over EC $18 million in after tax profit, and only EC $16.6 million in cash and cash equivalents. As part of the loan, GRENLEC assigned to the bank a charge on all of its assets, including the property, plant and equipment as collateral for the mortgage loan. The Respondent complains that this charge added another constraint on GRENLEC’s financial ability to raise capital to meet new investment requirements.93
92.
The Claimants respond that the Respondent misunderstands or misrepresents GRENLEC’s financial position. What is important is not a corporation’s cash but the accumulation of its retained earnings. Dividends are paid from accumulated profits (retained earnings). Grenada retained a positive balance of EC $19 million in retained earnings even after payment of the Special Dividend. The fact GRENLEC did not have cash to pay the dividend is irrelevant. The overall transaction increased GRENLEC’s debt but the result was to adjust GRENLEC’s debt to equity ratio to "better align" with GRENLEC’s historical average.94
93.
The Claimants argue that the Special Dividend constituted a sort of "catch-up" after several years of self-restraint,95 and that it was discussed and approved by the Board96 (which of course WRB controlled) and disclosed to the Eastern Caribbean Securities Exchange.97 The Claimants point out that the shareholders’ equity at the end of 2016 (after payment of the Special Dividend) was over EC $50 million,98 including EC $19 million in retained earnings.99
94.
In negotiating the CIBC loan, GRENLEC took advantage of low interest rates and used the proceeds in part to retire GRENLEC’s more-expensive (higher-interest) debt as well as to fund (in greater part) the Special Dividend.
95.
The Claimants argue that the Special Dividend in fact reduced the quantum of the Claimants’ claim in this arbitration as it reduced the assets to be valued under the Second Schedule of the 1994 ESA, and thus the claimed repurchase price.100
96.
In the Tribunal’s view, the debate over the Special Dividend simply reflects the contrasting views of the Parties regarding GRENLEC and the role of the Claimants’ investment in GRENLEC. The GOG sees GRENLEC as a key player in the economic development of the islands and believes WRB should share that vision by, for example, making significant investment in renewable energy. Instead of maximizing dividends, WRB should have caused GRENLEC to plough money back into the business. By contrast, WRB sees GRENLEC as a profitable investment which is rightly managed to maximize shareholder value. The Respondent has not pointed to any relevant provision under Grenada company law, the ESA 1994 or the SPA, which was violated by the Special Dividend or by the decision to largely fund it through the CIBC loan. The Claimants say, and the Tribunal accepts as correct, that WRB was under no legal obligation to share the Respondent NNP Government’s view of the best interest of Grenada.

IV. THE 2016 RESTRUCTURING THAT ALLEGEDLY TRIGGERED THE GOVERNMENT’S REPURCHASE OBLIGATION

97.
On 25 May 2016, the Senate of Grenada passed the Electricity Supply Act and Public Utilities Regulatory Commission Act (respectively, the "2016 ESA" and the "2016 PURCA" ; collectively, "the 2016 Acts") which came into force on 1 August 2016. The legislation was part of a restructuring of the electricity sector promised by the NNP Government consistently with its long-standing view that privatization of GRENLEC had been a mistake and its implementation bungled. The 2016 Acts shortened and narrowed GRENLEC’s exclusive license on the generation of electricity and cut short any future license,101 cancelled its monopoly on permitting or refusing self-generators,102 abolished the statutory rate-setting mechanism,103 and replaced it with a more discretionary procedure before the PURC as well as eliminating GRENLEC’s import duty and tax concessions.104 GRENLEC no longer had authorization to harness potential wind and water power without making payment to the Government.105 The guarantee of compensation for revocation of the license contained in Sections 28, 29, and the Second Schedule to the 1994 ESA was removed.106
98.
The Claimants allege and the Respondent denies, that the 2016 laws (the "Restructuring Package") constituted three separate Repurchase Events:

(a) the amendments to the rate-setting mechanism under the 1994 ESA, modified "GRENLEC’s rate adjustment, recovery or collection rights, privileges or procedures or service requirements," so as to engage Section 7.9(a)(iii).107 The Respondent denies that this change constitutes a "repurchase event" because the PURC has yet to make regulations and there has therefore been no "adverse effect on the business or shares in GRENLEC" as required by Section 7.9(a)(iii). Moreover, the Respondent suggests that a drop in rates for electricity will eventually increase demand and ultimately benefit GRENLEC;

(b) the elimination of GRENLEC’s exemption from customs and other duties on imported materials, "increased [GRENLEC’s] operating costs" within the terms of Section 7.9(a)(vii).108 The Respondent counters there is no evidence that GRENLEC has thereby actually experienced any increase in costs; and

(c) the modification of the term of GRENLEC’s licence and abrogation of its exclusivity come within the terms of Section 7.9(a)(iv).109 The Respondent does not dispute that the 2016 Acts modified GRENLEC’s monopoly and narrowed its scope. As to this ground, the Respondent acknowledges in the Counter-Memorial that:

There is no dispute that the 2016 ESA has truncated the eighty-year GRENLEC licence and heralded the end of the Company’s monopoly of all generation, transmission and distribution of electricity in Grenada.110

In the event of a Repurchase Event, the GOG "shall...purchase and acquire all GRENLEC shares then owned by [GPP]," and the "purchase price payable... shall be calculated on the basis specified in the Second Schedule to the [1994] ESA."111 Eventually the Claimants pursued only the third ground, namely abrogation of the monopoly. Even on this ground, however, the Respondent takes the position that the Claimants’ "extreme or wilful malfeasance" in the conduct of GRENLEC’s business disentitles the Claimants from relying on the truncation of the GRENLEC monopoly to justify a "put" of the GRENLEC shares to the Government for repurchase.

99.
Consequently, on 22 March 2017, ten months after the passage of the 2016 Acts, the Claimants wrote to the Government stating that the 2016 Acts "g[ave] direct rise" to a number of Repurchase Events112 and demanded the purchase price according to the Second Schedule, which the Claimants calculated at USD $65,428,963 payable within 30 days.113
100.
On 2 May 2017, the Government responded that there was a good-faith dispute as to whether the passage of the 2016 Acts gave rise to any obligation to repurchase the GRENLEC shares from WRB114 and requested negotiations to "resolve the matter".
101.
Three days later, on 5 May 2017, the Claimants filed a Request for Arbitration with ICSID, which gave rise to the present proceedings.
102.
At a press conference on 8 May 2017, Prime Minister Mitchell restated his desire to negotiate a settlement:

Dr. Mitchell told reporters...WRB has been written to by the Minister of Public Utilities (Gregory Bowen) through the Attorney General office about their request to government to buy the shares. As you know in any disputes and any request for cost of a particular buy out in any situation usually it’s a negotiating process and clearly what we did was write WRB saying you just stated what the buyout should be, it's just the basis (to start the process[)]." (emphasis added)

So, now we are being asked to pay goodwill and I can't blame [WRB] so we have to negotiate. We may have to pay some goodwill indeed unfortunately...115

103.
The Claimants note that at the press conference, the Prime Minister did not deny that the 2016 Acts put the GOG under an obligation to repurchase the shares and pay compensation nor did the Prime Minister speak of "extreme or wilful malfeasance". The Prime Minister's only issue was to negotiate how much compensation would have to be paid to purchase the GRENLEC shares.

V. ISSUES IN DISPUTE

104.
The Claimants seek an award:

(a) declaring that a "Repurchase Event" has occurred and that the Government is therefore obligated to purchase and acquire all GRENLEC shares owned by GPP at the price calculated on the basis specified in the Second Schedule to the 1994 ESA, namely a value of EC $361,882 million [USD $134 million] for 100% of GRENLEC, and EC $180,941 million [USD $67 million] for the Claimants' 50% interest in GRENLEC;

(b) declaring that the Government has breached its obligations to the Claimants under the SPA by failing to purchase and acquire, by no later than 3 May 2017, all GRENLEC shares owned by GPP;

(c) ordering that the Government complete, within 30 days of the Tribunal's award, its purchase and acquisition of all GRENLEC shares owned by GPP, and by no later than such time, to pay the Claimants, in immediately available funds, the sum of not less than EC $180,941 million [USD $67 million];

(d) awarding the Claimants pre-and post-award interest on the repurchase price of EC $180,941 million (and on all other amounts awarded), at a rate of 6% compounded semi-annually, from 3 May 2017 up until the date of payment;

(e) declaring that all sums to be paid by the Government pursuant to the Tribunal’s award must be paid net of, and exempt from, all Grenadian taxes, levies, and other duties and may be repatriated by the Claimants free and exempt from all Grenadian taxes, levies, and other duties;

(f) dismissing the Government’s counterclaim;

(g) awarding the Claimants the costs, including attorneys’ fees, associated with enforcing its rights prior to these proceedings; and

(h) awarding the Claimants the costs, including attorneys’ fees, associated with these proceedings, including all professional fees and disbursements.116

105.
With respect to liability, the Respondent raises as grounds for defence and rejection of the claim in whole or in part:

(a) the Claimants have failed to establish that a rate-adjustment repurchase event has occurred;117 or that a cost-increase repurchase event has occurred118 and that wilful malfeasance precludes any finding of a Repurchase Event on the basis of the abrogation of the monopoly ;

(b) even if there had been a Repurchase Event, the Respondent is under no liability to pay Second Schedule compensation because:

(i) Second Schedule compensation constitutes an unenforceable penalty;

(A) the Claimants’ demand is not just the specific performance of a put option but a remedy by way of liquidated damages for the failure of the GOG to repurchase the GRENLEC shares;

(B) the repurchase demand of revised to USD $67 million is grossly disproportionate to any legitimate expectation the Claimants could have in obtaining compensation for their shares;

(ii) moreover, imposition of Second Schedule compensation is an unconstitutional attempt to fetter the lawful exercise of governmental authority and contractual provisions that contravene the constitution are void and can have no legal effect;

(c) on the issue of Quantum, the Respondent contends that if a repurchase event is established, the Claimants should nevertheless receive no more than the fair market value of their shares;

(i) the Discounted Cash Flow ("DCF") method is the appropriate method to estimate the fair market value of the Claimants’ shares;

(ii) the fair market value of the Claimants’ shares under the 2016 ESA is no more than EC $63.6 million (USD $23.6 million);

(iii) in the alternative, the fair market value of the Claimants’ shares under the 1994 ESA is no more than EC $82.3 million (USD $30.5 million);

(iv) in the further alternative, should the Tribunal apply the Second Schedule, it should disregard the Claimants’ inflated valuation and apply the updated PwC assessment of EC $276,239 million (USD $51.2 million);

(d) and by way of Counterclaim, the Respondent contends that the Claimants have unfairly prejudiced GRENLEC’s minority shareholders including the Government through "disadvantageous transactions and subsequent litigious behavior", the Claimants’ payment of "improper dividends" and promotion of "discrimination" between shareholders.119 The amount of claimed damages is not quantified.

VI. JURISDICTION

106.
The Respondent has not raised any objection against the Tribunal’s jurisdiction. In accordance with Article 41(1) of the ICSID Convention, the Tribunal is the judge of its own competence. Article 25(1) of the ICSID Convention foresees that "[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State [...] and a national of another Contracting State, which the parties to the dispute consent in writing to submit national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. In addition, Article 25(2)(b) of the ICSID Convention establishes that a "National of another Contracting State" means "any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention."
107.
First the Tribunal is satisfied that the Parties consented in writing to submit the dispute to the Centre. In particular, the Parties agreed in Section 11.2(a) of the SPA to submit any dispute "arising out of or in connection with" the SPA to ICSID.120
108.
Second, the Tribunal is further satisfied that the Claimants are nationals of another Contracting State for the purposes of Article 25 of the ICSID Convention. The United States of America has been an ICSID Contracting State since 14 October 1966, and Grenada has been an ICSID Contracting State since 23 June 1991.121
109.
WRB is a company incorporated in Florida, United States. GPP is a company incorporated in Grenada, which qualifies as a "national of another Contracting State" in light of the Parties' agreement in s. 11.2(a) of the SPA which provides that "[f]or purposes of consenting to the jurisdiction of the Convention, the Parties agree that each of the Buyer Parties [which includes GPP] is a foreign controlled entity."
110.
Based on the evidence before it, the Tribunal is also satisfied that there is a legal dispute arising out of an investment for the purposes of Article 25 of the ICSID Convention.
111.
The Tribunal therefore concludes that it has jurisdiction over the present dispute between the Claimants and the Respondent.

VII. APPLICABLE LAW

112.
Article 42(1) of the ICSID Convention provides that "[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties." Section 11.1 of the SPA provides that it is to be governed by and construed in accordance with the law of Grenada, a defined term that includes "the Constitution of Grenada" and "the common law of Grenada". However, this general instruction is qualified in s. 11.1 itself by "the understanding" that the provisions of s. 7.9 [pertaining to the repurchase mechanism] and other identified sections of the SPA are to apply "notwithstanding inconsistent provisions of Grenadian law". As will be seen, the Parties disagree on whether there is any inconsistency between s. 7.9 and Grenadian law, and if so, whether, as a matter of law, the "carve out" of s. 7.9 from the application of Grenadian law is effective.

VIII. THE TRIBUNAL’S ANALYSIS OF THE LIABILITY ISSUES

A. The Respondent’s Allegation that the Terms of the 1994 Privatization Were Oppressive to Grenada

113.
At the outset, the Tribunal wishes to address the Respondent’s general challenge to the 1994 package of laws and agreements made by the prior (and rival) NDC government as extravagantly improvident. The Claimants, says the NNP Government, have performed badly. They have reaped unconscionable benefits while hindering progress and in particular obstructed the development of "utility scale" renewable energy. It would be oppressive and unfair to reward the Claimants for their mismanagement with a grossly excessive award of compensation calculated under the Second Schedule.
114.
The Respondent does not seek to set aside the SPA or Supplementary SPA as unconscionable or tainted with bad faith. There is no allegation of corruption. The Tribunal will now address the following particulars.

(1) The GOG Negotiating Team Lacked Expertise

115.
According to the Respondent, the Government team had no experience of GRENLEC’s operations or the energy sector itself.122 WRB and its legal team were able to extract a raft of concessions in exchange for a bloated offer of up-front cash.123 The inordinate length of the licence and GRENLEC’s exclusive control of electricity generation were relics of the colonial regime left behind by the British.124 WRB’s expanded list of Repurchase Events included penalty provisions taken from colonial-era legislation, which,125 when combined with gutting any meaningful PUC "oversight" capacity, left the Government with no practical means of regulating the Claimants’ conduct.
116.
However, the Claimants point out that the GOG team was led by senior Ministers and advised at every stage by Price Waterhouse and other consultants. The GRENLEC shares went to tender in an open multi-stage bidding progress. The suggested use of the Second Schedule methodology came originally from the Government not the Claimants.
117.
The Commission of Inquiry set up by the NNP Government itself in 1997 reported that:

Price Waterhouse produced a Privatization Project in June 1993, a valuation of GRENLEC in June 1993, a review of its valuation in May 1994, an analysis of the best and final offers in December 1993, a summary of the finalists’ proposals in December 1993, and a comparison of the best and final offers in December 1993.126

118.
The Commission of Inquiry was critical of some of the ultimate terms of the privatization ("thought-provoking"), but concluded that the Government made the deal with its eyes wide open.127
119.
In the Tribunal’s view, there is no credible evidence of impropriety or victimization in the negotiation of the SPA. The terms of the SPA thus negotiated do not look as attractive to the present NNP Government as they did to the 1994 NDC Government, but that is no basis for concluding that the Government was the victim of a lopsided or unfair negotiation.

(2) GRENLEC’s Monopoly Was an Anomalous "Colonial-Era" Monopoly

120.
The NDC Government’s initial Request for Proposals presented GRENLEC as a "natural monopoly."128 However, the NNP Government now says, the scope, exclusivity and 80-year term of the monopoly granted to GRENLEC under the 1994 ESA inappropriately carried forward the 1960 model and fettered the Government’s ability to intervene in the energy sector in the public interest, and adversely affected development of Grenada’s abundant renewable energy resources.
121.
In the Tribunal’s view, there is no doubt the 1994 privatization reduced the GOG’s public policy options. The NDC Government made a trade-off between continuing state control and private investment. The evidence is that monopolies are prevalent in small island energy markets in the Caribbean.129 The International Monetary Fund reviewed the Caribbean energy markets in 2016 and concluded that "[f]or the most part, electric utilities are vertically integrated monopolies that hold exclusive licenses for generation, transmission, distribution and sale of electricity."130 The grant of a monopoly was important to profitability and affected the price that investors (including WRB) were prepared to offer for shares in GRENLEC.131 The Tribunal does not accept this aspect of the Respondent’s attack on the 1994 privatization.

(3) The GOG Regulator, the Public Utilities Commission Established Under the 1994 Regime was "Inoperative" Because the "Claimants had Designed [it] to be Toothless, in the Contract and Legislation they Drafted in 1994"132

122.
The Respondent complains that the 1994 restructured PUC was "toothless" because the PUC Act did not permit effective government oversight of GRENLEC or grant adequate powers to curb its mismanagement.
123.
However, the evidence is that design of the PUC was established by the Government itself before the bidding began: see GRENLEC Information Memorandum, dated 1993, which noted that "the proposed Public Utilities Commission Act...has been presented to the Parliament for approval."133
124.
It is true that the role of the PUC in rate setting adjustments was largely limited to whether the proposals complied with the 1994 ESA formula but the limited role (which caused the resignation of some PUC Commissioners) gave potential investors security and a margin of protection once their investment had been made. In this particular trade-off between regulation and maximizing investment the NDC government chose investment, and this choice factored into the price the bidders were prepared to pay for GRENLEC shares.
125.
The allegation that it was the Claimants which masterminded a "toothless" 1994 PUC Act was not supported by any evidence of impropriety in the 1994 negotiations and is not consistent with the bid records. The Respondent’s chief fact witness, Minister Gregory Bowen, had no personal involvement in the 1994 negotiations and disclaimed personal knowledge of how they were conducted.
126.
When some members of the PUC resigned after the 1994 changes to the PUC, Minister Bowen did not replace them. The Tribunal does not accept the Respondent’s submission that no qualified individuals in Grenada could be found to accept an appointment to the PUC which had a role in respect of all utilities in Grenada including but not limited to the electricity sector. It was the Government’s failure to staff the PUC (whether "toothless" or not) rather than any action by the Claimants that led it to be "inoperative". As a result, for example, the PUC complaint procedure was not only unavailable to electricity rate payers but also to the customers of the other utilities in Grenada as a whole.
127.
It is of interest that new regulations are expected to be passed by the Public Utilities Regulatory Commission (the "PURC") under the 2016 PURC Act but there is no evidence that this has yet been done.

(4) The Electricity Rate-Setting Framework [RPI-X] Meant That "Virtually Any Increase in Costs was Directly Passed on to the Grenadian Consumer"

128.
The Respondent does not claim that any of the GRENLEC rate increases since 1994 contravened the statutory formula.
129.
The evidence is that the rate-setting methodology in the 1994 ESA was presented by the Government in its offering memorandum during the RFP process. The Government received advice from PwC that the rate structure selected would have a "significant effect" on the price obtainable for GRENLEC shares.134 It then instructed bidders to assume, for purposes of their bids, that non-fuel charges would "be set using RPI-X"135 [i.e. Retail Price Index minus a negotiated value of "x"] and that any increase in fuel oil prices would be incorporated in electricity rates based on actual prices."136 The evidence is that the "RPI-X" formula is common in regulated industries. The Government advised bidders that the specified rate structure would "form the basis to compare bids and begin negotiations."137 Ultimately, in terms of non-fuel charges, the Claimants agreed to the formula of RPI-2 (i.e. "x" equals 2) which required GRENLEC to achieve cost efficiencies substantially in excess of increases in the retail price index [RPI] in order to justify a real rate increase.
130.
The Tribunal finds that the Government has not established that the RPI-X formula is either unusual or worked unfairly to Grenada's disadvantage.

(5) GRENLEC’s Electricity Rates in Grenada are Excessive138

131.
The Respondent alleges that GRENLEC's electricity rates are higher than can be justified.139
132.
In response to this allegation, the Claimants called an expert, Dr. Boaz Moselle, who testified that rates in Grenada were consistent with Caribbean markets generally140 especially those which operated without Government subsidies.141 The Respondent’s expert, Robert Mudge, compared Grenada rates with U.S. rates, an exercise which the Tribunal considers unhelpful.
133.
In any event, the Respondent does not dispute that the rates were calculated according to the SPA formula to which the prior Government had agreed.

(6) The Failure of GRENLEC, Under WRB’s Direction, to Develop Grenada’s Ample Resources of Renewable Energy

134.
The Respondent states that the 2016 restructuring laws were in the national interest because GRENLEC was squandering Grenada’s renewable energy potential. It points out, correctly, that Grenada is blessed with much sun for solar energy, much wind for industrial turbines and much potential for the generation of geo-thermal energy.142 In relation to these great opportunities, GRENLEC’s investment for renewable energy, according to the Respondent, is a pittance. Given the rate-setting structure, GRENLEC was given no incentive to switch to renewables from expensive imported diesel fuel, the cost of which constitutes a significant drain on Grenada's foreign reserves.
135.
The Inter-American Development Bank observed that development of energy resources in Grenada was "hampered" by the regime created by the 1994 ESA:

The existing legislative and regulatory framework has enabled a monopolistic, fossil fuel-biased development of the electricity sector, severely hampering the development of renewable energy technologies. Furthermore, the ability of external forces, such as the government, to implement changes to encourage the use of renewable energy is limited under the current framework.143

136.
For whatever reasons (and the Parties point the finger of blame at each other), the result has been a disappointing level of renewable energy development, as the Claimants' witness, Robert Blenker acknowledged:144

Q. Excuse me, Mr. Blenker. No utility-scale renewables project in Grenada by the end of 2017; right?

A. That is correct.

Q. No geothermal energy project?

A. No.

Q. No utility-scale solar?

A. No.

Q. No wind power connected to the grid.

A. Nothing significant, no.

Q. Okay. Now, in the current plan that is the 2014 to 2020 renewable energy Strategic Plan, you set a new goal for GRENLEC of increasing renewable energy penetration to 20 percent of the nation's electricity usage by 2020; right?

A. Yes.

Q. Okay. It's 2019 now. GRENLEC isn't going to hit that target, is it?

A. No.

137.
The Respondent lists what it regards as lost opportunities:

(a) despite potential for solar development on the island, in 2015 only 0.6% of generation capacity came from solar,145 and two-thirds of this solar power came from interconnected private owners.146 The Claimants say they were unable to acquire the necessary land for utility scale facilities;147

(b) despite the potential for wind generation, a very promising site on the island of Carriacou remains undeveloped;148

(c) despite the potential for geothermal generation,149 GRENLEC and the Government could not advance its development beyond preliminary Heads of Agreement. The Claimants blame the Government, as testified by Mr. Blenker:

Q. To be clear, Mr. Blenker, it's your testimony that the reason that the geothermal resource has not been developed is because the Government has not engaged with GRENLEC?

A. Yes.150

138.
The Respondent says WRB insisted on unreasonable concessions. For whatever reason, the potential remains untapped.
139.
The Claimants argue that in fact the 1994 ESA created substantial incentives for GRENLEC to introduce renewables.151 Renewable sources now support more than 7% of GRENLEC's peak demand.152 To the extent that GRENLEC is required to consume less diesel fuel, 90% of the fuel efficiency savings accrue to GRENLEC (the company was required to pass the remaining 10% through to its consumers). This formula provided an incentive for GRENLEC to substitute fossil fuel generation with renewable sources153 and GRENLEC has attempted to do so. Over the years GRENLEC has identified a number of renewable energy projects which, the Claimants say, were "thwarted" by the GOG, and in particular by the NNP party when in power,154 including efforts to access land for utility-scale solar facilities,155 an incomplete wind power project on the island of Carriacou156 and a promising geothermal site.157
140.
The Tribunal concludes on the evidence that neither the Claimants nor the Government pursued renewable energy proposals with as much vigour as they now assert. Whatever the respective merits of these dueling allegations, the Respondent was unable to identify any statutory or contractual obligation on the part of GRENLEC (or the Claimants) to develop renewable energy.158 Again, GRENLEC under the guidance of WRB may have fallen short of what might be expected of a good corporate citizen, but the root of the problem is the decision of the NDC Government in 1994 to create the regulatory framework which the NNP Government now considers "toothless" and the 1994 failure to set performance standards for renewable energy which, with the benefit of hindsight, would have promoted its development.

B. The Claimants’ Submission That One or More Elements of the 2016 Legislation Constituted a "Repurchase Event"

141.
The Claimants contend that the 2016 legislation fundamentally altered the 1994 bargain in at least three ways:

(a) the 1994 rate setting mechanism, which until 2016 operated predictably according to a statutory formula, was replaced with a regulatory procedure administered by the PURC. The jurisdiction of the PURC includes a public interest discretion;

(b) the abolition of the tax exemption will necessarily result in higher capital and operating costs going forward;

(c) the termination of the 80-year monopoly and the substitution of a shorter and narrower period of exclusivity made GRENLEC shares a fundamentally different investment than in 1994.

142.
In subsequent pleadings, the Claimants did not pursue the alleged Repurchase Events associated with the rate-setting mechanism or the tax exemption but concentrated on what it claimed was an abrogation of GRENLEC's 80-year monopoly and associated rights.
143.
The Respondent concedes that the 2016 "restructuring package" might otherwise constitute a Repurchase Event as a result of abrogation of the monopoly but, Section 7.9(a)(iv) of the SPA permits Government to intervene in the monopoly where the Claimants have "committed extreme or wilful malfeasance in, or abandonment of, its management of GRENLEC of such a nature and to such a degree as warrants" such Government action with regard to the licence.159
144.
Accordingly, the Tribunal turns to the issue of whether the 2016 impairment of the GRENLEC monopoly is negated by the alleged "extreme or wilful malfeasance" on the part of the Claimants.

(1) Particulars of the Allegations of "Extreme or Wilful Malfeasance"

145.
The Respondent says generally that from the very inception of the Claimants’ investment, their actions show they never intended to be a genuine partner of the Government in the operation of the utility. Instead, at every turn, the Claimants have operated the Company so as to extract the highest return for themselves, without heed to the protests and warnings of the local directors or other shareholders, or indeed, the long-term viability of GRENLEC itself.160 In particular:

(a) GRENLEC’s first major purchase under the Claimants’ control was two Caterpillar generator units. The purchase was made without consultation with the rest of the Board, and without disclosing the nature and extent of the relationship between Caterpillar and WRB;161

(b) WRB has repeatedly used its control of the Board to favour the Claimants and in particular to declare dividend payments without the approval of non-WRB Board members.162 The Respondent particularly complains about the Special Dividend of EC $57 million issued in 2016, just as this dispute was coming to the fore;163164

(c) WRB has continued to collect for over 20 years management fees under an arrangement that in 1994 was intended to be transitional to provide time to train qualified Grenadians to take over the senior positions;

(d) the Claimants’ fees for lawyers and forensic accountants have caused GRENLEC to pay for work of benefit only to the Claimants. GRENLEC paid the Claimants’ legal fees in the early phase of the current ICSID dispute with the GOG.165 GRENLEC paid for the KPMG valuation report that served as the basis for Claimants’ "exorbitant repurchase demand."166 Only the Claimants, not GRENLEC, would stand to gain from any award this Tribunal might render against the Government.

146.
The Respondent provided a supplementary summary of wilful malfeasance in its Rejoinder:167

(a) in negotiating with an inexperienced Government team, the Claimants secured a legal regime that combined monopoly power with no cap on returns all of which was protected by the looming threat of a repurchase penalty;168

(b) the Claimants caused GRENLEC to issue almost all its profits in dividends, over 60% of which go directly to WRB and its principals or directors,169 without regard to the capital needs of GRENLEC and the Grenadian economy;

(c) the Claimants caused the Company to maintain legal proceedings against Local Directors for two decades for publicly and appropriately challenging the Claimants’ management of GRENLEC. Moreover, the Claimants have caused GRENLEC to refuse to pay the legal costs of the four local directors even though the non-WRB directors spoke out in their capacity as directors in what they consider to be the best interest of the company;170

(d) the Claimants have not implemented a single utility-scale renewable energy project;171 and

(e) in 1997, the Claimants successfully used the threat of the Repurchase Penalty in the earlier ICSID arbitration to force the Government to retreat from its energy sector reforms.172

(2) The Contested Definition of "Extreme or Wilful Malfeasance"

147.
The Respondent points out that "extreme" or "wilful" are divided by the disjuncture "or",173 and therefore "malfeasance" (which the Respondent argues is equivalent to "misconduct")174 need not be "extreme" but merely "wilful". Thus the test is satisfied by "any form of intentional or reckless conduct that is wrongful or unlawful."175
148.
According to the Claimants, basic principles of contract interpretation require the phrase to be read in context and in light of the words that accompany it.176 The presence of the word "extreme" in the definition, which must be read as a whole, points to the high level of misconduct required to satisfy the test. The words "extreme" and "wilful" signal a requirement for intentional acts of egregious mismanagement. Moreover, the wrongdoing (malfeasance) must be so serious as to justify the correspondingly grave consequence (impairment or annulment of the GRENLEC Licence) and deprivation of Second Schedule compensation.177
149.
In the Tribunal’s view, the key to the interpretation is not the difference between "wilful misconduct" and "egregious mismanagement" but is the requirement of proportionality (i.e. "so serious as to justify the correspondingly grave consequence"). While the Parties are correct that the conduct must be "wilful" and improper, even "egregious", these terms are somewhat subjective, whereas the "consequence" has been quantified by the experts. The Respondent’s expert, Mr. Mudge, says that using the fair market value approach, the claims should be valued at no more than EC $127 million.178 The Claimants’ expert, Mr. Ellison, assesses Schedule Two compensation at EC $361,882 million.179 The difference ("the consequence") is EC $235 million. The Tribunal must therefore weigh whether the allegations, if proven, either individually or collectively justify a consequent reduction (to put it at its highest) of EC $234.8 million.
150.
The Tribunal will therefore turn to the issue whether any of the allegations of "wilful malfeasance", if established, justify the consequence sought by the Respondent.

C. Do any of the Particulars of the Alleged Malfeasance Individually or Collectively Justify Denial of Repurchase Obligation?

(1) The Purchase of Two Caterpillar MaK Generators

151.
The Respondent alleges that WRB had a conflict of interest in causing GRENLEC to purchase electrical generators from Caterpillar while bypassing proper procedures and board approval. Shortly after installation, both units experienced "severe problems," with significant adverse impact on Grenada’s electricity supply.180 Caterpillar has admitted the severity and extent of the problems. In a settlement agreement signed in 2001 between Caterpillar and GRENLEC, Caterpillar had to entirely replace one engine and do extensive work to convert the other, "at its sole cost and expense," and to give GRENLEC a further discount of USD $1 million on the purchase price in exchange for the release of all claims relating to the generators, "including [their] performance, functionality, durability or reliability."181
152.
As to proper process, the Claimants respond that the purchase was based on a tendering protocol recommended by the consultant, Bushea (who admittedly had done work previously for the WRB group), and approved by the EIB.182 The Claimants deny that any member of the WRB group of companies or any member of the Blanchard family received any personal benefit from GRENLEC’s purchase and there is no evidence to the contrary.
153.
The Minutes of the GRENLEC Board of Directors record deliberations on the Caterpillar transaction during multiple Board meetings.183
154.
In the Tribunal’s view, the Respondent has failed to establish any conflict of interest. If, contrary to the Claimants’ argument, there were any procedural irregularities in making the purchase, they did not amount to "wilful malfeasance". On the merits, the transaction came within reasonable business judgment.

(2) Excessive Dividend Payments

155.
The Respondent complains that "WRB has repeatedly used its control of the [GRENLEC] Board to issue dividend payments without the approval of non-WRB Board members."184 There is no doubt that the Claimants used their control of the GRENLEC Board to maintain a substantial dividend stream.
156.
The Claimants emphasize that the dividends were issued to all shareholders (of which the Claimants represented about 60%) including the Government. The Board has the power to declare dividends by a majority vote.185
157.
As to the 2016 Special Dividend, the Claimants rely on the GRENLEC Articles of Association which provide that "directors may from time to time pay to the member such interim dividends as appears to the directors to be justified by the profits[…]"186 The Articles of Association do not refer to profits of any particular year but necessarily to accumulated profits187 (or retained earnings). The Claimants say the Respondent’s singular focus on cash is misconceived. At the time of payment of the Special Dividend, GRENLEC's retained earnings exceeded the Special Dividend by EC $12 million.188
158.
The Claimants argue that GRENLEC's decision to finance part of the Special Dividend via the CIBC Loan made good business sense because of low interest rates. The CIBC Loan realigned GRENLEC's capital mix with its historical average.189 GRENLEC remains in a position to repay the loan,190 and details about the loan were appropriately disclosed in GRENLEC's annual report.191 Moreover, the Claimants argue the Special Dividend in fact reduced the amount of the Claimants' claim in this arbitration by precisely the same amount that the Claimants received.192
159.
In the Tribunal’s view, the dividend issue is another manifestation of the Parties' differing views of GRENLEC's "social" responsibility. The Respondent believes that GRENLEC ought as a "good" corporate citizen to have ploughed more of the profits back into the business for much needed infrastructure and, in particular, renewable energy. The Claimants argue that they have indeed been good corporate citizens but that, realistically, their investment was intended to make money for the shareholders or investors and they acted accordingly. GRENLEC's dividend policy, including the special dividend, did not contravene any corporate contractual or statutory requirement. The Respondent has not established that the dividend policy pursued by the Claimants demonstrated "wilful malfeasance".
160.
It was suggested that s. 241(2) of the Grenadian Companies Act might have been utilized by the GRENLEC shareholders other than the WRB majority (including the GOG with 10%) to remedy conduct "without valid corporate purpose" or that "discriminates between shareholders with the effect of benefitting the majority" or with "lack of adequate and appropriate disclosure of material information to minority shareholders" but there is no evidence that such remedy was ever sought in the courts of Grenada.193
161.
In the Tribunal’s view, the Respondent has not established that the dividend policy imposed on GRENLEC by the Claimants amounted to "wilful malfeasance".

(3) Refusal to Promote Development of Renewable Energy

162.
The lack of serious development of renewable energy is an important matter for the development of Grenada’s economy. However, the Claimants gave evidence of serious efforts in that regard. While the Claimants and the Government blame each other for the lack of progress, the Tribunal does not accept the Respondent’s allegation that the lack of success was "wilful" or that the history of these efforts demonstrate "malfeasance".

(4) GRENLEC’s Payment of Fees of Legal and Forensic Accounting Consultant Benefitted the Claimants not GRENLEC

163.
The Respondent argues that the Claimants committed wilful malfeasance by causing GRENLEC to fund legal expense during the initial stages of this arbitration as well as KPMG’s advisory quantum report194 used to justify the Claimants’ initial demand for USD $65,428,923 "payable within 30 days".
164.
The Claimants say the Board voted in favor of funding "the initial stages of this arbitration in the hope of persuading Respondent to negotiate mutually-acceptable regulatory reforms" which would allow the Claimants to continue their investment.195 GRENLEC, they say, was entitled to defend itself in light of the dramatic impact of the 2016 reform package on GRENLEC’s business. To achieve impact, the Claimants’ demand had to be accompanied by the KPMG "advisory" report supporting the high cost of a buy-out. Management hoped, according to the Claimants, that a negotiated solution would allow GRENLEC to continue in business on the basis of the 1994 privatization regardless of whether the Claimants’ shares were repurchased by the Government. The Claimants recall the experience of the first ICSID arbitration in 1997 which led to a negotiated settlement which restored GRENLEC’s monopoly and privileges.
165.
The Claimants acknowledge that by the end of 2017, it was clear that Respondent had no interest in pursuing a negotiated solution; accordingly, GRENLEC stopped paying legal and expert fees related to this arbitration.196
166.
In the Tribunal’s view, the first point to make is that whatever basis might otherwise have existed to justify GRENLEC’s retainer of outside legal counsel to assess the impact of the 2016 laws on its business, the fact is the Claimants had already issued the current Notice of Arbitration on 5 May 2017 seeking compensation for the Claimants not GRENLEC. The dominant purpose of the legal work was to advance the Claimants’ claim. GRENLEC continued to pay legal fees until the end of 2017, which was well beyond anything that could be justified, even on the Claimants’ view of the facts.
167.
Moreover, in the Tribunal’s view, there was no justification for GRENLEC to fund the work of forensic accountants KPMG whose mandate was to calculate and justify the amount of the Claimants’ compensation. The benefit to GRENLEC as a negotiating tool with the Government was marginal at best. The Claimants’ quantum expert, Mr. John Ellison, acknowledged that the work product reflected in his report put before this Tribunal was "largely the same" as the KPMG work product undertaken for its original 2017 "indicative valuation report":

Q. Okay. You would agree with me, though, that the work product reflected in the Ellison/Popovic Report is virtually the same as the work product in the Indicative Valuation Report that had been produced a year earlier?

A. Well, it's largely the same. I wouldn't say "virtually," but it's largely the same.

Q. I'm willing to concede on that one word. That may be the only point we agree on for the entire cross-examination.

So, largely the same, and that had been the work product that at least as far as we've discussed in this Hearing that GRENLEC had paid for?

A. Yes, that's right.197

In effect, the GOG as shareholder was being required to fund in part the litigation against itself.

168.
However, while such payments demonstrate (as the Respondent alleges) conflation by WRB of GRENLEC's interest and WRB's interest, they do not amount to such "extreme or wilful malfeasance" as to justify denying the Claimants compensation under Schedule Two. The issue of reimbursement to GRENLEC for improperly charged fees and disbursements is dealt with below.

(5) GRENLEC’s Constitutional Claim Against the Government

169.
The Respondent asserts that the Claimants caused GRENLEC to bring "a nominal constitutional claim against the Government... [that] in fact concerns contractual obligations in the SPA" and is intended to benefit the Claimants.198 The constitutional claim challenged a December 2017 amendment to the 2016 ESA mandating that GRENLEC henceforth pay 5% of its pre-tax profits to the Government to be devoted to whatever purposes a committee appointed by the GOG may decide.199
170.
The Tribunal’s view is that the purpose of GRENLEC's claim, whatever its legal merit, was to benefit GRENLEC. Any indirect benefit to the Claimants would have the same, on a per share basis, as the benefit to the GOG. GRENLEC litigation for the benefit of GRENLEC does not constitute "wilful malfeasance" by the Claimants in the management of GRENLEC200 justifying a denial of Second Schedule compensation.

(6) The Management Agreement Fees

171.
The Management Agreement201 requires WRB to provide GRENLEC with a variety of management services.202
172.
The Respondent contends that the Claimants improperly extended control of the day-to-day management of GRENLEC to ensure that GRENLEC was managed for the benefit of WRB rather than Grenada. In part the Government contends that the management role was abused by WRB to decide issues free of scrutiny by the Board of Directors on which sat the local directors.
173.
The Claimants respond that access to "specialized management services" was one of the key reasons that the Government sought a strategic partner to purchase a controlling stake in GRENLEC.203 Many of the top jobs have subsequent to 1994 been filled by Grenadians and the management training process continues to be a work in progress. The Claimants point out that the "modest annual fee" (approximately USD $222,000) has not increased in 22 years despite periods when GRENLEC required significantly greater involvement by WRB personnel, such as in the aftermath of Hurricane Irma.204 The Respondent says that competent Grenadians were available years ago to take the top management jobs.
174.
In the Tribunal’s view, the assessment of a need for ongoing management services was a matter of business judgment. There is no evidence that Grenadians were denied top jobs for improper reasons. The Claimants have a large investment in GRENLEC's performance and the decision to continue management services at USD $220,000 per year does not amount to extreme or wilful malfeasance on the part of WRB (even under the Respondent's broad definition of the term) to justify denial of Second Schedule compensation.

D. The Causation Issue

175.
The Claimants argue that in order to rely on the "wilful malfeasance" exception, the Respondent must show that the wilful malfeasance caused the GOG to abrogate of the GRENLEC monopoly. The 2016 "restructuring package" was the result of politics not management deficiencies. Allegations of malfeasance came as an afterthought in response to commencement of the present arbitration.
176.
The Respondent says the allegations of malfeasance are of long-standing nature, as evidenced by the charges made against the Claimants by the local directors that are the subject of the ongoing "fiduciary" lawsuit. Whether or not the words "extreme or wilful malfeasance" were used is of no consequence. There is evidence of numerous stand-offs between GRENLEC (as directed by WRB) and the GOG including the Claimants' resistance to the development of renewable energy and its divisive dividend policy.
177.
The Claimants argue that the allegations of "wilful malfeasance" are not authentic but are merely the ex post facto product of lawyers casting around for a defence to a pending ICSID claim. In a letter to WRB, the Claimants argue, the Respondent acknowledged that the decision to abrogate the GRENLEC monopoly was political:

In view of the implications for job creation, foreign direct investment, the overall development of the economy of Grenada and the international commitment of the Government to the production of cleaner and more renewable energy, it is imperative that relevant changes are made to pertinent legislation and attendant regulations. The Government considers that the public interest must be viewed as overriding to the interests of WRB/GRENLEC...205

178.
Significantly, the Claimants say, there are no documents communicated to the Claimants alleging "wilful malfeasance" and the Government's willingness in 2016 and 2017 to continue WRB’s stewardship of GRENLEC on 2016 terms indicates clearly that "malfeasance" was not an issue.
179.
The Tribunal concludes on the evidentiary record that the GOG believed in good faith that it had many good policy reasons to take back control of GRENLEC but wilful malfeasance was not on its list of reasons. This is not to say that the GOG and the local Directors were satisfied with the Claimants’ performance. Undoubtedly the Claimants’ determination to manage the GRENLEC monopoly to the advantage of the WRB shareholders gave cause, as the Respondent saw the situation, for dissatisfaction. However, dissatisfaction generated by the Claimants’ exercise of contractual rights does not translate into "wilful malfeasance". The 2016 restructuring package was clearly motivated (i.e. caused) by the NNP Government’s public policy objectives, which differed from those of the prior NDC Government, not any malfeasance (belatedly alleged) on the part of the Claimants. There were (and are) numerous allegations of management deficiencies laid at the door of WRB but, applying the proportionality test called for by the SPA, and whether viewed individually or collectively, they do not justify denial of Second Schedule compensation.

E. The Claimants Contend that the Malfeasance Argument is Procedurally Inadmissible

180.
Section 7.9(a)(iv) of the SPA provides that "any annulment, cancellation, limitation or other impairment of the term, scope or exclusivity of the GRENLEC Licence" constitutes a Repurchase Event, unless "taken pursuant to and in accordance with any final and binding order issued by" an ICSID tribunal upholding an allegation of extreme or wilful malfeasance.206
181.
The Respondent does not dispute that only a finding of wilful malfeasance by an ICSID tribunal will definitively bar WRB and GPP from recovery on this ground.207 However, the Respondent argues that the reference to an ICSID Tribunal includes this Tribunal and that whether that finding is made before or after the Government’s abrogation of the monopoly is immaterial. If wilful malfeasance is established, the Respondent argues, the timing and sequence of the ICSID orders are irrelevant to the purpose served by Section 7.9(a)(iv) which is "to preclude Claimants from forcing a share repurchase where they had themselves committed wilful malfeasance."208
182.
Imposition of an ICSID award as a condition precedent to abrogation makes no commercial sense, the Respondent argues, as the double hearing would impose increased costs, undue delay, and put an unnecessary administrative burden on the Government, and yield no discernible benefit in the performance of the contract.209
183.
The Respondent relies upon UK Supreme Court decision in Rainy Sky SA v. Kookmin Bank for the proposition that "it is ‘not necessary to conclude that a particular construction [of an agreement] would produce an absurd or irrational result before having regard to the commercial purpose of the agreement’"210 as well as Lord Diplock’s dictum in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. :211

... [I]f detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense. (emphasis added)

Moreover, the Eastern Caribbean Court of Appeal in Grenada Tech212 held that the proper interpretation of an agreement should not be limited to the plain text.213

184.
The Claimants respond generally that the text of the clause means what it says and that the Tribunal has no authority to rewrite the procedure agreed to by the Parties. In the decisions relied on by the Respondent, the court found (unlike here) the text to be ambiguous214 and cite the decision of the UK Supreme Court in Arnold v. Britton and others for the proposition that:

[T]he clearer the natural meaning the more difficult it is to justify departing from it... [W]hile commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.215

185.
In the Claimants’ view, Section 7.9(a)(iv) is clear and unambiguous. In order to rely on the "malfeasance" exception, the Respondent must first obtain an order from an ICSID tribunal finding that GPP committed "wilful malfeasance" of such nature and to such a degree as warrants impairment of the GRENLEC Licence without obligation to make Second Schedule Compensation, and only after obtaining such an order ("following the conclusion" of the arbitration proceedings) can the Respondent annul or impair the GRENLEC Licence ("pursuant to and in accordance with" the ICSID tribunal’s order) without triggering a Repurchase Event.
186.
The purpose of this requirement, the Claimants say, is to protect the Claimants against "precisely the sort of situation that pertains here, where Respondent opportunistically, and without legitimate aims, asserts wilful malfeasance ex post facto."216
187.
In the Tribunal’s view, the text clearly requires a prior ICSID determination to that effect before not after a licence abrogation in order for the defence of "extreme or wilful malfeasance" to apply. The abrogation is to follow not precede the conclusion of the initial ICSID arbitration. The Tribunal has no authority to re-write the procedural steps necessary to invoke the "malfeasance" provision as sought by the Respondent. That provision is not only of benefit to the Claimants. It provides the Government with an opportunity to test its allegations of wilful malfeasance risk-free before an ICSID Tribunal without triggering a Repurchase event. Otherwise a Government that is deeply unhappy with the investor would have to plunge ahead with its restructuring, thereby triggering the Claimants’ prima facie right to Second Schedule compensation and only afterwards, having committed itself to a repurchase, would the Government get to argue about the defence of wilful malfeasance. As in the present case, the Government’s legislative abrogation, once launched, could not be recalled. Under the two-stage process the Government would have the opportunity for sober second thoughts if the ICSID Tribunal ruled in favor of the investors on the issue of wilful malfeasance. The Government might decide to live with what it views as an unsatisfactory situation rather than pay the price of terminating the relationship.
188.
Whether or not the two-step process is sensible commercial practice was for the Parties, not this Tribunal, to decide. The two-stage process was capable of compliance but the Respondent chose not to initiate the first stage. The malfeasance issue only surfaced in a formal way when it came time to defend the Claimants’ repurchase demand. The procedural objection alone is fatal to the Respondent’s "wilful malfeasance" defence.

F. Conclusion on Liability

189.
The Claimants effectively abandoned the alleged Repurchase Events other than abrogation of the monopoly.217
190.
For the forgoing reasons, the Tribunal concludes that the Claimants have established a "Repurchase Event" by the GOG’s abrogation of GRENLEC’s 80-year monopoly.218 The abrogation was not caused by "wilful malfeasance". These conclusions are sufficient to dispose of the issue of liability. Accordingly, the Claimants were entitled to "put" their GRENLEC shares to the Respondent for repurchase and the payment of compensation.
191.
The next issue is to determine the basis on which compensation is to be assessed.

IX. ARE THE CLAIMANTS ENTITLED TO SECOND SCHEDULE COMPENSATION?

192.
The Claimants rely on Section 7.9(b) of the SPA and the Second Schedule of the 1994 ESA (together, the "Repurchase Demand Calculation"). Section 7.9(a)(iv) defines one such Repurchase Event as:

any annulment, cancellation, limitation, infringement or other impairment of the term, scope or exclusivity of the GRENLEC License.

193.
The SPA goes on to state in Section 7.9(b):

The GOG agrees that it shall within thirty (30) days following demand by [the] Buyer upon the occurrence of a Repurchase Event, purchase and acquire all GRENLEC shares then owned by [the] Buyer...the purchase price payable in such event shall be calculated on the basis specified in the Second Schedule to the ESA as in effect on the Closing Date. (emphasis added)219

194.
The Respondent says the purchase price must be assessed by reference to the fair market value of the shares under the most recent legal regime governing GRENLEC, the 2016 ESA.220 The Second Schedule is legally ineffective and unenforceable under Grenadian law, the Respondent says, because:

(a) first, as a matter of contract law, the provisions constitute an unlawful and unenforceable penalty;

(b) second, as a matter of constitutional law, the provisions are void and of no legal effect because they fetter Government action contrary to fundamental principles enshrined in the Constitution of Grenada.

195.
The Second Schedule in the SPA is taken with modifications from the Second Schedule of the 1960 ESO,221 which applied only where the Government revoked the licence. The mechanism created by the 1994 SPA and 1994 ESA changed the 1960 formula in important respects as follows:

(a) the SPA repurchase obligation lists an extensive list of repurchase events that fall short of revocation;222

(b) the 1960 arrangement required compensation for goodwill only during the first 40 years of the licence.223 The 1994 ESA and SPA require payment for goodwill throughout the entire duration of the licence for all but a Repurchase Event arising under Section 7.9(xi) - that is, for an "act of God".224

A. Is the Repurchase obligation to pay Second Schedule Compensation Valid?

196.
The Respondent argues225 that Grenadian law governs the SPA and enforcement of its contractually prescribed remedy is invalid because it is exorbitant, unconscionable and out of proportion to the Claimants’ legitimate interest in payment for the GRENLEC shares.226

The rule against penalties is applicable to liquidated amounts payable, as here, under a contract of purchase and sale of shares where the purchaser refuses to complete the transaction.

197.
In any event, the provisions are void and of no legal effect because the requirement to pay Second Schedule Compensation was designed to fetter the Government's ability to regulate Grenada's electricity sector in the public interest.227
198.
The Claimants respond that while the SPA is generally to be governed and construed in accordance with Grenadian law:

(a) the Respondent is estopped from contesting the validity of the terms of a contract that it has repeatedly affirmed over the past quarter century, and the benefit of which it has freely and fully accepted;

(b) even if there is no estoppel, the provisions of the SPA expressly exclude the application of Grenadian law that might serve to invalidate the Repurchase Obligation;

(c) in any event, the Respondent misconceives the rule against penalties which does not permit courts and tribunals to rewrite terms of purchase agreed to by sophisticated parties. The rule against penalties operates only when assessing damages for a breach of contract (e.g. where there is a liquidated damages clause) not for specific performance of a contract of purchase and sale;

(d) the requirement of Second Schedule compensation does not fetter Government action but specifically contemplates Government action at a time of the Government's choosing provided only that the contractual compensation is subsequently paid; and

(e) international law precludes the Respondent from invoking its domestic constitutional principles to avoid its commitments to the Claimants.

B. The Claimants Contend that the Respondent is Estopped by its Conduct from Disputing the Validity of the Second Schedule Methodology

199.
The Claimants argue that the Respondent is estopped under international law from contesting the SPA Repurchase Obligation. They say the doctrine of estoppel under international law prohibits a party from "opportunistically" changing its position to the detriment of another.228 A party "who has voluntarily assented to a contract and openly reaffirmed its validity [cannot] thereafter oppose its performance or its ultimate juridical effect."229 The same doctrine exists under common law.230
200.
The Respondent represented and warranted in Sections 4.3 and 4.4 of the SPA that the SPA, including its Repurchase Obligation, was valid and enforceable under Grenadian Law, as follows:

This Agreement has been, and the documents to be delivered by the GOG at Closing will be, duly executed and delivered by the GOG and constitute the lawful, valid and legally binding obligations of the GOG, enforceable in accordance with their respective terms.231

The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby...(ii) are not prohibited by and do not violate or constitute a default under any contract, agreement or other instrument to which GRENLEC or the GOG is a party, or any provision of Grenadian Law applicable to GRENLEC or the GOG.232 (emphasis added)

Mr. Blanchard, the CEO of WRB, testified that without these representations and warranties, the Claimants would never have entered into the SPA and would never have invested the initial capital.233

201.
The Claimants also rely on the terms of the Supplemental SPA that the Parties concluded when agreeing to settle their first ICSID arbitration under the SPA. The only change to the SPA that Respondent sought at the time was to exclude "hurricanes" from the list of Repurchase Events.234 Otherwise, "the SPA shall remain in full force and effect." Mr. Blanchard testified that WRB relied on these representations in continuing to invest time and effort in GRENLEC.235
202.
According to the Claimants, the Respondent cannot now claim in good faith that two core provisions of the SPA - the Repurchase Obligation and carve-out of inconsistent Grenadian Law provisions - are "legally ineffective and unenforceable."236
203.
The Claimants rely in particular on ADC v. Hungary237 where foreign investors and a Hungarian state agency had entered into a series of agreements for the renovation, construction, and operation of two terminals at Budapest International Airport. The Tribunal held that Hungary was estopped from relying on Hungarian law to contest the validity of these agreements because (as here) "[t]hese Agreements were entered into years ago and both parties ha[d] acted on the basis that all was in order":

[W]hen, after receiving top class international legal advice, Hungary enters into and performs these agreements for years and takes the full benefit from them, it lies ill in the mouth of Hungary now to challenge the legality and/or enforceability of these Agreements....Hungary entered into these agreements willingly, took advantage from them and led the Claimants over a long period of time, to assume that these Agreements were effective. Hungary cannot now go behind these Agreements.238

204.
A number of other authorities were cited by the Claimants to the same effect.239
205.
The Respondent says the authorities cited by the Claimants are inapplicable. The Constitution is the supreme law of the country and is paramount to any other law including the law of estoppel. The Parties were not free to contract out of a constitutional prohibition and cannot be estopped from enforcing it.
206.
In the Tribunal’s view, the Respondent is not estopped from denying liability for Second Schedule compensation on the basis that it accepted the investment and lived with the arrangement for over 22 years. It is noted that the Respondent does not challenge the SPA generally. Its attack is focused on the Second Schedule compensation provisions.
207.
Undoubtedly, the Claimants "relied" on the terms of the SPA and the Supplemental SPA in the same way that any contracting party relies on the warranties and other terms of its contract. There is no reason to doubt Mr. Blanchard’s evidence that without the whole 1994 package, WRB would not have made the initial investment. The situation with respect to the 1997 Supplementary SPA is different because the investment had been made and the evidence is that the Claimants made no subsequent contribution of capital.
208.
Estoppel is generally relevant as a "shield" where an opposing party is seeking to enforce rights to which it is otherwise entitled but is "estopped" from doing so by its collateral representations or conduct. That is not this case. The Respondent is not seeking a benefit under the SPA. There are no "representations" outside the representations, warranties and undertakings in the SPA and Supplemental SPA. In respect of those "representations", the remedies lie in the law of contract not estoppel.
209.
There is no evidence of reliance beyond the original purchase. Indeed one of the Respondent’s complaints is that the Claimants have not lived up to an alleged promise "to make EC $17 million worth of capital investments projected through the end of 1998." As to detriment, the continued investment has been very profitable. It will be recalled that WRB "expected" that "substantially all of the earning s of GRENLEC will be required to fund future capital investments to assure the long-term viability of GRENLEC", which, according to WRB, "will leave no funds available for dividend payments."240
210.
The simple fact that the agreement has stood for over two decades (despite the Respondent’s 1997 challenge to its validity) does not immunize the SPA from having the validity of its compensation provisions determined on the merits.

C. As a Matter of Contract, Does the SPA Successfully Exclude All Rules of Grenadian Law that are Inconsistent with the Repurchase Obligation?

211.
The Respondent argues that pursuant to Section 11.1, the SPA is to be governed by and construed in accordance with Grenadian Law, a defined term that includes "the Constitution of Grenada" and "the common law of Grenada."241 Accordingly, enforcement of the SPA is subject to the prohibition against penalties and constitutional compliance. The Respondent says the Second Schedule imposes an extravagantly excessive monetary penalty on the exercise of the Government’s regulatory authority, and thereby for all practical purposes fetters the exercise of that authority. The Second Schedule formula for compensation is contrary to the constitution and common law of Grenada.
212.
The Claimants point out that Section 11.1 of the SPA expressly excludes the application of any provision of Grenadian Law that is inconsistent with the Repurchase Obligation and certain other provisions of the SPA:

This Agreement and the rights and obligations of the Parties hereunder shall be governed by and construed in accordance with Grenadian Law (with the understanding that the provisions of Section 7.9 [the Repurchase Obligation], Article X, and Sections 11.2, 11.3, 11.4 and 11.5 are intended by the Parties to control the implementation, interpretation and enforcement of this Agreement with regard to the subject matter of said Sections notwithstanding inconsistent provisions of Grenadian Law).242 (emphasis added)

213.
Section 7.9(b) of the SPA reinforces this carve-out by providing that the Repurchase Obligation is "irrevocable and unconditional," irrespective of any objection or defence that Respondent may raise under Grenadian Law:

The obligations of the GOG under this Section 7.9 with respect to any Repurchase Event shall, subject to Section 7.9(c), be irrevocable and unconditional regardless of...the invalidity or unenforceability of this Agreement against the GOG,...or...any other defence which the GOG may from time-to-time to assert as a defence to any payment under this Agreement in respect of a Repurchase Event, excepting only the defence that the payment in question has been paid-in-full to Buyer when and as required hereunder.243 (emphasis added)

214.
The Claimants point out that Article 42(1) of the ICSID Convention, which governs this arbitration,244 provides that "[t]he Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties."245 The reference to "rules of law" permits the parties to choose selectively, adopting some rules from the referenced legal system while excluding the application of other rules from the same system.246 The Parties' choice of law, including the carve-out of inconsistent provisions of Grenadian Law, must be given full effect.247 The Claimants say that this approach has been applied consistently by ICSID Tribunals. In Aucoven v. Venezuela, for example, the Tribunal noted that "[i]t is generally accepted that...[the term ‘rules of law' in Article 42(1)] allows the parties to agree on a partial choice of law, and in particular to select specific rules from a system of law."248 A common example of a partial choice of law (or exclusion of certain rules of national law) is a "stabilization" clause that freezes national law at the time of the making of the investment agreement so as to make any subsequent changes to that particular law inapplicable to the investment.249
215.
In the Tribunal’s view, the Parties' common intent regarding the choice of law is clear and unambiguous and will be given effect. The Tribunal sits as an international tribunal applying rules of international law. The rules include respect for party autonomy. International law permits (and there is no evidence that the law of Grenada expressly prohibits) giving effect to the parties' choice of "rules of law" including a carve out of such rules as the parties agree, including the rule against penalties.
216.
Section 11.1 gives paramountcy to Section 7.9 and the Tribunal concludes that this paramount intent must be given effect.
217.
However, as will be seen, in the Tribunal's view, the Repurchase provisions of Section 7.9 do not infringe any rule against penalties nor does Section 7.9 constitute an unconstitutional fetter on the regulatory authority of the Government of Grenada. Accordingly, the legal arguments advanced by the Respondent concerning the choice of law do not arise on the facts of this case.

D. Does the Requirement of Second Schedule Compensation Fetter the Government Action Contrary to the Constitution of Grenada?

218.
The Respondent says the GOG cannot contractually grant an investor a special legal regime subversive of the rules of the Constitution.250 The intended effect of such a contractual undertaking would be to negate the supremacy of the Constitution - a proposition that is "an anathema" to the law in Grenada.251
219.
On this point, the Respondent cites the authors of Dicey and Morris on the Conflict of Laws (9th ed) who state that:

No court...will give effect to a choice of law...if the parties intended to apply it in order to evade mandatory provisions of that legal system with which the contract has its most substantial connection.252

220.
The Respondent argues253 that the SPA imposes an "exorbitant" cost as the price for the exercise of the Government’s otherwise lawful executive and legislative actions. Insofar as it deters Government action in the public interest, Section 7.9(b) imposes unconstitutional constraints on the Government’s freedom of action contrary to "the principle of executive necessity",254 citing the 1921 observation of an English court:

it is not competent for the Government to fetter its future executive action, which must necessarily be determined by the needs of the community when the question arises. It cannot by contract hamper its freedom of action in matters which concern the welfare of the State.255 (emphasis added)

221.
In the Tribunal’s view, the proposition that the Government cannot make a contract that "hampers its freedom of action" where the "welfare of the State" is concerned is too broad. Many traditional Government functions (i.e. aspects of health care for example) may be outsourced. Outsourcing requires contractual commitments that "hamper" a Government’s "freedom of action" and are not on that account invalid. The whole point of a contract is to "hamper" the parties from engaging in conduct contrary to its terms.
222.
According to the Respondent,256 the 2016 restructuring package is the "quintessential" example of necessary Government action in the public interest, citing the Chief Justice of Trinidad and Tobago’s opinion that:

[O]ne can readily envisage situations or areas of economic activity (e.g. power or water supply, air traffic routes) where it may well be in the public interest to restrict licences or concessions to one or two players...Equally, one can also envisage that with changing circumstances it may be in the public interest to liberalise or change a licencing or regulatory regime.257

223.
The Respondent submits258 that the 2016 restructuring was motivated by the urgent need to reform the electricity sector to improve the economic position and general welfare of the citizenry of Grenada.259
224.
Similarly, in Revere Jamaica Alumina, the Jamaican Supreme Court held that the Jamaican government's contractual undertaking not to increase taxes and levies on certain mining operations (i.e, a form of fiscal stabilization clause), was invalid because it fettered Jamaica's power to legislate (referred to as the "executive necessity" doctrine).260
225.
According to the Respondent, the "exorbitant" compensation contemplated by the Second Schedule was intended by WRB to deter Government regulation of the electricity sector in the public interest by making a repurchase prohibitively expensive and as such Second Schedule compensation constitutes an unconstitutional fetter.261
226.
The Claimants adopt the proposition of the sole arbitrator in Texaco:

[A] State cannot invoke its sovereignty to disregard commitments freely undertaken through the exercise of this same sovereignty and cannot, through measures belonging to its internal order, make null and void the rights of the contracting party which has performed its various obligations under the contract.262

227.
The Claimants contend that the Respondent is bound by the maxim pacta sunt servanda because "international law...recognizes the power of a State to commit itself internationally" even if its freedom of action is thereby "hampered."263
228.
The Claimants point out that in fact the GOG was not deterred from precipitating Repurchase Events. Otherwise this dispute would not have arisen and the Tribunal would not be here. The Government was free to enact the 2016 ESA, and it did so with a plain understanding of the repurchase price and Grenada must now bear "the consequences of that action under the parties' contract," and "be ordered to honor its contract and bear all costs of this arbitration."264
229.
In the Tribunal’s view, the SPA properly construed is constitutionally compliant. The SPA provides that "[n]o commitments made by the [Government of Grenada] in this Agreement shall be construed in a manner that would constitute an infringement...of the powers reserved under the Constitution of Grenada to any judicial or legislative body."265 If a provision can be construed in a way that is constitutionally compliant it must be so construed. None of the provisions of the SPA properly construed "fetter" Government action. Thirteen of the fifteen Repurchase Events in Section 7.9(a) specify actions which the Government was free to take but which would give rise, at the Claimants' election, to a right under Section 7.9(b) to require the GOG to repurchase GPP's shares.266 Almost all the Repurchase Events expressly contemplate the Government's freedom of action to modify or abrogate the rights and privileges of GRENLEC. There is no evidence that the Government was deterred from legislating in the public interest. The 20-year debate between the NDC party and the NNP party about privatization and repurchase rested on public policy differences. The GOG was not deterred in 2016 by the prospect of paying Second Schedule compensation as opposed to what it now proposes, namely Fair Market Value.
230.
The Respondent acknowledges that many of the Repurchase Events "closely mimic either the substantive obligations typically imposed on host states by bilateral investment treaties, or the express stabilisation obligations featured in numerous investment arbitration cases."267 The Tribunal agrees and therefore cannot accept the Respondent's constitutional argument.

E. Does Second Schedule Compensation Constitute a Penalty?

231.
The Respondent contends that Second Schedule compensation is extravagantly disproportionate to the true value of the Claimants' investment and constitutes a penalty.
232.
Both Parties rely on the decision of the United Kingdom Supreme Court in Cavendish which in 2015 considered anew the rule against penalties.268 Subsequent cases binding on Grenadian courts confirm the application of Cavendish to contracts governed by Grenadian law.269 Within Cavendish, however, the Parties emphasize different opinions:

(a) the Respondent relies in particular on the opinion of Lord Hodge that the key consideration is whether there is "an extravagant disproportion between the stipulated sum" to be paid, "and the highest level of damages that could possibly arise from the breach"270 (the "extravagant disproportion" test);

(b) the Claimants rely in particular on the lead opinion expressed by Lords Neuberger and Sumption which frames the question somewhat differently. In the majority view, disproportionate compensation only comes within the rule against penalties if the clause or clauses in question arise in the context of "a secondary obligation" - typically, a remedy in the form of payment of a sum of money - "which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation"271 (the "secondary obligation" test). On this view, a court or tribunal must consider at the outset whether the Claimants seek enforcement such as specific performance of the agreed purchase price (a "primary" obligation) or a remedy for breach of contract agreement by a contract-breaker (a secondary obligation).

233.
In their Memorial, the Claimants’ primary claim to relief is for specific performance (i.e. payment of the repurchase price calculated according to the formula in the Second Schedule). In the alternative, the Claimants ask for damages for non-performance.
234.
The Respondent emphasizes that to find a penalty Cavendish does not require:

(a) a finding that the Government had inadequate legal representation or specialist advice;

(b) a showing of uneven bargaining power;

(c) that Claimants imposed the relevant provisions on the Government; or

(d) a showing that the Government was ignorant of the details of the Second Schedule methodology or its outcome.272

235.
The Respondent also calls in aid the earlier decision of the House of Lords in Dunlop Tyre273 which the Respondent says is still good law in Grenada, as held in decisions of the Eastern Caribbean Supreme Court and Court of Appeal subsequent to Cavendish.274 Under the Dunlop Tyre line of authority, the Respondent argues, the clause will be deemed a penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others trifling damages."275 That description, the Respondent says,276 fits perfectly the terms and effect of the present case,277 which requires the same "exorbitant" repurchase price on the occurrence of any one of fifteen Repurchase Events of widely varying severity from annulment of the licence or an act of God,278 to "any [post-SPA] change in Grenadian Law[...] [however minor] which requires new capital expenditures or increased operating costs by GRENLEC."279
236.
Second, Dunlop Tyre is relied on by the Respondent for the proposition that "[t]he essence of a penalty is a payment of money stipulated as in terrorem of the offending party."280 The Respondent contends281 that the threat of a Second Schedule buyout was always intended to serve as a deterrent to Government regulation in the public interest.282
237.
The Claimants, for their part, say the Repurchase Event mechanism in Section 7.9 of the SPA represents an agreed compromise. The Claimants expressed concern in 1994 about the prospect the Government might unilaterally change the regulatory framework after the privatization and thereby dramatically damage the value of the proposed investments.283 The Claimants wanted, in effect, a form of stabilization clause. The Government however refused to accept a fetter on the exercise of its sovereign power to modify Grenada's laws and regulations,284 in the public interest. The compromise, the Claimants say, was to ensure that the Government would not be "fettered" by any stabilization-type provision but if certain events occurred, WRB would be able to demand that the Government repurchase GPP's shares and thus achieve WRB's efficient exit from Grenada.285 According to the Claimants, "this resolution properly recognized and preserved the Government's prerogative to take any and all policy and legislative actions that it deemed appropriate."286 The Respondent did not lead evidence to dispute the Government's participation in crafting this "compromise".
238.
The Claimants say the Second Schedule methodology protected their "legitimate interest" - no more and no less - in accordance with Cavendish. They had a legitimate interest both in maintaining their commercial bargain and "in an efficient exit, without the complexity and expense associated with having to prove Claimants' actual damage and without controversy and delay, if these fundamentals [of the bargain] were to change."287
239.
As to the quantum, the repurchase price needed to properly reflect "not just the risks and costs of the long-term investment involved, but also lost opportunity costs and lost profits caused by their investment being cut short."288 The Government itself acknowledged that the "Goodwill" component of the statutory methodology represented the "profit opportunity foregone in [the] remaining term of the license."289
240.
In the result, the Claimants say, the Parties were free to and did negotiate "a practicable exit protocol in the event of a change in the commercial fundamentals... upon which the investment was made...[including]...the exclusivity and duration of the GRENLEC Licence.290
241.
In the Tribunal’s view, the Claimants had a legitimate interest in the protection of their investment, as did the Respondent in protecting the public interest of the people of Grenada. The issue raised by the Respondent is not whether the investment was entitled to protection but whether Second Schedule "protection" was "out of all proportion" to the Claimants’ legitimate interest as will now be addressed.

F. Does Application of the Second Schedule Result in an "Extravagantly Disproportionate" Valuation?

242.
John Ellison of FTI (and formerly of KPMG), the Claimants’ quantum expert, acknowledged that "the valuation methodology set out in the 1994 ESA is different from that normally used to value companies. Company valuations are largely based on future earnings potential, often derived from future cash flow forecasts."291 The Respondent’s expert, Robert Mudge, testified that "[t]he Repurchase Price Methodology is fundamentally out of step with standard valuation methodologies, duplicative, and hence unlikely to be replicated by any third-partybuyer."292 Moreover, in the Respondent’s view:

(a) Part I of the Second Schedule sets out an asset valuation, which would normally accompany a liquidation of the company.293 But, at the same time, Part II sets out a profit valuation, which would normally pertain only to a going concern.294 These inconsistent approaches, in combination, create double-accounting and therefore inflated compensation in the result. For example, the Respondent contends that Mr. Ellison double-counted EC $10 million (once as part of the assets under Part I and a second time as profits under Part II);295

(b) the result of the Second Schedule formula (EC $21 per share)296 is incompatible with the EC $8.27 per share which the Claimants were willing to accept in 2012/2013, and which better reflects the true value of GRENLEC shares;

(c) the result of the KPMG valuation using the Second Schedule is vastly in excess of the DCF valuation of the Respondent’s expert, Mr. Mudge. The Claimants did not put forward a DCF report and Mr. Mudge’s analysis is the only reliable guide to Fair Market Value.

243.
The Respondent relies on the formulation in Cavendish by Lord Mance at para. 143:

[T]he agreed sum must not have been extravagant, unconscionable or incommensurate with the possible interest in maintenance of the system.297

244.
The Claimants’ principal position on the Second Schedule is that a deal is a deal and the Respondent should live up to its contractual undertaking. Courts have no authority to rewrite the terms of purchase. The Respondent cannot rebut the strong presumption that "the parties themselves are the best judges of what is legitimate."298 In addition:

(a) the 1994 Government also conducted due diligence testing of the Second Schedule methodology by applying it under two scenarios: (i) a repurchase after 15 years; and (ii) a repurchase after one year. Under both scenarios, the valuation was within the range of the valuations of GRENLEC that the Government had received from its financial consultants, Price Waterhouse and Ewbank Preece, based on the discounted cash flow model and the replacement value respectively;299

(b) the Second Schedule formula, while unusual, is of the Respondent’s own design. It has been on the statute books in one form or another since 1960. The Government itself dictated the Second Schedule approach to the Claimants. The GOG’s initial objective was to establish the specific formula to calculate the repurchase payment following a Government "call" for GRENLEC shares under section 28 of the 1994 ESA. The GOG then agreed with Claimants to use the same methodology in conjunction with any "put" by the Claimants under Section 29 of the 1994 ESA;

(c) the GOG was aware of the "Goodwill" component of the statutory methodology. In a presentation to the public,300 the Government explained that it represented the "profit opportunity foregone in [the] remaining term of the license";301

(d) in December 2012 negotiations, the Government confirmed that it considered the Repurchase Obligation to be reasonable by incorporating the Second Schedule methodology into its proposed terms of the onward sale to a proposed Canadian investor of the Claimants’ stake in GRENLEC once repurchased;302

(e) in any event, the Claimants argue, the Respondent’s attack rests on a false premise, i.e., that the Second Schedule yields a valuation of GRENLEC that is out of proportion with the fair market value of the company.303 The Claimants rely on its expert, Mr. Ellison, who contended that when corrected for Mr. Mudge’s errors and other required adjustments, the DCF valuation proffered by the Respondent and its quantum expert is in fact higher than a statutory valuation under the Second Schedule.304

G. Is the Second Schedule Compensation Out of Line With the Prior Valuations Including Valuations by WRB?

245.
The following table summarizes some of the arguably relevant valuations of GRENLEC between 1994 and 2019.

TotalPer Share
Price Waterhouse original 1994 valuation of 100% of GRENLEC EC $21 million to EC $38.4 million305
WRB 1994 purchase price of 50% of shares EC $15 million for 50% implied that 100% worth EC $30 million306
WRB demand in 1997 Request for Arbitration USD $18.7 million or EC $50.49 million
WRB's 2012 offer to sell its GRENLEC investment USD $8.27
Mr. Mudge's Revised DCF valuation (for the Respondent) (i) 2016 ESA EC $51.9 million or USD $19.2 million307 2016: EC $5.50
(ii) 1994 ESA EC $76.9 million or USD $28.5 million308 1994: EC $8.10
PwC Second Schedule valuation as presented at the hearing (for the Respondent) EC $276,239,000309
KPMG/FTI's calculation of Second Schedule valuation as presented at the hearing (for the Claimants) EC $361,882,000 million310 EC $21

246.
The Respondent relies in particular on the 2013 situation, where WRB sought to sell its majority stake in GRENLEC311 but as required by the SPA, was obliged to first offer its shares to the Government.312 Although WRB rejected the Government’s offer of EC $5.49 per share,313 Mr. Blanchard indicated that a deal could be struck if the Government offered more, noting that "we are prepared to enter into exclusive negotiations with the GOG if the government is prepared to increase its offer to EC $8.27 per share."314
247.
Indeed, it seems WRB would have taken EC $7.50 per share.315
248.
In other words, the Respondent relies on the fact that in 2013 the Claimants were willing to sell their shares for less than half of what they now demand. The Government declined to pay the asking price and WRB pulled out of the negotiations.316 There is no evidence that GRENLEC shares greatly appreciated in value between 2013 and 2016.
249.
The Claimants deny the relevance of their 2013 offer to sell their GRENLEC holding at EC $8.27 per share.317 The 2013 offer was subject to several conditions that had value for the Claimants, e.g., a requirement that GRENLEC would continue using WRB's management services.318 In addition, Mr. Blanchard explains that the origin of the offer was that two individual investors [Roseman and Curtis] were facing "personal challenges" at the time, and they sought to "unwind their equity positions."319 The Claimants did not obtain an independent valuation of GRENLEC320 before suggesting a price of EC $8.27 per share. Accordingly, the Claimants say, "the 2013 offer says nothing at all about the ‘actual value' of GRENLEC at the time much less its value in 2019."321
250.
The Respondent says courts have refused to enforce clauses which award sums equivalent to double or triple the prevailing market price or the claimant's genuine estimated loss.322 Accordingly, "extravagant disproportion" is established in this case. The Tribunal agrees with the Respondent that the value of GRENLEC assessed under the Second Schedule is very substantially in excess of the EC $8.27 per share which the Claimants were willing to accept in 2012. However, the Claimants are not "estopped" by the $8.27 figure which the Respondent declined to accept. In the absence of an estoppel, the Tribunal must be guided by the expert witnesses.
251.
It does appear that the Second Schedule compensation is substantially in excess of a DCF valuation. However, the pertinent question is whether the "extravagantly disproportionate" test applies at all to this case, bearing in mind the dictum of Lords Neuberger and Sumption in Cavendish that the rule against enforcement of penalties provides no basis for the courts to review primary obligations, i.e. "the courts do not review the fairness of men's bargains either at law or in equity."323 On this view, the Respondent agreed to the Second Schedule and in the absence of unconscionability or a gross imbalance in bargaining power (which is not alleged), the question is whether the GOG should be relieved of a bargain which it now views as unsatisfactory but is a "primary bargain" which it made with the benefit of sound professional advice and its eyes wide open.

H. Are the Claimants Seeking to Enforce a "Primary" or "Secondary" Obligation?

252.
The Claimants argue that under Cavendish the rule against penalties has no application to the Repurchase Obligation as the Repurchase Obligation is a primary conditional obligation (a put option) and not a secondary obligation (a remedy for a contractual breach).324 The UK Supreme Court in Cavendish emphasized "[t]here is a fundamental difference between a jurisdiction to review the fairness of a contractual obligation and a jurisdiction to regulate the remedy for its breach", as stated by Lords Neuberger and Sumpton:

Leaving aside challenges going to the reality of consent, such as those based on fraud, duress or undue influence, the courts do not review the fairness of men’s bargains either at law or in equity. The penalty rule regulates only the remedies available for breach of a party's primary obligations, not the primary obligations themselves.325 (emphasis added)

Section 7.9 of the SPA enables a shareholder to exit its investment at a certain price "upon the occurrence" of one or more of the fifteen events listed in Section 7.9(a).326 Payment of the agreed repurchase price is a primary obligation.

253.
The Respondent concedes that under the applicable case law, only provisions that create contractual remedies can be deemed penalties327 but in the Respondent’s view, the Claimants’ "put option" is just another kind of tailored remedy provision. The test is a question of "substance" and not of "form."328 The fact that Section 7.9(b) is formulated as a "put option" rather than a liquidated damages clause or similar term, is irrelevant in the Respondent’s view.329 The rule against penalties applies to the full range of contractual remedies, including obligations to transfer assets at an agreed price.330
254.
The Claimants insist that the Respondent’s "substance over form" argument is not only at odds with the majority opinion in Cavendish,331 but it is at odds with the concurring opinion of Lord Hodge, on which the Respondent particularly relies. Lord Hodge related his "extravagant disproportion" dictum to clauses "fixing the level of damages [for a] breach" (e.g. a liquidated damages clause).332 The Claimants emphasize that their claim for repurchase payment is not for payment of damages for contract breach, but specific performance of a contractual bargain.
255.
In the Tribunal’s view, the rule against penalties has no application to the present case. The Respondent cannot be said to be a "contract breaker". It has argued that it is relieved from performance by virtue of various legal arguments including the "wilful malfeasance" provision. If required to pay compensation, the Respondent has argued that its obligation would be fulfilled by payment of fair market value. The fact the Tribunal has not agreed with these positions does not turn the Respondent’s contested questions of interpretation into breaches of the SPA.
256.
In the 1994 SPA, the GOG made a conditional offer to purchase the GRENLEC shares in the event one or more "repurchase" events occurred. In the first instance, at least, it is for the Claimants to formulate the relief they seek. The primary relief sought by the Claimants is specific performance of the GOG promise to purchase. The Claimants seek to enforce the contract not a remedy for its breach. The rule against penalties presupposes a breach of the contract and a claim for damages, per Lord Hodge in Cavendish, at para. 243:

The rule against penalties is a rule of contract law based on public policy.

It is a question of construction of the parties’ contract judged by reference to the circumstances at the time of contracting; the public policy is that the courts will not enforce a stipulation for punishment for breach of contract333.

and Lords Neuberger and Sumption at para. 28:

The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.334

257.
The Respondent argues that the fact the SPA specifies the same compensation for several Repurchase Events shows it is a penalty rather than a genuine pre-estimate of damages. However, in the Tribunal’s view, the range of Repurchase events shows that the Repurchase Obligation has nothing to do with fixing the level of damages. Rather, the SPA determines the purchase price of the GRENLEC shares. Because any Repurchase Event triggers the transfer of the same assets (the GRENLEC shares), the valuation of the GRENLEC shares will always be the same regardless of the seriousness of the event that triggered the repurchase.
258.
In the Tribunal’s view, the GOG cannot convert its primary obligation to repurchase the GRENLEC shares at an agreed price into a secondary obligation to pay damages. The Claimants have framed this case as a claim in specific performance of the SPA. If an individual of sound mind buys a painting and agrees to pay twice what it is worth despite the availability of expert advice and is not disadvantaged by duress, or some debilitating infirmity, or uneven bargaining power, Cavendish holds that a court or tribunal has no authority to set aside the bargain because the purchaser now claims he agreed to pay an "extravagantly disproportionate" price.
259.
The Tribunal therefore rejects the Respondent’s challenge to the validity and applicability of the Second Schedule as determining the Repurchase Price of the Claimants’ GRENLEC shares.

X. QUANTUM

260.
Section 7.9(b) of the SPA specifies that "the GOG agrees that it shall... upon the occurrence of a Repurchase Event, purchase and acquire all GRENLEC shares then owned by the Buyer" (i.e. GPP). The Claimants’ quantum expert, John Ellison of FTI, assessed the Second Schedule value of the Claimants’ investment (and thus the claim) as of the valuation date, 1 August 2016, being 50% of GRENLEC’s value, for a claim of EC $182.04 million335, subsequently adjusted to EC $182.1 million336 At the hearing, Mr. Ellison accepted a further adjustment resulting in a revised value of EC $180,941 million. PwC produced a Second Schedule valuation of GRENLEC at approximately EC $299.4 million337 of which the Claimants’ 50% share would be EC $149.7 million. At the hearing, PwC revised that figure to EC $276,239 million (of which 50% is EC $138.12 million), approximately 24% less than FTI’s revised valuation.
261.
The Tribunal was presented with conflicting calculations of Second Schedule compensation by PwC, called by the Respondent and Mr. Ellison (FTI) and Mr. Popovic (KPMG) for the Claimants.338
262.
In addition, the Tribunal also heard evidence from Mr. Robert Mudge of the Brattle Group, retained by the Respondent. Applying a version of the discounted cash flow (DCF) approach, Mr. Mudge generated values much lower than the quantum experts who applied the Second Schedule:

Note: The Claimants’ 50% share of the US dollar valuations requires dividing these figures by 5.4.339

263.
Mr. Mudge did not do a Second Schedule calculation and his DCF calculation, for reasons already explained, is irrelevant to the calculation of quantum, although his evidence was helpful in other respects.340
264.
The Second Schedule is comprised of three parts:

(a) Part I sets out a methodology for calculating the value of GRENLEC's net assets;341

(b) Part II sets out a methodology for calculating GRENLEC's goodwill;342 and

(c) Part III sets out certain depreciation rates to be used in calculations under Part I and Part II.343

265.
A Second Schedule valuation is therefore composed of the following elements:

Source: FTI Slide 6.344

A. The Respondent Says it was Prevented from Doing a Second Schedule Calculation by the Claimants’ Refusal of Cooperation

266.
The Respondent argues that GRENLEC is the sole custodian of a significant amount of relevant information which GRENLEC refused to disclose to the Respondent’s experts.345 Thus, the Respondent’s experts have been forced to rely on the limited information provided by the Claimants and publicly available data in its review of FTI's Second Schedule valuation.
267.
In the course of the hearing, two of the Respondent's quantum experts complained of denial of access to relevant information, including a frustrating site visit by Doran McClellan in January 2019 where, he says, GRENLEC employees were instructed by the Claimants' counsel not to answer straight-forward factual questions.
268.
Mr. McClellan testified that:

I would tell you that that site visit, after 45 years of site visits in the valuation of machinery and equipment, is the most restrictive site visit that I have ever been a part of.346

269.
The Claimants' expert, Mr. Thomas Popovic, a consultant on valuation who also attended the site visit in January 2019, said it appeared to comply with his understanding of the prior agreement reached between counsel for both Parties.347
270.
Mr. McClellan said he assessed building construction costs in Grenada as the same as in the United States because he says he lacked local information to do otherwise.348
271.
As to whether the Tribunal could safely rely on his asset valuation, Mr. McClellan responded to a question from a Tribunal member as follows:

ARBITRATOR ADEKOYA: Mr. McClellan, I have just one question. In Paragraph 4.2.1 of your Report, you have indicated the restrictive nature of the site visits, the lack of access to supporting materials and to information.

THE WITNESS: Correct.

ARBITRATOR ADEKOYA: To what extent would you say that this impacts negatively on the figures that you have quoted in your Report?

THE WITNESS: Well, it's hard for me to assess what the negative impact would be...

And I would really like to address your point and say, well, it might have a 10 percent negative impact, but I don't know because we never, even were able to make any assessments whatsoever in that regard.

ARBITRATOR ADEKOYA: If you were my advisor and I’m trying to make an acquisition, based on this Report, what would you tell me? THE WITNESS: I would tell you that we need to do a thorough investigation of the assets and the asset records, the amounts recorded in the asset records, how the--what has been the capitalization policy into the asset record, what adjustments have you made over the years.349

272.
It would appear therefore that Mr. McClellan would not regard his valuation of assets under Part I of the Schedule as reliable without "a thorough investigation" of a type which he was unable to perform at GRENLEC.
273.
The Tribunal accepts that the Respondent’s experts were denied some of the factual information they considered important, but in that case it was up to the Respondent to invoke the Tribunal’s assistance to seek additional disclosure.
274.
By its ruling dated 17 September 2018, the Tribunal ordered disclosure of much financial and other information from GRENLEC. Certainly the Tribunal expected the Respondent to be in a position to make a full answer and defence to the claims. If subsequent difficulties arose (as described by Mr. McLellan in connection with the site visit), the Tribunal stood ready to deal with disputes arising out of any protocol negotiated by the Parties. The Tribunal was not approached by either Party for a further disclosure Order or other interim measure in this respect. In light of Mr. McLellan’s own self-deprecating assessment of the value of his report, the Tribunal concludes that his report is of little assistance to the resolution of the claim.

(1) The Meaning of "Net Trading Profits As Certified by the Company Auditors" During the Five Completed Financial Years [Prior to the Repurchase Event]

275.
The phrase "net trading profits" is not a defined term in the Second Schedule but none of the experts expressed difficulties applying the term.
276.
The Respondent’s expert, Wilfred Baghaloo, testified the phrase simply means "net profits of the company."350
277.
The significance of the expression "as certified by the auditors" is less clear. The purpose seems to have been to freeze the accounts as set out in the financial statements of the preceding five years so as to create a firm basis for valuation that could not be manipulated after the initiation of the claim.351
278.
However, in some instances, both FTI and PwC departed from the audited accounts for the years 2011 through 2015. As will be explained, the result of such departures would be, in the Tribunal’s view, to skew the valuation intended by the Parties.

B. The Competing Valuations

279.
In the result, after the adjustments accepted at the hearing, FTI appraised GRENLEC at EC $361,882,000 and the Claimants’ entitlement, at EC $180,941 million equating to USD $67 million.
280.
PwC valued GRENLEC at EC $276,239 million, of which the Claimants’ entitlement would be EC $138.12 million or USD $51,155 million.
281.
The principal issues on which the quantum experts differed are as follows:

(i) deferred taxes (EC $37.8 million) - PwC considers that GRENLEC has a deferred tax liability because of the restated value of fixed assets arising from the repurchase. FTI states that no such restatement or revaluation is necessary or appropriate as a result of a transaction between shareholders;

(ii) Hurricane Insurance Reserve Fund (EC $10 million) - is treated by PwC as a liability but by FTI as an "equity reserve" i.e. an appropriation of profit;

(iii) computer depreciation (EC $7.3 million) - PwC and Robert Mudge depreciated the GRENLEC computers at a 20% rate given the useful life of computer technology (estimated at 5 years), whereas FTI classifies computers as "furniture and office equipment" within the meaning of Part III of the 1994 Second Schedule, which calls for a depreciation rate of 5%;352

(iv) customer contribution to the cost of installing supply lines to the private premises distant by 400 feet or more (EC $4.6 million) - at issue is whether and to what extent these payments are refundable and therefore should be recognized as a liability.353 PwC recognizes a liability of EC $7 million. FTI recognizes only a lesser liability of EC $2.4 million, on the basis that the balance is non-refundable;

(v) FTI has inflated the valuation of assets by adding in an amount equivalent to "customs and import duties" that were never paid because of GRENLEC's then existing tax exemption (EC $754 thousand);

(vi) the Respondent says the Claimants' experts wrongly included in the valuation some of "the assets that were damaged or destroyed" by Hurricane Ivan (EC $22,486 million).354 In other words, according to the Respondent, the Claimants’ figures included assets which no longer exist and form no part of the GRENLEC enterprise.

(vii) Accounts receivable (EC $2,271 million); and

(viii) Other (EC $380 thousand).

C. Impact on the Valuation of the Disputed Items

282.
FTI sought to show the relative importance of these differences as follows:

Note: The Claimants’ 50% share of the US dollarvaluations requires dividing these by 5.4. Source: FTI Slide 11.355 The chart does not take account of concessions of EC$2.5 million (deferred tax) and EC$0.5 million (customs duties) made by PwC at the hearing.

D. Alleged Liability for Deferred Taxes (EC $37.852 Million)

283.
PwC considers that GRENLEC has a deferred tax liability because of a restated value of fixed assets that PwC says would result from the repurchase. FTI states that there is no such revaluation. The repurchase is a transaction between shareholders. GRENLEC’s financial statements are not affected.
284.
The Respondent’s quantum expert, Mr. Wilfred Baghaloo of PwC acknowledged that at present, there is no such deferred tax liability and that such a tax liability would not arise unless and until GRENLEC "restate upwards" the carrying value of its fixed assets, which GRENLEC has not done and which Mr. Baghaloo admits GRENLEC is not under any present obligation to do so.356
285.
In the Tribunal’s view, there is no factual foundation for the alleged "deferred tax liability" which does not exist and which therefore need not be taken into account in the valuation of GRENLEC as of the valuation date of 1 August 2016.

E. Hurricane Insurance Reserve Fund (EC $10 Million)

286.
In each of the relevant financial years, GRENLEC put aside EC $2 million as a form of self-insurance against hurricane damage. In the financial statements 2011 to 2015, the fund was recorded as a liability.357
287.
The 2016 financial statements correcting the "error" were only issued on 17 March 2017 which was subsequent to the commencement of this arbitration and subsequent to the Valuation Date of 1 August 2016.358
288.
In their respective quantum reports, the "Hurricane Reserve Fund" is treated by PwC as a liability but by FTI as an "equity reserve", i.e. an appropriation of profit.
289.
The Claimants argue that the earlier classification by the GRENLEC auditors359 as a liability was an error subsequently acknowledged by GRENLEC’s auditors (PKF) and by the Association of Chartered Certified Accountants ("ACCA").360 (The Respondent contends that KPMG initiated the "correction".)361
290.
In the Tribunal’s view, the Respondent is correct. Part II of the Second Schedule directs the valuation to be based on the financial statements for the 5 years preceding the revocation of the license, being 1 August 2016, "as certified by the Company auditors". Throughout those years, the financial statements were "certified by the auditors." The Tribunal accepts the evidence that GRENLEC's auditors were probably wrong in their treatment of the "hurricane reserve" over the relevant 5 years but for the purpose of the Second Schedule calculation, the auditor's certification is conclusive. The Tribunal therefore concludes that the Hurricane Insurance Reserve must be treated as a liability.

F. Computer Depreciation (EC $7.3 Million)

291.
GRENLEC has substantial computer systems. The company had some computer capacity in 1994, but in the subsequent 22 years technology accelerated and more sophisticated systems were acquired.
292.
It is not clear what rate of depreciation was applied by GRENLEC's auditors to the computer systems in the 2011 to 2015 period.
293.
PwC and Robert Mudge depreciated the GRENLEC computers at a 20% rate given their estimate of a 5-year useful life of computer technology. The Claimants' expert, Mr. Popovic, classified computers as "furniture and office equipment" within the meaning of Part III of the 1994 Second Schedule, which meant applying a depreciation rate of 5%362 implying a useful life of 20 years.
294.
The Second Schedule expressly states that any asset "not described in [the] Part III" categories must be depreciated "at a reasonable rate"363 [the reasonable rate test]. The Tribunal is satisfied that a reasonable rate would have reflected the much shorter useful life of computers. The Respondent accuses FTI of choosing a rate that would artificially inflate the value ascribed to Claimants' shares.364
295.
Mr. Popovic testified that he would have felt free under the Second Schedule to use a different rate of depreciation if the application of a 5% rate to computers "would have yielded an unreasonable result."365 However, in his view, the 5% rate was not unreasonable.366
296.
The Respondent points out that the depreciation rates set out in Part III of the Second Schedule were prepared in 1960 when computers were not a significant factor in the GRENLEC business. It is anomalous that "bicycles" and "motor launches" have their own category but not the much larger asset class of computers. It is obvious that, in the 2011-2015 period, computer technology did not have a useful life of 20 years.
297.
The Tribunal agrees with the Respondent that a 5% depreciation rate for computers is unreasonable.
298.
The Claimants’ expert, Mr. Popovic, testified that he applied a "reasonableness" test to depreciation rates and did not apply without question the 5% rate to computers as being "furniture and office equipment,"367 on the basis that while computer technology progresses rapidly much of the computer infrastructure has an extended useful life.
299.
Mr. Ellison acknowledged the Second Schedule left room for judgment:

THE WITNESS: Well, you could take - you could take a view on that, Mr. President. I took the view, as did Mr. Popovic, that it is office equipment and, therefore, one goes by the rates that in their wisdom those who drafted the Schedule came up, but I can see that you could say, well, it's actually not office equipment, it's in a category of its own. People did have computers back in 1994, so it's not something that - I had one then. It's not something that had only come along since.368

300.
The Tribunal agrees with PwC that technology has changed in the years since 1994, let alone 1960, when the depreciation categories were fixed. There is no evidence that GRENLEC possessed any computers in 1960 GRENLEC when the GOG adopted the depreciation rates for office equipment.
301.
The Tribunal does not consider the fact that some sort of computers were present in 1994 (there is evidence computers were present but no details of what they were or did) requires their inclusion in "furniture and office equipment" when it was obvious, as of the Valuation Date, 1 August 2016, that the estimate of a 20-year useful life would yield a wholly unrealistic rate of depreciation and would artificially inflate the valuation.
302.
There is no compelling reason to insist on a 5% depreciation rate when in the circumstances, the Second Schedule offers the alternative of a "reasonable rate test". Accordingly, the Tribunal accepts the PwC evidence that the valuation should employ a 20% depreciation rate to GRENLEC's computer equipment.

G. Customer Contribution to the Cost of Installing Supply Lines to the Private Premises Distant by 400 Feet or More (EC $4.6 Million)

303.
There is an EC $7 million discrepancy in the valuation of transmission assets between the company's 2016 unaudited financial statements and the fixed asset register on which Mr. Popovic relies369 The higher figure in the fixed asset register represents the cost of the transmission assets, while the lower figure in the financial statements includes a deduction for customer contributions to the installation of branch power lines.370
304.
In considering whether and to what extent these customer payments are refundable and therefore should be recognized as a liability,371 PwC recognizes a liability of EC $7 million, referring to the contribution as "contra-assets". FTI recognizes only a lesser liability of EC $2.4 million.
305.
The Claimants' expert Mr. Ellison explained the issue as follows:

What happens here, sir, is that if a customer is more than 400 feet away from the supply line, he has to pay GRENLEC for the cost of installing an electricity supply line to his house - from his house to the main line going down the road. That line is the property of GRENLEC, that has to be paid for by the customer, and PwC and Mr. Popovic and I all agree that the asset - that line - should be included in the valuation of GRENLEC as an asset. There is no dispute about that. The issue is whether it is right to treat that cash coming in as, in effect, a profit or an offset against the cost, is probably more accurate, or whether it should be carried forward and recognized over the life of the line.

... but the current position appears to be that some of it [the customer contribution] is repayable, in which case I would agree with you that it should be or potentially repayable [to the customer] - not repayable, potentially repayable - in which case I agree it should be set up as a liability. And for that reason I moved my figure down from 7 million to 4 million in the slides.

Q. So, again, just to be clear for the record, to make this adjustment, you’re relying on information that you got from GRENLEC within the last week?

A. Yes.372 (emphasis added)

306.
In the Tribunal’s view, the entire EC $7 million should be treated as a GRENLEC liability. Mr. Ellison acknowledges that at least a portion of the EC $7 million should be recognized as a liability based on a conversation with a GRENLEC employee "within the past week". This is a situation where GRENLEC controlled and managed by the Claimants has relevant information which has not been made available in a timely way to the Respondent (or indeed to the Claimants’ expert, Mr. Ellison). In the circumstances, the Claimants having failed to cause GRENLEC to produce information uniquely within their control in a form that could be tested by the Respondent, it should be inferred that production of such information would not have assisted the Claimants’ case.

H. Should the Valuation Include an Amount Equivalent to "Customs and Import Duties" That Were Never Paid? (EC $754,000)

307.
Part I of the Second Schedule requires the calculation of "replacement cost (including customs and import duties) of each such fixed asset."373 FTI interprets the term "customs and import duties" to mean "customs and import duties’ that would have been paid ‘but for’ the exemption granted to GRENLEC under Section 13 of the 1994 ESA". PwC, on the other hand would exclude any value attributed to unpaid customs and import duties.
308.
Part I of the Second Schedule, the Claimants argue, is clear that replacement cost is to be calculated "including customs and import duties,"374 and no account is to be taken of GRENLEC's prior exemption under section 13 of the 1994 ESA.375 Part I does not call for a determination of what GRENLEC actua