|GLOSSARY OF DEFINED TERMS|
|Astivenca||Astilleros de Venezuela, C.A.|
|Barbados BIT||Agreement between the Government of Barbados and the Government of the Republic of Venezuela for the Promotion and Protection of Investments (signed 15 July 1994, entered into force 31 October 1995) 1984 UNTS 181 (Ex C-10)|
|Brailovsky/ Flores 1/2||First Expert Report on Valuation prepared by Vladimir Brailovsky & Daniel Flores (24 October 2013) and Second Report (24 April 2014)|
|Brailovsky Presentation 1||Valuation Approach, Discount Rate and Pre-Award Interest Presentation (10 June 2014)|
|Claimants or Tidewater||Tidewater Investment SRL and Tidewater Caribe, C.A.|
|Corocoro Contract||Contract CO-067 (Ex C-22)|
|Cardón Contract||Ex C-86.|
|CVP||Corporación Venezolana del Petróleo SA, a wholly-owned subsidiary of PDVSA|
|Figuera 1/2||Direct Testimony of Rubén Figuera (24 October 2013) and Second Direct Testimony (24 April 2014)|
|Flores Presentation 1||PowerPoint Presentation accompanying direct testimony of Dr. Flores (11 June 2014)|
|Brailovsky/Flores Answers to Questions||PowerPoint Presentation: Respondent's Experts' Answers to Tribunal's Questions (12 June 2014)|
|Gulmar Offshore||Gulmar Offshore Middle East L.L.C.|
|Investment Law||Venezuelan Law on the Promotion and Protection of Investments (Ley sobre Promoción y Protección de Inversiones), dated 3 October 1999 (as published in the Official Gazette No. 5,390 of 22 October 1999)|
|Kehoe 1/2||Direct Testimony of Gerard P. Kehoe (29 July 2013) and Second Direct Testimony (22 January 2014)|
|La Cañada||La Cañada, a town on the shores of Lake Maracaibo, Venezuela, where SEMARCA had its headquarters|
|Ministry||Ministerio del Poder Popular para la Energia y Petróleo Ministry of the Popular Power for Energy and Petroleum|
|Navigant 1/2||Expert Report of Brent C. Kaczmarek for Navigant Consulting, Inc. (29 July 2013) and Second Expert Report (24 January 2014)|
|Navigant Presentation 1||PowerPoint Presentation accompanying direct testimony of Mr. Kaczmarek (10 June 2014)|
|Navigant Answers to Questions||PowerPoint Presentation: Response to Tribunal Questions from 11 June 2014 (12 June 2014)|
|PDVSA||Petróleos de Venezuela, S.A.|
|PDVSA Petróleo||PDVSA Petróleo, S.A.|
|Request||Amended Request for Arbitration dated 1 March 2013|
|Reserve Law||Ley Orgánica que Reserva al Estado Bienes y Servicios Conexos a las Actividades Primarias de Hidrocarburos [Organic Law that Reserves to the State the Assets and Services Related to Primary Activities of Hydrocarbons] (7 May 2009) (Ex RL-1)|
|Respondent or Venezuela||The Bolivarian Republic of Venezuela|
|Resolution No. 51||Resolution No. 51 of the Ministry of Popular Power for Energy and Petroleum (8 May 2009) (Ex RL-7)|
|SEMARCA||Tidewater Marine Service, C.A.|
|SEMARCA Enterprise||The value of Claimants' equity in SEMARCA together with SEMARCA's Headquarters at La Cañada (Memorial )|
|Servipica||Guanta Consult, C.A. & Servicios Picardi, C.A.|
|Supply Vessels Contract||(Contract No. 4627) (Ex R-87)|
|Tidewater Caribe or Second Claimant||Tidewater Caribe, C.A.|
|Tidewater Barbados or First Claimant||Tidewater Investment SRL|
|Tugs Contract||(Contract No. 8027) (Ex R-86)|
|Wells 1/2||Expert Report of Prof. Louis T. Wells (24 October 2013) and Second Expert Report (24 April 2014)|
|World Bank Guidelines||World Bank Guidelines on the Treatment of Foreign Direct Investment 1992 (CL-152)|
|TABLE OF CASES|
|ADC V Hungary||ADC Affiliate Ltd v Hungary ICSID Case No ARB/03/16 (Award, 2 October 2006) 15 ICSID Rep 539|
|AIG V Iran||American International Group, Inc v Islamic Republic of Iran (Award, 19 December 1983) 4 Iran-US CTR 96|
|Amco Asia V Indonesia II||Amco Asia Corp v Republic of Indonesia, ICSID Case No ARB/81/1 (Award on Merits on Resubmlsslon, 31 May 1990) 89 ILR 580|
|Amoco||Amoco International Finance Corp v Islamic Republic of Iran (Partial Award, 14 July 1987) 15 Iran-US CTR 189|
|AMT V Zaire||American Manufacturing & Trading, Inc vZaire ICSID Case No ARB/93/1 (Award, 21 February 1997) 5 ICSID Rep 14|
|Burlington v Ecuador||Burlington Resources Inc v Ecuador ICSID Case No. ARB/08/5 (Decision on Liability, 14 December 2012)|
|Chevron v Ecuador||Chevron Corp v Ecuador UNCITRAL (Partial Award on the Merits, 30 March 2010)|
|Chorzów Factory||Chorzow Factory (Germany v Poland) (Merits) (1928) PCIJ Rep Ser A No 17|
|CMS v Argentina||CMS Gas Transmission Company v Argentina ICSID Case No ARB/01/8 (Award, 12 May 2005)|
|Continental Casualty v Argentina||Continental Casualty Co v Argentina ICSID Case No ARB/03/9 (Decision on Jurisdiction, 22 February 2006)|
|Duke v Peru||Duke Energy International Peru Investments No 1 Ltd v Peru ICSID Case No ARB/03/28 (Decision on Annulment, 1 March 2011)|
|Emmis v Hungary||Emmis International Holding BV v Hungary ICSID Case No ARB/12/2 (Award, 16 April 2014)|
|Enron v Argentina||Enron Corp and Ponderosa Assets LP v Argentina ICSID Case No ARB/01/3 (Award, 22 May 2007)|
|Funnekotter v Zimbabwe||Funnekotter v Republic of Zimbabwe ICSID Case No ARB/05/6 (Award, 22 April 2009)|
|Goetz v Burundi||Antoine Goetz v Burundi ICSID Case No. ARB/95/3 (Award, 10 February 1999) 6 ICSID Rep 3|
|Himpurna v PT (Persero)||Himpurna California Energy Ltd (Bermuda) v PT (Persero) Perusahaan Listruik Negara (Indonesia) (Final Award, 4 May 1999) XXV Ybk Comm Arb 11|
|Lemire v Ukraine||Joseph Charles Lemire v Ukraine ICSID Case No ARB/06/18 (Award, 28 March 2011)|
|LIAMCO||Libyan American Oil Company (LIAMCO) v Libya (Award, 12 April 1977) 20 ILM 1|
|Merrill & Ring v Canada||Merrill & Ring Forestry LP v Canada (Award, 31 March 2010)|
|Metalclad v Mexico||Metalclad Corporation v Mexico ICSID Case No ARB(AF)/97/1 (Award, 25 August 2000) 5 ICSID Rep 212|
|Middle East Cement v Egypt||Middle East Cement Shipping & Handling Co SA v Egypt ICSID Case No ARB/99/6 (Award, 12 April 2002) 7 ICSID Rep 178|
|Mobil Cerro Negro v PDVSA||Mobil Cerro Negro Ltd v Petróleos de Venezuela SA and PDVSA Cerro Negro SA ICC Case No. 15416/JRF/CA, (Final Award, 23 December 2011)|
|Mondev v United States||Mondev International Ltd v United States of America ICSID Case No. ARB(AF)/99/2 (Award, 11 October 2002) 6 ICSID Rep 192|
|Norwegian Shipowners' Claims||Norwegian Shipowners' Claim (Norway v United States) PCA (Award, 13 October 1922), 1 RIAA 307|
|Oil Platforms||Oil Platforms (Islamic Republic of Iran v United States of America) (Preliminary Objection)  ICJ Rep 803|
|Patuha v PT (Persero)||Patuha Power Ltd v PT (Persero) Perusahaan Listruik Negara (Final Award, 4 May 1999)|
|Papamichalopoulos v Greece||Papamichalopoulos and Others v Greece ECHR Ser A, Vol 330-B (Judgment of 31 October 1995)|
|Phoenix Action v Czech Republic||Phoenix Action, Ltd v Czech Republic, ICSID Case No ARB/06/5 (Award, 15 April 2009)|
|Pope & Talbot v Canada||Pope & Talbot Inc v Canada (Interim Award, 26 June 2000) 7 ICSID Rep 69|
|Quasar de Valores||Quasar de Valores SICAV SA v Russian Federation SCC Case No 24/2007 (Award, 20 July 2012)|
|Rumeli v Kazakhstan||Rumeli Telekom A/S v Kazakhstan ICSID Case No ARB/05/16 (Award, 21 July 2008), affirmed: Decision on Annulment, 25 March 2010|
|Santa Elena||Compañía de Desarrollo de Santa Elena SA v Costa Rica ICSID Case No ARB/96/1 (Award, 17 February 2000)|
|Sapphire International||Sapphire International Petroleums Ltd v National Iranian Oil Co (Award) (1963) 35 ILR 136|
|Siemens v Argentina||Siemens AG v Argentina ICSID Case No ARB/02/8 (Award, 6 February 2007)|
|SPP v Egypt||Southern Pacific Properties (Middle East) Ltd v Egypt ICSID Case No. ARB/84/3 (Award, 20 May 1992) 3 ICSID Rep 195|
|Tecmed v Mexico||Técnicas Medioambientales Tecmed SA v Mexico ICSID Case No ARB(AF)/00/2 (Award, 29 May 2003) 10 ICSID Rep 134|
|UPS v Canada||United Parcel Service of America Inc v Canada (Award on Jurisdiction, 22 November 2002) 7 ICSID Rep 285|
|Vivendi v Argentina (Resubmission)||Compañía de Aguas del Aconquija SA and Vivendi Universal SA v Argentina ICSID Case No ARB/97/3 (Award, 20 August 2007)|
|Wena Hotels v Egypt||Wena Hotels Ltd v Egypt ICSID Case No ARB/98/4 (Award, 8 December 2000) 6 ICSID Rep 89|
a) On 29 July 2013, the Claimants submitted their Memorial on the Merits, together with a witness statement of Mr. Gerald P. Kehoe (Vice President and then Senior Vice President of Tidewater, Inc. during the relevant period) and an expert report by Mr. Brent C. Kaczmarek (of Navigant Consulting, Inc).
b) On 25 October 2013, the Respondent submitted Its Counter-Memorial on the Merits, together with a witness Statement of Mr. Rubén Figuera (former General Manager of Offshore Mixed Companies at Corporación Venezolana del Petróleo, S.A. (CVP), a subsidiary of PDVSA), an expert report of Professor Louis T. Wells (Herbert F. Johnson Professor of International Management, Emeritus at Harvard Business School) and an expert report of Mr. Vladimir Brailovsky and Dr. Daniel Flores (of Economia Aplicada, S.C. and Econ One Research, Inc respectively).
c) On 25 January 2013, the Claimants submitted their Reply on the Merits, together with a second witness Statement of Mr. Kehoe and a second expert report by Mr. Kaczmarek.
d) On 25 April 2014, the Respondent submitted its Rejoinder on the Merits, with the second witness Statement of Mr. Figuera, the second expert report by Prof. Wells and the second expert report by Mr. Brailovsky and Dr. Flores.
The hearing on the merits was held from 9 to 12 June 2014 at the seat of the Centre in Washington, D.C. Present at the hearing were:
Professor Campbell McLachlan QC (President)
Dr. Andres Rigo Sureda
Professor Brigitte Stern
Mr. Marco Tulio Montanes-Rumayor (Secretary)
Counsel (Covington & Burling)
Mr. Miguel Lopez Forastier
Mr. Thomas (T.L.) Cubbage
Mr. Alexander Berengaut
Mr. Daniel Matro
Ms. Gisselle Bourns
Mr. Felipe Nazar Pagani
Ms. Ana Maria Matias (paralegal)
Mr. Jorge Garcia (paralegal)
Mr. Jeffrey Gorski
Mr. Bruce Lundstrom
Mr. Matthew Mancheski
Mr. Chris Ogle
Mr. Gerard Kehoe
Mr. Brent Kaczmarek
Ms. Isabel Kunsman
Ms. Sarah Sherman
Mr. Matt Shopp
Counsel (Curtis, Mallet-Prevost, Colt & Mosle LLP)
Mr. George Kahale, III
Ms. Miriam Harwood
Ms. Gabriela Alvarez Avila
Mr. Eloy Barbará de Parres
Ms. Claudia Frutos-Peterson
Mr. Simon Batifort
Ms. Arianna Sánchez
Mr. Carlos Guzmán
Ms. Gloria Diaz-Bujan
Mr. Francisco Sánchez
Mr. Ali Topaloglu
Mr. Herbert Tapia
Dr. Joaquin Parra
Dr. Alvaro Silva Calderón
Dra. Natalia Linares
Dra. Moreeliec Peña
Mr. Rubén Figuera
Lie. Vladimir Brailovsky
Prof. Louis T. Wells, Jr.
Dr. Daniel Flores
Mr. Andrea Cardani
Mr. Jordan Heim
Ms. Liliana Avalos de Bulgarelli
Mr. David Kasdan
Ms. Silvia Colla
Mr. Daniel Giglio
Ms. Judith Leandre
a) Lake Maracaibo: SEMARCA was providing maritime support services to PDVSA Petróleo under two time-charter agreements: (i) the so-called Tugs Contract (Contract No. 8027); and (ii) the Supply Vessels Contract (Contract No. 4627).6
b) Offshore: (i) SEMARCA had chartered four vessels to PetroSucre to support operations in the Corocoro Project in the western area of the Gulf of Paria (the Corocoro Contract);7 and (ii) SEMARCA had a short-term agreement with Chevron Cardón III, S.A. for two vessels to support its operations in the Cardón III block of the Rafael Urdaneta Project north of Lake Maracaibo (the Cardón Contract).8
a) On 8 May 2009, direct expropriation of SEMARCA's headquarters, operations and assets on Lake Maracaibo, as well as certain real estate owned by the Second Claimant at La Cañada.
b) On 12 July 2009, direct expropriation of Claimants' offshore assets and operations in the Gulf of Paria.
c) As a consequence of all Respondent's acts, indirect expropriation of Claimants' rights and interests in SEMARCA, including their shareholding.
Respondent says that, in the absence of a property right owned by SEMARCA being taken, there can be no indirect expropriation.39 In other words, Claimants cannot make an expropriation claim for rights or interests that Claimants never had.40 In circumstances where Claimants remain the legal owners of the shares in SEMARCA, Claimants have not identified any substantial assets or rights held by SEMARCA the taking of which deprived the company of its value.41 Respondent says that Claimants seek compensation for the loss of a 'vested right to continue to do business with PDVSA' that they never possessed.42
Counter-Memorial, -, distinguishing Quasar de Valores (Ex CL-140) & Vivendi v Argentina (Resubmission) (Ex CL-138); Reply, -, relying on Emmis v Hungary (Ex RL-159) and distinguishing Wena Hotels v Egypt (Ex CL-141); AIG v Iran (Ex CL-159); Tecmed v Mexico (Ex CL-133) and Metalclad v Mexico (Ex CL-172) as cases where the company in question was dispossessed of valuable rights or assets.
i. Gulmar Offshore Middle East L.L.C. (Gulmar Offshore), a United Arab Emirates company, was one of the operators on Lake Maracaibo specifically designated in Resolution No. 51. After Respondent seized three vessels owned by Gulmar Offshore in accordance with that Resolution, it subsequently returned them and the company continued to operate in Venezuela (including taking on services formerly provided by SEMARCA). Claimants reject Respondent's explanation that PDVSA did not have the expertise to operate the vessels as the reason for returning them, because this exception was not provided for in the Reserve Law.
ii. Guanta Consult, C.A. & Servicios Picardi, C.A. (Servipica), a Venezuelan competitor of SEMARCA who was not listed in Resolution No. 51 and whose assets were not expropriated. Servipica ultimately went on to contract its vessels to Repsol on the Cardon IV project, an operation that Claimants had been in negotiations to service.
iii. Astilleros de Venezuela, C.A. (Astivenca), a Venezuelan company, also operated offshore and was not subject to expropriation.
i. The vessels belonging to Gulmar Offshore were returned because PDVSA did not have the expertise to operate them. Respondent also suggests that the treatment of Gulmar Offshore's vessels was consistent with the treatment of the Claimants' vessels President Tide and High Quest (which were released by the Respondent), because in both cases they were foreign-flagged and had allinternational crews. Respondent also says that Gulmar Offshore is in dispute with Venezuela over the effects of the Reserve Law and no longer operates in the country.59
ii. Servipica, by contrast, was not operating in Lake Maracaibo at the time of the Reserve Law and therefore was not included in Resolution No. 51.60
iii. Astivenca was included in Resolution No. 51 and its assets in Lake Maracaibo were expropriated.61
i. Fair and equitable treatment : Article 2(2) of the BIT guarantees investors 'fair and equitable treatment in accordance with the rules and principles of International law'. A 'central pillar' of the BIT's guarantee is the protection of legitimate expectations, and Claimants say that Respondent violated their legitimate expectation (rooted in the BIT and Venezuela's Constitution) that their investment would not be expropriated without compensation. Claimants submit, in particular, that the Venezuelan Constitution requires compensation to be paid before any seizure.62 Claimants say that the Treaty protection is not qualified by the (lower) customary international law minimum standard of treatment of aliens, but even that standard prohibits expropriation without compensation.63
ii. Arbitrary or discriminatory measures : Article 2(2) also prohibits the impairment of investments by arbitrary or discriminatory measures. Claimants say that Respondent's measures were arbitrary because they violated the BIT and the Constitution, and discriminatory for the reasons described above.64
iii. National treatment and most-favoured nation treatment : Claimants also say that the discriminatory nature of Respondent's conduct constitutes a freestanding violation of Article 3 of the BIT.65
i. Fair and equitable treatment : Respondent says that the guarantee in Article 2(2) of the BIT is the customary international law minimum standard of treatment. Claimants do not claim they had a right to operate in Venezuela in perpetuity and Respondent has a sovereign right to reserve certain activities to itself. This claim therefore boils down to an allegation that compensation has not been paid and adds nothing to the primary claim. That argument cannot succeed because Respondent has always recognised its obligation to compensate.66
ii. Arbitrary or discriminatory measures, national treatment and most-favoured nation treatment : These claims simply recycle Claimants' allegation of discriminatory expropriation.67
a) For the risk-free rate. Claimants' expert uses the ten-year historical average yield on United States Treasury Inflation-Protected Securities.118
b) For the equity risk premium, Claimants' expert used 5.0 per cent, said to be an approximate average of the range of estimates recommended in empirical studies.119 Claimants say that Respondent's premium is based on a single source and, at 6.5 per cent, is at the top end of the usual range of 3.5 to 7 per cent.120
c) For the asset beta, the expert used a sample of comparable companies to derive an unlevered beta of 0,618, adjusting the figures for an assumed debt/equity ratio of 10:90 for SEMARCA. He justifies the low ratio on the basis that SEMARCA leased its vessels, meaning it had modest financing needs.121 He says that if the Respondent's experts were to use the right Ibbotson/Morningstar industry code, the applicable beta is 0.69.122
d) For the country risk premium (which accounts for two-thirds of the difference in overall discount rate between the respective experts), Claimants' expert excludes the impact of 'certain Venezuelan government policies, such as its nationalisation agenda, which heightened the level of legal, regulatory and political risk'.123 He says that expropriation risk must be excluded because the BIT protects against it,124 and criticises Respondent's experts' reliance on the Ibbotson-Morningstar report because it is based on empirical data that inevitably incorporates such risks.125 That leaves currency risk (assessed as low because most profits were in US Dollars); macroeconomic risk (also assessed as low because of the vital role of the maritime support service sector in the Venezuelan economy); and social risk such as the risk of labour unrest (assessed as moderate). Moreover, Claimants say that recent data suggests that investors in real world transactions are not applying significant 'country risk' discounts.126 They distinguish the cases on which Respondent relies.127 Claimants' expert thus adopts a country risk premium of 1.5 per cent.
e) Finally, the expert calculates the cost of debt based on average rates at which comparable companies could borrow in US Dollars for the three years prior to expropriation, settling on 6.68 per cent.128
a) Claimants dispute that SEMARCA should be treated as dependent on a single customer, PDVSA, given the offshore expansion opportunities.129 Although a buyer might in principle discount a company's value to account for high customer concentration, Claimants say the risk to SEMARCA was reduced because PDVSA already had a diversified customer base and a long history of continuous operation.130
b) Claimants say that geographic concentration was not a significant risk because no prospective buyer would have been concerned that the market for SEMARCA's services would suddenly dry up.131
c) Finally, Claimants dispute the addition of Respondent's alpha premium of 2.27 per cent and small-company size premium of 1.08%, because they do not reflect how a willing buyer would have valued SEMARCA in real life.132
a) In calculating a discount rate, the experts take into account three elements: the cost of equity for an on-going concern operating in SEMARCA's field in a mature economy; the cost of equity due to country risk and the cost of debt to SEMARCA.137
b) Respondent's experts use the CAPM and International Capital Asset Pricing Model (ICAPM) methods, and in particular the Ibbotson/Morningstar implementation of the ICAPM method, confirmed by reference to the 'bludgeon method' of Professor Damodaran.138
c) As to equity risk, Respondent's experts adopt 6.5%.139 They explain that this figure represents the most accurate long-term cost of equity capital and it is supported by both the Ibbotson-Morningstar report, which collates data from 1926 to the valuation date, and other published data sources.140 Respondent's experts maintain that Claimants' figure is not reliable, as it is based on data that post-dates the valuation date.
d) As to country risk. Respondent says that the discount rate adopted by Claimants' expert would not even be appropriate for a project in the United States. In reliance on Himpurna, AMT, Lemire and Mobil Cerro Negro, Respondent says that much higher country risk must be assigned.141 It says that Claimants' exclusion of factors such as expropriation risk is based on a mistaken premise. The rule that the value of an asset must be assessed at a date before the announcement of the specific expropriation does not mean that one must ignore the general risk of government intervention that has always accompanied the investment activities in Venezuela, including the risk that the government would reserve a certain sector of activity to the State.142 It is no answer to say that such risks are controlled by the State.143 Nor does the BIT permit that risk to be excluded from the analysis.144 The Respondent's experts propose a country risk rate on equity of 14.76%, and on debt of 11.89%.145
e) Respondent also says, in reliance on the expert report of Professor Wells, that a significant discount must be applied to take account of business risk, driven by the fact that SEMARCA operated on the basis of short-term contracts with no long term commitments, and because of SEMARCA's dependence on a single customer.146 Respondent says that Claimants confuse 'single customer' risk with 'single supplier' risk,147 and have no answer to the risk of internalisation.148
f) Taking into account an appropriate debt/equity ratio, Respondent's experts calculated an overall discount rate of 24.57%.149
a) The experts identify three publicly traded companies most directly comparable to SEMARCA, assign each a comparability rating and then weight their EV/EBIT multiple accordingly. Multiplying SEMARCA's projected EBIT for 2013 by the weighted EBIT multiple produces an enterprise value.153 The experts dispute Respondent's claim that the selected companies are associated with very different country risk profiles, because much of the difference is attributed to uncompensated expropriation risk and related risks, and because there is no correlation between the 'in country' cost of equity and the EV/EBIT valuation multiples of the selected companies.154
b) The experts adopt a similar approach for comparable transactions, identifying six in the period 2010 to 2013 that are potentially comparable to SEMARCA.155
(a) First, it considers the constituent elements of the cause of action provided by the Contracting States in Article 5 of the BIT itself;
(b) Second, it identifies and analyses the relevant State measures alleged to constitute the expropriatory acts;
(c) Third, it assesses whether, and if so to what extent, those measures did in fact have an expropriatory effect; and,
(d) Fourth, it considers whether, if so, such expropriation was lawful or unlawful.
(1) Investments of nationals or companies of either Contracting Party shall not be nationalised, expropriated or subjected to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as "expropriation") in the territory of the other Contracting Party except for a public purpose related to the internal needs of that Party on a non-discriminatory basis and against prompt, adequate and effective compensation. Such compensation shall amount to the market value of the investment expropriated immediately before the expropriation or before the impending expropriation became public knowledge, whichever is the earlier, shall include interest at a normal commercial rate until the date of payment, shall be made without delay, be effectively realizable and be freely transferable. The national or company affected shall have a right, under the law of the Contracting Party making the expropriation, to prompt review, by a judicial or other independent authority of that Party, of his or its case and of the valuation of his or its investment in accordance with the principles set out in this paragraph.
(2) Where a Contracting Party expropriates the assets of a company which is incorporated or constituted under the law in force in any part of its own territory, and in which nationals or companies of the other Contracting Party own shares, it shall ensure that the provisions of paragraph (1) of this Article are applied to the extent necessary to guarantee prompt, adequate and effective compensation in respect of their investment to such nationals or companies of the other Contracting Party who are owners of those shares.
Article 5 is in a form commonly found in many investment treaties. It does not prohibit the expropriation of investments. Rather, each Contracting Party undertakes only to expropriate if certain specified conditions are met. The expropriation must be:
(a) 'for a public purpose related to the internal needs of that Party';
(b) 'on a non-discriminatory basis'; and
(c) 'against prompt, adequate and effective compensation'.
The Contracting States extend these protections to 'measures having effect equivalent to nationalisation or expropriation.' They also undertake to provide prompt judicial or independent review of an investor's case or the valuation of its investment in accordance with the principles set out in Article 5.
Four measures were relied upon as constituting acts by which Respondent expropriated Claimants' investments in Venezuela:
(i) Reserve Law of 7 May 2009;169
(ii) Ministerial Resolution No 51 of 8 May 2009;170
(iii) Physical seizure of SEMARCA's business operations at La Cañada, Lake Maracaibo on 9 May 2009; and,
(iv) Physical seizure of SEMARCA's business operation at Corocoro on 12 July 2009.
It Is necessary to take each of these measures In turn.
The assets and services thus reserved include '[t]hose related to the activities in Lake Maracaibo: vessels for [diverse purposes]; maintenance of vessels in workshops, piers or docks of any nature.'172 The Ministry of the Popular Power for Energy and Petroleum with competence on oil matters (the Ministry) is empowered to determine by resolution the specific assets and services of enterprises that fall within the Law.173 All subsisting agreements in connection with the reserved activities are to terminate by operation of law.174 As of the date of publication of the Law, PDVSA or its designated subsidiary 'shall take possession of the assets and control of the operations referred to [as] the reserved activities'.175
[O]ur operations in Lake Maracaibo are huge. We have more than 7,000 Wells. All independent, isolated. 7,000 Wells, we have more than 17,000 kilometers of pipeline laying out in the bottom of the lake. We have... about 200 flow stations that we have to supervise and maintain and operate. A huge amount of facilities, not to refer to the rigs, drilling rigs and all the barges that are used to lay out the pipeline and do production and construction activities in Lake Maracaibo.
So, yes, although we have, as I mentioned, more than 400 vessels of our own, and we have always had a large significant capacity to operate in the lake, yes, that's not sufficient. And we depended up to a point, a significant point, [we] depended upon contractors.
There are vessels that also we don't have. We have only a few supply vessels, that's not something that we ever care for to develop.178
At approximately 1:30 AM on 8 May 2009, the Venezuelan National Guard arrived at the SEMARCA headquarters at La Cañada, entered the facility, and took control. We did not receive any notice that the Venezuelan National Guard was coming. At approximately 5:00 AM, three buses arrived, loaded with many PDVSA employees dressed all in red. These PDVSA employees also participated in the takeover of the facility. After the arrival of the National Guard, SEMARCA managers were no longer allowed on the premises except for specific appointments that had to be requested through the local PDVSA management. SEMARCA's non-managerial employees were expected to report for work after the takeover.184
The law, the Reserve Law, requested all vessels related to, underlined "related" to Lake Maracaibo operations be taken, and these vessels were registered in Lake Maracaibo, that belonged to the Lake Maracaibo fleet. These vessels worked in Lake Maracaibo eventually, and in several times we noticed in the reports that these vessels moved from Corocoro to Lake Maracaibo operations and performed services to our fleet-as part of the fleet in Lake Maracaibo.188
When measures are taken by a State the effect of which is to deprive the investor of the use and benefit of his investment even though he may retain nominal ownership of the respective rights being the investment, the measures are often referred to as a "creeping" or "indirect" expropriation, or, as in the BIT, as measures "the effect of which is tantamount to expropriation".189
(a) The investment has been nationalised or the measure is confiscatory;
(b) The investor remains in control of the investment and directs its day-to-day operations, or whether the State has taken over such management and control;
(c) The State now supervises the work of employees of the Investment; and,
(d) The State takes the proceeds of the company's sales.190
[T]he expropriation for me was a transition period from the beginning, let's say May 8th, up until July 12th. In the beginning, we almost felt that this wasn't really going to happen to us, but, as the milestones went along, we found out that this was really the reality right up until the final taking of the PetroSucre vessels on July 12th.193
Expropriation, which can be defined as a compulsory transfer of property rights, may extend to any right which can be the object of a commercial transaction, i.e., freely sold and bought, and thus has a monetary value.
(a) 'for a public purpose related to the internal needs of that Party';
(b) 'on a non-discriminatory basis'; and
(c) 'against prompt, adequate and effective compensation'.
(a) In the case of services provided by Gulmar Offshore, the unchallenged evidence of Mr. Figuera was that its vessels were originally seized, but then released once it was established that they were foreign-flagged and foreign-crewed - a like treatment to that accorded to the foreign-flagged vessels of Tidewater affiliates; and that Gulmar in any event no longer provides services on Lake Maracaibo and is pursuing a claim in arbitration against PDVSA.211
(b) In the case of Servipica, its services were provided off shore and were not covered by the Reserve Law.
(c) In the case of Astivenca, its services on Lake Maracaibo were indeed expropriated under Ministerial Resolution No 51.212
Amoco (CL-148), , , citations omitted. The same approach is adopted by the ECtHR: Papamichalopoulos v Greece, : 'The act of the Greek Government... contrary to the Convention was not an expropriation that would have been legitimate but for the failure to pay fair compensation... The unlawfulness of such a dispossession inevitably affects the criteria to be used for determining the reparation owed by the respondent State, since the pecuniary consequences of a lawful expropriation cannot be assimilated to those of an unlawful dispossession.'
Mondev v USA (CL-046), , Cf. the position where the State makes no offer of compensation at all (as in Wena v Egypt (CL-141), ; Vivendi v Argentina (Resubmission) (CL-138) or offers an amount that is so negligible as not to be in made in good faith (as in Rumeli v Kazakhstan (CL-95)).
Decisions of various ad hoc tribunals since 1945 have been dominated by claims in respect of nationalized business entities. The preferred approach in these cases has been to examine the assets of the business, making allowance for goodwill and profitability as appropriate. This method has the advantage of grounding compensation as much as possible in some objective assessment of value linked to the tangible asset backing of the business. The value of goodwill and other indicators of profitability may be uncertain, unless derived from information provided by a recent sale or acceptable arms-length offer. Yet, for profitable business entities where the whole is greater than the sum of the parts, compensation would be incomplete without paying due regard to such factors.241
[A]n enterprise consisting of income-producing assets which has been in operation fora sufficient period of time to generate the data required for the calculation of future income and which could have been expected with reasonable certainty, if the taking had not occurred, to continue producing legitimate income over the course of its economic life in the general circumstances following the taking by the State.246
[T]he cash receipts realistically expected from the enterprise in each future year of its economic life as reasonably projected minus that year's expected cash expenditure, after discounting this net cash flow for each year by a factor which reflects the time value of money, expected inflation, and the risk associated with such cash flow under realistic circumstances. Such discount rate may be measured by examining the rate of return available in the same market on alternative investments of comparable risk on the basis of their present value.247
(a) Claimants: US$31,959 million (11 vessels only) (an earnings multiple of 3.79) + US$16,484 million non-recurring accounts receivable = US$48,443 million;
(b) Respondent: US$27,407 million (15 vessels with 100% recoverability of accounts receivable).
(a) Claimants seek reimbursement of the fees of counsel and experts amounting to US$7,534,361.33 plus expenses of US$177,739.31;
(b) Respondent seeks reimbursement of the fees of counsel and experts amounting to US$8,479,879 plus expenses of US$520,538.00.
(1) Respondent has expropriated Claimants' investment in SEMARCA without payment of prompt, adequate and effective compensation;
(2) Claimant is therefore entitled to compensation in accordance with Article 5 of the BIT;
(3) The Tribunal assesses the principal amount of the compensation to be paid as US$46.4 million;
(4) In addition, Claimant is entitled to interest from 8 May 2009 to the date of payment of this Award at the rate of 4.5% per annum compounded quarterly;
(5) Each Party shall bear its equal share of the fees and expenses of the Tribunal members and of the Centre, and shall bear its own costs of and occasioned by Respondent's challenge to the jurisdiction of the Tribunal;
(6) Respondent shall pay to Claimants the sum of US$2.5 million in partial reimbursement of Claimants' costs of and occasioned by the merits phase of these proceedings.