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Source(s) of the information:
Source(s) of the information:

Lawyers, other representatives, expert(s), tribunal’s secretary


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.
PetroSucre PetroSucre, 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 [96])
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)
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) [1996] 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 Request for Arbitration

On 16 February 2010, Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., Twenty Grand Offshore, L.L.C., Point Marine, L.L.C., Twenty Grand Marine Service, L.L.C., Jackson Marine, L.L.C. and Zapata Gulf Marine Operators, LLC. filed a Request for Arbitration under the ICSID Convention against the Bolivarian Republic of Venezuela (Venezuela or Respondent).
On 8 February 2013, the Tribunal delivered its Decision on Jurisdiction In which It held that It has jurisdiction only in respect of the claims made by Tidewater Investment SRL (First Claimant) and Tidewater Caribe, C.A. (Second Claimant) (together Tidewater or Claimants) pursuant to Article 8 of the Agreement between the Government of Barbados and the Government of the Republic of Venezuela for the Promotion and Protection of Investments 1994 (Barbados BIT). In light of that Decision, Claimants filed an Amended Request for Arbitration (Request) on 1 March 2013.
The dispute concerns the Claimants' investment in marine support services to the oil industry In Venezuela. The factual background to the dispute Is summarised in Part I C below.

B Procedural history

The procedural history of this arbitration until the Decision on Jurisdiction is reviewed in that Decision.
On 7 June 2003, the Tribunal adopted, with the Parties' consent, a procedural schedule for the remaining steps in the arbitration.
The Parties then exchanged the following pleadings on the merits:

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.

On 8 November 2014, the Claimants advised the Tribunal of the Parties' agreement not to make requests for the production of documents to the Tribunal.
On 20 May 2014, following a request from the Tribunal, the Parties communicated the extent of their agreement as to the organisation of the hearing on the merits, including the hearing timetable and the order of witnesses.
On 21 May 2014, the Claimants sought leave to introduce into the record further exhibits C-250 to C-261. On 23 May 2014, the Respondent confirmed that it no longer objected to the admission of those documents.
On the same day, the Tribunal resolved the outstanding issues for the organisation of the hearing and communicated its decision on these issues to the Parties.

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

Court Reporters

Ms. Liliana Avalos de Bulgarelli
Mr. David Kasdan


Ms. Silvia Colla
Mr. Daniel Giglio
Ms. Judith Leandre

On 13 June 2014, the Tribunal conducted a preliminary deliberation in Washington, D.C. It has subsequently deliberated by various means.

C Factual background

The Tidewater group was founded in 1956 to supply marine transportation services in the Gulf of Mexico.1 It first established operations in Venezuela in 1958, by the acquisition of the company now called Tidewater Marine Service, C.A. (SEMARCA), a company constituted under the laws of Venezuela.2 When the events that are the subject of this arbitration took place, Tidewater had been operating continuously in Venezuela since 1958.
Prior to May 2009, the Second Claimant, Tidewater Caribe, C.A. (Tidewater Caribe), a company incorporated in Venezuela, owned SEMARCA. Following a corporate reorganisation on 9 March 2009, Tidewater Caribe was in turn owned by the First Claimant, Tidewater Investment SRL, a company incorporated in Barbados. Each of the claimant companies are part of the Tidewater group of companies, ultimately owned by Tidewater, Inc, a United States company.
SEMARCA had its headquarters in the village of La Cañada, on the western shores of Lake Maracaibo. Tidewater Caribe owned the parcel of land used by SEMARCA for this purpose.3
The oil industry in Venezuela was nationalised in 1975. From that date onwards, Venezuela's national oil company Petróleos de Venezuela, S.A. (PDVSA) and its partially- or wholly-owned subsidiaries engaged private companies to provide support to the oil industry in the country. Those subsidiaries included three relevant to this case: Corporación Venezolana del Petróleo SA (CVP), PDVSA Petróleo, S.A. (PDVSA Petróleo) and PetroSucre, S.A. (PetroSucre).
SEMARCA provided its maritime support services under contract to both PDVSA Petróleo and PetroSucre.
From the late 1990s, SEMARCA expanded its operations to offshore locations, including in the Gulf of Paria off the northwest coast of Venezuela.
Despite having operated in Venezuela for many years, SEMARCA did not have a general concession contract with PDVSA or its subsidiaries. Instead, it operated on a running account basis by means of short-term charter agreements: frequent contracts with a duration of several months that were periodically extended.4 It is common ground that at the time of the seizure of the Claimants' assets, SEMARCA was providing services in both Lake Maracaibo and the Gulf of Paria, under four short-term contracts:5

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

The Parties dispute the duration and status of those contracts at the date of the Reserve Law, a matter that the Tribunal addresses below.
In 2008-2009, world oil prices fell significantly. PDVSA struggled to meet its payment obligations to SEMARCA.9
As the Tribunal observed in the Decision on Jurisdiction, accounts receivable owed to SEMARCA began to accrue in June 2008.10 By May 31, 2009, Tidewater's Annual Report recorded that SEMARCA had accounts receivable of approximately USD $40 million.11
On 7 May 2009, the Government of Venezuela enacted the Organic Law that Reserves to the State the Assets and Services Related to Primary Activities of Hydrocarbons (Reserve Law).12 The following day, 8 May 2009, the Ministry of Popular Power for Energy and Petroleum issued a resolution (Resolution No. 51) that identified the Claimants, along with 38 other service providers, as subject to the Reserve Law.13
The same day SEMARCA's assets on Lake Maracaibo were seized, including its headquarters at La Cañada and 11 vessels.14 SEMARCA continued to provide services to PetroSucre in the Gulf of Paria following that seizure, but on 12 July 2009 the Claimants' four vessels serving the Corocoro Project in the Gulf of Paria were also seized.15 The Parties disagree on the scope of application of the Reserve Law, the extent of the seizures, and the extent of the Claimants' remaining assets and operations in Venezuela. The Tribunal returns to those issues in Part III of this Award.


In this section of the Award, the Tribunal summarises the Parties' respective submissions on the two issues which it is the Tribunal's task to resolve: first, the scope of Respondent's liability; and second, the proper quantum of compensation due to Claimants in the light of the Tribunal's findings as to liability.
The Tribunal observes at the outset that Respondent accepts that the Reserve Law and the Government's associated administrative acts had the effect of expropriating property of value belonging to Claimants.16 Respondent also accepts that the Respondent is obliged to pay to Claimants compensation for those expropriations.17 As a consequence, the focus of the Parties' submissions was on the scope of Respondent's expropriation of Claimants' property, the lawfulness of the expropriation, and the proper quantum of compensation due as a consequence.

A Liability

1. Preliminary

Claimants base their claim in this arbitration on the Barbados BIT. They observe that the law applicable to the substance of the claim is determined by Article 42(1) of the ICSID Convention, and submit that the '"rules of law... agreed by the Parties' pursuant to that provision are recorded in the Barbados BIT itself, supplemented by general principles of international law."18 They submit that Venezuelan law is relevant to the extent that it bears on the scope of Claimants' rights and Respondent's obligations; while Article 11 of the Barbados BIT incorporates by reference any principles of international law or Venezuelan law that are more favourable than those imposed by the Treaty, equally Venezuelan law cannot be applied to the extent that it is inconsistent with Respondent's international legal obligations.19
Respondent does not take issue with these propositions.

2. The scope of the expropriation

Claimants say that the effect of the Reserve Law and the associated administrative acts was to directly expropriate valuable tangible assets belonging to Claimants, as well as to indirectly expropriate their shares in SEMARCA itself, thus depriving Claimants of a business with a 50-year history in Venezuela and a proven history of profitability. Respondent, by contrast, says that the expropriations deprived Claimants of nothing more than a piece of land at La Cañada (together with buildings and inventory), 15 vessels (which, as a consequence of the Decision on Jurisdiction, are beyond the competence of the Tribunal, being owned by Tidewater companies outside the scope of the Barbados BIT) and the short period remaining in the terms of two contracts with PDVSA Petróleo.

(a) Claimants' submissions

Claimants begin by noting that Article 5(1) of the Barbados BIT prohibits both direct and indirect expropriation. It defines the latter as State measures which 'interfere with property rights to such an extent that these rights are rendered so useless that they must be deemed to have been expropriated, even though the State does not purport to have expropriated them and the legal title to the property formally remains with the original owner.'20
Thus, Claimants submit that following the enactment of the Reserve Law on 7 May 2009, and the Ministerial designation of Claimants on 8 May 2009, Respondent's expropriation consisted of three elements:21

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.

Claimants note that Respondent concedes the first stage of expropriation.22 However, Claimants explain that the expropriation itself had wider effects on SEMARCA's other operations in the country, because its operations in the Gulf of Paria were deprived of access to dispatchers, mechanics or spare parts located in La Cañada.23
As to the second stage, Claimants reject Respondent's argument that because the Reserve Law only applied by its terms to Lake Maracaibo, Claimants were (and remain) free to operate offshore. They note that, on 12 July 2009, Respondent seized four vessels operating offshore in support of the Corocoro Project, that this had the effect of terminating the Corocoro contract which was still on foot,24 and that this seizure was undertaken pursuant to the Reserve Law. They also rely on the Tribunal's finding in the Decision on Jurisdiction that on 12 July 2009 'the Claimants' remaining assets and operations in Venezuela were expropriated.'25 The inference that Claimants would have the Tribunal draw is that they did not remain free to operate offshore.
As to the third stage, Claimants say that Respondent's implementation of the Reserve Law deprived the Second Claimant of control over SEMARCA, as demonstrated by: (i) multiple Venezuelan court decisions which recognise that SEMARCA has become part of, or is represented by, PDVSA; (ii) the fact that the Second Claimant was barred from registering documents for SEMARCA in the Commercial Registry; (iii) letters from SEMARCA's officers to the Respondent explaining that they had been effectively removed from office; and (iv) integration of SEMARCA into the PDVSA business.26
Claimants further submit that Respondent's acts have rendered the shares in SEMARCA worthless (and that they do not enjoy the benefit of the accounts receivable because they have lost control over the company).27
Claimants say that Respondent's argument that they could not have suffered indirect expropriation because Claimants lacked proprietary rights capable of expropriation is a red herring: their shares in SEMARCA were undoubtedly a proprietary right and they have been deprived of the benefit of that right. It is not necessary that Claimants identify any long-term contractual rights beyond that investment to make out a case of indirect expropriation.28

(b) Respondent's submissions

Respondent says that Claimants have confused expropriation by a State with reservation of an area of activity within its borders.29 It says that all that was expropriated were the vessels, the tangible assets at La Cañada, and the short periods remaining on the two Lake Maracaibo contracts.30
As to the contracts, Respondent says that the Reserve Law only expropriated a short period remaining on two contracts (the Towing Contract and Supply Vessels Contract), each of which had only 24 days left to run and no right of renewal. Respondent says that because the Reserve Law only applied to Lake Maracaibo, the offshore contracts were not expropriated and expired according to their terms: the Corocoro Contract expired on 30 June 2009 (52 days after the enactment of the Reserve Law) because renewal terms were not agreed;31 and the Cardón Contract expired on 23 May 2009 but continued until 12 June 2009, 35 days after the enactment of the Law (after which Chevron chose not to extend it because the project was not commercial).32
Respondent also says that the limited scope of the Reserve Law left the company free to operate elsewhere in Venezuela, and that this is demonstrated by the fact that the Claimants continued to negotiate with Repsol in respect of the Rafael Urdaneta Cardón IV Project after the enactment of the Reserve Law.33 It says that in consequence there can be 'no issue of compensation with respect to any business outside of the reserved area.'34 The seizure of the four vessels serving the Corocoro Project does not demonstrate that the Reserve Law applied outside Lake Maracaibo, because all four vessels were registered there and three had been used for maritime support services on the Lake.35
As to the allegation of indirect expropriation, Respondent says that nothing in the Reserve Law affects the ownership or control of SEMARCA. It submits that SEMARCA continued to receive payments in its own name after the enactment of the Reserve Law, continued to operate and negotiate offshore contracts, and that the Claimants remain in control of its accounts receivable.36 Respondent says it did not take possession and control of SEMARCA or remove its officers.37 Respondent says the SEMARCA officers' letters on which Claimants rely were self-serving and written after the expropriation in order to 'create a record of "indirect expropriation'".38

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

3. Whether the expropriation was lawful or unlawful

(a) Claimants' submissions

Claimants say that Respondent's expropriation is unlawful because it fails to respect two of the conditions imposed by Article 5(1) of the Treaty: that the expropriation betaken 'against prompt, adequate and effective compensation'; and that it be carried out on a non-discriminatory basis.
Compensation : Claimants note that the Barbados BIT requires that any expropriation be accompanied by payment of compensation which amounts to the market value of the investment expropriated, calculated before the expropriation (or when the impending expropriation became public knowledge).43 Claimants thus begin by submitting that the mere failure of Respondent to pay compensation in accordance with the BIT renders the expropriation unlawful.44 They note that Respondent's representative rejected the proposal to pay immediate but partial compensation consisting of all the accounts receivable, and indicated that assets would be valued on a book-value basis.45 Claimants say that Respondent was required, at the least, to make a 'good-faith determination of the fair market value of the investment... and to tender that amount promptly' without prejudice to subsequent proceedings by Claimants to challenge its quantum.46 They cite authority for the proposition that a failure to offer compensation,47 or Treaty-compliant compensation,48 renders the expropriation unlawful. They distinguish the authorities on which Respondent relies on the basis that they either concerned expropriation without compensation under customary international law standard, or they involved distinguishable Treaty provisions.49
In any case, they submit that because the Reserve Law requires Respondent to pay compensation only on a book-value basis, and prohibits the compensation of 'lost profits or indirect damages', the Reserve Law forbids Respondent from paying the compensation required by the BIT, and this renders the expropriation unlawful.50
Discrimination : Claimants submit that, under the Treaty, an expropriation will be unlawful unless it is carried out 'on a non-discriminatory basis'. They say that the expropriation of SEMARCA was unlawful because not all similarly situated providers of maritime support services to the oil and natural gas industry in Venezuela received equal treatment. In particular, they say that three other operators were treated more favourably than SEMARCA:51

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.

(b) Respondent's submissions

Compensation : On the facts, Respondent says that it engaged in compensation discussions with Claimants, but those could not proceed because Claimants insisted on an overly-broad confidentiality agreement. It says that agreement on compensation has also been hampered by Claimants' insistence on seeking compensation for rights SEMARCA never had.52
On the law, Respondent submits that an expropriation is not rendered unlawful by the mere fact that compensation has not been paid, provided that the government 'recognises the obligation to compensate.'53 Respondent points out that in the Chorzów Factory case (as followed in LIAMCO), the expropriation was unlawful because the Government of Poland did not have the right to expropriate the property in question under the applicable Treaty, and that, if Poland had been entitled to expropriate, then the appropriate standard of compensation would have been 'the value of the undertaking at the moment of dispossession' even if Poland had failed to pay any compensation.54 Respondent submits that the concept of 'provisional payment' invoked by Claimants has no support in the authorities.55
Respondent distinguishes the five cases which Claimants cite for the proposition that the mere failure to pay compensation renders an expropriation unlawful, arguing that in those exceptional cases the State had never made an offer of compensation, or had offered compensation so low as to be non-existent.56 In Respondent's submission, Article 6 of the Reserve Law does not prohibit compliance with the Treaty's terms as to compensation and there is no basis for assuming that the State intended to breach its international obligations in enacting the Law.57
Discrimination : Respondent says that it did not act in a discriminatory fashion:58

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

4. Other breaches of the Barbados BIT

(a) Claimants' submissions

Claimants also allege that the Respondent's conduct constitutes a breach of three other protections afforded by the Barbados BIT:

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

(b) Respondent's submissions

Respondent says that Claimants' other causes of action under the BIT add nothing to their claim of expropriation:

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

B Compensation

At the close of the written phase, the calculations proffered by the respective experts were some distance apart. Claimants' experts quantified the total claim at between US $217m and US $234m on an ex post basis, and between US $103m and US $141m on an ex ante basis.68 Respondent's experts, by contrast, concluded that the proper quantum of compensation was US $1.68m.69
It became apparent during the hearing that much of the difference between the valuations was attributable to the different assumptions that the experts had adopted, in some cases on instruction from counsel.70 During the hearing, both Parties' experts were given an opportunity to make a brief direct presentation of their evidence to the Tribunal, before being cross-examined and questioned by the Tribunal. Subsequently, and at the request of the Tribunal, each Party's experts produced revised valuations on the basis of alternative assumptions. In this section, the Tribunal first outlines the different approach the Parties took to the valuation exercise, before explaining the valuation figures presented by the experts during the hearing.

1. Standard of compensation and date for assessment of compensation

(a) Claimants' submissions

Claimants say that they are entitled to restitutio in integrum: that is, compensation to place them in the position they would have been absent the Respondent's wrongful acts.71 At a minimum, they are entitled to the fair market value of the SEMARCA Enterprise (which they define to include the value of their equity in SEMARCA plus the value of the part of the terminal at La Cañada occupied by the company72) as a going concern before the expropriation measures became public (the ex ante approach). On this approach, the business is valued on the basis of reasonable expectations at that date.73 But Claimants submit that, because the expropriation was unlawful, they are entitled to be compensated for the net cash flows that they would have enjoyed between the date of the expropriation and the date of this Award, plus the value of the SEMARCA Enterprise at the later date (the ex post approach).74
Claimants say that the prescribed standard of compensation in Article 5(1) of the BIT represents the condition for a lawful expropriation, but that Article 5(1) does not prescribe the standard of compensation that is payable for an expropriation which the Tribunal has found to be unlawful or wrongful.75 Consequently, the applicable standard is supplied by customary international law as reflected in the Chorzôw Factory case, requiring reparation to 'wipe out all the consequences of the illegal act'.76 This equates to the Claimants' ex post approach.77 The same standard applies to any breach of the BIT (such as a violation of the guarantee of fair and equitable treatment).78 Claimants say that although 'in most adjudicated expropriation disputes' compensation has been assessed at the date of expropriation, in those cases either additional compensation was not sought or there was insufficient evidence to determine the increase in value.79
Claimants say that if compensation is to be assessed at the date of dispossession, it must exclude the adverse impact of pre-expropriation measures that were taken to reduce the value of the Claimants' interests.80

(b) Respondent's submissions

Respondent begins by submitting that there is no difference between an ex ante and ex post valuation in this case, because, for the reasons described above, the Respondent did not expropriate the SEMARCA Enterprise itself.81
To the extent that the valuation date might make a difference, Respondent says that Article 5(1) of the BIT stipulates the standard of compensation. It is not limited by its terms to 'lawful' expropriations, and authority supports the proposition that the standard of compensation set by the applicable Treaty should apply regardless of whether the expropriation is lawful (but particularly where the only 'wrongful' conduct is the non-payment of compensation).82 Respondent distinguishes ADC v Hungary on the basis that the expropriation was deemed unlawful for a number of reasons other than the failure to pay compensation.83

2. Method of valuation

(a) Claimants' submissions

On Claimants' preferred ex post approach, their experts calculated compensation in two tranches: (i) the lost net cash flows of the SEMARCA Enterprise from 7 May 2009 until the date of the Award; and (ii) the fair market value of the SEMARCA Enterprise at the date of the Award.
As to the value of the business itself, Claimants adopt the 'willing buyer/willing seller' approach endorsed by, inter alia, the World Bank Guidelines,84 and say that on the ex post approach the investor is entitled to the higher of the business's value at the time of dispossession or the value it would have had at the date of the Award taking into account the profits that would have been earned in the interim in valuing the business.85 Claimants' experts utilise a combination of valuation methodologies: primarily (i) a Discounted Cash Flow (DCF) analysis, assisted by (ii) the comparable publicly traded companies approach and (iii) the comparable transactions approach.86 To implement the DCF approach, Claimants' experts project future cash flows through to 31 March 2019 (using the same general methodology as for the period 2009-2013) and determine the remaining value of the business beyond 2019 with a terminal (or residual) value calculation.87

(b) Respondent's submissions

Respondent's primary position is that it is not appropriate to value the SEMARCA Enterprise at all, because it was not expropriated. To the extent that it is necessary to value the business, the Respondent's experts say that a DCF valuation alone is appropriate, and reject Claimants experts' comparable companies and transactions approaches for the reasons given below.

3. Elements of the valuation

(a) Scope of the business

The Parties dispute the scope and long-term prospects of SEMARCA's business at the date of the expropriation.
Claimants : As to the long-term prospects of the business, Claimants dispute the Respondent's contention that SEMARCA was vulnerable to 'stiff competition' and the risk of PDVSA bringing services 'in-house'.88 They say that SEMARCA had a proven track record of success and numerous competitive advantages, and was one of the few companies well placed to service the increased demand after 2009.89 As a result, the fact that SEMARCA had no guaranteed right to future contracts on the Lake is not a good reason to ignore its future earning capacity.90 They say that PDVSA had no viable internalisation plan, submit that the market would not have regarded PDVSA's isolated 'musings' as a realistic threat to SEMARCA's prospects, and say that, in any case, the limited plans were largely focused on services that SEMARCA did not provide.91
On the assumption that the Tribunal takes into account business that Claimants would have undertaken in the period between expropriation and the date of this Award, Claimants point to several offshore projects that they say would have resulted in an expansion of their business. In particular, they identify: the Rafael Urdaneta Project, a large natural gas drilling operation north of Lake Maracaibo (of which the Cardón III Project, to which SEMARCA briefly contributed two vessels - High Quest and President Tide - was a part);92 the Mariscal Sucre Project, in which PDVSA has committed to invest;93 and the Plataforma Deltana Project off the east coast of Venezuela, in respect of which SEMARCA was in discussions at the time of the expropriation.94 They do not say that the projects on-going at the date of expropriation would necessarily have continued, but that Claimants would have captured a sufficient share of the offshore business to employ the existing vessels plus six more.95 As noted above, Claimants dispute the suggestion that they are still free to exploit offshore opportunities.96
Respondent : Respondent stresses that after 1975 Claimants had a single customer in Lake Maracaibo: PDVSA and its subsidiaries.97 Whatever its trading history, SEMARCA had no guarantee of continuing operation and was subject to the risk that the State would choose to reserve activities in Lake Maracaibo to itself, as it did.98 PDVSA had firm internalisation plans, and all the Reserve Law did was to expedite them.99
Respondent submits that the Reserve Law does not prevent the Claimants participating in offshore operations.100 It nevertheless says that the record belies Claimants' hypothetical expansion plans in Rafael Urdaneta, Mariscal Sucre and Plataforma Deltana,101 in circumstances where SEMARCA's actual business there was 'virtually non-existent'.102 Respondent thus says that Claimants have failed to establish what the 17 vessels that Claimants assume would have operated in Venezuela would have been doing,103 noting in particular that the President Tide and High Quest left Venezuela after the Chevron Contract concluded.104
Respondent says that Claimants' damages claim is speculative, impermissibly assumes that SEMARCA would continue providing services into perpetuity, and is contrary to authority that damages should not be awarded on the assumption that contracts would be renewed when there was no right of renewal.105 It says that no hypothetical buyer would value SEMARCA on that basis.106

(b) Accounts receivable and working capital

The Parties agree that the accounts receivable owed to SEMARCA totalled US $44,888,040 as at 8 May 2009. However they dispute how the accounts receivable should be treated in the calculation of damages.
Claimants say that because they have been deprived of control or operation of SEMARCA, they are not able to collect the accounts receivable.107 They submit that if the expropriatory acts had not been committed, it is reasonable to think that PDVSA would have been able to satisfy the obligations, and thus include the accounts receivable in their assessment of damages.108 Nevertheless, they assume that some of the amount outstanding at January 2009 would have remained outstanding, and some would have gone to pay off supplier liabilities, so only include US $16.48m in their calculations.109 They thus say that Respondent's experts have wrongly excluded most of SEMARCA's working capital from their calculation.110
Respondent relies on Claimants' assertion in the document production phase that they 'are not seeking payment of those accounts receivable in this proceeding'111 and their experts were accordingly instructed to exclude accounts receivable from their calculations.112 When instructed to include the accounts receivable in their calculations, Respondent's experts subtracted US $27,464,640 in current liabilities, leaving a recoverable total of $17,423,400.113

(c) Cashflow

The Parties dispute whether, for the purpose of calculating cash flows in the DCF analysis, it is appropriate to adopt a three-year spread of historical cash flows (i.e. FY2006 to FY2008) or a four-year spread (FY2006 to 2009). Claimants' expert includes FY2009 in his calculations.114 Respondent's experts opine that this has a distorting effect on the figures, since FY2009 was a year of historically high oil revenues, which had a consequent effect on day rates that could be commanded by SEMARCA.115

(d) Discount rate

Claimants : Having calculated cash flows, Claimants' experts discount them to the valuation date by calculating SEMARCA's Weighted Average Cost of Capital (WACC). This takes into account both the cost of equity and the cost of debt. To calculate the cost of equity, Claimants' expert uses the Capital Asset Pricing Model (CAPM), which takes into account three principal factors: (i) the rate of return for risk-free investments; (ii) the equity risk premium; (iii) a measure of system risk associated with a given security relative to the market as a whole (known as the beta value); and add (iv) a country risk premium.116 As a preliminary point, Claimants say that Respondent's experts use the wrong industry code when extracting data from the Ibbotson/Morningstar Cost of Capital Yearbook, which itself produces a 3.74 per cent reduction in WACC.117 As to the individual components of the discount rate:

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

Claimants dispute the additional downward adjustments proposed by the Respondent for business risk :

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

In combination, and assuming a debt/equity ratio of 10:90, Claimants' expert proposes a WACC of 6.96 per cent.133 For the purpose of valuing the SEMARCA Enterprise, the Claimants' expert then calculates the residual (terminal) value using the constant dividend growth model, under which free cash flow in the final year of the projection period is divided by the difference between the WACC and the long-term growth rate of the economy.134 Using a valuation date of 31 December 2013 (i.e. the ex post approach), Claimants' expert produced a valuation for the SEMARCA Enterprise of US $153,781,338.135 On the ex ante approach, they produce a valuation of US $81,677,467 at 8 May 2009, plus interest.136
Respondent : On the assumption that a DCF analysis is appropriate (i.e. that the Tribunal decides to value the SEMARCA Enterprise itself), Respondent's experts adopt the following approach:

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

Respondent's experts produce a final valuation (on the assumption that a DCF approach is appropriate) of US $2.9m,150 as compared to its liquidation valuation of US $1.6m.151

(e) Comparable companies and transactions

Claimants : Claimants' experts supplement their DCF calculation by examining both comparable companies and comparable transactions:152

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

Respondent : Respondent's experts reject both of Claimants' comparables analyses. They say that each of the firms selected by Claimants operates its own vessels; the firms do not work exclusively in one geographic area or for a single customer; all the firms are much larger than SEMARCA; and Claimants do not account for different country risks.156

4. Interest

(a) Claimants' submissions

Claimants seek both pre-award and post-award interest, in each case calculated on a compound basis.157 Claimants propose that the rate should be calculated by reference to Venezuela's sovereign debt rate, because otherwise Claimants would have been forced to serve as compulsory creditors to Respondent. Alternatively, they propose a 'normal commercial rate' as required by the BIT. Their experts propose the US Prime Rate + 2 per cent, or LIBOR + 4 per cent as alternatives to Venezuela's sovereign bond rate.158 They say that Respondent's proposed rate cannot be considered a normal commercial rate.159

(b) Respondent's submissions

Respondent says that pre-award interest should be based on a short-term and risk-free rate, such as the 3-month US Treasury bond plus 1.33 per cent. Otherwise, Claimants would be compensated for risks they did not bear.160 It maintains that simple interest is appropriate as a matter of Venezuelan and international law.161


A Liability

In its Decision on Jurisdiction, the Tribunal decided that '[i]t has jurisdiction over the claims of Tidewater Barbados and Tidewater Caribe pursuant to Article 8 of the Barbados BIT to the extent that such claims concern alleged breaches of the obligations of the Respondent underthatTreaty arising after 9 March 2009'.162 It found that all of the other claims advanced by all other Claimants fell outside its jurisdiction and could not proceed within the framework of the present arbitration. This included, materially, the claims for alleged expropriation of their vessels brought by affiliates of Tidewater Barbados within the Tidewater group that owned each of the vessels used by SEMARCA in the operation of its business in Venezuela.
In arriving at its Decision, the Tribunal had to consider the present Claimants' allegations of fact as to the acts of Respondent that gave rise to its claims. The Tribunal had to make an evaluation of these facts. The gravamen of Respondent's objection to jurisdiction under the BIT (ultimately rejected by the Tribunal) was that Claimants' invocation of Respondent's consent to arbitration under the BIT was an abuse of process, since the dispute which is the subject of the present proceedings was already in existence, or could reasonably have been foreseen at the time Tidewater Barbados was incorporated and the ownership of Tidewater Caribe transferred to it. This turned on questions of fact.163
However, it is axiomatic that no findings of fact made by an international tribunal in the context of a jurisdictional challenge can bind it in its subsequent determination of the merits of the dispute. On the contrary, an arbitral tribunal must, for the purpose of its jurisdictional determination, presume the facts that found the claim on the merits as alleged by the claimant to be true (unless they are plainly without any foundation). In that sense, its determination may be said to be prima facie. In the application of those presumed facts to the legal question of jurisdiction before it, the tribunal must objectively characterise those facts in order to determine finally whether they fall within or outside the scope of the Parties' consent. In making this determination, the tribunal may not simply adopt the claimant's characterisation without examination. In this way, a tribunal whose jurisdiction is contested strikes the balance between avoiding pre-judging the merits, on the one hand, and objectively determining the question of jurisdiction on the other. This is the consistent jurisprudence of the International Court of Justice,164 and of ICSID tribunals.165
It follows therefore that the Tribunal approaches the determination of Respondent's substantive liability to Claimants, if any, entirely afresh and on the basis of the evidentiary record presented to it in the written and oral phase on the merits.

1. Expropriation

(a) Cause of action

The first and principal cause of action pleaded by Claimants is that Respondent expropriated Claimants' investments in Venezuela without payment of prompt, adequate and effective compensation in breach of Article 5 of the BIT.166
The Tribunal analyses this claim in the following four steps:

(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.

Article 5 provides:

(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.

The term 'investment' is defined in Article 1 to mean 'every kind of asset invested by nationals or companies of one Contracting Party in the territory of the other Contracting Party'. Such assets include, inter alia, shares in a company,167 goodwill and know-how.168

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.

(b)Relevant measures


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.

(i) Reserve Law

The Reserve Law Itself, adopted by the National Assembly of Venezuela on 7 May 2009, is entitled: Organic Law that Reserves to the State Assets and Services related to Primary Activities of Hydrocarbons.
Its object is set forth in Article 1 as being 'the reservation for the State, because of their strategic character, of assets and services related to the performance of the primary activities contemplated in the Organic Law on Hydrocarbons.' These activities are henceforth to be carried out by PDVSA, or its designated subsidiary, or through mixed enterprises controlled by them. They are declared to be a public service and of public and social interest.171

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

The National Executive is empowered to decree the total or partial expropriation of the shares or assets of companies performing the reserved activities.176 The just price for any such expropriation shall be limited to the book value of the assets. '[I]n no event there shall be taken into account lost profits or indirect damages.'177
As summarised above, the Reserve Law had two functions: (a) the reservation to the State in the public interest of the oil industry support functions there specified; coupled with (b) the nationalisation of the assets and operations of the private companies then carrying out such activities and services.
These two functions were interlinked. Mr Figuera, a witness called by Respondent, who at that time was General Manager of the Offshore Mixed Companies for Corporación Venezolana del Petróleo SA (CVP), a wholly-owned subsidiary of PDVSA, testified before the Tribunal:

[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

The conclusion that the Tribunal draws from the text of the Reserve Law and this evidence is that Venezuela's objective in reserving to the State the relevant oil service activities integrally required the nationalisation of the assets and facilities of the private operators then operating on Lake Maracaibo. Without such nationalisation, the object of the Reserve Law could not then have been achieved.

(ii) Ministerial Resolution No 51 of 8 May 2009

The Ministerial Resolution contemplated by the Reserve Law was promulgated the following day, Friday 8 May 2009.179 It recites: the 'activities that were the object of outsourcing schemes... place the Venezuelan State in a situation of vulnerability', such that it is necessary to 'correct and recover the dismemberment of essential aspects of the oil activity since such dismemberment threatens the national sovereignty'.180 It resolves that '[t]he services of enterprises or sectors and assets... and the enterprises that provide said activities that are affected by the measure of seizure' are a number of listed enterprises including SEMARCA.181 PDVSA or its designated subsidiary 'is hereby instructed to take control of the operations and immediate possession of the facilities, documentation, assets and equipment related to the activities to which this Resolution refers'.182

(iii) Physical seizure of SEMARCA's assets at La Cañada on 8 May 2009

On the same day, Friday 8 May 2009, PDVSA assumed, as recorded in a contemporaneous judicial minute 'the possession of the assets and control of the operations related to the reserved activities and corresponding to the operating headquarters of... SEMARCA'.183 Mr. Kehoe, then Manager of SEMARCA, describes this event in the following terms in his witness Statement:

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

(iv) Physical seizure of SEMARCA's assets at Corocoro on 12 July 2009

Subsequently, on 12 July 2009, PetroSucre, an affiliate of PDVSA, seized the remainder of SEMARCA's operations at Corocoro in the Gulf of Paria, including the four vessels operating there. It instructed the crews of those vessels that they would henceforth be working for PetroSucre.185 Respondent does not dispute this taking.186 It submits that the Reserve Law was limited to services and activities in Lake Maracaibo.187 When questioned by the Tribunal on why these vessels were taken, Mr. Figuera answered:

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

However that may be, the uncontradicted evidence is that these vessels were working, and continued to work after the seizure at least for some time, for PetroSucre at Corocoro. Their seizure brought to an end SEMARCA's operations in Venezuela.

(c) Expropriatory effect

The next issue is whether these seizures had the effect of nationalisation or expropriation or were 'measures having effect equivalent to nationalisation or expropriation' of Claimants' investment in Venezuela.
As the terms of Article 5 of the BIT confirm, it is well accepted in international law that expropriation need not involve a taking of legal title to property. It is sufficient if the State's measures have an equivalent effect. As one tribunal put it:

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

In reaching an assessment of whether the measures had an effect equivalent to expropriation, the Tribunal finds it useful to consider the factors relied upon by the tribunal in Pope & Talbot as relevant in the determination of whether a State measure has such an effect, namely whether:

(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

Respondent accepts that the vessels were taken, but points out (correctly) that, as a result of the Decision on Jurisdiction, the taking of the property in these vessels-whether on Lake Maracaibo or at Corocoro-which were not owned by Claimants but by affiliates, is outside the jurisdiction of the present Tribunal. It also accepts that it expropriated SEMARCA's physical assets at La Cañada, but claims that these had a minimal value.191 Nevertheless, it asserts that Claimants' shares in SEMARCA were not, and have not been expropriated. Thus, it alleges, other assets of SEMARCA, including its accounts receivable, remain in the hands of the Claimants, who remain free to engage in other oil supply business in Venezuela outside the scope of the activities on Lake Maracaibo reserved to the State under the Reserve Law.
Respondent points out that, after the first seizure on 8 May 2009, SEMARCA continued to assert its ownership of the assets of the company; to claim payment of the accounts receivable (which Claimants continued to carry in their books); and to seek redress for the seizure. It also continued to perform its contracts with PetroSucre at Corocoro, and with Chevron, invoicing and seeking payment for arrears on those contracts, and to negotiate contracts with Repsol in relation to Venezuelan business. This conduct, Respondent claims, is consistent with Claimants' continued ownership of SEMARCA.192
Mr. Kehoe, when challenged on this under cross-examination, deposed:

[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

The Tribunal has carefully considered this evidence. It accepts Mr. Kehoe's account. The first seizure took place without warning on the very day of the promulgation of the Ministerial Resolution, the day after the passing of the Reserve Law itself. It removed Claimants from control of the seat of their operations at La Cañada. Claimants had operated an oil supply business in Venezuela for fifty years at that stage. Whilst the seizure would have come as a surprise, the Tribunal does not find it surprising that Claimants would not immediately accept its effect. Moreover, the scope of that effect upon Claimants' investment did not finally become clear until the seizure of the remainder of the vessels at Corocoro some two months later. In these circumstances, documents from Claimants asserting the continuation of their business in the intervening period are consistent with a dawning realisation that their business had been nationalised. They do not lend support for the proposition that, after 12 July 2009, Claimants remained in effective control of SEMARCA, their investment in Venezuela.
On the contrary, contemporaneous evidence from the Venezuelan Courts supports the conclusion that the business as a whole had been effectively nationalised. When employees of SEMARCA brought labour suits against the company in June 2009 and December 2009, the Courts directed that the suits be served on the Attorney General of the Republic. The record showed that only when such service had been effected could the proceedings continue. The Court explained, in the first case, this was '[b]ecause the Court notes the Respondent in this proceedings, the corporate entity Tidewater Marine Service Compañía Anónima, also known as SEMARCA, has become a part of the State of Venezuela, this being a matter of public knowledge within the country'.194 In the second case, the Court observed: 'TIDEWATER MARINE SERVICE, C.A. (SEMARCA) is an enterprise that was subject to expropriation pursuant to Resolution Number 51... because it was deemed that said company is of a necessary and strategic character to Petróleos de Venezuela, S.A. and its subsidiaries'.195
This contemporaneous evidence is also corroborated by the testimony of witnesses called for both by Claimants and Respondent at the hearing. Mr. Kehoe for Claimants deposed that, as a result of the seizure, PDVSA obtained 'the entire infrastructure as it were, actually, of our business of SEMARCA in Venezuela at the time'.196 Mr. Figuera for Respondent confirmed that 'PDVSA Operaciones Acuáticas is now operating the vessels that belonged before to SEMARCA'. As such 'it has a director [with] personnel appointed to it'.197 He confirmed that, although it was not yet separately Incorporated, this was planned so that it would become its own cost and profit centre.198
The seizure applied to all of SEMARCA's non-managerial employees, who were expected to work for PDVSA after 8 May 2009 - both the ship crews and the shore-based staff.199
The Parties dispute whether the assets of SEMARCA that were the subject of the seizure included its accounts receivable. Claimants allege that both Parties acknowledged this at the time.200 Respondent alleges that Claimants are still entitled to sue to recover the accounts receivable, either in the Venezuelan Courts or otherwise in accordance with the contractual dispute resolution terms.201 It points out that Chevron paid Claimants the dollar portion of the amounts outstanding under its Venezuelan support contract after the seizure.
The Tribunal finds, in the light of the Venezuelan Court decisions referred to above, that Claimants would not have been recognised as exercising effective control over SEMARCA such that they could have pursued legal process in Venezuela for recovery of debts due to SEMARCA in Venezuela. On the contrary, the Venezuelan Courts treated the State as the effective owner of SEMARCA.
Before leaving this section, however, it is necessary to address one further submission advanced on behalf of Respondent as to the scope of the expropriation. Respondent avers that the property that is the subject of an expropriation can only be determined by reference to property rights held under the host State law.202 Respondent alleges that, apart from the fixed assets, the only property rights Claimants held at the date of the seizure were under two short-term contracts with PDVSA. Thus, it claims, at best only the rights under these contracts may form the subject matter of Claimants' claim.
Expropriation under international law undoubtedly contemplates property rights existing under national law that have been taken by the State.203 As the Iran-US Claims Tribunal put it in Amoco:204

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.

In Emmis v Hungary, the reason there could be no claim for expropriation was because the only property right that the claimants in that case had acquired upon making their investment in Hungary was a fixed-term broadcasting licence that had expired prior to the State measure alleged to constitute the expropriation. For that reason, the claimants in that case, in their contemporaneous regulatory filings, attached no value to their investment after the expiry of the licence.205
It Is uncontested that each of SEMARCA and Tidewater Caribe were companies in good standing duly incorporated under Venezuelan law and that Venezuelan law recognises such assets as property.
True it is that the short-term nature of the contracts through which SEMARCA conducted its business in Venezuela, along with other factors, are elements that may be relevant in the determination of the monetary value to be placed upon the business, were it to have been the object of a commercial transaction (to utilise the language of Amoco). But this is a subsequent issue to the establishment of a property right capable of expropriation. The Tribunal finds that Claimants' investment in SEMARCA was such a property right.
In sum, the effect of Respondent's measures was the expropriation in fact of the whole of Claimants' investment in its subsidiary in Venezuela, SEMARCA. The value to be ascribed to that investment for the purpose of determining any compensation to be awarded to Claimants for their loss is a separate question, which will be addressed in Part B of the Tribunal's analysis.

(d) Was the expropriation lawful or unlawful?

The Tribunal has found that Respondent did expropriate Claimants' investment in SEMARCA in Venezuela. The next question is to determine whether such expropriation is lawful or unlawful. Article 5 of the BIT does not, after all, prohibit the State taking property byway of nationalisation or expropriation. Rather it permits such a taking, but only under the conditions there specified. That is to say, 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'.

If these conditions are met, the expropriation accords with the terms of the Treaty and is not therefore a breach of international law. If the conditions are not met, the expropriation must be treated as a breach of international law.
In the present case, neither Party disputes the first condition, namely that the expropriation was for a public purpose related to the internal needs of Venezuela. The Parties do dispute the lawfulness of the expropriation in relation to the second and third conditions: non-discrimination and compensation. Claimants submit that the taking was discriminatory. They also point out that the only compensation provided for under the Reserve Law was book value of the assets. The Law expressly excluded lost profits. This, by definition, did not meet the Treaty standard of 'adequate and effective compensation' since Article 5 itself specifies that such compensation 'shall amount to the market value of the investment expropriated immediately before the expropriation' [emphasis added]. Respondent, on the other hand, contends that the taking was not discriminatory. The whole of the oil support business on Lake Maracaibo was nationalised, affecting numerous other companies. They submit that the Reserve Law did provide for compensation. From the earliest stage after 8 May 2009, Respondent claims the Government had made clear to Claimants that it was prepared to compensate Claimants, but only on the basis of a global settlement. It was Claimants that had not accepted that offer and elected to proceed instead to arbitration.
Claimants submit that, if the expropriation is unlawful, they are entitled, as a matter of the international law of State responsibility, to additional compensation, in the event that the property that is the subject of the illicit taking has increased in value since the date of the State measure.208 Respondent, on the other hand, while insisting that the expropriation was lawful, also submits that the date for valuation prescribed in the Treaty is applicable in any event, whether the expropriation was lawful or unlawful.209
The Tribunal will consider first (i) the question of whether the taking in the present case was non-discriminatory; and then (ii) the relevance and application of the compensation standard in the determination of the lawfulness of the expropriation.

(i) Non-discrimination

In order to be lawful, a State taking of property must be non-discriminatory. The Tribunal has carefully considered the evidence relied upon by Claimants in support of their allegation that, in the present case, Respondent did discriminate against Claimants in the application of the Reserve Law.210 It finds that none of the instances of alleged different treatment of other contractors in fact constitutes discrimination against Claimants:

(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

The Tribunal therefore finds that the expropriation was not discriminatory against Claimants. It is therefore necessary to assess the relevance of the non-payment of compensation to the lawfulness or otherwise of Respondent's taking.

(ii) Compensation

2. Other Causes of Action

In essence both Parties argued this case as a claim of compensation for expropriation. In the Tribunal's view, this is the correct approach. The gravamen of Claimants' complaint is that Respondent took their property, being their investment in SEMARCA by means of the State measures that the Tribunal has just analysed in the preceding section. The real questions for the Tribunal are as to the legality of such taking and the amount of compensation due in respect of it.
In their Request for Arbitration, Claimants added claimsfor breach of the Treaty standards of fair and equitable treatment, for the taking of arbitrary or discriminatory measures and the failure to accord Claimants' investments the same treatment as that accorded to nationals of Venezuela or third States.
The Tribunal has already considered and rejected the allegation that Venezuela's measures were discriminatory in the context of its discussion of the legality of the taking. The additional causes of action for the taking of discriminatory measures or of a failure in national or most favoured nation treatment do not add anything in the light of that finding.
The claim of failure of fair and equitable treatment is, in the Tribunal's view, simply inapposite in the present case in which the real focus of the claim is not on the procedural fairness of Respondent's treatment of Claimants, but on its taking of their property. Considering the case through the prism of a claim of fair and equitable treatment does not add anything to the Tribunal's consideration of the questions of liability or the quantum of damage. Claimants rely on the same measures for this claim238 and do not assert that a different measure of damage is applicable. Accordingly, the Tribunal leaves aside the other alleged causes of action and proceeds to analyse the level of compensation to be awarded for the principal claim of expropriation.

B Compensation

1. Standard of compensation

Once the distinction between lawful and unlawful expropriation is accepted, such distinction has to be translated into a workable standard, applicable to the case before the Tribunal, which is one of lawful expropriation. Here, the starting point is the standard enunciated in Article 5 of the Treaty itself, namely 'the market value of the investment expropriated immediately before the expropriation'.
In the Tribunal's view, the World Bank Guidelines provide reasonable guidance as to the content of the standard chosen by the States Parties to the BIT as the standard of compensation to be applied in cases of lawful compensation, where the investment constituted a going concern at the time of the taking. The Guidelines prescribe 'the fair market value of the taken asset as such value is determined immediately before the time at which the taking occurred'.239 Such standard is also consistent with the standard of fair compensation required by customary international law in the case of a lawful expropriation.240
The International Law Commission has noted that this approach has been widely adopted by international tribunals, in the case of the nationalisation of a going concern:

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

Absent agreement of the Parties, the Guidelines define the fair market value as to be determined 'according to reasonable criteria related to the market value of the investment, i.e., in an amount that a willing buyer would normally pay to a willing seller after taking into account the nature of the investment, the circumstances in which it would operate in the future and its specific characteristics, including the period in which it has been in existence, the proportion of tangible assets in the total investment and other relevant factors pertinent to the specific circumstances of each case'.242
In the field of investment treaty law, tribunals have frequently found the discounted cash flow (DCF) method to provide the most useful method for arriving at a valuation of a business that had been operating as a going concern prior to the taking. In CMS v Argentina, the tribunal endorsed the application of the DCF method in that case, which involved a going concern. It found this to be an 'appropriate method for valuing business assets... [where] there is adequate data to make a rational DCF valuation'.244 In Enron, the tribunal held that 'there is convincing evidence that DCF is a sound tool used internationally to value companies, albeit that it is to be used with caution as it can give rise to speculation'.245
A going concern is defined in the World Bank Guidelines as meaning:

[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

Discounted cash flow is defined as meaning:

[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

2. Date of valuation

3. Appropriate method for assessment of fair market value

Although it is for the Claimants to prove that they have suffered some damage in order to be awarded compensation, it is for the Tribunal itself to determine the amount of compensation.251 This is necessarily a matter of the Tribunal's informed estimation in the light of all the evidence available to it.252
However, the valuation of Claimants' investment in SEMARCA as a going concern does present particular difficulties in view of the character of SEMARCA's business. SEMARCA was not a publicly listed company and its business was limited to one country and one customer. The Tribunal is not persuaded that the other transactions and companies referenced by Claimants' experts in their reports256 are sufficiently comparable to SEMARCA's business, and to the market in which it operated, so as to assist it in arriving at a fair market value of SEMARCA. It accepts the views of Respondent's experts that the differences between the business contexts in which such other companies were operating are simply too great for them to be comparable.257
The consequence is that the Tribunal must approach the valuation of SEMARCA based upon the factors that are specific to its business. However, even when examined on this basis alone, the ex ante valuations prepared by the Parties' experts differed greatly. In his written reports, Claimants' expert arrived at an ex ante valuation of US$81.68 million (excluding interest).258 By contrast, Respondent's experts, in their second report, arrived at a valuation of US$2.9 million.259
The reasons for the these great differences in valuation are to be found in a number of specific variables adopted by the experts on the basis of assumptions that they respectively made, either on the basis of their instructions from counsel or in their own opinion. It is therefore necessary for the Tribunal to make its own findings as to each of the material elements in the DCF analysis on the basis of the evidence before it. Once this has been done, it will be possible to apply the assumptions that the Tribunal has determined to be applicable to the DCF analysis in order to assist in arriving at an appropriate figure. At the Tribunal's request during the course of the hearing, the experts for both Parties prepared illustrative tables showing the effect of different assumptions upon their calculations, which have greatly assisted the Tribunal in this part of its work.

4. Elements in DCF valuation analysis

(a) Scope of business

(b) Accounts receivable

(c) Cash flow

(d) Equity risk premium

(e) Country risk premium

(f) Business risk

(g) Conclusion on DCF calculation

As mentioned above, during the hearing the Tribunal requested the experts to prepare additional calculations using their existing models including, inter alia, these variables. The experts prepared additional tables of calculations that they presented to the Tribunal in the course of the Parties' closing submissions. These tables have proved of very considerable assistance to the Tribunal in its deliberations. They produced a significantly greater convergence in figures than had been the case in the experts' reports that were filed in the written phase. Nevertheless, there continue to be material differences in the approach adopted by the experts, which in turn affect the figures presented.
Accounts receivable: Claimants' expert extracts the outstanding large amount of accounts receivable from his calculations. He presents this as an additional sum that would have to be valued and included as a separate line item. After adjustments, he calculates the total nonrecurring working capital to be added in this way to be US$16,484,677 (from the total due from PDVSA and PetroSucre as at 8 May 2009 of US$44,888,040).290 Respondent's experts present only the effect of including the accounts receivable as working capital within their calculations.
Scope of business: Claimants' expert assumes that the total size of SEMARCA's business in May 2009 includes the two vessels chartered to Chevron, thus presenting figures for either 11 vessels only (those actually operating on Lake Maracaibo) or 17 vessels. Respondent's experts limit their calculations of additional business to 15 vessels. As the Tribunal has already found that it should exclude the two vessels chartered to Chevron from its analysis, this has the consequence that the two sets of figures cannot be directly compared.
With these qualifications, the spread of figures presented by the two experts are as follows:

(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).

C Interest

The Parties do not dispute the payment of interest in principle. Rather, they differ as to (i) the rate at which interest should be calculated; and (¡¡) whether it should be simple or compound interest.
Article 5 of the BIT, which the Tribunal has found to be applicable to its determination of compensation generally, mandates the payment of interest 'at a normal commercial rate until the date of payment.' The Parties accept that this is the applicable starting point,291 but do not agree on how such a rate is to be determined.
Claimants' first proposed rate was the yield on Venezuela's sovereign bonds in US dollars, which averaged 13.4% over the period.292 This they proposed on the basis of an argument that Claimants had, as a result of the expropriation, effectively become unwilling creditors of the Respondent and should be compensated at the same rate that the Respondent must pay to willing lenders. In the Tribunal's view, this approach mistakes the reason why pre-award interest is commonly included in a calculation of compensation in a case such as the present. Interest in such a case simply aims to compensate the claimant from being kept out of its money between the date on which it ought to have been compensated and the date of payment of an enforceable award. Such compensation is not punitive of the Respondent. Rather, as the Treaty's reference to 'normal commercial rate' underlines, it represents the cost of borrowing the sum that the claimant ought to have received over the same period of time. Thus, the appropriate reference point is the cost of borrowing available to Claimants, not the amount that Respondent would have had to pay.
Claimants propose in the alternative either US prime + 2% or LIBOR + 4%. In each case, over the period 8 May 2009 to 31 March 2013, these both averaged 5.2%.294 Their expert also points out that Tidewater itself, the parent company, was able to borrow at rates between 4.35% and 4.47% over the pre-award interest rate period.295 The Tribunal considers that an interest rate of 4.5% most closely meets the standard agreed between Venezuela and Barbados in Article 5 of the BIT.

D Costs

Finally, the Tribunal turns to the award of costs in the arbitration. In accordance with Article 61 of the ICSID Convention it is obliged to determine how and by whom the costs of and associated with these proceedings are to be borne, as to which it retains a wide discretion.
On 11 July 2014, pursuant to a direction given by the President at the conclusion of the hearing and agreed by counsel for each of the Parties, each Party filed with the Tribunal a Statement of Costs. Each Party has paid its portion of the advance on the administrative fees and expenses requested by the Centre, amounting in each case to US$450,000. In addition:

(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.


For the above reasons, the Tribunal hereby decides that:

(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.

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