ConocoPhillips v. Venezuela, Award, 8 mars 2019

1.

On 2 November 2007, the Claimants submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") a Request for Arbitration against the Bolivarian Republic of Venezuela ("Venezuela" or "the Respondent") pursuant to Article 36 of the ICSID Convention. On 13 December 2007, the Secretary-General of ICSID registered the Request for Arbitration in accordance with Article 36(3) of the ICSID Convention.

2.

The Tribunal was constituted on 23 July 2008. Its members were Judge Kenneth Keith, a national of New Zealand, President, appointed by the Chairman of the ICSID Administrative Council pursuant to Article 38 of the ICSID Convention; The Hon. L. Yves Fortier, QC, a Canadian national, appointed by the Claimants; and Sir Ian Brownlie, CBE, QC, a British national, appointed by the Respondent. On 1 February 2010, the Tribunal was reconstituted, with Professor Georges Abi-Saab, an Egyptian national, being appointed by the Respondent, following Sir Ian Brownlie's passing.

3.

From 31 May to 12 June 2010 a hearing took place on jurisdiction and merits, followed by two days of pleadings on 21 and 23 July 2010. On 3 September 2013, the Tribunal issued a Decision on Jurisdiction and the Merits ("the 2013 Decision"), stating in its paragraph 404 the conclusions quoted below in Section II.

4.

On 8 September 2013, Counsel for the Respondent submitted a letter requesting a clarification and further explanations from the Tribunal regarding certain findings in the Decision on Jurisdiction and the Merits relating in particular to the 2013 Decision's conclusion on the negotiation on compensation that took place between the Parties (the "First Application for Reconsideration"). In its letter, Counsel for the Respondent also requested "a limited and focused hearing" to address the specific issues raised.

5.

Counsel for the Claimants replied to the Respondent's letter on 10 September 2013. The Claimants opposed the Respondent's requests and proposed instead a briefing schedule for submissions on quantum.

6.

Between 11 and 23 September 2013, several further letters were submitted to the Tribunal by the Parties.

7.

By letter of 1 October 2013, the Tribunal fixed a schedule for the Parties to file submissions on: (i) the Tribunal's power to reconsider the 2013 Decision; and (ii) a possible scheduling for quantum briefs. The Parties duly submitted two rounds of written pleadings.

8.

In its Decision of 10 March 2014, the Tribunal stated that so far as the matter set out in the Respondent's Application for Reconsideration was concerned "this decision is limited to answering the question whether the Tribunal has the power which the Respondent would have it exercise. The decision does not address the grounds the Respondent invokes for reconsidering the part of the Decision which it challenges and the evidence which it sees as supporting those grounds. The power must be shown to exist before it can be exercised"¹.

9.

The Tribunal concluded that it did not have the power to reconsider the Decision on Jurisdiction and the Merits, with Professor Georges Abi-Saab dissenting. In the absence of such power it implicitly followed in the Tribunal's Decision that the Respondent's Request was dismissed.

10.

Professor Georges Abi-Saab resigned on 20 February 2015 with immediate effect. On 10 August 2015 the Tribunal was reconstituted, with Professor Andreas Bucher, a Swiss national, being appointed by the Chairman of the Administrative Council.

11.

On that same day, 10 August 2015, the Respondent submitted a Second Application for Reconsideration directed at the Tribunal's Decision of 10 March 2014. It requested a hearing on the application. The Respondent recalled that it had, immediately following the 2013 Decision, applied for reconsideration, pointing out

certain obvious factual, legal and logical errors the correction of any one of which would require a change in the majority's conclusions on the issue of good faith negotiations. Of particular relevance to this [Second] Application, Respondent pointed out that cables from the U.S. Embassy released after the hearing in this case in 2010, which reported on the briefings made by the chief ConocoPhillips negotiators to the U.S. Embassy in Caracas, left no doubt that the representations made by ConocoPhillips to the Tribunal regarding Respondent's supposed unwillingness to negotiate fair market value had been completely false, and that it was in fact ConocoPhillips which was seeking compensation ‘on top of the fair market value of the assets.' Since the majority had relied on Claimants' misrepresentations in reaching its conclusion on bad faith negotiation, Respondent assumed that the Tribunal would want to reconsider the Majority Merits Decision to avoid an obvious gross miscarriage of justice. That assumption was based on the premise that every tribunal has the power to correct its own decision while the case is still pending before it and should exercise that power if its decision were indeed based on patently false representations². (footnote omitted)

12.

On 12 August 2015, the Claimants responded in these terms:

The application is frivolous and dilatory. Venezuela has not even attempted to articulate a legal basis for the admissibility of a request to reconsider a reconsideration decision - because there is none. The Tribunal's 10 March Decision considered and rejected the same arguments that Venezuela now raises. It has res judicata effect and may not be revisited or reviewed in any way prior to the rendering of the final Award³.

The Claimants requested that the Tribunal dismiss the Respondent's application forthwith and promptly reschedule the final hearing.

13.

Later that same day, the Respondent commented upon the Claimants' letter. On 13 August 2015 the Claimants stated that their letter of the previous day provided a complete answer to the Respondent's points in its later letter.

14.

On 15 August 2015, the Parties were advised that the Tribunal "is currently considering the Respondent's application, including its request for a hearing, and will revert to the parties in due course. The Tribunal considers that no further submissions are needed at this point"⁴.

15.

On 9 November 2015, the Respondent submitted a proposal to disqualify L. Yves Fortier QC as arbitrator. In terms of Rule 9(6) of the Arbitration Rules, the proceeding was suspended until 15 December 2015 when the proposal was dismissed. Two further proposals were made by the Respondent on 26 February 2016 and 22 July 2016 (Respondent's Fifth and Sixth Proposals to disqualify L. Yves Fortier), both dismissed on 15 March 2016 and 26 July 2016, respectively.

16.

The Tribunal rendered its Decision on the Respondent's Second Application for Reconsideration on 9 February 2016. It explained that it had approached the matter, as have the Parties, in terms of seeking the existence and source of the power the Respondent would have it exercise. It is not a matter of finding a rule prohibiting the existence or exercise of such a power. That power has to be found to exist. The Respondent has failed to make such demonstration.

17.

Accordingly, the Tribunal, by a majority, dismissed the Second Application for Reconsideration made by the Respondent for the reconsideration of its Decision on Respondent's First Request for Reconsideration of 10 March 2014, with Professor Andreas Bucher dissenting.

18.

On 24 February 2016, the Tribunal held an Organizational Hearing in Washington, D.C., where several outstanding matters of procedure were discussed, including the scheduling and the agenda of the forthcoming hearings on quantum. A number of procedural issues were recorded in the Minutes and further refined in ICSID's letter of 8 June 2016.

19.

On 21 March 2016, the President of the Tribunal, Judge Kenneth J. Keith resigned as arbitrator in this case with immediate effect. On 22 April 2016 the Tribunal was reconstituted, with Mr. Eduardo Zuleta, a Colombian national, being appointed as presiding arbitrator by the Chairman of the Administrative Council.

20.

On 21 March 2016, the Respondent submitted the Updated Expert Report of Vladimir Brailovsky and Daniel Flores, dated 18 March 2016. On the same date, the Claimants submitted the March 2016 Update prepared by their Experts Manuel A. Abdala and Pablo T. Spiller (Compass Lexecon).

21.

On 21 April 2016, the Claimants submitted the Rebuttal Expert Report prepared by Manuel A. Abdala and Pablo T. Spiller (Compass Lexecon) and the Second Expert Report of Richard Strickland, while, on the same date, the Respondent communicated the Valuation Update Reply prepared by Vladimir Brailovsky and Daniel Flores.

22.

In accordance with the conclusions of the Organizational Hearing, the Claimants submitted on 15 April 2016 additional exhibits in the record (C-623 to C-671), as did the Respondent (R-603 to R-641).

23.

By letter dated 20 April 2016, the Respondent filed with the Tribunal the Third Application for Reconsideration of the Majority's Decision of 9 February 2016, containing the same request and based on the same grounds as the Respondent's two earlier Applications. The Claimants responded by letter of 21 April 2016.

24.

At the Organizational Hearing of 24 February 2016, the Claimants were ordered to produce a number of documents, which the Tribunal considered were not privileged. By letter of 11 May 2016, the Tribunal decided the last remaining issue in respect of the production of documents.

25.

Another decision of the Tribunal at the Organizational Hearing was to invite the Parties to comment on the issues other than quantum that they considered were still outstanding, if any. The Tribunal received submissions from the Claimants on 2 March 2016 and from the Respondent on 11 March 2016. After due deliberation, the Tribunal considered it necessary to invite the Parties, by letter dated 17 March 2016, to file an additional round of submissions, which were received from the Claimants on 15 April 2016 and from the Respondent on 15 May 2016. The Parties were invited to specifically address the Claimants' request for a declaration of breach of Article 6 of the BIT (C-2, R-13).

26.

The Tribunal held a first phase of the hearing on quantum on 15-19 August 2016 in respect of the following issues: (i) the scope of the Tribunal's finding on Article 6(c) of the BIT and the outcome of the Claimants' claim for a declaration that the Respondent breached Article 6 of the BIT; (ii) the Respondent's Third Application for Reconsideration; (iii) the misrepresentation allegation; (iv) the relevance of the compensation formulas and (v) the impact of the ongoing ICC arbitration proceedings, if any⁵.

27.

At the end of the hearing on 19 August 2016 and after consultation with the Parties, the Tribunal issued Procedural Order No. 4, providing in particular as follows:

1. The Tribunal remains seized of the Respondent's Request for Reconsideration dated April 20, 2016, and of Respondent's misrepresentation claim. The Tribunal considers that it has been fully briefed on these matters, which therefore need not be addressed further.

2. Pursuant to the Tribunal's order of August 17, 2016, the parties shall file with the Tribunal all documents exchanged or presentations made between them in the course of their negotiations between November 27, 2007 and September 2008, by August 31, 2016.

3. By September 19, 2016, the parties shall submit post-hearing briefs addressing the evidence adduced in the course of the hearing. The parties may include in their post-hearing briefs comments with respect to the documents produced pursuant to paragraph No. 2 above.

28.

Procedural Order No. 4 further provided that the Parties shall proceed through joint and expeditious cooperation in establishing new and consolidated expert reports (1) on the production capacities of the Petrozuata, Hamaca and Corocoro Projects (para. 4) and (2) on the amount of damages resulting from the expropriation of the three Projects (para. 5), in each case on the basis of a jointly agreed structure of issues. In both cases, it was determined that the parties shall proceed through an initial exchange of their reports between them without copying the Tribunal and then revise the reports as necessary in order that each party may submit its final version to the Tribunal by 17 October 2016 for the reports on production capacities and by 17 November 2016 for the reports on damages.

29.

Further instructions were given to the Parties by the Tribunal in Procedural Order No. 4 in respect of the substance of the expert reports on the amount of damages. The reports shall contain determinations on whether the valuation was made at the date of the expropriation, i.e. 26 June 2007, or on 31 December 2016, in each case taking into account, or not taking into account, the compensation formulas contained in the Association Agreements (para. 6). The final briefs on quantum were scheduled for 30 December 2016 (para. 7). The Order fixed the dates for the hearing on the second quantum phase at 21-25 February 2017 (para. 8), to which a further hearing was added by ICSID's letter of 2 September 2016 for 27-31 March 2017.

30.

On 31 August 2016, the Tribunal received from each party a set of presentations that had been used in the course of the negotiations between 27 November 2007 and 8 September 2008. Most of the documents submitted by each party were identical⁶.

31.

The Claimants' and the Respondent's Post-Hearing Briefs were filed with the Tribunal on 19 September 2016.

32.

In compliance with the procedure provided in paragraph 4 of Procedural Order No. 4 and the adjustments noted by the Tribunal's letters of 5 September and 3 October 2016, the Parties submitted consolidated expert reports on the production capacities of the three Projects on 17 October 2016 as follows: the Claimants' Expert Reports prepared respectively by Richard Strickland and by Neil K. Earnest of Muse Stancil; the Respondent's Expert Report of Jesús Rafael Patiño Murillo.

33.

Following the procedure provided in paragraph 5 of the Order, the Parties submitted consolidated expert reports on the amount of damages resulting from the expropriation of the three Projects on 17 November 2016 as follows: The Claimants' Consolidated Update Report on the Damages Assessment for the Taking of ConocoPhillips' Investments in Venezuela prepared by their Experts Manuel A. Abdala and Pablo T. Spiller (Compass Lexecon), and the Respondent's Consolidated Expert Report on Valuation prepared by Vladimir Brailovsky and Daniel Flores.

34.

The Claimants submitted their Final Submission on Quantum, and the Respondent its Brief on Quantum, both on 30 December 2016.

35.

Pursuant to the Tribunal's invitation in its 6 May 2016 letter, the Parties communicated their submissions and valuation reports they had filed until 20 May 2016 with the ICC Tribunal (Case No. 20549/ASM), where ConocoPhillips were the claimants and PDVSA and two if its subsidiaries were the respondents. These briefs were complementary to the two Requests for Arbitration dated 10 October 2014, copies of which were communicated at an earlier date to this Tribunal (R-494, R-495). Each Party provided explanatory comments related to these proceedings by letters both dated 20 May 2016. On 16 September 2016, the Respondent filed with the Tribunal its Rejoinder submitted in the ICC proceedings on 9 September 2016. Finally, with the Claimants' agreement and as agreed by the Tribunal, the Respondent submitted on 16 December 2016 the transcript of the hearing that took place from 28 November to 10 December 2016 in the ICC Arbitration (R-654). By letter to the Parties dated 19 December 2016, the Tribunal recalled that pursuant to paragraph 3 of the Minutes of the Organizational Hearing of 24 February 2016, as reiterated in its directions of 6 May, 1 July and 12 September 2016, this material has been received for information purposes only and will not, accordingly, be accorded any evidentiary value in this case. The Tribunal also informed the Parties in its letter dated 23 December 2016 that it did not grant leave for the Parties to submit documents referred to during the ICC hearing or other documents not on the record in the ICC Arbitration, or to file additional legal authorities⁷.

The Respondent complained at the 2017 September Hearing that it was prevented from updating its information and allegations as per 31 December 2016 because documents and evidence it had submitted to the ICC Arbitration had not been admitted into the proceeding of this Tribunal, in particular a more recent witness statement prepared by Mr. Figuera; cf. TR-E, 2017 September Hearing, Day 17, p. 4830:14-4832:11 (Preziosi), 4832:12-4833:17 (Kahale), 4901:3-4903:19 (Preziosi). The Tribunal recalls that it explained in its 23 December 2016 letter that such late introduction of new evidence would not have been allowed according to ICSID Arbitration Rules 34 and 35, in particular because no further cross-examination (not offered by the Respondent anyhow) would have been possible. The Tribunal also noted that their way of proceeding was not intended or even contemplated at the Organizational Hearing of 24 February 2016, and this with the Parties' agreement. No request for the production of further witness statements was made by the Respondent when the draft of Procedural Order No. 4 was submitted to the Parties for the purpose of receiving their comments (cf. TR-E, 2016 August Hearing, Day 5, p. 1523:2-1534:19). Nonetheless, the Respondent filed with the Tribunal Figuera Appendices 157, 161, 162, 164, 165, 169, 171, 172, 176 as attachments to its 2017 Post-Hearing Brief. Moreover, the Respondent let its valuation experts attach to their opinion material from the ICC Arbitration, which has no evidentiary value in the present case, i.e. Figuera Appendices 154-172 (Brailovsky&Flores, Valuation Update Reply, 21 April 2016) and excerpts of Figuera Witness Statements together with Appendices 176 and 178 (cf. Brailovsky&Flores, Consolidated Expert Report on Valuation, 17 November 2016, footnote 2). On 10 January 2019 the Tribunal rejected the Respondent's unsolicited request dated 8 January 2019 to consider a model on data relating to the Corocoro Project that had been submitted in an ICC arbitration instituted on 30 December 2016.

36.

The ICC Arbitral Tribunal rendered its Final Award on 24 April 2018 (20549/ASM/JPA). It was submitted to this Tribunal as an enclosure to the Claimants' letter dated 25 April 2018, which was followed by the Respondent's letter dated 26 April 2018. The Tribunal acknowledged receipt of both letters by its letter dated 27 April 2018, further stating that it understands that the filing of the ICC Award had the purpose of informing the Tribunal of the closing of the ICC Arbitration and that it has no other purpose. A further letter of the Respondent dated 1 May 2018 recalled the critical significance that the ICC Award had for this Party. The Claimants expressed their disagreement in an email the following day, recalling their understanding that in light of the Tribunal's letter of 27 April 2018 and paragraph 9 of Procedural Order No. 4, further submissions were precluded without the Tribunal's consent. By email of 3 May 2018, the Tribunal reconfirmed that the ICC Award has been submitted for the purpose of informing the Tribunal only and that the unsolicited correspondence submitted thereafter did not go beyond what had been presented to and argued before this Tribunal. Through the Claimants' letter dated 20 August 2018 and the Respondent's letter dated a day later, both enclosing news releases, from ConocoPhillips, Houston, and PDVSA, respectively, the Parties informed the Tribunal that a settlement agreement had been reached between these parties in respect of the collection of the amounts awarded by the ICC tribunal.

37.

The conclusions reached by the Tribunal's 2013 Decision read as follows:

404. For the foregoing reasons, the Tribunal decides as follows:

a. It does not have jurisdiction under Article 22 of the Investment Law and accordingly the claims by ConocoPhillips Company are dismissed; and

b. It has jurisdiction under Article 9 of the Bilateral Investment Treaty over:

i. the claims brought by ConocoPhillips Petrozuata BV, ConocoPhillips Hamaca BV and ConocoPhillips Gulf of Paria BV in respect of (1) the increase in the income tax rate which came into effect on 1 January 2007 and (2) the expropriation or migration; and

ii. the claims brought by ConocoPhillips Petrozuata BV and ConocoPhillips Gulf of Paria BV in respect of the increase in the extraction tax in effect from 24 May 2006.

c. All claims based on a breach of Article 3 of the BIT are rejected.

d. The Respondent breached its obligation to negotiate in good faith for compensation for its taking of the ConocoPhillips assets in the three projects on the basis of market value as required by Article 6(c) of the BIT.

e. The date of valuation of the ConocoPhillips assets is the date of the Award.

f. All other claims based on a breach of Article 6(c) of the BIT are rejected.

g. All other questions, including those concerning the costs and expenses of the Tribunal and the costs of the parties' determination are reserved for future determination. Items (a), (b)(i), (b)(ii), (c), (f) and (g) above have been decided unanimously by the Tribunal. Items (d) and (e) have been decided by majority, with Arbitrator Georges Abi-Saab dissenting.

38.

This 2013 Decision on Jurisdiction and the Merits is hereby incorporated by reference into this Award.

39.

Since 3 September 2013, when the ConocoPhillips Company's claims were dismissed (para. 404(a)), this Company no longer participated in this proceeding. However, this Decision was never incorporated in an award. It will be made in this Award, together with an assessment of the impact of such dismissal on the allocation of legal fees and costs (Section XV). Unless otherwise stated elsewhere in this Award, the "Claimants" means the three Dutch ConocoPhillips companies.

40.

The Tribunal's Majority has decided twice that it had no power to examine the Respondent's Application for Reconsideration, each time with the third arbitrator dissenting.

41.

Nonetheless, the true meaning and effects of the 2013 Decision's statement in respect of the Respondent's conduct of the negotiation on compensation in paragraph 404(d) remained a matter of debate. The Tribunal felt that further clarity would be useful in relation to the obligation prohibiting expropriation by the host State as contained in Article 6 of the BIT, and in relation to the assessment of the Claimants' claim for damages. Further procedural developments, and particularly the August 2016 Hearing, had the effect of providing a broader view on the negotiations that actually took place between the Parties, including in the period between November 2007 and September 2008, which the Tribunal was not able to evaluate in the prior proceeding that was concluded with the 2013 Decision. Furthermore, the Respondent submitted a claim based on alleged misrepresentations made by the Claimants to the Tribunal. Therefore, the Tribunal decided that the Respondent's Third Application for Reconsideration and the misrepresentation allegation would both be addressed at the August 2016 Hearing. Both matters were dealt with in the Tribunal's Interim Decision dated 17 January 2017.

42.

The conclusions reached by the Tribunal in its Interim Decision read as follows:

1. The Respondent's Third Application for Reconsideration is dismissed.

2. The Respondent's claim based on the Claimants' alleged misrepresentations to the Tribunal is dismissed.

3. The Tribunal declares that Venezuela has breached Article 6 of the BIT by unlawfully expropriating the Claimants' investments in the three Projects in the Orinoco Belt in Venezuela.

43.

This Interim Decision is hereby incorporated by reference into this Award.

44.

In sum, the Tribunal explained that the true meaning of the 2013 Decision's finding in respect of the negotiation on compensation was that the Respondent failed to be involved in negotiations leading to an offer complying with the requirements of "just compensation" and "market value". The Tribunal did not find a lack of good faith on the part of the Respondent for its breach of an obligation to negotiate on the basis of market value as required by Article 6(c) of the BIT (paras. 39-62). The Tribunal concluded that until the filing of the Claimants' Request for Arbitration and thereafter, the Respondent did not envisage, conduct or propose to ConocoPhillips a market valuation as required by Article 6(c) of the BIT (paras. 63-131). The Tribunal also decided that the Respondent's claim based on the Claimants' alleged misrepresentations must fail in light of the Respondent's failure to demonstrate that relevant information had been unduly retained by the Claimants or that they presented evidence that was either forged or otherwise misleading (paras. 67-69, 80, 93, 132-136).

45.

In its 2017 Interim Decision (para. 137), the Tribunal recalled that it had concluded in its 2013 Decision that the Respondent committed a breach of Article 6(c) of the BIT by not respecting its obligation to negotiate in good faith on the basis of market value for the compensation to be provided to the Claimants for the taking of its assets (para. 404d). The Tribunal explained that the obligation implicitly referred to in Article 6(c) is one of the three pertinent requirements which must be complied with by the host State if it proceeds to expropriate or nationalize the investor's investment. Beyond this function, it has no legal autonomy. Indeed, a breach of an obligation contained in Article 6(c), as stated in the 2013 Decision, does not have the effect of providing the aggrieved party with a claim for damages based on such breach. The legal effect of such breach appears exclusively in the overall context of Article 6, because the non-compliance with the requirements of letter (c) means that the measures taken by the host State do not comply with the conditions set out in this provision.

46.

If and to the extent that the requirements of Article 6(c) have not been complied with, one of the three cumulative conditions set out in Article 6 has not been fulfilled, and the effect is that Article 6 has been breached. The Tribunal recalled in its 2017 Interim Decision (para. 147) that the 2013 Decision noted that the requirement of compensation was one of the necessary conditions for an expropriation to be "lawful" (paras. 334, 343, 401). Using the same logic, the finding that one of these conditions has not been met must be understood as having the effect of rendering the expropriation in June 2007 unlawful.

47.

When rendering its Interim Decision, the Tribunal decided to rule explicitly on this matter (para. 148). It noted (para. 150) that the Tribunal's record reveals that the first two requirements of Article 6 have been met. An expropriation or nationalization requires a "taking" to be operated by the authorities of the host State. Such taking may cover rights other than rights in rem, as confirmed by Article 6 which refers to the broad concept of "investments". In the present case, such taking became effective on 26 June 2007, when ConocoPhillips' assets were definitively taken over by Venezuela and by PDVSA's or its subsidiaries' employees. This taking did not extend to the assets exclusively. It meant that Venezuela assumed directly the activities performed by the Associations and it extinguished ConocoPhillips' ownership interests⁸. It necessarily included the rights contained and held by ConocoPhillips through the Association Agreements and all other contractual undertakings relating to the three Projects. As Witness Mommer recalled, at that date, the Association Agreements were terminated⁹.

48.

There is no dispute about the fact that the measures enforced on 26 June 2007 have not been taken against "just compensation" as required by Article 6(c). In fact, no compensation has been paid at all. As the Interim Decision also explains (para. 153), the negotiations that took place before the taking over of ConocoPhillips's assets and interests were conducted by Venezuela on the basis of a model representing a migration into empresas mixtas, based on an amount of compensation that had nothing to do with a compensation representing market values covering the loss of profits that were to be earned by ConocoPhillips' companies until the end of the lifetime of the Projects. When the negotiations took place in parallel with the arbitration proceeding, Venezuela never made a concrete proposal. The evidence before the Tribunal demonstrates with stringent clarity that no offer was ever made by Venezuela in order to put a positive end to the negotiation.

49.

All the reasons given in the 2017 Interim Decision (paras. 137-155) and briefly repeated here support the Tribunal's conclusion that the Respondent had breached Article 6 of the BIT.

50.

Shortly after rendering its Interim Decision on 17 January 2017, the Tribunal continued with the final phase of this proceeding, relating to quantum.

51.

The Tribunal held its hearing on the second quantum phase in Washington, D.C. in two parts, the first from 21 to 25 February 2017, and the second from 27 to 31 March 2017. Present at these two sessions were (except where stated otherwise):

Members of the Tribunal

Dr. Eduardo Zuleta, President

The Hon. L. Yves Fortier, QC, Co-Arbitrator

Professor Andreas Bucher, Co-Arbitrator

ICSID Secretariat

Mr. Gonzalo Flores, Secretary of the Tribunal

Mr. Francisco Grob, Secretary of the Tribunal

For the Claimants

Mr. Jan Paulsson, Three Crowns LLP

Mr. Constantine Partasides, QC, Three Crowns LLP (only March)

Mr. Josh Simmons, Three Crowns LLP

Mr. Ben Jones, Three Crowns LLP

Ms. Kelly Renehan, Three Crowns LLP

Mr. D. Brian King, Freshfields Bruckhaus Deringer US LLP

Mr. Elliot Friedman, Freshfields Bruckhaus Deringer US LLP

Mr. Sam Prevatt, Freshfields Bruckhaus Deringer US LLP

Mr. Lee Rovinescu, Freshfields Bruckhaus Deringer US LLP

Ms. Madeline Snider, Freshfields Bruckhaus Deringer US LLP

Mr. Cameron Russell, Freshfields Bruckhaus Deringer US LLP

Mr. Aaron Kates Rose, Freshfields Bruckhaus Deringer US LLP

Mr. Israel Guerrero, Freshfields Bruckhaus Deringer US LLP

Mr. Breanna Weber, Freshfields Bruckhaus Deringer US LLP

Ms. Cassia Cheung, Freshfields Bruckhaus Deringer US LLP

Mr. Iain McGrath, Freshfields Bruckhaus Deringer US LLP

Ms. Jannet Carrig, ConocoPhillips

Ms. Laura Robertson, ConocoPhillips

Ms. Suzana Blades, ConocoPhillips

Mr. Alberto Ravell, ConocoPhillips

Ms. Michele Lipscomb, ConocoPhillips (only March)

For the Respondent

Mr. George Kahale, III, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Benard V. Preziosi, Curtis, Mallet-Prevost, Colt & Mosle LLP

Professor Tullio Treves, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Dori Yoldi, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Arianna Sánchez, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Simon Batifort, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Irene Petrelli, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Matilde Flores, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Farshad Zahedinia, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Sofia Herrera, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Steven Richardson, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Gloria Diaz-Bujan, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Herbert Tapia, Curtis, Mallet-Prevost, Colt & Mosle LLP

Dr. Reinaldo Muñoz, Attorney General, Bolivarian Republic of Venezuela (only March)

Dr. Bernard Mommer, Bolivarian Republic of Venezuela

Ms. Irama Mommer, Bolivarian Republic of Venezuela

Dr. Alvaro Silva Calderon, Bolivarian Republic of Venezuela

Dr. Joaquin Parra, Bolivarian Republic of Venezuela

Dr. A. Vanessa Gonzalez Anton, Bolivarian Republic of Venezuela

Dr. José Gabriel Oroño, Bolivarian Republic of Venezuela

Dr. Alejandro Schmilinsky, Bolivarian Republic of Venezuela

Dr. Edoardo Orsoni, Bolivarian Republic of Venezuela

52.

At the February hearing, the following Witnesses and Experts were heard and cross-examined:

Dr. Manuel A. Abdala and Professor Pablo T. Spiller, presented by the Claimants

Mr. Vladimir Brailowsky and Dr. Daniel Flores, presented by the Respondent

Mr. Albert Roy Lyons, presented by the Claimants

Mr. Rubén Figuera, presented by the Respondent

Mr. Jesús Rafael Patiño Murillo, presented by the Respondent

Dr. Richard F. Strickland, presented by the Claimants

Mr. Neil K. Earnest, presented by the Claimants

Mr. David Andrew Brown, presented by the Claimants

Mr. Leonardo Marcano, presented by the Respondent

Following an exchange of views between the Parties, the Tribunal decided that Mr. Virgil Chamberlain, a witness presented by the Claimants, would not appear at the February hearing.

At the March hearing, Witnesses Lyons and Figuera were examined again, followed by the quantum Experts, Dr. Abdala and Professor Spiller for the Claimants, and Mr. Brailovsky and Dr. Flores for the Respondent.

53.

Shortly before the March hearing, on 20 March, the Parties provided the Tribunal, upon its request, with tables for each of the Hamaca and Petrozuata Projects containing accumulated annual production figures, listed year by year, of Extra Heavy Crude Oil (EHCO), Commercial Crude Oil (CCO), and blends, for each of the following periods: (i) commencement of the corresponding Project until 26 June 2007; (ii) June 2007 until 31 December 2016; and (iii) 1 January 2017 until the expiration of term of the corresponding Association Agreement. A similar request related to the Corocoro Project, but without any division depending on the quality of the oil. For all three Projects, the tables also contained information in respect of the Operating Expenses (OPEX) and Capital Expenditures (CAPEX) affecting the aforesaid production figures for the same periods, as well as for taxes relating to the production. The Parties were further invited to explain the operation of a windfall tax and the impact, if any, of applying the compensation provisions, assuming that such tax had applied as from 15 April 2008, the rate that would have applied for each year. In parallel to the Respondent's Assessment of Production the Claimants also submitted a set of tables relating to oil production, costs and taxes in respect of each of the Projects.

54.

At the end of the March hearing, upon the invitation of the Tribunal, the Respondent submitted a hardcopy of the invoices of CCO sold during the years 2009 to 2015, together with monthly lists of the quantities of oil sold and loaded on vessels for the purpose of exportation. Complementary tables summarizing the pertinent figures relating to production, costs and taxes were also provided. An exchange of views took place at the hearing in order to assist the Tribunal in understanding this voluminous documentation¹⁰.

55.

By letters dated 4 and 12 April 2017, the Tribunal directed the valuation experts to confer with the aim of narrowing the gaps between their respective positions related to discount rates, in general, and country risk, in particular. By letter dated 25 April 2017, the Claimants informed the Tribunal that the experts had conferred but were unable to narrow the gap between their respective views.

56.

By letters dated 27 April and 3 May 2017, the Tribunal requested the Parties to submit by 29 May 2017 a jointly prepared assessment, supported by their respective experts, of the actual production of the Projects (July 2007 to 31 December 2016), together with an assessment of the associated costs. The Tribunal also noted in its 27 April letter that the hearings held in February and March 2017 had clearly demonstrated that the experts had made various assumptions and assertions that were either wrong, not cross referenced to evidence on the record, or simply not supported by sufficient evidence. The Tribunal therefore requested the Parties in these two letters to continue instructing their experts to jointly work towards results elaborated on the basis of constructive cooperation. It also requested the Parties in its 27 April letter to provide the Tribunal by 19 May 2017 with an additional expert report by its respective experts on the country risk specifically associated with each Project. The deadline fixed on 19 May 2017 was subsequently extended at 26 May (letter dated 18 May 2017) and later to 2 June 2017 (letter dated 25 May 2017).

57.

On 19 May 2017, the Claimants and the Respondent each submitted their Post-Hearing Briefs following the February and March hearings. The additional reports requested from the experts were provided on the same date.

58.

On 2 June 2017, the Parties submitted two sets of documents containing (1) an Assessment of Production reported by the Respondent for the three Projects, commented by the Respondent and the Claimants, and (2) the Respondent's Estimated Ex Post Capital Expenditures (CAPEX) and Operating Expenses (OPEX) for each Project, also commented by the Respondent and the Claimants (referred to below as "Cost Estimations").

59.

By letters dated 8 and 14 June 2017, the Tribunal submitted to the Parties a list of questions. The Parties' answers were received on 10 July 2017, followed by rebuttal comments from each side on 31 July 2017. Upon the Tribunal's request, the Respondent submitted an English translation of Annexes 8 to 10 filed in relation to Appendix 76 of Mr. Figuera's Testimony, on 11 September 2017. Thereafter, the Tribunal invited the Parties on 13 September 2017 to prepare responses to be submitted at the forthcoming hearing on a number of supplementary questions.

60.

The Tribunal held its final hearing in Washington, D.C. on 19 to 21 September 2017. It dealt with the examination of the Parties' answers to the Tribunal's questions and with the submission of further clarifications. On the last day, the Parties made their closing statements. Present at this hearing were:

Members of the Tribunal

Dr. Eduardo Zuleta, President

The Hon. L. Yves Fortier, QC, Co-Arbitrator

Professor Andreas Bucher, Co-Arbitrator

ICSID Secretariat

Mr. Gonzalo Flores, Secretary of the Tribunal

Mr. Francisco Grob, Secretary of the Tribunal

For the Claimants

Mr. Jan Paulsson, Three Crowns LLP

Mr. Constantine Partasides, QC, Three Crowns LLP

Mr. Josh Simmons, Three Crowns LLP

Mr. Luke Sobota, Three Crowns LLP

Mr. Hugh Carlson, Three Crowns LLP

Mr. D. Brian King, Freshfields Bruckhaus Deringer US LLP

Mr. Elliot Friedman, Freshfields Bruckhaus Deringer US LLP

Mr. Sam Prevatt, Freshfields Bruckhaus Deringer US LLP

Mr. Lee Rovinescu, Freshfields Bruckhaus Deringer US LLP

Ms. Madeline Snider, Freshfields Bruckhaus Deringer US LLP

Mr. Cameron Russell, Freshfields Bruckhaus Deringer US LLP

Mr. Israel Guerrero, Freshfields Bruckhaus Deringer US LLP

Mr. Breanna Weber, Freshfields Bruckhaus Deringer US LLP

Ms. Cassia Cheung, Freshfields Bruckhaus Deringer US LLP

Mr. Iain McGrath, Freshfields Bruckhaus Deringer US LLP

Ms. Jannet Carrig, ConocoPhillips

Ms. Laura Robertson, ConocoPhillips

Ms. Suzana Blades, ConocoPhillips

Mr. Alberto Ravell, ConocoPhillips

For the Respondent

Mr. George Kahale, III, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Benard V. Preziosi, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Arianna Sánchez, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Simon Batifort, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Irene Petrelli, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Matilde Flores, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Farshad Zahedinia, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Sofia Herrera, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Steven Richardson, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Gloria Diaz-Bujan, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Joseph Giberti, Curtis, Mallet-Prevost, Colt & Mosle LLP

Dr. Reinaldo Muñoz, Attorney General, Bolivarian Republic of Venezuela

Dr. Bernard Mommer, Bolivarian Republic of Venezuela

Ms. Irama Mommer, Bolivarian Republic of Venezuela

Dr. Alvaro Silva Calderon, Bolivarian Republic of Venezuela

Dr. Joaquin Parra, Bolivarian Republic of Venezuela

Dr. José Gabriel Oroño, Bolivarian Republic of Venezuela

Dr. Alejandro Schmilinsky, Bolivarian Republic of Venezuela

Dra. Marianna Zerpa, Bolivarian Republic of Venezuela

61.

On 19 September 2017, in response to a request made by the Tribunal, the Respondent submitted two lists, one for the Petrozuata and the other for the Hamaca Project, containing information about the actual CCO sales from 2009 through 2015 including the relevant quantities of barrels sold and also containing the corresponding prices in US$ as they were actually invoiced.

62.

In the course of the debate before the Tribunal, the Parties prepared jointly lists of prices for CCO per year in relation to the Petrozuata and Hamaca Projects, indicating a number of figures shared in common and a number of other prices where the respective positions differ. The information thus provided will be used below in Section VIII on Prices.

63.

In the course of this proceeding, the Parties have filed a myriad of submissions and a great number of exhibits. The Tribunal does not enumerate all of these submissions, sometimes presented in a letter format. It recalls the main memorials and briefs it has received, complemented, where appropriate, by their short-title.

The Claimants

Claimants' Memorial, 15 September 2008 - Claimants' Memorial

Claimants' Reply, 2 November 2009 - Claimants' Reply

Claimants' Memorial on Quantum, 19 May 2014 - Claimants' Memorial on Quantum

Claimants' Reply on Quantum, 13 October 2014 - Claimants' Reply on Quantum

Claimants' Post-Hearing Submission, 19 September 2016 - Claimants' 2016 Post-Hearing Brief

Claimants' Final Submission on Quantum, 30 December 2016 - Claimants' Final Submission on Quantum

Claimants' Post-Hearing Brief, 19 May 2017 - Claimants' 2017 Post-Hearing Brief

Claimants' Initial Replies to the Tribunal's Questions, 10 July 2017 - Claimants' Replies of 10 July 2017

Claimants' Supplemental Comments on the Tribunal's Questions, 31 July 2017 - Claimants' Comments of 31 July 2017

The Respondent

Counter-Memorial of the Bolivarian Republic of Venezuela, 27 July 2009 - Venezuela's Counter-Memorial

Rejoinder of the Bolivarian Republic of Venezuela, 1 February 2010 - Venezuela's Rejoinder

Respondent's Counter-Memorial on Quantum, 18 August 2014 - Respondent's Counter-Memorial on Quantum

Respondent's Rejoinder on Quantum, 7 January 2015 - Respondent's Rejoinder on Quantum

Respondent's Post-Hearing Brief, 19 September 2016 - Respondent's 2016 Post-Hearing Brief

Respondent's Brief on Quantum Pursuant to Procedural Order No. 4, 30 December 2016 - Respondent's Final Brief on Quantum

Respondent's Post-Hearing Brief, 19 May 2017 - Respondent's 2017 Post-Hearing Brief

Respondent's Answers and Observations to the Questions Posed by the Tribunal in its Letters of June 8 and 14, 2017, 10 July 2017 - Respondent's Answers of 10 July 2017

Respondent's Reply to Claimants' Responses to the Tribunal's Questions, 31 July 2017 - Respondent's Reply of 31 July 2017

64.

The Tribunal has received a great number of witness statements, many of them prepared by Mr. Albert Roy Lyons, presented by the Claimants, and Mr. Rubén Figuera, presented by the Respondent. These statements may be listed as follows:

Mr. Lyons

Witness Statement - 10 September 2008

Second Witness Statement - 30 October 2009

Rebuttal [3rd] Witness Statement - 14 April 2010

Fourth Witness Statement - 16 May 2014

Fifth Witness Statement - 13 October 2014

Mr. Figuera

Direct Testimony - 20 July 2009

Supplemental Direct Testimony - 26 January 2010

Second Supplemental Direct Testimony - 17 May 2010

Third Supplemental Direct Testimony - 15 August 2014

Fourth Supplemental Direct Testimony - 7 January 2015 (For the purposes of this Award, the term "Direct" will not be used.)

All other witness statements will be mentioned where appropriate.

65.

In respect of the contributions of Mr. Lyons and Mr. Figuera, which are of particular relevance to the quantum phase, the Tribunal notes at the outset that their views do not in all cases reflect direct personal knowledge relating to the conduct and operation of the Projects, given the fact that they were exercising responsibilities only during a part of the period when the facts relevant to the matter to be examined by the Tribunal occurred.

66.

The Tribunal has also received a great number of reports prepared by the Parties' respective experts.

67.

Some of these reports were focusing on issues related to production (upstream, on-stream, and downstream) and on a number of technical items. The main expertise in this category was authored by Mr. Jesús Rafael Patiño Murillo, presented by the Respondent; the reports submitted by this expert are the following:

Expert Report - 18 August 2014

Second Expert Report - 7 January 2015

Consolidated Expert Report - 17 October 2016

The reports provided by Mr. Patiño have been reviewed and addressed by two of the Claimants' experts. Dr. Richard F. Strickland submitted three reports:

Expert Report - 13 October 2014

Second Expert Report - 21 April 2016

Consolidated Expert Report - 17 October 2016

Mr. Neil K. Earnest (Muse, Stancil & Co.) provided the following reports:

Technical Assessment of the Hamaca and Petrozuata Upgrader Performance - 13 October 2014 Consolidated Expert Report - 17 October 2016

68.

A second category of experts' reports relates to the calculation of oil production and of the damages in dispute, both items being covered by the term "valuation".

For the Claimants, a series of reports have been submitted by Dr. Manuel A. Abdala and Professor Pablo T. Spiller, Directors of former LECG, LLC, today Compass Lexecon. They are:

Preliminary Valuation Report of ConocoPhillips' Investments in Venezuela, 12 September 2008

Second Valuation Report of ConocoPhillips' Investments in Venezuela, 2 November 2009

Rebuttal Report to Respondent's Experts' Second Reports, 15 April 2010¹¹

Damages Assessment for the Takings of ConocoPhillips' Investments in Venezuela, 19 May 2014

Damages Assessment for the Takings of ConocoPhillips' Investments in Venezuela, Supplemental Report, 13 October 2014

March 2016 Update, 18 March 2016

Rebuttal Report, 21 April 2016

Consolidated Update Report, 17 November 2016

Report on the Project-Specific Country Risk Applicable to the Claimants' Investments in Venezuela, 19 May 2017

For the Respondent, an equally important number of reports have been presented by Mr. Vladimir Brailovsky and Dr. Daniel Flores. They are:

Expert Report on the Discount Rate to be Applied to Projected Cashflows, 24 July 2009

Second Expert Report on the Discount Rate to be Applied to Projected Cash Flows, 1 February 2010

Reply to LECG's Rebuttal to Second Discount Rate Report, 17 May 2010¹²

Expert Report on Valuation, 18 August 2014

Expert Report on the Theoretical and Historical Foundations of the Compensation Provisions, 18 August 2014

Second Expert Report on Valuation, 7 January 2015

Valuation Update, 18 March 2016

Valuation Update Reply, 21 April 2016

Consolidated Expert Report on Valuation, 17 November 2016

Additional Expert Report on Country Risk in Discount Rate, 19 May 2017

All other expert reports filed with the Tribunal will be mentioned where appropriate.

69.

Upon request, the Parties have filed their submissions on Costs on 16 April 2018, which were followed by the Claimants' rebuttal dated 3 May 2018 and two letters in reply from the Respondent, dated 18 April and 3 May 2018. The Claimants submitted an update by letter dated 17 September 2018.

70.

The Tribunal declared the proceeding closed on 8 February 2019.

71.

The natural remedy for the Claimants' compensation of their damages suffered as a consequence of an expropriation of the three Projects is to be found in the BIT or in the applicable law to which this Treaty refers. Article 9 of the BIT is therefore the first source of law to be considered (A). In relation to the Petrozuata and Hamaca Projects, great emphasis has been put, since the beginning of this proceeding, on the alleged relevance of the compensation provisions contained in the respective Association Agreements. The potential impact of these provisions as remedies for the Projects' expropriation needs to be clarified (B). Finally, the Tribunal must determine whether the standard of compensation is contained in the BIT, and in Article 6(c) in particular, or whether general or customary international law is to be applied (C).

72.

At the outset of this analysis, two provisions of Article 9 of the BIT have to be examined more closely. The first one is paragraph 3 on the possible scope ratione materiae of a Tribunal's award on the merits. This provision reads as follows:

3. The arbitral award shall be limited to determining whether there is a breach by the Contracting Party concerned of its obligations under this Agreement, whether such breach of obligations has caused damages to the national concerned, and, if such is the case, the amount of compensation.

73.

The second one is the last part of Article 9, paragraph 5:

5. The arbitral award shall be based on:

- the law of the Contracting Party concerned;

- the provisions of this Agreement and other relevant Agreements between the Contracting Parties;

- the provisions of special agreements relating to the investments;

- the general principles of international law;

- such rules of law as may be agreed by the parties to the dispute.

74.

The Claimants submit that under Article 9(5) of the BIT, only customary international law governs the consequences of Venezuela's illegal expropriation, requiring full reparation. On the other hand, Venezuela contends that any award in this case must take into account Venezuelan law, including the terms and conditions of the special agreements relating to the Projects and their compensation provisions. Venezuela so argues on the basis of Article 9(5) of the BIT. Venezuela avers that the Claimants have "simply ignored" Venezuelan law.

75.

The Claimants explain that Article 9(5) does no more than confirm that the Tribunal must consider different sets of rules for different sets of issues in dispute. This provision is not an express choice-of-law clause; its reference to domestic law cannot be construed as requiring its application to the determination of every issue that arises before the Tribunal.

76.

Venezuela's invocation of "the law of the Contracting Party concerned" is therefore misplaced, because the issue for determination in this quantum phase must be adjudicated solely in accordance with international law. State responsibility entails a secondary obligation of full reparation. This principle was codified in Article 32 of the ILC Articles.

77.

The authorities referred to by Venezuela in its Counter-Memorial on Quantum are of no moment here. The only relevant question is whether Venezuela may be allowed to rely on its own domestic law, to reduce its responsibility under international law. In sum, the authorities cited by Venezuela contradict its allegation that the consequences following Venezuela's Treaty breach should be determined by reference to domestic law instruments such as the Congressional Authorizations.

78.

The Mobil Tribunal had no difficulty in rejecting the same argument on the basis of the same Treaty provision¹³. It stated that a party may not invoke its internal law as justification for its failure to perform a treaty. International obligations cannot be discarded on the grounds of national law. The Mobil Tribunal had no doubt that the Award must be governed by international law. Consequently, the Eighteenth and Twentieth Conditions cannot exempt or excuse the Respondent from its obligations under the Treaty or under customary international law. Bearing this in mind, the Mobil Tribunal considered the effect of the Eighteenth and Twentieth Conditions of the Cerro Negro Framework Conditions in the section on quantum.

79.

In addition, the Association Agreements do not even come within the terms of Article 9(5). For a domestic law contract potentially to affect the international law rights of investors, it is axiomatic that the contract must be between those same investors and that same respondent State. It stands to reason that the contracts on which the Tribunal can "base" its award under Article 9(5) must also be between the State and the investor. In sum, customary international law governs quantum in this case, and Venezuela's invocation of Article 9(5) of the Treaty does nothing to change that.

80.

The Respondent submits that the Congressional Authorizations and the Association Agreements are to be taken into account and given effect in determining quantum under Article 9(5) of the BIT, which refers to the law of the Contracting Party concerned and the provisions of special agreements relating to the investment.

81.

The Claimants argue that because the issue is full reparation, the only relevant law is international law. This argument is nothing more than an invitation to the Tribunal to ignore the applicable law provisions of the Treaty. The Claimants seem to be under the mistaken impression that international law can be applied in the abstract without consideration of national law. The Treaty calls for compensation based on fair market value, but fair market value is not a concept divorced from the underlying rights being valued, which themselves cannot be separated from whatever limitations may be attached to them. The concept of reparation is not independent of the terms and conditions applicable to the specific investments at issue.

82.

The Respondent also notes that Article 9(3) of the BIT prevents this Tribunal from awarding damages beyond those caused by a breach of the BIT. In the case of a failure to pay the required compensation, the only damage is the amount of compensation due as of the date of expropriation, plus interest.

83.

In other words, giving effect to the governing law provisions of Article 9(5) of the Dutch Treaty and applying the compensation mechanisms is not only a requirement of the Dutch Treaty itself, but is consistent with, and an integral part of, the international law analysis that the Claimants want this Tribunal to apply pursuant to the Chorzów decision. It is worth noting that it is universally recognized that the nature and scope of property rights are defined by local law, not international law. The issue here is not whether the consequences of an internationally wrongful act should be determined by international or national law. It is the scope of rights that the Claimants had. That is determined by national law, in this case starting with the Congressional Authorizations. The Claimants cannot circumvent the terms and conditions upon which they were permitted to invest in Venezuela. They must be given effect and they determine the basis of compensation.

84.

The Claimants further invoke the well-known principle that a State may not use its internal law to extricate itself from an international responsibility. It is one of the principles the Claimants invoke which has nothing to do with the facts of the case. This is not a case in which the Respondent is relying upon subsequently enacted legislation as a defense to an international law claim. Rather, the Respondent is relying upon the terms and conditions established at the outset of the upgrading Projects pursuant to the Congressional Authorizations, which set forth the terms and conditions under which the Claimants would be entitled to invest in Venezuela. The issue can be stated as follows: if the terms and conditions of an investment are that the State would be entitled to capture, for instance, windfall profits through taxation, can the principle that a State may not use its internal law to extricate itself from international responsibility apply to prevent the State from exercising that right when the windfall profits subsequently materialize? The answer must be "no". Yet that is what the Claimants try to do. They have not been able to refute any part of the extensive documentary record establishing the State's ability as owner of the resource to obtain the benefit of exceptional profits.

85.

The Tribunal notes that the wording and the list set out in paragraph 5 of Article 9 of the BIT do not establish any order of priority among the five sources of law that are mentioned. The provision contains an enumeration, without any hierarchy. When considered as a rule on the applicable law, or on conflicts of law, the rule has its own limitations: it determines the possible applicable sources of law, but it does not determine which one is applicable in a particular context that is relevant for rendering the award.

86.

One of the effects of this characteristic of Article 9(5) of the BIT is that the potential scope of application of one or another of the enumerated sources of law, for itself or in comparison to the others, has to be determined by reference to the scope of application of each one of these sources. Article 9(5) does not provide an answer to this question.

87.

Article 42(1) of the ICSID Convention is in harmony with such understanding. Pursuant to this provision, the Tribunal shall decide a dispute "in accordance with such rules of law as may be agreed by the parties". Article 9(5) of the BIT constitutes such an agreement. The BIT is also in harmony with the second part of Article 42(1) of the ICSID Convention, stating that in the absence of an agreement on the choice of applicable rules of law, the Tribunal shall apply the law of the host State "and such rules of international law as may be applicable." The ICSID Convention does not provide for any restriction in respect of these "applicable rules of international law"; they necessarily include all such rules which according to their self-determined scope of application cover the legal issue arising in a particular case.

88.

One important factor of hierarchy is the principle that international law must prevail over domestic law, and that a State may not invoke its internal law to extract itself from an international law obligation. As a matter of principle, this is not disputed between the Parties, nor is there any controversy that such principle results from the international law itself and not from Article 9(5) of the BIT.

89.

This principle of priority of international law over domestic law has its own limitations. International law does not prevail over national law in a matter not governed by international law, in which case national law may apply, in accordance with Article 9(5) of the BIT. The much-debated issue of the relevance of the compensation provisions of the Petrozuata and Hamaca Association Agreements goes to the heart of this question. Are these provisions capable of governing the effects of an expropriation of the participants' assets held in the Projects? Or are these provisions relevant to the determination of the assets subject to such an expropriation when considered in the framework of Article 6 of the BIT? These questions, together with others, will be examined more closely below.

90.

The Tribunal also observes that Article 9(3) of the BIT does not support the Respondent's interpretation that no damages other than those provided by the Treaty can be awarded. This provision states that the Tribunal's award shall not determine breach beyond the "obligations under this Agreement". Thus, while the range of obligations to be taken into account is limited by the content of the BIT, such limitation is not attached to the terms of "damages" and "amount of compensation" contained in the same provision.

91.

The Tribunal also notes that the BIT has to be interpreted in light of the rules set out in the Vienna Convention of the Law of Treaties of 23 May 1969. Article 31 § 3(c) of this Treaty indicates that account is to be taken of "any relevant rules of international law applicable in the relations between the parties". The Tribunal must certainly be mindful of the BIT's special purpose as a Treaty promoting foreign investments, but it cannot apply the BIT in a vacuum, without taking the relevant rules of international law into account. Article 9(5) of the BIT has to be construed in harmony with such rules.

92.

Captured in very summary terms, the debate between the Parties centers on whether the Association Agreements, relating, respectively, to the Petrozuata (C-21) and the Hamaca (C-22) Projects, are based on the implicit but nevertheless fundamental principle that the host State's ability to capture extraordinary profits must be preserved and whether in this respect the investors do not have an assurance that their revenue will never be affected. The marked difference with older State contracts in the field of petroleum extraction is that these Agreements do not contain a so called "stabilization" clause whereby the State accepts not to interfere with the legal and economic characteristics of the contract.

93.

The compensation provisions contained in each of the Association Agreements represent a substitute for the full preservation of the host State's rights and policies¹⁴. In sum, these provisions provide that in case a "Discriminatory Action" ("DA") is taken by the State that causes a significant loss to the foreign investors, compensation must be provided to them. This compensation, however, is not due by the State, but by PDVSA or its relevant subsidiary, a company under the State's control. The amount of the compensation is calculated on the basis of a complex formula, which under the prevailing oil prices resulted in a sum of approximately 25 US$ or 27 US$ per barrel, respectively. The payment was to be made through the regular terms of provision of dividends to the shareholders. The Hamaca Association Agreement contains an additional layer in providing for a "buy-out" in case the parties cannot agree on whether a discriminatory action has occurred or the amendments to be agreed upon (Art. 14.4). Since the very beginning of this proceeding, the Parties have been deeply divided in their respective understanding of the content and effects of these compensation provisions (also called "Discriminatory Action provisions" or "DA provisions") in the present case, and this in particular in respect of their application to the consequences of an expropriation governed by the BIT.

94.

The Claimants object to Venezuela's main line of argument that the Discriminatory Action provisions in the Petrozuata and Hamaca Association Agreements somehow limit the compensation resulting from Venezuela's liability under international law for its expropriation of these Projects, although Venezuela was not a party to these Agreements.

95.

The Claimants submit that domestic law is irrelevant to the standard of compensation for a violation of international law. Article 9(5) of the BIT does not provide otherwise; it simply sets out the different sources of law that a tribunal might apply to different issues. The issues of State responsibility here attract the rules of international law. The Association Agreements do not affect Venezuela's obligations under international law. There is nothing in these contracts showing any "cap" on the value of the Projects. On the contrary, the DA provisions serve as an additional form of protection that served to enhance the value of the Associations.

96.

The Claimants are investors and therefore entitled to the benefit of the Treaty's substantive protections. Thus, the Claimants' claims must be assessed and valued under the Treaty and international law. Potential contractual causes of action are separate and distinct from Treaty claims. They cannot diminish the quantification of damages under international law. In the present case, Venezuela was not a party to the Agreements. A fortiori, these Agreements can neither remove nor limit the Venezuelan State's liability under international law.

97.

The Congressional Authorizations confirm the irrelevance of the discriminatory action provisions. These Authorizations provide that the Agreements will not restrict Venezuela's sovereign rights. One of those rights was the right to grant binding protections to foreign investors by Treaty or by legislation (here the investment law).

98.

The Claimants explain that the DA provisions include three basic propositions: (a) First, when a DA occurs, the Claimants must, to the extent practicable, pursue remedies against the governmental actor responsible for the DA, including actions for monetary damages against the State. (b) Second, the relevant PDVSA subsidiaries are contractually obliged to indemnify the Claimants for harm resulting from the DA, with the indemnity being limited under certain oil price scenarios. (c) Third, to avoid double recovery, if the Claimants obtain payment from the relevant governmental actor, they must provide an offset to the PDVSA subsidiaries through an appropriate credit or reimbursement.

99.

The DA provisions evidence that they are irrelevant to the compensation owed by Venezuela under international law for the taking of the Claimants' investments. They are partial contractual indemnities payable by PDVSA affiliates. They do not purport to address Venezuela's obligations for its own wrongful conduct. They do not limit the profits of any Project participant, nor do they impose any limit on the fair market value of the Claimants' project interests.

100.

Venezuela has avoided looking at the plain terms of the DA provisions and has instead relied on the negotiating history. The contractual text is the best evidence of the parties' agreement. The DA provisions expressly recognize the Claimants' rights and require the pursuit of those remedies that are available under the circumstances. Even if this Tribunal were to consider pre-contractual negotiating history, the DA provisions do not contain a value-cap on the State's liability under international law.

101.

All of the Claimants' witnesses called at the August 2016 hearing confirmed their understanding of the three-pronged structure of the DA provisions as outlined above. Venezuela has failed to put forward a single witness who was involved in negotiating the Association Agreements. The sole witness appearing on behalf of Venezuela, Dr. Mommer, played no role in these negotiations.

102.

The Claimants have never argued that Venezuela lacked the "sovereign power" to expropriate. The question is whether the DA provisions say anything about Venezuela's obligations under international law with respect to that power. They do not.

103.

Moreover, the DA provisions of the Association Agreements provide for ICC arbitration. The ICC Arbitral Tribunal seized with the matter had to determine how the Discriminatory Action provisions have to be applied, and whether Venezuela's unlawful expropriation falls within the ambit of those clauses. Venezuela has denied that they cover the expropriation or other challenged measures. This ICSID Tribunal, however, has exclusive jurisdiction over Venezuela's breach of the Treaty.

104.

The DA provisions add value to the Associations because they provide for an additional layer of protection, above and beyond the remedies against the State expressly envisaged in the DA provisions. Venezuela argues that a willing buyer of the Claimants' interests would value future cash flows under the assumption that the State would take all cash flows beyond the indemnity limits in the DA provisions. Accordingly, says the Respondent, the fair market value of the Claimants' project interests is limited by the DA provisions.

105.

Even if one were to assume that the DA provisions somehow cap the value of the Associations, the only way such a cap could be imposed would be if the Claimants were deemed to have waived their rights to full reparation under international law. The fact is that the Claimants have important international law rights against the State that were in no way waived, modified or limited by the Association Agreements, to which the State is not even a party. Those provisions did not purport to relieve the State of its own legal responsibility or to waive any otherwise applicable international law restrictions on the State's ability to take away an investment.

106.

The Claimants also observe that Venezuela misconstrues the negotiation history of the Petrozuata and Hamaca Association Agreements. First, the condiciones in the Congressional Authorizations did not require a waiver of remedies against the State under international law. Each Authorization established only a non-exhaustive general framework for items to be addressed in each Association Agreement. Second, the ConocoPhillips parties were not negotiating with the State and hence were not agreeing to any limitations of the State's potential liability. Their access was limited to representatives of Maraven and Corpoven. Accordingly, those discussions can only have related to the rights and obligations between contractual parties. Third, there is no support for Venezuela's assertion that Conoco was seeking compensation "from the Government" via the Petrozuata Authorization, rather than from the PDVSA subsidiary Maraven. Mr. Griffith's reply letter of 17 September 1992 (R-97) addressed the proposed compensation that would be owed by Maraven. Fourth, the operative provisions of the Association Agreements were limited to the reciprocal rights and obligations of the parties to those Agreements. PDVSA and its subsidiaries were authorized to agree to take some degree of indemnity upon themselves. They could not and did not purport to agree to impose obligations on the State; that matter was outside the scope of the Agreements and was governed by other sources of State obligations, including international law. Fifth, the parties added provisions that were not dictated by the Congressional Authorizations, like the "sliding scale" compensation mechanism. The ConocoPhillips parties sought the most robust indemnities they could get, while their counterparts sought to narrow the indemnities. At the end, the Association Agreements provided for partial indemnification by the contracting PDVSA affiliate in the event of certain governmental actions whose damage exceeded specified thresholds. In sum, the terms of the Association Agreements do not purport to affect any obligations the State had, or might assume in the future, under international law, or in Venezuela's statutory or constitutional law. Nor is there any indication that the Discriminatory Action provisions were in lieu of otherwise applicable State liability. They were providing an additional layer of protection for the investors.

107.

The Claimants submit that the Discriminatory Action provisions were intended to serve as limited insurance policies underwritten by the contracting PDVSA subsidiaries - not as a waiver of the ConocoPhillips Parties' rights in that regard. The Association Agreements provide for a contractual indemnity against the contracting PDVSA subsidiary for measures taken by the State. This indemnity is subordinated to whatever relief the Claimants may obtain in any other competent fora against the State. Venezuela is not a party to the Association Agreement. The Congressional Authorizations confirm it expressly when reserving the sovereign powers of the State. Venezuela cannot claim to be a third-party beneficiary. This is precisely how similar provisions have been interpreted by the ICSID Tribunal in Mobil v. Venezuela (CL-348). The Tribunal noted that the Agreement limits the compensation due by PDVSA, a limitation reflected in the amount to be awarded by the ICC tribunal. No such limitation applies, however, to the State's responsibility under the BIT.

108.

The Claimants also reject Venezuela's speculative claim that, in the absence of the expropriation, the Government would have "in all probability" taxed the Projects so as to capture all profits above the contractual price caps. This argument is illogical and without legal basis. It is no more than a recasting of Venezuela's main argument that the Association Agreements have the effect of a waiver of the Claimants' international law right to claim against the State, at least in respect of other than "normal" profits.

109.

The Tribunal has held in its 2013 Decision and in its 2017 Interim Decision that Venezuela violated the Treaty by taking the Claimants' investments. It follows necessarily that they must be awarded full reparation for their losses - which is not what the Discriminatory Action provisions provide. Even if that were not so, those provisions do not afford any right to Venezuela or limit its liability for breaches of the Treaty.

110.

The Claimants also object to Venezuela's assertion that even if the standard of full reparation applies, the Tribunal must take into account "the terms of the investment". The only cash flows that the Claimants could have expected to earn absent the expropriation would have been those below vague "exceptional" or "windfall" thresholds. The argument is circular. Only if Venezuela's argument was well founded - i.e. if the Association Agreements had allocated to the State all cash flows above an "exceptional" level - could one conclude that the Claimants' entitlement could be cut off at that level. If the Association Agreements do not extinguish the Claimants' right to full reparation under the standard of international law, then they cannot either affect the calculation of full reparation.

111.

Finally, even if one were to assume that the DA provisions somehow serve as a cap on Venezuela's liability under the Treaty and international law, such limitation could not be operative here, because a party engaging in willful misconduct cannot claim the benefit of alleged contractual limitations on liability. Rather, under Venezuelan law, this party must pay all direct and consequential damages stemming from its conduct. Thus, even if Venezuela were hypothetically assumed to have stepped into the shoes of the parties to the Association Agreements, it would remain fully liable to the Claimants.

112.

Venezuela cannot be allowed to benefit from any limitations on liability in the Association Agreements without also being subject to the laws that govern any such limitations. In all events, having willfully breached its international obligations, Venezuela cannot claim the benefit of any restriction of its liability under international law. For all these reasons, the Claimants are entitled to full reparation for the takings in accordance with international law. The Association Agreements and the DA provisions do not undermine or limit that clear entitlement.

113.

The Respondent's analysis starts by affirming that the threshold question to be decided by this Tribunal is whether a State has the right to determine the terms and conditions upon which it will accept investments in its territory. The Respondent's basic position is that the investment in the Petrozuata and Hamaca Projects included the reservation by the State of its full sovereign pow-ers¹⁵ to take action affecting the Projects, and that compensation for such sovereign action would be provided by the State company partner in the Projects. Compensation for governmental action was to be on "equitable" terms and subject to a cap on "excess" or "exceptional" or "windfall" profits generated by high oil prices, which the State was entitled to take for itself as the "owner of the resource".

114.

The Tribunal notes that it is faced with extremely lengthy and repeated explanations provided by the Respondent. For the purposes of this Award, the presentation of the Respondent's position must focus on those facts and arguments that are relevant for the Tribunal's understanding and its analysis of the pertinent questions requiring a solution. In order to remain faithful to the Respondent's presentation, the Tribunal retains the division based on each Project's historical evolution, referring as well to the summaries contained in the 2013 Decision.

115.

The Respondent recalls that the Sixteenth Condition of the Congressional Authorization (R-21/92) addressed the precise manner in which the foreign partner would be "compensated" while at the same time reserving to the State its sovereign powers. The use of the word "compensate" in the Petrozuata Authorization is telling. This is the issue in this case, not "insurance" as the Claimants say. The Claimants understood full well that they were without any international recourse against the State (no BIT was applicable at that time) and they have admitted this point on several occasions during the course of this Arbitration. That is why during the negotiations they pressed Maraven for as much protection as possible.

116.

The Claimants went into the Petrozuata Project understanding that they had no international remedy against the State and that their sole and exclusive remedy for adverse governmental action would be the compensation provisions. It would make no sense for the Government to insist on limited compensation from the State company but full compensation from the State itself.

117.

The 17 September 1992 letter from Conoco's Mr. Griffith (R-97) commented on the draft of the conditions to be incorporated in the Petrozuata Authorization. The letter requested provisions of full compensation based on market value, an economic stability clause, and precisions on how Conoco's assets and interests will be valued and reimbursed in the event of nationalization. In response, only one change was made to the draft of Clause Sixteen, i.e. the inclusion of the language at the end, reserving the State's sovereign power¹⁶. Witness McKee testified that Conoco did not obtain anything it requested in the letter¹⁷.

118.

In its 16 September 1993 letter (R-100) Conoco wanted the key definition of Discriminatory Legislation (which ultimately became "Discriminatory Actions") to cover virtually all governmental action adversely affecting the Project. With respect to compensation, Conoco again sought full compensation, so as to restore the relevant Class B Shareholder's income to where it would have been had there been no Discriminatory Action. Conoco did not get it.

119.

The Minutes of the Miami Negotiating Sessions which took place in November and December 1993 reveal that the question which was discussed was what would be the mechanism that would implement the notion of "equitable" compensation while allowing the State to capture what were considered to be windfall profits (R-395).

120.

The January 1994 Conoco Venezuela Strategy Management Team Report (C-67) clearly expressed Conoco's understanding of the risks of the Petrozuata Project, of the fact that governmental measures were likely to be adopted in high price scenarios, and of the likelihood that the Government would place a ceiling on project economics. Witness McKee explained that they never expected that a country like Venezuela would not have the power to increase its take¹⁸; they believed in the sovereign rights of a country¹⁹. Thus, Mr. McKee not only acknowledged such expectation, he actually endorsed the concept²⁰.

121.

In February 1994, Conoco presented a detailed "sliding scale" proposal setting forth a compensation mechanism tied to the average price of Brent crude oil (R-101). The proposal was a follow-up to the discussions two months earlier in Miami.

122.

The April 1994 Steering Committee Presentation confirms that Conoco understood well that the State was entitled to take governmental action that would affect project economics, and that Conoco's protection had to be provided through provisions for the granting of compensation by Maraven and that Conoco would not receive the "full compensation" it had sought from the outset of the negotiations. Given the lack of an "economic stability clause", Conoco was exposed to changes in the law that could have an adverse impact on the economics of the Project. Slide 8 identified the issue as "Gov't can take away economics" (R-102).

123.

The February 1995 internal communication to the Conoco Management Committee once again highlighted the risk that the "government may radically change taxes, exchange rules and rates, or other features of our basic terms which could render our venture uneconomic" (R-397). The document noted that the risk of governmental action was being addressed by "seeking contractual terms which will help protect non-Venezuelan investors".

124.

The PDVSA March 1995 Strategic Business Committee Presentation (R-219) reported Conoco's position as follows: "the owner of the resource must be able to obtain the benefit of exceptional profits". It is noted that the current compensation scheme (sliding scale) allows a gradual recognition of exceptional profits to the owner of the resource. Conoco's internal documents confirmed the company's view that a "large portion of the taxation risk has been eliminated by contractual provisions that require Mareven to offset Conoco's losses from discriminatory treatment" (R-398/397).

125.

The Petrozuata Offering Circular dated 17 June 1997 (C-75) that by its nature is presumed to be accurate, does not highlight that "full compensation" from the State was available; it describes in detail the compensation provisions. There is nothing to support the Claimants' interpretation of the mechanism as a "partial insurance policy".

126.

The Claimants say nothing about Dr. Mommer's testimony concerning the compensation mechanisms established for the upgrading Projects. His testimony is consistent with the full record. In his second supplemental direct testimony he recalled that the essence of the concept they discussed within PDVSA was defining what constitutes "normal profit", and what was "excess" or "windfall" profit. The Claimants did not impeach Dr. Mommer on the subject of the compensation provisions at the 2010 hearing. Personally, Dr. Mommer considered such clauses as a circumvention of the condition that the Projects should not in any way restrict the sovereign power of the State. He resigned from PDVSA over this disagreement in January 1995. The well-recognized feature for the delivery of compensation for adverse governmental action was also explained by Professor Sornarajah and Professor Wells²¹.

127.

The basic legal terms were set forth in the Nineteenth Condition of the Hamaca Congressional Authorization (R-93, C-132), making clear that the Project would impose no restrictions on the exercise of the State's sovereign powers.

128.

Compensation was provided in the Twenty-First Condition, providing that the foreign participants would be entitled to compensation from PDVSA's subsidiary, subject to the conditions and limitations established in the Agreement. This Condition was similar to the Sixteenth Condition of the Petrozuata Authorization (R-21/92), including the language reaffirming that the compensation mechanism would not in any way restrict the sovereign power of the Government to adopt any measure in the future.

129.

The Twenty-First Condition also contained an additional provision relating to the buy-out option. It provided that in the event that the State company charged with the responsibility of providing the compensation for adverse governmental action did not agree with the amount of compensation determined, it would have the option to purchase the interest of the ConocoPhillips subsidiaries involved in the Hamaca Project at the formula price. The provision underscores that there would be an upper limit on compensation for adverse governmental action, ensuring that "excess" or "exceptional" or "windfall" profits resulting from high oil prices would inure to the benefit of the State.

130.

In the present case, the material point is that the buy-out option required by the Twenty-First Condition of the Hamaca Authorization would undoubtedly be triggered by any finding of an arbitral tribunal that compensation was due for any of the governmental measures at issue in this case. Thus, PDVSA's subsidiary involved in the Hamaca Project would have the option to purchase the entirety of the ConocoPhillips subsidiaries' interests in the Project at the formula price, thereby precluding any possibility of recovery in excess of that amount.

131.

The minutes of an early Corpoven-Arco Joint Study Agreement Steering Committee Meeting in February 1995 (R-107) confirm that the Congress has the power to enact new laws or to modify current laws. The minutes make clear that the State would be able to exercise its full sovereign powers. The investors were to be compensated for adverse governmental action by the State company, with any compensation being subject to the price cap formula to ensure that the State would remain entitled to capture windfall profits generated by high prices.

132.

The concept of "equitable" compensation limited to protecting cash flows that would result from ordinary prices, but not extraordinary prices, was later incorporated into preliminary term sheets for the Hamaca Project, such as the term sheet dated 2 May 1996 (R-402). As in the case of all other documents in the record, the operative word was "compensate". The term sheet also recognized the inclusion of a buy-out option under "equitable conditions".

133.

A flow chart from a Corpoven April 1996 presentation entitled "Terms and Conditions of the Arco-Corpoven Association" (R-405) illustrates the operation of the compensation arrangements. The chart shows that the legal actions against the governmental measures, i.e. remedies to obtain the revocation of the measures, were only the first step in the chain that would lead ultimately either to the acceptance of the compensation determined by the arbitral tribunal or a buyout at the formula price. In that manner, the State ensured that the limitation on compensation based on the price cap would be respected.

134.

The Phillips' May 1996 internal presentation to its own senior management contained a slide confirming its understanding of the issue of fiscal stabilization (C-110, p. 43). Nothing could be clearer on the issue of fiscal stability than the words: "No stability clause". Witnesses Goff²², Appel²³ and Sheets²⁴ confirmed that there was no such clause.

135.

Since the Hamaca Project enjoyed no stability guarantees from the State, the parties focused on designing compensation provisions that would address the adverse economic consequences of State action. In a 29 May 1996 letter to Corpoven, Arco abandoned the idea of stabilization after Corpoven had stated that it would have problems getting such protections through the current Congressional approval process (R-403). The draft discrimination provision attached to the letter made clear that there would be no obligation to compensate in case a "windfall tax" was imposed at a time when the price of oil exceeded a certain threshold.

136.

In a 17 June 1999 internal memorandum, Mr. Bowerman advised the Phillips' Management Committee that President Chávez was authorized to reform the Income Tax Law and impose taxes on banking transactions (LECG-65). He knew that there was "no stability clause" for the Hamaca Project and that the Government expressly retained all of its sovereign powers to adopt measures pursuant to the Constitution and applicable laws.

137.

A Hamaca Information Memorandum shows that the Hamaca partners were considering approaching the Government for a tax stabilization clause under the Investment Law of 1999 (C101). No tax stabilization agreement was ever made or even sought.

138.

As in the case of the Petrozuata Project, the record shows that the legal negotiation centered around the definition of "windfall" profits that the State would be entitled to capture. With the experience of that Project in mind, the discussions concentrated on the concept of a protected annual cash flow based on a price cap. The parties settled on a US$ 27 per barrel threshold (in 1996 dollars), to be escalated in accordance with inflation, as defining the border between "normal" and "windfall" profits, with no compensation being payable for governmental action capturing "windfall" profits resulting from price increases above that level. This point is illustrated in a summary of the parties' positions during the negotiation (R-392) and in a flow chart presented by Corpoven in 1996 (R-405).

139.

The Respondent also notes that the U.S. Embassy reported in May 2006 that according to a partner in a Venezuelan law firm, the strategic associations do not have a legal basis to fight the income tax increases or the new extraction tax (R-350). For the protection from tax increases, each of the agreements has some form of indemnity clauses. However, in order to receive payment, a certain level of economic damage must occur. Unfortunately, the formulas that are used assume low oil prices. Due to current high oil prices, it is unlikely that the increases will result in enough damage to reach the threshold where PDVSA has to pay the partners. The Respondent assumes that the lawyer in question was Ms. Eljuri, ConocoPhillips' own lawyer in Venezuela. The cable demonstrates, first, that the Claimants always knew that the terms and conditions of their investments in the upgrading Projects included the sovereign right of the State to take measures affecting project economics, with compensation to be limited to "normal" profits defined by applying a price cap. Second, the cable explains the operation of the compensation mechanisms for the upgrading Projects; the Claimants have declined to comment on the substance of the cable, beyond arguing that the cable was "irrelevant", "hearsay" and "inadmissible". The Claimants seem to think that the cable is irrelevant because it is referring to the Mobil's contractual claim for damages in the ICC arbitration against PDVSA. However, the cable says nothing about that arbitration but explains the operation of the compensation provisions of all the extra-heavy crude oil ("EHCO") upgrading Projects in the Orinoco Oil Belt. Thus, none of the Claimants' non-substantive arguments relating to those cables has any merit.

140.

In reply to a first argument raised by the Claimants, the Respondent admits that certain issues are governed by international law, but that does not mean that international law, including the Dutch Treaty, will not allow consideration of national law or the special agreements entered into regarding the investment in question. Thus, expropriation affects property rights, and those rights are defined by the local law under which they were created.

141.

The Respondent submits that the Congressional Authorizations and the Association Agreements are to be taken into account and given effect in determining quantum under Article 9(5) of the Dutch Treaty, which refers to the law of the Contracting Party concerned and the provisions of special agreements relating to the investment. The concept of fair market value is not a concept divorced from the underlying rights being valued, which themselves cannot be separated from whatever limitations may be attached to them. The notion of reparation is not independent of the terms and conditions applicable to the specific investments at issue. In other words, giving effect to the governing law provisions of Article 9(5) of the Dutch Treaty and applying the compensation mechanisms is not only a requirement of the Dutch Treaty itself, but is consistent with, and an integral part of, the international law analysis that the Claimants want this Tribunal to apply pursuant to the Chorzów decision.

142.

The Respondent reiterates that the nature and scope of property rights are defined by local law, not international law. The scope of rights that the Claimants had is determined by national law, in this case starting with the Congressional Authorizations. The Claimants cannot circumvent the terms and conditions upon which they were permitted to invest in Venezuela. They must be given effect and they determine the basis of compensation.

143.

The Claimants' second argument has nothing to do with the facts of the case. It may be true that a State cannot under international law eviscerate acquired rights through subsequent legislation and invoke its national law to such effect. But in this case, the rights acquired were from the outset subject to the State's ability to capture "excess" or "windfall" or "exceptional" profits. The Respondent is relying upon the terms and conditions established at the outset of the upgrading Projects pursuant to the Congressional Authorizations, which set forth the terms and conditions under which the Claimants would be entitled to invest in Venezuela.

144.

As their third argument, the Claimants submit that they had never waived their international law rights. Therefore, the compensation provisions of the Association Agreements cannot deprive them from their entitlement to full compensation, even if this would include "windfall" or "exceptional" profits. For the Respondent, the concept of waiver is irrelevant in this case. One can only waive a right that one has. The rights the Claimants had were limited in nature. Article 2 of the Dutch Treaty contemplates that the State is entitled to establish the terms and conditions under which an investment would be admitted in its territory. The Claimants cannot resort to the concept of waiver to do away with those terms and conditions and expand the rights their affiliates acquired when they made the investment.

145.

The notion that the Claimants were immune from governmental action capturing windfall profits cannot be based on any part of the record. The Claimants were only entitled to compensation in case the governmental measure encroached upon the level of protected cash flows measured by the formulas under the price caps. This is not a matter of waiver of an acquired right; it is one of defining the right that existed in the first place, as a party cannot waive a right it does not have.

146.

The Respondent recalls that the Claimants (i) acknowledge that Venezuela had the right and discretion to define the terms and conditions upon which it admitted the investments and (ii) claim that the Respondent cannot "seek refuge" in those terms and conditions, which reserved for the State the right to take governmental action relating to the investments. One cannot acknowledge the right of the State to determine the conditions for the admission of an investment, and also invoke international law to take that same sovereign right away. None of the Claimants' cases refutes the fundamental point that the terms and conditions of an investment must be given effect. This is simply a matter of recognizing that a treaty claim is not divorced from the terms and conditions of an investment and that the property rights that are protected by a treaty are rights created and defined by national law. There is no basis either in national law or in international law for compensating a party for greater rights than it had or for ignoring limitations imposed on those rights as a condition for the admission of the investment. The Claimants have no answer to the evidence that the Petrozuata and Hamaca Projects were authorized by Venezuela under specific terms and conditions. Those terms included the State's reservation of its full sovereign powers, with compensation to be provided by the State company subject to limits established by price caps. Under Article 2 of the Treaty, the Claimants cannot override those terms and conditions by invoking general principles of international law having nothing to do with this case.

147.

The Claimants' fourth argument is that the Respondent cannot benefit from any limitation on liability because it was not a party to the Association Agreements nor can it step into the shoes of the PDVSA subsidiaries that are actually parties to the Association Agreements. The Claimants add that as a matter of Venezuelan contract law, a party who has acted in bad faith cannot invoke a contract limitation. This is irrelevant to the State's position. The issue is the fundamental condition on which the Projects were authorized and without which there would be no Projects at all. The State's position here is that of a regulator and owner of the natural resource, not a contracting party. The principle of compensation was explicitly recognized in the Congressional Authorizations, but such compensation was to be on "equitable" terms and conditions, which included the State's entitlement to capture through governmental action any "excess" or "exceptional" or "windfall" profits resulting from high oil prices. The Respondent asks this Tribunal to respect the terms and conditions under which the Projects were authorized. To do otherwise would be to give the Claimants the windfall they seek and to run afoul of the elementary principle that a party cannot be compensated for rights it never had.

148.

Claimants' also refer to the majority's decision on bad faith negotiation that somehow precludes the application of the terms and conditions on which the investments in the upgrading Projects were authorized. This is not a good point. In its 2013 Decision, the Tribunal expressly left open the issue of the relevance of the compensation provisions (para. 402). And the allegation of the Respondent's bad faith has been removed from the record by the Tribunal's conclusion in the 2017 Interim Decision.

149.

The Claimants' fifth argument is that "in all probability" Venezuela would not have exercised its full right to tax profits generated by prices in excess of the price caps, and that, sixth point, they can disregard windfall profit taxes in their valuation. The Respondent observes that one can only wonder how anyone could truly believe that Venezuela would not have, if the nationalization had to be unwound, exercised its full sovereign authority to collect "excess" or "exceptional" or "windfall" profits through taxation. The exercise by Venezuela of its authority to enact measures to capture windfall profits was perfectly lawful. It would have been perfectly within its rights to tax all profits above those generated by the price caps in the case of the former Hamaca and Petro-zuata Projects had those Projects continued in the "but-for" world the Claimants hypothesize. The Chorzów decision cannot be cited in support of insulating the concept of full reparation from any consideration which negatively affects value.

150.

The Respondent affirms that any reasonable buyer of the Claimants' interests at the time of the expropriation would have done its due diligence on that issue and taken into account the State's power to capture windfall profits. Even when considered by reference to a later date, like the date of the award, the issue must naturally be raised of the probability that additional taxes would have been assessed at the earliest opportunity. It is obviously logical for a State to insist at the outset of a project that it wants to retain its full sovereign rights to capture windfall profits.

151.

The Respondent refers to the testimony of Dr. Mommer and the entire history of the conduct of the Government starting in 2004, when there was a structural change in the international crude oil markets leading to an upward spiral in crude oil prices. In his first witness statement, Dr. Mom-mer made clear that the Government was reacting to the extraordinary increases in price. This explains why in October 2004, the royalty rate of 16%% was restored. It also appeared in 2005 and 2006 that the 34% income tax rate was no longer needed for the economic viability of the Projects. He argued for a 50% rate. Prices continued to increase. President Chávez then decided that an excess profit tax especially designed for very high prices should be introduced. If the decision to nationalize had not been made in 2006, additional taxes would have been adopted. It is thus clear that it was a virtual certainty, not just a probability, that the Government would have exercised its sovereign right to capture windfall profits from the Projects.

152.

Virtually all relevant authority makes clear that a tribunal may not disregard post-nationalization events when calculating value as of the award date. In this case, preserving the ability to capture windfall profits was precisely the objective of the Congressional Authorizations.

153.

In the end, the Claimants reiterate their argument that the Respondent's principal submission is that the Agreements effect a waiver of the Claimants' international law rights to claim against the State, at least in respect of other than "normal" profits. The basic problem with this argument, says the Respondent, is that the concept of waiver is completely irrelevant to this case. The Claimants want this Tribunal to analyze this case as if it involved the waiver of acquired rights, because they know well that the record shows that they did not have the rights they now claim. If the Claimants never had the right to retain windfall profits resulting from high prices free from governmental interference, then there is no place for the argument of waiver or any of the authorities relevant to the waiver concept.

154.

The conclusion from the Congressional Authorizations and compensation provisions is that the State, acting rationally, would have exercised its sovereign power to capture excess profits resulting from oil prices above those price caps. The Respondent had exercised that sovereign power on several occasions as prices began to rise starting in 2004, and it had every reason to continue doing so, as Dr. Mommer testified it would have done²⁵.

155.

The Claimants seek to insulate the post-nationalization changes from any negative postnationalization changes. An illustration is their approach with regard to the Venezuelan windfall profit taxes. The Claimants have sought to avoid the relevant fiscal regime applicable to their Project in an effort to inflate their calculation of damages. In the first phase, the Claimants challenged the 50% income tax rate and the 33 1/3% extraction tax/royalty that was in place at the time of the expropriation as violating their imaginary right to "stabilization" of the 1990s fiscal regime. That argument was rejected by the Tribunal. Now the Claimants seek to avoid the application of taxes on windfall profits that were enacted in the years following the expropriation.

156.

The purpose of the analysis is to put the Claimants back into the position in which they would have been, in all probability, had the expropriation not occurred. That means that the Claimants would have continued engaging in the Projects under the terms of the Association Agreements and the Congressional Authorizations, subject to the State's express reservation of rights to enact measures, including taxes, affecting the Projects. The Claimants were thus entitled only to compensation for governmental measures up to the price caps specified in the Association Agreements. Thus, had the expropriation not occurred, the Claimants would have been subject to fiscal measures taken by the Government, including the windfall profits tax laws they now seek to disregard.

157.

The Parties' submissions on the pertinence of the compensation provisions of the Petrozuata and Hamaca Association Agreements address at length the Discriminatory Actions affecting ongoing Projects in taking away part of the participants' revenues. However, the primary focus in the present case should be on the impact of the expropriation that became effective on 26 June 2007.

158.

One of the preliminary steps to be made in the analysis of pertinent issues is to set aside expressions not associated with a meaning or a definition. The Claimants' contention that they were entitled to "full" compensation does not, by itself, remove from the debate the effects to be given to the compensation provisions; it depends on what "full" should mean. Similarly, on the Respondent's side, there are, indeed, many indications that the Parties were to expect that "Government will take away economics", but such statement is of little guidance as long as the "economics" referred to are not identified. More particularly, the Respondent's position fails when it argues that, in the present case, the Government's expropriation had taken away such "economics" by terminating the Association Agreements in such a way that compensation should be based on provisions of these same Agreements that the Government decided to end and to which it has never been a party.

159.

The Tribunal will have to avoid being caught into ambiguities and polysemic wording. When the Respondent states that "[its] first conclusion is that the Compensation Provisions formed the basis for providing compensation for governmental action agreed at the outset of the Upgrading Projects"²⁶, what does it mean precisely? What is the thought behind an assertion that "this case involves the definition of the scope of the rights that were expropriated"²⁷? Does this mean that these provisions govern exclusively the admissibility and the effects of the expropriation, to the exclusion of any other remedy, be it domestic (Investment Law - C-1, R-12) or international (BIT)? Or does it mean that the compensation provisions govern the valuation of the economic earnings of the investing shareholders in case they are hit by a Discriminatory Action, with the effect that the same fixing of profit must be applied when considering the Claimants' compensation for the nationalization effective on 26 June 2007?

160.

As a first step, the Tribunal must determine the meaning of "Discriminatory Action" in the framework of the compensation provisions. The definition of this concept is complex and different for each of the two Association Agreements. The elements of the definition are, in relevant part, as follows:

161.

The Petrozuata Agreement provides in Section 1.01 that a:

"Discriminatory Action" means any actions, decisions, or changes in law, adopted by national, state, or municipal, administrative, or legislative authorities, after a Development Decision has been made, which singly or in combination, result in unjust discriminatory treatment to the Company, any of its Shareholders... which are not applicable to all enterprises in Venezuela and which produce Significant Economic Damage to the Shareholders of the Company other than the Class A Privileged Shareholders²⁸.

However, under the same Section 1.01:

a treatment shall not be considered discriminatory if it "equally applies to the enterprises within the oil industry in Venezuela, except that (1) with respect to the application of income taxes and any valuations as a basis for income taxes (e.g. the Fiscal Export Value), treatment shall be considered discriminatory if it is not generally applicable to most enterprises in Venezuela".

162.

"Significant Economic Damage" was defined as the result of Discriminatory Actions during any fiscal year, which amounts to at least US$ 6.5 million (inflated from 1994 onwards) for all Class B Shareholders²⁹. Such damage shall be determined by calculating any loan repayments or dividends that a Class B Shareholder would have otherwise received had no Discriminatory Action occurred.

163.

Section 9.07 then provides for the compensation that an "Injured Shareholder" will receive from the Class A Shareholder when it suffered in a given fiscal year significant economic damage as a result of any Discriminatory Action. The payment will be made from cash available to the company for the payment of dividends to the Class A Shareholder and the repayment of cash call loans (a). When the indexed price compared to the 1994 price of Brent crude oil was US$ 18.00 or less, 100% of the damages had to be compensated. If the yield was US$ 25.00 per barrel of Brent crude oil, no damage shall be compensated. For prices between these two amounts, damages were determined in proportion based on a formula also called "sliding scale" (b). In fact, the different ranges of the "sliding scale" are of no relevance for purposes of this Award given the fact that since the expropriation, prices were above US$25 per barrel, with the effect that an alternative price prevailed (on the hypothesis of damages greater than US$ 75 million in 1994 US$), providing for the payment of 25% of the actual damages suffered (c). It was further provided that the injured shareholder shall, to the fullest extent practicable, commence and exhaust all available legal and administrative actions which may provide a remedy from the application of any Discriminatory Action (d). In case of controversy, payment shall be postponed until an agreement was reached or such occurrence has been finally determined through an arbitral proceeding (f).

164.

While the policy behind the Hamaca compensation provision is the same as for the Petrozuata Project, the structure and the key elements of the legal framework are different. Section 14 of the Hamaca Association Agreement also takes as the starting point the occurrence of a Discriminatory Action (a). Such action may consist of a change of law, act of government or any other action or decision of a Venezuelan authority, which is (i) applicable to the Association, (ii) unjust and (iii) not generally applicable to entities engaged on their own behalf in the hydrocarbon industry in Venezuela (b).

165.

The Hamaca Association Agreement further provides that in respect of tax rates, new taxes, financial burdens or charges for goods and services, foreign exchange controls "or the expropriation of the assets of, or a Party's interest in, the Association or Association Entities", such change of law or decision will be considered Discriminatory Actions if they are not generally applicable to corporations and other legal entities that are taxable in the same manner as corporations in Venezuela (b/1). Additionally, reductions or increases in the royalty rate applicable to the crude oil will not be considered as Discriminatory Actions "unless such changes result in a royalty rate for the Parties in their capacity as participants in the Association, in excess of the maximum rate specified by law for the hydrocarbon industry in general" (b/4).

166.

To the extent that a foreign party suffers a reduction of more than five percent in any fiscal year in its reference net cash flow as the result of one or more Discriminatory Actions, the PDVSA subsidiary Corpoven Sub shall be required to compensate that party (Sec. 14.2(a)). The relevant factors are defined with great complexity. Referring to the Claimants' experts' presentation³⁰, taken in its most simple terms, the main information is that a reference net cash flow of US$ 27 or more has to be taken into account since 2008. A reduction of more than 5% (US$ 1.35) then triggers Corpoven Sub's obligation to compensate. The damages of the affected party shall be equal to the amount in US$ needed for this party to attain the full reference net cash flow that this party would have attained in the relevant fiscal years had the Discriminatory Action not occurred, plus interest thereon at LIBOR, and increased by an amount taking account of the applicable taxes (Sec. 14.3(d)).

167.

Upon notification by the foreign party to Corpoven Sub, negotiations may take place, including discussions about legal remedies (Sec. 14.3(a-c)). In the absence of an agreement on amendments to be concluded, each party is entitled to commence arbitration (Sec. 14.4(a)). If it is admitted that Discriminatory Actions resulted in a material adverse effect to a foreign party, the arbitral panel shall determine, in a second stage of the proceeding, the "buy-out price" (Sec. 14.4(b)), to be calculated either by reference to that party's net investment or to the commercial value of its project interest (Sec. 14.4(c)). If then the matter cannot be settled, one option would be that Corpoven Sub purchases the affected foreign party's project interest at the buy-out-price (Sec. 14.5(a-2)).

168.

The Respondent's main position is that the expropriation of the Claimants' interests embodied in the Association Agreements implies that the compensation they are entitled to receive must be determined in light of and is limited by the compensation provisions contained in these Agreements. The Claimants shall not, when invoking the BIT or customary international law, do away with the compensation regime they agreed to when entering into the Association Agreements prior to the date when the BIT became effective.

169.

The Tribunal notes that it is not seized with a claim for declaring that the provisions of the Association Agreements, applicable either to an expropriation or to its compensation, have been breached. The Claimants' request for relief is, in this respect, based on a claim for a declaration that the Respondent breached Article 6 of the BIT, and that the Tribunal must determine the damages resulting from such breach. The Claimants invoke international law and not the Association Agreements as the basis for their claim for damages.

170.

Moreover, the Tribunal observes that the application of Article 6 of the BIT to the present dispute prevails over any Venezuelan domestic law on the same subject matter. A breach of Article 6 of the BIT is defined solely by this provision without any consideration of the domestic law of the host State. The same principle must necessarily apply to the compensation due as a consequence of an expropriation, notwithstanding what the applicable standard may be under domestic law. The standard of the BIT prevails over any standard the host State may claim to be applicable under its national law.

171.

The Respondent's position that the compensation provisions of the Association Agreements govern the economic consequences of the expropriation enforced on 26 June 2007 is not persuasive on the basis of the very terms and purposes of these provisions. An expropriation of the Project cannot be a "Discriminatory Action" within the meaning such term has in the compensation provi-sions³¹. For Petrozuata, such Discriminatory Action should follow a "Development Decision" (Sec. 1.01); such a decision has nothing in common with an expropriation. For Hamaca, such Action must be "applicable to the Association" (Sec. 14.1(b)) and affect net cash flow (Sec. 14.2(a)); the cash is no longer flowing when the Project ceases to exist. Similarly, the payment provisions make sense only in the case of the Projects' continued existence. In the case of Petrozuata, the compensation is paid through the provision of dividends, or out of general funds accumulating payments differed for later (Sec. 9.07). In the case of Hamaca, the notification by the foreign party of a material adverse effect caused by a Discriminatory Action is followed by negotiations directed toward the agreement of amendments to the parties' relation, which is therefore considered as being ongoing (Sec. 14.3(c)). If the affected party's claim is not withdrawn, its damages are to be paid out of Corpoven Sub's net cash flow from the Project (Sec. 14.5(a/1)) which therefore continues to exist. In case the parties were unable to agree upon modified terms of their agreement or to accept an arbitral decision, a by-out had to be triggered; however, in the case of an expropriation, the shares to be sold no longer exist.

172.

The Respondent has relied on one sentence where the case of an expropriation is mentioned as an illustration of a Discriminatory Action. The Hamaca compensation provision refers, indeed, to "the expropriation of the assets of, or a Party's interest in, the Association or Association Entities" (Sec. 14.1(b/1)). However, these terms include only assets or interests as part of the Association. This expression, not contained in the Petrozuata Agreement, does not include the entire Project governed by the Association Agreement. Finally, the buy-out regime of the Association Agreement is based necessarily on the existence of an on-going Project, and completely incompatible with its taking by the Government through an expropriation.

173.

The Tribunal has noted a debate between the Parties on whether the compensation provisions would govern an expropriation different from the one enforced through a single taking on 26 June 2007, consisting of an agglomerate of a number of Governmental actions, to be qualified together as Discriminatory Action, while certain of its components would, as such, not meet the conditions set in the pertinent definition. The Tribunal was told that the Parties had reached an agreement on the applicability of the compensation provisions in respect of an expropriation³². The Respondent further confirmed that this means that the compensation provisions apply to the expropriation "in this case"³³ - this meaning "exclusively". This position does not reflect the Claimants' claim in the present case³⁴. It can only relate to the dispute brought before the ICC Arbitration Tribunal. It is of no concern in the present case, where the expropriation at the origin of the dispute is the single taking of 26 June 2007 which led the Claimants to claim for a breach of Article 6 of the BIT.

174.

The Tribunal cannot agree with the Respondent when it argues that Mr. Griffith, in his 17 September 1992 letter (R-97), accepted that the compensation provisions specifically address how "assets and interest of Conoco will be valued and reimbursed in the event of nationalization"³⁵. This is not what Mr. Griffith wrote. In fact, he wrote to Mr. Aliro Rojas, CEO of Maraven, that Conoco wanted to know how this matter would be addressed in their forthcoming negotiation, noting further that they would like full compensation and an economic stability clause. He also noted that the project required positive tax legislation. This is not what they obtained, but this is not the same as submitting that Mr. Griffith had accepted in 1992 that the only remedy available in case of nationalization would be what was provided in the clauses on discriminatory treatment (respectively in the Congressional Condition No. 16). The Law on the Effects of the Process of Migration into Mixed Companies of the Association Agreements of the Orinoco Oil Belt, approved by the National Assembly of 11 September 2007, declared that these Agreements "shall be extinguished" (C-35).

175.

The Tribunal also notes that the Respondent's reliance on the compensation provisions as the rules governing the expropriation effective on 26 June 2007 is inconsistent with the terms and effects of the taking that did take place on that date, when Venezuela assumed directly the activities performed by the Associations and extinguished ConocoPhillips' ownership interests³⁶, thus necessarily including the rights held by ConocoPhillips through the Association Agreements including those contained in the compensation provisions. As mentioned earlier, Witness Mommer recalled that, at that date, the Association Agreements were terminated³⁷.

176.

The Respondent has denied that the Venezuelan Law for the Promotion and Protection of Investments of 22 October 1999 (R-12, C-1) had any role to play in respect of the expropriation decreed on 26 June 2007. It appears correct that the Claimants in the present case were not subject to the Investment Law. However, the joint ventures conducting each of the three Projects were in the opposite position. It has been explained by the Respondent in the jurisdictional phase of this proceeding that pursuant to Article 5 of Decree No. 1,867 of 11 July 2002 on Investment Law Regulation³⁸ the three joint ventures heading each of the three Projects were to be considered as entities receiving the investment (empresa receptora de la inversion)³⁹. These entities were therefore holding investments "owned by or actually controlled by a Venezuelan or foreign individual or legal entity" and thus subject to the Investment Law (Art. 3, last and sole paragraph - R-12). The Investment Law must prevail over the Association Agreements in the hypothesis that one would consider that these Agreements would govern the effects of their own expropriation.

177.

In any event the Tribunal notes that if the Claimants' claim for compensation was governed by the compensation provisions of the Association Agreements, it would be covered by the arbitration clauses contained therein (Sec. 9.07(f) and Sec. 13.16 for Petrozuata, and Sec. 14.4 for Hamaca). No claim based on these provisions is before this ICSID Tribunal. This, however, does not mean that these provisions are irrelevant for this Tribunal's ruling on the consequences of the expropriation that breached Article 6(c) of the BIT.

178.

The Tribunal notes the Respondent's statement that "the issue before this Tribunal is not to determine whether the Association Agreements have been breached, but whether the compensation mechanisms established pursuant to the Congressional Authorizations as conditions to entering into the upgrading Projects are relevant in determining quantum"⁴⁰. The question is correctly framed and deserves further consideration. It implies necessarily that the expropriation enforced by the State on 26 June 2007 is not to be examined as part of a claim invoking a breach of the Association Agreements. The Respondent's statement, quoted above, is not different from the Claimants' opening submission at the 2016 August Hearing that the Association Agreements are the basis for determining quantum. It was pleaded that in asking the question "what is it that was taken from ConocoPhillips?" the Claimants recognized that you must look at the "bundle of rights" that were taken. The Claimants further stated that they also recognized that that "bundle of rights" centers on the Association Agreements and the value that they represented to ConocoPhillips⁴¹.

179.

Irrespective of whether the standard of compensation is "just compensation" under Article 6(c) of the BIT or "full" reparation based on customary international law, both sources of law cannot govern exclusively the determination of the compensation and its amount. In one way or the other, compensation reflects a value corresponding to the loss suffered by those whose rights are affected by the expropriation. These rights are not determined and have not been acquired on the basis of either Article 6 of the BIT or general or customary international law. These are rights, mostly rights in rem or based on contractual undertakings that have been created and are held under national law. In this respect, the Respondent submits correctly that Article 9(5) of the BIT has to be given full effect when it refers to "the law of the Contracting State concerned" and to "the provisions of special agreements relating to the investments", thus relying upon the provisions of the Association Agreements and related provisions of the laws of Venezuela. None of the other sources of law enumerated in Article 9(5) are pertinent or applicable in this respect.

180.

In other words, "full compensation", as the term is frequently used by the Claimants, cannot represent more than compensation of the rights and assets held by the Claimants at the relevant time and including revenues deriving therefrom in the future to an extent yet to be determined. Those rights were based on the Association Agreements, which are governed by Venezuelan law.

181.

Therefore, as the expropriation had the effect of depriving the Claimants from revenue they were entitled to receive under the Association Agreements, these Agreements apply fully, including their compensation provisions (as far as Petrozuata and Hamaca are concerned). To the extent that these provisions fixed a limitation on the Claimants' potential right to be paid the Project's dividends, such limitation has to be considered when determining the scope of the taking through the expropriation. Compensation represents a value corresponding to a loss. It cannot cover more than what the Claimants were entitled to if there had been no expropriation.

182.

Faced with a similar question, the Tribunal in Burlington noted that "[it] must assume that Burlington holds the rights that made up the expropriated assets and that those rights are respected. This does not mean that the Tribunal is enforcing a contract claim. What the Tribunal does is to value an expropriated asset, which the Parties agree consists of a bundle of rights allowing Burlington to obtain future revenues"⁴².

183.

The Claimants state correctly, as a principle, that they had not waived their rights under international law. However, while the protection of their rights as investors was governed by the BIT, the content of these rights was determined by the Association Agreements governed by the laws of Venezuela. This is what Article 2 of the BIT mentions as a Contracting Party's "framework of its laws and regulations" governing the investment. When accepting their investment in Venezuela through the Association Agreements and the Congressional Authorizations on which these Agreements were based, the Claimants acquired the rights contained in these instruments and covered by the available investment protection, which was, at the beginning, based on domestic law, and became the BIT at a later stage only. The investors' rights are those they acquired when making their investment in a Contracting State of the BIT. These rights were those contained in the Association Agreements; by definition, they cannot be subject to a waiver of international law rights. As well, the investors' participation in the Projects does not imply any waiver of rights contained in the BIT that governs the protection of the investment but not its substance.

184.

The compensation provisions of the Association Agreements can be relevant in the present case to the extent only that a particular Government's measure meets all the requirements for their application.

185.

In this respect, the raising of the income tax from 34% to 50% and the 33%% royalty/ex-traction tax that was in place at the time of the expropriation is no longer an issue. In its 2013 Decision, the Tribunal concluded that while the Claimants accepted to treat income tax and royalty rates as taxes, they constituted a fiscal regime that did not fall within the scope of Article 3 of the BIT, and that - as accepted by the Claimants - these measures (as they were at that time applicable) did not breach Article 4 of the BIT (para. 322). Moreover, these governmental measures are not invoked, in the present case, as discriminatory actions triggering the application of the compensation provisions. The Claimants rely on their experts' approach of including in their damages calculations all existing taxes at each valuation date, with the exception of the windfall profit tax⁴³.

186.

This has the effect that the windfall profit tax introduced in April 2008 and amended several times is the only measure which may need to be considered for the application of the compensation provisions.

187.

It has been argued by the Respondent, relying mostly on Dr. Mommer's statement and the policy he tried to implement when he was a member of the Government, and still supported later on, that Venezuela would persist in exercising its sovereign power to capture excess profits resulting from oil prices above the agreed price caps. It is thus submitted that "had the 2007 nationalization not taken place, the Government would have exercised its full taxing power to take such profit as it was entitled to do"⁴⁴. There is no legal basis for the Claimants' assumption to take full profit of post-nationalization price increases while ignoring all factors negatively affecting project economics, in particular those, such as taxes, that were virtually certain to materialize. The Tribunal notes, however, that leaving aside the windfall profit tax, including its amendments, no evidence has been submitted that would demonstrate that such a policy was seriously envisaged or on its way to be implemented. The highest level of exorbitant prices that this legislation was taking into account was US$ 110 per barrel⁴⁵; since 2007, such level was never reached. It appears therefore as simple speculation when the Respondent argues that the Government was prepared to raise windfall profit taxes. Thus, the Tribunal must conclude that the evidence does not demonstrate any probability that any measure capturing profits in excess of the actual windfall profit tax would affect the Claimants' interest in the future and until the end of the life of the Projects.

188.

Therefore, the actual windfall profit tax is the only hypothesis where the compensation provisions may have played a role or may need to be considered when determining the value of the Projects and the revenues of its participants. However, prior to arriving at this stage, the question will have to be examined whether such tax was capable of being applied to the Projects, in full or in part. All these issues being closely interrelated, they will have to be examined all together in their proper context, in Sections IX and X of this Award.

189.

The Parties' focus when addressing the structure of the claims for damages to be considered in the present case is closely related to the valuation date to be taken into account. The 2013 Decision determined that this date should be the date of the award (paras. 363, 404). Such date reflects the Claimants' position. The Respondent objects to this conclusion and strongly supports the date of the expropriation as the valuation date.

190.

The debate about the relevant valuation date needs to be looked at from a larger perspective, which is the compensation the Claimants are entitled to claim as a consequence of the breach of Article 6 of the BIT.

191.

The Respondent's position is, as a matter of principle, that the compensation should represent the value of what has been taken away, which are the Association Agreements, including their compensation provisions (not applicable to Corocoro), and this at the time when such taking was enforced, on 26 June 2007. The hypothetical that has often been used is that of a reasonable buyer considering taking over the Association Agreements at that date. Simply put, such a buyer would evaluate the assets of the Projects and add his estimation of the net revenues reasonably to be projected in the future. As the participants in the Projects can be compared to such a reasonable buyer, their estimation of the assets and their projections of the future (generally called "models") may serve as a most useful working tool to reach a result coming close to what would become the conclusion of a hypothetical reasonable buyer.

192.

Such position and method does not operate in actual terms. It does not include production, costs and taxes as they accrue since the taking up to the time when the award is made, nor does it determine the future economics of the Projects between the date of the award and the end of the Projects' lifetime.

193.

The difference of approach is a matter of law. It is a matter of international law. As has been explained above, the expropriation enforced by Venezuela in breach of Article 6 of the BIT triggers effects under international law. The standard of compensation is not determined by the Association Agreements and their compensation provisions. Notwithstanding this, these provisions may have an impact on the value of the taking and thus on the amount of damages.

194.

The Tribunal directed the Parties in Procedural Order No. 4 to determine their valuations for both situations, at the date of the expropriation, i.e. 26 June 2007, or on 31 December 2016, by taking into account, or not taking into account, the compensation formulas contained in the Association Agreements (para. 6). The Parties have basically complied with the Tribunal's direction. However, they only considered the hypothesis of the application of the compensation provisions, i.e. that the expropriation as such would have been governed by these provisions. Little consideration was thus left for the case where compensation for the expropriation is governed by international law, while including effects to be given to the compensation provisions of the Association Agreements in respect of those economic inputs that qualify as "Discriminatory Actions".

195.

The matter of the standard of compensation applicable in the present case under international law needs to be clarified first, before the meaning of a specific valuation date can be determined.

196.

The Claimants' approach in support of their claims is repeatedly based on "full reparation". This results from settled principles of international law. Because Venezuela's expropriation was unlawful, the Claimants must receive the substantial cash flows produced by the Projects since the expropriation. The host State cannot receive the full benefit of the Claimants' investment and thus draw from the expropriation revenue exponentially increasing through higher oil prices, in a total amount many times higher than the compensation it would have accepted to pay if it would have been calculated at the time of the taking.

197.

The Claimants submit that had Venezuela expropriated lawfully the Claimants' investments, then the standard of compensation set out in Article 6(c) of the BIT would have applied. Because Venezuela acted unlawfully, that Article does not apply to quantification. Instead, the applicable standard of compensation is fixed by customary international law. An "essential principle" of customary international law is that a State is under an obligation to make full reparation for the injury caused by its wrongful act.

198.

An authoritative description of the applicable standard of compensation has been provided by the Permanent Court of International Justice (PCIJ) in the Chorzów Factory case⁴⁶. "Reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed." (p. 47) The ILC Articles reflect the same customary international law rule (CL-85). They require that a State provides "full reparation for the injury caused by [its] internationally wrongful act". Accordingly, where an asset has been expropriated unlawfully, a tribunal's task is to place the investor in the economic position that the investor would have enjoyed had the wrongful act never occurred. This is often referred to as the "but-for" position. The preferred remedy is restitution. Where restitution is impossible or impracticable, as is the case here, the rule of full reparation requires an award of damages that accomplishes the same result. Compensation for an unlawful expropriation must correspond to the value which restitution in kind would produce, in addition to payment for any additional losses.

199.

If the Claimants' interests in the three Projects had not been unlawfully expropriated, the Claimants would have remained in possession of them and profited from their operations for their full term. In particular, the Claimants would have received, from June 2007 onwards, dividends representing their share of the profits in accordance with their ownership interest. The most common method for calculating such value is to determine the fair market value on the date of valuation, as this is stated in the Commentary to the ILC Articles (CL-86). Such value reflects the lost earnings that an investor would have received but-for the expropriation. In cases involving revenue-producing assets, an assessment of fair market value must compensate their future profitability in order to provide full reparation.

200.

Both the Petrozuata and Hamaca Projects were oil fields in full commercial production at the time of their confiscation, and they will continue to be producing oil through the date of the Award and for many years thereafter. The Corocoro Project became a producing oil field in January 2008 and will continue to be producing through at least 2021. The Projects' Reserves and production capacity are known, and their hydrocarbon products are commodities for which a broad market with international price benchmarks exists. The discount cash flow methodology used by the Claimants' experts properly calculates that substantial value.

201.

In the present case, the standard of compensation requires that (a) the Claimants be awarded compensation equivalent to the cash flows that they would have received had the Projects not been expropriated; (b) favorable market changes since the taking accrue to the benefit of the Claimants; and (c) value depressing measures adopted or permitted by Venezuela after the taking must be excluded from the calculation.

202.

The principle of full reparation requires an award to the Claimants of: (1) Historical losses up to the date of the Award, in the amount of at least US$ 16,010 billion; (2) Lost profits from the date of the Award through the expiration dates of the Association Agreements, in the amount of at least US$ 5,276 billion; (3) Post-award interest, calculated using the Projects' cost of equity; (4) A declaration that the amount awarded is net of taxes, and may not be taxed again by Venezuela; (5) All of the Claimants' costs of arbitration.

203.

The Respondent recalls that the expropriation was decreed under Venezuelan Law and that the Tribunal has concluded that the requirements set in Article 6(1) and (2) of the BIT have been fulfilled. Therefore, the expropriation was legal and fully effective. The Tribunal's conclusion that no compensation had been paid affects one of the modalities of the expropriation, but does not render this measure illegal. Therefore, the compensation the Claimants are entitled to is the compensation that they did not receive when they had been expropriated. Their compensation must thus be necessarily based on the value of the Projects at the time of their taking, including an amount representing the estimations of future profits and losses reasonably calculated at that same time.

204.

The Respondent relies on Sir Ian Brownlie who defined the distinction between an expropriation unlawful only sub modo and one unlawful per se as follows:

The practical distinctions between expropriation unlawful sub modo, i.e. only if no provision is made for compensation, and expropriation unlawful per se would seem to be these: the former involves a duty to pay compensation only for direct losses, i.e. the value of the property, the latter involves liability for consequential loss (lucrum cessans); the former confers a title which is recognized in foreign courts (and international tribunals), the latter produces no valid title⁴⁷.

205.

The Respondent submits that under Article 9(3) of the BIT, this Tribunal in any event would have no authority to award damages beyond those "caused" by a breach of a Treaty provision. Even assuming that there is a breach due to a failure to pay or make a concrete offer of compensation, there are no damages resulting from a breach other than the compensation that should have been paid in 2007 plus interest.

206.

Using the valuation date of 26 June 2007 and applying the compensation provisions of the Petrozuata and Hamaca Projects, the Respondent calculates a compensation in the total amount of 471 US$ million, which may, if the Tribunal so decides, be increased by the end of 2016 by simple interest to 515 US$ million, any such amount being reduced by the Respondent's costs.

207.

The Tribunal considers it unnecessary to provide lengthy quotations from the Chorzów Judgment. Nevertheless, the main ratio decidendi must be recalled, albeit as concisely as possible.

208.

The Court's Judgment was based on "the rules of international law in force between the two States concerned". Rights or interests of an individual are "on a different plane". The damage suffered by an individual is "never therefore identical in kind with that which will be suffered by a State" (p. 28). It needs also to be added that when one refers to Article 31 of the ILC Articles (CL-85), the provisions on State responsibility are "without prejudice to any right, arising from the international responsibility of a State, which may accrue directly to any person or entity other than a State" (Art. 33(2)).

209.

As to the applicable principle on damages, the Court stated that the damage suffered by one of the two companies involved (named "the Oberschlesische") is "equivalent to the total value -but to that total value only - of the property, rights and interests of this Company" (p. 31). The principle establishing the obligation to make reparation is the indispensable complement of a failure to apply a convention. It is "an element of positive international law" (p. 29)⁴⁸.

210.

In the Chorzów case, the Court was not seized with a claim for compensation in relation to an expropriation, because under the applicable provisions of the Geneva Convention concerning Upper Silesia concluded on 13 May 1922 between Germany and Poland, an expropriation was not permitted even against compensation. Therefore, reparation was the consequence not of the application of Articles 6 to 22 of the Geneva Convention, "but of acts contrary to those articles", i.e. dispossession (p. 46).

211.

The Court noted that the compensation due to the German Government is not necessarily limited to the value of the undertaking at the moment of dispossession, plus interest to the day of payment. If the Polish Government had the right to expropriate and its wrongful act therefore consisted merely in not having paid the just price for what was expropriated, compensation would be limited to such value. This would put Germany in a situation "more unfavourable" than that in which Germany would be placed if Poland had respected the Convention, i.e. if it had not acted as it did. This would be "unjust". Moreover, "it would be tantamount to rendering lawful liquidation and unlawful dispossession indistinguishable in so far as their financial results are concerned" (p. 47).

212.

The distinction made by the Court applies in other situations as well. An expropriation enforced legally except for not being compensated puts the aggrieved party in a situation more unfavourable than that in which it would be placed if such expropriation had not been made. In the latter case, that party would enjoy the full benefit of the property, rights and interests that have been taken away. In the former situation, it would have received a "just compensation" in an amount that is different and generally lower than the benefit of the on-going enjoyment of all that has been taken away.

213.

However, the present case is different. While still following the Court's reasoning, an expropriation enforced legally except for not being compensated puts the aggrieved party in a situation more unfavourable than that in which it would be placed if such expropriation had been made in compliance with all legal requirements. Indeed, the difference between these two situations, which puts that party in a more unfavourable position, consists in the lack of payment of the compensation that the expropriating party was required to pay.

214.

Such a difference cannot be reduced to a simple matter of interest to be paid. If the expropriation had to be compensated by reference to the market price at the date when it was enforced, the value of this compensation - if it has not been paid - does not increase merely by a factor based on a rate of interest. At a later date, the value of the expropriated property, rights and interests is different, usually by reference to a higher market price. Such difference has nothing to do with interest. The value of an investment in a business (not consisting merely of placing money in a bank account) is progressing on a line which cannot be compared to the rate of interest.

215.

The Chorzów Court did not elaborate on such a hypothesis. It simply compared the actual case to the financial situation of Germany in a case where Poland would have been entitled to expropriate but merely omitted to pay a just price. The main point still stands: The investor or the otherwise aggrieved party should not be dealt with more unfavourably by the adjudicating tribunal through "just compensation", including interest, while it was entitled not to be expropriated without just compensation determined by reference to market value at the time of the taking. When such compensation was one of the legal requirements to operate an expropriation, the fact of not proceeding with such payment renders the expropriation unlawful and triggers the financial consequences of the loss of the property, rights and interests that have been taken.

216.

The same line of arguments applies to the expropriating host State. If compensation was awarded a certain time after the taking as the "just price" for what was expropriated, together with interest, the host State would be treated more favourably than the situation it would face with an expropriation that should not have taken place without compensation. If there had been no expropriation, the investor would have enjoyed the revenues and the increase in the market value of the property, rights and interests. If no account was made of such increase in value, the financial result would be indistinguishable from the situation where compensation had been paid on time in compliance with the legal requirements. The host State would thus take advantage of all financial accruals, to the extent they are higher than the interest rate it would have to pay on the "just price" settled at the time of the taking. In the words of the Court, such result would be "unjust".

217.

In a number of awards and various writings, a distinction is made between unlawful and lawful expropriations. The latter expression is reserved for a case where the expropriation complies with the legal requirements except that no or insufficient compensation has been provided. The Chorzów Judgment is sometimes used to support such terminology. Such interpretation of the Chorzów Judgment goes too far. The Court did not use the term "legal" or "lawful" expropriation for a situation where the expropriator's "wrongful act" ("son tort") consisted merely in having not paid the just price of what was expropriated (p. 47)⁴⁹. On another occurrence, the Court notes that if an expropriation were to be envisaged, the payment of fair compensation would have rendered it lawful⁵⁰ - thus including the requirement for compensation in the notion of lawful expropriation, and its omission as keeping the expropriation unlawful.

218.

Sir Ian Brownlie's dictum relied upon by the Respondent, is not pertinent. The Respondent's own submission is not as severe as Sir Ian appears to be, because the Respondent accepts to take into account the projections of future profits (lucrum cessans) which are not included in Sir Ian's notion of an expropriation unlawful sub modo. The Respondent adds its own interpretation of Sir Ian's statement that it omits to quote fully and in context⁵¹. When reading the parts preceding the sentence quoted by the Respondent, it is easy to understand that Sir Ian did not address the factor of time. He did not say that an expropriation is lawful if only payment of effective compensation is missing, and that it remains so for the future. The learned author only addressed the situation at the time of the taking. Further, when referring to an expropriation not accompanied by compensation, he uses, indeed, the expression of "unlawful sub modo" (by contrast to an expropriation unlawful per se). Thus, even when considered sub modo, such expropriation is nevertheless, in Sir Ian's view, "unlawful". Sir Ian's "Compensation Rule" confirms the distinction:

The expropriation of alien property is lawful if prompt, adequate, and effective compensation is provided for. In principle, therefore, expropriation, as an exercise of territorial competence, is lawful, but the compensation rule (in this version) makes the legality condi-tional⁵².

219.

The correct terminology does not really matter, although it may be noted that the use of the expression "lawful expropriation" seems not to be the most appropriate when it implies that one of the key elements of an expropriation - compensation - is missing. In any event, the focus must be on the significance of such term as it is used in a number of awards. It should mean, indeed, that the investor that suffered an expropriation that was otherwise "lawful" (except for the non-payment of compensation), is not entitled to claim for more than the payment by the host State of such compensation reflecting the market value of the investment at the moment of the expropriation, plus interest to the day of payment.

220.

Thus, the Tidewater Tribunal concluded "that compensation for a lawful expropriation is fair compensation represented by the value of the undertaking at the moment of dispossession and reparation in case of unlawful expropriation is restitution in kind or its monetary equivalent"⁵³. The Mobil Tribunal stated that "the mere fact that an investor has not received compensation does not in itself render an expropriation unlawful"⁵⁴.

221.

In a number of cases, the difference between the compensation as determined at the moment of the expropriation and the assessment of damages resulting from the omission to provide for such payment at that time is of limited or no impact. Indeed, the assessment of the just compensation to be paid by the host State is usually based on market value or similar concepts that include consideration of prospective revenues and costs. The result may thus often come close to an assessment of actual revenues and expenses accumulated at the time of the award. This explains why many awards do not entertain any debate about the proper time for assessing damages, simply stating that the investor is entitled to be paid the compensation it did not receive when the expropriation took place, plus interest. The proper distinctions to be made are sometimes further diluted when it is stated that the investor shall receive compensation as it should have been paid at the time of the expropriation, while a number of particular items of revenue and costs are then quantified by reference to more recent or actual values.

222.

Other cases are different and so is the situation in the present case.

223.

Article 6 of the BIT is structured in three parts, each part representing one of the three conditions to be fulfilled to render an expropriation admissible under the BIT. The allocation of a "just compensation" is one of those requirements. As the Tribunal has concluded and explained in its 2017 Interim Decision, this requirement has not been fulfilled by the Respondent. Therefore, one of the three cumulatively applicable requirements has not been met, and Article 6 of the BIT has been breached. Such unlawful act calls for reparation of the Claimants' losses.

224.

According to the well-known principle settled in the Chorzów Judgment, "reparation must, as far as possible, wipe-out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed." (p. 47). Assuming that restitution in kind is not possible, the amount of compensation should correspond to a sum reflecting the value which a restitution in kind would bear, and damages for loss sustained which would not otherwise be covered. The dispossession involves the obligation to restore the undertaking and, if this is not possible, to pay its value at the time of the indemnification. To this obligation must be added that of compensating loss sustained as the result of the seizure. Thus, the reparation is about substituting payment of the value of the undertaking for restitution (p. 48). The Court added that these principles do not apply as if "an expropriation properly so called was involved." (p. 48).

225.

When instructing the experts on their enquiry on the valuation to be retained, the Chorzów Court asked for the value of the undertaking for the manufacture of nitrate products at the date of dispossession, and the financial results current at the present time (profits or losses). This question had to cover the monetary value, both of the object of the undertaking, together with any probable profit ("lucrum cessans") that would have accrued to it between the taking of possession and that of the expert opinion⁵⁵. While the note of the Court that these principles are different from those applicable in the case of an expropriation must be kept in mind, it can be concluded that when considering "wiping-out" all the consequences of an unlawful expropriation, the situation of the investor has to be addressed as it would, in all probability, have existed if that unlawful taking had not taken place.

226.

If this was not accepted and the right to compensation was limited to the amount of "just compensation" referred to in Article 6(c) of the BIT, there would be no reparation of the wrong committed by the Respondent. The resulting compensation would simply be deferred from July 2007 to the date of this Award, together with interest. There would be no sanction of a manifest breach of the provision of Article 6(c) of the BIT, which implies a breach of Article 6 as a whole when prohibiting expropriation as long as one of the three pertinent conditions is not fulfilled. In the meantime, in the period between the taking and the rendering of this Award, the Projects would operate as decided by the Venezuelan Government and with all the benefits accruing to them, in particular when taking into account the increase in oil prices. This is not what the BIT provides and international law allows.

227.

The consequence of the unlawful expropriation and the purpose of reparation are to make the Claimants whole. If reparation consisted only in providing compensation as it had to be paid at the time of taking, plus interest, the Claimants would be deprived of the difference between the market value estimated at that time and the benefit of the Projects actually accruing since the expropriation and the date of this Award and in the future until the end of the Projects' lifetime. The Respondent would thus acquire, through the expropriation, profits available to the Claimants through the Projects above the range of the market value that would serve as reference to the determination of the "just compensation" at the time of the taking. For this part of the expropriation, no compensation would ever be paid. Such a result is implied in a compensation scheme as provided by Article 6(c) of the BIT, provided payment occurs at the same time. If such compensation is not effectively made or differed, the expropriating State would take on both levels: no account is provided for the market value at the date of the taking, and the full actual and future value of the Projects as from that date accrues to the State. Making, under such circumstances, the Claimants' whole means that "just compensation" as valued at the time of the expropriation cannot be achieved.

228.

The Tribunal adds that the proper identification of the remedy for a violation of the BIT should respect the object and purpose of the BIT as this must apply to the BIT's provisions on investment protection in general. If "just compensation" is determined as per the date of the expropriation, and taken forward through a simple rate of interest, the host State would draw a clear advantage from its taking, as it did in the present case. Thus, such interpretation would result in an incentive for host States to expropriate investments and to defer payment of compensation until an undetermined future date. Such an approach would defeat the purpose of "protection of investment" that is the object of the BIT as stated in its Preamble.

229.

An approach taking account of the future economics of the Projects requires a further clarification in respect of the date when the pertinent values in relation to the Projects have to be determined. An expropriation consisting of a single taking is valued as of the date of such taking. This is true, however, only by reference to that particular date. When time goes on, values change. Revenues may go up, costs are developing differently, and taxes may increase. In the present case, the rising oil prices are the main factor which informs the debate on the fixing of the appropriate valuation date. It led this Tribunal to determine in its 2013 Decision that this date shall be the date of this Award.

230.

In the context of the debate between the Parties, the question is whether the relevant elements for the assessment of damages (including revenues, costs, taxes and others) are those applied or known at the time of the expropriation, or those at the time when the judgment has to be made about the damages accrued until that day and those arising as of that day. This is why, the Parties are at odds between an ex ante valuation and an ex post valuation. The matter is closely linked to the applicable standard of compensation. If the Claimants' compensation is what they did not receive when they had been expropriated, the value of their loss must be assessed ex ante, as of the day of the taking, including an estimation prevailing at that time in respect of profits, losses and costs and other relevant items, occurring in the future. If, on the other hand, the Claimants are entitled to receive compensation for all revenues and net profits they would have earned had the Projects not been expropriated, the valuation has to be made by including all available actual (historical) and future data, which results in a valuation focusing on the matter from an ex post viewpoint.

231.

Consistent with settled law, it follows for the Claimants that their right to full reparation has as its necessary consequence that the date of valuation must be the date of the Award.

232.

As a result of the improving market conditions all three Projects have increased in value following their confiscation. The Claimants are entitled to the benefit of those market improvements; they would have benefited from them had the Projects not been illegally taken. The consequences of any mismanagement of the Projects by PDVSA cannot be considered in the valuation, since this would not have occurred in the "but-for" world.

233.

The Tribunal has already determined that the valuation date is the date of the Award. Accordingly, the Tribunal's valuation should take account of market developments subsequent to the taking that have increased the value of the Projects. Therefore, what remains to be calculated in the Claimants view is (a) lost historical cash flows: Forgone cash flows from the Projects between the date of the taking (26 June 2007) and the date of the Tribunal's Award, with a capitalization factor applied to actualize the lost historical cash flows to present value. (b) The equity value of the investments at the valuation date: Lost cash flows from the date of the Award through the end date of the Agreements, calculated using a DCF method to reduce those future cash flows to present value. (c) Post-award interest on all sums awarded from the date of Award to the date of payment. (d) Arbitration costs.

234.

For the Respondent, there is no basis for departing from the Treaty valuation date. This date is defined by Article 6(c) which states that the market value to be referred to is either the date "immediately before the measures were taken or the impending measures became public knowledge, whichever is the earlier". But even if the Tribunal could depart from the Treaty standard and look to customary international law, the result would be exactly the same.

235.

In this respect, the Respondent submits that the normal valuation date in expropriation cases is the date of dispossession and that the valuation date does not change if the expropriation is one "to render which lawful only the payment of fair compensation would have been wanting", as stated in Chorzów Factory⁵⁶. The authorities, including this decision, are crystal clear that where the only basis for unlawfulness is failure to pay compensation, the valuation date remains the date of dispossession because the damages are calculated based on the amount of compensation that should have been paid at that date, plus interest until the date of payment.

236.

Relying on Sir Ian Brownlie's statement, quoted above, the Respondent contends that the valuation date in the case of an expropriation that at worst is only unlawful sub modo, rather than per se, is the date of dispossession because damages for such an expropriation consist of the value of the property expropriated as of that date, plus interest to the date of payment.

237.

The Respondent explains that the ex ante valuations takes into account production, cost and price information that are considered relevant as of the 2007 valuation date. The Claimants' approach to such a valuation is not different. The difference between the Parties' valuations results from their difference in the ex ante production projections, because the Claimants take a much more optimistic view of the condition of the Petrozuata field and the Hamaca upgrader than the Respondent does as of the 2007 valuation date. Although an ex post valuation is supposed to be based on what actually happened in the Projects after the 2007 nationalization, the Claimants avoid considering ex post data that negatively affects value, thus submitting a hybrid valuation that bears no relationship with actual facts. The Respondent notes than when this Tribunal examines what actually happened, it cannot ignore the negative developments in the Projects in terms of both production and costs.

238.

The Tribunal observes that while the Parties present their respective positions with strong arguments, they are not always consistent.

239.

The Claimants' ex post valuation approach would require, in theory, taking into account all available data on production, costs and other relevant factors of economics at the actual date and in moving data forward up to the date of judgment. This is not what they have always done, and it is not what their experts have done. Thus, they have taken the pre-expropriation production forecasts as the appropriate source for determining oil production in the but-for world. The Respondent pointed to the Claimants' preference to identify costs on the basis of costs accrued and projected costs before the date of expropriation, arguing that the costs listed by the Respondent were in toto not reliable and unpersuasive; here again, such approach is like turning suddenly to an ex ante valuation, while an ex post approach would have required a closer examination of the evidence presented by the Respondent in respect of costs incurred since June 2007.

240.

The Respondent, on the other hand does not conduct consistently an ex ante valuation that it claims should be the only relevant for this Tribunal. Such valuation would require taking all facts as they existed at the date of the expropriation, including the projections of the future on the basis of the best knowledge then available. In other words, the approach would have to be the one adopted by a reasonable buyer at that very moment, and nothing else. A correct date-of-expropriation valuation would not use the figures for production in year 2008, nor the forecasts prepared by Mr. Figuera in 2009, which projects the recovery of 653 million barrels of EHCO - substantially less than expected by all Parties prior to the expropriation⁵⁷. An ex ante valuation would require that costs and taxes that could not have been reasonably envisaged at the time of the taking are not taken into account. This was not always done, for reasons that one can understand quite easily, but this approach is nevertheless not consistent with an ex ante calculation. The same is true in respect of additional expenses for the lease of the Interim Processing Facility (IPF) in the period between 2007-2012 at Corocoro⁵⁸. Finally, a factual event that occurred before the date pertinent for the ex ante observation (i.e. 26 June 2007) must be identical to the same fact evaluated from an ex post perspective. For instance, when an upgrader's capacity is estimated as above 90% OSF in the year 2006, as observed at the date of the expropriation, this figure cannot become 75% simply because different information was provided in later years and integrated in the ex post valuation⁵⁹. The best evidence must be the same from both perspectives when relating to a fact prior to the ex ante point of time.

241.

In fact, whether one takes a principled position of an ex ante or an ex post valuation, none of these approaches can be conducted according to its own logic. Two main factors explain this. (1) The pressure of actual data often prevails. There is often no point in relying on hypothetical facts that have proven to be wrong. (2) On the other hand, there are occurrences where actual data are either not available or not reliable, leaving no other choice but to turn to projections that have been prepared carefully and agreed upon by those involved at the relevant time before the expropriation became effective.

242.

The Respondent's experts have presented an article that explains the operation of the two valuation methods and the bargain that divides them⁶⁰. For the author, in an ex ante analysis, all damages projected after the date of the breach are present-value discounted back to the breach date to arrive at a damages amount as of that date; interest is then applied. In an ex post analysis, projected damages are present-valued to the date of trial. For the portion of damages between the breach date and the trial date (the interim period damages), a time-value of money factor is applied forward to the trial date; and the projected damages after the trial date (the post-interim period damages) are present-value discounted back to the date of trial. The challenge for an ex ante analysis is that ignoring subsequent information may artificially ignore actual impacts to the plaintiff that, if considered, would result in a more precise estimate of the plaintiff's loss. In contrast, an ex post approach effectively attempts to put the plaintiff in the position he or she would have been in on the date of trial but-for the actions of the defendant. In evaluating both approaches, the effect of the interim period events on the plaintiff should be considered. Depending on whether the predominant economic factors affected positively or negatively the performance of the plaintiff, the plaintiff would be in a better or a worse position based on an ex post option, and the reverse would be the case when considering facts ex ante only. The question is then whether the defendant should not bear the risk of uncertainty produced by the act. If the defendant has not gained as a result of the act, an argument that plaintiff may be overcompensated via an ex post analysis may not carry much weight⁶¹. However, a damages award that returns the plaintiff to its economic position at the date of the injury, but leaves the defendant with a gain as a result of his action may not be appropriate and not deter future unlawful acts.

243.

The comparison between the two valuation methods that are at the centre of the Parties' debate shows that one or the other cannot be adopted without a number of adjustments. The legal components should be looked at more in depth.

244.

In its 2013 Decision, the Tribunal stated that it did not consider that the amount of the compensation payable in respect of an unlawful taking of an investment is to be determined under Article 6(c) of the BIT. This provision establishes a condition to be met if the expropriation is in all other respects in accordance with Article 6. The Tribunal concluded on the basis of principle and the authorities it had reviewed, that if the taking was unlawful, the date of valuation is the date of the award.

245.

Article 6(c) of the BIT governs the compensation to be paid by the expropriating State at the time of the taking. It does not deal with the consequences of its breach. If one would submit that Article 6(c) continues to be applicable and governs the Claimants' claim for reparation, this would mean that this provision continues to govern compensation, with the simple addition of interest. This is not what the provision says. It refers exclusively to the market value at the time of the taking. No reference can be found in the text that Article 6(c) would remain applicable in the future and for years to come for the purpose of calculating the investor's compensation, to which only interest is added.

246.

The expropriation has the effect of transferring the market value of the Projects to the host State. At the same time, pursuant to Article 6(c), just compensation is to be paid to the investors by reference to the same market value. Both sides are thus basically placed on equal terms. If no compensation is paid, the host State acquires the Projects at their market value, plus the forthcoming profit, while the investors are left with the market value the Projects had in the past.

247.

If no payment was made, an ex ante valuation that assumes that payment was made on the date of expropriation and calculates interest thereafter would result in the State taking advantage of whatever difference between the real profit of the business and the interest. Indeed, Article 6(c) provides for payment to be made at the date of expropriation, without any further alternative or escape clause. If no compensation has been made at the required time, the loss must be determined independently from this provision and it is to be compensated by the host State. Nowhere is it provided that such loss consists simply of interest.

248.

An ex ante valuation makes sense only if it results in an ex ante payment. The hypothetical of a reasonable buyer considering the acquisition of the Projects, as presented by the Respondent, is a buyer who acquires the Project the very day when it has been taken away from the Claimants, and who pays the relevant amount at that date. A reasonable buyer who defers its acquisition to a later point in time will reconsider the market value of the Projects at that moment and pay the amount then corresponding to the actual market value. As prices move, up and down, the buyer will not suggest fixing price on the basis of an ex ante analysis (plus interest), and no seller would accept to make a deal on such basis.

249.

The World Bank's Guidelines on the Treatment of Foreign Direct Investment cannot be understood otherwise. In its Chapter IV, payment of appropriate compensation is mentioned as one of the factors which allows a State to expropriate a foreign private investment. When declaring that such compensation must be adequate, effective and prompt, the implication is always that such payment takes place at the same time as the taking. In case a "going concern" is involved, future income that could be expected with reasonable certainty over the course of its economic life is to be included in the calculation; this must imply an assessment at the time of the expropriation. If compensation had to be evaluated at a later stage, actual or historical facts would certainly prevail over any earlier projection on the enterprise's economic life in the future. Similarly, when a willing buyer is supposed to consider specific characteristics of the investment, "including the period in which it has been in existence", this specific element will certainly have to be updated to present value if the purchase has not taken place when it was supposed to take place, i.e. at the date of the expropriation. There is no point in trying to read the Guidelines to assert that the valuation of the expropriated investment shall in all cases be settled at the date of expropriation.

250.

If payment is not made on the day of the expropriation, and is differed to later, plus interest, the expropriator takes advantage on a day-to-day basis of the difference between the profit resulting from the operation of the Projects (representing the investment that had been taken) and the applicable interest. An ex post valuation corrects the unequal treatment resulting from such a calculation, because it supports payment including the profit resulting from an investment that the host State had taken without the burden of financing its value.

251.

In so doing, the host State takes the benefit of the value of the investment above the legal terms when it should have paid the compensation. The purpose of the compensation provision is to make whole the investor, in terms of equitable market values, at the time of payment. If such payment is not done and deferred for later, it must necessarily be determined again by reference to the market value prevailing at that time. This is then equivalent to an ex post valuation.

252.

Taking an example for the purpose of illustration, when an oil production industry has a market value of 10 US$ billion at the time of expropriation and yields 10% of net profit, the host State, when not paying compensation and waiting for a judgment to be awarded some years later on the basis of an ex ante valuation (i.e. 10 billion), would earn 1 US$ billion per year as a result of an investment it did not provide itself, leaving the investors with interest at 300 million (3%), and the State with a net profit of 700 million. In fact, the investors will make a loss, because their costs for financing an investment of 10 US$ billion (still in the hands of the host State) are markedly higher than the interest rate of 3%. Thus, the host State receives more than the market value the investment had when it was expropriated. Such an extended taking has no basis in the provisions of Article 6 of the BIT.

253.

When taking account of facts that occurred after the expropriation, and before or after the Award, the pertinence of the available information may be questioned in its causal relation to the situation of the Projects as they existed at the time of the expropriation. The reparation must reestablish the Claimants in the situation which would, "in all probability"⁶², have existed if the expropriation had not taken place. In this respect, an ex post valuation is linked to the ex ante situation under which the Projects were conducted when they were expropriated. Such a link cannot be reduced to a simple condition of foreseeability. Facts may be relevant for the assessment of the but-for world even if not foreseeable at the time of the taking, as long as they can be assessed with reasonable certainty as the consequences of the initial situation at the time of the taking. Such facts must be capable of being placed in a chain of events that, albeit not foreseeable at an earlier point in time, nevertheless appear as an occurrence that under a reasonable perspective appears as potential consequence of the expropriation and the loss represented by the taking away of the Projects from the Claimants⁶³.

254.

An ex ante approach calculates revenues accruing as from the date of the breach on the basis of projections. Such revenues are then discounted back to the date of the breach. This is Respondent's position, using a rate of 19.8%. Compared to actual facts, this has the effect of reducing compensation in two ways: (1) Revenues accruing in the future above the projected figures profit to the State, and (2) to the extent that the discount rate is higher than the interest rate, the positive difference accrues to the host State as well. Such approach ignores artificially any impact on the Claimants in the future, which, if considered, would result in a more precise estimate of the Claimants' losses. That is precisely what an ex post valuation does.

255.

Contrary to what has been suggested, the view that an expropriation incompatible with the BIT for the only reason that no compensation has been paid calls for a valuation at the date of the expropriation is not as broadly shared as this is sometimes argued⁶⁴.

256.

In some cases, this solution was retained but for reasons different from the so-called "legal" nature of an expropriation which only lacks compensation. In the case of the Crystallex Award⁶⁵, the parties agreed that the proper date of valuation should be the date of expropriation. This was also the basis for the same solution for the Saint-Gobain Tribunal⁶⁶, with the additional element that in the particular case such valuation date yielded a higher value than the date-of-the-award valuation.

257.

In other awards, compensation was simply treated as one of the conditions for an expropriation not prohibited under the BIT, with the effect that if no compensation has been paid, one of the Treaty requirements has not been complied with, resulting in an unlawful expropriation as if any of the other requirements had not been met. Accordingly, the Crystallex Award states as follows

When a treaty cumulatively requires several conditions for a lawful expropriation, arbitral tribunals seem uniformly to hold that failure of any one of those conditions entails a breach of the expropriation provision⁶⁷.

The Tribunal then concluded

Under the circumstances, the Tribunal cannot but conclude that Venezuela breached Article VII(1) of the Treaty, as no "prompt, adequate and effective compensation" was either offered or provided to Crystallex⁶⁸.

The Crystallex Tribunal referred to seven other awards considering the lack of payment of just compensation as a breach of the pertinent provision of the applicable BIT on expropriation⁶⁹. The Quiborax⁷⁰, Tenaris⁷¹ and Burlington⁷² Awards can be added to the list. This Tribunal has decided accordingly in its Interim Decision.

258.

The Tidewater Tribunal took a strong stand on the need for an ex ante valuation operated at the time of expropriation in case of a so-called "lawful" expropriation only missing just com-pensation⁷³. In such a case valuation and compensation should assess damages as identified at the time of the expropriation, including what the investor expected at that time in terms of future profits and expansion. The facts known at the date of the expropriation are taken as the reference, as they are the only ones objectively related to the dispute⁷⁴.

259.

The reasons underlying such position are based on the concern that an arbitral tribunal should avoid considering events occurring after the expropriation, such as the evolution of prices, potential expansion of the business or other circumstances that may appear as hypothetical or even speculative. Such a concern must certainly be taken seriously. However, it does not allow a broad conclusion that events occurring after the expropriation shall have no bearing on the tribunal's assessment of the loss suffered by the expropriated party and of the damages to be awarded. The Chorzów Judgment does not support such an understanding. In this case, the plaintiff was Germany that had no claim to raise in respect of future revenues of the manufacture in which it had no operational impact.

260.

The Tidewater Tribunal's approach appears correct when reference is made to the date of the expropriation in all respects including the determination and payment of the just compensation due to the investor. If no compensation has been paid, however, valuation moves forward, and so does the profit accruing to the host State as from the date of the taking, and the loss suffered by the investor who did not receive the market value of its investment in return, being left with an expectation for late payment together with interest. The Tidewater Award serves to understand that in such cases, adjustments are needed. The Tribunal noted indeed, in further relying on the World Bank Guidelines, that an ex ante valuation does not mean that it would be unconcerned with future prospects. In the first place, the factors that a willing buyer would itself take into account when considering the purchase of an investment necessarily include "the circumstances in which it would operate in the future". In the second place, the Tribunal, when estimating values ex ante, is not required to shut its eyes to events subsequent to the date of injury, if these shed light in more concrete terms on the value applicable at the date of injury or validate the reasonableness of a valuation made at that date⁷⁵. The Tribunal added, referring to the experts on both sides, that there may in particular cases be a real benefit in hindsight, because it allows for a reliable measurement of lost cash flows between the date of breach and a present date⁷⁶. This is precisely what an ex post valuation allows: taking account of the actual facts that improve the assessment of those retained at the time before the expropriation when they represented mere projections towards a not yet known future. The focus must be on causation, meaning that ex post information should not introduce facts into the valuation that have no real connection with the expropriated assets⁷⁷. However, if such risk exists which may materialize in certain situations, the proper solution has to be found through the correct application of the requirement of causation, including mitigating factors like intervening or concurrent causes, contributory negligence, or proportionality. This element is important and must be added as a factor of adjustment to what may appear extreme in an approach based on an ex post valuation. Such valuation, indeed, should not include facts and events that have no reasonable or adequate connection to the investment as it was implemented and conducted at the time of its expropriation. The question whether information or valuation must be determined ex ante or ex post is not adequately examined and answered without taking into account the interaction between both options through the necessary consideration of causation.

261.

Therefore, an ex post valuation must be measured in relation to the content and the terms of the Association Agreement and the whole contractual environment on which the Projects were based. Production, costs, taxes, and all other components of an actual valuation are relevant to the extent only that they are caused or related to the Projects as they were created and conducted at the time when the expropriation occurred. This also means that new or additional production methods, equipments costs, etc. are not to be included in a valuation based on the framework pertinent in the present case when they have as their origin legal undertakings or operational choices that are unrelated to the original Projects.

262.

This consideration represents the indispensable addition to a debate that simply opposes two different valuation dates. Indeed, if damages have to be evaluated as of a given date, they must be connected by a relation of causality to the injury, e.g. the expropriation. From the viewpoint of the date of expropriation, impacts on damages occurring later are taken in consideration if they have a basis in the then existing projections and expectations, which means that they appear as the consequences of such factors. The ex ante information sets a bottom line from which the probability of the occurrence of events in the future can be assessed. Viewed from the other perspective, when evaluating damages as of the date of the decision, occurrences of a "but-for" nature that are not caused by the project or the legal setting that has been taken away through the expropriation are not included in the valuation. Looked at from one point or the other, the results will coincide in large parts, i.e. a valuation including all actual effects caused by the injury, together with all other related effects occurring in the future.

263.

The Tribunal notes that an ex post valuation places the focus on actual terms. However, it cannot be conducted without retaining approximate assumptions and projections. This is easy to understand in relation to future events, mostly relating to production, oil prices, costs and taxes. The situation is not clear cut in actual terms for the historical period since the expropriation and the date of this Award (also called the "Interim Period"). In this respect, it is true that theoretically all pertinent actual facts should be available to the Tribunal. This is not the case: Firstly, the Projects have been conducted differently than they would have moved forward had the Association Agreements remained applicable. Secondly, the evidence before this Tribunal is in many respects not representative of the real world or of the "but-for" world. The Tribunal must deal with the evidence present on its record, and it cannot rule by reference to evidence the Parties either could not or did not want to submit to the Tribunal.

264.

The assessment of damages is not an exact science. It is a matter of law, and to the extent the pertinent factors of facts or economics are uncertain or associated with a margin of appreciation, the proper determination is one of the Tribunal's tasks. As stated in Arbitration Rule 34(1), the Tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value. The Tribunal is thus granted full discretion in these matters. Such discretion applies also in respect of the weight to be assigned to the evidence proffered in respect of calculation of damages.

265.

One of the characteristics of an ex post valuation is that for easily understandable practical reasons, the date of such valuation cannot be the precise date of the Award. The Tribunal has instructed the Parties in Procedural Order No. 4 to provide their ex post valuations on damages updated on 31 December 2016 (para. 6). The Parties have prepared their submissions accordingly. The Tribunal has decided not to ask for a subsequent update, being reluctant to engage in a further delay of the proceeding, and considering that the additional information then provided would not have had a significant impact on the overall assessment of damages⁷⁸. Therefore, the assessment of relevant evidence between early 2017 and the date of this Award is based on the information and projections available for the preceding period and the up-date requested for 31 December 2016.

266.

The evidence in the present case is in large parts based on documents. A certain number of witnesses have submitted statements and have been heard. However, all of them have a limited personal knowledge of the life of the Projects, in particular, Mr. Lyons and Mr. Figuera, the main witnesses of fact presented by the Parties.

267.

Mr. Lyons was General Manager of the Petrolera-Ameriven Joint Venture (Hamaca) from August 2003 to August 2005, when he became president of ConocoPhillips Venezuela and involved in Petrozuata as a Board Member and in Corocoro as an Executive, while he remained responsible for Hamaca as a Board Member. He left that function in April 2006 when he was appointed president of ConocoPhillips in Latin America. He served in that capacity until the end of 2008⁷⁹. He retired from ConocoPhillips in 2012⁸⁰. He was co-signatory of the Management Board Resolutions dated 22 May 2007 providing Power of Attorney to Counsel representing the Claimants in this proceeding (C-003).

268.

Mr. Figuera was president of Petrozuata from January 2005 until December 2006. He was president of Hamaca from June 2006 until the expropriation and then of PetroPiar until December 2007. Since that date, he had no personal involvement in Hamaca or in Petrozuata since he left that company. In December 2007 he became president of PetroSucre until December 2008. In late 2011 he was appointed General Manager of the Junín Division, where he remained until late 2013. As he explained to the Tribunal, when he was General Manager, he had no direct oversight over the seven individual Projects that were part of the Division (including Petrozuata). He was not consulted nor did he review documents such as business plans for any project. Therefore, since he left the Projects, he had no personal knowledge and had to talk to people in order to be provided with information⁸¹. The actual data he used were given to him by the technical staff from PDVSA⁸². In his Testimony provided in 2009, Mr. Figuera stated that he was then General Manager of Offshore Joint Ventures of Corporación Venezolana del Petróleo S.A. ("CVP"), a 100% subsidiary of PDVSA⁸³; in this function, he had indirect involvement in the companies through the Board is-sues⁸⁴. In 2014, he was Internal Director of this company, responsible among others of PetroSucre that operates the Corocoro field; he was then also Executive Director for new developments in the Orinoco Oil Belt⁸⁵. In sum, Mr. Figuera did not have personal information to provide evidence as a Witness on facts relating to the operation of the Projects Petrozuata and Hamaca since early 2008.

269.

None of the witnesses was able to testify on actual facts based on personal knowledge and covering the historical period between the expropriation up to 2015 or 2016, and in many cases, the information provided to the Tribunal is based on hearsay or documents gathered from other persons involved in the Projects who have not been asked to appear before this Tribunal. The evidentiary gaps had led some experts to take positions not reflecting the real situation of the Projects and to argue on the basis of assumptions not verified with actual facts, or not supplied with evidence on the Tribunal's record. The Tribunal also noted that the valuation experts on several occasions insisted that their analyses was limited by the instructions provided by their respective instructing Party. The experts' evidence, therefore, requires a close analysis as to its objectivity and reliability.

270.

The Tribunal further notes that the remedy it will retain must be connected to actual facts and reflect the Tribunal's knowledge. The Award "shall state the reasons upon which it is based" (Art. 48(3) of the ICSID Convention, Arbitration Rule 47(1)(i)). Members of the Tribunal must be capable of exercising independent judgment (Art. 14(1), 40(2) ICSID Convention). When reading these provisions together, it means that the opinion of experts must be capable of being translated into reasons to be provided by the Tribunal. Such reasons cannot be based, for instance, on mathematical formulae not accompanied by explanations serving as evidence or reasons of law on which an award can be based. The Tribunal cannot reach conclusions based on simple excel-sheets not accompanied by explanations and incapable of being operated on an interactive mode. This is all the more difficult when the response of the experts is limited to stating that the reports have been prepared following a party's instruction. The Tribunal has on several occasions made the Parties aware of such deficiencies.

271.

The burden of proof is based on two components. One is to determine the party required to submit to the Tribunal evidence relevant for the resolution of the dispute. The other is to identify the party bearing the burden of losing on a submission when the requested evidence has not been brought before this Tribunal. In many cases, but not in all cases, both components identify one and the same party.

272.

The party making an allegation or an assertion is also the party who should supply the evidence in support of such a submission. It is in most cases also the party who suffers if its submission is not retained by the Tribunal because the required evidence was not presented. As a general matter, it is clear that the Claimants bear the burden of proof in relation to the fact and the amount of loss and damages.

273.

In the exercise of the discretion granted to it in relation to issues of evidence, the Tribunal requires that the existence of such losses and damages be proven with certainty, together with the associated costs for production. However, a less stringent approach applies when it comes to determine the precise scope and exact quantification of damages, including the estimation of production and costs. In this respect, the Tribunal must take account of the inherent difficulties to prove precise amounts of oil provided through the process of extraction, upgrading and delivery for sale, and to identify all and every single item of costs associated with such process. When the occurrence of certain facts is demonstrated with certainty, their quantification may be assessed when the Tribunal has received information sufficient to show their reliability with reasonable certainty. Some discretion and approximation must be exercised to render possible such assessment of quantified data. When it comes to the valuation of future profits and costs, the Tribunal will focus on the existence of a stream of occurrences demonstrating that such future events will become actual facts with sufficient certainty, and will not award compensation for inherently speculative claims and costs or any other element affecting cash flow.

274.

The Tribunal's record contains an unusually high number of situations where one or the other party was not able or claimed not to be in a position to get access to and to supply to the Tribunal information relevant to the resolution of the dispute. The Claimants argued that since they left the Projects they were faced with considerable difficulties in getting access to facts related to the on-going operation of oil production and its costs. The Respondent, on the other hand, did not provide information from individuals that have had, for a number of years in the past and will have in the near future, responsibilities in the conduct of the Projects. No witness with actual knowledge from the sites was called. The Tribunal also noted the absence of any witness representing foreign companies operating in the Orinoco Belt, and in particular from Chevron, a company closely associated with the oil production on site. These difficulties materialize in the present case in particular in relation to the actual operating mode of the Projects and the costs implied since June 2007 and for the rest of the Projects' lifetime.

275.

In a number of occurrences, the Tribunal will have to simply dismiss allegations that are not supported by sufficient evidence. In other cases, the Tribunal may have to proceed with its own estimates, e.g. when future oil prices or costs of wells or turnarounds must be assessed. In certain instances, the inability of a party to provide sufficient evidence may have the effect of shifting the burden of proof, in full or in part, to the other party. This may happen when fairness and good faith require that a party not being able to provide full evidence of an assertion it makes should not stand alone when it can demonstrate that the opposing party has access to or control over the missing evidence. Although the Claimants are correct in stating that they are no longer in an operational position since the expropriation, they retain nevertheless valuable information relating to the Projects as they were in 2007 and they have full professional skill to evaluate the on-going production process and the main categories of costs including their prices today.

Eduardo Zuleta Jaramillo	Président
L. Yves Fortier	Désigné par l'investisseur
Andreas Bucher	Nommé par le président du conseil d'administration

ConocoPhillips v. Venezuela

Documents de l'affaire

Avocats, autres représentants, expert(s), secrétaire du tribunal

Award

I. Procedural Background

II. The 2013 Decision on Jurisdiction and the Merits

III. The 2017 Interim Decision

IV. The Final Phase on Quantum

V. The Applicable Law Governing Remedy

A. Article 9 of the BIT

1. The Claimants' Position

2. The Respondent's Position

3. The Tribunal's Findings

B. The Compensation Provisions of the Association Agreements

1. The Claimants' Position

2. The Respondent's Position

a. The Petrozuata Project

b. The Hamaca Project

c. The Claimants' legal arguments

3. The Tribunal's Findings

a. The main elements and structure of the compensation provisions

b. The compensation provisions do not set the standard of compensation for the State's expropriation

c. The compensation provisions are part of the legal structure and the economic value of the Association Agreements

d. The operation of the compensation provisions in the present case

C. The Standard of Compensation

1. The Claimants' Position

2. The Respondent's Position

3. The Tribunal's Findings

D. Valuation Date and Method

1. The Claimants' Position

2. The Respondent's Position

3. The Tribunal's Findings

a. The Parties' positions

b. The appropriate time factors

c. The evidence