In a Decision on Liability and the Principles of Quantum, an ICSID tribunal constituted under the France-Venezuela Bilateral Investment Treaty (BIT) addressed claims arising from the expropriation of Saint-Gobain's investment in a ceramic proppants plant in Venezuela. The decision establishes Respondent's liability for certain treaty breaches and sets out the detailed principles for the subsequent calculation of damages.

The Tribunal's Decision on Liability

The tribunal found that the expropriation of the Claimant's investment occurred on or shortly after 15 May 2010, the date of President Chávez's televised announcement and the subsequent takeover of the plant by the state-owned entity PDVSA. It rejected Venezuela's argument that the expropriation date was the later date of the formal Expropriation Decree in March 2011, holding that PDVSA's assumption of de facto control was the determinative event.

Consequently, the tribunal held that Venezuela breached its obligations under Article 5(1), subparagraphs 2 and 3 of the BIT by failing to specify the amount of compensation and failing to pay prompt compensation as of the date of the taking. However, the tribunal dismissed the Claimant's claims that Venezuela had also breached the Fair and Equitable Treatment (FET) and Full Protection and Security (FPS) standards in relation to unilateral price increases under a bauxite supply contract with a state-owned entity (CVG Bauxilum). The tribunal found that the Claimant had not established the existence of specific state promises that would create a legitimate expectation regarding the bauxite price, nor had it proven a breach of the underlying contract.

The Tribunal's Decision on Quantum

The tribunal determined that compensation must be based on the fair market value (FMV) of the investment as of the date of expropriation, 15 May 2010. It concluded that a Discounted Cash Flow (DCF) analysis was the appropriate method for determining the FMV of the going concern. The tribunal found it unnecessary to resolve the debate between the treaty standard for lawful expropriation and the customary international law standard for unlawful expropriation, as both parties' positions converged on valuing the asset at the date of expropriation, which yielded a higher value than the date of the award.

In setting the parameters for the DCF analysis, the tribunal established a nominal discount rate of 19.88%. This was the result of a detailed analysis of the cost of equity, including a country risk premium of 10.26%. The majority of the tribunal rejected the Claimant's argument that the risk of uncompensated expropriation should be excluded from the country risk premium, reasoning that a willing buyer would have factored in all general risks of investing in Venezuela at the time. The tribunal also directed a 25% deduction from export sales profits to account for the marketing and distribution functions that were not part of the expropriated asset. Other key findings included the use of Claimant's own 2010 business plan for price projections and the adoption of Respondent's experts' estimate for certain transportation costs.

Operative Part

The tribunal declared that Venezuela breached Article 5(1) of the BIT. It ordered that compensation be calculated based on the principles set forth in the decision, with pre-award and post-award interest to be paid at a rate of 2% over the average 6-month US Treasury bill rate, compounded annually. The award of damages and interest was to be made net of applicable Venezuelan taxes. All other claims were dismissed, and the decision on costs was reserved for the final award.