Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., et al. v. The Bolivarian Republic of Venezuela

Case summary

At a glance

Parties: Tidewater Investment SRL (Barbados) and Tidewater Caribe, C.A. (Venezuela). Originally also Tidewater Inc., Twenty Grand Offshore, Point Marine, Twenty Grand Marine Service, Jackson Marine and Zapata Gulf Marine Operators (all dismissed at jurisdiction). Respondent: the Bolivarian Republic of Venezuela
Case no.: ICSID Case No. ARB/10/5
Forum and rules: ICSID Convention arbitration (ICSID Arbitration Rules)
Treaty: Barbados–Venezuela BIT (signed 15 July 1994). Article 22 of the 1999 Venezuelan Investment Law was also invoked, but rejected as a basis for consent
Tribunal: Campbell McLachlan QC (President), Andrés Rigo Sureda, Brigitte Stern
Committee: Abdulqawi Ahmed Yusuf (President), Cecil W.M. Abraham, Rolf Knieper
Court: US District Court for the District of Columbia (Judge Timothy J. Kelly); earlier proceedings in the Southern District of New York
Sector: Marine support services to the oil industry
Outcome: The Tribunal found a lawful expropriation for which compensation was owed and awarded US$46.4 million plus interest (13 March 2015). Revision was refused. On annulment, US$10.003 million of the award was annulled for failure to state reasons and US$36.397 million was upheld. The DC District Court entered a default judgment enforcing the award (17 December 2018).
Amount: Claimed: US$234 million including interest. Awarded: US$46.4 million principal, plus interest at 4.5% a year compounded quarterly from 8 May 2009, plus US$2.5 million towards costs. After annulment: US$36.397 million (US$16.4 million for accounts receivable and US$19.997 million for business value). On annulment costs, Venezuela bore 70% and Tidewater 30% of the Committee's and ICSID's costs.

The dispute

Tidewater had provided marine support services to Venezuela's oil industry since 1958 through its local company SEMARCA. SEMARCA worked under short-term contracts with PDVSA, PDVSA Petróleo and PetroSucre on Lake Maracaibo and in the Gulf of Paria. In March 2009, while PDVSA was falling behind on payments, Tidewater put a newly incorporated Barbados company, Tidewater Investment SRL, into the ownership chain above Tidewater Caribe and SEMARCA. On 7 May 2009 Venezuela enacted the Reserve Law, which reserved oil-related services to the State. SEMARCA's Lake Maracaibo assets were seized on 8 May 2009 and its four Gulf of Paria vessels on 12 July 2009. Tidewater claimed expropriation and other breaches, relying on Article 22 of the Investment Law and the Barbados–Venezuela BIT. Venezuela denied that Article 22 expressed consent to ICSID arbitration, and argued that the Barbados restructuring abused the treaty because the dispute already existed or was foreseeable. On the merits, Venezuela accepted that it had expropriated property and owed compensation, but disputed how much had been taken and how it should be valued.

Key holdings

The challenge to Brigitte Stern was dismissed. She had first left out of her declaration two earlier appointments by Venezuela that were publicly known; the two other members found this an honest exercise of judgment. Holding several appointments by the same party, and possibly ruling on a related legal issue in Brandes, did not show a manifest lack of independence or impartiality. Decision on Disqualification ¶¶ 57, 64, 72–73
Article 22 of the Investment Law is not Venezuela's written consent to ICSID arbitration of all investment disputes, so the claims of all claimants other than the two Treaty Claimants were dismissed. The Tribunal had jurisdiction under Article 8 of the Barbados BIT over breaches arising after 9 March 2009. The earlier payment dispute between SEMARCA and PDVSA was an ordinary commercial dispute with a different subject matter, and the expropriation was not reasonably foreseeable when the restructuring took place, so there was no abuse of the treaty. Decision on Jurisdiction ¶¶ 141, 192, 197–199
Venezuela expropriated the SEMARCA business as a whole. The expropriation was lawful because the only thing it lacked was compensation, which the parties had left to the Tribunal to determine. The claims for fair and equitable treatment, discrimination and national or most-favoured-nation treatment added nothing to the expropriation claim. Award ¶¶ 146–150
Compensation is the market value under Article 5 of the BIT, assessed by a DCF analysis because SEMARCA was a going concern with a record of profitability. The Tribunal valued a business of 15 vessels, included the accounts receivable, and applied an equity risk premium of 6.5% and a country risk premium of 14.75%, with no discount for reliance on a single customer. It valued the business at about US$30 million plus US$16.4 million in non-recurring receivables, a total of US$46.4 million. Interest runs at 4.5% compounded quarterly. Each side bears its own costs of the jurisdiction phase, and Venezuela pays US$2.5 million towards Tidewater's merits costs. Award ¶¶ 165, 197, 202, 207–209, 216–217
Revision was refused. The Tribunal accepted that it had made a clerical error in ¶ 201(a): the correct expert figure was US$13.917 million, not US$31.959 million. But a transcription error is not a newly discovered fact under Article 51, and in any case it did not decisively affect an award that rested on the Tribunal's own informed estimate. Decision on Revision ¶¶ 29, 36–39, 63
The ad hoc Committee lifted the stay of enforcement for the US$27.407 million that Venezuela did not dispute, plus interest. It kept the stay for US$18.993 million of the compensation and for the US$2.5 million in costs. Decision on Stay ¶ 62
The Committee rejected the grounds of manifest excess of powers and serious departure from a fundamental rule of procedure. It found that the US$30 million business value contradicted the Tribunal's own reasoning: the figure rested on a 1.5% country risk premium that the Tribunal had rejected. That was a failure to state reasons. The Committee annulled US$10.003 million and upheld US$36.397 million (US$16.4 million for receivables and US$19.997 million for business value). Costs were split 70% to Venezuela and 30% to Tidewater. Decision on Annulment ¶¶ 147, 160, 189, 221–222, 228, 230