Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela
ICSID · Investment (ICSID and treaty) · Venezuela · 30 Dec 2016
Why it matters
This decision is significant for its detailed analysis of the compensation standard under the France-Venezuela BIT, particularly the calculation of fair market value and the treatment of country risk. The dissenting opinion by Judge Brower highlights a key debate in investment arbitration: whether the risk of expropriation should be excluded from the discount rate when valuing an expropriated investment. The case also addresses the valuation of a subsidiary with intercompany transactions.
Summary
Saint-Gobain Performance Plastics Europe, a French company, invested in a proppants plant in Venezuela through its subsidiary Norpro Venezuela. In 2010, President Hugo Chávez announced the expropriation of the plant, and Venezuela took control without paying compensation. Saint-Gobain initiated ICSID arbitration under the France-Venezuela BIT, claiming expropriation and unfair treatment. The Tribunal found that Venezuela breached Article 5(1) of the BIT by failing to specify and pay prompt compensation for the expropriation. The decision on liability and principles of quantum set out the framework for calculating compensation, including the use of discounted cash flow (DCF) method, the appropriate discount rate, and the treatment of intercompany transfer pricing. The Tribunal held that the compensation should be based on the fair market value of the investment as of the date of expropriation (15 May 2010), excluding any decrease in value due to the expropriation threat. However, the majority included the risk of expropriation in the country risk premium, a point strongly dissented by Judge Brower, who argued that this deprived the claimant of full compensation. The Tribunal also reduced the claimed profits by 25% due to intercompany transfer pricing arrangements. The final quantum was to be determined in a subsequent phase.
The detail
Parties: Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela
Case number: ICSID Case No. ARB/12/13
Outcome: Respondent breached Article 5(1) of the France-Venezuela BIT by failing to specify the amount of compensation and to pay prompt compensation for the expropriation of Claimant's investment. Respondent ordered to pay compensation calculated on the basis of the Tribunal's findings, plus pre-award and post-award interest.
Quantum: To be determined based on principles set out in the decision
Applicable law: Agreement on Encouragement and Reciprocal Protection of Investments between France and Venezuela (France-Venezuela BIT); ICSID Convention; international law
Issues in play: The case involved the standard of compensation for expropriation under the BIT (fair market value vs. actual value) and whether country risk should include the risk of uncompensated expropriation. Also at issue was the treatment of intercompany transfer pricing in valuing the expropriated subsidiary.
Read the full decision at italaw ↗
Locus Standi links to the source decision and publishes its own plain-language summary. It does not reproduce the text of the award.