Tidewater v. Venezuela: Property Rights Capable of Expropriation in a Company Operating under Short-Term Contracts

Abstract

Despite operating for more than fifty years in the Venezuelan market, Tidewater Marine, C.A. (SEMARCA) did not have a permanent concession contract with Petróleos de Venezuela S.A. (PDVSA) or any of its subsidiaries. Instead, SEMARCA operated on the basis of short-term contracts that were periodically extended. This did not prevent an ICSID tribunal (hereinafter ‘the Tribunal’) from finding that SEMARCA was a going concern operating an open-ended business, which was expropriated by the Bolivarian Republic of Venezuela (hereinafter ‘Venezuela’ or ‘the Respondent’). The Tribunal awarded two Barbadian subsidiaries of Tidewater (hereinafter ‘the Claimants’) damages up to the amount of USD 46.4 million. The main issues dealt with in the case are: (i) the existence of property rights capable of expropriation; (ii) the legality of an expropriation where proper compensation was not afforded to the investor at the time of the measures or shortly thereafter; (iii) whether outstanding accounts receivable should be included when valuing an expropriated company; and (iv) whether political risk should be considered when calculating the country risk premium. The Award contained two critical holdings: (i) the fact that a company operates under short-term contracts does not impact whether property rights capable of expropriation exist; and (ii) a failure to pay prompt compensation and/or to offer compensation in a sufficient amount does not, on its own, render the expropriation unlawful.