ICSID Tribunal pays heed to investor’s nature and host country’s economic circumstances

In a recently published award in Tenaris S.A. and Talta-Trading E Marketing Sociedade Unipessoal Lda v Bolivarian Republic of Venezuela, an arbitral tribunal acting under the rules of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) judged its personal jurisdiction against the nature of each claimant company and determined the fair market value of the expropriated investments by considering, amongst others, “the unique market circumstances” of Venezuela at the time of its treaty breaches.


Tenaris S.A., a Luxembourg-incorporated company, and its subsidiary, Talta-Trading E Marketing Sociedade Unipessoal Lda, a Portuguese company, made equity and loan investments in a steel plant in Venezuela. After a five-year period of operation, Venezuela expropriated the steel plant without paying any compensation. The Claimants commenced arbitration proceedings alleging that Venezuela breached the provisions of the bilateral investment treaties it concluded with the Belgium-Luxembourg Economic Union and Portugal (the “applicable BITs”).

Jurisdictional objection

The applicable BITs defined a qualifying corporate investor by reference to both their place of constitution and corporate seat. The Respondent argued that such juxtaposed requirements meant that the Claimants had to demonstrate that their place of effective management was in Luxembourg and Portugal, respectively. The Respondent submitted that the Tribunal lacked jurisdiction as Tenaris S.A. was effectively an Argentine company and that the Claimants’ connections to Portugal and Luxembourg were minimal.

Method of valuation

The Claimants advanced expropriation and standard of treatment claims under the applicable BITs. In the calculation of damages, both parties relied upon discounted cash flow valuations supported by expert reports, albeit with widely divergent outcomes.


Personal jurisdiction

The Tribunal agreed with the Respondent that, in order to give meaning to the definition of “investor” in the applicable BITs, it had to interpret the corporate seat requirement as referring to the place of actual or effective management. The Tribunal then considered whether the actual or effective management of the Claimants was located in Luxembourg and Portugal, respectively. The Tribunal observed that it was “critical to take into account the actual nature of each company, and its actual activities.” The Tribunal noted: “[i]n so far as either entity is no more than a holding company, or a company with little or no day-to-day operational activities, its day-to-day “management” will necessarily be very limited, and so will its physical links with its corporate seat”. The Tribunal concluded that Tenaris S.A. had a “valid existence in Luxembourg in its own right as a holding company” and on the evidence available, judged against the nature of each company, both Claimants had their actual or effective management in Luxembourg and Portugal, respectively.

Method of valuation

In determining the fair market value of the expropriated investments, the Tribunal noted that investment treaty tribunals “have, per force, sometimes made use of valuation procedures, which are generally acknowledged to be sound, but which differ from the principal valuation theories advanced by the parties.” The Tribunal then observed that the parties’ discounted cash flow valuations were inappropriate as the general economic conditions in Venezuela as well as the business situation of the steel plant meant that free cash flows could not be projected with reasonable certainty. Equally, the alternative “market multiples” approach was deemed inappropriate as it “[did] not adequately take account of the unique market circumstances of [the joint venture owning the steel plant], or of Venezuela during the period in question.” The Tribunal concluded that the initial acquisition price paid for the equity investment was an appropriate reflection of the fair market value of the steel plant. Similarly, the outstanding balance of the loan constituted legitimate compensation for the loan investment. In effect, the Tribunal adopted a “sunk costs” valuation as a measure of damages.


Both elements of the Tribunal’s decision pay heed to the specific nature or circumstances of the injured company within the applicable legal framework. Whilst the Tribunal’s decision regarding its personal jurisdiction is not binding on other arbitral tribunals, it affirms the availability of investment treaty protection to holding or other non-operational companies when a relevant treaty does not expressly deny benefits to such entities. The Tribunal’s decision regarding the method of valuation shows that, so long as sufficient evidence is available in the case and if the circumstances of the case so dictate, a tribunal might decide to opt for a valuation method that is different from the method relied upon by the parties. The extent to which a tribunal may decide such issues ex officio, without submitting them to the discussion of the parties, may be limited by national arbitral laws in investment arbitrations that are not subject to the ICSID Convention and the ultimate outcome may be subject to review by reference to the Convention’s annulment provisions in ICSID cases.

The decision is available here.