Attorney عدد المشاركات >> 2 التاريخ >> 14/3/2003
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Kuwait v. American Independent Oil
The government of Kuwait enacted a decree on September 19, 1977, nationalizing the operations, assets, and facilities of American International Oil (Aminoil), a U.S. company.[i] The expropriation terminated a concession agreement nearly thirty years earlier then the date agreed upon by the parties.[ii] The Concession Agreement underwent several amendments that resulted increasing the amount in taxes and royalties owed to the Kuwaiti government. In 1977, Kuwait and Aminoil were in the embroiled in a dispute over the increased amounts owed when Kuwait nationalized the company. Kuwait complied with Aminoil’s request for arbitration under the terms of the concession agreement to settle the matter.
During arbitration, the Kuwaiti government lobbied for compensation to be based upon the net book value of assets of the expropriated property. Kuwait estimated the net book value of Aminoil on September 17, 1977 to be $44,600,000.
Aminoil proposed one of two methods of valuation be used to compute the value of the property. The first option was for the tribunal to use the discounted value of anticipated future earnings for the remainder of the contract through 2008. The second compensation formula involved discounting the value of anticipated future earnings for a shorter length of time. The second formula also included the net value of the assets seized.[iii]
The tribunal immediately rejected the Kuwaiti government’s argument to compensate Aminoil based on the net book value of assets of the company. The Tribunal stated use of Aminoil’s book value would negate the fact the company was entitled to a reasonable return rate on their investment.[iv] Instead, the tribunal utilized Aminoil’s suggested compensation formulas to determine fair compensation for the company. Aminoil’s first formula, based on the total anticipated profits had the venture run through 2008, projected the lost profits at $2,587,136,000 discounted at the annual interest rate to present value.[v] The physical assets were not included with the total because the formula paralleled the concession agreement, which stated all physical assets belonging to the company in 2008, the concession expiration date, would become property of the government.
The second compensation method suggested by Aminoil was identical to the first with two exceptions. The lost profits calculations were based upon a specified amount of time and the value of the physical assets amounted to$185,300,000. Under this formula Aminoil argued it was also entitled to the value of “other assets” valued at $30,356,000 or a figure agreed upon by auditors if one existed, as well as the monies overpaid to the government ($423,072,000) and interest.[vi]
The Tribunal claimed to follow Aminoil’s second formula, but in reality rejected it in favor of a “legitimate expectation” test that focused upon Aminoil’s right to a reasonable rate of return. After ascertaining Aminoil was entitled to compensatory damages (after examining the Concessions Agreement and the Stabilization clauses contained within it), the Tribunal calculated what Aminoil’s reasonable rate of return would have been had the property not been nationalized. [vii]
Next, the Tribunal opted to employ its own set of principles to calculate the company’s future lost profits since it believed Aminoil’s projections contained errors that grossly distorted the real value of the expropriated company.[viii] The tribunal calculated the value of the assets seized by determining the depreciated replacement value of the fixed assets. This is almost book value, but not quite because the figure was based on what it would cost to replace the equipment today minus a depreciation amount for the equipment seized.[ix] The arbitrators then calculated the non-fixed assets.[x] The sum total awarded by the Tribunal came to $206,041,000 minus liabilities of $123,041,000 equaled $83,000,000. This figure represented the total due to Aminoil in 1977, which the Tribunal capitalized the figure at 17.5% with an interest rate of 7.5% and an inflation rate of 10% to yielded a final figure of $179,750,654 owed to Aminoil.
The biggest flaw in the calculations of Aminoil’s award is the Tribunal’s failure to take into account the original contract between Kuwait and Aminoil, which underwent amendments increasing the amount owed in taxes and royalties in 1961 and 1973. The Tribunal rejected Aminoil’s arguments to base the compensation valuation on the 1961 amendments to the Concession Agreement rather than the 1973 amendments. The Tribunal appears to ignore factual and political circumstances surrounding the 1973 agreement, which indicate coercive behavior on the part of the Kuwaiti government. This approach taken by the Tribunal is contrary to the purpose of compensation as stated by the Tribunal, “all the circumstances relevant to the concrete case” would be considered in valuing the company.[xi]
[i] See Kuwait v. American Independent Oil (Aminoil), 21 I.L.M. 976, 998 (1982).
[ii] See id..
[iii] See id.
[iv] See id. at 1027.
[v] See id. (The interest rate not disclosed in the judicial opinion).
[vi] See id.; See also, A Comparison of Compensation, supra note 13 at 883-885 (1983-1984)
[vii] Dolzer, “”New Foundations of the Law of Expropriation of Alien Property”, 75 Am. J. Int’l L. 553, 579 (1981).
[viii] See id.; See also, “A Comparison of Compensation”, supra note 13 at 871.
[ix] The amount awarded here was unspecified in the court opinion.
[x] With the exception of stating Aminoil was valued as a going concern the valuation method used is contained in a Joint Report not included with the judicial opinion.
[xi] Aminoil, supra note 47 at 1033.
 
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