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89. The principal events which the Claimant associates with the taking of its property interests occurred during 1979. The Claimant asserts that the alleged expropriation did not result from any public government decrees, but rather from concerted actions of the Government of Iran, often operating through NIOC,26 which effectively deprived the Claimant of its property.

90. The record shows that termination of the JSA relationship was heralded during the days immediately preceding and following the return of Imam Khomeini to Iran on 1 February 1979. Leading members of the Revolutionary movement announced that the first step of the new Government would be the revocation of oil contracts and the taking back of oil from the hands of the multinationals in order to realize a true nationalization of oil and in order to make the oil industry an integral part of the Iranian economy. The announcements of the intentions of the new leadership were repeated following the installation of the Revolutionary Government in mid-February 1979. On 14 February, Abdolhasan Bani Sadr, who later became President, declared that the nationalization of the oil industry would be Iran's first step to transforming the economy and that oil would be fully "integrated with the Iranian economy". On 28 February, the New York Times quoted a spokesman for NIOC as saying that Iran would probably nationalize all joint production ventures with foreign companies and that the number of foreign experts in the oil industry would be limited to one-fifth of the number prior to the Revolution.

91. The first concrete nationalization action was taken against the Consortium, which was by far the largest Iranian oil producer. On 10 March, NIOC sent the Consortium members a letter repudiating the Consortium agreement and stating that, in the future, the members of the Consortium could obtain oil from Iran only by purchase from 113 NIOC.27If there was any doubt that such action represented the policy of the new Government, that was dispelled in early April when public statements by the Minister of Economic Affairs and Finance and by the Governor of the Central Bank referred to Iran's being "free from obligations to the Consortium" and to the export of "the first consignment of our now entirely nationalized oil".

92. The first concrete actions concerning the Claimant's JSA rights were taken with respect to the oil itself following resumption of production in March 1979. NIOC unilaterally set the production rates at levels significantly below those prevailing prior to the Revolution. Despite oral requests by the Claimant during April and May to be permitted to lift petroleum, all petroleum produced by the fields was lifted by NIOC. While the Claimant apparently did not make any formal "nominations" to lift oil, the evidence is convincing that it was informally requesting from its NIOC partner permission to do so. No compensatory payment was made for the Claimant's share, even though this was contemplated in such circumstances by the JSA and suggested by the Claimant in the Second Party's letter of 26 June 1979 to NIOC.28 Indeed, NIOC only provided petroleum on the basis of a separate sales contract, which it concluded with the Claimant's parent corporation on 19 June 1979, despite the JSA provision that petroleum produced was "owned at the well head" 50 percent by the First Party and 50 percent by the Second Party. That the Government of Iran had decided soon after assuming power that all sales of oil produced in the country must be made by NIOC notwithstanding existing arrangements seems clear in retrospect from the events, and confirming evidence was presented in this Case in the form of an internal memorandum dated 11 July 1979 of decisions made with respect to an unrelated project by the National Petrochemical Company. That memorandum referred to the "Government's policy that all sales of hydrocarbons produced in the country must be made by NIOC".

93. Confirmation of this governmental policy is found in the Official Gazette No. 10066, dated 13 September 1979 which published Notice No. 52866, dated 18 August 1979, relating to the budget for the year 1358 (21 March 1979 - 20 March 1980). Note 38 states, in part: "Oil 114 sale contracts shall be signed by the National Iranian Oil Company on behalf of the Government. The sale proceeds of crude oil, in any form, and that of exported oil products, shall be directly deposited in the account of the General Treasury in the Bank Markazi." On 23 May, Imam Khomeini received certain NIOC staff members and was quoted in the Tehran press as saying that the foes of Islam had had their hands cut off Iranian oil resources which "are in your own hands". Furthermore, at the end of 1979, the Minister of Petroleum was quoted in the press as stating that "After the Revolution, practically we have not delivered a drop of oil to the second party". In this context, it is also noted that the Law for the Protection and Expansion of Industries adopted by the Iranian Revolutionary Council on 5 July 1979 stated that the petroleum industry had already been nationalized, and that on 9 July, Prime Minister Bazargan was quoted in the Tehran press as saying the same thing.

94. Other actions affecting the Claimant's rights in IMINOCO began in May 1979. On 29 May 1979, the Managing Director of NIOC appointed a committee of seven persons to "supervise and execute the affairs of the affiliated companies until the situation of their contracts are clarified . . .". NIOC later dismissed the Managing Director appointed by the Second Party, a right reserved to the Second Party by the JSA, and vested executive authority in its own appointee. Information regarding operations of IMINOCO, principally production reports, ultimately ceased being sent to the Claimant in September.

95. A third set of actions, aimed at termination of the JSA arrangement as a whole, also commenced in the Spring of 1979. Several meetings were held in connection with the negotiations of the sale/purchase agreement noted above. These discussions were linked by NIOC to termination of the JSA and settlement of any issues arising therefrom. Ultimately, NIOC appointed in August 1979 a sub-commission of its Board of Directors, headed by Mr. Khalili, to terminate all of the JSAs and to negotiate new arrangements with each of the former partners. This sub-commission met with the IMINOCO Second Party on 29 September 1979 and notified them at that time that their JSA was terminated. Settlement terms remained linked by NIOC to the opportunity to purchase oil from NIOC in the future.

96. The state of affairs thus reached over the course of 1979 was confirmed during 1980 and thereafter, particularly by promulgation of the Single Article Act in January 1980 and the written notification of the "nullification" of the JSA made in August 1980. This written notification, which emanated from the Ministry of Petroleum and NIOC 115 and not from the Special Commission, explicitly confirmed the oral notice of termination given by NIOC during 1979, i.e. before the Special Commission was formed. It thus served as little more than ratification of the actions taken during 1979.

97. The effects of these events on the Claimant's property are not in dispute. The Tribunal has earlier observed that:

While assumption of control over property by a government does not automatically and immediately justify a conclusion that the property has been taken by the government, thus requiring compensation under international law, such a conclusion is warranted whenever events demonstrate that the owner was deprived of fundamental rights of ownership and it appears that this deprivation is not merely ephemeral. The intent of the government is less important than the effects of the measures on the owner, and the form of the measures of control or interference is less important than the reality of their impact.

Tippetts, Abbott; McCarthy, Stratton, supra, at p. 11. Therefore, the Tribunal need not determine the intent of the Government of Iran; however, where the effects of actions are consistent with a policy to nationalize a whole industry and to that end expropriate particular alien property interests, and are not merely the incidental consequences of an action or policy designed for an unrelated purpose, the conclusion that a taking has occurred is all the more evident.

98. Although a government's liability to compensate for expropriation of alien property does not depend on proof that the expropriation was intentional, there seems little doubt in this Case that the new Islamic Republic intended to bring the JSA to an end and to place NIOC fully in charge of all oil production and sales. Even though it can readily be observed that NIOC made equivocal statements during 1979 regarding the timing and the terms for termination of the JSA, the refusal to permit the Claimant to exercise any rights under the JSA is more relevant to such a finding than any of these pronouncements. Notwithstanding the ambiguity of some of these statements and the Claimant's continued efforts to arrive at an agreed solution of the problems with the JSA, there is in this Case no evidence of any such agreed termination of the JSA nor of a waiver by the Claimant of its rights under that Agreement (as the Tribunal found in the Consortium Cases based on the evidence there).

99. The effects of Iran's actions on the Claimant's JSA rights can be summarized succinctly. Whereas the First and Second Parties jointly operated the offshore petroleum fields involved in this Case and shared 116 50-50 the crude petroleum produced by the fields prior to the events of 1979, thereafter the Claimant and the other Second Party companies no longer participated in joint operation of the fields, no longer received their share of the petroleum being produced, and were told by Iran that their agreement had been terminated and nullified. These changes resulted from the actions of Iran summarized above, which totally excluded the Second Party from any of its functions under the JSA.

100. The conclusion that the Claimant was deprived of its property by conduct attributable to the Government of Iran, including NIOC, rests on a series of concrete actions rather than any particular formal decree, as the formal acts merely ratified and legitimized the existing state of affairs. The Claimant suggests that the taking was complete by 29 September 1979, the date of the meeting when it was informed of the termination of the JSA. The Respondents contend that 11 August 1980, the date of the written notification informing the Claimant that the Special Committee had declared the JSA null and void, is the only date when the taking could be said to have been complete.

101. The Tribunal is not bound by the suggestions of the Parties in determining the date of taking for purposes of liability, but rather must determine such date on its own, based on the facts of the case. The Tribunal has previously held that in circumstances where the taking is through a chain of events, the taking will not necessarily be found to have occurred at the time of either the first or the last such event, but rather when the interference has deprived the Claimant of fundamental rights of ownership and such deprivation is "not merely ephemeral",29 or when it becomes an "irreversible deprivation".30 Similarly, where the appointment of temporary managers ripened into a taking of title at a later date, the Tribunal found that the earlier date should be used when "there is no reasonable prospect of return of control". Sedco, Inc. v. National Iranian Oil Company, Interlocutory 117 Award No. ITL 55-129-3 (28 October 1985), at p. 42.31 The Tribunal has observed that an important objective of the Revolutionary movement - and a first order of business of the new Government - was the assumption of complete control over all aspects of the oil industry, notwithstanding existing joint ventures with foreign oil companies. The first and most immediate action against the property rights at issue, the refusal, in line with this policy, to permit the Claimant to take its liftings under the JSA, started after production from the JSA fields had resumed in March 1979. The final formal "nullification" in August 1980 of the JSA only confirmed the then existing state of affairs. Between these two dates, the Tribunal considers that an early date is appropriate.

102. The Tribunal notes that the Claimant's loss was felt from the time of the first refusals to permit it to lift petroleum in April 1979. At that time the Claimant was still uncertain whether that situation was to be permanent, and NIOC first indicated that it would at some later time be willing to discuss the Claimant's request concerning its 1979 liftings. When no such discussions ensued, the Claimant's parent company felt compelled to enter, on 19 June 1979, into a separate sales/purchase agreement for crude oil with NIOC. But the Claimant still proposed, together with the other Second Party companies in their letter of 26 June, a provisional arrangement for liftings through the rest of that year which was based on the JSA and the rights under that agreement, and which they were waiting to discuss in the separate meeting envisioned by NIOC in the April general meeting. On 30 June, cash calls to the Claimant ceased. While the cessation of cash calls showed that IMINOCO did in fact no longer operate as provided for in the JSA, the Second Party companies still based their disagreement to the dismissal on 1 August of the Second Party's Managing Director on "the existing contractual arrangement", viz., the JSA, when AGIP requested an early meeting of the Board of Directors on the matter. It became clear, however, in the meeting which the IMINOCO Second Party companies had with the Khalili sub-commission on 29 September 1979 that there was no reasonable prospect of return to an arrangement with NIOC on the basis of the JSA. For it was in this meeting that the Second Party companies were told not only that they should regard the JSA as terminated, but also that their letter of 26 June did not deserve an answer. Consequently, the Tribunal finds that the Claimant's JSA rights 118 were taken by 29 September 1979, and that the Respondents are liable to compensate the Claimant for its loss as of that date.

103. The Tribunal has consistently held that the applicable law for the purpose of determining the compensation owed by the Islamic Republic of Iran for deprivations or takings of property of United States nationals during the years immediately prior to the Algiers Accords is the 1955 Treaty of Amity.32 See, for example, Phelps Dodge Corp. and Overseas Private Investment Corp. , supra; Thomas Earl Payne v. The Government of the Islamic Republic of Iran, Award No. 245-335-2 (8 August 1986), reprinted in 12 IRAN-U.S. C.T.R. 3; Sedco, Inc., supra; Amoco International Finance Corporation, supra; and Starrett Housing Corporation, supra. The Tribunal has recognized that the Treaty of Amity, whether or not it remains in force today between the two States, was in force in 1979 and 1980 and clearly was applicable to the investments at issue in these Cases at the times the claims arose.33 Therefore, the Treaty of Amity is the relevant source of law on which the Tribunal is justified in drawing in reaching its decision.

104. The relevant provision is found in Article IV, paragraph 2, of the Treaty of Amity, which provides:

Property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party, in no case less than that required by international law. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.

105. That contract rights, such as those taken by the Respondents in the present Case, are "interests in property" protected by the Treaty of Amity is clear from the above-quoted text and from the negotiating history of the provision, which indicates that the reference to "interests 119 in property" was included at the insistence of the United States for the stated purpose of ensuring that contract rights in the petroleum industry would be protected by the Treaty in the same way as would the older type of property represented by a petroleum concession.

106. Thus, the Claimant is entitled by the Treaty to "just compensation", representing the "full equivalent of the property taken". As the Tribunal has previously held, where the property taken was a "going concern", compensation that meets the Treaty standard is compensation that makes the Claimant whole for the "fair market value" of the property at the date of taking. See the Thomas Earl Payne, Sedco and Starrett Awards, supra. In the present Case, the Claimant argues that its JSA rights constituted part of a "going concern", whereas the Respondents argue that, since the JSA had been frustrated, no such "going concern" remained that could have been taken. That the Claimant's JSA contract rights, which the Tribunal has found continued to exist until they were taken by the Respondents in September 1979, were part of a "going concern" is demonstrated by the history described above and, in particular, by the fact that the wells, platforms, pipelines, and storage facilities covered by the JSA produced petroleum from the JSA fields both before and after the taking in 1979, except for a few months in late 1978 and early 1979 when they were shut down as a result of strikes and violence related to the culmination of the Islamic Revolution. That the Claimant's JSA rights were not, by themselves, "a going concern", but were only part of a "going concern", follows on the other hand from their nature and the way they were granted and defined by that Agreement. As described in detail above, the Claimant's rights under the JSA were first, to participate in the management of IMINOCO, the operating company set up together with the two other Second Party companies and NIOC, and thereby in the production of petroleum from the area covered by the Agreement, and second, to take its share of the petroleum so produced and to export it. The consequence of this contractual situation was that the lifting of the petroleum to which the Claimant was entitled depended an IMINOCO first producing petroleum in accordance with the JSA, and further that the Claimant's influence on the volume of such production was determined by the extent to which the JSA granted the Claimant participation in the management of IMINOCO. In taking these contract rights of the Claimant (and those of the other Second Party companies) in 1979, the Respondents took complete control over a going concern to the exclusion of the Claimant's (and the other Second Party companies') interest therein and appropriated to themselves the entire 120 benefit from that going concern, including that part to which the Claimant was entitled by virtue of the JSA. As a result, the Claimant is entitled to compensation equivalent to the fair market value of the Claimant's interest in the JSA on the date of taking.

107. As far as the standard of compensation is concerned, the Respondents have argued that the Treaty of Amity must be interpreted in the light of changes in customary international law which, they assert, have taken place since the Treaty was signed in 1955. They point to the reference in the above-quoted Treaty provision to "international law", and to a general international law principle of "dynamic" interpretation of treaties. They assert that customary international law as it exists today does not require compensation for expropriated property that is the "full equivalent" of the property, and that this is especially so in cases of large-scale nationalizations involving a State's natural resources. In that context they point to the statement in INA Corporation v. The Government of the Islamic Republic of Iran, Award No. 184-161-1 (13 August 1985) at p. 8, reprinted in 8 IRAN-U.S. C.T.R. 373, 378, that "In the event of such large-scale nationalizations of a lawful character, international law has undergone a gradual reappraisal, the effect of which may be to undermine the doctrinal value of any 'full' or 'adequate' (when used as identical to 'full') compensation standard as proposed in this case" (footnote omitted), and more particularly to judge Lagergren's discussion of that reappraisal in his Separate Opinion in that case.34 However, the Tribunal need not express any view as to the asserted changes in customary international law, or the relevance of such law to a 1979 taking of property. First, the text of the Treaty provision does not support the Respondents' argument. The reference to international law is found in the first sentence of Article IV, paragraph 2, and its meaning is evident. It provides that the protection and security to be received by the property of nationals of one State within the other must be "most constant . . . and in no case less than that required by international law". This reference to international law clearly relates to 121 the standard of "most constant protection and security" set forth in the same sentence and cannot be understood as modifying the taking and compensation requirements of the second and third sentences of that paragraph, which contain no reference to international law and which clearly and completely describe the requirements for takings and compensation. Concerning the argument that treaties generally should be interpreted in the light of customary international law as it may evolve, the Tribunal has already found in the INA award that the Treaty of Amity as a lex specialis prevails in principle over general rules. This is certainly the case for the Treaty's compensation provisions the purpose of which would otherwise be difficult to ascertain.

108. The Respondents also assert that compensation should be based on the net book value of the property taken and point in support of that assertion to a series of settlements in the global petroleum industry in recent decades which, they assert, demonstrate that both nations with petroleum reserves and companies engaged in finding and extracting those reserves accept net book value as an appropriate basis for compensation. The Tribunal notes, however, that such settlements are usually confidential and appear frequently to involve additional considerations, such as continued access to petroleum resources, so that the true compensation may be difficult to identify. As observed by the distinguished tribunal in Kuwait v. American Independent Oil Company (AMINOIL), (Reuter, Sultan, and Fitzmaurice Arbitrators, Award of 24 March 1982) at paragraph 157, reprinted in 66 International Law Reports (1984) at p. 606, such settlements do not constitute an opinio juris. In any event, such settlements are irrelevant to the applicable law in the present Case, that is the standard of compensation set forth in the Treaty of Amity.

109. The Respondents further argue that the taking of property in the present Case was a lawful taking, and that for such a taking, a lesser standard of compensation is required. The Claimants deny that the taking was lawful and further deny that a lesser standard of compensation is applicable to lawful takings. However, the Tribunal need not decide in the present Case whether the taking was unlawful, for instance, as violative of stabilization clauses or for any other reason, because, whatever the relevance of that question as a matter of customary international law, it is irrelevant under the Treaty of Amity. Article IV, paragraph 2, quoted above, provides a single standard, "just compensation" representing the "full equivalent of the property taken", which applies to all property taken, regardless of whether that taking was lawful or unlawful. Clearly, as the Amoco International 122 Finance Award, supra, recognizes, that standard applies to takings that are "lawful" under the Treaty, but the Treaty does not say that any different standard of compensation would be applicable to an "unlawful" taking. The Treaty states two requirements for any taking, that it be for a public purpose and that "just compensation", as defined therein, be paid promptly. In the present Case, there is no allegation that the taking, which extended to all petroleum production in Iran, was not for a public purpose, and the Claimant requests no more than "just compensation" based on the single standard of the Treaty.

110. The Tribunal believes that the lawful/unlawful taking distinction, which in customary international law flows largely from the Case Concerning the Factory at Chorzow (Claim for Indemnity) (Merits), P.C.I J. Judgment No. 13, Ser. A., No. 17 (28 September 1928), is relevant only to two possible issues: whether restitution of the property can be awarded and whether compensation can be awarded for any increase in the value of the property between the date of taking and the date of the judicial or arbitral decision awarding compensation. The Chorzow decision provides no basis for any assertion that a lawful taking requires less compensation than that which is equal to the value of the property on the date of taking. In the present Case, neither restitution nor compensation for any value other than that on the date of taking is sought by the Claimant, so the Tribunal need not determine whether such remedies would be available with respect to a taking to which the Treaty of Amity applies.

111. The Tribunal recognizes that the determination of the fair market value of any asset inevitably requires the consideration of all relevant factors and the exercise of judgment. In the absence of an active and free market for comparable assets at the date of taking, a tribunal must, of necessity, resort to various analytical methods to assist it in deciding the price a reasonable buyer could be expected to have been willing to pay for the asset in a free market transaction, had such a transaction been possible at the date the property was taken. Any such analysis of a revenue-producing asset, such as the contract rights involved in the present Case, must involve a careful and realistic appraisal of the revenue-producing potential of the asset over the duration of its term, which requires appraisal of the level of production that reasonably may be expected, the costs of operation, including taxes and other liabilities, and the revenue such production would be 123 expected to yield, which, in turn, requires a determination of the price estimates for sales of the future production that a reasonable buyer would use in deciding upon the price it would be willing to pay to acquire the asset. Moreover, any such analysis must also involve an evaluation of the effect on the price of any other risks likely to be perceived by a reasonable buyer at the date in question, excluding only reductions in the price that could be expected to result from threats of expropriation or from other actions by the Respondents related thereto.

112. One such method of analysis, and the method used by the Claimant, is the Discounted Cash Flow ("DCF") analysis, which calculates the Claimant's prospective net earnings over the term of the JSA and discounts them to give their value at the date of taking, using a discount rate that takes into account the perceived risks. In that connection, the Tribunal does not understand the Claimant's calculations of anticipated revenues from the JSA as a request to be awarded lost future profits, but rather as a relevant factor to be considered in the determination of the fair market value of its property interest at the date of taking. The Tribunal recognizes that a prospective buyer of the asset would almost certainly undertake such DCF analysis to help it determine the price it would be willing to pay and that DCF calculations are, therefore, evidence the Tribunal is justified in considering in reaching its decision on value. In Starrett, supra, the Tribunal based its Award on an expert's report that utilized the DCF method, but the Tribunal made various adjustments to the conclusions and the resulting amounts. The need for some adjustments is understandable, as the determination of value by a tribunal must take into account all relevant circumstances, including equitable considerations.35 While a DCF analysis can, and often should be, an essential and even central component in that determination of value, it must not exclude other relevant considerations. In this connection, the Tribunal notes that in Amoco International Finance, supra, Chamber Three considered the DCF method inadequate and distinguished between the assets of a going concern, including good will and commercial prospects, which it noted are closely linked to the profitability of the concern, and what it described as the "financial capitalization of the revenues which might be generated by such a concern . . .".

113. In the present Case, the property taken is not a manufacturing or processing enterprise, but rather contract rights to continue to 124 exploit natural resources previously discovered pursuant to the contract, and the Tribunal considers the use of the DCF method by the Claimant a relevant contribution to the evidence of the value of the Claimant's contract rights which have been taken by the Respondents. However, the Tribunal agrees that it is not an exclusive method of analysis and that all relevant considerations must be taken into account. As used by the Claimant, with its production and price estimates and a very low discount rate (four and one-half percent), the Tribunal cannot agree that the method has resulted in a proper estimate of market value. There are, for example, risks, such as the risk of reduced future production as a result of national policy changes flowing from the Iranian Revolution, that should be taken into account, even if such risks cannot be quantified with any certainty in the anticipated production or as part of a discount rate. The Tribunal therefore proceeds to its determination of the value of the Claimant's property interest on the date of taking by means of consideration of all relevant circumstances as revealed by the evidence presented in the Case.

114. In this connection, the Tribunal does not intend to make its own DCF analysis with revised components, but rather to determine and identify the extent to which it agrees or disagrees with the estimates of both Parties and their experts concerning all of these elements of valuation.

115. Another method which can help the Tribunal verify its findings concerning the value of the Claimant's JSA interests is to value the tangible investments made by the Claimant under the JSA as well as the Claimant's intangible assets, including the profitability of its share of the going concern, and to deduct from these total assets the Claimant's liabilities. While this method also values the revenue-producing potential of the Claimant's JSA interests it puts more emphasis an actual investments and past performance as a basis for the assessment of expected profitability than on forecasts of expected cash flows. This method, which might be described as on underlying asset valuation approach, first calculates the tangible assets at their depreciated replacement value, thereby adjusting book value which the Respondents, in its net form, have put forward as their preferred measure of compensation for this Case. In order to quantify the intangible assets including profitability of the property interests taken, an appropriate income figure is determined based on historic earnings, to which a multiple is applied, which takes into account legitimate expectations in an oil venture of this type generally and in the context. of the JSA more particularly.

116. The Tribunal is mindful that, as in any other case, its findings and conclusions are determined by the applicable law and the particular circumstances of this Case. With regard to the standard of compensation, the Tribunal has pointed out, supra, that it applies the lex specialis of the Treaty of Amity and that it need not therefore make any finding with respect to customary international law. Similarly, with respect to the methods of valuation, the Tribunal has used methods it considers appropriate in light of all the issues and evidence in this Case, including the nature of the contractual arrangements represented by the JSA, and the Tribunal makes no finding with respect to the valuation of other types of contracts or other types of property.

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