13" "As the parties themselves submit, there rests upon the expropriating state a duty, in both Costa Rican and international law, to pay compensation in respect of even a lawful expropriation.

14""The vocabulary describing the amount of compensation properly payable in respect of a lawful taking has varied considerably from time to time. It comprises such words as "full", "adequate", "appropriate", "fair" and "reasonable''. Sometimes, the descriptive adjective is elaborated by the additional mention of "market value".

15""In the present case, the Tribunal is spared the need to enter further into any doctrinal discussion of the standard of compensation because it is common ground between the parties, and the Tribunal agrees, that the compensation to be paid should be based upon the fair market value of the Property calculated by reference to its "highest and best use".

16""In approaching the question of compensation for the Santa Elena Property, the Tribunal has borne in mind the following considerations: -International law permits the Government of Costa Rica to expropriate foreign owned property within its territory for a public purpose and against the prompt payment of adequate and effective compensation. This is not in dispute between the parties. -While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose, and thus may be legitimate, the fact that the Property was taken for this reason does not affect either the nature or the measure of the compensation to be paid for the taking. That is, the purpose of protecting the environment for which the Property was taken does not alter the legal character of the taking for which adequate compensation must be paid.1 The international source of the obligation to protect the environment makes no difference.

17""Expropriatory environmental measures- no matter how laudable and beneficial to society as a whole- are, in this respect, similar to any other expropriatory measures that a state may take in order to implement ist policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state‘s obligation to pay compensation remains.

18""As mentioned above, there is no dispute between the parties as to the applicability of the principle of full compensation for the fair market value of the Property, i.e., what a willing buyer would pay to a willing seller.

19""There is, however, a dispute as to the value of the Property derived by applying that principle. Specifically, the parties differ with respect to the date on which the Property was expropriated and as of which ist fair market value is to be assessed, and as to the value of the Property on that date. This difference of views lies at the heart of the case, and will be explored in the following section of our Award, dealing with the crucial issue of valuation."

20""On the question of valuation, as noted earlier, the views of the parties are widely divergent. The Tribunal considers it useful to summarise the parties‘ positions here:

21"" As is well known, there is a wide spectrum of measures that a state may take in asserting control over property, extending from limited regulation of its use to a complete and formal deprivation of the owner‘s legal title. Likewise, the period of time involved in the process may vary- from an immediate and comprehensive taking to one that only gradually and by small steps reaches a condition in which it can be said that the owner has truly lost all the attributes of ownership. It is clear, however, that a measure or series of54 measures can still eventually amount to a taking, though the individual steps in the process do not formally purport to amount to a taking or to a transfer of title. What has to be identified is the extent to which the measures taken have deprived the owner of the normal control of his property. A decree which heralds a process of administrative and judicial consideration of the issue in a manner that effectively freezes or blights the possibility for the owner reasonably to exploit the economic potential of the property, can, if the process thus triggered is not carried out within a reasonable time, properly be identified as the actual act of taking.

22""There is ample authority for the proposition that a property has been expropriated when the effect of the measures taken by the state has been to deprive the owner of title, possession or access to the benefit and economic use of his property: 

'A deprivation or taking of property may occur under international law through interference by a state in the use of that property or with the enjoyment of its benefits, even where legal title to the property is not affected. 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."2 (Emphasis added.)

23""Stated differently, international law does not lay down any precise or automatic criterion, such as the date of the transfer of ownership or the date on which the expropriation has been "consummated" by agreed or judicial determination of the amount of compensation or by payment of55 compensation.3 The expropriated property is to be evaluated as of the date on which the governmental "interference" has deprived the owner of his rights or has made those.. rights practically useless. This is a matter of fact for the Tribunal to assess in the light of the circumstances of the case.4

24""Claimant does not really contest this approach. The determination of the relevant date, so Claimant writes, "... may vary under different circumstances, thereby affecting the determination of the actual date of expropriation".

25""Although the expropriation by the decree of 5 May 1978 was only the first step in a process of transferring the Property to the Government, it cannot reasonably be maintained, as Claimant seeks to do, that this Decree expressed no more than an "intention" to expropriate or that, in 1978, the Government merely "sought to expropriate". In the circumstances of this case, the taking of the Property occurred as of 5 May 1978, the date of the 1978 Decree.

26""As of that date, the practical and economic use of the Property by the Claimant was irretrievably lost, notwithstanding that CDSE remained in possession of the Property. As of 5 May 1978, Claimant's ownership of Santa Elena was effectively blighted or sterilised because the Property could not, thereafter, be used for the development purposes for which it was originally acquired (and which, at that time, were not excluded) nor did it possess any significant resale value.(....)

27""Since the Tribunal is of the view that the taking of the Property occurred on 5 May 1978, it is as of that date that the Property must be valued. There is no evidence that its value at that date was adversely affected by any prior belief or knowledge that it was about to be expropriated. Consequently, for the purpose of attributing a value to the Property in 1978, the Tribunal has not had to consider later appraisals; such as the Government's 1993 Appraisal or those submitted by the parties in these proceedings.

28""The significance of identifying the date of taking lies in its bearing on l the factors that may properly be taken into account in assessing the `fair market value' of the Property a value which, as noted, both sides are agreed must be the basis of the present Award. If the relevant date were the date of this Award, then the Tribunal would have to pay regard to the factors that would today be present to the mind of a potential purchaser. Of these, the most important would no doubt be the knowledge that the Government has adopted an environmental policy which would very likely exclude the kind of56 tourist hotel and commercial development that the Claimant contemplated when it first acquired the Property. if, on the other hand, the relevant date is 5 May 1978, factors that arose thereafter though not necessarily subsequent statements regarding facts that existed as of that date must be disregarded."

29""As noted earlier, Claimant purchased the Santa Elena Property in 1970 with the intention of developing it partly as a tourist resort.

30""The great difficulty in this case is that, apart from Costa Rica's unilateral appraisal of 14 April 1978 and CDSE's February 1978 valuation, there is no other evidence of what the Property was actually worth as at the date of expropriation.

31""We agree with the parties that the Tribunal cannot go back in time to 1978 to perform its own appraisal of the Property, but that we can, and must,'.... make some assessment of the two [1978] appraisals that the parties have provided'.

32""In determining the fair market value of the Property as of the date of expropriation, 5 May 1978, the Tribunal has proceeded by means of a process of approximation based on the appraisals effected by the parties in 1978 and submitted to the Tribunal in the context of these proceedings, as has been done in several international arbitrations, as discussed below.5

33""As regards the type of conclusions that may be drawn from this sort of evidence, we refer to the reasoning of the Iran US Claims Tribunal in the AIG case, where it is stated:

'From what has been stated above, it might be possible to draw some conclusions regarding the higher and the lower limits of the range within which the value of the company could reasonably be assumed to lie. But the limits are widely apart. In order to determine the value within those limits, to which value the compensation should be related, the Tribunal will therefore have to make an approximation of that value, taking into account all relevant circumstances in the case.‘6

34" "In the Phillips Petroleum case,7 the same Tribunal found that, in deciding the price that a purchaser could be expected to have been willing to pay for the asset in question at, the date the asset was taken, the Tribunal was required to exercise its own judgment, taking into account all relevant circumstances, including equitable considerations: 'The Tribunal recognizes that the determination of the fair market value of any assets inevitably requires the consideration of all relevant factors and the exercise of judgment. In "Starret, supra ... the Tribunal made various adjustments to the conclusions (of the Tribunal appointed outside expert) and the resulting amounts. The need for such adjustments is understandable, as the determination of value by a tribunal must take into account all relevant circumstances, including equitable considerations.'8

35""As discussed above, Costa Rica's valuation of Santa Elena in 1978 was approximately US$ 1,900,000. Claimant's 1978 valuation was approximately US$ 6,400,000.

36""The Tribunal will, consequently, take as a starting point these appraisals. It can safely be assumed that the actual and true fair market value of the Property was not higher than the price asked by the owners and not lower than the sum offered by the Government, i.e., that it was somewhere between these two figures. It can also safely be assumed that both of these appraisals took account of, and included, the 'potential for tourism development' of the Property, discussed above.

37""In the circumstances of this case, making the assessment that we have been invited to make and having considered the evidence submitted by the parties and the factors relevant to the value of the Santa Elena Property in 1978, the Tribunal has determined that the sum of US$ 4,150,000 constitutes a reasonable and fair approximation of the value of the Property at the date of its taking."

38""As indicated above, Claimant claims that it is entitled to an award of compound interest on the value of the Property in 1978, calculated from the date of the expropriation. Respondent argues that no interest is due or, if interest is due, then Claimant is entitled to simple interest only at a nominal rate."

39""Even though there is a tendency in international jurisprudence to award only simple interest, this is manifested principally in relation to cases of injury or simple breach of contract. The same considerations do not apply to cases relating to the valuation of property or property rights. In cases such as the present, compound interest is not excluded where it is warranted by the circumstances of the case.9

40""First, there are international arbitral decisions where compound interest has been expressly allowed.10

41""Secondly, there are decisions where the possibility of compound interest appears to have been acknowledged, but the circumstances were not thought to be appropriate for its award.11

42""Thirdly, there is the decision of Chamber I of the Iran- US Claims Tribunal in the Sylvania Technical Services case12in which, although it was stated that `the Tribunal has never awarded compound interest', the Tribunal specifically declared its intention to 'derive a rate of interest based approximately on the amount that the successful Claimant would have been in a position to have earned if he had been paid in time and thus had the funds available to invest in a form of commercial investment in common use in its own country. Six month certificates of deposit in the United States are such a form of investment for which average interest rates are available from an authoritative official source'.13 The late Dr. F.A. Mann has made the following telling comment on this passage: 'It is not certain whether the59 Tribunal realized that investment in six month certificates of deposit involves earning compound interest.'14

43""Fourthly, there are the views of writers of high authority. Dr. Mann concluded the article just cited as follows: '... it is submitted that, on the basis of compelling evidence, compound interest may be and, in the absence of special circumstances, should be awarded to the Claimant as damages by international tribunals.15 The Tribunal does not consider that the expression by Dr. Mann of his conclusion in terms of `damages' renders it inapplicable in the present case. While it is true that the taking by Costa Rica of the Claimant's Property was not initially unlawful, so that no question of damages then arose, the fact remains that there is no substantive distinction to be drawn, so far as the Claimant is concerned, between an entitlement to damages and his entitlement to compensation. CDSE is entitled to the full present value of the compensation that it should have received at the time of the taking. Conversely, the taking state is not entitled unjustly to enrich itself by reason of the fact that the payment of compensation has been long delayed.

44" "Finally, reference may be made to the scholarly treatment of the subject by Professor Gaetano Arangio- Ruiz, Special Rapporteur of the UN International Law Commission on State Responsibility. After close consideration of the authorities he concluded as follows: `The Special Rapporteur is therefore inclined to conclude that compound interest should be awarded whenever it is proved that it is indispensable in order to ensure full compensation for the damage suffered by the injured State'.16

45" "In other words, while simple interest tends to be awarded more frequently than compound, compound interest certainly is not unknown or excluded in international law. No uniform rule of law has emerged from the practice in international arbitration as regards the determination of whether compound or simple interest is appropriate in any given case. Rather, the determination of interest is a product of the exercise of judgment, taking into account all of the circumstances of the case at hand and especially considerations of fairness which must form part of the law to be applied by this Tribunal.

46""In particular, where an owner of property has at some earlier time lost the value of his asset but has not received the monetary equivalent that then became due to him, the amount of compensation should reflect, at least in part, the additional sum that his money would have earned, had it, and the60 income generated by it, been reinvested each year at generally prevailing rates of interest. It is not the purpose of compound interest to attribute blame to, or to punish, anybody for the delay in payment made to the expropriated owner; it is a mechanism to ensure that the compensation awarded the Claimant is appropriate in the circumstances.

47""In the instant case, an award of simple interest would not be justified, given that since May 1978, i.e., for almost twenty two years, CDSE has been unable either to use the Property for the tourism development it had in mind when it bought Santa Elena or to sell the Property. On the other hand, full compound interest would not do justice to the facts of the case, since CDSE, while bearing the burden of maintaining the property, has remained in possession of it and has been able to use and exploit it to a limited extent.

48""Consequently, Claimant is entitled to an award of compound interest adjusted to take account of all the relevant factors.

49""On the basis of the circumstances of the case, the Tribunal determines that the compensation payable to Claimant, comprising principal and interest to the date of the Award, shall be US$ 16,000,000."