Report E2 (1) Valuation.

VI. VALUATION OF COMPENSABLE CLAIMS 

257. Having determined which portions of the Claims are compensable, the Panel must recommend the appropriate amount of compensation to be awarded for each. Before doing so, however, it will address some evidentiary considerations specific to this part of its task. 

A. Evidentiary considerations 

258. Some claimants have relied on certain documents prepared by or acknowledged by Iraqi officials as evidence of the value of the loss suffered; the Panel must assess the weight to be accorded to such evidence. It must also specify the role of expert consultants retained in order to assist it in determining appropriate valuations. 

1. Protocols with Iraq 

259. CCL and Technopromexport both presented as evidence of the value of the losses suffered certain documents prepared by or acknowledged by Iraqi officials. In the case of CCL, the documents in question contain lists of equipment apparently signed by Iraqi officials at the time of CCL’s departure from Iraq. In the case of Technopromexport, the evidence is more substantial, and consists of actual protocols between Technopromexport and the Iraqi contracting parties, agreed after 2 March 1991, in which Iraq appears to acknowledge the amounts owed to Technopromexport for contract works, asset losses and other costs incurred in the wake of its departure from Iraq. 

260. Concerning the documents produced by CCL, Iraq, in its responses to the Panel’s questions, denies that the lists were acknowledged by any responsible Iraqi official and also denies that these lists can represent any acknowledgment of value. The Panel agrees with the latter statement. The documents are one and two page lists of assets with single United States dollar totals, alleged by the Claimant to represent the value of the items listed; the Claimant admits that the lists were prepared by a CCL employee as a final act prior to departing from Iraq. The record nonetheless might reflect a contemporaneous CCL estimation of value. There is not enough, however, in these documents to warrant relying on them as a serious record of the value of the CCL equipment in Iraq at the time. CCL has failed to provide the Panel with additional information concerning the records utilized by its employee in order to arrive at the values stated. Considering the documents in the totality of these circumstances, the Panel concludes that they may not be relied upon to determine value for the purpose of awarding compensation. 

261. Concerning the documents produced by Technopromexport, Iraq, in its responses to the Panel’s questions, acknowledges the protocols in question, but argues that it never intended them to be an admission of value. Iraq also points out that the statements concerning value or loss were expressly conditioned upon Iraq reviewing underlying documentation concerning the stated value or loss. 

262. The Panel likewise finds the protocols to have little probative value. They were agreed at a time when Iraq was anxious to resume the particular project works and were steps towards achieving that end. The statements contained in these agreements must therefore be assessed against that background - a desire to reach a settlement in order to resume the works. Viewed in this manner, these protocols, at most, appear to be a statement of the settlement Iraq would be willing to reach, after having had an opportunity to review the underlying documentation, if the projects were resumed. The projects have not been resumed. Consequently, the Panel determines that in these circumstances such documentation may not be relied upon in reaching conclusions regarding the amount of compensation. 

2. The Panel’s use of expert consultants 

263. Article 36 of the Rules provides that a “panel of Commissioners may: 

... (b) request additional information from any other source, including expert advice, as necessary”. Because the Claims presented complex issues relating to the quantification of losses suffered at large construction projects and factory premises, the Panel determined at an early stage of the proceedings to request expert advice pursuant to article 36. As stated, the Panel obtained the assistance of a firm experienced on an international level - and particularly the Gulf region - with loss adjusting and accounting issues arising from both the wholesale destruction of assets and the abrupt cessation of business activities. 

264. Under the Panel’s supervision and guidance, the expert consultants reviewed the evidence submitted by the Claimants (including the responses to the procedural orders), information obtained from two of the Claimants during on-site inspections conducted with the secretariat, and material prepared by the secretariat concerning the Claims. Considering all of this information, the expert consultants advised the Panel regarding the quantification of the Claims. Such advice generally was based on, among other things: the expert consultants’ opinion as to whether particular documentation, alone or together with other documentation, tended to support a corresponding claim for money damages; the application of general loss adjusting principles, such as depreciation and betterment (see paragraph 271, infra); comparisons of the level and type of evidence that claimants usually are able to produce to demonstrate losses arising out of catastrophic events not dissimilar in their effects to war situations (such as fire, hurricanes or floods); and cross-checks of documentation submitted to ensure completeness. 

265. The Panel carefully reviewed the views and calculations of the experts and, in conformity with general principles of law, exercised its discretion in assessing the amount of compensation that should be awarded. The Panel’s use of expert consultants in this manner is consistent with the previous practice of the Commission83/ as well as the established practice of other international claims tribunals and commissions.84/ 

B. Assessment of the Claims 

1. Contract and contract-related claims 

266. In each case the Panel required evidence to establish that the Claimants performed the work called for under the contract, and evidence that established the value of that work. Typically, such evidence included invoices for work performed and the underlying payment certificates or shipping documents. Where such documentation was not provided, the Panel has not recommended compensation in the amount claimed. 

2. Lost profits 

267. For projects in Iraq, compensation for lost profits was only recommended where the Panel concluded that there was a realistic possibility of profits being earned. The Claimants who were engaged in construction projects in Iraq were not able to demonstrate a reasonable likelihood of earning profits on their ongoing projects in Iraq. The evidence produced by these Claimants indicated only that Iraq was becoming more and more indebted to them and that their continued presence in Iraq reflected motivations other than a realistic expectation of earning profits. The Claimants’ failure to provide sufficient information concerning the method of calculating the lost profit claimed also argued against any award. The only exception to this is the contract entered into by Technopromexport for the supply of conductors and spare parts to Iraq. There the evidence suggests a sufficient regularity of payment by Iraq, such that the Panel concludes that a level of profit was reasonably expected. 

268. In the case of Gulf Cable, the evidence clearly indicated that a profitable business was interrupted on 2 August 1990. The Claimant provided the financial statements and balance sheets generated by the company every year since its inception as well as its production records. Together, these documents enabled the Panel to form a clear picture of the Claimant’s profitability upon which its recommendation is made. 

3. Physical assets 

269. In valuing the physical assets lost during the relevant period for purposes of claiming compensation the Claimants used a variety of methods. Indeed, the methods differed within Claims according to the kind of asset for which compensation was being sought. In all cases, the Panel required evidence that the asset existed prior to 2 August 1990 and that it was owned by the Claimant as of 2 August 1990. A significant factor in the Panel’s calculation of compensation for asset losses was the Claimants’ failure to meet these requirements. Indeed, most of the lists of assets produced (typically containing hundreds of items in different categories such as plant and machinery, equipment, supplies and materials) did not correspond to the numbers of items claimed. The amounts recommended have been adjusted accordingly. 

270. In terms of actual valuation, the Claimants used a variety of methods for different items, including book value, market value, replacement value and depreciated replacement value (which may be defined as the cost of purchasing a new item less accumulated depreciation on the old). All of these methods are acceptable under decision 9. To the extent these valuation methods were confirmed as reasonable by the independent sources consulted by the Panel, the Panel accepted the Claimant’s calculations as made. In one case, a Claimant presented alternate valuation methods - book value and a lower market value - for the same items. In this case, the Panel valued the equipment using the market value calculation, on the basis that this better reflects the Claimant’s ability to replace the item. 

271. The Panel also utilized two specific valuation tools in arriving at its final valuations of assets: betterment and depreciation. Betterment occurs when old and used items are replaced with new or better ones; in such cases, a significant increase in value can be realized. Where the Claimants did not use a method of valuation that accounts for betterment, the Panel made appropriate adjustments in the value. In some instances, this had a significant impact on the amount awarded. 

272. As regards depreciation, the Panel notes that it tended to be conservatively measured by the Claimants. Specifically, the Claimants argued that they should be permitted to utilize a much longer period of depreciation than the period actually used in their financial records. They contended that “book depreciation” was typically recorded in their books and records at a short period because book depreciation was utilized for accounting and tax purposes, whereas a longer period of depreciation more accurately reflected the actual value of the assets to them. 

273. The Panel is aware that in many cases, especially that of construction equipment and machinery, the value of an asset to a company can in fact be higher than the value at which that asset is carried on its books. Consequently, the Panel has, in the majority of instances, accepted the Claimant’s evidence of depreciation. In some cases, however, the Panel has determined that the depreciation utilized was not reasonable given the equipment in question. For example, in the CCL claim the Panel has 

utilized a shorter life for the assets listed as air conditioners, furniture and fixtures and typewriters, rather than the more extended periods claimed. The Panel assessed Gulf Cable’s claim for computer equipment on the same basis. 

4. Financial assets 

274. Gulf Cable has claimed for cash allegedly held at the company safe and stolen by the occupying Iraqi troops. The petty cash records produced by the company indicate that amounts of this size were regularly on hand in the company’s safe, and that the amount claimed was recorded as being on hand as of the date of Iraq’s invasion. The Panel therefore determines that a recommendation of compensation in the amount claimed is warranted. 

5. Evacuation costs 

275. Hyundai, in its response to the Panel’s Order, provided copies of invoices paid for air fares and exit visas for most of the workers evacuated at Hyundai’s expense. For these costs the Panel recommends compensation. In the case of certain Thai workers, Hyundai alleges that the Government of Thailand intends to hold it responsible for the costs incurred by the Government of Thailand in evacuating Hyundai employees of Thai nationality from Kuwait. However, Hyundai has not demonstrated that it actually incurred these costs; as such, it may not receive compensation for them. 

C. Currency exchange rate and interest 

276. While many of the costs incurred by the Claimants were expended in currencies other than United States dollars, the Commission’s awards are made in that currency.85/ Therefore the Panel must determine the appropriate rate of exchange to apply to losses expressed in other currencies. 

277. CCL, Hyundai and Technopromexport have each argued that their contracts contained agreed-upon currency exchange rates and therefore that these agreed exchange rates should apply to all of their losses. 

Typically, the contract rate was substantially higher than the prevailing commercial rate. 

278. The Panel agrees that the exchange rate specified in a contract is the appropriate exchange rate for contract losses suffered in currencies other than United States dollars, as this was specifically bargained for and agreed by the parties. However, the same reasoning and conclusion do not apply to losses that are not contract based. Generally, items such as lost or damaged assets, lost profits and evacuation costs are not contemplated by the parties when agreeing to an exchange rate in their contracts. Therefore, for non-contractual losses, the Panel determines the appropriate exchange rate to be the prevailing commercial rate, as evidenced by the United Nations Monthly Bulletin of Statistics, as of the date the Panel determines it appropriate to apply that rate.86/ 

279. The next issue is that of the appropriate date on which the exchange rate is to be applied to compensable losses suffered in currencies other than United States dollars and that are not subject to contractual rates of exchange. Courts and tribunals generally use one of three dates in determining the appropriate date: the date of loss; the date of judgment; or the date of payment in execution of judgment. The Panel notes that previous Panels have already decided this issue in favour of the first8.7/ The Panel joins with these decisions and will apply the currency exchange rate as of the date the loss is determined to have occurred. 

280. This choice is in harmony with decision 16 of the Governing Council, which provides that “[i]nterest will be awarded from the date the loss occurred until the date of payment, at a rate sufficient to compensate successful claimants for the loss of use of the principal amount of the award”.88/ 

281. Accordingly, the Panel, in determining for each of the Claims the date when the compensable losses occurred, determines not only the appropriate currency exchange rate to apply to losses stated in currencies other than United States dollars, but also the date from which interest will accrue in accordance with decision 16. 

282. The Panel notes that the date a particular loss occurred depends upon the characteristics of that loss. With respect to the Claims, the compensable losses vary significantly in kind and in location. The Panel therefore determines the dates of the losses before it considering these two factors. 

283. In the cases of CCL, Hyundai and Technopromexport, all the losses in Iraq and Kuwait were incurred upon the departure of the Claimants’ employees from Iraq and Kuwait. For these losses, therefore, the Panel considers the date of loss to be the date of departure of the last employees of each respective company during the period 2 August 1990 to 2 March 1991. In the case of CCL, the evidence indicates that this date is 31 January 1991. In the case of Hyundai, the date is 24 August 1990 for losses in Kuwait and 17 January 1991 for losses in Iraq. In the case of Technopromexport the date is 1 January 1991. 

284. With respect to the appropriate rate of exchange to apply to losses suffered in currencies other than United States dollars and not governed by contractual exchange rates by CCL, Hyundai and Technopromexport in Iraq and Kuwait, the Panel notes that during the entire period of the occupation of Kuwait there was a significant disturbance of the exchange rate for the Iraqi dinar and the Kuwaiti dinar which resulted from Iraq’s invasion and occupation of Kuwait. The Panel therefore uses the exchange rates for the Iraqi dinar and the Kuwaiti dinar that prevailed immediately before the invasion and occupation of Kuwait for the purpose of determining compensation to be awarded for these losses.89/ 

285. The compensable losses suffered by Gulf Cable relate only to its activities in Kuwait. Nonetheless, the determination of the appropriate date of loss depends upon the type of loss for which compensation is awarded. 

286. Gulf Cable’s loss of financial and physical assets occurred with its loss of control over those assets - 2 August 1990, the date of Iraq’s invasion and occupation of Kuwait. The rate of exchange available as of 2August 1990 will therefore be applied in determining the appropriate amount of compensation to be awarded for these items of loss.

287. Gulf Cable’s claims relating to lost profits concern losses suffered over an extended period, so that another method of determination of the appropriate date of loss is warranted. The Panel determines the period during which Gulf Cable suffered compensable lost profits to be that from 2 August 1990 to 31 March 1992, the date when Gulf Cable could have resumed production at its pre-invasion capacity. Because the loss of profits was suffered regularly over this period of time, the Panel selects the mid- point of this period, 1 June 1991, as the date of loss. Concerning the appropriate rate of exchange to be applied to this loss, the Panel applies the average of the monthly commercial rates available during this period.