Download I. Executive Summary

DAMAGES IN INVESTOR-STATE ARBITRAL AWARDS: A REVIEW
Case summary
Middle East Cement Shipping and Handling Co. S.A.
v
Arab Republic of Egypt
Year of the award: 2002
Forum: ICSID
Applicable law: Egypt-Greece BIT (concluded 1993), international law, Egyptian law
Arbitrators
Timeline of the dispute
Prof. Dr. Karl-Heinz Böckstiegel – 19 November 1999 – notice of arbitration
President
28 January 2000 – arbitral tribunal constituted
Prof. Piero Bernardini
27 November 2000 – decision on jurisdiction
Prof. Don Wallace, Jr.
12 April 2002 – arbitral award
Table of contents
I. Executive Summary .................................................................................................... 2
II. Factual Background and Claims of the Investor ....................................................... 2
III. Findings on Merits ................................................................................................... 3
A. Applicable law ...................................................................................................... 3
B. Expropriation ......................................................................................................... 3
IV. Findings on Damages .............................................................................................. 4
A. Law Applicable to the Determination of Damages ............................................... 4
B. Burden of Proof and Evidence .............................................................................. 4
B. Standard of Compensation .................................................................................... 4
C. Heads of Damages and Valuation ......................................................................... 5
1. Lost profits ......................................................................................................... 5
2. The ship Poseidon 8 ........................................................................................... 6
3. Damages incurred due to a bank loan, foreign employees’ compensation,
liquidation expenses ............................................................................................... 6
4. Other claims ....................................................................................................... 7
D. Mitigation of Damages.......................................................................................... 7
F. Interest ................................................................................................................... 8
G. Costs ...................................................................................................................... 8
V. Implications / Initial Analysis ................................................................................... 8
VI. List of Commentaries to the Case .......................................................................... 10
VII. Annexes ................................................................................................................ 11
Table 1. Issues discussed in the award..................................................................... 11
Table 2. Relevant quotes from the award ................................................................ 12
I. Executive Summary
In 1982, Middle East Cement (“MEC”), a Greek corporation, established a branch in
Egypt to carry out the business of importing, storing and selling cement under a 10
year License. In 1989, Egypt issued a decree prohibiting importation and sales of
Grey Portland Cement thus effectively preventing MEC from continuing its business.
Even though the 1989 Decree was revoked in 1992, MEC decided not to restart its
business. Egypt did not grant its approval for re-exportation of MEC’s on-shore
installations until 1995. Finally, in 1999 MEC’s ship Poseidon 8 was seized by the
Red Sea Port Authority to cover MEC’s debts and sold at auction.
MEC initiated ICSID arbitration under the provisions of the Egypt-Greece BIT. It
claimed that Egypt’s conduct amounted to expropriation of its investment and
requested US$ 42 million in compensation for lost profits, the expropriated ship and
expenses that it had to bear, plus interest and costs.
The Tribunal decided that the Decree amounted to expropriation of the Claimant’s
investment and awarded damages for lost profits calculated until the expiry of the
License in 1993. The Tribunal decided not to add an additional sum for the loss of
opportunity. The Tribunal further determined that Egypt’s actions leading to the
seizure and auction sale of the Claimant’s ship also amounted to expropriation. The
“market value” of the ship was determined by the Tribunal by averaging the figures
submitted by the parties. All other claims for damages were rejected.
In total, the Tribunal awarded approximately US$ 2.2 million plus interest at the rate
of 6% compounded annually, from the date of expropriation until the date of payment.
II. Factual Background and Claims of the Investor
Middle East Cement Shipping and Handling Co. S.A. (“MEC” or “Claimant”) was a
Greek corporation, which established – in 1982 – its Egyptian branch in Suez for the
import and storage of bulk cement in depot ship, and for packing and dispatch of
cement within Egypt. The Egyptian General Authority for Investments and Free
Zones (“GAFI”) had authorized the establishment of this branch and licensed it to
exercise the described activity for the duration of 10 years (until 19 January 1993).
MEC carried out its operations until 1989, when Egypt issued Decree No.195
prohibiting import of all kinds of Grey Portland Cement. MEC had to stop sales in
Egypt and could not honour commitments both to its suppliers and customers. In
1992, the cement import prohibition was revoked but the Claimant decided not to
restart its business. Furthermore, Egypt was withholding the approval to re-export
MEC’s on-shore installations until December 1995. Finally, Poseidon 8, a ship which
had been time-chartered by the Claimant to its Egyptian branch, was seized by Red
Sea Port Authority in October 1999 and sold at auction one month later, allegedly for
a fraction of its real value.
2
MEC initiated proceedings before an ICSID tribunal under the provisions of the 1993
Egypt-Greece BIT (which was applicable to investments made prior to its entry into
force). MEC claimed that Egypt’s actions amounted to expropriation and caused
damages including lost profits in a total amount ranging from US$12 million (claimed
initially) to US$ 42 million (claimed in the last stage of proceedings). MEC also
requested the Tribunal to award interest and costs.
III. Findings on Merits1
A. Applicable law
Article 11 of the Egypt-Greece BIT provided that any rules more favourable to the
investor contained in either the national laws of the Contracting Parties or
international law should prevail over the BIT.
The Tribunal decided, pursuant to Article 42(1) of the ICSID Convention, that the
mentioned Article 11 constituted an agreement between parties on applicable law. As
the Tribunal did not identify any rules of Egyptian law that would be more favourable
for the investor than BIT rules, it decided to take Egyptian law into account only
where it was not overridden by the provisions of the BIT. The latter was held to be the
primary source of applicable law. The Tribunal also noted that, in accordance with
Article 42(1) of the ICSID Convention and the BIT, it could “have recourse to the
rules of general international law to supplement those of the BIT”. (paras.86-87)
Thus, rules of the BIT provided a primary source of applicable law, with Egyptian and
international law being supplementary sources. The Tribunal did not determine which
of the supplementary sources had prevalence in case of conflict.
B. Expropriation
Article 4 of the BIT prohibited expropriatory measures or measures that were
tantamount to expropriation unless they were taken in the public interest and under
due process of law, were clear and non-discriminatory, and accompanied by the
payment of prompt, adequate and effective compensation. (see para.104)
The Claimant argued that the Decree No.195 effectively revoked its License for
importation, storage and sales of cement. The Tribunal found that Decree No.195
deprived the Claimant of the use and benefit of his investment even though the MEC
retained nominal ownership of the respective rights being the investment, and thus
amounted to expropriation. The Tribunal also agreed with the Claimant that the taking
affected the License until an expiry date of 19 January 1993.
1
Prior to its award on merits, the Tribunal issued a decision on jurisdiction of 27 November 2000
which is not covered in this summary.
3
The Tribunal held that the Respondent had to pay compensation. However, as
summarized below, the Tribunal was quite selective as to what exactly Egypt had to
compensate for.
IV. Findings on Damages
A. Law Applicable to the Determination of Damages
As discussed above, the Tribunal applied the rules of the BIT as supplemented by
international and Egyptian law. In its discussion of the quantum of damages, the
tribunal did not refer to Egyptian law.
B. Burden of Proof and Evidence
The Tribunal noted that it was an established rule of international law that the burden
of proof for the conditions required in the applicable substantive rules of law to
establish the claim lay with the Claimant. The Tribunal endorsed another rule of
international law, namely that a “Party having the burden of proof must not only bring
evidence in support of his allegations, but must also convince the Tribunal of their
truth, lest they be disregarded for want, or insufficiency, of proof”. (paras.88-91, with
reference to Asian Agricultural Products Ltd. v. Republic of Sri Lanka)
In relation to the submission and assessment of evidence, the Tribunal also referred to
the following pronouncements of the Asian Agricultural Products:
“International tribunals are not bound to adhere to strict judicial
rules of evidence. As a general principle the probative force of the
evidence presented is for the Tribunal to determine…”
“In exercising the free evaluation of evidence provided for under
the previous Rule, the international tribunals decided the case on
the strength of the evidence produced by both parties, and in a case
a party adduces some evidence which prima facie supports his
allegation, the burden of proof shifts to his opponent.”
(para.94)
These statements were made by the Tribunal in relation to the claims in general and
also apply to damages claims. As will be mentioned below, the Tribunal denied some
of the claims for compensation because the Claimant had failed to meet its burden of
proof.
B. Standard of Compensation
The standard of compensation was prescribed by BIT Article 4 “Expropriation”. It
provided that expropriatory measures should be accompanied by payment of “prompt,
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adequate and effective compensation” amounting to the “market value of the
investments affected immediately before the measures [of expropriation] occurred or
became public knowledge”.
C. Heads of Damages and Valuation
MEC claimed the following heads of damages:
1. Lost profits (with further breakdown into periods, see below);
2. The ship Poseidon 8, allegedly expropriated in October 1999;
3. Costs related to the bank loan from the Arab Bank Athens;
4. Foreign employee compensation and liquidation expenses;
5. Other claims.
1. Lost profits
Under this heading the Claimant claimed the following:
 Profits lost under the contracts already concluded on the date of expropriation,
calculated until the end of the 10-year License period;
 Profits lost subsequent to the expiry of the License until the date of the reexportation of its off-shore installations, calculated similarly to lost profits for
the previous period (December 1995);
 Profits lost for the last period (from December 1995 until the sale of Poseidon
8 in November 1999), calculated on the basis of the time-chartering rate of the
vessel.
Under the “Lost Profits” heading, the Tribunal also considered the possibility of
compensating the Claimant for the loss of opportunity (it was not indicated whether
the Claimant had made this claim or the Tribunal considered this issue at its own
initiative).
To determine the amount of compensation for the first period, the Tribunal examined
which supplies the Claimant may have contracted for during the remainder of the 10year License period and which profits were lost from those contracts due to
expropriation. (para.112)
The Claimant submitted to the Tribunal three contracts for cement supply, each
granting the Claimant a right to handle a certain quantity of cement. To calculate the
amounts of lost profits, the Tribunal applied a conservative analysis – in particular, it
based its calculation on the minimum quantities guaranteed by its contractual partners
rather than on the basis of the higher quantities corresponding to the Claimant’s
available capacity, as contended by the Claimant. (para.121) Also, the Tribunal
adjusted upward the figure of the Claimant’s operating costs – effectively decreasing
the amount of lost profits. (para.123) The total amount of lost profits under the three
cement supply contracts in force at the date of Decree No.195 was determined at
US$ 1,712,712.
The Tribunal also considered compensation for the loss of opportunity to earn future
profits caused by Decree No.195. The Tribunal stated that nothing would have
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prevented the Claimant from concluding other contracts; that the License had not
exhausted its potentiality of yielding further profits to Claimant’s benefit and that,
accordingly, the Claimant had a legitimate expectation that it could have earned
additional profits under the License. Therefore, the “earning capacity” of the License
during the remainder of its life might well come into consideration for assessing its
“market value” under the BIT. (para.127)
However, the Tribunal held that in order to add such expectations to the “market
value” of the investment, it would have been necessary for the Claimant to provide
proof of concrete contracts missed and of the profit lost from them. The Tribunal
concluded that the Claimant had not fulfilled that burden of proof and that therefore
no additional compensation was due in that regard. (para.128)
As for MEC’s claims for lost profits for non-use of its onshore installations until the
date of their re-exportation (December 1995) and of the “Poseidon 8” vessel until its
seizure and sale by Egyptian authorities (November 1999), the Tribunal dismissed
these claims with reference to its reasoning on the loss of opportunity – apparently,
because the Claimant had not produced concrete contracts or other proof of lost
profits. (para.129)
2. The ship Poseidon 8
The ship Poseidon 8, which had been time-chartered by the Claimant to its Egyptian
branch, was seized in October 1999 in favour of the Red Sea Port Authority which
claimed from MEC dues amounting to 103,033 Egyptian pounds. In November 1999,
the ship was sold at auction for 301,000 Egyptian pounds. The Tribunal found that the
procedure used to seize and sell the ship (the Claimant was not duly notified of the
seizure) did not fulfill the requirements of the BIT (“fair and equitable treatment”,
“full protection and security”, “due process of law”) and therefore (sic!) amounted to
expropriation.
There was a disagreement between the parties as to the market value of Poseidon. The
Claimant argued that the auction price of 301,000 Egyptian pounds (US$ 90,936) was
inadequate and alleged that the value was at least US$ 5 million (on the basis of the
insurance certificate for the ship of December 1989). The Claimant also has submitted
evidence showing negotiations, correspondence and draft contracts for the sale of
Poseidon in 1990 which pointed to the price of US$ 1,351,000. Lastly, on the basis of
prices for bulkers published in Lloyd’s Shipping Economist (2000), the Claimant
calculated the ‘scrap value’ of the Poseidon, that is, the value of the ship without
cranes and equipment, to be US$ 864,500.
In order to determine the “market value”, the Tribunal simply calculated the average
between the last figure submitted by the Claimant and the auction price, with the
result being US$ 477,718.
3. Damages incurred due to a bank loan, foreign
employees’ compensation, liquidation expenses
6
The Tribunal stated that BIT Article 4 “Expropriation” did not cover “any losses
occurring to an investor due to commercial risks or due to procedures of the State
authorities and courts as long as they are under due process of law and are not
discriminatory”. The Tribunal reasoned that the mentioned costs and expenses could
be compensated if they had been incurred as a result of discriminatory measures or
measures in breach of the due process of law. Such reasoning implies that in the
absence of discrimination or breach of due process (lawful expropriation), no
compensation could be awarded. This position is at odds with the approach of many
other tribunals, which have acknowledged the possibility of compensation for lawful
expropriation. (para.153)
Moreover, the Tribunal did not seem to engage in an analysis of whether the claimed
damages had been incurred as a result of the Decree No.195 (if the damages were the
consequences of expropriatory measure), but looked at those damages in light of the
State conduct immediately relating to the damages in question. For example, the
Tribunal did not examine whether MEC had to liquidate its Egyptian branch and thus
incurred liquidation expenses as a result of Decree No.195, but looked at whether in
the process of liquidation itself the State engaged in discriminatory or expropriatory
conduct.
With regard to the damages mentioned above, the Tribunal did not find them resulting
from measures that were discriminatory or abusive. Therefore the relevant claims
were dismissed. (para.154-156)
4. Other claims
After brief discussion (paras.157-165), the Tribunal dismissed all other claims on the
grounds that the Claimant had not complied with its burden to proof to show that the
Respondent’ conduct leading to those damages had been “tantamount to expropriation
or discriminatory”. (paras.161, 164)
D. Mitigation of Damages
The Respondent argued that the amount of compensation had to be reduced because
the Claimant had not complied with its duty to mitigate damages.
The Tribunal reasoned that although the duty to mitigate damages was not expressly
mentioned in the BIT, this duty could “be considered to be part of the General
Principles of Law which, in turn, are part of the rules of international law which are
applicable in this dispute according to Article 42 of the ICSID Convention.”
(para.167) The Tribunal also noted that the “burden of proof for the facts establishing
[a duty to mitigate] and the failure of Claimant to carry it out” lies on the Respondent.
(para.170)
First, the Respondent alleged that the Claimant could continue supplying Thermal and
White Portland cement and export cement from Egypt to other countries, which was
not prohibited by Decree No.195. In this regard, the Tribunal accepted the Claimant’s
explanation (as no evidence to the contrary had been submitted by the Respondent)
7
that these activities were not economically feasible alternatives to the supply of Grey
Portland cement barred by the Decree. (para.168)
Secondly, the Respondent argued that the Claimant could have resumed its activities
after the lifting of the ban in 1992. The Tribunal rejected this argument reasoning that
“[a]n investor who has been subjected to a revocation of the essential license for its
investment activity, three years earlier, has good reason to decide that, after that
experience, it shall not continue with the investment activity, after the activity is again
permitted.” (para.169)
The Tribunal concluded that the claims did not have to be reduced due to a duty to
mitigate.
F. Interest
The Claimant sought compound interest from the time of expropriation. The
Respondent argued that in accordance with Egyptian law only simple interest of not
more than 4% p.a. running from the date of the Award could be granted.
The Tribunal held that Egyptian law did not apply to claims based on the BIT, i.e.
public international law. The Tribunal noted furthermore, with reference to
international jurisprudence and literature, that compound (as opposed to simple)
interest was “at present deemed appropriate as the standard of international law in
such expropriation cases”. (para.174) The Tribunal also stated that award of
compound interest would make the compensation “adequate and effective”, as
required by the BIT.
As to the question regarding the rate and frequency of compounding of interest, the
Tribunal noted that some disagreement existed on these matters in international
jurisprudence. The Tribunal decided to award interest at a rate of 6% p.a. (in view of
the rates in financial markets during the relevant period), compounded annually.
Interest was awarded from the date of expropriation until the date of payment.
(para.175)
G. Costs
Taking into account that both the Claimant and the Respondent succeeded partially in
arguing their respective cases, the Tribunal decided that each of the parties should
bear its own costs, and arbitration costs should be split equally between parties.
V. Implications / Initial Analysis

The Tribunal reaffirmed rules on burden of proof and evidence elucidated in
Asian Agricultural Products v. Sri Lanka.
8

The Tribunal approached the assessment of lost profits conservatively, that is,
it awarded the minimum amount of profits that could be made under the given
facts (contracts).

Although the Tribunal recognized the possibility of compensation for the loss
of opportunity in addition to compensation for lost profits (to account for the
additional value of investment), the criteria it established to make such an
award appear impossible to meet in practice. The Tribunal effectively
demanded proof of specific contracts that presented an opportunity for
additional profits. Such an approach seems illogical because it obscures the
border between lost profits and loss of opportunity as two distinct elements of
damages. The requirements for compensating these two elements were
effectively equated by the Tribunal.

The Tribunal’s finding of expropriation in relation to the ship Poseidon 8
appears poorly reasoned. The Tribunal found expropriation not because there
was a taking (there was not, in Tribunal’s view) but because the lawful act of
seizure of property to cover the Claimants’ debt to the port was done with a
violation of due process.

The Tribunal’s calculation of “market value” of Poseidon 8 is one of the
worst examples of valuation. The Tribunal simply took the two figures offered
by the parties and calculated the average between them. Furthermore, the
Tribunal did not explain why it took the smallest figure (the one that
represents only the scrap value of the ship without cranes and equipment) from
the three alternatives suggested by the Claimant.

Compensation for expropriation. The Tribunal took the view, with regard to
certain damages (like costs related to a bank loan and liquidation expenses),
that these damages could only be compensated only if they resulted from an
expropriatory measure that was “discriminatory” and violated the due process
of law. Apparently, the Tribunal did not recognize the possibility of
compensating for a lawful expropriation. This is at odds with the positions of
many other arbitral tribunals which held that compensation for expropriation,
including lawful expropriation, was an established rule of international law.

When considering different heads of damages, the Tribunal did not attempt to
examine whether there is a link between these damages and the expropriatory
measure at issue (Decree) but looked at whether the conduct of relevant
governmental agencies (e.g., carrying out liquidation of the Egyptian branch of
the Claimant) was discriminatory or amounted to expropriation. Perhaps, this
is due to the way the Claimant had formulated its claims (this is not specified
in the award) or manifests the Tribunal’s general approach to look for an
immediate cause of damages instead of examining the link with the main
expropriatory measure (Decree).

The Tribunal affirmed Claimant’s duty to mitigate damages. The burden of
proof of the fact that the Claimant did not comply with this duty lies on the
Respondent.

National law does not apply to the award of interest in relation to claims
brought under a BIT.

Compound interest is deemed appropriate in expropriation cases.
9

There is no consistency/guidelines in international jurisprudence as to the rate
of interest to be used, and the frequency of compounding the interest. The
Tribunal fixed the interest rate “in view of the rates in financial markets during
the relevant period”; it was not clear which financial markets the Tribunal
referred to (World? Egyptian? Regional?) and what the relevant period was
(Date of expropriation? Date of award? Average rate during the period starting
at the expropriation date and ending with the date of award?)
VI. List of Commentaries to the Case
Nothing identified.
10
VII. Annexes
Table 1. Issues discussed in the award
Issue
Applicable law
Measure at issue
Violations found
Heads of damages
Loss of capital value of assets
Out-of-pocket expenses
Loss of profits
Indication
Egypt-Greece BIT, international law,
Egyptian law
A decree prohibiting importation and sales
of cement; other actions attributable to
Egypt
Expropriation of the investment
Awarded (value of the expropriated ship)
Not awarded
Awarded (under contracts in force at the
time of the measure)
Incidental expenses/costs
Not awarded
Loss of customer base, Not discussed
goodwill, market
Loss of opportunity
Discussed (in the context of lost profits) but
not awarded
Causation
Certain damages rejected for lack of
causation
Standard of compensation
“Adequate and effective” compensation for
“market value of the investments affected”
(under the BIT article on expropriation)
Valuation approaches/criteria
For lost profits – conservative calculation
of profits that could be generated under
already concluded contracts;
For value of the ship – mechanical
approximation of parties’ divergent figures.
Use of international or national Not discussed
accounting standards
Mitigation of damages
The concept applies in investment
arbitration, burden of proof on the
Respondent
Burden of proof
On the Claimant
Issues of evidence
Rules on evidence summarized
Amount of damages
US$ 42 million plus interest claimed
US$ 2.2 million plus interest awarded
Interest
At a rate of 6% p.a., compounded annually,
from the date of expropriation until the date
of payment.
Legal costs
Each party to bear its own costs; arbitration
costs to be borne equally.
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Table 2. Relevant quotes from the award
Issue
Quotation from the arbitral award
Lost
profits, To find out the extent of the taking by Decree No. 195, the
burden of proof, Tribunal, therefore, has to examine which supplies, either to the
evidence
Public or the Private Sector, Claimant may have contracted for
during that 10 year period and which profits were lost from
those contracts due to the taking. This examination will have to
be done on the basis of the evidence submitted to the Tribunal
and taking into account, as this is disputed by Respondent, that
Claimant has the burden of proof in this respect. (para.112)
Loss
opportunity
of The License being the “expropriated” investment, its earning
capacity during the remainder of its life may well come into
consideration for assessing its “market value” under the BIT.
Nothing would have prevented Claimant from concluding other
cement supply contracts or contracts providing for the use of its
terminal facilities. The circumstance that some of the cement
supply contracts take into consideration possible increases in
quantities and/ or extension of duration lends support to the
conclusion that the License had not exhausted its potentiality of
yielding further profits to Claimant’s benefit and that,
accordingly, Claimant had a legitimate expectation that it could
have earned additional profits under the License. (para.127)
However, in order to add such expectations to the “market
value” of the investment (Art.4.c) of the BIT), it would have
been necessary for the Claimant to provide proof of concrete
contracts missed and of the profit lost from them. The Tribunal
concludes that the Claimant has not fulfilled that burden of proof
and that, therefore, no additional compensation is due in this
regard. (para.128)
Burden of proof The costs related to the Bank Loan from the Arab Bank Athens
and causal link
(CII 23) are normal commercial risks for the Claimant. They
could only be claimed, if it were shown that they were caused by
conduct of the Respondent which was in breach of the BIT. In
the view of the Tribunal, Claimant has not shown that. In
particular, the conduct of the Respondent during the liquidation
of the investment cannot be considered as such a breach.
(para.154)
Mitigation
damages
of The duty to mitigate damages is not expressly mentioned in the
BIT. However, this duty can be considered to be part of the
General Principles of Law which, in turn, are part of the rules of
international law which are applicable in this dispute according
to Art. 42 of the ICSID Convention. (para.167)
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[T]he Respondent has the burden of proof for the facts
establishing [a duty to mitigate damages] and the failure of
Claimant to carry it out. (para.170)
Interest
The Tribunal considers that the provision in Egyptian law on
which Respondent relies is not applicable to claims based on the
BIT, i.e., public international law. The BIT provides (Art. 4.c))
that the compensation in case of expropriation “shall include
interest until the date of payment.” Regarding such claims for
expropriation, international jurisprudence and literature have
recently, after detailed consideration, concluded that interest is
an integral part of the compensation due after the award and that
compound (as opposed to simple) interest is at present deemed
appropriate as the standard of international law in such
expropriation cases.
See the distinguished ICSID Tribunals in Wena v.
Egypt (Award of December 8, 2000, paragraphs 128 to
136); Metalclad v. Mexico (Award of 30 August 30,
2000, paragraphs 128 to 129); Santa Elena v. Costa
Rica (Award of February 17, 2000, paragraphs 96 to
107), all with further references. [footnotes omitted)
This Tribunal sees no reason to repeat the detailed reasoning of
or depart from this practice. In particular, the Tribunal concludes
that, to make the compensation “adequate and effective”
pursuant to Art. 4. c) of the BIT, it is appropriate that the interest
pursuant to the last sentence of Art. 4. c) of the BIT be awarded
as compound interest. As to the question regarding the rate and
frequency of compounding of the interest, on which some
disagreement is seen in the above jurisprudence, this Tribunal
concludes that in this case annually compounded interest and, in
view of the rates in financial markets during the relevant period,
a rate of 6% p.a. is appropriate.
(paras. 174-175)
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