U.S. District Court allows Gold Reserve to enforce its award against Venezuela in Washington, D.C.: Gold Reserve Inc., v. Bolivarian Republic of Venezuela

In September 2014, Gold Reserve won a significant arbitral award ("Award") worth more than US$760 million (and counting, because of post-award interest) against Venezuela for breach of investor-protection standards under the Canada-Venezuela bilateral investment treaty ("Treaty"). In the arbitration, Gold Reserve successfully argued that Venezuela's revocation of certain licenses for gold extraction held by Gold Reserve's subsidiary violated the fair and equitable treatment, full protection and security and expropriation standards of the Treaty. (For further background to the case, see our earlier blog post here.)

Subsequently, two proceedings were filed before the Paris Court of Appeal, being the court at the seat of the arbitration. When Venezuela applied to have the award set aside, Gold Reserve countered that application with a petition to confirm the award. The two procedures differ in scope and length. Although the Paris Court confirmed the award (as previously reported in our blog here), the decision on Venezuela's application to set aside the award remains pending, since the set-aside proceeding entails a more detailed review of the Tribunal's decision-making.

While the set-aside proceeding continues in Paris, Gold Reserve has sought to enforce the award elsewhere, including in Luxembourg and Washington, D.C. The Luxembourg court granted a stay of the enforcement request pending the completion of the Parisian proceedings. However, on November 20, 2015, the U.S. District Court for the District of Columbia granted Gold Reserve's request for enforcement in Washington, D.C. The U.S. District Court, in line with the general pro-enforcement approach of the U.S. courts in their application of the New York Convention, found that Venezuela could neither establish any procedural defects in the arbitration nor prove that enforcement of the Award would violate public policy. Accordingly, Gold Reserve is able to satisfy the Award against Venezuela's assets in Washington, D.C., without waiting for the completion of Venezuela's set-aside proceeding in Paris.

The principal lessons from the U.S. District Court's decision are:

  1. The Court will give "substantial deference" to the Tribunal's determination on the scope of its jurisdiction.
  2. Failure to raise an issue squarely and distinctly during the arbitral proceedings may constitute a waiver of the right to raise the same issue before an enforcing court.
  3. In order to argue successfully that the inequitable allocation of time to the parties led to a due process violation, it is necessary to show exactly what extra time was required for and how the denial of extra time prevented a party from presenting its case.
  4. The public policy exception to the enforcement of arbitral awards under the New York Convention, as applied by the U.S. courts, is extremely narrow.
  5. The U.S. courts, and the U.S. District Court for the District of Columbia in particular, have been willing to enforce foreign awards despite parallel proceedings challenging these awards before the courts at the seat of the arbitration.

Each of these points is discussed below.

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Paris Court of Appeal enforces award under ICSID Additional Facility Rules between Gold Reserve and Venezuela

Abstract: In République Bolivarienne du Venezuela c/ Société Gold Reserve INC, Cour d’appel de Paris, Pôle 1 – Chambre 1, RG N° 14/21103, a judge sitting in the Paris Court of Appeal considered opposing applications regarding an award issued under the ICSID Additional Facility Rules, with one side seeking enforcement of the award and the other seeking a stay of enforcement.

Speedread

A judge sitting in the Paris Court of Appeal has granted Gold Reserve’s application for enforcement of an award issued under the International Centre for Settlement of Investment Disputes (ICSID) Additional Facility Rules. In doing so, the judge rejected Venezuela’s application for a stay of enforcement.

This decision is another example of the French courts adopting a robust approach to the enforcement of arbitral awards. While every case will turn on its facts, the decision is a clear indication that, in the absence of convincing evidence of serious prejudice to a party’s rights, a stay is unlikely to be granted – even if the sums involved are significant. (République Bolivarienne du Venezuela c/ Société Gold Reserve INC, Cour d’appel de Paris, Pôle 1 – Chambre 1, RG N° 14/21103.)

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Exxon Mobil is awarded US$1.6 billion in ICSID claim against Venezuela – to be set off against award in parallel contractual arbitration

On 9 October 2014, a tribunal of H.E. Judge Gilbert Guillaume (President), Professor Kaufmann-Kohler and Dr. Ahmed Sadek El-Kosheri rendered a final Award on the case Venezuela Holdings and others v. the Bolivarian Republic of Venezuela, ICSID Case NO. ARB/07/27.

Five subsidiaries of Mobil Corporation (the “Claimants”) initiated the arbitration in 2007 claiming compensation for Venezuela’s alleged breaches of the Netherlands-Venezuela BIT in relation to a series of state actions which affected the Claimants’ investments in the Cerro Negro Project in the Orinoco Belt and the La Ceiba Project adjacent to Lake Maracaibo.

After 7 years of proceedings the Tribunal ordered Venezuela to pay to the Claimants: (i) US$9,042,482 in compensation for the production and export curtailments imposed on the Cerro Negro Project; (ii) US$1,411.7 million in compensation for the expropriation of their investments in the Cerro Negro Project; and (iii) US$179.3 million in compensation for the expropriation of their investments in the La Ceiba Project. The compensation amount is much closer to the valuations put forward by Venezuela in the arbitration, than the US$ 16.6 billion requested by the Claimants.

Of particular note in the Award is the Tribunal’s finding that Venezuela’s expropriation of Claimants’ assets was lawful. Even when no compensation was paid, the Tribunal concluded that: the expropriation was conducted in accordance with due process; it was not carried out contrary to undertakings given to the Claimants; and the Claimants did not establish that the offers made by Venezuela were incompatible with the “just” compensation requirement of Article 6(c) of the BIT.

This approach contrasts with the decision of the majority of the tribunal hearing a similar claim against Venezuela brought by ConocoPhillips (ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30). In that case, the majority found that the expropriation was unlawful because Venezuela did not approach negotiations with ConocoPhillips in good faith and it only offered book-value, rather than fair market value compensation for the assets (Decision on Jurisdiction and Merits dated 3 September 2013).

There are a number of open questions about the level of compensation payable following an illegal expropriation as compared to a legal expropriation. In this case the Claimants submitted that the expropriation was unlawful and that, as a consequence, Venezuela was under the obligation to make full reparation for the damages caused, in conformity with international law. By contrast, Venezuela contended that even if the expropriation were deemed to be unlawful the indemnity to be paid to the Claimants must represent the market value of the investment at the date of the expropriation. The Tribunal decided that since it had found that the expropriation was lawful it did not need to consider the standard for compensation in case of unlawful expropriation or whether it would differ from the standard for compensation to be paid in case of lawful expropriation. It held that the compensation must be calculated in conformity with the requirements of the BIT which required “just compensation” and that “just compensation” should represent the market value of the investments affected immediately before the measures were taken. Therefore, it employed the date of the expropriation of Claimants’ assets (June 2007) as the valuation date, which had considerable significance in the amount of compensation since the market price of oil increased in the years that followed the expropriations.

The Tribunal also grappled with the parties’ respective cases on whether a risk of confiscation is part of the country risk that is taken into account in determining the discount rate for the purposes of valuing the assets using the Discounted Cash Flow Method. The Tribunal concluded that a confiscation risk remains part of the country risk and must be taken into account in the determination of the discount rate.

To avoid double-recovery, the Tribunal held that the amount already received by the Claimants under a parallel ICC Award should be discounted to the total compensation payable to the Claimants.

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No consent to ICSID jurisdiction found under Venezuelan Investment Law: distinction drawn between the intention of the drafters and the intentions of the State

In OPIC Karimun Corporation v Venezuela, an ICSID tribunal has held that Venezuela’s Investment Law’s reference to ICSID did not, without more, provide consent to ICSID jurisdiction. Due to the ambiguous wording of the law, the tribunal looked at the intention of Venezuela and was unable to conclude that it had intended to provide consent. This was despite evidence from one of the drafters of the law that he had intended the relevant provision of the law to constitute such consent. The Tribunal drew a distinction between the intention of the drafters, and the intention of the State.

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President Hugo Chavez’s Legacy: What Future for Investors in Venezuela?

Overnight the Venezuelan government has confirmed the death of President Hugo Chavez after a long battle with cancer.

President Chavez had been a constant force in Latin America since he came to power in 1999, and his impact on foreign investors in Venezuela has been significant, as has been his impact on numerous other countries in the region.

A polemic figure who advocated a revolutionary style of socialism, President Chavez undertook a diverse campaign of expropriation, which affected various industry sectors.  This led to numerous investor-State arbitration claims being commenced against Venezuela, and most recently led to the country denouncing the ICSID Convention in January 2012.  The ICSID Convention establishes a unique multilateral regime which facilitates the protection of foreign investors’ international rights – not least by establishing a process for international arbitration.    

Beyond Venezuela’s borders, President Chavez was a staunch supporter and pioneer of what have become known as “ALBA” states (notably Venezuela, Bolivia, Ecuador, Nicaragua and certain others).  Together, these countries have adopted a stance which seeks to establish a counter-balance to what is perceived to be the influence of capital exporting countries such as the United States and Europe.  That stance manifested itself most clearly in the denunciation of the ICSID Convention, which was first undertaken by Bolivia in 2007, and followed by Ecuador in 2009.

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Venezuela follows Bolivia and Ecuador with plans to denounce ICSID Convention

On 14 January 2012, Venezuela’s Energy Minister, Rafael Ramírez, and president of state-owned oil utility PDVSA, announced the country’s intention to withdraw from ICSID and renegotiate 25 bilateral investment treaties (BITs). To be effective, Venezuela will have to formally communicate its withdrawal to the World Bank. This has yet to happen.

In 2007 Bolivia became the first country to denounce the ICSID Convention, followed in 2009 by Ecuador. Venezuela’s announcement has been long-awaited and it will not come as news to the international community. However, there remains uncertainty as to the consequences of such a denunciation – particularly for investors with potential disputes in the region.

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Venezuela – international tribunal confirms that Article 22 of the Venezuelan Investment Law does not constitute consent to ICSID arbitration

At the end of December 2010, in a decision that will be of interest to international companies doing business in Venezuela, an ICSID tribunal in the case of Cemex v. Venezuela (ICSID Case No. ARB/08/15) concluded that it did not have jurisdiction over claims brought pursuant to Venezuela’s Investment Law. The tribunal concluded however that it did have jurisdiction over claims brought by the claimant companies pursuant to the Netherlands/Venezuela Bilateral Investment Treaty.

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