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.
So what should an investor do if it has a potential ICSID claim against Venezuela?
For an investor to bring an ICSID claim under a BIT there are three key initial requirements:
- the existence of a BIT in force between the host State and the investor’s home State;
- the consent to arbitrate must be accepted (or “perfected”). International law generally recognises that a BIT constitutes a State’s standing offer of consent to arbitrate. The investor can accept this offer by either (i) filing a request for arbitration, or (ii) sending a ‘trigger letter’ outlining the nature of the dispute and expressly accepting the State’s standing offer;
- both the host State and the investor’s home State must have signed and ratified the ICSID Convention.
Venezuela’s denunciation of the ICSID Convention impacts at least upon the third requirement. Accordingly, the interpretation of the ICSID Convention (Articles 71 and 72 that deal with the effect of denunciation) is crucial. Article 71 provides that, “denunciation shall take effect six months after receipt of such notice”. This suggests that claimants have six months from the date that Venezuela formally serves its notice to bring any claim before the consequences of denunciation take hold. However, Article 72 goes on to state that the denunciation of the ICSID Convention “shall not affect the rights or obligations under this Convention … arising out of consent to the jurisdiction of the Centre given … before [the denunciation] was received”. It is unclear how these two provisions should be reconciled. Commentators have adopted differing interpretations, some saying that an ICSID claim cannot be commenced once the notice period has expired, others suggesting that an ICSID claim can be brought even after its expiry. Some also argue that a claim cannot be brought after notice of denunciation has been given to the World Bank. As with any country seeking to defend itself, it seems likely that Venezuela would argue the latter in the event that a claim is brought within the six month period.
The development follows a recent award made against PDVSA in the ICC Exxon Mobil arbitration in which Venezuela was reportedly ordered to pay around $750 million (Mobil Cerro Negro, Ltd. v.PDVSA and PDVSA Cerro Negro S.A. (ICC no. 15416/JRF)). Whilst this was only a fraction of the original claim, a parallel ICSID decision against Venezuela is still pending. The experience may have influenced Venezuela’s move to withdraw from the ICSID Convention and, as Minister Ramírez is quoted as saying, “notify our exit [to] countries with which we have international agreements”. Minister Ramírez’s choice of language suggests that it also intends to withdraw its standing consent to arbitrate provided in its BITs. However, many argue that a standing offer of consent given in a BIT prior to denunciation cannot be withdrawn and may still be accepted. In any case, most BITs contain a survival clause which would delay the effect of termination for a number of years. It is unclear, therefore, whether requirements one and two above would be affected.
Investors with interests in Venezuela will have competing interests which will need to be assessed. On the one hand, an investor may wish to notify Venezuela of its dispute in order to protect its right to ICSID arbitration. On the other hand, notifying Venezuela of a potential ICSID claim could draw adverse attention from the Venezuelan authorities and may affect treatment of the investment. The balancing of these interests is primarily a commercial decision. However, two important legal factors must be carefully considered when making this assessment:
- While views vary as to the correct interpretation of the ICSID Convention, there is no ICSID case law on this issue to provide guidance;
- A BIT dispute resolution clause may well provide for alternative options to ICSID for resolving any dispute. Ad hoc arbitration under the UNCITRAL Rules or institutional arbitration under the auspices of the Stockholm Chamber of Commerce or the International Chamber of Commerce are common alternatives. These will invariably be preferable to trying to resolve a dispute before the Venezuelan courts.
Entities with interests in Venezuela should consider how best to protect their investments. Given the lack of clarity surrounding the interpretation of the Convention, investors considering claims would be advised to evaluate their position as soon as possible, to ensure they do not unnecessarily complicate their claim from a jurisdictional standpoint.