A majority tribunal has used a most-favoured-nation clause to accept jurisdiction over a previously unreported UNCITRAL claim brought by a subsidiary of US oil and gas company Anadarko against Venezuela.
In an interim award on jurisdiction dated 26 July and recently published on the website of the Permanent Court of Arbitration, arbitrators Yves Fortier QC of Canada and Peter Tomka of Slovakia formed the majority that upheld jurisdiction over the treaty claim by Anadarko's Barbadian subsidiary, Venezuela US SRL.
Argentine academic Marcelo Kohen issued a dissenting opinion.
The award reveals that Kohen replaced Venezuela’s original nominee to the panel, fellow Argentine Gabriel Bottini, following a successful challenge by the claimant last year. Venezuela also failed in a challenge against Yves Fortier in 2014, whom the state has repeatedly sought to disqualify from other cases.
The Anadarko subsidiary filed for arbitration in 2013 under the Venezuela-Barbados bilateral investment treaty of 1994, in a claim relating to an oil and gas development.
The BIT’s dispute resolution clause provided for ICSID arbitration, specifying that “as long as” Venezuela had not become a contracting state of the ICSID Convention, disputes would be heard under ICSID’s additional facility rules. The clause also said that investors would have the right to submit disputes to UNCITRAL arbitration “if for any reason the Additional Facility is not available.”
The investor argued that the clause set out a “hierarchy of arbitral fora” and that – while arbitration under the ICSID Convention or the additional facility rules was no longer permitted following Venezuela’s denunciation of the convention in 2012 – the provision still allowed arbitration under the UNCITRAL rules.
In the award, the tribunal unanimously rejected this reading of the clause. It ruled that the UNCITRAL provision existed in the 1994 treaty only to allow arbitration in the event that Venezuela had not acceded to the ICSID Convention by the time the BIT came into force. In the event, Venezuela did accede to the convention in June 1995, four months before the BIT came into force.
While UNCITRAL arbitration would have been available before Venezuela acceded to ICSID, it ceased to be available once the state acceded and did not reappear as an option when Venezuela subsequently denounced the convention in 2012, the tribunal ruled.
But the majority went on to find that this restriction was not present in Venezuela’s other bilateral investment treaties, and that a most-favoured-nation clause in the Barbados treaty allowed the investor to access the protections of Venezuela’s BIT with Ecuador, which did allow for UNCITRAL arbitration in place of ICSID.
The majority found – without opposition from Venezuela – that the MFN clause explicitly covered dispute settlement. As a result, there was no need to decide whether MFN clauses in principle apply to dispute settlement clauses as well as substantive protections, a point on which it said arbitral tribunals remain “deeply divided”.
Venezuela had given its consent to arbitration in principle in the Barbados treaty, even if not to arbitration under a particular set of rules, the majority said. The state’s imposition of a “temporal condition” on UNCITRAL arbitration in the Barbados BIT was not present in the Ecuador treaty, which did not restrict recourse to UNCITRAL arbitration when ICSID was not available.
A “serious misconstruction”
In a 23-page dissent, Kohen strongly criticised the majority, which he said had gone further than any tribunal before in its use of an MFN clause to establish jurisdiction.
Kohen said the tribunal had made a “serious misconstruction” of the dispute resolution clause. There was, in fact, no offer to arbitrate from Venezuela once the state denounced the ICSID Convention, he said.
Using the MFN clause to allow for UNCITRAL jurisdiction was an attempt to “bring back to life consent to an arbitral means that [has] since disappeared”, he said. Indeed, as Venezuela had acceded to the ICSID Convention before the BIT came into force, the UNCITRAL option had “never been applicable.”
Kohen appeared to go further than Venezuela in contending the MFN clause could not apply to the Barbados treaty’s dispute settlement provisions. He said the “treatment” provided for in the MFN clause did not apply to dispute resolution, which did not count as treatment of an investor.
The tribunal had thus imported consent which did not exist, he said. “It did so through a complicated, extensive and wrong assimilation of a provisional, limited and never active consent to UNCITRAL arbitration in the Barbados-Venezuela BIT from the existing consent of UNCITRAL arbitration in other BITs which are still in force.”
He noted that it was precisely this kind of “extensive interpretation” of MFN clauses which had led to “discontent” among states, noting a reference in the recently-agreed Canada-EU free trade agreement that explicitly bars the use of MFN clauses to import consent to arbitration.
A pair of challenges
Kohen joined the panel only in January, a month after Venezuela’s original arbitrator Gabriel Bottini was removed by appointing authority Jernej Sekolec following a challenge by the claimant for alleged lack of independence and impartiality.
The precise grounds of the challenge and the disqualification decision have not been disclosed. Bottini previously faced an unsuccessful challenge in another case where he was nominated by Venezuela. In that case, French plastics maker Saint-Gobain based the challenge on Bottini’s former position as an in-house counsel for the Argentine government, where they claimed he was a “zealous advocate for the most recalcitrant state party in ICSID history.”
But in that case Bottini’s fellow arbitrators ruled that the challenge was merely an “abstract issue conflict” and that he was not bound by positions he had previously advocated as a lawyer. They said that without absence of evidence to the contrary their assumption was that Bottini was “a legal professional with the ability to keep a professional distance”.
In 2014, Sekolec also rejected Venezuela’s challenge against the claimant’s nominated arbitrator Yves Fortier. Venezuela has challenged Fortier numerous times in a separate ICSID case brought by ConocoPhillips, over his alleged ties to law firm Norton Rose Fulbright, as well as in other cases.
Sekolec was nominated as the appointing authority in 2014 after the resignation of his predecessor Piero Bernardini of Italy. A Slovenian former secretary of UNCITRAL, Sekolec is no stranger to allegations of lack of independence. In July last year, Sekolec resigned from a five-member tribunal hearing a maritime border dispute between Slovenia and Croatia, after revelations of his ex parte communications with his home government.
Venezuela's counsel George Kahale III of Curtis Mallet-Prevost Colt & Mosle says Kohen's "brilliant opinion speaks for itself."
He adds: "Eventually we believe the majority decision will not stand, but in the meantime we will address the other issues in the case, and expect to prevail on those as well. It's just unfortunate that we have to expend that effort as a result of the majority's unprecedented application of an MFN provision to create jurisdiction."
Details about Anadarko’s dispute with Venezuela are scarce, though it potentially relates to the US company’s stake in a Petroritupano, a mixed company jointly established in 2006 with Venezuelan state oil company PDVSA and Brazil’s Petrobras.
Last November, a court in New Orleans ordered Anadarko to pay almost $160 million over its role as part-owner of the Macondo well in the Gulf of Mexico, site of the largest offshore oil spill in US history in 2010.
The US government had argued that the company should be fined US$1 billion over the accident, but the judge said the amount reflected the fact that Anadarko was not culpable for the spill. The majority owner of the well, BP, agreed a US$20.8 billion settlement with the US government and five US states last year.
Venezuela US Srl v Venezuela (PCA Case No. 2013/34)
- Peter Tomka (Slovakia) (Chair)
- Yves Fortier PC CC OQ QC (Canada) (appointed by Venezuela US)
- Marcelo Kohen (Argentina) (appointed by Venezuela) (from 18 January 2016)
- Gabriel Bottini (Argentina) (appointed by Venezuela) (until 22 December 2015)
- Jernej Sekolec (Slovenia) (from 4 April 2014)
- Piero Bernardini (Italy) (until 25 March 2014)
Counsel to Venezuela US
- King & Spalding
Partner John Bowman in Houston
- Jennifer Price in Houston
Counsel to Venezuela
- Curtis Mallet-Prevost Colt & Mosle
Partners George Kahale III and Mark O’Donoghue in New York, Claudia Frutos-Peterson in Washington, DC, Eloy Barbará de Parres in Mexico City;
International legal consultant Tullio Treves and Renato Treves in Milan