Arbitration with Venezuela
Traditionally, the Venezuelan government has participated in international arbitration either in commercial cases based on arbitration agreements included in contracts with the state or in investment cases based on bilateral investment treaties (BITs) or other investment agreements. However, during the past years, Venezuela has questioned the ability of arbitration as a method for the resolution of disputes with the state under the argument of bias of arbitrators. The criticism of Venezuela against arbitration has been supported by political allies such as Nicaragua, Ecuador and Bolivia to the extreme that the last two mentioned countries decided to withdraw from the ICSID Convention.
In a truly valuable work published by Dr Susan D Frank in the Harvard International Law Journal Vol. 50, a detailed analysis on several publicly available awards shows that the alleged bias does not have any statistical basis. Regarding the outcome of the analysed arbitrations, governments won most of the cases where they participated (57.7 per cent) and the average amount awarded in those arbitrations where they lost (approximately US$10 million) was only a fraction of what investors typically requested (approximately US$343 million).
Venezuela, although a member of the New York Convention and the ICSID Convention, has moved from rhetoric to action. First, Venezuela threatened the denunciation of the ICSID Convention, which has not been done. Second, because of relevant arbitration claims commenced by foreign investors on the basis of the BIT between Venezuela and the Netherlands, the government decided to denounce the mentioned treaty on 21 April 2008. However, in accordance with the third clause of article 14 of the BIT, the investments made during the period when the BIT was in force will be protected for 15 years from 1 November 2008. Third, the Constitutional Chamber of the Venezuelan Supreme Tribunal of Justice rendered a decision on 17 October 2008 where it analysed article 22 of the Promotion and Protection of Investments Act 1999 (PPIA), and concluded that the mentioned article does not constitute an offer of arbitration, against the opinion of most of the national legal writers.
And last but not least, a curious press release was issued on 15 June 2009 by the Supreme Tribunal of Justice, where the head of the Venezuelan judiciary, with regard to some judgments issued by the Constitutional Chamber where arbitration was either obiter dicta or the main issue, pointed out that:
- the state is sovereign to subject itself to foreign courts (including international arbitration tribunals);
- entering into an agreement where the state submits disputes to foreign tribunals must be authorised by the highest authorities of the government;
- the submission of disputes related to investment arbitration or any other matter to international mechanisms must be approved by the president of Venezuela and the treaty must be ratified by the National Assembly;
- on the basis of sovereignty, the state may denounce or modify those international treaties where Venezuela was subject to a foreign jurisdiction;
- article 22 of the PPIA may not be construed as an offer of arbitration;
- the judgments exhort to the creation of arbitration centres as alternatives to the traditional ones.
- the judgments recognise and support those treaties signed by the government where Venezuela has been subject to a foreign jurisdiction, such as the BITs signed with Argentina, Cuba and Iran; and
- the enforcement of decisions rendered by foreign tribunals against Venezuela will depend on the decision not breaching the sovereignty of the country.
Among all the issues described above, the state has given the most relevant post to the enforcement of decisions given by foreign tribunals, including international arbitral tribunals.
The enforcement of an award given under the provisions of the New York Convention will be enforced by the Venezuelan courts by applying the proceedings established in the Commercial Arbitration Act 1998 (CAA), which provides that the Venezuelan tribunals have jurisdiction to control the legality of the award in the manner similar to that established in the New York Convention. According to article 48 of the CAA, the Venezuelan tribunals will recognise the awards, without consideration of their country of origin, as final and binding. The same article provides that after the corresponding request in writing filed before a tribunal of first instance, it must be enforced without requesting exequatur, according to the rules for the enforcement of judgments established by the Civil Procedure Code.
If such award is to be enforced against the Venezuelan government, the competent courts will be those of the jurisdiction for the Judicial Review of Administrative Matters, headed by the Political-Administrative Chamber of the Supreme Tribunal of Justice (PAC). In the case of recognition and enforcement of the award, the PAC will additionally apply the special proceedings for the enforcement of judgments against the government provided for in the Attorney General’s Office Act 2008 (AGOA). The AGOA provides that the court will request a proposal from the government about the opportunity and manner to comply with the judgment. If the proposal is rejected by the party requesting the enforcement, the proceeding described will be repeated for a second time. If the second proposal offered by the government is also rejected by the party requesting the enforcement, the court will order compliance with the award in the manner established by the AGOA for the payment of liquid amounts, if it is the case.
If the application for the enforcement and recognition of the award given under the provisions of the New York Convention is rejected by the Venezuelan tribunals, the requesting party will be able to seek the recognition and enforcement of such award in another state that is signatory to the convention, despite the international responsibility of the Venezuelan state owing to the fact that the rejection is in breach of the mentioned treaty.
According to article 54 of the ICSID Convention, contracting states shall recognise and enforce the awards rendered by ICSID tribunals ‘[…] as if it were a final judgment of a court in that State’. However, according to the decision given on 3 March 2009 by the ad hoc committee in the case of Sempra Energy International v Argentina in a request for stay of enforcement of the award, the state is obliged to comply voluntarily with the ICSID awards and there is no place in the ICSID Convention regime for coercive enforcement. According to the ad hoc committee, if the contracting state does not comply voluntarily, the party requesting the enforcement will be entitled to seek diplomatic protection. We consider such a criterion to be partially applicable in Venezuela, since the proceedings provided for in the AGOA for the enforcement of judgments stipulates two phases: the first phase is where the courts request a proposal from the government on the manner and opportunity to comply, which has been named by the Venezuelan case law as ‘voluntary enforcement’; and if the voluntary enforcement fails, then the court will proceed with the second phase, called ‘coercive enforcement’. A party seeking the enforcement of an ICSID award in Venezuela could be compelled to apply for the voluntary enforcement proceeding as previously described.
The main issue with the enforcement of ICSID awards comes from the rule in article 53 of the ICSID Convention, which provides that the award ‘[…] shall not be subject to any appeal or to any other remedy except those provided for in this Convention’. Despite the mentioned provision, the Constitutional Chamber of the Venezuelan Supreme Tribunal of Justice has rendered at least two judgments where it makes it clear that the enforcement of ICSID awards may be rejected if they are considered to breach constitutional rules (judgments No. 1942 dated 15 July 2003 and No. 1541 dated 17 October 2008). Although there has not been a case where the Venezuelan tribunals have rejected the enforcement of an ICSID award, it is worth noting that the obligation established in article 53 for the recognition and enforcement of ICSID awards is imposed on all contracting states, and not only to the state party to the dispute. As a result, if the enforcement of an ICSID award is rejected by the Venezuelan tribunals, the party requesting the recognition and enforcement of such award will be entitled not only to obtain diplomatic protection from his country of origin, but also to seek the enforcement of the award in any other contracting state of the ICSID Convention.
The Venezuelan Supreme Tribunal is convinced that the awards given by arbitral tribunals are required to pass the internal test to determine if there is a breach of internal public order or constitutional provisions. When we refer to the enforcement of arbitral awards given under the provisions of the New York Convention, the invocation of public order to deny recognition and enforcement is possible according to article V.2.b of the Convention and article 49.f of the CAA. As mentioned above, the case is not the same when ICSID awards are involved since one of the alleged advantages of the ICSID de-localised arbitrations is the control of the award by internal mechanisms and not by national courts.
As mentioned above, the Venezuelan rhetoric against arbitration has evolved into action by preparing the legal system to eventually reject the enforcement of arbitral awards. The constitutional test has been applied to a judgment given by the Inter-American Court of Human Rights, where the Constitutional Chamber rejected the enforcement of the mentioned decision because it considered the decision to be against the Venezuelan constitution. The test has not yet been applied to arbitral awards, but Venezuela is currently facing important disputes that have been submitted by foreign investors to arbitral tribunals that will deal with some of the issues raised above, such as the interpretation of article 22 of the PPIA. Therefore, it is almost certain that we are going to see further developments on arbitration in Venezuela.