Arbitration Agreements in Contracts with the Venezuelan State and its Instrumentalities
Before 2008, public procurement in Venezuela was regulated by the Biddings Act (2001), which provided for the structure and requirements of the biddings procedures, Decree No. 1417 on the General Conditions for the Contracting and Execution of Works (GCC), applicable only to ministries in a compulsory manner, and the Decree-Law for the Promotion of Private Investment Under Concessions Regime 1999 (PPCR). In 2008, the Venezuelan President executed the Decree-Law on Public Procurement, last amended by the Venezuelan National Assembly in 2010 (the PPA), which is complemented by the Administrative Regulations published in the Official Gazette on 19 May 2009. The PPA and its Administrative Regulations revoked the Biddings Act and the GCC.
The GCC established in article 9 that disputes arising out of the contract would be submitted to the local courts and could not give rise to foreign claims. The Administrative Regulations of the PPA have reproduced this rule in article 133. A wide interpretation of this rule has allowed public entities to include arbitration agreements provided that the seat of the arbitration is in Venezuela and the dispute is subject to Venezuelan legislation. However, if the seat of the arbitration is agreed abroad, it would be hardly arguable that the arbitration agreement is not valid on the basis of article 133 of the Administrative Regulations of the PPA.
Arbitration agreements in contracts with the Republic and government agencies
According to articles 12 and 13 of the Advocate General's Office Organic Law (2008), when there is a national or international arbitration agreement included in a contract to be executed by the Republic, it is required to have the legal opinion of the Attorney General's Office. To fulfil this formality, the highest authorities of the organs of the National Public Power must submit to the advocate general the draft contract, jointly with the opinion issued by the in-house counsel regarding the legality or not of the inclusion of the arbitration agreement.
In the same way, article 5 of the Advocate General's Office Organic Law (2008), applicable to government agencies, clearly establishes the obligation to any public officer to request the opinion of the attorney general before entering into arbitration agreements.
The opinion rendered by the Advocate General's Office is not binding for the contracting entity, and the lack of it is not essential for the validity of the arbitration agreement. However, the public officer who executes a contract on behalf of the Republic without fulfilling the mentioned requirement could be personally liable.
Arbitration agreements in contracts with Venezuelan state-owned companies
For arbitration agreements with state-owned companies, there is a general regime established in article 4 of the Commercial Arbitration Act (1998). The agreement must be approved by the corresponding corporate government body, usually a board of directors, and authorised in writing by the ministry to which the company is attached. The arbitration agreement must identify what kind of arbitration and the number of arbitrators, which cannot be less than three. The rule has been subject to interpretation by the Political Administrative Chamber of the Supreme Tribunal of Justice (PAC) in the cases of CADAFE (11 January 2006), Elettronica Industriale SpA (5 April 2006), and Herperia Enterprises Sucursal Venezuela (12 December 2007). In all of these, the PAC established that the fulfilment of the requirement established in article 4 of the Commercial Arbitration Act (1998) is of the essence for the validity of the arbitration agreement.
However, some of the Venezuelan state-owned companies may be subject to a special regime. For instance, there is a particular regime for state-owned companies affiliated to Corporación Venezolana de Guayana (CVG), which are companies for the heavy industry (aluminium, iron, lime and carbon, among others), established in the Decree-Law for the Partial Amendment of the Organic Statute for the Development of Guayana (2001). According to article 21 of this Decree-Law, for CVG and its affiliated companies to enter into arbitration agreements, it is required to have the written authorisation of the president of the CVG. The arbitration agreement must express the kind of arbitration, the number of arbitrators (no less than three) and the applicable legislation.
Contracts of public interest
Additionally, the Venezuelan Constitution provides for a special treatment for contracts where public interest is involved, establishing in article 151 that:
In contracts of public interest, unless inapplicable due to the nature of those contracts, a clause shall be deemed included even if not expressed, whereby any doubts and controversies which may arise concerning such contracts and which cannot be resolved amicably by the contracting parties, shall be decided by the competent courts of the Republic in accordance with its laws and shall not on any grounds or for any reason give rise to foreign claims.
According to the judgment rendered on 24 September 2002 by the Constitutional Chamber of the Venezuelan Supreme Tribunal of Justice in the case of Andrés Velásquez, within the category of public interest contracts are:
...all those contracts executed by the Republic... which object is determining or essential for the attainment of the objectives and tasks of the Venezuelan state, in the search of giving satisfaction to the individual and coincident interests of the national community, and not only the interest of a sector, implying the assumption of obligations which total or partial payment is to be done in several fiscal years after that in which the object of the contract was caused, in view of the implications that the adoption of those commitments may imply for the economic and social live of the Nation.
As can be seen, public contracts are treated differently if they fall within the category of Public Interest Contracts.
The interpretation of article 151 of the Venezuelan Constitution 1999 (which reproduces article 127 of the revoked Venezuelan Constitution 1961) has been established by the Supreme Tribunal of Justice in several decisions.
Political Administrative Chamber of the Supreme Court of Justice, 15 January 1998
Industrias Metalurgicas Van Dam, CA
In this case, the PAC considered that the arbitration agreement was included in a contract ‘for the performance of the modernisation, improvement, refurbishment and turn key of war material which determines features of national security and defense which identify it with the classification provided for in article 126 of the Constitution as a Public Interest Contract'. The case was under the rules of arbitration of the Civil Proceedings Code (CPC) and the arbitrators were to act as amiable compositeurs. The PCA allowed the arbitration but limited only to technical issues, even when the arbitration agreement was to decide on disputes arising out of issues of a ‘technical or of any other nature'. The limitation was based on the Public Interest nature of the Contract.
Plenary Chamber of the Supreme Court of Justice, 27 August 1999
The court established that article 127 of the Constitution (current article 151) adopted a system of relative immunity based on the incorporation of the exception of the nature of the contract. This case decided a challenge to the contracts executed by the Venezuelan state-owned oil company with third private parties for the exploitation of oil or provision of services. The court decided that it was possible to include the arbitration agreement in these contracts based on their commercial nature.
Constitutional Chamber of the Supreme Tribunal of Justice, 19 March 2002
MINCA v Corte Primera de lo Contencioso Administrativo
In this case, the mining contract is considered a public interest contract and included an arbitration agreement between MINCA and Corporación Venezolana de Guayana. The Constitutional Chamber decided an appeal against a decision of a lower court which decided a constitutional action to compel CVG to arbitration. The Constitutional Chamber did not question the validity of the arbitration agreement included in the public interest contract.
Political Administrative Chamber of the Supreme Tribunal of Justice, 18 November 2003
The Republic v Aucoven
In this case, the Republic argued that a concession contract for the exploitation of a motorway connecting Caracas with the main airport of the Republic was a contract of national interest, and because of the importance of the motorway, the concession could not be subject to international arbitration according to article 3.B of the Commercial Arbitration Act (1998), since public services are of the exclusive competence of the state.
The Court determined that the assignment of the shares of the concessionaire to a foreign company with the aim of excluding the jurisdiction of the Venezuelan courts was not valid since the assignment should have been authorised by the National Executive and not by the Ministry of Infrastructure. The court also decided to apply article 10 of the Decree-Law No. 138, which establishes that the concessioner will be subject to Venezuelan laws and jurisdiction. The Political Administrative Chamber declared that the Venezuelan judiciary had jurisdiction to hear this case even when there was an arbitration pending before an ICSID tribunal.
Political Administrative Chamber, 15 July 2004
MINCA v Corporación Venezolana de Guayana
This case was about the formalisation of an arbitration agreement according to the CPC. The Political Administrative Chamber of the Supreme Tribunal of Justice declared its jurisdiction since it is the tribunal legally empowered to hear pecuniary claims against the Republic in accordance with the Supreme Court of Justice Organic Act applicable rationae temporis. The PAC declared that the contract for mining exploitation was a contract of public interest and then stated that this kind of contract on state-owned assets, the Constitution and the legislation established limitations or restrictions for the state to apply an adequate control in order to guarantee the preservation of the general interest involved. The PAC also declared that in establishing or determining the matters that can be subject to arbitration in this special category of contracts, a restrictive criteria must be applied. The PAC declared its jurisdiction on the basis of a waiver of the arbitration agreement since MINCA filed other legal actions before filing the application for arbitration.
Political Administrative Chamber of the Supreme Tribunal of Justice, 5 April 2006
Elettronica Industriale SPA v Venezolana de Televisión
This case was a challenge of an arbitral award rendered by an arbitral tribunal against the state-owned broadcasting station Venezolana de Televisión. The PAC declared the award null and void since there were some formalities that the tribunal considered that were not fulfilled. These formalities were not established in the legislation applicable at that time, but after the enactment of the CAA. One of the most important sentences of this judgment is where the PAC establishes that no state contract may be subject to arbitration since the national patrimony is at stake, even if the contract is not one of Public Interest.
Constitutional Chamber of the Supreme Tribunal of Justice, 18 October 2008
Interpretation of Article 258 of the Constitution
In this case, although it has no relation to the petition filed by the Republic, the Constitutional Chamber analysed several issues of arbitration in Venezuela. One of those issues was the submission of disputes arising out of public interest contracts to arbitration. The Constitutional Chamber adopted the same criteria established by the Plenary Chamber of the Supreme Court of Justice in 1999 in the case of Apertura Petrolera, where it was established that the Constitution adopted a relative immunity and allows arbitration in public interest contracts depending on the nature of the contract.
The last mentioned judgment is binding to every judge in Venezuela in accordance with article 335 of the Venezuelan Constitution. The current status of Venezuelan case law allows for the use of arbitration in public interest contracts only when the contract is of a commercial nature, regardless of if the public interest is involved or not.
Challenge of arbitral awards involving the Venezuelan state, its instrumentalities and state-owned companies
In Venezuela, the only possibility to have an award set aside is through the application for judicial review established in article 43 of the Commercial Arbitration Act (1998), and on the grounds established in article 44 eiusdem, including:
- lack of capacity by one of the parties to enter into the arbitration agreement;
- lack of notification of the appointment of arbitrators, or for the performance of any act of the proceeding;
- when the tribunal has not been properly composed or the proceeding has not abided to the Commercial Arbitration Act (1998);
- lack of jurisdiction of the arbitral tribunal over issues included in the arbitral award; and
- arbitrability of the matter.
Article 43 of the Commercial Arbitration Act (1998) establishes that the application for judicial review must be filed before the competent Superior Court within five days after the notification of the award, or its correction, complementation or clarification. However, for those matters where a public entity is involved, the Organic Law of the Jurisdiction for Judicial Review of Administrative Matters (2010) applies. The mentioned law provides that any kind of activity of the public entities within its scope is subject to the control of the Jurisdiction for the Judicial Review of Administrative Matters.
As a consequence, a challenge to an arbitral award where one of the parties is the Venezuelan government, one of its instrumentalities or a state-owned company, should be filed before the competent tribunal of:
- the Jurisdiction for the Judicial Review of Administrative Matters;
- the Political Administrative Chamber of the Supreme Tribunal of Justice;
- the National Tribunals for the Judicial Review of Administrative Matters;
- the State Superior Tribunal of the Jurisdiction for the Judicial Review of Administrative Matters; or
- the Municipal Tribunal of the Jurisdiction for the Judicial Review of Administrative Matters.
Recognition and enforcement of arbitral awards against the Venezuelan state, its instrumentalities and state-owned companies
As a member of the New York Convention, Venezuela is obliged to recognise and enforce arbitral awards rendered in other member states. Following the same principle of universal control of the Jurisdiction for the Judicial Review of Administrative Matters, the enforcement of an arbitral award against the Venezuelan government, its instrumentalities or a state-owned company, must be requested from the competent Court of the mentioned jurisdiction. Recognition and enforcement could only be denied on the grounds established in article 49 of the Commercial Arbitration Act (1998), namely:
- lack of capacity by one of the parties to enter into the arbitration agreement;
- lack of notification of the appointment of arbitrators, or for the performance of any act of the proceeding;
- when the tribunal has not been properly composed or the proceeding has not abide to the applicable lex arbitri;
- lack of jurisdiction of the arbitral tribunal over issues included in the arbitral award;
- when it is proved that the award is not yet binding or has been suspended;
- arbitrability of the matter; and
- that the arbitration agreement is not valid under the applicable law.
Additionally, the enforcement of an award against the Republic would be subject to the proceeding established in the Advocate General's Office Organic Law (2008) for the enforcement of judgments against the Republic. In this proceeding, the Republic will propose a way to comply with the award. If the party requesting the enforcement rejects the proposal of the Republic, the tribunal will request a new proposal. If the new proposal is not received, or if rejected by the interested party, the tribunal should proceed to enforce the award by ordering the inclusion of an allowance in the national budget for the payment during the following year.
If the award is for the handing over of assets, the tribunal must put the assets in the possession of the interested party, unless it is affected for public purposes. In the last case, there will be a valuation of the assets in order to put a price that could be awarded to the interested party.
The inclusion of arbitral agreements in contracts with the Venezuelan government, its instrumentalities and Venezuelan state-owned companies is constitutionally and legally possible. Even the rules that could be argued as an obstacle for the inclusion of arbitration agreements would have to face the rule established in article 258 of the Venezuelan Constitution, which encourage the use of arbitration as a dispute resolution mechanism.
When the contracts are to be executed with the Republic or an instrumentality of the national government, the only requirement is that the arbitration agreement must be subject to the scrutiny of the Advocate General's Office, which must render a non-binding opinion on the basis of the prior opinion of the in-house counsel of the public entity involved in the contract and any other relevant documentation. However, this requirement does not affect the validity of the arbitration agreement, although it would make the public office personally liable for not requesting the opinion of the Advocate General's Office.
In the case of state-owned companies, the requirements are those established in the Commercial Arbitration Act (1998) regarding the approval of the corporate government body and the authorisation of the ministry to which the company is attached, although, as mentioned above, there could be some special regimes for particular state-owned companies.
As per the challenge of an award, the difference with the ordinary regime in commercial arbitration is with regards to the court to which the application for judicial review has to be filed. Because of the universal control of the Courts for the Judicial Review of Administrative Matters, the challenge of an award where a public entity is involved must be filed before the special courts of the mentioned jurisdiction taking into account the value of the award. The same principle is applicable to the recognition and enforcement of the award. However, there is a special procedure for the enforcement of judgments against the Republic that will be applicable to the enforcement of awards.
Finally, when dealing with a Venezuelan public contract with the Republic, an instrumentality or a state-owned company, it is convenient to review the applicable regime, since there are contracts excluded from the scope of the Public Procurement Act (2010), but are regulated under the ordinary regime of commercial contracts. However, this circumstance does not imply that other requirements of the legislation, which have been commented above, are not applicable to the arbitration agreements included in those contracts.