Tribunal decides on who may properly represent Venezuela in arbitration

Venezuela Holdings, B.V., et al (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27

Summary

Venezuela Holdings, B.V, Mobil Cerro Negro Holding, LLC, and Mobil Cerro Negro, Ltd. (jointly, the “claimants”) resubmitted their claim for expropriation against the Republic of Venezuela (“Venezuela”) pursuant to the ICSID Rules. During the resubmission proceedings, a dispute regarding the representation of Venezuela arose.

The tribunal found that the issue of determining a state’s proper representative for the purposes of the arbitration was a procedural issue and applied the status quo principle to determine Venezuela’s proper representative.

Facts

Reinaldo Enrique Muñoz Pedroza, the appointee of the Maduro government, was the authority notified by ICSID about the registration of the case. However, José Ignacio Hernández G., the appointee of the Guaidó government, subsequently wrote to ICSID saying that he was, in fact, the only person authorized to speak on behalf of Venezuela.

Following the constitution of the tribunal, the claimants requested that the issue of Venezuela’s representation in this arbitration (the “representation issue”) be determined before proceeding. Although the legal counsel representing the Maduro government (the “Maduro counsel”) objected to this request, the tribunal did not agree. After identifying the person representing the Guaidó government as Enrique Sánchez Falcón—the successor to Hernández—the tribunal decided to resolve, as a preliminary issue, the representation issue.

Procedural history

This decision comes out of the  2007 ICSID arbitration proceedings commenced against Venezuela under the 1991 Netherlands–Venezuela BIT (the “BIT”). The original arbitration was initiated in response to measures undertaken by the Venezuelan government, which, inter alia, the claimants argued, effectively expropriated the claimants’ heavy-oil investments in Venezuela. In 2014, Venezuela was ordered to pay over USD 1.4 billion in damages for the expropriations. In 2017, the quantum portion of the award was annulled. In October 2018, in response to this annulment, the claimants filed a request for resubmission of the dispute.

Tribunal’s findings

1. The representation issue is rightly before the tribunal.

The Maduro counsel argued that no representation issue had been submitted by any third party to the tribunal and, therefore, the tribunal did not have jurisdiction to decide this issue. The tribunal rejected this argument on the basis of Hernández’s letter to the tribunal, which the tribunal interpreted to be regarding the rightful representation of Venezuela before ICSID tribunals.

2. The representation issue is procedural in nature.

Counsel for the Guaidó government (the “Guaidó counsel”) objected to the tribunal’s jurisdiction on the dual bases that (1) it was a political question, and (2) that it was outside the tribunal’s jurisdiction.

The tribunal rejected the characterization of the issue as political. Citing the tribunal order on Venezuela’s representation in Kimberly-Clark Dutch Holdings, B.C. et al. v. Bolivarian Republic of Venezuela, the tribunal deemed the issue procedural because “it is an issue dealing with the proper conduct of this arbitration.” The tribunal then held that the BIT posed no jurisdictional obstacle since its jurisdictional provisions were to be read in combination with the ICSID Convention, which authorizes tribunals to address procedural issues that may arise during an arbitration.

The tribunal stressed that its determination of the representation issue was not a decision on Venezuela’s legitimate government. Instead, the tribunal described its decision as one made for assuring the “proper conduct of the proceedings and protecting the rights of defence of the parties” in the resubmission proceedings.

3. The representation issue should be decided at the level of the government representatives.

The tribunal explained that the representation issue should neither be decided at the government level (i.e., between the Maduro and Guaidó governments) because the decision was only concerned with “the specific procedural issue of the Respondent’s representation before the Tribunal” nor at the level of legal counsel because it was “for the [government representatives] to appoint the counsel and not the reverse.”

4. Pursuant to the status quo principle, the proper representative of the Venezuelan government is Reinaldo Enrique Muñoz Pedroza. No other considerations change this result.

The tribunal, following past tribunals confronted with the issue of Venezuela’s representation in ICSID proceedings, applied the status quo principle which requires the “maintenance of the status quo, laying the burden of proof with the person or body seeking to change the existing representation.” Since Pedroza had been Venezuela’s representative of record at the time of the initiation of the resubmission proceedings and because he (or his predecessor in office) had represented Venezuela in the prior stages of the arbitration, he was identified as the proper representative.

This notwithstanding, the tribunal considered several other considerations, all of which also pointed to Pedroza.

• Venezuelan law and effective governance: The tribunal noted that the domestic law that had been the basis of the appointment of the Guaidó government’s representatives had been annulled by the Venezuelan Constitutional Court. Furthermore, the tribunal noted that there was no evidence that Falcón was the representative of the effective (as opposed to legitimate) government in Venezuela because the Guaidó government neither controlled Venezuelan territory nor the state apparatus.
• International law and recognition: Citing Article 41(2) of the Articles on the Responsibility of States for Internationally Wrongful Acts, the tribunal first explained that since there had been no jus cogens violations in the appointment of Pedroza, his appointment under Venezuelan law was also valid under international law. The tribunal then turned to the Guaidó counsel’s arguments on the relevance of the Guiadó government’s international recognition. First, the tribunal explained that there was no uniform international recognition of the Guaidó government and, even amongst the states that did recognize the government, it was uncertain whether this was recognition as the effective government in Venezuela. Second, as to recognition of the Guaidó government by Netherlands (as the claimants’ home state) and the United States (as the claimants’ ultimate parent company’s home state), the tribunal noted that this was irrelevant since home states’ legal interests in investment claims of their nations barred them from deciding the respondent state’s representation in the ensuing arbitration proceedings. Third, as to recognition at the institutional level by the World Bank, the tribunal noted that since Venezuela was not a contracting state to the ICSID Convention and, therefore, not a member of ICSID’s Administrative Council, Venezuela had no recognition at the relevant level of the World Bank.
• General principles of procedural law and fairness: Looking to considerations of procedural efficiency and Venezuela’s right of defense, the tribunal noted that Pedroza was the better choice. While the tribunal said that it would welcome a joint defense by Pedroza and Falcón, in the absence of any such agreement between them, Pedroza’s representation would ensure that the proceeding continues, thereby ensuring procedural efficiency, and that Venezuela’s right of defense was not compromised.

Comments

1. The messy procedural/political divide

The tribunal calls the representation issue a procedural one because it believes that the effect of its decision is limited to “determin[ing] who shall have the task of presenting Venezuela’s defence before the Tribunal in these proceedings.” Had this been true, there would have been no reason for Pedroza and Falcón to dispute each other’s right to represent Venezuela in the proceedings. In reality, however, the “task of presenting Venezuela’s defence” presupposes the political authority to speak on behalf of Venezuela. By recognizing Pedroza’s right to speak for Venezuela, the tribunal is “recogniz[ing] a government” which, the tribunal itself notes, it “do[es] not have the capacity to [do].”

2. The ambiguous status quo principle

The legal weight of the status quo test is unclear. The tribunal says, in consecutive paragraphs, that the principle is a sufficient basis to “decide” the representation issue and also that the principle only creates a rebuttable presumption. If and to the extent that other considerations (viz. effective governance, international law, etc.) do play a role, it is unclear how the tribunal would have weighed these considerations against the status quo principle if one or more of them instead favoured Falcón.

3. Illusory procedural efficiency

The tribunal notes at the close of its decision that its determination of the representation of Venezuela could be revised “in light of new facts.” The Guaidó government could, therefore, continue to bring challenges to the legitimacy of Pedroza’s representation of Venezuela, and the tribunal would consider these challenges. It is unclear how this aligns with the tribunal’s stated goal of ensuring procedural efficiency in the proceeding.

4. Counsel credibility

The Guaidó counsel served as the Maduro counsel (before being replaced) in the early stages of this resubmission proceeding. It is interesting to note that the tribunal did not comment on the credibility of the Guaidó counsel given this 180° reversal in positions.

Note

The tribunal was composed of Stephen Drymer (the claimants’ appointee), Professor Andrea Giardina (Venezuela’s appointee) and Professor Nicolas Angelet (the president).

Author

Aishwarya Suresh Nair is an International Finance and Development Fellow at IISD from the New York University School of Law.