Venezuela denounces the ICSID Convention

January 2012 Authors: Elisabeth Eljuri, Ramón J. Alvins S., Gustavo A. Mata M.

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On January 24, 2012, Venezuela withdrew from the ICSID Convention. This legal update briefly analyzes Venezuela’s reasons for denouncing the convention and the effects that such denunciation has on foreign investors and their right to institute proceedings before ICSID.


Venezuela denounces the ICSID Convention

On January 25, 2012, the Venezuelan Ministry for Foreign Affairs announced through a press release that on January 24, 2012, Venezuela had officially decided to withdraw from the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), which creates the International Center for the Settlement of Investment Disputes (ICSID), the most widely used facility for the settlement of global investment disputes.

Venezuela’s denunciation of the ICSID Convention comes as no surprise to investors in Venezuela or the international community due to the fact that Venezuelan officials had publicly announced their intention to withdraw from ICSID jurisdiction.

The press release from the Ministry of Foreign Affairs argued that the Venezuelan Government, as part of its constitutional mandate, had no other choice but to denounce the ICSID. According to Venezuela, Article 151 of the 1999 Constitution invalidates any consent to ICSID jurisdiction under the ICSID Convention. The aforementioned Article states:

All public interest contracts, if appropriate in accordance with their nature, shall be deemed to include, even if not expressly stated, a clause according to which all questions and controversies which may arise concerning such contracts and which may not to be resolved amicably by the contracting parties shall be decided by the competent courts of the Republic, in accordance with its laws, and under no circumstance or motive may give rise to foreign claims.

It is also Venezuela’s position that it has acted with the purpose of protecting the right of the Venezuelan people to freely choose their strategic economic and social orientations.  Therefore, it was withdrawing from an international jurisdiction that has favored transnational interests in 232 of the 234 cases brought before it.

Venezuela’s decision to withdraw from ICSID jurisdiction follows that of Bolivia, which in 2007 became the first country to ever denounce the ICSID Convention. Bolivia’s withdrawal was followed by Ecuador in 2009 and, most recently, Venezuela's announcement is the third in what appears to be a worrying trend among some Latin American governments.

Effects of Venezuela’s withdrawal

In accordance with Article 71 of the ICSID Convention, which regulates the potential denunciation by Contracting States, Venezuela’s notice will not take effect for another six months. The article in question provides that:

Any Contracting State may denounce this Convention by written notice to the depositary of this Convention. The denunciation shall take effect six months after receipt of such notice.

At first sight, Article 71 suggests that affected investors have six months to bring any claim before the consequences of denunciation take effect. However, it remains uncertain if under Article 72 of the ICSID Convention investors protected by Bilateral Investment Treaties (BITs) will be able to file claims after the denunciation has taken effect. Article 72 reads:

Notice by a Contracting State pursuant to Articles 70 or 71 shall not affect the rights or obligations under this Convention of that State or of any of its constituent subdivisions or agencies or of any  national of that State arising out of consent to the jurisdiction of the  Centre given by one of them before such notice was received by the  depositary.

There is extensive debate about the proper interpretation of Articles 71 and 72 of the ICSID Convention, and there are essentially three positions on this topic.  Some commentators consider that mutual consent to arbitrate has to be given prior to the denunciation of the Convention; otherwise, disputes cannot fall within ICSID jurisdiction.1 Other commentators have taken an intermediate approach according to which an investor may accept the consent given by a State in a BIT until the denunciation of the Convention becomes effective, that is to say, within the six-month period established in Article 71.2  Lastly, a less strict approach has been adopted by those who argue that Article 72 encompasses all unilateral offers of consent established in BITs, which remain in force even after the denunciation of the Convention, meaning that an investor will be able to commence ICSID proceedings even after the denunciation takes effect.3

Venezuela’s withdrawal raises a series of interesting legal issues that investors in Venezuela need to promptly address, including the need to review their existing corporate structure and determine, to the extent such investor has protection under one or more BIT, whether such BIT in fact contains alternatives such as UNCITRAL or the Additional Facility Rules of ICSID.  In light of this, each investor should carefully look at its specific position and obtain legal advice customized to its own situation.

Footnotes

1. C. Schreuer, Commentary to the ICSID Convention, Article 72; this view has been ratified by the same author in: Denunciation of the ICSID Convention…, p. 355.

2. S. Manciaux, Bolivia's Withdrawal from ICSID, in: Transnational Dispute Management, 2007.

3. E. Gaillard and Y. Banifatemi, The Denunciation of the ICSID Convention, New York Law Journal, 2007, Vol. 237, No. 122.

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