By Ramón J Alvins, Elisabeth Eljuri and Gustavo Mata
International and domestic arbitration is described in the Veneuzuelan Constitution as part of the state’s justice system. Yet Venezuela’s denunciation of the ICSID Convention highlights contradictions in practice within its legal system.
Article 258 of the Venezuelan Constitution goes so far as to establish that the law in Venezuela shall promote arbitration. The Constitutional Chamber of the Supreme Tribunal has interpreted this provision as imposing an obligation not only on the legislator, but also on the judiciary, stating that the latter should “promote, as much as possible, the use of means of alternative dispute resolution, and adopt all measures necessary to promote and recognise their effective operation”.
Venezuela has also ratified several international conventions on the territorial effectiveness and enforcement of arbitration agreements and arbitral awards, including the New York Convention, and it has adopted a Commercial Arbitration Law, known as the CAL.
Whilst at first glance Venezuela appears to be arbitration friendly, it is difficult to determine which disputes may be submitted to arbitration, and it can be quite arduous to enforce an award made by an international arbitral tribunal against Venezuela. Moreover, Venezuela’s recent denunciation of the ICSID Convention has left some foreign investors wondering how to obtain reparation from the Venezuelan state in the event of a future dispute.
The arbitrability of disputes
Submitting a specific dispute to arbitration, domestic or international, is contingent on an analysis of the arbitrability of the dispute. This is no easy task in Venezuela, where an intricate web of legal norms,including Supreme Court decisions, must be untangled in order to resolve the question.
In some instances the law expressly prohibits resort to arbitration. These instances, in which the Venezuelan courts have exclusive jurisdiction, include disputes concerning in rem rights over immovable property located in Venezuelan territory, crimes and misdemeanors, or family matters such as divorce. However, there is still an intense debate concerning the arbitrability of ‘public interest contracts’. This question deserves separate analysis.
“There is still an intense debate concerning the arbitrability of public interest contracts”
Article 151 of the Constitution establishes that:
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 arising out of such contracts and which may not be resolved amicably 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.
Whether this provision grants Venezuela absolute immunity from the jurisdiction of foreign courts and/or from arbitral proceedings has been the subject of considerable debate by Venezuelan courts and legal scholars.
Public interest contracts are those to which the public administration, acting in the exercise of its powers, is a party. In accordance with Article 151, whenever the nature of such contracts allows for the exclusive jurisdiction clause to be inserted, it is deemed to be included. Therefore, the question of whether or not the disputes arising out of a specific public interest contract may be submitted to arbitration must be decided on a case by case basis, by conducting a thorough analysis of the nature of the contract. This was confirmed by the Supreme Court in a 2008 constitutional interpretation which concluded that Article 151 establishes a system of partial immunity from the jurisdiction of foreign courts or arbitral tribunals.
Venezuela follows Argentina as the Latin American state with the highest number of ICSID cases against it, the vast majority of which were filed in the past five years.
On January 25, 2012, Venezuela denounced the ICSID Convention. This came as no surprise to investors or to the international community at large, given that Venezuelan officials had publicly announced their intention to withdraw from ICSID jurisdiction.
The Venezuelan government argued that, as part of its constitutional mandate, it had no choice but to denounce the ICSID Convention because Article 151 of the Constitution invalidates any consent to ICSID jurisdiction under the ICSID Convention. The current position of the Venezuelan government appears to contradict the partial immunity from jurisdiction system that the Supreme Court established in its 2008 interpretative decision.
In accordance with Article 71 of the ICSID Convention, Venezuela’s notice will take effect six months after the date of notice. While this may suggest that affected investors have six months to bring any claim, before the consequences of denunciation take effect, under Article 72 of the ICSID Convention, investors protected by bilateral investment treaties (BITs) may be able to file ICSID claims after the denunciation has taken effect.
There is extensive debate about the proper interpretation of Articles 71 and 72 of the ICSID Convention; there are essentially three positions on this topic. Some consider that mutual consent to arbitrate has to be given prior to the denunciation of the Convention; otherwise, a dispute cannot fall within ICSID jurisdiction.
Others take an intermediate position, under which investors would be allowed to 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.
A less strict approach is adopted by those who argue that Article 72 encompasses all unilateral offers of consent contained in BITs, which remain in force even after the denunciation of the Convention. This would allow investors to commence ICSID proceedings even after the denunciation takes effect.
None of these pronouncements has been tested, although their correctness may be confirmed by an ICSID tribunal in a claim brought after Bolivia’s denunciation of the ICSID Convention had taken effect.
Some Venezuelan commentators have argued that Article 22 of the Venezuelan Foreign Investment Law constitutes an open consent by Venezuela to the jurisdiction of ICSID. However, this idea has been rejected by the Supreme Court and three ICSID panels as of the date of this publication.
In light of the current situation, foreign investors should examine carefully the alternatives to ICSID arbitration that their relevant BITs might offer, such as ICSID’s Additional Facilities or arbitration under the UNCITRAL Rules.
Venezuelan courts seem to have no problem when it comes to enforcing awards rendered in domestic or international arbitrations to which both parties are private entities. However, there is some doubt with respect to the enforcement of an award adverse to the interests of the Venezuelan state.
Under the international conventions ratified by Venezuela, Venezuelan courts shall not enforce an award whenever it is contrary to Venezuelan public policy.
“Venezuelan courts seem to have no problem when it comes to enforcing awards rendered in domestic or international arbitrations to which both parties are private entities”
It has been suggested in certain Supreme Court decisions that any award by an international arbitral tribunal that negatively affects the Venezuelan state would be contrary to public policy. Under this reasoning it seems fairly unlikely, if not impossible, to obtain the enforcement of an arbitral award in which the tribunal has not sided with the Venezuelan government.
Ramon J Alvins and Elisabeth Eljura are partners and Gustavo Mata is an associate in the Caracas office of Norton Rose Canada LLP.