English High Court enforces foreign arbitral award, defines “make an investment” for itself, and clarifies disclosure requirements
The English High Court (the Court) upheld its prior ex parte order (the Order) for permission to enforce an investment treaty arbitration award (the Award) against the Bolivarian Republic of Venezuela (Venezuela) on behalf of a Canadian mining company, Gold Reserve Inc. (GRI). The Court considered two key issues: first, whether Venezuela was immune from the Court’s jurisdiction under the 1978 State Immunity Act on the basis that there was (according to Venezuela) no written agreement to arbitrate; and second, whether GRI had failed in its ex parte application to make full and frank disclosure of facts creating a likelihood that Venezuela would assert immunity from the Court’s jurisdiction on that same basis.
The Court decided that (i) a valid arbitration agreement existed, so Venezuela was not immune from suit, and (ii) GRI nonetheless should have disclosed in its ex parte application that Venezuela had challenged the arbitral tribunal’s jurisdiction for lack of an arbitration agreement, and was continuing to challenge the Award on that same basis elsewhere.
The decision confirms that courts in the United Kingdom will only in rare circumstances grant an ex parte order for enforcement of an arbitral award against a State. If the State contested the Tribunal’s jurisdiction in the underlying arbitration—which States commonly do on the basis that there was no qualifying “investor” or “investment” under the applicable investment treaty—an investor seeking to enforce an arbitration award against a State should disclose that fact in its ex parte application. Such disclosure will likely lead the court to order an inter partes hearing on the existence of an agreement to arbitrate for purposes of the 1978 State Immunity Act, which the court will decide for itself rather than simply deferring to the decision of the arbitral tribunal. Failure to disclose is likely to result in costs being awarded against the investor or the setting aside of the enforcement order.
GRI acquired an indirect ownership interest in the Brisas gold mining project in Venezuela (the Brisas Project) through a corporate restructuring and share swap with Global Reserve Corporation (GRC), a US company that owned shares in a Venezuelan entity, Compañia Aurífere Brisas del Cuyuní, C.A., which held the concessions forming the Brisas Project. After acquiring its interest, GRI raised approximately US$ 300 million to develop the Brisas Project.
In 2009, GRI initiated arbitration proceedings alleging that Venezuela’s measures had violated the investment protections in the Canada-Venezuela bilateral investment treaty (the Canada-Venezuela BIT) and that those measures had ultimately resulted in the expropriation of GRI’s investment in the Brisas Project. The arbitration was conducted pursuant to the Additional Facility Rules of the International Centre for Settlement of Investment Disputes, and the seat of the arbitration was Paris.
Venezuela challenged the jurisdiction of the arbitral tribunal on the basis that, among other things, GRI was not an “investor” for the purposes of the Canada-Venezuela BIT because GRI did not actually “make the investment in the territory of Venezuela”; instead, according to Venezuela, GRI had merely obtained an indirect shareholding through a share swap long after the Brisas Project had been created (and any post-acquisition investments were made in the name of GRC, not GRI). The Gold Reserve Tribunal rejected those arguments, determining that the acquisition of an indirect shareholding in a pre-existing investment constituted “mak[ing]” an investment under the ordinary meaning of the terms of the BIT. The Gold Reserve Tribunal awarded GRI approximately US$ 713 million in damages.
GRI sought to enforce the Award in several jurisdictions, including the United States, Luxembourg and United Kingdom. Meanwhile, Venezuela challenged the award in Paris on the basis that the Gold Reserve Tribunal lacked jurisdiction because GRI was not an “investor” under the Canada-Venezuela BIT.
The High Court proceedings — Gold Reserve Inc. v. Venezuela  EWHC 153 (Comm)
In the United Kingdom, GRI filed an application before the England and Wales High Court of Justice, Queen’s Bench Division, Commercial Court for permission to enforce the Award on an ex parte basis pursuant to Part 62.18(1) of the Civil Procedure Rules (CPR), which provides that an application for permission to enforce an arbitral award may be made without notice to the other party.
On 20 May 2015, the Court granted GRI’s application and ordered that the Award may be enforced as a judgment (the Order).
Pursuant to CPR Part 62.18(8)–(9), Venezuela was notified of the Order and given the opportunity to apply to set aside the Order. Venezuela challenged the Order shortly thereafter on several grounds, the most significant of which were that: (i) Venezuela was immune from the Court’s jurisdiction under the 1978 State Immunity Act; and (ii) GRI had failed to provide full and frank disclosure to the Court of material matters (such as Venezuela’s likely immunity argument) and that the Order should therefore be set aside.
The Court held an inter partes hearing on these issues from 18–20 January 2016.
The 1978 State Immunity Act
In its Judgment of 2 February 2016, the Court first examined whether Venezuela was immune from its jurisdiction due to the 1978 State Immunity Act. The 1978 State Immunity Act provides that a State is immune from the jurisdiction of courts in the UK, subject to certain exceptions. Critically, one exception is where the State agreed in writing to arbitrate a dispute, and the matter before the courts relates to such an arbitration. The Court therefore had to determine whether there was a valid arbitration agreement between Venezuela and GRI.
The basis for the Parties’ agreement to arbitrate was the dispute resolution clause in Article XII of the Canada-Venezuela BIT. The Court construed Venezuela’s agreement in the Canada-Venezuela BIT as a unilateral offer by Venezuela to arbitrate certain disputes with “investors”. An arbitration agreement could only be formed once an “investor”—defined in relevant part in Article I(g) of the Canada-Venezuela BIT as a Canadian enterprise “who makes the investment in the territory of Venezuela”—accepted Venezuela’s offer to arbitrate by initiating arbitration proceedings in accordance with Article XII. The Court thus had to determine for itself whether GRI satisfied the definition of “investor” as an incidental question in order to determine whether Venezuela was entitled to invoke immunity from suit.
In considering that issue, the Court applied the general rules of interpretation in Article 31 of the Vienna Convention on the Law of Treaties to construe the definition of “investor” in Article I of the Canada-Venezuela BIT. The Court ultimately decided—in contrast to the Tribunal—that GRI’s initial acquisition of shares in GRC did not satisfy the “ordinary meaning” of “mak[ing] an investment in the territory of Venezuela”, read in light of the treaty’s “object and purpose” of “promoting and protecting the expansion of investments in Venezuela by Canadian investors”, because mere passive ownership of shares does not constitute the active relationship with the investment implied by the word “make”. However, GRI’s subsequent contributions of capital to maintain and develop the Brisas Project did satisfy the definition. GRI was thus an “investor” entitled to accept Venezuela’s offer to arbitrate under the Canada-Venezuela BIT.
Turning to the application of the State Immunity Act, the Court held that Venezuela was therefore not entitled to claim immunity because the matter before the Court related to an arbitration commenced pursuant to a valid agreement to arbitrate. The Court further noted that the general rules for service of States under Section 12 of the 1978 State Immunity Act did not require GRI to serve Venezuela with an arbitration claim form (i.e., its enforcement application) because CPR Part 62 permitted enforcement applications to be made without notice to the other party and without service of an arbitration claim form.
Full and Frank Disclosure
The second key issue considered by the Court was whether GRI had failed to satisfy its obligation of full and frank disclosure to the Court by failing to draw the Court’s attention to the fact that the existence of the Parties’ arbitration agreement had been contested in the arbitration proceedings and the proceedings before the courts in Paris (where Venezuela sought to set aside the Award and GRI sought to have it recognized and enforced) and Luxembourg (where GRI sought recognition and enforcement).
The Court explained that because a judge faced with an ex parte application for permission to enforce an award against a State must decide whether it is likely that the State would claim immunity—and, if so, would probably order the arbitration claim form to be served on the State so that a hearing could be held to determine whether the court had jurisdiction—a party seeking enforcement must alert the Court to matters suggesting that the State may have immunity. Since the existence of an arbitration agreement was central to the question of whether Venezuela could claim immunity from the Court’s jurisdiction, the fact that the arbitration agreement had been, and was being, challenged should have been disclosed.
Although GRI had submitted the Award with its enforcement application and referred to particular paragraphs concerning the Tribunal’s jurisdiction, GRI’s application merely described those paragraphs as “set[ting] out the details of the parties’ contentions and the Arbitration tribunal’s analysis and findings”. GRI also asserted in its application that Venezuela was not entitled to State immunity as it “agreed in writing to submit any dispute which may arise to arbitration”. Moreover, GRI did not disclose that Venezuela had challenged the arbitration agreement in the proceedings in Paris and Luxembourg.
The Court found that GRI’s limited disclosures were inadequate to alert the Court that Venezuela would likely raise a State immunity defense on the basis that there was no agreement to arbitrate. The Court further stated that, if full and frank disclosures had been made on that issue, GRI’s request for an ex parte enforcement order likely would not have been granted.
The Court noted that GRI’s failure to give full and frank disclosure created a powerful case for setting aside the Order. However, because the Court had already held a hearing on State immunity and determined that Venezuela was not entitled to claim immunity, it would make no sense to set aside the Order and require GRI to refile its application with full disclosures because it would simply result in a duplicative hearing. Instead, the Court ordered GRI to indemnify Venezuela for the costs Venezuela incurred litigating the full and frank disclosure issue.
Shortly after the Court’s decision, GRI announced on 29 February 2016 that it had entered into a memorandum of understanding with Venezuela to settle their dispute over payment of the Award.