In (Venezuela Holdings et al v Bolivarian Republic of Venezuela (“Venezuela Holdings”) [1] an ad hoc  ) an Committee for the World Bank’s International Centre for Settlement of Investment Disputes ("ICSID") nullified part of an arbitration award issued by an ICSID Tribunal that required the Government of Venezuela to pay $1.4 billion to certain subsidiaries of ExxonMobil (collectively, “ExxonMobil”). The arbitration award largely reflected compensation resulting from the nationalization one of ExxonMobil’s oilfield projects in 2007. However, on appeal the Committee held that the Tribunal erred in its approach to a price cap to compensation, which rendered the arbitral award a nullity. Venezuela Holdings, therefore, marks a victory for resource-rich governments and sends a cautionary note to foreign investors.


In the mid-1990s, ExxonMobil agreed to work with Venezuela’s state-owned oil and natural gas company to explore and develop oil fields in two regions known as La Ceiba and Cerro Negro. This cooperation was formalized by way of association agreements. The Cerro Negro association agreement was governed by the Cerro Negro Framework of Conditions (the “Framework of Conditions”), which was approved by the Venezuelan Congress in 1997.

In 2007, the Government of Venezuela nationalized ExxonMobil’s Cerro Negro and La Ceiba projects, as well as other projects in the Orinoco Oil Belt. After negotiations failed to result in a viable business arrangement moving forward, in September 2007 ExxonMobil filed a Request for Arbitration with the ICSID. ExxonMobil claimed US $14.5 billion as compensation for the Cerro Negro project, and $179 million for the La Ceiba project.[2]

Tribunal Decision

The Tribunal held that the nationalization was lawful, but that ExxonMobil was entitled to “just compensation” in accordance with the Netherlands-Venezuela Bilateral Investment Treaty (the “BIT”).[3] Based on a discounted cash flow analysis, the Tribunal awarded ExxonMobil approximately $1.4 billion in damages for nationalization of the Cerro Negro project, and $179 million for the La Ceiba project.[4]

In reaching its conclusion, however, the Tribunal appears to reject an argument by Venezuela that the damages award for the Cerro Negro project was limited by a price cap contained in the Framework of Conditions. The Tribunal reasoned that Venezuela could not rely on the Framework of Conditions, a creature of national law, to evade its duties to compensate ExxonMobil under the BIT, an international treaty.[5]

Committee Decision

Venezuela applied to annul the quantum of damages awarded to ExxonMobil in respect of the Cerro Negro project on the basis that the Tribunal failed to apply the price cap contained in the Framework of Conditions.[6] For its part, ExxonMobil sought to uphold the Tribunal’s decision, including the Tribunal’s finding that the price cap did not apply.

The Committee agreed with Venezuela and annulled the $1.4 billion damages award. The Committee noted that the choice of law clause in the BIT required any arbitral award to be based on, inter alia, “the law of the Contracting Party concerned”.[7] As such, the BIT required that Venezuelan law, including the price cap as found in the Framework of Conditions, be taken into account when making an arbitral award. By failing to do this, the Tribunal had decided the quantum of ExxonMobil’s compensation not within the context of the BIT, but rather on an undefined “justiciable obligation” flowing from international law.[8] Therefore, in the Committee’s view, the Tribunal “manifestly exceeded its powers” and the damages award was annulled.[9]


Venezuela Holdings marks a victory for resource-rich governments. More particularly, it shows that in certain circumstances an arbitral award is based not only on treaty obligations but also on obligations flowing from national law. National laws, which tend to favour the state, may include a price cap on compensation resulting from nationalization. As such, foreign investors are well-advised to consider how their rights may be curtailed by broad choice of law clauses that may import onerous national laws.