On 6 September 2007, US-based ExxonMobil (Exxon) filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID) over Venezuela’s nationalisation of oil operations in the Orinoco belt. This move comes amidst strong concern regarding Venezuela’s threatened imminent withdrawal from the World Bank and its dispute resolution arm, ICSID. By filing the Request at this stage, Exxon significantly mitigates the risk of not being able to bring an ICSID claim if and when a withdrawal occurs.
On 1 May 2007, the government of Venezuela took majority operational control of Venezuela’s last privately run oil fields as part of its nationalisation drive, transferring control of the Orinoco belt fields to state-owned Petroleos de Venezuela S.A. The oil companies with investments in the area were given until 26 June 2007 to decide whether they would accept new terms as junior partners. Along with ConocoPhilips, Exxon refused Venezuela’s offer of “fair” compensation and Exxon has now opted for arbitration. (Other major oil companies accepted Venezuela’s terms.)
Exxon’s decision to proceed quickly to arbitration has, no doubt, been prompted by President Chávez’s announcement that Venezuela intends to withdraw from the World Bank following Bolivia’s departure inMay 2007. In light of both withdrawals, actual and threatened, it is important to consider the legal and practical impact on investors.
What are the consequences of a State’s withdrawal from ICSID?
Deadline for bringing a claim: As this remains an untested area of law, there is much uncertainty as to the final deadline for an investor bringing a claim against a country that has withdrawn from ICSID.
The ICSID Convention (Article 71) provides that a State’s withdrawal takes effect six months after the World Bank receives written notice of it. It further states (Article 72) that an ICSID Tribunal’s jurisdiction is unaffected by the withdrawal, provided that the parties had already expressed consent to ICSID’s jurisdiction when the withdrawal occurs. The practical effect of these provisions is that an investor must “consent” to arbitration in relation to any given dispute before the end of the six-month period.
What constitutes consent? According to most opinions, whilst the host State’s consent to ICSID arbitration is usually given in a bilateral investment treaty (BIT) and cannot be unilaterally withdrawn, an investor must give separate specific consent. This is most commonly done by way of a Request for Arbitration or notice of dispute when a dispute arises. Nonetheless, in each case, it will be important to check the wording of the BIT itself to verify whether it amounts to the host State’s prior consent or whether it amounts to an agreement to consent, which may be affected by the withdrawal.
Outcome of Exxon’s Request: By filing the request in a timely manner, Exxon has significantly mitigated the risk of not being able to bring an ICSID claim if and when a withdrawal occurs. However, where an investor wishes to bring a later claim, whether against Venezuela or Bolivia, other options may be available to it.
Alternativemethods of resolving disputes against a State which has withdrawn from ICSID:most BITs incorporate dispute resolution mechanisms other than ICSID. Whilst they must be checked in each case, they can be summarised as follows:
- State to State arbitration where a state may be able to bring a claim on an investor’s behalf;
- arbitration under the ICSID Additional Facility, which applies if a state is not a party to the ICSID Convention and may apply if a party has withdrawn;
- ad hoc arbitration, usually under the UNCITRAL Rules (the United Nations Commission for International Trade Law).
In addition, most BITs include a Most Favoured Nation (MFN) Clause. Under such a clause it might be possible for an investor to make use of non-ICSID arbitration clauses contained in BITs with third parties. For example, while the Netherlands-Venezuela BIT does not contain an ad hoc arbitration clause, the France-Venezuela and the Brazil-Venezuela BITs do and it is possible that these could be imported into the Netherlands-Venezuela BIT. However, the issue of whether MFN clauses are applicable in respect of dispute resolution clauses remains uncertain and highly controversial.
Conclusions: given the new disregard for and hostility towards international arbitration evidenced by the denunciations of the World Bank (both actual and threatened), investors in the region should take legal advice and appropriate action. No doubt investors will be wary of having to bring a claim before the national courts and will wish to ensure that arbitration before a neutral tribunal remains an option.