Valores Munidales, S.L. v. Bolivarian Republic of Venezuela, 1:19‑cv‑00046 (D.D.C. May 15, 2023) [click for opinion]
Valores Munidales, S.L. and Consorcio Andino, S.L. (together, "Valores"), were two Spanish shareholders of Venezuelan food production companies. Valores initiated arbitral proceedings against Venezuela seeking indemnification for losses related to an expropriation decree. Venezuela, then a signatory to the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"), participated in the proceedings.
In July 2017, the ICSID tribunal awarded Valores $430 million in compensatory damages, as well as $6 million in costs. Venezuela then initiated ICSID annulment proceedings. In January 2019, while those annulment proceedings were pending before a three-member ad hoc committee, the Venezuelan National Assembly disavowed President Nicolás Maduro and named Juan Guaidó as the Interim President. Although many countries, including the United States, recognized Guaidó as Venezuela's leader, not all followed suit and Maduro continued to control key institutions.
In March 2019, José Ignacio Hernández, the Special Attorney General for the Guaidó government, sought to replace Maduro's representative in the ongoing ICSID annulment proceedings. The ICSID ad hoc committee heard briefing on the status of Venezuela's representation, and concluded that Hernández did not carry his burden to prove that he legitimately represented Venezuela under domestic or international law. The ad hoc committee then held a merits hearing and issued a final decision affirming the award in December 2021.
In January 2019, while the annulment proceedings were ongoing, Valores filed suit in the U.S. District Court for the District of Columbia seeking to enforce the award. In October 2019, the clerk entered default against Venezuela and Valores moved for entry of a default judgment. Thereafter, in March 2020, counsel for Venezuela entered appearances, answered the complaint, and requested that the court set aside the default. Because the annulment proceedings were then ongoing, the court stayed the case. After the ad hoc committee issued its final decision, the court lifted the stay and the parties cross-moved for summary judgment.
In those motions, Venezuela argued that the annulment proceedings violated due process because the ad hoc committee failed to recognize the Guaidó government's counsel. Therefore, Venezuela argued, the court should not enforce the award and should instead recognize the counsel appointed by the interim government and review the annulment proceedings de novo. The court disagreed.
The court explained that, once a state or investor files a request to convene an ICSID arbitral panel and an award has been entered, the award can only be set aside through annulment. Annulment, in turn, can be granted, where, among other things, "there has been a serious departure from a fundamental rule of procedure." This standard is similar to procedural due process and guarantees basic procedural fairness, including impartiality and equality of treatment, the right to be heard, an opportunity to present evidence, and prompt resolution of the claim.
ICSID panels do not have the power to enforce awards; rather, the winning party must seek enforcement in the courts of a contracting state. But those courts play only a limited role. Pursuant to Article 54 of the ICSID Convention, domestic courts must "recognize an award rendered pursuant to [the] Convention as binding and enforce the pecuniary obligations imposed by that award within its territories… as if it were a final judgment of the courts of a constituent state."
As a result, implementing legislation in the United States makes clear that the Federal Arbitration Act, including its more expansive grounds for vacating an award, "shall not apply to enforcement of awards rendered pursuant to the [ICSID Convention]." Because a U.S. court is not "permitted to examine an ICSID award's merits, its compliance with international law, or the ICSID tribunal's jurisdiction to render the award," it has no power to review the proceedings de novo. It is limited to deciding only whether an ICSID award is authentic and binding, which the court found here.
Next, the court considered and rejected Venezuela's argument that procedural due process was violated because the state had been deprived of the opportunity to be heard on appeal when the ad hoc committee chose not to recognize the interim government's counsel. While abrogation of the right to pursue an available appeal may be a violation of due process, the court held that Venezuela here had a meaningful appeal during which it was represented by counsel. Moreover, throughout that appeal, the ad hoc committee acted in accordance with ICSID's procedural rules, allowed Venezuela to be heard, and issued opinions grounding its decisions in domestic and international law.
Finally, the court addressed Venezuela's argument that to enforce the award would be to recognize the Maduro government's participation in the ICSID annulment proceedings, and because the court cannot recognize that government, it cannot enforce the award. The court acknowledged that members of the Maduro government could not proceed in its courtroom. However, the question was not whether representatives of the Maduro government could act here but whether the court had the power to second-guess the ICSID arbitrators' decision to recognize the Maduro government in ICSID proceedings. The court held that it did not.
Because it found that procedural due process was satisfied and that there was no issue present as to governmental legitimacy, the court held that the ICSID award was enforceable. It also ruled that Valores was entitled to all fees and costs ordered by the annulment committee, to be included in the final order.
Maria Grenader of the Washington DC office contributed to this summary.