In this briefing,Tom Leary considers how a dispute over one of the greatest undeveloped gold deposits in the world gave rise to one of the largest awards in ICSID history.

On 4 April 2016, the Canadian gold-mining company Crystallex International Corporation secured an arbitral award of US$1.202 billion (plus pre- and post-award interest) for unfair and inequitable treatment and the unlawful expropriation of its investment in the Las Cristinas mining project.

Background: the man with the Midas touch

When Hugo Chávez came to power in Venezuela, he commenced widespread nationalisation, including government take-overs of oil projects, agricultural businesses, the cement sector, steel works, telecommunications and gold mining. In so doing, he put Venezuela on a collision course with the international investment community and on a path leading to its withdrawal from the ICSID Convention in January 2012.

The withdrawal from the ICSID was politically symbolic but of limited practical significance. First, it came too late to stem the tide of investor- state awards against Venezuela. Secondly, the vast majority of BITs to which it is party provide for the alternative options of arbitration under UNCITRAL rules or the ICSID Additional Facility Rules.

In recent years Venezuela’s history of expropriation has caught up with it, including an ICSID award of US$1.76 billion in favour of ExxonMobil (concerning oil projects in the Orinoco Belt) and an award of US$713 in favour of Gold Reserve Inc. (concerning the Las Brisas mining project).

The Crystallex Award is the latest in a series of very significant investor-state awards arising out the Venezuelan nationalisation project and this dispute was submitted for arbitration under the Canada- Venezuela BIT and the ICSID Additional Facility Rules.

The parties’ submissions: gold- digger denied

In essence, Crystallex complained that its rights to create, operate and exploit the gold mine at Las Cristinas had been destroyed by the denial of a natural resources permit by the Ministry of Environment in 2008 and the subsequent rescission, in 2011, of its Mine Operation Contract by CVG, its contractual partner and the state-run corporation tasked with stimulating economic activity in the region.

Crystallex considered that it had been subjected to unfair and inequitable treatment and unlawful expropriation, contrary to Articles II(2) and VII(1) of the Canada-Venezuela BIT, to make way for a joint venture agreement between President Chávez and President Putin for the exploitation of the gold mines at Las Cristinas and Las Brisas by another mining company. As a result, Crystallex submitted that it had lost out on proven and probable gold reserves of 16.86 million ounces, not to mention the US$500 million which it had already invested in the project.

In reply,Venezuela submitted that the refusal to grant a natural resources permit had been based on well- founded environmental and socio- economic concerns and that the recession of the Mine Operation Contract had been justified under Venezuelan law by the suspension of project activities for more than one year.

It also stressed the inherent challenges and uncertainties of gold mining at Las Cristinas, claiming that Crystallex’s Feasibility Plan was inadequate and that it would not have raised sufficient funding for the project.

The Award: the road to El Dorado

The Tribunal found for Crystallex on both unfair and inequitable treatment and unlawful expropriation, awarding damages of US$1.202 billion, plus pre- and post-award interest.

Fair and equitable treatment

The Tribunal found that the minimum standard of fair and equitable treatment to which foreign investors were entitled was in a constant process of development in investor- state arbitration and had an “elusive essence”. Nevertheless, it did guard against arbitrary, discriminatory, or inconsistent treatment, gross unfairness or a lack of transparency.

The Ministry of Environment had previously approved Crystallex’s Environmental Impact Evaluation in 2007 and had promised that the natural resources permit would be “handed over”.Whilst it could not be said that Crystallex was “entitled” to a permit as a matter of law, it was entitled to a decision-making “procedure which was not arbitrary and in which the applicant was treated fairly”.

There was no question that “Venezuela had the right (and the responsibility) to raise concerns relating to global warming, environmental issues in respect of the Imataca Reserve, biodiversity, and other related issues”, but “the way they were put forward . . . in the Permit denial letter” presented “significant elements of arbitrariness and . . . a lack of transparency and consistency” which had frustrated Crystallex’s legitimate expectations.

The Tribunal was particularly troubled by the lack of scientific data to support the refusal of the permit, a general lack of transparency and the failure by Venezuela to explain inconsistencies. It found that “in order to comply with treatment that can be termed ‘fair and equitable’, such a dramatic halt to the project would have required more than a few pages of nebulous statements – particularly given that the Ministry had promised to ‘hand over’ the Permit less than a year before.”

There had been a failure to provide fair and equitable treatment and Crystallex had been subjected “to a ‘roller-coaster’ of contradictory and inconsistent statements from the Venezuelan authorities.”


The Tribunal found that the unilateral rescission of the Mine Operation Contract was direct expropriation of Crystallex’s contractual rights and that its investment had also been subjected to indirect or “creeping” expropriation as a result, inter alia, of the denial of the natural resources permit, the denial of administrative remedies, and public statements threatening the nationalisation of Las Cristinas.

Notably, the Tribunal considered that the public statements of President Chávez that he intended to oust Crystallex and take Las Cristinas back into governmental hands, even prior to the rescission of the Mine Operation Contract, constituted  “an incremental encroachment of the Claimant’s contractual rights and resulted in a gradual yet significant decrease of the value of the Claimant’s investment.”

Further, although the contract was purportedly terminated on contractual grounds, the Tribunal found that “the true nature of the act . . . was one of exercise of sovereign authority” and amounted to unlawful expropriation without compensation.


The Tribunal awarded damages of US$1.202 billion plus pre- and post-award interest on the basis of a fair market valuation of Crystallex’s mining rights, rejecting Venezuela’s submissions that the claim was unsubstantiated and speculative and finding that Crystallex had “proven the fact of future profitability”. In the case of open pit gold mining at Las Cristinas, using traditional techniques, the costs and future profits could be ascertained with a significant degree of certainty.

Crystallex had put forward a reasonable basis on which its loss of profits could be assessed. Of the four different valuation methods suggested (the stock market approach, the P/ NAV method, the market multiples method and the indirect sales comparison method), the Tribunal considered the forward-looking stock market and the market multiples approaches to be particularly appropriate. It awarded damages based on an average of those two approaches to compensate Crystallex for its loss of profits.

Comment: Gold rush or fool’s gold?

This case provides useful guidance on:

  • The balance beteen national evionmental inteests and an iestors right to fair and equitable teatment.
  • The cicumstances in which public statementsyofficialsmyamount to indiect expopriation.
  • The ppopriate basis or assessing a oeigniestorsloss ofpofits fom a futue poject.

However, for Crystallex and for the many other international investors with awards or claims against Venezuela, the more practical concern is enforcement and compensation.

In the “gold rush” for damages, the question remains whether investors such as Crystallex,Anglo American PLC, Rusoro Mining Ltd and Tenaris SA will receive full compensation or be left with only fool’s gold.

The Venezuelan government has already moved its gold reserves from foreign banks to Caracas and transferred cash reserves held in European and US banks to those in Russia, China and Brazil – presumably in an attempt to avoid freezing orders or other steps aimed at enforcement of an award.

There are also the enforcement issues and procedural difficulties arising out of State immunity, as illustrated recently in Gold Reserve Inc v The Bolivarian Republic of Venezuela [2016] EWHC 153 (Comm) and discussed further in Monica Feria-Tinta’s recent  bulletin on that case.

More substantial ICSID awards against Venezuela are likely to follow and, as the pot of gold which is amenable to enforcement shrinks, further disputes over enforcement and immunity appear to be inevitable.