Venezuela to pay US$1 billion for expropriating Canadian mining company’s investment

Rusoro Mining Ltd. v. the Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5

In an award dated August 22, 2016, a tribunal at the Additional Facility (AF) of the International Centre for Settlement of Investment Disputes (ICSID) ordered Venezuela to pay US$966.5 million plus interest to Canadian company Rusoro Mining Limited (Rusoro) for unlawfully expropriating its mining investment.

Background and claims

Between 2006 and 2008, through the acquisition of controlling interests in 24 Venezuelan companies, Rusoro indirectly acquired 58 mining concessions and contracts to explore and produce gold in Venezuela.

At that time, Venezuela had already established, among other restrictions, a limitation in the exportation of gold. In April 2009, it introduced further limitations, and in July 2010 it relaxed the rules for public companies while reaffirming the limitations for private companies. Finally, in July 2010, Venezuela reduced the restrictions and unified the regime for public and private producers.

On August 17, 2011, then-President Hugo Chávez announced the nationalization of the gold mining industry in Venezuela. On September 16, 2011, he issued a nationalization decree that provided for state control of the property and mining rights of all gold producing companies and ordered the transfer of all existing concessions or contracts to mixed companies controlled by the state.

After six-month negotiations, Rusoro and Venezuela could not reach an agreement on the compensation amount. Consequently, on July 17, 2012, Rusoro initiated arbitration proceedings, claiming that Venezuela expropriated its investment, among other breaches of the Venezuela–Canada bilateral investment treaty (BIT). Rusoro asked for a compensation of roughly US$2.3 billion plus interest.

Tribunal dismissed all of Venezuela’s jurisdictional objections

First, Venezuela argued that since Rusoro’s expropriation claims were also based on measures taken by Venezuela in 2009 and 2010, the dispute was time-barred by the three-year statute of limitation contained in the BIT. The tribunal determined that only measures taken by Venezuela before July 17, 2009 (three years before the filing of the request for arbitration) were time-barred.

In its second objection, Venezuela argued that there was no jurisdiction before the ICSID AF, since it had already withdrawn from the ICSID Convention when the arbitration was registered (in August 2012). The tribunal, agreeing with Rusoro, and in line with the decision in the Venoklim v. Venezuela case, held that the relevant date was the date of the request (July 17, 2012), when Venezuela was still an ICSID member state.

Venezuela also stated that Rusoro breached Article 29 of Venezuela’s mining law, which requires prior authorization from the Ministry of Mines before acquiring mining rights, and therefore, it was not a protected investor and did not have a protected investment under the BIT. The tribunal disagreed with Venezuela and concluded that Article 29 of the mining law does not apply to the indirect acquisition of companies that hold mining rights.

Rusoro’s direct expropriation claims upheld as Venezuela failed to ensure “prompt, adequate and effective compensation”

Rusoro argued that, through the 2011 nationalization decree, Venezuela expropriated its investment in violation of the BIT. In turn, Venezuela indicated that the BIT contemplated nationalization and that it complied with the BIT’s requirements, except for compensation. According to Venezuela, the failure to agree on the amount of compensation does not render nationalization unlawful per se.

Since both parties coincided that an expropriation took place, the tribunal then analyzed the lawfulness of the expropriation.  It noted that while Venezuela’s expropriation was adopted for a public purpose, under due process of law and in a non-discriminatory manner, it failed to ensure prompt, adequate and effective compensation to Rusoro. Accordingly, it found that the expropriation was unlawful.

Regarding the public purpose requirement, the tribunal pointed that states have discretion in establishing their public policy and that the nationalization decree clearly stated the public purpose of the expropriation.

In addition, the tribunal held that the expropriation was carried out under due process of law because Rusoro had two options under Venezuelan law to challenge the nationalization decree, but never pursued them.

Concerning the non-discrimination prerequisite, the tribunal found that both Venezuelan and foreign investors were equally affected by the nationalization decree.

Regarding the compensation requirement, Rusoro alleged that it never received any compensation and that the negotiation was a “mere window dressing” (para. 398), since the nationalization decree limited compensation to book value. Venezuela, conversely, stated that it negotiated with Rusoro in good faith for six months and that Rusoro remained uncompensated because it rejected Venezuela’s offer.

The tribunal pointed out that the standard for compensation established in the BIT was the “genuine value” of the investment, which should be deemed to be the same as “fair market value.” It also indicated that the nationalization decree established a different standard, namely, the book value of the investment. The tribunal finally referred to the fact that Venezuela neither paid the amount offered nor deposited it in escrow in favor of Rusoro.

Alternative claim of creeping or indirect expropriation deemed unconvincing

Rusoro also claimed that it suffered indirect expropriation as result of a series of measures taken by Venezuela starting in 2009 that culminated with the nationalization decree. The tribunal dismissed this claim as it did not find convincing evidence that, before enacting the nationalization decree, Venezuela had envisioned and implemented a plan to nationalize the gold sector.

Success of ancillary claim that Venezuela’s increased restrictions on gold exports breached the BIT

Rusoro submitted several ancillary claims. The tribunal concluded that it failed to prove that Venezuela breached the BIT provisions regarding fair and equitable treatment, full protection and security, non-discrimination and free transfers. However, it found that Venezuela breached the BIT by imposing an increased restriction on the exportation of gold.

Rusoro claimed that, with the 2010 measures, Venezuela imposed various restrictions on Rusoro’s ability to export gold in breach of the BIT’s prohibition on export restrictions. The tribunal agreed. It noted that, while at the time Rusoro made its investment, the regulations in force allowed 85 per cent of the production to be exported, the 2010 regulation reduced that figure to 50 per cent.

Tribunal used average of three methodologies to calculate compensation

To find the “adequate compensation” amount to be paid by Venezuela to Rusoro for unlawful expropriation, the tribunal first noted that there were two issues on which the parties agreed: the proper valuation date was the date of the nationalization decree, and the “genuine value” of the investment was the “fair market value.”

In assessing the fair market value of the investment, the tribunal found that the best method to determine the quantum was to combine three methods of valuation: it gave 25 per cent weight to the maximum market valuation (US$700.6 million), 25 per cent to book valuation (US$908 million) and 50 per cent to the adjusted investment valuation (US$1.1 billion). Based on the above, the tribunal determined that the valuation of the investment on September 16, 2011 was $966.5 million.

The tribunal also ordered Venezuela to pay US$1.2 million as damage for breaching the BIT in connection with export limitations, and awarded pre- and post-award interest on the total amount of the award at the rate of USD LIBOR for one-year deposits, plus 4 per cent, compounded annually.

Notes: The ICSID AF tribunal was composed of Juan Fernandez-Arnesto (President, appointed by the parties, Spanish national), Francisco Orrego Vicuña (claimant’s appointee, Chilean national) and Bruno Simma (respondent’s appointee, German national). The award is available at:

Claudia María Arietti López is a New York University School of Law International Finance and Development and a Fellow with IISD’s Investment for Sustainable Development Program.