Crystallex v. Venezuela

Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2

(Published in 2018 in International Investment Law and Sustainable Development: Key cases from the 2010s and on this website on October 18, 2018. Read more here.)

The award is available at


Mining, fair and equitable treatment, legitimate expectations, deference, arbitrariness, methodologies to calculate compensation

Key Dates

Request for Arbitration: February 16, 2011

Constitution of Tribunal: October 5, 2011

Award: April 6, 2016

Settlement Agreement: November 24, 2017


Laurent Lévy (president)

Laurence Boisson de Chazournes (respondent’s appointee and replacing Florentino Feliciano)

Dean John Y. Gotanda (claimant’s appointee)

Forum and Applicable Procedural Rules

International Centre for Settlement of Investment Disputes (ICSID)

ICSID Rules of Procedure for Arbitration Proceedings

Additional Facility (AF)

Applicable Treaty

Canada–Venezuela Bilateral Investment Treaty (BIT)

Alleged Treaty Violations

  • Expropriation
  • Fair and equitable treatment
  • Full protection and security

Other Legal Issues Raised

  • Compensation
  • Legitimate expectations

1.0 Importance for Sustainable Development

A state’s prerogative to grant or deny permits over its natural resources is an important aspect of state sovereignty. The conditions under which a state grants exploitation permits of its natural resources is an essential element in ensuring that investment activities are in compliance with sustainable development objectives. Consequently, and as the Crystallex tribunal held, a foreign investor cannot be “entitled” or have a “right” to an exploitation permit. The tribunal also stated that governmental authorities should enjoy a high level of deference for decisions on permits over natural resource exploitation for reasons of their expertise and competence as well as their proximity with the situation under examination (para. 583). However, the Crystallex tribunal, as many other investment tribunals did before, scrutinized the way in which the host state put forward its concerns with a given investment project. In particular for permit denials based on environmental reasons, the tribunal held that states should ensure that they are based on technical studies and scientific research and that they are invoked in a timely and transparent manner. If not, a state runs the risk that its behaviour is considered to be arbitrary and consequently breaching the standard of fair and equitable treatment. Moreover, according to the Crystallex tribunal a state is frustrating the legitimate expectations of a foreign investor when a governmental authority made “specific” assurances to the investor. Accordingly, an investor could claim that it had the legitimate expectation of being able to proceed with the investment, fully knowing that the final decision is subject to an environmental permit.

Another relevant element for sustainable development in any investment arbitration is the quantification of the compensation, as it can have meaningful financial consequences for the host state. In the Crystallex case, the tribunal calculated the compensation by taking the “lost profits” of the investor into account and concluded the damage to be over USD 1 billion. The tribunal privileged the application of forward-looking valuation methodologies over the backward-looking cost approach. The latter is based on the computation of sunk costs. Forward-looking valuation methodologies are controversial in a case such as Crystallex where the mine was not yet producing. In this respect it is interesting to note that the tribunal in the subsequent Bear Creek v. Peru case,[1] found—in contrast to the Crystallex tribunal—that the forward-looking method was inappropriate for an early-stage and non-producing mining investment. Therefore the Bear Creektribunal held that the claimant be reimbursed only for sunk costs. 

2.0 Case Summary

2.1 Factual Background

Crystallex, a Canadian mining company, acquired the rights to exploit the gold deposits contained in the Las Cristinas gold mine, located within the Imataca National Forest Reserve of the Guayana region in Venezuela. Las Cristinas is said to contain one of the world’s largest undeveloped gold deposits.

In September 2002, Crystallex entered into a Mining Operation Contract with the Venezuelan state corporation Corporación Venezolana de Guayana (CVG) and sought the necessary permits to commence operations. In May 2007 Crystallex received a letter from the Ministry of Environment assuring it that the authorization would be granted once the company posted a bond (para. 561). Crystallex posted the bond as required, but in April 2008 the Ministry of Environment denied the environmental permit, based on then-stated concerns about the project’s impact on the environment and Indigenous Peoples in the Imataca National Forest Reserve (para. 44). In the following, the Venezuelan President of the time, Hugo Chávez, as well as other high-level officials made several public statements expressing the intention of Venezuela to nationalize all its gold mines (paras. 676 et seq.).

The dispute between Crystallex and Venezuela occurred due to the denial to grant Crystallex the key environmental permit (the Natural Resources Permit). The subsequent termination of the Mining Operation Contract in February 2011 led Crystallex to initiate arbitration against Venezuela based on the Canada–Venezuela BIT. Crystallex claimed that Venezuela unlawfully expropriated its investment and failed to accord fair and equitable treatment (FET) and full protection and security. Crystallex alleged in particular that the FET standard was breached due to the frustration of its legitimate expectations as well as due to the arbitrary conduct adopted by Venezuelan officials.

2.2 Summary of Legal Issues and Award

In its award of April 6, 2016, the tribunal held that Venezuela had unlawfully expropriated the claimant’s investment in the Las Cristinas gold mine project. The tribunal found Venezuela liable for its failure to accord claimant’s investment FET. The tribunal awarded the claimant USD 1.202 billion, with each party bearing its own costs. In addition, the tribunal stated that Crystallex was entitled to pre-award interest as well as post-award interest. On 24 November 2017, Crystallex and Venezuela then agreed to settle the dispute. Several parts of the settlement agreement remain sealed, including the final amount to be paid

3.0 Select Legal Issues

3.1 Fair and Equitable Treatment: An autonomous treaty standard

The tribunal in Crystallex made a clear distinction between those treaties such as the North American Free Trade Agreement (NAFTA) that refer to the international minimum standard of treatment (MST) under customary international law and those, as the one at issue, that do not refer to such minimum standard (para. 530). The latter category of FET clauses constitutes an autonomous treaty standard. The tribunal aligned itself with other tribunals that found that the FET standard is constantly in development (paras. 532–537).

The tribunal (as many others before it) made an attempt to capture the essence of the FET standard (para. 539). Looking at case law, the tribunal made the following statement: “FET comprises, inter alia, protection of legitimate expectations, protection against arbitrary and discriminatory treatment, transparency and consistency” (para. 543). Noteworthy is that the tribunal shared the findings of the Mondev v. United States tribunal so far as that the state’s conduct need not rise to the level of outrageousness or bad faith to breach the FET standard (para. 543).

3.2 “Specific Representation”: The sine qua noncondition for legitimate expectations

According to the tribunal, legitimate expectations may arise in cases where the state’s administration has made a representation to an investor on a substantive benefit. The representation made must be sufficiently “specific.” This means it must be “precise as to its content and clear as to its form” (para. 547).

The tribunal rejected most of the claimant’s alleged expectations as they presented a “circularity of argument” (para. 551) or were “too general and indeterminate” (para. 553) to constitute a frustration of legitimate expectations, and therefore a breach of FET. In contrast, the tribunal accepted the May 16, 2007 letter, as it contains a “specific representation” made to Crystallex that created a legitimate expectation. More precisely the letter stated that once a bond has been posted and approved by the competent office, the authorization “will be handed over” (para. 561). For the tribunal this statement was, in fact, a clear and specific representation made to Crystallex in clear and precise terms (para. 563). Accordingly, the tribunal found that Crystallex had legitimate expectations that the procedure of the permitting process would go ahead for the exploitation of gold. It held that Venezuela frustrated these legitimate expectations by denying the permit in 2008 and thereby breached the FET standard.

3.3 The Finding of Arbitrary Conduct

By seeking to pay deference to Venezuela as regards its decision to deny the exploitation permit, the tribunal adopted a rather low standard of review that assessed whether there have been “serious procedural flaws which have resulted in the Permit being arbitrarily denied, or in the investor being treated non-transparently or inconsistently throughout the process and thereafter” (para. 585).

The tribunal was of the view that, up to the letter of May 16, 2007, “the investor was overall treated in a straightforward manner” (para. 588). With respect to the permit denial letter of April 14, 2008, however, the tribunal concluded that it showed elements of arbitrariness. While the tribunal admitted that Venezuela “had the right (and the responsibility)” to raise environmental concerns and issues of global warming (para. 591), it determined that the way in which Venezuela put these concerns forward was arbitrary because they were newly mentioned and not based on scientific evidence. The tribunal held that the permit denial letter’s reference to global warming was “particularly troublesome” adding that “to raise this concern for the first time in an attempt to justify the denial of the Permit is a clear example of arbitrary and unfair conduct” (para. 592).

The only report on which the permit denial letter appears to be based was the so-called “Technical Inspection Report” of 2006, which was, according to the tribunal, similarly vague in terms as the 2008 letter. For instance, both the report and the letter “blatantly ignored” the “thousands and thousands of pages submitted by Crystallex, ensuing from years of work and millions of dollars of costs” (para. 597). Thus the tribunal considered that Crystallex made huge efforts in cooperation with its main Venezuelan counterpart CVG. The claimant was thus entitled “to have its studies properly assessed and thoroughly evaluated” (para. 597). In addition, the tribunal found a lack of transparency in the circumstance that the permit denial letter does in no way state the reasons for the departure from the conclusions in the 2007 letter. Further considering the statements of Hugo Chávez and other high governmental officials, the tribunal found that the claimant was subject to a “‘roller-coaster’ of contradictory and inconsistent statements” (para. 606). All these elements led the tribunal to conclude that Venezuela adopted a clear form of arbitrary conduct and thus breached the FET standard (para. 614).

3.4 Expropriation—A state can only be found to have expropriated an investment if it acted in its sovereign capacity

The tribunal found Venezuela to have indirectly expropriated the claimant’s investment through a series of acts. The tribunal held that the expropriatory action started with the permit denial of 2008, continued with the public statements by high governmental officials following the permit denial, which evidenced Venezuela’s intention to nationalize Las Cristinas, and culminated with the rescission of the Mining Operation Contract, leading to the deprivation of the claimant’s investment. The tribunal thus concluded that the state’s measure constituted a creeping expropriation (para. 685).

With respect to the Mining Operation Contract, the tribunal agreed with Crystallex and Venezuela that for a state action rescinding a contract to be considered as an expropriation under international law, the state must have acted in the exercise of its sovereign powers and not merely as an ordinary contracting party (paras. 690–692). In the present case, the tribunal concluded that the termination of the contract was one of an exercise of sovereign authority (para. 700). First and foremost, tribunal was convinced by the evidence that the Mining Operation Contract was terminated “to give effect to the superior policy decisions dictated by higher governmental spheres” (para. 701).

Based on the finding that a creeping expropriation existed of the claimant’s investment, the tribunal looked at whether the conditions of a lawful expropriation were met (expropriation must be carried out for a public purpose, under due process of law, in a non-discriminatory manner, and against prompt, adequate and effective compensation). It accepted Venezuela’s argument that the expropriation was carried out in pursuit of a public interest objective and underlined that states enjoy “a wide margin of appreciation in determining whether an expropriation serves a public purpose” (para. 712). The claimant, in return, failed to establish that the expropriation was carried out in disrespect of due process or to provide facts in support of a discriminatory treatment. However, Venezuela never compensated Crystallex. Given that the condition of the payment of a prompt, adequate and effective compensation was not met, the tribunal held that Venezuela illegally expropriated Crystallex’s investment, breaching the BIT.

3.5 Valuation of Compensation—What is the right methodology?

The applicable BIT, like most investment treaties, does not address the principles governing quantification of damages for breaches of treaty provisions other than expropriation. Therefore, the tribunal decided to apply the “full reparation” standard under customary international law (para. 846). By applying this standard, the tribunal sought to calculate the damage so as to restore the investor in the position as if the treaty breach had not occurred. It namely relied on Starrett Housing Co v. Iran as well as CMS v. Argentina and found that the consequences of the treaty breaches are to be determined by using the “fair market value” methodology.

As regards the valuation date, the tribunal agreed with Venezuela that April 13, 2008 was the appropriate valuation date, as it was the day before the denial of permit, which the tribunal saw as the first act leading to the deprivation of the claimant’s investment. Furthermore, the tribunal held that the claimant bears the burden of proof “in relation to the fact and the amount of loss” (para. 864). As for the standard of proof, the tribunal listed principles guiding the tribunal’s approach, such as the existence of damage must be proved “with certainty” (para. 867); the exact quantification does not need to be proven with the same degree of certainty, since future damage is inherently difficult to prove and the “with reasonable confidence” standard from Lemire v. Ukrainewas adopted as satisfactory to both common and civil lawyers (paras. 868-869); and lastly, the impossibility or difficulty of proving damages with precision does not bar their recovery altogether (para. 871).

According to the tribunal, the fact of future profitability was sufficiently proven by the claimant’s exploration activities, and in taking into consideration that the nature of the project was an open pit gold mine—an asset whose costs and future profits can be estimated with greater certainty than other assets—which are subject to greater market fluctuations (para. 879).

In order to determine the fair market value of the investment, the tribunal accepted the claimant’s forward-looking loss of profit valuation methodologies over the backward-looking cost approach (aimed at considering Crystallex’s expenditures in the investment) proposed by Venezuela (para. 882). According to Crystallex, its expenditures amounted to USD 644.8 million (para. 892).

Finally, the tribunal considered the four forward-looking valuation methods proposed by Crystallex. It accepted as reliable the stock market approach and the market multiples method, but considered as problematic the price to net asset value (P/NAV) method for not providing reliable figures and also the indirect sales comparison method for yielding excessively speculative results. As the two chosen approaches led to comparable results on quantum the tribunal averaged the two figures to give a damages award of USD 1.202 billion (para. 917). Finally the tribunal ordered pre- and post-award interest at the rate of the 6-month average U.S. dollar LIBOR plus one per cent compounded annually (para. 940).


[1] Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/2, Award, 30 November 2017. Retrieved from