{"id":9141,"date":"2022-12-26T08:36:50","date_gmt":"2022-12-26T07:36:50","guid":{"rendered":"https:\/\/cf.iisd.net\/itn\/?p=9141"},"modified":"2024-08-09T18:32:38","modified_gmt":"2024-08-09T16:32:38","slug":"tribunal-decides-on-who-may-properly-represent-venezuela-in-arbitration-aishwarya-suresh-nair","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2022\/12\/26\/tribunal-decides-on-who-may-properly-represent-venezuela-in-arbitration-aishwarya-suresh-nair\/","title":{"rendered":"Tribunal decides on who may properly represent Venezuela in arbitration"},"content":{"rendered":"

Venezuela Holdings, B.V., et al (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. Bolivarian Republic of Venezuela, ICSID<\/span> Case No. ARB\/07\/27<\/h2>\n

Summary<\/h2>\n

Venezuela Holdings, B.V, Mobil Cerro Negro Holding, LLC, and Mobil Cerro Negro, Ltd. (jointly, the \u201cclaimants\u201d) resubmitted their claim for expropriation against the Republic of Venezuela (\u201cVenezuela\u201d) pursuant to the ICSID Rules. During the resubmission proceedings, a dispute regarding the representation of Venezuela arose.<\/p>\n

The tribunal found<\/a> that the issue of determining a state\u2019s proper representative for the purposes of the arbitration was a procedural issue and applied the status quo<\/em> principle to determine Venezuela\u2019s proper representative.<\/p>\n

Facts<\/h2>\n

Reinaldo Enrique Mu\u00f1oz Pedroza, the appointee of the Maduro government, was the authority notified by ICSID about the registration of the case. However, Jos\u00e9 Ignacio Hern\u00e1ndez G., the appointee of the Guaid\u00f3 government, subsequently wrote to ICSID saying that he was, in fact, the only person authorized to speak on behalf of Venezuela.<\/p>\n

Following the constitution of the tribunal, the claimants requested that the issue of Venezuela\u2019s representation in this arbitration (the \u201crepresentation issue\u201d) be determined before proceeding. Although the legal counsel representing the Maduro government (the \u201cMaduro counsel\u201d) objected to this request, the tribunal did not agree. After identifying the person representing the Guaid\u00f3 government as Enrique S\u00e1nchez Falc\u00f3n\u2014the successor to Hern\u00e1ndez\u2014the tribunal decided to resolve, as a preliminary issue, the representation issue.<\/p>\n

Procedural history<\/h2>\n

This decision comes out of the\u00a0 2007 ICSID arbitration proceedings commenced against Venezuela under the 1991 Netherlands\u2013Venezuela BIT<\/span><\/a> (the \u201cBIT\u201d). The original arbitration was initiated in response to measures undertaken by the Venezuelan government, which, inter alia<\/em>, the claimants argued, effectively expropriated the claimants\u2019 heavy-oil investments in Venezuela. In 2014, Venezuela was ordered<\/a> to pay over USD 1.4 billion in damages for the expropriations. In 2017, the quantum portion of the award was annulled<\/a>. In October 2018, in response to this annulment, the claimants filed a request for resubmission of the dispute.<\/p>\n

Tribunal\u2019s findings<\/h2>\n

1. The representation issue is rightly before the tribunal.<\/h3>\n

The Maduro counsel argued that no representation issue had been submitted by any third party to the tribunal and, therefore, the tribunal did not have jurisdiction to decide this issue. The tribunal rejected this argument on the basis of Hern\u00e1ndez\u2019s letter to the tribunal, which the tribunal interpreted to be regarding the rightful representation of Venezuela before ICSID tribunals.<\/p>\n

2. The representation issue is procedural in nature.<\/h3>\n

Counsel for the Guaid\u00f3 government (the \u201cGuaid\u00f3 counsel\u201d) objected to the tribunal\u2019s jurisdiction on the dual bases that (1) it was a political question, and (2) that it was outside the tribunal\u2019s jurisdiction.<\/p>\n

The tribunal rejected the characterization of the issue as political. Citing the tribunal order on Venezuela\u2019s representation in Kimberly-Clark Dutch Holdings, B.C. et al. v. Bolivarian Republic of Venezuela<\/em><\/a>,<\/em> the tribunal deemed the issue procedural because \u201cit is an issue dealing with the proper conduct of this arbitration.\u201d The tribunal then held that the BIT posed no jurisdictional obstacle since its jurisdictional provisions were to be read in combination with the ICSID Convention<\/span>, which authorizes tribunals to address procedural issues that may arise during an arbitration.<\/p>\n

The tribunal stressed that its determination of the representation issue was not a decision on Venezuela\u2019s legitimate government. Instead, the tribunal described its decision as one made for assuring the \u201cproper conduct of the proceedings and protecting the rights of defence of the parties\u201d in the resubmission proceedings.<\/p>\n

3. The representation issue should be decided at the level of the government representatives.<\/h3>\n

The tribunal explained that the representation issue should neither be decided at the government level (i.e., between the Maduro and Guaid\u00f3 governments) because the decision was only concerned with \u201cthe specific procedural issue of the Respondent\u2019s representation before the Tribunal\u201d nor at the level of legal counsel because it was \u201cfor the [government representatives] to appoint the counsel and not the reverse.\u201d<\/p>\n

4. Pursuant to the status quo principle, the proper representative of the Venezuelan government is Reinaldo Enrique Mu\u00f1oz Pedroza. No other considerations change this result.<\/h3>\n

The tribunal, following past tribunals confronted with the issue of Venezuela\u2019s representation in ICSID proceedings, applied the status quo<\/em> principle which requires the \u201cmaintenance of the status quo<\/em>, laying the burden of proof with the person or body seeking to change the existing representation.\u201d Since Pedroza had been Venezuela\u2019s representative of record at the time of the initiation of the resubmission proceedings and because he (or his predecessor in office) had represented Venezuela in the prior stages of the arbitration, he was identified as the proper representative.<\/p>\n

This notwithstanding, the tribunal considered several other considerations, all of which also pointed to Pedroza.<\/p>\n

    \n
  • Venezuelan law and effective governance<\/strong>: The tribunal noted that the domestic law that had been the basis of the appointment of the Guaid\u00f3 government\u2019s representatives had been annulled by the Venezuelan Constitutional Court. Furthermore, the tribunal noted that there was no evidence that Falc\u00f3n was the representative of the effective (as opposed to legitimate) government in Venezuela because the Guaid\u00f3 government neither controlled Venezuelan territory nor the state apparatus.<\/li>\n
  • International law and recognition<\/strong>: Citing Article 41(2) of the Articles on the Responsibility of States for Internationally Wrongful Acts, the tribunal first explained that since there had been no jus cogens<\/em> violations in the appointment of Pedroza, his appointment under Venezuelan law was also valid under international law. The tribunal then turned to the Guaid\u00f3 counsel\u2019s arguments on the relevance of the Guiad\u00f3 government\u2019s international recognition. First, the tribunal explained that there was no uniform international recognition of the Guaid\u00f3 government and, even amongst the states that did recognize the government, it was uncertain whether this was recognition as the effective government in Venezuela. Second, as to recognition of the Guaid\u00f3 government by Netherlands (as the claimants\u2019 home state) and the United States (as the claimants\u2019 ultimate parent company\u2019s home state), the tribunal noted that this was irrelevant since home states\u2019 legal interests in investment claims of their nations barred them from deciding the respondent state\u2019s representation in the ensuing arbitration proceedings. Third, as to recognition at the institutional level by the World Bank, the tribunal noted that since Venezuela was not a contracting state to the ICSID Convention and, therefore, not a member of ICSID\u2019s Administrative Council, Venezuela had no recognition at the relevant level of the World Bank.<\/li>\n
  • General principles of procedural law and fairness<\/strong>: Looking to considerations of procedural efficiency and Venezuela\u2019s right of defense, the tribunal noted that Pedroza was the better choice. While the tribunal said that it would welcome a joint defense by Pedroza and Falc\u00f3n, in the absence of any such agreement between them, Pedroza\u2019s representation would ensure that the proceeding continues, thereby ensuring procedural efficiency, and that Venezuela\u2019s right of defense was not compromised.<\/li>\n<\/ul>\n

    Comments<\/h2>\n

    1. The messy procedural\/political divide<\/h3>\n

    The tribunal calls the representation issue a procedural one because it believes that the effect of its decision is limited to \u201cdetermin[ing] who shall have the task of presenting Venezuela\u2019s defence before the Tribunal in these proceedings.\u201d Had this been true, there would have been no reason for Pedroza and Falc\u00f3n to dispute each other\u2019s right to represent Venezuela in the proceedings. In reality, however, the \u201ctask of presenting Venezuela\u2019s defence\u201d presupposes the political authority to speak on behalf of Venezuela. By recognizing Pedroza\u2019s right to speak for Venezuela, the tribunal is \u201crecogniz[ing] a government\u201d which, the tribunal itself notes, it \u201cdo[es] not have the capacity to [do].\u201d<\/p>\n

    2. The ambiguous status quo principle<\/h3>\n

    The legal weight of the status quo<\/em> test is unclear. The tribunal says, in consecutive paragraphs, that the principle is a sufficient basis to \u201cdecide\u201d the representation issue and also that the principle only creates a rebuttable presumption. If and to the extent that other considerations (viz. effective governance, international law, etc.) do play a role, it is unclear how the tribunal would have weighed these considerations against the status quo principle if one or more of them instead favoured Falc\u00f3n.<\/p>\n

    3. Illusory procedural efficiency<\/h3>\n

    The tribunal notes at the close of its decision that its determination of the representation of Venezuela could be revised \u201cin light of new facts.\u201d The Guaid\u00f3 government could, therefore, continue to bring challenges to the legitimacy of Pedroza\u2019s representation of Venezuela, and the tribunal would consider these challenges. It is unclear how this aligns with the tribunal\u2019s stated goal of ensuring procedural efficiency in the proceeding.<\/p>\n

    4. Counsel credibility<\/h3>\n

    The Guaid\u00f3 counsel served as the Maduro counsel (before being replaced) in the early stages of this resubmission proceeding. It is interesting to note that the tribunal did not comment on the credibility of the Guaid\u00f3 counsel given this 180\u00b0 reversal in positions.<\/p>\n

    \n

    Note<\/h3>\n

    The tribunal was composed of Stephen Drymer (the claimants\u2019 appointee), Professor Andrea Giardina (Venezuela\u2019s appointee) and Professor Nicolas Angelet (the president).<\/p>\n

    \n

    Author<\/h3>\n

    Aishwarya Suresh Nair is an International Finance and Development Fellow at IISD<\/span> from the New York University School of Law.<\/p>\n