Foley Hoag Wins Dismissal for Venezuela in International Investment Arbitration

A Decision the Other Way Would Have Led to “Chaos” in the Interpretation of International Investment Treaties, According to Venezuela Lead Counsel and Foley Hoag Partner Ron Goodman

September 28, 2010

In a significant victory for the government of Venezuela, an arbitral tribunal under the rules of the United Nations Commission on International Trade Law (UNCITRAL) and under the auspices of the Permanent Court of Arbitration in The Hague has unanimously dismissed a claim brought by Canadian company Nova Scotia Power Incorporated (NSPI) for lack of jurisdiction and awarded Venezuela $1 million in arbitration and attorney costs, the first time such costs have been awarded to Venezuela in investor-State arbitration, and rarely awarded in that type of arbitration.

Venezuela, under the direction of Venezuela’s Procuradora General de la República, was represented by Foley Hoag LLP, led by Washington, DC-based partner and international investment disputes specialist Ronald Goodman, who represents sovereign states in UNCITRAL and other international arbitral proceedings, including at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), as well as in US courts.

NSPI sought arbitration against Venezuela in 2008 under terms of the bilateral investment treaty between Canada and Venezuela. NSPI claimed that Venezuela had breached provisions of the treaty by directing its wholly owned coal supply company to suspend their agreement and call for its renegotiation, acts that NSPI alleged cost it at least $180 million. Venezuela is known for its high-quality coal.

The case hinged on interpretation of the Canada-Venezuela treaty and the rules of the ICSID Additional Facility.  The treaty allows for a claim to be brought under UNCITRAL arbitration rules if ICSID’s Additional Facility were available.  NSPI, however, asserted that the treaty allowed it to bring the arbitration directly under UNCITRAL rules and contended, in addition, that the Additional Facility was not available due to various reasons including the screening process set forth in the rules of that facility.

The parties presented their arguments in 2009 and early 2010.  The ruling by three arbitrators from Spain and Britain rejected NSPI’s arguments and upheld Venezuela's contention that the ordinary meaning of the bilateral treaty's language was to establish a hierarchy of procedures that precluded the actual forum chosen by the Claimant if one of the other venues were available.

“The tribunal found that the treaty admitted of no doubt or ambiguity in this regard,” said Mr. Goodman.

The arbitral tribunal also held that the very rules providing access to the ICSID Additional Facility made it in fact available for use, and noted that NSPI had not even approached that forum to determine its availability.

Prior to the proceedings, Venezuela had successfully challenged the arbitrator designated by NSPI, who was subsequently removed and replaced. NSPI’s challenge to the arbitrator designated by Venezuela was not successful.

Mr. Goodman said, “Had the tribunal accepted NSPI’s argument, it would have called into doubt the meaning and language of many treaties and the manner of accessing ICSID .”

He continued, “When a State exercises its sovereignty to agree to a treaty, especially one which enables private parties to bring claims against it in an international forum, respect for the State's sovereignty requires close adherence to and compliance with exactly what the State has actually agreed to. The tribunal in this case was quite clear that the intention of the drafters of the treaty must be respected.”

In addition to Mr. Goodman, counsel for Venezuela included Foley Hoag Counsel Mélida Hodgson and associates Geraldine Fischer, Tafadzwa Pasipanodya and Analía González.  Independent experts supporting Venezuela's position were Professor August Reinisch of the University of Vienna and Barton Legum of the Salans firm.

NSPI's legal team included Mark Baker, Kevin O'Gorman, and Aníbal Sabater of Fulbright & Jaworski, supported by Professor Rudolf Dolzer and Ana Palacio, former Secretary-General of ICSID.

This case is the latest in a series of representations by Foley Hoag of sovereign states, at the International Court of Justice and other venues, including Ecuador, Nicaragua, Uruguay, Venezuela, the Republic of Georgia, and Bangladesh.

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