Foley Hoag Secures Victory for Venezuela and Dismissal of $180-Million Claim by Canadian Power Company in Coal Supply Contract Dispute

May 08, 2014

Foley Hoag has once again secured a victory for Venezuela in claims arising out of a coal supply agreement between Nova Scotia Power Inc. (NSPI), a Canadian power company, and Guasare Coal International (now Carbozulia International), the foreign marketing arm of a mixed foreign Venezuelan entity mining coal in Zulia, Venezuela.

In a unanimous decision, the tribunal - which had been constituted under the auspices of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) Additional Facility Rules (the Additional Facility) - ruled that it lacked jurisdiction over NSPI’s claims because NSPI was not an “investor” who had made a qualifying “investment” in Venezuela as called for by the Canada-Venezuela Bilateral Investment Treaty (Canada-Venezuela Treaty).

NSPI had sought damages for alleged violations of the Canada-Venezuela Treaty’s expropriation and fair and equitable treatment standards in connection with the cancellation of the coal supply agreement.  It first brought these claims against Venezuela under UNCITRAL Rules in 2008. In the spring of 2010 Foley Hoag secured a dismissal before the UNCITRAL tribunal for lack of jurisdiction, and that fall NSPI filed its claims for US$180 million with the Additional Facility. NSPI asserted that Additional Facility jurisdiction was proper under Article 2(a) of the Rules because the dispute arose directly out of a protected investment under the Treaty, and in the alternative, it was proper under Article 2(b) because even if the underlying transactions were not an “investment” under the Treaty, they were more than a commercial transaction.

Venezuela challenged jurisdiction, arguing that Claimant’s claims fell outside the scope of the Treaty’s consent to Additional Facility jurisdiction under both Articles 2(a) and 2(b) because they did not arise out of an “investment” “in the territory” of Venezuela as called for by the Treaty, and in fact they arose out of ordinary commercial transactions for the purchase and sale of goods.

NSPI responded that its coal supply agreement and associated purchase and sales transactions constituted a protected “investment” under the Treaty that could be analogized to a financial instrument, and that they constituted more than an ordinary commercial transaction because, inter alia, the transactions arose out of “a long-term contractual relationship” involving substantial resource commitments from both contractual parties.

In ruling that it lacked jurisdiction because the dispute did not arise out of an investment, the tribunal, composed of Hans Van Houtte (Belgian), David A.R. Williams (New Zealand), and Raúl Emilio Vinuesa (Argentina, Spain), concluded that regardless of the forum, in determining whether there was an investment, it must consider the objective definition of investment. Specifically, the term “investment” carries inherent, well-established features as part of its ordinary meaning, and the tribunal must consider these inherent features in addition to the open-ended definition and examples listed in the Treaty. In this case, there was no investment because the transactions at issue were not a “contribution” and they lacked investment-level risk.

Recognizing that Claimant’s Article 2(b) argument posed novel questions, the tribunal also explained that Article 2(b) cannot be used to override the express limit on the State parties’ consent to jurisdiction under the Treaty to only disputes arising out of “investments.” Thus, even though under other circumstances Article 2(b) may provide jurisdiction for disputes arising out of an economic transaction rather than an investment, because the Canada-Venezuela Treaty governed and under the Treaty there was no investment, the alternative jurisdictional basis was not available.

Foley Hoag partner Ronald E.M. Goodman, leader of Venezuela’s defense in this matter since 2008, headed the firm’s International Litigation and Arbitration Department team, which included fellow partners Thomas Bevilacqua and Mélida Hodgson, and attorneys Alexandra Kerr Meise, Ivan Urzhumov, and Angelynn Meya.

This case is the latest in a series of representations by Foley Hoag leading to victories for Venezuela in energy and mining-related disputes. In January 2013 Foley Hoag won a dismissal of an over US$1 billion ICSID Additional Facility claim asserted by Canadian mining company Vannessa Ventures. Most recently it won a dismissal of a US$633 million mining claim before ICSID brought by Dutch investor Highbury International and Panamanian investor Ramstein Trading under the Venezuela-Netherlands BIT and Venezuela-Panama BIT. In addition to Venezuela, Foley Hoag represents Bangladesh, Belgium, Croatia, Djibouti, Ecuador, El Salvador, Mauritius, Nicaragua, the Philippines, Slovakia, Uruguay, and others, in ongoing proceedings.