Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, No. 16-cv-02020 (D.D.C. Mar. 1, 2018) [click for opinion]
Rusoro, a Canadian company, owned 58 mining concessions and contracts for the exploration and production of gold in Venezuela. At the time of Rusoro’s acquisition of its mining rights (between 2006 and 2008), Venezuela championed the policy of “liberty of export,” with limited conditions required to export gold.
By 2009, however, Venezuela enacted a resolution that mandated that 60% of each gold producer’s quarterly gold production be sold to the Central Bank of Venezuela and provided that no more than 30% of such gold could be exported. Also in 2009, the Venezuelan government imposed stricter conditions on foreign gold producers than on domestic ones. Finally, in 2011, President Hugo Chavez issued a decree calling for the nationalization of the Venezuelan gold-producing industry. Rusoro formally withdrew from its mining areas and all of its mining rights and assets were taken by the Venezuelan government in mid-2012.
In July 2012, pursuant to the Canada-Venezuela Bilateral Investment Treaty (the “BIT”), Rusoro submitted a request for arbitration against Venezuela to the International Center for the Settlement of Investment Disputes (“ICSID”). Rusoro requested $2.3 billion in compensation. In response, Venezuela raised jurisdictional arguments and defenses on the merits.
The arbitral tribunal issued its Final Award on July 22, 2016, finding, inter alia, that Venezuela breached the BIT by expropriating Rusoro’s investment in Venezuela without payment of compensation and that Venezuela breached an Annex to the BIT by imposing additional restrictions of the export of gold. The tribunal ordered Venezuela to pay $966.5 million in compensation for the expropriation, $1.277 million for breach of the Annex to the BIT, and the costs of the arbitration. The tribunal assessed damages as of September 16, 2011, the date of the nationalization decree, based on the fair market value of the investment.
On October 10, 2016, Rusoro filed a petition with the district court to confirm the Final Award against Venezuela. Venezuela opposed confirmation, arguing that the tribunal exceeded the scope of its authority, and that recognition and enforcement could be refused under Article V(1)(c) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, enacted as 9 U.S.C. § 201, et seq. (the “New York Convention“). Article V(1)(c) provides, in pertinent part, that “Recognition and enforcement of the award may be refused . . . only if . . . the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration.” Venezuela contended that the tribunal’s method of damages valuation exceeded its “jurisdictional writ.”
In deciding Venezuela’s opposition, the district court conducted a two-step jurisdictional analysis. First, the district court determined the level of deference to grant the tribunal’s own determination of the scope of its jurisdiction. Second, applying the decided level of deference, the district court determined “whether the tribunal acted within its permissible scope to arbitrate.”
As to the first step, the district court found that the parties “‘clearly and unmistakably’ agreed to arbitrate arbitrability” so the district court “must, and will, give substantial deference to that decision, and will not ‘second-guess the arbitrator’s construction of the parties’ agreement.'” As in other treaty cases involving Venezuela, the district court found that the BIT granted the tribunal the power to determine its own jurisdiction.
As to the second step, the district court applied such deference to the tribunal’s damages calculation and found that “[i]t is abundantly clear to this Court that the Tribunal, in its extensive damages analysis, did not exceed the scope of its authority under our Circuit’s case law.” Despite Venezuela’s assertions that the damages calculation exceeded the scope of the tribunal’s authority and that the court should review the calculation de novo, Venezuela did not explain why the tribunal’s methods exceeded its authority. Even so, the district court acknowledged that, if it were to review the tribunal’s calculation de novo, it would “still conclude that the Tribunal reached a reasonable quantum of damages, acting well within the powers assigned to it by the BIT.”
Finally, the district court addressed Venezuela’s alternative requested relief—that the district court stay enforcement of the Final Award pending the decision of the Court of Appeal in Paris concerning the validity of the Final Award. Citing the New York Convention and Second Circuit precedent, the district court evaluated whether to grant a stay based on the so-called Europcar factors. As a preliminary, seemingly overarching factor, the district court noted that “a stay of confirmation should not lightly be granted.” It then evaluated the circumstances of this case against the Europcar factors, finding, (1) that the expeditious resolution of disputes weighs in favor of Rusoro; (2) the status of the foreign proceedings and the time to resolve them weighs in favor of Rusoro, particularly in light of Venezuela’s ability to further appeal the French decision; and, as to the “lesser Europcar factors” (3) the Paris Court of Appeal’s grounds for set aside are narrower than those in the New York Convention; (4) the foreign proceeding was initiated after Rusoro’s petition for confirmation before the district court, and the French appellate process has delayed enforcement; (5) the balance of hardships weighs in favor of Rusoro, as it has not received any compensation for the expropriation; and (6) the factor of “any other circumstance” clearly weighs in favor of Rusoro considering that Venezuela “has refused voluntarily to satisfy any of the awards entered against it under the BIT following nationalization of the gold industry.” The district court concluded that a stay of enforcement was inappropriate and denied Venezuela’s request.
A version of this post originally appeared in the May 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.