On 25 March 2017, the US District Court for the District of Columbia granted Crystallex’s request to confirm an arbitral award rendered by an ICSID Additional Facility tribunal in the amount of USD 1.2 billion (Crystallex International Corporation v Bolivarian Republic of Venezuela, US District Court for the District of Columbia (25 March 2017)).

Factual Background:

In 2002, Crystallex International Corporation, a Canadian company, invested in gold deposits in Venezuela. In 2011 and following a series of measures taken by Venezuela on Crystallex’s investment over a period of time, Crystallex initiated arbitration under the Canada-Venezuela BIT. Crystallex claimed that Venezuela had breached the BIT by (i) denying Crystallex’s investments “fair and equitable treatment” and (ii) expropriating Crystallex’s investments. The arbitration proceeded under the ICSID Additional Facility Rules and in April 2016, the arbitral tribunal rendered its award, affirming jurisdiction, finding that Venezuela had breached the BIT and awarding Crystallex USD 1.2 billion.

In the same month, Crystallex sought to confirm he award pursuant to the New York Convention before the US District Court for the District of Columbia. In turn, Venezuela had asked the Court to vacate the award.

The US District Court of Columbia granted Crystallex’s petition to confirm the award and denied Venezuela’s motion to vacate.

Memorandum Opinion:

First, the District Court found that it had jurisdiction over the petition under Section 1605 of the Foreign Sovereign Immunities Act, because the Canada-Venezuela BIT demonstrates Venezuela’s agreement to arbitrate, and the award is based on the BIT and governed by the New York Convention.

Second, the Court addressed the standard of review. It noted that when reviewing international and domestic arbitral awards, courts apply a deferential standard consistent with the federal policy favouring arbitration. In addition to that, the Court quoted TermoRio S.A. E.S.O. v. Electranta S.O., 487 F.3d 928,935 (D.C. Cir. 2007) that it “may refuse to enforce the award [under the New York Convention] only on the grounds explicitly set forth in Article V of the Convention”.

Accordingly, the District Court went on to address Venezuela’s objections under Article V(1)(c) and V(2)(b) of the Convention, including the alleged manifest disregard of the law by the arbitral tribunal. Specifically, Venezuela had argued that the arbitral tribunal had exceeded its powers under Article V(1)(c) of the Convention because it had exceeded the scope of Venezuela’s consent to arbitrate by (i) considering claims that were actually contract violations rather than treaty violations and (ii) using valuation methods that departed from the BIT’s instructions. Further, it argued that pursuant to Article V(2)(b), the confirmation would violate the public policy of the US “that States have the sovereign right to regulate the environmental impact of industrial activities because Venezuela’s conduct toward Crystallex was intended to protect Venezuela’s environment”.

Before considering Venezuela’s objections, the District Court determined the amount of deference to grant to the tribunal’s determination of its scope. The Court stated that when the Parties explicitly agree that the tribunal should decide the scope of its own inquiry, the courts should review that determination deferentially. In addition, the determination that the parties submitted questions of arbitrability to the tribunal requires clear and unmistakable evidence.

In the case before it, there were clear and unmistakable evidence in the form of Venezuela’s explicit consent in the BIT to ICSID Additional Facility Rules and, therefore, to the assignment of the question of arbitrability to the arbitral tribunal. Accordingly, the Court found that it would deferentially review the tribunal’s determination of its own jurisdiction. In such a deferential review, a court “should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circumstances” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995).

Concerning Venezuela’s objection under Article V(1)(c), the District Court declined to disturb any of the tribunal’s conclusions in light of the deferential standard of review. The District Court did not identify an error, much less a more than serious error, in the tribunal’s conclusion that Venezuela’s expropriatory act could constitute a violation of the BIT. For the same reasons, it has concluded that a deferential review of the amount of the tribunal’s award was appropriate and rejected Venezuela’s arguments in this respect. The District Court would not disturb the tribunal’s selection of the “full reparation” standard, which was  based on both the text of the BIT and international law, or its choice to apply that standard through the stock market method and its selection of the appropriate date range. Any error which the tribunal may have committed (but the Court had  identified none), did not rise pas the level of “serious error” to justify vacating the award. In rejecting Venezuela’s objection, the court reasoned that, if it were to delve into the specific reasoning used by the tribunal, the whole purpose of arbitration would be defeated.

Concerning Venezuela’s objection under Article V(2)(b), the Court found that Venezuela’s arguments fell short of the demanding threshold necessary to show a violation of public policy. Indeed, the award did not interfere with Venezuela’s environmental rules or regulations, but only required Venezuela to compensate Crystallex for the results of its actions. Venezuela failed to show that holding it to the terms of its own treaty would violate the US’s most basic notions of morality or justice. The Court, therefore, concluded that public policy did not bar confirmation of the award.

The District Court also rejected Venezuela’s independent challenge under manifest disregard of the law and confirmed the award.

Source: Original Opinion Memorandum available at www.italaw.com