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Venezuela Loses Chilean/Swiss Expropriation Case at World Bank ICSID Tribunal

Source: Laht.com

WASHINGTON, D.C. — Chilean airport operator IDC and Swiss partner Flughafen Zürich have won an arbitration proceeding against Venezuela that was originally filed in June 2010 at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The dispute originated with the expropriation of the airport concession on Margarita Island in Venezuela in 2005.

The 3 member ICSID arbitration panel found that Venezuela had to pay a total of $33.7 million for the expropriation, including costs and interest from the 2005 expropriation.

In February 2004, Unique, a consortium founded by Switzerland’s Flughafen Zürich AG (49.5%) and Chile’s Gestión e Ingeniería IDC S.A. (IDC), signed an agreement with the Venezuela state of Nueva Esparta. The contract consisted of improving, adding, and modernizing as well as operating the international airport on the Caribbean Island of Margarita for 20 years. The objective was to develop tourism on Venezuela’s Margarita Island and improve the airport, which had been producing deficits for decades.

Despite the investments, in November 2004, the newly elected governor of Nueva Esparta, Morel Rodríguez, declared the agreement void and illegally took over the operation of the airport in June 2005.

Unique went to court and the judges ruled in favor of the consortium and stated the validity of the agreement.

Governor Morel Rodríguez was not to be deterred and in December 2005, he again took over the airport. The court affirmed its prior ruling in June 2006 and the airport was put under joint operation by a “Junta Interventora”.

The “Junta Interventora” was made up of several representatives of the Federal Court, the government of the Nueva Esparta, and members of the consortium.

On March 4, 2009, the management of the airport by the “Junta Interventora” was ceased by the Federal Court and handed to the government of Venezuela President Hugo Chavez.

As a result, in June 2010, Flughafen Zurich and IDC brought a case against Venezuela at the International Center for Settlement of Investment Dispute (ICSID) based on the protections of the Switzerland-Venezuela Bilateral Investment Treaty.

The ICSID panel found that Venezuela had to pay $19.4 million plus interest from the December 30, 2005 the expropriation date, and pay court costs of about $535,000, and attorney’s fees in the amount of US $1.87 million, for a total of $33.7 million. Unique was originally claiming damages between $50 and $60 million.

“The case is interesting for several reasons,” says international lawyer Russ Dallen, who follows the ICSID arbitrations. “One is that during the litigation, the ICSID panel was forced to decide on whether an expert witness could be disqualified. A second is that it is the first time a Chilean company has been successful at ICSID. The third and most important is that the Panel found that Venezuela’s actions were so wrong that they made them pay for the Chilean & Swiss company’s lawyers and court costs.”

After a rash of expropriations and nationalizations by Venezuela’s firebrand former President Hugo Chavez, Venezuela has 27 cases pending against it at ICSID — the most of any nation in the world. Faced with the cases, Chavez withdrew Venezuela from ICSID jurisdiction in 2012, but pending cases and new cases brought under bilateral investment treaties and contracts continue to give ICSID jurisdiction to settle the arbitrations.

Other companies with pending ICSID arbitrations against Venezuela include mining and smelting companies Anglo American, Rusoro Mining Ltd., Crystallex International Corporation, Highbury International and Tenaris SA; food industry companies Gruma, Polar, Longreef, Vestey, and Owens-Illinois Inc.; and oil industry companies Tidewater Inc., Williams Cos. Inc., Koch Industries Inc., and ConocoPhillips.

In October, an ICSID arbitration panel awarded ExxonMobil $1.6 billion in its case against Venezuela for the 2007 expropriation of Exxon’s investments in the Orinoco oil region. Venezuela filed a procedure for Revision last month which temporarily stayed the enforcement of the Exxon judgment.

The month before, in September, an ICSID panel awarded Gold Reserve Inc. $740.3 million for Venezuela’s expropriation of Gold Reserves mining operations in the country. Venezuela is currently challenging Gold Reserve who is trying to begin enforcement of the award. Gold Reserve has said that Venezuela intends to try to annul the judgement.

ICSID is an autonomous international institution established in 1965 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention) with over one hundred and forty member States. The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes. ICSID judgements are automatically enforceable in any member state.

Flughafen Zürich AG is the owner and operator of Zurich airport in Switzerland. In addition, it operates in joint ventures at 10 airports in seven countries around the world, including with Chilean partner IDC in their joint venture A-port Operations S.A. in 5 Latin American countries: Brazil, Chile, Colombia, Curacao and Honduras.

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