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April 03, 2017

Crystallex, Crystallized

Specialists of investment arbitration practicing beyond US borders shall take comfort from the decision of a US District Judge in Washington DC confirming a Canadian mining investor’s $1.2 billion award against Venezuela for expropriation and denial of fair and equitable treatment, under the Canada-Venezuela bilateral investment treaty. (Crystallex International Corp. v. Bolivarian Republic of Venezuela, 2017 WL 1155691 (D.D.C. Mar. 25, 2017)).  Why “comfort”?: (1) Because the Court applied relatively well-settled US arbitration law that treats questions of “arbitrability” as having been delegated to the arbitrators when the applicable agreed-upon arbitration rules state that the arbitrators shall have power decide questions relating to the existence of arbitral jurisdiction; (2) Because the Court did not hesitate to conclude that Art. 45 of the ICSID Arbitration (Additional Facility) Rules, which states that “[t]he Tribunal shall have the power to rule on its competence” was a clear and unmistakable delegation to the Tribunal of the arbitrability issues raised by Venezuela, such that the arbitrability decisions of the Tribunal were to be reviewed with substantial deference; (3) Because the Court properly recognized that the Tribunal resolved Treaty/international law claims (fair and equitable treatment, expropriation) that related to a mining contract, and not contract breach claims under that contract, and so the Tribunal was well within its discretion to conclude that the claims presented and decided were within the Tribunal’s jurisdiction and therefore were arbitrable, and (4) Because the Court read and assimilated the Tribunal’s award, and described its relevant conclusions with sufficient precision that readers of the decision may gain confidence in the investment arbitration process as a fair one leading to correct outcomes, and not merely a faulty process whose errors go uncorrected due to a very deferential US judicial standard of review.

Two further points deserve mention, one of general interest and one mainly for the Canadian reader (I believe there may be one). The general interest point is that the Court expressed doubt of the continued vitality of “manifest disregard of the law” as a separate non-statutory ground for vacating an award made at a US seat, and suggested in a footnote without much elaboration that perhaps an argument could be made that in all events “manifest disregard” is not available as a ground to vacate an award that is subject New York Convention standards with respect to confirmation. (Perhaps a point for development in a separate post on this page!). The mainly-for-Canadians point is that Venezuela argued that the Canadian investor was more or less estopped to advocate for a deferential standard of review of arbitrability determinations by investment tribunals deciding the rights of Canadian investors because Canada, as a non-party intervenor before an Ontario court that was asked to confirm a NAFTA award against Mexico in favor of a US investor, had urged a “correctness” standard be applied to arbitrability issues (in particular, the scope of awardable damages). Here the Court declined to delve into the record of the Mexico v Cargill case to determine if indeed the argument made there by Canada was for “de novo” review and was sufficiently similar that it could bind Canada and its investors under the Venezuela BIT. On the record before the Court, it was not convinced that Canada had bound itself to a “de novo review” position.

In these terms I offer Crystallex, crystallized.