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International Arbitration Forum

Deutsche Lufthansa AG v Bolivarian Republic of Venezuela

Case summary

At a glance

Parties
Deutsche Lufthansa AG (Germany) v. Bolivarian Republic of Venezuela
Case no.
PCA Case No. 2022-03
Forum and rules
UNCITRAL Arbitration Rules (1976), administered by the PCA; Secretary-General of the PCA as appointing authority
Treaty
Germany–Venezuela BIT and Protocol (signed May 1996, in force 16 October 1998)
Decision-maker
Marcin Czepelak, Secretary-General of the PCA (appointing authority)
Sector
Aviation; foreign exchange and repatriation of funds
Outcome
Venezuela's challenge to the claimant-appointed arbitrator Dr. Wolfgang Peter was upheld (10 October 2022).

The dispute

Lufthansa brought a claim against Venezuela under the Germany–Venezuela BIT. It alleged that Venezuela's foreign exchange regime, in place since 2003, prevented it from converting its local-currency income from its Venezuelan routes into hard currency and repatriating it. Lufthansa suspended its operations in Venezuela in 2016. It claimed breaches of the free transfer of funds, fair and equitable treatment and expropriation provisions. The only published document is the decision on Venezuela's challenge to Dr. Wolfgang Peter, the arbitrator Lufthansa appointed. Venezuela raised two grounds. First, Dr. Peter's partner at Peter & Kim, Kap-You Kim, had withdrawn from the ConocoPhillips v. Venezuela annulment committee after taking on co-counsel work with Three Crowns. Second, Prof. Pierre Tercier, Senior Counsel at the same firm, had presided over the tribunal in Air Canada v. Venezuela, a case Venezuela said raised similar facts and law.

Key holdings

  1. The parties agreed on the test. Under Article 10(1) of the UNCITRAL Rules, an arbitrator may be challenged if there are justifiable doubts about his impartiality or independence. The test is objective: it asks how a reasonable, fair and informed third party would see the situation. ¶ 35
  2. An arbitrator's involvement in a closely connected case may create a disqualifying risk of prejudgment. The activities of other members of his law firm may also affect his impartiality and independence. The question here was whether Prof. Tercier's risk of prejudgment extended to his law firm colleague, Dr. Peter. ¶ 38
  3. The present case and Air Canada v. Venezuela overlap closely. Both involve airlines operating in Venezuela, the same currency regulations, delays in approving repatriation from 2012, suspension of operations, and large sums that could not be repatriated. Both raise claims of breach of free transfer, fair and equitable treatment and expropriation. Air Canada appeared to be the only other treaty case with this overlap. ¶ 39
  4. Prof. Tercier was the only presiding arbitrator to have ruled on such a case. A reasonable third party would therefore see the appointment of his law firm colleague as more than a coincidence. The appointment would be perceived as motivated by the influence Prof. Tercier's decisions would have on Dr. Peter, who might have to question a close colleague's judgment to reach a different result. ¶ 40
  5. There was no evidence of actual bias, and Dr. Peter's professionalism and integrity were not in doubt. But appearance is enough: there was a clear risk that Dr. Peter might be influenced by factors other than the merits. The challenge was upheld on this ground. ¶ 41; p. 12
  6. Because the second ground succeeded, the Secretary-General did not decide the first ground, the alleged controversy between Venezuela and Mr. Kim arising from the ConocoPhillips annulment proceeding. ¶ 42

Procedural history

  1. 21 June 2021Lufthansa files its Notice of Arbitration; Venezuela receives it the same day.
  2. 13 and 25 January 2022The parties agree to designate the Secretary-General of the PCA as appointing authority.
  3. 27 May 2022Lufthansa appoints Dr. Wolfgang Peter as first arbitrator.
  4. 13 June 2022Venezuela files a Notice of Challenge against Dr. Peter. On 23 June 2022 Dr. Peter declines to withdraw and Lufthansa refuses to agree to the challenge.
  5. 27 June 2022Venezuela appoints Prof. Laurence Boisson de Chazoumes as second arbitrator and asks the PCA Secretary-General to decide the challenge.
  6. 7 July 2022The co-arbitrators confirm they will not choose a presiding arbitrator while the challenge is pending.
  7. 5–26 July 2022Written submissions on the challenge are filed, together with Dr. Peter's comments.
  8. 10 October 2022Decision of the PCA Secretary-General upholding the challenge to Dr. Peter.

Tribunal, counsel and experts

Decided by
  • Marcin Czepelak Secretary-General of the PCA (appointing authority), Secretary-General of the PCA (appointing authority) — appointed by the parties jointly (decided the challenge)
  • Wolfgang Peter Co-arbitrator — appointed by the claimant (challenge upheld on 10 October 2022)
  • Laurence Boisson de Chazoumes Co-arbitrator — appointed by the respondent
For the claimant
Freshfields Bruckhaus Deringer · Dechamps International Law · D'Empaire
For the respondent
Procuraduría General de la República Bolivariana de Venezuela · De Jesús & De Jesús, S.A. · Alfredo De Jesús O. – Transnational Arbitration & Litigation

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Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

Case ID
PCA Case No. 2022-03
Country
Economic sector
Treaty
Germany - Venezuela BIT (1996)