Crystallex International Corporation v. Bolivarian Republic of Venezuela

Case summary

At a glance

Parties: Crystallex International Corporation (Canada) v. Bolivarian Republic of Venezuela
Case no.: ICSID Case No. ARB(AF)/11/2
Forum and rules: ICSID Additional Facility Arbitration Rules; seat Washington, D.C.
Treaty: Canada–Venezuela BIT of 1 July 1996 (in force 28 January 1998)
Tribunal: Dr. Laurent Lévy (President), Dean John Y. Gotanda, Prof. Laurence Boisson de Chazournes (who replaced Justice Florentino Feliciano after he resigned)
Sector: Gold mining (Las Cristinas)
Outcome: Award of 4 April 2016: Venezuela breached fair and equitable treatment and expropriated the investment. Confirmed by the US District Court for the District of Columbia and affirmed on appeal. Enforcement continues in Delaware through a court-supervised sale of the PDV Holding shares owned by PDVSA.
Amount: Claimed: USD 3.4 billion plus interest (per the Ontario Court of Appeal). Awarded: USD 1,202 million, plus pre- and post-award interest at 6-month average USD LIBOR + 1%, compounded annually, from 13 April 2008. Each side bears its own costs and the ICSID costs are shared equally. Claimant's costs: USD 30,493,635. Respondent's costs: USD 14,322,826. The confirmation judgment was described as about USD 1.4 billion.

The dispute

Crystallex, a Canadian gold mining company, acquired the right to develop the Las Cristinas gold deposits in Bolívar State under a 2002 Mine Operation Contract with the Corporación Venezolana de Guayana (CVG), a State agency. Crystallex completed the permitting steps and, as instructed by the Ministry of Environment in May 2007, posted a bond. On 14 April 2008 the Ministry denied the environmental permit. Government officials then announced that the State would take over Las Cristinas, and on 3 February 2011 the CVG rescinded the contract for reasons of "opportunity and convenience" and because activities had ceased for over a year. Crystallex claimed under the Canada–Venezuela BIT that Venezuela had denied it fair and equitable treatment and expropriated its investment. Venezuela argued, among other things, that the claims were really contract claims, that the permit denial was a legitimate environmental measure, and that Crystallex's damages case was speculative.

Key holdings

The Tribunal has jurisdiction over the entire dispute. Venezuela breached Article II(2) of the BIT (fair and equitable treatment) and Article VII(1) (expropriation). Award, Decision ¶ 961(a)–(c)
Venezuela must pay damages of USD 1,202 million. Interest runs from 13 April 2008 to the date of the Award at 6-month average USD LIBOR + 1%, compounded annually, and continues at the same rate after the Award until payment. The Tribunal held that compound interest comes closer to full reparation than simple interest. Award, pp. 258, 263
The Tribunal refused Crystallex's request for a declaration that the award is net of Venezuelan tax, as premature. It also refused an indemnity against Canadian taxes, because Crystallex had not shown such a tax liability or a foreseeable loss for which Venezuela would be responsible. Award, p. 259
Each party bears its own legal costs and the ICSID costs are shared equally. Crystallex prevailed on jurisdiction and in part on the merits, but Venezuela's defences were serious, and there was no bad faith or obstruction that would justify shifting costs. Award, pp. 262–263
The US District Court for the District of Columbia confirmed the Award under the New York Convention and the FAA and denied Venezuela's motion to vacate. The Tribunal had not decided contract claims or exceeded its powers in valuing damages, enforcement does not offend US public policy, and the Tribunal did not manifestly disregard the law. The D.C. Circuit affirmed on 14 February 2019. D.D.C. Mem. Op. pp. 26–31
PDVSA is Venezuela's alter ego under the Bancec extensive-control test. Its shares in PDV Holding, Inc. are used for commercial activity and are not immune from attachment under the FSIA. The Delaware District Court therefore granted a writ of attachment, and the Third Circuit affirmed. 3d Cir. Op. (29 July 2019) pp. 44–45
In an earlier, separate action, the Third Circuit held by majority that a transfer by a non-debtor (PDV Holding's USD 2.8 billion dividend to PDVSA) cannot be a fraudulent transfer under the Delaware Uniform Fraudulent Transfer Act. It reversed the District Court's refusal to dismiss Crystallex's claim. One judge dissented. 3d Cir. Op. (3 January 2018) p. 3