Clorox Spain S.L. v. Bolivarian Republic of Venezuela

Case summary

At a glance

Parties: Clorox Spain S.L. (Spain) v. the Bolivarian Republic of Venezuela
Case no.: PCA Case No. 2015-30
Forum and rules: Ad hoc arbitration under the UNCITRAL Arbitration Rules 2010, administered by the PCA; seat Geneva, Switzerland
Treaty: Spain–Venezuela BIT of 2 November 1995
Tribunal: Yves Derains (President), Bernard Hanotiau, Raúl Emilio Vinuesa
Sector: Consumer products (bleach, cleaning products, disinfectants)
Outcome: The 2019 award declined jurisdiction, but the Swiss Federal Tribunal annulled it in 2020. The 2021 award, by majority, rejected Venezuela's abuse-of-process objection. The 2023 Final Award found an unlawful indirect expropriation. The Swiss Federal Tribunal upheld both later awards.
Amount: Claimed: USD 184,577,364 plus interest. Awarded: USD 104,102,806, with interest at the 10-year U.S. bond yield, compounded annually, from 3 September 2014. Costs: USD 4,959,729.27 plus interest. Venezuela must also stop using the Clorox, Mistolín and Nevex trademarks.

The dispute

Corporación Clorox de Venezuela S.A. had operated in Venezuela since 1990 and was owned by U.S. companies of the Clorox group. On 15 April 2011 The Clorox International Company incorporated Clorox Spain S.L. and paid in its capital with all the shares of Clorox Venezuela. From November 2011 Venezuela froze and then capped the prices of most Clorox Venezuela products under the Law on Fair Costs and Prices, in several cases below production cost. It also restricted access to foreign currency, left VAT credits unrefunded, and changed labour rules. After new maximum prices were set in September 2014, Clorox Venezuela ceased operations on 22 September 2014, and the authorities then occupied and restarted its plants. Clorox Spain claimed expropriation, breach of fair and equitable treatment, arbitrary impairment and breach of full protection and security. Venezuela argued that Clorox Spain had made no protected investment, that the restructuring was an abuse of process (treaty shopping), and that the measures were a legitimate exercise of its police powers.

Key holdings

First award (2019): no jurisdiction. The BIT requires an act of investing by the investor. Clorox Spain received the Clorox Venezuela shares as the in-kind contribution that formed its own capital, so no value was transferred and it made no investment. The claimant was ordered to pay the arbitration costs and Venezuela's costs of USD 4,661,965. Award (20 May 2019), ¶¶ 830–835, 848
Swiss Federal Tribunal (25 March 2020): the 2019 award is annulled. The BIT requires nothing beyond the holding of assets by an investor of one Contracting Party in the territory of the other. It contains no denial-of-benefits or origin-of-capital clause. The case was sent back to the Tribunal to decide whether the claimant had abused its rights. 4A_306/2019, consid. 3.4.2.6–3.4.2.8, 4
Award on abuse of process (2021), by majority: the claim is admissible. Foreseeability is assessed at the date the restructuring was completed, 15 April 2011. President Chávez's speech of 15 January 2011 announced only a future price law and a new pricing authority. It did not make the specific dispute foreseeable with very high probability. Raúl Emilio Vinuesa dissented and would have upheld the objection. Award (17 June 2021), ¶¶ 440, 459–468, 473
Final Award (2023): Venezuela breached Article V(1) through an unlawful indirect (creeping) expropriation. Three measures had a cumulative effect: price controls under the Law on Fair Costs and Prices, which were disproportionate because prices were set below production cost; exchange controls from the devaluation of 9 February 2013; and the failure to refund VAT credits. The expropriation was completed by Administrative Order No. 42/2014 of 4 September 2014. The later occupation of the plants was not a separate direct expropriation. The Tribunal did not rule on the Article III(1) and IV(1) claims. Final Award ¶¶ 696–707
Article V(2) of the BIT governs only lawful expropriations, so full reparation under Chorzów Factory applies. The valuation date is 3 September 2014. Damages total USD 104,102,806: (i) a but-for equity value of USD 73,099,949, after accepting the respondent expert's 12% operating margin; (ii) historical lost profits of USD 16,122,692, with FY2012 excluded by majority; and (iii) VAT credits of USD 14,880,165, with USD 7.1 million for periods before FY2012 excluded. Damages are payable in U.S. dollars, not bolívars. Final Award ¶¶ 722–725, 759, 772, 784–792
Interest runs at the 10-year U.S. bond yield, compounded annually, from 3 September 2014 until payment. Venezuela must immediately stop using the Clorox®, Mistolín® and Nevex® trademarks and the name "Clorox Venezuela". Venezuela pays 70% of the claimant's costs, USD 4,959,729.27, plus interest. Final Award ¶¶ 807, 811, 831–839
The Swiss Federal Tribunal rejected Venezuela's challenge to the 2021 award (20 May 2022): a reasonable investor could not have foreseen a specific dispute on 15 April 2011. It also rejected Venezuela's public-policy challenge to the Final Award (26 April 2024), so far as that challenge was admissible. 4A_398/2021, consid. 5.6; 4A_486/2023, consid. 5.3