Venezuela survives ICSID claims of expropriation and FET by Anglo American

Anglo American PLC v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/14/1

A wave of ICSID claims followed Venezuela’s denunciation of the ICSID Convention in 2012. In one such proceeding initiated by an investor incorporated in the United Kingdom, Anglo American PLC (Anglo American), the majority of an ICSID Additional Facility tribunal dismissed all claims.

Background and claims

Anglo American indirectly held 91.37 per cent of Minera Loma de Niquel C.A. (MLDN), a Venezuelan company engaged in mining nickel-cobalt deposits. Between 1992 and 1999, MLDN received several mining concessions from the Venezuelan government that expired in 2012. These concession agreements provided for reversion of MLDN’s mining assets to the state upon the concession’s termination. Additionally, the 2002 Venezuelan VAT Law allowed MLDN to recover value-added tax (VAT) paid for purchase of goods and services in Venezuela.

Anglo American alleged that Venezuela expropriated MLDN’s processing facilities and inventory upon the expiry of the concessions, arguing that they were “non-reversionary assets.” It also claimed a breach of the FET standard under the United Kingdom–Venezuela BIT for the discontinuation of VAT refunds to MLDN in 2010. Venezuela filed a counterclaim against Anglo American, seeking damages for breaches of the concession agreement.

Tribunal dismisses Venezuela’s objections to jurisdiction

In its objection to the tribunal’s subject matter jurisdiction, Venezuela argued that the BIT, lacking an express reference to “indirect investments,” did not protect indirectly held investments. It suggested that the United Kingdom and Venezuela had deliberately omitted any reference to “indirect investments” in the BIT by deviating from the drafting practice they ordinarily followed.

The tribunal focused its analysis on the broad language of the BIT, which extended treaty protection to “every kind of asset.” The list of protected investments following the opening clause was deemed indicative and not a limitation on this wide material scope. The tribunal emphasized the “economic reality” at the time of the BIT’s conclusion, noting that indirectly held investments were commonplace. For these reasons, it held that Anglo American’s indirect investments—its shareholding in MLDN and participation in MLDN’s assets—were “investments” protected by the BIT. In respect of the latter, the tribunal also pointed to BIT Article 5(2), which prohibits unlawful expropriation of the assets of a company “in which nationals or companies of the other Contracting Party owns shares.” Consequently, the tribunal affirmed its jurisdiction over the claims.

Venezuela’s second objection, based on an exclusive forum selection clause in the concession agreements, was briefly dismissed. The tribunal noted that Anglo American was neither a party to these concession agreements, nor had it disguised contractual claims as investment disputes.

Allegedly expropriated assets were “reversionary”

It was undisputed between the parties that, if the assets were transferrable to the state upon expiration of concessions, no question of expropriation would arise. Anglo American asserted that under the concession agreements and related mining laws, Venezuela could only recover assets used toward fulfilling the “objects of the concessions,” namely exploration and exploitation activities. Accordingly, assets used for ancillary processing activities and inventories were non-reversionary. Venezuela countered that these legal instruments did not regulate primary and ancillary mining activities differently, but jointly prescribed reversion of all assets used in mining activities to Venezuela without compensation.

The tribunal noted that the concession agreements classified assets “intended for the purpose” and “constituting an integral part” of the concession as reversionary. Reading the agreements with Venezuela’s 1945 Mining Law, it concluded that the agreements’ purpose extended to regulation of “the exclusive right to extract and utilize” the mine. Consequently, assets related to activities that profited or benefitted from the mine, including processing, were intended for the concession’s “purpose.” Further, the tribunal deemed processing assets “integral” to the concession since they were situated on the concession site. Accordingly, the tribunal held that MDLN’s assets were reversionary and had not been expropriated.

The majority also assessed the impact of Venezuela’s new 1999 Mining Law on its conclusion, focusing on two key aspects. First, the law preserved the rights and obligations of concessionaires under the old law. Second, any distinction between primary and ancillary mining activities in the law was irrelevant, since it called for reversion of all assets “acquired for use in mining activities.” Observing that Anglo American referred to “processing activities” as mining activities, the characterization of claimant’s assets as reversionary remained unaffected, in the tribunal’s view.

Finally, it turned to Venezuela’s 1999 Investment Law, which compelled compensation for the non-amortized value for reversionary assets. The tribunal held that, since the law preserved rights and obligations contained in agreements preceding it, Anglo American’s waiver of compensation under the concession agreements would continue to operate. The majority reached the same conclusion for the same reasons as regards Anglo American’s inventory consisting of raw materials.

Venezuela’s conduct invites criticism but does not breach FET

Anglo American claimed that the discontinuation of VAT refunds, which MLDN had received since 2001, amounted to a breach of FET. Conversely, Venezuela attributed the discontinuation to Anglo American’s failure to deduct its VAT credits from its VAT returns following regulatory changes in 2005.

At the outset, the tribunal dismissed Venezuela’s contention that FET “in accordance with international law” compels adherence only to the minimum standard of treatment under customary international law. In its opinion, these words provided a baseline for FET and “the minimum standard of treatment under customary international law has evolved” to include “legitimate expectations, transparency, reasonableness, and due process, as well as the absence of discrimination and arbitrariness” (paras. 442–443).

Next, the tribunal emphasized that Venezuela conducted itself poorly by failing to inform MLDN of the refund discontinuation in a timely manner. Yet it refused to find a breach of FET: it found Venezuela’s conduct to be justifiable since the state sought to prevent double counting of VAT credits. Moreover, it emphasized that, in the absence of a specific commitment to that effect, the claimant could not expect “that neither the law nor the administrative practice would change” (para. 468). Finally, it dismissed Anglo American’s claims, holding that the lack of transparency in one official’s conduct was not representative of Venezuela’s position.

The tribunal chastised Anglo American’s “passivity” in presenting its grievances before Venezuelan officials and its failure to comply with changed regulations despite receiving (albeit late) information.

Other claims and Venezuela’s counterclaim dismissed

Anglo American raised two full protection and security violations: physical security of its assets and legal security of its VAT refunds. With respect to the physical seizure of assets, the tribunal extended its reasoning on expropriation to this claim. Further, according to the tribunal, “legal security” under full protection and security involved the same analysis as FET. Consequently, both claims were rejected.

Anglo American’s claims alleging breach of national treatment were dismissed for lack of evidence of discrimination. Venezuela’s counterclaims were dismissed, since BIT Article 8(3) limited the tribunal’s jurisdiction to “breach by the Contracting Party concerned” of its obligations.

Awards and costs

The claims and counterclaim were dismissed. The tribunal adopted a balancing approach on costs: while Anglo American had succeeded on jurisdiction, it failed on merits. Conversely, Venezuela incurred unnecessary costs for claims withdrawn by the investor but delayed payment of advances for the arbitration’s final phase. Thus, each party was directed to bear its own costs.

Tawil’s dissenting opinion

Arbitrator Guido Santiago Tawil differed from the majority’s findings on merits. Primarily, he understood the purpose of the concession agreements and 1945 Mining Law to be exploration and exploitation activities. The investor’s right to “extract and take advantage of” the mine under this agreement, in his opinion, did not define its purpose but was intended to ensure that mining was conducted for economic purposes. Hence, he concluded that assets used for processing nickel-cobalt were unrelated to the concession’s primary purpose and were non-reversionary, and that Venezuela’s seizure of these assets without compensation amounted to an unlawful expropriation.

On FET, Tawil questioned the majority’s assessment of Venezuela’s conduct: deciding that its failure to publicize or notify administrative changes to MLDN in a timely and reasoned manner was opposed to the transparency required by FET. In his opinion, MLDN’s failure to approach local courts for an explanation could neither prejudice its rights nor excuse the state from its obligations.

Notes: The tribunal was composed of Yves Derains (president, appointed by the parties, French national), Guido Santiago Tawil (claimant’s nominee, Argentinian national) and Raúl E. Vinuesa (respondent’s nominee, Argentinian and Spanish national). The award is available at https://www.italaw.com/sites/default/files/case-documents/italaw10293.pdf

Vishakha Choudhary is an LL.M. Candidate (2019) at the Europa-Institut, University of Saarland (Germany) and a Researcher at the Chair of Prof. Dr. Marc Bungenberg, Director of the Europa-Institut.