Cemex v. Venezuela: Provisional Measures allowed in circumstances of necessity and urgency
By Elizabeth Whitsitt
April 8, 2010
An ICSID tribunal has refused a request for provisional measures by the world’s third largest cement-producer. In its decision dated March 3, 2010, the tribunal confirms that provisional measures may only be granted in circumstances of “…necessity and urgency to avoid an irreparable harm.”
Arbitral proceedings between Cemex and Venezuela began in October 2008 – months after Hugo Chavez, President of the Bolivarian Republic, announced the nationalization of the country’s cement industry. In the context of a state-wide housing shortage and concerns about unaffordable housing, President Chavez’s nationalization of Venezuela’s cement industry was reportedly done to increase the availability and affordability of construction supplies to Venezuela’s domestic market.*
Since that time, Dutch-incorporated Cemex Caracas Investments B.V. and Cemex Caracas II Investments B.V. (Cemex) has asserted that it has been deprived of the ownership rights over their investment without fair and effective compensation and appropriate procedures for expropriation.**
Cemex filed a request for provisional measures with the tribunal on September 1, 2009. Specifically, Cemex sought to restrain Venezuela from attempting to seize three cement carriers which it had sold to the Mexican firm Sunbulk Shipping, N.V. In support of its application, Cemex argued that Venezuela’s efforts to seize the vessels would “severely aggravate” the dispute and increase Cemex’s damages as it would have to refund Sunbulk the money paid for the carriers.
In response, Venezuela grounded its arguments on the language of the ICSID Convention and its Arbitration Rules. Among other things, Venezuela asserted that the granting of provisional measures “must be based upon circumstances of necessity and urgency to avoid an irreparable harm” and “must relate to the preservation of the requesting party’s rights and to the subject matter of the case before the tribunal…” According to Venezuela, Cemex ignored those legal standards, choosing instead to rely on the principle of non-aggravation as the basis for its application. In Venezuela’s view, however, “‘the principle of non-aggravation’…[could] not be used as a substitute for the requirements of necessity, urgency and irreparable or non-compensable harm.”
Ultimately the tribunal, composed of Judge Gilbert Guillaume, Professor Georges Abi-Saab and Mr. Robert von Mehren, sided with Venezuela. In coming to this conclusion, the tribunal canvassed the jurisprudence of the International Court of Justice (ICJ) and ICSID tribunals with respect to provisional measures. In so doing, the tribunal made a number of observations. In particular, the tribunal noted that the ICJ had consistently determined that provisional measures should only be granted in circumstances where there was “…an urgent necessity to prevent irreparable prejudice…” to the rights which were the subject of the dispute.
Similarly, the tribunal noted that when determining whether to grant provisional measures ICSID tribunals tended to follow this same standard even where different formulations of the same criteria were applied. Thus, the tribunal considered that the relevant ICSID cases made a distinction between situations where: (i) the alleged prejudice could be compensated by awarding damages and (ii) the alleged prejudice could not be fully compensated (i.e. cases where there is a serious risk of destruction of a going concern that constitutes and investment).
In light of this analysis the tribunal saw no reason to stray from the standard consistently applied by the ICJ and past ICSID tribunals. Specifically the tribunal found that should Venezuela seize the cement carriers, Cemex would suffer a financial loss that could be compensated by a damages award. As a result, the tribunal opined that Cemex’s alleged harm was not “irreparable” and therefore did not meet the requirements of “urgency” and “necessity” needed to grant the requested provisional measures.
Sources:
* “Chavez Plans to Nationalize Venezuela Cement Industry,” By Steven Bodzin and Thomas Black, Bloomberg.com, 4 April 2008.
** Cemex Company Press Release dated 20 August 2008, available on the company’s website at: http://www.cemex.com/qr/mc_pr_082008.asp
Decision on Provisional Measures in Cemex v. Venezuela is available here: http://ita.law.uvic.ca/documents/Cemex.pdf.
Previous ITN Reporting:
“Cemex v. Venezuela: challenges to ICSID arbitrators must be made “promptly”,” By Elizabeth Whitsitt, Investment Treaty News, 13 January 2010, available here: