Summary:
After Venezuela nationalized petroleum companies interests in the Orinoco Belt, they made an offer of compensation to those companies they were taking over. Because ExxonMobil, among other companies, disliked the offer, they decided to arbitrate their claim with International Centre for Settlement of Investment Disputes. Although the resolution of the claim can be a lengthy process, as an initial step, ExxonMobil has sought and won some injunctive claims in US, UK and other international courts freezing assets of Petroleum of Venezuela, S.A. In response to this, Venezuela's president, Hugo Chavez has threatened to stop shipping oil to the United States.
General information on the current status of the claim can be found as reported by:
BBC News,
CNN,
Hindustan Times, and
the Moderate Voice, among other news sources.
Personal Evaluation:
This is an interesting international arbitration situation for two main reasons: 1) One of the parties essentially is a state government and 2) The situation implicates judicial methods that are used in conjunction with arbitration.
1)
State Government as a Party to ArbitrationBecause Petroleum of Venezuela, S.A. is a state-owned entity, the government of Venezuela is directly implicated in the arbitration proceedings initiated by ExxonMobil. For any company doing business directly or indirectly with a foreign government, arbitration offers an excellent alternative in order to resolve any potential disputes. The benefit of arbitration is that it creates a more neutral venue where the claims can be discussed.
For example, in the Exxon case, the procedures of the Venezuela legal system (compensation offered for the nationalization) were inadequate to fully remedy or compensate ExxonMobil from their own perspective. Because they rejected that solution, they had three main options: Sue in Venezuela, sue in another country's court, or submit the claim to arbitration. There would be great difficulty in winning a law suit against Venezuela in a Venezuelan court. Trying to sue in another country's court presents jurisdictional issues. It is difficult to argue that, for example, a UK court should have jurisdiction of a claim that involves a dispute between a US company and a state-owned Venezuelan company over proper compensation for the nationalization of oil projects in Venezuela. From a court's perspective, the country with jurisdiction would most likely have to be Venezuela. That leaves ExxonMobil with the last option of taking the claim to an extra-judicial source.
In fact, that is the route that ExxonMobil has taken.
The International Center for Settlement of Investment Disputes (ICSID) is a part of the
World Bank that was set up specifically to deal with disputes between private companies and state governments. First, because any arbitration is an extra-judicial method of dispute resolution, it is necessary for the companies or other parties involved to have some legal basis for submitting the claim to arbitration. In the case of ICSID, it is necessary that the state government and the state of the foreign national involved be contract states (generally = signed and ratified the treaty or convention) to the
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. Presently this is the
list of states that are contract states. Generally speaking, arbitration is a creature of both convention and contract. The convention is what give legal power to arbitration proceeding. The contract between the parties demonstrates their desire to take their claims to an extra-judicial source.
Ultimately, arbitration is a beneficial option for those companies that are doing business with national governments as foreign nationals because it allows them to "create" jurisdiction in a more neutral extra-judicial forum for the resolution of any disputes that might arise.
2)
Judicial Processes Associated with ArbitrationThe ExxonMobil case also demonstates one of the judicial processes that is general associated with arbitration: injunctive relief. Injunctive relief is necessary because arbitration, in and of itself, does not have the ability to enforce its own awards. That authority needs to come from the various national governments. Right now, some of the main Arbitration Conventions that apply in the United States are the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly know as the New York Convention) and the
Inter-American Convention on International Commercial Arbitration (commonly known as the Panama Convention). Because arbitration awards do not carry their own enforcement power, it is important to seek injunctive relief when beginning the arbitration process. This establishes the assets that will be used to pay the award. If a company is seeking to use arbitration but does not take this first step, they run the risk of having assets moved during arbitration and then lacking any way of enforcing or collecting the award that they do receive. This is why ExxonMobil has sought to freeze the assets of Petroleum of Venezuela, S.A.; so that they will be able to collect whatever arbitration award they intend to receive in countries that will enforce the award.
This will be an interesting case to follow to see what the outcome is of the arbitration proceedings as well as what the reactions of the various countries involved will be. What are your thoughts on the ExxonMobil case, arbitration between states and foreign nationals and the use of injunctions as a part of the international arbitration process?
