Colombia’s top court rejects Rusoro’s $1.7 bln Venezuela award recognition.

BY ED MULLINS, REBECA E. MOSQUERA AND ISABELLA LORDUY

In June of this year, the Supreme Court of Justice of the Republic of Colombia (the Colombian Court) issued Judgment No. SC1453-2024, which declined to recognize an arbitral award rendered pursuant to the 2006 Additional Facility Rules of the International Centre for Settlement of Investment Disputes (ICSID) by an arbitral tribunal seated in Paris (the Tribunal). The Tribunal issued the award in favor of Rusoro Mining Ltd. (Rusoro) and against the Bolivarian Republic of Venezuela (Venezuela). Despite being previously recognized in the U.S. District Court for the District of Columbia and the Paris Court of Appeal, the Colombian Court refused to recognize the award based on principles of immunity from jurisdiction and immunity from enforcement.

BACKGROUND

The arbitration, conducted under the ICSID Additional Facility Rules between Rusoro and Venezuela, arose from alleged violations of the Canada–Venezuela Bilateral Investment Treaty (Treaty), which provided for expropriation protection and dispute resolution mechanisms between investors and the host contracting party. Rusoro, a Canadian gold mining company, held significant controlling interests and mining rights for gold exploration in Venezuela.

In 2009, Venezuela implemented several restrictive measures on gold production, including the BCV Resolution, which mandated that gold producers sell 60 percent of their output to the Central Bank of Venezuela and which imposed a 30 percent limit on gold exportation. Subsequently, in 2010, all foreign exchange transactions were centralized under the Central Bank of Venezuela, requiring Rusoro to sell 50 percent of its gold production and 50 percent of its foreign currency income to the Central Bank. In 2011, the Venezuelan government nationalized the gold mining sector, resulting in the state’s acquisition of control of the property and mining rights of all gold production companies.

On July 17, 2012, Rusoro initiated arbitration under the 2006 ICSID Additional Facility Rules, contending that Venezuela had violated the Treaty by failing to provide prompt, adequate and effective compensation for expropriation. The Tribunal issued its award in favor of Rusoro on August 22, 2016, ordering Venezuela to pay a total of US$967.8 million in damages, along with legal costs of US$3.3 million and accrued interest.

UNITED STATES CONFIRMS

Following the issuance of the award, Rusoro filed a petition on October 10, 2016, in the U.S. District Court for the District of Columbia to confirm the award. In granting the confirmation, the district court was guided by the Federal Arbitration Act (FAA) and the New York Convention, which provide little discretion on confirmation. The district court, after determining that the Treaty delegated the question of arbitrability to the Tribunal, concluded that the Tribunal’s determination of its jurisdiction was entitled to substantial deference and that the Tribunal had acted within its permissible scope.

PARIS ANNULS, CONFIRMS

On October 19, 2016, Venezuela sought to annul the award before the Paris Court of Appeal. Venezuela argued many issues, including that some claims were outside the Treaty’s statute of limitations and that some of the Tribunal’s damages calculations were allegedly in error. The Paris Court of Appeal found merit in Venezuela’s arguments and concluded that the Tribunal had erred by including values in its damages calculation that fell outside the Treaty’s three-year statute of limitations. As a result, the court partially annulled the award while maintaining the Tribunal’s findings on liability.

Following this decision, Rusoro sought recognition of the revised award from the Supreme Court of Colombia.

COLOMBIA: DIFFERENT DIRECTION

The Supreme Court of Colombia, acknowledging that Colombia was a signatory to the ICSID Convention, affirmed the obligation to recognize and enforce awards pursuant to article 54 of the Convention. Nevertheless, invoking the doctrine of sovereign immunity as recognized under international customary law, the Colombian Court held that the award could not be enforced.

The Colombian Court’s judgment delineated the doctrines of jurisdictional immunity and immunity from enforcement. Jurisdictional immunity shields a state from the adjudicative jurisdiction of foreign courts in relation to sovereign activities, though this immunity has evolved in certain jurisdictions to include exceptions for a state’s commercial activities. Immunity from enforcement precludes foreign states from imposing coercive measures against a state’s assets or representatives, which are typically upheld as absolute and stringent.

The Colombian Court treated the application for recognition of the award as a plea for coercive action against the state and applied the more stringent doctrine of immunity from enforcement. The Colombian Court drew upon the ICSID Convention to guide its deliberation, despite the fact that the award was issued under the ICSID Additional Facility Rules and not directly under the Convention itself.

Despite the general distinction between recognition and enforcement proceedings – where the former typically pertains to jurisdictional immunity – the Colombian Court found it necessary to evaluate the recognition application under the scope of enforcement immunity. It analyzed articles 54 and 55 of the ICSID Convention without acknowledging the distinct obligations each imposes: article 54 mandates Contracting States to deem awards under the Convention as binding, whereas article 55 stipulates that such recognition does not supersede national laws pertaining to enforcement immunity.

Ultimately, the Colombian Court concluded that the established international custom of immunity from enforcement, integral to the Colombian notion of international public order, precluded the application of the ICSID Convention’s provisions in this matter.

CONCLUSION

The Colombia Supreme Court’s ruling is notably distinct, marking a shift from established jurisprudence by conflating jurisdictional immunity with immunity from enforcement – traditionally separate legal doctrines. This decision also signifies a considerable departure in Colombian jurisprudence concerning state immunity, highlighting the persistent complexities in reconciling the principle of state sovereignty with the enforcement of international arbitration awards. The unique approach may prompt the need for further judicial clarification to ensure alignment with both international standards and the precedents set by the Colombian Constitutional Court, the Council of State and prior rulings of the Supreme Court itself. In the interim:

• The Colombian Supreme Court’s decision highlights the tension between international arbitration awards and sovereign immunity principles
• This decision underscores the potential challenges in enforcing arbitral awards against sovereign states, even when those awards have been recognized in other jurisdictions
• The ruling emphasizes the importance of considering sovereign immunity issues early in the arbitration process, particularly when dealing with state entities in Latin America

 

Ed Mullins is an arbitration partner with Reed Smith in Miami, Rebeca Mosquera is an arbitration associate with Reed Smith in New York and Isabella Lorduy is an arbitration associate with Reed Smith.

Reed Smith associate Shamalla S. Semoy contributed to this overview.

This article is based on an overview by Reed Smith. Republished with permission.

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