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International Commercial Arbitration and Political Turmoil: The New Trojan Horse for certain Award Challenges?


Pedro Lacasa* 

Abstract

A sovereign state may suffer political turmoil within its borders affecting its democratic and legal institutions. When this happens, it affects the proper representation of that state, namely, in international litigation proceedings, such as International Arbitrations, whether on International Commercial Arbitration or Investment Arbitrations. But focusing on International Commercial Arbitration:  an award rendered in spite of this official representation issue, can be safe from the legal challenges set by the New York Convention and the domestic International Arbitration laws?

 

Venezuela’s democracy is going through hard times; there is no doubt about that. But as some social actors and even political parties try to ride into this ‘political rollercoaster’, financial issues become more and more crucial. Whether to support the current Maduro’s government or to supply for the Guaido’s self-declared regime, collecting some of Venezuela’s assets is a good way to begin.

 

However, there is only one problem: despite both of these regimes (Maduro’s or Guaido’s) are acting in representation of the same subject, the República Bolivariana de Venezuela, one of these two is wrongfully doing so… but which one? And what does this have to do with International Arbitration?

Well, it happens to be whether a substantive matter (the legal power to represent a Sovereign State) and a procedural matter (whether to change the status quo or not) inside a litigation process. Much of Venezuela’s obligations are subject to arbitration, as well as much of its assets. So, there are and there will be, plenty of arbitral proceedings involving Venezuela in the international scenario.

But the core of the issue, (the right or wrongful political representation of Venezuela in international forums) must be assessed by an Arbitral Tribunal? Some say it is not up to Arbitral Tribunals, who intervene in a specified dispute, to resolve this. Others sustain that the litigation process itself is harmed by the great uncertainness provided by this political seesaw. What do think the Adjudicators itself about this?

It must be outlined the fact that the Adjudicators of the International Arbitration field come from different areas: Investment Treaty Arbitration (ITA) and International Commercial Arbitration.

On one hand, concerning Investment Arbitration, an ICSID Annulment Committee in Conoco v. Venezuela[1] stressed that “the [Annulment] Committee, which is neither a political body nor the deliberative organ of an International Organization, cannot hear -and decide- a political question, such as the legitimate government of Venezuela”. Nevertheless, the Committee also sustained that “[t]he Committee must resolve the matter [Venezuela’s representation in the annulment proceedings] in accordance with the power it has under Article 44 of the ICSID Convention (applicable mutatis mutandis to this annulment procedure before the Committee pursuant to Article 52 (4)”. Finally, the Committee decided to maintain the two representatives’ sides (the attorneys appointed by the Maduro regime and the attorneys appointed by the Guaidó regime) and that doing so would signify conserving the status quo.

On the other hand, as pointed out previously[2] and regarding International Commercial Arbitration, an ICC Tribunal has issued a Procedural Order staying the arbitration proceedings between Petróleos de Venezuela S.A. (PDVSA) and Petróleos Paraguayos (PETROPAR), both state-owned oil companies of Venezuela and Paraguay respectively.

But there’s a catch: in the Conoco case, Venezuela confronted two law firms who declared themselves to be in representation of Venezuela, De Jesús & De Jesús (De Jesús) and Curtis, Mallet-Prevost, Colt & Mosle LLP (Curtis). This situation might (obviously) be repeated mutatis mutandis in International Commercial Arbitration disputes. Hence, the fight for legal leadership between the Maduro’s Regime and Guaidó’s Interim Government clearly reaches the practical arena of law firms.

In Conoco v. Venezuela Annulment Proceedings, De Jesús alleged that “Curtis wrongfully presents itself as a representative of the Bolivarian Republic of Venezuela”[3]. However, as already stated in other Blog[4], the ICC Tribunal decision on PDVSA v. PETROPAR on staying the arbitration proceedings, is not aligned with other arbitral decisions on this particular issue coming from ICSID Arbitration, like the Favianca case[5] (as previously commentated in other Blog[6]), not forgetting other international precedents like the Procedural Resolution on Annulment Proceeding in Valores Mundiales and Consorcio Andino v. Venezuela[7], where the Annulment Tribunal stated that “[the legitimacy to act on behalf of Venezuela] is merely a procedural issue”.

Lack of uniformity in International Arbitral Tribunals [ICSID Tribunals, ICC Tribunals, and others] on this issue may arise more trouble than the impasse itself. Some say that deciding about the legitimacy to act on behalf of a State might concern a country’s sovereignty and independence[8]. Others [like the ICSID Annulment Tribunal on Valores Mundiales] it might be just a procedural issue.

The lack of uniformity in this particular issue, besides the risks of disparate solutions coming from Arbitral Tribunals, raise consternation about the contradictory poles that might emerge when pretending the execution of Arbitral Sentences that have dealt with those questions.

According to Article V (1) (a) of the New York Convention on The Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) the recognition and enforcement of an award can be refused if “the parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity”.

Article V (1) (b) states that the enforcement might be denied in case “the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”.

But the most complex and abstract exception to and enforcement application is found in Article V (2) (b): “the recognition or enforcement of the award would be contrary to the public policy of that country”. ICSID arbitration does not have an enforcement issue; on the contrary, it deals with Annulment Proceedings.

Either way, both types of Arbitration are being disrupted by this political turmoil and the different approaches at stake does not make Arbitrators’ jobs any easier. Let us not convert the Arbitral Tribunals in Political Bodies. But also, let us not use politics as a Trojan Horse for underlying procedural irregularities neither.

 

*DSU in Private International Law from l’Université de Paris II Panthéon-Assas. Master in Corporate Law. Master in Corporate Law from La Universidad Católica Nuestra Señora de la Asunción. Legal Consultant, Legal writer and researcher.

 


[5] ICSID Case No. ARB/12/21

[7] ICSID Case No. ARB/13/11 – Annulment Proceeding.

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