Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, Civil Action No.: 16–0661 (RC)

• Decision Date: 25 March 2017
• Docket Number: Civil Action No.: 16–0661 (RC)
• Citation: 244 F.Supp.3d 100
• Parties: CRYSTALLEX INTERNATIONAL CORPORATION, Petitioner, v. BOLIVARIAN REPUBLIC OF VENEZUELA, Respondent.
• Court: U.S. District Court — District of Columbia

244 F.Supp.3d 100

CRYSTALLEX INTERNATIONAL CORPORATION, Petitioner,

v.BOLIVARIAN REPUBLIC OF VENEZUELA, Respondent.

Civil Action No.: 16–0661 (RC)

United States District Court, District of Columbia.

Signed March 25, 2017

Alexander A. Yanos, Hughes, Hubbard & Reed, LLP, Carlos Ramos–Mrosovsky, Elliot Friedman, Freshfields Bruckhaus Deringer U.S., LLP, Michael Lacovara, Latham & Watkins, LLP, New York, NY, for Petitioner.

Lawrence Hedrick Martin, Foley Hoag, LLP, Washington, DC, for Respondent.

MEMORANDUM OPINION

GRANTING PETITIONER'S PETITION TO CONFIRM ARBITRAL AWARD; DENYING RESPONDENT'S MOTION TO VACATE ARBITRAL AWARD; DENYING PETITIONER'S MOTION FOR A PRE–JUDGMENT BOND AS MOOT T

RUDOLPH CONTRERAS, United States District Judge

I. INTRODUCTION

Petitioner Crystallex International Corporation (Crystallex)—a Canadian company —invested in gold deposits in Venezuela in 2002. Over a period of several years, a series of actions by the Venezuelan government deprived Crystallex of the benefit of its investment. In accordance with a bilateral investment treaty (BIT) between Canada and Venezuela, Crystallex pursued its grievances against Venezuela before an international arbitration tribunal (the Tribunal). The Tribunal awarded Crystallex just over $1.2 billion. Crystallex now requests that this Court confirm the award in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which has been incorporated into United States law through the Federal Arbitration Act (FAA). Although the FAA does not allow Venezuela to re-litigate each point of the Tribunal's decision, Venezuela raises various challenges and argues that the award should be vacated. Because none of Venezuela's arguments suffice to vacate or modify the award under the New York Convention, the Court grants Crystallex's petition to confirm the award and denies Venezuela's motion to vacate. Additionally, Crystallex has moved for a pre-judgment bond, but because it confirms the award, the Court denies that motion as moot.

II. BACKGROUND

A. The Bilateral Investment Treaty

In 1996, Canada and Venezuela entered into a bilateral investment treaty (BIT) to promote economic cooperation and investment opportunities between the two nations. See generally Agreement Between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments (BIT), ECF 2–2, Ex. 2. The BIT required both nations to, inter alia , give investments by investors of the other nation¹ "fair and equitable treatment," BIT, art. II(2), and refrain from unlawfully expropriating such investments, BIT, art. VII(1).

As part of the BIT, Canada and Venezuela gave their "unconditional consent to the submission of a dispute to international arbitration" in accordance with various provisions. BIT, Art. XII(5). Arbitration was provided for disputes "between one [nation] and an investor of the other [nation], relating to a claim by the investor that a measure taken or not taken by the [nation] is in breach of [the BIT], and that the investor ... has incurred a loss or damage by reason of ... that breach." BIT, Art. XII(1). Tribunals hearing claims under the BIT were instructed to apply the BIT itself and "applicable rules of international law." BIT, Art. VII(7). The BIT specified that arbitrations would proceed under either the International Centre for the Settlement of Investment Disputes (ICSID) rules, the ICSID Additional Facility Rules, or the United Nations Commission on International Trade Law (UNCITRAL) rules. BIT, Art. XII(4).

B. Factual Background

Crystallex, a Canadian corporation, entered into the Mine Operating Contract (MOC) in 2002 with the Corporación Venezolana de Guayana (CVG).² Arbitral Tribunal's Award (Award) ¶¶ 3, 18, ECF No. 2–1, Ex. 1. Under the MOC, Crystallex acquired the rights to develop the gold deposits at Las Cristinas in Venezuela. Award ¶ 18. The MOC had an initial duration of twenty years and the possibility of an extension to forty years. Award ¶ 20. The MOC placed obligations on both parties, including requiring Crystallex to "bear all responsibility for the development of the Las Cristinas project and all of its associated costs." Award ¶ 18. Over the following years, Venezuelan officials repeatedly noted Crystallex's compliance with the terms of the MOC. Award ¶ 402.

Before it could begin operations at Las Cristinas, Crystallex needed various permits, including an Authorization to Affect National Resources from the Venezuela Ministry of Environment (the permit). Award ¶ 21. Obtaining the permit was a lengthy process that required Crystallex to obtain a land occupation permit, submit a feasibility study, and submit an environmental impact study. Award ¶ 21. Between 2003 and 2007, Crystallex completed many of these prerequisites. Award ¶¶ 22–41. On May 16, 2007, the Ministry of Environment informed Crystallex that it was prepared to "hand over" the permit once Crystallex paid a bond and fees. Award ¶ 43; see also Award ¶ 561 ("Once the Bond has been posted, checked, and found to be compliant by this Office, [the permit] ... will be handed over."). Crystallex posted such a bond and paid the required fees. Award ¶ 41. On June 14, 2007, Crystallex announced to the market that it had fulfilled the requirements to receive the permit. Award ¶ 42.

However, despite the Ministry of Environment's earlier statements, the permit did not issue. After a delay of almost a year, the Ministry of Environment officially denied Crystallex the permit on April 14, 2008. Award ¶¶ 44, 589–90. Later in 2008, a press release from the Venezuelan government indicated that Las Cristinas would be operated and exploited by the Venezuelan government. Award ¶ 678. Crystallex responded by submitting its Notice of Dispute under the BIT on November 24, 2008. Award ¶ 53. In early 2009, then-Venezuelan-President Hugo Chávez announced "this year the Venezuelan State has taken over the exploitation and control of the gold deposits of Las Cristinas," Award ¶ 605. After two more years, during which Crystallex continued to bear the costs associated with control of the Las Cristinas site, the CVG officially rescinded the MOC (1) "for reasons of opportunity and convenience" and (2) due to "the cessation of activities for more than one (1) year." Award ¶¶ 59, 606.

C. The Arbitration

Crystallex initiated arbitration proceedings against Venezuela in 2011 under the BIT. Award ¶ 64. Crystallex claimed that Venezuela had breached the BIT by (1) denying Crystallex's investments "fair and equitable treatment" and (2) expropriating Crystallex's investments. ¶ 184. The arbitration proceeded under the ICSID's "Additional Facility" rules.³ Award ¶ 1. The parties selected three arbitrators and engaged in two years of briefing and discovery. Award ¶¶ 66–68, 70–110. Hearings began in Washington, D.C. in 2013 and concluded in 2015. Award ¶¶ 110, 157. In April of 2016, the three arbitrators unanimously issued a decision, Award at 1, affirming their jurisdiction over the claims at issue, finding that Venezuela had breached the BIT, and awarding Crystallex $1.202 billion, with interest, Award ¶ 961.

A brief summary of the Tribunal's findings follows. As a threshold matter, Venezuela argued to the Tribunal that the Tribunal lacked jurisdiction over Crystallex's claims because they were contract—not treaty—claims. Award ¶¶ 459–64. The Tribunal rejected this argument and concluded that the claims at issue were treaty claims. Award ¶¶ 471–83.

The Tribunal identified two separate violations of the BIT. First, the Tribunal found that Venezuela had violated the guarantee of "fair and equitable treatment" found in Article II(2) of the BIT⁴ by: reneging on its commitment to issue Crystallex the permit, "engag[ing] in arbitrary conduct in denying the Permit and rescinding the MOC, and committ[ing] several acts lacking transparency and consistency." Award ¶ 623; see also generally Award ¶¶ 487–623. Second, the Tribunal concluded that Venezuela had breached Article VII(1) of the BIT's prohibition on expropriation by seizing the resources at Las Cristinas to develop itself, including by rescinding the MOC.⁵ See generally Award ¶¶ 636–718.

The Tribunal then addressed the appropriate measure of compensation. See generally Award ¶¶ 719–960. The Tribunal determined that it would apply the "full reparation" principal to calculating compensation, as described in the Chorzów case before the Permanent Court of International Justice. Award ¶¶ 846–47. The Tribunal averaged together the results of two different calculations to award Crystallex $1.202 billion. Award ¶ 917.

The first method of calculating damages that the Tribunal considered was the stock market method, "a comparative valuation methodology that seeks to assess the damage to Crystallex's stock price by reference to the evolution of stock prices for other, similarly placed, gold mining companies not affected by Venezuela's expropriatory measures." Award ¶ 804; see generally Award ¶¶ 804–817. By setting the "last clean date" as June 14, 2007, Award ¶ 891, and the "valuation date" as April 13, 2008, the method yielded a damages amount of $1.295 billion.⁶

The second method the Tribunal considered for calculating damages was the market multiples method, which "estimates the value of an asset or company by examining the market valuation of companies holding properties of similar characteristics." Award ¶ 901; see also Award ¶ 793–803. By comparing Crystallex's market valuation to that of seventy-three comparator companies, Award ¶ 902, and adjusting that valuation based on the expected size of the gold reserves at Las Cristinas, Award ¶ 793, the method yielded a damages amount of $1.109 billion.⁷ Award ¶ 905.

The Tribunal concluded that the damages amounts suggested by each method⁸ were "largely consistent with each other" and averaged their results, to arrive at its damages award of $1.202 billion. Award ¶ 917...