This article was originally published in The Legal Diary on 15 October 2021 and can be accessed here.
BIT wins again
An ICSID arbitration panel recently awarded Air Canada repatriation of outstanding profits held up by Venezuela. This is yet another example of an international investor relying on a bilateral investment treaty (BIT) to pursue a state for losses. Like many such disputes, it occurred against the backdrop of turbulent economic and political factors: the devalued Bolivar; and a political leadership crisis which, following US sanctions, added to the country’s economic crisis.
Political factors create challenges for arbitration tribunals. Due to sanctions, a party may be unable to engage and pay lawyers and experts, creating an “inequality of arms”. Quantum and valuation issues are essential features of investment arbitration. Here, Venezuela’s quantum expert was unable to be cross-examined at the hearing on its report, leading the Claimant to try unsuccessfully to exclude it. The Tribunal also had to consider a request from representatives of “interim President” Guaidó to exclude counsel appointed by the Maduro Government from acting further in the case. This contest between Presidents, each claiming legitimacy, has led to similar requests in a number of cases. Here it was denied.
For the investor-state dispute resolution system to have continued legitimacy, arbitrators need to do justice to the parties and be seen to act fairly. Parties and arbitrators should do all they can to reduce the potentially disruptive impact on proceedings of sanctions and external political factors. Where a party is perceived to have been placed at a significant disadvantage, the process is undermined. Venezuela was permitted to rely on its quantum expert report in this case, but a differently constituted Tribunal might have decided differently where a party had other alternatives. It can only be hoped that parties and arbitrators will generally take actions to reduce the disruptive impact of sanctions and political events.