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CIArb News

Rusoro Mining Ltd v The Bolivarian Republic of Venezuela – Another Billion Dollar Award

4 October 2016 Features
By Sabina Adascalitei LLB, LLM, MCIArb, Research and Academic Affairs Coordinator

Rusoro Mining, a Canadian company, whose main business is the exploration and production of gold, was awarded more than US$1.2 billion in a claim against the Republic of Venezuela. The request for arbitration was made in accordance with the 2006 ICSID Additional Facility Rules and the 1996 Canada – Venezuela Bilateral Investment Treaty (BIT).

The case of Rusoro Mining was one of the last cases to be filed at ICSID before July 2012, when Venezuela’s denunciation of the ICSID Convention became effective. As Canada ratified the Convention in 2013, the case was heard under the ICSID Additional Facility Rules.

The procedural languages of the arbitration were English and Spanish and the place of arbitration was Paris, with hearings taking place in Washington DC.

The tribunal, which was formed by Juan Fernández-Armesto (chair), Francisco Orrego Vicuña and Bruno Simma, held that the Republic of Venezuela had unlawfully expropriated Rusoro Mining’s investments and imposed restrictions on the export of gold, therefore breaching the BIT.

In August 2011 the President made a public announcement regarding the immediate nationalisation of the mining industry in Venezuela, with the main purpose of combating illegal mining.

Following the announcement, in September 2011, Venezuela adopted the so-called “Nationalisation Decree”, which provided for a new legal framework for gold mining, reserving the extraction and exploitation of gold to the state.

Essentially, the Decree provided for state control of the property and of the mining rights of all gold producing companies.

Rusoro Mining was the largest gold mining company operating in Venezuela, having produced roughly 150,000 ounces in 2010 and 80,000 before the new rules came into effect.

In light of the 2011 Decree, Rusoro Mining brought a US$3 billion claim to compensate for Venezuela’s measures that affected the company’s investments in the state of Bolívar.

Rusoro Mining claimed that both the Central Bank of Venezuela and the Ministry of Economy had passed measures to require the company to sell part of its production to the Central Bank as well as foreign currency income from the export of gold.

Rusoro Mining was represented by Freshfields Bruckhaus Deringer, led by partners Nigel Blackaby in Washington DC and Noah Rubins in Paris. In turn, Venezuela was represented by Foley Hoag in Washington DC, including partner Dereck Smith and international counsels Alberto Wray and Diego Cadena. Before filing its claim against Venezuela, Rusoro Mining signed a funding agreement on a “non-recourse” basis with UK based Calunius Capital.

The tribunal found that Venezuela breached the 1996 Canada-Venezuela BIT by unlawfully expropriating Rusoro Mining’s investments and restricting the export of gold. However, the tribunal also partially upheld the jurisdictional objections raised by Venezuela, finding that the claims brought forward for measures before 2009 were time-barred.

Furthermore, the arbitral tribunal also found that the nationalisation of Rusoro Mining’s assets served a public purpose and had, therefore, not violated the company’s due process rights.

Finally, the arbitral tribunal found against Rusoro Mining’s claim that Venezuela engaged in discriminatory behaviour by imposing improper restrictions on currency exchange; there was no breach of either its fair and equitable treatment obligations, of the full protection and security requirements under the BIT.

This is not the first billion-dollar award that the Republic of Venezuela has had to pay. Earlier this year, Crystallex was granted more than US$1.38 billion against Venezuela for a project located just a few miles from Rusoso Mining’s premises.