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Gold Reserve, Inc. v. Bolivarian Republic of Venezuela

United States District Court, D. Columbia

November 20, 2015

GOLD RESERVE INC., Petitioner,
v.
BOLIVARIAN REPUBLIC OF VENEZUELA, Respondent

          For Gold Reserve Inc., Petitioner: Caroline M. Mew, Matthew H. Kirtland, NORTON ROSE FULBRIGHT U.S. LLP, Washington, DC USA.

         For Bolivarian Republic of Venezuela Ministerio del poder popular para relaciones exteriores oficina de relaciones consulares, avenida urdaneta esquina de " carmelitas" a " puente llaguno" edificio anexo a la torre " mre" caraces, 1010 Republica Bolivariana de Vene, Respondent: Lawrence Hedrick Martin, LEAD ATTORNEY, FOLEY HOAG LLP, Washington, DC USA; Andrew B. Loewenstein, Richard G. Baldwin, PRO HAC VICE, FOLEY HOAG, LLP, Boston, MA USA.

         MEMORANDUM OPINION

         JAMES E. BOASBERG, United States District Judge.

         Associate Justice Stephen Breyer has recently noted the striking increase in the share of the Supreme Court's docket involving cases that " call on the Court to consider foreign persons and activities." Stephen Breyer, The Court and the World 3 (2015). Following this trend, the present case -- a dispute between a Canadian mining company and a foreign state -- asks this Court to untangle a web of international agreements, foreign procedures, and multinational corporate-ownership structures. While the facts undergirding this suit take place far from Washington, D.C., the parties are properly here.

         The present quarrel involves the abrupt curtailment of mining concessions granted by Venezuela to a subsidiary of a company called Gold Reserve Inc. Yet their dispute has already been adjudicated by an international arbitration tribunal, as mandated under the terms of a bilateral investment treaty between Canada and Venezuela. After nearly five years of briefings, exhibits, expert reports, and hearings, that tribunal, sitting in Paris, awarded over $700 million in damages to Gold Reserve. As Petitioner, the company now seeks to enforce the Award here under authority granted by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly referred to as the New York Convention), which has been incorporated in U.S. law through the Federal Arbitration Act. Given the FAA's favorable stance toward the enforcement of arbitration awards -- both domestic and foreign -- Venezuela does not, and cannot, seek de novo review of the merits of the arbitral tribunal's decision. Instead, alleging violations of due process and public policy, it asks the Court to deny enforcement of the Award. After a grand tour around the world of foreign and international law, the Court ultimately holds that Gold Reserve may indeed have its Award enforced right here in Washington.

         I. Background

         A. Parties

         Petitioner is a mining company incorporated under the laws of the Province of Alberta, Canada, although it was incorporated under the laws of the Yukon Territory at the time arbitration was initiated in October 2009. See Pet., ¶ 2 & n.2. As it turns out, Petitioner's nationality and ownership structure are front and center to the resolution of this case -- and hotly contested by the parties. This is because determining which corporate entity possessed an ownership interest in the concessions at issue is not straightforward.

         Those concessions granted 20 years' exclusive extraction rights to near-surface gold resources and hard rock gold, copper, and molybdenum resources located within the 500-hectare property in Venezuela known as Brisas. See id., Declaration of Matthew H. Kirtland (ECF No. 2), Exhs. 1(A)-1(D) (Arbitration Award), ¶ 10. These concessions were known as the Brisas and Unicornio Concessions. See id., ¶ ¶ 10-12. In 1988, the Brisas Concession was originally granted to a Venezuelan company, Compañia Aurí fera Brisas del Cuyuní, C.A. (" Brisas Company" ), which was acquired in November 1992 by Gold Reserve de Venezuela, a subsidiary of the United States company Gold Reserve Corporation (" Gold Reserve Corp." ). See id., ¶ 11. The Brisas Company applied for rights to the Unicornio Concession in 1993, which it received in 1998. See id., ¶ 12. To complicate matters further, on October 5, 1998, Gold Reserve Incorporated (" Gold Reserve Inc." ) -- the Petitioner here -- was incorporated in Canada as a wholly owned subsidiary of Gold Reserve Corp. -- the American company. See id. In early 1999, however, Gold Reserve Inc. acquired the shares of Gold Reserve Corp., thereby becoming the latter's parent company. See id., ¶ ¶ 11, 235. From that point forward, the Canadian Gold Reserve Inc. was the parent company of the American Gold Reserve Corp., which in turn held the Venezuela subsidiary Gold Reserve de Venezuela, owner of the Brisas Company that held the Brisas and Unicornio Concessions. See id., ¶ 11. Or, for those more spatial learners:

         Much simpler is the status of Respondent, which is the Bolivarian Republic of Venezuela, which granted -- and then revoked -- the Brisas and Unicornio Concessions. See id., ¶ 2.

         In light of the nationalities of the parties, the Tribunal adjudicating the dispute did so according to the bilateral investment treaty between Canada and Venezuela, which came into force on January 28, 1998. See Kirtland Decl., Exh. 2 (Agreement between the Government of Canada and the Government of Venezuela for the Promotion and Protection of Investments, Can.-Venez., Jan. 28, 1988, E101531-1998 Can. T.S. No. 20) (the " BIT" ). According to Respondent, Gold Reserve's corporate ownership structure is relevant because the Canada-Venezuela BIT would have no applicability if Petitioner were not considered a Canadian company as defined by the BIT. For ease of reference, the Court will refer to all of the Gold Reserve entities as " Gold Reserve" unless distinguishing among them, as in Sections III.A.3 and III.C.1, infra.

         B. Dispute Over Concessions

         In most federal suits, the merits dispute between the parties is of central relevance to any resolution. Here, however, Gold Reserve's Petition for enforcement of the Award, and Venezuela's opposition thereto, do not turn on the issues that led to the arbitration itself, and so the Court will only briefly recite the facts pertaining to that disagreement. The Award concerns Gold Reserve's claims arising out of Venezuela's revocation of permits and licenses related to the concessions, as well as its seizure of Petitioner's assets. See Arb. Award, ¶ ¶ 24-28. While Respondent alleged breaches of mining and environmental obligations that justified the rescission, see MTD at 6, Petitioner rejoined that this cancellation constituted a " failure to accord fair and equitable treatment" in violation of the BIT. See Pet., ¶ 17. Specifically, Gold Reserve alleged that, after it had invested close to $300 million between 1992 and 2008 to develop gold and copper mining projects on the concessions, its investments were " unlawfully and effectively taken from it as a result of and by the decisions and actions taken, directed, and supported by the administration of the then-President of Venezuela, Hugo Chá vez." Id., ¶ ¶ 18, 20.

         C. The Arbitration

         To vindicate its rights, Petitioner sought adjudication of the dispute through arbitration under the BIT, submitting its request pursuant to the International Centre for Settlement of Investment Disputes (ICSID) Arbitration (Additional Facility) Rules on October 21, 2009. See id., ¶ ¶ 21, 22; Arb. Award, ¶ 29; Kirtland Decl., Exh. 4 (Consent and Authorization to Commence Arbitration of Bilateral Investment Treaty Dispute) (" Consent to Arbitrate" ); see also Additional Facility Rules, available at https://icsid.worldbank.org/apps/ICSIDWEB/icsiddocs/ Documents/AFR_English-final.pdf. In its initial request, Gold Reserve sought compensation both for itself and on behalf of its Venezuelan subsidiary for losses, including pre-and post-award interest. See Pet., ¶ 22.

         As is often the case, the parties did not agree on the number of arbitrators or their method of appointment within 60 days of registration of the request. See Arb. Award, ¶ 32. As a result, in January 2010, the Secretary-General of ICSID informed the parties that, in accordance with ICSID Arbitration Additional Facility Rule Article 9(1), a three-member Arbitral Tribunal would be composed of one arbitrator appointed by each party, and a third, the president of the tribunal, would be appointed by mutual agreement of the parties. See id., ¶ 33. Gold Reserve appointed Professor David A.R. Williams QC, and Venezuela appointed Professor Pierre-Marie Dupuy. See id., ¶ ¶ 33-35. The parties jointly settled on Professor Piero Bernardini as President of the Tribunal. See id., ¶ ¶ 33, 38-39. They also jointly selected Paris to be the seat of the arbitration. See MTD at 33; Pet., ¶ 27.

         After several rounds of pre-hearing briefings and the exchange of expert-witness reports, the Tribunal held a hearing on both jurisdictional and merits matters in Washington, D.C., on February 13-17, 2012. See Pet., ¶ 30. Fact and expert witnesses also testified during this hearing. See id. After additional submissions, the Tribunal held a further hearing for two more days in Paris on October 15-16, 2013, and reviewed further submissions from the parties through December 2013. See id., ¶ ¶ 31-32. Over two years after the initial hearing on the matter and nearly five years after Gold Reserve's initial request was filed, the Tribunal announced its unanimous Award on September 22, 2014, consisting of a not-inconsiderable 225 pages of factual findings and legal determinations. See id., ¶ ¶ 35-36; see generally Arb. Award. The Tribunal found Venezuela in breach of Article II(2) of the BIT by " failing to accord fair and equitable treatment to Gold Reserve's investment." Arb. Award, ¶ 863. It further concluded that the " number, variety, and seriousness of the breaches make the FET violation by Respondent particularly egregious. The compensation due to Claimant for such breaches should reflect the seriousness of the violation." Id., ¶ 615. The Tribunal accordingly ordered Venezuela to pay Gold Reserve compensation in the sum of $713,032,000, plus pre-and post-award interest, and $5 million in legal fees incurred by Gold Reserve in vindicating its interests before the Tribunal. See Pet., ¶ ¶ 38-40; Arb. Award, ¶ ¶ 863, 850-56.

         This was not the end of the story, however. Because the parties agreed to arbitrate their dispute in Paris, the arbitration was governed by French arbitration law, and so Venezuela appealed the Award to the Paris Court of Appeal. See MTD at 17. Venezuela separately filed a notice of petition to set aside the Award with that court, and Gold Reserve countered with a petition to confirm it. See id. These two procedures are different in scope and length. Although the Court of Appeal confirmed the Award -- since the only basis on which not to do so is if it is manifestly contrary to international public policy -- it is presently considering Venezuela's petition to set aside the Award, a proceeding that entails a more searching review of the Tribunal's decisionmaking. See id. at 17-18. Respondent recently notified the Court that oral arguments before that court have been rescheduled from November 3, 2015, to February 4, 2016. See Notice of Change of Schedule in Paris Court of Appeal (ECF No. 39). Independent of these Parisian proceedings, across the Atlantic, Gold Reserve filed the instant Petition to Confirm the Award, which Venezuela has opposed.

         II. Legal Standard

         The Court begins with the procedural backdrop. At first glance, it might seem strange that a dispute of this nature -- confirmation of an ICSID arbitration award issued in France and governed by a bilateral investment treaty between Canada and Venezuela -- has ended up in this Court. Yet U.S. domestic law enables just such a procedure for confirmation and enforcement. Gold Reserve's Petition to Confirm the Arbitral Award is governed by the New York Convention, which provides for " recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought." Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, art. I.1, 21 U.S.T. 2517 (" New York Convention" ). Since the Award was made in France and enforcement is sought in the United States, both of which are signatories to the New York Convention, the confirmation is governed by the Convention. See Pet., ¶ 47; U.S. Dept. of State, Treaties in Force: A List of Treaties and Other International Agreements of the United States in Force on January 1, 2007, § 2 at 12, available at http://www.state.gov/documents/organization/89668.pdf. The New York Convention, moreover, has been codified via the Federal Arbitration Act, 9 U.S.C. § § 201-208, which permits any party to an arbitration under the Convention to seek confirmation of the arbitral award in U.S. federal district court within three years of the award. See 9 U.S.C. § 207.

         As with claims concerning domestic arbitral awards, courts that are asked to confirm international arbitral decisions do so recognizing the substantial deference they owe to arbitral tribunals under the FAA: " Consistent with the 'emphatic federal policy in favor of arbitral dispute resolution' recognized by the Supreme Court[,] . . . the FAA affords the district court little discretion in refusing or deferring enforcement of foreign arbitral awards." Belize Social Development Ltd. v. Government of Belize, 668 F.3d 724, 727, 399 U.S.App.D.C. 179 (D.C. Cir. 2012) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)).

         A further constraint is that courts " may refuse to enforce the award [brought under the New York Convention] only on the grounds explicitly set forth in Article V of the Convention." TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 935, 376 U.S.App.D.C. 242 (D.C. Cir. 2007) (citation omitted); see also Int'l Trading & Indus. Inv. Co. v. DynCorp Aerospace Tech., 763 F.Supp.2d 12, 19 (D.D.C. 2011) (collecting cases). Because " the New York Convention provides only several narrow circumstances when a court may deny confirmation of an arbitral award, confirmation proceedings are generally summary in nature." DynCorp Aerospace Tech., 763 F.Supp.2d at 20 (citing Zeiler v. Deitsch, 500 F.3d 157, 169 (2d Cir. 2007)). The party resisting confirmation -- in this case, Venezuela -- bears the heavy burden of establishing that one of the grounds for denying confirmation in Article V applies. See Imperial Ethiopian Gov't v. Baruch-Foster Corp., 535 F.2d 334, 336 (5th Cir. 1976); see also Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987) (" [T]he showing required to avoid summary confirmation is high." ).

         III. Analysis

         With that framework in mind, Venezuela raises three types of challenges to block confirmation of the Award, each of which it alleges falls within the New York Convention's Article V exceptions permitting non-enforcement. First, it contends that the Award exceeds the scope of Venezuela's consent to arbitration; second, it asserts that the Tribunal's conduct during the hearing violated the country's due-process rights; and third, it argues that the Award is contrary to U.S. public policy because it assesses punitive damages against a foreign state. Alternatively, should the Court choose to order enforcement of the Award, Venezuela seeks to have confirmation stayed pending resolution of the appeal currently before the Paris Court of Appeal. The Court will first separately address Venezuela's three substantive challenges and conclude by examining the question of staying enforcement.

         A. Award Exceeds Scope

         In its first challenge, Venezuela contends that the Award exceeded the scope of its consent to arbitrate. In so doing, Respondent invokes Article V(1)(c) of the New York Convention, which provides in relevant part:

Recognition and enforcement of the award may be refused . . . if . . . [t]he award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. . . .

         At the outset, the Court takes care to note that Venezuela's challenge actually involves a two-part inquiry. This is because the Court must not only decide, substantively, whether the Tribunal acted within its permissible scope to arbitrate. Before doing so, it must first determine, procedurally, the amount of deference it should grant the Tribunal's own determination of such scope, insofar as that question was itself delegated to the Tribunal. The Court begins with the latter.

         1. Deference Owed to Tribunal

         In cases where both parties have clearly and unmistakably delegated the question of arbitrability to the arbitrator, a court " should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circumstances." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Indeed, at least one circuit has held that where the parties " clearly and unmistakably agreed to arbitrate issues of arbitrability," the party resisting confirmation of the award " is not entitled to an independent judicial redetermination of that same question." Schneider v. Kingdom of Thailand, 688 F.3d 68, 74 (2d Cir. 2012). To the extent that the parties here have " clearly and unmistakably" agreed to arbitrate arbitrability, then, this Court must give substantial deference to that decision. This is because " the [New York] Convention . . . does not sanction [a Court's] second-guessing the arbitrator's construction of the parties' agreement." Parsons & Whittemore Overseas Co., Inc. v. Societe Generale De L'Industrie Du Papier (RAKTA), 508 F.2d 969, 977 (2d Cir. 1974).

         The question, consequently, is whether the parties so " clearly and unmistakably" agreed to delegate arbitrability. At first glance, the answer could hardly appear to be in dispute. The parties consented that arbitration proceedings between them would be governed by the ICSID Additional Facility Arbitration Rules. See Arb. Award, ¶ ¶ 29-31; Consent to Arbitrate at 1-2. Under the BIT, where " either the disputing Contracting Party or the Contracting Party of the investor, but not both, is a party to the ICSID Convention," the investor may submit the dispute to arbitration under the Additional Facility Rules of ICSID. See BIT, art. XII(4)(b). It is undisputed that Canada is a party to the ICSID Convention and Venezuela is not. See ICSID, List of Contracting States and Other Signatories of the Convention (as of April 18, 2015), available at https://icsid.worldbank.org/apps/ICSIDWEB/icsiddocs/Documents/List%20of%20Contracting%20States%20and%20Other%20Signatories%20of%20the%20Convention%20-%20Latest.pdf. The Additional Facility Rules, in turn, explicitly provide that " [t]he Tribunal shall have the power to rule on its competence." Additional Facility Rules, art. 45(1). As Gold Reserve argues, " [B]y incorporating the ICSID Additional Facility Arbitration Rules into their arbitration agreement through the BIT, the parties agreed that the Tribunal would decide any issues of arbitrability." Opp. at 6-7.

         Venezuela objects to this straightforward resolution of the question, responding that its " standing offer to arbitrate" under the BIT only applies if the relevant investor " fulfills the conditions set out in the treaty." MTD at 20. As described in more detail below, Respondent contends that Gold Reserve Inc. was not properly an investor under the definition of the BIT, and so Venezuela never consented to arbitration with that entity. Id. at 21. Venezuela's argument seems to create a sort of analytic Mö bius strip: it only consented to the arbitral tribunal when the counterparty is an investor under the BIT, but under the BIT the parties must rely on that same arbitral tribunal to determine whether Gold Reserve Inc. was a proper investor in the first place. At bottom, the ICSID Additional Facility Rules governing such arbitrations under the BIT clearly state that the Tribunal has the power to rule on its own competence, which the Tribunal here did. See generally art. 45. The Court thus considers Venezuela's arguments in light of the substantial deference owed to the Tribunal's own findings concerning its scope to act.

         * * *

         Having resolved the level of deference owed to the Tribunal, the Court turns to the meat of the matter. Venezuela provides two substantive reasons why the Tribunal acted " beyond the scope" of Respondent's submission to arbitration. First, Venezuela claims that the Tribunal lacked jurisdiction over the parties because Gold Reserve Inc. -- the Canadian entity -- " does not qualify as an investor under the BIT." Id. at 20. Second, it further contends that Gold Reserve Inc. was not the proper entity to be awarded damages, as the BIT allows compensation to be awarded only to the " affected enterprise" -- which it argues should be Gold Reserve's Venezuelan subsidiary only. See id. at 24. The Court considers the two issues in turn.

         2. Definition of ...


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