United States District Court, District of Columbia
MEMORANDUM OPINION March 1st 2018 [Dkt. ## 1,
RICHARD J. LEON United States District Judge.
third time in as many years, Respondent Bolivarian Republic
of Venezuela ("Venezuela") finds itself before the
U.S. District Court for the District of Columbia opposing the
confirmation of an arbitral award flowing from its
expropriation of foreign gold-mining assets. In this case,
Venezuela seeks to persuade the Court that the arbitral
tribunal, constituted pursuant to provisions of the bilateral
investment treaty between Canada and Venezuela, exceeded the
scope of its authority in awarding damages to Rusoro Mining
Limited ("Rusoro") for the expropriation of that
entity's assets. In the alternative, Venezuela seeks a
stay of enforcement of the arbitral award in light of a
pending appeal of the award in Paris. Unfortunately for
Venezuela, its third time is not a charm and for the reasons
that follow, this Court will DENY
Venezuela's Motion to Dismiss Petition and to Deny
Confirmation of the Arbitral Award or, in the Alternative, to
Stay ("Mot. to Dismiss") [Dkt. # 16], and
GRANT Rusoro's Petition to confirm the
Award ("Petition") [Dkt. #1].
Mining Limited ("Rusoro") is a Canadian corporation
listed on the Toronto Stock Exchange. See Rusoro Mining
Ltd. v. Bolivarian Rep. of Venez., ICSID Case No.
ARB(AF)/12/5, Award ¶ 11 (Aug. 22, 2016), Friedman Decl,
Ex. 2 [Dkt. # 1-2] ("Award"). Its principal
business is the exploration and production of gold.
Id. ¶ 12. Between 2006 and 2008, Rusoro
acquired controlling interests in twenty-four Venezuelan
companies, which held a total of 58 mining concessions and
contracts. See Id. ¶¶ 12, 77-78. All of
Rusoro's assets were in Venezuela. Id. ¶
1, 1996, Canada and Venezuela entered into the Agreement
between the Government of Canada and the Government of the
Republic of Venezuela for the Promotion and Protection of
Investments ("BIT" or "Treaty").
See Mot. to Dismiss, Ex. 2 [Dkt. #16-3]. The Treaty
governs investments between the contracting parties,
providing protections against expropriation and establishing
a mechanism for dispute resolution. See id.
relevant here, the Treaty provides for the resolution of
disputes between an investor (i.e., Rusoro) and a
host contracting party (i.e., Venezuela). Article
XII. 1 provides:
Any dispute between one Contracting Party and an investor of
the other Contracting Party, relating to a claim by the
investor that a measure taken or not taken by the former
Contracting Party is in breach of this Agreement, and that
the investor or an enterprise owned or controlled directly or
indirectly by the investor has incurred loss or damage by
reason of, or arising out of, that breach, shall, to the
extent possible, be settled amicably between them.
Id. Failing amicable resolution, an investor may
submit the dispute to the Additional Facility Rules of the
International Centre for the Settlement of Investment
Disputes ("ICSID"),  "provided that either the
disputing Contracting Party or the Contracting Party of the
investor, but not both, is a party to the ICSID
Convention." Id. art. XII.4(b). The Treaty
provides that expropriation must be made "against
prompt, adequate and effective compensation."
Id. art. VII. "Such compensation, " the
Treaty goes on to say, "shall be based on the genuine
value of the investment or returns expropriated immediately
before the expropriation or at the time the proposed
expropriation became public knowledge, whichever is the
earlier." Id. This amount "shall be paid
without delay . . . ." Id.
time of Rusoro's acquisitions, Resolution No. 96-12-02,
issued by the Central Bank of Venezuela, regulated gold
exports. See Award ¶¶ 138-39. The
Resolution's "overarching principle" was the
"liberty of export, " id. ¶ 138, with
only limited conditions imposed on companies seeking to
export gold from the country. Namely, gold producers were
required to (i) register with the Central Bank of Venezuela,
(ii) obtain non-discretionary export authorization from the
Central Bank of Venezuela, and (iii) sell at least 15% of
their total annual gold production on the private domestic
market. See id.
No. 96-12-02 remained in place until Venezuela enacted the
April 2009 BCV Resolution, which "significantly altered
the legal regime for the export of gold." Id.
¶ 145. As such, Venezuela now mandated (i) that 60% of
each gold producer's quarterly gold production be sold to
the Central Bank of Venezuela; and (ii) that gold producers
export no more than 30% of their gold production.
Id. ¶¶ 144, 145, 147, 501. Subsequent
measures, undertaken the same year, imposed further
restrictions on foreign gold mining entities, while loosening
restrictions on domestic ones. Id. ¶¶
148-152. Under these measures, the Central Bank paid for the
gold in local currency, tied to the Official Exchange Rate,
which was consistently lower than the market rate.
Id. ¶¶ 145, 501. The Central Bank was also
charged with approving all proposed exports. Id.
following year, Venezuela went one step further. It banned
the use of the secondary currency exchange, known as the Swap
Market, placing all foreign exchange transactions under the
jurisdiction of the Central Bank. See Id. ¶
154. Shortly thereafter, Venezuela announced that Rusoro
would be required to sell 50% of its gold production, and 50%
of its foreign currency income, to the Central Bank.
Id. ¶¶ 156-59.
measures finally came to a head with the government's
complete expropriation of Rusoro's Venezuelan assets. On
August 11, 2011, President Hugo Chavez declared the
"immediate nationalization" of the Venezuelan gold
mining sector. Id. ¶ 160. Within one month,
Venezuela adopted Supreme Decree No. 8.413
("Nationalization Decree"), in which the State
asserted control over the property and mining rights of all
gold-producing companies in the country. Id.
¶¶ 160-62. On March 31, 2012, Rusoro "formally
withdrew from [its] mining areas." Id. ¶
173. Rusoro's "[m]ining [r]ights and other
assets" were taken by the Venezuelan Government shortly
thereafter. Id. ¶ 174.
17, 2012, Rusoro submitted a Request for Arbitration to the
International Centre for Settlement of Investment Disputes
("ICSID"). Id. ¶ l. In its request,
Rusoro alleged multiple breaches of the Treaty by Venezuela,
and sought an award of compensation plus interest, legal fees
and costs, as well as any other relief the Tribunal
considered appropriate. See Id. ¶ 1. Rusoro
claimed that Venezuela had expropriated its investment
without payment of compensation. Id. ¶ 179.
Rusoro sought compensation in the amount of approximately $
2.3 billion. Id. ¶ 180. Venezuela raised
jurisdictional and merits defenses. See Id.
¶¶ 181-85, 187.
Tribunal was constituted on January 4, 2013. Id.
¶¶ 8, 16. The parties, represented by counsel (many
of whom appear on the briefs before this Court), id.
¶ 19, participated in multiple hearings before the
Tribunal, id. ¶¶ 62, 66, producing
witnesses, experts, and documents, id. The Tribunal
declared the proceeding closed on June 29, 2016. See
Id. ¶ 76. The panel unanimously ruled on August 22,
2016 that Venezuela "breached Art. VII of the BIT by
expropriating Rusoro's investment in Venezuela without
payment of compensation, " and ordered that Venezuela
pay Rusoro $ 966.5 million "as compensation for the
expropriation of its investment." Id. ¶
Tribunal explained its reasoning at length, devoting
considerable discussion in the Award to the calculation of
damages. The Tribunal acknowledged that the parties agreed
that (i) the proper valuation date was September 16, 2011,
the day when the Nationalization Decree was issued, and (2)
that the term "genuine value, " as used in Article
VII of the Treaty, "equates with the traditional concept
of 'fair market value.'" Id. ¶
647. It noted two distinct features of the damages assessment
in this particular case: (i) that Rusoro, as a
publicly-traded corporation, was subject to accounting and
disclosure requirements, id. ¶ 651, thereby
enhancing the reliability of their balance sheet and trading
price, and (ii) that Rusoro's enterprise was confined to
a single industry, gold exploitation, in a single country,
Venezuela, id. ¶ 652. The Tribunal went on to
discuss the nature of the international gold market and its
correlation to the value of gold-producing companies,
id. ¶¶ 654-58; Rusoro's investment in
Venezuela, id. ¶¶ 659-82; the book value
of that investment, id. ¶¶ 683-707;
Rusoro's market capitalization, id. ¶¶
708-714; and Rusoro's valuation of its investments,
id. ¶¶ 715-50.
this background established, the Tribunal acknowledged that
the damages calculation was "a hypothetical
exercise" because "in real life, in September 2011
no buyer having good information about the gold sector in
Venezuela would have been prepared to buy a gold producing
enterprise in that country for a fair price."
Id. ¶ 752. It explained that "the value of
gold companies is affected by the intensity of the regulatory
measures adopted by host states, " and it acknowledged
that Venezuela's regulatory measures would have created a
"chilling effect" sufficient to deter any
prospective investor. Id. ¶¶ 753- 54. As
such, in analyzing the Treaty's instruction to value an
expropriated asset at the time "immediately before the
expropriation or at the time the proposed expropriation
became public knowledge, " id. ¶ 756
(internal quotations omitted), the Tribunal reasoned that
"[t]he fair market value which the State must pay is
that which an innocent, uninformed third party would pay,
having no knowledge of the State's pre-expropriation (but
post-investment) policy toward the expropriated company and
its sector, " id.
were six valuations proffered on the record. First, the
"Investment Valuation" assessed the value of
Rusoro's acquisitions and investments in Venezuela. This
number came to $ 774.3 million. Id. ¶ 763.
Second, the "Adjusted Investment Valuation" revised
the "Investment Valuation" amount to account for
the increase in the value of gold internationally between the
time of investment and the time of expropriation.
Id. ¶ 764. This inflated the $ 744.3 million
number to $ 1.128 billion. Id. Third, the "Book
Valuation" reflected the net book value of Rusoro's
assets, totaling $ 908 million. Id. ¶ 766.
Fourth, the "Maximum Market Valuation" reflected
Rusoro's peak stock market valuation, $ 700.6 million,
taken February 28, 2008. Id. ¶ 768. Fifth, the
"Final Market Valuation" reflected the decline in
market capitalization following Rusoro's initial
investment in Venezuela. Id. ¶ 769. By this
measure, Rusoro's investment was $ 125.6 million.
Id. Sixth, Rusoro's expert, Brent Kaczmarek,
calculated the value of Rusoro's expropriated assets to
be $ 2.23 billion. See Id. ¶ 770.
the Tribunal relied on only three of the six methods: the
Maximum Market Valuation, the Book Valuation, and the
Adjusted Investment Valuation. In reaching the "genuine
value" of the expropriated investment, the Tribunal
assigned a weight to each method. It accorded 25% to the
Maximum Market Valuation, 25% to the Book Valuation, and 50%
to the Adjusted Investment Valuation. Id. ¶
789. The weight assigned to each method reflected that
method's "strengths and shortcomings."
Id. For example, the Maximum Market Valuation had
the advantage of reflecting "no subjectivity in its
calculation, " based, as it was, on the stock
market's independent assessment. Id. The Maximum
Market Valuation had a shortcoming, however: Rusoro achieved
this marker for only "a very short period, in
mid[-]2008, three years before the date of the
expropriation." Id. Similarly, the Book
Valuation represented "a conservative criterion, "
as it was taken directly from Rusoro's audited balance
sheet, but did not account for increases in the price of gold
during the relevant time period or the "development of
the mining properties" under Rusoro's control.
Id. The Adjusted Investment Valuation received the
most weight, 50%, because it "reflect[ed] the value the
investment would have reached on the date of expropriation,
simply as a direct consequence of the increase in the price
of gold and of gold producing companies." Id.
When averaged and weighted, the Quantum for the expropriated
assets totaled approximately $ 966.5 million. Id.
October 10, 2016, Rusoro asked this Court to confirm the
arbitral award. [Dkt.-#1].