Arbitration Needed
A recently signed investment treaty claim made by Air Canada against the country of Venezuela, to repatriate the outstanding profits from the country by way of forex, was upheld. During proceedings, current political environment in Venezuela, such as impact of sanctions, were raised in submissions. The Tribunal Award navigated potential obstacles to offer insights for international arbitrators in future cases, without political biases.
Canada and Venezuela entered into a Bilateral Investment Treaty (BIT) in 1996. Air Canada, Canada’s publicly traded national carrier, had repatriated profits on earnings in Venezuela, converting Bolivars into US dollars, through a Venezuelan State Commission managing the currency exchange. In 2014 after the Bolivar devaluation, the Commission altered the currency exchange rates and Air Canada suspended its flights to Venezuela. Under ICSID Additional Facility Arbitration Rules, Air Canada invoked arbitration as per the BIT. Air Canada alleged breach of protection of free transfer of funds (Art. VIII, BIT), breach of protection of fair and equitable treatment (Art. II, BIT) and expropriation (Art. VII, BIT).
THE AWARD
Air Canada was finally awarded repatriation of a total of $20,790,574 million as entitled after setting off against sums Venezuela owned as part of currency exchange, plus simple interest and other costs. The Tribunal found no expropriation, additional compensation was not awarded. Damages were awarded because of the Tribunal’s discovery that Venezuela had defaulted on the protection of the free transfer of funds through its failure to process Air Canada’s numerous requests of currency exchange. However, despite the fact that the FET discussion was therefore largely obiter, it is instructive to consider the Tribunal’s way of using the FET provision and some issues pertaining to procedures that arose due to political factors and the impact of global sanctions. Such issues are occurring with faster frequency in international arbitration.
FAIR AND EQUITABLE TREATMENT
The Tribunal rejected Venezuela’s plea that the threshold for FET standard violation was high, needing restrictive interpretation of Article II of the BIT. The Tribunal adopted international law standards about fair and equitable treatment consistent with investor-State arbitration and purposes of investment protection. The BIT provided investment protection and, as an investor, Air Canada could rely on BIT for relief. The Tribunal found that Venezuela’s actions were arbitrary, lacked transparency and, by not processing Air Canada’s requests for repatriation, had disregarded legitimate expectations. The Tribunal ruled in favour of the investor on the basis of the state failing to comply with due processes.
Perspectives
The BIT was designed to protect investments and ensure that states comply with established norms. Tribunals balance legislative powers of states with investors’ rights when considering BIT’s, as politics threatens disruption during arbitration proceedings. Here the Tribunal used a purposive approach to the FET clause. The Tribunal decision was as per international law principles, despite Venezuela’s political circumstances. Arbitrators focused their analysis on BIT provisions. Arbitrators never ordered Venezuela to change legal counsel and relied on their quantum expert, despite objections. The proceedings were not undermined by sanctions or political factors and the benefit to investors of relying on existing BIT’s, was established. Arbitrators issue procedural orders to reduce disruptive impact of political circumstances, enabling arbitrators to focus on treaty provisions. In this case, sanctions had minimal impact on the outcome and maintained the integrity of the arbitration process. Future arbitrations by other Tribunals need to apply similar approaches.