Canada: Gold Reserve And Exxon Mobil Awarded Significant Compensation In Two International Arbitration Rulings Against Venezuela

Two prominent cases against Venezuela tried before international arbitral tribunals have recently resulted in significant compensation being awarded to both companies whose assets were expropriated by the country.

On September 22, 2014, a tribunal (the "GR Tribunal") established under the rules of the International Centre for Settlement of Investment Disputes ("ICSID") issued a significant monetary award – US$740 million – in favour of the Canadian mining company Gold Reserve Inc. ("Gold Reserve") against the Bolivarian Republic of Venezuela ("Venezuela") for violations under the treaty between Canada and Venezuela for the promotion and protection of investments (the "Canada-Venezuela FIPA" or the "FIPA").

Then, on October 9, 2014, another ICSID Tribunal (the "EM Tribunal") awarded the American oil and gas company Exxon Mobil an even greater monetary award – US$1.6 billion – against Venezuela. The claim was made under a bilateral investment treaty between the Netherlands and Venezuela (the "Netherlands-Venezuela BIT"), as one of the Exxon Mobil subsidiaries involved in the proceeding was incorporated in the Netherlands.

These two recent arbitration awards are among the many yet to arise out of actions taken by the government of former president Hugo Chávez against foreign companies operating in Venezuela. Currently, Venezuela has 26 pending cases against it before the ICSID. Despite the fact that Venezuela withdrew from the ICSID in January 2012, the ICSID may still have jurisdiction to hear claims against Venezuela depending on the wording of the bilateral investment treaties.

This bulletin will explain both awards as well as their importance for future investor-state arbitration cases.

Gold and Copper Mining: Gold Reserve Inc. v. The Bolivarian Republic of Venezuela

Background of the Case

Gold Reserve is a company incorporated in Yukon, Canada. In 1992 and 1993, an American predecessor to the company acquired a gold and copper project located in south-eastern Venezuela, which included the Brisas concession and the Unicornio concession (the "Brisas Project"). In 2008, after the company had invested approximately US$300 million in project development and was ready to start construction, the Brisas Project ran into problems with the Venezuelan government. In January 2009, Venezuela's former President Hugo Chávez announced the government's intention to take over the Brisas Project, as part of a plan to turn private concessions into joint ventures between the government and private firms. Subsequently, Venezuela suspended mining activities in the Brisas concession, terminated the Brisas and the Unicornio concessions, seized Gold Reserve's assets and occupied the site of the Brisas Project.

On October 21, 2009, Gold Reserve filed a claim with the ICSID for damages arising from violations of the Canada-Venezuela FIPA regarding the Brisas and Unicornio mining concessions. Gold Reserve claimed that Venezuela violated its obligations to provide fair and equitable treatment, most favoured nation treatment, and not to expropriate property without compensation. The company sought US$1.7 billion in compensation.

As is usual in these cases, Venezuela objected to the GR Tribunal's jurisdiction. Venezuela argued that Gold Reserve was not an "investor" under the FIPA because it was not a bona fide Canadian company but merely a shell company for the purposes of obtaining protection under the FIPA for its American parent. Venezuela also argued that Gold Reserve had not "made" an investment in Venezuela as it gained its shares in the Venezuelan company that directly owned the Brisas project through a restructuring rather than an outright purchase.

The GR Tribunal rejected both of Venezuela's objections, finding that there is no "genuine link" test in the FIPA; if a claimant company is incorporated in Canada, then it meets the "incorporation" test, and that the acquisition of shares through restructuring as opposed to purchase is sufficient for an investor to have "made" an investment.

GR Tribunal's Ruling

The GR Tribunal rejected Gold Reserve's claims that its rights were violated under the full protection and security, and expropriations obligations of the FIPA. However, it agreed Venezuela violated its right to "fair and equitable treatment" as provided by Article II(2) of the FIPA, and awarded Gold Reserve compensation on the basis of this violation.

In applying the fair and equitable treatment standard, the GR Tribunal looked first to Gold Reserve's legitimate expectations as to the continued validity of its concessions and that, when the time came, it would be able to obtain the necessary construction permits. An interesting facet of this case is that Gold Reserve was able to establish its legitimate expectations primarily through Venezuela's conduct during the history of the projects rather than through the more typical specific investment inducing, quasi contractual representation. Whether a government's conduct is considered to be fair and equitable is fact-dependent, and so the impact of the GR Tribunal's approach to the issue will have to be determined on a case by case basis.

The finding of a violation did not depend only on a violation of legitimate expectations, but was the cumulative effect of a series of actions and inactions on the part of Venezuela. In addition to finding a violation of the fair and equitable standard on the basis of Gold Reserve's legitimate expectations, the GR Tribunal relied on Venezuela's failure to provide Gold Reserve an opportunity to be heard, the failure of Venezuela to respect due process rights regarding the termination of the concessions, and the considerable evidence suggesting that Venezuela's actions were targeted and politically motivated rather than being a legitimate policy response to a matter of public concern.

Having found that "the number, variety and seriousness of the breaches make the fair and equitable treatment violation by [Venezuela] particularly egregious", the GR Tribunal reasoned that the compensation due to Gold Reserve for such breaches "should reflect the seriousness of the violation" and that "fair market value" was appropriate, as was the application of the "loser pays" principle for legal costs. In the end, Venezuela was ordered to pay US$713 million in damages plus interest and US$5 million for legal and technical costs.

Oil & Gas: Mobil Corporation et al. v. The Bolivarian Republic of Venezuela

Background of the Case

During the 1990s, Mobil Corporation (now ExxonMobil), ("Exxon Mobil"), made investments in the Cerro Negro and La Ceiba projects in Venezuela (the "Projects") through various subsidiaries. At that time, Venezuala had an "Oil Opening" policy to attract foreign companies that could provide the infrastructure to exploit untapped oil reserves. Under this policy, the state-owned oil company Petróleos de Venezuela, S.A. ("PDVSA"), offered reduced royalty and income tax rate rates within special agreements to make foreign investment more attractive. Despite these agreements, Venezuela increased the royalty and income taxes applicable to Exxon Mobil's investments in the Projects from 2004 to 2007. In 2007, Venezuela sought to migrate the Projects to new mixed companies that would transfer control to PDVSA. After Exxon Mobil did not agree to the terms Venezuela proposed, the State expropriated the Projects.

On September 6, 2007, Exxon Mobil brought an arbitration claim against Venezuela to the EM Tribunal, alleging that Venezuela had violated its rights to fair and equitable treatment and from expropriation without compensation under the Netherlands-Venezuela BIT. The company sought US$14.5 billion in compensation for the Cerro Negro project and US$179 million for the La Ceiba project.

EM Tribunal's Ruling

The EM Tribunal accepted Exxon Mobil's claim for a violation of its right to fair and equitable treatment in respect of production and export curtailments, but rejected it in respect of royalty increases and the expropriation itself. The EM Tribunal allowed Exxon Mobil's claim for expropriation.

Both parties agreed that the appropriate time to assess damages was June 27, 2007, the moment immediately after negotiations between the parties failed and before the expropriation. For Cerro Negro, the calculation also had to take into account an estimate of the discounted cash flow that would have been generated by the investment over its remaining life but for the intervention by Venezuela. The parties disagreed on specific facts including: net cash flow, volume of production, oil price, future revenues, effect of royalties and extraction tax, cost of operation and capital investment, special contributions, income tax, discount rate, and price cap. Since La Ceiba was still in a phase of development, the Tribunal ruled that the discounted cash flow method was inapplicable to the assessment of the quantum of damages for that interest. On valuation, the EM Tribunal stated:

"307. Article 6 of the BIT requires that "just compensation" be paid to the Claimants. Such compensation must "represent the market value of the investments affected immediately before the measures were taken or the impending measures became public knowledge, whichever is the earlier". In the present case, the market value must be determined immediately after the failure of the negotiations between the Parties and before the expropriation, i.e., on 27 June 2007, and it must correspond to the amount that a willing buyer would have been ready to pay to a willing seller at the time in order to acquire the expropriated interests.

308. With respect to Cerro Negro, the Parties agree that this evaluation must be made in accordance with a discounted cash flow (DCF) analysis for the Claimants' lost interests. Accordingly, the Parties have evaluated the net cash flows that would have been generated by the investment over its remaining life, i.e., until June 2035, and discount them to their present value. However, they diverge in their determination of the net cash flows and the discount rate."

Ultimately, Venezuela was ordered to pay a total of US$1.6 billion: US$9.042 million for the production and export curtailments, US$1.4 billion for the expropriation of Cerro Negro project, and US$179.3 million for the expropriation of La Ceiba project, plus interest.

The award takes into account the amount awarded to Exxon Mobil in a 2012 settlement at the International Chamber of Commerce, as Exxon Mobil was not entitled to double recovery fee for the same loss.

What is the Importance of these Awards for Future Cases?

These cases reaffirm that investment treaties provide investors some protection from political risk by enabling them to get enforceable, even insurable judgments for gross violations of the standards of treatment expected of states in international law. They also provide some guidance to investors on how to access the protections these investment treaties offer.

In particular, they also show:

  • international investments can be structured to take advantage of the protections offered by investment treaties;
  • the importance of determining what specific representations an investor should be looking for to enhance the protections offered by the treaty;
  • the importance of keeping track of interactions with the state over the project's life; and
  • the importance of being an upstanding corporate citizen to risk mitigation efforts. (Neither case involved significant claims by Venezuela that its conduct was justified because of the investor's misdeeds).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.