Venezuela: Watch Your Choice Of Law Clause: The World Bank Annuls A $1.4 Billion Damages Award

In Venezuela Holdings et al v Bolivarian Republic of Venezuela ("Venezuela Holdings")1 an ad hoc Committee for the World Bank's International Centre for Settlement of Investment Disputes ("ICSID") nullified part of an arbitration award issued by an ICSID Tribunal that required the Government of Venezuela to pay $1.4 billion to certain subsidiaries of ExxonMobil (collectively, "ExxonMobil"). The arbitration award largely reflected compensation resulting from the nationalization one of ExxonMobil's oilfield projects in 2007. However, on appeal the Committee held that the Tribunal erred in its approach to a price cap to compensation, which rendered the arbitral award a nullity. Venezuela Holdings, therefore, marks a victory for resource-rich governments and sends a cautionary note to foreign investors.


In the mid-1990s, ExxonMobil agreed to work with Venezuela's state-owned oil and natural gas company to explore and develop oil fields in two regions known as La Ceiba and Cerro Negro. This cooperation was formalized by way of association agreements. The Cerro Negro association agreement was governed by the Cerro Negro Framework of Conditions (the "Framework of Conditions"), which was approved by the Venezuelan Congress in 1997.

In 2007, the Government of Venezuela nationalized ExxonMobil's Cerro Negro and La Ceiba projects, as well as other projects in the Orinoco Oil Belt. After negotiations failed to result in a viable business arrangement moving forward, in September 2007 ExxonMobil filed a Request for Arbitration with the ICSID. ExxonMobil claimed US $14.5 billion as compensation for the Cerro Negro project, and $179 million for the La Ceiba project.2

Tribunal Decision

The Tribunal held that the nationalization was lawful, but that ExxonMobil was entitled to "just compensation" in accordance with the Netherlands-Venezuela Bilateral Investment Treaty (the "BIT").3 Based on a discounted cash flow analysis, the Tribunal awarded ExxonMobil approximately $1.4 billion in damages for nationalization of the Cerro Negro project, and $179 million for the La Ceiba project.4

In reaching its conclusion, however, the Tribunal appears to reject an argument by Venezuela that the damages award for the Cerro Negro project was limited by a price cap contained in the Framework of Conditions. The Tribunal reasoned that Venezuela could not rely on the Framework of Conditions, a creature of national law, to evade its duties to compensate ExxonMobil under the BIT, an international treaty.5

Committee Decision

Venezuela applied to annul the quantum of damages awarded to ExxonMobil in respect of the Cerro Negro project on the basis that the Tribunal failed to apply the price cap contained in the Framework of Conditions.6 For its part, ExxonMobil sought to uphold the Tribunal's decision, including the Tribunal's finding that the price cap did not apply.

The Committee agreed with Venezuela and annulled the $1.4 billion damages award. The Committee noted that the choice of law clause in the BIT required any arbitral award to be based on, inter alia, "the law of the Contracting Party concerned".7 As such, the BIT required that Venezuelan law, including the price cap as found in the Framework of Conditions, be taken into account when making an arbitral award. By failing to do this, the Tribunal had decided the quantum of ExxonMobil's compensation not within the context of the BIT, but rather on an undefined "justiciable obligation" flowing from international law.8 Therefore, in the Committee's view, the Tribunal "manifestly exceeded its powers" and the damages award was annulled.9


Venezuela Holdings marks a victory for resource-rich governments. More particularly, it shows that in certain circumstances an arbitral award is based not only on treaty obligations but also on obligations flowing from national law. National laws, which tend to favour the state, may include a price cap on compensation resulting from nationalization. As such, foreign investors are well-advised to consider how their rights may be curtailed by broad choice of law clauses that may import onerous national laws.


[1] ICSID Case No ARB/07/27 [" Committee Decision"].

[2] In addition to compensation for the nationalization, part of the requested compensation flowed from allegations that the Government of Venezuela had breached royalty agreements, unilaterally changed the royalty rates, imposed new income taxes, and curtailed production and exports.

[3] ICSID Case No ARB/07/27 at paras 306-307 [" Tribunal Decision"].

[4] The Tribunal also awarded ExxonMobil $9 million in compensation for production and export curtailments imposed on the Cerro Negro projects in 2006 and 2007.

[5] Tribunal Decision, supra note 3 at 224-225.

[6] The Government of Venezuela also applied to annul the Tribunal's decision on the basis of two procedural grounds, which the Committee dismissed.

[7] Committee Decision, supra note 1 at para 154.

[8] Ibid at paras 181, 186-188.

[9] Ibid at para 188.

To view original article, please click here.

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.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions