On 24 April 2018, the ICC arbitral tribunal seated in New-York issued a final award in the case between two Claimants, Phillips Petroleum Company Venezuela Limited, Conocophillips Petrozuata B.V. and the three Respondents, namely Petroleos De Venezuela, S.A., Corpoguanipa, S.A., PDVSA Petroleo.
The dispute arose 11 years ago following a change of the Venezuela’s policy in the oil industry. Specifically, Claimants and Respondents established two joint ventures in the framework of the Petrozuata Project and the Hamaca Project concerning the Orinoco Oil Belt. In order to achieve this, PDVSA Petróleo, the third Respondent, and CPZ, predecessor of the second Claimant, signed the Petrozuata Association Agreement in 1995. Two years later, in 1997, Corpoguanipa, the second Respondent, and Phillips Petroleum Company Venezuela Limited, the first Claimant, concluded the Hamaca Association Agreement. Besides, the second and the third Respondents are subsidiaries of the first Respondent, Petroleos De Venezuela, S.A. (“PDVSA”), which is a state-owned and controlled national oil company. These two projects, authorized by Venezuela’s Congress, were launched within a new national campaign of attracting foreign investors by providing financial incentives after the nationalization occurred in 1975 (so called Oil Opening time). Moreover, taking into account that nationalization, both projects relied on legal guarantees against unjust and discriminatory measures of the concerned PDVSA subsidiary in the form of compensation. In 1998, the newly elected President was opposed to the policy of Oil Opening. As a result, some of financial incentives were altered and later, in 2007, the Claimants were dispossessed of their interests in the projects by a new nationalization decree. The Claimants argued that the Respondents had failed to comply with their obligation to compensate, as specified by the relevant agreement, for discriminatory actions. They added that independently of the first ground, the Respondents were liable under Venezuelan law for a willful breach of the contractual obligations and guarantees related to both projects.
The arbitral tribunal decided in favour of the Claimants. First, it verified if the contested measures concerning the expropriation, taxes and royalties were discriminatory. Then, it analyzed whether they are unjust for causing significant economic damages or material adverse effects in conformity with the relevant agreement. The arbitral tribunal also examined the notification requirement on the alleged discriminatory actions and the compliance with the Claimants’ obligation to exhaust alternative remedies. In particular, it accepted the claims related to the expropriation and the income tax increase and refused to qualify as discriminatory actions the other invoked measures. It also found that the Respondents had been duly notified about claims on discriminatory actions and Claimants have resorted to an ICSID arbitration considered as an alternative remedy. Therefore, Respondents are liable to compensate the Claimants for the concerned discriminatory actions (including interest), plus post-award interest. Second, the arbitral tribunal rejected the Claimants’ allegations of a willful breach of the contractual undertakings by the Respondents. Finally, it concluded that each Party should bear its own legal fees, costs and expenses and fees. The arbitration expenses were divided between the parties.