A coup against arbitration

Near the close of business on Friday, October 17, the Constitutional Chamber of the Supreme Tribunal of Justice (TSJ) surreptitiously gave another legal coup.

Complying with the wishes of the President and after resorting to over-elaborate reasoning, the Constitutional Chamber decided that no arbitration, mediation, conciliation or any other form of dispute settlement would be binding on the VenezuelanState unless previously authorized by the government. This decision is in response to a petition for an interpretation of Article 258 of the 1999 Constitution filed by a group of lawyers sympathetic to the government, among them former justice Hildegard Rondón de Sansó.

Once again, the TSJ has disregarded the Constitution or interpreted it in line with Hugo Chávez’s wishes and objectives. The constitutional rule violated on this occasion establishes that “the law will promote arbitration, conciliation, mediation or any other alternative means for settling disputes.”

In the view of the justices of the Constitutional Chamber, the word “promote” does not imply accepting this mandate or making it compulsory or binding.

Apart from the fact that this interpretation looks biased, it seems that consideration was not taken of the fact that Venezuela is signatory to several international treaties that have binding clauses on arbitration, provided the contracts in question contain such a provision. These treaties include those of the InternationalCenter for Settlement of Investment Disputes (ICSID), the World Bank, and the United Nations Commission on International Trade Law (UNCITRAL)

Now, with this decision, Hugo Chávez, the president of PDVSA, Rafael Ramírez, and former justice Rondón de Sansó can brag saying that the decisions handed down by international courts that do no suit their interests are either unconstitutional or not valid in Venezuela and, therefore, they will not abide by them.

But no matter how much they want to ignore it, the point is that Venezuela is under the obligation to accept the decisions of international arbitration courts in the disputes currently under way, among them those of ExxonMobil, Conoco Philips, and Vanessa Ventures, with whom the Venezuelan State signed contracts in which arbitration clauses have been included by mutual accord of the parties.

Were the Venezuelan Government to insist on disregarding the decisions handed down by the arbitration courts, there is a small problem it would find it difficult to solve: the other signatory countries of those treaties would acknowledge and abide by them. Consequently, Venezuela runs a serious risk in the event of a decision in favor of ExxonMobil, Conoco Philips or Vanessa Ventures for having improperly appropriated their assets. For example, PDVSA or any other state-owned company could be liable to confiscation measures abroad against oil tankers on the high seas, vessels loaded with aluminum, bank accounts or facilities outside Venezuela (e.g. Citgo).

That the government and its acolytes in the magistracy think that disregarding the decisions handed down by international arbitration courts will have no negative consequences for the country is naïve, not to say downright irresponsible. Sooner or later, the VenezuelanState will have to respond for the arbitrary actions and illegalities committed by those who today govern the country.