International Arbitration Newsletter - June 2020 | Regional Overview: The Americas

PERU

Lima loses toll road arbitration

The Peruvian municipality of Lima has been held liable in the arbitration initiated by the consortium of Rutas de Lima, originally owned by the Brazilian construction company Odebrecht, over a toll road concession.

An UNCITRAL tribunal has ordered Lima to pay approximately US$ 67 million in compensation for the non-collection, from late December 2016 to late October 2018, of the US$ 5.50 Peruvian dollar fee at the toll stations in Chillón, in the northern Lima district of Puente Piedra.

Rutas de Lima signed in 2013 a 30-year concession contract with the municipality of Lima to expand and build a 115-kilometre stretch of road. The concession was later extended to allow Rutas de Lima to build a toll on the Chillón bridge.

This move  sparked a violent protest against the collection of tolls in this station, which led the mayor at the time, Luis Castañeda Lossio, to suspend the collection of fees between the dates mentioned. However, he failed to reach a compensation agreement with Rutas de Lima, prompting the concessionaire to launch its claim in 2017 seeking around US$ 75 million.

In its award, in addition to ordering Lima to pay compensation, the court dismissed a counterclaim from the municipality that the toll concession had been granted to Rutas de Lima as a result of corruption and without the required agreement of the Peruvian Ministry of Economy, and was therefore invalid.

UNITED STATES

US court clears sale of Venezuelan state-owned company

The U.S. District Court for the District of Delaware has decided to lift the stay it had imposed on a writ of attachment against PDV Holdings in favor of Canadian mining company Crystallex. The decision comes after the U.S. Supreme Court declined to hear the appeal of the lower court ruling filed by the Guaidó government and PDV Holdings’ owner Petróleos de Venezuela, S.A. (PDVSA).

This decision opens the door to the beginning of the proceedings for the judicial sale of the shares of Venezuelan state-owned Citgo Petroleum (Citgo), a subsidiary of PDV Holdings. However, in order to proceed with the sale of Citgo, Crystallex must now obtain a license from the U.S. Treasury Department, which prohibits creditors from seizing Venezuelan property without authorization.

In these proceedings before the U.S. courts, Crystallex is seeking to collect an ICSID US$ 1.2 billion award against Venezuela for the loss of its rights to one of the world's largest undeveloped gold deposits.

At the time the award was issued, Citgo and PDV Holdings were then under the control of Venezuelan president Nicolás Maduro, but they are now run by Guaidó.

MEXICO

Investors prepare a legal battle against Mexico over restrictions on renewable energy production imposed in response to the Covid-19 pandemic

In early May 2020 the Mexican government decided to impose restrictions on renewable energy production based on an alleged drop in energy demand as a result of the pandemic. Specifically, the National Center for the Control of Energy (CENACE) passed a resolution imposing restrictions on 44 wind and photovoltaic energy projects by private investors that were ready to be connected to the grid and giving preferential grid access to non-renewable electricity generation facilities. Subsequently, pre-operational testing of those projects that are still under construction was also suspended.

Furthermore, the Ministry for Energy passed a second resolution giving Mexico’s state-owned Federal Electricity Commission (CFE) a more “proactive” role over planning in the electricity sector.

Mexican authorities justified these measures stating that the low energy demand, caused by the coronavirus pandemic –which has forced the country to shut down vast swathes of its economy–, gave priority to energy production through conventional generation with hydrocarbons from its state energy company.

As a result of these measures, many investors are considering filing investment treaty claims against Mexico as the restrictions imposed by Andrés Manuel López Obrador’s government strengthen state control over the electricity industry and are considered contrary to many of the investment treaties signed by the country.

Venezuela

A French judge sets aside an arbitration award against Venezuela

A French court has set aside a 2014 UNCITRAL award that upheld jurisdiction over claims by Serafín García Armas and his daughter Karina García Gruber against Venezuela for the expropriation of the companies Alimentos Frisa, C.A. and Transporte Dole, C.A.

The reason for annulment is that the plaintiffs, who have dual Spanish and Venezuelan nationality, did not have Spanish nationality at the time they made the investment.

The arbitration was initiated in 2012 invoking the 1995 Spain-Venezuela Bilateral Investment Treaty (BIT), under the UNCITRAL rules and administration of the Permanent Court of Arbitration. The object of the lawsuit originated in 2010 when the infrastructure and assets of the claimants were occupied and confiscated by Venezuelan officials.

In the award, dated April 2019, the Tribunal granted US$ 214 million for indirect expropriation, failure to comply with fair and equitable treatment including denial of justice, and discriminatory, arbitrary and unjustified measures.

The review by the Paris Court of Appeal has finally ruled that the award be set aside, as it found that the arbitrators had departed from the “cumulative and indivisible” requirements of the BIT by failing to consider whether the claimants had Spanish nationality at the time they made their investments.