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The MINCA By-laws also included an article by which the shares belonging to one of the shareholders could not be sold before they had first been offered to the other shareholders, which means that any such transfer also needed a kind of implied authorization of the other shareholder, constituted by its refusal to buy the shares. Article 9 of the MINCA By-laws ...
Clause Twenty Eighth of the Work Contract stipulated that “the parties may not assign in any manner this agreement
except by prior written approval of the other party.” Article X (Assignment; Binding Effect) of the 1997 Amended Shareholders’ Agreement made by CVG and Placer Dome stipulated: (already on previous slide) "Unless otherwise provided herein, the parties cannot assign their rights or delegate their obligations hereunder without the other party’s prior written consent. This Amended Agreement shall be binding upon and inure to the benefit of each contracting party, and their permitted assignees."
In Tribunal's understanding the fact that an assignment “in any manner” was forbidden unless prior written consent was obtained from the other party -> means that an assignment could not be made indirectly by a change
of the owner of the shares of MINCA.
to insert another company in its place. But Placer Dome did not present CVG with the price of the deal with Vannessa, before it was completed and allow 30 days for CVG to meet that price.
->the unavoidable conclusion being that the whole operation had to remain inside the joint venture between Placer Dome and CVG, without the introduction by either party - of a new party without the consent of the other party.
-> The Extension Agreement had a very clear purpose: to grant the parties time “to find an investor interested in participat[ing] in MINCA and/or in the Project” and to do so “by mutual agreement”. [193]
->Thus, the Extension Agreement, which necessarily modified the Work Contract, spelled out that Placer Dome and the CVG would work together to find either an entirely new party to replace Placer Dome, or a third party to join Placer Dome and CVG in the Project. [194]
With time running out on the temporary suspension of the project, Placer Dome entered into secret negotiations with Vannessa Ventures, a Vancouver-based company. CVG was not consulted on those negotiations, and it was not until after a deal had been struck that CVG was informed-> CVG viewed this acts as "unpleasant and insincere" and citing a number of contractual obligations moved to rescind the work contract and concessions attached to the Cristinas mine.
->The failure of Placer Dome to work mutually under the Extension Agreement -> to insert a new investor
provided a legitimate basis upon which CVG could terminate the Work Contract. In other words, the term on which the one-year extension was granted -> was breached by Placer Dome and hence the Extension Agreement was voided. [196]
-> Such a violation of the Extension Agreement amounts to a breach, rendering Venezuela’s subsequent decision to terminate the Work Contract both justified and legitimate. It destroyed the basis of the relationship upon which the exploitation of Las Cristinas by CVG and its partner in the project was premised. [200]
I thought it could be useful to quickly refresh what expropriation is and what types we know.
The process of expropriation for example "occurs when a public agency (for example, the provincial government and its agencies, regional districts, municipalities, school boards and utilities) takes private property for a purpose deemed to be in the public interest".
There are 2 types of expropriation: de facto (direct) and indirect expropriation.
-expropriation is permitted - but if you expropriate -> there is an obligation to pay compensation...
Both direct and indirect expropriation are treated in the same way ->that means they have the same consequences: expropriation means that there is an obligation to pay compensation.
If there is no expropriation then there is no obligation to pay compensation (as was the case here, but about that later)
The exception is if there are non-discriminatory measure of general application, which the governments will normally take for purpose of regulating economic activity in their territory.
To sum it up: expropriation as such is not illegal (therefore is legal) as long as certain conditions are met, and these conditions are that it must be done in non-discriminatory manner, it must be compensated and it must be in public purpose.
- Was VVL's acquisition of PDV not 'in accordance with Venezuelan law' because it violated a number of contracts, and hence not a protected investment under the BIT ?
NO -> The qualification that an investment must be 'in accordance with Venezuelan Law' refers to public law, not private contractual relations between private parties.
- Did CVG's termination of MINCA's right to exploit the gold and copper deposits constitute an unlawful expropriation ?
NO -> because VVL and Venezuela agreed on the standard for an indirect expropriation involving the termination of a contract by an agency of the State. In such circumstances, an indirect expropriation may only occur where the State steps outside of its role as a contracting party and terminates or interferes with the contract on the basis of it sovereign authority.
-> However, in this case the Corporación Venezolana de Guayana acted in accordance with its contractual rights to terminate MINCA's ability to exploit the gold and copper deposits -> therefore it was an appropriate response to the contractual breaches.
2000
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the legal basis for this case was the Canada-Venezuela BIT
-Vannessa Ventures (VVL) brought a claim against Venezuela alleging expropriation of its investment in a Venezuelan mining joint venture project, the claim was made for both Gold and Copper Rights but the Tribunal said that these two were so interrelated and interdependent that they can be considered together and thus that Copper was also covered under the Work Contract - so both Gold and Copper rights were dealt with at the same time.
Vannessa argued that contractual rights could be considered expropriated when “the State has gone beyond its role as a mere party to the contract and relied on its superior governmental power.” However, tribunal added that “in order to amount to an expropriation under international law, it is necessary that the conduct of the State should go beyond that which an ordinary contracting party could adopt.”
-the claim was rejected by the Tribunal, which found that Venezuela's actions were legitimate responses to the breaches of the contract.
Background
-Vannessa acquired its share in the mining project from another Canadian firm, Placer Dome, for a nominal fee of $50. Earlier, Placer Dome had entered into a joint venture with Corporación Venezolana de Guayana (CVG), a state agency. Under a shareholders agreement, Placer Dome and CVG formed a company called MINCA for the exploration and extraction of gold from the Las Cristinas mine.
-Shortly after the mine was inaugurated in 1999, Placer Dome sought to suspend the project on the basis that it was economically unfeasible at a time of low gold prices. CVG agreed to a temporary suspension (Extension Agreement) while a search was conducted for a new investor. That search proved difficult, however, and the parties failed to secure a willing investor.
The factor of central importance: the process by which Placer Dome was selected that the identity and specific experience and characteristics of Placer Dome were material factors in its selection as the foreign investor in the Las Cristinas project.
--> There is no basis on which it could reasonably be supposed that Venezuela was indifferent to the identity or the technical and commercial characteristics and experience of its partner in the Las Cristinas project, or that it would be consistent with the nature of the relationship as understood by the Parties simply to substitute one company for another in that role without Venezuela's consent.
->both Shareholders’ Agreements included an article restricting the transfer of the rights of their signatories under them. In the 1991 Shareholders’ Agreement, entered into between Placer Dome and CVG, Article V.D. stated:
"Except as otherwise provided in this Agreement, neither party may assign any of its rights or delegate any of its duties under this Agreement without first obtaining the prior written consent of the other party which shall not be unreasonably withheld. This Agreement shall enure to and be binding upon each of the parties hereto and their respective successors and permitted assigns."
In the 1997 Shareholders’ Agreement, entered into between Placer Dome, PDV, and CVG, Section 10.01 stated:
"Unless otherwise provided herein, the parties cannot assign their rights or delegate their obligations hereunder without the other party’s prior written consent. This Amended Agreement shall be binding upon and inure to the
benefit of each contracting party, and their permitted assignees."
!!!*****key contractual obligations summary -on normal presentation!!!!
It is well established that, in order to amount to an expropriation under international law, it is necessary that the conduct of the State should go beyond that which an ordinary contracting party could adopt. In the present case, those measures were all consequent upon the initial termination of the Work Contract – as was the physical occupation of the Las Cristinas site by CVG.
Claimant has not shown that Respondent’s actions were more than legitimate contractual responses to what the Tribunal considers contractual breaches.
The tribunal said that the notice of breach, invoked 3 contractual breaches of MINCA:
(1) the violation of its obligation to submit detailed reports to CVG;
(2) failure to resume work on the mine, after the expiration of the last extension on July 15 in 2001;
(3) the entry into a transaction with Claimant for the transfer of all of the shares of MINCA “thus contravening express contractual provisions contained in Clause Twenty-fifth [in fact, Twenty Eighth] by virtue whereof it was bound to obtain due written authorization by CVG.
The Tribunal did not consider the termination of the Work Contract as rising the "high threshold" which separates a contractual dispute from a violation of a treaty obligation on expropriation. The claim that Venezuela has violated Article VII of the Canada-Venezuela BIT by the termination of the work contract and steps consequential upon that were accordingly rejected.