Exxon Blocked from Enforcing Venezuela Arbitration Award

(CN) – An ExxonMobil subsidiary cannot enforce a $188 million arbitration award against Venezuela for nationalizing its oil industry without complying with the notice requirements of the Foreign Sovereign Immunities Act, the Second Circuit ruled.

In 2014, the World Bank’s International Center for Settlement of Investment Disputes (ICSID) ordered Venezuela to pay Mobil Cerro Negro, an ExxonMobil subsidiary, $1.6 billion in compensation for the 2007 takeover of Venezuela’s oil industry by its late leader Hugo Chavez.

The billion-dollar award was reduced in March to $188 million by an ICSID annulment committee.

Mobil Cerro Negro sued to collect the award in U.S. federal court a day after it was entered, but Venezuela raised a jurisdictional argument, arguing that the Foreign Sovereign Immunities Act supersedes the statute that created the ICSID a decade earlier.

A federal judge rejected Venezuela’s argument, concluding that he had subject matter jurisdiction under certain exceptions to sovereign immunity recognized in the FSIA, and denied Venezuela’s motion to vacate the judgment.

But the Second Circuit reversed the decision on Tuesday.

“We reject Mobil’s argument that Section 1650a [the statute enabling U.S. participation in the ICSID] provides an independent grant of subject-matter jurisdiction for actions against foreign sovereigns and decide that the FSIA provides the sole basis for subject-matter jurisdiction over actions to enforce ICSID awards against a foreign sovereign,” U.S. Circuit Judge Susan Carney said, writing for the unanimous three-judge panel.

The FSIA, enacted in 1976, creates a comprehensive regime for ensuring that U.S. courts approach issues of foreign sovereignty with consistency, and does not significantly conflict with the ICSID’s more narrow goal of streamlining the enforcement of arbitration awards.

“ICSID award-creditors must pursue federal court judgments to enforce their awards against a foreign sovereign by filing a federal action on the award against the sovereign, serving the sovereign with process in compliance with the FSIA, and meeting the FSIA’s venue requirements before seeking entry of a federal judgment, whether through a motion for judgment on the pleadings or for summary judgment,” Carney said.

Because Mobil Cerro Negro failed to comply with the FSIA’s notice requirements, the lower court lacked jurisdiction over its suit to enforcement the judgment, the court ruled.

%d bloggers like this: