By: José Henrique D’Apollo,1José Henrique D’Apollo is a principal in Baker & McKenzie’s Caracas office who specializes in litigation and arbitration. He also has vast experience in corporate and civil law in commercial and civil litigation. Gabriel De Jesús2Gabriel De Jesús is a local partner in Baker & McKenzie’s Caracas office who specializes in litigation and arbitration. He also has experience in civil and commercial litigation. and Johanan Ruiz3Johanan Ruiz is a senior attorney in Baker & McKenzie’s Caracas office who specializes in litigation and arbitration. He has experience in civil and commercial litigation
A. Legislation, Trends and Tendencies
A.1 Legislation
Commercial arbitration in Venezuela continues to be governed by the Law on Commercial Arbitration (LCA) (7 April 1998; Official Gazette No. 36.530) based on the UNCITRAL Model Law. The LCA governs domestic and international arbitration.
Foreign arbitral awards continue to be enforceable in Venezuela without need for an exequatur. Enforcement may only be denied for the reasons provided for in Article 49 of the LCA.
Venezuela is a party to the following treaties relating to arbitration: the New York Convention; the Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, and the Panama Convention. It became a member of Mercosur on 12 August 2012. On 30 July 2012, the National Assembly passed the Law Approving the Amendment of the Los Olivos Protocol for the Settlement of Disputes signed in Brasilia on 19 January 2007. According to the provisions of the Protocol in force, the State of Venezuela and its individuals, through the procedures established, can access this mechanism for the settlement of disputes arising in the interpretation and application of the Mercosur rules.
In relation to investment arbitration, Venezuela withdrew from ICSID on 24 July 2012. However, ICSID arbitration is still applicable for: (a) contracts in which the parties expressly agreed to that remedy; and (b) cases concerning BITs that specify ICSID for the resolution of investment disputes.
B. Cases
B.1 Piercing the Corporate Veil
In a pending ICC case, after the submission of the arbitral request, the plaintiff filed a Request of Addition on the basis of Article 7 of the ICC Rules to add the shareholders of the defendant company to the arbitration, based on the application of the theory of piercing the corporate veil. The plaintiff alleged that the shareholders were the beneficiaries of the activities of the defendant company and, therefore, must answer for the latter’s breaches. The shareholders opposed this request, alleging that: (i) since the shareholders had not executed the arbitration agreement, they did not have capacity to be sued in the arbitration; (ii) the shareholders had not participated in the preparation and execution of the agreement that was the object of the complaint, nor did they take part in the gas project; and (iii) Venezuelan law establishes a separation of legal personalities and of patrimonies between the company and its shareholders, so that each of them should individually answer for its own obligations.
Pursuant to Articles 6.3 and 6.4 of the ICC Rules, the shareholders requested that the General Secretary Office of the Court remand the Request of Addition to the court to decide prima facie. The court decided to leave to the Arbitral Tribunal the decision as to whether or not to consider the shareholders as parties. This decision is expected to be issued as part of the final arbitral award.
C. Costs in International Arbitration
C.1 Allocation of Costs
The LCA establishes two rules concerning the final allocation of costs in arbitration. Firstly, Article 20 of the LCA provides that “the costs of the arbitration will be established by the arbitral tribunal in the award, which will also decide who will be in charge of covering such costs and the corresponding proportion.” This provision applies to the merits phase of the case and must be applied in ad hoc arbitration when the parties have not agreed anything else in this respect. It may also be applied to institutional arbitration when the parties so agree expressly, all in accordance with Article 15 of the LCA.
Thus, Venezuelan arbitration law has conferred on the arbitrators full discretionary powers to decide on the allocation of the arbitration costs between the parties, according to the particulars of each case. The rules of the main arbitration centers in Venezuela contain provisions that grant the same discretionary powers to the arbitrators to decide on the allocation of costs.
In general, the procedural rule on costs applicable to the majority of the lawsuits before Venezuelan courts is that a party that has lost its case in its entirety must bear all the costs of the procedure, including the lawyers’ fees of the winning party. If the loss is not total but partial, then each party must bear its respective costs. This procedural rule, although not compulsory in arbitration proceedings except by express agreement of the parties, will inevitably influence the opinion of the arbitrators when exercising the power to allocate costs established in Article 20 of the LCA.
The second rule of the LCA on the allocation of costs in arbitration is that found in Article 46, which is compulsorily applicable by Venezuelan courts at the end of the nullity procedure against an arbitration award. This rule establishes that in a nullity appeal, “when any of the causes alleged is accepted, the appeal will be dismissed, the appealing party will be ordered to pay court costs and the award will be deemed of compulsory compliance for the parties.” In other words, a person requesting the nullity of an award before the competent courts of Venezuela will be ordered to pay the costs of the appeal, unless at least one of the causes for nullity is accepted. This order will be for 100 percent of the costs and expenses which the other party had incurred in the defense of the arbitration award. This provision cannot be revoked by an agreement between the parties.
C.2 Security for Costs
The LCA provides for two cases in which the ordinary courts should request a bond or guarantee by way of security for costs, and a third case in which the arbitral tribunal is empowered to request it if the tribunal considers it necessary.
The first case is provided in Article 43 of the LCA, pursuant to which the filing of a nullity appeal before ordinary courts does not suspend the enforcement of the award, except if, at the request of the appealing party, the Superior Court so decides “after the posting of a bond by the appealing party to guarantee the enforcement of the award and the eventual damages in case the appeal was rejected.”
The second case is provided in Article 45 of the LCA, which provides that “the writ by means of which the Superior Court accepts the appeal will determine the bond that the appealing party must post to secure the outcome of the proceedings. The term to post the bond must be ten (10) court working days as of the issuance of such writ. If the bond is not posted or the appeal is not supported, the court will not accept the appeal.”
The third case is established in Article 26 of the LCA, which provides that, except by agreement on the contrary between the parties, the arbitral tribunal may issue the precautionary measures it deems necessary concerning the object of the litigation. The Arbitral Tribunal may request sufficient guaranty by the requesting party. In this case, unlike those above, the requirement of guaranty is a discretionary power of the arbitral tribunal; that is, it is not compulsory.
It is important to point out that the rules of the arbitration centers also establish the power of the arbitrators to “revoke, annul, broaden or modify the order of injunction. This decision must be subject to the affected party posting a bond or guarantee that the court deems sufficient,” as provided by Article 35 of the Rules of the Arbitration Center of the Caracas Chamber.
C.3 Recovery of Costs
LCA does not have express regulations on the recovery of costs; however, it does contain an additional regulation concerning arbitration costs, which are divided in general terms into arbitrators’ fees and administrative fees. The rules of the main arbitration centers of the country also include costs incurred during the trial of the case, such as the costs of experts’ reports, which must be borne, in principle, by the requesting party.
Pursuant to the LCA, it is our understanding that the parties are fully autonomous and therefore may include in their arbitral agreement any provision related to items that may be related to the payment of costs.