October 15, 2012

Venable Successfully Represents Paraguay in International Arbitration

3 min

Washington, DC (October 12, 2012) – Venable LLP has obtained an important victory for the Republic of Paraguay in an international arbitration before a three-person tribunal of the International Centre for Settlement of Investment Disputes (“ICSID”) in Washington, DC.  The case is Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. The Republic of Paraguay.

The Venable team was led by Brian Dunning, from Venable’s New York office, and included associates Irene Ribeiro Gee and David Cinotti.

The matter concerned an agreement between BIVAC, a Dutch company, and Paraguay.  In 1996, Paraguay hired BIVAC to inspect goods that were being exported from foreign countries to Paraguay.  Paraguay and BIVAC signed a contract.  In July 1999, the parties agreed to terminate the contract and end the inspections.  BIVAC claims that Paraguay owed it approximately $22,000,000 at the time of termination, plus interest accruing from 1997.

In 2007, BIVAC claimed that commenced arbitration against Paraguay before ICSID.  BIVAC argued that by failing to pay BIVAC under the contract, Paraguay was in breach of international legal obligations found in the bilateral investment treaty (BIT) between the Netherlands and Paraguay.

Specifically, BIVAC claimed that Paraguay breached provisions of the BIT requiring it to (i) observe its obligations forward BIVAC’s investment (under what is known as “umbrella clause”); (ii) to treat BIVAC’s investment fairly and equitably; and (iii) not to expropriate investments without just compensation.

In an earlier decision dated May 29, 2009, the Tribunal dismissed BIVAC’s expropriation claim and found that, while its umbrella clause claim was within its jurisdiction, it was not admissible because the parties’ contract required them to litigate contract disputes in the courts of Asunción, Paraguay.  The tribunal found that it had jurisdiction over, and admitted, BIVAC’s claim for unfair, inequitable, treatment of its investment.  These claims were the subject of hearings in Washington in July, 2011.  BIVAC claimed total damages and interest of more than $63,000,000.

On October 9, 2012, the Tribunal issued its “Further Decision on Objections to Jurisdiction.”  In the Further Decision, the Tribunal found that Paraguay’s alleged failure to pay did not constitute unfair and inequitable treatment under the bilateral investment treaty.  The Tribunal concluded that BIVAC had only alleged a contract dispute, while breach of treaty requires abuse of sovereign authority in which Paraguay did not engage.

Commenting on the decision, Brian Dunning, of Venable, said, “We are pleased that ICSID rendered this positive decision.  It reinforces the idea that, while important, bilateral investment treaties have limitations, and should not be relied upon to avoid contractual forum clauses.”



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