Yes, it is a positive that demonstrates ICSID is the place to have a dispute settled when using a BIT as a basis.

Exxon Mobil is using the Netherlands BIT as a basis for the ICSID case. They restructured Venezuelan assets in 2006, that is why nothing prior to 2006.

One other point, Exxon ALSO has an ICC case that is pending. The ICC case was wrapped up fall of last year. The ICSID case ($7B) will be a while unless settled early. I really don't understand why the media publications don't represent this correctly.

Conoco had their ICSID case final hearing last June (2010) so most expect a decision in the near future.

Publication

Mobil v. Venezuela Decision Advises Early Treaty Planning
V&E International Dispute Resolution E-communication, June 30, 2010

By Teresa Cigarroa Keck

An ICSID arbitration tribunal recently issued a decision in Mobil Corporation, Venezuela Holdings, B.V., et al. v. Bolivarian Republic of Venezuela endorsing ExxonMobil’s restructuring of its investments in Venezuela as a “perfectly acceptable” way for a foreign investor like ExxonMobil to access all of the protections of a favorable investment treaty. ExxonMobil’s first-round victory in its campaign to recover the loss of its expropriated interests in Venezuela serves to caution investors that latter-day restructuring has an expiry date. Although there are occasions when an investor may be forced to restructure its holdings after a dispute with a foreign state arises, the best course is to plan for investment-treaty protection at the outset.

Treaty Planning in Practice
In the mid-1990s, ExxonMobil, through American and Bahamian subsidiaries, invested in projects for the exploration of oil and for the production and upgrading of extra-heavy crude oil in Venezuela's Orinoco River Basin. After Venezuela’s 2004 increase in royalty rates, ExxonMobil interposed a Dutch holding company into its Venezuela holding structure. This move was complete by 2006. In 2007, Venezuela expropriated ExxonMobil’s investments.

The change in holding companies was critical. The initial corporate structure for ExxonMobil's investments in Venezuela (U.S.-incorporated Mobil controlling American and in turn Bahamian “downstream subsidiaries”) offered no protection against Venezuela’s wrongful acts. This was because neither the U.S. nor the Bahamas has a bilateral investment treaty (BIT) with Venezuela. Interposing a Dutch company gave ExxonMobil protection because the Netherlands does have a BIT with Venezuela. In addition to providing a cause of action for expropriation, the restructure allowed the ExxonMobil subsidiaries access to international arbitration, so as to protect against future adverse measures. Indeed, because the Dutch company was just below the top entity in the holding structure, its American and Bahamian “downstream subsidiaries” also had protection.

Pre-dispute Restructuring Supports a Tribunal's Jurisdiction
ExxonMobil claimed that the ICSID tribunal had jurisdiction over its claims under Venezuela’s Investment Law and the Netherlands-Venezuela BIT. The arbitrators upheld Venezuela’s objection that there was insufficient proof that Venezuela had consented to ICSID arbitration under its Investment Law. As for the Dutch BIT, the arbitrators rejected Venezuela's claim that ExxonMobil's Dutch entity constituted a “corporation of convenience” and that the restructuring was an “abuse of right.” Instead, the arbitrators held that restructuring for the primary purpose of accessing treaty protection was legitimate corporate planning because it was designed to protect against future adverse Venezuelan measures.

ExxonMobil’s decision to restructure its investments before Venezuela expropriated them was “perfectly legitimate.” Corporate restructuring is a legitimate means to access BIT protections for future disputes. On the other hand restructuring an investment to obtain the jurisdiction of an international tribunal over pre-existing disputes would constitute “an abusive manipulation of the system of international investment protection under the ICSID Convention and the BITs.” The tribunal's remarks offer investors significant guidance on restructuring deadlines.

The tribunal remarked on two other factors that might have affected its analysis, and those remarks provide further guidance to investors in politically risky jurisdictions. First, the tribunal discussed whether ExxonMobil had to disclose any proposed restructuring to Venezuela for approval. The arbitrators held that Mobil had no contractual obligation to obtain Venezuela’s approval; and, in any event, the restructuring was never concealed. This suggests that an investor should consider disclosing corporate restructuring to avoid any claim it acted in bad faith. Second, the tribunal held that the Dutch BIT did not require ExxonMobil to inject new capital from or through the Netherlands into a project that was already self-sustaining. This suggests that, absent contrary treaty language, an investor may restructure its ongoing and self-funding enterprise without concern of the investment’s “origin of capital.”

Implications of the Decision
Although investment arbitration awards are not binding precedent, this decision provides clear guidance that an investor should “treaty plan” in order to shield its investment from political risk and obtain the highest treaty protections available. The market will begin to weigh whether companies injecting capital into foreign countries have proactively mitigated political risk, rewarding those who do.

For more information, please contact Vinson & Elkins lawyers James Loftis, Tim Tyler, Nicholas Song, or Teresa Cigarroa Keck. Visit our website to learn more about V&E's International Dispute Resolution practice, or e-mail one of the practice contacts.