Venezuelan Foreign Investment Treaty Protection Through Netherlands Antilles

November 01, 2010 7:14 AM

Venezuela is lately in the news in relation to its (intended) nationalization of foreign owned assets. In view of this, it is of interest to realize that Venezuela has signed 15 bilateral investment treaties (Argentina, Barbados, Canada, Chili, Tjecho Republic, Denmark, Ecuador, Germany, Italy, Lithuania, The Netherlands, Portugal, Spain, Switzerland and the United Kingdom).

However, only the bilateral investment treaties with Argentina, Chili, Ecuador, Portugal, Switzerland, United Kingdom and the Netherlands have entered into force. This treaty on the encouragement and reciprocal protection of investments, between the Kingdom of the Netherlands and the Republic of Venezuela, was signed on 22 October 1991. This treaty is applicable not only to the Kingdom of the Netherlands in Europe, but also to the Dutch Caribbean, being the Netherlands Antilles and Aruba.

Assets that are protected

This treaty would protect any form of investment, including investment in real estate, movable property, shares, bonds and other kind of interest in companies and joint ventures, title to moneys, rights in the fields of intellectual property or technical process, goodwill and know how and rights granted under public law, including the rights to prospect, explore, extract and win natural resources.

Free movement and convertibility of currency

The contracting parties furthermore guarantee that payments relating to any investment, may be transferred. The transfers shall be made in a freely convertible currency, without undue restriction or delay. Such transfers include in particular, although not exclusively:

a. profits, interest, dividends and other current income;
b. funds necessary for the acquisition of raw or auxiliary materials, semi fabricated or finished products etc.;
c. additional funds necessary for the development of an investment;
d. funds in repayment of loans;
e. royalty or fees;
f. earnings of national persons;
g. the proceeds of sale or liquidation of the investment.
In other words, the treaty protects assets and movement of moneys in the most broadest sense of the word.

Who are protected?

All nationals of the Netherlands Antilles (the Netherlands and Aruba). The term “Nationals” would be considered to be:

1) National persons having the nationality of that contracting party; in other words any Netherlands Antilles, Aruba or Dutch citizen, all having the Dutch nationality;
2) Legal persons constituted under the law of that contracting party; this would mean any legal entity validly incorporated under Netherlands Antilles law, Aruba law or under Dutch law;
3) Legal persons not constituted under the law of that contracting party, but controlled directly or indirectly by national persons as defined in (1) or by legal persons as defined in (2) above.
In other words, also non-Netherlands Antilles, non-Dutch and non-Aruban legal entities that are controlled by national or legal persons, under Netherlands Antilles, Aruba or Dutch law, have treaty protection.

Recourse through International Arbitral Court

The great advantage of this treaty is that any Netherlands Antilles, Dutch or Aruban investor that meets the above qualifications, would have the benefits of this treaty, including e.g. a Venezuelan citizen or company, that is a shareholder of e.g. a Netherlands Antilles entity that invests in Venezuela. Such investor would not be dependent, upon nationalization of his assets, to seek monetary recourse for his damages at a Venezuelan court. He may directly bring a claim to the International Center for Settlement of Investment Disputes (ECSID) situated in the United States. ECSID is a public international organization, created by an international convention. As Venezuela has consented to be bound by the ECSID Convention, it must honor any arbitral awards, rendered against Venezuela.

Just compensation

If nationalization occurs, the treaty provides that it may only be made 1) in the public interest, 2) under due process of law, 3) it should be non discriminatory and 4) if done, against just compensation.

Market value

Such compensation shall represent the market value of the investments, valued immediately before the measures were taken or at the time the measures became public knowledge, whichever is the earlier. This is an important provision, for the market value of investments tends to drop dramatically as and when any intended nationalization is made public.

Interest and transferability

The compensation shall include interest at a normal commercial rate until the date of payment and shall, in order to be effective for the claimant(s) be paid and made transferrable without undue delay to the country designated by the claimant(s) concerned and in the currency of the country of which the claimant(s) is/are national or in any freely convertible currency accepted by the claimant(s).

Investment protection companies

In the Netherlands Antilles and Aruba, tailor-made companies can be set up for foreign investors, including Venezuelan nationals and Venezuelan legal entities, for purposes of investment in Venezuela, with the abovementioned treaty protection.

For more information on this subject, please contact Randolph van Eps of VanEps Kunneman VanDoorne.

(Source: VanEps Kunneman VanDoorne)