Venezuela: One country with two governments

Enforcement of arbitral awards in the US

The expropriation of various investments by the Chávez regime in Venezuela has resulted in numerous arbitral awards and judgments against Venezuela and its instrumentalities. As many of these awards remain unpaid, creditors have sued in multiple countries to enforce them. In all, these awards are estimated to total upwards of US$20 billion.

In 2019 and 2020, this enforcement process was complicated by the political situation in Venezuela. In Delaware, certain creditors sought to enforce their awards and judgments against shares held by Venezuela national oil company PDVSA in the US.

In those cases where the award or judgment was against Venezuela, a question arose as to whether PDVSA was (or is) an alter ego of Venezuela. The US District Court for the District of Delaware first found that PDVSA was an alter ego of Venezuela in late 2018, prior to Guaidó’s recognition by the National Assembly, in Crystallex. That decision was affirmed by the US Third Circuit Court of Appeals. However, in 2023, the Third Circuit was asked to consider the question a second time. One question before the Court, which had not arisen in 2018: What is Venezuela? On review before the Third Circuit was the District Court’s decision that, looking to the actions of both the Maduro and Guaidó regimes, the nature of the relationship between the Republic and PDVSA had not “materially changed” in the time after the Court made its alter ego finding in Crystallex.

The Third Circuit ultimately reached the same conclusion and affirmed the District Court’s decision but did so based on different reasoning. The Third Circuit affirmed the “differentiation between government representatives and a sovereign.” While the government controls the state, “the state is more than its government.” The Court also determined that while the Executive may recognize a government (as the State Department did with Guaidó), simply adopting the Executive’s recognition would undermine the principal purpose of the Immunities Act – to transfer the primary responsibility for deciding claims of immunity from the State Department to the courts. Thus, the Third Circuit determined that it had to look to “the actions of both the Guaidó and Maduro governments as the totality of the sovereign conduct of Venezuela.” Doing so, on the facts before the Court, it affirmed the District Court’s alter ego finding.

Control of gold reserves held in the United Kingdom

In the UK, courts were tasked with deciding which head of state – Guaidó or Maduro – properly controlled approximately half of Venezuela’s gold reserves (circa US$1.95 billion) held by the Bank of England (“BOE”). Under the “one-voice” doctrine, requiring courts to act consistently with statements made by the government, the UK Court of Appeal held in a June 30, 2023 decision that courts applying the law of England and Wales cannot recognize judgments of the Venezuelan Supreme Tribunal of Justice (“STJ”) nullifying Guaidó’s appointment of the board of the Central Bank of Venezuela (the “BCV”) and validating the board appointed by Maduro.

In July 2019, following his recognition by the National Assembly, Guaidó appointed an ad hoc BCV board and declared the Maduro Board invalid. In May 2020, the BCV (still controlled by the Maduro Board) initiated proceedings against the BOE claiming that it was obligated to accept instructions from the Maduro Board, and the BOE simultaneously sought an order from the English Court to determine from which board it was authorized to take instructions. Also in May 2020, the National Assembly passed a resolution stating that BCV’s assets abroad could only be administered by the Guaidó Board. Simultaneously, the STJ – Venezuela’s highest court – issued several judgments holding that the actions taken by Guaidó and the National Assembly were null.

The Court decided two preliminary issues: (1) the “one-voice” doctrine required it to accept the February 4, 2019 statements of then-UK Foreign Secretary Jeremy Hunt MP, which recognized Guaidó as the constitutional Interim President; and (2) the “act of state” doctrine prevented it from questioning Guaidó’s legislation or other laws concerning acts that took place or effect within the territory of Venezuela and that it therefore could not question the validity of the Guaidó Board’s appointment.

However, the Court also found that the Maduro Board may be able to rely on the relevant judgments of the STJ and remitted the proceedings to the Commercial Court to consider whether any such judgments should be recognized. On remittal, the court considered that such recognition would conflict with the “one- voice” doctrine given that the “starting point” of the judgments was that Guaidó was not the constitutional President, which conflicted with the UK government’s position.

While the decision was on appeal, the UK’s Foreign, Commonwealth & Development Office Minister for the Americas and Caribbean issued a statement in January 2023 respecting the National Assembly’s December 2022 decision to disband the position of Interim President held by Guaidó. The Maduro Board accordingly argued on appeal that because the UK government no longer recognizes Guaidó, the one-voice doctrine no longer applies. In its June 2023 decision, the Court of Appeal disagreed. It found that although the government’s position had changed, the focus for the “one-voice” doctrine was the authority with which the executive acts that were the subject of the STJ judgments were passed. Because Guaidó was recognized by the UK government as president at the time he appointed the Guaidó Board, the Court could not give effect to the STJ judgments voiding that appointment. Thus, the Court of Appeal dismissed the appeal.