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To the millions of campesinos who farm Venezuela’s countryside, the ascendance of president Hugo Chavez may seem a dream come true. But the country’s foreign investors are far less enchanted by Chavez’s attempt to turn Venezuela into a showcase for “twenty-first-century socialism.” In the past year or two, Chavez has slapped dozens of foreign corporations with claims for unpaid taxes, stepped up efforts to redistribute publicly owned land-and canceled a Canadian company’s concession for what is believed to be one of the largest undeveloped gold deposits in the world. Though the affected companies have mostly refrained from litigation, Chavez’s reforms are being closely watched by international arbitration lawyers. In the biggest challenge against Chavez to date, Toronto’s Torys LLP is representing Vannessa Ventures Ltd., a Vancouver-based company that bought the rights to develop the disputed gold mine in 2001-for just $50. In a 2004 claim filed under the Canadian-Venezuelan bilateral investment treaty, Vannessa has accused Chavez of expropriating its investment, and asked for damages of $1.2 billion. According to Torys partner John Terry, “This is one of the earliest examples of what has now become the modus operandi in Venezuela-to abrogate investors’ rights and expropriate property in order to achieve a domestic political agenda.” That view, shared by many international arbitration lawyers, has turned Venezuela into the next frontier for the testing of bilateral investment treaties, or BITs. These treaties give companies the right to sue if a government allegedly discriminates against foreign investors, violates international law, or expropriates a foreign investment [" Arbitration Scorecard," Focus Europe, Summer]. And Chavez is taking the challenge seriously, if his choice of lawyers is any indication. To defend his country in the Vannessa case, he has hired Winston & Strawn partner Ronald Goodman, the head of the firm’s D.C.-based international arbitration practice. (In other BIT cases, Winston represents the government of Chile, as well as investors suing Argentina.) Goodman declined to comment in detail because he has yet to respond to Vannessa’s claim. But, he said, Venezuela’s essential position is that when Vannessa’s subsidiary purchased the gold-mining interest from Vancouver-based Placer Dome Corporation, it failed to obtain approval from the Chavez government. Hence, the actions taken by the government to cancel the concession “did not violate the investment treaty and were taken with due regard to Venezuelan law.” Venezuela also charges that the subsidiary violated its contract by not developing what should have been a very lucrative gold mine. The case will be considered by a panel of private arbitrators next year. Torys isn’t the only firm trying to hold Venezuela to more conservative commercial standards. Freshfields Bruckhaus Deringer represents the Dutch company I&I Beheer B.V., which in April filed a BIT claim against Venezuela and the British Vestey Group, which has threatened to bring such a claim. Beheer claims Venezuela reneged on its obligation to redeem promissory notes issued by a now defunct Venezuelan bank-to which Chavez responds that the notes are invalid. Meanwhile, the Vestey Group, which controls some 350,000 hectares of Venezuelan farm and ranch land, also accuses Chavez of expropriation. Nigel Blackaby, a Freshfields partner who is working on the Vestey case, says the government has encouraged squatters to farm on the company’s cattle ranch. In another alleged land grab last summer, Venezuela seized an idle tomato processing plant owned by H.J. Heinz Co. The company negotiated for compensation. “The concern is that any foreign company doing business with premises in Venezuela is subject to a visit from the land institute, [to] determine if they’re being productive enough,” says Blackaby. “But there’s no criteria by which productivity is measured.” Venezuelan law permits expropriation when the owner either cannot prove its original land title or has allowed the land to lie idle. The government must compensate legitimate owners for idle land seized. Chavez plans to use that law to redistribute property: Five percent of the population now controls 80 percent of the land. “A democracy that permits such a situation of injustice . . . [will turn itself] into a pantomime of democracy,” he said in January at a rally. “A revolution that permits this injustice cannot call itself a revolution.”

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