Third Circuit Court of Appeals Permits Venezuela’s Creditors to Seize PDVSA’s Interests CITGO


On 29 July 2019, the Third Circuit Court of Appeals of the United States of America permitted Crystallex International Corporation (“Crystallex”) to seize the shares of the Delaware holding company that owns CITGO in the context of the enforcement of a USD 1.2 billion arbitral award against Venezuela.  CITGO is the US subsidiary of the Venezuelan State-owned oil company Petróleos de Venezuela S.A. (“PDVSA”).  This decision provides valuable insight into how the assets of State-owned entities may be available to pay the debts of States themselves under US law (See United States Court of Appeals for the Third Circuit Decision of 29 July 2019).


Crystallex, a Canadian gold mining company, had obtained rights to exploit gold deposits in Venezuela.  In 2012, Crystallex initiated arbitration proceedings against Venezuela based on the Canada-Venezuela bilateral agreement (the “BIT”).  The dispute arose over Venezuela’s denial of the required environmental permit to exploit the gold deposits in 2008 and the subsequent termination of the mining contract in February 2011.

The arbitral tribunal issued an award on 4 April 2016 in Crystallex’s favour, for USD 1.2 billion.  It found that Venezuela had unlawfully expropriated Crystallex’s investment without compensation, requiring the payment of damages.  After litigation and ICSID annulment proceedings, Crystallex successfully confirmed the award in the US District Court for the District of Columbia on 25 March 2017.

Crystallex thereafter attempted to have Venezuela satisfy the debt in numerous ways, including through a settlement agreement.  In the end, on 9 August 2018, Crystallex obtained a writ of attachment from the US District Court for the District of Delaware permitting it to attach assets owned by PDVSA to satisfy Venezuela’s debts.  This included shares in a Delaware holding company that held PDVSA’s interests in CITGO.

Venezuela appealed that writ on 10 August 2018.  After briefing from the Parties, the Third Circuit held oral arguments on 15 April 2019 and rendered its decision on 29 July 2019.

The Third Circuit’s decision and its implications

In its decision, the Third Circuit confirmed the general rule that State-owned entities have a separate and distinct legal personality from their State owners.  Indeed, assets of these entities are not generally available to satisfy the debts of the State itself.  The Third Circuit mirrored the reasoning of the US Supreme Court in First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983) (“Bancec”).  There, the Supreme Court considered the applicability of the Foreign Sovereign Immunities Act to a determination of the liability of a foreign State or instrumentality and the attribution of liability among such instrumentalities.  However, Bancec also found that, in certain circumstances, the State’s use and control of a State-owned entity could be so extensive that it would justify disregarding the separate corporate existence of that entity.

Drawing on case law that followed the Bancec decision, the Third Circuit in Crystallex found that Venezuela so thoroughly controlled and used PDVSA for its own State purposes that the Court could disregard PDVSA’s separate legal personality.  It did so after explaining and considering a five-factor test that looks at:

  • the level of economic control by the government;
  • whether the entity’s profits go to the government;
  • the degree to which government officials manage the entity or otherwise have a hand in its daily affairs;
  • whether the government is the real beneficiary of the entity’s conduct; and
  • whether adherence to separate identities would entitle the foreign State to benefits in US courts while avoiding its obligations.

Read strictly, the Third Circuit’s decision articulates a cogent test for disregarding the separate personality of State-owned entities as a matter of federal common law.  This test only loosely resembles the test applied to disregarding the separateness of a corporation and its shareholder in cases of abuse of the corporate form.

Thus, the Third Circuit’s decision clarifies that questions concerning the enforcement of State debts against the assets of State-owned entities are best understood as questions of public international law as applied by US federal courts using their power to create common law.

Nevertheless, as a purely strategic matter, judgment-creditors should also be aware that first-instance decisions concerning whether or not to disregard the corporate form of a State-owned entity will be made by trial judges in US district courts.  These trial judges will have routinely handled hundreds of claims, if not more, to disregard the corporate separateness of commercial entities and their private shareholders.  Claims to apply Bancec to State-owned entities will only rarely appear on their dockets.  As a result, despite the Third Circuit’s admonition that the federal common law test for disregarding the separate personality of State-owned entities is different than the State law test for piercing the corporate veil, judgment-creditors should continue to consider how the commercial experience of US judges will affect trial judges when assessing claims to enforce State debts on State entities’ assets.