Perenco Ecuador Ltd. v. The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador)

Case summary

At a glance

Parties: Perenco Ecuador Limited (Bahamas company controlled by French nationals) v. the Republic of Ecuador; Empresa Estatal Petróleos del Ecuador (Petroecuador) was initially a second respondent
Case no.: ICSID Case No. ARB/08/6
Forum and rules: ICSID Convention arbitration; arbitrator challenge decided by the PCA Secretary-General under the IBA Guidelines (PCA Case No. IR-2009/1); enforcement in the US District Court for the District of Columbia
Treaty: France–Ecuador BIT of 7 September 1994; arbitration clauses of the Block 7 and Block 21 Participation Contracts
Tribunal: Final: Judge Peter Tomka (President), Neil Kaplan, J. Christopher Thomas. Initial: Lord Bingham of Cornhill (President), Charles N. Brower, J. Christopher Thomas
Committee: Eduardo Zuleta (President), Rolf Knieper, Mónica Pinto
Sector: Oil and gas (Blocks 7 and 21, Ecuadorian Amazon)
Outcome: Ecuador was liable for the 99% windfall levy (Decree 662) and for expropriating Perenco through the declaration of caducidad; Ecuador's environmental counterclaim partly succeeded. The award was partly annulled (27 September 2019 award; 28 May 2021 annulment decision).
Amount: Award: USD 448,820,400.00 to Perenco, reduced on annulment to USD 412,182,000. Perenco ordered to pay USD 54,439,517.00 on the counterclaims. Costs: USD 23,000,000.00 to Perenco; USD 6,276,153.00 to Ecuador; USD 49,629.76 to Petroecuador. US judgment: USD 136,686,775.55 plus interest.

The dispute

Perenco became party to two participation (production-sharing) contracts for oil Blocks 7 and 21 on 4 September 2002. It was the operator, in a consortium with Burlington. Ecuador's Law 42 of April 2006 gave the State at least 50% of oil revenues above reference prices, and Decree 662 of October 2007 raised that share to 99%. Perenco stopped paying in 2008. Ecuador then collected the levies by coactiva proceedings and seized Perenco's oil, despite provisional measures ordered by the Tribunal. After the consortium suspended operations, Ecuador took over the Blocks in July 2009 and declared caducidad (termination) of the contracts. Perenco claimed breach of the contracts and of the BIT's fair and equitable treatment and expropriation provisions. Ecuador objected that Perenco was not controlled by French nationals and that the caducidad claims were not arbitrable, denied liability, and counterclaimed for environmental and infrastructure damage in the Blocks.

Key holdings

Provisional measures were recommended. Ecuador and Petroecuador were to stop demanding or collecting Law 42 payments from Perenco and were not to alter or terminate the Participation Contracts. The Tribunal held that its provisional measures are binding, and that resort to Ecuadorian courts on the disputed claims violated Article 26 of the ICSID Convention. Decision on Provisional Measures ¶¶ 61–62, 67, 79
The Tribunal had no jurisdiction over Petroecuador, which acted only as the State's agent under the contracts. It had jurisdiction over the contract claims against Ecuador and deferred the objection to its jurisdiction over the Treaty claims to the merits. Decision on Jurisdiction ¶¶ 231, 242
Jurisdiction was upheld over the Treaty claims and over all contract claims, except the Block 7 caducidad claim. Law 42 at 50% breached neither the contracts nor Article 4. Law 42 at 99% (Decree 662) breached both the contracts and fair and equitable treatment under Article 4, but was not an expropriation; nor were the coactivas or the State's takeover of the Blocks. The declaration of caducidad, made in the midst of the arbitration, expropriated Perenco's contractual rights contrary to Article 6 and breached the Block 21 Contract. Decision on Liability ¶¶ 684–713
On the environmental counterclaim, the 1998 Constitution's fault-based regime applies to the period from 4 September 2002 to 19 October 2008. Strict liability under the 2008 Constitution applies from 20 October 2008 to 16 July 2009. Perenco is not liable for harm after Petroamazonas took over, and the counterclaim is not time-barred. The Tribunal decided to appoint an independent environmental expert. Interim Decision on the Environmental Counterclaim ¶ 611
The Tribunal had no power to reconsider its liability decision; Ecuador's reconsideration motion was dismissed. Perenco's application to dismiss the counterclaims as res judicata, based on the Burlington award, was rejected because that award was subject to a pending annulment application. Decision on Reconsideration ¶¶ 97–98; Decision of 18 August 2017, Decision
Award: Ecuador pays USD 448,820,400.00, with post-award interest at three-month LIBOR plus 2% compounded annually. Perenco pays USD 54,439,517.00 for environmental and infrastructure remediation. This figure is the remediation total of USD 93,638,890 less USD 39,199,373 already paid by Burlington, to avoid double recovery. Costs: Ecuador pays USD 23,000,000.00 to Perenco; Perenco pays USD 6,276,153.00 to Ecuador and USD 49,629.76 to Petroecuador. ICSID costs and the independent expert's costs are shared equally. Award ¶ 1023
The ad hoc Committee annulled the award in part, for failure to state reasons, on two items: the USD 25 million for loss of opportunity to extend the Block 7 contract and the USD 9 million for full tax deductibility of the OCP ship-or-pay costs. Compensation fell to USD 412,182,000, and the Committee rejected Ecuador's other 18 grounds. Ecuador bears 90% of the annulment costs, and the stay of enforcement was lifted. Decision on Annulment ¶¶ 724–744