Failure by oil corp to give Ecuador prior notice of treaty violations blocks claims<\/strong>
\n27.6.2010<\/p>\nArbitrators\u00a0 have ruled that certain claims for breach of the US-Ecuador bilateral investment treaty are inadmissible due to the failure of a US energy company to give clear advance notice that it held Ecuador to be in breach of its treaty obligations.<\/p>\n
Burlington Resources Inc. sought to hold Ecuador liable for failing to provide physical protection and security for a pair of vast oil development blocks in the Amazonian rain forest.<\/p>\n
The sites\u2014officially dubbed Blocks 23 and 24\u2014were awarded in the late 1990s, but have seen clashes with indigenous groups opposed to oil exploration.<\/p>\n
Indeed, not long after Burlington bought into the blocks, the company invoked the force majeure clauses of the production-sharing contracts, signaling that conditions beyond its control precluded immediate development in the areas.<\/p>\n
Controversy over the two blocks has flared ever since with indigenous groups and rich-country environmental groups campaigning against oil development. While Burlington has worked to appease critics, it signaled a new course in 2008 when it resolved to sue Ecuador over a hefty windfall levy which side-swiped the company\u2019s other production activities in the country.<\/p>\n
As part of its ICSID arbitration, Burlington also leveled charges that the Republic of Ecuador was liable for not providing adequate security so that activities in the stalemated Blocks 23 and 24 could move forward.<\/p>\n
The claims, if heard on their merits, would have proven politically contentious\u2014 not least as arbitrators might have had to examine Ecuador\u2019s other international law obligations, including various human rights law obligations owed to indigenous communities.<\/p>\n
In the event, however, Burlington\u2019s claims for physical protection and security will not be hear\u2014at least at this time\u2014by ICSID arbitrators.<\/p>\n
In their 2 June 2010 Decision on Jurisdiction, arbitrators held that Burlington failed to give clear notice to Ecuador of its claims for denial of physical protection and security, and therefore the mandatory six-month waiting period in the treaty (which must elapse before arbitration can be initiated) had not begun to run. As such, the physical security and protection claims presented in Burlington\u2019s 2008 Request for Arbitration were deemed inadmissible by arbitrators.<\/p>\n
Non-disputing parties CAFTA State intervenes in arbitration to present arguments<\/strong>
\n22.4.2010<\/p>\nThe Republic of El Salvador has intervened in an ongoing arbitration between another party to the US-Central America Free Trade Agreement (CAFTA) and a US-based investor.<\/p>\n
The intervention by El Salvador is pursuant to a CAFTA provision permitting other member-states to make submissions setting forth their views on matters of CAFTA interpretation.<\/p>\n
In a brief submission dated 19 March 2010, El Salvador argued that the CAFTA investment chapter does not cover pre-existing disputes (i.e. disputes which arose prior to the CAFTA\u2019s entry into force and which persisted thereafter).<\/p>\n
The move by El Salvador marks the first instance where a CAFTA party has exercised its right under Article 20.2 of CAFTA\u2019s Chapter 10 on investment.<\/p>\n
Notably, the CAFTA investment chapter does not expressly address pre-existing disputes; however, El Salvador maintains that a reading of various CAFTA provisions leads to the conclusion that the chapter covers only government \u201cmeasures\u201d occurring after the entry into force of the treaty.<\/p>\n
As new case lands at ICSID, and several more loom, Bolivia turns up the heat on arbitral system<\/strong>
\n4.22.2010<\/p>\nOn the heels of a politically-embarrassing provisional measures decision issued by an arbitral tribunal at the International Centre for Settlement of Investment Disputes (ICSID), the Republic of Bolivia has reacted by demanding the disqualification of all 3 tribunal members.<\/p>\n
According to a source familiar with the request, Bolivia contends that the arbitrators are prejudiced against the government, and fail to meet the \u201cimpartiality\u201d criterion imposed by the ICSID system.<\/p>\n
Under the ICSID rules, a challenge to an entire tribunal would be adjudicated by the Chairman of ICSID Administrative Council (i.e. the World Bank President).<\/p>\n
However, in view of Bolivia\u2019s record of antipathy towards ICSID, it remains to be seen whether the Centre would hand the challenge off to some outside body. On occasion, the Centre has done this where challenges have been made to arbitrators with prior ties to the World Bank (for e.g. Andres Rigo Sureda, a former senior World Bank lawyer).<\/p>\n
The latest move by Bolivia marks a dramatic escalation of hostilities between the country and an arbitral institution from which the government has sought to distance itself in recent years.<\/p>\n
In 2007, Bolivia withdrew from ICSID, complaining that the Centre was biased towards foreign investors.<\/p>\n
However, Bolivia\u2019s withdrawal did not sever all ties with the Washington-based Centre. One pre-existing arbitration, the Quiborax claim, continued to be arbitrated at the Centre, while another lodged by a Telecom Italia subsidiary in 2007 was pursued for nearly two years before an agreement was struck to move the dispute to ad-hoc arbitration.<\/p>\n
More recently, a US energy company has sought ICSID arbitration in relation to the nationalization of its stake in a Bolivian energy company. PanAmerican contends that the move by Bolivia to nationalize its 51% shareholding in the Chaco energy company breached protections contained in the US-Bolivia bilateral investment treaty by failing to provide full compensation.<\/p>\n
Although Bolivia has objected vociferously to new claims being brought to the ICSID following the 2007 announcement of the country\u2019s withdrawal from ICSID, PanAmerican is expected to argue that it was one of several multinational energy firms to put Bolivia on notice in 2005 of potential arbitration of claims arising out of the country\u2019s nationalization plans for the energy sector. As such, this consent or acceptance of Bolivia\u2019s offer to arbitrate at the ICSID would have been in place long before the country gave notice in May of 2007 to withdraw from the ICSID.<\/p>\n