{"id":3500,"date":"2015-11-26T13:50:23","date_gmt":"2015-11-26T19:50:23","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3500"},"modified":"2024-08-09T18:26:30","modified_gmt":"2024-08-09T16:26:30","slug":"icsid-tribunal-renders-interim-decision-on-ecuadors-environmental-counterclaim-in-long-running-dispute-perenco-ecuador-limited-v-republic-of-ecuador-icsid-case-no-arb-08-6","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2015\/11\/26\/icsid-tribunal-renders-interim-decision-on-ecuadors-environmental-counterclaim-in-long-running-dispute-perenco-ecuador-limited-v-republic-of-ecuador-icsid-case-no-arb-08-6\/","title":{"rendered":"ICSID tribunal renders interim decision on Ecuador\u2019s environmental counterclaim in long-running dispute"},"content":{"rendered":"

Perenco<\/em>\u00a0Ecuador Limited v. Republic of Ecuador<\/em>,\u00a0ICSID<\/span><\/em>\u00a0Case No. ARB\/08\/6<\/em><\/h2>\n

Perenco\u00a0Ecuador\u00a0Limited\u00a0(Perenco)\u2014a French-owned oil and gas company\u2014and the Republic of Ecuador\u00a0have been involved in arbitration since\u00a02008 under the\u00a0France\u2013Ecuador bilateral investment treaty (BIT<\/span>) and certain concession contracts. An\u00a0International Centre for Settlement of Investment Disputes (ICSID)\u00a0arbitration tribunal\u00a0has issued an\u00a0Interim Decision on the Environmental Counterclaim<\/em>\u00a0(Interim Decision).<\/p>\n

The Interim Decision includes an invitation for the parties to settle the issues in dispute. The ICSID tribunal criticized the testimony of both sides\u2019 experts and suggested that the parties use a tribunal-appointed expert. The tribunal\u00a0declined to immediately decide the issues\u00a0raised\u00a0by the counterclaim, indicating instead a willingness to do so in a future, final decision.<\/p>\n

Background<\/h3>\n

Perenco\u00a0was constituted under the laws of the\u00a0Bahamas. A controlling interest in Perenco is indirectly held by the estate of the late Hubert Perrodo, a French national. Perenco, along with a Texas-headquartered oil and gas company (Burlington Resources), which has subsequently been acquired by the international major ConocoPhillips, invested in the operation of two hydrocarbon blocks through Ecuadorian participation contracts.<\/p>\n

Following a political transition in Ecuador,\u00a0Perenco\u00a0was subjected to progressive windfall taxes of 50 and 99 per cent. Following imposition of the second levy,\u00a0Ecuador\u2019s national oil company Petroecuador took over operation of the blocks. In April 2008, Perenco filed with ICSID a request for arbitration against Ecuador and Petroecuador. Ecuador\u2019s December 2011 counter-memorial alleged that Perenco\u2019s activities had resulted in significant environmental damage (environmental counterclaim) and amounted to a failure to properly maintain the blocks\u2019 infrastructure in good working condition (infrastructure counterclaim).<\/p>\n

In a September 2014\u00a0Decision on Remaining Issues of Jurisdiction and on Liability<\/em>, the tribunal confirmed an earlier finding of jurisdiction under both the BIT and the\u00a0participation contracts. It\u00a0also found Ecuador liable to pay compensation to\u00a0Perenco\u00a0under these same instruments.<\/p>\n

The 2014 decision noted that the parties had agreed to a separate briefing schedule and hearing on Ecuador\u2019s counterclaims. Ecuador alleged that Perenco had left behind an environmental catastrophe and sought approximately 2.5 billion USD in compensation for necessary remediation. Perenco argued that that its liability did not exceed 10 million USD. The tribunal has now issued the Interim Decision.<\/p>\n

Parties\u2019 experts \u201ceffectively shooting at different targets\u201d<\/h3>\n

After reviewing the evidence, the tribunal was satisfied that there was at least some contamination for which Perenco would likely be held liable. However, it also noted that each of the parties\u2019 expert witnesses was \u201cattempting to achieve the best result for the party by whom they were instructed, and that they crossed the boundary between professional objective analysis and party representation.\u201d They were \u201ceffectively shooting at different targets and this has made the work of this Tribunal most difficult\u201d (para. 581).<\/p>\n

In this context, the tribunal found that the only equitable solution in relation to the contamination problems would be to have a new expert examine the existing samples; if the problems were deemed to warrant remediation in light of all relevant circumstances, Perenco, its predecessor Petroamazonas, or both could be found\u00a0prima facie<\/em>\u00a0liable for remediation costs. Only once this and certain other procedures have been completed would the parties be in a position to reach a negotiated settlement or the tribunal in a position to make a final determination of any damages owed by Perenco to Ecuador.<\/p>\n

Fault-based liability applies during initial investment period<\/h3>\n

Having reviewed the parties\u2019 written and oral submissions, as well as expert evidence, the tribunal arrived at a series of conclusions as to the manner in which the counterclaim was put and the state of the dispute.<\/p>\n

With regards to any contamination in excess of regulatory standards shown to have occurred between September 4, 2002 (when\u00a0Perenco acquired its interests in the blocks) and October 19, 2008 (when Ecuador\u2019s current Constitution was promulgated), the tribunal found that a fault-based regime must apply. However, liability for any excess contamination shown to have occurred after October 20, 2008 should be assessed on the basis of strict liability, in accordance with the 2008 Constitution\u2019s regime for environmental damage.<\/p>\n

Tribunal\u00a0resolves relationship between environmental regulations and \u201cbackground values\u201d<\/h3>\n

The tribunal considered the relationship between the 2008 Constitution and domestic environmental regulations as the first of two major questions, the resolution of which narrowed the need for any further analysis.\u00a0It found that the 2008 Constitution was the state\u2019s supreme\u00a0legal framework within which other regulations specific to hydrocarbon activities must operate.<\/p>\n

Ecuador had argued that its hydrocarbons regulatory regime should give way to\u00a0\u201cbackground values\u201d found in the Constitution, such as full remediation of contamination. After carefully considering the arguments and the evidence, the tribunal found that it could not accept this argument. While nothing precluded Ecuador from promulgating regulations that would hold oilfield operators to more stringent environmental standards, the 2008 Constitution alone was not a\u00a0substitute for such regulations.<\/p>\n

In principle, the tribunal also noted the issue of whether the 2008 Constitution\u2019s strict liability regime could be applied to\u00a0Perenco\u2019s\u00a0pre-2008 activities. Having found that the 2008 Constitution could not\u00a0in and of itself establish\u00a0technical standards, the tribunal found that\u00a0it must look to the specific regulations enacted \u201con the ground\u201d by the Ecuadorian state both before and after 2008.<\/p>\n

Decision on infrastructure counterclaim\u00a0reserved<\/h3>\n

Finally, the tribunal noted that it was most expedient and constructive to issue its decision on the environmental counterclaim first so as to permit the new expert to be selected, appointed, and\u00a0instructed\u00a0on his or her mandate, and only to then engage in the work that needs to be done. The tribunal further noted that it was likely to benefit from the evidence regarding Perenco\u2019s\u00a0operation to be presented in a future hearing. It therefore reserved the infrastructure counterclaim to be addressed along with the overall quantum of damages.<\/p>\n

Notes<\/em>: The tribunal is composed of Judge Peter Tomka (President appointed by the Chairman of the ICSID Administrative Council, Slovak national), Neil Kaplan (claimant\u2019s appointee, British national), and Christopher Thomas (respondent\u2019s appointee, Canadian national). The\u00a0Interim Decision on the Environmental Counterclaim<\/em>\u00a0of August 11, 2015 is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw6315.pdf<\/a><\/p>\n

\n

Matthew Levine<\/strong>\u00a0is a Canadian lawyer and a contributor to IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n