At least two options would be open to Ecuador

At least two options would be open to Ecuador

INTRODUCTORY NOTE TO ECUADOR’S NOTICE UNDER ICSID ARTICLE 25(4)
BY XAVIER ANDRADE CADENA*
MARCO TULIO MONTAÑES**
[December 4, 2007]
+Cite as 47 ILM XXX (2008)+
1. Introduction
The Republic of Ecuador notified the International Centre for Settlement of
Investment Disputes (ICSID or the Centre) that it “will not consent to submit to the
jurisdiction [of ICSID] the disputes that arise in matters concerning the treatment of an
investment in economic activities related to the exploitation of natural resources, such as
oil, gas, minerals or others” 1 on November 23, 2007. 2 Ecuador acted pursuant to Article
25 (4) of the Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (the ICSID Convention), which allows a contracting state to
notify ICSID of a class or classes of disputes it would or would not consider submitting
to its jurisdiction. 3 Only a few states have made notifications under Article 25(4). 4
The Notice is significant because most of the ICSID arbitrations that Ecuador
faces or has faced relate precisely to the excluded sectors, i.e. oil and electricity. To be
discussed below, the salient questions are whether foreign investors will be precluded to
avail themselves of ICSID arbitration because of Ecuador’s Notice, and whether they will
continue investing in a country where international arbitration might not be an option for
solving their disputes.
*LL.B. & J.D., Pontificia Universidad Católica del Ecuador (PUCE); LL.M., McGill University; Professor
of International Commercial Arbitration, PUCE; Partner at Andrade Veloz & Asociados, Ecuador
**LL.B., ITESM Mexico; J.D. Candidate 2009, The George Washington University Law School.
2. Background- Ecuador’s Move in Context
1
See Letter from María Espinosa Garcés, Ecuador’s Foreign Ministry, to Ana Palacio, ICSID’s SecretaryGeneral (November 23, 2007) available at http://icsid.worldbank.org/ICSID/FrontServlet (Author’s
translation. Original in Spanish) [hereinafter the Notice].
2
Ecuador deposited this letter at ICSID on December 4, 2007. Notably, on October 29, 2007, a letter
signed by Ecuador’s Foreign Minister and addressed to ICSID’s Secretary-General, was circulated in the
Ecuadorian legal community (on file with authors). However, it was not until November 23, 2007, that
Ecuador formally notified the ICSID. The wording in the October letter is different than the one contained
in the November letter, i.e. the official letter. Compare the October letter [“…la República de Ecuador en
adelante no aceptará someter a la jurisdicción del Centro las diferencias relativas al manejo de sus recursos
naturales no renovables, entendiéndose por tales (pero no limitados a), los recursos mineros o
hidrocarburíferos”] [Our translation:“ from now on it will not submit to the jurisdiction of the Centre
disputes related to the management of its non-renewable natural resources, including (but not limited to) its
mining and hydrocarbon resources”] with the November letter (attached to this introductory note)
3
ICSID Convention, Art. 25(4)
4
See e.g., China, Guatemala, Jamaica, Saudi Arabia, Jamaica, Turkey, Papua New Guinea. The
notifications are published in Document ICSID/8-D.
Ecuador’s move follows the recent expression of hostility towards investment
arbitration 5 in some Latin American countries, 6 such as Bolivia, which denounced the
ICSID Convention in May 2007. 7 Ecuador, by contrast to Bolivia, has not denounced the
ICSID Convention. However, it publicly announced in May 2007 that it would not renew
its bilateral investment treaty (BIT) with the United States. 8 Ecuador later tasked a
Special Commission to review each of its 25 BITs instead. 9
The Notice also comes in the midst of the government’s restructuring of key
economic sectors, such as oil, mining, and others. 10 In the oil sector, Ecuador’s President
Rafael Correa, by Decree 662 of October 18, 2007, amended the Regulations of Law
2006-42. 11 This decree increased the State’s share of the foreign companies’ windfall of
oil profits from 50 percent to 99 percent. As a result, the Ecuadorian government and the
oil companies are now renegotiating their existing oil contracts.12
Concerning the mining sector, the Mining and Oil Minister received a mandate to
redefine the conditions for exploring mining areas. 13 Through this mandate, it has
reverted numerous mining concessions. 14 Moreover, the government announced its
intention to participate in several mining areas currently being exploited by private
companies. 15 There are also plans to introduce a new Mining Law. 16
Similar developments are taking place in other sectors such as the
telecommunications 17 and the customs inspection 18 industry, where the government is
renegotiating its contracts with the foreign investors.
5
To be discussed below, it is unclear whether the hostility is towards arbitration in general, or investment
arbitration and ICSID, in particular.
6
In April 2007, as members of the “Alternativa Bolivariana para la América Latina y El Caribe” (ALBA),
Venezuela, Bolivia, and Nicaragua threatened to withdraw from ICSID. To date, however, only Bolivia has
done so. See http://www.alternativabolivariana.org. For an overview of the investment climate in Bolivia,
Ecuador, and Venezuela see Marco E. Schnabl & Julie Bédard, The Wrong Kind of ‘Interesting,’ The
National Law Journal, July 30, 2007.
7
See Bolivia’s Denunciation of ICSID Convention, May 2, 2007, available at
http://icsid.worldbank.org/ICSID/Index.jsp
8
Ecuador made this announcement during the BIT’s ten year anniversary. The BIT which was signed in
1993, and which entered into force on May 11, 1997, provides that either party may terminate the Treaty at
the end of the initial ten year period or at any time thereafter, by giving one year's written notice to the
other Party. See Ecuador-US BIT Art. XII.
9
See Ecuador announces that it wants out of US investment treaty, Investment Treaty News, (May 9, 2007)
available at http://www.iisd.org/pdf/2007/itn_may9_2007.pdf
10
See e.g., developments in the telecommunications and the customs inspection industry discussed below.
11
See Decreto Ejecutivo No. 662 (the Decree) available at
http://www.edicioneslegales.com/novedades/Decreto-Ejecutivo-No-662.htm.
12
The affected companies include corporations from France, Spain, USA and China. To de discussed infra,
Ecuador has BITs with all these countries. See
http://www.eluniverso.com/2008/02/18/0001/9/7345A497294D4DCC98364E8F70E9E7C8.aspx
13
See http://www.eluniverso.com/2008/01/30/0001/8/30C4407F3CEE4BF8A18693A2CAA1E02E.aspx
14
The affected companies include mostly Canadian corporations. See
http://www.eluniverso.com/2008/01/28/0001/8/2BEABE55E76F4055A94ACBF9C7CDBD0B.aspx.
15
See http://www2.elcomercio.com/noticiaEC.asp?id_noticia=169565&id_seccion=6.
16
See http://www2.elcomercio.com/noticiaEC.asp?id_noticia=161414&id_seccion=6
17
The Secretaría Nacional de Telecomunicaciones is currently negotiating mobile telephony service
contracts with foreign operators Spanish Telefónica and Mexican América Móvil. While the government
3. Ecuador’s Experience with Investment Arbitration
Like many Latin American counties during the mid 1980’s and early 1990’s,
Ecuador took steps to attract and promote foreign direct investment (FDI). 19 First,
Ecuador signed a string of bilateral investment treaties (BITs). 20 Second, it enacted its
Investment Protection and Guarantee Law. 21 Third, Ecuador became a member to the
Multilateral Investment Guarantee Agreement (MIGA) and signed the Overseas Private
Investment Corporation (OPIC) Investment Agreement. 22 Finally, Ecuador ratified the
major international arbitration treaties, including the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), 23 the
Inter-American Convention on International Commercial Arbitration (Panama
Convention), 24 and the ICSID Convention.
Ecuador signed the ICSID Convention on January 15, 1986 and became a party
on February 14, 1986. 25 Since this date, Ecuador has been a respondent 26 in three 27
concluded ICSID arbitrations and is currently involved in six proceedings. 28 Moreover,
has proposed to submit all disputes to domestic courts, operators are demanding international arbitration.
See http://www.eluniverso.com/2008/03/11/0001/9/B8470A06F7D246E8B9DD768C2AB79B48.aspx.
18
As a result of the October 2007 reforms to the “Ley Orgánica de Aduanas,” the foreign customs
inspection and certification of origin companies, that had concluded contracts with the Corporación
Aduanera Ecuatoriana (CAE), are being forced to end their contracts well in advance of its termination
date. See http://www2.elcomercio.com/noticiaEC.asp?id_noticia=139482&id_seccion=6;
http://www.eluniverso.com/2008/02/29/0001/9/EE777CD7667D46EBAAC89EC18CBE4B21.aspx
19
For an overview of the legal and investment climate in Latin America see INTERNATIONAL
ARBITRATION IN LATIN AMERICA (Nigel Blackaby, David Lindsey, Alessandro Spinillo, eds., 2003);
Horacio A. Grigera Naón, Arbitration in Latin America: Overcoming Traditional Hostility, 5 Arb. Int’l 137
(1989).
20
Ecuador has concluded BITs with at least 25 countries: Argentina, Bolivia, Canada, China, Chile, Costa
Rica, Cuba, Dominican Republic, El Salvador, Finland, France, Germany, Honduras, Netherlands,
Nicaragua, Paraguay, Peru, Romania, Spain, Sweden, Switzerland, United Kingdom, United States,
Uruguay, and Venezuela. Most of these BIT’s were signed between 1985-2001, with the exception of the
Ecuador-Switzerland BIT (signed on 1968). See http://icsid.worldbank.org/ICSID/FrontServlet. The text of
some BITs is publicly available at: http://www.sice.oas.org/ctyindex/ECU/ECUBITs_e.asp or at
ICSID’s multivolume collection of Investment Treaties.
21
See Ley de Protección y Garantía de Inversiones, published in the Official Gazette No. 219 on December
19, 1997.
22
Ecuador has had an Investment Guarantee Agreement with OPIC since 1986.
23
Ecuador signed the New York Convention on December 17, 1958 and ratified it on January 3, 1962. The
Convention entered into force for Ecuador on April 3, 1962.
24
Ecuador ratified the Panama Convention on October 23, 1991.
25
See List of Contracting States and other Signatories of the Convention, available at
http://icsid.worldbank.org/ICSID/FrontServlet.
26
Ecuador (via its foreign investors) has never been on the Claimant’s side.
27
See M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador (ICSID Case No.
ARB/03/6); Repsol YPF Ecuador S.A. v. Empresa Estatal de Petróleos del Ecuador (Petroecuador) (ICSID
Case No. ARB/01/10); IBM World Trade Corp. v. Republic of Ecuador (ICSID Case No. ARB/02/10),
available at http://icsid.worldbank.org/ICSID/FrontServlet.
28
See Técnicas Reunidas, S.A. and Eurocontrol, S.A. v. Republic of Ecuador (Case No. ARB/06/17); City
Oriente Limited v. Republic of Ecuador and Empresa Estatal de Petróleos del Ecuador (Petroecuador)
(Case No. ARB/06/21); Occidental Petroleum Corporation and Occidental Exploration and Production
Company v. Republic of Ecuador (Case No. ARB/06/11); Noble Energy Inc. and Machala Power Cía. Ltd.
according to press reports, at least three investors have commenced the mandatory
negotiation period required by the governing BIT prior to the initiation of arbitration. 29
Ecuador has had mixed results at ICSID. Out of the three concluded proceedings,
it prevailed in one, 30 lost the other, 31 and settled another. 32 In addition to ICSID, Ecuador
has been a respondent in two tax-related arbitrations 33 commenced by oil companies and
conducted under the UNCITRAL Arbitration Rules, winning one, 34 and losing the
other. 35
4. The Notice: Its Scope and Legal Effect
a. The Scope of the Notice
Ecuador’s Notice seeks to exclude from ICSID’s jurisdiction “disputes that arise
in matters concerning the treatment of an investment in economic activities related to the
exploitation of natural resources… such as oil, gas, minerals or others. 36 ” Under
Ecuadorian law, “natural resources” comprise all “elements of nature susceptible of being
used by the man for the fulfillment of his economic, social and spiritual needs or
interests,” 37 and can be renewable or non-renewable. 38
v. Republic of Ecuador and Consejo Nacional de Electricidad (Case No. ARB/05/12); Empresa Eléctrica
del Ecuador, Inc. (EMELEC) v. Republic of Ecuador (Case No. ARB/05/9); Duke Energy Electroquil
Partners and Electroquil S.A. v. Republic of Ecuador (Case No. ARB/04/19), available at
http://icsid.worldbank.org/ICSID/FrontServlet.
29
Reportedly, these companies include the Spanish Repsol YPF, the U.S. corporation Burlington
Resources, and the French Perenco. These companies are challenging the oil decree and its regulations
discussed above. See
http://www.eluniverso.com/2007/11/27/0001/9/C6AA11320A5C4760AF3971E1C7A06094.aspx
30
M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador (ICSID Case No. ARB/03/6),
available at http://icsid.worldbank.org/ICSID/FrontServlet. However, ICSID’s website recently reported
that Annulment Proceeding were registered on December 06, 2007. See
http://icsid.worldbank.org/ICSID/FrontServlet (last time visited: March 24, 2008)
31
Repsol YPF Ecuador S.A. v. Empresa Estatal de Petróleos del Ecuador (Petroecuador) (ICSID Case No.
ARB/01/10). While the award was rendered on February 20, 2004, Ecuador instituted annulment
proceedings. The Decision on the Application for Annulment, issued on January 8, 2007, is available at
http://icsid.worldbank.org/ICSID/FrontServlet.
32
IBM World Trade Corp. v. Republic of Ecuador (ICSID Case No. ARB/02/10), available at
http://icsid.worldbank.org/ICSID/FrontServlet (The award embodying the parties' settlement was rendered
on July 22, 2004).
33
These arbitrations concerned value-added taxes (VAT) paid by multinational oil companies, and for
which the companies claimed that they were entitled to refunds.
34
EnCana Corporation v. Republic of Ecuador (LCIA Case No. UN3481)
35
Occidental Exploration and Production Company v. The Republic of Ecuador (LCIA Case No. UN3467).
Ecuador later challenged the award in the United Kingdom. For an overview of these proceedings see
“Ecuador vs. Occidental: La Corte Superior de Justicia de Inglaterra Rechaza la Acción de Nulidad
Propuesta por Ecuador” available at http://www.andradeveloz.com/inter.asp?id=e&s=4&a=5. According to
press reports, Occidental has moved to request the execution of the award before English courts. See
http://www2.elcomercio.com/noticiaEC.asp?id_noticia=178571&id_seccion=6.
36
See the Notice, supra note at 1 (emphasis added).
37
See Definiciones in Ley de Gestión Ambiental, published in the Official Gazette No. 418 of September
10, 2004 (“Recursos Naturales.- Son elementos de la naturaleza susceptibles de ser utilizados por el hombre
para la satisfacción de sus necesidades o intereses económicos, sociales y espirituales. Los recursos
All of Ecuador’s ICSID cases, with the exception of one, 39 have concerned
disputes related to non-renewable natural resources. 40 Notably, the Notice purports to
extend not only to disputes related to Ecuador’s non-renewable natural resources, i.e., oil,
gas and minerals, but also to disputes concerning its renewable natural resources.41 This
is relevant because FDI in Ecuador may be also found in industries such as forestry,
fishery, aquaculture, and flower-growing. 42
b. The Legal Effect of Ecuador’s Notice
Ecuador’s notification also provides that “every instrument containing the
Republic of Ecuador’s prior consent to submit this class of disputes to the Centre’s
jurisdiction, that has not been perfected by the express and explicit consent of the other
Party prior to the date of submission of this notice, is hereby withdrawn by the Republic
of Ecuador with immediate effect as of this date." 43 This terminology 44 raises the
question whether Ecuador can withdraw its “prior consent” 45 to ICSID via the Notice.
The governing law, 46 state practice, negotiating history, and expert commentary suggest
that this may not be possible for the following reasons.
renovables se pueden renovar a un nivel constante. Los recursos no renovables son aquellos que
forzosamente perecen en su uso”).
38
Id.
39
See IBM World Trade Corp. v. Republic of Ecuador (ICSID Case No. ARB/02/10), available at
http://icsid.worldbank.org/ICSID/FrontServlet (concerning computer service contracts).
40
See e.g., concerning the electricity industry: M.C.I. Power Group, L.C. and New Turbine, Inc. v.
Republic of Ecuador (ICSID Case No. ARB/03/6); Noble Energy Inc. and Machala Power Cía. Ltd. v.
Republic of Ecuador and Consejo Nacional de Electricidad (Case No. ARB/05/12); Empresa Eléctrica del
Ecuador, Inc. (EMELEC) v. Republic of Ecuador (Case No. ARB/05/9); Duke Energy Electroquil Partners
and Electroquil S.A. v. Republic of Ecuador (Case No. ARB/04/19); See e.g., concerning the oil industry:
Repsol YPF Ecuador S.A. v. Empresa Estatal Petróleos del Ecuador (Petroecuador) (ICSID Case No.
ARB/01/10); Técnicas Reunidas, S.A. and Eurocontrol, S.A. v. Republic of Ecuador (Case No.
ARB/06/17); City Oriente Limited v. Republic of Ecuador and Empresa Estatal de Petróleos del Ecuador
(Petroecuador) (Case No. ARB/06/21); Occidental Petroleum Corporation and Occidental Exploration and
Production Company v. Republic of Ecuador (Case No. ARB/06/11).
41
Compare October 29, 2007 letter cited supra at note 1 (excluding from ICSID’s jurisdiction only
disputes related to non-renewable natural resources) with November 23, 2007 letter (excluding disputes
related to the exploitation of natural resources in general, both renewable and non-renewable).
42
See Report by the Ministerio de Agricultura, Ganadería, Acuacultura y Pesca del Ecuador, available at
http://www.sica.gov.ec/agro/docs/invxagrop.htm; See also http://www.ecuadorinvest.org/ecuadorinvest_new/index.php?option=com_content&task=blogcategory&id=71&Itemid=131&lang=en
43
See the Notice supra note at 1 (emphasis added).
44
The Notice attempts to combines consent with the Art. 25(4) notice. While the Notice’s first part
(referring to the class of disputes, i.e. the scope of the notice) mirrors Article 25(4), the second part
(referring to consent withdrawal) borrows language from Article 25(1). These provisions are reproduced
below.
45
Ecuador’s notice distinguishes between perfected vs. unperfected consent. See the Notice, supra note at 1
(“…prior consent… that has not been perfected by the express and explicit consent of the other Party…”)
(emphasis added). While the notice appears to recognize the irrevocability of “perfected consent” under
Art. 25(1), it purports to withdraw any “unperfected consent” prior to December 4, 2007. However, to be
discussed below, even when the consent is unperfected, Ecuador may not be able to withdraw its consent
via the Notice.
46
ICSID Convention, Article 25. Article 25 (1) provides that:
First, notices under Article 25(4) “do not have any direct legal consequences.” 47
Instead, they have informational purposes only. 48 For instance, state practice 49 reveals
that the notifications do not bind the states making them, which are free to withdraw 50
and alter them at any time, or even conclude BIT’s that may contradict their previously
made notices. 51 Furthermore, ICSID’s negotiating history confirms that notices do not
amount to a reservation of the Convention. 52
Second, the notices, “by its own terms, do not constitute the consent required
under ICSID Article 25(1).” 53 This is confirmed by the last sentence of Article 25(4),
expressly providing that “such notification shall not constitute the consent required by
paragraph (1).” 54 It is also in harmony with ICSID’s case law 55 and negotiating history. 56
Notably, during the drafting of Article 25(4), it was made clear that in case of conflict
The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an
investment, between a Contracting State (or any constituent subdivision or agency of a
Contracting State designated to the Centre by that State) and a national of another Contracting
State, which the parties to the dispute consent in writing to submit to the Centre. When the parties
have given their consent, no party may withdraw its consent unilaterally.
Article 25 (4) provides that:
Any Contracting State may, at the time of ratification, acceptance or approval of this Convention
or at any time thereafter, notify the Centre of the class or classes of disputes which it would or
would not consider submitting to the jurisdiction of the Centre. The Secretary-General shall
forthwith transmit such notification to all Contracting States. Such notification shall not constitute
the consent required by paragraph (1).
47
CHRISTOPH H. SCHREUER, THE ICSID CONVENTION: A COMMENTARY 342 (2001)
[hereinafter Schreuer, Commentary].
48
See Art. 25(4) of the Executive Director’s Report, 1 ICSID Reports 29 (“… In order to avoid any risk of
misunderstandings…The provision [Art. 25(4)] makes clear that a statement by a Contracting State that it
would consider submitting a certain class of dispute to the Centre would serve for purposes of information
only…”) (emphasis added) [hereinafter the Executive Report].
49
This “state practice” is limited because only a few states have made notifications under Article 25(4). See
supra note 4.
50
See e.g., Guyana and Israel notified the Centre of certain classes of disputes, but withdrew them later.
ICSID Document 8-D.
51
See Schreuer, Commentary, supra note 47, at 343 (asserting that Art. 25(4) notifications “do not preclude
consent” and providing examples of countries that have concluded BIT’s giving consent in respect to a
dispute that belongs to the class that was listed as one of those it would not consider submitting).
52
See History, Vol. II, at 59; 1 ICSID Reports 29 (The Executive Report on Article 25(4) provides in its last
sentence that: “Of course, a statement excluding certain classes of disputes from consideration would not
constitute a reservation to the Convention); Schreuer, Commentary, supra note 47, at 342 (distinguishing
Art. 25(4) notices from reservations and noting that whereas the former permit notifications at any time
after ratification, acceptance or approval of the Convention, the later are only permissible up to, and not
after ratification, acceptance or approval).
53
See Schreuer, Commentary, supra note 47, at 343.
54
ICSID Convention, Art. 25(4).
55
See e.g., Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, (ICSID Case No.
ARB/84/3), Decision on Jurisdiction and Dissenting Opinion (April 14, 1988) available at 16 Y.B. Com.
Arb. 28 (1991) (excerpts); 3 ICSID Reports 131 (1995) (providing that consent remains an essential
element to ICSID jurisdiction).
56
See Executive Report, supra note 48 (“…[the notice] would not constitute the consent required to give
the Centre jurisdiction”); Schreuer, Commentary, supra note 47, at 343 (discussing a failed Italian proposal
to combine consent with the Art. 25(4) notice).
between specific consent 57 and a notification excluding the type of dispute covered by the
consent, the former would prevail. 58
Finally, the notices only apply prospectively 59 and may not be used to withdraw
or limit 60 a consent previously given. 61 This point is illustrated by three related cases
conducted against Jamaica. 62 In these cases, the companies had entered into bauxite
mining agreements with the government. 63 The agreement contained an ICSID arbitration
clause. 64 After Jamaica enacted a law increasing the taxes on bauxite mining, the foreign
investor instituted ICSID proceedings. 65 Jamaica refused to appear before the tribunal
and contended that, by notifying the Centre under Article 25(4), 66 it had removed its
consent over mining disputes from ICSID’s jurisdiction. 67 In rejecting Jamaica’s
argument, the tribunal concluded that “this consent [the contractual arbitration clause]
having been given could not be withdrawn. The notification under Article 25 only
operates for the future by way of information to the Centre and potential investors…” 68
The tribunal further noted that any other interpretation would deprive the Convention of
any practical value for its Contracting States and investors. 69
It remains to be seen whether Ecuador, like Jamaica, will attempt to invoke the Notice
in its ongoing or future arbitrations.
5. Withdrawing Ecuador’s Prior Consent to ICSID
Due to the foregoing reasons, Ecuador’s Art. 25(4) notice, on its own, would do
little to stop the initiation of ICSID arbitrations. Therefore, for the Notice to be effective,
Ecuador would need to undo its prior consent to ICSID. A host state’s prior consent to
ICSID arbitration may normally find expression in three instruments: 70 (i) in a BIT
between the host State and the investor’s State of nationality, (ii) in a contract with the
57
E.g.,consent contained in a BIT, contract or domestic law.
See History, Vol. II, at 824; Schreuer, Commentary, supra note 47, at 344.
59
See Executive Report, supra note 48 (“[Art. 25(4) expressly permits Contracting States to make known to
the Centre in advance…”] (emphasis added); Schreuer, Commentary, supra note 47, at 344.
60
Schreuer, Commentary, supra note 47, at 344 (“consent may be subjected to limitations…but the terms
of consent are not restricted by the terms of a notification under Art. 25(4)”)
61
Id.
62
See Alcoa Minerals of Jamaica, Kaiser Bauxite v. Jamaica, Reynolds Jamaica Ltd and Reynolds Metals
Company v. Jamaica. The cases are discussed in J. Schmidt, Arbitration under the Auspices of ICSID:
Implications of the Decision on Jurisdiction in Alcoa Minerals of Jamaica Inc. v. Government of Jamaica,
17 Harvard J. Int. L. 90, 93-94 (1976) [hereinafter Schmidt, Alcoa Decision]; See also Moshe Hirsch, THE
ARBITRATION MECHANISM OF THE INTERNATIONAL CENTER FOR THE SETTLEMENT OF
INVESTMENT DISPUTES 58 (1993) [hereinafter, “Hirsch, The Arbitration Mechanism”]; Schreuer,
Commentary, supra note 47, at 256.
63
Schmidt, Alcoa Decision, supra note 62.
64
Id.
65
Id.
66
Jamaica notified ICSID prior to the request for arbitration but after concluding the contract with the
investor. The notice provided that “legal disputes arising directly out of an investment relating to minerals
or other natural resources” would not be subject to ICSID jurisdiction.
67
Id.
68
Schmidt, Alcoa Decision, supra note 62, at 94 cited in Schreuer, Commentary, supra note 47, at 256.
69
Id.
70
See Schreuer, Commentary, supra note 47, at 192; Hirsch, The Arbitration Mechanism, supra note 62, at
48 (asserting that the consent need not be given in only one instrument).
58
foreign investor, and (iii) in the internal legislation of the host State. In the instant case,
Ecuador offered its consent to ICSID in at least two ways. First, Ecuador entered into
contracts with foreign companies containing an ICSID arbitration clause. For instance,
Ecuador’s contract with the oil company City Oriente provided that “the parties commit
themselves to submit controversies or disagreements related to or resulting from this
Contract to the jurisdiction of the (ICSID)…” 71 Second, Ecuador signed at least 25
BITs. 72 Some of these BITs contain ICSID consent clauses. 73 For example, under the
Ecuador-Canada BIT, “the dispute may, at the election of the investor concerned, be
submitted to arbitration under [ICSID being one of three options]… Each Contracting
Party hereby gives its unconditional consent to the submission of a dispute to
international arbitration…” 74
In attempting to withdraw its prior consent to ICSID, Ecuador began to taken
action in two different fronts: (i) its BITs and (ii) its contracts.
a.
Withdrawing Consent in BITs
The Ministry of Foreign Affairs, Commerce and Integration, recently denounced
nine of Ecuador’s 25 BITs 76 and plans to renegotiate the remaining 16 BITs. 77
With the exception of the BIT with Romania, all of the denounced BITs were
concluded with Latin American countries 78 and some provided for ICSID arbitration. 79
Ecuador allegedly did not denounce the BITs based on whether they provided for ICSID
arbitration or on their frequency of use. Otherwise, Ecuador would have denounced the
BITs under which more arbitrations have been brought. For instance, at least seven
ICSID arbitrations have been initiated under the U.S.-Ecuador BIT 80 and two pursuant to
75
71
See Clause 20.3 of the Contract between City Oriente and Ecuador, in City Oriente Limited v. Republic of
Ecuador and Empresa Estatal de Petróleos del Ecuador (Petroecuador) (ICSID Case No. ARB/06/21),
Decision on Provisional Measures ¶ 8.
72
See supra note 20.
73
See e.g., Ecuador-Canada BIT Art. XIII. See also U.S.-Ecuador BIT Art. VI (“each Party hereby consents
to the submission of any investment dispute for settlement by binding arbitration in accordance with the
choice specified in the written consent of the national or company under paragraph 3[referring to ICSID
arbitration]). But see Ecuador-Switzerland BIT (no ICSID clause nor access to international arbitration).
74
See Ecuador-Canada BIT Art. XIII (emphasis added).
75
See the BITs with El Salvador, Cuba, Guatemala, Honduras, Nicaragua, the Dominican Republic,
Paraguay, Uruguay and Romania.
76
See “Ecuador will denounce at least nine bilateral investment treaties,” Investment Treaty News
(February 2008) available at
http://www.iisd.org/investment/itn/news.asphttp://www2.elcomercio.com/noticiaEC.asp?id_noticia=16720
4&id_seccion=3.; See also http://www2.elcomercio.com/noticiaEC.asp?id_noticia=167204&id_seccion=3.
77
See e.g., the BITs with the United States, Canada, Chile, France, Spain, United Kingdom, Netherlands,
Switzerland, Italy, Germany, Finland, Peru, Bolivia, Venezuela, Argentina and China.
78
None of which appear to be big capital-exporting countries.
79
The following BITs provide for ICSID Arbitration: Dominican Republic, El Salvador, Honduras,
Nicaragua, Paraguay, and Romania. The BIT with Cuba does not provide for ICSID arbitration. It is
unknown whether the BITs with Guatemala and Uruguay provide for ICSID arbitration because they are
not publicly available.
80
See Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic
of Ecuador (ICSID Case No. ARB/06/11); Noble Energy Inc. and Machala Power Cía. Ltd. v. Republic of
Ecuador and Consejo Nacional de Electricidad (Case No. ARB/05/12); Empresa Eléctrica del Ecuador, Inc.
the Ecuador-Spain BIT. 81 Instead, Ecuador has reportedly denounced the BITs because
they allegedly failed to bring noticeable benefits to the Ecuadorian economy. 82 However,
to the extent the denounced BITs have more favorable provisions than the remaining
BITs, Ecuador may be modifying the effect of its 16 remaining BITs. 83
In spite of these actions, Ecuador cannot pull out immediately from its BITs
because they contain a “survival clause.” This clause enables the provisions of the treaty
to continue to apply for 10-20 years following the termination of the treaty. 84
b. Withdrawing Contractual Consent: The New Contractual Regime for
Natural Resources
The Ecuadorian government also began to renegotiate its existing oil and mining
contracts with the foreign investors. 85 According to press reports, the new contracts will
not contain ICSID arbitration clauses. 86 Instead, they will include an express waiver to
ICSID arbitration, even when there is a BIT or other instrument providing otherwise. For
instance, in the oil exploitation contracts recently awarded by the Special Bidding
Committee (Comité Especial de Licitaciones) 87 to local and foreign entities, 88 the
investor “explicitly waives its right to submit any dispute relating to the contract’s
performance to any diplomatic, consular, judicial or arbitral proceeding not foreseen in
the contract.” 89
(EMELEC) v. Republic of Ecuador (ICSID Case No. ARB/05/9); Duke Energy Electroquil Partners and
Electroquil S.A. v. Republic of Ecuador (ICSID Case No. ARB/04/19), IBM World Trade Corp. v.
Republic of Ecuador (ICSID Case No. ARB/02/10); M.C.I. Power Group, L.C. and New Turbine, Inc. v.
Republic of Ecuador (ICSID Case No. ARB/03/6); City Oriente Limited v. Republic of Ecuador and
Empresa Estatal Petróleos del Ecuador (Petroecuador).
81
See Repsol YPF Ecuador S.A. v. Empresa Estatal Petróleos del Ecuador (Petroecuador) (ICSID Case No.
ARB/01/10); Técnicas Reunidas, S.A. and Eurocontrol, S.A. v. Republic of Ecuador (ICSID Case No.
ARB/06/17).
82
In making its decision, the Special Commission took into account the following criteria: (i) the FDI
flowing into Ecuador from each treaty, (ii) the FDI maintained by Ecuador in the host countries, and (iii)
the ability to generate new investments. See
http://www2.elcomercio.com/noticiaEC.asp?id_noticia=167204&id_seccion=3
83
See Emmanuel Gaillard, Establishing Jurisdiction Through a Most-Favored-Nation Clause, 233:105
New York Law Journal (June 2, 2005).
84
See e.g., Ecuador-Canada BIT Art XVIII (providing that “In respect of investments or commitments to
invest made prior to the date when the termination of this Agreement becomes effective, the provisions of
Articles I to XVII inclusive of this Agreement shall remain in force for a period of fifteen years); EcuadorUS BIT Art. XII (3) (“…the provisions of all of the other Articles of this Treaty shall thereafter continue to
be effective for a further period of ten years from such date of termination.”)
85
See http://www.eluniverso.com/2008/02/18/0001/9/7345A497294D4DCC98364E8F70E9E7C8.aspx;
http://www.eluniverso.com/2007/10/26/0001/9/4E12DE8ADC524C23A457661475289E13.aspx
86
Id.
87
The Special Bidding Committee (Comité Especial de Licitaciones) is the entity responsible for the
adjudication of oil fields. This Committee recently awarded exploitation contracts in three marginal oil
fields: Pucuna, Singue and Puma. See
http://www2.elcomercio.com/noticiaEC.asp?id_noticia=176878&id_seccion=6.
88
The foreign investors include companies from Colombia, United States and Venezuela. See Id.
89
See e.g,.Clause 24.2.1 of the Contrato para la Explotación de Petróleo Crudo y Exploración Adicional de
Hidrocarburos del Campo Marginal Pucuna, concluded between Petroecuador, Petroproducción and the
Consorcio Petrolero Amazónico (on file with authors) (hereinafter the “Exploitation Contract”) (“En el
Furthermore, these contracts contain a two-tier dispute resolution clause. 90 First,
disputes would be submitted to mediation before the Attorney General’s Mediation
Centre (Centro de Mediación de la Procuraduría General del Estado). 91 Second, if the
disputes are not solved by mediation, the parties may resort to arbitration 92 under the
auspices of the Arbitration and Mediation Centre of the Quito Chamber of Commerce. 93
Notably, the dispute resolution clause is limited in scope, 94 and expressly excludes from
mediation and arbitration (i) disputes that under the contract or Ecuadorian law should be
resolved by a competent administrative authority, 95 including disputes over the contract’s
termination, 96 and (ii) disputes arising out of administrative acts or resolutions by the
Mining and Tax authorities. 97
caso de controversias que pudieren surgir a causa de la aplicación de este Contrato, la Contratista, de
acuerdo con la legislación del Ecuador, renuncia de manera expresa a utilizar la vía diplomática o
consular, o a recurrir a cualquier órgano jurisdiccional no previsto en este Contrato, o a un arbitraje no
previsto en este Contrato. El incumplimiento de esta disposición será motivo de caducidad de este
Contrato. Las Partes se comprometen a utilizar los medios previstos en este Contrato para dirimir dudas y
controversias que puedan surgir durante su vigencia, al igual que a observar y cumplir las decisiones
emitidas por árbitros, jueces o tribunales competentes, en los casos que corresponda, según las
estipulaciones de este Contrato. En caso de caducidad de este Contrato, las Partes no podrán recurrir al
sistema arbitral”) (emphasis added) (Translation by authors).
90
See Exploitation Contract, Id., Clause 21.
91
See Centro de Mediación de la Procuraduría General del Estado, available at
http://www.pge.gov.ec/deplegarItem.do?itemid=204&idmenu=343.
92
It is worth noting that the Ecuadorian Ley de Arbitraje y Mediación provides for mandatory two-tier
proceedings that include mediation and arbitration. See Ley de Arbitraje y Mediación (codified in the
Official Gazette No. 417 of December 14, 2006), Articles 15, 16. In the exploitation contracts, the novelty
is that the mediation would take place before an institution different than the one that would handle the
arbitration phase.
93
See Centro de Arbitraje y Mediación de la Cámara de Comercio de Quito, available at
http://www.ccq.org.ec/. Notably, this local arbitration centre does not provide rules for international
arbitration, but only for domestic arbitration. Thus, it is likely that the place of arbitration would always be
in Ecuador and the governing law Ecuadorian law.
94
See Exploitation Contract, supra note 89, Clause 21.2, (“Se considera como controversia cualquier
disputa surgida entre las Partes durante la ejecución de este Contrato, exclusivamente por asuntos de
carácter técnico, que involucren aspectos económicos o viceversa”).
95
See Exploitation Contract, supra note 89, Clause 21.1 (“Los desacuerdos entre las Partes por asuntos
de carácter técnico, que involucren aspectos económicos o viceversa, surgidos durante la ejecución de este
Contrato, excepto aquellos asuntos que por este Contrato o por la Ley deban ser decididos por autoridad
competente, se someterán al proceso…”).
96
See Exploitation Contract, supra note 89, Clause 21.2, (“Las Partes someterán las controversias
susceptibles de transacción a resolución del Tribunal de Arbitraje y Mediación de la Cámara de Comercio
de Quito...Se exceptúan los reclamos o controversias sobre la declaratoria de caducidad que pudiere expedir
el Ministro de Minas y Petróleo, para lo cual se observará lo señalado en la cláusula 24.1.3. de este
Contrato”). This clause is in harmony with Clause 21.3.6 (“En caso de caducidad del contrato, no será
aplicable el sistema de arbitraje”) and Clause 24.2.1 (“En caso de caducidad de este Contrato, las Partes no
podrán recurrir al sistema arbitral”).
97
These disputes must be submitted to administrative or judicial institutions in accordance with Ecuadorian
law. See Exploitation Contract, supra note 89, Clause 24.1.3 (“Para los reclamos que se originen como
consecuencia de los actos o resoluciones de la Dirección Nacional de Hidrocarburos, se cumplirá lo
establecido en el Art. 10 de la Ley de Hidrocarburos y en sede judicial, los reclamos se tramitarán ante los
Tribunales Distritales de lo Contencioso - Administrativo. En los reclamos que se originen como
consecuencia de los actos o resoluciones del Servicio de Rentas Internas, será ese Organismo la instancia
superior administrativa; luego de lo cual, la Contratista podrá acudir ante el Tribunal Distrital de lo Fiscal,
It remains to be seen whether an ICSID tribunal will decline jurisdiction if an
investor explicitly waives its right to resort to ICSID. 98 It is also unclear whether the
waiver will apply to the parent company’s consent or only to its affiliates, i.e. the
subsidiary in Ecuador. 99
6. Political & Economic Implications
Ecuador’s Art. 25(4) notice, in conjunction with its BIT denunciation and the
fundamental changes in its contractual regime, reflects the government’s unwillingness of
facing more ICSID arbitrations. 100 In addition to the legal front, Ecuador is reportedly
leading a political campaign, along with Bolivia and Argentina, for the creation of a new
regional dispute settlement body to replace ICSID. 101
However, Ecuador’s mistrust with international arbitration may not be limited to
ICSID. 102 President Correa recently declared that the country will no longer be subject to
supra-regional nor supra-national bodies because they “are biased towards rich
nations.” 103
Foreign investment in Ecuador remains concentrated in the oil sector. 104 The United
States has been the major source of FDI in Ecuador. 105 It remains to be seen whether the
órgano jurisdiccional competente para conocer las reclamaciones directas o para resolver las apelaciones de
las decisiones del Director del Servicio de Rentas Internas”).
98
The argument would probably run that that the investor has to give its consent for the two unilateral
consents to form the arbitration agreement. However, the investor would be explicitly saying that it will not
do so via the waiver. Thus, even if the government's prior consent-which is not withdrawn- exists, the
investor’s consent would be missing. And if the investor subsequently consents, it will be inconsistent with
a specific advance waiver of such consent (the authors would like to thank Stanimir Alexandrov for this
comment). Moreover, at least two commentators have argued that the Art. 25(1) wording may open the
possibility for both the parties to withdraw their consent. Art. 25(1) of the Convention provides that “when
the parties have given their consent, no party may withdraw its consent unilaterally) (emphasis added). See
e.g., Schreuer, Commentary, supra note 47, at 254; Hirsch, The Arbitration Mechanism, supra note 62 at
50.
99
If the waiver applies only to the latter, the former may still be able to resort to ICSID arbitration despite
the waiver of its subsidiary. For instance, in the Exploitation Contract, supra note 89, one party to the
contract, the Consorcio Petrolero Amazónico, is formed by an Ecuadorian company and some Venezuelan
companies’ subsidiaries. The waiver contained in Clause 24.2.1 does not appear to comprise the
Venezuelan parent companies’ consents.
100
However, event, if the ICSID door may be closed to investors, Ecuador’s BITs contain agreements to
arbitrate under other arbitration rules, such as the UNCITRAL Rules. See e.g., Ecuador-Canada BIT Art
XIII; Ecuador-US BIT Art. VI; Ecuador-Argentina BIT Art. IX. Foreign investors have arbitrated against
Ecuador under the UNCITRAL Arbitration Rules. See e.g., Encana, Occidental, supra notes 34 and 35.
101
Ecuador’s President was recently quoted as saying that: “Vamos a entrar en conversaciones con países
altamente demandados ante el CIADI, como Argentina y Bolivia, para tomar acciones en común.” See
http://www.eluniverso.com/2007/11/29/0001/9/0E36619E86E14B0995108B0983956C7C.aspx.
102
In fact, Ecuador first questioned international arbitration when it was condemned to pay $75 Million
resulting from a tax-related arbitration conducted under the UNCITRAL Arbitration Rules. See Occidental
Exploration and Production Company v. The Republic of Ecuador (LCIA Case No. UN3467).
103
See http://www.eluniverso.com/2007/11/22/0001/9/66013E27880C4E1E8DD0366C4777709D.aspx;
http://www.eluniverso.com/2007/11/29/0001/9/0E36619E86E14B0995108B0983956C7C.aspx
(“Ya basta de que estemos sometidos a instancias no sólo extra nacionales sino extra regionales”).
104
The largest foreign investors in Ecuador are petroleum companies engaged in exploration and production
in the Amazon Basin, including City Oriente (U.S.), Repsol YPF (Spain), Petrobras (Brazil), Andes
foreign investors, most of who are from countries that have signed BITs with Ecuador,
will waive their rights to ICSID and/or international arbitration in order to continue to
operate in Ecuador. 106 If they are unable to reach an agreement with the government,
there is the risk that FDI may decrease or go elsewhere. 107
Petroleum (China), and Perenco (France). For a complete list of existing contracts see
http://www.menergia.gov.ec/secciones/hidrocarburos/HidroContratos.html
105
See data from Ecuador’s Banco Central, available at
http://www.bce.fin.ec/frame.php?CNT=ARB0000984; See also Ecuador Invest,
http://www.ecuadorinvest.org
106
Reportedly, while at least four corporations (i.e. Andes Petroleum, Petrobras, Perenco and Repsol YPF)
have agreed to waive ICSID arbitration, others such as City Oriente (which has recently commenced an
ICSID arbitration against Ecuador), have decided instead to terminate their contract. See “Las petroleras
desisten de los arbitrajes en el Banco Mundial” available at
http://www2.elcomercio.com/noticiaEC.asp?id_noticia=173756&id_seccion=6; See also “Correa dice que
la renegociación con las petroleras está por terminar,” available at
http://www2.elcomercio.com/noticiaEC.asp?id_noticia=173378&id_seccion=6
107
For instance, FDI could go to neighboring countries such as Peru which recently signed a Trade
Promotion Agreement with the U.S. providing for investment arbitration. See
http://www.ustr.gov/Trade_Agreements/Bilateral/Section_Index.