I. PROCEDURAL HISTORY
As it had been confirmed by the Tribunal to the parties on October 11, 2005, the Merits Hearing took place on March 20-24, 2006, in Washington, D.C. Present at the Hearing were:
Members of the Tribunal
Professor Raúl E. Vinuesa, President
The Honorable Benjamin J. Greenberg, Q.C., Arbitrator
Professor Jaime Irarrázabal C., Arbitrator
Claudia Frutos-Peterson, Secretary of the Tribunal Tomás Solis, ICSID Secretariat
On behalf of the Claimants
As Support Team for the Claimants
Damien Charles "Tai" Smith,
Elizabeth Lorelei Simpson,
Kristine Monet Roche,
On behalf of the Respondent
2. MAIN OBJECTION TO THE COMPETENCE OF THE TRIBUNAL. THE NON-RETROACTIVITY OF THE BIT: EFFECT ON EVENTS ALLEGED TO BE PRIOR AND SUBSEQUENT TO THE ENTRY INTOFORCE OF THE BIT.
Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party.
The breach of an international obligation by an act of a State having a continuing character extends over the entire period during which the act continues and remains not in conformity with the international obligation...
In accordance with paragraph 2, a continuing wrongful act, on the other hand, occupies the entire period during which the act continues and remains not in conformity with the international obligation, provided that the State is bound by the international obligation during that period.9
Breach consisting of a composite act
The breach of an international obligation by a State through a series of actions or omissions defined in aggregate as wrongful occurs when the action or omission occurs which, taken with the other actions or omissions, is sufficient to constitute the wrongful act.
In such a case, the breach extends over the entire period starting with the first of the actions or omissions of the series and lasts for as long as these actions or omissions are repeated and remain not in conformity with the international obligation.
...the State must be bound by the international obligation for the period during which the series of acts making up the breach is committed. In cases where the relevant obligation did not exist at the beginning of the course of conduct but came into being thereafter, the "first" of the actions or omissions of the series for the purposes of State Responsibility will be the first occurring after the obligation came into existence.10
The evolutionary interpretation of treaty provisions is permissible in certain cases but this has nothing to do with the principle that a State can only be held responsible for breach of an obligation which was in force for that State at the time of its conduct.11
Article 18 of the Vienna Convention provides:
Obligation not to defeat the object and purpose of a treaty prior to its entry into force
A State is obliged to refrain from acts which would defeat the object and purpose of a treaty when:
a) it has signed the treaty or has exchanged instruments constituting the treaty subject to ratification, acceptance or approval, until it shall have made its intention clear not to become a party to the treaty; or
b) it has expressed its consent to be bound by the treaty, pending the entry into force of the treaty and provided that such entry into force is not unduly delayed.
Each Party shall permit and treat investment, and activities associated therewith, on a basis no less favorable than that accorded in like situations to investment or associated activities of its own nationals or companies, or of nationals or companies of any third country, whichever is the most favorable...
Application of other rules
If the provisions of the law of either Contracting Party or obligations under international law existing at present or that are established in the future between the Contracting Parties in addition to this Treaty or if any Agreement between an investor of one Contracting Party and the other Contracting Party contain rules, whether general or specific entitling investments by investors of the other Contracting Party to treatment more favorable than is provided for in this Treaty, such rules shall, to the extent that they are more favorable, prevail over this Treaty.
In interpreting the abovementioned Article VII, the Claimants contend that the reference made to treaties entered into "between the Contracting Parties" refers to Contracting Parties of treaties that had not yet entered into force, and not the Contracting Parties of the Argentina-Ecuador BIT.
Nor does the principle of the inter-temporal law mean that facts occurring prior to the entry into force of a particular obligation may not be taken into account where these are otherwise relevant. For example, in dealing with the obligation to ensure that persons accused are tried without undue delay, periods of detention prior to the entry into force of that obligation may be relevant as facts, even though no compensation could be awarded in respect of the period prior to the entry into force of the obligation.18
In cases where the relevant obligation did not exist at the beginning of the course of conduct but came into being thereafter, the "first" of the actions or omissions of the series for the purposes of State responsibility will be the first occurring after the obligation came into existence.
This need not prevent a court taking into account earlier actions or omissions for other purposes (e.g. in order to establish a factual basis for the later breaches or to provide evidence of intent).19
Ecuador contends that neither does the BIT contain a definition of "investment." There has not been an intention to define the term with exactitude. The enumeration contained in Article I(1)(a) of the BIT continues to refer to the term "investment" by referring to relationships or property often included in the whole complex of operations known as investment.
Ecuador summarizes its position by stating that the list in Article I(1)(a) of the BIT in no way modifies its conclusions on the scope of the term "investment" in Article 25 of the ICSID Convention. The Seacoast Contract expired before the entry into force of the BIT and after that date Seacoast had nothing but expectations in respect of a contractual claim that was neither recognized, nor could in any way be considered an investment under the ICSID Convention.
The Claimants contend that Ecuador appears to confuse the relationship between the ICSID Convention and Article I(1)(a) of the BIT when, in order to determine the existence of an investment, it demands that certain requirements such as the existence of returns, a certain duration, risk, commitment and contribution to the economic development of the host State must exist. In any event, the Claimants argue that the requirements of duration and risk were present in the conception and design of the Seacoast project and investment in Ecuador.
The Claimants also argue that Seacoast’s operating permit falls within the definition of investment in the BIT. Article I(1)(a)(v) of the BIT describes "any licenses or permits pursuant to law" as investments. The granting and subsequent revocation of the permit were more than mere administrative acts because the Attorney General and the Civil Judge of Ecuador used the revocation of the permit as grounds to annul Seacoast’s lawsuit and the Attorney General also used the revocation to refuse to sign the arbitration agreement that had been previously negotiated.
According to the Claimants, their interests in Seacoast fall within the definition of investment under Article I(1)(a)(ii) of the BIT. The Claimants are the owners of the Seacoast branch in Ecuador. The branch owned rights in Ecuador against INECEL both under the Seacoast Contract and under the Clarification Contract. Seacoast actively pursued those rights through its legal representative’s efforts at the Liquidation Commission to have Seacoast’s accounts receivable paid, and also to manage Seacoast’s lawsuit against INECEL.
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 I of the BIT provides as follows:
1. For the purposes of this Treaty.
(a) "investment" means every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts; and includes:
(i) tangible and intangible property, including rights, such as mortgages, liens and pledges;
(ii) a company or shares of stock or other interests in a company or interests in the assets thereof;
(iii) a claim to money or a claim to performance having economic value, and associated with an investment;
(iv) intellectual property...;
(v) any right conferred by law or contract, and any licenses and permits pursuant to law;...
3. Any alteration of the form in which assets are invested or reinvested shall not affect their character as investment.
In the event of an investment dispute, the parties to the dispute should initially seek a resolution through consultation and negotiation. If the dispute cannot be settled amicably, the national or company concerned may choose to submit the dispute, under one of the following alternatives, for resolution: (a) to the courts or administrative tribunals of the Party that is a party to the dispute; or (b) in accordance with any applicable, previously agreed dispute-settlement procedures; or (c) in accordance with the terms of paragraph 3.
1. To allow the Respondent’s main objections to the Tribunal’s Competence in respect of the non-retroactivity of the BIT; and
2. To reject the objections to the Tribunal’s Competence with respect to the non-existence of an investment and the preclusion of the "fork-in-the-road" provision and consequently exercise its Competence over the Respondent’s alleged violations of the BIT by acts or omissions after the entry into force of the BIT.
The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.
Investments shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law.
Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investments. For purposes of dispute resolution under Articles VI and VII, a measure may be arbitrary or discriminatory notwithstanding the fact that a party has had or has exercised the opportunity to review such measure in the courts or administrative tribunals of a Party.
The Claimants allege violation of article III(1) of the BIT, which provides:
Investments shall not be expropriated or nationalized either directly or indirectly through measures tantamount to expropriation or nationalization ("expropriation") except: for a public purpose; in a nondiscriminatory manner; upon payment of prompt, adequate and effective compensation; and in accordance with due process of law and the general principles of treatment provided for in Article 11(3).
LIQUIDATION OF THE CONTRACT 17. 01. Once the term of this contract has expired, or if it has not been possible to continue with the relationship arising from this instrument, the parties shall prepare an act of liquidation, which shall contain a detailed account of the technical and economic aspects of the contract, recording the volume of power and energy supplied during the term, the values that INECEL has paid to the contractor, and those that have yet to be paid, those that must be deducted or refunded for any reason, with the appropriate adjustments. For this purpose, any compensation owing may be made. If there is no agreement on liquidating the contract, the parties shall proceed in accordance with Articles 87 and 88 of the Public Procurement Law, wherever applicable. This act of liquidation will be deemed as the act of delivery and receipt and must be signed by the representative of the contractor and in the name of INECEL, a commission appointed by the General Manager shall be present, constituted by the Operations Director of the SIN, the Director of Planning and Rates, and a technical expert who has not been involved in execution of this contract. The administrator of this contract shall appear as an observer, providing any appropriate information. If necessary, INECEL shall appoint other delegates to appear on its behalf at the signature of the act of liquidation stipulated in this clause. The members of the commission who, on behalf of INECEL, sign the act referred to in this clause shall have administrative, civil and criminal liability for the data and information contained therein.
The Tribunal notes that the statements of the parties contained in the arbitration proceedings express, in specific circumstances, the recognition of a pre-existing obligation or create a new enforceable obligation of the other party. This was the case in Joy Mining v. Egypt, where the Tribunal decided that the respondent was obligated by the statement of its legal counsel, expressed during the oral hearing, that it would comply fully with the UNCITRAL proceeding agreed in the contract, and that the award would be the basis on which a decision would be taken to release, or not, the bank guarantee that was the object of the dispute.47 Similarly, the Ad Hoc Committee in the case of CMS v. Argentina decided to stay enforcement of the award on the basis of a statement by the respondent’s agent committing the respondent to honor the annulment decision.48
6. ECUADOR’S HARASSMENT OF SEACOAST REPRESENTATIVES
Mondev, para. 119
a. To allow the Respondent’s main objections to the Tribunal’s Competence in respect of the non-retroactivity of the BIT;
b. To reject the other objections to the Tribunal’s Competence and consequently exercise its Competence over the Respondent’s alleged violations of the BIT by acts or omissions after the entry into force of the BIT;
c. To reject the Claimants’ claims on which the Tribunal previously decided that it had Competence, for it considers that the Claimants have failed to prove violation of the standards of fair and equitable treatment, including the obligation to act in good faith, or the standards of non-discriminatory or non-arbitrary treatment that the BIT requires of Ecuador as a State party.
d. To reject the Claimants’ claim relating to the expropriation of their rights to the investment as a result of revocation of Seacoast’s permit to operate in Ecuador.
e. To formally take note of the statements of the Respondent’s attorneys as to the Claimants’ right to take judicial action before the Ecuadorian courts to settle the outstanding disputes over what they allege to be contractual breaches.
f. Each party shall bear in equal portions the costs and expenses incurred in the arbitration proceedings on Jurisdiction and on the Merits.
g. Each party shall bear its own costs and expenses incurred for legal representation in the arbitration proceedings on Jurisdiction and on the Merits.