|LIST OF DEFINED TERMS AND ABBREVIATIONS|
|Adjusted Sum||The fair market value of Murphy Ecuador of USD 87.8 million adjusted to account for the Claimant's ongoing obligation to make Law 42 payments at 50%, as called for in paragraph 504 of the Partial Final Award|
|BIT (or Treaty)||Treaty between the United States of America and the Republic of Ecuador concerning the Encouragement and Reciprocal Protection of Investment, adopted 27 August 1993, entered into force 11 May 1997|
|Claimant (or Murphy)||Murphy Exploration and Production Company - International|
|Claimant's E-mail||Claimant's e-mail of 16 August 2016|
|Claimant's Post-Award Submission||Claimant's Post-Award Submission, dated 29 July 2016|
|Consortium||As of 28 July 1987: Overseas Petroleum and Investment Corporation, Diamond Shamrock South America Petroleum B.V., Nomeco Latin America Inc., and Murphy Ecuador|
|Ecuador (or Respondent)||Republic of Ecuador|
|Entitlement||The difference between the Adjusted Sum and the Repsol Sale Price, as called for in paragraph 504 of the Tribunal's Partial Final Award|
|Extension Contract||Contract modifying the Participation Contract for Exploration and Exploitation of Hydrocarbons for Block 16 of 12 March 2009 between the Consortium and PetroEcuador|
|FET||Fair and equitable treatment|
|Law 42||Law passed by Ecuador on 25 April 2006 to amend the Hydrocarbons Law|
|Murphy (or Claimant)||Murphy Exploration and Production Company - International|
|Murphy Ecuador||Murphy Ecuador Oil Company Limited, wholly-owned subsidiary of the Claimant (formerly known as Lowland Marine Ltd)|
|Partial Final Award||Partial Final Award issued by the Tribunal on 6 May 2016|
|Participation Contract||Modification of the Service Contract into a Participation Contract for the Exploration and Exploitation of Hydrocarbons (Crude Oil) in Block 16 between Empressa Estatal Petroleos del Ecuador (Petroecuador) and the Consortium Comprising YPF Ecuador Inc., Overseas Petroleum and Investment Corporation, Nomeco Ecuador Oil LDC, Murphy Ecuador Oil Company, and Canam Offshore Limited dated 27 December 1996|
|PCA||Permanent Court of Arbitration|
|PO No. 4||Procedural Order No. 4 issued by the Tribunal on 1 July 2016|
|Reply||Claimant's Reply on the Merits, dated 10 July 2014|
|Repsol Sale Price||Purchase price in accordance with the Sale and Purchase Agreement for the entire share capital in Murphy Ecuador signed|
|between Canam and Repsol on 12 March 2009 (USD 78.9 million)|
|Repsol Transaction||Sale and Purchase Agreement for the entire share capital in Murphy Ecuador signed between Canam and Repsol on 12 March 2009|
|Repsol||Repsol YPF Ecuador S.A.|
|Respondent (or Ecuador)||Republic of Ecuador|
|Respondent's E-mail||Respondent's e-mail of 5 August 2016|
|Respondent's Post-Award Submission||Respondent's Post-Award Submission, dated 29 July 2016|
|Third Fair Links Report||Third Expert Report of Anton Mélard de Feuardent (Fair Links), dated 28 July 2016, submitted by the Respondent with its PostAward Submission|
|Treaty (or BIT)||Treaty between the United States of America and the Republic of Ecuador concerning the Encouragement and Reciprocal Protection of Investment, adopted 27 August 1993, entry into force 11 May 1997|
|Umbrella Clause||Article II(3)(c) of the Treaty|
|UNCITRAL Rules||Arbitration Rules of the United Nations Commission on International Trade Law, 1976|
The Tribunal has found that Law 42 at 50% was lawful, but that Law 42 at 99% was unlawful. Accordingly, the Tribunal determines that Claimant should be compensated for the fair market value of Murphy Ecuador assuming that the wrongful act— i.e., Law 42 at 99%—did not occur, meaning that Law 42 at 50% would still have been in place at the valuation date of March 2009. For Claimant to be restored to a ‘but-for' scenario, the fair market value figure of USD 87.8 million must be adjusted to account for the fact that Murphy Ecuador would have continued paying participation under Law 42 at 50% if Law 42 at 99% had never been introduced.1
The Tribunal noted that it was "not able to calculate that sum on the basis of the information submitted by the Parties" and directed the Parties to attempt to agree, within three months of the date of the award, on "the adjustment that should be made to the fair market value of Murphy Ecuador of USD 87.8 million to account for an ongoing obligation on the part of Claimant to make Law 42 payments at 50% (" Adjusted Sum ")."2 The Tribunal added its finding that "Claimant is entitled to any difference between the Adjusted Sum and the purchase price of USD 78.9 million for Murphy Ecuador (" Entitlement "),"3 and ordered the Parties to attempt to agree, also within three months, on this amount, as well as on the "pre- and post-award interest sums referred to in paragraphs 503-504" of the Partial Final Award.4
1. A final determination of the Adjusted Sum, the Entitlement, and pre- and post-award interest that Ecuador owes Murphy;
2. A reasoned determination of Murphy's non-FET claims regarding Law 42 at 50%, including a declaration that Ecuador breached the Treaty, and the award of all additional damages that flow from such breach(es);
3. Rejection of Ecuador's set-off claim;
4. Reconsideration of the Tribunal's decision in Procedural Order No. 4 and a concomitant award of post-award interest on costs; and
5. Any other relief that the Tribunal may deem appropriate or necessary.5
1. A declaration that Ecuador does not owe any compensation to Murphy Ecuador for violation of the Treaty as determined in the Partial Final Award, including any preor post-award interest or costs of arbitration, and that, in particular, as a result of the Tribunal's finding on total damages, Ecuador's liability under paragraph 548(iii) of the Partial Final Award ordering it to pay compensation to Claimant for damages incurred for historical Law 42 payments in the amount of USD 19,971[,]309.00 and related pre- and post-award interest in paragraphs 548(vi) and 548(viii) is fully discharged; and
2. An award [of] costs of the proceeding, including Ecuador's attorney's fees and expenses, in the amount that will fully reflect the relative success of the Parties in the final analysis.6
|Damages Component||Scenario 1 Law 42 at 99% a Breach (no Extension Value)||Scenario 2 Law 42 at 99% a Breach (with Extension Value)||Scenario 3 Law 42 at 50% a Breach (no Extension Value)||Scenario 4 Law 42 at 50% a Breach (with Extension Value)|
|Historical Law 42 Payments||19,971,309||19,971,309||90,118,095||90,118,095|
|Interest on Historical Law 42 Payments||7,317,721||7,317,721||33,020,323||33,020,323|
|Historical Law 42 Payments with Interest||27,289,031||27,289,031||123,138,418||123,138,418|
|Interest on Entitlement||-||5,979,692||3,260,585||17,227,768|
|Entitlement with Interest||-||22,299,292||12,159,279||64,245,285|
|Adjusted Sum Law 42 at 50% (a)||Purchase price USD 78.9 million (b)||Entitlement as of 12 March 2009 (c) = (a) - (b)||Pre-Award Interest as of 6 May 2016 (d)||Total Entitlement value (including Pre-Award Interest) (e) = (c) + (d)|
the damages alleged by Claimant under the other heads of claim are the same as those alleged under its claim for breach of the FET standard; thus finding a breach under Article II(3)(a) of the Treaty as opposed to under any other provision invoked by Claimant has no impact on the calculation of damages.21
The Respondent further recalls the Tribunal's finding to the effect that, because the Claimant invoked the violation of multiple Treaty provisions as alternative grounds for finding the Respondent liable under the BIT, "once the Tribunal has found that one of those alternatives is well-founded, deciding on the other grounds is no longer part of the Tribunal's mission. "22 In this case, the Respondent notes, the Tribunal has already determined that Law 42 at 50% "was a reasonable measure" in light of the circumstances,23 making it unnecessary to explicitly address the Claimant's non-FET claims in respect to the legislation.24 In any event, the Respondent notes, the Tribunal did expressly reject some of the Claimant's arguments relating to the Umbrella Clause.25
As the Tribunal has found that Ecuador breached Article II(3)(a) of the Treaty, it is not necessary to determine Claimant's claims that Ecuador breached other provisions of the Treaty such as Article II(3)(c) (the "umbrella" clause); (2) Article II(3)(a) (full protection and security); (3) Article II(3)(b) (non-impairment through arbitrary measures); and (4) Article III(1) (expropriation). The Tribunal is satisfied that the damages alleged by Claimant under the other heads of claim are the same as those alleged under its claim for breach of the FET standard; thus finding a breach under Article II(3)(a) of the Treaty as opposed to under any other provision invoked by Claimant has no impact on the calculation of damages.27
The Third Navigant Assumption calls, in effect, for the deduction of the "Extension Value" from the [Repsol Sale Price] and its concomitant discarding from the calculation of the Entitlement. The manner in which Navigant seeks to effectuate that is by adding the so-called Extension Value to the Adjusted Sum before deducting the full [Repsol Sale Price]. In that way, the impact of the "Extension Value" in the calculation of the Entitlement is neutralized.40
A finding of such an adjustment is necessary in order to assure that these proceedings, and the Tribunal's legal and factual determinations, do not lead to overcompensation. Otherwise, the outcome of these proceedings, which is still very much within the Tribunal's power to determine, will be contrary to all principles of compensation under International Law as universally recognized, including by Murphy itself.71
it is irrelevant that the Law 42 payments and Entitlement constitute two [separate] elements of damages. Other tribunals have deducted from one head of damages the gains that resulted from awarding compensation for another head of damages to avoid double recovery.83
• Scenario 1: Law 42 at 99% a breach with no consideration of extension value. Assumes that only Law 42 at 99% is a breach and provides no value adjustment for contract extension. Adjusted Sum is USD 57.1 million. Entitlement is USD 0. Historical payments under Law 42 at 99% are USD 19.9 million (as found in the Partial Final Award). Total damages, including pre-award interest to 6 May 2016, are USD 27.3 million.
• Scenario 2: Law 42 at 99% a breach with consideration of extension value. Assumes that only Law 42 at 99% is a breach and provides value adjustment for contract extension. Adjusted Sum is USD 95.2 million. Entitlement is USD 16.3 million. Historical payments under Law 42 at 99% are USD 27.2 million (as found in the Partial Final Award). Total damages, including pre-award interest to 6 May 2016, are USD 49.5 million.
• Scenario 3: Law 42 at 50% a breach without consideration of extension value. Assumes that Law 42 at 50% is also a breach but provides no value adjustment for contract extension. Adjusted Sum is USD 87.8 million. Entitlement is USD 8.9 million. Historical payments under Law 42 at both 50% and 99% are USD 123.1 million. Total damages, including pre-award interest to 6 May 2016, are USD 135.2 million.
• Scenario 4: Law 42 at 50% a breach with consideration of extension value. Assumes that Law 42 at 50% is also a breach and provides value adjustment for contract extension. Adjusted Sum is USD 125.9 million. Entitlement is USD 47 million. Historical payments under Law 42 at both 50% and 99% are USD 123.1 million. Total damages, including preaward interest to 6 May 2016, are USD 187.3 million.92
Ecuador alleges that Murphy's sale of its interest in Block 16 to Repsol resulted in an accounting gain, such that Murphy suffered no damages as a result of Law 42. This is a non-sequitur for two reasons. First, the Repsol sale did not mitigate in any way the US$118 million in additional participation that Murphy paid prior to the sale.98
The Claimant also recalls that the table of contents to its Reply describes its two pre-interest damages heads as (i) "Historical Law 42 Payments Should Be Awarded Pre-Tax," and (ii) "Damages Post-March 2009 Should Be Measured as ‘But For' Cash Flows to January 2012 Less the Actual Proceeds of the Repsol Sale."99 This, according to the Claimant, clearly establishes that "the Repsol Sale Price acted as a mitigation of post -sale forward-looking damages but not of pre-sale historical Law 42 payments."100
|Professor Kaj Hobér||EUR 15,000.00|
|Me Yves Derains||EUR 2,850.00|
|Professor Bernard Hanotiau||EUR 20,180.00|
|(bank charges, office supplies, courier, translation, etc.)||EUR 4,607.36|
(i) DISMISSES the Claimant's request for the Tribunal to provide a reasoned decision on its non-FET Treaty claims.
(ii) DISMISSES the Claimant's claim that the value of the Adjusted Sum and Entitlement should account for the Extension Contract.
(iii) DISMISSES the Respondent's proposition that the negative difference between the Adjusted Sum and the Repsol Sale Price should be "offset" from the Claimant's damages for historical Law 42 payments.
(iv) DECLARES that the Adjusted Sum and the Entitlement referred at paragraph 504 of the Partial Final Award amount to USD 57.1 million and zero, respectively.
(v) DECLARES that, as a result of the Entitlement amounting to zero, there shall be no pre-award or post-award interest on it and the Sum of Figure A and Figure B referred to at paragraphs 522 and 548(viii) of the Partial Final Award shall amount to USD 7,136,121.
(vi) DISMISSES the Claimant's request that the Tribunal revisit its decision in PO No. 4 and award post-award interest on costs.
(vii) ORDERS each Party to bear 50% of the costs of arbitration and each Party to bear the costs of its own legal representation and assistance for this additional phase of the proceedings.
(viii) DISMISSES all other claims.