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Decision on Annulment

Table of Selected Defined Terms

AAE-[#] Ecuador's exhibit
AALA-[#] Ecuador's legal authority
Applicant Republic of Ecuador
Application for Annulment Application for Annulment dated October 2, 2019
Arbitration Rules Arbitration Rules of Procedure for Arbitration Proceedings, in force as of April 10, 2006
Award Award rendered on September 27, 2019 by the Arbitral Tribunal composed of H.E. Judge Peter Tomka, President, Mr. Neil Kaplan, C.B.E., QC, SBS, and Mr. J. Christopher Thomas, QC in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
CAA-[#] Perenco's legal authority
CEA-[#] Perenco's exhibit
Committee Ad hoc committee composed of Professor Eduardo Zuleta Jaramillo, a national of Colombia, as President; Professor Dr. Rolf Knieper, a national of Germany, and Professor Mónica Pinto, a national of Argentina
Counter-Memorial on Annulment Perenco's Counter-Memorial on Annulment dated July 16, 2020
Decision on the Environmental Counterclaim Interim Decision on the Environmental Counterclaim dated August 11, 2015, in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
Decision on Jurisdiction Decision on Jurisdiction dated June 30, 2011 in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
Decision on Jurisdiction and Liability Decision on Remaining Issues of Jurisdiction and on Liability dated September 12, 2014 in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
Decision on Reconsideration Decision on Ecuador's Reconsideration Motion dated April 10, 2015, in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
Decision on Provisional Measures Decision on Provisional Measures of May 8, 2008, in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
First Decision on Counterclaims Decision on Perenco's request for dismissal of the Respondent's counterclaims dated August 18, 2017, in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
Second Decision on Counterclaims Decision on Perenco's request for dismissal of the Respondent's counterclaims dated July 30, 2018, in the arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
Decisions Tribunal's decisions incorporated by reference into the Award: (a) the Decision on Jurisdiction dated June 30, 2011, (b) the Decision on Remaining Issues of Jurisdiction and on Liability dated September 12, 2014, (c) the Decision on Ecuador's Reconsideration Motion dated April 10, 2015, (d) the Interim Decision on the Environmental Counterclaim dated August 11, 2015, and (e) the decisions on Perenco's two requests for dismissal of the Respondent's counterclaims dated August 18, 2017 and July 30, 2018. In the Award, the Tribunal further referred to the Decision on Provisional Measures of May 8, 2008
Decision on the Stay Committee's Decision on the Stay of Enforcement of the Award dated February 21, 2020
Ecuador Republic of Ecuador
Ecuador's Costs Schedule Ecuador's Costs Schedule submitted on February 19, 2021
Hearing on Annulment Hearing on Annulment held virtually via Zoom and administered by Sparq on January 12 and 13, 2021
ICSID or the Centre International Centre for Settlement of Investment Disputes
ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of Other States dated March 18, 1965
Independent Expert Mr. Scott MacDonald, independent expert appointed by the Tribunal on July 6, 2016
Memorial on Annulment Ecuador's Memorial on Annulment dated April 16, 2020
Minister's Letter Letter submitted by Ecuador signed by Mr. Richard Martínez Alvarado, Minister of Economy and Finance of the Republic of Ecuador, dated April 20, 2020
Parties Republic of Ecuador and Perenco Ecuador Limited
Parties' Agreement Agreement between the Parties during the Underlying Arbitration regarding the joint expert process, communicated to the Tribunal on May 31 and June 1, 2016
Perenco Perenco Ecuador Limited
Perenco's Costs Schedule Perenco's Costs Schedule submitted on February 19, 2021
Rejoinder on Annulment Perenco's Rejoinder on Annulment dated November 16, 2020
Reply on Annulment Ecuador's Reply on Annulment dated September 16, 2020
Tr. Day [#] ([Speaker(s)]), [page:line] Transcript of the Hearing on Annulment (as revised by the Parties on February 1, 2021)
Tribunal Arbitral Tribunal composed of H.E. Judge Peter Tomka, President, Mr. Neil Kaplan, C.B.E., QC, SBS, and Mr. J. Christopher Thomas, QC
Underlying Arbitration Arbitration proceedings between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6
VCLT Vienna Convention on the Law of Treaties, done on May 23, 1969

I. INTRODUCTION AND PARTIES

1.
This case concerns an application for annulment by the Republic of Ecuador (the “Application for Annulment”) of the award rendered on September 27, 2019 (the “Award”) by the Arbitral Tribunal composed of H.E. Judge Peter Tomka, President, Mr. Neil Kaplan, C.B.E., QC, SBS, and Mr. J. Christopher Thomas, QC (the “Tribunal”) in the arbitration proceeding between Perenco Ecuador Limited and the Republic of Ecuador, ICSID Case No. ARB/08/6 (the “Underlying Arbitration”).
2.
The Tribunal incorporated by reference into its Award (a) the Decision on Jurisdiction dated June 30, 2011 (“Decision on Jurisdiction”), (b) the Decision on Remaining Issues of Jurisdiction and on Liability dated September 12, 2014 (“Decision on Jurisdiction and Liability”), (c) the Decision on Ecuador's Reconsideration Motion dated April 10, 2015 (“Decision on Reconsideration”), (d) the Interim Decision on the Environmental Counterclaim dated August 11, 2015 (“Decision on the Environmental Counterclaim”), and (e) the decisions on Perenco's two requests for dismissal of the Respondent's counterclaims dated August 18, 2017 (“First Decision on Counterclaims”) and July 30, 2018 (“Second Decision on Counterclaims”). Furthermore, in the Award, the Tribunal referred to the Decision on Provisional Measures of May 8, 2008 (“Decision on Provisional Measures”) (together, the Decision on Jurisdiction, Decision on Jurisdiction and Liability, Decision on Reconsideration, Decision on the Environmental Counterclaim, First Decision on Counterclaims, Second Decision on Counterclaims, Decision on Provisional Measures, the “Decisions”).
3.
The Applicant is the Republic of Ecuador (the “Applicant” or “Ecuador”).
4.
The party opposing Ecuador's Application is Perenco Ecuador Limited (“Perenco” or “Claimant”).
5.
The Applicant and Perenco are hereinafter collectively referred to as the “Parties”, and individually referred to as a “Party.” The Parties' representatives and their addresses are listed above on page (i).
6.
Ecuador seeks the annulment of the Award under Article 52(1) (b) (the Tribunal manifestly exceeded its powers); (d) (there was a serious departure from a fundamental rule of procedure), and (e) (the Award failed to state the reasons on which it was based) of the ICSID Convention.

II. PROCEDURAL HISTORY

7.
On October 2, 2019, Ecuador presented an Application for Annulment of the Award dated September 27, 2019 (the “Application for Annulment”), issued in the Underlying Arbitration. Pursuant to Article 52(5) of the ICSID Convention, the Applicant requested the ICSID Secretary-General to notify the provisional stay of enforcement of the Award until the ad hoc Committee rules on such request, and that the stay be maintained until a decision on the Application for Annulment is rendered by the Committee.1 On that same day the Application for Annulment was transmitted to Perenco.
8.

By letter dated October 4, 2019, the Acting ICSID Secretary-General registered the Application for Annulment and notified the provisional stay of enforcement of the Award, in accordance with ICSID Arbitration Rule 54(2).

9.
On October 15, 2019, the Secretary-General informed the Parties the intention of ICSID to propose to the Chairman of the ICSID Administrative Council the appointment to the ad hoc committee of Professor Eduardo Zuleta Jaramillo, a national of Colombia, as President, Professor Dr. Rolf Knieper, a national of Germany, and Professor Mónica Pinto, a national of Argentina, as committee members (the “Committee”).
10.
On November 6, 2019, the Secretary-General informed the Parties that the Centre had taken note of the correspondence of the Parties and Professors Zuleta and Knieper, and that it would inform the Parties once the appointments had been made. On that same day the Chairman of the ICSID Administrative Council appointed Professor Eduardo Zuleta, Professor Dr. Rolf Knieper and Professor Mónica Pinto to the ad hoc Committee, and ICSID proceeded to seek their acceptance of the appointments.
11.
On November 8, 2019, Perenco submitted its Opposition to Ecuador's Request to Continue the Provisional Stay of Enforcement, dated November 7, 2019, accompanied by Annex A (Decisions on Stays of Enforcement since November 2014), as well as Exhibits CEA-001 to CEA-039 and Legal Authorities CAA-001 to CAA-044. In its Opposition to the Stay, Perenco requested that the Committee lift the provisional stay of enforcement of the Award pending its decision on the Application for Annulment, or in the alternative, that the ad hoc Committee order Ecuador to provide, within 30 days of its decision on the issue of the stay, a deposit for the net amount of the Award, including accrued interest, into an escrow account; or an unconditional and irrevocable bank guarantee or letter of credit for the net amount of the Award, including accrued interest.2
12.

On November 18, 2019, the Committee was constituted in accordance with ICSID Arbitration Rules 6, 52(2), and 53. Ms. Veronica Lavista, ICSID Legal Counsel, was designated to serve as the Secretary of the Committee.

13.
In separate communications dated November 19, 2019 and November 21, 2019, Applicant and Perenco, respectively, presented their comments regarding the schedule of submissions and the hearing on the issue of the stay.
14.
By letter dated November 25, 2019, the Committee fixed the schedule of written submissions regarding the issue of the stay. The timetable was set as follows: on or before December 6, 2019 Ecuador would file its reply to Perenco's opposition to the request for continuation of the stay; on or before December 18, 2019 Perenco would file its rejoinder on the request for continuation of the stay; and an oral hearing on the continuation of the stay would take place in Washington, D.C., which would be conducted together with the First Session of the annulment proceeding. In the same letter, the Committee decided to maintain the stay of enforcement until it issued its decision on the continuation of the stay.
15.
On December 6, 2019, Ecuador filed its Reply to Perenco's Opposition to the Request to Continue the Provisional Stay of Enforcement, along with Exhibits AAE-0001 to AAE-0029 and Legal Authorities AALA-0001 to AALA-0038.
16.
On December 18, 2019, Perenco filed its Rejoinder to Ecuador's Request to Continue the Provisional Stay of Enforcement, along with Exhibits CEA-040 to CEA-064 and Legal Authorities CAA-039, CAA 041, CAA-042, CAA-045 to CAA-054.
17.
The first session and oral hearing on the continuation of the stay took place in person on January 13, 2020 in Washington, D.C. The following persons were present:

Committee:
Professor Eduardo Zuleta President
Professor Dr. Rolf Knieper Member
Professor Mónica Pinto Member

ICSID Secretariat:
Ms. Veronica Lavista Secretary of the Committee

For Perenco Ecuador Limited:
Counsel
Mr. Mark W. Friedman Debevoise & Plimpton
Ms. Ina C. Popova Debevoise & Plimpton
Ms. Laura Sinisterra Debevoise & Plimpton
Mr. Gregory A. Senn Debevoise & Plimpton

Parties
Mr. Jonathan Parr Perenco Group General Counsel
Ms. Josselyn Briceño de Luise Perenco Latin America Legal Advisor

Hearing Consultant
Mr. James Haase Immersion Legal

For the Republic of Ecuador:
Counsel
Mr. Eduardo Silva Romero Dechert (Paris) LLP
Mr. José Manuel García Represa Dechert (Paris) LLP
Ms. Gabriela González Giráldez Dechert (Paris) LLP
Ms. Ruxandra Esanu Dechert (Paris) LLP
Mr. Amir Farhadi Dechert (Paris) LLP

Parties
Dr. Íñigo Salvador Crespo Procurador General del Estado de la República del Ecuador
Dr. Claudia Salgado Levy Directora Nacional de Asuntos Internacionales – Procuraduría General del Estado de la República del Ecuador

Court Reporter:
Ms. Dawn Larson Worldwide Reporting, LLP

Interpreters:
Ms. Silvia Colla
Ms. Estela Zaffaroni
Mr. Charles Roberts

18.
On January 16, 2020, the Committee issued its Procedural Order No. 1, recording the Parties' agreements on procedural matters and the decisions of the Committee on the disputed issues.
19.
On February 21, 2020, the Committee issued its Decision on the Stay of Enforcement of the Award (the “Decision on the Stay”) and granted the request for the stay of enforcement of the Award subject to Ecuador presenting a letter stating that it will voluntarily comply with the Award in full within 60 days if the application for annulment is rejected.
20.

Paragraph 82(a) of the Decision on the Stay provided that:

a. Respondent is ordered to provide the ad hoc Committee, within 60 days following this decision, with a letter signed by Ecuador's Minister of Finance or the official having full authority to bind Ecuador, committing to pay the Award unconditionally, voluntarily and in full, within 60 days after the Committee decides on the Application for Annulment, if the Application for Annulment were not to be upheld in full or in part, and attesting that such payment shall not be subject to any enforcement proceedings or to the intervention of Ecuador's courts.

21.

Paragraph 82(b) of the Decision on the Stay further provided that:

b. If Ecuador were not to provide the letter under ¶ 82(a) with a text in form and substance satisfactory to the Committee within 60 days following the issuance of this decision, the stay shall be lifted if by such date or at any time thereafter Claimant has provided or provides the ad hoc Committee with a letter signed by an officer having full authority to bind Perenco S.A. committing to unconditionally, voluntarily and in full reimburse Ecuador for any payments received under the Award, within 60 days after the Committee decides on the Application for Annulment, if the Application for Annulment were to be upheld in full or in part and attesting that such payment shall not be subject to any enforcement proceedings or court intervention.

22.
On April 16, 2020, in accordance with the procedural calendar set out in Procedural Order No. 1, Ecuador filed its Memorial on Annulment (“Memorial on Annulment”), accompanied by a Consolidated Index of Exhibits and Legal Authorities, Exhibits AAE-0031 to AAE-0209, and Legal Authorities AALA-0039 to AALA-0109.
23.
On April 20, 2020, Ecuador submitted a letter signed by Mr. Richard Martínez Alvarado, Minister of Economy and Finance of the Republic of Ecuador (the “Minister's Letter”), stating as follow:

To whom it may concern,
In my capacity as Minister of Economy and Finance of the Republic of Ecuador, in compliance with the Committee's decision of February 21, 2020 in the arbitration proceeding ICSID No. ARB/08/06 between Perenco Ecuador Limited and the Republic of Ecuador, in case Ecuador's application for annulment were not to be upheld in full or in part, the Republic of Ecuador commits to pay the Award unconditionally, voluntarily and in full, within 60 days counted as from the decision of the Committee on the application. for annulment, without such payment being subject to enforcement proceedings or to the intervention of Ecuador's courts.
Sincerely,
[SIGNATURE]
Econ. Richard Martínez Alvarado
Minister of Economy and Finance
Republic of Ecuador

24.

On April 21, 2020, the Committee issued its Procedural Order No. 2 deciding that (i) the text of the Minister's Letter complied in form and substance with the requirement of paragraph 82(a) of the Decision on the Stay; and (ii) the order under paragraph 82(a) of the Decision on the Stay had been complied with by Ecuador, the stay of the award was maintained. The Committee further stated that it may revisit its decision to maintain the stay at any time during the proceedings if the circumstances so merit and unless otherwise indicated by the Committee, any lifting of the stay will require compliance by Perenco with paragraph 82(b) of the Decision on the Stay.

25.
On July 16, 2020, in accordance with the procedural calendar set out in Procedural Order No. 1, Perenco filed its Counter-Memorial on Annulment (“Counter-Memorial on Annulment”), accompanied by a Consolidated Index of Exhibits and Legal Authorities, Exhibits CEA-065 to CEA-146, and Legal Authorities CAA-055 to CAA-092.
26.
On September 16, 2020, in accordance with the procedural calendar set out in Procedural Order No. 1, Ecuador filed its Reply on Annulment (“Reply on Annulment”), accompanied by a Consolidated Index of Exhibits and Legal Authorities, Exhibits AAE-0210 to AAE-0221, and Legal Authorities AALA-0110 to AALA-0126.
27.
In the light of the restrictions on travel and movement resulting from the COVID-19 pandemic, on October 16, 2020, the Committee invited the Parties to submit by October 30, 2020 their views on the possibility to organize the hearing on annulment remotely.
28.
On October 28, 2020, the Parties informed the Committee of their agreement to hold a 2-day hearing remotely via Zoom on January 12 and 13, 2021. The Parties also agreed on the duration of opening statements and rebuttals, which was submitted to the Committee's consideration. The Parties requested that, in order for the hearing to best serve the Committee's needs, they would be grateful to receive any questions that the Committee may have for the Parties in advance.
29.
On November 16, 2020, in accordance with the procedural calendar set out in Procedural Order No. 1, Perenco filed its Rejoinder on Annulment (“Rejoinder on Annulment”), accompanied by a Consolidated Index of Exhibits and Legal Authorities, Exhibits CEA-147 to CEA-163, and Legal Authorities CAA-056 (resubmitted) and CAA-093 to CAA-107.
30.
On December 8, 2020, the Committee and the Parties were notified that Ms. Anneliese Fleckenstein, ICSID Legal Counsel, would serve as Acting Secretary of the ad hoc Committee during the absence of Ms. Lavista.
31.
On December 21, 2020, the Committee held a pre-hearing organizational meeting with the Parties by videoconference pursuant to Section 16 of Procedural Order No. 1. The Committee and the Parties discussed logistical questions, procedures and administrative items in relation to the preparation of the virtual hearing.
32.
On December 21, 2020, the Committee issued Procedural Order No. 3 on the organization of the hearing.
33.
On January 7, 2021, the Committee sent the Parties a list of issues it invited them to address at the hearing.
34.
The Hearing on Annulment was held virtually on January 12 and 13, 2021 via Zoom and administered by Sparq (the “Hearing on Annulment”). The following persons were present at the Hearing on Annulment:

Committee:
Professor Eduardo Zuleta President
Professor Dr. Rolf Knieper Member
Professor Mónica Pinto Member

ICSID Secretariat:
Ms. Anneliese Fleckenstein Secretary of the Committee
For Perenco Ecuador Limited:

Counsel
Mr. Mark W. Friedman Debevoise & Plimpton
Ms. Ina C. Popova Debevoise & Plimpton
Ms. Laura Sinisterra Debevoise & Plimpton
Ms. Sarah Lee Debevoise & Plimpton

Parties
Mr. Jonathan Parr Perenco
Ms. Josselyn Briceño de Luise Perenco

For the Republic of Ecuador:
Counsel
Mr. Eduardo Silva Romero Dechert
Mr. José Manuel García Represa Dechert
Ms. Audrey Caminades Dechert
Ms. Gabriela González Giráldez Dechert
Mr. Raphaelle Legru Dechert
Ms. Ruxandra Irina Esanu Dechert
Mr. Amir Farhadi Dechert

Parties
Dr. Íñigo Salvador Crespo Procurador General del Estado de la República del Ecuador
Dr. María Nazaret Ramos Directora Nacional de Asuntos Internacionales – Procuraduría General del Estado de la República del Ecuador
Dr. Claudia Salgado Levy Procuraduría General del Estado de la República del Ecuador
Dr. Diana Moya Procuraduría General del Estado de la República del Ecuador

Administrative Assistant to the President of the Committee:
Ms. María Camila Rincón Zuleta Abogados

Court Reporter:
Mr. David Kasdan Worldwide Reporting, LLP
Zoom Technician / Sparq:
Mr. Mike Young Sparq

35.
On February 1, 2021, the Parties submitted agreed corrections to the Hearing transcripts.
36.
On February 19, 2021, the Parties filed their respective Costs Schedules.
37.
On April 23, 2021, the Committee and the Parties were notified that Ms. Lavista would resume her functions as Secretary of the ad hoc Committee.
38.
On May 13, 2021, the Committee declared the proceeding closed.
39.
The Committee has carried out its deliberations by video conferences and exchange of correspondence and, in issuing this decision, it has considered all the written submissions and oral arguments put forward by the Parties. The fact that certain arguments, documents, or legal authorities are not mentioned in the following sections does not mean that the Committee has not considered them.
40.
In Section III of the present decision, the Committee addresses the applicable legal framework to annulment proceedings under the ICSID Convention, including the grounds raised by Ecuador provided for in Article 52(1)(b), (d) and (e) of the ICSID Convention. In Section IV, the Committee addresses each of the specific grounds raised by the Applicant. These grounds are classified in matters of jurisdiction, merits, damages, and counterclaims. In Section V, the Committee addresses the costs of the annulment proceeding. And, in Section VI, the Committee sets out its decision.

III. THE APPLICABLE LEGAL FRAMEWORK

A. Annulment under the ICSID Convention

(1) The Parties' Positions

a. Applicant's Position

41.
For the Applicant, Article 52(1) of the ICSID Convention should not be interpreted in a restrictive manner. Article 52(1) already limits the annulment of an award to five specific grounds. Accordingly, the purview of ad hoc committees should not be restricted further than what Article 52(1) provides,3 or any part thereof if appropriate. Article 52(1) of the ICSID Convention should be interpreted neither narrowly nor broadly.4
42.
The ICSID Convention must be interpreted in light of its object and purpose, which in the context of annulment, is to secure the fundamental integrity of the ICSID system. Thus, in the presence of one of the limited grounds for annulment set forth in Article 52, a committee should annul the award.5 Ecuador states that “without this safeguard some States parties might not have accepted the ICSID Convention.”6
43.
Ecuador further claims that Perenco mischaracterizes the nature of ICSID annulment.
44.

First, Perenco purports to establish a “high threshold” and a “high bar for annulment in general” that is absent from the text of the ICSID Convention. For Ecuador, there is no presumption in favor of the validity of the award in the Convention, nor is it required that ad hoc committees preserve the finality of ICSID awards favoring validity over annulment. The committee in Soufraki rejected such presumption. Likewise, the committees in MINE, Amco II, and Klöckner II rejected any alleged privilege to finality.7 Ecuador claims that Perenco encourages the Committee to adopt a “restrictive” interpretation of the grounds for annulment. Yet, as expressed by the committee in Total, “Article 52 should be interpreted in accordance with its object and purpose, neither narrowly nor broadly.”8 In any event, for Ecuador it is unclear what legal consequences Perenco seeks to derive from the high threshold it proposes given that there is no special burden or standard of proof applicable to ICSID annulment proceedings.9

45.
Second, Perenco appears to suggest that because annulment is not an appeal, the Committee should reject Ecuador's arguments that would involve “‘extensive' or ‘detailed' analysis”10 of the Award. However, no such limitation exists in the Convention. The questions presented to an ad hoc committee require varying degrees of inquiry depending on the specific circumstances of the case.11 As such, when an award reflects a complex legal and factual background, a review of that background is required.12
46.

Third, Perenco contends that even if a ground for annulment is established, ad hoc committees should exercise their discretion to decline annulment. Nonetheless, Perenco fails to mention that, as expressed by the committee in CEAC v. Montenegro, such “discretion is by no means unlimited […].” And, in any event, no ad hoc committee has ever declined to annul an award after having found one of the grounds provided in Article 52(1) to be engaged.13

b. Perenco's Position

47.
Perenco argues that Ecuador mischaracterizes and ignores the explicit terms of Article 52(1) of the ICSID Convention and its context and purpose.
48.

Under Article 52, annulment is an “exhaustive, exceptional and narrowly circumscribed” derogation from the principle of finality of awards. Thus, the threshold for annulment is high. Annulment is a remedy reserved for “egregious violations of certain basic principles,”14 and “for unusual and important cases involving situations that are grossly illegitimate.”15 The narrow purpose of the annulment remedy is to “prevent flagrant cases of excess of jurisdiction and injustice.”16 Thus, annulment exists to safeguard the arbitral process, not to second-guess its substance.17

49.
Perenco observes that, according to the ICSID Secretariat's Updated Background Paper on Annulment, “‘ad hoc committees are not courts of appeal, annulment is not a remedy against an incorrect decision, and an ad hoc committee cannot substitute the Tribunal's determination on the merits for its own[…]' Committees must ‘take as their premise the record before the Tribunal.' A committee cannot replace an annulled award by ‘its own decision on the merits,' nor can annulment be a forum to ‘make new arguments on the merits that were not made in the original proceedings.' Otherwise, ‘the annulment mechanism of Article 52 would slide into an appeal.'”18
50.

Perenco contends that annulment is not automatic. Even if a tribunal committed an error contemplated in Article 52(1), an ad hoc committee has the discretion to annul or to confirm the award. This discretion follows from the language of Article 52(3), which provides that the Committee “shall have the authority to annul an award or any part thereof on any grounds set forth in paragraph (1)”—not that the Committee “shall” annul the award. In exercising this discretion, committees “must take account of all relevant circumstances, including the gravity of the circumstances which constitute the ground for annulment and whether they had—or could have had—a material effect upon the outcome of the case, as well as the importance of the finality of the award and the overall question of fairness to both Parties.”19

51.

According to Perenco, several ad hoc committees have recognized that they should not exercise their discretion to annul an award “if and when annulment is clearly not needed to remedy procedural injustice and annulment would unwarrantably erode the binding force and finality of ICSID Awards.”20 As noted by the Vivendi II committee, there is an “overriding principle that all litigation must come to an end unless there are strong reasons for it to continue.”21

52.

Perenco further contends that an annullable error does not necessarily entail annulment of the entire award. Under Article 52(3), an ad hoc committee has the authority to annul an award or any part thereof.22

53.
As regards the question of whether or not a presumption of validity exists, Perenco asserts that it is an irrelevant and unhelpful distinction given that the Convention establishes an award's presumed validity because it provides that an ICSID award is “binding on the parties.” Thus, the Award's validity is presumed unless and until Ecuador carries its burden to demonstrate that it should be annulled.23
54.
As described below, Perenco refutes Ecuador's characterization of the grounds provided in Article 52(1) of the ICSID Convention, under which it requests the annulment of the Award.

(2) The Committee's Analysis

55.
It is undisputed between the Parties that ICSID awards are binding on the disputing parties, may not be appealed, and are not subject to any remedies except those provided for in the Convention.24
56.

Under Article 52(1) of the ICSID Convention:

(1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds:

(a) that the Tribunal was not properly constituted;

(b) that the Tribunal has manifestly exceeded its powers;

(c) that there was corruption on the part of a member of the Tribunal;

(d) that there has been a serious departure from a fundamental rule of procedure; or

(e) that the award has failed to state the reasons on which it is based.

57.

Albeit the Claimant states that Article 52 must be restrictively interpreted, the Committee observes that nothing in the ICSID Convention provides for a restrictive or a broad interpretation of Article 52 or any other provision applicable to annulment proceedings. Accordingly, Article 52 and the other relevant rules on annulment, shall be interpreted in the light of Articles 31 and 32 of the of the Vienna Convention on the Law of Treaties (the “VCLT”), which are customary international law.

58.
In light of “the ordinary meaning of the terms of [Article 52 of the ICSID Convention] in their context and in the light of its object and purpose,” the Committee finds that the grounds set out in Article 52(1) are exhaustive, and therefore ad hoc committees have no power to annul an award under any other grounds.
59.
The Committee stresses that finality of awards is one of the cornerstones of the ICSID system. As an exception to such rule, annulment is a limited remedy designed to safeguard the fundamental fairness and integrity of the underlying arbitration.25 Consequently, an ad hoc committee shall not act as an appellate court to review the substance of the Award and it is not entitled to substitute its views for those of the tribunal because it disagrees with the substantive outcome of the award. This analysis is confirmed by Article 53 of the ICSID Convention, which stresses that the “award […] shall not be subject to any appeal.”
60.
The travaux préparatories of the ICSID Convention—a supplementary means of interpretation according to Article 32 of the VCLT—further shed light on the scope of Article 52, confirming the interpretation of said provision under Article 31 of the VCLT. As noted in the Updated Background Paper on Annulment for the Administrative Council of ICSID,

[T]he drafting history of the ICSID Convention also demonstrates that annulment ‘is not a procedure by way of appeal requiring consideration of the merits of the case, but one that merely calls for an affirmative or negative ruling based upon one [of the grounds for annulment.]' It does not provide a mechanism to appeal alleged misapplication of law or mistake in fact […].26

61.
Following the general principle onus probandi incumbit ei qui agit non qui negat, the Applicant has the burden of demonstrating that the Award or any part thereof should be annulled under one or more of the grounds provided in Article 52(1) of the ICSID Convention.27
62.
The degree of inquiry and analysis that an ad hoc committee must undertake to determine if one or more of the annulment grounds have been engaged is not merely a superficial or formal one. Although Perenco claims that no extensive analysis is required, the Committee finds no reference in the ICSID Convention suggesting that there is a limitation to the extension or detail of a committee's analysis, provided, of course, that it remains within the limits of its powers. To the contrary, by conducting a superficial or narrow review of an award, a committee may omit critical premises to understand the tribunal's decision. Moreover, some premises must be read in context so that their scope and meaning is properly understood.
63.

The Claimant argues that Article 52(3) of the ICSID Convention confers discretion to ad hoc committees not to annul an award even if a tribunal committed an annullable error. For Perenco, if annulment is not necessary to preserve the fundamental integrity of the ICSID system, an award should not be annulled. The Committee is of the view that while it is true that Article 52(3) of the ICSID Convention states that an ad hoc committee “shall have the authority” to annul the award or any part thereof […],” the discretion resulting from such provision should not be interpreted to defeat the object and purpose of the annulment remedy—“[the] safeguard against ‘violations of the fundamental principles of law governing the Tribunal's proceedings'”28—or to erode the binding force and finality of awards. To the Committee's knowledge, even though Article 53 provides discretion to ad hoc committees, no ad hoc committee has ever found an annullable error under one or more of the grounds set out in Article 52(1) but has refused to annul the Award or any part thereof on such grounds.

64.
In sum, as explained in ICSID's Updated Background Paper on Annulment, “(1) the grounds listed in Article 52(1) are the only grounds on which an award may be annulled; (2) annulment is an exceptional and narrowly circumscribed remedy and the role of an ad hoc [c]ommittee is limited; (3) ad hoc [c]ommittees are not courts of appeal, annulment is not a remedy against an incorrect decision, and an ad hoc [c]ommittee cannot substitute the Tribunal's determination on the merits for its own; (4) ad hoc [c]ommittees should exercise their discretion not to defeat the object and purpose of the remedy or erode the binding force and finality of awards; (5) Article 52 should be interpreted in accordance with its object and purpose, neither narrowly nor broadly; and (6) an ad hoc [c]ommittee's authority to annul is circumscribed by the Article 52 grounds specified in the application for annulment, but an ad hoc [c]ommittee has discretion with respect to the extent of an annulment, i.e., either partial or full.”29

B. Manifest excess of powers

(1) The Parties' Positions

a. Applicant's Position

65.
Ecuador states Article 52(1)(b) of the ICSID Convention provides for the annulment of an award when “the Tribunal has manifestly exceeded its powers.” Said ground is engaged if two requirements are met: that the tribunal exceeded the scope of its powers and the excess of powers was manifest.30
66.
As to the excess of powers, the scope of a tribunal's powers is defined by reference to the parties' consent to arbitration, the applicable law, and the issues submitted by the parties for the tribunal's decision. A tribunal exceeds its powers when it purports to exercise jurisdiction that it does not have, fails to apply the applicable law, or makes egregious errors of fact or weighs the evidence irrationally.31
67.
First, a tribunal exceeds its powers when it exercises its jurisdiction over a person or entity which is not an investor over which the tribunal has jurisdiction under the applicable treaty, or over a subject matter that does not constitute a protected investment within the meaning of the ICSID Convention or the applicable treaty.32
68.
Second, a tribunal exceeds its powers when it fails to apply the proper applicable law to the dispute, or when it fails to apply any law at all.33 A distinction must be drawn between a failure to apply the law and a mere error in its application. “Where the tribunal's analysis is a gross misapplication or misinterpretation of the law amounting to effective disregard or non-application of the law, it constitutes a failure to apply the law,” as recognized by the ad hoc committees in Sempra, Soufraki, Caratube, and Pey Casado.34 A committee's review of a tribunal's application of the law must be objective rather than subjective.35
69.
Third, a tribunal exceeds its powers when it commits egregious errors of fact or provides an irrational assessment of the evidence before it.36
70.
As to the requirement that a tribunal's excess of power be manifest, ad hoc committees agree that such requirement “refers to how readily apparent the excess is, rather than to its gravity.” From the ordinary meaning of the word “manifest”, the excess of power must be plain, clear, obvious, or evident.37
71.

Ecuador observes that both Parties agree that Article 52(1)(b) imposes a two-part test requiring that the Committee determine (i) whether an excess of powers has occurred, and if so, (ii) whether it was manifest. The Parties also agree that a tribunal manifestly exceeds its powers whenever it assumes jurisdiction it does not have, or rules ex aequo et bono without the Parties' consent.38 Yet, Ecuador contends that Perenco mischaracterizes the legal standard for manifest excess of power in three ways:

72.
First, Perenco misrepresents the Applicant's position. Ecuador's position is not that a misapplication or misinterpretation of the law is an excess of powers, its position is that “[w]here the tribunal's analysis is a gross misapplication or misinterpretation of the law amounting to effective disregard or non-application of the law, it constitutes a failure to apply the law.”39 The essential inquiry therefore is not just whether the tribunal erred in the application of the law, but whether that error is “so gross or egregious as substantially to amount to failure to apply the proper law.”40
73.

Perenco encourages the application of a “subjective” approach to determine whether the Tribunal has applied the proper law, i.e. that “so long as ‘the Tribunal correctly identified the applicable law and endeavoured to apply it,' it cannot have exceeded its powers.”41 Ecuador argues that the prevailing approach in ICSID annulment is the “objective” one; namely that “it is necessary for the Committee to review what the Tribunal actually analyzed and held, rather than what the Tribunal declared having done,” as expressed by the committee in Iberdrola. Therefore, as observed by the committee in Amco II, “[…] an ad hoc committee may find that the misapplication, etc. of national law is of such nature or degree as to constitute objectively (regardless of the Tribunal's actual or presumed intentions) its effective nonapplication.” This objective approach has been endorsed also by the Total committee.42

74.

According to Ecuador, Perenco appears to consider that a minor and innocuous misapplication of the law is the equivalent of a misapplication that is so egregious as to render the legal framework unrecognizable to an objective observer. Yet, “the line between non-application of the proper law and its misapplication may be difficult to draw but it exists.” To draw such line, the Committee must determine whether the Tribunal “stayed within the limits of th[e] applicable law,”43 as expressed by the committee in SAUR.

75.
Although Perenco claims that an excess of powers arises only when the tribunal “committed a complete failure to apply the correct body of law,” it is widely accepted that it is “an excess of power for a tribunal to fail to apply the law applicable to the case or to the particular issue in the case.”44
76.

Second, Article 52(1)(b) refers in general to “powers.” It is not restricted to jurisdiction or failure to apply the law. Therefore, it is possible that a tribunal exceeds its power to assess the evidence. Ecuador advances that “when a tribunal reaches a conclusion –whether factual or otherwise– that ‘shocks, or at least surprises, a sense of juridical propriety,' that tribunal has exceeded its adjudicatory powers under the Convention.”45 As recognized by arbitral tribunals and annulment committees, ICSID tribunals enjoy no unfettered discretion. Any discretion enjoyed by a tribunal is limited by the applicable law.46

77.
Third, Perenco attempts to add non-existent requirements into the word “manifest.” In the first place, it tries to discredit the position that determining whether a manifest excess of powers has occurred may require “extensive argumentation and analysis.” For Perenco, that is “irreconcilable with the ordinary meaning of the term ‘manifest,' in light of its object and purpose.” Yet, the word “manifest” must also be interpreted in the context of investor-State arbitration, where complex legal and technical issues are discussed.47 Then, Perenco tries to discredit Ecuador's position that an excess of powers need not be grave to be manifest. Nonetheless, the prevailing view among committees is that “‘manifest' refers to how readily apparent the excess is, rather than to its gravity.” This has been also recognized by Prof. Schreuer. Albeit Perenco claims that an excess of power must be both textually obvious and substantively serious, as expressed by the committee in Soufraki, Ecuador remarks that the Soufraki committee was simply underscoring that a “manifest excess of powers” will not only be obvious, but also inherently serious, given that it implicates a transgression of the tribunal's mandate.48

b. Perenco's Position

78.
Perenco submits that Ecuador is wrong that a “misapplication or misinterpretation of the law” is an excess of powers. As its name implies, an “excess of powers” arises in the case of an award ultra, extra, or citra petita: one that goes beyond the scope of the parties' arbitration agreement by deciding points that had not been submitted for decision or fails to carry out its mandate by completely disregarding the applicable law and deciding the dispute on some other basis.49
79.
As confirmed by the travaux préparatoires of the ICSID Convention, mistakes are not an excess of powers. In fact, the drafters of the ICSID Convention rejected a “serious misapplication of the law” as a ground for annulment. Accordingly, an excess of powers arises only when the tribunal committed a “complete failure to apply the correct body of law.” So long as “the Tribunal correctly identified the applicable law and endeavoured to apply it,” it cannot have exceeded its powers.50
80.
Perenco notes that Ecuador's position that “gross” or “egregious” errors of law are annullable is mistaken. Conceptually, there is no difference between one incorrect interpretation of the law and another one regardless of the adjectival qualification given. Both entail a qualification of how the tribunal applied the correct body of law, not whether it endeavored to apply it. Thus, when the tribunal in fact applies the proper law, but does so incorrectly—no matter how “gross” or “egregious” that error—there is no excess of powers. Furthermore, Perenco notes that none of the decisions Ecuador invokes found that the tribunal committed a gross or egregious error of law warranting annulment.51
81.

Ecuador is wrong that a tribunal exceeds its powers when it makes egregious errors of fact or weighs the evidence irrationally. As noted in the annulment decision in Dogan, “it is not within the ad hoc committee's remit to re-examine the facts of the case to determine whether a tribunal erred in appreciating or evaluating the available evidence.” Furthermore, the decisions referred to by Ecuador do not support its position.52

82.
As to the qualification of “manifest” set out in Article 52(1)(b) of the ICSID Convention, Perenco observes that while Ecuador accepts that “manifest” means that the excess of powers must be “obvious,” “clear,” or “evident,” it asserts that an excess of powers may be manifest even if an “extensive argumentation and analysis may be required to prove” it. Such approach is irreconcilable with the ordinary meaning of the term “manifest,” in light of its object and purpose. Perenco further objects Ecuador's contention that “committees agree” that an excess of powers need not be grave in order to be “manifest.” “[I]t is well established that an excess of powers must be both ‘textually obvious and substantively serious' to qualify as ‘manifest.'”53
83.
In its Rejoinder on Annulment, Perenco remarks that the specific grounds Ecuador “labels as ‘manifest excess of power' are not that the Tribunal exceeded its mandate by, for example, deciding a dispute not submitted to it, or arrogating to itself some extraordinary power it did not have. Rather, Ecuador alleges that the Tribunal made legal or factual errors in the way it decided the issues that were within its mandate to decide.”54
84.
First, Ecuador failed to find a single decision in which an award was annulled for an error of law, even a gross or egregious one. Ecuador also misquotes the ICSID Background Paper and the CEAC decision.55 Contrary to Ecuador's claim that the travaux of the ICSID Convention “stand for the uncontroversial proposition that a simple error of law is not ground for annulment, whereas failure to apply the applicable law is,” the travaux unequivocally confirm that the drafters rejected the proposition that “serious” or “erroneous” errors of law warrant annulment. As to the CEAC decision, the committee rejected CEAC's argument that the tribunal had committed an “egregious mistake.”56
85.
Ecuador advocates for an “objective” approach to a tribunal's analysis. However, the alleged distinction between “objective” and “subjective” review is too facile to be meaningful, and dangerous in its implications. Because a tribunal's role is to decide disputed matters, a tribunal will necessarily decide a dispute with some degree of subjectivity. Furthermore, Ecuador's proposed approach would make subjectivity worse. “For if this Committee examined how the Tribunal ought to have decided legal issues, as Ecuador suggests it should, it would be substituting its own necessarily subjective interpretation of the law for the Tribunal's findings—and doing so without the benefit of the entire record, oral evidence or detailed argument on the substance of the issues.”57 Perenco further claims that even the cases Ecuador cites for this subjective/objective distinction do not support the approach it urges.58
86.
Second, Ecuador has completely failed to address the proposition that alleged errors in assessing factual evidence cannot comprise a manifest excess of powers because assessing and weighing evidence lies at the core of a tribunal's mandate, not outside it. Perenco states that there is committee consensus on this position.59
87.
Third, in its Reply on Annulment, Ecuador presented the novel argument that committees should review jurisdictional decisions de novo. This argument contradicts its own position in the Memorial, i.e., that “a lack of jurisdiction ratione personae will constitute a manifest excess of powers if the excess of jurisdiction is obvious or evident,” and is wrong. As explained by Prof. Schreuer, the stability of the system could be threatened “if an ad hoc committee could simply substitute its view on jurisdiction for that of the tribunal.”60 Also, “Ecuador's argument that ‘[t]he questions presented to an ad hoc committee will require varying degree of inquiry depending on the specific ground involved' is similarly unavailing.”61
88.
Fourth, Ecuador's argument that “extensive argumentation” can be used to show an obvious error fails to recognize that the drafters of the ICSID Convention made a conscious decision to limit annullable errors to only those that were “manifest” to alleviate concerns that, without it, there would be a risk of frustration of awards. Ecuador does not dispute that the ordinary meaning of “manifest” is “obvious” or “[c]learly revealed to the eye, mind, or judgement.” If a legal point requires extensive argumentation and analysis, then is not an obvious one.62
89.
Ecuador's argument that an error need not be serious to be manifest is also unavailing. Minor or inconsequential errors do not undermine the ICSID system's integrity so should not be annullable. Ecuador also ignores committee consensus that a “manifest” excess of powers is one that is both “textually obvious and substantively serious.” Although Ecuador states that the Soufraki committee did not take a position on whether ‘manifest' means ‘serious' in addition to ‘obvious', said committee clearly stated that the excess of powers “should at once be textually obvious and substantively serious.”63
90.
Finally, Perenco does not agree with Ecuador that the “manifest” requirement must be determined only after first assessing whether there has been an excess of powers. The reverse approach is more efficient and more consistent with the proposition that an excess of powers must be obvious to satisfy annulment.64

(2) The Committee's Analysis

91.

Both Parties agree that two requirements must be fulfilled to meet the threshold of Article 52(1)(b): (i) that the tribunal exceeded the scope of its powers and (ii) that such excess of powers was manifest.65

92.
An excess of powers occurs when, for instance, a tribunal goes beyond the scope of the Parties' arbitration agreement, decides points which had not been submitted to it, or fails to apply the law agreed to by the Parties.66 In the case at hand, the Parties focus the debate on the Tribunal's alleged “excess of jurisdiction” and its alleged failure to apply the proper law.67
93.
As regards the scope of the arbitration agreement, ad hoc committees have held that there may be an excess of powers if a tribunal incorrectly concludes that it has jurisdiction when it lacks thereof, or when the Tribunal exceeds the scope of its jurisdiction. Likewise, a Tribunal's rejection of jurisdiction when jurisdiction exists also amounts to an excess of powers.68
94.
Under the principle of compétence de la compétence, a tribunal is the judge of its own competence and has the power to determine whether it has jurisdiction under the parties' arbitration agreement. ICSID annulment proceedings do not avail for a de novo review of jurisdiction. That would be tantamount to an appeal. As explained by Prof. Schreuer, “the stability of the system could be threatened if an ad hoc committee could simply substitute its view on jurisdiction for that of the tribunal.”69
95.
As regards the failure to apply the law agreed to by the Parties, the Parties differ on whether a gross misapplication or misinterpretation of the law amounts to a non-application of the law. On the one hand, the Applicant advances its case in favor of said position. On the other hand, the Claimant contends that as long as the Tribunal correctly identified the applicable law and endeavored to apply it, it cannot have exceeded its powers.70
96.
The Committee considers that under the limited scope of Article 52(1)(b), it cannot annul an award based on the fact that it has a different understanding of the facts, interpretation of the law, or appreciation of the evidence from that of the Tribunal.71 By so doing, a committee would be acting as a court of appeals; it would be reviewing the substance of the Tribunal's decision. In this regard, the Legal Committee of the ICSID Convention confirmed that even a “‘manifestly incorrect application of the law' is not a ground for annulment.”72 Accordingly, the Committee is of the view that the applicable standard of review is whether the Tribunal correctly identified and endeavored to apply the law agreed to by the Parties.73 It is not for an ad hoc committee to determine whether there was a misapplication or misinterpretation of the law agreed to by the parties or whether such misapplication or misinterpretation was gross or minor. This would imply an unacceptable intromission on the merits of the Tribunal's decision, not permitted by the ICSID Convention.
97.
The Parties further dispute whether the Committee's review of the Tribunal's application of the law must be “objective” rather than “subjective.” Regardless of the academic debate between the Parties on the contours of the terms “objective” or “subjective,” the Committee considers that its duty is to analyze whether in fact the Tribunal properly identified the body of law as agreed by the Parties and endeavored to apply that law. For such purpose, the Committee must undertake an assessment of the Award, the Treaty, and the relevant documents in the Underlying Arbitration.
98.
As to the requirement that a tribunal's excess of power be manifest, the Applicant contends that such requirement refers to how apparent the excess is, rather than to its gravity. The Claimant argues, in turn, that an excess of powers must be both textually obvious and substantively serious to qualify as manifest. The Committee considers that, in principle, the word “manifest” is to be interpreted under its ordinary meaning: something that is clear, patent, or apparent to the eye. However, the analysis does not stop there. In the light of the object and purpose of the annulment remedy, that is to safeguard the integrity of ICSID proceedings, the Committee considers that “manifest” also encompasses a substantive element. Thus, on the one hand, minor or inconsequential errors that do not undermine the integrity of the ICSID system should not be annullable; on the other hand, and as stated above, a superficial analysis or reading of the award is not sufficient to determine whether the excess is manifest.
99.
The Committee further notes that the excess of powers has to be “manifest” for the members of an ad hoc committee that ought to be constituted by qualified persons with “[…] competence in the fields of law, commerce, industry, or finance, who may be relied upon to exercise independent judgment,”74 not to anyone that may read the Award. Therefore, an ad hoc committee may need to review complex facts and legal issues to determine whether an error is tantamount to a manifest excess of powers. The extent and complexity of such review depends on the circumstances of each case.

C. Serious Departure from a Fundamental rule of Procedure

(1) The Parties' Positions

a. Applicant's Position

100.
Ecuador refers to Article 52(1)(d) of the ICSID Convention. It provides for the annulment of an award when “there has been a serious departure from a fundamental rule of procedure.” Ecuador presents the following analysis:
101.
To analyze whether there has been a serious departure from a fundamental rule of procedure, a three-prong test applies: (i) the procedural rule must be fundamental, (ii) the Tribunal must have departed from it, and (iii) the departure must have been serious.
102.
As to the fundamental rules of procedure, the Applicant contends that these are “procedural rules that are essential to the integrity of the arbitral process.” Such rules form a “set of minimal standards of procedure to be respected as a matter of international law.”75 In its Background Paper on Annulment, the ICSID Secretariat refers to a set of examples of these rules identified by ad hoc committees, such as: equal treatment of the Parties, the right to be heard, an independent and impartial Tribunal, treatment of evidence and burden of proof, and the deliberations among members of the Tribunal.76
103.
As to the departure, Ecuador advances that a tribunal departs from a fundamental procedural rule when, in the exercise of its discretion, it overlooks due process and procedural fairness. Such departure occurs when, for example, a tribunal awards damages resulting from a treaty breach despite the parties never pleaded such damages, or when a tribunal admits new evidence submitted by one party after the closure of the proceedings without giving the other party an opportunity to rebut it, as recognized by the ad hoc committees in Pey Casado and Fraport.77
104.
As to the seriousness of the departure, the Applicant claims that “to constitute a serious departure, the fundamental rule must have been flouted in a significant way that deprived the rule of its intended effect.” In the same vein, Ecuador notes that ad hoc committees “have considered that a ‘serious' departure is one which causes the tribunal to reach a result substantially different from that which it would have reached had such a rule been observed.”78
105.
Finally, the Applicant argues that a serious departure from a fundamental procedural rule need not be manifest, nor it has to be outcome determinative for it to be serious. Such analysis would be a highly speculative exercise for an ad hoc committee to undertake. “Rather than assessing whether the outcome of the proceeding would have been different, the ad hoc committee's task is to determine ‘whether the tribunal's compliance with a rule of procedure could potentially have affected the award.'”79
106.
Ecuador further claims that Perenco makes at least three errors in its presentation of the standard of “serious departure from a fundamental rule of procedure.”
107.

First, as regards the “right to be heard,” Perenco quotes Prof. Schreuer for the proposition that a tribunal is not “precluded from adopting legal reasoning that was not put forward by one of the parties without first seeking the parties' opinion.” Perenco, however, fails to mention that this proposition is not without exceptions. As noted by the committee in TECO, “[o]ne such exception is when a tribunal effectively surprises the parties with an issue that neither party has invoked, argued or reasonably could have anticipated during the proceedings.”80 Therefore, “when a tribunal relies on a concept that is in fact ‘surprising' and has not ‘been discussed by the parties' it could infringe the parties' right to be heard.”81

108.

Second, Perenco claims that a serious departure from a fundamental rule of procedure must have been “outcome-determinative.” This approach, however, has been rejected by committees for being highly speculative and impractical. As noted by the committee in Pey Casado I it is sufficient to ascertain that had the tribunal observed the fundamental procedural rule, “there is a distinct possibility (a ‘chance') that it may have made a difference on a critical issue,” or, as expressed by the committee in TECO, that compliance with the rule “could potentially have affected the award.”82 This position has also been recently adopted by the Eiser committee.83

109.

Third, Perenco asserts that “a party cannot seek annulment on the grounds of a serious departure from a fundamental rule of procedure if it failed to promptly raise that alleged departure before the tribunal.” Perenco, however, neglects to mention a key condition for the application of this rule: that the “objecting party must know of the conduct of the tribunal and have a reasonable opportunity to raise its objection.” As expressed by the committee in Fraport, “[…] a party cannot be treated as having waived an objection to a course of action of which it was unaware.”84

b. Perenco's Position

110.

According to Perenco, Ecuador fails to acknowledge key limitations on annulment on the basis of a “serious departure from a fundamental rule of procedure” under Article 52(1)(d).85

111.
First, it is uncontroversial that the right to be heard and the right to equal treatment are fundamental procedural rules. Yet, “the right to be heard entails a reasonable and fair opportunity to present one's case, not an absolute and unlimited one.” Tribunals are not required to give express consideration to every argument advanced by the Parties; moreover, when they decline to consider an issue that they deemed irrelevant.86
112.
Second, “contrary to Ecuador's position, the right to be heard does not constrain the tribunal to adopt wholesale either one party's arguments or the other's, without conducting its own analysis.” Perenco refers to Prof. Schreuer's observations on this matter to support87 its position.
113.
Third, a departure from a fundamental rule of procedure must be “serious.” Therefore, overlooking due process and procedural fairness is not enough to satisfy Article 52(1)(b). Furthermore, Ecuador's position that the Tribunal's position need not be outcome determinative counters its own admission that in order to qualify as “serious,” “the departure must have ‘deprived the rule of its intended effect' and ‘cause[d] the tribunal to reach a result substantially different from that which it would have reached' had it observed the rule.”88
114.
Perenco claims that a party cannot seek annulment on the grounds of a serious departure from a fundamental rule of procedure if it failed to promptly raise the alleged departure before the tribunal. It is not enough for a Party to simply state that it is reserving its rights without actually bringing the alleged procedural defect to the Tribunal's attention only to attack the award later in annulment proceedings.89
115.
In its Rejoinder on Annulment, Perenco asserts that Ecuador's position that the Tribunal seriously departed from a fundamental rule of procedure does not identify a breach of due process. Instead, seven out of eight of Ecuador's alleged instances of a serious departure from a fundamental rule seek to fault the Tribunal for not having engaged in an additional process that the Tribunal had no obligation to provide and would have paralyzed proceedings if adopted, namely giving Ecuador advance notice of the Tribunal's findings.90
116.
Ecuador's complaints are simply that it disagrees with the Tribunal's analysis and thinks it should have had a chance to say so and change the Tribunal's mind. That amounts, in essence, to a complaint that the Tribunal did not expressly tell the Parties what its Award would say before issuing it. But even Ecuador concedes that the Tribunal could adopt its own reasoning on the points submitted for decision and was not limited to accepting either one or the other Party's view. Ecuador therefore resorts to claiming that the Tribunal could not adopt its own legal reasoning when to do so would “effectively surprise the parties,”91
117.
Perenco adds that “[a]dopting Ecuador's formulation—that all it has to show is that there is a ‘distinct possibility' that the departure affected the outcome of the Award—would mean diluting the express terms of the ICSID Convention that the departure from the fundamental rule of procedure must be ‘serious.'”127 “The only reason Ecuador provides for its disregard of the language of the ICSID Convention—that some committees have found the ‘outcome-determinative' test ‘impractical to apply'—cannot justify departing from the express terms of Article 52(1)(d), more so when many ad hoc committees have applied that test.” In OI European Group, for example, the committee refused to find a serious departure. Even the decisions on which Ecuador relies do not support its case.92

(2) The Committee's Analysis

118.
The Parties agree that to determine whether there has been a serious departure from a fundamental rule of procedure two requirements must be met: (i) the procedural rule must be fundamental, and (ii) the departure from the fundamental rule of procedure must be serious.
119.

In relation to the fundamental character of the procedural rules, the drafters of the ICSID Convention understood that such rules are principles concerned with the integrity and fairness of the arbitral process,93 not ordinary arbitration rules. Article 52(1)(d) refers to procedural rules which may constitute “general principles of law”, insofar as these rules involve international arbitration procedure.94

120.
Ad hoc committees have identified examples of fundamental procedural rules, including: (i) the equal treatment of the Parties; (ii) the right to be heard; (iii) an independent and impartial Tribunal; (iv) the treatment of evidence and burden of proof; and (v) the deliberations among members of the Tribunal.95
121.
The Parties discussed at length the scope and contours of the “right to be heard”.
122.
As regards the right to be heard, the Fraport committee noted that said right is the right to present one's case, including the right to reply or comment on new evidence, the alteration of the legal basis of a claim, or the amendment of an original submission. This procedural rule also includes the right to a fair hearing.96
123.
Similarly, the Wena committee concluded that the “right to be heard” includes the right to state its claims or its defence and to produce all the arguments and evidence to support its position. This “fundamental right has to be ensured on an equal level, in a way that allows each party to respond adequately to the argument and evidence presented by the other.”97
124.
The Parties focus their discussion on the right to be heard on two main points: (i) whether tribunals are required to give express consideration to every argument advanced by the parties;98 and (ii) whether the right to be heard constrains a tribunal to base its analysis on arguments forwarded by one or the other party.
125.
As to the first point, the Committee observes that Article 48(3) of the ICSID Convention states that “[t]he award shall deal with every question submitted to the tribunal, and shall state the reasons upon which it is based.” This provision does not envisage that the Award shall address every argument, piece of evidence, or fact presented by the Parties. A Tribunal is therefore not obliged to give express consideration to every argument or issue raised by the Parties to guarantee their right to be heard. As concluded by the Azurix committee, “it is not a serious departure from a fundamental rule of procedure for a tribunal to decline to consider an issue that it considers to be irrelevant, merely because one of the parties considers it to be important.”99 Nonetheless, the Committee considers that a failure to consider a question or a point raised by a Party that is critical to the Tribunal's decision may, in certain cases, amount to a serious departure from a fundamental rule of procedure.100
126.
As to the second point, the Committee observes that a tribunal does not necessarily depart from the right to be heard by not adopting either of the positions raised by the Parties. A tribunal may conduct its own analysis based on the documents, evidence, pleadings, and legal authorities presented by the Parties and reach a conclusion different from the positions submitted by the Parties. In its Commentary to the ICSID Convention, Prof. Schreuer states that:

[The right to be heard] principle does not mean that it is the tribunal's task to draw the parties' attention to an aspect of a legal question that they may have failed to address. Nor is the tribunal precluded from adopting legal reasoning that was not put forward by one of the parties without first seeking the parties' opinion.101

127.

A similar position has been adopted by the Klöckner I and Caratube I committees, concluding that a tribunal does not violate the parties' right to be heard if they ground their decision on legal reasoning not specifically argued by the parties, insofar as the tribunal's reasoning can be fitted within the legal framework argued during the procedure.102 In case that the tribunal prefers to use a distinct legal framework, or to bring attention to other issues not raised by the parties, the tribunal shall give an opportunity to the parties to comment on such new legal framework. Likewise, a decision may be considered ultra petita when a tribunal decides on issues that were not pleaded by the parties.

128.
To the Committee's knowledge, in only two cases an award has been annulled under Article 52(1)(d) as a result of a breach to the “right to be heard”: Fraport and Amco II.
129.
In Fraport, the committee decided to annul the tribunal's finding that the investment was not made in accordance with the applicable Philippine law and therefore that it lacked jurisdiction under the treaty. The committee found (i) that the tribunal's decision was largely based on documents submitted by the respondent after the procedure was officially closed—and not re-opened—, and (ii) that the parties were not allowed to comment on such documents. The committee held that the tribunal's conduct was incompatible with its fundamental obligation to allow both parties to present their case in relation to the new material. The tribunal should not have considered the said documents in its deliberations “without having afforded the parties the opportunity to make submissions on it, and availed itself of the benefit of those submissions.”103
130.
In Amco II, the committee annulled the tribunal's supplemental decision to the award because the tribunal seriously departed from a fundamental rule of procedure. The committee concluded that the tribunal neither fixed a time limit for Indonesia's submission on Amco's request for a supplementary decision, nor did it give reasons in the supplementary award for not doing so. The committee considered that by so doing, the tribunal disregarded Rule 49(3) of the Arbitration Rules, providing that “[t]he Tribunal shall fix a time limit for the parties to file their observations on the request and shall determine the procedure for its consideration.” The committee concluded that such rule was fundamental because it provided an opportunity for both parties to present its case equally. The committee further determined that the departure from said fundamental rule was serious because the tribunal simply ignored it without even acknowledging its existence in the supplementary decision. Accordingly, the committee concluded that Indonesia was deprived of the benefit of the protection the rule is intended to provide, and therefore, it annulled the supplementary award.104
131.
In relation to the “seriousness” of the departure, the Parties debate on whether the departure from the fundamental procedural rule must have a material impact on the outcome of the case to be considered “serious”.
132.
For Ecuador, an ad hoc committee's task is to determine whether the tribunal's compliance with a rule of procedure could potentially have affected the award. To the contrary, Perenco considers that the departure must have caused the tribunal to reach a result substantially different from that which it would have reached had it observed the rule.105
133.
The Committee considers that for a departure from a procedural rule to be serious, it must have deprived the rule of its intended effect.106 Yet, to conclude that the departure is serious, the Committee need not determine if the outcome of the decision would have been different. Such analysis would be highly speculative. Thus, in the Committee's view, a breach is serious if the Tribunal's decision would have been potentially different had the breach not been committed.107
134.
A similar position was first adopted by the Pey Casado I committee,108 and has been endorsed by, among others, the ad hoc committees in Iberdrola I v. Guatemala,109 CEAC v. Montenegro,110 Occidental v. Ecuador,111 Tulip v. Turkey,112 and TECO v. Guatemala.113
135.
In this regard, the Occidental committee noted—and the Committee shares its view—that:

To require an applicant to prove that the award would have been different had the rule of procedure been observed, may impose an unrealistically high burden of proof. Where a complex decision depends on a number of factors, it is almost impossible to prove with certainty whether the change of one parameter would have altered the outcome.114

136.
Likewise, the Committee is persuaded by the ad hoc committee's reasoning in CEAC v. Montenegro that:

Requiring an applicant to show that it would have won the case or that the result of the case would have been different if the rule of procedure had been respected is a highly speculative exercise. An annulment committee cannot determine with any degree of certainty whether any of these results would have occurred without placing itself in the shoes of a tribunal, something which it is not within its powers to do. What a committee can determine however is whether the tribunal's compliance with a rule of procedure could potentially have affected the award.115

137.
Accordingly, the Committee considers that for a departure to be serious it need not be outcome determinative in the sense that the Applicant has to demonstrate that the Tribunal's decision would have been different had the fundamental procedural rule been observed. The Applicant, however, has the burden to demonstrate that there is a distinct possibility that the departure may have made a difference on a critical issue of the Tribunal's decision.
138.

Finally, the Parties dispute whether a Party can seek annulment on the grounds of Article 52(1)(d) if it failed to promptly raise the alleged departure before the Tribunal. Perenco argues that a simple “reservation of rights” is not enough, as opposition must be express. Ecuador contends, in turn, that “[…] a party cannot be treated as having waived an objection to a course of action of which it was unaware.”116

139.

The Committee remarks that pursuant to Arbitration Rule 27, if a party is aware of a departure from a fundamental rule of procedure and does not positively oppose such violation, it waives its right to object it, and thereby to request the annulment on such basis.117 However, some violations of procedural rules may become visible only after the tribunal has rendered the award, and therefore, the concerned party is not estopped from requesting annulment on that basis. As explained by Prof. Schreuer:

Some violations of procedural principles will be evident to the affected party in the proceeding before the tribunal. Others may become visible only after the award has become available. A party that is aware of a violation of proper procedure must react immediately by stating its objection and by demanding compliance.118

140.
In like manner, the ad hoc committee in Fraport concluded that:

[A] party forfeits its right to seek annulment under Article 52(1)(d) if it has failed promptly to raise its objection to the tribunal's procedure, upon becoming aware of it. […] However, if such a principle is to be invoked so as to preclude a party from its right to seek annulment for an otherwise serious departure from a fundamental rule of procedure by the tribunal, the objecting party must know of the conduct of the tribunal and have a reasonable opportunity to raise its objection. This point is, in the view of the Committee, an elementary one, since a party cannot be treated as having waived an objection to a course of action of which it was unaware.119

141.
Among other committees, the ad hoc committees in Klöckner I,120 and CDC v. Seychelles121 have adopted similar views.

D. Failure to State Reasons

(1) The Parties' Positions

a. Applicant's Position

142.
Ecuador submits that Article 52(1)(e) of the ICSID Convention provides for the annulment of an award in the event that it “has failed to state the reasons on which it is based” and presents the following arguments:
143.
It is a tribunal's duty to state the reasons leading to its decision. An award is deemed to have failed to state the reasons on which it is based when the reasons stated do not allow the reader to follow the reasoning of the tribunal, that is, when the sequence of arguments within an award does not put forth “a logical chain of reasoning that is apt to lead to the conclusion that was reached by the tribunal.” According to the Applicant, there are three main ways in which an award fails to state the reasons on which is based.
144.
First, an award does not enable the reader to follow a tribunal's reasoning if it provides no reasons altogether or if it fails to provide reasons for one particular aspect of the award.122
145.
Second, an award does not enable the reader to follow a tribunal's reasoning if the stated reasons are so contradictory as to cancel each other out, thereby resulting in no reasoning. This is so, for instance, “where the basis for a tribunal's decision on one question is the existence of fact A, when the basis for its decision on another question is the non-existence of fact A.”123
146.
Third, an award does not enable the reader to follow a tribunal's reasoning if the reasons that are provided are “frivolous,” that is when they are “manifestly irrelevant and knowingly so to the tribunal,” or “cannot logically explain the decision they are purportedly supporting.” Insufficient and inadequate reasons may also be frivolous.124
147.
Ecuador contends that Perenco misconstrues the ground on failure to state the reasons on which the Award is based in five ways:
148.
First, Perenco insists that the reasoning requirement is “a minimum standard” that must be subject to “strict” review and the “threshold for annulment is high.” Yet, these assertions have no basis in the text of Article 52(1)(e), and they obscure the provision's object and purpose. Ecuador remarks that such “restrictive” approach was rejected by the committee in Tenaris II by refusing to deprive the provision of its effet utile.125
149.
Second, Perenco states that any assessment of quality of the Award. “shades easily into an appeal.” Yet, this position ignores that ad hoc committees have established criteria for objectively determining whether a tribunal's purported statement of reasons amounts to a failure to state reasons. For instance, when reasoning is “frivolous”, i.e. “manifestly irrelevant and knowingly so to the tribunal,” and “so flawed that it amounts to no reasons at all;” or when reasoning is inadequate, that is to say that it “cannot logically explain the decision [it is] purportedly supporting.”126 Perenco quotes the annulment decisions in Tidewater and Tenaris II out of context; read as a whole, none of these decisions support its position.127 Accordingly, assessing the quality of a tribunal's reasoning is required to ensure that such reasoning is not so flawed that it amounts to no reasons at all.
150.
Third, Perenco claims that the Committee should “seek to understand the motivation of the Award in the light of the record before the Tribunal,” “prefer an interpretation that confirms an award's consistency,” and even “infer or reconstruct implicit reasons for a decision from the terms of the award and the record before the tribunal.” This is impermissible under Article 52(1)(e) for at least three reasons: (i) no presumption in favor of the validity of the Award exists; (ii) the exercise of reconstructing the Award defeats the object and purpose of Article 52(1)(e); and (iii) there is a tension between the arguments advanced by Perenco: on the one hand it advocates for a proactive role of the Committee for reconstructing the reasoning in the Award, and on the other hand, it endorses a hands-off approach to annulment.128
151.
Fourth, Perenco attempts to minimize the extent of the reasoning requirement by stating that the failure to state reasons must affect an issue necessary to the Tribunal's decision or essential to the outcome of the case. Yet, to give a fully reasoned award, a tribunal is required to answer every “question” put to it. While a tribunal need not deal explicitly with every detail of every argument advanced by the parties or refer to every authority which they invoke, it must deal with every relevant argument; in particular, arguments that might affect the outcome of the case, as well as those in which a Party ‘has a major interest' in seeing them resolved.129
152.
Finally, Perenco appears to confuse the reasoning requirement with the right to be heard within the meaning of Article 52(1)(d). “Whether or not a failure to address every question submitted to it is also a departure from a fundamental rule of procedure does not change

the fact that it is unequivocally a failure to state reasons within the meaning of Article 52(1)(e).”130

b. Perenco's Position

153.
According to Perenco, Ecuador “improperly attempts to turn an award that ‘has failed to state the reasons on which it is based' into an award that has stated reasons, but one party finds them ‘insufficient and inadequate.'”131
154.

First, Ecuador acknowledges that Article 52(1)(e) is concerned with the existence of reasons, rather with the quality of such reasons. This is confirmed by the travaux préparatoires of the ICSID Convention. Ad hoc committees have held that Article 52(1)(e) is a minimum standard intended to ensure that a reasonable reader may understand the award, and that the scope of review under Article 52(1)(e) is strict and the threshold for annulment is high. Two conditions must be fulfilled for an annulment to be warranted under this ground: “first, the failure to state reasons must leave the decision on a particular point essentially lacking in any expressed rationale; and second, that point must itself be necessary to the tribunal's decision.”132

155.
Perenco observes that Ecuador's objections are not premised on the minimum standard provided by Article 52(1)(e) “to ensure that a reasonable reader may understand the award.” “Through its repeated assertions that “frivolous” and “inadequate” reasons are annullable, Ecuador is trying to force this Committee to second-guess the Tribunal by reviewing not whether the Tribunal provided reasons, but rather the quality of the reasons it provided.”133 There is no dispute that the Tribunal must state reasons, but it need not meet the high gauntlet Ecuador tries to raise.134 Perenco further remarks that Ecuador's attacks to the decisions Perenco relies on as regards this matter (Tidewater and Tenaris II) are misguided.135
156.
Second, Ecuador is wrong that stating reasons that are “insufficient and inadequate” amount to a failure to state reasons. Ecuador supports its position almost exclusively on the 35-year-old Klöckner I annulment decision, which has been criticized for improperly drawing ad hoc committees into a review of the substance of arbitral decisions. Although Ecuador recognizes that committees must “avoid an approach which would result in the qualification of a tribunal's reasoning as deficient, superficial, sub-standard, wrong, bad or otherwise faulty,” it qualifies the Tribunal's reasoning as “frivolous,” “arbitrary,” “gross,” etc. Conceptually, there is no distinction between assessing whether reasons are “frivolous” or whether they are “inadequate.” Both are quality assessments. Contrary to Ecuador's position, Article 52(1)(e) concerns the “absence” or “essential lack” of any reasons. Such reasons may be implicit and inferred from the decision.136 Accordingly, “an award is not subject to annulment if the Committee can infer implicit reasons for a decision from the terms of the Award and the record before the Tribunal”.137
157.
Even if the Committee were to apply Ecuador's standard of review and assess whether the Tribunal's reasoning was “frivolous,” “the few [c]ommittees that have—incorrectly— endorsed a ‘frivolous' standard emphasize that the threshold under Article 52(1)(e) is ‘very high' and that ‘frivolous' reasons are not ‘incorrect or unconvincing reasons.'”138 In fact, “none of the decisions Ecuador cites as endorsing the ‘frivolous' test annulled the award because the reasoning was ‘frivolous' or ‘inadequate.'”139
158.
Third, Perenco notes that only “genuinely contradictory” reasons that are “incapable of standing together on any reasonable reading” give rise to an annullable error. Yet, such circumstances are extremely rare. Reasoning that reflects conflicting considerations or a compromise is not genuinely contradictory. Moreover, as recognized by ad hoc committees, “in reviewing the apparent contradictions, the ad hoc committee should, to the extent possible and considering each case, prefer an interpretation which confirms an award's consistency as opposed to its alleged inner contradictions.”140
159.
Finally, Ecuador fails to mention that, as recognized by ad hoc committees, the failure to state reasons must affect an issue “necessary to the tribunal's decision” or “essential to the outcome of the case.” Perenco refers to the annulment decision in Venezuela Holdings and Adem Dogan, which addressed decisions on jurisdiction.141
160.
In its Rejoinder on Annulment, Perenco objects Ecuador's argument “that the Tribunal must have provided reasons for each and every point the parties disputed”. Perenco claims that annulment cases have overwhelmingly confirmed that “a tribunal need only provide reasons for its decisions, and not reasons for its reasons.”142 In fact, “even the cases on which Ecuador relies agree with this principle”.143 Perenco further opposes Ecuador's proposition that a tribunal should state its reasons for issues “in which a party ‘has a major interest' in seeing resolved,” as it ignores that Article 52(1)(e) requires only that an award be reasoned, not that an award be satisfactory to all parties.144

(2) The Committee's Analysis

161.

It is undisputed between the Parties that a statement of reasons for a judicial or an arbitral decision is fundamental for adjudication of justice, particularly in ICSID arbitration. “The purpose of a statement of reasons is to explain to the reader of the award, especially to the parties, how and why the tribunal reached its decision in the light of the facts and the applicable law.”145 Arbitral tribunals have thereby the duty to identify and let the parties know the factual and legal premises leading to their decision.146 Under the ICSID Convention, the Tribunal's duty to state reasons for its decision is provided in Article 48(3). A violation to this requirement is embodied as a ground for annulment under Article 52(1)(e) of the ICSID Convention.

162.
The drafting history of the ICSID Convention shows that “the tribunal's obligation to state reasons is mandatory and not subject to the parties' disposition.”147 Therefore, an agreement contrary to the Tribunal's duty to provide reasons would be invalid and would not preclude a subsequent application for annulment on this ground.148
163.
The Committee observes that the core of the dispute between the Parties is whether a failure to state reasons takes place when there are no reasons at all supporting a tribunal's reasoning, or whether “frivolous” or “contradictory” reasons may be tantamount to a failure to state reasons. The Parties also dispute whether implicit reasons are considered “reasons” within the scope of Article 52(1)(e).
164.
In the first place, the Committee stresses that Article 52(1)(e) does not concern the failure to state correct or convincing reasons. As correctly noted by the CDC v. Seychelles committee “the more recent practice among ad hoc Committees is to apply Article 52(1)(e) in such a manner that the Committee does not intrude into the legal and factual decision-making of the Tribunal.”149 It is not on an ad hoc committee to assess the quality, extension, or correctness of the reasons provided by a tribunal, much less to annul an award on that basis. If a tribunal provides reasons on how and why it reached its decision, there is no room for annulment under Article 52(1)(e).
165.
Furthermore, as recognized in the Amco II annulment, “not every gap or ambiguity in a judgment constitutes a failure to state reasons.”150 “Statements have to be read in context. The ‘reasons' for a position or a statement may be found in the developments that follow.”151 This observation is of particular relevance in the case at hand given that the Award is constituted by five Decisions, plus a Decision on Provisional Measures. To determine whether the Tribunal failed to state the reasons that led to its decisions, the Committee must read the Award in context.
166.
As regards the issue of implicit reasons, the Committee observes that the premises leading to a decision may be either implicit or explicit. What is paramount is that the Tribunal's conclusions follow from a set of premises. Furthermore, as noted by the committee in Wena:

Neither Article 48(3) nor Article 52(1)(e) specify the manner in which the Tribunal's reasons are to be stated. The object of both provisions is to ensure that the Parties will be able to understand the Tribunal's reasoning. This goal does not require that each reason be stated expressly. The Tribunal's reasons may be implicit in the considerations and conclusions contained in the award, provided they can be reasonably inferred from the terms used in the decision.152

167.
As regards the issue of “frivolous” reasons, the Committee is of the view that irrelevant or absurd arguments apparently supporting a conclusion do not amount to reasons.153 The determination on whether an argument is “frivolous” depends on the circumstances of each case.
168.
As regards the issue of “non-contradictory reasons,” ad hoc committees have considered that contradictory reasons might result in annulment under Article 52(1)(e).154 Some committees have concluded that for there to be a “failure to state reasons”, the reasons must be so contradictory that they “cancel each other out.”155
169.
The Committee considers that although contradictory reasons could amount to a failure to state reasons, such assessment should not be one of coherence of the Tribunal's reasoning. That approach could easily derive in an assessment of the quality of the Tribunal's reasons. For the Committee, a failure to state reasons may take place when two (or more) contradictory premises supporting a conclusion cannot stand together and cannot both be true. Furthermore, such failure must be critical to the Tribunal's decision. The fact that a tribunal fails to state reasons on a minor and inconsequential issue is not enough to annul an award or a part thereof under Article 52(1)(e).
170.
In sum, a decision is reasoned when the Tribunal's conclusions clearly follow from a set of either express or implicit premises. If there are no reasons supporting a conclusion, or a conclusion is based on contradictory premises, an award or any part thereof is annullable under Article 52(1)(e) of the ICSID Convention.

IV. THE SPECIFIC GROUNDS ON ANNULMENT

171.
In the Annulment Application, Ecuador requests the annulment of the Award or parts of it under twenty-one (21) “specific grounds on annulment”. Ecuador claims that twenty-one of the Tribunal's findings in the Award or the Decisions should be annulled under one or more grounds provided in Article 52(1) of the ICSID Convention.
172.
Both in the Memorial on Annulment and the Reply on Annulment, the Applicant raised twenty (20) specific grounds on annulment; it did not include the specific ground raised in the Annulment Application titled: “The Tribunal manifestly exceeded its powers when it decided that the notion of environmental harm is defined by reference to permissible limits.”156 Likewise, at the Hearing, Ecuador expressly stated that it raised “20 grounds for annulment.”157 Accordingly, the Committee understands that Ecuador declined to pursue said specific ground and therefore the Committee does not address such ground in the present decision.
173.
For the purpose of clarity and consistency, the Committee has classified the specific grounds on matters related to (a) jurisdiction, (b) merits, (c) damages, and (d) counterclaim.
174.
For the sake of efficiency, the Committee classifies Ecuador's claims on the Tribunal's findings that “Decree 662 breached the Participation Contracts”, and that “Decree 662 and ensuing measures breached Article 4 of the Treaty” under the same category.158

A. Grounds Related to the Tribunal's findings on jurisdiction

(1) Grounds on the Tribunal's finding that the Treaty extends jurisdiction to a company only indirectly controlled by French nationals

a. The Parties' Position

(i) Applicant's Position

175.

Ecuador contends that, notwithstanding the text of Article 9(2) of the Treaty, the Tribunal asserted its jurisdiction on the basis of Article 1(3)(ii) of the Treaty. By so doing, the Tribunal manifestly exceeded its powers and failed to state the reasons on which the Award is based.

176.
As to the manifest excess of powers, Ecuador argues that the Tribunal founded its jurisdiction on an incorrect and incoherent interpretation of the Treaty's provisions. The Tribunal asserted its jurisdiction on the basis of Article 1(3)(ii) of the Treaty, despite Article 9(2) of the Treaty which requires that the shares of a company incorporated in the host State be held in majority by a national or a juridical person of the other Contracting Party. With this finding, the Tribunal failed to abide by its duty to read the Treaty as a whole and to ensure its effectiveness. Therefore, the Tribunal manifestly exceeded its powers.159
177.
As to the failure to state reasons, Ecuador states that the Tribunal's reasoning is limited to ambiguous and unsupported assertions and provides no explanation as to why it discarded Ecuador's key argument, i.e., that Perenco's proposed interpretation of the Treaty results in a manifest inconsistency of the Treaty “whereby indirectly-controlled foreign companies benefit from rights under the Treaty pursuant to Article 1(3)(ii), but are unable to invoke the jurisdiction of the Centre to protect these rights pursuant to Article 9(2)”.160
178.
Ecuador thereby requests the annulment of “the decision that the Treaty extends jurisdiction to a company only indirectly controlled by French nationals,” “along with the entirety of the Award itself, as the entirety of the Award is premised on the Tribunal's supposed jurisdiction over Perenco.”161

(ii) Perenco's Position

179.
Perenco contends that Ecuador's claim that the Tribunal manifestly exceeded its powers and failed to state reasons in finding that the Treaty extends jurisdiction to companies indirectly controlled by French nationals has no merit. The Tribunal had the power to interpret the Treaty and it provided clear reasons explaining why the unqualified term “controlled” in Article 1(3) covered both direct and indirect control.162
180.
As to the manifest excess of powers, Perenco stresses that Ecuador's contention that the Tribunal found its jurisdiction on an “incorrect and incoherent interpretation of the Treaty” and therefore exceeded its powers, is flawed and concedes that the Tribunal applied, or endeavored to apply, the applicable body of law, i.e., the Treaty.163 Errors of law are not a manifest excess of powers, including when it comes to jurisdiction. The contrary would allow the Committee to consider the Tribunal's jurisdiction de novo and assume the role of an appellate body.164
181.

In any event, the Tribunal's interpretation of the Treaty was tenable and was correct. The Tribunal founded its jurisdiction based on the ordinary meaning of the terms in Articles 3 and 1(3) of the Treaty and in light of the Treaty's object and purpose. It also considered the Treaty's travaux préparatoires and the Parties' submissions.165 “Article 1(3)(ii) in conjunction with Article 9(2)” does not change the analysis. As found by the Tribunal, Article 9(2) is “a special rule that, consistent with Article 25(2)(b) in fine of the ICSID Convention, is intended to extend ICSID jurisdiction to instances where a national of the State party to the dispute would otherwise have no standing to bring a claim against its own State.”166 Article 9(2) does not provide for the meaning of the general definitions in Article 1(3). Moreover, Ecuador does not demonstrate how any such excess of powers would be ‘manifest'.167

182.
As to the failure to state reasons, Perenco contends that the Tribunal provided reasons for rejecting Ecuador's objection that reading Article 1(3) to encompass indirect control results in a manifest inconsistency of the Treaty.168 Even under the Klöckner I standard, it is possible to “discern how and why the Tribunal could reach its decision on this point,” as it explained: (i) why the ordinary meaning of the unqualified word “controlled” encompasses indirect control, (ii) why Article 9(2) expands ICSID jurisdiction in the specific factual setting of a legal entity of the host State seeking to claim against its own State, and (iii) why it makes more sense to apply the general Article 1 definitions throughout the Treaty and the specific test of control under Article 9(2) in the specific situation envisaged therein.169
183.
Therefore, the Tribunal neither manifestly exceeded its powers in finding that the Treaty extends jurisdiction to companies indirectly controlled by French nationals, nor failed to state its reasons for doing so.

b. The Committee's Analysis

184.
The Applicant claims that by deciding that the Treaty extends to a company only indirectly controlled by French nationals, the Tribunal manifestly exceeded its powers and failed to state the reasons for its decision.
185.
As to the manifest excess of powers, Ecuador's argument is based on the premise that the Tribunal incorrectly applied the law, not that the Tribunal did not apply the proper law.170 As analyzed in Section III.B.2, the Committee considers that to determine whether the Tribunal manifestly exceeded its powers it must examine whether the Tribunal properly identified the applicable law and endeavored to apply such law.
186.

It is undisputed between the Parties that the Treaty is the applicable law to the Tribunal's jurisdiction. It is also undisputed that to decide on its jurisdiction, the Tribunal identified and applied the Treaty. Based on its interpretation of the Treaty, the Tribunal concluded that:171

Having regard to the fact that the text of the applicable provision of the Treaty refers simply to ‘controlled', the Tribunal is persuaded by the fact that the formal transfer of the shares of the late Mr. Hubert Perrodo to his heirs was an administrative or ministerial act. It is true that it occurred after the consent to ICSID arbitration was given, but it is also true that it could have occurred at any time after the heirs became the owners of the estate under French law, and that occurred at the time of death, namely, 29 December 2006, over 10 months prior to the giving of consent.

Moreover, the evidence of French control is so substantial, so compelling and un-contradicted that it is the Tribunal's view that in the circumstances of this case, it is most consonant with the approach taken by international law to give weight to the fact of Bahamian law's recognition that the heirs owned the shares as a matter of French law and as a result they had beneficial ownership of the shares as a matter of Bahamian law prior to their formal re-registration in the names.172

187.
It is not on the Committee to examine whether the Tribunal's interpretation of the Treaty was correct or incorrect. That assessment would be equivalent to an appeal and to a de novo review of the Tribunal's jurisdiction, which is beyond the Committee's powers under the ICSID Convention. Thus, the Committee finds no ground to conclude that the Tribunal manifestly exceeded its powers.
188.
As to the failure to state reasons, Ecuador argues that the Tribunal provided no explanation on why it discarded its key argument on the matter, namely that Article 9(2) of the Treaty expressly excludes from ICSID jurisdiction entities that are incorporated under the laws of the Contracting Party and that are not directly owned in majority by national or legal entities of the other Contracting Party. For Ecuador, when reading Article 1(3) in conjunction with Article 9(2), the “only plausible interpretation is that Article 1(3) requires direct ownership, as opposed to indirect interest in the company.”173 Ecuador further claims that the Tribunal failed to engage with Ecuador's proposition that Perenco's reading of the Treaty results in a manifest internal inconsistency of the Treaty “whereby indirectly-controlled foreign companies benefit from rights under the Treaty pursuant to Article 1(3)(ii), but are unable to invoke the jurisdiction of the Centre to protect these rights pursuant to Article 9(2).”174
189.
The Committee is not persuaded by Ecuador's position and finds that the Tribunal expressly addressed Ecuador's alleged “key argument” and explained the reasons for rejecting it.
190.
In the Decision on Jurisdiction, the Tribunal upheld Claimant's characterization of Article 9(2) by concluding that it is “as special rule that, consistent with Article 25(2)(b) in fine of the ICSID Convention, is intended to extend ICSID jurisdiction to instances where a national of the State party to the dispute would otherwise have no standing to bring a claim against its own State.”175 The Tribunal then rejected Ecuador's interpretation of the Treaty by concluding that:

The Tribunal does not agree with the Respondents that the Article 9, second paragraph, test of control must be read back into and dictate the meaning of the general definitions of Article 1. While the Respondents disavowed any intent to extrapolate the rules applicable to Article 25(2)(b) in fine to the more general definitions contained in Article 1, in the Tribunal's view, this is what the objection does. It seems more plausible to apply the Article 1 definitions throughout the Treaty and, when it comes to Article 9 and the special situation envisaged there, to apply that article's specific test of control to a juridical person that is a national of the host State that seeks to claim against its own State. The Tribunal sees no absurdity in this interpretation, nor does it see, to use the Respondents' words, an “internal inconsistency” in the Treaty resulting from such an interpretation.

Given Article 9's purpose, it is reasonable for the Contracting Parties to require that foreign control be established in a particular way, in this case choosing to do so by requiring that a majority of the shares of the local company belong to nationals or a juridical person of a Contracting Party other than the respondent party. But it does not follow inexorably that the requirements of Article 9 must dictate the interpretation of Article 1. Accordingly, the first limb of the Respondents' objection is dismissed.”176

191.

The Committee observes that the Tribunal clearly explained the reasons for its decision to interpret the Treaty in the sense proposed by the Claimant and to reject Ecuador's interpretation of the Treaty. The fact that the Applicant disagrees with the Tribunal's reasoning or considers that more reasons should have been given is not a ground to annul the Award under Article 52(1)(e) (See Section III.D.2).

192.
Consequently, the Committee finds that the Tribunal neither manifestly exceeded its powers nor failed to state reasons for its decision that the Treaty extends jurisdiction to a company only indirectly controlled by French nationals.

(2) Grounds on the Tribunal's finding that Perenco was controlled by French nationals

a. The Parties' Position

(i) Applicant's Position

193.
Ecuador contends that the Tribunal seriously departed from fundamental rule of procedure– its right to equal treatment–by providing Perenco with a further opportunity to attempt to establish that the Tribunal had jurisdiction ratione personae.177
194.
Ecuador argues that by the end of the jurisdictional phase, Perenco had not been able to establish that it was an investor under the Treaty.178 However, instead of denying jurisdiction, the Tribunal provided Perenco with a further opportunity to attempt to establish that the Tribunal had jurisdiction ratione personae even though Perenco had had more than three years to do so.179 What is more, the Tribunal advised Perenco of the issues it needed to prove and the evidence it needed to adduce in order for the Tribunal to find jurisdiction.180 It was only on the basis of the evidence subsequently adduced by Perenco “that the Tribunal was able to find in its Decision on Jurisdiction and Liability that the evidence of French control was so ‘substantial, so compelling and un-contradicted' that is compelled the dismissal of Ecuador's objection to jurisdiction ratione personae.”181
195.
Ecuador does not contest that it was given the opportunity to discuss the new arguments and evidence adduced by Perenco. Instead, it submits that it was manifestly unfair to grant Perenco an additional opportunity to correct its case–a treatment that was not accorded to Ecuador.182
196.
Accordingly, Ecuador requests the annulment of “the decision that Perenco was controlled by French nationals […], along with the entirety of the Award itself, as the entirety of the Award is premised on the Tribunal's supposed jurisdiction over Perenco.”183

(ii) Perenco's Position

197.
Perenco objects Ecuador's claim that the Tribunal seriously departed from a fundamental rule of procedure by providing “Perenco with a further opportunity to establish that the Tribunal had jurisdiction ratione personae during the merits phase.”184 As Ecuador acknowledges, it had “the opportunity to discuss the new arguments and evidence adduced by Perenco.”185
198.

It was within the Tribunal's powers to call on both Parties to produce additional evidence and Ecuador admits that it had the opportunity to be heard about that evidence. There are no rules of procedure in ICSID preventing the Tribunal from ordering Perenco to produce further evidence of French control and joining jurisdictional issues to the merit. Conversely, Articles 42(2) and 43 of the ICSID Convention, and Arbitration Rule 19 confer broad powers to the Tribunal to, at any stage of the proceedings, consider jurisdictional issues or call upon the parties to produce documents or other evidence.186

199.
Perenco counters Ecuador's proposition that the Tribunal's conduct was “unfair”. Perenco provided additional evidence of French control four months prior to Ecuador's Counter- Memorial, so as to allow Ecuador sufficient time to address such evidence in its pleading. Ecuador addressed that additional evidence in its Counter-Memorial on Liability, in its Rejoinder on Liability, through two expert reports on Bahamian law, and through cross-examination of Perenco's witnesses and experts at the hearing. In its Decision on Jurisdiction and Liability, the Tribunal carefully considered and rejected Ecuador's arguments and evidence.187 Likewise, in the Decision on Reconsideration, the Tribunal rejected Ecuador's complaints by noting, among other, that both Parties were given the opportunity over two rounds of written pleadings to adduce further factual and expert evidence and to make submissions.188
200.
Ecuador conveniently omits that the Tribunal also deferred certain issues and called for more evidence with respect to Ecuador's own counterclaim. If requesting additional information is an annullable error, then the counterclaim phase should never have taken place and the record should rest on the Tribunal's finding that Ecuador's counterclaims failed.189
201.
Finally, even if the Committee were to find an annullable error, the Committee cannot annul the entirety of the Award. The Award is not just premised on the Tribunal's Treaty jurisdiction over Perenco. It is also premised on the Tribunal's jurisdiction pursuant to the participation contracts for Blocks 7 and 21 (the “Participation Contracts”).190

b. The Committee's Analysis

202.
Ecuador contends that the Tribunal seriously departed from a fundamental rule of procedure by according unequal treatment to the Parties by requesting Perenco to present evidence to demonstrate “(i) that the shares of what is now called Perenco International Limited in fact form part of the estate under French law and are being or will be distributed to the heirs of Mr. Perrodo in accordance with that law; and (ii) the means and instrument(s) through which the heirs have exercised control over the Claimant.”191 According to the Applicant, it was manifestly unfair that, after a full jurisdictional phase, the Tribunal allowed Perenco to correct its jurisdictional case, by indicating specifically the points that needed to be evidenced further.192 What is more, the Tribunal did not accord the same opportunity to Ecuador.193
203.
In relation to the treatment accorded to the Parties, the Committee will analyze: (i) the Tribunal's powers under the ICSID Convention to request evidence from the Parties' sua sponte and the Tribunal's opportunity to do so; (ii) whether the Tribunal accorded Ecuador an opportunity to comment on the evidence presented by the Claimant in relation to the indirect control of Mr. Perrodo's heirs over Perenco; and (iii) whether the Tribunal unfairly gave Perenco an opportunity that it did not afford Ecuador in similar circumstances.
204.
As to the first issue, the Committee remarks that under Rule 34(2) of the Arbitration Rules, “[t]he Tribunal may, if it deems it necessary at any stage of the proceeding: (a) call upon the parties to produce documents, witnesses and experts […].” This rule clearly states that the Tribunal is empowered to request evidence from the Parties sua sponte and that it can do so “at any stage of the proceeding”, as long as it deems it necessary.
205.
In the Decision on Jurisdiction, the Tribunal expressly stated that:

It has not yet arrived at a conclusion on whether the deletion of the words “directly or indirectly” could have the effect ascribed to it by the Respondents or whether it is necessary to consult supplementary materials in order to determine the meaning of Article 1(3)(ii). It has decided that it requires further evidence and submissions before it determines the Claimant's standing to invoke the Treaty.194

206.

Following that statement, the Tribunal invited both Parties to produce evidence on the Treaty's negotiating history in France's possession. Likewise, the Tribunal requested the Claimant to produce certain evidence on the alleged indirect control of Mr. Perrodo's heirs over the Claimant.195

207.
The Committee considers that although the jurisdictional phase had already concluded, nothing precluded the Tribunal from leaving certain jurisdictional matters to a subsequent phase in the proceeding and from requesting evidence to the Parties at that point of the proceeding. That is all the more since the Tribunal had explicitly decided to join certain jurisdictional issues to the merits.196 In this perspective, Rule 34(2) expressly provides that a Tribunal may request evidence to the Parties “at any stage of the proceeding.” The Committee is of the view that the Tribunal has wide discretion to request to the Parties the evidence that it considers necessary, and therefore, depending on the circumstances of each case, it may request evidence to one party or both Parties. As explained by the Tribunal in its Decision on Reconsideration:

It is not unusual for tribunals to defer consideration of jurisdictional objections pending a further development of the evidentiary record and tribunals commonly join jurisdictional issues to the merits, as indeed the Tribunal did in the instant case. Thus, the Decision on Jurisdiction did not signal the end of the jurisdictional phase. Having reflected on the parties' submissions and the evidence, the Tribunal decided it was appropriate to provide both parties with a further opportunity to address certain issues in respect of which the Tribunal was not yet prepared to rule.197

208.
As to the second issue, the Committee observes that Ecuador had ample opportunity to rebut the evidence and arguments submitted by the Claimant following the Tribunal's request. In fact, Ecuador acknowledges “that it was given the opportunity to discuss the new arguments and evidence adduced by Perenco in support of its jurisdictional case.”198 As noted by the Tribunal in its Decision on Reconsideration:

Both parties were […] given the opportunity over two rounds of written pleadings to adduce further factual and expert evidence and to make submissions. With respect to questions of Bahamian law, both sides adduced expert evidence on questions such as the status of shares owned by an individual who died intestate and the steps required under Bahamian law to effect the transfer of title to the shares. Both parties also addressed the Treaty's negotiating history, with Ecuador urging the Tribunal to pay particularly close attention to the evolution of the relevant provisions (as recorded in paragraphs 492 to 499 of the Decision), while Perenco's main argument was that the plain meaning of the text prevailed, and further that the negotiating history was too fragmentary and incomplete to be reliable.199

209.
Thirdly, Ecuador's case is mainly based on the allegation that the Tribunal did not accord the same opportunity to Ecuador. The Committee observes that the Applicant's allegation is made in the abstract; namely, that the Tribunal did not accord to Ecuador the opportunity to present its case with evidence specifically requested by the Tribunal, as it did with Perenco. Equal opportunity is not “same number of opportunities.” In any event, for the sake of discussion, the opportunity that the Tribunal granted to the Claimant as regards Perenco's French control is similar to the opportunity granted to Ecuador as regards the environmental counterclaim, as explained below.
210.
Akin to the Decision on Jurisdiction, in the Decision on the Environmental Counterclaim, the Tribunal concluded that it was not yet prepared to rule given the significant gaps between the Parties' experts and therefore informed the Parties of its intention “to appoint its own independent environmental expert.”200 The Tribunal explained that: although it had “arrived at the point where it narrowed the counterclaim on the principal issues of law and fact,” “with regard to many of the IEMS/GSI differences, the Tribunal does not feel able to prefer one above the other.”201 “Accordingly, the Tribunal has concluded that it must require an additional phase of fact-finding in order to arrive at a proper and just conclusion. It is not content to issue a final determination on the extent of Perenco's liability on the basis of the current expert reports.”202
211.
The Committee remarks that the Tribunal decided to take this choice after acknowledging that:

The Tribunal well understands that the onus of proof is on a party who makes an allegation and it could be said that because of the doubt in which the Tribunal finds itself Ecuador could be said to have failed in tipping the burden in its favour. However, as the Tribunal is satisfied that there has been some damage for which it seems likely that Perenco is liable, the Tribunal is not disposed to dismiss the counterclaim in limine.203

212.
Based on the foregoing reasons, the Committee concludes that there are no reasons to believe that the Tribunal seriously departed from a fundamental rule of procedure.

(3) Grounds on the Tribunal's finding that it had jurisdiction over Perenco's claims that caducidad breached the Block 21 Participation Contract

a. The Parties' Position

(i) Applicant's Position

213.
Ecuador contends that the Tribunal's decision to assert its jurisdiction over Perenco's claim that Ecuador breached the Block 21 Participation Contract when it declared caducidad is a manifest excess of powers, a failure to state reasons, and a serious departure from a fundamental rule of procedure.
214.
As to the manifest excess of powers, Ecuador argues that the dispute regarding the caducidad declaration was a legal one and therefore fell outside the scope of the arbitration agreement contained in Annex XVI of the Block 21 Participation Contract, which was limited to the resolution of technical and/or economic disputes.204 The Tribunal not only found that it was sufficient for there to be “economic consequences,” but also omitted to apply the requirement set out in the arbitration agreement that the dispute must be one “arising out of the application of the Participation Contract.” Thus, it is clear that the Tribunal failed to apply the arbitration agreement between the Parties and therefore, in asserting its jurisdiction, the Tribunal acted in a manifest excess of powers.
215.
As to the departure from a fundamental rule of procedure, Ecuador states that the Tribunal denied its right to be heard, considering that the Tribunal upheld jurisdiction over Perenco's contractual caducidad claim on the basis of the “economic consequences” test, not previously advanced or discussed by either of the Parties.205
216.
As to the failure to state reasons, Ecuador claims that, with its holding in the Decision on Jurisdiction and Liability, the Tribunal contradicted previous findings in its Decision on Jurisdiction. First, the Tribunal contradicted its holding that it did not have jurisdiction ratione materiae over Perenco's allegation that Ecuador violated the Ecuadorian Constitution—and thereby its obligations under the Participation Contracts—by the enactment of Law 42 because such allegation concerned “essentially legal matters.”206 Second, it contradicted its previous finding that the arbitration agreement is conditional on two requirements: (i) the dispute being of a technical or economic nature, and (ii) the dispute arising out of the application of the Block 21 Participation Contract. Ecuador claims that the contradiction is such that the Tribunal's reasons cancel each other out, amounting to a failure to state reasons.
217.
For the above reasons, Ecuador requests the annulment of the decision to assert jurisdiction over Perenco's claim that Ecuador breached the Block 21 Participation Contract when it declared caducidad. “Accordingly, the Tribunal's ensuing decisions to (i) uphold the claim of breach of the Block 21 Contract as a result of the declaration of caducidad, and (ii) order Ecuador to pay US$448,820,400 to Perenco, insofar as it includes Perenco's contract claims under the Block 21 Participation Contract, should also be annulled.”207

(ii) Perenco's Position

218.
Perenco counters Ecuador's claim that the Tribunal manifestly exceeded its powers, failed to state reasons, and seriously departed from a fundamental rule of procedure “by finding that Ecuador's declaration of caducidad fell within the scope of the arbitration agreement in the Block 21 Participation Contract.”208 Perenco submits the following argumentation:
219.
As to the manifest excess of powers, although Ecuador claims that the Tribunal manifestly exceeded its powers by committing “gross errors of law” in finding that caducidad fell within the Contract's arbitration agreement, errors of law—even if labelled as “gross”— are not annullable under the ICSID Convention. Ecuador neither argues that the Tribunal incorrectly identified the applicable law, i.e., Clause 20.2 and Annex XVI of the Block 21 Participation Contracts and Ecuadorian law, nor that the Tribunal failed to endeavor to apply that law.209
220.
In any event, the Tribunal's findings were not erroneous, they were based on the language of the Participation Contract as interpreted under Ecuadorian law. The Tribunal explained that Clause 20.2 of Block 21 Participation Contract expressly provided that caducidad disputes fell within the scope of its arbitration provisions. The Tribunal also explained that pursuant to Annex XVI, “contractual claims advanced by Perenco that concerned a ‘technical' or ‘economic' dispute relating to the Block 21 Participation Contract fell within the Tribunal's jurisdiction.”210 Having considered these provisions and the Parties' submissions, the Tribunal determined that the Parties' dispute, including the declaration of caducidad, fell within the scope of the Block 21 Participation Contract's arbitration agreement because it was an “economic” dispute within the meaning of Annex XVI. In paragraphs 138, 140, 141, 142, 146, 235, 306, 315 and 316 of the Decision on Jurisdiction and Liability, the Tribunal set out in detail the reasons why it found that the dispute was “economic.”211
221.
As to the serious departure from a fundamental rule of procedure, Ecuador's complaint that the Tribunal violated its right to be heard by determining that caducidad had “economic consequences” is nonsensical. Ecuador had the opportunity to be heard and exercised it, but the Tribunal appropriately rejected its arguments as meritless. Ecuador seems to be objecting that neither party used the precise words “economic consequences” in its submissions. Yet, both parties made extensive submissions on the impact of caducidad and the economic consequences of the participation formula, on the economic equilibrium of the contracts, and on the economic effects of Ecuador's actions on Perenco's overall share. Also, a tribunal is not “precluded from adopting legal reasoning that was not put forward by one of the parties without first seeking the parties' opinion.”212 In any event, even if the Committee were to upheld Ecuador's argument, there would be no demonstrable difference in the outcome of the case given that the Tribunal found that caducidad breached both the Block 21 Contract and the Treaty.
222.
As to the failure to state reasons, Ecuador is wrong that the Tribunal “contradicted its previous holding in its Decision on Jurisdiction” and thereby failed to state reasons for why it had jurisdiction over caducidad. Perenco contends that the Tribunal did state reasons for its decision and there was no contradiction on its reasoning, much less contradictions genuinely amounting to a complete failure of reasoning.213
223.
Ecuador's first alleged contradiction—that the Tribunal acknowledged that “essentially legal matters” were excluded from the scope of the arbitration agreement but then failed to exclude caducidad—ignores the Tribunal's finding that caducidad was both legal and economic in nature.214
224.
Ecuador's second alleged contradiction—that the Tribunal disregarded the requirement that the dispute arise out of the application of the Block 21 Participation Contract—ignores that the Tribunal interpreted Clause 20.2 of the Contract in conjunction with Annex XVI. On the one hand, Annex XVI provides that “technical and/or economic disputes arising out of the application of the Participation Contract” shall be resolved through ICSID arbitration. On the other hand, Clause 20.2 contains a special rule which “contemplates that a dispute regarding a declaration of caducity which is related to technical or economic aspects may be submitted to arbitration.” In the light of these provisions, the Tribunal explained that “Annex XVI does not single out caducity, placing upon the subject-matter jurisdiction of the Tribunal the sole limitation that the claim should concern a ‘technical' or ‘economic' dispute.”215 Therefore, there are no contradictions in the Tribunal's reasoning.

b. The Committee's Analysis

225.
Ecuador contends that the Tribunal failed to state its reasons, manifestly exceeded its powers, and seriously departed from a fundamental rule of procedure when it declared having jurisdiction over Perenco's claim that Ecuador breached the Block 21 Participation Contract by declaring caducidad.
226.
As regards the manifest excess of powers, Ecuador claims that in deciding that “the declaration of caducidad has economic consequences and therefore falls within its subject-matter jurisdiction,”216 the Tribunal failed to apply the arbitration agreement. Yet, the Committee is not convinced by Ecuador's position.
227.
In the first place, the Committee notes that when deciding whether it had jurisdiction over Perenco's contractual claim that Ecuador breached the Block 21 Participation Contract by declaring caducidad, the Tribunal identified the proper law applicable to its jurisdiction, that is Clause 20.2 and Annex XVI of Block 21 Participation Contract.
228.
In its Decision on Jurisdiction the Tribunal explained that “[w]hen the Block 21 Participation Contract was executed in 1995, Ecuador was not a Contracting Party to the ICSID Convention. This explains the language used in Clause 20.2.12 providing for the arbitration to be governed by different rules depending on whether Ecuador was or was not a Contracting Party to the ICSID Convention at the moment of the institution of the arbitral proceedings.”217
229.
Annex XVI provides in its relevant parts that:

Once the Convention on the Settlement of Disputes Relating to Investments, ICSID, has been approved by the National Congress of the Republic of Ecuador, and, therefore, is fully in force, the Parties agree that any technical and/or economic dispute arising out of the application of the Participation Contract for the Exploration and Exploitation of Hydrocarbons in Block 21 …, which is the object of the present Contract, shall be resolved according to the provisions of the aforementioned Convention, leaving, accordingly, without effect the arbitration procedure in clause twenty of the Contract.

For the application of the Convention on the Settlement of Disputes Relating to Investments, ICSID, the following procedural rules shall also apply:

1. The Parties agree to submit to the INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES any technical and/or economic dispute relating to this Participation Contract…through the [system] of arbitration, which for all effects is hereafter referred to as “THE CENTRE.”

2. The Parties acknowledge that the object of the Participation Contract implies the making of investments, so that the ICSID Arbitration procedure is applicable to the Contract.

3. The Parties acknowledge that the Contractor's right to submit any technical and/or economic dispute to the CENTRE shall not affect the Contractor's ability to receive total or partial compensation from any third party in relation to any damage or loss of the object in dispute.

230.
Considering that Ecuador was already a Contracting Party to the ICSID Convention when the Claimant filed its Request for Arbitration on April 30, 2008, the Tribunal concluded that the Underlying Arbitration is precisely the scenario in which the aforementioned contractual provision is applicable,218 and “has to be looked at when determining the Tribunal's competence over contractual claims.”219
231.
The Tribunal then interpreted Annex XVI as follows:

The Tribunal is of the view that this interpretation based on the opposition of ‘legal' versus ‘technical and/or economic' cannot be accepted as it would result in depriving Annex XVI of its applicability in general. The ICSID Convention requires the dispute to be a legal one. […]

The Parties to the Block 21 Participation Contract agreed, in its Annex XVI, ‘to submit to the INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES any technical and/or economic dispute relating to this Participation Contract.' It is thus the task of the Tribunal to ascertain whether the contractual claims advanced by Perenco in this arbitration concern a ‘technical' or ‘economic' dispute relating to the Block 21 Participation Contract. The language ‘and/or' suggests that the dispute does not need to be of a cumulative nature, i.e., ‘technical and economic'.220

232.
In turn, in its Decision on Jurisdiction and Liability, the Tribunal concluded that:

[…] Clause 20.2 of the Block 21 Contract contemplates that a dispute regarding a declaration of caducity which is related to technical or economic aspects may be submitted to arbitration. Annex XVI does not single out caducity, placing upon the subject-matter jurisdicton [sic.] of the Tribunal the sole limitation that the claim should concern a ‘technical' or ‘economic' dispute.

Having regard to the Tribunal's findings in its Decision on Jurisdiction, the Tribunal considers that the declaration of caducidad has economic consequences and therefore falls within its subject-matter jurisdiction. The Tribunal accordingly finds that it has jurisdiction to entertain Perenco's claim that Ecuador breached the Block 21 Contract when it declared caducidad.221

233.
In view of the Tribunal's decision, Ecuador claims that the Tribunal allegedly failed to apply the proper law for two main reasons. First, because under the arbitration agreement, jurisdiction ratione materiae is conditioned upon a dispute being of a “technical” or “economic” nature and, therefore, it is insufficient for a dispute to have mere “economic consequences” to be covered by the arbitration agreement. And second, because the Tribunal omitted to apply the requirement that the dispute must be one “arising out of the application of the Participation Contracts,” given that the caducidad declaration does not arise out of the application of the Block 21 Participation Contract.222
234.
The Committee observes that although Ecuador argues that the Tribunal failed to apply the proper law, the Applicant's contention is in fact an allegation of misapplication of the proper law, not a claim of non-application of the proper law.
235.
The Tribunal identified the applicable law—Clause 20.2 and Annex XVI of the Block 21 Participation Contracts—to define its jurisdiction and endeavored to apply such law. The Committee may or may not agree with the Tribunal's interpretation that “technical” or “economic” nature is equivalent to “economic consequences”; however, it is beyond its competence to adjudge the Tribunal's interpretation of the arbitration agreement. By so doing, the Committee would be acting as a court of appeals. Therefore, the Committee finds no grounds to conclude that the Tribunal manifestly exceeded its powers.
236.
As regards the serious departure from a fundamental rule of procedure, Ecuador contends that by sua sponte espousing and applying the “economic consequences” test, the Tribunal denied Ecuador the right to address and reject such test. To resolve Ecuador's contention, the Committee will examine whether the Tribunal's finding on the “economic consequences” fits the legal framework discussed by the Parties, so as to determine whether the Tribunal had to give an opportunity to the Parties to comment on such conclusion or not (see Section III.C.2).
237.
The Committee observes that although the Parties did not incorporate in their submissions the specific words “economic consequences,” the Parties disputed at length the scope of the terms “technical and/or economic” dispute. This is clearly noted in the Tribunal's Decision on Jurisdiction.
238.
On the one hand, Ecuador claimed, inter alia, that:

Under Clause 20.2 of the Contract, entitled ‘technical and/or economic arbitration,' only ‘technical matters involving economic aspects,' or ‘economic matters involving technical aspects' arising out of the Block 21 Participation Contract may be submitted to ICSID arbitration. Annex XVI, which also addresses arbitration of any ‘technical and/or economic disputes,' must be interpreted in light of Clause 20.2.223

239.
On the other hand, Perenco contended, inter alia, that:

Annex XVI of the Block 21 Contract permits arbitration of ‘any […] economic dispute related to' that Contract. […] The language of Annex XVI, which covers ‘any' dispute, that is either technical ‘and/or' economic, is expansive.224 […]

Ecuador is wrong to rely on the narrow language of Clause 20.2 for its assertion that only ‘technical matters involving economic aspects and vice versa' can be arbitrated under the Contract, because this language is not included in Annex XVI. First, Annex XVI expressly displaced Clause 20.2, by providing after ratification of Convention, technical and/or economic disputes shall be resolved in accordance with the provisions of the Convention, ‘thus leaving without effect the arbitration procedure set out in clause twenty of the Contract.' […] Second, the Parties intended that Annex XVI would replace the prior dispute resolution clause in its entirety. […] Third, Ecuador is wrong to assert that Clause 20.2 and Annex XVI are to be read together, such that ‘technical matters involving economic aspects and vice versa' language of Clause 20.2 defines the ‘technical and/or economic' language of Annex XVI. According to Perenco, ‘Clause 20.2 was self-evidently meant to apply before congressional approval of the ICSID Convention, while Annex XVI was meant to apply after congressional approval of the ICSID Convention.'225

240.
Furthermore, it is undisputed that both Parties presented submissions “on the impact of caducidad and the economic consequences of the participation formula, on the economic equilibrium of the contracts, and on the economic effects of Ecuador's actions on Perenco's overall share.”226
241.
Thus, the Committee finds that the Tribunal's conclusion fits within the legal framework discussed by the Parties regarding the interpretation on the scope and contours of Annex XVI. The fact that the Tribunal did not adopt the exact same position or terminology advanced by the Parties does not mean that the Tribunal created a new and unexpected legal framework that ought to be commented by the Parties. Consequently, the Committee finds that the Tribunal did not seriously depart from Ecuador's right to be heard.
242.
As regards the failure to state reasons, Ecuador claims that by contradicting its previous findings, the Tribunal failed to state the reasons for its finding that it had jurisdiction over Perenco's contractual claim regarding Ecuador's breach of Block 21 Participation Contract by the caducidad declaration.
243.
As regards the first alleged contradiction, Ecuador claims that in the Decision on Jurisdiction, the Tribunal concluded that “essentially legal matters” were excluded from the scope of the arbitration agreement; however, in the Decision on Jurisdiction and Liability, the Tribunal failed to exclude caducidad. Nonetheless, the Committee finds no contradiction in the Tribunal's Decisions, much less a contradiction tantamount to a failure to state reasons that gives rise to annulment as explained in Section III.D.2.
244.
The Committee observes that even though the Tribunal indeed reasoned that “essentially legal matters” were excluded from the scope of the arbitration agreement, neither in its Decision on Jurisdiction nor in any other decision, the Tribunal concluded that caducidad was “essentially a legal matter” so as to clearly contradict its subsequent decision not to exclude the caducidad declaration from the scope of the arbitration agreement. To the contrary, as explained above, the Tribunal found that the dispute related to the caducidad declaration was both legal and economic.
245.
As regards the second alleged contradiction, Ecuador submits that in its Decision on Jurisdiction, the Tribunal concluded that the arbitration agreement was conditional on “(i) being of a technical or economic nature, and (ii) arising out of the application of the Block 21 Participation Contract.”227 Yet, in the Decision on Jurisdiction and Liability, the Tribunal concluded that the sole condition for its jurisdiction ratione materiae was that a claim concerns a “technical” or “economic” dispute. For Ecuador, these contradictory reasons amount to failure to state reasons.
246.
The Committee is not persuaded by Ecuador's argument. In its Decision on Jurisdiction and Liability, the Tribunal explained that Clause 20.2 of Block 21 Participation Contract expressly “states that if a caducity proceeding has been initiated, and the cause is related to technical or economic aspects, and the parties ‘have differing views', either party may submit the matter to arbitration.”228 Annex XVI provides that “technical and/or economic disputes arising out of the application of the Participation Contract” shall be resolved according to the provisions of the ICSID Convention.229 Following this conclusion, the Tribunal then recalled that “[in its Decision on Jurisdiction] the Tribunal found that Annex XVI had to be considered when determining the scope of its ratione materiae competence over contractual claims.”230 The Tribunal then emphasized that Annex XVI did not single out caducidad from the scope of the arbitration agreement—contrary to Clause 21.3 of the Block 7 Participation Contract231—, “placing upon the subject-matter jurisdiction of the Tribunal the sole limitation that the claim should concern a ‘technical' or ‘economic' dispute.”232
247.
The Committee stresses that the Tribunal's decision must be read as whole and in context. Read in isolation, the last sentence in paragraph 315 might indicate that the Tribunal disregarded the requirement that the dispute be one “arising out of the application of the Participation Contract.” Yet, it is enough to read the previous paragraph (para. 314), quoting Annex XVI, to understand that the Tribunal acknowledges that the dispute must be technical and/or economical, and be one arising out of the application of the Participation Contract. Furthermore, the Tribunal did not expressly reject the latter criterion so as to conclude that there is a clear contradiction between the Tribunal's decisions.
248.
Therefore, the Committee finds no contradictions in the Tribunal's reasoning and therefore it finds no ground to conclude that the Tribunal failed to state the reasons for its finding on jurisdiction.

B. Grounds on the Tribunal's findings on the merits

(1) Grounds on the Tribunal's finding that Ecuador's non-compliance with the Provisional Measures amounted to a breach of contract

a. The Parties' Position

(i) Applicant's Position

249.
Ecuador claims that the Tribunal failed to state reasons when, in its Decision on Jurisdiction and Liability, it concluded that Ecuador had breached the Participation Contracts by not complying with the Tribunal's Decision on Provisional Measures.
250.
Pursuant to Clause 22.2.2 of the Participation Contracts, the Parties “agreed that they would comply not only with a final award (i.e., in Spanish, the ‘laudo' issued by a tribunal), but in addition, they would observe and comply with the decisions (i.e., in Spanish, the ‘decisiones') of the tribunal.”233 Yet, nowhere in its reasoning, did the Tribunal address Ecuador's key argument: that the Tribunal's recommendation in the Decision on Provisional Measures did not amount to “decisions” for the purposes of Clause 22.2 of the Participation Contracts. Furthermore, the Tribunal's decision contradicts its previous Decision on Provisional Measures, in which it expressly stated that the provisional measures were “recommendations.”234
251.
Based on the above reasons, Ecuador requests the annulment of the Tribunal's decision to uphold Perenco's claim of breach of Contract in respect of Law 42 at 99%, and “the Tribunal's ensuing decision to order Ecuador to pay US$448,820,400 to Perenco, insofar as it includes Perenco's breach of Contract claim.”235

(ii) Perenco's Position

252.
Perenco contends that the Tribunal did not fail to state reasons when finding that Ecuador's violations of the Decision on Provisional Measures breached its obligation under the Participation Contracts to comply with the Tribunal's decisions.236
253.
Contrary to Ecuador's assertion that the Tribunal did not explain how its Decision on Provisional Measures amounted to a decision covered under Clause 22.2 of the Participation Contract, the Tribunal did provide reasons for finding that the Decision on Provisional Measures was a “decision.” In fact, the Tribunal rejected Ecuador's argument that “decisions” only included awards. In any event, Ecuador's complaint does not meet the high threshold to establish a failure to state reasons.237
254.

Ecuador claims that the Tribunal's finding that the non-compliance with the Provisional Measures breached the Participation Contracts directly contradicts its Decision on Provisional Measures in which it expressly stated that provisional measures were “recommendations”. Yet, the Tribunal made clear that the decisions of provisional measures under Article 47(1) of the ICSID Convention are binding. Therefore, there is no contradiction.238

255.
Finally, Ecuador's request to annul the Tribunal's decision to uphold Perenco's claim of breach of Contract in respect of Law 42 at 99% is nonsensical. The Tribunal's finding that Decree 662 breached the Participation Contracts was not based on Ecuador's breach of the Provisional Measures, but on the Tribunal's finding “that Decree 662 sought to coerce Perenco to ‘unilaterally conver[t] the Participation Contracts into de facto service contracts.'”239

b. The Committee's Analysis

256.
Ecuador claims that the Tribunal failed to state the reasons for its finding that Ecuador breached the Participation Contracts by not complying with the Decision on Provisional Measures. According to Ecuador, the Tribunal failed to address its key argument, namely that the Tribunal's recommendations in the Decision on Provisional Measures did not amount to decisions (“decisiones”) under Clause 22.2.2 of the Participation Contracts. The Applicant further claims that the Tribunal's finding in the Decision on Jurisdiction and Liability that the recommendations made in the Decision on Provisional Measures were binding, contradicts the Decision on Provisional Measures itself.240
257.
For the reasons explained below, the Committee finds that the Tribunal did provide reasons for its decision that Ecuador's non-compliance with the Decision on Provisional Measures amounted to a breach of the Participation Contracts.
258.
Between paragraphs 413 and 417 of the Decision on Jurisdiction and Liability, the Tribunal addresses the question on whether Ecuador was contractually obliged to comply with the Tribunal's Decision on Provisional Measures. The Tribunal begins its analysis by referring to Clause 22.2.2 of the Participation Contracts. Then, it refers to the Parties' positions on the matter, expressly mentioning Ecuador's “key argument”, as follows:

Ecuador's position is that while the parties undertook in the Contracts to submit to ICSID arbitration specified disputes and to abide by the Tribunal's ‘final award', they did not undertake to, and these obligations could not inferentially amount to, an undertaking to comply with a tribunal's recommendation of provisional measures. It submitted that clause 22.2.2 was generally worded and, according to principles of contract interpretation in Ecuadorian law, must be ‘read in accordance with the other clauses of the Participation Contracts which specifically refer to these topics' and which in its view establish ‘only that the Parties agree to abide by the final award rendered by an ICSID tribunal.' Where it was intended to give a tribunal the power to provide for binding and enforceable provisional measures, the Contracts did so expressly (as was done elsewhere in the Contracts with respect to the power of a domestic arbitral tribunal to order provisional measures).241

259.
After referring to the Parties' positions, the Tribunal concluded that:

[A] plain reading of clauses 22.2.2 indicates that the contracting parties agreed that they would comply not only with a final award (i.e., in Spanish, the ‘laudo' issued by a tribunal), but in addition, they would observe and comply with the decisions (i.e., in Spanish, the ‘decisiones') of the tribunal. The latter term constitutes a more capacious category of tribunal decisions of which the final award forms a part. Thus, under the Participation Contracts, Ecuador was bound to comply with the Decision on Provisional Measures and its failure to do so constituted a breach of contract.242

260.
The Committee observes that the Tribunal not only interpreted Clause 22.2.2, but also explained that its interpretation was based on the fact that the word “decisions” (decisiones) is a more “capacious” category of tribunal decisions of which the final award (laudo) is part.
261.
The Committee cannot conclude that the Tribunal did not analyze and decide Ecuador's “key argument” solely because there is no wording in the Decision on Jurisdiction and Liability expressly rejecting Ecuador's position. It is clear in the aforementioned decision that the Tribunal did not uphold Ecuador's interpretation of the clause because it considered that the word “decisions” was a general category of arbitral decisions that encompassed the final award and other decisions. Likewise, although the Tribunal does not expressly indicate that the Decision on Provisional Measures is also part of the more general category of “decisions”, such conclusion follows from the Tribunal's finding that “Ecuador was bound to comply with the Decision on Provisional Measures […].”243
262.
The Committee finds therefore that the Tribunal did answer the question on whether the Decision on Provisional Measures was a “decision of the competent […] arbitrators” under Clause 22.2.2 of the Participation Contracts. Consequently, the Tribunal satisfied the requirement set out in Article 48(3) of the ICSID Convention that “[t]he award shall deal with every question submitted to the tribunal, and shall state the reasons upon which it is based.”
263.
Furthermore, the Committee finds no contradiction between the Tribunal's Decision on Provisional Measures and the Decision on Jurisdiction and Liability as regards the binding character of the “recommendations” made by the Tribunal as provisional measures.
264.
In its Decision on Provisional Measures, the Tribunal expressly manifested that “[i]t is now generally accepted that provisional measures are tantamount to orders, and are binding on the party on which they are directed […].”244 Thereafter, in its Decision on Jurisdiction and Liability, the Tribunal concluded that Ecuador was bound to comply with the Decision on Provisional Measures. Accordingly, there is no contradiction between these decisions given that in both the Tribunal considered that its “recommendations” under the Decision on Provisional Measures were binding. The Tribunal's conclusion should come as no surprise, as it is widely accepted among ICSID arbitral tribunals and ad hoc committees that recommendations under Article 47 of the ICSID Convention are binding to the Parties.
265.
In conclusion, the Committee finds no ground to annul the Tribunal's decision that Ecuador breached the Participation Contracts by not complying with the Decision on Provisional Measures.

(2) Grounds on the Tribunal's finding that Perenco was entitled to suspend operations under the exceptio non adimpleti contractus principle

a. The Parties' Position

(i) Applicant's Position

266.
Ecuador claims that the Tribunal seriously departed from a fundamental rule of procedure, manifestly exceeded its powers, and failed to state its reasons when it decided sua sponte on the interpretation of the exceptio non adimpleti contractus theory.
267.
The Applicant refers to the Tribunal's decision that Ecuador's non-compliance with the Decision on Provisional Measures breached the Participation Contracts and that such non-compliance justified Perenco's invocation of the exceptio non adimpleti contractus defense to suspend its operations in the Blocks. The Tribunal concluded erroneously that the exceptio defense was valid because Article 1568 of the Ecuadorian Civil Code is worded in general terms so that it covers administrative contracts.245
268.
Ecuador contends that the Tribunal's decision to apply the exceptio rule must be annulled in limine, as it is based on the Tribunal's finding that Ecuador's non-compliance with the Provisional Measures amounted to a breach of the Participation Contracts. Yet, even if the Committee were to uphold such finding, the Tribunal in any event (i) committed a serious departure from a fundamental rule of procedure; (ii) manifestly exceeded its powers; and (iii) failed to state the reasons for deciding sua sponte on the interpretation of the exceptio non adimpleti contractus theory.246
269.
As to the serious departure from a fundamental rule of procedure, Ecuador claims that the Tribunal violated its right to be heard for two reasons: first, the Tribunal's interpretation of Article 1568 of the Ecuadorian Civil Code was not advanced by either of the Parties; and second, the Tribunal did not afford either Party the opportunity to comment upon its novel theory.247
270.
As to the manifest excess of powers, Ecuador states that the Tribunal's interpretation of Article 1568 of the Ecuadorian Civil Code amounts to at least two gross errors under Ecuadorian law. First, the Tribunal grossly erred when concluding that the provisions of the Ecuadorian Civil Code apply with equal force and in all circumstances to private and administrative law contracts. Second, the Tribunal grossly erred when applying the exceptio rule, as it failed to recognize that the Ecuadorian Constitution equates hydrocarbons production with a public service and subjects it to the constitutional principle of continuity, thereby prohibiting its interruption.248 When a tribunal's analysis is a gross misapplication or misinterpretation of the law amounting to effective disregard or non-application of the law, it must be deemed a failure to apply the law. In this sense, given that the Tribunal “grossly disregarded Ecuadorian constitutional principles and failed to apply Ecuadorian administrative law,” it exceeded its powers.249
271.
As to the failure to state reasons, the Applicant alleges that the Tribunal's reasoning on its decision that Ecuadorian law permits the party not in breach to suspend performance of its contractual obligations is limited to a two-line sentence in the Decision on Jurisdiction and Liability. Such reasoning simply declares that Ecuadorian law permits the said performance suspension without demonstrating where this permission can be found in the law or without any analysis of the theories advanced by the legal experts.250
272.
Accordingly, Ecuador requests the annulment of the Tribunal's decision to uphold Perenco's claim of breach of contract in respect of Law 42 at 99%, insofar as such decision is in part based on the Tribunal's finding that the exceptio non adimpleti contractus defense could be invoked in relation to the Participation Contracts. Likewise, Ecuador requests the annulment of the Tribunal's ensuing decision to order Ecuador to pay US$448,820,400 to Perenco, to the extent that it includes Perenco's breach of contract claim.251

(ii) Perenco's Position

273.
Perenco objects Ecuador's position that the Tribunal departed from a fundamental rule of procedure, manifestly exceeded its powers, and failed to state reasons in reaching the decision that the principle of exceptio non adimpleti contractus in Article 1568 of the Ecuadorian Civil Code entitled Perenco to suspend operations when Ecuador's violations of provisional measures made its operations commercially impossible.252
274.
As to the serious departure from a fundamental rule of procedure, Perenco remarks that the Tribunal reached its decision based on the plain language of the applicable provisions of the Ecuadorian Civil Code, after the Parties and their experts addressed that language in their submissions, arguments, and even on cross-examination.253
275.
As to the manifest excess of powers, Ecuador is also wrong to contend that the Tribunal's reliance on the text of the applicable Ecuadorian Civil Code provision was a “gross error under Ecuadorian law”.254 The Tribunal acted within its powers as it endeavored to apply Ecuadorian law, in particular Article 1568 of the Civil Code. Accordingly, even if mistaken, the Tribunal's conclusion that “Article 1568 of the Civil Code is worded in general terms and does not support the position that it may only be invoked by the public contracting entity that is party to the contract” cannot amount to a manifest error as Ecuador asserts.255
276.
Ecuador further complains that the Tribunal failed to recognize that the Ecuadorian Constitution equates hydrocarbons production with a public service and subjects it to the constitutional principle of continuity, thereby prohibiting its interruption. However, as the Tribunal explained in accordance with its mandate, Article 1568 of the Civil Code could apply to a private party to an administrative contract. Moreover, the Tribunal analyzed and accepted that “‘Participation Contracts, are aimed at exploiting a natural resource and target the provision of financial income to the national treasury' and are thus unrelated to public services that are subject to the principle of continuity.”256 Hence, the Tribunal's rejection of Ecuador's argument was correct, and even if it had been incorrect it could not have amounted to a manifest excess of power.
277.
As to the failure to state reasons, Perenco states that Ecuador's mischaracterization of the Tribunal's decisions or the alleged brevity of the Tribunal's reasoning cannot establish any failure to state reasons, much less a complete failure to do so. The standard for a failure to state reasons is not whether the reasons given are sufficient, but whether reasons exist at all. In any event, Ecuador is wrong that the Tribunal's analysis on Perenco's right to suspend its performance under the Participation Contracts is contained in just two sentences. Ecuador omits to mention that the Tribunal took careful account of the different theories the Parties and their respective legal experts provided, and then found Perenco's permission to suspend operations in the express language of Article 1568 of the Ecuadorian Civil Code.257 Furthermore, Ecuador failed to establish why the Tribunal's finding is essential to the outcome of the case, as it must in order to establish an annullable error.258
278.
Ecuador's arguments do not justify its requested relief that the Committee annul the Tribunal's decision finding that Law 42 at 99% breached the Participation Contracts and awarding US$448.8 million in damages to Perenco. Ecuador failed to explain how the Tribunal's finding regarding the permission to suspend operations affects that Decree 662 breached the Participation Contracts, and how the entirety of the Tribunal's quantum determination should be annulled.259

b. The Committee's Analysis

279.
Ecuador claims that the Tribunal seriously departed from a fundamental rule of procedure, manifestly exceeded its powers, and failed to state the reasons when deciding that Perenco was entitled to suspend operations under the exceptio non adimpleti contractus principle.
280.
As regards the serious departure from a fundamental rule of procedure, Ecuador claims that the Tribunal breached the Applicant's right to be heard by upholding a novel interpretation of Article 1568 of the Ecuadorian Civil Code that was not advanced by either Party, and by not affording the Parties the opportunity to comment upon its novel interpretation.
281.
Ecuador's claim is based on the Tribunal's decision that:

[T]he [exceptio non adimpleti contractus] defence may be invoked by a private party to an administrative contract. Article 1568 of the Civil Code is worded in general terms and does not support the position that it may only be invoked by the public contracting entity that is party to the contract.

282.
The Committee observes that contrary to Ecuador's claim, the Parties had the opportunity to present their positions on whether the exceptio provided in Article 1568 applied to administrative contracts.
283.
First, in his Fourth Expert Report260 and at the Hearing on Jurisdiction and Liability,261 Dr. Hernán Pérez Loose, Perenco's legal expert, explained that, in his view, the exceptio non adimpleti contractus applied to public contracts in Ecuador. For instance, at the Hearing on Jurisdiction and Liability, following a question from Ecuador on whether the exceptio is to be applied to public contracts, Dr. Perez Loose answered that “the first source is the Civil Code, clearly. This is something that you can find in the Civil Code, and as you read it, the Civil Code provisions doesn't make any difference between private or administrative contracts. It just refers to contracts.”262
284.
Second, in its Reply to Ecuador's Counter-Memorial on Liability and Counterclaims, Perenco expressly referred to Dr. Peréz Loose conclusions by noting that Perenco's conduct was not illegal under Ecuadorian law. As explained by Dr. Pérez Loose, Perenco's suspension was legitimate under the principle of exceptio non adimpleti contractus, which applies to bilateral contracts such as the Participation Contracts under Ecuadorian law.263
285.
Third, in its Third Expert Report, Dr. Juan Pablo Aguilar Andrade, Ecuador's legal expert, addressed the question on whether the exceptio incorporated in Article 1568 of the Civil Code is applicable to administrative contracts:

The possibility of opposing the exceptio non adimpleti contractus to administrative contracts is an issue that clearly reflects the difference between the general law of contracts as regulated by the Civil Code, and that which applies to contracts entered into by the State and its institutions.

The Civil Code adopts this exceptio in Article 1568, pursuant to which ‘in bilateral contracts, none of the parties will be in default for non-performance, insofar as the other party does not perform his or her obligations, or agrees to perform them in due time and form.'

This rule, of mandatory application in the field of Private Law, loses its general character and is only applicable in extraordinary circumstances in the field of Administrative Law, where collective interests have priority. Again, this is not a specificity of Ecuadorian law, but rather, as in other matters of Administrative Law, is the application of the leading opinions of authors, legislation and case law.264

286.
Thereafter, Dr. Aguilar referred to French, Spanish and Argentinean doctrine on the application of the exceptio to public contracts.
287.
It is worth noting that, in its Decision on Jurisdiction and Liability, the Tribunal expressly referred to (i) Dr. Pérez Loose's Fourth Expert Report and to his intervention at the Hearing on Jurisdiction and Liability, and (ii) Dr. Aguilar's Third Expert Report before concluding that “Article 1568 of the Civil Code is worded in general terms and does not support the position that it may only be invoked by the public contracting entity that is party to the contract.”265
288.
In view of the documents, legal expert reports, pleadings and transcripts available on the record, the Committee concludes that the Tribunal did not exceed the legal framework argued during the Underlying Arbitration when interpreting that the exceptio provided in Article 1568 may be invoked by a private party to an administrative contract.
289.
Likewise, the Committee finds that each Party had ample opportunity to present its case and to rebut the other Party's position regarding the application of the exceptio rule to administrative contracts.
290.
Consequently, the Committee concludes that the Tribunal did not depart from Ecuador's right to be heard when concluding that the exceptio non adimpleti contractus rule provided in Article 1568 of the Civil Code was applicable to administrative contracts and thereby Perenco was entitled to suspend operations under such principle.
291.
As regards the manifest excess of powers, Ecuador claims that the Tribunal committed a gross error when concluding that the exceptio principle set forth in Article 1568 of the Civil Code applied to administrative contracts. Ecuador further argues that the Tribunal failed to recognize that interruption of hydrocarbons production is prohibited in Ecuadorian Law given that it is considered a public service under the Constitution, and thereby, it is subject to the continuity principle.
292.
The Committee stresses that it cannot act as a court of appeals and judge whether the Tribunal correctly or incorrectly interpreted or applied the Ecuadorian Law. The Committee may even disagree with the Tribunal's interpretation of the law; however, the fact is that the Tribunal did identify the proper body of law and endeavored to apply it. This can be observed in the Tribunal's Decision on Jurisdiction and Liability between paragraphs 418 and 435. It is not for the Committee to assess whether the interpretation of the Tribunal is merely incorrect or “grossly incorrect”. The Committee cannot review the substance of the case. Therefore, the Commitee concludes that the Tribunal did not manifestly exceed its powers when deciding that the exceptio rule applied to administrative contracts and therefore Perenco was entitled to suspend operations under said principle.
293.
As regards the failure to state reasons, Ecuador claims that the Tribunal's reasoning on its conclusion that Ecuadorian law permits the Party not in breach to suspend performance of its contractual obligations is limited to a two-line sentence in the Decision on Jurisdiction and Liability.
294.
As a preliminary remark, the Committee notes that Ecuador's claim is based on the argument that the Tribunal's reasoning is insufficient. Yet, as explained in Section III.D.2 above, it is not on the Committee to assess the quality or extension of the reasons provided by the Tribunal. To determine whether the Tribunal complied with the requirement that the Award shall state reasons for its decision, the Committee must analyze whether the Tribunal's conclusions follow from a set of premises, either implicit or explicit.
295.

Between paragraphs 418 to 425 of the Decision on Jurisdiction and Liability the Tribunal presented its analysis to resolve the following question: “[c]an Perenco invoke the defence of exceptio non adempleti contractus for its decision to suspend operations?”

296.
The Tribunal begins its analysis by noting that, having found that Ecuador breached the Participation Contracts by not complying with the Decision on Provisional Measures, the question was whether as a matter of Ecuadorian law Perenco was entitled to suspend performance of its contractual obligations.266 Thereafter, the Tribunal devoted twelve paragraphs to present the opinions of the Parties' legal experts.
297.
The Committee finds that there are two particular references that are paramount to the subsequent Tribunal's conclusion.
298.
First, the Tribunal referred to Dr. Pérez Loose's view on the interpretation of Article 1568 of the Civil Code, as follows:

Article 1568 of Ecuador's Civil Code provides more generally that ‘[i]n bilateral contracts no party shall be considered to be in default by failing to comply with the agreed terms, while the other party has not complied with its obligations or refuses to comply in due manner and time.' During cross-examination, Dr. Pérez Loose asserted that in his view Article 1568 must apply to administrative contracts since it makes no distinction in terms between private and administrative contracts, referring only to the generally worded ‘contracts.' He referred to the defence as a ‘transitory' or ‘transient' right intended to exert pressure on the other contracting party to comply with its contractual obligations. In order to invoke this defence, the invoking party must demonstrate: (i) a reciprocal connection between the obligation breached and the obligation it purports to breach; (ii) that the original breach was material in nature (it cannot relate to ancillary, secondary, or obligations relatively insignificant in the larger context of the legal relationship between the parties); and (iii) that it was or is ready to perform its obligations.267

299.
Second, the Tribunal referred to certain views presented by Professor Aguilar, as follows:

Professor Aguilar asserted further that the writers supported his view that the exceptio can only apply to administrative contracts in circumstances where the State's conduct has made it ‘reasonably impossible' for the private contracting entity to fulfill its obligations. […]

Professor Aguilar accepted that his view was derived from the views of foreign legal theorists, but asserted that this was necessarily the case as ‘[t]here has been no explicit development in Ecuador by authors on the subject, nor has a concrete case presented itself that resulted in applicable jurisprudence.' He rejected Dr. Pérez Loose's reliance on two judicial decisions of the First Civil and Commercial Chamber of the Supreme Court of Justice, stating they demonstrated instead that a claim invoking the exceptio will not be entertained when the private contractor is itself in default of its contractual obligations. He similarly asserted that contrary to Dr. Pérez Loose's submission, the two opinions of the Attorney-General in Ecuador demonstrate that the exceptio may be invoked by the private contracting entity to an administrative contract, there was in one case a specific contractual provision providing that no fine would be imposed on the contractor for non-performance if the public contracting entity was in default, and the other case supports his view that the exceptio did not apply as the ‘Attorney General argues that a delay in payment by a public institution does not authorize an extension of the contractual term' in favour of the contractor (i.e., permitting non-performance for a time until payment is received).268

300.
Based on the foregoing premises, the Tribunal concluded that:

Having considered the parties' submissions, although it accepts Professor Aguilar's view that the law is not well developed in this point in Ecuador, the Tribunal finds that the defence may be invoked by a private party to an administrative contract. Article 1568 of the Civil Code is worded in general terms and does not support the position that it may only be invoked by the public contracting entity that is party to the contract.269

301.
Accordingly, the Committee observes that, read as a whole and in context, the Decision on Jurisdiction and Liability provides reasons supporting the Tribunal's conclusion that Ecuadorian law permits the Party not in breach to suspend performance of its contractual obligations. Thus, the Committee finds no ground to annul under Article 52(1)(e) of the ICSID Convention.

(3) Grounds on the Tribunal's finding that Decree 662 breached the Participation Contracts and that the enactment of Decree 662 and the ensuing measures breached Article 4 of the Treaty

a. The Parties' Position

(i) Applicant's Position

302.
Ecuador claims that the Tribunal manifestly exceeded its powers and failed to state the reasons on which the Award is based, when it decided that the enactment of Decree 662— increasing to 99% the levy on extraordinary revenue above the reference prices underlying the Participation Contracts—, breached said Contracts.270
303.
As to the manifest excess of powers, Ecuador notes that the Tribunal failed to apply Ecuadorian administrative law when finding that Decree 662 was not a lawful exercise of the jus variandi power under Ecuadorian law. Ecuador stresses that, under Ecuadorian law, the jus variandi power is only relevant when the terms of an administrative contract have been modified. Nonetheless, the jus variandi power had no bearing in the present case, as the Tribunal itself had found that neither Law 42 nor Decree 662 modified the terms and conditions of the Participation Contracts.271 Ecuador further claims that the Tribunal assessed whether Decree 662 breached the Participation Contracts pursuant to a mandate akin to that of an amiable compositeur or ex aequo et bono. Ecuador thereby contends that the Tribunal's misapplication of Ecuadorian law is so egregious that it amounts to a non-application.272
304.
As to the failure to state reasons, Ecuador observes that in its Decision on Jurisdiction and Liability, the Tribunal held both that Law 42 did not amount to a breach of the Participation Contracts, and that Decree 662 was “entirely different” and amounted to such a breach. Ecuador remarks that “where it is not possible to follow a tribunal's reasoning because the stated reasons are so contradictory as to cancel each other out, this amounts to a failure to state reasons. Likewise, ad hoc committees have consistently held that ‘frivolous' or arbitrary reasoning amounts to a failure to state reasons warranting annulment. In the present case, the Tribunal's reasoning is replete with contradictory findings that cannot be reconciled. It is also based on arbitrary statements that cannot form the basis of a reasoned decision.”273
305.
Likewise, Ecuador argues that the Tribunal manifestly exceeded its powers and failed to state the reasons on which the Award is based when it decided that moving beyond 50% to 99% with the application of Decree 662 breached Article 4 of the Treaty.
306.
As to the manifest excess of powers, Ecuador contends that the Tribunal's holding that Decree 662 breached the Participation Contracts was based on a gross misapplication of Ecuadorian law. The Tribunal “erroneously invoked, and limited its assessment of the alleged contractual breach to, the jus variandi power under Ecuadorian law even though such principle was plainly inapplicable in the circumstances, thereby assessing whether Decree 662 breached the Participation Contracts pursuant to a mandate akin to that of an amiable compositeur or ex aequo et bono. In so doing, the Tribunal manifestly exceeded its powers.”274
307.
As to the failure to state reasons, Ecuador claims that the Tribunal's holding that “the application of Decree 662 to Perenco as well as the ensuing measures” breached Article 4 of the Treaty is based on contradictory and arbitrary reasoning, which amounts to failure to state reasons. To support its position, Ecuador advances similar arguments to the ones presented in regard to the finding that Ecuador breached the Participation Contracts by enacting Decree 662.275
308.
Accordingly, Ecuador requests the annulment of the Tribunal's findings that Decree 662 breached the Participation Contracts and that Decree 662 and the ensuing measures breached Article 4 of the Treaty. Likewise, Ecuador requests the annulment of the Tribunal's ensuing decision to order Ecuador to pay US$448,820,400 to Perenco.276

(ii) Perenco's Position

309.
Perenco objects Ecuador's position that the Tribunal manifestly exceeded its powers and failed to state its reasons when concluding that Decree 662 breached the Participation Contracts and that Decree 662 and the ensuing measures breached Article 4 of the Treaty.277
310.
As to the manifest excess of powers, Perenco notes that Ecuador claims that the Tribunal manifestly exceeded its powers because it misapplied Ecuadorian law when finding that the jus variandi doctrine applied to Decree 662, and that such an error of law cannot constitute a ground for annulment. The Tribunal did apply the Ecuadorian law. Ecuador's argument that the “Tribunal erroneously invoked the jus variandi power under Ecuadorian law” cannot amount to a manifest excess of power since a mere substantive error cannot qualify as such manifest excess. Furthermore, Ecuador mischaracterizes the Tribunal's reasoning. The Applicant claims that the Tribunal “erroneously invoked the jus variandi power under Ecuadorian law” “in circumstances where the jus variandi principle is plainly inapplicable” because Law 42 did not unilaterally amend the Participation Contracts. This assertion is false because the Tribunal did find that Decree 662 effectively amended the Participation Contracts.278
311.
Ecuador's proposition that the Tribunal also manifestly exceeded its powers when finding that Decree 662 and ensuing measures violated the FET standard in Article 4 of the Treaty is doomed to fail because it is based on the false argument that the Tribunal's holding on the contract claim is incorrect. In any event, even if the Tribunal's finding were incorrect, the Tribunal endeavored to apply the applicable law—the Treaty—when assessing the Treaty claim, therefore, it could not have manifestly exceeded its powers.279
312.
As to the failure to state reasons, Perenco notes that the Tribunal's holding that Decree 662 breached the Participation Contracts and the Treaty is consistent with its finding that Law 42 at 50% did not similarly violate Ecuador's obligations. Among other contentions, Perenco further stresses that Ecuador's challenge to the Tribunal's finding that Decree 662 was a coercive act that was fundamentally different from Law 42 at 50% is no basis for annulment.280
313.
Accordingly, Perenco contends that Ecuador failed to establish that the Tribunal manifestly exceeded its powers or failed to state reasons when finding that Decree 662 breached the Participation Contracts and Decree 662, along with ensuing measures, violated Article 4 of the Treaty.

b. The Committee's Analysis

314.
Ecuador claims that the Tribunal manifestly exceeded its powers and failed to state the reasons for deciding that Ecuador's enactment of Decree 662 breached the Participation Contracts and that the enactment of Decree 662 and the ensuing measures breached the Treaty.
315.
The Committee will first address Ecuador's claim regarding the Tribunal's finding that Decree 662 breached the Participation Contracts.
316.
As to the manifest excess of powers, Ecuador claims that the Tribunal erroneously applied the jus variandi power under Ecuadorian Law considering that the terms of the Participation Contracts were not modified and therefore said principle was not applicable. Also, the Tribunal assessed whether Decree 662 breached the Participation Contracts pursuant to a mandate akin to that of an amiable compositeur.281
317.
The Committee notes that Ecuador does not claim that the Tribunal failed to apply Ecuadorian law but that it misapplied Ecuadorian law. Yet, the Committee's task is limited to review whether the Tribunal identified the proper body of law and endeavored to apply it.
318.
In this regard, the Committee observes that in its Decision on Jurisdiction and Liability, the Tribunal expressly identified Ecuadorian law as the applicable body of law:

Both Contracts were negotiated within the broader context of Ecuadorian law. Clause 22.1 (in both Contracts) stated that the Contract was governed exclusively by Ecuadorian legislation, and the laws in force at the time of its execution were understood to be incorporated in it. The ‘Legal Framework' then set out a non-exhaustive list of ‘legal standards' applicable to the Contract (including the Hydrocarbons Law, the Law amending the Hydrocarbons Law and various regulations pertaining thereto, as well as certain other general Ecuadorian laws).282

319.
Thereafter, to determine whether Ecuador lawfully exercised its jus variandi power when enacting Decree 662, the Tribunal applied the jus variandi principle, recognized in Ecuadorian law, and the four-prong test on jus variandi referred to by Ecuador's Constitutional Court in its Decision on Law 42.283
320.
Accordingly, the Committee finds that the Tribunal identified the proper law and endeavored to apply it. Ecuador disagrees with the Tribunal's interpretation, but the Committee cannot not substitute itself for the Tribunal and assess whether it correctly or incorrectly applied the jus variandi principle when examining the lawfulness of Law 42 at 50%.284 Thus, it finds that the Tribunal did not manifestly exceed its powers when concluding that the enactment of Decree 662 breached the Participation Contracts.
321.
As to the failure to state reasons, Ecuador contends that the Tribunal's reasoning is so contradictory, and that some of the reasons provided are so “arbitrary” and “frivolous” that the reasoning amounts to a failure to state reasons.
322.
The Committee will begin by addressing the alleged “contradictions” in the Tribunal's reasoning. Ecuador refers to four alleged contradictions.
323.
First, Ecuador claims that the Tribunal found, on the one hand, that the Participation Contracts did not preclude Ecuador from introducing new taxes and that Law 42 was a tax modification, and on the other hand, it concluded that Law 42 at 99% was a “conceptual modification of the Participation Contracts.”285 The Committee, however, finds no contradiction on the Tribunal's reasoning.
324.
In its Decision on Jurisdiction and Liability, the Tribunal clearly indicated that Law 42 at 50% did not breach the Participation Contracts:

(i) Law 42 fell within the taxation modification clauses of both Contracts; (ii) as the party claiming that the law had an impact on the Contracts' economy, it was incumbent upon Perenco to pursue negotiations with the new administration at least until they were shown to be futile; and (iii) Perenco did not do so, preferring instead to adopt a ‘wait and see' approach with the new Correa Administration. In these circumstances, the Tribunal does not find a breach of clauses 11.12 and 11.7 of the two Contracts.286

325.