|TABLE OF ABBREVIATIONS|
|BIT or the Treaty||Bilateral Investment Treaty; Treaty between the Republic of France and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment|
|RA||Request of Arbitration filed by Perenco on 30 April 2008|
|CM||Claimant [Perenco]'s Memorial of 10 April 2009|
|CCM||Claimant [Perenco]'s Counter-Memorial on Jurisdiction of 17 September 2009|
|CR||Claimant [Perenco]'s Rejoinder on Jurisdiction of 15 January 2010|
|Exh. C-||Claimant [Perenco]'s Exhibits|
|Exh. E-||Respondent [Ecuador]'s Exhibits|
|ICSID Convention||Convention on the Settlement of Investment Disputes between States and Nationals of other States, Washington DC 1965|
|FROJ||First Respondent [Ecuador]'s Objections to Jurisdiction of 17 July 2009|
|SROJ||Second Respondent [Petroecuador]'s Objections to Jurisdiction of 17 July 2009|
|RRJ||Respondents [Ecuador and Petroecuador]'s Reply on Jurisdiction of 17 November 2009|
|PMD||Tribunal's Decision on Provisional Measures of 8 May 2009|
|Tr. Day [#], [page:line]||Transcript of the hearing on jurisdiction and admissibility Day 1: Tuesday 2 November 2010 Day 2: Wednesday 3 November 2010 Day 3: Thursday 4 November 2010|
"Participation of the State in surplus prices from the sale of oil and gas not agreed upon or not foreseen.
Contractor companies that maintain participation contracts for the exploration and exploitation of hydrocarbons in effect with the Ecuadorian state under this Law, without prejudice to the volume of crude oil subject to participation that corresponds to them, when the effective monthly medium price of FOB sale of Ecuadorian oil petroleum goes above the monthly average prices in effect at the time of the execution of the contract, expressed in constant prices for the month of liquidation, will recognize in favour of the Ecuadorian state a participation of at least 50% of the extraordinary income generated by the difference in price. For the purposes of this Article, extraordinary revenues shall be understood to mean the difference in the above-described price, multiplied by the number of barrels produced.
The price of crude oil as of the date of the contract used as a reference for calculation of the difference shall be adjusted, considering the Consumer Price Index of the United States of America, published by the Central Bank of Ecuador."2
(a) Declaring that Ecuador has breached its obligations under the Treaty and international law;
(b) Declaring that Respondents have breached their obligations under the Participation Contracts;
(c) Directing Respondents to indemnify Perenco for all direct and indirect damages as a result of their breaches, including payments made to date under the HCL Amendment, and costs and expenses of this proceeding, in amounts to be determined at the hearing; and
(d) Directing Respondents to pay Perenco interest on all sums awarded, in amounts to be determined at the hearing, and to order any such further relief as may be available and appropriate in the circumstances.4
"The Tribunal considers that circumstances require it to recommend, and it does recommend, provisional measures restraining the Respondents from:
(1) demanding that Perenco pay any amounts allegedly due pursuant to Law 42;
(2) instituting or further pursuing any action, judicial or otherwise, including the actions described in the notices dated 19 February and 3 March 2009, to collect from Perenco any payments Respondents claim are owed by Perenco or the Consortium pursuant to Law 42;
(3) instituting or pursuing any action, judicial or otherwise, against Perenco or any of its officers or employees, arising from or in connection with the Participation Contracts; and
(4) unilaterally amending, rescinding, terminating, or repudiating the Participation Contracts or engaging in any other conduct which may directly or indirectly affect or alter the legal situation under the Participation Contracts, as agreed upon by the parties."5
(i) On behalf of Perenco:
• Mr. Roland Fox, from Perenco
• Mr. Rodrigo Marquez, from Perenco
• Mr. Mark W. Friedman, from Debevoise & Plimpton LLP
• Ms. Sarah H. Wolf, from Debevoise & Plimpton LLP
• Mr. Thomas H. Norgaard, from Debevoise & Plimpton LLP
• Ms. Mary Grace McEvoy, from Debevoise & Plimpton LLP
• Mr. Gaëtan Verhoosel, from Covington & Burling LLP
• Ms. Carmen Martínez López, from Covington & Burling LLP
(ii) On behalf of Ecuador and Petroecuador:
• Dr. Diego García Carrión, Procurador General del Estado
• Dr. Álvaro Galindo Cardona, from the Procuraduría General del Estado
• Mr. Francisco Paredes, from the Procuraduría General del Estado
• Mr. Pierre Mayer, from Dechert LLP
• Mr. Eduardo Silva Romero, from Dechert LLP
• Mr. Daniel Gal, from Dechert LLP
• Mr. José Manuel García Represa, from Dechert LLP
• Mr. José Caicedo, from Dechert LLP
• Mr. Lenin Armijos, from EP Petroecuador
i. The Tribunal lacks jurisdiction over Claimant's Treaty claims because Perenco is not a French company within the meaning of Article 1(3)(ii) of the Treaty;
ii. The Tribunal lacks jurisdiction ratione materiae over Claimant's Block 21 and Block 7 Contract claims because the dispute between the parties is not a "technical and/or economic dispute";
iii. The Tribunal lacks jurisdiction over Petroecuador because Petroecuador is not a party to the Contracts;
iv. The Tribunal lacks jurisdiction over Petroecuador because Ecuador has never designated Petroecuador as an agency to ICSID; and
v. The Tribunal has no jurisdiction to grant the relief sought by Claimant in relation to Law 42.
i. The Tribunal has no jurisdiction ratione personae over Perenco in respect of its Treaty claims;
ii. The Tribunal has no jurisdiction ratione materiae over the claims advanced by Perenco purportedly under the Block 7 and Block 21 Participation Contracts;
iii. The Tribunal has no jurisdiction to enjoin Ecuador from applying or enforcing Law 42;
iv. The Tribunal has no jurisdiction ratione personae over Petroecuador; and
v. All costs of this phase of the proceedings be awarded to Ecuador and Petroecuador.
i. The Tribunal has jurisdiction over Claimant's Treaty claims because Perenco is a company controlled by French nationals;
ii. The Tribunal has ratione materiae jurisdiction over Claimant's Block 21 and Block 7 Contract claims because it is a "technical and/or economic dispute";
iii. The Tribunal has jurisdiction over Petroecuador because Petroecuador is a party to the Contracts;
iv. The Tribunal has jurisdiction over Petroecuador because it is the successor of the Corporación Estatal Petrolera Ecuatoriana ("CEPE"), a government agency designated to ICSID by Ecuador in 1988; and
v. The Tribunal has jurisdiction to enjoin Ecuador from applying Law 42 to Perenco.
"i) Any body corporate constituted in the territory of either Contracting Party in accordance with its legislation and having its registered office there, ii) Any body corporate controlled by nationals of one Contracting Party or by bodies corporate having their registered office in the territory of one of the Contracting Parties and constituted in accordance with that Party's legislation."8
It is Respondents' contention that Perenco, which clearly does not fall within the Article 1(3)(i) definition, also does not fall within the Article 1(3)(ii) definition.
"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 of the Amazon Region, 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 provided in clause 20 of the Contract."
"In the event that the Ecuadorian Congress approves the Investment Dispute Settlement Agreement (CIADI) and such agreement therefore comes into force and effect, said Agreement shall supersede the Arbitration procedure mentioned in this present Contract."
Clause 20.2.12 provides that:
"The arbitration shall be guided by the provisions of this Contract, annex XVI, the documents that are related with the case submitted for arbitration, and Ecuadorian laws, as the case may be."
"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." (Italic emphasis added).
"142. By the enactment of Law 42 and the issuance of the Implementing Regulations, Respondents have also breached their obligations under the Contracts, in particular Clause 8.1, and violated the Constitutional proscriptions of confiscation, discrimination and retroactivity of laws."
"PARTICIPATION AND DELIVERY AND PAYMENT PROCEDURES" reads as follows:
"8.1- Calculation of the Contractor's Share: The Contractor's Share shall be calculated using the parameters set out hereunder, in accordance with the following formula:
PC = X.Q
PC = Contractor's Share
Q = annual Inspected Output in the Contract Area
X = Average factor, in a percentage, corresponding to the Contractor's Share. It is calculated using the following formula:
X = (X1.q1 + X2.q2 + X3.q3)/q + Y
q = is the daily average annual Inspected Output
q1 = is the part of q less than L1
q2 = is the part of q between L1 and L2
q3 = is the part of q greater than L2
The parameters L1, L2, X1, X2 and X3 offered by the Contractor and [illegible] hereunder, are the following:
L1 = 30,000 barrels a day
L2 = 60,000 barrels a day
XI = 67.5%
X2 = 60.0%
X3 = 60.0%
L1 and L2 shall be expressed in the same units as q, that is, in barrel. L1 and L2 serve to delimit three intervals of production.
The parameters X1, X2 and X3 are associated with the three production intervals; they are percentages and therefore must be between 0 and 100, and X3 must be less than or equal to X2 and less than X1.
"Y" is a correction parameter with respect to the quality (C) of the Crude Oil produced in the Contract Area, expressed as a percentage. If the Crude oil from the Contract Area is of a quality less than 25 API, but greater than 15 API, there is compensation on behalf of the Contractor, and on behalf of the State whenever the Crude Oil produced in the Contract Area is of a quality greater than 25, but less than 35 API, and is calculated in the following manner:
a) If 15 API < C < 25 API, then Y = 2.0 x (25-C)
b) If 25 API < C < 35 API, then Y = 1.0 x (25-C)
c) If C > 35 API, Y = -10
"C" is the average annual quality of Crude Oil from the Contract Area, measured in API degrees.
The State's Share of these discoveries may not be less than twelve point five percent (12.5%) when the gross output of crude oil does not reach thirty thousand barrels a day. The share shall go up to a minimum of fourteen percent (14%) when the daily output is between thirty thousand and sixty thousand barrels; and it shall not be less than eighteen point five percent when production exceeds sixty thousand barrels a day. Consequently, the Contractor's Share may not exceed, in any event, the limits of eighty-seven point five percent, eighty-six percent, and eighty-one point five percent, respectively. Average daily annual output (q) shall be estimated in advance by the Contractor and agreed to by PETROECUADOR to establish the amount of the Contractor's Share each month. These estimates may be adjusted quarterly. To calculate the definitive amount, the annual Inspected Output from the current period shall be used."
"It is indispensable to incorporate in the substantive part of the Hydrocarbon Law principles regarding economic and financial equilibrium, as well as principles of legal certainty that make it possible to perform the participation contracts signed by the Ecuadorian government based on criteria of justice and equity for the parties."
Following Article 55 [of the Hydrocarbons Law], add the following:
"Article. Participation of the State in surplus prices from the sale of oil and gas not agreed upon or not foreseen. Contractor companies that maintain participation contracts for the exploration and exploitation of hydrocarbons in effect with the Ecuadorian state under this Law, without prejudice to the volume of crude oil subject to participation that corresponds to them, when the effective monthly medium price of FOB sale of Ecuadorian oil petroleum goes above the monthly average prices in effect at the time of the execution of the contract, expressed in constant prices for the month of liquidation, will recognize in favour of the Ecuadorian state a participation of at least 50% of the extraordinary income generated by the difference in price. For purposes of this Article, extraordinary revenues shall be understood to mean the difference in the above-described price, multiplied by the number of barrels produced.
The price of crude oil as of the date of the contract used as a reference for calculation of the difference shall be adjusted, considering the Consumer Price Index of the United States of America, published by the Central Bank of Ecuador."
"As of the date this Law goes into effect, and until the corresponding Regulations to the Law Amending the Hydrocarbons Law are issued, the minimum percentage of State participation in the extraordinary revenues shall apply, that is, 50%, established in Article 2 of this Amending Law."
"While the parties to [the Block 21] contract expressly excluded [legal] matters from the scope of their agreement to arbitrate, their failure to do so in the Block 7 Participation Contract is of no consequence. The parties simply could not contract out of Ecuadorian law concerning arbitrability. The objection to jurisdiction is, therefore, pressed in relation to Perenco's Block 7 contract claims as well."106
And then they add:
"There is plainly no prejudice to Perenco in the objection being raised now in relation to Block 7 as well. In any event, the Tribunal is required of its own motion, to establish its jurisdiction pursuant to Article 25 of the ICSID Convention and Arbitration Rule 41. That jurisdiction is manifestly absent in so far as Perenco purports to agitate (sic) the validity, either as a matter of Ecuadorian constitutional law or civil law, of the enactment of Law 42 and the promulgation of the Implementing Regulations."107
"Notwithstanding the above, from the date the Convention on the Settlement of Investment Disputes between States and Nationals of other Countries ("the Convention"), signed by Ecuador, as a State member of the International Bank for Reconstruction and Development, on January 15, 1986 and published in the Official Journal No. 386 of March 3, 1986, is approved by the Ecuadorian Congress, the Parties shall submit the controversies or differences arising out or related to the performance of this Contract to the jurisdiction and competence of the International Centre for Settlement of Investment Disputes (ICSID) to be determined and resolved under the above referenced Convention."
"The Contractor assumes full responsibility towards the Ecuadorian State and Petroecuador with respect to the obligations assumed under the terms of [the] Contract; the Ecuadorian State and Petroecuador likewise assume full responsibility for their contractual obligations."
According to Perenco, "[a] plain reading of this clause leads to the unavoidable conclusion that the Contractor should expect to have mutual contractual obligations with both the Ecuadorian State and Petroecuador."122
" Petroecuador and the contractor have proceeded to negotiate the terms and other conditions of the contractual modification. " With the same purpose, Claimant points out Clauses 5.2 of the Block 7 and 21 Contracts which both provide that " [i]n addition to the other obligations stipulated in this contract, Petroecuador agrees to..." Other clauses such as Clauses 5.4 of the Blocks 7 and 21 Contracts also address the " Rights of Petroecuador " and the benefits to which " Petroecuador shall be entitled to." In Clause 5.6.1 of both Contracts, the contractor assumes full responsibility in respect of Petroecuador and the State regarding obligations assumed under the contract, while the latter two "assume full responsibility for their contractual obligations."132
• the Government's issuance of Decree 1583 and 1672 on 23 June and 11 July 2006 respectively;
• the Ministry of Energy and Mines' notification of Perenco dated 6 July 2006 which determined the prices in effect for the purposes of calculating the new participation;
• the letter from the Ministry of Energy and Petroleum to Perenco dated 23 December 2008 which instructed Perenco to appoint a negotiation team for the reversion of Block 7 and to assign a negotiating team to early termination of Block 21;
• the Minister's announcement on 21 January 2009 that sought termination of the Participation Contracts;
• the Ministry of Mines and Petroleum's letter dated 19 March 2009 ordering the preliminary re-liquidation of amounts allegedly being owed under Law 42; and
• the President's instruction reported on 14 February 2009 which requested that coercive measures be taken against Perenco.
1. to defer its decision on its competence over Claimant's Treaty claims to the merits phase of the proceeding;
2. that it has competence ratione materiae over the Claimant's contract claims under the Block 7 and Block 21 Participation Contracts;
3. that it has no competence over Petroecuador;
4. that in view of the Tribunal's request for the submission of any relevant travaux préparatoires of the Treaty in the possession of the other Contracting Party, as well as for further evidence on the issue of the Perrodo heirs' relationship to the Claimant, such material must be submitted prior to the filing of the Respondent's Counter-Memorial so as to allow the Respondent sufficient time to address such material in its pleading. The Parties are directed to jointly approach the responsible French authorities and request the disclosure of any relevant travaux préparatoires of the Treaty should they exist;
5. that any such travaux préparatoires shall be filed no later than August 1, 2011;
6. that the Claimant shall file any additional evidence pertaining to the Perrodo heirs' relationship to the Claimant no later than 1 August 2011;
7. that to enable the Tribunal to be in a position to decide all claims should it resolve the remaining objection in the Claimant's favour, the Parties shall address both the merits of the Claimant's contract claims and its Treaty claims in their pleadings.
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