Perenco v. Ecuador, Interim Decision on the Environmental Counterclaim, 11 Aug 2015

FREQUENTLY USED ABBREVIATIONS AND ACRONYMS
BP	BP Petroleum Development Limited
Burlington	Perenco's consortium partner, Burlington Resources Inc.
CEPE	Corporación Estatal Petrolera Ecuatoriana
Claimant's Counter-Memorial	Claimant's Counter-Memorial on Counterclaims dated 28 September 2012
Claimant's Reply Post-Hearing Brief	Claimant's Reply Post-Hearing Brief dated 22 November 2013
DINAPA	National Environmental Protection Directorate or Dirección Nacional de Protección Ambiental
Ecuador's Counter-Memorial	Ecuador's Counter-Memorial on Liability and Counterclaims dated 5 December 2011
Ecuador's Reply Post-Hearing Brief	Ecuador's Reply Post-Hearing Brief on Counterclaims dated 22 November 2013
Enviromental Management Law	Ley de Gestión Ambiental (Environmental Management Law) enacted on 30 July 1999 Codification 19, published in Supplemental Official Registry No. 418 of September 10, 2004
GSI	GSI Environmental, Inc.
GSI ER I	1st Expert Report of GSI dated 20 September 2012
GSI ER II	2nd Expert Report of GSI dated 2 July 2013
IEMS	Integrated Environmental Management Services S.A. de C.V.
IEMS ER I	1st Expert Report of IEMS dated 29 November 2011
IEMS ER II	2nd Expert Report of IEMS dated 26 April 2012
IEMS ER III	3rd Expert Report of IEMS dated 21 February 2013
IEMS ER IV	4th Expert Report of IEMS dated 4 September 2013
Perenco or the Claimant	Perenco Ecuador Limited
PRAS	Programa de Remediación Ambiental y Social, an agency within the Ecuadorian Ministry of Environment
RAOHE	Reglamento Ambiental para las Operaciones Hidrocarburíferas en el Ecuador, published in the Official Register No. 265 on 13 February 2001
Rejoinder	Claimant's Rejoinder on Counterclaims dated 12 July 2013
Reply	Ecuador's Reply Memorial on Counterclaims dated 22 February 2013
ROH	Reglamento de Operaciones Hidrocarburífera s (Regulation of Hydrocarbon Operations) enacted on 26 September 2002
Rouhani ER	Expert Opinion of Shahrokh Rouhani, Ph.D., P.E. Regarding Calculation of Impacted Soil Volumes in Block 7, Block 21 and the Coca-Payamino United Field, Oriente Region, Ecuador dated 26 June 2013
RPS	RPS Group
RPS ER I	1st Expert Report of RPS dated 25 November 2011
RPS ER II	2nd Expert Report of RPS dated 25 July 2012
RPS ER III	3rd Expert Report of RPS dated February 2013
SPA	Office of the Undersecretary for Environmental Protection or Subsecretaría de Protección Ambiental
Supplemented Memorial	Ecuador's Supplemental Memorial on the Counterclaims dated 27 April 2012
the Ministry	Ministry of Energy and Mines, later the Ministry of Non-Renewable Natural Resources
the Treaty or the BIT	Agreement between the Government of the French Republic and the Government of the Republic of Ecuador on the Reciprocal Promotion and Protection of Investments
TULAS	Texto Unificado de Legislación Ambiental Secundaria (Unified Text of Secondary Environmental Legislation) published in the Official Register No. E 2 on 31 March 2003

1.

The Claimant is Perenco Ecuador Limited, and is hereinafter referred to as " Perenco " or the " Claimant. "

2.

The Respondent is the Republic of Ecuador and is hereinafter referred to as " Ecuador " or the " Respondent."

3.

The Claimant and the Respondent are hereinafter collectively referred to as the " Parties." The Parties' respective representatives and their addresses are listed above on page (i).

4.

The dispute arises out of a series of measures adopted by the Respondent which, according to Perenco, were in breach of Ecuador's obligations under the Agreement between the Government of the French Republic and the Government of the Republic of Ecuador on the Reciprocal Promotion and Protection of Investments (the " Treaty " or the " BIT ") and two participation contracts for the exploration and exploitation of Blocks 7 and 21 (the " Blocks ") situated in the Ecuadorian Amazonian region. The Tribunal ruled on these claims in its Decision on Remaining Issues of Jurisdiction and on Liability, dispatched to the Parties on 12 September 2014.

5.

During the course of the written submissions phase of the prior proceedings, on 5 December 2011, Ecuador presented two counterclaims pursuant to Rule 40 of the ICSID Rules of Procedure for Arbitration Proceedings (the " Arbitration Rules ").¹ These related to allegations that Perenco is liable for environmental and infrastructural damage in Blocks 7 and 21. This interim decision will only address the environmental counterclaim.

6.

On 13 July 2011, Ecuador informed the Tribunal that "it may submit various counterclaims with its counter-memorial [on liability]," including those brought against Perenco's partner in Blocks 7 and 21, Burlington Resources (" Burlington ").²

7.

On 28 July 2011, the Tribunal, in consultation with the Parties, fixed the procedural calendar for the counterclaims.

8.

On 17 November 2011, Ecuador requested a 10-day extension in which to file its Counter-Memorial and its Counterclaims, due on 25 November 2011. Ecuador also confirmed that "while further work is ongoing in Ecuador regarding the extent of the environmental damage caused by Perenco, Ecuador will file on 5 December its counterclaim save as to quantum."³

9.

On 21 November 2011, Perenco confirmed that "in principle, it had no objection to reasonable schedule accommodations,"⁴ but it sought assurances from Ecuador that it would file its entire counterclaim on the proposed amended date.

10.

On 24 November 2011, the Tribunal granted Ecuador's request of 17 November and amended the procedural calendar, providing Claimant's with a similar extension of time. The Tribunal also drew the Parties' attention to ICSID Arbitration Rule 40(2)⁵ and requested the Respondent to "inform it at the time of the filing of its counter-claim precisely what additional steps it needs to undertake in order complete its counter-claim, so that the Claimant is able to respond thereto having regard to the procedural schedule as amended."⁶

11.

On 5 December 2011, Ecuador filed a Counter-Memorial on Liability and Counterclaims (" Ecuador's Counter-Memorial "). It was accompanied by the witness statements of Dr. Galo Chiriboga Zambrano, Mr. Pablo Luna, Mr. Diego Montenegro, Mr. Derlis Palacios, Mr. Wilson Pastor Morris, Mr. Germánico Pinto, Mr. Marco Puente, Mr. Manuel Solís, the third witness statement of Dr. Christian Dávalos, and the expert reports of Integrated Environmental Management Services S.A. de C.V. (IEMS), Mr. Brian Moree QC, RPS Energy, Fair Links, Mr. Ricardo Crespo Plaza and Professor Juan Pablo Aguilar Andrade (third).

12.

On the same date, Ecuador answered the Tribunal's request of 24 November by noting that its environmenrtal expert IEMS "is currently undertaking the final stage of its three-stage environmental audit of areas within Blocks 7 and 21 of the Ecuadorian Amazon Region. The purpose of this final stage is twofold: (i) to quantify the volume of contaminated soil and underground water pollution in some of the locations that IEMS has already determined, through laboratory analysis, are significantly contaminated; and (ii) to confirm the existence of contamination in other areas identified in its report where IEMS' investigation has led to indicia of pollution."⁷

13.

On 4 January 2012, the Tribunal informed the Parties that it intended to hold a telephone conference on 13 January 2012 to "consider the further procedural calendar covering not only Perenco's claim (including the remaining jurisdictional issues) and Ecuador's counterclaims, but also the issues of the quantum in relation to the main claim and the counterclaim."⁸

14.

On 13 January 2012, the Tribunal held a telephone conference with the Parties and invited them to reach agreements on the procedural calendar.

15.

On 19 January 2012, the Parties confirmed to the Tribunal that: "Ecuador has no objection to releasing Perenco from the 12 April 2012 date for the filing of its Counter-Memorial on Counterclaims. This is premised on the understanding that Perenco has no objection to Ecuador submitting a supplemental memorial on its counterclaims (including a supplemental report by IEMS) (i) before Perenco submits its Counter-Memorial on Counterclaims and (ii), in any event, not earlier than 30 April 2012."⁹

16.

On 3 February 2012, the Parties informed the Tribunal of their agreement regarding the procedural calendar for the counterclaims.¹⁰

17.

On 13 February 2012, the Tribunal fixed a new procedural calendar in light of the agreement reached by the Parties.¹¹

18.

On 27 April 2012, the Respondent filed a Supplemental Memorial on Counterclaims (the " Supplemental Memorial "). It was accompanied by the second witness statements of Mr. Pablo Luna and Mr. Diego Montenegro, and the second expert report of IEMS.

19.

On September 28, 2012, Perenco filed a Counter-memorial on Counterclaims (" Claimant's Counter-Memorial "). It was accompanied by the witness statements of Mr. Wilfrido Saltos, Mr. Eric d'Argentré (third), and Mr. Alex Martínez, and the expert reports of GSI Environmental, Intertek APTECH, and Prof. René Bedón.

20.

On 9 January 2013, the Tribunal issued Procedural Order No. 4 concerning Ecuador's request for production of documents regarding its counterclaims.¹²

21.

On 5 February 2013, the Parties agreed to extend the deadline for Ecuador to submit its Reply on Counterclaims, with a corresponding extension to Claimant's deadline to submit its Rejoinder on Counterclaims.

22.

On 12 February 2013, the Tribunal adopted the procedural calendar as modified by the Parties.

23.

On 22 February 2013, Ecuador submitted its Reply on Counterclaims (the " Reply "). It was accompanied by the witness statements of Mr. Saulo Carrasco, Mr. Pablo Luna (third), Mr. Diego Montenegro (third), Minister Germánico Pinto (third), and Mr. Manuel Solís (second); as well as the expert reports of IEMS (third), RPS (third), and Professor Fabián Andrade Navárez.

24.

On 22 May 2013, the Tribunal issued Procedural Order No. 5 concerning the Claimant's application to compel disclosure of documents by the Respondent.

25.

On 4 June 2013, the Tribunal issued Procedural Order No. 6 regarding the Claimant's requests to compel disclosure of certain documents by the Respondent pursuant to Procedural Order No. 5.

26.

On 12 July 2013, the Claimant filed its Rejoinder on Counterclaims (the " Rejoinder "). It was accompanied by the the witness statements of Mr. Wilfrido Saltos (second), Mr. Eric d'Argentré (fourth), and Mr. Gilberto Martínez (second), as well as the expert reports of Dr. Shahrokh Rouhani, GSI Environmental (second), Intertek (second), and Prof. René Bedón (second).

27.

On 19 August 2013, the Tribunal issued Procedural Order No. 7 regarding the organization of the hearing on Counterclaims.

28.

On 2 September 2013, the Tribunal issued Procedural Order No. 8 regarding the Respondent's request to introduce into the record additional evidence in connection with the hearing on counterclaims.

29.

The hearing on Counterclaims was held at The Hague, from 9-17 September 2013. Present at the hearing were:

Tribunal:
Judge Peter Tomka	President
Mr. Neil Kaplan CBE QC	Co- Arbitrator
Mr. J. Christopher Thomas QC	Co- Arbitrator
Assistants to the Tribunal
Ms. Harpreet Kaur Dhillon	Assistant to Mr. J. Christopher Thomas QC
Ms. Olga Boltenko	Assistant to Mr. Neil Kaplan CBE QC
Mr. Romesh Weeramantry	Assistant to Mr. Neil Kaplan CBE QC
On behalf of the Claimant:
Counsel
Mr. Mark W. Friedman	Debevoise & Plimpton LLP
Ms. Ina C. Popova	Debevoise & Plimpton LLP
Ms. Floriane Lavaud	Debevoise & Plimpton LLP
Mr. Thomas H. Norgaard	Debevoise & Plimpton LLP
Ms. Terra L. Gearhart-Serna	Debevoise & Plimpton LLP
Ms. Corina Gugler	Debevoise & Plimpton LLP
Ms. Tracie J. Renfroe	King & Spalding LLP

Support Personnel
Ms. Mary Grace McEvoy	Debevoise & Plimpton LLP
Ms. Prasheela Vara	Debevoise & Plimpton LLP
Mr. Richard Brea	Debevoise & Plimpton LLP
Mr. Jeff Isler	InfoGraphics
Parties
Mr. Rodrigo Márquez Pacanins	Perenco / MQZ Renewables
Mr. Roland Fox	Perenco
Witness(s)
Mr. Wilfrido Saltos	Perenco
Mr. Eric d'Argentré	Perenco
Mr. Alex Martínez	Burlington
Mr. Gilberto Martínez	Freelance

Expert(s)
Mr. John Connor	GSI Environmental, Inc.
Dr. Gino Bianchi Mosquera	GSI Environmental, Inc.
Ms. Claudia Sánchez de Lozada	GSI Environmental, Inc.
Ms. Danielle Bailey	GSI Environmental, Inc.
Dr. Shahrokh Rouhani	NewFields
Dr. Geoffrey Egan	Intertek
Prof. René Bedón Garzón	Albán Bedón Macías & Asociados

On behalf of the Respondent:
Counsel
Mr. Pierre Mayer	Dechert (Paris) LLP
Mr. Eduardo Silva Romero	Dechert (Paris) LLP
Mr. Philip Dunham	Dechert (Paris) LLP
Mr. José Manuel García Represa	Dechert (Paris) LLP
Mr. Timothy Lindsay	Dechert LLP
Mr. Alvaro Galindo	Dechert LLP
Ms. Maria Claudia Procopiak	Dechert LLP
Mr. Pacôme Ziegler	Dechert (Paris) LLP
Mr. Antonio Marzal Yetano	Dechert (Paris) LLP
Ms. Katherine Marami	Dechert (Paris) LLP
Mr. Jeremy Eichler	Dechert (Paris) LLP
Ms. Gabriela González Giraldez	Dechert (Paris) LLP
Ms. Alessandra Esposito Chartrand	Dechert (Paris) LLP
Mr. Loïc Cropage	Dechert (Paris) LLP
Ms. Celia Campbell	Dechert (Paris) LLP

Parties
Sr. Procurador Diego García Carrión	Procuraduría General de la República del Ecuador
Dr. Blanca Gómez de la Torre	Procuraduría General de la República del Ecuador
Dr. Diana Moya	Procuraduría General de la República del Ecuador
Witness(s)
Mr. Saulo Carrasco Paredes	Agencia de Regulación y Control Hidrocarburífero del Ecuador (ARCH)
Mr. Pablo Luna	Petroamazonas
Mr. Diego Montenegro	Petroamazonas
Mr. Manuel Solís	Petroamazonas
Mr. Germánico Pinto	Empresa Pública Metropolitana de Movilidad y Obras Públicas
Ms. Laura Maricela Díaz de la Garza	Material and Human Resources Administrator of IEMS (Integrated Environmental Management Services, S.A. de C.V.)
Expert(s)
Dr. Ricardo Crespo Plaza	Universidad San Francisco de Quito
Dr. Fabián Andrade Narváez	Universidad San Francisco de Quito
Mr. José Rubén Villanueava Peón	IEMS (Integrated Environmental Management Services, S.A. de C.V.)
Mr. José Francisco Alfaro Rodríguez	IEMS (Integrated Environmental Management Services, S.A. de C.V.)
Mr. Jonathan Green	IEMS (Integrated Environmental Management Services, S.A. de C.V.)
Mr. Henry Chaves Kiel	IEMS (Integrated Environmental Management Services, S.A. de C.V.)
Mr. Scott Crouch	RPS
Ms. Martha Pertusa	RPS
Ms. Kathleen Kerr	RPS
Mr. Jean-Louis Courteaud	IT forensic examiner

30.

On 18 October 2013, the Tribunal issued Procedural Order No. 9 concerning post-hearing submissions.

31.

On 6 November 2013, the Parties filed their Post-Hearing Briefs.

32.

On 22 November 2013, the Parties filed their Reply Post-Hearing Briefs.

33.

The Tribunal has deliberated in person at meetings held in The Hague and Lower Slaughter as well as by other means.

34.

Ecuador presented the environmental counterclaim on the basis that its experts had determined the existence of an "environmental catastrophe" in the two oil blocks situated in the country's Amazonian rainforest that had been worked by the consortium under Perenco's operatorship.¹³ Ecuador viewed this as an extremely serious matter deserving the most careful consideration by the Tribunal.¹⁴ On this point, the Tribunal cannot but agree. Proper environmental stewardship has assumed great importance in today's world. The Tribunal agrees that if a legal relationship between an investor and the State permits the filing of a claim by the State for environmental damage caused by the investor's activities and such a claim is substantiated, the State is entitled to full reparation in accordance with the requirements of the applicable law.

35.

The Tribunal further recognises that a State has wide latitude under international law to prescribe and adjust its environmental laws, standards and policies in response to changing views and a deeper understanding of the risks posed by various activities, including those of extractive industries such as oilfields. All of this is beyond any serious dispute and the Tribunal enters into this phase of the proceeding mindful of the fundamental imperatives of the protection of the environment in Ecuador.

36.

Ecuador has requested the Tribunal to find Perenco liable for the costs of remedying environmental damage in Blocks 7 and 21, quantified at US$ 2,279,544.559 for soil clean-up costs, US$ 265,601,700 for groundwater remediation costs and US$ 3,380,000 for further groundwater studies (subject to payment of compound interest from the date of the Award until the date of full payment).¹⁵ It asserted that Perenco "abandoned Blocks 7 and 21 in a state which makes a mockery of the nowadays universal, well-established legal principles aimed at protecting the environment."¹⁶ Such principles are said to be reflected in both Ecuadorian law and in the Consortium's obligations under the Participation Contracts.¹⁷ In particular, the 2008 Constitution expressly prescribes a regime of strict liability (" responsabilidad objetiva ") for environmental damage and establishes that the Ecuadorian people have the fundamental right to a healthy environment.¹⁸ The strict liability regime reflects the "polluter-payer principle", defined by Ecuador as the proposition that "[h]e who causes pollution must, under all circumstances, assume the costs of repairing it."¹⁹ Ecuador submitted that under this regime it "need only establish the existence of environmental damage and that such damage is found in Blocks 7 and 21, where Perenco operated, that is, where it performed petroleum activities, for Perenco to be strictly liable to the State."²⁰ It asserted this was the case both before and after the 2008 Constitution's entry into force, since the Ecuadorian courts have since 2002 applied a strict liability regime to claims of environmental damage resulting from hazardous activities.²¹

37.

Ecuador maintained that it was "common ground between the Parties" that petroleum exploration and exploitation activities are hazardous activities that "inherently put the environment at risk."²² Accordingly, oil operators in Ecuador must exercise "a very high standard of care in their operations, especially where, as here, Perenco operated within highly environmentally fragile areas in the Amazon rainforest."²³ Ecuador alleged that Perenco failed to operate Blocks 7 and 21 in accordance with the requisite degree of care, "knowing perfectly well the significant environmental impact its operations were having", because it was "more concerned with running its operations at very low cost" and, further, that it had "failed to take proper steps to prevent such damage or [to] repair the damage."²⁴

38.

Indeed, quite apart from its alleged failure to adhere to its duty of care, Perenco was alleged to have exercised a "strategy of deceit and concealment towards the Ecuadorian authorities" in "systematically [seeking] to mislead the Ecuadorian authorities as to the existence and extent of the environmental damage" in the Blocks.²⁵ Ecuador contended that documents produced by Perenco in this arbitration demonstrated that Perenco chose not to notify Ecuador of at least 41 spills that occurred in the Blocks during its operatorship.²⁶

39.

It alleged further that Perenco has sought to evade its liability for environmental damage in the Blocks by relying on a set of environmental audits of Blocks 7 and 21 commissioned by the Consortium in 2008 and submitted to the Ministry of Energy and Mines, later the Ministry of Non-Renewable Natural Resources (" the Ministry "), for approval.²⁷ While the 2008 audits found several minor non-compliances with regulatory requirements in Block 7, they ultimately concluded that the Consortium's operations in the Blocks complied with Ecuadorian environmental regulations.²⁸

40.

Ecuador submitted that this was false as a matter of fact and law, and pointed to different, and in its view more credible, results of a technical inspection that it commissioned in August 2009, shortly after the government intervened to take possession of the Blocks when the Consortium suspended operations.²⁹ Ecuador characterised the 2008 audits as flawed, and rejected Perenco's claim that they had been approved by the Ministry.³⁰ Even if they had been approved, Ecuador contends, such ministerial approvals could not constitute a full defence under its law in a subsequent proceeding for environmental liability such as the present one.³¹

41.

In seeking to prove its environmental claim, Ecuador relied on the evidence of its experts, Integrated Environmental Management Services S.A. de C.V. (" IEMS ") of Monterrey, Mexico, to submit that there was "significant environmental damage to soil and underground water in Blocks 7 and 21."³² IEMS found that the soil in 94% of the 74 locations it tested in Blocks 7 and 21 were contaminated as a result of petroleum activities, as were all of the 18 sites it tested for groundwater contamination.³³

42.

Ecuador also submitted three reports by the Energy Division of RPS Group (" RPS "), an international consultancy that provides advice on the development of natural resources, land and property, and the management of the environment.³⁴ RPS's reports initially addressed the risk and existence of damage to the wells and reservoirs in Blocks 7 and 21 as a result of the shut-in of wells in July 2009,³⁵ and, as the expert evidence was sequentially developed in the counterclaim, on what RPS considered to be the "flaws in [Perenco's environmental experts, GSI's] site investigation program."³⁶ Ecuador relied on the first two RPS reports chiefly for the purposes of the claims brought by Perenco that were the subject of the Decision on Remaining Issues of Jurisdiction and on Liability. RPS's third report, of February 2013, sought to rebut GSI's expert report, concluding that GSI's "opinion..,[was] not correct" and that RPS's review of record evidence contradicted GSI's conclusion that Perenco's operations in the Blocks complied with applicable regulations and industry practices.³⁷

43.

For its part, Perenco submitted that the Tribunal should dismiss Ecuador's environmental claim in its entirety and award costs in its favour and such other and further relief as the Tribunal deemed just and proper.³⁸ Perenco emphatically rejected Ecuador's depiction of the condition of Blocks 7 and 21 as an "environmental catastrophe."³⁹ It submitted that, to the contrary, Perenco was a "responsible manager that focused on, preserved, and even improved the environmental and infrastructural integrity of the Blocks" and the environmental counterclaim was a transparent attempt by Ecuador to create a counterweight to, and divert attention from, the serious breaches of contract and Treaty that formed the basis of Perenco's claim.⁴⁰

44.

Perenco also contended that Ecuador's environmental claim was deficient as a matter of law.⁴¹ Under the applicable Ecuadorian law, the claim, which concerned alleged contamination from activities Perenco undertook in the Blocks from 2002 to July 2009, was governed by a fault-based, not strict liability, regime, "since any changes made by the 2008 Constitution (which entered into force in October 2008) |could not| have any retroactive effect."⁴² Perenco observed it would be inconsistent with the Constitution's proscription against the retroactive application of law to hold it to a regime that did not apply for most of the time that it operated the Blocks.⁴³

45.

Under the regime applicable prior to the 2008 Constitution's entry into force, an operator could not be found liable for environmental damage if it had complied with its duty of care to act as a responsible operator.⁴⁴ Since Perenco could prove it had satisfied its duty of care, there could be no finding of liability.⁴⁵ Even if a strict liability regime did apply (which was not conceded), Ecuador still bore the burden of proving that "the Consortium caused environmental harm - i.e. an environmental effect that exceed[ed] applicable regulatory limits."⁴⁶

46.

Ultimately, Perenco submitted that Ecuador must "cumulatively establish for each site [claimed to be contaminated] that: (1) the Consortium engaged in a wrongful (negligent or malicious) act in breach of its duty of care; (2) Ecuador suffered harm (i.e. environmental damage consisting of a regulatory exceedance); and (3) a causal nexus [that] exist[ed] between the wrongful act and Ecuador's alleged harm."⁴⁷ If it succeeded in proving the foregoing, Ecuador then bore the burden of proving "the quantum of the loss suffered as a consequence of the harm."⁴⁸

47.

Perenco argued further that quite apart from the foregoing legal requirements for establishing liability, the environmental counterclaim was subject to temporal limits.⁴⁹ At one end of the events in question, i.e., in relation to damage caused after the government's July 2009 takeover of the two Blocks, Perenco obviously could not be held liable for damage caused by the operator which succeeded it, namely, Petroamazonas.⁵⁰ As for the other end of the events in question, Perenco argued that it could not be liable for any damage that predated January 2007, the maximum permissible period for claiming damage under the four-year statute of limitations prescribed by Ecuadorian law.⁵¹

48.

Putting the legal issues aside, on the matter of the evidence submitted by Ecuador in support of its claim, Perenco submitted there were "systematic" and "fundamental" flaws in the methodology employed by IEMS when investigating the Blocks, with the result that its findings were invalid.⁵² As for the RPS report, it was a "hypothetical assessment" of risks and did not lend further credence to IEMS' findings.⁵³ In Perenco's view, rather than a US$2.4 billion cost of remediation, the more realistic cost was "under US$10 million."⁵⁴ This related to "minor regulatory exceedances" posing no "threat to human health or the environment."⁵⁵

49.

Having investigated the blocks, Perenco's expert, GSI Environmental, Inc. (" GSI "), opined that there were "no widespread environmental impacts, no impacts to groundwater and only limited impacts to soil, no risk to human health and livestock, and no impacts to surface water, air quality or ecological resources."⁵⁶ GSI analysed sampling results from its own and IEMS' field investigation, visiting 58 sites, most of which were sites at which IEMS had found exceedances.⁵⁷

50.

In both Perenco's and GSI's view, the exceedances resulted mainly from Ecuador's (and its experts') insistence on employing so-called "background values" (Perenco's preferred translation of the relevant provision of TULAS) or "base values" (Ecuador's preferred translation), rather than the regulatory criteria prescribed by Ecuadorian law.⁵⁸ IEMS had in the first instance compared its soil samples to the alleged background values (i.e., the normally occurring incidences of certain elements in the natural environment) and where such values had been exceeded, IEMS had concluded that the samples were contaminated by oilfield activities.⁵⁹ Perenco argued that Ecuadorian law recognised that oilfield activities inevitably result in a measure of contamination, but that law prescribed acceptable levels of contaminants resulting from permitted activities.⁶⁰ The only relevant question, in Perenco's view, was whether the Consortium had exceeded the limits of the regulations applicable to its operations.⁶¹

51.

Perenco, GSI and its expert on geostatistical analysis, Dr. Shahrokh Rouhani, an environmental scientist and founder of NewFields Companies, LLC, also strongly criticised IEMS' plotting of the alleged contamination in the two Blocks. IEMS employed a computer software programme called ArcView GIS 10.0 to graphically map the extent of contamination which it said pervaded the Blocks.⁶² GSI considered that this was inconsistent with the accepted practice in the industry of employing site delineation, whereby a site that is considered to be contaminated is delineated by taking samples in the immediate vicinity of the contaminated sample and then working outwards from that point until the sampling no longer reveals any contamination.⁶³ For his part, Dr. Rouhani opined that IEMS' use of the ArcView GIS 10.0 software was flawed and had led to a vast exaggeration of the contamination alleged to exist in the two Blocks.⁶⁴

52.

Perenco acknowledged that there was some minor evidence of contamination in the Blocks, but submitted that once Ecuador's use of background values rather than the regulatory criteria that were actually applicable under Ecuadorian law was rejected as being legally unsustainable, and once the proper land-use criteria were applied and the errors and inaccuracies in IEMS' methodology and findings were corrected, the volume of contaminated soil for which Ecuador could possibly claim damages dropped from nearly 2 billion cubic metres of soil to only 33,415 cubic meters of soil, with the quantum of damages dropping commensurately. To be specific, in Perenco's submission, the potentially awardable damages dropped from approximately US$2.4 billion to US$9.1 million.⁶⁵

53.

In Perenco's view, therefore, Ecuador's counterclaims were "opportunistic" and had been brought in "retaliation" for Perenco's having seised the Tribunal with its contract and Treaty claims.⁶⁶ Perenco asserted that from the time that the Government took over the Blocks on 16 July 2009 until 5 December 2011 (the date on which Ecuador first advanced its Counterclaim) Ecuador gave "no prior indication that it had encountered environmental or infrastructural issues or that it would make any such claims."⁶⁷ In fact, since the State's taking over the Blocks, Petroamazonas had not only operated the Blocks at their full capacity, it had expanded operations.⁶⁸

54.

For these and other reasons elaborated in its pleadings, Perenco requested the Tribunal to dismiss the counterclaims and, amongst other relief, order Ecuador to reimburse it for all of its costs on an indemnity basis.⁶⁹

55.

With these summaries of the Parties' positions set out in general terms, the Tribunal turns to a description of Blocks 7 and 21 and the legal framework applicable in this claim.

56.

Block 7 and the Coca-Payamino Unified Field comprise a combined area of 200,000 hectares in the Amazonian region of North-east Ecuador.⁷⁰ The area straddles both banks of the 1,000 km long Napo River, a major tributary of the Amazon River.⁷¹ The city of Francisco de Orellana, the capital of the Province of Orellana, with some 73,000 inhabitants, is located in Block 7.⁷² The main economic activity of the local inhabitants is agriculture.⁷³

Block 7⁷⁴

57.

Block 7 was developed by BP Petroleum Development Limited (" BP ") beginning in December 1985.⁷⁵ By the time BP sold its rights to Oryx in September 1990, it had drilled five wells.⁷⁶ The only activity in Block 7 prior to BP's development activities consisted of the drilling of two exploratory wells, Zorro and Cóndor, by Texaco in the early 1970s.⁷⁷

58.

A part of the Payamino field, located in the far north-east corner of Block 7, was included as part of BP's Services Contract with CEPE (Corporación Estatal Petrolera Ecuatoriana, Petroecuador's predecessor).⁷⁸ It did not include the Coca field, which is located further north and outside Block 7's boundaries; that field was then separately operated by Petroproducción.⁷⁹ At the time, the Coca and Payamino fields were thought to constitute different oil reservoirs and it was only in 1987, when CEPE drilled the Payamino 2 well, that it was discovered that they produced from a single reservoir.⁸⁰ When Oryx acquired BP's interest in September 1990, it also entered into a joint operating agreement with Petroecuador for the Coca and Payamino fields.⁸¹ The area was thereafter known as the Coca-Payamino Unified Field, with Oryx and Petroproducción taking turns acting as the operator.⁸² Perenco emphasised that according to IEMS' data, this area (which had been worked for some time before Perenco appeared on the scene) "accounts for 52% of Ecuador's total soil contamination claims and 44% of its total groundwater claims."⁸³

59.

In March 2000, the Block 7 Services Contract was terminated and replaced by the Block 7 Participation Contract.⁸⁴ This contract included the right to operate the Coca-Payamino Unified Field.⁸⁵ In May 2002, Perenco and Burlington began to acquire their respective interests in the Block, and ultimately bought out the other investors in 2005.⁸⁶

60.

Perenco submitted that "[a]t the time of Ecuador's July 16, 2009 takeover, Block 7 (not including Coca-Payamino, [...]) consisted of 85 wells and 6 CPFs⁸⁷ in [5] operating fields: Gacela, Mono, Lobo, Jaguar, and Oso."⁸⁸ Ecuador's description of the Block was somewhat different; it noted that at the time of its taking possession in response to the Consortium's suspension of operations, the "Block counted 1 waste management area, 3 camps for employees (Payamino, Oso and Jaguar), 6 CPFs (Coca, Payamino, Gacela, Oso, Jaguar and Mono), and several platforms including: 7 in Gacela, 11 in Mono, 7 in Jaguar, 16 in Coca, 10 in Oso, 17 in Payamino, 4 in Lobo, plus the Cóndor Norte platform."⁸⁹

61.

Block 21 lies to the south of Block 7, comprising 155,000 hectares located on the Eastern-Central Oriente Basin.⁹⁰ It extends over the Napo, Pastaza and Orellana provinces.⁹¹ It contains the Yuralpa field, the Sumino and Nemoca injection wells, the Dayuno well, the Chonta platform and the Waponi-Ocatoe platform.⁹²

Block 21⁹³

62.

Oryx started operating Block 21 in March 1995.⁹⁴ It undertook various environmental studies, including three environment impact studies for seismic operations, four environmental impact studies for exploratory drilling and one environmental impact study for the construction of the Yuralpa-Puerto Napo pipeline.⁹⁵ When the Consortium assumed operations of Block 21 in 2002, the block had not been developed to the same extent as Block 7 and the Coca-Payamino Unified Field. It contained a small number of wells and no operational CPF.⁹⁶

63.

Ecuador submitted that in July 2009, Block 21 counted within it the Yuralpa field, the Chonta, Waponi-Ocatoe and Dayuno platforms, two injection wells (Sumino and Nemoca), one camp, one CPF, one waste management area and one pipeline (Yuralpa-Puerto Napo).⁹⁷ Perenco submitted that the producing field in Block 21, Yuralpa, "was largely developed by the Consortium", and by July 2009 it had "increased the number of wells in Yuralpa field from three to 31."⁹⁸

64.

Perenco emphasised that in contrast to Block 7, which had been operated more extensively for a longer period of time, Block 21 accounted for "only 8.3% of Ecuador's soil remediation claims and 16.7% of the total cost for groundwater remediation."⁹⁹ The inference to be drawn, it appears, was that the lesser amount of contamination in Block 21 alleged by Ecuador when compared to that alleged in respect of Block 7 indicated that any Block 7 contamination was most likely attributable to the actions of the Consortium's predecessors rather than to the Consortium itself.

65.

Ecuador began to develop an environmental regulatory regime for oilfield activities in the 1970s...¹⁰⁰ In 1971, it enacted the Hydrocarbons Law (Ley de Hidrocarburos); this was amended in 1982 to oblige Petroecuador and its contractors to comply with national environmental laws and regulations.¹⁰¹ In its 1984 Constitution, Ecuador recognised the individual's right to live in an environment free from pollution and, in this connection, specified that the law should necessarily establish "restrictions to the exercise of certain rights or liberties for the sake of environmental protection."¹⁰²

66.

In 1995 Ecuador promulgated the Environmental Regulations for Hydrocarbon Operations in Ecuador (Reglamento Ambiental para las Operaciones Hidrocarburíferas en el Ecuador (" RAOHE "¹⁰³) to regulate the exploration, development and production of crude oil, oil derivatives and natural gas. It designated the Undersecretariat for Environmental Protection and the National Directorate of Environmental Protection as the competent authority in environmental matters.¹⁰⁴

67.

From 1995 to 2001, the principles of prevention, rehabilitation and prevention of environmental harm were introduced by Ecuador into its Constitution, and the 1999 Environmental Management Law (Ley de Gestión Ambiental) was enacted.¹⁰⁵ In 2001, the RAOHE was amended by Decree 1215 which introduced contaminant limits for soil.¹⁰⁶ In 2002, the Regulation of Hydrocarbon Operations (Reglamento de Operaciones Hidrocarburíferas (" ROH ")) was promulgated.¹⁰⁷ ROH differed from RAOHE in that it did not address contaminant limits or regulatory requirements relating to audits and reporting to the Ministry; rather it addressed specific steps in the hydrocarbon production process, such as in the drilling or sealing of a well, and how they should be carried out by the operator in such a way as to be protective of the environment.¹⁰⁸

68.

In 2003, Ecuador promulgated the Unified Text of Secondary Environmental Legislation (Texto Unificado de Legislación Ambiental Secundaria (" TULAS ")), which sets out rules for the evaluation of the environmental impact of oilfield activities from a technical perspective to the extent they are not addressed in environmental regulation specific to the type of activity in question.¹⁰⁹ TULAS is of general application to all manner of activities that may cause an impact on the environment.¹¹⁰

69.

On 20 October 2008, Ecuador amended its Constitution.¹¹¹ The 2008 Constitution's relevance and significance for the counterclaim is an important matter and will be addressed in further detail in the Tribunal's decision below.

70.

As a result of these developments, the legal regime in Ecuador recognises the protection of the environment as a fundamental constitutional imperative. The 2008 Constitution is the culmination of forty years of evolving Ecuadorian Constitutions and laws which have systematically included major environmental legal protections. It recognises nature itself as the subject of rights,¹¹² this realised through the enshrinement of environmental principles of prevention and precaution,¹¹³ the right of the Ecuadorian people to a healthy environment,¹¹⁴ a broad notion of environmental harm, the doctrine of strict liability and the State's obligation to take prompt policies and measures to prevent environmental damage.¹¹⁵

71.

For its part, Perenco characterises the regime as "a stringent and comprehensive system of evaluation, permissible limits, remediation, monitoring, and reporting designed to limit environmental impacts and keep the environmental authorities apprised of all developments and incidents that occur in the course of hydrocarbon operations."¹¹⁶ It requires the submission and approval of annual environmental audits and specifically-targeted environmental impact studies, including environmental management plans for a proposed activity. It extends to the requirement to notify the State of any spills of more than five barrels of oil,¹¹⁷ the submission of remediation plans and the regular monitoring of air, water and soil quality against specific regulatory standards.¹¹⁸

72.

In terms of enforcement and monitoring responsibility, until April 2009 environmental oversight and authority with respect to hydrocarbon operations was exercised by the National Environmental Protection Directorate or Dirección Nacional de Protección Ambiental (" DINAPA "), a section of the Office of the Undersecretary for Environmental Protection or Subsecretaría de Protección Ambiental (" SPA ") as part of the Ministry of Energy and Mines, now the Ministry of Non-Renewable Natural Resources (as earlier defined, " the Ministry ").¹¹⁹ Thereafter, the environmental oversight of oil operations was assumed by the Ministry of the Environment.¹²⁰

73.

The hierarchy of legal norms at the present time in Ecuador begins at its apex with the 2008 Ecuadorian Constitution,¹²¹ below which stands the Environmental Management Law,¹²² RAOHE¹²³ and, where applicable, TULA S...¹²⁴

74.

Chapter Two of the Constitution, entitled ‘Biodiversity and Natural Resources', addresses the powers and duties of the State with respect to the environment and the environmental protection imperatives upon which they are based.¹²⁵ In Section One (Nature and the Environment), the principles of sustainable development, strict liability for environmental damage, and the State's obligation to act to ensure the "health and restoration of ecosystems" are recognised.¹²⁶ Section Two (Biodiversity) declares the conservation of biodiversity to be a matter of public interest, and Section Three (Natural Assets and Ecosystems) recognises the creation of a national system of protected areas in Ecuador.¹²⁷ Article 407 of Section Three provides that activities for "|t|he extraction of nonrenewable natural resources, including forestry exploitation, is prohibited in protected areas and in areas that have been declared intangible."¹²⁸

75.

In Sections Five and Six, the Constitution recognises soil and water conservation and management to be a matter of public interest and a national priority.¹²⁹ Article 409, for example, which addresses soil conservation, states ".|it| is a matter of public interest and a national priority. A regulatory framework shall be established for its protection and sustainable use to prevent its degradation, in particular as a result of pollution, desertification, and erosion. In areas affected by processes of degradation and desertification, the State shall develop and promote forestation, reforestation, and revegation projects that avoid single-crop farming and preferably use native species adapted to the area."¹³⁰

76.

As noted above, Ecuador submitted that under the 2008 Ecuadorian Constitution oil operators in Ecuador are subject to a regime of strict liability for environmental harm and are required to undertake the costs of remediation in full.¹³¹ Ecuador directed the Tribunal's attention to Articles 395 and 396 of the Constitution which provide as follows:

Article 395.- The Constitution recognizes the following environmental principles:

1. The State shall guarantee a sustainable model of development, one that is environmentally balanced and respectful of cultural diversity, conserves biodiversity and the natural regeneration capacity of ecosystems, and ensures meeting the needs of present and future generations.

2. Environmental management policies shall be applied and shall be of mandatory enforcement by the State at all of its levels and by all individuals or legal entities in this country's territory.

3. The State shall guarantee the active and standing participation of affected persons, communities, peoples and nations in the planning, implementation and monitoring of all activities causing environmental impacts.

4. In the event of doubt concerning the scope of the legal provisions as regards environmental issues, their most favorable interpretation for the protection of nature shall obtain.¹³²

Article 396.- The State shall adopt timely policies and measures to avoid adverse environmental impacts where there is certainty about the damage. Should there be any doubt regarding the environmental impact stemming from an action or omission, although there is no scientific evidence of the damage, the State shall adopt effective and timely measures of protection.

Liability for environmental damage is strict. Any harm to the environment, in addition to the corresponding penalties, shall also give rise to an obligation to fully restore the ecosystems and compensate the individuals and communities affected.

Each of the participants in the production, distribution, commercialization and usage processes of goods and services shall be directly liable for preventing any environmental impact, mitigating and repairing the damages it has caused, and for maintaining a permanent environmental monitoring system.

The legal proceedings to prosecute and punish those responsible for environmental damages shall be imprescriptible.¹³³

77.

Ecuador submitted that Article 396, in particular paragraph 3 thereof, established a strict liability regime which placed the burden on the operator to prove that any environmental harm was caused by another person in order for the operator be exonerated from its own responsibility.¹³⁴ Ecuador asserted that the operator was required to prove that the harm was caused "exclusively" by another person.¹³⁵

78.

The import of these provisions and the Parties' submissions relating thereto will be examined in greater detail below. It suffices to note for present purposes that with regard to the remedy sought by Ecuador in this proceeding, its submission is that since Perenco has left the Blocks and is as such no longer in a position to "restore [its] ecosystems" as required by Article 396, paragraph 2, Ecuador is entitled to claim monetary damages in lieu from Perenco.¹³⁶

79.

The Environmental Management Law (Ley de Gestión Ambiental) was enacted on 30 July 1999 to implement certain environmental principles adopted by the 1998 Constitution, such as sustainable development¹³⁷ and the liability of State agencies and concessionaries for environmental harm.¹³⁸

80.

Article 1 of the Law explains that it "establishes the principles and guidelines of environmental policy, determines the obligations, responsibilities, levels of participation of the public and private sectors in environmental management and indicates the permissible limits, controls and sanctions in this matter."¹³⁹ Chapter I refers to sustainable development and the obligations of State institutions in environmental protection and regulation.¹⁴⁰ Chapter II addresses generally the regulation of environmental management systems in Ecuador,¹⁴¹ for example, "requir[ing] environmental impact studies" as a prerequisite for issuing an environmental license.¹⁴² It also includes a glossary of definitions.¹⁴³ "Contamination" is defined as "[t]he presence in the environment of substances, elements or energies or a combination of them, in concentrations and duration superior or inferior to those established in the legislation in force."¹⁴⁴ The Law's definitions of "environmental harm" and "environmental impact" are discussed below.

81.

One of Ecuador's legal experts, Professor Ricardo Crespo Plaza, explained that the Environmental Management Law was inspired by the content of international instruments relating to environmental protection, such as the Rio Declaration, which, according to Article 3 of the Law, is a "guiding instrument for Ecuador's environmental policy."¹⁴⁵ Ecuador relied on the Environmental Management Law in its submissions in support of a broad definition of the term "environmental harm" (addressed below).¹⁴⁶ Perenco's legal expert, Dr. René Bedón, asserted that "[t]he regulations and ministerial accords issued in order to regulate the Environmental Management Law, together with other previously issued regulations, were compiled in TULAS."¹⁴⁷

82.

The precise relationship between RAOHE, TULAS and the Environmental Management Law is a matter of dispute between the Parties. For present purposes, the Tribunal notes that two provisions of the Environmental Management Law lie at the heart of this disagreement.¹⁴⁸ They appear in its glossary and define the terms "environmental harm" and "environmental impact":

Environmental Harm... - Any significant loss, diminution, detriment or impairment of the preexisting conditions in the environment or one of its components. It affects the functioning of the ecosystem or the renewability of its resources.

Environmental Impact... - The positive or negative alteration of the environment, provoked directly or indirectly by a project or an activity in a given area.¹⁴⁹

83.

The crux of the Parties' dispute is whether: (i) an operator which stays within the limits prescribed by the regulations may create an impact upon the environment which leaves it in a different state from that which existed prior to the commencement of hydrocarbon operations, but such impact is nevertheless considered to be a permissible change and is not to be equated with an environmental harm and need not be remediated because it is an accepted and sustainable environmental cost of exploiting hydrocarbons (Perenco's position); or (ii) an operator that stays within the limits prescribed by the regulations may still create an impact on the environment which can also constitute an environmental harm which must be remediated (Ecuador's position). The Tribunal will revert to this disagreement in the course of its analysis.

84.

RAOHE contains 14 chapters and 6 annexes addressing many aspects of oil operations that could have an impact on the environment.¹⁵⁰ It obliges operators to submit environmental programmes and audits to the relevant Ministry (initially the Ministry of Energy and Mines, and subsequently, the Ministry of Non-Renewable Natural Resources, and more recently, the Ministry of the Environment), to undertake regular internal environmental monitoring and to identify and report environmental incidents and propose remediation programmes. In so doing, operators are required to apply "parameters, maximum benchmark values and permissible limits" as set out in detail in RAOHE's Annex II.¹⁵¹ Article 86 of RAOHE provides "[f]or liquid discharges, atmospheric emissions and disposal of soil waste to the environment, the subjects of control and their operators and related parties in the implementation of their operations shall comply with the permissible limits specified in Annexes Nos. 1, 2 and 3 to this Regulation.Should a permissible limit established in the annexes be exceeded, this must be reported immediately to the Undersecretariat of Environmental Protection, and the corrective actions taken must be justified."¹⁵²

85.

Annex II comprises six tables (Tables 3 to 8) spelling out permissible limits or benchmark values, such as for "atmospheric emissions" (Table 3), for "waters and liquids discharges" in the exploration and production process (Table 4), for "discharges of black and gray waters" (Table 5), for the "identification and remediation of contaminated soils in all phases of the hydrocarbon industry" (Table 6), for leachates "for the final diposal of drilling muds and cuttings on the surface" (Table 7), and finally, specifying the criteria for the classification of waste from hydrocarbon operations and recommendations for their treatment and disposal (Table 8).¹⁵³

86.

RAOHE's Table 6 establishes different applicable criteria according to three types of land use: industrial, agricultural and sensitive ecosystems.¹⁵⁴ Its logic is that the limits of permissible contamination are most stringent for sensitive ecosystems, least stringent for industrial areas, and agricultural lands fall in the middle... Footnotes to each of the different type of land use state that the "agricultural land" use criteria is "focused on the protection of soils and crops", "industrial land" use criteria is intended "for industrial sites (buildings, etc.)" and "sensitive ecosystems" criteria is for "the protection of sensitive ecosystems such as the National Heritage of Natural Areas and others identified in the corresponding Environmental Study."¹⁵⁵

87.

Table 6 states that the "permissible limits to be applied in a determined project depend on the subsequent use (uso posterior) to be given to the remediated soil."¹⁵⁶ The Parties dispute the meaning of the word "posterior" in the context of RAOHE.

88.

As Chart I below shows, depending upon the classification of the land in question, different parameters relating to total hydrocarbons, polycylic aromatic hydrocarbons, cadmium, nickel and lead are to be used in order to determine whether soil is contaminated:

CHART I RAOHE Table 6¹⁵⁷
Parameter	Expressed	Unit(1)	Agricultural	Industrial	Sensitive
	in		Use(2)	Use(3)	Ecosystems(4)
Total hydrocarbons	TPH	Mg/kg	<2500	<4000	<1000
Polycyclic aromatic	C	Mg/kg	<2	<5	<1
Hydrocarbons
(PAH’s)
Cadmium	cd	Mg/kg	<2	<10	<1
Nickel	Ni	Mg/kg	<50	<100	<40
Lead	Pb	Mg/kg	<100	<500	<80

89.

The classification of land usage is not the only possible criterion for judging which parameter applies. Certain substances generated in oilfield activities may also be naturally present in the soil of the area being exploited. For that reason, in the second introductory paragraph to RAOHE's Table 6 it is stated that "[i]f natural (non-contaminated) soils in the area present concentrations higher than the established limits, the values of the respective parameter may be increased to this level, so long as this phenomenon has been statistically verified through monitoring of undisturbed and uninfluenced soils in the same area."¹⁵⁸

90.

RAOHE's Table 7 establishes the permissible limits for the "final disposal on the surface" of "drilling muds and cuttings" that contain "leachates."¹⁵⁹ Its introductory paragraph explains that the permissible limits "depen[d] on whether or not the final disposal site has impermeabilization of the base."¹⁶⁰ For example, the maximum permissible limit for barium is 5 mg/l where the storage site lacks bottom sealing, but 10 mg/l if the site has a sealed bottom.¹⁶¹ This differential treatment depends on whether the operator laid a proper containment barrier in the bottom of the mud pit prior to disposing of drilling muds in the pit. It also requires that any sampling that is carried out in this respect to be conducted "so as to obtain representative composite samples as a function of total volume disposed of at the respective site."¹⁶² RAOHE further mandates that the operator must comply with specific operational procedures and requirements in disposing of drilling muds and test crude.¹⁶³ The contents of any mud pit must be treated until it complies with the permissible limits of Table 7 and a follow-up by means of periodic sampling is required within seven days, three months and six months of storage.¹⁶⁴

91.

Annex 5 of RAOHE, entitled "Analytical Method", contains a table setting out, as its title suggests, the analytical testing methods to be applied when investigating water quality (also, soil and atmospheric emissions).¹⁶⁵ It has three columns, the first identifying the parameter (electrical conductivity, potential hydrogen, etc.); the second indicating the method (i.e., determination of electrical conductivity by calibration at two electrode points); and the third noting the relevant reference material (i.e., publications).¹⁶⁶ For example, testing whether barium, chromium, lead or vanadium exceeds the applicable parameter requires filtration and acidification using Atomic Absorption Spectroscopy.¹⁶⁷

92.

RAOHE further requires that operators must undertake certain environmental programmes and audits. Article 10 requires operators to submit annual environmental programmes and budgets to the Ministry.¹⁶⁸ An operator is also required to commission an environmental impact study before the commencement of any new project, such study to be submitted to and approved by the Ministry.¹⁶⁹ Operators are required to submit annual environmental reports that "describe and evaluate the budgeted environmental activities that have been performed."¹⁷⁰ The Ministry is empowered to request at any time additional reports on specific activities undertaken by the operator.¹⁷¹ Article 12 requires regular internal environmental monitoring of emissions, liquid and solid discharges, and soils undergoing remediation, the sampling points and results of which are to be submitted to the Ministry on a monthly basis when the operator is in the process of drilling a well, and otherwise on a quarterly basis.¹⁷² Article 16 of RAOHE obliges operators to report spills of more than five barrels of crude or combustibles to the Ministry, mandating that they should submit remediation plans for all affected areas, including a final remediation report, to the Ministry for its approval.¹⁷³

93.

In addition, all operators are also required to commission a comprehensive environmental audit at least once every two years, such audit to be conducted by an auditor and on such terms as approved by the Ministry:¹⁷⁴

ART. 42. - Environmental Audit. - The Undersecretariat of Environmental Protection, through the National Environmental Protection Directorate, shall audit, at least every two years, or whenever the Undersecretariat of Environmental Protection so orders upon detecting noncompliance with the Environmental Management Plan, the environmental aspects of the various hydrocarbons activities conducted by the subjects of control [sic].

The Undersecretariat of Environmental Protection, through the National Environmental Protection Directorate (DINAPA), shall determine the type and scope of the Environmental Audit for the operations of the subjects of control based on compliance with the Environmental Management Plan.

At least every two years, the subjects of control shall conduct an Environmental Audit of their activities, following approval of the corresponding Terms of Reference by the Undersecretariat of Environmental Protection, and they shall submit the respective audit report to the Undersecretariat of Environmental Protection.

Additionally, the parties, upon the termination of hydrocarbons exploration and exploitation, or in the event of a change of operator, shall conduct the audit referenced in Art. 11 of the Regulation to Law 44, amending the Hydrocarbons Law..

For purposes of the aforementioned audits, the subjects of control shall select an environmental auditor qualified by the Undersecretariat of Environmental Protection to carry out the monitoring and verification of compliance with the Environmental Management Plan, in accordance with the Terms of Reference previously approved by the Undersecretariat of Environmental Protection, in which the documentary framework is determined against which the audit shall be conducted.

94.

Perenco submitted that it "consistently complied with government regulations", "obtain[ing] both prior and often ex post approvals for all activities that could potentially affect the environment or alter the infrastructure of the Blocks" and performing all necessary environmental audits.¹⁷⁵ Moreover, "whenever an incident occurred that affected the environment, the Consortium promptly notified the State, performed all required repairs, remediation and cleanup, and obtained the State's approval of the remediation."¹⁷⁶ Notably, Perenco relied on the Consortium's practice of producing remediation plans and reports that applied the criteria in Tables 6 and 7 of RAOHE to support its submission that those tables provided the relevant remediation criteria that should be applied in this claim.¹⁷⁷

95.

In Ecuador's view, Perenco's position is "flatly contradicted" by the discovery of "widespread, undisclosed and non-remediated contamination throughout the oilfield facilities operated by the Consortium up to July 2009."¹⁷⁸ There were, in Ecuador's view, "numerous and significant failures by the Consortium to comply with the applicable Ecuadorian regulations", this made out on the basis of the documents on record in this arbitration, such as the environmental audit reports commissioned by the Consortium in 2002, 2006 and 2008, correspondence with the Ministry, and internal documents prepared by the Consortium.¹⁷⁹ Ecuador went so far as to assert that there was evidence that the "Consortium actively sought to conceal environmental incidents from the Ecuadorian authorities."¹⁸⁰

96.

Finally, it asserted that the criteria in RAOHE were not comprehensive; there were other chemical indicators and heavy metals associated with hydrocarbons exploration and exploitation that were not covered by RAOHE, such as electrical conductivity, pH, barium and vanadium,¹⁸¹ and the Consortium's past interpretation of the applicable regulatory criteria cannot determine conclusively the criteria that Ecuadorian law mandates be applied in an action for remediation of environmental damage.¹⁸²

97.

Ecuador submitted that TULAS is relevant to the analysis of soil and groundwater remediation under Ecuadorian law.¹⁸³ It supported the basis for its Base Values case and was to be applied together with RAOHE.¹⁸⁴ This was because it addresses chemical indicators and heavy metals associated with hydrocarbon operations that are not included in RAOHE, such as electrical conductivity, pH, barium and vanadium.¹⁸⁵ It also provided that environmental audits could not be used to exonerate an operator in an action for environmental damage.¹⁸⁶

98.

For his part, Perenco's expert, Dr. René Bedón, asserted that TULAS is applied in a "general manner to all of those activities that may cause an impact that requires environmental authorisation", adding that "activities that have a specific regulation due to their subject matter , such as those for hydrocarbons, mining or telecommunications, must be carried out pursuant to said specific regulation and resort to the regulations of TULAS only in the absence of a specific regulation, in which case TULAS will be applied in a supplementary manner."¹⁸⁷

99.

TULAS also created a Single Environmental Management System which "contains the guidelines for the environmental impact evaluation procedure and implementation of the Decentralized Environmental Management System" and established the "State's obligation to perform environmental oversight of the regulated entities in order to ensure compliance with the environmental management plans pursuant to what is established in the environmental license or permit."¹⁸⁸

100.

As with other issues of law, there is a difference of opinion between the Parties as to the precise relationship of TULAS to RAOHE. Ecuador considered that TULAS set forth "the rules for the evaluation of environmental impact from a technical perspective.¹⁸⁹ Perenco did not share this view; it submitted that RAOHE's requirements and parameters trumped "more general regulations such as [TULAS], except where the [RAOHE] is silent."¹⁹⁰ In short, Ecuador gives greater prominence to TULAS then Perenco does; for Perenco, RAOHE is the primary source of regulation, with TULAS applying only in a backup or gap-filling manner.

101.

Table 2, Annex 2, Book VI of TULAS, entitled ‘Soil Quality Standards', sets out non-site specific standards for the background values of 36 different elements that may be present in soil. Article 4.2.1 explains that Table 2 sets out the quality criteria for soil, defining this as "approximate background values or analytical detection limits for pollutants in the soil", "reflect[ing] the natural geological variations of undeveloped areas or areas free of the influence of generalized industrial or urban activities."¹⁹¹ Ecuador relied on Table 2 in its alternative regulatory case as containing the applicable criteria for substances not included in Table 6 of the RAOHE, namely electrical conductivity, pH, barium and vanadium.¹⁹²

Excerpt of Table 2, Annex 2 of Book VI of TULAS¹⁹³
Substance	Unit	Soil
Electrical conductivity	mmhos/cm	2
pH	mmhos/cm	6 to 8
Barium	mg/kg	200
Vanadium	mg/kg	25
Total Chromium	mg/kg	20

102.

Perenco observed that these values "can vary significantly from the actual properties of soils at a given site"¹⁹⁴ and submitted that Table 2 was not intended to be used as remediation criteria. Rather, Table 3, Annex 2, Book VI of TULAS was the rightful source of the applicable regulatory criteria.¹⁹⁵ Table 3, entitled "Criteria for Remediation and Restoration of Soils" is defined as "[s]tandards for Remediation or Restoration...established in accordance with the use of soil (agricultural, commercial, residential, and industrial)."¹⁹⁶ The standards in question are said to comprise the "maximum levels of concentration of contaminants in soil under remediation or restoration."¹⁹⁷

Excerpt of Table 3, Annex 2, Book VI of TULAS¹⁹⁸
Substance	Unit	Land Use
Agricultural	Residential	Commercial	Industrial
Electrical conductivity	mmhos/cm	2	2	4	4
Barium	mg/kg	750	500	2000	2000
Cadmium	mg/kg	2	5	10	10
Nickel	mg/kg	50	100	100	100
Vanadium	mg/kg	130	130	130	130
Total Chromium	mg/kg	65	65	90	90
Zinc	mg/kg	200	200	380	380
Lead	mg/kg	100	100	150	150
Polycyclic Aromatic Hydrocarbons	mg/kg	<2		<5	<1

103.

In this connection, the significance of Article 2.38 of Annex 2, Volume VI (Criteria for Contaminated Soil Remediation) of TULAS was also a matter of dispute between the Parties. It provides:

2.38 Background level

Denotes the prevailing environmental conditions, prior to any disturbance. That is to say, it signifies the conditions that would have predominated in the absence of anthropogenic activities, with only natural processes being active.¹⁹⁹

104.

Article 2.38 is located in the ‘definitions' section of Annex 2 (i.e., "For purposes of the application of this Standard, the following definitions apply:...").²⁰⁰ Ecuador asserted that this was an example of TULAS's express acknowledgment of Base Values: it "defines ‘quality criteria' of the soil as its ‘background values', i.e., the chemical concentration levels prior to any contamination."²⁰¹ Ecuador added that according to TULAS, "any soils where concentrations of contaminants exceed three times the Base Value must be ‘immediately' remediated" and "restored back to 1.5 times the Base Value."²⁰²

105.

Perenco responded that this ignored the point that Article 2.38 was expressly predicated on the absence of any human activities or development. It did not require remediation to the untouched state of a site, and to interpret it as implicitly requiring the same would render obsolete "the detailed regulatory regime setting forth permissible impacts from different types of activity in different circumstances […]."²⁰³ Pertinently, the opening section to Annex 2 explains that its purpose is to provide the technical standards (".issued under the umbrella of the Environmental Management Law and the Regulation to the Environmental Management Law for the Prevention and Control of Environmental Contamination and is subject to their provisions, is of mandatory application, and is binding throughout the national territory") that should be used to "determine or establish" the "[s]tandards of general application for soils with different uses", etc.²⁰⁴ The objective of Annex 2 is identified as establishing the "Environmental Standards" that must be used by the State and its agencies in its "actions intended to preserve, conserve, or recover the quality of soil resources."²⁰⁵

106.

Turning to the matter of groundwater remediation, Table 5, Annex 1, Book VI of TULAS provides the "reference quality criteria for groundwater, considering a soil with clay content between (0-25.0)% and organic material content between (0 -10.0)%."²⁰⁶ Article 4.1.3.6 introduces Table 5 and states that any alteration of the quality of groundwater triggers an obligation to remedy the "contaminated groundwater and soil affected."²⁰⁷

Excerpt of Table 5, Annex 1, Book VI of TULAS²⁰⁸
Parameter	Chemical expression	Unit	Maximum Permissible Limit
Barium	Ba	ug/l	338
Cadmium	Cd	ug/l	3.2
Zinc	Zn	ug/l	433
Lead	Pb	ug/l	45
Mercury	Hg	ug/l	0.18
Arsenic	As	ug/l	35
Cobalt	Co	ug/l	60
Copper	Cu	ug/l	45
Chromium	Cr	ug/l	16
Molybdenum	Mo	ug/l	153
Nickel	Ni	ug/l	45
Total Petroleum Hydrocarbons		ug/l	325

107.

Ecuador's environmental expert, IEMS, relied on Table 5 of TULAS to provide the reference criteria that it applied to evaluate the concentration of TPH (Total Petroleum Hydrocarbons) and heavy metals (zinc, lead, mercury, cadmium, arsenic, barium, cobalt, copper, chromium, molybdenum and nickel) in the samples it collected.²⁰⁹ Perenco's expert, GSI, took issue with the filtration method adopted by IEMS and IEMS' assertion that it was required to do so by Table 5, Annex 1 of TULAS. In GSI's view, IEMS should have used Annex 5 of RAOHE instead.²¹⁰

108.

Having described in general terms the public law framework applicable to the claim, the Tribunal now turns to the obligations Perenco undertook in the Participation Contracts for Blocks 7 and 21.²¹¹

109.

First, Perenco agreed to comply with all laws and regulations in Ecuador applicable to the Participation Contracts.²¹² Clause 5.1.18 of the Block 7 Contract, for example, provided:

Obligations of the Contractor : Without prejudice to the other obligations contained in this Contract, the Contractor is obliged to:

5.1.18 Comply with and require that its subcontractors comply with all laws, regulations and other provisions applicable to this Contract in the Republic of Ecuador.²¹³

110.

Second, Perenco agreed to preserve the existing ecological equilibrium in the Blocks and would clean up the area to allow the potential return to environmental conditions similar to those encountered at the beginning of operations. But it would not be liable for pre-existing "environmental conditions" (for Block 7, this referred to conditions that pre-existed the Service Contract; for Block 21, this referred to conditions that pre-existed the Participation Contract). Clause 5.1.20, opening paragraph, subsections (9), (10) and 5.1.21 of the Block 7 Contract and Clause 5.1.19 and 5.1.20 of the Block 21 Contract provided:

[Block 7] Obligations of the Contractor : Without prejudice to the other obligations contained in this Contract, the Contractor is obliged to:

5.1.20 Preserve the existing ecological equilibrium in the Contract Area, to which end keeping all its activities within the pertinent standards in force in the country and on the basis of the Environmental Impact Studies, as stated in Annex No. XI...

5.1.20.9 Employ qualified personnel, equipment, machinery, materials, operational procedures and, in general, technology which complies with environmental protection standards and practices used in the international hydrocarbons industry, without prejudice to compliance with existing standards in the country.

5.1.20.10 Take responsibility for the cleanup and reforestation of the area with species similar to those originally found at the site, in order to, with time, allow the potential return to environmental conditions similar to those encountered at the beginning of the operations; also take responsibility for the abandonment of wells and installations for which the Contractor has been responsible as a consequence of the execution of this Contract. Said cleanup, reforestation and return to similar conditions and abandonment activities shall be performed in accordance with the Environmental Regulation for Hydrocarbon Operations and the Environmental Impact Study. The Contractor shall not be liable for environmental conditions preexisting at the beginning of operations under the Services Contract. In cases in which the competent authorities order the remediation of the environment in the Contract Area, due to preexisting conditions, the costs and contracting [for this purpose] shall not be the responsibility of the Contractor.

5.1.21 Cooperate with state entities responsible for control of colonization in the Contract Area; however, the Contractor shall not be liable for environmental damage caused by said colonization, nor for damages caused by third parties within the Contract Area.²¹⁴

[Block 21] 5.1 Obligations of the Contractor : Without prejudice to any other obligations specific in the Contract, the Contractor undertakes to:

[...]

5.1.19 While conducting the operations, the Contractor shall take every necessary measure to ensure the preservation and safety of lives and properties and preserve the environment. The above notwithstanding, the Contractor shall not be responsible for changes to the ecosystem caused by third parties within the Contract Area.

5.1.20 The Contractor shall be responsible for the clean-up, reforestation, and abandonment of non-productive wells and facilities as a result of this Contract. These activities shall be carried out in accordance with the legislation in effect in Ecuador at the time that such clean-up, reforestation, or abandonment is carried out and as contemplated in the Environmental Impact Study.

The Contractor shall not be responsible for pre-existing environmental conditions at the start of the operations under the Contract.

In such cases where the competent authorities order mitigation of the environment in the Contract Area due to pre-existing conditions, any costs incurred in connection with such activities shall be assumed by the Ecuadorian State.

Nor shall the Contractor be responsible for environmental conditions resulting from operations by PETROECUADOR or third parties after the Contract Area is returned by the Contractor.²¹⁵

111.

Third, the Contracts set out numerous reporting and audit requirements for Perenco; specifically, it was obliged to prepare and submit to the appropriate Ministry the information and audits commissioned in accordance with applicable regulations such as the Environmental Management Law, RAOHE and TULAS.

112.

These were provided for in the Block 7 Participation Contract in Clause 5.1.4 ("Carry out the Environmental Impact Studies which may be necessary..."); 5.1.10 ("Provide the Ministry of Energy and Mines with the original, and PETROECUADOR with one (1) copy, of all technical, environmental and research information related to the Contractor's activities..."); 5.1.11 ("Provide the Ministry of Energy and Mines with the originals of the Environmental Impact Studies as well as their supporting documentation..."); 5.1.20.4 ("Any Environmental Studies which may be required in the future for additional exploration or exploitation activities shall be submitted in accordance with the Environmental Regulation for Hydrocarbon Operations in Ecuador and with the Terms of Reference formulated by the relevant Ministry..."); 5.1.20.6 ("Environmental Impact Studies shall serve as a base reference for socio-environmental audits that must be conducted periodically by the relevant Ministry..."); and 5.1.20.7 (pre-termination audit).²¹⁶

113.

Similar obligations could be found in the Block 21 Contract, but they were expressed in somewhat different terms given the Block's green-field nature and the state of its development. Clause 5.1.9 required Perenco to "provide the Ministry of Energy and Mines with the original and PETROECUADOR with copies of all technical information...including those of a scientific, environmental and technical nature...".²¹⁷ Clause 5.1.18 required the company to "perform an Environmental Impact Study for the seismic prospection phase within the first six months following the Effective Date. Therefore, prior to drilling the first exploratory well, an Environmental Impact Study for the first phase of exploratory drilling must be submitted and, finally, an Environmental Impact Study together with the Development Plan must be presented before continuing on to the Exploitation Period... These studies shall be the basis for socioenvironmental audits that must be conducted periodically by the Ministry of Energy and Mines to ensure that the Contractor's operations are being carried out with the least impact on human residential populations and the environment."²¹⁸ Clause 5.5.5 referred to a comprehensive environmental audit that had to be commissioned two years before the expiry of the Block 21 Contract.²¹⁹

114.

The Block 7 Contract included a reference to an environmental impact study that the first contractor was required to complete and submit to SPA for approval as a pre-condition for entry into the Contract. Clause 5.1.20.3 stated that "[a]s of the Effective Date of this Contract, the Contractor has completed the Environmental Impact Studies described in Annex Number XI, and these studies have been submitted and approved by the Undersecretary of the Environment of the relevant Ministry."²²⁰ This provision does not appear in the Block 21 Contract.

115.

There was sharp divergence between the Parties on several areas regarding the application of Ecuadorian law and Perenco's obligations under the Participation Contracts.

116.

The Parties diverged on whether the regime that governed the counterclaim was fault or strict liability based. They also disagreed on the precise way in which the regime that pre-dated the 2008 Constitution operated, and the circumstances in which the regime of the 2008 Constitution would apply.

117.

Ecuador submitted that for a claim brought after the Constitution's entry into force, an oil operator was liable under the strict liability regime if the State established that environmental harm²²¹ existed in the areas in which the operator undertook hydrocarbon activities.²²² The burden then shifted to the operator to prove that the environmental damage was "insignificant."²²³ Ecuador noted in this respect that the Constituent Assembly of Ecuador, during the drafting of the 2008 Constitution, referred to:

"A presumption of innocence [that] should be established in favor of the environment. From this perspective, the burden of proof must be shifted to the defendant..."²²⁴

118.

Accordingly, relying on the expert evidence of Professors Ricardo Crespo Plaza and Fabián Andrade Narváez, Ecuador contended that pursuant to Article 396 of the 2008 Constitution it was required to "only establish the existence of the environmental damage in Blocks 7 and 21, where Perenco operated" for Perenco to be held liable.²²⁵ The State was not required to demonstrate fault or that "there [was] a causal link between such a fault and the environmental harm found on the areas where the oil operator conducted operations."²²⁶ Ecuador submitted that this was because certain activities, especially those in the hydrocarbons sector, "inherently generate[d] risks" to the environment" and, in this way, liability "[did] not derive from a single nefarious act, but, rather, from the decision to undertake a risky activity."²²⁷

119.

Professor Crespo added that the rationale behind this approach to environmental claims was that the protection of the environment had become a core philosophy of the 2008 Constitution²²⁸ and its drafters recognised that in claims for environmental damage "it [was] impossible or very difficult for the victim to establish that an environmental harm was caused by a fault."²²⁹

120.

For this reason, Ecuador submitted that the 2008 Constitution relating to the environment applied to "all environmental damage discovered after its entry into force" and was not limited only to damage that occurred after October 2008.²³⁰ This was consistent with the Constitution's Article 11(3), which stipulated that it was of "immediate application."²³¹ Relying on the evidence of Professors Crespo and Andrade, Ecuador submitted the relevant date for determining Perenco's liability was November 2011 when IEMS undertook its first inspection of the Blocks and concluded there was "widespread contamination."²³² Alternatively, Ecuador relied on the principle of "continuing torts" in Ecuadorian law, contending that even if the relevant date for liability was the date that the damage was caused, the strict liability regime of the 2008 Constitution would still apply because the "cause of the damage" continued beyond the Constitution's entry into force and in those circumstances the principle mandates that the damage is treated as having been caused at the moment the wrongful causative conduct ceases.²³³

121.

Professor Crespo explained that the basis of the strict liability regime in Ecuador is that Nature (" pacha mama ") has rights, including the right to remediation,²³⁴ and the theory of risk, i.e., that "the burden should go hand in hand with the economic benefit of an activity (ubi emolumentum ibi onus)" such that "whoever creates risk in his or her benefit must also suffer its harmful consequences."²³⁵ He referred in this latter respect to a 2002 ruling of the Ecuadorian Supreme Court, in Delfina Torres v. Petroecuador, which found that "the production, industrialization, transportation and operation of hydrocarbon substances [were], undoubtedly, high-risk or high-dangerouness activities."²³⁶ He also relied on a report prepared by the Working Group on Natural Resources and Biodiversity in Ecuador, a committee of the Constituent Assembly that contributed to the drafting of the 2008 Constitution, which observed that:

"A presumption of innocence should be established in favor of the environment. From this perspective, the burden of proof must be shifted to the defendant (literal b of Article 1), that is, departing from the ancient principle according to which innocence is presumed until proven otherwise because, in environmental matters, strict liability would be the exception. The plaintiff will not be required to prove the causality link, which will fall on the defendant. This principle eliminates one of the barriers hindering access to environmental justice as is the cost of evidence and the technical requirement of proving environmental harm."²³⁷

122.

Professors Crespo and Andrade also asserted that the Delfina Torres case showed that even before the 2008 Constitution's entry into force, Ecuadorian law contemplated a presumption of causation in environmental liability claims which operated in favour of the environment (relying also on the 1998 Constitution).²³⁸ Professor Crespo explained that in Defina Torres, "the theory of risk and the shifting of the burden of proof..allowed liability to be placed on Petroecuador and its affiliates for environmental harm and damages to the health of the inhabitants of a neighbourhood in the city of Esmeraldas", the Court's having adopted a "theory of extra contractual civil liability for risky or dangerous activities" by holding that:

" fault is presumed, which relieves the victim from having to provide evidence of negligence, carelessness or lack of expertise.[it is] sufficient that the damages are a direct consequence of the events where they originated. It is merely strict liability."²³⁹

123.

In either case, Ecuador submitted that the only exceptions that the Constitution contemplated were where the operator could establish: "(i) the lack of harm; or that the harm result[ed] (ii) from force majeure ; (iii) from actions or omissions of the victim of the harm; or (iv) from actions or omissions of a third party."²⁴⁰ The experts asserted that this has been upheld by Ecuador's former Supreme Court of Justice in Delfina Torres and in Andrade Medina v. CONELEC and others.²⁴¹ Ecuador further submitted that the burden of proof for any of the foregoing exceptions naturally fell on the party that invoked it, i.e., Perenco in the instant case.²⁴²

124.

In this respect, Ecuador submitted that Perenco could not meet any of the exceptions.²⁴³ It could not, for that matter, rely on the 2008 environmental audits of Blocks 7 and 21,²⁴⁴ because they were not approved by the competent ministry and even if they had been approved, Ecuadorian law, specifically Article 11(6) of the Constitution and Article 70 of TULAS, did not permit the findings of any audit report to excuse Perenco from environmental liability.²⁴⁵

125.

The 2008 audits were audits of Blocks 7 and 21 that Perenco was obliged contractually and by operation of Ecuadorian law to commission.²⁴⁶ They were submitted to SPA, part of Ecuador's Ministry of Mines and Petroleum, on 16 December 2008.²⁴⁷ In February and March 2009, there were a series of exchanges between SPA and Perenco regarding the 2008 audits, with SPA requesting further information.²⁴⁸ On 1 April 2009, however, events overtook the internal process of review within the Ministry because through Executive Decree No. 1630 the Ministry of Environment assumed the functions of the Ministry of Mines and Petroleum regarding the environmental aspects of hydrocarbon operations.²⁴⁹ The Undersecretary of Environmental Quality (" Subsecretaría de Calidad Ambiental ") of the Ministry of Environment was designated as the new authority in charge of approving the 2008 audits and it had not concluded their review when Perenco left the Blocks in July 2009.²⁵⁰ The review process continued with the Ministry of Environment sending a technical commission to perform an inspection of the Blocks from 29 to 31 July 2009 in order to "verify the results of Perenco's Environmental Audits."²⁵¹

126.

The Block 7 audit found that there were several instances of non-compliance with regulatory requirements, namely, the improper disposal of contaminated soil from the Coca CPF and in the management of the discharge of black and grey waters from the Jaguar and Payamino camps.²⁵² These were ostensibly addressed in an Action Plan subsequently carried out by Perenco.²⁵³ The audit did not identify contaminated soil or water requiring remediation.²⁵⁴ The Block 21 audit concluded that Perenco's activities complied with regulatory requirements and there were no indications of an impact on the environment detected in the Block and adjacent to areas of activities that would require remediation by Perenco.²⁵⁵

127.

In contrast, the technical inspection conducted by the Ministry in July 2009 resulted in a report released in August 2009 recommending that Perenco be sanctioned for pervasive and "major non-conformities" with applicable Ecuadorian environmental regulations and technical requirements in Blocks 7 and 21.²⁵⁶ The "major non-conformities" in Block 7 referred (amongst others) to Perenco's failure to comply with the plan for dismantling works when it left in July 2009, resulting in damage to the Gacela 2, Gacela 3, Lobo 4, Cóndor Norte, Jaguar 7 and 8, Jaguar 2, Jaguar 9, and Jaguar 1 wells, Perenco's "repeate[d] fail[ure]" to comply with the approved limits for the treatment of black and grey water at the Payamino station, its "inadequate handling of the areas and soils contaminated with hydrocarbons" in the Coca and Payamino stations and failure to abide by permissible emission limits in its management of combustion engines in the Gacela, Payamino and Oso stations.²⁵⁷ In Block 21, the Ministry identified inadequate maintenance of the facilities and the lack of treatment and monitoring reports related to the residual waters and pit leachates.²⁵⁸ In addition to the sanctions it proposed, the Ministry recommended that Perenco should be required to cure the defects in its 2008 audits.²⁵⁹

128.

Ecuador thus contended that the July 2009 technical inspection demonstrated that the 2008 audits did not prove that Perenco had complied with its environmental obligations under Ecuadorian law.²⁶⁰ They had not been approved by the Ministry, and even if they had been, Article 70 of TULAS provided that this could not exonerate Perenco because the State was not capable of waiving an environmental action based on strict liability. Article 70 states that "[t]he approval of environmental management plans and other environmental studies shall not be used as exonerating evidence in environmental contamination incidents or accidents attributable to any activity, project or construction[..]".²⁶¹ Ecuador also relied on Article 11(6), paragraph 1 of the 2008 Constitution which states that "[a]ll [its] principles and rights are inalienable, unwaivable, indivisible, interdependent.".²⁶² Moreover, the technical inspection was held out by Ecuador as "no less than the 2008 Environmental Audits review process itself" and it determined that ‘approval' would not be forthcoming because "none of the [audits] complied with the Consortium's obligations."²⁶³

129.

Ecuador submitted that, in any event, the 2008 audits were unreliable because they examined whether the Consortium complied with permissible limits under RAOHE and TULAS but as discussed in detail below, these limits did not amount to the extent of recoverable environmental harm for which Perenco may now be held liable.²⁶⁴ Furthermore, Perenco selectively sampled areas of the Blocks that it knew would be less likely to display contamination, taking far fewer samples than that reasonably required for a credible and representative sampling program.²⁶⁵

130.

Ecuador contended that Perenco's culpability was compounded by its efforts to "systematically […] mislead the Ecuadorian authorities as to the existence and extent of the environmental damages."²⁶⁶ For example, it referred to an internal memorandum within Perenco regarding a February 2010 complaint by a local landowner about contamination in the Payamino 2-8 area.²⁶⁷ Perenco's memorandum discussed the extent to which different individuals or organisations connected to the investigation were aware of the contamination and the "possible solutions" available to the company (for example, submitting an action plan to remedy the damage and compensate; "confine the problem and leave the site as is", and finally, to contest liability).²⁶⁸ Ecuador emphasised the disparity between the results of an initial study of the site conducted by Grüntech laboratory, which concluded that the oil spill that caused the contamination occurred during the time Perenco was the operator, and that of a technical study conducted by Walsh Environmental Scientists and Engineers which reached a conclusion similar to that put forward by Perenco to the Ministry, namely, that the contamination resulted from the disposal of waste coming from the drilling of the Payamino 2 well by CEPE in April 1987, and to a lesser extent, an oil spill that occurred in January 1998 when Petroproducción operated the field.²⁶⁹

131.

Ecuador adverted to other examples of similar behavior, such as Perenco's representation to the Ecuadorian Ministry of Environment in 2010 that no oil spills had ever been reported on or near the Payamino 2 and 8 wells while Block 7 was under Perenco's operatorship²⁷⁰, an assertion that was contradicted in its report to DINAPA in 2004 that 9 oil spills in Blocks 7 and 21 had occurred between 2000 and 2003.²⁷¹ Ecuador alleged that Perenco had failed to report at least 42 spills that occurred during its operatorship that now appeared on the record in this proceeding.²⁷²

132.

Ecuador similarly raised instances where DINAPA, after having reviewed evidence of site-testing by Perenco in areas where oil spills had been reported by local communities, concluded that the company's inspections were deliberately conducted in areas located a considerable distance from the sites in question, and for that reason, were unrepresentative of the conditions of the site of concern.²⁷³ It further raised examples of what it characterised as deliberate omissions by Perenco in its regular reporting to the DINAPA.²⁷⁴ It relied on RPS' expert report which concluded that based on the documents on record it could "identif[y] numerous and significant failures by the Consortium to comply with Ecuadorian regulations."²⁷⁵

133.

Finally, Ecuador submitted that the notion of harm covered by the Constitution's strict liability regime was broad, "covering as many types of environmental harm as possible" including "affectation to hydric sources", "loss of vegetation", "loss of air quality", "affectation to health of local populations", "impact to the local economy", "socio-environmental conflicts" and "affectation to tangible and intangible cultural heritage."²⁷⁶ This contributed to the specific evaluative criteria that Ecuador submitted its environmental experts were required to apply when evaluating the state of Blocks 7 and 21 (discussed in further detail below in Section III.C(5)).

134.

Perenco's position was that fault-based liability, not strict liability, governed Ecuador's environmental claim.²⁷⁷ In its view, strict liability was not the standard applicable under Ecuadorian law until the 2008 Constitution was adopted and to apply it to the Consortium's operations would be contrary to the principles of non-retroactivity and legal security.²⁷⁸ Ecuador's Civil Code applied to the Consortium's operations prior to October 2008, and the code provided that "he who has committed a tort", defined elsewhere as constituting an illegal action committed "with the intention to cause harm", which "has caused harm to another", is "obligated to indemnify".²⁷⁹ This required a "breach of a duty of care which result[ed] in harm."²⁸⁰ Thus, Perenco's contention was that Ecuador's claims were deficient because it had failed to establish in IEMS' experts reports that the Consortium "deliberately or negligently breached its duty of care",²⁸¹ and that it " caused the alleged contamination."²⁸²

135.

Relying on its own Ecuadorian law expert, Dr. René Bedón, Perenco rejected Professor Crespo's reliance on obiter dicta from Delfina Torres²⁸³ to assert that in any event strict liability for environmental claims existed in Ecuador before October 2008, arguing that he had misinterpreted the decision.²⁸⁴ Dr. Bedón stated that even as the Court in Delfina Torres shifted the burden of proof to the defendant, requiring it to prove that it had adopted appropriate measures to prevent the damage alleged by the claimant, it still required a finding of fault, albeit "presumed fault."²⁸⁵ He asserted that:

"In that ruling, after reaffirming that ‘it is considered necessary to have a requirement of fault for the sake of justice of those responsible', the Court made the following statement:

‘However, since the burden of proof of such fault is almost impossible or very difficult to be borne by the victim, shifting the burden of proof was considered necessary...In other words, the presumption of the fault of the person using and taking advantage of the risky thing causing the harm was established. This theory has increasingly gained acceptance, particularly in case law...We fully agree with this position and such is the reason why we adopt it as foundation for this ruling...'."²⁸⁶

136.

Dr. Bedón also adverted to a subsequent decision of the Supreme Court of Justice in Medardo Luna v. AECA.²⁸⁷ This "clarified" the Delfina Torres ruling by confirming that it "had been issued based on the fault-based liability regime", shifting "only the burden of proof with respect to the element of negligence or intent", and quoted the following statement from the decision: "This ruling [ Delfina Torres ] categorically state[d] that the respondents incurred in fault-based liability and, on this basis, were ordered to pay damages...".²⁸⁸

137.

Perenco submitted that the Supreme Court of Ecuador (now the National Court of Justice) has recognised in three cases - Defina Torres, Medardo Luna ²⁸⁹ and Andrade Medina ²⁹⁰ - that before the 2008 Constitution entered into force the Ecuadorian legal regime for liability for hazardous activities like oilfield operations was fault-based with a rebuttable presumption of fault or a rebuttable presumption that there had been a breach of the duty of care.²⁹¹ These decisions confirmed that "proof of compliance with the operator's duty of care rebut[ted] the presumption of fault and thereby exonerate[d] the operator from liability."²⁹²

138.

Perenco further argued that:

[…] Ecuador does not explain why Articles 20 and 91 of the 1998 Constitution, which concern the vicarious liability of the State for the acts of its public servants or agents or for the defective provisions of a public service, are applicable to the Consortium's activities. Both the express text of those provisions and the very decision cited by Ecuador, Andrade Medina, confirm that this administrative liability regime applie[d] only to harm caused by the State or its public servants or agents.²⁹³

139.

Thus, Perenco submitted it is able to prove that it satisfied its duty of care, comprising the standard of care expected of a reasonably prudent operator,²⁹⁴ because it consistently complied with contractual and regulatory requirements to report, audit and remediate.²⁹⁵

140.

In the alternative, should the Tribunal consider that the counterclaim was governed by a strict liability regime, Perenco submitted that Ecuador still had to prove that Perenco had caused environmental harm (consisting of regulatory exceedances of contaminants) by engaging in "wrongful (negligent or malicious)" conduct, and not just that there was environmental damage in Blocks 7 and 21 (the very existence of which, to a large extent, Perenco disputed).²⁹⁶

141.

Perenco submitted that it was insufficient for Ecuador to allege there has been an impact in the environment of Blocks 7 and 21 in order to shift the burden to Perenco to offer proof of its insignificance.²⁹⁷ In its view, in the course of its submissions Ecuador had conceded that the burden rested on the claimant in an action for environmental liability in a strict liability regime to establish the existence of environmental harm.²⁹⁸ Referring to the testimony of Professor Crespo, as set out above, Ecuador's case at its highest is that it was required to "only establish the existence of the environmental damage in Blocks 7 and 21, where Perenco operated" for Perenco to be held liable.²⁹⁹ In its written pleadings, Ecuador contended it "need only establish the existence of the environmental damage " or "that environmental harm exists. "³⁰⁰ Ecuador could not retreat from this by claiming that Article 397(1) of the 2008 Constitution shifted the burden of proof to the Perenco to prove the inexistence of harm in such a way that it relieved Ecuador of the duty to first establish that harm actually exists.³⁰¹

142.

Finally, on the issue of temporality, relying on Dr. Bedón's report, Perenco maintained that the law which applied in an environmental claim was the law in force at the date of the occurrence of the act alleged to have caused harm, rather than the law in force at the point of time that the harm was purportedly discovered.³⁰² Dr. Bedón responded in this respect to Professor Crespo's view that the relevant date for determining Perenco's liability was November 2011, the time of IEMS' first inspection of the Blocks, and that since this followed the 2008 Constitution's entry into force, the Constitution's strict liability regime was engaged.³⁰³

143.

Dr. Bedón asserted that the principle on which he relied, namely, that "the fact that determines the applicable law is the date of the occurrence of the act", was validated by the statute of limitations rules governing torts in Ecuador, "which establishe[d] that the statute of limitations is counted from the date on which the allegedly harmful act occurred."³⁰⁴ He referred in this respect to Article 2235 of Ecuador's Civil Code which provides for a "statute of limitations of four years, counted from the perpetration of the act."³⁰⁵

144.

Any other approach, Perenco contended, would be contrary to the basic principle of nonretroactivity that exists under Ecuadorian law as accepted by Ecuador in the course of its submissions in this arbitration.³⁰⁶ It rejects any suggestion that an exception should be made on the basis that claims for environmental liability are advanced in the "general interest of nature and the Ecuadorian general public."³⁰⁷ This is not a position provided for in Ecuador's 2008 Constitution or in any decisions of its courts.³⁰⁸ There is "no basis on which to derogate from the express constitutional principle of non-retroactivity."³⁰⁹ Consequently, the strict liability regime of the 2008 Constitution should not be applied to conduct occurring prior to its entry into force on 20 October 2008.³¹⁰

145.

In sum, Perenco argued that it could not be held liable for any damage occurring after the July 2009 takeover or before January 2007 (the furthest back in time that Ecuador's four-year statute of limitations permitted a claim to be made).³¹¹

146.

The Parties also diverged on the matter of causation. In light of Ecuador's position that the 2008 Constitution continued a strict liability regime that was already in force since 2002, it argued that while it bore the burden of presenting evidence of environmental "impact" in the Blocks, it was not, either prior to or after the 2008 Constitution, required to demonstrate that the defendant had caused the exceedances claimed in order for it to be found liable.³¹²

147.

Perenco disagreed. It maintained that whether before or after the 2008 Constitution, the State was required to demonstrate causation. It acknowledged that under the post-2008 strict liability regime, it sufficed if the State demonstrated the incidence of "wrongful (negligent or malicious)" conduct coupled with proof of the existence of environmental damage; this would trigger the operation of a presumption of causation.

148.

Ecuador submitted that "both under the 2008 Ecuadorian Constitution and under the prior environmental liability regime, it may be presumed that operators of inherently dangerous activities caused any environmental harm found in the area of their operations of the kind that potentially result from such activities."³¹³ It relied on the evidence of Professors Crespo and Andrade. The latter asserted that "the presumption of fault in the Delfina Torres decision, which accepted the theory of risk, implies in fact two distinct presumptions: one irrebuttable presumption of the existence of fault regarding hazardous activities and another rebuttable presumption with regards to causation, pursuant to which one may be exempted from one's environmental liability by proving that the harm was caused by another."³¹⁴

149.

As for Professor Crespo, his expert evidence was that under a strict liability regime, causation is presumed. He cited the drafting history of the 2008 Convention, where the Working Group on Natural Resources and Biodiversity referred to a "presumption of innocence...in favour of the environment" and explained that, consequently, the "plaintiff will not be required to prove the causality link, which will fall on the defendant."³¹⁵ On cross-examination, he clarified that it was not the case that causation has been done away with. Instead, it was that Ecuador had to prove that there was environmental harm ("an alteration; that is, a modification with a negative impact of the environment")³¹⁶ and that an operator had been operating in the area where the harm was found in order to trigger the presumption that that operator was responsible for the harm created.³¹⁷ Professor Crespo was pressed further on the issue of burden of proof in the course of his oral evidence. He testified that the victim of the harm "should show that there is a negative environmental impact in the area of operation" and "with the indication of a negative environmental impact, the other Party has to prove that that damage does not exist or doesn't have causation" on the basis of the exceptions discussed.³¹⁸

150.

Ecuador further submitted that this approach to the burden of proof in relation to causation of environmental harm is consistent with what was provided for under the Participation Contracts. Clause 5.1.20.10 of the Block 7 Participation Contract provided that "[t]he Contractor shall not be liable for environmental conditions preexisting at the beginning of operations under the Services Contract",³¹⁹ and Clause 5.1.20, second paragraph, of the Block 21 Participation Contract similarly provided "[t]he Contractor shall not be responsible for pre-existing environmental conditions at the beginning of operations under the Services Contract."³²⁰ In its view, this suggested, first, that the Contracts intended that the Contractor shall be held liable for any and all environmental conditions in the Blocks for the duration of the Contracts. Second, since this is a limitation on the Contractor's liability, and whether prior to or after the 2008 Constitution's entry into force, the burden rested on the operator to establish any exception or limitation in its favour: "while the Contractor's liability for environmental damage under the Participation Contracts [did] not extend to conditions existing prior to the execution of the Block 7 Services Contract (18 December 1985) and Block 21 Participation Contract (20 March 1995), it is for the Contractor to prove that such limitations apply in the instant case."³²¹

151.

Turning to the evidence, Ecuador submitted that IEMS' evidence demonstrated that the hydrocarbons operations had a significant impact on the environment in Blocks 7 and 21. This triggered the presumption that Perenco was liable, and Perenco had not discharged its burden of disproving that it had caused the harm (or that another available defence could be made out). Ecuador contended that Perenco did not dispute that the oil operations it conducted were hazardous or high-risk and likely to cause contamination of the environment, only that all the contamination found in Blocks 7 and 21 might not necessarily be associated with oilfield operations.³²²

152.

Ecuador further contended that Perenco's expert, GSI, applied "indicator parameters" so as to distinguish between exceedances that could be attributed to hydrocarbon operations as opposed to those which could not be linked to hydrocarbon operations, and in doing so used the indicia of Total Petroleum Hydrocarbons ("TPH") and barium only, while excluding testing for heavy metals.³²³ Ecuador asserted that this approach flew in the face of Ecuador's environmental regulations for hydrocarbon operations (such as RAOHE) which included permissible contamination limits for all other heavy metals: lead, nickel, cadmium and vanadium etc.³²⁴

153.

For its part, Perenco submitted that regardless of whether the applicable legal regime was a fault-based or a strict liability regime, Ecuador had conceded that it bore the burden of establishing that it had "suffered harm."³²⁵ Under the pre-2008 regime, the existence of harm was a "separate and necessary predicate to tortious liability."³²⁶ The claimant in a tortious action was required to demonstrate a "causal nexus between the tortfeasor's actions and the harm for an action in tortious liability to succeed."³²⁷

154.

Even under the post-2008 regime, causation remained a critical element.³²⁸ Perenco contended Ecuador and its legal experts acknowledged this in the course of their submissions, with Professor Andrade stating that "the causal link, as a condition for liability, does not disappear in environmental matters, either under the strict liability regime of the 2008 Constitution or under the previous regime."³²⁹ Perenco emphasised that Article 396 of the 2008 Constitution provides that "[e]ach of the participants...shall be directly liable for...repairing the damages it has caused […]"³³⁰

155.

Rather than a rebuttable presumption of causation in favour of the environment, the burden being on the operator to challenge the presumption, Perenco submitted that the burden, first and foremost, remained on Ecuador to "affirmatively prove the existence of a causal link."³³¹ Perenco's legal expert challenged the applicability of the Ecuadorian judicial decisions relied upon by Ecuador to argue that a strict liability regime existed prior to the 2008 Constitution, submitting instead that they stood for the proposition that in order for a presumption to arise, the State is required to establish causation.³³² Ecuador could not retract from its position that this regime then carried over to the 2008 Constitution.

156.

In the Medardo Luna case, Ecuador's Supreme Court stated "the harmed party must.demonstrate: the fact, the damage, and the relationship of causal link among them […]"³³³ In Delfina Torres, the Court held that "[t]he claimant had to prove: a) the harm of which it claims it is a victim; b) its amount or quantum; and c) the events that caused such harm. "³³⁴ Professor Crespo concluded that a claim for environmental damage is made out where "the State has proven: the occurrence of environmental damage, and [t]hat the operator/defendant performed any of the activities described in Articles 397 or 408 of the Constitution [..]."³³⁵

157.

Perenco interpreted the use of the word "occurrence" as an affirmation of the requirement that the State must prove causation. Dr. Bedón opined that this burden required Ecuador to prove, both in law and in fact that there was an impact on the environment that exceeded the permissible regulatory limits, and that this could be attributed to the operator.³³⁶ He claimed that Ecuador's argument, that there was a presumption of causation that Perenco was required to rebut, was based on a misreading of Delfina Torres.³³⁷ The court, in his view, "established a presumption of breach of the duty of care, and not of causation"³³⁸ and he cited the following passage from the decision in Delfina Torres in support of this view:

Harm, as a factual phenomenon, is different from legal damage. The latter arises only when certain essential features are met, which must concur to the detriment or impairment of the harmed party. The harm is legal and, as such, shall be able to be redressed when certain. Certainty of its existence is an essential assumption, as harm, for the purposes of liability, is anywhere its existence has been scientifically proven. Hypothetical or future harm cannot be compensated. In these matters, claiming harm in the abstract or its mere possibility is not enough, real and effectively suffered harm must be proven; harm that has not been demonstrated procedurally, with evidentiary elements which externalize a harm, does not legally exist.³³⁹

158.

This was consistent with the provisions of the Participation Contracts which, in Perenco's view, "exonerate the Claimant from responsibility for harm caused by others."³⁴⁰ They provided that the operator would not be "responsible for pre-existing environmental conditions" preceding the start of the participation contract in the case of Block 21 and the service contract in the case of Block 7.³⁴¹ Moreover, Clause 5.1.19 of the Block 21 Contract provided that the "Contractor shall not be responsible for changes to the ecosystem caused by third parties within the Contract Area."³⁴² Clause 5.7.3 of the Block 7 Contract stated that "[i]n performing this Contract, neither party shall be liable for damages.unless the damage.was caused by the Party's own acts."³⁴³

159.

Perenco submitted that Ecuador had failed to discharge its burden of demonstrating that the harm that it alleged existed in the Blocks could be traced back to the Consortium's activities.³⁴⁴ Moreover, it contended that "[e]ven though it [was] not Claimant's burden to disprove causation, historical records demonstrate that Ecuador's own State oil companies caused much of the damage of which it now complains - either in the period prior to assumption of operations by private contractors or in the period since July 2009, when it took over operation of the Blocks."³⁴⁵ It stated that GSI had located and provided to the Tribunal "substantial evidence - not mere allegations, as Ecuador assert[ed] - that Ecuador or other operators caused a significant portion of the damages about which it now complains", providing as examples the Payamino 2-8 contamination which it contended could be traced back to CEPE³⁴⁶, and to Petroecuador in the case of the Chalá swamp in Coca CPF...³⁴⁷

160.

Ecuador submitted that under its law "all the authors of a tort […] are jointly liable to its victim."³⁴⁸ Thus, it was entitled to proceed against Perenco or Burlington "or any author of the environmental harm caused" and "[h]ow the different authors of the environmental harm should ultimately share liability and pay money back to each other [was] a matter of no concern to Ecuador."³⁴⁹ (It also rejected any attempt to lay blame on CEPE (now Petroecuador) or Petroproducción for this reason, adding that in any event since they possessed "their own legal personality" they were "therefore third parties to the instant dispute, as different entities from the Ecuadorian State."³⁵⁰)

161.

Ecuador referred to Article 396, paragraph 3, of the 2008 Constitution, which provides in relevant part that "[e]ach of the participants in the processes of production, distribution, commercialization and usage of goods and services shall be directly liable for preventing any environmental impact, for mitigating and repairing the harm that it has caused […] . "³⁵¹ This indicated that the operator shall be held liable "for the damages it has caused and will not be liable for the damages another participant has caused." However, "since there is a presumption of causation that links each element of damage to each participant, it follows that it is for each participant, for the [Claimant] to prove that a certain damage was caused, not by [it], but exclusively by another participant."³⁵²

162.

Perenco responded that joint and several liability applied only where the actors at issue had contributed to the same act for which their liability had otherwise been established. It did not apply to successive operators whose actions were factually distinguishable from each other.³⁵³ Perenco could not be held liable for harm that had been caused exclusively by other operators and especially by prior operators as this has been specifically excluded by operation of clauses 5.1.20 (Block 21) and 5.1.20.10 (Block 7) of the Participation Contracts.³⁵⁴

163.

Perenco further contended "if [Ecuador's] conception of joint and several liability is accepted, Ecuador's State-owned oil companies would be jointly and severally liable for all of the environmental harm that allegedly exists in the Blocks."³⁵⁵ It submitted that this was the result in principle regardless of whether the Tribunal could in fact act on the principle and pronounce upon that liability by exercising jurisdiction over them.³⁵⁶

164.

Recalling Article 396, paragraph 3, of the Constitution, the experts disagreed on the significance of this provision in the context of oil blocks that have been worked by different operators over their life-span.

165.

Professor Andrade explained that under Ecuadorian law, where the environmental harm may be attributed to several polluters, each of them is jointly liable for the full amount of the relevant harm.³⁵⁷ In this regard, he cited Article 2217 of the Civil Code which states that "[i]f a willful or negligent tort has been committed by two or more people, each one of them shall be jointly and severally liable for any loss resulting from said willful or negligent tort."³⁵⁸ This principle existed in Ecuadorian law prior to the 2008 Constitution.³⁵⁹

166.

Professor Andrade further asserted that tribunals possessed a broad discretion to establish the proportion of liability of each of the participants in causing the contamination, applying criteria such as the length of time of their operations and their intensity, but that this required the tribunal to exercise jurisdiction over the participants and that was not the case in this instance.³⁶⁰ This related to Perenco's submission that State-linked or owned oil companies bore some extent of liability in several instances of alleged contamination in Blocks 7 and 21.³⁶¹ Ecuador submitted that Perenco's contention ignored the fact that CEPE, Petroproducción and Petroamazonas were entities that were distinct and independent from the Ecuadorian State and as such their conduct could not be attributed to it.³⁶² In any event, the Tribunal has determined that it does not have jurisdiction over these entities in this arbitration.³⁶³

167.

During the course of his examination, Professor Crespo testified that in the instance where there have been successive operators managing the Blocks, their liability is governed by the principle of joint and several liability. The State was entitled to proceed against one of the operators, and then "he can go to the others and ask for their portion."³⁶⁴ He added that this was the case "irrespective of whether [the operator] acted within the requirements of the law throughout the time of [its] stewardship of the resource."³⁶⁵

168.

Ecuador submitted in the first instance that under the 2008 Constitution environmental claims were deemed imprescriptible i.e., not subject to limitation periods.³⁶⁶ In the alternative, Ecuador submitted that the 2008 Constitution applied to any harm discovered after its entry into force (the "discovery rule") and it was the date of discovery of environmental harm that mattered for statute of limitation purposes.³⁶⁷

169.

Ecuador noted that Article 396, paragraph 4, of the Constitution provides that "[l]egal actions to prosecute and sanction environmental harm shall be imprescriptible."³⁶⁸ It also adverted to the decisions of the Ecuadorian Supreme Court of Justice in Nelson Alcívar³⁶⁹ and Delfina Torres³⁷⁰ to suggest that environmental tort claims cannot expire and that even if there were a statute of limitations, the limitation period would begin to run only as of the date that the harm was discovered.³⁷¹ In Nelson Alcívar, the Provincial Court of Justice of Sucumbíos declared that Article 396, paragraph 4, of the Constitution (on imprescriptibility) applied despite the fact that the relevant conduct occurred before the 2008 Constitution entered into force.³⁷² In Delfina Torres, the Supreme Court of Justice of Ecuador recognised that the statute of limitations began to run not from the date on which the damage was perpetrated but the date on which it could be discerned.³⁷³ It emphasised that any doubts regarding the interpretation of the applicability of the 2008 Constitution and its provision on imprescriptibility should be resolved "in favour of environmental protection,"³⁷⁴ relying on the following passage from Nelson Alcívar :

"It must be emphasized that, on account of the constitutional principle that states that in doubt the rule that most favours environmental protection shall apply, because it is a norm that generates ample protectionfor the environment it always falls to apply what is foreseen in the current Constitution, over and above the provisions of the Environmental Management Law or the 1998 Constitution. In addition, the provisions of the current Constitution in all that relates to environmental issues and environmental protection should be preferably applied, given that, in procedural matters, the rules in force at the time of filing the action apply, and not those in force when the legal situationarose."³⁷⁵

170.

In this regard, Ecuador's experts, Professors Crespo and Andrade, submitted that it was the date of discovery or the "verification" of environmental harm that mattered for limitation purposes.³⁷⁶ It was the "very nature of environmental harm require[d] that this be so:"³⁷⁷

"...unlike traditional, simple figures of torts, the effects of soil and groundwater pollution are not immediately manifest. Instead, they surface progressively over a long period of time. Verification requires extensive tests and scientific analyses. Without these, the environmental damage remains for the most part invisible. Thus, if the relevant date for limitation purposes were the moment the damaging act occurred, in most occasions environmental liability would simply become unenforceable."

171.

Since in this case the harm was discovered in 2011 after the 2008 Constitution and its provision regarding imprescriptibility entered into force, Perenco's submission that the 4-year limitation under Article 2235 of the Ecuadorian Civil Code applied to bar claims for damage occurring over 4 years before the counterclaim was filed could carry no weight.³⁷⁸ In any event, less than 4 years elapsed between the discovery of the environmental harm and the filing of the present counterclaim.³⁷⁹

172.

Ecuador submitted in the further alternative that environmental harm is susceptible to the "general principle of tort law" that recognises "continuing torts", defined as "civil wrongs committed not at a specific point in time but continuously throughout a certain period" and which are thus considered "to have occurred at the moment when the wrongful conduct ceases."³⁸⁰ The limitation period can only start to run from the date that the wrongful conduct is deemed to have ceased.³⁸¹ As a result, since the harm in this case is "not the result of an individual act.but rather the accumulated result of the entirety of the low-cost oil operation" conducted by Perenco from 2002 to 2009, the wrong is deemed to have been committed as of 2009, when Perenco left the Blocks, and a year after the 2008 Constitution's entry into force.³⁸²

173.

Ecuador also invoked Article 11(3) of the 2008 Constitution, namely, that "[t]he rights and guarantees set forth in the Constitution...shall be of direct and immediate application by and before any public, administrative or judicial servant, ex officio or upon request by a party."³⁸³ It used this to contend in the alternative that the relevant point of time was the time the claim was filed rather than the time the claim was said to have arisen (i.e., discovered).³⁸⁴

174.

In other words, the 2008 Constitution and its provision on imprescriptibility applied without limitation to the claims advanced in this arbitration because they were filed after it entered into force in October 2008.³⁸⁵ Ecuador further contended that the strict liability regime put into place by Article 396 of the Constitution indicated, by the choice of strict as opposed to a fault-based liability, that the intention was to home in on the existence of harm rather than the chain of causation leading to the harm.³⁸⁶

175.

Also in the alternative, Ecuador argued that if the Tribunal was not convinced by the ‘discovery rule', the principle of ‘continuing torts' or the consequence of Article 11(3), with the result that the imprescriptibility of the strict liability regime only took effect in 2008, the Constitution's prohibition on retroactive application did not apply to laws aimed at a public interest, such as laws "issued to protect broad sectors of the public which are considered to be in a vulnerable situation, vis-a-vis other sectors of society."³⁸⁷ In its submission, the 2008 Constitution's provisions relating to the protection of the environment naturally fell within the exception to retroactivity.³⁸⁸

176.

In response to this series of arguments, Perenco responded that the Tribunal should "apply the law that was actually in force in Ecuador at the times the alleged environmental conditions were created - all of which predate[d] the 2008 Constitution."³⁸⁹ This was tied to its position that prior to the 2008 Constitution's entry into force, the operative regime was fault-based and therefore an operator could not be found liable if it could demonstrate it had been operating in accordance with its duty of care at all relevant times and consistently with applicable regulations.³⁹⁰ Perenco contended that this was an attempt by Ecuador to escape its burden of proving that the Consortium was at fault, and to accept it would be to condone a violation of Ecuador's "own constitutional principle of legal certainty."³⁹¹

177.

Perenco further submitted that the Consortium cannot be held liable for harm that may have occurred "after Ecuador's July 2009 takeover of the Blocks, or before January 2007, which is when the four-year statute of limitations window since Ecuador first asserted its counterclaims ends."³⁹² Ecuador's statute of limitation for tort claims runs for four years from the date when the allegedly damaging act occurred.³⁹³ This is provided for expressly in Article 2235 of the Ecuadorian Civil Code.³⁹⁴ Perenco contended that since "Ecuador filed its first set of counterclaims in January 2011 in the Burlington case, any claims for incidents [that occurred] before January 2007 [were] time-barred."³⁹⁵

178.

Perenco also challenged Ecuador's reliance on the 2008 Constitution's provision on imprescriptibility, asserting it was inapplicable to this claim and thus did not affect the statute of limitation analysis.³⁹⁶ Professor Crespo's opinion that the new constitutional provisions relating to the protection of the environment were of immediate application because they were a matter of public policy could not mean that they applied retroactively; the proscription against the retroactive application of law remained part of Ecuadorian law and the 2008 Constitution.³⁹⁷ Perenco also rejected Professor Crespo's use of a ‘verification' approach, contending he could not provide any authority under Ecuadorian law to support the theory.³⁹⁸

179.

Perenco further submitted that the "discovery rule" and "continuing torts" theories advanced by Ecuador did not exist in Ecuadorian law.³⁹⁹ Ecuador and Professor Andrade did not provide any authority to support these rules and their acceptance would undermine the express words of Article 2235 of the Civil Code.⁴⁰⁰ Perenco contended that Ecuador accepts that Article 2235 expressly provides that the statute of limitation runs from the date on which the allegedly harmful act was perpetrated⁴⁰¹ and Professor Andrade cited no Ecuadorian judicial authority in support of the proposition that a derogation from Article 2235 can occur in environmental cases.⁴⁰²

180.

Perenco further claimed that Ecuador did not understand the concept of the "discovery rule" (while simultaneously maintaining its position that the rule did not exist in Ecuadorian law) which enabled the suspension of the limitations period "for so long as the claimant could not reasonably have discovered the alleged harm."⁴⁰³ Such a rule "[did] not allow a tribunal to suspend the limitations period when the claimant knew of, or could reasonably have discovered, the alleged harm and yet failed to act."⁴⁰⁴ In this case, Ecuador was on "constant notice" of the environmental condition of the Blocks through the "regular reporting, audit, inspection and verification process" and thus cannot claim to have not been in a position to advance the claims if it saw fit to do so.⁴⁰⁵

181.

Perenco similarly rejected the applicability of a "continuing torts" theory, contending that the exceedances (whether of background values or of regulatory criteria) were not, using Ecuador's pleaded language, "the result of an individual act that took place at a specific point in time".⁴⁰⁶ Incidents that may have caused contamination were not "a continuous and undefined act" or one "aggregate act."⁴⁰⁷

182.

Perenco maintained that the only period for which claims would be imprescriptible "would be between October 20, 2008 (when the Constitution entered into effect) and July 16, 2009 (when Petroamazonas assumed the operation of Blocks 7 and 21)."⁴⁰⁸ Every incident raised by Ecuador in this counterclaim occurred before 20 October 2008.⁴⁰⁹

183.

As noted above, Perenco submitted that Ecuador had conceded that a predicate of a tortious claim for liability in an environmental claim is proof of environmental harm.⁴¹⁰ Perenco contended that environmental harm under Ecuadorian law did not encompass " any impact to the environment, but [rather] an impermissible impact to the environment."⁴¹¹ It made this point in response to Ecuador's and IEMS' use of "background values", which was in turn premised on Ecuador's position that any presence in the environment of petroleum hydrocarbons or certain metals associated with hydrocarbon operations above the average background values (" valores de fondo "⁴¹²) was legally impermissible. For this reason, IEMS compared its test samples against the "level of contaminants naturally present in the area under study" or "Base Values" rather than against the level of exceedances permitted by the Ecuadorian regime governing hydrocarbon resources exploitation.⁴¹³

184.

Perenco emphasised that when IEMS submitted its report to the Burlington tribunal about 10 months before its first submission to this Tribunal,⁴¹⁴ in selecting its criteria for evaluating the Consortium's compliance with environmental standards, IEMS referred to the notion of "tolerable" levels of contaminants.⁴¹⁵ IEMS had stated that "on properties that are used for productive purposes related with petroleum activities, we tolerate certain concentrations of contaminants", because they represented "an alteration of little relevance."⁴¹⁶ It concluded that this was represented by RAOHE and TULAS, the permissible limits of which "ma[de] it possible to establish whether the presence of contaminants at certain levels and components of the environment (soil, surface water and underground water) [was] tolerable", and added it was "not necessary to consider international comparison criteria considering that the environmental regulations in Ecuador specify precise criteria for all these parameters or contaminants […]."⁴¹⁷

185.

IEMS' report in Burlington further characterised RAOHE and TULAS as the criteria that "establish[ed] the obligation to carry out the clean up and/or restoration of the environment […]."⁴¹⁸ It added that "permissible limits specified in the environmental regulations of a country foster the performance of productive activities that avoid the accumulation of contaminants in the environment at levels that cause damage to the productive activities itself, human health, or the environment."⁴¹⁹

186.

It was not until the filing of its second report in Burlington that IEMS introduced its "background values" hypothesis.⁴²⁰ Perenco noted that in its proposal to the Office of the Attorney General of Ecuador (Procuraduría General del Estado) on 25 July 2011 on the matter of its expert evidence in these arbitrations, IEMS referred to the fact that in its initial environmental assessment 29 out of the 93 facilities inspected "had contaminated areas exceeding the clean-up criteria established in Ecuadorian environmental regulations. "⁴²¹ The proposal referred to a request that IEMS had received to undertake a more detailed investigation "with the object of:.2. Strengthening the prior soil and groundwater sampling results via the determination and evaluation of background levels for those contaminants whose presence may be attributable to natural conditions or other causes."⁴²² (In its supplemental report in this arbitration, in the course of responding to the evidence of its former employee, Mr. Gilberto Martínez, who, amongst other things, challenged IEMS' decision to employ background values,⁴²³ IEMS stated "[w]e also find it very strange that Mr. Martínez should criticize us for assessing the presence of contamination against the background values of the Blocks. This issue was never discussed, especially since the instruction to employ this criterion came from our lawyers."⁴²⁴)

187.

In Perenco's view, IEMS had changed its evaluative criteria not because of its own views as to how to properly evaluate the Blocks' conditions, but rather because it was instructed to do so by its client. In acceding to that instruction, it had abandoned its prior (correct) position that only contaminants that exceeded the applicable regulatory criteria (so-called "regulatory exceedances") amounted to contamination under Ecuadorian law. On its prior approach, environmental harm was determined by whether contamination in a specific case exceeded the permitted levels, not by measuring soil samples against "background values." This was the approach which Perenco itself employed.

188.

Ecuador responded to Perenco's criticism in defence of IEMS' use of the ‘background values' approach on the ground that "Ecuadorian regulatory criteria [did] not provide for full remediation of the contamination and, therefore, [did] not fully protect the environment or human health."⁴²⁵ It considered that since there could be no expectation that hydrocarbons-related substances occur naturally in the environment of Blocks 7 and 21, the Base Value employed should be 0 mg/Kg.⁴²⁶ It further contended that this was in line with the import of the Consortium's contractual obligations to require the complete restoration of the environment in the Blocks (relying on Clause 5.1.20.10 of the Block 7 Contract⁴²⁷ and Clause 5.1.20 of the Block 21 Contract).⁴²⁸

189.

Against that backdrop, Ecuador submitted that the "notion of repairable harm is not in fact defined in TULAS and RAOHE through ‘permissible limits', but rather in the [Environmental Management Law]."⁴²⁹ It relied on the Law's definition of the term ‘environmental harm' and asserted that the Constitutional Court has confirmed that this is the operative definition under Ecuadorian law and it defines the extent of the obligation to repair:

Environmental Harm... - Any significant loss, diminution, detriment or impairment of the preexisting conditions in the environment or one of its components. It affects the functioning of the ecosystem or the renewability of its resources.⁴³⁰

190.

Ecuador also pointed to Ministerial Decree 169 on the "Principles and Definitions of Environmental Public Policy", Article 1 of which defines "environmental damage" as follows:

"[It is] the negative environmental impact to the environmental conditions present in a given space, caused by the development of development projects, which lead to an imbalance in the ecosystems' functions and that alter the supply of the services that such ecosystems contribute to society."⁴³¹

191.

Ecuador also relied on the evidence of Professor Andrade who asserted that RAOHE and TULAS were confined to setting the thresholds within which hydrocarbon activities could be undertaken in Ecuador and, in that connection, while administrative sanctions may be imposed on the operators for illicit hydrocarbon activities, they did not purport to define the notion of environmental harm for the purpose of the constitutional requirement to remedy any and all environmental harm.⁴³²

192.

Ecuador contended that Perenco's position in effect contradicted the reference to "full restoration" in Article 396 of the Constitution and Clause 5.1.20.10 of the Block 7 Participation Contract, and to background values and the requirement to restore contaminated soil to its "prior condition" in Article 4.1 of TULAS.⁴³³ Furthermore:

"The fact that an activity is lawfully conducted does not mean, in environmental law, that the harm caused need not be repaired. That is precisely the point of a regime of strict liability, to guarantee that the harm is always repaired no matter whether the activity that caused that harm was lawful or not."⁴³⁴

193.

Ecuador also referred to the preparatory material of the 2008 Constitution in support of its position; for example, the view of one assembly member, Mr. Sergio Chacón Padilla, in a minority report on the "rights of nature", in which he states that "instead of speaking of reparation we should use the notion of restoration or re-composition, given that reparation could be understood in the simple sense of ‘compensating', while the re-composition or restoration would imply bringing things back to their original state or place, without prejudice to the obligation to compensate for the harms or damages caused to those affected directly."⁴³⁵ Ecuador submitted that to accept Perenco's position would be to "render part of Ecuadorian regulations obsolete."⁴³⁶

194.

In short, Ecuador's position was that Ecuadorian administrative law contemplated a separation between the notions of reparable harm and unlawful conduct. This meant that, "with regards to TULAS and RAOHE, an operator that complies entirely with its obligations under both regulations, including the obligation to abide by the permissible limits, will nevertheless be obliged to repair the contamination it has caused."⁴³⁷ Recoverable environmental harm was "any significant negative impact, particularly if it affects the functioning of the ecosystem or the renewal of its resources."⁴³⁸ The burden was on Perenco to demonstrate that the damage suffered by the environment in Blocks 7 and 21 was "insignificant."⁴³⁹

195.

In the alternative, Ecuador submitted that even considering the regulatory thresholds in RAOHE and TULAS, 92% of the areas IEMS tested were polluted with hydrocarbons and/or heavy metals, and 100% of the 18 sites tested for water pollution similarly yielded concentrations of contaminants above the regulatory values.⁴⁴⁰

196.

In reply to this submission, Perenco argued that Ecuador had "failed cogently to rebut the point that not every impact on the environment gives rise to recoverable environmental harm under Ecuadorian law."⁴⁴¹ First, when invoking Perenco's contractual obligations Ecuador omitted the reference in the same provisions to the requirement that the Contractor should carry out its obligations in accordance with RAOHE or more generally, the applicable "legislation in effect in Ecuador at the time that such clean-up, reforestation, or abandonment is carried out."⁴⁴²

197.

Perenco submitted that, in any event, these obligations were concerned with decommissioning at the end of the useful life of a well or field and did not apply to ongoing operations.⁴⁴³ Blocks 7 and 21, however, were "decades away from being decommissioned, as evidenced by Ecuador's current expansion."⁴⁴⁴ Therefore, these obligations could not be invoked by Ecuador.⁴⁴⁵

198.

Second, Perenco did not deny that the definition of environmental law in the Environmental Management Law was relevant; its position was rather that the permissible limits in RAOHE and TULAS implemented the "significant harm" standard.⁴⁴⁶

199.

Ecuador replied that this could not be the relationship between the definition and RAOHE/TULAS, because the "two [would then be] essentially contradictory", explaining that TULAS and RAOHE "seek to impose limits on economic activities that are potentially dangerous to the environment, whereas the ‘significant damage' standard define[d] recoverable environmental harm."⁴⁴⁷ The ‘significant harm' standard [was] perfectly operational without the need for numerical standards", the Environmental Management Law's definition providing "two operational criteria, by qualifying [significant harm] as all impact that ‘affect[ed] the functioning of the ecosystem or renewal of its resources'."⁴⁴⁸

200.

Perenco countered that this ignored the distinction that the Environmental Management Law must have intended when it stipulated two separate definitions for "environmental harm" and "environmental impact."⁴⁴⁹ It followed that "‘environmental harm' [was] not a mere impact above background values, but [rather] an impact that [was] a ‘significant' loss, such that it ‘affects the functioning of the ecosystem or renewal of its resources'."⁴⁵⁰ The permissible limits in RAOHE and TULAS must be a reflection of this distinction in the Law and if their purpose was to prevent, using Ecuador's words, "inasmuch as possible that any such harm [to the environment] should occur" then "an impact that is permitted [by them] cannot constitute harm."⁴⁵¹ RAOHE and TULAS provided operators with legal certainty about what kind of ‘impacts' were ‘significant' and triggered the requirement to remediate.⁴⁵² In fact, Ecuador's reliance on the Environmental Management Law exposed a flaw in its ‘background values' case: it was premised on proving a "mere ‘alteration of the environment'" which the Environmental Management Law classified as an "impact" rather than the indicator of "environmental harm".⁴⁵³

201.

Ecuador also relied on Professor Crespo's evidence to support the basis of its "background values" approach. Professor Crespo's testimony was that RAOHE and TULAS's criteria for remediation must to be understood in light of constitutional provisions, namely, the obligation to "fully restore" the environment in the event of environmental damage required by Article 396, paragraph 2, and the reference to "complete reparation" in Article 397 which concerned duties of the State in the event of environmental damage in proceeding against the operator(s) of the harmful activity.⁴⁵⁴ His evidence was that "[b]ackground values are the ones that are - that allow for the comprehensive reparation; that is to say, for the reparation - for the remediation back to the original level. That is the way that we should understand background values; that is to say, as stated in the comprehensive remediation."⁴⁵⁵

202.

Perenco's expert, Dr. Bedón, expressed a different view, stating that there were three kinds of ways in which human activity could have a negative impact on the environment: (i) through "tolerable impacts" (activities carried out in the normal course of affairs without the need for an environmental permit and unregulated by the State), (ii) through "authorized impacts" (activities carried out in compliance with an environmental permit or license and within permissible limits) and (iii) through "environmental damage or harm".⁴⁵⁶ In his opinion, Professor Crespo "fail[ed] to distinguish [between] these concepts, and erroneously treated them as equivalent categories."⁴⁵⁷

203.

Dr. Bedón considered that Professor Crespo erred in arriving at his conclusion because in citing Articles 396 and 397 of the 2008 Constitution he was suggesting "without any grounds that environmental impact and environmental damage [were] equivalent terms."⁴⁵⁸ In Dr. Bedón's view, Articles 396 and 397 referred to the duty of the State to adopt legislation to address "negative environmental impacts", not just any impact on the environment, and established a strict liability regime for environmental matters and reiterated the duty of the State to take action to safeguard human health and restore ecosystems.⁴⁵⁹ However, there was no reference to the necessity of adopting background values in substitution of regulatory criteria such as that provided by RAOHE and TULAS.

204.

Dr. Bedón referred in this regard to an academic authority cited by Professor Crespo, that of the author Mario Peña Chacón, in a work titled Daño, responsabilidad y reparación ambiental ["Environmental Damage, Liability and Reparation"] which distinguished between "legally relevant environmental damage" and "acts or omissions [that] are considered legal":

The legality or illegality of conduct that damages the environment depends on its conformity or nonconformity with the legal order. Acts or omissions are considered legal if they accord with the body of laws in force and, thus, it has the approval or permit of the relevant authorities.

Legally relevant environmental damage is that damage that falls within the category of intolerable, thus it is not every type of damage that interests environmental law.⁴⁶⁰

205.

Perenco further relied on the work of Andrés Betancor, "one of only two academic sources quoted in [Ecuador's] Constituent Assembly['s] report on strict liability for the 2008 Constitution", and who in a text entitled Instituciones de Derecho Ambiental [Institutions for Environmental Law] opined:

If the licit act causes damages in accordance with the Law...there would be no sanction or reparation.The legal problem refers to when the damage is licit: licit damage is damage which is not covered by any legal duty to repair, because the law tolerates or allows it to because it is not significant or important, according to the social value legally formalized...Consequently the acts covered by the standards and the authorizations, and that cause damages [sic] do not constitute an environmental violation and there is no duty to repair them.⁴⁶¹

206.

Replying on Dr. Bedón's evidence, Perenco submitted that the "very purpose" of RAOHE and TULAS was to "define what constitute[d] impermissible harm to the environment under Ecuadorian l aw."⁴⁶² The opening lines of Table 6 of RAOHE confirmed this in providing that RAOHE established "[p]ermissible limits for the identification and remediation of contaminated soils in all phases of the hydrocarbon industry."⁴⁶³ These limits were constructed with the specific purpose "of encouraging sustainable development."⁴⁶⁴ "By employing specific regulatory limits instead of background values, states such as Ecuador [made] it possible for industry to operate within clearly defined parameters while still preserving human health and the environment."⁴⁶⁵

207.

Perenco argued that this did not change after the making of the 2008 Constitution and the introduction of a strict liability regime for environmental liability.⁴⁶⁶ Article 396 of the Constitution provides that the obligation to restore the ecosystem is triggered by evidence of environmental "harm", which in turn remains defined by Ecuador's environmental regulations relating to permissible limits for contaminant and remediation criteria, namely, RAOHE and (to the extent that RAOHE was inapplicable) TULAS.⁴⁶⁷

208.

Perenco submitted that this had been accepted by IEMS as far as its evaluative criteria in the Burlington and the City Oriente proceedings were concerned.⁴⁶⁸ It contended that IEMS then changed its position in this case without basis⁴⁶⁹ and that "Ecuador fail[ed] to provide even one example in which an Ecuadorian court, legal authority, or scholar ha[d] adopted more restrictive ‘background values' as the test for environmental harm in place of the regulatory criteria."⁴⁷⁰ Furthermore, the audits, impact studies and environmental management plans of both the Consortium and Petroamazonas consistently tested for compliance with permissible limits rather than background values.⁴⁷¹

209.

Also central to Ecuador's case that background values must be applied in order to establish the full extent of environmental remediation was its reliance on the 2008 Constitution's recognition that Nature (" pacha mama ") was itself the subject of rights as well as the codification of the principles of sustainable development and the right of the human being to live in an environment free from contamination.⁴⁷²

210.

Perenco responded that these principles have been part of Ecuadorian law since the 1970s, particularly in the 1984 and 1998 Constitutions, and during this time RAOHE and TULAS were promulgated and applied. In this regard, at the hearing, counsel for Perenco took Professor Crespo through a chronological review of various instruments applicable in Ecuador in the 1970s, 80s and 90s, to demonstrate that while strict liability became a feature of the 2008 Constitution, many of the environmental principles recognised in the Constitution, from which RAOHE and TULAS derived their content and approach, were in fact carried over from Ecuadorian legal rules that pre-dated the 2008 Constitution.⁴⁷³

211.

For example, Professor Crespo acknowledged that the Hydrocarbons Law, promulgated in 1971, manifested the "obligation of sustainability for operators", that "Ecuador [had recognised] a constitutional duty for the State to protect the environment since 1983",⁴⁷⁴ that the "1978 Constitution was amended in 1983 to recognize a right of the human being to live in an environment free of contamination",⁴⁷⁵ and this carried over to the 1998 Constitution (Article 86) and then to the 2008 Constitution.⁴⁷⁶ These were not novel principles that in turn caused a fundamental shift in the scope of environmental harm.

212.

Thus, Perenco submitted that the "background values" approach had "no basis in law or accepted scientific practice."⁴⁷⁷ It would require "operators to explore and produce oil without making any impact on the environment whatsoever", and would render "obsolete" Ecuador's "detailed regulatory regime governing permissible impacts."⁴⁷⁸ It would require oilfields to be remediated to a "pristine state of nature, as they existed before any human activity ever took place on the land in question, even when the fields continue to be in operation ", a reference to the fact that since July 2009 when the Consortium suspended operations, Ecuador has sustained and in some instances expanded oil production in the Blocks.⁴⁷⁹

213.

Perenco contended that the real reason why background values had been employed in this case was the "obvious tactical purpose" of inflating the remediation costs by over US$1.3 billion, this accounting for " more than half " of Ecuador's claim.⁴⁸⁰

214.

Perenco also challenged Ecuador's alternative case, based on RAOHE and TULAS. In its view, Ecuador "misapplie[d] these regulations by mischaracterizing areas that are almost entirely ‘industrial' or ‘agricultural zones' - with permissible threshold limits suitable to such areas - as more demanding ‘sensitive ecosystems'."⁴⁸¹ The "vast majority" of the areas in Blocks 7 and 21 are not "sensitive ecosystems".⁴⁸² It submitted that "[s]uch a mistaken characterization defies the actual use of the land that is plainly apparent to any observer - areas that with Ecuador's prior approval include wells, pits, flares, tanks, cement berms, and roads" and stood in stark contrast to "Ecuador's own longstanding practice prior to the onset of the present dispute...[i]n countless environmental impact studies, requests for approval, environmental audits and other documents...that the areas in the Blocks where the Consortium's operations took place are industrial zones."⁴⁸³

215.

Mr. Wilfrido Saltos, Perenco's Quality, Safety, Health and Environment supervisor for Blocks 7 and 21, testified that in his experience, the Consortium and Ecuador routinely applied the industrial and agricultural land-use criteria in Blocks 7 and 21, particularly with respect to well pads and CPFs that were consistently characterised as being subject to industrial soils criteria.⁴⁸⁴ Much of the land surrounding Blocks 7 and 21 platforms and facilities are cultivated with African palm trees, plantains and cocoa trees.⁴⁸⁵ Mr. Saltos affirmed that areas bordering Coca CPF, Coca 6, Coca 8, Gacela 2, Gacela CPF, Lobo 1, Lobo 3 and Oso 9, among others, were used for agricultural activities and should be subject to agricultural land-use criteria rather than "sensitive ecosystems" criteria.⁴⁸⁶

216.

Perenco asserted that two-thirds of the samples tested by IEMS (and included in its report submitted with Ecuador's Counter-Memorial) would have been found compliant had the proper land use criteria been applied.⁴⁸⁷ This accounted for over US$885 million of Ecuador's US$2.4 billion claim.⁴⁸⁸ (This will be examined in further detail below in the discussion of the expert evidence presented by GSI and IEMS.)

217.

The Parties' experts referred to a number of key concepts when defining an impact on the environment. The most important such concept is the notion of a "regulatory exceedance." This occurs "when the concentration of a particular contaminant in a given sample of soil or water exceed[ed] the legal limit."⁴⁸⁹

218.

Turning to the experts' evaluation of the environmental conditions of the Blocks, Ecuador submitted that IEMS' evidence demonstrated that the contamination left behind in the Blocks posed a health risk and has affected, and is continuing to affect, "the functioning of the ecosystem and the renewability of natural resources", a phrase taken from the definition of "environmental harm" in the Environmental Management Law and relied upon by Ecuador as triggering Perenco's obligation to "fully restore" the Blocks in accordance with Article 396 of Ecuador's Constitution.⁴⁹⁰

219.

IEMS undertook a series of site investigation and sampling programmes in Blocks 7 and 21.⁴⁹¹ It conducted four rounds of on-field investigation, collecting and testing soil and groundwater samples for hydrocarbon compounds and heavy metals.⁴⁹² In total, IEMS took some 2,786 soil samples and 92 groundwater samples from Blocks 7 and 21.⁴⁹³

220.

Ecuador contended that applying Base Values to the results of the samples tested was the "only methodology that accord[ed] with the strict liability regime of the 2008 Ecuadorian Constitution.and the mandate to fully restore the ecosystems."⁴⁹⁴ It submitted that both RAOHE and TULAS "expressly acknowledge[d]" Base Values, and in some cases that this exceeded the regulatory thresholds.⁴⁹⁵ Thus, where the level of an oilfield-related element revealed by the sample exceeded the values at which it naturally appeared, as discerned from samples taken in areas of the Blocks untouched by hydrocarbon activities (the "Base Values" case), IEMS concluded there was soil contamination that required remediation.⁴⁹⁶ IEMS also prepared an alternative case, its "regulatory exceedances" case, in which it measured its sampling results against the standards stipulated by RAOHE, and where applicable, TULAS.⁴⁹⁷

221.

IEMS asserted that it had found significant volumes of contaminated soil in the Blocks, around 1,867,835 m3 above background levels or 691,444 m3 above regulatory criteria and ground water pollution by hydrocarbons and/or heavy metals in all locations that it tested.⁴⁹⁸ IEMS' and Ecuador's criticism of the analysis performed by Perenco's expert, GSI, was that they did not undertake a proper analysis of the environmental condition of the Blocks in accordance with the principles of the 2008 Constitution because they failed to apply Base Values, whether in Perenco's 2008 audits or in the studies GSI prepared for the purpose of this arbitration.⁴⁹⁹ In the alternative, Ecuador submitted that if the regulatory criteria of RAOHE applied, GSI had failed to apply the correct criteria when investigating the Blocks.⁵⁰⁰ In its view, the stricter standards prescribed by RAOHE for a "sensitive ecosystem" ought to have been used, rather than the less stringent industrial and agricultural area standards."⁵⁰¹

222.

IEMS submitted its first expert report in December of 2011.⁵⁰² Its stated objective was to "determine whether the operations of the Block 7 and Block 21 Consortium ha[d] resulted in soil and groundwater pollution in its respective areas of operation."⁵⁰³ It asserted that its methodology was based on the "general guidelines of the standards of the American Society of Testing Materials."⁵⁰⁴

223.

Its study was undertaken in three stages: a preliminary assessment of the blocks to identify sites that were likely to evince contamination (otherwise referred to as "Recognized Environmental Conditions" or " RECs "), testing of samples taken from the sites and a further examination of the blocks and information that it was provided in order to identify other potentially contaminated sites.⁵⁰⁵ In its first stage, IEMS identified 29 sites, and in its second stage confirmed that 27 of the 29 sites were contaminated by hydrocarbons, heavy metals or a combination of the two.⁵⁰⁶ These sites were located within the Gacela, Lobo, Coca, Payamino, Oso, Mono, Jaguar and Cóndor fields of Block 7, and the Yuralpa, Waponi, Sumino and Nemoca fields of Block 21.⁵⁰⁷

224.

In determining whether the sites were contaminated, IEMS advocated for the application of Base Values. It asserted that in "its expert opinion...the criteria provided for in Ecuadorian legislation... should not, as a rule, be used to determine the environmental liability of operators of hydrocarbon activities."⁵⁰⁸ It reasoned that since everyone possessed the right to an "environment in optimum conditions for human development", any release of contaminants that caused an "unacceptable risk to the health of the surrounding population must be mitigated."⁵⁰⁹ IEMS concluded that the regulatory limits should not be applied because they " [did] not appear to be based on the protection of the health of the ecosystem or of the people who live in the impacted areas. "⁵¹⁰ For this purpose, IEMS collected and tested 12 soil samples in areas with no industrial activity in Blocks 7 and 21 "in order to determine the concentrations of contaminants naturally existing in the environment."⁵¹¹ These formed its Base Values.⁵¹² It applied these values to the classification of any impact caused by heavy metals (nickel, cadmium, lead, barium and vanadium).⁵¹³ Where heavy metal concentration was above the "analytical detection limit" but below the base value, it was classified a "low impact".⁵¹⁴ IEMS did not apply this analysis to the classification of Total Petroleum Hydrocarbons because it considered that "in view of the characteristics of the area of study, this element is not expected to naturally exist in the soil".⁵¹⁵ It concluded that a Base Value of 0 mg/kg would apply.⁵¹⁶ IEMS also included in its analysis parameters that were not set by RAOHE; namely, pH (an indication of acidity or alkalinity), electrical conductivity, barium and vanadium.⁵¹⁷

225.

IEMS also prepared an alternative case based on the regulatory criteria that it considered applied: RAOHE Annex 2 of Table 6 (TPH, polycyclic aromatic hydrocarbons, cadmium, nickel and lead) and TULAS Book 6, Annex 2, Table 2 (barium and vanadium).⁵¹⁸ It stated that "due to the fragility of the environment and the importance of preserving environmental resources in the area, [it] decided, based on its expert criteria, to apply the permissible limits for sensitive ecosystems" in Table 6, Annex 2, of RAOHE...⁵¹⁹

226.

IEMS reported that "over 93% of the areas [it] tested...yielded concentrations of hydrocarbons and/or heavy metal contaminants above" Base Values, this translating to 96,908 m3 of soil requiring remediation.⁵²⁰ In its alternative regulatory thresholds case, IEMS reported that some 89% of the areas tested exceeded the permitted exceedances standards, this translating to 63,169 m3 of soil requiring remediation.⁵²¹ In determining the quantity of soil requiring remediation, IEMS utilised ArcView GIS 10.0 geostatistical modeling software.⁵²²

227.

IEMS also collected 61 groundwater samples from seven sites in the Blocks⁵²³ and reported that 50 samples evinced contamination by heavy metals (such as zinc, barium, copper, chrome, nickel) in concentrations exceeding the regulatory limits.⁵²⁴ (In testing the groundwater, IEMS did not use Base Values because that would have "required complex, lengthy and costly hydrological studies of Blocks 7 and 21."⁵²⁵ Instead, as noted in its second report, it compared its sampling results to the values set forth in Table 5, Annex 1, Book VI, of TULAS.⁵²⁶)

228.

IEMS informed the Tribunal in its first report that since its investigation was ongoing it would present its overall estimation of remediation costs at a later date.⁵²⁷ Its preliminary estimate was US$ 405 million to remediate contaminated soil (Base Values) or US$ 243 million (regulatory limits), and a range of US$ 12 million to US$ 79 million for groundwater remediation.⁵²⁸

229.

As noted above, the third stage of IEMS' investigation was identifying additional potentially contaminated sites based on recognised environmental conditions ("RECs"). In its first report IEMS reported that this stage was ongoing, but it had identified 44 more sites in addition to the 27 it had already concluded exhibited contamination that merited an assessment.⁵²⁹ These sites were located in the Coca, Gacela, Jaguar, Lobo, Oso, Mono, Payamino and Punino fields in Block 7, and the Yuralpa field in Block 21.⁵³⁰

230.

These sites were the subject of IEMS' second report, which was produced in April 2012 and stood as a more comprehensive evaluation of the information it had collected from the 74 operational sites in Blocks 7 and 21...⁵³¹ The results reflected "more than 2,900 soil and underground water samples [collected] at different depths" by IEMS.⁵³² IEMS reported that it confirmed soil contamination in 70 out of the 74 sites studied (94% of the sites investigated).⁵³³ The sites were located in the Coca, Gacela, Cóndor Norte, Gacela, Jaguar, Lobo, Mono, Oso, Payamimo, Punino, Yuralpa, Chonta, Dayuno, Nemoca and Sumino fields.⁵³⁴ The volume of soil that IEMS quantified as requiring remediation was 1,086,883 m3 (Base Values) or 1,012,245 m3 (regulatory limits).⁵³⁵ As for groundwater contamination, it reported that 100% of the 18 sites it had tested yielded concentrations above the thresholds set by Ecuadorian regulations: in the Payamino, Coca, Oso, Gacela, Jaguar and Mono fields of Block 7 and the Yuralpa, Dayuno and Waponi fields of Block 21...⁵³⁶ It identified a further 52 sites that it intended to investigate for possible groundwater contamination.⁵³⁷

231.

In quantifying the volume of soil to be remediated, IEMS utilised ArcView GIS 10.0 software.⁵³⁸ IEMS drew a 10-meter radius around each sample ("the buffer") and defined the boundary of the area ("the bounds") by connecting the outer limits of the outermost buffers within a pl atform...⁵³⁹ It then added calculations for the volume to be estimated, modeling 6 different layers of depth (from 0 to 1 meter deep, 1.01-2 meters and so on).⁵⁴⁰ It assessed each layer separately, determining whether it contained contaminated soil on the basis of whether it contained at least 3 samples displaying contamination.⁵⁴¹ If it contained less than 3 samples, "these samples were not considered in the quantification model."⁵⁴² IEMS then divided the area within each boundary into cells of 1 square meter each, categorised them (as either noncontaminated, contaminated with concentrations above Base Values but below the regulatory thresholds, or contaminated with concentrations above regulatory levels), and then applied the ‘inverse distance weighed" method of interpolation within ArcView GIS...⁵⁴³ This method estimated cell values "by averaging the values of sample data points in the area surrounding each cell", meaning that the closer a sampling point was to the centre of the cell being estimated, the more influence or weight it had in the average.⁵⁴⁴

232.

In total, IEMS determined that its estimated cost of remediation amounted to US$ 2,200,480.958 (base values case) or US$ 895,553,066 (regulatory case) for soil remediation, adding to this water remediation at a range of US$ 41,277,600 (best case scenario) to US$ 265,601,700 (worst case scenario).⁵⁴⁵ These costs were premised on ex-situ remediation⁵⁴⁶ (with the exception of the best case scenario method for groundwater remediation), based on "the treatment costs suggested by the Federal Remediation Technologies Roundtable (FRTR) and other international bibliographical sources."⁵⁴⁷ Its breakdown of estimated cost according to the kind of contamination was as follows:

(i) Soil contaminated with petroleum hydrocarbons: US $280 per cubic metre of soil. This is "between the ranges of costs for the remediation of similar contaminated soils by treatments of the same type that IEMS ha[d] recently used."⁵⁴⁸

(ii) Soils contaminated with heavy metals: US$ 320 per cubic metre of soil. This was arrived at on the "basis of the works conducted by IEMS and its commercial partners in various projects in Latin America (particularly in Mexico) during the last 5 years."⁵⁴⁹

(iii) Soil contaminated with petroleum hydrocarbons and heavy metals: US$ 240 per cubic metre of soil. This was based "partially" "on information provided orally by providers of remediation work in the area."⁵⁵⁰

(iv) Contamination of groundwater: The best and worst case scenario related to two different methods for the treatment of underground water, using cost estimates taken from studies conducted by the Environmental Protection Agency of the United States of America.⁵⁵¹ The worst case scenario was based on the Pump and Treat System, which consists of extracting contaminated underground water for ex situ treatment, and quantified at an average yearly cost of US$ 9,870,000.⁵⁵² The best case scenario was based on the Permeable Reactive Interceptive Barriers method, an in-situ treatment requiring, as its name suggests, installation below the surface of a barrier to remove contaminants as water flows through it.⁵⁵³ This method cost an estimated US$ 1,680,000 per year.⁵⁵⁴

233.

Added to this was an "environmental monitoring cost" of US$ 500, a 30% contingency factor for soil remediation, and for groundwater remediation, a "dismantling cost.and restoration cost" of 5% to 15% of the estimated cost and a similar contingency factor of 30%.⁵⁵⁵

234.

In response, Perenco's expert, GSI, contended that Ecuador's claim of widespread environmental damage was completely unfounded and inconsistent with objective contemporaneous evidence.⁵⁵⁶ In its first report of 20 September 2012, GSI noted that it had been tasked to "provide an objective evaluation of the work conducted by IEMS and, at the same time, achieve a comprehensive assessment of current environmental conditions for each of the 74 oilfield facilities investigated by IEMS."⁵⁵⁷

235.

GSI explained that its investigation began with a review of IEMS' first and second reports in order to "identify locations where soil impacts may be present based on applicable Ecuador criteria and to characterize apparent data gaps, errors and deficiencies" in IEMS' work.⁵⁵⁸ This was followed by a "detailed visual and physical inspection" of 58 facilities, this including "54 of the 55 facilities for which IEMS had made claims regarding soil remediation costs per their ‘regulatory' criteria (i.e., all 55 sites except the Dayuno well site, due to access restrictions)."⁵⁵⁹ GSI used this information for its sampling and testing campaign, undertaking field investigations in the Blocks from March through to June 2012, collecting soil samples at 24 sites and groundwater samples at 16 sites.⁵⁶⁰ GSI analysed sampling results both from its own and IEMS' fieldwork, amounting to a total of 3,194 soil samples and 113 groundwater samples.⁵⁶¹ It screened IEMS' test results in the first instance by using the "primary indicators of oilfield m ateri al s"⁵⁶²: TPH (or Total Petroleum Hydrocarbons), barium, electrical conductance or chloride.⁵⁶³ It used the sampling results it considered relevant to delineate those areas where "chemicals related to oilfield activities are present in soil or groundwater at concentrations in excess of applicable Ecuador regulatory criteria."⁵⁶⁴

236.

GSI concluded there was "no evidence of widespread adverse environmental or ecological effects in the Blocks", and what environmental impact there was in the Blocks was minimal and in volumes and intensity that posed no danger to human health or the environment.⁵⁶⁵ In this connection, it asserted that Ecuadorian regulatory criteria were "more stringent than internationally accepted health-based screening levels."⁵⁶⁶ It reported that 53 of the 74 facilities investigated by IEMS were in fact "free of environmental impacts, as defined based upon applicable regulations and health-based screening levels."⁵⁶⁷ In the remaining sites, GSI discovered some incidence of concentrations of oilfield related chemicals in excess of regulatory limits: "[f]ive principal facilities (Payamino 2-8, Payamino 1, Mono CPF, Gacela 1-8 and Coca 18-19) present[ed] impacted soil volumes of 1000 cubic meters (m3) or more, while smaller soil volumes are present at an additional 11 sites, corresponding to a total soil volume of approximately 33,415 m3 for all sites combined."⁵⁶⁸ Its preliminary estimate for the cost of remediating the soil at these sites was US$ 9.1 million,⁵⁶⁹ based on "the actual costs for engineering, labor, equipment, and related remediation services in Ecuador" and reflecting onsite containment and remediation procedures.⁵⁷⁰

237.

GSI qualified this estimate in asserting that remediation may not be necessary because "no risk is posed to human health at any of these locations and the majority of the soil impacts (95% of cost) are related to causes that pre-date current regulatory standards, as well as Consortium operations."⁵⁷¹ GSI further submitted that approximately 76% of the total soil remediation costs were related to events that occurred "prior to October 1990."⁵⁷² In addition, GSI reported that it had found no groundwater impacts in the 18 sites identified by IEMS, and asserted that IEMS' findings resulted from "incorrect sampling methods."⁵⁷³

238.

GSI employed a delineation approach to estimate the volume of soil that required remediation.⁵⁷⁴ It explained that this method included linear interpolation amongst sampling points, rather than applying the "inverse distance weighted" method as IEMS did, and all the while accounted for the surrounding topography and site features.⁵⁷⁵ This method meant "starting with any sample point that show[ed] an exceedance and then taking more samples surrounding that point, continuing to step outwards until clean soil [was] found."⁵⁷⁶ GSI said that it performed this for each of the 1 metre depths that IEMS considered and which GSI identified depicted sampling results that merited an assessment.⁵⁷⁷ GSI submitted that in contrast to IEMS' "hypothetical projections" in its inverse distance weighted interpolation, its method was based on "abundant actual data", making "use of all the samples - including all of IEMS' own data - as well as real topographic and other features particular to each site."⁵⁷⁸

239.

A significant portion of GSI's report was devoted to its review of IEMS' expert evidence in its first and second reports.⁵⁷⁹ GSI asserted that the methodology that IEMS had adopted to locate, investigate and model samples in the Blocks were marked by "pervasive and systematic flaws."⁵⁸⁰

240.

First, GSI asserted that its use of "indicator parameters" was to be preferred to the approach taken by IEMS.⁵⁸¹ It identified three primary sources of potential environmental effects in the oil production process.⁵⁸² These were drilling muds, crude oil and formation water.⁵⁸³

241.

Drilling muds were used to lubricate and loosen the earth through which the drill bit must pass, and once that has been achieved are pulled back up to the surface along with chunks of soil, crushed rock and small traces of crud e...⁵⁸⁴ GSI observed that in the early 1990s, the then-practice in Ecuador of discharging the mud cuttings into the surrounding environment was suspended, and operators were required to contain the substances in specially prepared "mud pits" in order for them to be re-vegetated.⁵⁸⁵ Drilling mud can be water-based (generally consisting of water, bentonite and barite) or oil-based (diesel).⁵⁸⁶ Water-based muds, which are commonly used in Ecuador, can contain large quantities of barium sulphate or barite.⁵⁸⁷ Thus, it is natural to find quantities of barium in mud pits.⁵⁸⁸

242.

Turning to the second possible source of contamination, when a well is initially drilled, it produces "test crude", which is crude used to determine the well's production capacity and the quality of the oil.⁵⁸⁹ In GSI's opinion, the only relevant measurement for detecting the presence of test crude was to test for "Total Petroleum Hydrocarbons" or " TPH " in the surrounding soil and groundwater.⁵⁹⁰ ("TPH" refers to hydrocarbon compounds derived from petroleum.⁵⁹¹):

As a basis for design of our field sampling program, the IEMS soil test results were carefully reviewed to identify locations where soil impacts are present or absent, based upon consideration of applicable Ecuador regulatory criteria. For characterization of oilfield-related soil impacts, the IEMS soil test results for the primary indicators of oilfield materials (i.e., barium for drilling mud; TPH for crude oil; soil electrical conductance for produced water) were compared to Ecuador regulatory criteria for the relevant land use. The presence of other chemicals in the soil, in the absence of a primary indicator (e.g., nickel in the absence of elevated barium or TPH), cannot be caused by an oilfield material and was therefore not retained for further investigation... Similarly, soil test results from within closed mud/ cuttings pits were not considered evidence of soil impacts, as these closed pits are specifically authorized and required under applicable Ecuador regulations (Acuerdo 621, Decree 2982, and RAOH Decree 1215) and the government-approved Environmental Management Plans (EMPs) for oilfield operations in the Consortium area.

Evaluation of the full IEMS database of soil tests results provides the following information regarding the nature of potential soil impacts among the 1243 soil sample locations collected outside of closed mud/ cuttings pits (excluding the 192 clean soil samples used by IEMS for characterization of background soil conditions):

• No Evidence of Soil Impact by Oilfield Materials : 91% of soil sample locations

• Apparent Drilling Mud Impact : 6% of soil sample locations (elevated barium, outside of proper mud/ cuttings pit)

• Apparent Crude Oil Impact : 4% of soil sample locations (elevated TPH)

• Apparent Drilling Mud and Crude Oil Impact at Same Location : 0.7% of soil sample locations

• Apparent Produced Water Salinity Impact : 0.1°% of soil sample locations (elevated electrical conductance)

These data show that, at the vast majority of the IEMS soil sample locations (91%), there is no evidence of impact by oilfield materials."⁵⁹²

243.

In arguing that the only relevant indicators of contamination from oilfield operations was TPH, barium (for drilling mud) and soil electrical conductance (for produced water),⁵⁹³ GSI differed from IEMS, which considered that the presence of heavy metals in the soil could also result from drilling operations.⁵⁹⁴ GSI disagreed with IEMS on this, arguing that crude oil was not a significant source of heavy metals and, asserting that in fact "the crude produced in Blocks 7 and 21 contain[ed] far less heavy metal content than the area's soils."⁵⁹⁵ It asserted that IEMS' allegations of contamination by heavy metals could not be correct because none of these metals other than barium exist in any oilfield materials (crude, produced water, or drilling muds) in concentrations above the naturally occurring levels found in local soils.⁵⁹⁶

244.

GSI noted further that there were other types of naturally occurring hydrocarbons in the environment that were unrelated to petroleum exploitation.⁵⁹⁷ A certain level of TPH may be naturally present in the environment due to the presence of decaying carbon, such as rotting plant matter.⁵⁹⁸

245.

Thirdly, a fluid known as "formation water" or "production water" is produced by wells throughout their operational lives.⁵⁹⁹ The presence of formation water in soil is marked by high concentrations of chloride and high electrical conductivity.⁶⁰⁰ Formation water was at one time discharged into the environment, but in the late 1990s, operators began re-injecting it into wells.⁶⁰¹ GSI explained that Oryx began using this method "near the end of its operatorship of Block 7 in 1997" and the Consortium "subsequently implemented a comprehensive reinjection program, repurposing or drilling multiple wells as injection wells."⁶⁰² Thus, throughout Perenco's operation of the blocks, formation water was not being discharged but rather was being reinjected into the wells. In any event, GSI asserted that the formation water produced in Blocks 7 and 21 did not contain significant amounts of heavy metals.⁶⁰³

246.

Aside from the alleged conceptual flaw in IEMS' even employing a "background values" case, GSI challenged IEMS' method for calculating the "background values", stating "because [it] calculates these supposed ‘background values' as the average level at which the particular compounds occur in soil samples taken from unaffected areas, Ecuador is effectively contending that even some of the admittedly unaffected natural soil is actually ‘contaminated' and requires remediation simply because it contains ‘above average' levels of naturally occurring compounds."⁶⁰⁴ Instead of using the upper range of the observed sampling results from its "clean soil samples", IEMS had calculated the 99% upper confidence limit which "represents a small margin of uncertainty added onto the mean concentration, resulting in an adjusted mean concentration that is slightly above the average, but far below the upper range of concentrations observed in clean samples."⁶⁰⁵ As a result, IEMS "erroneously declared" 80% of the "clean soils at all sites to be ‘contaminated.'"⁶⁰⁶

247.

GSI also asserted that IEMS mischaracterised areas that were "almost entirely ‘industrial' or ‘agricultural' zones - with permissible threshold limits suitable to such areas - as more demanding ‘sensitive ecosystems'."⁶⁰⁷ "Approximately two-thirds of the samples that Ecuador claimed show[ed] ‘contamination' under these incorrect criteria (‘sensitive ecosystems') were in fact fully compliant under proper land use criteria (‘industrial' or ‘agricultural')", this accounting for over US$885 million of Ecuador's US$2.4 billion claim.⁶⁰⁸

248.

As previously noted, RAOHE Table 6 and TULAS Table 3 present multiple sets of criteria, and the permissible limits for industrial land use are more permissive than those for agricultural land use, and in turn for ‘sensitive ecosystems'. Perenco contended that the land in and around the oilfield sites in Blocks 7 and 21 were either used for an industrial or an agricultural purpose.⁶⁰⁹ This was said to be consistent with RAOHE, Table 6, which pointed to the "posterior use that will be given to the remediated soil", and referred specifically to the Heritage of State Natural Areas (Patrimonio de Áreas Naturales del Estado), and Ecuador's own practice.⁶¹⁰ Examples of Ecuadorian authorities' having accepted the application of industrial land-use criteria in Blocks 7 and 21 were to be found in the January 2003 Remediation Plan relating to the Payamino Sanitary Landfill, Payamino 22, Payamino CPF, Coca CPF and Jaguar CPF approved by the Ministry,⁶¹¹ the report of a clean-up of a spill at Payamino 19 in June 2009,⁶¹² the Consortium's Environmental Impact Study for the construction of the Oso A and Oso B platforms and the Yuralpa Norte platform in April and October 2006,⁶¹³ and in the environmental impact studies commissioned by Ecuador in 2010...⁶¹⁴

249.

Similarly, examples of Ecuadorian authorities' having accepted the application of agricultural land-use criteria to the areas surrounding platforms in Blocks 7 and 21 were in the Ministry-approved remediation plan for the May 2007 spill from the Oso 2 flow line,⁶¹⁵ the January 2008 Ministry-approved remediation plan for a spill in the Gacela-Payamino flow line in October 2007,⁶¹⁶ and in the environmental impact studies commissioned by Ecuador in 2010.⁶¹⁷

250.

Perenco contended moreover that IEMS had conceded in this arbitration that the areas surrounding Coca 6, Coca 8, Lobo 3, Lobo 1, Oso 9, Mono CPF, and Payamino CPF were used for agriculture.⁶¹⁸ GSI submitted that its assessment of the land-use surrounding each platform revealed that "95% of the areas surrounding the inspected platforms constitute[d] agricultural areas or secondary forests."⁶¹⁹

251.

Perenco and GSI submitted that the ‘sensitive ecosystems' criteria would at best apply only to a "tiny number of sites in the Blocks [which] intersect with designated ‘sensitive ecosystem' areas, and even within those areas, the land use is actually agricultural - not a nature preserve."⁶²⁰ These sites were: Payamino CPF, Payamino 1, Payamino 2-8, Payamino 19, Waponi-Ocatoe and Nemoca.⁶²¹ The Payamino sites were examples of sites that intersected with a protected area but which in fact were used for industry and agriculture.⁶²²

252.

GSI applied sensitive ecosystems criteria to "the small amount of land that f[ell] within a designated protected area, despite the fact that the actual land use [did] not accord with the designation", correlating to 89 of IEMS' 1243 sampling locations.⁶²³ It otherwise applied agricultural or industrial land-use criteria in its analysis.⁶²⁴

253.

GSI asserted further that IEMS had "systematically manipulated laboratory data" by assigning positive values to samples that in fact reported no detectable presence of target compound.⁶²⁵ For example, "if the detection limit for Total Petroleum Hydrocarbons ("TPH") [was] 200 mg/kg, and the laboratory actually found no detectable presence of TPH, IEMS nevertheless identified the sample as containing a contamination of 199.99 mg/kg of TPH".⁶²⁶ GSI asserted that this was in breach of accepted protocols, which in the event that a laboratory reports "non-detectable", requires the sample to be labeled as "clean."⁶²⁷ GSI contended that this "infected 79% of the results" or 2082 of the 2620 soil samples represented in its first and second reports.⁶²⁸ In this connection, GSI challenged IEMS' classification of samples as presenting concentrations above the detection limit but below "background values" as a "low impact", stating that under common use of the term "soil would only be considered ‘impacted' if the concentration exceeded both the regulatory limit and natural background", this corresponding to the "final ‘highly impacted' tier of the IEMS classification system."⁶²⁹

254.

IEMS was also alleged to have "systematically" treated the contents of "clearly defined ‘pits'", which are "areas specially constructed - with Ecuador's approval - to hold oil drilling byproducts, especially so-called ‘drilling muds' that contain heavy metals like barium", as if they were "regular soil."⁶³⁰ It took samples from inside closed mud pits, applied the testing methodology for regular soil instead of that applicable to mud pits, namely leachate testing, and compared the results to the permissible levels for regular soil in RAOHE Table 6 rather than for leachates from mud pits in Table 7.⁶³¹ The significance of this is that IEMS came to the "conclusion that the areas [were] ‘contaminated' when in fact they simply contain[ed] the very compounds that they [were] supposed to contain under Ecuadorian law."⁶³² This invalidated any samples IEMS took from inside closed pits, that is, pits that had already been converted with Ministry approval into containment areas to prevent migration of contaminants, this representing "22% of the 2,629 samples" in question.⁶³³

255.

This also invalidated sampling results that were evaluated against Table 6 of RAOHE, rather than Table 7. In Perenco's view, mud pits are to be tested using a different methodology and criteria under RAOHE, Table 7, rather than Table 6, because they are designed to contain the discharge of industrial substances stemming from the drilling process, and naturally contain concentrations of barium higher than that found in the surrounding soil.⁶³⁴ Thus, Table 7 permits higher levels of an environmental impact than Table 6 permits. Perenco submitted that Ecuadorian authorities had historically acknowledged this and applied the Table 7 regulatory criteria to the investigation of mud pits, such as in the case of the 2008 environmental audit of Block 7.⁶³⁵ IEMS did likewise in its expert report in the City Oriente proceeding.⁶³⁶

256.

Table 7 also employed a different methodology for testing because, in line with a mud pit's function, it is concerned not with contaminants in the material contained within the pit but "whether the contents ‘leach' impermissible amounts of various substances into underground water sources."⁶³⁷ This explains why RAOHE Table 6 sets out concentrations in mg/kg, compared to Table 7, which provides concentration limits in mg/l.⁶³⁸ It is also evidenced in how Table 7 distinguished between the limits applicable to pits which have an impermeable liner and those which do not, and imposes stricter limits for the latter.⁶³⁹

257.

Perenco submitted that this was the methodology endorsed by the State up until this proceeding, relying in this regard on a 2003 environmental report on specific sites in Block 21 (Yuralpa Centro 1 pit) and the 2008 audit of Block 7, where leachate testing was used and its results submitted to the Ministry.⁶⁴⁰ IEMS did not employ the leachate testing method in collecting its 624 samples.⁶⁴¹

258.

For its part, GSI submitted that its analysis of the 624 soil samples "confirm[ed] that the concentrations of cadmium, lead, nickel, and vanadium in these drilling materials [were] actually below the background levels that exist[ed] naturally in area soils" and barium, which was detected in some areas at levels higher than those found in natural soils, appeared in a non-toxic form; barium sulfate - "the only source of barium in oilfield operations" - rather than barium chloride, and for that reason posed no harm to human health or the environment.⁶⁴²

259.

GSI also contended that IEMS' estimation of the volume of allegedly contaminated soil was exaggerated and significantly in error as a result of the misuse of the ArcView GIS Spatial Analyst software.⁶⁴³ The software is designed to " interpolate between two points" but "IEMS programmed it to extrapolate from a given point outwards without any constraining boundary", and as a result "falsely depict[ed] vast and sweeping areas of contamination" which included areas in which no soil sampling had been taken that demonstrated an exceedance or which defied sampling results that depicted no contamination, and all the while ignoring the actual topography of the area which would influence how the contamination might naturally spread.⁶⁴⁴

260.

GSI explained that the mapping algorithm of the software, the "Inverse-Distance Weighted Averaging" or IDW, is intended for use "in interpolation between measured data position, with very limited extrapolation beyond the immediate area of the sample locations."⁶⁴⁵ It added that IDW was "very poor" at extrapolation, but that is precisely what IEMS used it towards with the result that their modeling was "extrapolation to extreme distances beyond the footprint of their data points."⁶⁴⁶

261.

Thus, the manner in which the bounds of each site within the model are drawn stood to have a compounding impact on the extent of the contamination marked by the software. Examining IEMS' method, GSI reported that they assumed that each soil sample represented concentrations within a 10-meter radius ‘buffer area" surrounding the data point, which it represented by circles inscribed around each sampling location.⁶⁴⁷ This despite the fact that "many of the soil samples collected by IEMS within 10 m of each other display[ed] very different chemical concentrations."⁶⁴⁸ IEMS then drew a ‘boundary' "corresponding to a rectangular area drawn tangential to the outermost buffer areas" within a site, and programmed the software to extrapolate and fill in the area.⁶⁴⁹ In programming the software, IEMS input parameters which resulted in its extrapolating and filling in the boundary area with model soil "impacts" which in many cases ignored the fact that there was no data or the data showed no such condition.⁶⁵⁰

262.

GSI claimed that this method was "novel and unique to IEMS and [was] not supported by either publications or common standards of practice for geostatistical mapping."⁶⁵¹ This led Perenco to assert that this erroneous approach, coupled with other errors discussed in this section, "invalidate[d] every single one of IEMS' soil volume calculations."⁶⁵² Proper delineation, incorporating the topography and using compliant samples to define the boundaries of the contaminated area, would produce results which, in GSI's opinion, established volumes of contamination that at best amounted to 1% or 2% of the volumes presented by IEMS for the same sites.⁶⁵³

263.

GSI then asserted that IEMS had "systematically failed to properly filter groundwater samples", resulting in the laboratory results' reflecting particulates of which were essentially soil and, as such, producing values which were "scientifically impossible", thereby "invalidat[ing] all of IEMS' groundwater samples."⁶⁵⁴ When GSI sampled groundwater using the correct filtration methods, all of those samples were fully compliant.⁶⁵⁵

264.

In order to properly sample groundwater, technical guidelines require that the samples be clear of soil particles.⁶⁵⁶ Annex 5 of RAOHE provides that the methodology for testing the presence of heavy metals in water shall include filtration.⁶⁵⁷ GSI inspected the monitoring wells left in place by IEMS and "confirm[ed] that they [did] not conform to industry standards for groundwater sampling."⁶⁵⁸ This gave rise to unreliable sampling results because when IEMS added nitric acid preservative in order to stabilise dissolved metal concentrations prior to testing, the acid dissolved the solid sediment particles that had been trapped, thereby exponentially elevating the metal concentrations to levels that could not be naturally present in water.⁶⁵⁹ For example, IEMS reported barium levels in its groundwater results as high as 8.28 mg/L, when in fact the maximum solubility limit for barium sulfate in groundwater is 3.1 mg/L.⁶⁶⁰

265.

Moreover, IEMS failed to apply the correct regulatory criteria to the results of its groundwater tests.⁶⁶¹ It used the reference criteria of TULAS, Book VI, Annex 1, Table 5, which GSI explained applied only to water obtained from soil with a clay content of less than 25% and an organic material content less than 10%.⁶⁶² IEMS applied Table 5 to all of its samples regardless of the type of soil from which the sample was obtained: "Review of geologic logs from locations at or near the groundwater monitoring wells (available for 49 IEMS groundwater sample points) shows that, at 56% of the IEMS groundwater sampling locations, the soil composition [was] primarily clay."⁶⁶³

266.

GSI sampled 15 of the locations identified by IEMS, and reported that their tests confirmed that the presence of metal compounds above the Ecuadorian regulatory standards occurred "entirely as a result of extraneous soil particles."⁶⁶⁴ For these reasons, Perenco submitted that Ecuador's claim for remediation of contaminated groundwater lacked any foundation.⁶⁶⁵

267.

Finally, GSI challenged IEMS' remediation cost estimates as wholly unsupported, asserting IEMS had failed to "cite a single source for remediation cost estimates in Ecuador, or justify the enormous percentages added for alleged planning and contingency."⁶⁶⁶ IEMS ignored actual cost data for the clean-up of sites by companies operating within Ecuador.⁶⁶⁷ GSI submitted that a reasonable and justifiable estimate was "in fact below US$100 per cubic meter", but IEMS' average remediation unit price was US$280 per cubic meter, this in turn inflating its claim "by over 400%. "⁶⁶⁸

268.

IEMS' third report, submitted in February 2013, responded to GSI's criticisms and confirmed the reliability of its modeling and the results it produced as reported in its first and second reports (with the exception of three errors).⁶⁶⁹ IEMS explained that it undertook a fourth site inspection following the receipt of GSI's report, and collected additional soil samples at 22 sites.⁶⁷⁰ It asserted that, as a result, "[w]ith the exception of a few spreadsheet errors, GSI's contentions are without merit and IEMS' conclusions as to the extent of contamination and the costs of remediation are correct."⁶⁷¹ In its view, GSI had relied upon a "false and misleading methodology and, hence, reached incorrect conclusions in their misplaced attempts to downplay the full extent of the environmental damage" in Blocks 7 and 21.⁶⁷²

269.

Ecuador also challenged GSI's credibility and in particular that of its President, Mr. John Connor.⁶⁷³ It alleged that: throughout "his career, Mr. Connor has been at the service of private oil companies, systematically testifying in their favour and refusing to allocate liability for environmental harm" and pointed specifically to work that Mr. Connor and GSI had done in the well-known dispute between Ecuador and Chevron which suggested that GSI had engaged in a results-driven exercise of looking only at clean samples in order to exonerate the party which had retained it.⁶⁷⁴

270.

Turning to IEMS' third report, IEMS first asserted that the list of contaminants that it examined in the samples it collected were elements "properly associated with oilfield activities" and, in any event, represented the chemicals that the regulations were concerned with and "set forth action levels for... without any requirement that these chemicals be associated with hydrocarbons, produced water or barium sulfate in order to call for remediation."⁶⁷⁵ In its view, GSI's approach rendered "null and void" key elements of RAOHE and TULAS.⁶⁷⁶ GSI's approach was said to be further contradicted by Perenco's own prior practice, as evidenced in an ‘Environmental Protection Guide' it had produced during the course of its operatorship in which Perenco listed a total of 19 indicators including TPH, barium, cadmium, chromium, lead, and polycyclic aromatic hydrocarbons.⁶⁷⁷

271.

Second, IEMS defended its use of the upper end of the confidence interval of the mean concentrations of the 189 ‘clean' soil samples it had tested in order to arrive at its background values.⁶⁷⁸ It asserted that its approach was consistent with RAOHE and TULAS, stating that it "believes that the intent of the regulations is not merely to estimate the sample mean but also the true population mean."⁶⁷⁹ In order to arrive at a true population mean, the traditional approach would have been to collect and test all clean soil in the Blocks, but since IEMS could not practically perform such an exercise, the next best alternative was to apply confidence intervals.⁶⁸⁰ It asserted that by applying the upper end of the confidence interval, it was selecting a higher concentration and in so doing acting conservatively in the circumstances.⁶⁸¹ It further argued that GSI's proposed method of arriving at background values was inconsistent with regulatory requirements in Ecuador.⁶⁸²

272.

IEMS also responded to GSI's statement that Ecuadorian regulatory criteria were in fact more stringent than health-based screening levels, asserting the "risk assessment performed by GSI is unacceptably flawed and biased"; "[i]t did not include ecological risk" and it "consider[ed] only one of several human exposure pathways necessary to fully evaluate the potential risk to human health."⁶⁸³

273.

Third, IEMS asserted that, contrary to GSI's claims that drilling mud and the contents of mud pits were relatively innocuous and posed no significant health risk: "[a]lthough barium sulfate is relatively insoluble under oxidizing conditions, it is fairly soluble in acidic and anaerobic conditions, which means that, variations in pH conditions could result in the dissolution of barium from barium sulfate; thereby, barium would be released to water and soil during the disposal of drilling wastes."⁶⁸⁴ Moreover, the relevant reference criteria were to be found in Table 6, not Table 7, of RAOHE because Table 7 applied only during the pit closure process and for a short period thereafter.⁶⁸⁵ IEMS challenged GSI's testing method, submitting that it collected "samples of the clean soil covers that had been placed over the mud pits at the time of closure, which implie[d] that: 1) GSI samples represent only the quality of the clean soil surface; 2) GSI did not identify and therefore, did not know the toxicity of the waste disposed within pits, and 3) GSI misinterpreted their results equating the concentration of the cover soil to the fill material of the pits."⁶⁸⁶

274.

IEMS further challenged GSI's use of Table 7(b) of RAOHE (criteria governing lined pits) rather than the more stringent limits established in Table 7(a) (governing unlined pits). It stated that the choice was "unfounded, as there [was] no evidence of intact impermeable liners beneath [the] pits" examined in Blocks 7 and 21, but there was evidence that the pits were not lined, or that their liners had seriously deteriorated.

275.

RPS, Ecuador's other expert, noted in this regard that GSI's use of Table 7(b) of RAOHE (criteria governing lined pits) ran afoul of the Consortium's own practice of applying Table 7(a). RPS cited examples of pit closure documents for Jaguar 9 from November 2000 and Coca 19 from October 2004 which referred to Table 7(a).⁶⁸⁷ RPS asserted that if GSI had applied Table 7(a) limits, it would have concluded that four of the seven pits that GSI had tested should be remediated.⁶⁸⁸

276.

IEMS submitted in addition that GSI ignored "significant shortcomings" in the Consortium's management of mud pits, inconsistent with their obligations under RAOHE and TULAS.⁶⁸⁹ The pits were constructed in disregard of applicable regulations,⁶⁹⁰ they were not monitored timeously, they were not tested timeously upon their closure (7 days, 3 months and 6 months after), and their contents were allegedly mixed with clean soil or water in order to dilute the contamination, a practice that TULAS prohibited.⁶⁹¹ The consequences of such omissions by the Consortium had not been identified by GSI because of the unreliability of its method of investigating the pits in Blocks 7 and 21.⁶⁹²

277.

IEMS asserted that GSI also incorrectly delineated the size of the pits and the areas that needed to be tested for leachates. Proper delineation was required to determine whether the pit was leaking contaminants. IEMS argued that GSI either presented the pits as being "larger than they really are so as to give the impression that they [were] not leaking and that the pits and their surrounding areas accordingly require[d] no remediation" or failed to act on evidence of contamination in area surrounding mud pits such as in the case of the Coca 8 pit where IEMS had proved exhibited serious contamination but GSI "failed to meaningfully assess the source of the contamination."⁶⁹³

278.

Fourth, IEMS asserted that the GSI misinterpreted and misapplied the regulatory criteria applicable to the environment in the Blocks.⁶⁹⁴ "GSI considered that the regulatory levels to be used were based on the current land use of the areas, completely ignoring the express provisions of Table 6 of the RAOHE (referring to the future land use)."⁶⁹⁵ IEMS defended its use of the sensitive ecosystems criteria,⁶⁹⁶ stating that while areas in the Blocks may not be designated protected areas, their ecological studies suggested that most displayed characteristics "similar to those of a National Natural Area."⁶⁹⁷ The fact that several sites are currently being operated or have been used for industrial purposes in the past is "of no relevance to future land use."⁶⁹⁸

279.

Ecuador submitted that the significance of classifying the land based on future use was so as to " facilitate site reuse ", a term taken from the lexicon of the US Environmental Protection Agency.⁶⁹⁹ Since the oilfields are "carved out in the middle of the Amazonian jungle", "entirely surrounded by rainforest" and their present use for oilfield operations will "inevitably run out" they are destined to be re-absorbed by the rainforest and can reasonably be anticipated to revert back to their natural, sensitive ecosystem state.⁷⁰⁰

280.

Fifth, IEMS defended its treatment of non-detect analytical results, criticising GSI for "attempting to obfuscate IEMS' use of a conservative yet standard technique for handling non-detect data."⁷⁰¹ It asserted that its method was "a reasonable way to deal with the uncertainty of laboratory results when these results are reported at below the detection limit, but when field conditions are indicative of the presence of the contaminant of concern, at some level", an approach that has been "strongly recommend[ed]" by the US EPA which has opined that "non-detect samples [are] never [to] be considered to be zero or omitted from the data set (USEPA, 1989)."⁷⁰²

281.

In this regard, IEMS cited instances in which GSI itself had substituted non-detect or other results in its sampling. For example, it used a substitution of 50% of the detection limit for non-detects on samples for determining background values.⁷⁰³

282.

Sixth, IEMS responded to GSI's criticisms of its modeling technique using the ArcGIS software.⁷⁰⁴ It submitted that its choice and use of the IDW algorithm was sound.⁷⁰⁵ It characterised the parameters that it employed in its geo-mapping software as conservative.⁷⁰⁶ IEMS explained that its buffer was limited to a 10-meter radius around each sample,⁷⁰⁷ and in assessing whether one of the layers should be mapped it required at least 3 samples exhibiting contamination.⁷⁰⁸ If it contained less than 3 samples, "these samples were not considered in the quantification model."⁷⁰⁹ It defended the use of the inverse distance weighted method of ArcGIS as "appropriate and [...] generally accepted by the international scientific community."⁷¹⁰ It challenged the modeling method adopted by GSI as unrealistically stopping at the position of the sample that establishes contamination if there are no additional samples further in that direction, ignoring the factual likelihood that there is further contamination in the area.⁷¹¹

283.

IEMS contested each of the so-called "key errors" that GSI had identified, asserting they were "falsely alleged."⁷¹² For example, the location and the extension of the bounds did not have a significant impact on the modeling, which is influenced in large part by the algorithm and the parameters inputted.⁷¹³ In any event, "[i]n light of the fact that there was no information about the environmental liabilities left by the operators of the oilfields prior to 2009, and that complete records of spills, mud pits, and other environmental incidents were not available, the evaluation of large bounds was a reasonable and prudent approach."⁷¹⁴ Its main criticism of GSI's approach was that it assumed that the dispersion of contaminants was uniform and predictable⁷¹⁵ when in fact it was "radial and […] not influenced by the location of the samples."⁷¹⁶ For this reason, IEMS used a variable search radius set to 12 samples but in an attempt to keep its results "conservative" applied a power value (i.e., the extent of the effect of a relatively higher concentration sample on the samples in its vicinity) of 3 which tended to decrease the size of the "hot spot" in the modeling: "If the power is higher, the size of the hotspot will decrease, as the effect of the high concentration sample will be limited to the nearest cells."⁷¹⁷ IEMS reasoned that a higher power took into account the topography of the area.⁷¹⁸

284.

IEMS added that it used an internal cross-validation option of the software to ensure that its results were sound,⁷¹⁹ and while it did identify a number of errors, it largely confirmed the results of its first and second reports.⁷²⁰ It collected a further 157 soil samples in 22 different sites to determine whether the estimations produced by the ArcGIS model matched the actual conditions on site.⁷²¹ The result of this exercise confirmed "(i) the predictions of IEMS' modeling, showing contamination not only within the area modeled by IEMS (pursuant to the predicted level, i.e., above background values and regulatory limits) but also outside the bounds used (confirming the conservative approach adopted by IEMS) and (ii) that sites GSI completely ignored in its purported attempt to confirm and delineate the contamination demonstrated by IEMS [were] in fact highly contaminated."⁷²² IEMS reported that the cross-validation exercise confirmed its estimation of contamination in the following 22 sites: Mono CPF, Mono 10-12, Jaguar 2, Jaguar 3, Jaguar 7-8, Payamino 1 and CPF, Payamino 3, Payamino 4, Payamino 16, Payamino 21, Payamino 23, Coca 1, Coca 4, Coca 8, Coca 9, Coca 12, Coca 18-19, Gacela 4, Gacela 6-9, Cóndor Norte, Lobo 1 and Lobo 2.⁷²³

285.

Seventh, IEMS asserted that GSI's treatment of the testing of groundwater and its results was contrary to Ecuadorian regulations and accepted scientific practice.⁷²⁴ It submitted that the applicable regulation was TULAS (Book VI, Annex 1, Section 4.1.3), not RAOHE (Annex 5), because the latter regulated water quality for superficial bodies and wastewater discharges, not groundwater.⁷²⁵ Annex 5 of RAOHE referred to filtration, but TULAS did not.⁷²⁶ In fact, TULAS mandates analysis of the total concentration of heavy metals, and is not restricted to the dissolved concentration: "The difference between the two criteria is that the total concentration includes the dissolved, colloidal and suspended fractions of the contaminants within the sample, while the dissolved concentration does not include the colloidal and suspended fractions."⁷²⁷ For this reason and on the basis of standards promulgated by the Ecuadorian Standardization Institute (INEN 2169:98 and 276:98)⁷²⁸, IEMS submitted that GSI's method of filtering samples with 0.45 um filters (micrometers) was incorrect and invalidated its groundwater sampling conclusion.⁷²⁹ Moreover, it asserted that GSI did not measure the TPH in the groundwater, as required by TULAS, but instead chose to test three other different parameters: Gasoline Range Organics, Diesel Range Organics and Oil Range Organics and compared them individually to the criteria in TULAS.⁷³⁰ This compounded its error in filtering its samples.⁷³¹

286.

IEMS' rebuttal to GSI's criticism that TULAS cannot be applied to soil located in areas with a content of clay greater than 25% was that it "recognize[d] that a number of monitoring wells may be located in [such] areas", but "[g]iven the conditions of the area, and if it is demonstrated that the TULAS regulation does not apply, then the correct standard for remediation in these areas is the background levels.which would in all likelihood be even stricter than the TULAS permissible levels."⁷³² For the purpose of its third report, IEMS undertook two rounds of confirmation tests, taking filtered and unfiltered samples: installing six monitoring wells and performing sampling from 17-19 December 2012, and a further resampling of the same wells from 22-24 January 2014. Its conclusion was that there was a "very small difference between the filtered and unfiltered samples", and in the instances that the concentration of contaminants did decrease between filtered and unfiltered samples from the same monitoring well, IEMS submitted that "[t]his reduction could have been the result of dilution due to heavy rains happening during the days when the sampling process was performed."⁷³³

287.

Eighth, on the matter of remediation, IEMS asserted that the experts were together on the issue of whether hydrocarbon-impacted soils should be sent off-site for treatment: GSI proposed that such soil be sent to an officially-approved soil remediation facility in the city of Coca for treatment while IEMS proposed that it is sent to an unspecified offsite bio-treatment facility.⁷³⁴ Where they diverged was on the treatment of soils contaminated by heavy metals; GSI proposed an on-site lined landfill, while IEMS proposed an off-site landfill.⁷³⁵

288.

IEMS asserted that since the operations in the Blocks are located in a sensitive ecosystem and "given that it is expected that the oilfield areas will return to their original condition at the completion of petroleum operations, the presence of several landfills scattered throughout the Blocks containing contaminated material is not compatible with the future use of the areas."⁷³⁶ GSI's approach to estimating the unit costs of remediation were also said to be unrealistic, contrary to industry practice and ignored the "specificities of the jungle environment" in Blocks 7 and 21.⁷³⁷ For example, IEMS contended that "GSI's figure of US$80/m3 is based on a very limited scope of work that [did] not take into account the challenges of performing these remediation works in the Amazon region and does not include the costs for excavation and crosscountry transportation."⁷³⁸ It also responded to GSI's criticism of its basis for the cost of remediating groundwater (i.e., using a US EPA survey of costs for groundwater remediation in the United States) by asserting that what GSI ignored was that "local remediation providers in Ecuador do not have the necessary expertise to perform these remediation works" and GSI itself did not put forward "any alternative quantification based on local costs."⁷³⁹ IEMS' costs, in contrast, were said to be "in line with common practice for these types of remediation projects in Ecuador as is confirmed by a recent economic price quotation from a local company (GPower)."⁷⁴⁰

289.

Accounting for corrected estimated contaminated soil volumes for Coca 8, Coca CPF, Payamino CPF/Payamino 1, Dayuno and Pad A, IEMS reported that

Perenco v. Ecuador

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary

Interim Decision on the Environmental Counterclaim

I. INTRODUCTION

A. Parties

B. Dispute

II. PROCEDURAL HISTORY

III. ENVIRONMENTAL COUNTERCLAIM

A. Introduction

(1) Summary of the Parties' Submissions

(2) Blocks 7 and 21

B. The Framework of the Applicable Law

(1) The 2008 Constitution

(2) The Environmental Management Law

(3) RAOHE

(4) TULAS

(5) The Participation Contracts

C. The Parties' Submissions on the Legal Issues

(1) Strict Versus Fault-based Liability

(2) Burden of Proof in Relation to Causation

(3) Liability of operators inter se

(4) Imprescriptibility

(5) Remediation criteria

D. Introduction to the expert evidence on the state of the Blocks

E. First round of expert reports of IEMS and GSI

F. Third expert report of IEMS and second expert report of RPS

J. Christopher Thomas	Appointed by the State
Neil T. Kaplan	Appointed by the investor
Peter Tomka	President