(i) Pursuant to Article 52(1) of the Convention on the Settlement of Investment Disputes (hereinafter referred to as "the Convention"), the annulment of the proceeding and the arbitral award rendered on February 20, 2004 (hereinafter referred to as the "Award") adopted in this case "because the tribunal (hereinafter referred to as the "Tribunal") unlawfully and manifestly exceeded its powers;" and
(ii) The stay of enforcement of the Award that ordered PETROECUADOR to pay the sum of US$13,684,279.23 within 60 days.
(i) The ICSID Tribunal allegedly did not have jurisdiction to hear and settle a dispute, which, pursuant to Article 56 of the Hydrocarbons Law, had already been settled by the National Hydrocarbons Directorate [ Direccion Nacional de Hidrocarburos DNH] and whose decision would have constituted an administrative res judicata (whereas 2);
(ii) The alleged outstanding payment obligation arose from the Service Provision Contract1 and not, as the Tribunal found, from Clause 26.1 of the Participation Contract or the Modified Contract2 and its Annex XI3 ("whereas" clauses 3-8); and
(iii) REPSOL did not have authority to file suit given that, in its capacity as a member of the Consortium of petroleum companies, it did not obtain prior authorization from the Operating Committee ("whereas" clause 13).
- Judd Kessler, a US national (President);
- Piero Bernardini, an Italian national; and
- Gonzalo Biggs, a Chilean national.
Secretary of the Committee:
Claudia Frutos-Peterson, Counsel, ICSID.
(i) PETROECUADOR's principal arguments that (i) the dispute was governed by the Service Provision Contract and not by the Modified Contract; (ii) the dispute had been settled by the DNH and constituted res judicata ; and (iii) the argument that REPSOL did not have the authorization of the Consortium to sue PETROECUADOR had already been advanced and settled in "whereas" clauses 28 and 34 of the Decision on Jurisdiction and in "whereas" clauses 112, 149, 151, and 177 of the Award;4
(ii) With regard to the applicable contract, "whereas" clause 28 of the Decision on Jurisdiction stated that "the dispute concerns Clause 26.1 of the Modified Contract" and that "the State Attorney General's Office had concurred with this finding..." and that the suit also sought performance of said contract, rather than the Service Provision Contract;5
(iii) The contractual nature of the dispute had been ratified by the Tribunal,6 the Parties, and the Attorney General's Office, when they agreed to a binding consultation process which produced the Report from Doctor Marcelo Merlo, and any challenge to an administrative decision of the DNH allegedly implied tacit disregard for the jurisdiction of the ICSID Tribunal;7
(iv) The Tribunal resolved that "the DNH's decision did not render this proceeding a res judicata ;"8
(v) With regard to the authority to file suit against PETROECUADOR, the Tribunal resolved that "REPSOL was and is authorized to act on behalf of the other companies that comprise the Consortium;"9
(vi) PETROECUADOR's argument about "not being able to pay a figure that had not been part of the suit" had no validity because the suit and documentary evidence clearly mentioned the sum of "US$13,700,000.00 plus interest as of the date on which payment should have been made up to the time it was actually made;"10
(vii) PETROECUADOR's assertion that, under its legislation, it is obligated to exhaust all legal remedies to prevent any decision from "becoming enforceable and enforced," must be viewed in the context of the legality principle of its Constitution and that which is permitted by its legislation and international treaties;11and
(viii) PETROECUADOR confuses annulment proceedings with an appeal and the uniform case law of ICSID does not allow, in annulment proceedings, that a committee analyze substantive matters already resolved in the Award.12
"Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy."
"TWENTY-SIXTH: TRANSITIONAL PROVISION
TWENTY-SIX (ONE) (26.1).- PETROECUADOR will pay the Contractor the amounts indicated in Annex XI, which constitute the amounts owed and not paid by PETROECUADOR to the Contractor under the Service Provision Contract, as set forth in said Annex."
PETROECUADOR subsequently added to the aforementioned grounds for annulment that: (iv) the Tribunal should not have ordered the payment of a sum that was not part of the dispute; and (v) the laws of Ecuador obligate the State and its institutions to exhaust all permissible legal remedies to prevent enforcement of any decision against it. During the annulment proceedings, PETROECUADOR added that the Tribunal's decision regarding REPSOL's power of representation constitutes a serious departure from a rule of procedure pursuant to Article 52(1)(d) of the Convention.
"23. The law applied by the Tribunal will be examined by the ad hoc Committee, not for the purpose of scrutinizing whether the Tribunal committed errors in the interpretation of the requirements of applicable law or in the ascertainment or evaluation of the relevant facts to which such law has been applied. Such scrutiny is properly the task of a court of appeals, which the ad hoc Committee is not. The ad hoc Committee will limit itself to determining whether the Tribunal did in fact apply the law it was bound to apply to the dispute. Failure to apply such law, as distinguished from mere misconstruction of that law, would constitute a manifest excess of powers on the part of the Tribunal and a ground for nullity under Article 52(1)(b) of the Convention. The ad hoc Committee hasapproached this task with caution, distinguishing failure to apply the applicable law as a ground for annulment and misinterpretation of the applicable law as a ground for appeal." 40
"5.05 A distinction must be made between failure to consider the legal rules applicable and the erroneous application of said rules, which, even if manifestly unjustified, does not provide grounds for annulment (see the history of the Convention, Vol. II, pages 340 and854)."41
a) That the Modified Contract resulted from PETROECUADOR's initiative, that in August 2006 it declared to REPSOL its intention to replace the Service Provision Contract with a Joint Operating Contract for hydrocarbons exploration and production. The Contractor agreed in principle to the proposed amendment.45
b) The proposed change in this contractual agreement was approved by: the Board of Directors of PETROECUADOR; the Minister of Energy and Mines; the Attorney General; and the Chief of the Joint Command of the Armed Forces.46 After receiving approval, the Parties negotiated the Modified Contract in detail and it became legally binding upon the Parties.
c) Signature of the Modified Contract ended the Service Provision Contract. The Modified Contract specifically includes transitional provision 26.1, not with the objective of extending the period of validity of the previous contract, but in order to end it, establishing the duty of PETROECUADOR to make certain payments as a result of the closure of accounts related to the termination of the Service Provision Contract.47
"PETROECUADOR shall pay the Contractor the amounts set forth in Annex XI, which constitute the amounts owed and not paid byPETROECUADOR to the Contractor under the Service Provision Contract, as set forth in the aforementioned Annex."
"[...] if YPF Company persists in its unfounded dissent, although it participated in the preparation of and also signed off on the revised payments, it is the responsibility of the National Hydrocarbons Directorate [Direction National de Hidrocarburos], under Article 11 of the Hydrocarbons Law, to conduct the respective audits in order to establish the final figures, without any restrictions whatsoever since, under Article 56, it is empowered to adjust retroactively payments and revised payments made."57 (Official Note PEP-97 of September 26, 1997).
The Tribunal also noted that PETROECUADOR had not taken any steps under Ecuadorian law to appeal the decision of the Consultant. Instead, after waiting for several months, it decided not to recognize or implement the Consultant's Report. When REPSOL then requested that the matter be submitted for ICSID arbitration, PETROECUADOR consented.64
(a) A moral argument:—one cannot pay a debt that was not pleaded in litigation. To this end, PETROECUADOR asked the Committee to examine certain PETROECUADOR resolutions; and
(b) A public order argument:— the laws of the Republic of Ecuador, such as the Law of the State Attorney General's Office and the Law of the State Prosecutor's Office, respectively, obligate State institutions to exhaust all permissible legal remedies to prevent any decision from becoming enforceable and enforced.
(a) To reject totally the Application for Annulment of Award filed by PETROECUADOR on September 20, 2004, on the grounds that the Tribunal did not commit any annullable error; consequently, the Arbitral Award rendered on February 20, 2004 is confirmed.
(b) By virtue of the authority conferred upon the Committee by Article 61(2) of the ICSID Convention, PETROECUADOR shall pay to REPSOL:
(i) All expenses incurred by the Centre in relation to this proceeding, including the fees and expenses of the Committee members, amounting to US$307,677.15 (three hundred and seven thousand six hundred and seventy-seven United States dollars and fifteen cents), from which should be deducted US$100,000.00 (one hundred thousand United States dollars) corresponding to the single advance payment made by PETROECUADOR, that is, US$207,677.15 (two hundred and seven thousand six hundred and seventy-seven United States dollars and fifteen cents).
(ii) Half the professional fees relating to this proceeding and reasonably incurred by REPSOL in defending this annulment proceeding in the sum of US$20,500.00 (twenty thousand five hundred United States dollars).