International Investment Law Arpit

INTERNATIONAL INVESTMENT LAW
IX Semester
OCCIDENTAL EXPLORATION AND PRODUCTION COMPANY

V
THE REPUBLIC OF ECUADOR
SUBMITTED TO:SUBMITTED BY:

DR. SHEELA RAI ARPIT MAHESHWARI
ASSOCIATE PROFESSOR OF LAW2011/BBA LL.B/036
NATIONAL LAW UNIVERSITY ODISHA
TABLE OF CONTENTS
Contents
Introduction................................................................................................................................2
BACKGROUND........................................................................................................................2
Arguments..................................................................................................................................3
National Treatment.....................................................................................................................4
Fair and Equitable Treatment and Full Protection and Security................................................5
Impairment Claim - Rejected.....................................................................................................5
DECISION.................................................................................................................................6
Decision Analysis.......................................................................................................................7
THE TRIBUNAL ACKNOWLEDGED THAT OCCIDENTAL BROKE THE LAW AND
SHOULD HAVE EXPECTED ECUADORS RESPONSE:.................................................7
THE TRIBUNAL FURTHER EXPANDED THE SCOPE OF MST/FET OBLIGATIONS
BY FABRICATING A NEW PROPORTIONALITY REQUIREMENT:..............................7
THE TRIBUNAL SUPPLANTED ECUADORS LEGAL VETTING PROCESS WITH
ITS OWN SPECULATIVE VETTING TO DETERMINE DISPROPORTIONALITY:......9
THE TRIBUNAL SLAPS ON AN EXPROPRIATION VIOLATION IN A ONE
PARAGRAPH PRONOUNCEMENT:.................................................................................10
TRIBUNALISTS INCREASED OCCIDENTALS HYPOTHETICAL LOST PROFITS
BYDECIDING THAT A TAX WAS NOT A MATTER OF TAXATION:.......................11
DAMAGES..............................................................................................................................13
Compensation.......................................................................................................................13
Measures to Avoid Double Recovery...................................................................................13
Conclusion................................................................................................................................14
1|PAGE
INTRODUCTION
On October 5th, 2012, a split ICSID tribunal determined that the Republic of Ecuador had
breached the US-Ecuador bilateral investment treaty (BIT), and awarded damages of
US$1.77 billion (US$2.3 billion with interest applied), reportedly the largest award ever to
have been issued by an ICSID tribunal. This award is remarkable not only because of the
large quantum of damages (and of the tribunals 326-page decision), but also because it
addresses cutting edge issues in international investment law, including the principle of
proportionality and the assessment of damages. The award also demonstrates the vast power
that tribunals wield and raises important normative questions about ICSID.
That is the amount that Ecuador spends on health care each year for over seven million
Ecuadorians--almost half the population. The sum amounts to 16 percent of the countrys
external debt, or 11 percent of all goods exported annually. The financial drain is equivalent
to the combined annual income of the poorest 20 percent of Ecuadoreans--nearly 3 million
people.
In a scathing, lengthy minority opinion, French professor Brigitte Stern detailed a host of
errors committed by the majority to impose the mammoth penalty. These include their
decision that Occidental should be compensated for lost profits on 100 percent of an oil
investment despite acknowledging that Occidental illegally sold 40 percent of that investment
to another firm.1
BACKGROUND
In May 1999, Occidental signed a 20-year contract with Ecuador to explore for oilin Block
15, a segment of Ecuadors Amazon, and extract from any discovered reserves. 2
Inexchangefor taking on all expenses, Occidental was contractually entitled to 70 percent of
1 Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The
Republic of Ecuador, ICSID Case No. ARB/06/11, Dissenting Opinion (Sept. 20, 2012), at para. 5.
2 Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The
Republic of Ecuador, ICSID Case No. ARB/06/11, Award (Oct. 5, 2012). [Hereinafter Occidental v.
Ecuador.] at paras 112,115.
2|PAGE

the oil produced, withEcuador maintaining a right to the rest. 3 The contract also stipulated
that while Occidental could sellthe oil, it could not sell off any portion of its rights and
obligations to produce the oil withoutgovernment authorization. The contract stated that
transferring the rights to oil production withoutauthorization shall terminate the contract. 4
The contract explicitly enforced Ecuadors hydrocarbonslaw, which states, The Minister of
Energy and Mines may declare the [termination and forfeiture] ofcontracts, if the
contractor transfers rights or enters into a private contract or agreement for theassignment
of one or more of its rights, without the Ministrys authorization. 5 The law protects
thegovernments prerogative to vet companies seeking to produce oil in its territory, which
was aparticular concern in the Amazon region, in no small part because of Chevrons
notorious history ofdumping toxins in the critical ecosystem.
One year after signing the contract, Occidental sought to sell off a portion of its investment in
Block 15oil production so as to gain capital and reduce expenditure risks. 6 In October of
2000, it signed with the Alberta Energy Company (AEC, a Canadian firm) a contract in
which Occidental kept nominal legal title to the oil production contract with the
government, but through which AEC purchased 40percent of Occidentals oil rights and
agreed to foot 40 percent of ongoing costs.7 The two companies formed a Management
Committee comprised of one AEC representative and one Occidental representative with the
power and duty to authorize and supervise Joint Operations. Occidental mentioned the deal
to the government, but neither presented the contract nor sought government authorization for
AECs acquisition of a significant economic and operational stake in the Amazonian oil
project.
After an audit of Occidental in 2004, Ecuadors Attorney General determined that the
confidential Occidental-AEC contract in 2000 had bypassed necessary government
3 Occidental v. Ecuador, at para. 117.

7 Occidental v. Ecuador, at paras 128,129.
3|PAGE

authorization and thus violated Occidentals oil concession contract with the government,
prompting initiation of a process to annul it. In May 2006, after a long delay filled with a
presidential ouster and political tumult, the government terminated the contract with
Occidental and repossessed the land and oil equipment of Block 15.8
ARGUMENTS
At its core, the dispute concerned the termination of the Participation Contract between
Occidental and Ecuador. Specifically, Occidental advanced two arguments. First, in
terminating the Participation Contract without cause (i.e. in the absence of a termination
event under the Contract), Ecuador breached its obligations under both the Participation
Contract and BIT. In particular, Occidental argued that the Farmout Agreement did not
operate as an assignment of rights in violation of Ecuadorian law. Second, assuming a
termination event was found to have occurred, Occidental argued that the termination would
still be in breach of the Ecuadors obligations under the BIT and Ecuadorian law because it
was unfair, arbitrary, discriminatory and disproportionate.9
In its defense, Ecuador argued that the Farmout Agreement effected an assignment and thus
required ministerial approval, as required by Ecuadorian law. It also argued that Occidental
was liable for a number of violations of Ecuadors Hydrocarbons Regulations. Finally,
Ecuador argued that the Caducidad Decree complied fully with the BIT and international law,
and that no expropriation took place.
NATIONAL TREATMENT
The Claimant argued that Ecuador had breached its national treatment obligation given that
various companies involved in the export of other goods (e.g., flowers, mining, seafood
products), were still entitled to receive VAT refunds.
The Tribunal agreed with Occidentals argument that its treatment should be compared to that
of actors in other (i.e. non-oil) economic sectors, and expressly rejected a WTO/GATT-style
8 Occidental v. Ecuador, at paras 199,200.

4|PAGE

analysis of the national treatment obligation, which would restrict its comparison to directly
competitive or substitutable products.10
Although the Tribunal was convinced that there had been no discriminatory intent in
Ecuadors actions against foreign investor, the result of the policy enacted and the
interpretation followed by the SRI in fact has been a less favorable treatment of
Occidental.11 Thus, the violation of the national treatment obligation was established.
FAIR AND EQUITABLE TREATMENT AND FULL PROTECTION AND SECURITY
The Tribunal interpreted the Fair and Equitable Treatment (FET) standard to require the
stability of legal and business framework and emphasized that the relevant legal question
under international law was not whether there was an obligation to refund VAT, but whether
the legal and business framework met the requirements of stability and predictability.12 The
Tribunal also noted that the FET standard was objective and did not depend on whether the
Respondent acted in good faith or not.13
On the facts of the case, the Tribunal concluded that the framework, under which the
investment had been made and operated, was changed in an important manner by the actions
adopted by the SRI: [t]he tax law was changed without providing any clarity about its
meaning and extent, and the practice and regulations were also inconsistent with such
changes.14 The Tribunal thus concluded that Ecuador breached its obligation to accord FET.
Having found that Ecuador was in breach of the FET standard, the Tribunal held that this had
the effect of also constituting a breach of the related BIT guarantee of Full Protection and
Security.15
10 Occidental v. Ecuador, at para. 173-176.
12Occidental v. Ecuador, at para 191.
13 Occidental v. Ecuador, at para 186.
5|PAGE

IMPAIRMENT CLAIM - REJECTED
Article II (3) (b) of the BIT provided as follows:
Neither Party shall in any way impair by arbitrary or discriminatory measures the
management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of
investments...
The Tribunal found that the management, operation, maintenance, use, enjoyment,
acquisition, expansion or disposal of the investment had not been in any way impaired by the
measures adopted. Therefore that claim was rejected.
DECISION
The tribunal held that the Farmout Agreement effected an assignment in violation of
Ecuadorian law, since it was not approved by the Ecuadorian government. However, the
tribunal held that the termination of the Participation Contract was a disproportionate
response to Occidentals assignment of rights under the Farmout Agreement.
As part of its proportionality analysis, the tribunal held that there were a number of
alternatives to terminating the Participation Contract and that the latter should have thus been
a measure of last resort. The tribunal also found that Ecuador did not suffer any quantifiable
loss as a direct result of AEC taking an economic interest in Block 15. 16 Thus, the Caducidad
Decree was disproportionate to its objective.
The tribunal noted that the principle of proportionality is observed in a variety of
international law settings, including its application to potential breaches of BIT obligations,
such as fair and equitable treatment obligations.17 To this end, the tribunal noted:

17 Occidental v. Ecuador, at para 404, see also MTD Equity SDN.BHD. and other v. The Republic of
Chile, ICSID Case No. ARB/01/7 (25 May 2004); LG&E Energy Corp. and others v. The Argentine
Republic, ICSID Case No. ARB/02/1 (3 October 2006); Tecmed S.A. v. The United Mexican States,
ICSID Case No. ARB (AF)/00/2 (29 May 2003); Azurix Corp. v. The Argentine Republic, ICSID
Case No. ARB/01/12 (14 July 2006).
6|PAGE

. . . the overriding principle of proportionality requires that any administrative goal must be
balanced against [the investors] own interests and against the true nature and effect of the
conduct being censured.18
The Caducidad Decree was issued in violation of Ecuadorian law, which recognizes the
proportionality principle, and in breach of the BIT and customary international law. The
tribunal also held that Ecuadors measures were tantamount to expropriation.19
DECISION ANALYSIS
THE TRIBUNAL ACKNOWLEDGED THAT OCCIDENTAL BROKE THE LAW
ANDSHOULD HAVE EXPECTED ECUADORS RESPONSE:
The tribunal assessed that Occidentals contract with AEC effectively transferred to AEC
some of the exclusive rights to carry out the oil exploitation activities granted to Occidental
by the government contract,20 giving AEC de facto legal title to the oil project. 21 It further
stated that such a substantive transfer required prior authorization on the part of Ecuadorian
authorities, as stipulated in Occidentals government contract and in Ecuadorian law. Since
Occidental failed to seek permission before selling 40 percent of its government oil
concession, the tribunal concluded that Occidental had breached the government contract and
violated Ecuadorian law. The tribunal further noted that the governments resulting
termination of the contract and forfeiture of the investment was not only within its legal
bounds, but is something that Occidental should have expected as a plausible response to its
illegal maneuver.22
18 Occidental v. Ecuador, at para 450. The tribunal also noted that the principle of proportionality
was recognized under the Ecuadorian constitution.
7|PAGE

THE TRIBUNAL FURTHER EXPANDED THE SCOPE OF MST/FET
OBLIGATIONS BY FABRICATING A NEW PROPORTIONALITY
REQUIREMENT:
After determining that Occidental should have expected Ecuador to terminate its contract and
forfeit its investment given that Occidental breached its contract, how did the tribunal then
proceed to find that Ecuador had violated FET obligations it owed Occidental? To do so, the
tribunal stretched the standard to new lengths, requiring that any penalty the State chooses to
impose must bear a proportionate relationship to the violation which is being addressed and
its consequences.23 To impose this new ex post facto obligation on Ecuador, the tribunal
dismissed the CIL-based analysis of the FET obligation coming from the general and
consistent practice of States that they follow from a sense of legal obligation and observed
the growing body of awards based on proportionality obligations generated by past
investor-state tribunals. The award cites four investor-state cases in which tribunals,
exercising equally ample freedom to expand upon established investor protections, listed
proportionality as an additional obligation of States.
To further justify this discursion, the tribunal relied on a single expert, Dr. Perez Loose,
called by Occidental, to interpret the whole of Ecuadorian law. Loose cited several legal
fragments, including the Constitutions broad call for due proportionality between offences
and penalties, and concluded (in the tribunals words) that the principle of proportionality
applies generally in Ecuadorian law.24 A footnote in the award indicates that Ecuador
challenged the credibility of Looses interpretation, given an apparent conflict of interest:
Loose recently partnered with Occidentals head legal counsel in a separate case against
Ecuador. The tribunal rejected the challenge, arguing that Looses expert witness preceded
the other case, and thus adopted Looses interpretation of the law as conclusive.
The tribunals brazen redefinition of the FET obligation highlights a growing, extremely
worrying trend. While States have long argued that MST/FET obligations must be defined
according to a CIL State practice/opinio juris analysis, the panel presumed to create its own
version of customary international law based on its judgments and that of past tribunals. By
veering from the MST/FET definition based on CIL, tribunals have been increasingly
8|PAGE

imposing an ever-expanding set of obligations on States. For instance, in the June 2012 RDC
v. Guatemala ruling, the tribunal rejected the opinions of Guatemala, the United States, El
Salvador, and Honduras that the CIL standard for MST/FET is defined by State practice,
instead borrowing a broad MST/FET interpretation from another tribunals award in a North
American Free Trade Agreement (NAFTA) case. 25 The borrowing of definitions and concepts
generated in other tribunals awards, as if they were CIL, is extremely troubling.
[I]international tribunals do not create customary international law. Only nations create
customary international law, noted the United States as respondent in the NAFTA case
Glamis Gold, Ltd. v. The United States of America.26
Worryingly, the award in the Glamis case is increasingly becoming an outlier, in that it was
based on a standard CIL analysis. There the tribunal pronounced that FET violations must be
egregious and shocking, such as a gross denial of justice, manifest arbitrariness, blatant
unfairness, a complete lack of due process Applying this CIL-based definition to the
Occidental cases facts, Ecuadors decision to terminate a contract breached by Occidental
when the contract and Ecuadorian law plainly contemplates such termination cannot be
described as egregious, unfair, or a gross denial of justice. It is neither arbitrary nor
shocking, since, as the tribunal itself noted, Occidental should have expected contract
termination as a plausible response to contract breach. And the only denial of due process
came from Occidental, not Ecuador. In response to Occidentals unhappiness about Ecuadors
decision, the Ecuadorian government requested that Occidental pursue a case in Ecuadors
courts. But Occidental rejected the domestic due process available to it to challenge the
government decision, instead resorting to an investor-state tribunal.27
25 See Public Citizens analysis of the RDC v. Guatemala case: Lori Wallach and
Ben Beachy, CAFTA Investor- state Ruling: Annex on Minimum Standard of
Treatment, Proposed for TPP, Proves Insufficient as Tribunal Ignores Customary
International Law Standard, Applies MST Definition from Past NAFTA Award to
Rule against Guatemala, July 19, 2012.
26Glamis Gold, Ltd. v. United States of America, Award, Ad hocUNCITRAL
Arbitration Rules (2009), at para. 543.
27 Occidental v. Ecuador, at para. 291
9|PAGE

THE TRIBUNAL SUPPLANTED ECUADORS LEGAL VETTING PROCESS WITH
ITSOWN SPECULATIVE VETTING TO DETERMINE DISPROPORTIONALITY:
The Occidental v. Ecuador tribunal did not stop at its over-expansive interpretation of FET
and retroactive addition to the BITs obligations of a notion that the State has an obligation to
act proportionally. The tribunal then assumed jurisdiction for determining Ecuadors
adherence to the new and amorphous obligation. The tribunalists determined that Ecuadors
response to Occidentals violation of the law was out of proportion.28
One of the tribunals key arguments was that Ecuador had not suffered materially as a result
of Occidentals decision to circumvent government approval in transferring responsibility for
40 percent of its Amazon oil production.29 According to the tribunal, the governments
exercise of its legal right to terminate the contract was thus disproportionate to the injury it
suffered. To make this determination, the tribunal employed a narrow definition of
proportionality that focused only on actual monetary losses incurred to the time of the
contract termination by Ecuador.
Further, the tribunals focus on whether Ecuador was obtaining less money under
Occidentals breached contract disregards the very real environmental and societal costs that
could result when a government is denied its sovereign opportunity to determine which firms
operate within its borders. Ecuador is still struggling to gain compensation from Chevron for
decades of contamination of a Rhode Island-sized swath of the Amazon. 30In the wake of such
environmental calamity, Ecuador is understandably cautious about the arrangements it makes
with respect to extraction of oil from the countrys Amazon region. Finally, the tribunal
ignored a sovereign States interest in acting to establish a clear precedent that denials of the
States prerogative to vet foreign investors, and termination-level breaches of oil concession
contracts, will not be tolerated.
29 Occidental v. Ecuador, at para. 444, 445.
30 Steven Donziger, Laura Garr, and Aaron Marr Page, Rainforest Chernobyl
Revisited: The Clash of Human Rights and BIT Investor Claims: Chevrons Abusive
Litigation in Ecuadors Amazon, Human Rights Brief. Available at:
http://www.citizen.org/documents/Human-Rights-Brief-Article%20%282010%29.pdf
10 | P A G E

As further justification of its determination of disproportionality, the tribunal noted that the
government had previously approved AEC, the firm to which Occidental had sold the 40
percent share, to operate in other concessions. This led the tribunalists to speculate that the
company would have likely been approved by the government if Occidental had complied
with the legal obligation to request approval. 31 Positing such pontification as evidence, the
tribunal effectively inserted its speculative conclusion of AECs viability as a substitute for
Ecuadors legal process to determine said viability.
THE TRIBUNAL SLAPS ON AN EXPROPRIATION VIOLATION IN A ONE
PARAGRAPH PRONOUNCEMENT:
The tribunal perfunctorily added a finding of indirect expropriation without presenting any
analysis of the BITs Expropriation obligation or how Ecuadors action violated it. Instead,
the tribunal opined in one paragraph that it had no hesitation in determining that Ecuador
sanction also was tantamount to expropriation citing its prior, elastic finding of a FET
violation as the basis for also finding an indirect expropriation.32 The panel simply announced
that an FET violation also constituted an Expropriation violation.
Peculiarly, given the failure to conduct an Expropriation analysis, the panel did add a
sentence noting the definition of tantamount to expropriation used by the notorious NAFTA
Metalclad v. Mexicoaward. It did not connect the facts of the Occidental case to the Metalclad
definition, but rather just inserted a quote from it describing tantamount to expropriation as
including incidental interference with the use of property which has the effect of depriving
the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic
benefit of property even if not necessarily to the obvious benefit of the host State. Of course,
the NAFTA Metalclad award was so broadly castigated that it led the NAFTA Free Trade
Commission (comprised of the three NAFTA Parties) to issue a formal July 2001
interpretative note on NAFTAs Investment Chapter, and prompted the incorporation of the
substance of the interpretive note into the Central America Free Trade Agreement and future
U.S. FTAs. Yet, the Occidental tribunal not only used another tribunals award to define
Ecuadors obligation rather than conducting its own CIL analysis of the BITs Expropriation
31Occidental v. Ecuador, at para. 445

32Id.
11 | P A G E

provision, but relied on an award that has been widely criticized for overly elastic
interpretations of NAFTA obligations.
And, the tribunal referenced a definition that is not relevant to the facts of this case. At issue
in Metalclad was whether denial of government construction and operating permits that
diminished the value of a toxic waste facility whose title remained in the hands of the
investor comprised an indirect taking. But Ecuadors response to Occidentals violation of
Ecuadorian law and breach of its contract was not incidental. Ecuador reclaimed physical
control of the land and facilities as was explicitly called for by Ecuadors hydrocarbons law.
Thus, if anything the tribunal might have conducted an analysis of whether Ecuadors action
resulted in a direct expropriation. Yet, a finding of direct expropriation based on an
independent analysis of that BIT provision would have faced the fact that the contract that
Occidental signed with the government contained a clear commitment to enforce the
hydrocarbon laws provision that the government could terminate and forfeit an investment
if it violated the requirement to solicit authorization before involving outside firms.33
TRIBUNALISTS INCREASED OCCIDENTALS HYPOTHETICAL LOST PROFITS
BYDECIDING THAT A TAX WAS NOT A MATTER OF TAXATION:
In estimating the amount of profits that Occidental might have made had its contract
remained in effect, the tribunal majority had to determine how Ecuadors tax policies would
have impacted future revenues. In the month prior to the cancellation of Occidentals
contract, Ecuador passed a new broad-based oil taxLaw 42that lays claim to a portion of
oil profits that result from increases in the oil price. However, the two majority tribunalists
decided to act as if the tax was never imposed in calculating Occidentals hypothetical future
profits. The reason, they argued, is that the new tax would have constituted yet another
breach of Ecuadors FET obligation to the corporation.34
To come to this conclusion, the majority had to first side step the fact that the U.S.-Ecuador
BIT actually reserves policy space for both governments to enact matters of taxation,
indicating their exemption from FET challenges. To circumvent this BIT provision, the
majority decided to declare the new tax to not be a matter of taxation. Declining to give the
12 | P A G E

measure a name, the majority tribunalists instead described it as a unilateral decision of the
Ecuadorian Congress to allocate to the Ecuadorian State a defined percentage of the revenues
earned by contractor companies.35 The standard definition of a tax is a compulsory
contribution to state revenue, levied by the government on workers' income and business
profits Thus, in seeking to avoid naming Law 42 as a tax, thereby placing it under the
taxation safeguard against FET claims, the majority instead simply described the measure
using the standard definition of a tax.
Beyond its ludicrous attempt to redefine common English and Spanish language terms, the
majoritys rationale for calling the tax a FET violation is worrisome. The attorneys argued
that Law 42 violated Ecuadors FET obligation under the BIT because it is in breach of the
Participation Contract and flouts the Claimants legitimate expectations. First, as mentioned,
the idea that governments are obliged to fulfill investors expectations is an inventive
interpretation of FET that departs from CIL and the opinions filed by the United States and
other States in previous investor-state cases.36 Second, the majoritys logic is contradictory:
when Occidental breached its contract and flouted the governments expectation to vet
oil companies operating in its territory, the tribunal did not nullify Occidentals contractual
claim to future oil revenue. But in assessing that Ecuadors tax law breached the very same
contract and flouted Occidentals expectation of profit, they felt comfortable nullifying the
governments legal claim to tax revenue.
DAMAGES
COMPENSATION
The Tribunal did not discuss the applicable standard of compensation. First, the Tribunal held
that the investor was not obliged to return the amounts of VAT refunded to him in 2000-2001,
and that the resolutions of the SRI requiring him to do so were without legal effect.
Secondly, the Tribunal awarded the following damages as causally linked to BITbreaches:
1) Amounts of VAT paid by Occidental, whose refund was requested and denied by SRI (US$
12.6 million);
36 See, for example, Glamis v. USA, at para. 576.
13 | P A G E

2) Amounts of VAT paid by Occidental, whose refund was not requested (US$60.5 million).
Even though the Respondent objected, arguing with reference to Feldman, that amounts of
VAT, which had not been claimed, could not be granted, the Tribunal accepted the Claimants
argument, that any application for refund would have been futile in view of the earlier
refusals of refund.
These two heads of damages totaled US$ 73.1 million. The Tribunal adjusted this figure on
the following basis. The Respondent objected to the amount of US$ 95,000in connection with
the VAT effectively submitted for reimbursement pointing to impropriety of invoices and
other aspects. This gave a correction factor of 0.0075, which, if applied to the total amount of
US$ 73.1 million, was equivalent to US$550,000. As an additional conservative measure,
which the Tribunal took to ensure that compensation does not exceed the amount of VAT
which [Occidental] in fact should have been refunded, the Tribunal reduced compensation
(US$ 73.1 million) by a further 1.5 %, or approx. US$ 1 million. Accordingly, the total
amount of VAT awarded to Occidental was approx. US$ 71.5 million.
MEASURES TO AVOID DOUBLE RECOVERY
At the time of the arbitration, Occidental had several claims for VAT refunds pending at local
courts in Ecuador. To avoid double recovery, the Tribunal
(1) held that Occidental shall not benefit from any additional recovery;
(2) directed the Claimant to cease and desist from any local court actions, administrative
proceedings or other actions seeking refund of any VAT paid through 31 December 2003;
and
(3) held that any and all such actions and proceedings shall have no legal effect.
CONCLUSION
When a host State changes the tax regime applicable to an energy project, international
arbitration may offer a neutral forum for the investor to challenge the measure. The success
of such a challenge will often turn on whether the investor obtained a specific stabilization
commitment from the host State at the time it entered into the investment.
14 | P A G E

Ultimately, Occidental asks more questions than it answers about the rights in investment
treaties. It serves as a vital reminder that tribunals should be mindful of the need both to
articulate those considerations that form the ratio decidendi of their awards and to consider
with great care whether to extend an analysis of one case to another case where the facts or
the legal context are substantially dissimilar. Perhaps more importantly, Occidental moves to
center stage the question of how a state may and may not respond when attempting to address
unfavorable awards. Although investment-treaty arbitration may have been created, in part, to
privatize the development of international investment law, the hybrid nature of the
mechanism and the state of current jurisprudence suggest that such arbitration is now, for
better or worse, part of a larger foreign relations dialogue.
15 | P A G E

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INTERNATIONAL INVESTMENT LAW

OCCIDENTAL EXPLORATION AND PRODUCTION COMPANY

THE REPUBLIC OF ECUADOR

SUBMITTED TO:SUBMITTED BY:

NATIONAL LAW UNIVERSITY ODISHA