The
Republic of Ecuador gained ground in an arbitration case against U.S. oil
company Burlington Resources at the World Bank tribunal The International
Centre for the Settlement of Investment Disputes (ICSID) when a judge ruled
that the company's appointed arbitrator should be exchanged, due to a perceived
lack of impartiality.
Burlington's
appointed arbitrator was Chilean-born Professor Francisco Orrega Vicuna,
Professor of Law at the Heidelberg University Centre of Law for Latin America.
He has presided over numerous ICSID arbitration tribunals and has been a member
of the dispute settlement panel at the World Trade Organisation.
Windfall
tax dispute
The
case was first brought to ICSID by Burlington Resources in 2008. The company
charged that taxation changes that had been introduced by the Ecuadorian
government in 2006 had violated the Bilateral Investment Treaty (BIT) between
Ecuador and the United States and had effectively expropriated Burlington from
its oil exploration licences in Ecuador.
Burlington
first signed a contract in 2001 with the Government of Ecuador to explore for
oil in the country. Like other foreign oil companies in Ecuador, it had been
subjected to a campaign from indigenous organisations that objected to oil
exploration over what they claimed are their traditional territories. Lawyers
representing the Shuar, Achuar and Kichwa peoples of Ecuador delivered letters
and formal eviction notices to Burlington CEO Booby Shakouls. These charged
that oil exploration had contaminated their territories.
Oil
price rise
Matters
changed for the company when world prices started to rise from 2002. The
government of Ecuador attempted to renegotiate the fiscal conditions of the
contracts it had signed with Burlington with the intention of imposing a
windfall tax on the company's profits. After unsuccessful negotiations,
Burlington suspended operations on the grounds that the investment had become
unprofitable. In response, Ecuador took control of the company's acreage and ended
the contracts.
ConocoPhillips
takeover
Burlington
Resources was taken over by ConocoPhillips in 2005, whose CEO James Mulva said
the acquisition was part of his company's hopes to bolster oil reserves. The
Ecuadorian expropriation of Burlington occurred in 2006, after this takeover.
In 2008, Burlington, as a division of ComocoPhillips, filed a claim against
Ecuador at the ICSID tribunal.
In
December 2012, an ICSID tribunal ruled that Ecuador had expropriated the U.S.
oil company in violation of the US-Ecuador bilateral investment treaty. A
decision on pecuniary damages was postponed.
Dissenting
opinions
The
successful challenge by Ecuador on Orrega Vicuna's impartiality is
unprecedented and based on the arbitrator dissenting opinions in rulings so far
issued during this case. Although each side in an arbitration case appoints
their own counsel, the appointed lawyers are expected to remain impartial.
The
dispute is now suspended until Burlington appoints another arbitrator.