Ecuador vs Burlington Expropriation

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.