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Inter Rao V. CELEC (ECUADOR), CAM Caso No. 3568-18 (CAM Santiago)

Why it matters

This award is significant for its detailed analysis of Ecuador's special procurement regime for international public enterprises and the standards for lawful termination of state contracts. It clarifies the burden of proof on the terminating party and the importance of strict compliance with contractual notice and cure provisions. The tribunal's rejection of the state entity's counterclaim and award of substantial costs also underscores the risks for states in terminating contracts without proper cause.

Summary

The dispute arose from a contract between Inter Rao (a Russian state-owned energy company and its Ecuadorian subsidiary) and CELEC (Ecuador's state electric corporation) for the supply, installation, and commissioning of turbogenerator units for the Toachi-Pilatón hydroelectric project. The contract was governed by Ecuadorian law and included an arbitration clause providing for CAM Santiago arbitration in Chile. In March 2017, CELEC unilaterally terminated the contract, alleging six categories of breach by Inter Rao: failure to meet the execution deadline, failure to deliver schedules and update the execution program, failure to deliver equipment, non-compliance with technical specifications, failure to maintain and repair, and lack of sufficient powers of the project manager. Inter Rao initiated arbitration, claiming the termination was unlawful and seeking payment for work done, return of performance bonds, and damages. CELEC counterclaimed for damages. The tribunal, after extensive technical and legal analysis, found that CELEC had not proven any of the alleged breaches justified termination. It held that the termination was unlawful and that CELEC had breached the contract. The tribunal awarded Inter Rao the termination value (USD 30.56 million), interest on delayed milestone payments (USD 1.44 million), return of the performance bond (USD 7.27 million), costs of maintaining guarantees and the local subsidiary (USD 514,488), and arbitration costs (USD 4.25 million). CELEC's counterclaim was dismissed in its entirety. The award is notable for its thorough treatment of delay analysis, technical specifications, and the application of Ecuadorian procurement law.

The detail

Parties: Inter Rao V. CELEC (ECUADOR), CAM Caso No. 3568-18

Case number: italaw/cases/10862

Outcome: The tribunal found that CELEC unlawfully terminated the contract and ordered CELEC to pay Inter Rao approximately USD 31.9 million in termination value, USD 7.27 million for wrongful call of performance bond, plus interest and costs, and dismissed CELEC's counterclaim.

Quantum: USD 39,781,227.48 (including termination value, interest, bond, costs, and damages)

Applicable law: Ecuadorian law (LOSNCP and its Regulations, and subsidiarily the Ecuadorian Civil Code); CAM Santiago Rules

Issues in play: The case involved the interpretation of Ecuador's special procurement regime for international public enterprises (Régimen Especial) and the application of Ecuadorian contract law principles regarding termination for cause versus unilateral termination.

Read the full decision at italaw ↗

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