Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador)
ICSID · Investment (ICSID and treaty) · Ecuador · 27 Sep 2019
Why it matters
This award is significant for its detailed treatment of environmental counterclaims in investment arbitration, including the appointment of an independent expert to assess remediation costs. It also addresses contributory negligence, the valuation of expropriated assets, and the interplay between treaty claims and contractual obligations. The case is one of the few where a tribunal awarded substantial damages to a state for environmental harm caused by an investor.
Summary
Perenco Ecuador Ltd., a French-owned company, invested in oil exploration and production in Ecuador under participation contracts for Blocks 7 and 21. In 2006, Ecuador enacted Law 42, which imposed a 50% windfall profit tax on oil revenues, and later Decree 662, which increased the tax to 99% of extraordinary revenues. Perenco initiated ICSID arbitration under the France-Ecuador BIT, claiming expropriation and violation of fair and equitable treatment. In 2014, the Tribunal found Ecuador liable for breaching the BIT by imposing the 99% tax, which effectively expropriated Perenco's investment. The Tribunal also upheld Ecuador's counterclaims for environmental damage and infrastructure deterioration. The quantum phase determined damages: Perenco was awarded approximately $400 million for the loss of its investment, reduced by contributory negligence (20%) and set off against Ecuador's counterclaims. Ecuador was awarded about $55 million for environmental remediation (based on an independent expert's report) and infrastructure claims. The award is notable for its rigorous analysis of causation, valuation, and the allocation of environmental responsibilities between the investor and the state.
The detail
Parties: Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador)
Case number: ICSID Case No. ARB/08/6
Outcome: The Tribunal awarded Perenco damages for treaty breaches and ordered Perenco to pay Ecuador for environmental remediation and infrastructure counterclaims.
Quantum: Perenco awarded approximately $400 million (net after set-off); Perenco ordered to pay Ecuador approximately $55 million for environmental and infrastructure counterclaims.
Applicable law: France-Ecuador BIT; Ecuadorian law; Participation Contracts for Blocks 7 and 21
Issues in play: The case involved the collision between Ecuador's sovereign right to regulate (through Law 42 and Decree 662) and the investor's right to fair and equitable treatment under the BIT, as well as the investor's obligation to remediate environmental damage under Ecuadorian law.
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