Reproduced from www.worldbank.org/icsid with permission of ICSID.
Case Report (free download)
Case Report by Shehu Mustafa, Editor Diego Luis Alonso Massa
Burlington Resources Inc. ('Burlington' or 'claimant') commenced ICSID arbitration against the Republic of Ecuador ('Ecuador' or 'respondent') over a claim of wrongful expropriation of Burlington's interests in certain oil blocks. On 7 February 2017, the ICSID Arbitral Tribunal issued its award, refusing to reconsider its decision on liability and rejecting Ecuador's contention that the computation of the damages to which Burlington is entitled should be made without regard to the contractual tax absorption provision which entitled Burlington to a compensation for the economic effects of certain tax statutes. Further, the Tribunal held that the investment that was expropriated by Ecuador was Burlington's contractual rights in the Production Sharing Contracts ('PSCs') which comprised the tax absorption provisions. As such, it did not matter that Burlington had relinquished its contractual claims against Ecuador.
Ecuador submitted that there were new facts which had come to its knowledge after the Tribunal's decision on liability, these new facts triggering the invocation of Article 51 of the ICSID Convention. In resolving this issue, the Tribunal held that although worded as a post-Award remedy, the language of Article 51 of the ICSID Convention could by analogy be applied to a decision. The Tribunal however ultimately rejected Ecuador's application for reconsideration of the decision on liability as the Tribunal rejected Ecuador's contention that the Tribunal had erred as a matter of law, and was misled on the facts.
On damages, the Tribunal held that the measure of compensation is full reparation. The Tribunal rejected Ecuador's contention that its expropriation of Burlington's investment was wrongful only because of its failure to pay compensation. The Tribunal held that the Discounted Cash Flow ("DCF") was the appropriate method for measuring the losses that Burlington suffered as a result of the expropriation by Ecuador.
Finality of decisions vis-à-vis awards (res judicata); Expropriation; Reparation- the measure of compensation in international law; Fair Market Value versus Discounted Cash Flow; Relevant Time for Assessment of Value of Investment; Weighted Average Cost of Capital ("WACC").
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