In March 2006, the High Court rejected Ecuador's application to set aside the award of an Uncitral investment arbitration tribunal, the latest twist in the ongoing dispute between Occidental Petroleum and Ecuador.
The saga began in 2002 when Occidental initiated arbitration, alleging that by preventing Occidental from claiming VAT reimbursements Ecuador had breached the bilateral investment treaty (BIT) between the US and Ecuador. The tribunal, which chose London as its seat, entered an award in favour of Occidental.
Ecuador challenged the award before the English courts on the basis of the Arbitration Act, in particular section 67, which allows for the award to be set aside if the tribunal lacked substantive jurisdiction. Occidental objected to Ecuador's challenge, claiming that the English doctrine of non-justiciability prevented the courts from interpreting a treaty made between third states and that had not been incorporated into English law.
Both the High Court and the Court of Appeal rejected Occidental's objection. The Court of Appeal noted that BITs granted rights to individuals directly, and that their aim was to create a dispute resolution mechanism by which individuals could enforce these rights. The Court further noted that the arbitration agreement in the BIT was subject to international law and the Arbitration Act (as the seat was London) and therefore rejected the operation of the non-justiciability doctrine. This finding is crucial as any decision otherwise would have deprived parties to an arbitration seated in London and, arising out of a non-UK BIT, of any right of recourse against the award.
The High Court subsequently proceeded to hear Ecuador's challenge, pointing out that what it had to determine was not whether the arbitral tribunal could have reached the conclusion it did, but whether the tribunal did in fact have jurisdiction. This required the judge to re-examine the parties' submissions in the arbitration and interpret the relevant provisions of the BIT. The High Court confirmed the award, concluding that the tribunal had jurisdiction over the dispute. The saga is unlikely to end there, however, as Ecuador intends to appeal.
Peter Griffin and Isabelle Solal