Debevoise Wins Record-Breaking $435 Million Award Against Ecuador in Connection with Law 42

17 October 2019

Debevoise & Plimpton LLP has secured a substantial victory for Perenco Ecuador Ltd in an ICSID arbitration against Ecuador arising out of Ecuador’s imposition of Law 42, which unilaterally increased the State’s participation in Perenco’s participation contracts. Perenco is now entitled to approximately $435 million, net of cost recovery and other factors, which is the largest compensation amount that any investment tribunal has awarded against Ecuador for its imposition of Law 42.

Perenco had invested hundreds of millions of dollars to develop portions of the Ecuadorian Amazon in reliance on contracts that provided the company with a participation percentage of the oil produced. When oil prices rose, however, Ecuador enacted and began to enforce Law 42, which unilaterally amended the participation percentages such that Ecuador claimed for itself first 50% and then 99% of all oil revenues above relatively low reference prices.

In 2008, Perenco commenced an ICSID arbitration against Ecuador under the France-Ecuador bilateral investment treaty and obtained a binding provisional measures order preventing Ecuador from enforcing Law 42. Despite that order, Ecuador seized all of Perenco’s production, physically took over the facilities, and later terminated Perenco’s contracts altogether. 

The Debevoise team pursued the matter through multiple evidentiary hearings and four separate phases, including defending a $2.5 billion counterclaim for alleged environmental harm. Along the way, the team overcame Ecuador’s jurisdictional objections, succeeded on the merits of Perenco’s claims for breach of the treaty and the contracts, defeated Ecuador’s attempt to reconsider that liability decision, and obtained an interim decision on the counterclaims that rejected the key legal premises of Ecuador’s $2.5 billion counterclaim. The Tribunal then appointed its own independent expert to assist it in quantifying any environmental remediation costs.

The Tribunal issued its final award in the proceedings at the end of September 2019, more than 11 years after the arbitration commenced. It awarded Perenco damages of $449 million on its principal claims and almost 80% of its costs (including $23 million in legal fees), vindicating Perenco’s position that Ecuador’s failure to abide by the Tribunal’s provisional measures order had “changed the nature of [the] arbitration to the detriment of Perenco.”

On the counterclaim, the Tribunal awarded Ecuador just $54 million of Ecuador’s claimed $2.5 billion, noting that Ecuador’s counterclaims had been “heralded by exaggerated allegations of an environmental catastrophe” and “based on criteria that were divorced from the actual Ecuadorian legislative framework and using inflated ex-country remedial costs.”

The Debevoise team was led by partners Mark W. Friedman and Ina Popova and included counsel Floriane Lavaud, and associates Laura Sinisterra, Sarah Lee and Jennifer Lim.