Debevoise & Plimpton LLP has secured a significant and definitive victory for its client Perenco Ecuador Limited by substantially defeating the Republic of Ecuador’s attempt to annul an arbitral award in Perenco’s favor arising out of Law 42. Perenco is now entitled to approximately $390 million, net of cost recovery and other factors, plus post-award interest. Ecuador has committed to pay the revised award amount voluntarily, unconditionally and in full.

The award remains the largest compensation that any arbitral tribunal has awarded in connection with Ecuador’s imposition of Law 42. Law 42 had unilaterally amended the percentages of oil produced to which private operators like Perenco were entitled under their participation contracts with the State. Under Law 42, Ecuador claimed for itself the first 50% and then 99% of all oil revenues above relatively low reference prices. Ecuador then seized the entirety of Perenco’s oil production from two oil blocks in the Ecuadorian Amazon, physically took over Perenco’s operations, and terminated Perenco’s participation contracts. In 2008, Perenco filed for arbitration under the auspices of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), alleging that Ecuador violated its participation contracts and the France-Ecuador bilateral investment treaty.

Over the next 11 years, the Debevoise team pursued the matter through multiple evidentiary hearings and four separate phases, including defending a US$2.5 billion counterclaim from Ecuador. In September 2019, Debevoise had secured a final award for Perenco of $448 million on its principal claims. The Tribunal also awarded Perenco nearly 80% of its fees and costs, among other things because Ecuador’s violation of the Tribunal’s earlier order of provisional measures had fundamentally changed the nature of the dispute.

Ecuador subsequently sought to annul the Award in its entirety, alleging 20 separate grounds for annulment. The Debevoise team, however, obtained Ecuador’s undertaking to pay Perenco the Award within 60 days of the ICSID Committee’s decision. Specifically, in April 2020, Ecuador, through its Minister of Economy and Finance and its Attorney General, made solemn undertakings to the ICSID Committee that Ecuador would “pay the Award unconditionally, voluntarily and in full, within 60 days counted as from the decision of the Committee on the application for annulment, without such payment being subject to enforcement proceedings or to the intervention of Ecuador’s courts.”

On 28 May 2021, the ICSID Committee rejected Ecuador’s attempts to annul the entirety of the Award. The Committee trimmed the amount of damages on the principal claims to $412 million, on the basis that the Tribunal failed to state sufficient reasons for its findings on two discrete aspects of its damages calculation, but rejected Ecuador’s remaining arguments, finding that many of them were impermissible “appeals of the Award.” The Committee also ordered Ecuador to bear 90% of the administrative costs of the annulment phase.

Perenco’s General Counsel, Jonathan Parr, said that Perenco is “pleased the arbitration has finally run its course and looking forward to full payment of the Award in accordance with the terms specified by the Committee. We would also thank Debevoise for their expert and unstinting support for over a decade on Perenco’s behalf in reaching a successful resolution.”

Mark W. Friedman, who led the Debevoise team and co-chairs Debevoise’s International Dispute Resolution Group, announced that “Perenco is pleased that this decade-old arbitration has now come to an end. Perenco looks forward to Ecuador honoring the solemn undertakings that its Minister of Economy and Finance and its Attorney General gave to the ICSID Annulment Committee that Ecuador will ‘pay the Award unconditionally, voluntarily and in full, within 60 days.’ Any failure to do so would undermine Ecuador’s commitment to grow the Ecuadorian economy, attract foreign investment, and protect Ecuador’s creditworthiness in the international community.”

The Debevoise team was led by partners Mark W. Friedman and Ina Popova and, at the annulment phase, included associates Laura Sinisterra, Sarah Lee, Moeun Cha and Janine Godbehere.