1 EnCana Corporation v Republic of Ecuador, UNCITRAL Final Award of 3 February 2006 (“EnCana Final Award“). Arbitrator Horacio Grigera Naon appended a Dissenting Opinion (“Dissenting Opinion“). There are two related documents in this arbitration: an Interim Award on Interim Measures of Protection of 31 January 2004 and a Partial Award on Jurisdiction of 27 February 2004 (“EnCana Partial Award“), both available at http://ita.law.uvic.ca. It is reported that EnCana does not intend to challenge the award rendered against it in the English courts (see Nigel Blackaby and Sylvia Noury, “International Arbitration in Latin America: Overview and Recent Developments” in The International Comparative Legal Guide to International Arbitration 2006).

2 Occidental v Ecuador UNCITRAL Final Award of 1 July 2004 (“Occidental Award“), available at <http://ita.law.uvic.ca>. This award was challenged by Ecuador in the English courts, which was ultimately dismissed on 2 March 2006, reported [2006] EWHC 345 (Comm.) (“Occidental Judgment“). Occidental had sought to exclude Ecuador's ability, based on English law of non-justiciability, to move the English court, dismissed by the Court of Appeals: 45 ILM 249 (2006).

3 EnCana Final Award. Generally, Vaughan Lowe, “Some Comments on Procedural Weaknesses in International Law”, 98 Am. Soc'y Int'l L. Proc. 37 at 39: “What happens in situations where the state plainly cannot afford to pay on all potential awards, but can equally plainly pay the first few awards that might be rendered? In such circumstances the value of having an award rendered at the earliest possible moment is paramount.” While Professor Lowe refers to the Argentina situation, as in the present case, inconsistent awards between different parties on the same subject-matter and against the same Respondent, have a market distorting effect which skews competitive conditions. One company is compensated for the same business operating condition while another is not.

4 Occidental was brought under the US / Ecuador BIT; EnCana was brought under the Canada / Ecuador BIT.

5 For example, Ecuador took opposing positions in the two arbitrations: in Occidental, it argued that the VAT refunds are matters closely related to the contractual formula contained in the investment agreement (see Occidental Award, para. 29; Occidental Judgment, paras. 21, 30); in EnCana, Ecuador ‘ ‘denies that the participation factor under the contracts has any relevance to liability to VAT or entitlement to VAT refunds” ﹛see EnCana Partial Award, paras. 30, 34-35.) The Tribunal, at the jurisdiction stage, found that “the Respondent's characterisation of the present dispute as one related exclusively to taxation measures cannot be upheld, at this stage of the procedure …” ﹛see EnCana Partial Award, para. 37.) This final position was that the Tribunal was deciding “a claim concerning a taxation measure” (EnCana Final Award, para. 166.).

6 EnCana Final Award, paras. 6 and 10.

7 EnCana Partial Award, paras. 43-46.

8 Those relating to consent, see EnCana Final Award, para. 7; EnCana Partial Award, paras. 12-20.

9 Those relating to subject-matter jurisdiction, see EnCana Final Award, para. 8; EnCana Partial Award, paras. 21-400.

10 The Occidental tribunal rendered an unanimous award on 1 July 2004. On 2 August 2004, Ecuador passed an “Interpretative Law” on VAT-refunds and, on 11 August 2004, challenged the Occidental Award before English courts.

11 This parallels the ICJ decision in South West Africa (Ethiopia / South Africa; Liberia / South Africa), ICJ Rep. (1962) 319 et seq. which upheld jurisdiction; ICJ Rep. (1966) 6 et seq. which denied jurisdiction. Between these two decisions, the membership of the Court had changed. See Robert Jennings, “General Introduction”, in Zimmermann, Tomuschat, Oellers-Frahm, The Statute of the International Court of Justice: A Commentary, Oxford: 2006, p. 18. A hearing in EnCana was held on 8-13 November 2004. The Tribunal prepared a draft award on 4 April 2005, on the basis of which it put certain questions to both parties. On 3 February 2006, the Tribunal rendered final award.

12 EnCana Final Award, para. 117.

13 Ibid.

14 EnCana Final Award, para. 128: “The Tribunal notes that NAFTA's apparent co-mingling of diplomatic protection concepts with investor-State claims (see, for example, Article 1136(5)) is not reflected in the BIT applicable to this arbitration.“

15 EnCana Final Award, para. 110: “nothing in the BIT applies to taxation measures” (Emphasis in original). Could the doc trine of separability have intervened to make applicable the arbitration provision, but not the rest of the BIT provisions? On separability, see generally Stephen Schwebel, International Arbitration: Three Salient Problems, 1987, Section 1 at p. 60: ‘ ‘support for the principle of severability is both broad and compelling.

16 Canada / Ecuador BIT, Article XII(3).

17 Canada / Ecuador BIT, Article XII(4).

18 EnCana Final Award, para. 140.

19 EnCana Final Award, para. 109.

20 Occidental Award, paras. 74-75. See also para. 29. EnCana alluded to this, see EnCana Final Award, para. 138.

21 EnCana Final Award, paras. 142(2) and (3).

22 EnCana Final Award, para. 142(4).

23 See Thomas Waelde, Abba Kolo, “Coverage of Taxation Under Modern Investment Treaties: An Overview of Modern Treaty Practice”, International Law Association Foreign Investment Committee Report, 2nd Draft, July 2006 (forthcoming: <http://www.transnational-dispute-management.com>). See also EnCana Final Award, paras. 143-146: “But even if (as the Tribunal is inclined to conclude) SRI has not been consistent in its interpretation of Article 69A the essential point is that the obligations not to discriminate and to act in an equitable manner as between different classes of investors - obligations that may be derived from Articles II and IV of the BIT - do not apply to taxation measures.“

24 See also EnCana Final Award, para. 147 where the deviation occurs.

25 EnCana Final Award, para. 149.

26 EnCana Final Award, para. 150. The Tribunal stated that this holding mirrors a similar holding in Occidental (see footnote 103). However, the Occidental finding of fact that the contracts did not take VAT payments into account was relied upon by that tribunal for liability and not jurisdictional purposes. In any event, the first-level interpretation of the taxation measures provision in the US / Ecuador BIT relevant in Occidental may be said to be diametrically opposite EnCana (see Occidental Judgment, para. 97: “ I therefore accept Mr. Greenwood's “gateway” argument: i.e., that once a claim comes within the ambit of Article X.2(a), (b) or (c), that means that ”… the provisions of this Treaty, and in particular Articles VI and VII, shall apply …”, which includes the provisions of Article II.“). There are differences in wording between the Canadian and American BITs with Ecuador in this regard (EnCana Final Award, footnote 119).

27 EnCana Final Award, para. 153.

28 EnCana Final Award, paras. 155-159.

29 EnCana Final Award, para. 109. This limited interpretation of an ‘ ‘investment agreement'’ diverges from the broad definition given in Occidental, see Occidental Judgment, paras. 100-101: “what is meant by “terms” of an investment agreement?… if, under the investment agreement in question, the contractual bargain means that parties are under an obligation of good faith or fair dealing according to the applicable law and if, under the applicable law that obligation should be performed and is capable of enforcement, then it is logical to call that obligation a “term” of the investment agreement. In short, I think that, on its proper interpretation, the phrase ‘ ‘terms of the investment agreement'’ means ‘ ‘the contractual bargain embracing all the parties’ obligations pursuant to the investment agreement.“” The EnCana Tribunal seems to suggest nonetheless that had EnCana put its claim in this way of the contract, it would be subject to the contractual dispute settlement mechanism (EnCana Final Award, para. 161). It would be an unfortunate implication if by this paragraph it is meant that the BIT arbitral option is thereby foreclosed.

30 EnCana Final Award, para. 154.

31 See especially EnCana Final Award, para. 167 and footnote 119.

32 EnCana Final Award, para. 171: “The claim is thus put in two ways. Either Ecuador has wrongfully denied rights to refunds owing to EnCana subsidiaries under Ecuadorian law, or, irrespective of the legality of its measures, it has engaged in conduct having an equivalent effect to the expropriation of the investment.“

33 EnCana Final Award, para. 178. The Tribunal suggests that “indirect expropriation” is an inappropriate way to consider taxation as expropriation, see para. 173: “this way of putting the claim faces a double difficulty.“

34 EnCana Final Award, para. 174. Note, however, EnCana Partial Award, para. 39: “VATin Ecuador, although charged at a rate which is well within the normal range for that tax internationally, is charged on inputs not profits, and that within the context of a VAT system a refusal to allow rebates on inputs is capable of having a disproportionate effect on an enterprise. Whether or not that is true in the present case may be doubted, as Respondent notes. But the impact of a measure as discriminatory or as tantamount to expropriation does not necessarily depend on the overall profitability of the enterprise in question.” See also Dissenting Opinion, para. 19.

35 For the opposite view relying on the same case, see Waelde&Kolo, supra, note 24.

36 EnCana Final Award, para. 177. There are differing views within EnCana on this point: see EnCana Partial Award, para. 39; Dissenting Opinion, para. 19.

37 EnCana Final Award, para. 184. The dissenting arbitrator took the view rather that the source of such legal rights (to a return on investment) is contained in the BIT and not in domestic law (see Dissenting Opinion, para. 23).

38 EnCana Final Award, para. 187.

39 EnCana Final Award, paras. 194-195. For disagreement with this view, see Dissenting Opinion, paras. 14, 26-27.

40 Waste Management, Inc. v United Mexican States (Number 2), ICSID Case No. ARB/00/3 (NAFTA) Final Award of 30 April 2004. The Chairman in Waste Management and EnCana was common to both arbitrations.

41 See Dissenting Opinion, para. 9; Waelde&Kolo, supra, note 24; Peter Muchlinski, ‘“Caveat Investor'? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard” 55 ICLQ 527-558, 554 (2006): “This approach may create a number of problems,” equally in the case of an expropriation claim.

42 EnCana Final Award, para. 192. The issue in Waste Management was when a breach of contract amounts to an expropriation.

43 EnCana Final Award, para. 189. Furthermore, the cited holding in Waste Management v Mexico was on “conduct tantamount to an expropriation” under Article 1110 of NAFTA (see Waste Management Final Award, para. 165); whereas in EnCana it was relied upon for a ‘ ‘direct expropriation'’ claim. Waste Management also found that local remedies ought to be relevant to the fair&equitable treatment standard: “the availability of local remedies to an investor faced with contractual breaches is nonetheless relevant to the question whether a standard such as Article 1105(1) has been complied with by the State'’ (see Waste Management Final Award, para. 116.) For comments, see Waelde&Kolo, supra, note 24; Muchlinski, supra, note 42.

44 This might have a disproportionate effect on countries with less sophisticated and refined municipal judges. It characterizes the standards contained in BITs conceptually akin to a “denial of justice”. This approach to international investment law is markedly different from that advocated by Sir Hersch Lauterpacht: “In the modern age of economic and political interdependence most questions which, on the face of it, appear to be essentially domestic are, in fact, essentially international'''’ (Hersch Lauterpacht, “The International Protection of Human Rights”, 70 Recueil des Cows (1947 - I) 5 – 108 at 25).

45 A fork-in-the-road clause aims at reducing multiple proceedings. According to such a clause, the choice of dispute settlement forum first chosen by a party is final, precluding any further arbitral option. A dispute taken to a local court in light of such a clause precludes BIT arbitration from being raised in respect of the same matter. (See EnCana Final Award, para. 89; Dissenting Opinion, para. 29; Occidental Judgment, para. 111). Therefore, the standard for expropriation will never be met because by moving the local court, the investor is precluded by the clause from moving investor-State arbitration. It might be said that the (subsequent) BIT claim is different from that submitted to municipal proceedings, but this splits hairs and creates argument.

46 Dissenting Opinion, para. 10, 13.

47 Dissenting Opinion, para. 13. See generally, Dissenting Opinion, paras. 19, 22-24, 27, 51, 61 and 68. The analysis on the majority's assumptions is contained in paras. 44—51, 72.

48 Dissenting Opinion, para. 38.

49 Dissenting Opinion, para. 74: “I conclude that Ecuador expropriated EnCana's returns on such investment in violation of article VIII. 1 of the Treaty and is entitled to compensation for the ensuing damages.