An ICSID arbitral tribunal awarded approximately USD 40 million in damages to Ecuador for the foreign investor’s liability for the costs of restoring the environment in an area concerned by the investment. This award of a counterclaim in investment arbitration was made by an arbitral tribunal composed of Gabrielle Kaufmann-Kohler, Brigitte Stern and Stephen Drymer in a Decision on Ecuador’s Counterclaims in the case Burlington Resources Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5) dated 7 February 2017.
The arbitral tribunal recalled that the host State may bring a counterclaim in investment arbitration against the foreign investor as long as the three conditions of Article 46 of the ICSID Convention are met.
“Article 46. Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any -incidental or additional claims or counterclaims [i.] arising directly out of the subject-matter of the dispute [ii.] provided that they are within the scope of the consent of the parties and [iii.] are otherwise within the jurisdiction of the Centre.”
Here, the Arbitral Tribunal found that these conditions were met: (i) the counterclaims arose directly out of the subject-matter of the dispute; (ii) they were within the scope of the Parties’ consent to ICSID arbitration which was manifested in the agreement of the Parties; and (iii) they also fell within the jurisdiction of the Centre as circumscribed by Article 25 of the ICSID Convention (a legal dispute arising out of an investment which satisfied the nationality requirement).
Consequently, Ecuador could bring counterclaims against the foreign investor.
The most difficult condition to prove would usually be the second one, that the counterclaims are within the scope of the Parties’ consent to ICSID arbitration. Usually this is subject to lengthy debates between the parties, however, in the present case the investor, Burlington, and Ecuador expressed their agreement and consent that this arbitration is the “appropriate forum for the final resolution of the Counterclaims arising out of the investments made by Burlington Resources and its affiliates in Blocks 7 and 21, so as to ensure maximum judicial economy and consistency”. This agreement by the foreign investor came in exchange of Ecuador’s waiver or its right to file any other counterclaim against Burlington, its subsidiaries or any other corporation in the ConocoPhillips Group before another jurisdiction.
While the Burlington award shows that a State counterclaim in investment arbitration is in possible under ICSID Convention, their occurrence in practice has been limited due the requirement that the counterclaims must be within the scope of the parties’ consent to ICSID arbitration.