The sharp rise in international arbitrations filed by energy companies in recent years has yielded an increasing number of interim measures applications. While interim measures have been legally available for decades, the various forms of interim relief issued by tribunals in more recent years suggest that claimants in energy-related arbitrations should strongly consider whether their needs would be met by a well-developed interim measures request. The benefits of interim relief, particularly in the context of international investment disputes, are significant. Interim measures generally provide an expedited procedure to challenge the most egregious conduct by host States (or that which threatens the greatest harm), all in the context of protecting the parties’ legal rights during the pendency of the arbitration.
This article briefly addresses the legal grounds for an international tribunal’s authority to grant interim measures, before examining significant examples of interim measures decisions involving energy companies in recent years. These examples show that the types of requests made — with mixed results — tend to fall into three main categories: (1) security for costs, (2) preservation of the status quo and non-aggravation of the dispute, and (3) suspension of parallel proceedings.
Authority for Interim Measures by International Tribunals
Speaking in broad terms, the following three requirements generally govern the issuance of interim relief: (1) the tribunal’s prima facie jurisdiction over the subject matter of the request; (2) a threat of substantial harm or prejudice to a right capable of being protected by the tribunal; and (3) urgency in the sense that the risk of harm or prejudice is imminent.1
The legal grounds for interim measures are based on the rules of the major arbitral institutions, in combination with the tribunal’s authority under the particular treaty or agreement governing the arbitration. For example, Article 47 of the ICSID Convention states that “the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party,” with Rule 39 of the ICSID Arbitration Rules further specifying that the tribunal may recommend provisional measures “on its own initiative or recommend measures other than those specified in a request.” The UNCITRAL Arbitration Rules also confer broad authority on the tribunal to issue interim measures. While the 1976 version of the UNCITRAL Rules authorized an arbitral tribunal to issue “any interim measures it deems necessary in respect of the subject-matter of the dispute” (Article 26(1)), the revised Rules, issued in 2010, provide even greater detail regarding the tribunal’s authority, and explicitly allow interim measures to: (i) maintain or restore the status quo; (ii) prevent imminent harm or prejudice to the arbitral process; (iii) preserve assets; and (iv) preserve evidence.
Similarly, under Article 23 of the ICC Rules, the tribunal may order “any interim or conservatory measure it deems appropriate,” which may further be conditioned on giving of security, and which may take the form of an order or award. The SIAC Rules (Article 26) and the ICDR Rules (Article 37) take this authority a step further, allowing a party to apply for interim relief even before the constitution of the tribunal, through a fast-track procedure employing an emergency arbitrator.
Key Interim Measures Requests in Oil-Related Cases
Security for costs
Some arbitral tribunals have considered interim measures requests for security for costs. In RSM v. Grenada, the claimants asserted that Grenada breached its Treaty obligations in relation to a 1996 petroleum exploration agreement, which provided for RSM to apply for, and Grenada to grant, a petroleum exploration license within 90 days of the Agreement’s effective date.2 In 2004, RSM submitted an application for an exploration license, which Grenada denied as untimely and thereafter terminated the Agreement. A first ICSID arbitration was conducted, and the tribunal rejected the claimants’ contention that Grenada had breached the Agreement. RSM applied for annulment of the prior award, and although the annulment application was fully briefed, RSM refused to pay the advance on costs requested by ICSID, which resulted in those proceedings being suspended.
“ The benefits of interim relief, particularly in the context of international investment disputes, are significant.”
In parallel, the RSM claimants commenced another ICSID arbitration, which prompted Grenada to file — as soon as the tribunal was constituted — a request for security for costs to protect its rights during the first phase of the proceedings. Grenada asserted that the issue was not whether the claimants could satisfy a possible costs award, but whether they were willing to do so.3 Although the claimants had “ample means” to post the security requested,4 Grenada argued that the claimants were unwilling to do so, relying principally on RSM’s decision not to post the advance on costs required in the annulment proceedings and on the attempts of RSM’s CEO to place personal assets beyond the reach of his creditors about 10 years ago.5
After concluding that Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules empowered an ICSID tribunal, in an appropriate case, to grant interim measures in the nature of security for costs,6 the tribunal rejected Grenada’s request for security for costs on the basis that Grenada had failed to prove the claimants’ inability or unwillingness to pay a costs award.7 According to the tribunal, Grenada did not contest the claimants’ ability to pay, nor did it demonstrate RSM’s unwillingness to pay. RSM had every right not to continue with its annulment application, and the conduct of RSM’s CEO more than a decade earlier in unrelated proceedings could not support the conclusion that the claimants would use every available means to avoid the enforcement of any potential costs award.8
Status quo/non-aggravation of the dispute
Most recently, the arbitral tribunal in Chevron v. Ecuador has issued a number of interim measures orders in response to the claimants’ requests. Chevron’s claims in the arbitration relate to Ecuador’s failure to respect its obligations under the U.S-Ecuador BIT, international law, and investment agreements through improper conduct related to an environmental litigation in the Ecuadorian court of Lago Agrio (“Lago Agrio Litigation”). In the litigation, which remains ongoing in Ecuador, a number of nominal plaintiffs represented by U.S. and Ecuadorian counsel have sought over US$ 113 billion in damages from Chevron for the alleged environmental impact resulting from the activities of a Consortium comprised of Chevron’s subsidiary, TexPet, and Ecuador’s State-owned oil company, Petroecuador, that ended in 1992.
Chevron and TexPet filed their arbitration against Ecuador under the UNCITRAL Rules in September 2009. The tribunal issued its first interim measures order in May 2010, ordering the parties “to maintain . . . the status quo and not to exacerbate the procedural and substantive disputes before this Tribunal,” including refraining from “any conduct likely to impair or otherwise adversely affect, directly or indirectly, the ability of the Tribunal to address fairly any issue raised by the Parties before this Tribunal.”9 With respect to the Lago Agrio Litigation in particular, the tribunal ordered the parties not to exert any unlawful influence or pressure on the Lago Agrio court and to inform the tribunal of the likely date of issuance of the Lago Agrio judgment as soon as such date was known.
In Occidental v. Ecuador, the claimants commenced ICSID arbitration proceedings following Ecuador’s decision to terminate a participation contract granting the claimants the exclusive right to carry out exploration and exploitation activities in “Block 15” of the Ecuadorian Amazon.10 In its interim measures application, the claimants requested: (i) that they be notified in advance of any governmental decision to award their block to a third party and (ii) that Ecuador take the necessary steps to ensure that oil produced from the expropriated Block 15 and shipped through the OCP pipeline would be credited towards the claimants’ “ship-or-pay” obligations, failing which the claimants risked incurring “an ever-increasing form of damage.”11 The claimants argued that such measures were necessary to maintain the status quo ante and to preserve from further degradation their rights to resume Block 15 operations and to obtain specific performance of the participation contract.12 The tribunal rejected the claimants’ request for interim measures, concluding: (i) the claimants had not established a strongly arguable case that there exists a right to specific performance where a natural resources concession agreement has been terminated by a sovereign State,13 and (ii) the harm for the claimants in the absence of interim measures was only “more damages” — as admitted by the claimants — which also could be compensated by monetary compensation.14
The EnCana v. Ecuador tribunal similarly considered a request for interim measures intended to maintain the status quo and preserve the claimant’s rights.15 The claimant, through its subsidiaries, was a party to a series of oil contracts with the Ecuadorian national oil company, Petroecuador, which entitled the subsidiaries to a share of oil produced from each field covered by the contracts. Subsequently, the Ecuadorian tax service changed the way in which it allowed VAT rebates for goods and services used in connection with the production of oil for export, effectively denying VAT rebates on future acquisitions, while also pursuing certain enforcement measures to reclaim VAT refunds wrongly paid in its view. Specifically, Ecuador froze the bank accounts of the claimant’s subsidiary and its legal representative in Ecuador, in an effort to recover approximately $7.5 million claimed to be owed to Ecuador as a result of incorrect VAT refunds.16 These actions formed the subject of EnCana’s interim measures application. The tribunal found that Ecuador’s enforcement measures were open to challenge before the Ecuadorian tax courts and that, in any event, if jurisdiction were upheld ultimately, it would be open to the tribunal to provide redress to the claimant for any losses suffered by the enforcement measures taken in breach of the treaty, including by payment of interest on sums refunded.17 Accordingly, the tribunal concluded that it was not necessary to order the withdrawal of the enforcement measures against EnCana’s subsidiary to protect the claimant’s rights at stake in the arbitration from irreparable harm.18
“[i]nterim measures ordering the suspension of parallel proceedings or otherwise affecting such proceedings seem to be growing in numbers. This rise may be a reflection of the increasingly difficult and outrageous circumstances facing some claimants at the mercy of host States.”
Suspension of parallel proceedings
Numerous international tribunals have issued provisional measures directed at the conduct of domestic courts. In his treatise on international arbitration, Gary Born likens provisional measures directed at pending litigation to court-ordered “antisuit” injunctions, in which a court mitigates the risk of parallel and inconsistent proceedings by issuing an injunction in protection of its own jurisdiction.19
Of the arbitral institutions that hear investor-State disputes, ICSID possesses the most highly-developed rules and case history regarding a tribunal’s authority to restrict litigation relating to the issues brought before the tribunal. This is largely due to Article 26 of the ICSID Convention, which provides that parties who consent to ICSID arbitration do so to the exclusion of any other remedy. On numerous occasions, parties have called upon ICSID tribunals to issue provisional relief to dismiss or circumscribe domestic court proceedings in violation of Article 26.20
While the exclusive-remedy rule in Article 26 forms the basis of most anti-suit orders issued by ICSID tribunals, it is not the only available ground. In Burlington v. Ecuador, for instance, an ICSID tribunal ordered the suspension of local proceedings not on the grounds of Article 26, but rather on the basis of preserving the status quo and not aggravating the dispute.21 In that case, Ecuador and Petroecuador had initiated seizures and judicial proceedings against the claimant’s oil production in an effort to collect an “additional participation” required by Law No. 2006-42 (“Law 42”). This Law mandated that all oil companies operating in Ecuador under “participation contracts” (production-sharing contracts) pay at least 50% of revenues obtained over a certain base-price of oil. In October 2007, that percentage was set by Executive Decree at 99% of revenues. In defending the enforcement measures that it had undertaken against Burlington, Ecuador asserted that it had a duty to enforce its own laws regardless of the pending ICSID proceeding.22 The tribunal rejected this argument, noting that by ratifying the ICSID Convention, Ecuador had accepted the power of an ICSID tribunal to enforce provisional measures, “even in a situation which may entail some interference with sovereign powers and enforcement duties.”23 The tribunal ordered that Ecuador and Petroecuador (the respondents in the ICSID arbitration) “shall discontinue the proceedings pending against the Claimant […] and shall not initiate new [...] actions.”24
Similarly, the Perenco v. Ecuador tribunal protected the claimant’s contractual rights at the heart of the dispute by enjoining Ecuador from (among other things) instituting or pursuing any judicial proceedings against Perenco or its employees to collect the disputed amounts required by Law 42 but not by the contract.25 The tribunal considered that, pending the arbitration challenging this “additional participation,” Perenco should not have to choose between making the disputed payments and suffering coercive actions by Ecuador (such as seizure of its oil production or other assets) to collect those disputed payments.26
“In ordering Ecuador to halt the criminal proceedings, the tribunal held that Ecuador’s sovereign right to prosecute and punish crimes “should not be used as a means to coercively secure payment of the amounts allegedly owed by City Oriente . . .”
Arising from the same background of Ecuadorian Law 42, City Oriente v. Ecuador is an important example of an ICSID tribunal granting interim measures in the context of a criminal case. There, the tribunal ordered Ecuador to stop pursuing indictments pending against the claimant’s individual executives.27 Ecuador had filed criminal complaints against three executives of City Oriente Limited, alleging, inter alia, that they had committed embezzlement by not paying the “additional participation” required by Law 42. The tribunal granted the claimant provisional relief, ordering Ecuador to refrain from “instituting or prosecuting, if already in place, any judicial proceeding or action of any nature whatsoever against or involving [the claimant] and/or its officers or employees arising from or in connection with” the contract at issue.28 In ordering Ecuador to halt the criminal proceedings, the tribunal held that Ecuador’s sovereign right to prosecute and punish crimes “should not be used as a means to coercively secure payment of the amounts allegedly owed by City Oriente . . . since this would entail a violation of the principle that neither party may aggravate or extend the dispute or take justice into their own hands.”29
Early this year, the Chevron v. Ecuador tribunal issued a significant order affecting the enforceability of a future judgment by an Ecuadorian court in the Lago Agrio Litigation. Chevron filed a second application for revised interim measures on January 14, 2011, asking the tribunal, inter alia, to order Ecuador to use all means necessary to stay or suspend any attempted enforcement of the future judgment. Within two weeks, the tribunal called an emergency hearing on the matter, which resulted in an unprecedented interim measures order targeting the enforcement of any future Lago Agrio judgment worldwide, and directing Ecuador to “take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against the First Claimant [Chevron] in the Lago Agrio Case.”30 The tribunal granted a number of Chevron’s other requests for relief, including an order that Ecuador refrain from aggravating the dispute and a declaratory order that any first-instance judgment in Ecuador is not enforceable, in accordance with the dictates of Ecuadorian law.
While these examples are encouraging for investor-claimants, not all energy companies have been successful in obtaining interim measures ordering the suspension of parallel proceedings. In Plama v. Bulgaria, for example, the tribunal refused to suspend local insolvency proceedings where the claims, causes of actions, and parties in the two proceedings were different, and where the local proceedings could not affect the outcome of the ICSID arbitration.31
As emerges from the foregoing, requests for interim measures in oil-related international arbitrations have met with mixed success. Nevertheless, interim measures ordering the suspension of parallel proceedings or otherwise affecting such proceedings seem to be growing in numbers. This rise may be a reflection of the increasingly difficult and outrageous circumstances facing some claimants at the mercy of host States. Although the future of this trend remains uncertain, at a minimum it suggests that claimants in energy-related arbitrations should consider whether their rights at stake in an arbitration could receive important protection as a result of a well-developed interim measures request.