Occidental Exploration & Production Company v Republic of Ecuador

An English court may determine a jurisdictional challenge to an investor-State award under section 67 of the Arbitration Act 1996, even where that requires interpretation of an unincorporated bilateral investment treaty. Such a treaty may confer direct rights on investors and generate a genuine arbitration agreement between an investor and a State.

The doctrines concerning unincorporated treaties and non-justiciable sovereign transactions do not prevent supervision where the treaty deliberately establishes consensual arbitration, the seat is England and the issues are judicially manageable. The court must consider the treaty, the resulting arbitration agreement and the statutory supervisory framework together. Section 67 alone does not displace any applicable rule of non-justiciability.

A Californian company obtained an award against Ecuador under the UNCITRAL arbitration provisions of a bilateral investment treaty between Ecuador and the United States. The tribunal fixed London as the place of arbitration and awarded compensation for Ecuador's refusal to refund VAT connected with oil production and export.

Ecuador challenged the tribunal's jurisdiction under section 67 of the Arbitration Act 1996. The company raised a preliminary objection that an English court could not determine the challenge because doing so required interpretation of an unincorporated treaty and adjudication upon transactions of sovereign States. Aikens J rejected that objection.

The company appealed. The central issue was whether the English doctrines of non-justiciability prevented the court at the seat from determining the tribunal's jurisdiction.

1. Appeal dismissed. The English court could determine Ecuador's jurisdictional challenge under section 67 of the Arbitration Act 1996. The court was not deciding the merits of that challenge.

2. The investment treaty conferred direct rights on protected investors. The treaty's language allowed an investor to pursue, in its own name and for its own benefit, claims arising from an investment agreement, an investment authorisation or an alleged breach of a treaty right. The investor was not merely enforcing rights belonging to its national State.

3. The treaty mechanism produced a real consensual arbitration agreement between the investor and Ecuador. That agreement was distinct from the treaty, recognised by English private international law and subject procedurally to English law because London was the seat. Its parties had corresponding rights to arbitrate disputes within its scope and to resist arbitration outside that scope.

4. The court was minded to regard the arbitration agreement as governed by international law because of its close connection with the treaty and the treaty's protective purpose. If a municipal governing law were indispensable, Ecuadorian law would have the closest connection. The point was not decisive because interpretation of the jurisdictional provisions would require regard to their international meaning in either event.

5. The principles in the Tin Council case and Buttes Gas did not bar adjudication. This was not an attempt to enforce a treaty operating solely between States. Nor did it involve sensitive sovereign transactions lacking manageable judicial standards. The States had deliberately established investor-State arbitration, and the jurisdictional issues were suitable for determination both by arbitrators and by the supervisory court.

6. Section 67 did not, standing alone, answer whether non-justiciability applied. The court had to consider the treaty's special character, the recognised arbitration agreement and the wider statutory framework. The treaty's express contemplation of the New York Convention reinforced the conclusion that ordinary jurisdictional objections and supervisory remedies remained available. No principled distinction could be drawn between a challenge under section 67 and jurisdictional scrutiny during enforcement under sections 66 or 103.

1. Court of Appeal (Civil Division): By [2005] EWCA Civ 1116 , dismissed Occidental's appeal and affirmed the determination of the preliminary issue in Ecuador's favour.

2. Queen's Bench Division: Aikens J, by judgment and order dated 29 April 2005, held that the English court could consider Ecuador's jurisdictional challenge under section 67 of the Arbitration Act 1996.