Ecuador v Occidental Exploration and Production Company

The doctrine of non-justiciability does not prevent an English court from determining a challenge under section 67 of the Arbitration Act 1996 to the substantive jurisdiction of an arbitral tribunal seated in England. The court may interpret an unincorporated treaty where that is necessary to determine a domestic-law right conferred by the Act. This remains so where the treaty creates rights under public international law and the court must consider the scope of an arbitration agreement arising from it. The court must distinguish between the substantive treaty rights, the treaty-based right to arbitrate, and the domestic procedural law governing the arbitration. Practical difficulty, or the absence of one treaty party from the proceedings, does not remove the court’s jurisdiction.

Occidental, a United States corporation, commenced UNCITRAL arbitration against Ecuador under the USA–Ecuador Bilateral Investment Treaty. London was selected as the seat. The tribunal awarded Occidental approximately US$75 million concerning VAT refunds and rejected Ecuador’s jurisdictional objections.

Ecuador challenged the award under sections 67 and 68 of the Arbitration Act 1996. Occidental applied for the section 67 challenge to be dismissed on the ground that determining the scope of an unincorporated treaty between foreign states was non-justiciable. The central issue was whether the English court could interpret the treaty in order to decide Ecuador’s domestic-law right to challenge the tribunal’s jurisdiction.

1. Application dismissed. The doctrine of non-justiciability did not prevent the court from entertaining Ecuador’s challenge under section 67 of the Arbitration Act 1996.
2. The court distinguished three categories of rights: substantive rights created by the Bilateral Investment Treaty; the treaty-based agreement to arbitrate; and the procedural rights and obligations governed by the law of the seat. The first two categories arose under public international law, while the third was governed by English law.
3. The treaty gave investors rights to pursue investment disputes directly against a state party. Those rights, and the scope of the treaty-based arbitration agreement, had to be determined by principles of public international law. The tribunal was therefore entitled to address jurisdiction and merits by applying those principles. Whether it had applied them correctly was a separate question for the section 67 challenge.
4. The principles stated in JH Rayner Ltd v Department of Trade [1990] 2 AC 418 did not create an absolute bar. Although an unincorporated treaty was not part of English law and could not itself create domestic rights, the court could examine it where necessary to determine a domestic-law right. Section 67 supplied that foothold.
5. The present case differed from the claim against sovereign states in JH Rayner Ltd v Department of Trade. Here the treaty-based rights were exercised through an arbitration subject to English procedural law, and Ecuador’s challenge was itself a statutory domestic-law right. The reasoning in CND v Prime Minister [2002] EWHC 2759 (QB) supported this approach.
6. The practical difficulty of interpreting the treaty, and the fact that the United States was not a party to the proceedings, did not justify declining jurisdiction. Those consequences were contemplated by the treaty’s dispute-resolution mechanism.