Ex. 112

IN AN ARBITRATION UNDER THE TREATY BETWEEN
THE UNITED STATES OF AMERICA AND THE REPUBLIC OF ECUADOR
CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION OF
INVESTMENT AND THE UNCITRAL ARBITRATION RULES
Final Award
CLAIMANTS: Chevron Corporation (USA) and
Texaco Petroleum Company (USA)
CLAIMANTS’ COUNSEL: R. Doak Bishop
Edward G. Kehoe
Wade M. Coriell
Isabel Fernández de la Cuesta
David H. Weiss
Elizabeth Silbert
KING & SPALDING LLP
Alejandro Ponce-Martínez
QUEVEDO & PONCE
RESPONDENT: The Republic of Ecuador
RESPONDENT’S COUNSEL: Diego García Carrión
PROCURADOR GENERAL DEL ESTADO
Eric W. Bloom
Ricardo Ugarte
C. MacNeil Mitchell
Tomás Leonard
Bruno D. Leurent
WINSTON & STRAWN LLP
Mark Clodfelter
FOLEY HOAG LLP
ARBITRAL TRIBUNAL: Prof. Karl-Heinz Böckstiegel, Presiding Arbitrator
The Honorable Charles N. Brower
Prof. Albert Jan van den Berg
SECRETARY TO THE TRIBUNAL: Brooks Daly (PCA)
Assisted by Martin Doe (PCA)
DATE OF THIS FINAL AWARD: August 31, 2011

UNCITRAL Chevron-Texaco v. Ecuador Final Award 2
TABLE OF CONTENTS
A. The Parties ................................................................................................................10
B. The Tribunal..............................................................................................................13
C. Short Identification of the Case ................................................................................14
C.I. The Jurisdictional Phase .......................................................................................14
1. The Jurisdictional Issues...................................................................................14
2. Arguments by the Respondent..........................................................................15
3. Arguments by the Claimants.............................................................................17
4. The Tribunal’s Interim Award on Jurisdiction .................................................19
C.II. The Merits Phase...................................................................................................20
1. The Issues on the Merits ...................................................................................20
4. The Tribunal’s Partial Award on the Merits.....................................................39
C.III.The Quantum Phase ..............................................................................................41
D. Procedural History ....................................................................................................42
E. Relief Sought ............................................................................................................79
E.I. Relief Sought by the Claimants ............................................................................79
E.II. Relief Sought by the Respondent..........................................................................79
F. Factual Background ..................................................................................................80
G. Considerations of the Tribunal..................................................................................94
G.I. The Joint Expert Report and Separate Opinion ....................................................94
1. Tax Applicable on Direct Damages..................................................................94
2. Tax Applicable on Interest................................................................................95
3. Separate Opinion of Dr. Cordero Ordóñez .......................................................96
G.II. The Partial Award and the Tax Experts’ Mandate................................................97
3. The Tribunal....................................................................................................103

G.III.The Amount of TexPet’s Direct Damages..........................................................110
1. Arguments by the Claimants...........................................................................110
2. Arguments by the Respondent........................................................................113
3. The Tribunal....................................................................................................117
G.IV. The Tax Rate Applicable to the Amount of Direct Damages...........................121
3. The Tribunal....................................................................................................125
G.V. The Tax Rate Applicable to the Interest Amount ...............................................126
3. The Tribunal....................................................................................................128
G.VI. The Final Quantum of Damages.......................................................................129
3. The Tribunal....................................................................................................131
G.VII. The Costs of Arbitration ...................................................................................134
1. Relief Sought by the Claimants ......................................................................134
2. Relief Sought by the Respondent....................................................................136
3. The Tribunal....................................................................................................137
H. Decisions.................................................................................................................141

ABBREVIATIONS
¶ / ¶¶ Paragraph / paragraphs
1971 Hydrocarbons
Law
Law of Hydrocarbons, Supreme Decree 1459, passed on September
27, 1971, published in Official Registry No. 322, October 1, 1971
1973 Agreement Agreement between the Government of Ecuador, Ecuadorian Gulf Oil
Company, and TexPet of August 6, 1973
1977 Agreement Supplemental Agreement between TexPet and the Government of
Ecuador of December 16, 1977
1986 Refinancing
Agreement
Refinancing Agreement of Amounts Owed by CEPE through the
Operations Account to TexPet for Sales of Crude for Internal
Consumption as of September 30, 1986, November 25, 1986
1994 MOU Memorandum of Understanding Among the Government of Ecuador,
PetroEcuador, and TexPet, December 14, 1994
1995 Global
Settlement
Settlement Agreement and Release among the Government of
Ecuador, PetroEcuador, PetroProducción, PetroComercial, and TexPet,
November 17, 1995
1995 Remediation
Agreement
Contract for Implementing of Environmental Remediation Work and
Release from Obligations, Liability, and Claims among the
Government of Ecuador, PetroEcuador, and TexPet, May 4, 1995
1995 Remediation
Action Plan
Texaco Petroleum Company Remedial Action Plan for the Former
PetroEcuador-TexPet Consortium, September 8, 1995
Aguinda Maria Aguinda et al. v. Texaco, Inc., 945 F. Supp. 625 (S.D.N.Y.
1996), 142 F. Supp. 534 (S.D.N.Y. 2001), 93 Civ. 7527, 2000 WL
122143 (S.D.N.Y. Jan. 31, 2000), 303 F.3d 470 (U.S. Court of Appeals
for the Second Circuit, Aug. 16, 2002).
BIT Bilateral Investment Treaty, specifically the Treaty Between the
United States of America and the Republic of Ecuador Concerning the
Encouragement and Reciprocal Protection of Investment of August 27,
1993 (entered into force May 11, 1997)
C I Claimants’ Statement of Claim of October 19, 2007

C II Claimants’ Counter-Memorial on Jurisdiction of March 31, 2008
C III Claimants’ First-Round Post-Hearing Brief on Jurisdiction of July 22,
2008
C IV Claimants’ Second-Round Post-Hearing Brief on Jurisdiction of
August 12, 2008
C V Claimants’ Memorial on the Merits of April 14, 2008
C VI Claimants’ Reply Memorial on the Merits of November 24, 2008
C VII Claimants’ First-Round Post-Hearing Brief of June 19, 2009
C VIII Claimants’ Second-Round Post-Hearing Brief of July 15, 2009
C IX Claimants’ letter of August 6, 2009 regarding the relevance of the
judgment issued by the Provincial Court of Pichincha on July 14, 2009
in Case 153-93
C X Claimants’ Cost Claim of August 7, 2009
C XI Claimants’ Brief in Response to the Respondent’s New Evidence of
August 7, 2009
C XII Claimants’ Reply to the Respondent’s Cost Claim of August 21, 2009
C XIII Claimants’ Rebuttal Brief in Response to the Respondent’s New
Evidence of August 21, 2009
C XIV Claimants’ letter of October 19, 2009 regarding the relevance of the
judgment issued by the Provincial Court of Pichincha on September
10, 2009 in Case 154-93
C XV Claimants’ letter of November 17, 2010 submitting comments on the
Joint Expert Report
C XVI Claimants’ letter of December 10, 2010 submitting comments on the
Respondent’s letter of November 17, 2010
C XVII Claimants’ letter of March 4, 2011 regarding Dr. Cordero Ordoñez’s
appointment to Ecuador’s National Court of Justice

CEPE Corporación Estatal Petrolera Ecuatoriana, an Ecuadorian State-owned
company
CEPE/PE CEPE, as later succeeded by PetroEcuador
Concession
Agreements
1973 Agreement and 1977 Agreement
Consortium Consortium between TexPet, Ecuadorian Gulf Oil Company, and
CEPE pursuant to the 1973 Agreement
DCCP Dutch Code of Civil Procedure
Decree 1258 Supreme Decree 1258, passed on November 8, 1973, published in
Official Registry No. 433, November 15, 1973
Exh. C- Claimants’ Exhibit
Exh. R- Respondent’s Exhibit
Exh. RE- Respondent’s Expert Witness Statement
Gulf Gulf Oil Company
HC1 Claimants’ slides from their opening presentation at the Hearing on
Jurisdiction
HC2 Claimants’ list of letters of TexPet to Ecuador courts handed out at the
Hearing on Jurisdiction
HC3 Claimants’ slides from their closing presentation at the Hearing on
Jurisdiction
HC4 Claimants’ slides from their opening presentation at the Hearing on the
Merits
HC5 Claimants’ slides from their closing presentation at the Hearing on the
Merits
HR1 Respondent’s slides from their opening presentation at the Hearing on
Jurisdiction
HR2 Respondent’s first set of slides with their closing presentation on
retroactivity at the Hearing on Jurisdiction

HR3 Respondent’s second set of slides with their closing presentation at the
Hearing on Jurisdiction
HR4 Respondent’s slides from their opening presentation at the Hearing on
the Merits
HR5 Respondent’s slides from their closing presentation at the Hearing on
the Merits
ICSID International Centre for Settlement of Investment Disputes
ILC International Law Commission
ILC Draft Articles International Law Commission Draft Articles on State Responsibility
for Internationally Wrongful Acts, adopted by the International Law
Commission at its fifty-third session (2001)
Interim Award Tribunal’s Interim Award of December 1, 2008
Joint Expert Report Joint Expert Report of Dr. Diego Almeida Guzmán and Dr. Javier
Cordero Ordóñez dated October 20, 2010 regarding the effect on the
quantum damages of any applicable Ecuadorian tax laws
Lago Agrio Maria Aguinda et al. v. Chevron Texaco Corporation, Proceeding No.
002-2003, Sup. Ct. of Justice, Nueva Loja, Ecuador
OPAH Operaciones para el Abastecimiento de Hidrocarburos (Hydrocarbons
Supply Operations)
p. / pp. Page/pages
Partial Award Partial Award on the Merits of March 30, 2010
PCA Permanent Court of Arbitration
PetroEcuador Empresa Estatal de Petróleos de Ecuador
PO I Procedural Order No. 1 of May 22, 2007
PO II Procedural Order No. 2 of October 19, 2007
PO III Procedural Order No. 3 of April 21, 2008
PO IV Procedural Order No. 4 of May 23, 2008

PO V Procedural Order No. 5 of March 19, 2009
PO VI Procedural Order No. 6 of April 30, 2009
PO VII Procedural Order No. 7 of July 24, 2009
PO VIII Procedural Order No. 8 of March 31, 2010
R I Respondent’s Statement of Defense of November 19, 2007
R II Respondent’s Memorial on Jurisdiction of January 30, 2008
R III Respondent’s First-Round Post-Hearing Brief on Jurisdiction of July
22, 2008
R IV Respondent’s Second-Round Post-Hearing Brief on Jurisdiction of
August 12, 2008
R V Respondent’s Counter-Memorial on the Merits of September 22, 2008
R VI Respondent’s Rejoinder Memorial on the Merits of January 26, 2009
R VII Respondent’s First-Round Post-Hearing Brief of June 19, 2009
R VIII Respondent’s Second-Round Post-Hearing Brief of July 15, 2009
R IX Respondent’s letter of July 27, 2009 regarding the relevance of the
judgment issued by the Provincial Court of Pichincha on July 14, 2009
in Case 153-93
R X Respondent’s Cost Claim of August 7, 2009
R XI Respondent’s Reply to the Claimants’ Brief in Response to
Respondent’s New Evidence of August 14, 2009
R XII Respondent’s Reply to the Claimants’ Cost Claim of August 22, 2009
R XIII Respondent’s letter of October 2, 2009 regarding the relevance of the
judgment issued by the Provincial Court of Pichincha on September
10, 2009 in Case 154-93
R XIV Respondent’s letter of November 17, 2010 submitting comments on
the Joint Expert Report

R XV Respondent’s letter of December 10, 2010 submitting comments on the
Claimants’ letter of November 17, 2010
R XVI Respondent’s letter of March 7, 2011 regarding Dr. Cordero Ordoñez’s
appointment to Ecuador’s National Court of Justice
Resolution 1179 Resolution 1179, issued by the Deputy Director of the Department of
Finance of CEPE on November 19, 1980
Settlement
Agreements
1994 MOU, 1995 Remediation Agreement, and 1995 Global
Settlement
SG-PCA Secretary-General of the Permanent Court of Arbitration
Separate Opinion Separate Opinion of Dr. Javier Cordero Ordóñez regarding the effect
on the quantum of damages of any applicable Ecuadorian tax laws
Tax Experts Dr. Diego Almeida Guzmán and Dr. Javier Cordero Ordóñez,
appointed by the Claimants and Respondent, respectively, pursuant to
paragraph 3.1 of Procedural Order No. 8
TexPet Texaco Petroleum Company, a corporation organized under the laws
of Delaware, U.S.A., and wholly-owned subsidiary of Chevron
Corporation
Tr. I Transcript of the Hearing on Jurisdiction in San Jose, Costa Rica, May
19-20, 2008
Tr. II Transcript of the Hearing on the Merits in Washington, D.C., April 20-
29, 2009
UNCITRAL United Nations Commission on International Trade Law
UNCITRAL
Arbitration Rules
Arbitration Rules of the United Nations Commission on International
Trade Law, 1976
VCLT Vienna Convention on the Law of Treaties of May 23, 1969

A. The Parties
The Claimants Chevron Corporation
6001 Bollinger Canyon Road
San Ramon, CA, 94583
U.S.A.
Texaco Petroleum Company
6001 Bollinger Canyon Road
San Ramon, CA, 94583
U.S.A.
Represented by: Mr. R. Doak Bishop
Mr. Wade M. Coriell
Ms. Isabel Fernández de la Cuesta
Mr. David Weiss
Ms. Elizabeth Silbert
KING & SPALDING
1100 Louisiana, Suite 4000
Houston, TX 77002
U.S.A.
Mr. Edward G. Kehoe
KING & SPALDING
1185 Avenue of the Americas
New York, NY 10036-4003
U.S.A.

Dr. Alejandro Ponce-Martínez
QUEVEDO & PONCE
Ave. 12 de Octubre y Lincoln
Edificio Torre 1492 Piso 16
P.O. Box 17-01-600
Quito
ECUADOR
The Respondent The Republic of Ecuador
Represented by: Dr. Diego García Carrión
Procurador General del Estado
Dr. Álvaro Galindo C.
Director Nacional de Patrocinio Internacional
PROCURADURÍA GENERAL DEL ESTADO
Robles 731 y Av. Amazonas
Quito
ECUADOR
Mr. Eric W. Bloom
Mr. Tomás Leonard
1700 K Street, NW
Washington, D.C., 20006-3817
U.S.A
Mr. Ricardo Ugarte
Grand-Rue 23
1204 Geneva
SWITZERLAND

Mr. C. MacNeil Mitchell
200 Park Avenue
New York, NY, 10166-4193
U.S.A.
Mr. Bruno D. Leurent
25, avenue Marceau
75116 Paris
FRANCE
Mr. Mark Clodfelter
FOLEY HOAG LLP
1875 K Street, NW
Suite 800
Washington, DC 20006-1238
U.S.A.

B. The Tribunal
Appointed by the Claimants:
20 Essex Street Chambers
20 Essex Street
London WC2 R3AL
UNITED KINGDOM
Appointed by the Respondent:
Prof. Albert Jan van den Berg
Hanotiau & van den Berg
IT Tower, 9th Floor
480 Avenue Louise, B.9
1050 Brussels
BELGIUM
Appointed by agreement of the Co-Arbitrators with the consent of the Parties:
Prof. Karl-Heinz Böckstiegel, Presiding Arbitrator
Parkstrasse 38
D-51427 Bergisch-Gladbach
GERMANY

C. Short Identification of the Case
1. The short identification below is without prejudice to the full presentation of the factual and
legal details of the case made by the Parties and the Tribunal’s considerations and
conclusions.
C.I. The Jurisdictional Phase
2. As the Parties’ positions with respect to jurisdiction of the Tribunal may be relevant to a full
understanding of the proceedings, the Tribunal restates in the following sections its summary
of the issues and contentions on jurisdiction from its Interim Award of December 1, 2008
(Interim Award, ¶¶38-42, 75-91).
1. The Jurisdictional Issues
3. Without prejudice to the full presentation of the factual and legal details of the case by the
Parties and the Tribunal’s considerations and conclusions, the issues raised by the Parties in
the jurisdictional phase, irrespective of whether each issue is best characterized as
jurisdictional, center around four principal subjects.
4. The first set of issues concerns the preclusive effect, if any, that the Claimants’ statements or
conduct prior to the commencement of arbitration should have on their ability to pursue the
present claim (see Interim Award, ¶¶125-149).
5. The second set of issues concerns whether the Claimants’ contractual claims in the lawsuits
in Ecuadorian courts qualify as an investment or part of an investment under the BIT (see
Interim Award, ¶¶150-195). Alternatively, the question concerns whether the claims arise out
of or relate to “investment agreements” under the BIT (see Interim Award, ¶¶196-213).

6. The third set of issues concerns whether the Claimants must exhaust local remedies in order
to fulfill the requirements of their claims for denial of justice and other BIT violations and, if
so, whether they have in fact exhausted all required local remedies (see Interim Award,
¶¶214-238).
7. The last set of issues concerns the application ratione temporis of the BIT to a case whose
factual background includes significant periods before the BIT’s entry into force. In dispute
is the temporal ambit of the BIT as regards pre-existing disputes and pre-entry into force acts
and omissions. Also at issue is whether Ecuador’s conduct constitutes a continuing or
composite act allowing the conduct to be caught within the temporal ambit of the BIT (see
Interim Award, ¶¶239-301).
2. Arguments by the Respondent
8. Subject to more detail regarding particular issues to be found in the Tribunal’s Interim
Award, the Respondent’s arguments on jurisdiction can be summarized as follows.
9. The Respondent argues that this Tribunal lacks jurisdiction to hear the BIT claims for a
number of reasons. As a preliminary matter, the Respondent argues that the Claimants should
be precluded from pursuing their claims altogether due to abuse of process. The Respondent
further objects to jurisdiction because the Claimants have failed to plead an “investment
dispute” within the meaning of the BIT, thus placing the claims outside the ratione materiae
scope of the BIT. Lastly, the Respondent asserts that the claims lie outside the ratione
temporis scope of the BIT.
10. The Respondent’s preliminary objection on abuse of process posits that the Claimants’
current position is inconsistent with repeated prior statements made in litigation before U.S.
courts in which the Claimants attested to the fairness and competence of Ecuador’s judiciary.
The Respondent asks the Tribunal to preclude the Claimants from contradicting themselves
in order to found jurisdiction on the basis of a new “dispute.” The Respondent further alleges
that the Claimants’ motive in commencing the present arbitration is to undermine
the enforceability of any potential adverse judgment in the Lago Agrio action. Both the

Claimants’ contradiction of themselves and their improper purpose for seeking arbitration
constitute abuses of rights such that the Claimants should be treated as having waived any
right to arbitrate any claims relating to the adequacy of the Ecuadorian courts.
11. On ratione materiae, the Respondent submits that the present claims based on TexPet’s
lawsuits do not fit within the definition of an “investment dispute” found in Article VI(1) of
the BIT. The Respondent thus asserts that the present dispute is outside the substantive scope
of Ecuador’s consent to arbitrate under the BIT. The Respondent raises several objections in
this regard.
12. The Respondent contends that the present claims do not arise out of or relate to an
“investment agreement” or a treaty breach “with respect to an investment.” First, the
Claimants’ lawsuits do not possess the necessary characteristics to qualify as an
“investment.” Moreover, the Claimants’ lawsuits cannot be fit under the heading of “claims
to money” in the BIT’s definition of covered investments. This is because the claims are not
“associated with an investment” as required under that definition since the Claimants’
investments no longer existed at the time of entry into force of the BIT. Nor do TexPet’s
claims fall under the heading of “rights conferred by law or contract” since the BIT only
covers rights to do something or otherwise engage in some activity sanctioned by law
analogous to rights under licenses or permits. Finally, the non-retroactivity of the BIT also
prevents the Claimants from relying on “investment agreements” that had ceased to exist by
the time of entry into force of the BIT.
13. Even if the claims constituted an “investment dispute” under the BIT, the Respondent further
contends that the claims for denial of justice are not ripe for adjudication. Under international
law, a State is not responsible for the acts of its judiciary unless a claimant has exhausted all
available procedural remedies. Claims for denials of justice must therefore be based on the
acts of the judicial system as a whole. Since the Claimants have failed to demonstrably
exhaust potential procedural remedies in their cases, the claims for denial of justice cannot be
made out and the claims must be deemed premature.
14. With respect to jurisdiction ratione temporis, the Respondent argues that States are
responsible for the breach of treaty obligations only if such obligations were in force at the

time when the alleged breach occurred. Any pre-BIT conduct of Ecuador’s thus falls outside
the temporal scope of the BIT according to the non-retroactivity principle of international
law reflected in Article 28 VCLT. The Respondent raises three distinct objections in this
regard.
15. The first objection is that the current dispute and all its associated facts arose prior to the
coming into force of the BIT on May 11, 1997. It is merely the continuation in a different
form of a pre-BIT dispute. The Respondent argues that such pre-BIT disputes are excluded
from the temporal ambit of the BIT. The Tribunal should thus dismiss the present claims on
the basis that they do not present a new dispute to which the BIT may apply.
16. According to the Respondent, the non-retroactivity principle and the law of State
responsibility also bar the consideration of any pre-BIT acts in the determination of a breach.
The Tribunal cannot judge Ecuador’s acts or omissions according to BIT standards that did
not exist at the time of such conduct. The foundation of the claims – the original alleged
breaches of contractual obligations – are thus excluded from the Tribunal’s jurisdiction.
Moreover, the rest of the claim cannot stand on its own because the Respondent’s conduct
constitutes neither a “composite” nor a “continuing” act at international law.
17. The third ratione temporis objection asserts that the claims concern investments that ceased
to exist upon TexPet’s withdrawal from Ecuador. By 1995, the 1973 Agreement had expired,
TexPet’s operations in Ecuador had ended and all remaining rights relating to the earlier
contracts had terminated pursuant to the Settlement Agreements. Accordingly, by the time of
the BIT’s entry into force in 1997, the Claimants’ investment and related rights constituted a
“situation which ceased to exist” according to Article 28 VCLT.
3. Arguments by the Claimants
18. Subject to more detail regarding particular issues to be found in the Tribunal’s Interim
Award, the Claimants’ arguments on jurisdiction can be summarized as follows.
19. The Claimants first argue that they continued to have investments in Ecuador after the entry
into force of the BIT. The BIT’s definition of “investment” is broad. Investments must also

be examined holistically and not separated into components. Therefore, the investments
undertaken pursuant to the 1973 and 1977 Agreements must be taken to include the legal and
contractual claims emanating from those agreements that are the subject of their pending
court cases as well as the environmental remediation work related to TexPet’s operations that
continued into 1998, after the BIT had come into force.
20. The Claimants further argue that the dispute concerns “investment agreements,” namely the
1973 and 1977 Agreements. Such disputes are independently covered under the BIT.
Moreover, since jurisdiction over such claims is not limited to treaty-based claims, the
temporal limitations that apply to BIT claims do not apply. It is enough that these claims
have continued to exist past the date of the BIT’s entry into force.
21. The Claimants assert that the BIT does not bar pre-existing disputes. The BIT would need to
include explicit language in order to exclude such disputes. Instead, according to Article XII
of the BIT, disputes must merely be “existing” at the time of entry into force to be covered
by the BIT. In any event, since the claims are for denials of justice, the dispute only
crystallized after a critical degree of undue delay and politicization of the judiciary that came
about in 2004.
22. The Claimants also reject the idea that claims under the BIT must be strictly based on post-
BIT acts and omissions. First, pre-BIT conduct can serve as background to the denial of
justice claims which only truly arose after entry into force of the BIT. Second, the non-
retroactivity principle cannot bar responsibility for “continuing” or “composite” acts. The
persistent failure of the Ecuadorian courts to decide the Claimants’ cases and the events
leading to the destruction of the independence of the Ecuadorian judiciary constitute
continuing and composite acts.
23. As to the argument that the Claimants have not exhausted the available procedural remedies,
they contend that any requirement of exhaustion is not a jurisdictional issue, but an issue
going to the merits. In any event, they claim that all further efforts to seek to have their cases
decided fairly would be futile. The remedies cited by the Respondent are suited to the
misdeeds of individual judges and would not be effective in the context of a systemic failure
of the Ecuadorian judiciary.

24. Finally, the Claimants find the Respondent’s abuse of rights, estoppel, and waiver arguments
baseless. The Claimants’ pleadings in the present matter do not contradict their previous
pleadings in litigation before U.S. courts because the situation in Ecuador has significantly
changed and worsened since any of the impugned statements were made. Moreover, those
statements were made by different parties in a different litigation and are not transferable to
the present proceedings.
4. The Tribunal’s Interim Award on Jurisdiction
25. The Tribunal issued its Interim Award on December 1, 2008. For the reasons set out in that
award, the Tribunal decided the following:
1. The Respondent’s jurisdictional objections are denied.
2. The Tribunal has jurisdiction concerning the claims as formulated by the
Claimants in their second Post Hearing Brief dated August 12, 2008, in
paragraph 116.
3. The decision regarding the costs of arbitration is deferred to a later stage of
these proceedings.
4. The further procedure in this case will be the subject of a separate
Procedural Order of the Tribunal.

C.II. The Merits Phase
26. As the Parties’ positions with respect to the merits of the case may be relevant to a full
understanding of the Tribunal’s decision on quantum, the Tribunal restates in the following
sections a summary of the issues and contentions on the merits from its Partial Award of
March 30, 2010.
1. The Issues on the Merits
27. The issues raised by the Parties in the merits phase center around six principal subjects.
28. The first set of issues concerns whether the Respondent has committed a denial of justice
under customary international law either on the basis of undue delay or manifestly unjust
decisions (see Partial Award on the Merits, Sections H.II.1 and H.II.2)
29. The second set of issues concerns whether the Respondent has violated specific BIT
standards through its conduct or inaction in relation to the Claimants’ court cases (see Partial
Award on the Merits, Section H.II.3).
30. The third set of issues concerns whether the Respondent has breached obligations under the
BIT with respect to “investment agreements” as that term is understood in the BIT (see
Partial Award on the Merits, Section H.II.4).
31. The fourth set of issues concerns whether the Claimants must exhaust local remedies in order
to fulfill the requirements of their claims for denial of justice and other BIT violations and, if
so, whether they have in fact exhausted all required local remedies (see Partial Award on the
Merits, Section H.III).
32. The fifth set of issues concerns the preclusive effect, if any, that the Claimants’ statements or
conduct prior to the commencement of arbitration should have on their ability to pursue the
present claim (see Partial Award on the Merits, Section H.IV).

33. The last set of issues concerns the damages consequent upon a finding of denial of justice or
breach of the BIT. The Parties dispute the proper definition of Claimants’ loss, whether the
Claimants should have prevailed in the underlying court cases in the Ecuadorian courts, and
the quantum of damages to be awarded as a result of any breach that may have prevented the
Claimants from recovering on meritorious claims (see Partial Award on the Merits, Sections
H.V, H.VI, and H.VII).
34. Subject to more detail to be found in the Tribunal’s Partial Award regarding particular issues,
the Claimants’ arguments on the merits can be summarized as follows.
35. In the first place, the Claimants submit that through the Ecuadorian courts’ 15-year delay and
refusal to render a judgment in TexPet’s seven cases, Ecuador has patently violated its own
laws and has committed a denial of justice under international law. The courts’ undue delays
and refusals are in clear violation of Ecuador’s own laws governing judicial proceedings,
including Ecuador’s 1998 Constitution, Organic Law on the Judiciary, and Code of Civil
Procedure, as well as the American Convention on Human Rights. Although the Claimants
maintain that international law governs the merits of this dispute, the breaches of Ecuadorian
law evidence a breach of the minimum standard of treatment under customary international
law. In turn, any violation of customary international law automatically becomes a BIT
breach by virtue of Article II(3)(a) of the BIT, which provides that, “[i]nvestment…shall in
no case be accorded treatment less than that required by international law.”
36. According to the Claimants, customary international law protects against denials of justice,
which include any “denial, unwarranted delay or obstruction of access to courts, gross
deficiency in the administration of judicial or remedial process, failure to provide those
guaranties which are generally considered indispensable to the proper administration of
justice, or a manifestly unjust judgment.” The Claimants further contend that the standard for
denial of justice is objective and requires neither a showing of bad faith nor discrimination
vis-à-vis nationals of the host State.

37. Applying the above principles to their undue delay claim, the Claimants note that six of their
seven claims have stood legally ready for decision since at least 1998 and autos para
sentencia were issued in five of those cases, legally declaring the courts’ responsibility to
render judgment promptly. The last case has lain dormant at the inception of its evidentiary
phase for more than 14 years because of the court’s refusal to set the evidentiary stage in
motion. The Ecuadorian courts are therefore solely and directly responsible for the delay and
the Respondent has failed to provide any adequate justification in terms of the complexity of
the cases or the conduct of the parties in the litigation. Court congestion and backlogs in the
courts cited by the Respondent may explain the delay, but do not operate as a defence to a
denial of justice claim. To the extent that court congestion could be relevant to determining
whether a delay was within reason, the Claimants submit that the Respondent has neither
established the existence of a backlog, nor the necessary diligence of Ecuador in addressing
the alleged backlog. The Claimants therefore claim that a denial of justice was consummated
in all their cases by December 31, 2004, at which point they had been sufficiently delayed to
constitute a denial of justice under international law.
38. In the alternative, the Claimants argue that the Ecuadorian courts’ recent decisions are
manifestly unjust, grossly incompetent and constitute a further independent denial of justice
under customary international law. Direct proof of bad faith by the courts is not necessary in
this regard: a denial of justice can be found from a clear and malicious misapplication of the
law. With regard to the two cases dismissed for “abandonment” or “want of prosecution”, the
Claimants argue that the courts relied on an obviously inapplicable provision of the Civil
Code, including by applying that provision retroactively. Furthermore, in one case, the court
went as far as to blatantly ignore the “black-letter law” rule prohibiting dismissal for
abandonment after the court has issued an auto para sentencia. In any event, the Tribunal
should consider the court’s act of seizing upon its own delinquency to dismiss the case to
constitute a denial of justice in itself. With regard to the cases dismissed for prescription, the
court patently misapplied a special prescription period for small retail sales to end
consumers, a category that TexPet’s claims clearly are not. TexPet’s actions are also not sui
generis as the Respondent contends; they are ordinary actions to which the regular, default
10-year prescription period applies. The arguments now offered by the Respondent were
never put before the court during the 16-year pendency of the litigation and were not

mentioned in the judgments themselves. For all the above cases, the Claimants highlight that
the courts’ rulings were only made after notice of this arbitration had been filed, despite
complete inactivity in the cases for a decade or more. This, the Claimants assert, is strong
circumstantial evidence of bad faith by the Ecuadorian courts.
39. Further, the Claimants argue that the same long periods of judicial inactivity and refusals to
judge, together with the incompetent, biased decisions and the erosion of judicial
independence in Ecuador since 2004, also violate several specific standards of protection
under the BIT. These include Article II(7) (“effective means of asserting claims and
enforcing rights”), Article II(3)(a) (“fair and equitable treatment” and “full protection and
security”), and Article II(3)(b) (“arbitrary or discriminatory measures”). In particular, the
Claimants reject the Respondent’s contention that only extreme, detrimental interference by
the government will violate Article II(7) and assert that the ordinary meaning of the provision
obligates Ecuador to provide an available instrumentality that will make or force others—
including itself—to observe rights provided by contract.
40. Given that the BIT provides jurisdiction over disputes “arising out of or relating to… an
investment agreement,” the Claimants also submit that the Respondent has committed a BIT
breach by having breached the 1973 and 1977 Agreements and subsequently committing a
denial of justice when TexPet sought a remedy for these breaches.
41. With regard to the exhaustion of local remedies, the Claimants preliminarily argue that the
local remedies rule is inapplicable to claims of denial of justice by undue delay under
customary international law. There is no appeal possible under Ecuadorian law from a refusal
of a first instance judge to decide a case. The substantive provisions of the BIT also do not
contain a requirement of exhaustion of local remedies and even if the local remedies rule
would apply, recourse to local remedies would have been futile since Ecuador’s judiciary has
lacked independence since 2004. Finally, the Claimants sustain that the burden of proof as to
the availability of a remedy as a remedy, and the effectiveness of that remedy falls on the
Respondent. The Respondent has, however, failed to prove the existence and effectiveness of
the remedies they put forward.

42. Further, the Respondent has failed to make out a coherent case for estoppel of abuse of rights
with regard to the Claimants’ statements made in the context of the Aguinda case. First, the
Claimants’ statements in the Aguinda case were individuals’ opinions and not “clear and
unambiguous statements of fact” as required under the estoppel doctrine. These statements
“reflected different opinions articulated at a different point in time, about different
Ecuadorian judiciary by different parties in different litigation.” Furthermore, the Respondent
has not shown any detrimental reliance on these statements as required for the application of
estoppel. In any event, Claimant Chevron has made no statements about the Ecuadorian
judiciary and the fact that a party or its affiliates opined and predicted that the Ecuadorian
courts would provide an adequate forum for the Lago Agrio case does not somehow license a
country’s courts to deny justice to parties litigating in those courts.
43. Turning to the measure of damages, the Claimants submit that the principle of full reparation
applies to a denial of justice. According to that principle, the Claimants should be awarded
damages equivalent to that sought in their cases before the Ecuadorian courts, as well as
damages incurred as a result of the delay, i.e., the underlying damages plus interest and costs
for the period of delay caused by the Ecuadorian courts. Furthermore, the Claimants sustain
that the Tribunal is competent to apply de novo its own interpretation of the 1973 and 1977
Agreements without taking into account the decisions that have been rendered or could be
rendered in the Ecuadorian courts. Therefore, there is no justification for adjusting
Claimants’ damages in this case to account for the possibility that, despite the legal validity
of their claims, the Claimants might not have been successful on the underlying cases. With
regard to the Respondent’s argument on mitigation of damages, Ecuador may not rely on its
own unlawful conduct as a ground to reduce the Claimants’ damages.
44. Moving to the merits of the underlying court cases, the Claimants argue that, under the 1973
Agreement, TexPet would provide crude oil for refining into derivatives (such as gasoline,
kerosene, fuel oil, and other oil-based products) to satisfy domestic consumption. Given a
lack of sufficient refining capacity, TexPet would also provide “Compensation Crude” to
Ecuador to meet domestic need. This crude would be purchased at the domestic price and
exported at the international price. The profit from this transaction would be used to purchase
derivative products destined for domestic consumption in Ecuador. Domestic consumption

was to be satisfied by the combination and balance between domestic refining capacity and
the compensation crude system. The total volume of crude, regardless of the heading under
which it was requested, was to be determined by dividing the total national consumption of
barrels per day into the proportional production corresponding to each of the producers in the
country. If Ecuador requisitioned further supplies of crude oil from TexPet in order for
domestic refineries to produce derivatives for export, TexPet was paid at the international
market price for this crude and was otherwise free to export the remainder of its crude oil at
the international market price.
45. According to the Claimants, the 1977 Agreement later clarified the 1973 Agreement and
established a global formula to calculate the crude equivalent of exported products, based on
the relative price of the exported product as compared to the price of crude. The Claimants
deny the Respondent’s assertion that the 1977 Agreement was only a 12-month agreement.
The Claimants also dispute the Respondent’s argument that the 1973 and 1977 Agreements
violated the 1971 Hydrocarbons Law or were invalid due to not meeting the requisite
formalities for government contracts. These arguments are contradicted by the preamble and
terms of the agreements themselves as well as evidence of the parties’ intentions at the time
of negotiation. Moreover, these arguments were never raised in the Ecuadorian courts.
46. Citing the provisions of the 1973 and 1977 Agreements as described above, the Claimants
assert that the Respondent systematically failed to pay TexPet the higher international prices
for crude oil that the Government requested for domestic consumption but in fact used to
create derivative products for export. As a result, the Claimants commenced five lawsuits
against the Government of Ecuador between 1991 and 1993 relating to these allegations of
over-contribution of crude oil to domestic consumption. These included the two Amazonas
Refinery cases (Cases 7-92 and 153-93), the two Esmeraldas Refinery cases (Cases 23-91
and 152-93), and the Imported Products case (Case 154-93). The Claimants also filed two
further cases, one relating to a force majeure issue (Case 8-92) and the other concerning the
alleged breach of the 1986 Refinancing Agreement (Case 983-03).
47. The Claimants argue that they proved their claim in each case. In every case, except for the
first Amazonas Refinery claim and Refinancing Agreement claim, TexPet appointed Mr.

Borja as its expert, who submitted reports confirming the over-contribution of crude to
domestic consumption and calculating the specific number of barrels and the value of the
over-contributions made. In the same five cases, an expert on behalf of Ecuador confirmed
Mr. Borja’s analysis. In the first Amazonas Refinery claim, Mr. Borja could not present his
findings because the court refused to schedule the date for the judicial inspection by the
experts. Finally, in the Refinancing Agreement claim, the court actually awarded TexPet the
amount it claimed (but in such a manner that it could not be collected). The total of the initial
quantified claims in these seven cases was US$ 553,456,850.81.
48. More specifically, in the Esmeraldas Refinery cases (Cases 23-91 and 152-93) and
Amazonas Refinery cases (Cases 7-92 and 153-93), the Claimants maintain that Ecuador
refined crude oil required from TexPet for domestic consumption and sold the derivative
products in the Ecuadorian domestic market. A portion of those derivative products, the
residual oil from the refining process, could not be sold domestically, however, and were
instead exported at a significant profit to Ecuador. TexPet’s cases therefore claimed
compensation based on the argument that, when any derivative products are exported, TexPet
was entitled to be compensated at the international market price according to the 1973
Agreement, as confirmed by the 1977 Agreement.
49. In the Imported Products claim (Case 154-93), the Claimants allege that Ecuador did not
credit into the OPAH Account the funds received from sales made to retail sellers (such as
gas stations) of the imported derivatives bought with TexPet’s Compensation Crude. Under
the Compensation Crude system, Ecuador would request crude from TexPet at the domestic
price and sell it at the international price. The net proceeds were then used by
CEPE/PetroEcuador to purchase derivatives for local consumption which it then sold to retail
sellers such as gas stations (also owned by CEPE). All of these transactions were to be
accounted for in the OPAH Account, whose balance affected the amount of Compensation
Crude requested. However, proceeds from sales by CEPE/PetroEcuador to retailers were
never deposited in the OPAH Account. The Claimants submit that the OPAH Account in fact
included accounts receivable for these expected payments, and an internal resolution by
CEPE (Resolution 1179 of November 19, 1980) further acknowledged this deficit, but no
deposits were ever made by CEPE. As a consequence, the Claimants conclude that the

OPAH Account balance was lower, which, in turn, required TexPet to over-contribute
Compensation Crude to make up for this deficiency.
50. The Force Majeure case (Case 8-92) relates to an earthquake which hit Ecuador on March 5,
1987 and destroyed several kilometers of the Trans-Ecuadorian pipeline. This effectively
“shut in” TexPet’s production capacity. The Claimants argue that, under the 1973
Agreement, TexPet was only obliged to contribute to domestic consumption in proportion to
its share of the total oil production of Ecuador. During the months following the earthquake
(the force majeure period), TexPet, through a Colombian pipeline, provided to Ecuador the
crude oil that it had in its storage tanks in Ecuador. TexPet thus supplied Ecuador with 100%
of its production plus all of its stored oil. Once the Trans-Ecuadorian pipeline was restored,
however, Ecuador required TexPet to retroactively contribute over 100% of its output to
cover Ecuador’s domestic consumption during the force majeure period, thereby unlawfully
shifting to TexPet all the burden of the effects of the earthquake.
51. With regard to the final case, the Refinancing Agreement case (Case 983-03, formerly Case
6-92), the Claimants allege that Ecuador accumulated a large debt for unpaid purchases of
TexPet’s crude at the domestic market price. TexPet and Ecuador thus entered into the 1986
Refinancing Agreement, requiring CEPE to pay back its debt in 18 monthly installments. The
Claimants submit that Ecuador was systematically late in its payments of principal and
interest, thus accruing further interest on the delayed payments at the New York Prime Rate,
as specified in the agreement. TexPet and CEPE later formed a commission that determined
that Ecuador owed US$ 1,522,552.54 in further interest. TexPet filed Case 6-92 (which was
later renumbered Case 983-03), claiming this amount. The Claimants acknowledge that,
following the Notice of Arbitration, the court found in favor of TexPet for the full amount
sought. However, the judgment stipulated that the judgment was to be paid to the “legal
representative” of TexPet. This has made it impossible to collect on the judgment because,
under Ecuadorian law, only domestic corporations may have “legal representatives.”
52. Regarding the judgments against them issued in the second Amazonas Refinery case (Case
153-93) and the Imported Products case (Case 154-93), following the submission of the
Parties’ Post-Hearing Briefs, the Claimants argue that a decision taken by a domestic court

after a denial of justice has been completed cannot affect the Respondent’s liability for that
wrong. The Claimants therefore deem these judgments irrelevant to the present case.
53. As described above, the Claimants contend that they have proven their claim and damages
through their party-appointed expert, Mr. Borja, whose results were confirmed by
independent, court-appointed experts and, in some cases, the opposing party-appointed
expert in those litigations. In this arbitration, the Claimants hired Navigant to conduct an
independent assessment of damages as at April 1, 2008. According to Navigant’s
calculations, TexPet’s damages rise to between US$ 1.484 billion and US$ 1.605 billion
including accumulated interest.
54. Navigant’s calculations, in turn, rely on the Claimants’ assertions regarding the applicable
interest. The Claimants submit that Ecuadorian law determines the interest to be applied up
until the date the denial of justice was completed. In accordance with Ecuadorian law, simple
interest is therefore claimed from the time of the breach until December 31, 2004, using the
Tasa Activa Referencial, a rate used by the Ecuadorian Government as the key rate for
international obligations. Past the date of completion of the denial of justice, the Claimants
argue that international law compels the application of compound interest, using an annual
compound interest rate of 11.41% equal to Ecuador’s cost of capital.
55. Contrary to the Respondent, the Claimants argue that damage awards are to be computed on
a pre-tax basis. The Claimants assert that income taxes are an act of government that bears no
relation to a denial of justice claim. Taxes are consequential to the compensation awarded
and do not affect its determination. The Claimants also note that the Ecuadorian courts would
not have deducted taxes from their judgments in the underlying cases. In any event, under
Ecuadorian law, the old tax rate would not apply because no taxable event occurred in that
time and amounts paid out as damages are not subject to income tax. Even under the old
taxation rules, this income would not be directly related to hydrocarbon exploration and
production and therefore would benefit from a lower tax rate than the “Unified Tax” asserted
by the Respondent. Aside from these arguments, however, the Claimants “commit to
pay[ing] any taxes on an award that are legally due in the appropriate jurisdiction, when and
where they are due.”

56. The Claimants further contend that their damages also extend to other direct harms that arise
as direct result of the delay, such as wasted costs of litigation before the Ecuadorian courts
and costs of this arbitration. Finally, the Claimants deny the risk of double-recovery, should a
judgment issue in the Ecuadorian courts as well as an award in this arbitration for the same
damages.
57. Subject to more detail to be found in the Tribunal’s Partial Award regarding particular issues,
the Respondent’s arguments on the merits can be summarized as follows.
58. The Respondent argues that denial of justice is a grave charge under international law and a
presumption exists under international law as to the correctness of the conduct of a State’s
judicial system. In order to constitute a denial of justice, the Respondent argues that a delay
must amount to a refusal to judge, something which the Claimants have failed to prove with
respect to TexPet’s seven cases. The Claimants have not shown any direct refusal or
interference in their court cases or that they have been treated differently than any other
litigant.
59. The Respondent further submits that there is no automatic amount of delay that constitutes a
denial of justice and that the delays experienced by TexPet were not beyond the threshold of
denial of justice. The totality of the circumstances, including the fact that TexPet is a
corporation rather than a natural person, that no fundamental rights are at stake in the cases,
that the cases are factually and legally complex, and that TexPet has demonstrated a lack of
diligence in pushing their cases forward, all militate against a finding of undue delay.
60. The Respondent further points to an enormous backlog of cases that have plagued the
Ecuadorian courts since the early 1990s. These backlogs, combined with TexPet’s own
failure to press its cases, explain and excuse the delay suffered by TexPet. Contrary to the
Claimants’ arguments, the case law at most establishes that backlogs will not provide a
defence when time is of the essence and measures taken to relieve the backlog are hollow or
ineffective. By contrast, Ecuador undertook significant and effective judicial reforms over

the past 15 years to counter the backlog and TexPet cannot claim any injury that pre-
judgment interest will not compensate for.
61. The Respondent argues that the Claimants have not made out a case that they have suffered
“incompetent” or “unjust” decisions in their cases, nor have they shown that any impugned
decisions could rise to the level of an international wrong. In order to substantiate a denial of
justice under international law, it is not sufficient to show an erroneous application of
national law. The breach of municipal law must be so exceptionally outrageous or
monstrously grave that bad faith may be inferred.
62. According to the Respondent, the Claimants cannot show that the decisions attacked are even
incorrect under Ecuadorian law, let alone outside the juridically possible. With regard to the
dismissal on the basis of abandonment, no retroactive application occurred. The two-year
abandonment period had already been in force as part of the 1997 Law Amending the
Organic Law of the Judiciary which, as an “organic” and “special” law that applies to first
instance cases at the Supreme Court, takes precedence over inconsistent provisions of the
Code of Civil Procedure. The Respondent further cites a number of short judgments on this
point that it has submitted in this arbitration and states that the mere existence of other
concise judgments applying Ecuadorian abandonment rules in the same way proves that the
dismissal falls within the juridically possible.
63. The dismissals for prescription are also not at all incorrect or unjust. TexPet’s cases fall
under the category of “special actions” according to the public nature of disputes arising
under the Ecuadorian Hydrocarbons Law and the fact that the cases are conducted by
“summary oral proceedings.” As there is no clear category of “special action” that TexPet’s
cases fall under, the judge was required to determine the applicable prescription period by
analogy. The judge thus applied the two-year prescription rule which is applicable to
“suppliers” (and not just to “small retail sales”), and which is consistent with the short
limitation periods normally applicable in “summary oral proceedings” and cases against the
government.
64. The Respondent claims that the Claimants’ claims under specific BIT standards of protection
are wholly subsumed within their denial of justice claim. These provisions do not create

obligations distinct from the general prohibition of denial of justice under international law.
In this case, the failure to exhaust local remedies bars any claim based on the
maladministration of justice or a violation of the obligation to establish a just system.
Therefore, the denial of justice claim fails and the BIT claims must fail as well.
65. More specifically, the Respondent asserts that Article II(7) of the BIT in no way lowers the
threshold as compared to denial of justice at customary international law and, in any event,
only guarantees “system attributes” or protects against the host State’s extreme interference
in judicial proceedings. The Claimants have also failed to prove that Ecuadorian courts
breached the “fair and equitable treatment” and “full protection and security” standards under
Article II(3)(a). At the time the Claimants made their investment, they were well aware of
court congestion and that local litigation could last 20 years. Moreover, the Ecuadorian
judiciary has vastly improved since then. Lastly, with respect to the alleged breach of Article
II(3)(b)’s prohibition of “arbitrary or discriminatory measures,” the Respondent contends that
the Claimants have not proven the existence of different treatment as compared to other
similarly-situated litigants in Ecuadorian courts.
66. According to the Respondent, the Claimants have provided no support for their proposed
investment agreement claims, formulated as novel “combined claims” for breach of contract
under domestic law combined with a denial of justice under customary international law,
much less a cogent explanation of how these claims differ from their denial of justice claim.
As such, the claims must fail for the same reasons as the denial of justice claims. Regardless,
the Respondent submits that the claims as they are now formulated were actually dismissed
by the Tribunal’s Interim Award.
67. With respect to the various BIT-based claims, the Respondent contends that they all require
basic finding of denial of justice under customary international law. According to the
Respondent, a denial of justice, as a condemnation of a State’s judiciary as a whole, cannot
arise unless local remedies have been completely exhausted. Without exhaustion, the
Claimants’ denial of justice claims lack the element of finality essential to establish State
Responsibility for the acts of its judiciary.

68. In the present case, two of the seven Ecuadorian court cases have been appealed to the
highest court. However, the other five of seven of the Claimants’ present claims are based
solely on the acts of the Ecuadorian courts at first instance and the Claimants have not taken
advantage of several procedural remedies open to them, including “hearing in stands,”
written closing arguments, disciplinary actions against the judges, motions for recusal of the
judges, and civil lawsuits against the judges. Claims of undue delay are not exempt from the
finality requirement as long as a potential remedy for delay exists. In the present case, the
Claimants not only did not pursue available remedies, but limited themselves to doing the
bare minimum to keep their claims alive
69. According to the Respondent, the Claimants’ assertion that these remedies would be (or
would have been) futile is also false. Remedies are presumed effective and a claimant is not
excused from pursuing available remedies because they expect injustice to result or because
they are “indirect” remedies for delay. Furthermore, the Claimants claim that their denial of
justice had been completed before the purported Ecuadorian “judicial crisis” arose. The
“judicial crisis” is therefore irrelevant. Moreover, the Claimants have admitted that none of
the Ecuadorian Government’s actions during this period were ever targeted specifically at
TexPet and its cases. Regardless, the alleged claims of futility because of a lack of judicial
independence do not withstand scrutiny on the facts. The international community has
recognized the impartiality, independence, and professional ability of the Ecuadorian
Supreme Court on many occasions following the dismissal and replacement of the judges
which forms the basis for the futility argument asserted by the Claimants.
70. Pursuant to the principles of good faith and estoppel, the Respondent argues that the
Claimants should be precluded from now alleging that improper conduct by the Ecuadorian
courts or the futility of further pursuing remedies before them. According to the Respondent,
in order to support the adequacy of Ecuadorian courts in connection with the Aguinda action,
the Claimants submitted pleadings and affidavits attesting to the fairness and competence of
the Ecuadorian courts, in direct contradiction to the Aguinda plaintiffs and a U.S. State
Department Report criticizing the Ecuadorian judiciary. The Claimants further relied on the
Aguinda decision in support of the dismissal of the Doe v. Texaco, Inc. – after filing their
notice of intent to submit the present claims. When the Claimants took this position in the

Aguinda litigation, they were on notice of a twenty-year backlog of cases in the Ecuadorian
courts and the seven cases underlying the present claims were specifically cited by the
Claimants as evidence of the fairness of Ecuadorian courts. The Respondent therefore
contends that the Claimants should be estopped due to their contradictory statements.
Alternatively, the Claimants’ reversal is motivated by ulterior purposes related to a global
litigation strategy surrounding its defense of the Lago Agrio and Aguinda actions against
them. The misuse of these cases to found an arbitration claim – disconnected from any
legitimate desire to succeed in Ecuadorian courts on the underlying claims – constitutes an
abuse of process that bars claims related to the adequacy of the Ecuadorian court system.
71. The Respondent further argues that in a case of denial of justice, the loss is the Claimants’
loss of the opportunity to have their cases decided before the local judicial system.
Accordingly, the Tribunal cannot simply adopt its own interpretation of the 1973 and 1977
Agreements. The Tribunal must determine what an Ecuadorian court, applying Ecuadorian
law, would have done in these cases. Following on the above, the Respondent argues that the
Claimants have not and cannot meet their burden to show that they would more likely than
not have prevailed on their Ecuadorian court cases. Furthermore, even if the Claimants can
prove that they could have prevailed in the Ecuadorian courts, the Tribunal should use the
“loss of a chance” principle to award only the damages corresponding to the likelihood of
success that TexPet had of prevailing on the merits of its Ecuadorian court cases. Finally, the
Claimants had a duty to mitigate their damages under the seven cases and they have failed to
do so by failing both to actively move their cases forward and to exhaust the local remedies.
72. The Respondent generally contests the merits of TexPet’s seven court claims underlying this
arbitration. The Respondent argues that the claims misinterpret TexPet’s and Ecuador’s
respective obligations under the 1973 Agreement and Ecuadorian law, and that reliance on
the 1977 Agreement is wholly inappropriate. In the underlying cases TexPet and Ecuador
disagree on their respective obligations with respect to residue crude from the refining
process, in particular whether the Respondent was entitled to export it without compensating
TexPet at the international market price or crediting TexPet for the equivalent barrels of
crude against its domestic market obligations. The Respondent contends that TexPet’s
arguments fundamentally misinterpret its contribution obligations under the 1973 Agreement.

As such, Ecuador would properly have prevailed in these cases. At the very least, there was a
proper dispute for adjudication and the Claimants cannot prove with any degree of certainty
that they would have prevailed.
73. According to the Respondent, the 1973 Agreement merely enshrined the general regime
under the 1971 Hydrocarbons law which provided for a general, unrestricted, and
unavoidable obligation for contracting companies to supply crude oil to the country’s
refineries and allowed contractors to exploit Ecuador’s crude oil reserves and export their
share of the crude oil for their benefit, but only after the country’s needs were first satisfied.
In particular, the 1973 Agreement gave Ecuador the right to require a contribution “of
whatever quantity of crude oil may be necessary for the production of derivatives for the
internal consumption of the country.”
74. In 1977, Ecuador’s Ministry of Energy and Natural Resources was pressing for an expansion
of the Consortium’s exploration and production which would require a significant increase in
TexPet’s investment. TexPet and Ecuador thus commenced negotiations in the context of the
Consortium’s 1978 Annual Work Program. According to the Respondent, TexPet leveraged
its commitment to expand its activities and investment to obtain significant improvements
beyond the 1973 Agreement. In particular, TexPet sought to establish that it should obtain a
credit against its internal consumption demands for any products exported, rather than just
exported crude. Although the negotiations centered around the 1978 Annual Work Program,
which would not normally have been set out in contract form, the result was put into a
contract, namely the 1977 Agreement. This was done in order to make enforceable against
TexPet its commitment to increase its investment and scope of operations. Regardless of its
contractual form, however, the Respondent cites internal TexPet documents and letters to the
Ecuadorian Ministry that acknowledge that the 1977 Agreement was still just intended as a
one-year work program establishing for that year alone “new economic parameters” for
TexPet’s operations. Thus, according to the Respondent, for the one-year period of the work
program, the 1977 Agreement changed the previous definition under the 1973 Agreement
from one of local refining to one of local consumption.

75. The one-year term of the 1977 Agreement is evidenced by the numerous references to an
“annual period,” a period of “12 months,” and activities that were stipulated to take place
within one year. These references span all sections of the agreement and the Annex. Only the
section entitled “Oil destined to Internal Consumption” does not contain an explicit
reference. The Respondent argues, however, that one section of the Agreement could not
possibly have a different term unless such a result was expressly provided. Eventually, the
1978 Work Program came to an end and negotiations failed to renew it. Ecuador thus enacted
a Ministerial Resolution canceling the 1977 Agreement and reestablishing the 1973
Agreement for 1979 and beyond. When that resolution was applied retroactively to the year
covered by the 1977 Agreement, TexPet filed a complaint with the Ministry. However,
TexPet did not challenge the validity of the new resolution going forward, nor did TexPet
allege a breach of the 1977 Agreement. Even in the underlying court cases, no direct breach
of the 1977 Agreement was alleged, only that it was a supplementary means of interpretation
for the 1973 Agreement. Given that the 1977 Agreement was not at issue in the underlying
claims, the Claimants’ complaints that the invalidity of the 1977 Agreement was not raised
until these arbitration proceedings are misguided.
76. In the Esmeraldas Refinery claims (Cases 23-91 and 152-93) and Amazonas Refinery claims
(Cases 7-92 and 153-93), the Respondent disputed TexPet claims that it over-contributed
crude under its domestic market obligation when the residue from the refining process was
mixed with diesel and subsequently exported. The Respondent argued that all of the crude
received and processed in the refineries was necessary to generate sufficient refined product
to satisfy the domestic consumption needs of the country, and that any resulting residue
belonged to Ecuador to dispose of as it wished. The Respondent insists that, although the
1973 Agreement is silent regarding the residue from the refining process, it certainly does not
require that the Republic pay the international price for residue that is a necessary by-product
of producing refined oil for domestic consumption. If the crude was “necessary for the
production of derivatives for the internal consumption of the country,” the crude was to be
supplied at the domestic price.
77. According to the Respondent, the 1977 Agreement, if construed as suggested by the
Claimants, would violate the provisions of the Ecuadorian Hydrocarbons Law and would be

unenforceable as a consequence. Ecuadorian law also provides for strict formalities to be
adhered to in order to create an enforceable contract with the Government, in particular in the
hydrocarbons sector. Thus, the 1977 Agreement would also run afoul of Ecuadorian law and
be unenforceable if it purported to be a longer-term “investment agreement” rather than just
an annual work program. The Respondent further cites the decision in favor of Ecuador in the
second Amazonas Refinery case (Case 153-93), rendered after the Parties’ Post-Hearing
Briefs were submitted.
78. In the Imported Products case (Case 154-93), the Respondent first rejects this claim on the
basis that the OPAH Account was simply an accounting mechanism, not the basis for
requisitioning crude, which was instead done based on actual refining and consumption
projections and the express provisions of the 1973 Agreement. Second, the imported refined
products were supplied directly by the Government to the retailers upon importation, neither
CEPE/PetroEcuador nor the refineries ever actually received any imported products or made
any sales of imported products to retailers. Third, TexPet was not entitled to be credited with
the benefit of the income from retail sellers because the exported crude had already been
purchased from TexPet as part of the Compensation Crude system. Overall, the Respondent
submits that, the fundamental premise of the Claimants’ Imported Products claim is the
proposition that the importation of derivative products for internal consumption was to be
funded with resources other than TexPet’s and other producers’ supply of Compensation
Crude at the discounted domestic market price. This would clearly be contrary to the express
provisions of the 1973 Agreement, the 1971 Hydrocarbons Law, and other provisions of
Ecuadorian law. The Respondent also points to the recent decision of the Provincial Court of
Pichincha in the Imported Products case (Case 154-93) as evidence that TexPet’s claims are
unfounded.
79. The Respondent also contests the merits of the Force Majeure case (Case 8-92). During the
force majeure period, producers were required to deliver whatever oil they could deliver
through an alternative pipeline. This was far less, however, than what was needed to satisfy
domestic consumption. In its claim, TexPet argued that its obligation to contribute crude to
domestic consumption was contingent on its own production of crude oil and therefore
claimed that its own reduced capacity during the force majeure period led to a concomitant

reduction in its required contributions. The Respondent claims that there is no support
anywhere for establishing that TexPet’s contribution obligations are conditional. This
argument runs directly counter to the terms of the 1973 Agreement and the Hydrocarbons
Law, which provide that export of oil by TexPet will only be authorized “once the needs of
the country have been satisfied.” Moreover, the argument that this constituted a “retroactive”
requisitioning of crude ignores the discretion accorded to the Ministry to requisition crude
whenever it deems it “necessary.”
80. The Respondent further argues that this absolute obligation of contribution was also not
defeated by the doctrine of force majeure under Ecuadorian law. According to the
Respondent, under Ecuadorian law, the doctrine of force majeure merely deferred TexPet’s
duty to contribute to domestic consumption, but did not eliminate the obligation itself. The
Respondent claims that the conduct of the parties to the 1973 Agreement subsequent to the
force majeure period confirms this understanding of TexPet’s obligations following the
earthquake and that TexPet’s conduct, in fact, amounts to a waiver under Ecuadorian law that
would prevent recovery by TexPet in any event.
81. With regard to the Refinancing Agreement case (Case 983-03), the Respondent contends that
it was not obligated to pay interest on its late payment during the force majeure period. In the
later appeal stage, the Respondent also contended that the judge sitting in the First Civil
Court of Pichincha did not have jurisdiction over the case because, under the 1971
Hydrocarbons Law, the Minister of Energy and Mines is the Special Hydrocarbons Judge
with original jurisdiction to hear and decide all controversies which may arise as a result of
the application of the Hydrocarbons Law. The Respondent notes, nonetheless, that the
Claimants have won this case and, contrary to their claims regarding technical obstacles,
nothing prevents them from collecting on the judgment.
82. Turning to the issue of damages, the Respondent contests the Claimants’ assumption that the
damages under a denial of justice theory would automatically be equal to TexPet’s claimed
damages in the underlying actions. The Respondent argues that Mr. Borja’s analyses
performed as the Claimants’ expert in the Ecuadorian courts cases suffered from a lack of
independence and were premised on incorrect legal assumptions. The Respondent’s

Valuation Experts have also identified various deficiencies in Claimants’ assessments
performed by Navigant. With respect to the Esmeraldas and Amazonas Refinery claims, the
Respondent’s experts principally criticize the fact that the Claimants’ calculations are based
on the total volume of residue produced at the refineries instead of the volume of residue
actually exported.
83. The Respondent also contends that the Claimants have committed multiple errors in their
calculations of interest. First, the Claimants are not entitled under Ecuadorian law to interest
accrued prior to the commencement of their court actions. When a contract does not provide
for interest on overdue amounts, a party does not become liable for interest until that party is
put into default by the service of a complaint. Second, the application of the Tasa Activa
Referencial rate for the period of 1995-2004 is inappropriate, since this rate is designed
specifically for obligations denominated in Sucres. Similarly, the Respondent rejects the use
of the arbitrary interest rate chosen by the Claimants’ experts for the period from 2004
onwards. Absent subjection to any particular risks, there is no reason to use any rate higher
than a risk-free rate such as the New York preferential rate. At most, TexPet’s historic cost of
debt should be used, which would compensate fully for the opportunity cost of not having
possession of the allegedly lost profits. Lastly, the Claimants are not entitled to compound
interest since compound interest is prohibited by Ecuadorian law, which is admitted to
govern the 1973 and 1977 Agreements. In any event, except in exceptional cases usually
involving claims of expropriation, simple interest continues to be the norm in investment
treaty arbitration.
84. The Respondent also points out that the Claimants have failed to adjust for taxation of the
revenues TexPet would have had to pay from the exportation of allegedly over-contributed
barrels. The standard of full reparation under international law requires restoring the
Claimants to the situation that would have prevailed had the alleged denial of justice not
occurred. It is clear that, had the Respondent performed the 1973 Agreement as the
Claimants argue it should have been, taxes would have been deducted with TexPet’s full
knowledge and consent. Claimants’ revenues would therefore have been subject to “Unified
Tax” on hydrocarbons at a rate of 87.31%. The Respondent further notes that TexPet’s tax
obligations were also contractual obligations under the 1973 Agreement. Moreover, no

Ecuadorian court would have failed to take the tax situation into account in its judgment. In
the end, to render an award that does not deduct taxes would in effect bestow upon the
Claimants an enormous windfall profit that they would not have enjoyed even if their entire
theory of the case were otherwise adopted.
85. The Respondent therefore asks the Tribunal to deduct 87.31% of the amount it would
otherwise award on account of taxes. Alternatively, the Respondent asks the Tribunal to
stipulate that a first part of any Award (12.69%) would be payable directly to TexPet and a
second part (87.31%) corresponding to the tax liability, would be payable to the Ecuadorian
Servicio de Rentas Internas (SRI) in trust for TexPet to satisfy its tax obligations.
86. Finally, the Respondent counters the claim for “wasted legal costs” in litigating before the
Ecuadorian courts and raises concerns about double recovery. The Respondent argues that
the Claimants would have incurred their allegedly “wasted legal costs” even in the absence of
the alleged denial of justice. The Respondent points out that it is also possible that decisions
favorable to TexPet will be rendered in the courts even after the Tribunal renders an award,
leading to a risk of double recovery.
4. The Tribunal’s Partial Award on the Merits
87. The Tribunal issued its Partial Award on Merits on 30 March, 2010. For the reasons set out
in that Award, the Tribunal decided the following.
1. From the Interim Award of December 1, 2008, the Tribunal recalls the
following decisions:
paragraph 116.
2. The Respondent has breached Article II(7) of the BIT through the undue
delay of the Ecuadorian courts in deciding TexPet’s seven court cases and is
liable for the damages to the Claimants resulting therefrom.

3. The Claimants have not committed an abuse of process and are not estopped
from bringing the present claim against the Respondent.
4. In view of the Tribunal’s decision in section 2 above regarding the breach of
Article II(7) of the BIT, and given that the relief sought by Claimants with
respect to its additional claims does not go beyond that sought pursuant to
the claim regarding Article II(7), the Tribunal need not decide the
Claimants’ claims regarding other breaches of the BIT or customary
international law.
5. As a result of the Tribunal’s decision in section 2 above that the Respondent
has breached Article II(7) of the BIT, the Respondent is liable for damages
caused to Claimants by that breach. The amount of such damages will be
decided by the Tribunal with the help of a procedure set out in a separate
Procedural Order of the Tribunal to determine what taxes, if any, would
have been due to the Respondent if no breach of Article II(7) of the BIT had
occurred.
6. The Respondent is liable for pre-award compound interest at the New York
Prime Rate (annual) on the final amount to be paid by Respondent according
to section 5 above, from December 22, 2006 until the date that this sum
becomes payable by Respondent.
7. The Respondent shall be liable for post-award compound interest at the New
York Prime Rate (annual) on the amount awarded by the Tribunal, from the
date that the Tribunal orders payment by the Respondent until the date
payment is made.
these proceedings.
9. All other claims are dismissed.

C.III. The Quantum Phase
88. The issues arising in the present phase of proceedings focus on the determination of the
quantum of damages to be awarded to the Claimants as the calculation of Claimants’ true
loss, taking into account applicable Ecuadorian tax laws. In the determination of such amount
to be awarded, the Tribunal invited the party-appointed experts to attempt to agree on the
amount, if any, that should be deducted from the total set forth in the Table at paragraph 549
of its Partial Award on account of any applicable Ecuadorian tax laws, in light of the
principles set out in the Tribunal’s Partial Award.
89. The party-appointed experts issued their Joint Expert Report on October 20, 2010,
concluding that the 87.31% Unified Tax is the applicable tax on the amount corresponding to
“Direct Damages” and that a 25% Income Tax is applicable on the amount corresponding to
“Interest,” as this was the applicable tax law at the time when the breaches occurred and the
date when the Notice of Arbitration was filed. Attached to the same Joint Expert Report, Dr.
Javier Cordero Ordóñez, the expert appointed by the Respondent, issued a Separate Opinion
stating that the effective “Direct Damages” would only amount to US$ 44,993,428.60 as the
net amount after applying the 87.31% Unified Tax to TexPet’s oil export revenues and not on
the gross amount of US$ 354,558,145. Dr. Cordero supplemented his Separate Opinion on
October 26, 2010, stating that the value of Direct Damages that TexPet would have received
would have been only 12.69% of the values shown in the table at paragraph 549 of the Partial
Award, thus decreasing by 87.31% the basis upon which simple interest is calculated and
then taxed at a rate of 25%.

D. Procedural History
90. By a Notice of Arbitration dated December 21, 2006, Chevron and TexPet commenced the
current arbitration proceedings against Ecuador pursuant to Article VI(3)(a)(iii) of the BIT.
Article VI(3)(a)(iii) of the BIT provides that disputes arising under the Treaty may be
submitted to an arbitral tribunal established under the UNCITRAL Arbitration Rules.
91. The Notice of Arbitration presents a dispute which is said to have arisen from seven
commercial cases that were filed by TexPet against Ecuador in Ecuadorian courts between
1991 and 1994. These claims arise out of allegations of breaches of contract with respect to
compensation due to TexPet under the 1973 Agreement and the 1977 Agreement,
respectively.
92. The Claimants contend that the courts have refused to rule on these claims because of bias
against them and in favor of the Respondent. The Claimants allege that this constitutes a
breach of Ecuador’s obligations under the BIT.
93. On January 16, 2007, the Claimants appointed The Honorable Charles N. Brower as
arbitrator.
94. Pursuant to a letter to the SG-PCA dated February 26, 2007, the Claimants formally
requested that the SG-PCA designate an appointing authority due to the Respondent’s failure
to designate an arbitrator within the thirty-day period allotted under Article 7(2) of the
UNCITRAL Arbitration Rules. By letter dated March 2, 2007, the SG-PCA invited the
Respondent to comment on the request for designation of an appointing authority by March
16, 2007. No comments were submitted by the Respondent. The SG-PCA designated Dr.
Robert Briner as appointing authority on March 20, 2007.
95. By letter dated March 21, 2007, the Claimants requested that Dr. Briner, as appointing
authority, appoint the second arbitrator on behalf of the Respondent.
96. By letter dated March 26, 2007, the Respondent appointed Prof. Albert Jan van den Berg as
the second arbitrator. Dr. Briner, by letter dated April 13, 2007, informed the Parties that he

had not yet been able to make any appointment on behalf of the Respondent in his capacity
as appointing authority and considered that the issue had become moot.
97. By letter dated May 8, 2007, the two party-appointed arbitrators confirmed, with the consent
of the Parties, their appointment of Prof. Dr. Karl-Heinz Böckstiegel as Presiding Arbitrator.
98. On May 22, 2007, the newly-constituted Tribunal issued PO I, inter alia, allowing the
Respondent to submit a short Reply to the Notice of Arbitration by June 30, 2007, and
ordering that the PCA would act as registry in the case. PO I also convened a Procedural
Meeting to be held in The Hague on August 2, 2007.
99. By letter dated June 13, 2007, the Respondent requested that the deadline for the submission
of the Reply to the Notice of Arbitration be extended until at least August 27, 2007, and that
the Procedural Meeting be deferred until at least September 17, 2007. By letter dated June
15, 2007, the Tribunal invited the Claimants to comment upon the Respondent’s requests. By
letter dated June 20, 2007, the Claimants expressed their view that the proceedings should
continue as scheduled in PO I and that the Respondent’s requests be rejected. By letter dated
June 25, 2007, the Tribunal extended the deadline for submission of the Reply to the Notice
of Arbitration until August 27, 2007, and deferred the Procedural Meeting until October 2,
2007.
100. By letter dated August 20, 2007, the Respondent’s newly-appointed counsel informed the
Tribunal of an agreement between the Parties on a schedule for the proceedings, including a
further deferral of the deadline for submission of the Reply to the Notice of Arbitration until
September 28, 2007. The Tribunal acknowledged the Parties’ agreement and moved the date
for submission of the Reply to the Notice of Arbitration to September 28, 2007, with further
details of the schedule of proceedings to be discussed at the Procedural Meeting. By letter
dated September 17, 2007, the Tribunal circulated an Annotated Agenda for the meeting. By
letter dated September 26, 2007, the Claimants communicated a further agreement of the
Parties on the schedule of proceedings.
101. The Procedural Meeting took place in The Hague on October 2, 2007. On October 9, 2007, a
Draft PO II was circulated by the PCA on behalf of the Tribunal to the Parties for comments.

102. Acknowledging the Parties’ comments on the draft, the Tribunal issued PO II on October 19,
2007, deciding, inter alia, that English and Spanish would be the official languages of the
arbitration (with English being authoritative between the two), that the place of arbitration
would be The Hague, The Netherlands, and that the venue for the Hearing on Jurisdiction
would be San Jose, Costa Rica. PO II also set out the schedule of proceedings, taking into
consideration the Parties’ previous agreement and the discussions having taken place at the
Procedural Meeting on October 2, 2007. For ease of reference, the entire operative provisions
of PO II are set out below:
This Procedural Order No. 2 puts on record the results of the discussion and agreement
between the Parties and the Tribunal at the 1st
Procedural Meeting held on Tuesday,
October 2, 2007, in the Small Court Room of the Peace Palace, The Hague, The
Netherlands:
1. Procedural Hearing
1.1 Names of all attending the meeting were notified in advance and are set forth in
the following sections 1.2 and 1.3.
The representation of the Parties at the Procedural Meeting was as follows:
Claimants
Mr. R. Doak Bishop (King & Spalding)
Dr. Alejandro Ponce Martinez (Quevedo & Ponce)
Mr. Wade M. Coriell (King & Spalding)
Dr. Ana Belen Posso (Quevedo & Ponce)
Ms. Deborah Scott (Chevron Corporation and Texaco Petroleum Company)
Mr. Ricardo Reis Veiga (Chevron Corporation and Texaco Petroleum Company)
Respondent
Mr. Eric W. Bloom (Winston & Strawn LLP)
Mr. Ricardo E. Ugarte (Winston & Strawn LLP)
Mr. Mark A. Clodfelter (Winston & Strawn LLP)
Ms. Karen S. Manley (Winston & Strawn LLP)
Mr. Carlos Venegas Olmedo (Republic of Ecuador)
Ms. Christel Gaibor (Republic of Ecuador)
The Tribunal Members and other attendees at the Procedural Meeting were as
follows:
Arbitral Tribunal
Professor Albert Jan van den Berg
Professor Karl-Heinz Böckstiegel (President)

Permanent Court of Arbitration
Mr. Brooks W. Daly
Ms. Rocío Digón
Ms. Evelien Pasman
Assistant to The Honorable Charles N. Brower
Mr. Peter Prows
Court Reporters/Interpreters (ALTO International)
Reporters:
Ms. Carmen Preckler Galguera
Ms. Maria Raquel Banos
Ms. Laura Evens
Ms. Michaela Philips
Interpreters:
Mr. Jon Porter
Mr. Javier Ferreira Ramos
Ms. Ute Sachs
2. Earlier Rulings
2.1. Earlier Rulings of the Tribunal remain valid unless changed expressly. The
Tribunal particularly recalls the following sections of Procedural Order No. 1 and
includes any additions and changes made at the Procedural Meeting:
2.2. 7. Communications
Following the Meeting, paragraph 7.1 of Procedural Order No. 1 has been deleted
and this section renumbered.
7.1. The Parties shall not engage in any oral or written communications with any
member of the Tribunal ex parte in connection with the subject matter of the
arbitration.
7.2. The Parties shall address communications directly to each member of the
Tribunal by e-mail and confirmed by courier, with a copy to the counsel for the
other Party. Confirmation may be made by fax instead of courier if it does not
exceed 15 pages.
7.3. Copies of all communications shall be sent to the Registry.
7.4. To facilitate citations and word processing, Memorials and other larger
submissions shall be in Windows Word and preceded by a Table of Contents.
7.5. Submissions of documents shall be submitted unbound in ring binders separated
from Memorials and preceded by a list of such documents consecutively
numbered with consecutive numbering in later submissions (C-1, C-2 etc. for
Claimant; R-1, R-2 etc. for Respondent). As far as possible, in addition,
documents shall also be submitted in electronic form (preferably in Windows
Word, otherwise in Acrobat).

7.6. All written communications shall be deemed to have been validly made when
they have been sent to:
Claimants: to the addresses of counsel as above.
Respondent: to the address as above.
As Respondent has now appointed its Counsel for this case,
communications shall from now on be addressed to Winston
& Strawn LLP (Winston) New York and Washington DC
offices as given in its letters.
Tribunal: to the addresses as above.
Registry: to the addresses as above.
7.7. The Parties shall send copies of correspondence between them to the Tribunal
only if it pertains to a matter in which the Tribunal is required to take some
action, or be apprised of some relevant event.
7.8. Any change of name, description, address, telephone number, facsimile number,
or e-mail address shall immediately be notified by the Party or member of the
Tribunal to all other addressees referred to in paragraphs 1, 3 and 7.
After the discussion at the Procedural Meeting, the following clarification regarding
confidentiality is added:
7.9. Either Party may publicly disclose submissions made in these proceedings
unless there has been a decision by the Tribunal to the contrary. Requests
for confidential treatment of any item communicated in these proceedings
may be submitted by either Party to the Tribunal for a decision, in which
case no item which is the subject of such request may be publicly disclosed
unless and until the Tribunal has so decided.
2.3. 8. Language of the arbitration
After consultation with the Parties at the Procedural Hearing, the Tribunal shall determine
the language or languages to be used in the proceedings in accordance with Art. 17(1) of
the UNCITRAL Rules.
After the discussion at the Procedural Meeting and further comments from the
Parties after the Meeting, the following is decided:
8.1. English and Spanish will be the official languages of the arbitration and, as
between them, English will be the authoritative language.
8.2. Communications by the Tribunal (including orders, decisions and awards)
and all submissions and communications by the parties shall be in English,
including translations in full of any witness statements prepared in Spanish
and translations in relevant part of documentary evidence and legal
authorities in a language other than English.
8.3. Spanish translations of all writings referred to in paragraph 8.2 that are not
already in Spanish shall be submitted or communicated with the writings or
as soon as possible thereafter, but in no event later than three weeks after

their submission or communication, except that the Spanish translations of
any award or of Claimant’s Memorial on the Merits and Respondent’s
Counter-Memorial on the Merits may be submitted up to six weeks after
such award or submission is made.
8.4. All oral proceedings shall be simultaneously interpreted and transcribed into
English and Spanish.
2.4. 9. Place of arbitration
After consultation with the Parties at the Procedural Hearing, the Tribunal shall
determine the place of arbitration in accordance with Article 16(1) of the
UNCITRAL Rules.
After the discussion at the Procedural Meeting and the submission of further
written comments of the Parties, the following is decided: The Hague, The
Netherlands is the place of arbitration.
In this context it is recalled that, according to UNCITRAL Rule 16.2,
Hearings may be held at other venues.
3. Timetable
3.1. Taking into account the Parties’ proposal submitted by Claimants’ letter of
September 26, 2007, and the discussion at the Procedural Meeting, the timetable
shall be as follows:
3.2. By October 19, 2007,
Claimants’ Statement of Claim
3.3. By November 19, 2007,
Respondent’s Statement of Defense (including all jurisdictional objections)
3.4. By January 25, 2008,
Respondent’s Memorial on Jurisdiction, to be submitted together with all
evidence (documents, as well as witness statements and expert statements if any)
Respondent wishes to rely on in accordance with the sections on evidence below.
3.5. By March 25, 2008,
Claimants’ Counter-Memorial on Jurisdiction, to be submitted together with all
Claimants wish to rely on in accordance with the sections on evidence below.
3.6. By April 8, 2008,

Claimants’ Memorial on the Merits, to be submitted together with all evidence
(documents, as well as witness statements and expert statements if any)
Claimants wish to rely on in accordance with the sections on evidence below.
3.7. May 19, 2008,
One day Hearing on Jurisdiction; should examination of witnesses or experts be
required, this hearing may be extended to up to two and a half days if found
necessary by the Tribunal after consultation with the Parties, and be held May 19-
21, 2008.
3.8. As soon as possible after the Hearing on Jurisdiction, the Tribunal will decide on
how it will address the question of jurisdiction and inform the Parties by order,
award, or otherwise.
3.9. By August 22, 2008,
Respondent’s Counter-Memorial on the Merits, to be submitted together with all
Respondent wishes to rely on in accordance with the sections on evidence below.
3.10. The Parties do not foresee the need for document requests in these proceedings
and the Tribunal accordingly makes no provision for dealing with such requests
in this Order. Either Party may apply to the Tribunal should circumstances arise
that would require revisiting this question.
3.11. By October 24, 2008, Claimants’ Reply Memorial on the Merits with any further
evidence (documents, witness statements, expert statements) but only in rebuttal
to Respondent’s 1st Counter-Memorial on the Merits.
3.12. By December 26, 2008, Respondent’s Rejoinder on the Merits with any further
evidence (documents, witness statements, expert statements) but only in rebuttal
to Claimant’s Reply Memorial.
3.13. Thereafter, no new evidence may be submitted, unless agreed between the Parties
or expressly authorized by the Tribunal.
3.14. By January 23, 2009, the Parties submit
* notifications of the witnesses and experts presented by themselves or by
the other Party they wish to examine at the Hearing,
* and a chronological list of all exhibits with indications where the
respective documents can be found in the file.
3.15. On a date to be decided, Pre-Hearing Conference between the Parties and the
Tribunal shall be held, if considered necessary by the Tribunal, either in person or
by telephone.
3.16. As soon as possible thereafter, Tribunal issues a Procedural Order regarding
details of the Hearing on the Merits.

3.17. Final Hearing on the Merits to be held April 20 to April 24, 2009, and, if found
necessary by the Tribunal after consultation with the Parties, extended to continue
from April 27 to April 29, 2009.
3.18. By dates set at the end of the Hearing after consultation with the Parties, the
Parties shall submit:
* Post-Hearing Briefs of up to 50 pages (no new documents allowed)
* and Claims for Arbitration Costs.
4. Evidence
The Parties and the Tribunal may use, as an additional guideline, the “IBA Rules
on the Taking of Evidence in International Commercial Arbitration”, always
subject to changes considered appropriate in this case by the Tribunal.
5. Documentary Evidence
5.1. All documents (which shall include texts of all law provisions, cases and
authorities) considered relevant by the Parties shall be submitted with their
Memorials, as established in the Timetable.
5.2. All documents shall be submitted with translations as provided in the above
section on language and in the form established above in the section on
communications.
5.3. New factual allegations or evidence shall not be any more permitted after the
respective dates for the Rebuttal Memorials indicated in the above Timetable
unless agreed between the Parties or expressly authorized by the Tribunal.
5.4. Unless a Party raises an objection within four weeks after receiving a document,
or a late objection is found justified by the Tribunal:
* a document is accepted as having originated from the source indicated in
the document;
* a copy of a dispatched communication is accepted without further proof
as having been received by the addressee; and
* a copy of a document and its translation into English or Spanish, if any,
is accepted as correct.
6. Witness Evidence
6.1. Written Witness Statements of all witnesses shall be submitted together with the
Memorials mentioned above by the time limits established in the Timetable.
Although not presently anticipated, should Witness Statements be submitted with
the Parties’ submissions on jurisdiction, either Party may request that the
Tribunal establish a timetable for the submission of rebuttal Witness Statements.
6.2. In order to make most efficient use of time at the Hearing, written Witness
Statements shall generally be used in lieu of direct oral examination though
exceptions may be admitted by the Tribunal. Therefore, insofar as, at the Hearing,

such witnesses are invited by the presenting Party or asked to attend at the request
of the other Party, the available hearing time should mostly be reserved for cross-
examination and re-direct examination, as well as for questions by the
Arbitrators.
7. Expert Evidence
Should the Parties wish to present expert testimony, the same procedure would
apply as for witnesses.
8. Hearings
Subject to changes in view of the further procedure up to the Hearings, the
following is established for the Hearings:
8.1. The dates are as established in the Timetable above.
8.2. No new documents may be presented at the Hearings except by leave of the
Tribunal. But demonstrative exhibits may be shown using documents submitted
earlier in accordance with the Timetable.
8.3. A live transcript shall be made of the Hearings and provided to the Parties and the
Arbitrators. The PCA as Registry shall make the necessary arrangements in this
regard.
8.4. Hearing on Jurisdiction:
8.4.1. After the discussion at the Meeting and the submission of further written
comments by the Parties, it is decided that the hearing on jurisdiction
shall be held at San Jose, Costa Rica.
8.4.2. Assuming that no witnesses or experts have to be examined at this
Hearing on Jurisdiction, the Agenda shall be as set forth below. If
witnesses are to be heard at the Hearing on Jurisdiction, the Agenda will
be modified.
1. Short Introduction by Chairman of Tribunal.
2. Opening Statement by Respondent of up to 1 hour.
3. Opening Statement by Claimants of up to 1 hour.
4. Questions by the Tribunal, and suggestions regarding particular
issues to be addressed in more detail in Parties’ 2nd Round
Presentations.
5. 2nd Round Presentation by Respondent of up to 1 hour.
6. 2nd Round Presentation by Claimants of up to 1 hour.
7. Final questions by the Tribunal.
8. Discussion on whether Post-Hearing Briefs are deemed necessary
and of any other issues of the further procedure.
Members of the Tribunal may raise questions at any time considered appropriate.
8.5. Hearing on the Merits:

8.5.1. Should a Hearing on the Merits become necessary, further details shall be
established after the Hearing on Jurisdiction and after consultation with
the Parties.
8.5.2. Taking into account the time available during the period provided for the
Hearing in the Timetable, the Tribunal intends to establish equal
maximum time periods both for the Claimants and for the Respondent
which the Parties shall have available. Changes to that principle may
be applied for at the latest at the time of the Pre-Hearing Conference.
9. Extensions of Deadlines and Other Procedural Decisions
9.1. Short extensions may be agreed between the Parties as long as they do not affect
later dates in the Timetable and the Tribunal is informed before the original date
due.
9.2. Extensions of deadlines shall only be granted by the Tribunal on exceptional
grounds and provided that a request is submitted immediately after an event has
occurred which prevents a Party from complying with the deadline.
9.3. The Tribunal indicated to the Parties, and the Parties took note thereof, that in
view of travels and other commitments of the Arbitrators, it might sometimes
take a certain period for the Tribunal to respond to submissions of the Parties and
decide on them.
9.4. Procedural decisions will be issued by the chairman of the Tribunal after
consultation with his co-arbitrators or, in cases of urgency or if a co-arbitrator
cannot be reached, by him alone.
10. Tribunal Fees
The Tribunal’s hourly billing rate for all time spent on this matter shall be €500
and shall be charged along with any applicable VAT in accordance with
paragraph 11 of Procedural Order No. 1.
103. The Claimants submitted their Statement of Claim on October 19, 2007. The Respondent
submitted its Statement of Defense on November 20, 2007.
104. By letter dated January 24, 2008, the Respondent informed the Tribunal of an agreement
between the Parties to extend the deadline for submission of the Respondent’s Memorial on
Jurisdiction by five days to January 30, 2008, and, correspondingly, to extend the deadline
for submission of the Claimants’ Counter-Memorial on Jurisdiction and Memorial on the
Merits by five days each, to March 30, 2008, and April 13, 2008, respectively. The Tribunal
amended the schedule of proceedings in PO II accordingly.

105. The Respondent submitted its Memorial on Jurisdiction by e-mail dated January 31, 2008,
and a Spanish translation thereof by e-mail received on February 21, 2008.
106. The Claimants submitted their Counter-Memorial on Jurisdiction by e-mail dated April 1,
2008, and a Spanish translation thereof by e-mail dated April 22, 2008.
107. The Claimants submitted their Memorial on the Merits by e-mail dated April 14, 2008, and a
Spanish translation thereof by e-mail dated May 24, 2008.
108. By e-mail dated April 10, 2008, a draft PO III was circulated to the Parties for comments. By
letters dated April 17, 2008, both the Claimants and Respondent submitted their comments.
The Respondent objected that the Claimants’ Counter-Memorial on Jurisdictional Objections
had raised new claims not contained in the Statement of Claim. It requested that the Tribunal
not admit the new claims pursuant to Article 20 of the UNCITRAL Arbitration Rules or that
the jurisdictional hearing be postponed to afford the Respondent time to respond to the
alleged new claims.
109. Acknowledging the Parties’ comments on the draft, the Tribunal issued PO III on April 21,
2008, regarding the conduct of the Hearing on Jurisdiction. The Tribunal provisionally
admitted the alleged new claims under Article 20 of the UNCITRAL Arbitration Rules, but
reserved a final decision on the matter for a later date. The Respondent’s request to postpone
the date of the jurisdictional hearing was rejected. For ease of reference, the entire operative
provisions of PO III are set out below:
1. Introduction
1.1. This Order recalls the earlier agreements and rulings of the Tribunal,
particularly in Procedural Order No. 2 sections 3.7. and 8.4.
1.2. In order to facilitate references to exhibits the Parties rely on in their oral
presentations, and in view of the great number of exhibits submitted by the
Parties to avoid that each member of the Tribunal has to bring all of them to the
Hearing, the Parties are invited to bring to the Hearing:
for the other Party and for each member of the Tribunal Hearing Binders
of those exhibits or parts thereof on which they intend to rely in their oral
presentations at the hearing, together with a separate consolidated Table of
Contents of the Hearing Binders of each Party,

for the use of the Tribunal, one full set of all exhibits the Parties have
submitted in this procedure, together with a separate consolidated Table of
Contents of these exhibits.
2. Time and Place of Hearing
2.1. The Hearing shall be held
at the Inter-American Court of Human Rights
Avenue 10, Street 45-47 Los Yoses, San Pedro
P.O. Box 6906-1000, San José, Costa Rica
Telephone: (506) 2234 0581
Fax: (506) 2234 0584
Since witnesses and experts will have to be heard, two and a half days will be
blocked and the Hearing will
start on May 19, 2008, at 10:00 a.m.,
ending, at the latest, at 1 p.m. on May 21, 2008.
2.2. To give sufficient time to the Parties and the Arbitrators to prepare for and
evaluate each part of the Hearings, the daily sessions shall not go beyond the
period between 10:00 a.m. and 6:00 p.m. However, the Tribunal, in consultation
with the Parties, may change the timing during the course of the Hearings.
3. Conduct of the Hearing
3.1. No new documents may be presented at the Hearing, unless agreed by the Parties
or authorized by the Tribunal. But demonstrative exhibits may be shown using
documents submitted earlier in accordance with the Timetable.
3.2. To make most efficient use of time at the Hearing, written Witness Statements
shall generally be used in lieu of direct oral examination though exceptions may
be admitted by the Tribunal. Therefore, insofar as, at the Hearing, such witnesses
are invited by the presenting Party or asked to attend at the request of the other
Party, the presenting Party may introduce the witness for not more than 10
minutes, but the further available hearing time shall be reserved for cross-
examination and re-direct examination, as well as for questions by the
Arbitrators.
3.3. If a witness whose statement has been submitted by a Party and whose
examination at the Hearing has been requested by the other Party, does not
appear at the Hearing, his statement will not be taken into account by the
Tribunal. A Party may apply with reasons for an exception from that rule.
3.4. In so far as the Parties request oral examination of an expert, the same rules and
procedure shall apply as for witnesses.
4. Agenda of Hearing
4.1. In view of the examination of witnesses and experts, the following Agenda is
established for the Hearing:

1. Introduction by the Chairman of the Tribunal.
2. Opening Statements of not more than 30 minutes each for the
a) Respondent,
b) Claimants.
3. Unless otherwise agreed by the Parties: Examination of witnesses and
experts presented by Respondent. For each:
a) Affirmation of witness or expert to tell the truth.
b) Short introduction by Respondent (This may include a short
direct examination on new developments after the last written
statement of the witness or expert).
c) Cross examination by Claimants.
d) Re-direct examination by Respondent, but only on issues raised
in cross-examination
e) Re-Cross examination by Claimants.
f) Remaining questions by members of the Tribunal, but they may
raise questions at any time.
4. Examination of witnesses and experts presented by Claimants. For each:
vice versa as under a) to f) above.
5. Any witness or expert may only be recalled for rebuttal examination by a
Party or the members of the Tribunal, if such intention is announced in
time to assure the availability of the witness and expert during the time
of the Hearing.
6. Rebuttal Arguments of not more than 1 hour each for the
a) Respondent,
b) Claimants.
c) Additional questions of members of the Tribunal, if any.
7. Closing arguments of not more than 45 minutes each for the
a) Respondent,
b) Claimants.
c) Remaining questions by the members of the Tribunal, if any.
8. Discussion regarding any post-hearing submissions and other procedural
issues.
4.2. Examination of witnesses and experts shall take place in the order agreed by the
Parties. If no such agreement has been reached, unless the Tribunal decides
otherwise, Respondent’s witnesses and experts shall be heard first in the order
decided by the Respondent, and then Claimants’ witnesses and experts shall be
heard in the order decided by the Claimants.

4.3. Unless otherwise agreed between the Parties or ruled by the Tribunal, witnesses
and experts may be present in the Hearing room during the testimony of other
witnesses and experts.
4.4. As already foreseen in Procedural Order No. 2 for the hearing on the merits, in
view of the examination of witnesses and experts also for this Hearing on
Jurisdiction, taking into account the time available during the period provided
for the Hearing in the timetable, the Tribunal establishes equal maximum time
periods which the Parties shall have available for their presentations and
examination and cross-examination of all witnesses and experts. Taking into
account the Calculation of Hearing Time attached to this Order, the total
maximum time available for the Parties (including their introductory and final
statements) shall be as follows:
5 hours for Claimants
5 hours for Respondent
The time limits “not more than” for the Parties’ Agenda items above shall be
considered as a guideline. However, it is left to the Parties, subject to section 3.2.
above, how much of their allotted total time they want to spend on Agenda items
in section 4.1. above, subsections 2., 3. b, c, d, and e, 4., 6. and 7. as long as the
total time period allotted to them is maintained.
4.5. The parties shall prepare their presentations and examinations at the Hearing on
the basis of the time limits established in this Procedural Order.
5. Other Matters
5.1. The PCA has organized
availability of the court reporter and translation,
that microphones are set up for all those speaking in the Hearing room to
assure easy understanding over a loud speaker and for translation,
and, taking into account the numbers of persons attending from the
Parties’ side, sufficient supplies of water on the tables and coffee and tea
for the two coffee breaks every day.
5.2. The Tribunal may change any of the rulings in this order, after consultation with
the Parties, if considered appropriate under the circumstances.
110. By letter dated April 23, 2008, the Respondent sought further clarification of the Tribunal’s
decisions relating to PO III. First, it requested that the Tribunal refrain from considering the
submissions made in the Claimants’ Memorial on the Merits for the purposes of the Hearing
on Jurisdiction and the Tribunal’s ultimate decision on jurisdiction. The Respondent further
noted its intention to file a supplemental Statement of Defense regarding the Claimants’

allegedly new claims and its intention to seek permission to submit post-hearing briefs on
these issues.
111. By letters both dated April 28, 2008, the Parties informed the Tribunal that they did not
intend to bring any of their witnesses or request the presence of any opposing witnesses. In
its letter, the Respondent also requested permission to submit rebuttal witness and expert
statements pursuant to Articles 6.1 and 7 of PO II. By letter dated April 30, 2008, the
Tribunal modified the hearing schedule to remove the agenda items relating to examination
of witnesses and invited the Parties to submit rebuttal witness and expert statements no later
than May 9, 2008.
112. By letter dated May 9, 2008, the Respondent sought leave to submit a limited number of
rebuttal documents in advance of the Hearing on Jurisdiction in order to rebut the alleged
new issues and factual submissions contained in the Claimants’ Counter-Memorial on
Jurisdiction. By letter dated May 8, 2008, the Tribunal authorized the submission of rebuttal
documents by the Respondent by May 13, 2008. The Claimants were authorized to submit a
reply to such rebuttal documents by May 17, 2008.
113. The Respondent submitted three rebuttal witness statements, including a statement from a
new expert witness, by e-mail dated May 10, 2008. The Respondent submitted rebuttal
documents by e-mail dated May 14, 2008. The Claimants submitted reply rebuttal documents
by e-mail dated May 17, 2008. The Respondent submitted a supplemental Statement of
Defense by e-mail dated May 17, 2008. The Respondent further submitted a number of
rebuttal legal authorities by e-mail dated May 18, 2008.
114. The Hearing on Jurisdiction took place in San José, Costa Rica on May 19 and 20, 2008.
115. The Tribunal issued PO IV on May 23, 2008. The Tribunal authorized two rounds of Post-
Hearing Briefs to be simultaneously submitted on July 22, 2008, and August 12, 2008,
respectively. The Tribunal invited the Parties to address all arguments and evidence that
stood unanswered as of that time. For ease of reference, the entire operative provisions of PO
IV are set out below:

Taking into account the discussion and the agreements reached with the Parties at the end
of the Hearing on Jurisdiction in San José on May 20, 2008, the Tribunal issues this
Procedural Order No. 4 as follows:
1. Post-Hearing Briefs
1.1. By July 22, 2008, the Parties shall simultaneously submit Post-Hearing Briefs
containing the following:
1.1.1. The relief sought by the Parties regarding both jurisdiction and the
merits;
1.1.2. Any comments they have regarding,
a) issues raised in submissions of the other side to which they have not
yet replied; and
b) issues raised at the Hearing on Jurisdiction;
1.1.3. Separate sections responding in particular to the following questions:
a) Explain why the alleged investment in this case is or is not an
investment “existing at the time of entry into force” of the Treaty.
b) What exactly is Claimants’ case regarding an “investment
agreement” under Article VI(1)(a) of the Treaty?
1.2. The sections of the Post-Hearing Briefs requested under 1.1.2 and 1.1.3 above
shall include short references to all sections in the Party’s earlier submissions, as
well as to exhibits (including legal authorities, witness statements, and expert
statements) and to hearing transcripts on which it relies regarding the respective
issue. For the avoidance of doubt, the Tribunal wishes to receive from each Party,
1.2.1. A statement of each point of law it wishes the Tribunal to adopt; and
1.2.2. A statement of each fact relevant to jurisdiction that it wishes the
Tribunal to accept.
1.3. New exhibits shall only be attached to the Post-Hearing Brief if they are required
to rebut factual or legal issues raised by the other side in its unanswered written
submissions or at the Hearing on Jurisdiction.
1.4. By August 12, 2008, the Parties shall simultaneously submit a second round of
Post- Hearing Briefs, but only in rebuttal to the first round Post-Hearing Briefs of
the other side.

2. Procedure on the Merits
2.1. As discussed and agreed at the Hearing on Jurisdiction, to avoid any
misunderstanding, the above schedule does not affect the Timetable regarding the
procedure on the merits as agreed between the Parties and the Tribunal and
recorded in sections 3.6 to 3.18 of Procedural Order No. 2. This is without
prejudice to the decision of the Tribunal regarding jurisdiction provided for in
section 3.8 of Procedural Order No. 2.
116. By letter dated June 13, 2008, the Respondent sought a sixty day extension to the deadline
for the submission of its Counter-Memorial on the Merits. By letter dated June 17, 2008, the
Claimants objected to the granting of this extension. By letter dated June 18, 2008, the
Tribunal granted an extension of one month.
117. The Parties submitted their first-round Post-Hearing Briefs on Jurisdiction by e-mails dated
July 23, 2008, with Spanish translations following thereafter on August 22 and 28, 2008, for
the Claimants and the Respondent, respectively.
118. The Parties submitted their second-round Post-Hearing Briefs on Jurisdiction by e-mails
dated August 13, 2008, with Spanish translations following thereafter on September 3 and
18, 2008, for the Claimants and the Respondent, respectively.
119. The Respondent submitted its Counter-Memorial on the Merits by e-mail dated
September 23, 2008, and a Spanish translation thereof by e-mail dated November 3, 2008.
120. The Claimants submitted their Reply Memorial by e-mail dated November 25, 2008, and a
Spanish translation thereof by e-mail dated December 16, 2008.
121. The Tribunal issued its Interim Award on December 1, 2008. For the reasons set out in that
award, the Tribunal decided the following:
paragraph 116.
these proceedings.

4. The further procedure in this case will be the subject of a separate
Procedural Order of the Tribunal.
122. By letter dated January 12, 2009, the Tribunal confirmed that the Hearing on the Merits
would be held on April 20 to 24, 2009, with possible extension through April 27 to 29, 2009,
and noted and confirmed the Parties’ agreement on Washington, D.C., USA, as the venue for
the Hearing. The Tribunal invited the Parties to comment on the site and the length of the
Hearing in Washington, D.C., by January 19, 2009.
123. By letter dated January 16, 2009, the Respondent provided the Tribunal with its comments on
the site and the length of the Hearing. The Respondent asked the Tribunal to reserve the
entire period previously agreed upon and proposed to extend the Hearing by two additional
days, namely April 30 and May 1, 2009.
124. By letter dated January 19, 2009, the Claimants provided the Tribunal with their comments
on the site and the length of the Hearing, proposing that the Hearing be officially extended
through April 29, 2009. By letter dated January 29, 2009, the Claimants indicated their belief
that the extension of the Hearing by two days proposed by the Respondent, through May 1,
2009, would not be necessary.
125. The Respondent submitted its Rejoinder on the Merits by e-mail dated January 27, 2009, and
a Spanish translation thereof by e-mail dated February 16, 2009.
126. By letter dated January 30, 2009, the Tribunal informed the Parties that the original schedule
of April 20 to 24, 2009, and April 27 to 29, 2009, remained. In addition, the Tribunal
indicated that the two additional days of April 30 and May 1, 2009 would be reserved by the
Tribunal in case they proved absolutely necessary. In that context, the Tribunal informed the
Parties that a Procedural Order regarding the details of the Hearing would be issued and
invited the Parties to attempt to come to an agreement on any pertinent details of the conduct
of the Hearing on the Merits.
127. By letter dated February 6, 2009, the Tribunal circulated the Spanish translation of its Interim
Award of December 1, 2008.

128. By e-mails dated February 13, 2009, the Parties informed the Tribunal that they had come to
an agreement on the use of the Washington, D.C., offices of Respondent’s counsel as the
venue for the Hearing on the Merits.
129. By letter dated February 23, 2009, the Claimants provided the Tribunal with a Consolidated
List of Exhibits.
130. By letter dated February 24, 2009, the Respondent provided the Tribunal with a Consolidated
List of Exhibits and Expert Reports.
131. On February 27, 2009, a Pre-Hearing Conference was held by telephone between the Parties
and the PCA. Amongst other matters, the Parties agreed on logistical arrangements for the
hearing, including a daily schedule for the Hearing and confirmed that they would (1) by
March 9, 2009, submit lists of witnesses they wished to cross-examine at the Hearing, and (2)
by March 20, 2009, submit lists of Hearing attendees.
132. By letters dated March 9, 2009, both the Claimants and the Respondent submitted their
comments on the organization and schedule of the Hearing on the Merits and a list of those
witnesses they intended to call for cross-examination. By letters dated March 10 and further
letters dated March 11, 2009, the Parties submitted further comments on the organization of
the Hearing.
133. Acknowledging the Parties’ comments, the Tribunal issued PO V on March 19, 2009,
regarding the conduct of the Hearing on the Merits. For ease of reference, the entire operative
provisions of PO V are set out below:
1. Introduction
1.1. This Order recalls the earlier agreements and rulings of the Tribunal and
particularly takes into account the recent submissions and letters of the Parties.
1.2. In order to facilitate references to exhibits the Parties rely on in their oral
presentations, and in view of the great number of exhibits submitted by the
Parties to avoid that each member of the Tribunal has to bring all of them to the
Hearing, the Parties are invited to bring to the Hearing:
for the other Party and for each member of the Tribunal Hearing Binders
of those exhibits or parts thereof on which they intend to rely in their oral

presentations at the hearing, together with a separate consolidated Table
of Contents of the Hearing Binders of each Party,
for the use of the Tribunal, one full set of all exhibits the Parties have
submitted in this procedure, together with a separate consolidated Table
of Contents of these exhibits.
2. Time and Place of Hearing
2.1. The Hearing shall be held at
Winston & Strawn LLP
1700 K Street, NW
Washington, D.C. 20006-3817
USA
Tel: +1 202 282 5000
Fax: +1 202 282 5100
As agreed, eight days will be blocked and the Hearing will
start at 10:00 a.m. on April 20, 2009, and
end, at the latest, at 6 p.m. on April 29, 2009
2.2. Two extra days, April 30 and May 1, will also be blocked as a contingency in the
event that the Tribunal deems absolutely necessary to extend the Hearing.
2.3. To give sufficient time to the Parties and the Arbitrators to prepare for and
evaluate each part of the Hearings, the daily sessions shall not go beyond the
period between 10:00 a.m. and 6:00 p.m. However, the Tribunal, in consultation
with the Parties, may change the timing during the course of the Hearings.
2.4. By March 20, 2009, the Parties shall submit notifications of the persons that will
be attending the Hearing on their respective sides.
3. Conduct of the Hearing
3.1. No new documents may be presented at the Hearing, unless agreed by the Parties
or authorized by the Tribunal. But demonstrative exhibits may be shown using
documents submitted earlier in accordance with the Timetable.
3.2. Documents in rebuttal of recent witness statements to which the respective Party
has not had an opportunity to reply may be introduced, together with a short
explanatory note, by April 1, 2009.
3.3. To make most efficient use of time at the Hearing, written Witness Statements
shall generally be used in lieu of direct oral examination though exceptions may
be admitted by the Tribunal. Therefore, insofar as, at the Hearing, such witnesses
are invited by the presenting Party or asked to attend at the request of the other
Party, the presenting Party may introduce the witness for not more than 10
minutes, or, regarding new developments after the last statement of the witness,
for not more than 20 minutes, but the further available hearing time shall be
reserved for cross-examination and re-direct examination, as well as for

questions by the Arbitrators. Argument by a Party may only be presented during
the opening and closing statements as provided in the Agenda.
3.4. If a witness whose statement has been submitted by a Party and whose
examination at the Hearing has been requested by the other Party, does not
appear at the Hearing, his statement will not be taken into account by the
Tribunal. A Party may apply with reasons for an exception from that rule.
3.5. In so far as the Parties request oral examination of an expert, the same rules and
procedure shall apply as for witnesses.
4. Agenda of Hearing
4.1. In view of the examination of witnesses and experts, the following Agenda is
established for the Hearing:
1. Introduction by the Chairman of the Tribunal.
2. Opening Statements of not more than 2 hours each for the
a) Claimants,
b) Respondent.
3. Unless otherwise agreed by the Parties: Examination of Claimants’
witnesses and experts. For each:
a) Affirmation of witness or expert to tell the truth.
b) Short introduction by Claimants (This may include a short direct
examination on new developments after the last written
statement of the witness or expert.).
c) Cross-examination by Respondent.
d) Re-direct examination by Claimants, but only on issues raised in
cross-examination.
e) Re-cross examination by Respondent.
f) Remaining questions by members of the Tribunal, but they may
raise questions at any time.
4. Examination of Respondent’s witnesses and experts. For each:
vice versa as under a) to f) above.
5. Any witness or expert may only be recalled for rebuttal examination by a
Party or the members of the Tribunal, if such intention is announced in
time to assure the availability of the witness and expert during the time
of the Hearing.
6. Closing arguments of not more than 2 hours each for the
a) Claimants,
b) Respondent.
c) Remaining questions by the members of the Tribunal, if any.

7. Discussion regarding any post-hearing submissions and other procedural
issues.
4.2. Examination of witnesses and experts shall take place in the order agreed by the
Parties. If no such agreement has been reached, unless the Tribunal decides
otherwise, Claimants’ witnesses and experts shall be heard first in the order
decided by Claimants, and then Respondent’s witnesses and experts shall be
heard in the order decided by Respondent.
4.3. Unless otherwise agreed between the Parties or ruled by the Tribunal, witnesses
and experts may be present in the Hearing room during the testimony of other
witnesses and experts.
4.4. As already foreseen in Procedural Order No. 2 for the hearing on the merits, in
view of the examination of witnesses and experts, taking into account the time
available during the period provided for the Hearing in the timetable, the
Tribunal establishes equal maximum time periods which the Parties shall have
available for their presentations and examination and cross-examination of all
witnesses and experts. Taking into account the Calculation of Hearing Time
attached to this Order, the total maximum time available for the Parties
(excluding their introductory and final statements) shall be as follows:
16,25 hours for Claimants
16,25 hours for Respondent
It is left to the Parties how much of their allotted total time they want to spend on
Agenda items in sections 3, 4, and 5, as long as the total time period allotted to
them is maintained.
By April 1, 2009, the Parties may submit a further notification as to whether they
do not intend to examine any of the witnesses so far notified. Thereafter, the
Tribunal will re-examine whether, in view of the numbers of witnesses to be
examined from each side, the above allotment of periods to each Party has to be
changed. If a Party does not call a witness for cross-examination at the hearing,
this will not be considered as an acceptance of that witness’s testimony.
4.5. The Parties shall prepare their presentations and examinations at the Hearing on
the basis of the time limits established.
5. Other Matters
5.1. The PCA has organized availability of the court reporter and translation.
5.2. Counsel for Respondent will assure that microphones are set up for all those
speaking in the Hearing room to assure easy understanding over a loud speaker
and for translation.
5.3. Counsel for Respondent, in consultation with counsel for Claimants and the
PCA, will arrange for catering of lunches and, taking into account the numbers of
persons attending from each side, sufficient supplies of water on the tables and
coffee and tea for the two coffee breaks every day.

5.4. The Tribunal may change any of the rulings in this Order, after consultation with
the Parties, if considered appropriate under the circumstances.
134. By letter dated March 20, 2009, the Respondent communicated its list of attendees for the
Hearing on the Merits.
135. By letter dated March 23, 2009, the Respondent objected to certain provisions of PO V. In its
letter, the Respondent requested an amendment to the agenda of the Hearing on the Merits
and the opportunity to submit further documents in rebuttal to any submitted by the
Claimants pursuant to PO V. By letter dated March 24, the Tribunal informed the Parties that
the agenda set out in PO V was maintained but that the Respondent was authorized to submit
rebuttal documents by April 8, 2009.
136. By separate letters both dated April 1, 2009, the Respondent communicated a revised list of
attendees for the Hearing on the Merits and a revised list of witnesses it intended to call for
cross-examination.
137. By separate letters both dated April 1, 2009, the Claimants submitted their rebuttal
documents and communicated their list of attendees for the Hearing on the Merits and a
revised list of witnesses it intended to call for cross-examination.
138. By letter dated April 2, 2009, the Claimants communicated to the Tribunal that two witnesses
not called for cross-examination by the Respondent would be attending the hearing as
potential rebuttal witnesses. The Claimants also provided the Tribunal with an additional
exhibit and updated List of Exhibits.
139. By letter dated April 6, 2009, the Respondent objected to the Claimants’ notification of their
two potential rebuttal witnesses. The Respondent also requested that, as a result of
Claimants’ provision of various rebuttal exhibits without translation into English, the
Tribunal grant the Respondent an extension of time until April 12, 2009 for submitting
further rebuttal documents. The Claimants submitted the remaining English translations of its
rebuttal documents on April 6, 2009 and notified the Tribunal that they agreed to the April
12, 2009 deadline for the Respondent’s submission of its rebuttal documents.

140. By letter dated April 7, 2009, the Claimants responded to the Respondent’s objection to the
Claimants’ notification of their two potential rebuttal witnesses.
141. By letter dated April 7, 2009, the Tribunal notified the Parties that it accepted the Claimants’
notification of its two potential rebuttal witnesses and that the Respondent was granted until
April 12, 2009 to notify any of its own witnesses or experts for rebuttal testimony and to
submit rebuttal documents.
142. By letter dated April 9, 2009, the Tribunal provided the Parties with a chart of the Ecuadorian
court cases relevant to the arbitration and requested that any suggestions for modification of
the chart from the Parties be submitted by April 15, 2009.
143. By letter dated April 10, 2009, the Respondent requested an additional extension of time to
April 14, 2009 for submission of additional rebuttal documents due to certain public holidays
in Ecuador, noting that Claimants’ counsel had agreed to this extension of time.
144. By letter dated April 13, 2009, the Respondent communicated that it wished to reserve the
right to recall for additional rebuttal testimony any of its witnesses, including those who
would be called for cross-examination by the Claimants.
145. By letter dated April 14, 2009, the Respondent communicated its additional rebuttal
documents.
146. By letter dated April 15, 2009, the Respondent provided its suggestions for modification of
the chart of Ecuadorian cases and submitted its concerns as to the content of the chart.
147. By e-mail dated April 16, 2009, the Claimants provided their suggestions for modification of
the chart of Ecuadorian cases.
148. By letter dated April 18, 2009, the Tribunal responded to the Respondent’s concerns
regarding the content of the chart of Ecuadorian cases.
149. By letter dated April 19, 2009, the Claimants requested that the Tribunal order sequestration
of any witnesses called for cross-examination and that the Tribunal strike the statement of a

deceased witness. By letter also dated April 19, 2009, the Respondent objected to both of
Claimants’ requests.
150. By e-mail dated April 20, 2009, the Respondent provided the Tribunal with a revised List of
Exhibits and Expert Reports.
151. The Hearing on the Merits took place in Washington, D.C., USA from April 20 to 24 and 27
to 28, 2009.
152. With reference to agreements reached with the Parties at the Hearing on the Merits, the
Tribunal issued PO VI on April 30, 2009. The Tribunal authorized two rounds of Post-
Hearing Briefs to be submitted simultaneously by June 19, 2009 and July 15, 2009,
respectively. The Tribunal also authorized two rounds of Cost Claims to be submitted
simultaneously by August 7, 2009 and August 21, 2009, respectively. The Tribunal also
requested that the Parties address certain questions specified in the Order in their Post-
Hearing Briefs. For ease of reference, the entire operative provisions of PO VI are set out
below:
Taking into account the discussion and the agreements reached with the Parties at the
Hearing on the Merits held in Washington, D.C. from April 20 to 24 and April 27 to 28,
2009, the Tribunal issues this Procedural Order No. 6 as follows:
1. Post-Hearing Briefs
1.1. By June 19, 2009, the Parties shall simultaneously submit Post-Hearing Briefs,
limited to a maximum of 80 pages (double-spaced) in length, containing the
following:
1.1.1. Any comments they have regarding issues raised at the Hearing on the
Merits;
1.1.2. To the extent not fully and completely answered during the Hearing on
the Merits, separate sections responding in particular to any questions
posed by the Tribunal during the Hearing on the Merits as well as those
in section 3 below.
1.2. The sections of the Post-Hearing Briefs requested under 1.1.1 and 1.1.2 above
shall include short references to all sections in the Party’s earlier submissions, as
well as to exhibits (including legal authorities, witness statements, and expert

statements) and to hearing transcripts on which it relies regarding the respective
issue.
1.3. No new documents shall be attached to the Post-Hearing Briefs unless expressly
authorized in advance by the Tribunal.
1.4. By July 15, 2009, the Parties shall simultaneously submit a second round of
Post- Hearing Briefs, limited to a maximum of 40 pages (double-spaced) in
length, but only in rebuttal to the first round Post-Hearing Briefs of the other
side.
2. Cost Claims
2.1. By August 7, 2009, the Parties shall simultaneously submit Cost Claims, briefly
setting out the costs incurred by each side. Such Cost Claims need not include
supporting documentation for the costs claimed.
2.2. By August 21, 2009, the Parties shall simultaneously submit any comments on
the Cost Claims submitted by the other side.
3. Questions
In addition to providing any further comments on the questions already posed during the
Hearing on the Merits, the Parties are requested to address the following questions in the
Post-Hearing Briefs:
3.1. What is the standard applicable under Article II(7) of the BIT (“effective means of
asserting claims and enforcing rights”)? Is that standard lower than the standard for
denial of justice?
3.2. Even if the Claimants have the burden of proof to show a denial of justice, is it of
any relevance which of the processing of the 7 cases by the courts of Ecuador
occurred before the Claimants filed their Notice of Arbitration in December 2006,
and which occurred after that point in time?
3.3. What is it about the order of payment to TexPet’s legal representative that prevents
TexPet from collecting on the judgment in the Refinancing Agreement case? Why
cannot TexPet designate its local counsel as its legal representative to collect on the
judgment in the Refinancing Agreement case?
3.4. To what extent can the Tribunal apply its own interpretation of the three relevant
Contracts?
3.5. To what extent are the conclusions of the court-appointed experts in the seven cases
relevant in our context? Does this impact the question of the probability of success
or the likely outcome in the Ecuadorian courts?

3.6. Can a State rely on the invalidity of a contract despite it having been signed by its
own Ministers?
3.7. What is the Claimants’ reason for specifically asking for a declaration that the 1973
and 1977 Agreements were breached as a part of its Relief Sought?
3.8. What is the relevance of the treatment accorded to TexPet’s cases (1) by the
Ecuadorian courts before the Notice of Arbitration in December 2006 as compared
to (2) after the Notice of Arbitration was filed? Is there a difference?
3.9. Apart from,
(1) the references to “the period between the date of the signature of the herein
agreement until 12 months subsequent to that date” in Section 1 (“Works of
Geology and Geophysics”) and Sections 3 and 3(c) (“Production”),
(2) the reference to “the period between the 12 months of the work program” in
Section 3(g) (“Production”), and
(3) the reference to “this annual period” in Section 1.2 (“General Rules that shall
rule the Production”),
does the 1977 Agreement contain any indication suggesting that it is limited to a
one-year term, having particular regard to the purpose of the 1977 Agreement as set
forth in the preambular section entitled “Object of the Agreement”?
3.10. In the event that the Tribunal were to consider a monetary award, in order to ensure
payment by the Claimants of taxes legitimately due in respect of any such award,
what mechanism would the Parties consider to be an acceptable alternative to the
Tribunal deducting taxes from any amount awarded?
153. The Parties submitted their first-round Post-Hearing Briefs on the Merits by e-mails dated
June 20, 2009, with Spanish translations following thereafter on July 9 and July 8, 2009, for
the Claimants and the Respondent, respectively.
154. The Parties submitted their second-round Post-Hearing Briefs on the Merits by e-mails dated
July 16, 2009, with Spanish translations following thereafter on August 6, 2009.
155. By letter dated July 16, 2009, the Claimants objected to the Respondent’s introduction of
new exhibits in its second-round Post-Hearing Brief on the Merits without prior authorization
of the Tribunal in accordance with PO VI. By letter dated July 17, 2009, the Tribunal invited

a reply to this objection from the Respondent. By letter dated July 22, 2009, the Respondent
replied to the Claimants’ objection.
156. The Tribunal issued PO VII on July 24, 2009, addressing the admissibility of the
Respondent’s Exhibits accompanying its Post-Hearing Brief. For ease of reference, the entire
operative provisions of PO VII are set out below:
Taking into account the Claimants’ letter dated July 16, 2009, the Respondent’s letter
dated July 22, 2009, and paragraph 1.3 of the Tribunal’s Procedural Order No. 6, which
states:
No new documents shall be attached to the Post-Hearing Briefs unless expressly
authorized in advance by the Tribunal[,]
the Tribunal issues this Procedural Order No. 7 as follows:
1. The above ruling in paragraph 1.3. refers to all “documents” and therefore is also
applicable to authorities. Respondent, therefore, should not have submitted
exhibits R-1020 to R-1033 without an authorization by the Tribunal “in
advance”.
2. The Tribunal notes that Claimant’s letter of July 16, 2009, while containing a
general objection to all new documents submitted by Respondent, presents
detailed reasons for objections only regarding exhibits R-1022, 1023, 1025, 1027,
1028, 1029, 1030, 1031, and 1033.
3. Since the Tribunal wants to assure that it has all exhibits and authorities
considered relevant by the Parties available by the time of its deliberations for the
Award on the Merits, and since the timetable of Procedural Order No. 6 still
provides time for two rounds of submissions regarding costs so that no delay is
caused by short further rounds of submissions, the Tribunal rules as follows:
3.1. By August 7, 2009, Claimant may submit a further short Brief
commenting on the new documents submitted by Respondent and may
attach to this Brief any further documents in rebuttal of Respondent’s
new documents.
3.2. Should Respondent wish to submit any new documents in rebuttal to
such further documents submitted by Claimant, it may submit a reasoned
application by August 14, 2009, but without any new documents
attached, and Claimant may comment on such an application by August
21, 2009.

157. By letter dated July 27, 2009, the Respondent communicated that a decision had been
rendered in the second Amazonas Refinery case (Case 153-93) and requested permission to
submit the decision and two briefs as exhibits. The Respondent also provided a description of
the judgment and its relevance.
158. By letter dated July 28, 2009, the Tribunal invited comments from the Claimants on the
Respondent’s letter of July 27, 2009, to be submitted by July 31, 2009.
159. By letter dated July 29, 2009, the Claimants requested permission to submit comments in
response to the Respondent’s letter dated July 27, 2009 by August 6, 2009. The Tribunal
granted the Claimants request on July 30, 2009.
160. By letter dated August 6, 2009, the Claimants submitted comments in response to the
Respondent’s request of July 27, 2009 to admit the Ecuadorian decision and two briefs. The
Claimants objected to the admission of the Ecuadorian decision into evidence. However, in
the event that the Tribunal would grant the Respondent’s request to admit the decision and
briefs, the Claimants requested that they be permitted to submit a further brief and additional
evidence in support thereof.
161. By e-mail dated August 8, 2009 and by letter dated August 7, 2009, the Claimants and the
Respondent submitted their respective Costs Claims.
162. By e-mail dated August 8, 2009, the Claimants submitted a Brief in Response to the
Respondent’s New Evidence, commenting on sources cited in the Respondent’s Second
Round Post-Hearing Brief.
163. By letter dated August 11, 2009, the Respondent responded to the Claimants’ comments of
August 6, 2009 and objected to the Claimants’ submission of additional documents to the
Tribunal.
164. On August 14, 2009, the Respondent submitted a Reply to the Claimants’ Brief submitted on
August 8, 2009.
165. By e-mail dated August 22, 2009, the Respondent submitted its Reply to the Claimants’ Cost
Claim.

166. By e-mail dated August 22, 2009, the Claimants submitted their Reply to the Respondent’s
Cost Claim and a Rebuttal to the Respondent’s Reply Brief on the Respondent’s New
Evidence.
167. By letter dated August 24, 2009, the Tribunal informed the Parties that it accepted all
evidence submitted by the Parties. The Tribunal also granted the Respondent permission to
submit all documents for which permission to submit had been requested in the Respondent’s
Reply Brief of August 14, 2009, noting that other than for the purposes of that grant, the
procedure was closed. Finally, the Tribunal notified the Parties that it would inform the
Parties if it had any further questions, including any questions regarding the Parties’ Costs
Claims.
168. By e-mail dated August 28, 2009, the Respondent submitted the evidence for which
permission was granted by the Tribunal in its letter of August 24, 2009.
169. By letter dated September 15, 2009, the Respondent communicated that a decision had been
rendered in the Imported Products case (Case 154-93) and requested permission to submit the
decision to the Tribunal as evidence.
170. By letter dated September 17, 2009, the Claimants objected to the admission of the
Ecuadorian decision into evidence. By letter dated September 18, 2009, the Respondent
submitted comments in response to the Claimants’ objection.
171. By letter dated September 28, 2009, the Tribunal informed the Parties that, although the
procedure remained closed, it exceptionally admitted the new Ecuadorian judgment into the
record. The Tribunal granted the Respondent permission to submit the judgment together
with a short cover note explaining its relevance by October 5, 2009. The Tribunal also
granted the Claimants until October 19, 2009 to submit comments on the relevance of the
judgment to the present case.
172. By letter dated October 2, 2009, the Respondent submitted the judgment of September 10,
2009 in the Imported Products case (Case 154-93) and provided comments on its relevance.
By letter dated October 19, 2009, the Claimants submitted comments on the relevance of the
judgment.

173. The Tribunal issued its Partial Award on Merits on March 30, 2010. For the reasons set out
in the award, the Tribunal decided the following:
1. From the Interim Award of December 1, 2008, the Tribunal recalls the
following decisions:
2. The Tribunal has jurisdiction concerning the claims as formulated by
the Claimants in their second Post Hearing Brief dated August 12,
2008, in paragraph 116.
2. The Respondent has breached Article II(7) of the BIT through the
undue delay of the Ecuadorian courts in deciding TexPet’s seven
court cases and is liable for the damages to the Claimants resulting
therefrom.
3. The Claimants have not committed an abuse of process and are not
estopped from bringing the present claim against the Respondent.
4. In view of the Tribunal’s decision in section 2 above regarding the
breach of Article II(7) of the BIT, and given that the relief sought by
Claimants with respect to its additional claims does not go beyond
that sought pursuant to the claim regarding Article II(7), the
Tribunal need not decide the Claimants’ claims regarding other
breaches of the BIT or customary international law.
5. As a result of the Tribunal’s decision in section 2 above that the
Respondent has breached Article II(7) of the BIT, the Respondent is
liable for damages caused to Claimants by that breach. The amount
of such damages will be decided by the Tribunal with the help of a
procedure set out in a separate Procedural Order of the Tribunal to
determine what taxes, if any, would have been due to the
Respondent if no breach of Article II(7) of the BIT had occurred.
6. The Respondent is liable for pre-award compound interest at the
New York Prime Rate (annual) on the final amount to be paid by
Respondent according to section 5 above, from December 22, 2006
until the date that this sum becomes payable by Respondent.
7. The Respondent shall be liable for post-award compound interest at
the New York Prime Rate (annual) on the amount awarded by the
Tribunal, from the date that the Tribunal orders payment by the
Respondent until the date payment is made.

8. The decision regarding the costs of arbitration is deferred to a later
stage of these proceedings.
9. All other claims are dismissed.
174. The Tribunal issued PO VIII on March 31, 2010, regarding the Expert Procedure on Taxes.
The Tribunal invited the Parties to agree on the amount, if any, that should be deducted from
the total set forth in the Tribunal’s Partial Award. The Tribunal also set a procedure for the
appointment of experts on Ecuadorian tax law to decide on such tax issues, should the Parties
be unable to come to an agreement. For ease of reference, the entire operative provisions of
PO VIII are set out below:
1. Partial Award on the Merits
The Tribunal recalls, from its Partial Award on the Merits of March 29, 2010:
1.1. From its Decisions in Section I:
As a result of the Tribunal’s decision in section 2 above that the Respondent
occurred.
1.2. From the considerations of the Tribunal in Section H.VII, in particular:
[T]he final determination of the quantum of damages to be awarded is to be dealt
with through a procedure that the Tribunal will set out in a separate order. It is to
be noted that the purpose of that procedure is to establish the quantum of the
Claimants’ loss taking into account applicable Ecuadorian tax laws. The purpose
is not to establish the amount of tax that would be assessed by Ecuadorian
authorities today on an arbitral award.
2 Negotiation Period
2.1. The Parties are invited to attempt to agree on the amount, if any, that should be
deducted from the total set forth in the Table at paragraph 549 of the Tribunal’s
Partial Award on account of any applicable Ecuadorian tax laws, in light of the
principles set out in said Partial Award.

2.2. Should the Parties be unable to come to an agreement by May 31, 2010, the
Tribunal will proceed with the expert procedure detailed below.
3 Expert Procedure
3.1. Should no agreement be reached according to section 2 above, between
Claimants and Respondent, each side will appoint an expert on Ecuadorian tax
laws by June 30, 2010.
3.2. The Tribunal may also consider appointing an expert on its behalf, whose terms
of reference will be determined at the time of such appointment in accordance
with the purpose of this procedure and Article 27 of the UNCITRAL Rules.
3.3. The party-appointed experts and the Tribunal-appointed expert, if any has been
appointed, will cooperate and attempt to present a joint proposal to the Tribunal
as to the amount, if any, to be deducted from the total set forth in the Table at
paragraph 549 of its Partial Award on account of any applicable Ecuadorian tax
laws.
3.4. Should the experts above be unable to form a joint proposal to the Tribunal by
August 30, 2010, the Tribunal may ask for individual submissions from each
expert or from any of them in accordance with instructions to be set out by the
Tribunal at that time.
4 Tribunal Decision on Damages
After the above procedures are completed, taking their results into account, the Tribunal
intends to decide on the damages to be awarded on the basis of its Partial Award.
175. On April 8, 2010, the PCA deposited an original copy of the Tribunal’s Partial Award with
the District Court of The Hague.
176. By e-mail dated June 1, 2010, the Claimants conveyed a request on behalf of the Parties for
an extension by two weeks of the dates in schedule set forth in PO VIII. By letter dated June
2, 2010, the Tribunal confirmed the extension agreed between the Parties.
177. By letter dated June 14, 2010, the Tribunal circulated a Spanish translation of the Partial
Award to the Parties.
178. By email dated June 15, 2010, the Respondent informed the Tribunal that the Parties had not
agreed on a resolution of the tax issue raised by the Tribunal in the Partial Award and PO
VIII.

179. By letter dated June 16, 2010, the Tribunal informed the Parties that it would proceed with
the expert procedure set out in PO VIII and that the Parties had until July 14, 2010 to identify
their respective experts.
180. By letter dated July 12, 2010, the Respondent, with the Claimants’ consent, requested the
Tribunal to grant an extension of two weeks for the Parties to nominate their respective
experts. By letter dated July 13, 2010, the Tribunal granted the requested extension.
181. By e-mail dated July 28, 2010, the Claimants provided the Tribunal with a courtesy copy of a
writ filed by the Respondent before the District Court of The Hague, seeking to set aside the
Tribunal’s Interim and Partial Awards.
182. By letters dated July 28, 2010, the Claimants and the Respondent informed the Tribunal of
their appointment of Dr. Diego Almeida Guzmán and Dr. Javier Cordero Ordóñez,
respectively, as their Ecuadorian tax law experts.
183. By letter dated September 29, 2010, the Tribunal noted that no proposal had been made by
the party-appointed experts within the time foreseen in paragraph 3.4 of the PO VIII (as
amended) and that it was considering the appointment of experts to advise the Tribunal. The
Tribunal also attached a draft PO IX, setting out the proposed terms of reference for the
tribunal experts and the further expert procedure. The Tribunal finally invited the Parties to
submit comments regarding the experts proposed and the draft PO IX by October 8, 2010,
and invited the party-appointed experts to commence with the preparation of their individual
reports on taxes immediately.
184. By email sent on September 29, 2010, the Claimants on behalf of the Parties requested the
Tribunal to extend the deadline for a joint proposal by the party-appointed experts by 15 days
until October 12, 2010, and that the deadline for comments on draft PO IX as well as all the
deadlines set for in draft PO IX be extended by an equal period. The Claimants also informed
the Tribunal that the Parties may request a further extension of 15 days, if by October 12,
2010 both Parties reasonably believe that the party-appointed experts may reach agreement
on a joint proposal to the Tribunal.

185. By letter dated September 29, 2010, the Tribunal informed the Parties that the requested
extensions of 15 days for the joint proposal by the party-appointed experts as well as other
deadlines were granted.
186. By email sent on October 1, 2010, the Respondent informed the Tribunal of a change of
address for Mark Clodfelter, one of the Respondent’s counsel.
187. By letter dated October 7, 2010, the PCA noted certain changes made to counsel’s contact
details on both sides pursuant to requests from the Parties.
188. By email sent on October 8, 2010, the Claimants, with the authorization of the Respondent,
requested that the Tribunal grant a further 15-day extension, until October 26, 2010, of the
deadline for the party-appointed experts to agree on a joint proposal and an equal extension
of all other pending deadlines.
189. By letter dated October 11, 2010, the Tribunal informed the Parties that the extension by 15
days of the deadline for a joint proposal by the party-appointed experts as well as an equal
extension of all other deadlines was granted.
190. By email dated October 21, 2010, the party-appointed experts, Dr. Diego Almeida Guzmán
and Dr. Javier Cordero Ordóñez submitted a Spanish version of their Joint Expert Report
dated October 20, 2010, including a Separate Opinion by the Respondent-appointed expert,
Dr. Javier Cordero Ordóñez.
191. By letter dated October 26, 2010, the Tribunal requested that the Parties submit any
comments they may have with regard to the Joint Expert Report, and in particular on the
Separate Opinion of Dr. Javier Cordero Ordóñez by November 10, 2010.
192. By letter dated October 26, 2010, Dr. Javier Cordero Ordóñez issued an additional
clarification to his Separate Opinion.
193. By email dated October 29, 2010, the party-appointed experts submitted English translation
of the Joint Expert Report dated October 20, 2010.

194. By email dated November 9, 2010, the Respondent, with the Claimants’ authorization,
requested that the Tribunal grant a 7-day extension, until November 17, 2010, for the Parties
to submit their respective comments on the party-appointed experts’ Joint Expert Report.
195. By letter dated November 10, 2010, the Tribunal granted requested extension to the deadline
for the Parties comments on the Joint Expert Report.
196. By letters dated November 17, 2010, the Parties submitted their respective comments to the
Joint Expert Report. The Respondent noted that its submission was made without prejudice
to the positions it had asserted in the annulment action filed in the courts of The Netherlands.
197. By email dated November 19, 2010, the Respondent provided the Tribunal with exhibits
supporting its comments on the Joint Expert Report and corresponding index.
198. By letter dated November 22, 2010, the Claimants provided a hard copy of exhibits and
authorities supporting its comments to the Joint Expert Report.
199. By letter dated November 22, 2010, the Tribunal invited the Parties to submit any comments
they may have on the comments received from the other side regarding the Joint Expert
Report, as well as an indication of the amount to be awarded by the Tribunal according to
their respective positions, by December 3, 2010.
200. By e-mail dated December 1, 2010, the Respondent requested, with the Claimants’
authorization, that the Tribunal grant a one-week extension, until December 10, 2010, for the
Parties to submit their comments in response to the other side’s comments on the Joint
Expert Report.
201. By letter dated December 1, 2010, the Tribunal granted the requested extension for the
Parties’ submission of their comments in response to the other side’s comments on the Joint
Expert Report.
202. By letters dated December 10, 2010, the Parties submitted their respective comments in
response to the other side’s comments on the Joint Expert Report. The Respondent noted that
its submission was made without prejudice to the positions it had asserted in the annulment
action filed in the courts of The Netherlands.

203. By letter dated December 17, 2010, the PCA informed the Parties and the Tribunal that it had
been informed of a change in the domain of all email addresses of the Ecuadorian Attorney’s
General Office.
204. By letter dated March 4, 2011, the Claimants informed the Tribunal of the fact that Dr. Javier
Cordero Ordóñez, Ecuador’s Tax Expert had been named a Permanent Associate Justice of
Ecuador’s National Court of Justice.

E. Relief Sought
E.I. Relief Sought by the Claimants
205. As set out in the Claimants’ letter dated December 10, 2010, the Claimants ask the Tribunal
to award damages to the Claimants in an amount of US$ 649,786,333, including compound
interest through December 31, 2010 (C XVI, p. 13).
E.II. Relief Sought by the Respondent
206. As set out in the Respondent’s letter dated December 10, 2010, the Respondent “respectfully
requests that the Tribunal not issue a Final Award that calculates Claimant’s [sic] ‘real loss’
as of December 21, 2006, in an amount greater than $50,534,097.20” (R XV, ¶86).

F. Factual Background
207. Subject to more detail in later sections regarding particular issues, the following is a
summary of the facts relevant to the present arbitration.
208. In 1964, the Ecuadorian Government granted oil exploration and production rights in
Ecuador’s Amazon region to TexPet through a concession contract with TexPet’s local
subsidiary. With Government consent, TexPet assigned half of its ownership interest in the
concession to Gulf, forming the Consortium. TexPet served as operator of the Consortium’s
activities.
209. In September 1971, Ecuador formed a governmental entity, CEPE, which was replaced in
1989 by a successor State-owned oil company, PetroEcuador.
210. On August 6, 1973, TexPet and Gulf entered into a new concession contract, i.e., the 1973
Agreement, Exh. R-570, with Ecuador and CEPE. This new agreement replaced the 1964
concession contract. Pursuant to the 1973 Agreement, CEPE exercised an option to acquire a
25% ownership interest in the Consortium. Later, it also purchased Gulf’s interest, thereby
providing it with a 62.5% interest in the Consortium. TexPet owned the remaining 37.5%
interest. However, TexPet continued to function as operator of the Consortium.
211. The 1973 Agreement permitted TexPet to explore and exploit oil reserves in Ecuador’s
Amazon region, but it required TexPet to provide a percentage of its crude oil production to
the Government to help meet Ecuadorian domestic consumption needs. The Republic was
entitled to set the domestic price at which it would purchase TexPet’s required contributions.
Once it satisfied its obligation to contribute oil for domestic consumption, TexPet was free to
export the remainder of its oil at prevailing international market prices, which were
substantially higher than the domestic price. If oil was used for purposes other than to satisfy
Ecuadorian domestic consumption needs, then TexPet was entitled to receive compensation

at the international market price. The relevant portions of the 1973 Agreement in their
original Spanish and their English translation agreed upon by the Parties are set out below:
Spanish Original English Translation
CLAUSULADECIMA-NOVENA:
ABASTECIMIENTOINTERNO
19.1 Para el abastecimiento de las plantas
refinadoras e industriales establecidas o que se
establecieren en el País, el Ministerio del Ramo
podrá exigir a los contratistas, cuando lo juzgue
necesario, el suministro de un porcentaje uniforme
del petróleo que les pertenece y efectuar entre ellos
las compensaciones económicas que estime
convenientes para que esas plantas se abastezcan
con el petróleo crudo que sea el más adecuado, en
razón de su calidad y ubicación.
El porcentaje a que se refiere el inciso anterior se
aplicará a todos los productores del País, incluyendo
a CEPE y se determinará trimestralmente
dividiendo el consumo interno nacional en barriles
por día entre la producción total que corresponde a
dichos productores, también expresada en barriles
por día y multiplicando el resultado por cien.
Se entiende que no existe obligación alguna para
utilizar el petróleo que corresponde al Estado según
el Artículo cuarenta y seis de la Ley de
Hidrocarburos, en el consumo interno del País.
19.2 Los contratistas se comprometen a suministrar,
si el ministerio del Ramo lo pidiere, su parte
proporcional, de cualquier volúmen [sic] de petróleo
crudo que fuese necesario para la producción de
derivados destinados al consumo interno del País,
calculada de acuerdo a lo previsto en el numeral
anterior de esta cláusula. Esta obligación de los
contratistas no será limitada por las disposiciones
del numeral 19.3 de esta cláusula.
19.3 En el caso de que la plantas refinadoras,
industriales o petroquímicas ubicadas en el País
elaboren derivados para la exportación y si para el
efecto fuere necesario el suministro de un volúmen
[sic] adicional de crudo, después de haberse
utilizado en dichas plantas todo el petróleo que
corresponde al Estado de acuerdo con el Artículo
cuarenta y seis de la Ley de Hidrocarburos y el que
produzca o corresponda a CEPE por cualquier
CLAUSE 19:
LOCAL SUPPLY
19.1 For the supply of refining and industrial plants
established or which may be established in the
country, the respective Ministry may require from
the contractors, when it deems it necessary, the
supply of a uniform percentage of the oil belonging
to them, and make the economic compensations it
considers appropriate between them in order that
such plants may be supplied with the crude oil
which is the most appropriate by reason of its
quality and location.
The percentage referred to in the preceding
paragraph shall be applied to all producers in the
country, including CEPE, and will be determined
quarterly by dividing the national domestic
consumption in barrels per day by the total
production corresponding to such producers, also
expressed in barrels per day, and multiplying the
result by 100.
It is understood that there is no obligation
whatsoever to use oil corresponding to the State
pursuant to Article 46 of the Hydrocarbons Law in
the internal consumption of the country.
19.2 The contractors agree to supply, if the
respective Ministry so requests, their proportionate
part of whatever quantity of crude oil may be
necessary for the production of derivatives for the
internal consumption of the country, calculated in
accordance with the provisions of the preceding
numbered paragraph of this clause. This obligation
of the contractors shall not be limited by the
provisions of paragraph 19.3 of this clause.
19.3 In the event that the refining, industrial or
petrochemical plants located in the country
manufacture derivatives for export and if the supply
of an additional quantity or crude should be
necessary for that purpose, after all oil
corresponding to the State in accordance with
Article 46 of the Hydrocarbons Law and that which
is produced by or corresponds to CEPE for any
reason has been utilized in said plants, the

concepto, el Ministerio del Ramo podrá exigir a los
contratistas, del crudo que les pertenece, un
porcentaje uniforme en relación al exigido a los
demás productores del País. Tal porcentaje será
calculado dividiendo el mencionado volúmen [sic]
adicional, expresado en barriles por día, para la
producción total del País, después de deducir el
volúmen [sic] total que produzca o corresponda a
CEPE por cualquier concepto, también expresado
en barriles por día y multiplicando el resultado por
cien. Tal porcentaje se aplicará a la producción total
del área de los contratistas excluyendo la
participación parcial o total que haya ejercido
CEPE, según la cláusula quincuagésima segunda de
este Contrato y el volúmen [sic] resultante, será tal
que permita disponer, para la exportación por parte
de los contratistas, de un volumen de crudo de no
menos del cuarenta y nueve por ciento del petróleo
total producido en el área del contrato.
19.4 El Estado autorizará a los contratistas la
exportación del petróleo que les corresponda, una
vez satisfechas las necesidades del País de acuerdo
con lo establecido en los numerales anteriores de
esta cláusula y en la 26.1.
CLAUSULA VIGESIMA: PRECIOS DEL
PETROLEO PARA REFINERIAS O
INDUSTRIAS
20.1 Los precios de los diversos tipos de petróleo
crudo que se requieran para las refinerías o
industrias de hidrocarburos establecidas en el País,
destinadas al consumo interno de derivados, serán
los señalados por el Ministerio del Ramo y para su
determinación se tomarán en cuenta los costos de
producción incluyendo las amortizaciones, tarifas
de transporte y una utilidad razonable.
20.2 Los precios de los diversos tipos de petróleo
crudo que se requieran para las refinerías o
industrias de hidrocarburos establecidas en el País,
destinados a la elaboración de derivados o
productos de exportación, serán convenidos de
acuerdo a los precios del petróleo crudo en el
mercado internacional.
(Exh. C-4)
respective Ministry may require of the contractors,
from the crude that belongs to them, a percentage
equal to that required of the other producers in the
country. Such percentage shall be calculated by
dividing the said additional quantity, expressed in
barrels per day, by the total production of the
country, after deducting the total quantity produced
by or corresponding to CEPE for any reason, also
expressed in barrels per day, and multiplying the
result by 100. Such percentage shall be applied to
the total production from the contractors’ area,
excluding the partial or total participation elected by
CEPE, pursuant to Clause 52 of this contract, and
the resulting volume shall be such that will permit
availability, for export by the contractors, of a
volume of crude not less than 49% of the total oil
produced in the contract area.
19.4 The State will authorize the contractors to
export the oil that corresponds to them once the
requirements of the country are satisfied in
accordance with the provisions of the preceding
numbered paragraphs of this clause and paragraph
26.1.
CLAUSE 20:
OIL PRICES FOR REFINERIES OR
INDUSTRIES
20.1 Prices of the various types of crude oil required
for hydrocarbon refineries or industries established
in the country, for internal consumption of
derivatives, shall be those determined by the
respective Ministry, and for their determination
production costs including amortization,
transportation tariffs and a reasonable profit shall be
taken into account.
20.2 Prices of the various types of crude oil required
for the hydrocarbon refineries or industries
established in the country for the production of
derivatives or products for export shall be agreed
upon in accordance with the prices of crude oil on
the international market.
(Exh. R-570; Tr. II at 947:19-949:5)

212. On December 16, 1977, the Republic, CEPE, and TexPet signed a supplemental agreement to
the 1973 Agreement (the 1977 Agreement, Exh. R-3). The relevant portions of the 1977
Agreement in their original Spanish and their English translation agreed upon by the Parties
are set out below:
Spanish Original English Translation
OBJETO DEL CONVENIO.-
El presente convenio tiene por objeto:
- Promover la exploración tendiente al
descubrimiento de nuevas reservas de petróleo;
- Desarrollar en forma integral el área del
contrato de 6 de agosto de 1973, a fin de
incorporar a la producción petrolera nacional
nuevos campos hidrocarburíferos;
- Continuar realizando un adecuado
mantenimiento de los pozos productivos, de
conformidad con las especificaciones que
aconseja la técnica;
- Incentivar la inversión del consorcio en
programas de recuperación secundaria y métodos
mejorados de producción; y,
- Lograr un incremento de la producción de
petróleo, siempre dentro de las normas de
conservación de reservas establecidas por el
Ministerio de Recursos Naturales y Energéticos.
[…]
Petróleo destinado a Consumo Interno
De conformidad con lo que dispone el artículo 31
de la Ley de Hidrocarburos y la cláusula 19 del
contrato de exploración y explotación de
hidrocarburos suscrito entre el Gobierno
Nacional y las compañías Texaco Petroleum
Company y Ecuadorian Gulf Oil Company, el 6
de agosto de 1973, el consorcio CEPE-Texaco
Petroleum Company suministrará las cantidades
de petróleo crudo que sean necesarias para el
consumo interno del país.
La Dirección General de Hidrocarburos, en forma
trimestral y con quince días hábiles de
anticipación al inicio de cada trimestre fijará un
estimado del Consumo Nacional Interno. Esto es,
el volumen de crudo a ser procesado en las
OBJECT OF THE AGREEMENT.-
The herein agreement has the object of, namely:
- Promoting the exploration tending to the
discovery of new oil reserves;
- Developing in an integral way, the area of the
contract of August 6 of 1973, in order to
incorporate new hydrocarbon fields to the
national oil production;
- Continuing with the performance of an
appropriate maintenance of the productive wells,
in accordance with the specifications that the
technique advised;
- Fostering the investment of the Consortium in
programs of secondary recovery and improved
methods of production; and,
- Achieving an increase of the production of oil,
always within the rules of conservation of
reserves established by the Ministry of Energy
and Natural Resources.
[…]
Oil destined to Internal Consumption
In accordance with what is set forth in article 31
of the Hydrocarbons Law and clause 19 of the
Contract of Exploration and Exploitation of
Hydrocarbons, subscribed between the National
Government and the Companies Texaco
Petroleum Company and Ecuadorian Gulf Oil
Company, on August 6 of 1973, the Consortium
CEPE-Texaco Petroleum Company shall supply
the crude oil amounts that are necessary for the
internal consumption of the country.
The General Hydrocarbons Directorate, quarterly
and with fifteen business days in advance to the
initiation of each quarter shall fix an estimate of
the National Internal Consumption. This is, the
volume of crude to be processed in the refineries,

refinerías, menos el volumen de productos
exportables y más el crudo de compensación.
El volumen de productos exportables será
multiplicado por el cuociente que resulte de dividir
el precio promedio ponderado de las exportaciones
de productos de la Corporación Estatal Petrolera
Ecuatoriana en el trimestre anterior, por el precio
promedio ponderado de las ventas de petróleo
crudo realizadas en dicho trimestre anterior, por la
misma Corporación Estatal.
En ambos casos, los precios serán ajustados a
pago al contado. (No más de 20 días laborales de
crédito.) En los veinte días posteriores a la
finalización de cada trimestre, la misma
Dirección realizará la reliquidación respectiva del
Consumo Nacional Interno según la definición
que antecede, tomando para ello los datos reales
durante el trimestre sujeto a reliquidación. Los
saldos que resulten de tal reliquidación se
imputarán a los 90 días siguientes a la fecha de
tal reliquidación, haciéndose los ajustes que
correspondan.
Los productos exportables serán de propiedad
exclusiva de la Corporación Estatal Petrolera
Ecuatoriana.
(Exh. R-3)
less the volume of exportable products and plus
the crude oil of compensation.
The volume of exportable goods shall be
multiplied by the coefficient that results from
dividing the weighted average price of the
exports of products of the Ecuadorian State Oil
Company in the previous quarter, for [sic] the
average weighted price of the sales of crude oil
performed in such quarter above mentioned, by
the same State Company.
In both cases, the prices shall be adjusted to cash
payment. (No more than 20 business days of
credit). In the following twenty days to the end of
each quarter, the same Directorate shall perform
the corresponding reliquidation of the National
Internal Consumption according to the definition
above mentioned, taking for that the real data
during the quarter subject to reliquidation. The
balances that result of such reliquidation shall be
allocated the [sic] to 90 following days to the
date of such reliquidation, performing the
corresponding adjustments.
The exportable products shall be exclusive
property of the Ecuadorian Oil State Company.
(Exh. R-3; Tr. II at 949:1-10)
213. On March 5, 1987, an earthquake hit Ecuador. This earthquake damaged the Trans-
Ecuadorian pipeline and effectively severed the connection between the inland oil fields on
one end and the coastal refineries and the port of Balao on the other. As a result, crude oil
production by the Consortium was “shut in” and therefore dropped significantly. The Trans-
Ecuadorian pipeline was repaired and normal production resumed by August 1987.
214. During this period of approximately six months, the Consortium delivered whatever oil it
could transport to the appropriate refineries or the port of Balao through an alternative
pipeline known as the Colombian pipeline. These deliveries included the entire amount of
crude oil produced during this period and all the crude oil held in storage. The Republic,
through CEPE, bartered fuel oil from the Esmeraldas Refinery in order to obtain derivative
products to meet domestic consumption during this time.

215. After the Trans-Ecuadorian pipeline was repaired and normal crude oil production and
transport resumed, the Republic required TexPet, among other producers, to deliver
approximately 1.4 million barrels of crude, the proceeds of which were used to reimburse
CEPE and the Government for the cost of the fuel oil CEPE had bartered during the six-
month period the Trans-Ecuadorian pipeline was inoperative. TexPet was compensated at the
domestic price for this requisitioned crude.
216. In 1990, PetroEcuador took over as the Consortium’s operator. Despite the parties’ efforts,
no agreement was reached to extend the 1973 Agreement, which was set to expire on June 6,
1992. TexPet, PetroEcuador, and the Republic thus commenced negotiations on a settlement
of all issues relating to the 1973 Agreement and its termination. At that time, TexPet also
began winding up its operations in Ecuador.
217. Between December 1991 and December 1993, during the settlement negotiations, TexPet
filed seven breach-of-contract cases against the Ecuadorian Government in Ecuadorian courts
in which it claimed over US$ 553 million in damages.
218. The cases alleged breaches by Ecuador of its obligations to TexPet under the 1973 and 1977
Agreements, as well as related violations of Ecuadorian law. The Claimants allege in five of
these cases that the Respondent misstated domestic needs and consumption, and thereby
appropriated more oil than it was entitled to acquire at the domestic market price under the
Concession Agreements. One further case concerned a force majeure issue arising from the
events following the 1987 earthquake, and the last one concerned an alleged breach of the
1986 Refinancing Agreement.
219. On December 14, 1994, the Republic, PetroEcuador, and TexPet reached an agreement,
embodied in the 1994 MOU, Exh. R-22, settling any outstanding environmental remediation
claims that the Republic or PetroEcuador might have had against TexPet. It also set out
TexPet’s obligations vis-à-vis the environmental remediation of certain areas in the Oriente
region where the Consortium had operated.
220. On May 4, 1995, the Republic, PetroEcuador, and TexPet entered into the 1995 Remediation
Agreement, Exh. R-23, to replace the 1994 MOU and clarify TexPet’s remediation

responsibilities and the terms of its release. Attached to the 1995 Remediation Agreement
was a “Scope of Work” schedule that TexPet and its contractors were obligated to follow. In
September 1995, the Scope of Work was further detailed in the 1995 Remedial Action Plan,
Exh. R-25, accepted by the parties. Pursuant to the 1995 Remediation Agreement and the
1995 Remedial Action Plan, TexPet’s contractors conducted remediation of the specified
areas between 1995 and 1998.
221. On November 17, 1995, the Republic, PetroEcuador, and TexPet reached an agreement that
resolved most of their outstanding issues, i.e., the 1995 Global Settlement, Exh. R-27. In that
agreement, the parties released each other from most of the remaining obligations arising out
of the 1973 Agreement. The 1995 Global Settlement confirmed, at Article 2.2, that the 1973
Agreement “ended, on account of the expiration of the period of time granted, on June 6,
1992,” and, at Article 4.5, that “all the rights and obligations of each of the parties with
respect to the other and deriving from the [1973 Agreement] […] are terminated.” The
release in the 1995 Global Settlement, however, excluded environmental obligations that
were already dealt with in other agreements. The release also excluded, at Article 4.6, all
pending claims which “exist[ed] judicially between the parties,” which included TexPet’s
seven court cases.
222. On May 11, 1997, the BIT between the United States and Ecuador entered into force.
223. Previously, in November 1993, during the course of settlement negotiations between TexPet
and the Republic, a group of residents from the regions in which TexPet had operated the
concessions brought a class action under the name Aguinda v. Texaco, Inc. in the United
States District Court for the Southern District of New York (the Aguinda action); Texaco,
Inc. was the ultimate parent company of TexPet. The action claimed compensation for
environmental harm caused by TexPet as well as extensive equitable relief and an injunction
restraining TexPet from entering into further activities that risked environmental harm.
224. The Aguinda plaintiffs argued that they could obtain the class action relief they were seeking
only under United States law and from a court in the United States. TexPet moved to dismiss
the Aguinda action on several grounds, including for forum non conveniens. This required
that the parties to that litigation address the adequacy of the Ecuadorian courts as an

alternative forum for the Aguinda action. During the course of jurisdictional debates at first
instance and various levels of appeal over a period ranging from December 17, 1993, to April
7, 2000, TexPet’s counsel maintained in expert affidavits and briefs, inter alia, that the
Ecuadorian courts were efficient and fair. In further appeals through until a final judgment
was rendered in 2002, TexPet continued to argue the adequacy of Ecuadorian courts as an
alternative forum. The Aguinda action was ultimately dismissed from U.S. courts on grounds
of forum non conveniens. The same plaintiffs then commenced an action against TexPet in
2003 in a court seated in the town of Lago Agrio, Ecuador (the Lago Agrio action).
225. Since the close of the Aguinda case, a number of events have occurred involving the
Ecuadorian judiciary. On November 25, 2004, Ecuador’s Congress passed a resolution
finding that the Constitutional Court and Electoral Court were illegally appointed in 2003. It
dismissed the members of both. On December 5, 2004, a special session of Ecuador’s
Congress dismissed the entire Supreme Court. The same session of Congress also impeached
six of the recently-removed judges of the Constitutional Court. On April 15, 2005, President
Guttiérrez declared a state of emergency, suspending certain civil rights and dismissing all
the newly-appointed judges of the Supreme Court. President Guttiérrez was later ousted and
fled the country. During this period, the UN Special Rapporteur on the independence of
judges was dispatched to Ecuador to assess the situation and make recommendations. The
Organization of American States’ Mission in Ecuador likewise sent representatives to the
country. Soon thereafter, the Ecuadorian Congress nullified the 2004 resolution dismissing
the Supreme Court judges, but did not reappoint these former judges.
226. On April 25, 2005, Ecuador’s Congress approved amendments to the Organic Law of the
Judiciary which introduced a new mechanism to appoint judges to the Supreme Court.
Members of the international community monitored and supported the new selection process
and new Supreme Court judges were appointed in November 2005. Some observers, such as
the Andean Community and the Red De La Justicia, approved of these reforms as re-
establishing the independence and impartiality of the judiciary, while others, including the

OAS Mission to Ecuador and the UN Special Rapporteur in his Preliminary Report, remained
critical of these efforts.1
227. Following the conclusion of the process re-constituting the Supreme Court, the UN Special
Rapporteur submitted a further “Follow-up Report” on January 31, 2006, in which he gave a
generally positive assessment of that process:
Pursuant to the recommendations made by the Special Rapporteur in his preliminary
report, the Ecuadorian institutions set up a Qualifications Committee which selected the
new judges of the Supreme Court in a transparent manner, with public oversight, under
the supervision of international and national bodies and with the participation of judges
from other countries in the region.2
Nonetheless, the Special Rapporteur continued to criticize certain aspects of the Ecuadorian
judiciary and highlighted “the urgent need to [further] reform the whole of the judiciary.”3
228. On December 21, 2006, the Claimants filed their Notice of Arbitration commencing the
current arbitration proceedings. At that time, six of the Claimants’ seven cases were pending
at first instance. The seventh case had been recently dismissed on the grounds of
abandonment. The dismissal was later overturned on appeal.
229. In January 2007, newly-elected President Rafael Correa called for a referendum to establish a
Constituent Assembly to create a new constitution. Despite initial opposition by the Congress
and Electoral Court, the holding of the referendum was eventually approved. However, when
President Correa modified the statute controlling the Constituent Assembly to be proposed in
the referendum, and the Electoral Court approved President Correa’s changes, the Congress
removed the President of the Electoral Court in an apparent effort to block the referendum. In
support of the Executive, the military and police then physically prevented the Congress from
assembling in order to overturn President Correa’s measure. Some of the ousted members of
1
INTER-AMERICAN COMMISSION ON HUMAN RIGHTS, OAS MISSION TO ECUADOR, REPORT TO THE PERMANENT
COUNCIL ON THE SITUATION IN ECUADOR, May 20, 2005; LEANDRO DESPOUY, REPORT OF THE SPECIAL
RAPPORTEUR ON THE INDEPENDENCE OF JUDGES AND LAWYERS, PRELIMINARY REPORT ON A MISSION TO ECUADOR,
Mar. 29, 2005.
2
LEANDRO DESPOUY, FOLLOW-UP REPORT SUBMITTED BY THE SPECIAL RAPPORTEUR ON THE INDEPENDENCE OF
JUDGES AND LAWYERS, FOLLOW-UP MISSION TO ECUADOR, January 31, 2006, at p. 2.
3
Id., ¶36.

the Congress then sought relief from the Constitutional Court, which eventually ruled that
their ouster was illegal. The new Congress members who had replaced them in the meantime,
reacted by dismissing the entire Constitutional Court and shortly thereafter selecting a
member of President Correa’s political party to head a new Constitutional Court. In the midst
of the above events, on April 15, 2007, the referendum in favor of establishing a Constituent
Assembly passed in a popular vote.
230. On September 30, 2007, the members of the Constituent Assembly were elected. On
November 27, 2007, the Constituent Assembly dismissed the Congress and proclaimed that it
held absolute authority. In particular, it claimed the power to remove and sanction members
of the judiciary that violate its decisions. It also undertook a mandate of judicial reform,
criticizing the corruption of the judiciary. On December 14, 2007, the Constituent Assembly
introduced a cap on the salaries of all public officials, by mandating that they could not earn
more than the President. This measure had the effect, inter alia, of reducing judges’ salaries
by more than 50%. A number of judges resigned as a consequence.
231. On January 8, 2008, the Constitutional Court rejected a challenge to the Constituent
Assembly’s absolute powers. The Constitutional Court held that the Constituent Assembly’s
decisions were not subject to challenge by any other organ of government. In February 2008,
the President of the Supreme Court of Ecuador concurred in public statements that the
Constituent Assembly enjoys absolute authority and that, because of this, the rule of law is
only a partial reality in Ecuador: “No podemos cubrir el sol con un dedo; la realidad jurídica
y constitucional que vive el país es una realidad a medias, no vivimos en toda su plenitud en
un estado de derecho” [“We cannot deny it: the judicial and constitutional reality in our
country is a partial reality; we are not fully living in a state of law”] (Exh. C-104).
232. Of TexPet’s seven Ecuadorian court cases at issue, one remains pending at first instance, two
are the subject of pending appeals, two have been dismissed and are now closed, and two
have been the subject of recent decisions. Several of the cases have seen action subsequent to
service of the Notice of Arbitration in the present case.

Table 1. TexPet’s Seven Cases in Ecuadorian Courts4
Case
No.
Subject
Matter
Date
Commenced
Procedural History Current
Status
23-91 1973
Agreements
(Esmeraldas
Refinery)
17 Dec 1991 Evidentiary phase (to Aug 1995)
Auto para sentencia (13 Dec 2002)
Auto para sentencia (29 Jan 2004)
Declaration of nullity of 13 Dec 2002
and 29 Jan 2004 rulings (17 June 2004)
Dismissed - prescription (29 Jan 2007)
Appeal filed (9 Feb 2007)
Appeal dismissed (7 Mar 2008)
Cassation filed (4 Apr 2008)
Cassation dismissed (14 May 2008)
Fact appeal filed (16 May 2008)
Fact appeal dismissed (9 June 2008)
Closed as of 9
June 2008
152-93 1973/1977
Agreements
(Esmeraldas
Refinery)
10 Dec 1993 Evidentiary phase (to mid-1996)
Auto para sentencia (22 May 2002)
Pending at
first instance
7-92 1973
Agreements
(Amazonas
Refinery)
15 Apr 1992 Date set for appointment of experts (5
May 1993)
Motion for recusal of the President of
the Supreme Court (4 Mar 1994)
Order recusing the President of the
Supreme Court (6 May 1994)
Declared abandoned (9 Apr 2007)
Appeal filed (25 Apr 2007)
Appeal dismissed (20 May 2008)
Cassation filed (27 May 2008)
Cassation dismissed (24 June 2008)
Fact appeal filed (30 June 2008)
Fact appeal dismissed (16 July 2008)
Closed as of
16 July 2008
153-93 1973/1977
Agreements
(Amazonas
Refinery)
14 Dec 1993 Expert reports filed (31 Oct 1996)
Auto para sentencia (12 Oct 1998)
Judgment for Government of Ecuador
(14 July 2009)
Judgment at
first instance
154-93 1973
Agreement
(Imported
products)
14 Dec 1993 Evidentiary phase (to 8 July 1997)
Auto para sentencia (8 Oct 1997)
Judgment for Government of Ecuador
(10 Sept 2009)
Judgment at
first instance
4
The information included in this table reflects the last information provided by the Parties. It should be noted that
the order of cases presented in this table also differs from the table found in the equivalent section of the Tribunal’s
Interim Award of December 1, 2008. A further Table of Cases containing a more detailed procedural history of
TexPet’s cases in the Ecuadorian courts was attached to Tribunal’s Partial Award as Appendix 1.

8-92 1973
Agreement
(Force
majeure –
earthquake)
15 Apr 1992 Motion for recusal of the President of
the Supreme Court (4 Mar 1994)
Order recusing the President of the
Supreme Court (8 Jun 1994)
Evidentiary phase (to Mar 1995)
Auto para sentencia (18 July 1995)
Declared abandoned (2 Oct 2006)
Overturned on appeal (22 Jan 2008)
Dismissed - prescription (1 July 2008)
Appeal filed (2 July 2008)
On appeal
983-03
(prev.
6-92)
1986
Refinancing
Agreement
(Unpaid
Interest)
15 Apr 1992 Evidentiary phase (to Mar 1995)
Transferred btw courts (Oct 2003)
Auto para sentencia (6 Feb 2007)
Judgment for TexPet (26 Feb 2007)
Appeal filed - CEPE (1 Mar 2007)
Appeal filed – TexPet (12 Mar 2007)
On appeal
233. The first Esmeraldas Refinery claim, Case 23-91, was filed on December 17, 1991. In early
August 1995, the evidentiary phase of the case was completed. In December 2002 and
January 2004, autos para sentencia were issued. The court subsequently dismissed the case
on January 29, 2007, on grounds of prescription under a statute that provides for a two-year
prescription period for retail sales. On February 9, 2007, TexPet appealed that decision. On
March 7, 2008, the dismissal was upheld on appeal. On April 4, 2008, TexPet filed a
cassation appeal. This was rejected on May 14, 2008. On May 16, 2008, TexPet filed a fact
appeal. This was rejected on June 9, 2008. The case is now closed.
234. The second Esmeraldas Refinery claim, Case 152-93, was filed on December 10, 1993. The
evidentiary phase of the case was completed by mid-1996 and an auto para sentencia,
indicating that the trial was closed and ready for judgment, was issued on May 22, 2002. To
date, no decision at first instance has been made.
235. The first Amazonas Refinery claim, Case 7-92, was filed on April 15, 1992. On May 5, 1993,
the court set a date for the experts to officially accept their appointments and to conduct a
judicial inspection of documents. The official acceptance did not occur. Between July 1993
and February 2007, TexPet repeatedly requested that the court set a new date for the experts
to accept their appointments and proceed with the evidentiary phase. The case was dismissed
on April 9, 2007, on the basis that the case had been abandoned by the Claimants. This
dismissal was appealed by the Claimants on April 25, 2007. On May 20, 2008, TexPet’s

appeal was rejected. On May 27, 2008, TexPet filed a cassation appeal. This was rejected on
June 24, 2008. On June 30, 2008, TexPet filed a fact appeal. This was rejected on July 16,
2008. The case is now closed.
236. The second Amazonas Refinery claim, Case 153-93, was filed on December 14, 1993. In this
case, all expert reports were submitted by October 31, 1996, and an auto para sentencia was
issued on October 12, 1998, and again on May 22, 2002. On July 14, 2009, the President of
the Provincial Court of Pichincha (formerly the Superior Court of Quito) rendered a
judgment in favor of the Government of Ecuador.
237. The Imported Products claim, Case 154-93, was filed on December 14, 1993. In that case, the
evidentiary phase was completed by July 8, 1997, and an auto para sentencia was issued on
October 8, 1997, and again on May 21, 2002. On September 10, 2009, the President of the
Provincial Court of Pichincha (formerly the Superior Court of Quito) rendered a judgment in
favor of the Government of Ecuador.
238. The Force Majeure claim, Case 8-92, was filed on April 15, 1992. By March 1995, the
evidentiary phase of the case was completed. An auto para sentencia was issued in that case
on July 18, 1995. Following the Notice of Arbitration, the case was dismissed by the court
for failure to prosecute the claims on October 2, 2006. That dismissal was reversed on
January 22, 2008, on the grounds that an auto para sentencia had already been issued. The
case was sent back to the court of first instance and was dismissed again on July 1, 2008, on
grounds of prescription under a statute that provides for two-year prescription for retail
consumer sales. On July 2, 2008, TexPet appealed the latest decision and that appeal remains
pending.
239. The last claim, made under the Refinancing Agreement, was filed on April 15, 1992 and
originally numbered Case 6-92. The evidentiary phase was completed by March 1995. In
October 2003, the court decided that it did not have jurisdiction to hear the case and sent the
case to a different court (and renumbered it Case 983-03). The new court issued an auto para
sentencia on February 6, 2007. Following the Notice of Arbitration, on February 26, 2007,
the court found in favor of TexPet. However, the judgment stipulated that the claim was to be
paid to the “legal representative” of TexPet. According to the Claimants, this has prevented

them from collecting on the judgment because, under Ecuadorian law, only domestic
corporations may have “legal representatives,” while foreign corporations act only through
“attorneys-in-fact.” Both parties have appealed the judgment and the appeal remains pending.

G. Considerations of the Tribunal
240. The Tribunal has given consideration to the extensive factual and legal arguments presented
by the Parties in their written and oral submissions, all of which the Tribunal has found
helpful. In this Award, the Tribunal discusses the arguments of the Parties most relevant for
its decisions. The Tribunal’s reasons, without repeating all the arguments advanced by the
Parties, address what the Tribunal itself considers to be the determinative factors required to
decide the issues arising in this case.
G.I. The Joint Expert Report and Separate Opinion
241. The party-appointed Tax Experts issued their Joint Expert Report on Tax Issues on October
20, 2010. In their joint proposal to the Tribunal contained in that report, Dr. Diego Almeida
Guzmán and Dr. Javier Cordero Ordóñez, acting as party-appointed Tax Experts in the
present arbitration, conclude as follows.
1. Tax Applicable on Direct Damages
242. The Tax Experts conclude that the Unified Tax Rate of 87.31% applies to the amount of
“Direct Damages” that arise out of the breaches of contract by Ecuador. The “Direct
Damages” consist of the oil revenues which are those derived from the exploration and
export of hydrocarbons, termed “oil income,” that TexPet would have received but for the
breaches of contract as claimed before the Ecuadorian courts (Joint Expert Report, ¶16).
243. According to the Tax Experts, on the date that the Notice of Arbitration was filed, the tax
legislation in force was (a) Supreme Decree No. 982, published in the Official Registry No.
945 of December 4, 1975 (as amended) that established the “Unified Tax” for petroleum-
related activities, at a rate of 87.31%; and (b) the Domestic Legal Tax Regime (Joint Expert
Report, ¶17).

244. The Tax Experts state that the Unified Tax Rate of 87.31% (a) is the applicable law since it
was in force as part of the Ecuadorian law on the date in which the arbitral claim was
submitted; (b) applies particularly to those “Direct Damages” referred to in the Partial Award
since they constitute, as previously mentioned, “oil income” according to TexPet’s claims
before the Ecuadorian courts; and (c) complementarily, is also applicable because Transitory
Provision No. 5 of the Domestic Legal Tax Regime specifically refers to the “contract that
has been subscribed” by Texaco Petroleum and provides that “[t]he companies Texaco
Petroleum Co. and City Investing Co. that have subscribed contracts for the exploration and
exploitation of hydrocarbons, must pay the unified income tax of eighty-seven point thirty-
one percent.” The Tax Experts emphasize that the Transitory Provision refers to the
“contracts that have been subscribed” and not to the “contracts in effect” such that the
Unified Tax of 87.31% is still in force and applies to the case at hand. Further, the Tax
Experts note that, as of the date of the Joint Expert Report, Supreme Decree No. 982 had not
been abrogated (Joint Expert Report, ¶¶18-19).
245. Therefore, the amount of “Direct Damages” suffered by TexPet is subject to the 87.31%
Unified Tax that was in force both at the date when the breaches of the 1973 Agreement
occurred, and at the time that the Notice of Arbitration was filed (Joint Expert Report, ¶20).
2. Tax Applicable on Interest
246. The Tax Experts further conclude that the Income Tax Rate of 25% applies to the amount of
“Interest” on the Direct Damages found by the Tribunal. The Tax Experts note that “Interest”
consists of simple interest at the New York Prime Rate from the date that the court cases
were filed (i.e., the date Ecuador was put in default) until the Notice of Arbitration on
December 21, 2006. These interest amounts constitute compensation for delayed payment
under Articles 1567 and 1573 of the Ecuadorian Civil Code (Joint Expert Report, ¶¶21-22).
247. According to the Tax Experts, pursuant to Articles 1, 2, and 8 of the Internal Tax Regime
Law (2004 codification), interest constitutes Ecuadorian-sourced income and, according to
Article 37 of the same law, an Income Tax Rate of 25% is applicable. The Tax Experts

submit that they know of no provision that would grant a tax exemption to the accrued
interest set out in the Partial Award on Merits (Joint Expert Report, ¶¶23-24).
3. Separate Opinion of Dr. Cordero Ordóñez
248. At the end of the Joint Expert Report, Dr. Javier Cordero Ordóñez provides a Separate
Opinion, stating as follows:
I, Dr. Javier Cordero Ordóñez, remark to the Tribunal that should no breach of contract
by the Republic of Ecuador had occurred, TexPet would have received the monetary
amount of its oil exports (US$ 345.558.145), net of the 87.31% Unified Income Tax
(US$ 309.564.716,40), being so only the amount of US$ 44.993.428,60. Therefore, it is
my opinion that, given that this sum is the effective amount of the Direct Damages,
Interest must be calculated on this amount (US$ 44.993.428,60) and not on the gross
amount of US$ 345.558.145. Additionally, I also call your attention to the fact that,
according to Ecuadorian law, it is not allowed to calculate interest in favor of TexPet on
amounts that it is not entitled to receive.
(English Translation of Joint Expert Report, p. 12)
249. In his letter of October 26, 2010, Dr. Cordero further clarifies his Separate Opinion as
follows:
At the end of the joint report, I express my individual opinion on how the 87.31% Unified
Tax reduces the direct damage and, consequently, decreases the base upon which simple
interest would be calculated, thereby reducing interest proportionally (eg a 87.31%)
Finally, the 25% tax on interest would then be applied to the recalculated interest. In sum,
as experts we do not agree only as to whether the Tribunal allowed us to recalculate
interest upon the new direct damage base.
(English Translation of Dr. Cordero Ordóñez’s letter dated October 26, 2010, pp. 1-2)

G.II. The Partial Award and the Tax Experts’ Mandate
250. Preliminarily, the Claimants ask the Tribunal to disregard Dr. Cordero’s Separate Opinion
and letter dated October 26, 2010, as they exceed the mandate conferred upon him by the
Tribunal and attempt to reopen matters that were fully and finally decided by the Tribunal in
its Partial Award.
251. The Claimants argue that, in its Partial Award, the Tribunal already definitively quantified
the proper principal and interest amounts that an Ecuadorian court would have awarded in a
hypothetical December 2006 court judgment. The Tribunal also ruled that an Ecuadorian
court would not have deducted taxes from its judgment. The Claimants accuse the
Respondent of attempting to evade these decisions by creating an artificial distinction
between an Ecuadorian court’s application of taxes “in setting the amount of the judgment”
and “the judicial application of taxes to judgment amounts already rendered.” According to
the Claimants, however, the Tribunal rejected both of these methodologies in its Partial
Award (C XV, p. 2-3; CXVI, p. 4).
252. The Claimants note that the Parties fully briefed these issues during the merits phase of the
arbitration and, had the Respondent believed that TexPet was not entitled to earn interest on
the full principal amount or that an Ecuadorian court would have subtracted the Unified Tax
as part of its “lost profits” analysis, it would have advanced these arguments at that time.
Despite advancing various different theories regarding an Ecuadorian court’s purported
subtraction of taxes from damages, the Respondent never argued that an Ecuadorian court
would have awarded interest on a post-tax basis. For the Claimants, by stating that “an
Ecuadorian domestic court would not have deducted taxes from its judgment,” the Tribunal
was rejecting all the Respondent’s theories and accepting the Claimants’ arguments (C XV,
p. 3; C XVI, pp. 4-6).
253. The Claimants further observe that the Tribunal’s mandate to the experts was limited to
“issuing an opinion on the taxes—if any—applicable to a hypothetical December 2006

Ecuadorian court judgment that already included a final interest calculation.” Dr. Cordero’s
attempt to revisit the Tribunal’s calculation of interest violates general international law
principles such as those embodied in Article 32 of the UNCITRAL Rules, providing that “the
award shall be made in writing and shall be final and binding on the Parties.” The Claimants
further allude to the general doctrine “that arbitral awards are final and subject to challenge
only in limited fora, such as annulment proceedings” and cite the Amco v. Indonesia5
and
Waste Management v. Mexico6
cases (C XV, p. 4).
254. According to the Claimants, the Respondent improperly relies on paragraph 552 of the Partial
Award when it asserts that the scope of the Tax Experts’ mandate was the “quantification and
assessment of damages” in the arbitration. The Claimants contend that, in its Partial Award,
the Tribunal did not set the Tax Experts’ mandate but “was merely analyzing the principles
that it would apply regarding damages.” Instead, it is in PO VIII that the Tribunal established
the experts’ mandate to “attempt to present a joint proposal to the Tribunal as to the amount,
if any, to be deducted from the total set forth in the Table at paragraph 549 of its Partial
Award on account of any applicable Ecuadorian tax laws.” According to the Claimants, the
mandate given to the Tax Experts was thus to analyze the tax consequences of an Ecuadorian
judgment that awarded damages in an amount that the Tribunal had already determined. The
Claimants contend that “[e]ven the tax experts understood that ‘the Tribunal delimited the
scope of the reports to be issued by the Tax Experts’ in Procedural Order No. 8, which they
quoted in their joint report” (C XVI, pp. 3-4).
255. Furthermore, the Claimants contend that by challenging the Partial Award before the Dutch
Courts, the Respondent has conceded that the Award and all its contents are now res judicata
under Dutch law. This is because Article 1059(1) of the Dutch Code of Civil Procedure
provides that “[o]nly a final or partial final award is capable of acquiring the force of res
judicata.” Meanwhile, Article 1064(3) of the Dutch Code of Civil Procedure provides that
“[a]n application for setting aside may be made as soon as the award has acquired the force
5
AMCO v. Republic of Indonesia, ICSID Case No. ARB/81/1, Resubmitted Case, Decision on Jurisdiction (May
10, 1988), 3 ICSID REV.—FILJ 166, ¶30 (1988) [hereinafter Amco II].
6
Waste Management Inc. v. Mexico, ICSID Case No. ARB(AF)/00/03, Decision on Mexico’s Preliminary
Objection Concerning the Previous Proceedings (June 26, 2002), 6 ICSID REP. 549 (2004) [hereinafter Waste
Management].

of res judicata.” Therefore, the Respondent could not even have brought its action to set
aside the Partial Award unless it had acquired res judicata effect under Dutch law. In fact, by
bringing an action to set aside the Partial Award in the District Court in The Hague,
“Ecuador has effectively conceded that the award has acquired res judicata effect between
the Parties” (C XV, p. 4).
256. Additionally, on March 4, 2011, the Claimants submitted a letter informing the Tribunal that
Dr. Cordero had been appointed Permanent Associate Justice of the Ecuadorian National
Court of Justice on January 28, 2011. The Claimants noted that Dr. Cordero was appointed
just over three months after submitting his Separate Opinion and letter clarifying that
opinion, which the Claimants allege “contained gross errors and demonstrated a strong bias
in favor of reducing the amount of the award and thereby serving Ecuador’s interests” (C
XVII).
257. According to the Respondent, Dr. Cordero’s Separate Opinion is well within the Tax
Experts’ broad mandate. Paragraph 3.3 of the PO VIII does not specify at what stage in the
Ecuadorian proceedings the deduction on account of the applicable Ecuadorian tax law
should be made, and does not exclude from consideration any deductions that might be part
of an Ecuadorian court’s proper calculation of lost profits damages to be awarded in its
judgment. The Tax Experts’ mandate as stated in PO VIII was to “cooperate and attempt to
present a joint proposal to the Tribunal as to the amount, if any, to be deducted from the total
set forth in the Table at paragraph 549 of its Partial Award on account of any applicable
Ecuadorian tax laws.” Nowhere did the Tribunal “state that the interest amounts in the Table
in paragraph 549 [of the Partial Award] were ‘a final interest calculation.’” Rather, the
Tribunal stated that “the amount of such damages will be decided by the Tribunal with the
help of a procedure set out in a separate Procedural Order of the Tribunal to determine what
taxes, if any, would have been due to the Respondent if no breach of Article II(7) of the BIT
had occurred” and that “the purpose of that procedure is to establish the quantum of the
Claimants’ loss taking into account applicable Ecuadorian tax laws.” The Tribunal clearly

states that any final decision on damages was deferred until, and would depend on, the
completion of a special procedure (R XV, ¶¶8-13).
258. However, the Respondent observes that even if the Partial Award’s guidelines regarding the
quantum were binding on the Tax Experts, Dr. Cordero’s Separate Opinion is fully consistent
with them. Not only did the Tribunal discuss the amounts that TexPet would have received
under the 1973 and 1977 Agreements absent the breach, but it also made clear that such
amounts had to avoid awarding TexPet a “windfall profit.” The Tribunal made clear in
various places in its Partial Award that the amounts in the Table at paragraph 549 were only
a starting point and that the steps that follow after this starting point include the application
of Ecuadorian tax law in order to avoid overcompensation:
To calculate the damage suffered by the Claimants, the Tribunal starts from the principal
sums that an honest, impartial, and independent Ecuadorian judge would have found
owing in each of TexPet’s cases, plus what they would have found as simple interest.
[…]
This is not the end of the Tribunal’s enquiry, however. In the absence of a BIT breach by
Ecuador, the Claimants may not have kept the entire amount as being equivalent to their
loss. To calculate the Claimants’ real loss, that amount must be reduced if such would
have been required by any applicable Ecuadorian tax laws. Were the Tribunal not to take
such tax laws into account, it would run the risk of overstating the loss suffered by the
Claimants, such that the Claimants would be overcompensated. Put differently, the loss
suffered by the Claimants is the amount plus interest it should have been awarded by the
Ecuadorian judges net of amounts due under any applicable Ecuadorian tax laws. When
quantifying and assessing damages, the Tribunal cannot award more than the amount that
Claimants ultimately would have obtained.
(R XIV ¶7; R XV, ¶¶14-24; Partial Award, ¶¶551-552)
259. The Respondent contends that the Tribunal also made “clear that the issue of taxes in this
case goes to the calculation of the quantum of Claimants’ loss” and that the “the purpose of
[the expert] procedure is to establish the quantum of the Claimants’ loss taking into account
applicable Ecuadorian tax laws.” Therefore, Dr. Cordero’s Separate Opinion fulfills the
Tribunal’s instruction to propose the proper amount to be deducted from the total in the
paragraph 549 on account of applicable Ecuadorian tax laws in order to determine TexPet’s
“real loss” net of amounts due under any applicable Ecuadorian tax laws. This is “entirely

different from an Ecuadorian court ‘deduct[ing] taxes from its judgment,’” a methodology
which, in the Respondent’s view, was excluded by the Tribunal when it “contemplated the
application of taxes in setting the amount of the judgment, and not by judicial application of
taxes to judgment amounts already rendered” (R XIV, ¶¶7-9; R XV, ¶¶18-20).
260. In addition, the Respondent maintains that, by stating in its Partial Award that “[t]he purpose
is not to establish the amount of tax that would be assessed by Ecuadorian authorities today
on an arbitral award,” and that the “[t]he Tribunal further accepts that an Ecuadorian
domestic court would not have deducted taxes from its judgment,” the Tribunal was clearly
demonstrating that “it knew the difference between (a) deducting taxes from a judgment and
(b) accounting for taxes (or avoided costs) in order to arrive at the amount to be awarded in
a judgment (as in the Blount Brothers case).” Therefore, in both the dispositif and the
discussion of taxes, the question of how Ecuadorian taxes would affect Claimants’ “real loss”
was very much left open (R XV, ¶¶23-24).
261. Furthermore, the Respondent contests the Claimants’ arguments regarding the doctrine of res
judicata. The Respondent refers to Article 4 of the International Law Association’s
Recommendations on Res Judicata and Arbitration:7
An arbitral award has conclusive and preclusive effects in the further arbitral proceedings
as to:
4.1 determinations and relief contained in its dispositive part as well as in all reasoning
necessary thereto;
4.2 issues of fact or law which have actually been arbitrated and determined by it,
provided such determination was essential or fundamental to the dispositive part of the
arbitral award.
(R XV, ¶27)
262. However, as stated in various commentaries to the ILA Recommendations,8
the scope of res
judicata described in the ILA’s Recommendations is somewhat broader than what is usually
7
RESOLUTION NO. 1/2006, ANNEX 2, INTERNATIONAL LAW ASSOCIATION RECOMMENDATIONS ON RES JUDICATA
AND ARBITRATION, Toronto, art. 4 (2006).

allowed in civil law practice, where res judicata effect tends to be reserved to the dispositive
or operative part of the judgment or the arbitral award. The Respondent further cites
Hanotiau for the proposition that, in certain civil law jurisdictions, “res judicata can attach to
the motifs (i.e., the reasoning) in addition to the dispositif, but only when the reasoning is
necessary for the decision and constitutes the ratio decidendi (i.e., the decisive reasons) for
the award.”9
Even this moderate extension of res judicata is, however, not universally
accepted in civil law countries (R XV, ¶¶28-32).
263. Turning specifically to Dutch arbitration law, the Respondent asserts that “res judicata effect
attaches to decisions found in the dictum of the award […] though it is sometimes also
understood as reaching those decisions found in the body of the award that constitute the
necessary foundation for decisions expressed in the dictum” (R XV, ¶35). However,
“[d]ecisions found elsewhere throughout the award that are not necessary predicates (i.e., do
not constitute the necessary support for) for the rulings in the dictum, by contrast, do not
benefit from res judicata effect” (R XV, ¶¶33-36).
264. In the light of the above, the Respondent rejects the assertion that Dr. Cordero’s Separate
Opinion conflicts with any matter in the Partial Award vested with res judicata effect. For
the Respondent, even in the event that the governing law could broaden the effect of res
judicata to cover the reasoning contained in the body of the Partial Award, the only lines of
the Partial Award susceptible of falling under the res judicata umbrella are those addressing
the Respondent’s liability for breach of Article II(7) of the BIT in paragraph 5 of the
Tribunal’s “Decisions.” The remainder of paragraph 5 of the “Decisions” constitutes a simple
indication that “the Tribunal would undertake the exercise of quantification and does not
depend, in order to have existence or meaning, upon matters addressed elsewhere in the
Partial Award” (R XV, ¶¶37-43).
8
Christophe Seraglini, Brèves remarques sur les Recommandations de l’Association de droit international sur la
litispendance et l’autorité de la chose jugée en arbitrage, 2006(4) REVUE DE L’ARBITRAGE 909, ¶4, 10; Filip de Ly
& Audley Sheppard, ILA Interim Report on Res Judicata and Arbitration, 2009(1) ARB. INT’L 35 at p. 36.
9
Bernard Hanotiau, L’autorité de chose jugée des sentences arbitrales, BULLETIN CCI, SUPPLEMENT SPECIAL,
L’ARBITRAGE COMPLEXE 45, ¶34 (2003).

265. The Respondent asserts that it is irrelevant that the Partial Award is “final and binding” under
Article 32 of the UNCITRAL Rules, because “[t]he question is not whether the Partial
Award itself generally qualifies for res judicata treatment, but rather one of identifying those
particular respects in which the Partial Award is vested with res judicata character.”
Similarly, citation to the Amco v. Indonesia II case does not aid the Claimants, since the
tribunal in that case concluded that “[i]t is by no means clear that the basic trend in
international law is to accept the reasoning, preliminary or incidental determinations as part
of what constitutes res judicata”10
(R XV, ¶¶46-49). Further, Professor Vaughan Lowe does
not endorse the inclusion of the entirety of a tribunal’s reasoning under the umbrella of res
judicata, but rather endorses the “more cautious formulation” of the rule from the Orinoco
Steamship Company case to the effect that “only a subset of a Tribunal’s reasoning may
benefit from res judicata effect.”11
Finally, in response to the Claimants’ reliance on Waste
Management v. Mexico,12
the Respondent argues that the damages portion of the Partial
Award does not fall under the Waste Management rule because paragraph 5 of the dispositive
part of the Partial Award expressly defers a decision on the quantum of damages until the
completion of the separate expert procedure (R XV, ¶¶44-50).
266. Finally, by letter dated March 7, 2011, the Respondent replied to the Claimants’ letter of
March 4, 2011, regarding Dr. Cordero’s recent appointment to the Ecuadorian National Court
of Justice. The Respondent questioned the motivation behind the Claimants’ letter since the
letter “neither directly criticizes, requests relief from, nor specifies the relevance of Dr.
Cordero’s recent appointment” and objected to the unsubstantiated innuendo therein that the
appointment was a reward for providing an opinion favorable to the Respondent.
3. The Tribunal
267. First, the Tribunal takes up the recent submissions by the Parties regarding Dr. Cordero’s
recent appointment to the Ecuadorian National Court of Justice. The Tribunal notes that the
10
Amco II, supra note 5, ¶32.
11
Vaughan Lowe, Res Judicata and the Rule of Law in International Arbitration, 8 AFR. J. INT’L & COMP. L. 38 at
pp. 38-39 (1996).
12
Waste Management, supra note 6.

Claimants, while referring to circumstantial evidence of bias for Dr. Cordero, have not
submitted a formal challenge against Dr. Cordero or requested any other relief. Indeed, the
Tribunal does not see a reason to disregard the opinions expressed by or doubt the credibility
of Dr. Cordero on account of his recent judicial appointment. As the Respondent argues,
without further evidence of an inappropriate link between Dr. Cordero’s Separate Opinion
and his recent appointment to the Ecuadorian National Court of Justice, the judicial
appointment might instead be taken to bolster his expert credentials. In any event, the
Tribunal’s reasoning in the present award refers to, but does not adopt, Dr. Cordero’s
Separate Opinion. The only conclusions of Dr. Cordero’s that are specifically relied upon by
the Tribunal in its decision are those he shared with Dr. Almeida in their Joint Expert Report.
268. Turning to the Parties’ respective positions on the admissibility of Dr. Cordero’s Separate
Opinion, two discrete issues arise for the Tribunal’s consideration. First, the Tribunal must
determine whether the Partial Award already definitively decided any relevant issue of
damages such that sums calculated therein are now res judicata. Second, the Tribunal must
assess whether the Separate Opinion falls outside the mandate conferred by the Tribunal on
the Parties’ Ecuadorian Tax Experts. The Tribunal starts by addressing the res judicata issue.
269. At paragraph 552 of the Partial Award, which contains the key passage with respect to the
tax issue, the Tribunal stated as follows:
In the absence of a BIT breach by Ecuador, the Claimants may not have kept the entire
amount as being equivalent to their loss. To calculate the Claimants’ real loss, that
amount must be reduced if such would have been required by any applicable Ecuadorian
tax laws. Were the Tribunal not to take such tax laws into account, it would run the risk
of overstating the loss suffered by the Claimants, such that the Claimants would be
overcompensated. Put differently, the loss suffered by the Claimants is the amount plus
interest it should have been awarded by the Ecuadorian judges net of any amounts due
under any applicable Ecuadorian tax laws. When quantifying and assessing damages, the
Tribunal cannot award more than the amount that Claimants ultimately would have
obtained.
[emphasis added]
270. This passage makes clear that the Arbitral Tribunal must start its analysis with a
determination of what amounts the Ecuadorian courts should have awarded to the Claimants.
As the Claimants argue, the Partial Award did in fact determine these amounts, being US$

354,558,145 in principal and US$ 344,063,759.84 in interest. However, the same sentence
also makes clear that the Tribunal’s analysis must go a step further than the Ecuadorian
courts in order to arrive at a final quantum “net of any amounts due under any applicable
Ecuadorian tax laws.”
271. In his Separate Opinion, Dr. Cordero proposes the following method for such a calculation:
(i) the principal amount should be reduced by the 87.31% Unified Tax rate agreed by
the Tax Experts, resulting in a figure that is 12.69% (i.e., 100% - 87.31%) of the
principal amount decided in the Partial Award;
(ii) interest should therefore be calculated on this reduced principal amount, resulting
in 12.69% of the interest decided in the Partial Award; and
(iii) tax at the Tax Experts’ agreed rate of 25% should be assessed on the reduced
amount of interest calculated in (ii).
272. The question then is whether the body or the dispositive sections of the Partial Award contain
reasoning or decisions relating to the points raised by Dr. Cordero that may have acquired res
judicata effect. The question of res judicata arises principally in connection with the
Claimants’ arguments regarding Respondents’ challenge of the Partial Award before the
Dutch courts. The Claimants argue that the Partial Award must have acquired res judicata
effect in light of Article 1064(3) of the Dutch Code of Civil Procedure, which provides that
“[a]n application for setting aside may be made as soon as the award has acquired the force
of res judicata.” Reference may also be made to Article 1059(1) of the Dutch Code of Civil
Procedure: “[o]nly a final or partial final award is capable of acquiring the force of res
judicata. The award shall have such force from the day on which it is made.” At the same
time, res judicata is also invoked as a general principle of international law and may also
operate on that level to preclude the reconsideration of previously-decided matters.
273. However, in both Dutch and international law, it is disputed whether and to what extent the
reasoning of an arbitral award may be vested with res judicata effect independently of the
dispositif. In any event, in the present case, neither the dispositive section nor the reasoning
of the Partial Award covers the issue raised by Dr. Cordero. To the contrary, in both the

dispositive section and reasoning, the Tribunal reserves its ultimate decision on the quantum
of damages for a later decision that will consider the effect of taxes on this determination.
274. The dispositive section of the Award explicitly leaves the amount of damages open to be
determined in a later award:
5. As a result of the Tribunal’s decision in section 2 above that the Respondent has
breached Article II(7) of the BIT, the Respondent is liable for damages caused to
Claimants by that breach. The amount of such damages will be decided by the
Tribunal with the help of a procedure set out in a separate Procedural Order of the
Tribunal to determine what taxes, if any, would have been due to the Respondent if
no breach of Article II(7) of the BIT had occurred.
6. The Respondent is liable for pre-award compound interest at the New York Prime
Rate (annual) on the final amount to be paid by Respondent according to section 5
above, from December 22, 2006 until the date that this sum becomes payable by
Respondent.
7. The Respondent shall be liable for post-award compound interest at the New York
Prime Rate (annual) on the amount awarded by the Tribunal, from the date that the
Tribunal orders payment by the Respondent until the date payment is made.
[emphasis added]
275. Paragraph 6 of the decisions thus establishes the rate of pre-award compound interest that
will be applied to the final amount to be paid by Respondent according to section 5 above.
Meanwhile, paragraph 5 of the decisions establishes that a further procedure will determine
the Claimants’ after-tax damages to be awarded. Paragraph 6 therefore does not award
interest on the entire amount of direct damages and pre-judgment interest, but only on the
amount net of taxes. It follows that the same principle could apply, per Dr. Cordero’s
methodology, to the question of pre-judgment interest from the date of filing in the
Ecuadorian courts until the Notice of Arbitration.
276. Even assuming that operative decisions with force of res judicata can be found in the
reasoning of an arbitral award, none of the relevant paragraphs in the body of the Partial
Award constitute final decisions on the quantum of damages that would preclude
consideration of the issue raised by Dr. Cordero. In paragraph 546 of the Partial Award, the
Tribunal resolves the various debates between the Parties regarding the amount of the

Claimants’ direct damages before the Ecuadorian courts and establishes Dr. Borja’s
calculations, except as revised downwards by Navigant, as the basis for the Tribunal’s
calculations (see Partial Award, ¶¶499-501, 505, 513-515, vs. ¶¶518-532). Paragraph 548
decides the dispute over the start and end date of the pre-judgment interest before the
Ecuadorian courts (see Partial Award, ¶511 vs. ¶536). Paragraph 549 subsequently
establishes the New York Prime Rate (as opposed to the Tasa Activa Referencial advocated
by the Claimants) as the rate of interest to be applied to this period (see Partial Award, ¶¶502,
512 vs. ¶¶534-535). Paragraph 550 then sums the above-mentioned principal amount of US$
354,558,145 and interest amount of US$ 344,063,759.84 to produce a total of US$
698,621,904.84 as the amount that the Tribunal determines should have been awarded to
TexPet by the Ecuadorian courts at the date of the Notice of Arbitration.
277. The Tribunal then turns to the issue of taxes. In paragraph 551, the Tribunal contemplates the
tax issue in relation to the measure of damages, stating that “the Tribunal starts from the
principal sums that an honest, impartial, and independent Ecuadorian judge would have
found owing in each of the TexPet’s cases, plus what that they would have found as simple
interest” (emphasis added). The Tribunal further accepts the Claimants’ contention “that an
Ecuadorian domestic court would not have deducted taxes from its judgment” (see Partial
Award, ¶509 vs. ¶541-542). The Tribunal thus decided that the amount that would have been
awarded to TexPet by the hypothetical Ecuadorian courts would not have been affected by
the question of taxes. Yet the Tribunal immediately thereafter caveats that “[t]his is not the
end of the Tribunal’s enquiry, however” and that the Tribunal must go further than a simple
determination of the amounts that should have been awarded by the Ecuadorian courts.
278. In the key passages of paragraphs 552-553, the Tribunal rejects the Claimants’ arguments as
to the irrelevance of taxes and explains that, despite not forming part of the process of
determining damages to TexPet before an Ecuadorian court, taxes must nonetheless be taken
into account by the Tribunal in the context of determining the loss caused to the Claimants by
the BIT breach (see Partial Award, ¶¶506-507 vs. ¶¶540-541). The Tribunal proceeds in
paragraph 554, however, to establish a further procedure to determine the precise effect of
taxes on this calculation.

279. Thereafter, paragraph 555 resolves that, for periods following the Notice of Arbitration, the
Tribunal will apply compound interest (as opposed to simple interest argued by the
Respondent, see Partial Award, ¶503 vs. ¶537) at the New York Prime Rate (as opposed to
Ecuador’s sovereign cost of debt proposed by the Claimants, see Partial Award, ¶512 vs.
¶¶534-535). Finally, before the Tribunal passes to its decisions, paragraphs 556 and 557 of
the Partial Award reject the Claimants’ claim for “wasted legal costs” and the Respondent’s
arguments regarding double-recovery (see Partial Award, ¶¶516-517 vs. ¶¶544-545).
280. It is clear from the above that the Tribunal decided all the disputed items relating to quantum,
except for the issue of how applicable Ecuadorian tax laws might affect the final calculation.
As to that issue, the Tribunal broadly reserved its competence to decide these questions in
light of the Parties’ arguments (see Partial Award, ¶510 vs. ¶¶540-541) and the submissions
made during the further expert procedure envisaged by the Tribunal. This was precisely
because the question of how taxes might factor into the determination of quantum “may be
more complex than at first appears” (see Partial Award, ¶554). The Partial Award, in
discussing the subsequent procedure regarding deduction of amounts on account of
applicable taxes, therefore makes clear that the Tribunal did not determine the quantum of
the Claimants’ loss and intended to do so only after further submissions to resolve the
remaining disputed issue (see Partial Award, ¶554: “the purpose of that procedure is to
establish the quantum of the Claimants’ loss taking into account applicable Ecuadorian tax
laws”). Consequently, the reasoning of the Award contains no final decision regarding the
amount of damages.
281. Accordingly, the Tribunal concludes that nothing in the Partial Award, whether dispositif or
reasoning, has acquired res judicata effect that would preclude the Tribunal from admitting
and considering Dr. Cordero’s Separate Opinion.
282. This leads to the question of whether the Tribunal should nonetheless ignore Dr. Cordero’s
opinion because it falls outside the Tax Experts’ mandate. In the Tribunal’s view, the
Separate Opinion on its face falls within the broad mandate given to the experts at paragraph
2.1 of PO VIII to “agree on the amount, if any, that should be deducted from the total set
forth in paragraph 549 of the Tribunal’s Partial Award on account of any applicable

Ecuadorian tax laws, in light of the principles set out in said Partial Award.” As the Tribunal
specified in the Partial Award, the purpose of the expert procedure was not to effect “a de
facto taxation by Ecuador of the Tribunal’s award,” nor “to establish the amount of tax that
would be assessed by Ecuadorian authorities today on an arbitral award,” but to “to establish
the quantum of the Claimants’ loss taking into account applicable Ecuadorian tax laws.” This
calculation was to reflect the fact that “[i]n the absence of a BIT breach by Ecuador, the
Claimants may not have kept the entire amount” that they claimed before the Ecuadorian
courts (see Partial Award, ¶¶553-554).
283. In keeping with the Tribunal’s reasoning in the Partial Award, the expert procedure was to
address any way in which applicable Ecuadorian taxes might have affected the amount that
the Claimants would have been ultimately entitled to receive under the principles set out in
the Partial Award. The mandate given to the experts was therefore broad, and no smaller in
scope than the decisions on damages that were reserved by the Tribunal. The Tribunal further
notes that, irrespective of the specific mandate conferred upon the Tax Experts, the Parties
have had two rounds of written submissions following receipt of Dr. Cordero’s Separate
Opinion in which to address the issues raised therein. No procedural prejudice has therefore
resulted to either side. Accordingly, the Tribunal finds no reason to exclude Dr. Cordero’s
Separate Opinion on this basis.
284. In light of the foregoing, the Tribunal concludes that Dr. Cordero’s Separate Opinion is
procedurally admissible in these proceedings. Regarding the substance of Dr. Cordero’s
Separate Opinion, however, it bears noting that, even if it were deemed inadmissible, the
Tribunal would nonetheless come to the same conclusion regarding the proper assessment of
damages. As noted above, the Tribunal’s reasoning relies principally on the determination of
the applicable Ecuadorian tax on oil revenues and interest, which findings are drawn from the
record and confirmed by the Joint Expert Report.

G.III. The Amount of TexPet’s Direct Damages
285. The Claimants reject the Respondent’s assertion that according to a “lost profits” theory, an
Ecuadorian court would have subtracted the Unified Tax from any awarded damages on the
basis that the Unified Tax was a transaction-based “operating cost” that TexPet “avoided.”
The Claimants contend that Dr. Cordero’s Separate Opinion in this respect contradicts basic
principles of Ecuadorian civil and tax law, as well as basic economic principles. Most
significantly, Dr. Cordero’s Separate Opinion confuses the sequence of events giving rise to
taxable income in the hypothetical scenario set out by the Tribunal.
286. Dr. Cordero takes the position that TexPet was not entitled to earn interest on the full
principal amount because, had Ecuador not breached the 1973 Agreement and had TexPet
received the amounts it was owed, TexPet would have had to pay taxes on those amounts
during the 1980s and early 1990s. However, in its Partial Award, the Tribunal decided that
the Ecuadorian courts should have found in favor of TexPet in the amount set forth in
paragraph 549 of the Partial Award, at the very latest, by the date of the Claimants Notice of
Arbitration. Therefore, the Claimants argue, only at that point is the question of possible tax
effects of such a judgment relevant. Only after TexPet became entitled to the principal
amount, through a December 2006 judgment, or even until TexPet actually received
payment, could it have owed taxes on those amounts (C XV, p. 5).
287. The Claimants argue that Dr. Cordero’s opinion ignores the well-established principle that
“taxes are consequential to the underlying transaction giving rise to the taxable income.”
According to Articles 16 to 18 of the Ecuadorian Tax Code, “an income tax obligation cannot
arise until income is earned and the taxable event has occurred.” Furthermore, the Claimants
state that “nowhere does Ecuadorian tax law provide that interest in a civil litigation should
run on after-tax basis.” However, no taxable event would have occurred until after the
issuance of the December 2006 court judgment. Otherwise, the court’s subtraction of taxes
would create an insurmountable double-taxation problem (C XV, pp. 5-7; C XVI, p. 3).

288. Furthermore, the Claimants sustain that “calculating interest on an after-tax basis would not
make TexPet whole under Article 1572 of the Ecuadorian Civil Code, which sets the
principle of full reparation for breach of contract” (C XV, p. 6). Nor would it make economic
sense since it is “universally accepted that interest compensates for the time value of money,”
and “TexPet has the right to be compensated for Ecuador’s breach, including the delay
(mora) in collecting the money to which it is entitled (and which it has yet to be paid).” The
Claimants also note that, according to Article 218 of the Ecuadorian Tax Code, only tax
courts have jurisdiction over tax matters. Ecuadorian civil and commercial courts therefore
lack jurisdiction to deal with tax issues in the way advocated by Dr. Cordero and the
Respondent (C XV, pp. 6-8).
289. The Claimants also contend that Dr. Cordero’s opinion allows Ecuador to obtain preferential
treatment in its commercial dealings by letting it avail itself of its taxing authority. According
to the Claimants, Dr. Cordero confuses three different agencies of the Ecuadorian state: the
Ministry of Energy as the commercial counterparty and defendant in the underlying lawsuits;
the Ecuadorian civil court as the adjudicating body of TexPet’s commercial dispute; and the
Ecuadorian Internal Revenue Service as Ecuador’s internal taxing authority and the only
recipient of TexPet’s taxes. The fact that the commercial defendant in the Ecuadorian Court
cases is also part of the Ecuadorian State, having the authority to impose taxes, is an
irrelevant coincidence. To decide otherwise would be to license Ecuador to “use its taxing
authority in aid of its wrongful commercial dealings” (C XV, p. 8).
290. Additionally, the Claimants reject the tenets of the Respondent’s “lost profits” theory, which
they argue was not supported in Dr. Cordero’s Separate Opinion. According to the
Claimants, the Respondent cannot prove that (i) TexPet’s damages claims were for “lost
profits,” (ii) Ecuadorian law provides for the subtraction of “avoided costs,” and (iii) the
Unified Tax qualifies as an “avoided cost.”
291. First, the Claimants argue that the Respondent misconstrues TexPet’s “Direct Damages”
claims as claims for “lost profits.” The Claimants note that Article 1572 of the Ecuadorian
Civil Code recognizes two types of damages for breach of contract: direct damages or
damnun emergens, and lost profits or lucrum cessans. Whereas direct damages restore the

direct harm suffered by the non-breaching party, lost profits compensate the opportunity cost
arising from lack of use of the money that the non-breaching party failed to receive. In this
case, TexPet’s “direct harm suffered” was the money that it failed to receive under the 1973
Agreement as a result of Ecuador’s breach, and interest compensates for the profits that it
could have realized with that money but did not. The Claimants point out that the Respondent
has not provided any Ecuadorian case to support its alternative definition of “lost profits.”
According to the Claimants, even the Respondent’s authorities confirm that TexPet’s claims
for the difference between domestic and international oil prices legally constitute its “direct
damages.” The Claimants assert that the Respondent explicitly agreed with this argument
during the Merits Hearing, when the Respondent stated that “damages includes actual
damages, which Claimants refer to as ‘direct damages’ in their calculations, and lost profits,
which is a form of compensation and the form of interest for the direct damage” (C XVI, p.
7; Tr. II at 1021:24-1022:2).
292. Second, the Claimants contend that the Respondent has not proven that Ecuadorian contract
law provides for deduction of “avoided costs” in the calculation of lost profits. The
Claimants dispute the Respondent’s contention that under Ecuadorian law, “lost profits” are
calculated “as lost revenue less costs avoided” and that the Unified Tax qualifies as an
avoided cost. To the Claimants, Dr. Cordero’s statement that interest must be calculated on a
post-tax basis is completely unrelated. The Respondent’s reliance on an Ecuadorian Supreme
Court case where the court subtracted the maintenance cost of a truck in awarding damages
for the defendant’s unlawful retention of the vehicle is also inapposite. Contrary to the case at
hand, that case was a tort claim, not a breach of contract action. The Claimants further note
that the Respondent cites no case law and none of the doctrine it has submitted discusses
“avoided costs.” The only exception is a Chilean textbook which cannot be considered to
authoritatively reflect Ecuadorian Law. Furthermore, the Claimants observe that, in
purporting to give a general definition of lost profits, the Respondent quotes an example
where a contractor’s primary obligation was to conduct a theater performance. Due to the
nature of the obligation, the contractor in that case bore the particular burden of proving lost
profits. In the present case, however, the obligation is monetary, meaning that separate proof
of lost profits is unnecessary (C XVI, pp. 8-9).

293. The Claimants also contest the Respondent’s assertion that U.S. law supports its position.
The Claimants contend that “the U.S. Supreme Court squarely addressed this question,
noting that a plaintiff would actually be worse off in the event of such a deduction because he
would face double taxation, first by the court and second by the IRS on the award itself.”
Furthermore, whereas the Claimants have cited several U.S. cases after Randall v.
Loftsgaarden13
in which courts declined to consider subtracting taxes when calculating
damages, the Respondent has failed to point to a single post-Randall case in which a court
has assessed taxes as part of a damages analysis (C XVI, pp. 8-9).
294. Third, the Claimants contest that the Unified Tax qualifies as an “operating cost.” The Parties
have already extensively argued the nature of the Unified Tax. During the merits phase, the
Claimants established that neither Dr. Prado’s testimony nor Clause 33.4 of the 1973
Agreement supports the Respondent’s position that the Unified Tax qualifies as an “operating
cost.” Mr. Kaczmarek demonstrated that “the Unified Income Tax taxed income arising from
hydrocarbon exploration and exploitation activities was thus subject to a complicated
withholding system and a reconciliation at the end of the year.” Clause 33.4 of the 1973
Agreement “merely prevented TexPet from applying deductions to its revenues under the
1973 Agreement based on other investments […] but in no way prevented TexPet from
making use of the Unified Income Tax’s deduction allowances, or converted it into a per-
transaction operating cost.” Meanwhile, the Central Bank’s withholding system was a
collection mechanism and not a legal element defining the nature of the Unified Tax (C XVI,
pp. 10-12).
295. The Respondent contends that Dr. Cordero’s Separate Opinion is perfectly consistent with
principles of Ecuadorian law. The deduction of the Unified Tax during the court’s calculation
of direct damages would merely recognize the tax costs avoided by TexPet. According to the
Respondent, Dr. Cordero accepted that TexPet was entitled to receive the over-contributed
crude under the 1973 and 1977 Agreements, but noted that failing to receive this crude
13
Randall v. Loftsgaarden, 478 U.S. 647 (1986).

resulted only in a loss of 12.69% of the full value of the crude, as a result of the application
of the Unified Tax in the calculation of the resulting “lost profits,” which would be the
proper measure of damages under Ecuadorian law (R XV, ¶¶51-53).
296. The Respondent argues that its “lost profits” theory is fully supported by Ecuadorian as well
as U.S. contract law. The Respondent contends that “the loss suffered by TexPet can be best
described as the additional net profits (not gross revenues) that it was unable to realize from
the sale of that crude oil which it should have been allowed to sell for its own account at the
higher international market price.” The Respondent also recalls the Blount Brothers case14
before the Iran-U.S. Claims Tribunal and cites, among other Latin American sources, a
treatise by Professor Fueyo Laneri which describes lost profit as “the probable benefit that
the entrepreneur would likely have obtained as a result of performance [of a contractual
obligation], resulting from the difference between gross revenues and expenses”15
(R XIV,
¶¶10-14).
297. The Respondent contends that an Ecuadorian court, consistent with Ecuadorian civil law of
contractual obligations, would have considered the monetized value of the over-contributed
crude as TexPet’s unpaid “contract price” (gross revenue), the 87.31% Unified Tax as its
“avoided costs,” and the 12.69% residual amount as its lost profit. An Ecuadorian court
would thus have entered a “lost profits” judgment for direct damages (principal) at exactly
12.69% of the gross contract or “revenue” value reflected in the direct damages set by the
Tribunal in its Partial Award of Merits at paragraph 549. This calculation consequently
reduces the base of direct damages upon which pre-judgment interest would be calculated by
87.31%, yielding a total interest amount that is also equivalent to 12.69% of the total pre-
judgment interest shown in the Partial Award at paragraph 549. In similar fashion, the
Ecuadorian Supreme Court of Justice has ruled that, in a case involving a truck used in
commerce, “lost profits” for wrongful deprivation of an asset (the truck) were equal to (1) the
projected gross revenue that the vehicle would have earned during the period that a plaintiff
14
Blount Brothers Corp. v. The Islamic Republic of Iran, et al., Award No. 215-52-1 (Mar. 6, 1986), at pp. 77-78,
reprinted in 10 Iran-U.S. C.T.R. 95 [hereinafter Blount Brothers].
15
FERNANDO FUEYO LANERI, PERFORMANCE AND BREACH OF OBLIGATIONS, at p. 466. (Editorial Juridica De Chile,
3rd
Updated Edition, 2004).

was deprived of its use minus (2) the operating costs that plaintiff would have incurred (but
did not incur) attributable to such use (i.e., the avoided cost) (R XIV, ¶¶15-16).
298. According to the Respondent, the Claimants misconstrue Dr. Cordero’s opinion when they
state that he “advocates calculating interest on ‘after-tax principal.’” As established by the
expert testimony of Dr. Prado in his two reports and hearing testimony, the Unified Tax was
a transaction-based levy in which the Ecuadorian Central Bank automatically withheld
87.31% of the proceeds of each sale and paid it to the Government. Clause 33.1 of the 1973
Agreement also contractually obligated TexPet to pay the Unified Tax and Clause 33.4
insulated collection of the Unified Tax from potential tax deductions that TexPet might
otherwise assert. This uncontroverted evidence underscores the fact that the Claimants would
never have received, nor have ever expected to receive, 100% of the crude oil sales receipts
to re-invest and earn interest on. Therefore, Dr. Cordero is correct in considering the Unified
Tax an avoided operating cost that would have been subtracted by an Ecuadorian court in
calculating the direct damages due to TexPet as a result of the contract breaches (R XIV,
¶¶17-20; R XV, ¶54).
299. In addition, the Respondent argues that “only after converting lost revenues to lost income to
establish direct damages, would Ecuadorian law apply an appropriate interest rate in order to
determine indirect damages.” As a consequence, it is irrelevant whether Ecuadorian civil and
commercial courts lack jurisdiction over taxation matters or not, because “Ecuador’s civil
courts clearly have jurisdiction to calculate and award damages for breach of contract” (R
XV, ¶¶54-55).
300. Furthermore, the Respondent contends that Dr. Cordero’s calculation of damages does not
contradict the principle of “full reparation” under Article 1572 of the Ecuadorian Civil Code.
To the contrary, TexPet would only have realized a loss of 12.69% of the value of the crude.
It is thus necessary to account for the Unified Tax in calculating the quantum of reparation in
order to avoid “over-reparation” resulting in a windfall or unjust enrichment. The
Respondent also contests the Claimants’ assertion that Dr. Cordero’s opinion ignores well-
established Ecuadorian tax law principles, such as the one that an “income tax obligation
cannot arise until income is earned.” In the Respondent’s view, Dr. Cordero’s opinion does

not claim that the courts would have assessed taxes on TexPet. Rather, it argues that
“TexPet’s breach of contract losses include only those realizable had there been no breach”,
something which is “no different than deducting other expenses avoided to determine lost
profits” (R XV, ¶¶56-59).
301. Dr. Cordero’s calculation of pre-judgment interest is also consistent with the Tribunal’s
finding that an Ecuadorian court would have assessed a risk-free rate of interest in order to
compensate the Claimants for “the lost investment income that the Claimants otherwise could
have realized had the claim been paid in a timely manner.” Had TexPet received and sold the
over-contributed crude, the Central Bank would have immediately and automatically
withheld 87.31% of these sales proceeds, leaving the 12.69% balance to invest and earn a
risk-free investment return. Awarding the Claimants compensation for “loss of re-investment
use” on funds that it never could have re-invested in the first place would clearly result in the
very windfall which the Tribunal seeks to avoid (R XIV, ¶¶21-23).
302. Contrary to the Claimants’ proposition that Dr. Cordero’s opinion rewards Ecuador for its
wrongful acts and omissions, the Respondent asserts that awarding the Claimants “loss of
investment use” on the full pre-tax amount compensates TexPet for monies it would never
have had available to invest. Even if the Claimants would have received those amounts on
time, “it is uncontested that they would have received and been able to invest only 12.69%,
not 100%, of that value” (R XIV, ¶18; R XV, ¶59-60).
303. For the Respondent, in terms of the calculation of damages, it makes no difference if the
avoided costs would have been costs payable to a third party, or labor costs that would have
been incurred. Since they are still avoided costs that would reduce any lost profits judgment,
“the fact that the unincurred cost is a tax is irrelevant and affords no preferential treatment to
the Respondent, nor does it let it avail itself of its taxing authority, as the Claimants argue”
(R XV, ¶61).
304. The Respondent concludes that “Dr. Cordero’s Separate Opinion represents the most
appropriate approach to the establishment of Claimants’ real loss because it ties it to what
TexPet actually lost as a result of the contract breaches it asserted,” therefore “represent[ing]

the best way out of the Tribunal’s dilemma of avoiding awarding a windfall of unprecedented
proportions.”
3. The Tribunal
305. As described above in relation to the question of res judicata, the Tribunal decided, in its
Partial Award, the amounts the Ecuadorian courts should have awarded TexPet in its lawsuits
against Ecuador on December 21, 2006, representing the point at which undue delay resulted
in a breach of the BIT. The Tribunal’s decision also provided “that an Ecuadorian domestic
court would not have deducted taxes from its judgment” (see Partial Award, ¶551).
306. As observed in paragraph 551 of the Partial Award, the Tribunal’s task is to make the
Claimants whole, and not more than whole, under international law, as if the wrong had not
occurred. The damages the Ecuadorian courts would have granted is an element of assessing
damages caused by the international wrong. However, as already stated, the Tribunal’s
enquiry does not stop there. The Tribunal, in making the Claimants whole, must take into
account the effect of applicable Ecuadorian taxes on the amounts due the Claimants under the
1973 Agreement, and ultimately on the Claimants’ total compensation. Had TexPet received
the amounts it claimed, such sums would have been subject to the applicable Ecuadorian
taxes. Accordingly, TexPet would have ultimately obtained only such after-tax amounts for
its own use.
307. The consequent difference between the Ecuadorian courts’ mandate and the Tribunal’s was
addressed at paragraph 552 of the Partial Award, where the Tribunal stated that, “[w]ere the
Tribunal not to take [applicable Ecuadorian tax laws] into account, it would run the risk of
overstating the loss suffered by the Claimants, such that the Claimants would be
overcompensated. […] When quantifying and assessing damages, the Tribunal cannot award
more than the amount that Claimants ultimately would have obtained” (emphasis added).
308. The Tribunal’s approach follows from the principles enunciated in the Chorzów Factory
decision, which both sides agree to be controlling authority: “…reparation must, as far as
possible, wipe out all the consequences of the illegal act and reestablish the situation which

would, in all probability, have existed if that act had not been committed.”16
In essence, the
Tribunal’s “but for” analysis must undo not only the damages that have arisen for the
Claimants but for the wrong, but must also restore the liabilities that were avoided but for the
wrong.
309. In this case, the Tribunal has been informed by the experts as to the extent of the Claimants’
significant tax liabilities that would have arisen upon the issuance of a judgment in TexPet’s
favor by the Ecuadorian courts. Moreover, the Respondent has shown that the tax liabilities
on Claimants’ direct damages were simultaneously contractual obligations under the very
agreements invoked by the Claimants in their lawsuits and were regularly withheld by the
Ecuadorian Central Bank from payments made to TexPet in the normal course of the
Consortium’s operations. The Tribunal must therefore assess the effect of Ecuadorian taxes
as part of the situation that would have prevailed if the unlawful act had not been committed.
310. This approach is also consistent with the Tribunal’s definition of the Claimants’ loss. In its
Partial Award, the Tribunal determined that the Claimants were deprived of timely
Ecuadorian judgments in favor of TexPet that should have been rendered on December 21,
2006 and valued, before considering the effect of applicable taxes on principal and interest, at
US$ 698,621,904.84. The value of these judgments to TexPet, in light of the significant
effects of Ecuadorian taxes on both the principal and the interest portions of the judgments,
does not automatically correspond to the cumulative nominal amount of the judgments. To
grant the Claimants an award in this arbitration for that amount would provide them with
something substantially more valuable than the Claimants’ true economic loss.
311. The above reasoning does not detract from the general rule that taxes are consequential to the
compensation awarded. In order to fall within the ambit of the Tribunal’s assessment of
damages, the taxes to be deducted must be determined with certainty and must be sufficiently
connected to the same legal relationship between the parties that is the subject of the
arbitration. Taxes may thus be taken into account when there exists a specific provision in an
16
Factory at Chorzów (F.R.G. v. Pol.), Judgment, 1928 P.C.I.J. (ser. A.) No. 17, at p. 47 (Sept. 13) [hereinafter
Chorzów Factory].

agreement or an established practice between the parties relating to their allocation,
collection, or withholding.
312. Specifically, in its Partial Award, the Tribunal applied the New York Prime Rate to the full
amounts due the Claimants under the 1973 Agreement, US$ 354,558,145 (the “Contract
Value”), which represents the sum total of the income produced from oil sales under the 1973
Agreement without considering tax payments due under the same 1973 Agreement, pending
the determination by the experts of what tax rate would have applied to that income during
the 1973 Agreement’s operation. That exercise yielded an interest amount of US$
344,063,759.84. However, given that every principal amount awarded to TexPet entailed an
automatic tax liability of 87.31% that Ecuador collected periodically (see Section G.IV
below), a corresponding portion of the full Contract Value would have accrued to the
Respondent. It follows that the same portion of the interest on the full Contract Value would
have accrued to Respondent, and cannot now be awarded to the Claimants. The Claimants
cannot therefore collect more than 12.69% of the full Contract Value and the same
percentage of the pre-judgment interest accrued on the full Contract Value. The latter portion
of pre-judgment interest is then still subject to a further tax at the rate applicable to this
income, as determined later in this Award (see Section G.V below).17
313. The Tribunal notes that, for the purposes of its calculations in the present award, the Tribunal
has taken the taxable event to be the issuance of the Ecuadorian judgment in TexPet’s favor
17
The Tribunal notes, in this connection, that due to its independent mandate under international law, it does not
need to reach the issue of whether the Ecuadorian courts would have adopted a similar rationale with respect to the
interest due the Claimants. In the Tribunal’s view, it is possible that a justice-minded Ecuadorian court, while not
applying tax to the full Contract value, would have taken into account the effect of Claimants’ periodic tax payments
under the Contract to rule that Claimants could not collect interest on the full Contract value, but only on 12.69% of
that value. Thus, in a “but for” scenario where the Respondent would not have breached the Treaty, an Ecuadorian
court could have issued a judgment in favor of Claimants for the full Contract value plus 12.69% of the interest
thereon; those amounts would then be taxed by the Ecuadorian tax authorities at the rates applicable to these sources
of income, leading to the same result as that reached by this Tribunal through application of the compensation
principles enunciated in Chorzów Factory. The Tribunal, however, is not persuaded one way or another – nor does it
need to decide – whether Ecuadorian courts would have considered such a rationale as “applying a tax on a
judgment,” which the Tribunal has accepted as impermissible under Ecuadorian law (see Partial Award, ¶551).

rather than the actual collection by TexPet upon that judgment. This issue is, however, of no
consequence to the final quantum of damages. Despite any period of time elapsed between
the date of the judgment and the date of actual collection on the Ecuadorian judgment,
TexPet’s tax liability would remain the same proportion of the total amount owing. In any
event, the alternative approach could not be chosen as it would be in contradiction to the
Tribunal’s prior conclusion in its Partial Award that the BIT violation was completed by
December 21, 2006, giving rise to damages under international law as of that date.
314. Consequently, the Tribunal finds that the amount of TexPet’s direct damages should be
reduced by the tax rate applicable to such amounts. In addition, the amount of pre-judgment
interest must be first reduced in the same proportion as the direct damages and then further
taxed at the rate applicable to interest income.

G.IV. The Tax Rate Applicable to the Amount of Direct Damages
315. The Claimants agree that the interest portion of a hypothetical December 2006 Ecuadorian
court judgment would have been subject to the general 25% income tax rate, but they
contend that this rate would also apply to the principal (direct damages) portion of the
judgment. This is because the 87.31% Unified Tax was not in force in December 2006.
According to the Claimants, the 1990 Internal Tax Regime Law sought to implement a
harmonized taxation system. Specifically, the “taxation of oil-related income required
particular improvement” and the Internal Tax Regime Law devoted an entire title to the tax
regime for oil companies, where it “reduced the general 44.4% income tax rate for
corporations to 25% and made this general tax rate applicable to oil contracts” (C XV, p. 10).
Furthermore, the Claimants state that in order to complete the harmonization process, the
Internal Tax Regime Law repealed all other tax laws, except as provided in transitory
provisions. The 87.31% Unified Tax regime thus could have survived only through the effect
of a specific transitory provision (C XV, p. 10).
316. In the Claimants view, Transitory Provision Number Five exclusively regulated the income
tax regime of TexPet and City Investment Co. as the two companies that had entered into oil
association contracts with the Ecuadorian Government and were therefore subject to the
87.31% Unified Tax. The Unified Tax was, however, intrinsically linked to oil activities
under the 1973 Agreement. Therefore, once the 1973 Agreement expired, the Transitory
Provision also ceased to have any effect on TexPet, even if it formally remained as part of the
law. In the same way, Decree 982 also ceased to apply to TexPet (C XV, p. 10).
317. Furthermore, the Claimants dispute the Tax Experts’ belief that, because the Transitory
Provision uses the word “subscribed” instead of “in force” with respect to the 1973
Agreement, the Transitory Provision applies regardless of whether the 1973 Agreement
remained in effect. The Claimants state that City Investing ceased to pay the 87.31% Unified

Tax once its association contract was modified into a production sharing agreement in 1995
and thereafter only paid the general 25% income tax rate (C XV, p. 11).
318. Even in the event that the Transitory Provision Number Five were in force in 2006, the 25%
general interest rate would still apply, because the income that an Ecuadorian court would
have awarded cannot be categorized as “oil-related income.” According to the Claimants,
TexPet would not have received direct restitution of the over-contributed oil, but would have
received instead “a sum of money equivalent to the economic value of the property that
TexPet failed to receive, due to Ecuador’s breach, and lost profits” (C XV, p. 12).
319. The Claimants further point out that the underlying components of the Unified Tax make
clear that it would only apply to direct oil exploration and production activities under the
1973 Agreement, and not to a hypothetical Ecuadorian court judgment. Accordingly, there is
no legal basis to apply the Unified Tax in the context of a hypothetical court judgment issued
16 years after the cessation of all operations on which the tax is based, and 14 years after the
termination of the contract governing those operations (C XV, p. 12).
320. The Claimants highlight that the Respondent alone is responsible for breaching the 1973
Agreement, delaying TexPet cases for more than 13 years, violating the BIT, and changing
its own tax laws during this time. As a result, the Respondent must bear the consequences of
these actions, even if later-enacted tax laws favor the Claimants (C XV, p. 12).
321. The Respondent contests the Claimants’ argument that the 25% rate not only applies to the
interest (indirect damages) but also to the principal (direct damages). In particular, the
Respondent disputes the Claimants’ assertion that the Unified Tax was not in force in 2006
and therefore could not have applied to any income received by TexPet at that time. The
Respondent notes that the Tax Experts, having vast knowledge of Ecuadorian tax law,
unanimously concluded that the Unified Tax would have applied to a hypothetical 2006
Ecuadorian court judgment, and that Supreme Decree No. 982 remained in force and
applicable to the tax issues in this proceeding (R XV, ¶67).

322. The Tax Experts explained how Transitory Provision Number Five by its terms, applies to a
“contract that has been subscribed” and not only to a “contract in force,” and that TexPet’s
contract constituted a “contract that has been subscribed” within the meaning of the
Transitory Provision Number Five. In addition, the Respondent points to Dr. Prado’s
unchallenged testimony that the Unified Tax continued to apply and would likewise apply to
any arbitration recovery by TexPet by virtue of the Seventh Transitory Provision of the 1990
Internal Tax Regime Law, which was subsequently extended by the Fifth Transitory
Provision of the 2004 Internal Tax Regime Law. Dr. Prado also gave testimony that both
City Investing and TexPet had special tax treatment because they were the only two
companies that still had legacy “exploration and production” agreements, a form of hybrid
“association” agreement, when the Republic was trying to convert its outstanding oil and gas
contracts into service agreements. Further, he gave testimony of how City Investing
ultimately converted its relationship into a participation contract and was thus no longer
covered by Supreme Decree No. 982 (R XV, ¶¶68-70).
323. The Respondent agrees with the Tax Experts’ conclusion that the Unified Tax of 87.31%
would have applied to the direct damages since it was in effect both at the time of the
respective contract breaches and in December 2006. The Respondent also agrees with the
theory that the Unified Tax remained applicable to TexPet as a party to a “contract that has
been subscribed” and as the law applicable to damages that constituted “oil-related income”
(R XIV, ¶27). The Respondent refers to the Internal Tax Regime Law, under which taxable
income includes all “revenue obtained from Ecuadorian sources,” and under which “revenue”
includes “interest and other financial returns that have been paid by natural people, nationals
or foreigners, residents in Ecuador; or by national foreign partnerships established in
Ecuador” and “[a]ny other revenue that legal entities and national natural persons or foreign
residents in Ecuador may receive.” The Respondent further contends that the judgment
amounts do not fall under any of the exceptions from taxable income under Article 9 of that
law. Furthermore, under the Tributary Code and the Law Establishing the Internal Revenue
Service, the Internal Revenue Service is authorized by law to collect such taxes, including by
means of automatic withholding in lieu of the Central Bank. The Ecuadorian State, as the
presumed judgment debtor under the judgments, is also obliged by the Tributary Code to
withhold taxes due (R XIV, ¶28).

324. The Respondent contests the fact that there were only two companies, TexPet and City
Investing, subject to the Unified Tax. The Respondent also contests the allegation that no
case exists where an Ecuadorian court subtracted taxes from its damages calculations (R XV,
¶58). Moreover, the Respondent refers to the Blount Brothers case18
where the Iran-United
States Claims Tribunal “appli[ed] the net loss principle with respect to the Iranian
contractor’s tax when confronted with it in a contract case” and asserts that this principle is
also fully supported by Ecuadorian law on calculation of damages for lost profits (RXIV,
¶10; R XV, ¶58).
325. Finally, the Respondent contests the Claimants’ assertion that the Unified Tax ceased to
apply to TexPet’s 1973 Agreement when that oil contract expired in 1992. According to the
Respondent, the Claimants’ contentions contradict the premise on which they earlier based
their claim that this Tribunal has jurisdiction under the Ecuador-U.S. BIT (R XV, ¶72). The
Respondent refers to the Claimants’ Counter-Memorial on Jurisdiction and related
submissions, where they asserted that all seven underlying Ecuadorian court cases were a
continuation of their investment under the 1973 Agreement, and that the pendency of these
claims in the Ecuadorian courts constituted a temporal extension of the 1973 Agreement into
the period after the BIT entered into force. The Respondent quotes one passage in particular:
[T]he seven lawsuits brought by TexPet against the Government in Ecuadorian courts
cannot legitimately be taken out of context and disassociated from the oil production
and sales, the contracts, the rights granted to TexPet, and the Government’s breaches,
all of which are at the heart of the court cases. The investment is a continuum of
events that began with the first contract and oil operations in the 1960s and continues
today in the form of the lawsuits to enforce legal and contractual rights.
(R XV ¶72; C II, ¶131)
326. The Claimants also argued that “TexPet’s claims and legal rights at issue in the seven
Ecuadorian court cases […] are inextricably linked to TexPet’s oil exploration and
production activities in Ecuador.” The Respondent contends that, in making those arguments,
the Claimants “equated potential judgment proceeds from their lawsuits with oil revenue
18
Blount Brothers, supra note 14.

from their 1973 Agreement” (R XV, ¶¶72-73). The Claimants’ criticisms of the Joint Expert
Report should therefore be rejected.
3. The Tribunal
327. After considering the Joint Expert Report and the comments of the Parties, the Tribunal
concludes that the Unified Tax Rate of 87.31% should be applied to TexPet’s direct damages.
The Tribunal accords significant weight to the fact that the Tax Experts freely appointed by
each side, eminently qualified in Ecuadorian tax law, agreed and concluded in a well-
reasoned opinion that TexPet continued to be subject to the Unified Tax at all relevant times,
that the Unified Tax is applicable to “oil income,” and that the Unified Tax therefore applies
to those amounts described as “direct damages” in the Partial Award. The Tribunal adopts
those reasons as its own in this Award. The Claimants have not presented convincing reasons
for the Tribunal to disregard the Joint Expert Report’s conclusions on this issue and, in that
respect, the Tribunal is persuaded by the Respondent’s arguments.
328. Consequently, applying the Unified Tax Rate of 87.31% to the amount of direct damages
quantified in the Partial Award at US $354,558,145.00, produces a remaining sum of US$
44,993,428.60.

G.V. The Tax Rate Applicable to the Interest Amount
329. The Claimants dispute the Respondent’s contention that the 87.31% Unified Tax would have
applied to the interest amount because “an award of interest damages is accessory to the
principal amount of the direct damages, i.e., both originate from the exploration and
exploitation of hydrocarbons.” The Claimants note that the experts already rejected the view
that interest qualifies as “oil-related income” that would be subject to the 87.31% Unified
Tax (C XVI, p. 12).
330. The Claimants further contend that the interest is not “oil-related income” under Ecuadorian
law because it does not originate in TexPet’s exploitation of hydrocarbons, and is not
accessory to income arising from oil exploitation. Thus, interest has a different legal nature
from TexPet’s oil-related income under Ecuadorian law and, consequently, a different tax
treatment. Whether or not the principal portion of the hypothetical December 2006 court
judgment would have been subject to the 87.31% Unified Tax, the interest portion of that
judgment would have fallen under the general basket of “income of Ecuadorian source”
under Articles 1, 2 and 8 of the Internal Tax Regime Law, and therefore would have been
subject to the 25% general income tax rate applicable in December 2006. Furthermore,
TexPet’s income tax returns demonstrate that during the years in which TexPet was subject
to the Unified Tax, TexPet’s interest income was not subject to the 87.31% tax rate, but to
the general income tax rate (C XVI, pp. 12-13).
331. In addition, the Claimants note that the Respondent provides no authority to support the idea
that interest should be considered accessory to the principal and lead thereby to the same tax
treatment. Article 1607 of the Ecuadorian Civil Code, which purportedly mandates that
TexPet’s direct damages and interest be treated as a “single debt,” is irrelevant to the tax
treatment that Ecuadorian law affords to interest (C XVI, p. 13).

332. The Claimants also reject Dr. Cordero’s assertion that after-tax interest awarded in the
judgment should be further taxed at the 25% rate. First, Dr. Cordero’s theory runs counter to
the Joint Expert Report. Dr. Cordero also does not explain whether the after-tax principal
awarded by the Ecuadorian court should be further subject to taxes. For the Claimants,
“taxing the principal at the time of collection after an Ecuadorian court had already
subtracted taxes in its damages calculation would be absurd.” Furthermore, the Claimants
note that during the course of these proceedings, the Respondent argued in its merits briefing
that the Claimants’ interest calculation “yield[ed] disproportionate results” and disputed
many other aspects regarding the calculation of interest. However, the Respondent never
challenged any calculation of interest accruing on the principal amount. Having failed to
present this new argument during the merits phase of the case, the Respondent should be
precluded from now pursuing this new argument at this stage of the arbitration (C XV, p. 9).
333. The Respondent contends that the experts were incorrect in concluding that pre-judgment
interest is taxable at a 25% rate. Such interest should be considered in the nature of “oil-
related income” just as the direct damages awarded. Since the interest constitutes
compensation for delayed payment of the crude oil over-contributed, an award of interest is
accessory to the principal amount of the direct damages. Both amounts originate from the
exploration and exploitation of hydrocarbons and would receive the same treatment. In
addition, in accordance with article 1607 of the Ecuadorian Civil Code, direct damages and
pre-judgment damages constitute a single debt and should also therefore receive the same tax
treatment. Therefore, the Unified Tax rate of 87.31% would have been applied by the
Ecuadorian courts to the pre-judgment interest, as well as the direct damages portion of the
judgment (R XIV, ¶¶29-30; R XV, ¶75).
334. The Respondent also disputes that Dr. Cordero’s Separate Opinion advances a “new
argument” or that the Republic has “waived” any right. The Respondent asserts that it has
presented this argument throughout the proceedings. In particular, the Respondent refers to
paragraph 526 of the Partial Award, as well as paragraphs 772 and 779 of its Rejoinder on

the Merits, paragraph 165 of its First Post-Hearing Brief, and written and testimonial
opinions by the Respondent’s experts (R XV, ¶63).
335. Finally, the Respondent asserts that, by requesting that the Final Award specify for U.S. tax
purposes that the pre-judgment interest component “relates to and is part of the principal
(direct damages) amount” (see ¶340 below), the Claimants are “unwittingly adopting
Respondent’s position with respect to Ecuadorian tax law” (R XV, ¶¶76-78).
3. The Tribunal
336. After considering the Joint Expert Report and the comments of the Parties, the Tribunal
concludes that pre-judgment interest is subject to being taxed at the general income tax rate
of 25%. The Tribunal once again accords significant weight to the Joint Expert Report, which
concluded that interest income constitutes Ecuadorian-sourced income subject to the general
Income Tax Rate of 25%. The Tribunal adopts those reasons as its own in this Award. The
Tribunal does not find the Respondent’s arguments to provide convincing reasons for the
Tribunal to depart from the Tax Experts’ reasoning or conclusions and, in that respect, is
persuaded by the Claimants’ arguments. Moreover, the Tribunal notes that its reasoning
regarding the Claimants’ obligation under the 1973 Agreement to pay the Unified Tax
periodically (see Section G.II above) already leads to a reduction of the interest amount due
Claimants in proportion to the Unified Tax applicable to the direct damages.
337. In all, to arrive at the proper measure of interest, the amount of pre-judgment interest must
first be reduced in the same proportion as the direct damages, based on the 87.31% Unified
Tax Rate, to represent the true economic loss Claimants suffered because of the time elapsed
between the contractual breach and the issuance in 2006 of the hypothetical Ecuadorian
judgment awarding the amounts due them under the 1973 Agreement. This leaves a sum of
US$ 43,661,691.12 as TexPet’s remaining interest income amount, which would have been
taxable at the general Income Tax Rate of 25%. This calculation produces a final after-tax
total of US$ 32,746,268.34 in Ecuadorian interest damages.

G.VI. The Final Quantum of Damages
338. The Claimants contend that, according to their arguments above, the correct tax rate
applicable to all the amounts awarded in paragraph 549 of the Partial Award is 25%. As a
result, the Claimants’ damages amount to US$ 649,786,333, including compound interest up
to December 31, 2010. This amount is obtained by deducting the 25% tax from both the
amount of Direct Damages (US$ 354,558,145) and Ecuadorian Interest (US$ 344,063,760),
resulting in a total after-tax principal amount of US$ 523,966,429. When pre-award interest
is applied through December 31, 2010, the total damages rise to a sum of US$ 649,786,333
(C XVI, p. 13).
339. If the Tribunal were to adopt the Tax Experts’ joint recommendations in full, however, the
Claimants’ damages would amount to US$ 375,854,424, including compound interest up to
December 31, 2010. Such amount is obtained by deducting the 87.31% Unified Tax from the
amount of Direct Damages in the Partial Award, deducting the 25% general income tax from
the amount of Ecuadorian Interest in the Partial Award, and adding these together for a total
after-tax principal amount of US$ 303,076,704. When pre-award interest is applied through
to December 31, 2010, the total damages rise to a total of US$ 375,854,424 (C XVI, pp. 13-
14).
340. In a separate request in their letter dated November 17, 2010, the Claimants also request that
the Tribunal order Ecuador not to impose any further taxes on any amounts awarded and
declare its continuing jurisdiction to hear this dispute should Ecuador disregard such order.
The Claimants also request that, for U.S. tax purposes, the Tribunal “make clear in the Final
Award that (i) the underlying interest component (until December 21, 2006) relates to and is
part of the principal (direct damages) amount; and (ii) the international interest component
(after December 21, 2006) is compensation for the delay in receiving payment of that
amount.” The Claimants propose that the following specific language be included in the Final
Award to this effect:

Based on the principle that the Claimants must be made whole, the quantum of damages
awarded is intended to indemnify Claimants for what they lost as a result of Respondent's
breach of Article II(7) of the BIT. The calculation of the quantum of the Claimants' loss
is as follows:
$XXXX, as an award for direct damages suffered by the Claimants for the breach of
Article II(7); and
$XXXX, as an award for the undue delay in payment on the decisions that an honest,
impartial, and independent Ecuadorian judge would have found owing in each of
TexPet's cases.
(C XV, p. 13)
341. Drawing on its arguments above, the Respondent puts forward three damages scenarios.
342. The first scenario corresponds to the damages resulting if the Respondent’s arguments are
accepted in full. Under this option, it is assumed that the amount that the Ecuadorian courts
would have awarded as direct damages would correspond to the Direct Damages set out in
the Partial Award, net of the Unified Tax (US$ 44,993,428.60). Pre-judgment interest is then
calculated using this amount as principal and the Unified Tax applied to the interest, leaving
a total of US$ 5,540,668.60 in Ecuadorian interest damages. These two amounts are then
added together to produce a sum total of US$ 50,534,097.20 in damages as at December 21,
2006 (R XV, ¶79).
343. The second scenario corresponds to the damages resulting if the Tribunal adopts the Dr.
Cordero’s reasoning. Once again, it is assumed that the amount that the Ecuadorian courts
would have awarded as direct damages would correspond to the Direct Damages set out in
the Partial Award, net of the Unified Tax (US$ 44,993,428.60). Pre-judgment interest is then
calculated using this amount as principal and the general income tax rate applied to the
interest, leaving a total of US$ 32,746,268.34 in Ecuadorian interest damages. These two
amounts are then added together to produce a sum total of US$ 77,739,696.94 in damages as
at December 21, 2006 (R XV, ¶82).

344. The third scenario corresponds to the damages resulting if the Tribunal adopts the reasoning
found in the Joint Expert Report. In this case, the Unified Tax is deducted from the amount
of Direct Damages set out in the Partial Award, leaving US$ 44,993,428.60 in direct
damages. The general income tax is deducted from the amount of pre-judgment interest set
out in the Partial Award, leaving a total of US$ 258,047,819.88 in Ecuadorian interest
damages. These two amounts are then added together to produce a sum total of US$
303,041,248.48 in damages as at December 21, 2006 (R XV, ¶81).
345. The Respondent notes that any Ecuadorian taxes paid by the Claimants will probably be
significantly mitigated by U.S. tax benefits since U.S. tax laws provide for a foreign tax
credit for foreign income taxes paid (R XV, ¶83).
346. The Respondent urges the Tribunal to reject the Claimants’ request that the Tribunal order
the Respondent not to apply taxes to the Final Award amount and assert continuing
jurisdiction over the case. The Respondent has already represented that it will not assess or
duplicate any taxes deducted in the Final Award, and the Tribunal has recognized that this
representation provides Claimants with protection. The Respondent notes, however, that it
has not waived its right to assert valid taxes not accounted for in the Tribunal’s award (R XV,
¶84).
347. Finally, the Respondent also asks the Tribunal to reject the Claimants’ request that the
Tribunal insert language to characterize its award of indirect damages (pre-judgment interest)
as principal (income from oil operations) and not as interest. Beyond reinforcing the
Respondent’s position that any indirect damages should be taxed at the same rate as the
principal (income from oil operations), the Respondent considers it inappropriate for the
Claimants to ask the Tribunal to characterize an award for U.S. tax purposes as diametrically
opposite from how they are asking the Tribunal to characterized it for Ecuadorian tax
purposes (R XV, ¶85).
3. The Tribunal
348. According to its reasoning above, the Tribunal has concluded as follows:

(1) TexPet’s direct damages must be reduced by 87.31%, according to the Unified
Tax Rate which the Tribunal finds applicable to this amount; and
(2) TexPet’s pre-judgment interest must also be reduced by 87.31% in order to deduct
interest on monies that, as a result of the reduction under (1), do not form part of
TexPet’s damages, and then this amount must be further reduced by 25%,
according to the general Income Tax Rate.
349. Therefore, the tax-reduced direct damages (US$ 44,993,428.60) and pre-judgment interest
(US$ 32,746,268.34) together produce a total amount of the Claimants’ damages of US$
77,739,696.94. This result is equivalent to the Respondent’s second scenario.
350. To this amount, the Tribunal must apply, according to paragraph 6 of its decisions in the
Partial Award, pre-award annual compound interest at the New York Prime Rate, which
produces a new total of US$ 96,355,369.17 as at August 31, 2011.
351. The Tribunal’s calculations are summarized in the following table:
Partial Award
(Paragraph 549)
Adjustment
for Unified
Tax of 87.31%
(to Direct
Damages)
Adjustment in
proportion to
Unified Tax of
87.31%
(to Pre-
judgment
Interest)
Adjustment
for Income
Tax of 25%
(to Pre-
judgment
Interest)
Total of Direct
Damages and
Pre-judgment
Interest
Application of
pre-award
interest
(from Notice of
Arbitration of
December 21,
2006 to August
31, 2011)
Direct
Damages $354,558,145.00 $44,993,428.60 - - $44,993,428.60 $55,767,627.01
Pre-
judgment
Interest19
$344,063,759.84 - $43,661,691.12 $32,746,268.34 $32,746,268.34 $40,587,742.16
TOTAL
$698,621,904.84 - - - $77,739,696.94 $96,355,369.17
352. The Tribunal recalls at this point the commitments made by the Respondent not to impose
any further taxes or penalties upon any award of the Tribunal that took into account
19
This interest concerns interest accrued from the date that actions were filed before the Ecuadorian courts until the
Notice of Arbitration on December 21, 2006. See Partial Award, ¶¶ 548-549.

applicable Ecuadorian taxes. In particular, the Tribunal cites the undertaking set out in the
Respondent’s First-Round Post-Hearing Brief of June 19, 2009:
[T]he Republic's undersigned counsel has been duly authorized to represent to the
Tribunal that there will be no further taxes imposed by the Republic on the net Award
amount, and that this representation and its content may be recited and incorporated into
the Award itself with the Republic's consent.
(R VII, ¶168)
The Tribunal considers this representation, among others made over the course of the
proceedings, to adequately protect the Claimants against duplicative taxation or penalties for
late tax payment. Consequently, the Tribunal declines to make the orders regarding further
taxes and penalties requested by the Claimants (see ¶340 above).
353. Finally, with respect to the Claimants’ request for specific language to be included in the
Tribunal’s decisions in the dispositive section of this Award (see ¶340 above), the Tribunal
has acceded to this request to the extent that such characterizations are consistent with the
Tribunal’s reasoning on liability and quantum.

G.VII. The Costs of Arbitration
1. Relief Sought by the Claimants
354. In the Claimants’ Reply Memorial on the Merits (C VI, ¶528), the Claimants request that the
Tribunal award costs as follows:
528. For the foregoing reasons, Claimants request that the Tribunal render an award in
favor of the Claimants:
[…]
(vii) Ordering Respondent to pay all costs, fees and expenses of this
arbitration proceeding, including the fees and expenses of the Tribunal
and the cost and fees of legal representation, plus interest thereon in
accordance with the Treaty;
355. In accordance with the Tribunal’s request in Section 2 of PO VI, the Claimants submit a Cost
Claim in the amount of US$13,543,118.94 (C X, ¶27) for fees and expenses incurred
between January 2006 and July 2009, stating that any invoices issued in currencies other than
US Dollars were converted using the prevailing conversion rate on the date of the invoice.
The Claimants also state that the value of any taxes charged had been included when
calculating their costs. Additional legal fees and expenses incurred between the submission
of their Cost Claim and their Reply to the Respondent’s Cost Claim are noted in the Reply to
the Respondent’s Cost Claim in the amount of US$51,109.04. The final amount submitted by
the Claimants is US$13,594,227.98 (C XII, ¶9). Of this final amount, US$1,203,962.11 is
submitted as costs of the arbitration and US$12,390,265.87 is submitted as costs of legal
representation and assistance.
356. The Claimants submit that the amount of their cost claim reflects the substantial complexity
of the case, noting that the amount in controversy of the case is in excess of US$1.6 billion
and that numerous procedural and substantive issues have arisen, as follows:

(1) Three rounds of pleadings on jurisdiction (one round of memorials prior to the hearing
and two rounds of post-hearing briefs), including 1 witness statement, 2 expert reports,
and 410 exhibits and 127 legal authorities as supporting documents;
(2) Four rounds of pleadings on the merits (two rounds of memorials prior to the hearing and
two rounds of post-hearing briefs), including 2 witness statements, 11 expert reports, and
387 exhibits and 110 legal authorities as supporting documents;
(3) Two full hearings (one on jurisdiction and one on the merits), which combined lasted
more than 10 days;
(4) Several exchanges between the Tribunal and the Parties discussing the pleadings
schedule, admissibility of extemporaneous evidence filed by Ecuador, and organizational
issues relating to the jurisdictional and merits hearings; and
(5) Two rounds of submissions on costs.
(C X, ¶8)
.
357. In response to the Respondent’s Cost Claim, the Claimants’ argue that the argumentative
nature of the Respondent’s cost submission is unwarranted and deviates from the instructions
of the Tribunal. The Claimants also question the accuracy and reliability of the Respondent’s
Cost Claim because of references to actions other than the present arbitration (C XI, ¶2). In
that regard, the Claimants note that the Respondent used the same legal counsel in those
other actions and suggest that the Respondent might be claiming legal representation costs
related to those litigations (C XII, ¶¶1-3).
358. The Claimants also argue that the Respondent does not “briefly set out its costs” as requested
by the Tribunal because it fails to identify the purpose and nature their costs. In this regard,
the Claimants assert that Ecuador “generally lumped its claims into costs of arbitration and
legal fees, while providing little or no detail for the Tribunal to establish Ecuador’s actual
costs in defending the current arbitration” (C XII, ¶4).
359. The Claimants also question the reasonableness and necessity of the Respondent’s legal
representation costs. The Claimants note that, with respect to the fees of the Respondent’s
counsel, that the Respondent had not indicated (i) whether the fees had been invoiced and
paid, (ii) whether the fees were based on an hourly, flat or contingent rate, (iii) whether the
fees were incurred solely for the representation of the Respondent in the present arbitration,
and (iv) whether the fees labeled “attorney time” included the fees and expenses for the 17
experts retained by the Respondents. The Claimants’ note that the legal fees claimed by the
Respondent are more than double those claimed by the Claimants for the course of the
arbitration and that the amount claimed by the Respondent as “attorney time” significantly

exceeds the aggregate total of the Claimants’ attorney time, costs and expenses (C XII, ¶¶5-
7).
2. Relief Sought by the Respondent
360. In the Respondent’s Rejoinder on the Merits (R VI, ¶¶793-797), the Respondent requests that
the Tribunal award costs as follows:
793. For the foregoing reasons, the Republic hereby requests the Tribunal to render an
award in its favor:
[…]
796. Ordering, pursuant to paragraphs 1 and 2 of Article 40 of the UNCITRAL
Arbitration Rules, Claimants to pay all costs and expenses of this arbitration
proceeding, including the fees and expenses of the Tribunal and the cost of the
Republic's legal representation, plus pre-award and post-award interest thereon;
361. In accordance with the Tribunal’s request in Article 2 of PO VI, the Respondent submits a
Cost Claim in the amount of US$17,876,931 and €850,000 (R X ¶18). Of this final amount,
US$40,468 and €850,000 is submitted as costs of the arbitration and US$17,836,463 is
submitted as costs of legal representation and assistance.
362. With regard to the quantum of their claim for the costs of the arbitration, the Respondent
notes that it incurred costs in the amount of $28,290 because it was required to produce 11 of
its witnesses for cross-examination by the Claimants at the April 2009 Hearing on the Merits
as a result of the procedure requested by the Claimants (R X, ¶6).
363. With respect to the costs of legal representation and assistance, the Respondent argues that
while tribunals do not frequently award the prevailing party the entire amount of its legal fees
and related costs, the Tribunal should do so here because the Claimants have brought the
proceeding for improper reasons. In support, the Respondent repeats its arguments outlined
in Section H.VIII, asserting that the Claimants have not acted in good faith and have “put
forward positions that are constantly inconsistent and expedient for the moment” (R X, ¶7-
16).

364. Finally, the Respondent notes that the Claimants have not argued or suggested that the
Respondent acted in bad faith in the arbitration and do not base their claim for attorney’s fees
on any alleged misconduct. The Respondent argues that the Claimant’s request for costs is
therefore unsupported and unwarranted because an award of attorney’s fees is ordinarily
reserved for only those cases involving misconduct in the initiation or defense of the
arbitration (R XII, ¶¶3,6). The Respondent also asserts that their own arguments have been
made in good faith and are supported by facts in the record (R XII, ¶¶4-6).
3. The Tribunal
365. As an initial matter, the Tribunal recalls that in its Interim Award of December 1, 2008, it
decided to “defer any decision on questions of costs until the conclusion of the merits stage”
(Interim Award, ¶304). In its Partial Award of March 30, 2010, the Tribunal further decided
that “[t]he decision regarding the costs of arbitration is deferred to a later stage of these
proceedings” (Partial Award, Decisions, ¶8). The Tribunal notes that the Parties’ cost claims
have not been updated since shortly after the Hearing on the Merits, but determines that this
is inconsequential in light of the Tribunal’s ultimate decision on costs.
366. The Tribunal observes that the BIT contains no provisions on the allocation of the costs of
arbitration arising out of an “investment dispute.” The provisions regarding the Tribunal’s
decision in the matter of costs are instead to be found in Articles 38 to 40 of the UNCITRAL
Arbitration Rules. Article 38 of the UNCITRAL Arbitration Rules defines the “costs of
arbitration” as follows:
The arbitral tribunal shall fix the costs of arbitration in its award. The term “costs”
includes only:
(a) The fees of the arbitral tribunal to be stated separately as to each arbitrator
and to be fixed by the tribunal itself in accordance with article 39;
(b) The travel and other expenses incurred by the arbitrators;
(c) The costs of expert advice and of other assistance required by the arbitral
tribunal;

(d) The travel and other expenses of witnesses to the extent such expenses are
approved by the arbitral tribunal;
(e) The costs for legal representation and assistance of the successful party if
such costs were claimed during the arbitral proceedings, and only to the extent
that the arbitral tribunal determines that the amount of such costs is reasonable;
(f) Any fees and expenses of the appointing authority as well as the expenses of
the Secretary-General of the Permanent Court of Arbitration at The Hague.
367. Meanwhile, paragraphs 1 and 2 of Article 40 of the UNCITRAL Arbitration Rules provide
the criteria to be applied by the Tribunal in awarding costs:
1. Except as provided in paragraph 2, the costs of arbitration shall in principle be borne
by the unsuccessful party. However, the arbitral tribunal may apportion each of such
costs between the parties if it determines that apportionment is reasonable, taking into
account the circumstances of the case.
2. With respect to the costs of legal representation and assistance referred to in article 38,
paragraph (e), the arbitral tribunal, taking into account the circumstances of the case,
shall be free to determine which party shall bear such costs or may apportion such costs
between the parties if it determines that apportionment is reasonable.
368. The Parties deposited a total of €1,875,000 (€937,500 by the Claimants; €937,500 by the
Respondent) with the PCA to cover the costs of arbitration.
369. The fees and expenses of The Hon. Charles N. Brower, the arbitrator appointed by the
Claimants, amount to €236,100.00 and €19,404.89, respectively. The fees and expenses of
Prof. Albert Jan van den Berg, the arbitrator appointed by the Respondent, amount to
€399,541.66 and €11,945.12, respectively. The fees and expenses of Prof. Karl-Heinz
Böckstiegel, the Presiding Arbitrator, amount to €652,120.00 and €27,798.55, respectively.
370. Pursuant to PO I and the agreement of the Parties, the International Bureau of the PCA was
designated to act as Registry in this arbitration. The PCA’s fees for registry services amount
to €155,940.00.
371. Other tribunal costs, including court reporters, hearing rooms, meeting facilities, travel, bank
charges, and all other expenses relating to the arbitration proceedings, amount to
€291,690.78.

372. Based on the above figures, the combined tribunal costs, comprising the items covered in
Articles 38(a) to (c) of the UNCITRAL Arbitration Rules, total €1,794,541.00.
373. The Parties’ respective portions of these tribunal costs, amounting to €897,270.50 for each
side, shall be deducted from the deposit and the PCA shall reimburse the amount of
€40,229.50 to each side in accordance with Article 41(5) of the UNCITRAL Arbitration
Rules.
374. The principle governing the awarding of the costs of arbitration, according to Article 40(1) of
the UNCITRAL Arbitration Rules, is that an arbitral tribunal shall determine that the costs
shall be borne by the unsuccessful party, unless it finds an apportionment of the costs
between the parties to be reasonable under the circumstances of the case. With respect to the
costs of legal representation and assistance (Article 38(e)), Article 40(2) of the UNCITRAL
Arbitration Rules provides that the arbitral tribunal, taking into account the circumstances of
the case, is free to determine which party shall bear such costs or may apportion such costs
between the parties if it determines that apportionment is reasonable. Articles 40(1) and (2)
grant wide discretion to an arbitration tribunal in awarding the costs of arbitration.
375. The Tribunal is aware of a certain practice in investment treaty arbitration that each party
bears its own costs and that the parties divide tribunal costs equally. That practice is not
binding on this Tribunal, which prefers the more recent practice in investment arbitration of
applying the general principle of “costs follow the event,” save for exceptional
circumstances, such as when concerns regarding access to justice are raised. That approach is
the more compelling one in the present case which is governed by the UNCITRAL
Arbitration Rules that expressly contemplate the rule of “costs follow the event” in Article
40(1) by its emphasis on “success” or lack thereof. This conclusion is reinforced by the fact
that both sides in this case indeed argue that the unsuccessful side in this arbitration should
have to bear the full amount of tribunal costs as well as the other side’s costs of legal
representation.
376. Nonetheless, in the present case the Claimants have been largely successful on jurisdiction
and liability, but the Respondent’s have been mostly successful on damages. The Tribunal
finds therefore that there is no clearly successful Party and consequently decides that each

side shall bear its own costs of legal representation and assistance (as well as the expenses of
witnesses referred to in Article 38(d)) and divide tribunal costs evenly.

H. Decisions
FOR THE FOREGOING REASONS, the Tribunal renders the following decisions:
1. From the Interim Award of December 1, 2008, the Tribunal recalls the following
decisions:
paragraph 116.
2. From the Partial Award of March 30, 2010, the Tribunal recalls the following
decisions:
2. The Respondent has breached Article II(7) of the BIT through the undue
delay of the Ecuadorian courts in deciding TexPet’s seven court cases and is
liable for the damages to the Claimants resulting therefrom.
[…]
5. As a result of the Tribunal’s decision in section 2 above that the Respondent
occurred.
6. The Respondent is liable for pre-award compound interest at the New York
Prime Rate (annual) on the final amount to be paid by Respondent
according to section 5 above, from December 22, 2006 until the date that this
sum becomes payable by Respondent.
7. The Respondent shall be liable for post-award compound interest at the New
York Prime Rate (annual) on the amount awarded by the Tribunal, from
the date that the Tribunal orders payment by the Respondent until the date
payment is made.

3. The Respondent is liable for damages caused to the Claimants arising from the
breach of Article II(7) of the BIT in the amount of US$ $77,739,696.94.
4. The Respondent is liable for pre-award compound interest at the New York Prime
Rate (annual), from December 22, 2006 until the date of this Final Award, as
compensation for the delay in receiving payment of the amount awarded by the
Tribunal pursuant to section 3 above, totaling US$ 18,615,672.23 as at the date of
this Final Award.
5. The Respondent shall be liable for post-award compound interest at the New York
Prime Rate (annual) on the amounts awarded by the Tribunal pursuant to sections 3
and 4 above, from the date of this Final Award until the date payment is made.
6. Each side shall bear the costs of its own legal representation and assistance, as well
as expenses of witnesses and experts, and half of the tribunal costs.
Place of Arbitration: The Hague, The Netherlands
Date of this Final Award: August 31, 2011
Signatures of the Tribunal:
______________________________ ______________________________
The Hon. Charles N. Brower Prof. Albert Jan van den Berg
______________________________
Prof. Karl-Heinz Böckstiegel
Presiding Arbitrator

Ex. 112

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Ex. 112