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in the absence of a termination event under the Contract), Ecuador breached its obligations under both the Participation Contract and BIT.
In particular, Oxy argued that the Farmout Agreement did not operate as an assignment of rights in violation of Ecuadorian law.
Second, assuming a termination event was found to have occurred, Oxy argued that the termination would still be in breach of the Ecuador’s obligations under the BIT and Ecuadorian law because it was unfair, arbitrary, discriminatory and disproportionate. In its defense, Ecuador argued that the Farmout Agreement effected an assignment and thus required ministerial approval, as required by Ecuadorian law.
It also argued that Oxy was liable for a number of violations of Ecuador’s Hydrocarbons Regulations.
With regard to contributory negligence, the tribunal reduced Oxy’s damages because of its own wrongful conduct, namely its violation of Ecuadorian law in entering the Farmout Agreement without ministerial authorization. The tribunal also noted that the principle of proportionality was recognized under the Ecuadorian constitution.  Occidental Petroleum Corporation v The Republic of Ecuador, Dissent, ICSID Case No.
Accordingly, the tribunal found that Oxy contributed to the extent of 25% to the prejudice which it suffered when Ecuador issued the Caduciad Decree.
Whatever the result of the annulment proceedings, the Oxy award demonstrates the great power of investment treaty arbitration tribunals.
It is unsurprising that tribunals routinely allocate responsibility between governments and foreign corporations for failed investment projects.
In order to further these goals, Oxy and AEC entered into a Farmout Agreement where AEC acquired a 40% economic interest in Block 15 in return for certain capital contributions.
Fundamental issues about ICSID, such as its role in increasing foreign investment and its compatibility with democratic accountability, can no longer be reserved for polite academic discussions.
After the Oxy award, these issues must also be confronted in rigorous policy debates.
On May 16, 2006, government officials arrived at Oxy’s offices in Quito and seized all of its property.
The next day, officials and the Ecuadorian National Police seized Oxy’s oil fields in Block 15, including wells, drills and storage facilities.