November 15, 2019
Latham & Watkins has secured an important victory for RECOPE, Costa Rica’s State-owned refining company, in a politically sensitive ICC arbitration against CNPCI, the PRC State-owned oil and gas company.
The dispute related to a joint venture agreement entered into by the Parties in 2008 (the “JVA”) in connection with the US$1.5 billion upgrade of Costa Rica’s only oil refinery. The Parties set up a Costa Rican joint venture company, Soresco, to implement this major upgrade project. The joint venture was the result of the recent establishment of diplomatic relationships between the PRC and Costa Rica. Due to the political sensitivity, scale, and importance of the project, the joint venture was closely scrutinized in Costa Rica.
In 2013, the Costa Rican Comptroller General (Contraloría General de la República), which supervises public expenditure, issued two orders finding that the technical and financial feasibility study prepared for the project (the “Feasibility Study”) should not have been conducted by one of CNPCI’s affiliates. The Comptroller General further ordered that the project could not proceed on the basis of the Feasibility Study. RECOPE offered to CNPCI to conduct and pay for a new feasibility study that would permit the project to move forward and would meet the Comptroller General’s requirements. CNPCI refused RECOPE’s offer, and as a result the project ground to a standstill.
In 2016, after three years of effective paralysis RECOPE announced its intention to terminate the JVA and to dissolve Soresco. In 2017, CNPCI filed an ICC Request for Arbitration. CNPCI’s principal claim was for specific performance, and sought the continuation of the project and the joint venture company. RECOPE counterclaimed, seeking as its primary remedy the termination of the JVA and the dissolution of Soresco. In its final award dated 24 October 2019 the arbitral tribunal granted the principal remedy sought by RECOPE and ordered the termination of the JVA and the winding up of Soresco, thereby fully vindicating RECOPE’s long held position vis-à-vis CNPCI. The tribunal found in this regard that CNPCI’s refusal to agree to a new feasibility study was in breach of the JVA. The tribunal dismissed CNPCI’s principal claim for specific performance. Although the tribunal found that both Parties had breached the JVA, it dismissed the Parties’ claims for compensation.
The award draws a long-running commercial dispute to an end and represents a victory for RECOPE . The seat of the arbitration was London, the law applicable was that of Costa Rica, and the proceedings were conducted in English.
Latham & Watkins successfully represented RECOPE in the arbitration with a team led from Paris by partners Fernando Mantilla-Serrano and John Adam, with associates Esperanza Barron Baratech and Diego Romero.