Ecopetrol S.A. v. Offshore Exploration and Production, LLC

Background

Ecopetrol and Offshore entered into a 2008 stock-purchase agreement under which Offshore sold Ecopetrol all shares of Offshore International Group, Inc. for $1.2 billion. The agreement required Offshore to indemnify Ecopetrol for certain pre-acquisition tax liabilities, including value-added tax liabilities, and required disputes related to the agreement to be arbitrated.

An arbitration tribunal issued several awards concerning Offshore’s obligation to reimburse Ecopetrol for value-added taxes. Ecopetrol later petitioned the court to confirm those awards. By agreement of the parties, the court remanded ambiguities about the amount of any remaining tax obligation to the tribunal for clarification.

The tribunal issued an Interim Supplemental Award addressing, among other things, whether Offshore owed an additional amount for 2007 value-added tax, when interest should stop accruing, and how certain payments from the relevant Peruvian tax authority should be credited. The tribunal then issued a Final Supplemental Award. That award addressed potential future tax payments for tax years 2001, 2004, and 2005 and stated that Offshore would have to reimburse Ecopetrol under specified conditions if Savia had to return tax refunds and Ecopetrol had to reimburse Z Mining Investments LLC under the later sale agreement.

Ecopetrol’s Challenge

Ecopetrol asked the court to confirm the Interim Supplemental Award and most of the Final Supplemental Award, but to vacate the portion concerning potential future tax payments involving Savia. Under Section 10(a)(4) of the Federal Arbitration Act, a court may vacate an arbitration award if the arbitrators exceeded their powers. Review under that provision is highly deferential and focuses on whether the tribunal had authority to decide the issue, not whether the court would have decided it differently.

Ecopetrol argued that the tribunal exceeded its authority because the parties’ remand agreement did not submit the Savia issue for decision. Ecopetrol also argued that the tribunal improperly relied on Offshore’s description of the later sale agreement even though that agreement was not submitted to the tribunal and Ecopetrol did not receive an opportunity to respond to Offshore’s description.

Court’s Analysis

Judge Jennifer L. Rochon rejected Ecopetrol’s arguments. First, the court held that the parties’ remand agreement authorized the tribunal to decide the Savia issue. The agreement broadly covered whether any additional value-added tax amount was owed and the calculation of that amount. The court concluded that the tribunal’s conditional ruling about possible future tax payments fell within that scope.

Second, the court held that the parties’ submissions independently gave the tribunal authority to decide the issue. Ecopetrol’s filings asked the tribunal to declare Offshore liable for value-added tax amounts that Savia had paid or might have to pay for 2001 through 2007, and specifically referred to the possibility that Savia might have to return tax refunds for 2001, 2004, and 2005. The court emphasized that Ecopetrol could not argue that the tribunal lacked authority to decide an issue that Ecopetrol itself had asked the tribunal to address.

The court also concluded that the tribunal did not interpret the later sale agreement. Instead, the tribunal interpreted the 2008 agreement and made Offshore’s potential liability dependent on two conditions: Savia would have to return the refunds to the Peruvian tax authority, and Ecopetrol would have to be required to reimburse Z Mining for those payments. The tribunal did not make a firm determination about what the later sale agreement required.

Disposition

The court denied Ecopetrol’s motion to vacate in part the Final Supplemental Award. Because the Federal Arbitration Act generally requires confirmation of an award unless it is vacated, modified, or corrected, the court confirmed the Interim Supplemental Award and the Final Supplemental Award in full. The Clerk was directed to enter judgment and close the case.