Recope v. CNPCI

Latham & Watkins has acted for Recope in the ICC arbitration against CNPCI, represented by Allen & Overy.

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 challenged the Comptroller General’s orders in the Costa Rican courts, but subsequently withdrew the challenge without consulting CNPCI beforehand.  RECOPE offered to CNPCI to conduct and pay for a new feasibility study, but this was not accepted by CNPCI.

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. In its final award dated 24 October 2019 the arbitral tribunal granted RECOPE’s request and ordered the termination of the JVA and the winding up of Soresco. However, in favour of CNPCI, the tribunal made positive findings with respect to the inception and implementation of the project – more specifically, in finding that the engagement of an affiliate of CNPCI for preparing the feasibility study of the project and certain payments of salaries and expatriation fees were in compliance with the parties’ contract. This was a critical issue as these were the matters which brought the project to a halt following the orders of the Costa Rican Comptroller General.

The tribunal found that both Parties had breached the JVA in their reaction to the Comptroller General’s orders, RECOPE breached the JVA by withdrawing its challenge against the Comptroller General’s orders without consulting CNPCI beforehand, and CNPCI by not accepting RECOPE’s proposal in relation to the new feasibility study. Accordingly, it dismissed the Parties’ claims for compensation.

Founded in 1961, Recope (Refinadora Costarricense de Petróleo) is a Costa Rica’s State-owned refining company.

CNPCI, China National Petroleum Corporation, is the PRC State-owned oil and gas company.

Latham & Watkins successfully represented RECOPE in the arbitration with a team led from Paris by partners Fernando Mantilla-Serrano (Picture) and John Adam, with associates Esperanza Barron Baratech and Diego Romero.

Allen & Overy LLP team was led by Matthew Hodgson in Hong Kong.

Involved fees earner: Matthew Hodgson – Allen & Overy; John Adam – Latham & Watkins; Esperanza Barron Baratech – Latham & Watkins; Fernando Mantilla-Serrano – Latham & Watkins; Diego Romero – Latham & Watkins;

Law Firms: Allen & Overy; Latham & Watkins;

Clients: CNPCI; Recope;