Lago Agrio: A Quick Overview
Posted on February 23, 2012
Let’s take stock of where things stand in the Chevron/Ecuador saga. In this post, I try to review the main fronts of the battle, leaving subsidiary issues (such as the judicial assistance applications, which were what first got me interested in the case) to the side.
- Is the judgment final and conclusive in Ecuador? The answer is yes, for the time being. Chevron has appealed the judgment to Ecuador’s National Court of Justice, but I am told that that Court’s docket is discretionary (i.e., that, like the U.S. Supreme Court, the Ecuadoran high court can decide whether or not to hear a case on the merits). However, Chevron failed to post a bond necessary, under Ecuadoran law, to stay enforcement of the judgment pending the appeal (the Ecuadoran equivalent to what we would call a supersedas bond), and I understand that the judgment is now enforceable in Ecuador, or will be once it is certified by the trial court. Under U.S. law and perhaps the law of other states, the pendency of an appeal does not deprive a foreign judgment of its finality for purposes of recognition and enforcement proceedings. However, under U.S. law (e.g., Section 8 of the UFCMJRA), the US court may stay recognition and enforcement proceedings pending the outcome of the foreign appeal. Advantage: plaintiffs
- Is the judgment entitled to recognition and enforcement? There are two questions here. First, can Chevron establish one of the grounds for non-recognition provided in the law of the state where recognition and enforcement is sought, and second, even if Chevron can make such a showing, is Chevron estopped because it persuaded the U.S. courts to dismiss the case in favor of litigation in Ecuador?
- Grounds for non-recognition. If the plaintiffs seek recognition and enforcement in the United States (an unlikely prospect, to my mind), Chevron is likely to argue that the judgment cannot be recognized because it was “rendered under a judicial system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law” (UFCMJRA § 4(b)(1)), and that the judgment should not be recognized because the judgment “was rendered in circumstances that raise substantial doubt about the integrity of the rendering court with respect to the foreign-country judgment” (UFCMJRA § 4(c)(7)) or because “the specific proceeding in the foreign court leading to the foreign-country judgment was not compatible with the requirements of due process of law” (UFCMJRA § 4(c)(8)). (I cite the Uniform Foreign Country Money Judgment Recognition Act, even though it has not been adopted in all states, as a good general statement of American law, but these things can vary state-to-state). If the plaintiffs seek recognition and enforcement elsewhere, the court in question will apply its own equivalent to the UFCMJRA. Advantage: Unknown (I think it is difficult for observers such as Letters Blogatory to come to a clear conclusion about the strength of Chevron’s allegations of judicial corruption in Ecuador, which is an intensely factual question. Surely the recent El Universo case doesn’t provide grounds for real confidence in Ecuador’s judiciary, however!)
- Estoppel. Several U.S. judges and commentators (including me!) have been troubled by the apparent inequity of Chevron’s position. The Ecuadorans sued Chevron (Texaco, actually) in New York, and only after many years of litigation did Chevron get the case dismissed in favor of litigation in Ecuador, touting the high quality of the Ecuadoran justice system. The concept of judicial estoppel—an “estoppel that prevents a party from contradicting previous declaration made during the same or a later proceeding if the change in position would adversely affect the proceeding”—seems a natural fit. To be sure, Chevron says that the Ecuadoran justice system changed dramatically in between the New York courts’ forum non conveniens dismissal and the Ecuadoran judgment in ways Chevron did not anticipate. One possible reaction, which seems to have a good amount of intuitive appeal, is: “Too bad. You assumed the risk.” There are other possible reactions, of course, but on balance, it seems to me that for reasons of fairness to the litigants, comity, and judicial administration and efficiency, there should be a more or less categorical rule estopping a party in Chevron’s shoes from challenging the foreign judgment on such grounds. Advantage: Plaintiffs
- Anti-suit injunction. Judge Kaplan, in the Southern District of New York, had issued a preliminary injunction enjoining the plaintiffs from seeking recognition and enforcement of the Ecuadoran judgment anywhere in the world pending the outcome of the declaratory judgment action Chevron brought seeking a declaration that the judgment is not entitled to recognition and enforcement. The Second Circuit has vacated the injunction, holding that under New York law, a judgment debtor cannot bring a declaratory action seeking such relief. I have previously opined that this outcome was probably correct, as the plaintiffs have disclaimed any intention of seeking recognition or enforcement in New York, though I do not agree with the Second Circuit’s reasoning (I think that if there was a real threat of recognition and enforcement proceedings in New York, Chevron would have been entitled to seek a declaration). Chevron may petition the Supreme Court for a writ of certiorari (it has until April 25 to do so, by my count), but I think this is unlikely, and I think it unlikely the Supreme Court would grant the petition. Advantage: plaintiffs
- The BIT arbitration. There are several questions here. First, are the tribunal’s interim awards entitled to recognition under the New York Convention, to which almost all countries in the world are parties? Second, and relatedly, is there a chance that the awards could be vacated in the courts of the appropriate state? Third, assuming the awards are entitled to recognition, what follows? Fourth, and most importantly as a matter of principle (though maybe least important as a practical matter)‐is it acceptable for the tribunal to order Ecuador to suspend the effect of the judgment?
- Recognition. The awards are most likely entitled to recognition on Chevron’s motion. The New York Convention provides only very limited grounds for refusing recognition. I don’t give a detailed discussion of each ground, but in general, because the awards are merely intended to preserve the status quo and not to decide issues on the merits, I do not think it likely that any of the narrow grounds for refusal of recognition will apply. Of particular interest: a court may refuse recognition if the party “against whom the award is invoked” was “unable to present his case.” The plaintiffs were not parties to the arbitration and had no role in the proceedings (though, to the best of my knowledge, it’s also true that they did not seek leave to present their case to the tribunal). I think this issue is better dealt with under the heading of the applicability of the award to the plaintiffs, which I discuss below. Also of interest: a court may refuse recognition if the award “has not yet become binding.” I think the purpose of naming these as awards instead of orders was precisely to make them binding on the parties. Advantage: Chevron
- Vacating the Award. The seat of the arbitration is at the Hague, and so it seems to me that the courts of the Netherlands are the proper forum for an application to vacate the award. I can’t really opine on whether grounds for vacation exist under the law of the Netherlands, but I have to believe that annulment is unlikely. Advantage: Chevron
- Effect of the Award. All of this may be for naught, however. Suppose the award is recognized in a state where the plaintiffs seek recognition and enforcement of the Ecuadoran judgment. So what? The plaintiffs were not party to the arbitration, did not consent to arbitrate, and are, it seems to me, not really in privity with Ecuador. So even if the award is recognized, it would seem to me to have no preclusive effect as to the plaintiffs. Advantage: plaintiffs.
- Is the award defensible? Here, I am not asking whether the tribunal was right to find that Chevron had at least presented grounds for supposing that it might ultimately be able to prove that the tribunal has jurisdiction and that Ecuador had violated the bilateral investment treaty. Instead, I am asking whether the plaintiffs are right to say, as they have, that the tribunal’s awards are illegitimate because they purport to require Ecuador to violate its own constitution. The answer must, I think, be no. Just yesterday, the Inter-American Commission on Human Rights—the same body to which the plaintiffs themselves appealed, requested Ecuador to suspend the judgment in the controversial El Universo libel case. And given that both the OAS and the arbitral tribunal are creatures of treaty, why should their legitimacy differ? In any case, Ecuador is responsible under international law for the acts of all its branches of government, including the judiciary, even though it may be that the executive cannot force the judiciary to act in accordance with international law for reasons of Ecuadoran internal law. Advantage: Chevron
- The OAS Petition. The plaintiffs have filed a petition with the Inter-American Commission on Human Rights, an arm of the Organization of American States. The gist of the petition is that under various human rights treaties, Ecuador cannot deprive the plaintiffs of their judgment or the right to seek to enforce it. The plaintiffs seek protective measures, essentially an emergency order requiring Ecuador to take steps to protect the plaintiffs’ rights. Whatever the ultimate outcome of the OAS proceedings, they seem unlikely to have any real impact on the case. The Ecuadoran courts have already decided not to give effect to the arbitral award, and it is not clear what else the OAS proceedings could accomplish for the plaintiffs. Advantage: Chevron
As this review shows, each side has some strengths and some weaknesses. Ultimately I think the keys to the ultimate resolution of the case are going to be, first, the issue I didn’t really opine on—whether Chevron can prove its charges of fraud and corruption, and second, the issue of estoppel.
As always, I will keep you as up-to-date as I can on developments in this most interesting of cases!