Thoughts On The Third Interim Award In the Chevron/Ecuador Case

Oil barrels in EcuadorAs noted yesterday, the BIT arbitral tribunal has issued its third interim award. The basic decision is as follows:

  1. The tribunal has jurisdiction over Texaco Petroleum Co.’s claims, and the claims are admissible
  2. The tribunal has jurisdiction over Chevron’s “indirect investment” claims, that is, the claims Chevron brings as TexPet’s parent company, and those claims are admissible
  3. The tribunal will decide whether it has jurisdiction over Chevron’s “direct investment” claims when it decides the merits.

I am not going to attempt to review the merits of most of the tribunal’s decision, as it involves issues of investment treaty law that are outside the Letters Blogatory scope of coverage (not that I’ve let that stop me before!) and definitely outside my expertise. Instead, I want to address one aspect of the decision and also to tell Chevron’s story—the narrative behind the arbitration, as it were—which I don’t think I’ve done here before.

Chevron’s Story

Chevron’s basic story in the arbitration is not about documentary film outtakes, judicial corruption, or the like. TexPet’s was a partner with Ecuador’s state-owned oil company in a consortium that operated in the Oriente region for decades. When the consortium ended, TexPet entered into an agreement with Ecuador and several of its municipalities that provided that in exchange for certain environmental remediation and other consideration (which totaled about $40 million), TexPet would be released from further environmental liability. At the time, only the Ecuadoran government could, under Ecuadoran law, bring a claim for environmental torts. Indeed, according to Chevron (I assume this is so, though the pleadings are old enough that they are not available in Pacer), Ecuador represented to the New York court in the original Aguinda that under Ecuadoran law the Lago Agrio plaintiffs had no right to sue under Ecuadoran law:

The [Aguinda] plaintiffs’ attorneys in this matter are attempting to usurp rights that belong to the government of the Republic of [Ecuador] under the Constitution and laws of Ecuador and under international law.

TexPet completed the remediation as required, and Ecuador officially certified as much.

While the forum non conveniens proceedings were pending, Chevron claims that the Lago Agrio plaintiffs’ lawyers lobbied for a change of law in Ecuador, and in 1999, Ecuador enacted the Law of Environmental Management, which according to Chevron gave individuals the right to sue to enforce “collective environmental rights.”

In 2001, Texaco and TexPet merged with Chevron. Texaco had consented to the jurisdiction of the Ecuadoran courts as a condition of the FNC dismissal, but Chevron had not (whether Chevron was bound by Texaco’s stipulation is disputed between the parties). In 2003, the Lago Agrio plaintiffs (a similar but not identical group to the group that had sued in New York) sued in Ecuador, naming both Texaco and Chevron as defendants. Chevron strenuously objected that it was a separate entity from Texaco and was not subject to the court’s jurisdiction, and it sought dismissal based on the releases Ecuador and its municipalities had given earlier to TexPet. The main claim is that Ecuador, through its courts, has sought to impose on Chevron the liability for remediation that properly belong to Ecuador itself and its state-owned oil company, the other two participants, with TexPet, in the consortium. So that, in a very small nutshell, is Chevron’s BIT narrative.

Monetary Gold

The discrete issue I want to highlight is the tribunal’s discussion of the Monetary Gold principle. The reason I want to write about it is that in prior posts I have focused on Chevron’s claim for indemnification, which would seem not really to affect the rights of the Lago Agrio plaintiffs. But Chevron also seeks a declaration that the Ecuadoran judgment is not enforceable, and that demand for relief does, of course, bring the Lago Agrio plaintiffs’ rights into play.

The Monetary Gold case, which you can read about at the ICJ website, stands for the proposition that under international law, even if a tribunal has jurisdiction of a dispute, it should not exercise its jurisdiction if, in deciding the case, it would necessarily have to decide a dispute between one of the parties and a state that is not a party to the proceeding. According to the tribunal, Monetary Gold really embodies three principles of international law: (1) no exercise of jurisdiction over a state without its consent; (2) no exercise of jurisdiction in the absence of an indispensable third party state; and (3) no exercise of jurisdiction unless a state whose rights are to be adjudicated has been accorded due process (i.e., a full opportunity to present its case). Of course, Monetary Gold does not apply perfectly in this case, which is a mixed arbitration rather than a state/state arbitration, and the third parties in question are not states but private plaintiffs.

On the assumption that Monetary Gold applies to the case (i.e., that the rule operated to the advantage of the Lago Agrio plaintiffs even though they are private persons and even in a mixed arbitration), the tribunal decided that the rule of the case would not require it to decline to exercise jurisdiction.

  • On consent, the tribunal asserted that it lacked jurisdiction over the Lago Agrio plaintiffs and could not order them to do anything. So their consent, in the tribunal’s view, was irrelevant. (This seems wrong to me—doesn’t this miss the whole point of Monetary Gold? The ICJ couldn’t order Albania to do or not to do anything, either, but the whole point of the case was that Albania’s rights in the German gold were being adjudicated).
  • On indispensable parties, the tribunal asserted that the Lago Agrio plaintiffs were not indispensable. Even though Chevron has requested relief that, if granted, could determine the Lago Agrio plaintiffs’ rights, the tribunal reasoned that “that is something that depends upon the form and content of the decision of this Tribunal: it is not an inevitable consequence of the Tribunal exercising its jurisdiction.” In other words (I think), the Lago Agrio plaintiffs are not indispensible because the tribunal will not necessarily rule in a way that adversely affects their rights. But again, this seems wrong to me. I’d think that a party is indispensable if there is a real risk that its rights would be determined in the case, not just if its rights would necessarily be determined in the case.
  • On due process, the tribunal’s reasoning was similar:

    Due process is a principle that bears, at least primarily, upon the manner in which the jurisdiction is exercised by a tribunal, rather than upon the very exercise of that jurisdiction. It is not necessary for this Tribunal to decide if there is a theoretical possibility that due process rights of a third party, not a party to the proceedings and not subject to the jurisdiction ratione personae of an arbitral tribunal, might in some extraordinary case be argued to operate so as to deprive persons who undoubtedly are parties to the proceedings and within the jurisdiction ratione personae of the tribunal of their right to a hearing and to due process. … If it should transpire that [Ecuador] has, by concluding the Release Agreements, taken a step which had the legal effect of depriving the Lago Agrio plaintiffs of rights under Ecuadorian Law that they might otherwise have enjoyed, that would be a matter between them and [Ecuador], and not a matter for this Tribunal.

    Again, doesn’t this miss the point of Monetary Gold? I would have thought the point of the doctrine was that in certain cases a tribunal should not decide the rights of third parties without giving them an opportunity to be heard, not that a tribunal should not decide the rights of third parties unless those third parties would have recourse against one of the parties to the arbitration in the event the tribunal’s decision adversely affects its rights.

I am no expert on Monetary Gold, but I find the tribunal’s decision troubling. Wouldn’t it have been better to decide whether the doctrine applied in the first place to non-state third parties in a BIT arbitration?

Suppose that the Tribunal is wrong about Monetary Gold, but that its final award on the merits reflects its error. And suppose that the Tribunal declares, as Chevron requests, that the Ecuadoran judgment is not enforceable. Are states party to the New York Convention obliged to recognize the award, and if so, are they also obligated to refuse recognition and enforcement to the Ecuadoran judgment?

Photo credit: Julien Gomba (license)

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

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