The Lago Agrio Case in Brazil: Why?

Rafael Salomão Romano is a fourth-year law student at the Pontifical Catholic University of Rio de Janiero. He has been an International Judicial Assistance scholar since 2010, working under Prof. Dr. Daniela Trejos Vargas. He is also an intern in the law department at the Globo Organization, Brazil’s largest media corporation.

Ecuadorians are currently seeking to enforce their national court’s decision in the Lago Agrio case in Brazil. As Ted noted in the previous post, both countries are parties to the Montevideo Convention. Now, what could possibly be ahead?

The proceedings are clear. The complaint was filed on Wednesday, June 27, 2012. Now, following the Superior Tribunal de Justiças (STJ) Resolution nº 09/2005, the court’s President Minister will serve the process and then Chevron will have 15 days to assert its defense. This defense is limited, in accordance with the Resolution, to the certification that all the recognition requirements were met and that the decision does not offend Brazilian Law. The Ministério Público (Brazilian Public Attorney) will give his or her non-biding opinion on the case, voting for or against recognition of the judgment. If Chevron does not present a defense, the President Minister is authorized to decide the case all by himself (some Brazilian authors understand that this clause is unconstitutional), and then an unsatisfied party may appeal to the court’s Órgão Especial. If Chevron files its defense, the judgment will be done directly at the Órgão Especial, composed of the court’s 15 most senior Ministers. From this decision, there would be only one tough-to-get appeal, the Recurso Extraordinário (“Extraordinary Appeal”) directly to the Brazilian Supreme Court, the Supremo Tribunal Federal (STF), on the grounds of a constitutional violation. Let’s see how far Chevron’s attorneys can get!

Now let us make some observations on the case.

First, it’s very interesting to note that the complaint doesn’t mention the Montevideo Convention. That’s quite symptomatic. Lawyers and even judges in this country are not familiar with the Brazilian treaties. In fact, as renowned professor Nadia de Araujo observes in her prestigious book (Direito Internacional Privado, 5º edição, Renovar, page 353) the Convention has never been used by the Brazilian Courts, and she finishes by stating that it will probably never be. Whatever the case may be, it doesn’t actually matter in practice, since Resolution nº 09/05, along with Decreto-Lei nº 4.657/1942, art. 15, sets virtually the same requirements as the Convention.

Apparently, according to the complaint that Ted made available in his last post, all the requirements were met by the plaintiffs, including the one that states that the court that entered the judgment must have been competent in the international sphere. The Brazilian understanding of this clause is that the foreign court will be always competent in deciding any question that under Brazilian law is not exclusively a question for the Brazilian courts. So if Brazil, under its own law, is not the only competent country to decide the matter (as it would be in a case involving real estate located in Brazil, for instance), the foreign courts will be always competent.

As far as I can see, besides trying to allege an intrinsic fraud in the judgment (which the STJ is commonly reluctant to recognize, since it says that the foreign court, not the STJ, should decide this issue), or an extrinsic fraud (which the court could recognize under the heading of a violation of Brazil’s ordre public), Chevron has maybe two good defense lines. The first one is related to the legitimacy of Chevron’s Brazilian branch. We are dealing with two different companies here: the one that caused the Ecuadorian disaster and the one existing in Brazil, which probably has nothing to do with all that. So what would the Ecuadorians’ attorneys try? Serve process on the Brazilian branch, but later seek to execute the judgment against the American “mother company” (in Brazil)? Theoretically, the Brazilian branch’s property can’t be taken to satisfy Chevron Inc.’s debts.

The second point is that there is no consensus in the Brazilian courts or among scholars about the acceptance by the Brazilian Law of the punitive damages doctrine. Many authors and judges understand that this American and common law institution is inapplicable in Brazil, due to the law itself and the country’s tradition. Regardless of the discussion, Chevron may try to reduce the amount due by its half if it manages to convince the STJ that the enforcement of the punitive damages would be an offense to the Brazilian ordre public.

Finally, it’s equally relevant to keep in mind that, following the Brazilian Civil Procedure Law, once the Ecuadorian decision is enforced (the correct words here would be “merely recognized”), Chevron won’t have to pay a thing! Well, at least not until the plaintiffs file an execution law suit in a federal court. This because the STJ is only competent to declare that a foreign decision is able to produce its effects in Brazil, and that’s all. In other words, the STJ can’t compel anyone to pay a debt. It only declares that the debt is valid and exists. It’s the plaintiffs’ duty to file another enforcement process, on the grounds of the now fully recognized foreign decision, to have their money paid, as it would be with any ordinary Brazilian decision.

Sixteen billion dollars. It wouldn’t be too dramatic or unrealistic to say that Chevron’s operations in Brazil will depend on the STJ‘s decision in the next months …

2 thoughts on “The Lago Agrio Case in Brazil: Why?

  1. Among the useful items Rafael notes, one of the most significant is probably worth calling out: according to Rafael, the Brazilian court could refuse recognition to the Ecuadoran judgment on the grounds that it violates Brazil’s ordre public in a case of extrinsic fraud. This suggests that Chevron will be able to make the same kinds of arguments in Brazil as it has been making in the United States.

    Question: Assume that Chevron prevails on its motion for partial summary judgment in the RICO case. Recall that Chevron’s motion argues that the Ecuadoran judgment is not entitled to recognition as a way of defeating the Lago Agrio plaintiffs’ affirmative defense (improvidently pleaded, I think) of res judicata. Will the US decision be entitled to preclusive effect in Brazil?

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