Lago Agrio: Update on the BIT Arbitration

Update: I updated this post to include an editorial comment about the Fourth Interim Award.

I haven’t written about the arbitration between Chevron and Ecuador in quite a while, so here is very brief post just to bring folks up to date. I highly recommend Luke Eric Peterson’s International Arbitration Reporter for additional and sometimes more timely coverage.

  • On February 7, 2013, the tribunal issued its Fourth Interim Award, which held that Ecuador should show cause why it should not be liable to Chevron for damages arising from its violation of the earlier interim awards that ordered Ecuador to suspend the effectiveness of the Lago Agrio judgment against Chevron. The tribunal’s decision to seek to force Ecuador to suspend the judgment has been controversial to say the least, but it seems to me that whether the decision ultimately is right or wrong, and indeed whether Ecuador ultimately wins or loses on the merits, it is bound by the tribunal’s decision. In a regular US litigation we would call the principle at stake the collateral bar rule: you have to obey an injunction even if it is wrong until you persuade the court, or an appellate court, to vacate it.
  • On February 18, 2013, Ecuador submitted a counter-memorial that lays out its arguments against Chevron’s claims of denial of justice. It’s a long document, and a full review of it would be a significant undertaking. I do want to highlight one argument Ecuador makes that I think has legs. The Lago Agrio judgment is still on appeal in Ecuador. Ecuador’s lawyers write: “a claim cannot be sustained where, as here, the claimant has failed to exhaust local remedies that would have or have in fact addressed the grievances of which it complains.” Chevron points to the fact that under Ecuadoran law the judgment is enforceable abroad to show that it has exhausted its local remedies or should be excused from further efforts to exhaust them. But is this reasonable? For one thing, Chevron could have prevented the judgment from becoming enforceable by posting a bond—a procedure that is part of the law in many jurisdictions including the United States. For another thing, it seems incorrect for Chevron to characterize the judgment as enforceable in any jurisdiction other than in Ecuador, since, as we have seen in Canada, it will be up to each state in which the LAPs seek recognition and enforcement to determine whether to give effect to the judgment. Anyway, it’s an interesting brief worth your time.

3 responses to “Lago Agrio: Update on the BIT Arbitration”

  1. Doug Cassel

    Ted posits, “Chevron could have prevented the judgment from becoming enforceable by posting a bond …”

    Ted’s supposition—in normal circumstances—would be reasonable. But not in Ecuador, not in the Lago Agrio case.

    Despite a 1992 Ecuadorian law requiring the National Court of Justice to publish guidelines for the amounts of appeal bonds, by 2012 the court had not done so. The amount of any bond thus remained discretionary with Ecuador’s appellate courts.

    In January 2012, Lago Agrio plaintiffs lawyer Pablo Fajardo asked the appellate court to set an appeal bond equal to at least three years of interest at 8.17% on the $18 billion-plus judgment. Do the math: even if compounded only once, the resulting bond would exceed $1.4 billion. (If compounded annually, it would be more like $4.4 billion.)

    Understandably Chevron did not agree to post this bond. Given the track record of Ecuador’s courts in the Lago Agrio litigation, Chevron would likely never have seen its billion(s) again.

    But the bond story does not end there. An earlier Interim Measures Order by the Arbitration Tribunal established under the US-Ecuador BIT had directed Ecuador to suspend enforcement of the Lago Agrio judgment pending a final arbitral award. Based on that Order, Chevron responded to Fajardo by asking the appellate court to suspend both the enforcement of the judgment and the requirement for an appeal bond.

    In February 2012 the appellate court ruled that Ecuadorian law required that the Lago Agrio Judgment was immediately enforceable. The only way enforcement could have been suspended, said the court, was if Chevron had requested an appeal bond. But since Chevron had merely opposed the plaintiffs’ outlandish proposal, and instead requested enforcement of the arbitral Order, the judgment was immediately enforceable.

    But all this is mere detail of the larger judicial reality in Ecuador. In a country whose judges live in constant fear of losing their jobs (or worse) if they dare to rule against the government in high profile cases, there was no way the appellate judges were going to defer enforcement of the very judgment recently declared by President Correa to be the most important in the nation’s history. The only real issue was how—not whether—they would carry out their assignment.

    1. Doug, your point is not unpersuasive—it will be more persuasive if and when Chevron ever wins a judgment holding that the Ecuadoran proceedings were corrupt. But even if that happens, it seems to me that the point about the effectiveness of the judgment is just a subsidiary point. Isn’t the main point that the Ecuadoran judgment is still on appeal, whether or not it is currently enforceable?

      1. Doug Cassel

        No, the main point is that the Ecuadorian courts — especially in this case — are not independent of the Executive’s publicly announced commitment to the fraudulent judgment. The evidence accumulated in your postings alone over the last year amply documents a prima facie case of fraud permeating the Ecuadorian proceedings. If any independent tribunal ever rules on the question, it is difficult to imagine an impartial verdict upholding the integrity of the judicial charade in Ecuador.

        This goes to the heart of your suggestion that Chevron be required to exhaust its Ecuadorian remedies, before the international Arbitral Tribunal examines Chevron’s challenge to the Ecuadorian proceedings. International law on exhaustion of domestic remedies makes clear that remedies need not be exhausted where, as in Ecuador in this case, the courts that administer those remedies lack independence.

        The case for non-exhaustion is all the more compelling where, as here, the challenged judgment has not only been made immediately enforceable, but is in fact being forum shopped in other countries in hopes of finding a judicial system willing to play ball with the Ecuadorians. The plaintiffs have wisely avoided any effort to enforce their judgment in the US, where multiple federal courts have found enough evidence of fraud to pierce the attorney client communications privilege. The plaintiffs have also recently been rebuffed by a Canadian court. Yet plaintiffs have to date found a comfy nest in the courts of — yes — Argentina (Need I say more?).

        Chevron should not have to endure — pending appeal against the stacked deck in Ecuador — the costs inflicted by the orders of Argentinian courts, in order to have its case heard by an impartial Arbitral Tribunal. If there were no immediate enforceability of the Ecuadorian Judgment and no other actual prejudice, one might argue that nothing would be lost by deferring Chevron’s arbitration until the Ecuadorian courts finish going through their motions. But that is not the case here. On the contrary, both equity and efficiency call for application of the ordinary international law rule, namely that domestic remedies before courts that lack independence need not be exhausted.

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