Thanks, Doug. That is a helpful summary. My question was perhaps too narrow, as I asked why you had asserted that the tribunal had reached those conclusions before the Lago Agrio judgment, but I think it’s fair to assume that the tribunal’s later orders or awards, which you reference, reflect its thinking at the time of the earlier orders.

Dear Ted,

In a series of interim orders and awards, the tribunal implicitly concluded, initially, that there was a “reasonable possibility” that Chevron would prevail on its fraud claims, and, eventually, that Chevron had made out a “serious” and “prima facie” case of fraud. The sequence is as follows:

Chevron had pleaded fraud, both in its April 2010 requests for interim measures, and in its September 2010 memorial on the merits. In the February 9, 2011 order of interim measures, with respect to “the grounds” for Chevron’s application, “the Tribunal conclude[d] that the Claimants [Chevron and Texaco] have made out a sufficient case, …, under Article 26 of the UNCITRAL Rules, for the order … to take interim measures …” The standard of UNCITRAL Rule 26.3(b) requires parties seeking interim relief to satisfy the tribunal, inter alia, that there is a “reasonable possibility” that they will succeed on the merits. The tribunal thus implicitly found a “reasonable possibility” that Chevron would prevail on “the grounds” of its application, which included the fraud claims.

The tribunal’s First Interim Award, dated January 25, 2012, was more explicit. In re-issuing its earlier “order” for interim measures, now as an “interim award,” it quoted Chevron’s January 12, 2012 request for a declaration that Claimants had made out a prima facie case on the merits, including on their claim that the Lago Agrio litigation “has been tainted by fraud and/or serious due process violations.”

The tribunal’s Second Interim Award of February 16, 2012 again ordered Ecuador to suspend recognition and enforcement of the Lago Agrio judgment. It “determine[d] further that the Claimants have established, for the purpose of their said applications for interim measures, (i) a sufficient case as regards both this Tribunal’s jurisdiction to decide the merits … and the Claimants’ case on the merits …”

Finally, eleven days later, in its Third Interim Award, finding that it had jurisdiction (pars. 4.57 and 4.58), the tribunal explicitly found a “serious” and “prima facie” case of fraud. Referring to the fraud claims as set forth in the oral argument, the tribunal commented:

“There is no doubt in the Tribunal’s mind that the allegations … rank amongst the gravest accusations which can be advanced by a claimant against a modern State subject to the rule of law. There is equally no doubt that these allegations are deeply offensive and repellent to the Respondent. … ”

“The Claimants’ allegations may be completely false or completely true. As yet, the Tribunal has formed no concluded view on any of these contested allegations one way or the other. Its decision in this Award is limited to the required application of the prima facie standard … to the Respondent’s jurisdictional objections; and for this limited purpose it has concluded that the Claimants’ pleaded case is serious and not advanced in bad faith; nor is its case incredible, frivolous or vexatious.”

That remains the tribunal’s stated position on the fraud claims, pending its ruling on the track 2 issues.

Thanks, Doug, for the observations.

What is the basis for the assertion that “the arbitral tribunal had already concluded that Chevron’s case on the merits—including Chevron’s evidence of pervasive fraud in the Lago Agrio proceedings—was strong enough to warrant the issuance of interim measures” by February 2011? Neither of the two orders on interim measures that I have seen (the orders of 5/14/10 and 2/9/11) address the tribunal’s view of the merits of the case. It may be that there is some other explanation of the decision that I have not seen, or that you are saying that the tribunal, by necessary implication, made a decision about Chevron’s likelihood of success on the merits of its denial of justice claim—I am not sure.

Dear Ted,

Normally I would agree that a tribunal should decide the issue of preclusion before it decides the issue that may be precluded. In this case, however, even before the Lago Agrio court issued its judgment in February 2011, the arbitral tribunal had already concluded that Chevron’s case on the merits—including Chevron’s evidence of pervasive fraud in the Lago Agrio proceedings—was strong enough to warrant the issuance of interim measures ordering Ecuador not to enforce any judgment that might result from the Lago Agrio proceedings. In that circumstance, it would have been incongruous for the tribunal to rule itself precluded by a judgment tainted by substantial evidence of fraud, on which the tribunal expected eventually to rule.

Perhaps you are suggesting that the tribunal should have rendered a final award on the fraud issues before, or simultaneously with, its ruling on the legal effect of the Texaco settlement. That would make logical sense; if the tribunal indeed ruled that there was pervasive fraud, there would have been no need to treat seriously any issue of preclusion by a fraudulent judgment.

I don’t know why the tribunal chose instead to address the settlement issue first, before ruling on the fraud. But I can think of at least two possible reasons. One is efficiency: the legal effect of the settlement is mainly a legal issue, which the tribunal could have expected to take the tribunal far less time to resolve than would Chevron’s multiple, fact-specific allegations of pervasive fraud in the Ecuadorian proceedings. If the settlement issue were finally resolved in track 1, it might have been dispositive of the case, perhaps obviating the need to reach the fraud issues in track 2.

A second possible reason is comity. The tribunal may have been understandably reluctant to reach the merits of the fraud issues, which would require it to pass judgment on the allegedly unsavory conduct of the Ecuadorian courts. The tribunal may have preferred to try to dispose of the case on the legal issue of the effect of the settlement, which would not require the tribunal to make any evaluative statements about either the Lago Agrio court or the Ecuadorian judicial system generally. All sides might have been spared embarrassment.

In any case, the arbitration is now headed for a track 2 ruling. If, as seems likely, the tribunal now reaches the fraud issues, its ruling is likely to demonstrate why preclusion would not have been appropriate, because no issue should be precluded by a fraudulent judgment —Doug

L. Conrad, that’s what I suggested in the prior post. But shouldn’t that necessarily have come before a decision about the Ecuadoran law question? I guess that’s my point.

Would Chevron not be able to argue at least “denial of justice” against the ROE with respect to preclusion claims. See Professor Alford’s recent article in the Virginia Journal of International Law. http://ssrn.com/abstract=2208816.

I do not think, though, that I agree with your take on the issue preclusion issue. Even given the way the tribunal divided the issues into two tracks, it seems to me the tribunal should have considered whether it was required to follow the Ecuadoran court’s view of Ecuadoran law before it decided the question of Ecuadoran law. I don’t think that given its decision, the tribunal can really say in track 2 that the LAP claims, even if collective, were not barred by Ecuadoran law after all. Maybe this is just a way of saying that the tribunal’s division of the issues into two tracks turned out not to be sensible.