Lago Agrio: Ecuador Wins A Round In The Investment Treaty Arbitration

Ecuador had a win yesterday in its investment treaty arbitration with Chevron. The tribunal issued its decision on track 1B of the case.

Let’s situate the new decision in the overall litigation. The arbitration is divided into two tracks. Track Two, which hasn’t been decided yet, is the juicier of the two tracks; it deals with the supposed corruption in the Ecuadoran courts during the Lago Agrio proceedings. Track One has to do primarily with the 1995 settlement agreement between Texaco and the Ecuadoran government. Chevron claims that the settlement barred the Lago Agrio plaintiffs’ claims against it, though of course the Ecuadoran courts disagreed.

In the First Partial Award, issued in September 2013, held that Chevron was one of the “releasees” under the settlement agreement, but that the release extended only to so-called “diffuse” environmental claims, not to individual environment claims. (I’m not completely sure I understand what a “diffuse” claim is; at a simplistic level, it’s a collective claim rather than a claim belonging to the individual plaintiff).

The issue in today’s decision (not an award, the tribunal was careful to say) was whether the claims against Chevron were “diffuse” environmental claims, in which case they were barred by the release, or whether, as Ecuador asserted, they were individual environmental claims, in which case they were not within the scope of the release. Ordinarily arbitrators would tend to defer to the decision of the municipal courts on such a question of local law, but as the tribunal pointed out here, in light of the unresolved issues about judicial corruption in Track Two, it wasn’t really appropriate at this stage to defer to the Ecuadoran courts. So the tribunal addressed the question by looking in detail at the parties’ written pleadings in the Lago Agrio case rather than at the Ecuadoran courts’ actions or decisions. The tribunal addressed this question in light of what appeared to be a point agreed by both parties: the release did not bar the LAPs from bringing in Ecuador the same claims they had sought to bring in the United States in the Aguinda case, which ended in the forum non conveniens dismissal; and the claims in the Aguinda case were individual claims, albeit brought as a class action.

Parts of the Lago Agrio complaint point towards treating the complaint as containing diffuse claims. For example, the complaint alleged that Ecuadoran law treats environmental rights as collective rights, and it seemed to seek relief on behalf of the collective. On the other hand, the complaint was brought by named individuals—the same individuals who were plaintiffs in Aguinda. Chevron conceded that if all 30,000 affected Ecuadorans had sued in their own names, there would have been no diffuse claim problem. So the pleadings were ambiguous, and the tribunal looked to the substance.

The tribunal’s main conclusion of Ecuadoran law was that a claim could be individual even if the plaintiffs seek a remedy such as environmental remediation for widespread environmental damage. The tribunal also focused on the Second Circuit’s observation that the Ecuadoran case was intended as the repleading of the Aguinda case, or rather, the pleading of the Ecuadoran equivalent of the New York claims. Thus the tribunal concluded that the Lago Agrio complaint did contain at least some claims that were materially equivalent to the claims in Aguinda and that were, therefore, individual. Chevron cannot show, therefore, that the Ecuadoran courts deprived Chevron of its rights under the BIT by holding that the 1995 settlement did not bar the Lago Agrio plaintiffs’ claims outright.

This is a pretty big win for Ecuador, though it is only a partial win, as Chevron will still assert its claims about judicial improprieties and denial of justice. Indeed, in light of the still-pending track two issues, I wonder why the tribunal structured things this way? Why not decide track two first? That way, if the tribunal ultimately were to reject Chevron’s claims about denial of justice, corruption in the courts, etc., it could then give the Ecuadoran courts’ views of Ecuadoran law the proper deference. I’m sure there were considerations on the other side, but it does seem odd to me.

One of the arbitrators, Dr. Horacio A. Grigera Naón, dissented from the decision without an opinion. I believe he is Chevron’s party-appointed arbitrator. So there was room for another view, though I haven’t yet seen the dissent.

I can’t really evaluate how well the tribunal did in trying to apply Ecuadoran law to the facts here. But it seems to me that the repleading of the case in Ecuador required some reconceptualization of the claims because of the differences between the US and Ecuadoran court systems. The burden created by the uncertainties in that process of reconceptualization ought, I think, to be borne by Chevron, which procured the forum non conveniens dismissal. So I find the outcome tribunal’s decision highly plausible.

There will be more news from the Hague before too long in this case; I understand new Track 2 briefs are to be filed shortly. I’ll keep you posted.

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.

5 thoughts on “Lago Agrio: Ecuador Wins A Round In The Investment Treaty Arbitration

  1. Thanks for the update and analysis Ted. So let’s go with the tribunal’s finding that the Ecuador plaintiffs have individual claims against Chevron that were not released. Let’s also assume that the ruling from Ecuador is found to be fraudulent and not recognizable in any US courts (and for purposes of the hypothetical) or anywhere else in the world that the Ecuador plaintiffs could collect on the judgment against Chevron. At that point, what would prevent the Ecuador plaintiffs from bringing a new lawsuit in the U.S.? Since no final judgment on the merits, I wouldn’t think res judicata would be a bar. Statute of limitations perhaps?

    1. Thanks Chad. I’ve never heard anyone suggest retrying the whole underlying case!

      Can you bring a new lawsuit in a forum that the courts have previously found to be seriously inconvenient?

      1. That is an interesting question as well. Chevron certainly has not found the U.S. forum to be inconvenient for purposes of discovery and recognition proceedings.

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