Lago Agrio: Chevron Wins Investment Treaty Arbitration Against Ecuador

Oil barrels in Ecuador

The tribunal hearing the investment treaty dispute between Chevron and Ecuador has issued a partial award that decides the case in Chevron’s favor. I learned of the award on Friday, and there’s a lot in there that eventually I want to write about. But I do want to take an initial look at an issue that I’ve been writing about for a long time. Chevron claims that the Lago Agrio judgment, issued under Judge Zambrano’s name, was in fact ghost-written. In the RICO case, the LAPs denied this, and Ecuador denies it, too. I’ve previously opined that while some of the fraud claims in the case had clearly been proved (notably, the claim that the LAPs’ team wrote the report of Cabrera, the supposedly independent expert), I didn’t think the claim of the ghostwritten judgment had been proved. My main concern was that the claim rested on the testimony of Guerra, who, if his testimony is true, is not someone who commands belief. I also noted some emails written by Pablo Fajardo, a member of Donziger’s team, which suggested that the LAPs’ counsel did not know how Judge Zambrano would decide the case: how could that be true if they were pulling the strings that would lead to the judgment?

The tribunal, like Judge Kaplan, after hearing Judge Guerra, credited the main points of his testimony. This is particularly striking after the tough cross-examination he faced in the arbitration. The Tribunal recognized that “particular caution” was required in assessing Guerra’s testimony. “In the past, Dr. Guerra has conducted himself with less than probity,” the tribunal wrote, and “there exists still a risk that Dr. Guerra could colour his testimony to favour the Claimants as his benefactors during his exile from Ecuador.” But “having seen and heard him in person subject to vigorous cross-examination,” the tribunal “considers that Dr. Guerra was a witness of truth in his testimony,” and it “relied upon his testimony where it can be corroborated by other evidence, at least in part.”

I really am not sure I would have reached the same conclusion as the arbitrators about Judge Guerra’s testimony. But there are a few points to note. First, the tribunal noted other evidence corroborating Judge Guerra’s testimony on various points. In particular, the tribunal, bearing in mind the time available to him and the size of the record, concluded that it was “inherently unlikely,” though not “absolutely impossible,” that Zambrano could have written the Lago Agrio judgment on his own given the size of the record and the time available to him. Second, the tribunal considered the argument about the Fajardo emails, but it rejected the conclusion I had reached, on the grounds that the emails had recipients who didn’t know about the ghostwriting, and thus that Fajardo would hardly have disclosed the scheme in those emails. Again, I’m not sure how persuasive this is, as it’s pretty clear from the existence of the Crude outtakes and emails using obvious Aesopian language (“the puppeteer,” “the puppet,” etc.) that Donziger’s team didn’t really take serious steps to prevent their words from being used against them. And third, the tribunal considered expert forensic analyses of the relevant hard drives and concluded that the forensic evidence was neither sufficient to show that the judgment was ghostwritten nor sufficient to show that it was not ghostwritten.

But as I wrote at the time of Judge Kaplan’s decision, we put decisions about credibility determinations in the hands of the fact-finder for a reason. I wasn’t in the room and I don’t think I am in a position to say that Judge Kaplan or the arbitrators were wrong. Just to make the point, take a look at this clip of testimony from Judge Kavanaugh before the Senate Judiciary Committee recently, and see if you think you can come to a conclusion, based on his demeanor, whether he’s being truthful.

Now, whatever conclusion you reached, you may be right or you may be wrong, but my point is just that we make judgments like this all the time, and our system of oral testimony by witnesses in the presence of the fact-finder is based on the idea of such judgments. So I think the best I can do is to say, “Based on what I’ve read, I’m not sure I would have decided whether to believe Guerra as these three arbitrators did, but I wasn’t there and I didn’t see the witness, so I can’t be sure.”

I also want to write briefly on the Tribunal’s characterization of Donziger’s actions. The tribunal went to great lengths to explain the steps it took to try to secure Judge Zambrano’s testimony. But while it said it “would have wished to hear” Donziger’s testimony, it said it would have been “pointless” for the tribunal to invite him to testify, because as the “principal defendant in the RICO litigation,” he “clearly had other more pressing personal priorities than assisting this Tribunal as a witness.” I asked Donizger about this: if he had been invited, would he have testified? His answer was equivocal. He told me, “Whether or not I would have testified would have depended on a number of factors, but I should have been invited.”

The tribunal reviewed some of Donziger’s statements about pressuring the judges, and it noted that while there was “no justification for Mr. Donziger’s improper conduct,” perhaps it could be explained by an honest belief “that Chevron was misconducting itself in much the same way towards the Lago Agrio plaintiffs, and to greater effect.” This is my sense, too, from watching the outtakes. The problem is that, as Donziger admitted in his testimony in the RICO case, there was no evidence, aside from the LAPs’ unhappiness with some of the judge’s decisions, that Chevron bribed or pressured the judge.

What comes next? I presume that Chevron will seek confirmation of the award. It would be natural to seek confirmation in the United States, but watch out for a confirmation petition in Ecuador: this might be attractive to Chevron in today’s political climate because an Ecuadoran judgment confirming the award might give the Ecuadoran government a way, if it wants one, to suspend the Lago Agrio judgment’s effectiveness without violating the principle of the independence of the judiciary. I also presume that Ecuador will seek to vacate the award, but it will have to do so in the Netherlands.

For those of you interested in press releases, you can find Chevron’s press release on the new developments here, and the Amazon Defense Coalition’s press release here.

4 responses to “Lago Agrio: Chevron Wins Investment Treaty Arbitration Against Ecuador”

  1. Alessandro Spinillo

    Thank you for covering this important development, Ted. Just a few thoughts on the matter. As I understood it, Chevron’s basic relief sought in the investment arbitration was an injunction ordering Ecuador to make its best efforts to prevent the LAPs from enforcing the Ecuadorian court ruling in their favor in any jurisdiction across the world. The tribunal had already granted a temporary injunction in favor of Chevron containing such an order, which now should become a definitive one. A tribunal admission that the Ecuador court ruling involved fraud would equate to a denial of justice under the Ecuador-USA BIT.

    I agree with you on that the next probable steps could be (1) Chevron moving to US courts to have the new award recognized and enforced (2) Ecuador moving to the competent Dutch court to set aside the new award. Given that arbitration awards are “portable”, Chevron, in addition to the defense of separate personality, can raise the new award as a defense on the merits in any jurisdiction in which the LAPs intend enforce their Ecuadorian ruling, thus the chances that the LAPs will ever collect that ruling have become even slimmer as from today.

    1. Thanks, Alessandro! I agree with your thought about the likelihood of collection.

  2. One other point: I think we should also look for a confirmation proceeding in Canada, which might then lead to a fight about the preclusive effect of the tribunal’s findings of fact. There may be a fight like that about the preclusive effect of Judge Kaplan’s findings, but in general a foreign court is more likely to recognize an arbitral award than to recognize a judgment, because recognition of arbitral awards is a treaty obligation, whereas recognition of a judgment is merely a matter of comity.

  3. […] is the third post about the new arbitral award in the Chevron/Ecuador case. The first post addressed the tribunal’s finding that the Lago Agrio judgment was ghostwritten. The second […]

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