Lago Agrio: Estoppel in the Arbitral Award
Posted on September 11, 2018
This is the second post on the new award in the Chevron/Ecuador arbitration. I think there will be a few more. I wrote this on Sunday, and it’s possible that there has been some relevant coverage from others since then, so I hope that events haven’t overtaken this post!
One critique of a claim like Chevron’s which I’ve suggested myself on a couple of occasions, is this: on the one hand, Chevron says that the doctrine of corporate separateness protects its Canadian indirect subsidiary from liability for the judgment against Chevron itself, and that the doctrine protects Chevron itself from liability for the acts of its subsidiary, which was the surviving entity in the reverse triangular merger with Texaco. On the other hand, Chevron says that it had an investment in Ecuador that gives it a claim under the US/Ecuador BIT. Maybe that’s okay, but there’s at least a tension there that should be acknowledged.
The tribunal added a new wrinkle to the discussion. It’s not just Chevron seeking to have it both ways: it’s Ecuador (via its courts) and the LAPs. They treated Chevron as indistinguishable from Texaco in the Lago Agrio litigation and judgment. So why should it be heard to argue that Chevron had no investment in Ecuador and shouldn’t be able to assert claims under the BIT? We would say that Ecuador is estopped. The tribunal didn’t adopt the terminology of estoppel, “an Anglo-Saxon legal concept expressed in Norman-French” (quelle horreur!), but it reached the same conclusion under the heading of good faith. This seems persuasive. Chevron’s claim under the treaty came after the Lago Agrio plaintiffs’ claims, and the arbitral award obviously comes only after the Lago Agrio judgment. So if we step back and look at the whole picture, it seems right that in light of the positions the LAPs and Ecuador itself took in the Ecuadoran proceedings, they ought to be estopped to argue that Chevron had no investment in Ecuador.
Estoppel pops up elsewhere in the case, too. Texaco submitted to the jurisdiction of the Ecaudoran courts in the course of its successful efforts to have the original Aguinda litigation dismissed on forum non conveniens grounds. So should Chevron now be heard to argue that the Ecuadoran judgment, which was affirmed (as modified) after lengthy appeals in Ecuador, is void, or is not entitled to recognition? But the issues are not the same, because Texaco’s stipulation expressly reserved the right to challenge the judgment under New York’s judgment recognition statute. So even if there were grounds for estoppel, Texaco itself had not agreed to forgo challenges to the Ecuadoran judgment.