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Chevron defeats Ecuador’s challenge to denial of justice award- Global Arbitration Review

Date: Sep 21, 2020

A Dutch court has rejected Ecuador’s bid to overturn an investment treaty award holding it liable for denial of justice in its US$9.5 billion dispute with Chevron over environmental contamination in the Amazon.

In a judgment yesterday, the District Court of the Hague upheld in full the partial UNCITRAL award on liability– dismissing arguments that the tribunal acted outside its mandate and issued orders that were impossible to comply with.

Ecuador was represented in the court by Clifford Chance, having previously used De Brauw Blackstone Westbroek in the Dutch proceedings. It is using Foley Hoag and Dechert in the arbitration.

Linklaters partner Gerard Meijer, who led Chevron’s representation in the Dutch court, having previously worked on the case at NautaDutilh before switching firms last year, says his firm is “pleased that the district court arrived at the right decision” in the case.

Chevron was also represented in the court by Dutch firms Zenas Legal and bureau Brandeis. King & Spalding and Three Crowns represent Chevron in the arbitration – along with the company’s in-house counsel.

The partial award on liability was issued by a tribunal at the Permanent Court of Arbitration in 2018, at that time chaired by the UK’s VV Veeder. He was r eplaced on the panel following his death earlier this year by Dutch arbitrator Albert Jan van den Berg.

Argentine arbitrator Horacio Grigera Naón and Essex Court Chambers barrister Vaughan Lowe QC have been appointed by Chevron and Ecuador respectively.

The panel unanimously upheld claims by Chevron and its subsidiary Texaco Petroleum that Ecuador committed a denial of justice under customary international law and the US-Ecuador bilateral investment treaty.

The case concerns a 2011 judgment issued by a court in Lago Agrio, Ecuador, ordering Chevron to pay US$9.5 billion in compensation for environmental pollution at a site that Texaco had operated in partnership with state- owned entity Petroecuador between 1964 and 1992.

Chevron has issued a statement saying the court noted that “the fraudulent character of the Lago Agrio judgement and the proceedings preceding it is common ground between the parties” and concluded that the international tribunal’s orders properly sought to “remove the consequences of a fraudulent judgment that was rendered by a corrupt judge.”

Tribunal addressed local remedies argument

In its set aside bid, Ecuador argued that the 2018 award failed to address a key element of its defence, concerning whether Chevron had exhausted local remedies before bringing its treaty claim.

The state argued that Chevron could have first recused the judge that issued the Lago Agrio judgment – said to have been ghost-written by other parties – or lodged a complaint with the Judicial Council of Ecuador.

Ecuador also argued that Chevron could have sued under the Ecuadorian Collusion Protection Act and put an end to the “procedural abuses” in the Lago Agrio court. This, it said, would have allowed the Ecuadorian legal system to itself establish whether there had been a denial of justice.

The tribunal ruling on these points was decisive as to whether Chevron had exhausted local remedies and whether a denial of justice had occurred, Ecuador argued.

However, the court found that the tribunal made its denial of justice ruling after finding that Chevron had exhausted all local remedies that could rectify the shortcomings of the Lago Agrio court in a timely, effective and adequate manner.

It found that the tribunal had implicitly rejected the other remedies identified by Ecuador because they did not meet those requirements.

No breach of separation of powers

Ecuador said the tribunal had ordered it to quash the Lago Agrio judgment, which it said was impossible to comply with due to the principle of separation of powers. It also argued that the execution of such an order would have violated the rights of the Lago Agrio plaintiffs.

The tribunal had therefore gone beyond its jurisdiction, with the order constituting a breach of public policy, it argued.

The court said that the tribunal had not ordered Ecuador to overturn the Lago Agrio judgment, but had instead told the state to remove the enforceability status of that judgment in any way it saw fit.

Ecuador also objected to the tribunal ordering it to pay restitution to Chevron – but the court said the question of whether the tribunal was correct to make such an order under international law was outside of its jurisdiction.

“Extra-territorial” jurisdiction argument dismissed

Ecuador also said that the award could mean it is held liable if the Lago Agrio judgment, in spite of warnings from the state and Chevron, was enforced in other countries. Therefore the tribunal acting outside of its mandate in the arbitration, Ecuador argued.

The court however agreed with Chevron that Ecuador’s argument rested on a far-reaching interpretation of the tribunal’s order and that the award did not require the state to exercise extra-territorial jurisdiction, but only to “remove the status of enforceability” from the fraudulent Lago Agrio judgment and to ensure that the Lago Agrio plaintiffs and related parties are not able to enforce the ruling.

If Ecuador complies with the tribunal’s orders, including by recognising the judgment as fraudulent and taking reasonable steps to prevent enforcement, the court said it was hard to imagine the state would be held liable if the judgment was nevertheless enforced elsewhere.

Earlier this year, Chevron defeated what it said was the final attempt by the Lago Agrio plaintiffs to enforce the US$9.5 billion judgment internationally following a decision of Argentina’s Supreme Court.

The company has previously fended off other attempts in Brazil, Canada, Gibraltar, The Hague and the US – where the judgment was also ruled to be a product of fraud.

Citing a postscript from the award, the Dutch court said that it was “difficult to understand” how the parties have spent so much money on legal proceedings when the money could have been used to repair environmental damage in the Lago Agrio region and address personal harm of individual plaintiffs.

Last year, Chevron defeated Ecuador’s bid to set aside a set of earlier awards issued in the arbitration in the Dutch Supreme Court, which refused to disturb a lower court’s findings that the five awards did not violate Dutch public policy or the rights of Ecuadorean citizens who are not parties to the arbitration.

Meanwhile, a criminal contempt trial against the Lago Agrio plaintiffs’ counsel in the original Ecuadorian court proceeding, US lawyer Steven Donziger, was delayed until 4 November by a New York judge that is set to hear the case.

Donziger has been under house arrest pending the trial for over a year awaiting trial on charges that r eportedly carry a maximum sentence of six months.

Earlier this month, over 200 lawyers from the International Association of Democratic Lawyers f iled a judicial c omplaint against the judge that issued the house arrest order for the “abusive targeting” of Donzinger, alleging “a series of shocking violations of the judicial code of conduct.”

Chevron Corporation and Texaco Petroleum Company v Ecuador

In the District Court of The Hague

Counsel to Chevron

  • Linklaters

Partner Gerard Meijer, managing associate Bo Ra D van der Plas-Hoebeke, associate Richard Hansen, and junior associate Luuk Uilenbroek in Amsterdam

  • Zenas Legal

Partner Jozua van der Beek in Amsterdam

  • Bureau Brandeis

Partner Louis Berger in Amsterdam

  • Chevron managing in-house counsel Andres Romero-Delmastro in California

Counsel to Ecuador

  • Clifford Chance

Counsel Juliette JM Luycks in Amsterdam

In the UNCITRAL arbitration (PCA Case No. 2009-23)

Tribunal

  • Albert Jan van den Berg (Netherlands) (president)
  • Horacio Grigera Naón (Argentina) (appointed by Chevron)
  • Vaughan Lowe QC (UK) (appointed by Ecuador)

*replaced VV Veeder QC following his death in March 2020

Counsel to Chevron Corporation and Texaco Petroleum Company

  • In-house counsel Hewitt Pate, Ricardo Reis Veiga, Jose Martin and Andres Romero-Delmastro of Chevron Corporation
  • King & Spalding

Partners Doak Bishop, Tracie Renfroe, Wade Coriell, Carol Wood and Elizabeth Silbert with counsel David Weiss and associates Sara McBrearty, Eldy Quintanilla Roché and Ginny Castelan in Houston; partners Ed Kehoe and Caline Mouwad, counsel Isabel Fernández de la Cuesta and associate Jessica Beess und Chrostin in New York; partners Brian White and counsel Amelia Magee in Atlanta; and associate Anisha Sud in Singapore

  • Three Crowns (from September 2014)

Partners Jan Paulsson and Luke Sobota

  • James Crawford SC of Matrix Chambers (until September 2014)

Counsel to Ecuador

  • Attorney general Diego García Carrión (until February 2018), acting attorney general Rafael Parreño Nava (until August 2018) and attorney general Íñigo Salvador Crespo (from August 2018); former director of international affairs and arbitration Blanca Gómez de la Torre (until August 2018) and the new director of international affairs and arbitration Claudia Salgado Levy; and Christel Gaibor, Luis Felipe Aguilar, Daniela Palacios, Maria Teresa Borja, Xavier Rubio and Macarena Bahamonde Foley Hoag
  • Winston & Strawn (until 2019)

Partners Eric Bloom, Nicole Silver* and Tomás Leonard* with associates Eric Goldstein, Carolina Romero Acevedo and Kathy Ames Valdivieso in DC, partner Ricardo Ugarte in Chicago,

and Nassim Hooshmandnia in Hong Kong

*both no longer with firm

  • Professor Pierre Mayer
  • Dechert

Partners Eduardo Silva Romero, José Manuel García Represa and senior associate Audrey Caminades in Paris with international counsel Alvaro Galindo in Washington, DC (from December 2014)

  • Zachary Douglas and Luis Gonzalez Garcia of Matrix Chambers (until November 2014)
  • David Agnor Rapaport & Skalny

Partner Gregory Ewing** in Maryland

** Stayed on the case after leaving Winston & Strawn in October 2016

Expert witnesses

For Chevron

  • Robert Wasserstrom
  • Ángel Oquendo of the University of Connecticut School of Law
  • Vladimiro Álvarez Grau in Guayaquil
  • Enrique Barros Bourie of Enrique Barros & Compañía in Santiago, Chile
  • César Coronel Jones of Coronel & Pérez in Guayaquil
  • David Caron Gregory Douglas*
  • Gustavo Romero Ponce of Romero Arteta Ponce in Quito
  • John A. Connor
  • Brent Kaczmarek of Navigant Consulting in Washington, DC
  • Michael Younger of Stroz Friedberg in Minneapolis
  • Robert Leonard*
  • Gerald McMenamin of California State University in Fresno
  • Mitchell Seligson of Vanderbilt University Jan Paulsson (later became counsel) William T. Allen
  • Weston Anson Adam Torres William D. Bellamy
  • Thomas E. McHugh* Robert Hinchee*
  • Suresh Moolgavkar of the University of Washington
  • Pedro J.J. Álvarez dated 31 May 2013; Douglas Southgate of Ohio State University Patrick Juola of Duquesne University* Santiago Velázquez Coello
  • Jorge Wright-Ycaza
  • Spencer Lynch of Stroz Friedberg*
  • Juan Carlos Riofrío Martínez-Villalba dated 13 January

For Ecuador

  • Roberto Salgado Valdez Genaro Eguiguren
  • Gilles Le Chatelier of Adamas Avocats
  • Fabián Andrade Narváez of Cardinal, Abogados y Consultores in Quito
  • Kenneth Goldstein*, Edward Garvey* and Jeffrey Short of the Louis Berger Group
  • Philippe Grandjean of the Harvard School of Public Health
  • Edwin Theriot
  • Kenneth Kaigler of Kaigler Consulting
  • Christopher Racich of Vestigant
  • Harlee S. Strauss*
  • Paul H. Templet of Louisiana State University
  • Jan M. van Dunné
  • Blanca Laffon of University of A Coruña

* Cross-examined at hearing