Sector Civil Law
Case number : 200,193,418/01
Case number court : (illegible)
Judgment dated 18 July 2017
The Republic of Ecuador
established in Quito, Ecuador appellant
Attorney: G.W. van der Bend LL.M., in Amsterdam
1. Chevron Corporation (USA)
2. Texaco Petroleum Company,
both established in the San Ramon, United States of America appellees
hereinafter jointly to be called: Chevron c.s., and each of them separately: Chevron and TexPet. Attorney: GJ. Meijer in Rotterdam
i. Since 2001 Chevron is an indirect shareholder of TexPet.
ii. In 1964 and 1965 Ecuador granted a concession for the extraction of oil in the Amazon territory, to a syndicate from which TexPet was a part (hereinafter: the Consortium) and in which she acted as "Operator" until 1990. On 16 August 1973 a consortium agreement was concluded between the Consortium and Ecuador. The agreement was valid until 6 June 1992. Gradually the state company of PetroEcuador obtained a majority interest in the Consortium. After expiry of the concession agreement TexPet stopped its oil extraction activities in Ecuador.
iii. In 1993 the USA and Ecuador concluded a bilateral investment treaty (hereinafter: BIT) On 11 May 1997 the BIT entered into force.
iv. In November 1993 a group of Ecuadorean citizens initialed legal proceedings against Texaco (the former parent of TexPet) in the United States District Court for the Southern District of New York (hereinafter: the New York District Court) for the environmental pollution caused by Texaco (hereinafter: the Aguinda proceedings) as a consequence of which the plaintiff's would have suffered losses. One of the defenses of Texaco was that the legal action should be taken to Ecuador. The ambassador of Ecuador supported this view.
v. In December 1994 Ecuador. PetroEcuador and TexPet signed a Memorandum of Understanding (hereinafter: MOU), the purpose of which, inter alia, was;
To establish the mechanisms by which TexPet is to be released from any claims that the Ministry (of energy and mines, addition by the Appeal Court) and PETROECUADOR may have against TexPet concerning the environmental impact caused as a consequence of the operations of the former PETROECUADOR- TEXICO Consortium
vi. On 4 May 1995 Ecuador, PetroEcuador and TexPet concluded an agreement (hereinafter to be referred to as: the 1995 Settlement Agreement), where TexPet committed themselves to perform specific environmental sanitation measures, and where the two other parties staled (in article 5.1) that they:
"shall hereby release acquit und forever discharge TexPet (...) and all their (...) successors, predecessors, principals and subsidiaries hereinafter referred to as "The Releases ") of all the government s and PetroEcuador's claims against the Releases for Environmental Impact arising from the Operations of the Consortium (...)"
vii. In 1996 The New York District Conn declared not to have jurisdiction in the Aguinda proceedings, based on forum non conveniens and "international comity". In 1998 the Court of Appeals reversed the decision in 1998 to a lower court because Texaco had not agreed to the jurisdiction of the Court in Ecuador. Subsequently Texaco committed themselves not to contest the jurisdiction of the Court in Ecuador, including the enforcement proceedings, if any, and only to invoke the New York Recognition of Foreign Country Money Judgments Act. following this, the New York District Court again declared not to have jurisdiction in August 2002, based on the forum non conveniens.
viii. On 30 September 1998 Ecuador, PetroEcuador and TexPet concluded a second agreement (hereinafter to be referred to as: the 1998 Final Release), where TexPet and the other "Releasees" would be forever released and discharged of all liability towards Ecuador.
ix. In 1999 the Environmental Management Act was implemented in Ecuador, providing for the possibility of a class action for, summarized, environmental pollution (according to Ecuador such action was also possible under previous legislation).
x. In May 2003 several Ecuadorian citizens, largely the same persons as the plaintiffs in the Aguinda Proceedings, initiated legal proceedings against Chevron in the district court of the city of Nueva Loja (usually called Lago Agrio), Ecuador, on the basis of environmental pollution caused by TexPet (hereinafter: the Lago Agrio Proceedings).
xi. In 2004 Chevron and TexPet tiled an application for arbitration against PetroEcuador with the American Arbitration Association (AAA) in New York, in order to oblige (among other things) PetroEcuador to hold Chevron and TexPet harmless against claims in those proceedings. PetroEcuador and Ecuador initiated legal action in New York to prohibit the arbitration. On 19 June 2007 the New York District Court definitely prohibited the AAA arbitration.
xii. On 21 December 2006. Chevron and I exPet initiated arbitration proceedings against Ecuador based on the BIT, stating that Ecuador is liable for the losses they suffered because of intolerable delays in the settlement of seven court proceedings TexPet had initiated against Ecuador under the Concession agreement (hereinafter: the Commercial Cases Dispute). The Arbitration Tribunal found in favor of Chevron and TexPet The claim to overturn the arbitral decision has been rejected in three instances (Supreme Court of the Netherlands 28 September 2014. ECU:NL:HR:2OI4:2837).
xiii. On basis of the BIT Chevron and TexPet initiated the arbitration proceedings that are the subject of these annulment proceedings on 23 September 2009. In those arbitration proceedings, they claimed inter alia (in the "Claimants' Memorial on the Merits ' of 6 September 2010. par. 547. quoted by the Arbitration Tribunal in the Third Interim Award, page 9);
"1. Declaring that under the /995. 1996, and 1998 Settlement and Release Agreements (Chevron and TexPet) have no liability or responsibility for environmental impact, including but not limited to any alleged liability for impact to human health, the ecosystem, indigenous cultures, the infrastructure, or any liability for unlawful profits, or for performing any further environmental remediation arising out of the former Consortium that was jointly owned by TexPet and Ecuador, or under the expired Concession Contract between TextPet and Ecuador,
2. Declaring that Ecuador has breached the 1995, / 996 and 1998 Settlement and Release Agreements and the United Slates-Ecuador BIT.
3. Declaring that under the Treat)’ and applicable international law Chevron is not liable for any judgment rendered in the Lago Agrio litigation.
4 Declaring that any judgment rendered against Chevron in the Lago Agrio litigation is not final, conclusive or enforceable
5. Declaring that Ecuador or PetroEcuador (or Ecuador and PetroEcuador jointly) are exclusively liable for any judgment rendered in the Lago Agrio litigation
6. Ordering Ecuador to use all measures necessary to prevent any judgment against Chevron in the Largo Agrio litigation from becoming final conclusive or enforceable.
7. Ordering Ecuador to use all measures necessary to enjoin enforcement of any judgment against Chevron rendered in the Lago Agrio litigation including enjoining the nominal Plaintiffs from obtaining any related attachments, levies or other enforcement devices.
8. Ordering Ecuador to make a written representation to any court in which the nominal plaintiffs attempt to enforce a judgment from the Lago Agrio litigation staling that the judgment is not final, enforceable or conclusive]]
11 Awarding I Chevron and TexPet 1 indemnification against Ecuador in connection with a Lago Agrio judgment, including a specific obligation by Ecuador to pay [Chevron und TexPet] the sum of money awarded in to the Lago Agrio judgment
12. Awarding [Chevron and TexPet] any sums that the nominal Lago Agrio plaintiffs collect against [Chevron and TexPet] or their affiliates in connection with enforcing a Lago Agrio judgment.
13. Awarding all costs and attorney's fees incurred by [Chevron and TexPet[ in I defending the Lago Agrio litigation and the criminal proceedings 2 pursuing this Arbitration 3 uncovering the collusive fraud through investigation and discovery proceedings in the United States. 4. opposing the efforts by Ecuador and the Lago Agrio plaintiffs to slay this Arbitration through litigation in the United States. 5. as well as all costs associated with responding to the relentless public relations campaign by which the Lago Agrio plaintiffs’ lawyers (in collusion with Ecuador) attached Chevron with false and fraudulent accusations concerning this ease. (...)
14 Awarding moral damages to compensate [Chevron and TexPet] for the non-pecuniary harm that they have suffered due to Ecuador's outrages and illegal conduct (...)
xiv. On 3 December 2009 Ecuador filed a request at the New York District Court to stay the arbitration. In a judgment dated 16 March 2010 this request was rejected. On 17 March 2011 the Court of Appeals confirmed this judgment,
xv. In the arbitration proceedings. Chevron and TexPet requested interim relief measures. On 9 February 2011 and on 16 March 2011 the Arbitration Tribunal issued Procedural Orders, in order to frustrate the recognition and execution of the (forthcoming) Lago Agrio judgment
xvi. In February 2011 Chevron initiated in New York a claim against the Lago Agrio plaintiffs, their lawyer (Donzinger) and their environmental experts, so as to have established that the Lago Agrio Proceedings were fraudulent and that the execution of a judgment of lhe Ecuadorian court should be prohibited in advance. The New York District Court (Judge Kaplan) allowed this claim on 7 March 2011 as an interim relief, but on 26 January 2012 the Court of Appeals rejected the claim.
xvii. Chevron was sentenced (suspended) to pay USS 8.6 billion in the Lago Agrio Proceedings by the Superior Court of Nueva Loja, in a judgment dated 14 February 2011. to be increased by US$ 8.6 billion in punitive damages and legal costs amounting to 10%. which decision was confirmed by the Appeal Court (the Provincial Court of Sucumbios) on 3 January 2012. In a ruling of 12 November 2013 the Supreme Court of Ecuador overturned the sentence to compensate punitive damages and confirmed the judgment as to the rest.
xviii. In reaction to the judgment of the Ecuadorian Appeal Court Judge, Chevron requested the Arbitration Tribunal to convert the earlier procedural orders into an interim judgment. Following that and at the request of Chevron, the Arbitration Tribunal in the First Interim Award on Interim Measures dated 25 January 2012 (hereinafter: First Interim Award) determined, inter alia, that Ecuador must take:
all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against [Chevron] in the Lugo Agrio case."
xix. In the Second Interim Award on Interim Measures dated 16 February 2012 the Arbitration Tribunal (again) determined:
"3. (...) The Tribunal hereby orders:
(i) [Ecuador] (whether by its judicial, legislative or executive branches) to take all measures necessary to suspend or cause to be suspended the enforcement and recognition within and without Ecuador of the judgments by the Provincial Court of Sucumbios (...) of 3 January 2012 (...) and (...) of the judgment by Judge Nicolas Zamhrane Lozada of 14 February 201) against [Chevron] in the Ecuadorian legal proceedings known as the "Lago Agrio Case ":
(ii) in particular, without prejudice to the generality of the foregoing, such measures to preclude any certification by [Ecuador] that would cause the said judgments to be enforceable against [Chevron]: (...) until any further order or award made by the Tribunal in these arbitration proceedings:
4. The Tribunal determines that [Chevron and TexPet] shall he legally responsible jointly and severally, to the Respondent for any costs or losses which ] Ecuador] may suffer in performing its legal obligations under this Second Interim Award, as may be decided by the Tribunal within these arbitration proceedings (to the exclusion of any other jurisdiction); and further that, as security for such contingent responsibility. [Chevron and TexPet ] shall deposit within thirty days of the date of this Second Interim Award the amount of USS 50,000,000.00 (United States Dollars Fifty Million) with the Permanent Court of Arbitration in a manner to be designated separately to the order of this Tribunal. (...) "
xx. Alter determining the First Interim Award, Chevron requested the Provincial Court of Sucumbios to refuse the execution of the Lago Agrio Judgment or to suspend it. On I March 2012 the judge rejected this request because it would be in conflict with the "right to have access to the judge".
xxi. On 9 February 2012 the Lago Agrio plaintiffs filed a request for "precautionary measures " with the Inter-American Commission (for the human rights) to prevent that Ecuador would comply with the Interim Awards. The Commission asked the plaintiffs for substantiating evidence of the impact on their health in connection with their accusations, (hereupon t he plaintiffs withdrew their request on 2 March 2012.
xxii. In the Third Interim Award on Jurisdiction and Admissibility dated 27 February 2012 (hereinafter: Third Interim Award), the Arbitration Tribunal gave its opinion on its jurisdiction.
xxiii. In 2012 the plaintiffs in the Lago Agrio Proceedings tried to execute the Lago Agrio judgment (after it had been confirmed in appeal) in Canada. Brazil and Argentina. These attempts have not (yet) been successful.
xxiv In the Fourth Interm Award on Interim Measures dated 7 February 2013 (hereinafter Fourth Interim Award), the Arbitration Tribunal judged inter alia:
"The Tribunal declares that [Ecuador] has violated the First and Second Interim Awards under the Treaty, the UNCITRAL Rules and international law in regard in the finalization enforcement subject to execution of the Lago Agrio Judgment within and outside Ecuador, including but not limited to Canada, Brazil and Argentina ’
xxv. In the First Partial Award on Track I dated 17 September 2013 (hereinafter: First Partial Award), the Arbitration Tribunal judged inter alia that:
"(1) [Chevron] and [TexPet] are both Releasees " under Article 5.1 of the 1995 Settlement Agreement and Article IV of the 1998 Final Release:
(2) As such a Release, a party to and also part of the 1995 Settlement Agreement. [Chevron] can invoke its contractual rights thereunder in regard to the release in Article 5.1 of the 1995 Settlement Agreement and Article IV of the 1998 Final Release as fully as [TexPet] as a signatory party and named Releasee;
(3) The scope of the releases in Article 5 of the 1995 Settlement Agreement and Article IV of the 1998 Final Release made by [Ecuador] to [Chevron and TexPet] does not extend to any environmental claim made by an individual for personal harm in respect of that individual 's rights separate and different from [Ecuador]; but it does have legal effect under Ecuadorian law precluding any diffuse " clam against [Chevron and TexPet] under Article 19.2 of the Constitution made by [Ecuador] and also made by any individual not claiming personal harm (actual or threatened)."
xxvi. On 4 March 2014. in proceedings Chevron had initiated against Donziger and two Lago Agrio plaintiffs on the basis of the Racketeering Influenced Corrupt Organization Act (RICO), the New York District Court (Judge Kaplan) judged that the Lago Agrio decision had been effected by means of fraud.
On 8 August 2016 this judgment was confirmed by the Court of Appeals.
xxvii. On 12 March 2015 the Arbitration Tribunal issued its Decision on Track IB.
The Arbitration Board determined that:
"the (...) Lago Agrio Complaint, as originally filed, does include individual claims and cannot be read (...) as pleading "exclusively'’ or " only diffuse claims To this extent, the reliance [of Chevron and TexPet I on the 1995 Settlement Agreement as a complete bar in the Lago Agrio Complaint at inception must fail in limine, as a matter of Ecuadorian law (being the law applicable to the 1995 Settlement Agreement). At this point, however, the Tribunal must suspend its further analysis for the reasons already described above, given that the Tribunal does not think it right by this decision in Track IB of this arbitration to consider the subsequent conduct of the Lago Agrio Court, the Appellate Court of Lago Agrio and the Cassation Court in regard to their actual treatment of the Lago Agrio Complaint, being all matters scheduled for Track 2. "
Apart from that, based on article VII, paragraph I, final words of the BIT, the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter: UAR) 1976 version, apply to the arbitration.
а. because a valid agreement for arbitration is lacking;
b. because the Arbitration Tribunal did not comply with its assignment: c. because the award is in conflict with the public order.
Through ground for appeal II Ecuador contests the judgment of the district court that there is a valid arbitration agreement between Chevron and Ecuador, on the basis that Chevron signed neither the 1973 Concession Agreement, nor the 1995 Settlement Agreement. Through ground 111 Ecuador argues that the 1995 Settlement Agreement is not an investment agreement;
Ground IV concerns the question whether Chevron is a "Releasee ", which question Ecuador, contrary to the district court, answers negatively. Moreover, Ecuador argues that even if Chevron would be a "Releasee", the final discharge granted to her would not relate to the claims as initiated by the Lago Agrio plaintiffs, since these are all individual claims. The grounds for appeal address the fact whether there is a valid arbitration agreement between Ecuador and Chevron and between Ecuador and TexPet and are eligible for joint hearing.
"a dispute between a Party and a national or company of the other Party arising out of or relating to
(a) an investment agreement between that Party and such national or company
(b) [illegible word], or
(c) an alleged breach of any right conferred or created by this treaty with respect to an investment. "
The Arbitration Tribunal has investigated whether or not it had jurisdiction on the bases referred to in article VI par I under (a) and (c). these are not cumulative grounds, hut in view of the word "or", alternative grounds for jurisdiction: it suffices that there is an investment dispute that meets one of the descriptions mentioned.
1. Declaring that under the 1995, 1996 and 1998 Settlement and Release Agreements, [Chevron and TexPet] have no liability or responsibility for environmental impact, including but not limited to any alleged liability for impact to human health, the ecosystem, indigenous cultures, the infrastructure, or any liability for unlawful profits, or for performing any further environmental remediation arising out of the former Consortium that was jointly owned by TexPet and Ecuador, or under the expired Concession Contract between TexPet and Ecuador.
2. Declaring that Ecuador has breached the 1995, 1996 and 1998 Settlement and Release Agreements and the United Slates-Ecuador BIT (...)
These two claims are interrelated with the 1995 Settlement Agreement, as the text already shows. they relate to the agreement as laid down in article 5.1 of that agreement, being:
the Government and PetroEcuador shall hereby release, acquit and forever discharge TexPet (...) and all their (...) principals and subsidiaries (hereinafter referred to as "The Releasees ") of all the Government 's and PetroEcuador 's claims against the Releasees for Environmental Impact arising from the Operations of the Consortium "
whereby TexPet and the other "Releasees" are discharged from all claims by Ecuador for environmental pollution (the general Release) Where these submissions are adjudged, Ecuador must indemnity TexPet against all claims against her for environmental impact and must take its financial consequences for its account.
Subsequently in the Procedural Order No. 10 the Arbitration Tribunal decided that the proceedings on the merits will be split into two tracks. In the First Track the explanation and the legal consequences of the 1995 Settlement Agreement are handled, including the dispute whether or not Chevron is a "Releasee" under the 1995 Settlement Agreement (see the representation in the First Partial Award under 4). Thereupon the Arbitration Tribunal judged in the First Partial Award on Track I that indeed Chevron is a "Releasee" and can enforce rights from the 1995 Settlement Agreement. An answer to the question whether that means that the Arbitration Tribunal has jurisdiction to assess a dispute between Chevron and Ecuador about those rights on the basis of article VI par. I under (a) of the BIT was not given by the Arbitration Tribunal. It must be derived from the tact that the qualification as "Releasee" was a "first issue" for the Arbitration Tribunal that even more steps must be taken for the question on jurisdiction. The conditions as included in article VI par. I under (a) of the BIT. that the dispute is arising out of or relating to an investment agreement can be considered, and whether it concents an investment agreement between Ecuador and Chevron. Added to that is the fact that the Arbitration Tribunal in legal ground 36 of the First Partial Award emphasized that the fact that a certain question is not discussed here, should not lead to the conclusion that in one way or another the decision on this question was implied. The conclusion from this all is that the Arbitration Tribunal still has not given a final award on its jurisdiction on the basis of article VI par. I under (a) of the BIT. Section 1052 subsection I Code of Civil Procedure, determining that the Arbitration Tribunal decides on its own jurisdiction, implies that the judge should wail till that decision is taken before he may and can asses whether the Arbitration Tribunal has rightfully accepted jurisdiction. The same is implied by section 1064 subsection I old Code of Civil Procedure, because the First Partial Award can be regarded as an interim award on this point.
These measures, summarized, include an order to Ecuador (through her executive, legislative and judicial powers) to take measures to suspend) the execution and recognition of the Lago Agrio judgments (including appeal and cassation (or have these suspended) At the most Ecuador can be held liable in case there is a violation of the BIT by her judicial power, but the jurisdiction of the Arbitration Tribunal docs not reach to the extent that it can interfere in the independency and sovereignty of the Ecuadorian judge, or that it can instruct the executive and/or legislative power to intervene in civil proceedings. This would create an interference of the separation of powers. Moreover, the Arbitration Tribunal wrongfully presented itself as "global judge" by trying to frustrate the recognition and execution of Ecuadorian judgments abroad, according to Ecuador.
Starting point in the assessment is that Ecuador has subjected herself to the BIT and its provisions on arbitration, including the UAR. Article 26 of the UAR grants live Arbitration Tribunal jurisdiction to take interim relief measures that are related to the case on the merits. Article 32. par. 2 of the UAR and article VI par. 6 of the BIT determine that every arbitral award binds parties and has to be executed as fast as possible. By agreeing to the arbitration and the applicable provisions, Ecuador accepted the jurisdiction of the Arbitration Tribunal and has endorsed that she will execute the measures as taken by the Arbitration Tribunal without delays, and to take the measures for its enforcement thal are in her influence. This implies that Ecuador cannot complain that the measures as imposed by the Arbitration Tribunal would violate her independency and sovereignly, as long as the Arbitration Tribunal takes decisions that are within its jurisdiction on the basis of the applicable rules.
Contrary to what Ecuador seems to assume, the BIT and/or the UAR are not implying that the Arbitration Tribunal can only assess whether Ecuador is bound to compensate losses on the basis of being liable for the violation of the BIT, not even if the alleged violation was committed by her judicial power. Further the appeal court is of the opinion that, contrary to w hat Ecuador suggests, the Arbitration Tribunal did not order Ecuador to intervene with her executive power in the tasks that are reserved for the judicial power, and would thus interfere in the separation of powers Ecuador, briefly, has been ordered to suspend the execution of the Lago Agrio judgment within and outside of Ecuador. This order extends to all government bodies whose cooperation is required to execute the award. It is up to the republic of Ecuador to determine by whom and in which manner the measures as imposed by the Arbitration Tribunal are executed, her executive power, her legislative power or her judicial power, or a combination thereof, for instance by provisionally not granting an apostille or by suspending the legalization. Thus Ecuador has not been ordered to exert influence on the contents or the outcome of a judgment to be issued by an Ecuadorian judge, neither has she been ordered lo instruct a foreign judge to refuse the recognition of the Lago Agrio judgment, but (only) to suspend its execution (or to have it suspended). The measure is not final yet. Ecuador is not ordered to stop the execution for ever, but only to have the execution suspended until the arbiters in the arbitration have made the final award, in which a definite award about the general release (Track 1) and the denial of justice (Track 2) is decided, in order to prevent that an irreversible situation is created. Further it is important that the Arbitration Tribunal holds Chevron and TexPet liable for the losses Ecuador may suffer from complying with the obligations as imposed upon her by the Arbitration Tribunal, and, has ordered Chevron and 'TexPet to deposit an amount of US$ 50 million as security for that posable liability.
In these annulment proceedings Ecuador has insufficiently explained why in the given circumstances the Arbitration Tribunal should not and could not make such balancing.
Not only did Ecuador raise this submission at a very late stage, but it has also been insufficiently substantiated, so that it will not be considered.
Ground for appeal XII has also been presented without success in as far as Ecuador argues that the Chevron claims in the arbitration proceedings (also) aim lo determine the judicial relation between Chevron and the Lago Agrio plaintiffs. Ecuador does not take into consideration that the Arbitration Tribunal has not yet decided on the Chevron claims as mentioned in the explanation to ground XII.
The single fact that with her claims Chevron (might) intend the Arbitration Tribunal in the words of Ecuador - to "have the judicial relation between Chevron and the Lago Agrio plaintiffs established", is insufficient to judge that the interim measures as imposed are in conflict with the public order and should thus be set aside.
As has become evident from the considerations above, the accusations of fraud are not a part of the ruling of the appeal court that the Arbitration Tribunal had jurisdiction to assess the dispute or of the ruling thal the arbitral awards are not in conflict with the public order.
- confirms the decision given between parties by the district court of The Hague on 20 January 2016. with an improvement of the legal grounds:
- sentences Ecuador to pay the costs of the proceedings, up to this judgment at the side of Chevron and TX estimated to be € 718.- in court fees and € 2,682.- in attorney fees;
- decides that for the adjudication on the costs, this ruling is immediately executable.
This ruling was given by M.M. Olthof LL.M., C.J. Verduyn LL.M. and C.A. Joustra LL.M. and was pronounced at the public hearing of 18 July in the presence of the court registrar.