Chevron Corporation and Texaco Petroleum Corporation v. Ecuador (II)
PCA · Investment (ICSID and treaty) · Ecuador · 25 Jan 2012
Why it matters
This case is a landmark in investor-state arbitration for its detailed examination of the interplay between investment treaty protections and domestic court judgments. It set a precedent for tribunals to order states to take measures to prevent enforcement of fraudulent judgments, and clarified the scope of the 'effective means' standard under the US-Ecuador BIT. The decision also addressed the allocation of costs and the use of provisional measures to preserve the integrity of the arbitration.
Summary
The dispute arose from a long-running environmental litigation in Ecuador against Chevron, which resulted in a $9.5 billion judgment (the Lago Agrio judgment). Chevron claimed that the judgment was procured through fraud, corruption, and judicial misconduct, and that Ecuador violated the US-Ecuador BIT by failing to provide effective means of asserting claims and by denying justice. The Tribunal bifurcated the proceedings into two tracks: Track I on liability for the alleged BIT violations, and Track II on quantum. In the Second Partial Award on Track I, the Tribunal found that Ecuador had breached its obligations under the BIT by failing to take necessary measures to prevent the enforcement of the Lago Agrio judgment, which was tainted by fraud. The Tribunal ordered Ecuador to take all steps to suspend enforcement of the judgment in any jurisdiction, including the United States, and to prevent further enforcement actions. The decision emphasized that Ecuador's failure to act constituted a denial of justice and a violation of the effective means standard. The Tribunal also rejected Ecuador's arguments that the judgment was res judicata and that it could not interfere with judicial decisions. The award is significant for its detailed analysis of the evidence of fraud and corruption, and for establishing that a state may be held responsible for failing to prevent enforcement of a fraudulent judgment obtained in its courts.
The detail
Parties: Chevron Corporation and Texaco Petroleum Corporation v. Ecuador (II)
Case number: PCA Case No. 2009-23
Outcome: The Tribunal issued a Second Partial Award on Track I, ordering Ecuador to take all measures necessary to suspend or cause the suspension of the enforcement and recognition of the Lago Agrio judgment within the United States and other states, and to prevent any further enforcement actions pending the final award.
Applicable law: Treaty: US-Ecuador Bilateral Investment Treaty (BIT); Rules: UNCITRAL Arbitration Rules (1976); Governing law: International law and Ecuadorian law.
Issues in play: The case involved a collision between Ecuador's obligations under the BIT to provide effective means of asserting claims and enforcing rights, and the principle of res judicata of the Lago Agrio judgment. The Tribunal had to determine whether the judgment was procured through fraud and corruption, and whether Ecuador's failure to prevent enforcement violated the BIT.
Read the full decision at italaw ↗
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