The District Court of The Hague has rejected Ecuador's claim to set aside interim and partial awards in favour of Chevron relating to a pending arbitration on oil pollution in the Ecuadorian Amazon.

Facts

Chevron has been the indirect shareholder of TexPet since 2001. In 1964 TexPet was awarded concessions from the Ecuadorian government to explore and exploit oil in the Ecuadorian Amazon. The concession agreement expired on June 6 1992. Ecuador, PetroEcuador(1) and TexPet subsequently signed a settlement agreement, which conditionally released TexPet from the government and PetroEcuador's claims in relation to the environmental impact of TexPet's exploration and exploitation activities. The settlement agreement became binding on all parties following fulfilment of the contractual conditions on September 30 1998. In the meantime, on May 11 1997 the US-Ecuador Bilateral Investment Treaty (BIT) entered into force.

In proceedings before the Lago Agrio court a group of citizens brought a claim against Chevron for environmental pollution allegedly caused by TexPet's activities in the Oriente area. The claim was upheld and TexPet was ordered to pay $8.6 billion in damages and an additional $8.6 billion in punitive damages if it could not prove its innocence within 15 days.

Proceedings

In the case at hand Ecuador, for the second time,(2) requested the setting aside of interim awards rendered by an arbitral tribunal established on the basis of the US-Ecuador BIT. The awards were related to the suspension of the Lago Agrio judgment. Ecuador also claimed annulment of the first partial award,(3) in which the tribunal had determined that both TexPet and Chevron could be considered releasees under the 1995 settlement agreement.

Ecuador asserted that:

  • there was no valid arbitration agreement;
  • the awards were in violation of public policy; and
  • the arbitrators went beyond their mandate.

The arguments were based on Article 1065 of the Code of Civil Procedure, which stipulates the limited grounds for setting aside an arbitral award under Dutch law.

Decision

The District Court of The Hague decided in favour of Chevron in regard to most of the issues discussed (the exception being certain procedural issues). The question of the existence of valid arbitration agreement hinged on qualification of the settlement agreement and the 1998 final release as part of the investment under the concessions agreement. This was required for Ecuador's consent to the tribunal's jurisdiction under the BIT. The court then interpreted the meaning of 'investment' in line with the BIT, and found that the term should be interpreted broadly, including the final stages (settlements) of an investment.(4) Therefore, the 1998 final release was inextricably linked to and part of the investment. Because the BIT had entered into force in 1997, there was no issue with retroactive application of the BIT.

Only issues of jurisdiction that the tribunal has already assessed (under the competence-competence doctrine) were open for reassessment by the Dutch domestic courts. Therefore, the district court was limited to examining jurisdiction on the basis that Chevron was a party to an investment agreement under Section VI(1)(a) of the BIT.(5) First, the district court found that the 1995 settlement agreement qualified as an investment agreement. It then simply followed the tribunal's own finding and held that Chevron had indeed become a releasee in the sense of the settlement agreement, and thus was a party to a dispute over which the tribunal had jurisdiction. Ecuador had failed to present convincing arguments to the contrary.

The public policy argument was also rejected. According to the district court, the fact that the claimants in the Lago Agrio proceedings were left without relief due to the imposition of interim measures was justifiable because the tribunal had sufficiently substantiated suspicions of fraudulent conduct surrounding the Lago Agrio proceedings. The district court referred to the New York District Court's March 4 2014 injunction,(6) which prohibited execution of the Lago Agrio award in US territory.

The district court rejected Ecuador's final assertion that the fourth interim award, which established a violation of the first and second interim award, went beyond the tribunal's mandate due to a lack of substantiation.

Comment

The district court's judgment is extensively reasoned and in line with earlier Supreme Court case law. Ecuador intends to appeal the district court's judgment.

For further information on this topic please contact Carlijn van Rest or Alfred Hoogveld at Hogan Lovells International by telephone (+31 20 55 33 600) or email (carlijn.vanrest@hoganlovells.com or alfred.hoogveld@loyensloeff.com). The Hogan Lovells International website can be accessed at www.hoganlovells.com.

Endnotes

(1) PetroEcuador is the state-owned company which took over Ecuadorian Gulf Oil Petroleum, with which TexPet shared the concession agreement.

(2) In 2006 Chevron had already received an arbitral award for a claim on the basis of unacceptable delays of proceedings before Ecuadorian domestic courts. Setting-aside proceedings before the Dutch courts went up to the Supreme Court, which rejected Ecuador's claims (ECLI:NL:RBSGR:2012:BW5493, ECLI:NL:GHDHA:2013:1940 and ECLI:NL:HR:2014:2837).

(3) First partial award on Track I of September 17 2013.

(4) Paragraph 4.11 of the judgment.

(5) Section VI(1)(a) reads: "For the purposes of this Article, an investment dispute is 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."

(6) US District Court Southern District of New York, Chevron Corporation v Donziger, March 4 2014, Case 1:11-cv-00691-LAK-JCF. Chevron's public statement on the judgment is available at www.chevron.com/ecuador/.

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