Ecuador Found Liable for Violating
International Law, Supporting Fraud and Corruption
An international tribunal administered by the Permanent Court of
Arbitration in The Hague has issued an award in favor of Chevron
(NYSE: CVX) and its indirect subsidiary, Texaco Petroleum Company
(TexPet), finding that the Republic of Ecuador violated its
obligations under international treaties, investment agreements and
international law. The tribunal unanimously held that a $9.5
billion judgment rendered against Chevron in Lago Agrio, Ecuador,
in 2011 was procured through fraud, bribery and corruption and was
based on claims that had been already settled and released by the
Republic of Ecuador years earlier. The tribunal concluded that the
fraudulent Ecuadorian judgment “violates international public
policy” and “should not be recognised or enforced by the courts of
other States.” As a matter of international law, this award
confirms Chevron is not obliged to comply with the Ecuadorian
judgment.
The tribunal held that Ecuador breached its obligations under a
1995 settlement agreement releasing TexPet and its affiliates from
public environmental claims—the same claims on which the $9.5
billion Ecuadorian judgment is exclusively based. The tribunal
found “TexPet spent approximately $40 million in environmental
remediation and community development under the 1995 Settlement
Agreement” carried out by a “well-known engineering firm
specializing in environmental remediation” and that Ecuador in 1998
executed a final release agreement “certifying that TexPet had
performed all of its obligations under the 1995 Settlement
Agreement.” The tribunal found “no cogent evidence” supporting
Ecuador’s claim that TexPet failed to comply with the terms of the
remediation plan approved by Ecuador. To the contrary, the award
recites the sworn testimony of Ecuadorian officials that TexPet’s
“technical work and environmental work was done well,” while
Ecuador’s national oil company “during more than three decades, had
done absolutely nothing” to address its own environmental
remediation obligations in the area, even though Ecuador and its
national oil company received 97.3% of the oil production revenues
from the project. The award further recounts in detail the
testimony of numerous former members of the plaintiffs’
environmental team and scientific experts who admitted under oath
that they found no evidence to support the plaintiffs’
environmental claims against Chevron and TexPet.
“An esteemed international tribunal, including an arbitrator
appointed by Ecuador, has unanimously confirmed that, following
completion of an agreed environmental remediation program, Chevron
was released by the Republic of Ecuador from the environmental
claims that the fraudulent Ecuadorian judgment purports to
address,” said R. Hewitt Pate, Chevron vice president and general
counsel. “Following years of litigation, including visits to the
former area of operations by the tribunal, the tribunal found that
Ecuador violated the final release agreement that had certified the
successful completion of TexPet’s remediation.”
The tribunal also reached the same conclusion as U.S. courts
regarding the issue of judicial fraud. “The tribunal found
extensive evidence of fraud and corruption by members of the
Ecuadorian judiciary acting in collusion with American and
Ecuadorian lawyers. This award is consistent with rulings by courts
in the United States, Argentina, Brazil, Canada and Gibraltar
confirming that the Ecuadorian judgment is unenforceable in any
country that respects the rule of law,” said Pate. “Indeed, the
tribunal explicitly found that it would be contrary to
international law for the courts of any other State to recognize or
enforce the fraudulent Ecuadorian judgment.”
In more than 500 pages, the tribunal’s award details the
evidence of the Lago Agrio plaintiffs’ legal team’s fraud and
corruption in Ecuador, finding the evidence to be “overwhelming.”
The tribunal concluded: “Short of a signed confession by the
miscreants . . . the evidence establishing ‘ghostwriting’ in this
arbitration ‘must be the most thorough documentary, video, and
testimonial proof of fraud ever put before an arbitral
tribunal.’”
The tribunal found that Nicolas Zambrano, the Ecuadorian judge
purported to have drafted the Lago Agrio judgment, did not in fact
draft the judgment but rather, “in return for his promised reward,
allowed certain of the Lago Agrio Plaintiffs’ representatives
[including attorneys Fajardo and Donziger], corruptly, to
‘ghostwrite’ at least material parts of the Lago Agrio Judgment.”
The tribunal described the conduct as “grossly improper by any
moral, professional and legal standards.” Finding that “judicial
bribery must rank as one of the more serious cases of corruption,
striking directly at the rule of law, access to justice and public
confidence in the legal system; and also, as regards the foreign
enforcement of a corrupt judgment, at the law of nations,” the
tribunal held Ecuador responsible for denying justice to
Chevron.
The tribunal also found that the plaintiffs’ legal team had
inappropriate secret meetings with several judges who presided over
the litigation, blackmailed one of the presiding judges, bribed the
supposedly independent court-appointed environmental expert Richard
Stalin Cabrera, ghostwrote the Cabrera report on which the judgment
relies for environmental findings, orchestrated collusive criminal
proceedings against TexPet’s lawyers, paid bribes to former judge
Alberto Guerra to draft orders for Zambrano, and devised and
implemented a “covert” and “nefarious” plan to ghostwrite the
judgment which then Judge Zambrano issued under his name in
exchange for a promised $500,000 bribe payable from enforcement
proceeds.
Comprised of three preeminent international arbitrators, the
tribunal issued its award unanimously. The tribunal’s award aims to
“wipe out all the consequences” of Ecuador’s internationally
wrongful actions, and it grants Chevron several forms of relief.
The tribunal orders Ecuador to take immediate steps to remedy its
internationally wrongful conduct, including rendering the $9.5
billion judgment unenforceable, precluding the Plaintiffs or any
interested party from enforcing the judgment, and ensuring that
Chevron has no liability or responsibility for the judgment. It
also orders Ecuador to abstain from receiving any proceeds from the
fraudulent judgment, and to promptly return any such proceeds that
come into its possession. The award holds Ecuador liable for any
cost or damage to Chevron should the judgment ever be enforced
anywhere in the world. Finally, the tribunal orders Ecuador to
compensate Chevron for any damages arising from the fraudulent
Judgment. The tribunal will address the extent of damages for which
Ecuador must compensate Chevron in the next and final phase of the
arbitration.
Pate concluded: “Ecuador’s executive and judicial branch
officials are now different from those involved in the events at
issue in this award. Chevron takes no pleasure in any dispute with
a sovereign nation. The company invites the government of Ecuador
to repudiate the fraudulent scheme and make constructive efforts to
meet its own long unfulfilled environmental obligations.”
Background information
As found by the tribunal, Chevron has never operated or had
assets in Ecuador. Texaco Petroleum (TexPet), which became an
indirect subsidiary of Chevron following Chevron’s acquisition of
Texaco Inc. in 2001, was a minority partner in an oil production
consortium in Ecuador along with the state-owned oil company,
Petroecuador, from 1964 to 1992. Petroecuador took over TexPet’s
share of the oil operations in 1992. Pursuant to a 1995 agreement
with Ecuador, TexPet agreed to remediate certain environmental
impacts in the former concession area while Petroecuador assumed
responsibility for performing any remaining environmental
cleanup.
To perform the remediation work, TexPet engaged a well-known
engineering firm specializing in environmental remediation. The
government of Ecuador oversaw and certified the successful
completion of TexPet’s remediation and fully released TexPet from
further environmental liability. Petroecuador failed to conduct the
cleanup it promised and has continued to operate and expand its oil
operations for more than 25 years.
Chevron filed an international arbitration claim against the
Republic of Ecuador in 2009 pursuant to the U.S.-Ecuador Bilateral
Investment Treaty seeking to hold Ecuador accountable for breaching
the settlement agreement with TexPet and to enforce the releases.
Chevron then amended the claim in 2012 to include the denial of
justice that occurred through the Ecuadorian court’s fraud and
corruption during litigation and the resulting fraudulent $9.5
billion judgment. The tribunal, administered by the Permanent Court
of Arbitration in The Hague, said the Republic of Ecuador violated
its international law and treaty obligations by issuing, affirming,
and enforcing a fraudulent judgment against Chevron, because the
Lago Agrio litigation was marred by fraud, bribery, and coercion
perpetrated by the Plaintiffs’ attorneys in collusion with
Ecuador’s courts. The award was issued unanimously by all three
members of the tribunal, including Ecuador’s appointed
arbitrator.
In 2014, a U.S. federal court found that the Ecuadorian judgment
was the product of fraud and racketeering activity, including
extortion, money laundering, wire fraud, witness tampering, Foreign
Corrupt Practices Act violations and obstruction of justice. The
court also prohibited enforcement of the Ecuadorian judgment in the
United States. That decision is now final after having been
unanimously affirmed by the court of appeal and denied review by
the Supreme Court.
Other attempts to enforce the judgment in jurisdictions around
the globe have also failed:
- In January 2017, a Canadian court
rejected an attempt to enforce the Ecuadorian judgment against
Chevron’s Canadian subsidiary. An appeals court upheld this
decision in May 2018.
- In November 2017, Brazil’s Superior
Court of Justice unanimously rejected an attempt to enforce the
Ecuadorian judgment in Brazil. Brazil’s Deputy Prosecutor General
stated the judgment was “issued in an irregular manner, especially
under deplorable acts of corruption.”
- In October 2017, a court in Argentina
denied recognition of the Ecuadorian judgment. An appeals court
upheld the decision in July 2018.
- In December 2015, the Supreme Court of
Gibraltar issued a judgment against Amazonia Recovery Ltd., a
Gibraltar-based company set up by the plaintiffs’ attorneys to
receive and distribute funds resulting from the Ecuadorian
judgment, awarding Chevron $28 million in damages, and issued a
permanent injunction against Amazonia to prevent the company from
assisting or supporting the case against Chevron in any way. The
court issued a similar ruling in May 2018 against directors of
Amazonia, Frente de Defensa de la Amazonia, Ecuadorian attorney
Pablo Fajardo, and Servicios Fromboliere for their role in
attempting to enforce the ruling, this time awarding $38 million in
damages to Chevron.
Chevron Corporation is one of the world's leading integrated
energy companies, with subsidiaries that conduct business
worldwide. The company is involved in virtually every facet of the
energy industry. Chevron Corporation’s subsidiaries explore for,
produce and transport crude oil and natural gas; refine, market and
distribute transportation fuels and lubricants; manufacture and
sell petrochemical products; generate power and produces geothermal
energy; provide energy efficiency solutions; and develop the energy
resources of the future, including biofuels. Chevron Corporation is
based in San Ramon, California. More information about Chevron is
available at www.chevron.com.
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