Marc J. Goldstein Arbitrator & Mediator NYC
April 08, 2010

Chevron-Texaco v. Ecuador: A Partial Report on the Partial Award on the Merits

Readers of Arbitration Commentaries may generally rely upon its principal author to read cases from beginning to end before reporting upon them in this corner of Cyberspace.

But whereas the Arbitral Tribunal in Chevron-Texaco v. Republic of Ecuador has seen fit to deliver a Partial Award on the Merits that runs to 265 pages, it is hoped that you will gratefully receive this interim report (based upon reading up to page 134 of the Partial Award) together with a promise that there will be more to come.( Here is a link to the full text of the Partial Award:

Chevron-Texaco brought claims under the 1997 U.S.- Ecuador Bilateral Investment Treaty, seeking redress for the fact that seven breach of contract claims against Ecuador for substantial sums were intractably snarled in the Ecuador judicial system. In general, the contract disputes related to allocation of energy production between the domestic market at domestic prices, and what Chevron-Texaco and its predecessors in interest would retain to sell in the world market at much higher prices.

The broad thematic basis of the claim in arbitration was denial of justice (“DOJ”) under customary international law, consisting of DOJ resulting from alleged unreasonable delay in the adjudication of the contract cases, and DOJ resulting from alleged manifestly unjust decisions by the Ecuador courts.

As alternative and additional theories of relief, Chevron-Texaco asserted violations of several provisions of the BIT: notably those that require “fair and equitable treatment,” “full protection and security,” avoidance of “arbitrary and discriminatory measures,” and, of particular importance to the outcome, Article II (7) of the BIT which required Ecuador to provide the investor with “effective means” of asserting claims (hereinafter, the “Effective Means Clause”).

The Tribunal examined the history of the Effective Means Clause in this BIT and related US BIT practice and found that it “was created as an independent treaty standard to address a lack of clarity in customary international law regarding denial of justice.” Per the Tribunal, the Effective Means Clause “constitutes lex specialis and not a mere restatement of the law on denial of justice,” and is a “distinct and potentially less demanding test” than DOJ under customary international law.

Here the Tribunal holds that one dimension of the duties arising from the Effective Means Clause is that the State must provide the Investor “with means of enforcing legitimate rights within a reasonable amount of time.” That treaty obligation was breached by Ecuador, the Tribunal holds, by reason of unreasonable delay in the adjudication of the seven breach of contract cases in the Ecuador courts, each of which had been pending at least 13 years and in some instances as long as 15 years, at the time of the Notice of Arbitration. Noting that the length of delay is not necessarily sufficient to reach a conclusion that the delay is unreasonable, the Tribunal cited “prolonged periods of inactivity” in nearly all the cases, especially prolonged periods of inactivity lasting many years after the close of evidentiary proceedings.

The Tribunal concludes that no adjudication of the other BIT claims — DOJ, fair and equitable treatment, full protection and security, arbitrary and discriminatory measures — is necessary, because no additional damages beyond those compensable for breach of the BIT’s Effective Means Clause were claimed by Chevron-Texaco.

… A further report will follow.

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