As for the invalidity of the trial “for procedural fraud and violation of the guarantees of due process” it must be said that the record of the trial court reflects that the Defendants have exercised a vigorous and ample defense in the trial—the thousands of pages that bloat the trial have already been mentioned, in addition to this appeal and litigation; insinuating expert witnesses; requestioning and reexamining these same judicial auxiliaries, and to witnesses, visiting each and each one of the formalities given in the first trial. As such, the trial has been public and, from what can be seen, also transparent, with a horrifyingly uncommon temporal duration, and without a doubt, affecting the interests of those that drive the case, as since the action, more than eight years have passed in Ecuador alone; definitely putting into process the proof and the performances—all of them—requested by the parties in the investigative procedures….

Fraud and corruption were also mentioned, of officials, attorneys, and representatives, the issue of which this Court should not make any reference, only to leave emphasized that the same accusations can be found pending before authorities of the United States in the denouncement that has been presented the same here by the Defendant Chevron, under the RICO act, and the Court does not have competence to resolve the conduct of attorneys, expert witnesses, or other government employees or administrators and judicial auxiliaries, if that is the case….

The logical anticipated consequence, in the case of carrying out the request, was that it was impossible to rely on any expert, and resulted in not being able to have expert proof which paralyzed the trial; thus Chevron has acted up until the outer limits of its defense and the Court considers the particularly precarious situation which could doom the administration of justice should it be allowed during the controlling procedural moments and stages of the suit, making it depend on its decision in the advancing of the cases. The deeds made public considered in the judge’s decision at the first instance, and Chevron was condemned to pay trial costs for manifest bad faith, notorious and obvious; so much so that now suffice it to say that the procedural conduct of the defendant, few times seen in the annals of the administrator of Justice in Ecuador, were abusive to the point that, in terms of attitude, that the Court will not even dedicate any more writings to this portion of the decision, it would be an example of disastrous precedent for other litigants.

Following the judgment, plaintiffs’ attorney Pablo Fajardo indicated that Chevron is authorized to request clarifications of the appellate court decision within the next month or so. According to my conversation with plaintiffs’ representative Karen Hinton yesterday, if Chevron wishes to appeal to the Ecuador National Court in Quito, Chevron must post an appeal bond of approximately 10%, or $1.8 billion. Chevron itself contends that the appeal bond could be 100% of the judgment, forcing it “to deposit, with no likelihood of recoupment, billions into the very court system whose corruption and bias … render the Lago Agrio judgment unenforceable.“

Meanwhile Chevron has filed a motion with the Second Circuit this morning asking the Second Circuit to lift the temporary stay on the district court’s antisuit injunction. The Second Circuit’s principal concern that an antisuit injunction was not ripe has been obviated by the Ecuador Appeals Court judgment. “Without such relief, the [plaintiffs] will be able immediately to commence their extortionate plan to harass Chevron through multiplicative, vexatious enforcement proceedings expressly intended to disrupt the operations of Chevron’s affiliates in foreign countries.”

In its motion, Chevron argues that “The Ecuadorian appellate decision … does not purport to explain or even mention the extensive evidence that the Lago Agrio Judgment was ghostwritten by parties other than Judge Zambrano, who had secret access to the LAP’s internal, unfiled work product.” Among other things, Chevron argues that the Ecuadorian appellate judgment ignores (1) the extensive verbatim overlap between the judgment and the LAP’s unfiled “Fusion memo”; (2) the overlap between the judgment and the LAP’s unfiled record summary; (3) the LAP’s internal emails evidencing their plan to draft the judgment; and (4) expert linguistic testimony that the judgment was not written by Judge Zambrano.

Yesterday Chevron has also filed a motion with the UNCITRAL arbitration tribunal in The Hague requesting that panel to order Ecuador to inform the tribunal of the steps it intends to take to comply with the tribunal’s February 2011 order requiring Ecuador to prevent the Lago Agrio judgment from being enforced.

After almost two decades of litigation, the Chevron Ecuador judgment has reached the critical enforcement stage. The $18 billion question is whether the Second Circuit will stay enforcement of the Ecuador judgment, and if not, whether foreign courts will recognize and enforce the Ecuador judgment. Overshadowing it all is an investment arbitration that may require Ecuador to pay Chevron for any damages it has incurred from the enforcement of a judgment in violation of the Ecuador-United States bilateral investment treaty.

Inter-governmental negotiations over these rules start this month, and while it would be an expedient conclusion to say that this is simply “one to watch”, such a conclusion is not warranted here because if UNASUR’s plans do proceed, we will be unable to ignore it.

The birth of UNASUR can be traced back to the First South American Summit, held in Brasilia in 2000, but it was not until the Third South American Summit that the predecessor to UNASUR was officially constituted by the Cusco Declaration. The Cusco Declaration, dated 8 December 2004 established the South American Community of Nations (or CSN). Eventually, at the South American Energy Summit held in Venezuela on 16 April 2007, the member states of CSN adopted the name Union of South American Nations (UNASUR).

The UNASUR Treaty was signed on 23 May 2008 in Brasilia, requiring nine ratifications to enter into force. In the following order, Bolivia, Ecuador, Guyana, Venezuela, Peru, Argentina, Chile, Suriname, Uruguay and Colombia all ratified the Treaty. As of today, the two countries that have not yet ratified it are Brazil and Paraguay.

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In June 2009, the UNASUR heads of state approved a mandate to create a UNASUR mechanism for the resolution of investment disputes. The heads of state have met on a number of occasions, including on 4 May 2010 when they reaffirmed the importance of reaching an agreement on this initiative.

In November 2010, during the IV UNASUR summit of the heads of state, held in Georgetown, Guyana, it was announced that a working group would be established that would look at creating (1) a centre for the resolution of investment disputes, (2) an advisory centre for investment disputes, and (3) a code of conduct for the members of the arbitral tribunals constituted under the centre’s rules. The working group will hold its first meeting in mid-April 2011. Thereafter, it has 90 days to present its conclusions.

As this initiative gained support in November 2010, Ecuador took the lead to develop this proposal, and published draft provisions for the centre. (These have already evolved slightly, and are considered here below.) Simultaneously, President Correa of Ecuador emphasised his desire that an arbitration centre be established promptly. Focusing his criticism on mid-level public officials, President Correa accused them of “mental atavism.” In particular, President Correa noted that some mid-level officials continue to believe that UNASUR member states are incapable of establishing an alternative investment arbitration regime that meets international standards. He recognised the “serious problems” in trying to establish such a system, however, he also expressed exasperation at the “intellectual colonialism” that plagues many, and compounds what he sees as the misconceived belief of some that to resolve an investment dispute one must go to Washington, London or Paris.

While the establishment of an alternative court or tribunal to resolve investment arbitration disputes has been on the agenda for a while (not least in Latin America, and with the support of institutions such as UNCTAD), the fact UNASUR has now come into formal existence is a significant development. UNASUR is the first regional institution for some time that comprises all South American countries. This is quite an achievement, and some even fear UNASUR may displace the Organisation of American States (OAS) in terms of its regional significance. Perhaps a critical advantage of UNASUR is that policies can be introduced and implemented by consensus rather than unanimity.

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The object of the centre is described as providing a regulatory basis for disputes between UNASUR member states, including between investors and UNASUR states. The centre would hear such State-State disputes as are submitted to it. In addition, it would also hear such State-State or investor-State disputes as are referred to it by virtue of any contractual provision or provision in an “international instrument.” However, it is envisaged that the centre’s dispute resolution system will apply to different investors and States on an incremental basis.

First, the centre will be available exclusively for the use by UNASUR member states (and investors from UNASUR member states) for a period of three years. Second, from the start of the third year of the centre’s existence, its services would be extended to Central American and Caribbean states (and their investors). Third, from the sixth year onwards, the centre’s services would be available to any States and investors that wish to either submit their dispute to the centre, or have so agreed to submit their disputes in any contract or international instrument. The idea is that the centre would be permitted time to establish itself and develop a reputation – during which time non-UNASUR investors and States could consider incorporating reference to UNASUR into their contracts/treaties.

The draft rules of procedure for the centre in many ways reflect the modern practice of international arbitration however, they also display key differences. Naturally, there will likely be movement between member states as they negotiate these draft provisions in the coming weeks, but the starting point offers an insight to the ambitions of UNASUR. Selected provisions of interest include the following:

• Article 3(2) of the proposed rules limits the jurisdiction of the centre – precluding disputes concerning health, education, taxation, energy, the environment and others, unless expressly stated otherwise in the relevant treaty or contract. This is clearly a critical provision that will require elaboration.

• Article 3(3) provides that in no circumstances will an arbitral tribunal, constituted in accordance with the rules of the centre, have jurisdiction to resolve disputes concerning the internal laws of a UNASUR member state. This preclusion also extends to the economic effects of a general norm. Again, this will require careful elaboration to have any meaning.

• Article 3(4) provides that states can require, as a precondition to their consent to arbitrate, the exhaustion of domestic judicial and administrative remedies. In circumstances where a claim arises in relation to an administrative act of a State, it will always be necessary to exhaust domestic remedies. (See also Article 6(1)).

• In the event the parties are unable to reach agreement, the parties can resort to international arbitration in accordance with the rules of the centre. Those rules provide that where an investor brings a dispute against a UNASUR member state, the investor must first inform its own State of the dispute. In a unique reinstatement of the principle of diplomatic protection, it is also stated in the rules (Article 6(2)), that if it is in the “highest interests” of the home State, it should commence a mediation between its investor and the host State, if the host State agrees.

• Arbitrators appointed to the arbitral tribunals established under this system would be selected from an Indicative List of Arbitrators that would be comprised of lawyers with experience in public law, arbitration, and commercial and investment law – or have experience in the subject matter relevant to the dispute. Two arbitrators could be added to the Indicative List, by each member state, and their name would be held for four years. For new arbitrators to be added to the list, they would have to satisfy certain qualifications, and complete certain public exams as stipulated by each member state. The centre would also envisage promulgating a code of conduct for arbitrators.

• Without entering into details of the arbitral process, awards would have to be rendered by the arbitral tribunals constituted under the centre within a period of 240 days from the date of the constitution of the tribunal, extendable up to 120 days with the agreement of the parties. Unless the parties agree otherwise, hearings could take place at UNASUR’s headquarters in Quito, Ecuador. Awards would be published and have precedential value, thus leading to a UNASUR arbitral jurisprudence.

• Awards could be appealed to an appellate tribunal which would have the power to review questions of law. Eight arbitrators would constitute the pool for the appeal tribunal, which would be comprised of three arbitrators for any given case. Appeals would have to be decided within 60 days from the appellate tribunal’s constitution.

• The enforcement regime envisaged by the centre demands parties to comply immediately with an award, or in the event this is not possible, within a time frame agreed by the parties. Such time limit can be extended to 180 days in the event of justifiable circumstances, such as civil or economic emergencies. The only basis for denying recognition and enforcement of the award would be when, in accordance with the host state’s constitution, the subject of the dispute is not arbitrable or is contrary to public policy. This also is an area that will require further elaboration, in particular in terms of how such a system would co-exist with State obligations owed under both the New York and Panama Conventions.

• In the event the award is not honoured, the matter may be returned to the original arbitral tribunal that heard the dispute. Subject to certain criteria, in investor-State disputes where the respondent State does not comply (wholly or partially) with the award, the home State may suspend temporarily concessions and obligations owed to the host state, in the sector that is relevant to the dispute. Such suspension would have to be proportional to the degree of non-compliance.

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Any observer would be forgiven for, on first impression, dismissing UNASUR as an initiative much like others in the region, and assume that real change and pan-regional convergence of practice is unlikely. However, already UNASUR has achieved success at the intergovernmental level – for example, diffusing internal tensions in Bolivia, diffusing tensions between Venezuela and Colombia, as well as finding common ground on the question of Las Malvinas (The Falkland Islands). Therefore, is UNASUR in danger of becoming a success, and could that success spill over into the world of international arbitration, in terms of effecting real change for South America?

In January 2011, Dr. Marcos Albuja Martinez, the Government of Ecuador’s Legal Coordinator was named Ecuador’s representative to UNASUR. Dr. Albuja Martinez’s responsibilities include liaising with other UNASUR representatives to negotiate the creation of a centre for the resolution of disputes and a legal advisory centre in the context of investment arbitration. It is anticipated in the UNASUR working group schedule that all member states will have designated representatives by mid-April when the first working group meeting is convened. To date, in addition to Dr. Albuja’s appointment by Ecuador, Chile, Peru, Bolivia, Uruguay and Paraguay have also designated representatives. The remaining six countries (Argentina, Brazil, Colombia, Guyana, Suriname and Venezuela) have yet to do so. In the 90 days commencing from mid-April, an ambitious schedule of negotiations is expected to be led by Dr. Albuja who shall seek to finalise a text agreeable to all member states. These proposals would then fall to be discussed at the VI Summit of the UNASUR heads of state in mid-2011.

Christian Leathley, a member of Herbert Smith LLP’s International Arbitration Group, is author of “International Dispute Resolution in Latin America: An Institutional Overview” published by Kluwer Law International, a revised edition of which is due to be published in 2011.

Consistent with international arbitration law, the tribunals both confirmed, in the same words, that “the interpretation given to Article 22 by Venezuelan authorities or by Venezuelan courts cannot control the Tribunal’s decision on its competence.” (Mobil, para. 75; Cemex, para. 70). In reviewing ICSID cases, the tribunals noted that previous tribunals had taken differing approaches to interpreting arbitration clauses in foreign investment legislation (Mobil, para. 82; Cemex, para. 76):

– In SPP v. Egypt, the tribunal decided to apply “general principles of statutory interpretation” taking into account both “relevant rules of treaty interpretation and principles of international law applicable to unilateral declarations.”

- In CSOB v. Slovak Republic, the tribunal based its decision on international law without any reservation.

- In Zhinvali v. Georgia, the tribunal opted for domestic law “subject to ultimate governance by international law”.

The Mobil and Cemex tribunals found that the state consent at issue in Art. 22 is not contained in a treaty to be interpreted in accordance with the Vienna Convention on the Law of Treaties, but rather is a unilateral act of a sovereign state—national legislation. The tribunals therefore drew on ICJ jurisprudence interpreting optional declarations of compulsory jurisdiction made by states under Article 36(2) of the ICJ Statute. The tribunals found that standing offers to arbitrate must be “interpreted according to the ICSID Convention itself and to the rules of international law governing unilateral declarations of States.” (Mobil, para. 85; accord Cemex para. 79).

With respect to unilateral declarations, both tribunals stated that international law distinguishes between: (i) declarations formulated in the framework and on the basis of a treaty; and (ii) other declarations made by states in the exercise of their freedom to act on the international plane (Mobil, para. 87; Cemex, para. 81). Further, rules of interpretation are different for the two types of declarations. In the case of general declarations, the ICJ held in the Nuclear Tests Case that “a restrictive interpretation is called for”, but that the rules of interpretation are somewhat different where “unilateral acts are formulated in the framework and on the basis of a treaty, such as the ICSID Convention” (Mobil, para. 90; accord Cemex, para 83). Both tribunals then applied the rules developed by the ICJ in the context of interpreting unilateral declarations of compulsory ICJ jurisdiction. As stated in Fisheries Jurisdiction, the words should be interpreted “in a natural and reasonable way, having due regard to the intention of the State concerned.” Both tribunals emphasized the importance of determining the state’s intention.

The tribunals then turned to Article 22 of the Foreign Investment Law, which can be translated as follows:

Disputes arising between an international investor whose country of origin has in effect with Venezuela a treaty or agreement on the promotion and protection of investments, or disputes to which are applicable the provision of the Convention Establishing the Multilateral Investment Guarantee Agency (OMGI –MIGA) or the Convention on the Settlement of Investment Disputes between States and National of other States (ICSID), shall be submitted to international arbitration according to the terms of the respective treaty or agreement, if it so provides, without prejudice to the possibility of making use, when appropriate, of the dispute resolution means provided for under the Venezuelan legislation in effect. [emphasis added]

The central interpretative issue is whether “if it so provides” means that there is consent if the treaty or agreement in question provides for arbitration (the interpretation favoured by the investors) or there is only consent to arbitration if the treaty or agreement provides for mandatory submission of disputes to international arbitration (i.e. there must be express consent to arbitrate under the other treaty or agreement)—the interpretation favoured by Venezuela. After an in-depth review of the background and context, both tribunals found that there was no intention to consent to arbitrate in Article 22. Both tribunals rightly noted that in light of the clear language in other contemporaneous BITs providing advance consent to arbitration, no intention to consent to arbitrate could be derived from the “ambiguous text” of Article 22 (Mobil, para. 140; Cemex, para. 138).

Although the tribunals found that the unilateral declarations at issue should not be interpreted restrictively because they are “declarations formulated in the framework and on the basis of a treaty” (i.e. the ICSID Convention), I would suggest that the restrictive approach to unilateral declarations from the Nuclear Tests Case, should never apply to the interpretation of offers to arbitrate. For example, if a foreign investment law has an arbitration provision that purports to offer to arbitrate investment disputes under the UNCITRAL Arbitration Rules, this “unilateral declaration” would not appear to be one “formulated in the framework and on the basis of a treaty” (unless perhaps the argument is made that the New York Convention framework applied). It would seem anomalous for different interpretative principles to apply simply because one foreign investment law refers to a treaty regime (ICSID), while another favours ad hoc arbitration.

Rather than distinguishing between different types of unilateral declarations, arbitral tribunals should apply (as did the Mobil and Cemex tribunals) the standard that the ICJ has developed for optional declarations: the “natural and reasonable” meaning of the terms. This standard would appear to be consistent with the general principle identified in Amco Asia Corporation v. Indonesia: “In the first place, like any other conventions, a convention to arbitrate is not to be construed restrictively, nor, as a matter of fact, broadly or liberally.” Although a unilateral declaration is not an agreement and a tribunal cannot apply the fundamental principle pacta sunt servanda, what is called for is an objective assessment of the unilateral offer to arbitrate based on the “natural and reasonable” meaning of the terms and neither a restrictive nor broad presumption of what the state intended by the terms.

This post is written by Andrew Newcombe on behalf of the ITA Academic Council.

If time permits, I may do another list for 2011. But, first I thought I’d take a look back at last year’s list and offer a brief update on those cases. Rather, than do all of the heavy-lifting here, I’ll direct readers of this blog to relevant reporting in my Investment Arbitration Reporter newsletter (not to be confused with Kluwer’s ITA newsletter) where appropriate. (You won’t need a subscription to view the articles that are referenced below, as we’ll make them publicly available.)

Without further ado, here’s a run-down of the ten cases from last year.

Suez, Vivendi, Anglian Water, et al. v. Argentina

In August, decisions on liability were finally rendered, holding Argentina liable for breaching investment protections owed to a Who’s Who of foreign investors in that country’s water and sewage sector. However, for those interested in the running debate about the coherence or fragmentation of public international law, the decisions may be something of a disappointment. While the arbitrators found breaches of Argentina’s bilateral investment treaty obligations, they gave short shrift to Argentina’s invocation of international human rights law obligations in its defence of these claims. Check out our reporting for a fuller run-down of what happened.

Fraport v. Philippines

Next on last year’s list was Fraport’s bid to annul an ICSID jurisdictional decision which had grounded the company’s bid for compensation over an expropriated airport terminal. In 2007, a divided tribunal ruled that the company’s claim should fail due to the fact that the claimant had quietly circumvented local laws designed to limit foreign control of the terminal project.

Well, tell your friends that you read it on the internet: Fraport got an early Christmas present on December 23rd when an ICSID annulment committee annulled the 2007 ruling. The annulment paves the way for a new arbitration, and one imagines that this will land on ICSID’s doorstep early in the new year. Keep an eye on the IAReporter newsletter for the fuller story on this one.

Brandes Investment Partners v. Venezuela

Last year, we noted that a decision should be forthcoming by a panel of arbitrators in a telecoms nationalization claim whose viability hinges on the ambiguous-looking arbitration clause in a domestic investment protection statute. Yeah, that’s a mouthful. But you’ve got time to digest it because, as of this writing, a decision in the Brandes case is still awaited.

Mind you, a different ICSID panel weighed in earlier this year with a notably restrictive interpretation of the same statute at issue in the Brandes case. Our report on that dimension of the Mobil v. Venezuela case is here. Now it remains to be seen what the Brandes tribunal makes of the ruling in the Mobil case.

El Paso v. Argentina

Nothing new to report here. El Paso turned to arbitration against Argentina back in 2003, alleging that the country’s handling of an earlier financial crisis triggered breaches of protections owed to El Paso. Arbitrators are still dotting their ‘I’’s and crossing their ‘t’’s on this long-anticipated decision. El Paso must be thoroughly demoralized given that the most likely outcomes are A) a dismissal of its case or B) a “victory” followed by a protracted annulment process.

AES v. Hungary

There is rather more to report in relation to another claim highlighted in last year’s list. AES was one of three foreign power producers to sue Hungary for allegedly failing to respect the terms of long-term power purchase agreements. However, in September, arbitrators handed down a verdict in favour of Hungary, finding no breaches of the country’s obligations under the Energy Charter Treaty. A fuller accounting of the case can be read here.

Foresti and others v. South Africa

A group of foreign miners drew international headlines when they alleged that South Africa’s Black Economic Empowerment program – and the country’s new BEE-inspired mining regime – had breached protections owed under South Africa’s bilateral investment treaties.

As was noted last December, the politically contentious dispute seemed to be fizzling out after the claimants signaled that they were prepared to lay down their arms. However, the claimants and South Africa could not agree on the peace terms, so it fell to arbitrators to hold a hearing and issue an award which drew a line under the case. Read all about it here.

RosInvestCo v. Russian Federation

On December 19, 2010, we reported that an arbitral award in one of three pending Yukos-related arbitrations against Russia had been quietly rendered back in September. The ruling had remained under lock and key until the Russian Federation moved earlier this month to set aside the award. Here’s our quick run-down of what happened, but keep an eye on our newsletter for a full accounting of the award’s holdings.

Chemtura v. Canada

Canada walked away victorious after arbitrators ruled in August of 2010 that a U.S. chemical company had failed to make out any of its claims under the North American Free Trade Agreement (NAFTA). The case had been watched nervously by public health advocates as Chemtura was attempting to second-guess Canada’s phase-out of the controversial agro-chemical, lindane. But, in the end, Canadians were left only with a hefty legal bill – not an arbitral edict requiring them to put a teapoon of lindane on their morning oatmeal. See this report for the crux of the tribunal’s ruling.

Chevron v. Ecuador (Round One)

While a bruising multi-front legal fight over liability for Amazonian oil pollution gathered pace last year, arbitrators also weighed in with a ruling on a less-publicized under-card battle between the two combatants: Chevron corporation and the Republic of Ecuador.

In what could be a hefty victory for Chevron, arbitrators ruled that Ecuador was liable for delaying the judicial resolution of a series of contract disputes. As we made clear in an analysis of the arbitral ruling, the tribunal appeared to break new ground in ruling that an international tribunal can step into the shoes of domestic courts that are failing to deliver justice in a timely fashion.

Libananco v. Turkey


Various claimants came out of the woodwork to sue Turkey following that country’s winding up of the Uzan family business empire. Libananco, a Cyprus-based entity, has long maintained that it has the most credible claims. The off-shore company insists that it held stakes in two valuable electricity concessions prior to their being taken over by the government. With all of the other known arbitration claims brought by shell-companies now having been dispatched on jurisdictional grounds, a ruling in the Libananco case is the only thing left to be written.

However, if Libananco should prevail, it will have to contend with a recent ruling by a New York judge that any ICSID arbitration winnings must accrue to the benefit of those who suffered a Billion Dollar fraud at the hands of the Uzans. See our story here.

Luke Eric Peterson
Editor
http://www.InvestmentArbitrationReporter.com

This article presents an overview of what can be reasonably expected by foreign counsel and parties when arbitrating in Brazil as regards evidence production – a question many clients and friends have been asking lately.

The following factors regulate and influence evidence production in arbitrations seated in Brazil: (i) the parties’ pre or post-dispute agreement; (ii) the Brazilian Arbitration Act; (iii) Brazilian procedural laws; and (iv) the rules of the selected arbitral institution, if applicable.

The parties to an arbitration have autonomy to choose prior to the dispute or when the arbitration has commenced not only the substantive law applicable to the merits of the dispute, but also the procedural rules which will guide the proceeding, including the rules of evidence production. The parties usually agree on these rules in the beginning of the arbitration, which will be reflected in a procedural order issued by the arbitral tribunal.

It is unusual for the parties to an arbitration – seated in Brazil or elsewhere – to adopt the broad-ranging discovery tools established by the U.S. Federal Rules of Civil Procedure, allowing, for instance, extensive document requests and witness depositions. Evidence production in arbitration usually rests in a middle ground between Civil Law and Common Law traditions.

An option is to adopt a separate set of evidentiary rules, for instance, the recently updated IBA Rules on the Taking of Evidence in International Arbitration, which in fact has already happened in some disputes in Brazil under the ICC Rules. The IBA Rules are intended to govern in an efficient and economic manner the evidence production in international arbitrations, particularly those involving parties from different legal traditions, as they provide for a comprehensive blend of Civil Law and Common Law procedures.

Despite the parties’ autonomy, they are not entirely free to define how evidence production will occur. They must ensure that evidence production complies with the law of the arbitration seat (or lex arbitri) in order to minimize the chances of judicial annulment of the arbitral award.

This is why it is important to select a seat whose laws and courts are arbitration-friendly and supportive of the types of evidence commonly used in arbitration, such as São Paulo and Rio de Janeiro.

As regards evidence production, Section 22 of the Brazilian Arbitration Act provides that either ex officio or at the parties’ request the tribunal may hear the parties or their representatives, hear witnesses, and appoint experts. Also, if an arbitrator is substituted, her substitute may request that evidence be produced again. Finally, “If a party fails, without good cause, to comply with a request to testify, the tribunal shall give due consideration to such behavior when issuing the award; if a witness is absent, the tribunal may request the judicial court of jurisdiction to compel the witness to appear before court.”

The Brazilian Arbitration Act also establishes that the Brazilian Code of Civil Procedure (“CPC”) shall apply when the Act is silent.

In a nutshell, under the CPC, evidence must be relevant, pertinent, and obtained through licit means. There is no discovery, especially considering the model of U.S. Federal Rule of Civil Procedure 26: document requests are extremely limited; a party cannot be compelled to produce evidence adversely affecting his/her interests unless strictly necessary and ordered by court; as a rule, the party who deems the evidence is necessary has the burden to present it and will only be able to compel the other party to produce it by: (i) proving that it does not possess the evidentiary piece and that the counter-party does; (ii) describing the evidence sought in detail; and (iii) proving the evidence is relevant to the case.

Expert witnesses appointed by the parties are popular and, naturally with ethical limitations, entitled to act as advocates. It is the job of the court-appointed expert – and not of the “party-appointed” expert witness – to find the effective “truth.” The role of the court-appointed expert is to interact with the expert witnesses, analyze their reports, and then present his/her independent findings to the tribunal. As such, requests for the disclosure of communications between counsel and party-appointed expert witnesses would likely be denied in an arbitration seated in Brazil. Finally, attorney-client communications are as a rule privileged.

Evidentiary rules are usually related to the principle of due process, also recognized, for instance, by the Brazilian Federal Constitution. Due process may thus be deemed to reflect Brazilian public policy, so that any incompliance with the principles described above may be grounds for the judicial annulment of the award. Therefore, when Brazil is the seat of the arbitration, parties and arbitrators shall observe the provisions and principles established by the lex arbitri (particularly the Brazilian Arbitration Act and applicable Brazilian procedural laws), and consulting with specialized counsel is recommendable.

Finally, it is worth noting that as opposed to litigation in Brazilian courts, where codified Civil Procedure precludes direct witness examination and cross-examination (counsel must ask the questions to the judge, who will then direct the questions to the witness), Common Law-style direct examinations and cross-examinations have been widely adopted in arbitrations in Brazil and in international arbitrations involving Brazilian parties, a practice which shall not represent a risk against future recognition of the arbitral award in Brazil.

The rules of international arbitral institutions such as the ICC, the ICDR, and the LCIA, and of well-established Brazilian arbitral institutions such as the Câmara de Comércio Brasil Canadá (CCBC), Câmara de Arbitragem do Mercado (CAM), Câmara de Mediação e Arbitragem do Centro das Indústrias do Estado de São Paulo – CIESP, and Centro de Arbitragem da Câmara Americana de Comércio – AMCHAM, provide solely for a generic framework of how evidence production will occur.

For instance, the CCBC Arbitration Rules provide that “The parties can submit all the evidence they deem convenient in order to instruct the proceedings and to enlighten the arbitrators. Yet, the parties shall present any other available evidences that any member of the Arbitration Tribunal may consider necessary for the understanding and settlement of the dispute. It is up to the Arbitration Tribunal to accept any evidence deemed as convenient, necessary or relevant.”

The Rules of the Câmara de Mediação e Arbitragem do Centro das Indústrias do Estado de São Paulo – CIESP provide that “The parties may present all of the evidence that they judge useful for the instruction of the proceedings and for the clarification of the arbitrators. The parties should further submit any other evidence that any member of the Arbitral Tribunal deems necessary for the understanding and resolution of the controversy. It will be the responsibility of the Arbitral Tribunal to determine the useful, necessary and pertinent proof.” The Rules of the Centro de Arbitragem da Câmara Americana de Comércio – AMCHAM provide that: “The Arbitral Tribunal shall decide on the taking of evidences requested by the parties or production of evidences it may consider applicable.”

These rules from traditional Brazilian arbitral institutions are similar, for instance, to those established by Articles 20 of the ICC Rules of Arbitration, 19 of the ICDR Arbitration Rules, and 22 of the LCIA Arbitration Rules. The framework provided by all these national and international rules leaves the parties – and, if they are silent, the arbitrators – with considerable discretion to decide what to admit as evidence.

Therefore, it is suggestible that the parties agree on the details (for instance, time-limits of the submissions; availability of witness statements; which types of evidence exactly will and will not be admitted), again ensuring compliance with the lex arbitri in order to minimize the chances of judicial annulment of the award.

As we know, the background of the arbitrators – Civil Law or Common Law – may also influence evidence production, and should be assessed when appointing one.

Arbitrators and counsel in arbitrations seated in Brazil shall have the aforementioned principles in mind to ensure that evidence production complies thoroughly with Brazilian law, particularly if enforcement is to be sought in Brazil.

Adopting the IBA Rules on the Taking of Evidence in arbitrations seated in Brazil has also proved to be efficient, especially when the dispute involves parties and counsel from different legal traditions. This choice may also help avoid surprises and reduce the exposure to judicial interference over how evidence production will be conducted.

These rules are still not popular in arbitrations involving Brazilian parties, a culture that should change as the practice of arbitration in Brazil becomes more and more international.

Fernando Eduardo Serec and André Zanatta Fernandes de Castro for TozziniFreire

The film outtakes include some choice excerpts of a March 3, 2007 meeting that included plaintiffs’ counsel (Steve Donziger and Pablo Fajardo), plaintiffs’ experts (Charlie Champ, Ann Maest, Dick Kamp) and the soon-to-be court-appointed expert, Richard Cabrera. The apparent purpose of the meeting between the plaintiffs and Cabrera was to develop a plan for the drafting of the independent expert’s report that Cabrera would write as Special Master for submission to the Ecuadorian court. According to Chevron’s filing, the tapes include some pretty damning evidence.

For example, Plaintiff lawyer Fajardo tells the assembled group—which includes the soon-to-be court-appointed expert Richard Cabrera– that the court-appointed expert is going to “sign the report and review it. But all of us [the plaintiff lawyers and experts] … have to contribute to the report.” Toward the end of the meeting Donziger brags: “We could jack this thing up to $30 billion … in one day.” (p. 2). Fajardo says that the team must “[m]ake certain that the expert constantly coordinates with the plaintiffs’ technical and legal team” and the plaintiffs’ team must “support the [court-appointed] expert in writing the report.” (p. 8). “Our entire technical team … of experts, scientists attorneys, political scientists, … will contribute to that report—in other words—you see … the work isn’t going to be the expert’s.” (p. 9).

In clarifying what role the plaintiffs and defense counsel will have in drafting the court-appointed expert report, Fajardo confirms that it will be written “together” with the plaintiffs. The idea of Chevron having a role in drafting the court-appointed report was met with collective laughter. (p. 9). Donziger proposes the plaintiffs establish a “work committee” to present a “draft plan” for the report and then says to the soon-to-be court-appointed expert, Richard Cabrera, “and Richard, of course you really have to be comfortable with all that.” (p. 11).

The next day, in a lunch meeting with just the plaintiffs’ lawyers and plaintiffs’ experts, one expert, Charlie Kamp, said “Having the perito [Cabrera] there yesterday in retrospect … that was bizarre.” Donziger replies, “Don’t talk about it” and tells the camera crew “And that’s off the record.” (p. 12). In responding to concerns from their own experts that there was not evidence of groundwater contamination, Donziger replies, “This is all for the Court just a bunch of smoke and mirrors and bullshit.” (p. 12). That’s right, Donziger is caught on tape saying that the evidence he is gathering for inclusion in the court-appointed expert report about groundwater contamination is just smoke and mirrors and bullshit.

I would rarely advise our readers to read a court filing they don’t have to, especially during the summer recess. But this one is explosive.

Yet less than two weeks after the ICCA Congress concluded, a court in São Paulo issued an injunction ordering a sitting ICC arbitration tribunal to widen the scope of the expert evidence it was considering. The underlying dispute arose out of the construction of the “Yellow Line,” a new subway line in the city of São Paulo. In order to timely complete the construction, the subway operator, Companhia do Metropolitano de São Paulo, known simply as “Metrô,” and the consortium constructing the new subway line, Consórcio Via Amarela, agreed to change the tunneling method, which resulted in additional costs. A dispute arose as to which party had to cover these costs. After a Dispute Avoidance Board recommended that Metrô compensate Via Amarela for the additional costs, Metrô initiated an ICC arbitration. The three-member ICC tribunal, seated in São Paulo and chaired by Brazilian arbitrator Carlos Alberto Carmona, issued a partial award in June 2009 holding that Via Amarela was entitled to be compensated for the additional costs and that the quantum of compensation would be fixed in the second phase of the arbitration by an accountant.

Metrô subsequently requested that the quantum be determined by engineering experts. After the tribunal rejected the request, Metrô initiated proceedings before São Paulo courts to set aside the partial award. In addition, Metro sought a writ of mandamus (“mandado de segurança”) ordering the tribunal to accept engineering evidence.

On 7 June 2010, the São Paulo Tribunal de Justiça issued a writ of mandamus ordering the ICC tribunal to consider the engineering expert evidence, which in the court’s view was a more reliable means of establishing the compensation amount. At least two aspects of the court’s order are worth noting here. First, the judge interfered in the ongoing arbitration proceedings by reviewing the tribunal’s decision not to consider the engineering expert evidence and concluding that in doing so, the tribunal had violated the principles of “reasonableness” and public policy. In issuing the writ, the judge not only violated the Brazilian Arbitration Act and the New York Convention, but also ignored a number of strong precedents by Brazilian courts confirming the autonomy of arbitration proceedings. It goes without saying that due process and public policy arguments, whatever their merits in this case, can only be raised in annulment proceedings.

Second, the use of a mandado de segurança as a procedural tool to interfere in arbitration proceedings is highly questionable and reminiscent of the use of amparos in some other Latin American jurisdictions. Under Brazilian law a court may issue such a writ to protect a “clear and perfect” (“liquido e certo”) right, whenever the party responsible for the illegal actions or abuse of power is a public official or an agent of a corporate legal entity exercising Government functions. The judge reasoned that arbitrators should by analogy be regarded as public officials, and hence be subject to a writ of mandamus, because arbitration involved the “delegation of the jurisdiction by the State.” However, to equate arbitrators with public officials not only appears to be mistaken, but would also open the floodgates for further judicial intervention in arbitration proceedings.

The decision is troubling to many because it was issued by a court in São Paulo, which, together with Rio de Janeiro, serves as seat for the great majority of arbitrations in Brazil and has been building a reputation as a seat for international arbitrations. It therefore does not surprise that the court’s anti-arbitration injunction has caught international attention and has been reported in the Global Arbitration Review.

Yet the import of this decision should not be exaggerated. Since the adoption of the 1996 Arbitration Act and the Supreme Court’s December 2001 decision confirming the constitutionality of the provision in the Arbitration Act regarding the specific performance of the arbitration clause, courts in Brazil have increasingly adopted a pro-arbitration approach. Anti-arbitration injunctions have remained the exception rather than the norm. At the same time, Brazilian courts have shown no reluctance to grant emergency conservatory measures in support of arbitration proceedings. As a result, the number of arbitrations in Brazil has increased drastically.

The attention raised by the occasional anomalous court decision, such as the writ of mandamus in Metrô v. Consórcio Via Amarela, is more likely to strengthen than weaken the pro-arbitration approach of Brazilian courts, because such decisions engender a healthy debate about important arbitration issues within the judicial community. Such anomalous decisions further provide higher courts with the opportunity to rule on appeal on important arbitration issues thereby adding to and strengthening their pro-arbitration jurisprudence. At the same time, they highlight the importance of the continued need to educate lower-level judges about arbitration.

On 30 June 2010 Via Amarelo obtained a suspension of the effect of the injunction pending a decision on the appeal. It is likely that the injunction will be overturned on appeal and that Brasil will have yet another important pro-arbitration precedent.

Dietmar W. Prager, Debevoise & Plimpton LLP

On May 12th, 2010, the Tribunal de Justiça do Estado de Rio de Janeiro (which is similar to a Court of Appeals) rendered a decision on the timing and admissibility of urgent measures before Brazilian courts. In Durval Biancalana da Silva e outros vs. DTP Participações e Investimentos S/A e outros the dispute arose from a quota purchase agreement containing an institutional arbitration clause providing for the administration by CCBC – Centro de Arbitragem e Mediação da Câmara de Comércio Brasil-Canadá.

The court of first instance examined a request for injunctive relief based on arguments of an urgent need to prevent irreparable harm, considering contractual breaches and default committed by the respondents. The claimants argued that unless certain restraining orders were granted against the company’s administration, its officers would have the opportunity to act contrary to the purchaser’s interests, causing substantial damages to the business. However, the court decided to dismiss the request on the ground that only the arbitral tribunal should rule on any matter originated from the contract due to the presence of an arbitration clause, including a decision on injunctive remedies.

In the consideration of the appeal, the Tribunal de Justiça overturned the decision, partially granting the relief sought by the claimant. The Tribunal de Justiça first examined the language of the arbitration clause which included a provision on the possibility of requesting urgent measures to the judiciary before and after the arbitral proceedings, and concluded that until the arbitral tribunal had been constituted the parties were allowed to request such remedies.

The respondents, however, had filed a memorial with evidence contending that the arbitration proceedings were already initiated under the auspices of the CCBC. Despite this argument, the Tribunal de Justiça found that the constitution of the arbitral tribunal was still on its way and that only after that point would the judiciary lack jurisdiction. It also pointed out that the appointment of arbitrators, the acceptance of their duties and the signature of the term of independence would all together take enough time to justify the injunction issued by the judiciary with regard to the urgency.

In sum, the Tribunal de Justiça correctly reversed the decision from the court of first instance, interpreting the initiation of the arbitral proceedings as the constitution of the arbitral tribunal. This ruling complies with the competence-competence principle and the generally accepted moment of the constitution of the arbitral tribunal and the rules enshrined in the national arbitration statute, which are applicable both to domestic and international arbitration.

This case reveals two relevant arbitration trends in vogue in Brazil. First, the decision from the court of first instance shows the recent eagerness of more engaged Brazilian judges to enforce arbitration agreements and respect the jurisdiction of arbitral tribunals. It is in essence a very good sign in favor of arbitration, from a country where the full understanding of the institute and its implications is yet to be widely consolidated.

Second, the position of the judiciary to review the matter from a supportive perspective also reveals a growing understanding of the limits and duties of every actor in the dispute resolution process through arbitration, including courts. A decision such as this ensures international observers that it is now much safer to set their arbitration seats in Brazil.

Ferroatlàntica, on one hand, and Zeus and Zeus’ individual owners (altogether “Zeus”), on the other, had entered into a joint venture agreement for the research and exploitation of minerals in Brazil. They had also formed a company incorporated in Brazil, FAT Brasil, to perform the research and the exploitation. Zeus had to contribute mining rights to FAT Brasil while Ferroatlàntica had to invest US$22 million in FAT Brasil. The joint venture agreement contained an arbitration clause, which referred to the International Chamber of Commerce (ICC) Rules of Arbitration, whereas the articles of incorporation of FAT Brasil provided for arbitration under the Rules of Arbitration of the Brazil-Canada Chamber of Commerce. The place of arbitration in both agreements was São Paulo, Brazil.

The joint venture agreement also granted Ferroatlàntica an exit option: in the event the research results did not meet certain targets, Ferroatlàntica had the right to exit the joint venture and be repaid the US$22 million invested minus FAT Brasil’s research expenses.

Considering the research results targets had not been met, Ferroatlàntica exercised its exit rights and requested the reimbursement of the balance of its investment in the joint venture. After Zeus refused to pay, Ferroatlàntica initiated an ICC arbitration seeking payment of those sums. In response, Zeus filed a lawsuit before a court in Caetité, in the state of Bahia, Brazil, and obtained an ex parte injunction requesting a stay of the arbitration. Ferroatlántica thereafter filed an interlocutory appeal against the injunction before the Court of Appeals of the State of Bahia, which issued an order vacating the injunction.

When seeking a stay of the arbitration, Zeus had relied on the conflict between the two arbitration clauses and argued such conflict raised “doubts” as to which rules should govern the arbitration.

Since Brazilian law on arbitration provides for judicial assistance at the outset of the arbitration, the Court of Appeals of the State of Bahia had to determine whether the conflict between the arbitration clauses justified such judicial intervention.

The Court of Appeals decided that the existence of conflicting arbitration agreements does not constitute a sufficient cause for a provisional stay of an arbitration. The court found that although conflicting arbitration agreements may raise difficulties for the resolution of a dispute, such difficulties did not justify judicial intervention to allow the arbitration to proceed.

Parallel arbitration proceedings pose a risk of insecurity regarding the outcome of the adjudication procedure. This risk derives from the likelihood that different arbitral tribunals will reach contradictory or incompatible decisions. In some cases, the two decisions may even out at the end. In others, the application of one or both becomes impossible. The most likely consequence is that one or both parties will continue to litigate in the available fora, making compliance with the award(s) unlikely and defeating what many consider to be the purpose of choosing arbitration in the first place: to have an effective and technical decision on the merits using a reasonable amount of resources.

Consolidation of proceedings would be advisable to avoid parallel proceedings. This can always be done in international commercial arbitration if the parties agree to it after the dispute arose. Such an agreement is not uncommon, because, as we have commented above, the prospect of parallel proceedings is a grim enough incentive to opt for consolidation.

In some cases, one of the parties, who is usually the party that has more to lose from the arbitration than the status quo, instead opts for dilatory tactics and litigation in court. More often than not, it is the respondent in the arbitration that takes this road, which is exactly what Zeus, in the possession of US$ 22 million, did.

The dispute that gave rise to the decision commented here was quite simple in practice because all the claims presented by Ferroatlàntica were related to the joint venture agreement. However, in other cases, the relation between the various agreements at issue or the nature of the claim may be such that it is more complex for the parties to determine which arbitration agreement governs their dispute. In those cases, the need for judicial intervention to determine which arbitration agreement prevails could arise. The rationale for such intervention would be similar to the arguments in favor of judicial intervention to support the enforcement of an arbitration agreement where (i) the terms of the agreement themselves are not sufficient to start the arbitration; (ii) one of the parties resists arbitration; or (iii) another obstacle to arbitration arises. The decision by the Court of Appeals of Bahia is an indication, however, that no such action is possible in case of conflicting arbitration

FAT Ferroatlàntica S.L. vs. Zeus Mineração Ltda.

As reported here, Chevron’s lawyer, Randy Mastro, argued that over 600 hours of film that was left on the editing room floor will incriminate the plaintiffs’ lawyers and show collusion between the Ecuadorian judge, the court-appointed expert, the Ecuadorian government and plaintiffs. “We’re trying to show in Ecuador that the expert report is tainted,” Mastro said. “We have the right to show how the process was manipulated by the plaintiffs’ counsel working in concert with the government…. Outtakes are an extraordinary record in which the plaintiffs’ counsel and their clients participated.”

The Court held that an investment arbitration panel is a “foreign tribunal” within the meaning of the statute. “The arbitration here at issue is not pending in an arbitral tribunal established by private parties. It is pending in a tribunal established by an international treaty, the BIT between the United States and Ecuador.” But the court seemed to suggest that even if it was a private arbitration, it could still order discovery under Section 1782. In the wake of the Supreme Court’s 2004 decision of Intel Corp. v. Advanced Micro Devices, the court noted that several circuits have “held that international arbitral bodies under UNCITRAL rules constitute ‘foreign tribunals’ for purposes of Section 1782. This Court agrees.”

Regarding whether a documentary film enjoys a journalistic privilege that precludes discovery, the court held that documentary films may invoke journalistic privilege, but that the test to satisfy the privilege was not met. The material sought is not confidential, will likely prove relevant in the case, and cannot reasonably be obtainable from other available sources.

Perhaps most interesting, the court seemed sympathetic to Chevron’s arguments that Ecuador is no longer the fair and impartial forum it once was when it advocated dismissal of the case on the grounds of forum non conveniens. The court cited a disturbing 2009 State Department report of judicial corruption and influence, and stated that “one readily sees why Chevron … now might be concerned about their fate in the Ecuadorian courts, regardless of whether events ultimately will prove those concerns to be justified.”

So Chevron will now have access to hundreds of hours of unedited film outtakes that have the potential to be completely explosive. If Chevron is to be believed, it could show footage of plaintiffs’ lawyers using pressure tactics to influence the outcome. Reportedly among the outtakes is a scene in which the plaintiffs’ lawyer pressures an Ecuadorian judge not to inspect a laboratory used to assess environmental contamination, saying “this is something you would never do in the United States, but Ecuador, you know, this is how the game is played, it’s dirty.”