IN THE MATTER OF AN ARBITRATION UNDER THE RULES OF THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW ________________________________________________________________________ CHEVRON CORPORATION and TEXACO PETROLEUM COMPANY, CLAIMANTS, v. THE REPUBLIC OF ECUADOR, RESPONDENT. ________________________________________________________________________ CLAIMANTS’ MEMORIAL ON THE MERITS ________________________________________________________________________ TABLE OF CONTENTS I. INTRODUCTION .............................................................................................................. 1 II. FACTUAL BACKGROUND........................................................................................... 12 A. TexPet’s Operations in Ecuador ........................................................................... 12 1. The TexPet-Petroecuador Consortium...................................................... 12 2. Ecuador’s Control over the Consortium ................................................... 15 3. The Consortium’s Operations................................................................... 17 4. TexPet’s Operations Complied with Then-Prevailing Industry Standards................................................................................................... 20 5. The Government Required TexPet to Build Public Infrastructure ........... 23 B. Post-Consortium Negotiations and Environmental Audits................................... 26 1. HBT AGRA’s Audit ................................................................................. 27 2. Fugro-McClelland’s Parallel Audit........................................................... 28 C. Ecuador Released TexPet from Public Environmental Claims in Exchange for Environmental Remediation and Other Payments .......................................... 30 1. TexPet and Ecuador Negotiated the Scope of Remedial Work ................ 30 2. The Ecuadorian State Was the Only Entity with Authority to Negotiate and Settle Public Environmental Claims.................................. 32 3. The Parties’ Agreements........................................................................... 33 a. The Final Draft Proposal............................................................... 34 b. The 1994 Memorandum of Understanding................................... 34 c. The 1995 Scope of Work .............................................................. 36 d. The 1995 Settlement Agreement .................................................. 38 e. The Municipal and Provincial Settlement Agreements ................ 40 D. TexPet Fulfilled Its Remediation Obligations and Received a Full Environmental Release from Ecuador .................................................................. 43 1. TexPet Hired Woodward-Clyde to Prepare the Remedial Action Plan.... 43 2. The Remedial Action Plan........................................................................ 44 a. Pit Closure..................................................................................... 45 b. Other Remediation Action Requirements..................................... 47 3. TexPet Remediated the Concession Area According to the Remedial Action Plan ............................................................................... 49 4. Ecuador and Petroecuador Formally Approved the Remediation Work ......................................................................................................... 54 5. The 1998 Final Release............................................................................. 56 6. There Is No Significant Risk to Human Health or the Environment Associated with TexPet-Remediated Sites ............................................... 57 E. Petroecuador’s Ongoing Impacts in the Former Concession Area....................... 62 i 1. Petroecuador Has Caused Extensive Environmental Damage since 1992 ................................................................................................. 62 2. The Belated PEPDA Remediation Program ............................................. 65 F. The Aguinda Litigation Concerned Individual, Not Public Claims...................... 67 1. The Aguinda Plaintiffs Treated the Aguinda Claims as Individual .......... 71 2. Texaco, Inc. Treated the Aguinda Claims as Individual........................... 73 3. The District Court Treated the Aguinda Claims as Individual ................. 73 4. The Second Circuit Treated the Aguinda Claims as Individual................ 74 G. The Lago Agrio Litigation Concerns Public Claims that Have Been Settled, and the Litigation Is Permeated with Fraud.......................................................... 75 1. The Lago Agrio Complaint and Initial Court Proceedings....................... 75 a. The Lago Agrio Plaintiffs Do Not Seek Individual Damages, but Seek Enforcement of Their Collective Environmental Rights under the 1999 Environmental Management Act.............. 75 b. The Lago Agrio Litigation Is Being Tried as a Verbal Summary Proceeding.................................................................... 78 c. Chevron Objected to the Jurisdiction of the Lago Agrio Court.... 79 d. The Plaintiffs Brought Suit against the Wrong Party ................... 80 2. The Evidence-Gathering Process.............................................................. 83 a. The Parties Agreed to an Evidence-Gathering Judicial Inspection Process......................................................................... 83 b. The Judicial Inspections Demonstrated that TexPet Complied with Its Remediation Obligations and that There Was No Significant Risk to Human Health or the Environment Associated with TexPet-Remediated Sites ................................... 85 c. The Panel of Settling Experts for Sacha 53 .................................. 90 3. The Court Abandoned the Evidence-Gathering Process and Appointed a Single Global Assessment Expert ........................................ 91 a. The Plaintiffs Sought to Set Aside the Judicial Inspection Process and Designate a Single Global Expert............................. 91 b. The Plaintiffs Hand-Picked Richard Cabrera as the Global Expert and Secretly Met with Him before His Appointment ....... 92 c. Mr. Cabrera’s Appointment Was Non-Transparent, Illegal, and Procedurally Inappropriate................................................... 101 d. Mr. Cabrera Did Not Write the Reports that Were Submitted in His Name ................................................................................ 103 e. The Cabrera Reports Lack Any Scientific Basis or Support ...... 111 4. The Court Orders Regarding Cabrera..................................................... 115 a. The Court Has Ignored All Evidence of Serious Flaws and Fraud in the Cabrera Reports ...................................................... 115 ii b. Faced with Massive Evidence of the Plaintiffs’ Fraud and Collusion with Mr. Cabrera Revealed in the Crude Outtakes, the Court Attempted to Restrict Chevron’s Due Process Rights............................................................................. 116 H. The Ecuadorian Government Is Colluding with the Plaintiffs to Improperly Influence the Court and Undermine Chevron’s Defense.................................... 118 1. Government Officials Have Had Repeated Improper Contacts with the Lago Agrio Plaintiffs and Have Provided Them with Financial Support.................................................................................... 120 2. The Lago Agrio Plaintiffs and the Ecuadorian Government Have Shared Legal Counsel ............................................................................. 128 3. The Lago Agrio Court Has Succumbed to Corruption and Political Pressure by the Plaintiffs and the Government....................................... 132 a. The Lago Agrio Plaintiffs Are Engaged in Pressure Tactics Designed to Influence the Lago Agrio Court.............................. 132 b. The Ecuadorian Government Has Signaled the Required Outcome to the Lago Agrio Court .............................................. 135 c. Timeline of Political Conduct and Court Action ........................ 139 I. The Ecuadorian Judiciary Lacks Independence.................................................. 148 J. The Criminal Proceedings against Messrs. Veiga and Pérez Are Baseless and Are Designed to Undermine the Settlement and Release Agreements........ 150 1. The April 2003 Comptroller General Report Is Replete with Fundamental Errors................................................................................. 153 2. The Comptroller General Nonetheless Filed a Criminal Complaint with Ecuador’s Prosecutor General on the Basis of the CG Report ....... 156 3. Ecuador’s Prosecutor General Investigated and Dismissed the Falsification Proceedings........................................................................ 159 4. Ecuador’s Pichincha Prosecutors Investigated and Dismissed the Environmental Proceedings .................................................................... 161 5. Despite the Prosecutor General’s Requests to Dismiss the Falsification Proceedings, the President of the Supreme Court Breached Ecuadorian Criminal Procedure by Refusing to Archive the Case................................................................................................... 165 6. President Correa and the Government Demanded the Prosecution of Claimants’ Lawyers and Dismissed the Prosecutor General Who Refused to Pursue the Case....................................................................