UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------CHEVRON CORPORATION, PLAINTIFF, V. MARIA AGUINDA SALAZAR, ET AL.

DEFENDANTS AND STEVEN DONZIGER, ET AL., INTERVENORS ------------------------------------CASE No. 11-CV-3718 (LAK)

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EXPERT REPORT OF DR. CÉSAR CORONEL JONES I, César Coronel Jones, hereby state under penalty of perjury in accordance with the laws of the United States of America that the following is true and correct: I. 1. BACKGROUND

I have been asked by Chevron Corporation (“Chevron”) to study the decision rendered on February 14, 2011, (“Decision”), expanded and clarified in the decision rendered on March 4, 2011, (“Expansion/Clarification”), by the Honorable Nicolás Zambrano Lozada (“the Judge”) of the Provincial Court of Justice of Sucumbíos, 1 and to determine if it contains (1) serious violations of Ecuadorian law that significantly affect Chevron’s fundamental rights, and (2) unreasonable recitals and decisions in the light of Ecuadorian law. I have also been asked to render an opinion regarding the appropriateness of judges considering evidence without giving all parties to the proceedings prior notice and the opportunity to contradict it, regarding what are the limits on the relationships between [said parties] and the experts, and regarding what is the judge’s role in drafting decisions.

2.

I am an Ecuadorian attorney and professor of law. My background and personal qualifications are found in Annex A. A list of the materials I have reviewed in order to prepare this present report are found in Annex B. I hereby reaffirm and incorporate as Annex C my prior expert reports related to the Lago Agrio Litigation that I submitted: (1) on September 6, 2010 in the arbitration proceeding that Chevron Corporation and Texaco Petroleum Company initiated against the Republic of Ecuador

Decision and Expansion/Clarification thereof in María Aguinda et al. versus ChevronTexaco Corporation, Provincial Court of Justice of Sucumbíos, Ecuador, No. 2003-0002 (“Lago Agrio Litigation”). The plaintiffs in the Lago Agrio Litigation will be identified as “Lago Agrio Plaintiffs.” The complaint that gave rise to the Lago Agrio Litigation will be identified as the “Lago Agrio Complaint.”

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(PCA Case No. 2009-23), (2) on September 20, 2010 in Chevron v. Stratus Consulting, Inc. et al., No. 10 Civ. 00047-JLK (D. Colo.), and (3) on February 15 and February 24, 2011 in the present case, Chevron Corp. vs. Donziger, No. 11 CV-3718 (LAK) (S.D.N.Y.). I currently reside in the city of Guayaquil, Ecuador. My professional address is 9 de octubre 100 and Malecón Simón Bolívar, Edificio La Previsora. 3. I hereby confirm my independence from the parties and their legal advisers. The content of this report reflects my independent opinion, based on my 36 years of experience as a practicing Ecuadorian attorney, and a professor and scholar in Ecuadorian law. During my career I have had to analyze numerous decisions, not only as a practicing attorney appearing before every level of our courts throughout multiple regions of Ecuador, but as a member of the bar who has appeared in domestic and international arbitration, as an arbitrator and mediator, and in my capacity as a law professor, legal scholar, and as a legal advisor. In analyzing the Decision and the Expansion/Clarification here I have not tried to substitute my judgment for that of the judge’s, nor have I focused on issues that are discretionary in nature. Instead, I have drawn on my familiarity with and understanding of Ecuadorian law, including but not limited to Constitutional law, the civil and procedural codes, the Organic Code of the Judicial Branch, the Law of Companies, and the Environmental Management Act (“EMA”), and have applied that knowledge and experience to my study of this Decision to determine whether it comports with our law, contains any fundamental or gross errors and, in particular, whether it involves violations of the fundamental rights of Chevron. I have conducted such analyses numerous times before, in particular in preparing my scholarly works, preparing for the courses I teach, acting

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as an arbitrator and attorney before the Constitutional Court, the National Court of Justice and other Ecuadorian high courts, among others. I believe my experience gives me the authority to offer a qualified and reliable opinion on the matters discussed herein. I have laid out my reasoning and cited the key portions of the laws and legal sources I found most relevant and potentially helpful, in an effort to enable this court and all of the parties in this action to understand why and how I reached the conclusions set forth herein. 4. 5. My compensation for preparing this report was US$ 400 per hour. This expert report was prepared in the Spanish language and translated into English. My native tongue is Spanish. I am fluent in both Spanish and English and I am able to read and write in both languages. Nevertheless, if I were called to testify, I would prefer to do so in my native tongue. 6. I have analyzed the Decision and the Expansion/Clarification and it is my opinion that they contain serious violations of Chevron’s fundamental rights and unreasonable considerations and conclusions that significantly depart from Ecuadorian law, particularly with regard to res judicata, the retroactive application of the EMA, the illegitimate imposition of punitive damages and violation of the principle of extra petita, the improper joinder of actions, the impropriety of Chevron having been sued, the merger and piercing of the corporate veil, and the causation and amount of compensable damages. Furthermore, it is contrary to Ecuadorian law for judges to consider evidence without giving all parties to the proceedings prior notice and the opportunity to contradict it, for expert reports to be drafted by parties to the proceedings or their consultants,

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and for individuals other than the judge to participate in the preparation of decisions.

II. A. 7. Res Judicata

ANALYSIS

Through settlement agreements, “the parties terminate a pending lawsuit out of court, or prevent a potential lawsuit.”2 Thus, Ecuadorian law reiterates the binding nature of these agreements in general, assigning to settlements the same effect as executed judgments, this being res judicata.3 Res judicata bars anyone from pursuing further proceedings involving the same parties in interest to a matter for the same causa petendi and the same object as in any matter already resolved through an executed judgment or through a previously signed settlement agreement.4

8.

The Decision, by acknowledging the binding force of the “release” agreements between TexPet and the Government of Ecuador regarding the alleged environmental damage caused by the former during the operation of the concession for hydrocarbon exploration and production in the Amazon region (“Concession”), in fact acknowledged their res judicata effect, given that those releases constitute settlement agreements.5

2 3

Civil Code, (2005) (Ecuador) (“CC”), Art. 2348.

CC, Art. 2362: “Settlement produces the effect of res judicata at a court of last appeal, but a motion for nullity or rescission may be filed in accordance with the foregoing articles.” (emphasis added). Code of Civil Procedure, (2005) (Ecuador) (“CPC”), Art. 297: “A final judgment irrevocably binds the parties who participated in the trial, as well as their legal successors. Consequently, a new suit may not take place if it involves subjective identity, which consists in the intervention of the same parties, and objective identity, which entails demanding the same thing, amount, or fact on the basis of the same cause, reason, or right.” Decision, p. 30: “the Presidency notes that said settlements were effective, as the record shows, for the Government of Ecuador to release Texpet and its parent company, Texaco Inc., from all responsibility for the environmental harm that may have originated in the Concession” (emphasis added). Decision, p. 91:
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However, the Decision specified that those agreements did not constitute any impediment to the Lago Agrio Plaintiffs’ claim for environmental damages against TexPet because: (1) The Lago Agrio Plaintiffs were not signatories to those agreements.6 (2) The 1995 release agreement7 was not entered into by the Government on behalf of all Ecuadorians,8 since in such case it would not have been subject to challenge, when the general rule is that any act is.9 (3) The State could not have availed itself of the right to bring an action and petition that belongs to the people of Ecuador, as this is a

“the record shows that the State has released Texaco, and consequently Chevron, from all their responsibilities in relation to the environmental harm that is the subject of this complaint, such that the profit or use by the state the resulting sentence (sic) against the defendant in this lawsuit, would result in a breach of the provisions contained in said contract, an illegal situation that this Court is not willing to provoke.” Hereinafter the words “transacción” [settlement] and “finiquito” [release] will be used interchangeably. On many occasions, the State has exercised its authority to enter into settlements. For example, see Parque Nacional Galapagos v. ACOTRAMAR C.A. et al., Chief Judge of the Superior Court of Justice of Guayaquil. Case No. 06-2001, (Guayaquil, October 1, 2002) (included [in] Official Letter No. 001764 from the Attorney General of the State, from May 23, 2007); and Halliburton Latin America v. the Comptroller General’s Office, Judicial Gazette. Series XVII, No. 9, p. 2969 (Quito, June 20, 2002). Decision, p. 32: “the plaintiffs who do not appear as signatories to the settlement alleged by the defendant in its defense, enjoy the rights of action and petition guaranteed by the Constitution because those are inalienable, moreover because the settlements are clear in stating who the active and passive parties are in the settlement….” (emphasis added). Contract for the Performance of Environmental Remediation Work and Release from Obligations, Liability and Claims, entered into on May 4, 1995, between the Government of Ecuador and the State-owned company Petróleos del Ecuador, PETROECUADOR, on the one part, and Texaco Petroleum Company, on the other part (“1995 Settlement Agreement”). Decision, p. 31: “Considering that in the 1995 Contract the unilateral will of the State is not expressed, but rather, in it the will of an individual, Texpet, has participated concurrently, it is clear that said contract cannot be qualified as an act of government, and in consequence the theory is inadmissible that said contract constitutes an act of government, and much less that it has been signed by the Government in the name of all the Ecuadorians….” Decision, p. 30: “The theory that the acts of the Government are always undertaken in the name of the people and constitute the expression of their will cannot be used with such exaggeration because that would make it impossible for such acts to be challenged, and to the contrary, the general rule is that every act is challengeable.” The Decision, invoking a resolution from the Constitutional Tribunal, that limits the remedy of protection against certain acts of authority, refers to a classification, that labels “acts of government” as those which, among other characteristics, “[have] ‘general scope or effect’… that, according to current doctrine, translate into legal norms and not into acts between parties.” Decision, p. 31. It is irrelevant whether or not the settlement agreements constitute acts of government, because such acts are not the only ones in which such representation occurs. There is a wide range of acts that are not “acts of government,” in which, however, the government acts to protect and promote the public interest and representing the community. This is precisely the case with the releases, in which, as I explain in paragraph 10 of this report, the government acted in representation of the community. Additionally, these releases could have been challenged in due course, as referenced in paragraph 15 of the present report.
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substantive, fundamental, inalienable and indispensable right which is guaranteed by the State itself.10 9. In summary, the conclusion of the Decision on this issue was based on [the fact that] in the release agreements, the State did not represent the community 11 and that, even if it had represented it, it could not have availed itself of the right to bring actions held by citizens nor waived the right to bring future actions that they could potentially bring in exercising that right. 10. These two premises are clearly erroneous. First of all, the explicit purpose of the settlement was to reaffirm the collective and indivisible right to a healthy environment. This was set forth specifically in the 1995 Settlement Agreement, which repeatedly refers to the “Environmental Impact arising from the Operations of the Consortium” as being covered by [the agreement],12 to a point where in Art. 5.213 it is held that the release extends to any and all claims that might be brought, among others, in causes of action under Art. 19(2) of the Constitution of Ecuador

Decision, p. 30: “the exercise of the right of action and/or petition is guaranteed by the State, and it could hardly stipulate a limitation on this right through an administrative contract….” Decision, pp. 31-32: “from a reading of all the various releases mentioned, it can be observed with total clarity that none of them tries to nor is capable of addressing—as is required by law—the right of action and petition to which people in Ecuador are entitled….” It should be kept in mind that in this report, the terms “collectivity,” “people,” and “community” are used interchangeably as “a group of people in a location, region or country.”
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1995 Settlement Agreement, last three whereas clauses, Arts. I ¶ 1.12, V ¶ 5.1, and others.

1995 Settlement Agreement, Art. V ¶ 5.2: “The Government and PETROECUADOR intend claims to mean and all claims, rights to claims, debts, liens, common or civil law or equitable causes of action and penalties, whether sounding in contract or tort, constitutional, statutory, or regulatory causes of action and penalties (including, but not limited to, causes of action under Article 19-2) of the Political Constitution of the Republic of Ecuador…, costs, lawsuits, settlements and attorney’s fees (past, present, future, known or unknown), that the Government or PETROECUADOR have, or ever may have against each Releasee (sic) for or in any way related to contamination, that have or ever may arise in the future, directly or indirectly arising out of Operations of the Consortium, including but not limited to consequences of all types of injury that the Government or PETROECUADOR may allege concerning persons, properties, business, reputations, and all other types of injuries that may be measured in money, including but not limited to, trespass, nuisance, negligence, strict liability, breach of warranty, or any other theory or potential theory of recovery.” (emphasis added).

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in effect at that time.14 This constitutional mandate placed upon the State the obligation to protect the environment. Thus, the State held the exclusive authority to reaffirm, on behalf of the collectivity, the supra-individual and diffuse right to a healthy environment and to bring claims against private parties said to have affected it.15 Thus, the party holding the material legal interest in the referenced agreement was the community, represented by the State. 11. In the Lago Agrio Complaint, this very right is sought to be reaffirmed on behalf of the same interested party: the collectivity. The fact that now there are different persons taking action is irrelevant because what is important is the legal identity of the party whose interests are in jeopardy and not the physical identity of the persons representing [that party].16 12. The abovementioned is reinforced by the settlements which ended the lawsuits that several municipalities in the Concession area brought against TexPet to claim exactly the same collective right to a healthy environment. The case of the Municipality of Lago Agrio is a clear example. In the complaint, which the Municipality filed in 1994, it was stated that TexPet activities “contaminated the sources and waters of the rivers, the air surrounding us and the soil, which is the patrimony of our communities, causing severe environmental impact with serious repercussions on the health of our populations in the region…”17 Later, the Municipality justified its actions upon the rules of the Municipal System Law [Ley de Régimen Municipal] regarding “the health of our citizens, the rivers of our communities; the

Political Constitution of the Republic of Ecuador, (1993) (“1993 Constitution”) Art. 19(2): “Without prejudice to other rights necessary for full emotional and physical development that arises from the nature of the person, the State guarantees persons:… 2.- The right to live in an environment free of contamination. It is the duty of the State to ensure that this right is not adversely affected and to safeguard the preservation of nature….”
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My prior report filed September 6, 2010, at ¶¶ 90 and 56. (Coronel Annex C-1). My prior report filed September 6, 2010, at ¶ 53. (Coronel Annex C-1). Complaint filed by the Municipality of Lago Agrio, ¶ 2 (July 25, 1994) (emphasis added).

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roads of our neighborhoods…”18 The trial ended by a settlement in 1996. Therein, it was stated that the Municipality was signing it after having “consult[ed] with the entities and organizations representing the community of its inhabitants.” 19 Moreover, the Mayor gave a “Sworn

Statement” confirming that the Municipality had “initiated the action... with the entire community convinced that it would achieve... a satisfactory resolution to their claim” and that the lawsuit had been settled in terms that “satisfied the interests of the Municipality and its inhabitants regarding any claim they might have against TEXPET.”20 13. The settlement between Chevron and the Municipality of Lago Agrio was approved by the judge who heard the matter between the two [parties]. He stated that [the settlement] put an end to the case and had the effect of res judicata.21 When a new Lago Agrio mayor sought to have this settlement set aside, the judge denied his request, upholding the effect of res judicata under Art. 2386 (now 2362) of the CC.22

18

Id. at ¶ 2 (emphasis added).

Contract of Settlement, Release from Obligations, Liability and Claims entered into by the Municipality of Lago Agrio, Province of Sucumbios, and Texaco Petroleum Company, May 2, 1996, TexPet-Municipality of Lago Agrio, clause 2.4, p. 2 reverse (emphasis added). Sworn Affidavit of Raúl Avilés Puente, Mayor of the Council of the Municipality of Lago Agrio, ¶¶ 2-3 (May 2, 1996) (emphasis added). Decision by the First Civil Court of Sucumbíos, Case No. 289-94, (Nueva Loja, September 19, 1996, 11:00am), pp. 443 reverse and 444: “according to legal authors and case law, a settlement is a civil contract resembling a judgment as it puts an end to a lawsuit and has a res judicata effect for the parties to the proceeding. In this case, however, the parties agreed that they would ask the courts to render judgment confirming the settlement… the settlement agreement and Release from Obligations, Liability and Claims entered into by the Municipality of Lago Agrio and Texaco Petroleum Company… is hereby fully APPROVED… the settlement shall have res judicata effect pursuant to Section 2386 of the Civil Code [now 2362], except for the legal actions set forth therein.” Order of the First Civil Court of Sucumbíos, Case No. 289-94, (Nueva Loja, October 10, 1996, 9:35 am): “[T]he motion of the Municipality of Lago Agrio to consider the agreement rescinded is denied. In addition, this motion as part of the case is improper, without prejudice to the right discussed in Article 2386 of the Civil Code, as indicated in the resolution part of the order approving the transaction between the parties.”
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14.

Nothing stated in the paragraphs above is taken into consideration in the Decision, which limits itself to presenting conclusions obtained from the exclusive point of view of the subscribers to the settlements, i.e., as to the form of these documents, ignoring their substance. It is as if the Decision ignores the substance and implications of the law and, by being superficial, reaches a conclusion at odds with the law and other parts of the Decision itself.

15.

Secondly, it is erroneous to suggest that in the release agreements the State may have unconstitutionally dispensed with the citizens’ right to bring actions. On the contrary, the settlements entailed recognition, by the only party authorized to do so, of the collectivity’s right to a healthy environment. I have already explained in my prior report filed September 6, 2010 that the right held by private parties to directly file compensatory actions for environmental damage on behalf of the community has only existed in Ecuador since 1999 when the EMA was enacted; therefore, [the settlements] could hardly have affected a right to action that did not exist in 1995. In fact, Art. 19(10) of the 1993 Constitution, which the Decision cites as a foundation of the right of citizens to bring action,23 states that [said citizens] are prohibited from filing petitions in the name of the people.24 The State was the only [entity] that could

Decision, p. 30: “Neither is there a legal basis to maintain that the existence of this settlement serves to deprive the plaintiffs of their fundamental right to bring actions and petitions and that these be decided. This right was consecrated in the second codification of the Political Constitution of the Republic of Ecuador, (R.O. No. 183 of May 5, 1993), in subsection 10 of article 19….” 1993 Constitution, Art. 19: “Without prejudice to the other rights necessary for the full emotional and physical development that arises from the nature of the person, the State guarantees persons: …10. The right to submit complaints and petitions to the authorities, but in no case on behalf of the people….” (emphasis added). The codifications of the 1996 and 1997 Constitution as well as the 1998 and 2008 Constitutions state the same. Commenting on this provision, Ecuadorian legal scholar Juan Larrea Holguín states: “Our Fundamental Laws have rightly said that the right to petition, individually or collectively, cannot be filed “in the name of the people” because this would suppose an organization parallel to the State;
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take action in the name of the latter. If the Decision had not referred to that right but to the right held by private persons to bring actions for individual damages to their person or assets, it would be proper, then, to call attention to the fact that this right was not part of the settlement agreements.25 Finally, it should be noted that private persons were in fact empowered to exercise the right to bring challenge actions questioning the validity of these agreements or to file liability actions against the State.26 16. In summary, both in the release agreements and in the Lago Agrio Complaint, the party who is holding the claimed legal interest is the same: the collectivity. Further, the cause is the same: the environmental impact alleged to have been generated by TexPet operations, affecting the right to live in an environment free of pollution. Finally, the object of both is to redress these environmental impacts. Consequently, between the settlement agreements and the Lago Agrio Complaint, there is triple identity, [that of] parties, causa petendi and object, and therefore, the settlement reached through these releases has the effect of res judicata with regard to this Complaint and constitutes, consequently, a legal impediment to the success of the claims made in [said Complaint].

Public bodies actually represent the people.” LARREA HOLGUIN, Juan: Derecho Constitucional Ecuatoriano, Volumen I, [Ecuadorian Constitutional Law, Volume I, Corporation of Studies and Publications], Corporación de Estudios y Publicaciones, Quito, 2004, p. 170. Memorandum of Understanding of December 14, 1994, clause VIII: “The provisions of this Memorandum of Understanding shall apply without prejudice to the rights possibly held by third parties for the impact caused as a consequence of the operations of the former PETROECUADOR-TEXACO Consortium.” 1993 Constitution, Art. 20: “The State’s institutions, officials, and concessionaries, will be obligated to indemnify private parties for the damages caused by providing deficient public services, or from the actions of its officials and employees, in the execution of their functions.” In the cassation decision handed down in the Juicio de Impugnación [appeal] pursued by Halliburton Latin America against the Office of the Comptroller General, the Supreme Court of Justice, after analyzing and confirming the validity of the previous settlement that the company had entered into with Petroecuador regarding the matter in dispute, said that “it would be necessary to establish whether the executed transaction provides a fair compensation. If it does not, the proper thing would be to establish responsibilities against the officials of Petroecuador who participated in it….” Halliburton Latin America v. the Comptroller General’s Office, Judicial Gazette. Series XVII. No. 9. P. 2971. (Quito, June 20, 2002).
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B. 17.

Retroactive Implementation of the EMA The Decision said that “[n]on-retroactivity in the application of the Law is a principle of law that governs in our procedural system as the general rule.”27 However, it says that applying the EMA in this case is not a violation of this principle, despite it having been enacted after the events that are the subject of the Lago Agrio Complaint took place and the settlements were signed.

18.

The Decision came to this conclusion based on [the fact that] under Ecuadorian law, the rules of procedure prevail over those prior to them from the time when they go into effect.28 According to the Decision, the EMA refers only to procedural aspects29 while the substantive right to claim redress for collective environmental damages was provided by Arts. 2214 and 2229 of the CC, which predate the aforementioned events.30

19.

It is erroneous that Arts. 2214 and 2229 of the CC establish the substantive right to claim redress for collective damages of any sort. This issue is clear in Ecuadorian law, explained in the legal scholarship of the most renowned authors; the Civil Code refers only to indemnification for individual damages and not for collective damages.31 Private parties, in addition to claiming individual damages, could demand

27 28

Decision, p. 27.

Decision, p. 27: “rule 20 of Article 7 of the Civil Code, cited on multiple occasions by the parties to the lawsuit, establishes that rules relative to the manner of hearing cases and their formalities prevail over prior ones as of the time they go into effect….” Decision, pp. 27 and 28 (in reference to Arts. 42 and 43 of the EMA): “[t]hese norms refer to two essential aspects of the formalities of the proceedings: competence and the type of proceeding, that is, they are quite clearly procedural norms….” Decision, p. 28: “On the other hand, the substantive right to seek redress for harm is guaranteed by the Civil Code, as stated in the petitions of the complaint, in its articles 2241 and 2256 [presently 2214 and 2229]….” Henceforth, all references to these articles as well as to article 2260 (currently 2236) of the CC shall be made by using the current numbering. The Ecuadorian courts defined damage “as any impairment experienced by an individual to his or her person, and the loss of a benefit, whether of a material or ethical nature, whether or not part of his or her assets.” Macías v. Inchalela C. Ltda., Judicial Gazette. Year XCI. Series XV. No. 10. p. 3052. (Quito, November 12,
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that the State ensure the right to live in an environment which is free from contamination, but they did not have the right to demand redress for collective environmental damage. Collective environmental damage is only subject to compensation in Ecuador—due to a claim initiated by private parties—from the time of the 1999 EMA. For its part, Art. 2236 of the CC, also invoked as a basis for their actions by the Lago Agrio Plaintiffs, provided only an injunctive action for prevention of contingent damage and not for obtaining compensation for harm already produced. 20. It is also erroneous that the EMA is limited to establishing rules of procedure. The Decision avoids the analysis of the most important aspect of the EMA, which is to confer, for the first time in the history of Ecuadorian law, ad causam32 standing upon private parties to bring claims for compensation for collective and indivisible rights. It is noteworthy that this analysis has not been done because, under Ecuadorian law, the concept of ad causam standing has been the subject of frequent legal opinions, which state once and again that ad causam standing is related to holding the subjective right at issue, that is, to the merits of the case.33

1990) (emphasis added). Likewise, the doctrine generally accepted by Ecuadorian legal scholars holds that damage includes “any detriment, prejudice, impairment, harm or nuisance suffered by an individual to his or her person, assets, liberty, honor, credit, emotions, beliefs, etc. Damages imply the destruction or decrease, no matter how insignificant, of the material or immaterial advantages or benefits an individual enjoys.” ALESSANDRI, Arturo: De la Responsabilidad Extracontractual en el Derecho Civil Chileno [About extracontractual Liability in Chilean Civil Law], EDIAR Editores Ltda., 1983, p. 210 (emphasis added). Along the same lines, René Abeliuk states: “The most widespread concept of damage or harm is the one which considers it as any detriment or harm suffered by a person in his assets or in his physical or moral person.” ABELIUK MANASEVICH, René: Las Obligaciones [Obligations], Volume I, Editorial Jurídica Temis and Editorial Jurídica de Chile, Bogota, 2001, p. 200 (emphasis added). “The legitimacy within the cause refers to the quality that the party should have in relation to the substantial interest at issue in the process.” Carpio v. Guapán S.A., Judicial Gazette. Year CX. Series XVIII., No. 8. Page 2685. (Quito, May 27, 2009). “To determine the existence or lack thereof of a legitimate opposing party, or what is known in doctrina as establishing a legitimate cause or legitimatio ad causam, means to establish who the holder of the substantial
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21.

The omission of this analysis in the Decision is more noteworthy because in another ruling, in which the Judge acted as a member of the Single Division of the Superior Court of Justice of Nueva Loja (now the Provincial Court of Justice of Sucumbíos), it was found that “The environmental action to request damages cannot in any way be compared to the civil action for damages. The two actions protect legal rights of totally different relevance.”34 This means that the Judge was fully aware of the substantial differences between the two actions and the nature of the property protected by each of them. Nevertheless, the Decision failed to analyze the question of standing to sue ad causam, despite its decisive importance.

22.

It is also very significant that the same Decision expressly acknowledged that the right to bring actions is a “fundamental… substantive right.”35 Art. 43 of the EMA granted private parties, for the first time, the right to bring an action claiming compensation for collective environmental damages. Therefore, this article contains a substantive provision that, as a consequence, it would be improper to implement retroactively. implemented in this manner in the Decision. It is surprising that [this provision] has been

23.

Finally, even if the EMA had granted an action retroactively for private parties to claim compensation for collective environmental damages that previously could only be filed by the State, it would not allow the claims as to rights already vindicated by the settlement agreements executed with the municipalities and the State to prevail in the Lago Agrio case.

right discussed is who could effectively bring the action….” Ruiz v. Superintendency of Banking and Insurance, Judicial Gazette., Year CX. Series XVIII., No. 8. Page 2737. (Quito, September 2, 2009). Although there are many more similar decisions, I will give the following additional examples of rulings: Huilca v. Galárraga. LARREA HOLGUÍN, Juan Larrea: Repertorio de Jurisprudencia, Volumen XV [Law Report], Volume XV], Corporación de Estudios y Publicaciones, Quito, 1981, p. 487. Paztaz v. Bustamante. LARREA HOLGUÍN, Juan Larrea: Repertorio de Jurisprudencia, Volumen XIX [Law Report, Volume XIX], Corporación de Estudios y Publicaciones, Quito, 1982, p. 696. Red Amazónica v. Oleoducto de Crudos Pesados, S.A., Decision of the Sole Chamber of the Superior Court of Justice of Nueva Loja Case No. 218-2008 (July 29, 2009, 3:45 p m.) (“OCP Case”), Conclusion Ten.
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Decision, p. 33.

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C. C.1. 24.

Punitive Damages and Extra Petita Punitive Damages

“[D]espite not [having been] requested in [an] express manner,” as the Decision expressly acknowledged,36 the Decision imposed a “punitive penalty” on Chevron which was equivalent to an additional 100% of the total amount of reparation ordered (US$8.646 billion), and gave Chevron the alternative of being released from this penalty if it would make a public apology to the persons allegedly affected by TexPet’s operations.37

25.

The choice in the Decision to award punitive damages constitutes a clear violation of Ecuadorian law: (1) There are no legal grounds for asserting the existence of punitive damages in Ecuador. (2) I know of no [other] case in which an Ecuadorian judge has awarded punitive damages in Ecuador.38 On the contrary, awarding punitive damages is a violation of basic constitutional and legal rights under Ecuadorian law: (1) It violates the constitutional principle of legality of sentences, according to which all penalties must be expressly established by law.39 (2) It violates the principle of full redress

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Decision, p. 185.

Decision, p. 185: “the acts of the defendant while it operated the Concession, its economic benefit obtained, the acts of its representatives, and its manner of proceeding in this case, make appropriate the application of this sanction….” In addition to my personal experience, I have conducted exhaustive searches of case law records, both in print and electronic form. Constitution of the Republic (2008) (Ecuador) (“Constitution”), Art. 76: “In all procedures determining rights and obligations of any type, the right to due process shall be ensured, and it shall include the following basic guarantees: … 3. No one may be tried or punished for an act or omission that was not defined in the law, at the time it is committed, as a criminal, administrative or other violation, nor shall a penalty that is not provided for by the Constitution or the law be imposed.” As their name indicates, punitive damages constitute a penalty. This is expressly recognized in the Decision (p. 185) when referring to the imposition of punitive damages upon Chevron, it states that its conduct “make[s] appropriate the application of this sanction” and that the amount it set “is adequate for the punitive and dissuasive purposes.” It confirms this later in the Expansion/Clarification by addressing the fifteenth expansion petition (p. 9), since it states that, in imposing punitive damages, what it did was “applied the universal principles of law to sanction someone who well deserved it.”
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of the damages, which limits such redress to the actual immediate and direct damage caused, since damages in Ecuadorian law are fundamentally compensatory in nature.40 (3) It violates the principle that prohibits unfair enrichment without cause.41 26. As I stated in my declaration of February 15, 2011, submitted in these proceedings, imposing punitive damages is not permitted in Ecuador. Historically, Ecuador has held to the tradition that compensation is limited to the harm actually caused to the victim.42 The Decision acknowledged that there is no Ecuadorian legal source that allows imposition of punitive damages.43 In fact, even when a plaintiff proves that a defendant acted fraudulently, the latter may only be ordered to pay damages that are a direct and immediate result of its actions.44 27. Despite that, the Decision imposed punitive damages without invoking any law, but rather

Compensatory indemnification “is subsidiary to the main obligation, in other words, it replaces the performance that is the subject of the obligation.” OSPINA, Guillermo: Régimen General de las Obligaciones [General Rule of Obligations], Eighth Updated Edition, Editorial Temis S.A., Bogotá, 2005, p. 92. “Direct damages are those arising as an immediate consequence of the nonperformance of an obligation, whether due to delay or definitive breach … The distinction between direct and indirect damages is important because the party in breach of contract is only liable for direct damages.” ALESSANDRI, Arturo; SOMARRIVA, Manuel;and VODANOVICH, Antonio: Tratado de las Obligaciones, Volumen del Cumplimiento e Incumplimiento de las Obligaciones, de la Protección de los Derechos del Acreedor, de la Insolvencia y las Formas de Pago de los Deudores Insolventes [Treaty on Obligations, Volume on Fulfillment and Non-fulfillment of Obligations, Protection of Creditor’s Rights, Insolvency and Payment Forms for Insolvent Debtors], Editorial Jurídica de Chile, Santiago, 2004, pp. 313 and 314. “[I]n contract law, Art. 1558 rules out indemnification, and in criminal law, one must reach the same conclusion, because with regard to these damages, the requirement in terms of causality is missing.” ABELIUK MANASEVICH, René: Las Obligaciones [Obligations], Volume I, Editorial Jurídica de Chile, Bogotá, 1993, p. 208. “In our Civil Code, … although it is not recognized as an autonomous source generating obligations, it is nonetheless inferred by the following precepts, among others: 291, 693 …. Those provisions, as treatise writers have pointed out, <<are true applications of the principle prohibiting unjust or undue enrichment, or enrichment without cause>>.” LARREA HOLGUÍN, Juan: Derecho Civil del Ecuador [Ecuadorian Civil Law], Volume XV, Non-Contractual Obligations, Corporación de Estudios y Publicaciones, Quito, 2004, p. 240.
42 43 41

40

See my prior report filed February 15, 2011, ¶¶ 12 and 13. (Coronel Annex C-3).

Expansion/Clarification, p. 20: “the judgment does not establish punitive damages based on jurisprudence. Rather, given the lack of an express rule, the universal principles of law …are invoked….” CC, Art. 1574: “If no fraud can be attributed to the debtor, he is only responsible for the damage that was foreseen or could have been foreseen at the time of the contract. But if there is fraud, he is responsible for all damage that is an immediate or direct consequence of failure to comply with the obligation or delay in performance.” (emphasis added).
44

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solely on the basis of a legal essay of an Argentine author, in which said [author] mentions that punitive damages were not permitted in his country and suggests cases in which he believes they should be.45 The Expansion/Clarification46 contradicted what was put forth in the Decision and says that it “d[id] not establish punitive damages based on jurisprudence,” but rather, in the absence of an express provision, universal principles of law had been invoked pursuant to Art. 18 of the CC, with doctrine having been used only in search of cases and requirements for application of said concept due to its lack of development in Ecuadorian law. The Expansion/Clarification said, moreover, that “the application of this institution does not in any way go against Ecuadorian law, but is based on it.”47 However, this assertion is erroneous in that the principle whereby only direct damages can be compensated is a fundamental part of our law.48 28. Also, it is important to bear in mind that, in a system of civil law such as that of Ecuador, the importance of the written law in governing legal situations and actions is unparalleled. Neither custom nor doctrine nor case law has force comparable to the Civil Code and the other laws promulgated by Congress.49

Decision, p. 185: “a legal foundation has been presented, found in legal writings (see Pizarro, “Derechos de daños,” [“Rights to Damages”] La Rocca, Buenos Aires, 1996).” CPC, Art. 281: “The judge who handed down the judgment may not revoke it nor change his opinion under any circumstances; but he may clarify it or amplify it if one of the parties so requests within three days.” In this article, the CPC provides that each party may seek clarification or expansion of the decision. A petition for clarification is aimed at obtaining explanations of some part of the decision that requires more clarity. A petition for expansion, on the other hand, is aimed at having the decision fleshed out, including any aspect of the dispute which has not been addressed. But the article makes it clear that in no case can that amend the ruling itself.
47 48 49 46

45

Expansion/ Clarification, pp. 9 and 20. See supra, ¶¶ 25 and 26, and footnotes 40 and 44.

“With respect to Civil Law, our country takes a predominantly “statutory” or legislative approach. In other words, indisputable predominance is given to laws, while custom and case law receive subordinate attention. Indirect or remote sources (doctrine, and sometimes case law and custom) are not taken into account in the Civil Code.” LARREA HOLGUÍN Juan: Manual Elemental de Derecho Civil del Ecuador [Basic Manual on Ecuadorian Civil Law] Volume I, Corporación de Estudios y Publicaciones, Quito, 2002, p. 21. My prior report filed September 6, 2010, ¶¶ 21 to 25. (Coronel Annex C-1).

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Thus, the fact that the Decision relied exclusively on a referential doctrinal commentary is not in accord with Ecuadorian law. 29. The assertion in the Expansion/Clarification that punitive damages were imposed on the basis of Art. 18, rule 7 of the CC goes beyond any reasonable interpretation and application of said provision. 30. First, rule 7 of Art. 18 of the CC can be invoked only when there is no law governing the matter.50 This rule cannot be used by a judge as a mechanism for contradicting the law that is in effect when it is clear only because he believes that the solution provided therein is inadequate and insufficient.51 In this case, as has been explained, the law exists and, moreover, is clear: punitive damages are not permitted. Thus, there is no reason to invoke the principles of universal law. 31. Second, even if we assumed that there is no law governing this matter, punitive damages could not be imposed because they are not a principle of universal law, but a concept that receives different treatment in different legal systems.52

Art. 18 of the CC, 4th paragraph of the Preliminary Title, entitled “Judicial Interpretation of the Law”, establishes judges’ obligation to rule on cases brought before them, even if there is a lack of clarity or absence of law on the matter. For this purpose, it provides seven rules to guide judges in interpreting the law. The Expansion/Clarification cites the seventh of these rules, which says, and we quote: “If there is no law, the laws governing analogous cases shall be applied, and if there are no such laws, then the general principles of universal law shall be used.” (emphasis added). CC, Art. 18(7).
51

50

My prior report filed September 6, 2010, ¶¶ 21 to 25. (Coronel Annex C-1).

“DÍEZ-PICAZO writes in the cited work that North American tribunals allow the imposition of so-called punitive damages.” TRIGO REPRESAS, Félix and LOPEZ MESA, Marcelo: Tratado de la Responsabilidad Civil [Treatise on Civil Responsibility], Volume I, Editorial La Ley, 2004, p. 559. On the other hand, he asserts that “the concept of punitive damages is foreign to continental European legal systems, and there are strong reasons for this….” TRIGO REPRESAS, Félix and LOPEZ MESA, Marcelo: supra p. 575. “[I]n jurisdictions whose civil laws do not recognize this concept, tribunals have deemed that foreign verdicts establishing punitive compensation cannot be enforced precisely because they go against the protection of public order with respect to private international law, which limits the application of foreign law or the enforcement of foreign judgments when they go against fundamental legal principles of the country in which they should be applied.” BARROS BOURIE, Enrique: Tratado de Responsabilidad Extracontractual [Treatise on Tort Liability], Editorial Jurídica de Chile, 2008, pp. 306 and 307. Barros states that this is the case with Germany and Japan.

52

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32.

Third, in Ecuadorian law, punitive damages are prohibited because, by constitutional mandate, a judge cannot penalize anyone unless the penalty has been clearly established by a law prior to the occurrence of the alleged improper conduct.53 There is no provision that has permitted the Decision to impose punitive damages on Chevron. C.2 Extra Petita

33.

Aside from the fact that punitive damages are contrary to our law, there is an additional reason why the Decision’s award is a violation of the constitutional guarantee of due process. Under specific constitutional provisions, 54 Ecuadorian procedural law is guided by “el principio dispositivo,” which means that the parties have the power to determine the object of the proceeding in the complaint and answer to the complaint—as well as by modification of such filings in proceedings where that is permitted.55 Another firm principle of Ecuadorian procedural law, which complements the previous one, is the principle of non extra petita, according to which a ruling should be limited to that object. Consequently, a judge cannot rule [on] more, or less, or something different, on pain of committing the inconsistencies of ultra, citra or extra petita, respectively. 56 Awarding the plaintiffs something they did not

See footnote 39. This constitutional protection is a fundamental part of the guarantee of due process and the principle that people have the right to know in advance what the consequences of their actions are. Constitution, Art. 168: “The administration of justice, in compliance with its duties and in the exercise of its authority, shall apply the following principles: …6. Cases involving all subject matters, at every level of appeal and at all stages and in all proceedings shall be heard using the oral system, in accordance with the principle of concentration, adversarial proceedings, and the dispositive principle.” In fact, in a summary oral proceeding such as the Lago Agrio litigation, the complaint may not be modified at any point in the proceeding. So says Art. 834 of the CPC: “Once the complaint has been filed in this proceeding, the plaintiff shall not amend it….” Organic Code of the Judiciary (2009) (Ecuador): “Art[.] 19. PRINCIPLES OF PARTY DISPOSITION, DIRECT PRESENCE AND JUDICIAL ECONOMY. Court proceedings must be brought at the initiative of the proper party.
56 55 54

53

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duly request as part of the complaint, such as punitive damages in this case, means that the Decision suffers from the flaw known as extra petita. 34. Even the Judge himself acknowledged this when, in the OCP Case, in ruling on the appeal, he said that with the complaint and the answer to the complaint, the limits of the matter in dispute were established; therefore, the decision to be rendered should be circumscribed by the petition made by the plaintiffs in the complaint.57 35. In both the Decision and the Expansion/Clarification it has been acknowledged that the Lago Agrio Plaintiffs did not request punitive damages in the complaint. Consequently, even if Ecuadorian law allowed for punitive damages—which, as demonstrated above, is not the case— since the Lago Agrio Plaintiffs’ petition that Chevron be ordered to pay such damages was not a matter of record in the complaint or a

Judges’ decisions must be consistent with what the parties establish as the objective of the suit and based on the evidence requested, ordered and obtained in accordance with law.” “Art[.] 140. OMISSIONS ON POINTS OF LAW. (…) However, the judge may not go beyond the prayer for relief or base his or her decision on facts other than those alleged by the parties.” CPC, Art. 273: “The judgment shall decide only the issues regarding which the case was filed and answered and any collateral issues arising during the trial that may have been saved for decision in the judgment, without causing any harm to the parties.” Litigation is conducted based on the claims brought by the plaintiff and the objections brought by the defendant. With regards to the principle of consistency of judicial decisions, the Supreme Court of Justice has stated that “[This principle] every judicial decision must abide by delimits the content of the decision to the extent that it must be consistent with the meaning and scope of the claims or objections and exceptions or defenses timely raised so that there is legal identity between what is requested and the outcome of the case. Incongruence is an error in procedendo, which occurs in three forms: a) when the court awards more than was requested (plus or ultra petita); b) when the court awards something other than what was requested (extra petita); and c) when the court fails to rule on the party’s request (citra petita or infra petita).” Maza Paredes et al. v. Quituña et al., Judicial Gazette. Year CIV. Series XVII. No. 13. page 4099. (Quito, May 2, 2003). Although there are many more decisions of a like nature, I will cite the following additional examples: Pretente v. Segura, Judicial Gazette. Year CIII. Series XVII. No. 10. page 3001. (Quito, June 12, 2002); Tapia v. Compañía Aseguradora del Sur C.A., Judicial Gazette. Year CVIII. Series XVIII. No. 3. page 884. (Quito, January 25, 2007); Játiva v. Mesías, Judicial Gazette. Year CVIII. Series XVIII. No. 5. page 1791. (Quito, June 5, 2007). OCP Case, Conclusion Twelve: “It is noteworthy that in the complaint, only the alleged damages incurred on the plaintiffs’ properties is being claimed, and that later, in the mediation hearing and the answer to the complaint, after the answer was provided, which delimited the subject of the litigation, the party attempted to amend the complaint, increasing the amount claimed, adding the request for compensation of real, diffuse environmental damage… Amendment is not admissible in summary verbal proceedings, as it is expressly prohibited in Article 834 of the Code of Civil Procedure …which is why it was not accepted, consequently, the judgment that is issued can refer solely to what the plaintiffs requested, in other words, that they be compensated for the damage stated in the complaint…according to article 273 of the Code of Civil Procedure, consistent with article 19 of the Judiciary Act.” (emphasis added).
57

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modification thereof, it could not have been validly considered in the Decision.58 Since it was addressed favorably, [the Decision] was inconsistent, being extra petita. 36. Lastly, the Decision gives Chevron the option to avoid payment of punitive damages if it makes a public apology to those allegedly affected by TexPet operations in Ecuador. This is also unusual, unprecedented and in open violation of Ecuadorian law, since our system does not provide for this type of apology as a substitute for civil penalties or indemnification. D. 37. Improper Joinder of Actions The Decision stated that improper joinder of actions occurs “when two actions are joined that necessarily have different procedures.” 59 However, it alleged that this does not occur in this lawsuit because (1) Arts. 2214, 2229, and 2236 of the CC contain no reference to the process to be followed, and therefore these actions would normally be heard by way of ordinary proceedings in accordance with the provisions of Art. 59 of the CPC,60 and (2) the last subparagraph of Art. 43 of the EMA is a procedural rule, special and subsequent, which is imposed upon the prior law, and which prevails over Art. 59 of the CPC and

In order to justify [the fact] that punitive damages were imposed despite having been requested by the Lago Agrio Plaintiffs at a very advanced stage of the proceedings, the Expansion/Clarification stated that such damages cannot be requested in earnest in the complaint: “[The punitive damages] cannot be requested in the complaint unless done recklessly and without earnestness, since, as noted in the judgment, certain requirements must be met to impose punitive damages. At the time the complaint was filed, it was not possible to request punitive damages because as of that date the abuse of process that serves as a requirement to lay a foundation for one of the pillars of that request had not occurred. Neither was the severity of the damage committed by Texpet known for certain, as it is today. Neither did we know of the savings (and profitability) that accrued to Texpet (and later Chevron) from using inappropriate technology to prevent damage in the Amazon. All of these factors have been considered, and none of them existed when the complaint was filed….” Expansion/Clarification, p. 9. This allegation lacks any grounds whatsoever, as it constitutes an exception to the principle of congruency that is not defined under the law. See supra ¶ 32.
59 60

58

Decision, p. 26.

CPC, Art. 59: “Any lawsuit that is not subject to a special procedure under applicable law shall be resolved by ordinary proceedings.”

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holds that such actions must be addressed in summary oral proceedings.61 38. I have already explained in this report62 that the Civil Code—specifically Arts. 2214 and 2229— only permits compensation for individual and not collective damages. I have also explained63 that Art. 43 of the EMA confers, for the first time in the history of Ecuadorian law, ad causam standing upon private parties to bring claims for compensation for collective and indivisible rights. Given that these articles protect rights of a different nature, it is not appropriate for the summary oral proceedings provided for in Art. 43 of the EMA to be assigned the actions derived from Arts. 2214 and 2229 of the Civil Code. Therefore, just as the Decision itself has recognized, these latter [Articles] correspond with the ordinary proceedings that are established in general terms by Art. 59 of the CPC for those actions that have no specified proceedings.64 39. From the above it is clear that the Lago Agrio Plaintiffs have substantiated their claims with legal rules to which different procedures apply and, for this reason, they could have been heard together only in an ordinary proceeding, as provided for in Art. 71 of the CPC, but not in an oral summary [proceeding].65 40. Further, it is not appropriate for the oral summary proceedings provided for in Art. 43 of the EMA to be applied to Art. 2236 of the CC, as the latter does not refer to actions for damages, but rather is preventive in nature, i.e., intended to prevent contingent damages that may or may not occur in the future. The proceeding

61 62 63 64 65

Decision, pp. 26-27. See supra, ¶ 19. See supra, ¶ 20. See supra, ¶ 37.

CPC, Art. 71: “Art. 71.- Different or alternative causes of action may be asserted in one complaint, but not contrary or incompatible causes of action. Nor may causes of action that necessarily must be heard using different forms of procedure, unless in the latter case the plaintiff asks that all causes of action be heard using the ordinary procedure.”

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applicable to the actions protected by this latter article is clearly the ordinary proceeding, by virtue of the provisions of Art. 59 of the CPC. That being the case, even if it were acceptable for actions defined under Arts. 2214 and 2229 of the CC to be heard in oral summary proceedings— as the Decision states—the joinder of these with the action established under Art. 2236 of the CC would be a joinder of actions of different types that could only be addressed in an ordinary proceeding. 41. Consequently, the Judge should have rejected the joint hearing of these actions in a summary oral proceeding. He was legally authorized to hear them together only if, at the defendants’ request, it was in an ordinary proceeding, as provided for in Art. 71 of the CPC.66 42. As I explained in my prior report filed on September 6, 2010,67 in ordinary proceedings the right to defense is amply guaranteed since it is possible to exhaustively examine the matter in dispute and to include in the proceeding all parties involved in the matter. In a summary oral proceeding, on the other hand, given its abbreviated nature, such opportunities are limited, with the consequent weakening of the right to defense. Therefore, the improper joinder of actions in the summary oral proceeding that occurred in the Lago Agrio litigation negatively affected Chevron’s right to a defense. E. Consideration of Evidence Without Prior Notice or Respect for the Parties’ Right to Contradict 43. Art. 120 of the CPC sets forth that “[a]ll evidence is public, and the parties are entitled to attend

66 67

Id. My prior report filed September 6, 2010, ¶¶ 109-120. (Coronel Annex C-1).

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the taking of evidence.”68 At the same time, Art. 76(7)(h)69 of the Constitution guarantees each party’s right to contradict the evidence: “In all procedures determining rights and obligations of any type, the right to due process shall be ensured, and it shall include the following basic guarantees: (…) 7. People’s right to a defense shall include the following guarantees: (…) h) … to present evidence and contradict evidence presented against him.” 70 44. Therefore, even when a judge deems it necessary to introduce evidence sua sponte, he or she must necessarily request it in an order, notice of which must be served upon the parties, so that they may exercise their right to participate in the proceeding where the evidence is addressed and to challenge it. 45. Consequently, assuming that in the Lago Agrio lawsuit, the Judge introduced evidence against Chevron to support the Decision, without even having made it known, he would have violated its right to defense, this being a fundamental element of due process. In this case, the evidence introduced in this way would be unconstitutional and, for that reason, “shall be completely invalid and shall lack probative value.”71 The Judge himself acknowledged this when, in the OCP Case, he said that certain

CPC, Art. 120. In the same sense, Art. 76(7)(d) of the Constitution states: “In all procedures determining rights and obligations of any type, the right to due process shall be ensured, and it shall include the following basic guarantees: (…) 7. People’s right to a defense shall include the following guarantees: (…) d) Proceedings shall be public, except where exceptions are provided for by law. The parties may access all documents and proceedings in the process.”
69 70

68

Art. 76(7)(h) of the Constitution.

It should be noted that the cited Art. 120 of the CPC expressly refers to “all” evidence—with no exceptions—and that a person’s right to contradict the evidence, as established in Art. 76 (7)(h) of the Constitution, refers to evidence presented “against him,” regardless of who may have presented it. Therefore, both provisions are applicable, not only to the evidence requested by the opposing party but also to the evidence ordered sua sponte by the judge in the exercise of the power authorized by Art. 118 of CPC: “Judges may, on their own motion, order production of evidence they deem necessary to determine the truth, at any stage of the proceedings prior to judgment. This rule shall not apply to witness testimony, which cannot be ordered sua sponte, but the judge may cross examine or ask for explanations from witnesses who have already legally testified.”
71

Art. 76(4) of the Constitution.

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extraprocedural inspections carried out by an expert “lack evidentiary effectiveness, given that this evidence has not been requested, submitted and obtained in accordance with the law, in other words, the evidence was not obtained during the evidentiary period, with the participation of the Judge and the parties to the action to ensure their legal right to a defense, so these actions lack any procedural value whatsoever….”72 46. In summary, the evidence against Chevron that the Judge might have introduced without giving it notice thereof—should there be any—would not be legally suitable to serve as a basis for the Decision. To rely on such evidence to render a decision against Chevron would be a violation of the fundamental rights to prior notification and to a meaningful opportunity to contradict such evidence. F. 47. Improper Defendant, Merger and Piercing of the Corporate Veil In order to bring a valid lawsuit against Chevron, the Lago Agrio plaintiffs had to show that it had merged with Texaco, Inc. (“Texaco”) or otherwise that it was appropriate to pierce the corporate veil between the two companies. None of that appears to have been proven. 48. Under Ecuadorian law, under which the matter of the Decision is analyzed, a merger requires the disappearance of the company absorbed, in this case, Texaco.73 However, it is acknowledged in the Decision itself that this company continues to exist.74 Thus, it could not have merged with Chevron.

72 73

OCP Case, Conclusion Fifteen.

Law of Companies (1999) (Ecuador) (“LC”), Art. 337: “Merger of companies is produced: a)Whenever two or more companies unite to form a new company that succeeds them in their rights and obligations; or b) Whenever one or more companies is taken over by another surviving company.” Decision, p. 6: “…so far as the record shows duly certified documentary evidence that demonstrates that Texaco Inc. maintains legal status and consequently legal life.”
74

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49.

On the other hand, under Ecuadorian law, the piercing of the corporate veil is an exceptional measure which requires the existence of fraud.75 In this specific case, the Lago Agrio Plaintiffs would have had to show that the corporate structure of Chevron and Texaco was fraudulent. However, it is neither alleged in the Lago Agrio Complaint nor was there any evidence brought in the proceedings that Texaco lacks assets, which is what the Decision cites to suggest the existence of fraud. On the contrary, there is evidence in the record that Texaco “retained its assets and liabilities,”76 which contradicts the affirmation in the Decision that the purpose of the corporate structure was for one company to be left with assets and without liability and the other with liability but no assets.

50.

Being that there was no merger and that piercing the corporate veil is improper because there was no

Our laws, doctrine and legal precedents are unanimous in widely recognizing the principle of corporate separation and the consequent asset separation. See Art. 564 of the CC; Art. 568 of the CC; Art. 1957 of the CC; Art. 2 of the LC. See LARREA HOLGUIN, Juan: Manual Elemental de Derecho Civil del Ecuador, Volumen I [Basic Manual of Civil Law in Ecuador, Volume I], Corporación de Estudios y Publicaciones, Quito, 2002, pp. 151-161. See Banco del Pacífico de Colombia v. Banco del Pacífico de Ecuador, Judicial Gazette, Year CVII, Series XVIII, No. 4, page 1337. (Quito, January 31, 2007); Tamayo v. Universidad Católica de Cuenca, Judicial Gazette, Year XCI, Series XV, No. 10, page 2984. (Quito, October 25, 1990); La Cadisán v. Galarza, Judicial Gazette, Year XVII, Series VIII, No. 5, page 455. (Quito, February 26, 1953). Ecuadorian courts have found that only in exceptional cases, and only when there has been evidence of fraud, is it permitted to pierce the corporate veil and disregard the corporate structure. In the cases I cite below, which I have found after exhaustive searches through various sources of jurisprudence, both in print and electronic media, the case of Diners v. Chupamar is the only one that I know of in which such piercing was carried out. See Diners v. Chupamar y Baquerizo, Resolution No. 120-2001, published in Official Registry No. 350 of June 19, 2001.; J&P S.A. v. Nestlé S.A., Second Civil Chamber of the Superior Court of Justice of Guayaquil. Trial 547-2005. (Guayaquil, April 27, 2006); Encalada v. Encalada y Garijasa, Resolution No. 172-2004, published in Official Registry No. 553 of March 29, 2005. In accordance with what has already been stated, the Decision recognizes that “…it is vitally important to highlight that the institution of veil lifting is strictly exceptional in nature, since the important social role that is played by a clear separation of the equity of legal entities…the existence of the corporate entity has lent itself in the past to a series of abuses, being used not for the purposes provided for in the Law, but rather to affect rights of third parties through, becoming in practice like a tool of fraud. It is in this event that the Judges must pull open the corporate curtain of legal entities….” (emphasis added). See Decision, p. 14. Sworn affidavit of Frank G. Soler, dated March 26, 2010, with annexes, ¶¶ 9 y 15. A copy of this document has been provided to me by Chevron, and it has informed me that the original was filed in the Lago Agrio case on October 29, 2010 at 5:20 p m.
76

75

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fraud involved, Chevron cannot be charged with liabilities that pertain to Texaco. Chevron is, therefore, clearly the improper defendant. G. 51. Inappropriate Dealings with an Expert by a Party to the Proceedings As I explained at length in my report filed September 20, 2010 in Chevron vs. Stratus Consulting, Inc. et al., No. 10 Civ. 00047-JLK (D. Colo.),77 improper dealings with experts by parties to the proceedings that work against the independence, neutrality, impartiality and objectivity of [the expert’s] conduct are proscribed in Ecuadorian law. The expert’s submission of a report prepared in secret, with the participation of one of the parties to the proceeding, constitutes a distortion of the evidence and, consequently, a violation of the principle of good faith and procedural integrity, which all judges, their assistants and litigants have the duty to respect.78 H. 52. Causal Link and Amount of Compensable Damages. The fundamental element of a decision is the reasoning, which consists of both identifying the facts which make up the situation being litigated and the law which is applicable to that situation, as well as the explanation as to why the latter is applicable to the former. The reasoning is of such import that the provision of duly reasoned decisions by public authorities is guaranteed under the Constitution as part of the right to a defense, a basic element of the right to due process.79

77 78

See my prior report filed September 20, 2010 (Coronel Annex C-2).

“[T]he [procedural] duties do not exclusively fall on the parties—they extend to the judicial officials…and also cover third parties and persons not involved in the proceedings.” AZULA CAMACHO, Jaime: Manual de Derecho Procesal, Tomo I [Procedural Law Manual, Volume I], Editorial ABC, Bogotá, 1982, p. 239. Art. 76(7)(l) of the Constitution: “Art. 76.- In all procedures determining rights and obligations of any type, the right to due process shall be ensured, and it shall include the following basic guarantees: (…) 7. People’s right to a defense shall include the following guarantees: (…) l) Reasons must be stated for all rulings by the public authorities. The reasons shall be deemed unstated if the ruling does not set forth rules or legal principles
79

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53.

As indicated above,80 a basic rule of law on damages in Ecuador, applicable to both contractual and tort liability, is found in Art. 1574 of the CC, according to which compensation for damages is limited to those that were an immediate and direct consequence of an action or omission by the obligor or liable party.

54.

The Decision made a point to explain that any damages that might have been caused by Petroecuador or other third parties were excluded from the ordered compensation.81 However, nowhere in the Decision is it explained what criteria were applied to differentiate and exclude: (1) the damages caused by third parties; and, (2) the indirect damages.

55.

Regarding the determination of the amount of damages, rather than basing itself on a detailed and reasonable estimate of the costs incurred by experts with the necessary knowledge and qualifications, the Decision carried out its own calculations and extrapolations. Thus, in the 13th Recital,82 when establishing the cost for the remediation of soils, an amount which it determined to be 5.396 billion US dollars, [the Decision] relied upon estimates based on arbitrary assumptions and values established without the support of any specific expert report, in order to determine both the volume of the necessary remediation 83 as well as the average cost of remediation per cubic meter,84 and finished

on which it is based and does not explain why they are relevant to the facts. Administrative acts, orders or rulings that do not state the grounds on which they are based shall be deemed null and void. The responsible public servants shall be sanctioned.” Art. 274 of the CPC: “Judgments and collateral orders must decide with clarity the issues that are the subject thereof, indicating the legal grounds and the merits of the suit; if there is no statute, they must be based on binding precedents and principles of universal justice.” Art. 276 of the CPC: “Judgments and collateral orders that decide any collateral issue or resolve the principal action shall state the issue to be decided and the grounds or reasons for the decision. This rule will not be deemed to have been met in appellate court and supreme court rulings that merely refer to a prior ruling.”
80

See supra, ¶¶ 25 and 26, and footnotes 40 and 44. Decision, p. 123. Decision, pp. 176-181. Decision, p. 125.

81

82

83

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by doubling the product of these two parameters, stating that additional remediation was required. Paradoxically, despite the matter’s importance, this determination was reached in the equivalent of just one of the 188 pages that make up the Decision. I. 56. Decisions Must Be the Intellectual Product of the Judge It is elementary and extremely important that a decision be written by the Judge in the case. A decision must be the intellectual product of the judge, born of his personal conviction, since he is empowered to issue it. Any decision prepared by a person other than the judge would be contrary to Ecuadorian law and, specifically, would violate the right guaranteed under the Constitution as part of the right to a defense−a basic element of the right to due process− “[t]o be tried by an independent, impartial and competent judge.”85 The judge is the one vested with the power to adjudicate, which is a manifestation of the sovereignty of a State, and therefore must exercise this power with the utmost independence, including with regard to other judges and public authorities.86

I hereby state under penalty of perjury in accordance with the laws of the United States of America that the foregoing is true and correct. However, I reserve the right to supplement this

84 85

Decision, p. 181.

Art. 76(7)(k) of the Constitution: “Art. 76.- In all procedures determining rights and obligations of any type, the right to due process shall be ensured, and it shall include the following basic guarantees: (…) 7. People’s right to a defense shall include the following guarantees: (…) k) To be tried by an independent, impartial and competent judge….” Art. 168(1) of the Constitution: “Art. 168.- The administration of justice, in compliance with its duties and in the exercise of its authority, shall apply the following principles: 1. The bodies of the Judicial Branch shall enjoy internal and external independence. Any violation of this principle shall result in administrative, civil and criminal liability in accordance with the law.”
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28 [CERT.GEOTEXT VER: JD]

report if circumstances occur that make it advisable to do so. [signature] __________________________________ Dr. César Coronel Jones Guayaquil, Ecuador June 28, 2011

29 [CERT.GEOTEXT VER: JD]

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