UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

BETWEEN

CHEVRON CORPORATION

Plaintiff

AND

STEVEN DONZIGER ET AL.

Defendants

REPORT OF JAN PAULSSON

JUNE 30, 2011

TABLE OF CONTENTS

A. Introduction ............................................................................................................1

B. The International Concept of Due Process...............................................................3C. Executive Interference ............................................................................................5

D. Fundamentally Unfair Handling of Evidence...........................................................6E. Causation and Proof of Compensable Harm ..........................................................11

F. The Magnitude of the Damages Awarded and their Punitive Aspect......................14G. Conclusion............................................................................................................15

H. Curriculum Vitae ..................................................................................................17I. List of Publications ...............................................................................................18

J. List of Experience .................................................................................................21

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A. INTRODUCTION

1. On February 14, 2011, I opined to this Court that the way that the Lago Agrio trial

had been conducted did not comply with the international concept of due process.

Only a few days afterwards, the Sucumbíos Provincial Court in Ecuador rendered its

judgment in the case in question, Aguinda et al. v. Chevron Corporation. A plainly

unfair trial has now produced a plainly unfair judgment.

2. In this report I set forth my opinions and conclusions and the general bases for them. I

understand that this report is to be used in support of Chevron s request that the Court

(i) declare that the judgment against Chevron in the Lago Agrio proceedings is

neither recognizable nor enforceable in the United States and (ii) issue an injunction

prohibiting designated persons from seeking to have the judgment recognized or

enforced in any jurisdiction, whether inside or outside the United States.

3. I am Professor of Law at the University of Miami and at the London School of

Economics. I am a practicing lawyer with Freshfields Bruckhaus Deringer LLP. I am

head of the firm s Public International Law Group and the joint head of its

International Arbitration Group. I was admitted to the bar of Connecticut in 1975 and

became an avocat à la Cour de Paris in 1977. I obtained my B.A. from Harvard

College in 1971, my J.D. from Yale Law School in 1975, and a postgraduate degree

in law from the University of Paris in 1977.

4. I have been counsel or arbitrator in over 500 arbitrations conducted in venues

throughout the world. These have been both commercial arbitrations between private

parties and arbitrations held pursuant to international agreements where one or more

of the parties was a sovereign state. I also appear as counsel in inter-state disputes

before the International Court of Justice, the principal judicial organ of the United

Nations, seated at The Hague.

5. I have published widely on a number of issues of international arbitration and

international law. Most relevant in the present context is my book Denial of Justice in

International Law, published by Cambridge University Press in 2005. This report is

accompanied by my curriculum vitae, a list of my publications and an illustrative list

of cases in which I have been arbitrator or counsel.

2

6. I provided expert evidence on issues of denial of justice under international law

which was presented by Chevron to the investment-treaty tribunal that in 2010

decided a case between Chevron and Ecuador.1 In that case, the tribunal held that

claims brought by Chevron against Ecuador in Ecuadorean courts, which were

unrelated to the Lago Agrio litigation, had suffered delays of such magnitude as to

contravene the Treaty between the United States of America and the Republic of

Ecuador concerning the Encouragement and Reciprocal Protection of Investments.2

7. As arbitrator and counsel in various cases, I have had occasion to review a significant

number of judgments of domestic courts for compliance with applicable standards of

international law. In forming my opinion in the present matter, I have consulted a

range of legal and factual sources which are referred to throughout this report.

Freshfields Bruckhaus Deringer LLP will be compensated for my work in this matter

at my standard rate of 715 per hour. This compensation is in no way dependent on

the content of my opinion or on the outcome of the proceedings.

8. This report has five parts. In the first part, I explain that the test for a breach of the

international concept of due process is whether a trial and the resulting judgment

involve a lack of due process leading to an outcome which offends judicial propriety.

Thereafter I discuss the following matters related specifically to this case:

(i) executive interference in the Lago Agrio proceedings;

(ii) fundamentally unfair handling of evidence by the Lago Agrio court;

(iii) the failure of the Lago Agrio court to determine that the defendant

actually caused the harm that is said to have occurred, or to make an

award of compensation that bears any rational relationship to what

would be necessary to remediate any such harm; and

(iv) the sheer magnitude of the judgment and the idiosyncratic nature of its

punitive component.

1 Chevron v Ecuador (UNCITRAL Partial Award on the Merits), March 30, 2010.2 Signed August 27, 1993, entered into force May 11, 1997.

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9. These characteristics of the Lago Agrio proceedings and the judgment that they

produced constitute a clear breach of the international concept of due process.

B. THE INTERNATIONAL CONCEPT OF DUE PROCESS

10. A tribunal adjudicating a claim against Mexico under the North American Free Trade

Agreement described the minimum standard of treatment required under international

law as follows:

the minimum standard of treatment of fair and equitable treatment isinfringed by conduct attributable to the State and harmful to the claimantif the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, isdiscriminatory and exposes the claimant to sectional or racial prejudice,or involves a lack of due process leading to an outcome which offendsjudicial propriety as might be the case with a manifest failure of naturaljustice in judicial proceedings or a complete lack of transparency andcandour in an administrative process. In applying this standard it isrelevant that the treatment is in breach of representations made by thehost State which were reasonably relied on by the claimant.3

11. In classical public international law, a breach of the international concept of due

process in the adminstration of justice is known as a denial of justice . The basic

premise of the rule of denial of justice is that a state incurs international responsibility

if it administers its laws to aliens in a fundamentally unfair manner. Whether a denial

of justice has occurred in any particular case cannot be determined by the application

of a formula. International law simply requires that litigants are afforded ordinary

justice .4 Proceedings leading to judgments that are evidently unjust and partial 5

will be internationally unlawful. As the International Court of Justice stated in

discussing the concept of arbitrariness , it is not so much something opposed to a

rule of law, as something opposed to the rule of law .6

3 Waste Management, Inc v United Mexican States (ICSID Case No ARB(AF)/00/3), April 30, 2004 at ¶98.

4 Idler (USA) v Venezuela (1885) in J Moore, The History and Digest of International Arbitrations towhich the United States has been a Party (1898) Vol. IV, 3491 at p 3517.

5 Vattel, The Law of Nations, Book II (1852 reprint) at ¶ 350.6 Elettronica Sicula S.p.A. (ELSI), Judgment, I.C.J. Reports 1989 p 15 at ¶ 128.

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12. Internationally wrongful administration of justice may be perpetrated by acts of a

state s executive, legislature or judiciary. A former judge of the International Court of

Justice, Sir Gerald Fitzmaurice, stated that denial of justice concerns

such actions in or concerning the administration of justice,whether on the part of the courts or of some other organs ofthe state.7 (Emphasis in the original)

Thus, a denial of justice can occur not just as a result of actions of the court

responsible for a judgment, but also from actions of the executive government in

connection with proceedings before that court. It is also possible that abuses of

legislative power may evidence a denial of justice where they directly impact on the

administration of justice.8

13. International law does not invest international adjudicators with authority to act as

courts of appeal from national courts.9 The objective of the international adjudicator

is rather to determine whether the actions or inaction of national courts transgress

internationally recognized standards of due process. As Judge De Visscher wrote:

The mere violation of internal law may never justify aninternational claim based on denial of justice. It may be thatthe defectiveness of internal law, the refusal to apply it, or itswrongful application by judges, constitute elements of proofof a denial of justice, in the international understanding ofthe expression; but in and of themselves they neverconstitute this denial.10

14. Although deference is afforded to states by international tribunals, such tribunals are

still charged with implementing the goals of the treaties under which they are

constituted. These include providing a real measure of protection 11 to foreign

investors.

7 G Fitzmaurice, The Meaning of the Term Denial of Justice 13 British Year Book of InternationalLaw 93 (1932) at p 94.

8 U.S. v Great Britain (Robert E. Brown case), Vol. VI UNRIAA 120 (1923) eg at p 129.9 E. Jiménez de Aréchaga, General Course in Public International Law - International Law in the Past

Third of a Century, 159 Recueil des Cours I (1978) at p 282.10 De Visscher, Le déni de justice en droit international , 52 Recueil des Cours 370 (1935) at p 376 (my

translation).11 Mondev v United States (ICSID Case No ARB(AF)/99/2), Award, October 11, 2002 at ¶ 127.

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15. Descriptions of the defects that must exist in the domestic administration of justice

before a denial of justice will be held to have occurred have been variously

formulated by different courts and tribunals over time. One accepted formulation is

that adopted by the tribunal in Loewen v The United States, a case decided under the

investment protection provisions of the North American Free Trade Agreement,

which stated that a denial of justice exists where there is:

Manifest injustice in the sense of a lack of due processleading to an outcome which offends a sense of judicialpropriety.12

16. For the reasons I set forth below, in my opinion this standard has been breached in the

Lago Agrio proceedings and the judgment resulting from them.

C. EXECUTIVE INTERFERENCE

17. Executive interference in a court proceeding is an obvious example of a breach of the

international concept of due process.13

18. The President of Ecuador and members of his administration appear to have openly

sided with the plaintiffs in the Lago Agrio case, thus making the wishes of the

executive very clear to the judiciary.14 Furthermore, the President called for criminal

prosecution of individuals responsible for signing an agreement between TexPet and

the Government of Ecuador releasing TexPet from future claims.15

19. These expressions of executive will in this particular case occurred in a context in

which authoritative commentators have indicated the high level of influence of the

executive government over the Ecuadorean judiciary as a general matter. As ranked

by the World Bank, Ecuador s level of respect for the rule of law is among the worst

12 Loewen v United States (ICSID Case No ARB(AF)/98/3), June 26, 2003 at ¶ 132.13 See Idler (USA) v Venezuela (1885) in J Moore, The History and Digest of International Arbitrations

to which the United States has been a Party (1898), Vol. IV, 3491 at pp 3516-3517; U.S. v GreatBritain (Robert E. Brown case), Vol. VI UNRIAA 120 (1923) at p 125; and Petrobart v KyrgyzRepublic (SCC Arbitration No. 126/2003), Award, March 29, 2005 at pp 75-77.

14 Press Releases by the Government of Ecuador on March 20, 2007 and by President Correa on April 26,2007; and Presidential Radio Addresses of April 28, 2007 and January 19, 2008. I have also reviewedand considered the transcript of a Press Conference held by the Ecuadorean Prosecutor-General onSeptember 4, 2009 and a Statement by President Correa of September 12, 2009.

15 Press Release by President Correa of April 26, 2007; Presidential Radio Address of April 28, 2007.

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in the world.16 The U.S. Department of State has identified corruption and denial of

due process within the judicial system in Ecuador.17 It has observed that the

Ecuadorean judiciary is susceptible to outside pressure and corruption .18 I also have

in mind the opinion expressed by Mr. Álvarez Grau in his reports of February 23,

2010 and June 23, 2011.

20. Whether or not the court was actually influenced by the executive government s

indications of how it should rule is not a determinative point. The Ecuadorean judicial

system is widely regarded by authoritative observers as being subject to executive

influence. The statements of the executive to which I have referred clearly indicated

the executive s, and in particular the President s, desired outcome in this case. These

interferences were neither acknowledged nor cured by the judgment. There can be no

confidence that justice was done.

D. FUNDAMENTALLY UNFAIR HANDLING OF EVIDENCE

21. Fundamentally unfair handling of evidence can amount to a breach of the

international concept of due process. In a well-known case between the United States

and Mexico it was put thus:

Irregularity of court proceedings is proven with reference toabsence of proper investigations, insufficiency ofconfrontations, withholding from the accused the opportunityto know all of the charges brought against him, undue delayof the proceedings, making the hearings in open court a mereformality, and a continued absence of seriousness on the partof the Court.19

22. In my preliminary opinion in February 2011, I noted a number of grave procedural

defects that, according to Chevron, afflicted the Lago Agrio trial. These were the

following:

16 World Bank Worldwide Governance Indicators, 2009.17 U.S. Department of State Human Rights Reports, Ecuador, 2007-2009, pp 1, 15 and 29.18 U.S. Department of State Human Rights Reports, Ecuador, 2007-2009, pp 5, 18 and 32.19 B.E. Chattin (United States) v United Mexican States, Vol. IV UNRIAA 282 (1927) at ¶ 30. Also see

Bronner (USA) v Mexico (1874) in J Moore, The History and Digest of International Arbitrations towhich the United States has been a Party (1898) Vol. IV, 3134.

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(a) Counsel for the plaintiffs in the Lago Agrio proceedings held private

meetings with judges presiding over those proceedings to discuss the case.20

(b) Counsel for the plaintiffs in the Lago Agrio proceedings had ex parte

contact with the judge in those proceedings about who the Court should

appoint as a supposedly independent expert.21 The judge never revealed

these ex parte communications, but he did appoint the expert that the

plaintiffs counsel had urged upon him.22 The plaintiffs affiliates continued

to have extensive ex parte contact with the expert in the course of the

preparation of his report.23 Ultimately, that report was authored by

individuals acting under the instructions of counsel for the Lago Agrio

plaintiffs, and then simply signed by the court-appointed expert.24 This

court-appointed expert was of particular significance in the Lago Agrio

proceedings because he was charged with evaluating not just the damage

that had been suffered, but also, if possible, the origin of such damage, both

causal and chronological .25

(c) The report of the court-appointed expert reflects multiple material instances

of self-evident unfairness and error. To take one example, it assessed $428

million in damages for potable water systems, yet the expert did not take a

single sample of drinking water, despite the many that were available to

him.26

20 Donziger Personal Notes, eg March 11, 2006.21 Donziger Personal Notes, February 27, 2007.22 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011, ¶

128.23 McMenamin Declaration, June 27, 2011; Donziger Depositions of December 29, 2010, pp 2202-2203

and of January 14, 2011, pp 2960-2964.24 McMenamin Declaration, June 27, 2011; Chevron s Annotated Complaint in Chevron Corporation v.

Steven Donziger et al., February 1, 2011, ¶¶ 133-146.25 Certificate of Swearing-In of Expert, June 13, 2007.26 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011, ¶

159.

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(d) Mr. Cabrera found Chevron to be liable for damages for environmental

harm assessed at $27 billion.27 Subsequently, seven new reports were filed

with the Lago Agrio court most of which were based on the evidential

findings contained in the Cabrera report, but used different assumptions to

arrive at further inflated damages estimates. On the basis of these new

reports, the plaintiffs claimed damages of $113 billion.28

(e) An expert engaged by the plaintiffs, Dr. Calmbacher, never found that any

of the sites that he inspected required any further remediation. His signature

appears to have been taken from reports that he actually wrote and attached

to fraudulent reports stating that significant soil remediation, at significant

cost, was necessary.29 Those fraudulent reports were submitted to the Lago

Agrio court.

23. My review of the judgment prompts some supplemental remarks concerning the

conduct of the trial. Chevron alleges that Mr. Donziger, Mr. Fajardo, members of the

Amazon Defense Front and others had frequent ex parte contact with the judge and

the court-appointed expert to advance the case of the plaintiffs in improper ways.30

Insofar as Mr. Donziger is concerned, these allegations appear to have been dismissed

at page 51 of the judgment on the formalistic basis that Mr. Donziger was not a

plaintiff in the case, and that the court file contained no record of his having been

granted a power of attorney by any of the plaintiffs. This finding was made even

though the court acknowledged on that same page that Mr. Donziger s ties to the

plaintiffs legal team are obvious and that he had a public role as their spokesman .

24. From the perspective of international law, the relevant consideration is whether the

incidents in question led to a manifestly unfair trial, not the exact formal relationship

between the person responsible for them and the court. Even on the basis of the Lago

27 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011, ¶154.

28 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011,¶¶ 176-184.

29 Calmbacher Deposition, March 29, 2010, 112-117.30 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011,

¶¶ 75, 133-136.

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Agrio court s own approach that an individual s formal relationship with the parties

and the court is a determinative factor it is difficult not to observe that Mr. Fajardo

was counsel of record before the Lago Agrio court,31 and yet the court appears not to

have made any findings about Chevron s allegations of impropriety on his part.

25. At page 51 the judgment asserted that: No pressure has actually been exerted on this

Court . The alleged improper intercessions made with the court and its appointed

expert by Mr. Donziger, Mr. Fajardo and their affiliates, and the court s alleged

acceptance of those intercessions, clearly violate the international concept of due

process. The court s ipse dixit as to its own robustness cannot affect that conclusion.

26. The plaintiffs and their associates had a determinative role in the drafting of the

Cabrera report.32 This was obviously contrary to Mr. Cabrera s sworn duty to

perform his duties faithfully and in accordance with science, technology, and the law,

with complete impartiality and independence vis-à-vis the parties ,33 and declarations

of his independence that Mr. Cabrera made to the court after Chevron had challenged

his independence.34 Without explicitly ruling on several of Chevron s allegations of

impropriety impugning the Cabrera report, the court stated that it did not take that

report into account in its judgment (pages 50-51). Similarly, the court stated that it

would not take the conclusions submitted under Dr. Calmbacher s name into

consideration in order to, among other reasons, avoid potential nullities or harm on

an issue that has not been able to be clarified (page 49).

27. The court held that it could not investigate Chevron s allegations of fraud because the

Lago Agrio trial was proceeding by way of expedited oral trial and thus could not

be suspended for an investigation of such a kind (page 51). If the form of trial by

which this dispute was adjudicated could not allow the court to investigate allegations

that the evidence before it was tainted by fraud, then, as soon as there is any colorable

31 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011, ¶10.

32 See Donziger Depositions of December 29, 2010, pp 2162-2165, 2190-2192, 2196-2203, 2236-2237,2245-2248, 2252-2254, 2266-2269; January 18, 2011, pp 3060-3062 and 3087-3089; January 19, 2011pp 3366-3369; Emails between Steven Donziger and Stratus Consulting, March 11, 2008; File Note ofAndrew Woods, March 18, 2010; McMenamin Declaration, June 27, 2011.

33 Certificate of Swearing-In of Expert, June 13, 2007.34 Declaration by Richard Cabrera Vega, October 11, 2007, pp 1 and 3.

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claim of fraud, trials of this kind in Ecuador appear by their very nature to be

incapable of complying with the international concept of due process.

28. The Cabrera report has been described by an organization working with counsel for

the Lago Agrio plaintiffs as the single most important technical document for the

case .35 If that description is true, the court simply asserting that it would not take it

into account because of concerns about its legitimacy, and, as it rather emphatically

said at page 8 of the supplement to the judgment of March 4, 2011, that the report

had NO bearing on the decision , would not be regarded as a matter of international

law as having cleansed the trial of the fraud related to a document of such

significance. This is particularly so because subsequent expert reports were based on

the technical and factual information in the Cabrera report, on the basis of which they

applied theoretical assumptions to arrive at damages calculations, rather than making

any assessment of whether there was any harm, and if so, who caused it.36

29. The difficulty can be seen, for example, in the fact that, having stated that it would

not rely on the report of Mr. Cabrera (page 51), the court then referred to at least one

of the experts who clearly did rely on the Cabrera report,37 notably the report of Mr.

Douglas C. Allen, discussed at page 181 of the judgment. The court s reference to

Mr. Allen s report formed part of the reasoning leading to the court s order that

Chevron pay more than $5.3 billion for a clean-up of soils .

30. International law condemns judgments that are not based on evidence. If without the

Cabrera Report the court had no evidence to reach the conclusions that it did, then

that would constitute a breach of the international concept of due process.

31. Chevron has alleged that the trial was tainted by fraud and other forms of impropriety

in numerous instances additional to the reports of Dr. Calmbacher and Mr. Cabrera.

35 Stratus Consulting Email, February 22, 2008.36 See generally Allen Deposition, December 16, 2010, pp 138-144, 162-174, 223-231; Barnthouse

Deposition, December 10, 2010, pp 52, 115, 130, 165, 179-180, 188-189, 213; Emilio PiconeDeposition, December 16, 2010, pp 54, 147-148, 159-160, 189, 195, 225, 264, 274; RourkeDeposition, December 20, 2010, pp 47, 61, 229, 268-269; Scardina Deposition, December 22, 2010,77-78, 225, 267-270, 297-298; Shefftz Deposition, December 16, 2010, pp 62-63, 68-69, 120-121, 165,269-270; Donziger Deposition, December 22, 2010, pp 1652-1653.

37 Allen Deposition, December 16, 2010, pp 138-144, 162-174, 223-231.

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These include allegations of bribery, threats to judicial officers and mala fides use of

criminal proceedings.38 If Chevron s allegations are true, they confirm that the

unfairness of the trial from the perspective of the international concept of due process

could not be cured simply by asserting in the judgment that two prominent examples

of evidence said to be fraudulent would not be taken into account.

32. I have reviewed and considered the expert reports of Mr. Leone of May 2, 2011, Mr.

Younger, of June 10, 2011 and Mr. Leonard, of June 27, 2011. Assuming them to be

accurate, they indicate that information held by the plaintiffs and their counsel in the

Lago Agrio proceedings, which was never placed on the official court record of the

case, appeared in the judgment of the court and in the Cabrera Report. The direct

transfer of information from the plaintiffs to the court and its appointed expert,

without being placed on the record of the proceedings, and so without Chevron

having had an opportunity to make submissions about it, is a manifest breach of the

international concept of due process. From the perspective of international law the

most significant aspect is not that one of the parties to litigation sought to breach

fundamental rules of due process. The most significant aspect is that the court appears

not only to have tolerated, but to have actively participated in such obviously

impermissible conduct.

33. The judgment in the Lago Agrio case crystallized, and in fact worsened, the breaches

of the international concept of due process already apparent from the trial.

E. CAUSATION AND PROOF OF COMPENSABLE HARM

34. Despite the judgment s length, one is struck by its failure to address meaningfully (i)

proof that TexPet, and not Petroecuador, caused the harm said to exist and (ii)

whether remedying the alleged harm would actually require the vast amount of

compensation that was awarded. I note that Dr. Coronel confirms in his opinion of

June 28, 2011 that under Ecuadorean law compensation is payable only where the

harm to be compensated was caused by the wrongful act for which liability is found.

38 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011,¶¶ 3, 75, 79, 88, 185.

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35. I have not reviewed the evidential record that was before the Lagio Agrio court. I

have not reviewed the Cabrera Report. I have read the assessment of the evidential

record, including the Cabrera Report, in the judgment of the Lago Agrio court. The

judgment devotes much attention to describing alleged harm in the area in question. It

devotes virtually none to the question of whether it was caused by TexPet or

Petroecuador. I understand that neither TexPet nor Chevron has had any role in the

area in question since 1992 and that Petroecuador continued extractive operations

there until the present.39 In these circumstances, the identity of the entity responsibile

for any alleged harm being assessed in 2011 is obviously a significant issue.

36. At page 123 of the judgment three reasons are expressed to exclude the damages that

are the responsibility of Petroecuador from the scope of the present judgment. The

third of them is that the obligation of reparation imposed on the perpetrator of

damage is not extinguished by the existence of new damages attributable to third

parties. Although doubtless true, that does not excuse a court from performing the

task of determining whether a defendant did or did not cause the harm for which

compensation is sought.

37. The court appears to acknowledge that there are damages that are the responsibility

of Petroecuador . The court purports to exclude any assessment of this harm from the

scope of its judgment for the following two additional reasons. First, in this trial

there appear as parties only the plaintiffs and the defendant company, while the third

parties that are presumably responsible for new damages (Petroecuador), have not

been able to present any defense whatsoever in this proceeding . Second, no claim

for reparation has been made for damages caused by third parties . Actually, the

court appears to have held Chevron liable for whatever damage the court thought

existed, without any consideration of whether TexPet caused the harm for which

compensation was being awarded. Since the judgment does not suggest that any

expert, including Mr. Cabrera, addressed the question of who actually caused any

harm that was said to exist, and the judgment does not conduct that analysis either, I

39 Chevron s Annotated Complaint in Chevron Corporation v. Steven Donziger et al., February 1, 2011, ¶35.

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conclude that the Court s approach was arbitrary and thus a breach of the

international concept of due process.

38. I note that in the supplement to the Lago Agrio judgment issued on March 4, 2011, at

page 8: The Court expands the judgment by indicating that the damage caused by

Petroecuador has not been considered, using a time-based approach that divides

liability and attributes it to the perpetrator of the harm committed depending on who

was the industry s operator. Whatever the merits of this approach may be, I simply

note that I see no evidence of it in the assessment of damages set forth in the principal

judgment issued the month prior, and that this expansion of the reasoning is not

accompanied by any alteration of the damages order.

39. It would be difficult not to be struck by the enormity of the amount that the judgment

awards for a clean-up of soils (page 181). This is just less than $5.4 billion. Initial

caution about the propriety of that order prompted by the sheer magnitude of the

amount is heightened when one considers the conclusion reached by Mr. Hinchee in

his opinion of June 10, 2011. He concludes that there is no evidence in the record, nor

any basis in science or engineering, to justify an award of this magnitude, and that it

is not in practice anything like what would be required to remediate the harm that is

said to exist. Given that soil remediation constitutes such a large percentage of the

overall award, this is a particularly important conclusion.

40. Mr. Bellamy concludes in his opinion of June 11, 2011 that there was no evidence in

the record to support the judgment s conclusions that surface water or ground water

have been adversely affected by the Consortium s activities. The court awarded $600

million for the remediation of ground water and $150 million for a new potable water

system.

41. Mr. Kelsh opines that there is no evidence of human health having been affected by

the Consortium s activities and no rational connection between the Consortium s

activities and the $1.4 billion awarded for a health system .40

40 Also see Emilio Picone Deposition, December 16, 2010, pp 54, 147-148, 159-160, 225, 264 andRourke Deposition, December 20, 2010, pp 47, 61, 229, 268-269.

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42. If the opinions of these experts are well-founded, then I consider that an international

tribunal applying international law would be very likely to conclude that the Lago

Agrio judgment was based on something other than the evidence before it. The

obligation purportedly imposed on Chevron by the judgment would therefore be a

nullity for international-law purposes.41

F. THE MAGNITUDE OF THE DAMAGES AWARDED AND THEIR PUNITIVE ASPECT

43. I have reviewed the declarations of Dr. César Coronel Jones of February 15, 2011 and

of June 28, 2011. I note his opinion that punitive damages is not a concept existing in

Ecuadorean law, and that Ecuadorean law only recognizes compensation for harm

actually caused as a direct consequence of the breach of a legal obligation. Assuming

this to be accurate, the imposition of a punitive order of more than $8.6 billion in

circumstances where there is no foundation for this type of award in Ecuadorean law

would be such an egregious and obvious breach of domestic law that it would justify

an overall conclusion that the international concept of due process had been

violated.42

44. Civil law systems generally reject the very concept of punitive damages on the

grounds that punishment is reserved for the competent public authorities, and must

not depend on the initiatives, resourcefulness, and motivations of private litigants.

This is why it is not surprising to me that I have never heard of punitive damages

under any law in Latin America, save a recent consumer-protection law in

Argentina43 whose very innovativeness is testimony to its singularity. At any rate, the

apparent failure of the Ecuadorean judgment to articulate a legal basis for this vast

award founded in the law it purports to apply is in my view fatal to its legitimacy

under international law.

45. The court announced at page 186 of its judgment that Chevron could avoid the

punitive component of the monetary award if it apologized to those affected by

41 See Idler (USA) v Venezuela, J Moore, The History and Digest of International Arbitrations to whichthe United States has been a Party (1898) Vol. IV, 3491 at pp 3516-3517 and the Martini Case, Vol. IIUNRIAA 977 (1930) p 1002, translated from the original French in 25 American Journal ofInternational Law 554 (1931) at p 585.

42 See De Visscher, Le déni de justice en droit international , 52 Recueil des Cours 370 (1935) at p 376.43 Argentinean Law 26.361 of March 12, 2008, Article 25, which added Article 52 bis to Law 24.240.

15

Texpet s operations in Ecuador three times within fifteen days of the delivery of the

judgment by way of public announcements in the leading print media in Ecuador and

the United States. Perhaps the best that could be said about this approach is that it is

idiosyncratic ,44 and even idiosyncrasy, when it produces an unjust result, is

sufficient to amount to a breach of international law.45 Behind this imaginative

contrivance, for which no legal foundation is cited (and I note that Dr. Coronel opines

that none exists) seems to have lain a hardly concealed ultimatum admit your guilt

and thereby abandon all hope of appealing or resisting the enforcement of the vast

principal judgment, or face the risk of having to pay an equally vast penalty as well.

46. In the case of Loewen v United States of America, the tribunal held that the

excessiveness of the verdict was one indicator among many that the trial

represented the antithesis of due process .46 In that case the jury had awarded total

damages of $500 million. The award in the Lago Agrio judgment of more than $8.6

billion, with a further punitive element of another $8.6 billion, is, on any view,

excessive, especially because, taking the technical expert reports that I referred to

above to be true, the amount of the judgment bears no relationship to any proven

harm. As in Loewen, the excessiveness of the verdict is one indication that the

international concept of due process was violated.

G. CONCLUSION

47. I conclude with a few general observations as to the manner in which international

tribunals examine national judgments. First of all, judgments generating complaints

of breaches of the concept of due process under international law often involve a long

and complex narrative. That likely explains why international tribunals, in addition to

sanctioning clear-cut breaches of the rule of law such as upholding grounds of claim

never pleaded, or lacking citation of a plausible legal authority; dismissing significant

arguments with only a pretence of engagement with them; applying legal rules

retroactively; or awarding damages that bear no proportion to a rational assessment of

causation or proven harm frequently find confirmation for their assessment in the

44 Waste Management, Inc v United Mexican States (ICSID Case No ARB(AF)/00/3), April 30, 2004 at ¶98.

45 See Waste Management, Inc v United Mexican States (ICSID Case No ARB(AF)/00/3), April 30, 2004at ¶ 98.

46 Loewen v United States (ICSID Case No ARB(AF)/98/3), June 26, 2003, ¶ 137.

16

accumulation of procedural incidents which in isolation might have been dismissed

as merely coincidental. Secondly, the prolixity and ostensible erudition of a judgment

can do nothing to save it if it is otherwise defective. What is at issue in international

law is the bona fides and competence of the administration of justice. The

elaborateness of a judgment does not help; to the contrary, if it serves to dissimulate a

failure of due process it may reveal itself to be a formal pretense precisely designed to

cover injustice.

48. The Lago Agrio proceedings and the judgment that they produced exhibit a wilful

disregard of due process of law which shocks, or at least surprises, a sense of

juridical propriety 47. The trial and judgment were therefore in breach of the

international concept of due process.

Executed at The Hague, The Netherlands, on June 30, 2011

Jan Paulsson

47 Elettronica Sicula S.p.A. (ELSI), Judgment, I.C.J. Reports 1989 p. 15 at ¶ 128.

17

H. CURRICULUM VITAE

· Professor of Law at the University of Miami

· Centennial Professor at the London School of Economics

· Joint head of the International Arbitration Group and head of the Public InternationalLaw Group at Freshfields Bruckhaus Deringer LLP

· Attorney-at-law admitted to the bar of Connecticut

· Avocat à la Cour de Paris

· B.A. from Harvard College in 1971

· J.D. from Yale Law School in 1975

· Postgraduate degree in law from the University of Paris in 1977

· President of the International Council for Commercial Arbitration

· President of the Administrative Tribunal of the European Bank for Reconstructionand Development

· President of the Administrative Tribunal of the Organization for EconomicCooperation and Development

· Immediate past President of the London Court of International Arbitration

· Immediate past President of the World Bank Administrative Tribunal

· Member of the Permanent Court of Arbitration at The Hague

· General Editor of Arbitration International (1985-2002)

· Senior Special Fellow at the United Nations Institute for Training and Research(1995-2000)

· Honorary Bencher of Gray s Inn, London

· Advisor to several governments on the drafting of treaties and on legislation

concerning international arbitration and international law

· Delegate for Bahrain at the Working Group of the United Nations Commission on

International Trade Law

· Member of the Panel of Arbitrators established by the International Centre for

Settlement of Investment Disputes, which is administered by the World Bank.

18

I. LIST OF PUBLICATIONS

Books

DENIAL OF JUSTICE IN INTERNATIONAL LAW, Cambridge University Press, 2005

GUIDE TO ICSID ARBITRATION, Kluwer, 2004 (with L Reed and N Blackaby)

INTERNATIONAL CHAMBER OF COMMERCE ARBITRATION, Oceana; 1st edition 1983,2nd edition 1990, 3rd edition 2000 (with W L Craig and W W Park)

THE FRESHFIELDS GUIDE TO ARBITRATION AND ADR CLAUSES, Kluwer, 1st edition1993 (with J M H Hunter, N K Rawding and D A Redfern), 2nd edition 1999 (with NK Rawding, L Reed, and E A Schwartz)

INTERNATIONAL COMMERCIAL ARBITRATION, Foundation Press, 1997 (with W MReisman, W L Craig and W W Park)

Articles and Contributions to Edited Collections

Thinking Simply about Public Policy, in AMICORUM FOR SERGE LAZAREFF (2011)

Arbitration in Three Dimensions, 60 INTERNATIONAL AND COMPARATIVE LAWQUARTERLY 291 (2011)

Cultural Differences in Advocacy in International Arbitration, in D. Bishop and E.Kehoe (eds), THE ART OF ADVOCACY IN INTERNATIONAL ARBITRATION 2nd ed. (2010)

Moral Hazard in International Dispute Resolution, 25(2) ICSID REVIEW FOREIGNINVESTMENT LAW JOURNAL 339 (2010)

The Power of States to Make Meaningful Promises to Foreigners, 1(2) JOURNAL OFINTERNATIONAL DISPUTE SETTLEMENT 341 (2010)

The Role of Precedent in Investment Arbitration, in K. Yannaca-Small ARBITRATIONUNDER INTERNATIONAL INVESTMENT AGREEMENTS (2010)

Scholarship as Law, in M.H. Arsanjani et al., LOOKING INTO THE FUTURE: ESSAYS ONINTERNATIONAL LAW IN HONOR OF W. MICHAEL REISMAN (2010)

El poder de los Estados para hacer promesas significativas a los extranjeros, 6(21)REVISTA DEECONOMIA Y DERECHO 7 (2009)

El orden público como criterio para negar el reconocimiento y la ejecución de laudosarbitrales, in G. S. Tawil and E. Zuleta (eds.), EL ARBITRAJE COMERCIALINTERNACIONAL ESTUDIO DE LA CONVENCION DE NUEVA YORKCONMOTIVO DE SU 50º ANIVERSARIO (2008)

International Arbitration is not Arbitration, 2008:2 STOCKHOLM INTERNATIONALARBITRATION REVIEW 1 (2008)

Unlawful Laws and the Authority of International Tribunals, 23(2) ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL 215 (2008)

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Neer-ly Misled, 22 ICSID REVIEW FOREIGN INVESTMENT LAW JOURNAL 2 (2007)(with Georgios Petrochilos)

Ghosts of Chorzów (reflections on the international law of expropriation), in ToddWeiler (ed.), INTERNATIONAL INVESTMENT LAW AND ARBITRATION 777 (2005)

Jurisdiction and Admissibility, in G. Aksen et al (eds.), GLOBAL REFLECTIONS ONINTERNATIONAL LAW, COMMERCE AND DISPUTE RESOLUTION 601 (2005)

Indirect Expropriations in Investment Treaty Arbitrations in N. Horn (ed.),ARBITRATING FOREIGN INVESTMENT DISPUTES 145 (2004) (with Zachary Douglas)

Interference by National Courts in L W Newman and R D Hill (eds.), THE LEADINGARBITRATORS GUIDE TO INTERNATIONAL ARBITRATION 107 (2004)

The Involvement of States in International Disputes with Foreign Investors in J.Lacarte and J. Granados (eds.), INTER-GOVERNMENTAL TRADE DISPUTE SETTLEMENT491 (2004)

The Timely Arbitrator: Reflections on the Böckstiegel Method in R Briner, et al (eds.),LAW OF INTERNATIONAL BUSINESS AND DISPUTE SETTLEMENT IN THE 21ST CENTURY:Liber Amicorum for Karl-Heinz Böckstiegel (2001).

Enforcing Arbitral Awards Notwithstanding a Local Standard Annulment (LSA), 9ICC COURT BULLETIN 14 (May 1998)

Arbitration without Privity, 10 ICSID REVIEW - FOREIGN INVESTMENT LAW JOURNAL232 (1995)

Arbitration of International Sports Disputes, THE ENTERTAINMENT AND SPORTSLAWYER, Winter 1994, at 12

The Trouble with Confidentiality, ICC COURT BULLETIN, May 1994, at 48 (withN K Rawding)

Standards of Conduct for Counsel in International Arbitration: Essays in Honor ofHans Smit, THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION 214 (1992)

ICSID s Achievements and Prospects, 6 ICSID REVIEW-FOREIGN INVESTMENT LAWJOURNAL 104 (1991)

La lex mercatoria dans l arbitrage CCI, REVUE DE L ARBITRAGE, 1990, at 55

Third World Participation in International Investment Arbitration, ICSIDREVIEW-FOREIGN INVESTMENT LAW JOURNAL 19 (1987)

May a State Invoke its Internal Law to Repudiate Consent to InternationalCommercial Arbitration?, ARBITRATION INTERNATIONAL 90 (1986)

A Code of Ethics for Arbitrators in International Commercial Arbitration?,INTERNATIONAL BUSINESS LAWYER 153 (1985) (with J M H Hunter)

20

Sovereign Immunity from Execution: French Caselaw Revisited, INTERNATIONALLAWYER 277 (1985)

L arbitre et le contrat: l adaptation du contrat, REVUE DE L ARBITRAGE 249 1984

Delocalisation of International Commercial Arbitration: When and Why It Matters,32 INTERNATIONAL AND COMPARATIVE LAW QUARTERLY 53 (1983)

L immunité restreinte entérinée par la jurisprudence suédoise dans le cadre del exequatur d une sentence arbitrale étrangère rendue à l encontre d un Etat,JOURNAL DU DROIT INTERNATIONAL 544 (1981)

Arbitration Unbound, 30 INTERNATIONAL AND COMPARATIVE LAW QUARTERLY 358(1981)

21

J. LIST OF EXPERIENCE

As an arbitrator, I have been appointed to preside over tribunals and have been appointed

both by states and by commercial parties. I have served as an arbitrator in more than 150

cases, including the following:

· Azinian v Mexico, Washington D.C., expropriation claim, first case decided on themerits under the North American Free Trade Agreement

· Channel Tunnel v U.K. and France, The Hague, claimed violation of the 1986 Treatyof Canterbury and the Concession Agreement concluded under that treaty

· Desert Line v Yemen, Paris, construction contract claim under Oman-Yemen BilateralInvestment Treaty

· Enrho v Kazakhstan, London, energy dispute regarding control of pricing andtaxation

· GAMI Investments v Mexico, Vancouver, expropriation claim under the NorthAmerican Free Trade Agreement

· Generation Ukraine v Ukraine, Paris, expropriation claim under U.S.-UkraineBilateral Investment Treaty

· HEP v Slovenia, Paris, dispute regarding obligations concerning a nuclear powerplant

· Himpurna v Indonesia, Jakarta, claim concerning sale of electricity and governmentundertakings in support of a state corporation

· Lemire v Ukraine, London, dispute under Ukraine-U.S. Bilateral Investment Treatyrelated to licences for radio frequencies

· Luchetti v Peru, Washington D.C., jurisdictional issue under Peru-Chile BilateralInvestment Treaty

· Motorola v Turkey, Washington D.C., investment dispute under U.S.-Turkey BilateralInvestment Treaty

· Pantechniki v Albania, Paris, denial of justice claim under Albania-Greece BilateralInvestment Treaty

· Court of Arbitration for Sport, appeals panels at the Olympic Games in Atlanta(1996), Nagano (1998), and Sydney (2000)

22

I have been counsel both for states and for corporations. Some of the cases in which I have

been counsel include:

· Atlantic Triton v Guinea (for Guinea)

· Bahrain v Qatar (for Bahrain)

· Belize v Guatemala (for Belize)

· Barbados v Trinidad & Tobago (for Barbados)

· Biwater Gauff v Tanzania (for Tanzania)

· Burlington Resources v Ecuador (for Burlington Resources)

· ConocoPhillips v Venezuela (for ConocoPhillips)

· Eritrea v Yemen (for Eritrea)

· Foresti v South Africa (for South Africa)

· Gruslin v Malaysia II (for Malaysia)

· Helnan v Egypt (for Egypt)

· Klöckner v Cameroon (for Cameroon)

· LETCO v Liberia (for Liberia)

· Libananco v Turkey (for Turkey)

· Peru v Chile (for Chile)

· RSM v Grenada (for Grenada)

· Saluka v Czech Republic (for Saluka)

· SGS v Pakistan (for Pakistan)

· Soufraki v UAE (for Soufraki)

· SPP v Egypt (for SPP)

· Total v Argentina (for Total)

· World Duty Free v Kenya (for Kenya)

· More than 20 cases before the Court of Arbitration for Sport arising from theOlympic Games in 2002, 2004 and 2006 (for the International Olympic Committee)