Res Judicata: A little Latin goes a long way
A couple of years ago I had to wrestle with res judicata in investment treaty arbitration proceedings. The case was an ICSID case under the NAFTA brought by ExxonMobil against Canada. Candidly, the subject matter of the dispute was pretty dry. It sounded really exciting on paper. Exxon operates the Hibernia and Terra Nova oil fields which are offshore Newfoundland in Canada. Hibernia has the largest oil platform in the world. There are all sorts of fascinating technical challenges about drilling in such a harsh weather environment. In fact, Terra Nova has the first FPSO to be used in pack-ice. So all pretty exciting stuff, but the subject matter of the arbitration was not so interesting. It turned on the legality of a change to the regulatory framework for offshore petroleum resources in Canada. The change was made in 2004 by way of a set of guidelines. These required Exxon to make certain payments in the territory in relation to Research and Development for the fields, basically to keep its money in the province. Exxon challenged these guidelines in ICSID proceedings brought in 2007 on the basis that the guidelines breached NAFTA Article 1106(1) which prohibits the imposition of performance requirements upon an investment.
The first case brought by Exxon against Canada (you can view the award here) ran from 2007 to 2012 . The tribunal held that the guidelines breached the NAFTA. The tribunal, with a dissenting opinion by Professor Philippe Sands QC, held that Exxon were entitled to damages in relation to calls for payment that had already been made under the 2004 guidelines. But they struggled with regard to awarding future losses. Ultimately they determined that they had to impose a cut off on the damages from 2012 onward. Losses claimed after that date were not awarded.
Despite the decision the guidelines continued to be applied in the Newfoundland and Labrador province, so Exxon was forced to bring a second arbitration to seek to recover its losses incurred after the cut off date imposed by the first tribunal. A complicating factor in the second case was the question whether the second tribunal would hold that the decision of the first tribunal was res judicata as to liability, but not as to quantum, or whether the second tribunal would hold that the whole matter was res judicata, such that it could not be brought again by Exxon.
Res judicata is a well-established general principle of international law. Essentially it means that a final decision on the same subject matter made by a competent court or tribunal is conclusive between the same parties. Way back in 1905 the tribunal in Company General of the Orinoco case held “a right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed”.Res judicata can be divided into ‘issue estoppel’ which prevents re-litigation of specific issues that were finally decided by a previous tribunal and ‘cause of action estoppel’ which bars a second claim based on an identical cause of action that was previously adjudicated.
In the Exxon case there was a bit of tightrope to walk as the parties did not dispute that the issue of liability, namely the fact that the guidelines were in breach of NAFTA, was res judicata between the parties. The argument was rather that the issue of damages post 2012 was not, in Exxon’s view, res judicata as it had not been finally decided by the first tribunal.
Exxon framed its argument against res judicata in the following way. It asserted that a claim cannot be re-litigated if (a) it was distinctly put in issue (b) the court or tribunal actually decided it and (c) the resolution of the question was necessary to resolving the claim . Exxon argued that (b) – the question had been actually decided by the court or tribunal - was not satisfied in its case. Exxon alleged that the first tribunal had not actually decided the question of damages after 2012, but had simply said they were “not ripe for determination”.
After lengthy consideration, the tribunal held the issue of damages post 2012 was not res judicata between the parties. Although there had been parts of the first tribunal’s decision that indicated that it had considered the post 2012 damages claim, the second tribunal was ultimately persuaded by the first tribunal’s use of the phrase ‘not ripe’ in relation to the damages claim and therefore held that Exxon’s claim was not barred. You can view the award here.
I will be discussing this case and other issues relating to the application of res judicata in international arbitration at the New York State Bar Association’s Panel Discussion “Seeing Double: Parallel Proceedings in International Arbitration” next week.