Another Chapter in the Chevron-Ecuador Saga

In the latest chapter in the Chevron-Ecuador dispute, an International Centre for Settlement of Investment Disputes (ICSID) panel of international arbitrators convened under the U.S.-Ecuador Bilateral Investment Treaty (BIT)[1] met to consider Chevron’s claim that Ecuador needs to halt its courts from enforcing the $18 billion judgment the Ecuadorian courts levied against Chevron in February 2011 for oil contamination in eastern Ecuador by Texaco Petroleum Co. from the 1960s to the 1990s.

In 2003, Ecuadorian citizens filed suit against Chevron, who acquired Texaco in 2001, in Ecuador on the grounds that a 1995 concession agreement between Ecuador that Texaco, releasing Texaco from future obligations or liabilities in exchange for environmental remediation, did not extend to Ecuadorian citizens who can seek damages for environmental pollution under the Ecuador’s Environmental Management Act. In February 14, 2011, an Ecuadorian court ordered Chevron to pay $8.6 billion in damages, plus an additional $860 to the Amazon Defense Coalition to the plaintiffs, and to apologize within 15 days or risk doubling the fines. But the judgment has significant barriers to enforcement. An Ecuadorian appeals court upheld the judgment in January 2012. Chevron announced it will appeal the decision to the Ecuador’s national Court of Justice. On February 4, 2012, Chevron stated it had no intention of apologizing even to save $8.5 billion.

First, because Chevron has no assets in Ecuador (Texaco withdrew from Ecuador in 1992), the Ecuadorian court’s judgment must be enforced by anther country’s court. In February 2011, Chevron filed a racketeering claim against the Ecuadorian defendants alleging the entire case was an extortion racket. Chevron relied in part on depositions of Americans involved in the creation of the documentary of the case, Crude, released in 2009. In March 2011, U.S. Southern District of New York Judge Lewis Kaplan imposed of a worldwide injunction barring enforcement of the Ecuadorean trial court’s judgment against Chevron outside of Ecuador. On September 16, 2011, a federal appeals court lifted Kaplan’s injunction, expressing skepticism of Kaplan’s authority to issue a worldwide injunction.

Second, in February 2011, an ICSID arbitration panel issued an interim order instructing Ecuador to “take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against in the Lago Agrio case” based on a claim Chevron filed under the private investor arbitration provisions of the U.S.-Ecuador BIT arguing that it has been denied due process in violation of the BIT, and that Ecuador signed an indemnification agreement years ago with its predecessor, Texaco, that releases Chevron from liability. Though the arbitrators don’t have jurisdiction over the individual Ecuadoreans suing Chevron, they do have power over the state of Ecuador that could possibly end up indemnifying Chevron’s damages if the Ecuadorian courts judgment is enforced and the concession agreement between Ecuador and Texaco is upheld.

In response to February’s ruling in favor of the Ecuadorian plaintiffs and the lifting the injunction on enforcement in U.S. courts in March, Chevron asked the ICSID arbitration panel for emergency relief from enforcement of the award and a finding that the Ecuador has not complied with the panel’s interim order. The arbitration panel converted their interim order into an interim award to deter seizure of Chevron’s assets to pay the Ecuadorian court judgment. The arbitrators met this past weekend to deliberate on future actions.

The plaintiffs, as well as other members of the Andean community, have expressed concern over the Chevron dispute being resolved by arbitrators behind closed doors. The Andean Commission wrote a letter to United Nations Secretary General Ban Ki-moon stating it was “alarmed” by Chevron’s use of arbitration a private investor arbitration under the U.S.-Ecuador BIT to influence the outcome of the dispute and “force Ecuador’s government to violate international law and quash the human rights of its own citizens by essentially nullifying the result of their case after almost two decades of litigation.” Some legal experts also sent a letter to the U.N. staff overseeing arbitrations questioning Chevron’s attempt to bypass the public court system of a sovereign nation where it wanted the trial held when it lost.

Written by: Shani Harmon, GIELR Staff

[1] “Nationals and companies of either Party, in investment disputes with the host government, have access to binding international arbitration, without first resorting to domestic courts.”