Chevron wins round one against Ecuador

A recent decision by an international arbitration tribunal, administered by the Permanent Court of Arbitration in The Hague, is a setback for Ecuador and for environmentalists that wish to use the international legal system to protect the environment. Ecuador and Chevron, the second largest U.S. oil company, have been engaged in a long-standing dispute about environmental impacts from oil extraction. Experts describe this recent decision as a collateral attack on the original underlying issue. Ecuadorian courts are expected to rule soon on the massive $27 billion dollar suit filed by Ecuador against Chevron, and this most recent decision may be an attempt send a signal to the justices, or prevent enforcement of the judgment.

This most recent case was a suit filed in 2009 by Chevron against Ecuador for violations of its due process rights. It arises out of a complaint factually unrelated to the original $27 billion dollar, but its political and legal ramifications will likely spill over. In the recent arbitration action, Chevron claimed that between 1991 and 1993, Ecuador sold oil intended for domestic consumption on the international market. Chevron alleged that the domestic Ecuadorian courts were delaying ruling on this issue, violating its rights under the Bilateral Investment Treaty (BIT) between the United States and Ecuador. The arbitration panel found that Ecuador court system did not provide an adequate way to file claims and enforce rights, and it awarded Chevron $700 million.

Ecuador has not accepted this unfavorable turn of events without a fight. It is now exploring options for appeal under its own domestic laws as well international law. President Rafael Correa issued a strong statement condemning Chevron’s actions, “This new effort to compromise the Ecuadorean state in its firm commitment to respect the independence of its judicial system . . .will not succeed.” Investors reacted favorably as a result of this ruling; Chevron stock rose half a percent and recent financial reports paint a rosy picture, with predictions of future profits higher than in the previous financial quarter.

Observers have noted the importance of this arbitration decision, but also point out that it pales in comparison to the original environmental dispute. Ecuadorian citizens living in the Amazon rainforest filed a suit in the United States in 1993 for ill health effects caused by pollution associated with Chevron’s oil drilling in their lands. The original suit involved 76 residents of the Oriente region of Ecuador, who filed on behalf of thousands more. They claimed that the decades of oil exploration and extraction had created “vast devastation”. These cases were dismissed by the American courts and refilled in Ecuador. During the course of the trial in Ecuador, both sides have exchanged claims of wrongdoing and corruption. Some experts believe that Ecuadorian courts will soon rule against Chevron and the company vows to fight any adverse decision.

Chevron’s allegations that the Ecuadorian courts are inadequate strike some observers as curious, because Chevron was originally in favor of moving the trial to Ecuador. The suit was originally filed in New York, but Chevron requested that it be moved to Ecuador. The District court that said, “the well-known congestion of American dockets is undoubtedly greater than that of less litigious societies. Indeed, in terms of engendering inordinate delays, the history of mass tort class litigation in the United States is not such as to inspire confidence.” Because the suit was attempting to enforce the laws of Ecuador, the court understandably believed that those courts would to be superior and described its own efforts as “preposterous.”

The end game for Chevron may not be winning the lawsuit in Ecuador, but avoiding paying damages if it does lose. In winning this most recent BIT arbitration on illegal oil sales, it may be able to prove in U.S. courts that it does not need to pay future claims. Long ago, U.S. courts decided in Hildton v. Guyot that judgments in foreign courts would not be enforceable if there was “prejudice in the court, or in the system of laws under which it was sitting, or fraud in procuring the judgment.” With the precedence set by the arbitration decision, Ecuador is now in a tough position to prove that its courts meet the highest standards. Pepperdine University School professor Roger Alford described the current situation, “The Ecuadorian court now faces the unpleasant prospect of knowing that the Ecuadorian government may be on the hook financially for any improper judgment rendered against Chevron.”

Countries throughout the world could benefit from an Ecuadorian victory by launching their own legal actions modeled after this one. However, this recent victory by Chevron seems to cast the viability of this option in doubt.Source

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