An international arbitration tribunal issued an award yesterday finding that the Republic of Ecuador and the administration of President Rafael Correa has violated the Tribunal’s prior Interim Awards authorized under international law and a treaty between the United States and Ecuador by not preventing the attempted enforcement of a $19 billion judgment against Chevron Corp. (NYSE: CVX) In prior rulings, the Tribunal put the Republic on notice that if Chevron’s arbitration ultimately prevails, “any loss arising from the enforcement of (the judgment) may be losses for which the (Republic) would be responsible to (Chevron) under international law.”
This decision is a stunning rebuke to President Correa and his re-election campaign in Ecuador and casts a pall on all efforts by the plaintiffs in the case because of the illegal behavior of Ecuador and the plaintiffs.
Convened under the authority of the U.S.-Ecuador Bilateral Investment Treaty (the BIT) and administered by the Permanent Court of Arbitration at The Hague, the Tribunal found Ecuador in breach of the Tribunal’s prior rulings and ordered the Republic to explain why it should not be ordered to compensate Chevron for all harm resulting from the plaintiffs’ attempts to enforce a judgment resulting from an environmental trial against the company in Lago Agrio, Ecuador.
Almost one year ago, the Tribunal issued a Second Interim Award ordering the Republic of Ecuador—and all of its branches, including the judiciary—to take all necessary actions to prevent enforcement and recognition of the Lago Agrio judgment, both inside and outside of Ecuador. That award expanded upon a prior award requiring 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.”
“The Tribunal’s decision confirms that the enforcement actions being pursued against Chevron in Argentina, Brazil, and Canada fly in the face of international law,” said Hewitt Pate, Chevron vice president and general counsel. “Yet Ecuador has consistently aligned itself with American trial lawyers who have used corrupt courts to advance an unprecedented fraud. It is not too late for the Republic to reverse course, declare the Lago Agrio judgment illegitimate, and address the real challenges facing its citizens.”
Despite the Tribunal’s Awards, the Republic of Ecuador has facilitated the plaintiffs’ pursuit of enforcement in Argentina, Brazil, and Canada. These actions are the result of Ecuador’s failure to meet its international law and treaty obligations.
Chevron’s arbitration claim stems from the government of Ecuador’s interference in the ongoing environmental lawsuit against the company in Ecuador and its courts’ failure to administer justice in a trial that has been marred by fraud. Additionally, Chevron maintains that the government of Ecuador has failed to uphold prior settlement and release agreements that the government of Ecuador entered into with Texaco Petroleum Company (now a Chevron subsidiary) when the consortium between Texaco Petroleum and Petroecuador was terminated.
In its ruling, the Tribunal found that “Neither disagreement with the Tribunal’s orders and awards on interim measures nor constraints under Ecuadorian law can excuse the failure of the (Republic), through any of its branches or organs, to fulfil its obligations under international law imposed by the Treaty, the UNCITRAL Rules and the Tribunal’s orders and awards thereunder, particularly the First and Second Interim Awards on Interim Measures.”
In August 2011, a different international arbitration tribunal convened under the BIT awarded Chevron and Texaco Petroleum $96 million, plus interest, in a claim against the Republic of Ecuador related to past oil operations. The Tribunal found that Ecuador’s courts violated the BIT and international law through their decade-long delays in ruling on certain commercial disputes between Texaco Petroleum and the Ecuadorian government. A court in the Netherlands has upheld the award and Ecuador has filed a second appeal.