SAN RAMON, Calif. – An international arbitration tribunal has ruled in favor of Chevron in a claim against Ecuador related to past oil operations by Chevron’s subsidiary, Texaco Petroleum Company.
The tribunal, administered by the Permanent Court of Arbitration in The Hague, found that Ecuador’s courts violated international law through their delays in ruling on certain commercial disputes between Texaco Petroleum Company and the Ecuadorian government.
Today’s ruling is distinct from arbitral claims Chevron and Texaco Petroleum filed against Ecuador in 2009 in connection with the Lago Agrio litigation.
In its decision, the tribunal found that Ecuador had violated the United States-Ecuador Bilateral Investment Treaty by failing to provide effective means of asserting claims and enforcing rights.
As a result, the tribunal awarded Chevron and Texaco Petroleum Company approximately US$700 million in principal damages and interest as of December 22, 2006, pending further proceedings to determine applicable taxes, compound interest, and costs.
“This ruling demonstrates that the government of Ecuador is not above the law,” said Hewitt Pate, Chevron vice president and general counsel.
“We have maintained for some time that Ecuador’s courts are failing to administer justice when it comes to Chevron and its affiliates, and an international tribunal has now agreed. We hope this ruling will help move Ecuador towards proper treatment of foreign investors and respect for the rule of law.”
The arbitral award partially resolves seven commercial claims that Texaco Petroleum Company, now a Chevron subsidiary, filed in Ecuador between 1991 and 1993. Ecuadorian courts continually delayed and refused to rule on Texaco Petroleum’s cases, which has been found to constitute a breach of Ecuador’s treaty with the United States.
Chevron and Texaco Petroleum Company filed the arbitration in December 2006 under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). The Permanent Court of Arbitration is an intergovernmental organization with over one hundred member countries established by international convention in 1899 to facilitate arbitration and other forms of dispute resolution.
The United States acceded to the Court’s founding convention in 1900 and Ecuador acceded in 1907.
The tribunal is not alone in highlighting the Ecuadorian courts’ failure to provide justice to foreign investors.
In February 2009, the United States Department of State released its Investment Climate Statement for Ecuador, which stated, “Systemic weakness and susceptibility to political or economic pressures in the rule of law constitute the most important problem faced by U.S. companies investing in or trading with Ecuador.”
The report went on to state, “corruption is a serious problem in Ecuador,” and that, “the courts are often susceptible to outside pressure and bribes.”
Ecuador is defending the second largest arbitration docket in the world with more than 11 claims seeking more than US$6.5 billion in damages. Ecuador has withdrawn from the World Bank’s arbitration program, making it the second country ever to do so, and has indicated its intention to cancel scores of bilateral investment treaties that provide for international arbitration of investment disputes.
The country has also fallen out of favor with international financial markets since defaulting on more than $3 billion of foreign debt after a government-appointed panel declared the debt to be “illegitimate.”
Chevron is one of the world’s leading integrated energy companies, with subsidiaries that conduct business worldwide. The company’s success is driven by the ingenuity and commitment of its employees and their application of the most innovative technologies in the world. Chevron is involved in virtually every facet of the energy industry.
The company explores for, produces and transports crude oil and natural gas; refines, markets and distributes transportation fuels and other energy products; manufactures and sells petrochemical products; generates power and produces geothermal energy; provides energy efficiency solutions; and develops the energy resources of the future, including biofuels. Chevron is based in San Ramon, Calif.
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