Tribunal: Ecuador failed to prevent enforcement of judgment against Chevron

SAN RAMON, Calif. (Legal Newsline) -- An international arbitration tribunal last week found the Republic of Ecuador has violated international law and its treaty obligations to the United States in failing to prevent the attempted enforcement of an $18 billion-plus judgment against Chevron Corp.

On Thursday, the tribunal issued an award finding that Ecuador has violated its prior interim awards.

The tribunal is convened under the authority of the U.S.-Ecuador Bilateral Investment Treaty, also known as the BIT, and administered by the Permanent Court of Arbitration.

The PCA, located in The Hague, Netherlands, administers cases arising out of international treaties and other agreements to arbitrate.

In prior rulings, the tribunal put Ecuador on notice that if the company'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."

Last week, the tribunal found Ecuador in breach of its 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.

Last February, the tribunal issued a second interim award ordering Ecuador's government -- 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."

Chevron claims that Ecuador has breached its obligations under the BIT and international law through the Lago Agrio litigation, the resulting judgment and an appellate decision upholding the judgment.

The appellate court's ruling, issued last year by a panel of three temporary judges in the Provincial Court of Justice of Sucumbios in Lago Agrio, upheld the $18 billion-plus judgment against the company for its alleged contamination of the country's rainforest.

The ruling, which stems from an environmental lawsuit involving Texaco Petroleum, confirmed a lower court's ruling in February 2011.

The lower court had found the company liable for dumping billions of gallons of toxic waste into the Amazon, causing an outbreak of disease and decimating indigenous groups.

"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," Hewitt Pate, Chevron vice president and general counsel, said in a statement Friday.

"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," he said.

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, it says, 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 last week, 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 (U.S.-Ecuador Bilateral Investment) Treaty, the UNCITRAL Rules and the tribunal's orders and awards thereunder, particularly the First and Second Interim Awards on Interim Measures."

Karen Hinton, spokeswoman for the Ecuadorean plaintiffs, who are not part of the tribunal proceedings, told Reuters Friday that courts hearing enforcement actions would likely pay "little attention" to the tribunal.

Last year, the panel ruled that the rainforest communities are not a party to the arbitration and, therefore, not subject to its orders. The arbitration is between Ecuador's government and Chevron, it noted.

"The latest order changes nothing about the respective positions of the various parties, all of which have been clear for some time," she said in a statement to the news service.

Chevron spokesman Kent Robertson said the tribunal will next consider the issue of compensation and whether the Republic, by ignoring prior awards, should pay for any enforcement-related damages the oil giant has incurred.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.