Panel orders Ecuador to suspend enforcement of $18B judgment

Jessica M. Karmasek Feb. 17, 2012, 2:30pm


THE HAGUE, Netherlands (Legal Newsline) - An international panel at the Permanent Court of Arbitration has issued a second interim award, ordering Ecuador to prevent enforcement and recognition of an $18 billion judgment against Chevron Corp.

The tribunal, convened under the authority of the U.S.-Ecuador Bilateral Investment Treaty, also known as the BIT, and administered by the PCA, is considering Chevron's claims that Ecuador has breached its obligations under the BIT and international law through the Lago Agrio litigation, the resulting judgment and the appellate decision upholding the judgment.

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

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

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

The award, issued Thursday by the PCA's tribunal, directs Ecuador, including "its judicial, legislative or executive branches," to "take all measures necessary to suspend or cause to be suspended the enforcement and recognition within and without Ecuador" of the judgment.

In particular, the tribunal states that these measures must "preclude any certification" by Ecuador or its courts that would cause the judgment to become enforceable.

"Both Chevron and the Republic of Ecuador benefit from today's award, which upholds the rule of law and prevents enforcement of the fraudulent Lago Agrio judgment," Hewitt Pate, Chevron's vice president and general counsel, said in a statement Thursday.

"Chevron welcomes the constructive steps that Ecuador has recently taken, such as the announcement that Petroecuador will remediate sites impacted by oil production and the acknowledgement that the tribunal's award applies to all branches of the Ecuadorian state."

He added, "We will continue to seek opportunities for constructive discussion with the Republic of Ecuador to resolve this pending BIT arbitration. Rejecting the fraudulent claims and misconduct of the corrupt American plaintiffs' lawyers is the best way to end the harm they are causing to the people and reputation of Ecuador."

The award is immediately final and binding on the parties and Chevron will promptly post a $50 million bond required by the tribunal.

The award also expands on the tribunal's prior interim measures order dated Feb. 9, 2011 and its first interim award dated Jan. 25, which remain in effect.

Last month, Chevron filed an appeal, seeking review by Ecuador's National Court of Justice, of the adverse judgment issued by the Provincial Court of Justice Jan. 3.

The National Court of Justice is similar to the Supreme Court in the U.S. and is located in the capital of Quito.

The oil giant's appeal, filed Jan. 20, detailed multiple legal grounds for reversal of the appellate court's decision.

Among the company's arguments, the appellate court's judgment ignores the releases of liability granted to Texaco Petroleum Co. by the Ecuadorian government following a cleanup of its share of remediation sites in the 1990s.

Karen Hinton, a spokeswoman for the Ecuadorian plaintiffs suing Chevron, said Friday that the tribunal's "secret" order violates international law and will have little or no impact on any potential enforcement action against Chevron in countries around the world.

Hinton said the decision was issued by the panel after a hearing over the weekend that barred the rain forest communities of Ecuador from appearing.

"This arbitration panel has just lost the last remnants of its legitimacy by trying to order a sovereign nation to violate its own Constitution and quash the legal claims of citizens who are literally dying off in the rain forest due to Chevron's pollution," she said in a statement.

"The latest order will have no legal impact in Ecuador or in any country around the world that observes the rule of law. The United States would never abide by such a ruling; nor will Ecuador or any other country that has a system based on due process of law."

Also Thursday, a federal judge in New York lifted a stay of proceedings in Chevron's civil lawsuit against the Ecuadorians.

The oil giant, which has vowed never to pay the $18 billion judgment, filed a racketeering lawsuit in the Southern District of New York last February, alleging that the Ecuador suit has been used to threaten the oil company, mislead U.S. government officials, and harass and intimidate its employees -- all to extort a financial settlement from the company.

Judge Lewis Kaplan, in a two-page order, vacated a previous stay of proceedings that was entered on April 15, 2011.

"While the parties henceforth may propound discovery requests and may assert any objections to any requests propounded, deposition testimony shall not be given, nor interrogatories and requests for admissions substantively answered (save for the assertion of any objections), nor requested or subpoenaed documents produced pending further order of the court," he wrote.

Kaplan said both parties will provide the court with an agreed translation of the decision and any subsequent rulings of the Provincial Court in Ecuador on or before March 7.

Also, on or before March 7, both parties must file a complete joint report as to the status of court proceedings in Ecuador, including the enforceability in Ecuador of the judgment and the status of any further appellate proceedings, the judge said.

From Legal Newsline: Reach Jessica Karmasek by email at

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