Ecuadorian court rejects Chevron's request for bond waiver

By Jessica M. Karmasek | Feb 21, 2012

QUITO, Ecuador (Legal Newsline) - A three-judge appellate panel in Ecuador ruled Friday that Chevron Corp.'s request for a special bond waiver has no basis in Ecuadorian law.

QUITO, Ecuador (Legal Newsline) - A three-judge appellate panel in Ecuador ruled Friday that Chevron Corp.'s request for a special bond waiver has no basis in Ecuadorian law.

In a ruling last month, 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 Jan. 3 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.

Chevron filed an appeal, seeking review by Ecuador's National Court of Justice of the appellate court's adverse judgment.

The filing was made Jan. 20 to the Provincial Court of Justice. 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, called a petition for cassation, details multiple legal grounds for reversal of the appellate court decision.

First, the appeal argues that the lower courts violated the Ecuadorian constitution by refusing to take any corrective action in response to the "extensive fraud and corruption" committed by the Ecuadorian plaintiffs' lawyers and their representatives.

The filing goes on to outline several other points, including that: the lower court's judgment is "unlawfully premised" on "fraudulent and scientifically baseless" evidence; the judgment is illegally based upon the retroactive application of law; it 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; and the judgment awarded punitive and other damages never requested in plaintiffs' complaint and not allowed under Ecuadorian law.

"Throughout the course of this litigation, judges corruptly operating in concert with the plaintiffs' lawyers have created, rather than corrected, injustice," Hewitt Pate, Chevron vice president and general counsel, said in a statement last month.

In addition to its appeal last month, Chevron also asked that the appellate court take all steps to suspend enforcement of the $18 billion judgment until further order, including suspension of any requirement that Chevron post a bond.

The appellate court has the discretion to set a bond before sending the case to the National Court of Justice.

However, the company must request the bond as a way to suspend enforcement of the judgment pending further appeal.

Such a bond is typically set by the appellate court at about 8 percent of the amount of the judgment, or in this case about $1.6 billion.

Lawyers for the Ecuadorians say Chevron's legal team "blundered" by never asking for it.

Instead of requesting the bond, the company requested an unprecedented waiver of the bond requirement.

In doing so, the Ecuadorians charged the oil giant was seeking "special treatment" not available to any other litigant in the country.

In its four-page decision, the appellate court said seeking a bond is "the only established legal mechanism to give litigants in Ecuador the opportunity to suspend execution of a judgment."

Simply put, it added, "the losing party decided not to exercise this right."

Also Friday, the appellate court rejected an order issued by an international panel at the Permanent Court of Arbitration last week.

On Thursday, the PCA tribunal issued a second interim award, ordering Ecuador to prevent enforcement and recognition of the $18 billion judgment against Chevron.

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

The appellate court said the Inter-American Convention of Human Rights and Ecuador's Constitution trumped the PCA tribunal's authority.

"No part of this Convention can be interpreted to permit any person (such as Chevron or the Arbitral Panel) to interfere with the enjoyment and exercise of rights and liberties recognized in the Convention, nor can it override other rights and guarantees that are inherent in the rights of all men," the appellate court wrote.

The award directed 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 stated that these measures must "preclude any certification" by Ecuador or its courts that would cause the judgment to become enforceable.

"The Ecuador appellate panel spoke in a way that is consistent with both Ecuador's laws and the country's international treaty obligations," said Karen Hinton, a spokeswoman for the Ecuadorians. "It shows that Ecuador's independent courts will not succumb to Chevron's political pressure nor its request for special treatment."

She added, "After 18 years of dealing with Chevron's bad faith and abusive litigation tactics, the rain forest communities have a final and enforceable judgment."

Chevron, 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.

Last week, Judge Lewis Kaplan lifted a stay of proceedings in the civil lawsuit.

From Legal Newsline: Reach Jessica Karmasek by email at

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