Chevron Nails Ecuador on Arbitration Award

WASHINGTON (CN) - Chevron says it has a new tool to dismantle a $19 billion judgment it faces in Ecuador after a federal judge confirmed an international arbitration award against the country in an unrelated case.

The dispute here stemmed from a 1973 deal in which Ecuador gave Chevron subsidiary Texaco drilling rights, and Texaco in exchange charged Ecuador a cheaper price for whatever oil the country needed for domestic consumption.

After Texaco pulled out in 1991, it filed seven breach of contract lawsuits, seeking more than $553 million in damages, that accused Ecuador of overstating how much petroleum it needed.

Chevron then acquired Texaco and brought the matter to the Hague, pursuant to a Bilateral Investment Treaty signed by Ecuador and the United States.

In August 2011, the arbitral tribunal ordered Ecuador to pay Chevron more than $96 million, the oil giant says.

When Chevron asked a federal judge in Washington to confirm the order, Ecuador urged either dismissal or delay.

"Ecuador raises three arguments in an effort to derail confirmation: the court lacks subject-matter jurisdiction under the Foreign Sovereign Immunities Act, confirmation should be denied under the New York Convention, and a stay pending appeal in the Netherlands is appropriate," U.S. District Judge James Boasberg summarized in a 23-page opinion rejecting each in turn.

The judge defended the neutrality of the "three learned arbitrators" who found in Chevron's favor.

"The tribunal here consisted of three learned arbitrators, one chosen by Chevron, one chosen by Ecuador, and one chosen by the first two arbitrators with the consent of the parties," the opinion states. "No one contends that the arbitrators were biased, inexperienced, or otherwise inadequate. The Tribunal held eleven days of hearings, four of which were solely devoted to jurisdiction. ... It ultimately produced a 140-page opinion concerning arbitrability alone and addressing eight potential jurisdictional issues. ... Ecuador thus cannot claim that the Award should be set aside for the Tribunal's failure to thoroughly engage with the issues or the parties' arguments."

Boasberg was similarly unimpressed with the contention that the tribunal's decision would "flout" Ecuador's sovereignty."

"Ecuador argues that enforcing the award would sanction the forcible removal of pending litigation from Ecuadorian courts, something it suggests the U.S. would never tolerate," the ruling states. "Such a characterization is erroneous.

"Ecuador and the U.S. willingly entered into the BIT, in which they agreed to 'provide effective means of asserting claims and enforcing rights with respect to investment, investment agreements, and investment authorizations.'"

Boasberg added later: "Indeed, it strains credulity to argue that both these sovereign nations would have agreed to such a choice of dispute-resolution processes if they had anticipated it would lead to results that would "violate . . . [their] most basic notions of morality and justice."

Boasberg also refused to wait for resolution of the appeal before entering the judgment last week.

Chevron hailed the decision as one that will help it unravel a $19 billion judgment it faces for oil contamination of Ecuador.

The company claims that the trial in Lago Agrio was an extortionate fraud, and that the blame was unfairly pinned on its predecessor, Texaco, even though true liability lay with the state-owned Petroecuador.

"This process demonstrates that Ecuador can be held accountable for its obligations under international law," spokesman Kent Robertson said in a statement. "Since Ecuador's politicized court system has failed to provide impartial tribunals and due process, Chevron has had to seek international remedies. Chevron will continue to pursue enforcement of the agreements entered into by Ecuador and its state-owned oil company, Petroecuador.

The contract arbitration at issue here is unrelated to a February 2012 arbitral ruling that the environmental case Chevron faced in Ecuador should never have occurred because Texaco paid $40 million in 1995 for a full release. Ecuador is appealing that order on the grounds that it compelled a violation of its constitutional separation of powers.

Lawyers and spokespeople for the Ecuadorean government did not comment by press time.

EDITOR'S NOTE - The original version of this article erroneously reported that the arbitration award directly involved Chevron's environmental litigation in Ecuador. It does not. Courthouse News regrets the error.

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