Chevron v. Ecuador: the oil-slicked, road to Justice

It is hard to ascertain which international cases should dominate public discourse and which are not relevant in society at large. However, cases related to environmental damage that are intertwined in the ideas of climate change, environmental racism, and global corporate interests are arguably most pertinent today. Climate issues are one of the biggest threats to the foundation of international human rights law because it undermines the basics of internationally protected human rights such as water, health, and adequate standard of living. International law is implicated because these effects are “rights violations (rather than mere bad luck) because climate change is a preventable man-made phenomenon.”[1]It is why there have been multiple constructions of legal entities dedicated to solving and eradicating global pollution. Yet, one of the main proponents of environmental damage is the link between multi-billion dollar corporations who exploit marginalized communities and land in the global south or Latin American countries. It is a wonder, then, how one of the largest oil companies in the world is using legal foreign jurisdictions in their fight with part of the Amazonian region, for the past forty years. The answer to this is a bit complex; it requires untangling the web of Ecuadorian law, public smear campaigns, international tribunals, and various foreign jurisdictions.

The heart of this case stems from the area of Lago Agrío, an oil field located in Sucumbíos, Ecuador, part of the Amazon basin. It is home to indigenous people who relied on the resources of their terrain for their daily lives, including but not limited to water for bathing and drinking, elements in preparation of traditional medicine, and sustainable agriculture. Nonetheless, it was a rich, diverse terrain that could be mined, and in 1964, the Republic of Ecuador granted “concessions to the World’s major Western oil companies to exploit the Concession acreage efficiently and cleanly.”[2] The oilfield operator who dominated the exploitation operations was an Ecuadorian subsidiary of Texaco, or “TexPet.” In its tenure, TexPet decimated the rainforest in order to make room for their oil operations, “TexPet’s Oriente oilfield operations resulted in its clearing approximately 5,000 hectares of rainforest to make room form, among other things, its wells, roads, camps, lateral pipelines, flow lines, and production stations…these well sites were almost always sited directly next to rivers and streams.”[3] In effect, toxic chemicals were known to affect the pits and wells in the area, yet TexPet, with its control as Operator over this production, often limited the knowledge of these oil spills. They claimed they should only report the major oil spills that might attract press.[4]  

Genesis of Legal Action

In 1993 and 1994, two indigenous groups of Ecuadorian citizens filed a lawsuit in U.S. Federal Courts against TexPet claiming that their oil operations polluted the rainforests and resulted in irreparable harm to their community and the environment. The claims were dismissed on grounds of forum non conveniens, with the courts citing that Ecuador would be the more suitable venue for these suits. Thus, in 2003, a class action lawsuit, or the Lago Agrío litigation, was brought against TexPet citing specific health grievances as a result of the environmental pollution that affected upwards of 30,000 inhabitants; the plaintiffs demanded medical monitoring and care, removal of polluting elements, and remediation to repair TexPet’s operations.[5] At this point, Chevron became implicated, following its acquisition of Texaco in 2001. Experts came to the area and performed an analysis to gauge an amount for damages that Chevron would be forced to pay. In 2008, the figure was posited at $28 billion. By 2010, a new assessment was figured and marked at upwards of $100 billion. After more appeals and higher courts in Ecuador, it was ordered that Chevron had to pay $9.5 billion for damages done in the area. This decision symbolized a historic moment for environmentally-risked people to access justice from large corporations who profit off of their land. This victory, though, was short-lived. Just a few short years later, Ecuador, a third-world developing country, is not only being denied the right to seek this remedy for environmental damage, but is also being mandated by an international tribunal to pay this company a multimillion dollar compensation.

Steven Donziger and the U.S. proceedings

Around the same time as the 2011 judgment from the Ecuadorian court against Chevron, Chevron brought a Racketeer Influenced and Corrupt Organizations (“RICO”) lawsuit (originally constructed for persecuting members of the Mafia), in the U.S. District Court for the Southern District of New York against Steven Donziger, the original attorney for the Lago Agrío plaintiffs. Chevron argued that the Ecuadorian judgment was a product of bribery and fraud, and, on this basis, they won.[6] Now, Donziger is under house arrest, and as of August 2020, has formally been disbarred. No matter the underlying tensions between both civil lawsuits, this has a reverberating effect for any environmental activist who wants to fight against the might of mega conglomerate corporations. The attack on Donziger shows that these corporations will expend an exorbitant amount of resources to achieve their goals. Additionally, it is a hindrance to the Lago Agrío Plaintiffs (“LAPs”) because they could not collect the $9.5 billion judgment, “everything that has happened to Donziger is small potatoes compared to the fact that [Judge] Kaplan has rendered the damage the company actually did as totally irrelevant.”[7]

The LAPs then turned to enforcing their judgment by seizing Chevron assets in other countries and bringing forth the proceedings in countries such as Canada, Brazil, and Argentina, all of which, to this date have failed.  

International Arbitration

What makes this case particularly interesting is the presence of the international tribunal and how it has laterally affected the LAPs and the decision at large. In 2009, Chevron filed an international arbitration claim at the Permanent Court of Arbitration in the Hague, Netherlands (“PCA”) against Ecuador, claiming that they had breached the U.S.-Ecuador Bilateral Investment Treaty (“BIT”). In their Notice of Arbitration, Chevron claims, among other things that Ecuador has acted unfairly by imposing de facto jurisdiction over Chevron, colluding with the LAPs to influence courts through public statements, and abusing the criminal justice system to advance their own goals. They cited the clauses of fair and equitable treatment (“FET”) and most favored nation (“MFN”) principles as two specific ways in which the BIT was violated.[8] They later amended that there was a ‘denial of justice’ that occurred because of the “ghostwriting of the Lago Agrío Judgment, the conduct of the Respondent’s prosecutorial authorities…” and other references to the Ecuadorian court and the issues related to the parallel Donziger trial.[9] Ecuador filed a motion to stay the arbitration and Chevron subsequently moved to dismiss that motion.

It is imperative to mention that the Tribunal has presumed the power of being able to stay the arbitration because the arbitration is pursuant to an international treaty where its main focus is to encourage investments between Americans and Ecuadorians and assure investors that there exists an independent, neutral body to assess liability.[10] In the Tribunal’s Order on Interim Measures in 2011, they ordered both parties to preserve the ‘status quo’ and accorded that “any losses arising from the enforcement of such judgment (within and without Ecuador) may be losses for which the Respondent would be responsible to the Claimants under international law.”[11] Reaffirmed later, the Tribunal found Ecuador’s breach of the BIT sufficient enough to delay the award that would have been afforded to the LAPs, “the Respondent to take all measures at its disposal to suspend or cause to be suspended the enforcement of recognition within and without Ecuador of any judgment…the Tribunal records that it is common ground between the Claimants and the Respondent in these arbitration proceedings…that, under Ecuadorian law, a judgment entered in domestic proceeding at first instance (such as a first-instance judgment in the Lago Agrío Case) is not final, conclusive or enforceable…”[12] It was stated in the Second Partial Award on Track II that Ecuador was in breach of its obligations for denial of justice under the FET standard in “issuing the Lago Agrío Judgment, rendering it enforceable and maintaining its enforceability by the Lago Agrío Plaintiffs.”[13] In 2016, Ecuador indicated its compliance with the Tribunal. Diego Martinez, the head of the Ecuadorian Central Bank confirmed they paid $112 million to Chevron, (the cost of the award, plus interest), “we don’t agree with how these international mechanisms work…however, we are respectful and we fulfill our international obligations.”[14]  

This arbitration case is still ongoing. Most recently, in a September 2020 judgment by the PCA, they rejected Ecuador’s request to “annul the arbitral award which invalidated the multi-billion dollar judgment against Chevron” because none of the grounds for nullity were met.[15] 

Significance

This entire web of a case which has spanned for decades now falls into the pits of intricate legal jurisdictions, but it essentially boils down to two points: the delay of justice for LAPs and the implications of the power-play between foreign legal jurisdictions. The LAPs have been impacted directly by the exploitation of an oil conglomerate but are being denied justice. Ultimately, it appears as if the law is hindering their access to justice, when it should be that the law is supposed to be the apparatus bringing justice.

In essence, a group of indigenous citizens fought for their claim, and were awarded a multi-billion dollar judgment. Yet, Chevron and its deep corporate pockets started a vicious attack to delegitimize the suit at every step resulting in the lack of justice. They turned to an international court to not only delay their justice longer but force Ecuador to, instead of using the money to help their citizens themselves, pay the multi-billion dollar valued corporation even more. As a lawyer for UDAPT maintains, “what is the point of a country’s law if legal decisions can be suspended by decisions of international authorities in processes which the citizens of this country do not have access to?”[16]

This is in fact what makes this arbitration case so interesting, not only its varied, dramatic history, but that Chevron is turning to an international tribunal to directly affect the rights of non-parties to the arbitration.[17] It should be re-iterated for clarification that this arbitration suit and the suit that the LAPs have against Chevron are two separate suits, but the arbitration suit has a direct impact on the justice for LAPs. Chevron is not only requesting litigation expenses for the arbitration, but they are also directly attacking the $9.5 billion judgment of the LAPs. This could have a tremendous impact on awards in the future if this arbitration can be applied to other States. It could be a threat to national courts if they lose the ability to administer justice in the face of mega corporations like Chevron, due to their loss of power in front of an international tribunal. This does not necessarily reflect a flaw in the international court system at large, but it points to a loophole that transnational corporations can seek impunity and assert their private power because they are unduly protected by international investment mechanisms. This in fact shows that “the global investment system imposes corporate profit over and above respect for human rights and the environment.”[18] It is known that corporations contribute the most to issues of climate change,[19] but if they are being unduly protected, and indigenous communities are being trampled on by the intricacies of foreign jurisdictions or the law, then climate change goes beyond the simple adage of reduce, reuse, and recycle. It is linked in a restructuring of investment treaties and international law at large. This is why Chevron v. Ecuador is consequential and deserves a fresh-eyed legal scrutiny, because it is clear that there are fundamental human rights that are impacted by environmental pollution. The law should be the advocate of the environmentally-risked, not a mechanism for corporate manipulation.

[1] Knox, John. “Achieving Justice and Human Rights in an Era of Climate Disruption CCJ TF Report – Chapter 2.” International Bar Association

[2] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Track II Counter-Memorial on the Merits (18 Feb. 2013).

[3] Ibid

[4] Id citing Texaco’s internal letter CGE-398/72 from R. M. Bischoff to M. E. Crawford, Reporting of

Environmental Incidents New Instructions (17 July 1972).

[5] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Memorial on Jurisdictional Objections of the Republic of Ecuador (26 July 2010).

[6] This win is highly contested. Judge Kaplan has a history of praising Chevron and backing corporations, most likely stemming from his years as a  career corporate attorney “in the RICO case, which was civil, the decision about a key witness came down to one person – Kaplan– who chose to believe him…he has effectively been convicted of bribery by the finding of a single judge in a case in which bribery wasn’t even the charge.” Judge Kaplan took a highly rare step and asked a private corporation to take over the prosecutorial power of the U.S. government.  Lerner, Sharon. “How the Environmental Lawyer Who Won a Massive Judgment Against Chevron Lost Everything.” The Intercept, 29 Jan. 2020, theintercept.com/2020/01/29/chevron-ecuador-lawsuit-steven-donziger; North, James. “A New Justice Movement Emerges to Defend Steven Donziger.” The Nation, 10 Sept. 2020, www.thenation.com/article/activism/a-new-justice-movement-emerges-to-defend-steven-donziger/.

[7] While Chevron demanded monetary damages at first, it dropped these charges which in effect meant that Donziger was no longer entitled to a jury trial, “the corporation was willing to keep spending vast sums of money on the case with no hope of financial compensation. Donziger estimates that the oil giant has spent $2 billion pursuing him.” Lerner, Sharon. “How the Environmental Lawyer Who Won a Massive Judgment Against Chevron Lost Everything.” The Intercept, 29 Jan. 2020, theintercept.com/2020/01/29/chevron-ecuador-lawsuit-steven-donziger

[8] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Claimants’ Notice of Arbitration (23 Sept. 2009).

[9] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Second Partial Award on Track II (30 Aug. 2018).

[10] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Hearing Transcript and Decision (10 Mar. 2010).

[11] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Procedural Order and Further Order on Interim Measures (28 Jan. 2011).

[12] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Order for Interim Measures (9 Feb. 2011).

[13] Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador, PCA Case No. 2009-23, Second Partial Award on Track II (30 Aug. 2018).

[14] “Ecuador Pays $112 Million Award to Chevron – Central Bank.” Reuters, 23 July 2016, www.reuters.com/article/ecuador-chevron-idUSL1N1A908V.

[15] “Business & Human Rights Resources Centre.” Texaco/Chevron Lawsuits (Re Ecuador) – Business & Human Rights Resource Centre, www.business-humanrights.org/en/latest-news/texacochevron-lawsuits-re-ecuador/

[16] López, Aldo Orellana. “Chevron vs Ecuador: International Arbitration and Corporate Impunity.” OpenDemocracy 27 Mar. 2019, www.opendemocracy.net/en/democraciaabierta/chevron-vs-ecuador-international-arbitration-and-corporate-impunity.

[17] Johnson, Lise. “Case Note: How Chevron v. Ecuador Is Pushing the Boundaries of Arbitral Authority.” Investment Treaty News, International Institute for Sustainable Development, 13 Apr. 2012, www.iisd.org/itn/2012/04/13/case-note-how-chevron-v-ecuador-is-pushing-the-boundaries-of-arbitral-authority/#_ftnref1.

[18] López, Aldo Orellana. “Chevron vs Ecuador: International Arbitration and Corporate Impunity.” OpenDemocracy 27 Mar. 2019, www.opendemocracy.net/en/democraciaabierta/chevron-vs-ecuador-international-arbitration-and-corporate-impunity.

[19] Riley, Tess. “Just 100 Companies Responsible for 71% of Global Emissions, Study Says.” The Guardian 10 July 2017, www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change.