Chevron in Ecuador

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Ecuadoreans Call for U.S. Help in Chevron Arbitration

By Alison Frankel, Reuters
30 January 2012

In last week's rejection of Chevron's attempt to use U.S. courts to block enforcement of the Lago Agrio plaintiffs' $18 billion Ecuadorean judgment, the U.S. Court of Appeals for the Second Circuit was clearly uneasy at the idea of American judges interfering with foreign jurisprudence. So far, the arbitration panel overseeing Chevron's case against the Republic of Ecuador has had no such qualms. But with Chevron now relying heavily on the arbitration process to protect it from plaintiffs' attempts to claim oil company assets, the panel's power over foreign courts is going to become a key issue – and the Ecuadorean plaintiffs are now calling for the U.S. government to support Ecuador's sovereignty. Chevron, meanwhile, argues that if anyone has caused harm to Ecuador's constitution, it's the Republic and the Lago Agrio plaintiffs, not Chevron and the arbitration panel.

The three-person arbitration panel, appointed under the terms of a bilateral investment treaty between the United States and Ecuador, is presiding over Chevron's claim that the Republic of Ecuador is liable for any judgment in the Lago Agrio litigation. (The argument is two-fold: Chevron asserts that it has been denied due process, in violation of the investment treaty, and that the Republic signed an indemnification agreement years ago with its predecessor, Texaco.) The arbitrators don't have jurisdiction over the individual Ecuadoreans suing Chevron, but they do have power over the Republic. Last spring, following U.S. District Judge Lewis Kaplan's imposition of a worldwide injunction barring enforcement of the Ecuadorean trial court's judgment against Chevron, the arbitration panel issued an interim order instructing the Republic 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 against in the Lago Agrio case."

This month, after an intermediate appeals court in Ecuador affirmed the $18 billion judgment, Chevron went back to the BIT arbitration panel to request emergency relief. Among other things, Chevron asked for a finding that the Republic has not complied with the panel's interim order. Last week, the arbitrators converted their interim order into a interim award, which Chevron believes will be a big help in its attempts to persuade courts around the world not to permit the Ecuadoreans to take control of Chevron assets. In early February, the panel will hear evidence on Chevron's allegation that the Republic is helping the Lago Agrio plaintiffs.

But here's the thing: The Republic of Ecuador asserts that the arbitration panel has exceeded its authority by issuing an unconstitutional order. According to the Republic's lawyers at Winston & Strawn, the panel's instruction calls for the country's executive branch to breach the Ecuadorean constitution's separation-of-powers doctrine by meddling with the judicial branch. "The claimants have claimed in these proceedings that the executive branch has wrongfully injected itself into the legal processes by its occasional public comments over the years touching on a matter of public interest (as Presidents and Prime Ministers across the globe are wont to do)," Winston & Strawn wrote in a Jan. 9 letter to the arbitrators. "But the claimants ask this tribunal to order direct and actual state intervention in the court processes. The Republic doubts that this would be lawful in any state. It surely is not lawful in Ecuador."

The Lago Agrio plaintiffs, I should note, do not need the Republic's permission to bring enforcement actions against Chevron outside of Ecuador. Those are private actions, although they're subject to Ecuador's treaties with other nations. Nevertheless, the plaintiffs have waded into the BIT arbitration. Last week, the Ecuadorean lawyer Pablo Fajardo sent a letter to Ecuador's equivalent of our Attorney General, informing him that the Lago Agrio claimants have constitutional concerns about the arbitration, arising from "fundamental human rights" as well as separation of powers.

"It is abundantly clear that the 'interim' order that Chevron is now demanding would violate Ecuador's Constitution, as well as international law, and therefore would be null and void were an arbitral panel to issue it," Fajardo's letter said. "Moreover, such an 'order' would violate the [bilateral investment treaty], which reflects the clean intent of the two parties to protect the sovereignty of their respective judicial systems – something completely contrary to what Chevron is now demanding at international arbitration."

Moreover, plaintiffs' spokewoman Karen Hinton told me in an email statement Monday that the Ecuadoreans are calling on the U.S. government to take a stand in the BIT arbitration. "The United States government cannot stand silent while a U.S. company uses the treaty as a cover to violate international law, deny the human rights of indigenous groups, violate the constitution of a U.S. ally, and threaten the credibility of the entire investor arbitration dispute system – just so it can gain a perceived advantage in a private litigation," Hinton's email said.

Chevron's lead arbitration counsel, R. Doak Bishop of King & Spalding, told me Monday that it's Chevron, not the Republic or the Lago Agrio plaintiffs, that has seen its rights trampled under the Ecuadorean constitution. As a procedural matter, Bishop said, Chevron's BIT arbitration is against the entire state of Ecuador, not just the executive branch. "Separation of powers is irrelevant," he said. "The [arbitration panel's] award is directed to the entire state." Bishop also said the arbitrators' interim award is intended just to preserve the status quo, so that Chevron isn't harmed when and if it prevails on the merits of its arbitration claim against Ecuador.

More fundamentally, Doak told me, Chevron is asserting that the Republic breached its own constitutional duty to Chevron to assure due process and to take responsibility for miscarriages of justice. The Republic of Ecuador's constitutional argument against the BIT arbitration interim award "turns that on its head," Bishop said.

What about the Lago Agrio plaintiffs' call for the U.S. government to get involved? "That's not the place of the U.S. government," Chevron spokesman Kent Robertson said. "And the subject of these plaintiffs suddenly becoming champions of the Ecuadorean constitution is laughable .... This is the same cast of characters who brought a case against Chevron that was unconstitutional right out of the gate. This is hypocrisy at its highest level."

Eric Bloom of Winston & Strawn did not return my call for comment.