Ecuador Seeks to Apply Laws Fairly; Tribunal to Move Forward with Formal Hearings in January 2014
19 September 2013 (Washington, DC)—On 17 September 2013, the international arbitration tribunal hearing the matter of Chevron Corporation and its subsidiary Texaco Petroleum Company versus the Republic of Ecuador issued its First Partial Award. The Tribunal agreed with the Republic’s position that indigenous plaintiffs were not precluded from asserting claims “in respect of their own individual rights” with regards to Chevron’s responsibility for oil pollution in Ecuador’s Amazon.
The Tribunal also flatly rejected Chevron’s position that the Republic had a duty to compensate it for its defense of third party claims or any judgment that might be entered against it.
The ruling is a major setback for Chevron, which tried to undermine the ability of any Ecuadorian to assert environmental claims against them and to pass on its liability to the Republic.
The Tribunal’s ruling was in response to Chevron’s claim that the Republic breached a 1995 Settlement Agreement by allowing nonparties to the Settlement Agreement to assert environmental claims against Chevron. The Tribunal reached some of the subsidiary issues but expressly declined to rule at this time on the question of breach.
In its Partial Award, the Tribunal expressly agreed with the Republic in finding that the Settlement Agreement did not preclude the third party indigenous plaintiffs from asserting claims “in respect of their own individual rights” and further acknowledged that the Government of Ecuador did not “have the ability to dispose of that claim.” According to the Tribunal, the Settlement Agreement was limited to “claims in which the [Republic] was asserting in its own rights … and not to claims made by other third persons acting independently of the [Republic] and asserting rights separate and different from the rights of the” Republic. The Tribunal nonetheless found that the Settlement Agreement barred third parties from re-asserting any “diffuse” or “collective” claims that the Government had allegedly already settled.
The Tribunal, however, declined to address whether the indigenous plaintiffs’ claims sought the vindication of their individual rights or their diffuse rights, or both.
While finding that Chevron was a “Releasee” under the Settlement Agreement, the Tribunal nonetheless rejected Chevron’s argument that the Agreement contained a “hold harmless” or indemnity provision that Chevron argued required the Republic be held liable for any costs to or judgment rendered against Chevron. According to the Tribunal, such provisions are “inapplicable” to a non-contractual claim asserted by third parties.
The Attorney General of Ecuador, Diego Garcia Carrion, rejected Chevron’s press release, issued earlier today, titled “International Arbitration Tribunal Finds Chevron Not Liable For Environmental Claims In Ecuador.” In fact, the tribunal made no such finding whatsoever. According to Dr. Garcia, contrary to Chevron’s press statement, the Tribunal did not consider, let alone decide, Chevron’s allegation that the Ecuadorian judgment is fraudulent. He added that the Tribunal likewise did not find, as Chevron’s Vice-President is quoted as saying, “that the fraudulent claims should not have been brought in the first place.”
Finally, the Attorney General said the State reserves all its rights with respect to the decision by the Tribunal, in particular its improper assertion of jurisdiction in relation to the claim of the applicant companies. The State argues that the tribunal is acting without jurisdiction in applying the terms of a Bilateral Investment Treaty that was entered into force long after the investor voluntarily left the country.
With the issuance of the Partial Award, the Tribunal brings to a close the first of at least two substantive phases of the arbitration. The second phase refers to Claimants’ allegation that the Republic has committed a denial of justice by granting relief to the indigenous plaintiffs in an underlying environmental action brought against Chevron. Within this second phase, the Tribunal has scheduled a hearing that is to commence in January 2014.
On September 23, 2009, Chevron and Texaco Petroleum commenced a claim in arbitration against the Ecuadorian State regarding an alleged breach of the Bilateral Investment Treaty. In the arbitration, the Claimants seek to hold the Ecuadorian State liable for any judgment and costs assessed against Chevron in relation to an environmental action brought by indigenous plaintiffs from Lago Agrio in Ecuador in 2003 against pollution resulting from Chevron’s operations in the Ecuadorian Amazon. In their arbitral claim, Claimants accuse Ecuador of a denial of justice and violations of its treaty obligations to afford them fair and equitable treatment, effective means of redress, nondiscriminatory treatment and full protection and security.