Chevron Ecuador
Dispute Heats Up
by Roger Alford , January
27th, 2012
This week was a
blockbuster one in the ongoing battle between Chevron and Ecuador.
arbitral tribunal –
Chevron v. Ecuador
On Wednesday, the
arbitral tribunal adjudicating Chevron’s BIT claim issued an Interim Award ordering Ecuador “to take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within or without Ecuador of any judgment against [Chevron] in the
Lago Agrio Case.”
The tribunal was at
pains to emphasize the interim award was final and binding under
Article 32 of the UNCITRAL Rules, which means that Chevron could pursue
recognition and enforcement of the award in jurisdictions around the world. It
could do so offensively by seeking declaratory relief in Ecuador (or
elsewhere), or defensively in response to an attempt by the Ecuador plaintiffs
to seek enforcement of the Ecuador judgment. Of course, the Interim Award is only
binding on Ecuador and Chevron, (DO- i.e. on parties to the tribunal) so it
is not clear what a domestic court outside Ecuador would do with an award
imposing injunctive relief on Ecuador.
2d Cir. Chevron v.
Naranjo (residents of the Ecuadorian Amazon)
Meanwhile, yesterday
the Second Circuit issued its long-awaited opinion in Chevron v. Naranjo. The Second
Circuit’s crucial holding was that New York’s Uniform Foreign Money-Judgments
Recognition Act precludes declaratory injunctive relief by a foreign judgment
debtor. “There is … no legal basis for the injunction that Chevron seeks, and,
on these facts, there will be no such basis until judgment-creditors affirmatively seek to enforce their judgment
in a court governed by New York or similar law.”
The Second Circuit had
little sympathy for Chevron’s attempt to pursue an anti-enforcement injunction,
particularly given the comity concerns at stake.
“[W]hen a court in one country attempts to
preclude the courts of every other nation from ever considering the effect of
that foreign judgment, the comity concerns become far greater. In such an
instance, the court risks disrespecting the legal system not only of the
country in which the judgment was issued, but also those of other countries,
who are inherently assumed insufficiently trustworthy to recognize what is
asserted to be the extreme incapacity of the legal system from which it
emanates. The court presuming to issue such an injunction sets itself up as the
definitive international arbiter of the fairness and integrity of the world’s
legal systems.”
But at the same time,
the Second Circuit emphasized that it expressed “no views on the merits of the parties’ various charges and
counter-charges regarding the Ecuadorian legal system and their
adversaries’ conduct of this litigation, which may be addressed as relevant
in other litigation before the district court or elsewhere.” It also avoided
any decision with respect to the underlying RICO claims that Chevron has filed
against the Ecuador plaintiffs and their lawyers, focusing simply on the
improper procedural device that Chevron sought to employ to enjoin enforcement
of the Lago Agrio judgment abroad.
Municipal court in
Ecuador, the Lago Agrio Case (the indigenous residents of the Lago Agrio field
v. Chevron)
Where does the case go
from here? In Ecuador, Chevron has appealed to Ecuador’s highest
court to review the case. No word yet as to whether Chevron will seek to have
the arbitral tribunal’s Interim Award recognized and enforced in Ecuador. The
arbitral tribunal is scheduled to hold hearings on February 11-12 to
determine what steps Ecuador is taking to prevent enforcement of the
Lago Agrio judgment.
As for the Ecuador
plaintiffs’ efforts to enforce the judgment, there is no indication that Chevron will post an appeal bond, which means
that the Ecuador plaintiffs are free to
pursue enforcement anywhere in the world where Chevron has assets.
It appears that the
Ecuador plaintiffs will not seek to have the judgment enforced within
the United States. Ecuador Plaintiffs’ lawyer James Tyrrell stated yesterday that “The
Ecuadorean plaintiffs are not coming to New York to enforce this judgment.”
Given the locus of Chevron’s assets, it is not obvious why the plaintiffs have
adopted this strategy, unless they have reason to believe that there is a high
probability that the judgment would not be enforced.
There is, of course,
the option of pursuing enforcement abroad. If the Invictus Memo is reliable, the
Ecuador plaintiffs have identified twenty-seven nations where Chevron
has substantial activities, including countries that are friendly with
Ecuador, such as Colombia and Venezuela. That memo candidly states the ultimate
end game strategy for the Ecuador plaintiffs:
“After approximately seventeen total years
of litigation in the United States and Ecuador, the case against Chevron now
enters its most critical, multi-faceted, and labor intensive…. With the ultimate
goal of effecting and swift and favorable settlement, the strategy of the
Plaintiffs’ Team will incorporate the following components: … managing the
public relations impact of Chevron’s manipulation of the Cabrera narrative …
[and] identifying jurisdictions globally that are most hospitable to an
enforcement action.”
BIT
The United States and
Ecuador have signed a bilateral investment treaty that guarantees various
protections for investors from the other state.
Pursuant to this BIT, U.S. nationals are protected from government misconduct
in Ecuador and Ecuadorian nationals are protected from government misconduct in
the U.S. The BIT gives foreign
investors third party beneficiary rights to bring an arbitration claim against
Ecuador for violations of international law. Among the allegations that Chevron has raised
is that Ecuador violated treaty provisions that guarantee fair and equitable
treatment, which includes fundamental due process protections.
So basically, Ecuador
promised the United States in a treaty that it would treat American nationals
fairly and equitably and afford them fundamental due process, and Chevron
invoked its third party beneficiary rights under the treaty to bring an
arbitration claim against Ecuador for alleged violations of the treaty.
1.29.2012 , at 9:41 pm
EST , by International Lawyer
Duy:
Further to Mr Alford:
The New York
Convention (properly, the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards) requires Contracting States to recognize an agreement
to submit disputes to arbitration. It specifically requires that, if the
parties have agreed to settle a dispute by arbitration, the courts of a
Contracting State must (with limited exceptions) refer it to arbitration and
must (with limited exceptions) enforce the arbitral award.
As a result, the law
in Contracting States (which include Ecuador and virtually every other country)
is the reverse of what you intuit: If the parties to a dispute have agreed to
settle it by arbitration, the courts are not to interfere with the arbitration
and must (with limited exceptions) give effect to the arbitral award.
For commercial
disputers in most countries in the Americas, there is a Panama Convention to a
similar effect.
I have not studied the
BIT or the proceedings in this case, so the New York Convention may not
strictly apply. But, as a general rule, arbitration is strongly favored over
litigation (both in law and in practice) in international transactions.
This is a very important —
really, critical — aspect of international commerce. It allows parties some
comfort that their dispute will be decided by an impartial and (if they choose)
expert panel of judges
