Chevron Ecuador Dispute Heats Up

by Roger Alford

This week was a blockbuster one in the ongoing battle between Chevron and 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, so it is not clear what a domestic court outside Ecuador would do with an award imposing injunctive relief on Ecuador.

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 antienforcement 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.

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.”

http://opiniojuris.org/2012/01/27/chevron-ecuador-dispute-heats-up/

3 Responses

  1. Could you please elaborate a little bit on how the arbitral tribunal works? How are they able to interfere with a decision from a judicial system after the fact? Sorry for being ignorant, I’m just a law student and would like to know how everything works…

  2. Duy,

    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.

    Hope that helps.

    Roger Alford

  3. 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.

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