Does Ecuador Deserve Condemnation for Ignoring Arbitral Tribunal Orders and Treaty Obligations?

by Julian Ku

Neither the arbitral tribunal’s order demanding Ecuador act to stop enforcement of the $18 Billion judgment against Chevron, nor Ecuador’s continued brazen refusal to follow the order is really much a surprise. The Chevron-Ecuador Death Cage Match continues unabated and has gotten so out of control that almost nothing shocks me about this case anymore.  A former Ecuadorian judge swearing in US federal court that he was paid thousands of dollars by US plaintiffs attorneys to ghostwrite the underlying case against Chevron is just another weird detail in an already sordid story.

The theory of the interim award is interesting.  Ecuador has a duty to preserve the status quo while the arbitral tribunal reviews the merits of Chevron’s claims against Ecuador.  But the plaintiffs in the Lago Agrio case are not parties to the arbitration and are free to continue to pursue enforcement.  I suppose the argument is Ecuador is facilitating the overseas enforcement actions by not suspending  the domestic Ecuadorian litigation. That does seem a problem, although what exactly could Ecuador do? Pass new legislation ordering its courts to stop the domestic litigation?

I may be missing something, I am not sure this award does Chevron much good.  It simply puts a little more leverage on Ecuador to do something to stop the enforcement actions against Chevron, or face responsibility for costs incurred by Chevron from the enforcement actions.  Fair enough, but if Ecuador feels the tribunal will ultimately rule for them anyway on the merits, then this award doesn’t really add a whole lot of pressure, nor does it give Chevron much additional leverage in foreign courts like Argentina or Canada where enforcement actions are proceeding.  The US litigation attempting to show fraud is more likely to bear fruit than this award in stopping those actions.

In other words, it is rational for Ecuador to drag its feet on obeying the arbitral tribunal’s various interim awards.  The only basis for condemning Ecuador is simple: it is flagrantly and openly violating its solemn treaty obligations.  But should it be condemned on those grounds alone?  Neither rational choice nor realist scholars would do so.  But what about the rest of you?

3 Responses

  1. The reason it might be important from a rational choice or realist perspective is that the arbitral tribunal is putting Ecuador on notice that any judgments the Ecuador plaintiffs collect in Canada, Argentina, Brazil or elsewhere will be the subject of arbitration claims, dollar for dollar, in the investment arbitration.  Rather than a windfall for the people of Ecuador, it could result in the Ecuadorian government paying for perpetrating the fraud with the Ecuador plaintiffs equal to any amounts those plaintiffs collect against Chevron.  Such “who pays” arbitration is discussed at length in my article here.

    Roger Alford

  2. I should add that Ecuador may be discounting this risk in light of Argentina’s recalcitrant behavior in not recognizing and enforcing adverse investment arbitration awards.  Certainly Correa has indicated that he has no intention of paying the already outstanding $1.77 billion award Occidental won against Ecuador in 2012.

    But Argentina’s strategy may change.  Obama removed Argentina’s GSP benefits in March 2012 for not honoring its arbitration obligations.  The U.S. is likely to do the same for Ecuador with its ATPA benefits.   That risk, combined with U.S. (and others) votes against Argentina rescheduling its debt obligations at the Paris Club, Inter-American Bank, the IMF, and the World Bank, may force Argentina to reconsider its position.  

    If Argentina does bend to such pressure, then Ecuador may recalculate its own cost/benefit analysis.

    Roger Alford

  3. What exactly could Ecuador do, indeed?  The most revealing aspect of the Tribunal’s otherwise news-less latest award is the studious inattention it pays to the key argument made by Ecuador not just to the Tribunal but to the US govt in political channels response to Chevron’s pressure campaign, namely that it cannot act to comply with the award without violating its own laws, including constitutional separation of powers constraints.  Moreover, the Ecuadorian appellate court at the crosshairs of the Tribunal’s awards has issued two decisions further explaining the obvious fact that suspending the proceeding of the Lago Agrio case without any other basis in Ecuadorian law would clearly violate the due process rights of Chevron’s private litigant opponents, not just under Ecuadorian law but under Ecuador’s binding obligations under the American Convention.  The Tribunal’s only response is to invoke the notion that “constraints under [national] law can[not] excuse the failure . . . to fulfill obligations under international law.”  While that doesn’t even address the full scope of the argument (because Ecuador points to competing international law obligations not just national law), it may as a practical matter end the conversation: agree to disagree, Ecuador does what it must, the international law violation stands, so be it.  At least Ecuador’s “violation” stands in good company: e.g., the United States’ violation in failing to comply with the ICJ’s Avena decision, a violation mandated by the Supreme Court in Medellin.  On the political level, could the U.S. still economically punish Ecuador for adopting the same U.S. stance on compliance with injunctive orders of international tribunals?  Perhaps that hypocrisy would be so rank that even Congress will shirk from it.  We’ll see. 

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