This post is more a
timeline of events of the court and arbitration proceedings between the three
actors mentioned in the title, rather than a commentary on who’s right and
who’s wrong. Like other similar cases, this saga also involves volatile local
politics, a series of failures by local government, corporate greed, display of
various litigation tactics to crush the weaker party, allegations of corruption
and a local community whose hopes for a remedy rise and sink with each judgment
issued.
Corporate side of things:
Texaco (at the time
Chevron did not own Texaco, but it acquired
Texaco in 2001 together with all its rights and liabilities) began oil
exploration activities in the Oriente region of Ecuador in 1964. This was done
through its locally incorporated subsidiary TexPet which was the operator of a
consortium with Gulf Oil. In 1974 the consortium was joined by the Ecuadorian
state oil company PetroEcuador. By 1977, majority shareholding in the
Consortium was held by PetroEcuador (62.5%).
During the first two
decades of Texaco’s operations, environmental regulation in Ecuador was next to
non-existent. TexPet operated in this regulatory vacuum and set its own
standards. As the operator of the consortium, TexPet was responsible for
running the business,operating the Trans-Ecuadorian Pipeline and the oil
exploration & extraction. TexPet did this until 1990, even though
PetroEcuador held a larger stake in the consortium. TexPet exited Ecuador
between 1990 and 1992 transferring complete ownership of the Consortium to
PetroEcuador. PetroEcuador and Texaco conducted an audit to assess the
operation’s impact on the environment, which ended in 1994 without producing a
final report.
The communities in the Oriente region:
At the time TexPet
entered the Oriente region, the region was largely untouched. Its population
consisted of approximately 20,000 indigenous people from the Cofan, Hauorani,
Secoya, Siona, and Quechua tribes. Kimmerling explains the arrival
of the settlers (‘colonists’) in the region after the exploration of oil:
“Government policies in the 1970s and 1980s aggressively promoted internal colonization of the Amazon. The government promised land titles and easy credit to settlers who migrated to the region, cleared the rainforest, and planted crops or pasture—even though most soils in the region are not well suited to livestock or mono-crop production. Government officials pledged to “civilize” native peoples and integrate them into the dominant national culture.”The arrival of settlers and oil production had massive negative impacts on the indigenous population (more on this can be read in Kimmerling’s article). And then came the environmental damage and serious health problems resulting from irresponsible oil exploitation, including birth defects and cancer as a result of exposure to toxic waste (more on this here). The environmental and health impacts adversely affected both the indigenous tribes and the settlers.
Next, I will only try to outline the key legal
developments. There are more lawsuits related to this messy dispute than the
ones mentioned below, but I don’t have enough space or energy to mention all of
them here. But, here is what happened:
Lawsuit in the US:
A
class action suit against Texaco was filed in 1993 in New York, where Texaco
was headquartered, by the inhabitants of the Oriente region, including
colonists and indigenous communities (“Aguinda Litigation” Aguinda v. Texaco, Inc., No. 93 Civ 7527
S.D.N.Y. Nov. 3 1993). The
plaintiffs sought damages for personal injuries suffered as a result of
Texaco’s operations in the region. The lawsuit was filed in the US, as Texaco
had no longer any assets in Ecuador.
In
1996, a federal district court in NY dismissed the Aguinda claim on grounds of forum non conveniens, international comity, as well as the
failure to join indispensable parties (the latter due to potential immunity of
Ecuador and PetroEcuador). Throughout the case Texaco sustained the view that
the courts of Ecuador provided a fair and adequate alternate forum and that the NY
court should dismiss the case on jurisdictional grounds.
In
1998, upon appeal by the Aguinda plaintiffs, a federal appellate court vacated the 1996 ruling and instructed
the district court to reconsider the international comity and forum non conveniens arguments in light
of the “current circumstances,” referring to Ecuador’s new position in favour of maintaining the
litigation in the United States.
The
Court held that dismissal on forum non
conveniens and international comity grounds were clearly erroneous unless
there was also a condition requiring Texaco to waive statute of limitations defences and submit to the
jurisdiction of Ecuador.
In 2001, the lower court granted Texaco’s motion to
dismiss on forum non conveniens
grounds on the
condition that Texaco agreed to submit to personal jurisdiction in Ecuador, waive
statute of limitation defences to
allow plaintiffs to file a lawsuit in Ecuador. The company also had to agree to
allowing the plaintiffs to use discovery obtained in the U.S.
On appeal, the higher court agreed in 2002, repeating the
district court’s conclusion and agreeing with a conditional dismissal.
The remediation
agreement:
Amid
the litigation in the US, Texaco signed a remediation agreement with the
government of Ecuador in 1995 and received a final release from liability for
environmental damage in 1998. Chevron claims on its website
that “The $40 million remediation operation was certified by all agencies of
the Ecuadorian government responsible for oversight, and TexPet received a
complete release from Ecuador's national, provincial and municipal
governments.”
Ecuador lawsuit
SO, up to this point
the community sought damages against Chevron (back then Texaco) in the US, but
was unsuccessful due to jurisdictional barriers. Then they filed a lawsuit in
Ecuador, which was an idea supported by Texaco during the proceedings in the
US.
In 2003, 46 of the
Aguinda plaintiffs filed a lawsuit against Chevron Texaco and TexPet in the
Lago Agrio courts in Ecuador (‘Lago Agrio litigation’).
The plaintiffs sought a full remediation of the environment in the concession area and for costs of health supervision and social redress, based on Ecuadorian law and the same facts as the original Aguinda complaint. They additionally alleged fraud in the Texaco’s conduct of the voluntary remediation and the release for liability with the Ecuadorian government.
The plaintiffs sought a full remediation of the environment in the concession area and for costs of health supervision and social redress, based on Ecuadorian law and the same facts as the original Aguinda complaint. They additionally alleged fraud in the Texaco’s conduct of the voluntary remediation and the release for liability with the Ecuadorian government.
Chevron raised various
defences, ranging from the remediation agreement concluded with the government
to PetroEcuador’s involvement as a majority consortium partner. Furthermore,
Chevron alleged denial of justice and due process by Ecuadorian courts and
fraud in the part of the Plaintiff’s lawyers and experts involved in the case.
In February 2011, the Ecuadorian
court issued an $18 billion judgment
in favour of the Lago Agrio Plaintiffs which Chevron immediately appealed. In January 2012, the appeals court
in Ecuador confirmed the decision, but halved the damages to $9.5 billion.
As Chevron has no assets in Ecuador, plaintiffs have been trying to enforce the final decision in jurisdictions outside Ecuador (Canada, Argentina and Brazil).
As Chevron has no assets in Ecuador, plaintiffs have been trying to enforce the final decision in jurisdictions outside Ecuador (Canada, Argentina and Brazil).
The AAA arbitration saga between 2004-2009
In 2004, Chevron and
TexPet filed an arbitration claim against the
Republic of Ecuador (under the American Arbitration Association arbitration
rules).
In this arbitration, Chevron claimed that Ecuador breached a 1965 Joint Operation Agreement by allowing the Lago Agrio Litigation to proceed and that it should indemnify Chevron for all defence costs and liability it had or could incur in the litigation.
In this arbitration, Chevron claimed that Ecuador breached a 1965 Joint Operation Agreement by allowing the Lago Agrio Litigation to proceed and that it should indemnify Chevron for all defence costs and liability it had or could incur in the litigation.
Ecuador subsequently
filed a motion in NY courts for stay of the arbitration. In July 2009, the
court decided for a permanent stay of the arbitration proceedings.
Investment Treaty Arbitration between Ecuador and Chevron
“In breach of the 1995 and 1998 agreements and the Treaty, Ecuador today is colluding with a group of Ecuadorian plaintiffs and U.S. contingency fee lawyers who sued Chevron in 2003 in the courts of Ecuador seeking damages and other remedies for impacts that they allege were caused by the Consortium’s operations. By its actions and inactions, Ecuador improperly seeks to shift to Chevron Ecuador’s own contractual liability for any remaining environmental impacts from the pre-1992 activities of the Consortium. Similarly, in further breach of the settlement and release agreements and the Treaty, Ecuador improperly seeks to shift Chevron the responsibility for impact caused by PetroEcuador’s own oil operations since 1992, as well as impact caused by government-sanctioned colonization and agricultural and industrial exploitation of the Amazonian region.”Chevron further contended that:
“Ecuador has pursued a coordinated strategy with the Lago Agrio plaintiffs that involves Ecuador’s various organs of State…Ecuador’s judicial branch has conducted the Lago Agrio Litigation in total disregard of Ecuadorian law, international standards of fairness, and Chevron’s basic due process and natural justice rights, and in apparent coordination with the executive branch and the Lago Agrio plaintiffs.”Chevron’s demand from the tribunal was described as amounting to a relief from paying the Lago Agrio judgment.
In February 2011, the arbitration
tribunal issued an order for interim measures. The tribunal
ordered Ecuador to take all measures at its disposal to “to suspend or cause to be suspended the enforcement or recognition
within and without Ecuador of any judgment against the First Claimant in the
Lago Agrio Case.” Further orders similar to this one were issued throughout
the proceedings.
In March 2011, a US
circuit court dismissed an application by Ecuador and several
Ecuadorian citizens requesting the stay of this arbitration insofar as it
relates to the Lago Agrio litigation.
The investment treaty arbitration proceedings 2013-present
A number of awards were
issued by the UNCITRAL arbitration tribunal (see here for all publicly available documents
for this case). The tribunal is dealing with the dispute in two tracks. The
first deals with whether the 1995 Remediation Agreement and the 1998 Release
bars the Lago Agrio claims, which were made by third parties. The tribunal has
disagreed with Chevron on this point in a recent decision, stating that the government releases
did not prevent third party individuals from bringing individual claims against
Chevron.
The second track of the
arbitration, which is yet to be decided, will focus on whether Chevron was
denied justice in Ecuadorian courts in the Lago Agrio case. This will boil down
to determining whether there was corruption involved.
The RICO Lawsuit
In February 2011,
Chevron filed a RICO (Racketeer
Influenced and Corrupt Organizations
Act) suit in New York against the Lago Agrio plaintiffs, their attorneys and a
third party environmental consulting firm. Chevron alleged that the Lago
Agrio litigation was fraudulent and a conspiracy to commit extortion against
Chevron.
In March 2014, the US
court found that the Lago Agrio judgment was
obtained by corrupt means. (To be honest, life is too short to read through the
whole judgment which is 485 pages long!) But, an important point worth
mentioning is that the court recognised (in pp.12-13) the irony of Texaco’s claim
in the Aguinda litgation that “Ecuador would be an adequate alternative forum
because it had an independent judiciary that provided fair trials” and the
Aguinda plaintiffs’ claim that Ecuador was not the appropriate venue as its
judiciary was weak and corrupt. This decision was appealed by the defendants and the case is
currently pending before the appellate court.
The ICC Complaint
In October 2014, the representatives
of the Lago Agrio plaintiffs filed a complaint with the International
Criminal Court against the CEO of Chevron (and any other corporate officer). In
March 2015, the prosecutor informed the complainants that they would not
proceed with the complaint, as the complaint was outside the temporal and
subject matter jurisdiction of the ICC. As it was clear from the outset that the case had
very little chance to proceed, one commentator viewed it as “a political or PR document”.
Enforcement of the Lago Agrio Judgment
The Lago Agrio
Plaintiffs have been trying to enforce the multi-billion dollar judgment since
2012 in various jurisdictions, but without any success so far. It is a huge
victory to obtain a final court decision for $9 billion damages, but without
the means to enforce the judgment (unless voluntarily paid), it is pretty much
just a symbolic victory.
Jurisdictions where
attempts have been made include Argentina, Brazil, Colombia and Canada. In
November 2012, an Argentinean court issued a freezing order on Chevron’s assets
in Argentina to enforce the Ecuadorian judgment, which was confirmed by the Argentine appellate court. However,
no actual enforcement has taken place so far.
As for the Brazilian
enforcement attempt, it was reported in May 2015 that “The Brazilian Federal Prosecution Service
has recommended to the Brazilian court that recognition be denied.” This is the
latest I could find on Brazil.
A more clear (at least for me, because the only
second language I can speak is English) enforcement battle is happening in
Canada. The latest in this saga is a decision from the Supreme Court of Canada
(SCC) issued last week.
The SCC confirmed the jurisdiction of Ontario courts to hear the enforcement claim against Chevron and Chevron Canada, with the caveat that “the establishment of jurisdiction does not mean that the plaintiffs will necessarily succeed in having the Ecuadorian judgment recognized and enforced against Chevron Canada.”
This was a small victory for the Lago Agrio plaintiffs, but a Chevron advocate has already argued that the plaintiffs should not get too excited, as there is still a long legal battle ahead to actually enforce the judgment in Canada.
The SCC confirmed the jurisdiction of Ontario courts to hear the enforcement claim against Chevron and Chevron Canada, with the caveat that “the establishment of jurisdiction does not mean that the plaintiffs will necessarily succeed in having the Ecuadorian judgment recognized and enforced against Chevron Canada.”
This was a small victory for the Lago Agrio plaintiffs, but a Chevron advocate has already argued that the plaintiffs should not get too excited, as there is still a long legal battle ahead to actually enforce the judgment in Canada.
What next?
We are yet to see whether the Lago Agrio plaintiffs will
be able to enforce the Ecuadorian judgment in Canada or in any other
jurisdiction. We are also yet to see the arbitral tribunal’s decision on
whether Ecuador violated the US-Ecuador BIT. This saga is likely to continue at
least another five years, if we consider the possibility of challenges to any
arbitral award by the tribunal at the seat of arbitration or in the country of
enforcement. The same grim scenario of protracted litigation is applicable to
the actual enforcement proceedings in Canada.
So far, the only winners in this mess are the lawyers. The
series of legal proceedings outlined above take the concept of complex disputes
to a whole new level. This can probably be considered a lawyer’s paradise (maybe
not for the lawyers who were accused of fraud).
A series of disputes ongoing for over 20 years with no
end in sight and stretching through several jurisdictions (including domestic
and international venues) is certainly financially lucrative for the lawyers.
But besides that, they were able to test the limits of
the law both in terms of substance and procedure. It comes as no surprise that Chevron
employed 39 law firms for this legal saga, according to a report from 2012.
In the meantime, members of the local community keep on waiting for a remedy for the damage they sustained.
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