Ecuadorians battle Chevron in U.S. court over BIT arbitration in long-running environmental damage dispute

By Fernando Cabrera Diaz

March 11, 2010

Chevron and Ecuadorian citizens are in U.S. court in the latest chapter of a 16 year battle over environmental damage in Lago Agrio allegedly caused by Texaco Petroleum (TexPet), which Chevron acquired in 2001.  In January of this year, a group of Ecuadorian plaintiffs which is suing the company in Ecuador asked a U.S. District Court to enforce Texaco’s alleged promise to that Court that it would submit to the jurisdiction of Ecuadorian courts where a lawsuit is currently under way. The move came in response to a BIT arbitration initiated in September 2009 by Chevron against Ecuador.  In its notice of arbitration, Chevron alleges, among other things, that Ecuador and its courts have unfairly favoured the Lago Agrio plaintiffs.

The dispute stems from a 1993 lawsuit launched by Ecuadorian citizens in the U.S. District Court for the Southern District of New York alleging that Texaco, through its subsidiary TexPet, discharged billions of gallons of contaminated “formation water” from the Lago Agrio oil field into the local water supply causing environmental and health problems in the area.

Texaco argued that the case needed to be tried in Ecuadorian courts, which it characterized as adequate. The U.S. Court of Appeals, Second Circuit agreed with the company and sent the case (Aguinda v. Texaco) to Ecuador in 2002 on the condition that Chevron accept jurisdiction there.  A group of Ecuadorian citizens responded by filing a new lawsuit in Ecuador.

As reported previously by ITN, Chevron had a different view of Ecuadorean courts when it initiated  a previous arbitration against Ecuador in May of 2006 alleging that the country had violated the Ecuador-U.S. Bilateral Investment Treaty (the BIT) because its courts had failed to deal fairly with multiple breach-of-contract cases filed against the state by Texaco Petroleum.

Ecuador had argued that Chevron was merely using this first arbitration to discredit Ecuadorian courts ahead of future arbitration if the Lago Agrio lawsuit in Ecuador did not go its way.  Chevron for its part argued that after 2004 the Ecuadorian courts ceased to be independent in the wake of several political purges of Ecuador’s Constitutional, Electoral and Supreme Courts.

Meanwhile the lawsuit in Ecuador continues.  Chevron has argued that Petroecuador and the Ecuadorian government are responsible for cleaning any environmental damage in Lago Agrio because Texaco and its subsidiary TexPet were released from any liability shortly after they ceased operations in the region in 1992.  During the 1970s and 1980s Texaco and its subsidiary were minority members of the consortium that explored for and produced oil in Lago Agrio under contracts with Ecuador and state-owned oil company, Petroecuador.

ITN spoke to Steven Donziger, an American lawyer representing the plaintiffs in the Lago Argio dispute who said that the agreements releasing Texaco from liability do not apply to private claims such as those being pursued by his clients.

Mr. Donziger also argues that these releases were obtained fraudulently by Texaco, accusing the company of lying to the government about its cleanup efforts which he says consisted of running dirt over a small number of waste pits without cleaning them of toxins.  Though a minority partner in the project, Texaco was the exclusive operator of the oil fields and therefore responsible for 100% of the environmental damage, says Mr. Donziger.

Kent Robertson, media relations advisor at Chevron, says that private plaintiffs had no legal grounds to bring this sort of a claim for damages to public lands prior to a 1999 law that is now being applied retroactively and in direct contradiction to Ecuador’s constitution that forbids the retroactive application of law.

He disputes Mr. Donziger’s allegations that Texaco obtained releases through fraud. “At the time of Texaco Petroleum’s remediation, sampling and analysis was performed by the government at every site to determine if the clean-up complied with Ecuador’s requirements,” says Mr. Robertson. “Moreover, two of Ecuador’s Prosecutor Generals have commissioned subsequent analysis of remediated sites and both concluded that the remediation work was effective and complied with the applicable standards,” he adds.

He also notes that since Texaco left Lago Agrio, Petroecuador has run the oil field in an “environmentally-deplorable fashion” causing numerous spills in the area for which Chevron is not responsible.

In September of 2009, with the lawsuit not going well for it in Ecuador, Chevron launched a second arbitration against Ecuador.

In its September notice of arbitration the company accuses Ecuador of not respecting the agreements it signed releasing the Texaco from liability in violation of Article II(3)(c) of the BIT.  Chevron also accuses Ecuador of interfering on behalf of the plaintiffs in the lawsuit in violation of the fair and equitable treatment provisions of the BIT.  It asks the arbitral panel to declare that Ecuador is liable “for any judgement that may be issued in the Lago Agrio Litigation.”

« Because Ecuador’s judicial system is incapable of functioning independently of political influence, Chevron has no choice but to seek relief under the treaty between the United States and Ecuador, » said Hewitt Pate, Chevron’s vice president and general counsel in a company press release.

This arbitration is taking place at the Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law.

In response to this second arbitration, Ecuador and the Ecaudorian plaintiffs filed separate suits in December and January, respectively, at the U.S. District Court for the Southern District of New York. Both sets of plaintiffs allege that by filing this latest arbitration Chevron violated a promise made to that court in the previous lawsuit that it would respect any decision of Ecaudorian courts in the dispute.

Mr. Robertson argues that Chevron was not a party to the Aguinda v. Texaco lawsuit and that in any event Texaco made no promises it had to abide by a ruling from Ecuador. Chevron has since filed a motion asking the court to dismiss the lawsuits, arguing that U.S. courts are not authorized to hear requests to bar parties from pursuing arbitrations under international investment treaties.

Mr. Donziger though argues that his clients are not asking the court to intervene in the arbitration, but instead to hold the company to the promise it made to that court that it would abide by a ruling in Ecuador.

A hearing is scheduled March 10 in New York, where all three parties will present preliminary oral arguments.

A new development in the dispute arose on February 9, when Chevron asked the Lago Agrio court hearing the lawsuit to dismiss court-appointed expert Richard Cabrera who had recommended in a report that the court award US$ 27 billion against the company.

In particular, the company claims Mr. Cabrera hid the fact that he is “the co-founder, general manager, majority stockholder, and legal representative of an oilfield remediation company, Compañía Ambiental Minera-Petrolera S.A.” which would stand to gain from a decision against the company.

The plaintiffs argue that Ecuador court rules prohibit Mr. Cabrera and other experts in the case from taking part in any clean-up should one result, and that Cabrera’s involvement in remediation in Ecuador is precisely why he was qualified to issue the report he did.

“Our opinion is that it is not a conflict of interest, and that this is just part of Chevron’s media strategy to discredit the report. In fact the company filed 29 motions in the last 2 years seeking to disqualify Cabrera, and none have been found to have a legal basis,” says Mr. Donziger

“Mr. Cabrera’s conflict of interest is clear and he knowingly and repeatedly concealed his remediation interests from the court,” counters Mr. Robertson.

Sources:

Decision in Aguinda v. Texaco Inc. available at: http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=2nd&navby=case&no=017756

Chevron notice of arbitration of filed September 23, 2009: http://www.chevron.com/documents/pdf/EcuadorBITEn.pdf

Chevron company press releases: http://www.chevron.com/news/press/release/?id=2009-09-23; http://www.chevron.com/news/press/release/?id=2010-02-09

“Chevron, Ecuador Plaintiffs Spar Over Arbitration In Court,” By Mercedes Alvaro, Dow Jones Business News, February 2, 2010.

Previous ITN Reporting:

“Chevron launches investment-treaty claim against Ecuador,” By By Damon Vis-Dunbar, Investment Treaty News, 2 October 2009, available here:

http://www.investmenttreatynews.org/cms/news/archive/2009/10/01/chevron-claims-denial-of-justice-in-investment-treaty-claim-against-ecuador.aspx

“Chevron warns Ecuador on BIT claim as contract and environmental disputes persist”, By Damon Vis-Dunbar, Investment Treaty News, 26 July 2006, available here:

http://www.iisd.org/pdf/2006/itn_july26_2006.pdf