{"id":1889,"date":"2012-04-13T02:09:20","date_gmt":"2012-04-13T07:09:20","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=1889"},"modified":"2012-12-10T07:47:05","modified_gmt":"2012-12-10T13:47:05","slug":"case-note-how-chevron-v-ecuador-is-pushing-the-boundaries-of-arbitral-authority","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2012\/04\/13\/case-note-how-chevron-v-ecuador-is-pushing-the-boundaries-of-arbitral-authority\/","title":{"rendered":"Case Note: How Chevron v. Ecuador is Pushing the Boundaries of Arbitral Authority"},"content":{"rendered":"

The arbitral tribunal in Chevron v. Ecuador[1]<\/strong><\/a><\/em> has taken a series of steps in recent months suggesting that it has a broad view of its authority. But while it may have been unwilling to tie its own hands, other national courts and international tribunals who are currently being asked to review the legitimacy and enforceability of the tribunal\u2019s various awards may do the job. Consequently, one impact of Chevron v. Ecuador<\/em> may be to raise caution for more arbitral restraint in future disputes.<\/p>\n

The anomalies of the Chevron-Ecuador investor-state arbitration<\/em><\/strong><\/p>\n

The Chevron v. Ecuador<\/em> arbitration under the US-Ecuador bilateral investment treaty (BIT<\/span>) is just one piece of a multi-forum saga involving diverse stakeholders and with billions of dollars at stake. In this arbitration, Chevron and Texaco Petroleum Company (TexPet) are asking the tribunal for a broad form of relief that would effectively excuse Chevron from having to pay a roughly US$18 billion judgment Ecuadorian courts rendered against the US company in favor of Ecuadorian citizens as damages for environmental and other harms arising out of Chevron’s affiliates’ oil operations in Ecuador.<\/p>\n

Chevron\u2019s pleas to the tribunal are unique in investment-treaty arbitration. What in particular sets them apart is that Chevron seeks orders from the tribunal that would directly impact the rights of non-parties to the arbitration: the private plaintiffs in the underlying lawsuit against Chevron who currently hold a judgment against Chevron. Chevron argues that fraud and legal and procedural errors in the conduct of the underlying dispute have left Chevron on the hook to the plaintiffs in breach of the BIT. But rather than claiming damages from Ecuador in the form of litigation expenses incurred, or indemnification or compensation for amounts paid to the Ecuadorian plaintiffs, Chevron is aiming directly at the plaintiffs\u2019 judgment, seeking to use the tribunal to strip that award from those non-parties to the BIT arbitration.<\/p>\n

In decisions on 9 January 2011 and 25 January 2012, the tribunal issued orders that evidenced an unprecedented willingness to insert itself into the ongoing domestic litigation between the Ecuadorian plaintiffs and the US oil company, and to shut down any judgment obtained by the plaintiffs. Those two decisions \u2013 one framed as an order and the other as an interim award, and both taken before the tribunal had even determined that it had jurisdiction over the dispute \u2013 directed Ecuador to \u201ctake all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against [Chevron] in the Lago Agrio case.\u201d[2]<\/a> The tribunal, however, stopped short of granting the full set of relief requested by Chevron, and softened the force of its directions to some degree by clarifying that Ecuador was only obligated to take those measures \u201cat its disposal.\u201d[3]<\/a> According to Ecuador, this language clarified that the tribunal was not purporting to direct it to take any measures that would be inconsistent with Ecuador\u2019s domestic laws.<\/p>\n

The tribunal\u2019s bold moves and notable disregard of the Ecuadorian plaintiffs\u2019 claims<\/em><\/strong><\/p>\n

In a string of recent \u201cawards,\u201d however, the tribunal has grown bolder in its directives to Ecuador and its disregard of the Ecuadorian plaintiffs\u2019 rights and interests. First, and still without having determined that it had jurisdiction over the dispute, the tribunal on 16 February 2012 issued a Second Interim Award that deleted the \u201cat its disposal\u201d language and replaced it with stronger text. The tribunal ordered \u201cthe Respondent (whether by its judicial, legislative or executive branches) to take all measures necessary<\/em> to suspend or cause to be suspended the enforcement and recognition within and without Ecuador of the judgments\u201d rendered in favour of the Ecuadorian plaintiffs.[4]<\/a><\/p>\n

Second, on 27 February 2012, the tribunal issued a Third Interim Award on Jurisdiction and Admissibility in which it rejected Ecuador\u2019s argument that because Chevron\u2019s claims and requests for relief involved the rights of non-parties to the arbitration, the tribunal should not exercise jurisdiction over the dispute. The tribunal\u2019s decision on this point is notable for the cursory and unconvincing manner in which it dismissed the notion that the Ecuadorian plaintiffs\u2019 rights and interests have been and will continue to be impacted by the dispute.<\/p>\n

In what is a glaring omission, the tribunal did not discuss the fact that the Ecuadorian plaintiffs currently possess a legal right \u2013 a court judgment enforceable under Ecuadorian law \u2013 and that the tribunal\u2019s orders to date have directly sought to interfere in the plaintiffs\u2019 enjoyment of that right.<\/p>\n

In another equally glaring omission, the tribunal did not mention the fact that on 9 February 2012, the Ecuadorian plaintiffs filed a petition for precautionary measures with the Inter-American Commission on Human Rights explaining the various ways in which relief requested by the Chevron and orders of the tribunal would violate the human rights of the Ecuadorian plaintiffs.[5]<\/a> The plaintiffs\u2019 legal representatives argued that the investor-state proceedings presented serious threats to the Ecuadorian plaintiffs\u2019 \u201cenjoyment of core rights to life, physical integrity, health, as well as their rights to a fair trial, to judicial protection\u2026, and to equal protection under the law.\u201d[6]<\/a> They stated that, \u201c[f]or the Republic to allow, much less instigate, any delay in the implementation of the lawfully determined and ordered remedy that the [Ecuadorian plaintiffs] have achieved in Ecuadorian courts would be a flagrant violation of Ecuador\u2019s binding commitments under the American Convention and the San Salvador Protocol.\u201d[7]<\/a> As relief, they requested the Inter-American Commission to order measures to assure that, irrespective of any orders by the investor-state tribunal, Ecuador would not interfere with the Ecuadorian plaintiffs\u2019 judgment in violation of their human rights.<\/p>\n

The limited force of the awards<\/em><\/strong><\/p>\n

The tribunal\u2019s awards have prompted backlash and questions regarding the scope of the arbitrators\u2019 authority. For one, a human rights claim was brought before the Inter-American Commission on Human Rights to put boundaries on Ecuador\u2019s obligations to comply with the investor-state tribunal\u2019s awards. Second, an Ecuadorian appellate court has issued two decisions declaring that the Chevron-Ecuador<\/em> tribunal does not have the power to compel Ecuador\u2019s courts to violate Ecuador\u2019s human rights obligations by interfering with the plaintiffs\u2019 judgment against Chevron.<\/p>\n

Finally, outside of Ecuador, it seems highly questionable that the tribunal\u2019s awards will be able to achieve the effect desired by the Chevron \u2013 i.e., that it will prevent the Ecuadorian plaintiffs\u2019 from enforcing their judgment against Chevron in countries where the company has assets. Most importantly, under the BIT and the applicable arbitration rules, the tribunal\u2019s awards are only binding on the parties to the investor-state dispute \u2013 Ecuador and Chevron, not the Ecuadorian plaintiffs.[8]<\/a> Should the Ecuadorian plaintiffs seek to enforce their judgment against Chevron in courts outside of Ecuador, the tribunal\u2019s awards should not have mandatory legal force in those enforcement actions. Moreover, even assuming that the tribunal had authority to review the merits of the underlying judgment and its correctness or legitimacy in the investor-state dispute to which the Ecuadorian plaintiffs are not party, the tribunal has not yet done so. Consequently, any award issued by the tribunal should have no res judicata<\/em> impact or legal bearing on the enforceability of the underlying judgment.<\/p>\n

Pushing too far?<\/em><\/strong><\/p>\n

It is natural for the claimants to seek what they can from the rapidly evolving and relatively undisciplined area of investment-treaty law, making creative arguments and broad requests for relief. However, it is the tribunals that must play the role of the reasonable gatekeeper, and ensure that in their creative development of investment treaty claims, investors are not left unbridled to trample through other areas of domestic and international law, such as human rights law.<\/p>\n

In the end, it may be the tribunal and investors who lose more than Ecuador and the Ecuadorian plaintiffs in this anomalous dispute. By broadly asserting its powers and unconvincingly brushing aside the rights of non-parties to the arbitration, the tribunal has prompted challenges to the authority of its orders in other national courts and tribunals. At a time when skepticism of (if not an outright backlash against) investor-state dispute settlement is evident, and states and other stakeholders are increasingly concerned that this \u201csystem\u201d is not producing any of the benefits it was purportedly designed for, such unrestrained conduct by tribunals may catalyze a move away from investor-state arbitration.<\/p>\n

Author: Lise Johnson is a legal consultant to the IISD<\/span><\/span><\/span> working on issues relating to international investment law and policy.<\/p>\n

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[1]<\/a> Chevron Corp. v. Republic of Ecuador, PCA<\/span> Case No. 2009-23.<\/p>\n<\/div>\n

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[2]<\/a> See Chevron v. Ecuador, Interim Award, Jan. 15, 2012, at pp. 11 & 16.<\/p>\n<\/div>\n

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[3]<\/a> Id.<\/p>\n<\/div>\n

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[4]<\/a> Chevron v. Texaco, Second Interim Award, February 16, 2012, para. 3 (emphasis added).<\/p>\n<\/div>\n

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[5]<\/a> The Ecuadorian plaintiffs reportedly later withdrew their request for precautionary measures, stating that rulings of an Ecuadorian court seemed to address the plaintiffs\u2019 concerns and minimize their need for precautionary measures. See<\/em> \u201cEcuadorian Plaintiffs Withdraw Request for Protective Measures, After Sparring with Chevron over Need for Human Rights Authorities to Intervene,\u201d Investment Arbitration Reporter, vol. 5, no. 5, March 14, 2012.<\/p>\n<\/div>\n

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[6]<\/a> Request for Precautionary Measures submitted to the Inter-American Commission on Human Rights, February 9, 2012, at 1.<\/p>\n<\/div>\n

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[7]<\/a> Id.<\/p>\n<\/div>\n

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[8]<\/a> See, e.g., UNCITRAL<\/span> Arbitration Rules, Art. 32(2); US-Ecuador BIT, Art. VI(6).<\/p>\n<\/div>\n<\/div>\n