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Chevron Awarded $96 Million in Arbitration Claim Against the Government of Ecuador

International Tribunal Finds Ecuador Courts Failed to Administer Justice

An international arbitration tribunal has awarded Chevron Corporation and Texaco Petroleum Company $96 million in a claim against Ecuador related to past oil operations by Texaco Petroleum, which is now a Chevron subsidiary. The tribunal, administered by the Permanent Court of Arbitration in The Hague, found that Ecuador’s courts violated international law through their significant delays in ruling on certain commercial disputes between Texaco Petroleum and the Ecuadorian government. The final award also takes into account taxes, compound interest, and costs associated with the preliminary award announced in March 2010.

Chevron and Texaco Petroleum filed the international arbitration case in December 2006 under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). The Permanent Court of Arbitration is an intergovernmental organization with over one hundred member countries established by international convention in 1899 to facilitate arbitration and other forms of dispute resolution. The United States acceded to the Court’s founding convention in 1900 and Ecuador acceded in 1907.

The decision by the arbitration tribunal resolves seven commercial claims that Texaco Petroleum filed in Ecuador between 1991 and 1993. Ecuadorian courts continually delayed and refused to rule on the seven cases, which the tribunal determined was a violation of Ecuador’s obligation under its Bilateral Investment Treaty with the United States to provide effective means for U.S. investors in Ecuador to assert claims and enforce their rights.

“This ruling confirms that Ecuador can be held accountable for its obligations under international law,” said Hewitt Pate, Chevron vice president and general counsel. “Since Ecuador’s politicized court system has failed to provide impartial tribunals and due process, Chevron has had to seek international remedies. Chevron will continue to pursue enforcement of the agreements entered into by Ecuador and its state-owned oil company, Petroecuador, when they were members of a producing consortium with Texaco Petroleum.”

The Treaty arbitration tribunal is not alone in highlighting the Ecuadorian courts’ failure to provide justice. In April 2011, the United States Department of State released its human rights report for Ecuador which states, “The media reported on the susceptibility of the judiciary to bribes for favorable decisions and resolution of legal cases and on judges parceling out cases to outside lawyers, who wrote the judicial sentences and sent them back to the presiding judge for signature.” Likewise, the World Bank’s latest Worldwide Governance Indicators ranked Ecuador below the 10th percentile of all countries surveyed with respect to the rule of law, placing it behind North Korea.

Recent events in Ecuador demonstrate the continuing deterioration and political subjugation of the justice system there:

  • After a leading Ecuadorian newspaper, El Universo, ran an opinion column critical of President Rafael Correa, an Ecuadorian judge–at Correa’s insistence–sentenced three newspaper executives and the columnist to jail for three years and fined the newspaper $40 million.
  • According to The Economist, “It took Juan Paredes, replacing the intended judge who was on holiday, less than two days to read through the case’s 5,000-page file” and issue the ruling. President Correa personally attended the hearing, “accompanied by a small crowd of supporters that pelted the defendants and their lawyers with eggs and bottles outside the courthouse. The media were barred from attending.” International observers, including Human Rights Watch, called the ruling “a major setback for free speech in Ecuador.”
  • President Correa’s Legal Secretary, Alexis Mera, issued an official proclamation, “by order of the Constitutional President of the Republic,” requiring Ecuadorian Government ministries to immediately file suits for damages holding any judge who enjoins Government projects personally liable if their injunctions are subsequently overturned by a higher court.

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