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Ecuador Should Stop Interfering With International Arbitration Mandated by Treaty

In 1993 Ecuador and United States inked a bilateral investment treaty (BIT) designed to encourage private sector development in Ecuador and to protect U.S. investment in the country.

But the government of Ecuador has long sought to evade its BIT obligations. In fact, Ecuador clearly broke this treaty when the country pursued a bad-faith, coordinated strategy with the Lago Agrio plaintiffs to use them as “stalking horses” in an attempt to avoid its own remediation responsibilities and contractual obligations, and instead to impose public environmental liabilities on Chevron only a few years after having settled and released Chevron from such liabilities. Chevron was therefore compelled to file an international arbitration claim against Ecuador under the BIT.

This filing likely came as no surprise to Ecuador. In fact, the government of Ecuador is notorious for unilaterally breaking contracts and evading its obligations. It was not until 2001 that the country of Ecuador was sued for the first time by a foreign company. However, since 2008, the year after President Rafael Correa took office, a large number of foreign companies began to file lawsuits. Currently, Ecuador is 2nd in the world in terms of pending international arbitration claims against the country; so much so that the cumulative sum of the 11 pending lawsuits would now equal nearly one-half of the country’s annual budget.

Desperate to avoid arbitration, Ecuador petitioned to have a U.S. court halt Chevron’s BIT claim. In doing so, Ecuador is seeking to delay arbitration and avoid ever having to own up to its treaty obligations. Further, it has become clear that Ecuador is aware that the country’s  repudiation of its contractual obligations — combined with its denial of due process to foreign investors litigating in its courts — will not stand up to international scrutiny. Given the volume of international arbitration currently pending against the government of Ecuador, its action was unsurprising and suggests that the government must recognize that it will lose if this case proceeds before a legitimate and impartial forum.

There is no basis in fact or law for Ecuador to get a federal judge to stay arbitration that Ecuador agreed to by treaty with the United States. For that reason, on Jan 19th, Chevron filed a motion to dismiss the government of Ecuador’s opposition to international arbitration. More importantly, Chevron’s arbitration claim should proceed and the government of Ecuador should abide by its treaty and contractual obligations.

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