Tribunal Finds Ecuador in Breach of Legal Obligations in Chevron Dispute

An arbitration panel in The Hague said Ecuador should have prevented plaintiffs in a $19 billion award against Chevron Corp. from taking their battle to other countries, and needs to justify why its government shouldn't be held responsible for the costs.

In 2012, an Ecuadorian court ruled Chevron was responsible for environmental damages in that country's Amazon region, a decision the oil company is contesting. The international tribunal, which is studying the issue of whether the ruling constitutes a violation of a bilateral investment treaty between the U.S. and Ecuador, had asked the country to keep the plaintiffs from suing Chevron in foreign courts while the appeal was pending. But the plaintiffs filed lawsuits against Chevron assets in Canada, Argentina and other countries--a move the tribunal decided was a breach of Ecuador's obligations and of its previous rulings. Now the tribunal is asking the country's government why it shouldn't be held responsible for the harm done by the lawsuits filed by the plaintiffs outside Ecuador.

The decision, issued Thursday, comes a few days after an Argentine court of appeals upheld an embargo, requested by the Ecuadorian plaintiffs, on Chevron assets in that country. It underscores the high stakes of a multidecade legal battle emmeshing one of the world's largest oil companies, a national government and Amazonian plaintiffs.

The ruling is a boost to Chevron's theory that if it loses the lengthy legal tussle with Amazonian plaintiffs, the Ecuadorian government should end up paying the costs. The company has said the ruling is fraudulent, and accused the Ecuadorian government of exerting pressure in favor of the plaintiffs in local courts.

"From the Chevron viewpoint, this makes sure that, at the end of the day, if they're on the hook, Ecuador is on the hook with them," said Ted Folkman, a litigator with Murphy & King who has followed the case.

Ecuador argues the international tribunal's order violates its constitution, because local courts are independent. A representative of the Ecuadorian government wasn't immediately available to comment. The Ecuadorian plaintiffs view the tribunal's decision as "unenforcebale."

"It arrogantly orders Ecuador's government to violate its own Constitution and quash a private civil litigation that resulted in the judgment against Chevron," said Karen Hinton, spokeswoman for the Ecuadorian communities.

Chevron said the tribunal's decision "confirms that the enforcement actions being pursued against Chevron in Argentina, Brazil, and Canada fly in the face of international law," said Hewitt Pate, Chevron vice president and general counsel. "It is not too late for the Republic to reverse course, declare the Lago Agrio judgment illegitimate, and address the real challenges facing its citizens."

The case stems from a decades-old dispute over environmental contamination in Ecuador allegedly produced by Texaco Inc., a company Chevron bought in 2001. Chevron denies the accusations and says it is the victim of fraud, while the plaintiffs say it is the oil company that committed fraud.

Copyright (c) 2012 Dow Jones & Company, Inc.

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