When the Rule of Law Applies, Chevron Wins

Chevron has recorded several significant victories in recent weeks in resisting the outlandish and orchestrated claims made against it for environmental damages in Ecuador. U.S. trial lawyers and perpetually outraged activists have fomented a $27 billion lawsuit against the company, ostensibly filed on behalf of the Amazonian natives who were harmed by Texaco’s oil operations in past decades; Chevron acquired Texaco in 2001.

The truth of the matter is that Texaco remediated the sites it was responsible for and the Ecuadorian government released it of legal liability after the clean-up. PetroEcuador, the government-owned oil company, has in the meantime continued its environmentally suspect operations. Nevertheless, the combine of trial lawyers, activists and media continue to promote the litigation, and their biggest ally is Ecuador’s leftist government headed by Rafael Correa.

But in undermining the rule of law in Ecuador, Correa is actually helping Chevron: In venues where the rule of law still applies, Chevron succeeds.

The latest example does not involve the trial lawyer/activist litigation, but it certainly makes the case that Ecuador’s government ignores contracts and legal obligations. From Chevron, a news release, “Chevron Wins Arbitration Claim Against the Government of Ecuador.”

SAN RAMON, Calif. – Mar. 30, 2010 – An international arbitration tribunal has ruled in favor of Chevron in a claim against Ecuador related to past oil operations by Chevron’s subsidiary, Texaco Petroleum Company. The tribunal, administered by the Permanent Court of Arbitration in The Hague, found that Ecuador’s courts violated international law through their delays in ruling on certain commercial disputes between Texaco Petroleum Company and the Ecuadorian government…

In its decision, the tribunal found that Ecuador had violated the United States-Ecuador Bilateral Investment Treaty by failing to provide effective means of asserting claims and enforcing rights. As a result, the tribunal awarded Chevron and Texaco Petroleum Company approximately US$700 million in principal damages and interest as of December 22, 2006, pending further proceedings to determine applicable taxes, compound interest, and costs.

“This ruling demonstrates that the government of Ecuador is not above the law,” said Hewitt Pate, Chevron vice president and general counsel. “We have maintained for some time that Ecuador’s courts are failing to administer justice when it comes to Chevron and its affiliates, and an international tribunal has now agreed. We hope this ruling will help move Ecuador towards proper treatment of foreign investors and respect for the rule of law.”

As for the $27 billion lawsuit itself, Chevron recently won a victory in U.S. District Court, the Southern District of New York, when a judge ruled that the company could continue arbitration proceedings against Ecuador. From Bloomberg, March 11

U.S. District Judge Leonard Sand in New York today ruled in favor of San Ramon, California-based Chevron and said that an international arbitration panel may decide whether the company is getting “due process” in a court case in Ecuador.

Lawyers for Ecuador had asked Sand to block the arbitration. “There is a strong presumption in favor of arbitration,” Sand said today after two days of arguments.

Judge Sand’s order is here. Chevron’s Pate commented after the ruling:

Chevron is seeking to hold Ecuador and its government owned oil company, Petroecuador, to the promise they made to complete the environmental cleanup of the Amazon.

Texaco Petroleum did its share of the cleanup as promised, and Petroecuador now needs to own up to its promises and address the environmental problems wrongly being blamed on Chevron.

Only the international arbitration panel can bring Ecuador to the table and compel Petroecuador to do the right thing and clean up its oil fields. With today’s decision, we are one step closer to making that a reality.

Ecuador and the private Ecuadorian plaintiffs plan to appeal, but given how much their activist allies promoted the District Court hearing beforehand, the judge’s approval of continued arbitration must have been crushing. Facts and the rule of law simply work against them.

Going to back to the Tuesday’s ruling in The Hague, news coverage:

Disclosure: As already mentioned numerous times, I traveled to Ecuador in June, 2009, to view the areas of the Amazon involved in the litigation. Chevron paid for the trip.

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