Open Democracy | 27 March 2019
Chevron vs Ecuador: international arbitration and corporate impunity
by Aldo Orellana López
Eight years ago, in February 2011, the Sucumbíos provincial court issued a historic ruling in the case known as Lago Agrio against the Chevron-Texaco oil company, sentencing it to pay 9.500 million dollars for polluting the Amazon during its operations there between 1964 and 1992. Since then, however, the Ecuadorian justice system has been unable to enforce the sentence.
What is more, it is now the Ecuadorian government that, as a result of an international lawsuit filed by Chevron under the global system of investment protection, should be paying the company a multimillion-dollar compensation. The arbitration tribunal that admitted the lawsuit and has rendered the award in favor of the company has also ordered Ecuador to annul the sentence of the Sucumbíos court, which it considers unlawful.
In view of this situation, the Union of the People Affected by Texaco-Chevron Operations (UDAPT) in Ecuador - plaintiff in the Lago Agrio case - has denounced the decision of the arbitration panel, accusing it of overriding the rights of the affected communities by imposing the corporation’s right to profits. The Union has warned that if the decision of the arbitrators is implemented, this will set a very dangerous precedent for the global fight to protect the environment and defend human rights.
The Chevron case in Ecuador, along with other environmental and social crimes involving multinational corporations - from the recent breakdown of the toxic mining waste dams of the Vale and BHP corporations in Brazil, to the repression and criminalization of communities and even the murder of environmental defenders, such as the still unsolved murder case of Berta Cáceres in Honduras -, highlights the need for a legally binding international instrument to put an end to the impunity with which the companies operate, and to offer adequate guarantees to the communities that are resisting and protecting the land.
This instrument should make it possible to take companies before international courts and have them respond for their crimes, and also ensure the affected communities effective access to justice and reparation.
The Ecuadorian David and Goliath
According to Pablo Fajardo, a lawyer working for UDAPT, "Chevron operated in the Ecuadorian Amazon with the aim of obtaining the largest possible economic return for the company". To achieve this goal, it used obsolete techniques and was fully aware of the pollution it was causing. The UDAPT affirms that the company disposed of nearly 650.000 barrels of crude oil and more than 16 billion gallons of wastewater in the rivers and soils of the Amazonian jungle, affecting the health and lifestyles of more than 30.000 indigenous people and peasants in different communities.
Other practices Chevron indulged in include open-air burning of gases and the spilling of oil onto roads – according to them, in order to prevent the raising of dust. The UDAPT lawyer points out that, up to now, at least "2.000 people have died from cancer due to toxins and polluted water and air".
Texaco, which was taken over by Chevron in 2001, arrived in Ecuador in 1964 to drill for oil in the northern Ecuadorian Amazon, specifically in the provinces of Sucumbíos and Orellana. This is a high biodiversity area which is home to dozens of indigenous and peasant communities.
Justino Piaguaje, the president of the Siekopai Original Nation and a spokesperson for the UDAPT, explains that "finding oil was synonymous with wealth. It was thought that all of the country’s financial and social problems were going to get solved - but not so for the native peoples. The problem of pollution started, the rivers got polluted and our land shrank".
Texaco finished its operations in Ecuador in 1992 and left the country. By then, the impact of almost 3 decades of irresponsible exploitation was all too obvious. Shortly after, 6 indigenous nations and more than 80 affected peasant communities founded UDAPT. Its aim, from the start, has been to seek environmental remediation and reparations for the damages caused by the oil company in the jungle and to hold it accountable for its actions.
To this end, it filed a lawsuit against Texaco in the US in 1993. However, at the request of the company, the suit was transferred to Ecuador and the hearings of what became known as the Lago Agrio case were held at the local Sucumbíos provincial court. Finally, on February 11, 2011, after a litigation that lasted nearly two decades, the Sucumbíos court ruled in favor of the UDAPT and sentenced Chevron-Texaco to pay a 9.5 billion dollar fine to compensate for the harm incurred.
Chevron filed an appeal, but the ruling was ratified by all the judicial instances in Ecuador - including the National Court of Justice and the Constitutional Court, the highest court in the country. As Pablo Fajardo explains, the Constitutional Court’s ruling of July 2018 recognized that “many rights of indigenous peoples and peasants had been violated by the company", which is something that the UDAPT had been claiming all along – for over 18 years.
Thus came to an end one of the most prominent lawsuits in recent decades: one in which an indigenous and peasant organization brought to court and won a lawsuit against one of the largest multinational corporations in the world – the revenue of which in 2018 exceeded 150 billion dollars, almost twice the GDP of Ecuador.
According to Pablo Fajardo, Chevron’s defense framework during the litigation involved some 2.000 lawyers from more than 60 legal firms and its defense expenses amounted to 250 million dollars per year. Despite all of this, the UDAPT won. "For reason is in our side", says Fajardo.
However, as soon as this great challenge ended, another one began: that of carrying out the courts’ decision. And this has turned out to be a much tougher path to tread because, over the years, Chevron has not only tried to sabotage the legal process against it, but has taken action to shield itself and protect its assets.
Chevron’s strategies to sabotage the trial
The UDAPT points out that, throughout the process, Chevron carried out a number of actions to try and sabotage it - from political pressure to threatening international legal proceedings. This “strategy of fear” was adopted in order to isolate Ecuador from its international allies, and was reinforced by an aggressive media campaign to discredit the Ecuadorian courts and the UDAPT defense team.
"According to Chevron, the indigenous people, the peasants and their lawyers had unlawfully associated themselves to extort money from the company. And the company took legal actions in that line. That is, the company pictured itself as the victim and the indigenous people and the peasants as the criminals", Fajardo explains.
In a global and regional scenario where socio-environmental conflicts are multiplying, not only are multinational corporations - who are now playing the role of the victim - active in generating conflicts, but they are also involved in criminalizing and even eliminating environment activists and defenders of the land - no less than 207 in 2017.
The UDAPT lawyer explains that when Chevron realized that the communities would continue to push their demand until the very end, it began to withdraw all its assets from the country. "The only thing it left behind was a bank account with 350 dollars in it and nothing else".
Faced with the impossibility of enforcing the ruling in Ecuador, the UDAPT tried unsuccessfully to get other countries where Chevron owns assets that could be seized to ratify it - Argentina, Brazil, Canada and even the United States. But authorities in these countries rejected this possibility arguing, among other things, that the matter involved in fact different companies: "You cannot charge Chevron Argentina or Chevron Brasil with a debt incurred by Chevron Corporation, which is a different company", they said.
The problem is that "Chevron Corporation does not own assets in its name almost anywhere in the world", says Fajardo. In his view, "the legal structure that these companies have been building through auxiliary enterprises and holding companies is simply a structure to evade their responsibility and, in this case, to evade justice" – which is undeniably an adverse scenario for the UDAPT.
Chevron’s lawsuit against Ecuador
During the UDAPT trial, not only did Chevron withdraw all its assets from Ecuador, but it also sued the country in international courts with the aim of sabotaging the trial and seeking financial compensation. In 2009, the company resorted to the Investor-State Difference Arbitration System (ISDS) and sued Ecuador in the Permanent Court of Arbitration (CPA) in The Hague claiming that it had violated the 1993 Bilateral Investment Treaty (BIT) between Ecuador and United States.
The company accused Ecuador of "denial of justice". Finally, on August 31, 2018, almost 10 years later, a CPA arbitration panel issued an award in favor of the company ordering Ecuador to annul the decision of the Sucumbíos court and ruling, in addition, that the Ecuadorian State should pay Chevron a compensation amount - still to be determined - for the alleged economic and moral damages that it had caused.
This is not the first time that Chevron has sued Ecuador in international courts. It had previously tried to accuse it of polluting, and had even successfully filed once an appeal before the CPA.
However, the problem now is that the 2018 award by the arbitration panel clashes head-on with the decision of the Lago Agrio case in favor of the UDAPT. How can this be? The key is to be found in some agreements that the company had signed with the Ecuadorian governments between 1995 and 1998 which include a contract freeing the company from obligations, financial or otherwise.
Chevron had left the country in 1992. However, it came back in 1995 seeking an agreement that it finally got signed in 1998. According to Adoración Guamán, an expert lawyer for the Campaign to Dismantle Corporate Power - an international coalition grouping more than 200 organizations - the government then and the company signed a "contract for the undertaking of environmental repair work and the freeing of obligations".
It is a document by which the government frees Texaco from any responsibility “forever”. This is the contract that Chevron used to sue Ecuador in the CPA in 2009 and that not only allowed it to disclaim responsibility for polluting the Amazon, but also helped it to seek economic compensation for having been sued.
Adoración Guamán points out that Chevron’s lawsuit kept on mutating as the lawsuit of the people affected in the Lago Agrio case followed its course and progressed. At the beginning, the company argued that the government of Ecuador, by allowing the UDAPT to take legal action, was in breach of the 1998 agreement - thereby incurring in denial of justice.
But when the ruling in favor of those affected became known, the company changed its line of argument and "accused the victims of having bribed the judges responsible for the decision". The company claimed that there existed "a plot between the government and the victims to get compensation".
Guamán says that "the arbitration panel considered that this had been proven" and, on this basis, it ordered Ecuador to annul the sentence and to take measures to prevent it from being executed in other parts of the world – and thus ordered the government of Ecuador to communicate to all the countries where Chevron owns assets that the "Ecuadorian judicial power had committed an illegality."
Pablo Fajardo maintains that this is "tremendously arbitrary and illegal" and asks: "What is the point of a country’s law if legal decisions can be suspended by decisions of international authorities in processes which the citizens of this country do not have access to?"
Attacking the sovereignty of Ecuador
Chevron’s lawsuit in the CPA was questioned from the very beginning by the UDAPT and its allies. In the first place, as Pablo Fajardo points out, because "the Bilateral Treaty of Investment Protection was applied retroactively - something that is illegal and illegitimate".
He specifies that Chevron left the country in 1992 and that the BIT between Ecuador and the United States was signed in 1993 and only entered into force in 1997. Despite this, the CPA admitted the claim on the grounds that when Texaco went back to Ecuador in 1995 it supposedly carried out "repair activities which involved investments".
Second, Fajardo notes, "the CPA panel has no competence, no legal capacity to order an independent and sovereign State to annul a final criminal sentence ordered by a court under Ecuador’s legal system". What the CPA panel has done, in fact, is "ordering the Ecuadorian State to violate its own constitution, to break the separation of powers between the executive branch of government and the judiciary, and to get the Executive to interfere in judicial matters in order to have the sentence annulled".
These are the reasons why the CPA award is, according to him, absolutely inapplicable. Hence, "the judgment of the Lago Agrio case cannot be annulled because there is no legal provision to do so, and therefore is fully valid", he says.
Those affected say that the CPA award flagrantly violates their rights, because the 1998 BIT contract binds the government but not the UDAPT. In addition, they argue, the Lago Agrio case is a private trial, in which the government did not intervene - therefore, Fajardo points out, the CPA "is affecting the rights of third parties" in the trial.
The UDAPT reasons that the outcome of this case should be of concern not only to those affected and to Ecuador, but also to all the people the world over who are involved in fighting to defend the environment and human rights.
"It affects and violates the sovereignty of States, which is important as a legal precedent", says Fajardo, and he insists that "if this arbitration award is allowed to go ahead, it could be applied to other States, where national courts of justice will lose the capacity to administer justice before transnational corporations. So, what legal guarantee, if any, do the victims of corporate crimes have? None whatsoever. Economic power is being imposed and companies are buying impunity", he concludes.
Binding Treaty: an instrument to end corporate impunity
The Chevron case is yet another eloquent example of the impunity with which multinational corporations operate globally. It reinforces the need for an international instrument to put an end to it.
International allies point out that this case highlights the need for mechanisms which not only recognize the obligations that companies have, but also offer adequate guarantees to communities for accessing reparation and justice mechanisms.
At the same time, it shows how multinational corporations are using the international investment protection mechanism to undermine the sovereignty of countries and challenge the decisions of national courts of justice. The global investment system imposes corporate profit over and above respect for human rights and the environment. As Adoración Guamán says, we do need an instrument to change this state of affairs and "give primacy to human rights over trade and investment norms".
Experts also question the lack of effectiveness of human rights systems to enforce their mandates. While multinational corporations benefit from international mechanisms to protect investments which are mandatory, compliance with mandates for the protection of human rights and the environment tend to be voluntary or lack the necessary mechanisms to enforce them. "There is a huge legal vacuum here and a binding treaty is absolutely necessary", says Fajardo.
This is precisely the aim of the Binding Treaty on Transnational Corporations and Human Rights that is currently being promoted within the framework of the United Nations (UN) by international organizations and the Global Campaign to Dismantle Corporate Power - of which the UDAPT is part.
The Campaign has denounced the Chevron case, stating that "three private arbitrators, responding to commercial interests, are throwing out of the window a just claim and undoing 20 years of work by a broad set of plaintiffs". It declares that the arbitration system "establishes a commercial law which sets as its priority the protection of capital profits over the right to life".
Adoración Guamán says that the Chevron case has become the banner of the fight for a Binding Treaty. She warns that as long as multinational corporations like Chevron are not afraid of justice and do not see an effective mechanism in place that can put them on trial, sentence them and force them to pay "they will not respect human rights".
"To Chevron, it is a matter of money and prestige. To the people affected, it is a matter of life", says Fajardo. What Chevron did "was no accident. It was an intentional crime committed during 26 consecutive years".
However, despite all the evidence and a due process with a final sentence against it, Chevron is not paying for its crimes. "Justice as such does not exist, especially when the criminal is a transnational corporation and the victims are indigenous peoples, peasants, or nature", he says.
He insists that the UDAPT will continue to seek justice with the aim not only of getting Chevron to repair the damage it has caused in the Ecuadorian Amazon but, more importantly, of "setting a precedent, so that this type of crime will not be repeated in any other place in the world".