Ecuador-Chevron Legal Battle: Background and Court Decisions

Ecuador-Chevron Legal Battle: Background and Court Decisions

The Ecuador-Chevron dispute is a legal battle between Ecuador and Chevron that has spanned for more than a decade and has been characterized by a series of legal battles and environmental issues that center on oil contamination allegations of the latter and the resulting counterarguments of the former. The issue has been divisive. Furthermore, courts from different jurisdictions have arrived at different decisions that favor either one of the two parties.

Background of the Ecuador-Chevron Dispute

Ecuador has the third-largest oil reserves in South America. It is also the smallest oil-producing member of the Organization of Petroleum Exporting Countries. Data from the United States Energy Information Agency noted that the country has 8.8 billion barrels of proven crude oil reserves as of January 2021. Most of these reserves are concentrated in the Oriente Basin—an area located within the Amazon.

Oil exploration in Ecuador began in 1964. The United States-based Texaco Petroleum Company focused its attention on the northeastern part of the country. This eventually led to the discovery of the Lago Agrio Oil Field near the city of Nueva Loja in the province of Sucumbios. The field proved to be profitable. Over a period of 20 years, Texaco was able to extract 1.7 billion barrels of oil that amounted to USD 25 billion in profit.

But there was a downside to the emerging oil industry in Ecuador. Several nonprofit organizations and local citizens have expressed concerns over the alleged unlawful and unethical practices of Texaco beginning early 1990s.

Drilling activities from 1964 to 1990 were accordingly accompanied by deliberate dumping of more than 18 billion tons of toxic water that spilled in bodies of water. The company also allegedly discarded hazardous byproducts in hundreds of open pits within the Amazon rainforest. These concerns marked the beginning of a series of oil contamination lawsuits and the beginning of the Ecuador-Chevron dispute.

Texaco handed the oil fields to the national oil company EP Petroecuador in 1992. The following year, American lawyer Steven Donzinger filed a 30,000-member class-action lawsuit in New York. His lawsuit represented the indigenous people of Ecuador supposedly affected by the environmental travesties of Texaco.

However, the Ecuador government agreed to release the American oil company from legal responsibilities in 1995 in exchange for a cleanup operation. However, the American court dismissed the case for improper venue in 2011. This ruling was tantamount to the non-recognition of foreign judgments for environmental injury in the U.S.

Note that Texaco eventually merged with Chevron Corporation in 2001. Now absorbing all the issues and scandals associated with the operation of Texaco in Ecuador, Chevron accused critics of targeting them for mere extortion and financial gains. In addition, the oil company argued that Petroecuador and the Ecuador government should be held accountable for the damage and cleanup. They further contended that much of the present damage came from activities that transpired after Texaco turned over the oil fields to Petroecuador.

Ecuador-Chevron Lawsuits and Counter-Lawsuits

Litigation in Ecuadorian Court

Blocked from pursuing a case against Chevron in U.S. courts, plaintiffs sued the oil company in Ecuadorian court for USD 6 billion in 2003. However, the oil company argued that there was no point in another lawsuit because the Ecuador government had released it from legal responsibilities following a series of cleanup operations.

It is also important to note that studies from the company revealed the levels of chemicals in the soil and water were negligible. There was even no solid evidence implicating Texaco for health hazards allegedly caused by its previous operation.

An Ecuadorian judge in 2011 discarded the arguments made by Chevron and handed down a landmark ruling. The court ratified the ruling in 2013. The Ecuador Supreme Court ordered the US company to pay USD billion—one of the largest environmental awards in history.

Blocked By U.S. Federal Court Judge

However, the plaintiffs had a hard time collecting the judgment. In March 2014, a US federal judge blocked the Ecuadorian government from using US courts to collect the USD 9 billion judgment made by an Ecuadorian court. In a nearly 500-page ruling, District Judge Lewis A. Kaplan said the Ecuadorian judgment was a result of fraud.

Reports used as court evidence were falsified. These reports also alleged that Donzinger was responsible for coercing Ecuadorian judges into letting his team ghostwrite independent expert reports and portions of the final ruling.

There were many criticisms against Donzinger. He allegedly exploited the case and pitted the people of Ecuador versus Chevron for his personal and financial gains. Even the federal court report revealed Donzinger was guilty of violating the Federal Racketeer Influenced and Corrupt Organization Act and the Foreign Corrupt Practices Act, committing extortion, laundering money, witness tampering, and obstruction of justice.

Pursing the Case in Other Courts

Donzinger filed other cases in other courts. For instance, in December 2014, the Supreme Court of Canada held oral arguments to decide whether the country should get involved in the epic oil pollution case. There are also other cases filed in courts in Argentina and Brazil.

A new ruling, however, favored Ecuador over Chevron. In March 2015, the International Court of Justice ruled that Chevron indeed caused severe environmental damage. Take note that the American company initially appealed the ruling of the Ecuadorian Supreme Court through the International Court, arguing that the case was redundant and the Ecuadorian judgment violated the bilateral investment treaty with the United States.

The International Court of Justice argued that the case involved individual rights, therefore leaving the agreement signed between Ecuador and Texaco null and void. Remember that this agreement entered in 1995 absolved Texaco from liabilities after it fulfilled its promise to the Ecuador government to do cleanup operations.

Recent Developments in the Ecuador-Chevron Dispute

It is important to highlight the fact that the Ecuador-Chevron dispute is far from over. Note that Chevron bowed down to overturn the decisions that favored Ecuador in other courts. A 2018 arbitral award worth nearly USD 800 million by the Permanent Court of Arbitration in The Hague ruled in favor of the American oil company. It explained that Ecuador broke international law in obtaining the 2011 judgment from the Ecuadorian Court.

Furthermore, in September 2020, the District Court of The Hague in the Netherlands upheld a 2018 ruling from the Permanent Court of Arbitration in full. It also rejected the attempt of the Ecuador Government to set aside the award. The court explained further that the international tribunal acted within its remit when issuing the award, and that the award was well reasoned and complied with the applicable law and public policy.

The ruling from the District Court of The Hague was also similar to the court decisions in Argentina, Brazil, Canada, Gibraltar, and the U.S. These courts rejected the judgment made by the Ecuadorian court on the grounds of fraud.

It is also worth mentioning that the highest court in Argentina unanimously rejected the bid of the plaintiff to enforce the Ecuadorian court judgment. Chevron has continued to seek to recover from the Ecuador government the costs it had incurred from defending itself from the supposed fraudulent accusations hurdled against the company. Photo credit: Ricardo Patiño/Adapted/Flickr/CC 2.0