IISD | 13 April 2012
Case note: How Chevron v. Ecuador is pushing the boundaries of arbitral authority
by Lise Johnson
The arbitral tribunal in Chevron v. Ecuador has taken a series of steps in recent months suggesting that it has a broad view of its authority. But while it may have been unwilling to tie its own hands, other national courts and international tribunals who are currently being asked to review the legitimacy and enforceability of the tribunal’s various awards may do the job. Consequently, one impact of Chevron v. Ecuador may be to raise caution for more arbitral restraint in future disputes.
The anomalies of the Chevron-Ecuador investor-state arbitration
The Chevron v. Ecuador arbitration under the US-Ecuador bilateral investment treaty (BIT) is just one piece of a multi-forum saga involving diverse stakeholders and with billions of dollars at stake. In this arbitration, Chevron and Texaco Petroleum Company (TexPet) are asking the tribunal for a broad form of relief that would effectively excuse Chevron from having to pay a roughly US$18 billion judgment Ecuadorian courts rendered against the US company in favor of Ecuadorian citizens as damages for environmental and other harms arising out of Chevron’s affiliates’ oil operations in Ecuador.
Chevron’s pleas to the tribunal are unique in investment-treaty arbitration. What in particular sets them apart is that Chevron seeks orders from the tribunal that would directly impact the rights of non-parties to the arbitration: the private plaintiffs in the underlying lawsuit against Chevron who currently hold a judgment against Chevron. Chevron argues that fraud and legal and procedural errors in the conduct of the underlying dispute have left Chevron on the hook to the plaintiffs in breach of the BIT. But rather than claiming damages from Ecuador in the form of litigation expenses incurred, or indemnification or compensation for amounts paid to the Ecuadorian plaintiffs, Chevron is aiming directly at the plaintiffs’ judgment, seeking to use the tribunal to strip that award from those non-parties to the BIT arbitration.
In decisions on 9 January 2011 and 25 January 2012, the tribunal issued orders that evidenced an unprecedented willingness to insert itself into the ongoing domestic litigation between the Ecuadorian plaintiffs and the US oil company, and to shut down any judgment obtained by the plaintiffs. Those two decisions – one framed as an order and the other as an interim award, and both taken before the tribunal had even determined that it had jurisdiction over the dispute – directed Ecuador to “take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against [Chevron] in the Lago Agrio case.” The tribunal, however, stopped short of granting the full set of relief requested by Chevron, and softened the force of its directions to some degree by clarifying that Ecuador was only obligated to take those measures “at its disposal.” According to Ecuador, this language clarified that the tribunal was not purporting to direct it to take any measures that would be inconsistent with Ecuador’s domestic laws.
The tribunal’s bold moves and notable disregard of the Ecuadorian plaintiffs’ claims
In a string of recent “awards,” however, the tribunal has grown bolder in its directives to Ecuador and its disregard of the Ecuadorian plaintiffs’ rights and interests. First, and still without having determined that it had jurisdiction over the dispute, the tribunal on 16 February 2012 issued a Second Interim Award that deleted the “at its disposal” language and replaced it with stronger text. The tribunal ordered “the Respondent (whether by its judicial, legislative or executive branches) to take all measures necessary to suspend or cause to be suspended the enforcement and recognition within and without Ecuador of the judgments” rendered in favour of the Ecuadorian plaintiffs.
Second, on 27 February 2012, the tribunal issued a Third Interim Award on Jurisdiction and Admissibility in which it rejected Ecuador’s argument that because Chevron’s claims and requests for relief involved the rights of non-parties to the arbitration, the tribunal should not exercise jurisdiction over the dispute. The tribunal’s decision on this point is notable for the cursory and unconvincing manner in which it dismissed the notion that the Ecuadorian plaintiffs’ rights and interests have been and will continue to be impacted by the dispute.
In what is a glaring omission, the tribunal did not discuss the fact that the Ecuadorian plaintiffs currently possess a legal right – a court judgment enforceable under Ecuadorian law – and that the tribunal’s orders to date have directly sought to interfere in the plaintiffs’ enjoyment of that right.
In another equally glaring omission, the tribunal did not mention the fact that on 9 February 2012, the Ecuadorian plaintiffs filed a petition for precautionary measures with the Inter-American Commission on Human Rights explaining the various ways in which relief requested by the Chevron and orders of the tribunal would violate the human rights of the Ecuadorian plaintiffs. The plaintiffs’ legal representatives argued that the investor-state proceedings presented serious threats to the Ecuadorian plaintiffs’ “enjoyment of core rights to life, physical integrity, health, as well as their rights to a fair trial, to judicial protection…, and to equal protection under the law.” They stated that, “[f]or the Republic to allow, much less instigate, any delay in the implementation of the lawfully determined and ordered remedy that the [Ecuadorian plaintiffs] have achieved in Ecuadorian courts would be a flagrant violation of Ecuador’s binding commitments under the American Convention and the San Salvador Protocol.” As relief, they requested the Inter-American Commission to order measures to assure that, irrespective of any orders by the investor-state tribunal, Ecuador would not interfere with the Ecuadorian plaintiffs’ judgment in violation of their human rights.
The limited force of the awards
The tribunal’s awards have prompted backlash and questions regarding the scope of the arbitrators’ authority. For one, a human rights claim was brought before the Inter-American Commission on Human Rights to put boundaries on Ecuador’s obligations to comply with the investor-state tribunal’s awards. Second, an Ecuadorian appellate court has issued two decisions declaring that the Chevron-Ecuador tribunal does not have the power to compel Ecuador’s courts to violate Ecuador’s human rights obligations by interfering with the plaintiffs’ judgment against Chevron.
Finally, outside of Ecuador, it seems highly questionable that the tribunal’s awards will be able to achieve the effect desired by the Chevron – i.e., that it will prevent the Ecuadorian plaintiffs’ from enforcing their judgment against Chevron in countries where the company has assets. Most importantly, under the BIT and the applicable arbitration rules, the tribunal’s awards are only binding on the parties to the investor-state dispute – Ecuador and Chevron, not the Ecuadorian plaintiffs. Should the Ecuadorian plaintiffs seek to enforce their judgment against Chevron in courts outside of Ecuador, the tribunal’s awards should not have mandatory legal force in those enforcement actions. Moreover, even assuming that the tribunal had authority to review the merits of the underlying judgment and its correctness or legitimacy in the investor-state dispute to which the Ecuadorian plaintiffs are not party, the tribunal has not yet done so. Consequently, any award issued by the tribunal should have no res judicata impact or legal bearing on the enforceability of the underlying judgment.
Pushing too far?
It is natural for the claimants to seek what they can from the rapidly evolving and relatively undisciplined area of investment-treaty law, making creative arguments and broad requests for relief. However, it is the tribunals that must play the role of the reasonable gatekeeper, and ensure that in their creative development of investment treaty claims, investors are not left unbridled to trample through other areas of domestic and international law, such as human rights law.
In the end, it may be the tribunal and investors who lose more than Ecuador and the Ecuadorian plaintiffs in this anomalous dispute. By broadly asserting its powers and unconvincingly brushing aside the rights of non-parties to the arbitration, the tribunal has prompted challenges to the authority of its orders in other national courts and tribunals. At a time when skepticism of (if not an outright backlash against) investor-state dispute settlement is evident, and states and other stakeholders are increasingly concerned that this “system” is not producing any of the benefits it was purportedly designed for, such unrestrained conduct by tribunals may catalyze a move away from investor-state arbitration.
Author: Lise Johnson is a legal consultant to the IISD working on issues relating to international investment law and policy.
 Chevron Corp. v. Republic of Ecuador, PCA Case No. 2009-23.
 See Chevron v. Ecuador, Interim Award, Jan. 15, 2012, at pp. 11 & 16.
 Chevron v. Texaco, Second Interim Award, February 16, 2012, para. 3 (emphasis added).
 The Ecuadorian plaintiffs reportedly later withdrew their request for precautionary measures, stating that rulings of an Ecuadorian court seemed to address the plaintiffs’ concerns and minimize their need for precautionary measures. See “Ecuadorian Plaintiffs Withdraw Request for Protective Measures, After Sparring with Chevron over Need for Human Rights Authorities to Intervene,” Investment Arbitration Reporter, vol. 5, no. 5, March 14, 2012.
 Request for Precautionary Measures submitted to the Inter-American Commission on Human Rights, February 9, 2012, at 1.
 See, e.g., UNCITRAL Arbitration Rules, Art. 32(2); US-Ecuador BIT, Art. VI(6).