Chevron Turns Back A Challenge To A BIT Arbitral Award
Posted on May 9, 2012
I’ve previously written about the BIT arbitration between Chevron and Ecuador that Chevron commenced in September 2009. This is the arbitration in which the tribunal ordered Ecuador to take steps to suspend the effectiveness of the Lago Agrio judgment. But I don’t think I’ve yet written about an earlier BIT arbitration between Chevron and Ecuador that Chevron commenced in 2006. In the 2006 proceedings, Chevron claimed that Ecuador was liable to it for damages on account of a breach of Article II(7) of the bilateral investment treaty between the United States and Ecuador, which provides:
Each Party shall provide effective means of asserting claims and enforcing rights with respect to investment, investment agreements, and investment authorizations.
The claim was that Chevron had suffered damages on account of undue delay in the settlement of lawsuits TexPet (of which Chevron was a shareholder) had brought against Ecuador in the early 1990s. In 2011, the tribunal awarded damages of more than $96 million, with interest.
Ecuador sought to have the award set aside in the District Court of the Hague (which was the appropriate forum insofar as the arbitration’s seat was in the Hague). It raised two arguments: (1) there was no valid agreement to arbitrate, because the BIT came into force after Chevron made its investments in Ecuador; and (2) the tribunal’s decision was so erroneous that the decision cannot be said to be a “reasoned decision.” The court rejected Ecuador’s arguments in a decision dated May 2.
On the first question, the judge’s basic decision was that since Article VI of the BIT provided for binding arbitration of “any investment dispute” and there was no dispute that an “investment dispute” existed, it was for the arbitrators to decide whether Article VI had to be read in light of Article XII, which provides that the treaty applies “to investments existing at the time of entry into force as well as to investments made or acquired thereafter.” In other words, the tribunal was competent to rule on its own competence.
On the second question, the judge goes through Ecuador’s objections to the reasoning of the tribunal and rejects each one. I don’t review this in detail, as it really has to do with the substantive law of investment treaties. The short version is that claims of error, no matter how you couch them, are very, very difficult to win in proceedings to set aside arbitral awards.
Reports indicate that Ecuador is considering an appeal. I’ll keep you posted on this
head of the Lago Agrio Hydra branch of the Lago Agrio case.