Case of the Day: Chevron v. Ecuador
Posted on August 5, 2015
The case of the day is Chevron Corp. v. Republic of Ecuador (D.C. Cir. 2015). Today’s decision doesn’t relate to the main Lago Agrio case or the BIT arbitration related to the Lago Agrio case. It relates instead to another BIT arbitration in which Chevron claimed it 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. The arbitration resulted in a $96 million awared in Chevron’s favor. I’ve written about the case a few times before:
- My post on the Dutch first instance decision refusing to vacate the award.
- A post on Chevron’s motion to confirm in Washington.
- My post on the decision confirming the award. This is the decision that was on appeal in today’s case.
- My post on the Dutch Supreme Court decision.
The court affirmed, handing Chevron a significant victory. The main question was whether Ecuador was immune from jurisdiction under the FSIA, or whether the FSIA’s arbitration exception applied. Chevron had an initial burden of production, which it met by producing the BIT, the notice of arbitration, and the award. Ecuador sought to rebut Chevron’s showing by arguing that there was no agreement to arbitrate between the parties. Citing the BG v. Argentina case, the court reasoned that the BIT was a standing offer by Ecuador to US investors to arbitrate investment disputes, which Chevron accepted by initiating the arbitration.
One of the significant issues in the arbitration was whether Chevron (or Texaco) had made an “investment” that brought the treaty into play; but while that question was a question of arbitrability, it did not go to the court’s jurisdiction. The judges rejected Ecuador’s conflation of “the jurisdictional standard of the FSIA with the standard for review under the New York Convention.” But even if it were proper to reach the “investment” question, the court said that it would conclude that Chevron had made the necessary showing—a point I don’t address further here.
Ecuador also challenged the confirmation of the award on the merits under the New York Convention, arguing in particular that the award “deals with a difference not contemplated by or not falling within the terms of the submission to arbitration” and could not be confirmed under Article V(1)(C). The court rejected this argument, because under the BIT the parties had authorized the arbitrators to decide such questions of arbitrability.
The decision seems basically right to me. Though Ecuador was very ably represented, I think it had a tough row to hoe. The entire investor-state arbitration regime has been subject to sustained criticism recently (here at Letters Blogatory, Aaron Marr Page gave such a critique in comments to this post. But even if the arbitrators in this case overreached, and even if the BIT turned out to be a bad deal for Ecuador, it seems right that the award should be confirmed in light of the parties’ agreement to arbitrate.