Lago Agrio: Ecuador Pays Arbitral Award
Posted on July 26, 2016
Reuters is reporting that Ecuador has paid Chevron the $96 million awarded in a treaty arbitration ($112 million with interest). I’ve written several posts about this award and its aftermath. You may want to review my post on the DC Circuit’s decision affirming confirmation of the award and my post on the Hoge Raad’s decision rejecting Ecuador’s challenge to the award.
Ecuador is to be praised for paying the award and fulfilling its obligation under the US/Ecuador BIT. There was an argument that under Ecuadoran law, the state was required to pay over the award amount to the Lago Agrio plaintiffs instead of to Chevron. Whatever the strength of that argument as a matter of Ecuadoran law, it clearly would have been a breach of Ecuador’s treaty obligations. Ecuador had economic reasons for doing the right thing, namely, a concern to stay in the good graces of the United States Trade Representative.
It’s useful to contrast Ecuador’s attitude here to the attitude of the Chinese government to the recent award in the South China Sea arbitration. Ecuador’s view, like China’s view, was that the dispute that led to the award was not within the jurisdiction of the tribunal. But Ecuador participated in the case, and it recognized the power of the tribunal to decide on its own jurisdiction. Diego Martinez, the head of Ecuador’s central bank, said:
We don’t agree with how these international mechanisms work … however, we are respectful and we fulfill our international obligations.
In contrast, here is an excerpt of the statement of China’s ministry of foreign affairs:
With regard to the award rendered on 12 July 2016 by the Arbitral Tribunal in the South China Sea arbitration established at the unilateral request of the Republic of the Philippines (hereinafter referred to as the “Arbitral Tribunal”), the Ministry of Foreign Affairs of the People’s Republic of China solemnly declares that the award is null and void and has no binding force. China neither accepts nor recognizes it.
* * *
The Chinese government reiterates that, regarding territorial issues and maritime delimitation disputes, China does not accept any means of third party dispute settlement or any solution imposed on China.
This despite what people much more knowledgeable than I have asserted were the serious flaws in China’s legal position.
Perhaps this is just a case of the strong doing what they can and the weak doing what they must. On the other hand, it’s a good day for the international dispute settlement system whenever a state that fought and lost a jurisdictional battle decides to comply with an award.