Last September, the US oil giant filed a claim for ‘denial of justice’ under a foreign investment protection treaty between the US and Ecuador. The claim is now a major part of the company’s damage-control strategy. Chevron has been readying itself for some time for a massive loss in the Ecuadorian courts, where plaintiffs are seeking to saddle the firm with a $30bn clean-up bill.

Chevron insists that Ecuador’s state oil company, PetroEcuador, bears liability for any clean-up, adding that the country’s politically tainted courts are colluding with PetroEcuador and the country’s government to lay the blame at Chevron’s door.


Whatever the merits of Chevron’s case, the firm’s strategy is slowing coming into focus. Even before a verdict is handed down in Ecuador, Chevron has been petitioning a recently convened panel of three international arbitrators to order that any adverse local court ruling should be stayed until arbitrators have an opportunity to review the conduct of the Ecuadorian court proceedings.

Chevron contends that any independent panel reviewing the record of the proceedings will find that foreign investors cannot get a fair hearing in Ecuador’s courts.

In May, arbitrators declined Chevron’s demand for emergency measures to shield the company on a pre-emptive basis from any looming adverse ruling in Ecuador. However, the arbitration tribunal is keeping a keen eye on developments in Ecuador. It remains to be seen what happens when the local courts finally weigh in on Chevron’s environmental liabilities.

At that point, the arbitration panel could order Ecuador to stay enforcement of any local verdict until the international arbitration process runs its course. However, it is not clear how Ecuador would react to such an interim ruling.

One thing is clear: arbitrators will need several years to get to the root of Chevron’s claims that Ecuador’s courts are not living up to international treaty standards.

Environmental activists, who have been battling the US oil giant since the 1980s, lament the prospect that a long-running Ecuadorian court process – which Chevron-Texaco had earlier praised – could go into extra time. For Chevron, the US-Ecuador investment protection treaty could provide a new lease of life. But for weary activists and wary government officials, the treaty is viewed less charitably.

Already, the treaty in question has permitted US-based Occidental to sue Ecuador for $1bn when the government cancelled a major oil concession in 2006. It has also been a springboard for legal challenges from a host of foreign oil companies unhappy with a windfall levy slapped on high energy profits.

Ecuador has made noises in the past about tearing up the treaty – echoing rhetoric heard in Bolivia and Venezuela – and forcing foreign investors to rely on local courts to settle disputes. Most observers suspect that Ecuador has kept the US treaty in place due to diplomatic pressure from Washington.

However, if it begins to appear that Chevron’s $30bn gambit could save the company’s skin – particularly by offering a negative assessment of Ecuadorian justice – do not be surprised if the government finally reaches for the scissors.

Luke Peterson is editor of InvestmentArbitration, an online news service tracking and analysing crossborder investment lawsuits.