International Arbitration Court Awards Chevron $700 Million In Dispute With Ecuador

THE HAGUE, Netherlands — (Mealey’s) The Permanent Court of Arbitration on March 30 issued a partial arbitration award of $700 million for Chevron Corp. and Texaco Petroleum Co. (TexPet), finding that the courts of Ecuador violated international law by delaying ruling on various disputes between TexPet and the government of Ecuador.

In December 2006, Chevron commenced arbitration against the Republic of Ecuador under the U.N. Commission on International Trade Law (UNCITRAL) rules, alleging violations of the Treaty between the United States of America and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investments, entered in force on May 11, 1997 (referred to as the BIT).

The tribunal awarded Chevron and TexPet approximately $700 million in principle damages and interest as of Dec. 22, 2006, pending future proceedings on applicable taxes, compound interest and costs.  Chevron said the award partially resolved seven commercial claims that TexPet, a subsidiary of Chevron, asserted in Ecuador between 1991 and 1993.  TexPet filed seven cases against Ecuador in Ecuadorean courts, claiming that the government overstated Ecuador's true domestic consumption needs, causing TexPet to contribute substantially more oil than it was obligated to provide at the reduced domestic market price.

On Dec. 1, 2008, the tribunal issued an interim award denying Ecuador’s jurisdictional objections.   In its partial award on the merits, the tribunal found that Ecuador breached Article II(7) of the BIT by causing undue delay in the Ecuadorean courts in relation to the seven commercial claims asserted by TexPet.

The tribunal found that Ecuador was liable for damages to Chevron and TexPet as result of the undue delay.  The tribunal ruled that Chevron and Ecuador were not estopped from bringing their claims and did not commit an abuse of process.

Chevron announced that the tribunal’s ruling was distinct from arbitration claims filed against Ecuador in relation to Lago Agrio litigation by Chevron and TexPet in 2009.

Professor and Chairman Karl-Heinz Böckstiegel, the Honorable Charles N. Brower and Professor Albert Jan van den Berg comprised the tribunal.

[Editor's Note:  Full coverage will be in the April issue of Mealey’s International Arbitration.  In the meantime, the partial award is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #05-100427-022A.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

Download the document now:

Mealeysonline.com - Document #05-100427-022A

For more information, call editor Lisa Schaeffer at 610-205-1132, or e-mail her at lisa.schaeffer@lexisnexis.com.