Welcome back to Drilled Season five l Lucha Longla. When we left off, Chevron was strategizing some new ways to deal with the case in Ecuador. In September two thousand and nine, the company filed another international arbitration complaint against the government of Ecuador. This time, the Lago Agriolle case was named directly. Chevron claimed that by virtue of letting the case continue in its courts, Ecuador was violating its
bilateral investment treaty with the United States. Specifically, it argued that the case violated various contracts between Texaco and the government, like that nineteen ninety eight contract that we keep hearing about where the government signed off on Texaco's remediation work. That complaint and the tribunals response has gone on to become a major part of Chevron's story about this case.
So we're going to do something a little different today and do a bit of an explainer about international investment arbitration. Don't go this stuff sounds so boring, but I swear it's really really interesting and beyond that is just important to know, especially if you care about environmental issues or climate change. In broad strokes, this system gives companies a certain amount of legal cover that they claim enables them to confidently invest in foreign countries. There are currently more
than twenty six hundred preferential trade agreements. Those can be free trade agreements, bilateral investment treaties, all kinds of different things. Most of them provide access to the investment arbitration system. Here's how it works when a so called investor state dispute arises. When a company wants to take government to task for something, companies can file formal complaints with international tribunals.
There are a handful of these tribunals in the world, and a few different sets of guidelines for how they work. Important to note here companies can choose which tribunal to file with and which guidelines will govern the dispute. The tribunals pull together arbitral panels, generally consisting of three international law experts. These people are not judges, and the company
that's complaining gets to pick one of them. The panels hear arguments and then decide whether the state in question has breached either a trade agreement or its own laws, and, if so, the monetary value of that breach. In some cases, the proceedings and relevant documents are made public, but in others, as in the Chevron Aquador case, they're kept completely secret. This system has been getting used more and more by companies that want to punish countries for passing environmental regulation.
Just this month, a report from the International Institute for Environment and Development highlight how these investment treaties and the arbitration system might make climate action that much harder around the globe. Just think about it. Most of the world's coal plants and drilling sites are in countries that have signed on to agreements like these, which would enable fossil fuel companies to file complaints against governments whose emissions regulations
interfere with their profits. Because so much of arbitral proceedings.
Are kept secret, it wouldn't be a huge surprise if you've never heard of this, let alone how it works, or how much influenced the system has on global politics. So we called up Marcos Oriana, the expert we heard from last week, to guide us through the details. That conversation coming up right after this quick break.
I'd love to have you start with sort of a general kind of what is international arbitration and how is it used by American companies sure.
Sure At its core, international investment arbitration is a system that allows corporations to sue states for damages before panels of arbitraders. These days, most arbitration cases are brought under international treaties on investment protection. These instruments typically grant corporations the right to claim compensation in cases where the government takes a measure that breaches the standards of protection in the treaty and that results in economic laws for the investor.
Arbitual tribunals are typically composed by three panelists. One of the panelists is pointed by the corporation and the claimant the in theory, as the World Bank and capital exporting countries often argue international investment arbitration helps foster economic development in developing countries, and they it does so by building
confidence in foreign investors. It's argued that it is a tool to build confidence because foreign investors may be more inclined to do business in countries that may be unstable or risky if they have legal security in case something
goes wrong. It is argued that these international financial flows capital investments does contribute to development because otherwise these countries would not receive this capital and would not benefit from the concessions the works, the infrastructure, or the business form foreign investor.
That's the theory.
In practice, however, corporations are using the arbitration system to discipline governments for their own interests, and this is often done at the expense of the public interest. How does it work or how does this happen?
Well?
In the arbitrations, corporations often argue that their expectations for profit have been frustrated, that they have been frustrated by the government that adopts a law or a decision or regulation, and they corporations demand to be compensated for the profits they expected to make.
Since arbitral awards.
Can run up to tens or hundreds of millions of dollars, and since even the legal fees involved the council and the costs of the arbitration it can run into the millions of dollars, this puts a lot of pressure on government officials to pass, to adopt, or even maintain public interest measures. Let's recall that many of the respondents states in these cases.
They have limited budgets.
There might be small developing countries that are that are facing a set of priorities, competing priorities, and they have to struggle to satisfy health and education, and times, food and water and environmental protection, and so talking about tens of millions of dollars of costs can really put a dent into the budget of a state. So those are
the basic contours. The international investment arbitration can be described as a private system of adjudication that decides on the propriety of governmental measures, but it lacks the safeguards for accountability and transparency that characterized constitutional democracies governed by the
rule of law. If we look back in time. In its origins, international investment arbitration came to replace colonial systems, colonial systems of extraction of domination when the former colonies acquired independence in the advent of decolonization, largely after the Second World War and the advent of the United Nations. The former imperial powers needed a legal system to protect the economic interests of their corporations, and international investment arbitration
offered such an alternative. Today, in this current day of age, many in civil societies see the arbitration regime as yet another tool of corporate globalization. And this is because when governments regulate in the public interest, they become the targets of corporations that utilize the arbitration system to challenge those
acts of authority. I would comment that this is particularly problematic in the age of climate change, because governments must reduce the emissions of greenhouse gases to face the climate emergency, the existential risks that flow from climate change, and of course this change in direction affects the expectations and the interests of the oil and gas of the oil and gas industry. One last thing at comment on is is the tension that in practice arises between international investment arbitration
and international human rights. And this is because international law has to recognize how a clean and healthy environment is indispensable for the enjoyment of human rights. The investment arbitration system, however, puts an obstacle to the abilities of governments to take measures to transition to towards sustainable development and to secure respect and protection of the fundamental right to live in a healthy environment.
I'd love to have you maybe give an example of how you know how a company might use this to, for example, take a country to court over an environmental law that they don't like. I don't know if you have like a good case example that you could share.
Yeah, there are many examples of a state's passing environmental laws and then being taken to court by by corporations that are dissatisfied by those laws. One ext sample comes to mind concerns hazardous wastes in Mexico, so called the tech med case exemplifies the issues that arise in these arbitrations. And in that case, the hazardous waste confinement was located in the downtown rmo Ceo in Mexico, and the government was concerned and the people around the confinement were concerned.
That the trucks.
Going day and night in and out of the confinement with these hazard is wastes were posing a risk to the environment and to the health of the population. The company in question began to enlarge the confinement without having the necessary permits, and as a result, it was it was fined it was There were proceedings by the administrative agencies in Mexico and and the government began to study the possibility of moving this confinement outside of the of
the of downtown area. Laws were passed that required that hazardous waste confinement be located from urban centers and the company. However,
the negotiations with the company did not progress very far. Eventually, the government decided that it would not renew the concession for the operation of the hazardous waste confinement, and at that time the company took the government to court to the arbitral system, and that's when the arbitrators replace the role of domestic courts and begin to apply loosely defined
treaty standards. They eventually considered that the corporation had an expectation to make a profit out of its investment it was a Spanish corporation, but that that profit had been frustrated by the measures that had been taken by the government to protect the people around the confinement. So also
comment that in that specific case, the community mobilized. They began to protest the trucks against the illegal expansion and so forth, and so the government was also giving expression to the concerns and the interests of the people that were mobilizing. The tribunal, however, considered that those protests could not be foreseen and that they were they did not have a scientific basis. There was no evidence that hazardous waste had indeed compromised the health of the population and
so doing. Then they declared that Mexico was liable to pay the company millions of dollars for the measures it had taken. So this again goes to show how in a domestic court, the balancing of the public health, the environmental issues, the human rights issues would have received a different light than the unidirectional character of the arbitration that focuses on the corporation and whether the government's measure has frustrated its expectations.
Okay, so I know that you are not involved in this Chevron, Ecuador case, but as someone who knows this system well and has seen lots of different types of cases, I'm curious just when and if it popped up on your radar as an international arbitration kind of expert, and what your thoughts are on that case in particular, and how it kind of played out.
This is a massive case. It's a massive case. The arbitration is just one of the forums where this case has been litigated. The arbitration itself spans thousands of pages, numerous awards and procedural decisions. Prior to the arbitration, there had been litigation in federal court in New York for nine years. There was also litigation in Lago Agree in Ecuadorian trial litigation, appellate court litigation, Supreme court litigation in Ecuador.
The Ecuadorian Constitutional Court was also seized. There has been litigation in Argentina, Brazil, Canada, the Netherlands. The International Criminal Court received a letter as well, and they're still ongoing litigation by Chevron against the Plaintiff's Council in the United States. So that's perhaps one first observation about how broad and how complex the massive and it goes to show how difficult it is to hold a big oil company accountable
for environmental harm. Chevron has spent hundreds of millions of dollars in legal fees. Those moneys could have been used to prevent environmental harm or to clean up the pollution. How does it compare to other cases, Well, one thing I would notice that the arbitral system is opaque. It is
known for its lack of transparency. This is a big problem because the arbitrations, as we were discussing, they involve the public interest, They involve the scrutiny of public law measures, and so they should be heard under the safeguards of transparency. And accountability that characterize due process and the rule of law. But these arbitrations often are conducted behind closed doors, without
the public having access to the proceedings. That being said, however, in some cases, high profile cases involving environmental protection measures, the arbitrations have opened up and they have allowed for public hearings and they have allowed for the public to present so called amicus courier briefs. This is the Latin term for a written brief that presents a perspective that may not have been developed by the disputing parties and that is helpful for the tribunal to receive.
In this case.
However, in the Chevron, Ecuador case, hearings were held behind closed doors. Civil society was not allowed to intervene as sami ki, and from that angle, the outcome in favor of Chevron is not surprising. But all that said, however, the outcome is surprising in some aspects. And one of the aspects that I think is has to some degree startled a number of observers is the far reaching.
Character of the awards, and this.
Is because the the arbitration system is often sold to policy makers and to the public as one of simple compensation for laws. The bottom line, it is argued, is that if a foreign investor suffers economic harm because of something that the government did, then it should be compensated. And the example of the caricature even that's often presented is a corporation owns a mind that is expropriated by a military junta that gives the property to the to the nephew.
Of the general and power.
Then of course the company should receive compensation. But that's not what's going on. That's not what went on in this case, and not generally what's going on in the field. In this case, the panel, the arbitual panel, crafted a range of remedies that go well beyond the issue of compensation for laws. Directed Ecuador to preclude enforcement of the judgment of its national courts. So preclude enforcement that shows how deep this system penetrates the sovereignty of the state.
The panel also declared that Ecuador would be liable to Chevron for any recovery that the plaintiffs in the Lago Agrio litigation managed to obtain. So, in other words, if if the Lago Agrio plaintiffs are able to enforce the judgment rendered by the Ecuadorian courts. In some jurisdiction around the world where they can find Chevron's assets, Ecuador would be liable to Chevron for any recovery that the plaintiffs make.
Wow.
Yeah, it is not just an award that typically that the state has adopted Measure X.
This measure has caused.
Why harm and we order the tribunal orders the state to pay fifty million dollars to the company. That's not what's what's happening here. So one of the things that this shows is that international investment arbitration is not just about money. It is foremost about governance, Who takes decisions and for whom, who benefits from those decisions. That sense, it is a system that removes the scrutiny of governmental measures from courts of law and places it in the
hands of three arbitrators. In this specific case, one of the arbitrators often sits in arbitral panels because he is appointed by corporations. Let's recall that typically there are three arbitrators and the corporation the foreign investor, gets to appoint one of the arbitrators. So in that sense, it was no surprise that this person would favor Chevron's interests.
The other two arbitrators.
One a commercial lawyer who recently passed away and so may he rest in peace, and the other an international law professor. So I think it's fair that we can ask, can we expect two white males sitting thousands of miles away from the lands polluted by Texaco to appreciate the significance for the indigenous peoples that lived in those territories of the environmental destruction that Texaco cost in the nineteen seventies in Ecuador. I think that their decision shows that
they did not. They did not so appreciate the significance that the arbitrator simply focused on Chevron and its narrative in disregard of the environmental and human rights calamity caused by Texaco, and to be fair Texaco and Petro Ecuador, I think that the disregard for this calamity shows the unidirectional character of the investment arbitration regime, a regime that focuses on the corporation's interests and its narrative and does
not regard the environment and human rights. Perhaps I could elaborate on an example to illustrate this point.
Yeah, that would be great, And then I do want to have you talk about, you know, just how this undermines the Ecuadorian constitution and the right to a healthy environment, and I mean, like just in general undermines country's sovereignty. I mean, you've kind of made that point a few different ways already, but I'm curious for your thoughts on the Ecuadorian constitution in particular.
That is exactly one of the issues that the arbitral Tribunal addressed. Now, in a democracy, one would expect, by design a constitutional question to be addressed by a constitutional court. But in this instance, there was an issue concerning contract between Texaco and the Ministry of Minds and Representation of the Government that raised this issue and the arbitration. So perhaps to step back, I think this is a good example.
In one of their words, the arbitrators set out to interpret the right to a healthy environment in the in Ecuador's constitution. Chevron argued that it had been released from liability for collective claims under the right to a healthy environment by virtue of a release contract that had been concluded between Ecuador and Texaco. Texaco would carry out some remediation work in exchange of release for liability from the state and Petro Ecuador. But the scope of work in
this contract was limited. This left sources areas of contamination unremedied. There's evidence that indicates serious shortcomings in the remediation efforts that were actually carried out. Despite all this, in nineteen ninety eight, Ecuador approved Texaco's works and released it from
liability related to contamination from the oil operations. So this is the contract and the release that Chevron argued was an issue in this case and precluded the exercise of jurisdiction by Ecuadorian courts of claims concerning the collective dimensions of the right to a healthy environment, and so it asked the Arbitral Tribunal to declare so and declare that Ecuador, by allowing its courts to exercise jurisdiction, was violating the
contract and the bilateral investment treaty between the United States.
Ecuador.
The tribunal approached this and despite the pollution was not cleaned up. Despite that environmental problems were not resolved, the tribunal concluded that the contract between Ecuador and Texaco meant that Chevron could not be sued on the basis of the collective dimensions of the right to a healthy environment in the Ecuadorian Constitution. The tribunal considered that the government could dispose and did in fact dispose of this constitutional
right by a contract. Now, I would comment that the tribunal's decision is not compatible. It doesn't comfort with international human rights law, or with constitutional law for that matter. This is a largely a commercial frame looking at contract law to approach what are public law issues of constitutional human rights theory. A state cannot contract human rights away. Human rights are inalienable. They belong to humans, They belong to the people. The state cannot approgate human rights, least
of all by contract. The notion that a country and a corporation can, in a contract deprive the people of a state from a basic human right can only be understood by reference to the arbitration as a system for advancing corporate interests at the expense of the rights of peoples.
Yeah wow.
A footnote to that analysis is that in the litigation in Ecuador, after Chevron was unsuccessful before the Supreme Court, it seized the Constitutional Court, the Ecuadorian Constitutional Court, arguing a denial of due process and other constitutionally protected rights and it was complaining about the exercise of jurisdiction by Ecuadorian courts. But the Constitutional Court plainly concluded that in a contract, the government cannot dispose of rights it does not have.
The right to a healthy environment is a right of all.
Persons subject to ecuador jurisdiction, the court recent and the government cannot contract it away. What are some of the implications of this. One could comment that it was expedient, perhaps too for the tribunal to interpret the right to a healthy environment in Ecuador's constitution in a manner that
shielded Chevron from liability, that released it from any claims. Otherwise, the tribunal may have had to look at the environmental realities in Ecuador, the lack of remediation, the contamination, the ongoing contamination, the fact that dirt was moved from pits, that certain pits that had been covered up are still leaking, that communities, many communities are still without adequate food, without adequate water, and so forth. That is something that Chevron
has worked very hard to avoid in this case. And I would say that Chevan has largely succeeded. It has largely succeeded in making this case story about the plaintiff's lawyers, about Stephen Donziger. But I think it's important not to
forget what this case is really about. If we recall the indigenous peoples in the Amazon, the Warani, the Kofan other indigenous peoples, they lived in a pristine rainforest environment prior to the arrival of Texaco and the oil boom in Ecuador in the nineteen sixties and early nineteen seventies. The extraction of oil by tex and Petro Ecuador was without regard to the protection of the environment. It was
without regard to the rights of affected indigenous peoples. First operated by Texaco as I mentioned, and then taken over by Petrocador, oil operations severely impacted indigenous people's traditional land. The oil boom in Ecuador has imposed loss of life, health, territory, and culture. Indigenous peoples have not received reparation for the violation of their rights. The arbitraal Trade you know, concluded this was beyond their mandate and therefore it was not
their problem. It is not surprising. This is not surprising as international investment arbitration focuses on whether the government has wronged the corporation, but not on the environmental damage that may have been caused by that corporation. This imbalance is creating deficiencies in the international legal system, and this award is an example of that.
Can you explain sort of what happens in a case like this where the international arbitration panel is basically saying, you know, Ecuador, your courts got it wrong?
Like who?
I mean, I guess, like who? And and there's like ongoing other you know, legal proceedings happening. What's sort of the hierarchy there? How do those how do those things kind of intersect the the domestic court system? I guess in this case both an Ecuador and the US and this international panel.
Yeah.
Traditionally an international law, before a claim can be presented by a non state actor to to an international tribunal, there needs to be exhaustion of domestic remedies. This is a term of art that means that a person or a corporation that feels that it has been wronged in order to present a claim first must go to national courts and and give the state the opportunity to resolve
problems before being confronted to an international claim. In investment arbitration, however, there is no requirement, at least not explicitly or typically. There so many bilateral investment treaties, thousands of them, but typically they don't establish an exhaustion of domestic remedies requirement.
What many of these treaties do establish is a choice whereby the investor must choose whether to go the route of national courts or go the route of an investment arbitration, and investors usually choose they elect the investment arbitration route because they're as mentioned earlier, they get to appoint one of the typically three arbitrators, and they get to choose which arbitral rules will govern the arbitration, which is also so relevant for the conduct of proceedings and the enforcement
of any award. So that's a particularity in the field where corporations are able to do some forum shopping to advance claims in whichever forum in whichever way suits their interests best. So wherein corporations are well endowed with resources and have the ability to hire scores of lawyers, they can really drown plaintiffs in litigation that is expensive in
various forums. Perhaps an example can illustrate it. A few years ago Bechtel acquired a water concession in one of the poorest countries in Latin America, Bolivia, in the city of Cochabamba, and soon after taking over the water concession, it raised prices exponentially. It even began collecting water fees from water taking from wealth that had been constructed by
communities so the concession. It was expected that Bechtel would invest capital to increase coverage and secure access to water, but instead it began collecting a very high feast for water, and so there were water revolts, so called the Cochabamba. The community mobilized and eventually the government decided that it had to take back the utility. And at that time Bechtel brought an arbitral lawsuit against Bolivia, but not as
a US corporation. It was under a Dutch Bolivia by latter investment treaty, so it claimed that it was a company from the Netherlands and on that basis it could sue Bolivia.
The tribunal sided.
With Bechtel and allowed the case to proceed. So how common are these parallel legal proceedings? How common is form shopping?
Quite common? Unfortunately?
Okay, And then I know that there are various kind of guidelines that govern these proceedings. Can you just talk a little bit about that like that, I don't expect you to run down you know the specifics of all the different batches of rules. But how is it decided sort of which set of guidelines a tribunal is going to go with? And then what happens with the verdict in one of these arbitration cases? How you know? Is there an appeal process?
Right? Right?
So if we compare the process with domestic courts. In domestic courts, there's well civil procedure or criminal procedure. There are laws that govern the process and they provide all kinds of safeguards. The analogy in the arbitration system are the arbitual rules. Those arbitual rules are the rules that govern the process, who gets to speak when, what are the authorities of the arbitrators?
And they also govern what.
Happens at the end the decision, the award, enforcement, and so forth. An underlying theme and international arbitraration is the quest for finality. It is understood that the contending parties want to settle their dispute and it is expected that the award will be final, and so there's there's no appeal to investment decisions. Again, the arbitral rules will govern the specifics. For example, under the the Chevron Ecuador case, this was heard under the rules of the UN Commissioned
International Trade Law. This is these are rules that have been designed for commercialsputes, not for the kind of denial of justice which are public disputes, public law disputes, and so the issues of secrecy in commercial disputes may be warranted in those frames, but when it comes to public law they are wholly inadequate. The uncetrulled rules. They rely
on the New York Convention. There's a New York Convention for the Enforcement, for the recognition and enforcement of arbitraal awards, and that convention gives some authority to national courts in terms of recognition and enforcement. But at the same time that authority is very limited, and courts they are. They usually they give deference to the awards because of the need for finality. They can set aside, they can strike down an award if there has been corruption, if if
there's a clear violation of public policy. But for the most national courts are quite reluctant to set aside or strike downwards so that those are the procedural rules that were applied in this case. There are other sets of rules by the Paris International Chambers or or the World Bank's Investment Facility. Those rules, for example, the World Banks, they exclude it's totally self contained. It's they exclude the
role of national courts. They provide for procedures for annuwnment in case again that a party has not been heard, or there has been corruption or so forth. But those procedures for a moment, they don't review the merits. They don't get into whether the decision is right or wrong, whether the law has been properly applied. They get into other other causes or other situations that may affect the integrity of the process, but not the quality of the decision.
So at the end of the day, when.
The when the investor receives a favorable award under the New York Convention, all states that are parties to that
convention are required to honor that award. And that that means that that the in practice that the Chevron Ecuador Arbitral Award directing Ecuador two make to try to avoid enforcement of the decisions in of its national courts that may have an influence in any country part to the New York Convention, any jurisdiction where the plaintiffs are trying to enforce that judgment, so it may be at the end very hard for the for the plaintiffs to to collect damages on that decision.
This is something that seems to me like a corporation may not go after a European country or the US, but they're going after developing countries and countries in the global South, you know, countries with largely indigenous or brown or black populations. But yet it's so it's it really is another form of colonialism.
There's much much to be said about about that.
In theory, the.
Instruments are bilateral. There are some regional instruments as well, and so they allow for corporations from either country to sue the other country. And so, for example, in the United States Randa by latter Investment treaty, we have not seen any random corporation suing the United States. But we have seen Canadian corporations under the terms of the North American Free Trade Agreement suing the United States. They actually have not been successful. In terms of European countries, there
are disputes between European states. Germany has been sued by Swedish corporations, for example, for facing out coal and nuclear energy and so forth, so their energy matrix button fall cases. Spain has been sued for certain benefits that it was no longer able to maintain after its economic crisis, benefits that had underlined the solar energy industry. So there are cases where there have been disputes between industrialized states or
cases brought against industrialized cases states. I think what this goes to show is that there is some element of colonialism and north south politics. But it's also, as I was saying earlier, many observers see here a corporate globalization where it doesn't matter if the state is rich.
Or poor, or north or south.
What matters is for the system is whether the state is taking measures that may affect the expected profits of a corporation. If it does so, it becomes the possible target of arbitraal claims.
Drilled is an original production of the Critical Frequency podcast Network. It's created and reported by me Amy Westerveldt. My co reporter on this season is Karen Savage. Our editor is Julia Ritchie. The show's editorial consultant is Rika Murphy. Mixing and mastering by Mark Bush. Original score by b Beeman. Special thanks to Larissa Ikeda, Trevor Gowen, and Emily Gertz. Our fact checker is wu dan Yan. Our First Amendment
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