Historical fine against Chevron canceled by an international private court

The Chevron oil company was ordered by the Ecuadorian courts in 2012 to pay compensation of 9.5 billion dollars for pollution generated by one of its subsidiaries in the Amazon.

A private commercial court has just overturned this court decision taken in favor of the inhabitants and communities affected by the pollution. A commercial court based in the Netherlands, the Permanent Court of Arbitration in The Hague, merely voided this compensation.

The Court of Arbitration considers that the Ecuadorian fine – although confirmed a few weeks earlier by the country’s Constitutional Court – is tainted by corruption, and shows that signing a very partial compensation agreement released Chevron from any liability.

International commercial arbitration, a highly controversial system

These procedures are a way for multinationals to impose their will on recalcitrant governments.

It is the first time that a private arbitral tribunal has been used to overturn a court decision confirmed by all the judicial authorities of a country against a multinational company. The conclusion therefore openly reinforces the primacy of the commercial law of companies, and their private courts, over national courts.

Oil and toxic sludge discharged into the environment

Exploiting oil from the Amazon region of Ecuador since the 1960s, the oil company Texaco, since acquired by Chevron, had dumped crude oil and toxic sludge into the environment and contaminated several hundred thousand hectares of forest.

The legal proceedings, initiated by an association representing several thousand affected people, were launched in the 1990s. It has been marked by successes, which have seen the powerful multinational recognized as responsible in Ecuador for the environmental liabilities of its subsidiary Texaco and condemned to real compensation.

The fight was then carried out on other fronts, from Argentina to Canada, to enforce the sentence. Other legal avenues have been considered, such as referral to the International Criminal Court.

This battle also saw the oil major and her allies bypass national jurisdictions by taking its assets out of Ecuador and advocating legal separation between its various subsidiaries. Chevron also succeeded in convincing an American judge that the search for compensation by the affected Ecuadorians amounted to an attempt at extortion.

Rebalancing international law

The decision was taken when a UN working group is in charge of drafting a binding international treaty concerning the legal liability of multinationals. This working group is going to meet in October at the Palais des Nations in Geneva to begin its work.

Proponents of such a treaty believe it is necessary to counterbalance the excessive power given to multinationals by international trade law and arbitration tribunals and to rebalance the requirements of investment protection with those of human rights and the environment.

Following the wave of criticism of the draft Tafta Free Trade Agreement in Europe and the United States, as well as the growing reluctance of many countries towards investor-state dispute settlement procedures, timid proposals for reform of arbitration tribunals was put on the table, such as the Multilateral Court on Investment invented by the European Commission.

According to critics, these proposals only marginally modify the existing system, which is biased in favor of multinationals.

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