The Global Lawyer: Chevron, Ecuador and the joys of arbitration

Four-and-a-half years after a US judge took 500 pages to definitively expose the world’s greatest litigation fraud in Chevron versus Donziger, arbitrators took 500 pages to expose the same fraud on the same evidence in Chevron versus Ecuador. 

Aside from being quicker, the US courts provided the discovery that was essential to unmasking the crooked lawyers and the publicity crucial to discrediting their case. So why did Chevron bother with arbitration?

First, you cannot be too careful when your adversaries hold a $9.5bn Ecuadoran judgment that remains theoretically enforceable anywhere in the world. Plaintiffs’ lawyer Steven Donziger appeared to live by the maxim “if you repeat a lie a thousand times it becomes the truth”, whereas Chevron’s motto might be “if you expose a lie a thousand times it becomes unenforceable”.

While the US courts enjoined the plaintiffs from collecting their judgment, the arbitrators have declared its enforcement to violate international public policy. And though some of the public will persist in believing the plaintiffs team’s lies (that Chevron has created a mass cancer epidemic in the Amazon, and persecuted the 'good guy' lawyers), those lies become harder even for a politicised court to accept (or pretend to accept) with every new 500 pages of damning jurisprudence. 

“Short of a signed confession by the miscreants,” Chevron versus Ecuador concludes, this “must be the most thorough documentary, video, and testimonial proof of fraud ever put before an arbitral tribunal”. Their “prolonged malign conduct… almost beggars belief in its arrogant contempt of the elemental principles of truth and justice”.

Second, it is always nice to establish that a ‘denial of justice’ arbitration may be used as a shield against a jackpot judgment by a corrupt national court. For years, I falsely predicted that the tribunal would avoid the stigmatising clarity of calling the Ecuadoran courts unjust. They might have rested their case solely on Ecuador’s violation of its contract to release Chevron from collective environmental claims. Or they might have invoked the inchoate doctrine (drawn from an earlier Chevron versus Ecuador panel) that transforms a treaty’s promise of ‘effective means’ to vindicate an investor’s rights, into a sort of 'denial of justice-lite'. 

In the event, the tribunal avoided the effective means clause. And despite accepting Chevron’s contract argument, the arbitrators reached out to invoke denial of justice as well. As it happens, the tribunal took so long to decide Chevron versus Ecuador II, that denial of justice had become old hat. (See: The Global Lawyer: Is the denial of justice ‘renaissance’ finally upon us?, June/July 2018 issue). The panel’s wise and careful delineation of the precept, in this most apt setting, remains salutary.

Third, Ecuador has deeper pockets than Steven Donziger. If this arbitration reaches its final phase, Chevron will pry from Ecuador the mother of all fee-shifting awards (as damages). I have long estimated Chevron’s legal fees in the global dispute to be more than $500m and I’ve never received any pushback. The panel, which presumably cares less about Gibson, Dunn & Crutcher’s bills than my old editors, dropped a helpful hint about “constructive dialogue”. One fervently hopes that any settlement will include generous provisions by both parties for the environment and public health in the Amazon.

Finally, arbitration lets Chevron demand from Ecuador an indemnity for any money that the plaintiffs collect. This would be the ultimate remedy, for it would align Ecuador’s interests with Chevron’s. As a repeat player in both litigation and investment, Chevron clearly cares about structural incentives. The main reason it has ruthlessly pursued Donziger’s disbarment (likely imminent) is not for revenge, but to serve as a lesson to corrupt plaintiffs’ lawyers.

By the same token, Chevron would love to send a pungent message to countries with corrupt legal systems. Nothing could better justify its 25-year legal ordeal than to make host countries liable for their own fraudulent judgments against foreign investors.

Michael D Goldhaber serves as US correspondent for the International Bar Association. He is author of the award-winning e-book Crude Awakening: Chevron in Ecuador, available on Amazon. E-mail: michael.goldhaber@gmail.com