(The award for Chevron was made by Horacio Grigera Naón (of American University, nominated by Chevron); Vaughan Lowe (of Oxford University, nominated by Ecuador); and V.V. Veeder ("one of the stars" of investment arbitration from the UK's Essex Court Chambers, appointed by the other two).)
Lori Wallach of Public Citizen's Global Trade Watch told me that Ecuador should not comply with the panel's most recent order. (Wallach went to law school with Steven Donziger, the architect of the Ecuadorean plaintiffs' case, but is not a paid consultant for the plaintiffs.) Wallach agreed that countries regularly ignore orders from private arbitrators, whom she derided as "three private lawyers in a hotel room." She said that the directive from the Chevron panel, however, is "the most outlandish one I've seen." It's unprecedented for a panel to order an injunction that calls for an executive to interfere with a domestic court system, she said. "It would be as if one of these panels ordered Obama to act contrary to the Supreme Court," said Wallach, who has been tracking international arbitration since 1994. "Ecuador shouldn't follow it." (Public Citizen put out a press release Friday asserting that the Chevron panel's "obscene" award "could lead to the implosion of the entire investor-state system, which international companies are increasingly using to try to evade justice worldwide.")
Chevron counsel Randy Mastro of Gibson, Dunn & Crutcher said suggestions that the Republic should ignore the arbitrators' instruction are absurd. "Any country ignoring the ruling of an arbitration panel would be doing so at its peril," he said. Chevron's underlying claim in this arbitration, he pointed out, is for a judgment that under an old agreement with Chevron predecessor Texaco, the Republic of Ecuador is responsible for bearing all the costs associated with cleanup of the Lago Agrio region -- including Chevron's liability to the Ecuadorean plaintiffs. With that part of the arbitration pending, the Republic would be risking an adverse result if it flouted the panel's interim order.
"Typically, nations with treaty obligations honor those obligations or face the consequences," Mastro said.
This raises an interesting question, which a colleague asked me: “Are there any penalties written in the treaty if Ecuador disobeys the ruling?"
The US-Ecuador bilateral investment treaty says: “Any arbitral award rendered pursuant to this Article shall be final and binding on the parties to the dispute. Each Party undertakes to carry out without delay the provisions of any such award and to provide in its territory for its enforcement.”
What if a country refuses to see itself as bound? What then?
Well, the BIT also says that all arbitrations “shall be held in a state that is a party to the New York Convention.” This creates a backdoor enforcement regime. When an arbitral tribunal orders a cash payment, a claimant can take the arbitral award to the national court of any signatory to the New York Convention (1958). This is about every country.
Supposedly in all of these countries (but definitely in the developed countries), a national court will almost always agree to simply enforce the award, and they can order that the assets of the complainant or respondent (as needed) that may exist within national territory be impounded in order to make the payment. (Virtually every government has bank accounts or other assets in the US, UK and Switzerland, which is where most of these arbitral award enforcement actions occur.)
The situation is considerably murkier in the Chevron case, and there are not many (if any) precedents for non-cash related awards.
Chevron's counsel argues that Ecuador risks an adverse ruling in the "final award" if it flounts the interim measures award. (Interestingly, Veeder, Lowe and Grigera Naon have not even found that they have jurisdiction over the case, but assumed they did for the sake of making this injunction-like interim award.) I see a few problems with that argument. First, it's possible that there could never be a "final award." Second, if Ecuador already denounced the interim award, what would keep them from denouncing the final award?
Here's where we get to brass tacks, all extra-legal, so to speak:
- Chevron could argue that capital will dry up. This argument states that capital markets would refuse to lend to a country that didn’t “play by the rules.” Indeed, Argentina has had difficulty accessing international capital markets since its default and subsequent refusal to enter bond markets. However, this has not mattered since Argentina has strong internal capital markets, export markets and has been growing like gangbusters. My bet is that Ecuador (certainly under Correa) would not find this threat super credible either, although it could definitely make the government's life uncomfortable.
- Chevron could pressure U.S. to take foreign policy action. More recently, Obama has tried to pressure Argentina to comply with investor state rulings by voting against disbursements for Argentina in the Inter-American Development Bank. Congress may attach riders to appropriations for Argentina to pressure them to comply. This could hurt Ecuador, but the country also has been on the outs in trade preference legislation already.
- Chevron could press for war. In an earlier era of gunboat diplomacy, countries that didn’t “play by the rules” received a visit from the US or UK Armed Forces.
Although some of these sound absurd, they are options for "enforcing international law."
Now, Ecuador could attempt to launch a state-to-state dispute over the interpretation of the BIT. In fact, they’ve already done this in the earlier investor-state case brought by Chevron. (In that underlying case, Ecuador was ordered to pay Chevron around $100 million, essentially because Chevron argued that the Ecuadoran courts were moving too slow in hearing the case brought by indigenous people against the oil giant. Now, Chevron is essentially arguing that Ecuador is moving too fast, and they need international intervention.)
Since we don't know how that case will end up, it's hard to know how a second one could end up in Chevron v. Ecuador Part Deux, nor what if any consequence it could have on an adverse investor-state ruling. But it seems things will stay interesting in this case for a while to come.
UPDATE: Bottom line: Ecuador is stuck between a rock and a hard place. If the government complies with the investor-state ruling and therefore breaks its own Constitution, it risks revolution at home. If it ignores the investor-state ruling, it allows Chevron to continue its global campaign to isolate Ecuador in international capital markets and politics. Chevron would probably ultimately try to enforce a cash arbitral award in third country courts. I'm betting that the plaintiffs would, in this case, also try to enforce the Ecuadoran court ruling in third country courts. Essentially, compliance puts Ecuador on a constitutionally tainted collision course with its citizenry; non-compliance puts the investor-state system on a geopolitically tainted collision course with justice for the plaintiffs. Either situation is unprecedented.