Chevron v Ecuador – Award Rejected By Ecuador

The Associated Press is reporting that Ecuador has unsurprisingly taken the position that they will not accept the partial award on the merits made earlier this week.

Understandably so, given that the award implies that the judicial system in Ecuador is ineffective at best and jaundiced against (at least some) foreign claimants at worst.

QUITO, Ecuador — Ecuadorean officials are rejecting an international arbitration tribunal’s ruling that it violated international law and must pay $700 million to the Chevron Corp.

President Rafael Correa’s administration is analyzing options for appeal under national and international law, Attorney General Diego Garcia said in a statement Wednesday.

“This new effort to compromise the Ecuadorean state in its firm commitment to respect the independence of its judicial system … will not succeed,” Garcia said.

Read the full article here

Two major avenues that immediately suggest themselves for Ecuador. The first is that Ecuador can appeal the award to a competent court. The second is to resist enforcement under the New York Convention and on the grounds of sovereign immunity. Both look like viable options.

As to the right of appeal, the UNCITRAL rules only specify that the award is “final conclusive and binding”. At least in the United Kingdom, this is insufficient to oust the right of appeal under the Arbitration Act 1996.

Much will depend on the seat of the arbitration and how the domestic arbitration legislation deals with any exclusion of the right to appeal.  I suspect that if a reasonably permissive and robustly commercial English legal system does not interpret the UNCITRAL rules as excluding the right to appeal, other systems may take the same view.

Sovereign immunity is the second line that Ecuador of defence. Unlike ICSID awards which are self-executing and automatically enforceable in all states that are party to the ICSID Convention, UNCITRAL awards have no special status, and nor does the Permanent Court of Arbitration. As a result, enforcement would have to rely on the New York Convention.  Ecuador could resist enforcement on grounds for challenging an award that are set out therein.

Finally, the UNCITRAL rules make no provision at all for sovereign immunity. That means that the default position in each state should prevail. Again this will depend on if there is a restrictive or absolute standard of immunity. Since most of the world apart from the European states and the US partially (the Foreign Sovereigns Immunity Act contains an express exception for arbitral awards) adheres to a absolute standard of immunity, Ecuador should have a reasonable chance of success depending on where its commercial assets are located.

There is a good chance that Ecuador will win the battle where it matters most: Chevron and Texaco may have their hands on the award, but they will struggle to turn it into cash.

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