Course:CONS200/2019/The 25-year battle between Ecuadorian Amazonian communities and Chevron-Texaco

Introduction

The 25-year battle between Ecuadorian Amazonian communities and Chevron-Texaco is one of inequality, unlawful actions, and long-lasting consequences to thousands of Ecuadorian civilians. In the 1960’s, oil was discovered in Oriente, a remote, northern region of the Ecuadorian Amazon. Texaco, a big oil company that has since been absorbed by Chevron, moved into the area and begun drilling in 1964. 2 000 000 hectares of land had been deforested, hundreds of wells were drilled, and billions of gallons of untreated and unregulated waste was discharged into the ground and neighboring water bodies. Texaco was not using the same technology nor adhering to the same laws, regulations, and practices that were used in other countries, such as the United States. The lack of regulations and the unadvised practices were purely money-saving techniques which resulted in lowering the cost of production by $3/barrel. The Ecuadorian government and Texaco signed multiple contracts over the years, involving the amount of permitted land usage and Ecuador’s right to fairly-priced petroleum for domestic use. Despite regulations, however, Texaco enforced strict rules surrounding Ecuador’s usage of the petroleum and was entitled to compensation if the Ecuadorian government attempted to export any of the petroleum. Further, individuals in the Amazonian communities reported poor treatment by Texaco. Even more unfortunate, the use of obsolete drilling technology, abandonment of toxic wastewater pits, and general disregard to consequence has resulted in decades of birth defects, unprecedented cancer rates, miscarriages, infertility, and an overall decline in public health. Due to these atrocities, a class action lawsuit against Chevron (Texaco’s new owner) was put in motion to begin compensation for the affected communities.

Timeline

A map of Ecuador. The Lago Agrio oil field is located in Nueva Loja, marked on the map, in northeastern Ecuador.

• 1967: After an initial period of exploration, Texaco, in a consortium with Gulf Oil, began operating a concession in the Lago Agrio oil fields in Ecuador's Amazonian rainforests. They owned a minority of the consortium but retained primary responsibility for conducting operations within the oilfields.

• 1971 : The state owned oil company, Petroecuador, joined the consortium.
• 1976  : Petroecuador bought Gulf Oil out of the consortium.
• 1967 - 1990 : During its operation the consortium "dug 339 wells over more than a million acres, and extracted around 1.5 billion barrels of oil. It also built and operated a 312-mile pipeline to transport oil to Ecuador's Pacific coast."
• 1990  : The concession expired and Texaco ceased operations in the Lago Agrio oil fields.
• 1993 : Groups of plaintiffs brought similar cases, in the federal district courts of New York and Texas, against Texaco regarding the alleged environmental damage in Ecuador and Peru. The case in Texas, Sequihua v Texaco, was swiftly dismissed on the grounds that Ecuador would be more appropriate for the litigation. In New York, Aguinda v Texaco, was dismissed on the same grounds in 1996.

• 1995 - 1998 : Texaco paid $40 million in remediation efforts in accordance with agreements with the Ecuadorian government which then released it from any liability to the government for environmental damage. Texaco allegedly cleaned up 37.5% of the site (the minority percentage they owned of the consortium), with the rest deemed the responsibility of Petroecuador.
• 2001 : Aguinda v Texaco, was found by the Court of Appeals to have been improperly dismissed the first time so it was reassessed and once again dismissed on the same grounds. This seemed to bring an end to litigation in the US.
• 2001 : Texaco merged with Chevron.
• 2003 : The plaintiffs regrouped and filed suit against Chevron as the successor to Texaco (the merger having taken place) in Lago Agrio, Ecuador.
• 2004 : Chevron began proceedings against Ecuador before the American Arbitration Association. The American Arbitration Association (AAA), is a not-for-profit organization that provides services to individuals and organizations who wish to resolve conflicts out of court.
• 2009 : The proceedings before the American Arbitration Association ceased with no real yielded results other than years of litigation for Chevron and Ecuador.
• 2009 : Chevron filed a claim in the Permanent Court of Arbitration ('PCA') under a bilateral investment treaty ('BIT'). The Permanent Court of Arbitration is an intergovernmental organization providing a variety of dispute resolution services to the international community located in The Hague. Bilateral investment treaties are international agreements establishing the terms and conditions for private investment by nationals and companies of one state in another state, their purpose is to protect the interests of foreign investors in their host states. This case has yet to conclude.
• 2011 : After nearly eight years, judgment was delivered for the plaintiffs in Ecuador on 14 February, 2011. The judge awarded the plaintiffs US$9.4 billion in damages (including an award for the fees of the plaintiffs' representatives), as well as punitive damages of a further US$8.6 billion unless Chevron publicly acknowledged its misconduct in major Ecuadorian newspapers within fifteen days.

Key Arguments

Ecuadorian Communities

The affected individuals behind the class-action lawsuit had four primary allegations. Foremost, Ecuadorians in the Oriente region and Peruvians who lived downstream the drilling, were upset with the copious toxic waste that was either discarded into local rivers, burned, dumped into landfills, or spread on local dirt roads.  Industry standard at the time called for toxic waste to be disposed of into emptied wells, not into water bodies and local soils where contamination can occur. Furthermore, Texaco constructed and operated a pipeline (The Trans-Ecuadorian pipeline) which was quite flawed and led to many leaks. A total of approximately 19.3 billion gallons of untreated waste had been released. The air, soil, and water contamination not only destroyed the local environment, it also resulted in increased cancer rates, birth defects, and miscarriages. The communities’ sufferings of unprecedented illness was the driving factor of the lawsuit.

The basis of Ecuador’s argument was that Texaco failed to abide to the nation’s Law of Hydrocarbons, a set of regulations the company had originally agreed to following. Ecuadorians were also upset that Texaco did not follow the protocol it had adhered to at its previous drilling sites in the United States. The level of standard was simply neglected at the Oriente site and corners were cut in an attempt to lower production costs.

It was not only Texaco’s failure to adhere to regulations but also its active attempt to cover up misconduct that these communities took issue with. Texaco’s upper management instructed the destruction of environmental reports and many Ecuadorian’s believed that the samples taken after court-mandated clean-up were falsified.

Texaco was not the only company that drilled in the Oriente region. A state-owned company, PetroEcuador, bought a 25% share of the consortium and was eventually a majority stake-holder with a 62.5% share. Texaco, however, was still in charge of operations and overseeing drilling practices, which is why Ecuador argues it was Texaco’s responsibility to meet environmental regulations.

Chevron-Texaco

Chevron's main argument is that they technically did not operate in Ecuador. Texaco worked in Ecuador and was not bought by Chevron until 2001. Chevron also argues that state-owned company PetroEcuador was also compliant in the drilling misconducts and should therefore be held accountable instead. Chevron further defended itself in court proceedings by making allegations of attempted bribery by the plantiff’s attornery to Ecuadorian Judge Nunez.

Moreover, Chevron argues that it did its part by sending in remediation crews and it disputes Ecuadorian claims that these crews were in fact unproductive. It is unclear if Chevron responded to the footage of remediation crew members stating it was unimportant whether or not the job was done thoroughly. Chevron’s final statement of rebuttal was that any remaining environmental issues fall on PetroEcuador as it purchased remaining consortium shares and became an important stakeholder.

Role and Stance of the Ecuadorian Government

The role of Ecuador’s government dates back to the 1960’s when the federal government awarded land grants to settlers in efforts to relocate them to rainforested regions. These new populations moved in on land inhibited by Indigenous groups and shortly after, oil was discovered and Texaco moved in. The government had certain expectations for the manner in which Texaco would operate and made assumptions that the company would use up-to-date technology in their practices. However, the regulations which the parties agreed upon were not strongly enforced and destruction ensued. Further, PetroEcuador, a state-owned company, did little to remedy the misconducts. 

Legal Proceedings

According to Business & Human Rights Resource Centre, a group of Ecuadorians filed a class action lawsuit in 1993 against Texaco on the allegations that Ecuador's rivers and rainforests were being polluted as a result of Texaco's oil operations. They brought this lawsuit to US federal court, and one year later, in 1994, Peruvian citizens filed the same lawsuit as the rivers and rainforests in Peru were also being polluted. The primary reason for the Ecuadorians bringing this issue to the United States to begin with, was due to the corruption in Ecuador and wanting to avoid potential collusion between Texaco and their government. They also believed that U.S. courts would be better equipped and  Ecuador may struggle with the complicated nature of this case. In 2002, the court dismissed the case on "forum non conveniens grounds" (FNC). Cornell Law School defines this term as "A court's discretionary power to decline to exercise its jurisdiction where another court may more conveniently hear a case." This essentially means that the US federal court felt that it was deemed more appropriate for Ecuador to litigate these claims.

In 2003, the Ecuadorian citizens brought the claims to Lago Agrio, Ecuador, which most likely surprised Chevron. As demonstrated in past years, lawsuits against multinational corporations in the United States tend to never re-emerge after the suit has been dismissed due to an FNC. However, there are now reforms in Ecuador allow human rights suits to be dealt with appropriately and hold defendants accountable. An investigation then began in 2004 following further allegations of increased rates of cancer and other health issues, specific to the region of Oriente, Ecuador, due to the oil operations. A few years later in 2008, an “independent expert” suggested to the court that for compensation for the pollution, Chevron should pay $7-16 billion. In September 2009, Chevron took its own action by filing an international arbitration claim at the Hague in front of the Permanent Court of Arbitration. They alleged that the Government of Ecuador violated a “US-Ecuador bilateral investment treaty” by claiming that they influenced the judiciary which would compromise the whole trial. Ecuador eventually appealed this lawsuit. After many years of continuous disputes and tireless arguments, on February 14, 2011, Judge Nicolas Zambrano Lozada awarded the plaitiffs $9.4 billion USD in damages.

Importance

Oil pollution, in November of 2007, in the Lago Agrio oil fields operated by Texaco in Ecuador.

Chevron oil drilling over three decades in the Amazon has caused one of the most terrible environmental disasters happened on the Earth. For example, groundwater, soil, and surface streams were polluted, and it has caused the local indigenous people to suffer with chronic diseases. Serious diseases such as nausea and cancer, furthermore, birth defects, spontaneous miscarriages, and death have been recorded since the incidents. Over 30,000 indigenous people and campesino farmers living in the Amazon, greatly effected to their livelihood.

It has been estimated that Chevron dumped tons of toxic drilling and wastes and more than 18 billon gallons of produced wastes into the environment on purpose without care or monitoring, it has given significant negative effects to environment and living creatures.

The indigenous people had claimed the company to pay for cleaning up the rainforest, however, Chevron had decline them. The company filed a lawsuit in the Second District Court of New York under the RICO, and fought against them. As a result, $9.5 billion were awarded to victims.

This case has grave implications on the the broader issue of holding multinational corporations (MNCs) to account for human rights abuses. This is important because MNCs are extremely powerful. Some are more powerful than some of the host States in which they operate, and yet it is host States that are expected to regulate them and guard against, for example, dangerous pollution or catastrophic environmental damage.

Possible Solutions

International laws ratified by Ecuador and the new Ecuadoran Constitution establish rights for indigenous peoples to have a say in state decisions and projects, such as oil extraction, effecting their territory and cultural survival. But, a report found that citizens of Ecuador have no access to information regarding oil operations or the associated health risks, and that the country's constitutional court has not provided effective relief for oil contamination claims. Amazon residents should have been accorded the right to protection against pollution and consultation on oil exploration within their territories as derived from international law implemented by Ecuador.

Another important necessity is the addressing of the identified two main areas that needed to be addressed for the remediation of the oil pollution in northeast Ecuador. These areas are physical remediation of oil contaminants and psychological and sociological treatment of the affected peoples. Physical remediation of the oil contamination has three distinct components— Water Treatment, Soil Treatment, and Source Removal. Each component is affected by the other components and only by addressing all of them can the pollution be fully removed. Water Treatment will not likely clean all the contaminated water, but will create potable water for the people of the polluted region. Soil Treatment will allow the ecology of the rainforest to take root again in and around the drill sites and processing stations and will also prevent further seepage of pollution into the ground water. Source Removal will prevent further pollution and aid the remediation water and soil. Ecuadorians from the affected communities have stated that oil development and subsequent pollution forced many people to abandon their architecture and style of dress. Also affected was their food security, the availability of vital natural resources, and their means of economic survival. Oil development not only threatened their “resources” but also the values those resources protected. More research would need to be done to create a plan that would reverse the mental health effects faced by the indigenous people in the polluted region, but this effort would be aided through the return of resources, both physical and psychological. It is believed that the remediation of physical pollution will facilitate that return, but also that the physical remediation plan should not be created without the help of the affected individuals.

Given the inherent nature of MNCs there needs to be stronger laws and regulations to hold them accountable. Often times they are not held accountable because they take advantage of smaller, developing, or corrupt nations. And because of their mass amounts of wealth it is unlikely for them to be held accountable in their home states, such as the US, as well. Ecuador in particular has been unable to enforce its own attempt at regulating ChevronTexaco without the assistance of other States, partly due to the way Chevron has chosen to allocate its considerable assets internationally. The never ending litigation taking place all over the world demonstrates the need for a stronger mechanism to keep MNCs like Chevron accountable.

Current State of Affairs

This is an unprecedented case due to its importance and the severity of injustice in its origin, the extreme inequality of means among the parties, the simultaneous use of national and international forums, and also to the significant sentence pronounced in Ecuador and the perseverance of the victims.

Chevron seems to have held to its promise to fight the case for years 'if not decades into the future' and they are currently appealing the decision in Ecuador. It remains uncertain whether an arbitral panel will hear its case under the Ecuador/ US BIT. Lawfare looks set to continue some time yet and could even expand beyond the jurisdictions thus far engaged.