Chevron looks to arbitrators to save it from $18B pollution payout

Third of a three-part series.

The final battle in Chevron's high-profile war against an $18 billion judgment over oil pollution in Ecuador is likely to be fought behind closed doors in an ornate building in the Netherlands.

The Peace Palace -- a neo-Renaissance structure built in The Hague with the financial backing of industrialist Andrew Carnegie almost a century ago -- is home to the Permanent Court of Arbitration, whose specialty is resolving international legal disputes.

Although litigation continues both in Ecuador and New York over the February ruling against Chevron, experts say the arbitration court, which shares its grand home with the International Court of Justice, could have a crucial role to play.

That is because the court is currently considering a 2009 claim brought by Chevron against Ecuador in which the oil company claims the Andean nation violated a bilateral trade agreement between it and the United States.

The arbitration proceeding is one part of a tangled web of litigation that illustrates the oil company's no-holds-barred approach to the Ecuador case, which has been ongoing in various forms for 18 years.

Despite concerns raised by shareholders at last week's annual meeting at Chevron's San Ramon, Calif., headquarters about the judgment and the scant prospect of a settlement any time soon, the company has stressed its continued commitment to fighting to the bitter end.

In Ecuador, Chevron has appealed the $18 billion ruling entered by Judge Nicholas Zambrano, while in New York it is pursuing a federal racketeering case against the American lawyers who represent the indigenous plaintiffs, alleging the entire case is a scam.

But what the three-man arbitration panel concludes could be decisive, according to experts such as Peter McGrath, a partner at the Moore & Van Allen law firm in Charlotte, N.C., and a specialist in environmental law.

"The mechanism through which everything will be sorted out will be the arbitration," McGrath said.

Images from Lago Agrio: A Slideshow

Long before the $18 billion verdict for oil pollution issued by an Ecuadorean judge in 2011, there was Lago Agrio 01, the first site where Texaco Petroleum Corp. discovered oil when it started operations in the 1960s. E&E visited the oil fields around Lago Agrio to view the contested sites firsthand.

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About this report

In February 2011, a judge in Ecuador ruled that Chevron Corp. should pay up to $18 billion in damages for oil pollution in the eastern part of the country. The 18-year battle has been ugly, both in Ecuador and in U.S. courts, where Chevron has sought to undermine the plaintiffs' arguments and the legitimacy of the Ecuadorean court system. Legal reporter Lawrence Hurley traveled to Ecuador to investigate Chevron's claims and examines whether the case is any closer to a resolution.

Click here for a timeline of events.


Previous stories in the report


Chevron allegations about justice system strike a nerve in Ecuador

QUITO, Ecuador -- Gathered in front of the presidential palace in the Spanish colonial quarter of the Ecuadorean capital, the crowd held aloft green and yellow signs that screamed one word: "Sí."

Possibly with a nudge from the leftist government of President Rafael Correa, the demonstrators were showing their support for a referendum held here earlier this month.

Among the 10 issues up for a vote were reforms of Ecuador's much-criticized judicial system, which has faced the international spotlight due to Chevron Corp.'s efforts to fight a judgment that could cost the oil giant up to $18 billion.

Chevron has launched a broadside assault on the Ecuadorean judiciary in an effort to persuade courts outside the country not to enforce the ruling, in which a judge found the company responsible for environmental pollution in the oil fields around the town of Lago Agrio.

Texaco Petroleum Corp., which Chevron acquired in 2001, was the major player in the area from the 1960s until it pulled out in 1992.

In attacking the integrity of the judicial system, Chevron has found what appears to be a soft target.

Even Ecuadoreans, most of whom are at least vaguely familiar with the Lago Agrio case, tend to agree the system can be corrupt and easily swayed by political agendas.

"We hope that we have enough strength in this referendum in order to change the justice system," said Patricio Reyes, a member of a road workers union who attended the rally with several of his colleagues. "There is a lot of corruption."


Judge at heart of landmark pollution case unfazed by spotlight

LAGO AGRIO, Ecuador -- Sitting in a dimly lit office with blue paint peeling off the walls, Judge Nicolas Zambrano is remarkably relaxed for a man responsible for the biggest environmental damage ruling in history.

In February, Zambrano ordered Chevron Corp. to pay up to $18 billion for oil pollution in the region around this hard-edged frontier town on the fringe of the Amazon jungle.

Only the tab likely to be faced by BP PLC over the Deepwater Horizon spill in the Gulf of Mexico has the potential to be bigger.

Sporting a gold watch on his left wrist and an arresting shaven head, Zambrano –- the sixth judge to preside over the case -- has received his fair share of attention since his 188-page blockbuster.

He said, with a straight face, that the Chevron case is like any other.

"The case is as important as all the cases that are handled by this court," he said in a rare interview. "We treat all cases with the same attention and depth."

Zambrano, who has the tough stare of a former prosecutor, is clearly aware of the attention his ruling has received around the world.

After all, the case has, in one form or another, been ongoing for 18 years and has spawned a documentary film, "Crude," and a Vanity Fair cover story, not to mention frenzied allegations of fraud and corruption.

Asked how he managed the burden, Zambrano replied, "With a lot of work."

Now, with his ruling on appeal and Chevron desperately seeking to prevent its enforcement in courts around the world, some might be forgiven for thinking the case is reaching its final stages.

Based on how contentious the case has become, that's probably not a wise assumption.

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