Overview Ecuador v. US case

Background of the case
Textpet had oil exploitation concessions in Ecuador (Amazon forest), in consortium with Ecuador national oil company, under agreements concluded in 73 and 77.
The agreement said Texpet would supply oil to Ecuador government at a low price, only for domestic use.
Ecuador exported part of it, so it should have paid the international market price. Texpet filed lawsuits in Ecuadorian courts, but the trial was prolonged for many years.
In 1994 MoU to stop operations and 1995 settlement agreement for reparation of environmental damages and release of responsibility. They were executed between 95 and 98, with the signature of a Final Release in 98.
In 1993 Ecuador and US sign Bilateral Investment Treaty, which will enter into force in 1997. It was a standard BIT, including "providing effective means of asserting claims and enforcing rights" and an investor-state dispute settlement arbitration. It also provided for inter-state dispute settlement arbitration.
Meanwhile in '93 US lawyers submit class action in US against Texaco (The new name of TextPet) for environmental damage (Aguinda litigation). It was dismissed for forum non conveniens. Later on, in 2003 they will file lawsuit in Ecuador against Chevron (Lago agrio litigation), which bought Texaco in 2001.
In 2004, Ecuador enters in a big political turmoil, for an institutional conflict with Congress claiming that constitutional and supreme courts where appointed unconstitutionally. President Gutierrez declared state of emergency and suspended certain civil rights. OAS and UN missions were sent to the country to report on the situation of rule of law in Ecuador.
In 2007 newly elected socialist president Correa calls for a referendum to form a new Constituent. In order to stop Congress' efforts to block it, he uses police force to prevent them from assembling. The president also dismisses the whole constitutional court and appoints a member of its party as new president of the court. The Constituent assembly is formed after popular favourable vote, and gains absolute power on all courts in Ecuador.
In 2008 the Lago Agrio court awards to the farmers (and their plaintiffs) 20$ billion compensation, reduced to 11$ billion in appeal.
In 2009 Chevron refer the Lago Agrio judgement to an arbitral tribunal established under BIT, which in 2010 will stop enforcement of judgement because of the political pressure exercised on the courts. Subsequent investigations in the US brought in March 2014 to a RICO sentence against Dozinger, the plaintiff of the farmers, who had bribed an Ecuadorian judge to obtain favourable sentence. He had sold bonds on the future award to finance the litigation. Thanks to this judgement in New York, Chevron has been able to settle friendly with the lawyers and not pay the Lago Agrio compensation in the US.
This case had a lot of attention from environmental NGOs claiming that a bad multinational corporations was destroying the environment and did not even want to pay compensation. The former Ecuadorian Judge (Guerra) afterwards publicly declared in the international arbitral tribunal that he asked Chevron for a bribe (a 12.000 $/month contract) in exchange of his witness. Dozinger filed appeal in the US basing on this new development. Currently the plaintiffs of the farmers are trying to enforce the sentence filing lawsuits in Argentina, Canada and Brazil to seize Chevron's asset, as there is nothing to seize in Ecuador and they cannot enforce it.
Newly elected Correa's socialist government also put pressure on the judiciary regarding other seven lawsuits brought by Texaco against the government for exporting the low-price oil, which was only for domestic consumption. Texaco wanted to be compensated with the difference between the price paid by the government and the international market price at the time, for a total of 553 $million. Correa's government replaced president and judges of the Supreme Court with people belonging to its party, against Ecuador's constitution. Cases were filed between 93 and 95 and the courts dismissed all of them but one, where they awarded minor compensation, after Correa's intervention on the Ecuador's judiciary in 2008.
In 2006, when all the cases where still pending another investor-state arbitral tribunal under US-Ecuador BIT is established on request of Chevron. In 2010, it awarded damages to Chevron because Ecuador's conduct constituted denial a breach of art.2 par.7 (effective means of asserting claims and enforcing rights). Ecuador tried to challenge this claim quoting Texaco's plaintiffs in the Aguinda litigation, which had stated that the farmers could find adequate justice in Ecuador's courts because they were fair and well-working (Judicial estoppel).
WHAT DID THIS TRIBUNAL SAY?
Art.2 par.7 is a lex specialis and creates higher standards than the customary rule on denial of justice, where State merely need to provide police protection and a judicial system, but do not need to ensure that it is effective. Art.2 par.7 differently than customary law, do not require for its application exhaustion of local remedies. The State not only has the obligation to provide the judicial system, but also has to guarantee that it works, and it works fairly.
Ecuador's executive political pressure on the judiciary constituted breach of art.2 par.7, therefore it is liable for damages. The tribunal did not decide on the breaches of customary law because the relief sought is overlapping with the one for the breach of art.2 par.7.
"But for" doctrine for determining damages. What would have a fair Ecuadorian court awarded? For 6 out of 7 cases they would have been favourable to Chevron, and should have awarded 354 $million plus (compound) interests (New York Prime Rate) starting to accrue from filing of the cases in 93 until 2006 (for a total of 698 $million).
A subsequent judgement released by another tribunal appointed by the parties determined that a Unified tax of 87.31% had to be applied to the direct damages. Therefore, the same reduction had to apply also to the awarded interests, on which an additional 25% of income tax was applicable. On this total of 77 $million compound pre-award (2006-2011) interests at New York prime rate had to be added, so the final amount to be paid was 96 $million.
Under the laws of the seat of arbitration, Ecuador has appeal procedure available through the Dutch courts. The Dutch supreme court finally upheld the judgement in 2014 (with new interests making the amount 106 $million). Meanwhile, in 2013 Chevron filed lawsuit in the US to make the award enforceable and won, Ecuador appealed and in August 2015 the US appeal court ruled in favour of Chevron.
Following this judgement, Ecuador sent a diplomatic note to the US government, asking clarifications about the interpretation of art.2 par.7 of the BIT given by the investor-state tribunal. It stated that if the US would not agree with Ecuador's different interpretation, "a dispute would have been considered to exist". US State department legal advisor denied any consultation or negotiation on the interpretation of BIT.
In June 2011, Ecuador filed request for inter-state arbitration for solving a "dispute arising from interpretation of the BIT" as provided for in the BIT. Inter-state disputes under BITs are very rare, the only other case is Italy against Cuba in 2008.
(MEANWHILE IN APRIL 2011 WIKILEAKS EXPOSES US DIPLOMATIC CABLE SAYING CORREA WILLINGLY IGNORES CORRUPTION. DIPLOMATIC RELATIONS ARE INTERRUPTED UNTIL SEPTEMBER. ECUADOR ALSO GAVE AND STILL GIVES POLITICAL ASYLUM TO JULIAN ASSANGE IN ITS EMBASSY IN LONDON.
OTHER ICSID CASES AGAINST ECUADOR. WITHDRAW FROM ICSID, WITHDRAW FROM MANY BITS, BUT STILL NOT FROM THE BIT WITH US. DESPITE THE WITHDRAWAL, PREVIOUS CASES WERE STILL PENDING. RECENTLY OCCIDENTAL AWARD OF 1.6 $BILLION AGAINST ECUADOR) ECUADOR'S NEW CONSTITUTION EXPLICITLY BANS (FOREIGN) INVESTOR-STATE DISPUTE SETTLEMENT.


The case
Ecuador is asking to the arbitral tribunal to recognize that the obligations under art.2 par.7 of the BIT are not greater than pre-existing obligations under customary international law. According to Ecuador the tribunal should recognize that the parties have to provide a system of asserting claims and enforcing rights, but do not need to assure that the system is effective in particular cases. Finally, Ecuador claims that compensation due for breaches of art.2 par.7 must not be determined in accordance with domestic laws which would likely be contrary to what the courts of the country of jurisdiction would determine. Basically, Ecuador is contrary to the determination of the amount to be paid in the partial award, using New York prime rate instead of Ecuador sovereign interest rate and compound interest instead of simple one. (However, a few months later the final award will reduce the amount to be paid from 698 $million to 96 $million)
USA replied that:
US had not taken any position regarding interpretation of the BIT. Therefore, no dispute could be considered to be existing because there is no positive opposition between the states.
Giving interpretations on treaties is a state prerogative, not an obligation. So the US is not compelled to give its own interpretation of the BIT.
Inter-state dispute settlement under BIT do not create advisory jurisdiction to render authoritative interpretations. Decisions of this tribunal cannot be divorced from a factual dispute on the performance of the treaty. Ecuador cannot use an ultimatum to give raise to a dispute on interpretation in order to appeal against the investor-state tribunal. If the interstate tribunal would be an appeal it would undermine the very scope of BITs and ISDS, which is to depoliticize investor-states disputes.
Ecuador failed to invoke the proper consultation mechanism, saying "whether you agree or we have a dispute".
Ecuador had shown willingness to withdraw from the BIT, so all the US state department legal advisor replied to Ecuador's ambassador was that it would have been pointless negotiating on a treaty which was about to be terminated.
US did not take action to create any dispute. The litigation was between Chevron and Ecuador, where the US was not a party.
Ecuador said:
The partial award did not say Ecuador breached customary international law on denial of justice (mirrored in art.2 par.3), but only breached art.2 par.7 with an interpretation different of Ecuador's understanding of the BIT parties intentions.
Ecuador's intention in the arbitration is not appealing the Chevron award, but only solve the uncertainty left open by that judgement on steps Ecuador should take to comply with art.2 par.7, in order to avoid future liabilities.
US agent conduct of refusing to respond at all put US and Ecuador in opposition.
Jurisdiction rationae materiae is the "interpretation or application". There is no need of more concreteness than what is provided in art.7. The ordinary meaning and the wording grant jurisdiction "on any dispute". According to the jurisprudence starting from PCIJ held it means "disputes of any nature". Also the wording "interpretation or arbitration" means that the parties wanted a double jurisdiction both on concrete dispute and abstract disputes. Ordinary meaning of "interpretation" is "determination of meaning of a text", distinct from "application" which is "determination of the consequences which should follow according to the text". Lack of concordance over the interpretation gives rise to a dispute (cases Oil platform and Headquarters agreement).
Also US in its practice (Iran case) accepted that a dispute over interpretation may rise independently from dispute over application. Interpretation in the jurisprudence of similar clauses has granted jurisdiction on cases on "interpretation without allegation of breaches".
It is clear that US disagrees on interpretation: does not reply, says Ecuador interpretation is unilateral, considers Chevron case res iudicata
Existence of a dispute can be inferred by a failure of a State to respond to a claim in circumstances where a response is called for. Jurisprudence and practice of international law confirm it.
Ecuadorean expert claimed that the positive opposition can manifest in the silence kept on formal request made by the other party. US has the duty under art.5 of the BIT to enter into consultations, therefore their refusal to do so constitutes a breach of the treaty, over which the tribunal under art.7 has jurisdiction.
On the 29th of September 2012 the tribunal released an award, which unfortunately was not made available to the general public. From what is known, and on the basis of the fact that no more hearings or proceedings took place, we can infer that the tribunal rejected Ecuador's claim and maintained it had no jurisdiction to judge on the merits.

Issues at stake
What is a "dispute" under international law? – PCJ:" disagreement on a point of law or of fact, conflict of legal views or interests". ICJ:" positive opposition arising from a concrete situation regarding their performance of treaty obligations".
BIT aims at "legalization" and "de-politicization" of investor-state disputes, in order to provide safe environment and boost international investments. Therefore, investor-state and inter-state disputes under BIT system are clearly distinguished and not connected. Jurisdiction rationae materiae of the inter-state judicial track is not interfering with investor-state, but with disputes arising from one party's non-enforcement of awards, or a party's willingness to denounce the treaty. (Related precedent: Lucchetti vs Peru/ Italy vs Cuba)
Res Iudicata doctrine
Questions for debate
The political power is free to overcome the rule of law when it goes against its own citizens in favour of rich multinational corporation? State sovereignty should prevail on international (investment) law?
What do you think is a "dispute" in International law?