Commercial arbitration is a legal path to resolve a dispute that can possibly arise from agreements or contracts. Know how Chevron won big in its arbitration case

1. Chevron wins big in high profile commercial arbitration case
Image courtesy of Beth Cortez-Neavel at Flickr.com
Commercial arbitration is a legal path to resolve a dispute that can possibly
arise from agreements or contracts. Both parties must determine that they
approve of the creation of a binding contract that will state the decision made
by one or more appointed arbitrators. This creates a strategy that eliminates
regional, and different legal and cultural differences in international cases.
This removes any formality from the respective legal systems.
There are many advantages to using this mechanism to resolve
disputes. One of them is that this method will truly place the scenario of the
dispute in neutral ground, not depending on a court from the counterparty that
may not necessarily look out for your best interest. Additionally the
enforceability of the binding decisions made during the procedure. More than
140 countries including many countries with an important role in international
trade have ratified the United Nations Conventions on the Recognition and
Enforcement of Foreign Arbitral Awards of 1985, also known as the New York
Convention. Therefore, any state that has ratified it must abide by the norms
established to arbitrate any international agreement if necessary. Moreover,
the costs and time invested in comparison to litigation is quite a big difference.
Time is reduced due to the fact that here there is no possibility to
appeal, which usually occurs in domestic litigation. Lastly, there are a few
other advantages such as choosing industry experts as the arbitrators, in
general this method tends to be more flexible, the procedures can be
confidential and have in general proven to offer “better-quality” justice.
In 2011, there is a clear example of this mechanism being put in use in a case
of Chevron versus the Republic of Ecuador. Chevron, the second largest oil
company in the world, has filed a petition to force the government of Ecuador
to pay for part of the estimated damaged to the Amazon rainforest due to

2. operations and activities by this company. This damage was caused when
Chevron operated a consortium, which included a state-owned oil company.
The damages for cleanup and illnesses causes are estimated at $27 billion.
The process has spanned over a total of six main forums, of which the last
one was the most important. Initially, the first forum was in Ecuador and there
was a $19 billion judgment in favor of Ecuador. This had a few
inconveniences starting with the fact that since Chevron had few or no assets
in Ecuador there was no way to enforce the motion. The Amazon Defense
Front, in charge of litigating on behalf of Ecuador, filed three similar forums in
Canada, Argentina and Brazil. In the first two the case was dismissed,
although the Front has appealed in both cases there has been no news, and
in Brazil it is just getting underway. The fifth forum was in the United States,
where Chevron claimed that the first forum was won based on a series of
illegal actions such as bribes and witness fraud. Chevron also continues to
state their position that Ecuador has broken the international treaty
Concerning the Encouragement and Reciprocal Protection of Investments
between the United States and Ecuador enforced in May 1997. This is
process was still being executed awaiting a change of judge due to an appeal
because of alleged bias on his behalf.
After all of these procedures Chevron was finally able to turn to the arbitration
mechanism to see if they could finally find a way to assure that what they
recognized as unfair and even illegal procedures, as well as the initial claim of
the violation of international treaties could finally reach a decision. In
September 2009, the process initiated with three arbitrators with the goal to
hold Ecuador accountable for not having honored the treaty of 1995 and its
respective obligations. Once this process has been determines Chevron could
take this and try to get the same verdict enforced in all of the courts. On
March 2010, the preliminary awards by the tribunal were in favor of Chevron,
stating that the Ecuadorian government delayed and refused to rule on the
seven cases and held it accountable for its violation of not being responsible
of its obligation in the Bilateral Investment Treaty with the United States. This
decision should help future investors in Ecuador to assert claims and enforce
their rights.
Hence, international arbitration is a mechanism that truly helps
companies and countries assure that their rights are not violated,
without having to jump from court to court where other conditions may
factor in such as corruption, legal and cultural differences. The United
States’ concern for legal breakdown in developing countries can and should
always assure different methods in case of a dispute, and arbitration is
definitely one to consider.