Chevron faces ‘disruptive’ battle over Ecuadorian damages award

A court judgment in Ecuador awarding $18bn (£11.7bn, €14.1bn) damages against the oil multinational Chevron, the largest fine after the BP Gulf of Mexico settlement, has been upheld.

The appeals court confirmed an initial judgment made against Chevron last February over environmental damage to the Amazon rainforest caused by Texaco, which the company bought in 2001.

The court also noted systematic attempts to pervert the course of justice and undermine the Ecuadorian legal system throughout the trial.

The decision was expected but is nevertheless bad news for the company. Although Chevron no longer operates in Ecuador, plaintiffs aim to collect on the debt in other jurisdictions where it has assets and which “offer the path of least resistance to enforcement”.

Chevron has one more appeal left to lodge but will probably be forced to pledge a ‘bond’ on the liability in the meantime, which could amount to billions of dollars.

In addition to the fine, the company has been damaged by reputational humiliation over the case, which it is widely considered to have attempted to undermine.

The court said: “Chevron has violated the rights of the communities where it operates, disrespected local laws, intimidated community leaders and judges, lied about basic evidence, tried to defraud the court with junk science, and launched an international lobbying campaign to taint the reputation of Ecuador’s government for allowing its citizens to use their legally protected right to seek accountability in their own courts.”

In some quarters, the company has since been accused of offering bribes totalling $1bn to the Ecuador government to stop enforcement of the compensation.

Shareholders have long been concerned about Chevron’s conduct in the affair, in particular suspecting that the company has withheld information from them.

In May 2010, for example, anomalies in Chevron’s behaviour led Trillium to ask the US Securities & Exchange Commission to investigate whether the company “appropriately disclosed to shareholders the scope and magnitude of financial and operational risk from a recent adverse legal judgment in Ecuador”.

The implications for investors, however, could go beyond reputational damage. Chevron’s own deputy comptroller Rex Mitchell has previously said that any seizure of assets to cover the lawsuit’s liabilities “would disrupt Chevron’s supply chain and operations” and “damage Chevron’s business reputation as a reliable supplier”.

Another recent judgment in Brazil, which Chevron also disputes, could result in fines of millions of dollars and, potentially more significantly, in the suspension of contracts in the country.    

The Ecuador case covers Texaco activities in the 1970s and 1980s, in which the company caused contamination and illness by dumping billions of gallons of waste from rainforest oil drilling in local rivers. The first judgment was for $9.5bn, but was doubled after Chevron refused to apologise.

Although Chevron’s options are now limited, it has rejected the decision and intends to continue to seek a solution through legal proceedings outside Ecuador.

The company has already involved The Hague in a complaint against Ecuador itself, which may halt the full collection of the debt but is unlikely to stop the bond payment.

Chevron, the second largest US oil company, said in a statement: “Today’s decision is another glaring example of the politicisation and corruption of Ecuador’s judiciary that has plagued this fraudulent case from the start.

“The judgment was procured through a corrupt and fraudulent scheme, much of which was captured on film and memorialised in the plaintiffs’ representatives’ own emails and correspondence.

“Their misconduct includes fabricating expert reports, manufacturing evidence, bribing and colluding with court officials, waging a campaign of intimidation against judges, and even ghost-writing parts of the verdict itself.”

Pablo Fajardo, lead counsel for 30,000 plaintiffs, said: “Chevron is guilty of extraordinary greed and criminal misconduct that has created a humanitarian crisis in Ecuador that puts thousands of people at risk.

“Whether people live or die depends largely on whether Chevron meets its responsibility to remediate a problem it created.

“Chevron broke the rainforest. It now must fix it.”