Why are you here? Go read Noel.

Best post yet on Chevron-Ecuador in Argentina. That is all.

UPDATE: First, regular commenter Dr. Faustus wants readers to be aware that Dr. Maurer fails to give Chevron’s side of the case. If you want the full Chevron side, click here.

Second, an informed correspondent writes to say that Maurer seems to incorrectly identify the plaintiffs as representing the Ecuadorian state, rather than individual victims. Also, he quibbles with the line about the US Supreme Court decision, which wasn’t really a decision — the court simply decided not to hear the case, and didn’t explain its reasoning.

Anyway, I still think the Maurer post is good because it contextualizes the decision in Argentina. This isn’t a huge decision, but it’s a rare case of the new international legal regime being used to impose stricter rules on corporations rather than being used to loosen national rules in favor of corporations.

20 thoughts on “Why are you here? Go read Noel.

  1. Ken Price

    Argentina and Ecuador will soon find that foreign investors will avoid them like the plague. Their airlines will find leasing companies refusing to lease them airliners, and those aircraft actually owned are attached in foreign airports. Foreign companies will refuse to sell to local customers other than a “cash with order” basis. International commerce works on “trust”, and when there is no trust, commerce halts. Ecuador and Argentina are feeling good right now, like drunks on a binge; the headaches come “tomorrow”.

  2. Dr. Faustus

    I did read Noel, and it may have been the ‘worst’ post on Chevron-Ecuador in Argentina. Why?

    Any decent journalist, or blogger in this case, would make some effort to present the Chevron case in the matter. Just the basics. Noel talks about everything ‘except’ the fundamentals of the case as argued by Chevron. This story will go around the world, especially with help from bloggers like Noel, with news stories which will emphasize the 19 billion part, the injustice to the people of Ecuador, and the fact that a legitimate Ecuadorian court made the decision. …. and isn’t it just terrible about those greedy sons`a`bitches capitialist oil exploiters. On and on it will go. It’s the headlines, m’am, not the facts.

    The problem here is that Chevron has some very vailid arguments here. If you read deep into the facts behind it an attorney in New York, a classmate of Obama’s, could face jail time for having written an opinion on the case which wound`up as part of decision handed down by the Ecuadorian court. Really. Here is one quote from Forbes:

    “As detailed in a Washington Post editorial, the handling of the case was “alas, worthy of a banana republic. After four changes of judge, a ‘temporary’ magistrate took over the case, held one hearing, and—33 hours after his appointment—issued the 156-page ruling. A subsequent independent investigation determined that he did not write it, and that the author was probably Mr. Correa’s attorney.”

    Recently, a judge previously assigned to the case provided further details corroborating that the President’s attorney wrote the judgment against the paper. She also revealed that she had been offered a bribe by Mr. Correa’s attorney to rule in his favor (which she refused). After going public, she immediately fled the country fearing for her safety.”

    Chevron has a web page dedicated to presenting their side of the argument. It’s surely worth a read

    http://www.chevron.com/ecuador/?utm_campaign=Ecuador_Mitigation&utm_medium=cpc&utm_source=Google&utm_term=texaco_ecuador&gclid=CKvl2IG2wLMCFa5QOgodGw8Abw

  3. etudiant

    Surely the ‘trust’ argument is relatively feeble. Argentina’s most recent default is fresh in most memories, yet businesses still invest there.
    The case for Chevron may be good, but it is not advanced by the entirely ‘ad hominem’ arguments made by Dr Faustus.
    By all accounts, Chevron did serious environmental damage in Ecuador.
    It might have been more efficient to admit that mistakes were made and move to help clean up the mess than to stonewall the issue, with the results we now see.

    1. Dr. Faustus

      Etudiant: First know the facts of the case.
      1) It was not Chevron who you mention above as having done “serious environmental damage” in Ecuador. It was Texaco.
      2) According to the Financial Post: “There is no dispute that contaminated water from production in the remote Amazon region known as Oriente was stored in open pits, but that was accepted practice at the time, and was approved both by the government and its state oil company.”
      3) Again according to the Financial Post: “Texaco had in fact admitted its role in oil pollution, but accepted responsibility for only the 37% stake it held in the consortium, which it cleaned up at a cost of US$40-million. The remaining responsibility was that of Petro Ecuador. The government of the time acknowledged that Texaco had satisfied its legal obligations, but the plaintiffs continued their case.
      It is worth noting that Texaco’s operations in Ecuador earned it a total of some US$500-million while the government reportedly hauled in over US$20-billion over the same period. So it’s not as if there has never been the cash to clean up any mess. Also, Petro Ecuador has been operating in the region for 20 years since Texaco left, and has a dismal environmental record, with over 1,200 oil spills.”

  4. sapitosetty Post author

    Dr Faustus:

    I’m not sure who you are accusing of being an indecent blogger, but in my case I am the one person who has put the full Chevron statement online. In Noel’s case, he isn’t commenting on the merits of the case.

    I agree that Ecuador’s courts are unreliable. The plaintiffs tried to get a hearing in the US and Chevron told them that Ecuadorian courts were adequate. And the US courts decided in favor of Chevron, sending the case to Ecuador. Chevron thought the banana republic would be pro-corporate and was surprised by the ascension of the Correa government. Their gamble, their loss, they pay the consequences.

    About your response to Etudiant, saying that it was Texaco and not Chevron that did the damage in Ecuador is the very definition of a distinction without a difference. All courts and even Chevron itself has accepted that IF Texaco still had liability, it now belongs to Chevron (hence their defending themselves in this case). Their defense has largely rested on their claim of having exterminated liability by fulfilling agreements with the Ecuadorian state. The plaintiffs, in turn, make an argument a lot like that of the Washington Post editorial board: that Ecuador was a corrupt country where the government’s sign-off on Texaco’s clean-up was the result of unfair proceedings that left the real victims without a voice.

    It’s possible that these cases could imperil foreign investment in Ecuador and Argentina. But as Noel says, it’s generally been the companies pushing for global systems of consistent rules and international enforcement of judgments. The recent case against Argentina in Ghana is very similar — a US judgment was enforced in Ghana, never mind the perfectly legitimate concerns that Argentina raised about sovereign immunity for its military vessels. As he points out, these things flow both ways.

    Rather than worry about the possible consequences for Argentina in enforcing an Ecuadorian judgment, I would suggest 1) worrying about how to get all courts up to a fair standard and 2) how to ensure that all parties, big and small, can get a fair hearing from both courts and governments.

    1. Dr. Faustus

      Further to this interesting thread…

      A few posts back Setty had mentioned a curious anomaly. Why didn’t Correa simply file his grievance in a Venezuelan court? Chevron is the last major American oil company still doing business with Chavez, and has assets galore down there. Argentina? Why not Venezuela? Setty wrote:
      ” Some have suggested that Chevron ( I think you meant Correa) try Venezuela, but Venezuela is more dependent on Chevron than vice versa — so that’s not going to happen.”
      I once read a comment from the head of Chevron’s Venezuela operations, an engineer, that their knowledge and expertise on keeping the pumping pressure up in those old Maracaibo oil fields has kept PDVSA from facing a major collapse of oil production. True or not, there is surely a symbiotic relationship between the two, Chevron and PDVSA. Correa went to Argentiana as a political move, not economic.

      Finally, it will be interesting to note whether or not Fernandez will now get any of the major oil companies to invest in what is potentially the largest shale oil deposits in South America. I don’t think so. Who’s gonna invest billions without being able to access a ‘fair’ court of last resort? Everyone is looking at what happened to Repsol.

      1. sapitosetty Post author

        Correa and Ecuador have nothing to do with this, but yes, I meant the Ecuadorian plaintiffs, not Chevron. Thanks for correcting.

        Your wishful thinking against Argentina oil investment isn’t going to affect the actions of companies that were already quite ready for a high-risk political scenario. I expect Russian & Chinese companies, and smaller US or Canadian companies, to invest.

        1. Noel Maurer

          Hey, Setty! Thank you for the shout out!

          I know that the suit represents the plaintiffs, not the Ecuadorean state … I made that clear in the post, although I must abashedly admit that a casual reader could miss that in my sea of snark. Still, in my defense, the post does state that the only revenues going to the Ecuadorean state has skin in the game: it will collect income taxes on any judgment.

          Your reader is spot-on about the Supreme Court, as well. I could quibble, but I shouldn’t: accuracy is important in these things. I’m gonna add a clarification right now. Thank you and the reader!

        2. Dr. Faustus

          A few quick comments…

          First there was this statement: “Second, an informed correspondent writes to say that Maurer seems to incorrectly identify the plaintiffs as representing the Ecuadorian state, rather than individual victims.”

          And then this one: “Correa and Ecuador have nothing to do with this,”

          Yes, technically that may be true. But, there is little question that the Ecuadorian plaintiffs in this case have the consent, if not approval, of the Ecuadorian government, and Correa. “Nothing” ( see above ) was a bad choice of words. The plaintiffs wouldn’t have wandered down to a court in Argentina were they ‘just’ representing themselves.

          Finally, it is my belief that the ‘expropriation’ of foreign assets will be the hottest economic issue facing South America for the next two decades. Next year, 2013, will be a banner year in that many of the ‘big’ ICSID cases come to judgement. The EU is still bitter over the Repsol thing. An important point to note is that a high percentage of the judges for the World Bank are European. Argentina and Venezuela dominate the number of cases filed by plaintiffs. The Chevron case, as a prime example, has more to do with politics than economics. Correa, Fernandez and Chavez are looking for a counter weight in response to the important judgements due next year. A 19 billion dollar headline grabber is just what they need.

        3. Noel Maurer

          I’m with Setty. Companies operating with YPF assets will be taking on a contingent legal liability, but only in the event that Argentina doesn’t pay Repsol. Moreover, Argentina won’t need to pay until 2021 — two years in Argentine courts, six years in arbitration, one year for legal enforcement.

          There will be an effect on investment around the margin — YPF is having trouble attracting partners; the details of its MOU with Chevron was kept secret. But it won’t be catastrophic, and it seems to be having no effect on the companies (like Apache) that are already there.

  5. Noel Maurer

    Dr. Faustus: the evidence is that nationality does not affect ICSID arbitrations. http://www.harvardilj.org/site/wp-content/uploads/2010/07/HILJ_50-2_Franck.pdf

    Correa has a serious problem with the Occidental case.

    Argentina, not so much, until it starts needing to borrow again on foreign markets. The question isn’t whether it will be able to borrow; it’s the size of the premium that it will have to charge for bonds governed under Argentine law and paid through the Argentine payments system.

    Chavez, he can just pay; the judgments won’t be that large against his revenues unless oil prices unexpectedly drop.

    1. Dr. Faustus

      I would argue that Chavez WON’T pay, and the judgements from the ICSID court cases next year will be HUGE. The price of oil will have little bearing on this as PDVSA’s debt is already through-the-roof. Furthermore, Chavez publicly announced in January that ” he ain’t gonna pay anyway.”

        1. Dr. Faustus

          When a scheming narcissist publicly announces his future intentions, believe him. He’s not kidding. That is precisely what is going to happen.

        2. Noel Maurer

          OK, but that’s not my question! My question is what will happen should President Chavez choose to ignore an ICSID ruling. I’m being deliberately Socratic since I know the answer, but I think the exercise is worth doing. What do you think will happen should Hugo decide to ignore an adverse ruling?

  6. Dr. Faustus

    Chavez will reject any ICSID ruling. There will be very little any corporation, or nationa state, can do to force payment. it won’t happen.

    1. Noel Maurer

      And now we know where you’ve gone wrong! If Mr. Chavez refuses to pay, then enforcement proceeds in national courts. Two things then happen. First, Venezuela loses all of its CITGO assets, or at least enough of them to meet the judgments.

      In this case, CITGO is worth more than enough. But should that prove insufficient, then courts will issue Mareva injunctions against the assets, meaning that none of the oil will be exportable. (Save to Brazil, which hasn’t signed the Washington Convention, but Brazil lacks the necessary refineries.) Chavez will therefore find himself holding valueless assets.

      In other words, there is a hella lot that corporations (via foreign courts) can do to make him pay! Their investments are secure.

      The above does not, however, apply as cleanly to Argentina, for the simple reason that Argentina neither exports nor has an NOC with sizeable foreign assets. There are still, however, powerful enforcement mechanisms, just not as certain.

      1. sapitosetty Post author

        The bigger issue here is that the companies going into these countries are not innocent little children who need protection. They are very wily capitalists and they know how to protect themselves. It’s one thing to worry about the well-being of the workers, or the environment, or small businesses that get caught up in these machinations. And I can understand your concern for the citizens of these countries who may end up poorer because governments mislead them into voting for mismanagement. But companies like Chevron or Conoco are able to take care of themselves.

      2. Dr. Faustus

        Yes, there may be some truth in what you’re saying. But,….but,…Hugo Chavez may be crazy, but he’s not stupid. Most of his cards are on the table. It’s pretty obvious what he’s got up his sleeve.

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