Chevron v. Ecuador
Amazonian oil pollution
Case pending

 

In 2009, Chevron Corporation – one of the largest U.S. oil corporations – launched a case against Ecuador under the U.S.-Ecuador BIT seeking to evade payment of a multi-billion dollar court ruling against the company for widespread pollution of the Amazon rainforest. For 26 years, Texaco, later acquired by Chevron, performed oil operations in Ecuador. Ecuadorian courts have found that during that period the company dumped billions of gallons of toxic water and dug hundreds of open-air oil sludge pits in Ecuador’s Amazon, poisoning the communities of some 30,000 Amazon residents, including the entire populations of six indigenous groups (one of which is now extinct). After a legal battle spanning two decades and two countries, in November 2013 Ecuador’s highest court upheld prior rulings against Chevron for contaminating a large section of Ecuador’s Amazon and ordered the corporation to pay $9.5 billion to provide desperately needed clean-up and health care to afflicted indigenous communities.

 

Instead of abiding by the rulings, Chevron asked an investor-state tribunal to challenge the decision produced by Ecuador’s domestic legal system. Chevron has asked the tribunal to order Ecuador’s taxpayers to hand over to the corporation any of the billions in damages it might be required to pay to clean up the still-devastated Amazon, plus all the legal fees incurred by the corporation in its investor-state pursuit. In its investor-state claim, Chevron is seeking to re-litigate key aspects of the lengthy domestic court case, including whether the effected communities even had a right to sue the corporation. Chevron is claiming that its special foreign investor rights under the BIT have been violated. This, despite the fact that Texaco’s investment in Ecuador ended in 1992, the BIT did not take effect until 1997, and the BIT is not supposed to apply retroactively to cover past investments.

 

The investor-state tribunal in this case has granted several of Chevron’s requests. It has ordered Ecuador’s government to violate its own Constitution and block enforcement of a ruling upheld on appeal in its independent court system. And in a September 2013 decision, the tribunal took it upon itself to offer an interpretation of the Ecuadorian Constitution, which conflicted with that of Ecuador’s own high court, and declare that rights granted by Ecuadorian law do not actually exist. The tribunal has not yet concluded its findings, and a final decision is pending.

 

Investor-State Attacks: Environment

 

Renco v. Peru
Metal smelter pollution
Case pending

 

Renco Group, a corporation owned by one of the wealthiest people in the United States, Ira Rennert, demanded $800 million from the government of Peru. The corporation claimed that the Peruvian government violated the U.S.-Peru FTA by not granting an extension on the firm’s overdue commitment to clean up environmental contamination. Doe Run Peru, Renco’s Peruvian subsidiary, failed to meet its environmental clean-up commitments under the terms of a 1997 privatization of a metal smelting operation in La Oroya, Peru — one of the world’s most polluted sites. The Peruvian government granted two extensions past the 2007 date by which Doe Run was to have built a sulfur oxide treatment facility – a commitment that the corporation repeatedly failed to fulfill.

 

In 2007 and 2008, Doe Run was challenged in class action lawsuits filed in Missouri courts, the firm’s state of incorporation. The suits demanded compensation and medical assistance for La Oroyan children that had been injured by toxic emissions from the smelter since its acquisition by Renco.  In 2010, the company launched an $800 million investor-state claim against Peru under the FTA. The company claimed a violation of fair and equitable treatment, blamed Peru for not granting a third extension to comply with its unfulfilled 1997 environmental commitments, and demanded that Peru, not Renco, should have assumed liability for the Missouri cases.

Some analysts believed that Renco used the investor-state claim to derail the Missouri-based lawsuit seeking compensation for La Oroya’s children. Renco previously had tried three times to remove the case to federal court from the Missouri courts, where the jury pool was likely to be skeptical of the company after highly publicized incidents of pollution in Missouri. Renco had failed each time. But one week after launching its investor-state claim, Renco tried a fourth time to remove the case to federal courts and succeeded. The same judge that had denied the previous requests now granted it, citing the ISDS claim under the Peru FTA as the reason given federal legislation on arbitration would newly apply because of the ISDS claim.

 

In July 2016, after six years of costly litigation with the three ISDS tribunalists charging hundreds of dollars per hour in addition to Peru paying for its defense lawyers, the tribunal dismissed Renco’s claim. Oddly, it did so based on a jurisdictional issue it could have decided years earlier. The tribunal determined that it did not have jurisdiction over the case because the company had failed to comply fully with an FTA requirement that it had to waive certain domestic litigation rights to proceed with an ISDS claim. 

 

However, the tribunal ruled that the Peruvian government and the corporation must split the costs of arbitration as well as each bearing its own legal costs. This means a $8.39 million bill for Peru despite the case being dismissed and the grounds for dismissal being that the corporation failed to meet the technical rules for pursuing an ISDS claim. 

 

At the time of the decision, Renco stated that “the Tribunal's decision is an insignificant victory for Peru,” immediately threatening to refile the same claims after resolving the technicality upon which the case was dismissed. 

 

In August 2016, Renco made good on its threat and filed a new Notice of Intent to restart an ISDS case on the same matters.

 

Metalclad v. Mexico
Toxic waste
Investor win (awarded $16.2 million)

 

In 1997 Metalclad Corporation, a U.S. waste management firm, launched a NAFTA investor-state dispute against Mexico over the decision of Guadalcazar, a Mexican municipality, not to grant a construction permit for expansion of a toxic waste facility amid concerns of water contamination and other environmental and health hazards. Studies indicated that the site’s soils were very unstable, which could permit toxic waste to infiltrate the subsoil and carry contamination via deeper water sources. The local government had already denied similar permits to the Mexican firm from which Metalclad acquired the facility. Metalclad argued that the decision to deny a permit to it, as a foreign investor operating under NAFTA’s investor rights, amounted to expropriation without compensation, and a denial of NAFTA’s guarantee of “fair and equitable treatment.”

 

The tribunal ruled in favor of the firm, ordering Mexico to compensate Metalclad for the diminution of its investment’s value. The order to compensate for a “regulatory taking” was premised on the tribunal’s finding that the denial of the construction permit unless and until the site was remediated amounted to an “indirect” expropriation. The tribunal also ruled that Mexico violated NAFTA’s obligation to provide foreign investors “fair and equitable treatment,” because the firm was not granted a “transparent and predictable” regulatory environment. The decision has been described as creating a duty under NAFTA for the Mexican government to walk a foreign investor through the complexities of municipal, state and federal law and to ensure that officials at different levels never give different advice. After a Canadian court slightly modified the compensation amount ordered by the investor-state tribunal, Mexico was required to pay Metalclad more than $16 million.

 

S.D. Myers v. Canada
Toxic waste
Investor win (awarded $5.6 million)

 

In 1998 S.D. Myers, a U.S. waste treatment company, launched a NAFTA investor-state challenge against a temporary Canadian ban on the export of a hazardous waste called polychlorinated biphenyls (PCBs). Canada banned exports of toxic waste to the United States absent explicit permission from the U.S. Environmental Protection Agency. And, as a signatory to the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, Canadian policy generally limited exports of toxic waste. Meanwhile, the U.S. Toxic Substances Control Act banned imports of hazardous waste, with limited exceptions such as waste from U.S. military bases. The U.S. Environmental Protection Agency has determined that PCBs are harmful to humans and toxic to the environment. However, in 1995, the U.S. Environmental Protection Agency decided to allow S.D. Myers and nine other companies to import PCBs into the United States for processing and disposal. Canada issued a temporary ban on PCB shipment, seeking to review the conflicting laws and regulations and its obligations under the Basel Convention. S.D. Myers argued that the Canadian ban constituted “disguised discrimination,” was “tantamount to an expropriation” and violated NAFTA’s prohibition of performance requirements and obligation to afford a “minimum standard of treatment.”

 

A tribunal upheld S.D. Myers’ claims of discrimination and found the export ban to violate NAFTA’s “minimum standard of treatment” obligation because it limited the firm’s plan to treat the waste in Ohio. The panel also stated that a foreign firm’s “market share” in another country could be considered a NAFTA-protected investment and eschewed Canada’s argument that S.D. Myers had no real investment in Canada. The tribunal ordered Canada to pay the company $5.6 million.

 

Abengoa v. Mexico
Toxic waste
Investor win (awarded $40 million plus interest)

 

In December 2009, Abengoa, a Spanish technology firm, filed a claim against Mexico under the Spain-Mexico BIT for preventing the company from operating a waste management facility that the local community of Zimapan strongly opposed on environmental grounds. The plant was to be built on a geological fault line across from a dam and the Sierra Gorda biosphere reserve – an UNESCO World Heritage site and home to Nanhu and Otomi indigenous communities. The region was already contaminated with arsenic from previous mining operations. The community contended that building a waste facility on a fault line, by a dam, in an area contaminated with arsenic, near indigenous communities and an environmental reserve posed a significant environmental threat.

 

As a result of substantial public opposition, Abengoa’s land use permit was not renewed in December 2007, although construction continued anyway. In April 2009, clashes broke out between a group of people from Zimapan and the Mexican federal police over the plant. As a result, the company’s operating license was revoked several days later. Despite this, the situation escalated as Mexican federal police were accused of abuses against the indigenous population and federal government officials declared the plant could open without municipal authority. In March 2010, the municipality of Zimapan declared that the operating license was invalid because it was not collectively issued by the city council and did not comply with the public interest.

 

Abengoa alleged that the government actions impeding the operation of its waste plant violated its BIT-protected investor rights. In April 2013 a tribunal ruled in favor of Abengoa, deciding that the denial of an operating license for the controversial hazardous waste facility amounted to an indirect expropriation of Abengoa’s investment and that the local government’s actions violated the corporation’s guarantee of a “minimum standard of treatment.” The tribunal ordered Mexico to pay Abengoa more than $40 million, plus interest, as compensation for its expected future profits from the waste plant and to cover half of the corporation’s own tribunal and legal costs.

 

Bilcon v. Canada
Quarry Mining
Investor win (award amount pending)

 

In May 2008, members of the U.S.-based Clayton family – the owners of a concrete company – and their U.S. subsidiary, Bilcon of Delaware, launched a NAFTA challenge against Canadian environmental requirements affecting their plans to open a basalt quarry and a marine terminal in Nova Scotia. The investors planned to blast, extract and ship out large quantities of basalt from the proposed 152-hectare project, located in a key habitat for several endangered species, including one of the world’s most endangered large whale species. Canada’s Department of Fisheries and Oceans determined that blasting and shipping activity in this sensitive area required a rigorous assessment given environmental risks and socioeconomic concerns raised by many members of the local communities. A government-convened expert review panel concluded that the project would threaten the local communities’ “core values that reflect their sense of place, their desire for self-reliance, and the need to respect and sustain their surrounding environment.” On the recommendation of the panel, the government of Canada rejected the project. The Clayton family argued that the assessment and resulting decision was arbitrary, discriminatory and unfair, and thus a breach of NAFTA’s “minimum standard of treatment,” national treatment and most favored nation obligations.

 

In a March 2015 ruling, two of the three ISDS tribunalists decided that the environmental assessment’s concern for “community core values” was “arbitrary” and frustrated the expectations of the foreign investors. This, they asserted, violated a broad interpretation of the “minimum standard of treatment” obligation, which they imported from another ISDS tribunal (Waste Management). The tribunal majority also declared a national treatment violation. The tribunal has yet to determine the final amount it will order Canadian taxpayers to pay to the quarry investors, who are seeking $300 million.

 

The dissenting tribunalist explicitly warned of the chilling effect the decision would have: “Once again, a chill will be imposed on environmental review panels which will be concerned not to give too much weight to socio-economic considerations or other considerations of the human environment in case the result is a claim for damages under NAFTA Chapter 11. In this respect, the decision of the majority will be seen as a remarkable step backwards in environmental protection.”

 

Infinito Gold v. Costa Rica
Gold Mining
Case pending

 

In February 2014 Infinito Gold, a Canadian mining firm, filed a $94 million claim against Costa Rica under the Costa Rica-Canada BIT for a Costa Rican court decision to revoke Infinito’s Las Crucitas open-pit gold mining concession on environmental grounds. The mining license was secured in 2008 from then-President Oscar Arias and his environment minister. The Costa Rican Administrative Appeals Court later ordered a criminal investigation of Arias for having signed off on the project while environmental studies were still incomplete. The concession raised significant environmental concerns, including deforestation of 153 acres of pristine tropical rainforest. It also posed a significant health concern related to the leaching of chemicals used in the mining process that could contaminate drinking water near the San Juan River system.

 

A Costa Rican court revoked the concession in 2010 on the basis of environmental damage caused by the project. Polls indicated that more than 75 percent of the Costa Rican population opposed the proposed mine, due in part to environmental concerns. Several weeks before the court ruling revoking Infinito’s concession, the Costa Rican legislature voted unanimously to ban new open-pit metal mines. Infinito appealed to Costa Rica’s Supreme Court, which upheld the lower court ruling against the firm in 2011. In its investor-state claim, Infinito asks a three-person tribunal to second-guess the rulings of Costa Rica's courts and rule that Costa Rica’s prohibitions on new open-pit mining permits are an “unlawful expropriation” of Infinito’s investment and a violation of the firm’s BIT-protected right to “fair and equitable treatment.” “As a result of the new ban on open-pit mining, Industrias Infinito cannot apply for any new mining rights over the project area,” the firm noted in its brief. The case is pending.