Reuters Factbox- Ecuador vs Chevron Environmental Damages Lawsuit

Frank Jack Daniel & Hugh Bronstein
Monday, August 30, 2010

U.S.-based Chevron Corp faces a $27 billion environmental damages lawsuit in Ecuador, a case that has already dragged on for years and could last many more if it gets bogged down in appeals.

The amount in requested damages, assessed by an Ecuadorean court appointee, makes it the biggest case of its kind. An initial decision is expected in the months ahead, though there is no fixed timetable for a ruling. If the judge hearing the suit in the provincial court of Sucumbios rules against Chevron, the company vows to appeal rather than pay out what would be an unprecedented award. Investors and the world petroleum industry are watching the case closely to see what precedent could be set for other mega-lawsuits against oil companies. Here are some facts on the case:

THE ACCUSATIONS

Residents of Ecuador's Amazon region say that Texaco, which was bought by Chevron in 2001, wrecked wide areas of the jungle with faulty drilling practices in the 1970s and 1980s. They say the company also dumped contaminated water in the area, creating a health hazard. Rather than cleaning up oil waste pits, plaintiffs say the company left them open or simply spread dirt on top of the areas, allowing contamination to seep into the ground and ruin the local water supply. President Rafael Correa, who has a troubled relationship with foreign investors, has said he hopes the plaintiffs win.

THE DEFENSE

Chevron denies the accusations. It says that Texaco did not pollute the jungle and that it properly cleaned up all the pits that it was responsible for. If there is any pollution in the area, the company says it is the responsibility of the Ecuadorean state, which in 1998 released Texaco of liability, a legal point disputed by the plaintiffs.

HISTORY

Texaco first struck oil in Ecuador in 1967 and started pumping in 1972 as part of a consortium with the state. The company operated in Ecuador until 1990. Soon after, it turned its share of the consortium over to the Ecuadorean government. State oil company Petroecuador has continued drilling in the area over the last 20 years since Texaco pulled out. The legal saga began in 1993 when a suit was filed against Texaco in a U.S. federal court. The case was tossed out on appeal in 2002 on condition that Texaco agree to Ecuadorean jurisdiction if sued there. A suit was filed in Lago Agrio the next year, this time against new owner Chevron. The case has been filled with intrigue. A previous judge stepped down from hearing the suit last year after he was recorded discussing the case with a couple of shadowy figures who video-taped him with secret cameras stuck inside a wristwatch and a pen. One of the men who taped the meeting, a former Chevron contractor, was whisked out of Ecuador by the company.

GOING FORWARD

If the judge rules against the company -- as is widely expected in political, diplomatic and industry circles -- the first level of appeal available to Chevron would be the full provincial court in Sucumbios province, which has three judges. If that panel upholds the ruling, Chevron's next stop would be Ecuador's Supreme Court. Chevron says Correa has interfered in the case by publicly siding with the plaintiffs.

The plaintiffs say Correa has done nothing more than U.S. President Barack Obama has done to defend victims of the BP oil spill in the Gulf of Mexico . The company also says it has been robbed of its right to a fair trial in part by Ecuadorean geologist Richard Cabrera, a court-appointed expert who came up with the $27 billion damages figure. Chevron says he colluded with the plaintiffs' lawyers and technical consultants to develop a fraudulent assessment.

The plaintiffs say that Texaco and Chevron submitted fraudulent testing samples to U.S. and Ecuadorean courts, and that the company's criticism of Cabrera is an attempt to distract attention from its own misconduct. Chevron's complaints could end up before Ecuador's Constitutional Court as part of the appeals process. The plaintiffs would meanwhile likely seek enforcement by going to courts around the world where Chevron has sizable assets in a bid to collect damages, widening the legal battle.

MULTIPLE CASES

The case in Lago Agrio has spawned an array of legal actions in the United States and Europe. Chevron last year filed an arbitration complaint in The Hague saying that Ecuador violated an investment treaty through government interference in the case. The complaint also says Ecuador failed to live up to contracts signed with Texaco Petroleum to clean up its share of oil-impacted areas. Chevron this year filed nine petitions in federal courts across the United States in which it claims it has discovered evidence of misconduct and fraud by the plaintiffs' lawyers. Attorneys for the plaintiffs dismiss the allegation, charging that Chevron is "forum shopping" and wants to distract attention from evidence against it of illegal contamination.

Story reporting Frank Jack Daniel and Hugh Bronstein from Reuters Reuters 08/25/2010


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