Chevron Corp. v. Republic of Ecuador

In 1973 and 1977, Chevron Corporation and Texaco Petroleum Company (collectively, Chevron) (plaintiffs), which were based in the United States (US), contracted with the Republic of Ecuador (Ecuador) (defendant) to permit Chevron to extract oil from Ecuador. The contracts required Chevron to sell oil to Ecuador at a reduced price to meet Ecuador’s domestic-consumption needs. In 1991, Chevron filed breach-of-contract suits against Ecuador in the Ecuadorian courts, alleging that Ecuador bought more reduced-price oil than it was entitled to. In 1997, the US and Ecuador entered into a bilateral investment treaty (BIT) that was intended to provide US and Ecuadorian investors with certain legal protections when they made direct foreign investments in the other country, including the right to arbitrate certain disputes. The BIT provided that any arbitration was to be conducted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UN Rules), which stated that arbitrators were empowered to decide whether they had jurisdiction. In 2006, with its Ecuadorian litigation still unresolved, Chevron filed a notice of arbitration alleging that Ecuador violated the BIT by allowing Chevron’s claims to languish in its courts for many years. An arbitration panel in the Netherlands ruled that it had jurisdiction and that Ecuador breached the BIT by allowing Chevron’s claims to remain unresolved for so long. Chevron subsequently sued Ecuador in the US, seeking confirmation of the arbitration award. Ecuador opposed Chevron’s request, arguing that the court did not have jurisdiction under the Foreign Sovereign Immunities Act (FSIA). Ecuador further argued that the court should not confirm the award pursuant to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), to which the US, Ecuador, and the Netherlands were signatories. Specifically, Ecuador argued that (1) because it never agreed to arbitrate disputes arising under its Chevron contract or involving Ecuador’s courts’ handling of such disputes, the arbitration award exceeded the scope of the arbitration submission and (2) the court was not required to confirm the award because the relevant issues were not submitted for arbitration.