Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador

In 1993 Ecuadorean citizens brought a class-action suit against Texaco Petroleum Company (Texaco) (plaintiff) in United States federal district court, alleging that Texaco’s oil operation in Ecuador (defendant) had polluted the rain forests and rivers in violation of Ecuadorean law. The action was dismissed for forum non conveniens. During those proceedings, Chevron Corporation (plaintiff) acquired Texaco. Once the proceedings in the United States were dismissed, the Ecuadoreans pursued litigation against both Chevron and Texaco in Ecuadorean court (the Lago Agrio case). The Ecuadorean court issued an $18.2 billion judgment against Chevron in the Lago Agrio case. While the Ecuadorean proceedings were ongoing, Chevron initiated arbitration against the Ecuadorean government, claiming that Ecuador had breached its obligations under the bilateral investment treaty between Ecuador and the United States. Ecuador objected to the arbitral tribunal’s jurisdiction to hear the dispute because—among other reasons—Chevron had failed to state a prima facie case on the merits of the claim that Ecuador violated the bilateral investment treaty with the United States. The parties disagreed over the standard of review to be applied by the arbitral tribunal in reviewing whether Chevron had stated a prima facie case sufficient to establish jurisdiction. Specifically, Ecuador argued that the tribunal should not assume the truth of any facts relevant to the exercise of the tribunal’s jurisdiction.