California For The Win

Why Climate Litigation Matters

Welcome back to Damages. I'm Amy Westervelt. Last episode, we heard about ecocide and the drive to formally declare it a crime prosecutable in international courts. Jojo Mehta talked to us about how the whole point is to prevent companies from behaving badly in the first place, not to punish them later in courts.


Today... We're coming at it from the other end of the spectrum. We're going to talk about international arbitration, a very boring phrase that is actually a huge problem for climate action. When countries sign on to free trade agreements or investment treaties with other countries, they often agree to something called arbitration.


This is handled by a couple of Different types of arbitral tribunals. Sounds like a court, right? Not an official court, not at all, but has an enormous amount of power. Here's what happens in countries that are signed on to these treaties. If a company has started to do business there and the country changes its laws.


So for example, if a mining company starts to mine for lithium in Chile and all of a sudden, Chile decides that it's going to apply some limits to lithium mining. That company can sue the government of Chile for profits that it might have lost, or for investments that it made that are now not worth anything.


This has happened multiple times with environmental laws, and there is a growing concern that it will happen more as more and more governments take action. Action to curb climate change. In fact, it has already happened. And shockingly, it was a complaint made against the United States of all places, not really known as a climate leader us, but when president Biden took office.


And finally canceled the Keystone XL pipeline, the Canadian company working on that pipeline filed an arbitral complaint. They said that the cancellation of that pipeline cost them billions of dollars in losses and the U. S. government should pay those losses back. That complaint has not gone in front of a tribunal panel yet, but it will, and when it does, it will be judged by three people, one of which the company gets to pick.


The other two are not necessarily experts in any field other than arbitration. And they will decide, most likely in a totally closed, not at all transparent process, whether or not the U. S. government has to pay this Canadian company for having the audacity of actually enforcing its environmental laws and shutting down a pipeline that would have come with a large amount of climate impacts and very little use for American citizens.


Again, that's just one example. There are many, many examples. Today, I'm joined by Marcos Orellana. He is the UN Special Rapporteur on Toxics and Human Rights. He is also an adjunct professor at the George Washington University Law School and a former lawyer. He worked for years and years helping countries defend themselves.


in these arbitral tribunals. In fact, he was the very first person I ever interviewed on a story that I did on this subject years ago about a gold mine in El Salvador that had been put on hold because of some environmental laws and wound up in an arbitral tribunal. That conversation is coming up right after this quick break.


I'd love to have you start with sort of a general kind of what is international arbitration and how, how is it used? by American companies. Sure, sure. At its core, international investment arbitration is a system that allows corporations to sue states for damages before panels of arbitrators. These days, most arbitration cases are brought under International treaties on investment protection.


These instruments typically grant corporations the right to claim compensation in cases where the government takes a measure that breaches the standards of protection in the treaty, and that results in economic loss for the investor. Arbitral tribunals are typically composed by three panelists. One of the panelists.


Is, uh, uh, pointed by, by the corporation, the claimant, the, the, in theory, as, as the world bank and capital exporting countries often argue international investment arbitration helps foster economic development in de in developing countries, and they, it does so by building confidence. It is argued that it is a tool to build confidence because foreign investors may be more inclined to do business in countries that may be unstable or risky if they have legal security in case something goes wrong.


It is argued that these international financial flows. Capital investments does contribute to development because otherwise these countries would not receive, um, this capital and would not benefit from the concessions, the works, the infrastructure or the business from foreign investors. That's theory.


In practice, however, corporations are using the arbitration system to discipline governments for their own interests. And this is. Often done at the expense of the public interest. How does this work or how does this happen? Well in the arbitrations corporations often argue that their expectations for profit have been Frustrated that they have been frustrated by the government that adopts a law or a decision or regulation And they corporations demand to be compensated for the profits.


They expect it to make Since arbitral awards Can run up to tens or hundreds of millions of dollars and since even the legal fees involved The council and the costs of the arbitration It can run into the millions of dollars. This puts a lot of pressure on government officials to pass to adopt or even maintain public interest measures.


Let's recall that, uh, that many of the respondents states in these cases, they have limited budgets. There might be small developing countries that are that are facing a set of priorities, competing priorities and They have to struggle to satisfy health and education and at times food and water and environmental protection.


And so talking about tens of millions of dollars of costs can really put, um, a dent into the budget of a, of a state. Um, so those are the, the basic contours. The international investment arbitration can be described as a private system of adjudication that decides on the propriety of governmental measures, but it lacks the safeguards for accountability and transparency that characterize Constitutional democracies governed by the rule of law.


Uh, if we look back in time in its origins, international investment, arbitration came to replace colonial systems, uh, colonial systems of extraction of, of domination. When, uh, when the former colonies acquired independence in the advent of decolonization, largely after the second world war and the advent of the United Nations.


The former imperial powers needed a legal system to protect the economic interests of their corporations, and international investment arbitration offered such an alternative. Today, in this current day of age, many in civil society see the arbitration regime as as yet another tool of corporate globalization.


And this is because when governments regulate in the public interest. They become the targets of corporations that utilize the arbitration system to challenge those acts off authority. I would comment that this is particularly problematic in the age of climate change because governments must reduce the emissions of greenhouse gases to face the climate emergency.
The existential risk


And of course, this change in direction affects the expectations and the interests of the oil and gas of the oil and gas industry. One last thing I'd comment on is the tension that, um, In practice arises between international investment arbitration and international human rights, and this is because international law has come to recognize how a clean and healthy environment is indispensable for the enjoyment of human rights.


The investment arbitration system, however. Puts an obstacle to the abilities of governments to take measures to transition to towards sustainable development and to secure respect and protection of the fundamental right to live in a healthy environment. I'd love to have you maybe give an example of how, you know, how a company might use this to, for example, take a country to court over an environmental law that they don't like.


Um, I don't know if you have like a good case example that you could share. Yeah, there are many examples of of states passing environmental laws and then being taken to court by by corporations that are dissatisfied by by those laws. Um, one example comes to mind. Concerns hazardous wastes in in Mexico, the so called tech med cases.


It exemplifies the issues that arise in these arbitrations. In that case, a hazardous waste confinement was located in in downtown Hermosillo in Mexico, and the government was concerned and the people around the confinement work. Concerned that, uh, the trucks, uh, going day and night in and out of the confinement with these hazardous wastes, we're posing a risk to, um, to the environment and to the health of the population, the company in question.
And began to enlarge the confinement without having the the necessary permits and as a result, it was, uh, it was fined. It was, uh, there were proceedings by the administrative, um, agencies in Mexico and, and the government, uh, Began to study the possibility of moving this confinement, uh, outside of the, of the, of downtown area, uh, laws were passed that required that a hazardous waste confinement be located from, um, urban centers and, uh, and the company, however, the negotiations with the company did not progress very far.


Eventually the government decided that it would not renew. The concession for the operation of the hazardous waste confinement, and at that time, the company took the government to court to the arbitral system, and that's when the arbitrators, uh, replace. The role of of domestic courts and begin to apply loosely defined treaty standards.


They eventually considered that the corporation had an expectation to make a profit out of its investment. It was a Spanish corporation, but that that Profit had been frustrated by the measures that had been taken by the government to protect The people around the confinement should also comment that in that specific case the the community mobilized they began to protests the the trucks, uh, Against the illegal expansion and so forth.


And and so the government was also giving expression To the, uh, the concerns and the interests off of the people that that were mobilizing the tribunal, however, considered that those protests could not be foreseen and that they were they did not have a scientific basis. There was no evidence that hazardous waste had indeed compromised the health of the population.
And in so doing, then they they did. clear that Mexico was liable to pay the company millions of dollars for the measures it had taken. So this again goes to show how, um, in a domestic court, the balancing of, uh, the public health, the environmental issues, the human rights issues would have received a different light than the unidirectional character of the arbitration that focuses on the corporation and whether the government's measure has.


And frustrated its expectations. Okay. So I know that you are not involved in this Chevron, Ecuador case, but as someone who, you know, knows this system well and has seen lots of different types of cases, I'm curious just when and if it popped up on your radar as a, an international arbitration kind of expert and, and what, um, your thoughts are on that case in, in particular, and how it kind of played out.


This is a massive case. It's a massive case. The arbitration is just one off the forums where this case has been litigated. The arbitration itself spans thousands of pages, numerous awards and procedural decisions. Prior to the arbitration, there had been litigation in, in federal court in New York for nine years.


There was also litigation in, in Lago Agrio, in Ecuador, in trial litigation, appellate court litigation, Supreme Court litigation, uh, in Ecuador. The Ecuadoran Constitutional Court was also seized. There has been litigation in Argentina, Brazil, Canada, the Netherlands. The International Criminal Court received a letter as well, and there's still ongoing litigation by Chevron against the Plaintiffs Council in the United States, so that's perhaps one first observation about how broad and how complex the massive, and it goes to show how difficult it is to hold a big oil company accountable for environmental harm.


Chevron has spent hundreds of millions of dollars in legal fees. Those monies could have been used to prevent environmental harm or to clean up the pollution. How does it compare to other cases? Well, one thing I would notice that the arbitral system is opaque is it's known for its lack of transparency.


This is a big problem because the arbitrations as, uh, as we were discussing, they involve the public interest. They involve the scrutiny of. Public law measures and so they should be heard under the safeguards of transparency and accountability That characterize due process and the rule of law but these arbitrations Often are conducted behind closed doors without the public having access to the proceedings That's that being said however In some cases, high profile cases involving environmental protection measures, the arbitrations have opened up and they have allowed for public hearings and they have allowed for the public to present so called amicus Courier briefs.


This is a Latin term for a written brief that presents a perspective that may not have been developed by the disputing parties and that is helpful for the tribunal to receive. In this case, however, in the in the Chevron Ecuador case, hearings were held behind closed doors. Civil society was not allowed to intervene as amici.


And from that angle, the outcome in favor of Chevron is not surprising. But all that said, however, the outcome is surprising in some aspects. And one of the aspects that I think is, has, um, to some degree startled a number of observers is the far reaching. character of of the awards. And this is because the arbitration system is often sold to policymakers and to to the public as one off of simple compensation for loss.


The bottom line is, it is argued, is that if a foreign investor suffers economic harm because of something that the government did, then it should be compensated. And the example, the caricature even, that's often presented is a corporation owns a mine that is expropriated by a military junta that gives the...Property to the, to the, the nephew of the general in power. Then of course the company should receive a compensation, but that's not what's going on. That's not what went on in this case and not generally what's going on in the field. In this case, the panel, the arbitral panel crafted a range of remedies that go well beyond the issue of compensation for loss. It directed Ecuador to preclude enforcement of the judgment of its national courts. Eso preclude enforcement that shows how deep this system penetrates the sovereignty of the state. The panel also declared that Ecuador would be liable to Chevron for any recovery that the plaintiffs in the Lago Agrio litigation managed to obtain. So in other words, if, if, if the, uh, If the Lago Agrio plaintiffs are able to enforce the judgment rendered by the Ecuadorian courts in some jurisdiction around the world where they can find Chevron's assets, Ecuador would be liable to Chevron for any recovery that the plaintiffs make wow. Yeah, it is not just an award that Typically that the state has adopted measure x this measure has caused y harm and We order the tribunal orders the state to pay 50 million dollars to the company. That's not what's What's happening here. So, so one of the things that this shows is that, uh, international investment arbitration is not just about money.


It is foremost about governance, who takes decisions and for whom, who benefits from those decisions. So in that sense, it is a system that removes the scrutiny of governmental measures from courts of law and places it in the hands of three arbitrators, In this specific case, one of the arbitrators often sits in arbitral panels because he's appointed by corporations.


Let's recall that typically there are three arbitrators and the corporation, the foreign investor gets to appoint one of the arbitrators. So in that sense, it was no surprise that this Person would favor chevron's interest the other two arbitrators one a commercial lawyer Who recently passed away and so may he rest in peace and the other an international law professor So I think it's it's fair that we can ask Can can we expect two white males sitting thousands of miles away from the lands polluted by Texaco to appreciate the significance for the indigenous peoples that lived in those territories of the environmental destruction that Texaco caused in the 1970s in Ecuador. I think that their decision shows. that they did not. They did not so appreciate the significance that the arbitrators simply focused on Chevron and its narrative in disregard of the environmental and human rights calamity caused by Texaco. And to be fair, Texaco and Petro Ecuador. I think that the disregard for this calamity shows The unidirectional character of the investment arbitration regime, a regime that focuses on the corporation's interests and its narrative and does not regard, uh, the environment and, and, and human rights.

Uh, perhaps I, I could, uh, elaborate on an example to illustrate this point. Yeah, that would be great. And then I do want to have you talk about, you know, just how this undermines. The Ecuadorian constitution and the right to a healthy environment. And I mean, like just in general undermines country's sovereignty.


I mean, you've kind of made that point a few different ways already, but I'm, I'm curious for your thoughts on, um, the Ecuadorian constitution in particular. That is exactly one of the issues that, uh, that the arbitral tribunal addressed. Now in a, in a democracy, one would. Pact, uh by design a constitutional question to be addressed by a constitutional court But in this instance, there was an issue concerning a contract between Texaco and the ministry of minds and representation of the government that raised this issue and and the arbitration So perhaps to to step back I think this is a good example.


In one of their awards, the arbitrators set out to interpret the right to a healthy environment in the, in Ecuador's constitution. Chevron argued that, uh, it had been released from liability for collective claims under the right to a healthy environment by virtue of a Release contract that had been concluded between ecuador and texaco Texaco would carry out some remediation work in exchange of release for liability from the state and petro ecuador But this the scope of work in this contract was limited This left sources areas of contamination unremedied.
There is evidence that indicates serious shortcomings in the remediation efforts that were actually carried out. Despite all this, in 1998, Ecuador approved Texaco's works and released it from liability related to contamination from the oil operations. So this is the contract and the release. that Chevron argued was at issue in this case and precluded the exercise of jurisdiction by Ecuadorian courts of claims concerning the collective dimensions of the right to a healthy environment.


And so it asked The arbitral tribunal to declare so and declare that Ecuador, by allowing its courts to exercise jurisdiction, was violating the contract and the bilateral investment treaty between the United States and, uh, and Ecuador, the tribunal. Approach this and despite the pollution was not cleaned up despite that environmental problems were not resolved.


The tribunal concluded that the contract between Ecuador and Texaco meant that Chevron could not be sued. On the basis of the collective dimensions of the right to a healthy environment in the Ecuadorian constitution, the tribunal considered that the government could dispose and did, in fact, dispose off this constitutional right by a contract.


I would comment that the tribunal's decision is not compatible. It doesn't comport with international human rights law or with constitutional law for that matter. This is a largely a commercial frame looking at contract law to approach what are public law issues of constitutional human rights theory.


A state Cannot contract human rights away human rights are inalienable They belong to humans. They belong to the people the state cannot abrogate human rights least of all by contract the notion that a country and a corporation can in a contract Deprive the people of a state from a basic human right can only be understood by reference to the arbitration As a system for advancing corporate interests at the expense of the rights of peoples.


Yeah a footnote to to that, uh, analysis is that In the, in the litigation in Ecuador, after, uh, Chevron was unsuccessful before the Supreme Court, it seized the constitutional court, the Ecuadorian constitutional court, arguing a denial of, uh, of due process and other constitutionally protected rights. And it was complaining about the exercise of jurisdiction by Ecuadorian courts, but the constitutional court.


Plainly concluded that in a contract, the government cannot dispose of rights. It does not have the right to a healthy environment is the right of all persons subject to Ecuador's jurisdiction. The court recent and the government cannot contract it away. What are some of the implications of this? Uh, one could comment that, um, that it was expedient perhaps to, for the tribunal to interpret the, the right to a healthy environment in Ecuador's constitution in a manner that, uh, that shielded, uh, Chevron from liability, that released it from any claims.


Otherwise, uh, the tribunal may have had to look at the environmental realities in Ecuador, the lack of remediation, the ongoing contamination, the fact that dirt was moved from pits, that certain pits that had been covered up are still leaking, that communities, many communities are still without adequate food, without adequate Water and so forth.


Um, that is something that Chevron has worked very hard to avoid in this case. And I would say that Chevron has largely succeeded. It has largely succeeded in making this case story about the plaintiff's lawyers about Stephen Donziger. But I think it's important not to forget what this case is really about.


If we recall the The indigenous peoples in the Amazon, the Warani, the Kofan, other indigenous peoples, they lived in a pristine rainforest environment prior to the arrival of, uh, of Texaco and the oil boom in Ecuador in the 1960s and early 1970s. The extraction of oil by Texaco and Petro Ecuador was without regard to the protection of the environment.


It was without regard to the rights of affected indigenous peoples. First operated by Texaco, as I mentioned, and then taken over by Petro Ecuador. Oil operations severely impacted Indigenous Peoples traditional lands. The oil boom in Ecuador has imposed loss of life, health, territory, and culture.


Indigenous Peoples have not received reparation for the violation of their rights. The Arbitral Tribunal Concluded this was beyond their mandate, and therefore it was not their problem. It is not surprising. This is not surprising as international investment arbitration focuses on on whether the government has wronged the corporation, but not on the environmental damage that may have been caused by that corporation.


This imbalance is creating, um, deficiencies in the international legal system, and this um, this award is a, is an example of, of that. Can you explain sort of what happens in, in a case like this where the international arbitration panel is basically saying, you know, Ecuador, your courts, uh, got it wrong.


Like who, I mean, I guess like who, and, and there's like ongoing other, you know, um, legal proceedings happening. What's sort of the hierarchy there? How do those, how do those things kind of intersect the, the domestic court system? I guess in this case, both in Ecuador and the U. S. and this international Yeah, traditionally in international, uh, law before a claim can be presented by a non state actor to, uh, to an international tribunal, there needs to be exhaustion of domestic remedies.


This is a term of art that means that, uh, uh, a person or a corporation that feels that. That it has been wronged in order to present a claim first must go to national courts and, uh, and give the state the opportunity to resolve problems before being confronted to an international claim. In investment arbitration, however, there is no requirement, at least not explicitly or typically, there are so many bilateral investment treaties, thousands of them. But typically they don't establish an exhaustion of domestic remedies requirement. What many of these treaties do establish is a choice whereby the investor must choose whether to go the route of national courts. Or go the route of an investment arbitration and investors usually choose the elect investment arbitration route because there, as mentioned earlier, they get to appoint one of the typically three arbitrators and they get to choose, uh, which arbitral rules will govern the arbitration, which is also relevant for the conduct of proceedings and the enforcement of, of any award.
So that's a particularity in the field where. Corporations are able to do some forum shopping to advance claims in whichever forum in whichever way suits their interests best. So when corporations are well endowed with resources and have the ability to hire scores of lawyers, they can really drown plaintiffs in litigation that is expensive in various forums. 

Perhaps an example can illustrate it. A few years ago, Bechtel acquired a water concession in one of the poorest countries in Latin America, Bolivia, in the city of, of Cochabamba. And soon after taking over the water concession, it raised prices exponentially. It even began collecting water fees from water taken from wells that had been constructed by communities. Uh, so the concession, it was expected that Bechtel would invest capital to increase coverage and secure access to water. But instead, it began collect Very high fees for for water. And so there were water revolts, so called the Cochabamba the the community mobilized and eventually the government decided that it had to take back the Utility and at that time Bechtel brought an arbitral lawsuit against Bolivia, but not as a US corporation it was under a Dutch bolivia bilateral investment treaty.


So it claimed that it was a company from the netherlands And on that basis it could sue bolivia The tribunal sided with bechtel and allowed the case to proceed. So how common are these? Parallel legal proceedings how common is forum shopping quite common, unfortunately Okay, and then I know that there are various Kind of guidelines that govern these proceedings.
Can you just talk a little bit about that? Like that I, I don't expect you to run down, you know, the specifics of, of all the different batches of rules, but h how is it decided, sort of which set of guidelines a, a tribunal is gonna go with? And then what happens with the verdict in one of these arbitration cases?


How, you know, is there an appeal process? Right, right. So if we compare the process with domestic courts, uh, the, in domestic courts, there's, well, civil procedure or criminal procedure, there are laws that govern the process and they provide all kinds of safeguards. The analogy in the arbitration system are the arbitral rules.


Those arbitral rules are the rules that govern the process. Who gets to speak, when, what are the authorities of the arbitrators. And they also govern what happens at the end. The decision, the award, enforcement, and so forth. An underlying. Theme in international arbitration is the the the quest for finality It is understood that the contending parties want to Settle their dispute, and it is expected that the award will be final.


And so there's, there's no appeal to investment decisions again. The arbitral rules will govern the specifics, for example, under the, um, the, uh, the Chevron Ecuador case. This was, uh, heard under the rules of the UN commission international trade law. These are rules that have been designed for commercial disputes, not for the kind of denial of justice which are public disputes, public law disputes.


And so the issues of secrecy in commercial disputes may be warranted in those frames. When it comes to public law, they're wholly inadequate. Uh, the ancestral rules, they rely on the New York convention. There's a New York convention for the enforcement, for the recognition and enforcement of arbitral awards.


And that convention gives some authority to national courts in terms of recognition and enforcement. But at the same time, that authority is very limited and, and courts, the. Are they usually they give deference to the awards because of the need for finality. They can set aside. They can, um, strike down an award if there has been corruption.


If the if there is a clear violation of public policy, but for the most national courts are quite reluctant to set aside or it's, Strike down awards. So that's, those are the procedural rules that were applied in, in this case, there are other sets of rules by the Paris. International chambers or, or the world banks, uh, investment facility, uh, that those, those rules, for example, the world banks, they exclude the, the, it's a totally safe self contained.


It's a, they exclude the role of national courts. They provide for procedures for annulment in case again, that a party has not been heard or there has been corruption or, or, or so forth, but. Um, those procedures for an element. They don't review the merits. They don't get into whether the decision is right or wrong, whether the law has been properly applied.


They get into other, um, other causes or other situations that may affect the integrity of the process, but not the quality off of the decision. Um, So at the end of the day, uh, when the, uh, when the investor receives a favorable award, uh, under the New York convention, uh, all States that are parties to that convention are required to honor that award. Um, and that it, that means that, uh, that the, in practice that the Chevron, uh, Ecuador Arbitral Award, uh, directing Ecuador, uh, To, uh, make, to try to, uh, avoid enforcement of, uh, the decisions in, uh, of its national courts. That may have an influence in any country party to the New York Convention, any jurisdiction where the plaintiffs are trying to enforce that, uh, that judgment. Uh, so it may be, at the end, very hard for the, for the plaintiffs. to, um, to collect damages on, uh, on that decision.


That's it for this time. Thanks for listening and we'll see you next week.


Damages is an original Critical Frequency production. Our editor and senior producer is Sarah Ventry. Mixing and mastering by Mark Bush. The show is written and reported by me, Amy Westerveld, with additional reporting by Karen Savage, Meg Duff, and Lyndall Rollins. Our fact checker is Wudan Yan. Our First Amendment attorney is James Wheaton of the First Amendment Project.


Our theme song this season is Bird in the Hand by Forenone. Artwork is by Matthew Fleming. The show is supported in part by a generous grant from the Feil Foundation. If you'd like to support our work, please rate or review the podcast wherever you're listening and share it with friends. Thanks for listening and we'll see you next time.

S2,Ep2 Transcription

A clause in most free trade agreements and investment treaties obligates countries to engage in a process known as international arbitration if there's a dispute with a foreign company. It was meant to assure companies that their investments in especially less developed countries were safe, but in recent years it's become a way to punish governments for passing environmental regulations.

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