Chevron to pay Billions in Damages, Ecuadorian Court Rules

21 February 2011

An Ecuadorean court has ruled that US oil giant Chevron should pay at least US$8.6 billion to Amazonian communities to help combat environmental damages caused by oil drilling. Both sides say they plan to appeal the court's decision in coming week.

According to the 14 February provincial court ruling, the massive fine will pay for compensatory damages related to polluting the soil and water in the Amazon River basin as well as causing health problems among locals. In addition to the US$8.6 billion, Chevron must also pay a further 10 percent of the compensatory damages to the Amazon Defense Coalition, an umbrella organisation representing Ecuadorean communities in the case. Furthermore, the oil company must issue a public apology within 15 days of the decision or face a doubling of the damages fee.

The court has allotted over US$5 billion of the compensatory charges to repair soil damage, while the remaining funds will be spent on healthcare for those affected.

Texaco legacy

The ruling stems from an ongoing law suit filed against Texaco by the Ecuadorean Amazon communities in 1993. Chevron inherited the case when it merged with Texaco in 2001.

Texaco began oil exploration activities in Ecuador in 1964. Once striking oil in 1967, Texaco entered into a consortium with Ecuador's state oil company, Petroecuador, and drilled in the region throughout the 1970s and 1980s. Texaco, upon closing its oil initiatives in Ecuador in 1992, paid the Ecuadorean government US$40 million to assist with cleanup efforts in the region. Dissatisfied with the compensation, a group of affected Amazonian communities filed the lawsuit, Time Magazine has reported.

Affected communities have claimed that Texaco engaged in faulty drilling practices and dumped noxious waste into the Amazon that resulted in widespread pollution throughout the Amazon River basin. In the initial filing, the Ecuadoreans sought US$27 billion for water and soil damages as well as illnesses and deaths that they say Texaco's practices caused.

Monday's case settlement is one of the largest environmental damage cases to date, second only to the US$20 billion settlement fund established for BP's Gulf of Mexico oil spill.

Chevron calls ruling "extortion"

Chevron has openly rejected the court's decision. The company maintains that the court proceedings were under the biased influence of the Ecuadorean government. It argues that the court commissioned expert report, which was used as evidence to assess the environmental damages, was ghost-written by the plaintiff's lawyers. Chevron further contends that it has already cleaned up its oil fields and that it signed an agreement with Petroecuador that released it from future pollution claims. In an interview with the BBC, a company spokesman said the decision was tantamount to "extortion."

Chevron has already stated that it will be appealing the ruling. Reuters reported that Chevron is willing to take the case to Ecuador's National Court of Justice, the highest court in Ecuador, if necessary.

"The objective, of course, is to overturn this illegitimate ruling that is the product of fraud and collusion and divorced from all legitimate scientific evidence presented in the case," said Chevron spokesman, James Craig.

Both parties plan further action

The Ecuadorean communities will also be appealing the decision for the amount that was awarded to them. They claim that the current amount of financial compensation is insufficient to clean up areas affected by the oil. Recent damage assessments by the plaintiffs' lawyers put the damage costs around US$113 billion.

"This is the beginning," said Guillermill Grefa, head of the Quichua indigenous community of Rumipamba in Ecuador in response to Monday's judgment. "The fine is not going to be enough for us to restore the forest and to fix the damage. We will keep on fighting."

His sentiment was echoed by Karen Hinton, a spokesperson for the plaintiffs. "We want to ensure the damage award will adequately remediate all the contamination that Chevron is responsible for."

According to the New York Times, Chevron has said that it does not intend to pay the damage fees. Without Chevron's compliance, analysts have said it will be difficult for the plaintiffs to collect the fees given that Chevron does not maintain any significant assets in Ecuador. However, local communities are prepared to legally pursue Chevron's assets internationally in order to collect the money that is owed to them, the New York Times article says. The communities' lawyers have identified multiple countries, including Brazil, Argentina, Venezuela, Angola, Canada, and Australia, as potential targets with significant Chevron assets.

Despite the coming appeals, environmentalists from the Amazon Defense Coalition are praising the court's ruling, calling it "historical and unprecedented."

"It is the first time that indigenous people have sued a multinational corporation in the country where the crime was committed and won," the environmental group said in a statement.

Some academics are also praising the decision for the message it sends to multi-national corporations.

"The case really sends a message that companies operating in the undeveloped world cannot rely on a compliant government or lax environmental rules as a way of permanently insulating themselves from liability," said Robert Percival, the director of the environmental law program at the University of Maryland School of Law.

Official appeal proceedings are set to begin at the provincial court in Ecuador today.

ICTSD  Reporting; "Chevron: Indigenous Ecuadoreans Seek Higher Damages," BBC, 15 February, 2011; "Chevron, Locals Prepare Ecuador Pollution Appeals," PLANET ARK, 17 February, 2011; "Chevron's $17 Billion Ecuador Judgment May Be Unenforceable, Analysts Say," BLOOMBERG, 15 February, 2011; "Ecuador Farmers Say Chevron Award Too Small," PLANET ARK, 16 February, 2011; "Ecuador Orders Chevron Pay $8 bln Over Oil Damages," YAHOO! GREEN, 14 February, 2011; "Ecuador to Chevron: Pay Up. And Say You're Sorry," TIME, 16 February 2011; Ecuadoreans Plan to Pursue Chevron in Other Countries," NEW YORK TIMES, 15 February, 2011.

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