11/23/2009 05:12 am ET Updated May 25, 2011

Chevron Desperate? Just a BIT

Seeking to forestall a judgment running to the tens of billions of dollars in its so-called "Rainforest Chernobyl" litigation, Chevron on September 23rd filed a notice of arbitration against the Government of Ecuador under the U.S.-Ecuador Bilateral Investment Treaty, or "BIT."

The Associated Press has a good breakdown of the recent history in the case.

Taking the bull by the proverbial horns in Ecuador has never been a problem for Chevron; just weeks ago, the company released video footage that purported to implicate the case's presiding judge in a bribery scandal. A closer look at the evidence, however, reveals a more complicated picture. It turns out that the most damaging statement was made off-camera, leading some to wonder whether the footage had been surreptitiously edited by Chevron operatives.

Which leads us back to the BIT. The treaty is designed to protect foreign investors from "arbitrary or discriminatory measures" by the government that impair the "operation, maintenance, use, enjoyment, [etc...]" of investments. It is meant to ensure that foreign investors will receive "fair and equitable treatment" by the host state, and to guarantee that the government will "observe any obligation it may have entered into with regard to investments." Click here for the full text of the US-Ecuador BIT.

Under the terms of the BIT, the dirtier Ecuador's courts appear, the better Chevron's chances of prevailing in what experts observe is a legal long shot. The company fought for years to have the plaintiff's case heard in Ecuador and not in New York, submitting reams of evidence to prove that Ecuador's courts are fair and impartial. Last ditch attempts to paint the judiciary as corrupt, on the eve of losing at trial, fail to impress most observers. Furthermore, Chevron's BIT claims include a novel and untested theory about whether an investment treaty can ever be used to indemnify a foreign investor from future adverse rulings in the local courts of a host state. No tribunal has yet ruled that a BIT can be used this way; Chevron would sure like this case to be the first to do so.

Legal experts and activists alike will be watching this arbitration closely in the coming months. If Chevron prevails, expect howls of outrage from the Ecuadorian plaintiffs, environmentalists, legal scholars, and any number of countries that play host to foreign oil and mining companies. If the arbitration fizzles, expect howls from... well... Chevron.