With its options dwindling and the mistakes of its legal team mounting, Chevron has suffered another courtroom setback in its eleventh-hour attempt to block indigenous rainforest communities from enforcing their $18 billion judgment against the oil giant’s assets around the world.

A three-judge appellate panel in Ecuador on Friday ruled  that a Chevron request for a special bond waiver had no basis in Ecuadorian law, thereby paving the way for the commencement of enforcement actions. Chevron has stripped its assets from Ecuador, forcing the rainforest communities to consider standard judgment collection lawsuits against the oil giant in other countries.

“We intend to do everything in our power to ensure Chevron’s management team meets the company’s legal obligations and pays the full amount of the judgment,” said Pablo Fajardo, the lead lawyer for the 30,000 Ecuadorians who initiated the lawsuit against the oil giant in U.S. federal court in 1993.

“Chevron broke the rainforest of Ecuador,” said Fajardo. “Now it must fix it.”

Once the judgment against Chevron was affirmed by the same Ecuador appellate panel in early January, the oil giant was obligated to request the bond pending an extraordinary final appeal to the nation’s highest court. Payment of such a bond was the only way under Ecuadorian law to temporarily suspend enforcement of the judgment, but Chevron’s legal team blundered by never asking for it, said Fajardo.

Instead of requesting the bond — which easily could have been paid given Chevron’s annual revenues of$240 billion – Chevron requested an unprecedented waiver of the bond requirement.  After Chevron sought the waiver, the rainforest communities charged the oil giant was seeking “special treatment” not available to any other litigant in Ecuador.

The court, in a four-page decision, said seeking a bond “is the only established legal mechanism to give litigants in Ecuador the opportunity to suspend execution of a judgment.”  In reference to Chevron, it added:  “The losing party decided not to exercise this right.”

Separately, the court rejected an “order” issued Thursday from a private investment arbitration thatEcuador’s government freeze the 18-year litigation until it can rule on a separate set of Chevron claims that it the court system in Ecuador treated it unfairly. See here. The private investment panel has been harshly criticized by jurists for violating international law, and the rainforest communities have said its actions have no bearing on their claims given they are not a party to the proceedings. See here and here.

In a detailed analysis of the international law obligations of Ecuador’s government, the appellate panel said the Inter-American Convention of Human Rights and Ecuador’s Constitution trumped any authority from the investment panel, which was convened by Chevron under the U.S.-Ecuador Bilateral Investment Treaty.

The rainforest communities recently filed a petition with a noted human rights court to block any order from the secret arbitral panel, whose members — all private lawyers — stand to reap millions of dollars of fees for simply granting jurisdiction over the case.

“No part of this Convention can be interpreted to permit any person (such as Chevron or the Arbitral Panel) to interfere with the enjoyment and exercise of rights and liberties recognized in the Convention, nor can it override other rights and guarantees that are inherent in the rights of all men,” the panel wrote in its decision.

The panel also ruled that international law to protect investors can never override international treaties that protect fundamental human rights of individuals, including the right to life and the right to seek legal redress, both of which are being exercised by the rainforest communities.

“A simple arbitral award … cannot obligate judges to do violence to the human rights of the citizens of the country where it sits,” said the panel.

A representative of the rainforest communities was pleased with the decision, which she said protects the independence of Ecuador’s courts and ensures that a private investor treaty cannot trump the fundamental human rights of ordinary citizens.  The trial was held in Ecuador only after Chevron moved it there from U.S. federal court, promising to abide by any adverse judgment.

“The Ecuador appellate panel spoke in a way that is consistent with both Ecuador’s laws and the country’s international treaty obligations,” said Karen Hinton, the U.S. spokesperson for the rainforest communities.  “It shows that Ecuador’s independent courts will not succumb to Chevron’s political pressure nor its request for special treatment.”

“After 18 years of dealing with Chevron’s bad faith and abusive litigation tactics, the rainforest communities have a final and enforceable judgment,” she added.

The Ecuador appellate court did grant Chevron’s request for an extraordinary appeal to the National Court of Justice, a process that likely will take one to two years to conclude.

The appellate ruling comes at a time when Chevron officials are furiously trying to cut a side deal withEcuador’s government to illegally quash the environmental case, said Fajardo.  The company apparently offered $1 billion to the government to end-run the legal process, an act that could expose Chevron to criminal liability under various anti-bribery statutes in the United States and other countries, he added.

The Ecuador trial court in February 2011 found overwhelming scientific evidence that Chevron deliberately dumped billions of gallons of toxic waste into Amazon waterways when it operated in Ecuador under the Texaco brand from 1964 to 1992.  The dumping decimated indigenous groups and caused an outbreak of cancer that could lead to thousands of deaths in the coming years, according to evidence before the court. See here and here.

A video that tells the story of the environmental disaster and of Chevron’s fraudulent cover-up can be seen here.

The amount of damages set by the Ecuador court is modest compared to the potential liability of BP in the much smaller Deepwater Horizon disaster in the Gulf of Mexico, said Hinton.  BP already has committed $20 billion in compensation for the Gulf spill, an amount that does not include an estimated$60 to $80 billion in additional liability from civil lawsuits now pending in U.S. federal courts.

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A distinguished international law jurist from Latin America has issued a letter to United Nations Secretary General Ban Ki-moon, asking for a review of Chevron’s “egregious misuse” of an investor treaty to evade its $18 billion liability in Ecuador for creating one of the world’s worst oil-related disasters in the Amazon rainforest, according to a letter released to thousands of arbitration specialists around the globe.

Jose Daniel Amado, a leading law scholar in Peru and a specialist in international arbitration, told the Secretary General that Chevron’s latest attempt to deny the legal claims of the rainforest communities to be decided by an arbitration panel that meets in secret “stands in direct violation of international law” and would “quash” the fundamental human rights of the 30,000 citizens who initially brought suit against Chevron in the United States in 1993.

Chevron shifted that lawsuit to Ecuador in 2002 after praising the country’s judicial system and promising to abide by any judgment there, subject only to narrow enforcement defenses that did not include international arbitration. ”Chevron has constructed what appears to be a calculated plan to manipulate a commercial investment dispute system to evade the outcome of a private litigation,” wrote Amado, who has served as a consultant to the Ecuadorian plaintiffs.

Amado asked the Secretary General to conduct a review of the matter “to ensure that the BIT arbitration system is not used by Chevron to undo international law protections guaranteeing access to justice.”

In January, after a nine-year legal proceeding, a three-judge panel of the Ecuador appellate court confirmed an $18 billion award against Chevron for the deliberate dumping of billions of gallons of toxic waste into Amazon waterways that local inhabitants relied on for drinking water.  The Ecuador trial court found evidence that Chevron’s contamination decimated indigenous groups and caused an outbreak of cancer and other oil-related diseases.

The trial in Ecuador produced 220,000 pages of evidence and more than 64,000 chemical sampling results from independent laboratories which proved that dozens of Chevron oil production facilities suffer from extensive levels of life-threatening heavy metals and toxins, according to the findings of the Ecuador court.

On January 4, the day after the Ecuador appellate court decision, Chevron petitioned a private arbitration panel convened under the U.S.-Ecuador Bilateral Investment Treaty (“BIT”) to order Ecuador’s executive branch to interfere in its independent judiciary and block the ability of the Ecuadorian citizens to enforce their judgment in countries around the world.  Chevron had stripped its assets from Ecuador to avoid paying the judgment.

Lawyers for the Ecuadorians say the arbitration panel does not have such authority, and that in any event Ecuador’s government is obligated to ignore its orders given its own binding legal obligations under the Ecuador Constitution and various international treaties protecting the human rights of its citizens.

The arbitration panel prohibits the Ecuadorians from appearing before it and takes no steps to inform them (or the public) of the status of its proceedings or when or where it is meeting.  Nor does it release its decisions in a system that clearly lacks due process of law, said Aaron Page, who represents the Ecuadorians and who has represented governments in the arbitral proceedings.

Some commentators have like ecuadorians end the secret arbitration panel to a “kangaroo court” rife with conflicts of interest and imbued with a pro-business culture.

The arbitrators are private sector lawyers who generally rule in favor of investors and against sovereign governments — a fact which in recent years has led several countries to withdraw or threaten to withdraw in recent years from the arbitral system, said Page. ”Chevron’s radical request for relief in this case potentially undermines the credibility of the entire investor arbitral regime,” Page said.

In the letter to Ban Ki-moon, Amado noted that a recent “interim” order by the arbitration panel asking Ecuador’s government to freeze the environmental case “makes a travesty of the bilateral commercial treaty system” and represents an “illegal expansion of arbitral powers with wide-ranging implications for well-settled principles of international law, including fundamental human rights and state sovereignty.”

“Such a result is simply untenable under international law — BIT arbitral panels cannot be called on by investors to set aside countries’ constitutional systems and sovereignty, which are essential components of modern democracies,” he added.

Concern over Chevron’s latest stratagem, Amado pointed out, is shared by a U.S. federal appellate court which ruled last year that the longstanding legal claims of the Ecuadorians “cannot be settled” through the BIT arbitration given that they are not a party to those proceedings.

“The international legal community was shocked by this [interim] Order, which Chevron interpreted to force the Ecuadorian executive branch affirmatively to interfere in a judicial process and limit Ecuador’s sovereignty vis-a-vis a case that has been in the courts for 18 years,” he said.

The Amado letter was emailed to 7,000 arbitrators around the world by the Peruvian Arbitration Institute, which said it considered the letter to “of high interest” to the international arbitration community.

Amado is a graduate of Harvard Law School and the founding partner of Miranda & Amado, one of Peru’s leading law firms.  He has published numerous articles on international law topics, has lectured in various countries, and has represented both private investors and governments before BIT arbitration panels.

Amado is also a member of the American Chamber of Commerce in Peru and is President of the Energy Legal Committee of Peru’s National Mining, Oil and Energy Society.

The three arbitrators hearing the Chevron claims — all private lawyers who represent investors before other arbitration panels in the same treaty system — stand to personally reap millions of dollars in fees if they grant jurisdiction over the case, which in itself is a hotly contested issue given that Chevron left Ecuador five years before the U.S.-Ecuador BIT took effect in 1997, Page said.

R. Doak Bishop, an American from the firm King & Spalding who is Chevron’s lead lawyer in the Ecuador matter, has served as an arbitrator in numerous cases convened under the BIT process while he simultaneously represents private clients in the same system.  Ecuador’s American lawyers are only putting up a nominal defense, essentially leaving the Ecuador plaintiffs without representation before the panel, said Karen Hinton, the U.S. spokesperson for the plaintiffs.

In any event, it is clear that any “award” from the panel will lack legitimacy in countries that observe the rule of law and will not be an obstacle to enforcement of the Ecuador judgment, said Amado.

“This is a far-fetched strategy by Chevron that has little chance of working,” said Amado.  “But it is our duty as international lawyers to prevent it from causing collateral damage to the international legal order that protects the human rights of all peoples worldwide.”

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Members of the appellate panel in Ecuador that affirmed the $18 billion judgment against Chevron for contaminating the Amazon rainforest were clearly outraged at the oil giant’s abuse of the judicial process even as it denied a request by the rainforest communities to increase the amount of damages, a reading of an unofficial translation of the decision reveals.

The judges also found ample scientific basis to uphold the damages award — including devastating evidence provided the court by Chevron’s own team of technical experts that proved levels of pollution hundreds of times higher than permitted by law. But citing a lack of evidence, the panel also rejected efforts by the indigenous communities to seek additional damages for the loss of their ancestral lands and for the spreading of oil on the dirt roads of the region.

Chevron has a right to appeal to Ecuador’s National Court of Justice (NCJ) in Quito, but might first be required to post a bond, said Pablo Fajardo, the lead lawyer for the plaintiffs. The right to appeal to the NCJ — the nation’s highest judicial authority — will not kick in until the appellate panel has a chance to respond to requests by the parties for clarification, which must be submitted by the end of this week.

The case was heard in Ecuador at the request of Chevron, which fought for almost a decade to shift the venue away from the U.S. federal court where it was originally filed in 1993.

“This decision confirms what we have been saying for years,” said Pablo Fajardo, the lead Ecuadorian lawyer. ”Chevron is guilty of extraordinary greed and criminal misconduct that has created a humanitarian crisis in Ecuador that puts thousands of people at risk.

“Whether people live or die depends largely on whether Chevron meets its responsibility to remediate a problem it created,” Fajardo added. ”Chevron broke the rainforest. It now must fix it.”

In a 16-page single-spaced decision, the three Ecuador judges noted that Chevron had “staged incidents that encumbered the process of the trial” and that it dumped 20,000 pages of largely redundant evidence on the appellate court to delay consideration of the case. The plaintiffs have long accused Chevron of trying to undermine the trial by filing frivolous motions and trying to intimidate judges.

Among the key findings by the panel, which reviewed the voluminous trial record of 220,000 pages for 11 months:

In response to Chevron’s complaints that it was “denied justice” in Ecuador, the appellate court noted on the second page of its decision that the only filings from the oil giant that were denied were those that were “abusive” and “clearly designed to obstruct the administration of justice.” For example, Chevron once filed 18 similar motions in the trial court in a 30-minute period, and tried to have the judge removed when he did not rule on them fast enough.

The court found that Chevron’s requests for proof that it needed to defend itself — including the tedious task of conducting 36 judicial inspections of the company’s former well sites — were “processed without exception.” It found that “hundreds of thousands of documents submitted by Chevron bloated the trial record with everything it considered relevant.”

Referencing Article 283 of Ecuador’s civil code, and citing a long list of examples of Chevron’s malfeasance during the trial, the appellate panel upheld a decision that Chevron should pay the costs of the plaintiffs due to the “flagrant bad faith it exhibited in the case.”

The panel wrote:  “Chevron was condemned to pay trial costs for manifest bad faith… so much so that now suffice it to say that the procedural conduct of the defendant, few times seen in the annals of the administration of justice in Ecuador, were abusive to the point that… the Court will not even dedicate any more writings to this portion of the decision.”

The panel also criticized Chevron for continuing to challenge the jurisdiction of Ecuador’s courts, even though the oil giant voluntarily agreed to litigate the case in Ecuador to induce a U.S. federal judge to shift the venue to the South American country.

“From the [initial hearing] up to the present appeal, it can be said that … Chevron has failed to recognize the authority, jurisdiction, and competence of Ecuadorian courts,” the panel wrote on page 15 of its decision.

The court also noted on page 11 of its decision that laboratory results confirmed that pollution existed at former Chevron well sites hundreds of times higher than permissible norms in Ecuador, which themselves are considered relatively lax by international standards.

The panel also noted many of the scientific results that proved the case against Chevron were submitted to the court by Chevron’s own technical experts.

Pierre-Jean Durieu / Shutterstock.com

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