Oil Major Forced to Answer Amazon Charge of Damaging the Environment

By Sheila McNulty, Financial Times
29 October 2003

On the fourth floor of a rundown building in a small town in Ecuador, a courtroom has been freshly painted and newly furnished.

The decision being taken in this nondescript building will have far-reaching repercussions for the oil industry and developing nations where oil companies have long operated.

It is Judge Alberto Guerra's decision whether to hold ChevronTexaco liable for environmental damage plaintiffs claim was inflicted on the land of more than 30,000 people living in the Ecuadorian rainforest.

They argue there was massive dumping of highly toxic waste water and crude oil from 1971 to 1992 when Texaco was developing the country's oil industry.

This is the last act in a drama that began 10 years ago in US courts against Texaco, which merged in 2001 with Chevron to form the second biggest US oil company.

US courts ruled last year that Ecuador has primary jurisdiction for this case, and so the courtroom opened there last week.

The proof stage of the trial ends today, after which judicial inspections of specific sites starts.

"The issues at stake in the ChevronTexaco case are very much at play in Ecuador: the government wants to develop more oil further into the Amazon, and the indigenous people are upset," says Keith Slack, senior policy adviser for Oxfam America.

"This is a case that is reflective of the growing conflicts that are happening throughout Ecuador. This is emblematic of a trend throughout the region."

The case is being watched closely by environmental and human rights movements for any signal it may send oil companies - and the governments that rely on them for development - to be more respectful of the people and lands in which they operate.

Indigenous groups worldwide that have previously held little hope for recourse are also looking to the decision for guidance.

Those who know Ecuador say the legal system is questionable.

Yet the government some believe might influence the case because it wants more international investment also came to power with the support of indigenous groups.

The courts have ruled against international oil companies in far smaller disputes in the past.

"The court there is in an interesting position," says Michelle Rathbun, who analyses social responsibility for PFC Energy, the industry consultant.

"They are very close to where the alleged violations took place, physically close to the indigenous people. They will feel the pressure from these people acutely. On the other hand, they also will feel the pressure from the government about the importance of this industry there."

Plaintiffs' attorneys say this is the first time a US court has agreed to recognise as binding a foreign court's authority in deciding whether a US company has damaged the environment.

But ChevronTexaco says any decision by a foreign court will be recognised by a US court only if it is fair and impartial and not obtained under fraudulent conditions.

"I have never seen this company so on its heels," says Steven Donziger, lawyer for the plaintiffs.

"This trial is one of the most extraordinary in the history of the indigenous movement in Ecuador and Latin America. It is the first major trial about environmental damage in which a multinational American defendant has shown up to defend charges with a court order from the US hanging over its head."

The plaintiffs are not seeking specific damages but say evidence shows at least $1bn will be needed to restore the environmental damage. This includes 350 open waste pits they accuse ChevronTexaco of leaving contaminated with heavy metals and carcinogenic compounds, some only feet from the homes of indigenous peoples.

Adolfo Callejas Ribadeneira, ChevronTexaco's lawyer, told the court that "ChevronTexaco believes that no legal justification whatsoever exists so as to be taken to court".

He argued that the merger of Chevron and Texaco does not make the new company liable. "ChevronTexaco is not the successor of Texaco and it has never acted in the Republic of Ecuador."

ChevronTexaco also insisted allegations have not been supported with credible scientific evidence. It added that in 1998, following a $40m remedial programme, Texaco was released by the Ecuadorian government from legal liabilities.

It could take a year for Judge Guerra to make a decision. Regardless of whom the judge sides with, Shannon Wright, associate director of Amazon Watch, says the case already has served a purpose.

"A group of community members in a remote area has been able to hold a company accountable. It does put the oil companies on notice."

© Financial Times