The D.C. Circuit affirmed the trial court’s holding that it has jurisdiction under the Foreign Sovereign Immunities Act (FSIA) to confirm an arbitral award in Chevron’s favor and rejected Ecuador’s argument that confirmation should be denied under the New York Convention. Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador, No. 13-7103, (D.C. Cir. August 4, 2015).

This long-standing battle between Chevron and Ecuador began in the early nineties when an agreement between the parties allowing Chevron to develop Ecuadorian oil fields in exchange for providing below-market oil to Ecuador was set to expire. Before the expiration date, Chevron filed several breach of contract suits against Ecuador. In 1995, the parties entered a settlement agreement terminating all rights and obligations between them but providing for the continuation of the pending lawsuits.

In 1993, the United States and Ecuador signed a Bilateral Investment Treaty (“BIT”) which took effect in 1997. Under the treaty, Ecuador made a standing offer to U.S. investors to arbitrate disputes involving investments that existed on or after the treaty’s effective date. In 2006, Chevron commenced an arbitration against Ecuador claiming that Ecuador violated the BIT by failing to resolve the pending lawsuits in a timely manner. Ecuador objected to the tribunal’s jurisdiction on the ground that Chevron’s ‘investments’ in Ecuador ended in 1995, two years before the effective date of the BIT. The tribunal determined that it had jurisdiction and awarded Chevron approximately $96 million.

In response to Chevron’s petition to confirm the award, Ecuador raised three objections: (1) the District Court lacked jurisdiction under the FSIA, (2) confirmation should be denied under the New York Convention and (3) a stay should be granted until the Dutch Supreme Court resolved the then pending appeal. The District Court rejected Ecuador’s arguments and confirmed the award.

The FSIA, which generally grants foreign states immunity from the jurisdictional reach of U.S. courts, contains an exception to enforce an arbitration agreement or to confirm an award made pursuant to the agreement “if the agreement or award is or may be governed by a treaty…in force for the United States calling for the recognition and enforcement of arbitral awards.”

The Court determined that Chevron had met its initial burden that the FSIA exception applied: Chevron produced the BIT, its notice of arbitration against Ecuador pursuant to the BIT and the tribunal’s arbitration decision. While not challenging these facts, Ecuador claimed these documents did not constitute an agreement to arbitrate between the parties.

With regard to whether Ecuador and Chevron had an agreement to arbitrate, the Court found that the BIT includes a standing offer to all potential U.S. investors to arbitrate investment disputes which Chevron accepted in the manner called for by the treaty. Furthermore, the Court concluded that Chevron’s lawsuits were continuations of its initial investment in Ecuador and protected by the BIT. As a result, the FSIA allows federal courts jurisdiction over Ecuador to confirm or enforce the award.

The Court found no merit to Ecuador’s arguments under the New York Convention. First, the District Court did not need to determine whether Chevron’s lawsuits fell within the terms of submission to arbitration because the BIT allows the tribunal to decide questions of arbitrability. The BIT incorporates the UNCITRAL rules by reference which empower the tribunal to rule on objections regarding its own jurisdiction and to determine the existence or the validity of the contract of which an arbitration clause forms a part.

Second, Ecuador argued that recognition of the award would be contrary to public policy for two reasons: first, the public policy supporting forum selection clauses would not be upheld because the parties originally agreed that Chevron’s claims would be litigated in Ecuadorian courts and second, the tribunal usurped the jurisdiction of the Ecuadorian judiciary. As to the first argument, the Court found that the issue before the panel was not whether Ecuador had breached its contract with Chevron, but whether Ecuador breached the BIT by failing to resolve the contract suits in a timely manner and stated “[i]n signing the BIT, Ecuador agreed to arbitration of precisely this type of action.” Similarly, the Court rejected Ecuador’s claim of jurisdictional usurpation as Ecuador ceded that authority by signing the BIT and then by failing to resolve Chevron’s legal claims in a timely fashion. Finally, the Court stated that enforcement of the award was consistent with the public policy of the United States “most notably, the ‘emphatic federal policy in favor of arbitral dispute resolution’ ”.