Introduction
Transnational law is typically understood as “all law which regulates actions or events that transcend national frontiers.”[i] This includes domestic laws that mediate among national systems, and international laws which set standards that governments must comply with or provide for through their domestic laws. Scholars of transnational law attempt to navigate the ways in which these overlapping legal systems penetrate and influence one another to create a coherent (and sometimes incoherent) system of norms.
This blog provides a cautionary tale for those interested in transnational law. More specifically, this blog examines the role of power in determining which laws govern matters that transcend national frontiers. I am particularly interested in corporate power and the avenues through which corporations influence the development and application of transnational legal norms. In doing so, corporations may (un)intentionally reproduce structural inequalities and injustices that disadvantage developing nations and perpetuate historical power imbalances in the international political, economic and legal order.[ii] To put this somewhat abstract discussion into context, the blog discusses a specific instance when corporate power was leveraged to the disadvantage of victims of corporate polluting – the now infamous saga between the residents of Lago Agrio and the oil giant Texaco (subsequently acquired by Chevron).
The Loci of Power in Transnational Law
To begin, a brief word on the concept of power is necessary. For the purposes of this blog, we may understand power as entailing the ability of an actor to pursue their interests, to the exclusion of others, through their capacity to control societal or institutional agendas.[iii] As a consequence, power may “involve the unintentional or unconscious repression of certain people’s interests through the establishment of social structures, forms and institutions that embed and reinforce certain systemic and unconscious biases.”[iv] More importantly, power “involves the shaping of our identities, personalities and senses of self”[v] as we interact with structures that disseminate biases.
The challenge we, as transnational law scholars, confront is in identifying the site(s) of power in transnational law. This is particularly difficult as transnational law consists of a disparate network of domestic and international laws. The distribution of power across each node of law which makes up the vast and complex web of transnational law will differ substantially depending on the context. Therefore, we can, at best, make some comments on how power typically translates into legal categories, and extrapolate those findings to the transnational law context.
As mentioned, I am particularly interested in corporate power and specifically its ability to shape dependencies within the international political and economic order. In the post-war period, dependencies between the core (former colonial powers) and peripheral (formerly colonised) nations have increasingly manifested as a consolidation of power in the hands of transnational corporations who, through foreign direct investment, retain control over the most dynamic sectors of the economy and repatriate high volumes of profit back to the core.[vi]
Further, TWAIL (Third World Approaches to International Law) scholars suggest that the process of recolonisation – the process of subverting Third World autonomy via political, economic, ideological and legal machinations – is achieved through the hollowing out of sovereignty “as domestic authority is displaced by the swelling power of a network of international financial institutions (IFIs) backed and funded by – and thus bound to – the wealthiest nations.”[vii] Most interestingly for the purposes of our discussion is the observation that these states use key international legal regimes and institutions (e.g., WTO, IMF and World Bank) to promote the interests of an emerging transnational capitalist class.[viii] This suggests that corporate actors have the power to translate their economic interests into legal categories, and that states serve a mediating function between corporate interests and transnational norm creation.
This idea is not new, Pistor,[ix] Singh Grewal,[x] and Adams et al[xi] have all argued, quite persuasively, that socioeconomic systems are structured by legal and institutional arrangements. Therefore, those who have mastery over the law can pursue their interests through the law, potentially at the expense of others. Consequently, while Liste may be correct in claiming that legal norms are critical resources of power,[xii] they are also products of power. In other words, norm production becomes like any other form of production – the question is who owns the means of norm production?
There is certainly no one owner of the means of norm production. However, a rapidly advancing body of scholarship positions corporations as both norm-entrepreneurs and norm-consumers, explicating the subtle and indirect ways that state and corporate power combine to produce transnational norms.[xiii] Flohr et al explain that corporations can “engage in the redefinition of ‘an activity as a problem’ and can act as ‘meaning managers’ by creating new ‘cognitive frames’ and establishing ‘new ways of talking about and understanding issues’.”[xiv]
Both firms and high earners[xv] have various mechanisms at their disposal to turn wealth into influence,[xvi] including through legal means such as lobbying,[xvii] rent-seeking, media and communications, campaign financing, and illegal means such as bribery[xviii] and exploiting regulatory omissions.[xix] For profit consultancies also act as knowledge brokers, operating as mediators between policy-makers and end-users (often developing nations).[xx] Further, there is evidence that corporations not only implement policy but also “influence how policy problems are diagnosed and how solutions are constructed and supplied (and by whom)”[xxi] with consultants more likely “to promote standardization and encourage harmonization”[xxii] in a way that reflects corporate interests. In doing so, these corporations may stimulate demand for their own advisory services.[xxiii] In sum, corporations are not only norm users but exert substantial influence over norm production; they may leverage their economic power to affect policy formation and its application. This is not, per se, an issue. However, the use of economic power to form policies that prioritise corporate interests to the disadvantage and exclusion of others may produce (un)intended injustices.
A Case Study in Norm-Production – Chevron v. Ecuador
To put corporations’ norm-producing power into context, let us consider the well-known and long running dispute between residents of the Oriente region of north-eastern Ecuador and Texaco (subsequently acquired by Chevron).
Over the course of three decades, corporate law, private international law and international investment law combined to frustrate access to and enforcement of justice for the inhabitants of the Oriente region. In 1994, a group of 30,000 indigenous peoples and farmers commenced proceedings in New York against Texaco for alleged property damage, personal injuries, and increased risk of disease due to negligence (the “Aguinda proceedings”).[xxiv] Over a period of approximately 26 years, Texaco had dumped over 30bn gallons of toxic waste and crude oil into the Amazon rainforest. Lands across the Amazon rainforest had become unusable, rivers turned black, and local communities were plagued by serious health problems, including cancer, miscarriages, skin conditions and birth defects. The scale of the disaster earned it the moniker – the “Amazon Chernobyl.”[xxv]
In New York, Texaco argued that the Ecuadorian courts were the more appropriate forum to hear the dispute, relying on the doctrine of forum non conveniens and the principle of international comity. The doctrine – which traces its origins to Scotland[xxvi] – permits a court to stay or dismiss cross-border proceedings where the action would be better adjudicated elsewhere[xxvii] and a stay or dismissal would best serve the ends of justice.[xxviii] The Aguinda plaintiffs argued that substantial justice was unobtainable in Ecuador due to corruption in the judicial system. The New York court did not agree. In 2001, the court dismissed the claim, being satisfied that “the courts of Ecuador can exercise with respect to the parties and claims here presented that modicum of independence and impartiality necessary to an adequate alternative forum.”[xxix]
A decade later, the plaintiffs succeeded before the Ecuadorian courts, who ordered Texaco’s successor, Chevron, to pay $18bn in damages (the “Lago Agrio proceedings”).[xxx] While damages were reduced to $9.5bn on appeal, this was a major victory for the affected communities. However, while they had won the battle, the war was far from over. Chevron had already initiated multiple proceedings to frustrate any attempt to hold Chevron accountable for the actions of Texaco.
In 2009, Chevron launched pre-emptive ISDS proceedings seeking to block the Ecuadorian court case, and later to nullify the judgement.[xxxi] In 2018, the arbitral tribunal unanimously held that the Ecuadorian government had violated the company’s right to fair and equitable treatment as protected under the 1992 Ecuador-US BIT.[xxxii] The tribunal accepted that the Ecuadorian judgement had been procured through fraud, bribery and corruption. Consequently, Chevron was not required to comply with the judgement, and the Ecuadorian government may yet be ordered to pay millions in compensation (a decision on compensation is pending). The Lago Agrio plaintiffs also sought to recover from Chevron’s subsidiaries in Brazil, Argentina and Canada.[xxxiii] Unsurprisingly, the courts ruled that Chevron’s subsidiaries were not responsible for the debts of its parent-company and declined to pierce the corporate veil where there was no evidence that the subsidiaries had been set up for an improper or fraudulent purpose.[xxxiv]
Chevron’s legal strategy was combined with an extensive lobbying campaign. During the Ecuadorian hearing, Chevron lobbied for the US to revoke Ecuador’s preferential treatment under the 1991 Andean Trade Preferences Act.[xxxv] Likewise, in 1993, Texaco successfully lobbied the Ecuadorian government to send a letter to the US State Department stating that “a ruling against Texaco could discourage US companies from investing in Ecuador.”[xxxvi]
Of particular interest for this blog, however, are the proceedings taken by Chevron in New York to block recognition and enforcement of the Ecuadorian judgement. In the US, recognition of foreign judgments is typically a matter for individual states. However, Chevron engaged some unexpected legal tactics which may represent an exercise in norm-production. Chevron attempted to federalize the (non)recognition of foreign judgments through a novel invocation of the Racketeering Influenced and Corrupt Organizations Act (RICO).
In 2011, Chevron filed RICO proceedings against the Lago Agrio plaintiffs’ legal team seeking pre-emptive equitable relief, including a nationwide injunction prohibiting future attempts to enforce the judgement.[xxxvii] In 2014, the US court ruled that the judgment had been procured through fraud and barred any attempt to enforce the Ecuadorian judgment in the US and established a constructive trust to receive any monies obtained through enforcement elsewhere.
You will recall that the risk of corruption in the Ecuadorian judicial system was a fear that the Aguinda plaintiffs had raised when defending Texaco’s motion to dismiss on the grounds of forum non conveniens. This led some commentators[xxxviii] and the defendant lawyers in the RICO proceedings to argue that Chevron should be judicially estopped from claiming non-recognition on grounds of corruption. Judicial estoppel is typically used to prevent parties from “deliberately switching positions to gain a legal advantage.”[xxxix] On its face, judicial estoppel seems like a plausible defence to Chevron’s claim for a nationwide injunction against enforcement.
However, the RICO court outrightly rejected the judicial estoppel defence as being without merit on the basis that Chevron were not party to the Aguinda proceedings, having only merged with Texaco following the conclusion of those proceedings. In order to accept the judicial estoppel argument, the court would, in effect, have to disregard the separate corporate existence of Texaco, which is now an indirect subsidiary of Chevron.[xl] The court further noted that Texaco had reserved the right to challenge the enforcement of any judgement on any recognised grounds for non-recognition under the New York Recognition Act; these include where the judgement was not rendered in a way that is compatible with the requirements of due process of law (including where the judgement was obtained by fraud).[xli]
Finally, throughout the intertwining ISDS and RICO proceedings, Chevron relied on a series of settlement agreements entered into by TexPet and Petroecuador (a state-owned oil company) in the early 90s that released TexPet from any further environmental liability on the condition that they had performed the agreed-upon remediation. They essentially argued that the issue had already been resolved.
The RICO court’s decision is not completely unexpected or without basis. The concept of “due process” is a commonly recognised ground for non-recognition, Texaco had reserved the right to challenge recognition of the judgment, and the US courts are notoriously disinclined to pierce the corporate veil. Therefore, at first blush, Chevron may appear as no more than a norm-consumer; as a subject or user of legal rules. Indeed, we typically view corporations as having a reactive rather than proactive role in norm-production. However, Flohr et al remind us that “even after a norm has already reached a certain level of acceptance and institutionalization, a corporation can still engage as a norm-entrepreneur through norm development activities, for example by further specifying a norm’s implied requirements.”[xlii]
The RICO proceedings represent more than a clear-cut or predictable application of the statute. On the contrary, the proceedings represent a novel extension of the RICO Act. Chevron managed to refashion “a statute designed to combat organized crime into a tool for pre-emptively challenging corrupt foreign judgments in federal court … [and federalize] judgement recognition law.”[xliii] While there are a number of procedural hurdles that any future judgment debtor would have to overcome to access equitable relief under RICO,[xliv] the ruling represents an example of corporations as norm-producers. Indeed, following the Chevron proceedings, commentators have noted that “enterprising judgment creditors and debtors hoping to bolster their positions with federal statutory law have an incentive, and now a roadmap, to mine the United States Code for material to fuel a statutory, piecemeal federalization of state judgements law.”[xlv]
Further, the RICO decision also delineates the outer limits of the principle of international comity, i.e. the general policy to maintain good relations with foreign nations by respecting the competence of foreign courts to hear an action and by recognising foreign country judgements. Interestingly, the principle of comity worked in Texaco’s (and later Chevron’s) favour on multiple occasions. The principle was invoked as a ground for dismissing Aguinda proceedings. The judge in that case was unconvinced that substantial justice was unobtainable in Ecuador. When the Aguinda plaintiffs’ concerns ultimately manifested, the RICO court affirmed that the principle was not a bar to non-recognition of a court decision procured using fraud.
It appears that where the risk that substantial justice is unobtainable is hypothetical (as during a forum non conveniens motion) the courts will defer to the principle of international comity. However, where the risk has been obtained, the courts will show less deference to the principle. For victims of cross-border corporate wrongdoing this means that the principle may rarely work in their favour, and rather may frequently protect corporate interests abroad.
Conclusion
There are, of course, two ways to read the extension of RICO – as a broadening of the foreign judgment enforcement loophole to avoid corporate liability for environmental damages[xlvi] or as a remedy for courthouse corruption.[xlvii] Either way, the Lago Agrio plaintiffs are left without a remedy, having expended substantial resources on seeking justice in both the US and Ecuador. Ultimately, access was denied owing to a combination of corruption (a possibility that the Lago Agrio plaintiffs had raised early on), the insulating features of the corporate form, the “ongoing asymmetries of protection in the much-beleaguered investor-State dispute settlement system,”[xlviii] and the “enforcement” loophole.[xlix] Whether or not you agree with the court’s reasoning, the case brings into sharp focus the operation of corporate power in transnational law and the capacity for corporations to bend transnational law to their interests.
As Muir Watt has astutely observed, “private international law has contributed very little to the global governance debate, remaining remarkably silent before the increasingly unequal distribution of wealth and authority in the world.”[l] In remaining silent, private international law can appear neutral (or at worst indifferent) to the substantive outcomes delivered through the application of procedural rules. However, private international law may, as Muir Watt tells us, “impact upon the balance of informal power in the global economy.”[li] It is hoped that this blog has provided the reader with just a little more insight into how transnational law is both a resource and a product of power.
[i] Phillip C Jessup, Transnational Law (Cambridge University Press 1956) 2.
[ii] BS Chimni, ‘Third World Approaches to International Law: A Manifesto’ (2006) 8 International Community Law Review 3; Mohsen Al Attar and Rosalie Miller, ‘Towards and Emancipatory International Law: The Bolivarian Reconstruction’ (2010) 31 Third World Quarterly 347.
[iii] Kean Birch and others, Business and Society: A Critical Introduction (Zed Books 2017) 92.
[iv] ibid.
[v] ibid.
[vi] Theotonio Dos Santos, ‘The Structure of Dependence’ (1970) 60 The American Economic Review 231.
[vii] Al Attar and Miller (n 2) 348.
[viii] BS Chimni, ‘International Institutions Today: An Imperial Global State in the Making’ (2004) 15 European Journal of International Law 1.
[ix] Katharina Pistor, The Code of Capital (Princeton University Press 2019).
[x] David Singh Grewal, ‘The Laws of Capitalism’ (2014) 128 Harvard Law Review 626.
[xi] Abi Adams, Judith Freedman and Jeremias Prassl, ‘Rethinking Legal Taxonomies for the Gig Economy’ (2018) 34 Oxford Review of Economic Policy 475.
[xii] Philip Liste, ‘The Workings of Power in Transnational Law’ (Transnational Law Institute, King’s College London 2020) 24.
[xiii] Annegret Flohr and others, ‘Variations in Corporate Norm-Entrepreneurship: Why the Home State Matters’ in Morten Ougaard and Anna Leander (eds), Business and Global Governance (Routledge 2010).
[xiv] ibid 237.
[xv] Larry Bartels, Unequal Democracy (Princeton University Press 2016) <https://www.degruyter.com/document/doi/10.1515/9781400883363-010/html> accessed 4 July 2022; Elizabeth Rigby and Gerald C Wright, ‘Political Parties and Representation of the Poor in the American States’ (2013) 57 American Journal of Political Science 552; Patrick Flavin, ‘Income Inequality and Policy Representation in the American States’ (2012) 40 American Politics Research 29; Martin Gilens, Affluence and Influence (Princeton University Press 2012).
[xvi] Grewal (n 10) 658.
[xvii] Jeffrey Drope and Wendy Hansen, ‘New Evidence for the Theory of Groups: Trade Association Lobbying in Washington’ (2009) 62 political research quarterly 303; Matthew D Hill and others, ‘Determinants and Effects of Corporate Lobbying’ (2013) 42 Financial Management 931; Luigi Zingales, ‘Towards a Political Theory of the Firm’ (2017) 31 Journal of Economic Perspectives 113.
[xviii] Lina M Khan and Sandeep Vaheesan, ‘Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents’ (2017) 11 Harvard Law and Political Review 235.
[xix] Adams, Freedman and Prassl (n 11).
[xx] André Broome, ‘Gaming Country Rankings: Consultancies as Knowledge Brokers for Global Benchmarks’ (2022) 100 Public Administration 554.
[xxi] ibid 556.
[xxii] ibid.
[xxiii] ibid.
[xxiv] ‘Aguinda v Texaco, Inc., 142 F. Supp. 2d 534 (2001)’.
[xxv] Christina Weston, ‘The Enforcement Loophole: Judgment-Recognition Defenses as a Loophole to Corporate Accountability for Conduct Abroad’ (2011) 25 Emory International Law Review 731, 731.
[xxvi] Ardavan Arzandeh, Forum (Non) Conveniens in England: Past, Present, and Future (Bloomsbury Publishing 2019).
[xxvii] Islamic Republic of Iran v Pahlavi, 62 NY2d 474, 478-479 [1984], cert denied, 469 US 1108 [1985].
[xxviii] Piper Aircraft Co v Reyno, 454 US 235 [1981].
[xxix] ‘Aguinda v Texaco, Inc., 142 F. Supp. 2d 534 (2001)’ (n 24) 545–546.
[xxx] Complaint, Maria Aguinda Salazar et al v ChevronTexaco Corp, No 002-2003 (Super Ct of Nueva Loja May 7, 2003).
[xxxi] Chevron Corporation and Texaco Petroleum Company v The Republic of Ecuador (II) (PCA Case No 2009-23).
[xxxii] Arbitration Tribunal, Chevron Corp v Republic of Ecuador, Second Partial Award on Track II, 30 August 2018.
[xxxiii] Robert V Percival, ‘Transnational Litigation: What Can We Learn from Chevron–Ecuador?’ in Veerle Heyvaert, Leslie-Anne Duvic-Paoli and publisher Edward Elgar Publishing (eds), Research handbook on transnational environmental law (Edward Elgar Publishing 2020); Manuel A Gomez, ‘The Global Chase: Seeking the Recognition and Enforcement of the Lago Agrio Judgment Outside of Ecuador Lessons from Chevron’ (2012) 1 Stanford Journal of Complex Litigation 429.
[xxxiv] Percival (n 33) 319.
[xxxv] ibid 331.
[xxxvi] ibid 320. It is worth noting that the Lago Agrio plaintiffs’ legal team also engaged in an extensive public awareness campaign.
[xxxvii] Chevron Corp v Donziger, 974 F Supp 2d 362 (SDNY 2014).
[xxxviii] Weston (n 25).
[xxxix] ibid 766.
[xl] Chevron Corp. v Donziger, 974 F. Supp. 2d 362 (S.D.N.Y. 2014) (n 37) 455.
[xli] ibid.
[xlii] Flohr and others (n 13) 237.
[xliii] ‘Foreign Relations Law — Judgment Recognition — Second Circuit Upholds Equitable Relief from a Foreign Judgment Under RICO. — Chevron Corp. v. Donziger, Nos. 14-0826(L), 14-0832(C) WL 4173988 (2d Cir. Aug. 8, 2016)’ (2016) 130 Harvard Law Review 745, 749.
[xliv] For more on these hurdles see ibid 752.
[xlv] ibid.
[xlvi] Weston (n 25); Percival (n 33).
[xlvii] Anna Hanke, ‘Equitable Relief for Private RICO Plaintiffs: Using Donzinger to Remedy Courthouse Corruption Notes and Comments’ (2018) 26 Journal of Law and Policy 311.
[xlviii] Diane Desierto, ‘From the Indigenous Peoples’ Environmental Catastrophe in the Amazon to the Investors’ Dispute on Denial of Justice: The Chevron v. Ecuador August 2018 PCA Arbitral Award and the Dearth of International Environmental Remedies for Private Victims’ (EJIL:Talk!, 13 September 2018) <https://www.ejiltalk.org/from-indigenous-peoples-environmental-catastrophe-in-the-amazon-to-investors-dispute-on-denial-of-justice-the-chevron-v-ecuador-2018-pca-arbitral-award/> accessed 2 April 2024.
[xlix] Weston (n 25).
[l] Horatia Muir Watt, ‘Private International Law Beyond the Schism’ (2011) 2 Transnational Legal Theory 347, 347.
[li] ibid.
