A court in Ecuador has rejected an order by arbitrators that an $18 billion pollution ruling against Chevron should be frozen, but the judges referred an appeal by the U.S. oil company to the country's Supreme Court.

A year after the landmark decision against Chevron, a panel working for The Hague's Permanent Court of Arbitration told Ecuador last week to take all necessary measures to suspend enforcement of the award at home and abroad.

But in a ruling made public on Monday, the court that has been considering the case in the remote Amazon jungle region of Sucumbios said Ecuador should not comply with that order.

A simple arbitral award ... cannot force judges to infringe the human rights of our citizens, said the court, adding that abiding by the panel's order would be unconstitutional and would lead to the breach of international human rights conventions.

The court said it had accepted an appeal filed by Chevron, however, and referred it to the Supreme Court in the clearest sign yet that the litigation, which has already run nearly 20 years, could drag on for more years.

The plaintiffs say The Hague panel's ruling will not affect their plans to collect on the $18 billion award in other countries where Chevron has assets.

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 plaintiffs.

CASE WATCHED CLOSELY

California-based Chevron inherited the case with its 2001 takeover of Texaco, which had left Ecuador nine years earlier.

The plaintiffs accused Texaco of causing illnesses in the local population by dumping drilling waste in unlined pits. They launched their case in 1993 in New York, before it was moved to the court in the town of Lago Agrio nearly a decade later.

Chevron denies the accusations. It says Texaco did not pollute the jungle, and that it properly cleaned up all the pits for which it was responsible. The case is being watched closely by the oil industry for precedents that could influence other claims by states accusing multinational companies of pollution.

Activists portray the long legal battle as a fight for justice, but Chevron says the proceedings have been driven more by opportunism and greedy lawyers. The saga has spawned lots of accusations of dirty tricks and bribery.

In light of fraud that overtook the Lago Agrio litigation, and the decision rendered ... by an international arbitration tribunal precluding enforcement, no court in the world that respects the rule of law will recognize this illegitimate judgment, Chevron spokesman James Craig told Reuters.

Working under rules set by the U.N. Commission on International Trade Law, the panel must decide whether it has jurisdiction in the case and could also consider whether Ecuador violated an investment treaty with the United States, given Chevron's allegations that it did not receive a fair trial.

Arbitration could then take years, if the last Chevron dispute with Ecuador is any guide. It took four years for the panel to order Ecuador to pay Chevron $96 million in connection with claims made in its courts in the 1990s.

(Editing by Daniel Wallis)

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