Joanna Baron is director of the Runnymede Society
Beginning this week, counsel for Chevron Canada are asking the Ontario Superior Court to summarily dismiss the claims of a group of Ecuadorean plaintiffs. The plaintiffs ultimately wish the court to recognize and enforce an Ecuadorean judgment of $9.51-billion (U.S.) for alleged environmental damage in the Lago Agrio district of Ecuador’s jungle. The damage arose from an extraction initiative in which the corporation – then Texaco – was an operating partner with the government of Ecuador and which was then sold to the government in 1992 at an agreed price. After conducting an environmental cleanup that was certified by the agencies responsible for oversight, Texaco was released from any further liability in 1998.
The Ecuadorean judgment was procured by demonstrably fraudulent means. Last month, the U.S. Second Circuit Court of Appeals unanimously upheld the Southern District of New York’s finding that the plaintiff’s lawyer had fabricated evidence (his own consultants had written the “independent expert reports”), offered bribes to judges (the trial judge was offered $500,000) and tampered with witnesses in order to form the basis of the Ecuadorean judgment.
In 2013, the Ontario Court of Appeal ruled that the plaintiffs could seek enforcement against Chevron Canada, opening the door to Canadian enforcement of foreign judgments. This decision, subsequently affirmed by the Supreme Court of Canada, is extraordinary and sent nervous shocks across the pond among the upper crust of the British commercial bar when I worked there as a student in 2013. It’s easy to see why: The decision significantly aggravates the risk of companies holding assets in Ontario and renders them vulnerable from plaintiffs seeking to collect on claims obtained in foreign courts, even those obtained under by way of the “legal fraud of the century,” as The Wall Street Journal described it.
Chevron Corp. has no legal connection to and no assets in Ontario; Chevron Canada was a stranger to the Ecuador proceedings. The Court of Appeal’s decision suggested, at least at a preliminary level, that the corporate veil separating Chevron Corp. from Chevron Canada, a seventh-level indirect subsidiary of the former, could be pierced in order to permit creditors to pursue recovery against corporate subsidiaries.
Enforcement in Canada can now be sought against Canadian companies even if no party to the litigation possesses a “real and substantial connection” to the foreign judgment jurisdiction and were not a party to the foreign litigation. The underlying principle the court embraced is understandable: It’s true that the exigencies of the global economy and cross-border trade flows demand that courts take the principles of international comity seriously. But the corrupt underlying case in question here is an object lesson in “bad facts.”
It’s a well-established principle of common and corporate law that the existence of a corporate veil blocks actions against separate corporate entities, and our economy relies on it. Courts will pierce the corporate veil where separate corporate structures are proffered as mere shams or formalities, but no such allegation is made here. Instead, the plaintiffs rely on the amorphous “interests of justice” argument to justify deviating from a settled principle of law.
Neither the Court of Appeal nor the Supreme Court’s decisions commented on the merits of the Ecuadorean judgment. They merely held that the plaintiffs could seek enforcement in Canada. Nonetheless, it is lamentable that valuable court resources are being spent on the matter given that Chevron holds no assets here.
Justice David Brown put it best when he was on the Superior Court of Justice in 2013: Permitting the action to go ahead entails that “a bitter, protracted and expensive recognition fight would ensue consuming significant time and judicial resources … Ontario courts should be reluctant to dedicate their resources to disputes where, in dollar and cents terms, there is nothing to fight over. In my view, the parties should take their fight elsewhere to some jurisdiction where any ultimate recognition of the Ecuadorean Judgment will have a practical effect.” (The higher courts did not dispute this observation, but merely held that it was not relevant to the issue of whether the plaintiffs had jurisdiction to sue.)
The recognition of foreign judgments is aimed at ensuring the principles of comity and securing the ends of judgment. It seems clear that the plaintiffs are instead contorting these principles to a subterfuge: After striking out repeatedly in the United States (not to mention Brazil and Gibraltar), they have come knocking at our courtroom doors armed with some of Bay Street’s sharpest lawyers. Let’s not let our courts be dragged into this quagmire.
Editor's note: A Tuesday Report on Business opinion column on a request for a Canadian court hearing to dismiss claims of a group of Ecuadorean plaintiffs incorrectly said a U.S. Court of Appeals for the Second Circuit upheld a finding that the plaintiff’s lawyer had bribed judges including one to a trial judge of $500,000. In fact, court finding was that the judge had been offered a bribe.
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