Not on the Rink in My Backyard - Ontario Court Rejects Bid to Enforce Ecuadorian Judgment Against Chevron Corp.

It is well-known that for 20 years Chevron Corp. has been engaged in litigation with residents of the Lago Agrio region of Ecuador over alleged environmental and health damage arising out of oil exploration activities by Chevron's predecessor, Texaco.  The dispute has played out in numerous installments both in the federal courts of the United States and in the courts of Ecuador and has involved issues of jurisdiction, forum conveniens, validity of a settlement agreement under investment treaty law and allegations of fraud.  Ultimately, in 2011, the plaintiffs obtained an Ecuadorian trial judgment for approximately $18 billion, later upheld on appeal.1 On May 30, 2012, the plaintiff brought the party to Canada.

The plaintiffs filed an action in the Superior Court of Justice in Ontario seeking to enforce the Ecuadorian judgment, not only against Chevron Corp. but against the assets of Chevron Canada Limited, a seventh-level indirect subsidiary of Chevron Corp.2 Before defending, the Chevron parties brought motions to set aside service or stay the enforcement action based on lack of jurisdiction.

The Ontario Court rendered its decision on May 1, 2013.3 It noted the unusual circumstances of the case, being that the plaintiffs sought to enforce the Ecuadorian judgment in Ontario, where Chevron claimed to have no assets, but had never sought to enforce it in the United States, where Chevron acknowledged owning assets.  In spite of this, the Court found that it had jurisdiction simpliciter over the case.

However, that was the end of the plaintiffs' victory.  The Court went on to find that in this "most unusual case", the plaintiffs' enforcement action should be stayed based on the findings:

  • Chevron Corp. had no assets in Ontario and had an established history in this regard.  There was no reasonable prospect that it would have assets in Ontario in the future.
  • Chevron Corp. does not conduct any business in Ontario.
  • The plaintiffs "had no hope of success" in piercing the corporate veil between Chevron Corp. and its indirect subsidiary, Chevron Canada.  The Court was satisfied that the management and operation of Chevron Canada was separate and distinct from that of its parents up the corporate chain such that one was not the alter ego of the other.  There were no overlapping members with the Chevron Corp. board or executives.  The plaintiffs pointed to the existence of certain "family" budget reporting requirements, a large capital expenditure approval process, guarantees by Chevron Corp., consolidated financial statements and dividends by Chevron Canada up the chain, but the judge did not find these sufficiently persuasive.  Further, the Court ruled that the corporate veil could not be pierced simply because it would be "just and equitable" to do so.

In granting the stay, the Court noted that while it would not, and should not, shy away from enforcing a judgment merely because the proceeding would be difficult, the Ontario courts should be reluctant to dedicate resources to disputes where there were no assets in Ontario to fight over.  As the Court summarized:

Chevron is on record saying:  "We will fight until hell freezes over and then fight it out on the ice."  While Ontario enjoys a bountiful supply of ice for part of each year, Ontario is not the place for that fight….In my view, the parties should take their fight elsewhere to some jurisdiction where any ultimate recognition of the Ecuadorian Judgment will have a practical effect.4

In keeping with the history of the case, plaintiffs’ counsel has already announced an appeal.5

With increased globalization of litigation, international enforcement issues are likely to become more frequent.  Although the facts of this case are unusual, it provides guidance for any foreign party involved in potential judgment enforcement proceedings in Canada where the connection to Canada or Canadian assets is less than obvious. The analysis of the case for enforcement against Chevron Canada will be of interest to multinationals with business in Canada in terms of considering whether they would be able to demonstrate the requisite separation of assets and operations.

It is yet to be seen whether the Court's decision will impact the comity other courts might extend to Canadian courts in other contexts.


Notes

  1. In November, 2012, the highest appeal court of Ecuador apparently granted leave to appeal the judgment. However, the trial judgment became final for enforcement purposes after the ruling of the Ecuadorian intermediate court of appeal.
  2. The entity that actually holds shares in Chevron Canada, Chevron Canada Finance Ltd. (CCFL), was not a party to the original judgment. CCFL was originally named a party to the Ontario proceedings but they were discontinued against it on August 24, 2012.
  3. Yaiguaje v. Chevron Corporation, 2013 ONSC 2527 (Ontario Decision)
  4. Ontario Decision at para. 111.
  5. Jeff Gray, “Ontario Court Sides with Chevron in Amazon Oil Pollution Case” The Globe and Mail (2 May 2013)