Chevron Blames Lawyer's "Racketeering Enterprise" for Massive Ecuardorean Judgment Against It

Last month (September 26), I blogged about a recent decision of Justice D.M. Brown of the Ontario Superior Court of Justice, who granted Chevron Corp.'s  stay of an action  commenced by Ecuadorean plaintiffs to enforce what was at that time a $17.2 billion judgment rendered against Chevron's predecessor, Texaco, for allegedly polluting Ecuador's Amazon Basin.  In his reasons for dismissing the motion, Justice Brown mused about why the plaintiffs had chosen to attempt to enforce the judgment in Ontario, where Chevron had no assets, "As I stated during the hearing, the jurisdiction in which the judgment debtor owns assets is only a short distance from this courthouse - in less than an hour's drive one can cross a bridge which takes you into the very state in which Chevron initiated its anti-enforcement injunction proceedings".  

Well, it looks like Chevron, at least, was listening to the judge's admonition.  In a trial commencing this week in Manhattan, Chevron is asking a federal court in New York to prevent the plaintiffs and their lawyer from using the US courts to enforce the Ecuadorean judgment.  The trial is being heard before US District Judge Lewis Kaplan, the very judge that first tossed out the plaintiffs' action saying that "the case had nothing to do with the United States".   The twist in this trial is that Chevron, the huge multi-national company, is accusing the plaintiffs and their lawyer, Steven Donziger, of fraud.  In a bit of hyperbole, worthy of any trial attorney, a lawyer for Chevron said the proceedings in Ecuador were "one of the most egregious litigation frauds in history".  Chevron is accusing Donziger and his associates of running a racketeering enterprise by bribing the judge who wrote the Ecuadorean judgment and of even writing part of the judgment themselves.  Observers have said that this case "exemplifies a new pattern of corporations seeking to crush personally plaintiffs' lawyers who bring sizable liability claims".  

In their defence, Donziger and the plaintiffs are accusing Justice Kaplan of bias.  Kaplan recently issued a 104 page pre-trial ruling warning that he has already determined "there was probable cause to suspect a crime or fraud" by Donziger in connection with the fabrication of scientific evidence, through the coercion of one Ecuadorean judge, the bribing of other Ecuadorean judges, and the ghost writing of a critical report supposedly composed by independent court-appointed official.  Kaplan also added that he suspected that Donziger's legal team in Ecuador secretly wrote some or all of the February 2011 court judgment.     

Chevron and its lawyers are seeking a ruling barring Donziger and the other plaintiffs' lawyers from trying to enforce the judgment in courts around the world wherever Chevron may have assets.  One of the reasons that Justice Brown stayed the action in Ontario was that it was shown by the evidence that Chevron had no assets in Ontario.  Justice Brown held, "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 Ecuadorian judgment will have a practical effect."  

There is an incentive for Donziger to do so.  He and the other plaintiffs' lawyers could collect as much as $1.2 billion in fees as their portion of the judgment.

(with reports from Bloomberg.com and the National Post)

Regards,

Blair

Paralegal Offended by Justice of the Peace's Treatment, Calls Barristers Act Unconstitutional

Some lawyers, including those who practice before the Ontario Provincial Courts have becoming increasingly more vocal in expressing concern that paralegals are encroaching on what they consider to be their turf.  This turf war between lawyers and paralegals was ratcheted up a bit in the case of Lippa, et al. v. The Queen, (indexed as R. v. Lippa 2013 ONSC 4424).   

Marian Lippa has worked as a paralegal since 1998.  In 2006, the Law Society Act ("Act") was amended to create two forms of licensee - lawyers and paralegals - where previously, only lawyers were licensed to practice law in Ontario.  Much to the chagrin of many lawyers, licensed paralegals became members of the Law Society of Upper Canada ("LSUC").  Paralegals became subject to a regulatory regime that closely parallels the regime applicable to lawyers, including adherence to Rules of Professional Conduct.  They were authorized by the by-laws under the Act to provide specified legal services including representing a party before a summary conviction court.

Ms. Lippa became licensed as a paralegal by the LSUC in 2008.  She has her own paralegal firm, which employs other licensed paralegals.  On June 10, 2010, Mr. Lippa appeared in a Newmarket court as agent for counsel on two criminal cases.  The presiding justice of the peace ("JP") "reminded" her that agents were to remain behind the bar until their cases were called.  The JP said that the area in front of the bar was reserved for lawyers and law students.  The JP cited the Law Society's "protocol" and "safety reasons" and referred to it as a tradition that had existed for hundred's of years.  The JP also referred to the Crown having an opportunity to call matters in order of protocol by "elder counsel" first.

Ms. Lippa was offended and embarrassed by the JP's instructions.  She was also concerned that her company would lose business if its clients felt that they were not being defended as well they could be if they were represented by a lawyer.  In addition, her employees could not attend as many set-date appearances on a given day as they otherwise would have.  Accordingly, Ms. Lippa sought orders of certiorari and mandamus quashing the instructions of the JP and directing that the JP's court list be called on a "first come, first served" basis, subject to common sense exceptions.  She also sought declarations that the certain provisions of the Barristers Act were not mandatory or alternatively were unconstitutional.  

The matter was heard before Justice Michelle Fuerst of the Ontario Superior Court of Justice.  Justice Fuerst dismissed Ms. Lippa's application.  While holding that paralegals play an important role in the delivery of cost-effective legal services in Ontario and that their status as such is deserving of respect, Justice Fuerst held that the JP was "perfectly within her jurisdiction" to give the instructions that she did.

In respect of the issue of courtroom seating, Justice Fuerst held that it is common ground that a court of criminal jurisdiction has the power to control its own process in order to maintain the integrity of that process.  Determining where individuals sit in a courtroom, particularly a busy remand courtroom, where individuals are coming and going as various cases are called, falls within the jurisdiction of a judicial officer to maintain order in the courtroom and the dignity of the proceedings.  The JP did not exceed her jurisdiction or breach the principles of natural justice in ordering that only lawyers could sit in front of the bar when court was in session.

As to the order in which cases were called, Justice Fuerst held that it was not clear that the JP was adhering to the provisions in the Barristers Act which sets out an order of precedent of members of the bar in courts of Ontario.  The regime set out in the Barristers Act anticipates a mixed list, consisting of criminal and civil matters.  Accordingly, the act has very little direct application to present day criminal courts which deal solely with criminal cases.  There are a variety of ways in which cases can be called in busy courtrooms.  No one method will necessarily be the most orderly or efficient for every courtroom in the province, nor is one necessarily better than another.  However the list is called, not every case can be given priority and inevitably some individuals will wait longer than others.  The fact that it inconvenienced Ms. Lippa and caused her to feel slighted when her matters were held down does not mean that it was contrary to the principles of natural justice or otherwise an excess of jurisdiction on the part of the JP. 

Finally, as for the alleged unconstitutionality of the Barristers Act, Justice Fuerst held that there was no breach of section 7 of the Charter of Rights and Freedoms in that the JP's instructions did not impinge on Ms. Lippa's life, liberty or security of the person.  The instructions may have affected Ms. Lippa's economic interest but that interest is not protected by section 7, i.e. the ability to general business revenue by one's chosen means is not a right that is protected by section 7 of the Charter.  Further, corporations and other artificial entities such as Ms. Lippa's company were excluded from section 7 protection.  

Regards,

Blair

Corporate Directors Accused of Bad Faith Conduct Denied Advance Funding of Legal Costs

Most Canadian business corporations statutes, including the Ontario Business Corporations Act and the Canada Business Corporations Act ("CBCA"), contain provisions which permit a director or officer of a corporation to be indemnified by the company "against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment" if those costs had been reasonably incurred in proceedings in which the officer or director is involved because of her association with the company.  The legislation also provides that the company may advance money to an individual for her legal costs, but the individual is required to repay the money and the company is not required to indemnify her unless the individual acted honestly and in good faith with a view to the best interests of the company.  Those statutory indemnification provisions are often reproduced in company bylaws.

The law in that area is expanding.  In the case of Cytrynbaum v. Look Communications Inc. [2013] ONCA 455, the Ontario Court of Appeal agreed with the reasons of an application judge which denied an application by former directors and officers of Look Communications Inc. ("Look") for advance funding of their legal costs in defending an action brought against them by Look itself.   

Look is a CBCA company which was engaged in wireless, internet and cable services.   The defendants were either directors or officers of Look or former directors or officers of Look.  Look adopted a share appreciation rights plan "SARs" plan as an incentive to its directors, officers, employees and consultants.  The SARs plan allowed Look to award such individuals share appreciation rights based on the market value of Look's shares.  The SARs could be exercised if Look sold all or substantially all of its assets and entitled the holder to be paid the difference between the market price of the shares on that date and the price on the date the SARs were granted.  The former directors and officers of Look were all granted SARs.  Some were also granted stock options.  

Look's business seriously declined from 2005 to 2008.  In late 2008, Look's board decided to sell Look's assets pursuant to a plan of arrangement under the supervision of a monitor.  In 2009, Look sold its key assets for $80 million to a partnership formed by Rogers and Bell, less $16 million to be paid to Bell to settle certain outstanding litigation.  The sale was approved by Look's shareholders and by the court.

Following the agreement with Rogers and Bell, Look's board accepted the recommendation of certain of Look's management to set aside $11 million for management severance, retention and bonus payments.  The board also accepted management's proposal to authorize payments to terminate the SARs and cancel all stock options on the basis of a share valuation of $0.40 per share contrary to the terms of both of the SARs and option plans that specified the market value was to be used.  At the time, the market price of the shares was approximately $0.20.

Following the sale, Look paid more than $20 million, or 32 per cent of the net sales proceeds to its officers, directors, employees and consultants by way of bonuses and equity cancellation payments.  

Those payments were not disclosed to the shareholders until several months later when a management information circular was issued.  Once disclosed, the payments immediately attracted strong shareholder criticism.  The appellants anticipated that they would be sued and at a board meeting decided to authorize Look to pay $1,550,000 as retainers to three law firms acting for them personally.  Immediately after those retainers were paid, the individuals resigned as directors and officers of Look.  

Look's by-laws provided for indemnity and advance funding, in almost identical wording to the CBCA.  In addition to the by-laws, the defendants relied on indemnification agreements they had entered into with Look which provided indemnity and advancement of costs in broader and more generous terms than the provisions of the CBCA. The former management commenced an application seeking advance payment and indemnity for their legal costs in defending Look's action in accordance with the bylaws and the agreements.  Look refused to make such payments.  

In denying the defendants' application, the first issue considered by the application judge was whether the defendants could seek advance funding of their legal costs when they were defending an action brought by the company itself, as opposed to by a third party.  He found that section 124(4) of the CBCA which provides that a corporation may with the approval of a court indemnify an individual or advance monies in respect of an action "by or on behalf of the corporation" to which the individual is made a party because of the individual's association with the corporation or other entity does not apply only to derivative actions.  He found that the words "by or on behalf of the corporation" clearly and unambiguously included both actions brought by the corporation itself and actions brought on behalf of the corporation.  However, he concluded that directors or officers who have engaged in misconduct towards a corporation ought not to be allowed to use corporate funds to defend themselves.  

Secondly, the application judge held that former management were entitled to the benefit of the presumption of good faith and that it was for Look to lead evidence to rebut that presumption.  Look was required to establish a strong prima facie case that its former management acted mala fides towards the corporation and establish on the evidence that it was likely to succeed at trial.  The application judge found that Look had made out a strong prima facie case that the former management had acted in bad faith by using a share value of $0.40 to fix the equity cancellation payments and that the $0.40 value bore no relation to the market value and was contrary to the terms of the SARs and option plans.  The share price was determined without any consultation with a compensation or valuation expert and resulted in conferring personal benefits of approximately $9 million largely on the defendants at the expense of the corporation.  The application judge rejected the contention that the legal advice the board had received provided the defendants with a defence because the advice extended only to the board's general authority to make compensation awards and not to the decision to use the $0.40 per share valuation.  

Thirdly, the application judge found that the retainer payments to the law firms were made contemporaneously with the defendants' resignations in the face of mounting wave of shareholder complaints and without the support of proper legal advice despite the caution sounded by a lawyer retained by the board who was then excluded from the meeting held to consider the payments.

The former management appealed this decision to the Ontario Court of Appeal.  Mr. Justice Sharpe delivered the judgment of the court and agreed with the application judge.

 Justice Sharpe agreed that the words "by or on behalf of the corporation" unambiguously covered both derivative actions which are brought on behalf of the corporation and actions that are brought by the corporation, such as this one.  In addition, Justice Sharpe held that it was difficult to see any principled rationale for applying one regime for advance costs in derivative actions and another for actions brought by the corporation itself.  The objective underlying the indemnity provisions for directors and officers is to maintain a balance between encouraging responsible behaviour by directors and officers on the one hand and permitting enough leeway to attract strong candidates to foster entrepreneurism on the other hand.

Secondly, Justice Sharpe agreed with the application judge's application of a strong prima facie case standard instead of adopting a standard which would deny advance funding only when the evidence rises to such a level that a court is able to make a final determination of mala fides.  If the matter fell to be determined solely on the wording of the indemnity agreements, advance funding could only be denied on that basis.  However, the issue had to be decided on the basis of the overriding language of the statute which contemplates that the right to advance funding is subject to court approval before trial and that a final determination of the issue of bad faith and indemnity must await trial.

Justice Sharpe held that the application judge did not err in finding that the plaintiff had made out a strong prima facie case of bad faith and was correct in denying advance funding of the defendants legal costs. 

Regards,

Blair

British Columbia Arbitrator Prevented From Awarding Compound Interest on Expropriation Award

Following a commercial arbitration, the province of British Columbia was ordered to pay Teal Cedar Products Ltd. ("TCP") compensation for partially expropriating TCP's forestry licence.  However, in an application that went all the way to the Supreme Court of Canada, the province was relieved from paying compound interest on the arbitration award.

TCP held the licence to harvest a certain amount of timber in the province known as an "allowable annual cut".  The province reduced TCP's allowable annual cut to create a park.  TCP sued the province under the British Columbia Forest Act claiming compensation for partial expropriation of its timber licence.  The parties could not agree as to the appropriate compensation and the dispute was resolved through arbitration under BC's Commercial Arbitration Act.  The arbitrator awarded TCP over $6.3 million including over $2.2 million in interest compounded annually from the date the province reduced the allowable annual cut to the date of the award.  A BC superior court judge upheld the arbitrator's award and the BC Court of Appeal denied the province's application for leave to appeal the issue. 

On the province's further appeal to the Supreme Court of Canada, the court held that arbitrators operating under section 28 of the BC Commercial Arbitration Act ("CAA") could not award compound interest because the BC  Court Order Interest Act requires that a pecuniary court judgment bear simple interest and only simple interest.  While section 28 of the CAA does not expressly deem an arbitrator to be a court, this is the necessary implication stating that a sum directed to be paid by an arbitration award is "a pecuniary judgment of the court".  Given both its ordinary meaning and its legislative history, section 28 of the CAA requires arbitrators to apply the provisions of the Court Order Interest Act.  

The court held that there is no doubt that compound interest is a more accurate way of compensating parties for the "time-value of money".  However, the BC legislature has not yet amended the Court Order Interest Act to remove the prohibition of interest on interest, so simple interest remains the rule in BC courts. 

Arbitrators cannot include compound interest in the award itself.  If they could, there would be double recovery since section 28 of the CAA would then operate to add interest on top of an award that already included interest.

While courts presume that legislatures intend to provide full compensation for expropriations, that presumption can be rebutted by statutory provisions that demonstrate legislative intention to the contrary.  Section 28 of the CAA limits the interest on a sum directly to be paid by an award to simply interest.  

Finally, the arbitrator did not have jurisdiction to consider equitable grounds for awarding compound interest.  Under section 23 of the CAA, an arbitrator could only consider equitable grounds where the parties specifically agree, and in this case TCP and the province did not agree.

Regards,

Blair

Ontario Court Grants Molson's Request for Injunction to Prevent Miller from Terminating Beer License

In a recent decision, Mr. Justice Wilton-Siegel of the Ontario Superior Court of Justice, granted an interlocutory injunction preventing the Miller Brewing Co. ("Miller") from terminating its long-standing license agreement with Molson Canada 2005 ("Molson") pending the trial of an action between the parties.  ( see Molson Canada 2005 v. Miller Brewing Co. 116 O.R. (3d) p 108)

Molson had been the exclusive Canadian licensed distributor of Miller's key trademarks and brands since 1982.  The license agreement covered both Molson's domestic production of Miller's products and the importing into Canada of Miller products produced in the United States.  The license agreement had been restated and amended several times since it was first executed.  The last restatement was effective as of January 1, 2003.  

Miller is not currently a significant player in the Canadian beer market.  However, Molson has 8 strategic brands that account for approximately 90% of its Canadian business including Coors Light, Canadian and MGD.  The Miller brands licensed to Molson, which included MGD and Miller Chill, represented less than 5% of Molson's total sales volume in Canada in 2012.  Molson's evidence was that during the period of 2006 to 2009, Miller had suffered a substantial decline in MGD sales in the United States but during that same period Molson was able to increase the market share of MGD in Canada.

With MGD sales in decline, the parties began discussions in the summer of 2010 to amend the license agreement yet again.  However, Molson was forecasting MGD sales for 2010 that would fall short of the minimum volume targets in the agreement.  The negotiations led toward a letter of intent.  For its part, Molson stated that it would rely less on MGD volumes and would emphasize instead its overall portfolio of Miller products. The letter of intent was executed on July 26, 2011, and was mostly non-binding except for Miller's right to terminate the license agreement if Molson failed to meet the minimum volume targets for the years 2010 and 2011.  

Immediately after the letter of intent was signed, the parties commenced negotiations on yet another amendment to the license agreement which was executed on or about December 19, 2011.  Among other things, Miller waived its right to terminate the agreement based on Molson's failure to achieve volume targets in calendars 2010 and 2011. However, Miller delivered a notice of termination on January 18, 2013, citing in part, Molson's failure to achieve minimum volume targets.

Molson commenced the action on January 30, 2013.  In the action, Molson sought a declaration that the license agreement remained in full force and effect and that Miller could not terminate the license agreement on the basis of any known facts or circumstances that occurred prior to January 1, 2013.  Molson also sought injunctive relief preventing Miller's purported termination of the license agreement.

In granting the injunction sought by Molson, Justice Wilton-Siegel found that the three part test for an interlocutory injunction set out in the RJR MacDonald case had been met:

1.    There was a serious issue to be tried.  Justice Wilton-Siegel held that Molson had established that there was a serious issue as to whether Miller had failed to satisfy a condition precedent to the exercise of its right to terminate the license agreement in the form of satisfaction of Miller's obligation to negotiate with Molson in good faith. 

2.    In respect of the issue of irreparable harm, the judge accepted Miller's submission that proof of irreparable harm must be clear not merely speculative and must be supported by the evidence.  However, he ruled that such evidence could take many forms.  In this case neither party had provided any market studies or reports to support their respective assertions that they would suffer irreparable harm if the court's decision was adverse to their interests.  However, the judge ruled that a court is entitled to draw inferences of irreparable harm from the facts if such inferences reflect commercially reasonable conclusions based on the facts.  He concluded that Molson had satisfied the test because it was reasonable to conclude that there would be irreparable harm to Molson's customer relationships flowing from the fact that those customers for whom the Miller brand beers were an important segment of their purchases would be forced to source that beer from Miller or to switch to a different product from Molson.  The judge was satisfied Molson's damage would not be limited to the loss of the sales of Miller brand beers.  In his opinion it was reasonable to infer that in at least some cases, terminating Molson's distribution of Miller brand beers would also result in a loss of sales of other beer sold by Molson as its customers would re-evaluate their needs and their relationship with Molson when the Miller brand beers were taken out of the equation.  There was no real likelihood that any such losses would not be quantifiable.  

3.    As for the balance of convenience, the judge held that the balance of convenience favoured  preservation of the status quo. 



Regards,

Blair