Tuesday, January 7, 2014

Ontario Court of Appeal Allows Enforcement Action Against Chevron To Proceed

Last September, I blogged about a decision of Justice David Brown of the Ontario Superior Court of Justice in which the judge concluded that the courts of Ontario had jurisdiction to hear an action commenced by Ecuadorean plaintiffs to enforce a US $18 billion judgment that they had obtained in Ecuador against Chevron Corporation ("Chevron").   However, this finding was not necessarily good news for the plaintiffs.  On his own motion, Justice Brown stayed the action on the basis that, "Chevron does not possess any assets in this jurisdiction at this time" and "the plaintiffs have no hope of success in their assertion that the corporate veil of Chevron Canada should be pierced and ignored so that its assets become exigible to satisfy the judgment against its ultimate parent". 
The Ecuadorian plaintiffs appealed to the Ontario Court of Appeal from Justice Brown's order imposing a stay of the action.  Chevron and its co-defendant in Ontario, Chevron Canada,  cross-appealed from the judge's finding that Ontario had jurisdiction to hear the case. 
The Court of Appeal unanimously allowed the plaintiffs' appeal and dismissed Chevron's cross-appeal.  Justice MacPherson wrote the judgment of the court. 
Justice MacPherson briefly summarized the facts of the case, noting that since the date of Justice Brown's decision, the highest appeal court in Ecuador had affirmed the judgment of the intermediate appeal court for damages for remediation for Chevron's alleged environmental pollution and costs totaling US$9.51 billion, but had allowed Chevron's appeal with respect to punitive damages.  The bottom line was that there was a final judgment in Ecuador against Chevron for US$9.51 billion.  The Ecuador plaintiffs sought to have this order recognized and enforced in Ontario against Chevron and Chevron Canada.
The Court of Appeal held that the appeal and cross-appeal identified two distinct and separate issues:
1.    Did Justice Brown err by, on his own initiative, staying the action? and
2.    Did Justice Brown err by concluding that an Ontario court has jurisdiction to determine whether the judgment of the Ecuadorean court should be recognized and enforced in Ontario? 
The Court of Appeal considered the jurisdictional question first.  The three justices agreed with Justice Brown's analysis.  Justice MacPherson found that the ruling of the Supreme Court of Canada in the Beals v. Saldhana case was "crystal clear" about how the real and substantial connection test is to be applied.  That case held that the real and substantial connection test requires that a significant connection exist between the cause of action and the foreign court and that the enforcing court was required to determine whether such a connection existed, i.e. the exclusive focus of the real and substantial connection test is on the foreign jurisdiction.   There is no parallel or even secondary inquiry into the relationship between the legal dispute and the foreign country and the domestic Canadian court being asked to recognize and enforce the foreign judgment (as Chevron had argued).
Once it is established that the foreign court had a real and substantial connection to the subject matter of the action, the analysis shifts to a consideration of whether the judgment is enforceable in Ontario as a matter of domestic law.
It was clear that the Ecuadorean judgment against Chevron satisfied the requirements of Rule 17.02(m) of Ontario's  he Rules of Civil Procedure, i.e. that a statement of claim may be served on a defendant without a court order outside Ontario where the claim is based on a judgment of a court outside Ontario.  With respect to Chevron Canada, Justice Brown correctly found that Chevron Canada had a physical, non-transitory, presence in Ontario and carried on business in Ontario.  
However, the Court of Appeal disagreed with Justice Brown's decision to stay the action on his own motion pursuant to section 106 of Courts of Justice Act.  Justice MacPherson gave several reasons for this decision.  
Firstly, Chevron and Chevron Canada are sophisticated parties with excellent legal representation.  They chose not to attorn to the jurisdiction of the Ontario courts and did not seek a stay of the action.  The Court held that Justice Brown's decision to stay a major case involving poor and vulnerable foreign residents and one of the world's largest corporations in a long and difficult process in a foreign court and a huge damages award was entirely his own construct.  No party had sought it.  Consequently, the issue was not argued before Justice Brown and no cases were put before him regarding the appropriateness of granting a discretionary stay.  
Secondly, Chevron and Chevron Canada made the decision to refuse to attorn to Ontario's jurisdiction "with their eyes wide open".  Having made this choice, they were limited to making only a jurisdictional objection in their motion. 
Thirdly, against the backdrop of no law and no argument on section 106, what Justice Brown really did was to embark on a disguised, unrequested and premature rule 20 and/or rule 21 (summary judgment) motion.  He made significant findings about the corporate and legal structures of Chevron and Chevron Canada and the viability of the plaintiffs' action as pleaded in the statement of claim.  Those issues deserved to be addressed and determined in the context of a record and legal arguments made under the rules 20 or 21 or at trial.  To do so, without a complete record would constitute an injustice to the plaintiffs. 
Fourthly, Justice Brown erroneously imported a forum non conveniens argument into his reasoning on the stay.  Justice MacPherson held that there was a serious problem with such an  analysis.  The location of Chevron's head office and Chevron's place of business in the United States and the lack of any connection between Chevron and Chevron Canada were issues that were at the heart of the conflict between the parties.  They could not be decided by easy resort to a potential action in New York.  It was an error in principle for Justice Brown to stay the action on these grounds absent a hearing on the matter and an opportunity for the plaintiffs to fully contest this very issue.  Additionally, the forum non conveniens analysis was not appropriate, and indeed may be irrelevant, in the recognition and enforcement context.
Fifthly, there was a disconnect between the rationale underlying Justice Brown's reasons on the jurisdiction issue and the content of his reasons on the discretionary stay issue.  His jurisdictional reasons properly opened the door to a "hugely significant decision of Ecuador's highest court possibly being recognized and enforced in Ontario".   However, his discretionary stay analysis "completely undermines the jurisdiction of the court" by pointing to a myriad of factors that show that New York was the better forum and suggested that the case not be heard in Ontario.  In Justice MacPherson's view, this derailment was premature in the context of the respondents not raising the discretionary stay issue. 
Sixthly,  Justice MacPherson did not share Justice Brown's concern about the waste of judicial resources where "there is nothing to fight over".  He held that the long history of this litigation and especially Chevron's role in it, suggested the opposite.  He held that the picture is an obvious one.  For 20 years Chevron has contested the legal proceedings of every court involved in this litigation - in the United States, Ecuador and Canada.  Chevron even sought and briefly obtained a global injunction against enforcement of the Ecuadorean judgment.  Accordingly, the recognition and enforcement action in Ontario is not an academic exercise and would not be an "utter and unnecessary of valuable judicial resources."  

In these circumstances, Justice MacPherson held that the Ecuadorean plaintiffs do not deserve to have their entire case fail on the basis of an argument against a position that was not even made and to which they did not have an opportunity to respond.  He held that it is not the role of the court to weed out cases on this basis and it is a risky practice for a judge to second guess counsel on strategy in the name of judicial economy.
The Court of Appeal held that this case cries out for assistance, not unsolicited and premature barriers and allowed the appeal.



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