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.
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.
Regards,
Blair
Regards,
Blair
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