Friday, October 6, 2017

Ecuadorian Villagers Ordered to Post Security for Chevron's Legal Costs

This is yet another chapter in the long-running saga in the case of Yaiguaje v. Chevron Corporation (2017 ONCA 741).  It is also the seventh time that this case has been a subject of a blog post by me. 


In this instalment, Justice Gloria J. Epstein, of the Ontario Court of Appeal, ordered that the Ecuadorian plaintiffs post security for costs of over $940,000  –  approximately $591,000 for Chevron Canada and $352,000 for Chevron Corporation – in order to continue with an appeal from a summary judgment order dismissing the plaintiffs’ action against Chevron Canada. 


Background in Ecuador


From 1964 to 1992, Texaco Inc., its subsidiaries and various partners engaged in oil extraction activities in the Lago Agrio region of Ecuador’s Amazon basin.  Litigation followed against Texaco alleging a variety of environmental, health and other tort claims related to Texaco’s extraction activity.  Texaco and the Ecuadorian plaintiffs finalized a settlement in 1998.  Chevron Corporation acquired Texaco in 2001.  Litigation continued to take place concerning the validity and the effect of the settlement. 


The Ecuadorian plaintiffs in this case represent approximately 30,000 indigenous villagers from Ecuador’s Oriente Region.  After seven years of litigation, in February of 2011, an Ecuadorian trial court found Chevron liable for US$17.2 billion.  The amount of the judgment was subsequently reduced to US$9.5 billion.


Chevron, which has no assets in Ecuador, refused to acknowledge the Ecuadorian judgment.  The plaintiffs have sought to enforce the judgment in various jurisdictions around the world.    


North American Litigation


Chevron sought and obtained a global anti-enforcement injunction against the plaintiffs in the United States District Court for the Southern District of New York.  The District Court judge found that the Ecuadorian judgment had been obtained by fraud and prohibited the judgment from being enforced in the United States.  On appeal, the United States Court of Appeal, Second Circuit, held that the plaintiffs could seek to enforce the judgment in any country in the world where Chevron had assets. 


In 2012, the plaintiffs commenced an action in Ontario against Chevron and Chevron Canada, seeking to enforce the judgment.  Chevron and Chevron Canada initially disputed whether Ontario courts had jurisdiction simpliciter to recognize and enforce the judgment.   Ultimately, the Supreme Court of Canada, in a decision released in September 2015, held that Ontario courts had jurisdiction over the enforcement action.  However, the Supreme Court also held that Chevron and Chevron Canada were free to argue against enforcement based on their separate corporate personalities and any other applicable defences. 


After the Supreme Court ruled, the enforcement proceedings came back before Justice Hainey of the Ontario Superior Court of Justice on two motions for summary judgment.  Chevron Canada moved for summary judgment against the plaintiffs and the plaintiffs moved for summary judgment against Chevron Canada.  In addition, the plaintiffs moved to strike the defences pleaded by Chevron in its statement of defence. 

Summary Judgment Ruling

Chevron is a Delaware company with its head office in California.  Chevron Canada is a seventh level indirect subsidiary of Chevron with its head office in Calgary, Alberta.  The plaintiffs, in addition to seeking payment of the US$9.5 billion, also sought a declaration that the shares of Chevron Canada are exigible to satisfy the Ecuadorian judgment. 


Justice Hainey found in favour of Chevron Canada on both issues and granted summary judgment in its favour.  He held that the shares and assets of Chevron Canada were not exigible and available for execution and seizure pursuant to the Execution Act to satisfy the Ecuadorian judgment.  He also held that Chevron Canada’s corporate veil should not be pierced so that its shares and assets were available to satisfy the judgment.


Court of Appeal’s Security for Costs Ruling


The plaintiffs have appealed that decision to the Ontario Court of Appeal.   Chevron Canada and Chevron sought an order for security for costs in excess of over US$1 million, US$160,000 for the appeal and the rest for the previous proceedings. 


Justice Epstein held that the general principles for posting security for costs applied to such a motion in the Court of Appeal.  Under Ontario's rules of civil procedure, an order for security for costs could be made where plaintiffs are ordinarily resident outside of Ontario.  Justice Epstein found that in this case there was no dispute that the Ecuadorian plaintiffs reside outside of Ontario.  The issue and relevant considerations were:  could they demonstrate on a balance of probability that they were impecunious and, if not, could they demonstrate that there was a good chance of success on the appeal.


Novel Submission by Plaintiffs


In addition, the Ecuadorian plaintiffs also advanced what the judge referred to as “a novel submission”, one that their counsel submitted should become part of the law pertaining to security for costs, i.e. that in an action for recognition and enforcement of a foreign judgment which was tantamount to a class action, security for costs should never be ordered. 


Justice Epstein found that the plaintiffs could not demonstrate impecuniosity.  They had filed no evidence as to their finances beyond three settlement agreements which she held were not “evidence” in any event. 


As for the merits of the appeal, Justice Epstein agreed with Justice Hainey’s analysis and concluded that the plaintiffs did not have a good chance of success on the appeal. 


Justice Epstein considered in detail the plaintiffs argument that the court should adopt “a new approach” to recognition and enforcement actions.  However, she did not accept the plaintiffs submission that the action was analogous to a class proceeding.  She held that even if she were to accept that argument, this would not prevent security for costs being ordered where justice of the case warrants it.


Justice Epstein held that litigants seeking to enforce a foreign judgment should not be put in a more advantageous position than domestic litigants.  The Supreme Court of Canada’s earlier decision in the case did not change that principle.  It stood for the proposition that Canadian courts should take a "generous approach" in finding jurisdiction to allow litigants holding foreign judgments to bring enforcement actions.  Justice Epstein held that she did not read the SCC's decision as saying that when such enforcement actions are brought before Canadian courts they should be treated differently than cases involving domestic litigants.  In fact, she held that the Supreme Court’s Chevron decision actually undercut the plaintiffs argument.   In that decision, Justice Gascon had held, “enforcement is limited to measures – like seizures, garnishments or executions – that can be taken only within the confines of the jurisdiction, and in accordance with its rules” and that “whether recognition and enforcement should proceed depends entirely on the enforcing forum’s laws”.   

As a result, the Court of Appeal was unable to accept as a general rule, that courts should approach security for costs differently in an appeal involving enforcements of foreign judgments and ordered that the Ecuadorian plaintiff's post security for costs.




No comments:

Post a Comment