Court Of Appeal Vacates Its Security for Costs Order in Ecuadorian Litigation against Chevron

When I last reported on this case Yaiguaje v. Chevron Corporation 2017 ONCA 827, less than a month ago, I reported that Justice Gloria J. Epstein of the Ontario Court of Appeal had ordered that the Ecuadorian plaintiffs post security for costs of more than $942,000 in order to continue with an appeal from a summary judgment order dismissing their against Chevron Canada.  In a decision released on October 31, 2017, a three judge panel of the Ontario Court of Appeal unanimously reversed Justice Epstein’s decision and vacated her order.  The panel (Justices Hoy, Cronk and Hourigan) held that the unique factual circumstances of this case compelled the conclusion that the interests of justice required that no order for security for costs be made.  Unlike their colleague, Justice Epstein, the panel concluded that the motion for security for costs was simply a tactical move made by Chevron to end the litigation.

 

The panel agreed that under rules of civil procedure, the court may make an order for security for costs where it is “just” to do so.   It held that the rule, as written, was permissive not mandatory and that even where the requirements of the rule have been met, a motion judge has discretion to refuse to make the order.  The panel held that the overarching principle to be applied in all of the circumstances is the justness of the order sought.

 

Because Justice Epstein’s decision was discretionary, it should be afforded deference.  However, an error in principle is one of the bases on which the court may interfere with a discretionary order. 

 

The panel held that in deciding motions for security for costs, judges are obliged to first consider the specific provisions of the rules governing such motions and then effectively take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront.  They held that Justice Epstein had failed to take into account the second part of that analysis and that failure constituted an error in principle.  It therefore fell to the appeal panel to conduct the necessary analysis of the justness of the order.

 

In concluding that no order for security for costs should be made in this case, the panel considered the following:

 

1. the Ecuadorian plaintiffs were seeking to enforce a judgment in which they have no direct economic interest.  Funds collected on the judgment will be paid into a trust and net funds are to be used for environmental rehabilitation or health care purposes in Ecuador.   In essence, this is public interest litigation;
2. although there is no direct evidence of impecuniosity before Justice Epstein, the panel held that it would be highly impractical to obtain this evidence from the representative plaintiffs, let alone the 30,000 people who would indirectly benefit from the enforcement of the judgment.  The court found “there can be no doubt that the environmental devastation to the appellants’ lands has severely hampered their ability to earn a livelihood” and that if they accept the findings that underlie the Ecuadorian judgment, Texaco Inc. contributed to the appellants’ misfortune;
3. in contrast, Chevron Corporation and Chevron Canada have annual gross revenues in the billions of dollars.  It is difficult to believe that either of these two corporations require protection for costs awards that could amount to a miniscule fraction of their annual revenues;
4. there should be no bright line rule that a litigant must establish that litigation funding is unavailable to successfully resist a motion in an appeal for security for costs.  In this case counsel for the appellants advised the court that he was operating under a contingency arrangement and there was evidence that Chevron Corporation has sued some of the appellants’ former third party funders and the funders withdrew their financial support;
5. it can’t be said that this case is wholly devoid of merit;
6. there is no doubt the legal arguments asserted by the appellants are innovative and untested but that does not foreclose the possibility that one or more of them may eventually prevail; and
7. the history of the litigation which has been ongoing for almost 25 years makes it clear that Chevron has and will employ all available means to resist enforcement of the judgment.  This reality makes it difficult to accept that the motion for security for costs is anything more than a measure intended to bring an end to the litigation. 
    
   For all of those reasons, the court set aside Justice Epstein’s order and denied Chevron’s motion to require the Ecuadorian plaintiffs to post security for costs on the appeal.      

Regards,

Blair

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.


Regards,


Blair

   

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