SCC: Party Autonomy in Arbitration Trumps Access to Justice Concerns

In a 5 to 4 decision, the Supreme Court of Canada held the concept of “party autonomy” and holding parties to a valid arbitration agreement trumped access to justice and policy concerns.  The Court allowed an appeal from the Court of Appeal for Ontario in which the majority ruled that part of a class action should be stayed and should proceed by way of arbitration even where there was a possibility of duplicating proceedings and inconsistent results.

In this case, the plaintiff Avraham Wellman proposed a class action for damages against TELUS Communications Inc. (“TELUS”) on behalf of about 2 million Ontario residents who had entered into mobile phone service contracts with TELUS during a specified time frame.  The proposed class consisted of both consumer and business customers.  Wellman alleged that TELUS had engaged in an undisclosed practice of rounding up calls to the next minute such that customers were overcharged and were not provided the number of minutes to which they were entitled.  TELUS’s standard terms and conditions in its service contracts included an arbitration clause stipulating that all claims arising out of or in relation to the contract (apart from collection of accounts) must be determined through mediation and then arbitration.

The arbitration clause was invalidated by Ontario’s Consumer Protection Act to the extent that it would otherwise prevent class members who were consumers from pursuing their claims in court.  However, it did not apply to business customers.  TELUS sought to have the class action stayed with respect to business customers, relying on the arbitration clause.  The motion judge dismissed TELUS’s motion for a stay and certified the action.  She held that Section 7(5) of the Arbitration Act, 1991 (“Act”) grants the courts discretion to refuse a stay where it would not be reasonable to separate the matters dealt with in the arbitration agreement from the other matters.  The motions judge held that this discretion could be exercised to allow business customers’ claims that were otherwise subject to the arbitration clause to participate in the class action where it was reasonable to do so.  The Ontario Court of Appeal dismissed TELUS’s appeal.

Justice Moldaver wrote the opinion for the majority of the SCC (Justices Gascon, Cote, Brown and Rowe concurred).  Justice Moldaver held that Section 7(5) of the Act does not grant the court discretion to refuse to stay claims that are dealt with in an arbitration agreement. 

This finding is somewhat perplexing because Section 7(5) of the Act reads as follows:

The court may stay the proceeding with respect to the matters dealt with in the arbitration agreement and allow it to continue with respect to other matters if it finds that,

(a) the agreement deals with only some of the matters in respect of which the proceeding was commenced; and

(b) it is reasonable to separate the matters dealt with in the agreement from the other matters.

However, Justice Moldaver held that in keeping with the modern approach that sees arbitration as an autonomous, self-contained, self-sufficient process to which the parties agree to have their disputes resolved by an arbitrator, courts should generally take a hands off approach to matters governed by the Act.  The general rule reaffirms the concept of party autonomy and upholds the policy underlying the Act that says that parties to a valid arbitration agreement should abide by their agreement.  Paragraph 7(5)(a) and 7(5)(b) set out two preconditions.  The first precondition is met if the agreement deals with only some of the matters in respect of which the proceeding was commenced.  The second precondition is met if it is reasonable to separate the matters dealt with in the agreement from the other matters.  If both preconditions are met, instead of ordering a full stay, the Court may allow the matters that are not dealt with in the arbitration agreement to proceed in Court and may stay the court proceeding in respect of the matters that are dealt with in the agreement.  Justice Moldaver held that policy considerations cannot be permitted to distort the actual words of the statute, read “harmoniously” with the scheme of the statute, its objects and the intention of the legislature.  In this case, the legislature had already spoken to some of the concerns by shielding consumers from the potentially harsh results of enforcing arbitration agreements through the Consumer Protection Act.  The legislature made a careful policy choice to exempt consumers and only consumers.  That choice must be respected and must not be undermined by reading Section (7)(5) in a way that permitted courts to treat consumers and business customers as one and the same. 

Justice Moldaver held that while there can be no doubt as to the importance of promoting access to justice, this objective cannot, absent express direction from the legislature, be permitted to overwhelm the other important objectives pursued by the Act.  To do so would undermine the legislature’s objective of ensuring parties to a valid arbitration agreement abide by their agreement, reduce the degree of certainty and predictability associated with arbitration agreements, and weaken the concept of party autonomy in the commercial setting. 

The dissenting opinion was jointly written by Justices Abella and Karakatsanis (Chief Justice Wagner and Justice Martin concurred).

The dissenting judges held that Section 7(5) of the Act did give courts discretion to allow the entire proceedings to continue in court even if some parties would be otherwise subject to an arbitration clause.  A discretionary ability to grant a partial stay logically includes the power to refuse a partial stay.  They held that the only interpretation that gives meaningful effect to the discretionary language of Section 7(5) is one that confers on judges the ability to allow both arbitrable and non-arbitrable dispute to proceed in court.  Otherwise the words “may stay the proceedings with respect to the matters dealt with in the arbitration agreement” are superfluous and add nothing. 

The dissenters reasoned that the Ontario Court of Appeal has since 2002 granted stays of proceedings that would otherwise be subject to arbitration and for nearly a decade has permitted otherwise arbitrable matters to be joined with class actions in the public interest of avoiding duplicative proceedings, increasing costs and risking inconsistent results.  They held that the overall purpose of the Act was promote access to justice because the court system can be costly and slow.  The court’s discretion to intervene was narrow to further the goals of expedient dispute resolution.  Arbitration was intended to be a means by which parties on a relatively equally bargaining footing chose to design an alternative dispute mechanism.  However, all of TELUS’s clients, both business and consumer, signed the same non-negotiable standard form agreement.  TELUS’s individualized arbitration clause effectively precludes access to justice for business clients when a low-value claim does not justify the expense.  It’s mandatory nature illustrates that the rationales of party autonomy and freedom of contract are not existent. 

By inserting the reasonable requirement in Section 7(5)(b) of the Act the legislature clearly contemplated that in certain circumstances, it would be unreasonable to separate matters dealt with in the arbitration agreement from other matters.  In this case, eliminating judicial discretion effectively eliminates access to justice.  TELUS’ interpretation would result in costly and time consuming factual inquiries on how to divide the arbitrable and non-arbitrable claims even where the substance of both claims is identical as in this case. 

Here to impose arbitration on willing parties violates the spirit of the Act and operates as an invisible barrier to a remedy and presumptively immunizes wrongdoing from accountability contrary to fundamental notions of civil justice.

TELUS Communications Inc. v. Wellman 2019 SCC 19

Regards,

Blair

Failure to Immediately Disclose "Mary Carter" Agreement Will Lead to Stay of Action

The Ontario Court of Appeal recently ordered that an action be stayed (Handley Estate v. DTE Industries Limited, 2018 ONCA 324) on the basis that certain parties had failed to comply with their obligation to immediately disclose a “Mary Carter” agreement.  The Court held that by originally denying the motion for a stay, the motion judge had erred in principle by failing to apply the remedy for non-disclosure of these types of agreements as specified in a previous Court of Appeal decision called Aecon Buildings v. Stephenson Engineering Limited (“Aecon”).   

In the case, Helen Handley discovered in 2004 that the outdoor oil tank that she had purchased for her home had leaked and had discharged several hundred litres of fuel oil into the soil.  In 2009, Ms. Handley’s insurer, Aviva Insurance Company of Canada (“Aviva”), commenced a subrogated claim against a number of defendants including H&M Combustion Services Ltd. (“H&M”).   H&M had been dissolved in 2007.  Aviva was aware of that fact and pleaded it in the statement of claim.  Aviva did not name as defendants in the action one of the oil tank vendors, Kawartha Lakes HVAC Inc. (“Kawartha Lakes”), and its corporate successors.   By the time Aviva decided to sue Kawartha Lakes, the limitation period for the main action had expired.  Aviva decided to explore asking H&M to initiate a third party claim against Kawartha Lakes.

In 2011, counsel for Aviva and H&M negotiated a litigation agreement.  Under the agreement, H&M would defend the main action and commence a third party claim against Kawartha Lakes and its successors.  Aviva would contribute $5,000 to cover H&M’s costs of prosecuting the third party claim through examinations for discoveries and H&M’s principal would revive H&M should that be necessary to prosecute the third party claim.   Aviva and H&M agreed that all communications between counsel would be subject to common interest privilege.   

At the time, neither Aviva nor H&M disclosed the litigation agreement (Mary Carter agreement) to the other parties.  Such disclosure did not take place until the fall of 2016 when Aviva and H&M concluded a further litigation agreement. 

In the 2016 Mary Carter agreement, H&M assigned all its rights to Aviva in the action including the rights to receive all proceeds from the third party action.  Aviva agreed to indemnify H&M and its principal against all costs and damages that might be awarded against H&M.  Aviva would assume responsibility for defending H&M and prosecuting its third party claim.  Aviva assumed responsibility for all legal costs and disbursements incurred by H&M’s counsel but reserved the right to appoint its own counsel.  The Court of Appeal held that as a result of the 2016 Mary Carter agreement for all intents and purposes Aviva stepped into the litigation shoes of H&M. 

As a result of certain steps taken in the litigation, the 2016 litigation agreement first became known to the other parties but the 2011 litigation agreement did not.  Finally, both litigation agreements were disclosed.  Geo, Williamson Fuels Ltd. (“Williamson”), a defendant and the third parties moved for an order staying the action on the basis that the failure to disclose the Mary Carter agreements immediately had effected the “litigation landscape” contrary to the principles set down by the Court of Appeal in Aecon.   

The third party action settled on the eve of the hearing and only the motion to stay brought by the Williamson proceeded.

The motion judge agreed that the litigation agreements had not been disclosed contrary to the principles of Aecon, but refused Williamson’s request for a stay by distinguishing Aecon.  He held that Aecon did not stand for the proposition that the claims against all parties should be “automatically” stayed.  He held that Williamson had suffered no prejudice from the delayed disclosure of the agreement because as a supplier of the oil in the tank and not the tank, Williamson was unaffected by the third party claim.  There was no reason for Williamson to spend any money litigating the third party claim because H&M had been dissolved. 

On appeal the parties did not dispute the motion judge’s finding that both litigation agreements should have been disclosed immediately because they changed the adversarial relationship between Aviva and H&M.  The dispute centered on the appropriate remedy for such failure. 

The appeal was heard by Justices Hoy, Simmons and Brown.  Justice Brown wrote the reasons for the court.  He held that since 1993, the law in Ontario has been clear that a Mary Carter type agreement must be disclosed to the court and to the other parties to the law suit as soon as the agreement is made.  The rationale for immediate disclosure is as follows:  “

The existence of a Mary Carter agreement significantly alters the relationship among the parties to the litigation.  For that reason the agreement must be disclosed to the parties and to the court as soon as it is made.  The non-contracting defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and the evidence to be led by them.  In addition, they must be able to properly assess the steps being taken from that point forward by the plaintiff and the contracting defendants.  Procedural fairness requires immediate disclosure.  In addition, the court must be informed immediately so that it can properly fulfill its role in controlling its process in the interest of fairness and justice to all parties.” 

In Aecon the Court of Appeal held that while it is open to the parties to enter into such agreements, the obligation upon entering into them is to immediately inform all other parties to the litigation as well as the court.  The reason for this is obvious.  Such agreements change entirely the legal landscape of the litigation. 

Justice Brown held that the remedy for failing to immediately disclose the agreement is to stay the proceeding.  He held that:  “The only remedy to redress the wrong of what amounts to an abuse of process is to stay the claim asserted by the defaulting non-disclosure party because sound policy reasons support such an approach – only be imposing consequences of the most serious nature on the defaulting party is the court able to enforce and control its own process and ensure that justice is done between and among the parties.  To permit the litigation to proceed without disclosure of such agreements renders the process a sham and amounts to a failure of justice”. 

For those reasons, Justice Brown held that the motion judge had misdirected himself regarding the principles in Aecon.  He erred by failing to apply Aecon’s remedy of staying the claim of the party that did not disclose the litigation agreement and amounted to an error of law.

Regards,

Blair

Ontario Courts Refuse to Stay Action Against Nigerian Defendants

The Court of Appeal for Ontario released its decision in James Bay Resources Limited v. Mak Mera Nigeria Limited, 2015 ONCA 781  this week.  This is an appeal by Nigerian appellants who had lost a motion to stay an action brought by James Bay Resources Limited (“James Bay Resources”) on the ground that the Ontario courts lacked “jurisdiction simpliciter” and Ontario was not the convenient forum for the determination of the dispute between the parties. 

 

James Bay Resources entered into a Memorandum of Understanding (“MOU”) with the appellant, Adewale Olorunsola (“Sola”) on March 3, 2011.  The MOU was negotiated and signed in Ontario.  It set out an arrangement between the parties with respect to the acquisition of Nigerian oil and gas assets. 

 

On February 12, 2012, James Bay Resources and the appellant, Mak Mera Limited (“Mak Mera”) entered into a letter agreement which replaced the MOU (“Agreement”).  The Agreement was far more detailed than the MOU.  Sola signed both the MOU and the Agreement.

 

A dispute arose between the parties in respect of the contractual arrangements.  The dispute was fueled by a letter sent by Mak Mera to Royal Dutch Shell PLL on July 2, 2014.  The letter was copied to James Bay Resources, as well as to many others, including the Nigerian Ambassador to Canada and a number of officials of the Nigerian government.  Madam Justice MacFarland of the Court of Appeal found that absence truth, the statements made in the letter were "quite clearly defamatory" of James Bay Resources.

 

On September 4, 2014, James Bay Resources commenced proceedings against Mak Mera and Sola in Ontario.  On September 16, 2014, Mak Mera, Sola and Sola’s father-in-law (a Nigerian resident and Chairman of Mak Mera), commenced an action in Nigeria against numerous parties including James Bay Resources and its CEO, Stephen Shafsky.  Some of the claims in the Nigerian action were similar to those in the Ontario action. 

 

James Bay Resources moved in The Federal High Court of Nigeria to strike the Nigerian action on the grounds that the Nigerian court lacked jurisdiction.  It was unsuccessful.  James Bay Resources is appealing that order.

 

On March 2, 2015, Mak Mera and Sola moved to strike or permanently stay the Ontario action.  Justice Paul Perell of the Ontario Superior Court of Justice concluded that Ontario had jurisdiction simpliciter and identified several presumptive factors that would apply, including that Sola is an Ontario resident and both the MOU and the Agreement were negotiated and signed in Ontario.  Justice Perell also found that the Agreement provides that it is governed by Ontario law and contains a choice of forum clause that names Ontario as the jurisdiction where any disputes would be resolved.  He noted, “Neither Mak Mera nor Mr. Sola has advanced any cogent argument that there is a rebuttal of the contractual connection as a presumptive factor.  Their arguments may be relevant to the issue forum conveniens, but jurisdiction is not rebutted.”.  Mak Mera and Sola appealed to the Court of Appeal. 

 

The appellants made no oral submissions rebutting the contractual connection as a presumptive factor.  Justice MacFarland held that the arguments raised on appeal went to the merits of the claims, not to jurisdiction of the Ontario courts.  Those issues did not displace or challenge the fact that both agreements (the MOU and the Agreements) were negotiated and signed in Ontario and that Sola is an Ontario resident – both are strong, presumptive factors.   

 

The appellants also argued that Justice Perell had erred in law by failing to specifically consider comity in his analysis.  Justice MacFarland embarked on a detailed analysis of the goal of comity in jurisdictional motions.  She referred to the decision of the Supreme Court of Canada in Van Breda v. Village Resorts, [2012] 1 SCR572:

 

The goal of the modern conflicts system is to facilitate exchanges and communications between people in different jurisdictions that have different legal systems.  In this sense it rests on the principle of comity.  But comity itself is a very flexible concept.  It cannot be understood as a set of well-defined rules, but rather as an attitude of respect for and deference to other states and, in the Canadian context, respect for and deference to other provinces and their courts.  Comity cannot subsist in private, international law without order, which requires a degree of stability and predictability in the development and application of the rules governing international or inter-provincial relationships.  Fairness and justice are necessary characteristics of a legal system, but they cannot be divorced from the requirements of predictability and stability which assure order in the conflicts system.   In the words of LaForest J., in Morguard, “what must underlie a modern system of private, international law and principles or order and fairness, principles that ensure security of transactions with justice”.

 

Accordingly, Justice MacFarland found that comity is not a stand-alone factor.  She held that it was part and parcel of the forum non conveniens assessment in a given case.  In dismissing the appeal, Justice MacFarland held that Justice Perell had considered the issue of comity in his analysis.  He had done so implicitly when he outlined and considered all of the relevant factors in coming to his conclusion that Nigeria was not the more convenient forum. 

 

Justice Perell was aware of the Nigerian litigation which was started after the Ontario action.  He was aware that James Bay Resources had filed a statement of defence in that action, and brought an unsuccessful motion to strike and was appealing the dismissal of its motion.  The appellants had cited no law for their argument that by filing a statement of defence in the Nigerian action, James Bay Resources had attorned to the jurisdiction of the Nigerian courts. 

 

Justice MacFarland agreed with Justice Perell’s conclusion that “balancing all factors, Nigeria is not clearly the appropriate forum for the dispute and Ontario is not forum non conveniens.”.

Regards,

Blair

 

 

Ontario Court of Appeal Stays Securities Class Action

In a recent discussion (Kaynes v. BP, PLC 2014 ONCA 580), the Ontario Court of Appeal stayed a proposed class action against BP, PLC for secondary market misrepresentation on the principle of forum non conveniens.  The Court concluded that while Ontario Courts had jurisdiction to hear the class action, there was another forum that was clearly more appropriate for the adjudication of the plaintiff's claim and of the claims of foreign exchange purchasers of BP's securities.

 

The plaintiff's claim rose out of the Deep Water Horizon oil spill that occurred in the Gulf of Mexico in April of 2010.  The plaintiff alleged that BP made certain misrepresentations in its public disclosures, before and after the spill, related to its operations, safety programs, and the accident that impacted the price of BP's shares.  His claim was based on part XXIII.1 of the Ontario Securities Act which provides a statutory cause of action for secondary market misrepresentation.

 

The plaintiff, a resident of Ontario, purchased his shares over the New York Stock Exchange. The proposed class included all residents of Canada who acquired BP securities between relevant dates wherever those securities were purchased.

 

BP's challenge of Ontario's jurisdiction to hear the class action was dismissed by a motion Judge.  BP appealed that decision to the Court of Appeal.  The Court of Appeal agreed with the motion judge that Ontario did have jurisdiction simpliciter, but concluded that the motion Judge had erred in principle in failing to decline jurisdiction on the basis of forum non conveniens.

 

The Court of Appeal held that there was a real and substantial connection between BP, or the subject matter of the claim and the forum despite the fact that BP was a UK corporation headquartered in London, England and did not own any real or personal property in Canada, nor did it carry on business in Canada.  BP's common shares were listed for trading on the London Stock Exchange, the Frankfurt Stock Exchange and the New York Stock Exchange.  They had never been listed on the Toronto Stock Exchange.

 

However, BP was a "reporting issuer" under Ontario securities regulations when the plaintiff purchased what is known as American Depository Shares ("ADS") a form of equity security currently listed for trading only on the New York Stock Exchange.  BP was a reporting issuer during the period when ADS were traded on the TSX.  In 2009 after ADS were delisted from the TSX, BP ceased to be a reporting issuer in Ontario and other Canadian provinces on the undertaking that it would continue to send relevant investor documents to its shareholders in Canada.

 

BP did not dispute that it was required by the undertaking send the plaintiff the documents that contained the alleged misrepresentations.  The Court of Appeal held that when BP released the documents, BP knew by virtue of the undertaking it had given that even if the initial point of release was outside Ontario, the documents were "certain to find (their) way to Ontario and to its Ontario shareholders".  Accordingly, by releasing such documents, BP committed an act that had an immediate and direct connection with Ontario.  That was sufficient to establish a real and substantial connection between the claim and Ontario.

 

Accordingly, the Court of Appeal agreed with the motion judge that such connection was a presumptive connecting factor for a tort committed in Ontario and therefore there was jurisdiction simpliciter in Ontario.

 

However the Court of Appeal indicated that a court has discretion to decline to exercise its jurisdiction under the forum non conveniens doctrine if the defendant showed that another forum was clearly more appropriate for the adjudication of the action.

 

In this case, BP argued that Ontario should decline jurisdiction in favour of the United States and the United Kingdom.   Laws of both countries related to jurisdiction over such claims was based on the principle that securities litigation should take place in forum where the securities transaction took place.  Their approach to jurisdiction over securities litigation was based principle of comity.

 

The Court of Appeal held that the motion Judge had erred in failing to take to account the principle of comity and erred in law with respect to a related issue of avoiding a multiplicity proceedings.

 

Both the US and the UK reserved jurisdiction on the basis of the location of stock exchange where the securities are traded. US law goes one step further and provides for the exclusive jurisdiction of the US courts over such claims. In keeping with the principle of comity, the court is obliged to consider that claim of exclusive jurisdiction.  The Court of Appeal  held that asserting Ontario's jurisdiction over the plaintiff's claim would be inconsistent with the approach taken under both US and UK law with respect jurisdiction over claims for secondary market misrepresentation. The principle of comity strongly favoured declining jurisdiction. 

In addition, avoiding a multiplicity of proceedings means that what should be avoided is litigation in more than one jurisdiction over the same claims of the same parties. Proposed class parties who have not opted out of the US proceedings would be problematic in that regard.

As a result, the Court stayed the proposed class proceeding.

Regards,

Blair

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.

Regards,

Blair

Ontario Court Stays Action to Enforce $17.2 Billion Ecuadorian Judgment against Chevron Corporation

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. The next year, various plaintiffs filed suit in the Southern District of New York against Texaco alleging a variety of environmental, health and other tort claims related to Texaco's extraction activities. The District Court dismissed the plaintiffs' claims, in part because it believed that "the case had everything to do with Ecuador, and nothing to do with the United States".

The United States Court of Appeals, Second Circuit disagreed. It required Texaco to make a commitment to submit to the jurisdiction of the Ecuadorian Courts. After several more years of "legal wrangling", Texaco accepted the conditions established by the Appeal Court but reserved its right to contest the validity of a judgment rendered by a court in Ecuador.

While the litigation was ongoing in the Southern District of New York, Texaco entered into a settlement with the Ecuadorian Government and funded certain environmental remediation projects in exchange for a release from liability for environmental impact which fell outside the scope of the settlement. The settlement was finalized in 1998. Chevron Corporation acquired Texaco in 2001. Ecuador and Chevron continued to litigate the validity and effect of the settlement.

The individual plaintiffs started a lawsuit against Chevron in Ecuador despite the settlement. After seven years of litigation, on February 14, 2011, the trial court found Chevron liable for $8.6 billion in damages.  It ordered Chevron to pay another $8.6 billion in punitive damages unless Chevron apologized within 14 days of the judgment. Chevron did not apologize. Accordingly the pending judgment is for $17.2 billion.

In 2011 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 Court of Appeal, Second Circuit reversed the injunction initially granted, in part because enforcement proceedings in New York had not yet been sought by the plaintiffs. The Court of Appeal stated "the plaintiffs hold a judgment from an Ecuadorian Court. They may seek to enforce that judgment in any country in the world where Chevron has assets."

On May 30, 2012, the plaintiffs commenced an action in Ontario against Chevron, Chevron Canada Limited and Chevron Canada Finance Limited seeking to enforce the judgment. The plaintiffs pleaded that Chevron  had resiled from Texaco's promise to satisfy the judgment.  In fact, Chevron's general counsel stated, "We're going to fight this until Hell freezes over and then fight it out on the ice." 

On a motion heard by Justice D. M. Brown of the Ontario Superior Court of Justice,  Justice Brown dismissed the defendants' request to set aside the service of the statement of claim against them but granted the defendant's motions to stay the action to enforce the Ecuadorian judgment in Ontario.

The Judge was not prepared to set aside service of the statement of claim on Chevron and ruled that service had been effected pursuant to Ontario's rules of civil procedure.  Nor was he inclined to set aside service against Chevron Canada.  Among other things. that defendant operated a business establishment in Ontario. However, Justice Brown ruled that a stay of the action against the defendants was justified on the bases of mootness.

Justice Brown found that the evidence disclosed that Chevron had no presence, business activity or assets in Ontario or elsewhere in Canada. That had been the case for 86 years and there was no reasonable basis to believe that those circumstances would change.  In addition, the evidence disclosed that Chevron did not conduct any business in Ontario.

The judge held that Chevron Canada was a "seventh generation indirectly-owned subsidiary" of Chevron. The plaintiffs had argued that the assets owned by Chevron Canada are available for execution against Chevron as judgement debtor, because those assets were "beneficially" owned by Chevron. However, Justice Brown held that under Canadian law  a shareholder in a corporation does not posses a legal or equitable interest in the assets of the company. Accordingly the plaintiffs filed a pleading that Chevron beneficially owns the assets of Chevron Canada was inconsistent with the basic principles of Canadian corporate law. The plaintiffs had failed to "pierce the corporate veil" between the two entities.

Justice Brown ruled that Chevron Canada and Chevron Canada Finance were not the judgment debtors.  They were separate legal entities and had nothing to do with Chevron's operations.  He concluded that the plaintiffs had "no hope of success" that the corporate veil of Chevron Canada would be pierced and ignored so that  it assets would be available to satisfy the Ecuadorian judgment.  Accordingly any recognition of the Ecuadorian judgment by an Ontario court would have no practical effect.  As a result, he exercised his discretion to stay the action.

Regards,

Blair

Issue Estoppel - its not over until the Supreme Court says its over

The Supreme Court of Canada recently tackled the difficult issue of issue estoppel - again.

 There has long existed a tension between a litigant's desire for finality and the often competing requirement that a judge or administrative tribunal exercise its discretion to ensure that no injustice results. In a close (4 to 3)  decision, the Supreme Court of Canada came down in favour of permitting the exercise of discretion by decision makers. This decision will undoubtedly result in more litigation and see many more litigants apply for stays of proceedings on the basis of issue estoppel.

In the case of Penner v. Niagara (Regional Police Services Board), Penner was arrested for disruptive behaviour in an Ontario courtroom. He filed a complaint against two police officers under the Police Services Act ("PSA") alleging unlawful arrest and unnecessary use of force. He also started a civil action claiming damages arising out of the same incident.

The Niagara Chief of Police appointed a hearing officer under the PSA who found the police officers not guilty of misconduct and dismissed Penner's complaint. The hearing officer's decision was reversed on appeal by the Ontario Civilian Commission on Police Services on the basis that the arrest was unlawful. On further appeal, the Ontario Divisional Court concluded that the officers had legal authority to make the arrest and restored the hearing officer's decision. The police officers then successfully moved in the Ontario Superior Court of Justice to have Penner's claims in the civil action struck on the basis of issue estoppel.

While finding that several factors weighed against the application of issue estoppel, the Ontario of Appeal concluded that applying the doctrine would not work an injustice in this case and dismissed Penner's appeal.

In allowing Penner's appeal and holding that his civil action could proceed, the majority of the Supreme Court of Canada held as follows:

The doctrine of issue estoppel allows for the exercise of discretion to ensure that no injustice results. There must be a case-by-case review of the circumstances to determine whether it would be unfair or unjust to apply issue estoppel or whether the preconditions for applying it have been met. In the circumstances of this case it was unfair to Penner to apply issue estoppel.

While finality is important to the judicial system unfairness in applying issue estoppel may still arise. In this case there was a significant difference between the purposes, processes or stakes involved in the two proceedings. Where the legislative scheme contemplates multiple proceedings and the purposes of those proceedings are widely divergent, to apply the doctrine might upset the parties legitimate and reasonable expectations and might also undermine the policy goals of the administrative proceedings. This would result in encouraging more formality and protraction in proceedings or discouraging access to the administrative proceedings all together. In each case, the court has to consider the parties' reasonable expectations about what is at stake in the proceedings or the fundamentally different purposes between them.

In this case, nothing in the legislative text gave rise to an expectation that the disciplinary hearing would be conclusive of Penner's legal rights in a civil action: the standards of proof required and the purposes of the two proceedings are significantly different; and unlike a civil action, the disciplinary process provided no remedy or costs for Penner.  In short, the Court of Appeal did not take into account important considerations which included the procedural protections afforded to Penner by the administrative process.

Finally, applying issue estoppel had the effect of using the decision of the Chief of Police's designate to exonerate the Chief in the civil action and was therefore a serious affront to basic principles of fairness.

Not surprisingly, the three dissenting judges held that the more important principle in the case was the finality of litigation which in their view assured the fairness of the justice system in Canada. The dissenting judges held that the principles underlying the doctrine of the issue estoppel - that there should be an end to litigation - and that the same party should not be harassed twice for the same cause, are core principles which focus on achieving justice and preventing injustice by preserving the finality of litigation.

The dissenting judges held that in this case, issue estoppel should apply. The difference between the standard of proof required to establish misconduct under the PSA and that required in a civil trial were irrelevant in this case. The hearing office (appointed by the Chief of Police) made unequivocal findings that there was virtually no evidence to support Penner's claims. That means that there was no evidence to support his claims whatever standard of proof was applied and a civil action would inevitably yield the same result.

The dissenting judges referred to the arguments of potentially inconsistent results in re-litigating matters to support their conclusion.

Regards,

Blair