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June 10, 2014 Articles

Enforcing an Ecuadorian Judgment Against a U.S. Company in Ontario

By Cheryl Woodin and Jonathan Chen

In Yaiguaje v. Chevron Corp., 2013 ONCA 758, the Ontario Court of Appeal affirmed that an Ontario court has the power to recognize and enforce a judgment for approximately $9.51 billion rendered by Ecuador’s National Court of Justice against Chevron Corp. and its Canadian subsidiary, Chevron Canada Limited, which was not a party to the Ecuadorian action. In doing so, the Ontario Court of Appeal also lifted the stay on the proceeding that had been granted by the motions judge, rendering the enforcement win theoretical only. Soon after this decision, however, Chevron and Chevron Canada in Yaiguaje v. Chevron Corp., 2014 ONCA 40, successfully brought a motion to stay the order pending its appeal to the Supreme Court of Canada.

Factual History
Between 1972 and 1990, the lands, waterways, livelihoods, and way of life of over 30,000 residents of the Sucumbíos province were allegedly harmed by environmental pollution. On behalf of the 30,000 residents, 47 indigenous Ecuadorian villagers sued Chevron in the U.S. District Court for the Southern District of New York, and alleged that Texaco, which subsequently merged with Chevron, polluted the Lago Ario region of Ecuador for 18 years.

The action was dismissed at the U.S. Court of Appeals for the Second Circuit on the condition that Texaco submit to the jurisdiction of the Ecuadorian court. A final judgment now exists in Ecuador against Chevron for $9.51 billion, and the plaintiffs seek to have the Ecuadorian order recognized and enforced in Ontario against Chevron and Chevron Canada. Chevron disputes the Ecuadorian judgment and contends that it was the result of fabricated evidence, judicial coercion, and bribery. The U.S. civil suit in that respect, where it appears that evidence of fraud has been filed, is ongoing and recently went to trial.

On December 17, 2013, the Ontario Superior Court of Justice found that an Ontario court has the jurisdiction to enforce the Ecuadorian judgment, but the court stayed the action because Chevron has no assets in Ontario and, therefore, no prospect for recovery by the plaintiffs in Ontario. Both decisions were appealed to the Ontario Court of Appeal.

The Decisions
With respect to the jurisdictional issue, the Ontario Court of Appeal affirmed the lower court’s decision and reiterated the Supreme Court of Canada’s decision in Beals v. Saldanha, 2003 SCC 72, which stated that in recognition and enforcement actions relating to foreign judgments in Canadian jurisdictions, the exclusive focus is whether there is a real and substantial connection between the subject matter of the litigation and the foreign court that rendered the judgment. An inquiry into the relationship between the legal dispute in the foreign country and the Canadian court being asked to recognize and enforce the judgment is unnecessary and irrelevant. The Ontario Court of Appeal further noted that there is no comity concern in an action to enforce the judgment because the Ontario court is not intruding into matters within the jurisdiction of the foreign court as would be the case in an action of first instance. Accordingly, the test was satisfied in this case. However, this reasoning applied only to Chevron because Chevron Canada was not a party to the original action in Ecuador. To assume jurisdiction over Chevron Canada, the Ontario Court of Appeal agreed with the lower court that Chevron and Chevron Canada maintain an “economically significant relationship” and that Chevron Canada has a “non-transitory place of business in Ontario.”

With respect to the stay, the Ontario Court of Appeal disagreed with the lower court’s decision mainly because no party had actually requested a stay. Although a court may grant a stay on its own motion, it can do so only in very rare circumstances and would at least require evidence that continuance of the action would work an injustice. No such evidence was submitted. Chevron argued that it was precluded from requesting a discretionary stay on any basis other than jurisdiction; however, the Ontario Court of Appeal found that it was Chevron and Chevron Canada’s decision not to attorn (meaning to submit to a court’s jurisdiction) to Ontario and defend the action using Ontario procedural and substantive law. By choosing not to attorn, both companies understood that they could rely only on a jurisdictional objection.

Not surprisingly, Chevron and Chevron Canada requested a stay of the Ontario Court of Appeal’s decision pending its appeal to the Supreme Court of Canada. On January 16, 2014, MacPherson J.A. of the Ontario Court of Appeal held that a stay was justified in the interests of justice. To arrive at this decision, she applied the three-part test for obtaining a stay of a judgment pending appeal: (1) Is there a serious question to be tried; (2) will the moving party suffer irreparable harm if the stay is not granted; and (3) does the balance of convenience favor granting the stay?

Justice MacPherson found that the proposed appeal raised at least three serious questions: (1) the proper test to determine the jurisdiction of a provincial superior court to hear and determine such an action, (2) the proper test in such an action when faced with a non-party to the foreign judgment, and (3) the role of a corporate-veil-piercing analysis with respect to a related corporation in such an action. Given that the appeal was to the Supreme Court of Canada, MacPherson J.A. also concluded that these three questions are legal issues of public importance.

Chevron and Chevron Canada, however, had difficulty proving irreparable harm. They contended that without a stay, they would risk either acquiescing to the jurisdiction of the Ontario court (attornment) by filing a defense, which was ordered by the Ontario Court of Appeal to be completed by January 16, 2014, or being noted in default. This submission was rejected because Ontario appellate case law states that compliance with a court order that requires a party to file a defense does not constitute attornment in an ongoing jurisdictional challenge. They also argued that without a stay, the $100,000 in costs ordered by the Ontario Court of Appeal to be paid to the plaintiffs may not be returned if the appeal succeeds. Although an unlikely scenario given the magnitude of the litigation, MacPherson J.A. found that permanently losing the costs awarded by the Ontario Court of Appeal after succeeding on appeal may reflect an irreparable harm.

As Chevron and Chevron Canada were quick to file their leave application to the Supreme Court of Canada, they were able to tilt the balance-of-convenience scale in their favor. Justice MacPherson noted that the leave application would likely be disposed of in about three to four months, resulting in little prejudice to the plaintiffs. Given this timeline, it was in the interests of justice to grant a stay.

It remains to be seen whether the litigation will continue in Ontario. In the event that leave is granted, however, this long-running legal battle will no doubt contribute to the development of Canadian law with respect to comity and the enforcement of foreign judgments against foreign defendants.

Keywords: mass torts litigation, Chevron, Chevron Canada, Yaiguaje, Ontario Court of Appeal

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