Canadian Underwriter

Lawsuit against Chevron arising from pollution in Ecuador can proceed in Ontario: Supreme Court

September 4, 2015   by Canadian Underwriter

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The pursuit of a nearly-$10 billion judgement debt in Ecuador, arising from pollution claims against Chevron Corp., can proceed against the petroleum giant’s Canadian subsidiary in an Ontario court, the Supreme Court of Canada ruled Friday.

Chevron Corp. could be sued in Ontario over environmental pollution in Ecuador

The question of whether Calgary-based Chevron Canada is actually a judgement debtor – and if so whether its shares or assets can be seized – must still be considered by an Ontario court.

Court records indicate that between 1964 and 1992, partners and subsidiaries of Texaco Inc. were extracting oil in the Lago Ario region of Ecuador. San Meteo, Calif.-based Chevron, which acquired Texaco in 2000, was successfully sued in 2003 in an Ecuadorian court for alleged damage to the environment. Initially the award was $18.256 billion, but that was reduced on appeal, with $8.6 billion in punitive damages nullified. All figures are in United States dollars.

“Since the initial judgment, Chevron has refused to acknowledge or pay the debt that the trial court said it owed, and it does not hold any Ecuadorian assets,” wrote Mr. Justice Clément Gascon of the Supreme Court of Canada in a unanimous decision released September 4. “Faced with this situation, the plaintiffs have turned to the Canadian courts for assistance in enforcing the Ecuadorian judgment, and obtaining their financial due.”

Before the punitive damages in Ecuador were reversed, Daniel Carlos Lusitande Yaiguaje, and 46 co-plaintiffs – representing 30,000 Ecuadorian villagers – asked the Ontario Superior Court of Justice for “an action for recognition and enforcement of the Ecuadorian judgment” against Chevron and Chevron Canada, Justice Gascon added on behalf of the seven judges who heard Chevron’s appeal.

Chevron Canada is based in Calgary, but the plaintiffs served Chevron at its Mississauga office, west of Toronto.

The plaintiffs had asked the Ontario court for a declaration that Chevron Canada’s shares are “exigible” to the Ecuadorian judgement and for an appointment of an equitable receiver over those shares and assets.

Chevron Canada is a seventh-level subsidiary of Chevron Corp. In Ontario, as of May, 2012, Chevron Canada had 13 employees selling lubricant and chemical products, three of whom worked out of a physical office in Ontario, the firm noted in its appeal to the Supreme Court of Canada. Chevron Canada argued it has “no involvement” in the events that gave rise to the Ecuadorian judgement. The firm also argued it is not domiciled in Ontario.

The action against Chevron Canada was initially stayed in 2013 by Mr. Justice David M. Brown, of the Ontario Superior Court of Justice. Justice Brown ruled against Chevron in deciding that an Ontario court does have jurisdiction to determine whether the Ecuadorian court judgement should be recognized an enforced in Ontario. But he exercised his discretion – under Section 106 of the Ontario Courts of Justice Act – to stay the proceeding on his own initiative.

That decision was reversed on appeal.

“Chevron and Chevron Canada can decide not to attorn to the jurisdiction of the Ontario courts, and let the recognition and enforcement process take its course,” wrote Mr. Justice James C. MacPherson, of the Court of Appeal for Ontario, in a decision released in December, 2013. “Or they can attorn to the jurisdiction of the Ontario courts and mount relevant challenges to recognition and enforcement.”

The following month, Chevron applied successfully for leave to appeal to Canada’s highest court. The company asked the Supreme Court of Canada for “an order setting aside service ex juris” the Ecuadorian villagers’ claim and an order declaring that the Ontario court has no jurisdiction to hear the action, “and dismissing or permanently staying it.”

But the Supreme Court of Canada – which heard the case last December – upheld the Ontario appeal court ruling.

Corporate parent Chevron Corp. unsuccessfully argued Ontario was not a “forum of necessity” for the case.

There is “nothing improper in allowing foreign judgment creditors to choose where they wish to enforce their judgments and to assess where, in all likelihood, their debtors’ assets could be found or may end up being located one day,” Justice Gascon wrote. “In this regard, it is the existence of clear, liberal and simple rules for the recognition and enforcement of foreign judgments that facilitates the flow of wealth, skills and people across borders in a fair and orderly manner.”

The Supreme Court of Canada did not rule on whether Chevron Canada "can properly be considered a judgment-debtor to the Ecuadorian judgment," or on whether Chevron Canada's shares or assets could be seized

The Supreme Court of Canada did not rule on whether Chevron Canada “can properly be considered a judgment-debtor to the Ecuadorian judgment,” or on whether Chevron Canada’s shares or assets could be seized.

“The establishment of jurisdiction does not mean that the plaintiffs will necessarily succeed in having the Ecuadorian judgment recognized and enforced against Chevron Canada,” Justice Gascon wrote. “A finding of jurisdiction does nothing more than afford the plaintiffs the opportunity to seek recognition and enforcement of the Ecuadorian judgment. Once past the jurisdictional stage, Chevron Canada, like Chevron, can use the available procedural tools to try to dispose of the plaintiffs’ allegations.”

The court cited a 1990 decision, also by the Supreme Court of Canada, against Douglas De Savoye, whose mortgages on land in Alberta fell into default. An Alberta court ordered sale of the properties and judgements were entered against De Savoye, for deficiencies between the value of the property and the amount owing on the mortgages. De Savoye, who had moved to British Columbia, did not show up in court or defend the action. A B.C. court ruled in favour of the mortgagees, Morguard Investments Limited and Credit Foncier Trust Company. The Supreme Court of Canada ruled in favour of Morguard.

In the Morguard decision, the Supreme Court of Canada ruled “that comity refers to ‘the deference and respect due by other states to the actions of a state legitimately taken within its territory’, as well as ‘the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws,'” Justice Gascon wrote in Chevron. He added Chevron did attorn to the jurisdiction of the Ecuadorian court.

“Even before the Ecuadorian judgment was released, Chevron, speaking through a spokesman, stated that Chevron intended to contest the judgment if Chevron lost,” Justice MacPherson wrote on behalf of the Court of Appeal for Ontario in 2013. “He said: ‘We’re going to fight this until hell freezes over. And then we’ll fight it out on the ice.”

Justice MacPherson added: “C
hevron’s wish is granted. After all these years, the Ecuadorian plaintiffs deserve to have the recognition and enforcement of the Ecuadorian judgment heard on the merits in an appropriate jurisdiction. At this juncture, Ontario is that jurisdiction.”