Lago Agrio: What’s Left For Trial, And What’s Next In Canada?

Yesterday I promised to take a look at the defenses to enforcement of the Ecuadoran judgment that remain for trial in Ontario. Here is an overview.

Which Defenses Are Left?

The LAPs’ counsel conceded that the claim that the Zambrano judgment was ghostwritten by the LAPs’ lawyers is a permissible defense. The defense could arise on any one of a number of theories: judgments obtained by fraud; judgment obtained in an unfair process; or judgments contrary to Canadian concepts of fundamental justice. The details are not quite the same as they would be in an American court—apparently in Canada a biased court is said to lack jurisdiction. But in any event, the defenses relating to the ghostwritten judgment are in.

Chevron’s second jurisdictional defense, which we would call a personal jurisdiction defense, is also in. The defense here is that Chevron Corp. never did business in Ecuador, didn’t waive its objection to personal jurisdiction (didn’t “attorn”, as the Canadians like to say), and had no connection with Ecuador. This motion is closely related to the corporate separateness motion—it focuses on whether the LAPs went after the right entity.

Which Defenses Did The Court Strike?

Chevron claimed that the LAPs’ claim in Ecuador was based on retroactive application of an Ecuadoran law enacted after the Ecuadoran state gave a release following the remediation (or supposed remediation) of polluted sites, and that their claim therefore violated Canadian ideas of fundamental justice. The judge rejected this argument. Many countries legislate retroactively, and the practice is not impermissible. Moreover, the judge concluded that whether the release applied to bar the claim was itself a matter that was for the Ecuadoran courts to determine and that could not be relitigated in Canada.

The judge also rejected Chevron’s argument that the judgment could not be recognized because recognition would “constitute” a violation of the Republic of Ecuador’s obligation under international law to suspend enforcement of the judgment. The judge held that Ecuador’s failure to obey the award was not contrary to “our Canadian view of basic morality,” and thus that the defense was no good. I might have put this differently—the LAPs, not Ecuador itself, are the plaintiffs, so it is hard to see why Ecudaor’s violations of international obligations should matter.

What Comes Next?

I am not privy to either party’s maneuverings—believe me, I’ve asked—but if I had to guess I would guess that Chevron will now seek to show that Judge Kaplan’s findings of fact should be given preclusive effect, which means, in effect, that Chevron will seek recognition (not enforcement) of the US judgment. I’m not sure how that will play out. There may be issues about the identity of the parties in the two cases, since (if I recall) only some of the LAPs actively litigated in New York: ordinarily a party that defaults is not bound by issue preclusion because he did not actually litigate the issue in the first action; but maybe the court would say that all of the LAPs’ interests were adequately represented by the LAPs’ counsel in New York. There may be other barriers to preclusion, too.

Lago Agrio: Ontario Superior Court Rules LAPs Cannot Execute The Ecuadorian Judgment In Canada

Oil barrels in Ecuador
Oil barrels in Ecuador. Credit: Julien Gomba

As expected, the Ontario Superior Court has rejected the Lago Agrio plaintiffs’ attempt to seize the assets of an indirect Chevron subsidiary, Chevron Canada Ltd., to satisfy the multi-billion dollar judgment they obtained against the ultimate parent, Chevron Corp., in Ecuador. The court found no basis on which the assets of the indirect subsidiary could be reached on execution (the only tricky part here, in my view, is whether the shares of an indirect subsidiary can be reached, but really that’s not so tricky), and it found no basis for corporate veil-piercing. The practical implication is that barring a successful appeal, the Lago Ario plaintiffs will not be able to collect on their judgment in Canada. (The decision left over the possibility that another Chevron entity could be added to the case, but it is difficult to see why the outcome would be different for that entity than it was for Chevron Canada Ltd.).

The plaintiffs seem to think that equity requires a different result, but in order to make that argument, they have to ignore the whole course of the proceedings in the United States. Remember that they could have sought recognition of the Ecuadoran judgment in the United States, where Chevron Corp., the judgment debtor, has plenty of assets, but if I recall right, they made a decision not to do so. And they then were found to have obtained the judgment in Ecuador by fraud, which prevents them from seeking recognition in the United States now even if they wanted to. They say that equity requires courts in third countries to ignore corporate separateness to allow them to recover, but in light of what happened in New York, where’s the equity in that?
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Event Announcement: “The Future of International Commercial Litigation Post-Brexit”

The Center of European Law at King’s College London will be holding the eight seminar in its Brexit series, titled The Future of International Commercial Litigation Post-Brexit. Here are the details for this interesting event.

What The Future of International Commercial Litigation Post-Brexit
Who The chair of the seminar is Professor Jonathan Harris, QC, of Serle Court Chambers and King’s College London. The speakers are Sir Richard Aikens of Brick Court Chambers and King’s College London, Alexander Layton, QC of 20 Essex Street Chambers and King’s College London, and Dr. Manuel Penadés Fons of King’s College London.
When January 26, 2017 from 6:30 to 8:00 p.m.
Where The Dickson Poon School of Law, Nash Lecture Theatre, Strand Campus, King’s College London
RSVP You can RSVP at this link

The speakers will discuss the risks that Brexit poses for the UK as a center for dispute resolution in civil and commercial cases, with particular reference to jurisdiction, enforcement, the applicable law, procedure, and cross-border insolvency law. The event will be followed by a reception.