Lago Agrio: A First Look At The Ontario Decision In Yaiguaje
Posted on May 2, 2013
As I reported yesterday, the Superior Court in Ontario has stayed1 the Lago Agrio plaintiffs’ case for recognition and enforcement of their Ecuadoran judgment against Chevron and one of its Canadian indirect subsidiaries. In today’s post, I give a non-technical, “big picture” reading of the decision, leaving the technical discussion to the Canadian lawyers who know better than I do how the judgment fares under Canadian law.
Overview of the Holding
What was yesterday’s decision about? It was not about the merits of the LAPs’ claim that the Ecuadoran judgment is entitled to recognition and enforcement under Canadian law. Nor was it about the merits of the LAPs’ claim that Chevron should be liable for environmental torts in Ecuador. Yesterday’s decision was about two things: the court’s personal jurisdiction over Chevron Corp. and Chevron Canada Ltd.,2 and whether the case should be stayed even if the court had jurisdiction. The basic holding was that the court did have jurisdiction, but that the case should be stayed, perhaps permanently.
In an earlier post on the case, I noted that I had previously been critical, in US cases, of the application of ordinary rules of personal jurisdiction to recognition and enforcement cases. Why? Leaving doctrine aside, if I sue you in the Canada and win a judgment for damages, and if you have assets in the United States, and if a US court decides that it lacks personal jurisdiction over you when I bring an action for recognition and enforcement of the Canadian judgment, then you have effectively found a way to shield your assets from your creditors, which is contrary, in my opinion, to public policy. The merits of the case have already been decided; I am simply trying to collect what a court has found I am owed. In my view, a judgment creditor should be able to seek recognition and enforcement in any country where the judgment debtor has assets, whether or not the judgment debtor would be subject to personal jurisdiction in another kind of case. As a doctrinal matter, I would point (as I have in the past) to this dictum from Shaffer v. Heitner 433 U.S. 186 (1977):
The primary rationale for treating the presence of property as a sufficient basis for jurisdiction to adjudicate claims over which the State would not have jurisdiction if International Shoe applied is that a wrongdoer should not be able to avoid payment of his obligations by the expedient of removing his assets to a place where he is not subject to an in personam suit.” This justification, however, does not explain why jurisdiction should be recognized without regard to whether the property is present in the State because of an effort to avoid the owner’s obligations. Nor does it support jurisdiction to adjudicate the underlying claim. At most, it suggests that a State in which property is located should have jurisdiction to attach that property, by use of proper procedures, as security for a judgment being sought in a forum where the litigation can be maintained consistently with International Shoe. Moreover, we know of nothing to justify the assumption that a debtor can avoid paying his obligations by removing his property to a State in which his creditor cannot obtain personal jurisdiction over him. The Full Faith and Credit Clause, after all, makes the valid in personam judgment of one State enforceable in all other States. (citations omitted)
Unfortunately, there are many American judges who plainly are not reading Letters Blogatory and who decide this issue in what I think is the wrong way.3 But the Ontario judge got the issue just right:4
For several reasons, I am not persuaded by the defendants that, at common law, an Ontario court lacks the jurisdiction to entertian an action to recognize and enforce a final judgment of a foreign state absent a showing that the judgment debtor defendant has some real and substantial connection with Ontario5 either through its presence in the jurisdiction or the presence of its assets in the jurisdiction …
The court goes on to explain its rationale with reference to the Canadian precedents. I leave the details to the Canadians. The important point here is that the judge sided with the Lago Agrio plaintiffs and held that even if Chevron had no connection with Ontario and no assets there (as the judge found), it would not be improper to exercise jurisdiction.6
Reverse Veil Piercing
I just noted the judge’s finding that Chevron had no assets in Ontario. Wait a minute … what about the assets of its indirect subsidiary, Chevron Canada Ltd.? The LAPs argued that Chevron Canada’s assets should be available to it for satisfaction of the Ecuadoran judgment. The judge rejected this argument in light of BCE Inc. v. 1976 Debentureholders,  3 S.C.R. 560, which held, in the judge’s paraphrase, that “under Canadian law, a shareholder in a corporation does not possess a legal or equitable interest in the assets of the company.” The LAPs tried a “reverse veil piercing” theory on for size, but the judge rejected it because the LAPs had not shown any of the factual bases that could support application of a veil piercing theory. Again, I do not want to delve too deeply into the details of the Canadian law on this.
Staying the Case
So far, then, here is the situation: the court has jurisdiction to hear the claim for recognition and enforcement of the Ecuadoran judgment against Chevron and Chevron Canada Ltd. But Chevron itself has no assets in Ontario, and the assets of Chevron Canada Ltd. cannot be attributed to Chevron itself in a way that would help the LAPs. Nor do the LAPs have any independent claim against Chevron Canada Ltd. The judge, apparently as an exercise of discretion, decided that in the circumstances it was best to stay the case unless and until the LAPs could make a showing that Chevron itself had assets in Ontario. On the one hand, I think the judge could permissibly have proceeded to decide the merits of the case, in light of what I wrote above about jurisdiction. But on the other hand, the judge probably found strong prudential reasons not to proceed. If it had proceeded, “a bitter, protracted and expensive recognition fight would ensue consuming significant time and judicial resources of the court.” I leave it to Canadian lawyers to opine on whether this was an appropriate exercise of discretion. The judge’s decision seems to me to be open to question insofar as Chevron has spent an enormous amount of time and money seeking to litigate the validity of the Ecuadoran judgment in New York even though the LAPs have not sought recognition and enforcement there. On the other hand, I think the judge was likely worried more about the burden on the court itself than the burden on the parties.
Where Do We Go From Here?The LAPs have expressed disappointment in the decision and have promised an appeal. Meanwhile, the New York case proceeds, as, I presume, do the LAPs’ attempts at recognition and enforcement in several Latin American jurisdictions. This raises the interesting possibility: what happens if the LAPs are unable to obtain recognition of the judgment anywhere in North America, but do obtain recognition, say, in Argentina, or in another Latin American country? I think this would raise interesting PR troubles for the LAPs, who had hoped that the highly respected Canadian courts would give their imprimatur to the plaintiffs’ collection efforts. But what if the only victories to be had come in countries whose judiciaries and political systems are not nearly as well regarded?
Questions for Canadian Readers
Canadian lawyers, please chime in on the following questions. First, what are the LAPs’ appellate options, and what will be the standard of appellate review? Second, assuming (contrary to fact, in this case) that the judgment debtor held shares of stock in a Canadian corporation, are those shares the kind of property that can be taken on execution, and if so, where can a judgment creditor seek that remedy? Just by way of comparison, in Massachusetts shares of stock cannot be taken on execution, but we have developed equitable and statutory “reach and apply” remedies that allow creditors to reach shares.
- Not dismissed, as I have seen incorrectly reported.
- Chevron Canada Finance Ltd. was also originally a defendant, but it had already been dismissed as a party by the time of yesterday’s decision.
- Some judges, particularly in New York, get this right. See, for example, Lenchyshyn v. Pelko Electric, Inc., 723 N.Y.S.2d 285 (App. Div. 2001), which the Ontario judge cited as an example of one line of American cases.
- Note that the judge goes a little farther than the considerations I have mentioned could be said to justify, at least from an American perspective. My reading of Shaffer justifies jurisdiction quasi in rem, that is, to the extent of the judgment debtor’s property in the forum, but it does not necessarily justify jurisdiction in the absence of any property in the forum, which is what the judge found here. I made this point in my post on the First Investment Corp. v. Fujian Mawei case. But as the judge observed, in practice it will be very rare for a judgment creditor to seek recognition in a jurisdiction where the judgment debtor has no property!
- The “real and substantial connection” test is the Canadian equivalent of the US due process analysis that determines whether a court may permissibly exercise jurisdiction
- The judge also found that it had jurisdiction over Chevron Canada Ltd., but that aspect of the holding was trivial, as Chevron Canada Ltd. had offices in Ontario and did business there.