Lago Agrio: A First Look At The Ontario Decision In Yaiguaje

Member of the Cofán Dureno community in northern EcuadorAs I reported yesterday, the Superior Court in Ontario has stayed 1 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.

Personal Jurisdiction

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 Ontario 5 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, [2008] 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?

Alan Lenczner, QC
Alan Lenczner, QC, the LAPs’ lawyer, promises an appeal
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.

Photo credits: Caroline Bennett / Rainforest Action Network, Lenczner Slaght

Notes:

  1. Not dismissed, as I have seen incorrectly reported.
  2. 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.
  3. 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.
  4. 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!
  5. 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
  6. 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.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

6 thoughts on “Lago Agrio: A First Look At The Ontario Decision In Yaiguaje

  1. Excellent post, Ted.

    Here are my few observations having read Justice Brown’s decision.

    The decision reflects the correct state of the Canadian law of jurisdiction in the context of recognition and enforcement of foreign judgments. Despite Chevron’s press releases and media reports to the contrary, the Ontario court denied Chevron’s motion to set aside service ex juris (i.e. service out of Ontario) on the Chevron defendants, including the US parent and the Canadian subsidiaries. The implication is that the Ontario court has in personam (personal) jurisdiction over all of the Chevron defendants.

    Brown J. rejected the plaintiffs’ ‘reverse veil piercing’, which I discussed in my guest blog post at Letters Blogatory previously.

    As you correctly point out, the Ontario court did not dismiss the enforcement proceedings. It did stay the proceedings without prejudice, since the absence of exigible assets is irrelevant in light of the common law and the analogues of the Reciprocal Enforcement of Judgments (United Kingdom) Act (REJUKA) and the International Commercial Arbitration Act, which adopts the UNCITRAL Model Law and New York Convention.

    In my view, the fact that Chevron Corporation will never transfer assets into Ontario or any other Canadian province or territory is irrelevant. A judgment creditor is entitled to seek enforcement of a foreign judgment in any Canadian court. Unlike other common law jurisdictions, The Ontario court only plays a passive, supervisory role in post-judgment enforcement under Rule 60 of the Rules of Civil Procedure. The judgment creditor may take whatever steps it deems necessary to enforce a judgment (including a foreign judgment once deemed enforceable that is homologated or domesticated into an Ontario judgment) for writs of seizure of sale of land or property, writs of possession, garnishment, etc. Once a judgment is final, the limitation period to enforce is 20 years.

    Interestingly, the decision is counter-intuitive on the issue of practicality of enforcement in lieu of any exigible assets. To my mind, the plaintiffs’ reverse veil-piercing theory is premised on the corporate structure of Chevron Corp. and Chevron Canada set up to avoid any inter-corporate liability. This begs the question of whether Chevron Corp. has conducted itself in the underlying Ecuador litigation to make itself judgment-proof, while enjoying the obvious benefits of marketing itself as a multinational or global corporation. Further, while Justice Brown is undoubtedly correct in concluding that Chevron Corp. and Chevron Canada are distinct legal entities with separate and independent boards of directors, the interesting question is whether there is any history of inter-corporate transactions that point to Chevron Corp. transferring assets to Chevron Canada on a non-arms’ length basis that belies its argument that it has no presence, dealings or assets in Canada.

    I did find one Canadian casem that admittedly only obliquely suggests a history of inter-corporate dealings between parent and subsidiary, Stoney Tribal Council v. PanCanadian Petroleum Ltd., 1998 ABQB 286 (CanLII).

    Appendix C to the decision lists a Lease History and reads in part:

    APPENDIX C

    LEASE HISTORY

    The first lease was Lease 119-2220. It was granted to the California Standard Company on December 1, 1962. It was renewable for further terms of 10 years. The California Standard Company changed its name to Chevron Standard Limited (“Chevron”) on August 11, 1965

    On September 14, 1983, Chevron transferred its 25 per cent undivided interest in Lease OL-5279 to Chevron Canada Limited (“Chevron Canada”). Lease OL-5279 was continued under IOGR, s. 18 for another 5 year term to November 30, 1992. On February 18, 1992, Chevron Canada transferred its 25 per cent undivided interest in Lease OL-5279 to PanCanadian ….

    Admittedly, this is not a significant corporate presence, but it does negate the argument of a seamlessly distinct inter-corporate relationship between parent and subsidiary or no Canadian involvement by Chevron Corp. from its inception to date.

    Finally in response to your posed questions:

    First, what are the LAPs’ appellate options, and what will be the standard of appellate review?

    Whether Ontario has jurisdiction to hear this action is a question of law and the standard of review is correctness. [Black v. Breeden, 2010 ONCA 547 (CanLII) (Ont. C.A.]

    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.

    Yes, shares are exigible and can be seized by way of a writ of seizure and sale of property (writ of execution). The Personal Property Security Act, R.S.O. 1990, c.P.10 defines “intangible” to mean all personal property, including choses in action, that is not goods, chattel paper, documents of title, instruments, money or investment property.

    1. Thanks, Antonin, for commenting! I question whether it makes sense to regard this as a case of Chevron “[making] itself judgment-proof,” since there’s no question that the LAPs would have a complete remedy against Chevron in the United States—if they could establish that the Ecuadoran judgment was entitled to recognition and enforcement. If Chevron removed its assets from Ecuador, then I think you have a point. But as to any third country, it doesn’t seem to me that the LAPs have any basis for chiding Chevron for organizing its business however it wishes.

      1. Yes, I agree. Chevron Corp. and any of its US subsidiaries are prone to execution on an enforceable foreign judgment. The issue is whether Chevron Corp. has no liability in any other jurisdiction; a dubious proposition, at least from traditional tort theory and respondeat superior. That said, the Ecuador judgment is against Chevron Corp. only. If there is no horizontal or vertical integration, then enforcement is a fool’s errand. Beyond this, Ontario has absolutely no connection to Chevron, except that one Mississauga office. if anything, the enforcement action should have been commenced in B.C. or Alberta where the Canadian subsidiaries are headquartered.

        The appeal will be interesting.

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