Lago Agrio: International Judgment Arbitrage?

I’d like to do a little more analysis of the ongoing hearing in Canada on the Lago Agrio judgment, since in the absence of a transcript of yesterday’s hearing on Chevron’s motion for summary judgment I don’t have any hard news to report.

As I suggested yesterday, I think that the LAPs’ view is that even if Chevron succeeds in showing that the Canadian subsidiary is entitled to summary judgment (because it is not answerable for the debts of the parent), they should still be entitled to recognition of the Ecuadoran judgment. And I have reason to think that if they obtain recognition, their next move would be to seek to enforce the judgment in other jurisdictions. Let’s take this idea out for a spin.

There seem to be two issues. First, let’s assume that Chevron wins its corporate separateness motion but that the LAPs are right about their ability to obtain recognition of a Canadian judgment without asking the foreign court to take a look at the underlying Ecuadoran judgment. Is there another country where Chevron Corp. itself has assets that could be reached on execution? I don’t know enough about Chevron’s corporate structure to say, but my best guess is that Chevron’s non-US business is conducted entirely or at least primarily by subsidiaries. Chevron’s most recent 10K states that the parent corporation’s business is to “manage[] its investments in subsidiaries and affiliates and provide[] administrative, financial, management and technology support to U.S. and international subsidiaries that engage in integrates energy and chemicals operations.” So even assuming the LAPs are right, what good would it do them? They would have to take the Canadian judgment to some jurisdiction where Chevron Corp. itself has assets or to some jurisdiction that does not respect the principles of limited liability and corporate separateness. Is there such a jurisdiction?

Second, are the LAPs right that if they obtain a Canadian judgment, they could simply ask a foreign court to recognize the Canadian judgment, without getting into the merits of the Ecuadoran judgment itself? I don’t think anyone has a perfectly clear answer to this question. Here are a few points to consider:

  • Unlike the United States, Canada is party to at least one treaty on the recognition and enforcement of judgments, with the United Kingdom. So perhaps a court in the UK would have some obligation to recognize an eventual Canadian judgment? On the other hand the Canada/UK convention provides (in Article IV(1)(f)) that a judgment cannot be recognized under the Convention if “the judgment is a judgment of a country or territory other than the territory of origin which has been registered in the original court or has become enforceable in the territory of origin in the same manner as a judgment of that court.” I’m not entirely sure, but this seems to mean that a judgment of a third state (here Ecuador) that is registered or “has become enforceable” in Canada cannot be recognized. I leave it to Canadian or English lawyers to say whether this provision applies here, or whether it only applies in cases of some kind of summary registration procedure.
  • What the LAPs are proposing is very similar to Greg Shill’s judgment arbitrage idea, particularly if they plan to seek recognition in a place (like the UK) where they can argue there is an obligation to recognize the Canadian judgment (as one US state has a constitutional obligation to recognize the judgments of sister states). As my post on the topic suggests, I was not too sympathetic to Greg’s idea that the possibility of judgment arbitrage justified making exceptions to the ordinary, and important, rule of full faith and credit in the American constitutional context, but I am not sure to what degree my concerns carry over to the Lago Agrio situation.
  • In the context of arbitration, this kind of “judgment” arbitrage is not unusual. Comment 3 to § 2 of the UFCMJRA provides:

    [F]oreign arbitral awards and agreements to arbitrate are not covered by this Act. They are governed instead by federal law, Chapter 2 of the U.S. Arbitration Act, 9 U.S.C. §§ 201-208, implementing the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards …. A judgment of a foreign court confirming or setting aside an arbitral award, however, would be covered by this Act.

    Courts in the US do recognize foreign judgments confirming arbitral awards without revisiting the merits of the decision to confirm under the New York Convention. See, e.g., Commissions Import Export S.A. v. Republic of the Congo, 757 F.3d 321 (D.C. Cir. 2014); Seetransport Wiking Trader Schiffarhtsgesellschaft MBH v. Navimpex Centrala Navala, 989 F.2d 572 (2d Cir. 1993). But it’s not clear to me that the same rule would apply to a foreign judgment recognized by another foreign judgment, or that other countries (e.g., the UK) would take the same approach in the case of an arbitration.

I hope to be able to provide you with some updates about what is actually happening in Toronto, but I don’t have any boots on the ground there. Those who are interested in a partisan take from the LAPs can follow Karen Hinton on Twitter—she is sending updates from the hearing. I’m not sure whether there are any independent reporters or Chevron partisans tweeting or blogging from the courtroom.

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.

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