Lago Agrio: Ontario Superior Court Rules LAPs Cannot Execute The Ecuadorian Judgment In Canada
Posted on January 23, 2017
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?
The judge also rejected the LAPs’ motion to strike most of Chevron’s defenses to their claim for recognition and enforcement of the Ecuadoran judgment. I will have an analysis of what defenses survive, what defenses do not, and the court’s rationale later this week. The practical implication, though, is that Chevron will be able to argue that the Ecuadoran judgment was obtained by fraud as a defense to recognition in Canada.
You might wonder why the court bothered to rule on Chevron’s defenses. Isn’t the case over if the LAPs cannot collect in Canada? As I discussed back in September, it seems that the LAPs are trying a strategy of international judgment arbitrage. They think that it will be easier, in the courts of a third country, to obtain recognition of a Canadian judgment recognizing the Ecuadoran judgment than it will be to obtain recognition of the Ecuadoran judgment itself. This is pretty cutting-edge stuff with no clear answer.
A couple of observations. First, long-time readers will know that I am basically sympathetic with one of the LAPs’ main arguments—Chevron, they say, should not be able to litigate issues that it did or could have litigated in Ecuador, as long as there is no systematic (as distinguished from case-specific) challenge to the adequacy of the Ecuadoran judiciary. But we know that my view is not the law in the United States, and it seems it is not the law in Canada, either. Maybe it is not the law anywhere.
Second, while the new decision is a clear win for Chevron, it’s not at all clear how a trial on the fraud issue will come out. Leaving aside issues about issue preclusion—whether it is permissible to relitigate issues that have been litigated elsewhere—we have seen that the Republic of Ecuador and its lawyers were able to do much better in rebutting the testimony of Judge Guerra in the Chevron/Ecuador investment treaty arbitration than the overmatched lawyers were able to in the RICO case. If the LAPs’ lawyers can do as well, then we could be in for interesting times. On the other hand, a victory in the trial could well be Pyrrhic for the plaintiffs’ lawyers, who, I assume, are being paid on a contingency.