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.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. Folkman also serves as an arbitrator and is a member of the Commercial and Consumer Panels of the American Arbitration Association. 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 treatise on International Aspects of US Litigation (J. Berger, ed. 2017), 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 and 2014 - 2016.

5 thoughts on “Lago Agrio: What’s Left For Trial, And What’s Next In Canada?

  1. One other thought: Chevron may seek to prevent the trial by persuading the court that in light of the result for Chevron Canada, the only point of a trial would be to set up a judgment arbitrage opportunity in a third country. This would lead, maybe, to an interesting decision on the permissibility of the arbitrage strategy.

  2. Great blog coverage, Ted. On the jurisdictional issue, the Supreme Court of Canada affirmed the Court of Appeal for Ontario’s decision on jurisdiction; namely: the foreign court (Ecuadorean court) had a real and substantial connection with the subject matter of the dispute and/or with the defendant, that the Ontario court has jurisdiction to determine whether the foreign judgment should be recognized and enforced in Ontario against Chevron Corp. With respect to Chevron Canada, in view of its bricks‑and‑mortar business in Ontario and its significant relationship with Chevron, the Court of Appeal found that an Ontario court has jurisdiction to adjudicate a recognition and enforcement action that also named it as a defendant. However, Justice Hainey’s decision to dismiss the claims against Chevron Canada, rejecting the LAP’s arguments on ‘corporate separatedness’ and ‘corporate veil-piercing’ will likely be the subject to further appeal. As far as judgment arbitrage is concerned, the practice of “rubber stamping” a second hand judgment (i.e. the recognition of a recognition judgment) has been criticized by some as the “laundering of foreign judgments” (See, Morgan Stanley & Co International Ltd v Pilot Lead Investments Ltd [2006] 4 HKC 93; [2006] HKCFI 430 (High Court of the Hong Kong Special Administrative Region); Clarke v. Fennoscandia Ltd [2004] SC 197 (Scottish Outer House), per Lord Kingarth at ¶ 31.). Your colleague, Greg Shill has apparently coined the phrase and has commented on the Delaware decision in Alberta Securities Commission v. Ryckman, 2015 WL 2265473. I am unaware of any Canadian jurisprudence addressing this, so it may be a matter of first instance. Best, AIP

    1. Thanks, Antonin, good to hear from you! The legal blogosphere is poorer without you.

      Given the judge’s decision, there is clearly something left to be litigated on the personal jurisdiction front. On the issue of an appeal, the plaintiffs already have press releases out that suggest the appeal is a slam-dunk, but in general their press releases are aimed at, ah, low-information readers.

      Readers interested in Greg Shill’s ideas can find more here and here, and more about the Ryckman case here.

      1. Excellent comments from Ted and Antonin Pribetic. It sounds to me as if Justice Hainey got it right, both in the Chevron defenses he dismissed, and in those he did not. My own observations appear as a reply to Ted’s post of yesterday.

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