Lago Agrio: Canadian Appellate Court Requires LAPs To Give Security

Oil barrels in Ecuador

In January I reported on the Lago Agrio plaintiffs’ latest setback in their quest to obtain recognition of their Ecuadoran judgment in Canada. The Ontario Superior Court granted summary judgment to Chevron, holding that its indirect Canadian subsidiaries’ assets were not assets of Chevron (the judgment debtor) that could be reached on execution. The LAPs appealed to the Ontario Court of Appeal. In a decision on September 21, a single justice of the appellate court ordered the LAPs to post almost a million dollars as security in light of Canada’s rule that the loser pays the winner’s attorney’s fees.

The basic procedural rule provides that if the appellant is “ordinarily resident outside Ontario,” as was the case here, the court, on a motion by the respondent, may make an order for security for costs “as is just.” If the appellant shows that he is “impecunious,” then he can avoid an order for security by showing that his appeal is “not plainly devoid of merit,” which is a very low standard. If the appellant does not show that he is impecunious, then he must show instead that the appeal “has a good chance of success.” Here, the LAPs did not make a showing of impecuniousity, perhaps, the judge suggested, because they were unwilling to disclose information about whatever source of litigation funding they may have. It seems highly likely in light of the LAPs’ refusal to give the court information about their finances that there is a litigation funder out there, else why not just make the disclosure? We’ll know more when we see whether the LAPs post the security.

Because the LAPs were not “impecunious,” the judge considered whether the appeal had a good chance of success and found that it did not. The black-letter law was that Chevron had no property interest in its indirect subsidiaries, and so the merits of the appeal turn on whether the LAPs could pierce the corporate veil. But the ordinary grounds for veil-piercing are not present, and the judge rejected the LAPs’ argument that the veil should be pierced “in situation where it will yield a result ‘too fragrantly opposed to justice.’”

The LAPs’ counsel, Alan Lenczner, “with his signature vigour,” argued that the case could not be treated along these lines, because Canadian law requires a “generous and liberal approach to the recognition and enforcement of foreign judgments.” The judge rejected this argument:

In my view, the Supreme Court’s Chevron decision did not change this principle. Chevron stands for the proposition that Canadian courts should take a generous approach in finding jurisdiction to allow litigants holding foreign judgments to bring enforcement actions in Canada. I do not read the decision as saying that, when such enforcement actions are brought before Canadian courts, they should be treated differently than cases involving domestic litigants. As I explained above, I am of the view that if the Ecuadorian plaintiffs were domestic litigants, an order for security for costs would be appropriate. I do not see why the result should be different because the Ecuadorian plaintiffs hold a foreign judgment.

An order like this is not, of course, the same as a decision, and the Court of Appeal could still rule in the LAPs’ favor when it hears the appeal (assuming the LAPs post the security and the appeal goes forward). But the LAPs’ loss here is like a plaintiffs’ loss in a preliminary injunction motion where he fails to show a likelihood of success on the merits. It’s not dispositive, the case continues, but it’s clearly not good news.

3 responses to “Lago Agrio: Canadian Appellate Court Requires LAPs To Give Security”

  1. Update: it appears that the LAPs are seeking review of the single justice’s order. I don’t know enough about Ontario appellate procedure to know what form the review takes. A hearing is apparently scheduled for October 10.

  2. Another update: the hearing has been put off to Oct. 11, because several of the LAPs hired Peter Grant, a Canadian lawyer, to represent them, and he asked for a continuance to prepare.

  3. […] the Ontario Court of Appeal vacated an earlier order of a single justice requiring the Lago Agrio plaintiffs to give security for the costs of the appeal. This will allow […]

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