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SCC sees legal pipeline reaching from Ecuador to here for Chevron

Thursday, September 24, 2015 @ 8:00 PM | By Cristin Schmitz

The Supreme Court has declined to narrow Canadian courts’ scope to enforce foreign judgments, setting out a common law rule for presence-based jurisdiction over corporations that perhaps will make it easier to sue a company carrying on business in a province for claims unrelated to its operations there.

In a groundbreaking private international law judgment Sept. 4 in Chevron Corp. v. Yaiguaje [2015] S.C.J. No. 42, seven judges unanimously rejected the urging of appellants Chevron Corporation and its wholly-owned subsidiary Chevron Canada to create an additional jurisdictional hurdle for plaintiffs to surmount in getting their foreign judgments recognized and enforced in Canada.

The top court clarified that jurisdiction to recognize and enforce a foreign judgment in Ontario exists simply by virtue of the debtor being served on the basis of the outstanding debt resulting from the judgment.

“There is no need to prove that a real and substantial connection exists between the enforcing forum and either the judgment debtor or the dispute,” or that the foreign debtor has assets in the jurisdiction, Justice Clément Gascon held, rejecting the defendants’ submissions.

His judgment paves the way for 47 plaintiffs representing about 30,000 Ecuadorians whose water supply was polluted as a result of oil extraction near their homes to try to recognize and enforce, via Ontario’s courts, a US$9.5-billion Ecuadorian judgment against Chevron to remediate the environmental damage. The plaintiffs want to collect the money here from the U.S. parent — which contends it has no assets in Canada — and from its indirect, wholly-owned subsidiary Chevron Canada Ltd., which by some estimates has assets worth about $15 billion in Canada.

Barring settlement, the Ontario litigation seems likely to continue for at least three or four years.

“Chevron has said it will fight until hell freezes over, and then fight it out on the ice — well, hell has frozen over, and we are ready to fight it out on the ice,” said Alan Lenczner who, with Brendan Morrison of Toronto’s Lenczner Slaght, won the day at the Supreme Court. The pair is working the case without pay.

Lenczner sees the court’s judgment as a boost for global commerce and corporate social responsibility.

“The court reinforced the principles of comity and reciprocity. What I think this stands for is that there is no requirement that the foreign debtor — Chevron Corp. in this case — have assets in Ontario in order for the judgment to be enforced here.”

In the wake of Chevron, he added, “companies that do business in foreign jurisdictions will have to be concerned that if they do something wrong there, they are going to have to account for it in Canada. They’re not going to be able to just leave the foreign jurisdiction — which may not have a…robust judicial system.”

The judgment underscores that a strong global economy “is premised on the values of predictability and accountability,” Morrison told The Lawyers Weekly. “Those values are only promoted by a legal system that co-operates with foreign courts and foreign arbitral tribunals to hold judgment debtors to their debts, and does not assist an evasive judgment debtor from escaping their obligations.”

Chevron spokesperson James Craig noted that Justice Gascon specifically stated that just because the Ontario courts have jurisdiction to hear the enforcement action does not mean they will enforce the judgment.

“Today’s decision has no bearing on the legitimacy or enforceability of the fraudulent Ecuadorian judgment,” Craig explained by e-mail. “Instead, the Supreme Court of Canada has simply decided that the Ontario trial court has jurisdiction to entertain further proceedings in the action, including examination of several legal reasons why the effort to bring this fraudulent judgment to Canada should be stopped early in those proceedings. The facts remain, as Chevron Corp. established in the United States, that the Ecuadorian judgment is the product of fraud and other misconduct, and is therefore illegitimate and unenforceable.”

Murray Klippenstein of Toronto’s Klippensteins, counsel for the interveners MiningWatch Canada, the Canadian Centre for International Justice, and the International Human Rights Program at the University of Toronto faculty of law, said by e-mail that “Chevron some time ago openly declared a ‘total war, scorched earth’ legal strategy against this claim by the Ecuadorian villagers, and in this proceeding in Canada, Chevron was seeking to import into the law of international reciprocal enforcement of judgments an entirely novel test of ‘real and substantial connection to the jurisdiction’… In its decision, the Supreme Court methodically and meticulously analyzed, and rejected, that attempt, based on existing legal principles — and rightly so.”

Most of the Supreme Court’s judgment deals with Chevron’s failed argument that in order for courts to have the jurisdiction simpliciter to enforce a foreign judgment, the enforcing forum must have a real and substantial connection with the dispute or the judgment debtor, such as assets in the province, an issue never previously raised in Canadian courts, or determined by them. The practical significance of the court’s ruling on that point may be largely confined to the Chevron case, or rare cases like it where the judgment creditor is seeking to enforce a judgment in a forum where the judgment debtor has no assets, said Tanya Monestier, the U.S-based Canadian academic whose writings were relied on by Justice Gascon.

However, in affirming that Ontario’s courts have jurisdiction in the enforcement action against Chevron’s indirect Canadian subsidiary, the Supreme Court clearly stated for the first time that courts can exercise traditional, presence-based jurisdiction over corporations and explained what is necessary to establish it: carrying on business in the province, plus service with process in the jurisdiction. While courts’ presence-based jurisdiction over natural persons is well established, there was little support in case law prior to Chevron for the proposition that service with process on a corporation that is “carrying on business” in the forum confers jurisdiction, Monestier said.

She noted the court’s comments apply also to courts’ general jurisdiction at first instance to hear claims on the merits.

“I think the most important part of the judgment is the part that no one’s talking about, and that’s at the very end when they talk about jurisdiction with respect to Chevron Canada,” said Monestier, a professor at Roger Williams University School of Law in Bristol, R.I. “To me what they say about jurisdiction there is going to have potentially huge implications for companies outside of the recognition and enforcement context. What they are saying in the context of Chevron Canada is: ‘If a company is carrying on business in Ontario, and they have a place of business, you can serve them at their business and that’s enough to give the court presence-based jurisdiction over that company with respect to any causes of action, even though the claims have no connection to Ontario.’ So that’s a really interesting, and potentially revolutionary, development because I think that more and more litigators will begin to seize on that as a basis of jurisdiction, instead of relying on the real and substantial connection test, which is sometimes harder to satisfy.”

The Chevron case is seen by corporate social responsibility activists as a legal crucible for efforts by indigenous peoples to obtain redress for environmental damages stemming from extraction carried out by foreign oil and mining companies. The litigation has so far dragged on for 22 years in the courts of several countries, including efforts by the plaintiffs to enforce the Ecuadorian judgment in the U.S., Argentina, Brazil and Canada, and attempts by Chevron to derail the lawsuit via countersuits in Gibraltar and America against the plaintiffs’ litigation funders, and U.S. legal counsel.

Notwithstanding their recent victory at the Supreme Court, the plaintiffs face an uphill battle in getting enforcement here, including countering Chevron’s allegations (denied by the plaintiffs, but accepted by a New York judge whose decision is under appeal in the U.S.) that the Ecuadorian judgment was fraudulently obtained. They must also persuade Ontario’s courts that Chevron Canada can properly be considered a judgment debtor and that its shares and assets should be available to satisfy Chevron’s debt. The latter raises corporate law questions of general importance (such as whether the corporate veil between the companies can be pierced) expressly left open by the top court to possibly decide down the road if the Chevron case lands on its doorstep again.

Having lost their challenge to the jurisdiction of Ontario’s courts, Chevron and Chevron Canada are expected to file their defence (e.g. contesting the validity of the Ecuadorian judgment and the exigibility of Chevron Canada’s assets) in Ontario Superior Court.

In his reasons, Justice Gascon emphasized there is no unfairness to judgment debtors in having to defend against recognition and enforcement proceedings.

“Through their own behaviour and legal non-compliance, they have made themselves the subject of outstanding obligations, so they may be called upon to answer for their debts in various jurisdictions,” he wrote, adding that “in today’s globalized world and electronic age, to require that a judgment creditor wait until the foreign debtor is present or has assets in the province before a court can find that it has jurisdiction in recognition and enforcement proceedings would be to turn a blind eye to current economic reality.”