The Broad Arm of Environmental Responsibility

The Supreme Court’s recent decision in Chevron Corp. v. Yaiguaje concluded that a real and substantial connection to the Canadian court is not necessary to enforce a foreign judgement. This decision may be significant in signalling that Canadian courts will more willingly enforce the judgments of foreign courts.

The respondent plaintiffs in this case characterized the facts as follows:

This case is not about preventing potential damage. It is about paying for the remediation of massive environmental contamination.

The contamination in question involved the oil-rich Lago Agrio region of Ecuador. The plaintiffs, representing 30,000 indigenous Eduadorian villagers, filed suit in the U.S. in 1993 against the oil companies, before a 2001 judgement directed them to initiate their claims in Eduador instead.

The 2003 suit in Ecuador resulted in a 2011 decision awarding US$8.6 billion in environmental damages. The judgement also awarded US$8.6 billion in punitive damages if the oil company did not issue an apology within 14 days. Not only did the oil company refuse to issue the apology, the refused to pay the damages awarded by the Ecuadorian court. On appeal, the Ecuadorian courts reduced the damages to a total of US$9.51 billion.

In a bizarre, but related proceeding, initiated in the U.S. by, the oil company alleged fraud of the plaintiffs’ counsel for ghost writing the Ecuadorian judgement. Although ultimately successful, these same proceedings affirmed the plaintiffs “may seek to enforce that judgment in any country in the world where Chevron has assets.”

The plaintiffs filed suit in Ontario in 2012, prior to the Ecuadorian appeal, for US$18,256,718,000. They relied on Rule 17.02(m) of Ontario’s Rules of Civil Procedure for enforcing the judgment of a court outside Ontario, and Rule 16.02(1)(c) for service of the corporation in a place where they are in control or manage the place of business to effect service in their local office.

On a motion opposing the long arm jurisdiction of the Ontario court, the defendants attempted to rely on Van Breda to extend its holding beyond assuming jurisdiction to decide a case on the merits. The motion judge instead relied on Morguard Investments Ltd. v. De Savoye and Beals v. Saldanha, and their application in Van Breda, to find that a real and substantial connection is not needed. In fact, the very nature of foreign judgments suggests that the Ontario courts will not have subject matter connection given that the enforcement arises from another jurisdiction,

[81] …In an age of electronic international banking, funds once in the hands of a judgment debtor can quickly leave a jurisdiction…

[82] …in an age of global commerce, one should take care to ensure that Ontario’s common law does not end up taking a more restrictive approach to the recognition and enforcement of foreign judgments than found in its statutes concerning the recognition and enforcement of foreign arbitral awards.

Ownership of assets in the jurisdiction and corporate identity also provided the Court with some concern. The party named in the Ontario proceedings was a seventh level subsidiary of the corporation in the Ecuadorian courts. Rather than ruling on this issue, the case was remanded back to the trial level for ultimate resolution.

The Court affirmed that Canadian courts can hear enforcement actions without relying on the ultimate merits of this particular action. The basis for this enforcement is comity, based on,

[53] …the need to acknowledge and show respect for the legal acts of other states has consistently remained one of the principle’s core components.

…Legitimate judicial acts should be respected and enforced, not sidetracked or ignored.

The defendants claimed this claim undermined comity, given the findings of fraud and their attempts to oppose enforcement in the U.S. In such complicated conflict of laws case it becomes particularly difficult to determine which court is legitimate which one is not.

The Court responded to this argument by noting that the defendant themselves had attorned to the juridiction of the Ecuadorian courts and made themselves the subject of outstanding obligations. They pointed to the Court of Appeal’s analysis of the defendant’s conduct, to stall proceedings and effect enforcement, which itself undermined comity. A spokesperson for the defendant stated in 2014,

We’re going to fight this until hell freezes over. And then we’ll fight it out on the ice.

Finally, they pointed to the motion judge’s comment above about the fluid nature of modern assets, which would only serve to assist debtors from escaping judgement. Modern commercial realities require some ability, not a guarantee, that creditors can satisfy judgement from Ontario courts if those assets are situated in Ontario.

The implications of this decision are limited, but still intriguing.

One argument could be made that creditor plaintiffs interested in forum shopping would be attracted to Ontario, and multinational corporations would therefore be more reluctant to invest money and infrastructure in the province. The effect of these corporations withdrawing their money from the province, and other corporations being reluctant to invest money in the province given a heightened sense risk, would be devastating to the economy.

The likelihood of this happening is negligible. International trade will occur regardless, and the remote risk of enforcement actions are unlikely to deter capital from migrating into the province. More importantly, the facts in this case are particularly unique, as illustrated by the motion judge:

[83] Now, the present case is a very unusual one. Normally the whole issue of the recognition and enforcement of foreign judgments is self-regulating. Judgment creditor plaintiffs generally do not throw good money after bad by going around seeking to enforce their foreign judgments in jurisdictions in which their judgment debtors do not have assets. That would be a waste of money. No doubt that practical commercial reality accounts for the paucity of Canadian cases in this area – judgment creditors tend to go forward only in those jurisdictions where little doubt exists that their judgment debtors possess assets.

…

Consequently, the abstract (albeit important) principle of private international law put in issue on these motions rarely sees the light of day because economic considerations regulate the selection of the recognition forum.

[84] Here, the plaintiffs have obtained an enormous final judgment against Chevron. The judgment debtor acknowledges that it owns assets in the United States. As I stated during the hearing, the jurisdiction in which the judgment debtor owns assets is only a short distance from this courthouse – in less than an hour’s drive one can cross a bridge which takes you into the very state in which Chevron initiated its anti-enforcement injunction proceedings. Yet, the plaintiffs have not sought the recognition and enforcement of their foreign judgment in the place of their judgment debtor’s residence or place of business and, instead, have come to Ontario arguing that the assets nominally held by a stranger to the foreign Judgment should be made available to satisfy it.

This case is not as much about long arm jurisdiction as it is about perhaps “broad arm” jurisdiction, given the complicated corporate structure between the actual defendant in the Ecuadorian judgment and the Canadian holdings. In another Ecuadorian case, Piedra v. Copper Mesa Mining Corporation, I agreed with the decision that Ontario courts should not assume jurisdiction on the basis of real and substantial connection, though this case notably dealt with unique issues involving the TSX. There is some need for disempowered individuals around the world to seek recourse against much larger and more powerful corporations who can deeply affect their lives.

In an age of global commerce we live with this reality that some corporations can engage in unethical (and perhaps even illegal behaviour) overseas. The shareholders who benefit from this behaviour reside in other jurisdictions, immune from any impact. Directors of these corporations therefore have little financial incentive to reform their behaviour.

For this reason, the Chevron case does not “alter the fundamental principle of corporate separateness,” and in fact may even better affirm the principles enunciated by the Court in BCE,

[40]  In considering what is in the best interests of the corporation, directors may look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. Courts should give appropriate deference to the business judgment of directors who take into account these ancillary interests, as reflected by the business judgment rule. The “business judgment rule” accords deference to a business decision, so long as it lies within a range of reasonable alternatives: see Maple Leaf Foods Inc. v. Schneider Corp. (1998), 1998 CanLII 5121 (ON CA), 42 O.R. (3d) 177 (C.A.); Kerr v. Danier Leather Inc., [2007] 3 S.C.R. 331, 2007 SCC 44 (CanLII). It reflects the reality that directors, who are mandated under s. 102(1) of the CBCA to manage the corporation’s business and affairs, are often better suited to determine what is in the best interests of the corporation. This applies to decisions on stakeholders’ interests, as much as other directorial decisions.
[emphasis added]

Environmental stewardship should also be a bedrock of good corporate governance. Corporations who fail this standard by not considering environmental impact in their business judgments should not only be held liable, but should not be able to protect their assets by moving it out of reach of the plaintiffs. Chevron simply makes the liability of overseas operations a possibility, not a guaranteed liability, and that is an important message for our courts to signal to the private sector.

The more troubling aspect of Chevron is how courts will effect international comity, and how much scrutiny will be applied to the underlying decision which is being enforced. In “Principles of Modern Company Law” (8th ed.), it states at page 206,

Although the interests of justice may provide the policy impetus for creating exceptions to the doctrines of separate legal personality and limited liability, as an exception itself it suffers from the defect of being inherently vague and providing to neither courts nor those engaged in business any clear guidance as to when the normal company law rules should be displaced. Consequently, it is difficult to find cases in which “the interests of justice” have represented more than simply a way of referring to the grounds identified above in which the veil of incorporation has been pierced.

The defendant made much at the Supreme Court of the finding of fraud by the United States District Court, Southern District of New York. Giving effect to the Ecuadorian judgment would also have the effect of piercing the corporate veil for a seventh level subsidiary.

They argued that it was hardly just and equitable to do so, and barely in the interest of justice, given the American finding. That argument, as the Court noted at para 95, would be resolved by the trial court. Assuming the parties continue fight it out over the frozen hell of litigation, some broader policy issues emerge.

If we assume that all like-minded (read prosperous) nations exert the same notions of the rule of law that we do, does it mean we scrutinize judgments from nations where we know that corruption may be common in their courts? Does this just empower litigants in developed nations and deprive those in developing nations from using their courts to seek recourse?

What about where such judgments are themselves highly politicized? The application of the new Justice for Victims of Terrorism Act illustrates some of these challenges. The Act states,

(5) A court of competent jurisdiction must recognize a judgment of a foreign court that, in addition to meeting the criteria under Canadian law for being recognized in Canada, is in favour of a person that has suffered loss or damage…

The first of these cases brought under the Act, Bennett Estate v. Iran, seeks to enforce an American judgment against Iran for US$13 million. What if a similar judgment was brought in foreign against an American actor for losses suffered under a similar basis?

Are Canadian courts prepared to evaluate the merits of the underlying trial or the basis of the claim being made? The necessary effect will inevitably be those who have more wealth to initiate claims, and are more empowered by residing in wealthier countries, will have greater ability to utilize long arm statutes.

The potential emerging in Chevron, irrespective of whether this particular case is ultimately successful, is quite the opposite. It provides the possibility that those who are disempowered outside of our jurisdiction will also be able to use our courts to ultimately seek justice.