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Canadian Chevron Ruling Lays Out Enforcement Welcome Mat – Law360

Date: Sep 15, 2015

The Canada Supreme Court’s recent decision that Chevron Corp. must face a bid to enforce a $9.5 billion pollution judgment puts a fresh litigation bull’s-eye on any multinational company operating in the Great White North, even if its Canadian unit has no real connection to a judgment’s underlying dispute.

Chevron had claimed that an Ontario court didn’t have jurisdiction to enforce the highly controversial judgment that Ecuador’s top court imposed on the energy giant and its Canadian unit over alleged drilling pollution in the Amazon rain forest. However, the Canada Supreme Court ruled Sept. 4 that the only jurisdictional hurdle that must be cleared is to show the foreign court issuing the judgment has a substantial connection to the litigants or the subject of the dispute.

“The most important takeaway is that Canada is a very friendly jurisdiction for creditors that hold foreign judgments,” said Robert Wisner, who co-chairs the international arbitration practice at McMillan LLP. “It doesn’t really matter what the nature of the underlying facts were in relation to the judgment. You’re free to come and enforce.”

The high court said it doesn’t even matter if a company holds no assets in Canada, as long as assets could end up in the country one day. Given Toronto’s emergence as a global commercial and financial hub, that’s an increasingly likely proposition, according to Wisner.

There’s already a certain level of forum-shopping when it comes to efforts by foreign creditors to enforce judgments made by foreign courts, but the Canada Supreme Court’s decision could make the nation a popular first stop, experts say.

“It does put out the welcome mat in some ways for foreign litigants who want to enforce a judgment against a multinational company,” said Borden Ladner Gervais LLP litigation partner David Crerar, who also teaches civil procedure at the University of British Columbia. “Canada has always been a friendly, stable legal regime that can deliver a respectable amount of justice in a reasonably effective manner.”

While the ruling puts companies in any industry that have Canadian operations in danger of facing an enforcement suit, global energy companies such as Chevron are among the most vulnerable, according to Crerar.

“Insofar as many of them have a Canadian presence and because of the nature of their activities, such as in the Chevron case, they may be exposed to fairly massive foreign damages judgments,” Crerar said. “They are probably one of the more obvious groups that should be concerned about this decision, though all industries that would face foreign judgments of any size that would make it worth enforcing in Canada should pay attention to this decision.”

However, what Canada’s high court didn’t say in its decision — namely, whether the judgment against Chevron was in fact enforceable — is as important as what it did say. The court was careful to emphasize that it was addressing only whether these enforcement actions can be brought in Canadian courts, experts say.

“People thought that the court might talk about the corporate veil between Chevron and Chevron Canada, but they didn’t go there,” Wisner said. “Even if somehow the judgment against the Chevron U.S. parent is recognized in Canada, that doesn’t mean there are any assets to seize. That whole issue has been left open completely by the Supreme Court.”

Instead, those issues will have to be considered by the Ontario court as it decides whether the judgment against Chevron is enforceable, as well as by courts handling future enforcement bids.

“It’s likely that whatever a court pronounces with respect to this case, it’s going to be based on the nitty-gritty of the relationship of the Canadian subsidiary to the corporate parent and how close they are to the original liability,” Crerar said. “Apart from the corporate law issue, no doubt Chevron and other companies in Chevron’s future shoes will go to traditional laws to challenge a foreign judgment based on accounts of fraud.”

The Canada Supreme Court avoided commenting on the defenses available to Chevron and other companies facing enforcement action — such as arguing that enforcing the judgment would contravene the interests of justice or public policy, or that the judgment was based on fraud. Canadian courts apply those defenses narrowly but expect Chevron to make its case aggressively, especially since a U.S. federal judge has already called the judgment the product of “an egregious fraud” and blocked its enforcement in the U.S.

“The Supreme Court had a very narrow view: All they’re doing is opening the door, but they’re not saying anything about whether this judgment is enforceable at all,” Wisner said. “This is just the first inning of the ball game.”

Regardless of how the Chevron battle plays out, experts say, the court’s ruling should serve as a warning to multinationals that Canadian courts are ready and willing to enforce judgments by foreign courts, and that enforcement actions can’t be ducked by moving assets to other jurisdictions.

“If you’re a creditor who owns a foreign judgment because the debtor is moving money around, Canada is a good place to start proceedings,” Wisner said. “This decision is saying there’s no downside to trying to get a foreign judgment enforced in Canada.”

The case is Chevron Corp. et al. v. Yaiguaje et al., case number 2015 SCC 42, in the Supreme Court of Canada.

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