Enforcement of the Ecuadorian Judgment against Chevron in Ontario: The Ontario Law

by Stephen G.A. Pitel

[Stephen G.A. Pitel is Associate Professor at Western University, Faculty of Law]

On May 30, 2012, residents of Ecuador started an action in the Ontario Superior Court of Justice seeking to enforce a judgment in their favour of an Ecuadorian court against Chevron.  The amount of the judgment is a staggering $18 billion.  Chevron has announced that it will resist the enforcement litigation in Ontario.

Under Ontario’s common law, confirmed relatively recently by the Supreme Court of Canada in Beals v Saldanha, the test for whether a court will enforce a foreign judgment ordering the payment of money has three requirements.  First, the judgment must be final.  Second, the court granting the judgment must have had jurisdiction on a particular basis.  This is sometimes called jurisdiction in the international sense or jurisdictional competence.  Third, the judgment must be for a fixed sum of money and not a tax or penalty.  In general see Stephen G.A. Pitel & Nicholas S. Rafferty, Conflict of Laws at 159-73.

On the first requirement, a judgment is considered to be final even though there is time remaining within which to launch an appeal or an appeal has in fact been launched (as is the case here): Nouvion v Freeman (1889), 15 App Cas 1 (HL) at 10-11 and 13.  However, in such a situation it is relatively straightforward for the defendant in the enforcement proceedings to obtain a stay of the action on the basis that the court should await the results of the appeal.  It would seem likely that Chevron could have the Ontario proceedings stayed pending the results of the appeal in Ecuador.  Even if the enforcement proceedings are stayed, starting them can still have advantages to the plaintiff.  The stay does not stop the plaintiff attempting to obtain a Mareva injunction to freeze assets or other forms of interlocutory relief.

On the second requirement, there are three ways the foreign court can have taken jurisdiction that would meet this part of the test: the presence of the defendant in the foreign forum, the defendant’s submission to the foreign forum, or a real and substantial connection between the dispute and the foreign forum.  The latter way is cause for some debate, even within Canadian circles, about whether the test too readily accepts the jurisdiction asserted by foreign courts.  However, that issue does not arise in this case.  Since Chevron defended on the merits in Ecuador, it clearly submitted to the foreign court and on that basis this requirement would be satisfied: see Beals at para 37.

On the third requirement, the amount owing has to be either expressly stated or ascertainable by a simple mathematical process.  An order including an award of costs is not for a fixed sum until the amount of the costs is established.  The plaintiffs’ claim in Ontario indicates that costs have not yet been determined by the court in Ecuador, so at least this aspect of the claim is not for a fixed sum.  This could be addressed by a stay, waiting for the costs to be fixed, or by severing the claim for costs from the claim for the amount of the judgment.  There is no suggestion that the judgment is for either a tax or a penalty.

Once a plaintiff satisfies these three elements, the onus shifts to the defendant to raise any available defences.  In Beals, the majority of the Supreme Court of Canada indicated that the scope of the defences should remain narrow: see paras 41-42.  One defence that seems relevant here is that of fraud.  However, there are many different ways that fraud can affect the outcome of proceedings, and not all will satisfy this defence.  Beals held that fraud going to the foreign court’s jurisdiction can always be challenged, while fraud going to the merits of the dispute requires fresh evidence for a challenge: para 51.  So to succeed in a defence based on fraud going to the merits, Chevron would need to show evidence discovered since the trial and which could not have, with reasonable diligence, been discovered earlier.  The reason for this approach is that Canadian courts take the view that to the extent possible, issues of fraud are best addressed in the foreign forum and not as a defence to enforcement.  This poses a further issue in this case, since, as noted, an appeal is still pending in Ecuador.  It is possible that the Ontario court could hold that even new evidence of fraud, discovered since the trial, should be raised in the Ecuadorian appeal rather than in the Ontario enforcement action.

Another defence is denial of natural justice.  This typically looks at whether the defendant was not notified of the claim or was denied the opportunity to call evidence or make submissions.  However, it can also be raised to allege systemic unfairness in a country’s justice system or in a particular proceeding.  This is a very serious allegation, and a Canadian court would insist on reliable evidence before reaching such a conclusion about another country.  Recently some Canadian courts have had to consider the fairness of the justice system in Singapore.  In Oakwell Engineering Ltd v Enernorth Industries Inc the plaintiff obtained a judgment against the defendant in Singapore and then sought to enforce it in Ontario.  The defendant argued that the Singapore justice system was biased and corrupt.  It alleged that the judiciary was not independent of the government, and that the plaintiff’s close ties to the government meant that the courts were bound to decide in its favour.  The court rejected these arguments on the basis that insufficient evidence had been presented to establish these very serious allegations.  In another recent case, State Bank of India v Navaratna,  the Ontario Superior Court of Justice refused to grant summary judgment in a proceeding to enforce another Singapore judgment.  The court thought more facts were needed to resolve issues including whether the defendant had a reasonable opportunity to be heard in Singapore and whether the courts consciously favour the interests of banks as litigants.  In its reaction to the Ontario litigation Chevron has suggested it will make similar arguments about the Ecuadorian justice system, at least in terms of how this case was handled.

The Ontario enforcement proceeding requires the application of some reasonably well-settled legal rules to complex facts.  Moreover, as a preliminary matter, it is even possible that Chevron will resist the jurisdiction of the Ontario court to hear the enforcement action.  In Club Resorts Ltd v Van Breda, the Supreme Court of Canada has very recently reformulated the test for taking jurisdiction over defendants who are not present in the forum (Chevron Corporation does not appear to be present in Ontario).  The uncertainly alone posed by that change of the law might provide an opportunity for a jurisdictional challenge.  The Canadian subsidiaries might challenge jurisdiction on a quite different basis, namely that the Ecuadorian judgment sought to be enforced is not a judgment against them.

http://opiniojuris.org/2012/06/01/enforcement-of-ecuadorian-judgment-against-chevron-in-ontario-the-ontario-law/

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