Kirsten Iler
Canadian lawyers and Chevron's court battle over environmental damage in Ecuador

| October 30, 2014
Canadian lawyers and Chevron's court battle over environmental damage in Ecuador

A storm of controversy erupted amongst Canadian lawyers when the Canadian Bar Association (CBA) decided to intervene in Chevron's appeal to the Supreme Court of Canada. The appeal is part of Chevron's battle against Ecuadorian Indigenous peoples who seek to enforce a massive court judgment against the company for environmental damage in Ecuador. Amid increasing pressure, the CBA ultimately decided not to intervene. However, the event speaks to an apparent divide within the legal profession: around the relationship and importance of corporate law principles (such as the corporate veil), corporate accountability, and access to and the administration of justice.

With a long history in several countries, the Globe and Mail calls this case "perhaps the largest, longest-running, and most controversial lawsuit against a major company anywhere in the world." Chevron is the world's third-largest corporation, with a reported total revenue of $228.9 billion in 2013, according to Forbes. From 1972 to 1990, oil company Texaco (which later merged with Chevron) wreaked extensive environmental harm in the Lago Agrio region of the Ecuadorean Amazon. Populated by approximately 30,000 Indigenous villagers, the devastating story is relayed in the multi-award-winning 2009 documentary by Joe Berlinger, Crude.

In 1993, the Ecuadorian villagers brought their case to a federal trial court in New York State. The action was dismissed on certain conditions, one being that Texaco agree to respect the jurisdiction of the Ecuadorian courts. Before the conclusion of the U.S. case, Texaco and the Ecuadorian government agreed on a settlement which Chevron claims freed Texaco/Chevron from liability for environmental damage in the region in exchange for undertaking certain remediation efforts. This settlement is still being disputed.

The litigation brought by the Indigenous villagers in Ecuador was long and messy, with Chevron claiming the trial decision was the result of fraud and bribery, among other things. To date, however, a total of eight appellate judges in Ecuador have found Chevron liable. In the words of the Ontario Court of Appeal decision: "[t]he bottom line is this: there is a final judgment in Ecuador against Chevron for US$9.51 billion"(para 12).

Bringing the case to Ontario

With the final Ecuadorean judgment in hand, the villagers brought an action in Ontario in 2012, Yaiguaje v. Chevron Corporation, seeking enforcement of the judgment (i.e., to make Chevron pay the amount owed), against both the parent, Chevron Corporation, and a subsidiary, Chevron Canada.

At the lower court, Chevron argued that Ontario courts lack jurisdiction. Justice Brown of the Superior Court of Justice disagreed, holding that an Ontario court has jurisdiction to consider whether the final judgment from a court in Ecuador should be recognized and enforced in Canada. However, Justice Brown chose to stay (i.e., to suspend) the action on the grounds that Chevron did not have assets in Ontario and held that "the plaintiffs have no hope of success in their assertion that the corporate veil of Chevron Canada should be pierced and ignored so that its assets become exigible to satisfy the Judgment against its ultimate parent"(para 109).

The Ecuadorean villagers appealed to the Ontario Court of Appeal on the issue of the stay. Chevron cross-appealed on the issue of jurisdiction.

The Court of Appeal upheld the lower court's finding on the issue of jurisdiction. In his reasons, writing for a unanimous court, Justice MacPherson also noted that Chevron Canada was "entitled to dispute that its assets (or that Chevron Canada in its entirety) are exigible for the judgment debts of Chevron" but that [t]he usual concerns regarding the piercing of the corporate veil … are not present at the stage of this preliminary jurisdictional determination" (para 39).

The notion of lifting or "piercing" the corporate veil has been explained by the Supreme Court of Canada in this way, as set out in Justice Wilson's reasons' in the Kosmopoulos case:

As a general rule a corporation is a legal entity distinct from its shareholders ....The law on when a court may disregard this principle by "lifting the corporate veil" and regarding the company as a mere "agent" or "puppet" of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the "separate entities" principle is not enforced when it would yield a result "too flagrantly opposed to justice, convenience or the interests of the Revenue" ...  I have no doubt that theoretically the veil could be lifted in this case to do justice ... (para 12).

On the issue of the stay, the Court of Appeal found that the Justice Brown had erred in imposing the stay, holding that:

... the motion judge's stay in a major case involving poor and vulnerable foreign residents, one of the world's largest corporations, a long and difficult process in a foreign court, and a huge damages award, was entirely his own construct; no party sought it. Consequently, this issue was not argued before the trial judge, and no cases were put before him regarding the appropriateness of granting a discretionary stay (para 53).

Given the context in which, for two decades, "Chevron has contested the legal proceedings of every court involved in this litigation," the Court of Appeal found it would be an injustice to the Ecuadorian plaintiffs were the court to grant a stay "without giving the plaintiffs the option to make legal arguments and compile a record" (paras 57 and 69).

The Ontario Court of Appeal concluded its decision thus:

Even before the Ecuadorian judgment was released, Chevron, speaking through a spokesman, stated that Chevron intended to contest the judgment if Chevron lost. He said: "We're going to fight this until hell freezes over. And then we'll fight it out on the ice.

Chevron's wish is granted. After all these years, the Ecuadorian plaintiffs deserve to have the recognition and enforcement of the Ecuadorian judgment heard on the merits in an appropriate jurisdiction. At this juncture, Ontario is that jurisdiction. (paras 74 and 75).

Consistent with its assertion to never back down, Chevron has appealed to the Supreme Court of Canada. 

Enter the Canadian Bar Association

Enter, finally, the CBA issue: when the CBA announced its decision last July to intervene in Chevron's appeal, there were reportedly objections from lawyers in Aboriginal, environmental and civil law sections of the CBA, as well as the Law Union of Ontario, among others.

According to proponents of the intervention, the CBA would be a "neutral" intervener, aiming simply to clarify important points of business law, including the corporate veil and the enforceability of foreign judgments. In a statement, the CBA acknowledges that "the circumstances surrounding this case are controversial, arguably deplorable."

Opponents, however, say the proposed factum went beyond neutral points of law and, moreover, was drafted in such a way that it could actually help Chevron in overturning the Court of Appeal decision, a decision viewed as a victory for both the plaintiffs and for advancing access to justice for marginalized peoples. Under these circumstances, opponents thought it inappropriate for the CBA to participate in Chevron's appeal, saying it would promote (or at least appear to promote) corporate principles and the rights of big businesses over corporate accountability and justice for Indigenous peoples. They distributed an open letter to the CBA and organized protests, holding placards that read, for instance: "This is why people hate lawyers" and "Lawyers, show Chevron that your integrity is not for sale."

Amid mounting political pressure, the CBA backed down just before the filing deadline, stating that its legislation and law reform committee had concluded the case did not meet its requirements for intervention. (The committee had reportedly recommended against proceeding from the start.)

A representative for Chevron says they "look forward to demonstrating to the Supreme Court of Canada that the trial court in Ontario has no jurisdiction to hear the action brought by the Ecuadorean plaintiffs." In other words, Chevron is full-steam ahead in its mission to continue evading payment of the Ecuadorian court judgment which, by law, Chevron is obliged to pay to the Indigenous plaintiffs.

Iler Campbell LLP is a law firm serving co-ops, not-for-profits, charities and socially-minded small business and individuals in Ontario.

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