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Chevron challenges court’s jurisdiction over foreign award

|Written By Richard Foot

This summer, the U.S. oil giant Chevron Corp., mired in a 19-year legal battle over pollution in the Amazon jungle, fired its opening volley in a new front in the fighting: Canada.

‘Canadian courts give a fair bit of weight to the concept of judicial comity, which is the respect you accord to other courts,’ says Markus Koehnen.

Rather than issue a defence to a statement of claim filed May 30 in the Ontario Superior Court, Chevron’s lawyers instead filed a motion on July 16 saying that no Canadian court has jurisdiction to enforce an $18.3-billion award issued against the company last year in Ecuador.

Chevron has subsidiaries in Canada operating in Newfoundland and Alberta, but since the judgment was against the U.S.-based parent company, which doesn’t exist here, Canadian courts can’t deal with it, Chevron argues.

That’s an early taste of the legal arguments in what some have described as the world’s largest lawsuit. It’s also a symbol of the increasing role Canada’s justice system will have to play in the coming years in refereeing enforcement actions against global corporations.

The Chevron lawsuit began in 1993 against Texaco in relation to accusations of polluting the Amazon basin while drilling for oil there in the 1970s and 1980s as a partner of Ecuador’s state oil company.

Chevron, after acquiring Texaco in 2001, defended itself in a lengthy trial in Ecuador that resulted in the 2011 judgment.

Chevron has no assets in Ecuador. It calls the $18-billion award “illegitimate” and is refusing to pay. The company is also suing the plaintiffs’ legal team in the United States for bribery, fraud, and fabricating evidence.

Last year, it obtained an injunction from a New York judge preventing the plaintiffs from seeking enforcement of the award outside Ecuador. The injunction was vacated on appeal.

Due to the complications of the ongoing U.S. litigation and perhaps political fears that the American courts might be more sympathetic to Chevron, the plaintiffs have now decided to seek enforcement of their award outside the United States.

Last spring, Canada became the first stop on what they’ve said will be a global pursuit of Chevron assets. A similar legal action in Brazil followed their Canadian claim.

The case has only a tenuous link to Canada. Neither of the parties named in the original lawsuit in Ecuador, nor the pollution itself or the war of words and the allegations of fraud and bribery that have surrounded the case for decades have anything to do with this country.

Only the presence of some Chevron assets here has brought the case to Canada.

“Why wouldn’t you come to Canada?” asks Alan Lenczner, the high-profile Toronto litigator who represents the plaintiffs in Ontario.

“When you realize that Chevron runs virtually all of its business through subsidiaries, you’ve got to go where the assets are.

“I’m sure there’s not $18 billion worth of assets here, neither in Brazil. So we’re going to have to go around the world, since they won’t pay, and collect where we can.”

The plaintiffs probably consider it advantageous that Canada’s legal system forbids the courts here from retrying any prior evidence already adjudicated in Ecuador.

And they’re likely hoping that a successful decision in Ontario will expedite actions in countries with similar legal traditions, such as Australia and Britain, where Chevron might also have assets.

“It would certainly give a big boost to the plaintiffs’ actions in other common law countries,” says Markus Koehnen, an international commercial litigator with McMillan LLP in Toronto. “Canadian enforcement would certainly give their case a great deal of credibility.”

If Chevron’s jurisdictional argument fails to stay the case in Ontario, the company is likely to raise questions about Ecuador’s judicial system and whether or not it received a fair hearing there.

The company can also raise public policy objections to the enforcement of the award in Canada and it can allege that the trial in Ecuador was subject to fraud or bribery.

Koehnen says Chevron will need convincing evidence of such things. As a result, it won’t succeed simply by questioning the general integrity of Ecuador’s justice system.

“If there is evidence that the court lacked independence or was somehow bribed, then that would be one ground for refusing to enforce the judgment,” he says. “It’s not enough to say, ‘Well, it’s a developing country. Therefore, the court system lacks independence.’

“Canadian courts give a fair bit of weight to the concept of judicial comity, which is the respect you accord to other courts.”

Koehnen says these principles are likely to get a workout in Canada’s courts in the coming years as more and more judgments from unfamiliar legal jurisdictions find their way here.

“There’s no doubt that with increased trade and globalization, these sorts of cross-border issues are going to become more frequent,” he says, adding that multinational corporations can’t, on the face of it, shield assets in one country from court rulings in another.

“Having a company split up into subsidiaries around the world sometimes makes awards against them a little harder to enforce,” he says.

“But it by no means protects you against enforcement of a foreign judgment.”

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