The Court of Appeal has set aside an order that could have ended a group of Ecuadorian plaintiffs’ attempts to enforce a US$9.5-million judgment against Chevron in Ontario. In October, a judge ordered the plaintiffs to post more than $900,000 as security for costs of the proceeding, as they had failed to show their claim had a good chance of success.
In October, a judge ordered the plaintiffs to post more than $900,000 as security for costs of the proceeding, as they had failed to show their claim had a good chance of success.
But a panel of three Court of Appeal judges reversed that decision, finding that the order was unjust because of the unique circumstances of the case.
“The history of this litigation, which has been ongoing for almost 25 years, makes clear that Chevron Corporation has and, it may be anticipated, will employ all available means to resist enforcement of the Ecuadorian judgment,” the decision said in Yaiguaje v. Chevron.
“This, of course, is within its rights. However, this reality makes it difficult to accept that the motion for security for costs was anything more than a measure intended to bring an end to the litigation.”
This most recent decision lifts a barrier that might have spelled the end of the long legal saga that has made its way up to the Supreme Court of Canada and back.
The 47 plaintiffs, who represent 30,000 villagers, have been seeking to enforce an Ecuadorian judgment that concerned environmental damage in their region for which they claimed Texaco — which merged with Chevron — was responsible. As Chevron has no assets in Ecuador, the plaintiffs turned to Chevron Canada, the company’s seventh-level subsidiary, for remedy.
Chevron has argued that the Ecuadorian judgment was a product of fraud.
In a decision earlier this year, an Ontario Superior Court judge dismissed the claim in a summary judgment motion.
The recent Court of Appeal decision means an appeal of the lower court’s decision can now go ahead. The decision has given lawyers pause over concerns that it may have set a lower bar for successfully resisting security for costs motions, which could in turn open the door to more unmeritorious litigation.
Jack Coop, a partner with Fogler Rubinoff LLP, who was not involved in the case, says that while the court had the best intentions to do what is just, it may have inadvertently changed the factors or principles for such motions.
“As someone who litigates a lot of environmental civil actions, we do want to be assured that cost rules are being applied fairly and equally to all groups, including even meritorious environmental groups,” he says.
In the decision, the Court of Appeal found that the case is “public interest litigation” and that all the circumstances of the individual case should be considered.
While the plaintiffs had not proven they were impecunious, the court determined it was obvious that the Chevron companies would not require protection for costs awards that “could amount to a minuscule fraction of their annual revenues.”
The decision also said that there should be no “bright line rule” that a litigant must prove they do not have access to third-party funding in order to successfully resist such a motion.
John Polyzogopoulos, a partner with Blaney McMurtry LLP, says the decision tells judges they should not be afraid to depart from the normal application of the rules relating to security for costs in cases that fall under “public interest litigation,” affect vulnerable people or in which the defendant is wealthy and does not need protection for costs.
“In addition, novel or difficult arguments should not be precluded from being heard by security for costs award where it is in the public interest for those arguments to be considered and ruled upon,” says Polyzogopoulos, who was not involved in the case.
The Court of Appeal also said that, at this stage, it is not possible to say whether the case is devoid of merit and the fact that the plaintiffs’ legal arguments may be “innovative and untested” does not preclude them from being potentially successful.
It added that it would not be just to thwart a potential advancement in the law because of procedural or tactical reasons.
Andrew Kalamut, a lawyer with McCarthy Tétrault LLP, says the court effectively opened the door for the appeal by saying it is possible common law and the test with respect to piercing the corporate veil may change.
He says the decision could result in fewer security for costs motions being awarded.
“If there are fewer security for costs motions, that means that actions may go on longer than they potentially should,” says Kalamut, who was not involved in the case.
Morgan Crinklaw, a spokesman for Chevron Corporation, says the recent Court of Appeal decision had no bearing on the legitimacy of the enforceability of the Ecuadorian judgment.
“The Ecuadorian judgment, which the plaintiffs are seeking to enforce in Canada, has been found by the U.S. courts to be the product of fraud and unenforceable in the United States,” he said in an emailed statement.
“The plaintiffs are trying to use the Canadian court system to legitimize the fraudulent Ecuadorian judgment.”
In Argentina, a court recently dismissed the plaintiffs’ attempts to enforce the judgment there.
A lawyer representing Chevron Canada did not respond to requests for comment by deadline.
Alan Lenczner, one of the lawyers representing the Ecuadorian plaintiffs, declined to comment as the matter is proceeding.