Ontario Court of Appeal Orders Ecuadorian Plaintiffs to Post $1 Million as Security for Chevron’s Costs

16 October 2017

By Khrystina McMillan
The Ontario Court of Appeal recently ordered a group of Ecuadorian villagers to pay nearly $1 million into court as security for costs in their litigation against the oil giant Chevron Corporation (“Chevron”), in a dispute that has spanned more than fifty years and caused significant harm to the Ecuadorian community. The Court’s decision in Yaiguaje v. Chevron Corporation has steepened the incline of the villagers’ already uphill battle in enforcing their rights under a judgment from the Ecuadorian courts.

Historical and Procedural Context: The litigation stems from environmental damages caused by the oil extraction process used by Texaco Inc. (now Chevron) over a thirty year period (beginning in 1964). The process included dumping billions of liters of toxic oil-drilling waters into hundreds of open-air pits. Chevron’s conduct has had devastating and lasting consequences, including extensive pollution of the rainforests and rivers in Ecuador, and long-term adverse health effects on those who live in the Oriente region (approximately 30,000 people). The community now sees more than a 100% increase in childhood cancers and miscarriages as compared to the rest of the country.

In 1993, the Ecuadorian villagers filed lawsuits against Chevron in the U.S. These were ultimately dismissed in 2002 when the court found that the U.S. was forum non conveniens, on the basis that the case should be before the Ecuadorian courts. In 2003, the litigation continued as a class action in Ecuador, and nearly ten years of complex legal proceedings ensued, including allegations of bias and corruption in the Ecuadorian judiciary. In August 2012, Chevron was finally ordered by the Ecuadorian Supreme Court to pay US$9.51 billion in damages.

In response to the judgment, Chevron brought actions in the U.S. alleging that the plaintiffs’ lawyers and representatives conspired to extort money from Chevron through the Ecuadorian legal proceedings. In March 2014, the U.S. Federal Court found that the lawyers for the villagers had relied on fabricated evidence, made bribes and ghost-wrote court documents. Since the U.S. court found that the Ecuadorian judgment was granted pursuant to a corrupt and fraudulent process, the plaintiffs were prevented from collecting the $9.51 billion damages award in the United States. This decision was upheld on appeal.

In May 2012, the villagers launched an action in Canada against both Chevron and its Canadian subsidiary, Chevron Canada Capital Company (“Chevron Canada”), in an attempt to enforce the Ecuadorian judgment. The Chevron defendants contested their entitlement to do so. In September 2015, the Supreme Court of Canada affirmed that Ontario had jurisdiction over the action, and enforcement of the order. Both Chevron and Chevron Canada then brought summary judgment motions seeking dismissal of the claim against Chevron Canada on the basis that it was a separate corporate entity. The Ecuadorian plaintiffs brought a cross-motion for summary judgment seeking, among other things, a declaration that Chevron Canada's assets were exigible to satisfy Chevron’s judgment debt. They lost their cross-motion and the court granted summary judgment in favour of the Chevron defendants. The villagers appealed this decision.

The Current (Canadian) Proceedings: The Chevron defendants brought a motion for security for costs of the appeal, pursuant to Rule 56.01 of the Ontario Rules of Civil Procedure. The rule is in part designed to protect Ontario defendants from frivolous lawsuits by foreign plaintiffs who have no domestic assets or money to cover the costs of litigation should they lose.

The villagers argued that they met the test for impecuniosity, and should therefore not be required to post security for costs. They also advanced a novel argument, which counsel argued should become a part of the modern law on security for costs: the motion should be approached contextually and therefore differently because i) it was part of an action for recognition and enforcement of a foreign judgment, and ii) the original Ecuadorian proceeding amounted to a class action. Counsel argued that security for costs should never be ordered against an appellant in such circumstances. The Chevron defendants argued that there was no evidence of impecuniosity and that the plaintiffs could not establish a good chance of success on the pending appeal.

The Court of Appeal Decision: Writing for the Court, Madam Justice Epstein agreed with Chevron and Chevron Canada, and ordered that security for costs be posted by the plaintiffs in the amount of $321,616.33 in respect of Chevron and $541,335.14 in respect of Chevron Canada.

Epstein J. found that there was no substantive evidence that the plaintiffs were impecunious, the appeal did not have a good chance of success, and they were unlikely to pierce the corporate veil to get at the assets of Chevron Canada to satisfy the Ecuadorian judgment against Chevron.

On the plaintiffs’ novel argument, the Court found that security for costs should be considered under the “usual” analysis. It rejected the submission that the action was analogous to a class proceeding in Ontario, and held that, even it if were, this would not prevent security for costs being ordered where justice demanded it. Justice Epstein saw no basis on which to find that “an otherwise meritorious motion for security for costs should be denied because the action to which it relates concerns recognition and enforcement of a foreign judgment.” Although the Court agreed with the Supreme Court’s September 2015 ruling that Canadian courts should take a generous approach in finding jurisdiction to allow litigants holding foreign judgments to bring enforcement actions in Canada, it did not take this to mean that such actions should be treated any differently from cases involving domestic litigants.

The Takeaway: This decision not only illustrates the judiciary’s steadfast protection of the separate legal personality of corporate entities in Canada, but it also (and significantly) demonstrates a strict adherence to the long-tested rules regarding security for costs in Ontario proceedings.

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