The Saga Continues: Ontario Court of Appeal Sets Aside Security for Costs Order Against Ecuadorian Villagers in Chevron Case on the Basis of Unjustness

6 November 2017

By Morgan Westgate

In our October 16, 2017 blog post, we summarized a decision by Justice Epstein of the Ontario Court of Appeal (in chambers), in Yaiguaje v. Chevron Corporation, wherein the Court of Appeal ordered a group of Ecuadorian villagers to pay nearly $1 million into court as security for costs in their historical litigation against Chevron.

Shortly after the security for costs decision was released, the villagers brought a motion under the Courts of Justice Act to review and vary the order. Among other things, the villagers argued that the motion judge erred in principle in determining the justness of the order sought. The Court of Appeal agreed with the villagers, and set aside the order. The Court of Appeal held that the “unique factual circumstances” of the case meant that the interests of justice required no order for security for costs to be made.

The Justness of an Order in Determining Security for Costs on Appeal: There is no entitlement as of right to an order for security for costs in an appeal setting. In determining whether an order for security for costs should be made, the main consideration is the justness of the order sought. Security for costs are to be granted only where the justness of the case demands it. Courts must be vigilant in ensuring that the order is truly protective in nature and not being used as a litigation tactic to prevent the merits from being heard.

Even where the strict requirements of the security for costs test are met, a motion judge has discretion to refuse to make the order. As such, the Court of Appeal set out two stages to the determination of whether to grant security for costs on appeal:

In deciding motions for security for costs judges are obliged to first consider the specific provisions of the Rules governing those motions and then effectively to take a step back and consider the justness of the order sought in all the circumstances of the case, with the interests of justice at the forefront. While the motion judge concluded that an order for security for costs would be just, with respect, she failed to undertake the second part of that analysis. The failure to consider all the circumstances of the case and conduct a holistic analysis of the critical overarching principle on the motion before her constitutes an error in principle […]

Each case must be considered on its own facts. Rather than adhering to a strict list of factors when determining the justness of a security for costs order, the Court of Appeal directed that courts are to engage in a more holistic approach that examines all the circumstances of the case and is guided by the “overriding interests of justice” to determine whether it is just that an order is made.

The Unjustness of the Security for Costs Order in Yaiguaje: The motion judge’s decision to order security for costs had significant consequences for the villagers, including raising access to justice concerns. In all likelihood, they would have been unable to post the security, and therefore prevented from proceeding on the merits of the case. Of the “unique factual circumstances”, the Court of Appeal found that the following facts were significant and led to its decision to set aside the security for costs order against the villagers:

1. The Chevron case is public interest litigation. The villagers have no direct economic interest in the outcome since any funds collected on the judgment will be paid into a trust or used for environmental rehabilitation or health care purposes.

2. Although there was no direct evidence of impecuniosity, it was “highly impractical” to obtain this evidence from the representative plaintiffs, let alone the 30,000 people who would indirectly benefit from the enforcement of the judgment. The Court found that “there can be no doubt that the environmental devastation to the appellants’ lands has severely hampered their ability to earn a livelihood.”

3. The Chevron respondents each make billions of dollars in annual gross revenues. The Court did not believe that either entity had a genuine concern or need for protection in respect of costs awards in this litigation, seeing as any such award would amount to a “miniscule fraction” of their annual revenues.

4. While the question of whether the villagers have third party litigation funding remained unanswered, the Court held that there is no bright line rule that a litigant must prove that such funding is unavailable to successfully avoid a security for costs order. Further, the villagers’ counsel had advised that it was operating on contingency, and there was evidence that Chevron had sued some of the villagers’ former third party funders, and the funders had withdrawn their financial support.

5. The case was, in fact, not devoid of merit, as Chevron Canada’s shares may be exigible under the Execution Act.

6. Although the villagers’ legal arguments are “innovative and untested, especially with regard to piercing the corporate veil”, this did not necessarily mean that they will not be successful. The Court of Appeal found that it was “hardly just that potential advancements in or restatements of the law be thwarted for procedural or tactical reasons.”

7. The history of the litigation made it obvious that Chevron was prepared to use all available means to resist enforcement of the Ecuadorian judgment, which in the Court’s view rendered its security for costs motion nothing more than a tactical move to try to terminate the litigation.

The Takeaway: Although it remains to be seen whether the villagers will be successful in recovering judgment from Chevron’s Canadian entity, this recent decision of the Court of Appeal at least now makes it possible for the appeal to be heard on its merits. This decision also demonstrates the value the Court places on protecting the development of the common law, by allowing novel arguments that may indeed lead to precedential changes to proceed through the system, and preventing them from being extinguished for no reason other than lack of financial resources. 

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