Sep 26, 2015

Chevron v Yaiguaje: Small Step for the Plaintiffs, (Relatively) Small Step for Mankind

Chevron Corp. v. Yaiguaje, 2015 SCC 42 (CanLII)

It is tempting to believe, or at least hope, that the recent Supreme Court of Canada (“SCC”) decision in Chevron Corp v Yaiguaje, 2015 SCC 42 [Chevron] is one of the last acts of the Chevron saga, and a leap forward for environmentalism. Alas, the decision is more like the prologue to yet another season of the show, and without further changes, the leap may be more like a gentle skip. My colleague has discussed and summarized the decision itself, here. Now, I invite you to look ahead to what’s coming for Chevron and the future of global corporations’ liability for worldwide conduct.

Chevron lost the battle – but what about the war?

The Ecuadorian plaintiffs won a small victory. They can now seek recognition and enforcement of the judgment against Chevron Canada in Ontario, even though Ontario had nothing to do with the dispute, and even though the actual judgment debtor (Chevron the parent corporation) isn’t Canadian, either. The Court’s reasoning here is sound.

Chevron may yet win the war. Throughout the decision, Justice Gascon more than once made it very clear that this isn’t the end of the road for Yaiguaje et al. The conclusion of the judgment is a remarkable exercise in serving up the same point of the uncertainty surrounding the plaintiffs’ success under different relishes:

  • “the establishment of jurisdiction does not mean that the plaintiffs will necessarily succeed,”
  • “[this decision] does nothing more than to give the plaintiffs an opportunity to seek recognition and enforcement,”
  • “Chevron Canada, like Chevron, can use the available procedural tools to try to dispose of the plaintiffs’ allegations,”
  • “My conclusion… should not be understood to prejudice further arguments” (Chevron, paras 94-95).

This may be the result of an abundance of judicial caution, or this may be a subtle acknowledgement from the bench that the road ahead is as potholed as the streets of Toronto.

Future battlefields: the lay of the land

So which battles will be decisive? Given the illustriously long global history of this case, the Chevron decision was a prelude to two much meatier issues, both of which, I anticipate, will at some point reach the SCC. The judgment creditors have two more hoops to jump through before getting paid: connection to the judgment debtor and fraud. Typically, foreign judgments procured by fraud are not recognized and enforced, and liability for judgment debts is not transferable from one legal entity to another. Whether the assets of a subsidiary can be used to pay off the parent corporation’s judgment debt is not clear.

This means that our Courts will have to unravel Chevron’s corporate structure to determine whether a judgment against Chevron can be enforced against Chevron Canada, which is a “seventh-level indirect subsidiary” of its parent (Chevron, para 9). This won’t be an easy task: I, for one, find the ownership mechanisms and capital flows in a seven-link, indirect chain difficult to conceptualize. Who owns how much of whom, and how much does it matter? Theoretically, even seven corporate veils can be lifted if justice calls, although there would need to be one hell of a reason to do it.

This also means that there will probably be a discussion of fraud fit for a legally inclined tabloid. I suggest Reversal of Fortune, published in the New Yorker, for some light reading on the matter. If pressed for time, below are my highlights.

Just a bunch of smoke and mirrors and bullshit.”

The Chevron case was fought by both sides in (many) courts of law and in the court of opinion. The claim was originally filed in New York in 1993, then transferred to Ecuador because New York was found not to have jurisdiction. With battle raging in Ecuador, Chevron also filed suit against Ecuador in 2009 in an international arbitration tribunal, alleging that Ecuador violated a bilateral trade agreement with the States, breached its contract with Texaco (Chevron’s predecessor, which Chevron acquired), caused environmental damage, and colluded with the plaintiffs to improperly influence the Ecuadorian court. The decision of the tribunal, upheld by the Dutch Supreme Court in 2014, was to require Ecuador to pay Chevron $106 million for breach of contract. Interestingly, this $106 million, payable to Chevron is now Chevron’s only asset in Ecuador, liable to be seized by the plaintiffs.

There was even more activity in the court of public opinion. With both sides taking to the media to proclaim their righteous indignation at the other, in 2005, the plaintiffs’ lawyer, Steven Donziger, invited an independent filmmaker to make a film about oil exploration in the Ecuadorian region and the impact it left behind. The film, titled “Crude,” was released in 2009 and was received both by general audiences and Chevron’s lawyers. The latter, in the best spirit of childhood “spot the differences” puzzles, watched the Sundance festival premiere, and the humble DVD release. They noticed a discrepancy in one scene: on the DVD, a physician, who was present during a consultation between some of the plaintiffs and their lawyers, was edited out, presumably at the request of the plaintiffs. A legal clash ensued, and Chevron got access to 600 hours of the filmmakers’ footage on the suspicion of some impropriety.

Here are some of Donziger’s videotaped comments that didn’t make it to the big screen:

  • About judges: “’they’re all corrupt… it’s their birthright to be corrupt.’”
  • About the legal system: “’This is Ecuador, OK? …At the end of the day, if there’s a thousand people around the courthouse you’re going to get what you want.’”
  • About scientific evidence: “’just a bunch of smoke and mirrors and bullshit.’”
  • On the suggestion that the judge thinks he’ll be killed if he doesn’t rule for the plaintiffs: “’he might not be. But he thinks he will. Which is just as good.’”

Here was Chevron asserting that the judgment couldn’t be recognized and enforced due to rampant corruption, and Donziger apparently agreed.

Fast forward through more litigation. On the basis of the “Crude” footage, Chevron got access to Donziger’s file and personal computers. More allegations poured forth, including that Donziger’s team had ghostwritten the report of an independent environmental expert appointed by the court. Chevron filed suit against Donziger and several associates for racketeering on the basis of their conduct of the case. Then, in 2013, a former Ecuadorian judge, Alberto Guerra, testified that he was bribed to ghostwrite favourable opinions, and that the judge who actually heard the case, Nicolas Zambrano, was promised $500,000 from the judgment proceeds to rule in favour of the plaintiffs. Judge Zambrano himself had previously denied feeling pressured in any way by the case’s significance. In his testimony, Donziger, for his part, has conceded that he “‘did make errors along the way,'” but denied any “‘criminal or fraudulent intent,'” and termed Chevron’s action in the case “‘the most well-funded corporate retaliation campaign in the history of human rights litigation.'”

In March 2014, US Judge Kaplan declared the judgment unenforceable in the States on the grounds of fraud. The decision was also more broadly critical of Ecuador’s judicial system, which is alleged to be under influence of the country’s president, Rafael Correa, who is said to have “‘practically intervened'” in the Chevron case.

Donziger, in a letter to the Financial Post, raised a number of his concerns with the Kaplan judgment, including that the judge:

“repeatedly disparaged the villagers, failed to disclose he had investments in Chevron, denied the defendants a jury, excluded the scientific evidence that proved the case against Chevron, and ruled that Ecuador’s entire judicial system was flawed based on the testimony of an avowed political opponent of the country’s president.”

How the same issues will be perceived by a Canadian court remains to be seen. Alan Lenczner of Lenczner Slaght, acting for the plaintiffs in their Canadian efforts, recently commented: “the evidence [of bribery] is very suspect. Kaplan was very careful to say his judgment doesn’t reach beyond the American borders. It’s going to have to be litigated here.” Is there more grime to be unearthed in this case? Will anything else come out in round two, held in Canadian courtrooms – maybe testimony about a bribe to testify about a bribe? The case has been full of soap opera-worthy twists, after all. The road will be potholed, indeed, and I look forward to a wild ride.

The future: calmly considered.

Now let’s come down to earth from the emotional highs which Chevron’s case elicits on both sides. Let’s give it a cool, dispassionate look and see how it impacts the liability of global business for environmental damage going forward. Peter Foster of the Financial Post questions whether it would invite “messy multi-jurisdictional assaults on corporate subsidiaries, undermin[ing] the rule of law, international trade and invesment, [and] clogging up the Canadian legal system.”

Whether or not one excepts Foster’s position, he’s right about one thing – the decision will surely invite more litigation. Chevron is a step towards eroding companies’ jurisdictional protection – there is now a risk that a non-Canadian company will have to serve up its Canadian assets to pay for conduct outside of Canada, and judgment creditors everywhere (environmental or not) are bound to try to take advantage of the opportunity. This isn’t trivial. If more jurisdictions were to follow this approach, then all corporate assets would be vulnerable, no matter where they are – a powerful deterrent to misconduct, environmental or otherwise.

The ultimate impact on environmentalism, however, is, in my opinion, nonetheless not as significant as it might appear: theoretical vulnerability of assets means nothing if the assets are isolated by a complex series of corporate veils that cannot be pierced, or if the foreign judgments can’t be enforced because they are issued by corrupt courts.

The merit of piercing corporate veils in such cases is beyond the scope of this post: limited liability of shareholders is a foundation of our economic system, and serious consideration ought to be given to the conditions on which the veil can be pierced, and how this would impact other classes of economic relations. The merit of maintaining the policy of not enforcing judgments amid allegations of corruption, on the other hand, lends itself well to a brief examination.

If a meritorious judgment is obtained by corrupt means, it can be difficult to focus on the shortcomings in procedural justice, because substantive justice is served. If Acme Crude Co severely polluted the region of Acme Rainforest, then it can be tempting to stop caring about whether a judgment against it was meritorious or fraudulently obtained… Tempting, but dangerous.

The antidote I offer to such reasoning is to say that the law ought to apply equally to all, and offer the following hypothetical of more sympathetic facts: imagine that I live in Acme Rainforest. Acme Crude Co pollutes the region. My family and I suffer terrible consequences. I sue Acme, but Acme buys the judge and I lose. On top of that, there is a hefty cost order against me for bringing “vexatious” litigation. The only thing I own in this world is a $100,000 property in Ontario, which I intend to sell upon retirement. Should Acme be able to seize my Canadian property, even though the judgment was bought? Now that Acme is the judgment creditor, it’s much harder to say, “yes.” The problem is that enforcing a corrupt judgment once is precedent for doing it repeatedly.

On the other hand, a court’s refusal to uphold a foreign judgment obtained by corruption is a handy three-step tool for avoiding liability for actions abroad:

  • Step One. Successfully argue that your own uncorrupted jurisdiction, where your assets are located, is the wrong forum, because it has nothing to do with the location of damages.
  • Step Two. Obligingly go through a corrupt trial, all the while carefully gathering evidence of the corruption. Where a judicial system is weak, some will almost always be available.
  • Step Three. When it comes time to enforce the judgment back home, say that corruption makes this unfair and impossible, in a nice application of circularity and attrition tactics.

Repeat the steps as needed.

Maybe one day.

What are we left with? Ensuring that companies internalize the externalities of their operations is a socially and economically sound policy, but how do we get there? To my mind, short of global voluntary compliance, there are two options.

The first is the creation of some form of international tribunal, free of corruption and with the power to issue internationally binding and enforceable decisions. This would be a lovely idea, except I don’t see the world’s leaders all amicably agreeing that such a thing should exist, and if it should, how it should be run.

The second is dismantling jurisdictional protections and eradicating corruption, especially in countries which are hardest hit by environmental contamination, and which are also, incidentally, often the ones with poorly established governance and judicial systems.

I’m not optimistic that either of these options is achievable, at least in my lifetime, or that of my children and grandchildren. Maybe one day.

In the meantime, let’s stay tuned for the decision in Chevron II. The way the case has unfolded to date, there will surely be a “II.” Maybe even a “III” and a “IV.”