"[T]he day will soon come when Canadian courts will have to address fairness issues arising out of judgments rendered by courts with systems of justice substantially different from that prevailing in the local forum." (1)
This article analyzes Canadian litigation seeking recognition of an $18.2 billion judgment entered against Chevron in Ecuador in 2011 in what has been labeled as the world's largest environmental lawsuit. The article examines Chevron's involvement in Ecuador through its predecessor in interest (Texaco) and the history of proceedings in Ecuador and the United States. The article then discusses the recognition of foreign judgments in Canada with particular emphasis upon the natural justice defense. The article concludes this defense presents significant issues affecting the reputation and credibility of the Canadian judiciary and its liberal approach with respect to recognition of foreign judgments.
Table of Contents Abstract I. Introduction II. Texaco in Ecuador: A Brief History Hydrocarbon Exploration and Texaco's Investment III. Texaco in Ecuador: The Resulting Litigation Litigation in the United States Litigation in Ecuador: The Trial and Procedural Issues Litigation in Ecuador: The Judgment and Appeal Recognition Proceeding in Canada Related Proceedings in the United States Related Proceeding before the Permanent Court of Arbitration IV. The Recognition of Foreign Judgments in Canada Introduction Morguard Investments, Ltd. v. De Savoye Beals v. Saldanha Natural Justice and Foreign Judgments Post-Beals V. Natural Justice and Yaiguaje v. Chevron Corporation Introduction Procedural Irregularities The Ecuadorian Judicial System Judicial Bias VI. Conclusion I. Introduction
On May 30, 2012, forty-seven residents of the Sucumbios province of Ecuador (Plaintiffs) filed a statement of claim against the Chevron Corporation, Chevron Canada Limited and Chevron Canada Finance Limited in the Ontario Superior Court of Justice. (2) The Statement of Claim sought recognition and enforcement of an $18.25 billion judgment entered against Chevron by the Provincial Court of Justice of Nueva Loja in the Sucumbios Province of Ecuador on February 14, 2011 and affirmed by the Appellate Division of the Provincial Court on January 3, 2012. (3)
Filed in Ecuador in May 2003, the Plaintiffs' claims arose from past and ongoing environmental contamination resulting from oil and gas operations conducted by a consortium in which Texaco, Inc. (Texaco) participated from 1964 through 1992. (4) The Ecuadorian proceedings have been complicated by allegations of fraud, bribery, corruption, violations of due process, and procedural irregularities (5) and related proceedings in the United States (6) and before the Permanent Court of Arbitration. (7)
The value of the judgment is entirely dependent on its recognition outside of Ecuador as Chevron maintains no assets in the country. Rather than proceed with recognition proceedings in the United States, the Plaintiffs initiated the first proceeding seeking recognition in Canada. Although not Chevron's domicile or the location of its most significant assets, the selection of Canada is nevertheless logical. Developments in Canadian case law in the past ten years have led commentators to characterize Canada as "one of the most hospitable jurisdictions in the world for the recognition and enforcement of judgments from foreign jurisdictions." (8) This hospitality is consistent with the Plaintiffs' strategy of seeking enforcement in "jurisdictions that offer the path of least resistance to enforcement" and have "the most favorable law and practical circumstances." (9)
This article examines the status of the Ecuadorian judgment pursuant to Canadian law relating to natural justice. The article initially examines the history of Texaco's investment in Ecuador's petroleum industry, the environmental impacts allegedly resulting from this investment, and the history of proceedings in the United States and Ecuador and before the Permanent Court of Arbitration. The article then examines the recognition of foreign judgments in Canada with particular emphasis upon the Canadian Supreme Court's opinions in Morguard Investments Ltd. v. DeSavoye (10) and Beals v. Saldanha (11) and subsequent provincial opinions. The article then examines natural justice grounds for non-recognition of foreign judgments in Canada and their potential application in this case. Although Chevron may be able to establish a defense based upon natural justice, its burden is substantial and presents significant risks for the company. Additionally, the recognition action presents significant issues potentially affecting the reputation and credibility of the Canadian judiciary.
Texaco in Ecuador: A Brief History
Hydrocarbon Exploration and Texaco's Investment
Although a comprehensive history of hydrocarbon exploration in Ecuador and Texaco's operations are beyond the scope of this article, a review of the factual background is necessary in order to place the issues regarding recognition of the Judgment in their proper context. Texaco and Gulf Oil Corporation (Gulf) were invited by the Ecuadorian government to conduct exploratory activities in the Oriente region in March 1964. (12) Texaco and Gulf formed a consortium (Consortium) through their Ecuadorian subsidiaries to conduct this exploration with Texaco serving as the operator. (13) The Consortium discovered oil in commercial quantities in 1967 and began export operations in 1972.
The Consortium's operations were modified in September 1971 as a result of a new regulatory regime governing concession areas granted to foreign oil companies. These regulations limited the size of concession areas, increased the royalties payable to the government, and decreed that "[t]he deposits of hydrocarbons and accompanying substances, in whatever physical state, located in the national territory ... belong to the inalienable ... patrimony of the State." (14) Texaco and Gulf were required to relinquish a portion of the concession area to the state-owned oil company Compania Estatal Petrolera Ecuatoriana (CEPE) in June 1972. (15) A new concession agreement was executed in August 1973 which granted CEPE participation rights in the Consortium commencing in 1977 which date was subsequently advanced to June 1974. (16) Texaco and Gulf executed an agreement granting CEPE a 25% interest in the Consortium in June 1974. (17) Gulf transferred its remaining 37.5% interest to CEPE in December 1976 in exchange for $82.1 million. (18)
From 1977 to 1990, the Consortium operated with Texaco and CEPE/PetroEcuador as the participants and Texaco as the operator. (19) On July 1, 1990, Petroamazonas, a subsidiary of PetroEcuador, replaced Texaco as the operator. (20) Ecuador did not renew the concession agreement upon its expiration in June 1992. (21) At the time of the termination of Texaco's interest, the Consortium had extracted more than 1.4 billion barrels of oil from the concession area. (22) Ninety percent of the revenues generated by the Consortium during its existence (approximately $23 billion) were paid to the Ecuadorian government through revenues, royalties, taxes and subsidies. (23) Texaco received approximately $500 million as a result of its participation in the Consortium. (24)
The Consortium's impact on the environment has been the source of considerable dispute. (25) These impacts were addressed in 1990 when PetroEcuador and Texaco retained two consulting firms to conduct environmental audits. (26) The audits estimated the total cost of environmental remediation to be between $8 million and $13 million. (27) In May 1995, Ecuador (by and through its Ministry of Energy and Mines), PetroEcuador and Texaco entered into an agreement wherein Texaco agreed to perform environmental remediation work on designated sites in return for a release from further obligations relating to the impact of the Consortium's activities. (28) Texaco obtained approval of remediation plans for each designated site from Ecuador and PetroEcuador. (29) Texaco spent $40 million in these efforts from October 1995 through September 1998. (30) The Ecuadorian government issued numerous actas documenting its acceptance of Texaco's remediation efforts during these three years. (31) On September 30, 1998, the Ecuadorian government and PetroEcuador signed the "Act of Final Liberation of Claims and Equipment Delivery" in which they recognized that Texaco had fulfilled its obligations pursuant to the 1995 agreement and released it from current and future liability. (32)
Texaco in Ecuador: The Resulting Litigation
Litigation in the United States
In November 1993, seventy-four Ecuadorians filed a class action lawsuit against Texaco in the U.S. District Court for the Southern District of New York. (33) The plaintiffs purported to represent more than 30,000 persons residing in the Oriente region who had suffered damages from hydrocarbon contamination as a result of the Consortium's operations. (34) The complaint was dismissed on the basis of forum non conveniens in 2001, which dismissal was upheld by the U.S. Court of Appeals for the Second Circuit. (35) The dismissal was contingent upon Texaco's agreement to being sued in Ecuador on these or similar claims, accept service of process in Ecuador, and waive any statute of limitations defense for claims expiring between the date of the filing of the U.S. litigation and one year after its dismissal. (36)
Litigation in Ecuador: The Trial and Procedural Issues
The Plaintiffs initiated litigation against Chevron in Ecuador in May 2003. The Plaintiffs based their lawsuit upon provisions of the Ecuadorian Constitution (37) and the Environmental Management Law of 1999 that recognized a "popular action to denounce the breaching of environmental laws ... and [obtain] damages ... for the deterioration of ... health [and] damage to the environment." (38) The Plaintiffs requested...