Ontario Court of Appeal Reverses Stay of Proceeding to Enforce Giant Ecuadorian Judgment

A unanimous Court of Appeal recently allowed the plaintiffs’ appeal of the ruling of Brown J., which had stayed their action for recognition and enforcement of their judgment from Equador against Chevron Corp. relating to environmental damage that harmed villagers there: Yaiguaje et al v. Chevron et al.   

After the plaintiffs had brought their action, the defendants – Chevron Corporation and its two Canadian subsidiaries, Chevron Canada Limited and Chevron Canada Finance Limited -- brought a motion to stay the action, specifically and only on jurisdictional grounds.   The defendants had plainly and emphatically stated they were not attorning to the jurisdiction. 

The motion court held that it has jurisdiction over the case, but nonetheless stayed the action on its own motion, exercising its discretion under s. 106 of the Courts of Justice Act.  The motion court cited the fact that Chevron Corp. has no assets in Ontario and the view that there is no reasonable prospect that the corporate veil will be pierced in respect of Chevron’s Canadian subsidiaries, and concluded that allowing the action to proceed would be “a waste of judicial resources”. 

The appeal court ruled the case did not meet the test for such a stay, namely that continuance of the action would be oppressive or vexatious or an abuse of process, and the stay would not cause an injustice to the plaintiff.     Without commenting on the merits of the plaintiffs’ action the court said the plaintiffs ought to be allowed to present their case at trial.     The court also noted the motion court had not solicited submissions from either side on the discretionary stay.

 The Court also dismissed Chevron’s cross appeal. Chevron had argued that the Ontario court could not take jurisdiction over this judgment enforcement action unless there was a real and substantial connection between the defendant and Ontario, as well as between the defendant and the jurisdiction where the original judgment was issued.  The court pointed out that the recent Supreme Court of Canada decision in Beals v. Saldanha made clear that such a connection to the jurisdiction where the original judgment was issued is necessary, but not also such a connection to the jurisdiction where enforcement is sought, in this case, Ontario.  The Court also discussed the recent Club Resorts v Van Breda decision of the Supreme Court of Canada.

The appellate ruling raises a number of fascinating issues I hope to explore in future posts.  In the meanwhile, have a happy holiday!

Validity of Exclusive Forum Selection Clauses in Corporate Bylaws

            The Delaware Court of Chancery has recently upheld the statutory and contractual validity of corporate bylaws that designate one court, usually the Delaware court, as the exclusive forum for disputes relating to the corporation’s internal affairs.  These provisions are aimed at reducing multi-forum stockholder and derivative litigation, and gaining the benefit of the perceived pro-management perspective of the Delaware courts.     Such provisions, adopted by over 250 public companies in the United States over the past few years, have been controversial.  There have been legal challenges in different states, criticism from proxy advisory firms and widespread shareholder opposition.   Most of those over 250 firms subsequently repealed their provisions, but two did not: Chevron and Fed Ex. 

In Boilermakers Local 154 Retirement Fund v. Chevron Corp.  C.A. No. 7220-CS and in Iclub v FedEx Corp. C.A. No. 7238-CS, the Court of Chancery held that such clauses are statutorily and contractually valid.  The court said that to find them invalid, statutorily and contractually, the plaintiff would have had to show that the bylaws cannot operate in compliance with the statute under any circumstances; it would not be enough for the plaintiff to show a fact-specific instance where the bylaw is at odds with the statute.  However, the court also said this finding of statutory and contractual validity does not bar legal challenges from persons who are affected by the actual operation of the clause, if they have an unreasonable or unlawful effect in that situation. As well, the clauses remain subject to challenge as inconsistent with a board’s fiduciary duties.   

Such clauses, uncommon in Canada,  have not been tested in Canadian courts so far as this author is aware.

 

Finding a Real and Substantial Connection When a "Snow-bird" Common Law Couple Splits

The Ontario Superior Court of Justice recently tackled the issue of jurisdiction, specifically the issue of what constitutes a “real and substantial connection”, in a family case involving “snow birds”, i.e. a common law couple who in their ten years together had lived in Florida but regularly spent substantial time also in Ontario, after the common law wife moved to Ontario and sued the common law husband claiming support and a constructive trust over certain Ontario properties.   

Canadian courts may assume jurisdiction over defendants if a real and substantial connection exists between the forum and the transactions in issue, the subject matter of the action or the parties.    (There are two other alternative bases for jurisdiction:  that the defendant resides in forum, or that the defendant agrees that the court may take jurisdiction or attorns to the court’s jurisdiction.)  

The Supreme Court of Canada held in Club Resorts v Van Breda  2012 SCC 17 [2012] 1 S.C.R. 572  that a real and substantial connection exists only if one or more “presumptive connecting factors” (that is, “objective factors that connect the legal situation or the subject matter of the litigation with the forum”) can be shown.  The court identified some “presumptive connecting factors”, but left the door open to others to be added later.   In family cases the presumptive connecting factors are necessarily different from those in tort cases such as Van Breda, and include the location of the parties’ “real home” or ordinary residence: see the Ontario Court of Appeal decision is Wang v. Lin 2013 ONCA 33 

In Knowlesv. Lindstrom 2013 ONSC 2818 the Ontario Superior Court of Justice grappled with applying this presumptive connecting factor in a case where, out of the 122 months that the parties were a couple, the common law husband, an American, spent only about thirty in Ontario. However, in the latter five years of their relationship he spent almost half his time (25 out of 62 months) in Ontario.  As soon as the relationship ended, the applicant returned to Ontario (she was from Ontario originally) and remained there, severing her ties to Florida.  The applicant sued for spousal support and claimed a constructive trust in respect of certain Ontario properties.  The respondent moved to stay the proceeding, on the ground that they had been residents of Florida, not Ontario, or in the alternative for a ruling that Ontario was forum non conveniens.   In the end after a lengthy discussion, the court found it had jurisdiction because the parties had two real homes: Ontario as well as Florida.

Neither the Family Law Act nor the Family Law Rules in Ontario address jurisdiction over respondents outside the province.  The Inter-jurisdictional Support Orders Act (“ISOA”) does set a jurisdictional test for support claims, namely the "ordinary residence" of the parties.  However, the applicant did not proceed under the ISOA because Florida does not recognize claims for support between unmarried couples.  Thus the court had to look to the case law. 

 The question of jurisdiction was complex with respect to the support claim, but relatively straightforward for the property claim.  After all, the properties over which the claims were made were in Ontario, and it is well established in private international law that jurisdiction to determine ownership of land rests with the court where the land is located.    

For the support claim the main issue was: what presumptive connecting factor would support a finding of real and substantial connection to Ontario? A number of sub-issues presented themselves.  One, in assessing the parties’ ties to Florida and to Ontario, ought the court consider whole ten years or just the last five?  The court chose the latter, noting that the properties over which the constructive trust claim was asserted were acquired only in those later years.  With respect, this fact ought not have mattered to the question of jurisdiction over the spousal support claim, as opposed to the constructive trust claim. 

Two, would the fact that as of the day the applicant commenced the proceeding, she was residing only in Ontario constitute a presumptive connecting factor if the respondent was not also resident there?    The Court reviewed the ISOA and the Divorce Act, neither of which actually apply to this case, but both of which say a court may take jurisdiction if at least the applicant resides in the forum.  The court took this to mean that “in family law, a real and substantial connection with a jurisdiction can be found on the basis of not just the respondent’s relationship with a place.  This is particularly so where an allegedly dependent party resides in one jurisdiction and the other party lives somewhere else”.     The Supreme Court in Van Breda, while discussing presumptive connecting factors for tort cases, pointed out that “Absent other considerations, the presence of the plaintiff in the jurisdiction will not create a presumptive relationship between the forum and either the subject matter of the litigation or the defendant.” (paragraph 86).   The Supreme Court also acknowledged that other presumptive connecting factors will be developed for cases in other areas of law, but that they must be factual connections to the forum, not merely considerations of justice, efficiency, or comity.   To have found a real and substantial connection based mainly on the residence of just the applicant would have been a controversial if ground-breaking development. 

Instead the court continued on to consider whether both parties could be considered to be ordinarily resident in Ontario.  The court, while acknowledging that the primary home of both parties was in Florida,  stated  that a person can be ordinarily resident in more than one place, and found that the parties were ordinarily resident in Ontario, as well as Florida, having spent several months in Ontario every year for the most recent five years.  The court cited tax cases that say a person may be resident in more than one place, but without considering whether the considerations relevant to those tax cases are the same as for this case.   

In the result, the court found a real and substantial connection in respect of both the property and support claims, rejected the respondent’s forum non conveniens arguments, and took jurisdiction over the case.  

A simpler approach to jurisdiction over the support claim would have been to say that the court, which quite clearly had jurisdiction over the property claim, ought to hear the support claim as well so as to avoid a multiplicity of proceedings, as per s. 138 of the Courts of Justice Act.  

Recent Developments in International Human Rights Litigation - Part 2

            This post, part two in a series on international human rights litigation, discusses developments in the United States.

Alien Tort Statute Narrowed - Kiobel v Royal Dutch Shell

A recent decision of the Supreme Court of the United States significantly narrows the application of the Alien Tort Statute (“ATS”). The ATS has in recent years been an important tool of human rights lawyers seeking relief in U.S. courts for violations of international law, usually human rights abuses, committed abroad, often by government officials in developing countries.  This law, enacted in 1789, provides that “federal courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States”.   Its usefulness is illustrated by Filartiga v.  Pena-Irala, in which the relatives of a man tortured to death by government officials in Paraguay won a judgment for over $10,000,000 in the Second Circuit Court of Appeals.  In another case, the Second Circuit Court of Appeals held Radovan Karadzic could be held liable for his complicity in genocide, war crimes and crimes against humanity committed in Bosnia -Herzegovina.  In effect the ATS was akin to forum of necessity.  

 However, this spring in Kiobel v. Royal Dutch Shell, a 5-4 majority of the Supreme Court, in a decision called “inconsistent with the last 30 years of precedent”, held that the ATS cannot be applied extra-territorily, and thus one cannot sue under the ATS for conduct occurring within the territory of a foreign sovereign.  Kiobel and other Nigerian nationals had sued Royal Dutch Shell alleging its complicity in the killing of protesters in Nigeria.   The majority held that the plaintiff had not overcome the presumption against extraterritorial applicability of the statute.  The court’s reasoning was curious.   Why would the law not create jurisdiction over torts against aliens occurring abroad, but only for torts committed against aliens in the United States?   What would be the need for such a law, given that the courts already had jurisdiction over torts committed against aliens in the United States?  All four other justices concurred in the dismissal of the action but on a different basis.  Royal Dutch Shell did not have sufficiently close connection to the United States, despite the fact it operates refineries and gas stations there.    

The ATS had been somewhat analogous to forum of necessity, if only for torts in violation of international law.  Thus the United States has moved in the opposite direction from Canada, where forum of necessity has taken root, as noted in the previous post of this blog.

Despite Kiobel, a few angles are arguably left open.  Because piracy was prohibited by international law in 1789, piracy that occurs outside any nation’s territorial waters might still be within the reach of the ATS.   By analogy, torts occurring in a failed state might also be considered to be outside the territory of a foreign sovereign.   As well, a case that engages American interests, unlike Kiobel the facts of which had nothing to do with the United States, might fall within the ATS still.  As well, statutes that clearly state they are to apply extraterritorially overcome the presumption against extraterritorial applicability.   An in-depth discussion of post-Kiobel angles can be found in Professor Michael Dorf’s blog.

Possible Widening of Jurisdiction over Corporations for Wrongdoing by their Subsidiaries Outside the U.S. -- DaimlerChrysler v Bauman

Daimler-Chrysler is another American case in which plaintiffs attempt to obtain a remedy in the U.S. against a multi-national for human rights abuses elsewhere, albeit not under the ATS.  The Ninth Circuit Court of Appeals in California recently ruled that a court may exercise general personal jurisdiction over a foreign corporation based primarily on the fact a subsidiary performs services on its behalf in the forum state.   The plaintiffs, residents of Argentina, sued DaimlerChrysler A.G. in California on the basis that court could take jurisdiction over the German defendant based on the contacts that its subsidiary -- Mercedes Benz USA LLC, incorporated in Delaware – has in California, where it distributes cars.  If the German parent could be sued in California, it may also be forced to defend itself there against certain human rights violations alleged against its Argentine subsidiary.   The Ninth Circuit Court of Appeals’ decision in favour of jurisdiction was based on an “agency test”, which has two elements.  One, the tasks performed by the subsidiary for its parent (here, the distribution of cars) must be “sufficiently important to the foreign entity (parent) that it would itself perform equivalent services if no agent was available”. Two, the parent must have either actual control or the right of control over the subsidiary.   These tests were met by the significant level of sales of Mercedes Benz cars in California, and the powers the parent has over its subsidiary’s operations.  The court also noted the fact the parent company does marketing, research and development in California, has litigated in California courts, and its shares are traded on the Pacific Stock Exchange. 

Several other American appellate courts have ruled that a court may assert jurisdiction over a parent for the actions of its subsidiary only if the subsidiary is an alter ego of the parent, i.e. that the parent dominates the subsidiary to such an extent that the corporate separateness may be disregarded.  The plaintiff did not assert this theory of jurisdiction, nor did the Ninth Circuit base its ruling on it.

The U.S. Supreme Court will hear an appeal from the Ninth Circuit Court of Appeals’ decision, and address the question of whether a court may exercise general personal jurisdiction over a foreign corporation based primarily on the fact a subsidiary performs services on its behalf in the forum state. The hearing will be in the fall, with a decision expected in the spring.  Several amicus briefs have been filed in favour of DaimlerChrysler, including one from the U.S. Dept. of Justice (which also filed in favour of the defendants in Kiobel). 

Recent Developments in International Human Rights Litigation - Part 1

Here are some recent important developments regarding the ability to sue in Canada or the United States for incidents such as human rights abuses occurring abroad. Part One will cover Canadian developments, and Part Two will cover American developments.

Negligence for Failure to Prevent Harm by a Subsidiary as a Cause of Action -  Choc et al v. Hudbay Minerals

The Ontario Superior Court of Justice has recently ruled, in Choc et al v. Hudbay Minerals Inc. [2013] O.J. No.3375, 2013 ONSC 1414,  to allow a group of indigenous Guatemalans to sue a Canadian parent company for the  murder and gang rapes allegedly committed by the security personnel of its subsidiary in Guatemala. The plaintiffs were local residents claiming ownership of certain land on which that subsidiary was operating.   The plaintiffs brought a novel claim, that the parent, Hudbay, was negligent in failing to properly manage the security personnel so as to prevent those crimes being committed, and thus Hudbay was liable for the crimes.  This claim was separate and distinct from another claim for piercing the corporate veil.  A 2010 decision of the Supreme Court of Canada had paved the way for the negligence claim.  In Fullowka v. Pinkerton's [2010] 1 S.C.R. 132 the Court allowed a claim that Pinkerton's, a security company, was negligent for having failed to prevent a third party, a striking employee, setting off a bomb.  Hudbay moved to strike the negligence claim, saying it is not a cause of action because there is no duty of care. 

C.J. Brown J. allowed the claim to proceed to trial.   As per the decision of the British House of Lords in Anns v. Merton [1978] A.C. 728   and the decision of the Supreme Court of Canada in OdhavjiEstate v Woodhouse, [2003] 3 S.C.R. 263 there are three requirements to establish a duty of care:  a.) that the harm be a reasonably foreseeable consequence of the alleged negligence; b.) that there is a sufficient proximity between the parties so as to justify imposition of a duty of care, and c.) that there be no policy reasons to negative or limit that duty of care.  The court found the harm foreseeable in that Hudbay knew violence had been used in earlier forced evictions of people from other lands in Guatemala, that the risk of violence is larger for evictions in remote areas, that the security personnel were neither licensed nor trained but had possession of guns, and that the vast majority of violent crime goes unpunished in Guatemala.  The court found the necessary proximity based on the many public statements asserting that Hudbay worked closely with the indigenous people and other local stakeholders, that it did everything possible to avoid violations of human rights in the course of evictions, and evidence that in fact Hudbay (which owned 98% of the subsidiary)  held control over community relations and over security personnel, including standards of conduct for those personnel.    The Court ruled it was not plain and obvious that policy considerations would negate or restrict a duty of care.   It appears this ruling will stand, as no appeal has been brought and the time for doing so has passed.  Cory Wanless, one of the counsel for the moving parties, commented that he welcomed this advance in human rights jurisprudence.

This ruling provides a means by which plaintiffs with claims arising out of incidents occurring abroad may have more potential targets/defendants to choose from, e.g. deep-pocketed defendants and/or defendants that are resident here and thus not able to raise a jurisdictional defence to a proceeding in Ontario.

Forum of Necessity – Van Breda v Village Resorts, and the Court Jurisdiction and Proceedings Transfer Act

             

             The Ontario Court of Appeal has confirmed in Van Breda v Village Resorts 2010 ONCA 84, at para. 109, that “where there is no other forum in which the plaintiff can reasonably seek relief, there is a residual discretion to assume jurisdiction”.  This concept, called forum of necessity, opens the doors of Ontario and other courts to human rights cases (or other types of cases) brought by plaintiffs who cannot be reasonably expected to seek justice from the courts in their home country because of the nature and/or cause of the alleged human rights abuse. An example of such cases would be abuse perpetrated by the government of a country lacking an independent judiciary.  The Supreme Court of Canada heard an appeal of Van Breda but did not address this part of the Court of Appeal’s decision.  

Forum of necessity already exists in the law of British Columbia, Saskatchewan, Nova Scotia and the Yukon Territory, each of which have in recent years enacted the Court Jurisdiction and Proceedings Transfer Act (CJPTA) which provides that:

“a court that … lacks territorial competence in a proceeding may hear the proceeding despite that section if it considers that

(a) there is no court outside [the province] in which the plaintiff can commence the proceeding, or

(b) the commencement of the proceeding in a court outside [the province] cannot reasonably be required.

Forum of necessity is provided for in the Quebec Civil Code   S.Q. 1991, c. 64,  s 3136, and in the European Convention on Human Rights. 

Immunity of Governments – Steen v Iran, and the Justice for Victims of Terrorism Act

           

            The State Immunity Act  R.S.C. 1985 c. S-18 (“SIA”) provides that “except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada”; there is an exception for “commercial activity”.  One might expect that such a law would be construed narrowly, insofar as it is a departure from fundamental principles and goals of our legal system, namely the rule of law and the goal of ensuring accountability for one’s actions.  However, in Steen v Iran [2013] O.J. No. 228 the Ontario Court of Appeal re-affirmed, implicitly, that the immunity that the SIA confers on foreign states is not to be narrowly construed.    Between 1982 and 1988 Iran directed the kidnapping and detention of several American citizens, including Steen, who was  held for an extended period, and in inhumane conditions.  Iran demanded a ransom of money and weapons before releasing Steen.   Steen sued in the United States and obtained a judgment for $342,750,000, which he sought to enforce in Ontario.  The Court dismissed Steen’s argument that Iran’s demand for a ransom payment brings the case within the exception for commercial activity, ruling that “a mere nexus to commercial activity is insufficient”, and that the payment “does not alter the true nature of hostage taking as a brutal act”. (para 22)   With respect, a hostage taking can be considered both a brutal act and a commercial one, and ought to be, so as to allow a remedy.   

             

             The Court also refused to recognize any common law exceptions to immunity, just as it had refused ten years earlier in Bouzari v Iran (2004), 71 O.R. (3d) 675, despite the 2010 decision of the Supreme Court of Canada in Kuwait Airways v Iraq [2010] 2 S.C.R. 571 (para 24)  that, in obiter dicta, recognized the evolution of international law toward exceptions to sovereign immunity, and hinted at the possibility that such evolution has led to the development of new exceptions to immunity.   The Steen decision is consistent with a recent decision of the Quebec Court of Appeal on the SIA in Iran v Hashemi, 2012 QCCA 1449. 

            The Ontario Court of Appeal also rejected an argument that a government might lose its right to immunity if its acts were in violation of peremptory norms of international law “(jus cogens”).  Such norms include the prohibitions against genocide, slavery, apartheid, and torture.  Steen’s argument was that a state that violates such norms loses its immunity because in committing such acts the state is not acting in a sovereign capacity.     The Court’s analysis of this issue was disappointing.   Citing Bouzari, the Court said that absent “a widespread state practice [of creating such an exception from immunity] that does not exist today”, the SIA  is not to be interpreted to admit of such an exception.  One wonders how international law could evolve if every court adopted such a conservative philosophy.  Also, the court cited a decision of the International Court of Justice in Jurisdictional Immunities of the State(Germany v Italy: Greece Intervening), judgment 3 Feb. 2012, IC.J. General List No. 143 to the effect that the rules of jus cogen and the rule of customary international law that requires one state to accord immunity to another are not in conflict.  The court failed to address the point that the rights jus cogen confers are illusory if there is no remedy.  Genocide is generally committed by states, not persons, because of the scale of violence involved in genocide; apartheid too is generally committed by states, not persons.

             

            Fortunately for human rights advocates, new legislation -- the Justice for Victims of Terrorism Act  S.C. 2012, c 1 S. 2 – reduces state immunity somewhat. That act provides that “a court … must recognize a judgment of a foreign court that, in addition to meeting the criteria under Canadian law for being recognized in in Canada, is in favour of a person that has suffered loss or damage [as a result of certain terrorist acts].”  Recognition is mandated even for judgments against foreign states if the state is on a certain list issued by the Governor General in Council in 2012. The listed states are the Islamic Republic of Iran and the Syrian Arab Republic. 

           The act also creates a cause of action for Canadian citizens and permanent residents for damages for harm incurred in or outside Canada by certain types of terrorist acts,  even against states on the list. The act also creates presumptions in favour of liability, and suspends limitation periods for plaintiffs who were unable to sue due to their physical, mental or psychological condition or who were unable to identify the perpetrator/defendant.

My next post will cover American developments.

Chevron Judgment Enforcement Action Stayed

This month, Mr. Justice Brown of the Ontario Superior Court of Justice stayed an action brought by certain Equadorean plaintiffs to enforce a mammoth, 18 billion dollar judgment against Chevron Corporation, which judgment was affirmed on appeal by an Equadorean appellate court last year. 

In Yaiguajeet al v. Chevron et al 2013 ONSC 2527, the three defendants, Chevron Corporation and its Canadian subsidiaries Chevron Canada Limited and Chevron Canada Finance Limited, brought a motion to a.) set aside the service ex juris of the claim on Chevron Corporation and b.) to stay the action under s.106 of the Courts of Justice Act.   Chevron had argued that even in a proceeding to enforce a foreign judgment, the court must find a real and substantial connection between the forum and the defendants or subject matter of the action, that such a connection did not exist, and thus the service ex juris must be set aside and the action stayed.   The court rejected the argument, reaffirmed that the requirement of a real and substantial connection applies only to a court assuming jurisdiction over the initial adjudication of a claim on its merits, and declined to set aside service ex juris. 

Nonetheless, the court stayed the action, on the grounds that the plaintiffs have no hope of success in enforcing the judgment in Ontario.  The Court did so even though the defendants had not brought a motion for summary judgment, nor a Rule 21motion to strike out the claim on the ground there was no reasonable cause of action.  The court cited evidence that Chevron Corporation has no assets in Ontario, and it is not likely to have assets here in the future.  As for the assets of the Canadian subsidiaries, the court emphatically rejected the plaintiffs’ arguments that the corporate veil should be pierced so as to make those assets available for execution.   

The court did not delve into the issue of whether the corporate veil analysis should be different in the context of proceedings to enforce foreign judgments.  Such a discussion is warranted having regard for two factors. One is the view, expressed in the top two Supreme Court of Canada decisions on enforcement of foreign judgments (namely, Morguard v. DeSavoye [1990] 3 SCR 1077  and Beals v. Saldanha [2003] 3 SCR 416) , that “Accommodating the flow of wealth, skills and people across state lines has now become imperative”.  Two,  the plaintiffs’ claim is based on tort (environmental damage), not breach of contract, which means the plaintiffs had not agreed to accept the risks in dealings with a limited liability corporation, i.e. Chevron.   

The plaintiffs have indicated their intention to appeal.