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The U.S. District Court
in Manhattan ruled this month that a 9.5 billion dollar judgment that a group
of Equadorian villagers obtained against Chevron Corporation in Equador in 2011
for environmental damage was obtained by fraud and is thus unenforceable anywhere
in the United States (see http://www.nysd.uscourts.gov/cases.php).
There were multiple frauds, among them:
the judgment issued by the Equadorian trial judge was ghost-written by
the plaintiffs. The trial judge agreed
to sign it in return for the promise of a $500,000 cut of the damages
collected. The plaintiffs pressured the court into
appointing as an expert purportedly independent and working as an officer of the
court, one Richard Cabrera. The
plaintiffs handpicked Cabrera and gave him various financial inducements to
ensure that his report would favour the plaintiffs. The
shock waves flowing from the New York court’s findings of fact will soon reach
Canadian shores. The Equadorian
villagers brought an action in Ontario to have the same judgment enforced in
Canada. That action had been stayed by
the motion court on unrelated grounds, but the Ontario Court of Appeal lifted
that stay a few months ago.
Canadian
law regarding enforcement of foreign judgments is quite liberal, compared to
the law in some other countries, and thus more judgment creditors will seek to
enforce foreign judgments here than would otherwise be the case. Thus Canadian courts must be vigilant of
fraudulently procured foreign judgments. The Chevron case shows that our law does
not provide sufficient safeguards against enforcement of fraudulent foreign
judgments. I am not suggesting that only
foreign judgments, never domestic ones, might be fraudulent, but this blog is
about foreign judgments.
The Supreme Court of
Canada in Beals v. Saldanha [2003] 3 SCR 416 stated that “the merits of
a foreign judgment can be challenged for fraud only where the allegations are
new and not the subject of prior adjudication”.
The court went on to say that fraud relating to the merits is a defence
only if that fraud could not have been discovered through reasonable diligence.
The Court explained its goal is to
strike a fair balance between the countervailing goals of comity (that is,
respect for the foreign court) and finality of judgments on the one hand, and and
fairness to the defendant on the other. The onus is on the defendant to show
unfairness.
The Chevron case presents
the issue of how courts are to deal with allegations of fraud where there has
been prior adjudication, but the trial and/or appeal court has dismissed the allegations
without due consideration, despite reasonable efforts by the party asserting
the defence of fraud. This situation is quite
foreseeable if the trial court was complicit in the fraud, and if the judicial
system there is weak, but is also quite conceivable even if there was no
complicity.
Chevron appealed the
Equadorian trial judgment on various grounds including their contention that
the judgment had been ghost-written. At
about the same time, Chevron also brought an action in the United States under
the Racketeer Influenced and Corrupt Organizations Act (“RICO”) against the
plaintiffs’ lawyers and others. Chevron did not raise the issues of the bribe
or the Cabrera report in its appeal because Chevron apparently did not have any
or enough information about these matters at that point.
The three-judge appeal
court, which affirmed the trial judgment, stated it would not “refer at all” to
Chevron’s specific allegations of fraud and corruption… except to let it be
emphasized that the same accusations are pending resolution before authorities
in the United States of America [in the RICO proceeding] and this court has no
competence to rule on the conduct of counsel, experts or other officials…”. The
plaintiffs sought clarification of the judgment, asking the court to make clear
that it had analyzed Chevron’s accusations and that the court had not found
fraud on the part of any plaintiff. The
court responded saying that “while it did not find evidence of fraud, it was
staying out of these [fraud] allegations”.
Chevron then appealed
to Equador’s National Court of Justice. Chevron, now aware of the Cabrera expert
report and another fraud (but apparently still aware or lacking information
about the bribery), cited these matters as well as the ghost-written judgment
in arguing that the trial proceedings should be nullified. Apparently
Chevron never raised the bribe allegation in any appeal, because Chevron did
not know of the bribery, or did not know much, at the time of those appeals.
The National Court is a
court of cassation – it reviews only legal issues not factual ones. The court for the most part upheld the trial
judgment. Regarding the allegations relating to Cabrera, the court ruled that
Chevron had not identified the rule or law that had been infringed or which
would render the proceeding a nullity, and accepted the trial court’s statement
that it had not relied on the Cabrera report.
The court found the ghost-writing allegations unsuited for review in
that court. That court refused to
“re-evaluate the evidence through a cassation appeal because to do so would be
to diminish the independence of trial judges”, even though a key aspect of
Chevron’s appeal was that the trial judge abandoned his independence when he
permitted the plaintiffs to draft his judgment.
How would the Chevron
judgment be treated in Canada?
If the bribery could
not have been addressed in the appeals through reasonable diligence, and the bribery
is proven, it will be a near-unassailable defence to the enforcement of the
judgment in Canada.
But what about the
other frauds? Having been the subject of
prior adjudication, they will not meet the test for the defence of fraud as set
out in Beals. This is unfortunate. Appeal
courts cannot always be relied upon to properly review a judgment tainted
by judicial misconduct. The appeal court
judges may feel some embarrassment, or an instinct to protect their judicial
brothers in the lower court, or may be as biased as the trial judge, perhaps
for the same reasons. In a recent criminal case in the U.S., a defendant sought
to nullify his conviction on the grounds that the prosecutor and the judge were
having an affair, a fact that was admitted.
After the convicted man’s efforts to nullify failed at first instance,
he brought an appeal. That appeal was dismissed with a terse, single-sentence decision.
In a case where the
defendant had to obtain leave to appeal but was denied it, or where the appeal
court heard the appeal but dismissed it without reasons (there being no legal
requirement to issue reasons), this too might constitute prior adjudication.
In my view, the mere
fact an allegation of fraud has been raised in an appeal ought not preclude
that fraud being a defence to enforcement, if it cannot be shown the appeal
court did a meaningful, independent review.
Another potential defence
to the enforcement of the Chevron judgments is the defence of breach of natural
justice. This defence is meant to ensure
the defendant “was granted a fair process…[that is, one that].. reasonably
guarantees basic procedural safeguards such as judicial independence and fair
ethical rules…” (Beals para. 61-62) This defence requires proof of a breach
having occurred in the same proceeding in which the judgment in question was
issued. Evidence of bias or breaches of natural justice occurring in the court
system as a whole does not suffice: Oakwell
Engineering v. Enernorth Industries (2006), 81 O.R. (3d) 288 (O.C.A.). Because the National Court of Justice heard,
then dismissed, the complaints of Chevron, a Canadian court might conceivably
find the allegations of breaches of natural justice have not been proven. Further, to prove bias as a defence to a foreign judgment in Canada, one must prove actual bias, as opposed to a reasonable apprehension of bias. In the Chevron case, the New York court considered
evidence, including an expert, about whether the Equadorian justice system as a
whole provides impartial tribunals and procedures consistent with due process
of law, and found that it does not. A
Canadian defendant, however, could not rely on such evidence, or at least not heavily,
to make out his defence.
This can pose a serious
problem in cases where the judgment comes out of a court system that as a whole
is clearly unfair. I refer to situations
where the problem is not in the court’s rules and procedures but rather that
there have been repeated instances of judicial misconduct involving various
judges and various proceedings. The
nature of some forms of judicial misconduct is such that there will generally
be little or no evidence in a specific proceeding. For example, the existence of a bribe may
never become revealed unless there is a witness willing to blow the whistle. The bribe in Chevron came to light only late
in the day. Similarly, some forms of
bias might not be known, for example where the judge has an undisclosed
personal financial stake in the outcome of proceeding.
That leaves the defence
of public policy, one part of which guards against the enforcement of judgment
rendered by a court proven to be corrupt or biased. But this does not really add anything not
covered by the defence of breach of natural justice.
To conclude, but for
the bribery, the Chevron judgment would arguably be enforceable in Canada. The problem
is two-fold. One, our law does not sufficiently recognize that prior adjudication
may be ineffectual or inconclusive. Two,
judicial misconduct may be hard to prove, especially if evidence of problems in
the justice system as a whole is not considered, or if the court requires proof of actual bias, not merely a reasonable apprehension of bias.
