Wednesday, 26 March 2014

U.S. Ruling in Chevron Judgment Enforcement Case Shows Shortcomings in Canadian Law

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 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.




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