Wednesday, 1 November 2017

Yaiguaje v Chevron – Yaiguaje ordered to pay $1m for security for appeal

          The Ontario Court of Appeal (Epstein J.A., in chambers;  2017 ONCA 741) has ordered the Yaiguaje plaintiffs, who are appealing the summary judgment ruling dismissing their action to enforce the $9.5 billion Ecuadorian judgment in Canada, to post security of $942,951.
As the Court acknowledged, it has “broad discretion” on a motion for security for costs.  Rule 61.06(1) (b) says the Court “may make such order … as is just”.   However, unfortunately for the appellants, there are several aspects of the context of this litigation that the Court did not take into account.

          Because the appellants provided no evidence of impecuniosity -- that is, no evidence of their assets, income or financial backing if any-- the Court said it “must assume that ordering security for costs will not end this litigation”. (para 34).   The Court did not consider the fact that the basis for the $9.5 billion judgment is a finding of extensive environmental damage that presumably affected the local people’s property and impoverished them.     The judge referred to the damage as “alleged”.  But even if the judgment is flawed (and no Canadian court has ruled on this) that would not necessarily mean there was no significant damage or impoverishment.  The Court acknowledged that the appellants’ third- party funders have disavowed their financial interest … in light of the [New York court finding that the Ecuadorian judgment was not enforceable]”, but not the fact this is an indication that the appellants may have difficulty attracting financing. 

          As well, the appellants may have very sound reasons to not divulge details of their finances.   One, Chevron has vowed to “fight this case till Hell freezes over, then fight it out on the ice”, a sign that Chevron might come down hard on the plaintiffs later in respect of costs if Chevron wins the appeal, so as to deter others from suing it. Two, given the large number of plaintiffs, its likely that some have a lot more assets and income than others and thus would be targeted for collection, with the result that they may have to pay a disproportionate amount of the costs, which would deter them from staying in and supporting the action. 

           Because the Court ruled the appellants are not impecunious, the Court required them to demonstrate their appeal has a “good chance of success”.    Had they shown impecuniosity, they would need only to show their appeal is not devoid of merit in order to avoid security.  The “good chance of success” requirement is at odds with the public interest in having novel cases heard.   The appeal would be about whether the assets of Chevron Canada are exigible for the judgment against Chevron Corporation, in other words, about corporate separateness and piercing the corporate veil. have dealt   As Epstein J.A. admitted, the Supreme Court of Canada, earlier in this same litigation, “seemingly left open the possibility of rethinking the doctrines of corporate separateness and presumably the principles behind piercing the corporate veil as well”.  The order for security may well block the appeal from proceeding.   (para 52)  

          Another factor the Court ought to have taken into account is whether Chevron would be significantly prejudiced if denied security.    The amount of security, $942,951, represents 0.0000386 % of the profits Chevron Corporation received in 2014 -- CAD$24,370,650,000. Put another way, in 2014 Chevron Corporation earned CAD$942,951 in profits every twenty minutes.   The $942,951 is equal to 0.0000028% of Chevron’s assets, which that year were worth, all in, CAD$334,481,194,800.*      It is obvious that Chevron moved for security not due to a concern about the costs but as a means to block the appeal and thus win the case.    

          The Court acknowledged the amount of security is high, but noted “it pales in comparison to the over $9.5 billion [Ecuadorian judgment]” (para. 69).    However, the amount likely also pales in comparison with the total amount Chevron has spent on this case around the world.  Also, the costs are high at least in part because Chevron Corporation and Chevron Canada each have their own team of lawyers. Four lawyers appeared for Chevron and its affiliates at the motion for security, and there were six for the 2015 appeal to the Supreme Court of Canada.   Broad discretion ought to include taking into account the apparent duplication and unnecessary costs.     The ruling is silent on this.   

         The ruling has been appealed, I understand to an en banc panel of three, which has reserved.   

         This writer hopes that forthcoming ruling on the appeal from Epstein J.A.’s ruling will address at least some of these factors, for the sake of the appellants but also for the sake of the development of the law on security for costs.

*These figures are taken from the Chevron Corporation annual report. Admittedly, Chevron earned less in 2015 and lost money in 2016.  I used the 2014 figures because the Canadian proceedings were underway at that time.   

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