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.

OCA Confirms: No substituted Service of Claims to Hague Convention Countries

The Ontario Court of Appeal ruled this month that where a statement of claim is to be served in  a country  to which the Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters (“the Convention”)  applies,  the court has no power to order substituted service even if personal service would be impractical, and has no power to validate or dispense with service, even if the defendant has actual notice of the claim.   Plaintiffs are limited to the means of service set out in the Convention.    

In Khan Resources Inc. et alv. Atomredmetzoloto JSC et al   2013ONCA 189, a Canadian mining company sued its Russian joint venture partners, alleging the latter sought to deprive them of their interest and substantial investment in a certain mine in Mongolia.    The Russian government owns 80% of the shares of the Russian defendants.    Pursuant to the Convention, the plaintiff requested the Russian Central Authority to serve the claim.  The Central Authority refused,  giving no explanation other to simply cite article 13 of the Convention, which says that a state may refuse service “if it deems that [service] would infringe its sovereignty or security”.        

Under Russian law an appeal lies from that decision.   However, there were indications that the result may be driven by political considerations.  Also, the appeal could take a year and cost $100,000.    Article 14 of the Convention provides that  difficulties that arise “in connection with the transmission of documents for service shall be settled through diplomatic channels”.  The plaintiffs chose neither option; they opted instead to bring a motion before the Ontario Superior Court of Justice for substituted service or an order validating service, on notice. After all, lawyers for the Russian defendants had  a copy of the claim.  The Master granted an order validating service.  On appeal  to a judge, Mr. Justice O’Marra,  the decision was reversed, on the grounds that there is no power to validate service or allow substituted service.    The Ontario Court of Appeal dismissed the appeal.    

The Court of Appeal ruled that the Convention provides the only means by which service into a contracting state under the Convention (a “Convention country”) may be effected; the Convention ousts the domestic law provisions for substituted service or validation of service, even if the defendant has actual notice of the claim.  There are several reasons. One is that one of the two stated purposes for the Convention is to establish a uniform procedure in all contracting states; to open the door to the use of domestic powers   to validate service or allow substituted service would undermine that purpose.   Also, the origins and wording of the rule that implements the Convention into Ontario law (R. 17.05 (3) indicate that for service to Convention countries, use of the means provided in the Convention is mandatory.  The Practical Handbook on the Operation of the Hague Service Convention, published by the Hague Conference on Private International Law, confirms that the Hague provisions are intended to the only means to effect service in Convention countries.   A 2012 ruling of the Alberta Court of Appeal  – Metcalfe v Yamaha Motor Powered Products2012 ABCA 240, 536 A.R. 67 --  and a 1988 ruling from an American court say the same.  

The Ontario Court of Appeal discussed but did not rule on the question of whether the plaintiffs would be permitted to move to validate or dispense with service if they had pursued all possible remedies under the Convention and were still  unable to effect service, as in Zhang v.  Jiang (2006), 82 O.R. 306 (S.C. Master), a case in which violation of basic human rights, torture and crimes against humanity were alleged.   The Court of Appeal hinted that there could be an “access to justice” exception to the otherwise prevailing rule that the Convention is exclusive.  

Comment  

The facts of Khan Resources would indicate the plaintiffs there also lacked access to justice.  Given the Russian government’s 80% interest in the defendants, the prospects for an impartial ruling or a successful outcome for diplomatic efforts seem very remote. 

Also, arguably the Convention need not apply. Article 1 of the Convention provides it applies “where there is occasion to transmit a judicial … document for service abroad”.  There would be no need to transmit anything abroad if service on the Russians’ Canadian lawyers could be validated.   

B.C. Shortens Limitation Periods

          Litigants with claims that may be subject to the law of British Columbia should take note that for many claims the limitation period there  will be significantly shortened when Bill 34, the  new Limitation Act, comes into effect in B.C. on June 1, 2013.  The existing law – Limitation Act, R.S.B.C. 1996, c. 266 -- states that the limitation period is six years, unless an exception applies, and there are several exceptions.  Under  Bill 34, the general limitation period will be just two years, again subject to some exceptions.  Exceptions under Bill 34 include matters subject to a limitation period set by an international convention or treaty that has been adopted by legislation, certain actions for the redemption or realization of collateral, and the enforcement of child or spousal support payable subject to a judgment.    

          As before, an action on an extra-provincial judgment for the payment of money or the return of personal property must be commenced before  the time for enforcement has expired in the jurisdiction where that judgment was made, or within ten years after the judgment became enforceable in the jurisdiction where the judgment was made.

Foreign Law

          Bill 34 expressly acknowledges that if the substantive law of another jurisdiction is the applicable law, the limitation period under that law will apply, except in certain cases pertaining to sexual and other assaults.   The existing law, to be repealed by Bill 34, allows the court discretion to apply either B.C. law or the applicable foreign law if the limitation law of that foreign law is considered procedural for private international law purposes, as necessary to achieve the most just result.

Acknowledgment of Liability

          As before, and as in other provinces, Bill 34 extends the limitation period if the defendant acknowledges liability, in a signed written document, or in the case of claims for liquidated damages the debtor has made a partial payment.

Transitional Provisions

          The new law will apply to claims discovered after the law goes into effect, even if the act or omission complained of occurred before the new law went into effect.

ABA Endorses Mareva-like Pre-judgment Asset-Freezing Legislative Proposal

          Mareva injunctions – i.e. pre-judgment asset freezing orders – are a most valuable remedy in cross border litigation but are sadly mainly unavailable and unenforceable in the U.S.  That may soon change.  Last month,  the American Bar Association House of Delegates approved last month the Uniform Law Commission’s Asset-Freezing OrdersAct (the “Act”), legislation that would enable American courts to issue orders similar to Mareva injunctions in specific circumstances, and to enforce such orders from foreign courts. 

The Existing U.S. Law Regarding Pre-judgment Attachment Orders and Recognition of Foreign Orders

             

         At present, federal courts in the U.S. lack jurisdiction to issue in-personam freezing orders prior to judgment, even in circumstances where the defendant is likely to, or has already begun, to dissipate assets so as to defeat a judgment  -- see the U.S. Supreme Court decision in Grupo Mexicano de Dessarolo v. Alliance Bond Fund Inc.  527 U.S. 308 (1999).  Before judgment, federal courts have power only to issue in rem orders prohibiting the transfers of specific assets.   The facts in Grupo show the need for an in-personam remedy:  the defendant’s assets were all outside the U.S., so an in-rem remedy was of no use.  An in-personam remedy  is needed also in cases where the assets cannot be identified.  The trial court in Grupo had found there would be irreparable harm if the order was not granted.  Some state courts have interpreted Grupo to mean they too lack jurisdiction.    By and large, U.S. courts do not enforce foreign injunctions or other foreign non-monetary judgments.

The Act’s Provisions for Issuance of Asset-Freezing Orders

             

          The requirements in the Act for such orders are similar to those under Canadian and British law, and include: 

a.)     a substantial likelihood that the moving party will prevail on the merits of the action;

b.)     a substantial likelihood that the defendant ‘s assets will be dissipated and the judgment will be defeated, if the order is not granted; and

c.)    a balancing of convenience.

The Act specifies this additional requirement: that the order not be adverse to the public interest.  Unlike in Ontario, there is no need to show fraud. 

The Act’s Provisions for Recognition of Foreign Asset-Freezing Orders

             

           The Act requires courts to recognize asset-freezing orders from courts outside the U.S., subject to some exceptions.  Courts may not recognize such orders if the issuing court lacked jurisdiction (grounds for personal jurisdiction are codified in the Act), or if they are issued under a judicial system that does not provide impartial tribunals or due process of law. Courts need not recognize such orders in a variety of certain circumstances, including some that are similar to the defences in Canadian law to enforcement of a foreign judgment, e.g. the order was obtained by fraud, or is contrary to public policy, or conflicts with another order, or the proceeding in the issuing court was contrary to a forum selection agreement or arbitration agreement.     These provisions are similar to those found in the older, Uniform Foreign-Country Money Judgments Recognition Act.  The burden is on the party resisting recognition to show there are grounds for non-recognition.   The act does not apply to actions against an individual for a consumer debt or in family/domestic relations cases.  An order that is recognized is entitled to “full faith and credit” in the same manner as a judgment.

The Uniform Asset-Freezing Orders Act has been introduced in two Legislatures so far, those of Colorado and North Dakota.

Comment

            If the Uniform Asset-Freezing Orders Act is enacted in many states,  Canadian-issued Mareva injunctions will be more readily available and substantially more useful than before, in cases involving American assets.  Canadian courts are often reluctant to even issue an order that cannot be enforced; the Act eliminates this concern.     

            Canadian legislatures would do well to consider enacting the Act, so as to codify the law, and to make clear that fraud is not a prerequisite for a Mareva injunction.  As well, the Act provides protection for non-parties, such as banks, that may be affected by the order. They may need protection insofar as they may have competing obligations, to their client or others, under foreign law, and an injunction may require speedy action.