Chevron resists Ecuadorean judgment

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Chevron Corp. wants an Ontario judge to dismiss an attempt to force the company to use its Canadian subsidiaries – and its assets in the oil sands – to cover a controversial $18.3-billion (U.S.) judgment levelled against the oil giant by an Ecuadorean court last year.

It's the latest move in the world's biggest environmental legal battle, a tangled 19-year fight that pits Chevron against lawyers for a group of Ecuadorean villagers who accuse the former Texaco, which Chevron acquired in 2001, of leaving open pits of contaminated oil waste in the Amazon rain forest.

California-based Chevron has denied the allegations and says Texaco did the cleanup it was required to do when it pulled out of Ecuador in the 1990s. Chevron calls the judgment from the Ecuadorean court "illegitimate," and has refused to pay it.

In a U.S. lawsuit, Chevron has also accused some of the plaintiffs' U.S. and Ecuadorean lawyers and advisers of fraud, bribery and racketeering. The plaintiffs deny those allegations and in turn accuse Chevron of engaging in bribery and fraud, which the company denies.

The epic fight shifted to Canada, thousands of kilometres from Ecuador's Lago Agrio oil field, when the plaintiffs moved in May to try to enforce their Ecuadorean judgment in Ontario Superior Court. They hired respected Toronto litigator Alan Lenczner of Lenczner Slaght Royce Smith Griffin LLP.

The plaintiffs pledged to pursue Chevron's assets all over the world, because the company has very little now in Ecuador, and have also filed a similar action in Brazil. But they have not yet filed in the United States, where they have faced a rough ride from the courts overseeing their legal battle with Chevron over fraud allegations.

The first round of the Canadian bout looks set to focus on Chevron's corporate structure, with the company arguing that its Canadian subsidiary is independent and should not be asked to pay an Ecuadorean judgment levelled against its U.S. parent. Lawyers say plaintiffs in a case like this have to show that the U.S. company has "complete control" over its Canadian affiliate.

In court filings, Chevron's lawyers say Chevron Canada Ltd. is an "indirect subsidiary" of Chevron Corp., with six other wholly owned companies between the Canadian company and its U.S. parent based in San Ramon, Calif.

In affidavits filed last week in the Ontario court by Chevron executives, the company says its main Canadian subsidiary operates without financial help from its parent, although it acknowledges that the unit is overseen from the United States and that Chevron Corp. has provided "performance guarantees" for joint ventures, such as those in the oil sands.

The court contest, expected to be heard in December, will feature some of Canada's top litigators. While the plaintiffs have Mr. Lenczner, Chevron Canada Ltd. has retained Benjamin Zarnett of Goodmans LLP. Chevron Canada Finance Ltd., has hired Terrence O'Sullivan of Lax O'Sullivan Scott Lisus LLP. And Chevron Corp. itself has a team from Norton Rose Canada led by Clarke Hunter and Anne Kirker.

It may seem obvious to the average person that Chevron Corp. owns its Canadian arm, but Peter Pliszka, a lawyer with Fasken Martineau DuMoulin LLP who litigates similar disputes, said that making such a case can be an "uphill battle."

Mr. Pliszka, who said he could not comment on the specifics of the Chevron case, said plaintiffs in this kind of situation must go beyond showing that a parent merely owns or supervises a subsidiary: "They need to try to show the court that there's something about the [complex corporate] structure that makes it a complete sham, and that it is all for appearances."

Antonin Pribetic, a Toronto litigator with Steinberg Morton Hope & Israel LLP who also acts in cross-border disputes, said that given the litigation between Chevron and the plaintiffs in the United States, an Ontario court might hold off until that fight is resolved.

"My thinking is that everything is going to hinge upon the U.S. proceedings," said Mr. Pribetic, who blogs about legal issues at thetrialwarrior.com. "You will probably get a stay [in Ontario] pending the outcome."

A spokesman for the Ecuadorean plaintiffs, Toronto lawyer Graham Erion, dismissed Chevron's Ontario court filings, saying that the U.S. parent is clearly the owner of 100 per cent of its Canadian assets.

"Chevron's motions are a typical tactic by defendants in the business world to try to evade legitimate legal obligations through the creation of multilayered corporate structures designed to hide assets or complicate the effort by creditors to find them," Mr. Erion said in an e-mailed statement.

Kent Robertson, a spokesman for Chevron Corp., said in an e-mail that by acting in Canada and Brazil, the plaintiffs are simply trying to avoid their legal fight in the United States. "If the plaintiffs' lawyers believed they had a legitimate judgment they would seek to enforce it in the United States. It's precisely because of the plaintiffs' lawyers' fraud that they are now in Canada instead of the United States," he wrote.

Aside from the Ecuadorean judgment, which a court there recently increased to $19-billion, Chevron and the country's government are engaged in international arbitration about the issue at the Permanent Court of Arbitration in The Hague.

Meanwhile, a New York federal judge, whose initial injunction banning the potential enforcement of the Ecuadorean judgment worldwide was later overturned, ruled last month that Chevron's U.S. fraud case against the plaintiffs could go ahead.