By Drew Hasselback and Julia Johnson, Financial Post
31 May 2012
In a staggering twist of the legal system, a massive $18-billion suit over decades old environment accidents in Ecuador has landed on the doorstep of Chevron Corp.'s Canadian operations.
Alan Lenczner, a Toronto-based litigator, filed the claim in the Ontario Superior Court of Justice Wednesday, seeking to enforce an Ecuadoran trial judgment which found the company liable for poorly managing waste oil pits in the Amazon rainforest over 18 years. He is asking an Ontario judge to recognize the Ecuadoran court ruling and allow him to enforce the judgment against Chevron's two Canadian units.
Chevron said Wednesday it will resist any enforcement of the judgment, calling it "a product of fraud" and "illegitimate."
"Chevron does not believe that the Ecuador judgment is enforceable in any court that observes the rule of law," said a statement issued by Chevron Corp. in San Ramon, Calif.
In February, Mr. Justice Nicolas Zambrano Lozada of Sucumbios Provincial Court in Ecuador issued a 188-page judgment ordering Chevron to pay about $8.6-billion in cleanup costs, and a further $8.6-billion in punitive damages following eight years of litigation that involved 220,000 pieces of documentary evidence.
Judge Zambrano was dismissed from the country's Judicial Council that same month for improperly releasing an alleged drug trafficker, according to media reports.
The plaintiffs — who call themselves Los Afectados, or The Affected Ones — are inhabitants of five Ecuadoran indigenous groups and approximately 70 farmer communities.
"It was a hard-fought battle for eight years," Mr. Lenczner said Wednesday. "There's a final judgment, and there are no assets [in Ecuador]. We are trying through this claim to have this judgment recognized in Canada … because Chevron has assets throughout Canada."
Chevron no longer holds any assets in Ecuador, but courts in both Canada and the United States will recognize judgments from foreign jurisdictions. The Ontario claim represents the plaintiffs' first attempt to enforce the judgment abroad.
Mr. Lenczner's claim makes it clear that the plaintiffs are not alleging that Chevron Canada has done anything wrong, the Canadian proceeding seeks only to enforce the judgment debt.
Chevron has previously argued it should be absolved of liability in the case due to an agreement that was reached between the company and the government of Ecuador. Under that deal, Chevron agreed to pay $40-million towards a clean up. The plaintiffs rejected this argument, saying that deal was struck between the government and the company, rather than the affected people and the company.
According to Mr. Lenczner, the damage dates back to 1972, when Texaco Inc. operated oil properties in the Lago Agrio oilfield in Ecuador's Sucumbios province. Waste oil was left in some 900 pits and spread across roads to keep down dust. The pits were not lined, allowing oil to flow into ground water supplies.
If Mr. Lenczner's claim succeeds, there would be ample opportunities to collect on the judgment. According to 2010 data posted on Chevron Canada's website, the Canadian operation had daily production of 349,000 barrels of crude oil and 30 million cubic feet of natural gas. Among other things, Chevron Canada holds a 20% stake in the Athabasca Oil Sands Project.
According to Mr. Lenczner, the damage dates back to 1972, when Texaco Inc. operated oil properties in the Lago Agrio oilfield in Ecuador's Sucumbios province. Waste oil was left in some 900 pits and spread across roads to keep down dust. The pits were not lined, allowing oil to flow into ground water supplies. They were also not covered, allowing pits to overflow onto adjoining properties. The damage continued until 1990. Chevron acquired Texaco in 2001, thereby inheriting the liability.
In 1993, a group of 47 residents of the province, representing some 30,000 residents affected by the damage, tried to sue the company in a U.S. federal trial court. Texaco successfully persuaded the court to reject the case on the grounds that it should have been brought in Ecuador.
Mr. Lenczner's claim states that Chevron told the U.S. federal court it would agree to accept the jurisdiction of the Ecuadoran court and pay any judgment.
Chevron is also suing the U.S. lawyer who represents the Ecuadoran plaintiffs, Steven Donziger, under numerous civil grounds, including racketeering, fraud, conspiracy. The company said it seeks "to hold anyone who attempts to enforce the fraudulent judgment accountable to the full extent of the law."
The company temporarily stopped enforcement of the judgment through a restraining order obtained in March 2011 in a U.S. court, but that was overturned by an appellate court in January this year, which ruled the plaintiffs "may seek to enforce that judgment in any country in the world where Chevron has assets."
The legal battle therefore shifts to Ontario, where Mr. Lenczner's strategy follows a 2003 Supreme Court of Canada decision which allows a foreign judgment to be enforced in Canada, so long as the original decision: wasn't obtained via fraud; the litigants weren't denied the safeguards and fairness Canadians expect in our judicial system; that the foreign result doesn't offend Canadian public policy or values.