Security for Costs Decision Allows Significant Recognition and Enforcement Appeal to Proceed

November 01, 2017

Written By Ranjan K. Agarwal and Nathan J. Shaheen

On October 31, 2017, the Ontario Court of Appeal released the latest decision in a nearly 25-year legal saga being pursued on behalf of approximately 30,000 indigenous Ecuadorian villagers affected by environmental pollution allegedly caused by Texaco Inc., a company that later merged with Chevron Corporation.

The decision in Yaiguaje v Chevron Corporation, 2017 ONCA 827, clarifies the test to be applied when security for costs are sought before an appeal is heard and, applying the test, holds that the representative plaintiffs do not have to post security in the unique circumstances of the case. The result re-opens the door for the plaintiffs’ appeal on the merits concerning their thus-far unsuccessful efforts to recognize and enforce a US$9.5-billion Ecuadorian judgment in Ontario.

The history of the underlying dispute is long and complex. In 1993, the representative plaintiffs first commenced proceedings against Texaco in New York. While that proceeding was ultimately dismissed, the plaintiffs commenced new proceedings in Ecuador in 2003 against Chevron, which by that time had merged with Texaco. The Ecuadorian proceeding resulted in a US$9.5-billion judgment against Chevron.

In 2012, the plaintiffs commenced proceedings in Ontario against Chevron and Chevron Canada seeking recognition and enforcement of the Ecuadorian judgment. Only after unsuccessfully arguing the Ontario court lacked jurisdiction up to the Supreme Court of Canada did the Chevron companies defend the action on its merits. The defences advanced include that (a) the shares and assets of Chevron Canada are not exigible and (b) there is no basis to pierce the corporate veil between Chevron and Chevron Canada to render the Canadian company’s shares and assets available to satisfy the Ecuadorian judgment.

On a summary judgment motion, the Superior Court of Justice accepted the Chevron companies’ defences and dismissed the plaintiffs’ action (We wrote about that decision: The Corporate Veil Matters). The plaintiffs appealed to the Court of Appeal. In response, the Chevron companies moved for security for costs of the proceeding and the appeal. The security for costs motion gives rise to the Court of Appeal’s recent decision. Security for costs are intended to protect a defendant from an unenforceable costs award because the plaintiff is outside Ontario and has no assets in Ontario.

In first instance, the motion judge of the Court of Appeal granted the motion and ordered that security for costs exceeding $1 million must be posted, an amount virtually certain to end any appeal on the merits. However, on appeal, a three-judge panel of the Court of Appeal clarified important principles relevant to security for costs motions that the motion judge failed to consider:

• courts must be vigilant to ensure that security for costs orders are not used as a litigation tactic to prevent a case from being heard on the merits, even when the other criteria for such an order are satisfied
• while Ontario courts have articulated factors that may be relevant to determining the justness of an order for security for costs, the correct approach is always for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made

Here, the Court of Appeal held that the unique factual circumstances require the conclusion that the interests of justice dictate that no security for costs be ordered. These circumstances included:

• the plaintiffs are advancing public interest litigation, where any funds recovered will be paid into a trust and excess funds are to be used for environmental or health care purposes
• while normally the court would consider the impecuniosity of the plaintiffs, it would be highly impractical to obtain such evidence and the environmental devastation to the plaintiffs’ lands affected their ability to earn a livelihood
• the Chevron companies’ billions of dollars of annual revenues indicate that they do not truly require protection for any costs that may amount in the appeal 
• it appears the true purpose of the security for costs motion was to end the litigation
• there is no bright line test requiring an appellant to demonstrate that third-party litigation funding is not available to resist a motion for security for costs
• it cannot be said at this stage that the case is wholly devoid of merit

As a result, the path has been cleared for the Ecuadorian plaintiffs to pursue their appeal on the merits and, in turn, for the Court of Appeal to decide whether those plaintiffs have finally found an avenue to recognize and enforce the Ecuadorian judgment.

This decision is important for businesses who may be sued in Ontario by absent plaintiffs, making it more difficult for them to protect themselves against adverse costs awards. Given that the Court of Appeal, last week, green-lighted a class action by absent foreign plaintiffs (see Ontario Court of Appeal Grounds Class Action Jurisdiction Challenges), this decision seems to be leading to Ontario becoming a forum for foreign litigants.

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