Law Times

PAGE 10 Chevron challenges court's jurisdiction over foreign award FOCUS T BY RICHARD FOOT For Law Times in the Amazon jungle, fired its opening volley in a new front in the fighting: Canada. Rather than issue a defence to his summer, the U.S. oil giant Chevron Corp., mired in a 19-year legal battle over pollution a statement of claim filed May 30 in the Ontario Superior Court, Chevron' a motion on July 16 saying that no Canadian court has jurisdic- tion to enforce an $18.3-billion award issued against the com- pany last year in Ecuador. Chevron has subsidiaries s lawyers instead filed in Canada operating in New- foundland and Alberta, but since the judgment was against the U.S.-based parent company, which doesn't exist here, Ca- nadian courts can't deal with it, Chevron argues. That' legal arguments in what some have described as the world' largest lawsuit. It's also a symbol of the increasing role Canada's s an early taste of the s justice system will have to play in the coming years in referee- ing enforcement actions against global corporations. The Chevron lawsuit began in 1993 against Texaco in rela- tion to accusations of polluting the Amazon basin while drill- ing for oil there in the 1970s and 1980s as a partner of Ecuador' state oil company. Chevron, af- ter acquiring Texaco in 2001, defended itself in a lengthy trial in Ecuador that resulted in the 2011 judgment. Chevron has no assets in s Chevron assets here has brought the case to Canada. "Why wouldn't you come to Canada?" asks Alan Lenczner, the high-profile Toronto litiga- tor who represents the plaintiffs in Ontario. "When you realize that Chevron runs virtually all of its business through subsid- iaries, you've got to go where the assets are. "I'm sure there' Ecuador. It calls the $18-billion award "illegitimate" and is refus- ing to pay. The company is also suing the plaintiffs' legal team in the United States for bribery, fraud, and fabricating evidence. Last year, it obtained an injunc- tion from a New York judge pre- venting the plaintiffs from seek- ing enforcement of the award outside Ecuador. The injunction was vacated on appeal. Due to the complications of the ongoing U.S. litigation and perhaps political fears that the American courts might be more sympathetic to Chevron, the plaintiffs have now decided to seek enforcement of their award outside the United States. Last spring, Canada became the first stop on what they've 'Canadian courts give a fair bit of weight to the concept of judicial comity, which is the respect you accord to other courts,' says Markus Koehnen. said will be a global pursuit of Chevron assets. A similar legal action in Brazil followed their Canadian claim. The case has only a tenuous lion worth of assets here, neither in Brazil. So we're going to have to go around the world, since they won't pay, and collect where we can. s not $18 bil- sider it advantageous that Can- ada' link to Canada. Neither of the parties named in the original lawsuit in Ecuador, nor the pol- lution itself or the war of words and the allegations of fraud and bribery that have surrounded the case for decades have any- thing to do with this country. Only the presence of some courts here from retrying any prior evidence already adjudi- cated in Ecuador. And they're likely hoping that a successful decision in Ontario will expedite actions in countries with similar legal traditions, such as Austra- lia and Britain, where Chevron might also have assets. "It would certainly give a big The plaintiffs probably con- s legal system forbids the " boost to the plaintiffs' actions in other common law countries," says Markus Koehnen, an in- ternational commercial litigator with McMillan LLP in Toronto. "Canadian enforcement would certainly give their case a great deal of credibility. gument fails to stay the case in Ontario, the company is likely to raise questions about Ecuador' If Chevron's jurisdictional ar- " judicial system and whether or not it received a fair hearing there. The company can also raise public policy objections to s the enforcement of the award in Canada and it can allege that the trial in Ecuador was subject to fraud or bribery. Koehnen says Chevron will need convincing evidence of such things. As a result, it won't succeed simply by questioning the general integrity of Ecuador' justice system. "If there is evidence that the s court lacked independence or was somehow bribed, then that would be one ground for refus- ing to enforce the judgment," he says. "It' 'Well, it's a developing country. ' Therefore, the court system lacks independence. bit of weight to the concept of judicial comity, which is the re- spect you accord to other courts." Koehnen says "Canadian courts give a fair ciples are likely to get a workout in Canada' these prin- years as more and more judg- ments from unfamiliar legal ju- risdictions find their way here. "There' increased trade and globaliza- tion, these sorts of cross-border issues are going to become more frequent," he says, adding that multinational corporations can't, on the face of it, shield assets in one country from court rulings in another. "Having a company split up around the s no doubt that with into subsidiaries you against enforcement of a foreign judgment." "But it by no means protects LT " he says. SCC's transfer-pricing ruling eagerly awaited D NOT TOO BIG. NOT TOO SMALL. We are a law rm that combines experience, leadership and teamwork. We are a law rm that aligns best practice with exibility and pragmatism. We have an innate appreciation for each client's unique challenge. 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Transfer pricing requires Canadian subsidiaries of foreign companies s to declare for tax purposes how much they pay to their parent for the products they import for sale. By inflating the price paid for the imports, a subsidiary can lower its Canadian profits and shiſt money outside the country. "That evil, if you will, has been around a long time, what the Canada Revenue Agency is doing. They've beefed up their audi- tors and they're quite concerned that Canada is losing its fair share of tax revenue by people mis-pricing what they're doing between their related parties." In the early 1990s, the Canadian arm of British-based Glaxo Group "But in the last eight to 10 years, it has become a very large focus to " says Tobin. s a celestial textbook in the heavens where Court of Canada. Tobin, a partner at Torys LLP, is one of dozens of tax practitioners world sometimes makes awards against them a little harder to enforce, s courts in the coming August 6, 2012 • LAw times s not enough to say, Ltd. paid a foreign affiliate between $1,500 and $1,650 per kilogram for the imported substance ranitidine, the active ingredient in an ulcer drug, for packaging and sale in Canada under the Glaxo brand name Zantac. That price was five times the cost of what generic drug producers were paying for ranitidine, a fact that raised eyebrows at the Canada Revenue See Exclusive, page 12 Untitled-1 1 www.lawtimesnews.com 12-03-07 11:28 AM One of the Top Three Ontario Regional Law Firms as chosen by the readers of Canadian Lawyer magazine.

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