Chevron Decision May Signal Challenges Remain to Achieve Greater Accountability, Transparency and Corporate Social Responsibility in the Oil and Gas Sector

Chevron Decision may signal challenges remain to achieve greater accountability, transparency and Corporate Social Responsibility in the oil and gas sector.

In January 2017, the Secoya tribe and the Union of People Affected by Texaco’s operations (UDAPT, by its Spanish initials) in Ecuador lost their initial bid to enforce in Canadian courts the US$9.5 billion Ecuadorian judgment against Chevron for environmental damages caused to the nation's rainforests and waterways between the 1950s and 1990s. The plaintiffs argued that the judgment should be enforceable in Canada because Chevron, a Delaware company with its head office in California, has a Canadian subsidiary, Chevron Canada. The January 2017 Ontario Superior Court decision[iii] rejected the plaintiffs’ argument that Chevron Canada is “wholly-owned and controlled by Chevron Corp. for the sole benefit of Chevron Corp.'s shareholders.” Instead, the court ruled that Chevron Canada is not an asset of Chevron Corp., but rather a separate legal person.[iv]  This was a disappointing setback for the plaintiffs and their lawyers after a successful appeal to the Supreme Court of Canada (SCC) decided in 2015 allowed the case to go a full trial.^[v] In this article we describe the background to the case and argue that the Ontario Superior Court decision, and subsequent developments in the Fall of 2017, signal that challenges remain to achieve greater accountability, transparency and Corporate Social Responsibility (CSR) in the oil and gas, mining and other resource extraction sectors.

Background

The Chevron case, which has been called the world's largest environmental justice case,[vi] involves a decades-long dispute between members of Ecuadorian communities and the Chevron Corporation. In 2011, the Supreme Court in Ecuador found that Chevron-Texaco had deposited industrial refuse in jungles, waterbodies, roads and farmlands adjacent to the communities, including approximately 880 Olympic pool-sized pits filled with petroleum waste; 650 thousand barrels of crude oil spilled in the jungle and on farmland; and an estimated 60 billion gallons of toxic waste dumped into waterways. In addition, the court determined that more than 1,500 kilometers of Amazonian roads have been covered in crude oil in recent decades. The plaintiffs also filed substantial evidence of elevated cancer rates, other health problems, and contamination of traditional food supplies, providing the basis for an initial judgment of more than US$17 billion. This lower court decision was upheld by an Ecuadorian appeals court, and reduced to US$9.5 billion by the National Court of Justice of Ecuador. However, the Ecuadorian subsidiary of Texaco-Chevron was bankrupt; consequently the plaintiffs sought compensation from the company's other international operations.

The Secoya Tribe's Elusive Search for Environmental Justice

The Secoya tribe and the UDAPT have traveled to the United States, Argentina, Brazil, Canada, and have appealed to the International Court of Justice, to enforce the Ecuadorian judgment.

The chief U.S. lawyer, strategist, and organizer at the centre of the Secoya tribe’s and the UDAPT's case is Steven Donziger, a Harvard-educated lawyer who has been described by a journalist for the Wall Street Journal (and others in the U.S. business press) as a "self-styled social activist".[vii] In August 2016 the Ecuadorians suffered a serious setback when Judge Lewis Kaplan of the U.S. Court of Appeals for the Second Circuit in New York issued a unanimous 127-page affirmation of an earlier ruling that the $9.5 billion judgment had been tainted by evidence of fraud, bribery, evidence tampering, and other alleged misconduct. This civil racketeering (“RICO”) suit was brought by Chevron, and has blocked the plaintiffs from trying to collect on the judgment in the U.S., barring Donziger from collecting any fees from the judgment as a consequence.

While the Federal courts in New York have ruled that Donziger’s campaign devolved into a racketeering conspiracy involving bribery and fabricated evidence, many supporters of the Ecuadorians disagree. In 2014, 17 non-governmental organizations and the Ecuadorian government began to file amicus briefs seeking to overturn the controversial rulings by Judge Kaplan in Chevron's RICO action.[viii] What exactly did Donziger do? In a 494 page judgement, Justice Kaplan found that Donziger and his team committed three violations of the federal racketeering law: 1) they conspired with a court-appointed expert in Ecuador, Richard Cabrera, to write the expert's report; 2) they organized a scheme to bribe the Ecuadorian judge; 3) they secretly "ghostwrote" the judge's decision against Chevron. One observer in the United States raises interesting questions about the relevance of the ruling: all of the evidence of Donziger's collusion with Cabrera was put before the court in Ecuador, and the judge said he was not relying on the Cabrera report in making his ruling.[ix] Further, Chevron introduced "zero evidence that any money changed hands in exchange for the judgment. There is no evidence that Judge Zambrano, who issued the Ecuadorian judgment, came into any money."

There is no doubt that Donziger has waged his campaign in an aggressive manner strongly reminiscent of the tactics used by Jan Schlichtmann in the Woburn, Massachusetts TCE contamination case.[x] That landmark and controversial case was brilliantly detailed by Jonathan Harr in his 1995 book, A Civil Action,[xi] which later adapted into a film. However, legal tactics aside, it has been documented for decades that corporations have undertaken activities such as bribery of public officials and coercion in an effort to promote development activities with negative social and environmental consequences for indigenous peoples and rural communities across the globe.

Are we missing the big picture?

In some ways the Chevron case once again shows how judges and lawyers can get lost in procedural details and complex or nuanced legal arguments and miss the big picture. No court has ever denied that Chevron-Texaco created most of the massive contamination of the Ecuadorian Amazon region.  As observers in the United States have noted, Chevron's lawyers - Randy Mastro's team at Gibson Dunn & Crutcher - have never attempted to show that their client wasn't responsible.[xii] Instead, the Chevron lawyers used "fraud-on-the-court arguments" about the Ecuadorian trial to completely sidestep the question of their client's own culpability.

It has been argued that when you look at the facts of the case it appears plausible that Chevron's U.S. lawyers were more likely to have committed some type of crime.[xiii] In May 2017, the Ecuadorian government, Amazon Watch, the Rainforest Action Network, and 15 other groups filed another amicus brief with the U.S. Supreme Court urging the justices to overturn Chevron’s retaliatory racketeering suit against the Ecuadorian Amazon communities and their lawyers.[xiv] The brief outlines allegedly illegal and unethical tactics Chevron and its lawyers used to obstruct the lawsuit in Ecuador, including providing evidence that Chevron paid hundreds of thousands of dollars to its star witness, an allegedly corrupt former judge who ultimately admitted after trial that he lied in his testimony in the case. The brief argues that the allegedly corrupt judge’s evidence formed the bedrock of many of the District Court’s key conclusions. Additionally, the brief urged courts to refrain from investigations into foreign trials as they can lead to misinterpretations and result in forum shopping. Ultimately, the brief sought certiorari on the question of whether “federal courts have jurisdiction to entertain preemptive collateral attacks on monetary judgments issued by foreign courts?”     

Given the current make-up of the U.S. Supreme Court, perhaps it was not surprising to learn in June 2017 that the court had turned down the 2017 amicus brief applications.[xv] It is unclear whether this will be final decision in this chapter of the saga in the United States, but it seems likely.

Some would be tempted to argue the Chevron case shows there is an apparent double standard with respect to governance: international and multinational corporations are well insulated from complex environmental justice legal actions undertaken in developing nations, whereas plaintiffs and their counsel in these nations seem to have limited access to legal remedies. No doubt this is one reason why national and regional governments in many developed and developing nations have begun to enact anti-corruption and anti-bribery laws that apply to corporations based within their territories and operating internationally. Corporations also have begun to respond to pressure from governments, non-governmental organizations, regulators, and their own shareholders by establishing policies and practices to promote CSR. ^[xvi]

Due to the findings against Steven Donziger personally, several of the firms supporting and funding the litigation efforts withdrew entirely from the case. Burdford Capital had initially pledged to invest $4 million to assist the plaintiffs with the Chevron case but withdrew its support in April 2013 after it had concluded the plaintiffs’ lawyers had misled Burdford. In May 2014, Washington law firm Patton Boggs, which had signed on as co-counsel with Donziger, agreed to pay $15 million to Chevron and withdrew from the law suit. It, however, did not publicly admit to any wrongdoing in connection with the settlement. After Chevron brought conspiracy claims against Woodsford Litigation Funding Limited for the company’s role in funding and advancing Donziger’s lawsuit, the two companies reached a settlement to avoid further litigation. The UK-based litigation funding firm had previously provided $2.5 million to fund the law suit.

Developments in Canada

To date, developments in Canada have been mixed. In a separate paper prepared for the Ontario Bar Association's Aboriginal Law Section Newsletter in March 2016, the principal author[xvii] traced some of the controversies related to the Canadian case and explored the developments in Canada prior to February 2016.[xviii]  Chevron has consistently sought to argue that it is inappropriate for the Canadian courts to “pierce the corporate veil” even though the veil has been pierced by the courts, legislatures and Parliament for decades in relation to social welfare issues such as food and product safety, environmental contamination and occupational health and safety. After the Ontario Court of Appeal overturned an Ontario Superior Court decision allowing a motion by Chevron to block an enforcement application, the Supreme Court of Canada sent the case back down to an Ontario Superior Court for a hearing on the merits of the case.[xix] 

In early 2017, the Ontario Superior Court ruled in a summary judgment against the plaintiffs.[xx] The plaintiffs, in addition to seeking payment of the US$9.5 billion, also sought a declaration that the shares of Chevron Canada are exigible to satisfy the Ecuadorian judgment.  Justice Hainey accepted evidence that Chevron Canada is a seventh level indirect subsidiary of Chevron with its head office in Calgary, Alberta. He also held that the shares and assets of Chevron Canada were not exigible and available for execution and seizure pursuant to the Execution Act to satisfy the Ecuadorian judgment. 

In refusing to permit the seizure of shares and assets of Chevron Canada in satisfaction of the Ecuadorian judgment, the court upheld the principle of corporate separateness, ruling that the “corporate veil” should not be pierced in this case. The decision, while applauded by corporate lawyers, is viewed by lawyers for the plaintiffs as incorrect in law.[xxi] The plaintiffs promptly indicated they would seek leave to appeal the decision.[xxii]

Security for Costs Order and Appeal 

The plaintiffs filed their leave to appeal application on the summary judgment decision with the Ontario Court of Appeal (OCA) in February 2017.   This prompted Chevron Canada and Chevron to seek an order for security for costs in excess of over US$1 million, $160,000 for the appeal and the rest for the previous proceedings. 

In September 2017 Justice Gloria Epstein, of the OCA, ordered that the Ecuadorian plaintiffs post security for costs of over CDN$940,000 in order to continue with an appeal from the summary judgment order dismissing the plaintiffs’ action.[xxiii] Of this amount, approximately $591,000 would be posted for Chevron Canada and another $352,000 for the Chevron Corporation.  Justice Epstein ruled that the general principles for posting security for costs applied to such a motion in the OCA.  Under Ontario's rules of civil procedure, an order for security for costs could be made where plaintiffs are ordinarily resident outside of Ontario.  The issue and relevant considerations were whether they could demonstrate on a balance of probability that they were impecunious and, if not, could they demonstrate that there was a good chance of success on the appeal. With respect to the first issue, the court ruled that the plaintiffs could not demonstrate impecuniosity because the Ecuadorians had filed no evidence as to their finances beyond three settlement agreements which she held were not “evidence” in any event.  As for the merits of the appeal, Justice Epstein agreed with Justice Hainey’s analysis and concluded that the plaintiffs did not have a good chance of success on the appeal. 

Once the security for costs order was released, some legal experts queried in social media posts whether Justice Epstein’s ruling that the Ecuadorian plaintiffs’ had failed to show their claim had a reasonable chance of success might end the appeal. However, in October 2017 a panel of three Court of Appeal judges reversed the security for costs decision, finding that the order was unjust because of the unique circumstances of the case.[xxiv]  The OCA panel commented that “[t]he history of this litigation, which has been ongoing for almost 25 years, makes clear that Chevron Corporation has and, it may be anticipated, will employ all available means to resist enforcement of the Ecuadorian judgment.”

The Court of Appeal also said that, at this stage, it is not possible to say whether the case is devoid of merit and the fact that the plaintiffs’ legal arguments may be “innovative and untested” does not preclude them from being potentially successful.  The panel also added that it would not be appropriate to thwart a potential advancement in the law because of procedural or tactical reasons.

What Can We Learn from the Efforts of Indigenous Plaintiffs to Hold Chevron Accountable for Its Destructive Legacy in Ecuador?

Are there lessons we can learn from the efforts of the Secoyan plaintiffs to hold Chevron accountable for its destructive legacy in Ecuador? Arguably, this case provides another example of the extraordinary lengths multinational corporations will go to avoid liability in the developing world for the environmental and health impacts their activities can cause. For centuries, companies and corporate charters based in Europe, North America and other developed nations have wreaked ecological, political, economic and social havoc by exporting dangerous substances, techniques, resource management ideas (such as sustained yield) and socio-technical systems. [xxv]  Some of the disruptions these dangerous chemicals, systems, and technologies have caused are shocking in their scope, such as the infamous industrial disaster in Bhopal, India in 1984. [xxvi]  On the night of December 2, 1984, the Union Carbide India Limited (UCIL) pesticide plant in Bhopal, Madhya Pradesh leaked methyl isocyanate gas and other chemicals. The toxic substance made its way in and around the shantytowns located near the plant, resulting in the exposure of hundreds of thousands of people. Estimates vary on the death toll. The official immediate death toll was 2,259 and the government of Madhya Pradesh confirmed a total of 3,787 deaths related to the gas release.[xxvii] If this accident had happened in Canada, billions would have been paid in compensation and Union Carbide would have had to declare bankruptcy. Instead, a U.S. court ruled that damages would be based on Indian law and mere millions were paid out, protecting thousands of Union Carbide shareholders and their employees mostly based in developed nations.

The Bhopal disaster graphically showed how multinational corporations in developed nations export environmental and social risks to developing nations when they transfer our dangerous technologies and place them in the hands of companies, subsidiaries, technologists and engineers in developing nations who may not understand the risks associated with their use, or governments and experts who may be more willing to expose people to those risks.

Bhopal was not an isolated incident. A more recent example is found in the handling of two massive oil spills by Shell in the Niger Delta in 2008 and 2009. Although the evidence of environmental damage and social impacts was compelling, Shell evaded responsibility for years through its influence in the government and claims of sabotage.  In 2015, Shell was ordered to pay £55 million to 15,600 farmers and fishermen after Amnesty International and British law firm Leigh Day helped represent victims in an action against the oil conglomerate.

In Canada, indigenous peoples also have been subject to questionable corporate behavior for decades that has caused toxic pollution to lands they occupy and use for hunting, fishing, berry-picking and other community activities. For example, the mercury poisoning at Grassy Narrows was identified as a national tragedy in the early 1970s. [xxviii] The Asubpeeschoseewagong First Nation (also known as the Grassy Narrows First Nation) suffered mercury poisoning from the Dryden Chemical Company, a chloralkali process plant, located in Dryden, Ontario, which manufactured both sodium hydroxide and chlorine. Many tonnes of these chemicals were used for bleaching paper during production at the Dryden Pulp and Paper Company, which discharged its effluent and released mercury by-products into the Wabigoon-English River system. When walleye in the local waterways were deemed no longer safe to eat due to the mercury contamination in the early 1970s, the Ontario provincial government told the Grassy Narrows community to stop eating fish — their main source of protein — and closed down their commercial fishery, resulting in a 90% unemployment rate.  

The commercial fishery closure meant economic and social disaster for Grassy Narrows and devastated the tourism industry. The long term legacy of this pollution is that dozens of indigenous peoples at Grassy Narrows have become sick from drinking water and eating flora and fauna from in and around the Wabigoon River. The Grassy Narrows tragedy was one of the key reasons a Royal Commission on the Northern Environment was established in 1980 by the then-Progressive Conservative government. After years of bungling and further investigation, the Ontario government announced in July 2017, that it would spend $85 million to start the clean-up of the contaminated river and land.[xxix] 

Conclusion

Corporate Social Responsibility has begun to evolve into a fundamental strategic priority for large, medium-sized and small businesses in the past decade.[xxx] Companies, especially those based in developed nations and under pressure from activist shareholders who seek to promote ethical and socially responsible investments, are increasingly integrating policies that further some social good or ethical practices extending beyond the interests of their firms. The Chevron case provides a teachable moment for lawyers and social justice advocates who support CSR.

It seems likely that Chevron will ultimately be successful in its argument that it is inappropriate for the Canadian courts to “pierce the corporate veil”. Some may argue that this will be a significant setback for CSR and corporate regulation on environmental protection, recognition of indigenous rights, and social welfare issues such as food and product safety, environmental contamination and occupational health and safety.  Others will ask hard questions and perhaps they will include the following: Will decisions such as the Chevron case build greater international and domestic awareness and tangible support for corporate accountability, transparency and CSR in the oil and gas, mining, forestry and manufacturing sectors in Canada and other developed nations? Will non-governmental organizations, lawyers, community advocates and government officials advocating for greater accountability in those sectors feel discouraged? Do governments need to amend corporate legislation to provide regulators with express tools to address these complex contamination and pollution problems more directly and impose stronger penalties? How can historical and legacy environmental contamination issues such as the Ecuadorian disaster and Grassy Narrows be addressed in a manner that doesn't make governments entirely responsible for financial and technical aspects of the clean-ups? What role should shareholders and managers at Chevron-Texaco who benefited from the economic wealth generated by oil development play in the clean-up and how much liability should they shoulder?

These are questions that are beyond the scope of a short article such as this. Most of these questions have been raised and debated in the past. Ultimately these debates are vital in a democratic society and can inform our understanding of wicked environmental and social justice issues such as toxic pollution, climate change and promoting reconciliation with indigenous peoples all over the world.  It is disappointing that more than 30 years after shocking tragedies such as Bhopal and nearly 30 years after the Exxon Valdez oil spill in Alaska, most large corporations seem to find it difficult to move beyond platitudes and general commitments. They have a responsibility to put “more skin in the game”, financially and technically. As we move toward 2020, corporate executives, governments, investors and others have a duty to engage in meaningful discussions of the implications of CSR for their day to day operations and to promote socially just and environmentally sound approaches to address these legacy contamination disasters. Moreover, lawyers, judges and legal academics and organizations such as the CBA and the OBA must help advance this dialogue and not unreasonably shield corporations and their directors from playing a role in cleaning up these legacy sites.

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About the authors

[i] David McRobert is an environmental, aboriginal rights and energy lawyer based in Peterborough, Ontario.  email:  mcrobert@sympatico.ca  David acknowledges research contributions to this article by Julian Tennent-Riddell. Julian has a B.A. Honours degree in Indigenous Environmental Studies from Trent University (2014) and recently graduated with a J.D. from the University of British Columbia Faculty of Law (2017). Email: juliantennentriddell@gmail.com