Companies & Industries

Could a case in Ecuador impact future Canadian LNG plants?

Chevron’s Achilles Heel

(Photo: Pluto)

(Photo: Pluto)

The abandoned Texaco oil wells near Lago Agrio, Ecuador, are more than 8,000 kilometres away from Kitimat, B.C., where Chevron plans to build a multibillion-dollar export plant for liquefied natural gas. But the two disparate locations—one Amazonian, the other chilly fjordland—could one day be linked in a lawsuit now wending its way through Canadian courts.

Thirty thousand indigenous and mestizo residents of the area surrounding Lago Agrio won a US$9.5-billion judgment against Chevron in an Ecuadorean court for damage caused by the Texaco wells decades ago. (Chevron later bought Texaco.) California-based Chevron has no assets in Ecuador, though, so the plaintiffs are now pursuing the company in countries where it does, including Brazil and Canada.

For the plaintiffs, the fight is personal. Ecuadoreans blame oil industry pollution for elevated cancer rates in the areas surrounding Lago Agrio. In January a guide showing foreign journalists the old Texaco sites said his best friend died of cancer just days before the tour. The locals say they plan to spend the billions awarded on cleaning the air, water and soil near their homes. But they face a long, difficult legal fight getting any of that money out of Canada.

Chevron Corp. doesn’t really have any assets in this country. Its Canadian subsidiaries do—about $15 billion worth, according to the plaintiffs’ Canadian lawyer, and possibly billions more if Kitimat LNG, 50% owned by Chevron, goes ahead. But to access any of that, the Ecuadoreans will first need to convince a judge (and then an appeals court panel and, quite possibly, the Supreme Court of Canada) that Chevron Canada is legally responsible for the debts of Chevron Corp., a process lawyers call “piercing the corporate veil.”

A December ruling by the Ontario Court of Appeal that overturned an earlier decision to throw out the case makes it more likely the plaintiffs will get a chance to try. Chevron has sought leave to appeal that decision to the Supreme Court. If that fails, the company will have to defend the case in Ontario, where it will likely argue the Ecuadorean decision was obtained by fraud. If that fails, it can still fall back on the argument that the assets of Chevron Canada do not belong to Chevron Corp.

Antonin Pribetic, a Toronto lawyer who has followed the case closely, believes the plaintiffs face “significant hurdles.” But that doesn’t mean Chevron is safe. “Any company facing a potential enforcement of a multibillion-dollar judgment should never take it lightly,” Pribetic says. “Anything is possible.”