The Canadian subsidiary of U.S.-based oil giant Chevron Corp. cannot be held liable for a US$9.5-billion award a court in Ecuador ordered against the parent company in favour of Ecuadorian villagers, Ontario’s top court ruled on Wednesday.

Even though the Court of Appeal expressed sympathy for the plight of the Indigenous villagers, it found that ordering Calgary-based Chevron Canada to pay them in what it called a “tragic case” would amount to twisting current laws out of all recognition.

“There can be no denying that, through no fault of their own, the appellants have suffered lasting damages to their lands, their health, and their way of life,” the Appeal Court said in its ruling. “Their frustration in obtaining justice is understandable.”

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At the same time, the Appeal Court said, Canadian courts must decide cases based on the laws and jurisprudence in place in Canada. What the villagers argued, the panel said, found no support in either legislation or case law.

“What is really driving the appellants’ appearance in our courts is their inability to enforce their judgment in the United States,” Justice William Hourigan wrote for the court. “(But) the appellants are asking us to radically alter our law.”

The protracted legal struggle began in 1993 when 47 plaintiffs representing about 30,000 villagers sued Texaco, later bought by Chevron, for polluting 1,500 square kilometres of rain forest in northern Ecuador that fouled streams, drinking water and garden plots, and caused lasting and ongoing serious health effects – a consequence disputed by Chevron.

The villagers ultimately won their US$9.5-billion judgment in Ecuador in 2013 – an award the company insists was obtained fraudulently. However, because Chevron no longer had assets in the South American country, the villagers turned to courts in other countries, including the U.S. and Canada.

The Canadian action, which began in 2012, aimed to have Chevron Canada pay even though the villagers alleged no wrongdoing against the company. Essentially, they argued Chevron Corp. should not be able to hide behind a subsidiary to avoid its creditors.

In an earlier ruling, Superior Court Justice Glenn Hainey found the parent and subsidiary were two distinct entities and the latter could not be held liable for the debts of the former. The Appeal Court agreed.

“If this court endorsed this interpretation, it would result in significant changes to fundamental principles of our corporate law and the law of execution,” Hourigan wrote. “It would also create new substantive rights.”

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R. Hewitt Pate, vice-president and general counsel for Chevron, said in a statement that the decision follows rulings in the United States, Brazil and Argentina “that confirm the fraudulent Ecuadorian judgment should be unenforceable in any court that respects the rule of law.”

“We are pleased that the Ontario Court of Appeal has affirmed the trial court’s clear application of legal principles that show that Chevron Canada Limited is a separate legal entity that cannot be dragged into this fraudulent litigation,” Pate said.

Meanwhile, villagers called the ruling “profoundly unjust” and said they would seek to appeal to the Supreme Court of Canada.

“We will continue to fight – not only because of the need to realize environmental justice in Ecuador, but because this decision allows wealthy corporations with creative lawyers to achieve absolute immunity by placing assets in shell companies,” Patricio Salazar, the plaintiffs’ lead Ecuadorian lawyer, said in a statement. “This decision must be resisted to protect the rights of Indigenous peoples from corporate injustice all over the world.”

The villagers were partially successful on appeal in terms of costs. Hainey had awarded $533,001 to Chevron Canada and $313,283 to Chevron Corp. after rejecting the villagers’ argument that the litigation was in the public interest and, at most, they should only have to pay a nominal amount.

“The appellants are seeking to enforce a judgment in which they have no direct economic interest,” the Appeal Court noted. “Funds collected on the judgment will be paid into a trust and net funds are to be used for environmental rehabilitation or health care purposes. This is public interest litigation.”

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As a result, the Appeal Court said, the legal fees awarded against the villagers were “excessive.” The court ordered them to pay $150,000 to Chevron Canada and $100,000 to Chevron Corp. In addition, the villagers will have to pay Chevron $100,000 to cover the costs of the appeal.