A three-justice panel says the group, which wants Chevron Canada to be held responsible for a multi-billion-dollar judgment awarded in Ecuador, can have their case heard in Ontario.
"After all these years, the Ecuadorian plaintiffs deserve to have the recognition and enforcement of the Ecuadorian judgment heard on the merits in an appropriate jurisdiction. At this juncture, Ontario is that jurisdiction," according to the decision released Tuesday.
The panel also ordered Chevron Corp. and Chevron Canada to pay $100,000 of the plaintiffs' legal costs.
In May, a lower Ontario court sided against the villagers and granted a stay in the action, ruling that the company's Canadian arm should not be on the hook for the judgment because their assets are not directly owned by the California-based multinational company.
The villagers had argued Chevron Canada has billions of dollars in assets it could use to pay the judgment, but the lower court ruled the long-standing legal battle did not belong in Ontario courts.
"In my view, the parties should take their fight elsewhere to some jurisdiction where any ultimate recognition of the Ecuadorian judgment will have a practical effect," Justice David Brown wrote in the decision which was overturned.
The appeal court ruled the villagers deserve to have their day in court, even if their chances of winning may be small.
"A party may bring an action for all kinds of strategic reasons, recognizing that their chances of collection on the judgment are minimal," wrote the panel.
"It is not the role of the court to weed out cases on this basis and it is a risky practice for a judge to second-guess counsel on strategy in the name of judicial economy."
The decision also referred to comments made by a spokesman for Chevron before the judgment was released, stating the company's determination to fight the case until the end.
"We're going to fight this until hell freezes over. And then we’ll fight it out on the ice," the ruling quoted a spokesman as saying.
The judges replied: "Chevron's wish is granted."
In 2011, an Ecuadorian judge ordered Chevron Corp. to pay US$19 billion to 30,000 villagers for black sludge contamination of a rainforest in the Amazon between 1972 and 1990 by Texaco, which it bought in 2001. Last month, Ecuador's highest court upheld the judgment but lowered the amount to US$9.51 billion.
Chevron maintains it won't pay because it contends that Texaco had signed an agreement with Ecuador in 1998 and paid $40 million to clean the pollution, and was absolved of any future liability. But the villagers argue that the agreement does not exempt the company from third-party claims.
In a statement, Chevron Corp. said it is considering its next steps, including an appeal to the Supreme Court of Canada.
"If the Ecuadorian plaintiffs truly believed in the validity of the Ecuadorian judgment, they should seek enforcement in the United States, where Chevron Corp. resides, rather than targeting assets of the company's subsidiaries that are not parties to the Ecuadorian litigation," according to a statement posted on its website.
"They are aware that in the U.S., however, they would be confronted by the fact that eight federal courts have already found the Ecuador trial to be tainted by fraud. Chevron Corp. remains committed to fighting enforcement of the fraudulent Ecuadorian judgment and we are confident that any jurisdiction that respects the rule of law will find it illegitimate and unenforceable," said the company's statement.
Canada's highest court has previously ruled that foreign judgments are only enforceable in Canada as long as there is a "real and substantive connection'' between the foreign jurisdiction and the subject matter of the claim.
The Ecuadorian case has been plagued with allegations of fraud and corruption.
Last month, a New York courtroom heard allegations from a former Ecuadorian judge that the judge in charge of the 2011 case took a $500,000 bribe.
Similar legal actions have been launched in courts around the world, including in Argentina and Brazil.