Highlights: 

• On September 4, 2015, the Supreme Court of Canada held that the Ontario court has jurisdiction to hear an action brought by Ecuadorian plaintiffs seeking the recognition and enforcement in Ontario of an Ecuadorian judgment against the U.S. multinational corporation Chevron (Chevron US) and its Canadian subsidiary (Chevron Canada) even where Chevron US had no connection to and no assets in Ontario and Chevron Canada was a stranger to the underlying judgment in Ecuador.
• The Supreme Court’s decision also opens the door for judgment creditors to argue that a subsidiary corporation’s assets should be available to satisfy a judgment against a parent corporation.
• The ruling, however, leaves in place the substantive defences available under Canadian law to rebut such claims.

Main Article

On September 4, 2015, the Supreme Court of Canada unanimously held in Chevron Corp v. Yaiguaje that the Ontario court has jurisdiction to hear an action brought by Ecuadorian plaintiffs seeking the recognition and enforcement in Ontario of a US$9.51-billion Ecuadorian judgment for environmental damage against the U.S. multinational corporation Chevron (Chevron US) and its Canadian subsidiary (Chevron Canada). Remarkably, Chevron US had no connection to and no assets in Ontario and Chevron Canada was a stranger to the underlying judgment in Ecuador for which recognition and enforcement is being sought in the Ontario court.

The Supreme Court’s decision should be of interest both to Canadian multinational corporations with foreign operations and to foreign entities with operations or assets in Canada because it reduces the procedural obstacles to recognizing and enforcing foreign judgments in Canada. Significantly, however, the ruling leaves in place the substantive defences available under Canadian law to rebut such claims. The Supreme Court’s ruling means that the case will now return to an Ontario court to determine whether the Ecuadorian judgment can be properly recognized and enforced in Ontario.

Background

In 2012, Ecuadorian plaintiffs commenced a recognition and enforcement action in Ontario against both Chevron US and Chevron Canada. Chevron US is a Delaware corporation with its head office in California. Chevron Canada is a wholly owned, seventh-level subsidiary of Chevron US, with its head office registered in Alberta. The plaintiffs served Chevron US in California and Chevron Canada in Mississauga, Ontario, where it maintains an office.

Chevron US and Chevron Canada moved before the Ontario court, seeking, inter alia, (i) a declaration that the Ontario court lacked the jurisdiction to hear the plaintiffs’ recognition and enforcement action, and (ii) an order dismissing, or permanently staying, that action.

The Ontario Superior Court of Justice held that the Ontario court has jurisdiction over both Chevron US and Chevron Canada. Nonetheless, the motion judge stayed the recognition and enforcement action on his own initiative because the judge held that Chevron US did not itself possess any assets in Ontario and that the plaintiffs had “no hope of success” in piercing the “corporate veil” in order to make the assets of Chevron Canada exigible to satisfy the judgment against its ultimate parent, Chevron US.

On appeal, the Ontario Court of Appeal agreed that the Ontario court has jurisdiction over both Chevron US and Chevron Canada, but held that the motion judge had erred in granting a discretionary stay of the action.

The Supreme Court unanimously upheld the decision of the Ontario Court of Appeal noting that different principles are engaged when considering actions in the first instance and actions for recognition and enforcement of foreign judgments. The purpose of the latter is to allow a pre-existing obligation to be fulfilled, which involves facilitating the collection of a debt already owed by a judgment debtor. The court’s role in enforcement proceedings is less invasive than an action in the first instance, militating in favour of generous and liberal enforcement rules for foreign judgments.

No Real and Substantial Connection to Ontario Is Required

The Supreme Court held that there is a low threshold for foreign judgment creditors to commence recognition and enforcement actions of foreign judgments in Ontario. The Court unambiguously held that there is no requirement to find a “real and substantial connection” between the enforcing Canadian court and the foreign action or judgment debtor.

The test for an Ontario court to recognize and enforce a foreign judgment is whether the foreign court validly assumed jurisdiction in the first instance; the foreign court must have had a real and substantial connection with the litigants or the subject matter of the dispute. This will be satisfied if the defendants submitted to the jurisdiction of the foreign court.

In addition, for the Ontario court to assume jurisdiction over the recognition and enforcement action, the defendant must have been properly served – either inside or outside Ontario – under the province’s Rules of Civil Procedure (Rules).

Defendant Is Not Required to Have Assets in Ontario

The Supreme Court held that it is not necessary for foreign debtors to possess assets in Ontario in order for the Ontario court to take jurisdiction in a recognition and enforcement action. The Court noted that in today’s globalized world and electronic age, to require that a judgment creditor wait until the foreign debtor is present or has assets in the province before a court can find that it has jurisdiction in recognition and enforcement proceedings would be to turn a blind eye to current economic reality. The Court stated that there is nothing improper with allowing foreign judgment creditors to choose where they wish to enforce their judgments and to assess where their debtor’s assets could be found or may end up being located one day.

Veil Piercing of a Subsidiary to Satisfy a Parent Corporation’s Debt

The Supreme Court explicitly stated that the Ontario court’s jurisdiction over Chevron US and Chevron Canada did not prejudice future arguments regarding their distinct corporate personalities; nor did it settle the question whether Chevron Canada’s assets should be available to satisfy Chevron US’s debt.

Nonetheless, the Supreme Court’s decision opens the door for judgment creditors to argue that a subsidiary corporation’s assets should be available to satisfy a judgment against a parent corporation.

Existence Versus Exercise of Jurisdiction

The Supreme Court draws a clear distinction between the existence of jurisdiction and the court’s exercise of jurisdiction. Once parties move past the jurisdictional phase, it may still be open to a judgment debtor/defendant to argue the following:

• The proper use of Ontario judicial resources justifies a stay under the circumstances.
• The Ontario courts should decline to exercise jurisdiction on the basis of forum non conveniens.
• One of the available defences to the recognition and enforcement of a foreign judgment (i.e., fraud, denial of natural justice in the foreign proceeding or public policy in Canada) should be accepted in the circumstances.
• A motion should be brought for summary judgment or for determination of an issue before trial under the Rules.

Conclusion

The plaintiffs in Chevron Corp. v. Yaiguaje may ultimately not succeed on the merits of their recognition and enforcement action in Ontario. And they may be unsuccessful in collecting damages in Ontario from either Chevron US or Chevron Canada. Nonetheless, the Supreme Court’s decision has implications for the transnational litigation strategies pursued by Canadian multinational corporations and by non-Canadian entities with operations or assets in Canada. Subsequent developments in this litigation may also provide valuable lessons in parent-subsidiary governance.