The Supreme Court of Canada’s most recent decision in Chevron Corp. v. Yaiguaje has significantly increased the litigation risk for companies with assets in Canada from plaintiffs seeking to enforce foreign judgments obtained against the foreign affiliates of such companies. The SCC decision in Chevron will have significant cross-border implications, as enforcement in Canada can now be pursued against foreign companies and their Canadian affiliates even if neither party to the original dispute has a “real and substantial” connection to Canada.

Background

This is an appeal of an Ontario Court of Appeal ruling, on which our colleague Hovsep Afarian commented in 2013 and was considered by our editors in the Top 10 SCC Appeals to Watch for 2015.

The plaintiffs sought to enforce a US$9.51 billion Ecuadorian judgment in Ontario, against Chevron Corporation (“Chevron”), who was a judgment debtor in the Ecuadorian case, and Chevron Canada Limited (“Chevron Canada”), a non-party to the Ecuadorian case and seventh-level indirect subsidiary of Chevron.  Chevron was served with the Ontario enforcement proceeding materials at its head office in California, while Chevron Canada was served twice, first at its registered office in British Columbia and later at its “bricks-and-mortar” place of business in Ontario.

On a motion brought by Chevron and Chevron Canada to set aside ex juris service and stay the action for lack of jurisdiction, the motion judge imposed a discretionary stay against the enforcement for several reasons, including that there was no basis for asserting that Chevron Canada’s assets are Chevron’s assets for the purposes of satisfying the Ecuadorian judgment.

The Court of Appeal overturned the discretionary stay, establishing that Ontario courts had jurisdiction over Chevron Canada by virtue of Chevron Canada’s physical presence in Ontario and its “economically significant relationship” with Chevron.  As mentioned in a previous post, the Court of Appeal’s decision to assume jurisdiction over Chevron Canada appeared to be partly based on piercing the corporate veil between the foreign judgment debtor and its Canadian subsidiary.

SCC Decision

On Chevron

Justice Gascon, on behalf of a unanimous Supreme Court, ruled that to recognize and enforce in Canada a foreign judgment against a foreign company like Chevron, the only prerequisite is that the foreign court had a real and substantial connection with the litigants or with the subject matter of the dispute, or that the traditional bases of jurisdiction were satisfied. In other words, because Chevron was a judgment debtor, there was no need to demonstrate a real and substantial connection between the dispute or the defendant and the enforcing forum, i.e. Ontario. In actions to recognize and enforce foreign judgments within the limits of the province, it is the act of service on the basis of a foreign judgment that grants an Ontario court jurisdiction over the defendant.

The SCC pointed out that once past the jurisdictional phase, a defendant may argue any or all of the following: a discretionary stay under the circumstances; forum non conveniens; any one of the available defences to recognition and enforcement (i.e. fraud, denial of natural justice, or public policy); or that a summary judgment or a determination of an issue before trial should be granted.

On Chevron Canada

The SCC held that the core of the current dispute was the sizable assets, and not the Ecuadorian events that led to the foreign judgment to which Chevron Canada is not a party. In this context, the Canadian subsidiary of Chevron is the direct object of the proceedings. For this Canadian subsidiary, which was not a judgment debtor, the SCC held the enforcing province must be able to assert jurisdiction over the claim based on one of the three recognized grounds (presence, consent or a real and substantial connection). The SCC held that presence in the jurisdiction and service at Chevron Canada’s place of business in Mississauga, Ontario was sufficient to establish jurisdiction. The SCC has made clear that this is not a case where the Court was called upon to pierce the corporate veil, at least not at this preliminary phase of the litigation, where the only challenge was the jurisdiction of the Ontario court.

Analysis and Commentary

The Chevron case now returns to a trial judge, who will determine whether the foreign judgment against Chevron can be properly enforced against both Chevron and Chevron Canada.  With the Chevron judgment the SCC has notably increased the litigation risk for companies with assets in Canada from plaintiffs seeking to enforce foreign judgments obtained against the foreign affiliates of such companies.  This will be of particular significance to companies in the mining and oil & gas sectors whose foreign affiliates may be subject to material foreign judgments as a result of human rights violations or environmental damage. The Canadian affiliates of such companies may face expensive litigation and higher public scrutiny in Canada.

This case does not undermine the fact there may be means of defence available such as forum non conveniens.  The impact of the Chevron decision with respect to foreign judgment debtors may not be the same in provinces that have legislated in this area, such as British Columbia, Nova Scotia, and Saskatchewan in which the existence of a foreign judgment merely creates a presumption of jurisdiction by the court over enforcement which the judgment debtor can rebut, pursuant to the Court Jurisdiction and Proceedings Transfer Act (“CJPTA”).  In Quebec, art. 3155 of the Civil Code of Québec provides for the recognition and enforcement of foreign decisions, does not require a connection between the foreign debtor and the province.

All in all, companies with assets in Canada that have foreign affiliates, particularly those in the mining and oil & gas sectors, will need to re-think their approach towards jurisdiction of Canadian courts.