Adriana Morrison March 4 2014 Court rules on enforcement of foreign judgments against Canadian subsidiaries Dentons | Litigation - Canada Adriana Morrison Litigation FactsDecisionCommentThe Ontario Court of Appeal recently addressed the jurisdiction of Ontario courts to recognise and enforce foreign judgments in Yaiguaje v Chevron Corporation(1). The decision is important because it indicates that enforcement actions can proceed in Ontario to recover from uninvolved Canadian subsidiaries of foreign corporate wrongdoers.FactsThe case is part of an extensive legal battle between US-based Chevron Corporation and a group of indigenous Ecuadorian peoples. In 2011 the Ecuadorians sued Chevron in Ecuador, claiming that Chevron's commercial operations caused significant environmental damage to the Ecuadorians' lands, waterways and way of life over an 18-year period. The Ecuadorians obtained a $9.51 billion final judgment against Chevron in Ecuador. US proceedings relating to the Ecuadorians' allegedly fraudulent conduct in procuring this judgment continue to date. In the meantime, the Ecuadorians have sought to have this judgment recognised and enforced in Canada against Chevron and its wholly owned indirect Canadian subsidiary, Chevron Canada.Canada is an interesting jurisdictional choice for enforcement of the Ecuadorian judgment against Chevron. Chevron owns no assets in Canada; rather, all of the corporate assets in Canada belong to Chevron Canada. Chevron Canada was not a party to the Ecuadorian action and was not found liable under the Ecuadorian judgment. As such, the Ecuadorians effectively sought to recover their foreign judgment against Chevron from the assets of Chevron's uninvolved subsidiary.DecisionChevron and Chevron Canada disputed an Ontario court's jurisdiction over the enforcement action. The Ontario Court of Appeal heard the jurisdictional challenge and determined that an Ontario court does have jurisdiction to recognise and enforce the Ecuadorian judgment against both Chevron and Chevron Canada.The court's reasons raise several significant points.Test for recognising and enforcing foreign judgmentsAn Ontario court has jurisdiction to recognise and enforce a foreign judgment so long as there is a real and substantial connection between the foreign court and the legal dispute in the foreign country. Unlike actions at first instance, no jurisdictional connection to Ontario is required for an Ontario court to have jurisdiction over an enforcement action. Applying this test, the court held that an Ontario court clearly has jurisdiction over the enforcement action against Chevron.Enforcement against uninvolved subsidiariesSpecifically, the court indicated that an enforcement action may proceed in Ontario against a corporate subsidiary that has a connection to Ontario and an "economically significant relationship" with another corporation over which Ontario courts have jurisdiction. In this case, although Chevron Canada was not liable under the Ecuadorian judgment, the court held that an Ontario court has jurisdiction to determine the merits of an enforcement action against Chevron Canada because of its non-transitory place of business in Ontario and its economically significant relationship with Chevron. Chevron Canada is an indirect subsidiary of Chevron, but the court considered their relationship economically significant because Chevron guarantees debt and performance of obligations of its subsidiaries and Chevron's income is wholly derived from dividends from its indirect subsidiaries, including Chevron Canada.Why stay was inappropriateThe motion judge had stayed the enforcement action under Section 106 of the Courts of Justice Act for having "no prospect for any recovery [in Canada]" because Chevron had no assets in Canada and the Ecuadorians had "no hope of success" in piercing the corporate veil to recover against Chevron Canada's assets. The court refused to uphold the stay and criticised the motion judge for exercising this discretion in a case that (in the court's view) "crie[d] out for assistance, not unsolicited and premature barriers". The Ecuadorians successfully persuaded the court that this was "a major case involving poor and vulnerable foreign residents, one of the world's largest corporations, a long and difficult process in a foreign court, and a huge damages award" in which no party had sought a stay and the defendants had not yet even attorned to the jurisdiction of the Ontario court. The court declined to terminate the case prematurely in the circumstances, finding that it was an error to consider the merits of the case at this stage of the proceeding and disagreeing that the Ecuadorians' enforcement action should be thrown out on the basis that it would unnecessarily waste judicial resources:"That the plaintiffs in this case may ultimately not succeed on the merits of their recognition and enforcement action, or that they may not succeed in successfully collecting from the judgment debtors against whom they bring this action, are not relevant factors for a court to consider in determining whether to grant a discretionary stay before the defendants have even attorned to the jurisdiction of the Ontario court. A party may bring an action for all kinds of strategic reasons, recognizing that their chances of collection on the judgment are minimal. 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."(70)The court concluded that the case should proceed to a hearing on the merits to determine whether the foreign judgment should be enforced against Chevron and Chevron Canada.CommentThe Ecuadorian plaintiffs face an uphill battle. Ontario courts have not adopted the 'group enterprise theory' of corporate liability and are generally reluctant to pierce the corporate veil. As the motion judge wrote: "The fact that a parent corporation operates a number of world-wide companies as an integrated economic unit does not mean that separate legal entities will be ignored absent some compelling reason for lifting the corporate veil." The court did not disagree with the motion judge's summary of the law, but rather held that a consideration of the merits of the case was premature on the jurisdiction motion. Chevron Canada's separate corporate personality is a factor that could likely derail the Ecuadorians' enforcement action against Chevron Canada.Chevron and Chevron Canada have filed an application for leave to appeal to the Supreme Court of Canada. A stay of the court of appeal's decision has been granted pending the leave application.(2)For further information on this topic please contact Adriana Morrison at Dentons Canada LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email ([email protected]). The Dentons website can be accessed at www.dentons.com.Endnotes(1) See 2013 ONCA 758.(2) See 2014 ONCA 40.