The Ontario Court of Appeal recently addressed the Ontario courts’ power to hear actions seeking recognition and enforcement of foreign judgments in Ontario. In the case of Yaiguaje v. Chevron Corporation (Yaiguaje), the Court of Appeal affirmed that a party seeking an order recognizing and enforcing a judgment of a non-Ontario court does not have to establish that the Ontario courts have jurisdiction over the judgment debtor or over the subject matter of the claim underlying the foreign judgment.

Of perhaps greater interest, the Court of Appeal specifically permitted the enforcement action in Yaiguaje to proceed against both the American corporation that was the subject of the foreign judgment in issue, but also against its indirect Canadian subsidiary – a party that played no role in the foreign proceedings.

BACKGROUND

The dispute underlying the Yaiguaje case has a long procedural history that has played out in the courts of the United States, Ecuador and now Canada. In brief, the plaintiffs in Yaiguaje are Ecuadorian residents who obtained a US$9.51-billion judgment through the Ecuadorian courts against Chevron Corporation, an American company, in respect of claims concerning environmental pollution. Chevron Corporation has not made payment on the Ecuadorian judgment and disputes its validity. The plaintiffs brought an action in Ontario seeking recognition and enforcement of the Ecuadorian judgment in Ontario against Chevron Corporation and its indirect, wholly owned subsidiary, Chevron Canada Limited (Chevron Canada). Chevron Canada had not been a party to the Ecuadorian proceeding and no judgment has been issued against it.

Chevron Corporation and Chevron Canada each brought motions seeking to dismiss or permanently stay the plaintiffs’ Ontario enforcement action on the basis that the Ontario courts do not have jurisdiction to hear it. On those motions, the Superior Court found that the Ontario courts did have jurisdiction to hear the enforcement action. However, on his own initiative, the motion judge stayed the enforcement action indefinitely for two reasons: Chevron Corporation did not appear to have any assets in Ontario and the plaintiffs had “no hope of success” in their attempt to access Chevron Canada’s assets to satisfy the judgment against its indirect parent corporation, given the corporate veil. The motion judge reasoned that the resources of the Ontario court should not be engaged to determine an enforcement action that was doomed to fail.

The plaintiffs appealed the stay of the action, while the Chevron defendants cross-appealed the motion judge’s finding that the Ontario courts have jurisdiction over the enforcement action.

COURT OF APPEAL DECISION

The Court of Appeal confirmed that the Ontario courts have jurisdiction to hear the enforcement action. In so doing, the Court of Appeal rejected Chevron Corporation’s argument that there must be a “real and substantial connection” between Ontario and either the foreign judgment debtor or the subject matter of the action underlying a foreign judgment, for an Ontario court to entertain an action to enforce that foreign judgment.

At the root, the court in a recognition and enforcement action must determine one thing: should the foreign judgment in issue be enforceable in Ontario? The Court of Appeal confirmed that the determination of that issue is clearly within the jurisdiction of the Ontario courts.

More interestingly, the Court of Appeal overturned the stay of the enforcement action imposed by the motion judge. Thus, subject to any further appeal, the defendants must defend the enforcement action on its merits.

In permitting the enforcement action to continue, the Court of Appeal acknowledged that factors identified by the motion judge (such as that the courts of New York may be a preferred forum for the enforcement proceedings, and the absence of assets of Chevron Corporation in Ontario) “might ultimately derail” the plaintiffs’ quest. However, the Court of Appeal held that it was premature to dismiss the enforcement action at a preliminary stage.

The Court of Appeal also made comments on the relationship between Chevron Corporation and Chevron Canada that may have implications in future cases concerning the corporate veil. In particular, in addressing the arguments raised by Chevron Canada, which was not a party to the Ecuadorian proceeding, the Court of Appeal first stated that the Ontario courts have jurisdiction over the Canadian company on the basis that it operates an office in Ontario. In addition, however, the Court of Appeal emphasized the connections between Chevron Corporation and Chevron Canada – referring to an “economically significant relationship” between them – and concluded that “an Ontario court has jurisdiction to adjudicate a recognition and enforcement action against Chevron Canada’s indirect corporate parent that also names Chevron Canada as a defendant and seeks the seizure of the shares and assets of Chevron Canada to satisfy a judgment against the corporate parent.” The Court of Appeal held that any concerns or issues relating to the distinct corporate personalities of the parent and indirect subsidiary should be addressed when the defendants defend the enforcement action on its merits.

Constraints on concerns of judicial economy?  

Yaiguaje indicates that there are differing views as to the appropriate scope for judicial control of the litigation process. In recent years, a number of decisions in Ontario’s lower courts have imposed greater control on litigation processes in the hope of reducing strain on and delays in the court system, including several well-known decisions in other cases authored by the motion judge in Yaiguaje, such as George Weston Limited v. Domtar Inc. However, in Yaiguaje, the Court of Appeal found that the motion judge erred in issuing a stay of the enforcement action, especially on his own initiative, rejecting his determination that the enforcement action would represent a “waste of valuable judicial resources” given its chances of success. The Court of Appeal found that parties may bring litigation for “strategic reasons” even where “their chances of collection on the judgment are minimal.” The Court of Appeal continued that 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.” These comments indicate that the court’s power to control its process is not without limits.

IMPLICATIONS

Subject to any further appeal, Yaiguaje demonstrates that motions challenging the jurisdiction of the Ontario courts to hear actions seeking enforcement of foreign judgments may have little chance of success. In future cases, defendants to an enforcement action in Ontario may prefer to defend the enforcement action on its merits and/or consider other preliminary motions rather than challenging the jurisdiction of the Ontario court.

More importantly, although the current decision is only the determination of a preliminary motion, the reasons of the Court of Appeal suggest that courts may be inclined to blur distinctions between corporate parents and subsidiaries in enforcement actions. That said, given the possibility of a further appeal in the case, the law cannot yet be taken as settled. Only time will tell how the enforcement issue will be resolved, making Yaiguaje a case to watch.