Canada: Yaiguaje v. Chevron: Blurring The Lines Between Parents And Subsidiaries In Ontario

Last Updated: February 21 2014
Article by Vivek Krishnamurthy

A recent ruling by Ontario's highest court clarifying the law governing the enforcement of foreign judgments may turn Canada's most populous province into an attractive forum for plaintiffs seeking to collect on judgments against multinational corporations.

On December 17, the Ontario Court of Appeal overturned a stay issued by the Ontario Superior Court of Justice in an enforcement action brought against Chevron and its Canadian subsidiary by a group of Ecuadorian plaintiffs. The plaintiffs has previously won a $9.5 billion judgment in Ecuador in a long-running environmental dispute. The decision by the Court of Appeal allows the Ecuadorian plaintiffs to continue litigating the question of whether they should be able to seize Chevron Canada's assets in satisfaction of the judgment they won in Ecuador, although Chevron and its Canadian subsidiary have until February 18 to file an appeal with the Supreme Court of Canada.

Before both courts, Chevron argued that absent a "real and substantial connection" between the company and the province, the Ontario courts could not exercise jurisdiction over it. The company posited that no such "real and substantial connection" existed because it neither did business in Ontario nor owned any assets there. Chevron Canada, meanwhile, argued that the Ontario courts lacked jurisdiction despite its presence in Ontario as it had not been properly served in the case.

The Superior Court rejected all of these jurisdictional arguments, but it nevertheless stayed the enforcement action against the parent and its subsidiary because (1) Chevron itself had no assets in Ontario and (2) Chevron Canada's assets and activities in Ontario could not be attributed to Chevron unless the plaintiffs successfully demonstrated that the subsidiary was the "alter ego" of the parent.

In an unanimous ruling, the Ontario Court of Appeal found that the Superior Court lacked the statutory authority to stay the proceedings and deny the Ecuadorian plaintiffs the "opportunity to attempt to enforce the Ecuadorian judgment in a court where Chevron will have to respond to the merits." More significantly, however, the Court of Appeal ruled that jurisdiction over Chevron could be founded on the "economically significant relationship between Chevron and Chevron Canada" even though Chevron Canada is a seventh-level indirect subsidiary of Chevron.

In reaching this jurisdictional conclusion, the Court of Appeal found it significant that "Chevron's income is wholly derived from indirect subsidiaries" and that "Chevron guarantees the debt of its indirect subsidiaries." The Court was quick to note that this did not mean that Chevron Canada's assets could necessarily be used to satisfy the Ecuadorian judgment against Chevron, but it left this issue to be decided by the Superior Court at trial.

The Ontario Court of Appeal's ruling makes it much easier for plaintiffs who win large judgments against multinational corporations in jurisdictions where the corporation has few assets to seek the enforcement of such judgments in Canada's most populous province. In most common law jurisdictions, corporate parents and subsidiaries are assumed to be entirely separate entities for jurisdictional purposes, unless the parent exercises such "domination and control" over the subsidiary as to render it its alter ego.

Indeed, just last month, the Supreme Court of the United States ruled that jurisdiction in California could not be founded over the German automaker Daimler AG based on the activities of its third level subsidiary, Mercedes Benz USA, even though the subsidiary's sales in California alone account for nearly three percent of Daimler's global business. By contrast, Chevron Canada has but one office with 13 employees in Ontario, yet this was sufficient to support a finding of proper jurisdiction over the parent company in Ontario.

In view of the opposite directions that courts in Canada and the United States seem to be heading on jurisdictional questions concerning corporations with complex structures, plaintiffs seeking to enforce on foreign judgments may well be seen heading north with increasing frequency in the future.

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