Canada: Supreme Court Declares Canadian Corporations May Be Liable For Acts Of Foreign Affiliates

Last Updated: September 11 2015
Article by Justin R. Lambert and Alison J. Gray

In a just-released decision, Chevron Corp v Yaiguaje, 2015 SCC 42, the Supreme Court of Canada held that Canadian courts have jurisdiction to decide whether a foreign judgment can be enforced in Ontario against either or both of a) a Canadian corporation that was not party to the foreign judgment, and b) its indirect parent, which was party to the foreign judgment, but which claims to have no connection to Ontario. Now it will be left to courts in Ontario to decide whether in fact that foreign judgment can be enforced against these two entities in Ontario.

History

In July 2013, we wrote about Choc v Hudbay Minerals Inc, 2013 ONSC 1414 (see A Warning for Canadian Corporations with Foreign Subsidiaries). This decision seemed to signal an increased willingness by an Ontario court to assume jurisdiction in a case of alleged wrongdoing by a foreign subsidiary of a Canadian corporation in a foreign country.

More recently in January 2014, we wrote about Yaiguaje v Chevron Corporation, 2013 ONCA 758, which appeared to reinforce a willingness by Ontario courts to assume jurisdiction over matters not clearly linked to Ontario (see Further Cause for Alarm for Canadian Corporations with Foreign Operations). In December 2014, we addressed the Supreme Court hearing of Chevron Corporation's appeal from that ruling and the potential consequences in store for all Canadian corporations with foreign ties (see Supreme Court to Clarify the Liability of Canadian Corporations for Acts of their Foreign Affiliates). Today, the Supreme Court dismissed that appeal.

Background

In Chevron, the foreign Plaintiffs obtained an approximately US$9.51 billion Ecuadorian judgment against Chevron Corporation for harms caused by environmental pollution. The Plaintiffs then sued on this judgment in Ontario, with the intention of enforcing the judgment against Chevron Corporation, an American corporation, and Chevron Canada, a seventh-level indirect Canadian subsidiary. The Ontario Court of Appeal allowed the Plaintiffs to proceed against Chevron Canada, even though this entity was not a party to the Ecuadorian proceedings or judgment. They were also allowed to proceed against Chevron Corporation, even though it had no assets in Canada.

The Court of Appeal only required a real and substantial connection between the subject matter of the litigation and the foreign court that rendered the judgment. This decision set a much lower bar at the enforcement stage, compared to the connection that is required when the Court is asked to assume substantive jurisdiction over a foreign dispute. The Court of Appeal also repeatedly cited Chevron Canada's significant relationship with its corporate parent, indicating that the corporate relationship structure was another factor that the Court would consider in deciding to assume jurisdiction over an enforcement action.

The Supreme Court Decision

The Supreme Court confirmed that the only prerequisite to recognize and enforce a foreign judgment 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. A real and substantial connection between the dispute or the defendant and the enforcing forum is not necessary. Since the court is enforcing an existing substantive obligation, not creating a new obligation, no concerns over conflict of laws or territorial overreach will apply. In addition, the principle of comity and the need to show respect for legal actions of other states in an increasingly global world militates in favour of enforcement.

The Court found jurisdiction was established over Chevron Corporation, as it was a foreign debtor under the Ecuadorian judgment, attorned to the jurisdiction of the Ecuadorian courts, and was served ex juris at its head office. Chevron Canada was found to be under traditional, presence-based jurisdiction due to its physical office in Ontario where it was served, and its representatives that provide services within the province.

The court noted that a finding of jurisdiction only provides the Plaintiffs with the opportunity to move forward in seeking enforcement. Chevron Corporation and Chevron Canada still have a number of procedural tools available to try to dispose of the action, as well as arguments on the distinct corporate personalities of the entities and whether Chevron Canada's shares and assets will be available to satisfy the judgment.

Looking Ahead

The Court noted that this decision will hopefully provide a fixed, clear, and predictable rule that will help to avoid needless jurisdictional disputes. It is worthwhile to note that the Court seemed to take into account the increasingly cross-border nature of business and the social justice nature of the fairness of holding foreign debtors responsible. This decision signals to Canadian corporations the ease with which jurisdiction for enforcement will be found. It indicates that time and money will be better spent dealing with the merits of the challenge, rather than jurisdictional arguments. This case will be closely watched as it moves toward addressing the substantive arguments regarding whether the foreign judgment will be enforced against the Canadian subsidiary, even though it was not a party to the foreign judgment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Justin R. Lambert
Alison J. Gray
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