Canada: Supreme Court Of Canada Opens Door To Enforcement Of Foreign Judgments Against Subsidiaries In Canada

Last Updated: September 21 2015
Article by Joel Reinhardt

Last week the Supreme Court of Canada released its most recent private international law decision that further develops Canada's regime of recognition and enforcement of foreign judgments against subsidiaries operating in Canada. In the decision of Chevron Corp v Yaiguaje, 2015 SCC 42 Justice Gascon writing for the Court clarified that the real and substantial connection test does not apply to a Canadian court taking jurisdiction over the recognition and enforcement of a foreign judgment. In doing so, the Court paved the way for further proceedings on the merits of an Ecuadorian judgment by a group of judgment creditors attempting to bring an international legal saga to the Canadian courts.

The Global Litigation

The Supreme Court's decision adds to a long line of American and Ecuadorian court decisions arising from a high-profile environmental lawsuit initiated in New York State by rural Ecuadorian residents in 1993 against Texaco (which subsequently amalgamated into Chevron Corporation). The case was eventually tried at first instance in Ecuador where, in 2011, the Ecuadorian residents won a multi-billion dollar judgment against Chevron Corporation for environmental damages and punitive damages. This initial victory was followed by an international legal campaign in the US and Canada to enforce the judgment against Chevron Corporation and its subsidiaries, which had no assets to seize in Ecuador. Chevron Corporation, as well as its seventh-level indirect subsidiary, Chevron Canada, were named in the action commenced in Ontario to enforce the Ecuadorian judgment. The defendants moved to set aside service ex juris, declare the Ontario court had no jurisdiction, and dismiss or permanently stay the action.

In deciding whether Canadian courts have jurisdiction to recognize and enforce the judgment obtained in Ecuador, the Supreme Court of Canada clarified a number of the principles of private international law.

Threshold for Jurisdiction to Recognize and Enforce a Foreign Judgment

The Court found that in Canadian private international law there is a fundamental distinction between jurisdiction of a court to hear a claim at first instance, and the jurisdiction of a court to recognize and enforce a foreign judgment. The real and substantial connection test, and its associated "presumptive connecting factors", previously developed by the Court in Club Resorts Ltd v Van Breda, 2012 SCC 17 apply to cases where Canadian courts are asked to take jurisdiction over a foreign defendant at first instance for the case to be tried on its merits. The real and substantial connection test must be met for a Canadian court to assume jurisdiction to try such a case.

However, when a Canadian court is asked to recognize and enforce a foreign judgment already obtained, the same considerations do not exist. Instead, it is "the act of service on the basis of a foreign judgment that grants an Ontario court jurisdiction over the defendant." Once service is effected, the Canadian court need only consider whether the foreign court that rendered judgment had a real and substantial connection with the litigants or the subject matter of the dispute. If it did, then the principle of international comity underlying the system of private international law requires that the Canadian court recognize and enforce the foreign judgment, subject to judicial discretion to decline to enforcement.

Existence of Jurisdiction does not Determine Exercise of Jurisdiction

The second clarification provided by the Court is that the jurisdiction of a Canadian court to recognize and enforce a foreign judgment on the basis of service alone does not mean that the court will always exercise that jurisdiction. The merits of the foreign judgment are not considered in finding jurisdiction to recognize and enforce the judgment; but finding jurisdiction does not necessarily mean exercising jurisdiction. The court with that jurisdiction may determine that the exercise of jurisdiction is not appropriate in the circumstances of the case. The Court provides examples of issues that could attract a court's discretionary power to stay an enforcement proceeding, including: concerns over the proper use of judicial resources in cases where there is an absence of assets upon which to enforce a foreign judgment; arguments against enforcement based on forum non conveniens; the standard defences to enforcement such as fraud, etc.; and summary judgment and other preliminary motions initiated by a judgment debtor.

Takeaways

The Court's decision is intended to apply a generous and liberal approach to the recognition and enforcement of foreign judgments as well as to keep apace of globalized business realities in the twenty-first century. The approach adopted by the Court, although clear and certain in principle, may have wide ranging practical implications. Judgment creditors who wish to enforce a judgment against foreign assets that may pass through a Canadian jurisdiction at some future date may have the ability to do so. The judgment debtor need not be present at the time a court finds it has jurisdiction. Judgment creditors may also be able collect from subsidiaries operating in Canada that were uninvolved in the foreign judgment, though the Court took no position on whether Chevron Canada's shares or assets are available to satisfy Chevron Corporation's judgment debt.

The Court's finding of jurisdiction to recognize and enforce foreign judgments even if the judgment debtor has no presence in the jurisdiction of the court opens up a number of strategic possibilities for global judgment creditors. Canada's resource companies with foreign affiliates may face new exposure to their assets. However, the Court also endorsed a wide discretion of courts to decline recognition and enforcement of foreign judgments. Therefore, only subsequent applications of the Court's decision will determine how much latitude the courts are prepared to offer judgment creditors seeking to reap the fruits of a foreign judgment in Canada.

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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