Canada: SCC Allows Ecuadorian Plaintiffs To Bring Enforcement Claim Against Chevron In Ontario

Last Updated: September 30 2015
Article by Genna Wood

In a landmark decision, the Supreme Court of Canada has held that the Ontario Superior Court of Justice has jurisdiction to hear an enforcement action on a multi-billion dollar Ecuadorian judgment against both Chevron, a U.S. corporation with no presence in Ontario, and Chevron Canada, a seventh-level indirect subsidiary of Chevron that was not party to the Ecuadorian action.

Background

The underlying dispute arose from Texaco's extraction and exploration activities in the Lago Agrio region of Ecuador and the extensive environmental pollution alleged to have occurred as a result. The plaintiffs represented approximately 30,000 indigenous Ecuadorian villagers who first attempted to sue Texaco (later merged with Chevron) in New York in 1993. That claim was dismissed in 2001 on the basis that New York was an inappropriate forum to hear the proceeding. After multiple proceedings in Ecuador, the plaintiffs ultimately obtained a judgment in 2011 for US$17.2 billion (reduced on appeal to US$9.51 billion). Subsequently, in U.S. enforcement proceedings to enforce this judgment, a New York District Court found that the Ecuadorian judgment was illegally obtained and therefore unenforceable. That decision is under appeal.

In May of 2012, the plaintiffs commenced a claim in Ontario to enforce the Ecuadorian judgment against Chevron and Chevron Canada (a seventh-level indirect subsidiary of Chevron), who was not a party to the Ecuadorian proceedings. Both Chevron entities contested jurisdiction, but lost at first instance and on appeal to the Court of Appeal for Ontario.

The motion judge held that Ontario possessed jurisdiction to hear the action to enforce the Ecuadorian judgment. Nonetheless, he exercised the court's power to stay the proceeding on its own initiative because:

First, Chevron does not own, has never owned, and has no intention of owning assets in Ontario. Second, Chevron conducts no business in Ontario. Third, there is no basis for asserting that Chevron Canada's assets are Chevron's assets for the purposes of satisfying the Ecuadorian judgment. Chevron does not own Chevron Canada's shares. Nor is there a legal basis for piercing Chevron Canada's corporate veil (Chevron, at para. 15).

The Court of Appeal agreed that the court possessed jurisdiction, but rejected the view that this was an appropriate case for the court to stay the action on its own accord. The Court of Appeal found that the motion judge had essentially determined that there was a more convenient forum elsewhere, which ought to have been the subject of a separate motion.

The Supreme Court of Canada dismissed a further appeal and held that the Ontario court has jurisdiction to hear the claim against both Chevron entities. The decision has clarified the test that an Ontario court will apply in determining whether it has jurisdiction over a proceeding to enforce a foreign judgment: the Ontario court may lend its assistance in recognizing and enforcing the foreign judgment where there is a "real and substantial connection" between the foreign court which rendered the judgment and the underlying dispute (or some other valid basis for the assumption of jurisdiction by the foreign court), and where the defendants to the enforcement action have been properly served.

SCC Reasons

Chevron argued that a "real and substantial connection" was also required between a defendant to an enforcement action and the enforcing forum (i.e. between Chevron and Ontario) and that this would only be the case if a defendant was present or had assets in the enforcing forum (Ontario). Essentially, Chevron sought to extend the real and substantial connection test that is required to hear a dispute in the first instance to an action to enforce a foreign judgment.

The Supreme Court rejected Chevron's argument, holding that in an Ontario action for the recognition and enforcement of a foreign judgment (unlike an action to decide the underlying dispute), the court will possess jurisdiction where a defendant is served with a claim alleging a foreign judgment on a debt and that a real and substantial connection between the dispute and the enforcing forum is not required. Justice Gascon, writing for the court, was not convinced that an absence of assets meant there was an absence of jurisdiction and held that:

In today's globalized world and electronic age, to require that a judgment creditor wait until the foreign debtor is present or has assets in the province before a court can find that it has jurisdiction in recognition and enforcement proceedings would be to turn a blind eye to economic reality. (Chevron at para. 57)

The Supreme Court had two primary reasons for rejecting Chevron's argument that a real and substantial connection is required between a defendant and the enforcing forum for the Ontario court to possess jurisdiction in the enforcement action. First, there is a significant difference between the adjudication of the rights of the parties at first instance and an enforcement proceeding. In an enforcement proceeding, a foreign judgment is simply evidence of a debt. Second, the notion of comity militates in favour of generous enforcement rules. The Supreme Court held that it is not unfair to judgment debtors to defend against recognition and enforcement proceedings, because:

In essence, through their own behaviour and legal non-compliance, the debtors have made themselves the subject of outstanding obligations. It is for this reason that they may be called upon to answer for their debts in various jurisdictions. Of course, principles of order and fairness are also protected by providing a foreign judgment debtor with the opportunity to convince the enforcing court that there is another reason why recognition and enforcement should not be granted. (Chevron at para. 55)

The Supreme Court also made clear that while the court may possess jurisdiction over enforcement proceedings, the court is not bound to exercise that jurisdiction. In addition, once the parties move past the issue of the court's jurisdiction to hear the enforcement action, it is open to a defendant to such an action to argue on motion or at trial that:

  • the proper use of Ontario judicial resources justifies a stay under the circumstances;
  • the Ontario courts should decline to exercise jurisdiction on the basis of forum non conveniens;
  • any one of the available defences to recognition and enforcement (i.e. fraud, denial of natural justice, or public policy) should be accepted in the circumstances; or
  • a motion under either Rule 20 (summary judgment) or Rule 21 (determination of an issue before trial) of the Rules should be granted. (Chevron at para. 77)

SCC Conclusion

The Court made no findings about whether a court could pierce the corporate veil and give the Ecuadorian villagers access to Chevron Canada's assets - all it decided was that the Ontario court possesses jurisdiction to render that decision. The principle of separate legal personhood for corporate entities was not expressly addressed. In addition, the court held that even if the plaintiffs were successful in their claim to enforce the Ecuadorian judgment against foreign corporation Chevron-a feat which faces significant substantive hurdles-they would only have recourse to Chevron's assets that are within the jurisdiction of the court (i.e. the Ontario judgment could not be used against assets in the United States). Four key takeaways from the decision are:

  • Foreign corporations can be sued in Ontario to enforce a pre-existing foreign judgment against them where (i) there is a real and substantial connection between the foreign court who issued the judgment and the underlying dispute; and (ii) if the enforcement claim was properly served under the Ontario Rules. No connection between the foreign defendant to the enforcement action and Ontario is required.
  • Corporations that carry on business in Ontario can be subject to enforcement actions in Ontario by virtue of their presence alone, even if the corporation is not a party to the foreign judgment.
  • However, while the court possesses broad jurisdiction over enforcement proceedings, it may also decline to hear them. There are several other judicial mechanisms available to defendants to an enforcement action that can be used to oppose the proceeding at an early stage.
  • Even if successful in an Ontario enforcement action, plaintiffs may only enforce the judgment against assets within the enforcing court's jurisdiction.

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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