The Supreme Court of Canada has issued a decision in a case
called Chevron Corp. v. Yaiguaje that has
implications for large multi-national corporations with
subsidiaries in Canada.
The effect of the decision is to open the door to ignoring the
separate legal personality of a local subsidiary and put its assets
at risk in order to satisfy a judgment obtained against its foreign
parent corporation in a foreign jurisdiction.
The decision is therefore a possible victory for foreign
plaintiffs who are being thwarted in their enforcement efforts by
complex corporate structures that shield assets from them under the
legal fiction of separate corporate personalities.
The decision concerns creditors who obtain judgment in another
country but who are unable to locate assets to satisfy the judgment
debt in that jurisdiction. If the debtor has assets in Canada
(or is suspected of having assets), the creditor seeks Canadian
judgment on the same terms as the foreign judgment so that the
Canadian assets may be pursued.
The only traditional defences available to such actions are if
the original judgment was obtained by fraud, by violation of the
rules of natural justice, or if the enforcement of the judgment
would be contrary to public policy 1.
Global oil giant, Texaco (which merged with Chevron, a U.S.
corporation), was sued in Ecuador for causing serious environmental
damage as a result of its oil extraction operations. The
Ecuadorian court awarded judgment against Chevron for US $9.51
billion. Unable to satisfy the judgment debt in Ecuador
(where Chevron holds no assets), and tied up in litigation on the
same matter in the United States, the plaintiffs turned to Canada
and launched an action in Ontario for recognition and enforcement
of the judgment against Chevron Canada, a seventh-level indirect
subsidiary of Chevron U.S.
The Supreme Court was tasked with deciding the following issues:
(1) whether there must be a "real and substantial
connection" between the defendant or the dispute and Ontario,
and (2) whether the Ontario court has jurisdiction over Chevron
Canada. The Court answered "no" to the first
question and "yes" to the second.
The court emphasized that Canada takes a generous and liberal
approach to recognition and enforcement proceedings, and stressed
the importance of "comity" -- the recognition of the
legitimate judicial acts of other nations. The court
confirmed that there is no requirement for a connection between the
substance of the dispute and the new jurisdiction where enforcement
is sought. The enforcing court only needs proof that the
judgment was issued by a court of competent jurisdiction, is final,
and proof of its amount. There is no requirement for a
debtor to have assets in Canada at the time enforcement is
sought. The court pointed out that in the global and
electronic age, such a requirement would impede a creditor's
right to access assets that may eventually flow into
Regarding whether the Ontario court has jurisdiction over
Chevron Canada, this too does not require a "real or
substantial connection" between Chevron Canada and the
Ecuadorian dispute. The court only requires traditional,
presence-based jurisdiction, which is established if the defendant
carries on business in Canada at the time of the action.
Here, the court noted the importance of Chevron's bricks and
mortar operation within Ontario, which was much more than just a
The Chevron decision is an unequivocal
confirmation by Canada's highest court that the judgments of
foreign nations with comparable legal systems are to be treated
with considerable respect.
The ruling that the Ontario court has jurisdiction over Chevron
Canada, a separate and distinct corporate entity from Chevron U.S.,
is an important development as conventional wisdom, based on the
application of traditional legal doctrine that corporations have a
separate and distinct legal personality from their shareholders, is
at risk of being turned on its head.
While Chevron Canada can still raise the defence that it is an
unrelated and distinct corporate entity and should therefore not be
subject to enforcement proceedings, the plaintiffs' efforts
have not been thwarted at the jurisdictional stage.
It therefore remains to be seen whether the courts will revisit
the wisdom of long-standing corporate law doctrine and ignoring
form over substance in the interests of doing justice.
1 See Beals v Saldanha,  SCJ No 77
(SCC) at paras. 35 and 40
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).