The Outsiders: Ontario Court Can Hear Lawsuit for Recognition & Enforcement of Ecuador Court’s Judgment Against US Natural Resource Company & Distant Canadian Subsidiary in Chevron Corp. v. Yaiguaje
September 17, 2015
By Elizabeth McIsaac, Associate at McInnes Cooper,
Daniel Watt, Partner at McInnes Cooper
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On September 4, 2015, the Supreme Court of Canada stated unambiguously that for an Ontario court to have the jurisdiction to recognize and enforce the judgment of a foreign (i.e., any non-Ontario) court, the claimant doesn’t have to establish a “real and substantial connection” between the dispute or the judgment debtor named in the foreign judgment, and the enforcing jurisdiction. Furthermore, the presence of the judgment debtor’s subsidiary in the province was enough for the Ontario court to take jurisdiction to determine whether to recognize and enforce the judgment against the subsidiary too – despite the fact it wasn’t a party to the foreign judgment.
The decision doesn’t mean the Ontario court will ultimately recognize and enforce the foreign judgment – in this case, a US$9.51 billion judgment against a natural resource company for environmental damages – against the US company and its Canadian subsidiary. And while it might raise as many questions as it answers, the decision does mean Canadian courts will readily take jurisdiction to determine whether to recognize and enforce foreign judgments against Canadian and non-Canadian businesses and individuals, and broadens the scope of liability risk for multi-provincial and multi-national corporations.
In 2013, Ecuadorian courts affirmed an award of US$9.51 billion against a US natural resource corporation for environmental pollution related to oil exploration and extraction in Ecuador. However, the US corporation has no assets in Ecuador to satisfy the judgment. The plaintiffs began proceedings to recognize and enforce the judgment in Ontario against both the US corporation – which has no assets in Ontario and doesn’t conduct business there – and its seventh-level, indirect, Canadian subsidiary – which wasn’t even a party to the Ecuador judgment. The plaintiffs served the US corporation at its US head office, and the Canadian subsidiary at its Ontario office. Both asked the Ontario court to invalidate service of the recognition and enforcement lawsuit and to dismiss or permanently stay it on the basis that the Ontario court didn’t have jurisdiction.
The Supreme Court of Canada ultimately refused – but the legal analyses for the US corporation and for the Canadian subsidiary are very different:
The Judgment Debtor. The US corporation was named in the Ecuadorian judgment and is a judgment debtor. The SCC unambiguously decided that a real and substantial connection between the Canadian court, and the litigants or the subject-matter of the dispute isn’t necessary for the Canadian court to have jurisdiction to recognize and enforce the foreign judgment. Nor is the presence of the named judgment debtor or whether it has assets in the jurisdiction. The SCC confirmed that the only question is whether there was a real and substantial connection between the foreign court and the litigants or dispute, or the litigants submitted to that jurisdiction; if so, the Canadian courts have jurisdiction to recognize and enforce the foreign judgment. The SCC emphasized that judgment debtors can still argue that the court should decline to exercise its jurisdiction on the basis the proper use of judicial resources warrants a stay, or that another forum is clearly more appropriate. Existing defences also remain available, so a judgment won’t be enforced if a fraud was perpetrated on the foreign court, the foreign court denied the defendants fair process, or the judgment offends Canadian public policy.
The Outsider. The Canadian subsidiary was, however, an outsider vis-a-vis the Ecuador lawsuit: it wasn’t named as a defendant or otherwise involved in it, and isn’t a judgment debtor. Accordingly, the basis of the Ontario court’s jurisdiction to hear the recognition and enforcement lawsuit is different. Under traditional jurisdictional grounds, presence and service in the jurisdiction is enough for the court to hear the claim. Since the Canadian subsidiary has an office and conducts business in Ontario, the Ontario court had jurisdiction.
Read the SCC’s decision in Chevron Corp. v. Yaiguaje, 2015 SCC 42 here.
The SCC indicated its “unambiguous” statement of the jurisdiction test would give parties clarity and predictability and avoid unnecessary litigation. Alignment of the law with the realities of today’s global economy was the SCC’s primary rationale, and overall, the decision is on trend with previous decisions taking a liberal approach to the recognition and enforcement of foreign judgments – but it might raise as many questions as it answers:
Absenteeism. The SCC resolved the jurisdictional issues around the claim against the Canadian subsidiary on the traditional ground of presence in the enforcing jurisdiction, but it’s less clear what should or will happen when such an outsider, or “stranger”, to the judgment is allegedly liable for the foreign judgment, but isn’t sufficiently “present” in the enforcing jurisdiction, for example, if the Canadian subsidiary had a bank account in Ontario, but no other connection to or presence in the province. It seems likely that a “real and substantial connection” between the dispute or the defendant and the enforcing forum will still be a relevant consideration in such cases – but the SCC explicitly declined to answer this question.
Recognition & Enforcement Across Canada. It’s also unclear what this decision means for other Canadian jurisdictions. Procedural rules for serving proceedings outside of a jurisdiction vary across Canada. The SCC noted that provinces are free to enact legislation that modifies the law on when their courts have jurisdiction to recognize and enforce foreign judgments. Some have done so, such as with the NS Court Jurisdiction and Proceedings Transfer Act, but the impact of this decision on recognition and enforcement proceedings in other Canadian jurisdictions isn’t yet clear.
Distinct Corporate Personalities. The SCC stated that its decision doesn’t prejudice the Canadian subsidiary’s future arguments that its corporate personality is distinct from that of the US corporation, and when assessing jurisdiction, courts don’t need to determine whether to alter the fundamental principle of corporate separateness. While it remains to be seen whether the courts will ultimately “pierce the corporate veil” in this case, the decision suggests that challenges to jurisdiction over recognition and enforcement proceedings based on distinct legal personalities probably won’t succeed.
Risk Management. These questions may be resolved when the Ontario court adjudicates the actual recognition and enforcement lawsuit. However, the decision makes the SCC’s view clear: judgment debtors and “strangers” to the judgment will face certain restrictions when using jurisdictional arguments to contest the recognition and enforcement of foreign judgments. The decision ultimately broadens the scope of liability risk for multi-provincial and multi-national corporations, and is likely to impact risk management with respect to the location of a business’ assets and operations.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Litigation Team to discuss this topic or any other legal issue.
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