October 5 2015   Martin Aquilina, Business Lawyer

We all know the phrase “What happens in Vegas, stays in Vegas”. There is comfort in knowing that what happened far away from home does not haunt us at home. Now, imagine that there is a chance that you could be held liable for your relative’s wrongdoings in a foreign country even though that relative does not live in Canada and has no connection to Canada. The Supreme Court of Canada’s recent decision in Chevron Corp v Yaiguaje[i] considered this situation in a business context.

Background of the Case

The case has its roots in a lawsuit brought by indigenous Ecuadorian villagers from an oil-rich region in Ecuador against Texaco over twenty years ago. The villagers claimed that Texaco’s operation in the region caused considerable environmental damage and sought compensation. Initially, the plaintiffs filed a lawsuit against Texaco in the US but the lawsuit was dismissed on the basis of forum non conveniens. Then, the plaintiffs filed a lawsuit in Ecuador. The Ecuadorian appellate court upheld the trial court’s award of US$17.2 billion in damages. Ecuador’s highest court upheld the appellate court’s judgment although it reduced the damages to US$9.51 billion. During the course of the proceedings, Texaco merged with Chevron. Chevron has no assets in Ecuador.

The plaintiffs sought recognition and enforcement of the Ecuadorian judgment and commenced an action against the defendants, Chevron and Chevron Canada, in Ontario. Chevron had no connection to Canada and was based in California while Chevron Canada was Chevron’s Canadian subsidiary and not a party to the Ecuadorian judgment. The plaintiffs served the defendants at its head office in California and at its place of business in Ontario[ii], respectively. The motion judge ruled in favour of the plaintiff on the jurisdictional issue but stayed the proceedings, citing as reasons that: (1) Chevron has no assets in Ontario; (2) Chevron does not carry on a business in Ontario; and (3) there is no basis for claiming that Chevron Canada’s assets can be used to satisfy Chevron’s debt from the Ecuadorian judgment. The Court of Appeal held that the stay was inappropriate and again ruled in favour of the plaintiffs with regards to Ontario court’s jurisdiction to recognize and enforce a foreign judgment in Ontario. The defendants then appealed to the Supreme Court of Canada.

The Supreme Court of Canada’s Ruling

There were two main issues that were raised before the SCC[iii]:

  1. In an action to recognize and enforce a foreign judgment in Ontario, must there be a real and substantial connection between the defendant or the dispute and Ontario for jurisdiction to be established?
  2. Do the Ontario courts have jurisdiction over Chevron Canada, a third party to the judgment for which recognition and enforcement is sought?

With respect to the first issue, the Court ruled that it is not necessary to establish a real and substantial connection in an action to recognize and enforce a foreign judgment in Ontario. The Court held that the 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”[iv]. As such, the Court stated that requiring the connection to be established again in Canada would be inconsistent with the principle of comity.

On the second issue, the Court held that Chevron Canada, by carrying on a business in Ontario coupled with being properly served at its place of business, satisfies the presence-based jurisdiction. It made a reference to the motion judge’s factual finding of Chevron Canada running a bricks and mortar office in Ontario. However, the Court was clear in stating that “a finding of jurisdiction does nothing more than afford the plaintiffs the opportunity to seek recognition and enforcement of the Ecuadorian judgment”[v].

Ultimately, the Court dismissed the appeal by Chevron and Chevron Canada. However, it did leave an important question unanswered.

The Question Left Unanswered

Although the Court found that an Ontario court has jurisdiction to recognize and enforce a foreign judgment, it did not go so far as to decide whether the assets of a Canadian subsidiary can be used to satisfy the obligations of its parent corporation. The question thus remains as to whether the actual enforcement of the foreign judgment will be allowed. The Court stated that the finding of the existence of jurisdiction does not mean that it will be exercised. The Court also stated that defences are available to the defendants in trying to dispose of the allegations. For example, Chevron could bring forth an argument that the Ontario courts should not exercise their jurisdiction based on forum non conveniens.

Implications of the Case

The case is in line with the current trend whereby Canadian courts are becoming more inclined to hear cases concerning jurisdiction. In a 2013 case, Choc v Hudbay Minerals Inc[vi], an Ontario court expressed the willingness to hear cases involving actions of a foreign subsidiary of a Canadian corporation that happened in a foreign country. The Chevron case showed the Supreme Court of Canada’s generous interpretation of jurisdiction and its willingness to recognize foreign judgments. As a result, Canada may be in the process of becoming a friendlier place for those seeking to recognize and enforce foreign judgments. It also showed that Canadian subsidiaries (even very indirect ones that are wholly-owned) could potentially be exposed to the liability incurred by their parent corporation, making Canadian companies more vulnerable than they used to be. Ultimately, the question is now whether the corporate veil will prevent a Canadian subsidiary from being held liable for the actions of its parent.

[i] Chevron Corp v Yaiguaje, 2015 SCC 42.

[ii] Chevron Canada had its head office in Alberta and also had an office in British Columbia.

[iii] Ibid at para 23.

[iv] Ibid at para 27.

[v] Ibid at para 94.

[vi] Choc v Hudbay Minerals Inc, 2013 ONSC 1414.

This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Martin today.  613-747-2459 ext.308, maquilina@hazlolaw.com