SCC on Foreign Judgment Debtors and Canadian Courts

On September 4, the Supreme Court of Canada (SCC) released its decision in Chevron Corp. v. Yaiguaje (Chevron).¹ The decision clarifies when foreign judgment creditors can obtain recognition and enforcement of their judgments in Canada. This ruling should assist foreign judgment creditors seeking to enforce against a debtor’s assets in Canada, including Canadian assets held by entities related to the debtor.

What You Need To Know

• The Chevron decision confirms that the barriers to enforcement of foreign judgments in Canada are low. The decision continues the trend toward facilitating international business relations and respecting the decisions of foreign courts.
• A party that has obtained a judgment from a foreign court can apply to a Canadian court to recognize the judgment and enforce it against the debtor’s assets in Canada.
• Actions to recognize and enforce foreign judgments are distinct from actions at first instance. Therefore a Canadian court asked to recognize and enforce a foreign judgment does not need to be satisfied that there is a real and substantial connection between the Canadian jurisdiction and the claim or parties.
• The only real and substantial connection required is to the jurisdiction of the foreign court that granted the judgment. To assume jurisdiction in an action to recognize and enforce a foreign judgment, a Canadian court need only be satisfied that the foreign judgment debtor was properly served with the statement of claim in the enforcement action.
• Actions for recognition and enforcement can be brought in Canada even if the judgment debtor currently has no Canadian assets. Whether or not the foreign judgment debtor currently has assets in the Canada is irrelevant to whether a Canadian court can hear the enforcement action.
• Canadian corporations may be called on to satisfy foreign judgment debts of their parent corporations. A Canadian corporation that is a stranger to a foreign judgment may nonetheless be on the hook to satisfy a foreign judgment debt of one of its related corporate entities. Because the SCC left open the question of the extent to which enforcement was available against Chevron Canada’s assets, the Court’s decision does not speak directly to when enforcement against the assets of a related entity may be possible.

Background

The plaintiffs, who represented approximately 30,000 indigenous Ecuadorian villagers, sought recognition and enforcement of a judgment rendered in Ecuador against Chevron Corp. The Ecuadorian judgment against Chevron was based on the role that one of its predecessors (Texaco) played in polluting the Lago Agrio region of Ecuador. The total amount owed by Chevron under the judgment was US$9.51 billion.

Since Chevron refused to pay the Ecuadorian judgment and because it lacked any assets in Ecuador, the plaintiffs turned to the Ontario courts for assistance in enforcing the judgment. In serving Chevron, a United States corporation incorporated in Delaware, the plaintiffs relied on Ontario’s rules for service out of Ontario and served Chevron at its head office in San Ramon, California.

In addition to claiming against Chevron, the plaintiffs served their claim for recognition and enforcement on Chevron Canada at its office in Mississauga, Ontario. Chevron Canada was not named in the Ecuadorian proceedings. However, the plaintiffs claimed that the shares of Chevron Canada, as a seventh-level indirect subsidiary of Chevron, ought to be available to satisfy any order of the Ontario court recognizing and enforcing the Ecuadorian judgment in Ontario.

In response to the plaintiffs’ claim in Ontario, Chevron and Chevron Canada sought an order (1) setting aside service of the statement of claim and (2) declaring that the court had no jurisdiction to hear the action, and dismissing or permanently staying it.

Chevron argued that in an action to recognize and enforce a foreign judgment, the enforcing Canadian court was required to undertake a two-step jurisdictional inquiry. First, the Canadian court had to consider whether it had jurisdiction to hear the enforcement action by applying the real and substantial connection test (just as the court would do in an action at first instance). Chevron suggested that in many enforcement actions this requirement would be satisfied only if the foreign judgment debtor had assets in the Canadian jurisdiction. Second, if the Canadian court found a real and substantial connection, it should proceed to consider whether the foreign court properly assumed jurisdiction. Because Chevron lacked any assets in Ontario, and because there was no other connection between Chevron and Ontario, it argued that the Ontario court lacked jurisdiction to hear the enforcement action.

Chevron Canada made a further argument—that the Ontario court lacked jurisdiction over it because, while it carried on business in Ontario, that business was unconnected to the subject matter of the plaintiffs’ original claim in Ecuador.

The motion judge determined that the Ontario court had jurisdiction over Chevron and Chevron Canada. Nevertheless, he ordered a stay of the proceedings on the basis that Chevron lacked any Ontario assets and because Chevron Canada’s assets were not available for the purposes of satisfying the Ecuadorian judgment. On appeal, the Court of Appeal for Ontario agreed with the motion judge’s conclusions on the court’s jurisdiction to hear the claim but overturned the motion judge’s order granting a stay of the proceedings.

The Supreme Court's Decision

On appeal to the SCC, two issues were before the Court:

(1) Whether, in an action to recognize and enforce a foreign judgment, there must be a real and substantial connection between the defendant or the dispute and Ontario for jurisdiction to be established?

(2) In what circumstances do Ontario courts have jurisdiction over a third party to a foreign judgment for which recognition and enforcement is sought?

The Ontario Court's Jurisdiction over Chevron

With respect to Chevron, the SCC determined that in an action to recognize and enforce a foreign judgment, where the foreign court validly assumed jurisdiction,² there is no need for the plaintiff to prove that a real and substantial connection exists between the enforcing court and either the foreign judgment debtor or the dispute. Instead, all that is necessary for the enforcing court to have jurisdiction over the foreign judgment debtor is that the judgment debtor be properly served with a claim based on the foreign judgment.

In coming to this decision, the SCC relied on the distinction between actions at first instance and actions to recognize and enforce a foreign judgment. The Court explained that "the crucial difference between an action at first instance and an action for recognition and enforcement is that, in the latter case, the only purpose of the action is to allow a pre-existing obligation to be fulfilled." As a result, the role of an enforcing court is "not one of substance, but is instead one of facilitation." Because the enforcing court’s exercise of jurisdiction is less invasive in these cases and does not involve adjudicating the merits of the original claim, it is not necessary that there be a real and substantial connection with the enforcing forum.

The SCC’s decision was also grounded on principles of comity. These principles, according to the Court, include "the need to acknowledge and show respect for the legal acts of other states." Creating an additional hurdle to recognition and enforcement by insisting on a real and substantial connection to the enforcing forum would not be consistent with respect for the legitimate judicial acts of foreign courts. Requiring a foreign judgment debtor to have assets in the jurisdiction was also not conducive to principles of comity, particularly in today’s electronic age where assets could be rapidly moved.

The Ontario Court's Jurisdiction over Chevron Canada

The SCC concluded that the fact Chevron Canada had been served at a place where it carried on business in Ontario was sufficient to establish the Ontario court’s jurisdiction. It was irrelevant that Chevron Canada’s assets or the nature of its business in Ontario bore no relation to the subject matter of the plaintiffs’ original claim.

The SCC confirmed that its determinations related solely to the Ontario court’s ability to exercise jurisdiction over Chevron Canada. It would still be open to Chevron Canada to argue that its assets were not attributable to Chevron and could therefore not be the proper target of enforcement.

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¹ 2015 SCC 42.

² Chevron Corp. did not contest the Ecuadorian Court’s jurisdiction to hear the original claim, and therefore the issue of whether or not the Ecuadorian Court properly assumed jurisdiction was not before the SCC.