Further Cause for Alarm for Canadian Corporations with Foreign Operations

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We last wrote in July 2013 about Choc v Hudbay Minerals Inc., 2013 ONSC 1414, a decision which seemed to signal an increased willingness by an Ontario court to assume jurisdiction in a case of alleged wrongdoing by a foreign subsidiary of a Canadian corporation in a foreign country.

Now, a new decision from the Court of Appeal for Ontario, Yaiguaje v Chevron Corporation, 2013 ONCA 758, appears to reinforce a willingness by Ontario courts to assume jurisdiction over matters not clearly linked to Ontario.

In Yaiguaje, Plaintiff Ecuadorians obtained in Ecuador judgment of US$18 billion against Chevron Corporation, an American corporation incorporated in Delaware. In Yaiguaje, the Ecuadorians sued in Ontario on the Ecuadorian judgment, for the purpose of enforcing it in Ontario against Chevron and its Canadian subsidiary, Chevron Canada Limited. Chevron Canada, headquartered in Calgary, Alberta, is a seventh-level indirect subsidiary of Chevron, with operations and 700 employees in Canada. Chevron itself had no assets in Canada.

Both Chevron and Chevron Canada disputed the jurisdiction of the Ontario court to hear the action.

In its decision, the Court of Appeal for Ontario set a very low bar for the enforcement of a foreign judgment in Ontario. The Court held that before assuming jurisdiction, a court must only find a real and substantial connection between the subject matter of the litigation and the foreign court that rendered the foreign judgment. The Court need not find a connection between the subject matter of the litigation and the court being asked to recognize and enforce the foreign judgment. This is a much lower bar at the enforcement stage than when the Court is called on to consider whether it should assume jurisdiction over an actual foreign dispute. The Court found that the test had been met, and assumed jurisdiction.

Interestingly, the Ecuadorians seek to enforce their judgment in Ontario against both Chevron and Chevron Canada, despite the fact that their judgment is only against Chevron, not Chevron Canada. Because Chevron Canada was physically present in Ontario, the Ontario courts were quick to assume jurisdiction over it. However, the Court of Appeal went out of its way to discuss Chevron Canada’s significant relationship with its corporate parents, including the fact that it was owned indirectly by Chevron through a number of intermediate wholly-owned subsidiaries, that Chevron guaranteed the debt of its indirect subsidiaries which furnish capital to Chevron Canada, and that Chevron has directly guaranteed certain performance obligations of Chevron Canada. The Court also noted that Chevron’s income is wholly derived from dividends from indirect subsidiaries that carry out its actual business, including Chevron Canada.

The Court of Appeal indicated that the corporate relationship structure, in addition to Chevron Canada’s location in Ontario, gave the Ontario courts jurisdiction to adjudicate the enforcement action against Chevron Canada itself.

The Court of Appeal noted that Chevron Canada is entitled to dispute that its assets are available to satisfy the judgment against Chevron (and that issue remains to be determined in the litigation), but, again, the Court went out of its way to discuss factors that will undoubtedly be at issue when that ultimate issue is decided. It is hard to view that discussion as anything other than a signal by the Court that Ontario courts will consider such factors when deciding whether to enforce foreign judgments against a Canadian subsidiary not directly linked to the foreign judgment at issue.

This decision should give multinational corporations pause when considering how to structure their affairs so as to shelter Canadian subsidiaries or parents from liability. This also signals to Canadian companies seeking to oppose enforcement of foreign judgments in Canada that their time and money may be better spent dealing with such challenges on the merits, rather than focusing on jurisdictional arguments that now seem highly likely to fail.