Taking the Fight to the Ice: Ontario Court of Appeal allows enforcement action against Canadian subsidiary for environmental pollution in Ecuador

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In Yaiguaje v Chevron Corporation, 2013 ONCA 758, the Ontario Court of Appeal held that Ontario has jurisdiction to recognize and enforce a foreign judgment against a Canadian subsidiary that was not a party to the foreign proceeding and where no foreign judgment has been made against it.

This case has a long and complex history, but the basic facts are as follows. Ecuadorian villagers obtained a US $9.1 billion judgment in Ecuador against Chevron, an American energy company, for damages caused by environmental contamination. Chevron refused to pay and disputed the validity of the judgment. The villagers sought to enforce the judgment in Ontario against Chevron and its 7th level indirect subsidiary, Chevron Canada (the “Chevron defendants”). They argued that Chevron was Chevron Canada’s “alter ego.” They urged the court to “pierce the corporate veil” and treat the judgement against Chevron as if it were also made against Chevron Canada.

The motions judge determined that Ontario had jurisdiction to recognize and enforce the Ecuadorian judgment; however, the action was stayed under s. 106 of the Courts of Justice Act (“CJA”) because the Chevron defendants had no exigible assets in the province.  It was also unnecessary to pierce the corporate veil because Chevron Canada was controlled by one of Chevron’s indirectly held subsidiaries, not Chevron directly. The relationship between Chevron and Chevron Canada was that of a typical parent and indirect subsidiary. The Chevron defendants appealed the finding of jurisdiction, while the villagers appealed the stay.  

The Court of Appeal upheld the motion judge’s finding on jurisdiction. It decided that before the court will recognize and enforce a foreign judgment, it must determine whether the foreign court had a “real and substantial connection” to the action or the parties. The Ecuadorian judgment against Chevron clearly satisfied this test. Ontario also had jurisdiction to enforce the judgment against Chevron Canada because it carried out business in Ontario and had an “economically significant” relationship with Chevron. Chevron guaranteed the debts of its indirect subsidiaries which capitalized Chevron Canada. Chevron’s income was also wholly derived from dividends from indirect subsidiaries including Chevron Canada. Whether Chevron’s assets were indeed exigible, and any concerns over piercing the corporate veil, should be addressed at a later stage.

The Court of Appeal also granted the villagers’ appeal and set aside the stay for the following reasons:

  1. The motion judge’s decision to impose a discretionary stay under s. 106 of the CJA was “entirely his own construct; no party sought it.” The Chevron defendants only asked the court to stay the action for lack of jurisdiction.
  2. There were no “extraordinary circumstances” that prevented the Chevron defendants from requesting a stay on any basis other than jurisdiction. They were sophisticated parties who had chosen to challenge Ontario’s jurisdiction and use that as their sole basis for resisting the villagers’ enforcement action.
  3. In determining that a stay was appropriate, the motions judge embarked on an “unrequested and premature” Rule 20 and/or Rule 21 motion. He also imported into his reasons a forum non conveniens analysis. This was unfair to the villagers who did not have an opportunity to respond to these issues.
  4. The motion’s judge was incorrect to conclude that allowing the enforcement action to proceed in Ontario would be an “academic exercise” that “wastes valuable judicial resources.” The fact that the villagers may not succeed on the merits of their enforcement action or in collecting from Chevron Canada was not relevant to the determination of whether a discretionary stay should be granted. A party may bring an action for various strategic reasons, and it is not for the court to second guess counsel on strategy in the name of judicial economy.
  5. The villagers’ case cried out for assistance. For twenty years, Chevron contested the legal proceedings in every court involved in the litigation, and even sought a global anti-enforcement injunction against the enforcement of the Ecuadorian judgment. The Court of Appeal was unimpressed with this strategy including Chevron’s decision to announce in the media, before the release of the judgment, its intention to “fight this until hell freezes over. And then we’ll fight it out on the ice.”

Yaiguaje is another example of a Canadian court taking a liberal approach to the issue of jurisdiction since Club Resorts Ltd v. Van Breda, 2012 SCC 17. Although the facts of this case are unusual, the Court of Appeal’s message to Canadian subsidiaries is clear: Ontario will assume jurisdiction over them if they are tied to the province and have a “significant economic relationship” with their foreign judgment debtor parent corporation who has attempted to avoid its creditors.  Depending on the circumstances, these subsidiaries may want to rethink challenging the court’s jurisdiction and instead focus on raising substantive defences in future enforcement actions.

Update

The Court of Appeal has recently stayed this enforcement action pending the determination of the Chevron defendants’ leave applications to the Supreme Court of Canada.