Tuesday, 15 September 2015

Yaiguaje v. Chevron -- Jurisdiction in Actions to Enforce Foreign Judgments

          A few days ago, the Supreme Court of Canada released its ruling in Chevron Corp. and Chevron Canada v. Yaiguaje et al.  The court dismissed Chevron’s appeal from the decision of the Ontario Court of Appeal that found the Ontario courts have jurisdiction to hear Yaiguahje’s action for recognition and enforcement of their Equadorian judgment for US$9.5 billion.     The two issues on appeal were:

a.)    In an action to recognize and enforce a foreign judgment, must there be a real and substantial connection between the defendant (judgment debtor) and Ontario for jurisdiction to be established?  (Chevron Corp. does not itself carry on business in Ontario and it claimed to have no connection to Ontario, by way of assets or otherwise).

b.)    Do the Ontario courts have jurisdiction over Chevron Canada, a third party to the judgment for which recognition and enforcement is sought?

Neither issue was unsettled in the law.  As to the first issue, as the S.C.C. pointed out, in proceedings to enforce a foreign judgment the law has never required a real and substantial connection between the defendant or the dispute and the province where the judgment is to be enforced.  In such proceedings, “it is the act of service on the basis of a foreign judgment that grants an Ontario court jurisdiction over the defendant.” (para. 27)  (That is, Rule 17.02 (m) of the Ontario Rules of Civil Procedure permit service ex juris for cases involving foreign judgments.)    In the words of the Ontario Court of Appeal, “Beals [v. Saldanha]  is crystal clear about how the real and substantial connection test is to be applied” (para. 29).  The requirement of a real and substantial connection to Ontario applies only to actions at first instance; for enforcement proceedings, the requirement is to show such connection only to the jurisdiction where the judgment was issued.    

On the second issue, it was uncontested that Chevron Canada carries on business in Ontario, and it was served in Ontario.  Why wouldn’t the Ontario court be able to hear the case based on presence-based jurisdiction?   After all, the Supreme Court very recently reaffirmed, in Club Resorts v. Van Breda this traditional basis for jurisdiction remains available; the court’s ruling on real and substantial connection did not change that.   Chevron Canada argued that the courts lacked jurisdiction because its business activities in Ontario are unrelated to the facts underlying the foreign judgment.   However, whether a company’s business activities relate to such facts is never relevant to the threshold question of jurisdiction.  Indeed the facts underlying the foreign judgment will not be relevant even to the merits of the issue as to whether the judgment is enforceable (except for facts relevant to certain defences to enforcement such as fraud). 

As the court acknowledged, “in many cases the defendant’s challenge to service ex juris is just another dilatory tactic…”  (para. 69).  Chevron’s challenge was such a tactic; the motion court, the Court of Appeal, and the Supreme Court of Canada all unanimously found no merit at all in Chevron’s arguments.   Chevron clearly is financially vastly stronger than the plaintiffs.   Yet the Court not only gave leave but did not even award substantial indemnity costs upon dismissing the appeal.

Regrettably, the Supreme Court declined to address one issue that calls out for their guidance.  The Ontario Court of Appeal had found that the Ontario courts have jurisdiction over Chevron Canada not merely because it carries on business in Ontario.  The court also pointed to the “economically significant relationship” between Chevron Canada and its corporate parent, Chevron Corp.  Chevron Corp. owns Chevron Canada [albeit not directly], Chevron’s income all comes from subsidiaries such as Chevron Canada, and Chevron Corp. guarantees debts and other obligations of Chevron Canada.    The Court of Appeal appears to be saying that, by piercing the corporate veil, it can take jurisdiction over Chevron Canada on the same basis as it takes jurisdiction over Chevron Corp.   By piercing the corporate veil the court can take jurisdiction over companies that are neither judgment debtors nor present in the jurisdiction.    There is no other basis for jurisdiction, now that Van Breda has eliminated necessary and proper party as a basis for jurisdiction.   That said, the Court of Appeal did add that “the usual concerns regarding piercing the corporate veil [liability of a shareholder] are not present at the state of this preliminary jurisdictional determination” and may be appropriately addressed when the defendant submits its statement of defence. (para. 39).   Given that the liability of Canadian companies for the obligations of their subsidiaries overseas is a very timely topic (think of Choc v. Hudbay Minerals, Presbyterian Church of Sudan v. Talisman Energy and Gize Yebeyo Araya v. Nevsun Resources), guidance from the Supreme Court on whether piercing the corporate veil can serve to bring a company within the jurisdiction of Canadian courts would have been most welcome. 

The Supreme Court did offer two comments about jurisdiction over companies which are strangers to the foreign judgment and which are not present in Canada. The first comment refers to dicta in Van Breda that jurisdiction may be rebutted by showing the subject matter of the litigation is unrelated to the defendant’s business activities in the province. The Court comment that  “in the recognition and enforcement context, it would hardly make sense to require that the carrying on of business in the province relate to the subject matter of the dispute.  The subject matter of recognition and enforcement proceedings is the collection of a debt.” (para 90). 

The other comment was that the fact Chevron Canada was not involved in the Equadorian events that led to the judgment, the judgment to which it is a third party, is irrelevant. The subject matter of the enforcement proceeding is the collection of a debt using assets alleged to be available (i.e. those of Chevron Canada).  Thus the third party is the direct object of this proceeding.   Unfortunately neither comment addresses piercing the corporate veil.

On a separate note, the Supreme Court said its ruling does not prevent Chevron from challenging enforcement based on forum non conveniens  (para 77).  This is odd:  how could some other jurisdiction be “clearly more appropriate” than Ontario to decide whether the judgment could be enforced in Ontario?

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