Skip to main content
This website uses cookies. By continuing to use this website you are agreeing to our use of cookies as described in our privacy policy.
Bulletin

SCC: Courts May Enforce Foreign Pollution Awards

Fasken
Reading Time 4 minute read
Subscribe

Corporate Social Responsibility Law Bulletin

On September 4, 2015, the Supreme Court of Canada released its unanimous decision in Chevron Corp. v. Yaiguaje, 2015 SCC 42. Chevron challenged the jurisdiction of Canadian courts to deal with the enforcement of a US$9.51 billion judgment of the Ecuadorian court obtained by some Indigenous people. This decision clarifies when a Canadian court has jurisdiction to allow enforcement proceedings under a foreign judgment against the Canadian subsidiary of a multinational corporation.

Background on Chevron Corp. v. Yaiguaje

This case is the latest in a prolonged legal battle between US-based Chevron and Indigenous peoples from Ecuador’s northern Amazon (“Plaintiffs”).

In 2011, an Ecuadorian court granted the Plaintiffs a US$9.51 billion judgment against Chevron for widespread oil contamination dating back to the 1970s. Chevron has consistently maintained that the underlying judgement was based on fraud. On March 4, 2014, the U.S. District Court for the Southern District of New York ruled that the $9.5 billion Ecuadorian judgment was the product of fraud and racketeering activity, finding it unenforceable.

In 2014, the Ontario Court of Appeal ruled that Canadian courts have jurisdiction to recognize and enforce the Plaintiff’s Ecuadorian judgment against Chevron and its wholly-owned Canadian subsidiary, Chevron Canada. Chevron and Chevron Canada subsequently appealed that decision to the Supreme Court of Canada (“SCC”).

On appeal, the SCC grappled with novel jurisdictional issues. Chevron has no Canadian assets; all Canadian assets are owned by Chevron Canada. Chevron Canada was neither a party to the Ecuadorian action, nor liable under the Ecuadorian judgment. As such, the Plaintiffs effectively sought to enforce a foreign judgment against the Canadian subsidiary of a multinational corporation that had no involvement in the allegations giving rise to the lawsuit.

The SCC Decision

The SCC ruled that Ontario courts have jurisdiction to recognize and enforce the Ecuador judgment against Chevron Corporation and Chevron Canada. Key aspects of this ruling are outlined below.

Test for Recognizing and Enforcing a Foreign Judgment

The SCC determined that Canadian courts have jurisdiction to permit the recognition and enforcement of a foreign judgment in the following circumstances:

  1. if there is a real and substantial connection between the legal dispute and the foreign country where the decision was rendered;
  2. if the defendant carries on business and is physically present in Canada;
  3. if the defendant consents, whether by voluntary submission, attornment by appearance and defence, or prior agreement to submit disputes to the jurisdiction of a Canadian court; or,
  4. through service of process out of the jurisdiction (service ex juris).

The SCC held that the Plaintiffs did not need to prove a real and substantial connection between the legal dispute and the Canadian court being asked to recognize and enforce the foreign judgment. The SCC reached this conclusion for several reasons. Unlike actions at first instance, the court’s role in an action for enforcement is to facilitate the enforcement of an obligation that has already been adjudicated. A Canadian court’s powers of enforcement have no foreign element so a real and substantial connection is not required. Finally, since globalization has made it easier for debtors to hide assets and complicate creditor efforts to find them, it would be unfair to require proof that a corporate defendant is present or has assets in a province before a Canadian court has jurisdiction.

Jurisdiction over Chevron and its Canadian Subsidiary

Having explained the test to recognize and enforce the Ecuadorian judgment, the SCC confirmed that the court had jurisdiction over Chevron and Chevron Canada. The SCC held that jurisdiction was established over Chevron because the statement of claim named Chevron as a foreign debtor pursuant to a judgment of an Ecuadorian Court, Chevron attorned to the jurisdiction of the Ecuadorian courts when it defended its case, and Chevron was served at its US head office ex juris. With respect to Chevron’s Canadian subsidiary, the SCC found that Chevron Canada maintained, and was validly served, at a physical office in Mississauga, which had staff carrying on business throughout Ontario. These facts established jurisdiction over Chevron and Chevron Canada, even though Chevron Canada was not named under the Ecuadorian judgment.

The SCC emphasized that a finding of jurisdiction over Chevron and Chevron Canada does not mean the Plaintiffs will succeed in having their Ecuadorian judgment recognized and enforced against Chevron Canada. The SCC merely decided that Ontario courts have jurisdiction to hear the case. The SCC did not find that Chevron committed acts alleged by the Plaintiffs. The merits of the underlying Ecuadorian judgment were never at issue. However, the SCC did refer to the U.S. District Court decision that concluded the Ecuadorian claim was rooted in massive fraud committed on Ecuadorian courts. This is significant since any judgment which is fraudulently obtained will not be enforced in Canada.

Conclusion

As a result of this decision, the Plaintiffs may now argue that the Canadian subsidiary of a US-based multinational may be liable for environmental damage caused by its corporate parent abroad. However, the SCC made it clear that the substantive issues, such as any underlying fraud and issues of corporate subsidiary liability, remain as live issues to be dealt with by Ontario courts.

Continue this discussion. Join our LinkedIn Group

    Subscribe

    Receive email updates from our team

    Subscribe