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No ‘real connection’ required to pursue foreign awards in Canada: SCC

|Written By David Dias

Foreign claimants who are owed damages awarded in foreign courts are free to pursue enforcement of their claims in Canadian courts, despite the defendant’s having no connection to Canada or assets in this country.

cory wanless
Cory Wanless says the decision sends a strong message multinationals can’t hide behind their corporate structure to prematurely halt enforcement actions.
So ruled the Supreme Court of Canada today in Chevron Corp. v. Yaiguaje, a conflicts-of-law case where Chevron attempted to block a motion to seek enforcement of a $9.5-billion class action award against it on grounds the parent company had no assets in Canada and, in any event, Ontario had no jurisdiction in the matter.

The decision marked the third defeat for Chevron on the merits of the case in Canadian courts. The villagers can now continue with a 2012 lawsuit against Chevron's Canadian subsidiary in a lower Ontario court.

The action stems from an environmental disaster occurring in Ecuador more than 20 years ago involving Texaco, a subsidiary of Chevron Corp. In 2011, Ecuadorian courts awarded the damages to 47 plaintiffs representing 30,000 villagers affected by the disaster.

By then, however, Chevron no longer had any assets in Ecuador, so plaintiffs sought enforcement in countries where Chevron’s subsidiaries operated — namely the United States, Brazil, Argentina, and Canada.

In the U.S., however, Chevron convincingly defended itself by presenting evidence that showed that plaintiffs’ counsel Stephen Donziger used corrupt means, including bribery, to obtain the Ecuadorian decision — leading the courts to bar enforcement in the United States.

In Canada, Chevron has argued that Canadian courts have no “real and substantial” connection in the case (the legal test set out in Club Resorts v. Van Breda) and its subsidiary, Chevron Canada is not liable — based on corporate veil principles — for allegations against the parent company.

Chevron won a stay of proceedings in the Ontario Superior Court, but was overturned at the Ontario Court of Appeal, whose decision was upheld today by the SCC in a unanimous decision written by Justice Clément Gascon.

“Canadian courts, like many others, have adopted a generous and liberal approach to the recognition and enforcement of foreign judgments,” the decision states.

“An unambiguous statement by this Court that a real and substantial connection is not necessary will have the benefit of providing a fixed, clear and predictable rule, allowing parties to predict with reasonable confidence whether a court will assume jurisdiction in a case with an international or interprovincial aspect and will help to avert needless and wasteful jurisdictional inquiries.”

Chevron said in a statement to Reuters it would argue in the lower Ontario court that the lawsuit should be stopped early on the grounds the initial judgment “is the product of fraud and other misconduct, and is therefore illegitimate and unenforceable.”

Dianne Saxe, a Toronto environmental lawyer who has studied the case, said the Ontario court would have to decide whether the original judgment was valid and if Chevron Canada’s assets could be seized to pay off the debt.

“Those are the two big things that are left open and those were always the main ones,” she said.

Cory Wanless, who represented human rights organizations as intervenors in the case, says the decision sends a strong message that multinational corporations cannot hide behind their corporate structure to prematurely halt enforcement actions before they can be heard.

“Chevron has been very adept at raising various procedural barriers, and this was an attempt to do that in Canada,” says Wanless.

According to Wanless, the SCC decision draws a sharp distinction between: (1) motions of first instance and (2) recognition and enforcement motions. In the former, because new obligations can be created by the courts, a “real and substantial” connection must be established in order to claim jurisdiction.

In the latter, however, the damages have already been established by a foreign court and therefore no substantial connection must be proven.

“The only connection for the Canadian court,” says Wanless, “is whether Canada should lend its assistance in enforcing that foreign judgment.”

While the court made no comment on U.S. judicial rulings that found corruption and bribery to have tainted the award, Wanless says he’s encouraged by comments that suggest — given the ease by which a corporation may transfer assets between subsidiaries in multiple jurisdictions — that the court recognizes that an evolution of the law may be required.

The decision states: “In today’s globalized world and electronic age, to require that a judgment creditor wait until the foreign debtor is present or has assets in the province before a court can find that it has jurisdiction in recognition and enforcement proceedings would be to turn a blind eye to current economic reality.”

Although this decision does not address these “corporate veil” issues of inter-corporate liability, Wanless says a future hearing may deal with the matter:

“At the moment, transnational companies operate through a myriad of subsidiaries, which are ultimately controlled by the parent company but in law exist as separate persons. That principle — that there’s limited liability between the various subsidiaries — I don’t think it accords with modern business realities, and I think is in urgent need of updating.”

“This was not the right case for that in the Supreme Court’s view, yet — but it very well may be. This is not the last we’ve seen of this case, and given the history of the case and the strong motivating factors on both sides, this may end up at the Supreme Court again.”

With files from Reuters

  • Attorney in US

    Paul Wolf
    It seems like a "no brainer" that the court would have jurisdiction to hear the enforcement action. But then the court has the dilemma of recognizing the Ecuadoran judgment, or recognizing the US fraud judgment. What does the court do when it's supposed to recognize foreign judgments, and there are two conflicting ones? Does it reach the merits of either one? If the merits of the fraud judgment are reached (ie whether Donziger really committed fraud) then why not reach the merits of the underlying action against Chevron? (whether Chevron really polluted the jungle) Then you would not be recognizing any judgment, but relitigating them. I'm not sure how to solve the legal puzzle but hope it cannot be enforced.

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