In its recent decision in Chevron Corp. v. Yaiguaje, the Supreme Court of Canada has held that a foreign judgment may be enforced in Canada without the claimant demonstrating that the claim or the judgment debtor has any connection to Canada. Rather, it is the claim’s connection to the jurisdiction where the judgment was rendered that makes its enforcement in Canada conform to the principles of international law.

This decision now settles the law on this point and enables Canadian courts to enforce foreign judgments without worrying about whether the underlying dispute has anything to do with Canada. For those interested in arbitration, the question is whether the principles stated by the Supreme Court in the Chevron decision apply to the enforcement of foreign arbitral awards.

Background

The forty-seven plaintiffs in the Canadian action represent about 30,000 indigenous Ecuadorian villagers who are seeking damages for environmental harm they allege was caused by Texaco’s operations in their region. Texaco later merged with Chevron. The plaintiffs obtained a judgment from an Ecuadorian trial judge, which was affirmed by the Appellate Division of the Provincial Court of Justice of Sucumbíos. Ecuador’s Court of Cassation upheld the judgment except with respect to punitive damages. The total amount owing under the Ecuadorian judgment is US$9.51 billion.

The plaintiffs sued in Ontario for the recognition and enforcement of the Ecuadorian judgment. They served Chevron at its head office in California. They served Chevron Canada, an indirect subsidiary of Chevron, both at an extra‑provincially registered office in British Columbia and at its place of business in Ontario.

Chevron and Chevron Canada brought motions to set aside the service of the claim on the basis that the Ontario court had no jurisdiction to hear the action because the dispute and Chevron had no real and substantial connection to Ontario. The motion judge ruled that the court did have jurisdiction but nevertheless stayed the action on its own initiative under section 106 of the Ontario Courts of Justice Act. He held that: Chevron did not own, had never owned and had no intention of owning assets in Ontario: Chevron did not conduct business in Ontario; there was no basis to assert that Chevron Canada’s assets are Chevron’s assets for the purposes of enforcing the Ecuadorian judgment; and there was no legal basis for piercing Chevron Canada’s corporate veil.  In sum, there was “nothing in Ontario to fight over” and therefore no reason to allow the claim to proceed. In the Court of Appeal and the Supreme Court, Chevron and Chevron Canada made no submissions in support of this self-standing relief.

The Ontario Court of Appeal held that it was not appropriate for the court to impose a discretionary stay under s. 106. Such a stay should only be granted in rare circumstances, and not as a “disguised, unrequested and premature” ruling on a motion which might be made later in the proceedings, or as a forum non conveniens motion imported into a stay motion.

On the jurisdictional issue, the Court of Appeal held that the court in Ecuador had a real and substantial connection with the subject matter of the dispute or with the defendant Texaco (now Chevron). Therefore, an Ontario court has jurisdiction to determine whether the foreign judgment should be recognized and enforced in Ontario against Chevron. Chevron Canada carried on business in Ontario and had a significant relationship with Chevron. Accordingly, the Court of Appeal held that the Ontario court has jurisdiction to adjudicate a recognition and enforcement action against Chevron Canada.

Decision of the Supreme Court of Canada

The Supreme Court of Canada upheld the jurisdictional decision of the Ontario Court of Appeal, and did so on a matter of principle:

“In an action to recognize and enforce a foreign judgment where the foreign court validly assumed jurisdiction, there is no need to prove that a real and substantial connection exists between the enforcing forum and either the judgment debtor or the dispute.  It makes little sense to compel such a connection when, owing to the nature of the action itself, it will frequently be lacking. Nor is it necessary, in order for the action to proceed, that the foreign debtor contemporaneously possess assets in the enforcing forum.  Jurisdiction to recognize and enforce a foreign judgment within Ontario exists by virtue of the debtor being served on the basis of the outstanding debt resulting from the judgment.”

With respect to Chevron Canada, the Supreme Court held that the Ontario court had jurisdiction over that company because it was served at its place of business in Ontario.

The Supreme Court held that its conclusion on the jurisdictional issue was based on three reasons:

“First, this Court has rightly never imposed a requirement to prove a real and substantial connection between the defendant or the dispute and the province in actions to recognize and enforce foreign judgments.  Second, the distinct principles that underlie actions for recognition and enforcement as opposed to actions at first instance support this position.  Third, the experiences of other jurisdictions, convincing academic commentary, and the fact that comparable statutory provisions exist in provincial legislation reinforce this approach.  Finally, practical considerations militate against adopting Chevron’s submission.”

The court then proceeded to explain and expand upon each of those reasons. On the first point, it reviewed its previous decisions in Morguard Investments Ltd. v. De Savoye, Beals v. Saldanha, Club Resorts Ltd. v. Van Breda and Pro Swing Inc. v. Elta Golf Inc. and held that nothing in its decision in Van Breda – which did not deal with the enforcement of judgments – had over-ruled or affected the clear line of authority in its other judgments to the effect that a real and substantial connection must be shown between the dispute and the court granting judgment on the dispute, not between the dispute and a court enforcing that judgment.

On the second point of principle, the court stated two reasons why the real and substantial test should not apply to enforcement:

“First, the crucial difference between an action at first instance and an action for recognition and enforcement is that, in the latter case, the only purpose of the action is to allow a pre-existing obligation to be fulfilled.  Second, the notion of comity, which has consistently underlain actions for recognition and enforcement, militates in favour of generous enforcement rules.”

The court emphasized that a rule that the defendant itself or its assets be in the enforcing jurisdiction would be contrary to order and fairness. The defendant may well be absent from that jurisdiction since the only point of the enforcement exercise is to seize assets in that jurisdiction. And as to assets:

“…assets such as receivables or bank deposits may be in one jurisdiction one day, and in another the next.  If jurisdiction over recognition and enforcement proceedings were dependent upon the presence of assets at the time of the proceedings, this may ultimately prove to only benefit those debtors whose goal is to escape rather than answer for their liabilities, while risking depriving creditors of access to funds that might eventually enter the jurisdiction…..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.”

The court then noted that its decision was consistent with international comity and order:

“Requiring a real and substantial connection through the presence of assets in the enforcing jurisdiction would serve only to hinder these considerations, which are important for commercial dealings in an increasingly globalized economy……. Facilitating comity and reciprocity, two of the backbones of private international law, calls for assistance, not barriers.  Neither this Court’s jurisprudence nor the principles underlying recognition and enforcement actions requires imposing additional jurisdictional restrictions on the determination of whether a foreign judgment is binding and enforceable in Ontario.”

The court indicated how important the principle was by stating that its ruling would end the debate in Canada:

“…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, which some say is necessary in this area….Such a rule will clearly be consistent with the dictates of order and fairness; it will also allow parties “to predict with reasonable confidence whether a court will assume jurisdiction in a case with an international or interprovincial aspect”……..Moreover, a clear rule will help to avert needless and wasteful jurisdictional inquiries that merely thwart the proceedings from their eventual resumption.”

It is of interest to those engaged in arbitration that, in coming to its conclusion, the court relied upon the enforcement sections in the statutes relating to international commercial arbitration. It noted that:

“…analogous provisions found in other Ontario statutes do not impose an obligation on the plaintiff to establish that the defendant has assets in the province or some other conceivable connection with the forum.  For example, the Ontario International Commercial Arbitration Act, which permits registration of foreign arbitral awards, does not require that the debtor be present or have assets in Ontario.  Article 35(1) of the Schedule to that Act provides that “[a]n arbitral award . . . shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.”  Article 36(1) lists various grounds for refusing recognition or enforcement of such awards.  None of those grounds is based upon the absence of a real and substantial connection between either the underlying dispute or the defendant and Ontario, or upon an absence of assets….. the Reciprocal Enforcement of Judgments Act, R.S.O. 1990, c. R.5, which supplies an expedited mechanism for registering and enforcing the judgments of the other Canadian provinces and territories, contains no such requirement either……..all the common law provinces and territories have statutes providing for the recognition and enforcement of foreign arbitral awards or of judgments from the United Kingdom.  They also have similar statutes providing for the expedited registration or recognition of judgments from specified jurisdictions.  In Quebec, it is art. 3155 of the Civil Code of Québec that provides for the recognition and enforcement of foreign decisions.”

In concluding its judgment, the court made it clear that it was not ruling on any of the substantive grounds of defence that might be available to the Chevron companies. All it was ruling on was that the court had jurisdiction to deal with the plaintiffs’ claim for enforcement of the Ecuadorian judgment.

Discussion

This decision should not be a surprise. It is consistent with the existing common law and the statutes and Rules of Civil Procedure relating to the enforcement of foreign judgments. Indeed, a ruling that a foreign judgment could only be enforced if the defendant or the original dispute had a real and substantial connection to the enforcing jurisdiction may have placed serious barriers to the enforcement of foreign judgments and impaired the credibility of the international enforcement of judgments.

The more interesting issues are those that arise from this decision in other settings. Thus, the court stated definitively that the test for determining jurisdiction stated in Van Breda should only be applied to tort claims:

“”First, it should be remembered that the specific connecting factors that LeBel J. established in Van Breda were designed for and should be confined to the assumption of jurisdiction in tort actions.  His comments with respect to carrying on business in the jurisdiction, at paras. 85 and 87, were tailored to that context……..The connecting factors that he identified for tort claims did not purport to be an inventory covering all claims known to law, and the appropriate connecting factors can reasonably be expected to vary depending on the cause of action at issue.” (emphasis added)

This pronouncement means that, for other causes of action, for instance contract claims, the Van Breda test does not apply. That conclusion may come as a surprise to some.

Second, a further issue will be whether the test enunciated in the Chevron decision should be applied to arbitration claims, and in particular international arbitration claims. Because of this issue, the Chevron decision is of interest to the law of arbitration. There seem to be no good reasons why the same test should not be applied to the enforcement of international arbitration awards. Indeed in the Chevron decision, the Supreme Court relied on the statues relating to international commercial arbitrations and noted that they did not contain any requirement that there be a real and substantial connection between the enforcing jurisdiction and the claim. Similarly, the British Columbia Court of Appeal has recently held that there is no need to establish that the enforcing jurisdiction is a convenient forum when seeking enforcement of a foreign commercial arbitral award: Sociedade-de-Fomento Industrial Private Ltd. v. Pakistan Steel Mills Corp. (Private) Ltd, 2014 CarswellBC 1499, 2014 BCCA 205 (B.C.C.A.). See my article dated June 29, 2014 about this decision.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 11, part 12.

Chevron Corp. v. Yaiguaje, 2015 SCC 42

Enforcement of foreign judgments – real and substantial connection – comity

Thomas G. Heintzman O.C., Q.C. FCIArb                                       September 20, 2015

www.heintzmanadr.com

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