Supreme Court to Clarify the Liability of Canadian Corporations for Acts of their Foreign Affiliates

Written By Alison J. Gray, Justin R. Lambert and David J. Wahl

The Supreme Court of Canada today heard argument in a case that will clarify whether a judgment obtained in a foreign country against a foreign corporate entity can be enforced in Canada against a Canadian affiliate of that foreign entity, even when the Canadian affiliate was not party to the foreign proceedings.

In July 2013 we wrote about Choc v Hudbay Minerals Inc., 2013 ONSC 1414, a decision that seemed to signal an increased willingness by Ontario courts to assume jurisdiction in the case of alleged wrongdoing by a foreign subsidiary of a Canadian corporation in a foreign country.

More recently in January 2014 we wrote about Yaiguaje v Chevron Corp., 2013 ONCA 758, which appeared to reinforce a willingness by Ontario courts to assume jurisdiction over matters not clearly linked to Ontario. Today, the SCC heard Chevron Corporation's appeal of that decision.

In Chevron, the Plaintiffs were 47 indigenous Ecuadorian residents representing 30,000 others who claim they were harmed by environmental pollution from 1972 to 1990 caused by Chevron Corporation and its corporate predecessors.

The Plaintiffs sued Chevron Corporation in Ecuador. On February 14, 2011, the Ecuadorian trial court found Chevron Corporation liable for approximately US$18 billion in damages (the Ecuadorian Judgment). This decision was subsequently affirmed by the Ecuadorian intermediate appellate court and the Ecuadorian Court of Cassation with some modification of the damages award.

The Plaintiffs sued in Ontario on the Ecuadorian Judgment for the purpose of enforcing it in Ontario against both Chevron Corporation and its Canadian subsidiary, Chevron Canada Limited. The motions Judge stayed the Action, but the Ontario Court of Appeal overturned this decision and allowed the Plaintiffs to proceed with enforcement of the Ecuadorian Judgment in Ontario, against the Canadian subsidiary, even though the Canadian subsidiary was not party to the Ecuadorian proceedings or judgment.

The case has been closely watched because of its fascinating facts, the large potential liability faced by Chevron, and because of allegations that the Ecuadorian judgment was fraudulently obtained (which allegations have been playing out in related New York litigation). However, of most interest to Canadian corporations will be the potentially significant impacts on Canadian companies carrying on business abroad through foreign affiliates. The Supreme Court of Canada's pronouncements on the enforcement of a foreign judgment against a Canadian affiliate may require that Canadian corporations change their foreign corporate structures.

We will provide a further update when the Supreme Court of Canada releases its decision.

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