In the quest to satisfy a judgment or arbitral award rendered in one jurisdiction where the resulting debtor has no assets, global searches for the awarded compensation frequently ensue. Where the domicile of the actual debtor presents high substantive and procedural barriers – which is a risk in both strong “rule of law” jurisdictions and weaker ones – judgment creditors may have sought recourse to affiliates of the judgment debtor in jurisdictions thought not to have comparably formidable barriers to enforcement.

Such a scenario recently occurred in Ontario where judgment creditors with an Ecuador judgment against Chevron, a U.S.-based energy conglomerate, sought to enforce against Chevron’s subsidiary, Chevron Canada. While the extensive Ontario and Supreme Court proceedings in the Chevron litigation dealt with many other issues, the lower courts were absolutely clear that the longstanding common law principle protecting the corporate veil as between affiliated companies^[1] should be maintained as between Chevron and its Canadian subsidiary, which could not be reached to satisfy the Ecuador judgment rendered only as against its U.S. parent.

Chevron and Chevron Canada raised procedural defences, which were ultimately resolved in the Plaintiffs’ favour affirming the Jurisdiction of the Ontario trial court to entertain an application for the recognition and enforcement on the merits, notwithstanding U.S. Federal Court rulings on point. Then, on the merits, at first instance and on appeal, the plaintiffs were unsuccessful, based on Ontario law respecting separate corporate identity which precluded piercing the corporate veil as between Chevron and Chevron Canada, given that the Canadian affiliate was in no way connected with its parent in relation to the circumstances underpinning the Ecuador judgment.

This principle was judicially noted to be particularly robust in blocking attempts to penetrate the corporate veil downstream to subsidiaries with no connection to or involvement in the activities leading to the outstanding liability of its parent. The Supreme Court of Canada refused an application for leave to appeal on point. The barrier is that much more formidable where the targeted entity is more than one-layer down from the parent in the corporate “tree” of affiliated entities.^[2]

The principle is arguably less strong in a situation of upstream liability where veil piercing is aimed at the parent of the judgment debtor subsidiary and a case can be made that the directing minds reside at the head office. Even then, however, such evidence would have to be compelling for purposes of enforcement.

For instance, in Beals v. Saldanha^[3], the Ontario Court of first instance declined to enforce, invoking a “judicial sniff” test, expanding the defence of public policy to permit a domestic court to refuse enforcement in cases where the facts did not fall squarely within the three impeachment defences, traditionally – and more narrowly – defined, but were nonetheless egregious to the point of not honouring the foreign judgment. However, a majority of the Ontario Court of Appeal reversed, holding that there was no need to incorporate a judicial “sniff test” under the public policy umbrella, in particular since – in the majority’s view – there was no fraud based on facts which could not have been discovered by the Florida court if the case had been defended, nor a failure of natural justice in that regard. An appeal to the Supreme Court of Canada was dismissed.