YAIGUAJE V. CHEVRON CORPORATION, 2018 ONCA 472
This decision is another chapter in the ongoing litigation concerning the enforcement of an Ecuadorian judgment in Ontario against Chevron and Chevron Canada, a wholly-owned subsidiary of Chevron. Earlier decisions in the case are discussed in Mining in the Courts, Vols. VI and VIII.
In 2015, the Supreme Court of Canada held that Ontario courts have jurisdiction to adjudicate a recognition and enforcement action against an Ontario affiliate of a foreign corporation. However, the SCC left open the question of whether the assets of Chevron Canada, as a separate entity from Chevron, remained available to satisfy the Ecuadorian judgment. That matter was determined in the first instance in 2017 by the Ontario Superior Court of Justice (2017 ONSC 135), which held that Chevron Canada's assets were unavailable to satisfy the judgment because Chevron Canada is not an asset of Chevron, and the Ontario Execution Act, which the plaintiffs relied on, is procedural and does not create a right to an asset not owned by the judgment-debtor. The Court refused to pierce the corporate veil to allow for enforcement. The principle of corporate separateness precluded this because the plaintiffs could not show that Chevron completely controlled Chevron Canada in order to use it as a shield for an improper or fraudulent purpose. The plaintiffs appealed from that decision.
In dismissing the appeal (with the exception of the costs award), the Ontario Court of Appeal dealt with two major issues: (i) the proper interpretation of the Execution Act, and (ii) whether the Court has the ability to pierce the corporate veil when the interests of justice demand it.
On the first issue, the Court held that it was legally impossible to grant the appellants' request for a declaration against Chevron Canada that its shares were exigible because a corporation's shares belong to the shareholders, not to the corporation. The Execution Act is procedural and does not purport to grant substantive rights to judgment creditors. It was not enough that Chevron had an "amorphous indirect right" to the assets of Chevron Canada. There must be an existing legal right that permits the seizure of the assets. In its analysis, the Court considered the well-entrenched notion of corporate separateness, and held that where a judgment debtor is a parent corporation, it and not its shareholders or subsidiaries, is responsible for the debts it incurs.
On the second issue, the majority bluntly dismissed the appellants' argument, stating that the Court has "repeatedly rejected an independent just and equitable ground for piercing the corporate veil." An exception to the rule of corporate separateness only occurs when: (i) the parent corporation has complete control of the subsidiary such that it is a "mere puppet" of the parent; and (ii) the subsidiary was incorporated for a fraudulent or improper purpose. Absent such extraordinary circumstances, the corporate veil cannot be pierced. In the end, the Court re-affirmed the test for piercing the corporate veil and rejected the independent "just and equitable" grounds for doing so. While the majority conceded that the rules for piercing the corporate veil can and will evolve, it must do so on a "principled basis and in a manner that brings certainty and clarity, not in a way that sows confusion and is devoid of principle."
This may not be the final word on the doctrine of corporate separateness and the circumstances in which the corporate veil may be pierced, as the plaintiffs have sought leave to appeal to the Supreme Court of Canada.
For more on this decision see McCarthy Tétrault LLP's Mining Prospects blog post entitled "Yaiguaje v. Chevron Corporation – The Ontario Court of Appeal Does Not Pierce the Corporate Veil, but the Concurring Minority Questions the Principle of Corporate Separateness."
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