ICYMI: The Latest Chapter in Yaiguaje v Chevron Corporation

By: Dr. Gail Henderson, Assistant Professor at Queen’s University Faculty of Law

On the same day as President Trump’s inauguration, the Ontario Superior Court released Yaiguaje v Chevron Corporation, granting the defendants’ motion for summary judgment to dismiss the claims against Chevron’s indirect subsidiary, Chevron Canada.

This is the latest chapter in the fight to enforce a US$9.5 billion dollar Ecuadorian judgment against Chevron for environmental damage caused by the ceased oil operations of another US company that subsequently merged with Chevron.[1] The previous chapters are likely familiar: by the time of the judgment, Chevron had no assets in Ecuador. After Chevron obtained an injunction barring enforcement in the US on the basis that the judgment was obtained by fraud,[2] the plaintiffs sought to enforce in Ontario. Chevron’s only presence in Ontario – or any other province – is through its indirect subsidiary, Chevron Canada Limited. For this reason, the enforcement action represents a direct challenge to the principle of separate corporate personality, established in 1897 by the House of Lords in Salomon v Salomon and enshrined in Canada’s corporations statutes.

The plaintiffs attempted to avoid this problem by arguing that “Chevron Canada is an asset of Chevron that is exigible and available for execution and seizure” under the Ontario Execution Act (para 31) on the basis of Chevron’s “indirect beneficial” interest in Chevron Canada (paras 31-32). But, as Justice Hainey recognized, this argument was effectively asking the court to pierce the veil between Chevron and Chevron Canada. Consistent with Chevron Canada’s separate legal personality under its incorporating statute,[3] “a parent corporation does not beneficially own the property of its wholly-owned direct subsidiary” (para 44).

On the question whether the court should ‘pierce the corporate veil’ between Chevron and Chevron Canada, the plaintiffs argued that Justice Wilson’s reasons in Kosmopoulos v Constitution Insurance Co[4] authorize a court to pierce the veil when upholding separate corporate personality “would yield a result ‘too flagrantly opposed to justice’”. Justice Hainey followed previous decisions, including Justice Brown’s prior decision in this case, holding that Kosmopoulos does not create an independent basis for veil piercing (para 68). Although the judge recited facts on both sides with respect to Chevron Canada’s independence from Chevron, he confirmed that, regardless of the level of control exercised by a parent corporation over a subsidiary, piercing the corporate veil requires finding some “wrongdoing akin to fraud in the establishment or use of the corporation”, which is not the case here (paras 64 and 69).

Given this holding, Justice Hainey dismissed the plaintiff’s motion to add Chevron Canada Capital Company, the 100% shareholder of Chevron Canada as a party to the action. Although he allowed the plaintiffs’ motion to strike Chevron’s defence in part, he held that the allegations that the Ecuadorian judgment was obtained by fraud is a permissible defence to the enforcement action.

The decision contains no surprises for corporate lawyers familiar with the existing jurisprudence on veil piercing. This is unlikely to be the last chapter in this saga, however. Nor does the decision address broader policy concerns raised by the application of Salomon to corporate groups such as Chevron. As the recent US election demonstrated, a popular perception that the economic system is unfair can create an unpredictable climate for business. Ensuring the ongoing stability of the global economy will require balancing the benefits of separate corporate personality applied to corporate groups against the need to ensure redress for harm caused by those groups.

gail-8-web-use

Dr Gail Henderson is Assistant Professor at Queen’s University Faculty of Law. Her research interests include corporate law, corporate governance, corporate social responsibility, securities regulation and the regulation of financial institutions. Prior to pursuing graduate studies at the University of Toronto, Dr Henderson served as law clerk to The Honourable Louise Charron of the Supreme Court of Canada and practiced commercial litigation and environmental and municipal law at Osler, Hoskin & Harcourt LLP in Toronto. 

 

 

 

 

[1] In 2015, the Supreme Court of Canada affirmed Ontario’s jurisdiction over Chevron (2015 SCC 42).

[2] Chevron Corp. v Donziger, No. 11 Civ. 0691 (SDNY, 2014) at 479.

[3] CBCA, s 15(1).

[4] [1987] 1 SCR 2.