Canada: Certainty Trumps Equity: The Continuing Saga Of Yaiguaje v. Chevron Corporation

Background

In 2011, the Ecuadorian plaintiffs obtained a $9.5 billion USD judgment in Ecuador against Chevron for environmental damages relating to its past operations in the country.  Chevron no longer had any assets in Ecuador, and as a result the plaintiffs sought to enforce the judgment against Chevron in the United States.  The proceeding was dismissed, with a New York court finding that the Ecuadorian judgment was invalid and obtained through fraud. 

In 2013, the plaintiffs sought to enforce the judgment in Ontario against Chevron Canada, and in 2015 the Supreme Court of Canada affirmed Ontario's jurisdiction to hear the enforcement proceeding. 

Shortly thereafter, the Chevron defendants moved for summary judgment dismissing the plaintiffs' claim against Chevron Canada, on the grounds that that its shares were not an exigible  asset of Chevron, nor could the plaintiffs pierce the corporate veil and enforce the judgment against Chevron Canada's assets.  Justice Hainey of the Superior Court of Justice agreed with the defendants and dismissed the claim.  It is from that decision that the plaintiffs appealed.

The Majority's Decision

The appellants advanced two arguments on appeal, namely that the Execution Act  permitted execution of Chevron Canada's shares and assets to satisfy the Ecuadorian judgment against Chevron, and the Court should pierce the corporate veil in order to render Chevron Canada's shares and assets exigible.

Justice Hourigan, writing for the majority, rejected these arguments on the basis that they "ignore[d] more than twenty years of jurisprudence" and cautioned that if the Court were to accept the appellants' submissions, "it would result in significant changes to fundamental principles of our corporate law and the law of execution."  In short, the the Execution Act is procedural and does not grant substantive rights to judgment creditors.  It was not enough that Chevron had an "amorphous indirect right" to the assets of Chevron Canada.  Rather, there must be an existing substantive legal right that permits seizure of the assets. To hold otherwise would permit the assets of Ontario subsidiaries of both domestic and foreign companies to be automatically subject to execution orders to satisfy judgments against parent companies. 

The majority also reaffirmed the traditional test to pierce the corporate veil, namely "where it is completely dominated and controlled (a "mere puppet") and being used as a shield for fraudulent or improper conduct." Neither element of the test was met.  The appellants' argument for an independent "just and equitable" ground for piercing the corporate veil was also rejected as contrary to the settled jurisprudence.  In particular, the Court was troubled by the assertion that the rule ought to be relaxed in cases involving enforcement of a judgment debt, as opposed to cases of first instance where the Court is tasked with determining liability.  The Court found that such an argument '"dangerously resembled" the enterprise theory of liability, in which several corporations that operate closely as a 'group' are in reality a single entity and should accordingly be responsible for the others' debt.  The extent of liability under the enterprise theory would introduce an "intolerable" level of uncertainty, and was therefore untenable.

Further, the Court found no merit in the appellants' policy reasons for lifting the corporate veil, finding that the equities in the case were far from clear (in light of the New York finding that the Ecuadorian judgment was obtained through fraud).

While the rules for piercing the corporate veil can evolve, they must do so on in a "principled manner that certainty and clarity, not in a way that sows confusion and is devoid of principle". 

The Concurring Minority Decision

While concurring with the outcome of the majority's decision, Justice Nordheimer took issue with the majority's approach to the corporate separateness doctrine. Nordheimer J. held that the jurisprudence may allow for the corporate veil to be pierced in extraordinary situations where equity would demand a departure from the strict application of the corporate separateness principle.  This includes situations where liability is not in issue, such as in the context of the enforceability of a valid judgment where a creditor remains without a remedy due to the debtor's internal corporate structure.

Ultimately Justice Nordheimer was of the view the facts and equities of Yaiguaje did not warrant application of the equitable doctrine.

Conclusion

Corporations with assets in Ontario that have related entities abroad should be reassured by the fact that the appellate court was not prepared to "sacrifice certainty in the law for expediency" and pierce the corporate veil.  In light of the majority decision, there is little room for the application of the "just and equitable" ground for piercing the corporate veil in Ontario.  Should the appellants seek leave to the Supreme Court of Canada, parties seeking to enforce judgments in Canada may have to wait for the final word on the subject. 

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