Yaiguaje v. Chevron Corporation 2017 ONSC 135 (CanLII)
The saga continues. This case returned to the Ontario Superior Court of Justice
for consideration after a hearing at the Supreme Court of Canada. Forty-seven individual plaintiffs in
this action, representing approximately 30,000 indigenous Ecuadorian villagers,
are suing Chevron and Chevron Canada to attempt to enforce a US$9.5 billion judgment.
The enforcement proceedings first came before the Ontario Court where a motions
judge - Justice D.M. Brown (now on the Ontario Court of Appeal) - held that the Ontario
Court had jurisdiction to recognize and enforce the Ecuadorian judgment but on
his own motion stayed the proceedings. The Ontario Court of Appeal
over-ruled Justice Brown’s imposition of a discretionary stay but upheld his
decision on the jurisdictional issue. The Supreme Court of Canada upheld
the decision of the Court of Appeal.
The enforcement proceedings came back before Justice Hainey of the Ontario Court
on two motions for summary judgment. Chevron Canada moved for summary
judgment against the plaintiffs and the plaintiffs moved for summary
judgment against Chevron Canada. In
addition, the plaintiffs moved to strike the defences pleaded by
Chevron in its statement of defence.
The judgment arose out of a dispute involving the
exploration of a region in Ecuador by the Texaco Oil Company between 1964 and
1992. When the plaintiffs commenced proceeding in Ecuador in 2003, Texaco
had then merged with Chevron.
In the Ontario action, the plaintiffs are seeking to
enforce the Ecuadorian judgment of approximately US$9.5 billion made against Chevron against both Chevron and Chevron
Canada.
Chevron is a Delaware company with its head office in
California. Chevron Canada is a seventh level indirect subsidiary of
Chevron with its head office in Calgary, Alberta. In the Ontario action
the plaintiffs, in addition to seeking payment of the US$9.5 billion, are was
also seeking a declaration that the shares of Chevron Canada are exigible to
satisfy the Ecuadorian judgment and the appointment of an equitable receiver
over the shares and assets of Chevron Canada. Chevron Canada took the
position that it had nothing to do with the Ecuadorian proceedings, was not a
judgment debtor under the Ecuadorian judgment and therefore being a separate
legal entity, should not be subject to enforcement proceedings in
Ontario.
Justice Hainey considered the following two issues:
- Are the shares and assets of Chevron Canada exigible and available for execution and seizure pursuant to the Execution Act to satisfy the Ecuadorian judgment against Chevron; and
- If not, should Chevron Canada’s corporate veil be pierced so that it’s shares and assets are available to satisfy the judgment?
He held in favour of Chevron Canada with respect to both
issues.
On the first issue, Justice Hainey found that Chevron Canada
is not an asset of Chevron. It is a separate legal person. The Execution
Act, which is a procedural statute, does not create any rights in property
but merely provides for the seizure and sale of property in which a judgment
debtor already has a right or interest. It does not establish a cause of
action against Chevron Canada. Chevron Canada is not the judgment debtor
under the Ecuadorian judgment and therefore the Execution Act does not
apply to it with respect to that judgment.
Justice Hainey accepted the argument of Chevron Canada that
if the plaintiffs’ position was correct, the debts of individual shareholders
could be enforced against the assets of any Ontario company.
With respect to the second issue and the piercing of the
corporate veil, the plaintiffs argued that it would be an injustice to the
indigenous people of Ecuador whose way of life had been ruined by Chevron’s
polluting activities to declare the shares and assets of Chevron Canada
separate from those of Chevron. The plaintiffs argued that Chevron had
total effective control over Chevron Canada and that ownership was not a
corporate separateness issue once judgment was issued against a guilty
party. In this case the plaintiffs argued that the court should pierce
the corporate veil because if it did not, it would yield a result “to
flagrantly opposed to justice” in this situation.
However, Justice Hainey was not going to depart from over
100 years of well-established corporate law that held that Chevron and its
indirect subsidiary, Chevron Canada, are separate legal entities with separate
rights and obligations.
The principle of corporate separateness provides that
shareholders of a corporation are not liable for the obligations of the
corporation. Assets of the corporation are owned exclusively by the
corporation not by the shareholders and as a result Chevron did not have any
legal or equitable interest in the assets of Chevron Canada.
Justice Hainey held that the proper approach to piercing the
corporate veil was enunciated in the Trans-America Life Insurance v. Canada
Life Assurance case by the Ontario Court of Appeal in 1997. In that
case, Justice Sharpe held that there were two requirements before the corporate veil would be pierced:
- There must be complete control or domination by the parent over the subsidiary so that the subsidiary does not in fact function independently; and
- There must be conduct akin to fraud that would otherwise unjustly deprive claimants of their rights.
Justice Hainey held that the admission by the plaintiffs that Chevron Canada had itself done nothing wrong was fatal to their claim. Accordingly, he granted summary judgment against the plaintiff and dismissed their claim against Chevron Canada.
There was divided success on the second part of the motion, i.e. the
plaintiffs’ motion to strike Chevron’s statement of defence in its entirety.
The plaintiffs’ motion was brought under subrule 21.01(12)(b)
of the Rules of Civil Procedure. The plaintiff alleged that
Chevron’s entire statement of defence should be struck because it raised
defences that had no reasonable prospect of success in an action to enforce a
foreign judgment in Ontario pursuant to the Supreme Court of Canada’s decision
in Beals v. Saldanha.
Chevron’s statement of defence raised a number of defences
but primarily the following.
- The Ecuador court did not have jurisdiction over it;
- The Ecuador judgment was based on a law that was applied in a retroactive manner;
- Chevron was denied standards of fairness and natural justice in Ecuador;
- The Ecuador judgment was obtained by fraud (as found by a District Court judge in New York);
- Recognition and enforcement of the Ecuador judgment would constitute a violation of the obligations of Ecuador under international law; and
- All of the above offended Canadian standards of natural justice and public policy for the recognition and enforcement of foreign judgments.
Justice Hainey held that the issue he needed to decide was
whether it was "plain and obvious" that the defences raised by Chevron had no
chance of success because they were not permitted defences to an action to
recognize and enforce a foreign judgment in accordance with the Supreme Court
of Canada’s decision in Beals.
In Beals, the SCC held that the defences of fraud,
public policy and lack of natural justice are available defences.
Accordingly, insofar as Chevron had raised the defence that
the Ecuador judgment was obtained by fraud, that portion of the statement of
defence was allowed to stand.
Interestingly, Justice Hainey did not strike the portion of
Chevron’s statement of defence that pleaded that the Ecuador court did not have
jurisdiction over it for reasons other than judicial corruption and bias, i.e.
that it never attorned to the jurisdiction of the court, that it never
conducted any business in Ecuador and that there is no real and substantial
connection between Chevron Canada and Ecuador. It seems to the writer that those defences could have, and
should have been raised, in Ecuador and cannot be re-litigated here in
Ontario.
Where Chevron pleaded matters concerning the retroactive
applicable of the law and that recognizing and enforcing the Ecuadorian
judgment would constitute a violation under international law, Justice Hainey
found that it was plain and obvious that these defences did not fall under the
narrow Beals exception and could be struck.
The plaintiffs have indicated that the will appeal this decision to the Ontario Court of Appeal.
Regards,
Blair
