Thursday, February 16, 2017

Ecuadorean Villagers Continue Legal Battle Against Chevron

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:


  1. 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


  1. 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:

  1. There must be complete control or domination by the parent over the subsidiary so that the subsidiary does not in fact function independently; and
  2. 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.

  1. The Ecuador court did not have jurisdiction over it;
  2. The Ecuador judgment was based on a law that was applied in a retroactive manner;
  3. Chevron was denied standards of fairness and natural justice in Ecuador;
  4. The Ecuador judgment was obtained by fraud (as found by a District Court judge in New York);
  5. Recognition and enforcement of the Ecuador judgment would constitute a violation of the obligations of Ecuador under international law; and
  6. 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.  




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