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CORPORATIONS - Distinct legal entity - Exceptions (piercing the corporate veil)

Friday, June 29, 2018 @ 8:51 AM  

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Appeal by the plaintiffs from summary judgment determining that the shares and assets of Chevron Canada were not eligible to satisfy the judgment debt of Chevron Corporation and from the costs award. The appellant obtained a judgment in Ecuador against Chevron Corporation for environmental pollution. Chevron Corporation was a public company with its head office in California. As Chevron Corporation had no assets in Ecuador, the appellants sought to enforce the judgment in the US. The US court found the judgment had been obtained due to the fraudulent conduct of appellants’ counsel in the Ecuadorian proceeding. The US court thus enjoined any enforcement proceedings of the Ecuadorian judgment in the US. The appellants then commenced the present proceeding in Ontario seeking to enforce the judgment against the shares and assets of Chevron Canada, a seventh-level subsidiary of Chevron Corporation, with its head office in Calgary. The appellants argued that the Execution Act permitted execution on Chevron Canada’s shares and assets to satisfy the Ecuadorian judgment. In the alternative, they submitted that the court should pierce the corporate veil in order to render Chevron Canada’s shares and assets exigible. The motion judge noted that Chevron Corporation did not own the shares of Chevron Canada but that all of Chevron Canada’s shares were owned by its direct parent, Chevron Canada Capital Company (CCCC). He further found that the Act was a procedural statute that did not create any rights in property but merely provided for the seizure and sale of property in which a judgment-debtor already had a right or interest. The motion judge also rejected the appellants’ submission that the principle of corporate separateness should not apply in this case. Because the principle of corporate separateness applied to Chevron Corporation and Chevron Canada, the motion judge held that the appellants had to meet the test for piercing Chevron Canada’s corporate veil. In his view, the jurisprudence established that courts did not have a carte blanche to pierce the corporate veil where it appeared just to do so, absent fraudulent or improper conduct. He awarded costs on a partial indemnity basis in the amounts of $533,001 to Chevron Canada and $313,283 to Chevron Corporation.

HELD: Appeal allowed in part. The costs award was set aside. The motion judge did not err in his interpretation of the Act, such that Chevron Canada’s shares and assets were exigible to satisfy the judgment debt of Chevron Corporation. Chevron Corporation had no existing rights as against the assets of Chevron Canada. The Act was procedural only and did not purport to grant substantive rights to judgment creditors. Granting the rights sought would ignore the corporate separateness of the various subsidiaries in between Chevron Corporation and Chevron Canada. There was no basis for piercing the corporate veil in this case. The difficulties the appellants were encountering in collecting the judgment were not related to Chevron Corporation’s structuring of its subsidiaries. In effect, the appellants wanted the Ontario court to assist them in doing an end-run around the US court order by breaking with well-established jurisprudence and creating an exception to the principle of corporate separateness that was both ill-defined and would be unnecessary for similarly situated judgment creditors. It was not appropriate to add CCCC as a party because the claim against its assets must fail for the same reasons that the claim against Chevron Canada’s assets must fail. The motion judge erred when he found that this was not public interest litigation which impacted on the quantum of costs. When the true nature of the litigation was considered, the amounts awarded below were excessive. Costs were reduced to $150,000 to Chevron Canada and $100,000 to Chevron Corporation.

Yaiguaje v. Chevron Corp., [2018] O.J. No. 2698, Ontario Court of Appeal, C.W. Hourigan, G. Huscroft and I.V.B. Nordheimer JJ.A., May 23, 2018. Digest No. TLD-June252018009