"Corporate Separateness" Results in the Dismissal of Pollution Enforcement Suit Against Chevron Canada

The Ontario Superior Court of Justice recently ruled on the closely watched motion in Yaiguaje v. Chevron Corp.¹, summarily dismissing an action to enforce an Ecuadorian judgment against Chevron Corporation’s indirect Canadian subsidiary, Chevron Canada, for damages related to alleged environmental pollution in Ecuador. A key aspect of the ruling is the Court's refusal to pierce the corporate veil between the parent and subsidiary companies due to their "corporate separateness". The plaintiffs are now seeking leave to appeal the decision to the Ontario Court of Appeal.

What You Need To Know

• This ruling is the latest development in a long-standing dispute, in which the 47 Ecuadorian plaintiffs hold a US$9.5 billion judgment from an Ecuadorian court against Chevron for alleged environmental liabilities, and now seek enforcement in Canada and other jurisdictions after that judgment was found to be fraudulent and unenforceable by U.S. courts.
• In dismissing the plaintiffs' enforcement action against Chevron Canada, the Court upheld the doctrine of corporate separateness.

Discussion

Key Findings of the Court

The Court disagreed with the plaintiffs' principal submission that Chevron Canada is an asset of Chevron that is exigible and available for execution and seizure under the Execution Act. The Court found that Chevron Canada, as a legal person incorporated under the Canada Business Corporations Act, is not an asset of any other person. Further, the Execution Act is procedural in nature and merely provides for the seizure and sale of property in which a judgment-creditor already has a right or interest. It does not give Chevron any right or interest, beneficial or otherwise, in the shares or assets of Chevron Canada, which is not the judgment-debtor in this case.

With respect to whether Chevron Canada's corporate veil should be pierced, the Court held that the plaintiffs failed to meet the legal test for the following reasons:

• Under the principle of corporate separateness, shareholders are not liable for the obligations of the corporation, and the assets of the corporation are owned exclusively by the corporation. To this end, Chevron does not have any ownership interest in the assets of Chevron Canada as an indirect shareholder seven times removed. Further, given that Chevron Canada does not own its own shares, it cannot be sued to recover those shares.
• To pierce the corporate veil, a court must find a relationship of complete control and domination as well as conduct akin to fraud. In this case, the plaintiffs did not allege any wrongdoing on the part of Chevron Canada or with respect to the relevant corporate structure, which had been in place since 1966. In addition, the evidence did not establish that Chevron Canada is Chevron's "puppet". Rather, they have a typical parent/subsidiary relationship, with no indicia of dominance or control by the parent over the subsidiary.
• In the Court's view, there does not exist an independent just and equitable exception to the principle of corporate separateness.

Implications

Although the principle the Court relied on is long-standing, the decision is particularly noteworthy as plaintiffs have been increasingly seeking to hold parent corporations liable for environmental, health and safety events that occur at subsidiary operations. In this case, the court was not persuaded the facts supported piercing the veil.

The Superior Court of Justice's recent decision in Yaiguaje v. Chevron Corp. can be viewed here.

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¹ 2017 ONSC 135.

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