What’s At Stake?

In 2015, the Supreme Court of Canada in Chevron Corp. v. Yaiguaje (discussed here) determined that Ontario courts have jurisdiction to adjudicate a recognition and enforcement action against an Ontario affiliate of a foreign corporation. In this case, the enforcement action was brought by Ecuadorian plaintiffs against Chevron Corporation (“Chevron”), a US-based corporation, and its seventh level indirect subsidiary, Chevron Canada Limited (“Chevron Canada”).

The decision was thought to have significant cross-border implications, as enforcement of foreign awards in Canada can be pursued against foreign companies even where the original parties to the proceeding fail to have a real and substantial connection to Canada.

As a result of the Supreme Court’s decision, the plaintiffs’ action to enforce the US$9.51 billion Ecuadorian judgment against Chevron in Ontario against Chevron Canada’s assets was allowed to continue. However, the Supreme Court left open the issue as to whether Chevron Canada’s assets, as a separate entity from Chevron, are available to satisfy the Ecuadorian judgment.

That issue was decided by Justice Hainey of the Superior Court of Justice earlier this year, when he dismissed the plaintiffs’ action against Chevron Canada by way of summary judgment.

The Summary Judgment Motion

Chevron Canada sought summary judgment dismissing the plaintiffs’ enforcement action as against it on the basis that it was not a party to the Ecuadorian proceeding, it is not a judgment-debtor under the Ecuadorian judgment, no wrongdoing is alleged against Chevron Canada in the plaintiffs’ enforce action, and that Chevron Canada is a separate legal entity with no basis on which to pierce Chevron Canada’s corporate veil.

On the other hand, the plaintiffs argued that Chevron Canada is an asset of Chevron, and alternatively, if it is not an asset, then the court should pierce Chevron Canada’s corporate veil because Chevron has total, effective control over Chevron and that there would be an injustice if limited liability principles were applied in this case.

Chevron Canada is Not an Asset of Chevron

Justice Hainey found that the plaintiffs are unable to rely on the Ontario Execution Act, as it is procedural act that does not create a right or interest in assets where that asset does not belong to a judgment-debtor. Chevron Canada was not a party to the initial proceeding, and was not a judgment-debtor in that action.

The court found that if the plaintiffs’ submissions on this issue were accepted, it would mean that the assets of Ontario subsidiaries of both domestic and foreign companies would automatically and always be subject to execution orders to satisfy the judgment of parent companies. The court rejected that position, and determined that Chevron Canada is not an asset of Chevron and not subject to the Execution Act.

Chevron Canada’s Corporate Veil Should Not Be Pierced

Having determined that Chevron Canada is not an asset of Chevron, the court next grappled with whether it should pierce the corporate veil of the separate entity.

The court ultimately determined that the principle of corporate separateness applies in the context of groups of companies, like Chevron and its affiliates, and that groups of companies are not to be regarded as one single entity.

As Chevron and Chevron Canada are separate entities, in order to pierce the corporate veil, the plaintiffs were required to satisfy the court that Chevron dominated and controlled Chevron Canada to use it as a shield for a fraudulent and improper purpose.

However, the plaintiffs specifically pleaded in their Statement of Claim that they do not allege any wrongdoing on the part of Chevron Canada. To that end, the plaintiffs were unable to establish wrongdoing akin to fraud in the corporate structure as between Chevron and Chevron Canada. Further, the court found that the evidence showed that Chevron Canada and Chevron had a typical parent/subsidiary relationship, and that Chevron Canada was not merely a puppet.

Conclusion and More to Come

The court’s dismissal of the enforcement action as against Chevron Canada is a positive decision for companies that operate abroad and whose subsidiary or related companies hold assets in Ontario.

While the decision may provide comfort that a foreign judgment may not ultimately be enforced against an affiliated Ontario company, this comfort may not last long. The plaintiffs’ have appealed the decision to the Ontario Court of Appeal.