By Alex Robinson, Law Times
13 February 2017
The lawyers representing Ecuadorian plaintiffs in a lawsuit against Chevron Corporation have applied for leave to appeal a judge's decision to dismiss an action against the company's Canadian subsidiary.
The case, Yaiguaje v. Chevron Corporation, made headlines recently after Ontario Superior Court Justice Glenn Hainey said the assets of Chevron Canada Limited could not be seized to pay out a foreign judgment against Chevron Corp., as the seven-level indirect subsidiary is not an asset of the parent company.
The plaintiffs have now applied for leave to appeal the decision to the Ontario Court of Appeal.
In their Notice of Appeal, the plaintiffs took issue with the judge's finding that the assets of the subsidiary are not assets of Chevron Corp.
Alan Lenczner, of Lenczner Slaght Royce Smith Griffin LLP, is representing the plaintiffs.
He says the plaintiffs disagree with an assertion by Hainey that Chevron Canada Limited is "a separate legal person" and "not an asset of any other person including its own parent."
"That can't be right. That is the most astounding proposition of law I have ever heard," says Lenczner.
"This judgment stands for the proposition that you can't collect from anybody.
You can't collect from Chevron Canada because it doesn't belong to anybody when it's completely 100-per-cent owned by Chevron Corp," he adds.
In a years-long legal battle, Ecuadorian villagers successfully got a US$18-billion judgment against Texaco, which later merged with Chevron, claiming their region had suffered extensive environmental damage from pollution the company had caused and failed to clean up.
An Ecuadorian appeals court later upheld the decision in 2013, but it reduced the judgment to US$9.5 billion.
After Chevron, which has no assets in Ecuador, refused to pay the judgment, the plaintiffs filed their action in Ontario.
Chevron then challenged whether Ontario courts had jurisdiction to enforce the foreign judgement.
The Supreme Court of Canada found in 2015 that the courts did have jurisdiction in the matter, but it stopped short of determining whether Chevron Canada is an asset of Chevron Corp.
The Canadian subsidiary then brought its summary judgment motion to have the action against it dismissed.
The motion judge found that the assets of Chevron Canada could not be seized pursuant to the Execution Act to satisfy the Ecuadorian judgment, saying the act does not give the parent company any interest in the shares of the subsidiary and that it does not create any rights that override the principle of corporate separateness.
Hainey also found that Chevron Canada's corporate veil should not be pierced, as the parent did not have complete control over the subsidiary.
In their Notice of Appeal, the plaintiffs argued Hainey erred in his interpretation of the Execution Act, saying the act is of wider reach than his procedural interpretation.
Lenczner says the judge also misapprehended a Supreme Court decision, BCE Inc. v. 1976 Debentureholders, in his determination that Chevron Canada is not an asset of Chevron Corp.
Hainey cited a line from the decision that said, "While the corporation is ongoing, shares confer no right to its underlying assets," but Lenczner says this line was taken out of context and that the judge's conclusion was at odds with what the SCC said.
The plaintiffs also argued that Hainey had erred by applying the principle of corporate separateness to a judgment debt of a parent company to "shield from execution the assets of its wholly owned subsidiary" and that the Supreme Court has authorized the piercing of the corporate veil when failing to do so "would result in injustice."
Corporate lawyers, however, have said that the decision's confirmation of the principle of corporate separateness is important.
Arlene O'Neill, of Gardiner Roberts LLP, says that allowing the corporate veil to be pierced in this case would have set a dangerous legal precedent.
"I think corporations have to have comfort in their corporate structures," says O'Neill, who did not act in the case.
"This is a case where you have a substantial business in Canada, completely operating on its own healthily, respecting its corporate structure, [with] its own board of directors, real live assets and employees.
"And how can it just be available for judgment debtors against the parent?"
She adds that there must be some consistency in legal principles among Canada's jurisdictions if it wants to attract international business to invest in it.
"And for Ontario or Canada to become a jurisdiction where everybody who has a claim against a multinational entity – and they get a decision outside of Canada – can all of a sudden just come and seize the assets of an affiliate, a separate corporate legal entity, does run afoul of the common law corporate law principles, but also would not bode well for Canadian business," she says.
A spokesman for Chevron Corporation said the company is confident that any court that rules on the case will rule in its favour.
"The Ontario court rightly found that Chevron Corp. and Chevron Canada Limited are two separate and distinct entities," he said in an emailed statement.
"We are confident that any court that reviews the facts presented in this case will come to a similar conclusion."
Hainey also recently refused to grant a request by the plaintiffs to add another subsidiary, Chevron Canada Capital Company, as a defendant to the action.