By: Fenner L. Stewart
PDF Version: Chevron Corp. v Yaiguaje: Judicial Activism and Cross Border Complexity
Case Commented On: Chevron Corp. v Yaiguaje, 2015 SCC 42
In 2013, Ecuador’s highest court held that Chevron was liable to pay US$9.51 billion to forty-seven indigenous Ecuadorian villagers (the plaintiffs). Prior to this final judgment, in 2012, the plaintiffs started an action to seize Chevron Canada’s CAN$15 billion in assets to satisfy the judgment. Chevron Canada’s assets include its stakes in the Athabasca Oil Sands, the Hibernia Field, the Hibernia South Extension, the Hebron Field, the Duvernay Shale Field, and the Kitimat LNG Project.
In Chevron Corp. v Yaiguaje, the Supreme Court of Canada (SCC) addressed two questions. First, must there be a real and substantial connection between the defendant (or the dispute) and Ontario before an Ontario court has jurisdiction to recognize and enforce a foreign judgment? The Court answered no. Second, can an Ontario court have jurisdiction over a foreign judgment debtor’s subsidiary when the subsidiary has no connection to the foreign judgement? The Court answered yes.
The fallout of this case will prove to be divisive. Human rights advocates will celebrate this case, hoping that it signals that Canadian courts will be taking a more active role in holding extraction companies accountable for human rights violations and environmental damages abroad. Skeptics will fear this case, believing that Canada’s new role as a judicial trailblazer will come at a cost, discouraging foreign investment and potentially undermining international relations.
The Supreme Court Decision
On its face, this case is about whether Canadian courts have the jurisdiction to enforce foreign judgments. The court only addressed the following two issues.
- Establishing Jurisdiction Over A Foreign Judgment Debtor
The SCC held that an Ontario court has jurisdiction over a foreign judgment debtor if the foreign court had a real and substantial connection to the defendant or the subject matter of the dispute. In other words, if the foreign court had jurisdiction, an Ontario court has jurisdiction to recognize and enforce its judgment. In the SCC’s opinion, the court is merely recognizing and enforcing an existing obligation and not reviewing the substantive merits of the case, and thus, the real and substantial connection test does not need to be applied to the Canadian court. The only other requirement is that the judgment had to be confirmed by the court of final appeal in the foreign jurisdiction in question. The judgment needs to be final. Thus, all a foreign judgment creditor needs to do to start the Canadian process is serve the debtor ex juris and commence an action.
Accordingly, an Ontario court had jurisdiction to enforce the judgment of Ecuador’s Court because (a) there was a real and substantial connection between Ecuador’s court and the subject matter of the dispute, and (b) the judgment came from Ecuador’s final court of appeal.
- Establishing Jurisdiction Over A Foreign Judgment Debtor’s Wholly-Owned Canadian Subsidiary
The Supreme Court held that there was no difference between establishing jurisdiction over Chevron Canada and establishing jurisdiction over any other “bricks-and-mortar” business operating within Ontario (2015 SCC 42 at paras 79-81). The larger factual context did not matter. If the company is doing business in Ontario and it is served, then the court has jurisdiction. If there is no case, Chevron Canada merely needs to file a motion to dismiss. In other words, the court employed a traditional, presence-based approach to establishing jurisdiction.
- Important Side Note
The court dismissed the claim by Chevron that there is a requirement that the company have assets in Ontario before it can establish jurisdiction. The court rejected this position, reasoning:
In today’s globalized world and electronic age, to require that a judgment creditor wait until the foreign debtor is present or has assets in the province before a court can find that it has jurisdiction in recognition and enforcement proceedings would be to turn a blind eye to current economic reality (2015 SCC 42 at paras 57).
That is, even if Chevron did not have assets in Canada today, it soon could given the globalized energy industry, where energy markets and investments are increasingly and unpredictably crossing national boundaries.
The Effect of The Case
The immediate effect of this case should not be exaggerated; this is merely a finding of jurisdiction. It means nothing more than the plaintiffs have the right to attempt to seek enforcement of the judgment against Chevron. Chevron has a number of arguments against enforcement; one of the most persuasive being the U.S. District Court’s ruling that the plaintiff’s American lawyer, Mr. Steven Donziger, ghostwrote the Ecuadorian judgment. (Chevron Corp. v. Donziger, 974 F. Supp. 2d 362 (2014)). In that case, Judge Kaplan held, in a nearly 500-page judgment, that the Ecuadorian ruling resulted from fraud committed by Mr. Donziger and members of the Ecuadorian courts.
Moreover, it is also unlikely that a Canadian court would pierce the corporate veil in such circumstances. However, depending on how Chevron Canada’s shares were issued, the plaintiffs may not necessarily need to pierce the corporate veil to extract value from its wholly owned subsidiary. Chevron is the owner of Chevron Canada’s shares—not Chevron Canada.
Although the immediate effect of this case may be limited, the judgment is not insignificant. One need not be able to divine the future to see that, moving forward, the impact of this judicial trailblazing may be far reaching.
An expanded version of this post will be published as a case comment in Journal of Energy & Natural Resources Law.
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It should be noted that the enforceability of any resulting judgement will engage the decision in Beals v. Saldanha, [2003] 3 SCR 416, 2003 SCC 72 (CanLII), where the Supreme Court narrowly upheld a contentious judgement in the Florida Courts.
The Supreme Court denied leave to appeal on April 4, 2019 in Daniel Carlos Lusitande Yaiguaje, et al. v. Chevron Corporation, et al., 2019 CanLII 25908 (SCC) from the Ontario Court of Appeal decision in Yaiguaje v. Chevron Corporation, 2018 ONCA 472 (CanLII) wherein the parties agreed to determine by means of a summary judgment motion the issue of whether Chevron Canada’s shares and assets are exigible to satisfy the judgment debt of Chevron Corporation.
Chevron Corporation is a public company with its head office in California. Its principal business is holding shares in its subsidiary corporations and managing those investments. It owns 100 percent of the shares of its direct subsidiary, Chevron Investments Inc., which was also incorporated in the United States. Chevron Investments Inc. owns 100 percent of the shares of its own direct subsidiary, and so on down the corporate chain. Chevron Canada Limited (“Chevron Canada”), a seventh-level subsidiary of Chevron Corporation, with its head office in Calgary. All of Chevron Canada’s shares are owned by its direct parent, Chevron Canada Capital Company (“CCCC”) incorporated in Nova Scotia with no assets or operations in Ontario.
Chevron Corporation and Chevron Canada (and indirectly CCCC) were successful on that motion which was upheld on an interpretation of the Ontario’s Execution Act, R.S.O., 1990, c. E.24, section 18 (1) which provided:
8(1) The sheriff may seize and sell any equitable or other right, property, interest or equity of redemption in or in respect of any goods, chattels or personal property, including leasehold interests in any land of the execution debtor, and… at the time of the delivery of the execution to the sheriff for execution..
The Ontario Court of Appeal said,
[54] It is common ground that the [Execution] Act is procedural only and does not purport to grant substantive rights to judgment creditors. Its only function is to facilitate the collection of judgments through the various methods provided therein to enforce the judgment debtor’s existing rights. The sheriff effectively steps into the judgment debtor’s shoes and enforces his or her rights for the benefit of the judgment creditor.
Under that Act, the shares and assets of Chevron Canada are not exigible to satisfy Chevron Corporation’s debt as “Chevron Corporation has no existing rights as against the assets of Chevron Canada. It is not enough to state that Chevron Corporation has an amorphous indirect right to the assets of Chevron Canada; there must be an existing legal right that permits seizure of the assets.” [para 55]
The Court elaborated saying “Consistent with the law established in Salomon, [[1896] UKHL 1, [1897] AC 22] Parliament has entrenched in our law the notion of corporate separateness. That means that corporations are separate entities from their shareholders, capable of carrying on business and incurring debts on their own behalf. Thus, if a judgment debtor is a parent corporation, it and not its shareholders or subsidiaries, is responsible for the debts it incurs. It also means that a corporation’s assets are its own and do not belong to related corporations.” at para 57.
The Court refused to “pierce the corporate veil”, saying,
“[66] With respect to cases where it is alleged that a subsidiary corporation is a mere facade that protects its parent corporation, in order to ignore the corporate separateness principle, the court must be satisfied that: (i) there is complete control of the subsidiary, such that the subsidiary is the “mere puppet” of the parent corporation; and (ii) the subsidiary was incorporated for a fraudulent or improper purpose or used by the parent as a shell for improper activity: Transamerica, [Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), affirmed: (1997) 74 A.C.W.S. (3d) 207 (Ont. C.A.).]at pp. 433-34.
Despite efforts by appellants counsel to argue sufficient control over Chevron Canada by Chevron Corporation, this was dismissed on the basis that the second test could not be satisfied as Chevron Canada had been incorporated some 50 years before the Ecuadorian judgment. [at para 74]
As to the the equities involved, the Court of Appeal noted that these were not clear, the recourse to Ontario Courts was the result of the decision in of American courts, that the Ecuadorian judgement had been obtained by fraud and was not enforceable in the United States (as noted above) with Judge Kaplan’ decision being upheld on appeal 2nd circ. in 2016: Chevron Corporation v. Donziger, 833 F.3d 74 (2d Cir. 2016). In 2017, the Supreme Court of the United States denied the petition for writ of certiorari [leave to appeal] Donziger v. Chevron Corp., 137 S.Ct. 2268.
The concurring judgment of Justice Nordheim disagreed with the extension of Transamerica beyond the liability context at issue in that case saying the circumstances were different as there was judgement on liability in this case, in part by saying “it would appear to be very difficult to conceive of a factual situation where the Transamerica test could be met by a judgment creditor, that is, where the corporate structure would be found to have been “used as a shield for fraudulent or improper conduct” solely in the execution context.” at para 95. Discussing the cases cited he noted they all applied in a liability context and referred to one post-Transamerica case Downtown Eatery (1993) Ltd. v. Ontario (2001), 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (C.A.), leave to appeal refused [2001] S.C.C.A. No. 397 to argue that in the enforcement context the corporate veil had been pierced. It should be noted that Downtown Eatery was in an employment context, where special rules as to successor employment arise. He noted that the doctrine of “piercing the corporate veil” arose from the equitable jurisdiction of Superior Court and was intended to provide remedies unavailable at common law. [para 113] He did agree in the result, noting that the Ecuadorian judgement was facially valid while on the other hand there was finding from US courts that this judgement was obtained by fraud. Comity demands Canadian Courts should respect both decisions and absent a Canadian Court determination as to the validity of the underlying Ecuadorian judgment the equities were unclear and did not rise to the standard of flagrant injustice to permit piercing the corporate veil.