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The Ontario
Court of Appeal recently dismissed the Equadorian plaintiffs’ appeal in the Yaigauje v Chevron case. To enforce their judgment against Chevron
Corporation for environmental damage in Equador, the plaintiffs sought to pierce
the corporate veil and enforce their judgment against the assets of Chevron Canada. The
majority firmly rejected the suggestion that if has power to do so on equitable
grounds. The plaintiffs sought to enforce
the judgment here because a few years ago a U.S. court found the judgment was
obtained by fraud, and barred enforcement in the United States.
However, the minority held there exists a just and equitable
ground for piercing the corporate veil, albeit a limited one, to enforce judgments
including foreign judgments. There is reason
to believe the Supreme Court of Canada will hear this matter, and conceivably decide
there is such a ground.
The majority in Chevron
held that there is no independent just and equitable ground for piercing the
corporate veil, not even for judgment enforcement cases. The Court
held that the restrictive approach in
Transamerica Life Insurance v Canada Life (1996) 28 O.R. (3d) 423, affirmed
[1997] O.J. No. 3754 governs. Transamerica
requires a finding that the corporation is “completely dominated and controlled
and is being used as a shield for fraudulent or improper conduct”. Further, Chevron
held that the existence of a judgment makes no difference, even though the
existence of a judgment means that liability has been determined. To allow such an exception to corporate
separateness for judgment enforcement cases would mean, the Court said, that the
corporations against whom the judgment is enforced would “lose all of its
protection as a natural person under the CBCA”. (para. 75).
Hourigan J., writing for the majority, said two Supreme Court
of Canada cases, Sun Indalex v United Steelworkers [2013] 1 S.C.R. 271 and Commercial Bank Leasing v Canada [1998] 2 S.C.R. 298, uphold corporate
separateness. However, in both cases, corporate separateness
was only a peripheral issue -- in Sun Indalex
the Court’s discussion of corporate separateness was less than three lines long. Neither case discusses the question of an independent
just and equitable ground, and it is not clear any party even argued for one.
Justice Nordheimer, although concurring in the result, parted
company with the majority. He held that “the court is prepared to recognize
that there may be situations where equity would demand a departure from the
strict application of the corporate separateness principle in the context of
the enforceability of a valid judgment, whether foreign or domestic”. He rejected the rigid approach espoused by the
majority, and pointed to cases[i]
subsequent to Transamerica where the
Court of Appeal has pierced the corporate veil for equitable reasons. The
judge drew a distinction between “imposing liability on a party through the
mechanism of lifting the corporate veil” and “the enforcement of a judgment debt”,
i.e. where “liability has already been established”. (para. 94)
He added that “the situations where such a remedy will be appropriate
are likely to be rare and exceptional”.
(para.116).[ii] He
said this remedy may well be appropriate in this case, but for the U.S. courts’
finding that the Equadorian judgment was obtained by fraud, and the fact that
Ontario courts have not yet been called on to make their own determination of
the validity of the judgment.
Hourigan J. was very dismissive of the notion of an independent
just and equitable ground for piercing the corporate veil, describing it as “ill-defined”
(para. 82), and “untethered to the jurisprudence, the statutory rights of
corporations or any discernable principle” (para. 79). He framed the issue as “whether this court
is prepared to sacrifice certainty [the long-standing principle of corporate separateness]
for the sake of expediency” (para. 72).
Such an emphatic rejection of the just and equitable ground,
despite the support for it in the case law, indicates a significant change in corporate law,
and a strong basis for appeal. It is
hoped that this very conservative ruling will be appealed to the Supreme Court
of Canada.
[i] Parkland Plumbing & Heating v Minaki Lodge Resort 2009 ONCA
256 and Downtown Eatery v Ontario
(2001), 54 O.R. (3d) 161
[ii] Maybe even “very rare” (the wording in
a quote Nordheimer J.A. adopted from Lord Mance in the U.K. Supreme Court’s
2013 decision in Prest v Petrodel). [2013
UKSC 34, [2013] 2 A.C. 415.
