Wednesday, 30 May 2018

In judgment enforcement cases, it may be possible to pierce the corporate veil: Dissent in Ont. C. A. Chevron ruling

            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.