Ontario Court Of Appeal Summaries (May 22 – 25)

Good evening.

Following are summaries of this week's civil decisions of the Court of Appeal of Ontario.

In a case that has received much media and judicial attention, Yaiguaje v Chevron Corporation, it appears that the Court has finally put an end to the matter. The Court determined that the shares of Chevron Canada and its assets are not available to satisfy a US$9.5 billion judgment against the ultimate US parent, Chevron Corporation. The Court stated that the separate legal personality of corporations is fundamental to our law, and embodied in statute, and there was no basis for piercing the corporate veil in accordance with the test set out in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 28 O.R. (3d) 423. The Court commented that to allow the judgment to be enforced against the shares in, and assets of, Chevron Canada, would be to incorporate into our law the "group enterprise" theory of liability, which holds that where several corporations operate closely as part of the same "group" of corporations, they are in reality a single enterprise and should, accordingly, be responsible for each other's debts. This theory has been consistently rejected by our courts, and was rejected once again. The Court did, however, significantly reduce the costs awarded to the Chevron corporations, having determined that this was public interest litigation.

In Beatty v Wei, the Court set aside the application judge's interpretation of the Illegal Substances Clause commonly used as an additional term in the Ontario Real Estate Association/Toronto Real Estate Board standard form Agreement of Purchase and Sale (APS). Given that this was a standard form contract, the standard of review was correctness. Since the Sellers' representation and warranty that the use of the property had never been for the growth or manufacture of illegal substances was limited to their "knowledge and belief", the Court found that there was no breach of that clause when it was subsequently discovered by the Purchaser, much to the surprise of the Sellers, that the home had previously been used to illegally grow cannabis. It was therefore the Purchaser who was in breach for failing to close.

Other topics covered this week included the reversal of summary judgment granted against the Attorney General in a negligence and breach of statutory duty claim arising out of the assault by and against inmates on the basis that the judge's findings of fact were not supported by the evidence and a trial was required, discoverability of a nuisance claim where a parallel injurious affection claim was before the OMB, discoverability in a MVA action, production of settlement privileged documents on a motion to set aside an approved proposal in bankruptcy, a mortgage priority dispute involving the doctrine of equitable subrogation, setting aside default judgments and extension of time to appeal."

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I hope everyone has an enjoyable weekend.

John Polyzogopoulos

Blaney McMurtry LLP

jpolyzogopoulos@blaney.com

Tel: 416 593 2053

Civil Decisions

Yaiguaje v Chevron Corporation, 2018 ONCA 472

[Hourigan, Huscroft and Nordheimer JJ.A.]

Counsel:

Lenczner, B. Morrison, K. Baert and C. Poltak, for the appellants

Grant, for the appellants

Zarnett, S. Kauffman and P. Kolla, for the respondent Chevron Canada Limited

L.P. Lowenstein, L. K. Fric, C. Hunter and R. Frank, for the respondent Chevron Corporation

O'Sullivan and P. Michell, for Chevron Canada Capital Company

Keywords: Corporations, Separate Legal Personality, Piercing Corporate Veil, Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 28 O.R. (3d) 423, Civil Procedure, Orders, Enforcement, Execution, Exigible Assets, Execution Act, RSO, 1990, c E24, Costs, Public Interest Litigation

Facts:

The appellants are indigenous peoples of the Orienté region of the Republic of Ecuador. From 1964 to 1992, oil exploration and extraction activities were undertaken on their lands resulting in extensive environmental pollution of the area.

One of the corporations involved in the oil operations was an indirect subsidiary of Texaco Inc. ("Texaco"). Since 2001, Texaco has been part of the global conglomerate, Chevron Corporation. Chevron Corporation's principal business is holding 100 percent of the shares in its subsidiary corporations and managing those investments.

The appellants sought compensation for the environmental devastation through a class action in the Ecuadorian court resulting in a US$9.5 billion judgment against Chevron Corporation. Since Chevron Corporation had no assets in Ecuador, the appellants sought enforcement of their judgment in the United States. Chevron Corporation opposed the enforcement of the judgment on the ground that it had been obtained by fraud and the United States District Court accepted Chevron Corporation's submission and made an order enjoining any enforcement proceedings of the Ecuadorian judgment in the United States.

The appellants then targeted the shares and assets of Chevron Canada Limited ("Chevron Canada") in an action in 2012 in the Ontario Superior Court of Justice for the recognition and enforcement of the Ecuadorian judgment. 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. Hainey J. heard the motion for summary judgment. Chevron Corporation and Chevron Canada were successful on that motion.

The appellants argued that the broad wording of s. 18(1) of the Execution Act, R.S.O., 1990, c. E.24 (the "Act"), permits execution on Chevron Canada's shares and assets to satisfy the Ecuadorian judgment. In the alternative, they submitted that the court should pierce the corporate veil in order to render Chevron Canada's shares and assets exigible.

Motion for Summary Judgment

Hainey J. concluded that the shares and assets are not available pursuant to the Execution Act to satisfy the Ecuadorian judgment against Chevron. He noted that Chevron Corporation does not own the shares of Chevron Canada. Rather, all of Chevron Canada's shares are owned by its direct parent, Chevron Canada Capital Company ("CCCC"). Furthermore, Hainey J. concluded that Chevron Canada's shares and assets cannot be made available to satisfy the judgment by piercing the corporate veil because the appellants failed to meet the test established in Transamerica Life Insurance Co. of Canada v Canada Life Assurance Co., (1996), 28 O.R. (3d) 423 (Gen. Div.).

Motion to add CCCC as a party

Over a month after arguments concluded on the summary judgment motion, the appellants brought a motion to further amend their Amended Statement of Claim to add CCCC as a defendant. Hainey J. dismissed this motion on the basis that because the appellants sought the same relief against CCCC as they did against Chevron Canada, their claim against CCCC could not succeed for the same reasons that it could not against Chevron Canada. Hainey J. further held that the appellants did not establish that the courts of Ontario would have jurisdiction over CCCC, a company incorporated in Nova Scotia with no assets or operations in Ontario.

Costs

Hainey J. awarded costs of the motion on a partial indemnity basis in the amounts of $533,001.81 to Chevron Canada and $313,283 to Chevron Corporation. Given the high stakes of the litigation, the various theories the appellants advanced, and the appellants' numerous requests for additional discovery and cross-examination, it was reasonable for the appellants to expect Chevron Corporation and Chevron Canada to expend significant resources to defend the claims. Hainey J. rejected the appellants' submissions that he should award no or only nominal costs because the appellants' action raised novel points of law that were in the public interest. As the appellants were partially successful on their motion to strike Chevron Corporation's defences, Hainey J. reduced Chevron Corporation's claim for costs by $50,000.

Issues:

(1) Did Hainey J. err in his interpretation of the Act, such that Chevron Canada's shares and assets are exigible to satisfy the judgment debt of Chevron Corporation?

(2) Did Hainey J. err in failing to pierce the corporate veil?

(3) Did Hainey J. err in dismissing the motion to add CCCC as a party?

(4) Should the appellants' motion to tender fresh evidence on appeal be granted?

(5)(a) Should leave to appeal the costs order be granted?

(b) If so, should the court interfere with the costs order?

Holding: Appeal dismissed, except on the issue of costs.

Reasoning:

(1) No. The appellants sought a declaration against Chevron Canada that the shares of its company are exigible. Such an order is a legal impossibility and cannot be made. A corporation's shares do not belong to the corporation, but to the shareholders. Chevron Corporation has no existing rights as against the assets of Chevron Canada. The appellants relied on s. 18(1) to argue that it permits the seizure of any interest and further submit that Chevron Corporation has an "indirect interest" in 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. While a sheriff may seize money, equipment, or shares owned by a judgment debtor corporation, the assets of the issuing corporation are not exigible. Hainey J. did not err in rejecting the appellants' submission that under the Act, Chevron Canada's shares and assets are exigible to satisfy the Ecuadorian judgment. The appellants' interpretation is not supported by the wording of the Act and would violate fundamental principles of our corporate law.

(2) No. The court has repeatedly rejected an independent just and equitable ground for piercing...