Commentary: Yaiguage v Chevron Corporation

This commentary was originally published on the Ontario Bar Association's Aboriginal Law Section under Recent Articles here.

Commentary: Yaiguage v Chevron Corporation

During the summer of 2013, I applied to a youth-mentorship program in Alberta as summer employment. I lived and worked in Chateh, one of the three communities of the Dene Tha First Nation, a few hours south from the Northwest Territories border. During that summer, I also had my first direct interaction with the natural resource extraction industry. When I arrived at the Edmonton airport, there were advertisements for various companies involved in the energy industry. These advertisements were omnipresent in Alberta.While in the community, I encountered the complex realities facing Indigenous communities who rely on the energy industry for jobs, funding, and sustainability as a community. This is not to say that I was not already aware of the complex reality of Indigenous communities, being Indigenous myself. I just did not realize how pervasive the energy industry was and continues to be in western Canada.

During that same summer, the community experienced a flood and an oil spill. Neither the flood nor the oil spill made the news, despite the fact that the oil spill occurred in the Dene Tha’s traditional territory. The spill damaged a large tract of the community’s trap line and harvesting area, impacting the community’s ability to harvest for “ many years.”

When I read Yaiguaje v Chevron Corporation, 2018 ONCA 472 (“Yaiguaje”), it is these experiences I remembered: the Indigenous communities primarily impacted by the energy industry; the absence of meaningful engagement; the absence of meaningful sharing of equity; and the absence of meaningful understanding of what is at stake for Indigenous communities around the world, like the loss of land at the expense of sustaining large corporations. I do work in the energy industry, and I do believe there is potential and opportunity for Indigenous communities in that industry. I believe, however, that a right and just approach has to be taken.

Briefly, in 2011, the Indigenous plaintiffs in Yaiguaje secured a 9.5 billion USD judgement in Ecuador against Chevron Corporation for environmental damages regarding its oil operations between 1964 to 1992. The judgment awarded punitive damages unless Chevron Corporation apologized. Chevron Corporation did not apologize. Texaco Inc., which is now part of Chevron Corporation, carried out the oil explorations. By 2011 Chevron Corporation no longer had assets in the region on which to enforce the judgment.

The Indigenous plaintiffs then sought to enforce the judgment in the United States. The New York Court held that judgment was invalid because it had been obtained by fraud. Then, in 2013, the Indigenous plaintiffs sought to enforce the judgment in Ontario against Chevron Canada, a seventh-level subsidiary of Chevron Corporation. The Supreme Court of Canada affirmed Ontario’s jurisdiction to hear the enforcement proceeding. The defendants, Chevron Corporation and Chevron Canada, moved for summary judgment to dismiss the Indigenous plaintiffs’ claim against Chevron Canada on the grounds that its shares were not an exigible asset of Chevron Corporation, and that the Indigenous plaintiffs failed to meet the test for piercing the corporate veil.

Though other important issues are raised in the Ontario Court of Appeal decision, it is largely this last point—piercing the corporate veil—that remains a hurdle for the Indigenous plaintiffs and is the focus of this piece. The majority held that the Ontario Superior Court did not err when it held that the Indigenous plaintiffs have not established that Chevron Canada’s corporate veil should be pierced. While I agree with the majority’s analysis, my interest is in Justice Nordheimer’s concurring decision, which left open the possibility for piercing the corporate veil when it comes to enforcing judgments among related corporations. I disagree on this point as it may apply to corporations with international operations similar to the Yaiguaje case.

The authority to pierce the corporate veil is provided in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 1996 CanLII 7979 (ON SC) (“Transamerica Life”). The Transamerica Life test is two-fold. First, corporate separateness is the rule, and courts will only pierce the corporate veil in three circumstances:

  1. When the court is construing a statute, contract or other document;

  2. When the court is satisfied that a company is a “mere facade” concealing the true facts; and,

  3. When it can be established that the company is an authorized agent of its controllers or its members, corporate or human.

Second, concerning the “mere façade” (item 2), the court held that a party must show the following:

  1. There is complete control of the subsidiary, such that the subsidiary is the “mere puppet” of the parent corporation; and,

  2. The subsidiary was incorporated for a fraudulent or improper purpose or used by the parent as a shell for improper activity.

Despite the fact that the Indigenous plaintiffs secured what the U.S. courts found to be a fraudulent judgment, Justice Nordheimer’s reasons suggest equity does play a role in enforcing judgments against a corporation. In his reasons, Justice Nordheimer cites a range of decisions while highlighting Downtown Eatery (1993) Ltd. v. Ontario, 2001 CanLII 8538 (ON CA) (“Downtown Eatery”). Though a good analysis, Justice Nordheimer’s reliance on Downtown Eatery is displaced from its context and is likely to cause manifest uncertainty.

The Downtown Eatery decision involves a case where a dismissed employee sought to enforce judgment against his employer for wrongful dismissal in 1993. At the time, the employee commenced action against his employer’s name that appeared on his pay cheque, Best Beaver Inc. The employee, however, worked at For Your Eyes Only, a Toronto strip club, which was owned and operated by Herman Grad and Ben Grosman. When the employee was dismissed, it was on For Your Eyes Only letterhead. Then, in 1996, there was a major reorganization of the corporate structure and Best Beaver Inc. ceased to exist. Best Beaver Inc. paid nothing to the employee and later, two sheriffs executed judgment by attending For Your Eyes Only and seized cash. This provoked Downtown Eatery (1993) Ltd. to claim that the money belonged to it and it commenced action against the employee. The employee defended the action and counterclaimed against all the companies controlled by Grad and Grosman, and as against Grad and Grosman, personally. The employee advanced the common employer doctrine and the oppression remedy pursuant to the Ontario Business Corporations Act to enforce judgment. The oppression remedy under the OBCA does not require intent: a complainant only needs to show that the effect of a corporation’s actions resulted in the harm to the complainant.

Justice Nordheimer acknowledges the possibility of relying on Downtown Eatery for enforcing a judgment against a related corporation, like as against Chevron Canada. The key difference in Downtown Eatery is that the following actions taken by the defendants resulted in effects that were unfairly prejudicial to the employee or unfairly disregarded the interests of the employee:

  1. The effect of winding up Best Beaver Inc., despite its profitability;

  2. The transferring of its assets to other companies owned by Grad and Grossman; and,

  3. The failure to reserve funds to satisfy any potential judgment in the event the employee was successful.

These facts, placed in the context of Yaiguaje, do not show a possibility of relying on similar reasons to pierce the corporate veil. In fact, to pull out the facts from Downtown Eatery and place them within the context of Yaiguaje would likely cause prejudice to corporations operating at a global scale with offices in Canada (similar to Chevron Canada).

For instance, Downtown Eatery is clear that when a related corporation takes action, like winding up its assets despite its profitability, transferring assets to other companies owed by the same persons, or failing to reserve any funds to satisfy any judgment, then such actions are unfairly prejudicial to the complainants or unfairly disregard the interests of the complainant. Namely, the Court in Yaiguaje held:

It is common ground that the judgment debtor has more than enough assets to satisfy the Ecuadorian judgment. This is also not a case where the judgment debtor’s assets are being funnelled to a related corporation and as a consequence the judgment creditor cannot execute on its judgment (para 80).

To extend Downtown Eatery to permit complainants to bring actions to pierce the corporate veil under similar circumstances creates uncertainty in enforcing judgments against related corporations. The question then becomes not about piercing the corporate veil but who to best take action against when liability is established as a result of actions taken (or not taken) by its holding (or subsidiary) company.

Strip clubs in Ontario that are owned and operated by the same persons in the same city may share the same employees and/or the same staff. And, like in Downtown Eatery, a related corporation may manage certain parts of employee activities but generally, all of the corporations under its umbrella are managed by the same few individuals in a very localized context. These are the distinguishing facts in Downtown Eatery from Yaiguaje. The Toronto-based corporations had few individuals managing all of its activities and as a result of the reorganization, all employees became employees of the operating entity, Downtown Eatery (1993) Ltd. To take Downtown Eatery and place it in a global context would raise the question: How far down the ladder can one reach to enforce judgment against a related corporation? Chevron Corporation and Chevron Canada, though related, operate in a global context. This fact cannot be ignored.

Further, relying on Downtown Eatery to pierce the corporate veil would create manifest uncertainty with the clear Transamerica Life holding. For example, in Transamerica Life, the court held:

The evidence before me indicates that the relationship between Canada Life and C.L.M.S. was that of a typical parent and subsidiary. While C.L.M.S. is wholly owned by Canada Life and its board of directors is comprised of Canada Life executives, I have found that it does have an independent management and conducts a business separate and distinct from that of its parent. There is, in my opinion, no evidence sufficient to give rise to a triable issue that C.L.M.S. is the mere puppet of Canada Life. (p 16.)

This is a stark comparison to the Downtown Eatery test and the facts in Yaiguaje. Texaco Inc. no longer has assets in Ecuador, and based on my review of the related decisions, there seems to be little to no evidence that Texaco Inc. has taken steps to unfairly prejudice the Indigenous plaintiffs or to unfairly disregard the interests of the Indigenous plaintiffs. Though Chevron Canada is a subsidiary of Chevron Corporation, there seems to be little to no evidence that Chevron Canada or Chevron Corporation has also taken steps to unfairly prejudice the Indigenous plaintiffs or unfairly disregard the interests of the Indigenous plaintiffs.

It is a fact that natural resource extraction takes place on Indigenous lands around the world. It is also fact, as established in this case, that environmental pollution and lack of proper safety protocols has the potential to happen without proper regulation. This is where the meaningful engagement and equity-sharing comes into play for Indigenous communities. And, it is these kinds of considerations that ultimately become more important as industries become more global.

For some, corporate-social responsibility is essential to overcome the often unfair relationships between resources proponents and Indigenous communities. But I want to see governments share part of that responsibility. In other words, corporations should be and must be allowed to engage in its business as it sees fit, with the understanding that the government has implemented a balanced approach to regulating its activities.

Nevertheless, when I was living and working in Northern Alberta during the oil spill, the company allegedly failed to properly disclose the spill to the community. The community, in a Globe and Mail article, also alleged that the government was not doing enough regarding aging infrastructure in oil extraction. Perhaps, instead of focusing on corporate social responsibility, governments around the world need to take on more accountability and sharing in the responsibility for the actions or inactions by the corporations doing business its jurisdiction. And, to me, that is true social responsibility.

© 2019 - 2020 by Naomi Sayers

This website and associated materials do not contain legal advice and does not contain a guarantee, warranty, or prediction regarding the outcome of any legal matter. Unsolicited information will not be protected by lawyer-client privilege.

Photo Credit: Jessica Blaine Smith

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