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Feb 16, 2017

How the “Corporate Veil” Confused Matters in Yaiguaje v. Chevron Corporation

When the decision in Yaiguaje v. Chevron Corporation, 2017 ONSC 135, was released in late January, commentary has focused extensively on whether Hainey J. was correct to rule that the corporate veil could not be pierced. The decision in Yaiguaje has absolutely nothing to do with the corporate veil. The corporate veil is only “pierced” when a shareholder is made liable for the debts of the corporation. As the House of Lords held in Salomon v. Salomon & Co. Ltd., [1896] UKHL 1, [1897] A.C. 22, and as all modern corporate law statutes state, a corporation is an entity separate from its shareholders, who are not ordinarily liable for its debts.

In Yaiguaje the plaintiffs’ claim is against Chevron Corporation, the judgment debtor. The plaintiffs argue that Chevron Canada is an asset of Chevron Corporation. If the plaintiffs were to be successful in their claim to levy execution on the assets of the judgment debtor, they would simply seize the shares of Chevron Canada as an asset of Chevron Corporation. Those shares could then be sold to satisfy the judgment the plaintiffs had obtained against Chevron Corporation. In essence, the litigation is no more complicated than a claim to seize from a judgment debtor some shares it owns indirectly — through several layers of subsidiaries. The separate personality of Chevron Canada has no more to do with the case than the existence of two separate properties has to do with a claim of a judgment creditor to levy execution on both of them.

It is obvious that Hainey J. simply misunderstood the nature of the plaintiffs’ claim and the relation of Chevron Canada to Chevron Corporation. He said, for example:

[36]      Chevron Canada is not an asset of Chevron. It is a separate legal person. It is not an asset of any other person including its own parent, CCCC. The Supreme Court of Canada confirmed this in BCE Inc. v. 1976 Debentureholders, where the court stated, “While the corporation is ongoing, shares confer no right to its underlying assets.”

[37]      The Execution Act, which is a procedural statute, does not create any rights in property but merely provides for the seizure and sale of property in which a judgment-debtor already has a right or interest. It does not establish a cause of action against Chevron Canada. Chevron Canada is not the judgment-debtor under the Ecuadorian judgment and, therefore, the Execution Act does not apply to it with respect to that judgment. The Execution Act does not give Chevron any right or interest, equitable or otherwise, in the shares or assets of Chevron Canada.

The plaintiffs did not argue that Chevron Canada is a judgment debtor, only that its shares are an exigible asset of Chevron Corporation. It is this simple point that the judge did not understand. The first sentence of para. 36 is simply wrong.

The argument that the plaintiffs can seize the shares of Chevron Canada is not free from difficulty because the “tracing” of the asset of Chevron Corporation into the shares of Chevron Canada has to pass through several levels of the corporate structure and, I assume, many of those intervening subsidiaries are not subject to the power of an Ontario court. This point is the only interesting one on corporate law engaged by the litigation. It would greatly help to understand the litigation and its significance for corporate law if the problem of tracing corporate assets were correctly analyzed.