By a decision dated October 31, 2017, the Court of Appeal for Ontario took the unusual step of varying its own prior order concerning security for costs in Yaiguaje v. Chevron Corporation.[1] A panel of the Court of Appeal (the “panel”) varied the order of the appellate motion judge (the “motion judge”) requiring the appellants to post security for costs in the amount of $942,951 prior to the hearing of their appeal. The panel’s decision to vary the motion judge’s order was based on its conclusion that “the unique factual circumstances” of the case compelled “the conclusion that the interests of justice require that no order for security for costs be made”.[2]
While a number of factors led to the panel’s decision concerning the interests of justice, of particular interest is the panel’s consideration of the merits of the appeal in the context of its decision on security for costs. Specifically, the panel reasoned that it could not be said, on the motion, that the appeal was “wholly devoid of merit”.[3] Although the panel pointed to the motion judge’s statement that the appellants do not have “an impossible task” [4] in seeking to establish that the assets and shares of Chevron Canada Limited (“Chevron Canada”) are exigible to satisfy their judgment against Chevron Corporation, the motion judge’s decision was in fact rooted in her ultimate conclusion that the appeal on that issue did not have a good likelihood of success on merits. The result is that the two decisions appear at odds with respect to their assessment of the merits of the appeal.
This case comment addresses the disagreement between the motion judge and the panel in respect of the issue of security for costs, including the merits of the appeal. On appeal, the Court of Appeal will consider whether the assets of Chevron Canada can be used to satisfy a judgment that the appellants hold as against Chevron Corporation, under section 18 of the Execution Act[5] and, if not, whether the corporate veil can be pierced in this case to allow recovery against Chevron Canada. This is undoubtedly a case to watch for in the new year, as the Court of Appeal is asked to address the merits directly. Given the divergence of opinions between the motion judge and the panel, it is difficult to predict how the Court of Appeal will ultimately decide this issue; the composition of the panel may have a bearing on the final outcome.
Background
In this case, the plaintiffs (now the appellants) held a judgment rendered by an Ecuadorian court against Chevron Corporation, which they sought to enforce in Ontario against the shares and assets of Chevron Canada. Chevron Corporation’s indirect subsidiary. In September 2016, the plaintiffs, as well as the defendants, Chevron Corporation and Chevron Canada, each brought motions for summary judgment. On January 25, 2017, Justice Hainey of the Superior Court of Justice released reasons for the decision,[6] in which His Honour granted the defendants’ motion for summary judgment and dismissed the plaintiffs’ summary judgment motion (and motion to add further defendants).
The issues raised on the motion were: (a) whether the shares and assets of Chevron Canada are exigible and are available for execution and seizure pursuant to the Execution Act to satisfy the Ecuadorian judgment against Chevron Corporation; and (b) if not, should the corporate veil be pierced so that Chevron Canada’s shares and assets are available to satisfy the Ecuadorian judgments and its indirect parent, Chevron Corporation. The Superior Court of Justice answered both questions in the negative.
On the motion, the plaintiffs relied on section 18(1) of the Execution Act, which provides: “The sheriff may seize and sell any equitable or other right, property, interest or equity of redemption in or in respect of any goods, chattels or personal property, including leasehold interests in any land of the execution debtor….”[7] However, the Superior Court of Justice did not agree that the shares and assets of Chevron Canada were beneficially owned by Chevron Corporation. This is because by statute, Chevron Canada has all the rights, powers and privileges of a natural person.[8] Further, the Superior Court found that Chevron Canada is not an asset of any other person including its own parent, Chevron Corporation, but rather, is a separate legal person.[9] In reaching this conclusion, the Superior Court relied on the Supreme Court of Canada decision in BCE Inc. v. 1976 Debentureholders[10], where the court held, “[w]hile the corporation is ongoing, shares confer no right to its underlying assets.”[11] According to Justice Hainey, another reason for disagreeing with the plaintiff’s submission was that the Execution Act is procedural in nature and does not create any substantive rights of property that or establish any cause of action. Further, he Execution Act does not “supplant the long-established principle of corporate separateness.[12]
Secondly, with respect to piercing of the corporate veil, Justice Hainey held that the plaintiffs had not established that Chevron Canada’s corporate veil should be pierced. In His Honour’s reasons, Justice Hainey relied on, and emphasized: (1) the fact that Chevron Corporation and Chevron Canada are separate legal entities; and (2) the long-standing “principle of corporate separateness”, which has been “recognized and respected since the 1896 decision of the House of Lords in Salomon v. Salomon & Co”.[13] The principle of corporate separateness provides that “shareholders of a corporation are not liable for the obligations of the corporation” and that “the assets of the corporation are owned exclusively by the corporation, not the shareholders of the corporation.”[14] Accordingly, Chevron Corporation did not have any legal or equitable interest in the assets of Chevron Canada as a shareholder.” There was also nothing “akin to fraud” or any wrongdoing that would have justified piercing the corporate veil.[15] Also, the evidence did not establish that Chevron Canada was Chevron Corporation’s “puppet”. Rather, these two parties had a “typical parent-subsidiary relationship”.[16]
Security for Costs on Appeal (Round 1)
The Court of Appeal decision released on September 21, 2017 concerned the respondents’ motion for security for costs which was in connection with the appeal of the Superior Court’s decision by the plaintiffs. The motion judge of the Court of Appeal considered the issue of piercing the corporate veil in its review of the merits, to determine whether to award security for costs. The court found that the applicants were not impecunious, and therefore needed to demonstrate that they had a good chance of success on the merits of the case. The motion judge found that the appellants had neither demonstrated that the corporate veil could be pieced and nor that without doing so, the shares and assets of Chevron Canada would be unavailable for execution and seizure to satisfy the judgment against Chevron Corporation.
In particular, the motion judge, like Justice Hainey, relied on the principle of the separate legal personalities of corporations. In particular, the motion judge relied on the Court of Appeal’s decision in 642947 Ontario Ltd. v Fleischer[17], supporting the narrow application of the theory that the corporate veil can only be pierced when a company is incorporated for an illegal, fraudulent or improper purpose, or if when incorporated, "those in control expressly direct a wrongful thing to be done”.[18] The motion judge also relied on the guiding principle that "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."[19]
The motion judge rejected four of the arguments put forth by the appellants. First, the motion judge concluded that Chevron Canada was not completely dominated and controlled by Chevron Corporation, but rather that they exhibited a typical parent-subsidiary relationship; second, the motion judge cited a long list of cases that “rejected the notion that the corporate veil could be pierced based on what is “just and equitable” without wrongdoing or conduct tantamount to fraud; third, the motion judge rejected the further submission that a “new approach” to piercing the corporate veil should be adopted in the context of the applications for recognizing and enforcing foreign judgments;[20] and finally, the motion judge observed that the purpose underlying security for costs orders also supported the conclusion that a party seeking to enforce a foreign judgment should not be treated differently than a domestic litigant.
Security for Costs on Appeal (Round 2)
The same issue returned to the Court of Appeal on October 31, 2017 on the appellants’ motion to vary the motion judge’s order requiring them to post $942,951.00 as security for costs.[21] On this second motion, the panel of the Court of Appeal overturned the earlier decision and granted the appellants’ motion. The panel concluded that the determination as to whether to require security for costs requires the court to consider the justness of the order, holistically examining all the circumstances. Ultimately, the panel found that it would be unjust to request security for costs from the appellants.
The panel clarified the interpretation to be given to Rules 56.01(1)(a) and 61.06(1)(b) (which refers back to Rules 56.01) of the Rules of Civil Procedure. With respect to Rule 61.06, the panel noted that this rule is permissive, not mandatory; in an appeal, no entitlement as of right to an order exists for security for costs.[22] Unlike the motion judge, the panel found that the unique factual circumstances of this case “compel the conclusion that the interests of justice require that no order for security for costs be made”[23] and that even “where the requirements of the rule have been met, a motion judge has discretion to refuse to make the order.”[24]
Further, the panel underscores that the just the of the order is the overarching principle on which a decision for security for costs must be based.[25] While affording deference to the motion judge, the panel found that motion judge failed either to consider all the circumstances of the case or to conduct a holistic analysis of the critical overarching principles, and thus it was obligated to “conduct the necessary analysis of the justness of the order sought.”[26]
The panel provided the following reasons for setting aside the order of the motion judge for the appellants to post security for costs:[27]
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In the panel’s view, this was public interest litigation. The appellants were looking to enforce a judgment in which they had no direct economic interest. Any monies collected would be paid into a trust and issued for environmental rehabilitation or health care purposes.
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Although there was no evidence of impecuniosity on the part of the appellants, it would be “high impractical” to obtain this evidence from the representative plaintiffs.
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The respondents have annual gross revenues “in the billions of dollars”.
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While the issue of the availability of third party litigation funding to the plaintiffs, “there should be no bright line rule that a litigant must establish that such funding is unavailable to successfully resist a motion in an appeal for security for costs”.
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With respect to the merits, the panel held: “It cannot be said, at this stage, that this a case that is wholly devoid of merit. The motion judge herself acknowledged… that it might be possible to establish that Chevron Canada’s shares are exigible under the Execution Act.”
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While acknowledging that the appellants’ arguments on appeal were “innovative and untested”, the panel left open the possibility that one or more of their arguments may eventually prevail.
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Finally, the panel questioned whether the motion for security “was anything more than a measure intended to bring an end to the litigation”.
Considerations 5 and 6 above relate directly to the merits of the appellants’ arguments and ability to enforce their judgment against Chevron Canada. Unlike the decision by the Superior Court of Justice and the motion judge, the panel’s statement appears to suggest the possibility that Chevron Canada’s shares and assets may be exigible under section 18 of the Execution Act, or that the corporate veil could be pierced for the purposes of enforcing a foreign judgment.”
Conclusion
While the decisions of Justice Hainey and the motion judge emphasize the importance of principles of separate corporate identity, the Court of Appeal’s decision signals possible divergence of judicial opinions with respect to either the interpretation to be given to the Execution Act or the application of principles of corporate separateness in the context of enforcement of foreign judgments. The panel’s reasoning offers little guidance on the factors a subsequent panel of the Court of Appeal would consider in reviewing the merits of the appeal or on what the panel found attractive about the appellants’ innovative arguments. It remains to be seen whether the Court of Appeal will accept the appellants’ “innovative and untested” arguments, especially with regard to piercing the corporate veil. The hearing on the ultimate merits is expected to provide clarification on the Canadian courts’ take on enforcing foreign judgments.
[1] Yaiguaje v Chevron Corporation, 2017 ONCA 827, 284 ACWS (3d) 712 [Yaiguaje].
[4] Yaiguaje v Chevron Corporation, 2017 ONCA 741 at para 51.
[5] Execution Act, RSO 1990, c E-24, s 18.
[6] Yaiguaje v Chevron Corp., 2017 ONSC 135, 136 OR (3d) 261.
[7] Supra note 5 at s 18(1).
[8] Supra note 6 at para 35.
[10] BCE Inc., Re, 2008 SCC 69, [2008] 3 SCR 560 [BCE Inc.]
[11] Supra note 6 at para 34.
[13] Salomon v Salomon & Co, [1896] UKHL 22, [1897] AC 22 at para 58.
[15] Supra note 6 at para 69.
[17] 642947 Ontario Ltd. v Fleischer, [2001] 56 OR (3d) 417, 110 ACWS (3d) 658.
[19] Transamerica Life Insurance Co. of Canada v Canada Life Assurance Co., [1996] 28 OR (3d) 423, 62 ACWS (3d) 891 at para 22.
[20] Supra note 4 at para 53.
[21] The appellants moved pursuant to s. 7(5) of the Courts of Justice Act to review and vary the motion judge’s order.
[22] Supra note 1 at para 18.
[25] Ibid at paras 4 and 17.