• Subsidiaries Not Liable for Judgments Against Parents
  • May 10, 2017 | Author: Joel Berkovitz
  • Law Firm: Shibley Righton LLP - Toronto Office
  • Canadian subsidiaries can rest easier after the Ontario Superior Court ruled that Chevron Canada can’t be held financially liable for a judgment against its American parent company, says Toronto business lawyer Joel Berkovitz.

    “This was a case about whether the assets of a subsidiary can be seized to satisfy a judgment against the parent company and the court here conclusively said, ‘No,’” says Berkovitz, a lawyer with Shibley Righton LLP.

    In Yaiguaje v. Chevron Corporation, 2017 ONSC 135 (CanLII), the court ruled that Chevron Canada is a separate entity from the Chevron Corp. and, therefore, not responsible for any judgments against the parent company.

    The Chevron case began in 1993, after roughly 30,000 Ecuadorian villagers alleged that Texaco, now owned by Chevron, dumped billions of litres of toxic oil-drilling byproducts into the environment. They alleged the toxins caused increased health problems, including more frequent cancer deaths and a higher rate of miscarriages.

    In a 2011 decision, Ecuadorian courts ordered Chevron to pay the villagers US$9.5 billion. But Judge Lewis Kaplan of the United States District Court for the Southern District of New York found, following a seven-week trial, that there were extensive acts of fraud, bribery, forgery, intimidation and collusion in the Ecuadorian proceedings. Chevron has refused to pay the Ecuadorian judgment.

    As part of an effort to seize Chevron assets elsewhere in the world, 47 plaintiffs asked the Ontario Superior Court of Justice to execute the Ecuadorian judgment against the assets of Chevron Canada, an indirect subsidiary of the U.S.-based parent company, Chevron Corp.

    In his Ontario Superior Court decision, Justice Glenn Hainey refused, effectively protecting Chevron Canada’s assets from being seized.

    Hainey wrote: “Chevron Canada’s major business activities involve petroleum and natural gas exploration in Canada. It has never carried on business in Ecuador and played no role in the events leading up to the Ecuadorian judgment.”

    The plaintiffs have applied for leave to appeal the decision to the Ontario Court of Appeal.

    Berkovitz tells AdvocateDaily.com that Canadian subsidiary companies should be relieved by Hainey’s ruling.

    “Companies can rely on the fact that affiliated, subsidiary and parent companies can all be treated as separated corporate persons. That means there is a large degree of protection that their assets will not be available to satisfy judgments against the other companies in their group,” explains Berkovitz.

    “The only exception is if the courts find the parent or affiliate exercises complete domination and control of that company and there is some sort of wrongdoing akin to fraud. If those two criteria are met, the courts can pierce the corporate veil and seize the assets of that company. Aside from that, you can rest fairly easy that the general principle of corporate independence and separate corporate personhood is upheld in this case.”

    Berkovitz says it’s not unusual for plaintiffs to go after international subsidiaries, especially if they’re not having any luck collecting on the original judgment.

    In the Chevron case, the company didn’t have any assets in Ecuador, which is why the plaintiffs looked elsewhere to collect on the judgment.

    “Given the size of the judgment, they're going to try and execute it anywhere they have a reasonable legal argument and that there are assets to satisfy the judgment.”

    In fact, the plaintiffs have taken their fight to courts in other countries, including the United States.