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Corporate Veil

Yaiguaje v. Chevron Corporation 2018 Ont CA

Judgment creditors by way of an Ecuadorian judgment were attempting to domesticate their judgment. To do so, they attempted to get judgment against a 7^th-level subsidiary of the judgment debtor. They were forced to do because the judgment debtor was situated in the United States and that country’s courts had ruled that the judgment was obtained by way of fraud. The creditors argued that the subsidiary’s shares were exigible. The court disagreed; a corporation’s shares do not belong to the corporation, but to the shareholders. The court held that the Execution Act did not assist the creditors because the creditors had no existing rights against the assets of the subsidiary. The court also refused to lift the corporate veil. It relied on Transamerica Life v. Canada Life Assurance 1996 Ont (General Division), appeal to Court of Appeal dismissed for reasons of motions judge. In that case, the judge held that the separate legal personality of a corporate entity would be disregarded only if the corporate entity were completely dominated and controlled by a parent corporation and used as a shield for fraudulent or improper conduct. In the present case, the creditors never alleged that the subsidiary was involved in fraudulent or improper conduct. For this reason alone, the majority dismissed the motion. The majority and the minority also dismissed the motion on the equities because the creditors may not have come to court with clean hands. The minority would have kept open the option to allow equity to authorise a departure from the strict application of corporate separateness. The Transamerica rules should apply equally well to individual shareholders completely dominating and controlling a corporation.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.