Leiden Law Blog

Piercing the corporate veil: an almost impossible task

Posted on by Cees de Groot in Private Law
Piercing the corporate veil: an almost impossible task

A number of oil companies, including Texaco Inc., conducted oil exploitation and extraction activities in the Oriente region in Ecuador in the period 1964 to 1992. These activities led to environmental pollution. In 1993 47 inhabitants of that region, representing approximately 30,000 people, brought proceedings against Texaco Inc. in the U.S.A.. These proceedings were dismissed. Texaco Inc. acknowledged that proceedings could be submitted before an Ecuadorian court and that it would be bound by the outcome of the proceedings. The proceedings in Ecuador started in 2003. These proceedings were brought against Chevron Corporation because at that time Texaco Inc. had become part of the Chevron group of companies. The result of these proceedings was a judgment against Chevron Corporation to the amount of US$ 9.5 billion. Chevron Corporation stated that it was unwilling to satisfy this judgment, inter alia on the argument that ‘the Ecuador Judgment was obtained by fraudulent means and rendered by a systemically corrupt and biased court’. For that reason, the claimants started proceedings in Canada not only against Chevron Corporation but also against Chevron Canada Limited. Their aim was to execute the Ecuadorian judgment against the indirect subsidiary company Chevron Canada Limited. Thus, the Ontario Superior Court of Justice had to go into the question of whether the Ecuadorian judgment against Chevron Corporation could be enforced against Chevron Canada Limited. The claimants in this case argued that the question should be answered positively. One ground by which the claimants argued this should be the case was ‘that the court should pierce Chevron Canada’s corporate veil to make its shares and assets available to satisfy the Ecuadorian judgment because of Chevron’s total effective control over Chevron Canada’. However, the Ontario Superior Court of Justice did not accept this reasoning. In general terms, the Court considered as follows:

‘The principle of corporate separateness provides that shareholders of a corporation are not liable for the obligations of the corporation. It also provides that the assets of the corporation are owned exclusively by the corporation, not the shareholders of the corporation. As a result, Chevron does not have any legal or equitable interest in the assets of Chevron Canada as an indirect shareholder’.

The foregoing would be different only if the claimants could argue that there were sound reasons for lifting the corporate veil. This would be the case if the relationship between Chevron Corporation and Chevron Canada was such that Chevron Canada ‘is completely dominated and controlled and being used as a shield for fraudulent or improper conduct’ by Chevron Corporation. But this was not the case:

‘The evidence does not establish that Chevron Canada is Chevron’s “puppet”. Rather, I find that Chevron and Chevron Canada have a typical parent/subsidiary relationship. Chevron does not exercise complete dominance or control over the affairs of Chevron Canada’.

The judgment underlines the difficulties claimants in (international) cases of environmental pollution have in succeeding in their claims where the pollution was caused by an offshore subsidiary company that is part of a corporate group.

Source: Ontario Superior Court of Justice (Hainey J.) January 20 2017, 2017 ONSC 135 (Yaiguaje et al. v. Chevron Corporation, Chevron Canada Limited & Chevron Canada Finance Limited), at: www.ontariocourts.ca, superior court of justice, decisions of the court, search decisions superior court of justice.

Add a Comment

Name (required)

E-mail (required)

Please enter the word you see in the image below (required)

Your own avatar? Go to www.gravatar.com

Remember me
Notify me by e-mail about comments