I asked esteemed fellow blogger Antonin I. Pribetic to help me and Letters Blogatory readers get a grip on the Canadian law that will be at issue in the new Ontario case, and I’m delighted he’s agreed. Antonin is a trial and appellate lawyer practicing in Toronto with a focus on international litigation and arbitration. He is also the author of The Trial Warrior Blog.
My thanks to Ted Folkman for inviting me to write a guest post as a follow-up to the excellent Symposium recently hosted here at Letters Blogatory on forum non conveniens and enforcement of foreign judgments.
Unsurprisingly, a considerable amount of the discussions has revolved around the Chevron Ecuador litigation, including the Second Circuit’s decision in Republic of Ecuador v. Chevron Corp. 638 F.3d 384 (2d Cir. 2011).
As Ted reported here recently, the Lago Agrio plaintiffs have commenced an action in the Ontario Superior Court of Justice to enforce the Ecuador judgment against Chevron Corporation and its Canadian subsidiaries. A copy of the Statement of Claim in Yaiguaje et al. v. Chevron Corporation et al. (Court File No. CV-12-454778) is available here (the “Ontario Enforcement Action”).
This post will provide an overview of the impeachment defenses available in Canada for the recognition and enforcement of foreign judgments and will offer some thoughts on the apparent ‘reverse veil-piercing’ theory implicit in the Statement of Claim in the Ontario Enforcement Action.
The Ontario Enforcement Action
Briefly, the Lago Agrio plaintiffs have commenced an action against Chevron Corporation, a Delaware corporation (“Chevron Corp.”) and its Canadian subsidiaries, Chevron Canada Limited, a British Columbia corporation (“CCL”) and Chevron Canada Finance Limited, an Alberta corporation (“CCFL”).
The Lago Agrio plaintiffs seek to enforce the final Judgment of the Appellate Division of the Provincial Court of Sucumbios of Ecuador of January 3, 2012 in the amount of $18,256,718.00. They also seek their costs in the Ecuador proceedings, a declaration that the shares of CCL and CCFL are exigible to satisfy the Judgment, and appointment of an equitable Receiver over the shares and assets of CCL and CCFL as wholly owned subsidiaries of Chevron Corp.
Defences to Enforcement of Foreign Judgments in Canada
The leading case on recognition and enforcement of foreign judgments in Canada is the decision of the Supreme Court of Canada in Beals v. Saldanha, 2003 SCC 72,  3 S.C.R. 416 (S.C.C.), which dealt with enforcement of a default judgment obtained in Florida against four Ontario defendants arising from a mistaken property lot description.[efn_note]For a detailed analysis of the Surpeme Court of Canada’s reasoning in Beals, including the majority and dissenting opinions, see Antonin I. Pribetic, “Strangers in a Strange Land”: Transnational Litigation, Foreign Judgment Recognition, and Enforcement in Ontarion, 13 J. Transnat;l L. & Pol’y, Vol. 2, 347-391 (2004). See also, Janet Walker, “Beals v. Saldanha: The Great Canadian Comity Experiment Continues” (2004) 120 LQR 365; S.G.A. Piten, “Enforcement of Foreign Judgments: Where Morguard stands after Beals” (2004), 40 C.B.L.J. 189; Adrian Briggs, “Crossing the River by Feeling the Stones: Rethinking the Law on Foreign Judgments” (2004) 8 SYBIL 1-22; Ronald A. Brand, “Punitive Damages Revisited: Taking the Rationale for non-Recognition of Foreign Judgments Too Far,” 24 J.L. & Com. No. 2, 181; H. Scott Fairley, “Open season: recognition and enforcement of foreign judgments in Canada after Beals v. Saldanha” (2005) 11 ILSA J. Int’l & Comp. L. 305-318.[/efn_note] In a six to three split decision, the Supreme Court of Canada majority held that the “real and substantial connection” test, which until then only applied to interprovincial judgments, should equally apply to the recognition and enforcement of foreign judgments.[efn_note]Beals at 454.[/efn_note] Both the majority and dissenting judgments in Beals affirmed that once the foreign court’s jurisdiction is recognized, there are only three limited defences to an action for enforcement in Canada; namely:
- Denial of natural justice, and
- Public policy.[efn_note]Four Embarcadero Centre Venturee v. Kalen,  65 O.R.2d 551, 563, 571 (Ont. S.C.). The Supreme Court of Canada in Beals did not refer to the defence that the foreign judgment involves a defendant who was not a party to the foreign suit.[/efn_note]
Thus, a foreign litigant is only required to show:
- that the foreign judgment was “issued by a court acting through fair process and with properly restrained jurisdiction,”[efn_note]Morguard Investments Ltd. v. De Savoye  3 S.C.R. 1077 at 1103, (S.C.C. [hereinafter “Morguard”] at 1103.[/efn_note]
- there exists a “real and substantial connection” between:
- the issue in the action and the location where the action is commenced;
- the damages suffered and the jurisdiction; and
- the defendant and the originating forum; [efn_note]Beals at 489.[/efn_note] and
- the defendant fails to raise a recognized defence.[efn_note]See Morguard at 1103-10.[/efn_note]
With respect to the fraud defence, the majority in Beals held that the defendant must produce new and material facts, or newly discovered and material facts, which were not before the foreign court. “New” facts are facts, which came into “existence after the foreign judgment was obtained.” “Newly discovered facts” refers to facts which existed at the time the foreign judgment was obtained but were not known to the defendant” and could not have been discovered through the exercise of reasonable diligence.[efn_note]Beals v. Saldanha,  202 D.L.R.4th 630 (Ont. CA) per Doherta, J.A., at ¶’s 39, 40, approved by Major, J. on behalf of the Supreme Court of Canada majority in Beals at 447-8.[/efn_note]
Douglass Cassel’s Symposium post summarizes the nature of the fraud allegations raised by Chevron in the U.S. litigation as follows:
As I have detailed elsewhere, the Ecuadorian proceedings amounted to a fraud in which some (not all) of plaintiffs’ lawyers colluded with Ecuadorian judges. Strong evidence—never convincingly refuted by plaintiffs—indicates, for example:
- Lawyers for plaintiffs forged the signature on the “report” of their expert, Dr. Charles Calmbacher, falsely claiming that he found widespread environmental problems, when in fact he did not;
- Plaintiffs’ lawyers and consultants ghost wrote the report of the Court’s supposedly “independent” expert on damages, Mr. Cabrera, even drafting it in English (a language he does not understand, so that his report had to be translated for him at the last minute);
- In an effort to conceal their fraud, plaintiffs’ lawyers later paid Cabrera thousands of dollars in hush money from their “secret” bank account;
- Once their fraud was discovered, plaintiffs hustled to present “cleansing” witnesses—who nonetheless relied on Cabrera’s fraudulent report; and
- The Judgment contains data found nowhere in the judicial record, (see also here) but which appear verbatim in plaintiffs’ internal files, complete with identical mistakes and idiosyncratic symbols and punctuation.
In Canada, the impeachment defence of fraud rarely, if ever, succeeds in foreign judgment enforcement proceedings, as Canadian courts generally tend to view fraud defences with skepticism. Based upon the principles of finality (res judicata and estoppel) and certainty, once a judgment has been rendered by a foreign court, a Canadian court cannot look into the merits. This creates a jurisdictional paradox: if the defendant raises the issue of jurisdictional fraud before the foreign court, it risks a finding of attornment or submission. Even where the foreign court allows a defendant to challenge jurisdiction without attornment or submission, there remains some uncertainty whether a Canadian court will allow the defendant to raise the defence at the enforcement stage. Particularly, if the foreign court otherwise had subject-matter jurisdiction.
In foreign judgment enforcement proceedings, two types of fraud are distinguished: fraud going to jurisdiction (or jurisdictional fraud) and fraud going to the merits (or merit-based fraud). In Beals, the majority eschewed the traditional distinctions between “intrinsic” and “extrinsic” fraud, suggesting that:
“It is simpler to say that fraud going to jurisdiction can always be raised before a domestic court to challenge the judgment. On the other hand, the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication. Where material facts not previously discoverable arise that potentially challenge the evidence that was before the foreign court, the domestic court can decline recognition of the judgment.” (at para. 51).
At paragraphs 52-53 of the Beals decision, Justice Major writes,
“52 Where a foreign judgment was obtained by fraud that was undetectable by the foreign court, it will not be enforced domestically. “Evidence of fraud undetectable by the foreign court” and the mention of “new and material facts” in [Jacobs v. Beaver (1908), 17 O.L.R. 496], demand an element of reasonable diligence on the part of a defendant. To repeat Doherty J.A.’s ruling [2001 CanLII 27942 (ON C.A.), (2001), 54 O.R. (3d) 641], in order to raise the defence of fraud, a defendant has the burden of demonstrating that the facts sought to be raised could not have been discovered by the exercise of due diligence prior to the obtaining of the foreign judgment. See para. 43:
A due diligence requirement is consistent with the policy underlying the recognition and enforcement of foreign judgments. In the modern global village, decisions made by foreign courts acting within Canadian concepts of jurisdiction and in accordance with fundamental principles of fairness should be respected and enforced. That policy does not, however, extend to protect decisions which are based on fraud that could not, through the exercise of reasonable diligence, have been brought to the attention of the foreign court. Respect for the foreign court does not diminish when a refusal to enforce its judgment is based on material that could not, through the exercise of reasonable diligence, have been placed before that court. [Emphasis added.]
Such an approach represents a fair balance between the countervailing goals of comity and fairness to the defendant.
53 Although Jacobs, supra, was a contested foreign action, the test used is equally applicable to default judgments. Where the foreign default proceedings are not inherently unfair, failing to defend the action, by itself, should prohibit the defendant from claiming that any of the evidence adduced or steps taken in the foreign proceedings was evidence of fraud just discovered. But if there is evidence of fraud before the foreign court that could not have been discovered by reasonable diligence, that will justify a domestic court’s refusal to enforce the judgment.”
In Yeager v. Garner, 2007 BCSC 72 (CanLII), Madam Justice Humphries, in addressing the apparent ambiguity in Beals, observed:
 Counsel for the applicant says this paragraph retains the distinction between fraud going to jurisdiction, maintaining the ability to challenge it at any stage, and fraud going to the merits. Counsel for the respondent says the “due diligence” test now applies to both fraud going to jurisdiction and fraud on the merits.
 To frame the issue another way, was the court in Beals merely expanding the grounds for admissibility of evidence going to establish fraud on the merits to include the due diligence test in Jacobs, or were they at the same time purporting to limit the admissibility of evidence of fraud going to jurisdiction by subjecting it to the due diligence test as well?
 Paragraph 51 is indeed confusing. While purporting to reject and discontinue the historical description of and distinction between “extrinsic” and “intrinsic” fraud, the court purports to simplify matters by retaining the two concepts by the use of other terms: “fraud going to jurisdiction” and “fraud on the merits,” and again sets out the historical distinction between them.
 I must confess I cannot reconcile the first sentence in that paragraph with the second and third, but despite the internal contradictions in this paragraph, I am of the view that the court did intend to maintain the distinction between fraud going to jurisdiction and fraud going to the merits. They merely intended to discontinue the use of the words “extrinsic” and “intrinsic” as unhelpful.
[See also, Marx v. Balak, 2008 BCSC 195 (CanLII) (B.C.S.C. per Humphries, J. at paras. 24-33)].
The British Columbia Court of Appeal in Lang v. Lapp 2010 BCCA 517 (CanLII) appears to have resolved the issue by ruling that the defendant’s lack of due diligence does not bar a claim of jurisdictional fraud:
 Fraud going to jurisdiction is an exception to the generally applicable new evidence or due diligence requirement. According to the text Castel & Walker: Canadian Conflict of Laws, vol. 1., 6th ed. (Markham, Ont.: LexisNexis, 2005) loose‑leaf updated 2010, release 19 at 14-42, the exception exists because facts that relate to jurisdiction are so fundamental that they should always be open to attack. This principle was set out by the Supreme Court of Canada in Powell v. Cockburn, 1976 CanLII 29 (S.C.C.),  2 S.C.R. 218, and again in Beals. These cases are binding precedent and the proposition that fraud going to jurisdiction can always be raised, even without satisfying the due diligence requirement, must be accepted as settled law. Though no due diligence requirement applies it should be remembered that “[e]ven within the limited area of what might be termed jurisdictional fraud there should be great reluctance to make a finding of fraud for obvious reasons”, Powell at 234.
 Two cases, Cabaniss v. Cabaniss, 2006 BCSC 1076 (CanLII), and Garner Estate v. Garner, 2007 BCSC 72 (CanLII),  6 W.W.R. 469 are cited as instances where the due diligence requirement was applied to jurisdictional fraud. Without commenting on the correctness of those decisions, to the extent that they support the proposition that failure to exercise due diligence can bar a claim of jurisdictional fraud, they appear to be inconsistent with Powell and Beals.
In Cortés v. Yorkton Securities Inc., 2007 BCSC 282 (CanLII), Humphries, J. citing with approval the English Court of Appeal’s decision in Adams v Cape Industries,  1 All E.R. 929 (C.A.), 118, noted the distinction between cases of failure to give adequate notice and failure to provide the defendant with the opportunity to present his case, which are breaches of the “primary kind”, contrasted with other breaches of natural justice. The learned judge held:
 In my view, a plaintiff who has not given the defendant notice of its action should not be able to put the defendant in this difficult position by not providing it with proper service.
 To put both the first and second points a different way, I do not think it is fair or reasonable to allow a plaintiff to obtain a procedural or logistical advantage over a defendant who has not been served with notice of the action in breach of natural justice.
 There is one further consideration. As the English Court of Appeal noted in Adams (see the first passage from it which I quoted above), a defendant seeking to impeach a foreign judgment on grounds of fraud is not obliged to make use of any remedies available to it in the foreign jurisdiction.
 One of the grounds of fraud which may be used to impeach a foreign judgment is the type of fraud alleged in this case, namely, to quote from Beals (at para. 45) “… fraud going to the jurisdiction of the issuing court or the kind of fraud that misleads the court, foreign or domestic, into believing that it has jurisdiction over the cause of action”.
 Service has always been closely tied to jurisdiction. Lack of notice also goes to the issue of whether the foreign court took jurisdiction appropriately. It would be anomalous to require a defendant alleging breach of natural justice on the basis of non-service to make use of foreign remedies, but yet not impose the same obligation on a defendant who alleges fraud going to jurisdiction.
 I therefore conclude that in cases where the breach of natural justice is one of failure to give notice, a defendant need not apply in the foreign jurisdiction to have the judgment set aside in order to impeach the judgment.
(2) Denial of Natural justice
The Chevron defendants may have more success with the defence of denial of natural justice (the American equivalent of due process).
The enforcing court must determine whether the defendant was granted fair process by the foreign legal system when the foreign court granted judgment. Fair process is one that “reasonably guarantees basic procedural safeguards such as judicial independence and fair ethical rules governing the participants in the judicial system.” It also includes a requirement that the defendant be given adequate notice of the claim and an opportunity to defend. Major, J. further noted that this “assessment is easier when the foreign legal system is either similar to or familiar to Canadian courts.”[efn_note]Beals at 448-9 per Major, J.[/efn_note] Justice Major defines the defence of natural justice as follows:
The defence of natural justice is restricted to the form of the foreign procedure, to due process, and does not relate to the merits of the case. The defence is limited to the procedure by which the foreign court arrived at its judgment. However, if that procedure, while valid there, is not in accordance with Canada’s concept of natural justice, the foreign judgment will be rejected. The defendant carries the burden of proof and, in this case, failed to raise any reasonable apprehension of unfairness.[efn_note]Beals at 449.[/efn_note]
In United States of America v. Yemec, 2010 ONCA 414 (Ont. C.A.), the Court of Appeal for Ontario closed the door on the “new” impeachment defence of a “denial of a meaningful opportunity to be heard” in the recognition and enforcement of foreign judgments and held it was indistinguishable from the impeachment defence of denial of natural justice (See my backgrounder here).
(3) Public Policy
In my view, the real battle in the Ontario Enforcement Action will be fought under the banner of the public policy defence, which Justice Major summarized in Beals as follows:
The third and final defence is that of public policy. This defence prevents the enforcement of a foreign judgment which is contrary to the Canadian concept of justice. The public policy defence turns on whether the foreign law is contrary to our view of basic morality. As stated in Castel and Walker at p. 14 – 28:
the traditional public policy defence appears to be directed at the concept of repugnant laws and not repugnant facts …[efn_note]Beals at 451-2.[/efn_note]
The use of the defence of public policy is strictly limited:
The use of the defence of public policy to challenge the enforcement of a foreign judgment involves impeachment of that judgment by condemning the foreign law on which the judgment is based. It is not a remedy to be used lightly. The expansion of this defence to include perceived injustices that do not offend our sense of morality is unwarranted. The defence of public policy should continue to have a narrow application.[efn_note]Beals at 453.[/efn_note]
The Beals majority decision also confirms that bias must be proved, but makes no reference to proving reasonable apprehension of bias.[efn_note]Major, J. speaking for the majority in Beals states at 453: “… the public policy defence guards against the enforcement of a judgment rendered by a foreign court proven to be corrupt or biased.” Cf. U.S.A. v. The Shield Development Co. (2004) 74 O.R. (3d) 583 (Ont. S.C.J.), aff’d (2005) 74 O.R. (3d) 595, (2005) 139 A.C.W.S. (3d) 259 (Ont. C.A.).[/efn_note] Two Ontario decisions have addressed scope of the public policy defence relating to alleged systemic and institutional bias, albeit within the Singapore legal system.
In Oakwell Engineering Ltd. v. Enernorth Industries Inc.,[efn_note]Oakwell Engineering Ltd. v. Enernorth Industries Inc., (2005) 76 O.R.(3d) 528 (Ont. S.C.J.) per Day, J [hereinafter “Enernorth-SCJ“].[/efn_note] Oakwell Engineering, a Singapore corporation that supplies engineering works and products to the marine industry and Enernorth, an Ontario corporation engaged in engineering, construction, shipbuilding and power generation worldwide entered into a joint venture in 1997 for a contract to build and operate power generation facilities in India. Under their agreement, they jointly formed the “Project Company” to finance, construct and operate the project. Disputes arose between the parties, culminating in a Settlement Agreement in December 1998 which included an attornment clause providing that any future disputes would be governed by Singapore law and a choice of law clause subjecting the parties to the non-exclusive jurisdiction of the Singapore courts.[efn_note]Enernorth-SCJ, at 531.[/efn_note] Under the Settlement Agreement, Oakwell Engineering was entitled to payment of a sum from Enernorth upon successful financing of the project, referred to as Financial Closure. Enernorth failed to achieve such Financial Disclosure, and in August 2000, without notice to Oakwell Engineering, it divested its interest in the joint venture. Oakwell Engineering then sued Enernorth in Singapore, which Enernorth defended at trial without contesting the Singapore court’s jurisdiction and was ordered to pay the sums owing under the Settlement Agreement. Enernorth unsuccessfully appealed to the Singapore Court of Appeal, but failed to raise issues of the conduct or fairness of the trial.[efn_note]Enernorth-SCJ, at 532 and 546.[/efn_note]
Oakwell Engineering then successfully applied to have the judgment of the Singapore court against Enernorth recognized by an Ontario court.[efn_note]Enernorth-SCJ, at 532.[/efn_note] Enernorth’s appeal to the Ontario Court of Appeal was dismissed.[efn_note]Oakwell Engineering Ltd. v. Enernorth Industries Inc.,  O.J. No. 2289 (Ont. C.A.) per Laskin, MacFarland and LaForme JJ.A. [hereinafter “Enernorth-CA“]; Application for leave to appeal dismissed, S.C.C. Number C43898, dated June 9, 2006.[/efn_note] MacFarland, J.A. for the unanimous court, agreed with the application judge that there was a “real and substantial connection” with Singapore. The Court of Appeal then considered Enernorth’s impeachment of the Singapore judgment “not that it resulted from a law that is contrary to the fundamental morality of the Canadian legal system, but rather that it is the product of a corrupt legal system, with biased judges, in a jurisdiction that operates outside the rule of law,”[efn_note]Enernorth-CA at ¶ 21[/efn_note] and held:
¶ 23 The application judge carefully reviewed the evidence relied on by Enernorth in support of its bias argument. He considered the exchange between a witness and the Singapore trial judge concerning the correct spelling of the Koh Brothers Group’s name, and the fact they now controlled Oakwell. He concluded that this evidence was insufficient to prove bias or corruption. He considered the evidence of the expert witnesses—Ross Worthington, Nihal Jayawickrama and Francis T. Seow—and concluded that their evidence was either unreliable (as in the case of Mr. Worthington) or too general to prove that there was not a fair trial in this case. He concluded there was a lack of evidence of corruption or bias in private commercial cases and no cogent evidence of bias in this specific case.[efn_note]Enernorth-CA at ¶ 23.[/efn_note]
The Court of Appeal upheld the motion judge’s conclusion that public policy considerations were not relevant as Enernorth’s argument was based on facts about the judicial system of Singapore, not the laws themselves. The record also supported the motion judge’s findings about the lack of bias and the fact both Enernorth and Oakwell Engineering enjoyed fair process in the Singapore courts. The Court of Appeal further noted the following:
¶ 29 The application judge considered both the substantive and procedural law of Singapore, as well as its constitution and compared those laws to the Canadian rule of law. He concluded that “while Enernorth’s experts, political scientists and lawyers, provide reports that aspects of the government of Singapore do not meet the standards of the rule of law in Canada, this evidence goes against Singapore’s formal legal structure as evidenced by its constitution and laws” and, importantly, “furthermore, Oakwell has provided evidence to the contrary”. He concluded that, on a balance of probabilities, both parties enjoyed fair process in the Singapore courts.[efn_note]Id. at ¶ 29[/efn_note]
In State Bank of India v. Navaratna,[efn_note]State Bank of India v. Kothari Navarafna and Sayar Kothari,  O.J. No. 1125, per H.E. Sachs J., (March 23, 2006—unreported) [hereinafter “Navaratna“][/efn_note] three Indian Banks moved for summary judgments to enforce default judgments obtained from the High Court of Singapore against the Navaratnas, as guarantors of short-term financing loans from the Banks, backed by international letters of credit.[efn_note]The parties agreed that only one of the summary judgment motions woudl be argued (the State Bank of India motion), but that the determination of that motion would govern the disposition of the Bank of India and Indian Bank motions as the issues were the same in each motion. Navaratna, at & para; 4.[/efn_note] The court held that that Singapore had a real and substantial connection to the Navaratnas, in part relying upon the choice of law and forum selection clauses contained in the guarantees.[efn_note]Navaratna, at ¶ 45.[/efn_note] The Navaratnas opposed the Banks’ motions, claiming that they failed to defend due to a fear of incarceration, and that the Singapore courts were corrupt, and biased in favour of banks.[efn_note]Navaratna, at ¶’s 7-8.[/efn_note] Although Justice Sachs suggested that a trial judge may well come to a similar conclusion regarding Mr. Seow’s evidence and the Singapore legal system,[efn_note]Navaratna, at ¶’s 7-8. Interestingly, the Navaratnas relied upon an affidavit filed by Mr. Francis T. Seow, whose expert evidence was rejected in Enernorth-SCJ, supra, ote 140. However, his affidavit evidence was focused on inherent bias of Singapore courts favouring banks through draconian measures to enforce debts under the Singapore Debtors’ Act.[/efn_note] the learned judge distinguished the facts in Enernorth:
¶ 39 … However, the question is whether that determination should be made by me on a summary judgment motion because of the Oakwell decision. In my view, it should not. The factual issues raised are not the same. Mr. Seow’s Affidavit speaks to the use of imprisonment to collect debts, an issue that was not before Day J. It also speaks to the desire of the Singapore government to protect the banking industry, another issue that was not before Day J. Mr. Seow’s opinion with respect to the use of imprisonment to collect debts is supported by a U.S. Travel Advisory. Finally, on a summary judgment motion, I should not be engaged in the business of weighing evidence.[efn_note]Navaratna at ¶ 39.[/efn_note]
The Banks claimed that the facts raised by the Navaratnas did not bring them within any of the existing defences to the enforcement of a foreign judgment and did not justify the creation of a new defence. The Navaratnas, on the other hand, argued that the facts of their situation either fell within the existing defences of public policy or natural justice or justified the creation of a new defence, namely, duress.[efn_note]Navaratna at ¶ 46, citing Beals at 442.[/efn_note] At paragraph 46, Justice Sachs citing Beals noted that:
Unusual situations may arise that might require the creation of a new defence to the enforcement of a foreign judgment. However, “should the evolution of private international law require the creation of a new defence, the courts will need to ensure that any new defences continue to be narrow in scope, address specific facts and raise issues not covered by the existing defences.” [original emphasis]
Based upon the test for summary judgment,[efn_note]Sachs, J. citing: Augonie v. Galia Solid Waste Material Inc. (1998), 38 O.R. (3d) 161 (C.A.) at p. 173 citing Morden A.C.J.O. in Irving Ungerman Ltd. v. Galanis (1991), 4 O.R. (3d) 545 (C.A.).[/efn_note] Sachs, J held that the question of whether these facts, if established, would constitute a natural justice defence to the enforcement of a foreign judgment or the creation of a new defence to that enforcement was an unsettled question that would benefit from a trial.[efn_note]Navaratna, at ¶ 61.[/efn_note] Notably, the Ontario Court of Appeal in Enernorth distinguished the Navaratna decision on its facts.[efn_note]Enernorth-CA, at ¶’s 30-32.[/efn_note]
Perhaps the most novel aspect of the Ontario Enforcement Action is the Lago Agrio plaintiffs’ apparent attempt to lift or pierce the corporate veil, in reverso. Michael Richardson, in his article, The Helter Skelter Application of the Reverse Piercing Doctrine University of Cincinnati Law Review, Volume 79, Issue 4, Article 9 (2011), describes the remedy as follows:
Less frequently, parties will try to pierce the corporate veil “in reverse.” “Outsider” reverse piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or substantially controlled by the defendant.
In doing so, plaintiffs attempt to increase the ease of collecting on their judgment by skipping the intermediary step of seizing the defendant’s interest in the corporation.Outsider reverse piercing flips the traditional doctrine on its head by contemplating the seizure of corporate assets in a suit against an owner. (citations omitted)
Canadian courts traditionally apply the “alter ego” theory in piercing the corporate veil based upon fraud or avoidance of debt obligations. The leading statement on lifting the corporate veil is the judgment of Wilson J. in Constitution Insurance Co. of Canada v. Kosmopoulos, 1987 CanLII 75 (SCC),  1 S.C.R. 2 at pp. 10-11, 34 D.L.R. (4th) 208:
As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co.  A.C. 22 (H.L.). The law on when a court may disregard this principle by “lifting the corporate veil” and regarding the company as a mere “agent” or “puppet” of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the “separate entities” principle is not enforced when it would yield a result “too flagrantly opposed to justice, convenience or the interests of the Revenue”: L.C.B. Gower, Modern Company Law (4th ed. 1979) at p. 112. I have no doubt that theoretically the veil could be lifted in this case to do justice… But a number of factors lead me to think it would be unwise to do so.
In Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 28 OR (3d) 423 (Ont. S.C.) Sharpe, J. (as he then was) suggested a strict approach to lifting the corporate veil focusing on “complete control” of the subsidiary by the parent, or some form of fraudulent conduct that unjustly deprives the claimant’s rights.
The attempt by the Lago Agrio plaintiffs to install an equitable Receiver and attach the assets of Chevron Corp.’s Canadian subsidiaries may prove an uphill battle, unless there is evidence of fraud or dissipation or secreting of assets from creditors generally. Ultimately, this chapter in the Chevron Ecuador litigation may be only one stop for the Lago Agrio plaintiffs along the long and winding road to asset recovery.