Judicial Innovation vs. Studied Inertia: Canadian Corporate Law and the New Global Economic and Environmental Realities in Chevron Corp. v. Yaiguaje

In Chevron Corp. v. Yaiguaje, the Supreme Court of Canada clarified the concept of comity to affirm its liberal approach to facilitating the recognition and enforcement of foreign judgments. But that is not all the Court’s decision stands for. In Chevron, the Court offers a (veiled) hint that it is finally prepared to rethink the rule of limited liability within closely related corporate groups, the better to bring corporate law in line with the coevolution of globalization and transnational corporate conduct.

As I argue in a recent piece in the Canadian Business Law Journal, this rethink is sorely needed and long overdue. While judicial caution is sometimes laudable, there are times when courts must abandon studied inertia and adapt old legal principles to new realities, including transboundary environmental harms and human rights violations.

Chevron’s Amazon adventure is a case in point. The legal dispute arising out of Chevron’s oil extraction activities in the Ecuadorean Amazon is a tale not only among the most extensively told in the history of the American federal judiciary, it is also fast becoming an object lesson in the emerging area of transnational corporate law. In litigation beginning in the Southern District Court of New York in 1993 and extending to a final judgment on the merits in Ecuador in 2012, residents of the Lago Agrio region of Ecuador obtained a damages award of $US8.6 billion against Chevron for environmental harm caused by the company. The Ecuadorean plaintiffs then initiated recognition and enforcement proceedings in a number of jurisdictions, including Canada, where the preliminary issue of jurisdiction proceeded all the way to the Supreme Court.

In Chevron, the Supreme Court held that the province of Ontario – home to Chevron’s closely-held and fully-controlled subsidiary, Chevron Canada – has jurisdiction over the plaintiffs’ enforcement claim. The Court refused to foreclose the possibility that the assets of a closely-held and fully-controlled subsidiary may be made available to satisfy a judgment obtained against its transnational parent.

Moreover, the Court signaled that it may be prepared to reconsider the fundamental principle of corporate separateness as recently reiterated in BCE Inc. v. 1976 Debentureholders and arising originally out of the House of Lords’ decision in Salomon v. Salomon & Co. Ltd.

This principle is ripe for judicial innovation. What, after all, does Salomon have to teach us about a modern multinational like Chevron, which in 2015 conducted “substantial business activities” in 26 countries through scores of major subsidiaries and earned a net income of US$4.6 billion (down from US$19.2 billion in 2014)? Framed another way:

"However useful it is as a doctrine of corporate law, is it right that the idea of a “corporate veil” be used in 2012 to block the claims, for example, of Latin American villagers seeking compensation for the destruction of their environment by tailings from a Canadian-owned mine? Why should the cost of environmental devastation fall entirely on the heads of its victims? Why shouldn’t legal responsibility follow the money up the corporate food chain?"

Why not indeed? The central idea of enterprise liability is that liability should follow economic function, that corporate groups be treated as singular economic-cum-legal units for the purposes of liability. The United States Supreme Court’s reasoning in Mobil Oil Corp. v. Commissioner of Taxes of Vermont illustrates the point: “So long as dividends from subsidiaries and affiliates reflect profits from a functionally integrated enterprise, those dividends are income earned in a unitary business.”

If corporate enterprise liability applies to the evasion of tax liability, then why not to the evasion of liability for environmental despoliation and human rights violations? There is simply no principled distinction between the recognition of enterprise liability across many areas of law (e.g., tax, competition, and employment law – for an overview, see here), on the one hand, and the studied inertia of limited liability in corporate law on the other. As the U.N. Guiding Principles on Human Rights and Transnational Corporations explains, “the way in which legal responsibility is attributed among members of a corporate group under domestic criminal and civil laws facilitates the avoidance of appropriate accountability.”   

Ours is “a world in which businesses, assets, and people cross borders with ease,” Gascon J. wrote for a unanimous Court in Chevron. But so too do pollution and violence. The time has come for our courts to adapt old legal principles to new realities both at home and abroad. 

Jason MacLean is Assistant Professor of Law at the Bora Laskin Faculty of Law at Lakehead University.