CSR: A new era?
Can a Canadian parent mining company with a foreign subsidiary be liable for human rights violations that occur at the subsidiary? An Ontario court has recently allowed this issue to proceed to trial in three related actions against HudBay Minerals Inc. and its former subsidiary Compania Guatemalteca de Niquel (CGN). The court rejected arguments that the claims brought by the plaintiffs, all of whom are residents of the foreign jurisdiction, disclose no reasonable cause of action.
The court’s decision and liability will ultimately be determined at trial. One thing is clear: public expectations are changing, and directors and officers of Canadian mining companies need to be aware of the potential risk of claims by foreign plaintiffs seeking redress for alleged harm committed beyond Canada’s borders.
Two Key Issues Under Current Proceedings
Indirect liability as authorized agent. Under Canadian law, companies are treated as separate legal entities, and parent companies are not liable for the acts or omissions of their subsidiaries. As one exception, a parent may be liable for the acts or omissions of its subsidiary, if the subsidiary is acting as the parent’s “authorized agent.” Whether an agency relationship existed between the parent and its foreign subsidiary is an issue the court has allowed to proceed to trial in one of the actions.
Direct liability in negligence. Parent companies currently have no established duty of care to ensure that foreign subsidiaries conduct their operations in a way that protects the residents of the communities they operate in. The plaintiffs argued that, under tort law, if a duty of care can be established, a parent and its subsidiary can be found jointly and severally liable for negligence if the direct actions of each result in damage. The Ontario court found that the plaintiffs in all three actions had pled the material elements required to support the establishment of a novel duty of care, and allowed the issue to proceed to trial. These elements are: foreseeability of harm; proximity between the defendants and the foreign plaintiffs; and whether policy reasons negate or otherwise restrict the recognition of a duty of care.
Questions and Key Takeaways
Agency relationship. If it is found that the foreign subsidiary was acting as the “authorized agent” of the Canadian parent, it will be important to consider the basis for the finding of “agency,” as it could impact corporate governance structures as a way to mitigate liability. And, no matter how the company is structured, companies will still have to consider issues of reputational risk and enterprise value risk, and the potential for liability under specific statutes that disregard corporate separateness (such as certain anti-bribery and corruption legislation).
Novel duty of care and the role of international law. The parent company’s alleged public statements was a factor the court took into account in considering whether to establish a novel duty of care. Also important is that Amnesty International was granted intervener status, and cited voluntary, international codes of conduct as evidence that a novel duty of care may exist. If the adoption of voluntary codes could adversely impact the legal risks of a Canadian parent company in its foreign operations, this would appear to undermine the overarching goals of these codes, which is to promote best practices globally including in the area of human rights. Further, it begs the question whether any duty of care emerging from voluntary codes could be construed as a duty applying to an industry as a whole, making it irrelevant whether the individual company has voluntarily adopted the code.
In the meantime, Canadian companies now need to exercise caution when making public statements about their corporate social responsibility practices, implementing written policies, and adopting voluntary codes, including in the area of human rights.
Common law versus statutory liability. The Government of Canada has made a clear choice not to implement a prescriptive approach to enforcing international human rights standards (at least as yet). From a policy perspective, establishing a novel duty of care at common law could create uncertainty for Canadian parent companies by not providing clear guidelines about whether their obligation is to prevent harm or whether taking steps proportionate to the risk to prevent harm mitigates against such liability.
Due diligence. Some of the alleged violations took place before the Canadian parent acquired the foreign subsidiary. Canadian companies need to be mindful of the importance of human rights issues when acquiring companies and to make sure they have appropriate contractual provisions in place to deal with litigation risk.
Janne Duncan is a partner in Norton Rose Fullbright’s Toronto office.
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