The long reach of Canadian civil liability for human rights impacts of foreign operations

The Court of Appeal for British Columbia has reversed the lower court’s decision in Garcia v Tahoe Resources Inc.,¹adding to the growing body of Canadian jurisprudence that supports the assumption of jurisdiction over allegations of human rights violations by foreign subsidiaries of Canadian-based companies. These cases, along with legislative trends abroad and best practice, create an imperative for Canadian companies operating internationally to consider their human rights risks as part of their governance approach.

Background

Seven Guatemalan protesters were allegedly shot and injured by private security personnel employed at a mine in Guatemala owned and operated by wholly owned subsidiaries of Tahoe Resources Inc., a BC-registered company with headquarters in Nevada.² The plaintiffs issued a claim against Tahoe in the BC Supreme Court pleading direct and vicarious liability for battery, as well as negligence. Tahoe brought an application to stay or dismiss the action on the basis that Guatemala was the more appropriate forum to adjudicate the dispute.

The application judge granted Tahoe a stay, finding Guatemala to be clearly the more appropriate forum since the plaintiffs were Guatemalan residents, the evidence was in Spanish, the alleged shootings happened in Guatemala and (importantly) there were two possible channels through which the plaintiffs could obtain civil compensation in Guatemala and that were capable of providing justice to the plaintiffs: an extant criminal proceeding against the security personnel that could result in an order for payment of compensation, and a possible stand-alone civil action. The plaintiffs appealed the stay of their claim, which stay was overturned on appeal thus resuscitating the Canadian proceeding.

The appeal decision

The BC Court of Appeal admitted new evidence showing that, subsequent to the application judge’s decision, the criminal proceeding in Guatemala had been suspended because the accused, a security manager, had fled to Peru. The accused had been arrested in Peru but whether he would be returned to Guatemala to face the charges was uncertain as it depended on Peruvian extradition proceedings. Accordingly, it was not clear if or when the Guatemalan criminal process would resume. The court found this evidence cast doubt on the finding that the Guatemalan criminal proceeding was a more appropriate avenue to determine the dispute.

The Court of Appeal also disagreed with the application judge’s finding that a separate civil suit would be a more appropriate forum than a proceeding in Canada. The court found the application judge did not give adequate consideration to: (1) the limited ability under Guatemalan civil procedure to discover documents in the possession of a foreign company; (2) the expiry of a one-year limitation period under Guatemalan law; and (3) evidence of corruption in the Guatemalan judiciary.

The Court of Appeal further held that the application judge had not applied the correct legal test for assessing the risk of corruption as one of the forum non conveniens factors. The application judge had asked herself whether the foreign forum was “capable of providing justice,” but the court held that the correct legal test is whether there is a “real risk” that the proposed alternative forum would not provide justice.

Considering the evidence, the Court of Appeal also held that, in characterizing the claim as “a personal injury case,” the application judge had failed to give sufficient account to the larger context in which the conflict arose. The court noted the claim arose in a highly politicized environment surrounding the government’s grant of a permit for a large foreign-owned mining operation in rural Guatemala, and found there was a measurable risk that the plaintiffs would encounter difficulty in receiving a fair trial against a powerful international company whose interests aligned with the political interests of the Guatemalan state. The claim, the court held, was “not akin to a traffic accident.”

The court allowed the appeal, dismissed the stay, and allowed the case to proceed toward trial in Canada.

Implications for Canadian companies

Tahoe Resources is the latest in a line of decisions, including Choc v Hudbay Minerals Inc.³and Araya v Nevsun Resources Ltd.,⁴where Canadian courts have demonstrated willingness to assume jurisdiction over claims related to the foreign operations of Canadian mining companies, even where those claims are otherwise unconnected to Canada. Like the claims that survived a summary dismissal motion in Choc v Hudbay, the theory of liability advanced by the plaintiffs in Tahoe Resources was not one of piercing the corporate veil to impose the liability of a subsidiary upon its parent per se. Rather, it was based on the theory that the parent is directly liable for the conduct in question because it is vicariously liable for directions provided by its own employees, and that it was negligent in failing to establish appropriate standards and supervision of the conduct of its subsidiaries.⁵

This trend in Canadian jurisprudence has significant implications for Canadian companies with operations abroad regarding compliance and risk management, particularly for companies that have subsidiaries operating in foreign jurisdictions where local judicial systems may not be robust. Companies must be aware that the actions of their foreign subsidiaries and contractors could become the subject of a Canadian court case and must manage the attendant risks for both liability and reputation. Similar claims are also beginning to appear outside the extractive sector in the context of global supply chains of retail companies, including in relation to the Rana Plaza disaster in Bangladesh.

These cases, global trends promoting adoption of international standards on human rights due diligence such as the UN Guiding Principles and legislation like the UK Modern Slavery Act, highlight the importance of forethought in how human rights risks are managed by Canadian companies.

In this new world of legal risk, Canadian companies should consider:

• what legal obligations exist regarding human rights and international standards that could have bearing on their duty of care for their global operations;
• what voluntary or international standards such as the UN Guiding Principles can affect their legal position and how they should be correctly applied prior to public adoption;⁶
• whether the company is conducting adequate human rights due diligence on international operations, foreign subsidiaries, business partners and supply chains; and
• how transparency and reporting should be handled to meet disclosure expectations (from regulators and stakeholders more broadly) balanced against legal risk mitigation.

The goal is to have a clear understanding of risk so to address the legitimate expectations of shareholders and stakeholders in effective management and mitigation of human rights impacts.

The authors would like to thank Guy White for his assistance in preparing this legal update.

Footnotes

1.  2017 BCCA 39 [Tahoe Resources]. We previously commented on the lower court’s decision: Refusing jurisdiction over claim against Canadian mining company alleging battery abroad by its subsidiary.

2.  Notably, however, and without any discussion of corporate separateness issues, the Court of Appeal described these arrangements as, “Through its wholly owned subsidiaries, Tahoe manages and controls all significant aspects of the operation of the Escobal mine” (at para. 6) although it later observed that, “Tahoe is the parent company of MSR, a Guatemalan company which owns the Escobal mine” (at para. 17).

3.  2013 ONSC.

4.  2016 BCSC 1856. We previously commented on the Nevsun decision: International human rights claim allowed to proceed in Canada cementing legal risks for Canadian companies operating abroad.

5.  Tahoe Resources at paras. 23 – 26.

6.  Among other things, the Court of Appeal cited the plaintiffs’ allegations that Tahoe’s Corporate Social Responsibility policies obliged it to adhere to international humanitarian law and to adopt policies respecting human rights: at paras. 20 – 21 and particularly at para. 26.