The following is a guest post by Marie-Philippe Lavoie, an intern who worked with Tariq Ahmad in the Global Legal Research Directorate of the Law Library of Congress this summer.
The globalization of business has allowed multinational corporations to conduct economic activities that transcend national boundaries. These activities have had both a positive and a negative impact on human lives across the globe. (Sean E.D. Fairhurst & Zoe Thoms, Post-Kiobel v. Royal Dutch Petroleum Co.: Is Canada Poised to Become an Alternative Jurisdiction for Extraterritorial Human Rights Litigation, 52 Alta. L. Rev. 389 (2014).) While corporations have adapted quickly to this shift in business, national legal systems have shown difficulties in providing regulations that adequately allow the states to keep control over business operations that occur in a multiplicity of jurisdictions. These transnational business operations are often conducted through supply chains or through subsidiaries. A supply chain is the network of entities that are involved in the making of the final product sold to customers by the leading corporation. (Mark Stevenson & Martin Spring, Flexibility from a Supply Chain Perspective: Definition and Review, 27(7) Int’l J. Operations & Production Mgmt. 685, 686 (2007).) By conducting their operations through a supply chain and subsidiary, the leading corporations have access to raw materials or to workforces at a lower cost than they could have in their home country, thereby increasing their competitiveness. In this relatively new system of doing business, profits flow to the leading company, but liability for wrongs remains at the bottom of the chain. Although supply chains can be an answer for economic gain, it may also be at the cost of human rights and the environment. (Fairhurst & Thoms, supra, at 401.) These international developments have led some national and international jurisdictions to adopt statutes and guidelines to promote corporate social responsibility in order to ensure that corporations respect human rights abroad and are held liable for wrongs, and to provide victims with adequate remedies.
The majority of corporations operating in the extractive sector are Canadian, with 54% of the world’s mining companies listed on the Toronto Stock Exchange in 2012, which represents more than 1,000 mining companies. (Philip Woram, Are Their Chickens Coming Home to Roost in Ontario: Why Hudbay and Yaiguaje May Signal a New Era of Heightened Liability for the International Extractive Industry, 49 Int’l Law. 243, 244 [vi] (2015).) Though Canada has a reputation of being a peaceful country that advocates for human rights, it does not impose any clear obligation upon its corporations to ensure respect for human rights and the environment through their supply chain and overseas activities. (Penelope Simons, Unsustainable International Law: Transnational Resource Extraction and Violence against Women, 26 Transnat’l L. & Contemp. Probs. 415, 428 (2017).) Canada promotes corporate social responsibility and asks its corporations to conduct their international operations in line with Canadian values. However, the government has not adopted laws similar to the U.S. Alien Tort Statute or the U.S. Dodd-Frank Act, despite coming under frequent criticism for its lack of action by the United Nations. (Chilenye Nwapi, Resource Extraction in the Courtroom: The Significance of Choc v. Hudbay Minerals Inc. for Transitional Justice in Canada, 14 Asper Rev. Int’l Bus. & Trade L. 121, 129 (2014).)
Corporate Social Responsibility in Canada
In the case of Canada, the overseas economic activity of our mining companies is enormous. Attempts at federal legislation have been unsuccessful. In the absence of statutory authority the courts have not yet addressed issues related to globalization and human rights with the sort of boldness and creativity we associate with great judges like Ivan Rand. (Ian Binnie, Judging the Judges: “May They Boldly Go Where Ivan Rand Went Before”, 26 Can. J. L. & Jurisprudence 5, 19 (2013).)
The courts hold an important role in making law: by interpreting of the law, they help establish rights, duties, and protections. Alien tort law and regulations on the environmental and human rights impact of corporations abroad might not have been enacted in Canada, but in the past five years, the Canadian judiciary has taken steps to fill in the gap. Courts have ensured that Canadian corporations do not escape accountability for human rights abuses, environmental crimes, violation of host countries’ laws, or unethical behavior they are directly involved or through an intermediary company they control by profiting from the lack of accountability mechanisms in foreign countries. (Nwapi, supra, at 130-131.)
In this post, I will briefly review three cases in which courts took steps toward the enforcement of corporate social responsibility.
Choc v. Hudbay Minerals Inc.: Parent Corporation’s Duty of Care
[T]ort law should be evolving to accord with globalization, and local communities should not have to suffer without redress when adversely impacted by the business activity of a Canadian corporation operating in their country. […] Ordinary tort doctrine would call for the losses to be allocated to the ultimate cost of the products and borne by the consumers who benefit from them, not disproportionately by the farmers and peasants of the Third World. (Choc v. Hudbay Minerals Inc, para. 73.)
In 2011, Guatemalan citizens commenced three actions before the Ontario Superior Court against Hudbay Minerals Inc. (Hudbay) claiming that the corporation should be held accountable for human rights abuses committed under the Fenix mining project. (Fairhurst & Thoms, supra, at 401.) They alleged that private security guards who were employed by Compañia Guatemalteca De Niquel (CGN), the corporation in charge of the said project, committed acts of violence, rape and murder against civilians during an eviction required for the Fenix mining project. (Choc v. Hudbay Minerals Inc, para. 4). According to the plaintiffs, eleven women were gang-raped by the security personnel; Adolfo Ich, an indigenous leader, was shot in the head during a land dispute; and German Chub Choc was also shot in an unprovoked attack by security guards and is now paralyzed. (Id. paras. 5-7.) At that time, Hudbay owned the Fenix project through its wholly-controlled and 98.2%-owned subsidiary, CGN. (Id. paras. 8-10). The plaintiffs therefore advanced two arguments: the “corporate veil” should be lifted, meaning that they asked the court to set aside the legal distinction between the shareholder (Hudbay) and its subsidiary company (CGN). They also asked the court to find a “duty of care” upon Hudbay. (Id. para. 47.) In order to stay the actions, Hudbay brought three preliminary motions on the ground that there was “no reasonable cause of action.” (Id. para. 1.)
Lifting the Corporate Veil
The criteria allowing the corporate veil to be pierced are strict. The court explained that “the separate identity concept is foundational to Anglo-Canadian law, and applies even where the evidence demonstrates that the corporation has been involved in impropriety.” (Id. para. 47.) There are only two situations in which the corporate veil can be pierced: “where the very use of the corporation is to hide the [impropriety], or when there is an agency relationship in which the corporation acts as an agent under the authorization of its shareholders.” (Id. paras. 47-49.) The latter was found as a possible scenario and led the court to declare that “if the plaintiffs can prove at trial that CGN was Hudbay’s agent at the relevant time, they may be able to lift the corporate veil and hold Hudbay liable. Therefore, the claim based on piercing the corporate veil in the Choc action should be allowed to proceed to trial.” (Id.)
The claim for direct negligence is slightly different from the first one, because the plaintiffs are not asking the court to hold Hudbay directly liable for the wrongs committed by the security guards, but they argued that, by its own inaction, Hudbay failed to prevent the torts and therefore has been directly negligent. (Id. para. 52.) In other words, the court had to examine if Hudbay had a “duty of care” over the situation. According to the test established in Anns v. Merton London Borough Council,  A.C. 728, a parent company has a duty of care when: (1) “the harm complained of is a reasonably foreseeable consequence of the alleged breach; (2) there is sufficient proximity between the parties that it would not be unjust or unfair to impose a duty of care on the defendants; and, (3) there exist no policy reasons to negate or otherwise restrict that duty.” (Id. para. 52.)
The court found that the plaintiffs presented sufficient arguments that, if proven, could affirm that there was a duty of care for the parent company. The court found among other things that “it would have been reasonably foreseeable to Hudbay, […] that authorizing the use of force in response to peaceful opposition from the local community could lead to the security personnel committing violent acts” and that “[public statements] made by the parent company are one factor among others to be considered and are indicative of a relationship of proximity between the defendants and plaintiffs.” (Id. paras. 64-68.) The alleged public statement made by Hudbay is that they “did everything in its power to ensure that the evictions were carried out in the best possible manner while respecting human rights.” (Id. para. 67.) This part of the court ruling is interesting for the future, because it sends a message to parent companies that their public announcements on the work of their supply chains can create expectations from the public and that it would be in their best interest if they act as they said they would.
It is important to keep in mind that in order to analyze the preliminary motion and to ascertain whether the actions should go further, “the plaintiffs’ pleadings are to be taken as proven” and whether or not they will be successfully proven is a matter that will be determined at the trial. (Id. para. 58.) However, in this preliminary motion, the court made it clear that if the pleadings are successfully proven at trial, the court could determine that the parent company has a “duty of care,” which means that it could be held liable for negligence for its subsidiary’s wrongdoing abroad.
Chevron Corp v. Yaiguaje: Recognition of Foreign Judgement
In a world in which businesses, assets, and people cross borders with ease, courts are increasingly called upon to recognize and enforce judgments from other jurisdictions. Sometimes, successful recognition and enforcement in another forum is the only means by which a foreign judgment creditor can obtain its due. (Chevron Corp. v. Yaiguaje, para. 1.)
Ecuador’s Corte Nacional de Justicia has upheld a judgement sentencing the American corporation Chevron to pay $9.51 billion to the indigenous citizens of Lago Agrio, a region in Ecuador where Texaco, a former corporation now merged with Chevron, conducted oil extraction and caused “extensive environmental pollution that has disrupted the lives and jeopardized the futures of its residents.” (Id. para. 4.) However, Chevron refused to pay and does not own any assets in Ecuador, leaving the indigenous citizens without national means to obtain a remedy that they may be entitled to. In 2012, the plaintiffs commenced an action for recognition and enforcement of a foreign judgment before the Ontario Superior Court of Justice against Chevron Canada, a subsidiary of Chevron. (Id. para. 71.) Chevron Canada sought an order declining the competence of the court to permanently stay the action. The motion went up to the Supreme Court of Canada, which confirmed the competence of the Ontario Superior Court of Justice to examine the action. (Id. para. 94.)
Justice Gascon clearly restated the principles governing the recognition and enforcement of a foreign judgement in Canada, insisting on the difference between a substantive action and an action of recognition and enforcement of a pre-existing obligation. (Id. para. 42.) In sum, the foreign “judgement must have been rendered by a court of competent jurisdiction and must be final, and it must be of a nature that the principle of comity requires the domestic court to enforce.” (Id. para. 35.) In his ruling, he explained that the overriding factor to determine jurisdiction is the existence of a “real and substantial connection” between the foreign court and the parties, not between the court seized with an action of recognition and enforcement of foreign judgement and the parties. (Id. para. 33.) Analyzing this “real and substantial connection” only serves the purpose of determining whether the foreign court had jurisdiction and ruled lawfully. (Id. para. 35.) Justice Gascon also pointed out the importance of respecting the power of each state to adopt laws and to enforce them within its own territory through the principle of comity. The principle of comity in international private law “calls for the promotion of order and fairness, an attitude of respect and deference to other states, and a degree of stability and predictability in order to facilitate reciprocity.” (Id. para. 52.) He concluded that Chevron Canada was served in juris (personal service of the originating process within the province or territory of the forum) at its place of business in Mississauga, so in accordance with the provision setting jurisdiction for action in recognition and enforcement of a foreign judgement and therefore the Ontario Superior Court of Justice has jurisdiction to rule over the case. (Id. paras. 75-94.)
Even if the Ontario Superior Court later decided not to enforce the Ecuadorian judgement, the position of the Canadian highest tribunal is clear: the Canadian approach to recognition and enforcement of foreign judgement is generous and liberal and Canadian courts intend to respect foreign authority and to enforce lawful foreign judgements when appropriate. (Id. para. 27.)
Araya v. Nevsun Resources Ltd.: Private Law Obligations Arising From International Law
It is beyond question that companies have the ability to significantly influence human rights around the world for good or for ill. Sometimes influence implies obligation. In light of mounting evidence of corporate complicity in human rights abuses, there is, at the very least, an obligation upon the legal community to clarify the human rights-related duties of companies as a matter of national and international civil and criminal law. (Binnie, supra, at 50.)
In 2014, three Eritreans commenced an action against Nevsun Resources Ltd. (“Nevsun”) in British Columbia on the ground that Nevsun was complicit in the use of forced labor and other human rights violations through Segen Construction. (Jeffrey Bone, Book Review: The Governance Gap: Extractive Industries, Human Rights, and the Home State Advantage, 11 McGill Int’l J. Sust. Dev. L. & Pol’y 357, 366).) The only way for Nevsun to exploit the Bisha mine was to conduct its operations through Segen Construction, a contractor that was imposed by the state of Eritrea. (Id.) Nevsun could not enter the Eritrean territory. The plaintiffs sought damages for “the use of forced labour; torture; slavery; cruel, inhuman or degrading treatment; and crimes against humanity.” (Araya v. Nevsun Resources Ltd., para. 43.) The peculiarity of this case is that a part of the violations claimed found their legal basis in customary international law. (Id.) It is the very first case based directly on international law commenced in Canada. (Bone, supra, at 366.) Nevsun brought five preliminary motions in order to stay the case. (Araya v. Nevsun Resources Ltd., para. 8.) The court dismissed three of them, including the one challenging the use of customary international law as the basis of this civil claim. (Bone, supra, at 375-8.)
Nevsun argued that the prohibitions found in international law do not impose obligations upon private corporations and therefore “do not give rise to a private law cause of action for damages,” even when incorporated into Canadian law. (Araya v. Nevsun Resources Ltd., para. 424.) In its ruling, the court stressed the complexity of customary international law by qualifying it the “most complicated and developing area of the law as it moves to adapt to the ever-changing social and economic conditions of our modern world.” (Id. para. 433.) Customary international law can be defined, in general terms, as rules “drawn from the settled practice of sovereign states” that are clearly observed as binding legal obligations by this community of states and applicable to every sovereign state. (Id. para. 434.)
The court pointed out that there has never been a successful civil claim alleging the breach of customary international law. (Id. para. 445.) However, this does not mean that this type of claim is bound to fail and concluded that the “claims raise arguable, difficult and important points of law and should proceed to trial so that they can be considered in their proper factual and legal context. This is necessary such that the common law and the law of tort may evolve in an appropriate manner.” (Id. para. 486.) The chances of finding a clear prohibition imposed upon private companies arising from customary international law might not seem high, but the court made interesting statements such as “following the common law tradition, […] prohibitive rules of customary international law should be incorporated into domestic law in the absence of conflicting legislation” and “[t]his is even more so where the obligation is jus cogens,“ which the prohibition of forced labor and torture are. (Id. para. 449, 441, 434.) Jus cogens comprises “a set of higher-order international law principles [that] are peremptory norms of international law from which no derogation is permitted” because they are seen as “the most fundamental standards of the international community.” (Id. paras. 437-438.)
The role of the court, in this preliminary motion, was not to decide whether or not there are international law obligations imposed upon private companies, but whether to allow the case to proceed to trial. By allowing so, the court acknowledges the importance of defining the role of customary international law upon private corporations in this modern and global context. Nevsun has appealed this preliminary ruling and the hearing was held on September 25, 2017, but a decision has yet to be issued. If the appeal is dismissed, this important question will be analyzed at trial.
The fight towards adequate protection of human rights in practice concerns a multiplicity of actors within the national and international legal sphere at every level of society. The legislative branch is not the only body with the power to deal with matters relating to human rights. Each branch of government has a role to play and the Canadian courts seem primed to do just that. Ian Binnie, former Justice of the Supreme Court of Canada, has vigorously called on them to do so:
Is it too much to ask that today’s judges rise to the challenges of today’s world with similar vigour? They have done so when the unity of the country was at stake. I have also acknowledged – indeed praised – the importance of judicial restraint where circumstances warrant. In the case of creating some form (and forum) of relief for Third World victims of globalization, however, we seem to have used restraint as an excuse for inertia. (Binnie, supra, at 21.)