Translate Lex Sustineo

Friday, August 16, 2013

Increased Risks of Liability for International Human Rights Claims Brought in Canada

On July 22, 2013, the Ontario Superior Court of Justice in Choc v. Hudbay Minerals Inc. 2013 ONSC 1414 (the “Hudbay Decision”) dismissed a preliminary motion of the Defendants, Canadian mining company, Hudbay Minerals (Hudbay), thereby allowing the lawsuit against the company to proceed. The claim, which is yet to be proven, alleges Hudbay is responsible for human rights abuses allegedly committed by mine security personnel at Hudbay’s wholly owned and controlled subsidiary, Compania Guatemala de Niquel (CGN), in eastern Guatemala.

As noted, the matter has yet to proceed to trial and none of the allegations raised have yet been proven. That being so, this case has important implications for Canadian businesses operating abroad. In essence, the finding means that a complaint

of international human rights violations against a Canadian company or its subsidiary could have a reasonable prospect of success in a Canadian court. This opens the door for potential Plaintiffs to seek civil damages in Canada against Canadian companies – including mining and energy companies - for alleged human rights violations in their operations outside of Canada.

This article will discuss this decision, related developments in international human rights law affecting the legal playing field and to propose a legal strategy to address these issues before they materialize into legal battles.

The Hudbay Decision

The plaintiffs in the Hudbay Decision are indigenous Mayan Q'eqchi' from El Estor, Guatemala.

The Plaintiffs brought three related actions against Hudbay and its subsidiaries (CGN and HMI Nickel) for alleged human rights abuses at the Fenix mining project, a proposed open-pit nickel mining operation which was at the relevant time owned and operated through CGN.

In response to the claim, Hudbay brought a motion to strike all claims against it based on the basis of (1) expiration of the limitations period, (2) failure to disclose a reasonable cause of action, and, (3) absence of jurisdiction. The Hudbay Decision dismissed all three grounds for striking the lawsuit and allowed the case to proceed to trial.

Under Rule 21 of the Ontario Rules of Civil Procedure, a claim will be dismissed if, on the facts, it is “plain and obvious” that no reasonable cause of action is disclosed. The plaintiffs raised two possible causes of action against Hudbay: (a) supervisory liability for Hudbay as a parent corporation responsible for its subsidiary and (b) direct negligence for Hudbay for the actions of its foreign “agents” (the plaintiffs’ primary claim).

In Ontario, courts may “pierce the corporate veil” and find liability on a parent company for actions of a subsidiary, if the corporation’s subsidiary is found to be completely dominated by it or is being used as a shield for fraudulent conduct or, if the subsidiary is considered an agent of the corporation. Applying these concepts, the Court found that Hudbay was not using CGN as a shield for fraud and thereby disregarded the first exception to separate legal personality.

With regard to the second exception, the Court declared that the Plaintiffs’ allegation of the alleged agency relationship between Hudbay and CGN was not “patently ridiculous or incapable of proof” and therefore must proceed to trial.

The allegations of direct liability for Hudbay were also allowed to proceed. In Ontario law, a duty of care must be owed to the Plaintiffs in order to be found directly negligent for failing to prevent harm. Since the Plaintiffs did not plead an established duty of care, Justice Brown applied the legal test for finding a novel duty of care which requires that: (i) the harm complained of is a reasonably foreseeable consequence of the alleged breach; (ii) there is sufficient proximity between the parties such that imposing a duty of care would not be unjust; and (iii) no policy reasons exist to negate the existence of the duty.

On a Rule 21 motion, however, this test is applied only to determine whether it is “plain and obvious” that no duty of care can be recognized in a particular instance. Since the answer to these questions was viewed by the Court as unclear, and given the existence of “competing policy considerations” which militated in favour of allowing the claim to proceed, the Court allowed the negligence claim against Hudbay to proceed to trial.

The limitations argument and absence of jurisdiction argument of Hudbay was also dismissed by the Court. An exception to the standard limitation period was applied in light of the allegations of sexual assault in the claim. The jurisdictional argument failed on the basis that CGN had conceded that upon failure of the Rule 21 motion to strike, CGN would be a necessary and proper party to the action.

The Hudbay Decision does not establish a clearly enforceable cause of action against Canadian companies accused of human rights violations abroad. However, it does open the door to that possibility. This decision is part of a broader trend in Canadian jurisprudence towards recognizing the possibility of domestic enforcement of international human rights abuses that must be taken seriously by Canadian companies operating abroad.

Trends in Canadian Jurisprudence – Increased Risk of Domestic Enforcement in Canada for International Human Rights Claims

The decision in Hudbay reflects a wider trend in Canadian and international jurisprudence considering whether domestic courts may hear claims against companies in respect of events that occurred abroad.

In April 2011, the Quebec Superior Court of Justice heard a human rights claim brought by The Canadian Association Against Impunity (CAAI) against a Canadian mining company, Anvil Mining Ltd., alleging that Anvil provided logistical support to the Congolese military, which killed over 70 locals during a rebel uprising in 2004.

 In ACCI v Anvil (the Anvil case) the court dismissed a motion to strike the claim brought by the Defendant based on absence of jurisdiction. In so doing, the Court in the Anvil case left the door open for extraterritorial human rights claims against Canadian corporations in Quebec courts.

The Quebec Court of Appeal ultimately overturned that decision and dismissed the case owing to the fact that Anvil’s Montreal office had not been opened until 2005, and as a result could not have been involved in any of the decision-making that led to the massacre. In light of these facts, the court ruled that Quebec was not the appropriate forum to hear the case. Leave to appeal to the Supreme Court of Canada by the Plaintiffs was denied.

The reasoning of the Anvil appeal decision did not specifically address the possibility of a duty of care existing for Canadian companies in relation to human rights violations abroad. As such, the question of whether such a duty of care could exist remained an open question.

In another case, Piedra v. Copper Mesa Mining Corporation (Copper Messa Decision), both Copper Mesa Mining Corporation (Copper Mesa) and the Toronto Stock Exchange (TSX) as well as certain individually named corporate directors were sued for negligence and damages allegedly caused by security forces associated with a mining project in Ecuador. The Defendants brought a successful motion to the Ontario Superior Court have the claims dismissed as disclosing no reasonable cause of action. The decision was Appealed to the Ontario Court of Appeal, but the lower Court decision to dismiss was upheld, primarily on the basis that the Plaintiffs had not properly pleaded the facts that would establish a reasonable prospect of success of the claim against the Defendants.

The Court of Appeal did not shut the door completely on the possibility of a viable claim for human rights violations abroad being brought in Ontario. On the contrary, the Court noted in its concluding comments that “Nothing in these reasons should be taken as undermining the plaintiffs’ rights to seek appropriate redress for those wrongs, assuming they are proven.”

In this context, the Hudbay Decision can be seen as yet another judicial finding that leaves the door open to plaintiffs’ claims in Canada for human rights violations abroad. While no such claims have yet been successful in finding liability or assessing damages against a Canadian corporation, there is a clear trend in the jurisprudence suggesting openness to the possibility that such claims could be sustainable in Canada.

This trend, coupled with global developments, should make corporate counsel take note and consider how international operations can be managed to ensure defensible practices, should this risk of legal action materialize.

Role of International Human Rights Standards

Amidst the judicial considerations of international human rights liability in Canada is a proliferation of standards and emergent codified customs regarding the responsibility of businesses to respect human rights in their global operations.

The Court in the Hudbay Decision addressed submissions of both parties regarding Hudbay’s adoption of the Voluntary Principles on Security and Human Rights (the Voluntary Principles). The Voluntary Principles are a set of guidelines for companies to prevent and address human rights abuses committed in business operations, which requires companies to conduct human rights due diligence.

The Plaintiffs in Hudbay argued that the Voluntary Principles evidenced proximity between the Plaintiffs and Hdbay and that a duty of care was owed by Hudbay in preventing human rights abuses. While the Court did not decide that issue definitively, these facts were relevant to the Court in showing that a possible proximate relationship existed and duty of care owed. The question remains whether, even if a duty of care is found at trial, the adoption of the Voluntary Principles and its requirements for human rights due diligence could also inform the standard of care owed by Hudbay.

The possible enforceability of human rights due diligence commitments adds a new dimension to a broader trend towards recognizing an obligation on businesses to conduct human rights due diligence in their international operations.

The UN Guiding Principles on Business and Human Rights (the Guiding Principles) were unanimously endorsed by the UN Human Rights Council in June 2011. The Guiding Principles, formulated by John Ruggie (the former Special Representative to the UN Secretary General on Business and Human Rights) implement Professor Ruggie’s “Protect, Respect and Remedy” framework. The framework promotes the principles that: (i) states have a duty to protect against human rights abuses by businesses, including multinational companies investing in their jurisdictions or investors which rely on public agency financial support; (ii) businesses have a responsibility to comply with applicable laws and respect human rights; and (iii) there is a need for effective mechanisms to enable victims of human rights abuses to seek redress.

Among other things, the Guiding Principles require businesses to carry out human rights due diligence, which generally requires: (i) the development of a human rights policy; (ii) periodic assessment of actual and potential human rights impacts of business activities and relationships; (iii) integrating commitments and assessments into internal control and oversight systems; and (iv) tracking and reporting of human rights performance.

There has been broad acceptance of the Guiding Principles - including from the business community – which has led to the rapid consolidation of the expectations on businesses in relation to their human rights impact. For example, the revised Equator Principles (EPs) create new requirements for businesses to conduct human rights due diligence in order to qualify for financing from 79 of the largest financial institutions. The EPs apply to all project financing with a value of over $10 million and to certain types of corporate loans, bridge loans and project finance advisory services. The third version of the EPs, which took effect on 4 June 2013, requires signatory financial institutions to ensure their clients comply with the detailed requirements of the International Finance Corporation Performance Standards on Environmental & Social Sustainability (IFC Performance Standards), which are intended to “fill the gaps” of host country laws and regulations on environmental and social issues.

The 2012 version of the IFC Performance Standards specifically requires that human rights due diligence of the type endorsed by the Guiding Principles should be conducted in “limited high risk circumstances”. These trends are being recognized by the Canadian Government.

In 2009, the Harper government formally endorsed the Guiding Principles, the Voluntary Principles and the IFC Performance Standards as part of a strategy for improving corporate social responsibility in the extractive sector. This endorsement coincided with the establishment of the CSR Counsellor for the Extractive Sector, which was set up as an ombuds office to hear complaints from communities affected by the operations of Canadian mining and energy companies.

All OECD States, including Canada, are obliged to adhere to the OECD Guidelines for Multinational Enterprises, which set out principles and standards for multinational companies operating in or from OECD States. The OECD Guidelines were updated in 2011 with a new human rights chapter which is consistent with the Guiding Principles.

The endorsement or adoption of international human rights standards by the Canadian Government suggests a potential policy basis for a Court to find that such standards (and their associated requirements for human rights due diligence) may inform a Court’s assessment of the duty of care of Canadian extractive companies operating abroad.

In order to proactively address such legal risks, Canadian companies are well advised to understand what international standards require and to implement these best practices approaches into their global operations. Doing so may well reduce the risk of human rights violations while also providing a legal defence to any future allegations that a duty of care has been breached.

Conclusions and Legal Strategies:

The significance of the Hudbay Decision should not be overstated, but coupled with international developments in the area of business and human rights, it should not be ignored either. There is a trend towards heightened legal risks for Canadian companies operating abroad to be held responsible in Canada for human rights violations occurring outside of Canada. If Canadian companies are to be proactive in building their legal defence against such allegations, there are certain concrete steps that can be taken.

Applying the prevailing human rights standards, such as the Guiding Principles, business should seek to “know and show” that they respect human rights. This means:

  • Developing Policies: Businesses should embed their responsibility to respect human rights by expressing their commitment in a statement of policy. This can be a stand-alone human rights policy or a statement integrated into existing policies. Such policy should be aligned with other policies across different functions and countries. As businesses find themselves being questioned by investors and other external stakeholders about their commitment to corporate responsibility, there is increasing pressure on businesses to develop and publish a human rights policy. A growing number of businesses are showing their commitment to meet this responsibility by publicising these policies on their websites.
  • Due Diligence: Businesses should carry out periodic human rights due diligence “to identify, prevent, mitigate and account for how they address their adverse human rights impacts.” When carrying out human rights due diligence, the initial step is to identify and assess the nature of the actual and potential adverse human rights impacts with which a business may be involved. This process should draw on internal and/or independent external human rights expertise, and involve meaningful engagement with potentially affected groups and other relevant stakeholders. Human rights due diligence should be initiated as early as possible when developing a new business activity or relationship, as human rights risks may be inherited through mergers or acquisitions and can be increased or mitigated when drafting contracts or agreements. The Guiding Principles require that companies treat the risk of causing or contributing to gross human rights abuses as a legal compliance issue wherever they operate. This means there is a critical role to play by internal and external legal counsel in conducting human rights due diligence.
  • Integrating, tracking and communicating performance: Businesses should integrate the findings from their human rights due diligence across relevant internal functions and processes and take appropriate follow-up actions. Businesses should also track the effectiveness of their response to such findings and be prepared to communicate this to external stakeholders where necessary.
  • Training: Managers and operational personnel should be trained in human rights issues to ensure that company policies are effectively implemented and as part of the integration of human rights diligence into global operations.
  • Investigations: Where risks of human rights violations become known to a company, internal investigations should take place to identify associated risks and potential remedies. By retaining legal counsel to conduct such investigations, legal professional privilege may apply which could limit the disclosure of internal investigation findings should the issue ever become the subject of litigation. If non-lawyers are retained to conduct the investigation, no privilege will apply and any associated reports will be subject to production and disclosure in any future litigation.
  • Remediation and grievance mechanisms: Where a business has caused or contributed to adverse human rights impacts, active engagement in remediation is required by the Guiding Principles. To ensure that grievances are addressed early and remediated directly, businesses can establish an effective operational-level grievance mechanisms for those potentially impacted by the business’ activities. This could allow for disputes to be settled without the need for litigation. Issues of privilege, disclosure and legal risks must be effectively managed in the implementation of these processes, ideally with the effective oversight of legal counsel with understanding of both global human rights standards and legal risk mitigation strategies.

No comments: