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Friday, September 13, 2013

New Case May Affect Whether Equator Principles Adoption Creates a Global Duty of Care on Canadian Banks

The recently revised Equator Principles (EP), whose third iteration (“EP III”) took effect on June 4th, 2013, appears to have caused little stir in the Canadian banking legal counsel community. Many legal counsel have never even heard of the EP, even those who structure the deals that the EP apply to. The muted reaction might lead one to believe that the new EP or its predecessors present no significant legal risks for the industry. Alternatively, it may suggest that many of the risks inherent to the EP are poorly understood and risk becoming the next “black swan” that catches legal counsel flat-footed. A case currently being considered in an Ontario court, Choc v. Hudbay 2013 ONSC 1414 could have bearing on those questions and affect the potential legal risks of EPFI and is worth monitoring by banks and their counsel.

In a recent decision, an Ontario court considering this case has allowed a trial to proceed on the question of liability for alleged international human rights violations of a parent company for alleged acts of security personnel employed by a subsidiary in a foreign jurisdiction. The plaintiffs claim that the parent corporation owed a duty of care to the affected community based, in part, on the corporation’s public statements that it had adopted voluntary standards such as the Voluntary Principles on Security and Human Rights.

In allowing the case to proceed to trial, the Ontario court considered the adoption of those voluntary standards as a factor that could affect the proximity between the parent company and the Plaintiffs. If that argument is accepted at trial, it could have bearing on the legal risks associated with the adoption of international codes of conduct like the EP. In particular, the case could establish a precedent that would mean adoption of voluntary standards like the EP creates proximity and a duty of care in relation to communities affected by funded projects that an EPFI oversees. While a lender is not directly analogous to a parent company, there is an analogy in the idea that the adoption and implementation of a voluntary code to manage stakeholder risks creates the proximity necessary to establish a duty of care. The final outcome of this case will therefore be important to monitor for Canadian EPFI wishing to define the nature of their legal risks.  We will continue to monitor these developments in future postings.

More information on this case can be found in earlier posts, here and here.

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