In this issue:
- Bringing the Fight to Canada
Bringing the Fight to Canada
By: Kyle Magee and Janet Howard
Overview
The recent decision of the Ontario Court of Appeal in the case of Piedra v. Copper Mesa Mining Corporation1 is of interest to Canadian mining companies with foreign operations, their boards of directors and the Canadian stock exchanges on which their securities are listed. Among other issues, the case raises an interesting question as to whether Canada is the proper forum to address wrongs in foreign jurisdictions by agents of Canadian corporations.
In the case of Piedra, the Court considered whether a duty of care was owed to local residents in a community neighbouring an Ecuadorian mine operated by Copper Mesa Mining Corporation ("Copper Mesa"), a junior mining company incorporated in British Columbia with its shares listed on the Toronto Stock Exchange.
Residents in the local community had actively opposed the initial exploration work, concerned that it would lead to the construction of a large-scale open pit copper mine on a site adjacent to the communities where they lived. The Plaintiffs claim they were subjected to a "campaign of intimidation, harassment, threats and violence" allegedly carried out by security forces controlled by Copper Mesa and its agents in response to "widespread and sustained local opposition" to the Ecuadorian project. The allegations included a shooting and repeated threats of death and physical assaults.
The decision of the Court leaves open the possibility that, in the right circumstances, where there are sufficient facts and advance notice to establish that harm to local residents is a foreseeable result of company conduct, the corporate directors may owe a duty to prevent such harm.
The Claims
In the case of Piedra, three Ecuadorian resident Plaintiffs commenced actions in Ontario against each of Copper Mesa, two of the corporation's Ontario resident directors (collectively, the "Copper Mesa Defendants") and the TSX Inc. and the TSX Group Inc. (collectively, the "TSX Defendants"). The Plaintiffs alleged they had been victimized by assaults committed in Ecuador in connection with the company's Ecuadorian mining project.
The total damages sought by the Plaintiffs amounted to approximately $1.6 billion. Following a motion by the defendants, the Ontario Superior Court of Justice dismissed the claims, without leave to amend, on the ground that they disclosed no reasonable cause of action.
It is unclear from the decision itself why the action was commenced in Ontario as opposed to Ecuador. However, internet research suggests that the Plaintiffs were disillusioned by the Ecuadorian judicial system and frustrated that their appeals to local authorities for protection had gone unanswered. Another possible explanation is that the Plaintiffs were attracted to their Toronto based counsel, a firm with a reputation for pursuing similar social justice based claims.
The Appeal
The Plaintiffs appealed the decision to strike the claims to the Ontario Court of Appeal. The Plaintiffs argued that the lower court had erred in holding that neither the Copper Mesa Defendants or the TSX Defendants owed a duty of care to the Plaintiffs for the alleged harms suffered in Ecuador.
On appeal, the Plaintiffs took the position that the three elements needed to establish a duty of care had been met, specifically that: (i) the alleged tortious acts were reasonably foreseeable; (ii) there was sufficient proximity between the Plaintiffs and the Copper Mesa Defendants and the TSX Defendants to ground a duty of care; and (iii) policy considerations supported the imposition of a duty of care in these circumstances.
While the Ontario Court of Appeal ultimately decided there was no duty owed to the Plaintiffs by the Copper Mesa Defendants or the TSX Defendants in the particular circumstances, comments made by the Court in rendering its decision leave open the possibility of similar claims being pursued in Ontario.
As against the TSX defendants, the Plaintiffs argued that the TSX had a duty to refuse listing Copper Mesa's shares since the exchange was aware of the mounting conflict in Ecuador relating to the project. In the alternative the Plaintiffs argued that the TSX had a duty to institute precautionary measures before listing the shares to prevent the risk that the funds raised would be used in connection with the commission of allegedly tortious acts.
The Plaintiffs argued the alleged assaults were reasonably foreseeable on the basis that letters had been written to the exchange forewarning of a "serious risk of future violence" and references in Copper Mesa's prospectus described confrontations that had occurred at the mine site involving the company's security forces.
The Appealed Decision
The Court held that the letters were not sufficient in establishing a connection between the risk of violence and the listing of the company's shares. The Court found that the letters failed to state or imply that the listing would lead to the use of publicly raised funds to finance the deliberate commission of wrongful acts and therefore did not establish the necessary connection to the future risk of violence. Further, the Court found that the disclosure in the prospectus did not support the claim that the Plaintiffs stood to be closely and directly affected by the listing of the company's shares.
Therefore, the Court determined, in the absence of establishing a close and direct connection between the Plaintiffs and the listing, the risk of harm alleged by the Plaintiffs was not reasonably foreseeable and the TSX Defendants did not owe a duty of care to the Plaintiffs in the circumstances.
However, in writing the judgment for the Court of Appeal, Justice Cronk noted:
I do not rule out the possibility that, in a proper case, the risk of future tortious wrongdoings against third parties by a company whose shares are proposed to be listed on the TSE might be found to be reasonably foreseeable to entities like the TSX defendants where it is alleged, on the basis of sufficient material facts, that such entities received specific advance notice of the risk of specific harm attendant on a public securities offering. But that is not this case.
It remains to be seen whether the Court's decision will encourage opposition groups in foreign jurisdictions to engage in campaigns resulting in the bombardment of Canadian stock exchanges with correspondence and materials attempting to establish a connection between funds raised in Canada and the potential commission of harmful acts abroad, in an effort to prevent or forestall a company from being listed. It will also be interesting to consider if the Court's position on the prospectus disclosure might have an impact on the breadth of the description of risk factors relating to the impact of a mine's development on local communities.
As against the two Ontario based directors of the company, the Plaintiffs argued that the directors owed them a duty of care because the directors knew of the climate of unrest surrounding the Ecuadorian project and the nature of violence said to have been perpetrated against community opponents. As a result, the Plaintiffs argued that the directors were personally liable for the alleged assaults on the basis that the directors had a legal duty to "avoid acts or omissions that caused or materially contributed to" the alleged harm.
In attempting to establish the knowledge possessed by the directors, the Plaintiffs pointed to a meeting that had occurred between the directors and a local community member in Toronto which had involved a discussion of the concerns associated with the project and the potential for conflict. The Plaintiffs also referenced the disclosure in the prospectus and other publicly available information which described alleged instances of violence by Canadian mining companies against local opposition groups.
The Court focused on the Plaintiff's selection of the directors as defendants in relation to torts allegedly committed by Copper Mesa suggesting that the Plaintiff's choice "strongly underscores the weakness of any connection between the harms alleged and the directors". The Court also noted the Plaintiffs "have not sued any of the actual perpetrators of the alleged torts, or the operating company involved with the proposed mine in Ecuador or its Barbadian parent company". In concluding that neither the foreseeability or proximity requirements were met to establish a duty of care, the comments made by the Court could be taken to suggest its judgment may have been different had the Plaintiffs had focused their claim against alternate defendants.
As against Copper Mesa, the Plaintiffs asserted that the company was vicariously liable for wrongs allegedly committed by the directors during the course of their duties with the company. The Court concluded that since "the Plaintiffs' claims against Copper Mesa were based solely on vicarious liability, it followed that those claims also failed to disclose a reasonable cause of action".
However, given the decision of the Court in Piedra, it remains to be seen whether a direct claim of negligence against a company in similar circumstances might have more traction in the future and whether the possibility for such a claim might encourage opposition groups to wage aggressive campaigns against the officers of mining companies in an attempt to alert them to the potential for harm that may be caused abroad in connection with foreign mining operations.
The Court's comments in Piedra highlight the Plaintiffs' choice not to pursue the claim through the Ecuadorian courts and implicitly recognizes the Plaintiffs' invitation that the Canadian courts assume an interventionist role in a localized foreign dispute. Should a more appropriate set of facts arise in the future, it will be interesting to see how the Canadian Courts tackle the question of whether Canada is the proper forum to address such claims or whether it will defer and hold that the judiciary where the wrong occurs is best positioned to resolve local disputes.
Footnote
1. 2011 ONCA 191.
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