Canada: Dodging The Corporate Veil – Recent Attempts To Hold Companies Liable For The Actions Of Their Foreign Subsidiaries

Any Canadian resource company with operations abroad should be aware of the emerging trend of lawsuits against Canadian mining companies seeking damages for the alleged actions of their foreign subsidiaries. Traditionally, such suits have been prevented by the "corporate veil" that insulates a parent company from liability for the actions of its subsidiaries. These latest lawsuits attempt to get around this hurdle by focusing on the Canadian companies public statements regarding their commitment to corporate social responsibility.

The first of these cases in Canada originated in Ontario, with Choc v. Hudbay Minerals Inc. The plaintiffs, indigenous Mayans from Guatemala, sought damages against Hudbay and its subsidiaries for alleged human rights abuses by security personnel at the Guatemalan mine site. Hudbay sought to have the claims summarily dismissed on the ground that it was "plain and obvious" that they disclosed no cause of action. However, in a July 2013 ruling, the Ontario Superior Court of Justice allowed the claims to proceed.

Likely inspired by the Ontario court's willingness to recognize that such claims at least deserve a day in court, two similar actions have now been filed in British Columbia. The first, Garcia v. Tahoe Resources Inc., which also concerns the actions of mine security personnel in Guatemala, was filed in British Columbia  in June 2014 and seeks damages for the alleged shooting of protestors. The second, Araya v. Nevsun Resources Ltd. (filed on November 20, 2014), concerns wide-ranging accusations of use of forced labour, torture, slavery and other human rights abuses at a mine in Eritrea.

As mentioned briefly above, the legal theory advanced in these cases is novel. Rather than seeking to have courts "lift the corporate veil" to hold the parent companies liable for their subsidiaries actions, the plaintiffs instead allege that the companies are directlyliable on traditional tort grounds, such as negligence, battery, and conversion. In order to make a direct link to the Canadian companies, the plaintiffs point to public statements by the companies committing to oversight and the maintenance of certain standards at the mine sites, as well as the companies' adoption of various international standards, such as the 2006 IFC standards on social and environmental performance and the Voluntary Principles on Security and Human Rights.

It must be stressed that these claims have yet to be accepted by a Canadian court. However, in the absence of a definitive ruling precluding such claims – which is unlikely for years, if ever – increasing numbers of similar actions are to be expected.

Accordingly, Canadian companies operating through foreign subsidiaries would be well advised to review their corporate social responsibility commitments and ensure that their actions mesh with their words.

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