Canada: Court Refuses To Hear Corporate-Veil Case

Further to our January 26, 2015 post about recent attempts to hold Canadian parent companies liable for the actions of their foreign subsidiaries, last week the British Columbia Supreme Court declined jurisdiction to hear one such case brought against Tahoe Resources Inc. ("Tahoe") by a group of Guatemalan citizens. The court concluded that Guatemala was the clearly more appropriate forum for the action.

Background

As readers may recall, the facts in Garcia v. Tahoe Resources Inc., 2015 BCSC 2045, concerned the actions of mine security personnel at the Escobal mine in Guatemala. The mine is owned by two subsidiaries of Tahoe. In April 2013, the mine was the site of protests, which were forcibly broken up by mine security personnel. The plaintiffs were all participants in those protests who alleged that they had been shot or otherwise injured in the incident.

What made the lawsuit interesting from a legal perspective was the novel way the plaintiffs attempted to link Tahoe to the abuses that were alleged to have been committed. Rather than seeking to have courts "lift the corporate veil" to hold Tahoe liable for its subsidiaries' actions, the plaintiffs instead alleged that Tahoe was directly liable on the traditional tort grounds of negligence and battery. In order to make a direct link to Tahoe, the plaintiffs pointed to Tahoe's adoption of various international human rights and social responsibility standards. The plaintiffs alleged that these commitments represented acknowledgement by Tahoe that they retained ultimate control over and had responsibility for operations, particularly security practices.

Decision

The plaintiffs' notice of civil claim was filed in Vancouver. Tahoe responded with a forum challenge recognizing that the court had jurisdiction to hear the case because Tahoe was registered in British Columbia, but arguing that the action should be heard in Guatemala. In order to succeed with its application, Tahoe had to convince the court that Guatemala was the "clearly more appropriate" forum.

The plaintiffs' main argument in support of having the action heard in British Columbia was that they could not be assured a fair and impartial trial in Guatemala, as a result of what they characterized as "serious systemic barriers to justice" in the Guatemalan legal system.

The court rejected this argument, concluding that while Guatemala's legal system "may be imperfect, it functions in a meaningful way". The court also held that Canadian courts must proceed extremely cautiously in finding that a foreign court is incapable of providing justice to its own citizens.

Further, the court found that consideration of the comparative expense and convenience for the parties and their witnesses weighed heavily in favour of Guatemala as the forum for the plaintiffs' action for two reasons. First, many of the witnesses and all of the plaintiffs only spoke Spanish and most if not all of the records required to assess the plaintiffs' claims for damages were in Spanish. Obtaining and translating all of this evidence would be a significant challenge if the case as heard in British Columbia. Second, while Tahoe was registered in British Columbia, it did not carry on its operations here. The majority of its personnel and documents were located in Reno, Nevada.

Accordingly, the court declined to take jurisdiction and granted Tahoe's application for a stay.

The full reasons for judgment can be found here. It is not yet known whether the plaintiffs intend to appeal.

Discussion

While a setback for the plaintiffs, the decision was made solely on jurisdictional grounds and did not consider the merits of the case. As a result, the question of whether corporate social responsibility commitments are enough to ground liability for Canadian parent companies remains to be answered in future cases.

In situations where management of the Canadian parent is actually conducted from Canada, it will be significantly harder to convince a court that a foreign jurisdiction is the "clearly more appropriate" forum for the dispute.

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