Canada: Corporate Responsibility: What Happens Abroad Doesn't Stay There

Two recent developments portend a rapidly changing environment for Canadian companies doing business abroad.

First, the Supreme Court of Canada will soon decide whether it will hear an appeal by Nevsun Resources Ltd., a British Columbian mining company being sued for its alleged role in human rights violations at an East African mine.

Second, the Minister of International of Trade has announced the creation of a new independent ombudsperson whose mission is to investigate alleged human rights abuses committed by Canadian corporations operating abroad. The Ombudsperson will focus, for the time being, on the mining, garment, and oil and gas industries, with expansion to other sectors at a later date.

1. B.C. Mining Company seeks leave to appeal to the SCC in a landmark case in transnational law

The Canadian mining company Nevsun Resources Ltd. has applied to the Supreme Court of Canada for leave to appeal a decision of the British Columbia Court of Appeal in Araya v. Nevsun Resources Ltd., a case raising a number of novel issues in the emergent area of transnational law.

Transnational law broadly involves the rules, standards and norms – including those of public and private international law – that govern actions or events transcending national borders. Traditionally, Canadian domestic courts have abstained from adjudicating matters involving alleged violations of international law norms occurring in foreign states. This could now be changing, with potentially far reaching consequences for Canadian corporations operating abroad, especially in countries where the rule of law is deficient or non-existent.

In this case, the plaintiffs, a group of Eritrean refugees, allege that the defendant, Nevsun, had entered into a commercial venture with the state of Eritrea for the development of a mine in the east African country. Plaintiffs assert that, to build the mine, Nevsun had engaged corporations controlled by the Eritrean military and the ruling political party. Plaintiffs claim that the military proceeded to force them to work at the mine under threat of torture, physical violence and imprisonment.

The plaintiffs sued Nevsun before the courts of British Columbia, claiming that the company was directly or indirectly complicit in – and liable for – the alleged human rights violations at the mine. Nevsun strongly denies these claims.

Last October, the British Columbia Supreme Court dismissed a series of applications by Nevsun to dismiss the plaintiffs' claims at a preliminary stage. The chambers judge notably (i) declined to strike out plaintiffs' claims based on customary international law; (ii) refused to decline jurisdiction on the ground of forum non conveniens; and (iii) held that the plaintiffs' claims were not barred by the act of state doctrine. (We had previously commented on that decision here.)

In November 2017, the British Columbia Court of Appeal affirmed the ruling of the lower court and held as follows with respect to these key issues:

  • While the Court of Appeal acknowledged that Canadian courts have not yet recognized a civil remedy for breaches of customary international law (such as the prohibition against torture), this does not mean that the Plaintiffs' claims in this regard were "bound to fail", such that they ought to be dismissed before trial. Significantly, without deciding the issue on the merits, the Court of Appeal (Newbury J.A.) remarked that while "the development of the law in this area should be gradual, it may be that an incremental first step would be appropriate in this instance".
  • On the issue of forum non conveniens, the appellate court found that, in spite of the practical difficulties associated with trying the case in British Columbia, the lower court reasonably refused to decline jurisdiction in favour of Eritrea, where there is a real risk of corruption and an unfair trial.
  • Finally, the Court of Appeal found that the act of state doctrine, which essentially precludes a domestic court from adjudicating the validity of acts carried out by a foreign state, does not apply in this case. Nevsun had submitted that the Plaintiffs' claim is at least partly dependent upon establishing wrongful conduct by the State of Eritrea. The Court disagreed, finding that doctrine was inapplicable, and that that several exceptions to the doctrine applied, given the nature and gravity of the alleged acts.

Nevsun has now applied for leave to appeal to the Supreme Court of Canada. Should the SCC decide to hear Nevsun's appeal at this stage, it would ultimately provide direction to Canadian courts in matters involving transnational law in the context of determining corporate liability of Canadian corporations for acts committed abroad.

Whatever the final outcome in the Nevsun case, Canadian courts can be expected to grapple with these novel issues for the foreseeable future.

2. Canada announces the creation of a corporate social responsibility watchdog "with teeth"

Meanwhile, on January 17, 2018, Canada's Minister of International Trade announced the forthcoming appointment of a Canadian Ombudsperson for Responsible Enterprise ("CORE"), an independent ombudsperson whose mission is to investigate allegations of human rights abuses linked to Canadian corporate actions abroad. Initially, the Ombudsperson will cover cases in the mining, garment, and oil and gas industries, with expansion to other sectors at a later date.

The Ombudsperson's mandate, which is to be further outlined though an Order in Council at a later date, will notably address complaints and engage in fact-finding relating to alleged human rights abuses arising from Canadian companies' activities abroad. The Ombudsperson will make recommendations to corporations and then monitor their implementation. Where possible, it will assist in the resolution of disputes between Canadian companies and affected communities abroad.

Significantly, Government has stated that, once appointed, the Ombudsperson will have the "teeth" and the funds to ensure compliance. Where a company does not fully collaborate with an investigation, the Ombudsperson will have the power to compel witnesses and documents.

Investigations and recommendations of the Ombudsperson can be made public, thereby increasing reputational risk.

Further, the Ombudsperson will also have the ability to recommend denying or withdrawing trade advocacy or financial support from Export Development Canada.

The government has also announced the creation of a multi-stakeholder Advisory Body on Responsible Business Conduct, whose role will be to advise the government on matters related corporate social responsibility.

The appointment of the Ombudsperson will not affect a party's rights to bring a lawsuit in Canada for allegations of abuses committed by a Canadian company abroad.

3. Takeaways

In light of these developments, Canadian companies operating abroad should notably:

  • proactively ensure compliance with existing domestic and international rules and standards regarding human rights and social responsibility;
  • be increasingly vigilant with respect to their operations abroad, as well as that of their foreign subsidiaries, agents, third-party service providers, and foreign government actors with which they may partner in specific ventures;
  • when acquiring companies, conduct comprehensive due diligence on potential human rights issues, and provide for related risks of litigation;
  • adopt and implement internal codes of conduct and controls that can adequately detect and mitigate any risks associated with their foreign operations;
  • adopt and implement suitable reporting and internal whistleblowing procedures, so as to prevent, detect and manage any potential human rights violations abroad.

This article originally appeared on The Lawyer's Daily website published by LexisNexis Canada Inc. on February 15, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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