On July 22, 2013, Justice Brown of the Ontario Superior Court of Justice released her decision on whether or not related lawsuits against three mining companies, Hudbay Minerals Inc. (“Hudbay”), HMI Nickel Inc. (“HMI”) and Compañía Guatemalteca de Níquel S.A. (“CGN”), would be permitted to proceed (the “Hudbay Actions”). The defendants brought preliminary motions in March of this year to strike each of the claims on the basis that they disclosed no reasonable cause of action. As discussed below, Justice Brown quite rightly dismissed all three of the defendants’ motions. This is a groundbreaking decision because it will result in the first time that an action is litigated in Canada on the question of whether a Canadian parent company (i.e. Hudbay) can be held liable for the actions of its subsidiaries abroad (i.e. CGN and HMI) and, moreover, it recognizes that such a finding is in fact possible.
Background
Over the past five years, Canadian mining companies have increasingly been thrust into the spotlight for their conduct overseas, including directing or permitting the following types of activities to occur: forcible evictions of indigenous communities from disputed land, contamination of water supply, assassination/disappearance of anti‑mining activists, and rape of local women by private security forces. In the absence of specific legislation in Canada to hold companies to required standards of conduct and weak appetite to pursue crimes committed by prosecutors in host countries such as Guatemala or the Democratic Republic of Congo, there has been little means for victims of these abuses to seek redress.
In the face of demands for greater accountability, the Harper government developed a strategy in 2009 for improving corporate social responsibility in the Canadian‑International extractive sector. This strategy recommends that Canadian companies adhere to the Voluntary Principles on Security and Human Rights which was established in 2000 (the “Principles”), the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights. The Canadian government signed onto the Principles, meaning that it is obliged to implement and promote the Principles and develop an action plan to do so. One aspect of an action plan could be new legislation or ensuring accountability for human rights abuses.
None of the above principles are legally binding; however, they do establish the currently accepted standards of conduct for transnational mining companies and explicitly recognize the obligations of Canadian businesses to respect and protect human rights when doing business in other countries, including conducting risk assessments. These principles will inform any court as to whether a Canadian mining corporation has been negligent and Justice Brown took notice of these standards in her decision when refusing to dismiss the Hudbay Actions. Accordingly, the fact that the Canadian government has at the very least endorsed these principles supports and facilitates legal action.
What happened in Guatemala?
Canadian companies have been present in the El Estor region of Guatemala since the 1960s, when Inco boldly began an open‑pit mining operation there. From the mid ’60s to the early ’80s, the mine was a source of significant conflict because it resulted in forced evictions of Mayan Q’eqchi’ farmers who claimed rights to part of the land, mass violence against protesters and the murder of an indigenous rights activist. Sadly, it appears that history does repeat itself.
Approximately 20 years later, in 2004, a Canadian mining company (the predecessor to HMI), acquired the mine and property in El Estor. In 2006, the Mayan Q’eqchi’ attempted to reclaim and settle the part of the property to which it claimed it had land rights. In January 2007, while HMI was in control of the business, those Mayan Q’eqchi’ farmers were forcibly evicted from the land, hundreds of homes were burned down and 11 women claimed they had been gang raped by uniformed mine security personnel, police and military. This resulted in the first action against Hudbay and its now amalgamated subsidiary, HMI, asserting that the company’s negligence in managing security personnel resulted in violence against those women.
In September 2009, in the context of a further land dispute, the Chief of CGN’s security, Mynor Padilla, allegedly shot and killed Adolfo Ich, an indigenous community leader and mining critic. He also allegedly shot and paralyzed community member German Chub Choc. These incidents resulted in the second and third actions against Hudbay and its subsidiary CGN for negligence in managing the security force and vicarious liability for Mr. Padilla’s actions. The plaintiffs assert, in support of their claims, that Hudbay knew Mr. Padilla had a history of violence, had previously threatened Mayan Q’eqchi’ community members, and that the company’s security personnel were unlicensed and inadequately trained.
The motions to dismiss
If a defendant can show that there is no reasonable cause of action in a claim, the court can dismiss it before it ever proceeds to a trial. This requires the defendant to show that it is “plain and obvious” that the claim is certain to fail — a very difficult test to meet. In March, Hudbay, HMI and CGN attempted to do just that. The defendants’ main arguments were that a) a parent company does not owe a duty of care to the people with whom its subsidiaries interact (because the harm would not be foreseeable and this would be a new category of duty that had not previously been recognized by the courts); b) a parent corporation cannot be held responsible for the actions of its subsidiary because they are separate legal entities; and c) there are policy reasons not to recognize a duty of care, including the fact that private member’s bills on related topics had been defeated and that this would result in a plethora of meritless claims against Canadian companies.
The arguments made by the defendants were weak given the stringent test to meet in a motion to dismiss. First, there exist previous cases where a duty of care has been recognized in similar circumstances. (See United Canadian Malt and Fullowka). For example, in United Canadian Malt, the court refused to dismiss a claim of negligence against an American parent company for environmental harm caused to a Canadian business by the parent corporation’s subsidiary. In addition, the Supreme Court of Canada in Fullowka considered whether a contracted security company and the government could be held liable in negligence for failing to prevent a bombing by a disgruntled employee on strike that killed nine replacement workers. The employer who hired the security company settled the claims against it and the action proceeded against the other defendants. The court’s comments in Fullowka have been widely understood to mean that a corporation could owe a duty of care to prevent harm caused by third parties. A subsidiary could be considered a third party.
Moreover, even if a duty of care had not previously been recognized between a parent company and individuals affected by the actions of its subsidiary, this does not mean that one could not be found to exist by the court now. The duty of care between two parties is established on a case by case basis where it is foreseeable that harm could occur as a result of one’s act or omission and there was a relationship of proximity between the parties. It is entirely possible that the plaintiffs will be able to establish at trial that the harm caused to them was reasonably foreseeable given the history of violence at the mine during past evictions or that security personnel were unlicensed or inadequately trained. Further, they may be able to establish a relationship of proximity to Hudbay if they had a reasonable expectation that Hudbay would take all steps to prevent such harm from occurring based on its public statements regarding security and human rights and Hudbay’s interactions with local community leaders regarding land issues.
Second, the law in Canada and Ontario provides clear exceptions to the separate legal entity rule which would shield a parent from liability for the actions of its subsidiary. Hudbay could be held liable for the actions of its subsidiary if it was acting as its authorized agent and had control over the actions which led to the harm. Hudbay could be found to have acted as CGN’s agent if: it was controlling and directing the security force which committed murder and rape; it represented to the public that it had trained the security personnel; it represented to the public that it was dedicated to promoting and respecting human rights and had implemented the Principles; and it issued directions in relation to land claims and forced evictions without regard to the risks to indigenous community members.
Third, the policy reasons to recognize a duty of care between a Canadian company and individuals harmed by its security personnel at foreign operations appear to significantly outweigh those against it. Indeed, the defendants suggested that this would open a Pandora’s Box and result in a myriad of meritless claims that would burden the judicial system. It seems highly unlikely considering access to justice issues in Canada that the average victim in a developing country would be able to mount a case in Canada against a large corporation. On the other hand, recognizing the duty of care and permitting recourse to victims in Canada’s judicial system would most certainly encourage mining companies to strictly implement and adhere to international norms and standards on preventing human rights abuses in its overseas operations. This would be also consistent with the Harper government’s 2009 CSR strategy and its obligations under the Principles.
Because the plaintiffs’ claims were not certain to fail, the motions to dismiss the Hudbay Actions at this preliminary stage were rejected and the above issues will be argued at trial.
While the plaintiffs in the Hudbay Actions have not won anything yet, this decision represents a victory for advocates of improved corporate social responsibility and those seeking greater accountability and transparency from Canadian corporations in relation to their foreign operations. Canadian corporations should sit up and take notice that they could be held liable for the negligence of their subsidiaries and, if they haven’t done so already, realize it’s time to get going on implementing the Principles.
Iler Campbell LLP is a law firm serving co-ops, not-for-profits, charities, and socially-minded small business and individuals in Ontario.
Pro Bono provides legal information designed to educate and entertain readers. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. While efforts are made to ensure the legal information provided through these columns is useful, we strongly recommend you consult a lawyer for assistance with your particular situation to obtain accurate advice.
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