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The development of the common law depends on the Bar proposing something new when circumstances require.  I recognize that’s not new thinking.  Denning said it in 1954 and certainly better than me, in Parker: If we never do anything which has not been done before, we shall never get anywhere. The law will stand still while the rest of the world goes on, and that will be bad for both.[i]

Unfortunately, it is not always widely known when developments are being sought.  Consider the recent pursuit of tort actions in Canada, by foreign plaintiffs against Canadian corporations, for acts committed at their mining operations abroad.  While that phenomena has been widely publicized, it is less known that, by doing so, the plaintiffs seek an incremental development of the common law.

Many of the world’s mineral exploration, development and mining companies call Canada home.  Many operate in developing countries where the rule of law is weak or non-existent and human rights protections are dubious (if they don’t already have a rap sheet for human rights abuses).  It’s an amalgam ripe with potential problems, including the potential for corporate complicity in human rights violations.

There are at least three cases currently before Canadian courts in which foreign plaintiffs are seeking a finding that a Canadian mining company has domestic tort liability for alleged abuses of fundamental, internationally-protected human rights at the mine of an operating subsidiary: Choc v Hudbay Minerals Inc., Garcia v Tahoe Resources Inc. and Araya v Nevsun Resources Ltd.[ii]  The common thread among the cases is a novel negligence pleading against the parent Canadian corporation.  In each case, the plaintiffs allege they were harmed at the mine of an operating subsidiary but say the parent, by its conduct and knowledge, owed a direct duty of care to the plaintiffs.

As illustrated in the context of the Nevsun case below (full disclosure, I am on the plaintiffs’ counsel team), the plaintiffs do not propose that a duty at the parent level would exist automatically.  Rather, factual circumstances of control and responsibility would inform the duty by establishing the requisite proximity and foreseeability.  Some colleagues may suggest that a direct duty of care finding would, implicitly at least, constitute an erosion of the doctrine of separate legal identity.  In my view, that is a false argument, out of touch with how the common law has developed elsewhere.

While at least two Canadian courts of first instance, on interlocutory motions, have indicated that a parent company may be directly liable for its own negligent conduct with respect to managing or failing to properly manage the actions of its subsidiaries,[iii] no Canadian court has fully considered the possibility yet.  In contrast, appellate courts in Australia and now the UK have affirmed the possibility and found that a duty can be owed from a parent-entity to an employee of a subsidiary.[iv]

In Australia and the UK, it has been found that the direct duty will exist not because the parent is a shareholder, but because the parent’s involvement in the subsidiary has gone beyond normal incidents of the exercise of shareholder rights.  That is, the parent has brought itself into a relationship with the plaintiffs.[v]

The Economist recently suggested it is a “convenient fiction that different units of multinationals are really separate companies.”[vi]  That may be right.  After all, it is not uncommon that corporate structures are created principally for tax reasons and the parent actually exercises effective control over its distant operating subsidiaries.  In such circumstances, where the evidence supports it, the application of ordinary negligence principles to impose a direct duty of care on a parent-entity should be seen as entirely appropriate.

Take Nevsun, for example. The parent-entity has three inactive Barbadian wholly owned subsidiaries interposed between itself and the operating subsidiary, an Eritrean corporation.  The Federal Court has issued two decisions in a garnishing proceeding involving Nevsun and the State of Eritrea.  In the first decision, a prothonotary of the court found that Nevsun exercises complete control over the revenue generating Eritrean subsidiary and issued a garnishee order against Nevsun.[vii]  The order was overturned by a justice of the court on the basis that control alone is not a recognized legal basis for piercing the corporate veil.  Notably, the appeal proceeded by way of hearing de novo, but the findings of fact pertaining to Nevsun’s complete control were ultimately the same.[viii]

In the Araya v Nevsun case, the plaintiffs claim they were forced to labour in the development of Eritrea’s first commercial gold mine.  They allege their labour was provided to Nevsun (the parent) and its indirectly controlled Eritrean operating subsidiary through two Eritrean parastatal companies.  They say the parastatal companies are documented slavers who rely on a supply of labour extorted under threat of torture, arbitrary detention, imprisonment in inhumane conditions and reprisals against family members.

The plaintiffs allege the economic benefits of their forced labor accrued to Nevsun in Canada; and, the action seeks to hold Nevsun (not its Eritrean operating subsidiary) accountable for its alleged role in the use of forced labour at the mine.  The plaintiffs advance claims based on both traditional common law torts (conversion, battery, unlawful confinement, negligence, conspiracy and intentional infliction of mental distress) and on the basis of breaches of customary international law.

The direct duty of care pleading is similar to those in the Australian and UK authorities, founded on alleged facts speaking to a relationship with the plaintiffs that the parent-entity is said to have brought itself into.  Included are allegations that Nevsun:

  • explicitly adopted international standards by which it undertook to, amongst other things, use commercially reasonable efforts to ensure that contractors were reputable and legitimate enterprises and require contractors to abide by a prohibition on the use of forced labour;
  • made public representations regarding its commitment to prevent the use of forced labour at the mine;
  • had assumed responsibility for the development, implementation and oversight of its corporate social responsibility policies, including at the operating subsidiary level;
  • was responsible for all important decisions regarding the development of the mine, including the selection of contractors and monitoring compliance to ensure they were not military conscript labour;
  • knew that the labourers “employed” were within the sphere of activity impacted by the development of the mine; and
  • knew that by engaging with parastatal companies in a rogue state, which they knew or ought to have known relied on a supply of conscript labour and dealt military discipline, there was a high risk of harm unless Nevsun and the parastatal companies strictly adhered to internationally accepted standards of corporate responsibility.

Nevsun denies the allegations.  It pleads that it had no choice but to use one of the parastatal companies, it denies the presence of the other, and while it previously expressed regret for any forced labour used,[ix] since being sued it has denied that forced labour was used.  Properly, I believe, Nevsun does not deny that the plaintiffs were entitled to the maintenance of their human rights at the mine.  While Nevsun denies that it exercised any control over its Eritrean operating subsidiary, its undertakings and commitments to uphold human rights at the operating subsidiary level might be taken to indicate that the maintenance of human rights at the mine was a responsibility that it assumed.

As mentioned above, Canadian courts have yet to fully consider a direct duty of care pleading in any reported decision, to my knowledge.[x]  However, the absence of controlling authority in Canada should not be seen as an impediment but an opportunity to consider what is, arguably, a reasonable and necessary development of the Canadian common law.  Denning said this in Parker: What is the argument on the other side? Only this: that no case has been found in which it has been done before. That argument does not appeal to me in the least.

As in Parker, the plaintiffs in the Hudbay, Tahoe and Nevsun cases propose something new – recognition that a parent-entity can owe a direct duty of care, in certain circumstances, to those affected by its subsidiary company’s operations.  The rationale for recognizing such a duty is simple: ensuring that parent-entities who have some responsibility for alleged wrongful conduct at the subsidiary level do not escape liability.

Such a duty would be an incremental step.  Consider it a rethink of the application of the neighbour principle in light of how multinational corporate groups sometimes operate; and, consider it a reasonable and responsible development of the Canadian common law in step with Australia and the UK.

Nick Baker
Siskinds LLP
September 30, 2016


 

[i]               Parker v Parker, [1954] All ER 22.

[ii]               Choc v Hudbay Minerals Inc., 2013 ONSC 1414 (plaintiffs allege shooting and rape of indigenous Q’eqchi’ in Guatemala); Garcia v Tahoe Resources Inc., 2015 BCSC 2045 and 2016 BCCA 320 (plaintiffs allege the shooting of peaceful protestors, again in Guatemala); Araya v Nevsun Resources Ltd. Docket: Vancouver; Registry: S148932.  Siskinds LLP, together with Camp Fiorante Matthews Mogerman LLP and James Yap, act for the plaintiffs in the Nevsun case.

[iii]              United Canadian Malt Ltd. v. Outboard Marine Corp. of Canada, (2000) 48 O.R. (3d) 352 (Sup. Ct.); Dreco Energy Services Ltd. v. Wenzel Downhole Tools Ltd., [2008] A.J. No. 758 (QB).

[iv]              CSR Ltd v Wren, (1997) 44 NSWLR 463 (CA); James Hardie & Co Pty Ltd v Hall, (1998) 43 NSWLR 554 (CA); Cape PLC v Chandler, [2012] EWCA Civ 525; Lubbe v Cape Industries PLC, [2000] 1 WLR 1545; Thompson v The Renwick Group PLC, [2014] EWCA Civ 635; Guerrero and others v. Monterrico Metals PLC. [2009] EWHC 2475.  See also Shinkwin v. Quin-Con Ltd. [2000] IESC 27, where the Supreme Court of Ireland held that a sole controlling shareholder owed a duty of care to an employee who had been injured at the workplace of the company.

[v]               Stefan H C Lo, 2014, A Parent Company’s Tort Liability to Employees of a Subsidiary, Journal of International and Comparative Law.

[vi]              The Economist, September 17, 2016, Superstar Company, A giant problem, available online at http://www.economist.com/news/leaders/21707210-rise-corporate-colossus-threatens-both-competition-and-legitimacy-business

[vii]             Delizia Limited v State of Eritrea, 2015 FC 33.

[viii]             Nevsun Resources Ltd. v Delizia Limited, 2016 FC 393.

[ix]              http://www.nevsun.com/news/2013/january11/

[x]               Note that in Choc v Hudbay Minerals Inc., 2013 ONSC 1414, the direct negligence pleading was upheld on a motion to strike.

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